● How not to pay taxes 24 ● A steaming mug of ...

48 ● The new math of private jets 59

April 29, 2019

YOU
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Gen Z is bigger than
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THEM
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 April 29, 2019

◀ North of Lake
Okeechobee in Florida,
an unlikely global
warming warrior
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PHOTOGRAPH BY ANASTASIA SAMOYLOVA FOR BLOOMBERG BUSINESSWEEK

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2 18

FEATURES 42 Turkey and Venezuela’s Dark Deal

A mysterious middleman profits while millions suffer

48 Taking On Forced Arbitration

Lee Stowell may meet the boys at Cantor Fitzgerald in court after all

52 The Future of Steak Depends on Science

Researchers work to breed flavorful beef that can withstand climate change
 ◼ CONTENTS Bloomberg Businessweek April 29, 2019

◼ IN BRIEF 5 Drone deliveries begin; Ukraine’s election is no punchline How to Contact

Bloomberg
◼ AGENDA 6 U.S. labor stats; U.K. inflation; Apple and Alphabet earnings Businessweek
◼ OPINION 6 New U.S. sanctions on Cuba will likely backfire
Editorial
212 617-8120
◼ REMARKS 8 How Fiat Chrysler survived without its indispensable CEO Ad Sales
212 617-2900
Jo

731 Lexington Ave.,

BUSINESS 12 ▼ What does Generation Z want (to buy)? New York, NY 10022
1 Email
in

bwreader
@bloomberg.net
Fax
us

212 617-9065
Subscription Customer
Service URL
businessweekmag
on

.com/service
Reprints/Permissions
800 290-5460 x100
or email
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businessweekreprints
@theygsgroup.com
ha

Letters to the Editor

can be sent by email,
fax, or regular mail.
ts

They should include

the sender’s address,
ap

phone number(s),
and email address if
Owen Crivellano, 16, 13 America’s malls win them over, one iPhone at a time available. Connections
Thomas Chou, 22,
15 In China they rely on their friends, not stores
p

with the subject of

and Krishna Manes, 21,
the letter should be
in New York’s Tompkins 16 Sorry, Detroit, but a lot of Gen Zers don’t even want a car disclosed. We reserve
N

Square Park
18 Five recessions later, Japanese kids are frugal the right to edit for
sense, style, and space.
19 Gen Z shoppers: Opinionated, ethical, and hard to reach
av

2
Follow us on
social media
TECHNOLOGY 20 Ride-sharing Uber tries data-sharing with the police
ee

2 21 Can Snapchat snap back in Brazil? Facebook

facebook.com/
22 Visiting the robot farmers of California’s lettuce factory
d

bloomberg
businessweek/
Twitter
FINANCE 24 High-rises, no taxes: The Macklowe guide to real estate
Ba

3 26 Green bonds try to fight climate change

@BW
Instagram
@businessweek
i G

ECONOMICS 28 Extortion thrives under Brazil’s law-and-order president

30 Australia signals a left turn
03

POLITICS 32 Trump has little to show from getting tough on Tehran

34 Life after Mueller for one of the scandal’s bit players
14

35 Catalonia still struggles to find its place in Spain

37 Whom do Mexico’s powerful unions really represent?
90

SOLUTIONS 39 Protecting miners with a gold blockchain

GEN Z PHOTOGRAPHS BY RYAN LOWRY FOR BLOOMBERG BUSINESSWEEK
77

41 Does property insurance cover a corporate hack?

2

◼ PURSUITS 59 Private jets, your way

18

62 Put a bit of beauty on your bookshelves

64 Bringing up baby is easy—when the data’s on your side
65 Boots to get an angler way off the beaten track
66 The eight best sandwiches New York has to offer

◼ LAST THING 68 If you need chips and beer in the land of the rising sun, Cover:
you may have to wait for the rising sun Photograph by
Ryan Lowry
for Bloomberg
Businessweek
 The global
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business
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reporting.
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Follow it all.
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bloomberg.com/subscriptions
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 Nature
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hydr ates
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Did you know that each person needs

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20-50 liters
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for drinking, cooking and cleaning? *
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the natural fow, fltration and regulation of watersheds that supply
drinking water to people across Latin America, North America and Africa.

How can you help meet nature’s needs? Learn by visiting nature.org.

* World Water Assessment Programme (WWAP)

 Bloomberg Businessweek April 29, 2019
 IN BRIEF
○ Scrutiny of economics ○ Islamic ○ After Hasbro, Lockheed
writer Stephen Moore, a Martin, and Twitter
potential nominee for the State claimed reported their first-quarter
Federal Reserve Board, responsibility for earnings, the S&P 500 and
intensified after Herman a complicated set Nasdaq Composite indexes
Jo

Cain withdrew from marked highs: On April 23

consideration. The IRS won of suicide attacks the S&P closed at
a judgment against Moore in churches and
in

over unpaid taxes last year.

(He’s contesting it.) He also
hotels in Sri Lanka 2,934
and the Nasdaq at
us

faced criticism for columns on Easter Sunday

in 2000 that derided that killed at least 8,121
on

feminists for turning men 359 people. though both declined

into “minorities.” slightly the next day.
w

○ Countries that ○ In Singapore, Heng Swee ○ Global pork prices rose as

ha

Keat moved into African swine fever spread

purchase Iranian the office of deputy in China, home to half the
ts

oil will now face prime minister from world’s hogs. First reported
ap

U.S. sanctions. his former post heading in August, the outbreak may
the Ministry of Finance. lead to a pork deficit of
p

The appointment sets him

up as the likely successor
16.2m
N

to Prime Minister Lee

Hsien Loong—and the first tons in the country this year,
av

The Trump administration ended 5

waivers exempting other nations from nonmember of the Lee according to economists
penalties. In response, Iran threatened ○ Wing, an offshoot of Alphabet’s
family to lead the city-state. at INTL FCStone, or
ee

to close the strategic Strait of Hormuz, Google, got approval to operate as

through which most Gulf oil must an airline and may begin dropping 1.3 times more than the
pass to reach the rest of the world. packages via drone. For now, it has
U.S. produces annually.
d

Petroleum prices rose in anticipation permission to do so in only two towns,

of the likely squeeze in supply.  32 in rural Virginia; more may follow.
Ba
GOOGLE: CHARLES MOSTOLLER/BLOOMBERG. HENG: WEI LENG TAY/BLOOMBERG. ZELENSKIY: ANNA MARCHENKO/TASS/GETTY IMAGES

○ Journalist Lyra ○ Boeing missed analysts’

McKee, 29, was

earnings estimates for just ○ “I as a Ukrainian
i G

the second time in five years

killed at a riot in and abandoned its 2019 citizen can say to all
Northern Ireland. financial forecast, as it deals
03

with the aftermath of two

deadly 737 Max crashes.
post-Soviet countries:
14

Look at us—everything
90

A group called the New IRA said the

shooting in Derry was accidental.
is possible!”
77

Meanwhile, in Myanmar—a country led

by Nobel Peace Prize winner Aung San
Suu Kyi—a court refused to release
2

Pulitzer Prize-winning journalists Former TV comic Volodymyr Zelenskiy on winning Ukraine’s

Wa Lone and Kyaw Soe Oo, held for presidential runoff with 73 percent of the vote. Russia’s
18

reporting on the persecution of the Vladimir Putin offered a cold acknowledgment of the win.
country’s Muslim Rohingya minority. The countries have been unofficially at war since 2014.

○ Miguel Patricio became Kraft Heinz CEO, replacing Bernardo Hees, who was hobbled by a failed 2017 bid for Unilever.
○ Tesla’s first-quarter revenue came in below analysts’ estimates, and its loss of $2.90 per share was wider than expected.
○ Samsung delayed the launch of its much awaited Galaxy Fold smartphone after problems with its foldable screen.
○ Henry Bloch, co-founder of the 64-year-old U.S. tax preparation company H&R Block, died on April 23 at age 96.
 ◼ AGENDA
Bloomberg Businessweek April 29, 2019

▶ Google’s parent ▶ Anthony Scaramucci,

Alphabet announces short-lived White House
quarterly earnings on communications director,
April 29. Apple and will be “Interpreting Trump
General Motors report the on China” on April 30 at a
next day. conference in Washington.
Jo

▶ On May 2, Bank of ▶ Christie’s continues its

in

England Governor Mark auction of the late British

Carney provides U.K. Prime Minister Margaret
us

inflation figures and the Thatcher’s mementos and

central bank’s decision effects, including a number
on

on rates. of her handbags.

▶ Workers (and Statistics), Arise ▶ Brazil reports on its ▶ HSBC releases its
w

On May 3, the U.S. Bureau of Labor Statistics releases trade balance on May 2. first-quarter earnings on
the employment figures for April. March saw a surge of While it still expects to be May 3. At its annual report
ha

196,000 jobs, after a wobbly gain of 33,000 in February. in the black, its surplus in February, it warned
Will the almost decade-long rise in hiring—and, more missed expectations by that global tensions may
ts

recently, wages—continue? $500 million in April. affect profits.

ap
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◼ BLOOMBERG OPINION
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U.S. courts with lawsuits. Since 1964, the U.S. Foreign Claims
A False Step on Cuba
av

6
Settlement Commission has certified nearly 6,000 claims
valued (with interest) at $8 billion. The State Department
ee

apparently thinks there may be 200,000 more.

● The Trump administration’s new sanctions on Havana A full resumption of normal ties between the U.S. and
d

are likely to backfire Cuba should indeed require compensation for the victims
of expropriation. A process that could have yielded this was
Ba

under way thanks to President Obama. This administration’s

President Trump has taken steps lately to make things harder plan is much less promising.
i

for Cuba, aiming to persuade its government to stop help- Canada and the European Union have said they are
G

ing Venezuela’s embattled tyrant, Nicolás Maduro. That’s a “determined to work together to protect the interests of our
worthy goal, and Cuba’s material support for Maduro is objec- companies” at the World Trade Organization and through
03

tionable, but this is the wrong way to get results. counterclaims against any U.S. lawsuits. There’s already dis-
The administration just announced that U.S. citizens will agreement about how much pressure to apply on Maduro,
14

be able to sue foreigners for transactions involving property and the litigation initiative—more an attack on America’s
that Cuba confiscated after the 1959 revolution. This legal friends than on Cuba or Venezuela—will widen that rift.
90

recourse was made available by the Helms-Burton Act in 1996 The administration came into office betting Cuba’s govern-
—but was then frozen, for good reasons, by successive admin- ment would buckle under pressure, but Havana has withstood
77

istrations. Tougher restrictions on travel and remittances will much worse than this: the U.S. embargo, for one, and the eco-
also come into force. These moves follow previous bans on nomic contraction from 1989 to 1994 because of the collapse
commerce with businesses owned by the Cuban military and of Cuba’s Soviet patron. Aside from dividing what could have
2

security services; restrictions on individual travel to Cuba; a been a U.S.-led coalition, the new escalation will play into the
18

veto of Major League Baseball’s deal with Cuban authorities hands of hard-liners, encourage Cuba to seek help from Russia
to hire Cuban players without obliging them to defect; and the and China, and weaken potent internal forces for change.
ILLUSTRATION BY REBEKKA DUNLAP

shrinking of the embassy in Havana to a skeleton staff.
This assault will, as intended, inflict real damage on Cuba
—but if history is any guide, that’s unlikely to make the coun-
try’s rulers budge. Instead, litigation against Canadian and
European companies doing business in Cuba will fracture the
international front against Maduro—not to mention swamping
Engagement is no panacea. Targeted sanctions have their
place. But Cuba should be confronted with the broadest possi-
ble front of critics and opponents. The Trump administration
has just made that harder. <BW>
Written by the Bloomberg Opinion editorial board
© Center on Addiction / Partnership for Drug-Free Kids
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If you find yourself in a situation you never thought

you’d be in, we’re here to help. No matter what you
and your family are going through, we can help you
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 ◼ REMARKS
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Into a World
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Without Marchionne
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 ◼ REMARKS Bloomberg Businessweek
● A new book details the 2018
crisis when Fiat Chrysler lost its
“indispensable” chief executive
Jo
● By Tommaso Ebhardt
in
On the morning of July 20, 2018, a warm Friday, a Fiat Chrysler
us
corporate jet took off from Turin, Italy, with Chairman John
Elkann on board. For the second time in a week, Elkann,
on
a scion of Fiat’s founding Agnelli family, was crossing the
Alps, headed for the University Hospital Zurich to try to dis-
cover what was wrong with his chief executive officer, Sergio
w
Marchionne. Three days earlier, Elkann had been denied
entry to the hospital’s intensive-care unit by Marchionne’s
ha
doctors who said it would be a violation of the patient’s
privacy. The chairman hadn’t received an update on how the
ts
CEO was recovering from surgery he’d undergone at the end
ap
of June. No one at the company knew he’d been scheduled
for the procedure.
Elkann had one issue on his mind. The company had
p
told investors in its 2017 annual report that Marchionne
N
was “critical to the execution” of its strategy, high praise
yet high risk. Fiat’s market value had grown tenfold under
av
Marchionne. What would happen if the superstar CEO—who
ran three of the family’s huge companies—was incapaci-
tated? Elkann had started evaluating options on the evening
of his first visit to the Zurich hospital, as he headed to the
airport after a walk by the lake with Marchionne’s partner,
Manuela Battezzato. This second visit would be fraught: The
company’s second-quarter results were due in five days, and
media speculation was mounting over the CEO’s condition.
As Elkann passed through the glass doors of the hospital,
he saw Battezzato and, after speaking with her, came to the
realization that his CEO was never coming back.
Marchionne ruled Fiat Chrysler Automobiles NV—and the
Agnellis’ other car and truck companies, Ferrari SpA and
CNH Industrial NV—with the help of his phones. For the most
part, he used an iPhone with a profile picture of a red Ferrari
passing a rival Mercedes at a Formula One Grand Prix. He
gave out daily orders via WhatsApp to more than 50 peo-
ple who reported to him directly. He seemed ruled by an
obsessive attitude: “It is just right to get this done, it’s that
simple,” he once said to Bloomberg Businessweek. The only
time Marchionne’s phones got a rest was when he went to
bed—and even that produced only a three-to-four-hour respite
from meetings, emails, and texts each day.
Although the exact nature of his illness hasn’t been offi-
IAN HANNING/REA/REDUX
cially released, Marchionne knew he was seriously sick a year
before he died. In the weeks before he suddenly vanished into
the hospital in Zurich, he appeared pale, swollen, and weak
even as he worked his mobile phones, running his automotive
April 29, 2019
empire. Everything went silent after he went into surgery on
June 28. Only Battezzato and his closest relatives knew he was
being hospitalized. Everyone else—including Elkann, who’s
Fiat’s controlling shareholder; the company’s top executives;
and the board of directors—was left in the dark. Marchionne’s
WhatsApp account went offline; hundreds of communications
were left unread. A July 5 statement from a Fiat spokesman
confirming the chief executive had undergone “shoulder sur-
gery” with a “short period of recovery foreseen” was the only
update given on his condition. The Agnellis’ three companies
were at risk of coming to a standstill. Marchionne always had
the last word on every big decision, from approving a Jeep
commercial for the Super Bowl to choosing the design of the
first-ever Ferrari SUV. He even signed off on the press releases
that reported on monthly auto deliveries in Europe.
On June 1, just weeks before entering the hospital,
Marchionne had celebrated reaching a major target: freeing
Fiat Chrysler from industrial debt by the end of the second
quarter so it would be better able to weather any sudden
crises. Although Marchionne usually wore dark sweaters like
his idol Steve Jobs, he celebrated the milestone by putting on
a tie at the presentation of the five-year plan. That day, Fiat
stock neared a record high in Milan trading: The three com-
panies that were part of Fiat when Marchionne joined the
company in 2004 were now worth $80 billion in total.
Marchionne’s ultimate goal before a planned retirement in
9
2019 was to boost the group’s value to $100 billion. That plan
required a momentous decision: Who would succeed him
ee
and take his legacy forward? He’d been considering starting
his own management company with a group of close aides
d
after leaving Fiat, but first he had to help Elkann select the
right successors. “We will make the right choice on leader-
Ba
ship, forget about it,” he said over dinner and grappa when I
asked about the succession in his last sit-down interview, in
i
January 2018. “The turkey that comes after this turkey will be
G
a good turkey, and he’s going to be surrounded by a bunch of
other turkeys who will be as fully committed as the top turkey
03
that the new business plan works. What the f--- do you care?”
14
In Zurich on July 20, Elkann knew he had to make that crucial
decision without Marchionne at his side. Flying back to
90
Turin—where Fiat was founded in 1899—he summoned top
managers, executives, and members of the boards of Fiat,
77
Ferrari, and CNH to assemble in the city the next day. Before
they convened, he had to come up with candidates for them
to consider. For Fiat, at least, that process had been under
2
way for months. Potential candidates included Europe chief
18
Alfredo Altavilla, Jeep boss Mike Manley, and Chief Financial
Officer Richard Palmer. Elkann whittled the list down to two
to discuss with the board: Palmer and Manley.
As the emergency meeting was coming together, Palmer
took himself out of the race while Manley confirmed he
wanted the job. So Elkann proposed Manley, who’d been key
to the boom at Jeep, Fiat’s most profitable unit, where sales
rose to more than 1.6 million in 2018 from 300,000 in 2009.
 ◼ REMARKS Bloomberg Businessweek
Altavilla, Marchionne’s closest aide for over a decade, told
the chairman he was going to resign. Palmer, who stayed on
as CFO and has now been appointed to the board, is working
closely with both Manley and Elkann on Fiat Chrysler strat-
egy, with a new responsibility for mergers and acquisitions.
Elkann then chose Marchionne’s successor as chairman at
Jo
CNH, naming Suzanne Heywood, managing director of Exor
NV, the Agnelli family’s holding company, for the post. There
in
was no obvious replacement at Ferrari because Marchionne
had expected to stay at least three more years. Elkann chose
us
Philip Morris International Inc. Chairman Louis Camilleri, a
Ferrari board member, who had the international standing—
on
and could take the job on just a few hours’ notice.
On July 21 the boards affirmed Elkann’s choices—just in
time to make that night’s prime-time news shows. Four days
w
later, Marchionne’s family announced that he’d died.
ha
Marchionne left behind several “what ifs,” including
ultimately fruitless approaches to Volkswagen AG and
ts
Peugeot SA about mergers. In 2013, Emmanuel Macron, then
ap
a top adviser to French President François Hollande, had
preliminary talks with Fiat about a merger with troubled
Peugeot. At the end of 2014, Marchionne was told by some
p
of his advisers that Peugeot’s new CEO, Carlos Tavares, was
N
interested in discussing a deal and wouldn’t compete with
Fiat’s chief for the top job, according to three people familiar
av
10
with the approach. But Marchionne by then had no interest.
(Tavares denies making the offer.)
In 2016, Marchionne considered what was called the “Wulf
Project”—an option to combine with Volkswagen’s U.S. oper-
ation in the wake of the German car company’s emission
scandal. That led nowhere, and Marchionne soon turned
his focus to his profit targets for Fiat Chrysler and boost-
ing the value of its brands, which he hoped would make the
company strong enough before his planned retirement to
survive the disruptive electric and self-driving revolution.
There was one uncompleted project that Marchionne
probably regretted to the end of his life. He wanted to create
the world’s biggest carmaker by merging Fiat Chrysler with
its biggest U.S. rival, General Motors Co. The plan was called
“Operation Cylinder.” With Elkann, he sent three explor-
atory letters from 2013 to 2015 to GM executives, including
new CEO Mary Barra. All went unanswered. Marchionne
then tried to force Barra to the table by seeking help from
activist investors. He even considered a hostile bid. In 2015,
Marchionne had lined up initial commitments from European
banks to finance a $60 billion cash offer for GM. But condi-
tions weren’t right, as Elkann soon realized: It was too finan-
cially risky for indebted Fiat, and Barra had the backing of
the U.S. establishment, along with top GM investors, includ-
ing Warren Buffett. The Oracle of Omaha had discouraged
Elkann, suggesting Barra should get her chance to run GM.
After months of preparation, Marchionne concluded he
couldn’t push for a merger with GM. Clearly disappointed, he
told me in an interview at his Michigan mansion, “If nobody
April 29, 2019
wants you, then celibacy may be the only option.” He took out
his frustration on the Agnellis, feeling a lack of support. This
was one of the several ups and downs he had with Elkann,
with whom he had a close relationship. But he was realistic
enough to admit in private conversations that the U.S. would
never allow him to wage a battle to unseat the first female CEO
of the country’s biggest carmaker.
One of Elkann’s first strategic decisions after Marchionne’s
death was the sale of Fiat Chrysler’s Magneti Marelli compo-
nent business to KKR & Co.’s Calsonic Kansei—a move already
in discussion in the months before the CEO’s final illness. That
will bring more than €6 billion ($6.8 billion) of cash to the car-
maker and a special dividend of €2 billion to its investors.
Since Marchionne’s death, two of the companies appear
to be thriving. CNH stock has gained more than 10 percent,
and Ferrari stock has recovered earlier losses with the help
of strong revenue and profit.
But almost nine months after Marchionne’s death, Fiat
Chrysler stock has lost more than 10 percent of its value—
about €4 billion—amid a global car industry slowdown.
Analysts are still worried about the company’s “durability
without its architect, engineer and chief pilot at the controls,”
as Bernstein Research’s Max Warburton—one of Marchionne’s
favorite sparring partners—wrote in his tribute note after the
CEO’s death.
Manley’s first official pronouncements as CEO didn’t
help. On July 25, a few hours after Marchionne’s death was
ee
announced, he cut 2018 profit targets, and shares plunged
more than 15 percent that day. Six months later, the stock took
d
another hit when he provided investors with a weak 2019 out-
look. Manley is facing a tougher-than-expected business envi-
Ba
ronment, including a trade war between the U.S. and China
and stricter emission rules, especially in Europe. Car sales fell
i
globally in 2018 and are on pace for another decline this year.
G
As the market slows, automobile manufacturers are under
intense pressure to combine efforts and investment as they
03
develop expensive technologies. Manley has signaled that Fiat
Chrysler is again open to explore ways to cooperate or even
14
merge with other carmakers. Fresh talks with Peugeot have
begun for joint investments, according to people familiar with
90
the matter. Fiat shares have been rising since the beginning
of March on speculation of a deal in the works.
77
Fiat Chrysler has at least two pieces of Marchionne
philosophy to guide it. His Turin office was adorned with
a portrait of Pablo Picasso and the motto “Every act of
2
creation is first of all an act of destruction.” Then there are
18
Marchionne’s own words: “I am a fixer by nature. Things that
are not well run, well structured, ready to compete, are not
good things. I need to fix them.” Like everyone else in the
industry, Elkann is aware that the next automotive revolution
is under way—and that he and Fiat Chrysler are heading into
it without Marchionne there to fix things. <BW> �Adapted from
Sergio Marchionne by Tommaso Ebhardt, published in Italian
by Sperling & Kupfer
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New York
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 Bloomberg Businessweek April 29, 2019

Gen Z
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▲ Warren Axelman, 12 ▲ Dana Nguyen, 18 ▲ Benjamin Bustamante, 22
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WHAT
▲ Richard Mixson, 19 ▲ Kimberly Cuji, 18 ▲ Emilie Lonkvis, 19
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S
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S
03

GEN Z
14
90
77

PHOTOGRAPHS BY RYAN LOWRY FOR BLOOMBERG BUSINESSWEEK

2

WANTS
18

Edited by
James E. Ellis
 ◼ BUSINESS Bloomberg Businessweek April 29, 2019

● Generation Z is poised to
become the largest group of
consumers in the world this
A NEW CROP
year, supplanting millennials OF MALL RATS
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as a key target for brands

preparing for the next round
in

● Gen Zers in the U.S. don’t mind frequenting shopping centers, as

of shifts in shopping and long as their visits are integrated with social media—and their phones
us

spending habits.
Companies can’t afford to
on

Gen Z keeps confounding corporate America. Its

get this one wrong. Gen Z— members shun beer, they want companies to take
people roughly age 7 to 22— political stands, and they trust the Kardashians to
w

account for about a quarter make their makeup choices. Yet the biggest sur-
prise for marketers about this new cohort of youth-
ha

of the global population and ful U.S. consumers? They love the shopping mall.
already wield spending power About 95 percent of them visited a physical
ts

of as much as $143 billion in shopping center in a three-month period in 2018,

ap

compared with 75 percent of millennials and just

the U.S. alone. Early indications 58 percent of Gen X consumers, according to an
are that Gen Z will put its International Council of Shopping Centers study.
p

own spin on consumerism, And they genuinely like it; three-quarters of them
N

said going to a brick-and-mortar store is a better

with major implications for experience than online, the ICSC found.
av

13
companies around the world “There’s always been this assumption that as
that were caught flat-footed by you go through the age spectrum, the younger
ee

consumer that has grown up with online and

the rise of millennials. digital and is very savvy would shun physical
d

Gen Zers don’t know a world experiences,” says Neil Saunders, an analyst at
without the internet, and they researcher GlobalData Retail. “But actually that’s
Ba

not turned out to be the case.”

live on social media. They don’t Gen Z—or the group of kids, teens, and young
much use e-mail. They also
i

adults born after the mid-1990s (the exact years

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don’t watch ads on television. vary by researcher)—still appreciates brick and

mortar. But they aren’t just millennials living in
03

They do look at them, though, a different time. Today’s teens interact differently
on Instagram, YouTube, with stores than their older siblings and Gen X
14

TikTok, or Douyin, where they parents before them, and plenty of retailers who
didn’t understand the differences in how they
develop brand loyalties built
90

on recommendations from
77

influencers or their sense of

a company’s values. From
2

Boston to Beijing, companies

18

that expect to prosper going

forward must first learn how to
ILLUSTRATION BY KURT WOERPEL

reach this socially conscious,

always-connected cohort.
� Craig Giammona and 
Tiffany Kary
 ◼ BUSINESS
shop have landed in bankruptcy court: Think
Charlotte Russe, Wet Seal, and Claire’s, once sta-
ples of the teen mall circuit.
One thing that successful Gen Z-focused retail-
ers have recognized is to not fight the iPhone.
Gen Zers spend a lot of time on their smart-
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phones—many having never seen a landline. For
companies that embrace the opportunity the
in
device presents for retail, the payoff can be huge.
Forever 21, consistently ranked among
us
American teenagers’ top brands, rewards phone-
in-hand shopping by offering customers 21 per-
on
cent off if they snap a picture of themselves in a
Forever 21 outfit, post it with designated hashtags—
then show the cashier at the register. And shop-
w
pers oblige: On Instagram, the #F21PROMO has
been used about 20,000 times, mostly by teenage
ha
girls striking a range of poses from sitting on a
bench with a Starbucks drink in hand to throw-
ts
ing up peace signs. One poster on Twitter, who hid
ap
her face with her baseball cap, wrote “my mom is
making me do this for 21% off.”
Technology companies are responding as well.
p
RetailMeNot, a digital coupon provider, is able to
send push notifications to shoppers when they’re
in a mall to alert them to potential discounts. A
14
recent survey from the startup found that 91 per-
cent of Gen Z shoppers are searching for deals on
their mobile phones while inside retail locations.
Meanwhile, nimble retailers are making their
stores more Instagram-worthy.
About a third of Gen Z consumers say shop-
ping should also be entertaining, according to data
from Cassandra, a cultural insights and strategy
agency. With these shoppers in mind, old-guard
department store Macy’s Inc. in April rolled out a
colorful, themed shop-in-a-shop called Story in 36
of its locations. The brightly painted 7,500-square-
foot space in the behemoth Herald Square flagship
store has a huge pillar completely made of Crayola
crayons, a pingpong table, a rainbow tunnel, and
the world’s largest Lite Brite wall—in other words,
it’s prime Instagram territory.
Story is filled with knickknacks such as hot
dog-shaped pet toys, purses that charge phones,
and self-help books on how to cure hangovers,
all things that Macy’s Chief Executive Officer Jeff
Gennette describes as items “nobody needs” but
are “going to want” once they walk through the
spot. Every two months, Macy’s completely over-
hauls the space and introduces another theme.
That means repainting walls, installing differ-
ent carpets, and designing new opportunities to
post on social media. It’s a neck-breaking pace for
retail. “You just don’t have the same predictability
Bloomberg Businessweek April 29, 2019
that you have in some of the department store
square footage,” Gennette says. “You can always
show up and find something different.”
He’s trying to feed young consumers’ desire to
buy something that looks different from what the
masses have. Almost half of Gen Z shoppers want
products tailor-made to their tastes and inter-
ests, according to a 2018 report from IBM Corp.
and the National Retail Federation. To be sure,
previous generations personalized their apparel
and accessories, by adding patches and buttons,
for example. The difference for this generation
is that retailers have more technology to indulge
their wishes. “In the past, it has been a little more
cookie-cutter,” says Marcie Merriman, an EY con-
sultant who specializes in the Gen Z consumer.
But for today’s teens, “their mind just goes to a
very different place because of their expectation
that anything is possible.”
In some American Eagle Outfitters Inc. stores,
shoppers can take their jeans to a counter and
Shopping Like the Olds
N
Share of 13- to 19-year-old survey respondents,* by where they prefer to make purchases
av
◼ Physical stores ◼ Online from retailers with stores ◼ Internet retailers
ee
d
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91% 84% 77% 63% 54%
i
Food and Personal care Apparel Electronics Novelty items
G
beverages products
*SURVEY OF 1,002 13- TO 19-YEAR-OLDS IN THE U.S. CONDUCTED IN
MAY 2018 BY ENGINE ON BEHALF OF ICSC; DATA: ICSC
03
attach back patches, add paint, and get them
embossed. Champion, the activewear line owned
14
by Hanesbrands Inc., trained store associates
to heat-press and embroider its iconic “C” logo
90
and brand name anywhere consumers want on
their sweatshirts and hoodies. Levi Strauss & Co.
77
installed tailor shops in most of its full-line stores
to entice consumers to add monogram stitching
to its trucker jackets and iconic jeans, which are
2
having a comeback.
18
“The more traditional retailers haven’t really
thought about … what this group wants out of a shop-
ping experience,” says GlobalData Retail’s Saunders.
“That’s starting to change.” �Jordyn Holman, with
Tiffany Kary and Kim Bhasin
THE BOTTOM LINE America’s Gen Z shoppers enjoy spending
time at the malls that many of their parents and older siblings have
abandoned—especially when stores allow customization.
 ◼ BUSINESS
FOR CHINA’S YOUTH,
SHOPPING IS SOCIAL
Jo
in
● They’re dodging not only physical stores but also conventional e-commerce sites and brand advertising
us
When Shanghai university student Milky Guan
on
buys cosmetics, she isn’t impressed by beauty
stores and big name brands. Instead, the 20-year-
old relies on a Chinese social media shopping
w
website called Xiaohongshu, or Little Red Book,
to figure out what’s hot and what’s not. On
ha
Xiaohongshu—a startup that’s part e-commerce
portal and part social media platform—Guan fol-
ts
lows a popular online beauty influencer who
ap
teaches her fans how to apply makeup. During a
recent livestream demonstration by the blogger,
Guan snapped up four different cosmetic products
p
within minutes—simply clicking on links embed-
ded in the video.
Guan is among the millions of shoppers born
after 1996, known as Generation Z, who are start-
ing to upend China’s sprawling retail industry.
They’ve been raised on mobile devices, and social
media isn’t just where they spend time—it’s where
they spend cash.
China’s Gen Z isn’t impressed by glitzy brand
names and traditional advertising campaigns.
Many are looking beyond the physical stores and
e-commerce portals their predecessors preferred.
They’re buying goods suggested by social media
influencers known as wanghong. And they’re
using messaging, short videos, livestreaming,
and social media apps as gateways to making
those purchases.
This new era in Chinese shopping offers a
glimpse into the likely future of retail around the
world. More than $413 billion of goods will be sold
through social e-commerce in China by 2022, an
almost fivefold increase from $90 billion in 2017,
according to researcher Frost & Sullivan.
That has everyone from retail giant Alibaba
Group Holding to upstarts such as iQiyi, China’s
version of Netflix, and Bytedance, which oper-
ates the short video app TikTok, racing to lure
ILLUSTRATION BY KURT WOERPEL
the Gen Z dollar. “The young generation has great
passion and curiosity to explore something new,”
says Zhang Xiaobo, general manager of the intelli-
gent television division at iQiyi, the country’s larg-
est streaming video website. “They are leading the
Bloomberg Businessweek April 29, 2019
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av
15
trend for a consumption upgrade, and they’re a
consumer group that we can’t ignore.”
ee
When iQiyi’s subscribers watch TV series or
other shows on their computers, web links appear
d
at the bottom of the screen. These take them to the
company’s online mall, where they can buy clothes
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and products used by celebrities on the show.
New technology that iQiyi released in January
i
also encourages shopping on a cellphone while
G
watching television. Viewers who like what an
actor is wearing can now purchase the item directly
03
from their phones. They use a remote control to
pull up a QR code that they scan with their phone
14
to link directly to iQiyi’s online store to complete
the purchase.
90
E-commerce accounts for only a small portion
of iQiyi’s revenue, but it’s growing fast as young
77
Chinese embrace new technologies, Zhang says,
without providing specific numbers. Social shop-
ping in China is expected to reach 15 percent of
2
online sales by 2022, up from 8.5 percent in 2017,
18
according to Frost & Sullivan.
In the U.S., platforms including Instagram and
Snapchat have started adding direct e-commerce
features. Social shopping is expanding quickly,
but total revenue remains very small. Social com-
merce drew $16.94 billion in the U.S. in 2018,
according to market researcher Technavio. That’s
3 percent of the $513.61 billion in online sales
 ◼ BUSINESS
estimated by the U.S. Department of Commerce
last year.
China’s young shoppers don’t seem concerned
that social media stars—also called Key Opinion
Leaders, or KOLs, by marketers—are profiting from
their fans. The country’s online payment systems
Jo
are also highly developed, making it easy to click
and buy whenever the spirit moves shoppers. And
in
China’s Gen Z consumers—often coddled by parents
and grandparents because they’re an only child,
us
and comforted by relatively good job prospects—
now represent 13 percent of household spending,
on
compared with only 3 percent for their U.S. coun-
terparts, according to OC&C Strategy Consultants.
Many Gen Z shoppers in China still buy heavily
w
via traditional e-commerce portals, but they have
new entry points. Bytedance Ltd.’s short video app
ha
Douyin, known as TikTok outside China and down-
loaded by 1 billion people globally, last year began
ts
integrating with Alibaba’s shopping platforms.
ap
Popular Douyin video creators can use the app to
tell their Chinese fans about products they’re sell-
ing on Alibaba’s Taobao marketplace. Alibaba gains
p
traffic, and Douyin gets a commission if there’s a
transaction. Bytedance also allows popular cre-
ators to have their own Douyin store to sell prod-
16
ucts directly on the app.
Tencent Holdings Ltd. and Alibaba have both
invested in Bilibili Inc., the Shanghai-based video
and mobile game site with 93 million monthly
active users that went public last year. Tieups with
companies such as Bilibili and Bytedance are help-
ing Alibaba provide a bridge to Gen Z shoppers
while creating huge commercial opportunities,
says Meng Xiangyuan, senior operations adviser
for Taobao’s Anime, Comics, and Games Platform,
which has more than 100 million users—half of
them born after 1995. Eventually such partnerships
will make Alibaba a “complete ecosystem for social
e-commerce,” Meng says.
The flood of money to social media doesn’t
bode well for big brands and retailers that get cut
out of the conversation. Gen Z’s buying habits
have the potential to hurt businesses that “can’t
buy the same kind of attention and trust,” says
Elijah Whaley, chief sales and marketing officer
of Chinese influencer marketing platform Parklu.
Whaley points to Chinese internet celebrity Zhang
Dayi, who famously told Women’s Wear Daily in 2017
that she outearns Kim Kardashian West. Zhang side-
steps traditional brands by selling her own labels,
asking fans for real-time feedback on styles and cus-
tomizing products in small production runs that
make fast fashion look slow.
It’s also hard for companies to predict which
Bloomberg Businessweek April 29, 2019
KOLs China’s Gen Z will decide to follow. Guan, ● Share of household
spending done by
the Shanghai student, takes her cues from a beauty Generation Z*
influencer called Xiao Zhu Jie Jie, who’s popular
among her 4 million Weibo fans but hardly a house- China
hold name. Guan likes her because she provides 13%
“objective advice” on choosing cosmetics and skin- Brazil
care products after testing them herself. Guan occa- 10
sionally goes directly to Xiao Zhu’s own storefront Turkey
on Alibaba’s Taobao marketplace, where bloggers 8
sell mostly niche cosmetics, not big brands. Poland
The Xiaohongshu platform also has its own 5
e-commerce mall to which the posts on its site Italy
can link. The company is backed by Alibaba and 5
Tencent, and the reach of its social media section is France
vast: Its 220 million users create more than 3 billion 4
posts a day on fashion, beauty, and other lifestyle Germany
topics. Its users, more than 50 percent of them 4
born after 1995, count on it to steer them to prod- U.S.
ucts much in the same way previous generations 3
might have used traditional advertising. U.K.
“I’ll first go to Xiaohongshu or other social 3
media platforms to seek advice from bloggers who
have used products,” says Crystal Yu, a 21-year-
old college student in Shanghai. “I rely on them
N
to help me filter the options.” �Daniela Wei and
Shelly Banjo
av
THE BOTTOM LINE China’s Gen Z consumers account for
ee
13 percent of household spending, more than four times that of their
U.S. peers. They increasingly spend that cash via social media.
d
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WILL DETROIT
i
G
DRIVE THEM?
03
14
● Focusing on large, pricey vehicles brought U.S. automakers back
90
*PEOPLE BORN BETWEEN 1998 AND 2016; DATA: OC&C STRATEGY CONSULTANTS
from the brink. Tomorrow’s young buyers can’t afford them
77
Joy Falotico, chief marketing officer for Ford Motor
Co., has had a busy couple of weeks, introducing
2
a new luxury sport utility vehicle at the New York
18
International Auto Show and dealing with execu-
tive changes at her company. But she still carved
out time for several meetings on a topic she views as
critical to Ford’s future: figuring out Gen Z. “We’re
just really digging into all of this right now,” Falotico
says of the cohort of emerging consumers roughly
age 7 to 22. Gen Z “is still very young, but they like to
talk back to brands, they have points of view. They
 ◼ BUSINESS
grew up on social media, so it’s just really different.”
Detroit has struggled to connect with young buy-
ers ever since baby boomers defected to Japanese
brands after the 1970s oil crisis. They misfired
on millennials, too, rolling out gas-sipping sub-
compacts earlier this decade just as fuel prices
Jo
plunged and SUVs became the wheels of choice.
Now they’re switching gears again, exiting the
in
sedan market and putting all their chips on high-
profit SUVs and trucks—just when cash-strapped
us
Gen Z is showing a preference for compact cars.
That’s risky, since snagging young buyers with
on
cheap small-car models is a time-tested way of
building brand loyalty, which becomes more
lucrative as consumers age and buy increasingly
w
expensive vehicles of the same brand. “With
average transaction prices of vehicles going up
ha
and up, for first-time buyers—be it millennials or
Gen Z—passenger cars are a gateway into the indus-
ts
try,” says Henio Arcangeli Jr., senior vice presi-
ap
dent for automotive operations at the U.S. arm of
Honda Motor Co., which, along with rivals includ-
ing Toyota Motor Corp. and Hyundai Motor Co.,
p
still offers thrifty starter cars.
Price matters to the practical, passionate, and
poorer generation just starting to graduate from
college loaded with debt. In their formative years,
they watched their parents lose jobs or struggle
to make ends meet in the Great Recession. That
makes them far more conservative with their
money than millennials.
As they begin to cautiously open their wallets for
a set of wheels, two-thirds are buying used, with
most opting for compact cars or midsize sedans,
according to researcher J.D. Power. Compared with
millennials at the same life stage, far fewer Gen Zers
can afford a new car. Gen Z is expected to account
for 3.6 percent of new-vehicle purchases this year,
compared with 4.4 percent for millennials when
they were starting out in 2004—a difference of
about 119,000 vehicles, according to J.D. Power.
“The buying power and the economics of this
generation are slightly weaker,” says Tyson Jominy,
vice president for data and analytics at J.D. Power.
“That’s compounded by transaction prices that are
increasing about 2 percent per year and with stag-
nant wages, which makes it a lot more difficult to
afford a new vehicle for this youngest generation.”
Gen Z is far from its peak earnings years, and
much could change. After all, millennials were ini-
ILLUSTRATION BY KURT WOERPEL
tially seen as car haters, but it turned out they just
deferred big-ticket purchases while they paid down
student debt in their 20s. Now they’re starting fam-
ilies, moving to the burbs, and buying SUVs.
Yet the technological upheaval in the car
Bloomberg Businessweek April 29, 2019
business could change the path for Gen Zers. As
the group hits its flush years financially around
2030, self-driving cars are expected to finally go
mainstream, replacing two cars in the garage with
one that can fetch the whole family. Long before
that, though, they may have become sold on new
alternatives to privately owned vehicles, like Uber
and electric scooters. “The very real threat is that
a portion of this generation is going to shared ser-
vices and never coming back,” Jominy says. “They
may never enter the car market.”
Automakers are convinced they can win them
over with cars that reflect Gen Zers’ passion for
social change. “There’s still that love of own-
ing a car,” says Alyssa Altman, who works with
Fiat Chrysler, Mercedes, and Nissan at Publicis
Sapient, a digital consulting firm. “There’s just
going to have to be some relevance to how it’s
helping the world.”
For starters, cars will have to be pollution-free.
N
av
17
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And they’ll have to be just as connected as the
G
phone that never leaves Gen Zers’ hands. “With
people 21 and under, there is no scenario where
03
a car shouldn’t be electric,” says R.J. Scaringe,
founder of Rivian, the electric truck maker
14
backed by Amazon.com Inc. “It will be electric
and connected.”
90
Publicis’ Altman says Gen Z will comprise
40 percent of consumers by next year. So Detroit
77
may have little choice but to rethink its sundown-
of-the-sedan strategy if it wants to catch this youth
wave. Says José Luis Valls, chairman of Nissan
2
Motor Co.’s North American business: “We need to
18
not only be prepared with technology but embrace
how these customers will behave, and adapt our
hardware and our services in that direction.”
�Keith Naughton, with Chester Dawson, David
Welch, and Gabrielle Coppola
THE BOTTOM LINE Gen Zers are expected to buy 3.6 percent
of new cars in the U.S. this year. That number will rise as the group
gets older, yet some youths may stick with ride-hailing services.
 ◼ BUSINESS Bloomberg Businessweek April 29, 2019

Retailing Co. are raising entry-level pay next

GEN ZERO year by more than 20 percent to attract top tal-

ent. “Truthfully, I feel I don’t know how to spend
money,” says Kaoruko Shimizu, 23, who’s been
working for a year at a big pharmaceutical com-
● Recession-reared youth in many developed pany. “If I go shopping, it’s just to buy necessities.”
Jo

economies will keep the purse strings tight In Western Europe, the average annual income
of about $30,000 for people age 20 to 24 is almost
in

three times as high as that in China, but European

The kids of Generation Z are about to become the youth are less willing to take loans to cover
us

planet’s biggest consumer spending force. That expenses than their Chinese peers are, according to
portends many opportunities in the globe’s two Lan Ha, population senior consultant at researcher
on

largest economies, the U.S. and China. But retail- Euromonitor International. One reason: The jobs
ers and brands in many developed nations with less outlook for European Gen Zers remains far more
robust economies aren’t cheering. That’s because dire. Last year youth unemployment in Western
w

their Gen Z youth have grown up in the shadow of Europe was 16.4 percent, compared with 10.1 per-
financial crises and economic recessions, leaving cent in China and 4 percent in Japan.
ha

them indelibly marked by frugality. That poses a big challenge for consumer busi-
Surveys show that unlike millennials, many nesses hoping to profit from the rise of Gen Z. From
ts

members of Generation Z are cautious about beer to cosmetics, brands are realizing that the days
ap

excessive consumption. After seeing their par- when rising incomes alone could be counted on to
ents walloped by the 2008 financial crisis, they’re produce bigger revenue are over. This new gener-
attracted to thrift stores, sustainable brands, and ation will have to be coaxed to spend. Companies
p

saving for a rainy day—even when they have steady increasingly say “value” is key to Gen Zers. That
N

jobs and rising wages. That’s particularly true in means providing not only lower price points but
Europe and Japan, where growth has failed to also more customized and sustainable experiences
av

18
bounce back as it has in the U.S. and China. Those for their buck. They’re also turning their backs on
Gen Zers, born in the mid-1990s or later, are part some of their parents’ habits that brands used to
ee

of a generation that’s entering the workforce with be able to rely on.

a far more cautious approach to spending than In Japan, for example, today’s youngest work-
d

their predecessors. ers are less likely to go out drinking with colleagues
“They’ve seen so much uncertainty that it’s at restaurants, a custom that was almost manda-
Ba

their normal, and [it] has made them much more tory in the past, causing beer sales volume to fall.
realistic and practical about spending and sav- While the percentage of young people who drink
i

ing,” says Jason Dorsey, president of the Center for is still high, they need to be sold on drinking beer,
G

Generational Kinetics, a consulting firm. “So they says Kenichi Shiozawa, president of Asahi Group
created their own version of what spending should Holdings’ main alcoholic beverages unit. “We need
03

be according to the circumstances that existed to come up with new products that fit their taste or
when their spending habits were formed.” have some flair to appeal to them,” he says. So the
14

Nowhere is that more apparent than in Japan. company is experimenting with selling a less bit-
The island nation has had five technical recessions ter version of its flagship Super Dry beer to bars,
90

in the past 20 years, transforming its young peo-

ple from consumption-driving spenders to one of
77

the most tightfisted of all local age groups. In 1984

consumers younger than 25 would spend 88.7¢
of every extra dollar they made, more than the
2

national average of 86.2¢. By 2014 the figure for

18

Gen Z consumers had shrunk to 76.8¢, less than

the national average of 78.4¢, according to a white
paper issued by the Japanese cabinet office in 2017.
ILLUSTRATION BY KURT WOERPEL

This mindset endures in the face of relatively

rosy economic conditions and wage growth.
Japanese Gen Zers are highly sought after by
employers in the tightest labor market in decades,
and big companies such as Uniqlo owner Fast
 ◼ BUSINESS

PROFILE SHOPPER Z
bypassing the restaurants where Gen Zers are now
unlikely to linger. It’s also added new labels to the Generation Z thinks differently about
bar-focused bottlings. “If it’s not cool, they won’t
marketing and commerce. Here’s
drink it,” Shiozawa says.
Style at a lower price is increasingly a rallying how its oldest members—and biggest
cry for products aimed at Gen Z. Last year, Cartier consumers—compare with previous
Jo

owner Richemont introduced Baume, an affordable

demographic cohorts in the U.S.
sub-brand of watches that focuses on using recy-
in

cled materials to make timepieces customized to the

purchaser’s taste and sold online. Fast Retailing is Boomers Generation X Millennials Generation Z
us

54-72 years old 38-53 22-37 18-21

focusing more on its fashion-forward—and cheaper—
Gu brand, which appeals to younger customers.
on

It’s not just what’s on sale that matters. “Gen Z

is a little different from former generations, as
MORAL A Bloomberg/Morning Consult survey
suggests members of Gen Z in the U.S. are
they’re looking at the companies, not just the WITH more ethically minded spenders than those of
w

products, to start with,” says Masahiko Uotani, MONEY previous generations.

chief executive officer of Shiseido Co. “They’re
ha

asking, ‘Are they really delivering value to the

society, are they transparent, are they promoting Share of respondents by generation who say they’d pay more for a product if the brand or
ts

retailer promotes …
diversity and inclusion?’ ”
ap

Frugal Gen Zers are attracted to sustainability. 0 10 20 30 40 50%

That’s one reason startups focused on resale and Environmental

sharing services have hit pay dirt. Japan’s Mercari initiatives
p

Inc., a flea market app connecting consumers to Racial

justice
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sellers of used items, has 11 million active users, Gender

half of them in their teens and 20s, according to a
av

equality 19
2018 survey. One of only two unicorns the country LGBT
causes
has produced, the company went public last year
ee

in an initial offering that valued it at about $4 bil-

lion. And Italy’s Depop, a resale app where items
HARDER Forget TV. More than half of Gen Z respondents
d

cost an average £30 ($39), saw sales soar 85 percent say the most common way they learn about
in 2018 as it gained popularity in the U.K. and U.S. TO
Ba

things to buy is through social media.

More than three-quarters of its users are under 24. REACH
That willingness to recycle clothing is some-
i

thing Europe’s Gen Zers have in common with

G

their U.S. counterparts, and it could become a Share of respondents who say they primarily find out about products through …
long-term worry for apparel makers. In the U.S.,
03

0 10 20 30 40 50%
1 in 3 Gen Z consumers will buy used clothing this
Social
year, compared with 1 in 5 boomers or Gen X con-
14

media
sumers, according to a report from fashion resale Television
company Thredup. Secondhand apparel is on
90

track to become bigger than fast fashion within Newspapers

or magazines
a decade, it said.
77

Word of
Just ask Tharani Cortesi, a 21-year-old office clerk mouth
in Zurich, who says she’d never buy clothes at the
Tommy Hilfiger or Louis Vuitton boutiques on the
2

city’s high-end Bahnhofstrasse. “If I want to wear Share of cohort saying they’re very or somewhat likely to share
18
DATA: BLOOMBERG/MORNING CONSULT SURVEY

an online meme mocking a company that mishandles a social

those brands, I’ll get them at secondhand shops,”
she says. “You can find a great Lacoste sweater for
NOT issue they care about.

about 20 francs, so one can wear luxury brands for AFRAID

little money.” �Lisa Du and Ellen Milligan, with TO TALK
Corinne Gretler and Shiho Takezawa
BACK
Boomers Generation X Millennials Generation Z
THE BOTTOM LINE After five recessions in the past 20 years,
15% 25% 35% 42%
Japan’s youngest workers have become one of its most tightfisted
consumer groups. Brands have to find ways to counter that caution.
 Bloomberg Businessweek April 29, 2019

T
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Pailthorpe responded carefully, “We have to under-
● With an IPO looming,
stand the investigation and know everything we
ee

the company that’s often share is legal and proportionate.”

clashed with authorities tries Uber isn’t exactly synonymous with law

O
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and order. It’s earned a rocky relationship with

another approach authorities in many global markets—including
Ba

the Netherlands, where a series of fatal accidents

“We’re here to help you understand the data that involving its drivers led activists to demand a ban of

G
i

Uber holds,” said Nick Pailthorpe, a former inves- the service—partly because of a history of refusing
G

tigator for the U.K.’s Metropolitan Police who now to disclose possible evidence of driver abuses and
works for the ride-sharing company. On a cold other crimes. At least two dozen times, Bloomberg
03

January morning he was addressing detectives at Businessweek has reported, Uber’s San Francisco

Y Dutch national police headquarters in Utrecht. He headquarters remotely logged off equipment in
14

was invited to speak by one of their colleagues, who overseas offices to shield files from police raids. But
got help from Uber Technologies Inc. in identifying as the company prepares to go public, it’s trying to
90

a suspect’s IP address. get cops on its side. Uber’s global law enforcement
The officers, department heads for cybersecurity team is growing and now has more than 70 mem-
77

teams across the Netherlands, meet monthly to dis- bers. In 2018 they liaised with 300 agencies in
cuss approaches to thwart cybercrime. Pailthorpe’s 51 countries, creating relationships with police to
slideshow elicited little response until he explained facilitate information sharing.
2

how Uber tried to help authorities after the With 3 million drivers providing 15 million daily
18

November 2015 terrorist attacks in Paris. An Uber
driver, he said, thought that a rider was a terrorist
involved in the incident. Another slide highlighted
Uber’s ability to track a driver in Christchurch, New
Zealand, who’d been accused of rape. The detec-
tives started to see the potential. “You mean store
Edited by
Dimitra Kessenides
addresses? And you can see how many people
and Bret Begun were dropped off at one location?” one cop asked.
rides, the company has a trove of data—GPS loca-
tions; driver’s license, phone, and credit card num-
bers; and vehicle and insurance information—and
it uses facial recognition software that can expose
aliases. In 2018 app developers rolled out an emer-
gency button that directly connects riders in the
U.S. and parts of Mexico to 911. Uber also instituted
a feature that lets friends or family follow a trip,
 ◼ TECHNOLOGY Bloomberg Businessweek April 29, 2019

and it’s begun deleting addresses from drivers’
apps after a ride.
The Uber law enforcement team, which han-
dles inquiries into crimes ranging from robberies
to human trafficking, is spread across four offices,
the biggest of which is in Amsterdam. (Two more
Jo
around the world,” he said, as detectives scooped
up the Uber coins. About the size of a half dollar,
the burnished nickel coins have the black Uber
logo on the front and a Latin motto on the back,
Aedificium Relationes Ubique, which translates
loosely to “Building Relationships Everywhere.”

are planned for Brazil and Mexico.) They got more �Cara Tabachnick
than 400 information requests in 2015; in 2017 that
in

THE BOTTOM LINE Uber is sharing a trove of data with local law
number jumped to 14,275. Uber applies U.S. law to enforcement, ingratiating itself in markets where the company has
requests for information from North American agen-
us

met resistance.
cies and, for the most part, Dutch law to interna-
tional requests.
on

Calls come in from every country where Uber has

a presence, and the teams reach out to police con-
tacts when there’s a crisis. On June 3, 2017, during Snapchat Loses Its
w

the terrorist attack on London Bridge, the company

established a geofence around the area to prevent Cool in Brazil
ha

further pickups, limiting the ways a potential sus-

pect could flee. Uber also assisted during the Feb. 14,
ts

2018, Parkland high school shooting in Florida, alert- ● The company says a new Android version of
ap

ing the Broward County Sheriff ’s Office that the its app could spur growth again
alleged shooter had taken an Uber to the school.
“Uber was very cooperative and responded quickly
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to our detectives’ needs,” a sheriff’s office spokes- As a law student at Brazil’s Universidade Federal
N

woman wrote in an email. do Maranhão in 2014, Thaynara Oliveira Gomes

Uber is proactive in engaging law enforcement found that posting videos on Snapchat was a good
av

21
compared with other tech companies. Mike Sullivan, way to relieve academic stress and feel less alone.
Uber’s head of global law enforcement, says: “We The twentysomething quickly built a following,
ee

move people in real space on the ground. We are appealing to viewers with her charming accent,
physically in the community. Our footprint is differ- from the Brazilian coastal city of São Luís. By
d

ent, so we need a different approach.” 2016, with more than a million followers, Oliveira
But the company also has a history of mismanag- Gomes had become the most famous Snapchatter
Ba

ing data. In September it agreed to pay $148 million in Brazil. Being an influencer had its perks—she
to settle claims related to a large-scale data breach was making more from touting brands to her fol-
i

that exposed the personal information of more than lowers than she would have earned as a lawyer.
G

25 million U.S. users. Other scandals include one in But there wasn’t any growth potential for
which rider information was analyzed to determine
03

the cities with the most one-night stands, data that

was posted to an internal blog and then made pub- Snapchat users per 100 Instagram users, 2018
14

lic. “Uber doesn’t have the best record of keeping Android’s OS market share ◼ 25%-50% ◼ 50%-75% ◼ 75%-100%
information private,” says Wendy Seltzer, an attor-
90

ney affiliated with the Berkman Klein Center for

Internet & Society at Harvard. “People that sign up
77

for Uber need to realize their information can ... be 100

used in a police investigation.”

Police cast a wide net when investigating a crime,
2

and users who have nothing to do with an offense

18

can get swept up in an information request. That 50

customer in Paris, for example, was only a business-

DATA: EMARKETER, STATCOUNTER

man whose travel just happened to mimic the move-

ments of some of the terrorists in the attacks.
His presentation finished, Pailthorpe opened 0

his backpack and took out a bag of challenge coins,

Japan
Australia
Denmark
Sweden
U.S.
Canada
Switzerland
Hong Kong
Taiwan
U.K.
New Zealand
Norway
Vietnam
Singapore
Netherlands
France
Austria
Germany
South Korea
Finland
Italy
Thailand
Malaysia
Spain
Mexico
Philippines
Brazil
India
Argentina
Indonesia

which military and law enforcement members share

as a sign of camaraderie. “I’ve now got coins from
 ◼ TECHNOLOGY

Innovation
Oliveira Gomes on Snapchat. The app’s design-
ers built it first for iPhone users, yet most people
in Brazil own Android devices and the Android
version was buggy and hogged data. Instagram
introduced its Stories video feature soon after
Oliveira Gomes gained her millionth follower, so
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she decided to post her videos there. Today she has

3.4 million Instagram followers and no longer uses
in

the app that made her famous.

On April 8, Snap Inc. unveiled a version of its
us

Android app that it says fixes the bugs that have

slowed user growth. Optimism for the new app has
on

pushed the shares up more than 117 percent this

year. But in some high-growth countries such as
Brazil, analysts say, the platform may never recap-
w

ture user interest on a wide scale, especially given

At John Deere Labs in
the pace of its competitors’ growth. Since 2016,
ha

San Francisco, Doug

Snapchat’s user base has grown 43 percent in Sauder, director of
applied intelligence,
Brazil, to 10 million, while the number of Instagram
ts

operates a combine
users in Brazil has more than doubled, to 70 mil- simulator to test
farming processes.
ap

lion, according to EMarketer data.

Oliveira Gomes’s move prompted her fans to
do the same. Julianne Cesar started to follow the
p

Snapchat celebrity in 2015. “I used to spend all my

N

internet data with her,” says Cesar, 23, who is also

from São Luís. Instagram’s Stories product “sounded
av

22
weird,” Cesar says, but she also decided to try it.
“Snapchat has lost the opportunity to build its
ee

user base among Android users,” says Debra Aho

Williamson, an analyst at EMarketer.
d

A person familiar with the company’s strategy

says that while Brazil is important in the long term,
Ba

it’s not a priority for 2019. The company will first

focus on India, a bigger market, by offering trans-
i

lations of more languages and creative tools tied

G

to many holidays. In Android-heavy countries, the

source says, Snap wants to get people hooked on
03

a key feature: disappearing messages exchanged

between close friends. But the company might also Your next salad might include leafy greens
14

have trouble on that front: Facebook’s WhatsApp grown by robots in California greenhouses.
messaging tool has 120 million users in Brazil.
About 75 percent of the lettuce farmed in the
90

Sitting in a São Paulo hotel lobby recently, Oliveira

Gomes through a translator says her biggest potential U.S. comes from that state’s Central Coast
77

audience right now is on Instagram. As one of the mil- and San Joaquin Valley. Cultivating it requires
lions of WhatsApp users, she says she’s not likely to
switch to Snapchat for direct messaging—she sees that warm temperatures, not too much rain, and
2

platform appealing mostly to teens. lots of time and labor. Startups such as Iron
18

Oliveira Gomes hops out of her seat when, for
the fourth time in an hour, a passing fan stops
and asks for a selfie with her. She smiles, gives the
stranger a hug, then strikes an Instagram pose.
�Sarah Frier
THE BOTTOM LINE Snap’s ability to regain favor in Brazil will
be tough, analysts say. Its user base in the country has grown
43 percent since 2016, while Instagram’s has more than doubled.
Ox, a maker of agricultural robots, and big
players such as John Deere are investing in
artificial intelligence to raise produce more
efficiently. ——Photos by Adam Golfer and
T.J. Proechel
 Grow-Bots
At Iron Ox’s fully robotic grow house in San
Carlos, Calif., an autonomous machine plants,
cares for, and harvests crops. Clockwise from
below: The robotic arm, called the transplanter;
Jo

a visualization generated by stereo cameras

as the arm handles leafy greens, allowing the
in

bot to know the exact location and the needs

of each plant; the Angus, a 1,000-pound robot
us

that transports 800-lb. hydroponic grow beds

to and from the arm.
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 Bloomberg Businessweek April 29, 2019

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taxes
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Edited by
Eric Gelman
 ◼ FINANCE Bloomberg Businessweek April 29, 2019

to Macklowe, who financed the purchase with

● Real estate tycoons get
$7 billion in debt. Within a year the global financial
a host of special breaks not crisis prevented him from refinancing the debt, and
available to most other investors he lost control of the properties, according to The
Liar’s Ball, a book by Vicky Ward about Macklowe ● Value of depreciation
and the history of the General Motors Building.
Jo

claimed by U.S.
partnership firms
Real estate is a cyclical business. Markets crash. Undaunted, Macklowe teamed with deep- renting out commercial
Deals sour. But hard landings are rare for a savvy pocketed investors on a series of projects. They property
in

property mogul, thanks to the U.S. tax code. included construction of 432 Park Ave., the tallest $60b

Take Harry Macklowe, a New York City devel- residential building in the Western Hemisphere
us

oper. Macklowe, 81, hasn’t paid income tax since when it was completed in 2015, where he recently
the 1980s, according to a court opinion in his displayed 40-foot-tall photos of himself and his
on

divorce proceedings issued in December. The rul- new wife. Now he’s planning a skyscraper east of 30

ing, which also divided luxury homes and an art Manhattan’s Fifth Avenue that would be among the
collection worth more than $650 million between tallest office buildings in the world. “New York is
w

Macklowe and his ex-wife, Linda, doesn’t sug- a market that can go up and down, and he’s lived
gest the couple did anything wrong to avoid pay- it up and down,” says Donna Olshan, president of 0
ha

ing income taxes. Rather, it highlights the special the residential brokerage Olshan Realty Inc. “He 2000 2014
perks available to property investors in the U.S.— keeps trying to swing for the fences, and you’ve
ts

advantages that have expanded under the tax law got to admire that.” Those ups and downs gener-
ap

signed in 2017 by Donald Trump, America’s real ated the losses that, along with other real estate
estate developer president. “The real estate indus- tax breaks, could have helped keep Macklowe’s tax
try is notorious for throwing off lots of deductions, bills at zero.
p

and real estate developers are notorious for pay- Macklowe’s tax affairs emerged in his divorce
N

ing very few taxes,” says Steven Rosenthal, a case because the two parties disagreed on how to
senior fellow with the Urban-Brookings Tax Policy value the tax credits and liabilities he’d generated
av

25
Center. “As Leona Helmsley said, ‘Only the little during his career. Linda claimed her ex-husband
people pay taxes.’ ” used $448 million of net operating losses to defray
ee

As Democrats in Congress seek Trump’s tax income taxes from 2008 to 2015, according to the
returns, Macklowe’s divorce case provides a hint court opinion. That helped the couple reduce
d
PHOTO: GARY HERSHORN/GETTY IMAGES. *LOW END OF RANGE; DATA: MACKLOWE V MACKLOWE, DECEMBER 2018; INTERNAL REVENUE SERVICE

at what they might find. Real estate moguls have a their taxes and maintain a lavish lifestyle, which
range of strategies available to reduce or postpone included homes at the Plaza Hotel and in East
Ba

their tax liabilities. Harry Macklowe didn’t respond Hampton as well as the purchase of a yacht for
to a list of questions forwarded to him by his more than $23 million.
i

spokesman. Linda Macklowe declined to comment. Those trappings might not have been available if
G

Over more than a half-century of investing in Macklowe had made his fortune in another indus-
New York real estate, Macklowe built a reputa- try. The U.S. tax code is designed to measure prof-
03

tion as a dealmaker willing to take big risks. With itability over time, allowing businesses to write
Linda, he spun real estate profits into an art col- off losses in one year against income in the next.
14

lection with hundreds of pieces, including Andy For most companies, that provision is limited to
Warhol’s Nine Marilyns and sculptures by Alberto
90

Giacometti. In the 1980s, Macklowe gained noto-

riety after his company demolished single-room An Estate Divided
77

occupancy buildings near Times Square in the mid- Some of the assets being divided between the Macklowes in their
dle of the night; he built a hotel on the site, named divorce, by category

it after himself, then ended up surrendering the

2

property to the lender a few years later.

18

Macklowe rebuilt his business, buying the

Art Residential Bank Commercial Yacht
General Motors Building for $1.4 billion in 2003 $666m* property accounts property $7m
and winning acclaim for developing an Apple $100m $90m $83m
Store beneath a transparent cube on the building’s
Fifth Avenue plaza. In 2007, Blackstone Group LP
bid to acquire a real estate investment trust called
Receivable Jewelry Silver Automobiles Books
Equity Office Properties Trust. As part of the deal, loan $4m $410k $385k $86k
Blackstone sold seven New York office buildings $6m
 ◼ FINANCE
losses on their own capital as opposed to losses
on borrowed money. “There’s a general rule that
you’re not supposed to be able to claim losses for
more than you put into a deal,” says Steve Wamhoff,
director of federal tax policy at the Institute on
Taxation and Economic Policy, a left-leaning think
Jo
tank. “Real estate is the exception.”
Macklowe personally guaranteed a portion of
in
the debt he used to acquire the Equity Office port-
folio, so he may not have needed to take advantage
us
of the rules regarding losses on borrowed money.
He likely took advantage of other perks, including
on
tools for deferring capital gains and the ability to
claim depreciation on appreciating assets. Those
practices are common in the real estate indus-
w
try. During a televised presidential debate in 2016
with Hillary Clinton, Trump was asked if he used a
ha
$916 million loss from his casino business to defer
taxes. “Of course I do,” he replied. In the same
ts
debate, Trump also cited depreciation rules as a
ap
technique he used to reduce taxes. “I love depre-
ciation,” he said.
Farmers and factory owners can depreciate
p
certain items, too, but tractors and conveyor belts
don’t gain value over time. The value of central
business district office buildings in the U.S. more
26
than doubled from the fourth quarter of 2000 to
the same period in 2018, according to a commer-
cial property price index compiled by Real Capital
Analytics. A property owner might write off about
half of a building’s value over the same period
using a standard depreciation schedule. “It’s obvi-
ously not an accident that real estate tends to be
very politically powerful in Washington and also
in New York,” says Daniel Shaviro, a tax professor
at New York University School of Law. “They have
money, they have access. They’re important play-
ers. Politicians want their support.”
The tax law signed by Trump included several
new benefits for the real estate industry. Many real
estate investors report business income on their
personal returns, and the law created a 20 percent
deduction for such pass-through entities—cutting
taxes for property owners while excluding other
businesses. While the law limited the amount of
income that can be offset by past losses at 80 per-
cent, it also created a feature that allows real estate
investors to defer or even eliminate capital-gains
liabilities by pouring money into areas desig-
nated as “opportunity zones.” While the break is
intended to spur development in poor areas, offi-
cials in some states have conferred the designation
on up-and-coming neighborhoods.
The Macklowes’ divorce shows just how
long-lasting tax perks can be. The developer still
Bloomberg Businessweek April 29, 2019
held about $275 million in net operating losses when
the divorce action began in 2016. And in addition to
carrying forward losses, he’d also managed to limit
the tax liability from his gains. He sold the General
Motors Building in 2008 to an investor group led by
Boston Properties Inc. in a $2.8 billion transaction
designed to defer almost $1 billion in capital-gains
tax, according to the divorce court opinion. Harry’s
attorneys argued that Linda should share potential
capital-gains taxes that would be triggered if Boston
Properties sold the General Motors Building. Linda’s
lawyers said her ex’s remaining net operating losses
should be valued at $126 million, based on their esti-
mates of Harry’s expected earnings.
The judge ultimately divided almost $100,000 in
books, $400,000 in silver, and more than $3.5 mil-
lion in jewelry and decided the net operating losses
should be applied to capital gains arising from the
sale of the couple’s art collection. Both sides should
also share any future tax liabilities generated by a
resale of the General Motors Building, even though
the nature of the deal, not to mention the Macklowes’
advanced ages, suggest they will never be realized.
“The husband acknowledges that it is unlikely these
N
deferred liabilities will ever come due during the par-
ties’ lifetimes,” the opinion said. �Patrick Clark and
av
Ben Stupples, with Katya Kazakina
ee
THE BOTTOM LINE New York property mogul Harry Macklowe
hasn’t paid income tax since the 1980s thanks to special tax breaks
for real estate investors.
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Bonds to Save
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03
The World
14
90
77
● Eco-friendly fixed-income funds can help create a stronger market
for debt securities that back environmental projects
2
18
Green bonds could be a key tool to finance the
fight against climate change. But good luck getting
your hands on one or figuring out exactly what
it’s worth.
The securities are just like regular bonds,
except their proceeds are earmarked to fund
projects that have positive benefits for the
environment or climate. Countries including
 ◼ FINANCE
Poland and France have issued green bonds to
support renewable energy. Companies may use
proceeds on projects that reduce emissions or
enable funding for electric vehicles. Municipalities
are also big issuers of green bonds. More than
$600 billion in them have been issued worldwide
Jo
in the past decade, according to BloombergNEF.
The bonds have something of a built-in cus-
in
tomer base of socially conscious investors, which
includes pensions and nonprofits. These inves-
us
tors tend to snap them up—most new green bond
issues are oversubscribed—and hold them until
on
they come due. This has put the market in a
somewhat awkward spot: The bonds are clearly
popular, but since they don’t trade much, it’s
w
hard to get a precise view of their market value at
any given moment. That could be keeping com-
ha
panies from issuing more of them.
Green bond issuance might grow faster if
ts
companies could see environmentally friendly
ap
bonds commanding a premium price on the sec-
ondary market, according to Daniel Shurey, head
of green finance at BNEF. Since higher bond prices
p
imply lower financing costs for issuers, that could
“incentivize reluctant first-time issuers,” he says.
Selling a green bond typically brings higher costs
because issuers have to certify their projects ben-
efit the environment or climate, but that could be
offset if issuers get to pay a lower rate. In other
words, the bonds might be an even bigger deal
if they traded more often—but to do that, they’ll
need to find a bigger audience.
They may be about to get one. Big asset man-
agement firms have been introducing green bond
funds aimed at making the market more accessi-
ble to average investors. About 20 mutual funds
and exchange-traded funds say they focus on
ILLUSTRATION BY MIHA ARTNAK
green bonds, representing about $2.8 billion in
assets combined, according to data compiled by
Bloomberg. Roughly half of those have come on
line in the past two years.
“Green bonds are something retail investors
Bloomberg Businessweek April 29, 2019
A Vanishing Advantage
In February, Verizon issued $1 billion in green bonds. Because demand
was so strong, the company could sell the bonds at a slightly lower
initial yield than another Verizon bond with a similar maturity. In trading
over the next few months, the difference in yield almost disappeared.
Yield: VZ 3.875% green bond (maturing 2/8/29) VZ 4.329% bond (maturing 9/21/28)
4.0%
Difference
in yield
3.7
3.4
2/8/19 4/22/19
DATA: COMPILED BY BLOOMBERG
wouldn’t necessarily have access to by themselves,”
says Stephen Liberatore, co-manager of the TIAA-
CREF Green Bond Fund, which launched late last
N
year. Mutual funds have to buy and sell green
bonds more frequently than, say, a pension fund
av
27
would to meet inflows and outflows from inves-
tors, he says, “though that should be manageable
ee
as long as we keep seeing continued expansion
of the investable universe.” BlackRock Inc., the
d
world’s largest asset manager, also started a green
bond ETF in November.
Ba
Trading will also be helped as compa-
nies and governments sell more of the securi-
i
ties. The average size of a green bond deal has
G
more than doubled, from about $120 million
in 2015 to $261 million in 2018, and there are
03
more billion-dollar green bonds on the market.
“More deals that are green bonds are larger and
14
index-eligible, so they’ll trade more frequently,”
Liberatore says.
90
Still, the market is far from mature. Most green
bond funds have to buy additional bonds that
77
meet sustainability criteria—but aren’t specifically
green—because those are easier to trade and use to
meet redemption requests. Green bonds represent
2
just a little more than 1 percent of the $53 trillion
18
global bond market. But to meet the goal of lim-
iting global warming to 2C (3.6F), about $90 tril-
lion of investment is needed by 2030, according
to the Climate Bonds Initiative. That leaves plenty
of room for green bonds to grow. �Emily Chasan
THE BOTTOM LINE Funds that make green bonds more
accessible to ordinary investors could help make the securities a
big force for fighting climate change.
 Bloomberg Businessweek April 29, 2019

E
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C Extortion Is Booming
in

O In Bolsonaro’s Brazil
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Off-duty and rogue police officers are

contributing to $39 billion in graft

Edited by
Silvia Killingsworth
and Cristina Lindblad
 ◼ ECONOMICS
A new cigarette, Gift, went on sale early last year
in the bars and newspaper kiosks of Itaboraí, a
crumbling former oil town on Rio de Janeiro’s out-
skirts. At just under a dollar a pack, Gift quickly
cornered the market in contraband tobacco in the
sweltering city that, despite a population of almost
Jo
240,000, looks and feels abandoned. Its domi-
nance wasn’t because of the Paraguayan product’s
in
quality. Rather, police say, it marked the arrival of
a murderous militia that forced vendors to sell it.
us
Itaboraí, about 30 miles east of Rio, has been
ravaged by recession, crime, and corruption—the
on
same forces that have ground down Brazil and
drove voters to elect hard-liner Jair Bolsonaro as
president last year. Ten years ago the city looked set
w
to ride the commodities boom. Now the gargantuan
cluster of gleaming metal chimneys and gas flares of
ha
the petrochemical plant Comperj, built by oil giant
Petrobras, stands virtually idle, and a violent para-
ts
military group is picking over the economy’s bones.
ap
Militias—bands of rogue and off-duty police
and other security officers—started operating in
Rio’s impoverished western neighborhoods a
p
few decades ago. Politicians either turned a blind
eye or collaborated with the groups, which were
ostensibly formed to drive out drug traffickers but
mutated into mafia that charge for such services as
security, cooking gas, internet access, and cable
TV. These gangs are now active across Rio and 14
other cities in the state, affecting the lives of 2 mil-
lion people, police say.
Bolsonaro, who campaigned on a law-and-order
platform, didn’t respond to requests for comment,
but he publicly defended militias during his lengthy
career as a congressman representing Rio de
Janeiro. “Some people support militias, as they see
them as a way of freeing themselves from violence,”
he told Radio Jovem Pan in February last year.
“Where the militia is paid, there’s no violence.”
Itaboraí’s terrorized residents tell a different
story. In January state agents arrested nine sus-
pected militia members there, accusing them of
extortion. Residents and merchants who resisted
faced “kidnapping, torture, and finally death and
the disappearance of their corpses,” according to
a press release from prosecutors. The local police
force didn’t return messages seeking to discuss the
militia. Locals say they have nowhere to turn.
“If criminals know someone is ratting them out,
EVGENY MAKAROV/BLOOMBERG (2)
this person will be killed,” says District Attorney
Romulo Silva, who on April 2 charged seven
Itaboraí militia members with torturing a couple
suspected of squealing to a drug gang. The men
broke into their home, handcuffed them, and
beat them with a pool cue, planks, and pistols,
Bloomberg Businessweek April 29, 2019
according to court papers. In front of the couple’s ◀ The main avenue
of Itaboraí
children, they urinated on the woman and tor-
mented the man by forcing him to straddle a piece
of wood that compressed his testicles. The family
fled the city with only the clothes they wore.
Itaboraí has been on a long slide. Homicides
rose 30 percent from 2016 to 2017, to 95 deaths,
when a branch of the Red Command drug gang
seized control. Police in December 2017 drove the
traffickers out, ceding the territory to a militia,
according to Silva. Crime soared once more. In 2018
more than 130 residents were murdered, accord-
ing to Rio de Janeiro’s public security institute.
Disappearances rose 113 percent from the previous
year, to 111 people.
The militia operates an extensive protection
racket, with fees ranging from $5 a month for a
small house to $375 for large businesses. Recently
◀ Gift cigarettes
cornered the
contraband tobacco
market in Itaboraí
N
av
29
ee
it’s expanded into illegally developing land and
d
selling smuggled cigarettes, which offer rich profits
and lesser criminal penalties than drugs.
Ba
Corruption exacts a punishing cost through-
out Brazil. Graft consumes as much as 2.3 per-
i
cent of gross domestic product, according to the
G
Federation of Industries of the State of São Paulo.
That’s about $39 billion a year, according to econ-
03
omist Gil Castello Branco, founder of Contas
Abertas, a transparency advocacy group. “We have
14
systemic corruption on all levels,” he says. “It is a
practice that’s deeply embedded in the country,
90
and in public security, it is no different.”
Brazilians’ seething rage powered Bolsonaro’s
77
rise. One of his first acts was to appoint Sergio Moro,
lead judge in the corruption investigation known as
Operation Carwash, to head the justice ministry.
2
Moro is pushing legislation that would reduce or
18
eliminate punishment for police who kill because of
“justifiable fear, surprise, or violent emotion.” Critics
say the terms are too broad. But even before the bill
arrived in Congress, Rio police killings reached a
16-year high in the first two months of this year, with
one death every four and a half hours.
As a lawmaker, Bolsonaro argued that militias
offered order where the state had failed. Until
 ◼ ECONOMICS
November his eldest son, Flavio, a senator,
employed the wife and mother of a fugitive police
officer accused of criminal activity. Flavio says his
staff made the hiring decisions.
The number of paramilitary groups has
exploded in recent years, according to José Claudio
Jo
Souza Alves, a sociology professor at the Rural
Federal University of Rio de Janeiro. “No one acts
in
to put a stop to them,” he says. In March 2018 left-
wing city council member Marielle Franco was
us
murdered by gunmen suspected of links to militias.
In Itaboraí, the militia is extorting an economy
on
on its knees. On the road from Rio, a new shop-
ping mall sits empty, its shutters smeared with
black graffiti. Unfinished apartment blocks loom
w
over the main street, while “for rent” signs appear
in every other dusty shop window.
ha
More than a decade ago, money poured into
the city, which was once known for its oranges,
ts
when former President Luiz Inacio Lula da Silva
ap
laid Comperj’s foundation stone. The complex was
to be Latin America’s largest petrochemical plant,
generating more than 200,000 jobs. Thousands of
p
workers flocked there from across the country, but
in 2014 oil prices plummeted, Brazil slumped into a
record recession, and Petrobras became enmeshed
30
in Operation Carwash. In late 2017 a trickle of jobs
began returning. About 1,500 workers are employed
at a natural gas processing unit, according to
Petrobras. The number of workers there should
double by yearend, the company says.
When jobs open at Comperj, Petrobras subcon-
tractors hire their own employees, often from out
of town, or advertise through Itaboraí’s jobs center,
according to Marcus Hartung, vice president of a
local union. The agency, controlled by the mayor’s
office, is just off the central square, and thousands
gather whenever openings are rumored, Hartung
says. “There’s a lot of controversy over how the jobs
are distributed. There’s a lot of politics involved.”
Police say militia members have infiltrated the
mayor’s office and the employment agency. Armed,
hooded men frequent the jobs center, according to
two Itaboraí residents who requested anonymity
for fear of reprisals. The militia demands a cut of
workers’ salaries for employment, the people said.
“The rise of militias over the oil business is very
worrisome,” says Helvio Rebeschini, an executive
at Plural, a fuel distribution association. “There are
militias operating a growing number of illegal gas
stations, and Petrobras has also been a victim of
growing oil theft on its oil pipelines.”
Repeated requests for interviews submitted to
the mayor’s office went unanswered. Petrobras
says responsibility for hiring at Comperj rests
Bloomberg Businessweek April 29, 2019
with subcontractors. Bloomberg News contacted “If criminals
three: MIP Engenharia confirmed only that it had know someone
used the Itaboraí jobs center as part of its hir- is ratting them
ing process. Metodo Kerui said it keeps its own out, this person
database of applicants. Enaval didn’t respond. will be killed”
Silva, the district attorney, said that charging
for jobs would fit with the militia’s modus ope-
randi: “Wherever they see an opportunity to make
money, they will exploit it.”
Manuelito Correa de Santos, 39, who’s been
unemployed for more than two years, makes a
daily pilgrimage to the jobs center. “People there
are trying to help, but it’s difficult for them,” he
says. “It doesn’t just depend on them.”
Few in Itaboraí would speak openly about the
security situation—and few appeared hopeful.
“They say Comperj is going to come back. I don’t
believe it,” says Delphina de Jesus Neto, 61, who
owned a beauty salon before the plant closed but
now works as a parking lot attendant. “Everything
here has failed.” �Bruce Douglas and Sabrina Valle
THE BOTTOM LINE Paramilitary groups in Rio de Janeiro,
ostensibly formed to drive out drug traffickers, have mutated into
mafia that charge for services and terrorize residents.
N
av
Australia Is About
ee
d
To Swing Left
Ba
i
G
● The country is poised to vote in a Labor government just as it
clinches the record for the longest stretch of economic growth
03
14
Just more than a week after Australia seized the
crown for the developed world’s longest period
90
of uninterrupted economic growth, tens of
thousands of protesters poured onto the streets
77
to rage against their deteriorating living standards.
“Workers and their families are angry,” said trade
union boss Michele O’Neil as up to 170,000 people
2
clogged some of Melbourne’s busiest streets on
18
April 10. Chants and banners demanded wage
growth, and O’Neil was clear on who was to
blame: “We are going to fight to get rid of this
rotten government,” she said to applause.
That boast is far from hollow. Opinion polls
show the trade union-affiliated Labor Party on
track for a comfortable election victory on May 18
over Prime Minister Scott Morrison’s center-right
  ECONOMICS
Liberal National Coalition government. Such an
outcome would result in a sharp leftward politi-
cal shift just as the nation’s almost 28-year growth
streak runs into a soft patch.
Labor, led by former union boss Bill Shorten, is
Jo
offering an ambitious program of tax cuts, rebates,
and social spending increases targeted to lower-
income voters. It also plans to raise the minimum
in
wage and boost wages for working on holidays and
weekends. While this might give growth a short-term
us
lift, it would also make the already high-cost coun-
try an even more expensive place to do business.
on
It’s also coming at a time when household
spending—which makes up almost 60 percent of
gross domestic product—is looking sickly in the
w
midst of a real estate downturn. “With a hous-
ing market that is already weakening quite sub-
ha
stantially, I think there is a view that a number of
Labor’s measures will be negative for the econ-
ts
omy at a time when clearly growth is already dis-
ap
appointing and underwhelming,” says Su-Lin Ong,
head of Australian economic and fixed-income
strategy at Royal Bank of Canada in Sydney and a
p
former Treasury official.
Powered by Chinese demand for resources, rapid
population growth, and a homebuying binge that’s
made Australians among the world’s most indebted
people, the economy kept growing as other devel-
oped nations grappled with recessions. Yet there’s
been a toll politically, with neither major party man-
aging to sustain significant economic reform amid
unprecedented leadership instability. Government
attempts to liberalize industrial laws, reduce car-
bon emissions, and tax mining superprofits all failed
to survive. If elected, Shorten would be the eighth
prime minister in 12 years.
The last time Australia voted in a Labor govern-
ment was 2007. There had been just four prime
ministers in the preceding 32 years, the budget
was in substantial surplus, net government debt
was zero, interest rates were at 6.75 percent, GDP
growth was running as high as 4.5 percent annu-
VINCE CALIGIURI/GETTY IMAGES; DATA: AUSTRALIAN BUREAU OF STATISTICS
ally, and wages were growing at about 4 percent.
Today the budget is forecast to squeak back into
the black after more than a decade of deficits, net
debt is 18 percent of GDP, and economic and wage
growth have each slowed to 2.3 percent. On a per
capita basis, Australia’s GDP growth streak looks a
lot less impressive, making it tough for the govern-
ment to claim credit for low unemployment and
boosting the appeal of Shorten’s populist pledges
to deliver fatter pay packets.
Shorten has laid out the most ambitious pol-
icy program by an opposition-seeking govern-
ment in a generation. Along with tax cuts and wage
Bloomberg Businessweek April 29, 2019
increases, it includes an aggressive green energy
plan and closes tax breaks for stock market and
real estate investors. His bet is that the wealthy
will lean toward voting for the conservative gov-
ernment no matter what he does, so there’s not
much to lose by raising their taxes to fund breaks
aimed at less well-off and younger voters.
Shorten’s prospects are benefiting from the
infighting, scandals, and leadership instability in ○ Australia’s GDP,
year-over-year change
the ruling conservative party, which dumped right-
Total
wing hard man Tony Abbott for urbane millionaire
Per capita
Malcolm Turnbull, only to then oust him for the
plain-speaking and proudly suburban Morrison.
The government is promising little more than a 4%
broad tax cut and sound fiscal management.
It’s a reversal of the traditional campaign, where
the opposition tries to offer a small target and the
government announces a more ambitious agenda 2
using the benefits of incumbency to sell it. Now
Labor is the one announcing bold policy changes,
and Morrison is keeping things tight, warning vot-
ers they’re better off staying with the devil they 0
know. It’s a strategy that’s proved successful in
Q1 2012 Q4 2018
the past. The last time an opposition took such a
N
reformist agenda to the electorate—in the so-called
unlosable election of 1993—the Paul Keating-led
av
31
Labor government reversed an early poll disadvan-
tage to hold on by savaging the proposals.
ee
To raise living standards and prolong its growth
streak, Australia needs structural changes, says
d
Ross Garnaut, one of the architects of the eco-
nomic reforms—such as floating the currency and
Ba
deregulating the finance industry in the 1980s—
that helped set up Australia’s golden era. Garnaut
i G
warned in a recent discussion that monopolies and
rent-seeking have expanded, “feeding back into
the political system as vested interests’ dominance
03
over the public interest in policymaking.” He’s sug- ○ Shorten
gesting a corporate tax system that’s tougher on
14
industries that face less competition and easier on
highly competitive ones, as well as a greenhouse
90
gas reduction program and investment in clean
energy to allow Australia to benefit from its natural
77
advantages. “Australia is in trouble,” Garnaut said,
as it has “allowed internal imbalances to grow in
2
ways that will make it difficult to face up to shocks
18
as they arise.”
If Shorten can keep his party’s lead for a few
more weeks, we’ll see whether the looming
left turn delivers such a shock or a shot in the
arm to the world-beating Australian economy.
—Michael Heath
THE BOTTOM LINE Led by Shorten, Australia’s Labor Party is
proposing bold policy changes such as tax cuts and increased
wages. Opinion polls show it on track for a comfortable victory.
 5
Trump’s
P Iran
Jo

O Crackdown
in

L
us

Isn’t
on

Working
I
w
ha

● Despite the economic hit, the

T
ts

Islamic republic is still funding

groups the U.S. calls terrorists
ap

I
p

The U.S. struck yet another blow against Iran on

N

April 22, when the White House said it would end

all sanctions exemptions for countries that import

C
av

32
Iranian crude oil. “We’re going to zero,” Secretary
of State Michael Pompeo said at a press conference
ee

on the policy change. Any nation that keeps buying

Iranian oil faces its own sanctions. “We’ve made our

S
d

demands very clear to the ayatollah and his cronies,”

he said. “End your pursuit of nuclear weapons, stop fighting the Saudi-led coalition in Yemen, and helps
Ba

testing and proliferating ballistic missiles, stop spon- President Bashar al-Assad in Syria’s civil war. And
soring and committing terrorism.” despite U.S. officials’ assertions in March that sanc-

IRANIAN PRESIDENCY OFFICE/AP PHOTO; DATA: BONBAST.COM, COURTESY OF STEVE HANKE OF JOHNS HOPKINS UNIVERSITY
i

The statements, coming almost a year after tions against Iran’s banking, energy, shipping, and
G

President Donald Trump pulled the U.S. out of the aviation sectors were having their desired effect,
multinational nuclear accord with Iran reached Hezbollah is still the strongest force in Lebanon, the
03

in 2015, followed closely on the heels of an April 8 Houthis in Yemen regularly attack Saudi troops on
decision to label Iran’s Islamic Revolutionary Guard the border, and Assad’s regime is building up power.
14

Corps a terrorist organization—the first time the U.S. “Iran is feeling a financial pinch, but there is no
had given that designation to a government entity. evidence the pinch has affected Tehran’s ability or
90

Trump said the decision would “significantly expand willingness to act as it does in the Middle East,” says
the scope and scale” of the administration’s cam- Paul Pillar, a former CIA officer who’s now a pro-
77

paign to weaken what it sees as one of the greatest fessor at Georgetown University. “Iran does what it
threats to U.S. national security in the Middle East. does in the Middle East not according to how much
While Trump’s predecessor, Barack Obama, money it has, but instead according to what it sees
2

wanted to persuade Iran to change its policies by as in its own security interests.”
18

strengthening its links with the rest of the world, this
administration is betting that economic isolation will
force it to abandon ballistic missile development and
change other behavior Trump calls unacceptable.
But the new policy isn’t working. Iran gives
Hezbollah $700 million a year, according to a U.S.
Edited by
official, and boosts its military capabilities, gives
Jillian Goodman financial and military aid to the Shiite Houthi rebels
Relations with Shiite groups have become “one
of the pillars” of Iran’s regional policy, says Raffaelle
Mauriello, a postdoctoral research fellow in world
studies at the University of Tehran, and Iran is
unlikely to give that up. Instead, the government is
“trying to be resilient and wait for the storm to pass—
and the storm is Trump,” he says. “They are waiting
for the next elections in the U.S.”
 April 29, 2019
Jo
in
us

◀ A parade
on

commemorating Iran’s
National Army Day
w
ha
ts
ap
p
N
av

33
ee
d

The 100,000-strong IRGC, created after Iran’s economy for more than a decade. Less than two
Ba

1979 revolution, is deeply embedded in the econ- weeks after the terror designation, Iran’s supreme
omy and is already under heavy sanctions imposed leader, Ayatollah Ali Khamenei, appointed General
i

by the U.S. Iran’s government has been on the U.S. Hossein Salami, a commander known for his belli-
G

list of state sponsors of terrorism since 1984, and the cose rhetoric, head of the Revolutionary Guard. In
U.S. has also branded the Guard’s elite Quds Force the wake of perceived threats, politicians are rally-
03

a terrorist supporter. Widening the designation to ing behind the IRGC, and Iranian nationalism is on
encompass the entire army “gives the U.S. the ability the rise. Trump’s maximum pressure policy “will
14

● Value of 100,000 rials

to go after IRGC financial networks in a way that was mostly push Iran to translate its military power and in U.S. dollars on the
off-limits before,” says Theodore Karasik, a senior influence into long-term economic cooperation to unregulated market
90

analyst at Gulf State Analytics in Washington. circumvent sanctions,” says Heidarali Masoudi, assis- 2.0

U.S. sanctions are having an economic impact. tant professor of international relations at Tehran’s
77

Iranian oil exports are down, the currency has plum- Shahid Beheshti University.
meted about 60 percent in the past 12 months, and “The Guards are consolidating power because the 1.5

foreign investors are steering clear—including China, national security environment in Iran justifies why
2

which suspended investment in a natural gas proj- they should take control of media, of intelligence,
18

ect. The expiration of sanctions waivers will limit and the like,” says Vali Nasr, dean of the Paul H. 1.0

trade opportunities still further, which will make Nitze School of Advanced International Studies at
life more difficult for Iranians already experiencing Johns Hopkins University. “In an ironic way, Trump
shortages of meat, medicine, and gasoline. is achieving regime change in Iran, but not the one 0.5

Despite the economic hardship, Iranian conser-
vatives are tightening their grip on power the way
Iraq’s former leader Saddam Hussein did when
U.S.-backed United Nations sanctions crippled his
he wanted.” �Glen Carey and Ladane Nasseri 4/27/18 4/19/19
THE BOTTOM LINE Although weaker economically, Iran still
exerts a strong influence on the region’s politics that further actions
aren’t likely to put an end to.
  POLITICS
Life After Mueller Is Legal Fees
And Russian TV
Jo
in
Dimitri Simes’s name appears 134 times in the
redacted version of special counsel Robert Mueller’s
us
report on Russian interference in the 2016 election.
Born and educated in Moscow, Simes has been a
on
fixture in Washington since the 1970s, brokering
advice and authority for contacts in both capitals.
Those relationships proved helpful to the nascent
w
presidential campaign of Donald Trump, later draw-
ing the scrutiny of Mueller’s team.
ha
Mueller’s investigation resulted in a total of
34 indictments covering everyone from Russian
ts
hackers to Trump campaign officials, but not Simes
ap
or anyone else at his Washington think tank, the
Center for the National Interest. And yet, as the
probe unfolded, Simes and his staff incurred pun-
p
ishing legal bills during the hours they sat for inter-
views with the special counsel’s team. The think
tank’s largest donor drastically cut his financial
34
support earlier this year, according to four people
familiar with the organization’s finances, and Simes
himself dealt with unwanted public exposure. With
no finding of wrongdoing to show for their travails,
Simes and the center are nevertheless an object les-
son in the unexpected costs of influence-peddling.
Simes has spent his career mostly behind the
scenes, moving to the U.S. in 1973 and serving as
an informal foreign policy adviser to President
Richard Nixon. Nixon personally installed him at
the helm of the Center for the National Interest
when he founded it in 1994 as the Nixon Center for
Peace and Freedom. Simes “is very much a product
of a Russian intellectual educational background,”
a student of Marx, Lenin, and the Hegelian dialec-
tic, says Wayne Merry, a former State Department
and Pentagon official who spent six years at the
U.S. Embassy in Moscow. Simes has long helped
American elites understand Russian ones, and vice
versa, and has been described as both an American
and a Russian nationalist. Mostly, Merry says, Simes
thinks the enmity between the two countries is a
tragic missed opportunity.
The Center for the National Interest orga-
nized the event where Trump’s son-in-law Jared
Kushner first met Henry Kissinger, and it also
hosted Trump’s first foreign policy speech at
Washington’s Mayflower Hotel. Furthermore, as
the Mueller report says, Simes met Jared Kushner
Bloomberg Businessweek April 29, 2019
○ Dimitri Simes is an object lesson in the
unexpected costs of influence-peddling
in August 2016 to offer dirt on the Clinton family’s
relationship with Russia. According to the report,
Kushner was apparently unimpressed by the infor-
mation Simes proffered (which was redacted from
the published version for reasons of “personal pri-
vacy”), later telling investigators that he thought
it unlikely that there was much yet to be revealed
about the Clintons. Nevertheless, it wouldn’t be
the last time Kushner turned to Simes for insight.
When Trump won the election, Kushner asked him
who Russia’s ambassador was after Trump spokes-
woman Hope Hicks received a congratulatory
email claiming to be on behalf of Vladimir Putin.
(“Don’t want to get duped but don’t want to blow
off Putin!” Hicks wrote Kushner.) Simes also helped
Kushner’s staff identify which Russian emissaries
N
had political clout in Moscow.
Other communications published in the report
av
show that Simes was more forthcoming in private
than he’s known to be publicly. In a June 2016 email
ee
to a Trump campaign official, he suggested some
key foreign policy issues, including a “new begin-
d
ning with Russia.” In another email to Kushner, he
recommended “downplaying Russia” as a foreign
Ba
policy priority, noting that “some tend to exagger- ○ Simes
ate Putin’s flaws.” After Trump won, Richard Burt,
i G
a board member at the Center for the National
Interest who’d offered input on Trump’s Mayflower
Hotel speech, was trying to make a connection with
03
the Trump team for Petr Aven, a Russian oligarch,
through Simes, with the hope of setting up a
14
back-channel line of communication. Simes rebuffed
the idea because of media attention around Russia’s
90
FROM LEFT: VITALIY BELOUSOV/SPUTNIK/AP PHOTO; ANGEL GARCIA/BLOOMBERG
role in the U.S. election, the report says.
The last two years have been a drain on Simes’s
77
think tank, which is down to about $1.2 million
in assets, a person familiar with its finances says,
2
from $5.3 million at the end of 2016, according to
18
a tax filing. The Center for the National Interest
ran up huge legal bills with its longtime attorneys
David Rivkin and Lee Casey of BakerHostetler,
say three people familiar with the costs; one of
them says some monthly bills ran in the hundreds
of thousands of dollars. “The Special Counsel’s
Office expressed appreciation for the Center’s
fulsome cooperation,” Rivkin said in an email.
“The Center understands the Special Counsel’s
◼ POLITICS Bloomberg Businessweek April 29, 2019

Office was satisfied with the responses provided.”
Simes’s think tank has found itself in a precar-
ious financial position in part because its largest
donor, a foundation overseen by Maurice “Hank”
Greenberg, the former American International
Group chief executive officer and former Center for
Jo
beamed in as guest experts. “It is an extraordi-
nary opportunity and a very positive one,” Boyd
says. It also puts Simes on the payroll of a Russian
government-owned company. ● The Center for the
National Interest’s
Merry, the former diplomat, says he can’t imag- largest donor cut his
ine a similar program—with a Russia-based host

giving from $1 million

the National Interest board chairman, has pulled
much of its support. Last August the Daily Beast
in
to less than
clarifying the Kremlin’s views—existing in the U.S.
The show is more sober and erudite than other
$50k

published a story connecting Greenberg to Maria public affairs programming on Channel One, he
Butina, once the darling of the pro-gun right, who adds, and “some of the other stuff would make any-
us

has since pleaded guilty to federal charges of act- one at Fox News blush.” Still, “nobody should think
ing as an agent of the Russian government, in mat- Dimitri tones anything down because he’s a native
on

ters unrelated to the Mueller probe. The link was
Simes: According to the Daily Beast, he exchanged
messages with Butina in 2015 about arranging a
w
Russian.” �Caleb Melby
THE BOTTOM LINE Although neither he nor anyone on the staff
of his think tank was found to have engaged in any wrongdoing,

meeting between Greenberg and an official of the Simes paid dearly for cooperating with the Mueller investigation.
Central Bank of Russia to advance Greenberg’s
ha

business interests there. “There’s no evidence

that Greenberg requested the outreach or was even
ts

aware of it,” the website reported.

Catalonia Haunts
ap

The eventual cutback in donations had nothing

to do with the Butina episode, three people familiar
with Greenberg say. A spokesman said in an emailed Spain’s Election
p

statement that Greenberg has been talking with the

N

think tank since 2014 about scaling back his com-

mitments to focus on his philanthropy. “While he ● The issues raised by the region’s 2017
av

35
no longer serves as chairman,” the spokesman said, attempted secession remain unresolved
“he remains on the center’s board and plans to con-
ee

tinue in this role.” Nevertheless, after giving more

than $1 million in previous years, the foundation’s It didn’t take long for Gerard García to fall out with
d

tax filings show, it issued a check to the center for his father over politics after returning home to
less than $50,000 this year, according to two people Barcelona. The argument flared during their car
Ba

familiar with the matter. journey from the airport; the subject was the future
Charles Boyd, the think tank’s current chairman of Catalonia. At a stoplight, Gerard swung open the
i

and a retired four-star general in the U.S. Air Force, passenger door and bolted.
G

expects that new interest from donors and increased The family fight happened months before
revenue from its magazine, the National Interest, will Catalonia’s 2017 push for independence, which
03

help the organization bounce back. Jacob Heilbrunn, was crushed by authorities in Madrid. García’s
the magazine’s editor, says an investment in “the six father, José Manuel, argued that Catalans contrib-
14

figures” into the National Interest’s website and mag- ute more in tax revenue than they get back. He felt
azine has boosted traffic and advertising; monthly betrayed when Gerard, an investment banker who
90

revenue is in excess of $250,000, while monthly lives in Madrid, accused him of buying the separat-
page views hit 16.6 million in March, Heilbrunn ist spin and argued that the secession drive was
77

says. “We’re growing and we’re healthy, and the

prospects for the future are very bright,” Boyd says.
Simes himself—bald, bearded, with a near-
2

permanent grimace—now splits time between

18

Washington and Moscow, where he serves as

the co-host of a politics show, The Great Game,
on Russia’s state-owned Channel One. “It was
an opportunity to have a voice that reached a
large number of Russian people on the U.S. per-
spective on the tensions between the two coun-
◀ Gerard García with
tries,” says Boyd of Simes’s participation in his parents, beneath the
the show. The think tank’s staff are sometimes Catalan flag
 ◼ POLITICS
a distraction from problems such as unemploy-
ment, which Spain could better address united.
“There’s a false narrative that’s being told in Spain,
and my son had bought that narrative,” says José
Manuel, 59, who sells construction products for a
French company. He no longer reads national news-
Jo
papers and gets most of his news about Spain from
Catalan pro-independence media. “Afterward you
in
think, how can you argue with your son like that?
But my feelings are just so strong.”
us
Their bitter rift has been writ large in the
months leading up to Spain’s April 28 snap election.
on
Whatever the makeup of the next government, the
challenge of dealing with a restless Catalonia will
remain. Socialist Prime Minister Pedro Sánchez, who
w
has a commanding lead in the polls, says he wants
to explore ways to expand Catalonia’s powers with-
ha
out allowing an official referendum on secession.
On the far right of the political spectrum, an insur-
ts
gent Spanish nationalist group called Vox vows to
ap
protect the country’s unity. Polls show it may win
enough seats to make it a force in the next parlia-
ment. It aims to strip powers from regional gov-
p
ernments and wants to suspend Catalan autonomy
“until the unquestionable defeat of the coup mon-
gers.” Campaign events held by parties advocating
36
more political power for Madrid have been met with
raucous protests in Catalonia.
Spain is one of the world’s most decentralized
countries, a confederation of languages and her-
itages. The crisis of 18 months ago challenged
the uneasy constitutional settlement that’s held
the country together since the death of General
Francisco Franco in 1975. Successive Catalan admin-
istrations have used the powers given them in those
agreements to pursue separatist goals, and many
conservatives worry that they’ll eventually use those
powers to tear Spain apart.
The administration in Barcelona has been using
its power to try to shape the region of 7.5 million peo-
ple, separated from the rest of the country by lan-
guage and identity if not by a border. The increase in
support for Catalan separatism dates to 2010, when
Spain’s Constitutional Court struck down part of a
statute that would have granted Catalonia greater
autonomy. Then came the financial crisis, which
emboldened pro-independence groups to claim
that the region, representing almost 20 percent of
the economy, would be better off on its own.
Some of those who back union with Spain say
separatists in the regional government are using the
cover of the Catalan language and education to pro-
mote their agenda. In 2017, a small Catalan teachers’
union published a report on what it said was the use
of educational materials to indoctrinate children. It
Bloomberg Businessweek April 29, 2019
highlighted textbooks that listed the Catalan parlia-
ment as part of the system of government without,
for example, mentioning Spanish institutions such
as the monarchy. One book showed a Catalonia map
alongside European nation states including Italy and
Germany and described it as a European region,
which, as such, “can have its own government.”
The Catalan administration strongly denies the
use of education or media as propaganda. But sep-
aratist officials and their supporters acknowledge
that Catalan language laws may help lay down the
linguistic foundations for Catalonia if it does one day
become independent. Ester Franquesa, the regional
government’s director of language policy, says that
Catalonia’s system is for the benefit of all Catalans,
not just those who support independence. On the
other hand, she says, “as a government, we clearly
have a position in relation to wanting, aspiring, and
working to have an independent state.”
José Manuel García thinks the national media
have spun people into believing that the Catalan
government turns students and voters into separat-
ists. That message has helped to lay the groundwork
N
Spanish regions’ share of the national economy
av
◼ 0% to 2.5% ◼ 2.5% to 5% ◼ 5% to 15% ◼ 15%+
ee
France
d
Catalonia
Ba
contributed
Portugal Madrid 19% of Spain’s
output in 2016
i
G
Balearic
Islands
03
Canary Islands
Ceuta
14
Melilla
Morocco Algeria
DATA: OECD
90
for the election campaign, he says. “Going against
Catalonia, for Spanish national parties, brings
77
votes,” he says. “I don’t trust Madrid.”
Since the standoff with his father in the car,
Gerard says they’ve found an unsteady peace by
2
avoiding serious conversations about politics. But
18
the memory of 2017 is fresh. “Do I vote for what’s
best for my country, or for the people who are from
the same place as I am, Catalonia?” he asks. “I’m try-
ing to find my place, but I can’t find it.” �Jeannette
Neumann and Charles Penty, with Ben Sills
THE BOTTOM LINE Separatist sentiment continues in Catalonia
since 2017’s failed independence vote, and conservatives say Madrid
needs to wrest control from the region to quell secessionism.
 2 18
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  POLITICS
Labor Reform
Comes to Mexico
Jo
in
Mrs. Martínez earns $79 for a six-day week working
in the produce section of a Walmart in Mexico City.
us
A labor union bargained with the retail giant to get
her that salary, but she’s never met a representative.
on
She didn’t want to be named for fear of reprisals, but
she says she hasn’t even heard of the union.
“Bargaining” is a stretch to describe what
w
the union actually did, which is more like
rubber-stamping. The collective contract that cov-
ha
ers Martínez’s store allows starting salaries around
the minimum wage, which has fallen so far behind
ts
inflation that few in the capital actually work for it.
ap
Walmart Inc. pays dues on workers’ behalf.
That’s not how unions are meant to work. But in
Mexico they do, and not by accident. Low pay has
p
been central to the country’s economic strategy in
the quarter-century since Nafta began, boosting its
appeal as a cheap base for exports to the giant con-
sumer market up north. Many businesses that took
advantage of cheap Mexican labor were American,
turning the wage gap into a bone of contention
between the two countries. The United States-
Mexico-Canada Agreement, negotiated last year to
replace Nafta, has more worker protections. But U.S.
lawmakers—particularly House Democrats—insist on
proof that Mexico is finally serious about boosting
wages and threaten to block ratification of the deal
until they get it. Mexico’s new labor-friendly presi-
* FIGURES ARE FIVE-YEAR AVERAGES FOR THE PERIOD ENDED IN 2013; DATA: OECD; ILLUSTRATION BY TOMI UM
dent, Andrés Manuel López Obrador, says he wants
an economy that’s more driven by domestic demand
anyway, which puts the unions in a political vise.
The deals unions make with employers are
known as “protection contracts.” Companies say
they need them because if they don’t have a con-
tract in place, any union can go to the labor board
and demand a work stoppage while it bargains with
the company. Ben Davis, director of international
affairs at the United Steelworkers, an AFL-CIO affil-
iate, interprets the term differently. What the con-
tracts actually protect, he says, is “the ability to keep
paying people 50¢ an hour.” An OECD study of some
30 countries found that Mexico had by far the small-
est labor share—the chunk of economic output that
goes to workers in the form of wages and salaries—
while the profit share was the highest.
The leader of CTM, the union confederation
responsible for Mrs. Martínez’s labor contract,
Bloomberg Businessweek April 29, 2019
○ Company-friendly
unions are caught
between AMLO and
the U.S. Congress
argues that having businesses pay unions directly
helps workers because the money doesn’t come out
of their pockets. CTM’s labor contracts “are legally
valid, and their periodical revisions are done accord-
ing to the law,” wrote Senator Carlos Aceves, the
group’s secretary general, in an emailed statement.
López Obrador, known as AMLO, was elected
in a landslide last year promising a fairer distribu-
tion of income. After taking office in December, he
raised the minimum wage from about $4.60 a day to
about $5.40, still one of the lowest in the region. His ○ Share of value created
by corporations*
government is racing to comply with the revamped
 Paid to employees
Nafta labor rules so that the pact can get through the
 Paid to stock- and
U.S. Congress before its summer recess. Democrats bondholders
won’t be satisfied with changes on paper, even if
they’re enacted by a labor-friendly Mexican leader. Euro area
N
73
They’ll want follow-through, according to congres-
25
sional aides, including financial resources made
av
37
available for enforcement and evidence that the judi- U.S.
69
cial system can address cases of unfair treatment.
ee
21
New laws that will require each worker to vote on
unions, union representation, and labor contracts Israel
d
62
were due in Mexico’s Senate in late April after pass-
35
ing the lower house earlier in the month. But López
Ba
Obrador doesn’t control the local governments that South Africa
approve many labor contracts, and local leaders are 60
i G
38
rushing to clinch state-level pacts with pro-business
unions that could curb the right to strike. Mexico
Walmart is among the companies that have 28
03
announced a wage increase since AMLO took office. 71
In March it promised a 5.5 percent hike in average
14
nationwide pay. Walmart says it also offers most
employees productivity bonuses and is working to
90
adjust collective bargaining contracts to comply with
the new labor law being passed. At the Mexico City
77
store, Mr. Hernández, who earns $59 for his six-day
week, says he hasn’t gotten a raise yet. Mrs. Martínez
2
says the productivity bonuses she’s received from
18
the company amounted to $10 every year or two.
The 58-year-old mother of four could use some
extra money. She says her husband contributes
from odd jobs he’s able to find, such as stringing
up Christmas lights—but not in Mexico. To get that
work, he had to cross the border. —Nacha Cattan
THE BOTTOM LINE Low pay has been a crucial part of Mexico’s
economic model. It’s been reinforced by unions, which offer up their
members for low wages and no benefits.
 Fast is
businesses running
at Gig-speed.
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Beyond Fast is
us

a network platform
that helps drive
on

business results.
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In the past, speed was everything.

Which is why Comcast built the nation’s
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experience and employee productivity.
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Take your business beyond.

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 Security
S
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Tech Fights O
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Conflict
on

U
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Minerals
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Startups are using blockchain to ensure 39

commodities come from sustainable mines

ee

N
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Tantalum, tin, tungsten, and gold, often grouped

together in mining industry jargon as 3TG, are
Ba

vitally important to the industrial economy, used

in high-tech products from smartphones to jets.

S
i G

But these conflict minerals, as they’re known,

frequently follow a sketchy path from mine to
factory, coming from mines whose profits flow
03

to violent militias, criminals, and even terrorists.

As human-rights groups step up pressure on
14

big companies to better police the provenance

of raw materials in the $600 billion industry,
90

Nathan Williams says he can help.

He’s chief executive officer of Minespider,
77

a startup that’s using blockchain, the technol-

ogy at the heart of Bitcoin, to better track ship-
2

ments of metals as they move from mines to

18

smelters and then on to factories worldwide.

Blockchain, a database file from which infor-
mation can’t be deleted, is infinitely expand-
ILLUSTRATIONS BY JOE MELHUISH

able to accommodate new entries. Williams

has adapted the technology to create files
that can be attached to gold ingots, pallets of April 29, 2019
tin, or truckloads of tantalum and tungsten as
Edited by
QR code labels. The codes ultimately provide David Rocks and
Dimitra Kessenides
 ◼ SOLUTIONS Bloomberg Businessweek April 29, 2019

manufacturers with proof their metals come from rel- issues—such as how to perma-
atively peaceful places such as Peru, rather than, say, Stamp of nently link a digital file to a truck-
a rebel-run mine in war-torn Congo. “There’s a shift,” Approval load of rocks. “That’s the question
Williams says, “from the concept of ‘I can sell metal anon- everyone asks,” Williams says.
① A mine registers
ymously’ to ‘I must include a story with my metal.’ ” with Minespider,
His solution is to attach unique
Dozens of companies worldwide, from startups to identifiers such as QR codes to
Jo

which allows it to sell

digital certificates
big public companies, are using blockchain to help track linked to its minerals.
pallets of tin ingots, for example.
3TG metals and other commodities. Ford Motor Co. has The data generated show details
in

teamed with IBM, China’s Huayou Cobalt, and LG Chem ② Shipments of

about the shipment, including ori-
to use blockchain to trace and verify ethically sourced gin, weight, and purity, as well as
us

minerals are assigned

unique identifiers
cobalt, one of the minerals used in the lithium-ion batter- before they’re
photos and signatures of the peo-
ies that power laptops and electric cars. In the Congo, transported from ple who’ve handled the metal. A
on

a mine to a refinery.
Société Minière de Bisunzu, the biggest miner of coltan— buyer can cross-check the infor-
used in pacemakers, computer hard drives, and mobile mation against the historical output
③ The identifier
phones—has terminated its contract with ITSCI, which allows companies
of a mine or contact the people to
w

operates a paper-based system that certifies responsible to see the history of verify the details. Williams is also
the mineral shipment,
minerals in high-risk areas and moved to a product that working on composite and isoto-
ha

with each new owner

produces blockchain-ready data. Minespider is working registered on the pic tracking (labeling a metal on
blockchain.
with Volkswagen AG, as well, on a pilot to help the auto- an atomic level to make it uniquely
ts

maker better track its minerals supply. recognizable) to make things even
ap

④ Companies
Efforts also are under way to clean up the sup- can share the
more secure. “We want to prove
ply chains of some of the world’s most valuable rocks. certifications and that end-to-end traceability is pos-
licenses they’ve
De Beers Group, which dominates the $17.5 billion sible at scale,” he says.
p

attached to the
global diamond-production industry, has started Tracr, shipment, allowing Minespider is in talks with two
N

customers to
a blockchain-based platform to follow diamonds from the confirm the minerals
countries in West Africa, Williams
mine to the engagement ring. Canada’s Lucara Diamond says, to set up blockchain-powered
av

40 have been mined

responsibly.
Corp., which in 2015 unearthed in Botswana one of the purchasing centers aimed at cut-
largest diamonds ever found, has built an online market- ting into the black market by pay-
ee

place to match sellers and buyers of individual stones, ing gold miners electronically. That
hoping to increase transparency in what remains a would help solve another problem: how to cope with sup-
d

largely opaque business. London startup Everledger is plies that come from a large number of sources in very
tracking diamonds from the rough to the retailer using small lots. Gold, for instance, is often mined by individ-
Ba

another blockchain system, which stores data on a uals panning or digging in open pits and selling a frac-
stone’s provenance, size, color, and cuts in certificates, tion of a gram per day. Buyers consolidate those lots and
i G

pictures, and videos. So far the company has files on move them up the supply chain, and it’s impossible to say
more than 2 million diamonds. exactly where every gram of gold comes from. But even
Investors are becoming more aware of the prove- a seemingly small step, such as paying for the gold elec-
03

nance issues, according to Ryan Aherin, a senior com- tronically, increases transparency.
modities analyst at consultancy Maplecroft, and they’re That would help miners, who’d benefit from better
14

asking more questions when they look at investing in working conditions associated with more formal produc-
mining companies. “Being able to prove the origin of tion, and companies, which would have greater assur-
90

a diamond will become increasingly valuable,” says ance that the metals come from sustainable mines that
Ola Sodermark, an analyst at Kepler Cheuvreux in treat their workers well. “It will be very difficult to trace
77

Stockholm. “Customers want to know whether a stone micrograms of gold in a phone back to certain mines,”
has been sustainably produced.” Williams says. “But maybe it’s enough to know that
2

Blockchain systems need further testing to prove Apple’s or Google’s Tier 4 supplier bought all their gold
18

they can operate at scale. Mining companies may have
to hire outside advisers or train employees to use the
systems. And in many cases, human monitors are nec-
essary, because companies can’t be sure if the data a
mine uploads is correct. While blockchain technologies
are considered secure, there have been hacking incidents,
most notably an attack on the cryptocurrency exchange
platform Coinbase. And there are more mundane
from a blockchain-enabled source that came from these
five countries that were all monitored and had the fol-
lowing checks.” �Stefan Nicola, with Hanna Hoikkala
and Niclas Rolander
THE BOTTOM LINE Mining companies are using blockchain to reduce
the use of conflict minerals as human-rights groups increase pressure on
companies to clean up the supply chain for these valuable rocks.
 SOLUTIONS Bloomberg Businessweek
Property Insurance
May Not Cover Hacks
Jo
in
us
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ha
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When Mondelez International Inc., the maker of Oreo
p
cookies and Cadbury chocolate, suffered a malware attack
in 2017, it thought the property insurance policy it had taken
N
out years earlier with Zurich Insurance Group AG would
help cover the more than $100 million in losses Mondelez
av
estimated it had suffered.
Zurich saw things differently. The insurer classified
ee
the attacks, which also hit servers of several other
big companies, including Merck & Co. and A.P. Moller-
Maersk AS, as an act of war. Since the Mondelez policy
has a clause that excludes acts of war, the insurer
denied the claim. Mondelez is suing Zurich for $100 mil-
lion, claiming the coverage is warranted and calling the
insurer’s response “unreasonable,” according to court
documents. Zurich hasn’t filed a response in court.
Many companies have long-standing property
insurance policies that offer a payout if a cyberattack
results in physical damage, but they may not cover finan-
cial damage. Many of those policies were bought years
ago, before cyberattacks became almost routine, and the
terms and conditions haven’t been updated, according
to Lori Bailey, Zurich’s global head of cyber risk, talking
about the overall market for cyber insurance. That
creates uncertainty for insurers and policyholders.
Mondelez’s complaint isn’t an isolated case:
According to a report in the Times of London, law firm
DLA Piper is disputing insurer Hiscox Ltd.’s denial of a
multimillion-pound claim for losses incurred because of
a 2017 cyberattack. DLA Piper declined to comment. A
spokesman for Hiscox says the dispute with DLA “is not
in relation to a cyber policy.”
Insurers are seeing an increasing number of claims for
damage inflicted by hacks under general property policies.
April 29, 2019
Mondelez and Zurich
Insurance head to court
over losses the Oreo maker
suffered from a data breach
American International Group Inc. said it received as many
cyber-related claims in 2017 as it did in the four previous
years combined. Financial- and professional-services
companies topped the list of those filing claims. Businesses
with large databases of clients, such as lawyers and
accountants, have become important targets for criminals
given the quality of the data they hold.
Insurers are encouraging customers to take out
separate cyberpolicies or add clauses to existing
property coverage. The market for cyber insurance
will expand to $9 billion in annual premiums next year,
more than double the level in 2017, according to insurer
Munich Re. Fewer than a third of U.K. companies have a
specific cyber insurance policy, according to Mactavish
Group, which reviews policies on behalf of insurance
buyers. Other companies like Mondelez believe they’re
covered for cyberclaims under their property policies,
only to face rejection.
41
Cyberassaults pose a greater risk than terrorism or
the collapse of a nation-state, according to a January
report from the World Economic Forum. Only nuclear
war, climate change, and natural disasters have the
d
potential to cause more damage, the report says. The
insurance industry expects cyber insurance to get a
Ba
boost from regulation in Australia, Brazil, and Europe. The
European Union’s General Data Protection Regulation,
i G
which took effect in May 2018, requires companies to
disclose when they’ve been hacked. Insurers expect
greater acknowledgment of cyberattacks will lead to
03
bigger premiums for cyberpolicies.
Aluminum smelter Norsk Hydro ASA bought several
14
cyberpolicies years ago, including one from AIG, and is
“very happy” it did, says Chief Financial Officer Eivind
90
Kallevik. In March, Hydro suffered a cyberattack that
forced it to turn off automated systems and handle
77
molten metal through its facilities manually. It said the
damages were about 350 million Norwegian kroner
2
($40.8 million) in just the first week; the final bill could
18
be much higher. Hydro has delayed its next earnings
report by more than a month because the attack also
took out the computers used to calculate the losses.
—Will Hadfield and Nate Lanxon
THE BOTTOM LINE Companies used to rely on property insurance for
cyberhacking claims. Insurers are balking at paying out claims for hacks and
encouraging customers to take out separate cyberpolicies.
Bloomberg Businessweek
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TRADING
d

BUDDIES
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While millions of Venezuelans

suffer, the country has
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embraced Turkey in a
77

gold-for-food trading
scheme starring
2

a mysterious
18

middleman
By Michael
Smith and
Monte Reel
 Bloomberg Businessweek
I
n the late afternoon of July 15, 2016, a cluster of staffers
inside the Turkish Embassy in Caracas struggled to make
sense of the images from home flashing across their tele-
visions and computer screens. Military trucks were block-
ing a bridge over the Bosporus, tanks were rolling into the
Istanbul airport, and smoke was rising from the streets of
Jo
Ankara. As best they could tell, a group within the Turkish
military was trying to overthrow the government of President
in
Recep Tayyip Erdogan.
Imdat Oner, the chargé d’affaires of Turkey’s diplomatic
us
mission in Venezuela, was straining to hear a live news report
when a telephone rang, pulling him away from his colleagues.
on
On the line was Samuel Moncada, Venezuela’s deputy for-
eign minister. Oner knew him, but not well. He didn’t feel he
knew any of the Venezuelans well, because the relationship
w
between Turkey and Nicolás Maduro’s government seemed
to him superficial, at best.
ha
For a decade, Turkey had been trying to jump-start
trade with Latin America, but Venezuela remained a dead
ts
zone. Hugo Chávez, Maduro’s predecessor, had regularly
ap
slammed Turkey for its opposition to Syria’s Bashar al-Assad,
a Venezuelan ally. Shortly after Chávez’s death in March 2013,
Turkey, as a way to kindle economic ties, tried to sell Maduro
p
on a Turkish Airlines route connecting Istanbul and Caracas.
N
He ignored the approach, says Oner. Even after Venezuela’s
economy fell headlong into an extended and ongoing eco-
av
nomic collapse, Turkey’s offers to trade food and pharmaceu-
tical products for Venezuelan oil derivatives went nowhere.
Given the history, Oner was caught off guard by the mes-
sage now being delivered on behalf of Maduro—a promise
of unflinching solidarity with Erdogan in the face of “exter-
nal meddling.” Maduro seemed convinced that the U.S. had
orchestrated the Turkish uprising, just as he accused the
Americans of being behind an unsuccessful 2002 coup attempt
against Chávez.
Erdogan came to agree with him. In the months after the
uprising, Turkey stripped hundreds of diplomats of their titles—
including Oner, who now lives in exile in Florida—labeling them
supporters of a U.S.-backed overthrow attempt. And Erdogan
hasn’t forgotten Maduro’s pledge of support. He’s since com-
plained that almost every leader in Europe remained silent
for days after the failed plot. But not Maduro. “With the coup
attempt,” Erdogan said at a news conference earlier this year,
“we met Maduro. It has been a good beginning.”
Within weeks of the July call, Maduro announced his first trip
to Turkey. Before the end of 2016, that Turkish Airlines route
between Istanbul and Caracas was inaugurated, and delega-
KAYHAN OZER/ANADOLU AGENCY/GETTY IMAGES
tions from the two countries started crisscrossing the Atlantic
to forge deals. They began to construct a secretive business net-
work, one that could operate out of reach of financial sanctions
imposed by the U.S. It would be a network that trades in two
powerful currencies for Venezuela: gold and food.
Maduro was saddled with a near-worthless currency, the
bolívar, that had been bludgeoned by years of hyperinfla-
tion. Profits from his country’s massive oil reserves, which
April 29, 2019
had funded the Venezuelan government for decades, were
evaporating because of falling prices, a neglected and crum-
bling infrastructure, rampant corruption, and international
isolation. Venezuelans were starving, and Maduro’s approval
rating had plummeted. So he grasped a financial lifeline in
gold, one of the only resources of value he had left.
In August 2016, Maduro announced that a state mining
company called Minerven would be the sole official gold buyer
in the vast tracts of jungle, savanna, and rolling hills where
mining had long been clandestine and unregulated—essentially
legalizing a business lorded over by murderous gangs. He sent
in troops to force miners to comply and began hoovering up
ore from open-pit mines. (A spokesman for Victor Cano, the
mining minister, declined to comment for this story.) Maduro
also started cashing in on the billions of dollars’ worth of
gold bars that Chávez, who was loath to invest in U.S. dol-
lars, had stockpiled. The sell-off carried hints of desperation.
According to sources in Venezuela’s central bank, the govern-
ment secretly sold the bank’s massive collection of rare gold
coins, dating to the 18th century. The coins, box upon box of
them, were thrown together in a single 30-ton sale in late 2017,
and Venezuela accepted a price based on their weight alone,
not their collectible value.
By then, Maduro was weathering extensive U.S. sanctions—
mostly targeting individuals in his government accused of
corruption, human-rights violations, and other crimes—and
43
he seemed to anticipate that the U.S. Treasury might next
sanction his dealings in gold to further choke the economy.
ee
Venezuela had been shipping freshly mined gold abroad, pri-
marily to Switzerland, for processing. Last July, Maduro began
d
sending it to Turkey. He’d already shipped at least $900 million
in gold there by the time the U.S. last fall banned American
Ba
individuals, banks, and corporations from doing business with
anyone connected to Venezuelan gold sales. Tons more have
i
gone since. The Turkish government declined to comment on
G
allegations of wrongdoing related to the gold trade.
Venezuela now finds its business partnership with Turkey
03
in the crosshairs of several law enforcement organizations
around the world. Investigators from at least three countries,
14
including the U.S., believe Venezuela’s gold and food trade
with Turkey has evolved into a multilayered scheme built on
90
a foundation of criminality. The pursuit of the gold trade has
become a key part of a larger U.S.-led effort to further iso-
77
late Venezuela’s economy and force Maduro to release his
hold on power.
“In many ways, gold is the key to the survival of Maduro’s
2
government,” says Americo De Grazia, an opposition lawmaker
18
who represents Venezuela’s main gold-producing region in
the southern state of Bolívar, the Arco Minero del Orinoco, or
Mining Arc. “But I’m not talking so much about the programs
and functioning of the state. I am talking more about maintain-
ing the perverse fortunes of key figures inside the government.”
At the center of it all is a Colombian named Alex Nain
Saab Moran, whom U.S. investigators believe to be one of the
most powerful financial enablers of Maduro’s regime. An
 Bloomberg Businessweek
examination of Saab’s international business empire and
the allegations against it provides a lens into the uncharted
territory that Venezuela has now entered: a place of strangled
isolation, where millions suffer while the regime is encircled
by opponents, all of them trying to break its last remaining
links to economic survival.
F
Jo
or more than a decade, law enforcement agencies
in
in the U.S. and Latin America have been compil-
ing evidence that South American drug traffickers
us
were working with Venezuela’s government to move
cocaine and launder money. They tapped phones, tracked inter-
on
national shipments, and built suspect profiles. Several years
ago, Saab’s name began popping up with notable frequency,
according to people involved in those investigations. In recent
w
months, thanks to the gold and food trade between Venezuela
and Turkey, Saab has reemerged as a target of major criminal
ha
investigations in the U.S. and Colombia. Opposition lawmakers
and former prosecutors from Venezuela are also looking into
ts
Saab. The working premise is that he and others have retrofitted
ap
their criminal enterprises to adapt to challenges and opportuni-
ties. Saab is at the center of sweeping criminal investigations by
the U.S. Justice Department and agents from Homeland Security
p
Investigations, four people familiar with the probes say. One
N
focus is whether the food and gold trade with Turkey is being
used to launder the proceeds of corruption and to evade U.S.
av
44
sanctions, these people say.
Saab, 47, is a Colombian of Lebanese descent whose immi-
grant father, Luis, started Textiles Saab, a successful maker of
towels and sheets in the port city of Barranquilla. As a child,
Saab attended the German School, a private academy for the
city’s elite. After graduation, he dabbled in a variety of small-
scale commercial enterprises—“I started working when I was
18,” he said in a rare interview in 2017 with the Bogotá newspa-
per El Tiempo. Saab started selling pens imprinted with corpo-
rate logos and by the time he was 19 had opened a T-shirt factory
that ended up exporting to Mexico, the U.S., and Venezuela.
Those who’ve known Saab for decades say he never hid
his ambition to be wealthy. When he cruised the streets of
the gritty port town in those days, he did so from behind the
wheel of his Hummer, according to news reports. His father
still leads a sort of booster organization for law enforcement
in Barranquilla, called Policía Cívica, or Civic Police. In a brief
telephone exchange with Bloomberg Businessweek, he shakes
off any suggestion that his son lords over an international crim-
inal network on behalf of Venezuela’s top leaders. “No, I don’t
have any knowledge about that case,” he says. The countries
investigating his son, he suggests, are doing so to apply more
pressure on Venezuela, a sovereign country still struggling to
free itself from foreign meddling. “The problem in Venezuela,”
he adds, “is for the Venezuelans.”
Barranquilla had long been a conduit for drug smuggling
and illicit money flows, and for years investigators in Colombia
and at the U.S. Drug Enforcement Administration have kept
a wary eye on Saab. In the early 2000s he created a network
April 29, 2019
of export companies and listed his family members as repre-
sentatives or officers, Colombian court documents and busi-
ness records show. The DEA, in a confidential memo cited
by Colombian National Police in a report for prosecutors in
Bogotá, described Saab as running a vast money laundering
network and identified at least six companies in and around
Barranquilla that allegedly move illicit funds abroad. Saab
didn’t respond to multiple requests for comment for this
story, or to written questions submitted to two of his law-
yers. In the El Tiempo interview, Saab denied being involved
in corrupt contracts with Venezuela: “I am an open book, and
my accounts are clear and my conscience is clean,” he said.
Spokespeople for Colombia’s Attorney General’s Office, the
U.S. Department of Justice, Homeland Security Investigations,
and the DEA all declined to comment.
Saab’s developing relationship with the Venezuelan gov-
ernment turned him into one of the region’s most powerful
men. In November 2011, a company of Saab’s, Fondo Global
de Construccion, landed a lucrative contract to supply pre-
fabricated housing units for one of Chávez’s signature proj-
ects: expansive public housing developments. In a signing
ceremony in the Miraflores presidential palace in Caracas,
Saab sat at a table with Chávez, his then-vice president,
Maduro, and then-Colombian President Juan Manuel Santos.
As part of the deal, some prefab housing panels would be built
in Ecuador, then shipped to Colombia via the Panama Canal,
and finally trucked overland on a long trip to Caracas.
The route raised suspicions among Ecuadorian customs
ee
inspectors, who couldn’t figure out why it was necessary to
move the panels through Colombia at all. The Ecuadorians
d
reached out to Juan Ricardo Ortega, then the director general
of Colombia’s customs agency. He started to dig and began to
Ba
suspect that Fondo Global was moving something illicit with
the housing panels. By the time Ortega’s agents were ready
i
to move in to inspect the shipments, he says, they mysteri-
G
ously stopped being routed through Colombia. In late 2013,
an Ecuadorian court opened a criminal case after prosecu-
03
tors said the contract was part of a scheme that allowed Saab’s
business partners to launder more than $130 million in illicit
14
funds via fake exports to Venezuela, court transcripts show.
Saab himself wasn’t accused of wrongdoing.
90
Ecuadorian courts eventually dropped the case against
Saab’s partners after several years of investigation. By the
77
end of 2014, Ortega resigned, ending any probe in Colombia.
He’d received too many death threats and moved his family
to the U.S. Companies controlled by Saab, meanwhile, con-
2
tinued to win billions of dollars in sensitive contracts with
18
Maduro’s government.
Saab seems to have a knack for winning the confidence of
people in high places. He liked to vacation in the Caribbean
“He doesn’t put his name on
almost anything”
 Bloomberg Businessweek April 29, 2019

nation of Antigua and Barbuda, flying in on his Gulfstream the jailing of opposition leader Leopoldo López and other top
G280 jet, and in June 2014 he persuaded Gaston Browne, the Maduro rivals under her watch. She also enraged Venezuelans
prime minister, to make him a special economic envoy to by going on state television to deny allegations that security
Venezuela, complete with Antiguan citizenship and a pass- forces had sodomized a protester with the barrel of an assault
port. Then he asked Browne for approval to build a factory in rifle during an anti-Maduro demonstration in 2014—an incident
Antigua to make housing panels. “The idea would be to export that’s been a touchstone of outrage ever since.
Jo

to Venezuela,” says Browne. About two In mid-2017, Ortega turned against

and a half years ago, the prime minister Saab in a video of a ceremony at the government she’d spent years
in

sent people, including one of his min- Venezuela’s presidential palace defending. She rebuked the Supreme
sters, to Venezuela for a tour of a fac- Court for stripping Venezuela’s National
us

tory Saab said he owned. They were Assembly of its power and began to
impressed with what they saw, though openly criticize Maduro. He fired her,
on

the Antiguan factory was never built, and her husband, a former Chavista
Browne says. “I have to admit that Alex lawmaker, was accused of corruption.
has become a friend. He is very genu- Whatever her past, Ortega now says she
w

ine, a good successful businessman.” fled her country at least in part because
After reports surfaced of Saab’s her quest to pursue cases was stymied
ha

dealings with the Maduro government, by judges and politicians in Caracas

Browne summoned him to a cabinet who are protecting Maduro’s cronies.
ts

meeting to discuss the allegations. “He On one overcast afternoon in late

ap

said it was all political, that they were February in Bogotá, three prosecu-
going after him for doing business with tors who worked for Ortega in Caracas
Venezuela,” says Browne. “He said he sit at battered metal desks in cramped
p

was innocent of the allegations.” offices, which still have a faded sign
N

Saab, for his part, has sent his law- for the previous tenant, a small export
yers after journalists who’ve published company, outside the door. “Welcome
av

45
allegations of illegality. Last year, Saab to the Venezuelan Attorney General’s
sued Univision Communications Inc., the Spanish-language Office in exile,” one of them says. “This is our command cen-
ee

television network, twice in state court in Miami for defama- ter.” The former prosecutors ask that their names not be pub-
tion over stories about his businesses. Saab dropped one of lished, out of fear for the safety of family in Venezuela. They
d

the suits after Univision denied the allegations and sought toil in a space the size of a modest living room. A Venezuelan
to depose him. The other lawsuit is pending, awaiting Saab’s flag hangs in one corner, near a faded portrait of Simón Bolívar,
Ba

response to Univision’s motion to dismiss. In 2017, Saab sued the mythical leader of Venezuela’s war of independence from
the Venezuelan investigative news site Armando.info in Caracas Spain whom Chávez appropriated as a symbol for his—and now
i

for defamation over reports that he was a front for Maduro, Maduro’s—“socialist revolution.” Most of the leads they process
G

leading four journalists to move to Colombia for fear of being come from people who still work for the government and law
banned from reporting and, possibly, jailed in Venezuela. That enforcement agencies. Ortega says she has taken this informa-
03

case is pending. tion to prosecutors and attorneys general in countries includ-

F
ing Colombia, Mexico, Switzerland, and the U.S.
14

rom cramped, drafty quarters in central Bogotá, Luisa The gold-for-food system is a multicountry, many-company
Ortega Díaz, formerly attorney general of Venezuela, scheme intended to obscure the flow of money and goods, say
90

spends much of her time trying to track the move- investigators. That complexity is a Saab specialty, according to
ments of Saab and his associates. “They appear to have Carlos Paparoni, an opposition lawmaker in Venezuela who’s
77

moved their base of operations to Turkey,” she says. studied payment records, contracts, and corporate documents
Almost two years ago, Ortega fled Venezuela by speedboat related to the trade. The gold is shipped to Turkey and con-
and then private plane for Colombia, where she embarked on verted into cash, which pays for food. Some food is shipped
2

a high-profile self-imposed exile. At least six prosecutors fol- from Turkey, according to people involved in arranging ship-
18

lowed her to Colombia, where they build cases as if they were ments, but much of it is sourced in Mexico. Before it’s sent to
the de facto attorney general’s office of Venezuela. Ortega seems Venezuela, its value is inflated, allowing those involved in the
obsessed with exposing Saab’s connections to her former boss, scheme to skim money from the transactions, Paparoni says.
Maduro, and trying to get the businessman put in jail. Food has been in critically short supply in Venezuela for
Ortega has her share of enemies. For a decade as attorney years. A 2017 academic study cited by the National Assembly
COURTESY YOUTUBE

general, she erected a facade of legal legitimacy for the gov- estimates that 93 percent of families don’t earn enough to
ernments of Chávez and Maduro. She still draws bitter scorn buy the basic food they need. In April 2016, Maduro inau-
among the Venezuelan opposition for, among other things, gurated the latest version of the state food-distribution
 Bloomberg Businessweek April 29, 2019

program, Local Committees for Supply and Production, Saab’s pivot toward Turkey seems to have happened
best known by the acronym CLAP. The committees have a vir- shortly after Maduro and Erdogan began to cement eco-
tual monopoly on subsidized food. They claim to go house- nomic ties. Documents first revealed by Armando.info show
to-house selling, for next to nothing, boxes of staples such that Group Grand transferred a lucrative government food
as pasta, rice, flour, and powdered milk. Since late 2016 the contract in April 2018 to a Turkish company called Mulberry
dominant food contractor for the CLAP program, Paparoni Proje Yatirim AS. Mulberry is based in Istanbul and is rep-
Jo

says, has been Saab. resented by people who serve as representatives for other
The companies Saab has set up to fulfill the food con- Saab-related companies, according to a senior government
in

tracts are held by trusted associates and have been incor- official familiar with an ongoing criminal investigation by
porated in Mexico, Venezuela, Colombian National Police.
us

Hong Kong, and Turkey, say El Aissami and Maduro At least one more company
Paparoni and investigators in ultimately controlled by Saab
on

Colombia and the U.S. Some and his business associates

were preexisting entities that was also given contracts to
seem to have been repur- supply food from Turkey to
w

posed. “He doesn’t put his the CLAP program, a person

name on almost anything,” familiar with investigations by
ha

says a former Venezuelan pros- the Justice Department says.

ecutor who works for Ortega. Having entrusted Saab with
ts

But an examination of legal much of the Venezuelan food

ap

representatives, addresses, program, Maduro began to

and phone numbers of these give Saab’s network more and
businesses all point back to more oversight of the critical
p

the Colombian businessman, gold trade with Turkey. Maduro

N

investigators say. One exam- named Adrian Perdomo Mata,

ple is Group Grand Ltd., a who’d worked in at least two
av

46
company set up in 2013 in Hong Kong and moved to Mexico of Saab’s companies, as president of Minerven. Then Maduro
in 2017. From 2015 to 2017, Saab’s son Shadi Nain Saab was took the gold business out of the hands of the state and put it
ee

listed in registration documents as director. Since late 2016, solidly under Saab’s sphere of influence, says De Grazia, the
Group Grand has netted some $700 million of food contracts, opposition lawmaker for the Mining Arc. Maduro announced
d

which Saab has fulfilled largely with food from a network of a joint venture called Mibiturven, between Minerven and a
related suppliers, mainly in Mexico, investigators in Colombia relatively unknown Turkish mining company called Marilyns
Ba

say. Group Grand also secured $213 million of contracts for Proje Yatirim AS. Investigators in Colombia and in Venezuela’s
medical supplies, according to investigators in Colombia congress believe Marilyns is also controlled by Saab and his
i

and Venezuela. In the El Tiempo interview, Saab denied that business associates because of shared representatives and
G

he or any of his relatives were part of Group Grand or any addresses. “Hypothetically, Minerven is the sole state gold
other companies tied to corrupt food contracts, as Ortega has buyer that is in charge of everything,” says De Grazia. “But
03

claimed. “Absolutely false,” he told the paper. Minerven doesn’t exist, for all intents and purposes. The real-
Last October, in response to lobbying by Ortega, the ity is that this Turkish company, Mibiturven, is doing all the
14

Mexican attorney general’s organized crime division gold trade.” Antonio Rufino, president of Mibiturven, didn’t
announced a $3 million fine for companies shipping food to respond to requests for comment.
90

Venezuela to settle accusations of price gouging. Markups Saab’s gold ties don’t stop there. Federal prosecutors in
exceeded 100 percent, according to the head of the division. the U.S. and opposition lawmakers in Venezuela are look-
77

Ortega says Saab got off easy. The Mexicans didn’t accuse him ing into whether Saab has business links to a major buyer
or anyone else of crimes, and the key details of the settlement, of Venezuela’s gold in Abu Dhabi, an investment firm called
including the full names of the companies and their top exec- Noor Capital, via an executive who’s long done business
2

utives, remain sealed under court order. “It’s just impossi- with Venezuela. Records show Saab-linked companies in
18

ble to explain,” Ortega says. “Imagine all the immense harm

to the Venezuelan state and the people. And they were fined
$3 million. It doesn’t come close to what the state—and the
CARLOS BECERRA/BLOOMBERG

people—of Venezuela lost.” Agents for Homeland Security “We are tracking large purchases
Investigations in the U.S. continue to look into Saab’s trade
through Mexico as a vehicle for laundering the proceeds of
of gold in Turkey these days, and
corruption and evading sanctions, three people familiar with we’re trying to understand why
those probes say. that’s happening”
Bloomberg Businessweek
Turkey receiving payments from Noor and at least two other
companies that bought Venezuelan gold, allowing Saab to get
funds at a time when the Central Bank of Venezuela has been
restricted from making any such payments because of U.S.
sanctions. (Noor, in a statement, denies wrongdoing and says
it’s stopped doing business with Venezuela.)
Jo
Last fall a judge in Bogotá overseeing a criminal money
laundering investigation issued a secret arrest order against
in
Saab, two of his brothers, his ex-wife, and two subordinates,
all of whom hold positions in Saab’s web of companies in
us
Colombia. Hours before police moved in to make the arrests,
Saab and his kin fled Colombia by private jet, Colombian inves-
on
tigators say. They accused a police investigator of tipping them
off just hours before.
Saab is thought to now live in Caracas, where he has a home,
w
multiple companies, and, police believe, a Venezuelan pass-
port. Police suspect his ex-wife ended up in Paris, where the
ha
estranged couple have a home on Boulevard Saint-Germain.
One brother is in Canada, and another in Italy, according to sur-
ts
veillance reports supplied to Colombian investigators. Saab has
ap
been getting around—recently he traveled between Caracas and
Paris via the French Antilles using passports from Venezuela
and Antigua and Barbuda, investigators say. In early April he
p
went to Austria using the Antiguan passport, investigators’
N
reports show. Prosecutors in Bogotá went to court in March
to persuade a judge to declare Saab an international fugitive,
av
seeking to trigger a global Red Notice arrest order by Interpol.
But in early April, Saab’s lawyers successfully persuaded a dif-
ferent judge to move the case to Barranquilla, his hometown,
where prosecutors fear he has sway over judges that could com-
plicate their chances for victory. Prosecutors are appealing the
ruling to Colombia’s Supreme Court.
Saab’s travel options appear to be narrowing. Browne, the
prime minister of Antigua and Barbuda, doesn’t know about
Colombia’s arrest order for Saab when Bloomberg Businessweek
brings it up, and he’s taken aback. Recovering himself, he says
Saab’s status as special economic envoy would be revoked. “I
didn’t know about any criminal allegations,” says Browne. “We
know him as a businessman, but we have to be prudent.” He
then turns to his foreign minister, who’s in the room with him,
and emphasizes that Saab can’t keep his Antiguan passport.
“So we are going to revoke it.”
T
reasury officials from the U.S. have been suspicious
of Venezuela and Turkey’s gold deals from the begin-
ning, and their concerns initially were rooted in a
preoccupation with Iran and the financing of Middle
Eastern terror groups. For years, DEA agents had been track-
ing Tareck el Aissami, a close confidant of Chávez and Maduro.
They believed el Aissami was working on behalf of Venezuela
with Colombian and Mexican drug cartels and that these
groups were part of a larger international money laundering
scheme that helped fund Hezbollah.
In January 2017, Maduro made el Aissami his vice presi-
dent. A month later, the U.S. Treasury Department slapped
April 29, 2019
sanctions on el Aissami under the Foreign Narcotics Kingpin
Designation Act. The penalties didn’t diminish his influence.
Last summer, Maduro put el Aissami in charge of the Ministry
of Industry and National Production, giving him oversight of
much of Venezuela’s gold deals with Turkey.
El Aissami traveled to Turkey last summer to meet with
Erdogan, and around the same time the U.S. Treasury
Department began amplifying concerns that the Venezuelan
gold shipped to Turkey might end up in Iran. “We are tracking
large purchases of gold in Turkey these days, and we’re trying
to understand why that’s happening,” Marshall Billingslea, the
Treasury Department’s assistant secretary for terrorist financ-
ing, told reporters last July. But the U.S. hasn’t been able to
prove that Iran has any connection to those gold deals. In
recent months, the U.S. focus on Venezuela’s gold trade has
had less to do with fears of Iranian involvement and more to
do with a desire to stop Maduro from looting a country that
the U.S. hopes he won’t be leading for long.
In January, U.S. officials successfully lobbied their British
counterparts to block Maduro’s attempt to withdraw $1.2 bil-
lion in Venezuelan gold stored in the Bank of England. At the
same time, Venezuela had set aside about 20 tons of gold from
its central bank for shipment abroad. The sale of the bars, worth
about $850 million, was scrapped amid growing pressure on
prospective buyers. After Marco Rubio, the Republican senator
from Florida, outed Noor Capital via Twitter as being a buyer
47
in a planned sale, that company abandoned a pending pur-
chase. And on April 15, the Canadian government added more
ee
than 40 names to its list of sanctioned Venezuelans, including
Cano, the mining minister, and Perdomo, Minerven’s president.
d
The U.S. has intensified the squeeze on Maduro’s remain-
ing gold assets in recent months. In March a federal court in
Ba
New York indicted el Aissami for violating the sanctions the
U.S. placed on him in 2017, specifically for chartering U.S.-
i
based private jets to Turkey. Less than two weeks later, the
G
Treasury Department imposed new sanctions on Minerven.
Venezuela and Turkey don’t appear to be backing down.
03
Food bound for the CLAP program has been flowing into the
port city of La Guaira, near Caracas, at the rate of roughly
14
eight 10,000-ton shiploads a month, most via three aging
ships owned by the Venezuelan government, according to
90
shipping documents. Most of the food continues to come
from the same Mexican companies that supplied Saab’s past
77
shipments. Food from Turkey is in the mix, too; it’s trans-
shipped via the Dominican Republic.
Just as Saab’s empire continues to adapt and thrive, the
2
alliance between Venezuela and Turkey shows no signs of
18
cracking. Earlier this year, as dozens more countries stopped
recognizing Maduro as a legitimate president, Erdogan placed
a call to Venezuela. According to his spokesman, he pledged
to show Maduro the same solidarity Maduro showed him
when he was besieged in 2016.
“Stand tall,” Erdogan told Maduro over the phone. “We
are with you.” <BW> �With Fabiola Zerpa, Ben Bartenstein, and
Patricia Laya
 2 18
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48
Bloomberg Businessweek
Jo
in
Lee Stowell couldn’t find her Bernie Sanders mug.
It was August 2016 at the Summit, N.J., outpost of Cantor
us
Fitzgerald, the Wall Street brokerage. The tension in the office
was becoming unbearable for Stowell—and not only because
on
her colleagues couldn’t stand the rumpled-haired socialist on
her mug. For a while, work had felt like a throwback to the
early days of her career, when traders could spew invective
w
with impunity, and women had to stomach it or find a way to
hold their own.
ha
Stowell scanned her desk, then took her hunt to the
kitchen. She opened a cabinet, saw Sanders staring back at
ts
her, and reached for the mug. “I looked in,” she tells Bloomberg
ap
Businessweek. “There was feces in it.”
Stowell, now 54, eventually reported what she thought
was a pattern of abuse. Not long after, she lost her job as a
p
junk-bond saleswoman. Last year she filed a lawsuit accusing
N
her former boss, a colleague, and Cantor of harassment, dis-
crimination, and retaliation, all of which they deny. The firm
av
believes she participated in or even instigated the ugliness,
according to a person familiar with its thinking. Cantor
quickly filed a motion with a New Jersey judge to send the
lawsuit from open court to a venue that companies much
prefer: arbitration.
That’s where stories like this usually disappear. Mandatory
arbitration, a common provision in employment contracts,
forces workers to resolve complaints behind closed doors,
without judges and juries. This spares bosses and share-
holders from the embarrassment and cost of lawsuits. It
also keeps victims from learning about each other and band-
ing together, which means companies can avoid addressing
systemic abuse. Wall Street was an early adopter, helping
the industry mostly avoid the rush of #MeToo revelations in
other industries.
Those accounts have helped spark a fight against manda-
tory arbitration. In February, Democrats in Congress intro-
duced a bill to ban the agreements, and Google gave the right
to sue back to its workers. Days later the judge in Stowell’s
case rejected Cantor’s request to send her complaint to arbi-
tration. The decision means she may get to tell jurors what
women still face in certain corners of Wall Street.
“I wasn’t going to give in to them,” she says of her for-
mer colleagues, remembering the morning when she found
her mug, a Mother’s Day gift, with poop in it. “I was like,
you know what, if I make a big deal about it, they’re going
to love it.”
Stowell, a single mom of six, cleaned it out and eventually
filled it up with coffee again. “Of course I did,” she says.
April 29, 2019
Three decades ago, Stowell was scraping by as a social worker
when her daughter was diagnosed with a mass below her vocal
cords. She switched to finance to make more money, taking a
low-level job moving filing boxes between offices at Nomura
Securities Co. in Lower Manhattan. When a senior bond trader
asked her to come work in sales, Stowell jumped. She played
a Beauty and the Beast video over and over for her kids to buy
time to study for the licensing exam.
Trading floors in those days were notoriously fratty. She
remembers in the 1990s getting pulled onto a colleague’s
shoulders while she was wearing a skirt—then being paraded
around the trading floor. Another time, she was sent home
for wearing pants. To fit in, Stowell busted chops and dished
back whatever she got. “She’s one of the few women I know
who, if they’re upset, might say, ‘Bite me,’ ” says Jonathan
Blatt, a veteran trader who worked with Stowell. “I don’t
think she sees herself as any different from any guy, fight-
ing for her business.” A longtime client, hedge fund manager
49
Phil Mesman, says Stowell is “like a June Cleaver,” the 1950s
TV mom, “who could kick your ass.” In 2007, Stowell and a
ee
former co-worker, Mary Pat Christie—whose husband, Chris,
was a U.S. attorney and on his way to becoming governor—
d
made Cantor an unusual proposal. The two offered to join
the Summit office for the cost of one saleswoman. They pro-
Ba
posed to alternate days so they could spend the balance of
their time with their families. The arrangement worked until
i
the summer of 2012, when Christie left, sending Stowell, by
G
then a managing director, into the office full time. Soon col-
leagues began picking away at her client book, she says, a pre-
03
view of the trouble to come.
Usually at Wall Street brokerages, salespeople like Stowell
14
pitch investment ideas to clients. If a client bites, the salesper-
son passes the order to the traders, who do the buying or sell-
90
ing. That division of labor is supposed to help avoid conflicts
of interest. But at Cantor, traders were allowed to work with
77
clients directly, earning sales commissions—an arrangement it
used to recruit traders after the financial crisis. In 2013 a group
from ailing competitor Gleacher & Co. joined Stowell’s team.
2
One problem with this setup, according to Jacob Frenkel,
18
a former U.S. Securities and Exchange Commission lawyer,
is that it introduces a temptation to win business by using
information about what other clients are buying or selling,
an edge that a regular salesperson doesn’t have. For exam-
ple, if a trader learns from a salesperson that a hedge fund is
about to flood the market with Sears bonds, he has an incen-
tive as a salesman to tell his clients to ditch their Sears hold-
ings. Later, when the price of Sears’s debt tanks, he looks
 Bloomberg Businessweek April 29, 2019

like a genius to his clients, who will want to keep doing busi-
ness with him.
Stowell says Riaz Haidri, who helped lead the ex-Gleacher
team, used information gleaned as a trader and co-head of
Jo

her group to facilitate business for himself and his friends—at

times violating company policy, she contends—without over-
in

sight. Several former employees back up her account. The

more sales Haidri made, the more important he became to
us

Cantor, they say.

Haidri’s behavior hurt those salespeople, like Stowell,
on

who were outside his all-male inner circle, according to her

complaint. It also hurt their clients. Stowell, whose pay, like
that of the other salespeople, was entirely based on commis-
w

sions, believes she was kept out of that circle because she’s a
woman. As her boss, Haidri “systematically” took accounts
ha

and trades away from her, even after she complained about
his practices, according to her suit. In a court filing, Haidri
ts

denied Stowell’s accusations.

ap

One salesman close to Haidri was a Gleacher alum named

Jim Gorman. His conservative views clashed with Stowell’s lib-
eral politics. “He had his opinions about gay people, and he
p

had his opinions about black people, and he had his opinions
N

about women,” Stowell says. “And he made them very, very,

very, very well-known.” She suspects Gorman was involved in
av

50
the fouling of her mug, which he denies, according to filings.
When Stowell complained about Gorman to Haidri, their Stowell
ee

boss, she says he told her to be respectful. His reaction sur-

prised her, since he seemed indifferent to the disrespect she and the claims made against them by Ms. Stowell are harmful
d

was facing. Steps away from Haidri’s desk was a dry-erase to them professionally and hurtful to them and their families
board with messages about Stowell. These started going up, personally.” A spokesman for Cantor says the firm can’t com-
Ba

she says, after she told a colleague in New York that her boss ment on the case beyond court filings, where the firm and the
and others were watching porn: “What happens in Summit two men deny her account.
i

stays in Summit,” the first one warned. Soon the whiteboard Over the past year, Stowell’s lawsuit has been held up by the
G

tracked “Lee Haters” and “Lee-Free Days.” Below those tal- question of whether she’s allowed to take complaints to a jury
lies, for three years, it was filled with her off-color retorts. or if she agreed to arbitration years earlier. “I didn’t sign an arbi-
03

Among them, a photo shows: “Maybe your head needs to tration agreement,” she says during an interview in February
come out of your a-- before you start choking on it,” and “I just outside the Union County courthouse before a hearing.
14

forgot to wipe my a--, can you take care of it?” Stowell sees Stowell is a lanky 5 feet 7 inches tall, with long auburn hair,
her profanity as a tool she’d honed to survive for decades in glasses perched atop her head, and a pair of hoop earrings.
90

the junk market, and her co-workers seemed to be mocking “You have to see an arbitration agreement to sign it,” she says.
it—while getting a pass for their own bad behavior. “When At the hearing, five lawyers for the Cantor side sit in a row
77

you spend 25 years on a trading desk, and you predominantly and tell the judge that Stowell’s recollections don’t matter
work with men, you find a way to defend yourself,” she says. because Cantor has her signature on a 2007 agreement, plus
“You don’t defend yourself by screeching or yelling at them an updated electronic version she clicked on in 2014. Under
2

or blushing when they say something. You try to put them those contracts, they argue, she promised to take work dis-
18

in their place.” putes to arbitration.

But she was speechless in 2015 when a visitor to the office
grabbed her buttocks, setting off laughter from her boss and
other colleagues. “Did you like that?” Haidri said to her,
according to her complaint. A week later he asked about it
again: “Would you rather he grabbed your boobs?”
She finally sued in April 2018. Eve Klein, a lawyer for Haidri
and Gorman, says, “The statements being attributed to them
Her lawyer, Gina Mendola Longarzo, stands up and offers
what is, in part, a moral argument: If banks know they can
send harassment victims into the black hole of arbitration,
men will do whatever they want. She says courts have ruled
that companies can’t keep workers away from juries with some
legal boilerplate and a check box. The world, she tells the
judge, is changing.
Bloomberg Businessweek
Few people join Wall Street expecting total equality, even at
the highest levels of high finance. The biggest U.S. banks have
only ever been run by men. At Cantor, F-bombs, pranks, and
the occasional fistfight are still part of a sharp-elbowed culture.
Jo
Cantor tends to promote its highest-earning brokers, who
don’t always make the best managers, according to people
in
familiar with its trading operations. These sources say the
company has no formal system in place to regularly review
us
senior staff, aside from looking at how much money they pull
in. That could be one reason Cantor has had its share of reg-
on
ulatory issues; as recently as March it was fined $2 million by
the Financial Industry Regulatory Authority following allega-
tions of supervisory failures that spanned years.
w
The wider world knows Cantor in part because it was dev-
astated by the attacks on Sept. 11, when 658 employees were
ha
killed. But inside the industry, Cantor is also known for long
feuds and fights over money. In the 1990s the family of its
ts
elderly co-founder, Bernie Cantor, took legal measures against
ap
a perceived coup by his protégé and successor, Howard Lutnick.
The factions settled, the founder died, but a battle between his
widow and Lutnick went on for years.
p
About the time Lutnick was fighting with the Cantors, the
N
firm faced explosive allegations about hazing at a California
office. A former trainee named Mark Anderson sued, saying
av
executives wore blackface and took a joyride in his sports
car after defacing it with slurs against gay people. This was
all captured on video and played for Anderson and his col-
leagues at a Cantor sales conference. A decade later, in 2007,
a broker, A.J. White, alleged her colleagues at BGC Partners,
a Cantor affiliate, watched porn at work and made bets on
whom she’d like to sleep with, claims the firm denied. In 2012,
Crystal Mitchell, an assistant, sued a deputy general counsel
for, among other things, allegedly throwing a boiling cup of
tea at her because she hadn’t removed the tea bag.
Wall Street insiders may have only faint memories of these
stories because none of them went to trial, with arbitration,
or the threat of arbitration, playing a role in each. Michael
Lampert, the accused tea thrower, left the Cantor unit and
became an arbitrator. He now helps decide the outcome of
cases like his. Lampert didn’t respond to requests for comment.
Around 2016, Stowell says she made a complaint about
Haidri to his co-head, who told her it wasn’t his business. She
eventually described the trading practices and hostile environ-
ment to Cantor’s global head of fixed-income sales, who told her
to talk to human resources. She was afraid of retribution, she
says, but went anyway. The investigation that followed in 2017
concluded Stowell wasn’t a victim. Instead, the firm suggested
she was part of the problem and ordered her to take a course
on appropriate workplace behavior, along with her colleagues.
It also told her to quit talking politics and stop saying Haidri
harassed her, according to her lawsuit. She was told to bring
any concerns about Haidri’s trading to him directly, she says.
While she was in the New York office on the phone with
April 29, 2019
a client in June, an executive tapped her on the shoulder
and told her to follow him. Cantor dismissed her as part of a
round of layoffs. “You’ve got to be kidding me,” Stowell recalls
thinking. Mesman, her client, was shocked when he heard.
“It seems to me that Lee is being demonized for successfully
navigating a locker room environment,” he says.
As far as her issues with Haidri’s trading go, Cantor’s com-
pliance department found no wrongdoing, according to the
person familiar with the firm’s thinking. But over the years,
multiple people have complained to senior managers about his
trading practices, according to former employees who spoke
to Businessweek on the condition of anonymity. Following a
separate dispute, Finra is probing Haidri’s practices for poten-
tial regulatory violations stemming from his use of confidential
information about clients for his advantage, according to people
familiar with the probe. Finra and Cantor declined to comment.
Back when Stowell was getting her start in junk bonds, forced
arbitration was just beginning to spread through corporate
America. Today, 2 out of 3 big U.S. companies use it, accord-
ing to Cornell labor relations professor Alex Colvin, whose
work shows that employees have a worse shot of winning in
these hearings than in the legal system. The finance industry
helped lead the way, winning influential cases and building
51
its own arbitration system inside Finra, where arbitrators can
hold jobs in the industry and don’t have to be lawyers. Over
ee
three decades, Wall Street women have won sexual harass-
ment or hostile work environment claims there only 17 out of
d
98 times, the Intercept reported last year.
Not only would Stowell have a better chance in court, but
Ba
the threat of a trial almost certainly gives her leverage over
Cantor in any settlement negotiations. There’s another rea-
i
son she’s fighting to get to court: She says she wants to help
G
harassment victims escape forced arbitration. That can hap-
pen only with new laws, widespread retreat by corporations,
03
or favorable rulings from judges.
That’s why, when Stowell learns the New Jersey judge has
14
rejected Cantor’s request to send her to arbitration, she starts
to choke up. It’s March, and Stowell, who’s looking for work,
90
is taking one of her sons out to lunch for his 14th birthday at
a deli about 3 miles from Cantor’s office in Summit. She’s eat-
77
ing a tuna sandwich when her lawyer calls to tell her the news.
The judge found that the employment policy Cantor sent
digitally in 2014 replaced the 2007 contract that the firm
2
claimed she’d signed. The newer agreement told employees
18
to click a box that said they’d read and accepted the terms,
language the judge said wasn’t thorough enough. Employees
have to be told loudly and clearly, the judge wrote, that they’re
agreeing to give up their right to sue.
Cantor, Haidri, and Gorman are appealing the decision. If
they fail, Stowell gets to tell her story in court. “This is where
every woman gets stopped,” she says. “We’re now on the start-
ing block. I get to run.” <BW>
 Cl i m a t e
Bloomberg Businessweek April 29, 2019
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18

ming. But w r food from

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-Fri ed
Bloomberg Businessweek April 29, 2019
Jo
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 Bloomberg Businessweek April 29, 2019

I
n the hour after dawn, the cattle ranches north of
Lake Okeechobee become an almost fantastical ren-
dering of bucolic bliss. Perfect Florida sunshine rolls
across miles of fire-hued grass, silhouetting idle cows
in twos and threes, backlighting patches of slender,
Jo
higher and less combustible places to live. The failure of the
world’s food system, even if it unfolded across decades, would
be inescapable and calamitous.
Rising temperatures do more than harm plants and live-
stock; they also increase their need for water, draining reser-

bushy-topped Sabal palms with bursts of orange and voirs and leaving people less prepared for droughts. Warmer
red. It’s as if a cowboy story had been illustrated by winters are a boon for pests, which survive longer, spread
Dr. Seuss. farther, and get hungrier. For every degree Celsius that tem-
in

Then the heat starts. On a typical summer day, the peratures rise, the volume of staple crops lost to insects will
temperature here breaks 80F by 9 a.m., 90F by early after- increase as much as 25 percent, according to a paper pub-
us

noon. And it’s only getting hotter. Of the 10 warmest months lished in the journal Science last summer. For reasons scien-
on record, all but one have come since 2016. The average tem- tists don’t yet fully understand, rising levels of atmospheric
on

perature over a 24-hour period has exceeded 88F only nine carbon dioxide reduce the amount of vitamins and miner-
times since 1953; eight of them were in the past three years. als in plants—including grass, which means livestock have to
Heat affects cattle in subtle ways, none of them good. On eat more to get the same nutrients. Meanwhile, the United
w

these ranches, a cow’s job is to give birth every year, for as Nations projects global population will rise to 9.8 billion
many years as she can, to calves that are sent north to the by 2050 and 11.2 billion by 2100. And unless we’re willing to
ha

corn states for fattening and slaughter. When the air gets too clear more carbon-sucking forests, further accelerating the
hot and humid, the cows’ immune systems falter, making rate of global warming, the amount of land available for food
ts

them more vulnerable to parasites and disease. They eat less. production is effectively fixed.
ap

Some wander off the grass and seek shelter in the trees, while But there’s one nondelusional reason for optimism: If agri-
others just lie down, stupefied. Their odds of getting preg- culture is one of the industries most vulnerable to the effects
nant fall. When cows stop becoming pregnant, they become of global warming, it’s also the human endeavor with the
p

hamburger instead. richest history of responding to environmental change. Row

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These animals are expensive to replace. It follows that as crops and livestock have been bred over centuries to resist
the temperature rises in this southeastern part of Florida, cold, heat, rain, drought, pests, and more. Farming prac-
av

54
which has more large ranches than any other place in the tices have changed, too: After the windstorms of the 1930s
country, the steaks Americans consume will get more diffi- Dust Bowl stripped soil from the prairies, for example, farm-
ee

cult and costly to produce. So for the past three summers, ers began planting cover crops between seasons, helping to
genetics researcher Raluca Mateescu has climbed into a van prevent similar disasters in the future.
d

with a gaggle of graduate students and driven to a ranch here, Still, James Giesen, a professor of agricultural and envi-
where they scrape, prod, pluck, and otherwise irritate hun- ronmental history at Mississippi State University, says agri-
Ba

dreds of sweaty cows. A professor at the University of Florida, culture hasn’t faced an environmental threat approaching
Mateescu is looking for a secret: how to breed heatproof cat- the scale and pace of climate change since at least the turn
i G

tle that still taste good. of the 19th century, when the boll weevil beetle began its
If she succeeds, she could help insulate the cattle indus-
try from the effects of global warming, at least for a time.
03

But the implications of her research are more sweeping than Consider the Bovine
whether rib-eye has a future. In effect, Mateescu is probing Bos taurus cows produce more delicious meat, but fare
14

worse in heat because of their dark coats, long hair, and

the definition and scope of climate adaptation, which mat- small sweat glands
ters not only in the field of livestock science and agriculture
90

ght
but also in every other industry: How much, and how soon, ss wei
n le
will American businesses and consumers have to sacrifice as ○ Gai
s s
77

the planet heats up? at le

○E
2

nsufficiently succulent steak may not be the first thing one

I
18

thinks of when considering climate-induced cataclysm. But ○ More

there’s arguably no type of human endeavor for which that susceptib
le
to parasit
question matters more, or for which the definition of adap- es

tation is more consequential, than agriculture. Coastal cities

re
going underwater, whole towns consumed by fire, waves of ○ Less lik
ely to ○ Mo le
e tib
p
migrants, mass extinctions—each promises tragedy on a scale
get pregn
ant susc ease
to dis
that remains difficult to comprehend, despite the increasingly
specific and strident warnings of scientists. But for the fore-
seeable future, those aren’t existential threats: There are still
Bloomberg Businessweek

Cattle at the Seminole Ranch

slow spread north from
Mexico. Once the para-
site began ravaging the
Texas cotton industry,
researchers and govern-
ment agencies acted.
Jo

“You see this huge explo-

sion of scientific research,
in

of state support for farm

programs,” Giesen says.
us

Land-grant universities
increased their focus on
on

pesticides and other strat-

egies, bringing their find-

in Okeechobee
ings to farmers through
w

the government-funded
Cooperative Extension
ha

Service. The effort worked:

Cotton suffered but wasn’t
ts

wiped out. she might at first seem an unlikely

ap

“If the boll weevil’s going to provide

a lesson, it is that governments and “You can savior for the American cattle indus-
try, with its Stetsons, F-350 trucks, and
institutions will respond if they under-
only mitigate metacarpal-crushing handshakes.
p

stand the threat to be big enough,” Growing up in Bucharest, Mateescu

N

Giesen says. “It had to reach that crisis

moment. And that’s the question with to a certain studied biology and fell in love with genet-
ics. She moved to the U.S. at 21, then got
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55
climate change: When do you reach
that crisis moment?” point” her doctorate from Cornell University,
where she focused on sheep. In 2006
ee

From the perspective of today’s gov- she took a faculty job at Oklahoma State
ernments and institutions, the answer seems to be not yet. University. “Oklahoma is one of the big cattle states,” she
d

Public spending on agricultural research and development says, “so my research had to be in that.” Five years ago she
has fallen since 2009 in the world’s wealthiest countries, transferred to Florida, which, like Oklahoma, is a land-grant
Ba

led by declines in the U.S., according to a Department of university with an obligation to help farmers. In Gainesville,
Agriculture report last year. The number of staff working that meant figuring out what to do about the heat.
i

on crop protection and environmental stewardship at the Difficulties aside, the concentration of cattle ranches in
G

department’s Agricultural Research Service has declined by Florida is no accident. To the industry, grass is money, and the
one-third over the past decade; President Trump’s 2019 bud- region’s temperate winters allow it to grow almost year-round,
03

get request called for further reductions. saving ranchers on the cost of hay and other backup feeds.
Private research alone can’t fill the gap, says Andy Knepp, They pay the price with hot summers, which highlight
14

director of environmental strategy and advocacy for Bayer AG. a cruel twist of bovine genetics. Of the two types of beef
Despite the industry’s history of coping with weather chal- cattle, the European-derived Bos taurus breeds, including
90

lenges, this time is different. “The stakes are higher,” he says, Angus and Hereford, fare worse in the heat, because of their
“and the challenges are becoming greater.” dark, thick coats. The Indian-derived Bos indicus breeds,
77

chiefly Brahman in Florida, thrive in the heat and humidity

T
he University of Florida’s department of animal sci- with their light, short hair and superior sweat glands. But
ences is in a low-slung brown-brick building at the they tend to be lousy at marbling—producing the layers of
2

edge of Gainesville that could just as easily be a com- fat between muscles that earn steaks the highest grade from
18

munity library or a senior center. A sign on a bath-
room door instructs students to stop spitting tobacco juice
on the walls. Yet one lab holds a $500,000 device for analyz-
ing DNA; another boasts a miniature guillotine that quanti-
fies the precise tenderness of a morsel of beef.
Mateescu, who occupies a small ground-floor office,
offers a similar lesson on the reliability of appearances.
A slight woman with dark eyes and a subtle accent,
the USDA and the highest prices at feedlots, steakhouses,
and supermarkets. Tender, marbled meat is an Angus spe-
cialty and part of what turned it into a household brand.
Ranchers here, like those in other warm states, typically
raise a crossbreed called a Brangus, which is five-eighths
Angus and three-eighths Brahman. Their method of getting
to that mix is genetically haphazard: Cattlemen know how
much of each animal’s immediate ancestry is Brahman
 Bloomberg Businessweek April 29, 2019

and Angus, but not which parts of each species’ genetic
codes—and, by extension, which heat-resisting traits—have
been passed on. “You can have three-eighths and I could
have three-eighths, but it’s not the same three-eighths,”
Mateescu says.
This approach has created enough heat tolerance for
Jo
then runs statistical tests to determine which desired
features correlate most strongly with which genetic pat-
terns. Their challenge is to identify which genetic markers,
among the thousands that are associated with the trait in
question, actually produce that trait.
The ultimate goal, which Mateescu estimates is still two

cows to survive Florida summers, but climate change is test- to three years out, is for ranchers to administer a simple
ing its limits. Two years ago, Mateescu won a USDA grant to blood test to each calf, indicating which animals have the
in

search for a more precise genetic recipe. Each summer she best chance of withstanding brutal temperatures, without
and her team draw samples from more than 800 cows at a sacrificing the quality of the meat those animals or their off-
us

ranch in Okeechobee County, taking measurements includ- spring will produce. Wouldn’t it be easier, I ask, if, rather
ing body temperature, hair length and thickness, and how than spend millions of dollars and years of research to design
on

much they sweat, then use a scale from 1 to 5 to grade each well-marbled cows that can acclimatize to higher tempera-
cow’s temperament. (The calmer the tures, Americans just acclimatized them-

“The stakes
cow, the less it overheats.) They also selves to less marbled meat? “We have
w

study what matters to cattle produc- the money,” she responds after a beat.

are higher, and

ers, conducting back-fat ultrasounds “And that’s what people like.”
ha

to determine marbling levels and not- Later that day, as we drive to a

the challenges
ing which cows later become pregnant. university-owned pasture to see some
ts

Mateescu and her team extract DNA pure Brahmans, I venture into riskier

are becoming
ap

from each cow and send it to a pri- territory: From the vantage point of
vate lab, which analyzes it for 250,000 greenhouse gas emissions, might the

greater”
genetic markers and returns the results world not be better off if we all ate less
p

on a massive spreadsheet. The team steak anyway? Pound for pound, beef
N

production generates about eight times the green-

house gases as chicken, the result of the enteric fermen-
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56
tation that allows cattle to digest grass. The methane in
cow burps accounts for almost a quarter of all the U.S.
ee

agriculture sector’s greenhouse gas emissions; worldwide,

those burps generate around 6 percent of the total emis-
d

sions related to human activity.

Florida

Mateescu is clearly familiar with this line of questioning.

Ba

She concedes the premise but says the U.S. cattle industry
is still low on the list of emitters. Moreover, “a lot of that
i
Mateescu at the University of

land is land that you cannot use for anything else.”

G

Other researchers are coming around to this idea.

Sasha Gennet, a senior scientist with the California-based
03

Nature Conservancy, says cattle have climate benefits.

Grazing lands make up at least one-third of the acreage
14

of the Lower 48 states. About half that land is privately

owned, Gennet says; if not for the cattle industry generat-
90

ing economic returns from that land, there would be pres-

sure to build on it, releasing the carbon held by that soil
77

into the atmosphere.

Grasslands can’t simply be used to raise other, less
gaseous livestock, either. “You can’t take the entire Western
2

U.S., which is dominated by cattle grazing, and have it be

18

chicken grazing or pig grazing,” Gennet says. “Chickens

can’t eat grass. Pigs can’t eat grass.” Enteric fermentation,
in this view, is the price of converting grass to protein.
When we get to the pasture, Mateescu opens the gate
to an enclosure of Brahmans. They’re the color of lightly
toasted marshmallows, with humps on their back and ears
like oversize catcher’s mitts. Despite being near-perfectly
suited to Florida’s climate, Brahmans are mostly absent
Bloomberg Businessweek April 29, 2019

from its ranches, on account of nobody wanting to eat them. Grazin’ on Sunshine
They also have a reputation for feistiness; the high school in The largest beef cattle breeding operations are concentrated in warm
states, where fertility is expected to suffer as temperatures rise
Okeechobee named its mascot after them. As soon as I enter
the pen, one cow lowers her massive head, meanders over,
and playfully nudges my stomach, sending me sprawling.
Jo

F
our hours south of Gainesville, the town of
Okeechobee sits at the edge of its namesake lake.
in

Among its 5,700 residents are many of the ranch-

2k
ers Mateescu is working to help. One rancher is Flint
us

cows
Johns, manager of the nearby Lykes Ranch. Although many
of the cattlemen in the area seem genetically predisposed
on

to not complain—at least not to outsiders, and certainly not

about the heat—Johns is at least a little concerned. He drives 4.6m bee
f cow
births ann
me through some of the ranch’s 337,000 acres of grazing land, ually
w

citrus trees, sugar cane, eucalyptus, and pine timber. He’s und gra
ss
Year-ro a a
responsible for 14,000 cows, making Lykes one of the coun- Flor id
ha

makes c e to
p la
try’s five biggest ranches. popular ows
breed c
Johns has reddish hair, an endearing grin, and ears that
ts

DATA: USDA-NASS

protrude slightly under his cowboy hat. At 38, he comes

ap

off as boyish and upbeat. But when I ask what worries him food industry. Global warming is forcing farmers and ranchers
most, he has a ready one-word answer: “Weather.” In 2017 to seek new ways of producing the same quantity and quality
this part of Florida had one of its driest springs, followed by of food. If their efforts fail, they’ll have to decide what com-
p

an unusually wet summer. When it rains too much the fields promises—to taste, cost, availability, “naturalness”—they can
N

flood. Wading through water causes cows to burn more cal- make without alienating customers. Even compromise could
ories, even as that water reduces the nutrient quality of the fail, leading some types of food to become unavailable in any
av

57
grass. Water brings mosquitoes, so the cows walk around form, for any price.
all night, trying to avoid getting bitten. The pregnancy rate Adaptation, for agriculture or any other industry, is likely
ee

on the ranch, which usually hovers around 83 percent, to be a state of accelerating change with no endpoint—a
fell that year to 77 percent. “That doesn’t sound like a big gradual drift away from what we most want toward what
d

difference, but it is,” Johns says. (The rate bounced back we can best hold on to, from marbled steak to slightly less
last year.) Then, in September that year, Hurricane Irma marbled steak, say, or to hamburgers, or to gelatinous bars
Ba

hit, blowing down barns and wiping out half the ranch’s of mashed-up insects à la Snowpiercer. We won’t know until
citrus crop. “We’re definitely having more extreme-weather it happens.
i

events,” he says. “You can only mitigate to a certain point.” Thankfully, we’re not there yet. One snowy afternoon in
G

Even with the toughest animals, the already thin margins of January, I’m sitting in the corner of a dimly lit room at Ray’s
cattle operations depend on low feed costs. Dana Blumenthal, the Steaks, a restaurant in Arlington, Va., that’s yet to open
03

a rangeland ecologist for the USDA’s Agricultural Research for the day. Michael Landrum, the proprietor, has set a pair
Service, says the combination of rising temperatures and of raw New York strip steaks cut from an Angus on the table
14

drought will “undoubtedly” push the cattle industry to the in front of me. He points to the marbling: cream-colored rib-
upper Plains states and Canada. That movement has already bons, curving like footpaths on a treasure map. I ask what
90

started: Feedlots, where calves are sent to gain weight before would happen to steakhouses if it suddenly became impos-
going to slaughter, depend on proximity to corn, and they’ve sible to get a well-marbled steak. How worried should we be,
77

begun following the crop’s northward migration. “The ques- culinarily speaking, about what might be lost if innovations
tion then becomes a social one: What is the level of disrup- such as Mateescu’s don’t succeed?
tion to people and economics that happens as that northward Landrum gamely lists some less succulent cuts, but rather
2

movement occurs?” Blumenthal asks. “What happens to the than spend time describing their inadequacy, he has a cook
18

people who have been ranching for generations?”
Simply moving the industry up the map won’t keep meat
eaters fed, either. Just because cooler climes can be found
doesn’t mean the grass that grows there will suit the cattle,
Blumenthal notes. And more carbon dioxide threatens the
nutrition quality of all grasses, wherever they are. There are,
in short, no easy long-term options for the industry.
The conundrum facing cattle lurks over every part of the
put one of the New York strips on the grill, then walks away
to prepare the place for dinner.
The heat causes the marbling to dissolve into the meat,
which now glistens faintly, as if perspiring. After a few increas-
ingly delirious bites, my perception of time wobbles; when
Landrum comes back to talk more, I struggle to pay atten-
tion. Landrum, perhaps familiar with my expression, leaves
me alone to finish my steak. <BW>
 ARTWORK MADE OF WILDFIRE ASHES
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DID YOU KNOW EMBERS FROM AN UNATTENDED

BACKYARD BONFIRE CAN SPARK A WILDFIRE?
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SPARK A CHANGE, NOT A WILDFIRE.

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2
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ONLY YOU CAN PREVENT WILDFIRES

SMOKEYBEAR.COM
 P
A Cessna Citation X 62
in the XOJet fleet The most impressive
thing in your library

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The U
Parenting by numbers

65
A scientific step for
fishing

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New York’s greatest
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Private Jets
Even for the super rich,
2

owning a plane isn’t always the

18

answer. Experts advise

maintaining a portfolio of
options—including ride-sharing,
jet cards, and fractional April 29, 2019

Edited by
ownership. By Sara Clemence Chris Rovzar

Businessweek.com
 AVIATION Bloomberg Pursuits April 29, 2019

O
wning your own plane has long been a badge of
success—a time-saving security enhancer that
offers privacy, efficiency, and access to the world
on your terms. But lately, not all jet-setters are
“You try flying your G600
choosing to be jet-getters.
Travelers with extreme means increasingly take a portfolio
into St. Barts. You need
Jo

approach to aviation. They’re mixing and matching fractional 6,000 feet of runway for
ownership, jet cards, charters, jet clubs, and other options—
in

as well as trips on their own planes, if they have them—to get one of those things”
where they want to go. “No one of these is usually the perfect
us

fit,” says Brendan MacMillan, chief investment officer at New

York’s QP Family Offices, which sets up and manages offices management company in Carlsbad, Calif., says she’s had to
on

for high-net-worth families around the world. A great solution, increase salaries by an average of 30 percent over the past two
he says, “is having multiple arrows in the quiver.” years. “We’re seeing pilots with not that much experience get
One reason the portfolio approach has become appealing hired out from under us to fly bigger jets,” she says. Iannarelli
w

is that ownership1 itself has become less so. “We’re seeing a sources captains for Falcon 900s at around $200,000 a year.
tsunami of different issues that collectively make managing And that’s all before you even get to the environmental con-
ha

your own aircraft more difficult and costly,” says Ford von cerns of having one plane per family.
Weise, global head of aircraft finance for Citi Private Bank. The good news is that there are other options for flying pri-
ts

Insurance costs have increased as much as 20 percent over vate. “We’ve seen, essentially, a democratization of private avi-
ap

the past year, says Stephen Johns, president of Michigan- ation over the past 20 years,” von Weise says. When NetJets
based LL Johns Aviation Insurance. Meanwhile, the popu- pioneered fractional ownership2 in 1987, allowing multiple
larity of private planes (sales last year were up 5 percent) owners to share the costs and benefits of a plane, some thought
p

has pushed up the price of hangar space. Plus, the Federal it would hurt the industry. Instead, it helped broaden the mar-
N

Aviation Administration is requiring that all private aircraft ket for private aviation and inspire new business models.
begin carrying the Automatic Dependent Surveillance- Today, in addition to whole ownership, charter,3 and frac-
av

60
Broadcast (ADS-B) tracking system by the end of 2019. The tional jet ownership, travelers can join a variety of member-
mandate “is pivotal for the next-generation traffic-control ship clubs. Buying a jet card4—like a debit card for private
ee

system,” von Weise says. It’s also expensive, he adds. flight—will get you a block of flying hours for a set rate. New
Then there’s the overall pilot shortage that’s emerged. As York-based Wheels Up lets members book flights on its app;
d

commercial airlines bombard pilots with incentives, it’s harder Surf Air has an all-you-can-fly option5 for its West Coast net-
to retain qualified crew, says Janine Iannarelli, founder of work. The Sky Access program run by Delta Private Jets offers
Ba

business aircraft broker Par Avion Ltd. “It’s one of the big- unlimited empty-leg flights6 for $8,500 the first year. “The
gest problems faced by the aviation industry today.” Kimberly private aviation sector has gone to great lengths to provide
i

Herrell, president of Schubach Aviation, a charter and aircraft choice,” says QP’s MacMillan. “On the one hand, it’s fantas-
G

tic. On the other, it’s confusing.”

Think of it this way: A family of
03

means in New York might start by char-

tering flights to Palm Beach for win-
14

ter weekends. It’s a step up from first

class, but it doesn’t require that they
90

tie up any capital or fret about logistics.

When friends come along, they can
PREVIOUS PAGE: COURTESY XOJET. THIS PAGE: COURTESY WHEELS UP
77

book a bigger jet. When you charter,

says H. Lee Rohde III, chief executive
officer of Portsmouth, N.H., consulting
2

firm Essex Aviation Group Inc., “it’s like

18

renting a car.”
Say one spouse regularly travels to
Montana to see family, staying for a
week at a time. The cost per hour of
flying on a jet card is generally dou-
ble that of a charter flight, but with
the latter you often have to pay for
The interior of a Citation Excel XLS jet owned by the membership club Wheels Up repositioning—returning the empty

AVIATION
plane to its home base. In that case, a
jet card may be cheaper.
For summer weekends in the
Hamptons, the family can take sched-
uled flights with a company like Blade
Urban Air Mobility Inc. For their sum-
Jo
mer trips to Europe, they’d still fly
commercial first class.
in
At some point, they may consider
buying a fractional share of an airplane.
us
But they need to be ready to make a com-
mitment, since there are penalties for
on
selling shares back before the three- to
five-year minimum is up.
Eventually, a whole plane might be
w
an option. “The problem with owner-
ship is you’re buying one aircraft size,”
ha
Rohde says. You can’t put 10 passengers
on a plane that holds six. And you prob-
ts
ably don’t want to fly cross-country in
an aircraft that needs to refuel along
the way. But it also doesn’t make sense
to buy a plane for your longest trips if
they’re infrequent, Iannarelli says. A
new long-range Gulfstream G550 costs
$61.5 million. A shorter-range Cessna
CJ4 costs $9.4 million. Plus, those
longer-range planes come with their
own constraints. “You try flying your
G600 into St. Barts,” MacMillan says.
“You need 6,000 feet of runway for one
of those things.” (The St. Barts runway
is a third that length.)
To help its families, MacMillan’s com-
pany has developed a custom algorithm
to optimize aviation portfolios. The QP
team conducts an historical travel audit
that tracks where a family has been fly-
ing, when, and with how many peo-
ple. Then it adds in preferences and
priorities—business or pleasure? Cost
sensitivities? How much flexibility?
The algorithm merges that informa-
tion with intelligence about ownership,
charter, and membership options, land-
ing strip lengths, aircraft capacities, and
more. Advisers work with families to test,
adjust, and implement the plan. “This is
not quantum physics,” MacMillan says.
“But there’s a level of opacity and com-
plexity that necessitates a robust pro-
ILLUSTRATIONS BY 731
cess.” The result is a cheat sheet that tells
them which options to use in a variety of
circumstances—and if it’s the right call to
buy their own jet, after all. <BW>
Plane Speak
Some key terms for your private jet portfolio
① WHOLE OWNERSHIP
Wherein you own a plane.
Pros: Fly whenever you like.
The more you do, the lower
the hourly cost. Depreciation
may be tax-deductible.
Cons: Depreciation. You may
be tying up millions of dollars.
ap
There are ongoing outlays
for hangar space crew,
p
maintenance, insurance. Your
plane may not fit at certain
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airports. Unless you fly
hundreds of hours a year, you
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may be wasting money.
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② FRACTIONAL
OWNERSHIP
Operators let you buy a
portion of a plane, starting
at a one-sixteenth share
(roughly 50 flying hours a
year at around $275,000).
Pros: A better deal for those
who fly fewer than 200 hours
a year. A smaller investment.
No management hassles.
Plane choice. Cons: Generally
requires a three- to five-year
commitment. In addition to
the purchase price, there
are monthly fees and hourly
flying fees. On peak days
there may be surcharges and
limited availability.
③ CHARTER
Like renting a car, on
demand. Pros: Pay only
for what you use, with
no capital investment or
commitment. With hundreds
of operators across the U.S.,
including VistaJet and Delta
Private Jets, your aircraft
choices are almost endless.
Cons: Getting quotes from
multiple operators can be
time-consuming, and you
can’t control availability or
cost. Flight experiences can
vary dramatically. When you
fly one way, you’ll usually
have to cover the cost of
repositioning, or returning
the plane to home base.
d
Ba
i
④ JET CARDS
G
The prepaid debit cards
of the industry. Dozens
03
of companies, including
Sentient Jet, Flexjet, and
XOJet, offer blocks of flying
time that can be used to
book their aircraft, with
prices starting at $5,500 an
hour for XOJet. Pros: Little
commitment. Easy to
use—no haggling or calling
multiple brokers. Prices
are predictable, and many
companies guarantee plane
availability. No repositioning
fees. Cons: Hourly costs
can be relatively high. Many
programs have minimum
flying times, making short
trips expensive. There may
be surcharges and strict
cancellation policies for
peak days.
!
⑤ SHARED FLIGHTS
Like Uber Pool, but in the
sky. Each share model is
a little different: Surf Air
has pay-as-you-go ($2,500
a year, plus a per-flight
charge) and all-you-can-
fly (from $1,950 a month)
options for scheduled
flights. Wheels Up lets
you create and join shared
flights, with initiation
fees starting at $2,995.
Pros: Shared flights can
be relatively affordable,
especially for frequent solo
flyers. Cons: Limited routes,
especially with regional
operators. Lack of privacy
and flexibility.
61
⑥ EMPTY LEGS
Some operators market
“empty legs,” or flights
without passengers, usually
for repositioning—at a
hefty discount. Sky Access
may be the biggest bargain.
14
Part of Delta Private Jets, it
offers unlimited empty-leg
90
flights for just $8,500 for
the first year and $6,000
thereafter. Pros: Fly enough,
77
and it costs less than coach.
Memberships come with
2
special rates for private jet
18
bookings and 20 percent
off select commercial fares.
Slightly less egregious
in terms of carbon
footprint. Cons: Flights
can be booked only 24
to 48 hours ahead, and
routes and availability
are unpredictable. Flights
are one-way.
 DESIGN Bloomberg Pursuits April 29, 2019

This End Up
Jo

Forget book covers—it’s time to build a library where the

bookends are what you’re judged by. Here are an even dozen that
in

will make a favorable impression. By Monica Khemsurov

us

Photographs by Jamie Chung

4. ARTIFACT
on

1. KYUZO No two of these Malka Dina-

Designed by the studio Visibility, 4 made stone bookends, with
for New York manufacturer satin white speckle glaze, are
w

Matter Made, this cast-iron exactly alike. $220 per pair;

bookend is named after the workof.com
ha

master swordsman in Akira 3. REFERENCE

Kurosawa’s Seven Samurai. A heavy piece made of 5. WHITNEY
ts

$450 per pair; mattermade.us powder-coated iron, it Brooklyn’s Chen Chen and
works great with vinyl. Kai Williams encase all sorts
ap

2. CANAAN Designer Henry Julier’s of things from the Whitney

Jonathan Adler’s black- long bottom flange Museum—brochures, pins,
and-white marble set is prevents tipping. Available misprinted staff T-shirts—into
p

boldly bisected and cut at a in blue, black, and red an epoxy resin to create these
45-degree angle. $256 per pair; for contrasting colors. unique objets d’art. $400 per
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jonathanadler.com $60 each; areaware.com pair; shop.whitney.org

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DESIGN Bloomberg Pursuits April 29, 2019

6. ATLAS 9. NO. 3652

Fashioned from Carrara Still located in its original
Jo

marble by architect Elisa Ossino Viennese town house, the Carl

for Salvatori, a third-generation Aubock workshop has worked
with influential midcentury
in

Italian company specializing

in natural stone, the pair fits designers, as well as Hermès and 11. POLY
together like puzzle pieces when not Pierre Cardin. Its brass bookend The female trio behind New York
us

in use. $345 per pair; dwr.com is simple and compact. $695 per studio Egg Collective ingeniously
pair; stillfried.com devised a shape that looks
7. PORTAL different when rotated. Available in
on

An optical polish on the 10. LAVA ROCK etched (pictured) or satin bronze.
inside of this bookend, courtesy of For a look that’s pulled from $1,850 each; eggcollective.com
expert glass blower Andrew Hughes, nature, consider a pair that’s hand-
w

creates distorted reflections carved from lava rock sourced 12. CAST LINKED
depending on your viewing angle. from volcanoes in Indonesia. Guests may do a bookshelf double
ha

$1,100 per pair; 1stdibs.com $49 per pair; westelm.com take: When this pair is separated
by only a few volumes, the steel
semicircles and flared base appear
ts

8. SLO
French designer Christophe to be linked together like a chain.
ap

Delcourt constructed this set $255 per pair; rh.com

out of marble. They can either
stand upright (as pictured) or 9
p

10
lie horizontally for a different
effect. $1,760 per pair;
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 CRITIC Bloomberg Pursuits
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Data-Driven
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Parenting
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Cribsheet cuts through the
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confusion to take the guilt
ap
out of raising children
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By Caroline Winter
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On the night my husband and I finally began sleep-training our
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son, I texted two of my most trusted friends with kids. “Do we
really need to do this?” I asked, knowing my heart would break
listening to our 8-month-old howl. “It’s so hard,” replied one.
“Just remember he’s OK.” The other recommended letting my
husband take over while I drank wine and took a bath.
At that point, I hadn’t slept for more than three consecutive
hours in months and was getting all my parenting advice from
friends and family. Our pediatrician had suggested we read
books to help prepare for sleep training. But there were too
many, all offering slightly different methods. And most seemed
off-puttingly dogmatic. According to one, avoiding sleep train-
ing makes for fussy, hyperactive brats who grow up to be fat
children. (Yes, fat.) Meanwhile, I know plenty of great, healthy
kids who thrived without crying it out.
So it was refreshing to read Emily Oster’s Cribsheet: A Data-
Driven Guide to Better, More Relaxed Parenting, From Birth to
Preschool. Oster has a doctorate from Harvard and teaches eco-
nomics at Brown. The mother of two is the author of a previous
book, Expecting Better, which got raves from everyone from
the New York Times to Amy Schumer and took a similar, even-
handed look into the scientific research around pregnancy.
“This book will not tell you what decisions to make for your
kids,” Oster writes in Cribsheet. “Instead, I’ll try to give you
the necessary inputs and a bit of a decision framework. The
data is the same for us all, but the decisions are yours alone.”
Smart, relatable, and funny, Oster makes good on that
promise while drawing on her own experience for anecdotes.
She tackles all the major issues, including circumcision, potty
training, marital health with kids, and when to conceive your
April 29, 2019
next child. Clearly defined chapters make it easy to pick up the
book and cram about any issue.
Unlike many parenting gurus, Oster is careful not to be judg-
mental. For example, she details the small but devastating haz-
ards of co-sleeping—namely accidental death (0.08 deaths per
1,000 babies for women who breastfeed, don’t smoke, and
don’t drink—but an astounding 27.6 deaths per 1,000 babies for
parents who bottle-feed, smoke, and drink). But she acknowl-
edges that for some parents it’s the only option for getting a
modicum of rest. On other topics, notably vaccination, she
takes a clear stand: There is no link between vaccines and
autism, according to data she cites, including one multiyear
study in Denmark that tracked more than 530,000 children.
Some of Oster’s findings are surprising. Did you know that
some totally normal babies don’t learn to sit on their own until
they’re 9.2 months old? And 5 percent of babies learn to walk,
but never crawl? Other information seems intuitive: Oster sum-
marizes several studies showing that babies around the age of 1
don’t learn from watching educational videos. One tracked
use of a Baby Einstein product, called Baby Wordsworth, over
six weeks and found zero difference in vocabulary acquisition
between those who did and didn’t watch the DVD. The single
predictor of both how many words children spoke and how fast
their vocabularies grew? Their parents reading them books.
At times I did wonder how up-to-date the science may be:
When discussing the pros and cons of bathing a baby directly
after birth, she doesn’t mention potential harm to the baby’s
microbial balance. Nor does she mention a growing body of
ee
evidence for the microbial benefits of both breastfeeding and
breast milk. But she does give comfort to sheepish formula-
d
using parents, concluding that even though breastfeeding
does have some benefits for infants early on (for example, only
Ba
9 percent had diarrhea, compared with 13 percent of bottle-fed
babies), there’s no convincing evidence for rumored effects
i G
such as increased risk of childhood cancer or obesity. Articles
summarizing research that claims your child is more likely to
drop out of high school if he’s formula-fed are mostly clickbait
03
based on bad science, she says.
I’ll probably continue to get most of my advice from friends,
14
but I’ll definitely turn to Oster for her data and smart analysis.
She comes across as a good mom and down-to-earth—which
90
makes her takes appealing. In one early chapter covering post-
partum mental and physical health, she remembers attending
77
a friend’s brunch not long after giving birth and spending the
entire time crying uncontrollably for no discernible reason, or
2
maybe because a hat she knitted for her baby was too big. It’s a
18
moment I can definitely relate to. Although Oster consistently
urges the reader to ignore anecdotes in favor of data, her own
make that message more palatable.
But back to sleep training. There’s no evidence that the
ILLUSTRATION BY JAN BUCHCZIK
practice is damaging for a child. Studies find that the cry-it-out
method works and that babies who begin sleeping in their own
room from 4 to 9 months get better rest and snooze an aver-
age of 45 minutes longer each night as toddlers. Oster writes:
“The data, as imperfect as it is, is on your side.” 
THE ONE Bloomberg Pursuits April 29, 2019

Supporting
Cast
Jo
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Orvis reimagines the

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fisherman’s wading boot

Photograph by Joanna McClure
on
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ap
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Blame Brad Pitt.

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Ever since the

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tow-headed actor
splashed across the
screen in A River THE COMPETITION ski boot. The
i

Runs Through It, it’s • In developing its entire back of the

G

been increasingly $550 Foot Tractor, $240 Hatchback

difficult to find an Patagonia Inc. hinges open like
03

angler-free stretch turned to the pros a sardine can to

of water. In the U.S. at Danner Inc., a make it easier to
at least 6 million rough-and-ready step in and out of
14

people this year Portland, Ore.- while balancing THE CASE seams and stitches
will rig up a fly rod. based brand with streamside or Developed by that tend to fail on
90

The easy antidote almost a century of in a tilting drift industrial designer hard-worn wading
to crowding? A long experience shodding boat. They’re a bit Jim Kershaw, the boots. The soles
walk. Thanks to lumberjacks and heavier than the Orvis Pro collection were developed
77

breathable fabrics, mountaineers. Orvises, though, at represents a new with Michelin,

the $230 Orvis Pro Fishermen can 4 pounds. approach for the which cooked
2

wading boot is choose from three • Simms Fishing blue-blood brand: up a proprietary
18

50 ounces (just soles, depending on Products LLC treating anglers like rubber compound.
over 3 pounds), their traction needs, has built a loyal athletes. The upper Its research and
which makes it both and the uppers are following with its of the boots uses development
lightweight and stitched in a way $230 G3 Guide sneaker technology, team designed a
comfortable—and that allows the boots, which a one-piece geometric pattern
it’s “stickier” than boots to be resoled. feature a beefy ultralight “cage” that channels water
ever, whether you’re • The top-of-the- molded heel for of polyurethane while sticking to a
casting from steep line offering from extra stability and that keeps water streambed like tires
trails or slippery Korkers Products a shock-absorbing out and precludes on a wet road. $230;
river rocks. LLC apes a 1980s Vibram sole. the need for the orvis.com
 DINING GUIDE Bloomberg Pursuits April 29, 2019

Best Things Since Sliced Bread

Jo

If sandwiches have a season, it’s spring—at least for

in

New Yorkers, who suddenly remember that there’s an outdoors,

us

and you can eat there. We asked the city’s

top chefs to pick their favorites. By Kate Krader
on

Photographs by Janelle Jones

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◀ FAICCO’S ITALIAN SPECIALTIES favorite, though, is the chicken

CHICKEN CUTLET cutlet parm hero. “Tomato,
ts

PARMIGIANO HERO mozzarella, and pecorino on

a roll with freshly breaded,
ap

Native New Yorker and fried chicken cutlets. Why is

Butter Midtown chef Alex it so good? It’s the flavors.
p

Guarnaschelli is passionate The sauce. The chicken.”

about the selections at Faicco’s, Guarnaschelli notes that
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an old-school deli that’s been while it tastes homemade, it’s

selling cured meats and aged professionally assembled. “It’s
av

66
cheeses in Greenwich Village too much food—every great
since 1900. It also does a sandwich is—but not absurd,”
ee

side business in subs. “I love she says. “And I love the

all of their heroes and hot experience of going to the store,
d

sandwiches,” she says. Her the Italian American-ness of it.”

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HI-COLLAR ▶
BERKSHIRE PORK
KATSU SANDWICH
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At night this compact cafe in the

East Village is a sake bar with
03

a line to get in. But during the

day, Hi-Collar serves coffee and
an extraordinary sando—the
14

precise Japanese-style white- ▲ BĀNG BAR

bread sandwich that’s bewitched THE U WITH SPICY PORK
90

Manhattan. Only 10 are made a

day; Dominique Ansel, founder This Momofuku kiosk at
of the eponymous bakery Columbus Circle specializes
77

empire, grabs one when he can. in bangs, or tender Asian

“The tender Berkshire pork is flatbreads, served hot with a
2

panko-crusted and fried until handful of fillings, including

18

perfectly crispy,” he says. “It’s pieces of lacquered pork. Shake

served with bulldog sauce Shack’s culinary director Mark
[Japanese-style Worcestershire], Rosati describes the experience
a side of pickles, and potato of eating one: “Everything
salad. When it comes to about this sandwich hits so
sandwiches, for me, it’s about hard, from the contrasting
simplicity, not something textures of the soft bang and
overstuffed and overwhelming. crisp and juicy pork to the
Just one key ingredient with assertive flavors. For $5.79
good bread.” each, they’re an incredible deal.”
DINING GUIDE
Jo
in
us
on
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LOLO’S SEAFOOD SHACK ▶
CRISPY SHARK AND BAKE
“Shark and bake is something
that you eat all over the
Caribbean,” says Marcus
Samuelsson of Harlem’s Red
Rooster. “Being at Lolo’s and
eating this sandwich transports
me to the beach.” The “shark” in
the name is actually whatever
inexpensive white-fleshed fish
Bloomberg Pursuits April 29, 2019
◀ COURT STREET GROCERS mortadella, soppressata,
THE ITALIAN COMBO Swiss, mozzarella, and
pecorino Romano are all
Name an Italian deli represented, along with
staple, and it’s probably arugula, red onion, mayo,
been loaded into this and the store’s own CSG
combo at Court Street hoagie spread. The last
Grocers, which has a is “an olive salad that is
cult following beyond its salty, fatty, and acidic
flagship in Carroll Gardens, enough to stand up to
Brooklyn. “It’s one of the soppressata without
my latest obsessions,” taking over,” Freitag
says Amanda Freitag, of says. “It’s wonderfully
Chopped fame. Within reminiscent of a muffuletta
the seeded hero roll, sandwich—addictive.”
◀ CHEEKY SANDWICHES
FRIED CHICKEN AND
BISCUIT SANDWICH
Jeremiah Stone, co-
ts
owner of downtown
restaurant Contra,
ap
delights in the way fried
chicken, buttermilk
p
biscuits, slaw, and gravy
come together in this
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messy, New Orleans-style
pile. “I love it because it
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falls apart right away,”
he says, “but also stays
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humongous.”
is available, such as whiting.
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And at this engaging, colorful
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“shack” (it’s in an apartment
building), the sandwich pairs
the pan-fried fish with pickled
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cabbage slaw, tomato slices, a
G
drizzle of tangy salsa verde, and
house hot sauce tucked inside a
03
crispy, round fry bread. After a
few bites, it loses its structure,
so you must carefully devour it
14
piece by tasty piece.
90
◀ KATZ’S DELICATESSEN ◀ WEST-BOURNE
PASTRAMI ON RYE MUSHREUBEN
77
If New York has a Heresy or homage? Made
sandwich holy ground, with roasted maitake
2
it has to be Katz’s, the mushrooms instead
18
Lower East Side staple of corned beef, West-
that’s been serving juicy, Bourne’s Mushreuben
fatty pastrami—piled high has become the favorite
on rye bread—to celebs of Untitled chef Suzanne
and plebes alike since the Cupps. “The mushrooms
1880s. “Order it with a add unique umami flavor,”
side of coleslaw, full sour she says. “It’s so good,
pickles, and Cel-Ray soda,” I would say I like the
advises Thomas Keller, Mushreuben more than a
chef and owner of Per Se. traditional Reuben.”
 ◼ LAST THING With Bloomberg Opinion

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Jo

Naptime for Japan’s

in
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Convenience Stores
on

By Nisha Gopalan
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Prepare for the end of Japan’s 24-hour L awson, and FamilyMar t UNY
convenience stores. Holdings, which together operate
av

68
In a country where deaths have more than 50,000 locations across
outpaced births for several years and Japan, have been under pressure
ee

unemployment is a low 2.3 percent, from franchisees, who complain that

it may not be surprising that finding they’ve sometimes had to work shifts
d

people to work in convenience stores themselves. This isn’t a problem only

is tough. International students are an in Japan. These brands have stores
Ba

increasingly important source of man- across Asia, and some of their biggest
power, but their temporary status cre- markets—China, Thailand, and South
i

ates significant churn. Prime Minister Korea—are graying, too.

G

Shinzo Abe has succeeded in bringing All three companies have tried to
more women into the workforce, but solve the problem with automation,
03

they’re generally unwilling to work late-night shifts. A particularly during the later hours, or by closing for part
plan to issue visas for unskilled guest workers—a first for of the night—a dramatic move in a country where, accord-
14

Japan—could attract more than 345,000 additional over- ing to Bloomberg Intelligence analyst Tom Jastrzab, more
seas workers by 2024. But they would be limited to jobs than 95 percent of convenience stores are open 24 hours.
90

in 14 industries, including construction, elder care, and Beyond the prohibitive cost of putting robots in tens of
agriculture—not convenience retail. thousands of stores, machines have their limits. As much
77

Seven & i Holdings Co. (parent company of 7-Eleven), as 19.5 percent of the volume of alcohol sold in Japan and
almost 70 percent of cigarettes are purchased in conve-

16.6%
nience stores, according to Euromonitor International.
2

Those stores testing automation are locking up their

18

liquor for want of a system that can accurately check

that the consumer is of age.
ILLUSTRATION BY GEORGE WYLESOL

If all else fails, Seven & i, Lawson, and FamilyMart

●THANK HEAVEN
Seven & i is the world’s largest
convenience store operator,
with almost 17 percent of the
global market.
● TROUBLE IN PARADISE
With franchises making up
98 percent of Seven & i stores in
Japan, pressure from owners has
weighed on its stock price.
may have to close more often. One harbinger of incon-
venient nights ahead: 7-Eleven, the biggest convenience
brand in the world, tested a non-24 hour program in
10 corporate-managed stores in March. <BW> �Gopalan is a
finance columnist for Bloomberg Opinion
 2 18
77
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14
03
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