● Recession? What recession?

28 ● Nine incredible airport secrets 55 ● How to fake steak 14

November 25, 2019 ● SPECIAL DOUBLE ISSUE

The search giant wants the military’s business.

Many employees don’t 38
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 November 25, 2019

◀ Warby Parker says

the packaging for its
new contacts ensures
the lenses always face
the right way

3
PHOTOGRAPH BY WILLIAM MEBANE FOR BLOOMBERG BUSINESSWEEK

FEATURES 38 Google at War

The company wants the U.S. military’s business. Most of its employees don’t

44 New Way to Run a Railroad

Amtrak’s CEO won’t let nostalgia for train travel derail his quest to turn a profit

50 Contact High
Warby Parker bets its vision for selling glasses will work for daily-wear lenses
 ◼ CONTENTS Bloomberg Businessweek November 25, 2019

◼ IN BRIEF 7 Coty loves Kylie ● Antigovernment protests erupt in Iran How to Contact
Bloomberg
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◼ REMARKS 8 South Africa’s scapegoating of immigrants fans violence
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BUSINESS 12 GM’s growth engine in China is sputtering Ad Sales
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15 A vaping crackdown in China damps startups’ plans New York, NY 10022
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2 22 Using an old weapon to battle antibiotic resistance
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FINANCE 24 Walgreens may be too big a pill for even KKR to swallow
3 25 Putting heat on money managers over climate change risk
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27 Visa CEO Al Kelly on consumer spending and tap-to-pay or email
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ECONOMICS 28 The global economy has shaken off the summertime blues
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30 ▲ The U.S.-China trade war revives interest in Penang

POLITICS 33 Brexit chaos opens cracks in the U.K.’s 312-year-old union

35 A clash of ideologies spills into Latin America’s streets
36 What will Japan do after Shinzo Abe?
PHOTOGRAPH BY IAN TEH FOR BLOOMBERG BUSINESSWEEK

◼ PURSUITS 55 Sure, LAX is nuts. But it’s even crazier behind the scenes
60 It’s easier than ever to visit Africa’s friendliest city, Accra
62 The sun sets on the golden era of frequent-flyer awards
63 An eye mask to ensure it’s lights out at wheels up

◼ LAST THING 64 SoftBank’s spotty record for spotting unicorns

Cover:
CORRECTION The map accompanying “One State’s 50-Year Bet on Data Centers” (Technology, Nov. 11) Illustration by
mislabeled Illinois. Justin Metz
Your business is as unique as a barcode.
The trouble is, barcodes look the same.
And judging by the one-size-fits-all coverage most insurers offer, all businesses are
the same. But when you specialize only in business insurance, you know each one is
unique and tailor policies to fit each business.

Get a quote and buy online at

Hiscox.com or call 877-949-2338.
 Bloomberg Businessweek November 25, 2019
 IN BRIEF By Benedikt Kammel

○ The initial public offering ○ President

of Saudi oil giant Aramco
will rely heavily on in- Donald Trump
country demand after floated the idea
plans to market the deal of appearing at
in Canada, Japan, and the
U.S. were dropped. Aramco the impeachment
is seeking a valuation of hearings,
$1.6 trillion to $1.71 trillion, tweeting that
well below the $2 trillion
sought by Crown Prince he’ll “strongly
Mohammed bin Salman. consider”
○ The University of Hong Kong came under siege, with police saying they fired
testifying.
more than 1,400 tear gas volleys at protesters. Pro-democracy demonstrations in
the China-controlled territory have become increasingly violent in recent weeks.

○ Kylie Jenner sold control ○ Antigovernment ○ The U.S. sided ○ Airbus pulled in more than
of the makeup and protesters in Iran, angered
skin care group she
founded to Coty for
by gasoline rationing, set
fire to banks and public
buildings. Hundreds have
with Israel and
reversed its
position on Jewish
$35b
in aircraft orders at the
$600m been arrested as the
settlements in the
biennial Dubai Air Show,
The youngest member of government shut down with its A320 single-
the Kardashian-Jenner internet access. Amnesty West Bank. aisle family again proving
clan comes with more International, citing “credible popular with airlines. But
than 151 million Instagram reports,” said that at Boeing also managed to 7
followers, giving Coty a rich least 106 people have died. bring home fresh deals for
The settlements are considered
marketing vein to promote illegal under international law. “We’ve
its 737 Max model, which
the cosmetics. recognized the reality on the ground,” remains grounded after two
Secretary of State Mike Pompeo said.
fatal accidents.
HONG KONG: JUSTIN CHIN/BLOOMBERG. JENNER: RICH FURY/GETTY IMAGES. CHIP SOMODEVILLA/GETTY IMAGES. DATA: COMPILED BY BLOOMBERG

Palestinian officials denounced the

move as harmful to peace efforts.

○ Madrid’s stock exchange ○ The price of palladium

○ “Everybody became the subject of a

takeover battle after the
operator of the Swiss
bourse announced a
has gained more than that
of any major commodity
over the past year.

was in $3.1 billion bid and the

owner of the Paris and
Amsterda am exchanges also
Palladium
spot price
+40%

loop.” entered tthe fray. Deutsche

Börse is looking into joining
the conte
familiar w
est as well, people
with talks said.
Ambassador Gordon Sondland testified d at
the House impeachment hearing that Vice
V
President Mike Pence and Secretary of State Bloomberg
Mike Pompeo knew about President Tru ump’s Commodities
efforts to get Ukraine to announce a po
olitically Index +2%
motivated investigation to benefit Trump. 1/1/19 11/20/19

○ Indian giant Tata Steel plans to cut as many as 3,000 jobs across operations in Europe amid stagnant demand.
○ Aroundtown agreed on Nov. 19 to buy TLG Immobilien for $3.4 billion, creating Germany’s biggest commercial landlord.
○ Mainland China overtook Hong Kong as a market for Swiss luxury watches as the riots in the city deterred shoppers.
○ Prince Andrew said he will step back from public duties, as the furor over his friendship with Jeffrey Epstein continues.
 ◼ REMARKS

South Africa’s
Epidemic of Hate

8
 ◼ REMARKS Bloomberg Businessweek
● From the highest levels to
the grassroots, the country is
scapegoating migrants from
the rest of the continent
● By Antony Sguazzin
In early September, Faayif Yosif, a 41-year-old Somali who
moved to South Africa as a refugee in 2004, lost everything
he owned in minutes. A mob of South Africans began doing
the toyi-toyi—a dance with a jogging rhythm associated with
protests—outside his general store on the outskirts of the
capital, Pretoria. “They broke into my shop and took every-
thing, including a lot of money,” he says. Since then, he’s lost
his appetite and become depressed, and he spends his days
sleeping. “They told us to get out if we didn’t want to die. My
heart was broken, because I watched something I worked
hard for being destroyed.”
Every few years, bouts of xenophobic violence in South
Africa—which mainly target black Africans from elsewhere
in Africa and, occasionally, poor migrants from Pakistan and
Bangladesh—make headlines. In 2008 about 60 people died
and more than 50,000 were displaced in a wave of violence
across the country. Ernesto Nhamuave, a Mozambican man,
was set alight and burned to death east of Johannesburg; the
photograph of his killing spread around the world.
There were similar episodes in 2015. From the end of apart-
heid in 1994 to Dec. 31 last year, at least 309 people have been
killed in xenophobic attacks, 2,193 shops have been looted,
and more than 100,000 people have been displaced, accord-
ing to Xenowatch, a program run by the African Centre for
Migration & Society at the University of the Witwatersrand
in Johannesburg. “The frequency of the brutality we see in
South Africa is making it unique,” says Jean Pierre Misago,
a researcher at the center who’s been working with refu-
gees since the early 1990s. “Burning people alive, destroy-
ing property.”
In September shops run by foreigners were looted and
burned in central Johannesburg and in poor areas around the
city, as well as in Pretoria. But this time there was a response
from the rest of the continent. Retaliatory attacks on South
African-owned businesses took place in the Democratic
Republic of Congo, Nigeria, and Zambia. Leaders from all
over Africa condemned the violence. Yemi Osinbajo, vice
president of Nigeria, withdrew from the World Economic
Forum on Africa conference in Cape Town and the coun-
try recalled its ambassador. Air Peace, a privately owned
Nigerian airline, sent a plane to Johannesburg to repatriate
any Nigerians who wanted to come home. Zambia canceled
SUMAYA HISHAM/REUTERS
an international soccer match between the nations. “You can-
not be an open democracy and allow this kind of misconduct
on a frequent pattern without there being consequences,”
said Oby Ezekwesili, a former Nigerian cabinet minister and
November 25, 2019
World Bank vice president for Africa, in an interview at the
forum. “The president needs to lead,” she said, referring to
South Africa’s Cyril Ramaphosa.
An embarrassed Ramaphosa gave a televised address to
the nation saying there could be no excuse for attacks on the
homes and businesses of foreign nationals, and dispatched
envoys to a number of African countries to minimize the
damage. But two months later, little seems to have changed.
Indeed, from the highest levels of South Africa’s government
down to the grassroots, foreigners continue to be made scape-
goats for the country’s problems as its economy—the conti-
nent’s largest—sputters.
“South Africa has always welcomed people from many
parts of the world,” Ramaphosa told an African Development
Bank investment forum in Johannesburg on Nov. 11, trying
to explain the incidents. “Sometimes reaction is sparked off
by what you call nonsensical incidents, whether somebody
greeted another one in a different language or whether they
couldn’t answer in a different language, and it just sparks off.
South Africans are not inherently xenophobic.”
Politicians portray the attacks as spontaneous outbreaks of
violence among poor people fighting over scarce resources.
Academics and nongovernmental organizations working with
migrants say that’s incorrect. They say the violence is highly
coordinated and planned by local groups or individuals for
economic or political gain. Local businesses use xenophobia 9
to chase away competition set up by outsiders; and politicians
and community leaders blame foreigners for taking advantage
of benefits and services they say are meant for South Africans.
Social media helps spread the message of hate. “Migrants
become a tool for criminal gain, political gain,” says Miranda
Madikane, director of the Scalabrini Centre of Cape Town,
which helps migrants integrate into South African society.
The scapegoating isn’t beneath Ramaphosa himself. In the
runup to national elections in May, he said his government
planned to end the opening of shops in poor areas by people
without the correct papers and permits. Many of these shops
are owned by foreigners. Aaron Motsoaledi, South Africa’s
minister of home affairs and former minister of health, has
blamed foreigners for overburdening South Africa’s health-
care system. Former President Thabo Mbeki and Naledi
Pandor, the country’s minister of international relations and
cooperation, have both said Nigerians were involved in drug
dealing, prostitution, and human trafficking.
South Africa’s biggest opposition party, the Democratic
Alliance, which prides itself on its liberal roots, put up a
“Secure Our Borders” campaign poster in the runup to
national elections in May. Jacques Julius, then its spokes-
man on immigration, proposed “humane deportation”
of undocumented migrants who, he said, were commit-
ting crimes and taking welfare checks and anti-AIDS drugs
meant for South Africans. On Oct. 26 the outgoing mayor of
Johannesburg, the DA’s Herman Mashaba, tweeted statistics
relating to the arrests of foreigners over the last four years
and he’s blamed foreigners for the run-down condition of
 ◼ REMARKS Bloomberg Businessweek
the city center. Local politicians assert with little evidence
that Zimbabweans and Malawians steal jobs. All the rheto-
ric inflames South Africans frustrated by soaring crime lev-
els, high unemployment, housing shortages, and poor health
care. “When political leaders say all the problems are due
to foreign nationals, the people on the ground are going to
believe them,” says Misago of the African Centre for Migration
& Society. “There’s no need to fact-check. These are the jus-
tifications for the failure of service delivery.”
South Africa’s law enforcement agencies have done little
to prevent the violence or arrest the instigators. Looters are
regularly arrested but quickly released. They “are typically
not the ones that light the match,” Madikane says, calling for
stronger action against organizers of the violence. But few of
those who inspire the attacks have faced prosecution. The
latest bout of violence, which led to the death of 12 people
including 10 South Africans, was sparked by a flyer calling for
action against foreign nationals, according to an exposé by
the social justice website New Frame, which interviewed the
alleged author of the pamphlet. No arrests have been made.
Police rarely act on warnings that attacks are being planned.
Government officials up to the ministerial level insist the
violence is “criminality” rather than xenophobia. “It is unfortu-
nate that these incidences are labeled as xenophobic violence,”
the Department of Justice and Constitutional Development said
10 in a response to questions. “Government has consistently indi-
cated that the incidents referred to relate to sporadic incidents
of violence directed at some foreign nationals and not ‘xeno-
phobia.’” The department also disputed that action isn’t being
taken to prosecute the perpetrators.
Special courts to prosecute offenders, which were
suggested by the South African Human Rights Commission
after the outbreaks of violence in 2008, were never set
up, Madikane says. The justice department says that
recommendation and others “were taken on board” and a
number are in the process of being included in a national
action plan. “It’s essentially a governance issue. It’s rule of
law, it’s lack of leadership, it’s lack of conflict resolution
mechanisms,” Misago says. “Denialism and lack of political
will. The two together amount to complicity.”
On Oct. 30, at about the same time that Thulani Mavuso,
South Africa’s acting director general of home affairs, was
telling broadcaster ENCA that the country wasn’t xeno-
phobic, police were filmed wrenching small children from
the arms of their migrant mothers at a demonstration in
Cape Town outside the offices of the United Nations High
Commissioner for Refugees. The families were demanding
to be sent to safer countries.
Despite the violence and hostility, many migrants say they
can’t leave. They’ve come to South Africa from failed states
such as Somalia or left because of the economic collapse of
Zimbabwe. Some are fleeing violence in their own countries.
“Despite all the violence, people see South Africa as a place
of economic opportunity,” Misago says. “A place of democ-
racy and protection of human rights.” Even after his travails,
November 25, 2019
Yosif, the Somali merchant, doesn’t plan to leave. “We don’t
have anywhere else to go. We have to make it work,” he says.
“A lot of the time things are OK. But when there is violence,
the angry people chase us first.”
Migrants and refugees, though, may not have the same
benefits Yosif has enjoyed. The government is reviewing the
widely praised set of laws that have governed migration and
refugees in the country since 1998. These laws have allowed
refugees to study, seek work, and live within communities
in South Africa rather than be housed in camps. The pro-
posed Refugees Amendment Act would remove the right
of refugees to work and study, according to the Scalabrini
Centre. The White Paper on International Migration released
in July 2017 by the Department of Home Affairs—and dis-
cussed before Parliament—talks about moving to a refugee
camp-based system.
The amendments, which need the president’s signature,
will streamline the asylum process and clear a backlog, the
Department of Home Affairs said in response to queries.
“Attacks on foreign nationals, and the safety of all people
in the country, are a matter receiving serious attention,” the
department said. “All organs of state in the justice, crime
prevention, and security cluster are involved. South Africa
remains committed to building communities in which all
people are, and feel, safe.”
Instead of camps, refugee reception offices may be set up
closer to borders where asylum seekers enter, the department
said. The Scalabrini Centre says those are effectively camps,
because asylum seekers will need to be housed close to them
and won’t have freedom of movement across the country. The
office of the president didn’t respond to requests for comment.
While Ramaphosa and other leaders decry the violence,
at least one politician appears to recognize that a deeper sen-
timent needs to be dealt with. “We have regrettably turned
against our brothers and sisters from the rest of the conti-
nent,” Minister of Finance Tito Mboweni said in his budget
speech on Oct. 30. “We should inculcate in the minds of our
people that we are all Africans.”
The violence rankles many migrants from countries who
helped fight the former apartheid regime in South Africa.
Nigerian civil servants contributed part of their salaries to a
so-called Mandela tax. “Some of us were chased from school
if we didn’t pay the Mandela levy,” says Olisaemeka Anieze, a
41-year-old secondhand clothes trader from Nigeria, which is
fast becoming South Africa’s biggest economic and political
rival on the continent. In September a mob chased him away
from his store in central Johannesburg and stole his property.
“They blame their failure on us. They use us as their pawns.
I am tired of being a pawn.”
The attacks in September and the likelihood that they will
be repeated have persuaded Anieze to leave. He’s moving
back to Lagos to start a fish farm. “It’s like building a sand-
castle close to the sea. I can’t keep gathering and losing,” he
says. “I wish the country well, but it’s not nice when you walk
with a mark on your back.” <BW>
 A name on the rise.
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2799922-102819
 1
B
U Is China Still GM’s Prom
S
I
N
E ● As the carmaker plays
catch-up on EVs, Chinese
S
12
consumers are turning away
The future for General Motors Co. in China is in the
S hands of customers like Yang Yanjun, a 46-year-old
logistics executive in Shanghai. Yang and his family
own two gasoline-powered cars—a Volkswagen and
an Audi—and now he’s considering whether to go
electric. Strolling through a Buick showroom in
eastern Shanghai, he stops to admire one of GM’s
newest electric vehicles, a powder-blue Velite 6
that’s wrapped with a giant red bow and costs
less than $27,000. “It’s time for a change,” he says.
“We’re ready to try something new.”
Mary Barra, GM’s chief executive officer, who of
late is managing labor strife at home, needs more
such converts to reverse the automaker’s slide in
China. The world’s biggest auto market is suffer-
ing through a year-and-a-half slump exacerbated
by China’s lackluster economy and the trade war
with the U.S.
GM’s position is especially weak. While Cadillac
has been a bright spot, sales of its Buick and
Chevrolet brands have taken a beating, and GM’s
overall passenger-vehicle retail sales plunged 18%
through October, according to data from China
Automotive Information Net, compared with a 4%
Edited by
James E. Ellis and
decline in the overall market. “In China, the busi-
Dimitra Kessenides ness environment remains challenging and volatile,”
Barra said in an earnings call in October. “We’re also
seeing a lot of pricing pressures.” She promised to
cut costs and improve the company’s product mix.
It’s all a far cry from a decade ago, when GM
was the top foreign automaker in the market. It
formed joint ventures with local partners such as
Shanghai Automotive Industry Corp. The venture’s
Buick New Century sedans started rolling off the
assembly line in 1999, two years after GM and SAIC
joined forces, and quickly won over Chinese driv-
ers and passengers, including government officials.
During the worst of the Great Recession, when GM
was on life support in the U.S., strength in China
provided the American parent with a much-needed
financial cushion.
Still recovering from its government rescue,
GM’s eight-year reign as the top foreign automaker
in China ended in 2013 as Volkswagen took on that
distinction. More recently, it’s struggled as U.S.
auto brands have faced a backlash from Chinese
consumers deterred by U.S. President Trump’s trade
GILLES SABRIE/BLOOMBERG (2). DATA: COMPILED BY BLOOMBERG
policies with China, Bloomberg Intelligence analyst
Kevin Kim said in a report published on Nov. 4.
Shipments from two of SAIC and GM’s passenger-car
joint ventures, which exclude imported and com-
mercial vehicles, “nosedived” in the first nine
months of 2019, according to the report.
Part of the problem has been stale models.
Barra’s global turnaround strategy depends on
an ambitious plan to introduce about 20 new
or updated models, including EVs and hybrids,
this year. The company has a raft of vehicles

ised Land?
designed to reverse its fortunes in China and other
profit-challenged locales.
Overseeing the China rollout is Matt Tsien, a GM
veteran who first started as a 15-year-old intern.
He’s now the Shanghai-based head of the China
business. He landed in China in 1995 as GM was in
the early stages of negotiating an agreement with
SAIC. Tsien, then 35, was working at GM subsid-
iary Delco Electronics when GM tapped him to
move to China as chief technology officer and help
clinch the deal. He spent two years working out of
a Shanghai Holiday Inn. “Nobody imagined at that
time that electrification was going to take hold,”
Tsien says.
The Shanghai office where he’s now
based, originally built to house many of GM’s
international operations, is eerily quiet. In 2013,
GM moved everyone except the China team to its
Singapore office. Some workers in the Shanghai
office watch cricket on cafeteria televisions at
lunch. Executives have large offices. There’s so
much extra space that even an intern sits in a
massive beige cubicle. In the bathrooms, a flyer
hangs in stalls explaining the importance of return
on invested capital, a metric mostly unknown
to startups but prized by mature companies
expected to efficiently put their assets to work. To
generate a 1% increase in ROIC, GM must increase
earnings by $500 million or reduce capital usage
by $25 billion, the flyer explains.
Tsien, who holds several patents related to
systems engineering, says GM will hit its goal of
Bloomberg Businessweek November 25, 2019
producing 10 new electric-car models in China by  An EV charging
station outside a Buick
next year and an additional 20 by 2023. “We’re pur- dealership in Shanghai
posely being deliberate about our rollout,” he says.
GM will be displaying its first all-electric Chevrolet
for the Chinese market, the Chevy Menlo, at an auto
show in the southern Chinese city of Guangzhou
from Nov. 22 to Dec. 1. The sedan is capable of
traveling more than 400 kilometers (249 miles)
on a single charge. Other new models include the
Cadillac CT5, a sedan launched on Nov. 18, and the
XT6, a Cadillac SUV that went on sale in July.
GM needs to refresh its lineup to keep pace
with new cars from established rivals such as VW,
Mercedes-Benz, and Toyota, as well as local challeng-
ers like BYD Co. and Guangzhou Xiaopeng Motors ○ Share of GM
vehicle sales
Technology Co. Known as Xpeng, the electric-car
China
startup is backed by Chinese e-commerce
U.S.
powerhouse Alibaba Group Holding Ltd. “[New-
Europe
energy vehicle] technology opens a window for
China to potentially level the playing field with 40%
foreign automakers and take global leadership,” says
Bill Russo, CEO of consulting firm Automobility Ltd.
There’s also a new Tesla Inc. gigafactory in
Shanghai to contend with. Tesla is running trial 20%
operations at the factory, its first outside the U.S.
Mass production of the Tesla Model 3 is expected 13
to start in December. The company has said it will
make 150,000 Model 3s a year in Shanghai after 0%
ramping up the first phase of production. 2014 2018
No other country comes close to China in terms
of scale and adoption of new-energy vehicles. More
electric cars have been sold in Shanghai alone than
in all of the U.S., U.K., or Germany. By 2032 sales of
electric cars are expected to overtake sales of new
combustion-engine vehicles in the country, accord-
ing to BloombergNEF, Bloomberg LP’s primary
research service on energy transition.
GM is trying to keep pace as competitors move
ahead with aggressive expansion plans despite
the ongoing sales downturn. Volkswagen has
introduced 14 new versions of traditional models
since 2018, and the German automaker expects to
launch 10 electrified versions of existing models in
China by the end of next year.
Toyota Motor Corp. is forming a joint venture ○ Tsien
with Shenzhen-based BYD to make EVs, while
Honda Motor Co. is working with Contemporary
Amperex Technology Ltd., a leading Chinese
maker of lithium-ion batteries. Even GM’s struggling
rival, Ford Motor Co., could make its new electric
Mustang Mach-E in China, Ford CEO Jim Hackett told
Bloomberg News.  For more information
Not only is GM being challenged by other on the future of
transportation, go
automakers, but the overall car industry in China is to Bloomberg.com/
getting less government support. The government hyperdrive
 ◼ BUSINESS
has invested more than $60 billion to nurture the
NEV industry in a bid to lower the country’s reliance
on foreign energy sources and reduce air pollution.
It’s offered generous tax breaks and subsidies to EV
makers and funded thousands of public charging
stations nationwide. But now, rather than depend-
ing as heavily on incentives to purchasers of EVs,
China is shifting toward using regulations to encour-
age the growth of the industry. In June the govern-
ment slashed buyers’ subsidies from 75,000 yuan
($10,660) for one type of battery-powered car to
25,000 yuan. EV sales since then have dropped for
four consecutive months.
The new approach focuses on a credit-trading
program scheduled to take full effect in 2021. Under
the system, companies will have to ramp up NEV
production or buy credits from other automakers
to avoid punishment.
“All of this speaks to how serious this country
is toward driving electrification,” Tsien says.
“Demand certainly has softened in the last couple
of years. I expect that it will come back.” —Shelly
Banjo, Tian Ying, Bruce Einhorn, and Michael Tighe
THE BOTTOM LINE GM needs to refresh its lineup to keep pace
with new EVs from foreign and local carmakers in China. The
14 country is the U.S. automaker’s biggest market by sales.
The Quest for Fake
Meat’s Holy Grail
● Forget hamburgers. Startups are racing
to roll out 3D-printed steaks
The walls of Redefine Meat Ltd.’s lab in Rehovot,
Israel, are plastered with posters of cuts of beef,
including sirloins, T-bones, and rib-eyes. Books
such as Whole Beast Butchery line the counters
while vacuum-packed bags of what look like
chops, ground meat, and gristle practically spill
out of the fridge.
The engineers and food researchers are,
you could say, a bit obsessed. But the startup
isn’t looking to sell the perfect cut of beef.
Instead, it wants to create a plant-based facsim-
ile. The company is building a 3D printer that
it says will produce a meatless steak that’s so
fatty, juicy, and perfectly meaty that even the
most dedicated carnivore won’t know the differ-
ence. “All meat alternatives today are basically
Bloomberg Businessweek November 25, 2019
a meat-homogeneous mass,” says Eshchar Ben-
Shitrit, Redefine Meat’s chief executive officer. “If
you 3D-print it, you can control what’s happen-
ing inside the mass to improve the texture and to
improve the flavor.”
Startups such as Redefine Meat and their
backers say that 3D printing promises to give diners
the same sensory experience as eating a real T-bone
or rump roast. The technology involves develop-
ing a design that can then be printed countless
times. First, proprietary computer software cre-
ates a detailed model of a steak, including the
muscle, fat, and blood, based on whichever cut
it’s emulating. That blueprint is then transmitted
to a printer loaded with plant-based “inks.” Hit the
start button and out comes a “steak.”
Alternative meat is enjoying a boom as climate
change and health concerns drive consumers to
products such as those made by Beyond Meat Inc.
and Impossible Foods Inc. While ground-meat
replacements are widely available, mimicking an
actual cut of meat has proved far more challenging.
That’s because replicating the mouthfeel and
visual appeal of a juicy sirloin is a lot tougher than
cranking out something that’s going to be slapped
between a bun. Says Giuseppe Scionti, founder of
Novameat Tech SL, a Spanish company developing
a 3D-printed steak: “A beefsteak is the holy grail of
plant-based meat.“
Ground-meat
The faux-meat category has already reached an
replacements
estimated $14 billion in annual sales worldwide,
are widely
according to Barclays Plc, and will grow to
available, but
$140 billion in 2029. The sausages and patties now
imitating a real
on the market are much easier to make, since all
cut of meat has
ILLUSTRATION BY BAPTISTE VIROT
the ingredients are mixed up into a ground mash
proved more
and then squeezed out into the format of choice.
challenging
“We have a lot of burgers in the market—many,
many burgers,” says Dan Altschuler Malek, man-
aging partner at Unovis Partners, which manages
New Crop Capital, a venture fund that invests
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 ◼ BUSINESS
in alternative protein businesses. “When will
fillet come about? When will sirloin come about?
Consumers will want to have a choice.”
Engineering a realistic texture is crucial. It goes
beyond flavor and affects attributes like mouth-
feel, chewiness, and the sensation of multiple
tastes in a single bite. That means engineers face
the difficult task of precisely re-creating layers of
thin muscle fibers and fat.
Cultured-meat companies, which already are
growing chicken, beef, and duck from extracted
animal cells, have also struggled to perfect
realistic texture, since doing so requires multiple
kinds of cells that interact with each other within
a scaffolding that can organize it all correctly.
“You need to create at the same time the taste,
the texture, and appearance of the fibrous meat,
the whole muscle tissue,” says Scionti, whose
company is backed by New Crop Capital.
The two companies say they will supply
customers, including restaurants, meat distributors,
and retailers, with both the printers and cartridges.
For the 3D-printed steak prototype Scionti first
unveiled at the Mobile World Congress in Barcelona
last February, the ingredients included rice, peas,
16 and seaweed. The resulting steak’s appearance was
underwhelming—it looked more like a pancake than
a sirloin. Scionti says the focus was on texture; he’s
now perfecting the look and will next focus on flavor.
A revamped version, he says, is slated to be available
by 2021. He hopes to build a gigantic steak-producing
machine ready for industrial use in 2022.
Redefine Meat, which plans to introduce its
plant-based steaks to the public in the first quarter
of 2020, is particularly focused on fat. Ben-Shitrit
says the future success of imitation meat depends
on getting that piece of it just right. “Fat is flavor,
fat is texture,” he says. “You need to have this play
between the muscle fibers and the jelly kind of
consistency coming from the fat.” Listening to him
wax poetic about animal collagen and fatty acids,
it would be easy to forget the man is a vegetarian.
In September, Redefine Meat secured $6 mil-
lion in funding from firms including big German
chicken producer PHW Group and CPT Capital, a
venture fund owned by private equity veteran and
sustainability-minded investor Jeremy Coller. “The
everlasting question is: Can you scale it up?” says
Arnold Bos, a senior consultant at Lux Research
Inc., a technology researcher. “If you need to print
more, you need more printers.”
Food companies might get around that hurdle
by using faster printers, but that’s tricky since
extrusion-based printers, typically used for food,
could be limited by the speed of their nozzles, Bos
Bloomberg Businessweek November 25, 2019
says. Redefine Meat’s printer, the current fake-steak
speed king, can deliver five 7-ounce steaks in an
hour. The company hopes to speed that up to 22
pounds by the end of 2020, when the technology is
set to go on sale. That will mean 50 servings an hour,
or the equivalent of a cow’s worth of steak a day.
Because Novameat’s plant ingredients are rel-
atively cheap, Scionti says he’s sure that in a few
years his steak will be cheaper than the real thing.
Printing a 7-ounce steak on his company’s proto-
type printer costs $4 now, but Scionti expects it
to come down to about $2 by the end of next year,
using a $15,000 full-production machine. “Plant
protein is more efficient to produce than animal
protein,” Scionti says. “In the next few years we are
sure that we can be competitive and even cheaper
than normal meat.” �Agnieszka de Sousa, with
Deena Shanker and Lydia Mulvany
THE BOTTOM LINE A realistic steak is the ultimate test for the
faux-meat industry, which Barclays estimates will grow into a
$140 billion business in 2029.
Vaping’s Problems
Shift East
● China, the world’s biggest producer of cigarettes and smokers,
is rapidly cracking down on the tech-driven alternative
For e-cigarette startups steadily being frozen out by
regulators around the globe, China seemed like an
easy win. But now the world’s biggest tobacco mar-
ket is joining the pushback against vaping, leaving
companies scrambling. Fearful of its impact on teen-
agers, China has shifted its stance on vaping from
benign indifference to crackdown mode within a
matter of weeks. The country banned online sales
on Nov. 1, and authorities are considering forbidding
vaping in all public venues, a curb not even imposed
on traditional cigarettes. That’s a particularly rapid
regulatory turn, considering the government only
banned vaping for those under 18 in August 2018.
Beijing joins a growing global chorus, from India
to the U.S. to Brazil, moving against e-cigarettes.
Once seen as a useful tool to help smokers quit,
vaping is now linked to a mysterious lung disease
that’s sickened 1,888 people and killed 37. That
means companies that bet on vaping becoming
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 ◼ BUSINESS
a massive—and lucrative—successor to traditional
cigarettes in China could see their hopes go up in
smoke. “There’s a huge opportunity, but given a lot
of the new regulations, there’s also a huge regulatory
risk,” says Thomas Piachaud, a director at Kantar
Consulting in Shanghai.
Nevertheless, startups such as RELX Technology
and Shenzhen Xuewu Technology Co., which owns
the vaping brand SnowPlus, aren’t quite ready to
give up on persuading the country’s 300 million
smokers to shift to high-tech smokes. “Even if you’re
able to convert only a small number of smokers,”
says Piachaud, “given the size of the population
and smoking habits, you would make quite a lot of
money from doing this.”
To keep growing even as the regulatory noose
tightens in China, e-cigarette makers are embracing
a controversial strategy already under attack in the
U.S.: churning out flavored vapes. In the U.S., the
proliferation of flavors such as mango and mint from
Juul Labs Inc. has been blamed for the rise of vaping
among teens who weren’t previously smokers. The
U.S. company, which isn’t selling in China anymore
after a brief attempt earlier this year, has halted sales
of flavored pods back home after a regulatory inves-
18 tigation into whether its marketing targeted teens.
Juul has denied targeting youths, saying its devices
are for adults seeking an alternative to cigarettes.
“We do know there’s a lot of argument about
flavor—whether it’s good for adults or not, whether
it has a bad impact on kids or not,” says Kate Wang,
former head of Uber China, who’s now RELX’s chief
executive officer. “In China, we see how the flavors
can be a helpful factor for adult smokers [who want
to quit cigarettes]. This is a finding that we are 100%
sure on from Day 1.”
SnowPlus co-founder Derek Li agrees that
flavors are essential to convert traditional smokers
to vaping: “I really think it’s a balance that the
government needs to consider,” he says.
RELX’s blockbuster flavor is mung bean, a
traditional Asian ingredient commonly used in
soups and desserts. The company also tried such
flavors as bubble milk tea and peach oolong and
offers themed packs tied to holidays including
Halloween and Christmas. Meanwhile, SnowPlus
has introduced a pod in Southeast Asian markets
that’s flavored like the energy drink Red Bull. It also
sells vaping pods that taste like lychee and pineapple
coconut. “New flavors are very important, because
that’s how you attract smokers or those who feel it’s
a trendy culture to follow,” says Yong Teng, a part-
ner at LEK Consulting in Shanghai.
Still, some believe China’s vaping companies
are living on borrowed time. Local media reports
say more regulation is on the way, including a cap
of 2% nicotine content in vape pods—far below the
5% in products popular with consumers. There’s
also industry talk that China Tobacco, the state
monopoly, is exploring its own vaping products. It
contributed about 1.2 trillion yuan ($164 billion) in
profit and taxes to the government’s coffers in 2018.
Estimated at $781 million in 2018, Chinese
e-cigarette sales are small compared with the
U.S.’s $3 billion annual market. But the nation’s
entrenched smoking habit has businesses convinced
e-cigs have plenty of potential. China’s smoking rate
has held steady at a third of its population even as
the rate is losing momentum globally. And smoking
among younger Chinese age 15-24 rose from 17.9% in ● Prevalence of
smoking in China
2010 to 18.6% in 2018, according to the World Health
◼ Use tobacco
Organization.
◼ Have tried
China has been criticized by activists for its lack e-cigarettes
of progress in curbing youth smoking. In China, ◼ Use e-cigarettes
“this gateway effect for children from e-cigarettes
might be even greater than in the U.S.,” says Gan All adults
Quan, New York-based director of tobacco control 26.6%
at the Union, a health-care nonprofit. 5.0
E-cig makers say they’re responding to changing 0.9
sensitivities about smoking. “When different mar- Men
kets start to have different regulations and expecta- 50.5
tions, we adapt our messages to make sure we are 9.3
compliant,” Wang says. RELX and SnowPlus also are 1.6
focusing more on brick-and-mortar retail shops and Women
overseas expansion in vape-friendly markets such as 2.1
ILLUSTRATION BY INKEE WANG. DATA: WORLD HEALTH ORGANIZATION
Southeast Asia, New Zealand, and the U.K. 0.5
For now, Chinese vapers are enjoying their 0.1
e-cigarettes while they can. Zichen Yang, a 23-year-
old civil servant in Shandong province who started
vaping fruity flavors two years ago to kick his
smoking habit, says he may relapse if there’s a
complete ban on e-cigs. “Let’s see what happens,” he
says. “Right now, I’ve got some vape pods saved up.”
�Lisa Du, with Qian Ye and Ellen Huet
THE BOTTOM LINE China has about 300 million smokers. Vaping
startups had hoped to convert many of them to e-cigarettes, but a
surge of regulation could extinguish their growth plans.
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 Bloomberg Businessweek November 25, 2019

T Amazon’s Political
E Wipeout
C Losing the Pentagon cloud contract highlights the
limits of the company’s lobbying clout

H
N
O
L
20

O
G
Y

Edited by
Jeff Muskus
 ◼ TECHNOLOGY
Amazon.com Inc. is an $870 billion company accus-
tomed to winning—and it doesn’t lose quietly. The
company on Nov. 14 said it planned to legally protest
the U.S. Department of Defense’s decision to award
Microsoft Corp. its $10 billion cloud contract to mod-
ernize a large swath of the Pentagon’s technology.
Microsoft and Amazon had been part of a fierce bat-
tle for the contract that had at times in the past two
years also included Google, Oracle, and IBM.
It’s easy to see why Amazon might have assumed
it had the contract locked up. The company had
been seen as such a favorite that the Defense
Department was facing a preemptive Oracle Corp.
lawsuit for setting up a process that the other com-
pany claimed only Amazon could win. And the
results don’t reflect a lack of resources or action.
Altogether, Amazon spent $4 million on federal lob-
bying last quarter, the most it has ever spent in a
single three-month span. Last year it lobbied more
government entities than any other tech company.
In New York City this past winter, Amazon scut-
tled its plans to build a massive campus just east
of Manhattan after encountering greater local
opposition than it had expected. In its hometown
of Seattle this fall, the company’s efforts to elect
a more tax-averse city council backfired, helping
more left-leaning candidates win. (Amazon has said
it doesn’t consider the New York pullout a defeat
but can’t contest that most of its preferred Seattle
City Council candidates lost their races.)
PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY (1); BLOOMBERG (2); GETTY IMAGES (1). *THROUGH SEPT. 30; EXCLUDES TRADE GROUPS. DATA: CENTER
As Democrats and Republicans begin to talk
seriously about possible antitrust actions against
Amazon and other big tech companies, there’s
added urgency for the online retailer to learn the
lessons of these high-profile setbacks. One problem
in all three cases was a lack of a coherent lobbying
strategy, according to interviews with more than a
dozen current and former Amazon employees and
lobbyists, all of whom spoke on condition of ano-
nymity for fear of reprisal. Amazon’s public policy
FOR RESPONSIVE POLITICS ANALYSIS OF SENATE OFFICE OF PUBLIC RECORDS FIGURES
chief, Jay Carney, and his deputy, Brian Huseman,
declined to comment for this story.
Unlike with the Pentagon, where Amazon’s cloud
division had a separate team doing a lot of the pitch-
ing, Carney and Huseman were front and center
in New York. Amazon’s deal there seemed to be a
fait accompli when it was announced around this
time last year. In exchange for as many as 40,000
jobs, Governor Andrew Cuomo said, New York state
and city officials had promised Amazon as much as
$3 billion in tax incentives. But the governor and
New York City Mayor Bill de Blasio hadn’t discussed
those terms with most other public officials, and
many weren’t happy with the math—some $75,000
in incentives per job. New Yorkers proved even
Bloomberg Businessweek November 25, 2019
angrier than expected about the prospect of giving
billions of dollars in tax breaks to a company run by
the world’s richest man.
Cuomo and de Blasio proved unable to speed
the deal past the relevant legislative signoffs the
way they’d promised Amazon. Facing a tide of neg-
ative public opinion and more stringent terms, the
company chose to abandon the arrangement alto-
gether and shift many of its planned New York
resources elsewhere instead.
“Can everyday people come together and effec-
tively organize against creeping overreach of one
of the world’s biggest corporations? Yes, they can,”
New York Democratic Representative Alexandria
Ocasio-Cortez wrote on Twitter in February,
after Amazon changed its plans. It’s common for
Amazon’s leadership to ask people involved in
● Top U.S. corporate
unsuccessful programs to write a postmortem lobbyists, by 2019
known as a “Cause of Error,” analyzing what went spending*
wrong. Four people familiar with the matter say ◼ Internet industry
that after the company abandoned its plans for ◼ Aerospace/defense
industry
New York, no such memo was circulated.
◼ Other
Amazon’s failure to shift the balance of Seattle’s
nine-person City Council rightward was also an Amazon
unexpected development. The company had $12.4m
been trying to put friendlier faces on the council to Facebook
21
short-circuit efforts to raise its local tax burden and 12.3
compel it to help with Seattle’s affordable housing Northrop Grumman
crisis. Amazon needed to pick up only one seat, 11.0
and it spent $1.5 million overall, a huge sum for
United Technologies
Seattle’s City Council elections. To lead its efforts, 10.5
Amazon hired Guy Palumbo, a dog kennel owner Boeing
who’d sponsored Amazon-friendly legislation when 10.4
he was a Washington state senator. His prime target AT&T
was incumbent Kshama Sawant, an economist and 10.3
member of the Socialist Alternative Party. Lockheed Martin
Against Sawant, Palumbo made a show of back- 9.9
ing Egan Orion, who runs the Broadway Business Comcast
Improvement Area, a local business lobby, as well 9.7
as PrideFest, which produces the annual Seattle Alphabet
Pride Festival. Sawant campaigned directly on 9.7
Amazon’s attempts to bring her down. She’d won
her 2015 race handily but this time around on elec-
tion night appeared set to lose. Once the absentee
ballots had been counted, however, the socialist
candidate won after all. In a YouTube video pub-
lished after the election, Orion said Amazon had
ruined his chances with its money. “Our closing
arguments were completely subsumed,” he said in
the video. “It made the election not about the oppo-
nent’s record and policies, but about Amazon.”
The Pentagon contract appears to be the most
costly loss—and a harbinger of things to come.
Amazon founder Jeff Bezos is one of President
Donald Trump’s favorite punching bags, and
 ◼ TECHNOLOGY
the company’s Beltway relationships aren’t what
they were when Carney took over the policy shop
in 2015, after more than three years as President
Barack Obama’s second White House press sec-
retary. Carney was far from the first government
official to decamp for a prominent position in the
tech industry. His deputy, Huseman, had served
as an attorney for the Federal Trade Commission
when George W. Bush was president. During those
times there was a largely favorable bipartisan view
of Big Tech, and the government rarely challenged
leading companies as they snapped up rivals and
expanded their footprints.
At a moment when Amazon’s biggest concern
seemed to be whether it would be allowed to fly
delivery drones all over U.S. cities, hiring Carney
was a sign that the company was getting serious
about lobbying. Yet by the end of Carney’s first year
there, Bezos’ personal feud with Trump, then a
long-shot candidate for the Republican presiden-
tial nomination, had intensified. More recently,
Amazon’s policy regarding Trump has been to
ignore his Twitter activity whenever possible while
working to minimize further discord with the White
House, says a person familiar with the matter.
22 On many major questions, that’s worked pretty
well. The FTC didn’t object to Amazon’s $13 bil-
lion acquisition of Whole Foods Market Inc. in
2017. Food stamps can now be spent on grocery
delivery services such as Amazon Fresh. And the
corporate tax cuts in Trump’s 2017 tax law greatly
benefited Amazon. This May, Huseman, on behalf
of the Internet Association, one of Silicon Valley’s
primary trade groups, presented Ivanka Trump
with the Internet Freedom Award, dedicated to
recognition for public service.
Viral ‘Smart Bombs’
Vs. the Superbugs
Joel Grimwood was dying. A bacterial slime
impervious to antibiotics was growing on a life-
sustaining heart implant, infecting his sternum, poi-
soning his blood, and slowly consuming his chest
tissue. His implanted heart pump was meant to be a
short-term solution while he waited for a heart trans-
plant but, once it was infected, it couldn’t be safely
removed. The operation would risk pushing the
maelstrom of Staphylococcus aureus bacteria more
directly into his system, which could kill him much
Bloomberg Businessweek November 25, 2019
Still, Trump’s public hostility toward Bezos
might well have been a factor in Amazon’s loss
of the $10 billion contract for the Joint Enterprise
Defense Infrastructure, or JEDI. (Yes, as in Star
Wars.) While the Pentagon has denied that such
a grudge played a role in its decision and said its
procurement department is insulated from politics,
Trump last summer directed his then-secretary
of defense, Jim Mattis, to “screw Amazon” out of
the JEDI contract, according to Holding the Line:
Inside Trump’s Pentagon with Secretary Mattis, a
book by the secretary’s former speechwriter, Guy
Snodgrass, published in late October. And the pres-
ident doesn’t exactly have a sterling track record
of separating government matters from personal
ones, as several career civil servants have been tes-
tifying in impeachment hearings on Capitol Hill.
An Amazon spokesman says the procurement
process was clearly tainted by animus. Amazon’s
protest, to be filed with the U.S. Court of Federal
Claims, is expected to hold up implementation
of Microsoft’s cloud systems, unless the Defense
Department can make a compelling national secu-
rity case to keep things moving. As the company
awaits further decisions by the court, its execu-
tives aren’t making much of an effort to avoid the
appearance of bias, either. Carney was recently a
named co-host at a fundraiser for Democratic pres-
idential candidate Joe Biden, though the Amazon
spokesman didn’t attend the event. On Nov. 15,
Amazon’s general counsel, David Zapolsky, hosted
his own Biden fundraiser. �Eric Newcomer and
Spencer Soper, with Naomi Nix
THE BOTTOM LINE Amazon has done well in the Trump era but
has struggled this year to win some key political battles, where its
name and CEO have been liabilities.
● Drugmakers are investing in phage therapy as
a possible answer to antibiotic resistance
faster. Four hospitals had denied Grimwood a trans-
plant because of the infection, which had required
some 40 surgical scrapings over three years and left
him with a Key lime-size open wound in his chest.
Finally his physicians opted for a different strategy:
turning bacteria-eating viruses loose inside of him.
Just a week after the daily treatments began last
year, Grimwood says, he felt better and more ener-
getic, and the staph seemed to be on the defen-
sive. “It was like it ate the bacteria,” he says of the
 ◼ TECHNOLOGY
treatments, “and then when all the bacteria was
gone, it just went away.” A month later he got his
heart transplant.
Grimwood is one of about 50 patients who’ve
been treated in the U.S. with doctor-directed
infusions of billions of the arachnoid-looking
viruses known as phages. At the University of
California at San Diego and elsewhere around the
world, researchers and drugmakers are betting
that so-called phage therapy can help close the
growing gaps in medical treatment created by the
spread of antibiotic-resistant bacteria and other
superbugs. They say phages are the ultimate
biodegradable “smart bomb” because they can be
programmed to destroy a single harmful bacterium
without blowing up other, helpful strains that
occur naturally in a person’s body, as antibiotics
do. “It’s really important to keep the microbiome
intact to the extent possible,” says Steffanie
Strathdee, UCSD’s associate dean of global health
sciences and co-director of a phage therapy center.
Pharmaceutical companies have taken notice.
BiomX Inc., which is using phages to treat patients
for strains of bacteria linked to ulcerative colitis and
other chronic diseases, has teamed with Johnson &
Johnson’s Janssen Pharmaceuticals unit to work on
therapies for inflammatory bowel diseases. Janssen
has also announced a licensing deal with Locus
Biosciences Inc. to genetically engineer phages that
can fight infections of the respiratory tract and other
organ systems. The U.S. National Institutes of Health
has supported a series of phage research projects,
including a three-phage cocktail that successfully
treated the drug-resistant abscesses in a gravely ill
teenager with cystic fibrosis.
PHOTOGRAPH BY JOHN FRANCIS PETERS FOR BLOOMBERG BUSINESSWEEK. ILLUSTRATIONS BY BROWN BIRD DESIGN
Although most of these projects remain years
away from the open market, scientists and pharma
companies are optimistic that synthetic biology will
speed the discovery and development of medically
useful phages, as well as make them patentable
and thus far more profitable. “Once you get good
investments, you’ll be surprised where the field
goes,” says Anthony Fauci, director of the National
Institute of Allergy and Infectious Diseases.
The medical use of antibacterial viruses dates
back a century. It flourished in the Soviet Union
under Josef Stalin but fell out of use in the West with
the advent of penicillin and subsequent antibiotics.
Now, however, bacteria are rapidly accumulating
antibiotic-resistant genes in response to the use of
these drugs in human medicine and agriculture.
An antibiotic-resistant infection kills someone in
the U.S. roughly every 15 minutes, the Centers for
Disease Control and Prevention reported on Nov. 13.
So scientists are trying to take better advantage of
other phage properties, too, including some phages’ ▲ Strathdee, a phage
researcher, got a very
abilities to make bacteria less virulent and even personal demonstration
reverse drug resistance. of their power
That was the case with Tom Patterson, a psy-
chiatry professor at UCSD who in 2016 fell criti-
cally ill and became the first U.S. patient treated 23
with this kind of therapy for a systemic superbug.
● How phage therapy
With a severe abdominal infection that resisted all works:
known antibiotics, he was soon comatose and close
to death. Strathdee, Patterson’s wife, suggested
phages in a final attempt to save him. “A couple of
days after we began intravenous phage therapy,” she
says, “he lifted his head off the pillow and kissed his
daughter’s hand.” While fending off the phage, the ① Increasingly, bacteria
bacterium inadvertently disrupted some of its own that cause infections
are mutating to survive
antibiotic-evading abilities, rendering it susceptible bombardment from
to a cheap pill often used to treat acne. powerful antibiotics
The pharma companies continue to tinker with
phages’ genetic codes, but it’s been a challenge
for scientists to find viruses that precisely match
their bacterial targets. Martha Clokie, who runs a
phage research lab and teaches at the University of ② Researchers have
Leicester, about 100 miles north of London, spent programmed viruses
called phages to target
years hunting for the bane of the deadly diarrheal a specific bacterium
bacterium Clostridioides difficile, or C. diff, which causing an illness
while leaving the
kills about 13,000 Americans a year. She eventu- body’s helpful bacteria
ally found some promising samples in the smelly unharmed
estuarine soils of southeast England and is testing
them in hamsters. And she’s using another phage
to target salmonella. “In each new phage you find,”
Clokie says, “there are new things that you can never
dream of.” �Jason Gale, with John Lauerman ③ Injections of billions
of phages have been
THE BOTTOM LINE Using viruses to target bacteria has been out used to treat about
of fashion in the U.S. since the advent of penicillin, but overuse of 50 superbug patients
antibiotics is making phage therapy an attractive option again. in the U.S.
 Bloomberg Businessweek
24
○ Walgreens and private equity
giant KKR talk about a deal,
but the price may be too high
Stefano Pessina, chief executive officer of Walgreens
Boots Alliance Inc., has long had an affinity for
private equity. In 2007 he teamed up with the buy-
out giant KKR & Co. to take Britain’s biggest phar-
macy chain, Alliance Boots Plc, private. That move,
followed by further deals to fold it into U.S.-based
Walgreens, was the genesis of the multinational
drugstore company as it’s known today. Now, KKR
Edited by
and Pessina might be teaming up again—though
Pat Regnier many doubt a deal is possible this time around.
November 25, 2019
KKR formally approached Walgreens in
November about taking the company private in
what could be the biggest leveraged buyout in his-
tory. Pessina, Walgreens’ largest shareholder with a
16.25% stake valued at about $9 billion, is expected
to be the crucial player in any deal.
It’s not difficult to see why such a transaction
might make sense for Pessina and Walgreens inves-
tors. The 118-year-old retailer is fighting to stay rel-
evant at a time when Amazon.com Inc. and other
online retailers are stealing customers for the house-
hold and beauty items in the front of its more than
9,000 U.S. stores—and pharmacy startups are com-
ing for the prescription drug business at the back. Its
plan to acquire rival Rite Aid Corp. was thwarted by
regulatory concerns in 2017, and the company was
  FINANCE
forced to do a smaller store-purchase deal instead.
Its shares had fallen about 30% from their 52-week
high in December 2018 before Bloomberg News
reported on the potential buyout on Nov. 5. “The
retail pharmacy market is on the verge of an intense
shakeout,” says Adam Fein, CEO of Drug Channels
Institute, which researches the economics of phar-
maceuticals. Over the next decade or so, the number
of retail drugstore locations could decline by 10,000
or more, he says.
Depending on the price, going private could give
shareholders a chance to sell at a premium. It may
also give Walgreens time to make changes to adapt
to the quickly shifting consumer landscape outside
of the quarter-by-quarter demands of public share-
holders. These changes could be painful for some.
If a deal gets done, expect “significant layoffs and
significant store closings” to improve the business,
says John Coffee, director of the Center on Corporate
Governance at Columbia Law School. In buyouts,
he says, “the essential goal is to take the company
into the machine shop for very substantial repair-
ing and remodeling.” Because private equity deals
are typically funded with debt taken on by the tar-
get company, a post-buyout Walgreens could still be
under pressure.
For KKR the logic of a buyout is less straight-
forward, despite Walgreens’ decent cash flow. Start
with the sheer size of the transaction, which analysts
say could require at least $50 billion in debt financ-
PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES. *WALGREENS LOCATIONS ONLY PRIOR TO 2014 MERGER. DATA: COMPILED BY BLOOMBERG
ing and possibly more than $20 billion in equity. “It’s
a huge stretch doing things over $50 billion,” said
Stephen Schwarzman, head of KKR rival Blackstone
Group Inc., at a Reuters event in New York. Most of
the money would have to come from debt markets,
where banks have struggled in recent months to find
buyers for riskier buyout loans.
Most buyouts are funded with junk-grade debt.
But to do a deal large enough to snag Walgreens,
it’s likely some of the debt would be put together
in a way that would earn it a better credit rating.
“If you created an investment-grade tranche, you
clearly increase the feasibility of the deal,” says Mark
Vaselkiv, chief investment officer of fixed income at
T. Rowe Price. “There would be a lot of demand.” A
buyout investor might join with another firm or pen-
sion fund to raise equity.
Buyers could also split up U.S. and U.K.
operations—the same ones put together in
earlier deals—and sell the retailer’s stake in
AmerisourceBergen Corp. Analysts say Walgreens’
holdings in the drug distributor could fetch more
than $4.5 billion.
Still, the skeptics have been loud. “We believe the
basic unattractive math of the transaction, not to
Bloomberg Businessweek November 25, 2019
mention the unattractive nature of the standalone ○ Walgreens Boots
Alliance stores,
pharmacy business, are high hurdles,” Deutsche worldwide*
Bank analysts wrote in a client note.
The main problem for Walgreens—the exter- 18k
nal threats facing the whole industry—isn’t some-
thing private equity can easily solve. The company
is already cutting costs aggressively. So why is a
deal under discussion? There’s a lot of investor 9
cash—“dry powder” in private equity jargon—wait-
ing to be put to work, which means even a complex
transaction may be worth a look. As for Walgreens,
the deal talk highlights the tough situation it’s in. 0
—Nabila Ahmed, Robert Langreth, and Lisa Lee 2009 2019
THE BOTTOM LINE A deal to buy Walgreens and take it private
could cost more than $70 billion—a large pill for even KKR
to swallow.
How Green
Is My Pension?
○ An Australian retirement saver sues his 25
money manager over climate change risk
Mark McVeigh, a 24-year-old environmental
scientist from Australia, won’t be able to access
his retirement savings until 2055. But, concerned
about what the world may look like then, he’s
taking action now, suing his A$57 billion ($39 bil-
lion) pension fund for not adequately disclos-
ing or assessing the impact of climate change on
its investments.
The battle in Australia’s Federal Court is shap-
ing up to be a unique test case. Are pension funds
in breach of their fiduciary duties—the require-
ment to look out for the best interests of their
investors—if they fail to protect their portfolios
from the financial ravages of a warmer planet?
Although the legal dispute is specific to Australia,
the question is one savers and money managers
around the world are grappling with.
Before launching the action, McVeigh asked
the fund he invests with, Retail Employees
Superannuation Trust, or Rest, how it was ensur-
ing his savings were future-proofed against rising
world temperatures. Its response didn’t satisfy
him, and he ended up engaging Equity Generation
Lawyers, a firm specializing in climate change.
“I see climate change as a huge risk that dwarfs a
lot of other things—it’s such a big physical impact
 ◼ FINANCE
on the planet and the economy,” says McVeigh,
who works as an ecologist for a local government.
Rest says climate change is just one of a variety
of factors it must consider when investing the sav-
ings of its roughly 2 million members, who include
store clerks and shopkeepers, according to court
filings. McVeigh started contributing to Rest when
he worked at a grocery store as a student.
Australia’s pension industry—home to the
world’s fourth-largest retirement savings pool at
A$2.9 trillion—is watching the case closely, partic-
ularly because many funds must also meet legis-
lated minimum return targets. “Looking after the
best financial interests of our members requires
us to be conscious of the risks but not exclude a
whole segment of the economy that’s going to be
very meaningful for a period of time,” says Ian
Patrick, chief investment officer at Sunsuper Pty
Ltd., which manages A$70 billion.
Australia’s mandatory retirement savings sys-
tem, known as superannuation, is meant to relieve
pressure on the public purse as the nation’s pop-
ulation ages, lives longer, and requires a steady
income stream to survive. Money employers and
individuals contribute goes into the funds. Much of
26 the industry must aim to return 3.5% above infla-
tion over a decade. But returns aside, McVeigh
and other savers want to see their nest eggs last
as long as possible in an uncertain environment.
Companies are beginning to act—a new study by
State Street Global Advisors in the U.S. found that
fiduciary duty is one of the main “push factors”
for a financial institution to adopt environmental,
social, and governance principles.
Australian retirement fund managers, including
Sunsuper and Health Employees Superannuation
Trust Australia (Hesta), have employed respon-
sible investment teams to integrate ESG factors
into their portfolios. They’ve joined global inves-
tor initiatives such as the United Nations-backed
Principles for Responsible Investment, and
they’ve used their sizable holdings in companies
such as BHP Group Ltd. and Glencore Plc to agi-
tate for change within them.
Whether a fund should simply divest from cer-
tain companies that generate greenhouse gases
or use their ownership stakes to push for reform
is frequently discussed in the industry. Mary
Delahunty, who’s in charge of improving Hesta’s
responsible investment practices, says selling isn’t
always a prudent option. “As soon as you remove
capital, they don’t have to have a conversation
with you anymore,” she says.
While activism is rising and some inves-
tors and banks are shying away from financing
Bloomberg Businessweek November 25, 2019
environmentally damaging projects, the Australian
government is going the other way. Prime Minister
Scott Morrison, a staunch supporter of the coal ● Share of managed
mining industry, is considering new laws aimed at assets run with
limiting the influence of activists such as the group strategies considering
environmental, social,
Market Forces, which has pushed banks and insur- and governance issues
ers to say they’ll get out of coal projects. ◼ 2014
In addition to improving environmental dis- ◼ 2018
closures, Rest recently appointed a responsi-
ble investment manager. In June it took control 60%
of a wind farm in Western Australia from a UBS
Group AG unit. The fund also says it sought to meet
with McVeigh to discuss his concerns. “Specific 40
climate-related issues which we engage with our
investment managers on include carbon foot-
printing, stranded assets, climate-related scenario 20
analysis, and exposure to lower carbon assets,”
a spokesperson said in an emailed statement.
Stranded assets refers to the idea that some compa- 0
nies have property such as oil reserves that can’t be
Europe
U.S.
Canada
Australia &
New Zealand
tapped if changes are made to slow global warming.
Michael Gerrard, a professor of environmen-
tal, climate change, and energy law at Columbia,
says “success in litigation breeds imitation.” If
McVeigh wins, others may take a close look at
his strategy. “People are so desperate at the fail-
ure of governments to act adequately on climate
change that they’re looking for litigation targets,”
Gerrard says. �Matthew Burgess
THE BOTTOM LINE Money managers have a duty to protect the
financial interests of their investors. A lawsuit asks if that includes
protecting against the risk of climate change.
Stocks, Bonds, and
Maybe Basketball
● Wall Street is already dipping a toe into sports
betting as wagers become legal in more places
The line between trading and gambling has always
been fuzzy. So now that many U.S. states have legal-
ized sports betting, following a 2018 Supreme Court
ruling, it’s natural to wonder if Wall Street will start
looking for a piece of the action.
A few firms already are. At least one is actu-
ally making bets, much as a hedge fund trades
stocks. Susquehanna International Group LLP, a
  FINANCE

BW Talks Al Kelly
quantitative trading firm headquartered in Bala
Cynwyd, Pa., is building up a sports betting divi- Despite a lot of worry about a recession,
sion in Ireland, where such wagers have long been
“we don’t see it,” says the chief executive
legal. The business unit, called Nellie Analytics—
named after co-founder Jeff Yass’s dog—has about officer of Visa Inc. The consumers
20 employees. on his global payments network
Susquehanna is active on the Betfair and
haven’t been slowing down their card
Matchbook online sports betting exchanges.
Gamblers on those sites can wager against each swiping—or, increasingly, their tapping.
other, instead of with a third-party bookmaker —Carol Massar and Jason Kelly
who sets the odds. Susquehanna offers to take the
other side of people’s bets. Rather than betting
on a single outcome against the house, it aims to ○ A longtime executive at American Express Co.; president of the
make wagers on exchanges when they seem attrac- company when he left in 2010 ○ Joined the board of Visa four years
tively priced—a common practice for professional later and took the top job in 2016 ○ Was the head of information
sports bettors. systems for the Reagan White House
Sports betting won’t appeal to most hedge funds.
For one thing, the market is comparatively small and
What are people buying—where is their United States that will be
bets by large funds could easily distort it. A more money going?
tap-to-pay enabled.
straightforward way for finance to get into betting
is by providing the back-end technology. Exchange A couple of things are driving
operator Nasdaq Inc. has made a handful of sports the increases in transactions. Will we all eventually be like China,
betting deals around the globe. It’s licensed tech- One is e-commerce. And where all you need to carry to buy
things is your phone?
nology to a U.K.-based soccer betting service called we’re seeing more smaller-
Football Index, a virtual market where users buy and ticket items. A lot of that I don’t think fully. Payments
sell stakes in players and earn dividends based on I think is driven by mass- is an extraordinarily local 27
their performance. Nasdaq technology is also used transit payments. We started business. Mexico, Germany,
in horse-race betting in Australia, Hong Kong, and in New York [with tap-to- Japan—they’re huge
Sweden. Nasdaq says it’s a natural application of pay] at stations from Grand cash societies to this day.
what it already does. “There’s no need for a gaming Central to Brooklyn. By Adoption will pick up, but for
company to reinvent the wheel to handle large vol- October 2020 the transit a long time there’s still going
umes of transactions,” says Scott Schechtman, head authority hopes to be in all to be a place for all kinds of
of new markets at Nasdaq. 424 subway stops. different-form factors.
Online brokerage TD Ameritrade Holding Corp.
is also in the “early stages” of exploring sports Why is the U.S. lagging on things like What’s the biggest existential threat to
betting. “Although we won’t comment on any tap-to-pay? Visa or the industry?
specifics, we are always evaluating potentially inno-
The U.S. was much slower I think cybersecurity. The
vative products and services,” said Vijay Sankaran,
to adopt a chip in the card. bad guys have access to
the company’s chief information officer, in an
PHOTO: DAVID PAUL MORRIS/BLOOMBERG. DATA: GLOBAL SUSTAINABLE INVESTMENT ALLIANCE

You have countries like the same technology the

emailed statement. Business Insider first reported
Poland and Hungary that good guys do. Over the
TD Ameritrade’s interest in betting.
are over 90% tap-to-pay in next decade, you’re going
The research company Eilers & Krejcik Gaming
the face-to-face world. In to have 5G really take off,
estimates that sports betting could become a $17 bil-
the U.S., the vast majority the internet of things, and
lion market in the U.S. if it’s fully legalized in all
of the businesses are set to artificial intelligence getting
50 states. And it’s likely to draw in people from
be able to facilitate tap-to- to the next level. Quantum
beyond the traditional gaming business. “Sports bet-
pay. The issue is replacing computing, perhaps. All
ting is broadening the field of interest,” says Chris
the hundreds and hundreds of that creates enormous
Grove, a partner at Eilers & Krejcik. Financial firms
of millions of cards. By the opportunity but also risks to
are likely to test the waters, he says, though they
end of this year we’ll have tech-based infrastructure
may be put off by the lower transaction volumes and
over 100 million cards in the companies like ours.
complex regulation. Compliance department, meet
the state gaming commission. —Annie Massa
○ Interviews are edited for clarity and length. Listen to Bloomberg Businessweek With
THE BOTTOM LINE Like financial markets, the sports betting
Carol Massar and Jason Kelly, weekdays from 2 p.m. to 5 p.m. ET on Bloomberg Radio.
business needs a lot of technology to handle transactions. That’s
one place where Wall Street sees an opportunity.
 Bloomberg Businessweek November 25, 2019

E
11/19/19
27,934
● July 31 ● Aug. 26 ● Oct. 30
Federal Reserve Inversion of yield curve Fed cuts another
reduces target for the signals recession risk quarter percent

C
federal funds rate
by a quarter percent

O
N ● Nov. 15
White House economic
adviser Larry Kudlow

O
says a phase one trade
● Aug. 1 ● Sept. 3 ● Sept. 18 deal with China
Trump announces Yield curve uninverts Fed cuts another is “coming down to
10% tariffs on quarter percent the short strokes”
Dow Jones $300 billion worth
Industrial Average of Chinese products

M
6/1/19
24,820

I A Global Sigh of Relief

28

C Sentiment has improved markedly since this

summer as recession risk recedes

S Three months ago the economic outlook seemed

dark. The U.S.-China trade war refused to go away,
and there were signs of weakness in Germany, the
European Union’s economic linchpin, as well as
the U.K., which faced a messy exit from the EU. On
Aug. 14 major U.S. stock indexes fell 3%, spooked
by a steep drop in long-term bond yields. “Investors
are increasingly selling first and asking questions
later,” one analyst told Bloomberg.
Pity the investor who panicked and sold off, or
the executive who shelved a planned expansion—
since August, the economic outlook has bright-
ened considerably. Stock indexes in the U.S. set
records almost daily in early November. The mood
has gone from gloomy to exuberant. “The bulls
Merrill Lynch expected weaker global growth over
the coming year as expected stronger growth. In
November, the optimists actually outnumbered
the pessimists.
True, investors and money managers have been
known to overreact. Things weren’t as bad as they
looked in August, and they may not be as good as
they seem now. “The baseline forecast moves rel-
atively little as new data come along,” says Chris
Varvares, co-founder and senior managing direc-
tor of Macroeconomic Advisers in St. Louis. “The
risk premium is what’s moved around, reflecting
investors’ perceptions of risk.”
Still, there’s something real underlying the
improved sentiment. What bearish investors over-
DATA: COMPILED BY BLOOMBERG

are back ... global recession fears vanish,” wrote
investment strategists at Bank of America Merrill
Lynch in a Nov. 12 note to clients.
Edited by
Cristina Lindblad and
In August, nearly three times as many global
David Rocks fund managers surveyed by Bank of America
looked in August is that monetary policy was
already shifting. In December the Federal Reserve
was tentatively planning on three quarter-point
increases in the federal funds rate in 2019. It put
those on hold and then cut three times, with two of
◼ ECONOMICS
the cuts coming since August. That’s quite a U-turn.
The European Central Bank has also become
more dovish. It resumed buying bonds to stimu-
late growth this month. The Bank of Japan has done
less, but at least it kept its benchmark interest rate
in negative territory, despite pressure to raise it.
Morgan Stanley recently noted that 20 of the 32
central banks it tracks had eased monetary policy
over the past year. “You don’t want to bet against
the world’s largest central banks,” says Christopher
Smart, chief global strategist of Barings, the invest-
ment management company.
The U.S., with its huge appetite for imports, has
remained an engine of global growth. The American
economic expansion is in its 11th year, a record.
Consumers have been buoyed by solid wage growth
and low unemployment, says Edward Yardeni, the
president and chief investment strategist of Yardeni
Research Inc. The pessimistic take on the U.S. is that
business investment has been weak, but Yardeni
says the numbers look better outside the oilpatch—
health care, tech, and finance are all healthy. “I do
see many companies expanding and investing for
productivity,” says Christopher Johnson, president
of global financial services at Pitney Bowes.
The geopolitical situation has also stabilized a
bit since summer. The trade war hasn’t intensified.
China’s economy has slowed, but it hasn’t crashed.
In Europe, the risk of a chaotic, no-deal Brexit has
diminished, while third-quarter data showed that
Germany narrowly avoided what would have been
its first recession in six years. Morgan Stanley, in a
Nov. 18 report, wrote that “trade tensions and mon-
etary policy are easing concurrently for the first
time in seven quarters.”
A lot of what’s changed is financial. The scariest
omen in August was the plunge in U.S. long-term
bond yields. During the trading day on Aug. 14 the
yield on 10-year Treasury notes briefly fell below
that on 2-year notes—a reversal of the normal state
of affairs, in which investors get paid more to hold
long-term securities. So-called inversions used to
be a sure harbinger of a recession. But as Bloomberg
Businessweek wrote that month, they’re not as scary
as they used to be, because even in ordinary times
the 2- and 10-year yields are close. In any case, the
yield curve has reverted to its normal shape.
The stock market rebound since August is both
a reflection of the improving outlook and a partial
cause of it. Higher stock prices make households
more willing to spend and businesses more will-
ing to invest. But we’re not out of the woods yet.
Are easier monetary policy, strong consumer
spending, and a robust stock market “enough of
a reprieve to kick-start some business investment,
Bloomberg Businessweek November 25, 2019
which has been tailing off for a year or two?” asks
Barings’s Smart. “It’s hard to see the rosy employ-
ment picture continuing for much longer while
business investment is lagging.”
In other words: Is the recent improvement
strong enough to be self-sustaining, or the last gasp
of an expansion that’s past its prime? �Peter Coy
THE BOTTOM LINE Looser monetary policy in the U.S., Europe,
and Japan has been instrumental in beating back expectations of a
more pronounced economic slowdown.
Haredim for Hire
● Israeli intelligence is hiring ultra-Orthodox
men, helping better integrate them into society
For the past dozen years, Yossi has followed a sim-
ple routine: rise at 7 a.m., prayers and breakfast
until 8, then 14 or more hours studying sacred
Jewish texts, with breaks for meals and more
prayers. But since September, Yossi has replaced 29
most of his religious readings with math and pro-
gramming textbooks as he works toward a com-
puter science degree. He hopes to ultimately land
a job with an Israeli security agency—perhaps even
Mossad, the country’s equivalent to the CIA. “Of
course I have dreams,” says Yossi, 29, whose fam-
ily name has been withheld for security reasons. “I
wanted a purpose, to contribute to Israel, and this
allows me to do that, especially serving in defense.”
Yossi participates in a program called the Pardes “I wanted a
Project, which seeks to better integrate Haredim— purpose, to
as the ultra-Orthodox are known in Hebrew— contribute to
into the economy while preserving their identity. Israel, and this
Under Jewish tradition, a man’s holy obligation is to allows me to
learn, and for Haredim that means studying ancient do that”
texts to forge a closer relationship with God. The
ultra-Orthodox represent more than 10% of Israel’s
population, but roughly half the men devote their
lives to religious scholarship while their wives work
to support the family. The government has said it
wants to get 63% of working-age Haredi men into
the labor force by next year; there’s little chance
that will happen, even as economists say that with
growth slowing, Israel needs a greater contribution
from them. If all Haredi men were as productive as
other Israelis, the economy would get a boost of
more than $5 billion a year, according to the Israel
Democracy Institute. “These people are geniuses,
and they have no opportunities,” says Moshe
 ◼ ECONOMICS
Kahan, the founder of Pardes. “We’re trying to
give them something to look forward to.”
Kahan followed religious studies similar to
Yossi’s for years but eventually veered off into aca-
demia, earning a Ph.D. in Semitic languages. He
soon concluded that rigorous study of religious
texts isn’t that different from sifting through intel-
ligence intercepts for clues that might boost Israel’s
security. A couple of years ago he started develop-
ing Pardes, which launched in September. He has
caught the attention of Mossad boss Yossi Cohen,
who is seeking to attract more Haredim to the
agency in a tight labor market. “We are working to
widen the social circles that the people of Mossad
come from,” Cohen said at a conference in July, call-
ing out Pardes by name. “The intention is to inte-
grate Haredim into every part of the organization.”
The Haredim have long been isolated from
secular Israeli society. Around the time of Israel’s
founding in 1948, Prime Minister David Ben-
Gurion offered concessions to religious leaders
to gain their support, including an exemption
from the military draft for young men in sem-
inaries. At the time only 400 scholars were eli-
gible for the exemption, but these days some
30 30,000 Haredi men each year skip military ser-
vice. Haredim typically live in segregated neigh-
borhoods; in Jerusalem’s Mea She’arim, groups of
men in dark hats, long black coats, and sidecurls
wander the streets past signs warning of a dress
code, and boys have stoned cars that dared enter
on the Sabbath. They successfully led a campaign
to shut down most public transportation and busi-
ness in Israel from Friday sundown into Saturday,
and they often spurn secular subjects such as sci-
ence and English in schools.
With an average of seven children, vs. just over
two for nonreligious Israeli Jews, the ultra-Orthodox
are the country’s fastest-growing demographic, on
track to represent about a fifth of the population
by 2040. Many secular Israelis resent the free pass
the Haredim have on the draft, the subsidies they
get for their large families and their schools, and
their outsize voice in religious and political life.
The latter was highlighted last spring when Prime
Minister Benjamin Netanyahu’s attempt to form a
government with ultra-Orthodox allies foundered
over demands that more religious men serve in the
army. After a do-over election in September, the
country remains in a political deadlock.
Pardes is one of at least a half-dozen programs
working to integrate Haredim into society as
more ultra-Orthodox look for work and employ-
ers seek untapped talent pools. The nonprofit
Kemach Foundation provides scholarships and job
Bloomberg Businessweek November 25, 2019
placement services to Haredim. The Haredi Institute ● Haredi share of
Israel’s population
for Public Affairs, a group that researches the com-
munity, this year began a program to bring more
ultra-Orthodox women into tech companies. And
an organization called KamaTech has created a
coworking space for religious people with a layout
similar to WeWork—but men and women are seg-
regated and the kitchen is kosher. “A lot of young
Haredim want an opportunity to be part of the work-
force,” says KamaTech founder Moshe Friedman. 2015 2040* 2065*
The roughly 50 Pardes students were selected 11% 20% 32%
from 2,000 applicants drawn to the program for
reasons ranging from a desire to find purpose-
ful work, to the need to earn more for their fami-
lies, to wanting to contribute to Israel’s security. At
first, Yossi was uncertain whether he should side-
line his religious studies, and even if he pursued
a profession he didn’t know what field to choose.
But after consulting with his rabbi, Yossi prayed
for an hour atop Mount Meron in northern Israel,
where a noted Jewish mystical sage is entombed,
and decided to sign on. “Some people are bothered
by this,” Yossi says. “But it’s not sustainable for only
women to support the family. And a man wants
to do something with himself.” �Ivan Levingston
THE BOTTOM LINE After decades of relative isolation, Israel’s
Haredim are being drawn into the workforce via programs aimed at
tapping their analytical skills for security agencies.
Penang Looks Like
A Trade War Winner
● Malaysia’s electronics manufacturing hub is drawing
renewed interest as China and the U.S. battle
Penang’s pastel-hued, colonial-era buildings speak
to the Malaysian island’s history as a key trading
post for the East India Company, when spices filled
*PROJECTION. DATA: CENTRAL BUREAU OF STATISTICS
its warehouses and the British and Dutch vied for
dominance in the region.
Today, it’s the U.S. and China that are wrestling
for economic supremacy—and Penang’s electronics
industry that’s reaping benefits. Malaysia has found
its niche as a neutral player in the trade war, helped
by the fact that about one-quarter of the popula-
tion is ethnic Chinese and an even larger propor-
tion is proficient in English. Penang logged a 134%
 ◼ ECONOMICS Bloomberg Businessweek November 25, 2019

increase in foreign direct investment in the first half monorails, trams, ferries, and water taxis. But it will
of 2019, to 9.2 billion Malaysian ringgit ($2.2 billion). take years for some of these to be up and running:
“This trade war, I think it’s a blessing,” The first phase of the railway won’t begin operations
says Chuah Choon Bin, executive chairman of until 2027, according to a government website.
Pentamaster Corp. Bhd., which makes equipment Penang’s efforts to lure fresh foreign capital
for the manufacturing and semiconductor indus- are getting a helping hand from Malaysia Finance
tries. The Penang-based company has added 10 cus- Minister Lim Guan Eng, who was previously the
tomers this year—a marked increase from the one state’s chief minister. The government’s approved
to three it says it picks up in a regular year. Seven of 2020 budget offers foreign businesses a 10-year tax
its new clients are from China, which has ambitions holiday on certain types of investments in the elec-
to become self-sufficient in chips. “This year we are tronics sector.
doing better than last year. And we know next year
we will be doing better than this year,” says Chuah.
Penang, like much of Malaysia, was grappling
with soaring unemployment in the late 1960s, when
local authorities drafted a blueprint to diversify
the economy away from rubber and agriculture.
The state went “all out to attract multinationals,”
says Loo Lee Lian, chief executive officer of Invest
Penang, a nonprofit that works closely with the gov-
ernment. The island became home to what was
then Malaysia’s first free-trade zone, drawing mul-
tinational heavyweights such as Advanced Micro
Devices, Hewlett Packard, and Intel. Their ranks
have grown over the years as new industrial parks
have cropped up in the state. Nowadays, Penang 31
boasts an unemployment rate of just 2.2%, more
than a full point below the national average.
Despite its early success, Penang’s importance
as an electronics manufacturing hub dimmed in
recent years next to that of up-and-coming Chinese
cities like Shenzhen. Now the U.S.-China trade war
has rekindled interest. Penang was the destination
for 35% of Malaysia’s approved foreign direct invest-
ment in the first half of 2019, according to Chow
Kon Yeow, the state’s chief minister.
“I like this kind of challenge,” says Hotayi
Electronic CEO Lee Hung Lung, who steered his
company through the 1997 Asian financial crisis
and the 2008 crash. These sorts of cataclysms can
generate opportunities for a business like Lee’s,
which sells its own products but also does man-
ufacturing for bigger companies. The opening Ng Sang Beng, CEO of Aemulus Corp., a busi- ▲ The Aemulus factory
in Penang
last year of a second Penang facility—a sprawling ness that supplies equipment to the semiconduc-
campus with an artificial waterfall and mini-golf tor industry, says he has fielded five to 10 times
PHOTOGRAPHS BY IAN TEH FOR BLOOMBERG BUSINESSWEEK

course—was well timed: Hotayi Managing Director
Goh Guek Eng says sales are up as much as 40% this
year, about twice the norm.
The challenge is to make sure infrastructure bot-
tlenecks and skills shortages don’t become obsta-
cles to continued investment. Pentamaster’s Chuah
says it’s difficult to get engineers to come over from
the mainland. Authorities in the state are trying to
address a lack of transportation options through
an integrated plan that incorporates light rail,
more inquiries this year than in 2018 from U.S.-
and China-based customers that are reconfigur-
ing their supply chains in preparation for what
he predicts will be a prolonged technological
Cold War. “The opportunities are just huge,” he
says. �Michelle Jamrisko and Anisah Shukry, with
Yantoultra Ngui and Yudith Ho
THE BOTTOM LINE Malaysia’s Penang, which established
itself as an electronics hub in the 1970s, is seeing a new wave of
investments from companies looking to skirt U.S. and China tariffs.
The Global
Responsible
Investing Forum
December 2-3, 2019 | New York City

The second annual Global Responsible Investing Forum

will convene senior global leaders for conversations about
how responsible investing can maximize performance while
providing positive social impact.

Speakers include:

Vijay Advani
CEO
Nuveen

Sir Ronald Cohen

Chairman
Global Steering Group for
Impact Investment and
The Portland Trust

Lily Trager
Executive Director, Director of
Investing with Impact
Morgan Stanley Wealth Management

Jackie VanderBrug
Managing Director, Head of
Sustainable and Impact
Investment Strategy
Founding presenter
Bank of America

For more information go to bloomberglive.com

 Bloomberg Businessweek November 25, 2019
The Breakup of the
U.K. May Be Nigh
● The general election has
raised nationalist feelings in
Scotland and Northern Ireland
With the general election campaign picking up
momentum in mid-November, Prime Minister
Boris Johnson took a moment to gaze into the
future. “In 10 years’ time, I confidently prophe-
size, we will all be citizens of a proud, strong, and
whole United Kingdom—more united than ever,”
he told an audience at an electric-car factory in
central England.
That such a comment could be framed as a bold
prediction rather than a platitude shows the scale
of the chaos the country has found itself in since
voting to leave the European Union in 2016. While
ILLUSTRATION BY CHARLOTTE POLLET
the Dec. 12 election was supposed to break the
deadlock in Parliament so the U.K.’s psychodrama
over its relationship with continental Europe could
finally be resolved, the political dynamics in the
three other constituent parts of the U.K. seem more
about whether the country should exist at all.
5
P
O
L
I
T
I
C
33
In Scotland, where every voting region chose to
remain in the EU, the Scottish National Party (SNP)
is gunning to retake districts it lost in 2017’s snap
S
election by calling for another independence ref-
erendum. Meanwhile, in Northern Ireland, Brexit
has pushed the question of Irish unification to
the forefront two decades since the Good Friday
Agreement largely settled it. The governments in
London and Dublin are concerned that any upset
to the delicate balance of power might reignite sec-
tarian violence. Even in Wales, which backed leav-
ing the EU, a recent poll suggested more people
are flirting with the idea of divorcing the English. A
party there seeking to break away is aiming to win
a record number of seats and set up a commission
to look into how independence might work.
“We have a really special opportunity to escape
the chaos in Westminster and to build a future for
ourselves,” says Stephen Flynn, an SNP candidate
running in the Scottish oil city of Aberdeen. “Our
core message is to escape the Boris Johnson Brexit
disaster that is looming.”
Edited by
Johnson was quick to visit Scotland on Nov. 7, Jillian Goodman and
a little more than a week after elections were Ethan Bronner
 ◼ POLITICS
declared, in an attempt to drum up support for
the 312-year-old union. Yet many of his core constitu-
ents couldn’t care less about holding on to the north.
In a mid-November poll by Sky News, 41% of Brexit
voters said leaving the EU would be worth losing
Scotland, while only 18% said they disagreed; 17%
said they’d be happy to see Scotland secede from
the U.K. regardless of the circumstances.
Scotland has already voted once on indepen-
dence. The 2014 referendum ended with 55% opt-
ing to stay in the U.K. Johnson—like his predecessor
as head of the Conservative Party, Theresa May—
has refused to sanction another one, and another
Tory insider said it simply wouldn’t happen while
the party ran the U.K.
But if Brexit has shown anything, it’s that pre-
dictions can prove foolish. Nicola Sturgeon, the
SNP’s leader, is adamant that Scots should get
another vote now that the circumstances in the
U.K. have changed, demanding one as early as
next year. Some of her more restless troops are
suggesting Scotland push ahead without official
sanction from Parliament, a move she’s balked
at so far. Sturgeon could yet have her way: She’s
made an informal coalition pact with Labour, the
U.K.’s biggest opposition party. Should Johnson’s
34
Conservatives fall short of a majority again, the
SNP’s price for supporting a new government led
by Labour leader Jeremy Corbyn would be a fresh
vote on independence.
The latest polls show the outcome of any refer-
endum would be too close to call. The SNP, which
has run Scotland’s semi-autonomous administra-
tion the past dozen years, is confident it can win
back many of the 21 districts it lost to rival parties
in 2017. Scottish Conservative leader Ruth Davidson
quit after Johnson took the helm, weakening the
party there.
In the affluent North Sea seaside town
of Stonehaven, 15 miles south of Aberdeen,
Conservative parliamentarian Andrew Bowie is
using pictures of Sturgeon on his campaign leaf-
lets rather than Johnson as he defends his seat.
“She’s leader of the SNP, she keeps threatening to
bring more bitterness, more division to this coun-
try,” Bowie says. “I would love over anything not
to be talking about independence.”
The integrity of the U.K. is also occupying the
Democratic Unionist Party, the largest pro-British
group in Northern Ireland. (When the Catholic-
dominated republic gained independence in
1922, the mainly Protestant north remained in the
U.K.) Before Johnson came back from Brussels
with a revised Brexit deal in October, the DUP’s
10 lawmakers in London had aligned with the
Bloomberg Businessweek November 25, 2019
Conservatives to give them a majority. But they ● YouGov polling on
independence from
recoiled at Johnson’s agreement, which would the U.K.*
treat Northern Ireland differently from the rest of
the U.K. after Brexit, thus potentially weakening its Scotland residents in
ties with the rest of the country. That, ultimately, favor of independence
could push it toward a “border poll,” a referendum 2016 Brexit
on whether to reunite the island of Ireland. referendum
The DUP’s biggest adversaries, the national- 50%
ists of Sinn Fein, are campaigning with the slogan
“Time for Unity.” Sinn Fein is looking at the math
needed to unseat lawmakers opposed to a reuni- 45%
fication vote. In fact, across the U.K., some can-
didates are stepping aside to give would-be rivals
with the same position on Brexit a better chance 40%
of victory. In leafy and affluent south Belfast,
where the DUP is vulnerable, Sinn Fein declined
to oppose nationalist candidate Claire Hanna of 35%
the Social Democratic and Labour Party. She’s 2014 2019
observed a palpable shift toward a border poll.
“There is a change. People are beginning to dis- Northern Ireland
residents in favor
cuss the possibility in a way that wasn’t happening of Irish reunification
before the Brexit referendum,” she says at a cafe.
Around the block, red-white-and-blue British flags
still fly over apartment buildings.
42%
Wales residents in favor
Although Hanna says the time isn’t right yet for of Wales independence
a vote on Irish reunification because of the febrile
political situation over Brexit, the coming general
election could be another catalyst for one if the
24%
nationalists gain enough ground. Should the par-
liamentary math in Westminster eventually lead
to another independence referendum in Scotland,
then calls would grow louder for a reunification
vote in both Northern Ireland and the Republic.
Ultimately, as with Scotland, the prospect of
a border poll on Irish reunification depends on
the British government, and the criteria for when
one can be held aren’t precise. The Good Friday
Agreement states there can be a vote if the U.K.
minister in charge of Northern Ireland sees a likely
majority in favor of a united Ireland. That’s hard
to judge. “Every Northern Irish election is like a
mini-referendum on unity,” says Richard Bullick,
a former adviser to DUP leader Arlene Foster. “But
we also have to be careful about overinterpreting
the results.”
If the DUP were to lose just two lawmakers to
nationalist parties, however, that may be clear
enough. Add that to an emphatic SNP triumph in
Scotland, which the polls suggest is likely, and the
U.K.’s future would look shaky at the very least.
�Rodney Jefferson, Dara Doyle, and Alex Morales,
with Kitty Donaldson and Greg Ritchie
THE BOTTOM LINE Many unlikely things would have to happen to
precipitate a complete dissolution of the U.K., but the cracks that
have appeared are unlikely to be healed by an election.
 ◼ POLITICS
Latin America
Splits at the Seams
● The protests upending governments were
both a total surprise and entirely predictable
In Chile it was sparked by a minor increase in the
capital’s subway fare. In Ecuador it was the end of
fuel subsidies; in Bolivia, election irregularities. But
the result has been the same: Across the region, the
people are in revolt.
With almost three dozen countries and more
than 600 million inhabitants, Latin America defies
easy generalization, which makes it difficult to pre-
dict what will come next. In that sense, the current
state of widespread, down-with-the-system rage has
parallels with the Arab Spring, which began in 2010,
and the collapse of the Soviet Union two decades
earlier. “There were a lot of cracks, but no one saw
it coming,” says Javier Corrales, a professor of polit-
ical science at Amherst College in Massachusetts, of
events in Bolivia and elsewhere in the region.
Two common factors stand out, he suggests:
commodity dependence and the middle income
trap, the stagnation that often sets in after a popula-
tion climbs out of extreme poverty and then strug-
gles to achieve further development. Latin America
DAVID DIAZ ARCOS/BLOOMBERG. *SCOTLAND AND WALES POLL FROM SEPTEMBER 2019, NORTHERN IRELAND POLL FROM JUNE 2018
Bloomberg Businessweek November 25, 2019
is the most unequal, lowest-growth major region
in the world right now, offering a cautionary tale
for other parts of the globe with similar dynamics.
“Inequality is the main cause of the disenchant-
ment being felt by citizens throughout the region
in the face of a stunned political establishment yet
to understand that the current development model
is unsustainable,” wrote Alicia Bárcena, the exec-
utive secretary of the United Nations’ Economic
Commission for Latin America and the Caribbean,
in a recent essay. The people want to eradicate the
culture of privilege, she added.
The region is caught between competing mod-
els of government: leftist populism and market-
oriented liberalism. Governments of each type have
been plagued by incompetence, corruption, and a
failure to meet social demands. “People are angry
at their political systems,” says James Bosworth,
author of the weekly newsletter Latin America Risk
Report. “There’s an anti-incumbent wave, and gov-
ernments haven’t dealt with the roots of the prob-
lem, and those problems aren’t going away.”
Political leadership remains in the hands of a
few, who somehow keep cycling back. Bolivia’s Evo
Morales had run the country for 14 years before the
military forced him to resign in the face of protests. 35
Chile’s Sebastián Piñera and Michelle Bachelet have
alternated in power since 2006, and Argentina’s
Cristina Fernández is coming back as a vice pres-
ident after ruling from 2007 to 2015. Having left ▼ An indigenous woman
jail on Nov. 9, Brazil’s Luiz Inácio Lula da Silva, at a protest in Ecuador
 ◼ POLITICS
who ruled from 2003 to 2011, is an early front-
runner for the opposition in 2022, despite having
been convicted on multiple charges of corruption.
Venezuela’s Nicolás Maduro has been in power
almost seven years, heading the Socialist move-
ment founded by Hugo Chávez that has led the oil-
rich country since 1999.
Technology is also playing a role. As smart-
phones and internet access spread, more people
are tuning in to real-time developments across the
world and organizing quickly, often without lead-
ership. In Chile, for example, it wasn’t clear with
whom the government could sit down to negoti-
ate. On Nov. 15 lawmakers in Santiago announced
they’d reached an agreement to rewrite the con-
stitution, meeting one of the protesters’ demands.
The authoritarian regimes in Cuba and
Venezuela should be feeling nervous, Corrales
says. “All of a sudden, Bolivia collapsed in this way,
and it involved two groups that were loyal to the
government—a certain union and the military,” he
says. Venezuela’s Maduro has relied on his military
in the face of numerous rallies protesting the rig-
ging of last year’s election.
Centrists, such as recently defeated Argentine
36 President Mauricio Macri, have little support in
Latin America at the moment, just as in the rest of
the world. One of the reasons investors expected
Macri to be reelected was his advantage as the
incumbent, with the power of the state and pub-
lic coffers on his side. But he lost in the first round
of voting—a referendum on his failure to control
inflation, protect purchasing power, lower pov-
erty, and maintain jobs.
Eventually the tide of anti-incumbency may hit
even outsiders, such as Brazil’s rightist President
Jair Bolsonaro. If seeing Macri lose wasn’t enough to
spook him, the raging protests and unrest in Chile
should be. His government is doubling down on a
reform agenda after already pushing through a pen-
sion overhaul and is counting on growth next year
to cement support as he faces a challenge from Lula.
Ecuador’s Lenín Moreno, a would-be reformer,
is treading lightly after violent protests that forced
him to move the government out of the capital tem-
porarily. After winning election as the successor to
leftist Rafael Correa, he pivoted 180 degrees to rule
from the center-right and investigate his former
allies for graft. But popular pressure is forcing him
to recalculate as he struggles to meet terms under
an International Monetary Fund aid program, which
required the elimination of popular fuel subsidies.
Recognizing social inequality and attempting
to fix it, however belatedly, is no guarantee that
protests will die down. Venezuela’s opposition
Bloomberg Businessweek November 25, 2019
leader, Juan Guaidó, organized the largest street
demonstration in months on Nov. 16 in what he’s
dubbed a “permanent protest” against Maduro. In
Colombia, unions and students called for a nation-
wide strike on Nov. 21. Some in Chile maintain that
they’ll be satisfied only if Piñera resigns.
“Anger at the political systems isn’t going away,
and in many ways governments are trapped,” says
Bosworth, the Risk Report author. “There will be
more protests, and they’ll be more violent in
2020.” �Daniel Cancel
THE BOTTOM LINE Latin America is struggling to reconcile two
competing political ideologies, leftist populism and market-oriented
liberalism, and the friction has exploded in many directions.
Abe’s Record-
Breaking Run
● He’s now Japan’s longest-serving prime minister,
but his tenure may be nearing its end
Just over seven years ago, Shinzo Abe was a political
has-been purveying eccentric monetary policy.
Now—as of this month—he’s Japan’s longest-serving
prime minister, breaking a record that stood for
more than a century.
Abe’s abortive first term in office, which ended
with his 2007 resignation, kicked off a whirlwind
of prime ministers—six came and went in as many “You can’t be
years—and helped pave the way for his Liberal prime minister
Democratic Party’s humiliating defeat in 2009, of Japan
after 54 almost uninterrupted years in power. Abe unless you
used his years in the wilderness to develop a new can maintain
focus, training his political messaging on the kinds good ties
of kitchen table issues that have today won him six with the U.S.”
straight national elections. Through a combination
of skill and luck, he’s become an unlikely beacon
of stability in an increasingly unpredictable world.
Abe’s longevity has surprised even his top
aides. “I never imagined he would go on this
long,” says Hiroshige Seko, an LDP executive who
served in the prime minister’s office for almost
four years beginning in 2012. “I wondered whether
it would last a year.”
And yet questions are emerging over how much
longer Abe—or stable leadership—can remain. The
65-year-old is heading into what may become a
  POLITICS
lame-duck period before his latest three-year term
as head of the LDP ends in September 2021. He’s
said he won’t seek a rare fourth straight term atop
the party; however, he also said that about run-
ning in 2018.
Until now, economic health has been the key to
Abe’s political health, says Ichita Yamamoto, who
served two years in Abe’s cabinet beginning in 2012.
“I think we are going into a difficult time,” he adds.
Trade tensions have hurt Japan’s growth, which
decelerated sharply in the third quarter to an annu-
alized pace of 0.2%, from 1.8% three months earlier.
Abe and his ministers have increasingly focused
on unemployment as their preferred measure
of economic strength. A program of unprece-
dented monetary stimulus known as Abenomics
has helped reduce the unemployment rate from
4.3% when he took office to 2.4% in September,
hovering just above a 27-year low reached in July.
Reforms aimed at reducing income inequality have
also helped Japan avoid the deep internal divisions
afflicting wealthy places from the U.S. to the U.K.
to Hong Kong. Meanwhile, the Nikkei stock aver-
age has more than doubled since Abe took office.
On foreign policy, polls show that voters
approve of his hard-line approach to relations with
South Korea, as well as his efforts to maintain ties
with U.S. President Trump via rounds of golf and
hamburgers—though that was before Foreign Policy
reported that the White House demanded a four-
fold increase in financial support for U.S. troops
stationed in Japan. North Korean nuclear tests and
China’s growing military might have helped quiet
opposition to Abe’s reinterpretation of Japan’s post-
World War II constitution, which bans the exercise
of war, to expand the role of the military. Having
inherited a standoff with China over islands in
the East China Sea, Abe now hopes to welcome
President Xi Jinping on a state visit in the spring.
Domestically, the prime minister gave himself
greater control over government appointments by
pushing a new Cabinet Bureau of Personnel Affairs
through the Diet in 2014, which has enabled him to
keep his bureaucrats tightly in line. Learning from
a damaging sales tax hike in 2014, he introduced
measures to offset the effect of a second increase
this year. In perhaps the biggest stroke of luck, the
opposition has failed to regroup from its election
defeat, remaining weaker than it’s been for decades.
While there’s still a disgruntled constituency
of Abe foes who could be galvanized by the right
KIYOSHI OTA/BLOOMBERG
opposition leader—a feat Tokyo Governor Yuriko
Koike almost pulled off in 2017—Abe’s successor will
most likely come from within the LDP. A November
poll by the Yomiuri Shimbun showed Abe’s support
Bloomberg Businessweek November 25, 2019
at a respectable 49%, despite a series of festering
scandals in his cabinet.
According to one former minister, the LDP’s
leadership choice may be swayed by the results of
the 2020 U.S. presidential election. “Who is going
to deal with that Mr. Trump?” asks Takeshi Iwaya,
who served as defense minister under Abe until
September. “Whatever the rights or wrongs of it,
you can’t be prime minister of Japan unless you
can maintain good ties with the U.S.” If Trump
wins reelection, the party may be more inclined
to give Abe another mandate rather than risk a
change in leadership.
Many lawmakers expect Abe to call an election
early next year while his support is still robust. But
he could step down even if he wins, most likely at
some point after the 2020 Olympics in Tokyo, intro-
ducing more uncertainty as the economic outlook
turns gloomy.
“A decline in demand for workers in Japan’s
manufacturing, wholesale, and retail sectors
put a dent in a job market that is still very tight,”
said Bloomberg economist Yuki Masujima after
September’s unemployment number came in
slightly higher than expected. “Some sources of the
weakness are temporary, some potentially more ○ Abe
37
persistent.” Abe’s government has so far made lit-
tle progress on structural reforms aimed at making
Japanese businesses more competitive.
Abe has singled out his former foreign minister,
Fumio Kishida, as a future leader. With a low pub-
lic profile and no clearly delineated policy goals,
Kishida could be a stopgap enabling Abe to return
to the top job at a later date. If the party selects
former Defense Minister Shigeru Ishiba, who nar-
rowly lost the leadership contest to Abe in 2012 and
has distanced himself from his rival, that could be
read as a desire for a cleaner break from Abe’s leg-
acy. Environment Minister Shinjiro Koizumi, the
38-year-old son of a former prime minister, has
often led in surveys asking people who they want to
succeed Abe, but is generally seen as too young to
get the job in Japan’s senior-centric political system.
“Not many people are supporting Abe enthusias-
tically—it’s just that they can’t think of anyone else,”
says Katsuya Okada, who was deputy prime min-
ister in the Democratic Party administration that
immediately preceded Abe’s 2012 return to power.
The sense of inevitability surrounding Abe depends
on the global economic environment, Okada says.
“If conditions become harsher, that could change
greatly.” —Isabel Reynolds, with Emi Nobuhiro
THE BOTTOM LINE Abe’s party has yet to designate a successor,
leaving much of its direction up in the air should the long-serving
prime minister not win or accept a fourth term.
 Bloomberg Businessweek

38

Google’s Defe

The company wants the military’s business.

Most of its employees don’t
 November 25, 2019

39

nse Dilemma

By Joshua Brustein and

Mark Bergen
 Bloomberg Businessweek
In early November several dozen experts from the
American military industrial complex—including senior
officers, defense contracting executives, and think tank
advisers—gathered at a hotel a few blocks from the Capitol
to discuss artificial intelligence software. While everyone ate
lunch, General Jack Shanahan, head of the Joint Artificial
Intelligence Center—JAIC, or the “Jake,” as it’s known—sat
onstage in his dress uniform and chatted with two civilians
in suits: Eric Schmidt, Google’s former chief executive offi-
cer, and Kent Walker, its chief legal officer.
The appearance with a high-ranking military officer was
a coup for Google. Over the previous two years, the com-
pany and its parent, Alphabet Inc., have been criticized
relentlessly for being insufficiently patriotic. Its perceived
infractions: One, the 2017 decision to open an artificial intel-
ligence lab in Beijing when many in the U.S. had come to see
the development of AI as a national priority on par with the
Manhattan Project. Two, the 2018 decision, in the face of
pressure from employees, to withdraw from Project Maven,
a secret government program to use commercial AI software
to analyze images from military drones.
In March, General Joseph Dunford Jr., the chairman of
the Joint Chiefs of Staff, complained to a Senate panel that
Google was “indirectly benefiting the Chinese military.”
Then in July, Peter Thiel, President Trump’s most prominent
40 Silicon Valley supporter, called Google “seemingly treason-
ous” and suggested it had been infiltrated by Chinese spies.
The following day, Trump more or less endorsed this view,
praising Thiel on Twitter and promising an investigation.
(The administration walked this back later, saying it had no
concerns about Google’s work in China.)
There was a time when Google might have worn its unpop-
ularity in Washington as a badge of honor. But the company
is hitting middle age now, with $140 billion in annual revenue
and a desire to expand into new lines of business. That’s made
military contracts enticing to Google’s leadership, which sees
defense work as an important stepping stone to more busi-
ness in the $200 billion market for cloud services. Google’s
more idealistic employees are alarmed by this and see the
company drifting from its old “don’t be evil” ethos.
Several months after walking away from Maven, Google
“They basically acquiesced
to a woke segment of
their workforce”
November 25, 2019
declined to bid on a $10 billion contract, JEDI. (The gratuitous
Star Wars reference stands for Joint Enterprise Defense
Infrastructure.) But it was working furiously to repair its rela-
tionship with the Defense Department. This spring executives
from its cloud computing division held a series of dinner par-
ties in Washington, inviting current and former employees
from national security agencies. “Their message was, ‘We’ve
got a bad rap. We want to work with you,’ ” says James Lewis
of the Center for Strategic & International Studies and a din-
ner party guest. Google also ran a Super Bowl ad highlighting
a search engine feature that can help veterans find jobs.
Sitting next to General Shanahan onstage, Walker contin-
ued the charm offensive, recounting his experience growing
up on military bases and expressing frustration that anyone
would question his employer’s commitment to national secu-
rity. “That was a decision focused on a discrete contract,” he
said, referring to Google’s pulling out of Project Maven. It was
“not a broader statement about our willingness or history of
working with the Department of Defense.” Google declined
to make Walker or other executives available for this article,
which is based on interviews with a dozen current and for-
mer Google employees and 20 people close to the military’s
work on AI, as well as other military contractors and activ-
ists at other companies.
Shanahan professed himself—and, by extension, the
Pentagon as a whole—satisfied with Google, a message echoed
privately by military figures. A senior Defense official says the
company is actively pursuing contracts issued by the JAIC. But
mistrust remains. Portions of the company’s employee base
are in a state approaching open rebellion, and senior military
officials worry that Google is susceptible to pressure. In pass-
ing conversation, officers joke about canceling their Gmail
accounts to avoid aiding the enemy. “I don’t know who they’d
put on a defense project,” says a Senate aide, expressing a con-
cern that Google employees aren’t supportive enough of the
U.S. government to be reliable. “Frankly, I don’t trust them.”
It’s easy to trace any novel political controversy to Trump,
but Google reached a subtler turning point a year and a half
before the 2016 election. On April 23, 2015, Amazon.com
Inc. first disclosed the financial performance of its cloud PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES
 Bloomberg Businessweek
Dunford Shanahan
computing division. In a quarterly financial report, the
company said Amazon Web Services brought in $1.6 billion
in revenue, was growing at a 50% annual rate, and was much
more profitable than Amazon’s retail business.
At the time, almost all of Google’s revenue came from
advertising. Its futuristic forays into self-driving cars and
smart cities had yet to produce much revenue, and its wilder
projects—like the one to cure death—were basically glori-
fied science experiments. Some veteran Googlers described
Amazon’s cloud computing announcement as a reminder of
how far behind the company was in a business that, by all
rights, it should dominate.
Cloud computing involves building giant data centers and
developing software to help big organizations automatically
sort, share, and analyze data. Google had been making this
kind of software since the late 1990s, when founders Larry
Page and Sergey Brin began writing algorithms to create an
index of web pages for their search engine. Over the years
the company focused on AI—a trend that accelerated in 2015,
when Sundar Pichai, who once called the technology “more
profound” than fire or electricity, replaced Page as CEO.
DUNFORD: COURTESY U.S. DEPARTMENT OF DEFENSE. SHANAHAN: COURTESY U.S. AIR FORCE. WALKER: COURTESY GOOGLE
The following year, Google formed its Cloud AI unit, hir-
ing well-known scientists such as Fei-Fei Li, a computer vision
whiz from Stanford, to promote the technology as vital for
a wide range of industries. Google Cloud executives saw the
U.S. Defense Department and its $700 billion annual budget
as a potential marquee client—a way to signal it could build
more than free search engines and web-based email software.
On the other hand, many Googlers were increasingly hostile
to the idea of any kind of government contracting, especially
after Trump suggested he might build a registry of Muslims,
and then, after assuming office, issued an executive order
denying entry to people from a handful of mostly Muslim coun-
tries. Employees signed pledges not to help build any technol-
ogy to enable immigration crackdowns. And they rushed to
public protests. Brin showed up at one demonstration at San
Francisco International Airport, and Pichai seemed sympa-
thetic, too. “It’s something you should never compromise on,”
he told a group of 2,000 employees at a protest on Jan. 30, 2017.
Even as Google executives expressed public disapproval
of the White House’s immigration policies, the company’s
November 25, 2019
Walker
cloud division was redesigning its infrastructure with an eye
toward winning over the military. One major challenge was
that Google had integrated all its data centers into a single sys-
tem. That was convenient for supporting its search engine,
but it made working with classified government data impos-
sible. The U.S. generally requires a computing architecture
known as air gapping, which involves physically isolated
servers with software written so it doesn’t interact with the
broader network. When Amazon won a large CIA contract
in 2013, it segregated agency data from that of other clients.
Retrofitting Google’s cloud to enable air gapping was a
labor-intensive process that involved dozens of distinct teams,
according to one person who worked on it. There was nothing 41
inherently controversial about the changes, but some employ-
ees objected to doing so to enable military partnerships. A
handful of senior Google engineers—the Group of Nine, as
they came to be known—refused to work on the project, lay-
ing the groundwork for a broader revolt.
That would come when details of Project Maven started
to leak throughout the company in January 2018. At first
the project was discussed behind closed doors and on
employee-only Google+ pages. (Google shut down the much-
maligned consumer version of its social network in April, but
a version for internal business communications lives on.)
Then, Liz Fong-Jones, a site reliability engineer for Google
Cloud, asked in an internal post if the military might use
Google’s software to help orchestrate a drone strike on a
particular person or group. The outrage among employees
was swift. Fong-Jones declined to comment.
Google tried to quell concerns by arguing that it was just
sifting through surveillance footage, not helping with com-
bat decisions. Executives also cited the small value of the
Maven contract, about $9 million. But subsequent reports in
the tech blog Gizmodo showed that Google expected reve-
nue from Maven to eventually rise to $250 million. And engi-
neers examining the code found lines of software intended to
identify cars, which they interpreted as evidence that Google
was indeed helping target combat strikes.
Google and the military have maintained that Maven isn’t
a weapons program; recently, Shanahan said the drones
involved weren’t even armed. But Jack Poulson, then a com-
puter scientist at the company, says these denials are
 Bloomberg Businessweek
meaningless because the intelligence produced by the
program could contribute to combat operations. “The line
from the company was that there was no lethal implication,”
Poulson says. “After that, the goal post was shifted,” he says,
adding that executives then argued that better data would
reduce casualties in conflict situations.
The debate over Maven brought more scrutiny to Pichai’s
unbridled enthusiasm for AI. Employees began pointing
out—in internal message boards and, sometimes, in pub-
lic on Twitter—all the ways AI could go wrong when used to
determine who should get a bank loan, to surveil the pub-
lic, or to categorize digital photographs of people with dif-
ferent skin tones. They saw Google trading in its original,
idealistic mission—“organize the world’s information”—for
something more mercenary.
The conflict centered largely on the company’s cloud unit,
which had financial incentives that differed from those of the
consumer businesses. “The question is, Who’s your user?” says
Meredith Whittaker, who worked at Google for more than a
decade and became one of its fiercest critics. “Back during
search, the user was an individual human, and Google built
its reputation around putting the user first. Now for the infra-
structure business, which is a cloud business, the user is oil and
gas companies, the user is the DoD. Those are lines of revenue
that are going to be hard to leave on the table.” By April 2018,
42 4,000 people—roughly 5% of total full-time staff—had signed a
petition denouncing Maven. A smaller number resigned.
Google attempted to appease its employees without back-
ing away from the Pentagon. Staff members and Defense
Department representatives held a series of meetings. Two
people who attended one of them recall a squabble breaking
out when Whittaker raised ethical objections to Maven. Other
Googlers protested Trump’s travel ban in January 2017
November 25, 2019
Google employees began to argue energetically in defense of
the program. Watching a prospective contractor argue the eth-
ics of defense contracting was new for the Pentagon staffers.
“It was super awkward for everybody,” one attendee recalls.
Whittaker declined to comment on any internal meetings.
Publicly, Google surrendered to its dissidents, announcing
in June 2018 that it would stop work on Maven once its con-
tract expired. Later that year it announced it wouldn’t pursue
JEDI, the $10 billion cloud computing contract. Amazon,
Microsoft, and Oracle competed fiercely for the business,
which Microsoft Corp. won in October 2019.
It’s not clear Google could have put forth a serious bid,
because the company said it lacked security certifications
that most of its competitors had already obtained. But
another reason it gave for the decision—that JEDI might
violate its ethical principles—reinforced critics’ view of
Google. “They basically acquiesced to a woke segment of
their workforce,” complains Republican Senator Tom Cotton
of Arkansas, a U.S. Army veteran who sits on the Senate’s
Committee on Armed Services.
Cotton says his office has communicated with Google
since it pulled out of Maven, but he doesn’t believe the com-
pany can convincingly commit to taking on other military
contracts given its internal dynamics. He argues that civilian
agencies should avoid dealing with Google as well. “I’d tell
them to turn around and get the hell out,” he says.
Other companies seem to have taken such threats to
heart. Employee protests have become a regular occur-
rence on tech campuses, but most major companies have
chosen to ignore any blowback rather than cancel work
on politically sensitive issues. Amazon still provides facial-
recognition software to law enforcement, and Microsoft
hasn’t retreated from a plan to build
augmented-reality headsets for sol-
diers. To executives at Google’s
competitors, its response to the
Maven protesters served as a cau-
tionary tale of what not to do.
By this summer, Google’s protest
movement was showing signs
of strain. In July, Whittaker and
another prominent critic, Claire
Stapleton, announced they were
leaving the company after each
MORIAH MARANITCH/PICTURE-ALLIANCE/DPA/AP PHOTO
had complained publicly that it was
retaliating against internal critics.
(Whittaker by then was working at
AI Now, a nonprofit focused on eth-
ical questions related to technology.)
Google denies the accusation and
says it’s always fostered technical
and ethical debates. Yet its manage-
ment has taken a number of steps to
counteract employee protests, and
Bloomberg Businessweek November 25, 2019

has even instituted new guidelines discouraging workers

from talking about politics at the office.
The New Military This has had the effect of further damaging trust
between Google and the restive parts of its workforce. In
Industrial Complex November the company said it had fired an employee for
leaking details about colleagues to the media and placed
A look at some of Silicon Valley’s recent
two others on leave for misusing internal data. But internal
government work—and the ensuing backlash sources described the disciplinary actions as a way to pun-
ish employee activists.
There’s widespread suspicion among activists within
Google that it continues to do this work in secret. Employees
have tried to call attention to Alphabet-backed startups that
may be pursuing government contracts and have attempted
to cut off certain lines of work before they begin. This sum-
THE CONTRACTS THE BLOWBACK
mer, a Bloomberg Businessweek reporter asked employee
JEDI, worth $10 billion Microsoft employees activists whether Google was planning to respond to a pro-
and awarded in October, suggested the JEDI
and a $480 million con- deal was unethical in
posal by U.S. Customs and Border Protection seeking new
tract to supply HoloLens an anonymous blog cloud services. The people said activists at Google weren’t
headsets to the Army. post. Protesters erected even aware of the CBP project.
Microsoft’s GitHub a cage in front of Soon after the conversation, a group of employees set up
subsidiary recently GitHub’s office. an account on Medium and posted an open letter citing the
renewed a $200,000
contract to provide soft-
CBP proposal and demanding Google not pursue such con-
ware to Immigration and tracts. “We have only to look to IBM’s role in working with
Customs Enforcement. the Nazis during the Holocaust to understand the role that
technology can play in automating mass atrocity,” the letter
argued. About 1,500 people at Google eventually signed the 43
letter. The company and CBP are currently in a trial period,
and activists are hoping to pressure Google to reject a com-
mercial product when the pilot expires this spring, according
THE CONTRACTS THE BLOWBACK to one employee involved. Workers have also begun pressur-
A $600 million cloud The facial-recognition ing the company to stop working with the fossil fuel industry.
services contract with software was among Google’s leadership hasn’t responded directly to those
the CIA. A future con- the issues raised by calls. Instead, the company has introduced ethical principles
tract with the agency protesters—some
governing AI, including a promise not to use it on “weapons
could be worth $10 bil- of them dressed as
lion or more, accord- poop emojis—who or other technologies whose principal purpose or implemen-
ing to Bloomberg showed up at Amazon’s tation is to cause or directly facilitate injury to people.” It’s
Government. Last year annual meeting earlier also set up panels to review the technology. Last month the
it pitched to ICE facial- this year. Defense Innovation Board, a Pentagon-sponsored panel that
recognition software it
Schmidt leads, released its own AI principles, which track
already sells to police
departments. closely with Google’s.
Poulson, who left the company in September 2018, says
these lists of AI principles and the boards who debate them
will always be insufficient, because they treat Google’s work
with the military as something to be smoothed over with a
few technical tweaks. Like many of the thorniest questions
THE CONTRACTS THE BLOWBACK facing Silicon Valley today, Google’s relationship with the mil-
$876 million from the Mijente, an immigration itary doesn’t hinge on how its advanced technology is built
U.S. Army to help sol- rights group, has orga- but on the values that determine how it’s used.
diers gain access to nized protests in front of There seems to be little chance that activists like Poulson
data. In August, Palantir Palantir’s headquarters. will convert Google’s leaders, including Pichai, Page, and
renewed a $49 million Employees have circu-
ICE contract. lated letters both sup-
Brin, to accept their view. At the event in Washington, Walker,
porting and opposing its the chief legal officer, said Google was pursuing higher secu-
work with ICE. rity certifications so it could work more closely with the
Defense Department on other projects. “I want to be clear,”
he said. “We are a proud American company.” <BW>
 Bloomberg Businessweek November 25, 2019

How to
44
Save
Amtrak.
Bloomberg Businessweek November 25, 2019

The head of America’s passenger

rail system isn’t particularly attached
to trains. Maybe that’s a good thing
By Devin Leonard

45

Or Ruin It
 Bloomberg Businessweek
M
y journey from New York to New Orleans on
the Amtrak Crescent began forebodingly. I
was stowing my bags in the sleeping car. As
the train left the station, the Amtrak atten-
dant who’d be taking care of me on the trip
stopped by. “Settle in,” he advised. “We’re going to be here
for a while.”
“Yeah,” I said. “Thirty hours.”
“All that,” he replied knowingly, “and maybe more.”
The Crescent is one of Amtrak’s tardiest trains.
Southbound, it leaves New York’s Pennsylvania Station
every day at 2:15 p.m. Around 9 the next morning it pulls
into Atlanta, where many passengers either depart or step
off for a long-awaited cigarette. It ambles through some hyp-
notically beautiful Alabama countryside and somnolent
Mississippi towns before arriving in New Orleans, accord-
ing to the schedule, at 7:32 p.m. Almost three-quarters of
the time, however, the Crescent is late, often by two hours
or more. Last year, Amtrak lost $39 million on the line, which
comes as no surprise. How many people want to take such
an unreliable train?
The people I spoke with in the dining car all had stories
about the Crescent’s delays and why they endured them. A
semiretired cotton company executive from Montgomery,
Ala., was a train lover and just happy to be aboard. “I
46 enjoy it,” he said, “even when it’s late.” We ate dinner with
an Atlanta dentist returning from a wedding in New York.
Normally he would have flown, but he’d had knee surgery
and couldn’t sit still for several hours on a plane.
I had breakfast the next morning with David and Sarah,
Long Islanders in their mid-20s. David was terrified of flying.
“It’s a completely irrational fear, but I stand by it,” he said.
Sarah once waited eight hours for the Crescent to leave New
York, but she’d grown up taking long trips on Amtrak and
enjoyed their quirky moments. Before the meal was over, a
congenial dining room attendant named Claude Mitchell led
us all in a rendition of “Happy Train Ride to You,” dedicated
to a 4-year-old taking her maiden rail excursion with her
grandparents. We wouldn’t have done that on a plane.
I
f you wanted to create a railroad from scratch,
you’d never design one like Amtrak. It had 32 mil-
lion riders last year and revenue of $3.2 billion. But
it had an adjusted operating loss of $171 million and
has needed federal subsidies to stay afloat every
year since Congress created it in 1971. The most functional
piece of Amtrak is the 457-mile Northeast Corridor between
Boston and Washington. The trains on this line may not be
as fleet as the bullets of Europe and Japan, but they run fre-
quently and pretty much on time. Amtrak can make sure of
that because it owns almost all the Northeast Corridor track
and controls much of the dispatching on it, which helps
explain why the corridor had 12 million riders last year and
an operating profit of $524 million.
Then there’s the rest of Amtrak’s 21,400-mile network.
November 25, 2019
Do you want to catch Amtrak in Cleveland? There’s no
train leaving there before 1:54 a.m. or after 5:50 a.m. Bring
something to read, because outside the Northeast Corridor,
Amtrak’s long-distance trains operated according to sched-
ule only 43% of the time last year.
The biggest reason is that Amtrak owns hardly any of
these tracks. For the most part, they belong to freight rail-
roads, whose predecessors persuaded Congress to form
Amtrak in 1971 to take over their failing passenger oper-
ations. In return for what was essentially a bailout, the
freights agreed to give Amtrak preference on their tracks.
The meaning of preference is technical and somewhat dis-
puted, but in essence freight trains are supposed to pull
onto a siding so trains like the Crescent can get by. In prac-
tice, the freights, which control the dispatching on their
rails, often keep Amtrak trains idling while their own slower-
moving trains pass.
The Federal Railroad Administration and Amtrak want
to sort this out by establishing performance standards
designed to ensure that the trains are on time more fre-
quently. The freights have resisted. Ian Jefferies, president of
the Association of American Railroads, the freight industry’s
chief trade organization, recently told Congress that the pri-
vate railroads carry far more cargo then they did in 1971, and
that it’s unreasonable to expect them to pull over every time
an Amtrak train comes along. (Paradoxically, Amtrak is also
an association member.) For Amtrak, that intransigence—
or what it calls flouting of the law—has been devastating.
Ridership on its 15 long-distance routes declined last year
by 4%, to 4.5 million trips. The $543 million operating loss
eclipsed the Northeast Corridor’s profits.
For decades, Congress largely sidestepped the question
of how to improve Amtrak, preferring to squabble about
whether Amtrak should even exist. But these days, Amtrak
enjoys strong bipartisan support. The Trump administration
has proposed significantly defunding Amtrak, but Congress
has defied the White House. This year it lavished Amtrak with
almost $2 billion in annual subsidies.
Amtrak’s board of directors also broke with tradition. In
2017, rather than recruiting from the public-transit sphere, it
hired a chief executive officer from the private sector: Richard
Anderson, who’d become CEO of Delta Air Lines Inc. after
it emerged from bankruptcy and restored it to profitability.
Working without a salary or an annual bonus—he prob-
ably doesn’t need the money, having left Delta with $72 mil-
PREVIOUS SPREAD: STEPHEN VOSS/REDUX. DATA: AMTRAK
lion in company stock—Anderson is determined to move
Amtrak toward self-sustainability. He’s vigorously cutting
costs and vows it will break even on an operating basis
next year. That, he says, will enable Amtrak to spend its
annual congressional subsidies to buy new trains and fix
up its tracks and stations. Anderson will need all the money
he can get. The Northeast Corridor has been underfunded
for decades and needs an estimated $41 billion to keep its
bridges and tunnels, some of which were built more than a
century ago, from collapsing.
Bloomberg Businessweek
Seattle
Chicago
Sacramento
Denver
Kansas
City
Los Angeles
Oklahoma
City
Amtrak network track ownership
Amtrak-owned or -leased track (3% of total)
BNSF
CSX
Norfolk Southern
Union Pacific
Other railroad
He also wants to reconfigure Amtrak’s long-distance routes
so they’re no longer money sops. He says several, includ-
ing the Empire Builder and the California Zephyr, which
transport passengers from Chicago to the Pacific Northwest
and Northern California, respectively, could be turned into
luxe excursions for rail enthusiasts who want to cross the
Continental Divide in style. Others, he argues, should be bro-
ken up into shorter, faster routes between cities, enabling
travelers to bypass congested highways and airports with
their time-sucking security requirements. Amtrak already
operates 28 such routes in states like Virginia and California.
These state-supported lines lost $91 million in 2018, but
they accounted for 15 million passenger trips—almost half of
Amtrak’s total ridership.
Anderson has upset an impressive number of people.
Amtrak’s employee unions have condemned his trimming of
call-center and onboard service positions and demanded his
ouster. U.S. senators from rural states worry that if he gets his
way, their constituents will lose service, paltry as it may be.
Meanwhile, rail enthusiasts, of which there are more than a
few, denounce him as a philistine who wants to kill Amtrak’s
long-distance routes, many of which have rich histories,
because he doesn’t understand or love trains as they do.
Jim Mathews, president of the Rail Passengers Association,
a national advocacy organization for train travelers, sees an
irony. “He was brought in to make Amtrak operate as if it were
a profit-making company,” Mathews says. “He looked every-
body in the eye and said, ‘OK, are you guys ready for this?
We’re going to break some stuff.’ And everyone said, ‘Yes,
this is what we want.’ And then he started breaking stuff. And
people were like, ‘Wait, hold up. Stop! What?’ ”
T
all, bespectacled, and balding, Anderson has
a senior faculty member’s cerebral air. On an
August afternoon, he sits at an oval table in
Amtrak’s headquarters near Washington’s
Union Station, dressed casually in a light blue
November 25, 2019
The Northeast Corridor
route between Boston and
Washington, where Amtrak
Boston
controls dispatching, had
an operating profit of more
than $500 million last year
New York
Cleveland
Philadelphia
Washington
Of Amtrak’s 15 long-distance
Atlanta routes, only the one between
Virginia and Florida was on
schedule more than 59% of
the time
New
Orleans
Miami
checked shirt, blue pants, and gray sneakers. He’s irritated
by his detractors, but only mildly so. “Most of the critics are
the people who yearn for the halcyon days of long-distance
transportation,” he says, referring to an era when fedora-
wearing travelers crossed the country in plush trains, sipping
martinis, perusing the funny pages, and visiting the onboard
barber if they needed a trim.
Anderson has no such nostalgia, which is odd consider- 47
ing his family background. He grew up in Texas, the son of
an office worker at the Atchison, Topeka & Santa Fe Railway.
His dad took Richard and the family on rail trips to Chicago
and Los Angeles. “I didn’t come away with some huge love for
trains, just like I don’t have some huge love for airplanes,” he
says. “They’re machines that you build a business around.”
He got a law degree and in 1978 became an assistant pros-
ecutor in Houston. “He was one of our best trial lawyers,”
recalls Bert Graham, Anderson’s boss at the time. “He had a
way of seeing through bullshit.” After nine years, Anderson
took a job as an attorney at Continental Airlines. In 2001
he alighted to Northwest Airlines, where he became CEO.
Following a stint in the health-care business, he returned to
the airline world to be CEO of Delta in 2007. Anderson told
reporters he hadn’t been recruited to merge the airline with
Northwest and then proceeded to do exactly that. He shaved
$2 billion in costs.
He also threw an occasional elbow. Anderson cam-
paigned unsuccessfully to get the Obama administration
to restrict the access of Delta’s Persian Gulf rivals to the
American market because he thought they were unfairly
subsidized by their governments. While reciting his griev-
ances in a 2015 CNN interview, Anderson told viewers to
remember what happened in September 2001. Many in the
aviation industry were stunned. Qatar Airways CEO Akbar
Al Baker said Anderson had “no dignity.” Anderson says he
was being a fierce advocate for Delta just as he’s trying to
be one for Amtrak now.
By the time he departed in triumph in 2016, Delta was
 Bloomberg Businessweek
routinely ranked No. 1 in the industry for on-time arrivals
and fewest canceled flights. Anderson told everybody he was
returning to Galveston, Texas, to do some fishing. If so, it
didn’t take. He soon got a call from Charles “Wick” Moorman,
a veteran railroad CEO who’d signed up to serve as Amtrak’s
chief executive for a year and help it find a long-term succes-
sor. He spent six months as Moorman’s co-CEO before tak-
ing over in January 2018.
Anderson has taken on the freights as no previous
Amtrak CEO did. Last year, Amtrak began publishing an
annual Host Railroad Report Card, which grades the six
largest private railroads according to how often their trains
delayed Amtrak’s on long-distance and state-supported
routes. Canadian Pacific Railway got an A; Norfolk Southern
Corp., which owns the tracks south of Washington on which
the Crescent operates, received an F. (A Norfolk Southern
spokeswoman said in an email that the company “takes
seriously its obligations to Amtrak and does its best to sup-
port freight and passenger operations.”) Sarah Feinberg,
former head of the Federal Railroad Administration during
the Obama presidency, applauds Anderson’s harder line.
“The reality is the freights have been holding up Amtrak
trains forever,” she says. “Previous Amtrak CEOs should
have done the same.”
Anderson has cut costs at Amtrak with the same zeal he
48 showed at Delta. He shuttered a 550-employee call center in
Riverside, Calif. Amtrak already had one in Philadelphia, he
said, and didn’t need another when so many customers were
booking trips online. He was just as unsparing with manage-
ment positions, getting rid of 600 and filling some of the top
slots with former Delta and Northwest executives.
Perhaps inevitably, he and his team have introduced ideas
from the airline industry, including assigned seating in the
first-class section of the Northeast Corridor’s Acela. Kevin
Mitchell, chairman of the Business Travel Coalition, says the
move infuriated corporate executives and their colleagues
who board in different cities, hoping to sit together to discuss
their affairs. “It’s absolutely crazy,” Mitchell says. “It didn’t
work.” Amtrak disputes this, saying customers like assigned
seats and it’s part of the reason revenue on the Acela’s first-
class cars has risen 11% this year.
Anderson also demonstrated his lack of sentimentality
toward trains. Early on, he visited Washington’s Union
Station, and he was appalled. The Marco Polo, former
President Franklin Delano Roosevelt’s private Pullman car,
was sitting on one of the station’s prime tracks. “Everybody’s
emotionally attached to it because it was FDR’s personal car,”
he says, still sounding annoyed. “Fine, go put it in a museum.
But let’s not block up Union Station with some old antique
car.” The car has been moved.
For train lovers, the moment of truth was when Anderson
initially refused to put up funds to improve a 400-mile
stretch of the Southwest Chief between Dodge City, Kan.,
and Albuquerque. Anderson said it would be more prudent
to run a bus between the two cities instead. “The idea that
November 25, 2019
The Amtrak Crescent
Amtrak would think about replacing passenger service with
bus service for 400 miles and believe that we would still have
a long-distance passenger train service is something I can’t
get over,” Senator Jerry Moran, a Kansas Republican, scolded
Anderson in a hearing in June.
The Senate ordered Amtrak to run the train and forget
about buses. Fine, says Anderson, but he hasn’t given up on
his plans to segment some routes.
The heresies have continued. In April 2018, Amtrak said
it was eliminating traditional dining-car service on overnight
trains on two routes east of the Mississippi. For decades, part
of the ritual for sleeping-car passengers was strolling to the
dining car for surf and turf, prepared to order by a chef. Now
they’re getting something closer to airline treatment: ready-
to-serve meals heated for them on the train.
M.E. Singer, a contributor to Railway Age, a trade publica-
tion, says this is an old trick the Southern Pacific employed
to depress ridership in advance of abandoning its passenger
lines in the 1960s. “First, they took off the diners,” Singer
says. “Then they took off the sleepers. Then they extended
the schedules. This is all very deliberate.” Singer, it should
be noted, is a train lover’s train lover. He sent me a list of
the summer rail vacations he’s taken, starting in 1957 with
a two-night trek from Chicago to Yellowstone National Park
on the Union Pacific’s National Parks Special. “If I close my
eyes,” Singer wrote, “I can still offer a vivid description of
travel on each train.”
0
ne of the more thoughtful critics of Anderson’s
plans is Knox Ross, a former mayor of
Pelahatchie, Miss. He’s also a member of the
Southern Rail Commission, which was created
by Congress more than three decades ago to
extend passenger train service in the region. In the after-
COURTESY AMTRAK
noon of my second day on the Crescent, Ross boarded the
train in Meridian, Miss., and joined me in the lounge car.
Wearing a blue suit and looking somewhat like a heftier
Bloomberg Businessweek
John C. Reilly, he was sweating a bit from the August heat.
It was good to ride the Crescent with Ross. He’d spent a lot
of time on the train and knows the crew well; his company
made the trip more tolerable as it became clear we weren’t
going to reach New Orleans on time. Throughout the day, the
Crescent had been passing freight trains laden with cement,
gravel, new cars, and oil. But then the trains started being
pulled to the side so Norfolk Southern’s trains could pass.
Ross has been working with Amtrak to create a corridor
between New Orleans and Mobile, Ala. These cities were once
served by Amtrak’s Sunset Limited, which ran between Los
Angeles and Orlando. But the tracks between New Orleans
and Florida were washed out 14  years ago by Hurricane
Katrina. Amtrak never reinstated service on that section, even
after CSX Corp., the owner of the tracks, resumed freight ser-
vice. The proposed New Orleans-to-Mobile route fits perfectly
into Anderson’s new strategy, and this summer it seemed as if
it were finally under way. Senator Roger Wicker, a Mississippi
Republican, announced that the FRA had awarded a $33 mil-
lion grant for infrastructure improvements along the line. The
states of Louisiana and Mississippi pledged a total $25 million
in matching funds. But Alabama Governor Kay Ivey, also a
Republican, refused to put up the state’s $2.2 million contri-
bution, saying it didn’t have “the luxury of providing finan-
cial support for passenger rail service.”
Then there’s CSX. “They haven’t agreed to anything,” Ross
says. “They don’t want the train.” (CSX says it’s up to Amtrak
to decide what to do.) With such obstacles, Ross doesn’t see
how Anderson’s corridor plan can be extended nationally.
Nor does he think Anderson’s confrontational tactics are
improving things with the freights. “I’ve talked to some of
those people,” he says. “They hate this report card.”
As the train idled near Ellisville, Miss., we walked through
the coaches. Ross asked a conductor, “So how far in the
hole are we now?” The man looked up from his paperwork.
“It’s 5:13 p.m.,” he said. “We’re already 2 hours and 10 min-
utes late.”
By the time of my trip, it was clear Amtrak was planning to
get rid of traditional dining-car service on the Crescent, too.
Ross didn’t think that would help fill seats. And what of the
crew members who might lose their jobs, including Claude
Mitchell, the singing dining-car attendant? Exuberantly friendly
whether he’s serving food or having a casual conversation,
Mitchell recognized Ross and took the opportunity to say hello.
“Oh, hey, how are you doing?” Ross said, brightening up.
“Always a pleasure,” Mitchell said, gripping his hand.
“We’ve ridden quite a few trains together,” Ross said.
“Hopefully, we’ll have a little side trip one to Mobile that
you can work.”
“I’m ready,” Mitchell said.
“You can sing a tune all day over there.”
“Well, he’s heard me sing,” said Mitchell, nodding my way.
“I was a little hoarse, but I love doing it. I just hope and pray
that we keep going.”
“We’re going to try,” Ross said.
November 25, 2019
I
try to get Anderson to take a train ride, but it never
happens. Instead, we talk again in Washington. He
says nobody’s been fired as a result of his cost-cutting,
including the dining-car changes on the Crescent.
Everybody gets to keep their job at Amtrak, he says,
though it may not be exactly the same one and in the same ZIP
code. I later find out Mitchell is now a sleeping-car attendant on
the Crescent; hopefully, he’s exercising his vocal talents there.
I ask Anderson about what Ross said about his plan for
shorter routes. He reels off some trends in his favor. Highways
are too packed. Much of America’s population growth is
expected to be in cities, where young people aren’t buying
cars. “There are going to be obstacles,” Anderson says, “but
these obstacles are going to be overwhelmed by population,
demographics, and road congestion.”
The one time he starts to lose his cool—and only a little—
is when I ask if he’s trying to kill the long-distance routes, as
some say. Anderson says Amtrak isn’t just continuing to oper-
ate the routes as Congress has ordered, it’s improving them.
He notes that Amtrak will spend $75 million next year refur-
bishing the cars on routes like the Crescent and an additional
$40 million on new locomotives. “Part of the problem is that
the people that are the big supporters of long distance are all
emotional about it,” he says. “This is not an emotionally based
decision. They should be reading our financials.”
Anderson says he plans to ask Congress next year, as part of 49
Amtrak’s regular five-year reauthorization process, to allow it
to begin experimenting with shorter routes on some lines. He’s
considering the Sunset Limited, which operates three days a
week between Los Angeles and New Orleans. It was late more
than half the time last year and lost $35 million.
As for the freights, Anderson says he’s hopeful they
won’t be delaying Amtrak’s trains much longer. In June the
Association of American Railroads lost its long-running legal
battle to prevent the FRA and Amtrak from establishing
on-time performance goals.
Kathryn Kirmayer, general counsel for the AAR, says there’s
still much for Amtrak and the freights to haggle over, including
the meaning of preference on the freight tracks. “Some suggest
that ‘preference’ should mean treatment like a presidential
motorcade, where everything stops and pulls to the side to
allow a single car—or in this case, train—to pass,” she wrote in
an email. “That approach just doesn’t work.” Anderson doesn’t
sound worried. He’s also asked Congress to give Amtrak the
right to sue the private railroads if they hold up its trains.
In November, Anderson announced Amtrak’s latest financial
results. Ridership had risen 800,000, to a record 32.5 million
passenger trips in fiscal 2019. The financial loss had narrowed
to $30 million from the previous year’s $171 million, mean-
ing Amtrak was well on its way to an operating profit in 2020.
Recently, Anderson floated yet another unsentimental
idea: Perhaps the long-term future of Amtrak in some parts
of rural America won’t be trains at all. “It would have to
be driverless vans,” he said at a travel conference. “Smaller
driverless vans.” <BW>
50
ONE MORNING IN SEPTEMBER, DAVE
Gilboa stood on a staircase at Warby
Parker’s library-like headquarters in
New York to tell employees about the
eyewear retailer’s future. There had
been some modest milestones to cel-
ebrate, including a new collection of
frames handcrafted in Italy and a store
opening at the King of Prussia shopping
mall outside Philadelphia. But the big
reveal was on Gilboa’s face. Or rather, it
was on his eyeballs.
On Nov.  19 the company unveiled
Scout, a line of daily contact lenses. It’s
the first time Warby Parker, whose $95
tortoiseshell frames are ubiquitous in
coworking spaces and third-wave coffee
shops, has expanded beyond eyeglasses
since Gilboa and co-Chief Executive
Officer Neil Blumenthal started the com-
pany almost a decade ago. At $440 for a
year’s supply, the lenses will be slightly
cheaper than many daily contacts but
will be sold with what Warby says will
be a much improved ordering process.
Gilboa’s speech was one of several
events Warby held this fall to get its
2,000-plus employees appropriately
excited for a product that seems impos-
sible to get excited about. “This feels
orders of magnitude larger than every-
thing we’ve done,” Gilboa told Bloomberg
Businessweek after the meeting.
If anyone could make contact lenses
cool, Warby Parker could. The com-
pany is often credited with creating the
“direct-to-consumer” craze, a fancy
term for product makers that eschew
wholesalers and sell their stuff on the
internet. Investors have pumped enor-
mous sums into millennial-friendly busi-
nesses marketed as “the Warby Parker
of X.” Allbirds, Casper Sleep, Dollar
Shave Club, and Glossier—the Warby
Parkers of sneakers, mattresses, razor
blades, and makeup, respectively—each
achieved valuations of $1 billion. Those
are the most successful clones, anyway.
There are also Warby Parkers of vita-
mins (Care/of ), short shorts (Chubbies),
dog toys (BarkBox), and untucked
button-downs (Untuckit).
Then there are the other direct-to-
consumer eyewear businesses: the
Warbys of Warby, to take the snowclone
to the point of absurdity. These include
Ambr Eyewear, Coastal, GlassesUSA,
and Zenni Optical. Many offer similar
frames at even cheaper prices. Sucharita
Kodali, an analyst at Forrester Research
Inc., says this means Warby will have to
transform itself into something more
than a cool eyewear brand before its
cool wears off. “Whether or not Warby
turns into a hugely transformational
business remains to be seen,” she says.
Can contact lenses, a commodity
product poked onto your corneas, be the
key to this transformation? Contacts
 Bloomberg Businessweek November 25, 2019

require serious regulatory oversight; The hip doctor’s office feels a bit like a left to develop Away, the Warby Parker
the U.S. Food and Drug Administration vinyl-record listening room, with slate- of luggage, which also boasts a $1.4 bil-
classifies them in the same medical gray wallpaper and soft lighting. Warby lion valuation. (Warby Parker was val-
device tier as hearing aids and preg- is tripling its number of in-house optom- ued at $1.75 billion in its last funding
nancy kits. Selling contacts, says Sally etrists, to 80, and adding suites like this round, in March 2018.)
Dillehay, an optometrist who’s worked one to 40 more stores this year. They considered competing with
in vision research for three decades, is Gilboa and Blumenthal were MBA Shinola, the Warby Parker of watches,
much more involved than selling “tube students at Wharton when they started and explored selling their sales soft-
socks”—referring perhaps to Bombas, discussing the idea that would become ware to other companies. Instead, they
the Warby Parker of tube socks. “We’re Warby Parker in decided there was
talking about a piece of plastic that sits 2010. Their plan more promise in
on your eye, right? Your most important was to disrupt optical services.
sense,” she says. Gilboa and Blumenthal L u xo t t i c a , t h e Selling contacts
say they bring the same care and safety Goliath to their and doing more eye
precautions to contacts that they have David. The eyewear exams represented
to prescription eyeglasses. conglomerate, an $11 billion mar-
But there’s also the obvious market- now known as ket, “bigger than,
ing challenge. A really nice pair of con- EssilorLuxottica SA like, selling mat-
tact lenses inspires none of the feels that after its 2018 tresses,” Gilboa
a pair of trendy spectacles or wayfarer merger with the says, a knock at
shades can. If Gilboa and Blumenthal French lensmaker Casper, or maybe
can actually create a fashion brand for Essilor, is worth Helix, Leesa Sleep,
contacts, it will be an audacious mar- $67  billion, con- Tuft & Needle, or
keting feat, on the scale of the invention trols manufactur- any other Warby
of “certified pre-owned” used cars and ing and distribution Parker of bedding.
the duck that quacks about supplemen- for most eyewear But what would
52 tal insurance. “They’re vastly different,” brands on the the Warby Parker
Blumenthal acknowledges, comparing planet, and owns of contact lenses
Warby’s core business with its new one. mall staples such Gilboa (left) and Blumenthal be? Customers
“Contacts are designed to be invisible.” as Sunglass Hut and could rarely iden-
LensCrafters. It also operates EyeMed tify a single brand by its name. (“They
WA R B Y PA R K E R ’ S EYEWEAR IS Vision Care LLC, the second-largest U.S. all have names like ‘AquaComfort Plus’
often thought of as a fashion accessory, vision insurance provider (which doesn’t and ‘AquaSoft Moist,’ ” Gilboa jokes.) So
yet industry observers say its glasses are include Warby Parker in its network). a skunk works team rounded up every
actually just a small part of its popular- Gilboa and Blumenthal designed acetate contact lens it could find, studying com-
ity. Katie Finnegan, a retail consultant frames and sold them on the web, mov- fort, casings, and checkout processes.
who previously led Walmart Inc.’s store- ing more than 100,000 pairs of glasses They discovered problems in the pricing
of-tomorrow incubation efforts, says in 2011. Several years later, Warby began schemes for daily contacts, which are
what has most distinguished the brand is opening physical stores, hitting 64 loca- typically obfuscated by mail-in rebates
its service, including a home try-on that tions in 2017. (There are 112 today.) and service charges. Then there was the
lets customers order five pairs of glasses Warby’s growth even caught the atten- tear-off packaging, which usually entails
online and try them out for free. “They tion of Mickey Drexler, the retail icon finger-fishing for a lens drowning in solu-
have this je ne sais quoi that transforms who made Gap khakis cool in the 1990s tion, then squinting to see if it’s upside
them from a transactional errand to an and did the same for J.Crew in the 2000s. down. Gilboa and Blumenthal found a
emotional experience,” she says. He joined Warby’s board and invested in manufacturer in Asia that could slip the
The company’s Rockefeller Center the company, which has raised $290 mil- lenses into a flatter sleeve that Warby
store is a marvel of midcentury design. lion in financing from venture capitalists. Parker promises will always keep the
Glowing shelves accent frames uni- Blumenthal and Gilboa resisted contacts facing the right way.
formly spaced apart, and floor associ- suggestions to expand into additional About 70% of glasses are purchased at
ates in blue smocks hover around low categories, even as more and more the same time as prescriptions are writ-
walnut tables. Scout lenses, though, direct-to-consumer replicas took off. ten, which puts Warby Parker at a dis-
won’t be on display here like its glasses. One of their co-founders, Jeff Raider, advantage. “If a doctor prescribes you
They’ll mostly be sold online and in created Harry’s Inc., a different Warby Lipitor, he’s not selling you that drug.
Warby’s new “eye exam suites,” one of Parker of razors that was acquired in But with eye doctors you get the exam,
which can be found by going through a May for $1.4 billion. Two other former and they upsell you on glasses and
back door and up two flights of stairs. executives, Jen Rubio and Steph Korey, lenses,” Gilboa says. “It’s ‘exit through
Bloomberg Businessweek November 25, 2019

the gift shop,’ ” Blumenthal adds. By contend that punishing the entire indus- is currently increasing production by a
increasing the number of staff optom- try for the “careless and sloppy” prac- third. Gilboa and Blumenthal decided
etrists and building eye exam suites at tices of bad actors is not in the interest of to build the facility after some custom-
every new store, he and Gilboa say they public health. “It’s anti-innovation, anti- ers complained about how long it took
can goose their own sales. According to consumer, and frankly anti-American,” to get their glasses—now they say order
a source familiar with the company’s Blumenthal says, the seriousness of fulfillment times have improved more
financials, revenue grew 35% last his message undercut slightly by his than 10%.
year, but just a single-digit percent- leopard-print shirt and long blond wig. Spend time with Warby Parker’s
age of Warby Parker’s customers have Blumenthal and Gilboa argue that founders, and you’ll hear them talk
historically gotten prescriptions and eye- their app may give their optometrists endlessly about such under-the-hood
wear simultaneously at their stores. ways in the future to identify eye dis- efficiencies, the implication being that
EssilorLuxottica has more than 9,000 eases earlier. In the meantime, they’re the company is much more than pretty
stores, a figure Warby Parker can’t hope lobbying for pro-telemedicine regulation frames. This can sometimes come off as
to compete with, so instead the company and pushing more vision insurance a bit strained: At one point the two men
has focused on using software to check companies to cover them. If they don’t, engage in a lengthy discussion about the
prescriptions. Through the Warby Parker Blumenthal says, “it’s going to suck for advice they received from New England
mobile app, shoppers can update their them because we’re just going to keep Patriots head coach Bill Belichick. “Bill
glasses prescription for $40 with a self- taking their market share.” is an amazing capital allocator, a great
administered vision test, which it hopes value investor,” Blumenthal says, refer-
to use for contacts too in the future. The OFF A HIGHWAY NEAR A SUNOCO ring to the coach whose sideline look
service uses your phone and laptop to gas station, Warby Parker’s Sloatsburg, generally consists of a hoodie with the
test your sight and sends the results to an N.Y., factory is humming. During the sleeves cut off and a pair of sweatpants.
eye doctor to confirm the This is, of course,
prescription. But these all part of Warby
digital tests encompass Parker’s retail theater,
only a portion of what but it may also help
a doctor would do in an the company evolve 53
in-person exam, including beyond a snowclone of
inspections for glaucoma an internet brand and
and other eye diseases. into something greater.
Some optometrists Forrester’s Kodali says
view this form of tele- this transformation
medicine as unsafe and is especially import-
are fighting services such ant for the prolifer-
as Warby’s app at a state ating capital-bloated
and federal level. Georgia, VC-backed companies.
Michigan, and New “A lot of these retail-
Mexico have effectively ers are overrated,”
banned online vision she says. “They’re not
tests, and other states are billion-dollar brands.
considering similar prohi- They’re modest-sized
bitions. “These exams are The design studio in Warby Parker’s New York headquarters niche companies.”
in no way, in any stretch Blumenthal and
of the imagination, an eye examina- week, 100 employees operate produc- Gilboa agree, but they argue that this
tion,” says Barbara Horn, president of the tion lines almost around the clock, doesn’t apply to Warby Parker. After
American Optometric Association. “They making this optical lab an hour north touring the Sloatsburg lab, they note
have not proven to be accurate, and they of New York City one of the largest that their eyeglass business is profitable,
haven’t passed the premarket approval.” in the country. Here workers process and they believe Scout contacts will open
Gilboa and Blumenthal don’t appear eyewear orders, match frames to pre- them up to an even larger group of cus-
fazed by the skepticism. In an interview scriptions, and send them through tomers. They’re not interested in an ini-
in which they arrived dressed as pop- vending-machine-size lens cutters that tial public offering just yet; they say they
rock duo Hall & Oates (the corporate churn out nearly 50 pairs per hour. The don’t need the capital. “If we viewed
Halloween party was that evening), they factory is bright and modern, designed going public as an exit, we might’ve tried
described their digital medical service as like a Warby Parker store, and growing to grow as quickly as possible and gotten
a complement to, rather than a replace- fast: It’s more than doubled its output as much hype as possible,” Gilboa says.
ment for, in-person eye exams. They since opening in 2017, and the company “We want to build an enduring brand.” 
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Things I Never Knew About
Airports Until I Worked at One
P
A week undercover reveals a wild side of LAX U
R
By Brandon Presser Illustrations by Jaci Kessler Lubliner

S
U
I
T
S
55

$6.00 November 25, 2019

Edited by
Chris Rovzar

Businessweek.com
 T
he airport of
your imagination
probably looks like
the one in Love Actually: a
haven of happy tears where
adventures begin and
families reunite. In real life,
airports are upside-down
worlds where it’s perfectly
acceptable to wear pajamas
in public, guzzle martinis
at 8:15 a.m., and ignore all
etiquette around lining up.
All this informed the 2004
NBC television drama LAX,
starring Heather Locklear
as a superwoman managing
the airport’s 55,000
workers and 240,000 daily
passengers. The show was
canceled after one season;
apparently America didn’t
think its busiest airport of
origin was interesting.
They were wrong.
56 According to James
Janovec, the superintendent
of operations on whom
Locklear’s character was
loosely based, a plane takes
off roughly every 50 seconds
at LAX. The facility has
more TSA agents than
anywhere else, screening
100 passengers a minute in
the busiest weeks.
So when LAX offered
me the opportunity to
work with its TSA and
U.S. Customs and Border
Protection (CBP) teams—
and a look at its other
operations—I couldn’t say
no. From finding snakes in
Pringles cans to providing
security checks for a robot
with a passport, here’s
everything I learned while
working at this hive of high-
flying madness.
Bloomberg Pursuits
①There are
social tiers in
the lounge
“You can always tell when it’s a
customer’s first time in the lounge,
because, without fail, they do a full lap
and a half to scout out the best seats,”
says Anastasia Jenkins, who’s managed
the Star Alliance Lounge at Los Angeles
International Airport since it opened
in 2013. Each day, she hosts about
1,800 international travelers, who wait
an average of two hours for their flight
while sipping complimentary sparkling
wine (116,000 bottles worth in 2018).
A little-known fact? Airport lounge
food changes depending on the next
departure. When Asiana flights were
on deck, I added instant noodles to a
buffet already stocked with the fresh
kind; for Lufthansa and Air New
Zealand departures, I carted out extra
handles of alcohol.
Of course there are celebrities, who
have demands. Every time a certain
action star is back, the team knows
he won’t leave until he’s eaten three
specially prepared hamburgers. A
former Charlie’s Angel used to get so
cranky waiting for her Red Bull, it’s
now always available where she can
grab it. Most—but not all—of these
requests are catered to within private
TERMINAL 2
November 25, 2019
rooms nested like Russian dolls inside
the lounges.
There are exceptions. The smiley-
but-sedated rock legend who always
complains about the size of air-
plane mugs enjoys hollering at his
also-famous wife across the buffet.
(Employees keep extra-large ceramic
cups just for him to take on his flight.)
And one older Oscar winner is the
lounge hero when he passes through
during the holidays, handing out
Christmas gifts like Santa Claus.
②Real stars go
to the private
terminal
The most VIP way through LAX isn’t
at LAX at all, but via a separate termi-
nal on the far side of the runway. The
Private Suite is a members-only club
that costs $4,500 per year, plus a min-
imum of $2,700 per flight. (An off-
shoot is in the works at JFK.) If that’s
your thing, it’s a good deal: Each stay
includes $2,000 in minibar ameni-
ties, plus massages, manicures, hair-
cuts, and car service straight to the
aircraft. And yet, the average member
spends one measly hour in their per-
sonal suite.
That’s because the biggest value
proposition is time saved—security
PRIVATE SUITE
AIRPORTS
here is a car-door-to-plane-door affair,
much like flying private. And since the
whole operation is pre-TSA, passengers
can get delivery service from Nobu or
a one-on-one session with their per-
sonal tailor.
So who buys in? About 50% of the
members are business execs; the oth-
ers are celebs escaping the paparazzi.
Meghan Markle’s mom used the facility
en route to the royal wedding, and Jamie
Foxx is a fan, too.
③Security
training is
no joke
To understand the barely contained
pandemonium that exists on a daily
basis at LAX, take a deeper look at
the numbers. In 2018 almost 42  mil-
lion people were screened by the TSA
team, outpacing the country’s next
busiest, JFK, by 8.6 million travelers.
The airport sees about 120,000 depart-
ing passengers and more than 100,000
Bloomberg Pursuits
checked bags every day. The third week
of June broke LAX’s traffic records, with
almost 950,000 travelers departing in
seven days.
Processing that many people
requires immense training. The air-
port’s 2,700 screening agents cut their
teeth in noncertified positions first:
checking IDs or serving as divestiture
officers (the person yelling, “Laptops
out, shoes off!”). Once they’ve shown
their stuff, employees get a two-month
advanced education, which includes a
two-week course on X-ray technology
and mastering proper pat-downs.
④ You may
not need a
heartbeat to
get on a plane
“I truly thought I had seen it all until
I got a call that there was a person
who had seemingly passed away while
waiting to clear security,” says Keith
November 25, 2019
Jeffries, LAX’s federal security director.
In actuality, the old man had died ear-
lier, and his family bought him a plane
ticket, strapped him into a wheelchair,
and tried to sneak him back to his native
Mexico for burial. Turns out, it’s not as
unusual as it sounds—a one-way flight
can be substantially cheaper than ship-
ping a corpse. But these cases don’t
make it to the gate; ultimately, they get
processed by the LAPD and turned over
to the county coroner.
One nonliving passenger did make
it through security—with everyone’s
approval. In December 2014, LAX was
the first airport to have a humanoid
robot come through. “Athena” had a
ticket to Frankfurt, two human escorts,
and a proper German passport. And in
case you’re wondering, she sat in pre-
mium economy, though her functions
were turned off during flight. (She didn’t
have an airplane mode, apparently.)
⑤ Where do 57
they take your
banned stuff?
If you’ve ever had precious cargo seized
for being 0.1 ounce over the liquid limit,
you’ve paid for it not just in lost sham-
poo (or drinks, or jam) but in taxpayer
dollars, too. “It costs money to store,
then throw away every surrendered
item,” says one of my TSA colleagues.
“We can’t take for granted that there’s
actually water in each plastic bottle, so
we have to dispose of each as though it
could be lethal.” Gels and aerosols cost
even more, as they have to be discarded
at a special hazardous waste site. It all
adds up to a $9 million bill each year.
All that’s to say: No, I wasn’t secretly
enjoying your forbidden stash with
my TSA colleagues. Especially when it
comes to “metals and sharps”—a self-
explanatory category of banned goods.
Most agents report confiscating three
to five of these items during the typical
eight-hour shift, and I saw 40 knives in
my first hour. One switchblade had been
 AIRPORTS
hiding in a hollowed-out hole between
the pages of a Jodi Picoult novel—
unfortunately not Handle With Care. I
also caused a passenger to throw a fit at
me by confiscating her juicing blender
for its rotating blade. So L.A.!
An additional 1,000 items are logged
and coded daily at the 5,000-square-foot
lost-and-found warehouse a mile from
the terminals. Perishables are steam-
incinerated, and everything else is
sorted according to value. After 90 days,
unclaimed items are sold at auction,
with proceeds benefiting a Los Angeles
municipal coffer.
Unsurprisingly, this translates to a lot
of watches, belts, and jackets—things you
can easily forget in a TSA bin. But I was
K-9
58
thrown for a loop when I processed a
single shoe: Did someone board their
flight wearing just one Nike? Crazier still,
Captain Michael Scolaro of the LAXPD,
who heads the facility, estimates that
70 people a day lose a computer, add-
ing up to 6,000 laptops and tablets in the
holding center at any given time.
Then there’s the oversize collateral,
which you’d think would be impossi-
ble to misplace. On the shelves during
my shift: surfboards, bongo drums,
a giant stuffed carnival bear, a sleep
apnea machine, a heart monitor, and
my favorite—a chainsaw. (A jaunty
logging holiday, perhaps?) And more
than 1,000 suitcases; luggage is often
left, fully packed, in odd corners such
as bathrooms.
Bloomberg Pursuits
⑥A birthday
card can cause
a bomb scare
Different airports have different causes
for alarm—literally. In Texas and Arizona,
guns are a common high-level offense.
Not so in California, where major alarms
are more frequently set off by innocu-
ous items. “You should see what a
music-playing greeting card looks like
on our scanners!” says Jeffries, noting
that his team of explosives specialists
had roughly 3,000 calls about potential
hazards in the first half of the year. That
! question. Retail sales and duty-free
includes everything from fireworks to
inert grenades.
One way to catch these crises is a
passenger-sniffing dog—of which there
are 400 nationwide. These canines,
selected for their sociability and abil-
ity to detect contraband, go through 12
weeks of rigorous military-grade train-
ing before being classified as “national
assets.” They can identify hundreds of
explosive materials simply by smell.
Many people imagine German shep-
herds to be the ideal undercover dog,
but the trend has moved toward floppy-
eared breeds, which look less menac-
ing and use subtle body language rather
than snarls to communicate a threat.
This way, when a suspicious scent
is detected, handlers can mobilize a
November 25, 2019
response without raising the suspicions
of a potentially dangerous traveler.
Decoys are frequently marched
through the airport to keep dogs on their
paws and ensure they continue to get
rewarded for sniffing explosives. Since
handlers are required to keep emotional
distance from the animals, the canines’
only prizes are simple squeaky balls or
plastic bones—no belly rubs or snuggles.
(They do pick out their own toys though,
usually as part of a “bomb school” grad-
uation ritual.)
⑦ Here’s why
water costs $6
What do you do while waiting to board?
At LAX, that’s an $814  million-a-year
pulled in $205 million and $234 million
in the past 12 months, respectively, but
food and beverage is the big earner, with
$375 million in sales. LAX has a steeper
markup than most U.S. airports—about
18% above typical retail pricing. (PDX in
Portland, Ore., is the lowest at 0%.)
At least some of that inflation is
due to the high costs of operating in
an airport. Consider the limited stor-
age space and that all goods need to fit
through security, which means retail-
ers can’t buy in bulk. Add the high cost
of labor—airport employees get com-
pensated for parking, as well as a daily
hour of extra commuting time I per-
sonally endured to and from the off-
site employee lot—and the $6 bottle
of water starts to make more sense.
But even with all those added costs,
most franchises report that their
$$$
$
AIRPORTS Bloomberg Pursuits November 25, 2019

Seemingly every exotic animal has a

medicinal or aphrodisiac body part.

Just Landed out in 2020, the

supercentral City
Airport will feature
75-foot waterfall, plus
playgrounds galore.
Michael Ferguson, who oversees the
team’s agriculture division, didn’t even
LAX is overhauling its facilities to the the first fully digital STUTTGART bat an eye at what I found—elk geni-
tune of $14 billion. Here are some air traffic control This secondary hub— tals packed in a handsome wooden box
cutting-edge features it could borrow tower. It’s actually not the sprawling
from its new and recently updated peers a remote mission Frankfurt Airport— worth about $500. Apparently, this is
around the world. By Nikki Ekstein control center, is paving the way for common. Less ordinary was the tiger
combining real- the future of German penis worth more than $100,000 that he
BEIJING ISTANBUL time footage from transit, with a pledge to
The two-month-old With plans to become 16 cameras. be fully carbon-neutral discovered last year.
Zaha Hadid-designed the world’s busiest by 2050. That’s not Live creatures regularly come through
Beijing Daxing transit center, the SINGAPORE just hot air: Already it’s too, and rare animal trafficking is a major
International Airport city’s new facility has Jewel Changi might partially powered by
has a partnership with introduced a fleet of be the first airport a rooftop solar array, federal offense with penalties of up to
Huawei Technologies child-size humanoid where you miss a uses electric vehicles 20 years in prison. On Ferguson’s very
Co., which provides robots to make sure flight because you to move all passengers first day, a passenger from East Africa
facial recognition no one gets lost. were having fun. and cargo around the
technology so Opened in the spring, airport, and employs opened her suitcase to reveal rotting
travelers can check LONDON it has bouncy “sky a special air traffic dried fish covered in hundreds of tse tse
luggage, go through As part of a net” walkways that control system that larvae. When they jumped out and clung
security, and board $650 million cut through an indoor coordinates landing
the plane without redevelopment forest canopy, a patterns for optimal to Ferguson’s vest, the flustered woman
ever showing ID. that starts rolling hedge maze, and a fuel efficiency. reached across the counter and started
eating them off his uniform. Then there
was the Vietnamese man who tried strut-
LAX outposts are their brand’s most then against watchlists maintained by ting through security with 84 songbirds
profitable locations. numerous government organizations. taped to his body. He’d put elastic bands
Turns out, even with steep price tags, That said, about 1.5% of all arriving around their beaks, squeezed them in
people like to eat when they’re bored. passengers are breaking the law when toilet paper tubes and strapped the tubes
That’s why Panda Express sells more they land—just not in a way that’ll get to his legs under a pair of baggy sweat- 59
than 120,000 pounds of orange chicken a them expatriated. Usually they’re car- pants. When questioned, he explained
year, and California Pizza Kitchen slings rying a banned item, knowingly or not. that he was entering them in a stateside
244,000 pies. The prosciutto you bought in Italy? singing competition.
Yeah, that’s not allowed by the U.S. Finding contraband at the offsite

⑧They screen
Department of Agriculture. The foie gras USPS mail facility was truly bizarre: In
from France? Nope, not that either. one day, I found pinky-nail-size baggies

you 20 times
of drugs wedged into the cylinders of

⑨Exotic foods
working pens, sewn into the hem of a

before customs
baby’s bib, and stuffed into a speaker

aren’t the only

where the wiring should have been. Most
of this had been ordered by Americans

daily at LAX’s Tom Bradley International contraband

Of the 34,000 travelers who touch down
Terminal, about 500 get selected for sec-
ondary screenings by CBP, and two or
three get sent back to whence they came.
But those are just averages. During my
shift with immigration, I counted three
individuals waiting in a holding area rem-
iniscent of a dentist’s office.
Why so few detainees, given the cur-
rent political climate? Computers do
most of the work far before you arrive—
starting from the minute you book your
ticket. By the time you walk through
the arrivals hall, your profile has been
crosschecked 20 different ways, first
via a risk-assessment algorithm and
CBP’s main goal isn’t to deny your
indulgence but to keep out invasive
species, such as the citrus canker that
threatens Florida’s orange industry.
Some prohibited items can be antic-
ipated based on origin: When African
flights land via Heathrow, the team sees
an influx of produce packed in soil—
usually plants people intend to re-pot
in their stateside homes and gardens.
Russians bring in outlawed beluga caviar.
Asian inbounds are when agents really
start to grit their teeth. Banned pango-
lin scales, bear gall bladders, deer horns:
from overseas. Even more disturbing
were tools for potential terrorism, such
as cell phone signal jammers.
Some contraband can be smelled if
not seen. Shark fins, swallows’ nests,
grapevine clippings, elephant feet, dried
bats, monkey skulls, even a mummified
human hand—they’ve all come through
the facility. And if you’re an optimist like
me, wondering if they’re all bound for a
museum or university, you’ll be disap-
pointed to learn that they most definitely
weren’t. (Research materials travel with
special government-issued permits.)
One time, the team popped a can
of Pringles and found a live cobra. The
snake now lives at the San Diego Zoo. <BW>
 TRAVEL Bloomberg Pursuits November 25, 2019

60

Labadi Beach Hotel

GO HERE NOW

Accra, Now Arriving

COURTESY LABADI BEACH HOTEL (THIS PAGE). NII ODZENM (TOP, OPPOSITE PAGE). COURTESY ROYAL SENCHI (BOTTOM)
A new airport terminal in Ghana’s business hub is already upgrading
the experience in this fun-loving, art-filled city. By Julie Baumgardner

An offer of coffee or warm water is usually as far as most artists
go when hosting curious visitors to their creative lair. But when
I enter the home studio of Zohra Opoku, a photographer who
lives and works in a secluded, woodsy neighborhood in the
northern part of Accra, she’s made a fresh salad and a potato
casserole in expectation of my visit.
Earlier in the day, I sauntered into the studio of painter
Godfried Donkor—who’s exhibited in Amsterdam’s Stedelijk
Museum, the Smithsonian National Museum of African Art,
and the Studio Museum in Harlem—and was handed a cup of
freshly brewed tea. We talked for an hour.
But that’s Accra for you. It sounds cliché, but for West
Africans, particularly Ghanaians, friendliness is the default.
“We’re the happiest, most welcoming people you could ever
meet,” says Nickie Cartel, a British-Ghanaian DJ, over drinks
at Skybar 25, a rooftop venue in the well-heeled Airport
Residential area of the capital. As its name implies, this posh
hood sits right next to the airport. To a Westerner, that’s per-
haps antithetical to the idea of luxury, but Accra’s rush-hour
traffic jams are legendary, so this is where the wealthy live
and play. A lot of playing happens inside Icon House, a com-
mercial complex that’s home to the elegant steakhouse Urban
Grill, the cafe-style cocktail bar Coco Lounge, and the velvet-
roped club Carbon.
TRAVEL Bloomberg Pursuits November 25, 2019

The city itself is attracting both pleasure-seekers and
cultural tourists. “The arts scene is unstoppable,” says Victoria
Cooke, director of Gallery 1957. “It feels like right now the city
is filled with creativity.” Although time seems to move slower
in West Africa, the development in Accra’s tourism infrastruc-
ture has lured more than 1 million visitors annually over the
last five years, enough for the Ghanaian government to borrow
$40 million from the World Bank as part of a 15-year investment
plan to boost tourist spending to a total of $2.5 billion by 2022.
The new Terminal 3 at Kotoka has been a particular boon.
Until it opened in September 2018, the airport served as a
notoriously disorganized entry to the country, where bribes,
hours-long lines, and missing luggage were common. But after
a $278 million investment, the terminal has almost erased the
memories of its previous iteration. T3, as it’s casually referred
to, processes about 1,250 passengers an hour and is designed
to accommodate 5 million passengers a year. Thirty-eight air-
lines now pass through, and international passenger arrivals
have grown 6.7% since it opened.
This year is a distinct one for Ghana in another way. The
European colonial past is never far from view in Accra, and
2019 marks the 400th anniversary of the first enslaved Africans
departing for the 13 British colonies. The government has been
reaching across the Atlantic to akwaaba, or welcome, African
Americans to explore their heritage. Comedian Steve Harvey
and former NFL quarterback Colin Kaepernick have already
made the journey. Across the country, the “Year of Return”
has sparked exhibitions and festivals and will culminate in the
Afrochella cultural festival in December.
“The energy and drive of young entrepreneurs and cre-
atives that are bringing fresh new ideas and talent to the city
are probably the most exciting aspects of Accra right now,”
says Anna Robertson, founder of the Ghanaian clothing brand
Yevu. She points to residents such as Italo-Ghanaian native
Stefania Manfreda, who started the boutique shop Elle Lokko
to showcase local designers as much as stage performances
and art shows, and Tarek Mouganie, who runs a microfinance
platform and is also a co-founder of Accra’s exclusive mem-
bers club Front/Back. “We have a culture of looking after your
neighbor,” Mouganie says. “We are proud of who we are, what
we do, and want others to know it.”
The city is so filled with warmth—and not only from the
sweltering tropical conditions—that even the funerals here are
occasions for some of Ghana’s biggest, liveliest parties. After
I send a WhatsApp message to Paa Joe, a longtime maker of
ornate “fantasy coffins,” his son and studio manager, Jacob
Ashong, invites me to come meet the man known “to give the
dead a ride to the afterlife,” as he says.
“We are glad to have guests,” Ashong says. “We’re even
ready to host anyone who would love to learn this trade.”
The creations come in many oversize forms, including exotic
animals and Nike Air Max sneakers; he created one in the
shape of an oak tree trunk in memory of the late Ghanaian
diplomat and United Nations Secretary-General Kofi Annan.
Every August, Joe headlines a funeral processional during the
Chale Wote Street Art Festival, where his coffins are danced
down the street.
One day in the bustling neighborhood of Osu, I, too, 61
become absorbed in a funeral processional. The local auntie
who passed must’ve had numerous close relatives, as thou-
sands of people fill the streets, chanting, singing, and dancing.
Drums bang, a DJ eventually comes on, and the sound rings
through the neighborhood long after I leave. When I come back
10 hours later, it’s still in full swing. <BW>

An exhibition of Donkor’s paintings
(top) at Gallery 1957; an aerial view
of the Royal Senchi in Akosombo
THE DAYTIME EXCURSION
Horses and live music are
fixtures on Accra’s beaches,
and either La Palm Royal
or Labadi Beach Hotel—
which has a lap pool, tennis
courts, and office space for
business trips—will get you
close to the action. Elsewhere,
the Kempinski Hotel Gold
Coast is a five-star business
hotel designed with gleaming
efficiency right in the middle
of the city. It’s got a fun pool
scene and offers a sprawling
breakfast of fresh tropical
fruits. The Kempinski is also
home to Cooke’s Gallery 1957,
and from there it’s a 10-minute
taxi ride to Studio Accra, a
creative hub of performances
and film screenings run
by photographer Francis
Kokoroko. Twenty minutes
from the hotel is the Nubuke
arts complex, which just
reopened after two years
of renovations. For a more
planned itinerary, Tastemakers
Africa can arrange a
tour through the historic
neighborhood of Jamestown,
famous for its boxing history,
or to the Makola market to
buy fabric and have an outfit
tailored for you. Tastemakers
can also set up studio visits like
the one I took to meet Opoku.
THE WEEKEND GETAWAY
The Volta River and its delta
flow through beautiful parts
of the country. A stay at the
Royal Senchi Hotel & Resort,
up the river in Akosombo, is
a tranquil escape from the
dusty bustle of the city. It’s set
right along the river within a
protected natural reserve, and
those kayaking and hiking are
encouraged to explore the
lush tropical surroundings. In
the delta proper is seductive
Ada Foah, Accra’s answer
to the Hamptons. Public
accommodations are rare, but
if you don’t have an invitation
to stay with a local, crash at the
kitschy Aqua Safari Resort. It
has several pools, including one
that features a re-creation of a
local waterfall, complete with
giant boulders. Each section
touts a different architectural
style, whether white stucco or
1970s A-frame wood cabins.
It’s also a convenient way to
end your trip; from here, T3 at
Kotoka is only a two-hour drive.
 CRITIC Bloomberg Pursuits November 25, 2019

you could redeem cheaply earned miles for it, no matter

what the paid airfare was that day.

o
0 0 Now, though some frequent-flyer programs are mak-

ES
0,0 ing more award seats available, they have also begun pric-

L
0

I
1

M
ing redemption rates dynamically, more closely pegged to

o
o

,
ILES the price of airfare; Delta Air Lines Inc. and Air France-

5
o M
KLM don’t even have award charts anymore. Sometimes

7
this works out for the consumer, like a Delta SkyMiles
“flash sale” in January that halved the price of a round-
50, trip economy award from the U.S. to Asia to 30,000 miles.

000
5,00
o MILES o

But mostly it means that not only is it more expensive to

earn miles, it’s also more expensive to redeem them; some
oM
ILE awards cost triple or even quadruple what they used to.
So Credit card companies have also had their part to play
in this inflation, minting miles with every dollar spent,
whether on travel or not, and flooding the market with

Mile’s End
How we loved frequent-flyer
programs to death. By Eric Rosen
62 In 2013, I redeemed 70,000 United MileagePlus miles to fly
Lufthansa from New York to Frankfurt, then on to Bangkok
on Thai Airways—all first class.
My Lufthansa seat, one of just eight on the top deck of a
Boeing 747-400, included a spacious armchair and separate
bed. On Thai, I remember being handed a glass of 2004 Dom
Pérignon before I’d even settled into my seat. Had I paid for
it, the ticket would have cost me almost $10,000.
Today a similar ticket still costs about $10,000, but I would
need 140,000 United MileagePlus miles to book it. Did my
miles simply lose half their value in six years? In a way, yes.
But the answer will soon be irrelevant.
To optimize revenue, airlines continue to restructure their
loyalty programs to focus on the highest-value customers, i.e.,
the ones who spend the most cash, divorcing the idea of a
“mile” from actual travel. We can trace the beginning of the
end to 2009, when the New York-based JetBlue Airways Corp.
joined the upstart San Francisco carrier Virgin America (R.I.P.)
in putting into wider practice a unique type of loyalty pro-
gram: Flyers earned a set number of points per dollar spent
on airfare, then could redeem them at a fixed rate, also based
on airfare, rather than on distances flown or regions visited.
On other airlines at the time, passengers would usually
earn miles based on the distance of their flight and could
redeem them at set rates according to a printed award chart—
for example, 12,500 within North America on Delta or United,
or 67,500 American AAdvantage miles from the U.S. to Asia
in first class. (The same international award can now range
from 110,000 to 235,000 miles.) If you found an award ticket,
flashy sign-up bonuses that have caused an arms race.
While a mixed bag for consumers (everybody it seems,
even people who don’t fly regularly, is sitting on mountains
of miles), this has been unequivocally great for airlines.
Today, American Airlines Group Inc. profits more from
its co-branded credit card deals with Citibank NA and
Barclays Plc than from flying jets.
Likewise, in a mid-2000s deal, American Express Co.
helped bail out Delta by purchasing hundreds of millions
of dollars of SkyMiles that AmEx could offer to potential
cardholders as incentives. Renewed in April, the partner-
ship is expected to generate $7 billion in revenue a year for
the airline by 2023.
Couple this with the massive consolidation in the air
industry happening over more than a decade—leading to
fewer frequent-flyer programs and fewer available seats to
book—and it’s no surprise the era of bragging about award
tickets is mostly over.
An estimated 4.6 billion passengers will fly in 2019, up
from 2.5 billion in 2009, according to the International Air
Transport Association. If the frequent-flyer program trends
continue, and there’s no reason to think they won’t, air-
line miles will simply become a glorified form of cash-back
currency where each type of airline mile has an (almost)
precise cash value: about 1¢, sometimes less.
On the other hand, flyers will know exactly how much
value to expect out of any miles they earn, and airlines will
probably make more ways of redeeming them available.
“Our ultimate goal is for SkyMiles members to have the
choice to use miles anywhere they can use cash with Delta,”
the airline’s senior vice president for loyalty, Sandeep Dube,
tells Bloomberg.
But as airline pricing models tie the value of miles directly
to airfares, those aspirational premium awards—like flying
in one of Singapore Airlines’ Suites or Etihad Airways’ First
Apartments—will retreat as far out of reach for most consum-
ers as paying cash for them. The great frequent-flyer dream
is crashing. Put on your own mask before helping others. <BW>
THE ONE Bloomberg Pursuits November 25, 2019

Go Gently
THE CASE structure is
Why pay top dollar incredibly smooth
for a sleep mask and soft, plus

Into That
when they’re surprisingly
included in many effective at blocking
THE COMPETITION • With a decadent airlines’ first-class light for its size.

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• Frette, an Italian print in gold amenity kits? For There are more
linen company and black that’s one, the Brindisi is sedate designs
started in designed like the so light it feels as in solid navy and

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understated all- Greek temple, on your face. And, reef illustration
white sleep mask the $275 Versace crucially, it stays on (pictured) conveys
($65) made of La Coupe des Dieux through the night. luxury without being
400-thread-count silk sleep mask is
… with a silk eye mask cotton sateen that’s the one to bring to
It’s not the largest
mask available, but
gauche. $100;
derek-rose.com
from Derek Rose available through a your audition for its gentle, firm
partnership with the the next Christian
Photograph by St. Regis hotel. Grey movie. It’s
Hannah Whitaker • The $298 Restore
travel kit from
such a head-
turner, the biggest
Lunya, a 5-year-old threat to your rest
Scientists use the Rose, a purveyor of women-focused might be other
term “Goldilocks high-end “off-duty brand out of Los passengers asking
zone” to describe clothing” since 1926, Angeles, comes you about it.
Earth’s distance has figured out how with a long-sleeve
from the sun, where to make a one-size- shirt, tank, leggings,
conditions are just fits-all eye covering. socks, and a jumbo-
right for habitable The $100 Brindisi 42 size cotton-blend
life. The best sleep mask is gently sleep mask.
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loose and, if we’re from the historic
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boring but also not Plus, it has an elastic
at all silly-looking. strap that isn’t too
London-based Derek constricting.
 ◼ LAST THING With Bloomberg Opinion

S i n g l e C o p y S a l e s : C a l l 8 0 0 2 9 8 - 9 8 6 7 o r e m a i l : b u s w e e k @ n r m s i n c . c o m . E d u c a t i o n a l P e r m i s s i o n s : C o p y r i g h t C l e a r a n c e C e n t e r a t i n f o @ c o p y r i g h t . c o m . P r i n t e d I n B e l g i u m C P PA P N U M B E R 0 4 1 4 N 6 8 8 3 0
Q S T # 1 0 0 8 3 2 7 0 6 4 . R e g i s t e r e d f o r G S T a s B l o o m b e r g L . P. G S T # 1 2 8 2 9 9 8 9 8 R T 0 0 0 1 . C o p y r i g h t 2 0 1 9 B l o o m b e r g L . P. A l l r i g h t s r e s e r v e d . T i t l e r e g i s t e r e d i n t h e U . S . P a t e n t O f f i c e .
7 3 1 L e x i n g t o n A v e n u e , N e w Yo r k , N Y 1 0 0 2 2 . P O S T M A S T E R : S e n d a d d r e s s c h a n g e s t o B l o o m b e r g B u s i n e s s w e e k , P. O . B o x 3 7 5 2 8 B o o n e , I A 5 0 0 3 7 - 0 5 2 8 U S A . B W R c u s t s e r v @ c d s f u l f i l l m e n t . c o m
B l o o m b e r g B u s i n e s s w e e k ( U S P S 0 8 0 9 0 0 ) N o v e m b e r 2 5 , 2 0 1 9 ( I S S N 0 0 0 7-7 1 3 5 ) E I s s u e n o . 4 6 3 8 P u b l i s h e d w e e k l y, e xc e p t o n e w e e k i n J a n u a r y, Fe b r u a r y, M a r c h , M a y, J u l y, A u g u s t , S e p t e m b e r, O c t o b e r,
N o v e m b e r a n d D e c e m b e r, b y B l o o m b e r g L . P. P e r i o d i c a l s p o s t a g e p a i d a t N e w Yo r k , N .Y. , a n d a t a d d i t i o n a l m a i l i n g o f f i c e s . E xe c u t i v e , E d i t o r i a l , C i r c u l a t i o n , a n d A d v e r t i s i n g O f f i c e s : B l o o m b e r g B u s i n e s s w e e k ,
Don’t Follow the Pied Piper
Of Unicorns
By Shuli Ren

Investors are questioning how good the
64 world’s most prominent venture capi-
tal fund is at picking winners. Doubts
about the Vision Fund, the flagship
investment vehicle for Masayoshi Son’s
SoftBank Group Corp., intensified after
the collapse of the planned $20 billion
WeWork Cos. initial public offering, but
they’d been floating around for a while.
SoftBank’s bad year began in May
with Uber Technologies Inc.’s disap-
pointing IPO and continued when Slack
Technologies Inc.’s June direct list-
ing on the New York Stock Exchange failed to impress.
By September the fund was up $11.4 billion on $76.3 bil-
lion in investments deployed over two years, according to
its Nov. 8 investor briefing. But a big chunk of that came
from just two deals: the August 2018 sale of Flipkart Online
Services Pvt Ltd. to Walmart Inc. and some well-timed
trades in chipmaker Nvidia Corp., which it exited in January.
As for the rest of the fund’s invest-
ments, only consumer stocks, which
account for 20% of its portfolio, have
reported decent gains. Fifty percent
of the Vision Fund’s holdings are in
transportation logistics and real estate,
making it a poor hedge against market
volatility. After taking writedowns on
Uber and WeWork, it’s already in the
red for both sectors.
Here’s a provocative question: What
if hedge funds—passive but nimble inves-
tors—are better at identifying unicorns
than venture capital is? Unlike Son, who has a habit of
writing multimillion-dollar checks after only 10 minutes
of getting-to-know-you time, hedge fund managers are all
about due diligence. Tiger Global Management’s assets, for
example, have swelled 80% since May 2015, including big
gains in the past 12 months from Juul Labs Inc.’s $12.8 bil-
lion deal with Altria Group Inc. and the market debut of
Peloton Interactive Inc., which Tiger has backed since 2014.

$57b
Son has survived tricky times before. During the dot-
com bust, SoftBank’s shares tumbled 99%. But the company
stayed around because one of its investments—in Alibaba
Group Holding Ltd.—paid off spectacularly. Perhaps Son
ILLUSTRATION BY GEORGE WYLESOL

● GETTING SPOOKED
China’s ride-hailing unicorn DiDi
Chuxing Inc. is valued at $57 billion,
but some investors have tried to sell
shares at a lower valuation.
● RUNNING SCARED
That would be bad for SoftBank,
which invested $4 billion in 2017
at a $56 billion valuation, the
Information reported in October.
will hit the jackpot again. But a few standout deals don’t
make him a great startup picker. In fact, retail investors
would do better not to follow his lead. Based on his past
success rate, most of the unicorns the Vision Fund brings
to market will be flops. <BW> �Ren is a markets columnist for
Bloomberg Opinion
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