Marketplace - American Public Media
Twitter reported profits on Tuesday afternoon. Turns out it's doing pretty well; revenue is up 61 percent. No news on a full-time CEO. Boom.
Not counting the bit after "boom."
The Summer Olympics will be coming to Rio de Janeiro, Brazil in 2016, but is the city prepared for it? Since the country won the bidding process, it has undergone all sorts of economic changes. Juliana Barbassa, author of "Dancing with the Devil in the City of God: Rio de Janeiro on the Brink," has been covering Rio de Janeiro's evolution as it prepares for an influx of visitors and worldwide attention.
Barbassa grew up in Rio and returned in 2010. As she tells Marketplace, she'd noticed that Brazil had transitioned from political instability and economic difficulty to an effervescent country that was evolving.
“As a journalist, this was a big story. Brazil had always been the country of the future and now it looked like the future had arrived…or was arriving, and I wanted to be there to cover that story,” Barbassa says.
The country has been preparing for the Olympics by building transportation systems, adding hotel rooms and expanding capacity at stadium, she says. However, these changes are benefiting the already wealthy west side, and ignoring the needs of the working class and poor, Barbassa adds.
“I feel like those events were...promoted to the Brazilian population as ways of showing the world that we’ve made it," she says. "That’s what people wanted. What they had not known (was) the sheer financial cost of building all that infrastructure,” she says.
Just a few years ago, Barbassa says, Rio de Janeiro was once an optimistic place with economic opportunity, but it is now stagnant. Inflation rates are ticking back up and the president’s approval ratings are very low, and “there’s a deep ambivalence about hosting these big events in the country that Brazil is today,” she says.
Yelp is good for a couple of things — finding restaurants in your neighborhood, locating the nearest free Wi-Fi. Now, it would seem public shaming could be added to that list.
Walter J. Palmer, a dentist from Bloomington, MN, was on a safari hunt in Zimbabwe when he shot a lion with a bow and arrow, according to the StarTribune. Palmer had paid $54,000 for a professionally guided hunting trip. Unfortunately for both him and his prey, that lion turned out to be the beloved Cecil, a resident of a national park who was part of an Oxford University research project.
As our colleagues at Minnesota Public Radio reported, Palmer said he had no idea of the lion’s importance in a written statement released Tuesday. His guides allegedly lured Cecil out of the park, and then removed his collar.
In the statement according to MPR, Palmer also apologized for the killing, writing “...I deeply regret that my pursuit of an activity I love and practice responsibly and legally resulted in the taking of this lion."
But that hasn’t halted the vitriol of the internet, with Yelp users taking to Palmer’s dentistry page to voice their frustrations.
"You should pay for what you have done, and you should financially pay to support Lion Conservation!" says user Charmie P. in one review.
How far did Greece go in planning to possibly give up the euro? More on that. Plus, we talk to Lorena Ascencios, head wine-buyer at Astor Wines & Spirits, about corkscrews for our on-going Pro Tool series.
Lorena AscenciosJustin Ho/Marketplace
The fourth item in our series? A bottle opener.
Professional: Lorena Ascencios, wine buyer at Astor Wines & Spirits in Manhattan.
Pro Tool: Waiter's corkscrew
Why it's a Pro Tool: "It kind of looks like a pocket knife, you can fit it in your pocket. It's discreet and it's small and it fits just about anywhere ... But ultimately the most important aspect of this is the wine in and of itself. "
Click on the audio player below to hear Ascencios explain how to open a bottle of wine with the waiter's corkscrew — and why you may not want to pop the cork.
The pressure is on Twitter's interim CEO, Jack Dorsey ahead of the company's earning reports. Many are wondering whether Dorsey's is fully committed to his role after his other company, Square, reportedly filed for an IPO confidentially. We talk with Will Oremus, Senior Tech Writer at Slate, about Jack Dorsey and the once and future challenges of the company.
Click the media player above to hear host Ben Johnson in conversation with Will Oremus.
"I think this is a rare case where a new CEO might actually have a chance to make a difference," says Oremus, due to the fact that the company is in a transitional period. "In startup years, Twitter's kind of having a midlife crisis. It went through the big early boom years. It started to mature and make money, but now it really has to grow into something much bigger if it's going to satisfy investors."
The dual challenges facing Twitter are to grow advertising and users, says Oremus — Falling short of expectations after its IPO that Twitter would be the next Facebook, the company is now wanting to focus more on reach than number of active tweeters.
In light of this shift, Oremus points to Twitter's new initiative, Project Lightening, as a potential opportunity to pivot Twitter from a ubiquitous social media site to more of a media platform. Project Lightening allows users to "to follow events and then you'll see tweets curated by human editors with the help of software so you won't have to be a pro Twitter user to log in and see what's going on."
With anxious investors, a revolving door of CEOs, and a need to re-think Twitter's role in the digital media sphere, Oremus says, "the Twitter board really wants someone who can put his whole life into this role."
While Oremus says the challenge of ousting Dorsey is that he is such a popular figure within the company, Twitter has to do some serious soul searching to overcome the ghosts of Twitter past and re-position itself for a new Twitter future.
Since the Supreme Court same-sex marriage ruling a month ago, gay rights advocates have been shifting the conversation to discrimination. A new bill in congress, introduced late last week, would ban discrimination based on sexuality or gender identity.
At the same time, same-sex marriage opponents have been talking about religious accommodations for those who don't want to participate in same-sex marriages, such as bakers who do not want to make wedding cakes for gay couples.
These developments come at a critical moment for gay rights advocates. There are concerns that they might have trouble fundraising, now that their biggest battle is over.
"Marriage equality is such a galvanizing issue, and people came to us and said 'I want to be a part of that movement,'" says Bernard Cherkasov, CEO of Equality Illinois.
Since the Illinois state legislature legalized same-sex marriage two years ago, Cherkasov says fundraising has gotten tougher. "We have to work harder right now for every single dollar that we raise," he says.
"There's palpable fear across the LGBT movement that people are going to think ... that somehow the fight is over," says Matt Foreman, program director at the Evelyn and Walter Haas Jr. Fund. The San Francisco-based foundation is one of the top donors to the LGBT movement.
Foreman expects fundraising will drop after the marriage victory. The question is by how much.
"There's a lot of work going on ... to try to figure out how to sustain our movement," Foreman says. "One is research into what motivates both current and prospective donors."
The Washington D.C.-based Freedom To Marry is one of the groups to which Foreman's foundation gives money. A few weeks after the same-sex marriage ruling, the group's founder, Evan Wolfson, announced that he is shutting down the organization, which, by its own estimate, had raised almost $60 million during its existence to campaign for same-sex marriage.
"There's been some admiration for the idea of an organization being able to say: 'We achieved our goal. We're going to shut down. We're not just going to muddle around and try to figure out what else we can do,'" Wolfson says.
But he is quick to say that while shutting down is the right move for his group, because its one goal was same-sex marriage, other gay rights groups should continue to address other areas of discrimination and to be sure they are getting their message out.
The day of the same-sex marriage ruling, many gay rights advocates not only celebrated the ruling, but pointed to other discrimination as their next battle front. Cherkasov, of Equality Illinois, has a similar message.
"In the majority of the country, it's legal to fire a gay person the morning after he gets married and brings a picture of his husband to his desk," Cherkasov says.
Whatever the cause, pivoting to other battles is important if a movement and the organizations connected to it are to survive, says Douglas McAdam, a professor of sociology at Stanford University, who has spent decades studying political and social movements.
"The standard thing is for an advocacy organization that achieves its goal to kind of rebrand itself," McAdam says, adding that there are plenty of cautionary examples throughout history of organizations that don't.
For example, the main goal of the women's suffrage movement of the early 1900s was the right to vote. Once that was achieved, "the movement did not identify new goals to continue to mobilize people and motivate fundraising," McAdam says. It took decades more before women's rights were being talked about again, in terms of equal pay and other discrimination, he says.
Evan Wolfson is optimistic about the gay rights movement's future. He says the good news is that gay advocacy groups are now in a better position for the battles ahead than when he started Freedom to Marry in 2001.
"The marriage conversation has brought many more people into our work, and into our movement, and into the discussion. So there are even more people to reach out to and help them understand why we need to keep going and do the next step and the next step," Wolfson says.
Those new people, he says, can be the source of new fundraising.
Tuesday morning brings Ford’s quarterly earnings report, as well as the S&P/Case-Shiller Home Price Indices. The two events have a stronger economic link than one might think, because home building affects the Big Three automakers’ big time moneymakers, pickup trucks.
If builders are busy, they’re also confident enough about the future to upgrade to pickup trucks like the Chevy Silverado, Ford F-150 and Dodge Ram that haul lumber and supplies. And with home building on a post-crisis upswing, it looks like beat-up trucks are getting traded in.
“Pickup trucks got older and now for people who are users and put a lot of wear and tear on the trucks and a lot of mileage on the trucks, there’s a replacement cycle,” says auto analyst Maryann Keller.
There could be room for more growth in home construction too. According to housing economist Michael Carliner, there could be a 20 percent jump in single-family home construction from this year to next.
“We’re still building at a rate that’s well below what the underlying fundamentals would dictate,” he explains.
A further uptick in housing starts could put money not just in pockets of construction workers, but ultimately auto workers too.
First Lady Michelle Obama was in Los Angeles this weekend to speak at the opening ceremonies of the Special Olympics World Games. Boasting more than 6,500 athletes, it’s the biggest sporting event in the city since the 1984 Olympics. And officials say it’ll pump more than $100 million into LA's economy. And it could be an economic boost for others, too.
I went down there to check it out and found that the Uytengsu aquatic center was almost at capacity when I got down to the USC campus. Australian swimmer, Kieran Corry, had just gotten out of the pool after helping his 4x100 relay team win its heat. He's from Salamander Bay in New South Wales, Australia. He's been swimming since he was five and started competing a while ago.
“It’s a lot different from what it was like when I was about nine or ten," he tells me. "We're a long way from home but we've been here for a little while and it just feels great to be competing."
Corry is 23 now, and says the games have grown up with him. "I remember the last ten years of competition and Special Olympics has become a lot more recognized," he says. "A lot more people are aware of what we are and what we do. Lots more than what it was when I started out."
He also tells me it wasn’t cheap to get his team over here. And it’s not like sponsors were knocking down doors. "We did a lot of fundraisers back home and got some funding from some local businesses in Australia," he explains. "It was enough to get us over here.”
Athletes from 177 countries will compete in events this week. And ESPN took note. The sports broadcasting body has a studio on site and produces a daily highlight segment.
Vicki Michaelis, a professor of sports media at the University of Georgia, says ESPN might be trying to get a foothold on any part of the Olympic market — one that’s been dominated by NBC. Michaelis knows a thing or two about that Olympic market. She was the lead Olympics reporter at USA TODAY for 12 years.
“When you see some of the athletes that are front and center — Michael Phelps, Abby Wambach, Michelle Kwan — these are Olympic athletes that are very marketable, and I think this is a way for ESPN to grab some of that share, as well," she says.
"I think what they're seeing is that there is an untapped market," she tells me. "And I think that across sports we're seeing that this message of acceptance and inclusion is something that everyone in sports needs to embrace and realize that this is where the audience wants sports to go."
Michaelis says at the end of the day, disabled or not, these athletes are just competing. "These are athletes and they have compelling stories, and that is what audiences love about sports," she explains. "When you look at the Olympics, it's all about the stories and how those athletes and teams got there. Those are the things that fans remember from the Olympics."
ESPN isn’t alone in entering the Special Olympics World Games marketplace. There’s a lot of corporate good will to be had here. Toyota, Coca-Cola and Disney are out in full force, too.
The games wrap up on Sunday, August 2nd.
That's how much in losses for the second quarter was reported by BP on Tuesday morning. The company has been dealing not only with falling oil prices, but also the aftermath of the Deepwater Horizon spill, which has already cost $55 billion in pre-tax charges. And as the Wall Street Journal writes, Chief Financial Officer Brian Gilvary says the company is preparing for oil prices to stay low for much longer, given that the nuclear deal with Iran may open up new resources in the market.177 countries
That's how many will compete in the Special Olympics World Games in Los Angeles — officials expect $100 million will be pumped into the city's economy as a result. The games have been gaining a higher profile lately, and at least one big sports broadcaster has taken notice. ESPN is producing daily segments from the games, and is also maintaining a studio on site.$8.6 billion
Speaking of the Olympics, that's how much a Boston Olympic Games was forecasted to cost. That is, until the city's bid was rescinded. As Reuters reports, the Olympic committee withdrew its bid to host the 2024 games after Boston's mayor Marty Walsh said tax payers couldn't afford the price tag of such an event.$60 million
That's how much "Freedom to Marry," a group advocating for same-sex marriage, raised during its existence. But following the Supreme Court Decision to extend the rights of marriage to same-sex couples, "Freedom to Marry" founder Evan Wolfson announced the organization would shut down, as its main goal had been achieved. With such a huge victory for LGBT advocates, many organizations find themselves bracing for a drop in donations as some donors assume the biggest battle is over.$150,000
That's how much a New Jersey man drove off with after two ATM workers left a bag of cash unattended. After replenishing machines in Mahwah, NJ, the workers accidentally left a white bag of cash on a nearby lawn and drove away. As the AP writes, a passenger in a white van was filmed picking up the stash later on, as evidenced by surveillance footage.
The website DraftKings just secured $300 million in funding, with investors including Fox Sports, Major League Baseball and Major League Soccer. The site allows people to play and bet on daily fantasy games in several different sports. Earlier this month, FanDuel, another daily fantasy site, raised $275 million.
Fox Sports was the lead investor, and the deal includes a commitment by DraftKings to spend $250 million advertising on Fox over the next three years.
“Sports networks, they see this as all additive to their core business," says Eric Fisher, a staff writer for the SportsBusiness Journal. "[The] fantasy player has been proven over and over again as a more engaged consumer of the games themselves either in person or on TV.”
Players like Adrian Sharoyan in Queens, New York, who’s been playing fantasy sports for 15 years.
“When I first started playing fantasy sports, I [only watched] my favorite team, which is the Yankees," he says. "And once I started playing fantasy sports, I became instantly more interested in every game that was going on.”
Sharoyan’s been betting on DraftKings for the last two years. He likes that he can make a new roster every day.
Sports networks need consumers like him, says Jimmy Lynn, a special adviser for Georgetown University’s Sports Industry Management graduate program.
“The networks are always looking for content to bring eyeballs, and they make their money through the subscription fees and the advertising,” he says.
Lynn says the networks are also looking for new content, like TV shows focused exclusively on fantasy sports, especially because most of the major sports leagues are already locked into long-term contracts. And, since fantasy sports is one venue where it’s legal to place bets, more and more people are getting in the game.
California has begun work on the largest infrastructure project underway in the country. Eventually, a high-speed train will connect San Francisco with Los Angeles at speeds of more than 200 miles an hour. The rail project is estimated to cost $68 billion. Some cities in the path of the proposed route hate the rail project, but not Palmdale.
About 60 miles northeast of downtown Los Angeles, Palmdale is a hot desert city of about 150,000 people. In vacant dirt lots, Joshua trees tilt like cactus scarecrows. The high-speed rail project could be this city's gravy train. The Palmdale train station is currently just a one-room operation. It has a few benches, where passengers can wait for either the bus or a commuter train.
"It's not going to look nothing like this," Rich Poston says. "It's going to be totally different. There's going to be a 10-track station."
Poston does architectural design and owns three companies that may get a piece of the work on the high-speed rail project. "We would be happy with getting a half-million-dollar contract," he says. "And then, remember that once we do that here, there are 22 stations. So we can duplicate that and go to other areas and bid on those stations as well."
High-speed rail represents a big opportunity for small, minority-owned firms like Poston's, because about 30 percent of the work is supposed to go to them. So large, bonded companies want to partner with qualified minority-owned small businesses.
"If they don't get the minority participation, they can't win the bid," says Poston, who is a member of the local African-American chamber of commerce. "They're looking for us in the daytime with a flashlight."
He says this is a rich opportunity for workers with the right skills. "For the electrician? I would say it's at least $46 or $50 an hour. Now, to me, that's a mortgage-paying job."
High-speed rail would also improve the lives of Palmdale commuters. A commuter train takes about two hours to get to Los Angeles. The bullet train could cut that time to 20 minutes.
Sammy Hults lives in Palmdale and travels for work. "It would allow me to look for work in more different major cities," he says. "And having this rail, it'd be really easy to get there because travel time is really short."
Shorter travel times could also have a big impact on real estate. Palmdale has traditionally been an outpost for people who can't afford to buy property in Los Angeles.
"It's really affordable still, and that's one of the reasons that a lot of people move into the area," says Marco Henriquez, who owns Amigo Real Estate. "You can have a house and pay a lot less. Most of the times, half what you pay in the L.A. area."
He shows me a three-bedroom, two-bath house on the east side of town. The 1,400-square-foot house was built in 1985. It was recently painted and has new carpet. Henriquez calls it a typical starter home. The price tag: $190,000.
After the rail project is completed, living here and commuting to Los Angeles for work starts to sound a lot more do-able. And, as demand increases, Henriquez expects prices could rise 20 to 25 percent.
"I mean, you'll basically make more money," Henriquez says. "The price of the property will go up."
Other business could also benefit from shortened commute times.
Roxana Martinez owns Lucky Roxy's Café. She often doesn't see her regulars during the work-week because so much of their free time is eaten by the commute.
"By the time they get home, it's practically like 7:30, 8 o'clock," she says. "The kids are going to sleep, so they're not really going to go out and dine. So I think that, just having that station here, and reducing the commute, I see it as a benefit to us. I see more customers coming in."
Roxy's customers rave about the café's country gravy. And while it's too much to call high-speed rail her 'gravy train,' it will help her sell more gravy.
Steven Shepard of Politico says we can look forward to tons of television advertisements this presidential election season.
“Campaign advertising in 2016 is estimated to top about $4.4 billion," he says. "That combines the advertising run by the campaigns and the candidates themselves, and also the growth of super PACs in the post-Citizens United era. It is $500 million more than was spent in 2012, in the last presidential election."
Even though younger generations use the internet to get most of their information, ads are still primarily focused on television.
Shepard says, "the future might be digital, but the problem is that the advertising hasn’t really caught up with that. The ways in which you can reach people, target them, television …live television is still the best way to do that.”
Television ads are so successful that local news stations are adding more local broadcasts in order to sell more ad space.
“The entire purpose behind that is to create more advertising inventory that they can sell to political campaigns and super PACs,” Shepard says.
This might be good news for television stations, but for those in swing states, this election season is going to be a long one.
“If you live in a swing state or one of the early nominating states … you’re going to get the barrage over the winter, and then you’re going to get it again over the summer and fall,” Shepard says.
Here's some great news and terrible news for the flying public: New York Governor Andrew Cuomo said he's going tear down LaGuardia Airport.
Tear it right down — and rebuild it.
They're going to break ground on the first bit early next year, and it's going to take just more than three years and $4 billion for a new Central Terminal.
Great — eventually. But can you imagine the delays?
The looters came in through the back. They pried open a fence and tore the door off the frame, then stripped the shelves, smashed the ATM and busted open the cash registers.
“I can do nothing,” says Michael Ghebru, who owns Doc’s Liquors in Sandtown-Winchester. The neighborhood was Ground Zero during the April riots in Baltimore, following the death of Freddie Gray. One of the hardest things, says Ghebru, is that he recognized some of his own customers among the 50 or so looters, who tore through his store.
Luwam Gebrab (left) and Ghenet Ghergish at Doc’s LiquorsAmy Scott
Ghebru, who came here from Eritrea, says he lost more than $75,000 worth of liquor and food that night. He has insurance, but if he applied for aid from the city he would be out of luck.
Doc’s is considered a non-conforming liquor store.
“They’re called nonconforming because it’s clear that they’re inconsistent with the neighborhood that they’re in,” says Stephanie Rawlings-Blake, the mayor of Baltimore.
Zoning rules introduced in 1971, banned liquor stores in certain residential areas, but the 100 or so that were already there—like Doc’s—were allowed to stay. Rawlings-Blake’s administration has been pushing to close those stores. When the city offered emergency loans to businesses damaged in the riots, she excluded the 20 nonconforming liquor stores—unless they relocate or start selling something else, like fresh fruits and vegetables.
“I heard from the residents, I heard from business leaders, with a unified voice, that they did not want any city dollars to go towards reopening the nonconforming liquor stores,” Rawlings-Blake says.
One of those residents is Elder Clyde William Harris. He’s lived in Sandtown-Winchester for 65 years, and founded Newborn Holistic Ministries, a group fighting poverty in the neighborhood.
“Any corner where there is a liquor establishment, check those corners out. Hot spots in our community,” he says. “We do not need that.”
What they do need, residents say, are family restaurants and grocery stores. But those businesses can be expensive to start, and difficult to run. Liquor stores are relatively easy to manage and don’t require a big investment. Plus, alcohol has a high profit margin, and there’s a lot of demand.
The owners are often immigrant families from Korea, South Asia, and the Middle East, says Abraham Hurdle, a lawyer who represents several liquor store owners.
“The vast majority of them are small business owners working seven days a week, often, just to put food on the table, put their kids in college—just the same old American dream as everybody else,” he says. “To say they're responsible for all the problems that Baltimore has, it's just plain unfair.”
If only there weren’t so many of these businesses so close together, community activists say. They point to studies showing that high concentrations of liquor stores are associated with more violent crime and health problems.
Debra Furr-Holden is an epidemiologist at the Johns Hopkins Bloomberg School of Public Health. She drives me to the neighborhood of Park Heights in Northwest Baltimore. We pass block after block of boarded-up buildings and empty lots, until we come to a commercial strip with three cell phone stores, a fried chicken joint, and four liquor stores—with another on the corner of the next block.
“That creates a cluster of five liquor stores within a one-block area,” Furr-Holden says.
Doc’s Liquors from the outside.Amy Scott
One sells some groceries. Another has a small bar attached and sells pipes and herbal Viagra. But they have one thing in common. Nearly everything is behind a thick layer of bullet-proof plexiglass.
“So you literally can't touch the products, you can’t browse through the products,” she says. “I just think it's a very dehumanizing way to make purchases.”
Behind the glass at Doc’s Liquors in Sandtown-Winchester, a cashier does a steady business selling sodas and Flamin’ Hot Cheetos. Plenty of booze passes through, too.
Owner Michael Ghebru says he doesn’t feel great about selling liquor to obviously desperate people on a weekday morning, but he says shutting down a few stores won’t change Baltimore.
“The problem is not liquor stores, that I believe,” he says. “Everybody knows the problem.”
It’s the lack of jobs, he says.
In this neighborhood, more than half of working-age people are unemployed. Ghebru plans to stay in business even without help from the city, but stores like his face a longer-term threat. Baltimore is in the midst of its first zoning overhaul in more than 40 years, which could force nonconforming liquor stores to stop selling alcohol.
A barrel of American crude is selling for less than $50 once again; a year ago the price was north of $90.
The bear market for oil production is a reaction to an unexpected glut, Marketplace's Scott Tong says. Last year, when OPEC signaled that it wouldn't cut the U.S. supply, oil producers all over the world kept pumping, he says. U.S. shale oil production keeps going, despite fracking. Saudi Arabia has record levels and Iraq oil is back "in a big way." Iranian could re-enter the market because of the potential lifting of sanctions.
Some analysts think the U.S. won’t see $100 barrels of oil for maybe five years, Tong says. The pessimists include drillers, who are cutting $200 billion in investments to stay afloat. Morgan Stanley likens this to the 1986 oil crash, which took the U.S. industry two decades to recover. Another camp says we’re in a new period of volatility. Before, OPEC was the price shock absorber, but it doesn't want that job any more. So perhaps we’ve entered the boom-bust-boom-bust chamber, he says.
All over the world, oil producers are struggling. In the oil sands area of Canada where it’s expensive to drill, unemployment has doubled and most new projects have been shelved. Venezuela is running out of petroleum revenue dollars to buy imports, which is especially problematic because most of its products are imported. Inflation there is 100 percent or more. Russia’s careening toward recession. In the Gulf of Mexico, drilling rigs have fallen by a thousand, and here in the United States, there have been tens of thousands of layoffs.
Oil producers are addicted to the revenue, but the picture is changing for consumers. According to the international energy agency, demand is slowing in rich countries – western Europe, Japan, the U.S. Even though emerging economies are buying more, demand will slow and eventually flatten out around 2040.
Click on the audio player above to hear more.
It’s not exactly comforting to see the stock market of the world’s second-largest economy take a nose dive. China saw the biggest single-day drop – 8 percent — in its stock market in eight years, following weeks of volatility and decline.
At a time when the U.S. is starting to recover, should we worry? Not particularly, or at least not yet.
First, those feeling most of the pain from China’s stock market are the Chinese.
“China’s financial markets are mostly closed off to those outside the country,” says Nadège Rolland, senior project director for the National Bureau of Asian Research. “So of all the shares in China’s stock market, foreigners own less than 2 percent — by some estimates it’s 1.5 percent.”
One of the many reasons for this is so that the Chinese government can maintain control over its market and do things like threaten to arrest people who sell off shares. Just today, China’s equivalent of the Securities and Exchange Commission has reportedly put started a hotline for reporting “people who are ‘maliciously selling,’” says Patrick Chovanec, chief strategist at Silvercrest Asset Management. “I don’t know what malicious selling is actually, but you can be reported for it.”
The stronger links between the U.S. and China are through trade, not financial markets. Even on that front, however, the effects of China’s economic slowdown on the U.S. are “real, but limited,” says Nicholas Lardy, senior fellow at the Peterson Institute for International Economics. China accounts for “about 7 percent of our exports, and exports are not a really huge chunk of our overall economy, so only about a percentage of our production is getting sold in China.”
“Although people imagine China is a growth driver for the global economy, China has been running chronic trade surpluses, so it really derives growth from other countries,” Chovanec says. “That’s neither good nor bad, that’s just the reality.”
U.S. companies operating in China are experiencing the slowdown differently. Lardy says those like Caterpillar or United Technologies — which are heavily tied to China’s now-waning construction boom — are suffering. Companies that are selling directly to Chinese consumers – YUM brands’ KFC and Pizza Hut, for example – are doing exceedingly well. iPhone sales have surged and Apple expects China to be its largest market in the world within a few years.
“China is attempting to move from an investment-driven to a consumer-driven economy,” says Robert Whitelaw, professor of entrepreneurial finance at NYU’s Stern School of Business. “And it’s not easy to do, because it has been investment-driven for so long.”
But if that’s what rises out of the rubble of China’s growing pains, it may be to the benefit of the U.S., Chovanec says.
“There’s a tendency for people to look at growth as a uniformly positive thing; any growth is good, and any slowdown is bad for global economy,” he says. “But that’s not really the case. A lot of the growth over the past five or six years in China was bad growth — credit-fueled overinvestment, a buildout of overcapacity that pushed down prices around world and made it tough for other economies to grow.”
The end of that process, Chovanec says, will ultimately be a relief for other sectors of global economy. “Ultimately, if the Chinese support consumption, this will ultimately turn China into a driver of growth. A lot of people think China is a driver of growth now; it has the potential to be as it undergoes this economic adjustment.”
Since serving as CEO of the website Myspace, Mike Jones has spent his time as an angel investor. He says, “When I looked at my track record as an angel, I felt that there was this huge discrepancy between the number of investments and the number of successes I had had.”
So naturally, he raised $10 million and started the company Science Inc., which helps startups from the ground up.
We’ll work with you on strategy, product — if you need developers, we’ll provide technology. If you need designers, we’ll provide great design resources. And then when you’re ready, we’ll go bring you up to Silicon Valley. We’ll help you get funded, we’ll join your board and we’ll be with you for the entire length of your company.
What separates Science Inc. from similar companies is its location in L.A., on Silicon Beach:
My primary network is here in L.A. For me, that means that I have great access to talent. I can find great people to come work at these businesses, and we also have strong ties to Silicon Valley, so when we have a break out company, we can pair them with the best investors in Silicon Valley.
Though Science Inc. is located in L.A., the reliance on Silicon Valley is strong:
The weight that Silicon Valley carries in technology, it’s second to none. There’s Silicon Valley and there’s everywhere else. And we might be in the top of the ‘everywhere else’ category, but we’re not even close to the infrastructure that Silicon Valley provides for the technology businesses.
Jones says it’s not about competing with Silicon Valley, but rather making Los Angeles a welcoming place for startups. He thinks that “we need bigger and bigger companies that will create more wealth in Los Angeles, that will provide more returns back to those investors and then create a larger ecosystem of early stage investment.”
We've heard of Silicon Valley and its New York counterpart, Silicon Alley, but there's a growing group of startups based out of Venice — a.k.a. Silicon Beach. We traveled down there to talk with a few CEOs about the Los Angeles–area tech scene, and we'll be airing those conversations through the rest of the summer. Here's a preview.