The

Fix For:
April 11 April 24, 2016 | bloomberg.com
SPECIAL DOUBLE ISSUE

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Capital Creates
23.2 Trillion Steps
Thats how many steps Fitbits millions of users have
taken since the launch of the companys first tracker.
Fitbit can help its users stay on top of their fitness
goals. And the company knows that tracking physical
activity can motivate its users to do more of it. When
the company asked Morgan Stanley to help it go public,
we were pleased to lead Fitbits IPO, raising more than
$841 million. The company is now expanding its reach
abroad and continuing to develop innovative products
that help make fitness more fun. Ready to take the next
step? So are we. Capital creates change.
morganstanley.com/fitbit

The statements 23.2 Trillion Steps and Thats how many steps Fitbits millions of users have taken since the launch of the companys first
tracker are as of September 30, 2015, and are based on Fitbits SEC filing on November 13, 2015.
Fitbits IPO raised more than $841 million, including primary and secondary proceeds, after exercise of the underwriters option to purchase
additional shares, as per Fitbits press release dated June 23, 2015.
2015 Morgan Stanley & Co. LLC. Member SIPC. CRC1331714 12/15

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PHOTOGRAPH BY JONNO RATTMAN FOR BLOOMBERG BUSINESSWEEK

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Cover
Trail

April 11 April 24, 2016

How the cover gets made

Opening Remarks Central banks did what they could, but theyre not miracle workers
Bloomberg View Rx for Greeces latest crisis The change Saudi Arabia needs

8
10

Global Economics

To see why Trumps anti-Nafta talk touches such a nerve, visit Scottsville, Ky.

12

The labor force expansion: Growing, growing, gone?

13

Refugees are testing Swedens limits as a welfare state

14

The Philippines sturdy growth rate is in danger of slipping

16

Companies/Industries
As TV production ramps ever upward, theres a shortage ofeverything

19

Asia needs more pilots. Women to the front of the line

20

In China, Mercedes and BMW spy Lincoln and Cadillac in their rearviews

21

Briefs: Twitters football grab; Pfizer and Allergan dont mix

22

Politics/Policy

Whats so special about April 15?

24

Im Bernie Sanders, and I approve this message. Now, back to the ballgame

26

Oklahoma looks for a way to shore up Medicaidwithout using the O word

26

Anti-LGBT laws hit states right in the pocketbook

27

Technology
4

When Airbnb and Uber start earning money, taxing them will be tricky

29

The Wirecutter reviews gadgets, and bigger rivals smell a moneymaking model

30

Embark Veterinary will tell you more about your dog than you ever thought possible

31

Innovation: Pantheriss laser-guided catheter could be a game changer for patient care

32

Markets/Finance

Want to get your money out of China? Consider a foreign insurance policy

34

Subprime may be out, but Wall Street finds another way to finance homebuyers with bad credit

35

When it comes to retirement investments, advisers now must put clients interests first

36

Bid/Ask: Alaska Air snags Virgin; Cucinelli cultures up its workers

37

Design 2016
Daniel Libeskind The architect, drawn to trouble spots, builds a museum in northern Iraq

40

Paul Tazewell To fashion a costume, consider actor, set, and lights, and thats just the beginning

44

Never, Never, Never Design rules these all-stars refuse to break

47

Industrial Light & Magic Inside the xLAB, a virtual-reality test kitchen

48

Dialogue Baiju Bhatt, Michael Goode, and Manoj Narang on free stock trading

49

Dominique Crenn For this chef, its not just putting food on a plate. Its also storytelling

50

Helen Marriage The art of creating moments people will never forget

52

Brad Sewell From a small FedEx box, a stylish chairone you can build in three minutes

54

Craig Dykers, Neal Benezra San Franciscos Museum of Modern Art gets a major makeover

56

Stewart Butterfield Pondering Slacks future, via Slack

60

James Corner The High Line creators spaces look like theyve always been there

62

Ida Benedetto, N.D. Austin Parties youd love to be invited to, in places you probably shouldnt be

64

Dialogue David Belo, John Dales, and Camilo Pardo on driverless tech

67

Janine Benyus Biomimicry 3.8 takes the best of nature and makes it better

68

Stephen Burks A studio visit with Americas hottest furniture maker

72

Dialogue Jane Chen, Leeda Rashid, and Casey Georgeson on saving premature babies

74

Oskar Smolokowski Can he revive the Polaroid era? Lets see what develops

76

Yves Bhar And five other design leaders offer their best advice

79

Sound Smart! Before attending a conference, master Designspeak

84

The cover is our fourth annual

Design Issue.
We can shoot someone younglooking with chunky rimmed glasses
hunched over a drafting table, and
theres a lightbulb over his head with
rainbows shooting from the table.
This would beautifully and succinctly
communicate the concepts of hard
work, ideas, and creativity.
Speaking of ideas, thats probably
the worst Ive ever heard. Think
about it this way: What is the
fundamental job of a designer?
Solving problems.
And what problems would you
like to see solved?
In the entire world?
Lets narrow it down. What
problems would you like to see
solved within yourself?
Insecurity, pessimism, fatigue,
loneliness, extreme physical
weakness, depression, anxiety,
overeating, paranoia, forgetfulness,
chronic knee pain, sugar addiction,
joylessness, crippling fear of
irrelevance, hypochondria, low IQ,
oily skin, inability to grow hair where
there should normally be hair on a
grown man, clumsiness, obsessive
compulsiveness, constipation,
narcissism, aulophobia, boredom,
vacuousness, lack of empathy, body
dysmorphia, ineloquence, poor table
manners, difficulty hearing, Netflix
binge watching, sexual inadequacy,
overactive bladder, emotional
dependence, shortness of breath
after walking up a short flight of
stairs, envy, insomnia, bad posture,
inner rage, shyness, ADD, crying
during every episode of CBS Sunday
Morning, apathy, impostor
syndrome.
Lets focus on a few that some
of the designers in this issue might
be able to tackle.

OUR WORLD
REVOLVES
AROUND
YOU
Welcome to our Business Class, where your comfort is our priority.
AIRFRANCE.US

Index
People/Companies
Regal Beloit(RBC)
Roberts, Gwynne
Robinhood
Roche Bobois
Rock, Michael
Roitfeld, Carine
Rovio Entertainment
Ruckus Wireless(RKUS)
RWF World

56

Abe, Shinzo
8
Absolut(RI:FP)
76
AccorHotels(AC:FP)
37
13
Adecco(ADEN:VX)
Air France-KLM(AF:FP)
20
29, 37
Airbnb
Airbus Group(AIR:FP)
70
Alaska Air Group(ALK)
37
22
Allergan(AGN)
Almeida, Manny
76
Amazon.com(AMZN) 22, 30
Amblin Television
19
16
American Express(AXP)
Analytics Media Group
26
Antonelli, Paola
65
Apollo Global
Management(APO)
35
29, 73
Apple(AAPL)
Aquino, Benigno III
16
Arth, Kristine
83
Artichoke
53
Atelier Crenn
50
Austin, N.D.
65
Autodesk
79
Avinger(AVGR)
32
37
AwesomenessTV

SFMOMA

Baker Hughes
Baldoz, Rosalinda
Bank of America(BAC)
Bank of Japan(8301:JP)
Barzani, Nechirvan
Battery Point Financial
Beecroft, Vanessa
Belo, David
Benedetto, Ida
Benezra, Neal
Benyus, Janine
Bhatt, Baiju
Bin Salman, Mohammed
BioHaven Technology
Biomimicry 3.8
Black, Leon
BlackRock(BLK)
Blankenship, Don
Blue Apron
Blueline
BMW(BMW:GR)
Boeing(BA)
Botta, Mario
Boyko, Adam
Boyko, Ryan
Braeburn Pharmaceuticals
British Airways
Brocade Communications
Systems(BRCD)
Bryant, Phil
Burberry(BRBY:LN)
Burks, Stephen
Butterfield, Stewart
BuzzFeed
Bhar, Yves

22
16
35
8
40
35
79
67
65
56
69
49
10
71
69
35
36
22
31
12
21
20
56
31
31
27
20
37
27
21
73
60
30
83

CD
Campaign
55
Capital Economics
8
Carney, Mark
8
Cast & Crew Entertainment
Services
19
21
Chanel
Chen, Jane
74
China National Chemical
35
Clinton, Hillary
12
Coca-Cola Far East(KO)
16
Colliers International(CIGI) 16
Cond Nast
30
Constellation Brands(STZ) 37
Corner, James
62
Crenn, Dominique
50
Cruz, Ted
12, 26
Cucinelli
37
Cuomo, Andrew
26
Daimler(DAI:GR)
21
Dales, John
67
Dalian Wanda Group
35
De Ocampo, Roberto
16

12
40
49
73
79
79
22
37
40

Dedon
73
Deep Root Analytics
26
31
DNA My Dog
Dobbs Beck, Vicki
48
Draghi, Mario
8
DreamWorks Animation(DWA)
37
Driver, Adam
65
Dykers, Craig
56

E
EasyJet(EZJ:LN)
EBay(EBAY)
Eclectic Encore Props
Embark Veterinary
Embrace
Encycle
Envira-North Systems
EVA Airways

20
76
19
31
74
70
70
20

Hearst
30
Herchen, Stephen
76
Herman Miller(MLHR)
83
Hilton(HLT)
29
37
HNA Group
Home Servicing
35
Hong Kong Easiness Wealth
34
Management
HSBC(HSBC)
16
19
Hulu

I
IBM(IBM)
27
Iger, Robert
22
Ikea
76
Impossible Project
76
Industrial Light & Magic(DIS)
48

F
Facebook(FB)
30
FedEx(FDX)
55
50 Cent
79
Financial Engines(FNGN) 36
Flickr(YHOO)
60
21, 22, 67
Ford(F)
Fox(FOXA)
19, 26
73
Foxconn(2354:TT)
Fried, Jason
60
Fujifilm(4901:JP)
76
Fuseproject
83

G
Gawker Media
30
Geely Automobile
21
Holdings(175:HK)
General Motors(GM)
21
Georgeson, Casey
74
Giudice, Maria
79
Glencore(GLEN:LN)
37
Glitch
60
13
Goldman Sachs(GS)
Gomez, Nico
26
Goode, Michael
49
Google(GOOG)
29, 30
Gore, Al
65
65
Grazer, Brian
Gunnlaugsson, Sigmundur
David
16

H
Hadid, Gigi
Haggerty, Rosanne
Halliburton(HAL)
Harry Winston

79
81
22
73

Derek
Jeter

J
James Corner
Field Operations
62
Jenner, Caitlyn
79
JetBlue(JBLU)
37
Jeter, Derek
26
JPMorgan Chase(JPM) 13, 16

K
36
76
65
35
16
76
8

L
Lam, Brian
Legendary Entertainment
Levi Strauss
Li Yida
Libeskind, Daniel

26
73
36
76
14

M
Magna Seating(MGA)
Mandarin Oriental(MNOIY)
Marriott(MAR)
Mars Veterinary
Massey Energy
McCrory, Pat
McDonagh, Sam
McGoldrick, Brent
McKelvey, Miguel
McLaren Group
Merck(MRK)
Merkel, Angela
MetLife(MET)
MGM Resorts
International(MGM)
Milk, Chris
Morningstar(MORN)
Mossack, Jrgen
Mller Textil

12
21
29
31
22
27
29
26
82
67
29
8
36
27
82
36
16
12

26

Kandarian, Steve
Kaps, Florian Doc
Keys, Alicia
KKR(KKR)
KMC MAG Group
Kouthoofd, Jesper
Kuroda, Haruhiko

Lieberman, Mark
Ligne Roset
Lincoln National(LNC)
Lomography
Lofven, Stefan

30
35
27
34
40

Narang, Manoj
49
Netflix(NFLX)
19, 50
Neumann, Adam
82
New Balance
76
New York Times(NYT)
30
27
Nissan Motor(7201:JP)
Nooyi, Indra
27
Norton, Ed
65

O
Obama, Barack
Oculus VR(FB)
Onefinestay

26, 36
82
37

PR
Pardo, Camilo
67
Parker, Robert
21
PawPrint Genetics
31
27
PayPal(PYPL)
PepsiCo(PEP)
27
Pfizer(PFE)
22, 29
Philippine Veterans Bank
16
Polaroid
76
Prisoner Wine
37
Procter & Gamble(PG)
65
Prudential(PRU:LN)
34
29
PwC
Rashid, Leeda
74

Salzberg, Matt
31
Sanders, Bernie
12, 26
Saudi Aramco
10
Savage, Dan
60
Schulman, Dan
27
Sewell, Brad
55
Sextantworks
65
Shaffer, Lisa
31
Shumlin, Peter
27
Simpson, John
32
Slack
60
Smolokowski, Oskar
76
Smolokowski, Wiacezlaw
Slava
76
Snohetta
56
26
Solic Capital
Staggs, Thomas
22
Starbucks(SBUX)
22
40
Studio Libeskind
Swift, Taylor
79
Syngenta(SYT)
35

U
Uber
29, 67, 79
34
UnionPay
United Airlines(UAL)
20
Urban Movement
67
76
Urban Outfitters(URBN)
Ustwo
82

V
Vanguard Group
Verizon(VZ)
Viamedia
Vietnam Airlines
Virgin America(VA)
Volkswagen(VOW:GR)
Vox Media

36
37
26
20
37
21
30

W
Wagstaff, Sheena
Walt Disney(DIS)
Wells, Spencer
West, Kanye
Wintour, Anna
Wirecutter
Wong, Ken
Wyndham(WYN)

79
22
31
79
79
30
82
29

T
Tazewell, Paul
44
Teenage Engineering
76
35
Terex(TEX)
Tetangco, Amando
16
Time Warner(TWX)
19
Tradeworx
49
Trump, Donald
12
Tsien, Matt
21
23andMe
31
Twitter(TWTR)
22, 79
79
2x4
Tysan Holdings(687:HK)
37

Janet
Yellen

XYZ
Xi Jinping
21, 34
Yellen, Janet
8, 13
Zoomlion(000157:CH)
35

How to Contact
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Connections with the subject of the letter should
be disclosed, and we reserve the right to edit for
sense, style, and space.
Corrections & Clarifications
Burts Bees Goes From Big-Box to Upscale
(Companies/Industries, April 4-April 10, 2016)
should have stated that Burts Bees, though
founded in Maine, is based in Durham, N.C. <BW> A
caption in Testing Times for a Giant U.S. Co-op
(Focus On/Agriculture, April 4-April 10)
misidentified the photo as from 1931; it was shot in
the 1950s.

PHOTOGRAPH BY JOHN FRANCIS PETERS FOR BLOOMBERG BUSINESSWEEK; GETTY IMAGES(2)

Opening
Remarks

Central
Bankers
Arent
SuperHeroes
By Michael Schuman

Janet Yellen, Mario

Draghi, and others
have limited powers to
stimulate growth

No heart is immune from the uplifting

tale of the Little Engine That Couldthat
plucky optimist who, against the odds,
saved the day by chugging a stranded train
over a mountain. In the world of economics, our central bankers have become this
storybook overachiever. Ever since the
2008 Wall Street meltdown, they have
tried, tried, and tried again to pull the
broken global economy into happier
times, undaunted by setbacks, criticism,
or the sheer weight of their burden. At
times that unstinting effort has made
them heroes, too. The now-legendary 2012
pledge by Mario Draghi, president of the
European Central Bank, to do whatever it
takes to save the euro quelled the market
turbulence that threatened to tear apart
Europes monetary union.
Today, though, central banks look
more and more like the Engines That
Couldnt. Despite all their tireless persistence, the world economy remains
stuck on the tracks, short of its ultimate
destinationa real recovery. The value
of the often highly unorthodox methods
central banks have employed along the
route will be hotly contested by economists for years, even decades. Whats
beyond question is that the institutions
just dont possess the horsepower to
rescue the global economy.
That hasnt stopped economists and
investors from pressing central banks
to do even more. Draghi in early March
dropped the ECBs interest rates to record
lows and expanded an unconventional
bond-buying programcalled quantitative easing, or QEaimed at tamping down
rates even further. The Bank of Japan is
widely expected to take more measures
to boost that slumbering economy. In the
U.S., the December decision by Federal
Reserve Chair Janet Yellen to raise the
benchmark interest rate, after seven years
near zero, has been criticized by some
analysts as a mistake, and shes recently
signaled that interest rates would be raised
more slowly than previously anticipated.
The pleas for more central bank action
seem to make perfect sense. Markets in
the U.S. have been in turmoil, and the
economy, though stronger than most
others in the developed world, is definitely not roaring. Europe and Japan,
struggling to grow and combat deflation,
are in far worse shape. Under such circumstances, central banks usually ease
monetary policy, making money cheaper
to stimulate economic growth and prices.
In the case of Japan, Marcel Thieliant,
senior Japan economist at research firm
Capital Economics, insists that more
easing is surely needed.

Yet the fact that the worlds advanced

economies are in such feeble condition
argues that easier money wont solve their
problems. After all, central banks have
already been gunning their engines at
full throttle for seven years. Interest rates
remain remarkably lowin Japan and the
euro zone, theyre at zero. The ECB and
BOJ have even resorted to negative interest rates, actually charging depositors
for holding cash, in an attempt to force
banks to lend and businesses to invest.
And although the Fed wound down its sixyear QE program, the ECB and BOJ continue to buy bonds on a massive scale.
Theres no consensus on how much
these cash-injecting maneuvers have
aided the real economyor helped at all.
Supporters of Fed policy, for instance,
insist that its easy-money strategy successfully shepherded the U.S. through
the Great Recession and into a period of
stable growth with near full employment.
At worst, they contend, the Fed prevented
the economy from tumbling into an even
deeper downturn. Detractors, however,
blame the Fed for causing a litany of ills
exacerbating income inequality, encouraging a spendthrift government, inflating
a stock market bubble, roiling emerging
economieswhile contributing little to the
American revival. Even Fed officials dont
agree about the effectiveness of their own
policies. One 2015 study, by researchers
at the Federal Reserve Board, figures that
the Feds program made a significant contribution to reducing joblessness, while
another, penned by Stephen Williamson,
vice president at the Federal Reserve Bank
of St. Louis, asserted that there is no
work, to my knowledge, that establishes
a link from QE to the ultimate goals of the
Fedinflation and real economic activity.
The limits of central banking are more
apparent in Japan. In 2013 newly installed
BOJ Governor Haruhiko Kuroda embarked
on a gargantuan stimulus program aimed
at smashing endemic deflation, encouraging borrowing and spending, and
restarting growth in an economy thats
stagnated for more than two decades. But
no matter how quickly Kuroda has run his
printing presses, the impact on Japans
outlook has been negligible. The economy
tumbled into recession in 2014, and gross
domestic product has contracted for two
of the past three quarters. Prices, by one
commonly used measure, didnt change
at all in February from a year earlier.
The ECB hasnt fared much better.
In early 2015, Draghi caught up with his
peers and began his own QE program to
ward off a Japan-style deflationary spiral.
But prices in the euro zone receded

ILLUSTRATION BY STEVE EPTING

0.2 percent in February. The zones GDP

expanded an uninspiring 1.6 percent in
2015, and the outlook for this year isnt
expected to be any better, while unemployment is stubbornly high at 10 percent.
Meanwhile, there are indications that
central banks have already gone too far. In
Japan, the BOJs policies have so distorted
prices that on March 1 the government
sold benchmark 10-year bonds at a negative yield for the first time. Yes, investors
made the otherwise illogical decision to
lend the government their money and pay
for the privilege of doing so. In turn, that
alleviates the urgency for the Japanese
governmentthe most indebted in the
developed worldto rein in its budget

deficits. Lawmakers and economists fear

that the use of negative rates in Japan
and Europe will damage consumer sentiment and the health of banks. Even other
central bankers are raising concerns about
their compatriots decisions. At a conference in Shanghai in February, Bank of
England Governor Mark Carney complained that negative interest rates can
weaken currencies, helping countries to
benefit at the expense of others.
In the desperate quest to revive the
global economy, it seems weve all forgotten what we learned in college economics. Monetary policy is and always will
be an indirect science. Central banks can
pump money into an economy, but unless

Just pumping money

into an economy is
useless if companies and
consumers dont spend it
investors, companies, and consumers use
it to build factories, start enterprises, or
buy cars, the flood of cash wont boost
growth. In the end, its the demand for
money that counts as much as the supply.
Thats exactly whats gone wrong in
Japan. Deflation isnt just a cause of the
economys paralysis but also a symptom
of deeper constraints on growth.
Japanese companies are too burdened
by high costs, wrapped up in red tape,
and wedded to outdated business practices to take advantage of cheap cash.
That shows printing money is no substitute for real economic reform. Prime
Minister Shinzo Abe has leaned on
Kuroda to solve economic problems hes
been politically unwilling to tackle. The
reform arm of his policy platform, known
as Abenomics, did make some progress,
joining the Trans-Pacific Partnership freetrade agreement, for instance, and bolstering corporate governance rules. But
it hasnt seriously addressed major flaws
that hamper growth and welfare, such as
a dual-track labor market that condemns
too many workers to temporary jobs with
little training or opportunity to advance.
The same has happened in Europe.
Draghis exertions were never matched
by the euro zones complacent political
leaders. The austerity-obsessed approach
to debt crisis, imposed by German
Chancellor Angela Merkel, wasnt offset
by growth-enhancing reforms at the
European level, such as removing remaining barriers within the common market.
Individual nations, from Germany to
Greece, havent done enough to fix their
own economies. In the U.S., Yellen could
have benefited from a helping hand from
Washington, but Congress has been too
gridlocked by, among other things, the
ideological stubbornness of the Tea Party
wing of the GOP to take measures that
could boost the nations competitiveness.
So to be fair to Yellen, Draghi, and
Kuroda, weve expected too much from
them. Central bankers simply cant solve
our economic problems on their own, no
matter how hard they try. Ultimately, the
poor post-crisis recovery was the fault of
political leadership. Central banks had the
power and will to step into the breach,
and they heroically took up the burden.
But it proved too heavy. Their engines
have just run out of steam. <BW>

Bloomberg
View

To read Leonid
Bershidsky on the
Panama Papers and
Marc Champion on
Donald Trumps NATO
question, go to
Bloombergview.com

Time Is Running Out

For GreeceAgain
Lots of parties share the blame for another
impending crisis, but its the EU that has to act

By continuing to deny this, the EU does indeed risk provoking another crisis. Add to this situation the possibility that the
U.K. might vote to leave the union this summer, not to mention
the continuing emergency over migrants. Of all these problems,
Greek debt is the easiest to solve. Yet Europe lets it persist.
Greece, to be sure, has its work cut out, even if granted debt
relief. It must continue reforming its public finances. It should
stop dragging its feet over selling state assets and allowing its
banks to mend their balance sheets by selling nonperforming loans, even if the buyers are so-called vulture funds. The
creditors are entitled to insist on further effortstill, without
new debt relief, the EU is demanding the impossible.
Theres plenty of blame to go aroundbut right now it falls
mainly to the EU to stop the next crisis before it happens.

The Right Dream

For Saudi Arabia
10

The Greek economy is still in desperate trouble, and another

crisis is looming. If it happens, this could set back hopes of
recovery across much of Europe. The last emergency wont
soon be forgottenyet nothing is being done to avoid a rerun.
The latest quarrel between Greeces government and the
International Monetary Fund, one of its official creditors, only
underlines the continuing dysfunction. The impasse has to be
broken. For that to happen, the European Union must take the
lead, rethink its position, and grant Greece debt relief.
Greeces gross domestic product is still falling from year
to year. About a quarter of the population is out of work.
Depositors pulled an additional 500 million ($570 million)
out of the countrys banks in February, showing that last years
rescue plan has failed to restore confidence.
On July 20, Greece is scheduled to repay about 2.4 billion
of principal and interest on loans from the European Central
Bank and the European Investment Bank. The nations total
debt-financing needs in June and July exceed 10 billion
money it doesnt have, unless more bailout funds are released
by then.
As these pressures build, the IMF and the EU have been
trying to agree on a joint position. The IMF thinks Greece
needs debt relief; the EU is opposed. A transcript published by
WikiLeaks shows despairing IMF officials wondering whether it
might take another crisis to force Europe to act. At the moment,
that seems all too likely.
Greece accuses the IMF of acting in bad faith and says its
advocating another crisisa plainly false interpretation that
testifies to the governments own bad faith. Its true, though,
that the IMF shouldnt have been involved in the first place.
The EU has all the resources it needs to deal with this problem.
Part of the cost it will have to bear is sufficient debt relief to
make Greeces fiscal position sustainable and to let a real economic recovery begin.

No one can fault Deputy Crown Prince Mohammed bin Salman

for lack of ambition. The 30-year-old son of Saudi Arabias king
has plans to sell shares in the worlds largest state oil company
and create the largest sovereign wealth fund. The idea is to
help the country diversify its economy. The fund would invest
around the world while helping Saudi Aramco expand beyond
oil and into construction, engineering, and other industries.
Its a bold move, and its scale alone may help Saudis understand the magnitude of the challenge they face.
At the same time, it will take more than this to produce the
change the country needs. Success requires moving fast on the
kinds of political and cultural reforms that usually take decades.
A population accustomed to relying on immigrant labor and
government assistance will have to work more and pay taxes.
At the same time, the state will have to be more responsive to
the citizens that its now asking to start businesses and fend for
themselves. It will have to provide them with better health care
and an educational system that helps them succeed in a new
economy. More women will need to work (and drive to work,
too). Fewer princes will be able to enjoy luxurious lifestyles at
state expense. And when theres unrest, the government will
have to resist the temptation to buy off the opposition.
This is a tall order, to put it mildly. For Saudi Arabia to
become the kind of regional financial-services hub that Prince
Mohammed envisions would be harder still. Ultraconservative
religious leaders and much of his own family would fiercely
oppose the kinds of changes needed to make their country
attractive to employees of foreign companies.
The prince has moved surprisingly quickly to cut waste
and subsidies and is pushing for large-scale privatizations. He
deserves support. But hell also have to show hes ready to do
what it takes to succeedand sooner than he thinks. <BW>

ILLUSTRATION BY MARK PERNICE

Speed is essential for political and cultural

reforms, especially in the face of opposition

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Global
Economics
April 11 April 24, 2016

A Tale of Two
Nafta Towns
A relocated factory breeds anger in Kentucky and brings low-wage work to Mexico
Nafta is the worst thing thats ever happened to the U.S.
Now 30 years old and in charge of
payroll, she makes about $1.75 an
hour, on par with wages earned on
the plants assembly line. It may not
seem like much by U.S. standards, but
to Gonzlez the money has been lifechanging. Its given her things she
says her mother never had: a washing
machine, cable TV, a minivan, and the
hope that her 11-year-old son, Angel,
will be the first member of her family
to attend college.
Gonzlez doesnt know much about
Nafta, and even less about Republican
presidential candidate Donald Trump
or the way he blames U.S. trade deficits
with Mexico and China for the loss of
jobs in America. But Williams sure does.
He caucused for Trump in Kentucky.
So did a lot of his neighbors. In Allen
County, a collection of eight towns

along the Tennessee border, Trump

won 42 percent of the vote on his way to
a narrow victory in Kentucky.
It was one of those kinds of results
in the heart of Southern Baptist
country, where support was expected
to go to the socially conservative Ted
Cruzthat revealed the extent to
which Trumps anti-free-trade tack
has touched a nerve with millions of
working-class Americans. Nafta is
the worst thing thats ever happened
to the U.S., says Beverly Anderson, a
Scottsville councilwoman who worked
at the electric motor plant for 28 years.
Before Nafta, trade between the
U.S. and Mexico was a relatively tame
affair. The two sides alternated between
deficits and surplusessmall figures,
typically no bigger than a few billion
dollars. U.S. exports quickly jumped
after the accord went into effect in 1994,
but the imports pouring in from Mexico
climbed faster, and by 2015 the U.S. was
posting a deficit of almost $60 billion.
Robert Scott of the Economic Policy
Institute, a think tank critical of freetrade deals, estimates the deficit
with Mexico alone has cost 850,000
American jobs. This, in turn, has a
chilling effect, he says. It actually
causes wage losses for everybody who
doesnt have a college degree. After
accounting for inflation, hourly pay at
U.S. factories has been stagnant since
the early 1970s.
Trump and, to a lesser extent,
Democratic candidate Bernie Sanders
have found so much success in expressing the working mans anger
Williams
that no candidate, not even
Hillary Clinton, whose husband
signed the Nafta deal, is willing to fully
embrace free trade. Trumps proposed

FROM TOP: MATTHEW BUSCH/BLOOMBERG; LUKE SHARRETT/BLOOMBERG

Amid the rugged cattle farms that dot

the hills of southern Kentucky, in a
clearing just beyond the Smoke Shack
BBQ joint and the Faith Baptist Church,
lie the remains of the A.O. Smith electric motor factory. In the eight years
since it closed, the buildings bluemetal facade has faded to a dull hue.
Rust eats away at scaffolding piled
up in the back lot, and crab grass
is taking over the lawn. At its peak
the plant employed 1,100 people, an
economic juggernaut in the tiny town
of Scottsville (population 4,226).
Randall Williams and his wife,
Brenda, were two of those workers. For
three decades they helped assemble the
hermetically sealed motors that power
air conditioners sold across the U.S.
By the end, each made $16.10 an hour.
That kind of money is just a dream
now. Randall fills orders at a
local farm supply store; Brenda
works in the high school cafeteria. For a while their combined
income didnt even add up to
one of their old factory wages.
Just as the Williamses were
being told by A.O. Smith that
theyd be let go in 2008, a
young Mexican woman named
Zoraida Gonzlez was hired
1,200 miles away in the hardscrabble town of Acua,
just across the Rio Grande.
To replace its Kentucky
output, A.O. Smith ramped
up production in lower-cost
Mexico, a move facilitated by
the implementation 14 years
earlier of the North American
Free Trade Agreement.
Gonzlez was brought in
to help handle phone calls.

New math for

Swedens welfare
state 14
Is a Filipino lifeline
fraying? 16

solution is to impose restrictions on

imports, a strategy backed by almost
two-thirds of Americans in a Bloomberg
Politics national poll conducted from
March 19-22. Little if any talk on the
campaign trail is dedicated to the
benefits of the surge in cheap imports,
such as subdued inflation that preserves
consumers purchasing power.
On the Mexican side of the border,
the benefits are clearer. Hundreds of
thousands of manufacturing jobs have
been created in the past two decades.
Acua has some 38,000 factory workers
today. The towns population is 136,000,
vs. 42,000 in 1980. While evidence of
sharp wage growth is hard to find in
these industrial communities, other
data underscore the role Nafta has
had in helping boost the lives of many
Mexicans: Gross domestic product per
capita has climbed 23 percent since
1996. More important, the decades-old
surge of illegal immigrants crossing the
border in search of work has receded.
Since 2005, more Mexicans have left the
U.S. than have entered it, according to
Pew Research Center.
Acua is a sun-drenched, dusty town
carved out of the broad mesa that
stretches across northern Mexico. On
the opposite side of the border sits Del

Rio, Texas, home to Laughlin Air Force

Base. Before the factories came, Acua
was best known for bars and strip clubs
that catered to off-duty U.S. airmen, a
culture that rock band ZZ Top glorified
in a raunchy, racially charged 1975 hit,
Mexican Blackbird.
Some of those seedy elements
remain, but theyre surrounded by
block after block of residential and
commercial developments. Next door
to the electric motor plantwhich
Regal Beloit acquired from A.O. Smith
in 2011theres a Blueline factory,
where workers make paper products;
farther down the street, Magna
Seating employees churn out car seats
and seat covers. Then theres a textile
operation run by Mller Textil, a
Germany-based company. Neither A.O.
Smith nor Regal Beloit responded to
requests for comment.
Across town, Gonzlez and her boyfriend, Manuel Aragn, who works in
the car seat factory, live with their two
children in a subsidized-housing community. Kids play in the middle of the
road. Dogs bark at passing strangers.
The houses are almost all identical,
save the differing shades of pastel paint
that coat the exteriors.
Some in the neighborhood complain

about the grind of

factory life. Not
Gonzlez. Sure,
shed like a bit
more pay and a
few more creaGonzlez
ture comforts,
but we have food
to eat, she says.
Were together,
we have work
and health.
Back in
Scottsville, such
optimism is rare.
Politicians keep
saying things are
going to get better,
Williams says.
Theyre not going
to get better. Jeff
Woods, another
Scottsville resident,
is still angry, too.
His mother worked
at A.O. Smith. Today shes a pharmacy
technician, making a fraction of her old
wage. Somebody works there all their
life, and you get to be fiftysomething
years old and your income gets cut
in half because the place moves to
Mexico, he says. Thats not right.
Thomas Black and Isabella Cota
The bottom line The economics of Nafta have
left some U.S. workers underemployed and angry
while raising parts of Mexico out of poverty.

Unemployment

Finally, Some Force

In the Labor Force
Theres been a spike in Americans
working or seeking jobs
Essentially, we are at the peak
in the rate of participation

Emboldened by strong demand for

workers, Americans have flooded into
the U.S. labor market over the past six
months at the fastest pace since at least
1948. Most have found work, while
others are still looking. Either way,

13

Global Economics
force as a share of the entire civilian
population age 16 and over thats not
in prison or other institutions. It rose
for 35 years as more women entered
the workforce, peaking at 67.3 percent
in 2000. It fell slowly until 2008, then
rapidly during and after the deep recession, touching bottom at 62.4 percent
last September. Its now 63 percent.
JPMorgans Feroli estimates that
demographic forces will continue to
push down the labor force participation rate by 0.25 percentage points a
year. A strengthening economy should
help offset the drag for a while, but that
still leaves a projected annual decline
of 0.15 percentage points in the labor
force participation rate from here on.
Essentially, Feroli wrote in an e-mail,
we are at the peak.
David Mericle, a senior U.S.
economist at Goldman Sachs, reached
a similar conclusion in early March.
He broke down the decline and recent
rebound in the participation rate
into its various components, including retirement, disability, discouragement, and school enrollment. Some
discouraged workers on the sidelines could still come back to work,
but otherwise, he wrote, We now
view the cyclical participation gap as
within 0.1-0.2 percentage points of
being closed.
The pessimists could be surprised
if more of the roughly 600,000 discouraged workers reenter the labor
force. While their ranks have fallen
from 1.3 million in 2010, they could
drop further: There were fewer than
300,000 discouraged workers in 2000.
Less educated
Americans have
been reentering the
market

A Welcome Bounce in the Job Market

The share of the U.S. adult population thats working

or seeking work has jumped lately.
U.S. labor force
participation rate
67%
Optimism about job
openings has brought
people flooding back
into the labor force

Change in labor force participation rate

Percentage points, September 2015
to March 2016

66%
Bachelors degree or more
65%

Less than high school

Men

64%

Women
63%
Black
White

62%
1/2007

3/2016

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Another source of workers could

be people working from their kitchen
tables or dens. Says Mike Wachholz,
president of Pontoon Solutions, a
human resources outsourcing firm
in Jacksonville, Fla., thats a unit of
Switzerlands Adecco: More and more
of our clients are getting comfortable
with having workers who arent on site
or even in the region. Peter Coy
The bottom line The record expansion of the
labor force is good news, but dont expect it to
last. Baby boomers are still retiring in droves.

Reform

Refugees Test the

Swedes Welfare State
The influx spurs calls for wage
and housing reform
The government completely
lacks a plan

In a Sweden grappling with a refugee

crisis, once-unimaginable changes
to the welfare state are being considered. The two areas that have generated the most intense discussion are
wages and housing. The government
faces pressure from the opposition to
interfere in the labor market, where
pay is traditionally set by employers
and unions and the state plays no role.
The argument for intervention is that
Sweden needs a lower minimum wage
to help create the jobs to absorb the
250,000 Afghans, Iraqis, and Syrians
who have arrived in the past two
years. At about 20,000 kronor ($2,453)
a month, Swedens collectively bargained minimum wages are among the
highest in Europe.
Employers may be reluctant to hire
unskilled refugees at that rate. Three
of the four opposition parties that
ruled Sweden in a coalition from 2006
to 2014 are so worried about the bleak
prospects for migrants that theyre
prepared to legislate lower wages, a
big change in the context of Swedish
politics. Politicians cant stand with
their arms crossed and do nothing,
says Mats Persson, a parliamentarian
for the opposition Liberals. Theres a
high risk that the unions and employers wont take the general public

DATA: BUREAU OF LABOR STATISTICS

14

their presence allows employers to

hire more workers without having to get
into a bidding war with competitors.
The rapid expansion of the workforce has helped justify the decision
of the Federal Reserve under Chair
Janet Yellen not to raise interest rates
in March. With plenty of workers available, companies can expand hiring
without having to jack up wages, which
could contribute to inflation. Yellens
labor market call is panning out,
Michael Feroli, the chief U.S. economist of JPMorgan Chase, headlined his
analysis on April 1. Yellen wagered that
participation would pick up in a high
pressure labor market, he wrote, and
so far shes looking pretty smart.
Unfortunately, Feroli and many
other economists believe the surge
wont last. They predict that as more
baby boomers retire, the share of the
population that participates in the
labor force will resume the downward
slide that began in 2000. That will
complicate the Feds job.
To grow without excessive wage
inflation, the U.S. economy needs a
big group of active workers as well
as a smaller group of people who are
available and looking for jobs. Those
two groups combined make up the
labor forcewhich has never added
more workers than it has over the
past six months. (It officially grew a
bit faster from late 1999 to early 2000,
but that was a statistical fluke related
to U.S. Census Bureau population
estimate revisions.)
Economists focus on the labor force
participation rate, the size of the labor

Global Economics
interest into account and that large
groups will continue to be left outside
the labor market, Persson says. The
government completely lacks a plan
for how newly arrived refugees will be
able to enter the labor market.
The ruling Swedish Social Democratic
Party says theres no need to change the
governments role and that the system
of cradle-to-grave benefits supported by
high wages and taxes is robust enough
to absorb the migrants whove flooded
the nation of 9.9 million. Prime Minister
Stefan Lofven, a former head of the
metalworkers union, says the oppositions proposals constitute an attack on
that model. Hes vowed to safeguard
the wage system and not to dismantle
the welfare state. What Sweden needs,
he says, is more workers who make the
welfare state functionespecially teachers and nursesnot lower salaries.
Strains are also showing in the
tightly regulated housing market
as the refugee influx aggravates an
acute shortage. The government has
started talks with the Swedish Union
of Tenants and the Swedish Property
Federation to change the way rents are
set. An estimated 700,000 additional
homes will be needed over the next
decade. Reinhold Lennebo, head of the
property federation, hopes the talks
will be the starting point for reform of
rent control: A quarter of all Swedes
live in rent-regulated housing. We
have gigantic demand for housing in
Sweden, but no one has an incentive
to meet this demand, he says. Rent
control puts a lid on the market.
The population increase has also contributed to a severe teacher shortage:
Some 70,000 refugee children arrived
last year. Eight out of 10 elementary
schools are struggling to recruit staff,
according to the Swedish Association of
Local Authorities and Regions.
The overarching concern is getting
immigrants employed faster so they
can pay taxes to finance the benefits
the state provides. It will be tough.
Only about 25 percent of the refugees
who arrived over the past eight years
have a full-time job, according to
Parliaments investigation service.
Still, with the economy booming
because of recovering exports and
the central banks stimulus efforts,
the labor market is tightening.
Unemployment among those born in
Sweden is a low 4.5 percent, and

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Global Economics

The cats out of the bag.

So now we have to deal with
the aftermath.
Jurgen Mossack, partner in the Panama law firm Mossack Fonseca, which set up
thousands of shell companies in offshore tax havens. Their files were hacked and
published, revealing the names of prominent clients, including Icelands prime minister.

there are labor shortages in some

areas, according to Jesper Hansson,
head of forecasting at the National
Institute of Economic Research. All
else being equal, we should be more
optimistic about the employment
prospects for refugees, he says.
Tax increases may be needed anyway,
according to the Swedish Association of
Local Authorities and Regions. While
the tax base will grow in the coming
four years, local government spending will rise twice as fast. In Malmo,
Swedens third-largest city, the growth
in the number of schoolchildren and
jobless refugees is expected to result
in tax revenue that will fall 15 percent
below spending needs until 2030,
according to Mats Hansson, the citys
long-term budget planner. The
pluses and minuses dont add up, he
says. That means well need to consider what we see as welfare. The risk
otherwise is that everything just gets
15 percent worse.
Amid the debate about caring
for the newcomers, the nationalist, anti-immigrant Democrats are
polling at almost 20 percent after
winning 13 percent in the last election.
In an April poll by Swedish pollster
SKOP, a record 64 percent of Swedes
said the country was headed in the
wrong direction.

The Swedish model was a competitive advantage when Sweden was

a homogeneous industrial society,
says Andreas Bergh, an economist at
the Research Institute of Industrial
Economics. But now its become
an obstacle as no one really knows
who should take responsibility for
the changes that need to be made.
Amanda Billner
The bottom line Contending with 250,000
refugees in two years, the Swedes find their longheld belief in an equal society being put to the test.

Developing Markets

Is Depressed Oil About

To Spoil Manilas Mood?
Remittances from the Middle East
are a large percentage of GDP
The gains we have had in the
past will be at risk

Manila used to be the city the Asian

economic boom forgotoverlooked in
favor of more dynamic spots in China
and Thailand. But with the Philippine
capital now a favored destination for
call centers and other outsourced

services, it isnt such an

outlier. As multinationals
such as JPMorgan
Chase and American
Express expand there,
more than 1.4 million square meters
of office space will be added over the
next two years, says Julius Guevara, an
analyst at Colliers International.
The economy is on pace to grow
around 6 percent in 2016 and 2017, the
Asian Development Bank says, compared with less than 5 percent for
Southeast Asia as a whole. While a
slump in China has hurt other Asian
countries, the Philippines is ticking to
a very different rhythm, says Joseph
Incalcaterra, an economist with HSBC.
That rhythm faces some disruption
as the May election to replace termlimited President Benigno Aquino III
approaches. More than 2 million
Filipinos work in the Middle East, and
the economy depends on money they
send back. A slowdown in countries
hurt by low oil prices has pinched
remittances. Payments from the
10 million Filipinos who work abroad
rose just 4.6 percent last year, the
slowest since 2001.
A high-profile cybercrime case may
also lead to tighter scrutiny applied
to money transfers to the Philippines.
In February hackers stole $81 million
from the Bangladesh central bank by
routing it from the U.S. Federal Reserve
to a bank in the Philippines. The
thieves then gambled $30 million of
the stolen cash at a Manila casino thats
exempt from anti-money-laundering
laws because of a loophole created to
encourage investment in the tourism
industry. The rest of the money went to
other gambling operators, Julia Abad,
executive director of the Philippine
Anti-Money Laundering Council, said at
a Senate hearing on April 5.
The televised investigation hearings have created a global spectacle,
Philippine Veterans Bank Chairman
Roberto de Ocampo said in a statement. If we continue on this path, the
gains we have had in the past will be at
risk. Some foreign lenders have closed
the accounts of remittance companies
after implementing rules to fight money
laundering and terrorism financing,
central bank Governor Amando
Tetangco said on March 29.
Even as the economy has outperformed most of Southeast Asia, the

HEIA HELGADTTIR

Quoted

Icelanders call for

the ouster of Prime
Minister Sigmundur
David Gunnlaugsson,
who stepped aside
after the revelations.
He denies any
wrongdoing.

Global Economics

DATA: ASIAN DEVELOPMENT BANK

Philippines has lagged in attracting

foreign direct investment. Thats led
to chronic infrastructure problems.
Despite $4.2 billion in government contracts awarded since 2010
for roads, ports, and mass transit,
its still difficult to travel across the
countrys archipelago of 7,000 islands.
Everything is running at overcapacity
right now, says Antton Nordberg, an
analyst at KMC MAG Group, a Manilabased real estate services company.
There hasnt yet been a spike of
layoffs in the Middle East, but some
employers there may be freezing
salaries, Labor and Employment
Secretary Rosalinda Baldoz said in
February. Last month her department teamed up with Coca-Cola Far
East to help women who return home
after working overseas. The program
offers entrepreneurship training
GDP Growth
and other support
so returnees can
8%
start businesses.
Philippines
For those who do
return, getting a job
6%
in a factory probSoutheast Asia
ably isnt an option.
Unlike other Asian
4%
countries that rely
2013
2017 est.
on exports, in the
Philippines factories dont generate
much growth. Manufacturing makes
up just 20 percent of gross domestic
product, compared with almost
60 percent for services. The Philippines
bypassed the whole manufacturing
thing, says HSBCs Incalcaterra.
For now, the growth of the outsourcing industry can compensate for that
weakness, but call centers and other
outsourcing businesses are looking to
cut head count by using more automation. That could present a challenge
to Aquinos successor. Still, Gareth
Leather, a senior Asia economist with
Capital Economics, writes in an April 5
report, Whoever replaces Aquino will
take over a country that is in better
shape than it has been in for a long
time. Bruce Einhorn, with Norman P.
Aquino and Ditas B. Lopez

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The bottom line The oil bust, plus a hacked

banking system, threaten remittance payments
from 10 million Filipinos working overseas.

Edited by Christopher Power

and Matthew Philips
Bloomberg.com

hpe.com/insights
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Companies/
Industries

Can Asias female

pilots fly higher? 20

U.S. carmakers make

a play for Chinas
luxury market 21
Briefs: Twitter scores
an NFL deal; Pfizer
stays home 22

April 11 April 24, 2016

Hollywood Is
Running
Out of
Tombstones
19

The new golden age of television has brought shortages of studio space and production staff

PHOTO ILLUSTRATION BY 731; PHOTOS; ALAMY (21); GETTY IMAGES (1)

When it rains, it pours. Thats happening more and more often

Theres a tombstone shortage in
Queens. Eclectic Encore Props,
a prop rental shop in the New York
borough, is down to its last fake memorial, its stock of more than a dozen
having been signed out to TV shows
filming in the city. Thats left three
series vying for the remaining grave
marker. They all need my tombstones
because theyre all shooting scenes in
a graveyard in the same week, says
Barry Godin, who works at the store.
When it rains, it pours. Thats happening more and more often.
An explosion in American television
production is threatening to overwhelm
filming facilities from California to
Canada to Georgia. Everything, including props and construction crews,
has been scarce during the spring
pilot season, when dozens of episodes
of would-be series are churned out.
Vancouver ran out of studio space,
forcing casts to work in abandoned

buildings, such as the former nutprocessing factory where this seasons

Wayward Pines on Fox is being filmed.
The boom is fueled by the original
content ambitions of Netflix and Hulu
and by free-spending governments
competing to attract production jobs
by offering subsidies that can make
producing a show affordable even for
studios on a budget. The demand
theyre creating is enormous, says Ian
McKay, chief executive officer of the
Vancouver Economic Commission.
In Georgia, the third-most-popular
state for TV show filming after
California and New York, higher education officials recently created a
certification program to fast-track students to work on TV and film production crews. That came after producers
of the Fox TV drama Red Band Society
arrived in Atlanta two years ago to
film but couldnt find anyone to build
their set. They were forced to fly in

their own construction workers. Says

Justin Falvey, co-president of Amblin
Television, a producer of the show,
which was canceled last year after
one season on Fox: In many of these
cities where you have these enormous
tax rebates, youre battling to get the
best people.
Equipment and personnel shortfalls
sometimes occur even in Los Angeles,
the biggest city in a state that in 2014
tripled tax credit assistance for production companies, to $330 million
annually. The number of primetime scripted shows made in the city
last year was 129, and the number of
filming days for TV dramas has jumped
78 percent, to 4,374, since 2012, according to FilmL.A., a nonprofit that processes filming permits in the L.A.
area. If youre a sound mixer or a prop
maker or a greensman, who ensures
the foliage in a frame looks native
to the region where a shows set,

Companies/Industries

20

youre hired. Teamsters Local 399 in

production spending.
Hollywood is even looking for people
Georgias current
to drive dressing-room trailers, known
tax incentives started in 2008 after
as honey wagons, after exhausting its the makers of Ray, about native
roster of regulars.
Georgian Ray Charles, decided to film
Our people are busier now than
in Louisiana because of its subsidies. It
theyve been since the 1990s, says
was a wake-up call, says Lee Thomas,
Edmond Brown, the business agent
deputy commissioner of the Georgia
for Local 44 of the International
Film, Music & Digital Entertainment
Alliance of
Office. We said, Either we do the tax
Lights, Camera,
Theatrical Stage
incentives or we wont be in the film
Dollars
Employees, which
business. Last fiscal year, Georgia
New York states film
was the setting for 248 film and TV prorepresents
about
and TV incentives show
6,000 entertainductions, including the CW Television
how governments woo
production work.
ment business
Networks The Vampire Diaries and
workers in the
AMCs The Walking Dead. Atlanta is
Show me the money
L.A. area. Thats
so busy its known as Yallywood. To
A 30 percent tax credit
applies to all production solely because of
address a space shortage, developers
expenditures made in
the tax credits.
are building a 270,000-square-foot TV
New York, including
The U.S. televiand film studio on the site of a shutwages paid to extras,
plus pay for crew who
sion industry aired
tered former General Motors plant.
arent actors, directors,
a record of more
When Falveys company arrived in
producers, or writers.
Atlanta to shoot Red Band Society, the
than 400 scripted
A project gets an
extra 10 percent credit
production team was set to pay handseries in 2015, up
if filming is done in
from 352 the previsomely for a custom-built set. But
upstate counties.
ous year. In 2016,
with 33 other shows shooting in the
Putting in the time
Netflix
alone
will
city, all the construction workers were
At least 10 percent of
devote $5 billion
tied up. Importing an
principal photography
days must occur on a
out-of-town crew was a
to programNew York soundstage.
pain, but Falvey says hes
ming, whereas
The states annual
Its never too late
funding cap for
ready to work in Atlanta
Time Warners
Shows that are shot
film and television
again. We were saving
HBO plans to
elsewhere but do post
incentives
$400,000 by not shooting
spend more
production in New York
are eligible for as much
in L.A., he says. Even if we have to
than $1 billion on
as a 35 percent credit of
fly in construction workers, thats still
original series.
the value of the work.
worth it. Gerry Smith
The producNo taxes, no problem
tion
incentives
If the credit is larger
The bottom line The U.S. television industry
war thats helped
than the taxes a
produced more than 400 scripted series last year,
production owes,
a record. Thats causing shortages.
create the shortproducers pocket the
ages
began
in
difference in cash.
the 1990s, when
The longest paydays
Canada began
Credits of $1 million to
doling out sub$5 million are paid out
over two years. Larger
sidies to lure
Airlines
amounts are spread
studios across the
over three years.
border. Nearly
Gimme cred
19,000 people
A show receiving
incentives must include were employed
a nod to New Yorks film by the film and TV
and TV development
Asias big air traffic increases
industry in British
program in its credits.
could open jobs for female pilots
Columbia last year.
Aided by a favorable exchange rate,
Limiting the pool to mostly white
the number of productions shot in
males has strangled growth
Vancouver jumped 40 percent.
In the U.S., 35 states offer production Sophia Kuo says she still hears the
assistance, according to Cast & Crew
whispers as she walks through interEntertainment Services, which pronational airports in her EVA Airways
vides payroll and management serpilots uniform: Wow, we have female
vices for the industry. Several states
pilots. How does she fly an airplane?
give studios tax credits, rebates, or
She must be really smart!
grants of about 30 percent of certain
More than 80 years after Amelia

$420m

More Women May Sit

In the Front of the Plane

Earharts solo flight across the

Atlantic, women such as Kuo, a
36-year-old co-pilot on the Taiwanese
carriers Boeing 747s, remain the
exception in the cockpit. Only
5 percent of pilots globally are female,
says Liz Jennings Clark, chairwoman
of the International Society of Women
Airline Pilots (ISWAP).
Asias rapid escalation in air travel
could force the industry to address that
imbalance. The region is transporting
100 million new passengers every year,
says Sherry Carbary, vice president for
flight services for Boeing, which assists
airlines in training pilots. To transport
its new middle class, Asia will need
226,000 more pilots in the next two
decades, according to Boeing. There is
such an enormous demand to meet the
growth that the gender bias will have to
be pushed aside, Carbary says.
Vietnam Airlines, based in one of
the worlds 10 fastest-growing aviation markets, is creating more flexible
work schedules that take the demands
of family life into account. And fastgrowing U.K.-based EasyJet has set up
a scholarship with the British Women
Pilots Association to underwrite the
costs of training women pilots.
Recruitment ads for carriers such as
British Airways increasingly feature
female pilots, while EVA Air, which
has about 50 women among its 1,200
pilots, has recruited from universities in Taiwan with ads showing Kuo.
Finding capable flight crews isnt
easy, says Richard Yeh, who oversees pilot training at EVA Air, which is
trying to hire 100 pilots a year to
meet demand. We have to try to find
more pilots like Sophia.
At flight training colleges in Asia, the
number of female students remains
low. Frequently less than 10 percent
of the 200 cadets at Malaysian Flying
Academy Sendirian Berhads twoyear program are female, says Stephen
Terry, the principal. Some carriers in
Asia wont even consider hiring women
pilots, Terry says, and others prohibit
females to avoid mixed-gender crews
sharing bunk compartments on longhaul flights.
To qualify for a license to captain
a plane, you need to read, write, and
speak English fluently; have thousands
of hours of flight time; have no criminal record or history of alcohol abuse;
and be free of a long list of medical

COURTESY EVA AIRWAYS CORP. DATA: CAST & CREW; MOTION PICTURE ASSOCIATION OF AMERICA

46

Episodic series
produced in New
York City in 2015,
up from 29 in 2014

Companies/Industries
conditions such as color blindness.
Pilot personality traits and aptitudes are rare within the human population regardless of gender or race,
says Mireille Goyer, founder of the
Vancouver-based Institute for Women
of Aviation Worldwide, which advocates for more women in the cockpit.
Arbitrarily reducing the potential pool
to mostly white males has strangled
growth and led to todays situation.
Some women face an historical lack
of support for those who want to fly
planes and raise a family. Flying time
for female pilots may be limited due to
maternity leave or the fact they need
time to take care of their kids, Luu
Hoang Minh, a Vietnam Airlines flight
crew deputy director, said in an e-mail.
He said his carrier, which has 11 female
pilots out of 1,058, takes these factors
into account and tries to arrange flying
schedules that help women balance
family obligations.
In Asia, where traditional attitudes
toward a womans role are strong, its
especially hard for women to get into
the cockpit, says Kit Darby, a former
United Airlines captain who works as
a consultant. Being a commercial pilot
is still viewed as a single mans game,
he says. Even women who break in will
have to wait years to assume leadership
roles. Most major carriers require flight
captains to have at least 3,000 hours
of commercial flying experience
not including flying time during flight
school. So women recruited today on
legacy carriers wouldnt be ready to
take charge of a plane for 12 to 15 years,
says ISWAP Chairwoman Clark, a

EVA
Airways
Kuo

captain with Transavia Airlines, a

subsidiary of Air France-KLM.
Still, some succeed. Vietnam Airlines
Captain Huynh Ly Dong Phuong says
her mother was initially reluctant
about her career choice, and shes still
sometimes treated differently than
male peers. My difficulty, she said
via e-mail, is making people accept
the fact I am a pilot first and a female
second, not the other way around.
John Boudreau and Nguyen Kieu Giang
The bottom line Only 5 percent of airline pilots
are female. Fast growth among Asia carriers could
reduce that imbalance.

Autos

Can Lincoln and Caddy

Find Fans in China?
The U.S. luxury models aim to
grab sales from German brands
American carsdont have that
premium image

At the entrance to a luxury auto

showroom in Shanghais Pudong district, doormen greet potential customers. Visitors can relax in a tearoom or
enjoy a massage before checking out
the cars various colors and features
on a 46-inch interactive video screen
in the dealerships Personalization
Studio. All this coddling isnt to peddle
some German luxe sedan or Italian
sports car. This showroom, where each

customer is served by at least three

specialistsfrom the front desk, sales,
and the service departmentis for
Fords Lincoln brand. Our services
are of the same standard as a five-star
hotel, says Wan Disheng, marketing
manager at Shanghai Yongda Lincoln.
Serviceat-home test drives, live
videoconferences with maintenance
and repair staffis a central piece
of Fords plan to boost Lincoln sales
in China. The
brand entered
the country in
October 2014
with only three
showrooms; by
yearend 2016,
there will be 60.
Lincolns share
of the luxury
Meanwhile, in
car market in China
January, General
last year
Motors opened
a Cadillac factory
in Shanghai, its first built solely to
support the luxury brand in the
country. The $1.2 billion plant has
the capacity to produce as many as
160,000 Caddys a year, including the
new $68,000 CT6, a sedan GM plans to
also export to the U.S.
China has become the worlds largest
auto market, with 21.1 million cars sold
last year. Luxury sales account for only
9 percent of the total, or 1.9 million
vehicles, compared with 12 percent
in the U.S. But GM China President
Matt Tsien says luxury car sales will
hit 3.5 million vehicles annually by
2020. That would make the country the
worlds largest luxury market, he says.
Mainland buyers have traditionally
equated luxury with German nameplates. Volkswagen-owned Audi
is Chinas top luxury brand, with
30 percent of the high-end market in
2015; BMW is No.2, with 25 percent;
and Daimlers Mercedes-Benz line is
third, with 20 percent.
Cadillac is far behind, tied
with Chinese automaker Geely
Automobile Holdings Volvo
at No. 6they each commanded
4 percent of the market last year,
according to Bloomberg Intelligence.
Lincoln had less than 1 percent.
There really is a solid association in
Chinese consumers minds with the
premium German brands, says James
Roy, associate principal of China
Market Research Group. American
cars are viewed as fine and good

<1%

21

Companies/Industries
and functional, but they dont have
that premium image.
By Kyle Stock
When Lincoln started looking at the
Chinese market in 2012, we quickly
discovered the retail experience was
lacking, says Robert Parker, president
of Lincoln China. His team consulted
with brands such as Chanel and
Burberry and enlisted staff from
luxury hotel operator Mandarin
In its first broadcast deal, Twitter won the
Oriental to train its salespeople
right to stream 10 Thursday-night NFL games in the
in customer service. Our focus
is around treating people better
coming season, which may help it recharge user
than anyone else in the indusgrowth. Twitter beat out a slate of heavyweights Starbucks said it
try, Parker says. My directive
would open its biggest
is to focus on the consumer
including Amazon.com, paying about $10 million for store to date, a
experience, and over time the
20,000squarefoot
the games, according to a person familiar with the space, in Manhattans
rest will fall into place.
Chelsea neighborhood,
President Xi Jinpings cammatter. The NFL said it turned down higher bids, where it will also
paign
against corruption and
roast beans.
because it likes Twitters facility with live events.
conspicuous consumption
officials may also provide an
Pfizer and Allergan walked away from their $160 billion among
opening for U.S. cars. Consumers
merger after a U.S. Treasury Department action lessened the are trading down, says Roy of China
Research Group. People are
financial appeal of the deal. Federal rules published on April 4 Market
not looking to be as obvious or flashy
would make it tougher to complete so-called inversions, when with their wealth as before.
Zhu Qinglin, a fiftysomething execU.S. companies use acquisitions to shift their addresses to utive
with a state-owned power
22
lower-tax countries. An inversion with Ireland-based Allergan company, is looking for a car that
less of a statement. There are
could have been worth up to a total of $35 billion in tax sav- makes
too many people driving BMW and
ings. Thomas Staggs, Walt Mercedes in China, and theyre too
The cost of a new Ford
he says. Lincoln is
factory to be built in
Disneys chief operating officer, eye-catching,
Central Mexico. The
a luxury car, but not very known in
plant, which will make
stepped down on April 4 as the China. I like that its kind of special
small cars, is scheduled
low-key.
to begin operations in
companys board said it would and
billion
2018 and employ 2,800
Cadillacs Shanghai factory will let
people by 2020.
broaden its search for new chief the brand avoid the countrys stiff
import taxes, which can increase
executive candidates. He was auto
the cost of a foreign-made vehicle by
being groomed to replace CEO Robert Iger, whose contract about 25 percent. Audi, BMW, and
all have local factories.
ends in June 2018. Rovio Entertainment, the com- Mercedes
Cadillac could also benefit from the
pany behind Angry Birds mobile games, said it had a
local popularity of sister brand
CEO
Buick, which has been produced
$14.8 million loss last year. Game revenue
Wisdom
on the mainland since 1999.
What you
was up, but expenses swelled in advance of have to accept
Everybody has a favorable view
in a capitalist society,
of GM products in China, says Steve
The Angry Birds Movie, opening on May 20. generally, is thatits
Man, a Bloomberg Intelligence analyst.
like a jungle, where a
The Justice Department sued oil- jungle is survival of
Ford faces a much bigger challenge
the fittest.
trying to sell imported, heavily taxed
services company Halliburton to block its
Don
Lincolns. Ford, Man says, will need
Blankenship,
proposed merger with rival Baker Hughes,
to do a lot of work. Bruce Einhorn,
former CEO of
Massey Energy,
with Jing Yang and Gregory Turk

Briefs
Touchdown for Twitter

saying the $34 billion deal would hinder

competition and bring higher prices and less
innovation to the industry. The two companies pledged to fight the lawsuit.

explaining
his philosophy
in 1986; he was
sentenced on April 6
to a year in prison in
connection with a fatal
2010 mine accident

The bottom line Lincoln and Cadillac have big plans

in China, long a preserve for German luxury cars.
A corruption crackdown could help the U.S. brands.
Edited by James E. Ellis
Bloomberg.com

FROM TOP; ILLUSTRATION BY 731; BLOOMBERG

$1.6

Politics/
Policy
April 11 April 24, 2016

Never a Convenient Time

For Childbirth, Death, or
The due date for income tax returns is one thing that still binds Americans together
If we moved the deadline, people would procrastinate

24

Sliders, knuckleballs,
and political ads 26

PayPal breaks up with

North Carolina 27

When it comes to
paying for Medicaid,
Oklahoma aint OK 26

*THIS YEAR, TAX RETURNS ARE DUE APRIL 18 BECAUSE FEDERAL OFFICES IN
WASHINGTON WILL BE CLOSED APRIL 15 IN OBSERVANCE OF EMANCIPATION DAY.

Ben Steverman and Dorothy Gambrell

Politics/Policy

Batter Up! But First,

A Candidate Message
Fox Sports plans to bring politics
to Americas pastime
Everybodymothers, fathers
grandparentsis watching

26

Derek Jeters final home game as a New

York Yankee drew a record audience
on the teams YES Network in 2014, surprising no one. But Stephen Ullman,
who oversees political ad sales for YES
Network majority owner Fox Sports,
was puzzled about why there was so
little campaign advertising during
the breaks, just a few weeks before a
gubernatorial election in New York.
Conversations with people overseeing
ad buys for Governor Andrew Cuomos
reelection campaign, which ran a
spot during the Jeter game, offered an
insight: Campaigns often dont think
of local or regional sports channels
such as YES Network when they buy
airtime. Many advisers sort of live by
the old dogma, which is that youve got
to start every political buy with buying
in the news, says Jeff Link, chief executive officer of Analytics Media Group,
which advised the Cuomo campaign.
Ullman and Fox Sports are looking to
change that. Baseballs season peaks in
late October, just before the presidential
election, but with primaries still to be
contested in major states including New
York, which votes April 19, the company
sees a chance to gain a bigger share
of the estimated $4.4 billion candidates and super PACs will spend on TV
advertising this election. Most home

much tighter right now for all of the

campaigns and the PACs, says Mark
Lieberman, CEO of Viamedia, which
sells ad time on local cable networks.
Its really forcing the campaigns and
the PACs to spend on a much smarter
basis. Tim Higgins
The bottom line Regional sports networks are
looking to grab a larger slice of the $4.4 billion in
2016 campaign ad spending.

Health Care

Oklahomas Two-Step
To Avoid Obamacare
Crashing oil revenue has the state
rethinking federal health-care aid
You mention Medicaid
expansion, thats dirty words

Dwight Sublett has seen a lot of busts

in his 33 years as a pediatrician in
Stillwater, Okla., but this year ranks
among the worst. With oil hovering at $35 a barrel, the state is facing
a $1.3 billion budget shortfall for
the fiscal year starting on July 1. On
March 29 the Oklahoma Health Care
Authority warned it would have to
cut 25 percent from reimbursements
to physicians, hospitals, and other
medical providers under the states
Medicaid program, SoonerCare.
The program covers a million poor
Oklahomans each year, more than a
quarter of the states population. For
the rural physicians, this is going to be
a devastating blow, Sublett says.
Across the country, Medicaid covers
71 million low-income Americans.
Medicaid is jointly funded by the federal
government and states, and it typically
accounts for 20 percent to 35 percent
of a states annual budget. The crash
in oil prices has made it harder for
energy-dependent states to come up
with their share. These states that have
had fairly stable budgetsOklahoma
would be the classic examplesuddenly
theyre running really big deficits,
says Gregory Hagood, senior managing
director of Solic Capital, an investment
and advisory firm that works with hospitals in financial distress.
Oklahoma has declined to expand
Medicaid, leaving uninsured an

MIKE MCGINNIS/GETTY IMAGES; DATA: MACPAC, OKLAHOMA HEALTH CARE AUTHORITY; COMPILED BY BLOOMBERG

Campaign Ads

team games are the No.1 prime-time

program, says Ullman. Everybody
mothers, fathers, daughters, grandparentsis watching.
Fox Sports, a subsidiary of
21st Century Fox, sells ads for a group
of about 40 regional sports channels
across the U.S. After 2014, Fox Sports
commissioned Links Analytics Media
Group, which grew out of the 2012
Obama campaign, and Republicanaffiliated Deep Root Analytics to study
viewing habits. Advertisers already
like sports broadcasts, which people
watch live without skipping ads. The
researchers found that viewers of local
sports tend to be undecided voters
exactly the people campaigns most
want to reach. Theyre 2.5 times more
likely to trust candidates whose ads
they see during games, almost twice as
likely to remember them, and twice as
likely as people who watch local news
to vote for them. Its an untapped
resource, says Brent McGoldrick, Deep
Roots CEO. TV media buyers tend to
buy what they know, so they literally
dont have the data or they dont really
know the people to contact to buy on
these programs.
Just as analytics changed modern
baseball, the data-driven approach
to political ad buying pioneered by
President Obamas 2012 campaign has
pushed candidates and outside groups
such as super PACs to look at buying
airtime beyond local news and syndicated broadcasts. On April 4, the
day before Wisconsins primary, the
Fox Sports Wisconsin broadcast of
the Milwaukee Brewers opening game
against the San Francisco Giants was
peppered with ads for Ted Cruz and
Bernie Sanders. (The Brewers lost;
Cruz and Sanders won.)
Local broadcast stations captured
85 percent of ads
during the 2012 general
election, but according
to Kantar Media, thats
shrunk to 70 percent
so far this cycle as campaigns have increased
spending on local
cable and satellite,
which allows buyers to
target viewers in specific ZIP codes rather
than blanketing entire
cities. Sports events
budgets are getting

estimated 91,000 people who might

have qualified for federally subsidized
coverage under the 2010 Affordable
Care Act. You mention Medicaid
expansion, thats dirty words in this
state because of the link to Obamacare,
Sublett says. About 16 percent of
Oklahomans had no health insurance in
2014, compared with 10 percent of the
national population, according to the
Kaiser Family Foundation.
Years of tax cuts in Oklahoma have
contributed to the budget hole. The
top state income tax rate declined from
6.65 percent in 2004 to 5 percent this
year, eliminating $1 billion in annual
revenue, according to the nonprofit
Oklahoma Policy Institute. Tax revenue
will come in about 7 percent below
the level expected for the budget year
ending on June 30, says Nico Gomez,
chief executive officer of the Oklahoma
Health Care Authority, which oversees Medicaid. Hes preparing for a
15 percent cut in state funding next
year, though the precise amount is
uncertain. For every 40 the state cuts
from Medicaid, Oklahoma loses 60 in
federal matching funds.
Gomez says the program has already
reduced benefits to stay ahead of
budget cuts,
including dental
Medicaid
participants
care for pregnant
women. Last year
Oklahoma
Under 18
64% he agreed to take
19-64
28% a pay cut, but he
65+
7% acknowledges that
has mostly symTotal U.S.
54% bolic value, saying,
Under 18
19-64
40% 12 percent of my
65+
6% salary is not going
to save the budget.
The state has also lowered reimbursement rates for doctors and other treatment providers several times. Weve
been through this before, boom and
bust. It feels different this time, Gomez
says. Right now its difficult to see
when were coming out.
Gomez has proposed what he calls
a long-term solution. Under his plan,
about 350,000 Oklahomans who are
on Medicaid or uninsured would get
subsidized insurance through a state
program, Insure Oklahoma, that predates the Affordable Care Act and is
mostly funded by tobacco taxes. The
change would require approval from
administrators in Washington to free up
an infusion of federal Medicaid funds.

The proposal is broadly similar

to backdoor arrangements several
Republican-led states, including
Arkansas and Indiana, have used
to get federal funds for expanding
health coverage with private insurance rather than Medicaid. Gomez
is quick to note that his proposal
would shrink the Medicaid rolls in his
state. Were not actually growing the
entitlement, he says.
Health-care providers in Oklahoma
would welcome the move, whatever
its called. We dont seem to have
a problem in this state in accepting
federal dollars for roads or other purposes, says Craig Jones, president of
the Oklahoma Hospital Association,
which has pushed the state to take
advantage of federal money available
under the Affordable Care Act. Its
only because its tied to Obamacare
that people have had a real concern
about it. John Tozzi

I fear this law is

undermining our
collective efforts to
advance North
Carolinas
long-term interests
and I hope you will
consider calling for
its repeal.
PepsiCo Chief
Executive Officer
Indra Nooyi

The bottom line Facing a $1.3 billion budget

gap, Oklahoma is weighing how to get federal
Obamacare funds without expanding Medicaid.

Civil Rights

States Pay a Price for

Being LGBT-Unfriendly
North Carolina loses PayPal over
transgender bathroom rights
We felt it was important to back
our words with actions

In March, PayPal announced plans to

open an operations center in Charlotte,
creating 400 jobs in North Carolina.
Then the state enacted HB2, which
blocks local ordinances extending
public accommodations to lesbian, gay,
bisexual, and transgender people. The
target was a Charlotte measure that
would have protected the right of transgender people to use public bathrooms
according to the gender they identify
with. On April 5, PayPal Chief Executive
Officer Dan Schulman announced he
was canceling plans to expand in North
Carolina unless the state overturns HB2.
This law is against a core value of our
company, which is inclusion, he says.
We felt it was important to back our
words with actions.

Politics/Policy

PayPal isnt
alone. Braeburn
Pharmaceuticals
says its reevaluating
its decision to build
a $20 million facility in North Carolinas
Research Triangle area
because of the HB2 law. PepsiCo
CEO Indra Nooyi sent North Carolina
Governor Pat McCrory, a Republican, a
letter urging him to undo HB2: I fear
this law is undermining our collective efforts to advance North Carolinas
long-term interests and I hope you will
consider calling for its repeal. More
than 80 corporate leaders have signed
a similar plea for repeal, saying its bad
for business. At a press conference,
McCrory said his goal was to guarantee
the expectation of privacy in schools
and other public places.
There are about 200 proposed bills
in 34 states that are considered potentially hostile to LGBT people, according
to the Human Rights Campaign, which
is among advocacy groups opposed to
HB2. Governors in South Dakota and
Georgia this year both vetoed potentially discriminatory legislation after
corporate leaders objected.
In 28 U.S. states, LGBT residents
arent specifically protected from
discrimination at work or in public
places. The next battle may come
in Mississippi. The same day PayPal
announced it was pulling out of North
Carolina, Mississippi Governor Phil
Bryant signed a bill that allows businesses to deny services to gay couples
on the basis of religious belief. MGM
Resorts International, which has
two casinos in Mississippi, objected to
the law, saying it will reduce tourism
and harm the states economy. Nissan
Motor, a large employer in the
state, also objected, as did IBM and
Levi Strauss.
Other states see opportunity.
Vermont Governor Peter Shumlin
tweeted at PayPal: If youre looking
for a tolerant state with a thriving
tech hub, wed welcome you in VT.
Spencer Soper and Jeff Green, with
Margaret Newkirk and Jennifer Kaplan
The bottom line PayPal led companies putting
millions in development on hold unless North
Carolina repeals a law blocking LGBT protections.
Edited by Allison Hoffman
Bloomberg.com

27

When will an
idea bring the
future forward faster?
When we connected the phone to the Internet,
it became a smartphone. Today, that same
restless vigor guides us as we innovate the more
intuitive Internet of Things, new horizons in
mobile experiences, optimized connectivity
and technology that learns and adapts to us.
We are Qualcomm and we are bringing
the future forward faster.

#WhyWait to join the discussion

Qualcomm.com/WhyWait
2016 Qualcomm Incorporated. Qualcomm is a trademark of Qualcomm Incorporated, registered in the
United States and other countries. Why Wait is a trademark of Qualcomm Incorporated.

Sites that pay the bills

with links, not ads 30

For the dog that

has everything:
Genetic screening 31
Innovation: A laserguided catheter 32

April 11 April 24, 2016

Sharing Everything
But the Wealth
When Airbnb and Uber start turning profits, where will the tax money go?

PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY (14); GETTY IMAGES (1)

These companies are the future....The lost revenue may be enormous

Every time Ian Haines
rents out his spare room
in the Australian port city
of Albany, Airbnb takes
a 13 percent cut. Haines,
whos semi-retired, uses
the extra money to supplement his income running
a local farmers market.
He says hes careful to pay
taxes on the Airbnb money,
because the San Francisco
company may report
the transactions to the
Australian government.
For Airbnb, things are different. Because it manages
its finances via units in
Ireland and tax havens
like Jersey in the Channel
Islands, only a small part
of its share of the revenue
is ever likely to be taxed
by Australia or the U.S.
A review of Airbnbs overseas regulatory filings shows
it has a far more extensive web of subsidiaries than it has publicly acknowledgedmore than 40 in all.
This is the challenge that Airbnb,
like Uber and other companies in the
so-called sharing economy, poses for
the worlds treasuries. In the five years
since these businesses began their rapid
growth, some cities and states around
the globe have fought hard to make
them play by the same rules as traditional hotels or taxis and collect various
local taxesoften as not, theyve lost.
As the new breed of companies moves
toward profitability, transforming
larger chunks of the economy, policy
experts say the battle is likely to shift
to the national level, where billions

of dollars a year in corporate taxes

could be at risk. (A source close to
Airbnb says the company will turn its
first profit this year.) Governments have
been slow to respond.
These companies are the future,
says Stephen Shay, a former top international tax lawyer at the U.S. Department
of the Treasury, now teaching at
Harvard. The nature of their business
and the structure of the companies can
allow them to essentially keep all of
their profits out of the U.S. Unless the
tax systems find a way to deal with this,
the lost revenue may be enormous.
For years, pharmaceutical and tech
companies including Pfizer, Merck,
Google, and Apple have slashed their
U.S. federal tax bills by using offshore

tax havens and shifting profits

abroad. Airbnb and Uber are
starting to extend this strategy across vast new fields:
PricewaterhouseCoopers
estimates that sharingeconomy businesses generated $15 billion in revenue
in 2014 and will take in
$335 billion in 2025, growing
largely at the expense of
companies that pay billions
in U.S. taxes.
Its not always a zero-sum
game; the newer businesses
can expand the overall
market. The IRS, which has
been depleted by budget
cuts and lost several highprofile corporate tax cases,
says it hasnt tried to calculate the potential revenue
loss. While Treasury has
proposed some measures
in recent years to curb tax
avoidance by digital companieson
April 4, the department issued rules
limiting tax shifting through mergers
partisan division in Congress makes
serious changes unlikely.
Airbnb officials declined to discuss
tax strategies. We pay all of the tax
that is due in all of the places that we do
business, says spokesman Nick Papas.
When we make long-term business
decisions, we act in the best interest of
our community.
Once it makes a profit, Airbnbs corporate structure will give it an array of
options to legally sidestep federal taxes
in the U.S. and elsewhere. Two of its
subsidiaries are in Ireland, where local
tax laws allow U.S. multinationals to
avoid both the 35 percent top rate

29

Technology
Digits

The number of tech companies that went public on U.S. exchanges in

the first quarter of 2016, something that hasnt happened since 2009

30

in the U.S. and Irelands 12.5 percent

income tax.
Money from Airbnb transactions
in 190 countries, including Hainess
rentals in Australia, goes directly to a
payment center in Ireland. Airbnb collects 6 percent to 12 percent of the
rental price, depending on cost, then
deducts 3 percent from the hosts take
before passing the money along. This
lets Airbnb shield most of its profit
from the country where the service
was delivered. (Airbnb Ireland pays the
Australian subsidiary a small fee for
marketing in-country, and the subsidiary pays tax on its profits.)
Irish law makes it easy for multinationals to shift profits to tax havens by
assigning valuable intellectual property
rights there. Airbnb has two subsidiaries, Airbnb International Holdings and
Airbnb 2 Unlimited, on Jersey, which
has no corporate tax. Tax experts say
that if Airbnb assigns its software IP to
a Jersey unit, the company could shift
much of the profit to the haven through
royalty payments from its Irish subsidiary. Pharma and tech companies
have used similar strategies to cut their
overall tax rates to the low single digits.
The Australian Senate called local
managers to testify alongside Uber in
November at a public hearing on corporate tax avoidance. Sam McDonagh,
Airbnbs country manager there, testified that taxes never motivate the
companys strategic choices. The
No.1 reason we located ourselves in
Ireland was for access to great talent,
McDonagh said. The response from one
of the senators: Come on!
Whatever Airbnbs motivation, the
result is tax-minimizing options unavailable to traditional competitors. While
Airbnb doesnt own the properties

rented on its site, it lists about 2 million

roomsas many as the Wyndham,
Hilton, and Marriott chains combined.
Those three hoteliers averaged a combined annual profit of $2.3 billion
from 2013 to 2015, according to their
Securities and Exchange Commission
filings, and paid hundreds of millions of
dollars a year in U.S. federal taxes.
Uber processes payments for
rides outside the U.S. through the
Netherlands, a company official testified at the hearing in Australia. Last
fall, Fortune reported that, according to presentations to investors, Uber
had assigned its IP to the tax haven of
Bermuda, leaving less than 2 percent of
its net revenue taxable by the U.S.
Outside the U.S., there have been a
few recent attempts to crack down on
corporate tax avoidance. In January
the U.K. instituted the Google Tax, a
25 percent levy on any profit deemed
improperly diverted, and Ireland began
eliminating some loopholes, including the infamous Double Irish, last
year. Google says its not subject to
the Google Tax, and accountants are
already pitching comparable alternatives to the Double Irish in Malta and
the United Arab Emirates.
The Organisation for Economic
Co-operation and Development is crafting more technical ways to block profit
shifting. We can debate whether most
of the value of a platform is created in
Silicon Valley, where it was developed,
or in Ireland, where it is managed, or
wherever the service is delivered, says
Pascal Saint-Amans, director of the
OECD Tax Centre. You cannot reasonably argue that value is created in the
tax haven where the platforms only
presence is a shell company.
As home to most of the big

The bottom line Airbnbs more than

40 subsidiaries may help the company lower its
tax bill in the U.S. and other countries.

E-Commerce

Links to a Sustainable
Media Business
A gadget reviewers success with
commissions inspires copycats
We move as much product as a
place 10 times bigger than us

Brian Lam doesnt run many ads on his

gadget review site, the Wirecutter. He
doesnt have to, because the reviews
themselves are loaded with links to
Amazon.com and other places where
readers can buy the name-checked
products. If you click through and buy
the item, Lams site gets a single- or
low-double-digit percentage of the purchase price. It adds up: Quantcast says
the five-year-old site and its housewares
spinoff, the Sweethome, combined for
3.4 million U.S. visitors in March, and
last year its staff of 59 drove $150 million
in online sales and turned a profit,
according to Lam. We move as much
product as a place 10 times bigger than
us in terms of audience, he says.
While Lam didnt invent this kind of
affiliate marketing, his site was the first
to make it a mainstream media success.
Some of the industrys biggest names
have begun following Lams lead in the
past few months, including BuzzFeed

ILLUSTRATION BY 731

Zero

Typically, there are

one to three tech IPOs
in the quarter

companies involved and the only

major country that taxes its multinationals worldwide income, the U.S.
likely has the most at stake. In deadlocked Washington, the Obama administrations proposals have included a
minimum tax of 19 percent on U.S. corporations global earnings, regardless
of whether the money ends up in the
U.S., as well as stricter limits on deferral of overseas income and use of corporate structures that leave some
income untaxed by any country.
At some point, something has to be
done, says Reuven Avi-Yonah, an international tax professor at the University
of Michigan Law School. We just have
to hope that it happens before too much
revenue is lost. David Kocienewski

Technology
and Hearst. Publishers know that
advertising is a difficult business to be
in if youre not named Facebook and
Google, says Brian Wieser, an analyst at
Pivotal Research.
The Wirecutter posts only a few
dozen articles a month: The Best
Laptop, The Best Open-Back
Headphones under $500, The Best
Subcompact Crossover SUV. Each, Lam
says, requires 20 to 200 hours of testing
and research, often including interviews with engineers or chemists. While
reviewing bike locks, one contributor
consulted a bicycle thief. While testing
waterproof iPhone cases, another contributor swam a quarter-mile in the
ocean. People trust us, says Lam, a
former editor at Gawker Medias technology site Gizmodo and Cond Nasts
Wired magazine. We earn that trust by
having such deeply researched articles.
Lam brushes off concerns about
conflict of interest, arguing that the
Wirecutter has more incentive to make
sure readers buy the best gadgets
than a website with conventional ads.
If readers whove bought products
through Wirecutter links end up returning them, the site forfeits its commission. So the more we help readers, the
better our business does, Lam says.
In February, BuzzFeed launched a
Facebook page called Buy Me That,
which promotes articles filled with
links. (Sample headline: Here are
9 Affordable and Stylish Suits.) The
company declined to comment.
Hearst, the publisher of Esquire,
Cosmopolitan, and Good Housekeeping,
in November introduced a website,
BestProducts.com, that publishes 10 to
20 reviews a day of electronics, fitness,
and parenting gear. We wanted to
create something thats engaging and
people find useful, says Troy Young,
president of Hearsts digital media division. If theres another way to monetize it beyond traditional advertising,
thats an added bonus. Young says tech
reviews yield most of the link-driven
revenue but wouldnt disclose sales.
Gawker and Vox Media use
Skimlinks, an automated service that
links words in articles to the sites of
20,000 retailers. In February, Vox
posted a job listing for an editor who
can help readers discover great products for purchase. Gawker says its
five-person affiliate marketing team
drove more than $150 million in retail

sales last year. It turns out we have a

growing audience interested in home
goods, says Ryan Brown, Gawkers
vice president for business development. People buy mattresses from
us. Pivotals Wieser says affiliate marketing may pay the bills for smaller
operations but would likely have
trouble replacing conventional digital
ads for most big publishers.
The Wirecutter is trying to expand its
audience, teaming up with the New York
Times to assess Wi-Fi routers and tricks
for extending phone battery life. Lams
team is also widening the range of its
reviews, covering dashboard cameras
and windshield wipers. You wouldnt
think it makes a difference, says Lam,
who realized his latest blades had gone
a year without leaving streaks. I didnt
know that windshield wipers could
annoy me so little. Gerry Smith
The bottom line The Wirecutter helped sell
$150 million in goods last year through affiliate links.
Other media companies are trying to follow suit.

Biotech

A Chance to See
Spot Sequenced
Embarks genetic kits test dogs
health, behavior, and pedigree
We can trace theline back to
the dawn of dogs

For Ryan and Adam Boyko, dog drool is

a family business. Over the past decade,
the brothers have traveled the
globe, fetching thousands of
saliva samples from pups in
Croatia, Fiji, India, Peru,
Qatar, Uganda, and
a dozen other countries. They carried
the samples back to
Adams genetics lab at
Cornell University, where
they scoured the DNA
for clues about the history
and evolution of mans
best friend.
Now the Boykos want
to expand the pack. By
the end of spring, they
say, their new canine
genetics company,

Embark Veterinary, will begin selling

testing kits designed to give U.S. dog
owners scientific insight into their pets
health, behavior, and ancestry. (Think
23andMe for the furry, four-legged set.)
Using that data, the company also plans
to learn more about overall canine
health and behavior. Were interested not only in
returning information to owners but
actually improving the way dog
The price of
genetic research is
Embarks genetic
screening for dogs,
done, says Adam,
which delivers
Embarks chief
information on traits
science officer and
and risks
an assistant professor at Cornells veterinary college, the
startups research partner.
Embarks $199 genetic test will screen
dogs for more than 200,000 genetic
markers and report the results to
owners through its website or app. The
data will include details about dozens
of physical traits, like how much a
puppy is likely to shed and its predicted
adult size, as well as its risk for more
than 100 different medical conditions.
Embark will also determine the dogs
breed composition and geographic
origin. We can trace the paternal and
maternal line back to the dawn of dogs,
says Ryan, chief executive officer.
Embarks app will survey customers about their dogs lives, behaviors,
and medical histories. As its customer base grows, Embark plans to sift
through this data in search of new connections between DNA and health
or behavior. Is there a certain genetic
variant that aggressive dogs tend to
share? Do yappers have different DNA
than howlers? We know absolutely nothing about the genetics of barking, says Adam.
Customers will receive
updates about new discoveries, says Matt Barton,
chief technical officer.
The companys research
could also have implications for human medicine. Many of the genetic
mutations that underlie common dog diseasesfrom cancer to
compulsive disorder
have been linked to
similar conditions in

$199

31

Innovation
Laser-Guided Catheter
Form and function

Innovator John Simpson

The Pantheris catheters laser camera lets

surgeons see inside blood vessels as its cutting
instrument is removing fatty deposits, making
it much safer than conventional methods of
treating peripheral arterial disease (PAD).

Age 72

Origin Simpson
founded Avinger
in 2007, partly in
search of a way to
limit the number of
arteries damaged by
surgeons dependent
on external X-rays.

Medical doctor and chairman of Avinger, a

200-employee medical-device company
in Redwood City, Calif.

1.

Funding Avinger
raised more than
$100 million in
private investment
before its $60 million
initial public offering
last year.

Exam A surgeon inserts the

single-use catheter into a
patients artery. A camera
near the front of the device
uses laser light to create
video images with the help
of a computer and monitor
plugged into the device.

32

2.
Clearance While viewing the
monitor, the surgeon guides
the catheter to a blocked
area and manipulates the tool
at its tip to remove plaque.

Market PAD afflicts

1 in 20 Americans
older than 50, the
National Institutes of
Health estimates
about 5.4 million
people. The disease
typically causes leg
pain and increases
the risks of heart
attack and stroke.

Early tests Clinical

trials involving more
than 300 patients
have resulted in zero
blood vessel damage,
Simpson says.

Next Steps
The U.S. Food and Drug Administration cleared Pantheris for PAD treatment
in October. Simpson says Avinger is working to make the device smaller
and softer so it can also be used to treat the especially delicate coronary
arteries. Pantheris is a major upgrade, says Thomas Davis, a doctor treating
cardiovascular disease at St. John Hospital & Medical Center in Detroit. He
calls it a game changer for patient care. Michael Belfiore

people. And thanks to generations

of selective breeding, a small number
of genes explains much of the variation
between individual dogs, which means
its often easier to identify the genes
responsible for complex traits in dogs
than it is in humans.
After licensing their initial sample
database from Cornell, the Boyko
brothers incorporated Embark last
year. Co-founders include geneticist
Spencer Wells, who led a decade-long
study of human migration based on
DNA samples, and Ryans college buddy
Matt Salzberg, CEO of subscriptionmeal company Blue Apron. Embark,
which has eight employees and is based
in Austin, has raised $1.8 million in
venture funding to further refine its
products. With more than 70 million
pet dogs in the U.S. and some 7 million
new pups acquired each year, the services potential market is huge.
Like the 23andMes of the world,
Embark is stopping shy of providing
medical advice. Its not giving diagnoses
and encourages customers to discuss
test results with their vets. Its also not
the first to pitch consumers on canine
genetic tests. Paw Print Genetics sells
a $150 kit that screens dogs for more
than 150 different diseases and traits.
CEO Lisa Shaffer says Embarks model is
interesting, but it isnt clear whether the
companys priority will be research or
returning useful information to owners.
Embark says its depth of data analysis,
along with the app and its more thorough testing panel, set it apart from
cheaper rivals, which also include Mars
Veterinary and DNA My Dog.
Later this year, the Boykos plan to
add features that allow customers to
connect with other dog owners whose
pets have similar genetic backgrounds,
behavioral traits, or medical problems.
Eventually, the company expects to link
up with breeders to help them make
matches that reduce the likelihood
of puppies inheriting disease-causing
mutations in the first place. We would
like to be doing research thats benefiting, ideally, millions of dogs, Ryan says.
Including, perhaps, those that havent
been born yet. Emily Anthes
The bottom line Embark says its DNA test can
assess a dogs risk for more than 100 different
medical conditions.
Edited by Jeff Muskus
Bloomberg.com

ILLLUSTRATION BY 731; COURTESY AVINGER

Technology

Markets/
Finance

Getting Money
Out of China, One
Swipe at a Time

34

Mainlanders come to Hong Kong to buy insurance

Bring more than one credit card, agents advise

Hong Kong insurance agent Raymond

Ng sold HK$28 million ($3.6 million)
in insurance policies to a mainland
Chinese client in March. It took more
than 800 credit card swipes to complete the transaction.
Ng is one of dozens of Hong Kong
agentsand maybe moreusing this
and similar tactics to get around new
limits on mainlanders using credit
cards to buy insurance, according to
interviews with five agents working for
four different insurance companies.
Making multiple swipes can defeat a
cap of about $5,000 per transaction
set by Chinese authorities in February.
The country is trying to slow the steady
stream of cash going abroad and into
foreign currency assets.
There are always ways around
new restrictions, says Ng, who
spoke on the condition his
companys name not
be used. Chinese
customers are
accelerating the
pace of moving
assets outside
China, especially through
insurance
products.
These
clients
are reacting to a slowing
economy and fears
that the yuan, which
was devalued in 2015,
could decline further.
Holding any kind of asset
denominated in foreign
currencies could protect
the purchasing power of
their savings.
Chinese citizens are allowed
to convert the equivalent of only
$50,000 of yuan per year to other
currencies. When they travel abroad,
including to Hong Kong, many of their
transactions using Chinas UnionPay
credit and debit cards arent subject
to the limit. Hotel bills and luxury
goods arent included. Neither are
insurance policies for travel and
health, though theyre subject to the
per-transaction cap.

ILLUSTRATION BY BRAULIO AMADO

April 11 April 24, 2016

A fiduciary is: (a) Your

friend (b) Your foe
(c) Who knows? 36
Bid/Ask: Alaska Air
beats out JetBlue
for Virgin 37

But mainland Chinese are coming

because they offer better beneficiary
whole process and swipe cards with
to Hong Kong to also buy life insurpayments and returns than mainland
them, he says. Weve told them
ance policies with an investment complans. Hong Kong health-insurance
to bring more than one credit card,
policies provide access to better care.
as they will be able to try more
ponent that can be cashed out in a few
years. The money can then be invested Insurance is shielded from seizure in
cards if one of them is not working.
Alfred Liu and Molly Wei
in property or other assets, raising
the event of a bankruptcy in China or
in criminal proceedings, which have
fewer questions about how it got out
The bottom line Insurance policies in foreign
of the mainland. Large portions of the
been intensifying under President
currency can help get around capital controls, even
with a $5,000 limit for each credit card swipe.
premium can be paid upfront. Sales
Xi Jinpings anticorruption campaign.
The $5,000 cap was followed by a
of insurance and related investment
ban on electronic transfers, such as
policies to mainland visitors jumped
30 percent last year, according to Hong online payments, to buy life insurKongs insurance commission.
ance, according to notices seen
China views any purchases of
by Bloomberg News. Agents who
Real Estate
the investment-linked policies as a
sell large policies are likely doing
violation of the controls on capital
their best now to urge clients to buy
outflow, said Wang Yungui, an official
their products before more strinof the State Administration of Foreign
gent measures are put in place,
Exchange, or SAFE, at a news confersays Steven Lam, a Hong Kong-based
A private equity firm finances
ence in Beijing on March 22.
insurance analyst with Bloomberg
deals for people with bad credit
In practice, though, it can be difIntelligence. Apart from swiping their
ficult for regulators and credit card
card multiple times, insurance buyers
Its easier to take a property back
companies to distinguish between
can also ask relatives or beneficiaquickly, says a consumer lawyer
travel- and health-insurance policies
ries to group together to pay a large
and life policies with investment comSubprime mortgages have all but
premium, agents say.
35
ponents, agents say. Swiping a credit
disappeared, but buyers with bad credit
Theres even insurance tourism.
card dozens or even hundreds of
A Chinese company that brokers
can still own a home. If they come up
times isnt illegal in Hong Kong, a terinsurance policies, Henan-based
with a nominal down payment and stay
ritory with a high degree of autonomy
current on monthly bills, theyll get
Hong Kong Easiness Wealth
from the mainland. When it imposed
title to the propertyafter as long as
Management, offers travel to
the $5,000 limit, mainland regulator
Hong Kong, including free airfare
30years. One missed payment, though,
SAFE said it would closely monitor
and accommodation. Customers
and their contracts say they could lose
cardholders and insurers for multibuying policies valued at more than
all their money and be tossed out.
Historically, such deals have often
ple swiping, but it stopped short of
500,000 yuan ($77,000) get a first-class
ended badly for low-income buyers.
banning the practice. A press officer
ticket plus two nights in a five-star
for UnionPay says it complies with
Now some are being financed by Apollo
hotel. Such a purchase would require
regulatory requirements by monitorat least 15 card swipes. A trip was
Global Management, an investment
ing transactions and analyzing data.
scheduled for May, says Li Yida, the
firm that oversees assets of $170 billion.
A spokesman for Hong Kongs
companys owner.
Apollos investment in what it calls
China National
insurance regulator declined to
We will guide them
Chemical is paying seller-financed transactions is comcomment. SAFE and the
through the
paratively small, but its a step
Peoples Bank of China, the
to take over seed and
nations monetary authority,
Digits
Dalian Wanda Group
herbicide company
is paying
didnt respond to requests
Syngenta
for comment.
The British insurer Prudential,
for control of
which had previously prohibited
Legendary
its Hong Kong agents from swiping
Entertainment,
the studio behind
credit cards more than 10 times
Jurassic World
What were in
for each client, removed
the midst of is the
that ceiling as of March 21,
largest portfolio
diversification
according to two agents briefed
in history, says
on the change. A spokesEllis Chu, head of
Crane manufacturer
Value of mergers with and acquisitions of overseas companies
man for Prudential declined
China M&A at Bank
Zoomlion is offering
announced by Chinese businesses since the beginning of 2016
of America
to comment.
Hong Kong-issued policies
for U.S. rival Terex
of all sorts are also popular in China

Buying a House
But Not the Title

$46b

$113b

$3.5b

$4.9b

36

The reason we
went this route is
because I didnt
think our credit was
up to par

many other Wall Street firms

have been wary of taking.
Since the 2008 mortgage
crisis, major lenders have largely
shunned the riskiest buyers. Into
that void have come nonbank finance
companies. Apollo, headed by billionaire Leon Black, started its sellerfinancing business in 2014 in one of its
real estate investment trusts. Through a
Baton Rouge, La.-based company called
Home Servicing, it invested more
than $40 million to buy and renovate
houses, mostly in the Southeast. Home
Servicing markets the homes along with
seller financing, which is also sometimes called owner financing, contractfor-deed, or bond-for-title.
Whatever the name, the ideas the
same: Buyers end up on a long, uncertain path to truly owning a home, while
Apollos investors get a chance to profit
from borrowers who dont qualify for
a regular mortgage. Through a spokesman, Charles Zehren, Apollo declined
to comment; Home Servicing also
declined to comment.
The agreements offer few of the privileges of a mortgage or a rental contract.
In a mortgage, the buyer gets legal title
to the property; in a seller-financed contract, the seller keeps it. Mortgage borrowers can improve their credit with
on-time payments, but its unclear if
Home Servicing is reporting such payments to credit companies. In a
rental, a landlord pays for
repairs, taxes, and insurance. Home Servicing
contracts make the
buyer responsible
for those costs.
While the contracts vary by
state, dozens
reviewed by
Bloomberg show
that buyers dont
own the home or
claim to the deed
Black
until the full purchase price is paid off, up to
30 years later. If buyers fail to keep up
to date on insurance or are more than
30 days late with a payment, they forfeit
any interest in the property and the
money put into it.
In most states, fewer consumer protections apply to this kind of transaction than to a mortgage loan, says Sarah
Bolling Mancini, an attorney with the

National Consumer Law

Center. Generally its
easier to take a property
back quickly if the borrower defaults, she says.
Such agreements may help some
buyers with few options. But similar
deals by other companies have a predatory history, particularly in minority communities, says Sarah Edelman,
director of housing policy at the Center
for American Progress in Washington.
KKR is one other prominent firm to
invest in thebusiness, with a stake of
as much as $40 million in New Yorkbased Battery Point Financial. The
liquidity and reputation risk has scared
people off over time, but I think that
can change, says Jeremy Healey, who
co-founded Battery Point in 2013.
If Battery Point sells a home following a default, it pledges to take
only the remaining amount of money
it was owed and refunds the delinquent owner any extra, according to
the company. It also says its working
to report monthly payments to credit
agencies so buyers may be able to
improve their credit and get mortgages.
KKR declined to comment.
Marie Simpson, 63, of Columbia, S.C.,
was introduced to Home Servicing by
Buy, Dont Rent signs near the home
she rented. The reason we went this
route is because I didnt think our credit
was up to par, says Simpson, who
works for the states probation
and parole department.
She and her husband
agreed in June to pay
$106,900 for a threebedroom house, almost
double what Home
Services paid for it less
than a year before,
according to public
records. The down
payment was $2,000,
Simpson says. The
interest rate comes to
7.9 percent; the average
rate for a 30-year mortgage
was 3.7 percent on March 31,
according to Freddie Mac.
Home Servicing uses the term owner
financing in ads; when Apollo talks
to investors, it calls it seller financing.
Such confusion over what to even call
the contracts is one reason Teresa
Bernhardt, a real estate lawyer in
Memphis, says she steers clients away.

While Simpson was moving into her

new home, she says she discovered the
air conditioner was broken and there
was no hot water. Though the company
has been known to make repairs, the
agreement was for the home as is.
Home Servicing sent a repairman,
Simpson says. There are still things
that need to be done, but it takes time,
she says. We knew what we were
getting into. Heather Perlberg
The bottom line Mortgages are scarce for people
with poor credit, and Apollo sees an opportunity in
a controversial form of financing.

Investing

Holding Advisers to a
Higher Standard
When it comes to retirement
accounts, the client comes first
Advisers have to start justifying
the fees that they charge

How much jargon should a person

have to master to save for retirement? Consider the word fiduciary.
According to a survey paid for by retirement adviser Financial Engines, only
18 percent of adults were sure they
knew what it meant in the context
of investment advice. A fiduciary is
someone who legally must put the
clients interest before his or her own.
Only some financial advisers, such as
registered investment advisers, are
fiduciaries. The others have to ensure
only that an investment is suitableno
risky tech funds for an investor seeking
safetybut they can recommend an
option that pays a better commission.
Ian MacGregor, a consultant in
Dublin, Ohio, wasnt always aware
of the difference. He says his broker
would present him a choice of mutual
funds but tended to push ones with
upfront fees as high as 5 percent. Hes
since switched advisers. Theres got
to be some way to protect the less
savvy investor from being taken for a
ride, he says.
On April 6, the U.S. Department of
Labor unveiled a rule change, more
than six years in the making, to hold
more advisers to the tougher clientscome-first standard. Using its power to

PATRICK T. FALLON/BLOOMBERG; ILLUSTRATION BY OSCAR BOLTON GREEN

Markets/Finance

Markets/Finance
regulate retirement and pension plans,
the department will define as fiduciaries people and companies giving
advice on 401(k) and similar plans as
well as individual retirement accounts.
Thats a $14 trillion pile of assets. The
regulation will still allow brokers
to collect commissions, but theyll
have to disclose conflicts of interest.
Strengthening customers ability to sue,
the rule also adds teeth to enforcement.
The rule was supported by President
Obama. The administration produced
a study showing that bad advice costs
retirees a collective $17 billion annually. Insurers, brokerage firms, and
fund companies bitterly opposed draft
versions of the rule, saying it will make
it too costly to advise people with
small accounts.
The standard will force financial
advisers to change how they speak to
their clients and start justifying the fees
that they charge, said Michael Wong,
an equity analyst at Morningstar, before
the final rules came out.
Companies such as Vanguard
Group and BlackRock that provide
low-cost index and exchange-traded
funds will likely benefit from the rule,
Wong said, because it forces advisers to
justify higher-cost recommendations.
Insurance companies that sell retirement products may suffer, because they
often rely on a commission-based sales
force. The American Council of Life
Insurers has called the initiative government at its worst.
Some companies are already
adjusting. Lincoln National has
been shifting its sales focus away from
investments called variable annuities
with living benefits. MetLife Chief
Executive Officer Steve Kandarian
says the prospect of new rules had an
impact on his decision to separate the
companys U.S. retail unit. Last year
he likened the proposal to requiring a
Chevy dealer to recommend a Ford if
its a better fit for the customer.
The rules take full effect in 2018, but
theyre likely to face challenges in both
the courts and Congress. Katherine
Chiglinsky, Margaret Collins, Robert
Schmidt, and Ben Steverman
The bottom line New standards for the
$14 trillion retirement market could reshape
how investors get advice.
Edited by Pat Regnier
Bloomberg.com

Bid/Ask

By Kyle Stock

$2.6b
Alaska Air Group books Virgin America. Alaska Air bested JetBlue
in a feverish bidding war, as both companies maneuvered to lock up
Virgins lucrative routes in California and Mexico. The tieup will create
the No. 5 U.S. airline by traffic, so its expected to draw close scrutiny
from antitrust officials. Virgin has won praise for its cabin perks since
its 2007 launch, but it didnt turn a profit until 2013.

$2.5b
$1.2b
$338m
$285m
$169m
$159m
$1,141

Glencore sells part of its agriculture business. The Canada

Pension Plan Investment Board bought 40 percent of the unit,
which processes and markets commodities like wheat and sugar.
Brocade Communications Systems buys Ruckus Wireless.
The deal brings expertise in Wi-Fi to a company thats been
focused on networking hardware.
HNA Group acquires Tysan Holdings. The aviation and shipping
giant bought a 66 percent stake in the Hong Kong-based
construction company, continuing its global shopping spree.
Constellation Brands downs Prisoner Wine. Constellation gets
five California wines that sell for $30 to $90. The distributor has
been stocking up on fancier, more profitable brands.
AccorHotels fights Airbnb. Europes largest hotel group
bought Onefinestay, a U.K.-based platform for renting high-end
homes and apartments.
Verizon buys into AwesomenessTV. The telecom will help the
youth-focused content company launch a mobile video brand.
DreamWorks Animation remains the majority owner.
Cucinelli invests in culture. The Italian fashion house, buoyed
by a 16.4 percent boost in revenue last year, will pay each of its
employees an annual allowance to go to museums and theaters.

37

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enmeshed with solving social and other problems. Doing the right
thing, they said, often leads to unexpected business opportunities,
some of which they will elaborate on at Bloomberg
Interviews
Businessweek Design 2016 in San Francisco, on April 11.
in this special
section have been
All of which is to say, if you want to discover the Next Big
condensed and
edited
Thing, consider therapyor just read on.

39
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THE
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KIND

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B
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Studio Visit

G REENSPAN

S S E CR E

BY E L I Z A B E T

Seven years ago an intermediary for the prime

minister of Iraqi Kurdistan, Nechirvan Barzani, asked
the architect Daniel Libeskind to design a museum. It was to be
built in the autonomous regions capital city, Erbil, in the northern part of Iraq, and it would be the first, Barzani told him through
the intermediary, to tell the story of his people, an ethnic minority
thats survived decades of violence and oppression. The prime minister imagined an institution that would confront past horrorsin particular, Saddam Husseins genocidal attack on the Kurds in the late 1980s,
which Kurds call the Anfalas well as celebrate Kurdish culture. And it
would cement Erbils status as a world-class tourist destination.
At the time, in 2009, this seemed achievable. Parts of Iraq were still in
turmoil, but Erbil was attracting foreign investment and building shopping
malls and hotels. The citys governor took to calling it the new Dubai. Even
in relatively peaceful times, though, a museum dedicated to Kurdish identity is a sensitive proposition. The Kurds, most of whom are Muslim, do
not have their own country. They live in a region that crosses the borders
of Iraq, Iran, Syria, and Turkey, and theyve often been persecuted in all
four. So Barzanis representative made an extraordinary request: He asked
Libeskind to keep the project a secret. The architect agreed, and over the
years hes limited word of the project to senior staff, who were instructed
not to discuss it. When media or clients came through his New York studio,
staff scooped up the projects designs and stowed them away in drawers
and cupboards until the visitors had left.
On April 11, Libeskind will speak publicly about the museum for
the first time, and during a recent interview he explained why he convinced the Kurdish government that its time to unveil it. In a time
of destruction, especially a time of cultural destruction, you have a
desire to build, he says. Libeskind, who was the master planner of the
rebuilt World Trade Center, a few blocks from where we spoke in his
Lower Manhattan office, recalls the famous dictum by the 19th century
German poet Heinrich Heine: Where they burn books, at the end they
also burn people. Libeskind says: When people start destroying buildings, next they will be destroying books, and they will destroy people. And
this is exactly what is happening.
Two years ago this spring, it looked like construction on the 150,000-squarefoot museumat a projected cost of $250 millionwould begin, Libeskind says.
Three months later, Islamic State captured Mosul, about 30 miles west of
Erbil, and the governments financial resources, and the building crews, were
redirected to war. The museum has been delayed since, while Islamic State
has destroyed more than a dozen Iraqi and Syrian heritage sites, including the city of Palmyra, which was
one of the best-preserved ancient cities in the world.
In Iraq, Islamic State pillaged and destroyed the
ancient Assyrian city of Nineveh near Mosul.

Photograph
by
Jonno
Rattman

The
architect of the World
Trade Center master plan reveals
his design for a museum in northern Iraq

These sites served as gathering spots for millions of people and enabled mixing across ethnic
and religious boundaries. The United Nations
has called the systematic destruction of them
cultural cleansing.
In Libeskinds view, a new museum can never
adequately compensate for this loss, but it can help spare artifacts from ruin, tell an ignored peoples story, and, potentially, create a new crossroads. I mean, we watch helplessly
as Palmyra is destroyed piece by piece. We watch the destruction of world heritage, he says. I thought, You know, this is
even more urgent now.

Jewish
Museum
Berlin, 1999,
Libeskinds first
constructed
design

ibeskind has designed museums for cities across

Europe and the U.S. and established a reputation for
architecture that addresses mass murder. I am not
Muslim. I am not Yazidi. Im not Kurdish. Im Jewish, but its
the same thing, he says. His parents survived the Holocaust;
he was born in Lodz, Poland, in 1946, moved to Israel, and
then emigrated to New York. In 2010 he traveled for the first
time to Erbil, a city that exceeds mortality, as he puts it.
Erbils historic center, a large mound called the Citadel
dating to the fifth millennium B.C., is a Unesco World
Heritage site. Archaeological evidence suggests the
Erbil Citadel may be the oldest continuously
inhabited site on earth. Libeskind also
visited towns that had survived the Anfal,
which destroyed more than 2,000 Kurdish
villages and killed almost 200,000 Kurds.
I knew about the Anfal, Libeskind says.
I come from this background. It was
kind of like a repetition:
They took my brother
in the middle of the
night. They killed his
kids. We dont know
where he is.
Before his trip,
Libeskind had studied the geography of the Kurdish diaspora;
he was taken by an idea of a museum composed of four irregular parts, or fragments, as he calls them, corresponding to the
four countries where most Kurds live. When he visited the museums future site at the foot of the Citadel, he clarified this vision.
I wanted to make the fragments a little bit more precise,
he says, because theyre not just cut out of a square. They are
cut out of topographical maps, of population densities. As he

We watch
helplessly
as Palmyra is
destroyed piece
by piece.
This is even
more urgent
now

ibeskind repeatedly describes the vibrancy and creativity of Islam. Exhibitions at the museum will feature
Kurdish textiles, pottery, and music. The architects
design celebrates Islam, toothe building is oriented toward
Mecca, and interior walls will feature traditional Kurdish motifs.
The structure will include mens and womens prayer rooms.
One doesnt tend to hear cultural appreciation for Islam these
days, and when this is pointed out to Libeskind, he responds
energetically. Islam is one of the great religions of the world,
he says. Its not some small sect somewhere, which, as the

IMAGES COURTESY STUDIO LIBESKIND

42

sat on a wall overlooking the site, he sketched the Imperial War

Museum North,
fragments and imagined them coming together in Manchester,
the center of the structure. Because the museum U.K., 2001
will sit at the bottom of the Citadel, Libeskind also
designed the building as it would be viewed from above. Its not
really a roof at all, he says. Its a composition to be looked at.
In addition to the four masses, the buildings design is defined
by a second architectural form: two bisecting paths. Michael
Ashley, the project architect for Studio Libeskind, describes
this form as a broken line between past and future. The first
path, which Libeskind calls the Anfal Line, is made of concrete.
Its dark and heavy, says Carla Switherack, the studios principal in charge. Its representing the difficulties of the Kurdish
history. The second path, the Freedom Line, ascends toward a
second-story, flame-lit garden
overlooking the city.
Libeskind seeks to create
an experience echoing that of
history, a technique hes employed
in many projects. The Jewish Museum
Berlin, the building that established his reputation 20 years ago, utilizes the concept
of the void, exhibition spaces empty of
artifacts to represent culture and ideas
that dont exist because of the Holocaust.
Novelist Howard Jacobson wrote in the Guardian that
the Jewish Museum Berlin is an eloquent gesture of defiance even as it commemorates loss. In contrast to the voids
straight line, the Anfal Line doesnt cut through very clearly,
Libeskind says, because this world is not over.

AT
I

TION
A
R

Local brickwork
inspired the Kurdistan
museums terracotta roof

and pottery to
draw the facades
geometries

T IO
RA

I N S PI R

Libeskind also
looked to Kurdish
weaving

I
N I N SP

NSPIRATION I
NI
NS

PI

Military
History Museum,
Dresden,
Germany, 2011

ATION INS

INSPIRATI
O

Contemporary
Jewish Museum,
San Francisco,
2008

N
IO
T
A
IR
O N INSP

P IR
IN S

PIRATION

Republicans say, should be forbidden from coming into the

country. You just cant pretend that thats a solution. That building walls and giving checkpoints are going to make you free in
the future. It just doesnt work.
The Kurdistan museum will address Islamic States tactic of
cultural destruction, but by celebrating Islam it will also challenge narrow understanding of the faith in Europe and the U.S.
Libeskind says these meanings are accidental; the project was
conceived years before Islamic State conquered Mosul. But
it isnt lost on Libeskind that the museums construction has
been disrupted by some of the same forces of oppression it
intends to document. It is, as he might say, another repetition.
To realize his vision for the museum, Barzani enlisted the
services of Gwynne Roberts, a journalist-turned-filmmaker
whos been recording the regions major conflicts for the
past 30 years. His production company, RWF World, which
will provide the museums multimedia content, has collected
scores of oral histories from Kurds testifying to the violence

they experienced. Teams of Kurdish reporters and producers

at RWF World are in Iraqi Kurdistan interviewing people as
they return from the front, collecting more material for the
exhibitions. (Roberts is referred to within Studio Libeskind as
the clienta reflection of Barzanis effort to find a neutral
party to help engineer a museum for his fragmented people.)
For now, the Kurdish government has no money for nonmilitary endeavors, and the nearby violence makes construction potentially unsafe. If money became available, would
they build despite the threat? Can the museum be engineered
to be safe from bombings or sabotage? I dont know of a
project [like this] that was built during a war, Libeskind says.
Its hard to conceive. Then again, in a time of destruction,
perhaps architecture becomes more vital. People think architecture is a bunch of ice cream parlors and, I dont know, some
gyms and nice places to take your girlfriend out or your wife
or your boyfriend, he says. But architecture is in the midst
of the turmoil of the world. Unlike politics or war, though,
architecture is constructive: Its not a military art, its not a
political art. Rather, Libeskind says, its planting a garden.
Its making a building. The power of architecture is the power
to do something good. <BW>
A rendering
of the museum
in Erbil, below
the citys
famous Citadel

43

 Process

Costume design is
like psychiatry, says
PAUL TAZEWELL,
who outfitted the
cast of Hamilton.
Theres a lot of
listeningto actors
and audiences.

Tazewell in the
fitting room at the
Richard Rodgers
Theatre

INSIDE
Photograph by Tina Tyrell

heater design is
particularly collaborative. My works
always informed
by what the direc44 tor wants, what the
piece is saying. It has
to jibe with what the set
and lighting designers are doing. And it
has to make sense for
the actor whos going to
realize who this person
is. Im trying to make
decisions that will keep
it all together and make the most sense for an audience.
ts an odd mash-up of working with my hands and fabrics,
researching and telling stories, working with people and
movement and acting, and being a psychologist.
sit in the fitting room with an actor whos in a very vulnerable place. Maybe they have no clothes on, and Im trying
to get them to wear something that feels really foreign. Were

I
I

redefining how they see themselves day-to-day and as this

character. If theyre squirming around, I can read it on their face.
oure also thinking about the audiences emotions. For
Hamilton, we made the decision to have the period represented from the
shoulders down, and
then everything from
the neck up was contemporary: A representation of the actor
and what they brought
to t h e c h a ra c te r,
unadorned. We didnt
want to get trodden
down by all the period
stuff, where you
start to not listen
to the story. Oak 45
Onaodowan [who
plays Hercules
Mulligan and James
Madison] used to
wear a ski cap in
rehearsal. So as an
experiment, I put it on
him. I said, Can you
go out in that? Do the
scene in that? He
was up for it.
o much of it is
getting out of the
waystripping down the idea so it can breathe more. I can only
rely on how I feel about it. Thats what I trust: if I feel a heartbeat
coming off of it. As told to Mark Leydorf

HAMILTON: JOAN MARCUS

OUT

The cast
of Hamilton
onstage

Watch the whole story at

slack.com/animals
A messaging app for amazing teams
of all shapes and species.

The

RULES designers say they

NEVER

break

START
TALKING
Design for the L
O N G haul
INTERESTING
BIG S M A L L E R
COLOR

Dont

a design by

Make stairs more

than elevators

4 Work to make

Dont use gradations

things

when you can use a solid

Dont fight gravity

Avoid

ALAMY (3). GETTY IMAGES (3)

Strategies

CLICK TO ENTER
Incorporate a CAT into design
once a month
or

y never
Never say

10

Design as a

TINY GRAY TEXT

TEAM

DANIEL LIBESKIND, Studio Libeskind BAIJU BHATT, Robinhood CRAIG DYKERS, Snohetta MARIA GIUDICE,
Autodesk BRAD SEWELL, Campaign STEWART BUTTERFIELD, Slack BAIJU BHATT, Robinhood
VICKI DOBBS BECK, xLAB at Industrial Light & Magic BRAD SEWELL, Campaign

47

 Bredow

R
E
B
E
L

By

Pe s c
Da v i d

ovitz

48

To develop Star Wars and

Jurassic World in VR,
INDUSTRIAL LIGHT & MAGIC
has formed a supergroup

tanding on the desert surface of Tatooine, you instinctively duck as the Millennium Falcon swoops in for a thunderous and dramatic landing beside you. Through the
lenses of your virtual-reality headset, Han Solos starship looks
real. Thats because it isin the sense that its rendered exactly
as it appears in Star Wars: The Force Awakens. Now, its the
star of Trials on Tatooine, a first-person virtual-reality experience created by Industrial Light & Magics Experience Lab
(xLAB), a supergroup of artists, engineers, sound designers,
and storytellers building the future of interactive, immersive
cinema. Weve assembled an extraordinary group of dreamers and rocket builders, says Vicki Dobbs Beck, the executive
in charge of the lab. The dreamers are constantly thinking

A
L
L
I
A
N
C
E

John Gaeta, executive creative

director, won an Academy Award
for The Matrix, for which he
designed effects like bullet time,
an extreme visual transformation
of time to show whats otherwise
unfilmable, such as a flying bullet.

about whats possible, and the rocket builders figure out how
to get us there.
When Rob Bredow, chief technology officer of ILMs parent
company, Lucasfilm, and his co-writer on Trials on Tatooine,
Pablo Hidalgo, envisioned the Millennium Falcon landing on
your head, the xLAB engineers had to customize the game
engine so the massive 3D model could render fast enough for a
dynamic and smooth virtual experience. Meanwhile, Skywalker
Sound, an audio design company, built a surround system that
rumbles like the Corellian freighter reputed to have made the
Kessel Run in less than 12 parsecs. The way we do technology
development here is really hand-in-hand with the creative goals,
says Bredow. The R&D is always in service to the story. <BW>

PHOTOGRAPH BY MOLLY MATALON FOR BLOOMBERG BUSINESSWEEK

Hilmar Koch, director of virtual

Visual effects
production, holds degrees in art
supervisor Tim
and mathematics and won an
Alexander has worked
Diana Williams, a
Academy Award for developing
on Harry Potter and the
Lucasfilm Story Group
ambient occlusion, a means
Goblet of Fire and Walt
member, reinvents the way
of recreating how ambient light
Disneys James and the
stories are experienced.
reflects off surfaces.
Giant Peach.
Earlier in her career, she
generated scenarios
for soldiers at the U.S.
Dobbs Beck
Department of Defense.

Studio Visit

Can stock trading be free?

THE DEVELOPER

BAIJU BHATT created

ROBINHOOD, a
commission-free trading
app, to give everyone
access to stock markets.
Q: YOURE TRYING TO SIMPLIFY
WHAT CAN BE A PRETTY
COMPLICATED PROCESS.
A: Steve Jobs once said good design isnt
just how something looks and feels but
how it works. Weve tried to make that mentality part of our worldview. So, if youve
ever tried to open an account or trade a
stock on an online brokerage account,
its like a Rube Goldberg machine. Its far
too complicated and often designed for
people who make those brokerages the
most money. What were after is something
much more basic that can provide access
to the public markets for everyone, not just
for people with lots of money.

IMAGES COURTESY SUBJECTS

Q: HOW DO YOU MAKE MONEY?

A: Robinhood collects interest on uninvested cash in customer accounts and
will roll out margin trading in the next
few months. Margin trading will drive the
lions share of our revenue, which is like
a loan that lets people have more money
to trade with.
Q: WHAT DID YOU FOCUS ON WHEN
CREATING YOUR INTERFACE?
A: Obviously, mobile came first. That had
as much to do with the ease of building it
as it did with the experience and audience
we were after. We wanted it to be simple;
we wanted it to be tactile something
that gives people the sense that when
they open the app, theyre holding their
money right in their hand. We took advantage of things like swiping up to push your
order into the market. The engine is very
complex, but we were able to put that
under the hood.

THE DAY TRADER

Fees arent
an issue, says
MICHAEL
GOODE.
Its the
ability to
trade what
I want,
when
I want.
Q: HOW DO YOU TRADE?
A: I typically trade about $20 million
in penny stocks a year. I use two
main brokers that charge me on a
per-share basis, so I end up paying
a lot of money on commission. On
a typical day I spend maybe $76 on
trading commissions.
Q: WHAT STRUCK YOU ABOUT
ROBINHOOD WHEN YOU
FIRST HEARD ABOUT IT?
A: It was nice to see someone come
in with a fresh idea to compete with
the established players. What I was
struck by at first was what a nice,
clean design they had. Brokers
typically put no thought into the
design and user experience. I have
a bunch of accounts Ive opened
through the years, and even today
most of those retail brokerage websites look like theyre straight out of
1996. The act of placing a trade is
still way too complicated.
Q: WOULD YOU EVER USE
ROBINHOOD?
A: Im not sure it fits my purposes as
a day trader. I talked about it recently
with some other day traders, and none
of them thought it was a good fit for
them. I use some of my own algorithmic trading programs, and Robinhood
doesnt support those. Also, execution quality is super important for day
traders. Whats more important to me
isnt the fees Im paying but the ability
to trade what I want, when I want.

Dialogue

THE HIGHFREQUENCY TRADER

Zero commissions
alone might not
be enough to
attract young
investors,
says MANOJ
NARANG,
the founder
and former
CEO of Tradeworx,
a high-frequency
trading firm.
Q: IS THERE ROOM
FOR ANOTHER
ONLINE BROKER?
A: The one thing I am sure of is that
the established discount brokers
need some fresh competition.
Their trade commissions havent
budged for 15 years. Theres been
so much advancement in trading
technology and volumes. The big
institutional investors have benefited from that and are paying a lot
less to trade. But the retail traders,
the average folks, have seen no
cost savings. And thats because
the large discount brokers got
entrenched. I see this as a space
worth disrupting.
Q: WILL THIS WORK?
A: That remains to be seen. There
have been a couple attempts at
doing zero-commission trades
that didnt work. I dont know
that free commissions alone will
attract enough investors. What
makes me optimistic now is that
these guys are focused on mobile.
Its cheaper to build apps than
websites. I feel like the model
could work if the business is lean
and efficient enough.
BY MATTHEW PHILIPS

49

THE ART OF
THE MEAL

Still Life

To please the palate, chef DOMINIQUE

CRENN first captivates the eye
By Howard Chua-Eoan

Some dishes can take months

to come to fruition, particularly the
desserts. Walk in the Forest was a
three-month endeavor, because
Crenn and her team were quite
specific about how they
envisioned
it being
plated.

Photograph
by
Aya Brackett

The
visuals
must trigger
something
in your mind,
condition you
to what you
experience.
Its not just putting
food on a plate.
Its also storytelling.
Dominique
Crenn was
born in France
and studied
business. After
she moved to
the U.S., she found
her calling in haute cuisine.
Her San Francisco restaurant
Atelier Crenn has garnered two
Michelin stars since it opened
in 2011. Crenn will be featured
in the second season of
Chefs Table on Netflix, which
starts on May 27.

PHOTOGRAPH
STILLS: DAVID NICHOLSON
ILLUSTRATION BY CREDIT TK

50

 Pat Parker, a ceramicist in Florida,

designed the bowl to imitate the
grain and color of the trees in Brittany,
where Crenn spent her childhood.
Sorrel extract, drawn from
the plants bitter stems, is
blended into a sweet mixture
that's frozen to create an
airy mousse.

I dont want cooks to

be just workers.
I want them to be thinkers.
I want them
to be proud
about the
dishes
they create.
The mousse is sliced into

a cake-like square, set in a

ceramic vessel, and drizzled
with blackberry sauce.
Next the cake is
decorated with dehydrated
blackberries that have
been cast in molds
and reconstituted with
cultured buttermilk, to
appear as if theyre
fresh-picked.
The dessert becomes
even more of a woodland
fantasy when its finished
with fresh sorrel leaves
and pine nuts.

51

PHOTOGRAPH ILLUSTRATION BY CREDIT TK

t ATELIER
CRENN,
diners are presented
with a poem, not a menu.
Each verse arrives as a dish
created by the chefs team.
Walk in the Forest is a dessert
version of a savory dish the restaurant
served when it first opened. Pastry chef
Juan Contreras suggested the revival. It evokes
Crenns memories of mushroom- and berry-hunting excursions in the French
woods with her father and brother. Customers, she says, are interested in the
narrative and the journey. Its all part of an expanse, she says. The dessert has
the texture, sweetness, and bitterness of what the forest is about.

LL
I
G
H
T
E
N
P

by
Tobi a s

First Person

h
ap
r
g
hoto

le
u tz

HELEN MARRIAGES
public art
brings people
together
for the fun of it

52

articularly in modern, 21st century life,

and he rang me and said, Its a disgrace, that
were tempted to believe that everybus. And I thought, Oh, my God. Its really not
thing runs to a timetable. If the train is
road-worthy. And he said, No, no. I just need
10 minutes late, it really matters. We get terto clean it. And when we got it back it wasnt
ribly agitated about the world not behaving.
cleaned: Hed had it completely repainted;
But what I think is that nobodys life is meahed had the whole bus refurbished. It was
sured by routine. You dont remember every
his
contribution
to the project.
on
-t
42
The
l
day you got the No.38 bus to work. The things you
After the event, he disappeared, and I couldnt
mechanica
and a
remember are those special moments when you fell pachydermll girl
find him for months. He didnt answer his phone.
20-foot-ta
in love, or your kid was born, or you were chosen for ew a crowd of
Then about six months later I called him for some
dr
the school play, or got a promotion. You remember almost a million
reasonI think wed been nominated for an
awardand I wanted him
those moments. And along with a sort of transformation of the urban landscape, what were to come to the ceremony. He
interested in with our company, Artichoke, is answered his phone at work,
interrupting the routine and creating shared and I said, Whereve you been?
joy where people have a memory. And based on And he said, Oh I didnt tell you
the response, weve managed this with Lumiere, about the cancer, did I? Hed been
David Bests temple in Londonderry, or with The diagnosed with lung cancer three
Sultans Elephant, which we paraded through weeks before the event, and theyd
London in 2006.
said, Hospital now, and hed said,
nical
e have a track record now, but many No, Ive got this really
A mecha
ores
pl
ex
er
id
sp
of our projects were rejected for years important thing to do.
in
Liverpool
ing
before we could mount them. And Ive Ill come in when its fin2008; danc
on
stick men
evolved an understanding of why people say no. Its ished. And he did our
eet
Regent Str
fear, mostly, and not wanting to be accountable. Let event, he did this symsomeone else decide. And although there are no real posium, which he absoshortcuts around it, what Ive found is that if you say lutely didnt need to do,
something is happening, and I need you to help me, and the next day he went
people assume that some other authority has sanc- in and had half his lung
tioned your right to do this. Somehow, engaging chopped out. So his kind of commitment to what happeople in a task rather than seeking permission pened was absolute, completely absolute. Then he said
unlocks the whole thing. They dont so much say this funny thing, he said, As part of my professional
yes as stop saying no.
development at London transport, I get opportunities
he most interesting example in The to do courses and classes. And I said, All right, what
Sultans Elephant project was the bus are you doing? And he said, Im learning French. So
planning manager of the London buses. while we can talk about affecting people on a macro level
He said, Im not moving the 38 bus for you and and changing the way cities work and whatnot, very often,
a bunch of Frenchmen. Resistance, resistance, the stories are very personal and individual.
resistance. And over a series of strange and perts also important that
r 2016s
sonal incidents, we finally wore him down, and
what we do goes away. Foie
ndon,
Lum re Lo
he became the projects biggest champion.
Lots of people say, as Marriage
they said about the temple asked Patriceshow
When we sent the
ner to
bus that the little girl
in Londonderry, Oh its Warretminster
Wes
[really a giant marisuch a shame. Why Abbey in a
onette] rode around
dont you leave it here different light
in, to be modified in
forever? Its so beauF ra n c e , t h e F re n c h
tiful. But actually they remember
company phoned me
it more because its gone. They
afterward and said, We
were present when it went up,
and when it burned down, and
cant drive it back. Its not a
road-worthy vehicle. We cant
all that stuff.
get insurance. They cut the roof
The thing about the temporary is its that
off, theyve done various things.
quality of, Do you remember? Just before we
So I called the [London planning
did The Sultans Elephant, there was this extraormanager] and said, John, could
dinary moment, unprecedented, when a whale
we, under London transport,
got lost and came up the Thames, and sudsomehow insure this? Is there
denly there was a whale outside the Houses of
some big organization? And he
Parliament, and 100,000 people came
said, I think Im due a weekend in
out of their offices and stood by the river,
France. And so this guy whod been
just trying to catch a sight of this whale.
saying no, no, no, we flew him to France,
I guess thats sort of what were doing.
Were trying to create a moment where
and he and his assistantthey were planners;
theyd been bus drivers years agothey drove 350 miles back people go, Do you remember that moment?
in this funny old bus with no roof, and then he took it back, I was there. As told to Brad Wieners

53

ARTICHOKE (2); GETTY IMAGES (2)

Somehow,
engaging people
in a task rather
seeking
permission
unlocks the whole
thing. They dont
so much say
yes as stop
saying
no

 Test Drive

54

BUILD
A
CHAIR
IN 3
MINUTES
What if heirloom furniture
came in a box smaller
than a flatscreen TV?

By Bob
Parks

Photographs
by Caroline
Tompkins

he FedEx box on the doormat is a welcome

hit of dopamine, but its limits are strict:
Length plus girth (a line measured around
the center) cant add up to more than 165 inches,
which rules out most home furnishings. A startup
called Campaign took this as its central challenge:
Could it cram a full four-cushion sofa in just two
such slender boxes? Curiously, the entrepreneur
who took this on wasnt a furniture designer. Brad
Sewell is a skinny, 29-year-old left-brain-type auto
engineer from Ohio.
Sewell started Campaign in June 2014 with a crew
of engineers with backgrounds in everything from kayaks to consumer gadgets. They quickly settled on California-milled steel
as the best material by weight and price, instead of the fiberboard used in typical knockdown furniture. The skeleton of
the couch is fastened with a clever wingnut with folding flanges
that give the assembler extra torque when hand-tightening.
Then they employed their moms as product testers.
The first three piecesa chair, a love seat, and the sofawill
be available online in June at $495, $745, and $1,000, respectively. A YouTube video reveals how, with no tools and a little
elbow grease, a customer can whip together the flop-friendly
midcentury modern couch. Bloomberg Businessweek
staffers tried the single-seater. <BW>

Brad Sewell is
a mechanical
engineer who
left Honda for
Apple, where
he looked after
the alloy cases
for iPads and iPhones, before
enrolling at Harvard for an MBA.
The flaws of modern dorm furniture gave him an idea that
couldnt wait for graduation, so
he quit to found Campaign.

55

Our art
department
built this chair in
3 minutes and
12 seconds

 Work in Progress

MUSEUM
A

Photographs by
John Francis Peters

BENEZRA: One
of the things the new
stairs do is provide a
perfect viewing area
for the two wing walls,
and thus another
opportunity to share
artwork in the free,
unticketed space for
our visitors.

DYKERS:
The new wooden
stairs will allow
more light into
the many
spaces adjoining
the atrium. In the
remainder of the Botta
design, the rooms have
been carefully protected
to maintain their original
character.
PHOTOGRAPH ILLUSTRATION BY CREDIT TK

56

On May 14, the

San Francisco
Museum of
Modern Art
will reopen
after a twoyear, $365 million expansion that doubles its
size. Architecture firm
SNOHETTA provided the
larger museums design.
Here, Snohetta founding
partner CRAIG DYKERS
and NEAL BENEZRA,
SFMOMAs director, reflect
on some of the decisions
they made while dancing
with Mario Bottas vision
for the original building
and transforming it.

PHOTOGRAPH ILLUSTRATION BY CREDIT TK

TAKES
FLIGHT

 Work in Progress

CD:
Window
seats provide
views of the surrounding downtown.
And the core galleries
are designed to limit
NB: If you dont
the amount of visual
get the galleries right
chaos caused by
when designing a new ordinary elements
museum, the project
such as electric
fails, in my opinion.
outlets or vents.
Snohetta worked
closely with me and
SFMOMAs curatorial
staff to design purposebuilt spaces, perfect
for displaying art. The
new lighting systems,
minimalist design, and
flexible spaces respond
beautifully to our needs.

CD: The Living Wall brings warmth

and natural beauty to the museum.
Its planted with over 15,000 plants,
including 24 native plant species,
placed to get the appropriate
amount of sunshine for
their type.

PHOTOGRAPH ILLUSTRATION BY CREDIT TK

NB: SFMOMA will

have six terraces at
openingone of them
being the spectacular
third-floor sculpture
terrace with the Living
Wall, pictured here.
These areas will offer
our visitors spaces
to rest and reflect,
enjoying fresh air and
sunlight to reinvigorate them during their
time at the museum.

 NB: The Roberts

Family Gallery is a
new space designed
to showcase contemporary commissions.
Well open with Richard
Serras Sequence,
a part of the Fisher
Collection, but every
two to three years well
commission another
artist to create a
piece specifically for
this space.

CD:
The saturated colors of the
restrooms and soft
lighting are intended to
provide a contrast to the galleries. Color is a subjective, mutable
perception. A fully immersive
space makes you aware of your
eyes adjusting, and so you
sense the color, and
your perception,
changing.

CD: High
glass windows
expose the
artworks in the
Roberts gallery to
casual passers-by. It
is a generous and
welcoming signal
for the new museum.

NB: Snohetta has

given us a building
that is wonderfully
San Franciscocentric. The locally
manufactured panels
of the facade were
inspired by San
Francisco Bays
waters and fog. Its
astounding the way
the changing light and weather
throughout the day are reflected
off its surface. Were thrilled, too,
by how beautifully the new facade
complements and contrasts the
former Botta-designed building, and
how well it integrates us into the surrounding neighborhood.

 Dialogue

SHOP TALK
After he sold the photo-sharing
website Flickr to Yahoo! in
2005 and gave up on Glitch,
a computer game, in 2012,
Stewart Butterfield and his
company launched the collaborative
messaging tool Slack. Today, 2.7 million people
use Slack daily; 800,000 of them pay for it. The
company has raised $540 million, most recently
at a valuation of $3.8 billion. We joined Butterfield
for an in-Slack interview. Hed just been in
Melbourne, where Slack opened its first office
Down Under.

Toph Tucker 4:29 PM Hi, Stewart!

Its a pleasure
Stewart Butterfield
Gday, mate!

4:31 PM

TT 4:31 PM Congrats on Australia

and funding and generally being
a very successful person!
SB 4:31 PM Well, that is very kind.
TT 4:49 PM Are there particularly
exciting uses you see people
finding for Slack?
4:49
And: Do you care about having
a legacy through that?
SB 4:50 PM I think the examples I like
best are the ways in which people
have altered the ways in which they work,
even slightly. For example, eliminating the
daily stand-up meeting in favor of a round
of messages in Slack.
4:50
And the vain part of me would
like to have a legacy of some kind.
I think most people want to make some
kind of dent in the universe.
TT 4:50 PM
4:53
Do you think group chat as a
mode of working can ever go too far? Like,
I bet you saw that Jason Fried post:
Group chat is like being in an all-day
meeting with random participants and
no agenda.
SB
Oh, yeahthat was
preposterous.
4:53
Its content marketing!
4:54
He is a very smart guy, but
either hes missing something there or hes

just talking up his book [Remote: Office

Not Required].
4:54
E-mail is also an all-day
meeting with random participants and
no agenda.
4:55
Except you happen to open
them all individually, and theres a lot
more overhead.
4:55
Most physical workspaces
are all-day meetings with random
participants and no agenda.
TT 4:55 PM E-mail is batched at least,
officesmaybe offices just have
norms people are more accustomed to?
SB 4:56 PM But his ideal world there is
some platonic idealNietzschean
bermenschen who just sit around
thinking genius thoughts all day and
dont have any business talking to other
people. Designers? I dont know.
4:56
In the real world, people
have to talk to each other to get
work done.
TT 5:00 PM What might Slack be or
mean to people in 5 or 10 years?
Is it group chat or something more?
SB 5:01 PM Well, we have never said
chat, and we never would.
5:02
That trivializes what people
actually do. Workplace communication is important to its participants. But
it already isnt just people talking to one
another. Its also giant flows of data and
information and a window into the workflows and business processes around
the company.
5:02
In our Slack instance
(430 employees and a couple hundred
active guest accounts) we do about 35k
messages a day from humans.
5:03
But there are another
150k-200k messages each day from
machines.
TT 5:03 PM Wow.

4:53 PM

SB 5:04 PM So in 5 to 10 years, well

see more and more of that. It
becomes an operating system for your
team except now its much more literal.

TT 4:37 PM Theres this eerie

recurrence in your career of building
a microcosm, building a tool within that
game world, and then spinning the tool out.
4:37
Is that, like, how you think?
SB 4:38 PM Well, neither of them were
actually parts of the game.
4:38
In the case of Flickr, thats a
story that was published at the time and
which we tried to get corrected, but
\_( )_/
TT 4:38 PM I stand corrected!!
SB 4:39 PM Flickr was in fact something
we came up with that we could build
taking advantage of technical infrastructure
wed already created, but which we could
finish (and bring to market) sooner.
4:39
And Slack was just a builtfrom-scratch version of the jury-rigged
and hacked-together system for
internal communication we built while
working on Glitch.
4:40
So the common thing in both
cases was a desperate attempt to find
something to salvage from a bunch of
wasted work.
4:42
Reminds me of a point that
Dan Savage is fond of making, with
respect to romantic relationships:
4:43
We think that the only successful relationship is one that ends in the
death of one of the partners. Anything that
ends before one party dies is a failure.
TT 4:43 PM Right, but there can never
be a true game never ending.
SB 4:44 PM But there can be successful
relationships that conclude before
either party dies. And it is much more
healthy to think that.
TT 4:51 PM One of my questions is,
Are you happy?
SB 4:52 PM I asked around in the room
here, and the consensus is, I guess
youre happy fundamentally.
4:52
But they see me being
angry sometimes.
4:52
I do think I am happier than
most people.
4:52
Or, more contented?
More at peace?

BUTTERFIELD: PHOTOGRAPH BY JENNILEE MORIGOMEN FOR BLOOMBERG BUSINESSWEEK; TUCKER: PHOTOS BY 731

Excerpts from an interview in Slack with

SLACK CEO STEWART BUTTERFIELD

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 Technique

Je
ss

ie S
c anlon

WE LIKE
TO WATCH

By

Scenes from
Tongva Park in
Santa Monica

hen JAMES CORNER talks about landscape architecture, he doesnt talk

about pathways or rose bushes.
He talks about people coming together to
observe other people. Public spaces can be
colonized in timenot by natural processes,
but by people, he says. So understanding what
it takes to create an inviting space is a different design practice from just doing cool
things with form.

Much of Corners
work is about
creating
heightened
dramatic settings for public
life to play out

PHOTOGRAPHS BY KEVIN PERKINS FOR BLOOMBERG BUSINESSWEEK

orner is the founder of James Corner Field

Operations, the firm responsible for New
Yorks High Line, the much-praised park occupying a formerly derelict elevated railway on Manhattans
far West Side. He approaches his work with the belief that
good design in public spaces makes a city more appealing, draws
both new residents and the companies that want to employ them, and
enhances the economic value of everything around ita theory thats
been more than borne out in practice. The High Line, Corners most
successful work, has thoroughly revitalized its surrounding area,
transforming it into a lively tourist attraction that drew 7 million visitors last year and spurred billions of dollars in nearby development.
ith the help of his 60 employees spread out among
three offices around the world, Corner has given
similar treatments to Santa Monicas Tongva Park
in California, San Franciscos Presidio Parklands, Clevelands
historic main square, and waterfronts in London, Seattle, and
Philadelphia. Hes also designed entire new cities in China.
hile Corner is recognized for turning polluted or abandoned
postindustrial wastelands into thriving public spaces, the idea of
scenography is just as prevalent in his work. As he puts it, every site
is different, yet each has to serve as the stage setting of everyday life. At Tongva
Park, woven steel cabanas simultaneously afford park visitors
views out to the Santa Monica Pier and put those visitors on
display for drivers on Ocean Avenue below. People actually
get married in those pods, he says with mild amazement.
orner is well aware that, at the start of any
project, many locals assume that some
designer is going to come in here and
f--- it up, some ego is going to come in and drop
something that doesnt belong. So he seeks to
design landscapes that seem so
natural they look as though
theyd always been there.
These overdesigned
places are trying too
hard to look good, he
says, but they dont invite
use. His do. <BW>

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ON THE NETWORK OF YESTERDAY.
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Business is committed to designing, building, implementing
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P h o t o g ra p h

by Da n i e l S h e

H
Test Drive

64

BY CA R O L I NE WI N T E

O
E
G
A
N
D
D
I

PARTY

IDA BENEDETTO
and N.D. AUSTIN open
peoples minds by
taking them to
forgotten
and often
illegal places

ne Wednesday afternoon last

fall, I found myself alone on a
decaying wooden shipwreck, surrounded by fetid waters in Kill Van Kull
channel, nearly half a mile from New York
Citys shoreline. This wasnt an accident,
but I cant say I knew the rest of the plan,
because I didnt.
Earlier Id awoken to a text message
from an unfamiliar number: Be at Snug
Harbor, Staten Island, by 2:30. Wear waterproof shoes. The message was signed Ida,
as in Ida Benedetto, a professional experience
designer Id met roughly two months prior, at a
dinner party. A co-founder of Sextantworks, which
orchestrates events in unusual, often illegal locations, she and her partner, N.D. Austin, met me
outside a tent that afternoon, where the annual
Future of Storytelling conference was in full
swing. They walked me down an overgrown path,
through some bushes, and across a road to a
rickety dock, where a 17-foot motorboat was
waiting. Were gonna throw a little sunset
cocktail party on an old barge out there,
Austin said. If you dont mind, well drop
you off with some suitcases while we go
pick up the guests. Fifteen minutes after
theyd left me alone, my phone went off
again. Hey, turns out we wont be back
for probably an hour and halfare you
cool? Austin asked. Theres whiskey
in the big suitcase. Maybe you could cut
up some limes?
Benedetto and Austin are the kind of
people you trust when they ask you to
prep a bar by yourself on some flotsam
as multistory cargo ships motor past. The
duo has been hosting events like this soiree
since 2012. But it was their 2013 exploit, the
Night Heron, a speak-easy they opened inside
an empty water tower atop a vacant building on
Manhattans West Side, that first got the publics
attention. We had to hand-carry everything up 14
flights of stairs and then hoist it another 25 feet into the
tower with ropes and pulleys, Austin recalls. That
included three salvaged pianos, which the team
took apart and made into the bar and interior
fixtures. The first guests were the pairs acquaintancesnot friends necessarily, just interesting

people they thought would be game. Things exploded from

there. The Night Heron attracted fawning press attention from
the New York Times and the New Yorker, and Sextantworks
received a flood of inquiries from individuals and companies
offering to pay commissions. Thats when we realized we could
do this full time, Benedetto says.
She and Austin take inspiration from a long line of
urban explorers and experience designers, including San
Franciscos Suicide Club, a secret society that
climbed bridges and staged elaborate games
in sewers; the Cacophony Society, a culturejamming group started in San Francisco in
the 80s that midwifed Burning Man; and the
Jacuzzi Association, a group of extreme bathers
in Switzerland who once suspended a hot tub
below a bridge so they could soak while dangling 450 feet above an Alpine gorge. Im
always pleased when people are doing crazy
things, Austin says, taking the fantastical and
making it real.
For two people whove built careers on trespassing, Benedetto and Austin dont exactly blend
in. Benedetto has a red bob, big gray-green eyes,
and stretched earlobes stuck through with thick,
green spiralsa look that dates to her days as a
teenage punk (during which she often went skinny-dipping
in New York Citys water towers). Austin, dark-haired with a
slight resemblance to Charlie Chaplin, wears a handlebar mustache and, often, a tuxedo jacket paired with Carhartt pants.
Both are in their 30s. N.D. likes to say that Im the architect
and hes the maestro, Benedetto says. She covers most
of the teams historical research and completed a wilderness EMT license. Austin, who was raised in Alaska, leads
explorations, manages most location build-outs, and plays
the part of charismatic frontman.
Every Sextantworks project, whether its a paid commission or not, is evaluated based on a system the two developed
called GLIT, which stands for Generosity, Location, Intimacy,
and Transgression. Take Night Heron:
Location, intimacy, and transgression
are all more or less obvious. But it was
the generosity component that made the
illicit venue one of the hottest spots in New
York. The first group of invited Night Heron
guests got in for free but had the option of
buying $80 pocket watches, each of which would
grant two people access to the next speak-easy. The price eventually climbed to $300 based on demand. Even Ed Norton and
Girls actor Adam Driver showed up. We funded the entire
project through sales of pocket watches, Benedetto says.
In 2013 the Future of Storytelling conferencewhich boasts
producer Brian Grazer, Museum of Modern Art design curator
Paola Antonelli, and Al Gore as board memberspaid the two
$10,000 to dream up a rogue event for their VIP party at the
High Line Hotel, where they created a confessional booth
experience inspired by the locations rectory vibe. In 2013 and
2014, Alicia Keyss Black Ball, which raises money for AIDS
care and advocacy, hired Sextantworks to devise individualized experiences for big donors and rethink its annual pledge
event. (That year we saw a 76 percent increase in donations, says Natalie Galazka, who helped produce the ball.)
Last year, Benedetto and Austin had two wealthy individuals
each offer upwards of $100,000 for extravagant, weekendlong events. Were not allowed to disclose much information

66

about those, Benedetto says. But I will say that, at one of

them, 18 people ended up getting tattoosincluding me.
She and Austin met through a mutual friend in 2012 and initially found each other odd. It took us some time to warm up
to each other, Benedetto says. At the time shed recently cofounded Antidote Gamesa startup that develops games for the
Innocence Project, a nonprofit that works to overturn wrongful
convictions, as well as the Red Cross and other humanitarian groupsa venture very much in line with the
rest of her CV until then. After dropping out of Oberlin
College, shed hitched a ride to Guatemala to photograph ex-guerrillas running a fair-trade coffee business. Later, while getting dual degrees
The
in history and design technology from
invitation to
the Kill Van Kull Parsons School of Design, she landed
barge party
a Fulbright fellowship to Ethiopia,
where she worked with a film collective run by AIDS orphans. Austin, who has a degree
in poetry from Amherst College, was working as
a freelance film editor and anonymously hosting
urban exploration events, such as a scavenger hunt
to the top of New Yorks Williamsburg Bridge.
Eventually the two became friends and started
taking trips together. Driving through the Poconos
one night, they stumbled on an abandoned honeymoon resort. There were waterfalls and heart-shaped bathtubs and round beds, Benedetto recalls. We were like, Weve
gotta do something here. They invited seven couples, telling
them only to meet at 7 p.m. under New Yorks High Line park.
There, the guests boarded an RV. We arrived at this desolate place that was deserted and completely silent, says a
JPMorgan business manager, who asked to remain anonymous.
It was like ruin porn. We walked into this entrance hall, and
suddenly a big brass band started playing. The experience
dubbed the Illicit Couples Retreatwas so special, she says,
that she helped bankroll Sextantworks next project, a photo
safari through New Yorks iconic Domino Sugar Factory.
Benedetto says theyve been caught only once, during a
private commission, when security guards busted up a picnic
in a location they refuse to describe. Everybody loved it,
she says, noting that no one was arrested.
The only way these things work is if theyre
intimate and risky.
After slicing the limes, I dusted
off cocktail glasses and arranged a
makeshift bar atop a splintered wood
beam. It was a balmy afternoon, and I felt grateful for the
chance to be alone in New York City, even if the view of
industrial New Jersey wasnt exactly pretty. I was half disappointed when I saw Benedetto and Austin puttering toward
me, their boat full of party guests.
Theyd organized the nights event as a little treat for
some lucky Future of Storytelling attendees. The group
was handpicked by friends of Austin and Benedettos and
included a New Yorker cartoonist and a manager for Procter
& Gamble. It was a small crowd: five people, each of whom
had received a mysterious, sloppily handwritten invitation
to a brief excursion. Austin mixed Brazilian cocktails he
called ocasos, which means sunset in Portuguese. The
sun began to set. The Talking Heads played from a portable speaker fashioned from parts of a megaphone and an
old euphonium. Wow, said one guest. This is definitely
the most interesting thing thats happened to me in a while.
Who in the world are you guys? <BW>

The only
way these things
work is if theyre
intimate and risky

Where is driverless tech going?

THE FORMULA ONE
ENGINEER

THE TRAFFIC
PLANNER
Driverless could mean
more road congestion
and new patterns for
pedestrians,
says JOHN
DALES of
consulting
firm Urban
Movement.

At McLAREN GROUP,
DAVID BELO says,
automated systems will
allow drivers to push
the limits of their vehicles.

IMAGES COURTESY SUBJECTS

Q: McLARENS HERITAGE IS IN
RACINGITS HARD TO IMAGINE
THAT WITHOUT DRIVERS.
A: Yeah, the driver is the big part of the show,
and in many respects its what people go to
see races for. On the other hand, its also the
technical challengeone of the biggest you
could aspire to solve as an engineer. The
spectacle is just as much about the fierceness of competition between the drivers
as it is about the marvel of what teams are
coming out with this year. I think there is a lot
of excitement for autonomous driving within
Formula One companies for the same reason.
Something that has been traditionally such
a hard problemdrivingis now within our
reach with these interesting and complex
algorithms. At the same time, we dont design
without the human in the loop.
Q: WHAT OTHER ADVANTAGES ARE
THERE TO DOING THAT?
A: Whether its Tesla or GM or Porsche or
a racing company, you have to take into
account that youre designing this machine
for a human to exploit it. I think what makes
us and some of the other companies working
in this field interesting is were starting to use
vehicle simulators to understand how the
brain is interpreting a lot of the signals the
driver needs to interpret in order to react to
whats happening in the car and change the
control of the car. That work is just as important as developing the engine to produce
three more horsepower. The work interacts
to achieve a lap time thats lower or to get a
passenger car from point A to point B with a
higher likelihood of no accidents.

Q: HOW MIGHT DRIVERLESS

CARS CHANGE THE DESIGN
OF CITIES?
A: One of the obvious issues is,
assuming the cars are programmed
not to hit what they recognize as a
human being, there is a danger that
in busy areas cars would never get
through at alltheyd constantly
be stopping. Congestion problems
could actually get worse if pedestrians were able to assert much more
priority. Most city authorities realize
that what you want is pedestrian priority in the center of cities, which are
the most complex busy places. But
to ensure that vehicles can travel
smoothly, we will have to control
pedestrian crossing movements in
a way we dont at the moment.
Q: WHAT ARE THE OTHER
POTENTIAL UNINTENDED
CONSEQUENCES?
A: Well, if Im in my driverless vehicle
and I cant find a parking space, I
could jump out and just get it to circulate until Im ready for it. Which would
add to congestion. Or I could drive
to work in the morning, send the car
home, and get it to come back for me
in the evening, and then go back in
it, so then youve got four journeys
instead of two. Theres the potential
to create more vehicle movements.

Dialogue

THE CAR DESIGNER

Car design
will be a
secondary
consideration,
says CAMILO
PARDO, chief
designer of
the 2005-06
Ford GT.
Q: WILL AUTONOMOUS
CARS BE DESIGNED MORE
CREATIVELY?
A: Once a vehicle is on the street, I
think federal laws are going to have
a hard time waiving anything. Even
if the autonomous vehicles have
safer drivers, youre going to have
60s cars on the street for years to
come, 80s cars. Theyre not going
to just disappear. A lot of other
factors are going to impact what
these autonomous vehicles look like.
Visibility from the inside out is not a
priority, especially if people arent
even facing the windshield; they could
be facing each other.
Q: STILL, ITS NICE TO SEE OUT
OF THE CAR.
A: But it could be optional. You could
toggle it off or on, or you could be
more selective. Also, if the cars are
going to be electric, then the front
of the car may not need so much air
coming in. This big grill that a lot of
vehicles use as an identity would be
eliminated. If the vehicle is driving
itself and doesnt need headlamps,
all it needs is marker lamps so other
people can see it.
A lot of autonomous vehicles will
fall into the fleet category: a cab
company or Uber, who will get rid of
drivers. They dont care what it looks
like; they care what it costs. No ones
going to have any passionate attachment to the damn thing. It could be
more phone-booth-like, just so it
goes. And theyll have advertisements
on the side. I think the appearance is
going to go south.
BY DRAKE BENNETT

67

 Technique

68

Many insects secrete

a thin, oily film that helps them
adhere to surfaces, but the
porous surface of the carnivorous
PITCHER PLANT holds on to
water, rendering such adhesive films
useless. Harvard scientists created
Slips (slippery liquid-infused porous
surfaces), which REPELS BOTH
WATER AND OIL, as well as bacteria,
using the pitcher plant as their
inspiration. We dont want buildup
on surfaces for lots of reasons, whether
its on furniture, or the sides of tanks,
or on airplane wings, Benyus says. This
is a material approach that could be
applied in every industry.

LIKE
NATURE

BUT
BETTER
JANINE BENYUSs
theory of evolution
By Jessie Scanlon
69

anine Benyus is
the co-founder of
Biomimicry 3.8, a design consulting firm
named not after proprietary software, but rather the 3.8 billion
years nature has been doing its own design R&D. The firm grew
out of her 1997 book, Biomimicry, which popularized the idea of
applying natural principles to product design, and its clients include
multinational corporations, city planners from around the world, and
several U.S. federal agencies. To Benyus, the idea of man vs. nature
is nonsense. We are nature, she says. And once that separation
goes away, it puts us in the role of student rather than
conqueror. For this issue, she shared some of what shes
learned on her own and on others projects.

Interface
TacTile
squares

G eck
o
t
fee

Encycle
Swarm
Logic

Interface, one of the worlds

largest manufacturers of carpet tiles,
turned to Biomimicry 3.8 to find an
alternative to the glue it used to install
carpet, which put out TOXIC FUMES
and made replacement difficult.
For inspiration, Benyus and her team
studied the GECKO, whose feet
are covered in tiny hairs that create
an attractive force when pressed
down. With that principle in mind,
her team developed TacTiles, gluefree adhesive squares that connect
the tiles at their corners. As a result,
Interface was able to REDUCE ITS
ENVIRONMENTAL FOOTPRINT BY
95 percent, Benyus says.

Encycle develops technology to help commercial buildings improve

their ENERGY EFFICIENCY. Its core product is SWARM LOGIC,
a system of small wireless controllers that communicate with
one another and monitor buildingwide energy usage,
turning power-hungry devices on and off as needed.
The idea behind it is the same one BEES, ANTS, AND
SCHOOLS OF FISH use to communicate. This is one of
the very first applications of what will become normal
with the INTERNET OF THINGS, Benyus says.
When [things] communicate with each other,
what are the protocols that will be used?

B ees

Humpback whale flippers have bumps

called TUBERCLES along their edges,
which allow them to move efficiently through
water. Envira-North Systems is creating
industrial-size fan blades with whalelike
tubercles to REDUCE DRAG. Whats cool
about it for wind turbines is that you can
operate at lower wind speeds, Benyus says.
That opens up the opportunity for wind
power in zones that are no-go now.

Bo
ne

The new lightweight cabin

partitions being tested in the
Airbus A320 optimize strength by
MIMICKING CELL STRUCTURE
and bone growth. Says Benyus:
When you get down to the level
of design principle, [bone growth]
really lends itself to algorithms.
The designers took that partition,
which is a solid piece and pretty
heavy, and ran it through a
program that knows where the
lines of stress are going to be.
Based on that, the program takes
material away from where its not
needed and puts it where it is.

Airbus
Group
partitions

Whale

K in

if sher Shinkansen train

Japans 500-series Shinkansen

commuter train was fastbut
it was also loud, especially as it
passed through narrow tunnels.
The engineer charged with
solving this problem happened
to be an avid bird-watcher. He
modeled his updated train design
on the long, narrow beak of the
KINGFISHER, which allows
the bird to dive into the water
without so much as a splash. The
hidden benefit was that the train
went 10 percent FASTER, WITH
15 percent LESS ELECTRICITY
USE, Benyus says.

Wetlands

tub

BioHaven Technology
floating islands

e rc

BioHaven Technologys MAN-MADE ISLANDS mimic the way natural islands CLEAN AND PURIFY WATER. Often, we clean water
by putting in a chemical, or well use one bacterial strain, Benyus says. Thats not how it works in the natural world. There is usually a
CONSORTIUM OF ORGANISMS that work together. The islands, made of postconsumer plastic, support plant life on top, with their root
systems extending into the water and creating a habitat for SNAILS and other water-filtering creatures.

les
a
r
i
v
n
E
h
t
r
o
N
s
m
e
t
s
Sy Air
a
r
t
l
A
fans

ye
he

Mo
t

The surface of a
nocturnal moths eye is
covered in NANO-SCALE
DOMES, shapes that
absorb more light than
they reflect and help
conceal the moth from
its prey. The shape can
be used as the jumpingoff point for all sorts of
technologieseverything
from DISPLAY SCREENS
to CAMERA LENSES,
Benyus says.

Antireflective
film

PITCHER PLANT: JORIS VAN ALPHEN. TILE AND SKELETON: PHOTOS BY 731. GETTY IMAGES (7). SCIENCESOURCE (2)

IT TAKES

Studio Visit

B Y J A M ES

Y
M
R
A
T

72

E
G
A
L
L
I
V
A

Photograph by Ryan Pf

luger

Industrial designer
STEPHEN BURKS
cant fully design
an object until he
meets the people
who will make it

Burks, with a weaver

in the Philippines,
develops a pattern for
Dedons Dala line

An
Ahnda chair
under construction
at Dedons factory in the
Philippines, which employs
1,600 weavers who make
300 pieces a day by hand

his doesnt
necessarily have a
soul, Stephen Burks says. Hes in
his design studio in the
Williamsburg section of Brooklyn,
and the soulless object hes holding is
one with which hundreds of millions
of people have a near spiritual
Studio Museum
connection: the iPhone. Many fthe
urther uptown
criticisms are leveled against Apple, in Harlem. In addition
73
to Dedon, hes worked
but bad design isnt one. with
French furniture
company Roche Bobois
To Burks, the companys mass on his $14,840 European
market approach is all wrong. Traveler chair, Ligne
Roset on the $545
He goes so far as to say Apple Chantal
table light
(since discontinued),
is in trouble because and Harry Winston on
jewelry box,
its so opaque a giftanforalabaster
earing a dark
the jewelers highest of high-end clients. His
and generic. studio turns out $700 stools and $500 bowls. He paved
blue Dries Van
A $2,500 Missoni
patchwork vase
made out of fabric
scraps

IMAGES COURTESY THE SUBJECT

Noten suit and

Converse x Missoni sneakers,
Burks presents an alternative vision: He removes the seat
cushion of a giant, $4,765 Ahnda wing chair, which he
designed for the German furniture company Dedon. He
points to its woven substructure, a cross-hatched maze
that supports the chairs circular base. I knew I wanted
this herringbone weave, he says, running his fingers along
blue, gray, and black cords. I had a sense of what I wanted
to do. But it couldnt happen until I arrived at the factory.
his design philosophy can best be described as wait
and see. Burks comes up with a concept, then lets
craftsmen around the world help shape the objects
final formFoxconn it isnt. Its about returning the hand to
industry, he says. That space between making and industrializing creates more potential for innovation.
urks became the first African American to win the
National Design Award for product design in 2015.
He curated an exhibition at New Yorks Museum
of Arts and Design and was featured in a solo exhibition at

the way for the model of designer as entrepreneur, says

Constantin Boym, chairman of the industrial design department at Brooklyns Pratt Institute.
t this point, however, making a few very expensive products for a few very wealthy people isnt
satisfying. Were only catering to the rich, Burks
says. Im beginning to understand that I have to have a parallel project which tries to consider how this plays into the
mass market. The contours of that project are undefined:
The annual revenue of Stephen Burks Man Made is less than
$1 million, he says, so hes looking for business partners to
help him expand.
es positive he can apply the same methodology
he uses in making objets dart to making everyday
objects. This includes eyeglasses, watches, shoes
weve already done an underwear collection, he says. Just
because you have a product you need to sell to 100,000 people
doesnt mean that all 100,000 have to be the same. He picks
up a square, black, plastic hard drive. Companies are still
making things like this. I mean, come on! <BW>

Saving premature babies

THE SOCIAL
ENTREPRENEUR

JANECHEN helped create

the EMBRACE Warmer
for premature babies. She
wants to expand its use in
the developing world.

74

Q: WHATINSPIREDTHEEMBRACE
WARMER?
A: There are 15 million preterm babies born
every year, and one of the biggest problems they face is staying warm while regulating their body temperature. In India we
saw there was often no electricity for incubators, plus nobody was trained on how to
use them. Then I started going to village
settings. One of the first women I met was
a mother in South India who gave birth to a
baby two months premature. She took her
baby to a village doctor, who told her to go
to the hospital. The hospital was over four
hours away, and she didnt have the means
to get there, so her baby died. We realized
we needed a solution that worked without
electricity and is easy enough for a mother or
midwife to use. We came up with the Embrace
Warmer. It looks like a sleeping bag for a baby
and uses a waxlike substance, which, once
melted, maintains the same temperature for
eight-hour stretches. Weve helped more than
200,000 babies in 14 countries.
Q: WHATSNEXT?
A: Its hard to just rely on donations. We still
are owed payments from two years ago that
were probably never going to get. We wanted
to implement a Toms Shoes model, which
is buy one, give one. Weve just launched a
product line for the U.S. market called Little
Lotus. Its a collection of swaddles, sleeping
bags, and blankets for healthy babies. On the
inside, they use microns of the same wax we
use in the Embrace Warmer to keep babies at
the perfect temperature. Parents are telling
us babies are sleeping longer. The for-profit
spinoff will hopefully fund the expansion of
the baby warmers in the developing world.

THE INTERNATIONAL
DOCTOR

THE CONSUMER

LEEDARASHID has
seen how Embrace
can make a
difference
in places
such as
Afghanistan,
where she
runs a health
nonprofit.

Little Lotus,
a spinoff
product,
will also
connect
moms
around
the world,
says mother of three
CASEYGEORGESON.

Q: HOWDIDYOUCONNECT
WITHEMBRACE?
A: My husband, whos also a physician, and I looked through the technology and some basic research that
was already done at Stanford on the
Embrace, and we thought, my goodness, this is very appropriate for hospitals in Afghanistan. Afghanistan is
notorious for poor grid access. If
youre a hospital that happens to be in
a neighborhood that has a lot of rolling
blackouts, youre not going to be able
to use a lot of the medical technologies out there. Through our nonprofit,
weve deployed upwards of 75 to
80 of the warmers [in Afghanistan].
Were in four of the largest publicsector hospitals. Were at a little more
than 10,000 uses over the last three
years. Were now working to do what
the minister of health wants. He says
the product needs to go out to rural
Afghanistan. Thats where a lot of the
deliveries are happening, and there is
virtually no electricity there.

Q: HOWDIDYOULEARN
ABOUTLITTLELOTUS?
A: I went to business school
with Jane. I was having my
third little girl. My little one was
about 3 months old when the
final product came out. We
had been using swaddles and
had just switched over to sleep
sacks, and that transition was
really hard. Jane sent me one,
and I was, like, OK, well try it. I
was skeptical. I put it on her for
a nap, and I kid you not, she took
a three-hour nap. She had been
taking 30- to 60-minute naps.

Q: HOWDOYOUFEEL
ABOUTTHEBUY-ONE,
GIVE-ONEMODEL
WITHTHEEMBRACE
WARMER?
A: I gave a Little Lotus to my
cousin at her baby shower
two weeks ago. She opened it,
Q: THERURALSETTING
MUSTBEEVENMORE
and I told her the story of how
COMPLICATED.
Embrace is literally saving the
A: Our first step is to start using them lives of babies around the world.
in public ambulances. On a recent
All of these moms and grandtrip, I was assessing the ambulance
sites to see if Embrace can be used mas and aunts and uncles were
during delivery between someones just so touched. Its an amazing
home, or from a rural clinic, to the way to connect with other
larger, district-level hospitals.
moms around the world.
BY KAREN WEISE

IMAGES COURTESY SUBJECTS

Dialogue

Its not just security. Its defense.

Cyber threats have changed, and the solutions need to
change too. The sophisticated techniques BAE Systems
uses to protect government and military assets are now
helping to defend businesses around the world.
Learn more at BAEsystems.com/cyberdefense
Copyright 2016 BAE Systems plc. All rights reserved.

 Test Drive

RECLA

Can Impossible
Project CEO OSKAR
SMOLOKOWSKI
get us to smile
for the camera?

Photo

IMING

graph

hen Impossible Project, the company

founded to revive production of
Polaroid film, released its first batch of
product six years ago, the results were embarrassing. Pictures frequently had weird splotches on
them and occasionally leaked corrosive chemicals.
Sometimes an entire $21, eight-picture pack of film
would spit out of a camera at once. The photos that
did develop took as long as an hour to do so, which
is not very instant.
The product was barely usable, says Oskar
Smolokowski as he sips green tea at a New York City
bakery. The Impossible Projects 26-year-old chief executive officer is in town to discuss launch plans for the I-1,
the companys new camera, which goes on sale May 10.
Priced at $299, the I-1 marries digital controls with analog
photography. The cameras mechanics, right down to the
distinctive whine of the rollers that eject each photograph,
evoke Polaroids legacy, but Smolokowski is eager to point
out that the I-1 is not a Polaroid product.
Until now, his Berlin-based company made film that
worked only in vintage Polaroid cameras. With the market
for contemporary instant-film cameras quickly growing into a
profitable niche for Japans Fujifilm and others, Smolokowski
is betting the I-1s hybrid design will offer the first real chance
to decouple Impossible Projects future from Polaroids past.
Like similarly triumphant narratives about the return
of vinyl records and independent bookstores, Impossible
Projects story begins with the rapid collapse of a legacy
analog industry facing digital disruption. During
its heyday in the 1970s, Polaroid, based in
Cambridge, Mass., had as much as
$2 billion in annual sales (more
than $12 billion in todays
dollars) and 50,000 employees. And, like Apple today, it was
the most admired consumer tech
company in the land, according to
Christopher Bonanoss book Instant:
The Story of Polaroid. But decades of
mismanagement took their toll, paving
the way for the first of two bankruptcies
in 2001. As it bounced between owners,
Herchen
Polaroid quickly discontinued
helped work out cameras and film.
the kinks in the
Florian Doc Kaps, an Austrian
films chemistry
biologist who at the time was

s by M

ark Pe

ckmez

76

ian

IN

working for Lomography, a Viennese company that markets

new versions of quirky Soviet-era film cameras, spied an opportunity. He approached Polaroid in 2005 with a marketing plan
heavy on social media and e-commerce. They told me, If you
really believe in this s---, you can be a distributor, he says. Kaps
began selling discontinued Polaroid film for more than twice its
original price on his website, unsaleable.com, along with old
Polaroid cameras he bought on EBay and refurbished. Three
years later, when Polaroid announced it would close its last
film factory, in Enschede, Netherlands, Kaps scraped together
180,000 ($204,000) to buy the plants equipment and struck
a deal with the landlord to take over the lease. For an additional 1 million, he purchased Polaroids remaining film stock,
which he sold to finance the revival of the plant at a total cost of
4 million. Unsaleable was rebranded Impossible Project, after
a quote from Polaroid founder Edwin Land: Dont undertake a
project unless it is manifestly important and nearly impossible.
Making film is a delicate dance of chemistry and physics,

performed entirely in the dark. The

Enschede factory had been one of the final
links in Polaroids production chain; it
assembled components from other
factories into film packs. A skeleton crew headed by engineer
Andr Bosman, a 30-year
veteran at the plant, set
out to reverse-engineer the
process. If you think about the
development of Polaroids products, youre talking about hundreds
of engineers and billions of dollars
in research, Smolokowski says. And
Impossible did this with five guys who didnt
know the chemistry and only really knew how
to run the machines.
Chief Technology Officer Stephen Herchen
The I-1
explains that Polaroids film had three key
camera, which
was used to take components: the light-sensitive negative, the
the photographs
positive on which the image was imprinted,
on these pages
and a pod that released the developer fluid as
the film passed through the rollers. By 2008
almost all the constituent elements, including custom dyes
and polymers, had either expired, been discontinued, or
been banned for environmental reasons. Impossible Project
set out to try to make a simpler black-and-white formula.
The product that debuted in 2010 worked, but barely.
Lets just call it experimental, Kaps says with a smirk
and a shrug. To improve outcomes, the company began
issuing increasingly complex instructions to customers,
including orders to shield pictures from light by taping
a cardboard box onto the camera front.
At a friends urging, Warsaw-born Smolokowski

T
N
A
T
NS

dS
i
v
a
D
By

ax

visited Impossible Projects store in New York in 2012, where

he was living at the time, and picked up some film. Like other
millennial consumers behind the companys growth, he liked
the crapshoot quality of the experience. The pictures were
interesting and imperfect, and there was this engaging challenge of getting it to work, he recalls. After meeting Kaps,
Smolokowski persuaded his wealthy father to make an investment of 2 million in the business in exchange for a 20 percent
stake. (A Soviet-era Ukrainian musician who later amassed a
fortune in the energy business, Wiacezlaw Slava Smolokowski
is Impossible Projects largest shareholder.) Soon the younger
Smolokowski was working as Kapss assistant. In December
2014 he became CEO.
Film has experienced a small renaissance in recent years,
led by Fujifilm and its colorful Instax camera, which debuted in
1998 and uses a technology similar to Polaroids. The Japanese
company sold 5.5 million of the cameras last year, along with
an estimated 40 million packs of film. (Annual sales of Polaroid
cameras peaked at 13 million in the 70s.) Marketing for Instax
targets young consumers and stresses the fun, novelty factor. Its

not nostalgic. Its a new thing for them, says Manny Almeida,
president of Fujifilm North Americas imaging division.
Impossible Project sold 28,000 refurbished Polaroid cameras
last year and more than a million film packs, according to
Smolokowski. The film is still a bit temperamental,
but faster: Black-and-white develops in
10 minutes, color in 40. He says
the company needs to
sell twice as much film
to be profitablewhich
is very difficult with a
limited supply of vintage
cameras. Its a massive
hurdle, he says as he
surveys Impossible Projects
array of cameras at an Urban
Outfitters in Manhattan. A
nearby Instax display dwarfs it.
Two years ago, Smolokowski
arranged a meeting with Jesper
Kouthoofd, who runs the Swedish
design studio Teenage Engineering,
to show him blueprints for a camera
Impossible
Impossible Project was preparing
Projects offices
for production. Kouthoofd, whose
in Berlin
clients include Ikea, New Balance, and
Absolut, tore them apart, saying the camera was too retro
another reheated Polaroid. The designer sketched up a concept
for Smolokowski, who persuaded his team to change direction.
The I-1s minimalist form is dictated largely by function. Its
shapea pyramid atop a rectangular baseis required to properly expose the film to light that enters the lens and bounces
off a 45-degree-angled mirror. The metal body is covered in
matte-black plastic; there are few buttons and no digital display.
Says Kouthoofd: Were trying to spark an interest in analog
photography, and I just tried to make it as simple as possible.
What sets the I-1 apart from even the best vintage Polaroid
camera is the quality of its optics, the LED ring flash that automatically adjusts to light and distance (and gives the camera the
look of a rotary phone), a highly accurate pop-up viewfinder
that looks like it belongs on a 19th century rifle, and the ability to
connect to a smartphone with Bluetooth. On a companion smartphone app, users can adjust aperture, shutter speed, and other
variables while employing complex effects with Instagram-like
simplicity. Smolokowski plans to open the app up to software
developers later this year. The I-1 was also designed to accept
a range of future accessories such as viewfinders and screens.
Smolokowski estimates Impossible Project could one day
own up to 10 percent of Instaxs market share, though he
prefers to target the higher-end, photography-focused consumer that is the companys base. Eight years after saving
the factory, we finally feel able to have a product and camera
to give us a chance, he says.
The stress of the upcoming launch is visible on Smolokowskis
face. He claims to have no social life or romantic life. Hes
180 percent dedicated, says Kaps, who retains his shares in
the business but is no longer involved in day-to-day management. He wants to prove to the world that he can do it.
When weve finished talking, Smolokowski unzips his backpack and pulls out an I-1 and a fresh pack of black-and-white
film. He pops it into the camera, and the motor buzzes to life.
He hands me the machine, and I aim at his face and press the
shutter. After a burst of flash followed by that trademark Polaroid
sound, a photograph rolls out. We wait to see how it develops. <BW>

77

Americas emblem
stands for great strength
and long life.

With that in mind, lets talk retirement.

TM

Visit us at mutualofamerica.com or call us at 1-866-954-4321.

Mutual of America and Mutual of America Your Retirement Company are registered service marks of Mutual of America Life Insurance Company,
a registered Broker/Dealer. 320 Park Avenue, New York, NY 10022-6839.

nd

de

sig

ni

ts e

lf

Strategies

Six in

d u st r y l e a d e r s o n s e r

MAKE THE
COMPLEX CLEAR
BY MARIA GIUDICE
The VP for
experience
design at
Autodesk on
creating business products that produce
emotional connections
Enterprise products can be so disrespectful to the user. The message is, You gotta
use these products, so screw you, suck it
up. Theres this assumption: Oh, our
products are so complex, they cant be
simpler to use. Its all about being serious,
stable, performance-driven. Hey, thats
table stakes! We have this opportunity to
really think about those products in a new
way and not hide behind the complexity.
Our job is to make the complex clear. This
is where we need to go.
I grew up in a time when we were
just grateful if things worked. We live
in a world where a whole population
expects good, fluid experiences. This
is where consumer and enterprise are
meshing. We always saw a line between
enterprise products that were powerful
and consumer products that were lightweight and emotive. Theres a whole

n
e
i
l
c
ving

u
c
,
s
t

population that
doesnt see that.
They work at home;
they play at work.
Thats why Ive been
thinking about emotions
and product design. That
connection goes way back in the world
of physical products. But emotion is
still not considered much in digital
products. There are exceptionsUber
shows the tiny cars moving around your
phones screen. I might hate Uber as a
brand, and I know that the interface isnt
even accurately mapping the cars on
my screen, yet its so comforting and
delightful to see the little cars! Thats a
product where people are considering
human emotion.
When we think about designing products well, the science behind creating
emotional connections to our products
is called anthropomorphism. We should
be designing interfaces as if they were
people. That changes the relationship
you have to the product. With artificial
intelligence, machine learning, the rise of
robotsall these thingsthe relationship
youre going to have with digital devices
will be less directed and more about
co-creation. With traditional products
right now, we dont know enough out of
the gate, so we give customers a 10-course
meal all at the same time. The more we
know about our customers, the more we

e
m
to

,
rs

know about what they need

next. The machine is going to
know so much about you and your
behavior that, rather than you telling
the machine what to do, the machine will
offer up what you should be doing.

THE WORK IS
NEVER DONE
BY MICHAEL ROCK
The co-founder
and creative
director at
design firm 24
on learning to love
open-endedness
Crushed in the scrum behind the soundboard at Madison Square Garden,
wreathed in smoke (theatrical and
otherwise), in the muddle of Kanye Wests
epic album launch-cum-fashion show
an engineered spectacle that managed
to interweave multiple pop culture
narratives (Balmain-clad Kardashians,
Caitlyn Jenner, Wests feud with Taylor
Swift) with high-fashion royalty (Anna
Wintour, Carine Roitfeld), random
superstars (50 Cent, Gigi Hadid), and
high-concept performance art (Vanessa
Beecrofts refugee-camp-inspired miseen-scne), all into one mind-boggling
agglomerationI had an epiphany. And
like any good epiphany, mine came punctuated by a bell.
About 20 minutes into the musical
portion of Yeezy Season 3, as West

79

 SKETCHBOOK
Draw a map of your office.

previewed his
new album,
T h e L i fe o f
Pablo, a familKen Wong, lead
designer, Ustwo
iar Macintosh
alert chime blasted
through the massive PA
system. At first it seemed
like a random sound
effect, but then it was
clear: All 18,000-plus
of us crammed into
every inch of the arena
many paying hundreds
of dollars for the honor
were listening to a guy
Daniel Libeskind,
play us some songs from
principal design
architect, Studio
his laptopand he just
Libeskind
got an e-mail.
The seemingly unplanned
ping lent an unexpected air of
intimacy to the experienceas intimate as any event can be when its
breaking Instagram and the New
York Times covers it live on its home
80
pageand underscored the ad hoc
quality Beecroft set up with her ragged,
tarpaulin-draped sets. West had gathered his friends together to casually

Who is the most trusted

adviser or prototype
tester outside your field?

Craig Dykers, founding partner and

executive director, Snohetta

Wong

share his latest work in

progress, with a decided
emphasis on in progress.
For months leading up
to the event, the artist had
opened up his frenetic process
through a stream of Twitter postings,
public appearances, pronouncements,
feuds, tentative titles, playlists, cover
art, and bootleg tracks. Collaborators
were announced and reshuffled. Entire
songs were floated, discarded, and
reworked. The final download was
delayed, canceled, then offered in multiple iterations. Tickets for the event were
announced online, then disappeared
entirely, then suddenly went on sale
three days in advance.
Although its easy to dismiss this as (a)
genius marketing or (b) massive disorganization, by revealing the multitude of
radical revisions and minuscule tweaks
that go into crafting each work, West
draws his fans (and critics) into his creative process and rewards close, multiple
listens while reinforcing his reputation as
a hyperperfectionist craftsman. The blur
of information and process surrounding
the release of The Life of Pablo also suggests a shift in the focus from finished
object to something more ephemeral: a
designed relationship.
It was purely coincidentalI think;
you never know these daysthat as
West was arranging and rearranging the
dizzying array of elements that would
become the morphing coherence of The
Life of Pablo, the Metropolitan Museum
of Art was putting the final touches on
its own exegesis on the subject of the
non finito. Unfinished: Thoughts Left
Visible, the inaugural exhibition
of the Met Breuer, the
Metropolitan Museum
of Art outpost dedicated to modern
and contemporary
art, opened a few
weeks after Yeezy
Season 3 but could
have easily been
the setup for it.
The Unfinished
show includes
seven centuries
of art historical

examplespartially completed paintings, discarded sketches, rough studies,

and intentionally discontinued worksto
offer glimpses into artistic process and
question the notion that art can really
ever be done. The exhibition, notes
Met curator Sheena Wagstaff, throws
into sharp focus the ongoing concern of
artists about the finishedness of their
work, which, in the 20th century, they
co-opt as a radical tool that changes our
understanding of modernism.
The Unfinished exhibition proposes
that unfinishedness in itself is a disrupter. Incompletion opens a work
and reveals the always questing creative mind, befuddling our desire for
simple endings. As artists, writers, and
designers, we can work to disguise the
fact that our work is never really done,
or as West does, co-opt it as a radical
tool that changes our understanding.
That link between incompletion and
disruption is at the heart of a widely circulated presentation by Kleiner Perkins
Caufield & Byers partner John Maeda
titled #DesignInTech Report 2016.
On Slide 14, Maeda draws a sharp distinction between what he calls classical
design and #DesignInTechread: oldfashioned designers vs. those who code.
He imagines the classical designer as one
for whom the attainment of a perfectly
finished state is the goal, whereas the
#DesignInTech lives only for the next iteration. Further, he imagines the classical
designers level of confidence is absolute and self-validatinghe must know
different designers than I dowhile the
#DesignInTechs is generally high but
open to analyzing testing/research.
Using Maedas definition, West would
easily qualify for #DesignInTech status.
He reaches hundreds of millions, his
work is delivered over the Net, hes
constantly evolving, and hes open to
real-time feedback. But then again,
doesnt that describe the state of contemporary design in general? Perhaps
what Maeda misunderstands is that
classical design is fast disappearing,
if it ever really existed, and the iterative nature so emblematic in tech has
worked its way into everything we do.
The average life span of a contemporary
building is not millennia but something
short of 70 years, during which time it
will be repurposed over and over again.
No responsible designer can create a

Ida Benedetto, co-founder, Sextantworks

 Fill in the boxes.

product without at least some planning
for its ultimate demise and recomposition. And if we have learned anything
about designing a brand, its that the
work is never done but instead is a
constant, iterative battle for relevance
and currency.
What West so vividly demonstrates
is that fixity is one of the casualties of
our current moment. The unfinished is
inherently destabilizing. It makes usthe
audience, consumer, listener, reader,
whateverquestion our own role in the
notion of completion. In the end, maybe
that bell wasnt an epiphany after all;
maybe it was just a high-tech death knell
for something we used to call closure.

Smolokowski

Dykers

Brad Sewell, founder and CEO, Campaign

Oskar Smolokowski, CEO, Impossible Project

Ignazio Moresco, head of design, TV platforms, Ericsson

Maria Giudice, vice president,

Autodesk

Sewell

Stewart Butterfield,
co-founder and CEO, Slack

81

HOMELESSNESS
IS BAD DESIGN
BY ROSANNE
HAGGERTY
The CEO of
Community
Solutions, a nonprofit that combats homelessness, on designing a
system that actually puts
roofs over peoples heads
Homelessness is what happens when
people fall through the cracks of different systems, so if were to put an end to
it, we need to create integrated teamsthe
U.S. Department of Veterans Affairs, the
mayors office, the nonprofits, the housing
authority. Its only when you get everyone
together in the same room that you can
construct a well-performing housing placement system that isnt sending vulnerable people down all sorts of dead ends.
Everyone at an initial meeting would
say, We get that we need to collaborate,
but how? We need a performance management system that helps a collection of
local organizations focus on a common

Sewell

goal and test their

way into a solution, but thats
grounded in person-specific data,
so you can see if a situation is actually
working for certain users of the system.
Another design principle is the notion
of housing firstyou redesign your
approach to getting people housing as
your first order of business, then help
with the other issues that have been confounding them. Moving a single person
from homelessness would require more
than 50 steps. We worked with designers to create a magnetic board that looks
like Chutes and Ladders. We asked people
to map out whats required for a single
person to move from the point where
you identify them on the street to a stable
home. Youd see this crazy, winding trail.
Washington, D.C., looked at the
amount of time it was taking from when

Vicki Dobbs Beck, executive

in charge, xLAB at Industrial
Light & Magic

Smolokowski

Giudice

an apartment becomes available to a

lease-signing and turning over keys. They
created a day where theyd have all the
landlords and all the people who had been
matched to them show up and sign their
leases at the same time and get their keys.
Imagine that.

EMPATHY IS
REQUIRED
BY KEN WONG
The designer of
the celebrated
game Monument
Valley on whats
different about working
in virtual reality

82

Our idea at Ustwo was to make a virtualreality game timed to the release of the
Oculus Gear VR headset. But after eight
months, the game, Lands End, wasnt
coming together as a story or an experience. There were missing skills on that
team. There was no art director; there
wasnt a voice saying, Youre going to
encounter this beautiful moment, and
heres how were going to convey it.
Eventually I felt the need to put my hand
up and say, Guys, I dont think youre
making the thing that you want to make.
And we voted to kill it. For like 10 minutes,
we were just really sad. And then I said, I
think what might be best for the team
is if I come in, change up the skill

set, and bring a new perspective to this.

Game design is a discipline that you
can get good at. Its not about a person
getting their way all the time. Its about
being tuned in to what makes a game
work, what makes an experience fun.
With our previous game, Monument
Valley, we made it short intentionally so
people could get to the payoff at the end.
For a lot of people, its the first game
they were able to finish. We got a nice
letter from a guy who had sustained a
brain injury; he used to really enjoy computer games, but after that most of them
were too intense.
With Lands End, we started fresh. We
threw away levels. We found that people
have a much poorer sense of space in VR
than they do in real life, so we had to get
better at creating landmarks and memorable places and mixing things up, so you
go outside to inside, from cliff to gorge.
Originally, we had way more fantastical
levels, with floating chunks of rock. But it
felt like you were in a computer game. We
dont want to remind you that youre in
a game; we want to fool you just enough
that youre like, Oh, this is real, but its
the most fantastical real Ive ever seen.
Everything that you design in a video
game, it feels stronger in VRhaving a
waterfall or a tower right in front of
you. Eye contact is a really intimate
thing. Chris Milk, an artist who works
in virtual reality, called VR an empathy
machineit has the potential to show
you how someone else lives. Games
are just one application, and its kind
of obvious, but imagine how powerful VR can be for education, training,

Whats a designed object you

covet that values function over form?

Baiju Bhatt,
co-founder, Robinhood

Benedetto

Butterfield

Whats a designed object you

covet that values form over function?

Bhatt

Dobbs Beck

Libeskind

design, tourism. Were really happy to

be here at the ground level. That said,
my next game wont be in VR. Ive had
my taste, and I want to go and have
another adventure now.

GOOD IDEAS
TRANSLATE
BY MIGUEL McKELVEY
The co-founder of
shared-workspace
company WeWork
on his residential
project, WeLive
When we started about seven years ago,
our plan was We everything: WeWork,
WeRestaurant, WeBarber, WeResort. We
started with WeWork because the only
buildings co-founder Adam Neumann
and I were able to get were office buildings. The response was so positive we
kept going. The WeLive building at
110 Wall St. was sort of knocked out by
Hurricane Sandy. We had a relationship with someone, and they said, Are
you guys interested? When we saw it,
we were like, Yeah, were interested,
but we have this other concept weve
been planning.
A lot of things weve done at WeWork
carry over to WeLivethe primary one
being trying to understand how people
can have the personal space they need
but share. Its sharing that goes beyond
the space, that flows into peoples social
engagement. Its about trying to make
those opportunities part of daily life.
Lets say theres someone whos 35,
and shes successful, but shes like, Im
ready to make the leap to start my
own company. We want to give
her a workspace and a living
solution that allows her to take
that chance and to be supported
by people who are going to be
like, Thats amazing! What do
you need help with? Who can
I introduce you to? Being in
that environment is definitely
going to help you become
more successful.

Fill in the blanks.

Benedetto

Giudice

In the office,
what we start with
is relatively simple.
You have a desk,
chairs, and lighting.
In an apartment, of
course, you need a Wong
living room, a kitchen,
a sleeping area, a bathroom. We had to
figure out a way to create those spaces in
our 200 units and give them enough character that they feel nice and comfortable
and warm and inviting. But we didnt want
to go too far with the design that they felt
particular. We didnt want someone to go
in and say, Oh, I hate that color. I dont
want to be in that unit. So that was the
nuance to the WeLive design.
We had arguments about whether
people would do their laundry in the
building, because there are all these
new services where you can have your
laundry picked up. That was one where
it was back and forth. Like, whats going
to happen? Is it going to be an empty
room, and no one is ever going to be in
there, and its going to become a total
failure? So far, its been great. We have
a cool laundry room that also has a pool
table and a pingpong table. Its become
one of the beating hearts of the building.

HOW TO HIRE
A DESIGNER
BY YVES BEHAR
The founder of
product and
brand design
firm Fuseproject
on creative
partnerships
Hire a partner, not a vendor
Most clients understand this, but for
a collaboration to be successful, the
design team they work with shouldnt
be selected only for their portfolio, but
also for the potential for a true partnership. Any design process is a close collaboration, with a significant amount of

Libeskind

communication necessary to get the best results. If

the partnership isnt there, the results
will disappoint. If the partnership is
there, a designer will grow with you
and continuously optimize your business. Mitch Pergola, our chief operating
officer at Fuseproject, says, The key
to effectively working with an external
design firm is not only picking the right
skills and experience, but collaborating
with them like a partner. Neither of these
points are optional.
Share dreamsand nightmares
The design process is never the same
for any two projects, so its important
to be as clear as possible upfront. Not
only does this mean timelines, finances,
etc., but also what you expect from the
process and, crucially, context. If the
client can focus on defining the needs of
the business (which they should be best
positioned for), the designer can focus
on defining the solution (and, where
needed, challenge the brief ). The more
a client can communicate their context
company culture, past successes and failures, the passions and aversions of their
audience and shareholdersthe better
able the design team will be to solve
from this foundation. I often say, The
more context the better. I personally
benefit from all the data, the good stuff
and the ugly stuff, the realities as well as
the dreams.
Adopt a healthy sense of abandon
Heres an interesting paradox: Clients
come to designers to push them out
of their box and yet struggle when the
design feels beyond their current reality.
The most successful projects Ive worked
on have come from relationships in which
my client trusts me, trusts our design
strategy, and empowers us to guide them
into the future. And this sense of risk

and innovation should exist

with every step of the processfrom
conception through hitting the market.
Trust that we have your best interests
in mind, because our partners success
is also ours, says Kristine Arth, our
director of brand. Herman Miller, with
whom its been a privilege to work for
the last 14 years, previously established
long-term partnerships with Charles
and Ray Eames and George Nelson by,
in the words of Herman Miller founder
D.J. Depree, abandoning ourselves to
our designers. Don Goeman, the vice
president for R&D at Herman Miller,
demonstrated this deep trust when we
designed the Sayl chair and the Public
Office Landscape system.
Go long
Its hard to know when the job is done.
But the truth is that design is never
done: The value of design grows over
time. Companies that succeed are ones
that constantly refine their products,
experiences, and offerings. We currently experience a circular feedback
loop with evolving customer needs:
Improving technology, growing brands,
and experience touch points are taken
into account regularly. The best thing
a client can do is find a partner who
understands their essencewhy they
existand invest in a future together.
One amazing product is great, but
having a brand thats cohesive, and
sustainably and organically growing, is
what we all need to build. Long-lasting
relationshipsthats an investment that
pays off handsomely for both outsider
and insider. In this current era of disruption, if a company isnt actively creating its future, you can be sure of one
thing: Someone else will. <BW>

83

ga
t

A trip through the world of design can be a

fulfilling, rewarding experienceif you know the lingo. While the official values
of this place champion clarity, simplicity, and elegance, the real mother tongue is full of
doublespeak, chicanery, and obfuscation. Just ask staffers at Robinhood, who collect
their favorite catchphrases on a blackboard. Use them to navigate your way
through a land where things may not always be what they seem.

E
N
C
E
R
E
O
N
C F
CROWDFUNDING
Backup plan when the
bubble bursts.
Our crowdfunders are
mad we spent their
money on vision boards,
but luckily they cant sue.

A/B TESTING
When you give up on
design and just see what
users dislike less.
The A/B test results are
in: They hated when the
app guessed their weight.

ROBINHOOD, a startup in Palo Alto

The Wall of Buzzwords at

BIG DATA
Databases,
but, you know,
sexy databases.
Our latest
Big Data push
records users
heartbeats as
they order our
pet portraits!

PIVOT
To flee, retreat; to
cower assertively.
To spend money
gathered for X on Y,
citing excuse Z.
Our pivot from mobile
payments to palm oil
plantations upset the
board, but...

IDEATE
To generate
an extensive
action list of
items requiring
numerous
breakout
brainstorming
sessions.
MILLENNIALS
A term used
to explain why
your app doesnt
make sense to
anyone over the
age of 30.
Were targeting
millennials, so
theyll click on it
just to tell their
friends it was
stupid.

INTERNET OF
THINGS
Access points
for Iranian
hackers.
The Internet
of Things will
revolutionize
the way your
icemaker seizes
up due to
driver errors.

DISRUPTION
A slightly
different version
of something
that already
exists.
Hydrox is going
to totally disrupt
the chocolatecreamsandwich-cookie
marketplace!

DATA-DRIVEN
How you support
an idea everyone
thinks is bad.
Our decision to
reformulate CocaCola is entirely
data-driven.

BETA
Nonfunctioning;
possibly toxic.
(See also
LMAO and
schadenfreude.)
Its in beta, so
your phone may
catch fire.
FULL STACK
The new vertically
integrated. Connotes
ambition; makes losing lots
of money seem cool.

IMMERSIVE
Not crappy.
Is there a way
to make this
Boz Scaggs
fan site more
immersive?

UNICORN
A nonexistent
organism raised
on delusions.

BURN RATE
Misunderstood
measure of time
remaining until pivoting.
We have a pretty
reasonable burn ratewe
can stay in our WeWork
through next week.

BLOCKCHAIN-BASED
Unusable; extremely
convoluted.
It uses blockchainbased authenticaoh,
you know, the preferred
currency of Internet
criminals. Anyway...

The product leverages secure, cloud-served blockchain

technology to delight our millennial user base with an immersive
user experience. Our data-driven development process
Want a billion
incorporates industry best practices and is poised
to take advantage of the coming wearables tipping
dollars? Try this
point.
Crowdfunding, the mentorship of our advisers, and
elevator pitch!
tireless iteration got us to beta, but now were looking for
serious investors. So the only question remaining is: How
many shares of CarWashFinder can I put you down for?

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Technique

Now is the
time for agility.
Now is the
time for

We are AT&T. Bringing things together is what

we do best. Today, our network, people, and
partners are giving companies the agility to
sense and adapt like never before. Discover
the power of &. Learn more at att.com/agility
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All marks used herein are the property of their respective owners.

We create
chemistry
that makes
locked-in
flavors love
bursting out.

Once its packaging has been opened, food is often quick to lose the
freshness and aroma that make it so appealing. Its important that
we get the most out of what we have available, as the world wastes
about one third of its food. Luckily, chemistry can make a difference.
We have developed a range of packaging products, sealants and light
stabilizers to protect food. Apart from offering a longer life span, they
seal in freshness. So food is still at its best long after the pack has
been opened. When less food goes to waste, its because at
BASF, we create chemistry.
To share our vision visit wecreatechemistry.com