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ApprovedBusinessBusiness and finance

Reports of the MBA’s demise are exaggerated

THE MBA is both revered and reviled. To boosters it has advanced the science of management and helped firms, and countries, to grow. Detractors say it offers little of practical value and instils in students a sense of infallibility that can sink companies, and knock economies sideways. The critics are currently the louder of the two, claiming that particularly the full-time, campus-based MBAs have reached saturation point, with too many mediocre courses chasing too few candidates. The Financial Times recently likened them to “the Grand Tour of business education in an age of Airbnb”.

There is a widespread feeling that full-time MBAs are on their last legs, concedes Sangeet Chowfla, the president of the Graduate Management Admission Council (GMAC), a business-school association. Decline is allegedly hastened by competing qualifications, such as the Masters in Management. MiMs have much the same syllabus as MBAs, but unlike them, take students…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

India recapitalises its state-owned banks

Pillars to be reinforced

ONE of the perks of owning a bank is the ability to tap it when you need money. The Indian government, which has majority stakes in 21 lenders, is no exception. As it happens, it needs to finance a bail-out of the banks it owns, most of which are in trouble. So under a cunning plan unveiled on October 24th, the ailing banks will lend the government 1.35trn rupees ($21bn), about a third of their combined market value. The government will reinvest this money in bank shares, thus ensuring they no longer need a bail-out.

Steadying a tottering financial system is never a graceful exercise, as American and European authorities discovered after the financial crisis. India’s lenders withstood the meltdown of 2007-08 well, but then embarked on an ill-advised lending spree, backing lots of infrastructure projects that got snarled in bureaucracy. Bad loans piled up. State-owned lenders, which account for around two-thirds of the sector, now have…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Silicon speculators

Nail-biting decisions

EXCHANGE-TRADED funds (ETFs) were supposed to make investing easy. Instead of spending hours researching individual stocks and bonds or paying an expert fund manager, investors could simply buy a few ETFs. But now there are too many to choose from. BlackRock offers 346 in America alone. Some investors need help allocating their money between different funds. Many companies now offer “automated wealth managers” (AWMs) that perform this service.

AWMs have been around for less than ten years, but they have proliferated, offering different services in different countries. Often, they are called “robo-advisers”, but this term can be misleading. Some offer clients detailed advice about how to save. For example, Wealthfront, an American AWM, predicts the cost of sending a student to a given college, taking into account increases in tuition fees and likely financial aid. It then suggests how parents can save in a tax-efficient way. Other…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Will corporate tax cuts boost workers’ wages?

THE president’s tax promise has always been clear: he will reduce the amount middle-earners, but not rich Americans, must pay. Yet every time Donald Trump releases a plan, analysts say it does almost the opposite. The Tax Policy Centre, a think-tank, recently filled in the blanks in the latest Republican tax proposals and concluded that more than half of its giveaways would go to the top 1% of earners. Their incomes would rise by an average of $130,000; middle-earners would get just $660. The White House maintains that tax reform will deliver a much heftier boost to workers’ pay packets. Who is right?

The disagreement boils down to who benefits when taxes on corporations fall. The Tax Policy Centre says it is mainly rich investors. But in a report released on October 16th, Mr Trump’s Council of Economic Advisers (CEA) claimed that cutting the corporate-tax rate from 35% to 20%, as Republicans propose, would eventually boost annual wages by a staggering $4,000-9,000 for the average household.

The claim has sparked a debate among economists that is as ill-tempered as it is geeky. Left-leaning economists are incredulous. Writing in the Wall Street Journal, Jason Furman, who led the CEA under Barack Obama, pointed out that if the report is right, wage increases would total about three to six times the cost of the tax cut. Larry…Continue reading

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Millennials are doing better than the baby-boomers did at their age

ALL men are created equal, but they do not stay that way for long. That is one message of a report this month by the OECD, a club of 35 mostly rich democracies. Many studies show how income gaps have evolved over time or between countries. The OECD’s report looks instead at how inequality evolves with age.

As people build their careers, or don’t, their incomes tend to diverge. This inequality peaks when a generation reaches its late 50s. But it tends to fall thereafter, as people draw redistributive public pensions and quit the rat race, a contest that tends to give more unto every one that hath. Old age, the OECD notes, is a “leveller”.

Will it remain so? Retirement, after all, flattens incomes not by redistributing from rich seniors to poor, but by transferring money to old people from younger, working taxpayers. There will be fewer of them around in the future for every retired person, reducing the role of redistributive public pensions.

One logical response to the diminishing number of workers per pensioner is to raise the retirement age. But that will exacerbate old-age inequality, if mildly. Longer careers will give richer workers more time to compound their advantages. And when retirement eventually arrives, the poor, who die earlier, will have less time to enjoy their pensions.

Today’s youngsters may resent having to provide…Continue reading

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How leading American newspapers got people to pay for news

Past …

SOMETIMES it feels like the 1970s in the New York Times and Washington Post newsrooms: reporters battling each other to break news about scandals that threaten to envelop the White House and the presidency of Donald Trump. Only now their scoops come not in the morning edition but in a tweet or iPhone alert near the end of the day.

It is like old times in another way: both newspapers are getting readers to pay, offsetting advertising revenue relinquished to the internet. After years of giving away scoops for nothing online, and cutting staff, the Times and Post are focusing on subscriptions—mostly digital ones—which now rake in more money than ads do.

Their experiences offer lessons for the industry in America, although only a handful of newspapers have a chance at matching their success. A subscription-first approach relies on tapping a…Continue reading

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For American Express, competition will only intensify

HE IS leaving with the share price rising and the announcement, on October 18th, of earnings that were largely well received. Better still, Kenneth Chenault, American Express’s chief executive for 16 years, accomplished a feat rare in the upper reaches of American finance: to stand down without an obvious helping shove. No grandstanding senators hounded him out (see Wells Fargo). No boardroom coup hastened the end (Citigroup). The financial crisis left him untouched (take your pick). His successor, Stephen Squeri, promoted from within and apparently groomed for the job, takes over in February.

For all that, Mr Chenault’s long tenure has not been an unequivocal triumph. Though generating strong returns on assets and equity, American Express has continued its slide within the fast-changing and competitive payments industry. According to Nilson, an industry bible, in 1974 the amount of money for purchases channelled through American Express was equivalent to 50% of what went through…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Sauce for a Brussels goose

DIVORCES are rarely easy. In the 16 months since Britain voted to leave the EU in a referendum, the negotiations have made little progress. One of the trickiest aspects is the amount that Britain should pay to meet its existing spending commitments for EU programmes.

This is not analogous to dividing up the bill in a restaurant, and deciding who had the lobster and who stuck to the mixed green salad. Take the cost of EU officials’ pensions. The tricky bit in calculating it is that pensions are long-term commitments; a bureaucrat who starts work in Brussels today might still be collecting a pension 70 years from now. Working out the cost is fiendishly complicated, requiring estimates of how much wages will rise (if the pension is linked to salary) and how long employees will live. Then the sum of future benefits has to be discounted at some rate to work out the current cost; the higher the discount rate, the lower the presumed expense.

The EU doesn’t pre-fund pensions for…Continue reading

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American business schools dominate our MBA ranking

American business schools dominate The Economist’s 2017 Which MBA? ranking, taking 16 of the top 20 places. Northwestern University’s Kellogg School of Management returns to the top spot for the first time since 2004. Kellogg students praise its facilities and collaborative culture. Their career opportunities are among the best, thanks in part to one of the largest alumni networks in the world; 97% of students find a job within three months of graduation, pocketing a 72% pay bump. All of the top ten slots in the ranking are now occupied by large, prestigious American schools, for which students are happy to pay extra. Their average tuition fee is $134,600, and has risen quickly in recent years. Employers, too, are willing to shell out for the best students. Their average basic salary was $127,300, a 70% increase on their pre-MBA pay cheques. But life, like rankings, isn’t just about money. So we weight data according to what students tell us is important. The four categories covered are: opening new career…Continue reading

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Aldi and Lidl grow despite ignoring the internet

THE aisles are wide, the lights bright and shelves low. Most obviously, however, the apples shine and the broccoli beckons. For those used to the cramped, dimly lit Aldi stores of yore, all expense spared, the new supermarket in Herten, Germany, is almost shocking.

Opened in April this is the prototype for a vast new renovation and expansion programme across Europe, Britain and America. It is the discount giant’s big bet on the future of shopping, all the more daring as the money is going almost entirely on bricks and mortar. Defying the conventional wisdom that customers want both in-store and online shopping (“omnichannel” in the jargon) Aldi wants to conquer the retail world by ignoring the internet. As too, to a lesser extent, does its great German rival Lidl. Plenty of other grocers reckon this may be the miscalculation that eventually brings them down.

Founded in 1945 and 1973 respectively, Aldi (split into two legally separate companies, Aldi Nord and Aldi Süd)…Continue reading

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Apple should shrink its finance arm before it goes bananas

IT IS fashionable to say that tech firms will conquer the financial services industry. Yet in the case of Apple, it seems that the opposite is happening and finance is taking over tech by stealth. Since the death of Steve Jobs, its co-founder, in 2011, the world’s biggest firm by market value has sold hundreds of millions of phones with bionic chips and know-it-all digital assistants. But it has also grown a financial operation that is already, on some measures, roughly half the size of Goldman Sachs.

Apple does not organise its financial activities into one subsidiary, but Schumpeter has lumped them together. The result—call it “Apple Capital”—has $262bn of assets, $108bn of debt, and has traded $1.6trn of securities since 2011. It appears to be run fairly cautiously and is part of a thriving firm, but it still deserves scrutiny. Companies have a history of being hurt by their financial arms; think General Electric (GE) or General Motors (GM).

Apple Capital has lots…Continue reading

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Business and financeGulliver

India’s new aviation policies are breathing life into a once-ailing sector

WHY would one of the world’s fastest-growing airlines buy a ten-seat propeller plane, when most of its customers fly on 200-seat jets? Switching to smaller, less efficient aircraft defies commercial logic. But it is an appealing thought for those living in isolated communities far from big airports. That is what India’s new regional connectivity scheme, Ude Desh Ka Aam Nagrik (UDAN) or “let the common man fly”, promises to offer. It uses subsidies to improve the commercial viability of seldom-used routes. It also caps half of the fares on such routes at 2,500 rupees ($38) per hour of travel. If properly implemented and funded, the scheme could become a powerful tool for spreading India’s economic wealth more evenly.

When Gulliver last reported on the aviation policies of Narendra Modi, India’s prime minister, there was little cause for optimism. At the time, Mr Modi was stonewalling a new policy aimed at resuscitating the ailing sector. Airlines…Continue reading

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Fears that Xi Jinping is bad for private enterprise are overblown

FOR a moment it seemed China was reverting to Maoist economic management. On the sidelines of the Communist Party congress this month, an official told Xi Jinping that her village distillery sells baijiu, a potent spirit, for 99 yuan ($15) a bottle. Mr Xi, China’s most powerful leader since Mao, remarked that this seemed a bit dear. The chastened official thanked him and pledged to follow his guidance. But Mr Xi gestured her to stop. “This is a market decision,” he chuckled. “Don’t cut the price to 30 yuan just because I said so.” The audience, perhaps relieved that Mr Xi had no intention of dictating the price of booze, broke into laughter.

This rare spot of levity at the dreary five-yearly congress was telling. The occasion cemented Mr Xi’s unrivalled position at China’s apex. For companies, the question is what he will do with it. His vision can seem ominous. “North, south, east and west—the party is leader of all,” he intoned in a speech laying out his…Continue reading

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Business and financeGulliver

Public-relations woes may be catching up with Uber

UBER has had a tough year. It has fired staff on the back of sexual-harassment allegations and faced reports of a hostile workplace culture. It has been sued for allegedly stealing self-driving-car technology.  It lost customers when it flouted a New York taxi boycott in protest of President Donald Trump’s travel ban. And, amid all the turmoil, its boss resigned. But despite all this, the company continued to win more and more customers, including business travellers.

Now, however, there are signs that the tide may be turning. Certify, an expense-management software company, has released its latest quarterly report on business-travel spending in America. And for the first time since it started collecting data in 2013, Uber has seen a decline in use among business travellers.

Uber and other ride-hailing apps still dominate the business-travel market for ground transport, accounting for around two-thirds of it. And they are growing at the expense of traditional services. The market share of taxis and rental cars…Continue reading

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Business and financeGulliver

Hotels are employing fewer concierges

IF BUSINESS travellers need to reserve a table at a restaurant, they may use OpenTable, a website. If they wish to find a nearby museum, a Google search will probably be their first port of call. And if they want transport into town, they can easily hail an Uber. Given that so many services are just one swipe away, is there a need for a hotel concierge anymore?

Increasingly hoteliers think that there is not. The share of American hotels with concierges has fallen from 27% in 2010 to 20% last year, according to a report by the American Hotel and Lodging Association, a trade group. Since 2014 the number of luxury hotels that employ a concierge has declined by 20%.

Though concierges are not extinct quite yet, those that remain tend to work in upmarket establishments. In America 82% of luxury hotels employ concierges, as do 76% of “upper upscale” hotels, the second most glamourous category. After that concierges are a much rarer sight. Just 16% of “upscale” hotels have them. For…Continue reading

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A geopolitical row with China damages South Korean business further

Closing time came suddenly

IN A cosmetics emporium in central Seoul, rows of snail-slime face-masks sit untouched. Not long ago, visiting Chinese tourists would snap these up as avidly as a designer handbag in New York or anything from London featuring the Queen. Yet now their rejuvenating properties are failing to lure the country’s shoppers. Seo Sung-hae, a salesman, says business has slowed to a snail’s pace, because of a drop in the number of Chinese visitors. “We used to have 100 customers a day, but after THAAD, there are almost none,” he says.  

THAAD, or Terminal High Altitude Area Defence, is an American missile-defence system designed to guard against North Korea that was installed in South Korea starting in March. Chinese authorities protest that its radar could be used to spy on its territory. Chinese newspapers have encouraged consumers to boycott South Korean goods. The plan was to “bully” Korea into ditching…Continue reading

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A property billionaire rescues Harvey Weinstein’s studio

AS DISTRESSED assets go, the Weinstein Company (TWC) is uniquely distressing. Much of its value was bound up in the brands of its eponymous founding brothers, one of whom, Harvey Weinstein, has been accused of sexual harassment and of assault by dozens of women in the film industry in America and elsewhere. Amazon Studios, Apple and some television networks have hastened to cut ties with the studio, unwind production deals and remove Mr Weinstein’s name from credits. Mr Weinstein’s accusers may well sue the company. It was already heavily indebted after a recent string of box-office flops.

Who would see an opportunity? Aside from TWC’s particular troubles, independent films are a tough business, and the studio has had to haggle with creditors. But for a vulture investor some of the studio’s assets hold value. On October 16th Thomas Barrack (pictured above), chairman of Colony Capital, a private-equity firm, said he would immediately put an undisclosed sum of cash into TWC and look…Continue reading

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Why Airbus’s tie-up with Bombardier is so damaging for Boeing

Alabama bound

LIKE an airliner in service, Bombardier’s C-Series programme has had multiple highs and lows. In 2008 the Canadian firm began its attempt to break Airbus and Boeing’s duopoly on smaller jets, spooking the pair into upgrading their own models. Costs and delays pushed it near bankruptcy in 2015, followed by a bail-out from the Quebec government worth C$2.8bn ($2.2bn). The next year an order for 75 C-Series jets from Delta, the world’s third-biggest carrier, kept the programme aloft. But decisions in September and October by America’s Commerce Department to agree to demands by Boeing, an aerospace giant, to impose a total tariff of 300% on importing those planes into America risked the C-Series project crashing once and for all.

On October 16th came a surprise surge. Bombardier said it would hand over half the project to Airbus, a European aerospace firm, free of charge. Bombardier and Investissement Québec, the province’s…Continue reading

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Saudi Aramco’s IPO is a mess

THE proposal to sell shares in Saudi Aramco, the world’s biggest oil company, stunned the financial markets last year. Muhammad bin Salman, now Saudi Arabia’s crown prince, promised that it would be the biggest initial public offering (IPO) of all time, valuing Aramco at $2trn. It was to be the centrepiece of his plan to transform the Saudi economy, reducing its dependence on oil. It was meant to foster financial transparency and accountability in one of the world’s most hermetic kingdoms. Above all, it would cement the young prince’s image as a bold moderniser soon to inherit the throne.

Alas, youthful impatience appears to have got the better of him. His tendency to micromanage the IPO and vacillate over where Aramco should be listed has caused delay and confusion. Matters came to a head this week when advisers, speaking anonymously, and company executives doing the same, gave conflicting reports, suggesting a mutinous atmosphere.

The kingdom’s advisers say…Continue reading

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An Indian aviation visionary runs into bureaucratic turbulence

But India’s not rolling out the red carpet

ALL great aviation ventures start with mavericks willing to defy both the laws of physics and the scepticism of their peers. William Boeing, Oleg Antonov and Howard Hughes are some of the best-known examples. Next, perhaps, is Amol Yadav, who for much of the past decade has been building aeroplanes on the roof of the Mumbai flat he shares with 18 family members, and battling the Indian authorities to let him fly them.

Admittedly, only experts would be able to distinguish the six-seater propeller plane (pictured) Mr Yadav has designed from scratch from a run-of-the-mill Cessna. But his plane is the only one in decades with wholly Indian credentials, he says. Much larger outfits have tried but struggled to get an indigenous craft certified for production, including National Aerospace Laboratories, one of several state-owned aviation mastodons.

Self-identified visionaries are commonplace in…Continue reading

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A Lloyd’s report urges insurers to ask “what if?”

ON JULY 7th disaster was narrowly averted when an Air Canada passenger plane, trying to land on a full taxiway at San Francisco airport, pulled up just in time. Five seconds longer, and it might have crashed into fully loaded planes and killed over 500 people, in potentially the deadliest aviation disaster ever. Instead, the incident became a non-event—not just in collective memory but also in insurance. With no losses, there was nothing to log. Yet ignoring such near-misses, argues a report published this week by Lloyd’s of London, an insurance market, and RMS, a risk-modeller, is a missed opportunity.

Counterfactual “what if” thinking may be an enjoyable pastime for historians—“What if Hitler had been assassinated?” being one favourite—but is not common among underwriters. They prefer to base estimates of future risk—and hence premiums—on hard data of what happened in the past, eg, the number of aeroplanes that crashed and the total losses incurred. Since actual…Continue reading

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A rash of bankruptcies hits Chinese lenders backed by state firms

THE Communist Party dominates China’s economy and uses state-run companies, which it controls with an iron fist, to enforce its diktats. Or so the theory goes. Reality is messier: the party often struggles to monitor state-owned enterprises (SOEs), let alone to get them to toe its line. As it convenes its five-yearly congress, one of the financial system’s dodgiest corners has served up a reminder of the limits to its power.

In the past two months at least seven online lenders backed by SOEs have collapsed. It was a business none should have been in, far removed from the industries they were supposed to focus on. The money potentially lost is trivial—roughly 1bn yuan ($150m), compared with government assets worth more than 100trn yuan. Still, these cases highlight how hard it is for the party to stamp its authority on the vast state sector.

The troubled SOEs include distant subsidiaries of the national nuclear company, an aviation company and a big energy company in…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Workers are not switching jobs more often

EVERYBODY knows—or at least thinks he knows—that a millennial with one job must be after a new one. Today’s youngsters are thought to have little loyalty towards their employers and to be prone to “job-hop”. Millennials (ie, those born after about 1982) are indeed more likely to switch jobs than their older colleagues. But that is more a result of how old they are than of the era they were born in. In America at least, average job tenures have barely changed in recent decades.

Data from America’s Bureau of Labour Statistics show workers aged 25 and over now spend a median of 5.1 years with their employers, slightly more than in 1983 (see chart). Job tenure has declined for the lower end of that age group, but only slightly. Men between the ages of 25 and 34 now spend a median of 2.9 years with each employer, down from 3.2 years in 1983.

It is middle-aged men whose relationship with their employers has changed most dramatically. Partly because of a collapse in the…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

How should recessions be fought when interest rates are low?

ONE day, perhaps quite soon, it will happen. Some gale of bad news will blow in: an oil-price spike, a market panic or a generalised formless dread. Governments will spot the danger too late. A new recession will begin. Once, the response would have been clear: central banks should swing into action, cutting interest rates to boost borrowing and investment. But during the financial crisis, and after four decades of falling interest rates and inflation, the inevitable occurred (see chart). The rates so deftly wielded by central banks hit zero, leaving policymakers grasping at untested alternatives. Ten years on, despite exhaustive debate, economists cannot agree on how to handle such a world.

During the next recession, the “zero lower bound” (ZLB) on interest rates will almost certainly bite again. When it does, central banks will reach for crisis-tested tools, such as quantitative easing (creating money to buy bonds) and promises to keep rates low for a long time. Such policies will…Continue reading

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IBM lags in cloud computing and AI. Can tech’s great survivor recover?

TECHNOLOGY giants are a bit like dinosaurs. Most do not adapt successfully to a new age—a “platform shift” in the lingo. A few make it through two and even three. But only a single company spans them all: IBM, which is more than a century old, having started as a maker of tabulating machines that were fed with punch cards.

Yet after 21 quarters with falling year-on-year revenues (see chart), doubts had been growing about whether IBM would manage the latest big shifts: the move into the cloud, meaning computing delivered as an online service; and the rise of artificial intelligence (AI), which is a label for…Continue reading

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Multilateral lenders vow openness about their carbon footprints

THE World Bank gets a lot of flak. Developing countries clamour for a bigger role in its management. President Donald Trump’s administration lambasts it for lending too much to China. Employees are in open rebellion against their boss, Jim Yong Kim. Now the embattled institution faces criticism from a traditionally friendlier quarter: environmentalists. They accuse it and other multilateral development banks (MDBs) of not being upfront about their true carbon footprint.

That must hurt. After all, MDBs pioneered climate-friendly finance. Ten years ago the European Investment Bank issued the world’s first green bond to bolster renewables and energy-efficiency schemes. The World Bank has not backed a coal-fired plant since 2010. In 2011-16 it and the five big regional lenders in the Americas, Asia, Africa and Europe offered developing countries a total of $158bn to help combat climate change and adapt to its effects. They disclose the amount of carbon dioxide emitted by their day-to-day…Continue reading

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Business and financeGulliver

Private jets are getting cheaper

ONE of the first corporate jets was owned by Harry Ogg, the president of a washing-machine company. Bought in 1929, the four-passenger plane was named “Smilin’ Thru” and was decked out with a desk, a typewriter and space for washing machines. On sales trips Ogg told the pilot to fly low over a town, with the plane’s siren wailing. The commotion drew residents to the airport, where Ogg demonstrated the benefits of his white goods in a slick sales pitch.

Most aspects of corporate jet setting have changed since Ogg’s day. Planes are more likely to be owned by a hedge-fund manager than a white-goods salesman. They are kitted out with televisions rather than typewriters. Moreover, they tend to be too costly for entrepreneurs to use as clever marketing tools. Yet even though such stunts remain a dream for many, their revival may be edging slightly closer. That is because the price of private jets has tumbled in the last few years, Continue reading

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Companies that burn up $1bn a year are sexy, dangerous, and statistically doomed

YVES SAINT LAURENT, Lady Gaga, David Bowie. Some people do not operate by the same rules as everyone else. Might the same be true of companies? Most bosses complain of being slaves to short-term profit targets. Yet a few flout the orthodoxy in flamboyant fashion. Consider Tesla, a maker of electric cars. This year, so far, it has missed its production targets and lost $1.8bn of free cashflow (the money firms generate after capital investment has been subtracted). No matter. If its founder Elon Musk muses aloud about driverless cars and space travel, its shares rise like a rocket—by 66% since the start of January. Tesla is one of a tiny cohort of firms with a licence to lose billions pursuing a dream. The odds of them achieving it are similar to those of aspiring pop stars and couture designers.

Investing today for profits tomorrow is what capitalism is all about. Amazon lost $4bn in 2012-14 while building an empire that now makes money. Nonetheless, it is rare for big companies to…Continue reading

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