Documente Academic
Documente Profesional
Documente Cultură
Dreams
Why are investors so crazy for an alternative
currency invented by a phantom? p46
January 13 January 19, 2014 | businessweek.com
of total stock
returns come
from dividends.
1
40%
Looking for more
GROWTH AND INCOME?
Heres why dividends may be the answer.
Before investing in any mutual fund, consider the investment objectives, risks, charges, and expenses. Contact
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Stock markets are volatile and can decline signicantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are
subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnied in emerging markets.
1
Source: Morningstar
EnCorr
; FMRCo, as of 12/31/2012.
2
Source: FMRCo; Haver Analytics, as of 12/31/2012.
3
FMRCo and FactSet.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. 2013 FMR LLC. All rights reserved. 655470.5.0
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Were getting the
idiots, and some
of them are doing
$1 million or $2 million
worth in fraud
p52
In the future, you will
travel to Asia for nothing.
You think Im joking.
You wait and see
p58
When I learned to read
and write as a child,
I discovered that six is
orange and seven is yellow,
and I thought everyone
knew that
p63
I dont fully
understand how
Bitcoin works.
But then,
I dont get Miley
Cyrus either
p46
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Opening Remarks The big questions Janet Yellen will grapple with at the Fed 6
Bloomberg View A smarIer war on poverIy PoliIical chaos IhreaIens Bangladesh 8
Global Economics
Legalizing poI was supposed Io make iI cheaper. Turns ouI IhaI may have been a Iuzzy idea 11
Turkish Prime Minister Erdogans $200 billion public works plan has prompted allegations of widespread corruption 12
Germany gets over its long-standing fear of ination 13
Chinas local governments are mired in almost $3 trillion of debt 14
A strike by garment workers to earn a living wage turns deadly in Cambodia 16
Correlations: Why dont the worlds youth have bank accounts? 17
Companies/Industries
For big-box sIores like TargeI, downsizing Ior ciIies can be a challenge 18
Those quiet electric cars are about to get louder 20
A startup nurtures art lovers with rentals of high-quality works 21
Newcomers drive up the price of broadcast rights for European soccer 22
Briefs: Airlines may have lost $50 million to $100 million in the polar vortex 25
Politics/Policy
ln Ihe MidwesI, pushing Ior a consIiIuIional righI Io . indusIrial Iarming? 26
The thriving wind industry prepares to get of the dole 28
A new report clobbers class actions 29
NASAs $350 million tower of pork 30
The Wild West of health insurance 31
Technology
Samsung wanIs Io Ill your kiIchen wiIh smarI appliances 32
Video-sharing site Vimeo is suddenly a star for parent company IAC 33
Software that sets sensitive work messages to self-destruct 34
A multilingual wedding site helps couples from across oceans tie the knot 35
Innovation: A charger to juice your phone from underneath your table 36
Markets/Finance
The rich Ind Iax havens in SwiIzerland, Ihe Oaymans, and.SouIh DakoIa 38
Federal mortgage policy is bound to change under Fannie and Freddies new regulator 39
While some rivals are scaling back, hedge fund BlueCrest Capital bulks up 40
Reversals of fortune for some investment classes 41
Contrarian economist Roubini nds comfort with an upbeat crowd 42
Bid/Ask: T-Mobile connects its network with spectrum from Verizon 44
Features
Prospecting for Bitcoins The arms race Io mine a virIual currency heaIs up 46
Turbocharged Tax Fraud Gangs are making millions sIealing daIa Io claim Iake reIunds 52
Norse Pioneer WiIh cheap IickeIs and big jeIs, Bjrn Kjos Iakes on Ihe world's discounI carriers 58
Etc.
Business discovers Ihe value oI synesIheIes-people who see sounds and IasIe words 63
Fitness: Underwater spinning classes, twerking workoutshow the latest exercise trends measure up 66
The Critic: One Simple Idea looks at the history of positive thinking 68
Survey: The interview questions that help employers nd their next hire 69
TV: Old-fashioned channel surfers may explain the success of Nick at Nite 70
What I Wear to Work: Scarves and fedoras keep sports radio co-host Tiki Barber looking cool 71
How Did I Get Here? AccuWeather founder Joel Myers began recording daily temperatures at age 7 72
January 13 January 19, 2014
@ Blah."
Funny."
l've jusI Iound
Ihis unicorn Ian arI
on Ihe lnIerneI.
How abouI we call
the artist up and see
iI we can use and
adapI iI? BiIcoins .
IanIasy . unicorns,
you know."
WaiI a second. You found
unicorn Ian arI on Ihe lnIerneI?"
Yeah."
JusI Iound iI?"
Yeah."
So you were looking
aI unicorn Ian arI siIes?"
Well, no. l was looking Ior dolphins.
He does greaI dolphins, Ioo. The arIisI
is OhrisIian Riese Lassen. He's a surIer.
He's big wiIh waIer.
Look aI his dolphins. Look."
Dolphins?"
Yeah, check iI ouI."
OK. l will iI l, er, geI some Iime.
Oan we Ialk laIer, please? PrivaIely."
ThaI is paIenIly insane."
As is BiIcoin."
How Ihe cover geIs made
Cover
Trail
2
.
IDC 34
Intel(INTC) 36, 48
ITV(ITV:LN) 22
IWC Schafhausen 71
Iyengar, Ravi 48
J
Jakes, T.D. 68
Janrain 69
Jive Software(JIVE) 34, 69
Joel, Billy 64
Jones, Janet 66
JPMorgan Chase(JPM) 40
K
Kaiser, Anna 66
Kana Software 44
Kantar Media(WPP:LN) 32
Kardashian, Kim 66
Kenmore(SHLD) 32
Kise, Bjorn 58
Kjos, Bjrn 58
Klein, Zach 33
KnCMiner 48
Kohls(KSS) 18
Kraft Foods(KRFT) 25
Krugman, Paul 48
L
Larsen, Chris 48
Lee, Bill 48
Lee, Jinsop 64
Lerman, Howard 34
LG Electronics(066570:KS) 32
Li Keqiang 14
Liberty Medicare 31
Liberum Capital 22
LinkedIn(LNKD) 34
Lodwick, Jake 33
Long Tall Sally 69
Lucky Brand 71
Lululemon(LULU) 71
Lush 64
LOccitane en Provence 25
M
Malin & Goetz 66
Man Group(EMG:LN) 40
Martin, Paul 30
McDowell III, Pierce 38
MegaBigPower 48
Mehta, Nahema 21
Merkel, Angela 13
Microsoft(MSFT) 34
MidAmerican Energy(BRK/A)
28
Monsanto(MON) 27
Monster Beverage(MNST) 38
Musk, Elon 20
Myers, Joel 72
MyRegistry.com 35
N
NBCUniversal(CMCSA) 25
Nestl(NESN:VX) 29
Netix(NFLX) 33
NewPage Holdings 44
Nick at Nite(VIAB) 70
Nickelodeon(VIAB) 70
Nielsen(NLSN) 70
Nike(NKE) 16
Nissan Motor(7201:JP) 20
Nixon, Blake 28
Nolan-Brown, Patricia 68
Nomura Holdings(8604:JP) 40
Norwegian Air Shuttle 58
Nvidia(NVDA) 48
O
Obama, Barack 8, 38
1001 Listes 35
Osteen, Joel 68
P
Panerai 71
PayPal(EBAY) 48
Penguin Group 68
Platt, Michael 40
Plosser, Charles 7
Pritzker, Penny 38
Procter & Gamble(PG) 25, 35
Puma(PUM:GR) 16
Q
Qualcomm(QCOM) 48
R
Radisson Hotels 38
Ravikant, Naval 48
Red Roof Inn 69
Renault(RNO:FP) 20
Riba, Guillermo Fernndez
35
Ripa, Kelly 66
Ripple Labs 48
Rolex 71
Roubini, Nouriel 42
Rubio, Marco 8
Ryan, Paul 8
Ryanair(RYA:ID) 58
S
SAC Capital Advisors 40
Sacks, David 48
Samsung(005930:KS) 32, 48
Sandvik(SAND:SS) 44
Sanford C. Bernstein(AB) 18,
22
Sarom, Ee 16
Scandinavian Airlines 58
Schalit, Emmanuel 34
Seifter Associates 71
Sensa Products 25
Shapin, Andrew 69
Shaw Bros. 25
Siemens(SI) 28
Sky Deutschland(SKYD:GR)
22
SkyView Investment Advisors
40
SL Advisors 40
Snapchat 34
Soljai, Marin 36
Soros, George 40
South Dakota Trust 38
Southwest Airlines(LUV) 58
Squire, Peverill 27
Srinivasan, Balaji 48
Staples(SPLS) 18
Stein, Jeremy 7
Steinhafel, Gregg 18
Stevenson Co. 32
Sullivan, Brian 22
Sunrise Sports &
Entertainment 69
Syfy(CMCSA) 70
T
T-Mobile(TMUS) 44
Target(TGT) 18, 54
TeenNick(VIAB) 70
Tesco(TSCO:LN) 18
Tesla Motors(TSLA) 20, 48
Thermo Fisher
Scientic(TMO) 44
Thuzio 71
Toyota Motor(TM) 36, 64
Trainor, Kerry 33
TurboTax(INTU) 54
12.29 64
21e6 48
Twitter(TWTR) 12
U
UBS Securities(UBS) 14
Under Armour(UA) 25
United Airlines(UAL) 58
UnitedHealth Group(UNH) 25,
31
US Airways(AAL) 58
USA Network(CMCSA) 70
V
Varel International 44
Verint Systems(VRNT) 44
Verizon(VZ) 44
Verso Paper(VRS) 44
Virgin Galactic 48
Visa(V) 54
Vivendi(VIV:FP) 22
Volkswagen(VOW:GR) 20
Vonn, Lindsey 25
W
Wajed, Hasina 8
Wal-Mart Stores(WMT) 18, 54
Weather Channel 72
WeddingWire 35
Wells Fargo(WFC) 38
Western Union(WU) 54
Whirlpool(WHR) 32
Whitney, Meredith 42
Wicker, Roger 30
Williams, Pharrell 64
Winfrey, Oprah 68
Winklevoss, Cameron 48
Winklevoss, Tyler 48
WiTricity 36
X
Xi Jinping 14
Y
Yellen, Janet 7
Yext 34
Yoon, B.K. 32
Yormark, Michael 69
Z
Zaben, Bonnie 69
Zankyou 35
Zappos(AMZN) 64
Zuckerberg, Mark 48
Zynga(ZNGA) 48
Coinbase 48
CoinTerra 48
ComScore (SCOR) 33
Conde 34
Constantine, Mark 64
Cowen Group(COWN) 18, 25,
33
Craigslist 48
Cuomo, Andrew 11
D
Daimler(DAI:GR) 20
Dashlane 34
Daugaard, Dennis 38
Deloitte 22
Delta Air Lines(DAL) 58
Dent, Harry Jr. 68
Deutsche Bank(DB) 42
Deutsche Telekom(DTE:GR)
22
Dia(DIA:SM) 35
Diller, Barry 33
DIY 33
Drebes, Larry 69
Dropbox 34
Dunn, Susy 69
Dyson 70
Dyson, James 70
E
EasyJet(EZJ:LN) 58
EHealth(EHTH) 31
Ehrsam, Fred 48
Elepath 33
Erdogan, Recep Tayyip 12
Ermenegildo Zegna 71
Ernst & Young 69
Euromonitor International 20
Euronav(EURN:BB) 44
F
F&C Asset
Management(FCAM:LN) 40
Facebook(FB) 34
Ferraro, Kim 27
Flickinger, Joel 48
Florida Panthers 69
Food Network(SNI) 70
Ford Motor(F) 64
Forest Laboratories(FRX) 44
Foss, Frode 58
Foxconn
Technology(2354:TT) 36
G
Gap(GPS) 16
Garzarelli, Elaine 42
General Electric(GE) 32, 44,
64
Geronimo Energy 28
Goldman Sachs(GS) 42, 48
Goldworm, Dawn 64
Google(GOOG) 33, 35
Greenberg Traurig 69
Gulen, Fethullah 12
Gyllenhaal, Jake 66
H
H&M(HMB:SS) 16
HashFast Technologies 48
Haverkamp, Michael 64
Health Insurance
Innovations(HIIQ) 31
Hedge Fund Research 40
Home Depot(HD) 32
Horizon Media 70
Horowitz, Mitch 68
Howard, Ron 65
Hsieh, Tony 64
Humana(HUM) 31
Hurley, Dan 68
Huseby, Michael 25
Hyatt Hotels(H) 38
I
IAC/InterActiveCorp(IACI) 33
IBM(IBM) 48
ICasei 35
A
A&E 70
AC Lion Recruiting 69
AccuWeather 72
Adidas(ADS:GR) 16
Adobe Systems(ADBE) 33
Agaoglu Group 12
Agaoglu, Ali 12
Air Berlin(AB1:GR) 58
Airbus Group(AIR:FP) 58
Al Jazeera 22
Albenze, Mark 28
Alexander, Andrew 69
Amazon.com(AMZN) 25, 33
AMC(AMCX) 70
American Airlines(AAL) 58
Andreessen Horowitz 48
Andreessen, Marc 48
AngelList 48
AOL(AOL) 34
Apple(AAPL) 25, 48
Aptalis Pharma 44
Art Assets 21
Art Remba 21
Artsicle 21
Assurant 31
AT&T(T) 25, 29
Audi(NSU:GR) 20
B
Bank of America(BAC) 29
Barber, Simon 48
Barber, Tiki 71
Barclays(BCS) 34
Barnes & Noble(BKS) 25
Bass, Hilarie 69
Bernanke, Ben 7
Bingham, Liz 69
Blue Cross and Blue Shield 31
BlueCrest Capital
Management 40
BMW(BMW:GR) 20
BNP Paribas(BNP:FP) 14
Boeing(BA) 58
Branson, Richard 48, 58
Brevan Howard Capital
Management 40
Brick 66
British Airways 58
British Sky Broadcasting
Group(BSY:LN) 22
Brod, Jon 34
Brown, Sunni 65
BT Group(BT/A:LN) 22
Bufett, Warren 28
Buttery Labs 48
C
Cablevision Systems(CVC) 25
Cailliau, Robert 64
Calik Holding 12
Calleja, Javier 35
Calvin Klein(PVH) 71
Canal Plus(VIV:FP) 22
Capron, Philippe 22
Cargill 27
Carlson Family Trust 38
Carlson, Dave 48
Casey Quirk & Associates 40
Castro, Eduardo de 48
CBS Sports Radio(CBS) 71
Cengiz Insaat 12
Cengiz, Mehmet 12
Citigroup(C) 42
Cochran, Thad 30
Cohen, Steven 40, 44 F
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Janet Yellen faces some knotty questions as she prepares to take the helm of the
Federal Reserve. The answers arent academic. By Peter Coy
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and supervision can miss some abuses, in
contrast to tighter monetary policy, which
he said gets in all of the cracks. Two
months after Steins speech, Yellen reit-
erated her strong preference for using
regulation to fght bubbles but didnt rule
out the blunt instrument of higher rates.
Transparency or Mystery?
Yellen has left no doubt about which side
she takes in the transparency debate: Shes
been a leader in pushing the Fed to set and
communicate its targets for infation and
economic growth. It was she who called for
quarterly press conferences by the chair-
man well before she knew she would even-
tually become the one felding reporters
questions. In Yellens viewas well as
Bernankestransparency is a new way for
the Fed to restore growth. Businesspeople
might be afraid to invest if they think the
Fed might raise interest rates next month,
chilling growth. By revealing that it intends
to keep short-term rates close to zero for
a long time to come, the Fed can induce
more investment, hiring, and growth.
Oversharing by Fed ofcials, however,
can create more heat than light. Markets
gyrate whenever a policy board member
says something that might possibly imply a
change in the pace of tapering of bond pur-
chases or a tightening of the federal funds
rate. Speaking to reporters last December,
Philadelphia Fed President Charles Plosser
lamented the uncertainty that weve
created. Also, promising to keep short-
term rates low is an invitation to asset man-
agers to speculate with borrowed money,
Anil Kashyap, a professor of economics and
fnance at the University of Chicago Booth
School of Business, said earlier this month
at the annual meeting of the American
Economic Association. Warned Kashyap:
It could cause a day of reckoning.
Monetary policy aside, regulation is a
huge issue for Yellen. The U.S. still hasnt
reached agreement with other nations on
a reliable system for handling the failure of
big global banks. And as economists Anat
Admati and Martin Hellwig wrote last year
in The Bankers New Clothes, banks con-
tinue to pose a risk to taxpayers, because
their safety cushion of equity is too thin.
Running a central bank looks easy: Just
turn the knob on rates once in a while or
adjust bond purchases a bit. But a lot of
thought goes into those tweaks. Consider
the old joke about the engineer who took
one minute to replace a faulty part that
had shut down a large factory and then
presented a bill for $1,000,001. Why so
much for one little part? his manager
asked. One dollar for the part, the engi-
neer said, 1 million bucks for knowing
to replace it.
On Feb. 1, Janet Yellen will become
the chairman of the Federal Reserve.
Considering that the Federal Reserve
System just celebrated its 100th birthday
and employs more Ph.D. economists than
any other institution on earth, youd think
it would have monetary policy down pat.
It doesnt. Yellen herself acknowledges
that setting interest rates sometimes
involves groping in the dark. I consider it
essential, in making judgments about the
stance of policy, to recognize at the outset
the limits of our understanding regard-
ing the dynamics of the economy and the
transmission of monetary policy, she said
in a 2012 speech to the Money Marketeers
of New York University.
Yellen is wise to be humble, as just about
every issue she will confront is fraught with
uncertainty. Is the U.S. economy stag-
nating, or threatening to overheat? How
quickly should the Fed taper its purchases
of long-term Treasury bonds and mortgage-
backed securities? When should it begin to
raise the federal funds rate, which has been
nailed to the foor at zero to 0.25 percent
since the end of 2008?
These debates are typically viewed
through the familiar hawk-vs.-dove mon-
etary prism, but they are deeper and more
interesting. Heres a guide to three of the
Big Questions that will keep Madame
Chairman occupied in the years ahead:
Optimal Control
Lev Pontryagin, born in Moscow in 1908,
was 14 years old when his familys kero-
sene stove exploded, blinding him, yet
he became one of the greatest mathema-
ticians of the 20th century. Among other
things, he built the foundation for optimal
control theory, which explains how to
maximize the efectiveness of a process
given constraints on cost or time. In 1953
the American Richard Bellman developed
a variant called dynamic programming
that became a mainstay of science and
engineeringit was even used for landing
the Apollo Lunar Module.
Yellen has repeatedly expressed fas-
cination with the possibility that the
Fed could optimally control the U.S.
economy by raising and lowering inter-
est rates in a more scientific manner.
Under the optimal control approach, Fed
economists would use a macro economic
model to calculate the mathematically
ideal path of short-term interest rates
needed to hit established infation and
unemployment targets.
If Yellen started channeling Pontryagin
and got the rest of the Federal Open
Market Committee to buy in, short-term
interest rates could stay near zero longer
than anyone is expecting. In her 2012 talk
to the Money Marketeers, she fashed a
purely illustrative graph of what the
economy might look like under optimal
control. The Fed would keep the funds
rate low longer, and unemployment would
fall faster. Infation would rise slightly
above the Feds target, but only for a few
years. Overall, thats much better than the
current outlook.
There is a catch, and Yellen is the frst
to admit it. Optimal control assumes that
the Fed has perfect foresight and fawless
data about the economy, and also that
infationary psychology never takes hold,
because businesspeople and consumers
unfailingly trust the Fed to keep prices
under control. Thats not realistic, of
course. So Yellen in her 2012 presentation
also considered a simple rule that pre-
scribes an interest rate based on nothing
more than available data about the diver-
gence of infation and economic output
from their targets. (This is the Taylor Rule,
named after conservative economist John
Taylor of the Hoover Institution.) The
Taylor Rule is more straightforward but
has its own drawback, Yellen told the
Marketeers: After periods of extreme
weakness like the past few years, it calls
for rates to rise too much, too soon.
In other words, you can have a rate-
setting rule thats very good but unreli-
able, or one thats reliable but not very
good. Some choice. A dose of good judg-
ment will always be essential as well,
Yellen concluded. Thats also known as
trusting your gut.
Managing Bubbles
Low rates are intended to jump-start
growth, but they can infate bubbles as
investors pump borrowed money into
stocks, real estate, and other assets. At
the Jan. 6 vote to confrm Yellen, Senator
Charles Grassley, an Iowa Republican, said
the stock market has become addicted
to the Feds easy-money policies. (The
Standard & Poors 500-stock index rose
30 percent in 2013.)
Ben Bernanke and his predecessor,
Alan Greenspan, long argued that bubbles
were impossible to identify in advance
and that, in any case, it was better to clean
up the mess after they popped than to
raise rates preemptively, causing collateral
damage to the real economy. The intel-
lectual foundation for that doctrine was
damaged by the worst economic down-
turn since the Great Depression, when
the overpriced housing market collapsed.
Yellen is still averse to popping bubbles
with costlier money and argues that the
best way to prevent reckless lending is
scrutinizing bankers loan books. But
Jeremy Stein, a fellow member of the Feds
Board of Governors, said in an infuen-
tial speech last February that regulation
7
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In Bangladeshs parliamentary elections on Jan. 5, everyone
lost. The vote was marred by bloodshed, boycotted by the
opposition, and notable for a dearth of actual voters. The
results reveal only that the countrys bitterly divided political
parties need to try again. Running largely unopposed, Prime
Minister Sheikh Hasina Wajeds Bangladesh Awami League had
won a majority of seats even before polls opened. Yet no gov-
ernment that forms out of these electionswhich Hasinas own
son admitted were half-bakedwill ever command domestic
or international support.
At the same time, the opposition Bangladesh Nationalist
Party, led by Hasinas archrival Khaleda Zia, has undermined
its own legitimacy in recent months with a campaign of dis-
ruptive strikes and business shutdowns. Its Islamist allies
have staged deeply unpopular attacks on civilians as well as
political workers; hundreds have died in political violence in
the past year. Although, in a fair vote, anti-incumbent senti-
ment would probably have carried the opposition to victory,
a strong showing wasnt guaranteed. At least one pre-election
poll showed the BNP barely favored over the Awami League.
Confrontation threatens both camps. The BNP appears to
hope that if the instability continues, the army will intervene
in its favor. The ruling party seems to believe that its handouts
to military brass have bought loyalty, leaving the government
free to suppress the opposition. Both assumptions are dan-
gerous: An army takeover might not be bloodlessor short.
The military has ruled Bangladesh for nearly half its 42-year
existence. Now, though, the country has more to lose than it
once did. Since the 1990s, Hasina and Zia have traded power
relatively peace fully despite their diferences, and during that
time, Bangladesh has reduced poverty and improved health
and education. Life expectancy now stands at 69.2 years, and
infant mortality levels have dropped. New elections are needed.
Political leaders must fnd a more civil way to carry on their
competition. Bangladesh has lost enough.
A Smarter War
On Poverty
Nutritional programs and universal
pre-K could make a diference
Bangladesh
At Risk
Political chaos and bloodshed threaten
to erase hard-won economic gains
President Lyndon Johnsons unconditional war on poverty
in America would not be short or easy, he warned, and no
single weapon or strategy would sufce. Half a century later, his
all-out approach has proved him right. Were it not for Medicaid,
unemploy ment insurance, Head Start, food stamps, and the
many other programs LBJ set in motion 50 years ago, the
poverty level would be almost twice as high as it is16 percent
of the populationwith children and the elderly making up
most of the diference. Still, the U.S. has almost 50 million
people living in poverty, defned as about $12,000 in earnings
for an individual and about $23,500 for a family of four. So the
push must continue.
One of the most efective tools has been the earned income
tax credit, a $55 billion program that rewards the working
poor by refunding some of their income and payroll taxes.
The credit, which has averaged about $3,000 for families with
children, has helped reduce welfare rolls even more than the
1996 welfare-reform law did. This program, now geared toward
single-parent families, could be expanded to help two-parent
families and parents without child custody.
Congress could also lessen the disincentives to work or
wed by not reducing antipoverty benefts when a couple
marries or one spouses income rises above a cutof. Nutri-
tion programs are another efective poverty fghter. In 2012 the
Supplemental Nutrition Assistance Program (aka food stamps)
kept 5 million people out of poverty. School lunches did the
same for 1.2 million children.
In November, when Congress allowed $11 billion in stimu-
lus funds that beefed up the food-stamp program to expire,
it meant an average 7 percent decrease in benefts for about
45 million people. And in the farm bill now under consider-
ation, the House is proposing almost $40 billion more in food-
stamp reductions over 10 years. That would kick 3.8 million
people out of the program entirely. Tax credits and nutrition
programs can mitigate existing poverty, but preventing poverty
is just as important.
Experts debate the benefts, but when all the evidence is
considered, its clear that universal pre-K enables children,
especially poor and disadvantaged kids, to enter kinder garten
with improved cognitive skills. One study says every $1 invested
returns $11 later, so the $10 billion annual cost of President
Obamas proposal for universal preschool would pay for itself.
Obama is also rightly pushing Republicans to extend unem-
ployment benefts for the long-term jobless and to raise the
minimum wage. Conservative Republicans, notably Repre-
sentative Paul Ryan of Wisconsin and Senator Marco Rubio of
Florida, are responding with antipoverty initiatives of their
own. If both parties reach for solutions, the result may be a
smarter war on poverty.
To read Cass R.
Sunstein on a movie
for our era and Ezra
Klein on single-payer
health care, go to
Bloomberg.com/view
8
/LEHUW\0XWXDO,QVXUDQFH,QVXUDQFHXQGHUZULWWHQE\/LEHUW\0XWXDO,QVXUDQFH&R%RVWRQ0$RULWVDIOLDWHVRUVXEVLGLDULHV
@LibertyB2B
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else sees. You have a passion for your company. Liberty Mutual Insurance has
a passion for protecting it. For more than 100 years, weve helped all types of
businesses thrive. With coverages like general liability, property, and workers
compensation, youll get the peace of mind you need to focus on staying ahead of
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or go to libertymutualgroup.com/business.
You have a passion
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.
Marijuana legalization may not undercut the illicit drug trade as hoped
The black market is going to come back extremely strong
January 13 January 19, 2014
Correlations:
The young and
the bankless 17
Chinas fast-growing
local debt 14
The building problems
behind Turkeys
corruption probe 12
Germans learn to worry
less about ination 13
On the ground with
Cambodias striking
workers 16
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This is a blazing moment for American
stoners. Colorado has just legalized
the commercial production, sale,
and recreational use of marijuana,
while Washington State will begin its
own pot liberalization initiative at the
end of February. On Jan. 8, New York
Governor Andrew Cuomo said his state
would join 20 others and the District
of Columbia in allowing the drug for
medical purposes.
Libertarians and progressives
are thrilled. Addiction specialists
are anxious. And economists, well,
theyre a little like undergrads lost in
a bong-induced thought experiment:
One moment the economics of pot
seem beautifully elegant, then the real-
world implications suddenly become
bewilderingly complex.
The champions of marijuanas legal-
ization have long argued that regulated
sale of the drug would drive down
production costs and the retail
price. The availability of cheaper,
legal cannabis would generate
precious tax revenue and refocus
drug enforcement eforts on more
socially harmful narcotics such as
cocaine, heroin, and crystal meth.
On the black market, a lot of folks are
compensating drug dealers and every-
one else in the supply chain for the
risk of arrest and incarceration, says
Beau Kilmer, co-director of the RAND
Drug Policy Research Center. If mari-
juana were fully legalized and you could
grow it outdoors like any other com-
modity, the production costs would
plummet over 90 percent.
Standing in the way, Kilmer and
economists say, are variables includ-
ing state tax policies, the shifting
behavior of buyers and sellers, and con-
tradictory drug laws nationwide. In
Colorado, where authorities have levied
The Mind-Expanding
Economics of Pot
a 15 percent
wholesale
and 10 percent
retail tax on marijuana
transactions, the price of
legal commercial-grade pot
has doubled to $400 an ounce since
the start of the year, says Aaron Smith,
executive director of the National
Cannabis Industry Association. Thats
twice the price for medical marijuana
at state dispensaries that require a doc-
tors prescription. On the black market,
high-grade oferings are fetching $156 to
$250 an ounce, according to data com-
piled by Narcotic News.
That prevailing $400-per-ounce
price is no doubt infated by limited
inventory and pent-up consumer
demand that may fade over time.
To optimize profts, though, enter-
prising pot retailers will still have
an incentive to go high-end, special-
izing in more potent grades, promot-
ing add-ons such as vaporizer refllable
cartridges that can be used for pot con-
sumption, and conjuring up new prod-
ucts (cannabis-infused chocolate lava
cake, anyone?). I dont think we should
expect the legal price to be that difer-
ent from current [black market] prices,
says Harvard University economist
Jefrey Miron. People will want to pay
more for a quality product.
For policymakers, the challenge is
getting the taxes right, says Kilmer at
RAND. In Washington State, authori-
ties will impose a 25 percent excise tax
on every phase of the newly liberal-
ized market: production, processing,
and fnal sale. Thats on top of stan-
dard state sales tax of 8.75 percent. A
consulting frm hired by the state proj-
ects these taxes will add 37 percent to
the price. In Colorados Western Slope
region, Gregory Viditz-Ward, owner
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Emerging Markets
The Edice Complex
Driving Turkeys Scandal
Prime Minister Erdogans obsession
with building triggers a probe
Turkeys development model is not
only skewed but also corrupt
An hours drive north of Istanbul,
two giant concrete towers fank the
Bosporus, one in Asia, the other in
Europe. By 2015 a $2.5 billion suspension
bridge will hang between the towers,
which will reach 322 meters (1,056 feet).
Nearby, a Manhattan-size swath of forest
is being readied for a $14 billion airport,
one of the worlds largest.
The projects continue a decade-long
$200 billion public works plan under-
taken by Prime Minister Recep Tayyip
Erdogan that strengthens Turkeys
ambitions as a regional power. After
arrests that targeted Turkish politicians
and businessmen close to Erdogan,
the building sites now risk becoming
emblems of the corruption and largesse
that prosecutors say has permeated
Erdogans designs for a new Turkey.
Executives from companies build-
ing the bridge and airport are among
the 100 people arrested, questioned, or
sought by prosecutors since news of a
15-month secret investigation broke in
December. Also ensnared were the sons
of three cabinet ministers, the chief
executive of a state-run bank, and a con-
struction magnate whos become one of
Turkeys richest men. The three minis-
ters have resigned.
Although there have been no formal
indictments, at least a dozen suspects
remain in custody on charges ranging
from taking bribes to rigging bids on
government contracts. Many of the alle-
gations involve the public works that
so accommodating, or if a majority of
public opinion, as a late-2013 Gallup poll
showed, will still support marijuana
legalization? We dont know whats
going to happen in two years, fve
years, says Miron. Pendulums swing
in both directions. Brian Bremner
and Vincent Del Giudice
The bottom line Pot prices have doubled to
$400 an ounce in Colorado, which has just
legalized marijuana use among adults.
helped Erdogan prop up the economy
and bolster an Islamic business class
loyal to his Justice and Development
Party (AKP). The growth miracle of
Turkey was largely due to construc-
tion, says Atilla Yesilada, an Istanbul-
based analyst at Global Source Partners,
a New York economic adviser. If these
allegations have a single grain of truth
to them, then it turns out that Turkeys
development model is not only skewed
but also corrupt. Its really disturbing.
Erdogan vows that anyone guilty of
corruption will be punished. He calls
the probe an attempt to derail Turkeys
transformation. The prime minister has
overseen growth of more than 5 percent
a year since 2002. In the same period,
infation fell from more than 70 percent
to 7.4 percent. Behind the probe, accord-
ing to Erdogan and the AKP, is Fethullah
Gulen, a 75-year-old diabetic cleric based
in Pennsylvanias Poconos. He runs a
network of Islamic schools that has infu-
ence with Turkeys police and judiciary.
Gulen once worked with Erdogan but
now criticizes the regime. He doesnt
have the slightest involvement in or
knowledge about the inquiry, says
Orhan Erdemli, Gulens lawyer.
Prominent companies in Erdogans
Cannabis retailers are
going high-end in Colorado
Ankara
Istanbul
Kanal Istanbul
Dubbed the crazy
project by Erdogan,
the 30-mile canal
would allow ships
to bypass the
increasingly crowded
Bosporus.
Prices per ounce
$400
Legal retailer
$200
Medical dispensary
$156
Black market
Old vs. New in Istanbul
Many of Prime Minister Erdogans
ambitious infrastructure projects have
run into vehement opposition from
residents of the giant, ancient city.
of a pot retailer called the Telluride
Green Room, says he thinks the black
market is going to come back extremely
strong, due to what he considers the
high state cannabis tax.
Back in 2010, California considered
pegging taxes to marijuana weight
before a failed ballot initiative to legalize
pot. (The Golden State is still home to
a big legal medical marijuana market.)
Critics said the approach would encour-
age producers to sell more potent prod-
ucts to lower the tax hit. Kilmer suggests
states consider taxing pot based on its
level of tetrahydrocannabinol (THC),
the psychoactive ingredient in the drug.
Just as some states diferentiate among
the alcohol levels of beer, wine, and
spirits, you could set a tax based on the
amount of THC, he says.
There may be a positive net fscal
impact for states from legal marijuana.
A 2010 study by the libertarian Cato
Institute, co-authored by Harvards
Miron, forecast that states could save
$17.4 billion annually from reduced drug
enforcement costs and increased tax
revenue, assuming marijuana produc-
tion and sales were legal nationwide.
Those gains could be eroded,
however, if an expanded market started
to displace alcohol sales, which are also
taxed. A more worrisome scenario:
What if more people consumed mar-
ijuana and alcohol togetherand in
greater amounts? The trend might con-
tribute to more trafc accidents and
other health costs, says Kilmer.
Perhaps the biggest unknown is law
enforcement. How seriously Colorado
authorities police unlicensed sellers
will shape market supply and pricing
trendsor determine whether legal
Colorado cannabis is illegally sold in
other states that still ban the drug. (On
Jan. 5, local Colorado police raided a
pot-growing oper-
ation of 1,200
plants.)
The production,
sale, and use of
marijuana has been
illegal at the federal
level since 1937. The
U.S. Department
of Justice recently
announced that
it would not chal-
lenge state legal-
ization laws.
Who knows if
the next admin-
istration will be
12
Global Economics
Monetary Policy
After 90 Years, German
Ination Angst Is Fading
A wealthier generation loses its
grandparents fear of higher prices
Ination expectations have
become more realistic
When Walter Baltes was fve, he
thought money always came in
bundles of bank notes like those his
grandmother hauled to the bakery to
buy bread. It was 1923, in the town of
Witten in Germanys industrial heart-
land, and the Reichsbank was printing
marks nonstop to pay reparations from
World War I. I am very careful with
money, which probably has something
to do with my experience, says Baltes,
95. His frugality notwithstanding, he
says these days he sees absolutely no
risk of infation.
Ninety years after a generations
savings were wiped out, Germanys
infation angst, the driving force of its
postwar economic policy, has eased.
That may allow Chancellor Angela
Merkel to focus less on price stabil-
ity and more on leading the recovery
in Europe. At the height of the euro
crisis, Germany extended aid to Greece,
but on tough terms, for fear of anger-
ing infation-phobic voters. It makes it
easier for Merkel to agree to debt relief
for Greece, says Sebastian Dullien, a
senior policy fellow at the European
Council on Foreign Relations.
A University of Hamburg study pub-
lished by the Bundesbank, the coun-
trys central bank, shows that concern
that higher prices will erode savings is
concentrated among the elderly, the
unemployed, and those with lower
incomes. The majority surveyed
Turkey include Calik Holding, run
until Jan. 1 by Erdogans son-in-law.
Calik, which has energy and construc-
tion interests, hasnt been named in the
probe. Another construction company,
Cengiz Insaat, is run by Mehmet
Cengiz, who sits with Erdogans son on
the board of a charity at a university
named after Erdogan, and who is from
Erdogans hometown. Cengiz Insaat
is part of the consortium that won
the bid to build and operate the new
airport. Cengizs name showed up on a
list of those wanted for questioning in
a second roundup. It never happened,
because the police refused to carry out
prosecutors orders, Radikal newspa-
per reported on Dec. 27. Cengiz did not
respond to a call and text message and
has made no public statement.
The Agaoglu Group, which lists
more than 20 real estate projects in the
Istanbul area on its website, said in a
statement on Dec. 17 that Chairman Ali
Agaoglu had been called in for question-
ing as part of a wide-ranging investiga-
tion regarding public services. TOKI,
the publicly traded arm of the state
housing authority, said two of its board
members had been questioned.
Calls to TOKI werent answered.
Muammer Akkas, the prosecutor who
ran the probe, said on Dec. 26 that he
had been taken of the case.
The pro-Erdogan media dont refute
the allegations of corruption, arguing
instead that a speedy bidding process
was essential in these projects, says
Global Sources Yesilada. The normal
process was fairly transparent until just
before the airport contract was put up
for bids. This last point is so important
that we feel the need to rephrase, he
wrote clients on Dec. 29. The pro-AKP
press does not deny the charges, but
refuses to defne them as crimes.
The AKP smells a plot to deny Turkey
its destiny. Is it a coincidence that the
businessmen who were building, or
going to be building, the third airport
and bridge were requested to be taken
in? asked party spokesman Huseyin
Celik on Twitter. Maybe the real
goal could be sabotage? Celik didnt
respond to a text message. Erdogans
spokesman, Lutfullah Goktas, directed
questions to Minister of European Union
Afairs Mevlut Cavusoglu. His staf said
he wasnt able to respond immediately.
Mustafa Sonmez, a writer and econo-
mist who wrote Media, Culture, Money
and Power in Istanbul, estimates that
in the last 11 years, $583 billion has
been spent on construction, citing the
Turkish Statistical Institute. These
megaprojects, there [is] an opportunity
for corruption in areas such as building
permits, he says. And of course, if you
are a friend of Erdogan or a relative,
there are some advantages. Mehul
Srivastava and Benjamin Harvey
The bottom line A prosecutors probe into bid-
rigging and bribes has rattled Turkeys leader,
his party, and the countrys new magnates.
Erdogan
3
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New Airport
The six-runway
project will require
nearly 30 square
miles of forested
land to be cleared,
raising the ire of
environmentalists.
Yavuz Sultan
Selim Bridge
The government
claims the strait
crossing will ease
traffic, but opponents
say the money would
be better spent on
public transit.
Marmaray Tunnel
After years of
delays to clear
archaeological
sites, the worlds
deepest subsea rail
tunnel opened last
October. Concerns
linger over its seismic
vulnerability.
Gezi Park
Last year thousands
rallied against the
demolition and
redevelopment
of one of the few
green spaces left
in the European
quarter. Erdogan
called the protesters
terrorists.
BLACK SEA
SEA OF MARMARA
10 miles
13
Global Economics
Local
borrowing
surged in
the nancial
crisis
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The study showed infation anxiety
in Germany was less than in the
U.K., France, and Austria, and only
slightly higher than in Finland. Its
very doubtful that after four gener-
ations, Germans fear of infation is
more pronounced than in neighbor-
ing countries, says Bert Rrup, former
chairman of Merkels council of eco-
nomic advisers and now president of
the Handelsblatt Research Institute,
which has studied German infation
concerns. There is widespread aware-
ness that hyperinfation was closely
linked to a lost war. Birgit Jennen
The bottom line Germanys ination obsession
is easing as concern about broader economic
issues such as jobs and the euro crisis grow.
Fiscal Policy
A Peek at Chinas
Local Debt Mess
The provinces, counties, and
townships owe almost $3 trillion
The pace of debt accumulation in
recent years has been alarming
For months, investors have wondered
about the scale of Chinas local govern-
ment debt. A report issued on Dec. 30
by the National Audit Ofce ofers some
clues. Borrowing by provinces, coun-
ties, and townships reached 17.9 trillion
yuan ($2.96 trillion) as of June.
Local debt has grown 63 percent since
the end of 2010, much faster than the
40 percent expansion of the economy.
Overall government debt and local
government debt levels remain man-
ageable, wrote Wang Tao, chief China
economist at UBS Securities, in a Dec. 31
note. But the pace of debt accumulation
in recent years has been alarming.
These numbers include the liabilities
of more than 10,000 nonbank lenders
local governments set up to bypass limits
on direct borrowing. Also included is the
debt of some state-owned enterprises.
The audit ofce, which labels these
debts contingent liabilities, says they
topped 7 trillion yuan, up 75 percent
since 2010. Investors believe the central
government implicitly guarantees this
debt, though Beijing isnt legally bound
to honor all of it. Localities have used
the name of the government to borrow,
but the government wont necessar-
ily repay the debt [unless] it becomes
a regional or systemic problem, says
Chen Xingdong, chief China econo-
mist at BNP Paribas. That is very wor-
risome. With these and other liabilities
folded into the budget, the defcit dwarfs
the ofcial fgure.
The audit reveals how local govern-
ments have evaded Beijings attempts to
stop excessive borrowing. Loans from
banks made up about four-ffths of total
local government borrowing in 2010. Its
only 57 percent now. The balance comes
from locally issued bonds and the barely
regulated shadow banking network,
which includes fnance companies
known as trusts that can lend at a rate a
couple of percentage points above the
benchmark interest rate of 6 percent.
The National Development and
Reform Commission, the state planning
agency, announced on Jan. 2 that local-
ities can issue special bonds to help pay
of debt due later in 2014. Policymakers
are testing a local property tax and con-
sidering resource and consumption
taxes as well as a shift in some local gov-
ernment expenses to the central gov-
ernment. This move to the center is
important since President Xi Jinping and
Premier Li Keqiang plan to spend heavily
on health care, education, and pensions.
At a December meeting with Xi and
Li, policymakers decided that for local
ofcials debt will become an important
measure of performance, as will trans-
parent auditing of how loans are raised,
according to the summary of the con-
ference. Such eforts to reduce reliance
on debt-fueled growth risk a slowdown
from 7.5 percent to 7 percent or less,
predict Arthur Kroeber and Rosealea
Chinas Budget Decit as a % of GDP
06 13
0%
14%
7%
DATA: CEIC DATA, RBS ESTIMATE
Ofcial gure
RBS estimate
In 1923 one U.S. dollar
was worth 4.2 trillion
marks. Children used the
currency to make kites
see infation at about 2 percent in
the coming 12 months. A poll by the
University of Hohenheim found that
most Germans are more concerned
about the euro area debt crisis, and a
survey by the Association of German
Banks said most young people dont
even know what infation means.
University of Hamburg economist
Ulrich Fritsche says that as incomes
have risen and unemployment falls,
infation expectations have become
more realistic.
Hyperinfation is often cited by his-
torians as a cause of Adolf Hitlers rise
to power. While the world economy
slowed in 1920 and 1921, infation weak-
ened the mark, boosting exports and
reducing unemployment. By 1923
hyperinfation had taken over, and
by that autumn one dollar was worth
4.2 trillion marks, vs. 42 marks in
January 1920. The marks value was
falling so rapidly that wages were paid
daily, and many merchants preferred
to barter for goods rather than accept
cash. A reform on Nov. 15, 1923, brought
in a new currency at a rate of 1 trillion to
one, and in 1924 infation abated.
Unlike the Bank of England and the
Federal Reserve, the Bundesbank isnt
ofcially responsible for maintain-
ing a stable fnancial market and isnt
a lender of last resort. Its prime focus,
according to the founding act in 1957,
is price stability. Eager to boost the
credibility of the euro, and pushed by
Germany, the architects of the single
currency followed the Bundesbank
model, setting out the independence of
the ECB and dictating that stable prices
would be its primary objective. The
ECB describes its goal as keeping euro
zone infation just under 2 percent, a
target it expects to meet through 2015.
A November European Commission
study found that 13 percent of Germans
have strong concerns about infa-
tion and 44 percent have moder-
ate concerns. But Germans are no
more worried than other Europeans.
14
Global Economics
.
Labor
Risking Life and Limb
To Earn $160 a Month
Cambodian garment workers are
battling for a higher minimum wage
Once again, Khmer people are
killing Khmer
Phoung Sreymom, 23, is a seamstress
in Building 32 of the massive Canadia
Industrial Park outside Phnom Penh.
She lives with her husband and 2-year-
old son in a small room with concrete
foors and a corrugated metal roof, part
Protesters
accompanied by
Buddhist monks
in Phnom Penh
Yao, analysts at GK Dragonomics.
They wrote in a recent client note, The
big question is not whether the local-gov-
ernment debt problem will spark some
sort of fnancial catastrophe. Clearly it
will not. Rather, the issue is how the
trade-of between deleveraging and
growth will play out. Dexter Roberts
The bottom line Chinas central government
is trying to rein in the local ofcials who have
been on a borrowing binge since 2008.
crowd, killing at least four and injur-
ing many others. Thirteen people
were arrested, including several union
leaders, and charged with committing
intentional violence. It was the frst
time police had opened fre on protest-
ing civilians since a crackdown on an
opposition rally in 1997. Once again,
Khmer people are killing Khmer, says
Nith Pov, another garment worker in
the same industrial park. With two key
labor activists in prison, many workers
have returned to their jobs in recent
days. The strike is rapidly disintegrating.
In a country with an annual gross
domestic product of just $14 billion,
Cambodias $5 billion garment indus-
try is a fast-growing and politically sig-
nifcant sector. The value of garment
exports surged 22 percent in the frst
11 months of 2013 compared with the
year before, according to data from
Cambodias Ministry of Commerce.
While the nation remains one of Asias
poorest, its GDP has tripled in 10 years.
Partly as a result of rising labor costs in
China, more textile business has moved
to Cambodia to serve such clients as
Nike, Adidas, Puma, Gap, and H&M.
As Cambodias textile industry has
grown, so have workers expecta-
tions. Last year 131 strikes occurred,
of a housing complex next to the factory
where she works. Theres no air condi-
tioning or running water, just a metal
basin outside for washing up. She pays
$50 a month for the room and electric-
ity, a hefty chunk of her wages.
Sreymoms regular shift is from 7 a.m.
to 4 p.m., six days a week. Her monthly
base pay is $85, and she earns 50 for
each hour of overtime. In a month with
lots of overtime she and her husband,
a day construction worker, can earn
about $300. Besides the $50 room
charge, the family spends $8 a day on
food$240 a month. That leaves little to
spare, and the price of food keeps going
up. Two years ago, fsh cost $2.50 a kilo-
gram; today its $3.75.
Sreymom hasnt worked since Dec. 25
because she and hundreds of thousands
of Cambodian garment workers, sup-
ported by Buddhist monks, joined a
union-led strike to raise the minimum
monthly wage to $160. The strike was
the largest mass action Cambodias
garment industry had ever seen. On
Jan. 3, Sreymom and her husband
were standing outside the gates of
the Canadia Industrial Park watching
other demonstrators chant increase
our wages! and better life! Around
9:30 a.m., military police shot into the
16
Global Economics
700 million do not have
a bank account
at a formal nancial
institution
67
%
Not enough money
Edited by Christopher Power
Businessweek.com/global-economics
the highest number since the Garment
Manufacturers Association of Cambodia
started keeping records a decade ago.
The textile industry is now the largest
employer. Workplace conditions
have deteriorated since 2009, with a
greater percentage of factories failing
to meet safety and health standards
and pay workers on time, according to
a July 2013 report by the International
Labour Organization. Kem Ley, an econ-
omist who works with the Cambodian
Center for Human Rights, has found
that adjustments to the minimum
monthly wage since 2000 have not kept
pace with infation.
Hopes for a steep rise in the
minimum wage began last summer,
when the opposition Cambodia
National Rescue Party made the $160
wage one of its main campaign pledges
in the national election. But the
Cambodian Peoples Party, which has
governed since the Khmer Rouge were
overthrown in 1979, claimed victory in
the July election amid accusations of
voter fraud. The day before Christmas
the government announced it would
raise the minimum monthly wage from
$85 to $95. Union leaders refused the
deal, and the strike started.
Van Sou Ieng, president of the man-
ufacturers association, estimated
at a press conference on Jan. 6 that
Cambodias garment factories lost
$200 million during the walkout
and that the industry stood to lose
20 percent to 30 percent of possible
future orders if international brands
and investors concluded Cambodia
was a risky place to do business. He
said that if the minimum wage were
raised to $160, layofs would follow.
Ee Sarom, executive director of
Palm Tree Leaf, a nongovernmental
organization that works on urban
poverty in Phnom Penh, counters that
factories could aford the $160 wage
were they not obliged to pay the gov-
ernment bribes. (The country ranks
160th out of 177 countries on the 2013
Corruption Perceptions Index prepared
by Transparency International.) Says
Sarom: The government has given up
trying to win the popularity and trust
of the people and now resorts only to
intimidation. Christina Larson
The bottom line The recent garment workers
strike in Cambodia, the largest in the industrys
history, may cost manufacturers $200 million.
Correlations
Banking and Age
By Mark Glassman
There are plenty of reasons to open a bank account when youre young.
Its a convenient way to gain access to money, a gateway to more credit,
and, in most countries, safer than a mattress. Yet all around the world,
young people are less likely than older folks to hold bank accounts, ac-
cording to a forthcoming report from the World Bank.
Share of age group with a bank account
From the reports survey of young adults in developing countries:
Youth are less likely to
say that distance is a
barrier because theyre
more comfortable with
technology and mobile
banking, says Leora
Klapper, a co-author
of the study
Having the documents
to open an account is
more of an impediment
for younger people as
they are less likely to
have a lease, deed,
or drivers license
GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: GLOBAL FINANCIAL INCLUSION DATABASE OF THE WORLD BANK
Why dont you
have a bank
account?
27
%
Too expensive
25
%
Someone else in the family
already has an account
12
%
Dont trust them
20
%
Too far away
20
%
Dont have the necessary
documentation
5
%
Religious reasons
J
O
H
N
V
I
N
K
/
M
A
G
N
U
M
P
H
O
T
O
S
Roughly 93 percent
of 26- to 64-year-
olds in high-income
economies have
bank accounts,
but only 48 percent
have saved at a bank
in the past year
Older adults (26-64)
Young adults (18-25)
100% 0% 20% 40% 80% 60%
High-
income
Upper-
middle
income
Lower-
middle
income
Low-
income
countries
Global Economics
17
200 smaller U.S. stores before admitting
defeat last year and selling or shutter-
ing them. Finding the right locations
in downtown areas is more challeng-
ing than in the wide-open suburbs.
The logistics of stocking stores without
massive loading
docks are compli-
cated. Merchandise
has to be selected
carefully to ft
smaller spaces. And
theres little or no
parking. For mega-
retailers, operat-
ing smaller stores is
like starting a whole
new business,
Davidowitz says. They have every good
reason to do it, but its not so simple.
Targets cheap-chic cachet would
seem to make it a natural ft in any big
citys shopping district. But Target is
often a cautious company. Wal-Mart
Stores has been experimenting with
smaller stores for more than a decade;
Target opened its frst smaller city store
18 months ago in Chicago. The com-
panys bull terrier mascot, Bullseye, and
the citys deputy mayor were among C
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January 13 January 19, 2014
Target has 1,797 stores in the U.S. One
thousand seven hundred and eighty-
nine of them are standard issue:
usually built from scratch, located
mostly in the suburbs, and averaging
135,000 square feet in size. The other
eight are something else altogether
smaller, more urban, less uniform.
These CityTargets, as the company
calls them, are an experiment in scaling
down; they could one day be an impor-
tant way for the $73 billion retailer to
keep expanding domestically.
Urban markets are the last American
frontier for big-box retailers such as
Target. Cities are growing faster than
suburbs and exurbs for the frst time
in decades, and theyre generally flled
with younger, more free-spending res-
idents, as well as college students and
tourists. Smaller stores also make
economic sense in the era of online
shopping. Everybody from Staples
to Kohls is downsizing, says Howard
Davidowitz, who runs a retail consult-
ing and investing frm in New York.
Getting small and urban, however, can
be more difcult than getting big. Case
in point: British big-box retailer Tesco.
It spent more than a billion dollars on its
Can Target
Find Its Place in
The Big City?
8
CityTarget stores
vs. Wal-Marts
almost 400 smaller
outlets
the guests at the grand opening. Since
then, the company has opened stores
in Seattle, Los Angeles, and Portland,
Ore. The last of the eight opened in San
Francisco in October. Target wont add
any others in 2014.
The company always planned to
build just a few city stores and then take
some time to fgure out whats working.
Were really pleased with the results,
said John Mulligan, the chief fnancial
ofcer, at a Sanford C. Bernstein confer-
ence in May. Now Target plans to per-
suade shoppers to visit more frequently,
he said, and spend more. The real ques-
tion for us is how small is small. As we
get the store smaller, the number of real
estate options becomes much broader.
CityTargets range in size from 89,000 sq.
ft. to 124,000 sq. ft., vs. 174,000 sq. ft.
for an average SuperTarget. The retailer
has had some urban stores for a while,
though they arent as centrally located as
the new ones.
During an August earnings call, Chief
Executive Ofcer Gregg Steinhafel
said the company was analyzing the
CityTargets results to determine
where in the stores we have the ability
to reduce space even more. Since then,
The chain and other big retailers are opening scaled-down outposts in urban areas
Operating smaller stores is like starting a whole new business
18
are more modestly sized than at
suburban locations.
John Grifth, Targets executive vice
president of property development, says
there are plenty of ways the Chicago
CityTarget difers from a regular store.
There are fewer maternity and kids
clothes, and the automotive section is
smaller. Were not going to stock our
shelves with 12- or 18-packs of paper
towels, because you cant get that home
on the bus, and you really dont want
Targets rapid expansion into Canada,
its frst foreign market, hasnt gone
as well as expected. Getting Canada
straightened out is a priority, says
Cowen Group analyst Faye Landes.
Wal-Mart, meanwhile, has opened
almost 400 smaller stores, ranging in
size from 15,000 sq. ft. to 39,000 sq. ft.,
and announced plans for at least
400 more over the next three years.
Not all of those are in big cities,
though. Executives said in November
that comparable-store sales at its
smaller Neighborhood Markets grew
3.4 percent in the third quarter; the
chains total comparable-store sales
declined 0.3 percent. Wal-Mart sees its
smaller stores as a $12 billion market.
For Target, too, the potential is huge,
and they are taking their time to get
the format right, the logistics right,
and location, location, location,
says Poonam Goyal, a retail analyst
at Bloomberg Industries. But they
shouldnt be so cautious.
The Chicago CityTarget is located on
two foors of a landmark building on
the corner of State and Madison, the
geographic center of the city. Louis
Sullivan, the American architect known
SuperTarget
Walmart Supercenter
Walmart Discount Center
Walmart
Neighborhood
Market
7-11 Walmart
Express
Target General Merchandise Store
CityTarget
Not-So-Big Boxes: Relative Store Sizes
Electric cars and
the dangerous sound
of silence 20
Walls looking bare?
Rent a masterpiece 21
Soccer competition
gets intense among
broadcasters 22
Briefs: The polar vortex
sucks in the airlines 25
as the father of the modern skyscraper,
designed the building for the Carson
Pirie Scott department store in 1899. Its
two main foors sat empty for almost
four years before Target leased them
in 2011. The 124,000-sq.-ft. store is
light and cheery, with shelves painted
a bright shade of white Target doesnt
usually use. There are mannequins
in the clothing departments, some-
thing its other stores dont have. The
shopping carts and checkout counters
The chains smaller store in
downtown Chicago is part of
retailers urban assault
19
it has proposed legislation making
acoustic warning sounds mandatory.
A United Nations council on trans-
port issues that has discussed common
rules is expected to issue guidelines
this year, according to Verband der
Automobilindustrie, the German
auto motive association.
Electric vehicles are mainly silent
at speeds slower than 30 kilo meters
(19 miles) per hour. Faster than that,
tire and wind noises kick in. Although
adding motor sounds at slow speeds
may help avoid accidents, it also
undercuts a unique selling point of
electric vehicles. One of the big com-
petitive advantages of electric vehi-
cles is their soundlessness, says
Stefan Bratzel, director of the Center
of Automotive Management at the
University of Applied Sciences in
Bergisch Gladbach, Germany. Its a
justifed goal to have quieter cities.
BMW, maker of the i3 hatchback,
and Volkswagen, maker of the tiny
e-Up!, want to keep the din of electric
vehicles at a minimum and will add
sound only if regulations are imposed
requiring them. Elon Musk, chief exec-
utive ofcer of Tesla Motors, said in
June that electric cars should direct a
pleasant- sounding noise as a gentle
warning to nearby people rather than
emitting sound all the time.
On Daimlers Smart, the engine tone
is standard in the U.S. and Japan but
optional in Europe. In Germany the
sound option costs an additional 180
($245) on the 23,680 ($32,245) car.
Unlike Renault, which equips its Zoe,
Kangoo, and Twizy electric models
with sound, the German company
doesnt allow customers to manually
turn of the noise.
Smarts sound mimics the noise of a
combustion engine by getting louder
as the driver presses down on the
pedal and higher as the car acceler-
ates. The automaker will equip electric
Mercedes models, including a variant
of the B-Class wagon expected to hit
U.S. showrooms later this year, with a
similar system.
For other manufacturers, the
dilemma is still fnding the right tone.
Simply imitating the sound of a com-
bustion engine was not an
option, says Ralf Kunkel,
head of acoustics at
Volkswagens
Audi unit,
who devel-
oped a C
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to haul that. Still, the Chicago store
isnt just aiming for grab-and-go shop-
pers. It does sell an eight-pack of Giant
Bounty paper towels ($13.99), as well
as a 30-pound bag of Iams dog food
($20.19) and a 152-ounce box of Tide Pods
($19.19). There are 20 brands of cofee,
6 kinds of Cheerios, and 9 favors of
Annies Mac & Cheese. The store ofers
baby strollers, 30-gallon storage bins,
even camping gear. Small is a mis-
nomer, Grifth says. Theres been a
lot of talk about size, size, size, size. But
its also true that the guest were going
after already knows who we are. Were
making it even more convenient for her.
For the Chicago Loop store, Target
had to improve its customer service,
because shoppers have many other
choices nearby. When someone asks for
an item, we walk the guest there, says
Rayn Baker, the stores head of human
resources. If theyre buying a gift, we
get the wrapping paper and a card. She
wants employees in the grocery section
to be able to pair cheese with wine.
There are operational diferences, too.
We cant bring a full-size semi trailer
downtown, Grifth says. Target had
to rethink its logistics so smaller trucks
could make more frequent deliveries
and unload overnight.
He says the retailer is working to
secure real estate in several of the
nations largest cities. At some point
its likely that CityTargets will get even
smaller. Shrinking to grow in town, as
hard as it is, has to remain among the
com panys ambitions. Susan Berfeld
The bottom line Ranging from 89,000 sq. ft.
to 124,000 sq. ft., Targets urban stores will
likely get even smaller.
Autos
Cue the Engine
Rumble
Almost-silent electric cars are
getting audio to make them safer
We all grew up with the vroom
vroom of combustion engines
Christoph Meier, a sound engineer
at Mercedes-Benz parent Daimler,
spends much of his time trying to
reduce the noise emitted by car
engines. But for the carmakers newer
electric models, hes had to do the
2011 2030
Electric Cars
On U.S. Roads
500k
250k
0
Projected
opposite: create sound. People
expect some exterior noise from a
vehicle, because we all grew up with
the vroom vroom of combustion
engines, says Meier, head of power-
train acoustics at the automaker.
Electric-car tech-
nology has come
a long way during
the past decade,
with advances in
battery capacity
and range. But the
cars emit almost
no sound at low
speeds, poten-
tially posing a
threat to cyclists
and pedestrians. If a silent electric
vehicle knocks over an elderly person
or a child, its not worth the risk, says
Neil King, an analyst with Euromonitor
International in London. It happens
often enough in urban areas that
people are stepping into the road
without looking. Visually impaired
people could be most at risk. They
could step right in front of a vehicle,
and the driver would have no real
chance to brake in time, says Gerhard
Renzel, a trafc expert for the German
association for the visually impaired.
Electric vehicles, still niche prod-
ucts, are struggling to gain popularity,
and a spate of accidents could
further dampen demand, King says.
In Germany, only 0.2 percent of the
2.95 million new cars registered in 2013
were electric. Adding synthetic motor
sounds could help address the safety
issue and protect carmakers invest-
ments in e-cars.
So far, Meiers team has invented
what it calls a sonorous purring
for Daimlers e-Smart city carthe
pitch of the two-seater is higher than
the engine in a conventional vehicle.
Mercedess SLS AMG Coup Electric
Drive has been ftted with huskier
tones to refect its power. Renault
ofers three car tonespure, glam,
and sportthat customers can choose
from for its electric Zoe hatchback.
Nissan Motors Leaf , the best- selling
electric car globally, also comes with
artifcial sound.
No formal data exist on
injuries caused by elec-
tric vehicles, but
the European
Union takes
the threat seri-
ously enough that
20
Companies/Industries
who wish to remain anonymous, Art
Remba has formed partnerships with
nine New York galleries and several
artist studios, representing more than
100 artists. The works are mostly from
emerging markets, Mehtas area of
expertise. Roughly 40 percent of the
pieces rent to individ uals. The rest go
to small businesses, such as boutique
investment frms, venture funds, and
family ofces. They want to outft their
ofces with substantial, eye-catching
art, Mehta says, but they dont neces-
sarily want to share enormous numbers
on their balance sheets with their LPs
[limited partners].
Others like the fexibility. Companies
dont necessarily stay in one space
long term, or they want to refresh
their visual environment, says Erika
Harrsch, a multi media artist whos
rented two pieces to businesses through
Art Remba. Unless theres a corpo-
ration that has an important collec-
tion, I think they are more interested in
keeping the possibility of changing.
Art Remba wont disclose subscriber
numbers, but Mehta says about 85 art-
works are in circulation. The most
expensive canvas currently rented, by
Syed Haider Raza, sells for $150,000 and
fetches $600 a month. Artworks in the
$1,000 to $1,750 range rent for as little
as $50 a month. When clients fall in love
with their rental art and decide to go all
in, 50 percent of their past monthly fees
goes toward the purchase. Art Remba
has brokered fve sales so far. Galleries
and artists get as much as 50 percent of
monthly rental fees. Art Remba gets a
commission for any piece sold.
The concept of renting art is not new.
Museums and art consultants such as
Art Assets do it, as do websites like
Artsicle, which ofers works by lower-
profle artists. Art Remba tries to set
itself apart by dealing only with estab-
lished artists who have fared well at auc-
tions or on the art fair circuit. Clients
can choose from a catalog available
on the companys site, but the startup
also has access to many more pieces.
The service hand-delivers and installs
the works and picks them up at the end
of a rental. It also supplies dossiers on
artists, to provide renters with dinner
table talking points.
Mehta, a 27-year-old Belgian whose
background includes time as a justi-
cial internship scholar for Chief Justice
John Roberts during college and stints
with private equity art funds, helps
put clients at ease. Unless youre
Art
Change the Paint
And the Paintings
A rental service for art lovers with
more taste than cash
Having a beautiful, important work
in your home feels wonderful
Alexandra Weiner, the 27-year-old
owner of online fashion retailer Figure
& Form, has never bought an expen-
sive artwork. She prefers to rent. Im
still young, she says. Im developing
my taste in art, testing things out. In
2012, Weiner signed
on to pay $200
per month for an
$11,500 photo graph
by top Chinese pho-
tographer Quentin
Shih. She recently
replaced it with a
mixed-media piece
by noted Turkish
artist Kezban Arca
Batibeki for sale at
$20,000. Having a beautiful, important
work in your home feels wonderful,
she says. And people defnitely notice.
People are amazed.
Weiners rentals were facilitated by
Art Remba, a New York startup that
makes available high-quality works that
would otherwise be sitting around in
gallery basements and artist storage
units. The idea is to democratize access
to the exclusive art world, let novice col-
lectors try works out before buying, and
help galleries and artists earn extra cash.
A lot of the people I know have fabulous
apartments in the city and completely
empty walls, says Art Rembas founder,
Nahema Mehta. Our whole impetus is,
once its on your wall, you can feel more
comfortable about starting to collect.
Launched in April 2012 with fnan-
cial backing from two private investors
tone for the A3 E-tron plugin hybrid,
which will be presented this month in
Detroit. We discarded ideas of giving
electric vehicles sounds such as birds
twittering or leaves rustling.
Dorothee Tschampa
The bottom line Some electric-car makers
favor the safety advantage of a dull rumble
instead of the sound of silence.
Art by the Hour
Some recent oferings on Art Remba
Lava Vectors
by Rafael Vargas-
Suarez
Painting, 2011
Vargas-Suarez
Universal
Renaissance Man
by Francis Newton
Souza
Drawing, 1964
Aicon Gallery
Orange Stripe
Abstraction
by Syed Haider Raza
Painting, 1975
Aicon Gallery
Untitled 8
by Avishek Sen
Mixed media, 2010
Aicon Gallery
$14,000 or
$150/month
$7,000 or
$100/month
Stranger in the
Glass Box, 12
by Quentin Shih
Photograph, 2008
PX Photography
Eurospecimen
Belgium
by Erika Harrsch
Mixed media, 2011
Erika Harrsch Studio
$11,500 or
$200/month
$5,000 or
$50/month
Price upon
request or
$300/month
$5,000 or
$50/month
Telegraph Mess
by Helen Dennis
Mixed media, 2011
Helen Dennis Studio
$1,750 or
$50/month
$250k
The cost of Art
Rembas most
expensive paintings,
which rent for
$1,000 a month
21
Companies/Industries
Soccer
Broadcast Rights
Scoreboard
brought in by an art world insider,
its very difcult to walk into a gallery
and feel like youll be given the time
of day, she says. As soon as you start
letting people talk about art and what
they like, they stop being scared.
Some of her clients are established col-
lectors of Western art who want to
explore new markets. Gallery partners
appreciate the arrangement, too. We
get to know what and how collectors
like our artworks, Philip Xie, director
of PX Photography Gallery, with loca-
tions in Brooklyn and Beijing, said in
an e-mail.
For safety, Mehta says, the art is
insured from the minute it leaves the
gallery or studio. Subscribers are also
carefully vetted. They fll out a question-
naire covering everything from educa-
tion level to building security, and Mehta
visits many in person. So far, Art Remba
has turned away 15 applicants. We try to
be as inclusive as possible, Mehta says.
But inclusive for people with the desire,
as well as the means, to participate in a
program like this. Caroline Winter
The bottom line Art Remba arranges rentals
of ne artworks for as little as $50 a month.
About 40 percent of its clients are individuals.
Media
No More Low Balls in
Soccer Rights Auctions
Newcomers helped double the price
to air Europes top matches
BT is doing to Sky what Sky did to
everyone else years ago
Just as soccer underdog Arsenal Football
Club has shaken up Englands Premier
League this season, up-and- coming
sports broadcasters in Europe are
causing trouble for rivals that have long
dominated the business. Pay-TV services
from British Sky Broadcasting Group
to Frances Canal Plus are in danger
of being priced out of the sport theyve
1. England 1,469m
2. Italy 932m
3. Spain 789m
4. France 613m
5. Germany 546m
6. Turkey 233m
7. Russia 78m
8. Portugal 75m
9. Belgium 70m
10. Greece 68m
2
0
1
1
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ruled for more
than a decade, with
new entrants such
as telecom giant-
cum- content pro-
ducer BT Group in
the U.K. and BeIN
Sport in France
bidding up rights
contracts to as
much as double
their previous level.
In the world of
sports content, the
only thing you can be sure of is theres
somebody whos got a check thats
bigger than their business plan, Sky
Deutschland Chief Executive Ofcer
Brian Sullivan said at a November media
conference in Barcelona.
At stake is one of the globes biggest
live TV audiences. About 173 million
soccer fans watched Germanys Bayern
Munich and Borussia Dortmund square
of in the Champions League nal
of the Union of European Football
Associations (UEFA) last season.
As a new round of rights auctions
approaches, more established broad-
casters face giving up some of their
most popular programming or shelling
out far more for licenses. Both options
pose a threat to proft. BTs purchase
of rights for Englands Premier League
means Sky customers have missed out
on some Arsenal games this season.
The club holds the leagues top spot
more than halfway through the season,
boosting the chances that the title will
be won by a team other than Chelsea
or one of the two Manchester squads
for the frst time in a decade.
BT outbid British pay-TV market
leader BSkyB for U.K. rights to the UEFA
Champions League and UEFA Europa
League. And the two companies are
splitting rights to the Premier League,
giving BT most of the biggest European
contests. BT is doing to Sky what Sky
did to everyone else years ago when it
used its cash to knock out competition,
says Ian Whittaker, a media analyst at
Liberum Capital in London.
The phone company says the prices
its paying make sense as part of a
broader business strategy to use must-
see sports programming to win users for
its broadband service. BTs sports chan-
nels will be available free to its Internet
customers, with the exception of a yet-
to-be-determined fee for European
league games. BT ofered 897 million
($1.47 billion) over three years for live
22
Companies/Industries
UEFA league broadcasts beginning in
2015. Thats more than twice what BSkyB
and its partner ITV paid for the previ-
ous three years, Sanford C. Bernstein
estimates. In June 2012, BTs aggressive
bidding helped almost double the price
for Premier League games when it com-
peted with Sky for 154 English matches.
Sky got 116 games while BT won 38 for
the 2013-14 season. The auction raised
3.02 billion, vs. 1.77 billion the previ-
ous season, the league said.
Some customers may decamp to
cheaper online services or illegal stream-
ing websites if broadcasters hike sub-
scription rates to recoup those hefty
investments, but that hasnt stopped the
expensive dealmaking. Sky Deutschland
in 2012 won rights to broadcast
Germanys Bundesliga soccer matches,
beating rivals including Deutsche
Telekom, another former phone
monopoly expanding to other services.
In France, newcomer BeIN Sport, set up
by Qatar broadcaster Al Jazeera,
beat out Vivendis Canal Plus
for rights to most Champions
League matches in the last round
of bidding. Frances rugby league
this month said its breaking an
exclusive deal with Canal Plus so
it can auction broadcast rights
to the highest bidder. We dont
think theyre grabbing customers from
us, but its defnitely having an impact
on programming costs, Vivendi Chief
Financial Ofcer Philippe Capron said
at the Barcelona conference. Al Jazeera
representatives didnt respond to e-mails
seeking comment.
The amount broadcasters have to pay
for rights will likely keep rising as pay-TV,
currently in about half of British homes,
continues to expand, according to Dan
Jones, a partner in the sports business
group of consulting frm Deloitte. The
biggest benefciaries of the increase are
soccer clubs, but if they use the wind-
fall to boost player salaries and build
stronger teams, its money well spent,
Jones says. The only reason people buy
tickets, T-shirts, and TV subscriptions is
because of what the guys are doing on
the pitch, he says. The clubs deserve
to reap the rewards. Amy Thomson,
Kristen Schweizer, and Marie Mawad
The bottom line Broadcasters bid $5 billion
to air Premier League games for the 2013-14
season, almost double the size of the prior deal.
Briefs
The Big Brrrrr
S
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By Kyle Stock
Edited by James E. Ellis
Businessweek.com/companies-and-industries
e U.S. airlines canceled more than 11,000
flights as record-low temperatures broke jet-fuel
pumps and limited ground crews to 15- minute
shifts. Carriers rushed to placate stranded passen-
gers with travel vouchers, cash reimbursements,
and extra flights. Cowen analyst Helane Becker
estimates the cold front will cost airlines between
$50 million and $100 million. c Digital movie
purchases increased almost 50 percent last year,
offsetting an ongoing decline in the DVD business, according
to a report from Digital Enter-
tainment Group. Com panies
such as Amazon.com and Apple
have primed the relatively new
revenue stream by sel l i ng
downloads of popular films
for a few weeks before making them available to rent online.
s
AT&T announced a plan to allow companies to subsidize
consumers data costs for downloading apps and other con-
tent. UnitedHealth Group, one of the first such sponsors, will
use the service to promote wellness videos. AT&T sees the
sponsorships as a way to shore up flagging customer growth.
H Four com panies, including supplement maker Sensa
Products and skin-care retailer LOccitane en Provence, agreed
to collectively pay $34 million to settle fraud charges
over the marketing of weight-loss products.
The companies neither admitted nor denied
wrongdoing, but their pitches, the Federal
Trade Commission said, were too good to be
true. Y After six months without a chief
executive officer, Barnes & Noble tapped com-
pany President Michael Huseby for the job.
Huseby joined the bookseller as chief finan-
cial officer in 2012 from Cablevision Systems,
where his tenure was marked by spinoffs.
Champion U.S. skier
Lindsey Vonns decision to
pull out of the Olympics
could mean a ratings slump
for NBCUniversal and less
podium magic for her
sponsors, including
Procter & Gamble and
Under Armour.
CEO
Wisdom
Films are an art. They
are also an industry.
Forget that a moment
and you have a money
loser on your hands.
Run Run Shaw,
co-founder of Shaw
Bros. and the father of
Kung Fu lms, who died
on Jan. 7 at age 106
Estimated increase in
Velveeta cheese sales
in 2013. Kraft Foods
said it is struggling to
ll a supply shortage
in advance of the
Super Bowl.
23.7%
Companies/Industries
25
January 13 January 19, 2014
States consider constitutional amendments that could shield industrial farms from lawsuits
You cant limit an activity if its a fundamental right
C
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manure pit runof
26
to enshrine a broad right to engage
in modern farming practices. The
same phrase popped up in a proposed
Oklahoma amendment that has been
tabled until the next legislative session.
In Missouri, the word modern was
dropped from the most recent version
of the amendment due to concerns that
it appeared too narrowly aimed at ben-
efting industrial farms. Instead, the
legislature has asked voters to decide
this year whether the right of farmers
and ranchers to engage in farming and
ranching practices shall be forever guar-
anteed in this state.
Supporters in all three states have
promoted the amendments as neces-
sary to protect farmers from out-of-
state special interests, in the phrasing
of the pro-amendment group Missouri
Farmers Care. One of those special
interests is the Humane Society of the
United States, which sought to regulate
puppy mills in the state. Weve seen
an increase in eforts by what we would
call activist organizations through-
out the country and in Missouri to try
to impose unreasonable and unnec-
essary restrictions on agriculture,
says Leslie Holloway, director of state
and local governmental afairs for the
Missouri Farm Bureau. Were taking
the approach of trying to be proactive.
Indianas legislators took a somewhat
stealthier approach, downplaying the
benefts to commercial agriculture and
naming their version the Indiana Right to
Hunt and Fish Amendment. Both houses
had already approved the bill once (they
must do so twice to get it on the ballot in
November) before many environmental
groups realized what had happened. It
just slipped right past us,
Ferraro says.
Much of the drive
behind the amendments
has come from big cor-
porations. Members of
Missouri Farmers Care
include Cargillone of
the nations largest pro-
cessors of beef, pork, and
turkeyand Monsanto,
as well as a long list of
state agricultural indus-
try associa-
tions. Some of
them have been pressing
for farm protections
Article I of Indianas constitution begins
in the usual way, spelling out the famil-
iar rights to life, liberty, and the pursuit
of happiness. In November, Indiana
voters may be asked to decide whether
to add one more to the list: the right to
engage in the agricultural or commer-
cial production of meat, fsh, poultry, or
dairy products.
When Republicans in the state legis-
lature introduced a bill in 2011 to start
the process of amending the consti-
tution, many people regarded it as a
joke. The senate minority leader mock-
ingly tried to tack on a constitutional
right to garden; a local political colum-
nist called the amendment a circus-like
sideshow. The bills sponsors said it
was a way to keep non-farmers, includ-
ing national animal rights groups, from
meddling in the states rural interests
an update on the right-to-farm laws that
protect farmers in all 50 states from
being sued by people who move to rural
areas from cities and then sue their new
neighbors over the smell.
But the amendment could also help
shield large industrial dairies, feedlots,
and slaughterhouses from environmen-
tal and food safety regulationsand
curb lawsuits from people who get
sick from the rivers of noxious animal
waste they produce. All the safeguards
that we already have would be subject
to constitutional challenge, says Kim
Ferraro, an attorney with the Hoosier
Environmental Council. You cant limit
an activity if its a fundamental right.
Indiana is one of several states that
have moved to change their constitu-
tions to favor agricultural operations.
In 2012, North Dakota became the frst
Winding down wind
subsidies 28
A study of class
actions reveals that
they defy studying 29
Mississippi pork that
couldnt be pulled 30
The trouble with short-
term health plans 31
manure pit
Eric Stickdorn
The Stickdorns farm
27
DATA: USDA
for years. In 1996, the American
Legislative Exchange Council, or ALEC,
a group that brings together corpora-
tions and state lawmakers to write pro-
business bills, came up with model
legislation that would expand exist-
ing right-to-farm laws to grant wide-
ranging legal rights to farms of all sizes.
ALECs bill, intended as a template
for state politicians, voided local farm
ordinances and made it harder to lodge
complaints about animal mistreat-
ment, pollution, and noise. Supporters
and opponents of the amendments see
them as the evolution of those eforts,
taking farm protection, for better or
worse, to the next level.
Peverill Squire, a University of
Missouri political scientist who studies
state constitutions, says the proposed
amendments are rooted in concerns that
the growing movement to reform indus-
trial agriculture will mean trouble for
farmersthat urbanites will try to restrict
what methods or chemicals they can use
or dictate how they house animals or
deal with their waste. In several Indiana
counties, activists are working to ban
CAFOsconcentrated animal feeding
operations. The U.S. Environmental
Protection Agency defnes CAFOs as
businesses that congregate animals,
feed, manure and urine, dead animals,
and production operations on a small
land area. Going after puppy mills may
be one thing, but when people start
talking about cattle and the treatment
of pigs, that gives them greater worry,
Squire says. They want to strike frst, in
essence, and prevent any of that concern
from taking root.
When a dairy operation moved next
door to Eric and Lisa Stickdorns farm
in Wayne County, Ind., in 2003, the
couple couldnt believe the stench.
At frst, Wed grit our teeth and say,
Were going to stay here, says Eric,
who raises grass-fed beef on 120 acres.
Were farmers, too. Were not unac-
customed to manure odors. But the
open manure pit near their house was
more than they could take. They say
the dairy workers would sometimes
dump animal waste onto frozen felds,
turning the water in the stream that ran
across their property into a foaming
sludge. Their well water smelled of
manure. They started experiencing
headaches, nausea, and vomiting,
which their doctor attributed to expo-
sure to hydrogen sulfde gas given of
by the waste pits.
They moved out of their house and
turned to the Indiana Department of
Environmental Management and Ofce
of Environment Adjudication for help,
to no avail. Finally they sued the dairy
to change the way it disposed of animal
waste and won on appeal. Faced with
the need to change their operations,
the dairy owners ofered to sell their
land to the Stickdorns, who bought it
and moved back home last July, after
nine years away. Eric Stickdorn says
he fears that if the amendment passes,
people who live next to agricultural pol-
lution will have even fewer options for
recourse. Were treating these facili-
ties as if theyre farms, says Ferraro,
who represented the Stickdorns in
court, when really theyre factories.
Brooke Jarvis
The bottom line Backed by agribusiness,
lawmakers in Indiana and Missouri are pushing
to put farmers rights on the ballot.
Farms Are Bulking Up
Share of agricultural sales by farm size
U.S. farms with sales of
$1 million or more per year
2007 1987
$250,000 to
$999,999
$10,000 to
$249,999
Under
$10,000
0%
50%
100%
Nuclear
$
108
Coal
$
100
Natural Gas
$
67
The Price of Power
Thanks to generous federal tax
credits, producers of wind power can
often sell energy at below cost and
still make money.
... but wind
companies earn
tax credits for each
megawatt hour they
produce
This allows them to
undercut competing
energy producers
and drive down
prices
To cover their costs, producers of other
forms of energy have to charge more per
megawatt-hour
This is the average
price per megawatt-
hour a wind producer
would need to charge
to cover costs...
Energy
No More Breeze at
Their Backs
Wind energy companies prepare for
a future without federal handouts
Its reasonable to ask if it deserves
such a big subsidy
In Texas, the wind tends to blow the
hardest in the middle of the night. Thats
also when most people are asleep and
electricity prices drop, which would be
a big problem for the companies that
own the states 7,690 wind turbines if
not for a 20-year-old federal subsidy
that efectively pays them a fat rate for
making clean energy no matter what
time it is. Wind farms, whether pri-
vately owned or part of a public utility,
receive a $23 tax credit for every mega-
watt-hour of electricity they generate. (A
megawatt-hour is enough juice to power
about 1,000 homes for one hour.) This
credit, which was worth about $2 billion
for all U.S. wind projects in 2013, has
helped lower the price of electricity in
parts of the country where wind power
is prevalent, since wind producers can
charge less and still turn a proft. In
Texas, the biggest wind-producing state
in the U.S., wind farms have occasion-
ally sold electricity for less than zero
that is, theyve paid to provide power to
the grid to undercut the states nuclear
or coal energy providers.
This sweetheart deal looks to be
on its way out, in part because it
succeeded in what it set out to do.
Over the past fve years, wind has
accounted for 36 percent of all new
electricity generation installed in the
U.S., second only to new natural gas
DATA: U.S. ENERGY INFORMATION ADMINISTRATION
28
Politics/Policy
Courts
The Case Against
Class Actions, Kind Of
The authors of a new report hit a
wall of secrecy
I was sad to see how little data
there is
For years, the U.S. Chamber of
Commerce and other business groups
have tried to slow the proliferation of
class actions. The reason seems obvious
enough: Corporations dont relish the
prospect of being ordered to pay huge
settlements to thousands of custom-
ers who band together and sue over
faulty products or bad behavior. Yet
the chamber argues the real reason
class actions should be curbed is that
theyre inefective: Many of the cases
are dropped or get thrown out by the
judge. And even when the plaintifs
win moneylike in 2011, when Bank
of America agreed to pay $410 million
to settle complaints about its over-
draft feesa lot of the money goes into
the pockets of plaintifs lawyers, not
regular Joes. In the BofA case, attorneys
came away with $123 million.
Its hard to say whether this is true in
most cases, in part because the courts
dont keep records on how class actions
are resolved. So last year, the chamber
hired attorneys at Mayer Brown to
conduct a detailed study tallying up the
winners and losers. A major frm that
represents the chamber and big com-
panies including Medtronic and Nestl,
Mayer Brown isnt exactly an impartial
arbiter. Still, the reports conclusions,
released in December, are illuminating
for reasons its authors might not have
anticipated.
The study looked at 148 consumer
and employment class actions fled
in federal court in 2009, far enough
back in time that most of them, 127,
have made it through the legal system.
According to the report, none of the
cases went to trial or resulted in a court
judgment in favor of the plaintifs.
Forty-fve of the cases were voluntarily
dropped by the plaintif who fled the
suit. Another 41 were deemed without
merit and dismissed by a federal court.
All told, 40 cases reached settlements.
Its not known how much plaintifs
got in any of them, because the details
werent made public.
The studys authors did fnd some
settlement data for six of the cases. In
one, a New Jersey payment process-
ing company, whose computers were
hacked, settled for $1 million with cus-
tomers claiming their credit card infor-
mation was compromised. Of the
estimated 130 million people who may
have been afected, just 11 fled valid
claims for payments of up to $175,
according to the studys authors. Thats a
rate of 0.000006 percent. If each of them
got the maximum, the awards would
have totaled $1,925. Plaintifs lawyers on
the case were given $606,192 in fees, plus
$35,000 in expenses.
Another case, involving a Kansas
propane distributor that settled with
customers who said the company
marketed preflled tanks as full when
they allegedly were not, had a claims
rate of 12 percent; of the 128,406 class
members, 15,773 fled to collect. Again,
court flings didnt say how much indi-
viduals received. Had each claimant
gotten the maximum $150 payout, it
would have added up to $2,365,950.
Lawyers were awarded $7.25 million
in fees and expenses, the studys
researchers say.
The chamber has trumpeted the
report as evidence that class actions
dont help plaintifs. Thats murky
at best, given the studys short time
frame. What it shows most clearly is
how secrecy surrounding these cases
makes it impossible for the chamber
or anyone else to draw solid conclu-
sions about their efectiveness. The
Committee, took a frst crack at it with
a proposal to do away with the coun-
trys 42 separate energy subsidies, many
of which expire every couple of years,
and replace them with two simple tax
credits: one for the production of clean
electricity, the other for clean transpor-
tation fuels. The credits would expire
only after the U.S. achieved certain
goals in the reduction of greenhouse gas
emissions. To Blake Nixon, president of
Midwestern wind developer Geronimo
Energy, that sounds like a pretty good
deal even if it would mean less money
from the government. Right now, he
says, I would trade a smaller subsidy
for a dose of long-term certainty.
Matthew Philips
The bottom line Though the generous tax
subsidy for wind power technically expired in
2013, companies will keep getting it for years.
Wind is one of the fastest-
growing sources of energy in the
U.S., producing six times more
power than solar
installations. Wind now supplies more
than 4 percent of the countrys elec-
tricity. At about 60,000 megawatts,
theres enough wind energy capacity to
power 15.2 million U.S. homes, a more
than twentyfold increase since 2000.
Its still tiny compared to fossil fuel:
Combined, coal and natural gas supply
roughly two-thirds of U.S. electricity.
But wind produces about six times
more electricity than solar. Thats led
Congress to take steps to do away with
tax incentives frst established in 1992
to help the fedgling industry take root.
In December lawmakers allowed the
credit to expire.
This doesnt mean wind producers
are suddenly out in the cold. The tax
credit lasts for 10 years after a project is
complete, so most of the wind energy
produced in the U.S. will continue to
receive federal support for at least a
few more years. And any wind turbine
that was under construction before
the end of last year will still get a full
decade of credits. But projects that get
under way from now on wont qualify
for the benefts. The wind indus-
try is all grown up now, says Michael
Webber, deputy director of the Energy
Institute at the University of Texas
at Austin. Its reasonable to ask if it
deserves such a big subsidy.
The wind tax credit has expired
before, including at the end of 2012,
but Congress always renewed it. As the
2013 deadline neared, wind develop-
ers rushed to buy equipment and get
their projects started before the end of
the year. In December, MidAmerican
Energy, an Iowa utility thats majority-
owned by Warren Bufetts Berkshire
Hathaway, bought $1 billion of wind tur-
bines from Siemens, the biggest single
order for on-shore turbines ever. Mark
Albenze, chief executive ofcer of the
Wind Power Americas unit of Siemens
Energy, says he now has 18 months
of work lined up. After that, business
could dry up pretty quickly without
the credit as an incentive to build. Im
already getting itchy, he says.
Congress may decide to renew the
credits as part of the larger, endlessly
debated efort to overhaul the tax code.
In December, Montana Democrat Max
Baucus, chairman of the Senate Finance
29
Politics/Policy
N
A
S
A
Congress
Its Not Rocket Science.
Its Pork
Congress orders NASA to nish a
testing tower for a dead program
Politics often impedes agency
eforts to cut unneeded spending
Early this year, NASA will complete work
on a $350 million tower to test rocket
engines at the John C. Stennis Space
Center in Mississippi. When its fn-
ished, the 300-foot steel-frame facility
will stand unusedbecause the agency
doesnt need it. The engines it was sup-
posed to test were part of a Bush-era
that. A relic of President George W.
Bushs Constellation program, it was
intended to test engines for rockets that
would carry U.S. astronauts back to
the moon and beyond after the space
shuttles retirement in 2011. President
Obama proposed ending the program
in 2010 following rising costs and
delays. At the time, NASA already had
spent $292 million on the A-3 structure.
Since then, its spent an additional
$57 million to keep building it, accord-
ing to a February 2013 report by the
agencys inspector general, Paul Martin.
Testifying before the House space sub-
committee in September, Martin high-
lighted the A-3 as an example of how
lawmakers, looking to keep federal
dollars fowing to their states, can block
eforts to cut unnecessary spending.
The political context in which NASA
operates often impedes its eforts to
reduce infrastructure, he said.
The tower, built to support liquid
oxygen and liquid hydrogen tanks
weighing as much as 320,000 pounds
apiece, is made of millions of pounds
of steel and includes chemical steam-
generator units that would have been
used to simulate an engines ability
to power a rocket to altitudes up to
space program that was canceled in
2010. And NASA isnt developing any
new rockets that would require the A-3
tower for testing. You might think con-
gressional leaders scouring the federal
budget for fat would have welcomed
such an obvious, painless cut. Instead,
its funding survived thanks to Mississippi
Republican Senators Roger Wicker, who
wrote an amendment to a 2010 NASA
bill requiring the agency to wrap up the
work, and Thad Cochran, who advo-
cated for the spending from his seat on
the Appropriations Committee.
With more than 5,000 workers, the
Stennis Space Center is the largest
employer in Hancock County, on
Mississippis Gulf Coast. The A-3 tower
is the frst major test structure built at
the center since the 1960s. Stennis is a
magnet for public and private research
investment because of infrastructure
projects like the A-3, Wicker wrote in
an e-mail explaining his eforts to con-
tinue funding it. I authored an amend-
ment to require the completion of that
particular project, ensuring the Stennis
facility is prepared for ever-changing
technologies and demands.
Its not clear how the tower will
accomplish
beneft to actual class members is
almost never revealed, the report
concludes. That came as a surprise to
Andrew Pincus, the studys lead author
and a seasoned attorney whos repre-
sented AT&T and other major corpo-
rations. You hear these anecdotes in
these settlements where people dont
really get anything, and then you hear
further anecdotes of a settlement of
$20 million, but its behind this veil of
secrecy, Pincus says. I was sad to see
how little data there is.
The way the system is set up,
theres little incentive to share details.
Corporations dont want to reveal what
theyve had to pay out, and plaintifs
lawyers dont want their fees to make
headlines. Until that information is
made public, we dont have the data
that would enable a policymaker who
really cares about the facts to make a
wise decision, says Deborah Hensler,
a class-action scholar at Stanford Law
School. She argues that, for all their
faws, class actions are an efective
deterrent to corporate misbehavior.
It wouldnt be difcult to unearth
the numbers, says Hensler: Theres
no reason why a judge cant order
lawyers to submit a report to the court
at the end of a case, detailing how
much money was actually claimed by
class members, how many of them
came forward, how much money was
collectedand more.
Dimitra Kessenides
The bottom line Researchers for a report on
class actions couldnt learn how much plaintifs
were paid because lawyers kept it secret.
Component
tanks
These generate steam used to create the
vacuum needed to test the engines
Planned
Obsolescence
30
Politics/Policy
Edited by Weston Kosova
Businessweek.com/politics-and-policy
100,000 feet. NASA isnt going to let all
that unused equipment turn to rust.
Spokeswoman Karen Northon says
the agency will maintain the unused
structure, in case its needed in the
future. That will cost taxpayers a mere
$840,000 a year. Jonathan D. Salant
The bottom line Mississippi senators kept
millions in federal dollars owing to the state
for a rocket-testing tower NASA doesnt need.
Health Care
A Wild West Market for
Short-Term Health Plans
Policies pitched as Obamacare
alternatives have lots of gaps
If you get sick, its not going to
take care of you
If youre shopping for health insurance,
you may get a pitch for something called
a short-term medical plan. These policies
have been around forever and are aimed
at recent college grads, people between
jobs, and new employees waiting for
The Tampa company, which raised
$65 million in an initial ofering about a
year ago, is expecting a boost from the
ACA, even though its plans dont meet
the laws requirements for adequate cov-
erage. We want to be ready to take full
advantage of this unprecedented degree
of market expansion, Chief Executive
Ofcer Michael
Kosloske said in a
November earn-
ings call. In an inter-
view, Kosloske says:
Our benefts are
the same or better
than what youre
going to fnd, for
example, on the
exchanges.
A sample policy
sold by Kosloskes company suggests
otherwise. Unlike ACA plans, it doesnt
cover immunizations and routine phys-
icals, outpatient prescription drugs,
preexisting conditions, pregnancy or
childbirth, sports injuries, substance
abuse treatment, allergies, or kidney
disease. It also comes with a $2 million
lifetime limit on benefts, a provision
banned under Obamacare rules.
Buying the stripped-down, short-term
policy could save a 30-year-old Florida
man $1,123 in premiums over a year, com-
pared with a typical bronze-level HMO
plan from Humana. If he earns $46,000 a
year, hed have to pay about 41 percent of
the savings in tax penalties for not having
coverage authorized by the ACA. The
penalty rate will double in 2015. If the
hypothetical consumer earns $23,000
or less, federal subsidies would make up
the diference between the price of the
bronze plan and the short-term policy.
Kosloske points out that the bronze
plan has exclusions, too, and a limited
networkit doesnt pay anything if you
see a doctor outside the plan. In the
plan his company sells, covered bene-
fts are paid the same way whether in or
outside the broad and highly accessible
provider network, he says.
Pollitz advises consumers to stay
away from short-term plans. It may
cover your claims until your term of
coverage runs out, she says. But for
anyone who gets sick and hopes to
renew, its junk. John Tozzi
The bottom line Consumers buying cheaper,
short-term health plans get limited benets
and still have to pay Obamacare penalties.
group benefts to kick in. Theyre mar-
keted by major insurers including
UnitedHealthcare Services, Humana,
some Blue Cross and Blue Shield carri-
ers, and many smaller companies.
Short-term plans have become more
visible as some insurers and brokers
take advantage of the hoopla sur-
rounding the Afordable Care Act to
market them as alternatives to the pol-
icies available on the state and federal
exchanges. Although the plans look
a little like those approved under
Obamacare, they provide less cover-
age and dont have to adhere to the
same rules. The companies are allowed
to turn away patients who are sick and
refuse to cover preexisting conditions.
They dont have to pay for preventa-
tive care and arent required to renew a
policy if a patient needs a lot of medical
care. If you get sick, its not going to
take care of you, says Karen Pollitz,
a senior fellow at the Kaiser Family
Foundation, a health researcher.
The short-term plans also dont
satisfy the Obamacare requirement
that people have adequate coverage,
so people who buy them face the
same tax penalties as the uninsured.
Twenty percent of short-term policy-
holders believed, wrongly, that their
coverage would be adequate under
the ACA, according to a survey pub-
lished in September by EHealth, an
online brokerage that sells conventional
and short-term policies. An additional
64 percent said they werent sure.
Theres plenty of cause for the con-
fusion. Assurant, one of the larger
sellers of the temporary medical plans,
says on its website that these plans
do not meet minimum essential cover-
age requirements and customers may
face tax penalties. But insurance agency
Liberty Medicare in Wynnewood, Pa.,
called short-term plans a viable alter-
native to Obamacare plans in a recent
blog post, although the company also
noted that their benefts are not as
broad as Obamacare benefts. Even if
the policies exclude preexisting condi-
tions, says president Gregory Lazarev,
for healthy people who are not entitled
to subsidies, it makes perfect sense to
go and buy a short-term plan.
There defnitely are some companies
out there that are aggressively market-
ing these and [similar] policies, Pollitz
says. One making expansive claims
is Health Insurance Innovations,
which connects consumers with short-
term policies from third-party insurers.
20%
Percentage of
short-term policy
holders who wrongly
believe their plan
meets Obamacare
standards
Engine
exhaust
difuser
A-3
tower
31
Politics/Policy
My Fridge Is
Smarter Than Yours
January 13 January 19, 2014
Samsung aims to dominate the appliance business by 2015
You cant be No.1 without capturing the core of the market
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The technology industry hums with
disruptive new companies that enter
the market by taking share away
from others or creating markets of
their own. But kitchen appliances?
The brands that dominate the feld
todayWhirlpool, General Electric,
Kenmoreare the same names
weve known for decades. Samsung
Electronics plans to upend that.
The Korean electronics company
says it wants to become the worlds
largest appliance manufacturer by 2015.
Its already the fastest-growing appli-
ance brand in the U.S., having jumped
from 2.3 percent in market share to
more than 10.5 percent over the last fve
years. Were on track, says B.K. Yoon,
Samsungs co-chief executive ofcer
in charge of consumer products such
as TVs and appliances. But grabbing
the top spot from appliance leader
Whirlpool wont be so easy. Samsungs
appliance-related revenue totals roughly
$12 billion a year; Whirlpool took in
almost $18 billion in 2012. (Whirlpool
declined to comment.) In the U.S. espe-
cially, Samsung has a way to go, says
Eric Voyer, a vice president and former
appliance-industry analyst at the
Stevenson Co., a market-research frm.
At the weeklong International
Consumer Electronics Show (CES)
Your move
32
The lazy mans phone
charger 36
A site that keeps your
wedding from getting
lost in translation 35
Intels smarter
smartphone tester 35
This business plan will
now self-destruct 34
in Las Vegas, Samsung announced a
Smart Home initiative, which aims to
allow owners to use smartphones and
tablets to control their air conditioners,
refrigerators, washers, and LED light-
ing. The appliances will also connect to
the Internet independently to download
new software or let users monitor their
homes via built-in exterior cameras. At
the Jan. 7 press conference, the company
spent as much time talking up its new
refrigerators and washing machines as it
did its tablets and ultra-HD TVs.
Yoon says his companys efort to
outsell Whirlpool will depend on
Samsungs ability to develop appli-
ances that go further than customers
are used to. The speed of innovation
in home appliances is very slow. Its
not like its been with phones, PCs, and
TVs, Yoon says. The frst dish washers
were made in 1860, and they havent
really changed in 150 years.
Beyond its Smart Home designs,
Samsung has pushed appliance- specifc
features into each product to diferen-
tiate them from the competition. Its
Chef Collection refrigerator can dis-
pense still and sparkling water, keep
diferent zones cooled to diferent tem-
peratures, and convert a small fridge
compartment into a secondary freezer.
The com panys FlexDuo oven comes
with an insert that can partition it into
two cooking areas heated to difer-
ent temperatures. At CES, Samsung
executives introduced a dishwashing
tech nology called WaterWall, which
replaces the familiar rotary spray arm
with a linear system that promises to
get water into hard-to-reach corners
of the dishwasher.
Samsung also aims to capitalize
on its association with the Michelin-
starred chefs who consulted on its
Chef Collection line, including famed
French restau-
rateur Michel
Troisgros and
California chef
Christopher
Kostow. The com-
panys high-end
refrigerator has
a target price of
$6,000, almost
50 percent more
than the most
expensive Kenmore model. Currently,
Samsungs average price for an appli-
ance is $1,046 in the U.S., accord-
ing to the Stevenson Co. The industry
average is $702.
For Samsung to become the world
leader in appliances, it will have to
broaden its appeal with cheaper
models, says Bob Baird, vice president
for appliance merchandising at Home
Depot. Right now theyre a premium
brand, but you cant be No.1 without
capturing the core of the market, says
Baird, whose company began selling
Samsung products at the end of 2012.
Yoon knows this. It would be very
difcult for us to reach our goals if we
only focused on the premium market,
he says. If the consumers want us, we
are going to be there. But starting at
the premium end lets us develop solu-
tions that can start at the high end and
then flter down.
One area in which Samsung may
have an edge is consumer recognition
that extends beyond appliances. The
com panys success in TVs and mobile
devices means that far more people are
familiar with Samsung than ever before.
In 2012, Samsung spent $29 million
on U.S. appliance advertising, accord-
ing to data from Kantar Media, which
tracks ad spending. Thats less than
the $33 million appliance archrival
LG Electronics spent on home goods,
and a lot less than the $54 million spent
by Whirlpool. Zoom out, though, and
Samsungs advertising dwarfs that of
the other appliance makers: In 2012
the company spent $600 million on
ads overall. They have terrifc brand
awareness, and smartphones help
with that, Baird says. People come
in looking for Samsung.
The connection to smartphones
and tablets goes beyond branding. As
a company that already makes mobile
devices, Samsung should fnd it easier
to connect its appliances to a home
network for remote control and main-
tenance. Right now only one Samsung
washer can be controlled via a smart-
phone app, but the company is adding
its microprocessors and wireless chips
to a wide range of appliances. Even if
Samsung doesnt top Whirlpool next
year, its well-placed to lead consumers
into a kitchen full of Wi-Fi enabled
machines. Says Yoon: We do phones,
TVs, semiconductors. We have the
technology to build the smart home.
Sam Grobart
The bottom line Samsung wants to use its
technology and brand recognition to take
over your kitchen.
Internet
Filmmakers Start
To Pay Of for Vimeo
IAC looks to the video site
to bolster its growth
They view Vimeo as one of the
best assets of the company
Among big consumer Web businesses,
there may be no tougher battlefeld
than video sharing. With Amazon.com,
Hulu, Netfix, and Googles YouTube
among the companies fghting for
viewers time, it can be difcult for even
a well-fnanced competitor to attract
attention. For video connoisseurs,
though, the mainstream services leave
a big gap: None combine the reliable,
ad-free HD video of Netfix with the kind
of marketplace democracy that birthed
YouTubes endless stream of cat videos.
Its a gap that Vimeo, the video-sharing
site loved by artsy flmmakers and long
ignored by the market, is starting to fll.
Ad-free since its founding in 2004,
Vimeo receives about 100 million
unique viewers a month through
its home page and from other sites
that embed its video player, accord-
ing to Chief Executive Ofcer Kerry
Trainor. Of its 22 million registered
users, about 400,000 professional and
would-be professional artists pay a
premium to upload greater numbers
Q3 2013
pace
Parent company 2011 2012 vs. 2012
Electrolux $25m $30.3m 1%
GE $7.8m $28.6m 28%
LG Electronics $34.8m $33m 14%
Samsung Group $33.2m $29.1m 10%
Whirlpool $56.9m $54.3m 147%
Spending on Appliance Ads
DATA: KANTAR MEDIA
$12b
Samsungs
appliance-related
revenue in 2012
33
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of higher-quality videos. On
Jan. 7 the company said it has
shifted its default video player
from Adobe Systems Flash to HTML5,
which simplifes posting to social media
and halves load times. The new player
also makes it easier for viewers to buy
or rent videos through Vimeos year-
old on-demand service, which has
attracted flmmakers. They set the on-
demand prices for their videos and pay
Vimeo as much as
$199 a year.
That to us is the
lead step in terms
of starting to mon-
etize our audi-
ence, Trainor says.
We are extremely
bullish on it.
Vimeos revenue
jumped 60 percent,
to $40 million, in
the 12 months ended in September,
making the site a sudden star within
parent company IAC/InterActiveCorp.
Since an executive reshufe last
month, Trainor reports directly to
Barry Diller, the billionaire chair-
man of IACs grab bag of about 50 Web
com panies. (Its two biggest businesses
are dating- site division Match Group
and search sites like About. com and
Ask.com.) Although company flings
show Vimeo made up 1.3 percent of
IACs $2.8 billion in revenue last year,
They view Vimeo as one of the best
assets of the company, says John
Blackledge, an analyst for investment
bank Cowen Group.
Vimeo was founded in 2004 by Zach
Klein, who now runs the childrens site
DIY, and Jake Lodwick, now at soft-
ware startup Elepath. The two incor-
porated Vimeo under the umbrella of
then-employer Connected Ventures, the
parent of comedy site CollegeHumor,
and initially used it as a home for their
own professional and personal videos.
IAC bought a controlling stake in
Connected Ventures in 2006. Over the
next few years, Vimeo began to accept
HD video and charge users to upload
top-quality fles or for extra hosting
space. Later, the company changed its
fee structure, charging for-proft busi-
ness ventures more than individual
artists to host videos.
The company introduced its
on-demand video service to lure
more flmmakers and boost subscrip-
tion sales. So far the sites 4,400 on-
demand videos fall somewhere
between Netfixs original
series and YouTube. Academy
Award-winner Malcolm Clarke
posted The Lady in Number 6, a docu-
mentary on a piano- playing Holocaust
survivor. Sondra Martin Hicks says she
posted Faith Under Fire, her award-
winning docudrama about a Texas
church shooting, because she can
charge for it without having to nego-
tiate with Netfix or a similar service.
Lighter fare includes the comedy Sox:
A Familys Best Friend, about a dog with
magic powers.
IAC doesnt have the kind of advantage
with video sharing it does in the online
dating game, where it owns Match.com,
OkCupid, and Tinder, along with a bevy
of niche websites. Market researcher
ComScore ranked Vimeo ninth in the
U.S. for video viewers in November.
Yet with single-digit growth at the long-
reliable search division, Trainor says the
corporate reshufing certainly refects
that Vimeo continues to grow and
become more of a part of IACs story.
Alex Barinka
The bottom line For the rst time in a decade,
Vimeos growth has spiked. Still, its still less
than 2 percent of parent IACs revenue.
Software
Snapchat for
The Corner Ofce
Startups develop disappearing
communications for businesses
We dont have the technology to
read your messages
Two-year-old Snapchat has become
a favorite of teenagers and reached a
multibillion-dollar valuation with an
app that sends disappearing selfes.
Now companies are pitching similar
software to corporate users who
want a higher level of security than
Snapchat can ofer. The latest startup is
Confde, which released a text-based
iOS app on Jan. 8 and is run by former
AOL executive Jon Brod and Howard
Lerman, the chief executive ofcer of
location-services company Yext. Such
companies are betting corporate audi-
ences will be hungry for a secure mobile
messaging app suited to their needs.
Confdes founders say their service,
with messages that disappear once
the recipient closes them or replies,
is aimed at professionals who want
to speak candidly about delicate
per sonnel or legal matters without
leaving a trail that exposes proprietary
information. Think about the times
someone sends a memo that says,
Confdential, do not forward, or when
someone asks for your personal e-mail
to go of the com panys network, or
when its something youd rather talk
about on the phone or in person but
dont have time, says Brod, Confdes
president, who previously headed
AOLs venture team and its troubled
local news venture, Patch. Instead
of hiring a sales force or pitching
chief information ofcers, his plan
is to spread the app through word of
mouth, as did cloud-sharing service
Dropbox. Confdes hope is that after
enough of a businesss employees
are using it, the company will adopt
the software.
Theres just one problem, and it
may be a big one. Companies face
heavy regulatory pressure to pre-
servenot destroywork e-mails, fnan-
cial records, and other documents.
Whenever youre dealing with busi-
ness tools, there still needs to be some
kind of audit trail and accountability,
says Vanessa Thompson, an analyst
for market researcher IDC. Last month
the Financial Industry Regulatory
Authority fned Barclays $3.75 million
for its decade-long failure to retain
certain electronic records, e-mails, and
instant messages. If employees are dis-
cussing critical information or creating
fnancial records, those probably need
to be saved, says Scott Whitney, vice
president for product management at
social media compliance consulting
frm Actiance.
Other companies experimenting
with self-destruct services for busi-
ness face the same challenge. Dashlane
lets users send documents that can
be set to delete themselves at a preset
time. Dashlane CEO Emmanuel Schalit
says not every stray thought com-
municated and then dissolved elec-
tronically should conjure images of
IACs Rising Star
10/2012 10/2013
$40m
$20m
$0
1.3%
Percentage of IAC
revenue that came
from Vimeo
DATA: VIMEO 12-MONTH REVENUE
34
Technology
Hardware Intels Robot Bug Hunters
Mobile phone makers need to focus on responsiveness and feel as much as speed
and memory. To help sell chips to those companies, Intel is lending out robots
from its factories that have been programmed to analyze a smartphones user
interface with more precision than human testers. Intel says these tests also help
demonstrate the processing power of its chips. Ian King
Enron employees shredding doctored
accounting records, though he acknowl-
edges, When companies destroy
things, its not always the best sign.
Brod says its up to users to exer-
cise proper caution and judgment.
His apps interface looks like an e-mail
in-box, except that when you open a
message, the text is covered by colored
boxes you have to run your fngers over
to remove. Earlier words are quickly
covered again, making it more dif-
cult to capture the message in a screen-
shot than it is on Snapchat. Confdes
other security advantage, co-founder
Lerman says, is end-to-end encryp-
tion, which means the key needed to
decrypt a message resides only on the
recipients mobile device. Thats a step
that would make government surveil-
lance, or the Dec. 31 publication of mil-
lions of user phone numbers hacked
from Snapchat, much more difcult.
We dont have the technology to read
your messages, says Lerman, who still
runs Yext. Confde doesnt store any
messages on its servers, so it doesnt
have the ability to retrieve them if a
company, or the National Security
Agency, comes knocking.
Confde may face a much bigger
challenge if Snapchat tries to market
itself more aggressively to business
users. (Snapchat spokeswoman
Mary Ritti declined to comment.)
Its also unclear whether executives
will commit to using such a service, but
Brod and Lerman point to Facebooks
corporate copycats. LinkedIn and
Jive Software had successful initial
public oferings in 2011, and Yammer
was acquired by Microsoft in 2012 for
$1.2 billion. We just think its incredi-
bly important, like in the ofine world,
to provide the option of impermanence
online, says Brod. Sarah Frier
The bottom line Conde, a Snapchat-like
messaging app, is the latest corporate-
focused software staked on disappearing data.
E-Commerce
A Wedding Registry That
Speaks Your Language
Startup Zankyou tries to cross
borders for international nuptials
Globalization...and social media
are redening relationships all over
It started with a hike in the Alps. On
their way up Mont Dolent, near the
borders of Italy, Switzerland, and
France, management consultants
Guillermo Fernndez and Javier Calleja
spent much of their time talking about
the trouble Fernndez had planning
his wedding. The Spaniards wife is
from France, and the couple had to
set up multiple wedding registries
to accommodate the guests and sort
through cards and gifts sent in several
languages and currencies. Calleja
could sympathize: He was soon to
marry a woman from Canada. There
were plenty of websites available to
help, but their translations were typ-
ically bad, if they ofered them at all.
We spotted a niche, says Fernndez.
A few months later, in February
2008, the two men scrounged together
200,000 ($274,000) from savings,
family, and friends and created the
website Zankyou. Its available in
10 languages, and spouses-to-be can
plan their wedding and create a central
registry Web page where guests can
buy gifts or send money in the cou-
ples preferred currency. More than
250,000 couples have used Madrid-
based Zankyou to organize their
weddings in 19 countries, according
to the company.
Globalization, immigration, work
mobility, and social media are redefn-
ing relationships all over the world,
says Javier Escriv, a professor at the
University of Navarra in Spain who
runs a masters program in marriage
and family. International marriages
are still a small minority of people but
one thats certainly growing.
Zankyou, which has 45 employ-
ees, makes money from fees on gifts
A robot named
Auditus tests a
phones audio clarity
by comparing sound
les before and after
they pass through
the wireless network
and device.
Equipped with a
Hollywood-caliber
digital camera, a
robotic arm called
Oculus can use
pinching and swiping
motions to measure
a touchscreens
responsiveness
as frequently as
300 times a second.
Auditus Oculus
The robots tell us
what hundreds of
people would have
said about the
device.
Matt Dunford,
a user experience
manager for Intel
35
Technology
Edited by Jef Muskus
Businessweek.com/technology I
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Innovation
Table Charger
Next Steps
WiTricity plans to begin selling chargers and cases in the rst half of the
year. The iPhone 5 charger is a step toward integration of its technology into
PCs and smartphones, says Chief Executive Ofcer Eric Giler. The company
is also working on AA batteries that can be recharged at a distance, he says.
Joshua Brustein
Innovator Marin Soljai
Age 39
Massachusetts Institute of Technology
physics professor and board member of
WiTricity, a 50-employee wireless energy
transfer company in Watertown, Mass.
Form and function
A $99 charging system consisting
of an iPhone 5 case and a pad that,
when mounted underneath a wood
or granite table, can charge a phone
sitting on the tables surface.
The phone should
take care of its
own charging.
Eric Giler, chief
executive ofcer,
WiTricity
and cash given through the site. It
charges couples for optional services
such as a personalized Web page URL
or the ability to track visitors to their
page or block it from appearing in
Google searches. (Such services cost $9
to $35 apiece, or $99 for all 20 or so.)
The site also runs ads for forists and
other companies that cater to brides
and grooms. Zankyou broke even on
sales of 1.5 million in 2013, Fernndez
says. He estimates revenue will reach
2.5 million this year, enough to make
the registry site proftable.
The companys founders say their
biggest challenge has been drawing
business from established wedding
sites, such as MyRegistry.com or
WeddingWire in the U.S., 1001 Listes
in France, and iCasei in Brazil. Our
strategy is to be very com petitive in
pricing in each market and compensate
for that through higher volume, says
Fernndez. Theyve also recruited
graphic designers to create better-
looking templates for cus tomers
Web pages.
Tontxu Campos, director of the
Entrepreneurship Center at Deusto
Business School in the northern
Spanish city of Bilbao, says Zankyou
appears distinct enough to expand into
more countries. However, this idea is
easy to imitate, he says. They need to
ofer an excellent service, pay attention
to local customs, build a loyal network
of partners, innovate, and exceed cus-
tomers expectations.
In the near term, Zankyou says it
will make its fve interns full-time
employees and hire as many as 10 Web
developers and writers. Fernndez and
Calleja went without salaries until last
May, relying on their spousesone in
corporate development for Spanish
discounter Dia, the other a marketer
for Procter & Gambleto cover house-
hold expenses for more than fve years.
Our wives have been crucial to make
this project work, Fernndez says.
Theyve provided encouragement,
advice on the sites design, and the
occasional dinner out. When we get
to the dessert, Im used to standing
up and leaving instead of paying the
check, says Fernndez. That needs
to change. Manuel Baigorri
The bottom line Zankyou brought in
1.5 million in 2013 as demand for international
wedding services grows.
2.
Charging case The two coils
create a magnetic eld that
the cases coil converts back
into electricity to charge the
smartphone. A full charge
takes roughly 90 minutes
to two hours.
Investment WiTricity
has raised about
$45 million since its
2007 founding. In
October, Intel and
Foxconn Technology
led a $25 million
round of funding.
Other uses WiTricity
has already licensed
its chargers for use
with medical implants
and bomb-detecting
robots. Investor
Toyota Motor said
in December that
it licensed the
technology to build
wireless charging
stations for electric
vehicles.
Good vibrations The
charging pad uses electricity
from a wall outlet to vibrate
its tiny conductive coil
at the right frequency,
which transmits energy by
resonating with a coil built
into the charging case.
1.
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Technology
36
Everything is delivering the juice. Because when every appliance
and outlet connects, efficiency rules the grid. The Internet of Everything is
changing everything. And one company is making it possible. #Internetof Everything
.
Little Tax Haven
On the Prairie
January 13 January 19, 2014
South Dakota courts the rich with safeguards for family fortunes
Your childrenthey too will have the opportunity to sip from it
=
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DATA: BLOCKCHAIN.INFO
Sextillion mining
operations per day
(thats a 1 with
21 zeroes)
Value of all Bitcoins
mined per day, by
market price
Mining revenue
has risen dramatically with Bitcoins
price, even though the number of
coins mined per day is fixed
1/1/2011 1/1/2014
Mining revenue per operation
has fallen
1/1/2011 1/1/2014
$6m
$0
1
Mining work
has risen even faster, as more miners
enter the fray and mining tasks
become more demanding
1/1/2011 1/1/2014
0
$1
$0
Dollars of revenue per
trillion mining operations
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When the Cadillac was pulled over, Catlin and three other ofcers
in fak jackets approached the car. Frantz Pierre was inside, and
so was his brother Terry. There were two women in the back seat.
Catlins partner, Rocky Festa, asked if there were guns or drugs in
the car. No, came the prompt reply. Strewn across the center
console were a handful of prepaid debit cards, marked with the
name Tax Professors. The Pierre brothers said they did not know
who owned the cards, so the detectives, again following protocol,
impounded the plastic.
It was June 1, 2010. The next week, according to investigators
and court documents, Catlin and Festa learned that the cards had
been issued by Las Vegas-based PayCard USA. The actual card-
holdersthe names and personal information initially provided
to the issuerwere four inmates at prisons throughout Florida. Tax
Professors was a tax preparation company run by the Pierres. Its
business was fling bogus tax returns using stolen identities. An
investigation ultimately uncovered an operation involving hundreds
of fraudulently obtained tax refunds totaling about $1.9 million.
When a team from the North Miami Beach Police Department
and the U.S. Secret Servicewhich is charged with protecting the
countrys payments and fnancial systemswent to make arrests at
Frantz Pierres million- dollar, seven- bedroom house in Parkland,
Fla., a gated community, someone tried to throw a laptop into
the pool from a second-story window. He missed, and it landed
in the grass. Police also found a thumb drive in Pierres dresser,
containing the names, birthdays, and Social Security numbers of
more than 2,000 people.
That was a good day for the cops, in a bad year for law enforce-
ment and the IRS. Organized crime has learned that stealing from
the federal government can be easier and more lucrative than
dealing drugs. You know there are guys out there doing it better,
says Catlin. Were getting the idiots, and some of them are doing
$1 million or $2 million worth in fraud. In 2012, Wifredo Ferrer,
U.S. attorney for the Southern District of Florida, formed a task
force to attack the tax-fraud epidemic. The South Florida Iden-
tity Theft Tax Fraud Strike Force is comprised of agents from the
Secret Service, the IRSs Criminal Investigation unit, the FBI, the
USPS Ofce of the Inspector General, and the Bureau of Alcohol,
Tobacco, Firearms and Explosives, as well as ofcers from local
police departments, including Catlin. In 2012, the Strike Forces
work resulted in 79 indictments for attempted thefts totaling
$40 million. By October 2013 it had risen to 269 defendants and
$449 million in intended payouts.
Although the government can be slow to build roads and fx
budgets, it can issue tax returns within days. All a criminal needs
to assemble fake returns are real Social Security numbers, dates
of birth, bank account information, addresses, and an Internet
connection. Bundles of personal data can be bought or acquired
online, often in batches that number in the thousands. Theyre
frequently stolen from health-care providers, whose employees
have access to reams of personal information, and theyre avail-
able from sites such as DOBsearch.com.
With stolen or even legally obtained identity data, thieves
fle for multiple refunds using various names, inputting fctional
information about topics like employment, income, and
dependents. They request that the money be deposited directly
into a bank account, often opened with a fake name, or they
have the funds loaded onto prepaid cards. Victims may not fgure
out something fshy has occurred for months. The identities of
prisoners are especially useful, as prisoners are often not on top
of their tax situation or activity in their bank accounts.
To cash out, the crooks use the prepaid cards to withdraw cash
at ATMs. Alternatively, they spend the money on gift cards at major
retailers like Wal-Mart or Target. To skirt ATM daily withdrawal
limits, they use Western Union to wire money to themselves. If
you have $5,000 on a pre-loadable debit card, you want to get all
the money out of the account that day, explains Catlin. Other-
wise, a bank may notice its a bad account and freeze the funds.
You dont want to be found with the cards, either. These guys
leave the house with cards hidden in their shoes, wire the money
to themselves until the account is empty, then throw the card in
the trash. Because gang members know that the IRS loads refunds
54
onto cards on Friday mornings, they will often spend that day of
the week taking money of the cardsand that night partying.
Then they do it all over again and again and again. A sting in
Tampa in 2011 dismantled an operation involving $130 million in
fake claims and laundered funds. Last summer, police near Miami
responding to reports of a home invasion found more than 500
prepaid TurboTax-issued Visa cards, each loaded with thousands
of dollars in fraudulent refunds. DIY electronic fling made easy
by online tax preparation service TurboTax has been such a boon
for crooks that Miami strip clubs popular with gang members have
started catering to the tax-fraud set. Catlin says its not unheard
of for this new breed of nouveau riche to burn through a brick
of dollar bills in a single night. Last year, he says, one club was
even advertising Turbo Thursday specials, in honor of TurboTax.
IRS ofcials dont know exactly how much the nation is paying
out in bogus refunds. An estimate by the U.S. Treasury Inspector
General for Tax Administration puts the fgure at $4 billion in 2011
aloneand potentially $21 billion by 2017. (And that includes money
issued to non-citizens.) Tens of thousands of citizens will have
their identities stolen. Theyre not on the hook for stolen money,
but they must plunge into the nightmarish process of trying to
correct the record and obtain their rightful refunds. Just about
anyone can and has been used: dead people, inmates, school-
children, retirees, military personnel, and, more likely than not,
someone you know. Last year, three of the six ofcers in Catlins
unit had false refunds fled under their names. (As far as anyone
can tell, they werent targeted, just unlucky.)
Although tax refund schemers have been found all over the
country, the scams roots are in Florida. Based on 2012 fgures
from the Federal Trade Commission, the rate of identity theft in
Florida is the highest in the country, at 361 complaints per 100,000
residents. In metropolitan Miami, the rate is 645 per 100,000. We
cant go out and do a trafc stop without generating some kind
of fraud arrest, says Ofcer Festa.
About fve years ago, Catlin says he began noticing strange items
during trafc stops: ledgers, folders, tax forms, and prepaid cards
from Western Union and TurboTax, or reloadable MoneyPak
cards. After making a few calls, he was introduced to an investiga-
tor working for Discover Card, who lent him a portable card reader.
If Catlin found credit or debit cards, he used the reader to see if
the cards had been re-encoded with a number or personal infor-
mation that didnt match the information printed on the card or
the identity of the person in possession of it. It wasnt tax refund
fraud he was huntingjust basic card fraud. But it was a window
onto the world of street-level fnancial crime, which was on the rise.
During the quiet hours of his midnight shift, he says he pored
over the Florida Law Enforcement Handbook, looking for ways to
justify trafc stops that would give him authority to search a vehicle.
Many gang members in South Florida drive rental cars, which can
be rented by one party and used by another for dubious exploits.
They sometimes hold on to them for months at a time and custom-
ize them with windows, stereos, and more. Cruising the streets of
North Miami, Catlin and Festa spot these cars everywhere, calling
out rental whenever they see a telltale sign, such as marks on the
windshield where the rental companys sticker used to be.
During these stops, Catlin and Festa are looking for guns or
drugs, as always, but theyre also keeping an eye out for note-
books with lists of names and birthdays, stacks of credit cards
held together with a rubber band, checkbooks for an unknown
or odd-sounding local company. If evidence isnt sitting in plain
sight, Catlin might try sweet-talking his way into a search. Hell tell
the subject hes not going to write him up for the tinted windows,
which puts the person at ease, and they can often be talked into
letting him search the car. If he fnds cards, subjects invariably
deny ownership, just as they do with handguns and ecstasy. So
Catlin deploys what he calls a catch-and-release strategy. The
trafc stop ends with no arrests, but the cards are impounded.
Then he turns to credit card companies, banks, federal agen-
cies, fraud investigators with major retailers, rental car companies,
and informants on the street. Contacting the issuing bank, he says
he can learn what information is on a card. If he can determine
that an identity has been stolen, a subpoena to the issuer can
reveal where the cards have been used and when. Thats followed
by a check of video surveillance footage from a retailer or ATM,
to see if the guys cashing out are the same as the ones from the
trafc stop. If need be, hell drive or even fy to meet victims and
get them to sign an IRS form that permits local law enforcement
to use their identities in the pursuit of the case. That can lead to
enough evidence for a federal warrant.
Over the last few years, Catlin, a brawny 46-year-old with short-
cropped hair, has become one of the nations leading experts in
street-level refund fraud and related crimes. He has developed
an ability to fnd threads that others might overlook or simply
wouldnt bother pursuing. In one case, an unfamiliar brand of
soda caught his attention. He took the can from the cars console
and found it was a fake with a hidden compartment on the bottom.
Inside it were a half-dozen debit cards loaded with stolen funds.
Catlin says he once pulled over a car that was a pigstyexcept
for some shredded paper that had been carefully stufed into a
potato chip bag. He took the shreds back to the police station and
reassembled them. They turned out to be Western Union receipts
for money transfers between fake names. Another time, when
a subject was taking his drivers license out of his wallet, Catlin
spotted what turned out to be a $2,500 check. He later found that
the account on the check was receiving bank transfers from the
IRS, which led to the discovery of stolen identities and almost
$200,000 in false tax returns.
To cops who are less interested in these cases, or who see refund
fraud and card scams as somehow not a big dealWho doesnt
hate the IRS? Catlin jokeshis response is pragmatic: These are
street-level gang guys selling dope, stolen guns, doing robberies.
If you dont want to do the fraud cases, use the fraud evidence to
turn informants, because they know all the players. And theres
$600k
$400k
$200k
The top ve U.S. bank accounts receiving
fraudulent returns generated with stolen
Social Security numbers in 2011
$0
Estimated payouts to SSN thieves
446
deposits
429 401 275 249
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little evidence that the transition from drug dealer to serial fler of
fake tax returns makes gangland any less violent. In 2010 a South
Florida postal carrier was murdered for his master key to apartment
building mailboxes, a potent resource for identity thieves. As Catlin
sees it, the only diference between gangs past and present is that
now they have nicer guns, thanks to their IRS-sponsored windfall.
Despite his wise-cracking nature, Catlins role as fnancial-
crime fghter has not been without stressand death threats.
A few years ago, he few his wife and family to New England,
where they stayed for two weeks until the police apprehended the
man who had made the threat. Catlin stayed at his house every
night and kept his Colt Commando .223 caliber assault rife close
at hand. I dont have a death wish, but I was like, Bring it.
When he drives home from work each day, he slows to a crawl
as he approaches his street, looking around for suspicious cars.
The remedy for refund fraudquit delivering money so promptly
seems obvious. The IRS could wait to match stated incomes with
what employers report as wages paid. Under the current system,
employers dont have to fle W-2 information until late spring.
A broader efort to synchronize fling times could curb fraud, along
with other problems, but so far Washington has yet to graduate
from talk to action on the timing question.
Slower payouts wouldnt eliminate swindling, but they might
impede the racket. Why not wait eight weeks? asks Catlin. Im
no computer genius, but if someone steals my identity and fles a
return under my namewell, Ive had the same job for 18 years,
lived in the same house for 17, same wife for 8 years, 3 depen-
dents, and so on. Suddenly a new return says I work at Walmart,
Im single, and live in Palm Beach with no kids? Theres got to be
some kind of program that fags that.
The IRS says it has increased the range of digital screens it uses
from about 10 to dozens. (The agency will not provide details
about those screens.) Its a difcult balance to strike, between
fagging what might be suspect information and accommodating
dramatic but commonplace year-to-year changes in the lives
of law-abiding citizens. Its easy for TurboTax to fag anything
coming from an ISP in Nigeria, and it does. At the same time,
says Turbo Tax Vice President Bob Meighan, his company is
not in the enforcement business. Its IRSs job to pick up on
those big changes to personal information. But without total
surveillance, it can be hard for the IRS to know that you didnt
really quit your job, end your marriage, and move to Alaska.
And there are good arguments against slower payouts. The
system is designed to give people their well-earned money as
fast as possible, says Ferrer, the U.S. attorney. This is especially
important for people on the fnancial margins who may need the
speedy payout. Millions of people who fle in January do so not
because theyre enviably organized but because they live paycheck
to paycheck. Theyre counting on that refund, says Meighan.
Prepaid cards could be eliminated altogether, but theyre useful
to legitimate refund recipients. For one thing, they save time and
money in transaction costs: no waiting for a paper check, no
check-cashing fees, no vulnerable stack of cash stufed in a purse.
Prepaid cards can also promote responsible fnancial behavior.
The card acts as a kind of de facto bank account for individuals
who have thus far been excluded from typical fnancial services.
It helps people keep money tucked away in a less liquid form,
explains says Sarah Rotman, fnancial sector specialist at the Con-
sultative Group to Assist the Poor.
Despite having more than $1 billion of its budget cut over
the last few years, since 2011 the IRS has more than doubled
the number of agents assigned to fraud prevention, to 3,000. Its
criminal investigation unit spent more than 500,000 hours on
the issue in 2012. It has also tried to assist local law enforcement
agencies. Until recently, for example, fraudulent claims werent
permissible evidence because they contain personal information.
Now Catlin and others can get victims to sign the form that gives
the authorities permission to submit the fake claims as evidence.
Since 2011 the agency has blocked more than 12 million bogus
claims that would have paid out $40 billion.
Ferrers ofce is also going after the fraudulent use of electronic
fling identifcation numbers. EFINs are assigned by the IRS to tax
preparers authorized to use its e-fling system. The EFIN is essen-
tial if you fle taxes on behalf of other people, and criminals have
learned that they can churn bogus returns faster by obtaining an
EFIN and opening a fake tax preparation business. Working back-
ward to see which EFINs delivered bogus claims, prosecutors in
Florida were able to freeze or revoke 70 EFINs that together had
been the conduit for 53,900 illegal flings.
Ferrer is eager to show of fact sheets about arrests, successful
prosecutions, and tough penalties, but he has no delusions about
what the overwhelmed IRS and his task force are up against.
This problem remains the fastest growing and most pervasive
scheme there is, he says, at least when it comes to tax dollars.
Currently, he says, we have a pay and chase model for refund
payments. But the ones doing the chasing arent pencil pushers
at the IRS or data sleuths at the Securities and Exchange Com-
mission. Theyre street cops like Catlin.
Even as more substantial antifraud measures emerge, crooks
will fnd new ways to pocket fraudulent claims because tax refund
fraud doesnt start with card issuers, electronic fling, Western
Union, TurboTax, or even the IRS. It starts with identity theft. We
need the information to be harder to get and to use, says Ferrer.
A nine-digit number on record all over the place is plainly
not a robust way to both identify citizens and protect privacy.
The IRS seems to get this. Over the past couple of years it has
assigned unique PINs to people who have had their identities com-
promised. The PIN is used only for fling taxes, and the assigned
number changes every year. Already about 770,000 Americans
have one of these Identity Protection PINs, and while yet another
string of numbers is a far cry from a tough-to-crack biometric ID,
it is an added layer of defense.
Meanwhile, pay and chase continues. In October, Catlin tes-
tifed in the case of the Pierre brothers and the massive opera-
tion that ended with the fying laptop. The three defendants were
found guilty on all charges. Sentencing is slated for this winter,
and prosecutors hope for 20 years. Catlin suspects the Pierres, like
other perpetrators he has busted in the past, will fle fake claims up
until the day they are sentenced: The moneys just too good.
$200m $400m $600m $0
2010 2011
Whose identities are being stolen
and turned into a tax-fraud windfall?
Prisoners
Citizens
in U.S.
territories
Deceased
Students
Elderly
(over 70)
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58
Bjrn Kjos is betting $22 billion he
can build the cheapest global airline
By Devin Leonard
Photograph by Francesco Nazardo
Its snowing in Copenhagen as Norwegian Air Shuttle Flight DY7041
lifts of. There are nearly 300 passengers on board, most of them
Norwegians, Swedes, and Danes eager to escape the gloom that
engulfs their part of the world in late November. Today they will
arrive in Florida faster than usual. This is the frst direct fight from
Scandinavia to Fort Lauderdale. And its a bargain: The tickets are
a fraction of what larger airlines charge.
Norwegian Air Shuttle Chief Executive Ofcer Bjrn Kjos has
come along to celebrate the occasion. A tall, energetic 67-year-
old with gray hair that falls over his collar, Kjos holds court in frst
class. He is accompanied by an entourage that includes his son
Lars Ola, who runs Norwegians customer loyalty program; the
companys chief fnancial ofcer; and two important investors.
Plaid-jacketed crew members from Thailand hover around their
boss making sure his plastic water cup is never empty. Kjos is in
an ebullient mood. He laughs a lot. His steely gufaws are like a
bebop trumpeters high notes, crisp and resonant.
A lot of Scandinavians go to Florida today, Kjos says in heavily
accented English, noting that the sold-out fight bodes well for his
plans for trans-Atlantic service. Obviously a lot more will go in
the coming years. The Nordic snowbirds are traveling in one of
Norwegians new Boeing 787 Dreamliners. Kjos extols the jets fuel
efciency, its noticeably quieter engines, and the fresher air and
lower cabin pressure that are meant to reduce jet lag. I never get
jet-lagged when I fy, he boasts.
Norwegian is Europes fourth-largest discount airline. Until
recently, it was little known outside Scandinavia. Then, in 2012,
Kjos made the largest airplane order in European history, buying
222 jets from Boeing and Airbus Group for $21.5 billion. Most of
these are narrow-bodied Boeing 737 MAX8s and Airbus A320neos
that will begin arriving in 2016. Kjos will use them to increase Nor-
wegians presence in Europe and challenge the top three discount
carriers: Irelands Ryanair, Britains EasyJet, and Germanys Air
Berlin. Last year, Norwegian acquired its frst two Dreamliners,
which list for as much as $289 million each. Kjos is using these
wider-bodied jets to ofer cheaper international fights to distant
places such as New York, Los Angeles, and Bangkok, undercut-
ting established carriers in Europe and the U.S. Norwegians
$180 tickets between New York and Oslo cost 10 percent of
the equivalent ticket on British Airways. In efect, Kjos wants
Norwegian to become a global version of Southwest Airlines.
Other upstart airlines have tried this and failed. Kjos says
Norwegian will succeed because it has the Dreamliner and
a new group of travelers to fy: the emerging middle-class
GATE C17
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citizens of China and India. He predicts that in the next decade
there will be 500 million new airline passengers, and he hopes
to attract them with low fares.
Kjos will have to do many things right for it all to work, and
hes already run into turbulence. He narrowly averted a strike
by 600 pilots in November. They are unhappy with his plan to
base Dreamliner fights outside Norway and staf them with lower-
paid workers from Thailand and elsewhere. The Dreamliner still
needs debugging. Kjoss new jets have been grounded repeatedly
by technical problems, delaying fights. Since early June, Norwe-
gians share price has tumbled from 312 kroner ($53) to 197 kroner
($32). Short sellers are circling, betting that Norwegians expan-
sion will be a bust. Four U.S. airlines are trying to keep the U.S.
Department of Transportation from allowing Norwegian fights
into the country because they worry that their foreign competitor
will launch what they describe as an unfair price war with them.
Kjos, however, doesnt think anything will get in the way of his
plan to reshape international travel. In the future, you will travel to
Asia for nothing, he says. You think Im joking. You wait and see.
Obscure outside the aviation industry, Kjos is a celebrity
at home; hes Norways Richard Branson. In the early Aughts, Kjos
introduced low-cost fights to a region
that has historically been dominated
by Scandinavian Airlines (SAS). At the
time, SAS, which is controlled by the
governments of Norway, Sweden, and
Denmark, had some of the highest fares
in Europe. He has changed the lives
of many, many Scandinavians, says
Hans Erik Jacobsen, an analyst at First
Securities ASA.
Kjos also became a face of the New
Norway. As the country has become
an economic power thanks to oil in
the North Sea, it has seen a new gen-
eration of entrepreneurs challenge
insular stereotypes. Keep in mind,
Norway used to be the very poor kid
in Europe, like Albania, says Truls
Berg, an angel investor in Oslo and an
admirer of Kjos. Nobody really under-
stood why anyone was living up here.
He grew up in the village of Sokna, about an hour north of
Oslo, known for its extremely cold winters. His father, Ola Kjos,
ran a sawmill and also owned a Piper Cub that he used to take
aerial photographs of his neighbors farms for extra income. Bjrn
began accompanying his dad on fights when he was 8. He loved
fying so much that he enlisted in the Royal Norwegian Air Force.
He spent eight years in the military, six of those happily patrol-
ling the northern Norwegian border in an F-16. Almost every day,
Russian pilots wandered into Norwegian air space. Kjos routine-
ly chased them away. You few up and said, F--k of, he says,
laughing. He later published a spy novel, The Murmansk Afair, in-
spired by the experience.
Kjos considered becoming a commercial pilot, but SAS wasnt
hiring. So he decided to study law at the University of Oslo. He be-
friended Bjrn Kise, another student. Kise also had a working-class
upbringinghis father and grandfather were grocersand served
in the navy. Both Bjrns married SAS stewardesses.
After graduating in 1978, Kjos and Kise started a maritime law
frm. They say they took pleasure in besting rival barristers from
blue-blooded families. Bjrn is very persistent, says Kise, now
chairman of the board of directors at Norwegian. He always wanted
to argue, argue, argue.
In 1993, Kjos got a call from two old air force buddies. They were
working for a tiny airline called Busy Bee, which was on the verge
of insolvency. Kjos looked at the books. Busy Bee had a lucrative
contract to fy a handful of routes for Braathens, a larger Norwegian
airline. But Busy Bees expenses were too high. It had 200 pilots
and 25 planes. Kjos fgured it could be proftable if it reduced its
staf by 75 percent and its feet to just fve planes.
After Busy Bee went bankrupt, Kjos tried to get investors to
take it over with Busy Bees pilots. But hardly anybody was in-
terested in purchasing sharesnot even his old friends. So the
two Bjrns acquired a controlling interest in fve of its planes and
routes in western Norway. They renamed the carrier Norwegian
Air Shuttle. The two men moved their new company into an old
military barrack to save money.
For eight years, the two Bjrns made a small but steady proft
from their stake in Norwegian Air. But in 2001, SAS bought Braa-
thens and canceled its contract with Norwegian Air. Kjos and Kise
had a choice: They could shut down the little airline or they could
compete with SAS. Kjos was smitten with the latter idea, but Kise
had misgivings. He wasnt so sure it was wise for Norwegian, with
130 employees, to take on SAS, which had 7,556 employees and 199
planes. I cant understand why during the last 20 years, I have con-
stantly found myself standing with Bjrn with my toes on the edge
of the mountain, Kise recalls saying at the time.
Convinced that SAS was vulnerable because of its high prices,
Kjos took a leave of absence from his
law frm and became Norwegians
CEO. We said that our mission is
to give low fares for anybody, he
says. Norwegian leased new planes
and sold seats before they arrived to
cover their cost. It encouraged cus-
tomers to buy tickets online. Rather
than letting planes sit for hours on the
runway, Kjos told his pilots and crews
to get them back in the air within
20 minutes after landing.
The company went public in
December 2003 at 32 kroner a share.
Then, Kjos says, SAS reduced its
prices in an efort to destroy its rival.
(SAS denies that this was its intent.)
Norwegian again lowered its prices.
Its revenues dwindled, along with its
stock price. The company decided
to issue more shares to stay afoat.
However, Kjos and Kise feared they would lose control of Nor-
wegian if they diluted their ownership stake. So they borrowed
heavily and loaded up on the new shares.
Then, they say, they learned from government investigators
that SAS had been tapping into Norwegians computer system
and using data about its ticket sales to underprice it. Norwegian
sued SAS for illegally using its trade secrets, eventually winning
a 160 million kroner judgment in 2010. SAS says it accepts the
court judgment.
Kjos says the revelations ended SASs predatory pricing, and Nor-
wegian had its frst proftable year in 2005. But Kjos soon had some-
thing else to worry about: rising oil prices. Oil had soared from $25
to $75 per barrel in the previous fve years. Kjos and his top execu-
tives modeled what would happen if oil prices continued to climb
at that rate. We found out, Jesus Christ, if we hit $120, were going
bankrupt, Kjos says. Norwegians planes were burning too much
gas. The company needed a new feet to survive.
To hear Kjos tell it, Norwegian has been constantly shopping
for new planes ever since to keep its fuel expenses and ticket
prices down. In August 2007, Kjos reached an agreement to buy
42 new jets from Boeing for $3 billion. Frode Foss, Norwegians
CFO, said the company couldnt aford it. Frode, would you
like to go bankrupt with old airplanes or with new airplanes?
Kjos swaggeringly replied. He later increased the order to 84.
Norwegians relatively
high personnel costs
may spook investors
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Sky-High
Labor costs as a portion of operating expenses
Q4 2005 Q3 2013 Q4 2009
Norwegian Air Shuttle 18%
EasyJet 3%
Ryanair 1%
percentage
of shares
held short
61
Kise and Kjos, here aboard the
Boeing 787 Dreamliner in 2012, met in
law school before founding Norwegian
Three years later, in 2010, revenue and
proft had more than doubled. Norwegian was
fying twice as many passengers and routes.
The new planes really enabled them to drive
down the cost level, says Jacobsen. It was a
big step forward. Later that same year, Kjos
ordered Norwegians eight Dreamliners, but he
also concluded that his newish feet of short-
range planes was already becoming outmod-
ed. In 2012 he and Kise took advantage of the
euro crisis to get favorable terms from both
Boeing and Airbus for 100 planes. Now it was
Kises turn to be bold. Lets take both these
orders, he said. Are you crazy? Kjos replied.
They ended up taking both orders and an ad-
ditional 22 planes from Boeing.
The guy who pioneered cheap trans-Atlantic
fights was Sir Freddie Laker, the late British en-
trepreneur who started the Skytrain service in
1978. He bought new planes to carry travelers between London
and Los Angeles, New York, and Miami. The company collapsed
in 1982 when its larger rivals retaliated by matching its fares.
Aviation experts say theres a reason nobody has rushed to
emulate Laker until now. When you put people on a long-haul
fight, youve got to give them frills, says Jonathan Wober, a senior
analyst at CAPA Centre for Aviation, an Australian consulting group.
You cant just expect them to fy for 7, 8, 9, 10, 12 hours without
feeding them, without watering them, without giving them enter-
tainment and all those kind of onboard extras, which cost money.
Norwegians international routes will prevail, Kjos says, because
the Dreamliner burns much less fuel than previous jets. The
Dreamliner is the frst airplane that can do it, he says. Hes also
counting on lower personnel costs. Although the airline is head-
quartered in a country with some of the highest salaries in Europe,
Kjos is trying to get around this by basing fights in lower-sala-
ried countries such as Thailand. Thats why Norwegians pilots
wanted assurances that he wouldnt
try to use geography to cut their sal-
aries. Vegard Einan, vice president of
Parat, the union that represents Nor-
wegians pilots, says Kjos agreed that
union rules would apply to the Euro-
pean routes but not the ones involv-
ing the Dreamliners. Kjos makes no
apologies for playing hardball with
his pilots. You cant jeopardize your
business model, he says. You have
to take a stand.
Norwegian also faces opposition
in the U.S., where American Airlines,
Delta Air Lines, United Airlines, and
US Airways are urging the federal
government to reject an applica-
tion by Norwegian Air International.
The company is a Norwegian subsid-
iary that Kjos has set up in Ireland to
operate its Dreamliner fights. Nor-
wegians critics say Kjos is doing this
so that he can hire cheap nonunion
pilots and cabin crews. [Norwe-
gians] scheme must be immediate-
ly and unequivocally rejected, Lee
Moak, president of the Air Line Pilots
Association International in Washing-
ton, said in a statement last month.
The DOT must not permit U.S. air-
lines and their employees to face an
unfair competitive advantage from
this runaway shop. A Norwegian spokesman,
Lasse Sandaker-Nielsen, says the company
isnt doing anything improper and its critics
are making false and misleading statements.
As for the Dreamliners, they have been prob-
lematic. The U.S. Federal Aviation Administra-
tion ordered Boeing to stop delivering them
last year until it fxed their lithium batteries,
which had caught fre. Norwegians Dream-
liners never burned, but one jet was ground-
ed in Bangkok in September because of pump
problems, stranding 200 passengers bound for
Stockholm. In December, Stockholm-bound
Norwegian customers were stuck in Fort Lau-
derdale before Christmas because of a disabled
Dreamliner. On New Years Eve, 276 passen-
gers headed for Oslo spent the night stewing
in hotels near John F. Kennedy International
Airport in New York because of brake prob-
lems on one of the jets. Norwegians Sandaker-Nielsen says the
company apologizes for the delays.
Norwegians tribulations have attracted a high level of atten-
tion because Kjos has been assiduously promoting the Dreamliners
for three years. Last summer he few one of the jets himself. He
says it was fun but nothing like piloting an F-16. If you have been
driving racing cars for eight years, it might not be the same joy
to drive a cab, he says.
With each Dreamliner snafu, Kjos made no secret of his dis-
pleasure with Boeing. He says he purposely leased an Airbus to
transport his customers between Stockholm and Bangkok while
15 Boeing technicians labored to resuscitate one crippled jet. It
was a brand-new aircraft, he says. I said, S--t, I dont accept it.
The setbacks help explain why short sellers are targeting the
company. They now hold 18 percent of Norwegians shares, ac-
cording to Markit, a fnancial-services group. Thats a lot when
you consider that shorts hold only 3 percent of EasyJets stock
and 1 percent of Ryanairs. There
are people who dont believe in this
company right now, says Thomas
Raascou, chief investment ofcer of
Awilco Invest in Oslo, who has been
buying shares recently.
Kjos responded to the latest crisis
by doubling down. He announced in
December that Norwegian would
lease two more Dreamliners. He
has yet to grow weary of having to
choose between expanding Norwe-
gian or losing it all. He says he some-
times misses the excitement of being
a litigator. But its more fun to run
an airline, he laughs.
On Flight DY7041 to Florida, ev-
erything goes smoothly until the
plane touches down. Its cheaper to
fy into Fort Lauderdale than Miami.
But Fort LauderdaleHollywood In-
ternational Airport isnt equipped
to handle large planes during peak
hours. The Dreamliner cant taxi
to the terminal. The dazed passen-
gers disembark onto the tarmac and
climb aboard a shuttle bus, which
becomes uncomfortably crowded.
Kjos joins them. As if to distract them
from the inconvenience and keep the
mood high, he says, in a booming
voice, Welcome to Florida!
DURING THE LAST
20 YEARS, I HAVE
CONSTANTLY FOUND
MYSELF STANDING
WITH BJORN
WITH MY TOES
ON THE EDGE
OF THE MOUNTAIN
Leading CEOs are united in the belief that societal improvement
is an essential measure of business performance. These CEOs
belong to CECP, a coalition that commits $14 billion annually
through their companies to solving pressing societal challenges,
understanding that close community ties are a direct line to
employee engagement, innovation, customers, new
markets, brand, and sustainability, as well as mitigating
risk and building trust.
CEOs: Join us
CECPs 9th Annual
Board of Boards
CEO Roundtable
February 23-24, 2014
New York, NY
cecp.co/BoB
I helped to start CECP
with the belief that
corporate America
could be a force for
good in society.
PAUL NEWMAN (19252008), FOUNDING CO-CHAIR, CECP
CECP WELCOMES CEOS WHO JOINED IN 2013:
Find the full list of CECP CEOs at cecp.co/CEOs.
THE CEO FORCE
FOR GOOD
cecp.co
Sheri McCoy
Avon Products
Mike Gregoire
CA Technologies
Ryan Lance
ConocoPhillips
William Goodwyn
Discovery Education
Douglas Baker
Ecolab
Jacques Brand
Deutsche Bank
Deanna Mulligan
The Guardian Life
Insurance Company
of America
Steven Swartz
Hearst Corporation
Bruce Broussard
Humana
Alex Gorsky
Johnson & Johnson
Joseph Sullivan
Legg Mason
Yasuyuki Sugiura
Mitsubishi
James Gorman
Morgan Stanley
Gordon Nixon
Royal Bank of Canada
Michael Polk
Newell Rubbermaid
John Fallon
Pearson
Russ Girling
TransCanada
Scott Davis
UPS
William McNabb
Vanguard
Pictured clockwise from top:
Sheri McCoy, Avon Products;
Jim Rohr, PNC; Douglas Baker, Ecolab
WEIRD EXERCISE TRENDS Hiring Tips
THINK HAPPY
AND PROSPER
HOW NICK AT
NITE TRIUMPHED
People with synesthesia see sounds
and taste words. Now companies
are looking to proft from these mingled
senses. By Caroline Winter
THE MINDS EYE
Illustration by Jamie Cullen
64
Etc. Design
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M
ichael Haverkamp has a marketable
mental condition: When he runs his
fngers across the leather of a cars
steering wheel, he sees colors and
shapes. If the texture feels rough,
I see a structure in my minds eye
that has dark spots, hooks, and edges, explains the 55-year-
old German, a Ford Motor engineer. But if its too smooth, the
structure glows and looks papery, fimsy. Haverkamp says
these hallucinations, the result of a neurological condition
called synes thesia, help with his nuanced work, optimiz-
ing and coordinating the look, feel, and sound of vehicle
fabrics, knobs, pedals, and more. He shares his prefer-
ences for each with designers, who then use that infor-
mation to build cars that are more pleasing to drivers.
Synesthesiafrom a Greek term that translates loosely
as mingling of the sensesis a nonharmful condition
with several manifestations in which varying combina-
tions of touch, taste, smell, hearing, and sight are linked.
Everyone has cross-sensory experiences to some extent (hence
idioms such as loud clothing or warm colors), but for
synners, as those aficted call themselves, these connections are
more dominant and unavoidable. One person might smell gaso-
line and involuntarily see purple, while another might read the
name Marilyn Monroe and inexplicably taste whipped cream.
Many synesthetes automatically visualize numbers or days of
the week in 3D formations. Some experience orgasms as fashes
of bold color. A common theory among neuroscientists is that
this stems from stronger neural connections between regions
of the brain that are normally separated during development.
Mentions of synesthesia date back to antiquity, but as
research has validated the condition, the business commu-
nity is just starting to wake up to the possibilities, says Edward
Hubbard, a leading researcher in the feld.
Ten years agoeven the scientifc com-
munity thought [synesthesia] was just
vivid imagination, or made-up stories.
Last year, Ford created a custom position
for Haverkamp with the title specialist in
cross-sensory harmonization. His job is to
better streamline collaboration between
the companys sound engineers, visual
designers, and haptics specialists, who
deal with touch. I do think [his synes-
thesia] gives him a unique ability to explain the cross-sensory
approach, says Peter Bejin, a design manager at Ford. Weve
always had an emphasis on sounds, like the door-closing sound,
a glove-box-closing sound. On a micro level, Mike is helping us
get a whole new perspective on optimization.
While stats dont yet exist linking Haverkamps work to car
sales, cross-sensory design is gaining traction with
companies. General Electric spent last year devel-
oping two-minute musical soundtracks for each of
its appliance brands. Toyota Motor has tinkered
with its popular Prius, adding a humming sound
to warn pedestrians, and other electric car makers
are doing the same. Designer Jinsop Lee has been
hired by organizations, including one started by
Zappos founder and Chief Executive Ofcer Tony
Hsieh, to teach workshops in his fve senses bar
chart, a tool for appraising the multisensory impact
of products and experiences.
When I learned to read and write as a child, I
discovered that six is orange and seven is yellow,
and I thought everyone knew that, Haverkamp
explained during the 10th Annual American
Synesthesia Association conference, hosted by
Torontos OCAD University last spring. Experts say
the condition, usually inherited, likely afects 1 in 23
people. That includes a large number of leaders in
their respective felds: Lush cosmetics co-founder
Mark Constantine; Nobel-winning physicist Richard
Feynman; Robert Cailliau, one of the creators of
the World Wide Web; Billy Joel; and many more.
Pharrell Williams, a musician and producer behind
this summers hit songs Blurred Lines and Get Lucky,
would be lost without his music-to-color synesthe-
sia. If it was taken from me suddenly, Im not sure
that I could make music, he said in an interview.
Its my only reference for understanding.
Some forms of synesthesia can also have profes-
sionally benefcial side efects, such as enhancing
creativity and innovation. (Although other forms,
such as tasting words, can be miserable and over-
whelming.) In one 2004 study, the psychology
department of the University of California at San
Diego had a small group of college students with
and without synesthesia take the standardized
BUSINESSES
ARE JUST
STARTING TO
WAKE UP TO THE
POSSIBILITIES
65
Torrance Tests of Creative Thinking, which evaluate idea gen-
eration and originality, among other traits. The synners scored
more than twice as high in every category.
Synesthetes who assign colors to letters and numbers have
superior memories, research shows, and not only for sounds
and words but also for visual scenarios. Even just remember-
ing a scene, or the layout of a scene, theyre better at doing
that, says Jamie Ward, a professor of cognitive neuroscience at
the University of Sussex in Brighton, England. Their enhanced
sensual experience likely provides them with more retrieval
cues. In one famous case, a Russian journalist named Solomon
Shereshevsky with fvefold synesthesia needed only minutes
to memorize extensive number matrices and even poems in
foreign languages. My synesthesia defnitely helps me remem-
ber names, says Patricia Dufy, 61, an instructor at the United
Nations Language and Communications Programme. I dont
have to do anything to remember the colors of
the letters, she says. Its as easy as remember-
ing the color of an apple. Dufy says the same
goes for others. A Cornell physics professor I
interviewed had very vivid synesthesia, she says.
His students would be amazed that weeks after
theyd worked out a very complex problem in
class, he could remember every step, because
it was just there, coded.
Haverkamp is so convinced of his syndromes
benefts that he wrote a book published in 2009
called Synesthetic Design: Handbook for a Multi-
Sensory Approach, which was recently translated from German
into English and is intended to help synners and non synners
alike. Because I experience sounds and textures as detailed
visual structures, I can really hone in and pinpoint nuanced
diferences, he says. If a switch feels sturdy and precise but
makes the wrong sound, even if its just slightly wrong, it can
ruin everything and negatively impact the customers impres-
sion of quality. When the right visual- tactile-sound combina-
tion has been achieved, the structure he sees in his mind looks
sturdy and symmetrical. Ford, he notes, runs consumer research
studies to vet his proposals.
Those surveys may not be necessary. Another study, con-
ducted by Ward, suggests synesthetic design inherently resonates
with the general public: When 85 nonsynners listened to a piece
of music and evaluated colorful computer animations depicting
the song, a majority preferred those created by auditory-to-color
synners over those by non synners. Synesthesia is not a sub-
jective, personal interpretation, adds Dawn Goldworm, 35,
one of two synners who co-founded the olfac-
tory branding frm 12.29, which scents hotels,
banks, and runways for fashion designers. Its
the interpretation [of what a scent conjures] that
everyone has. Its just that I do it automatically.
Still, Haverkamp admits automation can
create obstacles. Some synners are slower
to grasp the meaning of words, numbers, or
items that appear in the wrong colors. To
me, sweet chocolate has to be red and dark
chocolate has to be blue, he explains. But
the colors of the [brands] packaging are reversed, so it always
takes extra time. Its only seconds, so it doesnt outweigh
the benefts. Where Im sitting right now, theres a beauti-
ful bouquet of fowers, guitar music is playingbut I also see
colors: green, white, and blue dots, he says. I have more
material to work with.
Etc. Etc.
DOODLE WHILE
YOU WORK
In The Doodle Revolution, Sunni Brown
argues we all have inherent doodler DNA.
Here, the author defnes the fve typesyou can be a combo
of some or alland explains how each can be useful at work
MASTER
CLASS
NATURE/LANDSCAPES
Some people produce
visuals of naturally occurring
elements, most commonly
mountains, rivers, fowers,
wind, and energy. Drawing
these can ease the mind and
boost concentration.
Take advantage by trying
to produce doodles
that involve complex physical
and chemical processes,
such as photosynthesis.
ABSTRACT
By creating marks that
are geometric or meandering,
you can use such abstract
doodles to disengage from
linear concepts and
shift into more organic and
associative thinking.
Film director Ron Howard
uses this technique to
clear his mind before he begins
roughing out storyboards.
PEOPLE AND FACES
Lyndon Johnson would
doodle people and faces in
the White House. Creating
spontaneous cartoons helps
to aid information processing;
those able to portray emotion
in simple drawings are
better at discerning customer
experience and behavior.
PICTURES
These people draw
recognizable representations
of objects such as tools,
machinery, and vehicles. This
skill can be applied in diverse
business settingsits handy
when building graphics for
things such as supply chains
or infrastructure maps.
WORDS
Many write words
or phrases and trace them
while thinking. The content
of the word and its meaning
are generally less relevant
than the physical act, which
allows the mind to more fully
engage. The biggest beneft
is that growing familiarity
with letter shapes encourages
typographic innovation.
66
Etc.
BEYOND
PRANCERCISE
Assessing the crop of group ftness classes
marketed to women. By Allison McCann
Fitness
AKTinMotion
Celebrity-trainer-turned-
entrepreneur Anna Kaiser
opened her fagship
studio in November in New
York along with pop-up
shops in Connecticut and
the Hamptons. Suggestively
named classessuch
as S&M and 4Playare led
by professional dancers
and alternate between
shimmying and moves
such as plank push-ups for
10-minute circuits. Its
a dancers workout, with
lots of small movements
focusing mostly on your
arms and core but with more
cardio than a traditional
ballet bar regimen. Fans
include Kelly Ripa and
her 12-year-old daughter.
Classes, heated to make
you sweat, are kept at less
than 15 people, so theres
no way to hide in the back.
$35, 60 minutes
DIFFICULTY:
Aqua Studio NY
The submerged cycling
classa French workout trend
that landed stateside last
yearfeels fresh out of Paris:
low impact, low heart rate,
more of a spa experience than
a gym. This spin/swim
class takes place in a 4-foot-
deep pool, so your chest
is above water while your
legs pedal against resistance.
A particularly hard move
involves hands-free pedaling
while leaning backward
and treading in the water
behind you. $40, 45 minutes
DIFFICULTY:
Focus
Integrated
Fitness
Virtual trainers
demonstrate
exercises on iPads at
this small circuit-training
studio in New York, but
the sleek appearance
doesnt make up for a lack
of creativity. For nearly
an hour, real-world trainers
guide guests through fve
or so diferent stations
including kettlebell swings,
hamstring curls, and shoulder
pressesfollowed by a shorter
fnisher circuit that feels
like fller. The TRX suspension
bands that hang from
the ceiling ofer difcult core
and stabilization moves,
but the optional exercises
between sets could be more
challenging. $40, 50 minutes
DIFFICULTY:
Uplift
Explicitly for women, this
New York club features
shampoo by Malin & Goetz
and plenty of blow-dryers.
Its three signature classes
focus on strength, cardio, and
yoga. The Uplifting-Cardio
fuses 5- to 7-pound dumbbell
exercises with movements
such as jumping jacks and toe
touches; think an updated
take on Jane Fondas aerobics.
Pulsing the light weights will
make muscles burn, but the
calisthenics alone arent worth
paying for. $32, 55 minutes
DIFFICULTY:
Vixen
Workout
Janet Jones started
the ofcial Twerk
School of the East Coast
this year with studios in Miami
and Manhattan. Her method
is a booty-popping dance-of
thats set almost entirely
to Beyonc remixes. Freestyle
moves are encouraged,
and there are no weights or
structured body shaping.
Instead, the Vixen Workout
includes motivational female
empowerment speeches,
with mantras such as Damn,
I look good! and Pay my
bills. You can probably aford
them, though, because the
class is cheaper than most.
$15, 60 minutes
DIFFICULTY:
Barrys Bootcamp
Endorsed by Jake Gyllenhaal
and Kim Kardashian, the boot
camp company expanded
last year, taking its clubby
vibeloud pop, dim lighting,
crowded roomsto England
and Norway. Each session
alternates between 12 minutes
of grueling treadmill sprints
and an equally quick weight
routine relying on squats
and curls. Even these basics
feel impossible when youre
out of breath from running.
$34, 50 minutes
DIFFICULTY:
An underwater
spinning class at
Aqua Studio NY
W
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SNEAKERS
ENCOURAGED
BRING
YOUR MAN
FRIENDS
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67
JumpLife
Mini trampolines for
participants fll the space
at this New York upstart.
Following the instructor
and keeping the beat of the
music while bouncing is
awkward, but the workout
itself isnt very taxing. There
are no weights or intense
cardio, just small jumps and
running in place. For those
who are less coordinated,
an optional balance bar is
available. $28, 45 minutes
DIFFICULTY:
305 Fitness
This cardio-heavy workout
delivers on its South Florida
roots with a live DJ and
pulsing neon strobes. Unlike
traditional dance, the hip-hop
classes dont teach specifc
choreography; instead,
teachers demon strate a series
of body-weight exercises
disguised as dancing. Body
rolls work on contracting
your core, and quick-popping
squats tighten your rear
and quads. Spots are mostly
flled by young women
though men are welcomebut
this isnt a butt-kicker as much
as a good time. $24, 55 minutes
DIFFICULTY:
Circuit of
Change
If a combination
of martial
arts, cardio core
strengthening, gymnastics,
plyometrics, yoga, and
meditation sounds
confusing, thats because it
is. The signature Mindbody
Bootcamp at this Manhattan
gym tries to do it all by
juxtaposing warrior poses
with Superman kicks
and jabbing sequences.
Youll use only your body
weight as resistance, a plus
if you dislike weights,
but the sequences get
repetitive. Temperatures
rise above 90F to help
you shed some water weight,
and a calming Shavasana
resting pose ends the
workout right. $27, 60 minutes
DIFFICULTY:
B|X at Brick
An update of the
original CrossFita
cult workout that
began in 2000 and
involves Olympic weight
liftingthis high-intensity
interval version uses
lighter weights and is more
beginner-friendly. Ofered
in Los Angeles and
New York, sessions typically
include two or three
circuits that combine arm,
leg, and ab movements by
throwing medicine balls
or doing squat jumps or
single-leg planks. Theres
no rest between exercises,
so dont eat too much
before or you risk nausea.
$32, 60 minutes
DIFFICULTY:
Kaiser, founder
of AKTinMotion,
demonstrates
a move
A B|Xer digs in
at Brick
BEST
OVERALL
W
ORKOUT
W
ILL
CONVERT
YOGA
HATERS
68
Etc.
R
onald Reagan is remembered as
much for his style as his politics.
With his sunny smile and pep,
he was a happy warrior. He was
also an avowed mystic. A hero to
evangelical Christians, Reagans
own spirituality was shaped by
his time in Hollywood: He con-
sulted psychics and said hed
seen UFOs. As Mitch Horowitz
points out in One Simple Idea,
an intellectual history of the
positive- thinking movement, Reagan
would retell a story borrowed from the
occult scholar Manly Hall that went like
this: On July 4, 1776, a mysterious fgure
possibly a member of an ancient order of
philosophersappeared in the Philadelphia
statehouse, somehow passing the guarded
doors unseen. Stepping from the shadows,
he gave a rousing oration that inspired the
wavering delegates to sign the Declaration
of Independence. Then he vanished.
Reagans election, as Horowitz sees it,
marked the decisive mainstreaming of pos-
itive thinking, the belief that thought alone
can cure disease, alter circumstances,
and ensure wealth. Today the Penguin
Group has an entire imprint dedicated
to metaphysical literature, and Horowitz
is its editor-in-chief. His book tells of the
entrepreneurs and gurus who formulated
New Thought, as he calls it, and moved it,
over many decades, in from the fringe.
New Thought is simply the belief that
our thoughts possess some kind of power,
both on ourselves and on events around
us. Diferent proponents have taken that
to mean diferent things: Phineas Quimby,
a tubercular Maine clockmaker, became
convinced in the 1830s that disease orig-
inated in the mind and could be cured
there. (Mary Baker Eddy, founder of the
Church of Christ, Scientist, tended to min-
imize the intellectual debt she owed him.)
Wallace Wattles, an early-20th-century
Methodist minister and socialist, preached
that the mind, properly used, worked like a
magnet to attract favorable circumstances
an idea that re appeared a century later as
The Secret in the Oprah-approved best-
seller of the same name. Glenn Clark,
founder of the Camps Farthest Out, said
that the right preparation routine ensured
the efcacy of prayer. During World War II,
he claimed his prayer groups had slowed
Hitlers march into Poland.
In its early years, New Thought was
dominated by progressives and politi-
cal radicals, sufragettes and other free
thinkers. As self-help has become a big
business, Horowitz says its become a
more narrowly materialistic creed, a
methodology of winning focused on
getting ahead and getting rich. Prosperity
gospel churches such as Joel Osteens
Lakewood Church and T.D. Jakess
Potters House have become multi-
media goliaths, fed by the tithing of tens
of thousands of congregants who gather
on Sundays to hear about the riches God
has in store for them.
Horowitz is a fuid writer, and if some
of the fgures in his book tend to blur
together, thats probably inevitable given
the form he has chosen: a daisy chain of
capsule biographies glossed with com-
mentary. While occasionally critical
of his subjects, hes never terribly so.
Either because of
his own position
i n the sel f- hel p/
spirituality indus-
try or because he is
himself, by training
or temperament, a
positive sort, hes
unfailingly respect-
ful of the teachings
he describes.
And like Reagan,
hes unembarrassed
about the mystical
side of positive thinking. Horowitz ends
his book with a chapter titled Does It
Work? He says it does. He points to
the placebo efect, which New Thought
proponents wrote about long before
the medical establishment took it seri-
ously. He also writes of a few unrepli-
cated studiesresearch most scientists
do not take seriouslythat show evidence
for ESP. He holds out hope that quantum
theory, in which an observers con-
sciousness determines objective reality,
might apply on a larger scale, helping
explain how our minds might shape the
world around us. Where Horowitz will
lose readers is between the placebo efect
and this parapsychology. Most of us have
no problem believing positive thinking
has power, but superpowers?
One Simple Idea
By Mitch Horowitz
(Crown), $24
By Drake Bennett
COME ON, GET
A new book makes the case for the power of positive thinking
The Critic
WORKING
THROUGH IT
READ, SKIM,
SKIP
READ SKIM
SKIP
Smarter
By Dan Hurley
In this book on a growing
feld of research
into how our IQs can be
raised, the author tests
brain- improving
programs, music lessons,
intense exercise regimes,
and more, and argues that
adults can make themselves
more intelligent.
The Demographic Clif
By Harry Dent Jr.
The economist uses birth
rates to suggest there will
be a great defation between
2014 and 2019, but his
tips on buying real estate
and starting families once
the baby boomers retire can
be digested without getting
too doomsday about
a supposed downturn.
Idea to Invention
By Patricia Nolan-Brown
Rather than spending
200-plus pages
with the woman who
created the rear-facing
carseat mirror, use
those hours brainstorming
your own innovation.
If youre just looking
for distraction,
try Shark Tank instead.
69
SUSY DUNN
Vice president of
people, Jama Software
I always have a
candidate provide
a past situation
similar to what they
will encounter in a new
position. The answer
provides huge insights into
their level of critical thinking,
adaptability, awareness of
their impact, and creativity.
WHATS YOUR FAVORITE
HIRING
QUESTION?
Top interviewers reveal the curveballs
that distinguish job seekers from job getters
By Arianne Cohen
Survey
P
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S
ANDREW SHAPIN
Chief executive
ofcer,
Long Tall Sally
When candidates
are honest,
it illuminates
self-awareness
and potential
weaknesses. It
also helps ensure
I get the best
out of them. The
response can
easily be verifed
with the previous
employer. I also
ask what progress
has been made.
HILARIE BASS
Co-president, Greenberg Traurig
Passion leads to success. I have turned
folks away who could not frankly answer
this. The people attracted to us must
show absolute commitment to the practice
of law and solving clients problems.
LIZ BINGHAM
Partner, Ernst & Young
A rsum can tell you about
their previous experience,
but this question helps
indicate the individuals
passions and strengths
and whether theyre well-
matched to the job. From
aspirations in politics, to cafe
ownership, to entrepreneurship,
the answers are revealing.
ANDREW ALEXANDER
President, Red Roof Inn
I always ask this the minute a prospect
sits down. After the initial shock wears
of, I hope to hear a passion for the
hospitality industry and a deep respect
for customer service. I fnd this to be
a tremendously efective way to gauge
whether the person is interested in
working for us or simply seeking a job.
MICHAEL YORMARK
President, the Florida
Panthers and Sunrise
Sports & Entertainment
The answer reveals a lot
about who the candidate
is, who she aspires to
be, and whether she has
the DNA to be part of
a companys culture. It will
also force the interviewee
to make a decision between
brutal honesty and telling
the interviewer what she believes
he wants to hear.
LARRY DREBES
CEO, Janrain
The candidate
is less likely to
have a scripted
answer, and
you see some
on-the-spot
introspection.
You can learn
a remarkable amount
about personality, as
well as cultural and
organizational impact, which is
hugely important. If this question
is asked early in an interview, it often
yields color for a richer conversation.
BONNIE ZABEN
Chief operating ofcer, AC Lion Recruiting
I ask the applicant about their hobbies, and
then we do role-play. I want to see how they think
quickly and compose coherent presentations.
Are they recommending specifc player changes?
Can they quote stats to back up a position? Can
they present a cogent argument in fve minutes
without dead air? Youd be surprised.
70
P
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)
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(
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L
ast year wasnt a good one for cable.
Sure, there were hits such as A&Es
Duck Dynasty and AMCs Breaking
Bad, but those were the few bright
spots. According to Nielsen, USA
Network snagged the largest cable
audience for the eighth year in a
row, but its 2.68 million average
prime-time viewership was an 8 percent
decline compared with 2012. Half of the 20
most popular cable networks lost viewers
in 2013, and the rest mostly stayed fat.
The big exception was Nick at Nite, which
specializes in reruns of fusty, canceled
sitcoms such as George Lopez and The
New Adventures of Old Christine. The net-
works audience ballooned
25 percent last year, the
most of any of the major
basic-cable networks.
Nick at Nite has the
most old-school method
of doing things you can
imagineand its still
working, says Robert
Thompson, director of
the Bleier Center for Tele-
vision and Popular Culture at Syracuse Uni-
versity. (The networks 1.09 million average
viewers give it an audience that closely
matches Syfy and the Food Network in
size.) According to media analysis company
Horizon Media, the most popular show on
Nick at Nitewhich broadcasts over Nickel-
odeons channel space but has been con-
sidered a separate station since 2004is
Full House. Reruns of the 1990s sitcom
bring in as many as 1.4 million people in
prime time, more than Conan and slightly
less than The Colbert Report.
ASK A
BILLIONAIRE
SOMETIMES WE
JUST WANT TO
WATCH A SITCOM
WHILE WE
MAKE DINNER
James Dyson
Founder and chief engineer, Dyson
Net worth: $4.4 billion
WHAT KIND
OF MANAGER
ARE
YOU?
Submit your questions on Twitter with
the hashtag #askabillionaire.
A pretty dreadful one. The
trouble is, Im just not that inter-
ested in it. Im interested in
working with a group of people
to make something work.
But its not conventional manage-
ment. I just do what I do
my waymost of my employees
are still here, so it cant be that
wrong! If someone has an ofeat
idea which sounds daft,
consider it and think about
it and try it out. We dont
have technicians, so engineers
go and make their own
prototypes and rigs. Letting
people try out their
ideas, getting them totally
involved, thats really
important. Getting down there,
being with people every day,
and experiencing what theyre
experiencing is also crucial.
When Nick at Nite launched in 1985,
it touted itself as the first oldies TV
network and aired classic sitcoms such as
Get Smart and Bewitched. In 2008 it started
investing in original programming, creating
shows with a nostalgic benteven airing a
remake of the 1990s Nickelodeon kids show
GUTSbut they never gained much traction
with audiences. After a 36 percent drop
in ratings in 2012, Nick at Nite scaled back
on original programming (it still has two
showsInstant Mom, starring Tia Mowry-
Hardrict, and See Dad Run, featuring Scott
Baio) and doubled down on its classic TV
lineup, upping the number of Full House
reruns from 25 to 32 per week and running
them in a block along with
Friends. We havent done a
lot of qualitative on it yet,
says Dan Martinsen, execu-
tive vice president of commu-
nications for Nick at Nite, of
the networks newfound pop-
ularity. But our [reruns] have
always been liked.
Its tempting to attribute
Nick at Nites recent success
to millennials Internet-fueled childhood
nostalgia, a trait that Nickelodeon cashed
in on in 2011 when it aired its classic
childrens TV shows including Clarissa
Explains It All and All That on its sister
station, TeenNick, temporarily boosting
its ratings by 850 percent. But thats not
whats happening. Actually, I think its
a reminder that we dont always want
to sit in the dark for an hour and focus
on Game of Thrones; sometimes we just
want to watch a sitcom while we make
dinner, Thompson says. In a way, Nick
at Nites boom may actually lie in cable
televisions failure. Outside of the mega-
hits, networks mostly fll their time slots
with niche programming that gets medi-
ocre ratings. Meanwhile, Nick at Nite is
going after the old-fashioned channel
surfers, safe in the knowledge that when
theres nothing else on TV, people are still
willing to settle on the many charms of
Uncle Jesse and Kimmy Gibbler.
LAUGH TRACKING
ALL THE WAY TO THE BANK
Whats behind the unexpected
success of Nick at Nite. By Claire Suddath
Etc. TV
Dyson owns a
300-foot-long
yacht, one of the
largest in Britain,
named Nahlin
71
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Etc. What I Wear to Work
Interview by Arianne Cohen
TIKI
BARBER
38, co-host of CBS Sports Radios
TBD in the AM and
co-founder of Thuzio, New York
Do you always
wear scarves?
All the time
because I get cold
because Im bald.
I also wear hats,
usually a fedora.
Whats your schedule?
I wake up at 3:50 a.m. and scramble
into the city from New Jersey. Then
I have an hour to put together sports
story lines for a 6 a.m., three-hour
radio conversation. After, I head
over to Thuzio. Wednesdays I go
home and sleep all day. And every
other Friday, I have my kids from
my frst marriage for the weekend.
ZEGNA
CALVIN KLEIN
CALVIN KLEIN
SEIFTER ASSOCIATES
LUCKY
Are you a
layerer?
Yes! Even in
warm weather.
I think it adds
depth to
who you are.
Can you buy of the rack?
No. Most of my clothes
are made to measure from
Zegna. I have broad
shoulders and a thin waist,
and a big butt and thick
legs. My waist is a 32-1/2 inch.
How many do you own?
About 10. I used to give them
to my ofensive linemen. Id
get them Panerais, and theyd
be like, I cant wear this,
its too expensive. I was like,
Wear the damn watch!
Whats the dress code
among radio people?
Anything goes. Dana, my
co-host, wears Lululemon
because after the show
she goes to the gym. My
other co-host, Brandon,
sometimes comes in with
ripped jeans and a hoodie.
Whats your look?
Casually cool, but business.
From my playing days,
we used to have this mantra:
If you look good, you feel
good. If you feel good, you
play good. And if you play
good, you get paid good.
How do you feel about
watches?
Im a watch guy. Im
wearing a Rolex now. I lost
my favorite watch ever
an IWC PortugueseI have
no idea what happened
to it. It drives me insane.
Whats Thuzio?
A marketplace for athlete
bookings. My role is
business development
fnding new clients and
looking for investors for
our Series A.
72
Etc. How Did I Get Here?
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JOEL MYERS
Founder, chairman, and president of AccuWeather
1951-57
Newspaper delivery
boy for Philadelphias
Evening Bulletin
1953-58
Ofcial weather observer,
Weather Bureau
1962
Starts AccuWeather
out of his home
1964-81
Lecturer, weather
forecasting,
Penn State
1972
Partners with frst
TV station, WPVI in
Philadelphia
1975
AccuWeather ofers
seven-day forecasts
1997
The patented RealFeel
reading is introduced
2006
AccuWeather opens
a Severe Weather
Center in Wichita
to track storms and
tornadoes
2014
AccuWeather will
release minute-by-
minute forecasts later
this month
WORK
EXPERIENCE
LIFE LESSONS
Central High School
No. 208,
Philadelphia,
class of 1957
Pennsylvania State
University,
class of 1961
EDUCATION
When I was 3, I became
fascinated by snow.
By the time I was 7,
I was recording the daily
temperature.
Charles Hosler, my
thesis adviser, was a
real mentor to me. We
spent hours discussing
the commercial opportunities
of weather predictions.
People have gotten so much control
over many aspects of their lives,
but they still cant control weather.
They probably never will.
If youre in Walmart and its
pouring rain outside, do you
run to the car or wait for it to let
up? We can now tell you: The
rain will stop in seven minutes.
Back then, a seven-day
forecast was unheard
of. But even now, some
complexities cant be
solvedtheyre on the edge
of mathematical knowledge.
1. If you believe in something, dont get discouraged. See it through. 2. The best weather forecasters absolutely live and breathe the weather. Thats tru
e
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