THIS

November 20, 2017

WAS NOT
AN
ACT OF
GOD,

THIS
WAS
AN
ACT OF
MAN Why the U.S. government ooded a Houston
neighborhood during Hurricane Harvey
p52
 November 20, 2017

5
DHIRAJ SINGH/BLOOMBERG

35  A silk-thread vendor in Varanasi, where Indias cash ban is hurting the trade in gold and silver brocade
 CONTENTS Bloomberg Businessweek November 20, 2017

 IN BRIEF
10 Asian trade talks stall Airbus beats out Boeing in Dubai A general swoon for General Electric Gday, gays!

 REMARKS  VIEW
14 Hungarys Viktor Orbn
12 The unthinkable happens in Zimbabwe. takes on George Soros in
But who will rise after Mugabes fall? a war on academic freedom

BUSINESS TECHNOLOGY FINANCE

1 2 3
17 Extra-special 23 A vow to end bro 29 Equifax mishandled
scrutiny for AT&T culture, from its your databut it may
and Time Warner former poster boy not be liable

19 A shortage of $1.50 saline 25 Endgame, the militarys No.1 30 A good cause that
bags leaves U.S. hospitals choice for cybersecurity makes good tax sense
on the brink of crisis to hedge funds

6 26 Making it easier to spend

20 What are the chaebol hiding
behind their charities?
27
21 Farmers scrambled to raise
cage-free chickens, only
to nd the eggs arent going
over easy
way too much on virtual gear
Innovation: Who needs a
shrink? With Woebot, you
can lie on your own couch
31 How the little-known Bank
of Taizhou became Chinas
most protable lender
33 Dodd-Franks rulebook
standsregulators are just
reading it differently

ECONOMICS POLITICS FOCUS/

4 5 + B-SCHOOLS

35 Indias quest to root 40 Its not easy being 47 Programs today

out tax evaders Theresa May are happy to let
crimps business students build
42 Californias terrible
housing policiesand
their own MBAs
36 Economists are forecasting
epic commutesthwart
steady growth for Europe.
its strong climate laws 48 Our annual ranking of the
Yes, you read that right
best B-schools
43 To fend off grass-roots
37 Putin puts the Baltics
opposition, fossil fuel giants 50 A test that helps women
on notice with a new
roll out their own turf think more of themselves
reactor in Belarus
and do more for themselves

38 Why lounge on a beach?

Come tour the haunts of
Medellns drug lords!
 CONTENTS Bloomberg Businessweek November 20, 2017

PURSUITS How to Contact

FEATURES Bloomberg
Businessweek

79 Tour Taiwan Editorial

212 617-8120
by bicycle Ad Sales
212 617-2900
731 Lexington Ave.,
New York, NY 10022
Email
bwreader
@bloomberg.net
Fax
84 Style: The family 212 617-9065
with a 20/20 vision Subscription Customer
Service URL
businessweekmag
.com/service
Reprints/Permissions
800 290-5460 x100
or email
businessweekreprints
@theygsgroup.com

Letters to the Editor

can be sent by email,
fax, or regular mail.
They should include the
senders address, phone

52 The water is gone, but number(s), and email

address if available.
Connections with the
anger is rising in the subject of the letter

HOUSTON: PHOTOGRAPH BY PHILIP MONTGOMERY FOR BLOOMBERG BUSINESSWEEK. GLASSES: COURTESY MOSCOT. CALDER: ALAMY. MUGABE: JEKESAI NJIKIZANA/GETTY IMAGES.
should be disclosed.

8
Houston neighborhood 86 Critic: A new look at
modern arts socially
We reserve the right to
edit for sense, style,
and space.

sacriced to Harvey mobile genius,

Alexander Calder Follow us on
social media

87 The One: The Mark Facebook

HR startup HiQ wants to Levinson No. 515 facebook.com/

CALDBECK: MICHAEL SHORT/BLOOMBERG. GRYBAUSKAITE: PETRAS MALUKAS/GETTY IMAGES. GUTIERREZ: LUIS EDUARDO NORIEGA A/ZUMA
60 turntable
bloomberg
businessweek/

keep its hands on LinkedIns 88 Game Changer:

Twitter
@BW
Instagram
dataand yours NASAs Victor Luo
will send you into
@bloomberg
businessweek
virtual orbit

66 Centenes surprisingly
protable take-it-or-leave-it Correction:

health insurance plans The Captive Prince (Finance, Nov. 13,

2017) said Prince Alwaleed bin Talal
has a zoo at his palace, but its actually
at his resort on the outskirts of Riyadh.

12 23 37 38

Robert Mugabe Justin Caldbeck Dalia Grybauskaite Federico Gutirrez

Bloomberg Businessweek (USPS 080 900) November 20, 2017 (ISSN 0007-7135) H Issue no. 4547 Published weekly, except one week in January, February, April, July, and August, by
Cover and top left:
Bloomberg L.P. Periodicals postage paid at New York, N.Y., and at additional mailing offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington Photographs by
Avenue, New York, NY 10022. POSTMASTER: Send address changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA 50037-0528. Canada Post Publication Mail Agreement Number Philip Montgomery
41989020. Return undeliverable Canadian addresses to DHL Global Mail, 355 Admiral Blvd., Unit4, Mississauga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulllment.com. QST#1008327064.
Registered for GST as Bloomberg L.P. GST #12829 9898 RT0001. Copyright 2017 Bloomberg L.P. All rights reserved. Title registered in the U.S. Patent Office. Single Copy Sales: Call
for Bloomberg
800 298-9867 or e-mail: busweek@nrmsinc.com. Educational Permissions: Copyright Clearance Center at info@copyright.com. Printed in the U.S.A. CPPAP NUMBER 0414N68830 Businessweek
 IN BRIEF

Asia Europe
More than Recent Asian summits Airbus sold
have produced little progress
500 Iranians and
several Iraqis died
in an earthquake
on trade. Discussions of a
new 11-country Trans-Pacific
Partnership failed to yield a
hoped-for framework, and
$50b
worth of its A320neo
that struck near China-led talks on a rival planes in a deal at the
Regional Comprehensive Dubai Air Show,
the border on the Economic Partnership outdoing a $20 billion
night of Nov. 12. also concluded without deal struck by Boeing. For the first time since
an agreement. 1958, Italys national soccer
team failed to qualify for the
World Cup.

Polands Independence As she struggled to form

Day celebrations were a coalition government in
marred by nationalist Berlin, German Chancellor
demonstrations. Tens of Angela Merkel defended
thousands marched with her countrys use of coal at
10
banners bearing slogans the United Nations climate
such as White Europe meeting in Bonn citing
of brotherly nations and jobs and social questions.
Clean Blood.

Australian voters approved gay marriage, voting 61.6 percent in favor. Prime
Minister Malcolm Turnbull called for Parliament to pass legislation by Christmas.

A North Korean Canadian Prime Minister HSBC Holdings will pay Emmanuel
AUSTRALIA, ITALY: GETTY IMAGES. MYANMAR, AZAR, BARBIE: AP IMAGES. ZIMBABWE: REUTERS

Justin Trudeau visited

soldier was shot
ve times while
Myanmar and discussed
the ongoing expulsion of
the Rohingya people with
300m
($354 million) to settle
Macron invited
Saad Hariri, the
crossing the leader Aung San Suu Kyi, a probe by the French former prime
border to defect whose detractors say has government into its tax minister of
done little to address human compliance procedures.
to the South. rights abuses against the Lebanon, and
As of Nov. 15, embattled Muslim minority. his family to stay
he remained in France.
on life support.

Hariri resigned on Nov. 4

while in Saudi Arabia, citing an
alleged assassination plot.
By Jillian Goodman and Dimitra Kessenides Bloomberg Businessweek November 20, 2017

Americas
After a year of underperforming the market, General Republican Mattel, which just
Electrics stock plunged further after new CEO John Flannery announced a Barbie
proposed a dramatic restructuring of the company. leaders in the modeled on hijab-wearing
U.S. Senate Olympic fencer Ibtihaf
Change since Jan. 1, 2017 Muhammad, enjoyed
GE S&P 500 added a repeal a stock price surge
ge on
25% the news of a possible
of the health-
takeover by Hasbrro.
care individual The dollmaker lateer
0 reportedly rebuffe
ed
mandate to its
the offer.
tax bill, setting up
-25
a reprise of this
summers fraught
-50

1/1/2017 11/14/2017
negotiations.
DATA: COMPILED BY BLOOMBERG

President Trump picked Venezuela rolled out

former Eli Lilly executive Alex
Azar to head the
an actual red carpet for
bondholders who showed
I have a huge deb
U.S. Department
of Health and
up in Caracas on Nov. 13
to discuss restructuring to pay. I have to produce 11
Human Services. the countrys
Drug prices will likely be a oil. I have to make
topic during his confirmation
hearing: Trump has said
pharmaceutical companies
are getting away with
$60b
debt. The same day, S&P
money. Thats the way
murder, but Azar has
echoed a common industry
Global Ratings declared the
country in default.
it works.
argument that other parts of
the supply chain are to blame
Petrobras CEO Pedro Parente in a Nov. 14 interview with Bloomberg,
for rising costs. explaining why the Brazilian state-controlled company would not participate
in OPEC-led production cuts.

Africa
The U.S. launched drone Egypt delayed
strikes in Somalia against
al-Shabab and the Islamic a planned Nov. 15
State, in cooperation with the reopening of its
countrys government.
border with the
Gaza Strip.

Tanks patrolled Harare, Zimbabwes capital, after the military detained

93-year-old President Robert Mugabe, whos led the country since 1980.  12
REMARKS
REMARKS

Who Will
Be the Next
Mugabe?
 REMARKS Bloomberg Businessweek
Military intervention wont
bring about democratic
reform. It simply rearranges
Zimbabwes leadership
By Howard Chua-Eoan
As rebel, revolutionary, Machiavellian manipulator,
and supreme leader, Robert Mugabe has been
the face of Zimbabwe for so long that its almost
impossible to imagine the country without him.
Almost. The impossible finally began to happen
on Nov. 14, when tanks rolled into the capital,
Harare, and the armed forces took custody of
Mugabe and his wife, Grace. Military spokesmen
said they were safe and sound and their security
was guaranteed.
Mugabe has ruled for 37 yearsthe entire
existence of Zimbabwe after the downfall of the
white minority government of what was then called
Rhodesia. In that four-decade period, the economy
has deteriorated from resource-rich breadbasket to
basket case. Violent repression made Zimbabwes
leader a pariah to most of the world. Mugabes visage
became a face loved only by fellow leftist autocrats
and the commodity-hungry Chinese government.
Indeed, Chinese trade to the southern African nation
last year was worth $1.6 billion; Zimbabwes military
maintains close ties with Beijings generals.
More important, despite economic decline and
international isolation, Mugabe was the undisputed
master of Zimbabwe, outmaneuvering several
would-be successors, including the co-leader of
the uprising against white rule, Joshua Nkomo. His
regime appeared to be getting ready for its third
vice president in three years when the military took
possession of the streets and the government tele-
vision station. Mugabe, 93, had been expected to
anoint Grace, 52, as the new vice president.
The fall of Mugabe hasnt led to dancing in the
streets. Its nothing like the developments in the
late 20th century that resulted in the collapse of
the Soviet bloc or the overthrow of Ferdinand
Marcos in the Philippines, where people power
stirred the promise of democratic revival and
reform. The military action, which the generals
refused to call a coup dtat, is the latest chapter
of a bitter fight within Mugabes political regime,
one thats resulted in the president being caught
in his own web of intrigue and betrayal. The leader
of this uprising, General Constantine Chiwenga,
commander of the armed forces, is a close ally of
Graces fiercest rival, the deposed heir apparent,
Emmerson Mnangagwa. A comrade-in-arms of
the president during the fight against the white
regime, Mnangagwa also used to run the countrys
November 20, 2017
fearsome security apparatus. His nickname is
The Crocodile.
As the military took over the state broadcaster,
a spokesman insisted Mugabe wasnt a target. We
are only targeting criminals around him who are
committing crimes that are causing social and
economic suffering in the country in order to bring
them to justice, Major General Sibusiso Moyo said.
It remains to be seen if one of those enemies of
the people will be Grace. A polarizing force, the
first lady has never been shy about her ambitions
or her enmity with Mnangagwa. In recent years,
shes become the center of the youth faction of
Mugabes ruling party. To her husbands annoyance,
Mnangagwas allies repeatedly used this line against
her: Leadership is not sexually transmitted. On
Nov. 6, the president fired Mnangagwa, who fled
the country saying he feared for his life. On Nov. 13,
Chiwenga, whod just returned from a trip to China,
declared, When it comes to matters of protecting
our revolution, the military will not hesitate to step
in. The next day, it did.
Mugabes rule hasnt made it easy for democracy
to sprouteven though the country has democratic
institutions and a viable, if outmaneuvered,
opposition party. Autocrats dont inculcate democ-
racy in their realms. Pressured into elections in the
past, Mugabe has managed to subvert the results
13
and remain in power, proving that democracy
isnt a fruitful path for anyone with real political
ambitions in Zimbabwe. The military intervention
does nothing to change that. The country, writes
Bloomberg View columnist Eli Lake, deserves
better. Its not too late for the military to prepare
for a real transition to democracy and call for elec-
tions. But its almost certain the generals will not.
For now it appears they have paved the way for the
dictator to be replaced by one of his henchmen.
To understand the dynamic of the events in
Harare, a comparison is best made to what hap-
pened in Egypt in 2011, according to Tony Karon,
an anti-apartheid activist in South Africa whos
now an editor at Al Jazeera. While most people
saw a popular uprising overthrow President Hosni
Mubarak, the Egyptian military used the so-called
Arab Spring to make sure Mubarak, whom they
supported, didnt get the opportunity to anoint
ILLUSTRATION BY 731; PHOTO: TSVANGIRAYI MUKWAZHI/AP PHOTO
his son Gamal as his successoreven if they had to
detour their plans through a brief period of Muslim
Brotherhood rule. Zimbabwes military, which has
officers whove trained in Egypt as well as China,
has apparently managed to outmaneuver Mugabes
installation of his wife as his heir.
Why not oust the president completely? That
may yet occur. But Robert Mugabe is still the
historic face of the revolutionand a face-saving
transition may need to take place. The compari-
son this time is to China, where Jiang Qing and the
rest of the Gang of Four were poised to take power
after the death of Jiangs husband, Mao Zedong,
  VIEW Bloomberg Businessweek
the founder of the communist Peoples Republic of China.
After they were foiled and arrested, Hua Guofeng, a transi-
tion figure, was billed by government propagandists as Maos
true ideological heir to explain why his very visible widow
was now completely out of the picture. Deng Xiaoping, the
real mastermind of Jiangs overthrow, eventually took over
the actual reins of power.
In Zimbabwe, those reins are in the hands of Chiwenga
and Mnangagwa. If the past is precedent, their ascent doesnt
promise institutional change. Mnangagwa has been tied to
though hes denied being part ofa bloody purge in the
1980s of the Ndebele ethnic group in the southern part of
the country. The genocide, perpetrated by a brigade trained
by North Koreans, may have killed as many as 20,000 people.
So terrifying were the forces unleashed that hardened opera-
tives of South Africas intelligence services were said to fear
falling into the hands of Zimbabwes security forces. When
I was news director of another magazine, one of our cor-
respondents went to Zimbabwe and was picked up by the
police in a small town in the south for practicing journalism
without permission. Only in the nick of time were we able to
organize his escape before officials from Harare arrived to
November 20, 2017
Mugabe is now at the mercy of his military protectors. He
may yet manage to overcome them. Hes emerged from other
seeming defeats before. But the president has health problems
and is in his dotage. This may be the end of his long run. The
fall of tyrants is always the stuff of morality playsand Mugabe
will provide history with variations on the ancient verities of
absolute power. The more immediate question is: Will the new
masters of Zimbabwe change the country?
Again, according to Karon, the comparison is to Egypt. After
overthrowing the Muslim Brotherhood, General Abdel-Fattah
El-Sisi eventually assumed the presidency and, outlasting inter-
national criticism, became the acceptable face of the country,
one that was more amenable to international investors as the
military that supports him promised stability. Zimbabwe may
try the same with Mnangagwa or another figure.
Thats both a danger and an opportunity. Its a danger
because a broader international embrace of Zimbabwes
leadership will bolster the military and security forces control
of the country. Its an opportunity because the global com-
munity can try to leverage its financial influence to force
structural political reforms. For Zimbabwe, it may not matter
as long as the Chinese love the new face of the nation, whoever
take over his questioning.
14
VIEW
Why George Soros
Rattles Hungarys Orbn
Academic freedom and civil society make it hard for the countrys
prime minister to build a one-party state
Hungarian Prime Minister Viktor Orbns
government likes to portray its conflict
with Central European University as
a mere bureaucratic dispute. It is not.
Orbns campaign against the university
and its founder, billionaire investor
George Soros, carries a darker cast.
Some background: In April, Hungarys
Parliament passed a law requiring that
all foreign universitiesCEU is based in
Budapest but incorporated in New York
statealso have campuses in their home
countries. CEU has just such an arrange-
ment with Bard College in New York, but
the Hungarian government refuses to
recognize it. In October, instead of cer-
tifying CEUs compliance, the Hungarian
that will be. 
government extended the deadline to
2019. The university now faces a year of
uncertainty over its future.
This episode is the latest in the prime
ministers long campaign against opposi-
tion. Over the past seven years hes taken
on the constitution, press freedom, the
rule of law, foreign scholars, the European
Union, and international conglomer-
ates. As next springs parliamentary
elections draw closer and Orbn seeks a
nemesis to motivate his base, his attacks
are intensifying.
One of his main targets is Soros, the
Hungarian migr and philanthropist.
Orbn not only has set his sights on
CEU, but hes also directed Hungarys
To read Conor Sen on the pain ahead
for retail chains and Tyler Cowen on
the changing American art museum,
go to Bloombergview.com
intelligence services to investigate Soross
activities more broadly. An outspoken
supporter of immigration and the humane
treatment of refugees, Soros clearly
rattles Orbn, whos demonized immi-
grants and minorities, built border fences,
and refused to abide by the EUs internal
agreement on refugee quotas.
International criticism of Hungarys
opposition to CEU has been almost
universal. In May the U.S. condemned
the law, which it said places discrimi-
natory, onerous requirements on U.S.-
accredited institutions in Hungary
and threatens academic freedom
and independence.
Hungary should sign the agreement
that allows CEU to continue to operate in
Budapest (the Hungarian government, by
the way, originally negotiated that agree-
ment with New York). And Soros and
other critics of Orbn should continue to
press for more openness and freedom.
The larger question of how Hungary came
to this passhow a once-stalwart U.S. ally
and member of the EU and NATO came
to resemble the repressive communist
regime it once bravely overthrewis for
historians to ponder. Perhaps some of
them might even be at CEU. 
LOOK AHEAD Stockholders of Washington utility On Nov. 22 nancially ailing U.S. retailers will woo consumers
Avista vote on a $5.3 billion bid by Sears Holdings reports its third- with deals for Black Friday, one of
Canadas Hydro One on Nov. 21 quarter earnings the years biggest shopping days
1
The
B

and the
U
S
TALL
SHORT I
of N
HORIZONTAL E
and S 17

S
VERTI C AL
Mergers
The union of AT&T and
Time Warner may not
be a good idea. And that
isnt a political opinion
You dont have to be an ally of President Trump to
have problems with AT&T Inc.s $85 billion bid for
Time Warner Inc., the owner of CNN. Some of the
strongest opposition to the merger is coming from
groups that ordinarily oppose the president.
Trump warned when the deal was proposed in
October 2016 that if elected president he would
block it because its too much concentration
of power in the hands of too few. Trump has
continued attacking CNN since then, but he says
he hasnt pressured the U.S. Department of Justice
to stop the deal.
Organizations such as the Washington Center
forEquitable Growth and the Open Markets Institute
have little sympathy for Trumps tweets attacking
CNN. But they are concerned that the tieup would
harm ordinary Americans by giving AT&T the power
to raise prices and withhold content from rivals.
The proposed merger would turn AT&T into
the nations biggest entertainment company, with
properties including HBO, TBS, TNT, Cartoon
Network, and Warner Bros. Entertainment Inc.
November 20, 2017
People familiar with the discussions told Bloomberg
that officials at Justices antitrust division advised Edited by
AT&T to explore alternatives such as selling Time James E. Ellis and
Dimitra Kessenides
Warners Turner Broadcasting and then forming a
joint venture with the newly separated company. Businessweek.com
  BUSINESS
The department is poised to file a lawsuit to stop
the deal if it cant reach an agreement with AT&T.
The economics of the case revolve around the
difference between horizontal and vertical mergers.
A horizontal merger is between competitors that
occupy the same spot in the value chainsay, two
cable companies. Theyre closely scrutinized by
authorities because they tend to reduce competi-
tion, giving the combined company the opportunity
to raise prices, reduce choice, or both.
Vertical mergers have tended to get lighter treat-
ment because they combine companies at differ-
ent points in the value chain, such as a customer
with its supplier, rather than uniting two compet-
itors. Some have benefited consumers by improv-
ing efficiency and giving the combined company the
incentive to sell more at a lower price. The Justice
Departments 1984 nonhorizontal merger guide-
lines drew on the laissez-faire approach of econo-
mist Milton Friedman, legal scholar Robert Bork,
and others. They asserted that vertical deals, while
not invariably innocuous, are less problematic
than horizontal ones.
As recently as 2011 the Justice Department waved
through a deal very similar to the AT&T-Time Warner
combination: Comcast Corp.s purchase of 51 percent
control of NBCUniversal. The agency did place restric-
tions on Comcasts behavior, such as requiring it to
18
license content to online competitors on the same
terms that more established rivals get. Those con-
straints are already expiring; the last will go away
next September.
But the presumption that vertical mergers are
good for competition has gradually weakened.
Vertical mergers can allow the merged company to
use its power at one stage of the value chain to gain
leverage in other stages, says Steven Salop, an anti-
trust expert at Georgetown University Law Center.
CNN and HBO, among other Time Warner proper-
ties, are must-haves for any video delivery system,
and AT&Ts DirecTV is a video delivery system that
programmers feel they have to appear on.
One risk is that AT&T could raise the price of
Time Warner content or withhold or restrict it from
competitors of its DirecTV business, a practice
known in antitrust circles as foreclosure. AT&T
could also give Time Warners programming
competitors inferior channel position on DirecTV
Big Vertical Mergers, and Two That Failed
2011 2013
Comcast and General Electric Co. and
NBCUniversal Avio SpA
Approved with conditions. Approved with conditions.
Abandoned. Justice said the
Abandoned. Justice
The companies agreed not GE agreed not to interfere in
to interfere with internet Avios contracts to develop jet
subscribers web traffic and to engine components for rival
share NBC programming with Pratt & Whitney.
online rivals.
Bloomberg Businessweek November 20, 2017
or deny them the viewer information they need to Time Warner
target their advertising. Share price
Some of those same concerns were behind AT&T offer price
Justices opposition in 2015 to Comcasts $45 billion
purchase of Time Warner Cable. The government $110
said the combination would make Comcast an
unavoidable gatekeeper for internet-based services
that rely on a broadband connection to reach
consumers. (The deal was abandoned.) 95
Salop, who says he has consulted for a party con-
cerned about the deal, disputes AT&Ts me-too argu-
ment that its merger should get the same treatment as
Comcasts NBCUniversal purchase got. The very fact 80
that the Comcast deal has occurred is a good argu- 10/2/17 11/15/17
ment for not letting through another merger, he says.
Even if the tieup did allow AT&T to bargain more
effectively with another media giantfor example,
in negotiating for each others contentit would
harm smaller companies that arent vertically inte-
grated, says Barry Lynn, executive director of the
Open Markets Institute. Rather than anoint a new
giant, he says, the government should go in the other
direction and break up Comcast and NBCUniversal.
In last months earnings release, AT&T Chief
Executive Officer Randall Stephenson expressed con-
fidence the deal would go through. He said it would
deliver a better entertainment experience for con-
sumers and more effective targeted advertising. But
its no sure thing that AT&T would win if the case
went to trial, says Jennifer Rie, a senior analyst at
Bloomberg Intelligence. The outcome would be
super interesting both to the business world and to
the antitrust community, she says. It would mark
the first time in almost 40 years that an antitrust reg-
ulator sued to block a vertical deal.
If a judge did take the case, Trumps tweets against
CNN could haunt the Justice Department by creating
the appearance that the governments arguments
were politically motivated, whether or not they actu-
ally were. Judges have taken Trumps campaign vows
to ban Muslim immigrants into account in weighing
the administrations attempts to restrict immigration
from predominantly Muslim nations.
Stephenson
AT&T is pressing hard for evidence of interference
from the White House. It intends to seek court
permission for access to communications between
the White House and the Justice Department about
the takeover, according to people familiar with the
DATA: STEVEN SALOP, DANIEL CULLEY; PHOTO: GETTY IMAGES
2015 2016
Comcast and Lam Research Corp. and
Time Warner Cable KLA-Tencor Corp.
merger would make Comcast alleged that Lam would be
an unavoidable gatekeeper for able to reduce its competitors
internet-based services that access to KLA-Tencors
rely on a broadband connection inspection equipment.
to reach consumers.
  BUSINESS
matter, who asked not to be named because the
deliberations are private.
For the country, though, approval of the AT&T-
Time Warner merger shouldnt hang on whether
Trump has a personal vendetta against CNN,
says Mark Cooper, senior fellow at the Consumer
Federation of America. Theres a fundamen-
tal economic question about market power here.
Peter Coy, David McLaughlin, and SaraForden
THE BOTTOM LINE Long-held theories of what makes a merger
beneficial to the overall economy may be tested by the proposed
union of Time Warner and AT&T.
A Dangerous Shortage
Of Saline Bags
A crisis years in the making has
gotten worse after factory disruptions
in Puerto Rico
Small saline-solution bags are ubiquitous in modern
hospitals, cost about $1.50 each, and are the preferred
method for delivering everything from painkillers
and antibiotics to chemotherapy and heart drugs.
The Cleveland Clinic, a top academic medical center,
uses the bags to administer 350different medicines,
typical for hospitals across the country.
But supplies are running dangerously low. A
long-standing problem, the situation worsened when
Hurricane Maria slammed into Puerto Rico, knock-
ing out power at factories that make the small bags
for Baxter International Inc., the products biggest
PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES
supplier. Another large maker of the bags, B. Braun
Medical Inc., is having problems of its ownthe U.S.
Food and Drug Administration is looking into reports
of leaky and moldy intravenous bags. And a third,
ICU Medical Inc., hasnt been able to keep up with
the increased demand. The industry has also been
swept up in a U.S. Department of Justice criminal
probe of possible collusion and price-fixing.
What else is going to run out? says Scott Knoer,
Cleveland Clinics chief pharmacy officer. Im just
Bloomberg Businessweek November 20, 2017
scared of whats next. Hospital staffs across the
country are living the same nightmare. I find it
shocking that in the richest country in the world we
run out of fundamental, basic supplies, says Martha
Kuhl, an oncology nurse at UCSF Benioff Childrens
Hospital Oakland.
Its a crisis thats been years in the making. Lacking
the appeal of the latest $100,000 wonder drug, basic
hospital supplies with thin profit margins are low
priorities for a consolidating pharma industry that
has failed to modernize outmoded factories or ramp
up supply. In August, Braun Medical instructed cus-
tomers to seek alternatives in the wake of what it
called unplanned production interruptions at its
IV-solutions factories.
That was three months after the FDA slapped the
company with a warning letter for repeat violations
after it failed to correct quality problems resulting in
leaky and contaminated intravenous bags at its Irvine,
Calif., plant. Braun didnt respond to requests for
comment, but in a letter posted on the FDA website
it promised improvements in the coming weeks and
months. Baxter says power has been restored at all
but one of its Puerto Rico plants.
The FDA says its working to alleviate shortages,
allowing temporary imports and speeding up reviews
for drugmakers seeking to make IV fluids, according
to Valerie Jensen, an associate director at the FDAs
19
Center for Drug Evaluation and Research. That may
not be enough. The shortages put the system on
the brink of a significant public health crisis, the
American Hospital Association warned in a Nov. 9
letter to Congress.
A bigger shadow looms over the industry. The
Justice Department has launched a criminal investiga-
tion into the business practices of saline bag produc-
ers. In April, following an earlier class action alleging
price-fixing, Baxter disclosed it was subpoenaed in
an ongoing government probe into shortages of intra- I nd it
venous solutions, including saline. The investigation shocking that
follows a 2015 letter from a group of U.S. senators
citing reports that prices had tripled during earlier
in the richest
saline shortages and calling for the Federal Trade country in
Commission to look into possible price-fixing among the world
Baxter, Braun, and Hospira Infusion SystemsPfizer we run out of
Inc.s former saline and IV-fluids unit, now owned by
ICU Medical. Baxter says its cooperating with the
fundamental,
Justice Department probe. basic
ICU Medical says it believes the investiga- supplies
tion focuses on a time frame prior to its owner-
ship of the business. Pfizer says its coordinating
withICU Medical to produce records for the Justice
Department.
Its not just saline bags that are in short supply.
Inventories are running low on 174 drugs, accord-
ing to Erin Fox, director of the drug information
service at University of Utah Health. That leaves
little margin for error when an unforeseen event,
like a hurricane, throws production into disarray.
Other scarce hospital staples include syringes
  BUSINESS
of sodium bicarbonatethe ingredient in baking
sodaused for heart attack patients, and certain
injected forms of morphine.
Pfizers Hospira unit, which makes both types
of products, has been plagued by factory quality-
control problems for years, leading to shortages of
various drugs. The factories are taking a little bit
longer to remediate than we thought, Pfizer Chief
Financial Officer Frank DAmelio said on a recent
conference call with analysts, promising to fix most
of the issues by the end of 2018. As a result of the
problems, Pfizers sales of injected hospital drugs
declined 12percent in the third quarter.
Finding alternatives to injectables isnt easy.
While some drugs can be taken orally and others
administered through a syringe, its expensive and
time-consuming to change hospitals operating
procedures. The more a workflow is changed, the
greater the chances of medication errors, nurses
and pharmacists say.
UW Health, the hospital system affiliated with
the University of Wisconsin at Madison, is spending
Chaebol Foundations
20
Face Scrutiny
A tumultuous year for Samsung Group and other
conglomerates threatens to get worse as South
Koreas competition authority, the Korea Fair Trade
Commission, probes whether their founding families
use the cloak of charity to maintain power without
having to pay billions of dollars in taxes.
When the new conglomerates bureau of the com-
mission starts operating in December, its first order
of business will be auditing the family foundations of
the countrys biggest conglomerates, or chaebol. If
foundations are found to be abusing the purpose of
their establishment, we will consider ways to regulate
them, says Kim Sang-jo, the commission chairman.
Foundations created by Koreas corporate giants
hold about 12.9 trillion won ($11.5 billion), according
to national tax service data analyzed by Bloomberg.
Questions have long swirled around the groups and
their donations. Lawmakers say the organizations
have allowed the wealthy and powerful families
behind Samsung Group, Hyundai Motor Group,
Lotte Group, and others to further enrich them-
selves while not doing enough for the public inter-
est. Critics, including Kim, allege the families use
the tax-exempt entities to accumulate shares in
their own companies and secure multigenerational
control without paying inheritance taxes.
We will look into what kind of assets they have,
how much revenue they raise, and how much they
are actually spending for public activities, says
Bloomberg Businessweek November 20, 2017
$1 million on alternatives to Baxters saline bags,
including renting hundreds of drug pumps that can
deliver medicines via syringe and buying other drugs
in premixed bags, says Philip Trapskin, UWs program
director for medication use strategy.
Injected drugs are harder to produce than pills
because they must be made under sterile conditions.
They account for 72 percent of the countrys drug
shortages, according to a January report from Pew
Charitable Trusts and the International Society for
Pharmaceutical Engineering. The report cited factory
quality-control problems and companies withdraw-
ing from the market.
I cant believe that one plant in only one place
makes so much of a critical product that every hospi-
tal needs to function, says Fox of University of Utah
Health, referring to Baxters hurricane-hit operations.
We have all hands on deck every day. Its a logistics
nightmare. Robert Langreth and Cynthia Koons
THE BOTTOM LINE Industry consolidation and other problems
have caused a critical shortage in the U.S. of simple hospital
necessities such as injectable drugs and bags of saline solution.
South Koreas competition
authority will start auditing the
charities in December
Kim, a former economics professor and activist
shareholder nicknamed the chaebol sniper for
his work targeting powerful companies. The busi-
nesses helped rebuild the nation in the decades after
the Korean War but bred a culture of corruption in
the process. Today the top 10 chaebol own more
than 27 percent of all business assets in South Korea.
Kim is President Moon Jae-ins point man for
reform. He was appointed chair of the Fair Trade
Commission in May soon after Moons election and
has committed to making good on the presidents
anticorruption promises. In early November, Kim
met in Seoul with leaders from five conglomerates  Kim, fourth from left,
at a Seoul meeting
Samsung, Hyundai, SK Group, LG Group, and Lotte with chaebol leaders
warning that his agency would soon start auditing on Nov. 2
SEONGJOON CHO/BLOOMBERG
  BUSINESS

Trends Cage-Free Eggs

the foundations, as well as the businesses. He prom-
ised to scrutinize those that have received tax bene- So much for socially conscious buyers.
fits and crack down on activities that go against the
foundations stated missions.
Demand for eggs from chickens with room
Theyre demonstrating that they really have the to roam isnt all it was cracked up to be.
power to make life miserable for those guys, Scott
Seaman, director for Asia at the Eurasia Group in
Washington, says of the government crackdown.
The charities are probably an excellent place to
look for impropriety.
Last year, South Koreas 40 biggest corporate-
backed foundations gave a combined 641 billion
won, or 4.9 percent, of their 12.9 trillionwon to art
museums, hospitals, schools, and programs that help
North Korean defectors. Thats not enough support
for charitable causes, says Park Yong-jin, a National
Assembly member from Moons party. While not offi-
cially part of the conglomerates, the charitable groups
are often run by family members or company execu-
tives, making them reliable allies against challenges
from minority shareholders. The assets of most foun-
dations consist largely of shares with voting rights in
chaebol-affiliated companies.
Companies donate shares with voting rights to After the likes of McDonalds 1 square foot per 1.5 square feet
charitable foundations as a way to protect their man- hen in cage-free per hen in single-
Corp.andWal-Mart Stores Inc.in multitiered aviaries oor aviaries
agement rights without paying taxes, says Bruce recent years pledged to switch
Lee, chief executive officer of Zebra Investment U.S. outlets to cage-free eggs
Management in Seoul. Park, the lawmaker, has pro- laid by hens not conned to tiny 21
posed legislation to strip the foundations of their spacesmany farmers started Medium
voting rights. building roomier coops (above). Dominos pizza
Nonprofit foundations have figured in recent polit- Eggs from chickens with room to 67 sq. in.
ical scandals that led to a conviction in August of spread their wings taste better (recommended
Jay Y. Lee, co-vice chairman of Samsung Electronics by some accounts. Theyre also minimum for a
Co., and the impeachment of former South Korea caged hen)
a salve for shoppers interested in
President Park Geun-hye in March. The ex-president humane treatment of the animals
had been charged with pressuring chaebol leaders headed for their kitchen tables.
to donate billions of won to foundations run by a
confidante and friend in return for government

*INCLUDES CONVENIENCE STORES, DOLLAR STORES, HOSPITALS, AND TRAVEL; DATA: USDA, EGG INDUSTRY CENTER
favors. Samsung took part in the scheme, according Cage-free eggs needed But the self-imposed dead-
to prosecutors, to win government approval of the  Grocers 60b
lines to complete the
2015 merger of two affiliates. When regulators forced  Restaurants changeover for many of the
Samsung to sell shares of one of its units, a founda-  Distributors biggest retailers and restau-
tion chaired by Lee purchased the shares, keeping  Food manufacturing rants are at least eight years
them under family control.  Other* 30
away. And many shoppers
Samsung has three foundations that had about are drawn to cheaper prod-
3 trillion won combined last year, according to ucts, given the current hefty
tax office data. Their philanthropic contributions retail premiumup to six
PROJECTIONS; CAGE SPACE GUIDELINES BY UNITED EGG PRODUCERS

totaled about 48.1 billion won, or 1.6 percent of 0

assets. By comparison, the largest U.S. foundation,
the Bill & Melinda Gates Foundation, made gifts
totaling $4.6 billion, or 11 percent, of its endowment
last year. Samsungs foundations didnt respond
to requests for comment. The chaebols char-
itable entities are public foundations in name
only, says Chung Sun-sup, CEO of corporate anal-
ysis firm Chaebul.com. Sohee Kim, Yoojung Lee,
andBruceEinhorn
GETTY IMAGES
times more than eggs from
2016 2028 caged hens in the Midwest.
Its been bad, says Marcus Rust, chief executive officer of
Seymour, Ind.-based Rose Acre Farms Inc., the second-largest U.S.
egg producer. The company spent $250 million over four years to
upgrade conditions; today about 20 percent of its hens are cage-
free. Now, Rose Acre is shutting down its construction program.
Says Rust: We are going to be in a holding mode until retail pays a

THE BOTTOM LINE South Koreas chaebol reformer is

warranted price. Shruti Date Singh
reviewing charitable spending by the foundations of the
countrys biggestconglomerates.
 LOOK AHEAD Salesforce.com reports earnings,
the rst test of its goal to lift revenue
by at least 138 percent in ve years
Serial Harasser.
Disgraced Venture Capitalist.
Motivational Speaker?
A few months ago, Justin
Caldbeck went into hiding.
Hes not most peoples rst pick
for the college lecture circuit
Justin Caldbeck didnt want to be this kind of
pioneer. In June he resigned from his job running
Binary Capital LLC after six women accused him
on the tech news site the Information of unwanted
sexual advances. Like many of the powerful tech
and media men whose careers have imploded under
similar circumstances in the months since, Caldbeck
ICHAEL SHORT/BLOOMBERG
at first fought the allegations and even denied the
initial news reports. Within a few days, though,
he stepped down and began to express remorse.
He was being serious, he says, when he changed his
title on LinkedIn to read, Head of Self-Reflection,
Hardware companies and banks Earnings at hardware-focused
descend on London for the annual HP Inc. are likely to keep outshining
FinTech World Forum services-focused HP Enterprise
2
T
E
C
H
N
O
L 23
O
G
Accountability & Change, a move that brought wide-
spread derision.
Since then, Caldbeck has mostly stayed home in
Y
Hillsborough, Calif., south of San Francisco, espe-
cially after a fellow diner at a local restaurant called
him a predator to his face. He continues to enjoy a
share of Binarys profits as a co-owner of the venture
capital firm, according to a person familiar with
the matter. Close to five months since the news of
the accusations broke, hes still drafting letters of
apology to the women who agreed to be named by
the Information, plus five or six more. I made more
mistakes than the ones that were reported, he says.
Before sending any letters, however, Caldbeck is
attempting a post-scandal comeback. The 41-year-old
says hes changed enough over the past few months
to educate young men about the dangers of bro November 20, 2017
culture in the workplace, using a website hes devel-
oping and a 51-slide PowerPoint presentation he deliv- Edited by
Jeff Muskus
ered for the first time on Nov. 9 to 50 students in a
finance class at Duke University, his alma mater. Businessweek.com
  TECHNOLOGY
The lecture was free, he says, the first stop on what
he hopes will be a lengthy tour of colleges that can
create positive change for women by educating
young men about how to be better.
Caldbecks named accusers declined to comment.
Women who are working to tackle employment dis-
crimination issues say theyre more than a little skep-
tical of his apology tour. Im not sure if what hes
working on is coming out of a place of deep reflection
and wanting to improve the industry or wanting to
reform his image enough to keep doing what he was
doing before, says Tracy Chou, a software engineer
and co-founder of Project Include, an organization
that promotes diversity within tech companies. (Chou
says she wasnt speaking on behalf of Project Include.)
The accounts from Caldbecks six accusers include
a broad range of sexual harassment. Hed ask pro-
fessional acquaintancesincluding startup founders
seeking Binary fundingabout their sexual histories,
grope them under the table during meetings, invite
them to his hotel room, and proposition them for
sex. Another entrepreneur told the New York Times
that Caldbeck kissed and groped her after investing
in her startup. (As with similar cases revealed in the
past few months, law enforcement officials havent
filed criminal charges against Caldbeck.) Shortly after
the first wave of news reports in June, a former Binary
employee sued the firm, saying Caldbeck and his busi-
24
ness partner created a sexist and sexual environ-
ment and threatened her after she quit.
Caldbeck hadnt exactly found religion by then,
either. The day the Information broke the news of
the allegations against him, he texted the reporter,
Go f---yourself and publicly claimed to have unim-
peachably professional relationships with women. In
July, even after publicly acknowledging his history
of harassment, he sent Niniane Wang, one of his
accusers, a cease-and-desist letter telling her to stop
making supposedly false statements about him. He
now says hes sought counsel from women, includ-
ing feedback for his anti-bro-culture campaign, but
he wouldnt provide details.
At Duke, Caldbeck told the finance students hes
lost tens of millions of dollars because he wasnt
nearly aware enough of my position of authority
and was behaving hurtfully, disrespectfully, putting
women in tough situations. While there are men in
Silicon Valley and elsewhere whose sexual miscon-
duct is malicious, he said, he was one of many who
just didnt understand what he was doing or how
women felt, a pattern he traces back to college, where
dating lots of women was perceived as a good thing.
There was no notion in college, in business
school, really anywhere, of like, hey, this behavior,
its really serious in the workforce, Caldbeck said in
an interview ahead of his Duke visit.
Leaving aside the question of whether a 41-year-
old man should know that its wrong to proposi-
tion potential business partnersor sexually assault
anyoneCaldbecks presentation is missing several
Bloomberg Businessweek November 20, 2017
key ingredients, according to women who work on
employment diversity and discrimination issues.
You need to have men and women involved and
on that stage, says Lisa Wang, chief executive
officer of SheWorx, a community for female entre-
preneurs. Nicole Sanchez, who advises tech compa-
nies on human resources matters as the head of Vaya
Consulting LLC, says meaningful change requires a lot
more than broad statements about right and wrong.
Its easy to say, Stop perpetuating bro culture, but
without saying how and what to put in its place, its
not helpful, she says.
Eleanor McManus, an expert in crisis public
relations at PR firm Trident DMG, says Caldbecks
conversion sounds a lot like the stage-managed reha-
bilitation efforts of con men Jordan Belfort (The Wolf
of Wall Street) and Frank Abagnale Jr. (Catch Me if
You Can), men who had to be played onscreen by
Leonardo DiCaprio to win a modicum of sympathy.
This is Crisis Management 101, McManus says.
Once something horrible happens, you go and you
take that issue and stand behind it, speak out about
it. Caldbeck says he hasnt worked with anyone in
crisis management and that he simply thinks talking
about harassment is how he can do the most good.
For now, Caldbecks other options seem limited. Im not sure
He and his Binary co-founder, Jonathan Teo, are in if what hes
discussions with investors on how to replace them
working on is
both, says the person familiar with the matter. (Teo
hasnt been accused of sexual misconduct.) That coming out of
doesnt mean Caldbeck will be poor. Hell keep a place of deep
getting a share of the profits from the startups he reection
backed at Binary and his previous firm, Lightspeed
Venture Partners. Those companies include Stitch
Fix Inc., an online personal-shopping service, which
has filed for an initial public offering. Stitch Fix CEO
Katrina Lake asked for Caldbeck to be removed as
an observer on the board after his behavior made
her uncomfortable, according to technology news
site Recode. Lake declined to comment for this story.
Similar allegations at other companies keep
coming. On Nov. 13, Steve Jurvetson, a founding
partner at venture firm Draper Fisher Jurvetson,
left his job for unspecified reasons during a sexual
harassment investigation. ( Jurvetson said on Twitter
that he left to focus on personal matters, including
legal action against those whose false statements have
defamed me.) Whether youre a technology profes-
sional or an aspiring venture capitalist, it remains
difficult to see Caldbecks example as instructive,
says Chou, the Project Include co-founder. There
are others, she says, who could better use a mega-
phone. Other people are completely locked out of
a system that is so biased and structurally flawed,
she says. Its frustrating to think that someone who
has done a lot of bad things gets a second chance.
Ellen Huet
THE BOTTOM LINE Caldbeck says he wants to give more
lectures, but he has yet to write his apology letters, including to a
handful of women whose harassment has gone unreported.
  TECHNOLOGY Bloomberg Businessweek November 20, 2017

Gaming LLC. About 200,000 new people buy virtual

Designing a One-Stop
Virtual-Item Shop
OPSkins team supplies digital tokens
worth real cash to buy video game loot
Sam Alexander has spent days at a time in front of the
three giant monitors hooked up to his PC in London,
comparison-shopping for skins, decorations for
virtual guns and knives. In games such as the popular
shooter Counter-Strike: Global Offensive, the most
sought-after skins confer the kind of prestige that
a Rolex watch or Herms bag would on the street
and can sell for more than $100,000 in real-world
cash. But because there are dozens of skins market-
places online, it can be tough to tell if youre getting
the lowest price; people like Alexander have made
a brisk business comparison-shopping on behalf of
rich clients. Alexander, 21, says hes earned more
than an average person makes in a year from com-
missions he negotiates with each buyer.
Its difficult for them to find the exact items
that they wanttheres no centralized database, he
says. His customers also struggle often with payment
methods at the main online venues. Many of the col-
lectors with whom I work are located in China. It is
difficult for them to transfer money out.
OPSkins, the largest skins site in the $50 billion
market, may be about to put people such as Alexander
out of business. The two-year-old company says its
raised about $41 million by selling what it calls WAX
tokens, a virtual currency that will become the default
way to buy and sell skins on its intercompany skins
DATA: OPSKINS, WORLDWIDE ASSET EXCHANGE; COURTESY OPSKINS
items through OPSkins each month, but the site sells
gear for online games with more than 125 million
regular players.
This could be the perfect on-ramp, says inves-
tor Scott Walker, who helped fund the initial coin
offering, or ICO. Early investors are getting more
WAX tokens for their money, but their value will
become another variable once the exchange goes
live in December.
OPSkins doesnt disclose its financials, but its
revenue is growing at double digits annually, says  Rare skins, virtual
CasSelle, previously chief technology officer at paint jobs for guns in
Tronc Inc., the former Tribune Co. Partly, he says, the game Counter-
Strike, can sell for more
the WAX token strategy is a way to stave off com- than $100,000 in real-
petitors. Over the past few months, rivals including world cash
DMarket, KyberNetwork, and SkinCoin have held
ICOs to launch or expand their services. So far, no
other trader has the muscle to create the kind of
intercompany exchange OPSkins is building. Starting
next year, websites that install the WAX widget will
get as-yet-undetermined fees for resulting sales.
The volatility of the WAX token price may make
it a poor place to hold money not being used for
short-term item buying and selling. But OPSkins
biggest potential roadblock is the maker of the games.
Industry leader Valve Corp., which publishes Counter-
Strike: Global Offensive and the other big hits OPSkins
25
exploits, has the power to ban sites from trading
skins. Last year, Valve sent cease-and-desist letters to
23 online gambling sites to prevent them from using
skins as collateral, a move aimed at reducing teenage
gambling on professional video game matches. Valve
has certainly left the door open to an action in the
future, says Grove, the Eilers researcher.
CasSelle says that the new exchange can work
without Valves help, including as a way to acquire
other virtual goods, and that OPSkins is looking to
raise an additional $7 million in WAX tokens before
it finishes its ICO on Nov. 28. (The company ini-
tially sought a total of $63 million but lowered that
goal because the flurry of interest around bitcoin
Shaping the WAX
The marketplace for the new cryptocurrency tokens
lets buyers and sellers barter directly for virtual goods

marketplace, the Worldwide Asset eXchange. The

idea is to simplify purchases for gamers from differ- A player who has The seller lists the A buyer or WAX-
a virtual item, such as item on the exchange, approved transfer
ent countries and give everyone a clearer sense of a rare decoration for its asking price shown agent spots the listing
what a particular item is worth, using the same kind Transfer
a weapon in Counter- in terms of WAX tokens and contacts the seller
agent
of digital-ledger system as the cryptocurrency bitcoin. Strike: Global Offensive,
The blockchain-
wants to sell it
The company is betting that making its exchange Asset returned based exchange
No
accessible to rivals, who can then make a broader securely transfers both
the item and the tokens
catalog available to customers, will expand its audi- to their new owners
ence beyond the limitations of an individual website, Seller WAX
Virtual Offer
skin accepted?
says Chief Information Officer Malcolm CasSelle,
whos helping lead the WAX effort. In theory, theres
lots of room for new skins buyers, says Chris Grove, Buyer
Yes
managing director at researcher Eilers & Krejcik Payment Asset transfer
  TECHNOLOGY
and its spiking value has diverted attention from
ICOs.) Alexander, the personal shopper for virtual
goods, says he thinks the exchange will be good for
people like him in the short term, swelling the overall
market for skins. It makes the entire process effort-
less, he says. It is a massive pain dealing with the
payment methods available at the moment. But
hes hedging his bets, having returned to college to
finish his degree in economics. He says he eventu-
ally wants to get a job in finance or start his own busi-
ness. Olga Kharif
THE BOTTOM LINE OPSkins has raised about $41 million to
simplify the item-buying process for superfans of Counter-Strike:
Global Offensive and other games.
The Militarys
Cybercontractor
Of Choice
In a hot security software market,
Endgame has the Pentagons ear
26
Old-school firewalls and antivirus software try to
block or at least detect hackers, but when those
systems fail, they cant do much to limit the trail of
destruction. More often than you might think, cor-
porate IT staffers are reduced to wandering around
to physically tinker with infected machines to figure
out the problem. And the most advanced security
software can be undone by the dumbest of human
errors. Equifax Inc. blamed the hack of 145 million
Social Security numbers on an unnamed IT guy failing
to install a security update.
Even the U.S. Department of Defense has proved
vulnerable to hackers, who are still making use of
the National Security Agency cyberweapons that
began leaking online last year. In the military, the
gap between developer and user can be more pro-
found, says Nate Fick, the chief executive officer of
security-software maker Endgame Inc., which has
built its business on Pentagon contracts. When it
comes down to the individual, youre dealing with a
19- or 20-year-old operator on a 12- to 18-month duty
rotation, says Fick, a former U.S. Marine Corps com-
mander in Iraq and Afghanistan. You better build a
product thats easy to use.
Endgame is part of a growing slice of the security
software industry known as endpoint detection and
response, or EDR. An endpoint, in this case, is a
particular computer or server that can be hacked.
Endgames software is designed to stop an attack
from spreading any further by remotely examining,
quarantining, and fixing a hacked endpoint. The
Bloomberg Businessweek November 20, 2017
nine-year-old companys gear is sophisticated enough
to detect hacking techniques that have never been
cataloged by tracking minute upticks in computer
processing power. Yet the platform is also meant to be
foolproof, responding to voice commands as complex
as find all systems running Apache Struts 2 2.3.x
the software exploited at Equifaxand as simple as
take those machines offline.
Software such as Endgames is having a moment
because other tools have failed, says Lawrence
Pingree, a research vice president at Gartner Inc.
Traditional providers lost some trust over the
last five or six years because of the number of data
breaches that were caused in part by the failure
of malware detection, he says. Gartner predicts
that the EDR market, which more than doubled, to
$500 million, in 2016, will top $800 million this year
and $1.5 billion in 2020. Thats far faster than the
single-digit growth of the $9.6 billion firewall market.
Among EDR companies, Endgame is dwarfed by
Carbon Black Inc. and CrowdStrike Inc. But its col-
lection of government contracts, which are typically
stable, stands out, Pingree says. Thats important in a
hypercompetitive field likely to be winnowed down in
the next few years through acquisitions and mergers.
Endgame started out selling hacking tools to the
feds. Selling offense was great training for playing Nobody is
defense, Fick says. He joined as CEO in 2012, when more attacked
the company was remaking itself as a guardian of
federal agencies. Nobody is more attacked than than the
the Pentagon, he says. Last December the company Pentagon
nabbed the U.S. Air Force as a client with a $19 million
deal. It recently won a $1 million contract with the
U.S. Navy and is wooing the U.S. Army. Civilian clients
include a financial-services firm and a health-care
company. Endgame says its annual recurring revenue
has more than doubled this year and will do so again
next year, but it wouldnt share more detailed figures.
The company is moving beyond government
contracts; more than half its clients are commercial.
The Texas A&M University system, which spans 13
universities and state agencies and about 148,000 stu-
dents, began using Endgame last year. Before that,
A&Ms in-house security team of five full-time staff-
ers and a handful of student workers had to rely on
the IT help desk, entering a ticket to request a phys-
ical inspection of suspicious computers or servers,
says Christopher De La Rosa, one of the staff security
analysts. Now, he says, he can examine most systems
remotely and keep his attention on high-risk data
such as health or financial information.
In some cases, De La Rosa says, the team can
resolve problems twice as fast as it used to. Instead
of waiting for something to occur, were actively
out there hunting and preventing attacks, he says.
You only have so much time and so much man-
power. Dune Lawrence
THE BOTTOM LINE Endgame says its expanding beyond its
military roots and more than doubling its annual recurring revenue
as the broader EDR market rises by 60 percent.
 Innovation Woebot
Innovator
This chatbot, which runs on Facebook Messenger,
Alison Darcy
asks users to record their moods each day and
Age: 39
offers to teach behavioral techniques meant to Chief executive officer of Woebot
combat depression and anxiety. Labs Inc., a 10-employee company
in San Francisco

Chat Origin
Darcy, a clinical research
psychologist at Stanford
University with a
Type Hey, Woebot, and background in coding,
the software offers a began working on Woebot
in July 2016 as a way to
sympathetic synthetic ear, offer therapeutic techniques
asking, Can you describe to people who lack access
to traditional counseling.
to me how youre
feeling? and So tell me,
whats your energy like? Tweaks
High? Middle? Low? If you dont like learning over
video, tell Woebot, and itll
From there, it guides stop sending video links and
stick to chatting. Woebot 27
users through therapy can also track your moods
exercises. over time and recognize
emotional patterns.

Test Revenue
Darcy experimented with a
subscription model earlier
The chatbot asks users this year and says shes
considering whether to
to watch videos or take make it permanent.
quizzes to help internalize
the therapy exercises. Support
In a 70-person trial of In October, Darcy named
college students, chatting as Woebot Labs chairman
Andrew Ng, the co-founder
with the bot signicantly of online education
decreased participants company Coursera and
former head of Googles
depression scores. articial intelligence project.

Darcy is seeking outside investment to speed the development of a standalone Woebot app. Its
Next exciting because it shows the potential of bridging the access gap, says John Torous, co-director
Steps of the digital psychiatry program at Bostons Beth Israel Deaconess Medical Center. Its a way to
scale mental health care and reach more people. Caroline Chen
LOOK AHEAD Mondelz CEO Irene Rosenfeld Nebraska officials rule on a route Unlike many white-collar workers,
retires. She led the snack giants for the controversial Keystone XL U.S. stock traders get only half a day
2012 spinoff from Kraft Foods pipeline in that state off the Friday after Thanksgiving
3
A law that protects
consumers data was written
How before the age of hacking F
Much When a credit card is lost or stolenor if the number
gets exposed in a data theftfederal law makes it a
pretty painless experience for consumers. Credit
I
N
card holders are on the hook for no more than $50

Will if any fraudulent charges are made; debit card users

have similar caps on losses as long as a problem is
reported promptly. The account number is changed,

A
a new card is sent in the mail, and life goes on.

Equifax
Contrast that with the confusing mess consumers
were left to sort out when hackers broke into
credit-reporting company Equifax Inc. and stole the

N
personal identification information, including Social
Security numbers, of almost half the American pop-
ulation. The incident left 145.5 million people facing
a lifetime of higher risk for identity theft. Equifax

C
offered free credit monitoring from its own service
for a year. But the question of monetary compen-
sation is still up in the air.
Its likely to be worked out in class-action liti-

E
gation. Because the Equifax breach affected such
a huge number of people and compromised some
29
of their most sensitive datathieves can use Social
Security numbers to open accounts in someones
namelegal experts predict a fierce fight, with
plaintiffs likely to demand settlement figures in the
billions of dollars. Youre talking about the biggest
breach in history, says Nathan Taylor, a cybersecu-
rity lawyer with Morrison Foerster in Washington,
who represents companies involved in high-profile
data breaches.
If history is a guide, as Taylor predicts it will be,
the final recovery may end up being rather less
perhaps $1 a head once legal fees are paid. Health
insurer Anthem Inc. set that benchmark in June
when it agreed to pay a record $115 million over a
breach that affected 78.8 million people and also
compromised Social Security numbers. Even if
Equifax were to settle for more than $200 million,
with almost twice as many victims as in the Anthem
case, that could still be less than the companys
profit for the most recent two quarters. Equifax
declined to comment on pending litigation but
said its focused on helping consumers to navi-
gate this situation and providing the best customer
support possible.
Serious settlement talks arent likely before both
sides have investigated the evidence and tried out
some of their legal arguments in court. Plaintiffs
attorneys are likely to say this breach stands apart November 20, 2017
from earlier ones. If anybody whos collecting data
should have state-of-the-art security practices, its Edited by
Pay? these guys, says Tina Wolfson, an attorney with
Pat Regnier

Ahdoot & Wolfson in Los Angeles who filed two Businessweek.com

  FINANCE
of the 240 consumer class actions against Equifax.
When consumer lawyers try to negotiate a deal,
however, they may find that a once-promising line of
legal attack has been closed to them. The federal law
thats meant to hold companies such as Equifax and
its rivals Experian Plc and TransUnion LLC account-
able predates the internet and wasnt created with
mass data breaches in mind.
The 1970 Fair Credit Reporting Act, signed by
President Richard Nixon, says credit-reporting
companies may not furnish consumer data to
unauthorized third parties and offers a remedy of
as much as $1,000 for every affected consumer. It
doesnt require proof of identity theft or any out-
of-pocket losses. In theory that could be helpful to
plaintiffs, because a big hurdle in data breach cases
is showing how much consumers were harmed.
Although lost data can leave many people at risk
and forced to take precautions, it may prove harder
to link it to identity thefts.
But courts have repeatedly found that the FCRA
doesnt apply to data breaches because of the
wording in the statute. That word furnish led a Los
Angeles judge in December to dismiss FCRA-based
claims against Experian after a 2015 data breach for
failing to protect 15 million consumers whose per-
sonal information was hacked. Although victims
of theft might be the source of the stolen goods,
30
saying that the victims are furnishing their goods to
a thief is counterintuitive, the judge wrote.
For Anita Taff-Rice, a California lawyer who spe-
cializes in technology and privacy, its maddening
that companies that were never asked by consumers
to gather their data could escape liability for such
massive failures under the very law enacted to reg-
ulate them. Yet she agrees its a stretch to bend the
antiquated language of the FCRA to fit a world
in which hackers prey on the modern reality of
everything being interconnected by the internet.
Taff-Rice says the public would be better off if
credit bureaus faced some kind of automatic liabil-
ity when consumer data fall into the wrong hands.
Thats similar to what the Fair Credit Billing Act
does in limiting a consumers liability for credit
card fraud to $50. If you have a requirement like
this, I believe the credit-reporting bureaus will do
substantially more to protect your information,
Taff-Rice says. To Francis Creighton, president of
the Consumer Data Industry Association, thats a
nonstarter because it singles out the credit bureaus
his trade group represents. This isnt just a credit
bureau problem, its a national problem of how we
deal with breaches, he says.
Wolfson, who is also one of the lead lawyers
for consumers in the Experian case, notes that the
December ruling didnt bar her clients from pur-
suing remedies under various state-level cyberse-
curity statutes and the common law of negligence.
(Experian declined to comment on pending liti-
gation.) Wolfson also says that in future cases, a
Bloomberg Businessweek November 20, 2017
judge may be convinced that FCRA penalties do Equifax stock price
apply when credit bureaus fail to safeguard infor-
mation from hackers if the circumstances are egre- $150
gious enough. Its applying an old law to new facts,
but laws are written to adapt to changing times,
she says.
A decision on whether the FCRA claims can 120
move forward in the Equifax litigation is months
away. Taylor doubts a judge will throw them out
early in such a big case. The company isnt going
to completely avoid litigation because of something 90
that people would characterize as a technicality, 11/11/16 11/14/17
he says. Peter Blumberg, with Edvard Pettersson
THE BOTTOM LINE A federal law makes credit agencies liable
if they dont keep data private. But lawyers might find it hard to
apply it to cases of theft.
Pleasing the Rich to
Give to the Poor
Hedge funds have a big tax bill coming.
One charity is ready for them
The closing of a giant tax loophole has been looming
over U.S. hedge funds. A 2008 law required money
managers who earned fees offshore and parked
them there to declare the money and pay the taxes,
but gave them until the end of this year. Although
tax attorneys hunted for ways around this, they Taxable revenue
that might come from
mostly came away empty. For many big-time inves- closing the loophole
tors, giving the cash away and getting a tax deduc-
tion may be the most attractive option. $200b
The Robin Hood Foundation is ready to help.
The nonprofit, established by hedge fund billion-
aire Paul Tudor Jones to combat poverty in New
York City, stands out for the strategic planning its
done around the money managers tax reckon-
ing. It was not a discussion that was prevalent
at most charitable organizations, says Elizabeth
Zeigler, chief executive officer of Graham-Pelton
Consulting, which advises nonprofits on fundrais-
ing and management issues. When you think of
the million-plus nonprofits in the U.S., a healthy
majority dont have relationships with hedge fund
managers. Robin Hood does.
On the fundraising side, Robin Hood is known
for an annual celebrity-packed gala that generates
tens of millions of dollars in donations and a con-
ference at which hedge fund managers share their
favorite investment ideas. Ticket proceeds from the
conference go to Robin Hoods antipoverty efforts,
which include schools, job-training programs, and
food pantries. The foundations board of directors
includes well-known hedge fund managers David
  FINANCE
Tepper and David Einhorn. Robin Hood consulted
with experts including tax advisers, lawyers, and
hedge fund managers and eventually worked with
Fidelity Investments and JPMorgan Chase & Co. to
set up two so-called donor-advised funds, accord-
ing to people familiar with the matter. They were
designed with hedge fund managers in mind.
Donor-advised funds essentially hold money
and assets earmarked for giving, from which the
donor can then direct grants to charities. They allow
someone to get a large deduction immediately
generally up to a limit of 50 percent of adjusted gross
incomeeven before choosing which causes get the
cash. The granter gives up ownership of the money,
but it can stay invested in markets. In the Robin
Hood program, up to 90 percent can be invested in
hedge funds, meaning it can remain in the firm of
the person who gave it away.
Robin Hood saw that this added flexibility could
be valuable to money managers. They can keep
power over big chunks of cash at a time when many
clients are fleeing hedge funds because of poor
returns. Even though they wont earn fees or keep
investment gains on the money, it remains part of
their assets under management and potentially a
way to flex market muscle. And they can remain
involved in their giving instead of signing it away at
once. The money can ultimately go to any charity,
but Robin Hood encourages donors to make it one
of their choices, according to those familiar with
the matter.
Theres a question as to whether donor-advised
funds in general are a good deal for the public,
says Ray Madoff, a professor at Boston College Law
School who focuses on philanthropy. The funds
provide donors with a significant tax break without
as many rules as private foundations, such as an
annual payout rate. Money could stay in a fund for
Dont Lie to the Bank of Taizhou
A Chinese lender nds a way to make loans to businesses the giant banks ignore
DATA: COMPILED BY BLOOMBERG; ILLUSTRATION BY KURT WOERPEL
At Bank of Taizhou Co., trainees are pushed to
count money with lightning speed, mobilized to
go after delinquent borrowers with the subtlety of
an infantry battalion, and toughened up by former
instructors from the Peoples Liberation Army. The
boot camp ethos would seem laughably bizarre if
it werent for this: Bank of Taizhou is being called
Chinas most profitable lender.
The little-known bank specializes in lending
to entrepreneurial businesses ranging from small
equipment makers to plastic molding companies
Bloomberg Businessweek November 20, 2017
generations. Theres clearly need for regulation
to ensure that these funds are available for chari-
table use within a reasonable period of time, she
says. According to National Philanthropic Trust, in
2016 the funds as a group had $85.2 billion and gave
away about 20 percent of assets annually.
How much offshore money will be brought
back and subject to taxes? It could be $200 billion,
based on what tax advisers say after conversations
with clients, brokers, and fund service providers.
Investor George Soros has moved about $18 billion
into his Open Society Foundations in the past seven
years, with much of that coming from billions
that had been accruing offshore. Its possible that
Connecticut, which faces a projected $2.3 billion
31
deficit, could receive a bump, thanks to a handful
of its hedge fund residents. Kevin Sullivan, com-
missioner of the Department of Revenue Services,
says hell know more after April 15. It will be 2018
before we see if its real, he says, or a wonder-
ful dream we once had. Katherine Burton and
Margaret Collins
THE BOTTOM LINE The antipoverty Robin Hood Foundation, a
favorite of hedge fund managers, built a giving program that will
help them deal with the closing of a huge tax loophole.
in the southeastern coastal province of Zhejiang.
Its success shows its possible to lend to small
companiesa sector that accounts for more than
half of gross domestic product but is neglected by
banksand make good money doing it. Theres not
a lender in China that beats Bank of Taizhou for
profitability and asset quality, UBS Group AG con-
cluded after picking over the financial statements of
237 banks across the country. This bank just stuck
out on almost every metric, says Jason Bedford, the
Hong Kong-based UBS analyst who led the study.
  FINANCE
When making loans, the bank uses a risk-
profiling system brought in by a microfinance
expert from Germany, Joern Helms, who was the
32
banks first foreign recruit. The method is called
IPC lending, after the German consulting firm
that originated it, where Helms had worked
previously, and its being held up by the World
Bank as a guide for small-business financing. I
disagreed with the view that small businesses are
difficult to assess and small businesses are risky,
says Helms, who stepped down as a vice president
in 2014 after almost a decade with the Bank of
Taizhou and now serves as a Shanghai-based
adviser to the company.
Big changes are coming to Chinas financial
sector. On Nov.10 the government announced a
plan to ease limits on foreign ownership of lenders
and securities firms. Small-business lending isnt
likely to draw immediate foreign interest, though
even within China, its a bit of a backwater, with
big banks preferring to concentrate on state-owned
enterprises. The government has been trying to
free up cash for banks to lend to businesses that
typically have difficulty getting credit.
But some of Chinas smaller regional banks
are more engaged in shadow financing than tradi-
tional lending, according to an August report by
UBS. Unregulated loans have bloated the shadow
banking industry to an estimated 122.8trillion yuan
($19trillion), according to Nomura Holdings Inc.
Bank of Taizhou, with assets of about $23billion,
could be an example of how to keep transactions
within the officially regulated banking system.
Zhejiang province, especially the city of Wenzhou,
where Bank of Taizhou has a branch, became
Bloomberg Businessweek November 20, 2017
 New employees of
the Bank of Taizhou
learn to count bills
notorious for a shadow banking crisis in 2011 and
2012, when dozens of business owners went bank-
rupt or committed suicide after not being able to
repay loans to underground lenders. This caused
the government to increase funding for small busi-
nesses. While borrowing from shadow lenders
remains an option, the good businesses dont
have to go there, Helms says.
Bank of Taizhous loans average about $50,000,
and its shareholders include carmaker Geely
Automobile Holdings Ltd. Its approach to lending
is labor-intensive and relatively costly: Of the banks
10,000-strong workforce, some 4,000 are account
managers. It works because theyre a local bank,
they know whats going on, and they have a lot of
information about their customers, says Oliver
Rui, a professor at the China Europe International
Business School in Shanghai.
In IPC lending, salespeople ask a barrage of
questions to determine creditworthiness. Instead of
collateral, borrowers suggest a guarantor who can It works
TAIZHOU: QILAI SHEN/BLOOMBERG; CORDRAY: ANDREW MANGUM/REDUX
vouch for them. Helms says many small businesses because
dont have reliable records, so account executives theyre a local
might ask the same question in different ways:
Whats your monthly income? Then later: Whats
bank, they
your annual income? Theyre looking for a lie, know whats
an exaggeration, or a misconception, says Helms. going on
It doesnt have to be 100percent accurate. It just
has to be close enough to make a judgment. Key
figures might be checked with a relative or another
employee. According to Helms, its hard for busi-
ness owners to maintain a lie.
Account managers may have as many as 300
borrowers at a time and keep up a brisk pace on
visits around Taizhou, whose streets bustle with
 FINANCE
trucks hauling components to assembly lines across
town. Bank branches open as early as 7:30 a.m. and
close at 7:30p.m. in the summer, unlike the typical
9 to 5 of rivals, so that businesses can have access
to funds before and after the workday. Managers
not only handle clients banking needs but also can
help them deal with parking tickets or even serve
as matchmakers, a tactic that increases customer
stickiness, says Bank of Taizhou President Huang
Junmin. He says once customers get too big, the
bank asks them to turn to larger lenders.
One customer, Ruan Bochun, last year borrowed
500,000 yuan at an annual rate of 9.6percent
more than double Chinas benchmark rate of
4.35percentto start his business, sewing machine
maker Feiyue Intelligence Technology. He says the
banks representative has become a friend. On a
recent visit they could be seen joking together like
old pals. I can communicate with him easily, oth-
erwise I wouldnt borrow money from him, says
Ruan, drinking tea beside hundreds of cardboard
boxes and polystyrene shells.
Theres little tolerance for missed repayments.
If theres even a hint of them being late, teams
mobilize to phone the client, visit the business, and
contact the guarantor or other people the customer
knows, Helms says. If that doesnt work, the bank
will go to court, even for the tiniest amount. In
the past, squads would roam an errant customers
neighborhood wearing T-shirts emblazoned with
Risk-Fighting Unit to shame the borrower into
repaying, says Helms. The clear message: Pay your
debts, and pay Bank of Taizhou before anyone else.
With its reputation as a strict collector established,
the bank no longer needs drastic tactics.
An ethos of discipline among employees is
honed by military-style training unheard of among
Western lenders. At Bank of Taizhous training facil-
ity, people hired to be account managers and bank
tellers spend up to three months learning the job.
Its part boot camp, part university: Trainees bunk
down six to a room, practice customer service at
mock branches, and are taught to count cash fast.
Instructors, who must have had five years experi-
ence in the PLA, make students run 10 laps around
the campus twice a day and teach them how to
stand at attention and salute. We need to make it
clear its not a job in the office, says Hu Xianpeng,
a Bank of Taizhou senior economist in charge of
the training program, dressed in Adidas exercise
clothing at the facility.
Despite the need to grill borrowers and stay on
top of missed payments, the key to Bank of Taizhous
business is that most small businesses repay their
debts. They dont run away, they dont do leverage,
they just stay there, Helms says. Its a low-risk
thing. Alfred Liu, Angus Whitley, and Jun Luo
THE BOTTOM LINE Deciding whether to lend to a small
business is a labor-intensive task in China. You have to get out
and meet the customers.
Bloomberg Businessweek November 20, 2017
Changing Bank Rules,
If Not the Law
Dodd-Frank lives, but Wall Street expects a softer touch
on regulation
Randal Quarles was speaking to a standing-room-only
crowd at a financial industry conference at the Pierre
hotel in New York on Nov.7, in the glow of Venetian
chandeliers and bankers goodwill. The regulations
that swept in after the 2008 financial crisis are ripe
for an edit, said the Federal Reserves new vice chair
for supervision, one of Wall Streets watchdogs, and
everything is up for a fresh look. President Donald
Trumps campaign promise to roll back financial regu-
lation is making fitful progress on the legislative front.
But his choice of Quarles for the supervision job high-
lights another way to deregulate: by changing the
people in charge at key agencies. The former execu-
tive of private equity giant Carlyle Group added that
the biggest difference hell probably make is chang-
ing the tenor of how the Fed interacts with banks.
Trump is about to get a chance to change another
agencys tune. Richard Cordray said on Nov.15 that
33
he will step down as head of the Consumer Financial
Protection Bureau, which was created by the 2010
Dodd-Frank Act. Appointed by President Barack
Obama, Cordray continued to issue restrictions this
year, including one on payday lenders.
Still on Wall Streets wish list is a softening of the
so-called Volcker Rule put in place by Dodd-Frank.
It prevents banks from making high-risk trades
with their own money. But what counts as a pro-
hibited investment is decided by five different agen-
cies, including the Office of the Comptroller of the
Currency. The OCC has sprung ahead of the pack
Cordray
by calling for bankers input on rewriting the rule.
Change is coming, and it will only increase over the
next year, says Keith Noreika, who was brought in
by the administration to temporarily run the OCC.
Trumps permanent OCC pick is Joseph Otting,
a former chief executive officer of OneWest Bank
Group; hes poised to take over an agency that once
hammered OneWest over its foreclosure practices.
The administration has also signaled its intent to
give banks a break on a key capital rule. (Stringent
capital requirements can protect banks in a crisis.)
A meaningful change will require coordination by
three agenciesthe Fed, the OCC, and the Federal
Deposit Insurance Corp. The FDIC is run by an
Obama appointee whose term expires at the end of
November. The White House is said to be vetting a
replacement. Jesse Hamilton
THE BOTTOM LINE Passing legislation to roll back post-crisis
financial rules is a heavy lift, but President Trump is appointing
regulators who can help rewrite parts of the rulebook.
 LOOK AHEAD Nigeria publishes third-quarter South Korea releases gures on
data on gross domestic product household debt on Nov. 21
Tied Up in Knots
Fear of the taxman has
paralyzed Indias small
businesses
Twice in the past year, Mohammed Mohsins textile
design business was buffeted by major economic
policy changes: first, demonetization, then a new
tax system. Mohsin is one of the half-million people
involved in the sari trade in Varanasi, a city in
northern India famed for its handwoven, brocaded
silk textiles. The efforts by Prime Minister Narendra
Modi to curb Indias vast informal economywhere
cash transactions are the norm and tax evasion is
rampantmean that even micro-enterprises such as
Mohsins fear running afoul of financial authorities.
It feels like the government is watching every
move, he says.
Modis administration canceled high-value
currency notes a year agoforcing Indians to stand
in long lines at banks to deposit their cash before it
turned worthless. In July, it introduced a national
goods and services tax (GST) to replace a collec-
tion of levies that it said were doing more to choke
commerce than raise government revenue.
The impact of those policies has reverberated
across the economy. Growth slowed to 5.7 percent
DHIRAJ SINGH/BLOOMBERG
U.S. durable goods orders will
show whether an uptick in capital
spending has amed out or not
4
E
C
in the quarter ended June 30, the first time it fell
below 6 percent since early 2014. In the textile
industry, which is Indias second-biggest employer
after farming, growth dropped to 1.7 percent in the
O
financial year ended March 2017, from 2.1 percent
the previous year.
The reason for the downturn is obvious, according
to Mohammad Zubair, who sells silk yarn for weaving
N
Banarasi saris, the finest of which can cost as much as
100,000 rupees ($1,500). He says the GST has wiped
out almost all his profit margin, plus he now must
pay a chartered accountant 1,500 rupees a month
O
to prepare and file the separate monthly, quarterly,
and annual returns authorities demand. I have to
pay the tax, but I cant pass the charge on to most of
my weaver-buyers, who are poor, Zubair says. So
M
who bears the extra cost? Me.
Sachin Menon, a partner at KPMG in India, says
the government could be doing more to help small
businesses adapt. They need hand-holding and
I
training as far as technical knowledge is concerned,
he says. And the government needs to provide
35
them with those tools. Even so, Menon adds, the
measures are necessary. Implementation of the GST
C
is very important to expand the countrys formal
economy, he says. You cant stop taking medicines
because of side effects. From the governments per-
spective, the meds are working: In October, com-
S
bined federal and state revenue from the tax was
 A weaver in Varanasi
November 20, 2017
Edited by
Cristina Lindblad
Businessweek.com
  ECONOMICS
951 billion rupees, up more than 2 percent from
the preceding month.
Businesses are still finding ways to evade the
tax. Zubair says hes aware of informal agreements
between yarn suppliers and trucking companies to
falsify invoices to understate the value of goods being
transported. Some are accepting fewer orders so
as not to draw scrutiny from tax authorities, either
because they were underreporting their income pre-
viously or because theyre cowed by Modis constant
threats to root out tax cheats. People are simply
cutting down on their earnings, says Suresh Kesari,
who runs a fabric store in Varanasi.
Zainul Abedin says his weaving business took a
hit from demonetization, which forced him to idle 8
of his familys 14 sari-making looms. But at least he
Emerging From a Lost Decade
The euro zone is poised for an extended no-ination growth streak
Buried amid gloomy headlines about deadlocked
36
Brexit negotiations, Catalonias constitutional stand-
off, and anti-immigrant rancor along the Continents
eastern flank is a bit of good news: Europe is no
longer the sick man of the world economy.
The 19-nation euro zone bloc is already enjoying
the strongest growth in a decade, and, with nary a
sign of inflation, momentum could well carry on
for several years, economists say. This is euro area
growth at its best, says Nathan Sheets, a former
international economist at the Federal Reserve and
U.S. Treasury. Our friends on the Continent should
enjoy it. Its been a long famine.
The turnaround is striking for a region that
plunged from the global financial meltdown into
its own sovereign debt crisis, which threatened
the very survival of the currency union. The
European Commission recently revised its 2017
economic growth forecast to 2.2 percent, up from
a 1.7 percent estimate in May. In a Nov. 13 report, the
International Monetary Fund said growth across the
European regionwhich includes the euro area as
well as developing economies in Central and Eastern
Europeis having a positive spillover effect on the
rest of the world. It also said those brighter pros-
pects accounted for the bulk of the upward revision
to its global outlook in October.
Data released on Nov. 14 showed the euro area
economy maintained its solid pace of expansion in
the third quarter, advancing 0.6 percent. More than
four years into the current expansion, most indi-
cators signal the euro zone economy is still some-
where around midcycle, says Angel Talavera, an
Bloomberg Businessweek November 20, 2017
no longer has to hound customers to pay their bills:
Many are now registered on a web portal called the
Goods and Services Tax Network and are transferring
money electronically to his recently opened account.
Ashraf Ali, a weaver who, like one-fourth of
Indians, cannot read or write, says small artisans
like him find the new tax system intimidating. We
need help to fill forms, and the banks servers are
often down when theres no electricity, says Ali,
whos had to open a bank account to get paid. Maybe
Modi ji should have waited for folks like us to catch
up, Ali says. But he built a train before building the
tracks. Archana Chaudhary
THE BOTTOM LINE The sari-weaving economy in Varanasi
has taken a hit, as businesses shoulder the increased cost of
complying with the new goods and services tax.
economist at Oxford Economics in London. Absent
an unexpected shock, we should see several more
years of economic growth.
Speaking at a panel in Lyon, France, on Nov. 9,
European Central Bank policymaker Benot Coeur
went so far as to say that in terms of balance and
robustness, the euro area economy is in the best
shape since the birth of the single currency in 1999,
although he called on governments to implement
more reforms to support it.
The virtuous cycle is being underwritten mainly
by the ECB, which fended off the debt crisis and
locked in an ultraloose monetary policy. It was
up to the Continents companies and households
European Renaissance
Growth in the euro area is strengthening, but it still trails the U.S. DATA: EUROSTAT, EUROPEAN COMMISSION, INTERNATIONAL MONETARY FUND
Euro zone annual Change in real GDP since Dec. 31, 2007
GDP growth U.S. Euro area
5% 12%
Forecast
6
0 0
-6
-5 -12
2007 2017 12/31/07 3/31/17
 ECONOMICS
to do the rest. Corporate profits are beating esti-
mates, and consumer confidence is at its highest
level since 2001.
Even at its current pace, expansion will
lag behind the U.S. for the foreseeable future.
Productivity growth is also nowhere near levels
recorded at the start of the millennium. Almost a
fifth of young people cant find a job, and unem-
ployment in the periphery of the euro zone still
exceeds 10 percent. Inflation continues to track
below the ECBs target of just under 2 percent, a
sign that wage growth remains muted.
Although popular support for the single currency
has been on the rise, its yet to reach the high-water
mark of 2007. And so-called euroskeptic political
parties have been gaining ground. The anti-euro
(and anti-immigrant) Alternative for Germany party
became the third-largest in the lower house after
elections in September. In Italy, the populist Five Star
Movement has racked up impressive gains in regional
contests heading into next years general election.
Other political earthquakes, such as Catalonias bid
for independence from Spain, have the potential
to cause further ruptures. As ECB President Mario
Draghi has noted, international geopolitical shocks
are a key source of risk.
To insulate the economy, the ECB announced
in October that it will continue to buy public- and
private-sector debt for most of next year and wont
raise interest rates for a long time thereafter. With
few signs of inflation picking up, economists surveyed
by Bloomberg dont anticipate a hike in the bench-
mark interest rate until the second quarter of 2019.
Capacity utilizationa measure of slack in an
economyis creeping closer to historic cyclical
highs, which bodes well for investment as well as
jobs. Rising employment in turn should bolster
private consumption, while exports are set to benefit
from robust global trade. ECB Vice President Vtor
Constncio ventured recently that, judging from the
latest indicators, growth could be indeed stronger,
and that would not surprise me.
Fiscal policy might have a role in extending
Europes growth streak. With budget surpluses on the
horizon, economists in Germany have been urging
Chancellor Angela Merkel to lower social security
contributions and cut income taxes during her fourth
term in office. Goldman Sachs Group Inc. figures
that policymakers across much of the euro area will
recoup a bit of budget flexibility as growth picks up.
Theres good cause to think euro area growth
can gather further strength in 2018, according to
economists at Credit Suisse Group AG, who recently
raised their forecast to a 2.5 percent expansion
next year. And risks are to the upside. Jana
Randow, with Samuel Potter, Cormac Mullen, and
Blaise Robinson
THE BOTTOM LINE The European Commission has revised
its 2017 growth forecast to 2.2 percent, up from a 1.7 percent
estimate in May.
Bloomberg Businessweek November 20, 2017
A Russian
Power Play
In Belarus
Lithuania says a new nuclear plant just across the border
is a ploy to restore Moscows inuence
Since breaking away from the Soviet Union in 1990,
Lithuania has done its best to draw closer to Western
Europe, joining NATO and the European Union, and This is a
adopting the blocs common currency. But less than
30 miles from the capital, Vilnius, looms a symbol of
way to keep
everything Lithuanians thought theyd left behind: the Baltics on
the hulking concrete towers of a nuclear power plant their toes
being built with Russian money and expertise.
The power station going up across the border
37
in Astravets, Belarus, is creating a sense of dj vu
among Lithuanians, who fear not only a Chernobyl-
type disaster from a largely untested nuclear tech-
nology, but also a resurgence of Russian influence in
the region. Lithuanian President Dalia Grybauskaite
has called the plant a nuclear monstrosity and an
existential threat to European security.
Concerns over the plant intensified last year when
authorities in Belarus failed to disclose that a 330-ton
reactor encasement had slipped from a crane and
dropped to the ground. The incident initially went
unreported, and plans to replace the part were
announced only after social media and indepen-
dent online publications revealed details. Whats
worrying is the lack of transparency, says Jonas
Radlinskas, a retiree in Vilnius who says his neigh-
bor died after working on the Chernobyl cleanup.
Inspections by the International Atomic Energy
Agency havent revealed any major flaws in the
plant, but thats done little to allay Lithuanias con-
cerns. The country of 2.9 million people was among
the first Soviet republics to announce its departure
from the bloc, and many see the nuclear plant as a
ploy by Moscow to extend the regions dependence
on Russian energy. Like many of its Baltic neighbors,
Lithuania has been working to loosen the grip of
Gazprom, Russias state-owned gas company. The
country already generates 26 percent of its electric-
ity from renewable sources, according to the most
recent available data. And in August it received its
first delivery of U.S. liquefied natural gas.
Belarus, a country of 9.5 million, whose main
  ECONOMICS
exports include gasoline, tractors, dairy, and the
fertilizer ingredient potash, relies on Russian gas
to generate 95 percent of its electricity. Although
the 2,400-megawatt nuclear power plant will allow
the country to dial back on gas imports, it wont do
much to curb its dependence on Moscow, given that
its being built by state-owned Rosatom Corp. and
Russia is financing the lions share of the $11 billion
cost. Astravets, which is scheduled to open in 2019,
is very clearly a means for Russia to try to remain
influential, says Antony Froggatt, an energy security
researcher at Chatham House in London. Nuclear
energy will play an increasingly important geopolit-
ical role in Russian strategy.
Officials in Belarus see the opposition to Astravets
as sour grapes, because Lithuania was forced to
shut down its own aging Soviet-era nuclear station
in 2009 as a condition for joining the EU and later
failed to attract investors for a new project near the
site. President Alexander Lukashenkowhos ruled
Belarus virtually unchallenged since he was elected
in 1994has appealed to Lithuania to stop politicizing
the issue. Let us build this plant together and use
it jointly, he said in July. Let us sit down together
and resolve this dispute instead of making the whole
world laugh at us. Lithuanians have turned a deaf
ear. In April the country passed legislation barring
imports of electricity from the plant.
38
Darius Degutis, a Lithuanian career diplomat
appointed ambassador-at-large for Astravets, con-
cedes the design of the two pressurized water
reactors is similar to those of nuclear plants com-
missioned by EU members Finland and Hungary.
His country, though, should have been consulted on
the location, he says, since more Lithuanians than
Belarusians live in the vicinity. Were not against
Belarus building a power plant. Every country has
that right, Degutis says. But the location is very
wrong. Officials in Belarus have said geology was
one of the principal factors in choosing Astravets.
Even though Belarus suffered more from
Chernobyl than any other Soviet republic, many
there view the new reactors with a mix of curiosity
and pride. The plant, whose cooling towers rise as
high as a 40-story building above log house villages
and sugar beet fields, has brought rapid development
to the tiny provincial town of Astravets. Since 2010,
row upon row of pastel-colored apartment blocks,
schools, and offices have cropped up to accommo-
date an expected 2,300 employees, their families,
and all those seeking jobs amid the nuclear-powered
boom. Isnt it impressive? says Eduard Svirid, a
press official at the plant, sweeping his hand across
the landscape. Seven years ago there was nothing,
just an empty field.
In Belarus, a country where political opposition
is stifled, Stanislau Shushkevich is one of the prom-
inent critical voices. In his study in a modest Minsk
apartment, where books line the walls from floor to
ceiling, he says Belarus needs a nuclear plant, but
Bloomberg Businessweek November 20, 2017
not at the cost of spoiling relations with its neigh-
bors. The 82-year-old former physics professor,
who in 1991 became the first head of independent
Belarus, calls the spat unproductive on both sides.
He believes the plants location may have been influ-
enced by Russias desire to reinforce the message
that it remains the dominant power in the region.
This is a way to keep the Baltics on their toes,
says Shushkevich, who oversaw the withdrawal of
Soviet nuclear warheads from Belarus before losing
to Lukashenko in 1994. Its purely political, but
Lithuania will have to live with it, as the plant is not
going away. Ladka Bauerova
THE BOTTOM LINE Belaruss failure to report an accident at
the construction site of a nuclear reactor reinforced Lithuanias
concerns about safety at the $11 billion project.
Pablo Escobar Slept Here
Medellns mayor fumes over the popularity of guided
trips through the drug lords old haunts
Aram Balakjian, a 33-year-old Londoner, had a great
time on his seven-month trip to Colombia last year.
He toured the countryside on a motorbike, taking in
sights such as the Chicamocha Canyon, and polished
his Spanish at a school in Medelln. He also took part
in a raucous game of paintball at a decrepit lakeside
villa that once belonged to Pablo Escobar. There, he
and about a dozen other tourists ran around blast-
ing one another with paint pellets. Balakjian got
to play the drug kingpin himself. Holed up on the
second floor and running low on ammo, he was
taken down in a sneak attack by a pretend U.S. Drug
Enforcement Administration agent.
Its all fun and games to travelers streaming into
Colombia seeking a real-life connection to the hit
Netflix series Narcos, which depicts Escobars trans-
formation from small-time dealer to drug lord with
a net worth of more than $2 billion in 1987, accord-
ing to Forbes. Tourists can check out his grave and
the now abandoned apartment building where his
 Posing for photos at
the cartel leaders grave
  ECONOMICS
family lived. They can also pay hundreds of dollars
to schedule visits with Escobars relatives and
members of his entourage who promise an inside
look at the cartel leaders life, which ended in a
Dec. 2, 1993, shootout with security forces. As many
as 1 in 10 international visitors to Colombia are lured
by TV shows or movies that feature the country,
according to TCI Research, a Brussels-based agency.
Many Colombians who lived through two brutal
decades of bombings, assassinations, kidnappings,
and drug-fueled corruption are upset to see a cold-
blooded killer elevated to celebrity status. For us
as a society, it was still too soon. We werent ready,
says Adriana Valderrama, who heads the Museo
Casa de la Memoria, a local museum devoted to
the various conflicts that have ripped through the
region and the country. Its a painful past, and its
relatively recent, she says.
Medellns mayor, Federico Gutirrez, scolded
Puerto Rican reggaeton singer J Alvarez last year for
showing up at a public function wearing a T-shirt
emblazoned with the words The Cartel on the
front and Escobars name on the back. He also
chided Wiz Khalifa in March after the rapper posted
a photo of himself on Instagram standing in front of
Escobars tomb. In an interview with local media,
Gutirrez called him a scoundrel and demanded
he apologize to the city.
Of course, Medelln wouldnt be the first town
to cash in on the notoriety of its hometown crim-
inals. In St. Paul, Minn., gangster tours recount
the exploits of John Dillinger, Ma Barker, and Baby
Face Nelson; Gibsland, La., has the Bonnie & Clyde
Ambush Museum; and Fort Sumner, N.M., and Hico,
Texas, both have exhibits devoted to Billy the Kid.
But in Colombia, where more than 200,000
people have died in conflicts over the past half-
century, the wounds are still fresh. Moreover, the
boom in narco-tourism comes at a time when the
country is trying to remake its image. According to
the latest data from the World Bank, Colombias
homicide rate in 2015 was less than half what it
was in 1995. The signing of a peace accord last year
that required the largest left-wing guerrilla group
to disarm has also improved the security situation.
Thats opened a swath of Colombias hinterlands
to nature lovers, including bird-watchers wholl
gladly fork over as much as $4,600 for weekslong
tours into the jungle to view toucans, macaws, and
other exotic birds. Colombia is a paradise that the
world wants to get to know, tweeted President Juan
Manuel Santos in response to a favorable article
published in a U.S. travel magazine this month.
FABIOLA FERRERO/BLOOMBERG (2)
The message appears to be getting through: The
country logged 2.9 million foreign visitors last year,
a 57 percent increase from 2012.
In the mountains of Medelln, Roberto Escobar,
Pablos brother, caters to tourists seeking a different
type of thrill. He leads tours that show off memora-
bilia including cars riddled with bullet holes, a jet
Bloomberg Businessweek November 20, 2017
ski the kingpin owned, and the table where the capo  Manuela Ranch,
Escobars lakeside villa,
had his last meal, which is recounted in detail, down hosts paintball games
to a spilled glass of wine. Narcos fans will catch ref- for tourists
erences to events depicted in the series, such as a
photo of Escobar wearing a tie he borrowed at the
last minute, so he could be admitted to the halls of
Congress on his first day as a lawmaker. The tours
organizers say some 80 to 100 people a day pay $30
for the experience. People want to know the real
39
stories, Roberto says during an afternoon tour. We
have the stories.
Mayor Gutirrez has been critical of those who
make their living hawking the citys lurid past and
has proposed razing one of the remaining Escobar
sites to turn the area into a memorial park for
victims of the violence. Its a booming business
for many, he said in a local radio interview. For
any person that wants to come to Medelln and
wants to know the real history of drug trafficking,
what happened with Pablo Escobar, what we did
OK, come. But were going to tell the story our-
selves, as a city.
Valderrama says the museum she oversees wants
to devote more space to victims stories during the
worst of the drug violence, from the 1970s through
the 1990s. What happened here is a tragedy, and
the idea is for people not to leave thinking that Pablo
Escobar is this mythical character they see in TV
series, she says. That they understand that what
happened here was almost a genocide. Its a painful
Balakjian, the tourist from London, says that
as he spent more time in Colombia he began to
past, and its
feel a bit uncomfortable about having taken part relatively
in an activity that made light of a dark moment in recent
the countrys history. For them its like, I dont
want anyone to feel like it was an exciting thing,
because it really wasnt, and you have to respect
that. Christine Jenkins
THE BOTTOM LINE TV series like Narcos are drawing tourists
to Medelln, the onetime home of cartel leader Pablo Escobar,
complicating Colombias efforts to leave its violent past behind.
 LOOK AHEAD Top Russian officials gather Brazilian President Michel Temer is
in Sochi to allocate $316 billion said to be preparing a cabinet shuffle as
5 in military spending alliances in his coalition government shift
P
O The Strife
L Of the Party
I
T
I
40
C
S
Few people take Theresa May seriously as prime
minister anymore. But the Tories are divided over
Brexit, the economyand wholl replace her
Asked who would be the best prime minister this
month, British voters put not sure in first place.
On this, if on nothing else, the country is in agree-
ment with Conservative lawmakers. The Tories
have lost confidence in their leader, Prime Minister
Theresa May. The problem is they dont know who
should replace her.
Mays authority has been hanging by a thread
since the evening of June 8, when the snap elec-
tion exit poll revealed shed squandered an appar-
ently impregnable lead over the opposition Labour
Party and lost her parliamentary majority. In
November 20, 2017 November alone, May has seen two cabinet min-
isters resign over separate scandals and her gaffe-
Edited by prone Foreign Secretary Boris Johnson again stick
Jillian Goodman
his foot in his mouth on the subject of a British
Businessweek.com citizen imprisoned in Iran.
Round 5 of the increasingly
contentious Nafta negotiations
wraps up in Mexico City on Nov. 21
All of this would be easily fixed but for a much
larger complication. That, of course, is Brexit. Its
not simply that Conservatives cant agree on the
right strategy for Brexit. They cant even agree on
the destination. Is Britains economic future best
served by close proximity to the European Union
or by distance?
Splits over Europe, sex scandals, and sudden
ministerial resignations are all evocative of the Tory
government of John Major, which in 1997 lost power
with the partys worst election result in a century
and a half. To those looking in, I fear this must look
at times very like the pre-1997 crisis, says George
Freeman, a Tory lawmaker who chairs the partys
Policy Forum, although he draws a crucial distinc-
tion. Then the parliamentary party was exhausted,
burned out, and behaving badly. Now we have a
  POLITICS
parliamentary party bursting with talent, ideas, and
energy. But the cabinet is locked down in the almost
impossibly difficult task of negotiating a Brexit deal.
The aim of David Cameron, Mays predecessor,
when he announced a referendum on EU member-
ship, was to settle the issue within his party. His hope
was that a decisive vote to stay in the bloc would
silence those Conservatives who had made life so dif-
ficult for Tory leaders over previous decades. Instead
he ended up empowering them, splitting the party,
and destroying his own premiership.
Even among the so-called Brexiteers, who backed
leaving the EU, theres division on the shape of the
future. For some senior Tories, the appeal of leaving
the EU is the opportunity they see to turn Britain
into a lightly regulated and taxed country thats open
to the world. But the campaign for Brexit, needing
support from lower-income voters, promised more
money for the state health service and tighter con-
trols on immigration. Now, as they search for the
trade deals they promised, Brexiteers are being chal-
lenged over whether to accept what opponents say
are lower standards of food safety, for example, and
looser requirements for toy manufacturers.
But the Brexiteers at least agree that Brexit is a
good idea. Far more fundamental is the problem
faced by those Conservatives on the other side of
the argumentchief among them the prime minister.
May, like half her cabinet, including her deputy and
her chancellor of the exchequer, has as the central
goal of her government a policy that 18 months
ago she opposedone that, in her pre-referendum
words, would damage Britains security, prosper-
ity, and influence in the world. In October, May was
asked whether, having campaigned against Brexit
last year, she would vote for it now if there were
another referendum. She was unable to answer.
This contradiction could help explain why the
Conservatives struggled in Junes election. Labour
was led by Jeremy Corbyn, an old-school social-
ist whod exhausted his partys patience. He had
a long record of friendliness with groups includ-
ing extremist Irish Republicans and Hamas. And
yet Mays warnings about Corbyn sat uneasily next
to her determination to deliver Brexitsomething
that both the British business class and her own
Treasury warned would damage the economy. The
Conservatives, having decided to adopt a revolu-
tionary policy, were looking a lot less conservative.
Central to the Conservatives success among
working-age graduate professionals in 2010 and
2015 was their reputation as a safe pair of hands
on the economy, says Matt Singh of Number
Cruncher Politics, a wonky U.K. blog. Brexit, and
HAN YAN/XINHUA/EYEVINE/REDUX
the consolidation of the vote around the two main
parties, meant a conflict between retaining exist-
ing supporters looking for security and continu-
ity, and attracting new voters looking for radical
change. To pull it off would have required a very
strong campaign.
Bloomberg Businessweek November 20, 2017
That wasnt what the Conservatives had. Mays
awkwardnessshes stiff in social situations, and
even her staff adopted the nickname Maybot, orig-
inally bestowed by journalistsand her aggressive
tone toward those who questioned the wisdom of
Brexit didnt help. Neither did the unexpectedly
strong campaign run by Corbyn. Having made
herself the focus of the campaign, she had no one
else to blame when it only barely avoided defeat.
Since then, Mays political life has become about
surviving short periods: making it to the end of the
day or the end of the week or the end of the month.
At one point during her party conference at the start
of October, it looked as if she might not even make
it to the end of her own keynote speech as she suc-
cumbed to a disruptive cough and the interruption of
a prankster. In what is likely to become the metaphor
for her time in office, she croaked on, while behind
her pieces of the set began to fall onto the stage.
There are ways in which Mays weakness helps
her. When she announced earlier this year that
she would like to lead the Tories into another elec- Even if Labour
demands an election,
tion, her lawmakers just laughed. Theyre sure the Tories could delay
she doesnt mean it, and in any case they wont it until
let her, so theres no great urgency to unseat her.
Instead, some see her role as absorbing as much of 2022
the unpopular news about Brexit as possiblethat,
for instance, it will cost, rather than save, Britain
41
moneybefore shes thrown overboard. Britains
parliamentary system means that the fall of May
neednt mean the fall of the Conservative govern-
ment. Even if Labour demands another election,
Conservatives are under no obligation to agree. They
can go until 2022 before facing voters again.
Tories hope this will give them time to finish up
Brexit. But even if it does, it may not mean Brexit
will be finished with them. Its now eight years since
Britain was last in recession, and a slowdown might
arrive soon. If one comes in the next four years, its
likely to be blamed on Brexit, justly or not.
And then theres the cultural problem: By making
themselves the party of Brexit, the Conservatives
magnified their existing position as the party of
older people. Age has replaced class as the great
dividing line, says Robert Colvile, director of the
Centre for Policy Studies. The young are bur-
dened with debt, their wages are stagnant. This is
a big problem for the Conservatives, according to
Singh. Going forward, the number of graduates will
increase, and younger cohorts will take the place of
older generations, he says. Its like a trading posi-
tion with very negative carry.
Colvile has been working with newly elected
Tories to find ways of overcoming this divide and
sees reasons to hope. Whats striking is genuinely
how many of them now see housing as the big issue
bigger than Brexit in many cases, he says. Thats an
opportunity for the Tories: The shortage of housing
affordable to young people is at least a problem a
determined government can solve.
  POLITICS
There are other reasons many Tories remain
optimistic. They point out that, despite their chal-
lenges, theyre still polling very close to Labour.
Its also possible Corbyn has hit his ceiling. In four
years the Conservatives will have a new leader, and
Corbyns novelty will have worn off.
The Labour leader seems to be the one thing
Tories agree on. Against Corbyn, the Conservative
Party is absolutely united, Freeman says. We rec-
ognize that we have to deliver a Brexit that works for
the whole countryor risk the unimaginable conse-
quences of a hard-left government. Robert Hutton
THE BOTTOM LINE Theresa Mays hold on the prime ministers
seat is weak, but while Conservatives figure out how to put Brexit
behind them, shell probably remain in it.
Californias Climate
Ambitions Get Stuck
On the Freeway
Lack of affordable housing is to blame
42
The high cost of housing in California isnt just
hurting the states economy, fueling homeless-
ness, and exacerbating economic inequality. Its
imperiling its reputation as a global leader in
emissions reductions, too.
Lila Cabreras move last year to Palmdale, a city
of 160,000 in the high-desert region of Antelope
Valley north of Los Angeles, illustrates the connec-
tion. As a renter in Sylmar, Calif., I was overdrawn
every month, says the single mom of three. I just
couldnt see it turning around. Now, a $1,370 mort-
gage payment gets her family more space for less
money. It also gets her a 51-mile commute, which, in
typical bumper-to-bumper traffic, takes an average
of two hours each way.
As residents like Cabrera move farther from their
employment in search of affordable homes, the
states progress toward its climate goals is slowing.
In 2015, the most recent year for which data is avail-
able, the states greenhouse gas emissions dropped
at less than half the rate of the previous year, accord-
ing to an August report from the San Francisco-
based nonprofit Next 10. Low gas prices and a lack
of affordable housing prompted more driving and
contributed to a 3.1 percent increase in exhaust from
cars, buses, and trucks, the report says. Census data
show that more than 635,000 California workers
had commutes of 90 minutes or more in 2015, a
40 percent jump from 2010.
California has failed to build [housing] in the
communities where were seeing the largest job
Bloomberg Businessweek November 20, 2017
growth, says Patrick Kallerman, research director
at the Bay Area Council Economic Institute, a non-
partisan think tank based in San Francisco. The
highest-income folks can afford to live wherever they
want, he says. Its the middle- or lower-income
folks who cant.
The state needs 180,000 new housing units each
year, but fewer than 100,000 are built, according
to Governor Jerry Browns office. Each year that it
goes on, things get worse, Kallerman says. Lack of
accountability is one reason. California tasks regional
agencies with developing sustainable community
planning strategies, which include reducing sprawl.
But when communities fail to meet their own goals,
there are no mechanisms to penalize them, he says.
One disincentive for builders is the fiscalization
of land use: Housing raises less tax revenue for local
governments than retail. For Cabrera, the incen-
tives are even more twisted. She works as a mort-
gage loan processor for a bank near Hollywood.
Her $72,000 yearly salary is heavily dependent
on commissions, which are determined by real
estate prices. Were she to swap her job for one
in Palmdale, shed earn less money and revert to
living paycheck to paycheck. So it goes for many
Californians: When cost of living is accounted for,
census data show that the state has the nations
highest poverty rate, at 20.6 percent.
Brown has embraced the role of counterweight
to the do-nothing climate deniers in Washington,
most recently at the United Nations Climate Change
Conference in Bonn, Germany. A Democrat in his
fourth and final term in office, hes championed
the passage of the strictest emissions laws of any
state. But residents continued reliance on cars
is getting in the way. Transportation accounts for
almost 40 percent of greenhouse gas emissions in
California, more than any other sector, compared
with 27 percent nationwide.
The Long Road Home
Average commute time and median monthly $2,200
housing costs, 2005 to 2016
San Jose
San Francisco
1,500
California
Oakland
Los Angeles
DATA: U.S. CENSUS
U.S. Long Beach
800
24 minutes 34
 The state legislature made the housing crisis a
focus of this years session, passing 15 related bills.
One seeks to expedite construction by accelerat-
ing the approval process for affordable housing.
Another could raise as much as $250 million annu-
ally for subsidized housingenough to build just
750 homes, given the $332,000 per unit estimate
from Browns office. Another places a referen-
dum on next years ballot asking voters to approve
Whos That Hiding
Under the Astroturf?
The roots of corporate-generated advocacy
groups can be difficult to uncover
James Short, a retired deputy fire chief, is the founder
of an organization called Protect Our Pensions. At
least thats what it says on the groups website.
But ask Short about his role at Protect Our
Pensions, which opposes efforts to push endow-
ments, foundations, and pension funds to divest
their holdings in fossil fuel companies, and he
has a different take. Standing in the doorway of
a brick bungalow in southeast Washington, D.C.,
in August, he refused to answer questions before
shutting the door. A follow-up call elicited this
response: That is not me. I do not know who is
putting those blogs out.
GALLERY STOCK
While Shorts name and those of other coalition
members show up in letters to state legislators and
newspaper opinion pieces, much of the writing is
$4 billion for low-income housing and home loans  The morning
commute to
for veterans. Theyre good, they move the ball Los Angeles
forward, Brown said before signing the measures
into law in October. Have they ended the need for
further legislation? Unfortunately not.
Esm E. Deprez
THE BOTTOM LINE California risks losing the lead in the fight
against climate change if it cant reduce its citizens commutes. To
do so, itll need more housing.
43
actually done by public affairs firms operating in
the shadows, according to documents and emails
obtained by Bloomberg News. Far from being an
active collection of public servants and pensioners
eager to discuss an important issue, most of the 41
people listed on the Protect Our Pensions website
didnt respond to emails and phone calls. Some said
they were proud to support the cause, but a few
couldnt even remember signing up.
Grass-roots lobbyingthe creation of groups of
ordinary citizens to advocate for political causes
has been around for decades. But when corpora-
tions hide their involvement or recruit members
indifferent to the objective, tactics known as astro-
turfing, it can provide an appearance of public
support that doesnt exist.
  POLITICS
The internet only makes such subterfuge easier.
Anyone can set up a website and start a social media
campaign while disguising whos behind them. As
Congress and federal investigators probe how such
tactics helped spread disinformation during the
last U.S. presidential election, Protect Our Pensions
shows how similar strategies can be used to gener-
ate an artificial veneer of public support for poli-
cies that stand to benefit corporations.
When industry groups or wealthy donors mas-
querade this way, it allows policymakers to take
actions that primarily support the well-heeled
patrons funding the effort, says Edward Walker, a
professor of sociology at the University of California
at Los Angeles who wrote a book about the grass-
roots lobbying industry in 2014.
Protect Our Pensions appeared in March 2016 as
institutional investors, including university endow-
ments and pension plans, considered cutting ties
with fossil fuel companies. More than 800 institu-
tions have agreed to at least a partial divestment of
their fossil fuel holdings, including the Rockefeller
Brothers Fund, Norways sovereign wealth fund,
and Syracuse University.
But the funders behind Protect Our Pensions
remain concealed. Exxon Mobil Corp., the American
Petroleum Institute, and four other industry groups
all say theyve played no role in the organization.
44
There are clues pointing to the involvement of DCI
Group LLC, a Washington public affairs firm known
for its work with the energy industry and for building
grass-roots coalitions that sometimes obscure their
funders. The website helpprotectourpensions.org
is linked to the same IP address as DCIs corporate
website, according to reverse IP lookup tools. Shared
IP addresses can sometimes be a coincidence, but of
the 11 other sites connected to that address, at least
eight are related to DCI clients.
Craig Stevens, vice president for media affairs at
DCI, declined in an email to either confirm or deny
that his company did work on behalf of Protect Our
Pensions. But he said that linking the campaign to
DCI through its IP address seems like conjecture.
He also said DCI would never work with someone
without their express agreement, and he offered
a general defense of the work his and other public
affairs firms do.
Our democracy is stronger, he said,when declined to answer questions about who was funding
citizens act and inform the government of how
legislation, regulations, or judicial rulings impact
Americans lives and provide policymakers with
waysif necessaryto improve them. someone who signs a petition without paying atten-
For a typical grass-roots coalition, a national
firm like DCI will manage the contract and hire
regional public affairs specialists to recruit members
and place op-eds in newspapers. For Protect Our
Pensions, much of this work has been carried out by
two such firmsFSB Core Strategies in Sacramento
and Mac Strategies Group Inc. in Chicagoboth of
which have worked with DCI in the past.
Bloomberg Businessweek November 20, 2017
One of Protect Our Pensions supporters in
Chicago is Shalom Klein, who hosts a weekly radio
show called Get Down to Business with Shalom
Klein and is the founder of a group called Jewish
B2B Networking.
When Bloomberg first spoke with Klein in August,
he said hed grown concerned about divestment
after hearing about it from some friends in aca-
demia. Social statement aside, its a bad business
move, he said.
Months later, he acknowledged in an email that
hed been hired by Mac Strategies to recruit Protect
Our Pensions members. Several of those have close
ties to Klein, including his mother-in-law and a former
employee of Kleins fathers accounting firm.Three
other Chicago-area members said they couldnt recall
joining. One, Marc Brown, a former trustee of West
Deerfield Township in Illinois, was so perplexed when
contacted by Bloomberg that he stopped by Macs
office in Chicago for more details.
Ryan McLaughlin, chief executive officer of
Mac Strategies, said in an email that his firm was
engaged to build a grassroots coalition in Illinois of
like-minded stakeholders who oppose the politiciza-
tion of public pension investments.He said all the
companys recruits signed up willingly and agreed
with the mission, but he declined to comment on
the source of Protect Our Pensions funding or his
firms relationship to DCI.
Despite the obfuscation, Protect Our Pensions
has had little trouble getting its op-eds published.
Often, these are written almost entirely by the public
affairs firms. In January, according to correspon- The number of
institutions that have
dence obtained through a public-records request, pledged to at least
FSB emailed Tim Shaw, mayor pro tem of La Habra, partially divest their
Calif., a draft of a piece the firm wanted to submit to fossil fuel holdings
stands at more than
Governing magazine in his name. We can edit some
language or passages if its not quite reflective of
your views in some places, an FSB employee wrote.
800
Shaw didnt alter a word. Looks great! he replied.
The article ran online a month later. Shaw says he
didnt suggest any changes because he agreed with
the contents. He says he isnt sure whos paying FSB.
FSB CEO Jeff Flint said in an email that everyone it
recruited for the group believes in its cause. Were
proud of the work we do in getting citizens engaged
in discussions on important issues, Flint said. He
Protect Our Pensions or whether DCI was involved.
Brown, the former West Deerfield trustee, likens
his involvement with Protect Our Pensions to that of
tion to what the issue is. While he says hes opposed
to divestment, hes still disturbed that no one will
say whos footing the bill.
Something, he says,seems not kosher.
Ben Elgin and Zachary Mider, with Jeff Green
THE BOTTOM LINE So-called astroturfing groupswhether
political or corporatecreate seemingly organic support while
concealing whos really funding them.

Business
B O
Schools
When One
Degree
No Longer
Fits All
Schools are adapting to
give MBA students the
specialized programs and
exibility they want
Business schools are in an enrollment slump.
Applications for full-time, two-year Master of
Business Administration programs in the U.S. have
declined since 2015. Last year 64 percent of U.S.
full-time MBA programs received fewer applica-
tions, according to the Graduate Management
Admission Councils 2017 Application Trends
Survey Report. There has been a general con-
traction in industry MBA programs, says Claire
Preisser, associate director of the Aspen Institute
Business and Society Program, an arm of the think
tank that studies trends in business education.
Thats due in part to a strong U.S. economy and
+
F
C
U
higher employment rates. Also, with outstanding
student loan debt at an all-time high$1.4 trillion
S
and fewer employers willing to foot the bill for an
MBA degree, the costs are even more daunting
than in previous years.
This has students seeking out more special-
ized and exible programs, which in turn, Preisser
says, has led more schools to look at their cur-
47
riculums and adjust them to t market pressures.
Jerry Davis, an associate dean at the University
of Michigans Ross School of Business, agrees:
We dont want to be a generic provider of an
MBA degree.
One response by Harvard Business School
to the market demand was to create a Master
of Science/MBA joint degree program with its
engineering school. Our MBAs are going into
technology-based companies, and we are con-
stantly looking for ways to build out their tech-
nology management skills, says Tom Eisenmann,
professor of business administration at HBS and
one of the faculty members behind the program.
Such programs are an attempt to stay relevant
and cater to what students and employers are
looking for.
For the third year in a row, Harvard topped
Bloomberg Businessweeks annual ranking of tra-
ditional two-year, full-time MBA programs, which
polls recent graduates, alumni, and employers on
topics such as academics, job placement, and
pay growth. (The ranking excludes alumni who
received joint degrees or pursued a part-time
program; the complete ranking and full methodol-
ogy is available at bloomberg.com/bschools2017.)
Harvard faculty and administrators raised the November 20, 2017
idea of a joint program earlier this year, and it will
be offered to students starting in August. Most Edited by
Dimitra Kessenides
of the rst year will consist of MBA-required
Businessweek.com
  FOCUS / B-SCHOOLS Bloomberg Businessweek November 20, 2017

courses; the second year includes electives at both emphasized the importance of data science expertise.
schools. You can hire somebody who understands tech- The students who have familiarity with this have been able
nology, and you can hire someone who understands to get to their key roles more quickly, one recruiter noted.
business, but we are trying to put it all into one head, Michigans Ross also recently launched a business
Eisenmann says. experience seminar in which students work for a real
The University of Pennsylvania Wharton School of company to test ideas. Initially a pilot last spring, ve sec-
Business, which jumped up four spots from last year to ond-year MBA students spent seven weeks working in
No.2, is feeling the same market pressures. Students product development at Shinola LLC, the Detroit-based
have been asking for more specialized and personalized leather goods and watch company. Their real-life test case
degrees to ensure their coursework will advance their considered whether the company should introduce mens
careers, says Deputy Vice Dean Maryellen Reilly. In addi- shaving accessories. Reporting directly to Shinolas chief
tion to several interdisciplinary programsthe rst of them, executive officer, Tom Lewand, the students examined every
a three-year Juris Doctor-MBA run with Penns law school, aspect of the business, from supply chain to marketing. The
started in 2009Wharton is training its academic advis- students and Shinola ultimately decided against investing
ers to help students customize their degrees. Technology in the new product line.
factors into many of the individually tailored programs and This isnt an internship, says Davis. Students are
is central to recently added courses in data and analyt- coming up with business models and are actually running
ics, entrepreneurship, digital marketing, and e-commerce. businesses. The course now includes Ford Motor Co. and
One buzzed-about topic among MBA students that NRP Group, a Cleveland-based real estate development
has caught the attention of schools is data analytics. A
survey by Kaplan Test Prep published in February points
to a growing number of business schools adding courses
in big data. At Michigans Ross School of Business, big Top 30 U.S. Schools
data analytics, big data management, and mobile innova-
tion development are popular courses that ll up quickly. Change Employer Alumni
Thats no surprise, says Davis, considering that global in rank survey survey
companies are demanding job candidates with tech skills. Rank 2016-17 School rank rank
48
Amazon is one of our biggest recruiters, and we want to
make sure our students are equipped with the right skill
sets when they graduate, the associate dean says.
1
2
0
4
Harvard
Pennsylvania (Wharton)
1
4
3
11
This years ranking again surveyed employers about 3 4 MIT (Sloan) 2 20
the skills they seek in MBA hires and which schools best 4 0 Chicago (Booth) 3 35
prepare their graduates for jobs. Harvard was the top 5 3 Stanford 20 1
pick of the more than 600 recruiters who responded to 6 3 Duke (Fuqua) 6 10
this years poll. 7 2 Dartmouth (Tuck) 8 7
Dennis Tseng, a talent manager for SYPartners, a San 8 1 Northwestern (Kellogg) 7 18
Francisco-based business strategy and innovation con- 9 2 Columbia 5 26
sulting rm, says data courses speak to the skills employ- 10 2 Rice (Jones) 14 4
ers are seeking. Skills like product development, data and 11 1 UC at Berkeley (Haas) 25 2
analytics, and supply chain management are in demand 12 1 Michigan (Ross) 9 47
now, and that will only continue to increase, he says. 13 3 Cornell (Johnson) 13 22
Several written comments provided by survey respondents 14 1 Carnegie Mellon (Tepper) 10 24
15 4 Washington (Foster) 11 40
16 2 Yale 21 9
Waning Interest 17 5 Virginia (Darden) 22 12
Relative change in applications for full-time, two-year MBA programs 18 1 NYU (Stern) 18 27
19 3 UCLA (Anderson) 27 16
1
20 1 Texas at Austin (McCombs) 15 37
21 1 Emory (Goizueta) 46 5
22 4 Texas A&M (Mays) 19 15
23 0 Brigham Young (Marriott) 31 8
0
24 0 North Carolina (Kenan-Flagler) 29 30
25 12 Penn State (Smeal) 12 53
26 1 Notre Dame (Mendoza) 50 6
27 1 Indiana (Kelley) 36 32
-1 28 0 Georgia Tech (Scheller) 33 41
2005 2017 29 23 Michigan State (Broad) 24 29
DATA: GRADUATE MANAGEMENT ADMISSION COUNCIL 30 8 USC (Marshall) 35 58
 FOCUS / B-SCHOOLS Bloomberg Businessweek November 20, 2017

Top Industries for Grads company, as partners; three more companies, which the
Class of 2016 school declined to name, will join in the spring of 2018.
Some schools are making more fundamental changes.
Technology 17.8% Simmons College, struggling with falling enrollment, consid-
Financial services 16.8 ered whether the time had come to end its MBA program.
Consulting 16.6 From 2010 to 2015, enrollment dropped from 195 to 105, says
Health care 8.1 Provost Katie Conboy. The MBA has been in decline every-
Consumer products 7.9 where, except for the top 1 percent of schools.
Manufacturing 6.1 Simmonss MBA program, which was the only one in the
Energy 3.2 country exclusively for women, followed the example set by
Real estate 2.7 several other graduate programs and moved the curriculum
Retail 2.4 online in the spring of 2016. Conboy says the change has
Media/entertainment 1.6 paid off. We now have 107 students in our MBA program, and
Nonprot 1.2 we expect those numbers to grow, she says. Much of the
Transportation/logistics 1.2 gain likely will come from male students, which Simmons now
Government 1.1 is open to. We have a nichegender and power dynamics
Hospitality 0.5 and the move allowed us to bring that theme to a much larger
Other 10.9 market, Conboy says.
DATA: COMPILED BY BLOOMBERG Part-time programs are another way schools are trying
to be more exible. North Carolinas Wake Forest University
School of Business phased out its full-time MBA in the fall
of 2015 and started a part-time program the next spring.
Students take classes in the evening and on weekends.
There are 315 students enrolled at both the Winston-Salem
Job Ranking and Charlotte campuses.
Student placement Salary index Fewer students want to take a full-time day approach,
survey rank rank rank score and employers want to keep high performers from walking
49
away to earn an MBA, says the business schools dean,
18 35 2 100.00 Charles Iacovou. According to comments shared as part
17 6 3 91.17 of the survey, students
22 20 6 90.04 and alumni value the
10 8 4 90.03
Methodology experience and matu-
Bloomberg Businessweeks ranking
16 62 1 89.75 of full-time U.S. MBA programs is
rity that part-time stu-
11 29 11 89.42 based on ve components: dents can introduce in
35 4 9 89.19
(1) employer survey (35 percent a classroom. Many are
of total score), in which more than
14 10 5 87.94 600 recruiters named the programs
older and have estab-
15 22 8 87.06 that best deliver the skills they seek lished careers.
12 58 18 85.81
in MBA hires; (2) alumni survey MBA programs will
(30 percent), in which almost
5 36 10 85.49 10,000 alumni who graduated from
continue to evolve, says
4 26 12 84.19 2008 to 2010 told us how their SYPartners Tseng. Hes
3 41 13 83.67 degrees affected their careers, observed more inter-
their compensation over time,
8 55 19 82.17 and their job satisfaction; (3) student
est from companies
19 1 24 81.39 survey (15 percent), in which 2017 for MBA students with
27 42 15 81.36 graduates (9,461 responses) rated design and innovation
their programs; (4) job placement
9 39 7 81.28 rate (10 percent), or how many MBAs
backgrounds, he says.
13 27 14 80.06 seeking full-time jobs get them within Companies are asking
1 51 16 78.34 three months of graduating; for people with more
(5) starting salary (10 percent), or
20 47 20 78.27 how much recent MBAs make in their
specialization in creative
26 18 17 76.82 new jobs, adjusted for industry and innovation, Tseng says.
51 14 29 75.94 regional variation. Data from the 2016 And its not just a Silicon
ranking were added to the survey
30 48 28 75.02 components to diversify feedback.
Valley thingIm seeing
21 37 22 73.40 For more on the methodology and the this across industries
49 49 30 72.49 rankings for all 85 U.S. B-schools, go around the country.
to bloomberg.com/bschools2017.
31 43 33 72.33 Mary Ellen Egan
32 13 26 70.27
28 12 32 70.12
THE BOTTOM LINE Last year 64 percent of U.S. full-time MBA programs
60 5 36 70.09 received fewer applications, which have been declining since 2015;
6 30 23 69.17 business schools want to reverse the trend.

*INDUSTRY DATA MAY NOT ADD UP TO 100 PERCENT. DATA DISPLAYED REPRESENT THE 15 MOST COMMON MBA INDUSTRIES OVERALL AS REPORTED BY RANKED SCHOOLS.
  FOCUS / B-SCHOOLS Bloomberg Businessweek
Leveling the Playing Field
Asking women about core values
improves their performance
The business school Insead had a perennial problem with
its MBAs: The grades of female students consistently
lagged those of men. So one professor decided to run
an experiment. She had all students at both the France
and Singapore campusesmale and femaletake a test
to affirm their core values. During orientation, incoming
students were asked to pick three values among a list of
10 and to explain why the values are important and how
they factor in their daily lives. The result: Womens grades
improved 89 percent; the mens grades were unchanged.
Simply reecting on who they are and whats important
to them boosted womens condence and performance.
50
The test, says Zoe Kinias, its author and a profes-
sor of organizational behavior at the Singapore campus
of Insead (originally an acronym for the Institut Europen
dAdministration des Affaires), provided the women with what
she calls an invisible shield against feeling undervalued
in environments where men are a majority. Now one large
Singapore-based bank is adapting the test for new hires,
and a pharmaceutical company is looking at doing the same.
Thoughtful introduction of this type of intervention has
potential to improve gender balance anywhere women are
underrepresented and there are beliefs that men are more
suited to the job, Kinias says. The test helps improve per-
formance by building self-esteem. No signicant cultural or
geographical differences have turned up in the ve years
since it was introduced, she says.
The gap between the average GPAs of men and women,
3.2 to 2.8 out of 4, narrowed signicantly. It levels the
playing eld in terms of assertiveness and condence in
the beginning of our program, says Timothy Van Zandt,
Inseads dean of faculty and research in France. Business
schools, he says, have a responsibility to help women feel
equally respected and empowered.
Kinias was inspired to create the test after reading
a study from Stanford University that detailed the ben-
efits of self-affirmation for black students in the U.S.
Underrepresented groups often have a fear known as
stereotype threat, or a concern about conrming ones
stereotypes about ones group, she says. Exercises such
as the one at Insead help reduce the demotivating impact of
that fear. That frees up students minds so they can better
focus, study, and learn.
November 20, 2017
Members of underrepresented groups, such as the
34 percent female student body at Insead, experience more
self-doubt when entering a new social system, Kinias says.
For example, a 28-year-old woman knows what it means
to be a woman in business, but shes stepping into this new
scene, and shes looking around and trying to gure out,
Am I valued here? Do I belong here? Kinias says. Thats
where the self-doubt comes in.
I think sometimes people imagine looking in the mirror
and saying, Youre good enough, youre smart enough, and
people like you, which can have its benets, Kinias says.
But this is deeper than that. Its getting to, I am a person who
does things that I think are valuable. Insead, which was No.2
in Businessweeks 2016 ranking of international schools (the
2017 ranking will be published at Bloomberg. com on Dec. 11),
declined to make students available to be interviewed.
Among the values in the test, relationships with family and
friends are consistent top picks. Almost half the graduating
class of 2018 also prize enjoying life/living in the moment.
Other choices include health and tness, protecting the envi-
ronment, helping people in need, and spirituality or religion.
Women make up larger proportions of discouraged job
seekers and those outside the labor force, according to
the World Economic Forum 2016 annual report on gender.
Completely eradicating the economic gender gap would
take from 47 to 1,951 years, according to the report.
In Singapore, 10 global nancial institutions surveyed by
Insead and the Financial Womens Association found that
although women hold almost half the jobs, men are ve times
more likely to become managing directors. Organizations
polled included local offices of BlackRock, ING Bank, Nomura
Holdings, and National Australian Bank.
The Singaporean bank that adapted the Insead test is
using it to help women achieve greater career results, says
Low Chin Loo, events chair and a former president of the
Financial Womens Association of Singapore. The bank
declined to be identied. Kinias says her team at Insead
is in early discussions with the pharmaceutical company.
One common refrain we hear from women is lack of
self-condence and how that impedes their ascent to the
top echelons of corporate life, Low says. Were seeing a
larger push and awareness in Singapore society about the
need to look at this issue and to address it. Livia Yap
and Sheridan Prasso
THE BOTTOM LINE A test developed at Insead to help women boost their
grades is being adapted by companies to help female hires improve their
self-confidence and performance.
 Bloomberg Businessweek

52

Unnatural Disaster
 November 20, 2017

53

What happened when the U.S. government By Shannon Sims

flooded one of Houstons wealthiest Photographs by
neighborhoods to save everyone else Philip Montgomery
 Bloomberg Businessweek November 20, 2017

Next contestant, come on down.
On Oct. 6, in a bright courtroom in
downtown Houston, Susan Braden,
chief justice of the U.S. Court of Federal
Claims, opens a preliminary hearing
with a joke, beckoning a lawyer forward.
Braden has flown in from Washington
to oversee disputes involving the homes
and businesses flooded in West Houston
after Hurricane Harvey made landfall
over Texas in late August. She has sum-
moned attorneys interested in suing, to
get their thoughts on how the proceed-
ings should unfold.
Almost 100 lawyers are present,
combed and buzzing in anticipation of
what promises to be some of the most
complex and expensive litigation ever
brought against the federal government.
Observers speculate that thousands of
plaintiffs could eventually join in, and
that the total damages claimed could
reach $10 billion or more, especially
if the big energy and oil companies
whose presence in one section of West
Houston gave it the nickname the Energy
Corridorsue over their flooded head-
quarters. Eighty suits, 11of which are
Orleans, Washington, D.C. Its clear
the court is incredibly focused on
this case, Jay Edelson, a class-action
attorney known for challenging the
titans of Silicon Valley, observes after-
ward. He flew down from Chicago with a
few of his firms lawyers for the hearing.
Everyone is mindful that, with extreme
weather pushing the countrys infra-
structure to the limits, the decisions
made by Bradens court could, as after
Katrina, set important precedents for
the federal governments liability in the
wake of disasters.
This situation, though, has two
key differences. In New Orleans, eco-
nomically disadvantaged communi-
ties, some of them historically black,
bore the brunt of the loss, with hun-
dreds, perhaps thousands, of deaths.
The victims in West Houston include
white, wealthy, Republican-voting
energy executives. They live in neigh-
borhoods where the main employers
are BP Plc and Royal Dutch Shell Plc,
the median income is triple that of
the rest of the city, andsecond homes
and weekend-spin sports cars arent
Thistlewood Drive was everything Anji
and Josh Moore dreamed it would be.
Evenings, Anji would wait for Josh to
return from his job with an oil indus-
try contractor, feeding baby Luke while
5-year-old Nathan played soccer in the
street. The familys one-story home in
the Thornwood neighborhood, modest
for the block, featured a backyard patio
perfect for grilling, framed by tall pines
with puzzle-piece bark that cicadas
would cling to as they screamed down
the dusk. Neighborliness prevailed:
Husbands would help with one anoth-
ers home repair jobs. Sugar was bor-
rowed and returned doubled.
As the storm moved in on the weekend
of Aug. 26 and 27, Josh kicked into action.
Hed seen the backyard flood during
heavy rains, and if this one was as bad as
the forecasts said it would be, the water
could creep into the house. There were
new floors to be concerned about, blond
cypress. And so, over Anjis protests, Josh
got out a shovel and started building a
moat, ripping out patio bricks and digging
a foot beneath them as the rain soaked
through his shirt.

54
seeking class-action status, have been
filed by homeowners against the federal
government, though many of the Energy
Corridors approximately 9,500resi-
dents are still weighing their options,
speed-dating lawyers by phone and at
community meetings.
Few have had time to visit a lawyers
office. Two months after the storm,
theyre still digging out, their days filled
with mold inspections, debris hauls,
meetings with the Federal Emergency
Management Agency, fights with contrac-
tors, and visits from the moisture-meter
man. Some are waiting to see whether
the state government will create a relief
fund to help them recover the losses on
their pricey homes. A legislative solu-
tion could be preferable to drawn-out
litigation; the upcoming cases are being
compared to the long-running suits over
the levee failures in New Orleans during
Hurricane Katrina.
When a lawyer makes this link in
court in Houston, Braden, who oversaw
the Katrina cases for almost a decade,
recalls how long it took to get that liti-
gation organized. I dont want to wait
14 months to do something, she says.
No one is living in those homes.
The lawyers in attendance are from
all over the country: New Jersey, New
GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: FEDERAL EMERGENCY MANAGEMENT AGENCY, U.S. GEOLOGICAL SURVEY, HARRIS COUNTY FLOOD CONTROL DISTRICT
unusual. Their debris piles include One street over on Langwood Drive,
wine fridges, coffee table books about Robert Haines was anxious. The retired
Renoir, and Chinese bar carts from over- 71-year-old stockbroker had been watch-
seas assignments. ing the weather reports from his living
The West Houston cases are unlike room recliner for hours. Hed served in
the Katrina cases in another way, the 82nd Airborne Division during the
too:Rather than make a legal argument Vietnam War and lived through a dozen
about official neglect, they speak to what Gulf Coast hurricanes, experiences that
happened when the federal government shouldve helped him remain calm. But
intentionally flooded one of the richest the forecasts looked scary on the coast,
areas of a city to save everyone else. 45 miles south, where Kyle Haines, his
To prevent a deadly
reservoir failure, the U.S.
Army Corps of Engineers Houston
released water from
these dams and
inundated Buffalo Bayou
Addicks
Reservoir
10
Energy Corridor
Estimated
maximum
Thornwood flood extent
Dam
Barker
Reservoir B U F F A L O B A Y O U
500-year flood plain 2 mi.
Bloomberg Businessweek November 20, 2017

husband and partner of 15 years, had

gone a few days earlier. The storm was
crossing right over the hotel where
Kyle had holed up. Robert called Kyles
cell, crying. Kyle was 35 years younger,
and Robert often acted as his protec-
tor. Please come home, Robert said,
imploring Kyle to return to their white
brick, one-story ranch house, where it
surely wouldnt flood.
Saturday night, over on Kickerillo
Drive, Dave Johnston couldnt sleep. The
retired Exxon Mobil Corp. geophysicist
was prepared enough: He and his wife,
Linda, both in their mid-60s, had spent
the day hauling furniture upstairs. Now
Dave had a bag packed and his shoes
on in case the couple needed to flee.
At around 2 a.m., he spotted shadowy
figures beside his front windowshis
neighbors, braving the driving rain,
walking the high ground near the houses
with their most important possessions
wrapped in garbage bags and held above
their heads.
Dave and Linda discussed leaving.
The situation was clearly getting dire, but
staying might be safer. Water was already
55
flowing in the street, and the house was
still dry. They decided to wait out the
night and leave the next day.
On Sunday, debates inside homes
grew tenser, as residents weighed their
reluctance to leave against their fear
of the unknown. The geologists, phys-
icists, MBAs, lawyers, and engineers
living in the Energy Corridor consulted
the toolstheyd set up to measure the
deluge: yard flags, measuring sticks,
charts, and photographs.
That evening, the Harris County
Flood Control District held a press con-
ference at which it announced that the Anji and Josh Moore with their youngest son, Luke
U.S. Army Corps of Engineers would begin
controlled releases at the Addicks and when the releases began, but legal Buffalo Bayou. The danger was that
Barker dams surrounding West Houston. complaints and residents say the flood- the water would flow uncontrolled into
The two massive reservoirs retain water gates opened at about 1 a.m., sending homes located upstream from the res-
that gathers in the prairie west of the city, a rush of water toward Buffalo Bayou ervoir, crest the reservoir walls down-
forming Buffalo Bayou, which runs down while many people were sleeping. stream, or crack a section of the Barker
the Energy Corridor, through downtown, Just after 1:30a.m. the Corps posted dam that was under repair. Had either
out the Houston Ship Channel and, finally, a press notice on social media stating dam failed, the Houston Chronicle later
into the Gulf of Mexico. The water behind that the dam releases would amount to wrote, West Houston would have been
the dams was rising more than 6 inches 8,000 cubic feet of water per second. left with a week of corpses by the mile.
an hour, and the flood control district said If we dont begin releasing now, the Buffalo Bayou quickly overflowed,
residents should be prepared to leave the volume of uncontrolled water around washing over the surrounding area. The
next morning. the dams will be higher, Colonel Lars several dozen West Houstonians I spoke
But the water level rose even faster Zetterstrom, the Corps Galveston dis- with portray the reservoir water as mixed
than expected that nightHarvey trict commander, was quoted as saying. in with bayou funk, distinct from the
brought 51 inches of rain, all told. The Its going to be better to release the rains. That rainwater ran clear, one says.
Army Corps wont confirm exactly water through the gates directly into This water stank. Another resident,
 Bloomberg Businessweek
56
The floodgate of Barker Reservoir
who lives a block from Buffalo Bayou,
describes a muddy wave blasting open his
back French doors.
By Tuesday, the water was being
released at a rate of 13,000 cubic feet
per second. With their measuring equip-
ment inundated, people assessed the
water filling their homes against their
bodies: belt, then chest, then neck.
Elderly people reported waking up con-
fused, believing they were in water-
beds. For most, evacuation became the
only option. Medians turned into boat
launches. Dads hopped in bass-fishing
boats or on air mattresses to lead rescues
of people, pets, documents. Some resi-
dents whod left in a panic returned, at
their peril, to recover what they could.
One man died after being electrocuted
as he tried to retrieve a cat.
By Friday, Sept. 1, with water still
gushing through the floodgates, condi-
tions in the Energy Corridor had wors-
ened to the point that Mayor Sylvester
Turner issued a voluntary evacuation
order there. I know people are staying
because they want to protect their
property, he said. But if you are living
in a home today with water in your home,
that situation is not going to change for
10 to 15 days.
Frustrated that residents were strug-
gling to save their things, Greg Travis, the
districts city council member, managed
to call in five high-water vehicles and
start a patrol. Residents whod left signed
up for boat rides home, where theyd get
30 minutes to retrieve what they could.
On Saturday, as floodwaters elsewhere
in Houston were receding, Turner had no
choice but to make the evacuation man-
datory for the 4,600 Energy Corridor
dwellings already flooded by water.
Three hundred people, his office said,
had remained in their flooded homes.
Turner also cut off electricity to the area
and established a midnight to 5 a.m.
curfew to help police isolate anyone
looting evacuated homes. Put your own
personal safety above your property,
he said in the order, explaining that the
floodwaters there are caused by the U.S.
Corps of Engineers controlled releases of
water. (In a later interview with the Texas
November 20, 2017
Tribune, he accused the Corps of not com-
municating clearly about the magnitude
or the effect of them releasing that water.
Turners office declined to comment for
this story.)
Only on Sunday, nearly a week after
the releases began, did the Corps slow
the rate. The next day, they hosted
another press conference, at which they
showed time-lapse maps of the flood-
ing. The surrounding areas were all still
blue; it would take six more days, until
Sept. 10, for the water in West Houston
to finally subside.
A few weeks later, I find Tim
Fitzpatrick, a cabinet maker and football
coach, sweating and shirtless in front of
his home. Hes dragging moldy chunks
of drywall across his dead yard. Muck-
covered trophies, sports gear, and picture
frames are piled on top of folding tables,
as though for a toxic-wreckage garage sale.
Hell yeah, Im pissed, he spits. He says
hes still deciding whether to sue. This
was not an act of God, this was an act of
man. They pushed us onto a grenade to
save the rest of the city. He crushes a beer
Bloomberg Businessweek
can in one hand and tosses it aside, then
picks up a sledgehammer and brings it
down, hard, on a ruined cabinet.
In the 73rd-floor offices of the Buzbee
Law Firm, Texas swagger prevails. The
door handles are custom-made, foot-
long silver sharks. The bar is stocked
with expensive bourbon, and signed
Houston Astros jerseys hang on the walls.
Framed newspaper clippings celebrate
multimillion-dollar verdicts and a suc-
cessful defense of former Texas Governor
Rick Perry against felony abuse-of-power
charges. Marble floors lead to massive
windows overlooking almost every build-
ing in the countrys fourth-biggest city
and Buffalo Bayou curving below.
Tony Buzbee, a trial attorney of some
20 years, regrets only that hes not on
the top floor, right above. They wont
sell to me, he says with a puckish
smile, leaning back in his chair. Hes
in a checked, cornflower-blue blazer
with a scarlet handkerchief stuffed in
the pocket, explaining his confidence
in the West Houston litigation. Its a
humdinger of a case, he crows. We
know when the decisions were made,
we know who made them, and we
know that when they made them they
knew which subdivisions would flood.
A young lawyer handling one of the
files is called in and excused. Buzbee
watches him leave with a look of satis-
fied wonder. Hes so nervous around
me, he says, laughing and taking a gulp
of Muscle Milk.
Buzbee has made a career of righ-
teous crusades, though not necessar-
ily on behalf of the poor or the meek.
He was one of the first lawyers on the
scene in the Energy Corridor, making
his pitch to residents of the Thornwood
neighborhood on Sept. 5, while the
water still stood in their kitchens. It
seems to have worked: Hes signed
almost 400 clients. Eventually I will
have 1,000, he promises. Indeed, his
name tumbles freely from the mouths
of frustrated residents. Hes become the
default for those too weary to research
or too angry to wait.
Other lawyers say the residents
shouldnt litigate in haste. Maybe the gov-
ernment will step up and do the right
thing, I hear repeatedly. I havent taken
thousands of cases, says Rene Sigman,
a local attorney who specializes in flood
insurance claims and has several West
Houston clients. You want people to try
to work things out with their insurance
claims as much as you can.
Buzbee waves off such caution. If you
have your case on file and have litigated
your case, you will always have better
standing than someone who is sitting on
the sidelines, he says.
His approach to the West Houston suits
is based on a fascinating legal argument,
one that taps at a core Texan belief: The
government should leave you the hell
alone and pay you back if it doesnt. The
takings clause of the U.S. Constitutions
Fifth Amendment forbids the federal
government from seizing citizens prop-
erty without paying for it: [N]or shall
private property be taken for public use
without just compensation. Attendant
case law holds that when a government
takes property for the public good and I look at what happened here if this
without going through eminent domain
proceedings, the owner can claim that
an inverse condemnation has taken
place, arguing that property was unfairly
taken, damaged, or destroyed, and that
payment is due.
Until 2012 the government successfully
argued that it wasnt legally responsible
for decisions made in response to tem-
porary flooding. That year the Supreme
Court laid out a new multifactor test
that could establish government liabil-
ity in such cases. The majority opinion,
written by Justice Ruth Bader Ginsburg,
held, for example, that the government
company alone has built 15,000 homes in
Buzbee in his office
November 20, 2017
They pushed us onto a
grenade to save the rest of
the city
should compensate a property owner for
a taking if it has interfered with a rea-
sonable, investment-backed expectation.
That is, if it was reasonable to expect that
a home you invested in wouldnt flood,
but it does, and a court finds the govern-
ment responsible, then compensation
could be due.
State Senator Joan Huffman, whos
also a former judge, says, Im not here
to point my finger at the Corps, to say
you should have done it or shouldnt
have done it. But they did it, and that act
resulted in a taking. For Sigman, its also
pretty clear: When I look at the case law,
isnt a takings case, then what is?
Legal experts located farther from the
emotional swirl of Houstons recovery
have a colder view of the plaintiffs case.
John Echeverria, a professor at Vermont
Law School who specializes in takings
law, and Robert Meltz, special counsel
57
for the environmental group Defenders
of Wildlife, wrote an article about the
Harvey cases in which they question
whether some of the plaintiffs will be able
to meet the various standards laid out by
the Supreme Court. They also point out
that the Corps decision raises the issue
of how the takings clause should apply
when the government has nothing but
bad options.
Lynn Blais, a professor at the University
of Texas School of Law in Austin who also
specializes in takings claims, says that
perhaps the most convincing argument
the federal government could use in court
would be to assert that these homes
would have flooded if the reservoirs were
never constructed in the first place. The
reservoirs were, she notes, built for flood
control, not flood prevention.
The Addicks and Barker reser-
voirs were constructed in the after-
math of flooding that killed eight people
in 1935. By the 1960s, developers like
Vincent Kickerillo had started build-
ing neighborhoods such as Thornwood
on what was largely prairie land, just
downstream from the dams; Kickerillos
40 West Houston communities. And as the
oil and energy industries boomed, major
headquartersExxon, ConocoPhillips,
 Bloomberg Businessweek
Aramcomoved to West Houston. From
2005 through 2016, property values in the
Energy Corridor quadrupled. The wild
prairie land inside the reservoirs, which is
usually dry, became the site of kids sports
events and weekend bike rides.
This land and many of the homes
to the north and west of the dams are
located in whats known as the flood
poolthe upstream portion of the res-
ervoirs. In some cities, developers are
prohibited from building in these areas,
but in Houston there are no such restric-
tions. Many homeowners west of the
Barker dam claim they didnt know they
were in a flood pool, that they hadnt
spotted the fine print on the bottom of
some of their subdivision maps. (Who
looks at a subdivision map? one res-
ident asks.) The text of one such map
reads, This subdivision is adjacent
to Barker Reservoir and is subject to
extended controlled inundation under
the management of the U.S. Army Corps
of Engineers.
At the first hearing in federal court,
many of the lawyers involved in the liti-
gation asked Braden to separate claims
58
A meeting of Thornwood homeowners on Oct. 12
from the north and west areasthe
upstream onesfrom downstream ones,
to the south and east. Buzbee, for one,
says of the upstream claims, I wont
touch them. Its a hard case to prove and project management. Russo wouldnt
you build in the flood pool, you flood in
the flood pool.
Most lawyers agree that the down-
stream cases stand the best chance of
winning a takings claim. Many of the
homes thereeven some lying just feet
from the bayouhave endured since
being built by Kickerillo in the 60s, not
flooding during major weather incidents
such as Hurricane Ike and last years
Tax Day floods. That history explains
why many residents I spoke with would
angrily utter the word shouldnt as they
glanced around living rooms of stripped-
out drywall and cement-slab floors. My
home shouldnt have flooded, theyd a key indicator for lenders. A few of
say. Now theyll need to prove causation
in court: that but for the releases, their
homes wouldnt have flooded, even
during a hurricane like Harvey.
The Department of Justice, which is
representing the Army Corps of Engineers
in the lawsuits, declined to comment for
November 20, 2017
this article. The Corps wouldnt grant an
interview with Colonel Zetterstrom but
did set up a call with Edmond Russo Jr.,
deputy district engineer for programs
elaborate on the specific decisions leading
up to the releases, but he did say that the
Addicks and Barker dams were designed
to impound water and let it out slowly
after the rain passes: Thats what saves
the city from devastating floods. Four of
the top 10 record dam levels, he points
out, occurred in the past decade. In less
than a week we got more than a years
worth of rain, he says. Thats epic. I
dont think anyone could have imagined
that could occur.
Years ago insurance companies
mapped out the susceptibility of
Houston neighborhoods to flooding,
the downstream homes are located in
whats called the 100-year flood plain,
which means they have a 1 percent
chance of being flooded each year;
mortgage-holders there are required to
get flood insurance. Thistlewood Drive,
Langwood Drive, and Kickerillo Drive,
Bloomberg Businessweek
They should have busted
doors down and said, The
reservoirs going, you gotta
get out
where the Moore, Haines, and Johnston
homes are located, lie in the 500-year
flood plain, which has a 0.2 percent
chance of flooding each year. Only about
half the homes in the 500-year flood
plain were insuredmany residents saw
it as a wasted $450 a year.
Blais isnt sure that even the 500-
year flood plain homeowners will be
able to make their case in court. If
you are close to the coast in hurri-
cane country, and you build a house
downstream from a reservoir and near
a bayou, and everything around you
is called bayou-something, what are
your reasonable expectations of being
flooded? she asks. You probably
should have thought of that.
Council member Travis, himself a
lawyer, is also pessimistic about his
constituents chances of recouping
their losses, even if they win their cases.
Youre not going to get dollar to dollar,
he says. Youll just get a settlement, and
40 percent of it will go to the attorney,
and youll only get it 7 to 10 years down
the road. But, hey, good luck.
There are also concerns that, if
the cases succeed, they could create
a daunting precedent for the govern-
ment. Ginsburgs 2012 opinion tried
to assuage fears that a broader takings
standard would lead to a deluge of
claims, but Echeverria and Meltz write
that this could be exactly what happens.
The takings clause could, they say,
become a kind of social insurance
program for risk associated with climate
change. The notion of historic flood-
ing inscribed in the 500-year flood plain
standard wont mean much if climate
change scrambles that math. Whats
more, they write, successful takings
litigation may actually impede initiative
to take steps to avoid the worst effects of
climate change. Why build a dam, after
all, if operating it could cost you billions
of dollars in lawsuit payouts?
The issue of climate change is espe-
cially complicated in the Energy Corridor,
where companies often deemed com-
plicit in global warming are the neigh-
borhood employers. At various points in
my interviews with residents, I bring up
the hovering question of climate change.
Almost uniformly, they demur. Im not a
climate scientist, geophysicists and envi-
ronmental engineers say, so I cant tell
you one way or the other.
Thornwood was once a beautiful
neighborhood. I know this because I
grew up down the street. I swam com-
petitively against the Thornwood Sharks,
the kids of homeowners there. My
birth certificate was stored in the bank
behind Anji and Josh Moores house, in
a safety deposit box that pooled with
toxic water for more than a month. My
familys home didnt flood, but we were
just blocks from the waterlinea fluke
of topography that led our neighbors
to start referring to my parents and the
few other families spared by the reser-
voir releases as the lucky ones.
When I ride my bike through the
neighborhood a few weeks after the
flooding, I remember how it used to look:
the tidy white shutters, the large front
lawns, the faux-gaslit lamps. Now the
shutters are stained with brown water-
lines, and the swim team signs have been
replaced by ads for contractors. At night,
the streets are dark and the sheared wires
of the lanterns, torn from their posts,
reach into the air.
Anji and Josh Moore are still trying
to pick up the pieces when I visit them.
They have an ozone machine run-
ningIts supposed to get out all the
toxic chemicals that the water left in
the walls, Anji says. They evacuated
the day after Josh dug his moat, when
a stranger knocked on the door and
offered a boat ride. They waded back
a few days later, before the mandatory
evacuation order, to try to salvage what
they could. When I opened that door, it
was the worst moment of my life, Anji
recalls. Snakes swam alongside the chil-
drens toys.
On Kickerillo Drive, Dave Johnston
is still waiting on flood insurance pay-
ments, stopping by the house in his
spare time to prep it for new drywall.
He and Linda are considering selling
the house, if anyone will buy it. I dont
understand why they had to have such
a massive release, he says, shaking
his head. I dont know why they
didnt start releasing at a lower level
earlier. Hes still debating whether to
pursue litigation, but says, The idea of
November 20, 2017
compensation for the condemnation of
my property makes sense to me.
Langwood Drive is a ghost street.
There are no streetlights, no people, no
sounds. The flooded homes sit empty,
their doors open and windows broken,
despite pleas in the homeowners asso-
ciation newsletter to board them up.
At night, Langwood is patrolled by
possums, and only falling acorns cut
the silence.
One ranch house stands out, its white
brick exterior covered with multicolored
graffiti scrawl and rainbows. At first it looks
like vandalism. Then you read the words:
My husband Captain Robert Haines of
the 82nd Airborne Division perished in
our home during Hurricane Harvey.
Kyle says that by the time the dive team
recovered Roberts body, after multiple
attempts, it had been floating in the bath-
room for almost two weeks. Just feet away,
above the waterline, was their dog, Paddy,
thin and shivering but alive. The coroners
office called the number on the dogs tag
and reached Kyle. Robert must have put
Paddy up high, Kyle figures. He found old
photos stashed above the waterline, too.
59
Kyle comes to the house every day
around sunset. He brings a can of Fosters
beer, Roberts favorite, and pours it into
the bushes, in a kind of tribute. I dont
really know why, he says. He speaks in
a sped-up stammer, zigging and zagging
through the timeline of those 13 days. The
death certificate says Robert drowned,
but Kyle speculates that his husband, cut
off from communication with the water
rising, may have panicked and had a
heart attack or a strokeor maybe he
was electrocuted.
Im 100 percent certain Robert died
because of the dam releases, Kyle says.
It was because of their irresponsibility
that they didnt force people to get out
before they released the water. I think
they should have busted doors down
and said, The reservoirs going, you
gotta get out now. He plans to join his
neighbors in filing suit. Unlike them,
hell also file for wrongful death. Buzbee
is his lawyer.
One of the funny things iswell,
not funny, butwe paid flood insurance
up until July, he says over the cicadas,
brushing mosquitoes off his arm. Bob
just didnt think it was going to flood.
He looks back into the darkened house.
You never expect your loved one to
drown in your own home. 
 Bloomberg Businessweek

B I G B R OT H E R
VS . L I T T L E B I G B R OT H E R

BY
DRAKE

BENNETT

I L L U S T R AT I O N B Y

RICHARD
A. CHANCE

60
 November 20, 2017

61

LINKEDINS

C O U R T B AT T L E W I T H

A N H R S TA R T U P

WILL DECIDE WHO GETS

T O M I N E YO U R

O N L I N E A C T I V I T Y

AND SELL IT

T O YO U R B O S S
 Bloomberg Businessweek
O
n May 23, an email landed in the sales inbox
of a San Francisco startup called HiQ Labs, politely
asking the company to go out of business. HiQ is
a people analytics firm that creates software
tools for corporate human resources departments. Its Skill
Mapper graphically represents the credentials and abilities of
a workforce; its Keeper service identifies when employees are
at risk of leaving for another job. Both draw the overwhelming
majority of their data from a single trove: the material that is
postedwith varying degrees of timeliness, detail, accuracy,
and self-awarenessby the 500 million people on the social
networking site LinkedIn.
The email HiQ received was from LinkedIn Senior Litigation
Counsel Abhishek Bajoria. It has come to LinkedIns attention
that hiQ Labs, Inc. has used and is using processes to improp-
erly, and without authorization, access and copy data from
LinkedIns website in violation of LinkedIns user agreement,
it read. Bajoria called on HiQ to cease and desist from visiting
LinkedIns site and to destroy the data it had culled. The email
set off a feud that led, a month later, to the two companies
meeting in federal court, with HiQ suing LinkedIn and LinkedIn
accusing HiQ of violating state and federal law.
A small number of the worlds most valuable companies
collect, control, parse, and sell billions of dollars worth of
personal information voluntarily surrendered by their users.
Google, Facebook, Amazon.com, and Microsoftwhich bought
LinkedIn for $26.2 billion in 2016have in turn spawned depen-
dent economies consisting of advertising and marketing compa-
62
nies, designers, consultants, and app developers. Some operate
on the tech giants platforms; some customize special digital
tools; some help people attract more friends and likes and fol-
lowers. Some, including HiQ, feed off the torrents of informa-
tion that social networks produce, using software bots to scrape
data from profiles. The services of the smaller companies can
augment the offerings of the bigger ones, but the power dynamic
is deeply asymmetrical, reminiscent of
pilot fish picking food from between
the teeth of sharks.
The terms of that relationship are
set by technology, economics, and the
vagaries of consumer choice, but also
by the law. LinkedIns May 23 letter to
HiQ wasnt the first time the company
had taken legal action to prevent the
perceived hijacking of its data, and
Facebook Inc. and Craigslist Inc.,
among others, have brought similar
actions. But even more than its pre-
decessors, this case, because of whos
involved and how its unfolded, has
spoken to the thorniest issues sur-
rounding speech and competition on
the internet.
The courtroom clash in July drew
some of the biggest names in the
American litigation bar and split some
of the webs high-profile civil liber-
ties watchdog organizations, with
the Electronic Frontier Foundation
coming out in support of HiQ and
November 20, 2017
the Electronic Privacy Information Center writing an amicus
brief for LinkedIn. Depending on whom you talk to, the sides
are arguing about free speech or privacy, the scourge of data
scraping or the danger of digital monopolies. The outcome will
determine who gets to control the wealth of information about
ourselves that, often unwittingly, weve put at the disposal of
anyone with a professional curiosity and an internet connection.
People analytics is a new term, but the concept is as old as
the office job. Psychology had barely been founded before its
practitioners were identifying the traits of a good streetcar
driver or telephone switchboard operator. In 1917 a group of
prominent psychologists was asked to evaluate and sort the
hundreds of thousands of young men being drafted into the
U.S. Army to fight in Europe. The ensuing decades saw the
American military and intelligence agencies become centers
of research for psychological evaluation and aptitude testing;
after World War II, many of their scientists were hired to head
personnel research departments at AT&T, General Electric,
General Motors, and other iconic corporations. There they
subjected armies of salesmen, bankers, engineers, and middle
managers to surveys and aptitude tests, simulations and role-
playing games.
Still, in practice the selection and retention of talent remains
more art than scienceand often primitive art, at that. At most
companies, HR isnt where the most interesting thinking is
happening. But thats changing, as the data scientists who
brought us Amazon recommendation engines, online ad auc-
tions, and dating algorithms apply predictive analytics to how
we think and act at work. The goal is to go beyond traditional
but little-examined practicesfor instance, the job interview
(often useless) and the raise (not always the best way to retain
talent)to subtler metrics and methods. Big companies are
growing more interested as the cost of replacing valued workers
becomes clearer. Credit Suisse Group recently estimated that
reducing attrition by 1 percentage
point saves the bank from $75 million
to $100 million a year.
Thats where HiQ comes in. The
company was the brainchild of Darren
Kaplan, a former ad man who saw
that sites such as monster.com, glass-
door.com, and, above all, LinkedIn
had upended the balance of power
between employers and employees.
LinkedIns founding in 2002 had given
workers a new platform for market-
PHOTOGRAPHS BY JARED SOARES FOR BLOOMBERG BUSINESSWEEK
ing themselves and made it easier for
recruiters (not to mention business
journalists) to find and woo them.
Its economic model is built, in large
part, on charging for special recruiter
membershipsthey run about $9,000
a year, and companies often buy more
than onethat help with finding and
contacting potential poaches.
Kaplan envisioned a technological
Verrilli,
representing defense against the forays of recruiters,
LinkedIn an early warning system that would
assist companies in identifying restless
Bloomberg Businessweek
workers so their bosses could entice them to stay. (Predictive
attrition insights is the term HiQ has come to use.) In January
2015, the company rolled out Keeper, in which variables such as
independence from employer brand, mobility history, and
external footprint are displayed on a color-coded dashboard
and combined to calculate a workers flight risk. Skill Mapper
was released earlier this year, not long after the company hired
Mark Weidick as chief executive officer.
An engineer and entrepreneur whos worked at Cisco
Systems Inc. and AT&T Inc., Weidick has the graying crew cut
and earnest intensity of a high school debate team coach. I
cant help keeping track of time, he says apologetically, after
our conversation strays from the presentation on the confer-
ence room screen beside us. He describes HiQs limited offer-
ings as the first building blocks of a workforce analytics arsenal.
Investors evaluating a prospective merger would pay good
money, he argues, to know whos likely to stay at a company
and who might leave. Imagine you had the wherewithal to see
that autonomous vehicle experts were migrating outof Google
into Apple before it became public, he says.
Cisco and other software companies already perform this
sort of analysis when theyre scouting offices, surveying the
talent landscape in candidate cities to see which is the best
fit. HiQs pitch is that it can offer clients something compara-
ble through data science backed by off-the-shelf software and
tailored consulting. Reviews have been good. My experience
working with them has been fantastic, says an HR executive
at a HiQ customer with more than 20,000 employees. (Like
other clients, he was leery of being quoted by name while the
case was going on.) They are really smart about the data and
about presenting it so that its used to improve business and
employee outcomes.
Weidick had been on the job for only three months when
LinkedIn sent its cease-and-desist letter, and his first thought
was that there had been a misunderstanding. Many of HiQs
26 employees came from
LinkedIn, and one of the
startups co-founders, Rob
Desantis, had been an early
LinkedIn investor and board
member. LinkedIn staff reg-
ularly attended an annual
people analytics confer-
ence HiQ hosted. Two weeks
after receiving the letter,
Weidick wrote a bewildered
email to LinkedIns general
counsel, likening himself to
a dolphin that got caught in
the tuna net.
Others at HiQ were less
surprised. Even as LinkedIn
employees mingled at
HiQs conferences, its soft-
ware engineers were imple-
menting measures to block
data scrapers, setting off a
Gupta,
cat-and-mouse game with
representing
HiQs engineers. LinkedIn HiQ
had been ag gressively
November 20, 2017
complaining about what they considered unfair scraping prac-
tices for quite some time, recalls Dan Miller, HiQs chief tech-
nology officer. They went through a lot of trouble technically to
make it difficult to collate that data. We obviously think theyre
dead wrong to do that.
In other words, as far as LinkedIn was concerned, HiQ
was the tuna. When the larger companys lawyers made that
clear to Weidick, he hired the law firm Farella Braun & Martel.
Deepak Gupta, a partner there, thought the case might inter-
est his former professor, Laurence Tribe. Tribe, who teaches
at Harvard Law School, is a constitutional law luminary and a
liberal icon for arguing Supreme Court cases that expanded
First Amendment protections and sought to overturn state anti-
sodomy laws. He has also advocated for Peabody Energy Corp.
in its fight against greenhouse gas regulation, however, and his
expansive definition of free speech has led him to argue against
net neutrality on behalf of Time Warner Inc. He estimates that
he receives 20 or 30 appeals for legal help a day. I usually
just shrug them off and say, Im busy, he says. Among other
things, hes writing a book, teaching a new law school course,
and suing President Trump for corruption.
Tribe has a weakness for certain internet law questions,
though. In a seminal 1991 talk, he sought to delineate how the
Constitution, written in the language of physical space and
boundaries, should apply in the virtual reaches of cyberspace.
What were the public squares and private rooms of the web?
Who got to determine access? Should data be protected as
speech? If so, how? Back then the internet was an exotic geek
63
playground, but even though its now a global marketplace
where trillions of dollars change hands, the courts have only
begun to answer Tribes questions. When Gupta called, talking
about a battle over control of social media data, Tribe says, my
constitutional nostrils flared.
On July 27 he took a seat next to Gupta and another Farella
partner in a federal courtroom in San Francisco for the
Weidick,
HiQs CEO
 Bloomberg Businessweek November 20, 2017

second hearing in the case. HiQ had W E CA N T conclude, to send a letter instruct-
sued LinkedIn for unfair business prac- ing HiQ and its camera- clad minions
tices and violating the smaller compa- S I T H E R E T O D AY to stay out of its fair.
nys right to free speech under the state
constitution, which has broader speech AND POLICE Surveillance is a loaded word, one HiQ
protections than the U.S. Constitution. doesnt like. But the pitch such com-
The startup wasnt seeking damages, EVERY POSSIBLE panies make is that they can pick up
only asking Judge Edward Chen to issue faint signals in public data that would
a preliminary injunction that would BUSINESS otherwise go unnoticed. Those signals
force LinkedIn to let HiQ use its data. can reveal things that werent actu-
Arguing LinkedIns case was Donald M O D E L T H AT S O M E ally intended to be public: the tastes
Verrilli, who served as solicitor general and tendencies evinced by our web
under President Obama, and others
ENTREPRENEUR search patterns, the medical condi-
from the firm Munger, Tolles & Olson. tion revealed by our buying history,
IN SILICON
The demand LinkedIn had made in its our growing boredom with our job.
cease-and-desist letter to HiQ rested VA L L E Y M I G H T Last year the American Civil Liberties
largely on the Computer Fraud and Union discovered that an analytics
Abuse Act (CFAA), which makes it a COME UP WITH company called Dataminr Inc. was
federal crime, with a potential punish- allowing law enforcement and domes-
ment of 10 years in prison, to access tic intelligence analysts to use special
a computer without authorization. The 1984 law has been keyword and location search tools to track people through
amended multiple times, but its earliest version was meant to Twitter, which partially owns the company. (Dataminr has
protect against a WarGames-style hack of government main- since discontinued the practice.)
frames. LinkedIn was contending that, although people who Data-scraping bots are only one of the technologies forcing
posted on the site owned their own data, that data was stored us to rethink privacy protections. In 2012 the Supreme Court
on LinkedIn servers, and HiQ was trespassing. ruled in United States v. Jones that when the police affixed a
HiQs data scraping not only violated LinkedIns user agree- GPS tracking device to a car, they were invading the privacy
ment, it also threatened the privacy interest of LinkedIns of the driver, even though it would have been perfectly legal
64
members, Verrilli told Judge Chen, and the integrity of to gather the same information by following the car around.
LinkedIns trust relationship with its members, which is essen- Verrilli, the solicitor general at the time, lost that case, but
tial to its business. Keeper, Verrilli added, let companies snoop speaking by phone in early October, he praises the decision.
on LinkedIn members in ways they hadnt signed up for and What the court said, and its directly applicable here, is No,
wouldnt want: Its an anonymous surveillance of their behav- no. This is a difference in kind, not merely in degree, he
ior, to rat them out to their employers. says. Its a level of intrusion and a level of surveillance that
Gupta countered that Verrilli was mischaracterizing HiQs you could not as a practical matter ever accomplish absent
methods and products. LinkedIn the use of this super-high-powered
members have the option to mark technology. The expense and labor
their profiles entirely private or of old-fashioned surveillance imposed
entirely public, with gradations in practical limits on its use, but just as
between. HiQ made use only of the todays copsprovided they can get
data LinkedIn members had indicated a warrantneed not physically tail
they wanted visible to everyone on someone to know where he spends
the internet. his time, people analytics profession-
For LinkedIn, however, the key als need not rely on a battery of tests
distinction wasnt between public and role-playing games to get inside
and private or visible and invisible, employees heads. The easier it gets to
but between a person browsing a harvest and analyze information, the
PHOTOGRAPH BY JARED SOARES FOR BLOOMBERG BUSINESSWEEK

website and a bot brigade copying
data at scale. LinkedIns lawyers offer
an analogy in one of their briefs: The
site is like a massive job fair, held
at a convention center and open
to all comers. Into this gathering
HiQ sends a metaphorical swarm
of interns wearing body cameras
so it can track the movements of
every attendee and sell the result-
ing information to their employers.
LinkedIn would be well within its
rights, Verrilli and his colleagues
more actively that information has to
be protected. That, Verrilli argues, is
what LinkedIn is trying to do.
Its LinkedIn, after all, not HiQ, that
has the relationship with the members
who have posted the information.
Weve made promises in our privacy
policy, and we have to work with reg-
ulators worldwide who hold us to our
promises, says Blake Lawit, LinkedIns
Tribe,
representing
vice president for legal. Were not
HiQ under the radar, right? If we do some-
thing creepy with privacy, were going
Bloomberg Businessweek
to hear about it from the FTC and the Irish Data Protection
Commissioner and et cetera. In other words, LinkedIn might
be big and know lots about us, but with great power comes reg-
ulatory scrutiny, and with that comes a kind of responsibility.
If that argument is only somewhat reassuring, HiQs argu-
ment is effectively that were on our own, and that this is
the price we pay for todays internet. Theres probably lots
and lots of applications that might make someone feel a little
queasy, right? Gupta told Judge Chen. But the thing is, we
cant sit here today and police every possible business model
that some entrepreneur in Silicon Valley might come up with.
Its public information. Its the marketplace of ideas. Its the
engine of our countrys growth. The reason Google can put
the entire internet at our fingertips is because, like HiQ, it
scrapes public data. That includes LinkedIn pages, which is
why they tend to be among the top results if you Google a
noncelebrity (unlike HiQ, Google has LinkedIns explicit per-
mission to collect data).
Still, even those who might prefer that someone act as the
guardian of our data might not cast LinkedIn for the role.
The company doesnt have the size or sway of Facebook, but
as a business networking site it has no real competition, and
like Facebook its dominance is built on the wealth of data it
controls. This summer, Bala Iyer, Mohan Subramaniam, and
U. Srinivasa Rangan wrote an article in the Harvard Business
Review arguing that the rise of Facebook, Google, Amazon,
and the like necessitated a rethinking of the idea of a monop-
oly. Tomorrows monopolies wont be able to be measured
just by how much they sell us, the authors wrote. Theyll be
based on how much they know about us and how much better
they can predict our behavior than competitors.
The old considerationsIs pricing competitive? Does the
consumer have alternatives?havent gone away, but theyve
been augmented by new questions. Companies that control
data capable of predicting their customers choices could, for
example, figure out how to constrain those choices, making
such dominance all the more durable. As HiQs lawyers were at
pains to point out, LinkedIn itself is in the data-mining business
and is thus a competitor to HiQ. The larger company offers a
service called Update Me as part of its premium membership
for recruiters. As its name suggests, the product alerts recruit-
ers when particular people change their LinkedIn pages, mark
a work anniversary, or do something else that might signal a
recruitable moment. Keeper, by contrast, updates its risk pro-
files only monthly, not in real time.
Gupta made sure in court to carefully highlight the hypocrisy
of a sentence from LinkedIns promotional pitch to recruiters:
And dont worrythey dont know youre following them. In the case make it that far, wouldnt come for a few years. Thats
his telling, LinkedIn wasnt trying to prevent its members data
from being mined and analyzed: it was just trying to muscle out
a smaller competitor so it could have a new market to itself.
Like most legal disputes, the one between LinkedIn and
HiQ is a battle of analogies, and near the end of the proceed-
ings on July 27, Verrilli introduced one more. The informa-
tion in your local library is public, but that doesnt mean, he
argued, that you can break into the library with a crowbar at
2 in the morning because youre seized with a desire to read
Moby-Dick. Libraries can impose reasonable limits on public
information, and so, he said, can LinkedIn.
November 20, 2017
A few minutes later, Tribe rose to speak for the first time.
When he was growing up, he recalled, library books had a
little tag inside that would tell you how often the book was
taken out, and when. Imagine, he went on, that someone
wanted to collate that information to see what books were
most popular. For the government to make it a crime for me
to make use of that information because they want to be the,
perhaps, exclusive distributors of information about whats
popular to read would, of course, be unconstitutional. That
calculation didnt change, Tribe argued, if it was a corporation
rather than the government establishing the ban. If LinkedIn
has this power, so does Facebook, and the entire universe of
cyberspace can be gobbled up by a small number of private
owners, he said. That cant be what the law of an open, dem-
ocratic society with the First Amendment means.
On Aug. 14, Judge Chen issued his ruling, and it was in
favor of HiQ. He emphatically rejected LinkedIns interpre-
tation of the CFAA, which would, he wrote, give a private
company the power to choke off access to public data, with
prohibitions weaponized by the potential of criminal sanc-
tions. And although Chen was skeptical of some of Tribes
broader First Amendment arguments, he thought HiQ had
raised serious questions about antitrust violations. He arched
a rhetorical eyebrow at how LinkedIn, purported guardian
of its members secrets, enthusiastically marketed data-min-
ing capabilities of its own in a way that seems to afford little
deference to the very privacy concerns it professes to be pro-
tecting in this case. Chen also took the extraordinary step of
65
enjoining LinkedIn from putting in place any measure, tech-
nological as well as legal, to prevent HiQ from accessing its
site, and he ordered the company to remove any barriers
already in place.
Speaking a few weeks after the ruling, Lawit, LinkedIns
vice president for legal, still seemed blindsided: When did it
happen that companies who have data are forced to provide
all of it with no conditions to anyone who wants it?
At HiQ, the mood was predictably cheerierhigh-fives all
around, in Weidicks description. Still, the costs of the litiga-
tion had been substantial. Precious startup capital had been
spent on lawyers, and countless man-hours had been devoted
to trying, unsuccessfully, to come up with a business model
that wouldnt depend on LinkedIn.
LinkedIn swiftly announced that it would take its case to
the 9th U.S. Circuit Court of Appeals, which, in the past, has
been favorable to companies invoking the CFAA against data
scrapers. The soonest the case would be heard by the appeals
court is in early 2018, and a Supreme Court decision, should
an eon for a tech startup: By then, HiQ might actually be the
analytics powerhouse its CEO, Weidick, envisions, or it might
be defunct and remembered only as a cautionary tale.
The publicity around the case has led to more potential
customers reaching out, Weidick says, but in recent months
HiQ has also lost most of its employees, as more than a dozen
data scientists, designers, and programmers, calculating the
odds, have left for jobs at places not shadowed by an existen-
tial legal battle. That much attrition would be painful for any
company, but its particularly galling for one in the attrition-
insight business. The irony is not lost on me, Weidick says.
Not at all. 
 Bloomberg Businessweek
THE
BETTER-THAN-NOTHING
HEALTH PLAN
66
t the start of 2016, nine companies offered health insur-
A ance in Georgia through the federal Patient Protection
and Affordable Care Act, aka ACA, aka Obamacare. Eighty-
five percent of residents signing up could choose from among
four to eight carriers, depending on where they lived. One by
one, though, companies stopped selling insurance through
ACA exchangesthey were spooked by uncertainty about
the markets future, or were paying more for care than they
were collecting in premiums and other payments, or both.
As 2017 dawned, only five companies remained, and almost
half of Georgias ACA population was choosing from one or
two insurers. Then, in August, Anthem Inc. Blue Cross Blue
Shield announced it would pull out of ACA marketplaces in
74 of Georgias 159 counties, leaving all but 14 counties with
a single carrier for 2018. We were beside ourselves, says
Melissa Camp, who directs a program to help people sign up
for ACA benefits at the nonprofit InsureGA.
In came Centene Corp., a relatively obscure but swiftly
growing insurer based in suburban St. Louis. Centene, which
had sold Medicaid coverage in Georgia for longer than a decade,
had moved cautiously into the ACA market. But as Anthem pre-
pared to flee, Centene told state regulators it would expand into
20 more counties, including 17 in rural southwest Georgia that
are home to some of the poorest, unhealthiest people in the U.S.
Centene also said it would offer ACA policies next year across
November 20, 2017
Nevada, filling in rural counties that were destined to lack any
such insurers. It proposed to sell plans in Indiana, Missouri, and
Ohio counties that otherwise would have gone without. It also
will sell plans next year in new areas in Florida, Kansas, Texas,
and Washington state and, after exits by other carriers, is poised
to be the sole Obamacare provider throughout Mississippi.
Centene is the rare insurance company that really has
made a fortune from Obamacare, to borrow President Donald
Trumps phrase. The ACA is only one factor in the com-
panys growth, but since Centene took its first wary steps
into these marketplaces in 2014, its stock price has tripled,
annual revenue has climbed from $10.9 billion to more than
$40 billion, and net income has swelled more than threefold,
despite thin margins. Chief Executive Officer Michael Neidorff
last year was awarded $22 million in compensation, more than
his peers at UnitedHealth Group, Aetna, and Humana. One
of his biggest headaches these days is finding office space for
all the people Centene has to hire to handle new business.
In his office at Centene headquarters, Neidorff says the
company is doing what its done since he became CEO in
1996: courting the tens of millions of Americans who have
trouble affording health insurance. Compared with most
employer- provided plans, through which a majority of
working Americans are covered, his companys are stingy.
To view it through a Wall Street lens, the value proposition
 How do you get rich from Obamacare?
Centene does it by limiting access to providers, focusing on its
unhealthiest clients, and being the only game in town
67
BY BRYAN GRULEY, ZACHARY TRACER, AND HANNAH RECHT
PHOTOGRAPHS BY SUSANA RAAB

is that Centenes plans are better than nothing. Some of the later joined Coordinated Care as CEO in June 1996.
people who turned
A decade ago, Centene was one of several Medicaid up at an ACA
The company managed Medicaid coverage in two
managed-care companies taking heat for limiting cus- enrollment event this Wisconsin counties and part of one in Indiana.
tomers access to hospitals, doctors, and drugs. Now month at Phoebe Neidorff renamed the company Centene for a French
Sumter Medical Center
the companys tactics are more than welcome in such in Americus, Ga.
centime he found in his pocket after a trip to Europe.
places as Georgia. Were just so grateful that theyre Centene will In 1997, he moved Centene to Clayton, Mo.
coming in here, InsureGAs Camp says of Centene. offer the only ACA Medicaid, a federal-state program, supplies
plans in Sumter County
We hope they make a lot of money and stay. in 2018. From
health care to almost 70 million Americans, includ-
President Trump last month halted $7 billion in left: Jacqueline Storey, ing the poor, pregnant, disabled, and blind. In
annual ACA subsidies that reimbursed insurers that Aaron Wellons, the 1990s, states increasingly sought to offload
Steve Short,
offer lower-income customers discounted copay- Thomas Haugabook,
the costly, complex task of managing Medicaid
ments and deductibles. A federal judge upheld Toni Christian, care. Neidorff liked the business because state
Trumps order; a court challenge continues. Neidorff, Janay Williams contracts offered the chance to gain large groups
though, likes to say that Centene, descendant of a of customerssome healthier than othersin one
health plan started in the basement of a Milwaukee hospital swoop. I never wanted to be accused of skimming the
in 1984, has weathered the twists and turns of six administra- healthiest customers, he says. We wanted them all.
tions. At his desk, surrounded by photographs of him with Some doctors declined to treat customers of Centene and
several past presidents (and one with Dolly Parton), he says its managed-care peers because reimbursements for their ser-
Trumps effort to undo President Obamas signature legislation vices were low. States signed the companies up anyway. By
is nothing Centene cant handle. We will figure out how to 2009, the year before Obama signed the ACA into law, Centene
work with it, he says. We are not victims, we are managers. was handling Medicaid contracts in nine states. The company
bolstered its Washington lobbying as the ACA bill took shape
Neidorff is a physicians son who gave up on becoming a it tallied more than $1 million in total lobbying expenses in
doctor after a tough organic chemistry course in college. He 2009 and 2010 after spending less than half that in the prior
ran a UnitedHealth subsidiary in St. Louis for a decade and three years combined, according to OpenSecrets.org.
 Bloomberg Businessweek
Individuals who buy their own policies represent less than
10 percent of the market, even accounting for the 12 million
people now covered by plans purchased on ACA exchanges. The
big money has always been in providing packages to employ-
ers. Prior to Obamacare, the individual market could be profit-
able, too; the key was to attract reasonably healthy customers
who paid their premiums and didnt run up six-figure hospital
bills. Insurers could charge more or refuse coverage altogether
to people who were already injured or sick. Tens of millions of
unhealthy or lower-income people were effectively locked out
of the health insurance market.
Obamacare remade the individual market by immediately out-
lawing the refusal of coverage to people with pre-existing physi-
cal or mental conditions. The companies would have to deal with
a lot of sicker, more expensive customers without billing them
more than healthier ones. (This applies as well to people who buy
individual plans outside the exchanges, as about 5 million people
do.) Still, most big insurers jumped into the ACA exchanges with
gusto. Some priced their plans too low and got burned. Centene
moved slowly, entering limited areas in only nine states, getting
the lay of the land and gathering information on the new clientele.
It became clear to Centene that success or failure in these
markets hinged on keeping costs low, which it considered an area
of expertise. In the Medicaid space, you dont get to raise prices
on people who are expensive, says Nathan Landsbaum, who
runs Centenes Missouri health plan. You have to use medical
management to decrease the cost.
Centene leans on data it has compiled from customers past
68
ACA claims, including doctor and hospital visits, prescription
drug use, and laboratory tests. Because many of Centenes
clients rotate into and out of Medicaid as their economic sit-
uations fluctuate, the company often has past information
on them, and when Centene picks up Medicaid clients, it can
get state data on them as well. The company also aggregates
anonymous, publicly available data from a variety of sources
ranging from county health rankings developed by the Robert
Wood Johnson Foundation to Centers for Disease Control infor-
mation on tobacco and alcohol use. Taken together, the data tell
the company what to expect even from brand-new clients who
fit certain age, income, and other demographic profiles. Weve
been in so many states caring for so many populations that we
can approximate what will happen from past data, says Ken
Yamaguchi, Centenes chief medical officer.
The trick is to identify those who appear most likely to suffer
such costly conditions as diabetes and cardiovascular disease
and intervene before small problems become big ones. Research
shows that 5 percent of an insurers population can account for
as much as 50 percent of its costs. One Centene software tool,
I WANT TO GO
TO MORE OF AN UPSCALE
ENVIRONMENT
November 20, 2017
TruCare, sifts customer data to generate patient to-do lists that
are updated every 24 hours and shared with Centenes 3,000 case
managers. The system, for example, might alert a case manager
that a clients potassium levels have spiked, signaling the poten-
tial for a life-threatening kidney problem. The caseworker then
can contact the client to help her schedule a doctor visit or make
sure shes taking prescribed meds.
The use of predictive analytics in health care remains an
imperfect science: Electronic medical records systems are often
incomplete and unable to talk to one another, and physicians
dont always like to be told what to do by algorithms, accord-
ing to an essay published in June by Harvard Business Review.
But health providers are coming around, says Eric Just, senior
vice president for product development at Health Catalyst, a
firm that helps providers use data. Most major insurers employ
analytics, but at Centene, Just says, they were talking about
it before it was cool.
Many of Centenes newer ACA customers have never
had a regular doctorthey go to the emergency room or go
without. Thats notoriously expensive. Centene tries to goad
clients into healthier habits with cash rewards for doing such
things as getting a flu vaccine, completing a wellness survey,
or attending prenatal doctor appointments. The rewards,
which differ from state to state, can be used for health-related
expenses such as transportation to doctors appointments.
The thinking behind this is on display even in the companys
employee cafeteria, where a cheeseburger sells for $5 but a
veggie burger is $1.50.
Centene told investors in June that under one of its Medicaid
plans, its reduced emergency room visits over the past five years
by 5 percent. Wall Street would love to see more of that. Investors
sent the companys shares lower in October after Centenes
third-quarter medical spending climbed a single penny, to 88
for each dollar of revenue from premiums.
Ninety percent of Centenes ACA marketplace customers earn
little enough to qualify for federal tax credits that reduce their
monthly premiums. Many also qualify for reduced copays and
deductibles, which Centene must continue to provide even
after the recent cutoff of reimbursements. Subsidized clients
are vital to Centenes success. While only 8 percent of the com-
panys 12.3 million customers have marketplace coverage, that
slice accounts for 15 percent of earnings, according to Ana Gupte,
an analyst at Leerink Partners.
Tawanna Peterson is a client smack in the companys sweet
spot. Shes 60, not experiencing severe health problems, and
good about seeing her primary care physician and taking her pre-
scriptions for blood pressure, high cholesterol, and arthritis. She
Bloomberg Businessweek
lives in Columbus, Ga., with her husband, whos on Medicare.
Peterson qualifies for the tax credit because her household
earns less than 400 percent of the federal poverty level. She
bought a policy sold under Centenes Ambetter brand last year
after losing her job at a call center. She pays $62.28 a month after
the tax credit. I dont know what Id do without it, she says.
Some Centene customers complain about not being able to
visit the doctors and hospitals they prefer. Centenes networks are
narrow, or limitedthey offer fewer doctors and hospitals than
other networks in a given area. Plans with narrow networks can
be 16 percent cheaper than otherwise similar plans with broad
networks, according to research published in September in the
journal Health Affairs. The most likely reasons are that provid-
ers in narrower networks agree to lower reimbursements and
perform only the most necessary services.
Over the past two years, traditional insurers have engaged
fewer narrow networks while Medicaid specialists such as
Centene have used more of them, says Daniel Polsky, execu-
tive director of the Leonard Davis Institute of Health Economics
at the University of Pennsylvania. Its unclear whether these
networks offer poorer care. A study published in July in the
Journal of Clinical Oncology concluded that some narrow net-
works in 2014 allowed less consumer access to oncologists at
high-quality cancer centers. But research published in May 2015
in Health Affairs suggested these networks dont necessarily offer
care of lesser quality and sometimes may provide better care.
Centene has received mostly middling grades for the quality
of its Medicaid care and service in many states, according to
the nonprofit National Committee for Quality Assurance. No
such comprehensive ratings for the ACA market have been pub-
lished yet, but California and Washington state rankings give
the company below-average grades. Neidorff counters that
80 percent of Centenes ACA customers last year renewed for
2017. Of course, some would have had no alternative short of
going without coverage. As for the companys provider net-
works, he says, You may not get the exact doctor you want,
but youll have access to good doctors.
Neidorff also argues that Centenes predominantly poor
clients actually appreciate not being able to go to certain hospi-
tals for cultural reasons. For example, he says, a pregnant teen
covered by Centene might prefer a neighborhood clinic to, say,
Manhattans Lenox Hill Hospital (where Beyonc delivered her
baby in a private suite). This young girl doesnt want to sit in
some upscale obstetricians office having people look down on
her, Neidorff says. Former Centene customer Meaghan Latifi
Amini in Austin begs to differ. Some of the doctors she could
see were at lower-end community-care clinics, and I want to
go to more of an upscale environment, she says. Amini and her
husband left Centene for employer-based coverage on Nov. 1.
Centene tends to build its ACA networks around Medicaid
providers its worked with in the past. Company executives
wont discuss specifics of what Centene pays its doctors and
hospitals, but Missouri executive Landsbaum says theres a
wide gap between what providers usually seekstandard com-
mercial rates, or what most private employers payand where
Centene starts negotiations, which is closer to Medicaid levels.
Commercial plans probably pay twice as much as Medicaid on
average, according to data from the Congressional Budget Office
and the Kaiser Family Foundation. Some providers refuse to
work with Centene. The company has greater leverage in places
November 20, 2017
where its the sole marketplace provider, as in the clutch of
southwestern Georgia counties its entering on Jan. 1.
Median household income in seven of the counties where
Centene is expanding is below or just above the poverty level
for a household of four, and health is generally poor. We see
the train wrecks, says Sarah Lang, CEO of Valley Healthcare
System Inc., a federally funded care provider with three clin-
ical facilities in and around Columbus. They have multiple
illnesses and because of the cost will wait until the last possi-
ble minute to seek care.
Centene is familiar with the territory, having managed Georgia
Medicaid clients under its Peach State Health Plan brand. Last
year the company started talking with southwestern Georgias
dominant hospital network, Phoebe Putney Health System,
about serving Centenes policyholders next year. Phoebe Chief
Financial Officer Brian Church says he was glad to hear from
Centene because its been a good partner in Medicaid and
we saw it as the perfect complement to Blue Cross. Then Blue
Cross said it was ending ACA coverage in counties where Phoebe
does business, leaving Centene the lone insurer. Church wont
discuss specifics of what Centene will pay, but says, I could be
in a better position a year from now with Centene or I could be
in a worse position. The Phoebe system wasnt required to join
Centenes network. But if it hadnt, it would still have to eat the
cost of treating uninsured people, which was $65 million in the
fiscal year ended July 31, 2016. Centene is doing what business
does, which is look at the rulebook and say, How can we make
a profit? says Jim Beck, a former Georgia deputy insurance
69
commissioner now running for commissioner.
Two boom cranes hover over a construction site across the street
from Centene headquarters, at work on a 27-story tower that
will house 2,000 Centene employees. When the company closes
its $3.75 billion acquisition next year of Fidelis CareNew York
states largest Medicaid provideron top of its $6 billion purchase
of Health Net Inc. last year, Centene says it will be the largest
Medicaid provider in the four most populous states. Its gradu-
ally expanding into the lucrative market for private health insur-
ance for seniors known as Medicare Advantage Plans.
But political threats loom over its Obamacare business.
Without the subsidies Trump recently stopped, premiums
across the country will rise. As of Jan. 1, Centenes premiums are
scheduled to climb 46 percent on average in Florida, 36 percent
in Indiana, and more than 50 percent in Georgia. As these go
up, though, so will applicable tax credits, so that 80 percent of
HealthCare.gov enrollees will be able to buy a plan for $75 or less
per month. Assuming Obamacare survives in its current form,
those tax credits will cost the government $194 billion more over
the next decade than if Trump had done nothing, according to
the CBO and the Joint Committee on Taxation.
The greater threat to Centene is Congress and Trump finally
repealing Obamacare altogether. An end to the ACA market for
individuals or the ACA expansion of Medicaid could cost the
company millions of customers. Neidorff dismisses the political
back-and-forth as headline noise. The company is considering
where it will expand in 2019. Most people never thought wed
be where we are today, he says. Were a Fortune 66 company
this year. Well be a Fortune 50 in 19. Itll take a while to become
a Fortune 25. Thatll probably be somebody elses opportunity,
not mine.  With Anders Melin
TAKING IT SLOW
IN TAIWAN
P
Crossing 150 miles in four U
R
days on two wheelsand
almost zero Mandarin
By Matt Gross

S
Photographs by Brad Torchia

U
I
T
S
84
The Moscot scion
with 20/20 style

86
Mobile master
Alexander Calder

87
Mark Levinsons
dream turntable

88
The virtual virtuoso
at NASA

Bloomberg
Businessweek

November 20, 2017

Cycling Route 1
through the flooded Edited by
rice fields of Hualien Chris Rovzar
 TRAVEL Bloomberg Pursuits November 20, 2017

here comes a moment during for exercise, taking breaks for the occa- and fresh seafood restaurants along the

T every great endurance adventure

when, no matter how fit you are,
no matter how experienced, a simple,
sional cigarette. And at the end of 2015
the country opened Cycling Route 1, a
500-plus-mile network of bike paths that
way. For my endpoint, I drop a Google
Maps pin on the Chihsing Tan Katsuo
Museum, a colorful fishing museum.
penetrating question arises: Why? runs along the perimeter of the island. Im By car, my 150-mile trip would be less
During a 150-mile bike trip up the more of a hardened runner than expert than half a days work. But Taiwan is a land
rugged east coast of Taiwan, there are cyclist, but what was I waiting for? of subtletiesto drink it in, you have to go
times when this question becomes my A full circuit takes about 10 days, more slowly. The freedom of a bike trip allows
mantra, hummed under my breath like than I could commit to. Instead, this July you to indulge in refreshing little stops,
a Zen koan. The four-day journey takes I chose to ride from Taitung to Hualien, a to more closely observe local curiosities,
me from rocky beaches to lush mountain- stretch that friends and strangers alike told and to absorb the vastness of the views. A
tops, from lazy hills to vertical slogs, all me was among Taiwans most beautiful: place thats both big and small like Taiwan
in temperatures that, at their predawn the Pacific Ocean on one side, mountains is where bikes are at their best.
lowest, barely dip below 80F. on the other, and some gorgeous hotels The fun of a cycling trip, though, relies
Taiwan is no ones first thought when
it comes to a cycling tripmore popular
The pool at the Silence Manor in Hualien County
are weeklong excursions with stops at five-
star resorts in Frances Burgundy wine
country or, for real Tour de France fans,
ascending Mont Ventoux guided by ex-pro
cyclists. And with good reason: Taiwan,
about the size of Scotland, is cut off geo-
graphically and diplomatically from much
of the world, and theres scant informa-
tion, at least in English, about where to
sleep and what to eat on your adventure.
But over the past 20 years, Ive visited
the island many times, often staying for
80
weeks with my in-laws in the capital of
Taipei. (My wife, Jean, grew up there.)
Everywhere Ive been in the country of
23 million people Ive found not only excel-
lent food and eye-popping scenery but a
uniquely friendly population. Theres a
chill amiability to interactions, even when
Ive struggled to make myself understood
in Mandarin. Life is good, take your time,
enjoy the small thingsthats the mood.
And while Taiwan may be overlooked
in the world of cycling, its known to
some as the Bicycle Kingdom: The
island is home to Giant Manufacturing
Co., the worlds largest bike maker and
a billion-dollar manufacturer for brands
such as Schwinn and Trek. (In 2014 it sold
6.6 million bikes.) Other cycling-related
companies abound, ranging from artisans
such as Quoc Pham, whose handmade
leather shoes are stylish and comfortable
enough to wear anywhere, to Wohobike,
which lets travelers borrow pioneering
bags that fit right into a bikes frame.
Dedicated moped and bicycle lanes
are everywhere. Bike-share programs
operate in major cities such as Kaohsiung
and Taichung. Taipei has legalized riding
on 240 miles of sidewalk and is in the
process of adding 120 miles to its network
of bike lanes. On weekends, hordes of
riders cruise alongside the Tamsui River
TRAVEL Bloomberg Pursuits November 20, 2017

on a complicated and contradictory cal-

culus: When things are too easy, you feel
youre not earning the rewards; when its
hard, you regret ever having emerged
from the hotels air conditioning. Why?
is a deliciously vicious cycle.
And so it goes for me. When I arrive in
the afternoon in Taitung, a four-hour train
ride from Taipei, the summer sun blazes
over the low buildings. Wohobike has
lent me a 9-speed with wide gravel tires,
while my photographer, Brad, picks up a
27-speed FastRoad SLR 2 with lights, tools,
and panniers from a local Giant office.
(The companys islandwide network offers
point-to-point rentals.)
Our rides secure, we coast into town to
grab lunch at the Green House, a rickety
restaurant known for its set meals: crispy
mackerel, stir-fried bitter melon, thinly
sliced pork belly topped with soy, nuggets
of garlic, and a thatch of shredded ginger.
This is the kind of food I associate with
Taiwanflavorful but not flashy, deli-
cious even when its not deluxe, above- Dinner at Tou Mu Local Seafood, Fengbin Township
average but unconcerned with being
A-plus. Its food I want to eat every single
day. Afterward, we wait out the heat with days challenge. We ride through villages are circling the pin on Google Maps.
81
matcha slushies and mango waffles at where surfboards are propped next to Why? Untilthe entrance! A wooden
Caf Rebecca, a coffee shop located in a hostels and pause at a fruit vendors door leads to a stately modern villa with
cypress-wood house that dates to 1947, stall for fresh coconut juice. Sometimes a coffee station, stocked with pour-over
when Taiwan was emerging from 50 years we stop just to admire the dependably devices and siphons, on the ground floor.
of Japanese colonial rule. irregular vistas, where the sea meets the Upstairs is a two-bedroom suite where
Every day, we figure, will go like this. mountain meets the sky. Occasionally, the air conditioning is cranked to high.
Ride in the ever-so-slightly cooler morn- I spot other cyclists, though I imagine The manager has left a note directing
ings, break for a lunch that could last in cooler monthsNovember through us to the villages only restaurant, Sea
hours, and then, around 4 p.m., finish Marchthere are many more. As we pass, of Clouds, which specializes in lobster.
our rolling journey as the sun sinks we chant, Jia you! Jia you!a Mandarin I choose a big oneour waitress, Ms. Li,
behind the mountains. cheer that roughly means Lets go! warns us its pricey, at NT$1,000 a kilo-
gram ($33 for 2.2 pounds)which the
kitchen hacks into sixths and stir-fries
Taiwan is a land of subtletiesto with intensely flavored scallions. There
drink it in, you have to go slowly. are also crispy chunks of fried fish, sticky-
sweet spare ribs, and morning glory stir-
The freedom of a bike trip allows fried with garlic. We fetch tall bottles of
you to indulge in refreshing little Taiwan Beer from a cooler and fill little
glasses. An elderly grandma toasts us and
stops, to more closely observe guzzles a glass of red wine. When I ask
local curiosities, and to absorb the Ms. Li if the restaurant has any kaoliang,
vastness of the views the high-proof sorghum liquor that is
Taiwans national drink, she hands me a
bottle to take home without charge.
When we finally set off, Pacific waves As the sun begins to set, we relish the The next three days follow a similar
on our right crash into beaches strewn cooler temperature, then start to worry. formula: Depart at 6:30 a.m. in the cooler
with tetrapods, the jacklike concrete Shouldnt we be at the Baonon Ocean morning air, ride 15 or 20 miles, then
structures that fight erosion. To our Villa by now? We are tired and sweat- stop for a breakfast of scallion pancake
left, clouds snake through the steep soaked. Text messages from the hotels with egg and Mr. Brown canned iced
green foothills of the Haian Range. manager blip on my phone: Are you coffee. Then another couple hours of
Ahead, smooth, well-marked roads rise arriving soon? Yes, but soon turns riding. As we climb1,000, 2,000, 3,000
and curve with enough slope for a first from 6:00 to 6:30 to 7:00. By 7:30, we feetso does the temperature, until we
 TRAVEL
82
A room at Noosa Coast B&B in Fengbin Township
can bear it no longer and take a break.
Once, we find a stand selling pine-
apple, sweet as candy and served with a
mound of salt. Take-fives like this keep
us goingkeep us alive. Our bikes are
sturdy and hold up fine, though Brad is
always worried hell hit a bump and pop
a tire with all the gear in his panniers. Im
glad to have Wohos bags, which keep the
bike balanced.
We seek lunch where we can find it. On
one lonely stretch of coast, theres but a
Bloomberg Pursuits
single cafe serving stewed ground pork on
rice, sweet and savory beef noodle soup,
and other Taiwanese classics. Another
day, we descend into Yuli Township in the
East Rift Valley, which separates the Haian
Range from the more massive Chungyang
Mountains. We discover, thanks to a train
station clerk, that the township has its own
signature noodles: yuli mian, yellow egg
noodles in a clear broth, with thin slices
of pork and, as always, loads of juicy
scallions. Yuli mian arent that different
November 20, 2017
from other Taiwanese noodle dishes, but
they have an unadorned purity I admire.
We are noodles, they seem to say. Enjoy
us as we are.
By late afternoon on the second day,
we find ourselves riding up to a recently
built hotel. Just across the Red Leaf River,
down small roads that twist through jack-
fruit and pomelo orchards, lies the stark
and peaceful Silence Manor, 14 miles
north of Yuli in Ruisui. Instantly, I fall in
love with its soft, grassy lawn, its views
of the mountains, and especially its
pools, a small one fed by a hot spring
and a larger one where I float for an hour
staring at the fish and insects cavorting
at the surface of a nearby pond. For the
first time in perhaps months, I truly relax.
Closer to Hualien, we stay at the
Noosa Coast B&B, run by a young, cool
Taiwanese couple who spent time in small-
town Australia and rural India before
opening this place a year ago. Perched
above a sandy beach where cows traipse
through in the morning, the Noosa is strik-
ing in the way its angular concrete lines
frame the ocean in light and shadow. The
loft suites have unique personalities: Mine
is decorated with antique cameras, an old
bicycle, and a leather couch, like some
bohemian Tokyo pied--terre.
Each of these lodgings is better than
Id hoped for: well-managed, beautiful,
supercasual. And each morning, as we
pedal away, I wish I could stay longereat
more, relax more, explore more. In fact, I
wish I could stop everywhere, learn every-
thing. The east coast has a large aborig-
inal populationpeople whod lived on
Taiwan for more than 5,000 years before
immigrants from mainland China began
arriving in the 17th century. We see signs
of their culture from the roadintricately
carved wooden posts in Tafalong, a girl
embroidering colorful fabric next to the
highway in Xinshe. These details under-
score how little time I have to experience
the region, even on a bike. The slower I
go, the more it becomes clear that I have
so much to see.
Some of the tourist landmarks along
the route are entertainingly minor. On a
bike bridge across the Xiuguluan River,
we find a plaque explaining the plate tec-
tonics that created the East Rift Valley.
In one adorable village, we examine a
300-year-old well where tribal festivals
were held. For maybe three minutes, we
circle a monument that marks the Tropic
of Cancer. The most memorable stop is at
TRAVEL
100 mi.
Mainland
China
Hualien
Full bicycle route
Yuli
Taitung
an aboriginal hunting school, where we
fire bamboo arrows at targets and miss.
As we approach Hualien, a city of
100,000 that functions as the gateway to
the east coast, I fixate on the Chihsing
Tan Katsuo Museum, a former Japanese
bonito flake factory that tells the history
of the citys fishing industry. Its our final
day riding, and Brad and I bike through
A brief stop north of Taitung at a park along Cycling Route 1
Bloomberg Pursuits
a beachy neighborhood with laid-back
resorts, a bustling FamilyMart grocery,
Taipei, Taiwan and a small Buddhist temple behind a
grandiose gate. We round the corner
toward the museum, but before I see it,
my nose twitches with the smell of a wet
campfire. Uh-oh. Before us, where the
museum should have been, is an utterly
The authors burned-out, empty lot. Nothing has sur-
journey
vived the fire that, some guys at a nearby
noodle stand tell us, consumed the build-
ing a week and a half before our arrival.
I fall to the ground and begin to laugh.
Why? Is there anything more ridiculous
than to ride 150 miles to reach something
that no longer exists? As I collect myself,
I remember its almost lunchtime, and
well soon be eating at nearby Mu Ming,
an incredible aboriginal restaurant that
serves roast fish, grilled pork wrapped in
lettuce, and good, funky craft beer from
local breweries.
And soon after that, well hop the
train back to Taipei, our muscles sore,
November 20, 2017
our bellies full, our minds blazing with
the struggles and successes of a delightful,
delicious expedition. Those memories
whether a sweet pineapple or a simple
downhill cruisewill outlast the lactic-acid
buildup in my muscles. The taste of those
mangoes, and the pork and shellfish and
passion fruit, still lingers on my taste buds.
Would they have tasted as good without
the effort that went into getting there?
One vivid memory provides a possible
answer. Once, when we stopped to rest at
an old farmhouse, the owner emerged to
pour us cold drinking water from a natural
spring, which he told us was from higher
up the mountains. Atop one pass, we
actually found the spring the farmer had
described. The feeling of that icy mountain
water on the back of my neck was worth
every straining, sun-soaked Why? that led
to it. Because Id earned it.
Bike itineraries can be arranged through
an Asian adventure provider such as Remote
Lands; remotelands.com 
83
 STYLE Bloomberg Pursuits November 20, 2017

84

Moscot uses
his companys
archives as a
reference for
new designs
 STYLE
Seeing Into the Future
Zack Moscot is challenging his familys century-old eyewear
brand to ride the millennial wave. By Troy Patterson
ZACK MOSCOT WAS NOT YET 8 YEARS
old when he had a screaming tantrum
about his professional future. I
dont wanna join the business!
wailed the fifth- generation member
of the family behind Moscot, the
venerable New York eyewear company.
His great-great- grandfather Hyman
Moscot founded the shop in 1915, turning
a pushcart stocked with ready-made
glasses into an optical landmark known
for its bright yellow sign and low-key
style. I didnt know what I wanted to
do, Zack says, looking back. I always
just created things.
In middle school he spent week-
ends working the company phones as
a customer-service rep. When he was in
high school, his late uncle Kenny, who
oversaw design for the brand, showed
him this other side of the business. Zack
studied industrial design at the University
of Michigan and graduated in 2013.
Today the 26-year-old is the brands
chief design officer. Hes charged
with ushering the family business
into its second century and continu-
ing to charm celebrity clients such as
PHOTOGRAPH BY VICTORIA HELY-HUTCHINSON FOR BLOOMBERG BUSINESSWEEK; GLASSES COURTESY MOSCOT
Leonardo DiCaprio, Demi Moore, and
Jake Gyllenhaal, who regularly snap up
pairs of the companys $350 shades.
The competition is stiff, well-armed,
and largely cheaper: The eyewear land-
scape is dominated by Luxxotica Group,
a maker of frames and sunglasses, and
if a $53 billion merger with ophthalmic
lensmaker Essilor International SA is
approved, the company will control a
quarter of the global market. Meanwhile,
e-commerce companies such as Warby
Parkerwhich recorded 500 percent
growth in 2016are solidifying their place
in the consumer mind as hip. Moscot
operates on a smaller but higher plane:
Its glasses are better quality and there-
fore more pricey. (Warby frames start at
$95; Moscots at $260.) The brand doesnt
chase trends, relying instead on its long
history of making eyeglasses to offer the
styles people want at any given moment.
Bloomberg Pursuits
And while it sells online, its also commit-
ted to brick-and-mortar outlets despite
the retail apocalypse that larger chains
are facing.
Theres no need to visit shops
anymore, Moscot states plainly. You
want to make it something worth taking
a train to, something experiential.
For Moscot, the brands key appeal
lies in its city heritage. A new location, in
Manhattans Chelsea Market, is Moscots
fourth standalone outpost in the city
and its eighth worldwide. Sitting in a
conference room above the companys
Lower East Side flagship, Moscot ticks
off the brick walls, tin ceilings, and other
interior-design details that communicate
the charm of pregentrified New York.
There are also the bells and whistles
that distinguish the Moscot in-person
experience. The company is the first to
hire a full-time doctorat the new loca-
tionwho specializes in computer-vision
syndrome, an affliction especially rele-
vant to Moscots target clientele, the digi-
tally savvy employees at the nearby offices
of Google and YouTube. And a novel
gizmo called a Tint-a-Majig falls some-
where between a display tool and a deliri-
ous toy: Step inside, turn the handle, and
Yente
Zolman
Marilyn
November 20, 2017
test 18 different colorsfrom denim blue
to candy cornon your face. Its kind
of steampunk-meets-amusement-park
industrial, Moscot says.
Currently, hes finishing designs for
springnarrowing a group of 20 frames,
all designed by him and inspired by
the companys archives, down to a col-
lection of five that can coexist with
long- standing favorites such as the
tortoiseshell Miltzen and the Yukel, a
riff on horn-rimmed designs.
He also manages collaborations with
downtown Manhattan brands defined
by their casual approach to urban cool,
including Mr Porter, Common Projects,
and Freemans Sporting Club. Theres a
Moscot concession at Dover Street Market
85
New York, the avant-garde superstore
operated by Comme des Garons, where
monthly exclusives include custom tint
and frame color combinations.
The common denominator in all
these endeavors is to sell a piece of
Manhattan, whether its close-to-
home design language or market-
ing that assures overseas customers
theyre truly wearing a piece of New
York. Even model names derive from
old family in-jokes: The Lemtosh, a
rounder, nerdier style, got its name
from a made-up Yiddish-ism the family
uses to tease one another. A new model
getting attention this season is the Yente,
which Moscot says was named in honor
of his gossipy great-aunt Etta.
Other designs of his that are a little
more streamlined and contemporary,
as he puts it, have been unexpectedly
strong sellers in middle-of-the-road
American markets, where shoppers
are more conservative. Europeans favor
chunkier frames, whereas fashion types
tend toward classics that could have
come from Hymans pushcart a century
ago. There might be a period where
more people are wearing one particu-
lar frame, Moscot says. But the long-
term goal is that a frame doesnt go out
of style. 
 CRITIC Bloomberg Pursuits
Social Mobility
A new biography of Alexander Calder follows
the curious rise of one of the 20th centurys
86
top-selling artists. By James Tarmy
The artist Alexander Calder died 41 years ago, but today he
seems more famous than ever: In 2017 hes been featured in
four solo exhibitions, and in November no fewer than 31 of his
colorful mobiles, massive sculptures, prints, and paintings will
be auctioned at Christies and Sothebys. According to Artnet,
his art has gone under the gavel more than 10,400 times; his
record sale was set in 2014 at Christies in New York, when a
hanging mobile went for almost $26 million.
A biography by the art historian and critic Jed Perl, Calder:
The Conquest of Time, attempts to explain how a single artist
could come to so completely dominate the field of American
modernist sculpture. The writing practically hums as Perl
describes Calders work, which he clearly adores, and the
text has reams of novel insights: We learn about Calders
indebtedness to the painter Piet Mondriannot an obvious
connectionand that it was Marcel Duchamp who suggested
Calder describe his hanging sculptures as mobiles, a term
that came to connote an entire artform. The books most
illuminating portions highlight how closely interwoven the
artists social life was with his professional success. Through
his connections and his efforts to market his own work, he
helped to create, then cement, a type of artistic fame that
persists to this day.
Calder was born in 1898 in Lawnton, Pa., into a family of
artists. His grandfather, Alexander Milne Calder, sculpted
the 37-foot-tall statue of William Penn that sits on the dome
of Philadelphias City Hall. (Were told he was haunted until
his death by the conviction that the builders had mounted it
in the wrong direction.) A. Stirling, Calders father, a famous
November 20, 2017
fin de sicle artist, sculpted, among other things, the figure
of George Washington that adorns New Yorks Washington
Square Arch.
Calder himself backed into a career as an artist rather than
pursuing one outrighthe went to university to study engi-
neering and, only after dragging his heels following gradua-
tion, studied at the Art Students League of New York. In 1926
he would move to Paris.
Soon after his arrival, in an attempt to earn some money, he
made his Cirque Calder, a miniature stage set starring tiny circus
performers that he could manipulate with wires and strings to
do tricks. (The original is in the permanent collection of the
Whitney Museum of American Art in New York.) He held per-
formances in his studio and, eventually, in fashionable drawing
rooms in the U.S. and Europe. Socialites would invite him and
a coterie of friends, including the sculptor Isamu Noguchi, to
operate the Cirque during cocktail parties.
Calders star began to burn even brighter in 1931, when
he married Louisa James, a wealthy grandniece of the author
Henry James. Her trust fund largely supported the couple for
the next decade. Perl notes, delicately, The fact that Louisas
family was well set financially couldnt have been a matter of
indifference to Calder. By 1933 the couple had moved into a
spacious apartment in Paris.
While the rest of the world was plunged into the Depression,
Calder and his wife were coming into their own as hosts,
comfortably entertaining the disparate, immensely import-
ant interwar milieu that would shape the world of art and
culture for the rest of the century. Over the years, they became
friends with Alfred Barr Jr., the first director of the Museum of
Modern Art in New York; Martha Graham, the modern dancer
and choreographer; the artist Joan Mir; the playwright Arthur
Miller; and dozens of other luminaries.
Its here where Perls book feels particularly thin, clear-
ing Calder of anything as unscrupulous as ambition. He thus
brushes aside the possibility that the artist could have been
canny enough to use his connections to further his quest to
establish a serious position in the art world. So while Perl
carefully details Calders social gifts and role as expansive
host and charming houseguest at English country estates,
he discounts any impact it might have had on the artists
career. Variations on this portrait of Calder as a sly oppor-
tunist reappeared throughout his life, Perl writes. The accu-
sations were unfounded.
The book ends in the early 1940s, when Calder had offi-
cially made it. (A second volume, scheduled for publication in
November 2019, will address the rest of his life.) By then, his
massive mobile, Lobster Trap and Fish Tail, had been installed
in the stairwell of MoMA; the Rockefellers had commissioned
a candelabra. Later, banking scion Paul Mellon bought cuff
links made by Calder. Perl quotes a contemporary who says,
In those days, all the right people wore Calder jewelry.
It takes more than just the right people to sustain a
50-year career, of course, and anyone whos had the plea-
ILLUSTRATION BY MATIJA MEDVED
sure of standing beneath one of Calders mobiles can under-
stand the genius it took to transform abstractions into three
dimensions. But his transition from a lighthearted tinkerer
to ringmaster of Calder Inc. took a lot of help and a surfeit
of goodwill. Perhaps Perls next volume will make a point to
give credit where credit is due. 
 THE ONE Bloomberg Pursuits November 20, 2017

Mark Levinson The hi- audio makers rst record

player is an investment-worthy deck

No. 515 Turntable Photograph by Janelle Jones

87

THE CHARACTERISTICS THE COMPETITION THE CASE

Founded in 1972 and acquired in 1990 by Harman
International Industries Inc., Mark Levinson is
synonymous with high-end sound. Its eponymous
founder, an aspiring musician said to have built
a stage mixer at Woodstock, jump-started the
craze for premium home audio equipment. To
commemorate its 45th anniversary this year,
IAN
AN
N
At $10,000, the Mark Levinson No. 515 has
been measured to be 0.01 percent better at
reproducing pitch than VPIs own top-shelf
$6,000 Prime Signature turntable. Both have
a massive aluminum alloy platter and layered
plinth design, but flourishes such as a 3D-printed
tonearm and Levinsons trademark black
Fans of Mark Levinson amplifiers such as the
523, 526, and 585.5 whove wanted an end-to-
end, vinyl-focused, hi-fi stereo system now have
a turntable to match. The uncompromising
engineering and VPIs impeccable craftsmanship
produce some of the most neutral sound possible
in a phonograph. Its a system that values the

the brand teamed up with another top-rated anodized chassis give the 515 more polish. record-playing experience, delivering rich
X BRANN

manufacturer, turntable maker VPI Industries McIntosh Laboratory Inc. makes the platter for sonics that trounce the clinical tones created by
EX
YL S : ALEX
ALEX B

Inc., to create its first record player, the No. 515. its $6,500 MT5 out of 5 pounds of glow-in-the- digital fileswhether youre rediscovering Paul
A 20-pound platter rotates on an inverted bearing dark silicone, but aluminums fidelity, over time, McCartneys ingenious bass lines or Miles Daviss
TYLIST
TYLIS

Birth of the Cool, which Levinson himself

TYLI

to make it the most precise deck on the market. tends to be better. Technics, the Panasonic brand
TYL
TY
P ST Y

The reinforced base tamps down resonance to behind the SL-1200, a durable DJ favorite, is remastered. Mark Levinson No. 515 turntable;
ROP
RO
PROOP
PROP
O

create a warm, clear, analog sound. expected to release a new player next summer. marklevinson.com
PR
PR
 Bloomberg Pursuits November 20, 2017

GAME CHANGER

Victor Luo
NASAs virtual-reality wunderkind writes programs that send
people into space without ever leaving Earth. By Adam Popescu

88
WERE IN THE VHS STAGE science from the University
of VRthe brick-phone of Southern California, Luo
stage, says Victor Luo, with interned at Boeing Co. before
a laugh. Hes the lead project getting a job at NASA in 2008,
manager for the OpsLab writing code that simplified
at NASAs Jet Propulsion and improved operations for
Laboratory in Pasadena, Calif. the Mars Curiosity Rover. He
Luo works on the space agencys eventually found a home in the
virtual- and augmented-reality OpsLab, where he was quickly pro-
projects, enabling engineers here moted, taking charge of the opera-
on Earth to design virtual space shut- tion this year.
tles in 3D and then assist astronauts on the Luos work might sound far-fetched,
real shuttles orbiting outside the atmosphere. but Skip Rizzo, a research director at USCs
In 2013, Luo was instrumental in rolling out NASAs Institute for Creative Technologies whos used VR
first console video game, and he consults regularly on Hollywood to help veterans overcome trauma, is on board. Its a natural
projects. Not bad for only 32 years old. direction to give people visualizations for things they cant
Born in Beijing to engineer parents, Luo left the mainland be there for and interact with, he says. Think about avia-
for Hong Kong when he was 4, then moved to Indiana a year tion simulation: There was a gigantic drop in crash landings
later, where his father studied for a masters degree. When he with people learning to fly by instrument. Were at another
was 9, the family moved to Silicon Valley. tipping point here.
The one constant in his life was space, which he found end- In addition to his VR work, Luo has begun stepping up recruit-
lessly fascinating. Aerospace engineering, however, proved a ment among tech types, who are more likely to picture them-
harder sell in college for Luo, who was much better at abstract selves in Silicon Valley than at Cape Canaveral. People think
tasks such as computer programming. I switched of NASA as this kind of archaic institution that cant
to aerospace for a semesterI thought I needed that move quickly, he says. We like to challenge that.
for NASA, he says. The chair of the department b. 1985, Beijing Funding is always an issue at a government agency,
said, You dont have to be in aerospace to be in the - but Luo is optimistic about NASAs future backing.
ILLUSTRATION BY SAM KERR

Has completed
space industry. It was a lightbulb moment, and I astronaut, scuba, and Space is really hip right now, he says. These types
went back to computers. pilot training of technology are going to enable a new generation of
After earning a degree in computer engineer- - space exploration. It wont just be astronauts landing
Built shelters in
ing from California Polytechnic State University Nepal after the 2015 on Mars. It will be everyone on Earth. This tech will
at San Luis Obispo and a masters in computer earthquake enable that immersion. Thats the vision.