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Leaders | The Modi Raj
A triumph for Indian democracy
The shock election result will change the country—ultimately for the better
The world’s biggest electorate has just shown how democracy can rebuke out-of-touch political elites, limit the concentration of power and change a country’s destiny. After a decade in charge, Narendra Modi was forecast to win a landslide victory in this year’s election; yet on June 4th it became clear that his party had lost its parliamentary majority, forcing him to rule through a coalition. The result partially derails the Modi project to renew India. It will also make politics messier, which has spooked financial markets. And yet it promises to change India for the better. This outcome lowers the risk of the country sliding towards autocracy, buttresses it as a pillar of democracy and, if Mr Modi is willing to adapt, opens a new path to reforms that can sustain its rapid development.
The drama unfolding amid a scorching heatwave begins with the election results. Mr Modi’s Bharatiya Janata Party (bjp) aimed to take up to 370 seats in the 543-member lower house, an even bigger majority than in 2014 or 2019. Instead it won just 240. It lost seats to regional parties in its heartlands in Uttar Pradesh and beyond, reflecting a revival of caste-based politics and, it seems, worries about a lack of jobs. Whereas his coalition partners were previously optional extras, he will now rely on them to stay in power. Their loyalty is not guaranteed.
This is not just an electoral upset, but a repudiation of Mr Modi’s doctrine of how to wield power in India. As our new podcast “The Modi Raj” explains, he is a remarkable man, born in poverty, schooled in Hindu-first ideology and consumed by the conviction that he was destined to restore India’s greatness. For Mr Modi, India has been kept down by centuries of rule under Islamic dynasties and British imperialists, followed after independence by socialism and the chaos inherent in diversity and federalism.
For over a decade Mr Modi’s answer has been to concentrate power. That meant winning elections decisively on a platform that emphasises his own brand, Hindu chauvinism and an aspirational message of rising prosperity. In office, his method has been to use executive might to ram through policies that boost growth and reinforce the bjp’s grip on power.
Mr Modi has changed India for good and ill. Fast growth promises to make its economy the world’s third-largest by 2027. India has better infrastructure, a new digital welfare system for the poor and growing geopolitical clout. However, good jobs are too scarce, Muslims suffer discrimination and, under a sinister illiberalism, the bjp has captured institutions and persecuted the media and opposition.
This year’s election was supposed to mark the next phase of the Modi Raj. With an even larger majority and a new presence in the richer south of the country, the bjp aspired to unitary authority across India at the central and state level. That might have made big-bang reforms easier in, say, agriculture. But such power also raised the threat of autocracy. Many in the bjp hoped to forge a single national identity, based on Hinduism and the Hindi language, and to change India’s liberal constitution, which they view as an effete Western construct.
Mr Modi would have reigned supreme. Yet every Raj comes to an end. If, as expected, the bjp and its allies form the next government, Mr Modi will have to chair a cabinet that contains other parties and which faces parliamentary scrutiny. That will come as a shock to a man who has always acted as a chief executive with unchallenged authority to take the big decisions. Succession will be debated, especially inside the bjp. Even if Mr Modi completes a full term, a fourth one is now less likely.
Mr Modi’s diminished stature brings dangers. He could resort to Muslim-bashing, as in the past. That would alienate many Indians but might possibly repair his authority with his base and the bjp. Coalition government makes forcing through economic changes harder. The small parties may gum up decision-making as they demand a share of the spoils. India’s growth is unlikely to fall below its underlying rate of 6-7%, but higher welfare spending may lead to cuts in vital investment. That explains why the stockmarket initially fell by 6%.
These dangers are real, but they are outweighed by the election’s promises. Now that the opposition has been revived, India is less likely to become an autocracy. The bjp and its allies also lack the two-thirds majority they needed to make many constitutional changes. Disappointed investors should remember that most of the value of their assets lies beyond the next five years and that the danger posed by democratic backsliding was not just to Indians’ liberty. If strongman rule degenerated into the arbitrary exercise of power, it would eventually destroy the property rights that they depend on.
More open politics also promises to boost growth in the 2030s and beyond. The election shows that Indians are united by a desire for development, not their Hindu identity. Solving India’s huge problems, including too few good jobs, requires faster urbanisation and industrialisation, which in turn depend on an overhaul of agriculture, education, internal migration and energy policy. Because the constitution splits responsibility for most of these areas between the central government and the states, the centralisation of the past decade may yield diminishing returns. That means the next set of reforms will require consensus. There are precedents. Two of Mr Modi’s main achievements, tax reform and digital welfare, are cross-party ideas that began under previous governments. India has had reforming coalitions before, including bjp-led ones.
Modi modified
The question facing India is therefore whether Mr Modi can evolve from a polarising strongman into a unifying consensus-builder. By doing so, he would ensure that India’s government was stable—and he would usher in a new sort of Indian politics, capable of bringing about the reforms needed to ensure India’s transformation can continue when the Modi Raj is over. That is what real greatness would look like, for Mr Modi and his country. Fortunately, if he fails, India’s democracy is more than capable of holding him to account. ■
China | The bright side of China
Watch out Beijing, China’s second-tier cities are on the up
Eight great ones embody growth, optimism and the good life
photograph: getty images
Jun 6th 2024|chengdu
Nearly 12m students will graduate from Chinese universities this month. Where they go after that is increasingly difficult to predict. For decades graduates were drawn to the same four cities: Beijing, the capital; Shanghai, a financial hub; Shenzhen, a tech centre; and Guangzhou, an export powerhouse. There were opportunities in these places. Their economic heft exceeded that of other Chinese cities. Their public services were better, too. And they were huge, with populations that now range from 13m (Shenzhen) to 26m (Shanghai). As a result, they were dubbed “first-tier” cities. Chinese flocked to them.
Now, though, a large number of graduates are looking beyond the top tier. In recent years China’s lesser-known cities have proved more magnetic. These rising metropolises come from the ranks of the second tier. There are 31 cities on this level, according to the government, which sorts them based on criteria like population and income level. Not all are thriving, but many stand out for their dynamism, culture and quality of life. Some are developing in ways that other Chinese cities might emulate.
The list of risers includes places from across China. In the west, Xi’an, Chengdu and Chongqing are attracting young tech workers and social-media influencers. In the centre, Wuhan, Hefei and Changsha are home to entertainment companies and electric-vehicle manufacturers. Nanjing and Hangzhou in the Yangzi river delta feature venture-capital firms and startups. Some people refer to these places (and others) as “new first-tier” or “1.5-tier” cities. But we’ll call them the “great eight”—a group that is gaining ground on the “flagging four” of old.
chart: the economist
These eight tend to have fewer people than the four behemoths. But their populations are growing faster (see chart 1). China’s overall birth rate has fallen to below replacement level, which means its population of 1.4bn is shrinking. The number of people in first-tier cities has grown by just 1.7% on average over the past four years. In the great eight there was growth of 18%. These cities are already giants by Western standards, with an average population of around 10m.
While some of their new inhabitants come from rural areas, many migrate from other cities. A recent survey by Zhaopin, a recruitment company, found that white-collar workers preferred leading second-tier cities to bigger or smaller alternatives. One reason is the infrastructure, which is already high-quality—and improving. Dotted with skyscrapers, these cities feature four of the ten tallest buildings under construction worldwide. Over the past five years, the total length of their subway networks has doubled.
As Beijing and Shanghai grew, in some ways they became less welcoming to outsiders. Both cities strictly enforce China’s hukou system of household registration, excluding non-locals from schools and city pension schemes. Even if newcomers could settle down, they would have trouble affording a home. In first-tier cities median house prices are typically 30 to 40 times higher than median incomes.
map: the economist
In contrast, most second-tier cities have flung open their doors by largely scrapping hukou restrictions. They even offer incentives to come. Changsha is giving “national top talents” a 1.5m-yuan ($200,000) reward to move there. Hangzhou is offering startup founders with phds up to 15m yuan in funding. Those who do not qualify for such payments may still see a financial benefit in moving to the second tier, where housing is much more affordable (see map).
This new migratory flow has coincided with changing attitudes among young Chinese. Salaries tend to be higher in Beijing and Shanghai, but these days many youngsters are prioritising quality of life. Whereas first-tier cities have become associated with the “996” culture—meaning a work schedule of 9am to 9pm, six days a week—jobs in leading second-tier cities tend to offer a better work-life balance.
Just ask Gong Zhenghua, a young tech worker who moved to Chengdu after years in Guangzhou and Shanghai. His new home offers shady tree-lined canals and spicy hotpot restaurants. His wages are lower, but he can afford to rent an apartment that is three times bigger than his previous one. He is enjoying life more. Mr Gong hopes to buy a house and start a family soon, goals which seemed unfeasible in the first-tier cities.
Whereas Mr Gong had to move in order to improve his life, others are simply staying put. Cities from the great eight often top rankings of “stickiness” for university graduates, or the proportion who choose to work in the city where they studied. That, in turn, adds to these cities’ dynamism. All of them have universities that rank in the top 5% in China.
chart: the economist
The great eight account for about a tenth of China’s gdp, which grew at an average annual rate of 6% over the past decade. The growth rate in first-tier cities was about that, too. But the leading second-tier cities sped ahead. Their economies grew by 7.2% per year on average (see chart 2).
Hefei is sometimes seen as having established a model for second-tier cities. Using a mix of local-government investment, industrial policy and private-sector encouragement, it has cultivated industries like high-end manufacturing, electric vehicles (evs), biotech and semiconductors. Being home to the University of Science and Technology of China (ustc), the country’s top tech college, as well as other good schools, has also helped. The local government draws on this pool of talent: it is stocked with engineering and science graduates. Volkswagen, a German carmaker, has praised the business environment. It already has two manufacturing plants in the city. Now it is spending another $2.7bn to expand its innovation centre in Hefei to further its ev ambitions in China.
Hefei’s state capitalists have shown unusual daring in their investments. That is something other cities might copy. Indeed, some in the great eight are doing similar things. Nanjing, for example, has focused on technology firms, poaching many that have left Beijing in recent years. It lures them with good infrastructure and generous subsidies. Both it and Hefei have fast-growing venture-capital sectors.
Other members of the great eight are charting their own course. One such city is Chengdu. Economists often criticise China for relying too much on manufacturing and not rebalancing towards higher-value services and consumption. China’s leaders, who like factories, tend to ignore such advice. But Chengdu has embraced it. Over the past decade the service sector’s share of gdp in the city has risen from 50% to 68% (the national average is 55%). Chengdu’s service firms are growing more than twice as fast as its manufacturing ones. It is a showcase for how China’s cities can build a more balanced economy, says Robin Xing of Morgan Stanley, a bank.
Cultivating the softer side of the economy also has cultural benefits. Chengdu’s music industry is booming thanks to a thriving hip-hop scene—and government support. Officials have a five-year plan for the industry, which they hope will be worth 100bn yuan by 2025. The city also attracts throngs of tourists and internet celebrities, who film themselves eating, drinking and dancing. When your correspondent visited Chengdu’s bar district—strictly for the purpose of reporting—it was far busier than the most popular drinking area in Beijing. A number of cities in the great eight have a more liberal vibe than those elsewhere in China.
But they also have disadvantages. Being inland, they will always struggle to attract more investment than China’s coastal cities. Exporters are more likely to build factories near ports. Most of those in the second tier are also still behind in the services they offer. Some businessmen complain that the officials on the other end of government hotlines in second-tier cities are less responsive than those in the first tier. Executives would still rather send their children to school in Beijing or Shanghai.
In order to continue their ascent, the great eight must keep investing wisely in themselves. Tianjin offers a cautionary tale of how it could all go wrong. The once-vibrant city near Beijing has a busy port and good universities. But corrupt officials wasted funds on a new financial district and a high-tech zone, both of which remained empty for years. Rising labour costs took away its advantage in manufacturing. Since 2017 Tianjin municipality has gone from being China’s sixth-biggest city by gdp to its 11th. Its population is shrinking. The great eight have come a long way. But there is no guarantee that they will continue to rise. ■
United States | Hung up
American parents want their children to have phones in schools
But phones in the classroom are disruptive. What should schools do?
illustration: alex fine
Jun 6th 2024|washington, dc
“It’s like they don’t trust us,” says Eva King, a 14-year-old pupil at Alice Deal Middle School in Washington, dc. She is standing outside the school during dismissal with two others who nod their heads and laugh in agreement. Deal’s administration has banned mobile phones during the entire school day. Pupils must store their devices inside Yondr pouches, grey padded cases that supposedly can be opened only with a special tool. The adults unlock the pouches with special magnets as pupils leave for the day.
Unsurprisingly, pupils have hacked the system. (“What do you expect?” Eva says. “We’re middle-schoolers.”) The girls recite a list of workarounds. Those magnets have become hot commodities, and a few have gone missing. Pupils have been seen banging pouches open in the toilets. Other pupils have faulty cases that no longer lock but have kept that information to themselves. The girls say that since phones have become a forbidden fruit, pupils only crave them more. They hope their school will reverse course after the summer break.
Debates about teenagers’ access to phones and their use in schools have heated up lately. Some state legislatures in America are passing laws to stop phones from being used in classrooms, without removing them from schools altogether. A popular book published in March, “The Anxious Generation”, by Jonathan Haidt, has called fresh attention to evidence that social media, mostly accessed through smartphones, may be to blame for a sharp rise in anxiety, depression and self-harm among young people today.
Some researchers are unconvinced that phones are causing mental illness. Although America and Britain have reported a rise in problems as social-media use has surged, not all rich countries have had similarly correlated increases. “Adolescence is influenced by multiple things,” says Margarita Panayiotou, a researcher at the University of Manchester. “It would be unrealistic to expect that one thing—social media—is driving adolescent mental health.”
Most parents want their children to have phones available at school. In February the National Parents Union, an advocacy group, polled 1,506 public-school parents and found that a majority think that pupils should be allowed to use phones during free time. Larry McEwen, a parent at Deal and the school’s basketball coach, agrees. He thinks pupils should have phones for emergencies. He and Eva King cited a lockdown last year at a nearby school because of a gun scare. That was when having phones came in handy.
The devices are plainly disruptive. Pupils can receive more than 50 notifications during a school day, according to a study of 203 children by Common Sense Media, a non-profit group based in San Francisco. Teachers complain that pupils watch YouTube and use other apps in class. Phones can be instruments of bullying, and pupils have been secretly recorded while using the toilets or undressing in locker rooms. These days, the notorious schoolyard fight can be organised by phone.
Hung up
It is also clear that mobile phones can undermine learning. Several studies have found that their use decreases concentration in school, and the phones do not only affect the user. “There’s a second-hand-smoke effect,” says Sabine Polak, a founder of the Phone-Free Schools Movement, another advocacy group. Even if a child does not have a phone, they are still affected by others using them. The devices are stressful for teachers, too. They must police their use, ensuring that pupils are not sneakily using phones under their desks or during long toilet-and-Netflix breaks.
An all-day ban is one way to avoid this, but as Deal’s pupils can testify, it is also difficult to enforce. Teachers must ensure that each child on arrival has placed the phone in the pouch and secured it. That adds one more task to a teacher’s day that does not involve instruction. Alternatives must be found for those pupils who forget their pouches, a predictable problem at any school full of teenagers.
New state laws seek to enforce phone-free classrooms while also keeping pupils and parents connected. Florida’s governor, Ron DeSantis, signed a law last year that bans the use of mobile phones by pupils in class, and a similar law in Indiana is due to go into effect in July. Other states are considering bills along the same lines. These moves are distinct from the more ubiquitous push for legislation aimed at protecting children from social media (according to the National Conference of State Legislatures, 30 states and Puerto Rico are debating laws designed to protect children on the internet).
Beyond America, complete mobile-phone bans are more common in Asian countries, says a report by unesco, the un’s education and culture agency. France has banned phones in school for most pupils since 2018, though this has been hard to enforce. Several countries, including the Netherlands, restrict phone use to times when teaching is not taking place.
The answer for parents in America is to agree to delay giving their children a smartphone and for schools to support them, argues Kim Whitman of the Phone-Free Schools Movement. For communication and keeping tabs on their children, parents could use simpler devices, such as flip phones, smart watches or tracking devices. Overall Ms Whitman wishes that parents who want instant communication with their children would relax. “We all survived for a very long time and functioned absolutely fine without having a phone and without being able to have instant access to our parents,” she notes. ■
United States | Motive and intent
What Donald Trump’s 34 convictions mean for the presidential election
Come election season, it could be Hunter Biden’s trial that hogs the headlines
photograph: ap
Jun 6th 2024|new york
Donald trump’s date with Manhattan Criminal Court is not over yet. Next comes his punishment for falsifying business records in the first degree. In days or weeks Mr Trump will sit for an interview with a probation officer, a ritual that informs every sentence. Routine questions will be put to him. How are his health and home life? Describe friends and associates—are any, by chance, gang members? Then the kicker: does the defendant take responsibility for his crimes?
The short, polite answer is absolutely not. To no one’s surprise Mr Trump assailed the verdict that came down on May 30th, as did practically every Republican with ambition. In lockstep they attacked the proceedings as a rigged show-trial and as election interference by a Democratic district attorney, Alvin Bragg, whom House Republicans now want to haul before Congress. “Anyone who defends this verdict is a danger to you and your family,” said Tucker Carlson, a right-wing commentator. Donations to the Trump campaign surged. WinRed, a Republican fundraising site, briefly crashed.
Joe Biden got a slight bump in several post-conviction polls, though this may be fleeting and Mr Trump still leads. Really, it is too early to discern the impact, and measuring small shifts accurately is hard. More noteworthy is the Republicans’ capacity to rationalise behaviour that until recently they had considered beyond the pale. The share who told YouGov, a pollster, that a convicted felon should be allowed to serve as president rose from 17% to 58% between April and June (see chart).
chart: the economist
Indeed, there are reasons to be sceptical that a trial about a pay-off to a porn star will change many minds. The charges were minor and the story at its centre was old news. Mr Trump has weathered an impeachment, controversy over the storming of the Capitol, then another impeachment. Other events in the five months before the election will overtake this: there will be debates, conventions, a vice-presidential pick by Mr Trump. Not to mention the fact that the Biden family faces its own legal travails. Hunter Biden, the president’s son, is on trial in Delaware for allegedly lying about his drug use while buying a handgun, and could go to prison if convicted.
Still, in a close election that will be decided in a few states, even slight shifts matter. The verdict will strengthen Mr Biden’s case that the other guy is unfit to lead. And Mr Trump’s remaining legal jeopardy is considerable and could get worse.
One unknown is his sentence in Manhattan. On July 11th—four days before the Republican National Convention—Juan Merchan, the judge who oversaw the trial, will decide between prison, probation or an unconditional discharge, meaning no penalty at all. Each of the 34 counts of falsifying records carries a maximum prison term of four years. Judges weigh up factors like a defendant’s remorse and respect for the rule of law. Here Mr Trump scores abysmally: he called the judge a “devil” after the conviction. During the trial he repeatedly violated a gag order that barred him from attacking witnesses.
Any ordinary defendant so contemptuous of the court would have it coming. Working in Mr Trump’s favour, however, is the fact that he is a first-time, non-violent felon who happens to be running for president. Prison time looks highly doubtful. More likely is probation, involving regular check-ins with an officer, or a discharge. There could be a community-service requirement; collecting rubbish is a common one. In the unlikely scenario that Mr Trump gets a jail sentence, it would not start until after his appeals had been exhausted, in several years’ time.
Hunted and Hunter
Lest anyone forget, Mr Trump faces 54 more felony counts in three other cases. All are weightier than the Manhattan prosecution; he denies wrongdoing in each. Jack Smith, a special counsel in the Department of Justice, brought two. His case in Florida, over the alleged mishandling of classified documents, is barely moving because of the plodding pace of proceedings under a Trump-appointed judge. A state case about alleged election interference in Georgia has been paused while the district attorney who launched it is investigated for having an affair with a former member of her team. That leaves Mr Smith’s second indictment, also about the 2020 election, as the only one with a very faint possibility of going to trial before voters give their own verdict in November.
Mr Smith charged Mr Trump with four felonies related to his alleged attempts to flip the 2020 election. The case is frozen until the Supreme Court rules on Mr Trump’s claim to be completely immune from prosecution for crimes committed while president. The justices could have declined to take up his request and left in place a lower court’s sweeping rejection of ex-presidential immunity. That would have jump-started the trial in the spring. But in the oral argument the justices seemed torn on the question and have not been quick to answer it.
Few embraced the notion that presidents can do no wrong while in office. But a majority seemed to think that some presidential acts may be protected from criminal prosecution even if others are not. If such a nuanced ruling arrives this month, Tanya Chutkan, the judge presiding over that trial, may need to hold hearings on which of Mr Trump’s alleged acts fall under the immunity umbrella—delaying the legal reckoning past the election.
If that happens Mr Trump’s legal woes will no longer be front of mind for undecided voters, who tend to tune in shortly before elections. That would be a remarkable thing, given the number of times Mr Trump has been held accountable in court. He has been found liable in civil cases for sexual assault and defamation (twice), and for fraud at his business. His former campaign chairman, two former White House advisers and his former chief financial officer are convicted criminals too.
Instead voters will be treated to the spectacle of Hunter Biden’s second trial. In September he will be in the dock again, for allegedly dodging taxes between 2016 and 2019. House Republicans have tried and failed to show that the president enabled or profited from his son’s business dealings. But their relentless messaging to that effect has served its purpose. In a mid-May poll by Marquette Law School, 46% of registered voters said the president had done something illegal in relation to his son—not much lower than the 54% who said the same of Mr Trump in the Manhattan case.
Winning the election requires persuading a sliver of undecided voters in about six swing states. They tend to focus on everyday concerns like petrol prices, crime and the cost of housing—issues on which Mr Trump polls better—and pay little attention to politics. Data for Progress, a pollster that works with progressives, found that just 37% of swing voters had heard much about Mr Trump’s conviction, compared with 61% of likely voters.
For anyone even remotely plugged in, the notion that people are unaware of the verdict is easy to forget and startling when it registers. Your correspondent, who was in the court the whole way through the trial, confronted the fact on a flight a day after the verdict came down. Seated next to a pleasant woman from Nashville who works in advertising, he asked if she was moved by the trial’s outcome. She chewed her mini-pretzels and looked a little puzzled. Trial? Whose trial? ■
Middle East and Africa | The lure of the Great Satan
The children of Iran’s revolution still want to go West
Some go to undermine the Islamic Republic; others to boost it
photograph: x
Jun 6th 2024
Growing up, iran’s aghazadehs, the children of the elite, chanted death to America each morning at school. But as soon as they had finished their education, they set off in search of the American dream. Iran touts its pivot to Russia and China, but the aghazadehs of the Islamic Republic still want to go West.
Among them are close relatives of two of the front-runners in Iran’s presidential election on June 28th, Ali Larijani and Mohammad Qalibaf. They have settled in Britain and Canada. The supreme leader, Ayatollah Ali Khamenei, has several family members in Britain and France, including his nephew, Mahmoud Moradkhani. Grandchildren of the founder of the Islamic revolution, Ayatollah Ruhollah Khomeini, have settled in Canada. According to one outraged former minister, 5,000 aghazadehs live in America, the Great Satan, alone.
How many go to bury the regime and how many to praise it is hard to gauge. Mr Khamenei’s nephew calls for the death of his uncle. By contrast, Maasumeh Ebtekar, who was a spokesperson for the students who seized the American embassy in 1979, says she moved to Canada to lambast her enemy better (and her son went to America). Some fill Iran’s Islamic centres in Western capitals and spread the Islamic Republic’s teachings. Others allegedly bust sanctions, for instance by setting up gambling websites to launder money. Still more move in search of knowledge. Mr Larijani’s brother lectures in cyber-security at the Glasgow Caledonian University in Scotland. Most come simply for the opportunities they lack at home. Freed from their parents’ scrutiny, they post scenes of their sybaritic lifestyles online.
They may yet become an election issue. The Guardian Council, a quango of clerics and lawyers, will vet all 80-odd candidates. Mr Qalibaf has strong regime credentials. Related to Mr Khamenei, he has commanded the Islamic Revolutionary Guard Corps, and was the chief of police and parliament’s speaker. But he is dogged by stories that his son declared he had funds of $150,000 available to him in support of his application for permanent residency in Canada. (It was initially declined.)
The Paydari (or stability) Front, a bloc of religious hardliners with growing clout in Iran, cries betrayal. But it is far from immune, too. Its favourite cleric, Morteza Aqa-Tehrani, got a green card when he ran Iran’s Islamic centre in New York. If only, notes a wag in Tehran, any senior official with personal ties to the West could be barred. “They would have to disqualify our supreme leader, too.”■
Business | Bartleby
Is it better to be an early bird or a night owl?
The promise and perils of waking before sunrise
illustration: paul blow
Jun 6th 2024
Rare is the chief executive who extols the virtues of a lie-in. Tim Cook, boss of Apple, maker of the iPhone, wakes between 4am and 5am. So does Bob Iger, his counterpart at Disney, a media giant. According to one survey, two-thirds of the chief executives of large American companies are up by 6 o’clock; for average Americans the share is less than one in three. For those aspiring to corporate greatness, the message seems clear: you snooze, you lose.
Your guest Bartleby harbours no such ambitions. But he has, in the past, experimented with early starts, and can confirm that their benefits go beyond the smug sense of satisfaction that comes from arriving at your desk before your editor. Inboxes can be cleared and tricky problems mulled over before the onslaught of emails and meetings begins, leaving you feeling well prepared for the day ahead.
Those quiet hours of the morning need not be spent solely on work. In a popular genre of TikTok videos, influencers film themselves performing elaborate morning routines in which they submerge themselves in ice baths, recite affirmations and mindfully prepare nootropic coffees. In one widely pilloried video, Kris Krohn, a business coach, details how he wakes at 4 in the morning to “align the pharmacy of the body and over-dopamine the mind”.
Although Mr Krohn’s routine may lack scientific rigour, plenty of research finds merit in early rising. In a study conducted in 2012 by Renée Biss and Lynn Hasher, then both at the University of Toronto, early birds reported feeling happier and healthier. Night owls, their nocturnal opposites, tend to have less sleep, which can weigh on their mood and health—as well as their productivity. Andrew Conlin of the University of Oulu, in Finland, and co-authors found that men who rose late made 4% less money than those who were up early (they did not test whether an extra 4% is enough to entice slumberers to throw off their duvets).
Early birds are certainly held in higher regard. Rolling into the office late continues to be frowned upon in most workplaces. A study published in 2022 by Jessica Dietch of Oregon State University and her co-authors found that night owls were perceived by respondents as being “lazy”, “undisciplined” and “immature”. To pile on the the stereotypes, they are fatter, too, according to research by Lap Ah Tse of the Chinese University of Hong Kong and colleagues.
Rising early is not, though, all upside. Those ready and waiting to receive work when the boss arrives may be given more of it. If the early bird gets the worm, the clever worm stays in bed. Urgent tasks often come up during the day, meaning that those who come in early may end up working just as late as their dawn-averse colleagues. And the more emails you send in the morning, the more responses you are bound to get back.
Waking before sunrise also risks turning you into a bore. Some larks cannot resist describing how much they got done while owls bashed the snooze button. Others go home early to tuck themselves in rather than socialise after hours. Night owls, by contrast, let loose. Research shows they drink more and take more drugs. They also have more sex. Christoph Randler and colleagues at the Heidelberg University of Education found that men who stayed up later had “higher mating success”. In the eyes of many, late nights are the preserve of youth, whereas early mornings are the domain of the geriatric.
Efforts to alter your circadian rhythm are likely to end in sleepy frustration. A person’s chronotype, to use the scientific lingo, is largely a product of their genes. Dimming your lights at night and buying a special alarm clock will not magically transform you into a morning person. Those early hours will be of little use if they are spent staring blankly at a screen through bleary eyes. This Bartleby abandoned his efforts at early starts after growing alarmed at the quantities of caffeine he required to stay awake. Early birds, for their part, lose out by never being the life of the party after the sun goes down. If nothing else, that gives them one fewer thing to feel smug about.
Perhaps the best advice, then, is to stop worrying about your body clock. Most people are neither early birds nor night owls, but in between. They do not perform well first thing in the morning or late in the evening. Many, including your columnist, get sleepy in the afternoon, too. That is why most offices operate between 9 and 5—and why they ought to have nap rooms.■
Business | Schumpeter
Lessons in capitalism from Whole Foods and Trader Joe’s
How to build businesses that last
illustration: brett ryder
Jun 6th 2024
America is not just the land of red-blooded capitalism. It has an esoteric tradition of capitalist altruism, too. Take Trader Joe’s, an own-label grocery chain like m&s in Britain. It somehow retains a local-community feel, like an indoor farmers’ market with good prices and wonderful staff, despite having 549 stores. Whole Foods Market, a 530-store Mecca for well-heeled health nuts and epicureans, has a similar vibe. Or at least it did until 2017, when it was sold to Amazon for $13.7bn. Its co-founder, John Mackey, has recently published a book full of joie de vivre about his 42 years at its helm. “The Whole Story: Adventures in Love, Life and Capitalism” comes a few years after an even quirkier memoir by the founder of Trader Joe’s, the late Joe Coulombe. They are strikingly different characters who approached retailing in unusual ways. Each offers good lessons in entrepreneurship.
Mr Mackey’s book starts with him as a college dropout having an lsd-fuelled epiphany: “I was IT. And it was me, and I was there. And it was ALL.” Don’t be put off. Whether or not would-be entrepreneurs should drop acid for inspiration, in his case it worked. The Texan’s quest for self-discovery leads to a new philosophy of natural-food retailing that conquers America. Coulombe’s book, “Becoming Trader Joe”, has no New Ageiness, even though his chain started in California in 1967. As a lesson in how to beat the big guys in business, it does exactly what it says on the tin. His first anecdote is about the merits of relabelling Peruvian tuna as pilchards to avoid import quotas and cut prices.
Such contrasts are telling. Though Mr Mackey is a proud capitalist, he seeks to make Whole Foods a “values-based” company that puts the interests of customers, suppliers, staff and the environment alongside those of shareholders. He becomes an advocate for “stakeholderism”, though is refreshingly candid about the difficult trade-offs involved. Coulombe put Trader Joe’s success down to more nuts-and-bolts factors: well-paid employees; cheap, interesting produce; an encyclopedic understanding of retail regulations (and how to get around them). Given the struggles that pepper Mr Mackey’s book, from internal coup attempts and vulture investors to customer boycotts, Trader Joe’s more down-to-earth approach looks, to say the least, less exhausting.
The two firms do share similarities. Both have been celebrated as good places to work while being staunchly anti-union. Coulombe wrote that his core value from the start was high compensation, which he says boosted productivity so much it was worth it. “You can’t afford to have cheap employees.” Mr Mackey says pay was of secondary importance, but that Whole Foods’ sense of mission and community attracted workers. Both founders had a nose for changing customer tastes. In the 1960s Coulombe realised that Americans were becoming better educated and travelling more, which made them keen to explore new tastes. Early items he sold were wine, which offered a guaranteed profit thanks to price controls, and Brie, on which Wisconsin’s cheese lobby had neglected to demand import restrictions. Mr Mackey bet boldly on his hunch that even young Texans would crave healthier foods. Later, after a proselytising lecture he heard on olive oil, he was quick to see the potential in foodies as well as hippies.
Both men, for all their community values, had a shrewd eye for the bottom line. Coulombe’s business epiphany came when he centralised the stores’ buying and delivery activities, slashed the number of items available, put most of them under the Trader Joe’s brand, and sought a gross profit on every one (“No ‘loss leaders’,” he wrote). Whole Foods had a less centralised approach. But it kept tight control of administrative expenses, and reinvested profits in the business. It was a master at making the stores that it acquired quickly profitable, enabling further expansion.
As father figures of their firms, their differences are more obvious. “I’m going to disillusion those dear souls—there seem to be a lot of them out there—who think that Trader Joe’s sprang, fully developed, from my brain, like Athena from the head of Zeus,” Coulombe wrote. He was not one to dwell upon himself. Mr Mackey, in contrast, puts himself and his personal life (including paramours) at the centre of the Whole Foods story. Likewise, they built their companies in different ways. Coulombe said that in order to survive, Trader Joe’s had to be regularly reinvented from the bottom up. Mr Mackey, to begin with, treats Whole Foods as his baby. As it expands, he accepts that it should become more independent of him. But there is not enough reinvention.
Stakeholder in the heart
For all Mr Mackey’s faith in “conscious capitalism”, Whole Foods developed a problem in the wake of the global financial crisis of 2007-09, when its pricey fare earned it the moniker “Whole Paycheque”. It stuck. He admits in the book that the firm’s inability to cut prices, partly because of a fixation on high margins, was a big strategic error. That was never a problem for Trader Joe’s, which still prides itself on offering value for (not much) money.
The fallout for Whole Foods was momentous. First came accusations from regulators in California and New York City that it was overcharging customers on pre-packed food. These led to a fine and a settlement. Then shareholder activists tried to oust Mr Mackey. In response, he sold the company to Amazon, which swiftly cut prices and raised hourly pay. He writes that he regrets the circumstances that led to the sale more than the sale itself. But he gives the impression that Whole Foods quickly lost its individuality. Frustrated, he quit in 2022. Coulombe had regrets, too. In 1979 he sold out to the Albrecht family, co-founders of Aldi, a German discount retailer, though he stayed on as boss for nine years. He died in 2020, wishing he hadn’t sold. Like Mr Mackey, he built his business to last, not for the quick buck. ■
Business | Premium carmaker
Elon Musk could earn more at Tesla than other company bosses
Much more
photograph: reuters
Jun 6th 2024
chart: the economist
How much is Elon Musk, the mercurial multibillionaire, worth to Tesla, the carmaker he runs? In 2018 the company’s board put in place a plan to award Mr Musk shares over ten years worth $46bn, at their current price, provided the business cleared a series of hurdles. In January a Delaware judge struck down the package, calling it “unfathomable”, after a shareholder sued to have it rescinded. The company has asked its investors to reaffirm their support for the award ahead of an annual general meeting on June 13th. Mr Musk’s monster pay package is worth nearly 300 times what America’s best-paid chief executive, Hock Tan of Broadcom, a chipmaker, made last year. It is also equivalent to 8% of Tesla’s current market value—which is down by roughly a fifth over the past year.■
Finance and economics | Buttonwood
Should you buy expensive stocks?
A new paper suggests the answer is “yes”
illustration: satoshi kambayashi
Jun 5th 2024
On june 7th each share in Nvidia is due to become many. In one sense such stock splits ought not to matter much: they merely lower the share price, usually returning it to somewhere near $100, in order to make small trades easier. Yet for the company and its longtime backers this administrative exercise is cause to pop the champagne. For a split to be necessary in the first place, the share price must have multiplied, commonly by two or three, prompting each share to be divided by the same factor. Each Nvidia share, however, will become ten. Two years ago both Alphabet and Amazon split each of their shares into 20. Investors in big tech have had plenty of opportunities to let the corks fly.
All three firms have made traditional valuation measures look hopelessly outdated. Dividend yields, for instance, were once a popular tool for assessing prospective returns. But Amazon has never made such a payout and Alphabet will make its first ever on June 17th (of 20 cents per $175 share). Nvidia’s quarterly dividend after the split will be just one cent per share, each priced at around $120. Plainly, there is no stretch of the imagination by which these payouts explain the stocks’ spectacular returns.
The stage is, therefore, set for the revival of a fierce argument. Low yields might mean that dividends will rise, or that future returns will be poor. Reams of academic research suggest that, historically and for the stockmarket as a whole, they have portended poor returns. Even so, a school of thought has stubbornly held that investors know what they are doing, and if they are buying stocks that yield little, they must expect payouts to grow. Of late, hewing to this school and buying the likes of Alphabet, Amazon and Nvidia would have made you a lot richer than fretting about valuations. So could it be correct after all?
Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri, three economists, have recently waded into the debate. In a working paper they argue that movements in the price and dividends of a broad share index between 1929 and 2023 can be explained purely by a model of expected future dividends (specifically, the ratio of these to aggregate consumption). In other words, prices move only when investors receive news that changes their expectation of future payouts. Otherwise, they demonstrate impeccable restraint.
Contrast this with the alternative view, which is that prices move for all sorts of other reasons, too. The value of a stock is the sum of its expected future cashflows, discounted by myriad factors such as the uncertainty of the expectation, the cost of capital and investors’ risk appetite. Changes to any of these will feed through to stock prices. In particular, if risk appetite is high, prices may also be high relative to expected payouts simply because investors are able to take more risk and hence happy to receive low yields in return. Conversely, if risk appetite is low, investors may feel unable to buy stocks even if their expected payouts are high. This dynamic alone can change both yields and prospective returns, without expected payouts changing at all.
Previous work—most notably a landmark paper published in 2011 by John Cochrane, then of the University of Chicago—has concluded that it is entirely changes to such “discount rates”, rather than growing or shrinking dividends, that cause yields to vary. Unfortunately, Messrs Atkeson, Heathcote and Perri do not present an effective challenge to this notion. Rather, they construct a model that relates prices to dividends, plus a third variable that they then derive and dub “expected dividends”. Naturally, the addition of this residual explains the price changes it is defined to explain. But you might equally call it “risk appetite”, and claim a win for the other side of the debate.
Where does that leave today’s low-yielding superstar stocks? It is always tempting to believe that today’s forecasts are simply better than yesterday’s, and the old patterns no longer apply. A stronger defence is that dividends have gone out of fashion. Earnings may thus be a better proxy for returns since they can be used to reward investors in other ways (by buying back shares to generate a capital gain, for instance). On this measure, such firms do not look quite so eye-wateringly expensive. Yet they are hardly cheap, with Nvidia valued at more than 100 times its most recent full-year earnings. Perhaps investors are correctly predicting more barnstorming growth ahead. More likely, they are once again falling into the trap of thinking “this time is different”. ■
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How lab-grown meat became part of America’s culture wars
Conservatives have beef with petri-dish steaks
photograph: getty images
Jun 3rd 2024
There is a political parable that begins with two cows. Communists would give both to the government; capitalists would sell one and buy a bull. Were it to be set in America today, Republicans would worry that their cows could be rendered obsolete. On May 1st Ron DeSantis, Florida’s governor, banned the sale of lab-grown meat in his state, an attempt, he said, to “save our steaks”. Alabama has passed a similar law; Arizona and Tennessee are considering doing the same. Some 13 other red states prohibit firms from labelling their lab-grown meat with terms that traditionally refer to real animal products. Why are Republicans so worried about “fake” meat?
In June 2023 the us Food and Drug Administration granted permission for several companies to sell lab-grown meat, making America the second country, after Singapore, to allow the stuff. On a cellular level, cultivated meat is identical to its conventional counterpart. Animal cells are grown in a tank filled with nutrient-rich liquid, or on a scaffold made out of biomaterials such as synthetic polymers, to encourage structure. Most such products are, for now, prohibitively expensive. So far they have not appeared on a single supermarket shelf in America. Two restaurants in San Francisco and in Washington, dc, have served lab-grown meat, though it is currently off the menu at both eateries. If it becomes more popular, lab-grown meat might help reduce the environmental impact of livestock farming, which accounts for around 12% of greenhouse-gas emissions worldwide.
That argument holds little sway with Republicans. Whereas 80% of Democrats are worried about climate change, 80% of Republicans are not. Conservatives often resent green initiatives—particularly those that threaten their dinner plates. In 2019 progressive Democrats proposed a Green New Deal, which called for the reduction of methane emissions (the greenhouse gas largely produced by cows). That led Republicans to claim that the plan was an attempt to “take away your hamburgers”. Lab-grown meat has met a similar backlash. Mr DeSantis links the foodstuff to a right-wing conspiracy about global elites who supposedly “want to control our behaviour and push a diet of petri-dish meat”.
Republicans have economic reasons to oppose lab-grown meat. American beef production is a $100bn industry, which funnels around 75% of its political donations to their party. Beef lobbyists worry that farmers will be forced out of business. The United States Cattlemen’s Association, a trade group, claims that a shift to lab-grown meat would create “monopolistic control of America’s sovereign food supply” because the stuff is made by multinational corporations. Right-wing legislators echo their protectionist sentiments; Mr DeSantis was flanked by members of the Florida Cattlemen’s Association while signing his state’s ban.
But the backlash against lab-grown meat is not just about money. Florida’s commissioner of agriculture called cultivated meat “a disgraceful attempt to undermine our proud traditions”. Beef is a cultural symbol, evoking the life of tough ranchers on America’s frontier. “Real” Americans eat “real” meat, the myth implies—and they drink real milk and spread real butter, too. A number of Republicans are campaigning to legalise unpasteurised milk; others even want to ban margarine in schools. Some Republicans are fighting to preserve what one conservative writer called “the rugged spirit of the American farmer”.
In reality the system Republicans want to protect has already vanished—and not because of any newfangled grub. The party’s proposed farm bill, a vast agricultural-spending package that is updated by Congress every five years, provides billions in subsidies to industrial farms and encourages consolidation. Small farms are becoming rarer. Most of the country’s meat is pumped full of antibiotics. The prospect of lab-grown steaks replacing the farmed stuff may be distant, but it is red meat for Republican voters.■
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