Winter 2016 by The IFJ

THE IFJ TEAM

DESIGN & LAYOUT

EXECUTIVE BOARD

CLAIRE SU, KATHERINE WEBB, KATHLEEN CHAI,

AMANDA BEAUDOIN PRESIDENT

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SOCIAL MEDIA & MARKETING

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YUTA INUMARU HEAD OF INTERCOLLEGIATE EXPANSION NITISHA BARONIA UC BERKELEY CAMPUS MANAGER ANKIT BILGI UNC CHAPEL HILL CAMPUS MANAGER BILL WANG UNC CHAPEL HILL CAMPUS MANAGER

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CLAIRE SU PRESIDENT

DHEERAJ NAMBURU HEAD OF OPERATIONS & EVENTS MINGYI WU HEAD OF OPERATIONS & EVENTS

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JULIA WATSON HEAD OF SOCIAL MEDIA & MARKETING ARTON DOKIC HEAD OF SOCIAL MEDIA & MARKETING PAUL MEUSER HEAD OF DESIGN & LAYOUT

YUTA INUMARU HEAD OF INTERCOLLEGIATE EXPANSION BRIAN LEE HEAD OF ADVERTISING

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EDITORIAL BOARD

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ARI SHUSTERMAN, JOSH GELBERGER, EILEEN MAYSEK, ALAN YU OPERATIONS & EVENTS

SARAH PARK EDITOR-IN-CHIEF EMERITUS GILLIAN LEE MARKETS EDITOR

KATHARINE JESSIMAN-KETCHAM TECHNOLOGY EDITOR MICHAEL JANIGIAN POLITICAL ECONOMY EDITOR NIKHIL KUMAR ON CAMPUS EDITOR SENIOR STAFF WRITERS

BENJAMIN BOSIS, BENJAMIN CHICCHIA, EMILY WINSTON, JONATHAN SILIN, SPENCER GREENE, TRAVIS FULLER, VANESSA ZHANG

DHEERAJ NAMBURU HEAD OF OPERATIONS & EVENTS

STAFF WRITERS

ALEC FUJII, ANDREW PARK

ELIZABETH DOYKAN, HALLIE WOLFF, JAKE GOODMAN, RYAN MA, THEODORE

MINGYI WU HEAD OF OPERATIONS & EVENTS

ADVERTISING

AMANDA CHOW, ARTHUR TRAN, BENJAMIN WINSTON, CALVIN CHU, ROSEN, VARUN NARAYAN, VIKAS RAJASEKARAN, WAYLON JIN

BRIAN LEE HEAD OF ADVERTISING

WEB

WILLIAM ZHOU, YUTONG LIU

BIANCA BARCELO HEAD OF WEB PUBLISHING

JONATHAN GOMEZ, AMY XU, VIKAS RAJASEKARAN, CHRYSTAL CHEN,

TITLE PAGE IMAGE: ISTOCK.COM

MATTHEW OSTROW PRESIDENT EMERITUS

NATALIA SABATER-ANAYA HEAD OF WEB PUBLISHING JORGE MARTINEZ

TABLE OF CONTENTS Markets 4

Samuel Cai THE MORAL ECONOMY An Arguement Against the Voluntourism Industry

Lizzy Doykan THE URGE TO MERGE How Two Corporate Giants Will Affect the Rapidly Evolving Telecommunications Industry

9 Arthur Tran BLOOD LOSS The Fall of Theranos and its Implications for Biotech 11 Amber E. Liu FENTANYL FOR THOUGHT How Drug Trade Affects Americans’ Safety and Health 15

Emily Winston THE VICTORY OF E-COMMERCE Online Shopping Will Prevail this Holiday Season

Max J. Frankel THE FED’S FALLING FUNDS Dulling the Market’s Price Discovery Mechanism

On Campus 18

Hallie Wolff HOMO ECONOMICUS The Economically Rational Human

Ben Wilson SO TRUCKING TASTY Food Trucks Across America

22 Varun Narayan GOING (AND MAKING) GREEN The Exploding Field of Socially Responsible Investing 24

Ryan Ma ALL EXPENSES PAID Companies dabble with the idea of paying for employees’ vacations

Waylon Jin TIS THE SEASON TO TRAVEL Navigating the Transportation Industry During the Holidays

28 Amanda Chow THE HIDDEN COSTS OF COLLEGE Rethinking the (Under) Estimated Cost of Attendance

Political Economy 32

Benjamin Bosis THE SPIRIT OF SHENZHEN Why Tech Entrepreneurs are Flocking to China

Spencer Greene GREEN BUILDING How Real Estate Sustainability Certifications Work

Vanessa Jingjing Zhang BRITAIN AT CROSSROAD AGAIN - THE HIGH COURT RULING British, European, International Political Economy in Uncertainty

Ben Chiacchia INDEPENDENCE PROVIDES HOPE Volatility Threatens Kurdistan’s Economy

Mike Janigian BOTTLING UP OR BOTTOMS UP? How the U.S. Failed to Prohibit Alcohol

Arvind Veluvali TRANS-PACIFIC PARTNERSHIP AND THE 2016 ELECTION Will Donald Trump Kill the Most Ambitious Trade Deal Ever?

Jonathan Silin THE OTHER SOMALIA? The Trajectory of Growth in Somaliland

Technology 50 Katharine Jessiman-Ketcham, Alan Tang THE VIRTUAL REALITY DEBATE 54 Vikas Rajasekaran BLOCKCHAIN. THE DEATH OF TRADITIONAL FINANCE? A Look at the Blockchain Technology Reshaping Markets 55

Jake Goodman DOES JACK DORSEY HAVE TO GO? How Twitter and Square’s CEO Manages to run TWO Public Companies

Benjamin Winston A NEW POWER SOURCE Harnessing Kinetic Energy from Our Movement to Change our Devices

Saanya ain FIRST THE AUTO INDUSTRY, NEXT STOP START-UP FUNDING Uber Takes on the World of Private Investment

Samuel Cai

THE MORAL ECONOMY An Argument Against the Voluntourism Industry

n remote Vang Vieng, Laos, Max teaches English to Laotian children. In Cambodia, Megan builds infrastructure for a small village. Although their intentions are noble, their actions are part of a growing trend in the global economy. But where is their place in the larger system of voluntourism?

and the voluntourists themselves. A Community in Need or a Community Needing Voluntourists? Despite the good intentions of the voluntourists, the voluntourist model staunches true movement towards development by neglecting the stability of their work and the growth of the local economy. Voluntourists serving a community perform a range of tasks, from doing farm work, to building up infrastructure, to teaching English. Because voluntourists only stay in a community for a short period of time, usually a few days to a few months, their work tends to be of inferior quality and unsustainable without maintenance in the long term, as witnessed in the aftermath of the Haitian earthquake disaster. Inexperienced volunteers build shoddy structures and produce subpar farm yields. Volunteer English teachers are, counterintuitively, detrimental to a child’s learning when the teachers themselves are changing every week.

The Business of Compassion Voluntourism: It’s the newest, hottest craze sweeping through first-world countries. According to Projects Abroad, the largest international volunteer abroad program, voluntourism is defined as engaging in “meaningful volunteer work while also participating in tourism...to get the best of both worlds”. It’s an appealing option to many people from developed nations, more than 1.6 million of whom travel to exotic countries such as the Philippines, India, and Thailand and give their money to a $2 billion USD industry annually, according to NPR. While voluntourism is generally painted in a positive light, there are many drawbacks. To analyze what voluntourism means to different people, there are three groups affected by this popular trend to consider: the communities volunteered in, voluntourist companies,

It is difficult to quantify the value lost as a result of an inexperienced and unstable work force, but these all represent inefficiencies in the system. A further cost to the voluntourist pursuit is the drag on the local

economy. Many people, including Valeria Budinich, CEO of social innovation organization Ashoka, have criticized foreign aid for its inefficacy. Aid programs that provide free products, such as the TOMS Onefor-One model, have historically cut into the local economy; free labor likely has a similar effect, as free products and volunteer labor cuts into the growth of the local product and labor market respectively.

The government could discourage this market by implementing taxes to increase costs incurred to companies. Economic measures to curtail voluntourist companies, however, are all likely to fail. There will always be loopholes to jump through, such as filing to become a nonprofit organization, which consequently allow companies to be exempt from certain taxes, while still generating large streams of revenue. Far more critically, fiscal measures against the companies are infeasible because it would be wildly unpopular to

“The age of voluntourism ... has allowed businesses to financially exploit these noble intentions.” The constant influx of volunteers staunches local competition for English teachers, farm laborers, and construction workers, dampening local economic growth. This job loss effect, compounded with the inefficiencies of volunteer labor, collectively serve as an inadequate use of resources to provide genuine change in the developing world. While voluntourism may ultimately leave a net good in the local economy, growth could be far more streamlined through a more efficient charity model. It is unlikely, however, that developing communities would purposefully cut off a supply of free labor, and thus the burden of correcting the efficiency loss fall to a different party: the voluntourist companies.

tax something as seemingly altruistic as volunteering. This is a desired market, where both the suppliers and consumers are better off afterwards.

Tourism’s a Company

The main consideration made when considering the voluntourist is the utility they gain from their labor. To consider just one case as an example, the United Nations has estimated it will take $30 billion USD every year to solve world hunger. While this is one isolated issue, in general the impact each individual makes on any issue is truly rather insignificant. When people donate to charity, they know exactly how much impact they have: the number of dollars they put in. But when they put their money into a voluntourist trip, their impact undergoes a distortion of value. It’s possible to put a value on the labor of teaching or construction for a week, but when they visit developing

With nothing about the process being illegal or even seemingly harmful, it is difficult to control. It is hard for any government to end voluntourism through economic means simply because the demand for volunteering does exist, and where there’s demand, supply surely follows. To truly reduce the impacts of voluntourism, the third party must be examined: the voluntourists. It’s Couture To Go on a Voluntour

The origins of voluntourism are, unsurprisingly, grounded in charity. Voluntourism was seen as an extension of charity by furthering contributions in terms of both money and time. But noble intentions only indicate opportunity, not efficiency. The age of voluntourism from the 1960s to now has allowed businesses to financially exploit these noble intentions for profit. The organization Projects Abroad is a for-profit business; Global Crossroad and i-to-i are also for profit and attract a large number of voluntourists every year.

nations, they feel like they’re making more of a difference than the products of their labor would actually suggest. They provide human connection, encouragement, and hope – values that are not as easily quantifiable.

than a donation through another organization. Furthermore, people want to feel directly involved in the process of change and to feel that they gave up something as valuable as their own time to make a difference in the world.

Human connection, encouragement, and hope are all valuable to the community, but those can also be achieved through a charity donation supporting community health workers, who can provide these same qualities with the added benefit of additional training and cultural sensitivity. Voluntourism still represents a mishandling of resources, but it has remained a popular and growing industry because of the added utility voluntourists gain through the experience of making change in the world. People want to teach and build themselves, and to provide human connection, encouragement, and hope personally because the direct nature of a voluntourist trip feels more gratifying

However, this selfish need to feel connected to the process represents value that voluntourist companies can exploit from the system of development. When the utility of the voluntourist is not directly related to the needs of the community, the voluntourist market emerges to satisfy the needs of the voluntourist at the expense of the community. To change the current system, it is difficult to ask the

community to reject aid, or ask the businesses to close. The burden of change falls onto the voluntourists themselves, to help recognize the needs of others above their own. Nothing will Come of Nothing The main argument voluntourists use to defend their actions is summed up with the trope “something is better than nothing”. Even if they don’t directly contribute to an inefficient system, they are out there, doing something at least, and who is anyone to judge, sitting behind a computer, complaining about their actions, if they haven’t done anything?

“We want to feel directly involved in the process of change, to feel like we gave up something as valuable as our own time to make a difference in the world.”

Lizzy Doykan

THE URGE TO MERGE How Two Corporate Giants Will Affect the Rapidly Evolving Telecommunication Industry

ate in October, the telecom industry buzzed with news of yet another ground-breaking corporate merger, this time between the nation’s second largest mobile carrier, AT&T and third largest media corporation, Time Warner. The $85.4 billion deal marks AT&T’s second attempt to engage in a “mega-merger” within the span of one year. In 2015, the company acquired DirectTV for $48.5 billion, making AT&T the biggest pay television provider in the nation. A marriage with Time Warner has even greater implications for the telecommunications industry as AT&T could end up owning major TV networks such as CNN and HBO, as well as a wide collection of movies and TV

shows. With AT&T as a well-known content distributor and Time Warner as a major content producer, this unique combination of services could have a significant impact on the way consumers access wireless services. Let’s Talk Telecom Both the government and people regard telecommunication, “telecom” for short, as a highly valued component of the public’s utility and services sectors. People use telecommunication every day through fixed phone lines, mobile devices, broadband services, and the Web. In a market with such high demand, competition is fierce and telecom firms are constantly pressured to find the next grand innovation within the industry. In order to survive, these firms must also be actively engaged with technology and changing consumer tastes. However, creative ideas can only go so far; when innovation can no longer serve as the solution, companies often look to horizontal mergers as a way to expand. In this extremely competitive industry, technological innovation has been a major driving force for horizontal mergers in the last fifteen years. Moore’s Law explains the rapid pace of digital advance, stating that computer data processing speeds have doubled every two years for the past fifty years. Although this rate is starting to slow, now estimated to double every 30 months, the

cost of wireless connection is still diminishing at a fairly steady rate. Innovation and the effect of Moore’s Law have allowed telecom companies to bundle phone, TV, and Internet services at lower and lower costs. Acquiring these individual services becomes more and more appealing as an option for telecom companies to expand in what it can offer consumers. Quartz.com predicts that by 2020, “one or more major telecom companies will be acquired by a content company.” At Your Service Executives at AT&T have collectively agreed that the new generation of digital consumers are unplugging the cord in favor of streaming content. Since experiencing a loss of subscribers to services offered by their subordinate, DirectTV, AT&T decided to adopt an alternative strategy focused on mobile and Internet content delivery. If the deal with Time Warner goes through, AT&T’s subscriber base will significantly expand to include satellite users of Time Warner’s cable television programs in addition to existing mobile users. Once the early stages of testing have passed, AT&T users will be able to access Time Warner’s media content through any device they choose. These users also face the possibility of a zero rating policy, which will allow customers to stream Time Warner’s video services on their mobile devices for no added charge to their monthly data plans. For the die-hard “Games of Thrones” fan, this should come as exciting news. The zero

“When innovation can no longer serve as the solution, companies often look to horizontal mergers as a way to expand.” 7

rating strategy is just one example of the discounts and bundle services consumers will enjoy through their pre-paid carrier plan from the merger; however, it is also an idea that federal agencies consider overbearing and harmful to outside competition. Although the merger has definite advantages for the consumer, the potential negative effects on the quality of service, which some argue is already in a state of decline, are concerns for many people. From the perspective of regulators, bigger does not necessarily mean better. The government fears that the combined size and power of the companies will create a monopoly and leave consumers with a limited choice of providers. The monopolizing company will then have less incentive to improve the quality of its services for customers and will set prices at whatever level they desire. These fears may be enough to cause AT&T subscribers to want to switch carriers. At this point, federal agencies must step in and interfere before these fears affect customers and competitors.

“Quartz.com predicts that by 2020, ‘one or more major telecom companies will be acquired by a content company.” Nothing but Net Neutrality There are several regulatory agencies, such as the Federal Communications Commission (FCC), that the government established to keep mergers and acquisitions in check. The government’s role to protect consumers and ensure competitiveness among firms often conflicts with a company’s’ desire to expand and gain more profit. In recent years, federal agencies have increased their watch on proposed corporate mergers. The Department of Justice (DOJ), which investigates corporate mergers on the basis of antitrust concerns, began their review of AT&T and Time Warner early on in the process. The FCC on the other hand, takes on a more thorough role of protecting public interest; thus, their decisions on AT&T’s file to merge do not take effect until later on. Regulation,

while a necessary precaution, is bad news for AT&T’s stock. Federal probing decreases company valuation and can prevent a proposal to merger from going through. Additionally, tighter policies, such as the Net Neutrality Act approved by the FCC in 2015, pose challenges to the creative strategies devised by merging companies. These laws ensure that Internet Service Providers give a consumer of online services fair and equal treatment. For example, a provider like AT&T cannot discriminate against a company such as Netflix simply because Netflix is a competitor of Time Warner’s. The zero rating strategy mentioned previously, is one instance of a creative strategy the FCC is currently assessing to determine whether or not it violates Net Neutrality. The decision over its ethicality will impact AT&T, in addition to other Internet Service Providers who want to employ zero rating through their media affiliates. Until the new president-elect is sworn into office in January, the effect of Net Neutrality remains uncertain. Although Donald Trump ha vocalized his opposition of large telecom mergers in the past, his election campaign had little to say on the matter. Voices from a Republican majority House and Senate may be strong enough to repeal the Net Neutrality laws that the Obama administration has worked so hard to put in place. A Zero-Sum Game

No matter the government’s influence, defining a specific target market stays critical for a merger’s success. AT&T’s strategy to focus on media content delivery is sensible and responsive to changing consumer tastes and technological trends. Walter Piecyk, a leading figure of telecommunications research at BTIG, admits, “I think we’re all trying to figure this out — how technology and the consumer is going to change, and who are the winners and losers in this future.” Review of AT&T and Time Warner’s file to merge together is expected to continue on into early 2018. Until then, the company rests in the hands of attorneys, engineers, and federal agencies, who play important roles that collectively will determine its fate.

Source: Matthew Scott, http://www.time.com

ELIZABETH HOLMES

Arthur Tran

BLOOD LOSS The Fall of Theranos and its Implications for Biotech

t age 19, Elizabeth Holmes dropped out of Stanford University and founded her own company, Theranos. At 31, she was named the world’s youngest self-made female billionaire by Forbes and one of the “100 Most Influential People” by TIME. Holmes was even touted as the next Steve Jobs, black turtleneck

and all. Just one year later, however, Theranos lost over 90 percent of its value and Holmes’ net worth plummeted to practically nothing. What sparked this incredible turn of events? As it would turn out: secrecy, hype, and a lot of bad blood. Secrecy, Hype, and Bad Blood The saga began in Fall 2003, when Holmes, then a chemical engineering student at Stanford, approached her professor with a seemingly wild idea: she wanted to start a company. Having taken an advanced drug delivery seminar and spent the summer at the Genome Institute of Singapore, Holmes was no ordinary nineteen year old. In fact, she had written a patent application for a

patch that could deliver a drug and smartly adjust its dosage by monitoring levels in the blood. Holmes’ professor was convinced. He joined the company’s board and helped her assemble a board that included former presidential cabinet members, senators, and CEOs. Cash Infusion and Blood Confusion Holmes approached venture capitalists with the idea of a revolutionary new blood testing device that would allow for a multitude of tests to be carried out on just a few droplets of blood, but remained mysteriously secretive about the science behind it. This was her first mistake and one that budding biotech firms can learn

By that time, Theranos had developed a heavy, bulky device – codenamed

that the company had developed over 300 tests, the majority were still in the early stages of research, and the Edison itself could only run 15 tests. To fill the gap, Theranos would dilute the blood samples and use traditional diagnostic machines, the very same ones that Theranos claimed they would make extinct. There Wasn’t Even Any Bloodshed Of course, none of this was known at the time. Holmes and her team were excellent at keeping secrets and creating an enigmatic image that

i.ytimg.com

from. In the life sciences industry, companies must – at a minimum – be able to show proof of concept. Patents and published research in peer-reviewed journals are the gold standard. Theranos had none of these, instead relying on showy presentations and a marketable story, which wooed investors from outside the life sciences, but failed to impress any major biotech investment firm. Nevertheless, Theranos reached unicorn status in 2010 when its value surpassed $1 billion.

Theranos eschewed transparency and regulation when it should have embraced them.

case of mistaken identity: Theranos was a biotech startup that aspired to be something else. Elizabeth Holmes, too caught up in cultivating her “next Steve Jobs” image, failed to understand the realities of operating in the life sciences industry.

Edison – capable of testing small blood samples. The biotechnology industry is heavily regulated, and justifiably so, in order to ensure patient safety and efficacy. By law, as a diagnostic medical device, the Edison was required to receive FDA approval before being used on patients. However, Theranos operated the machine under the radar, an action that would later come back to haunt the company. As it is now known, the machine was rife with unacceptable levels of inaccuracy that could have driven doctors to incorrectly diagnose patients, putting their lives at risk. To give the illusion of accuracy, Theranos selectively cherry-picked data, one former employee alleges. Moreover, despite Holmes’ claim

appealed to the media – a practice that is common in other industries, but inappropriate for biotech. In 2014, Holmes graced the front cover of Fortune, and shortly afterwards Theranos was valued at a hefty $9 billion. However, many were bothered by the company’s secrecy and began to question its credentials. A shocking exposé by the Wall Street Journal in late 2015 confirmed these fears, and piece by piece, Elizabeth Holmes’ house of cards began to collapse.

Theranos eschewed transparency and regulation when it should have embraced them. The company had a fantastic story and a revolutionary idea, but little science to back it up. Additionally, its board was comprised of well-connected politicians and businesspeople rather than scientists and experts in the field. Though biotech firms must indeed be marketable, they do not face the same expectations as companies in industries that are more consumer-facing, such as tech or retail.

The fall of Theranos sent shockwaves throughout the startup community and specifically within biotech. How had Theranos been able to put on an act for so long? Simply put, it was a

We’ve Got Bad Blood

What does this mean for biotech? In the short term, the environment will likely become more challenging as

investors become more cautious and regulatory agencies begin to crack down on preventing another Theranos-like disaster. In the wake of heightened skepticism about health technology, biotech firms will face an increased “burden of proof” that their idea is truly innovative and hypeworthy. Companies will be expected to provide ample evidence supporting their technology and demonstrate how it differentiates themselves from the competition. Scrutiny will come not only from investors, but also the media, making a certain level of transparency important. Firms should also expect stricter regulations that may make it more difficult to change the status quo. Those hoping to disrupt a certain segment of the biotech industry will feel these effects more acutely. It isn’t the end for biotech startups; in fact, the opposite is true. The case of Theranos illustrates the huge demand for innovation that delivers better, more efficient care to patients. Experienced biotech investors will continue to make calculated decisions as there is mounting pressure nationwide to control the rising cost of healthcare. Firms showing real promise will still stand out. For Theranos itself, the future appears dismal. Forbes recently slashed the company’s value from $9 billion down to $800 million and further questioned whether Theranos’ intellectual property actually had any value. Walgreens and Safeway terminated their multimillion dollar contracts with Theranos. At least one major investor is taking Theranos to court, claiming that the company intentionally misrepresented its claims. The company is also under

investigation by the Security Exchange Commission for fraud. Theranos laid off nearly half its workforce and shut down all of its blood-testing clinics as part of an effort to turn away from consumer diagnostics and move towards devices for healthcare providers. But with its badly damaged reputation, Theranos faces an uphill battle to prove itself.

Amber E. Liu

FENTANYL FOR THOUGHT How Drug Trade Affects Americans’ Safety and Health

merica has an addiction problem. The number of lethal drug overdoses has increased at an alarming rate, with a two-fold increase in opioid related mortalities since 2000. According to the Center for Disease Control and Prevention, there

were over 47,000 fatal drug overdoses in 2014, 62 percent of which were caused by opioids, making drug overdose the leading cause of accidental death in the United States. The Fentanyl Crisis 5.0 Drug addiction and overdose cases have been on the rise, and awareness has increased as well. Over the past few years, the addiction treatment industry, valued at $35 billion by the Substance Abuse and Mental Health Services Administration, has gained traction. Although the American addiction problem has caught the attention of policymakers and the general population alike, a subset of drugs has gone largely ignored — synthetic drugs.

Fentanyl is a highly potent synthetic opioid that is 50 times stronger than heroin, 100 times stronger than morphine and has grown in popularity in North America. According to a Wall Street Journal analysis, fentanyl has been linked to 9,600 cases of fatal overdoses since 2013. Music legend Prince was one of those cases this past April.

Lethal dose of heroin (left), lethal dose of Fentanyl (right). Photo from New Hampshire State Police Forensic Lab.

“Although the American addiction problem has caught the attention of policymakers and the general population alike, a subset of drugs has gone largely ignored — synthetic drugs. “ GLOBAL OPIOID REVENUE BY PRODUCT (MILLIONS) Morphine

Methadone

Codeine

Meperidine

Fentanyl

30 20 10 0 2014 Actual

2017 Projection

2021 Projection

Source: Persistence Market Research

Prescription fentanyl is a legal painkiller for serious cases of cancer, but most fentanyl overdose cases are usually related to illegally obtained fentanyl, the majority of which can be sourced back to China. Many pharmaceutical or chemical companies in China send fentanyl directly to the United States, Mexican drug cartels or dealers in Canada. The Chinese companies also ship fentanyl precursors, chemicals that are essential to making fentanyl, to North American drug labs. Fentanyl usage is concerning not only because there has been a sharp rise, but also because fentanyl’s high potency and easy accessibility means that there is potential for increased abuse. In some forms, fentanyl can be fatal just from direct contact, and the Wall Street Journal reported a case

in which an airport customs officer fell into a coma just from handling fentanyl. A Ludicrous Business Dodging Laws Often times, people are not aware that they are overdosing on fentanyl until it is too late. Drug dealers mix fentanyl with other drugs, such as heroin or Xanax. Fentanyl pills have also been made to resemble less potent pain pills, such as oxytocin or hydrocodone, that are typically more expensive than fentanyl pills. This is dangerous because unsuspecting addicts think they are consuming normal pain pills but end up consuming a chemical that is much stronger, leading to overdose.

The business is ludicrously profitable, and there are loopholes to get through trade regulations. For example, by ordering unregulated chemical precursors and pill presses, Americans can start their own local fentanyl pill labs in their own houses. One pill press can produce thousands of pills per hour, and according to Wall Street Journal calculations, 25 grams of fentanyl costs $810 to make but could be worth $800,000 in pills— a profit of nearly 10,000 percent.

Additionally, Chinese pharmaceutical companies stay ahead of law enforcement by creating fentanyl analogues, variations of fentanyl that are often just slightly different in chemical composition. By shipping fentanyl analogues that have not yet been recognized by the United States government, Chinese companies and drug dealers skirt by the law to continue on with their business. It is difficult for law enforcement to keep up with fentanyl analogues that are constantly being created. For instance, when China made acetyl fentanyl illegal to curtail drug abuse, other versions of fentanyl started appearing in North America, such as furanyl fentanyl, which is 5 times less potent that the original but is still the cause of many deaths. In October 2014, China banned over 100 chemicals, including 19 fentanyl analogues, but progress remains slow. Trading is still easily accomplished, because many pharmaceutical companies simply “mislabel” their packages as random common goods. Even if a box of fentanyl or fentanyl precursors is discovered

before reaching its destination, drug companies make it hard to track them by using multiple freight forwarding companies or fake addresses in China. The U.S. Making Moves China is the second largest pharmaceutical market and has chemical resources, lenient drug regulation and low production costs. This irresistible fentanyl market has made China the main source for illegal fentanyl, and the main focus for United States policy makers who are aware of the fentanyl crisis. Recently, in August, the United States and China held negotiations to curb the illegal trade of fentanyl. In a joint statement after a G-20 meeting, China agreed to exchange more information and increase regulation of drug exports, especially for drugs that are legal in China but not in the United States. In exchange, the United States Drug Enforcement Agency (DEA) will help train Chinese police to recognize financial irregularities and laundering that may be related to the Chinese synthetic drug business. Negotiations show improvement, but talks and compromises take time to

â&#x20AC;&#x153;Often times, people are not aware that they are overdosing on fentanyl until it is too late.â&#x20AC;&#x153;

execute. China itself is preoccupied with heroin, meth and ketamine addictions rather than synthetic opioids. As a result, the country is more focused on regulating heroin than fentanyl. Moreover, the Chinese pharmaceutical industry has only been growing and shows no signs of slowing down. According to the United States Department of Commerce and the International Trade Administration, Chinese pharmaceutical sales amounted to $108 billion in 2015 with an annual growth of 9 percent. More importantly, United States imports from China added up to $2 billion with an annual growth of nearly 27 percent. These numbers indicate that strict trade regulations and decreasing Chinese drug exports are not trends that will be seen in the near future since there is such a large demand for Chinese chemicals. In the case of fentanyl, which is not strictly illegal in China, the synthetic drug operation benefits Chinese businesses, giving China little incentive to cut down on fentanyl trading. Despite lack of incentive to regulate fentanyl trading, China is currently cooperating with the United States in negotiations. Therefore, it is important that the United States continues to make an effort to eliminate fentanyl usage, especially since fentanyl is increasingly contributing to and sustaining Americaâ&#x20AC;&#x2122;s drug user population. Eliminating fentanyl usage is key to fighting the war on drugs, which in turn decreases crime. According to the Bureau of Justice Statistics, 17 percent of state prisoners and 18 percent of federal inmates committed their crimes to get money for drugs. Many studies

have also indicated that there is a correlation between being under the influence of drugs and committing a crime. For the safety and health of Americans, United States policymakers need to not only commit China to strict fentanyl trade enforcement but to also pressure the United Nations to internationally regulate the drug as well. Currently, there are no international laws that have specified fentanyl as a problem, yet people from all countries risk exposure to fentanyl as long as illegal fentanyl is being produced and traded. United Nations recognition of fentanyl trade laws would both force China to comply with the standards of the international community and act as a symbol of unity behind fentanyl elimination. This would give China no choice but to act on promises made, preventing drug overdoses and saving lives.

Emily Winston

THE VICTORY OF E-COMMERCE “Millennials appreciate the speed, efficiency, and convenience online shopping offers.”

Online Shopping will Prevail this Holiday Season

With the Internet as the top shopping destination for millennials, e-commerce is emerging as a dominant player in the retail industry. Online shopping not only offers cheaper prices than traditional shopping methods, but also allows shoppers the leisure to browse, order, and purchase products whenever and wherever they choose. E-commerce will likely dominate during this holiday season, as digital shopping expands. Companies are combining traditional retail methods with online retail methods via omni-channel marketing in order to accommodate changing trends. The Rise of Online Shopping With advanced technologies, social media, and an interconnected digital world, today’s consumers turn to the Internet for their shopping. Millennials, in particular, spend roughly $2,000 annually on e-commerce, more than any other age group spends online. With limited time and money for shopping in a traditional store, browsing for clothing, dorm accessories, books and even food on Amazon is an appealing alternative for millennials.

Millennials appreciate the speed, efficiency, and convenience online shopping offers. Websites, mobile apps and social media all beckon consumers for attention. Companies use Facebook, Twitter, and Instagram to their advantage to not only promote products and disseminate information, but also to engage users and attract potential customers. Online shopping is now personalized. Companies can track customers’ searches on their websites by evaluating the amount of time spent browsing, editing shopping carts, and making a purchase, as well as the time elapsed before abandoning their site. Personalized ads, seasonal sales, and promotions appear within seconds for returning customers. In response to the growing trend of online shopping, companies are merging their e-retail capacities with their traditional stores. Kohl’s, for instance, allows customers to

buy products through mobile devices and pick them up in-store, while Sam’s Club uses mobile capabilities to their advantage by notifying consumers when an order is ready for in-store pickup. Nordstrom’s “clickand-collect” system gives consumers the option of calling or texting their local Nordstrom as they approach the store so that store associates can bring products out to the customer. ‘Tis the Season to be Shopping Though many shoppers eagerly await forgoing sleep to fight the crowds for Black Friday deals, the influence of digital channels on holiday sales shifts consumers in the Internet’s direction for holiday discounts. The need to enhance the online shopping experience has companies utilizing search engine optimization to improve their websites, increasing speed for searches, and adding product videos. Big data analytics enable companies to provide consumers

with personalized recommendations based on their previous browsing history. Last year’s top e-commerce players during Black Friday were Amazon, Best Buy, Macy’s, Walmart, and Nordstrom, with Amazon accounting for 35.7 percent of all Black Friday transactions.

payment options such as Apple Pay simplify the shopping process and aid sales. A fusion between online and traditional retail methods via omni-channel marketing simultaneously reduces the crowds in physical stores and raises awareness for a company.

Consumers are increasingly using mobile devices alongside desktops and laptops to shop online. 55 percent of shoppers use mobile devices because they are convenient, and it is predicted that e-commerce via mobile devices will overtake that of desktops this year. Adobe anticipates that 5 percent of all visits to retail websites this holiday season will be made via mobile devices and that 66 percent of traffic will be from phones on Christmas Day. Physical stores are subsequently using mobile shopping to their advantage. Victoria’s Secret, for instance, offers in-store deals and invites to invitation-only shopping events that are redeemable through the company’s mobile app.

Retail Wonderland

While online shopping may be destined to become the dominant retail channel, physical stores have embraced omni-channel marketing to ensure their place is not overshadowed. Through omni-channel marketing, brick-and-mortar stores such as Macy’s and REI afford customers the opportunity to engage with a company through both online and in-store methods. Omni-channel marketing integrates all retail channels and successfully improves consumer satisfaction and increases companies’ sales. Digital access to the store’s online inventory helps sales associates streamline the process of finding products in a given size or color, and mobile

In preparation for the holiday season, retailers will hire more workers. During the months of November and December, when orders are in high demand, stores make conscious efforts to ensure they are not under-staffed. Target, for example, will hire over 70,000 seasonal workers nationwide, with many of those hired helping with online orders. Though seasonal sales associates are normally hired to help in-store, whether it be to ring up customers or offer assistance, now more than ever, the increased staffing is to help with the final part of delivery. Extra employees are filling online orders for customers picking up their products in-store, not working the cash register. Transporters, in turn, are needed to move merchandise and thus extra employees find seasonal work for transportation companies. Delivery and shipping companies such as the United Postal Service, the United Parcel Service, and FedEx will hire more workers to accommodate the volume of online orders. FedEx plans to add 50,000 additional positions this holiday season and Amazon will hire 120,000 employees to help sort, wrap, and ship holiday packages. Investments in people, aircrafts, and technicians are crucial in keeping with e-commerce expansion, particularly during the busy winter months.

In the Bleak Landscape of E-Commerce Consumers are drawn to the affordability, ease, and product variety that online shopping offers. The ability to access a wide selection of products within seconds on either a mobile device or a desktop appeals to consumers, particularly millennials. As technological advancement affects the retail industry, apps, and social media trends, it seems as though e-commerce will persist. Traditional “brick-and-mortar” stores are adapting their current methods and embracing online shopping methods. Through “click-and-collect” systems and omni-channel marketing, physical stores can connect with online shoppers more easily. As e-commerce becomes more prevalent, physical retail stores will maintain a role, albeit a much smaller one than in the past.

Max J. Frankel

THE FED’S

FALLING FUNDS Dulling the Market’s Price Discovery Mechanism

edge funds have been struggling recently. According to CNBC, hedge fund outflows reached $60 billion in June, with the rate of withdrawals increasing. Although the average American might not feel much sympathy for the typical hedge fund manager, the struggling hedge fund industry points to a real problem in the financial sector: the Federal Reserve’s suppression of overall

Overall Market Returns

volatility and the corresponding suppression of inter-asset volatility. When overall volatility (in the sense of the S&P moving up or down) is suppressed, inter-asset differentiation is also suppressed. Credit Influx Held Accountable This should make intuitive sense – if there is a giant influx of new credit, all asset prices go up and so the relative change in price is attenuated. The relative change in price between different assets (hereafter referred to as inter-asset differentiation or inter-asset volatility) is also therefore less. The current popularity of index funds and the corresponding contemporary distaste for hedge funds both reflect this point. Basically, because newly-printed money has to go somewhere, it distinguishes less between assets (compared to what it would have relative to the old price). By inflating assets prices all across the board, central bank easing has dulled the market’s price discovery mechanism.

Betas

“By inflating assets prices basically all across the board, central bank easing has dulled the market’s price discovery mechanism.” 16

Warren Buffet’s famous quote “Only when the tide goes out do you discover who’s been swimming naked” reflects this point well – when there is an influx of credit the markets perception of corporate value is distorted and its ability to differentiate is dulled – only when the credit cycle reverses does the market regain its ability to differentiate. When the “tide goes out” there is credit scarcity and the opposite logic applies: volatility and inter-asset differentiation spike. The Mathematical Approach Think of this effect mathematically: consider asset A and the universe of stocks with which it is compared. Both appreciate at an extra 1 percent a day because of a new influx of credit. This example expresses the process of credit expansion: since the influx of new money is gradual, valuations increase not automatically but over time as credit expansion settles its way into the market.

Theoretically, therefore, the best representation of undiscriminating credit inflows is a smooth curve. The hypothetical 1 percent move is a first derivative of that curve and can be applied to any timeframe, as long as it is continuous. The same theory can also be generalized to illustrate the entire process of credit expansion, no matter what the actual rate of that expansion is. On a day in which an asset A would have declined by 1 percent and the index risen by the same rate, asset A would now not move and the index would increase by 2 percent. Asset A’s performance is now more similar to the market’s.

The same effect happens even if the numbers are different: if asset A appreciates 2 percent and the market 3 percent, now it would be 3 percent and 4 percent, and instead of moving two-thirds of what the market moved it now would move three-fourths. The result is that the stock tracks the market more closely, and the distribution of betas is compressed. For a hypothetical market with a normal distribution of returns, graphically the effect looks like the figure on the left. Invest at Your Own Risk A further point is that the mechanism is self-reinforcing: because assets are rising in price, the perception of relative risk (Beta, Sharpe ratio, etc.) diminishes and newly-created money is therefore more likely to flow to those artificially less risky assets, further diminishing their perceived risk and further degrading the market’s ability to differentiate. The result is that inter-asset volatility goes down further. This effect is particularly pronounced with risk metrics like the Sharpe ratio that give greater weight to negative movements than positive ones. Across the board credit expansion impacts these ratios more severely because the relative reduction in negative movements is larger compared to the increase in positive ones. For example, a shift from 1.5 percent to -.5 percent is a much larger relative change than 1.5 percent to 2.5 percent. Index funds are both a reflection of and reason for this trend. Index funds do not distinguish between different stocks in an index when they buy stocks – they buy a little bit of each company proportional to its size. The same logic applies as with credit

“In any case, to paraphrase Warren Buffet, don’t get caught swimming naked when the tide goes out.”

expansion above: such indiscriminate buying compresses the beta distribution of all the stocks within an index. Index funds are also more profitable if inter-stock volatility is down because it is less profitable to distinguish between stocks. A Balancing Act What does this mean for portfolio allocations? The implication of the argument is that the market cannot distinguish as well between risky and non-risky assets during credit expansions. Therefore, returns during expansions are not as accurately risk-adjusted and so absolute returns are more similar across disparate-risk assets. Risk has been mispriced and over-bid. One should therefore decrease risk in one’s portfolio and buy assets that perform especially well when the “tide goes out.” Because of the smaller performance difference between disparate-risk assets, this should not affect returns as much if the expansion continues.

One might also want to rebalance the portfolio to include more cash, precious metals, and corporate securities with very strong balance sheets. These assets are mostly ones

that perform well during periods of high overall volatility. When the market underperforms and investors rush to reduce their exposure to risk, these assets will appreciate in relative terms and perhaps even relative to cash (e.g. gold). If credit expansion continues, portfolios should not be affected as much because the rising tide will still “lift all boats” and less-risky assets should be among that tide. In any case, to paraphrase Warren Buffet, don’t get caught swimming naked when the tide goes out.

Hallie Wolff

HOMO ECONOMICUS The Economically Rational Human When most people think economics, they think numbers and figures. They think cold, hard data. They think calculations, devoid of humanity. When I think economics, I think pure human nature. I think behavioral patterns. I think empathy. I think understanding. I find comfort in the economic logic that applies to almost all quotidian activities. Such a framework allows me to analyze my decisions and the decisions of others, comprehending motives, intentions, and reactions. Once I start seeing the connections between social behaviors and economic behaviors, I have trouble thinking of them in any other way.

do before my class begins at 11 a.m., and I figure that eating while writing my essay will be the perfect way to kill two birds with one stone. Just as I pull out a chair, I hear someone calling my name, and I turn around to see my roommate and her friends beckoning me over. â&#x20AC;&#x153;Come sit!â&#x20AC;? they mouth. Iâ&#x20AC;&#x2122;m overwhelmed in this moment, and I contemplate the trade-off I face: I can join them and forget the French homework that I so desperately need to finish, or I can tell them I was planning on having a working breakfast and forego a social interaction that could boost my mood and social standing with the girls who live on my dorm floor. With a quick internal cost-benefit analysis I decide that, as much as I value friendly conversation and harmless gossip, doing my work will bring me a greater degree of what economists call utility, or satisfaction, later on down the road. I wave back and sit down at my quiet table to begin working.

Breakfast and Cost-Benefit Analysis My mornings, like the mornings of many on this campus, start with a dining hall omelette. I pick up my eggs at the counter and walk to a table with my French books under one arm. I still have some work to

My father seemed to think so. I once compared my future after Brown as a “huge return on investment.” I remember making the observation without much thought — an automatic reflex. An Ivy League school meant many good things for a young adult, and chief among them was, at least in my mind, a substantial after-college income. When I voiced this idea, he stared at me incredulously. Silence. “You know what my kind of return on investment is?” His fierce tone pierced the silence. “It’s academic enrichment. It’s meeting the kinds of people you’ve never met before and doing the kinds of things you’ve never done before. It’s pushing the boundaries of your mind. And it’s not my investment in Ivy League stock that’s going to make that happen for you.” He was right. My comment was one more example of my ongoing quest to justify everything from an economic standpoint. By trying to validate the time and money that we placed in my education, I was turning the human experience into something akin to a capital appreciation bond, with the principal amount plus the return value from its reinvestment paid back to you after a certain number of years. I’ve come to understand my father’s frustration and even his judgment, but I’ve also come to the conclusion that my way of looking at things isn’t as insensitive as people often try to convince me it is.

Group Texts and Mutual Funds Once I return to my dorm room, I have about an hour before my first class of the day. My phone buzzes on my desk. Five different group chats pop up on the illuminated screen, and I unlock the phone to check my messages. Each chat is a different group of my friends: my childhood friends, my camp friends, my high school friends, my college friends, my high school friends who are also my college friends — the sheer number of permutations could make one’s head spin. I’ve always liked to have many friends from different groups and different parts of my life. This practice ensures that I never get bored, irritated, or, God forbid, irritating. I look at my method in the same way one might look at a mutual fund. The manager of a mutual fund is in charge of investing shareholders’ money into a diversified portfolio of lucrative holdings. The point of such a fund is that shareholders are able to spread their potential risk by placing their capital into more than one company. If the performance of one holding in a mutual fund declines, the shareholders bear a smaller burden than if they had invested all their money in this single company. A diversified portfolio ensures reduced risk. A diversified collection of friends offers the exact same benefit.

Rationality vs. Humanity

Education and Capital Investment

The term “Homo Economicus”, meaning “economic human”, refers to the figurative model of an infinitely rational human — one who makes exclusively rational decisions to maximize profit and minimize the labor that produces it. Often sociologists and behavioral economists will argue that this figurative man does not and cannot exist. Humans don’t always make decisions that adhere exactly to the principles of economics and the maximization of monetary and non-monetary utility. To a certain extent, the nay-saying “experts” are correct: The perfectly rational person simply can’t exist. But that’s never stopped me from seeing my homework as a worthy investment or my social life as a mutual fund, all the while wondering if there are other people in this world who do the same.

I once brought up the mutual fund analogy with my parents, and they met the idea with horrified shock. They couldn’t believe they had raised a child who thought of her friends as stocks and chose them specifically with the idea of risk minimization in mind. I tried to explain to them that this wasn’t exactly true. I didn’t let this rigid logic completely influence my incentives: My friends were my friends because I liked them, not because they completed my “portfolio.” Yet, the more I discussed the idea with my peers and my family, and the more they grimaced at what they deemed such an inhuman notion, the more I began to wonder if my economic worldview was more depressing than it was rational.

Ben Wilson

SO TRUCKING TASTY Food Trucks Across America

recently went to Providence, Rhode Island to attend Brown University’s Spring Weekend. Massive concerts, blasting music, tipsy teenagers, and ringing ears were the sights and sounds for the weekend, but the taste that I left with was unexpected. Food trucks littered the Providence streets and I soaked it in. Cheeseburgers,

“Trucks are not very expensive and the amount of capital required to create and run a food truck is much cheaper than the amount required for a ‘brick-and-mortar’ restaurant.”

crepes, quesadillas — you name it, they had it within a minute’s walk from the concerts. People wanted food, truck owners supplied it, and the brisk business kept a steady pace throughout the evening. My experience that evening provided me a glimpse into a booming industry, currently hauling in over $800 million in revenue. Last year’s revenue logged a 3.5 percent rate of growth. Adding Food to the Fire So what is fueling the food truck industry? Many speculate that while it might seem like a temporary fad, the food truck industry will become a much more viable market opportunity than people anticipate. To

start, market entry is easy because one needs little upfront capital — trucks are not very expensive and the amount of capital required to create and run a food truck is much cheaper than the amount required for a “brick-and-mortar” restaurant. On average, food trucks cost around $55,000 to $75,000, which is significantly less than the $250,000 to $500,000 standard cost of a brickand-mortar operation. Aside from the start-up costs, operation costs are also much lower than that of restaurants. Food trucks derive their cost from a combination of inventory (27 percent); truck insurance, repairs, and fuel (26 percent); wages (18 percent); and other factors such as fuel, licenses, websites, and accessories

(29 percent).

On average, most companies generate upwards of $85,000 in costs, while revenue can reach around $290,000. The industry, comprised of more than 4,250 trucks, has seen 12.4 percent growth in revenue in the last five years, which might seem odd considering the impressive growth in market competitors. From 2011 to 2013, the number of food trucks grew by 200 percent, and while many big cities like Los Angeles, New York, and Chicago have saturated markets, small and unexpected cities are also leading the charge in this industry. In Hanover, two food trucks provide Dartmouth students with a variety of options ranging from falafel to pad Thai — their lines sometimes stretch for over twenty yards. Feeding on Facebook Food trucks have grown in popularity largely because of social media. Twitter allows truck owners to communicate

“Twitter allows truck owners to communicate with followers and, in some cases, owners have garnered thousands of followers.” with followers and, in some cases, owners have garnered thousands of followers. Roy Choi is famous for selling two-dollar Korean tacos outside of nightclubs in Los Angeles and frequently tweets to his 70,000-plus followers to announce where he plans to be each night. Twitter can even provide the truck owners with feedback: Jae Kim, owner of Chil’Lantro BBQ, a Korean and Mexican fusion food truck, explained that with Twitter, he is able to see “what we’re doing wrong and fix it.” Twitter acts as a medium through which owners have a voice to connect with their customers and customers can provide feedback to the owners.

Source: www.smbretail.com

Meals on Wheels: Where Are They Headed?

The future of the industry is largely dependent on the U.S. economy. Much like the rest of the restaurant industry, the mobile catering market relies on personal consumption expenditures. The healthy economy over the past seven years has warranted a period of easy entry and revenue growth for the food truck industry, but many fear that with a downturn in the U.S. economy, the industry will suffer along with it. For many of the owners, this risk, combined with the increase in time

and investment over the past few years, has caused the market to lose its original luster. Jethro Naude, owner of Slapfish food truck in California, mentioned in April 2014 that because of these factors, “the excitement has faded away… [and] the good ol’ days of the food truck are gone.” On the other end of the spectrum, however, proponents of the industry argue that a down economy would encourage growth and revenue for food truck owners. With a decrease in personal consumption expenditure during a recession, demand for high-end catering for household parties and company events would decrease. As a result, individuals and households will likely turn to cheaper alternatives like food trucks, propping up the industry and providing hope to owners like Jethro Naude. So what do we make of all this? Prospective owners should watch the market closely and avoid entry for now. Because food truck owners have yet to truly endure the gauntlet of a down economy, any sort of projection would be unfounded. Regardless of the economy, however, it is likely that the market will continue to grow due to low levels of saturation in thousands of mediumto small-sized cities across the nation. While revenue might not stretch past $2 billion and while the restaurant industry will continue to dwarf the food truck industry, food truck owners around the world will continue to push forward — filling college-aged stomachs with sustenance and creativity.

Varun Narayan

GOING (AND MAKING) GREEN The Exploding Field of Socially Responsible Investing www.bloomberg.com

ippies. Tree-huggers. Irresponsible, naive, no-good college layabouts. For years, the mainstream finance world mocked the idea that investors might bring “values” and “ethics” into the field famous for its focus on sexy returns and fat paychecks. In what many see as the zero-sum battlefield of money management, these shortsighted idealists would first lose their money, then their investors, and finally — rightfully — their jobs. In an industry where survival-of-the-fittest dictates the employment and pay structure, these less-than-fit (to put it mildly) ideas would die out quickly, vanish from the columns of the Wall Street Journal, and never be heard from again. I’m an “ESG” (you’ll read about that later) Co-Chair for Brown’s Socially Responsible Investment Fund (SRIF). And I’m here to say that we survived. No, we thrived. The amount of money invested in a socially responsible manner has mushroomed over the past few

“These shortsighted idealists would first lose their money, then their investors, and finally — rightfully — their jobs.” years in ways that no one — not traditional investment managers, not companies raising capital, and especially not you — can ignore. Current numbers put sustainably invested assets under management in the ballpark of $21.4 trillion worldwide, and this number looks to continue its surge in the coming years. In a changing world and economy, we’ll examine what Socially Responsible Investing is, how it works, and how it stacks up. So you Buy, Like, Solar Panels? Like any good pioneering industry, Socially Responsible Investing isn’t one-size-fits-all. Barron’s breaks the field down into two main areas:

old-style Socially Responsible Investing and Environmental, Social, and Governance — better known as “ESG” — Investing. The former represents the core tenant that drove the field for many years: values. Values-driven investing avoids certain industries for one reason or another. Modern religiously driven funds like the Amana funds, which adhere to Shariah law, abstain, for example, from investing in alcohol and tobacco stocks. Many broader value-oriented funds also exclude investments in the oil and gas industries, gambling stocks, and the defense industry. This practice of abstaining from investing in particular industries is called negative screening. Some of these strategies draw from

“We voted in February not to buy Tesla because we believed that its share price reflected overvaluation.” renewable energy, because its lower emissions will shield it in the face of growing environmental regulations. They may also, in turn, avoid a company with poor labor relations, as labor strikes and other disruptions tend to sharply depress share prices. To be clear, both styles of Socially Responsible Investing pair traditional financial analysis with these additional components. A manager using either approach wouldn’t purchase shares in a solar company, for example, whose traditional financial factors didn’t meet his or her standards. a religious code, while others develop their own moral standards, but most all of them emphasize a benefit beyond — and sometimes, as critics fear, at the expense of — capital gains. New-style ESG Investing has turned a new page for the industry. It evaluates individual companies, rather than industries, for prospective investment. Environmental evaluation allows funds to gauge how well a company manages everything from waste management to carbon emissions. The social section looks into whether the company’s products and/or services benefit society and how a company manages other elements like its supply chain and labor relations. And a governance assessment judges a company’s competence via its leadership, its executive pay structure, and its past errors (including scandals). Critically, some managers only apply the ESG mindset insofar as it impacts a security’s performance. They might value, for example, a utility that uses

Where does Brown’s Socially Responsible Investment Fund (SRIF) fall? We use parts of each approach in our stock selection. SRIF firsts screens out prospective investments from certain industries via a negative screen; coal, personal armaments, and private prisons are among the areas we exclude. We then fully pitch a company, whereby

we walk through each company’s financial prospects traditionally, take a vote on its “finance” component, and then examine and vote on its ESG attributes. Only a company that passes both votes enters our portfolio. Should a club member propose that we sell a stock, they need only demonstrate that it fails on one of those two criteria. These strict standards have led to some counterintuitive decisions — we voted in February not to buy Tesla because we believed that its share price reflected overvaluation. Survival of the Fittest But for many of you, one outsized question likely remains: Does it work? Comparisons between the returns of socially responsible, sustainable, or impact funds often devolve into slander. And with good reason — while many active investment managers watch passively managed funds steal more and more of their

GROWTH OF SOCIALLY RESPONSIBLE FUNDS IN THE U.S. Number of funds (left axis)

Net Assets (right axis in $ trillions)

1,000

5.0

800

4.0

600

3.0

400

2.0

200

1.0 2005

2007

2010

2012

2014

Data Source: Wall Street Journal

assets under management, socially responsible funds have seen their size balloon over the last few years. Socially responsible fund managers, for their part, still feel the need to defend and promote their field in the face of derision. Let’s avoid the obvious letdown answer of “it varies from fund to fund” and return to the Barron’s article to take a look at the aggregate of those funds. Barron’s list of socially responsible funds, many of which are run by brand-name managers like Blackrock, Franklin Templeton, and Vanguard, returned 13.4 percent in 2015, compared to 11.9 percent for large-cap funds (funds that invest in the largest companies). Perhaps more striking, 25 percent of socially responsible funds beat the market in the same period, compared to a mere 12 percent of large-cap vehicles. To be sure, less direct exposure to the oil and gas industry may have shielded socially responsible funds, but perhaps that very fact demonstrates the risk-mitigation benefits of a socially responsible investing philosophy. All in all, a tighter filter for potential investments may allow socially responsible funds — like Brown’s — to spot opportunities and risks in a company that don’t show up on its income statement.

Brown’s Socially Responsible Investment Fund is always looking for new recruits — no investing experience required! It offers a relaxed atmosphere and an emphasis on training, and meets every Tuesday night from 8:30 to 9:30. Email brownsrif@ gmail.com if interested.

Ryan Ma

ALL EXPENSES PAID Companies dabble with the idea of paying for employees’ vacations

or many job seekers across every industry, a generous allotment of vacation days has a large impact on whether or not they accept a job and are content with their current employment. However, Jeanne Sahadi of CNN deems workers in the United States “notoriously bad” at using their yearly vacation allotment. Many workers, despite earning paid time off, fear the repercussions of asking for a week away from their high-stress jobs, such as being deemed lazy or even that they will be forced to play catch-up upon return. Because of this self-induced lack of vacation, workers are less satisfied and less productive than they would be if they took time off from their jobs. In an effort to reverse this cycle, some companies are beginning not only to offer unlimited vacation days and pay workers for their time off, but also to pay for expenses they accrue while on vacation. Hidden Gems According to a 2016 survey conducted by the Society for Human Resource

Management, approximately three percent of employers offer employees a stipend to be used strictly for vacation. This coveted treasure comes in many shapes and sizes. Some employers offer benefits in the form of cold, hard cash, while others offer reimbursement for travel expenses. Companies such as Betabrand pay for lodging, airfare and even give an extra $500 for casual spending. Every company has its own stipulation. Some companies, like Betabrand, pay for all their workers’ expenses but pick which week each employee will be forced to take vacation. In addition, while out of the office, employees are expected to stay connected via email and social media and even prepare a presentation for colleagues upon returning. Most companies do not have

“Ironically, those workers suffering from presenteeism are actually less productive.” such rigid guidelines. Evernote, an app-making firm, offers a $1,000 stipend to any employee who takes five consecutive days off from work. Marketing and advertising company Steel House offers up to $2,000 in reimbursements for expenses every year. FullContact, a software company, hands each employee $7,500 to do whatever they want with the sole stipulation that they must completely disconnect while away. According to the company website, employees must “be off the grid” — “no emails, no calling work” — in an attempt to create a true feeling of separation.

At first glance, paying employees both for their time off and their trips while out of the office does not seem very cost effective, as these benefits cost employers thousands of dollars per year. Vacation, however, is crucial for employees’ well-being and a company’s productivity. According to a study conducted by Harris Interactive, 57 percent of salaried workers did not fully use their allotted time off. In addition, the United States does not have an established minimum number of paid days off, so companies generally offer an average of 10 paid vacation days per year. Although 10 paid days off from the grind may seem appealing and generous, other developed countries such as France, Italy, and

organizational psychologist from the United Kingdom. Ironically, those workers suffering from presenteeism are actually less productive. Workers who consistently work over 40 hours a week become run down and are ill more frequently. In addition, families are negatively impacted, and productivity decreases. Those employees who take vacations are able to spend more time relaxing and resting with friends and family. Upon returning, workers are refreshed and ready to work, increasing productivity. It Takes Money to Make Money Paying for employees’ vacations also boosts office morale. Jaclyn Pickard, an HR Specialist at FullContact, says that this perk “makes you feel

“In the end, it may actually be more cost-effective to pay for employees’ vacations in comparison to consistently recruiting, hiring and training new employees.” Brazil offer between 35 and 40 paid days off per year. Because of the current state of the U.S. economy after its 2009 recession, many workers consistently feel as if they must prove their worth in order to keep their jobs. Other workers refuse to take vacations as they are constantly inundated with tasks at work and feel as if they will fall behind if they take extended leave from their jobs. This pressure to work long hours to show their dedication and commitment has been dubbed “presenteeism” by Cary Cooper, an

appreciated.” Moreover, the cost of vacation may be burdensome for employees. Having these costs covered, employees have no excuse not to travel for a week. This perk also functions as a light at the end of a tunnel of monotony for workers. Employees have a week to look forward to rather than being continuously stuck in the office with no end in sight. Better vacation packages also cut hiring and recruiting costs as there is less turnover due, in turn, to increased company loyalty. In the end, it may actually be more cost-effective to pay for employees’

vacations than to constantly recruit, hire, and train new employees. On a grander scale, workers taking vacations actually boosts the economy. According to a 2014 study, if every worker used all of their allotted paid time off, the economy would gain a total of $160 billion in sales and $21 billion in tax revenue. These numbers would support at least another 1.2 million jobs.

U.S. workers are extremely proud of their unmatched work ethic, but by skipping vacation they hurt themselves, firms, and the overall economy. The true recipe for economic stimulation, profit maximization, and employee satisfaction and health may actually be working less.

http://www.30aluxuryvacations.com/

The Real Cost

Waylon Jin

TIS THE SEASON TO TRAVEL Navigating the Transportation Industry during the Holidays

s exams come to a halt, the only thing students are thinking about is going back home to be with their families and relatives. With a broad array of locations around the world, everyone has to consider how they’re going to get back to their destination. While the most pressing concern for purchasing tickets is what’s the cheapest or fastest way of getting home, ticket pricing is based on several factors — above all, the price of oil. So what is the correlation between oil prices and the number of people traveling? The primary effects of shifting oil

“Unless within the Northeast region or somewhere densely populated, intercity train travel — which takes far longer than flying — may cease to be feasible.”

prices depend on its impact on disposable income and how companies are able to subsequently increase their profit margins. The Sky’s the Limit According to reporter Susan Carey of the Wall Street Journal, to account for the possibility of increasing oil prices, airlines typically purchase oil contracts months in advance. By pre-arranging oil contracts, they are able to offset the effects of run-up prices. In markets, run-up prices result in a sudden increase in price and occur due to something drastic. On a larger scale, if oil prices decrease, airline companies’ operating costs will fall, as will travel costs. With a subsequent increase in disposable income, consumers will be able to purchase items beyond their necessities, such as airline travel. Not only do consumers have more options for spending, but companies will also reap similar benefits. The airline industry has the option to spend more on developing and expanding their current business, which benefits the economy as a whole. With lower fuel prices, shorter routes become more profitable. In a sense, airlines are able to test different flight routes since the cost of testing routes is less

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expensive than it was before. New routes mean greater access to flights for consumers. While some people may assume that airlines are reaping profits from passengers, having to lower costs puts more strain on airline companies. In fiscal year 2012, the International Air Transport Association found that the net profit was significantly different than the original revenue. Airline companies generated about $228 per customer, but after accounting for taxes and fees, the net profit per passenger was only $2.56. While the airline industry is affected by changes in oil prices, oil and fuel prices have a greater effect on GDP and consumer spending based on disposable income. “Ramping Up” Speed For those people traveling within the United States, taking the train may provide the most balanced way to travel. If oil prices continue to drop, the benefits of air travel being the quickest form of transportation may eventually disappear. According to the International Air Transport Association, airline companies reduced their airfare costs by more than 60 percent in the last 40 years.

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Airline industries may have to consider increasing prices since their profitability may be low despite fallen unit costs. Airlines face competition from regional rail transportation systems, and with demand comes the need to charge lower prices. However, a concern with rail transportation is the number of consumers it draws. Unless within the Northeast region or somewhere densely populated, intercity train travel — which takes far longer than flying — may cease to be feasible. The Good Ole Automobile Holidays centered around family time are sure to bring more travelers to the roads. With predicted decreasing oil prices and short holidays like Thanksgiving, car travel is one of the most efficient ways to navigate the country. According to the American Automobile Association, Thanksgiving is expected to cause 48.7 million Americans to travel about 50 miles this year. For these travelers, the automobile seems like the winner among modes of transportation because of lower gas taxes. Since the

American government is less willing to lower fuel taxes heavily than many other developed countries, it makes more sense to drive with America’s $0.39 per gallon gas tax, as compared to the $3 per gallon tax you’d find in France. How Much Faster Can We Travel? The main factor students consider when figuring out how to get home is deciding which method of transportation makes the most economic sense, along with the degree of importance they assign to how quickly they get home. As transportation companies’ costs, such as oil prices, increase, we observe correlations with consumer costs, especially since transportation companies are looking to maximize profits. All this transportation talk leads us to ask about the future of America. In April 2009, the federal government created a plan to develop high-speed rail transport projects starting in Fresno, California. If California’s rail

“It makes more sense to drive with America’s $0.39 per gallon gas tax, as compared to the $3 per gallon tax you’d find in France.”

system plan comes to fruition, then America will move one step closer to becoming equal to competitor countries. As oil prices fluctuate and transportation industries are finding ways to make transportation more efficient, the methods of transit are endless. Companies will find ways to offer the cheapest prices, and the future will be here sooner than we imagine.

Amanda Chow

THE HIDDEN COSTS OF COLLEGE Rethinking the (Under) Estimated Cost of Attendance

“While expenses such as textbooks, electronic devices, and activities fees may be relatively small compared to tuition, they are crucial to students’ college experiences.” short of reality, either failing to include certain expenses or underestimating the cost of others. So what are these hidden costs? The College Textbook Cartel

he college admissions process is stressful for both parents and students alike. While students are busy researching potential schools, crafting their essays, preparing for interviews, and filling out applications, parents are typically concerned with organizing the finances to pay for it all. Even after students receive their acceptances and financial aid packages, many families are often surprised that they end up paying more than the expected cost of attendance published by the college. These estimates commonly fall

College textbooks are expensive, often prohibitively so. Textbook prices have been soaring for the past few decades: Since 1978, textbook prices have increased 812 percent, far outpacing the inflation rate of 250 percent. In 2015, the average amount a college student paid each year for textbooks was more than $1000. In fact, a survey revealed that 70 percent of college students will not buy one or more textbooks because of the cost. If students rely on textbooks to learn, why do they remain so doggedly expensive?

NEW COLLEGE TEXTBOOK PRICES, TUITION AND FEES, AND OVERALL CONSUMER PRICE INFLATION Overall Consumer Prices

College Textbooks

The answer lies in the fact that just five publishers dominate 80 percent of the market, and 77 percent of all textbook profits go to the publisher. These five publishers can effectively function as a cartel. In addition, textbooks are continually revised and updated every year. Since professors often require the latest edition, used textbooks are not an option. Indeed, students should be aware that they may have to pay a substantial amount to purchase required textbooks for all their classes. Resisting Textbook Tyranny Although students can obtain textbooks free of cost through torrenting, the distribution of copyrighted materials through peer-to-peer file sharing is illegal. Luckily, there are many legal methods through which students can save money. Purchasing textbooks from the campus bookstore may seem like a viable option since it is often the most convenient,

Tuition and Fees

100 80 60 40 20 0 2002

2004

2006

Data: U.S. Government Accountability Office

2008

2010

2012

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If students wish to join a Greek organization, the fees will be even higher. In addition, some colleges may charge fees for student activities. Although it is impossible to put a price on participating in a variety of enriching experiences, students should be aware of the extra costs that may be associated with the activities they choose. Prepare for the Cost and Pray for the Cuts

but both used and new books are sold at a markup. Instead, students should try to buy the textbook used from Amazon, or from other students who have previously taken the class. Students should also consider buying international versions of their textbooks, which can be significantly cheaper. Textbooks that claim to be a custom edition for a specific university are also misleading. In reality, these custom books are nearly identical to the normal versions but are sold at higher prices and provide royalties to the colleges they serve. Charge Your Laptops... And Credit Cards According to a 2012 study conducted by the National Retail Federation, 60 percent of college students stated that they would buy a new computer or smartphone for college. The cost of electronic devices such as laptops, smartphones, televisions, and gaming consoles can end up much higher than anticipated.

only consist of academics. Students have a multitude of opportunities to become involved in extracurriculars. However, some clubs and teams may require membership fees to join, and students may find themselves paying for travel expenses. For instance, club sports teams often travel to other campuses to compete, and students often need to pay for their own travel and lodging on these trips.

“60 percent of college students stated

that they would buy a new computer or smartphone for college.”

Students can save money on electronics by taking advantage of student discounts, often offered by campus bookstores. The Brown Bookstore, for instance, offers academic pricing for many electronic devices. These discounts can be significant: Students can save $200 on MacBooks purchased through the bookstore. Other expenses related to electronic devices, such as cable television and software, may be covered by the college as well. For example, Brown offers students access to Philo TV and software such as Microsoft Office and Adobe Photoshop. The Price of a Social Life A fulfilling college experience doesn’t

With the cost of attending college being more expensive than it has ever been and continuing to rise, it is important to be informed about the hidden costs of college. While expenses such as textbooks, electronic devices, and activities fees may be relatively small compared to tuition, they are crucial to students’ college experiences and need to be accounted for. When families are planning their budgets for the school year, they should be sure to consider all these costs and take advantage of any and all resources offered by the school.

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Travis Fuller

EQUITY FOR FINANCIAL ECSTACY Advantages to Using Equity in Investments

hile the old adage reminds us that “cash is king,” savvy investors across all asset classes have grown and continue to grow their portfolios using a variety of investment strategies and financial instruments outside the almighty dollar. Cash may be king, but leverage can be applied to build and expand the kingdom. How do real estate investors seem to keep growing their portfolio property after property without saving up for years to put down a deposit? It’s not magic, but rather a tactic called leverage: borrowing capital for an investment, expecting the profits earned to outweigh the interest payable. Some investors want to build a real estate empire, while others are undergraduate students who just want to redo

their apartment kitchen. No matter what an individual’s cash-out financing needs are, there exist many benefits to using equity in one’s investments. Leverage as a Financial Lever Leverage is a dynamic concept. With access to debt, innovative investors can creatively stretch their investment dollars further, taking full advantage of opportunities within the marketplace. From a real estate investment perspective, leverage has become an integral resource for homeowners and portfolio investors alike. Taking out a mortgage to buy a house, for instance, is a form of leverage. Equity within investment portfolios (residential real estate portfolios, for example) is a resource which can be used — via financing — to grow one’s investment footprint. In a vibrant marketplace of endless investment opportunities, it is important to fully explore and leverage the equity within existing investments to realize the greatest returns. Here’s a simple example. You buy an asset worth $100,000, putting down a 20 percent deposit ($20,000) and borrowing the remaining 80 percent ($80,000). Over time, the property’s value increases by $25,000. The 80% mortgage would now be 64% of the

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property value — or less if you’re paying off the principal as well as the interest. You refinance, increasing your mortgage up to 80 percent of $125,000. You then create a fund with $20,000 that can be used in a variety of investments. Utilizing leverage, the investor’s pocket book is magnified, providing greater “buying power.” Your Personal Blueprint No two investors are the same, so it’s hard to generalize when it comes to productive investment strategies. Much can be learned from the performance of our peers and the market, but ultimately each investor’s strategy is unique. It’s essential to plan ahead, considering all your options and opportunities, before delving into the debt world. Leverage, when used strategically, can significantly amplify an investor’s opportunities and returns.

returns. When applying leverage, it is important to remain cognizant of one’s own risk tolerance and to balance one’s utilization of financial resources. As Jay Voorhees, broker and owner of JVM Lending, a mortgage company, says, “It all comes down to responsible borrowing.”

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Some Benefits of Equity from Leverage

“It is important to fully explore and

leverage the equity within existing investments to recognize the greatest returns.” Jane Slack-Smith, the director of her own award-winning, Australia-wide mortgage brokerage, Investors Choice Mortgages, says, “It’s important to have a clear initial plan of how you’re going to set out your finances. If you plan to buy two properties, ensure you have enough equity to cover the deposit, stamp duty and buyer’s agent fees for both purchases.” The primary distinction between an amateur investor and a seasoned veteran is their understanding and

expectations of portfolio performance now, in the near future, and in the long term. Smart decisions — big and small — make all the difference when building or growing investment portfolios. Equity is more than static capital, but a source of expansion when leveraged strategically, and should be used for needs rather than wants in most cases: houses, fixtures, appliances, or other durables rather than exotic vacations and lavish accessories. With all investments, there are risks, which are directly correlated with

Leverage provides a great opportunity for investors whose home has risen in value to access a larger equity cushion. First, equity can be used to invest for a higher return as long as interest rates remain low. (Note that this is only true when used efficiently!) It’s inexpensive cash. If you can borrow at 4 percent and turn around and make an investment in the stock market and yield 8 percent, you made an extra 4 percent on your money. Second, equity could also be a good source of funds to start a business or further your education because you would be putting that money in human capital to increase your earnings in the future. In these cases, an objective adviser is recommended to make sure your investment is solid. Third, a very popular option would be to use your equity to put it towards home improvements. This ranges from an addition, cosmetic changes, kitchen and bathroom updates, finishing a basement, or building a garage. Overall, leveraging equity in your investments could be a great way to build your portfolio if you do your research and plan accordingly. In the words of Allan F. Mogenson, “Work smarter… Not harder!”

Benjamin Bosis

THE SPIRIT OF SHENZHEN Why Tech Entrepreneurs are Flocking to China

One thousand eight hundred new people every day. Since 1985, the population of one Chinese city has gained half as many people as the entire country of Mexico. At almost 20 million residents, and with a 2.5 trillion U.S. dollar economy, Shenzhen, China barely resembles the collection of fishing villages it was only 30 years ago. Most Americanâ&#x20AC;&#x2122;s have never heard of Shenzhen, but are very familiar with something often made there: the iPhone. In the last thirty years, Shenzhen went from farmland, to an iPhone assembly hub, to the origin point for almost every new technology that ends up in America.

the clamoring demand for electronics in the west, China employed this new worker army for the single purpose of becoming the leading manufacturer of electronic components, and that bet paid off beyond anyoneâ&#x20AC;&#x2122;s expectations. But even more unexpected was the entrepreneurial success that came afterwards. The Hardware Ecosystem For a long time afterwards, Shenzhen was a physically growing, but industrially static city. So how did a city with the population density of Jakarta develop the GDP of Portugal? Largely through the increasing value of hardware accessibility. For most of the existence of computing, companies have made new products by relying on the progress of hardware size, simply making smaller computers every few years. Because of their low access to education, Chinese workers in Shenzhen took on the role of mass producing parts like motherboards and processors, which rarely ever changed design.

The Chinese government designated Shenzhen as a special economic zone in 1980 and businesses jumped at the opportunity to begin building their own unregulated factories. An entire ecosystem of shops, restaurants, and services was constructed to support the exploding factory worker population. Once the factories were established, the government extended that environment to the rest of the country, drawing on their veritable army of working class citizens. Seeing

Now, however, as the density of processing components reaches a relative peak, companies are being forced to differentiate their products through their physical characteristics rather than simply through faster versions of the same. Those kinds of design changes, especially on such a small scale, rely on an intimate understanding of circuitry and high proficiency with physically soldering parts. Tech companies are realizing that there is a vast reserve of hardware skills and know-how to be tapped into in Shenzhen that doesnâ&#x20AC;&#x2122;t exist in the software-focused atmosphere of Silicon Valley. The biggest advantage of Shenzhenâ&#x20AC;&#x2122;s hardware ecosystem is that on every level of production, those who create are far less proprietary than their peers in the U.S. Many of the bottom level transactions come from informal marketplaces that pop up in the streets of crowded neighborhoods, selling parts stripped from cell phones, computers, and other electronic devices. In the loose legality of the special economic zone, which is largely independent of the mainland government, the components of almost any device sold can be removed and reused by anyone else because of the lack of strict IP enforcement. That availability is what allows anyone to start designing their own electronics. Over the past five years, new startups have chosen Shenzhen over Silicon Valley as a base of operations specifically because of all the kinds of hardware components that can be used in product testing. Access to these components can at times decrease development periods by more than three quarters.

The age of voluntourism ... has allowed for businesses to financially exploit these noble intentions. Most companies that succeed in Shenzhen patent their products but let the components remain open source. This allows everyone to make their own versions of a product; so while it is up to a creator to make the best version of their product to maintain sales, any losses they take can be allayed through the greater profits gained from the ability to sell more products. Because so many companies were able to get started by creating their own versions of other products, the ones that make it big still believe in helping out the little guy. That system has accelerated development in Shenzhen both by bringing in more startups and by forcing companies to optimize their products. Customers get better products because, companies cannot acquire IP protections and sit on a product monopoly to make money. In Shenzhen, brands are created and maintained by paying attention to what the customer wants instead of making sure customers can only get it from you.

The Value of Open Sourcing More importantly, however, the people of Shenzhen believe in their more collaborative attitude toward product development. Individual companies, such as Huawei, are beginning to compete with more established hardware companies like Apple and Samsung and have certainly jumped into the world of lawsuits and militant IP filings so familiar to their American counterparts. Still, innovators in China believe that IP law is a dying system. Instead, companies operate on a mostly informal system in which they trade the rights to their products for the ability to make their own versions of others.

China

Shenzhen

Gentrification Kills The increased revenue brought to the region has obviously caught the interest of the Chinese government. Though they could never have dreamed of such economic success, it is more than welcome in the slowing Chinese economy. The government is providing billions of dollars a year to encourage continued innovation, but the older class of entrepreneurs are wary of their help. As the spaces for new companies and worker housing communities improve, rents and cost of living increase as well. Many believe that the government is focusing too much on flashy new startups, and that their aid, if applied in the wrong ways, will instead work to gentrify the tech entry pipeline. They worry that by cutting off the bottom rungs of the ladder, gentrification will destroy the entire Shenzhen system.

In Silicon Valley, the corporate atmosphere epitomizes the top down system, where those at the top have complete control. Big tech companies rarely innovate, but have the capital to buy any startup that interests them; and those they hire are all from a particular group of good colleges with similar training programs. The giants that Silicon Valley

represents is everything Shenzhen wants to avoid. In other words, without the individual parts vendors selling off the street, the local innovators would lose their geographic advantage. Without the dirt cheap (and dirty) housing in rundown ‘urban villages,’ young entrepreneurs would need much higher starting capital to even take the risks of jumping into tech in the first place. Capitalist Communism, or Communist Capitalism? It remains to be seen whether the atmosphere among Chinese startups will begin to morph into a more American system of IP protection. Industry insiders like Andrew Huang, a Shenzhen hacker and maker, believe that it is a matter of time until a critical mass of successful companies emerge that are committed to open source hardware. The remainder will face a ‘join or die’ scenario, left without the safety net of collaboration and the benefits of effective legal action. This transition is already occurring in software, even in the U.S. When Microsoft began supporting open source software in 2008, software companies transitioned to business models that proved the economic superiority of an open source system.

How did a city with the

population density of Jakarta

develop the GDP of Portugal? 32

Companies like Apple who have recently seen declining hardware profits, on the other hand, could use a lesson from those in Shenzhen. That innovative spirit is thriving in China, and the U.S. is now trying to figure out what they did right. The irony is that it took a communist country to remind the West that it was a wilder form of capitalism that drove technological progress, not a more proprietary one.

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commitment to sustainability.

Spencer Greene

GREEN BUILDING How Real Estate Sustainability Certifications Work

ince 2010, Brown University has finished nine construction projects with Leadership in Energy and Environmental Design (LEED) certifications. The program is designed to give awards to sustainable buildings. Colleges like Brown invest money and time securing these certifications because they signal a commitment to social and moral attitudes such as sustainability. Many government agencies are required to build according to LEED for this reason. Other public institutions like museums and schools also try to get the certification, which comes in four levels (Platinum, Gold, Silver and Certified). LEED was created in 1994 by the U.S. Green Building Council, a non-profit organization dedicated to real estate sustainability. Since its founding, LEED went from six volunteers to over 110,000 staff, volunteers, and professional license holders. According to the program, at the end of 2015 certified buildings collectively spanned 13.8 billion square feet worldwide. Clearly there is a massive appetite for a certification that shows

LEED Criticisms The program’s rapid rise has led to questions about whether it is stringent enough about sustainability. Many reporters have found that the incentives to get LEED certification made it very profitable to achieve the status. Many state governments, for example, lower taxes on properties that have LEED certifications. However, the program’s points-based system works out so that there is a ton of low-hanging fruit. For example, projects can earn points for using concrete and steel in a building just because they are considered recycled materials. USA Today reported in 2010 that Las Vegas hotels received points towards their certifications for just placing cards in guest rooms asking to be conscious of water usage. In addition to finding easy points in the system, LEED will only certify new construction. Existing buildings can only get it after renovations. After all, Leadership in Energy and Sustainability Design only considers how well the building is designed to conserve important resources like water and energy. So when commercial properties such as apartment buildings get LEED Platinum

certifications, they aren’t necessarily operating at efficient levels in the long term. An Alternative Program In response to this issue, the Green Real Estate Sustainability Benchmark (GRESB) was founded in 2008. A for-profit company, GRESB is intended only for investment properties like multifamily, mixed-use, and commercial buildings. The goal is help investment managers determine the sustainability performance of commercial real estate portfolios. GRESB assesses the sustainability levels of entire portfolios instead of individual buildings. In contrast to LEED’s test for certain efficiency features in building design, GRESB actually measures performance annually. They send out a survey every April asking about various aspects of green building practices such as energy/water consumption, greenhouse gas emissions, and waste. The specific evaluation criteria are not publically known, unlike LEED. Property managers return the 50-question document within three months, which is subsequently analyzed and verified through site checks. Finally, GRESB publishes the data for investors in the capital market and members of the real

Many funds across the globe are increasingly incorporating sustainability metrics into their investment strategies. 38

When apartment buildings get LEED certifications, they aren’t necessarily operating at efficient levels in the long term. estate industry to review. Bottom line scores are percentages that can be compared across similar property types. But why would commercial real estate funds want to expose their portfolios to outside scrutiny in the first place? In the end, it’s all about valuation. Many public pension funds across the globe are increasingly incorporating sustainability metrics into their investment strategies. As government entities, they have a particular obligation to ensure that their investments aren’t harming the global environment. Moreover, many investment managers have socially responsible funds to attract capital from wealthy individuals who want to see their money used for good.

Investors’ emphasis on ecologically and socially conscious attitudes, for whatever reason, means that the GRESB certification pays off in the form of higher valuations. Tying it Off Ultimately the intentions of both the GRESB and LEED certification programs come from the same desire to encourage sustainable building for better cities. However, each is oriented towards their own priorities. LEED is about environmental design, whereas GRESB cares more about actual sustainability performance. Just something to keep in mind the next time you go to class in a fancy, new building.

LEED Certified Buildings @ Brown Gold: • Rhode Island Hall (2010) • Stephen Robert ‘62 Campus Center (2011) • Medical Education Building (2012) • Granoff Center (2012) • 315 Thayer (2013) • Miller Hall (2013) • Nelson Fitness Center (2014)

Silver: • Sidney Frank Hall (2009) • Metcalf Complex (2013)

(Dept. of Facilities Management)

Vanessa Jingjing Zhang

BRITAIN AT CROSSROAD AGAIN - THE HIGH COURT RULING British, European, International Political Economy in Uncertainty

hen the referendum was settled and Britain voted to leave the European Union on June 24, 2016, many believed it was the end of the story. When Prime Minister David Cameron delivered his resignation speech and global media coverage claimed that 1.2 million Leave voters regretted their choice, the world finally acknowledged that Brexit was real and the world would be completely different from then on. Yet no one saw this coming – Brexit might be reversed! On November 3, the High Court ruled that the British government’s leaving call was not definitive, since it must be approved by Parliament to be rendered effective. Three senior judges declared that Prime Minister Theresa May did not have the legal power to trigger Article 50 of the Treaty of Lisbon. This

dramatic event did not, however, halt Brexit, which was supported by over 51 percent of the voters. Instead, it created an impediment to Theresa May’s plan and led to a significant upheaval in the British government as well as dynamics in international politics and global market. Can the Brits Count on Parliament? T h e - resa May immediately vowed to appeal the ruling to the Supreme Court, the final court of appeal above the High Court. If the government’s appeal is successful, the Brexit process may still be initiated next March. Otherwise, Mrs. May will have to earn support from Parliament and Britain will face an enduring fight over new legislations, rules, and institutional adjustments regarding its leave. So how does the Parliament feel about this? According to Morgan Stanley, about 73 percent of all Members of Parliament (MPs) support Remain, including 56 percent of all Conservative MPs. Such an overwhelmingly tilted Parliament puts Mrs. May in a passive position as negotiation and approved decision will be difficult to establish. However, the Parliament might not conclude with a “Remain” that easily. Its leading pro-Remain view stance against the public will be evident from the 51.9 : 48.1 voting result. This imposes tremendous pressure on Parliament to simply carry out a

Yet no one saw this coming – Brexit might be reversed! 40

result based on the MPs’ individual inclination, especially when leaders from both the Conservative Party and the Labour Party have claimed that they would respect the people’s decision. Not only does the relationship between the Parliament and British citizens pose a political risk of disapproval, but MPs, especially Conservatives, also find their own seats threatened by voting for Remain, and their party’s dominance in Parliament could vanish quickly. Rebound of the Pound As the political result is still in the midst of debates and doubts, the High Court’s ruling has already triggered a reaction in the currency market. The price of the British pound relative to the U.S. dollar spiked from 1.2304 on Nov. 3 to 1.2517 the following day, which yielded a 1.73 percent increase rate merely one day later. This drastic rise of pound price reached a peak for the past month. Indeed, the price of the pound just experienced a significant rebound, but it should only last for a short period of time. On the one hand, it was engineered by the sudden boom of confidence in the pound, as the High Court ruling convinced the world that Brexit might be reversed and the British economy would not spiral downwards. On the other hand, Britain’s economic performance over the third quarter was fairly positive, so the price of pound could be reinforced by the domestic economy, and thus be stabilized again. According to the Office for National Statistics of the UK, third quarter GDP increased by 0.5 percent relative to second quarter’s, and it is maintaining an upward growth tendency into the

“…a regretful public picking up their hope and prospects of a do-over, with a pressured parliament facing an important dilemma between its service to the people’s faith and its loyalty to the government. fourth quarter. Statistically, Brexit has not yet brought absolute negative effect to national GDP and the prospect of economic growth regardless of exchange rate remains optimistic. A Fake Climax The High Court ruling may or may not be a tectonic shift in the Brexit story, but it most definitely created a fake climax for both the British commons as well as the Theresa May’s administration – a regretful public picking up their hope and prospects of a do-over, with a pressured parliament facing an important dilemma between its service to the people’s

faith and its loyalty to the government. A drastic rebound of the pound and numerous projections of an uncertain future beg the question, “What is normative and what is real?” A set of complications in the legitimizing procedure, a challenged leader facing unsupportive and confused decision makers, and a time out to reconstruct the British political economy are all real dilemmas. If June 24 takes a tectonic shift in British history and the architecture of the EU, November 3 only adds waves and wind to slow the ship down, but will by no means alter the direction.

Ben Chiacchia

INDEPEDENCE PROVIDES HOPE Volatility Threatens Kurdistan’s Economy

raqi Kurdistan is the most statelike, nominally Kurdish region in the Middle East. Constituting much of Northern Iraq, it enjoyed a level of stability and growth unmatched by the rest of the country since the late 1990’s. However, it now faces a number of threats to its continued development. Recent moves by Iraq’s national government to reduce funding to the regional authority, in conjunction with declining oil prices over the past

“The Kurdish people have the right of self-determination like every other nation in the world. Jalal Talabani.” few years have left Iraqi Kurdistan’s economy weakened and unstable. With the threat of war ubiquitous even before the beginning of Operation Iraqi Freedom in 2003, the energy sector appeared to be a reliable cash flow for financing defense. While America’s stewardship in the region provided the base for expanded autonomy under Iraq’s federal government, it was also America’s energy boom that caused the precipitous drop in revenue from oil production Kurdistan is trapped by war, and hampered by a parasitic national government that proved itself unable to maintain a monopoly of force. It faces an enormous debt crisis and increasing domestic angst over fiscal policy. There may be some hope,

These developments are not working in a vacuum. Betrayal in Baghdad, perceived or otherwise, and the success of Kurdish forces where their Arab comrades failed are feeding a resurgent nationalism and a desire to see the emergence of a Kurdish state. Kurdistan has long been a nation without a state, and has suffered much for it, especially in the form of mass killings at the hands of the Ottoman Empire and Ba’athist Iraq. Kurdistan’s recent successes against Dae’sh (commonly known as Islamic State) have galvanized the long suppressed push for independence. The

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however, were the Kurds to take the wheel of their polity. Swan Song for Dildar

“The U.S. cannot force Sunnis, Shias, and Kurds to make peace or to act for the common good. They have been in conflict for 1,400 years.” emergence of a Kurdish state would be politically difficult, though before this consideration can be made it is important to assess the economic viability of the project. Show Me the Money Despite the difficulties, Kurdistan is currently growing at eight percent of GDP annually, though it’s GDP per capita is still slightly lower than that of Iraq. Kurdistan’s current economic issues come in two groups: fiscal policy and economic diversity. Kurdistan’s fiscal policy is currently failing due to the federal government’s budget cuts to the Kurdish Regional Government, despite there being no decrease in the tax money. Kurdistan’s government failed to respond quickly enough, which helped to exacerbate issues stemming from the fall in oil prices. Kurdistan’s debt now sits at roughly$18 billion, or nearly 75 percent of GDP. The government will need to undertake some level of austerity in order to correct this. The difficulty of this will lie in seeing how Kurds react to such measures, and what the fallout will mean for the status of Kurdistan. Kurdistan also falls into a similar commodity trap to that of its neighbors. Most of the region is at least partially dependent on the export of oil, which currently constitutes 84

percent of Kurdistan’s export revenue. A product of its environment, Kurdistan’s biggest export outside of energy comes in the form of small arms and ammunition. This is not a sustainable diversity of goods and services, especially considering the volatility of oil markets. Tourism is also a major industry, but it has suffered greatly due to the wars in the region. If Kurdistan is to survive as an independent state, it needs to diversify. Strength in Numbers The only foreseeable way an independent Kurdistan could thrive is through the development of new markets and more controlled spending. The current heavy use of state run industries and commodity exports could be a downfall and ought to be avoided. Privatization will be key, with a possible exception being the arms industry, unless it becomes phased out by increased imports from the United States, Russia, and Israel. Kurdistan has already moved to build special economic zones on the border with Turkey, a decision that could facilitate much needed foreign investment. Should the Kurdish government expand efforts to garner the interest of foreign investment, it could begin a rapid and much-needed shift to a service economy without

the volatile attachment to oil exports. While energy could remain a beneficial supplement, Kurdistan’s place as a potential land-locked country in a war torn region of the world necessitates the expansion of relatively self-sustaining service economy in order to be viable during times of instability. Subhead?? If Iraq cannot maintain itself as a viable state, or at least one that can function to the benefit of the Kurds, independence may be the best choice for the regional government. This is not to discount the political challenges of independence, which could be insurmountable depending on the mood of the international community, but there is a case to be made for Kurdish independence from Iraq. If a coherent plan for privatization, foreign investment, and fiscal responsibility can be reached, the prospects look good for the Kurdish people. This is not an easy path, and it requires fiscal discipline during a time of conflict. However, it provides the best chance for the success of Kurdistan, a success that could serve as a beacon of prosperity for a region in need of a role model for good governance.

Mike Janigian

BOTTLING UP OR BOTTOMS UP? How the U.S. Failed to Prohibit Alcohol

n the fall of 1929, the mayor of Berlin, Gustav Boess, went on an official visit to New York City, spending his time discovering the ins and outs of how the city functioned. After a couple of weeks, Boess famously asked the NYC mayor, “So, when does the Prohibition law go into effect?” The problem was, however, that the Eighteenth Amendment—the prohibition of alcohol—had been established nine years ago. The law was failing to be adopted effectively across the country and it created many direct and indirect economic costs to society. During the Prohibition years of 1920-1933, not only did the United States’ government send alcohol down the drain, but also millions of dollars along with it. A FEW TOO MANY From the very beginning, prohibiting alcohol was a large task to undertake. It is estimated that, after declining a bit in the first couple of years, by 1923 alcohol consumption had returned to about 70 percent of pre-Prohibition levels. Why did this happen? First, it is

important to recognize that shortly before the prohibition period, demand for alcohol was massive: per-capita alcohol consumption was three-times more than today’s levels. Even though alcohol had been outlawed, the demand for it was not going to completely disappear. This substantial demand meant that there was profit to be made if someone was willing to supply it. And who was willing to do the supplying? Criminal organizations and gangs of course! Al Capone, an infamous gangster of the time, was quoted for saying, “I give the public what the public wants...I could never meet the demand.” In 1926, the market for alcohol was estimated to be valued at $3.6 billion (about $48 billion in 2016 USD). For comparison, that was almost as large as the federal budget for that year.

CORRUPT TO THE CORE All levels of government struggled immensely to implement and enforce Prohibition. Local and state governments consistently dealt with rampant corruption. Bootleggers (people who made, transported, and sold alcohol illegally) and gangsters paid off law enforcement officials to import alcohol into cities and towns. They also had an incredible amount influence over elections. By pouring millions of dollars into campaigns of “dry” politicians, they fought to keep Prohibition in effect so that they could continue to make millions on the black market. At the same time, the federal government was subject to increased costs and decreased revenues in the name of the law. Billions of dollars

“shortly before the prohibition period, demand for alcohol was massive: per-capita alcohol consumption was three-times more than today’s levels. “ 44

In 1926, the market for alcohol was estimated to be valued at $3.6 billion (about $48 billion in 2016 dollars). were spent funding Prohibition-related initiatives, with rising costs nearly every year from 1920 to 1930. In sum, about $245 million ($3.5 billion in 2016 dollars) worth of expenditures were directly recorded over the decade. In 1919, right before the adoption of the Eighteenth Amendment, the federal government taxed alcohol at $8.40 per gallon, resulting in revenues of about 10 percent of the federal government’s budget! For the next decade, this 10 percent of revenues would vanish. So they decided to rely on a new tax, one that would bring in even more revenues—and thus, the income tax rose to prominence. WEALTH BY HEALTH The law did, however, allow for the sale and purchase of alcohol for medical reasons. Pharmacies could

prescribe whiskey as a treatment for a variety of ailments. The American Medical Association (AMA) noticed an opportunity to profit and jumped on it. In 1917 (pre-Prohibition), the AMA had stated that alcohol’s efficacy as a therapeutic had no scientific value. In 1922, the AMA reversed their previous statement and declared that alcohol was a useful drug to treat 27 different conditions including diabetes, asthma, anxiety, and influenza. This provided a tremendous opportunity for pharmacies. Charles Walgreen saw his business boom and expanded from 20 to 525 stores during the 1920s. Meanwhile, bootleggers recognized that pharmacies would provide the perfect front to sell their alcohol. As a result, the number of registered pharmacies tripled in New York during the Prohibition era.

ERA OF ERRORS All in all, the Prohibition was a disaster in practice. Corrupt government and increased illegal organizations plagued this time period. Breweries, saloons, restaurants, and theaters, what were previously primary entertainment centers, were shut down, creating a vacuum for social activities. Nevertheless, it is important to note that the “Roarin’ Twenties” was a time of overall significant economic prosperity for Americans, and some economists of the time claimed that Prohibition had bolstered this prosperity by increasing worker productivity and consumer savings. However, hindsight shows that this prosperity was largely due to other factors and Prohibition most likely only hindered the U.S. economically, socially, and politically.

GALLONS OF ALCOHOL CONSUMED PER CAPITA, 1910-1929 1.5

1.0

0.5

0 1910

1915

1918

1919

1921

1922

1923

1925

1927

1929

Data Source: Cato Institute

Arvind Veluvali

TRANS-PACIFIC PARTNERSHIP AND THE 2016 ELECTION Will Donald Trump kill the most ambitious trade deal ever?

his election cycle was undoubtedly the most contentious in living memory. It seemed that Hillary Clinton and Donald Trump could not agree on anything, from nuclear proliferation to immigration policy; from infrastructure development to basic decorum. However, they reached a consensus on one issue: getting rid of the Trans-Pacific Partnership (TPP) trade deal. Goals of TPP The TPP is the most ambitious freetrade compact ever conceived. Under its purview are the United States and ten other countries, all members of APEC (the Asia-Pacific Economic Co-Operation). The population of the participating APEC countries exceeds 650 million people—which TPP would turn into a single market. TPP is emblematic of a bigger conflict—whether the United States’ or China’s vision of world trade will prevail. In the status quo, Chinese products dominate APEC and shut

http://maritime-connector.com/

The population of the participating APEC countries exceeds 650 million people—which TPP would turn into a single market. out American goods; if TPP succeeds, the United States will break into China’s sphere of economic influence. Other APEC countries would follow suit in signing the agreement, and the implications would be monumental: the APEC bloc accounts for around 40 percent of world trade. TPP and the 2016 Election This brings us back to the election. Both candidates rejected TPP, citing job loss to Asian markets. However, this is only a superficial answer: globalization is inexorable, and will change the United States’ economy structurally—while domestic companies might see an expansion in business, they won’t provide the corresponding expansion in jobs. While this prospect terrifies blue-collar workers, politicians cannot substantively stall globalization. Businesses will continue to outsource production as long as it remains profitable. There is no partisan solution—but Donald Trump chose to portray it as such, to great political effect. Hillary Clinton ran as a candidate who would protect the legacy of her predecessor. While she herself disavowed TPP, the deal was a hallmark of the Obama administration. Meanwhile, her opponent repudiated the

traditional Republican embracement of free trade and forged ahead with a populist strategy: the United States would practice trade isolation. Trump’s position allowed him to coopt portions of Clinton’s blue-collar base—something that cost her the election. Democrats’ look

Changing

Out-

Free trade has always been a sticky issue for the Democratic Party—the champion of organized labor. So it seems counterintuitive that Democrats signed America’s two largest free trade deals, Obama’s TPP and Bill Clinton’s North American Free Trade Agreement (NAFTA). Yet, Democrats have retained the faith of labor. This election signifies a shift in that faith, and so Democrats must introspect. The past decade or so has seen Democrats fixate on a new constituency—younger voters and Hispanic voters. By and large, these demographics have embraced Democrats right back. But if Democrats are to keep those voters blue, they must consider how those groups view free trade. According to a recent survey done by the Pew Research Center, 56 percent of Democrats view freetrade favorably. As such, it would not

be surprising to see Democrats embrace more of a pro-trade position. A Challenge to Republican Dogma Republicans face the opposite problem. Donald Trump directly challenged Republican leadership with his anti-trade attitudes. And this goes much further than TPP: he’s threatened to leave NAFTA and the WTO (World Trade Organization). So what does a Trump administration’s approach to free trade look like? As recently as November 21st, Donald Trump has said that he’d withdraw from TPP on “day one” of his term. Despite this, though, it’s unlikely that Trump will eliminate the TPP entirely. Trump’s rhetoric on the campaign trail was explosively anti-establishment, and his recent appointments demonstrate a similar attitude; Trump has shirked more traditional conservatives in favor of political outsiders like Steve Bannen and Jeff Sessions. This might seem to bode ill for TPP, which is in-line with standard Republican protocol. However, Trump’s “America First” approach outweigh anti-establishment sentiments.

Trump’s position allowed him to co-opt portions of Clinton’s blue-collar base—something that cost her the election.

China’s Move China has pounced on Trump’s protectionism by championing its own trade deal, RCEP (Regional Comprehensive Economic Partnership), which would solidify its influence in the region. Through this deal, China would create and enforce trade rules, wielding considerable clout over regional rivals like Japan and Vietnam, and establish the strategic dominance that the United States has historically held in that region. RCEP runs directly contrary to the central message of the Trump campaign: “America First.” Trump seemed obsessed with Chinese dominance on the world stage, and the

ratification of RCEP would only confirm these fears. Obama’s “rebalance to Asia” initiative gives the United States the opportunity to act as a trade leader, and to subvert China’s dominance in Asia. The TPP achieves this, and allows him to fulfill his “America First” promise. The market that the TPP encapsulates is the largest in the world. With growing corporate interest in Asia, the United States needs to maintain some presence in that region in order to consolidate its economic power. Trump will not kill the TPP, as he has advocated—rather, with a few slight adjustments, the deal will likely continue more or less as Obama envisioned.

Jonathan Silin

THE OTHER SOMALIA? The Trajectory of Growth in Somaliland

omalia: the Sweden of Africa, right? Wrong. Yet in one of the most dangerous and inhospitable places on Earth there is a small, although little known, beacon of hope: Somaliland. Historically a British protectorate, Somaliland merged with the former Italian-controlled Somalia into the independent Somali Republic in 1960. Tired of the oppressive military regime dominating national politics, Somalis in the north formally succeeded in 1991. Today Somaliland exists as a stable, fledgling democracy of four and a half million people. Somaliland is an economic minnow with a real GDP of only $1.4 billion. Isolation and Economic Incubation Whereby Somalia, which has received peacekeeping operations and

copious amounts of aid, is arguably considered the most failed state in the world, Somaliland received little to no international assistance and has progressed into a promising success story on the Horn of Africa. Because of Somaliland’s lack of international recognition, legal ambiguities have restricted the arrival of multinational corporations from entering the Somaliland market. I n their absence, domestic entrepreneurs have filled this void. Since commerce was tied into the fabric of

$2.8 billion in foreign aid (received from 1992-1999) and an aggressive free market system, Somaliland’s per capita GDP is thrice that of Somalia’s. Admittedly still extremely small, Somaliland’s per capita GDP of $350 ranks ahead of Tanzania, Eritrea, and Ethiopia. This is a remarkable achievement considering its lack of foreign aid and economic marginalization dating back to the colonial-period. A New Era of Foreign Investment

society, it was in the interest of the government to protect its entrepreneurs. The benefits were twofold: local business was protected and overall violence was controlled in order to facilitate business. Isolation also meant Somaliland authorities were able to manage the emerging economy by setting exchange rates and controlling money supply––monetary policies not generally favored by the international community

While economic isolationism has had it benefits for Somaliland, lack of greater connectivity to international markets has begun to hurt Somaliland. The path to continued growth, however, looks increasingly possible. In September, DP World, one of the world’s largest operators of marine ports and international logistics, recently signed a $442 million investment deal with the government of Somaliland.

The period of isolation inadvertently created an effective economic incubator that has forced Somalilanders to practice self-reliance and build their economy internally through a more sustainable bottom-up approach. The benefits of isolation are particularly clear when compared to neighboring Somalia: despite

In the short run, the deal will secure immediate infrastructure development, such as a new highway linking Somaliland and Ethiopia as well as the first international-standard harbor in the country. Long term, the DP World deal has the ability to turn Somaliland’s capital city, Hargeisa, into the largest free-trade hub in

International recognition would open Somaliland up to more FDI and intergovernmental lending — something which it needs desperately. 36

East Africa. The result will be a boost for Somali agriculturalists, thousands of new jobs in diversifying its agrarian economy, and an increased standard of living for all. Brexit: Terrible for U.K., Great for Somaliland While the DP World agreement is a done deal for Somaliland’s further prosperity, there is one even greater piece lying in the balance: formal recognition by the international community. As a member of the EU, Britain was bound to follow the Union’s policy of recognition of other states. Soon to be formally separated, such an imperative will cease to exist. Given Britain’s history of recognizing the independence of its former colonies, the idea of British acknowledgement seems relatively plausible. International recognition would open Somaliland up to more foreign direct investment and intergovernmental lending––something which it desperately needs. Furthermore, it would provide its government with a seat at the negotiating table in organizations like the United Nations and African Union which would allow for multilateral cooperation in solving issues in the region. Somaliland is far from perfect. Unemployment is still high and resources are few and far between. Yet in a region of terror, starvation, and governmental incompetencey, democratic Somaliland seems to be defying the odds.

The DP World deal has the ability to turn Somaliland’s capital into the largest free-trade hub in East Africa.

Katharine Jessiman-Ketcham Alan Tang

THE VIRTUAL REALITY DEBATE Introduction

In Opposition to VR

Virtual Reality is taking the Silicon Valley and its followers by storm. But just what is “Virtual Reality”? A recent report defines VR as, “a computer-generated environment that lets you experience a different reality. A VR headset fits around your head and over your eyes, and visually separates you from whatever space you’re physically occupying. Images are fed to your eyes from two small lenses.” Currently, there are many different iterations of VR available on the market; these include Google’s “Cardboard,” Samsung’s “Gear” headset, the Oculus Rift, the HTC Vive, and Sony’s PlayStation VR. Players in the space expect VR to be used for everything from entertainment to education and simulation to real estate. And, as it becomes more popular and widely used, more applications will surely be discovered. So, how should you feel about this latest technology and where it is heading? Katharine Jessiman-Ketcham, Editor for Technology, and Alan Tang, a Staff Writer at Brown University, take on the topic...

Virtual Reality (VR), once an intangible, almost-philosophical concept has become increasingly visible and concrete over the past two years. Most recently, Mark Zuckerberg, founder and CEO of Facebook, took to the stage at Oculus Connect to demonstrate the breakthroughs of Facebook’s acquisition of the VR firm Oculus back in 2014. In front of a captivated audience, Zuckerberg became an Avatar and visited the ocean, Mars, the Facebook office, and Zuckerberg’s living room in the span of eight minutes. Afterwards, Zuckerberg posted a link to the video with the words, “The idea is that virtual reality puts people first. It’s all about who you’re with. Once you’re in there, you can do anything you want together.” The excitement over VR lies in this focus on a user’s individual experience and the seemingly limitless potential of what one can do in the domain of VR. However, the premise of simulating our experience of the every day without any limits in a fantasy world where “anything” is possible is morally problematic. While there are many reasons to be excited about VR and its applications in medicine, science, and the environment, there are also deeper, more problematic philosophical questions that arise with the adoption and incorporation of Virtual Reality into our everyday lives.

“what happens to the human connection -- arguably one of the best features of life -- in a world in which you can sit at home as your Avatar goes to the office for you?”

ME, ME, ME

simulation and find them pleasurable and gratifying, does one become more prone to act out those same fantasies in real life?

Even more, what is the added benefit to society of being able to play cards virtually or babysit your dog from the comfort of your office? We have become so bent on carving out our own space in the world that we increasingly detach from our actual environments. The question then arises, what happens in a society in which we are allowed -- even encouraged -- to retreat further into worlds of our own creation?

NECESSARY BOUNDARIES

In short, there are necessary boundaries to the human experience. What will be the ethical consequences to our real world if, in fantasy worlds, users can do whatever they please? For instance, what will the effect be on crime or sexual conduct? If you engage in violent gun shooting in VR and enjoy yourself, what happens when the simulation ends and you return to reality?

Consider, for instance, the vision of the future in Spike Jonze’s 2014 film, “Her,” in which a man enters into a relationship with an operating system (a much more advanced version of Siri). In this world, individuals walk past one another on the street, wrapped up completely in their own devices and their own mini-worlds; the protagonist’s connection to his world becomes tenuous at best. And while Jonze’s world of artificial intelligence is quite different from VR, the focus of the film is eerily similar to the mission of VR: emphasizing the individual’s own experience over anyone else’s. The amount of escapism, solipsism, and self-indulgence that VR has the potential to engender is on a scale not yet witnessed.

And, on the flip side, what are the privacy concerns? Consider, for instance, the deceased pilot of the missing Malaysia Airline Flight 370 who had an at-home flight simulator on which investigators found a plotted route that ended in the Indian Ocean. The simulator data had minimal usefulness according to the FBI and Australian Transport Safety Bureau, but the discovery was highly criminalizing for the deceased pilot in the court of public opinion. Should VR users be punished for the fantasies they indulge in in simulation? Darrell West of The Brookings Institute, a nonprofit public policy organization, asked it best, “Do fantasies that remain in the private realm of someone’s brain warrant any rules or regulations by society as a whole?” Unfortunately, there are few answers here, but that is all the more reason to proceed with caution...

THE FALSE PROMISE OF “ANYTHING”

In its most idealistic conceptions, VR gratifies an individual’s desire to exercise utter and complete free will. Absolute, unequivocal free will is almost never compatible with human civilization and civil government, though. As John Locke once philosophized, the natural state of man is a world in which every individual is perfectly equal and free to act as they will; however, man enters into government to have his life, liberties, and estates protected.

THE LOST HUMAN CONNECTION

Finally, what happens to the human connection -- arguably one of the best

“The amount of escapism, solipsism, and self-indulgence that VR has the potential to engender is on a scale not yet witnessed.”

This absorption of the individual into the collective whole necessitates a relinquishment of the satisfaction of every personal whim. The governed always have a choice as to whether or not they abide by the law, but people are encouraged to live within natural limits because they will otherwise face punishment. The real question becomes then, in a limitless virtual world in which one can act out unbounded fantasies in

features of life -- in a world in which you can sit at home as your Avatar goes to the office for you? Or one in which the only interaction with friends is virtual? And how does that affect our experience of reality? As we blur the edges between a fantasy world in which you can materialize a sword out of thin air and fence with your best friend, does the real world become less magical?

market. SHOPPING MADE EASY

Buying a new home is a time consuming process. It is no easy task to find houses to tour, make the time to tour them, and weigh the benefits between each option. The Matthew Hood Real Estate Group of Sotheby International Realty is using virtual reality floorplan scans to showcase homes in New York and Los Angeles. They claim that VR technologies allows them to showcase homes across the world as well as they can in person. Though the process of scanning each home may cost $300-$700, these tours are especially time-efficient in densely populated metropolitan

In Defence of VR MORE THAN JUST A GAME

“Critics talk of the difficulty for virtual reality to expand beyond video games, but games are only the beginning.”

In the last decade, video game companies have tantalized consumers with the prospect of an entirely immersive environment with virtual reality technology. From the indie sandbox hit Minecraft, to the Playstation classic Killzone, developers looking to capitalize on the niche consumer appeal of this innovative new medium are quickly producing andor reviving games for virtual reality. . Critics talk of the difficulty for virtual reality’s reach to expand beyond video games, but video games are only the beginning. With simulators for medical procedure practice, real estate, clothes shopping, and tourism already here, virtual reality is anything but pigeonholed to the video game market. For travel, virtual reality is second only to teleportation. From Mt. Everest to Wal-Mart, the places we can go are endless; that we can now travel there from the comfort of our own homes allows us to save time, use less effort, and even be more safe. Combining such diversified appeal with a soon-to-be-mainstream market, virtual reality, a sector projected to grow to about $200 billion by 2020, will soon become a vital part of the greater consumer electronics

cities, where travelling to and from different homes can take days at a time. With consumer goods, the pressure to make a purchase is much lower, but the process of searching can still be especially tedious. Answering the prayers of every shopaholic, eBay launched the Virtual Reality Department Store, which allows users to view 3D models of some of its popular items. The program allows users to select an item by simply staring at it for longer than usual, and it alters the display of items based on the user’s detected preferences. ARTIFICIAL TREATMENTS, BENEFICIAL RESULTS

Though the environment may be artificial, the effects of virtual reality experiences can be lasting. At the University of Southern California Institute for Creative Technologies (ICT), a research group of computer scientists, filmmakers, and game industry artists has developed Medical Virtual Reality (MedVR), a technology with capabilities in mental health therapy as well as clinical skills training. In alleviating the long-term effects that many veterans face from Post Traumatic Stress Disorder, the MedVR group has created Virtual Iraq/Afghanistan. Through repetition, this environment habituates patients to their distressing memories by reconstructing the settings and events that left them so scarred. The process is called prolonged exposure therapy, and involves virtual exposure (for 30-45 minutes per session) to a variety of auditory, visual, and kinesthetic stimuli that allows the patient to become gradually less distressed by the traumatic memories of war. At the Emory University School of Medicine, one case study has shown that such therapies can result in a decrease on the Clinician-Administered PTSD Scale (CAPS Score) of up to 56 percent. In simulating clinical procedures, the MedVR group has also developed the Virtual Patient Program. Using avatar models with software-generated emotions and personality, doctors are better able to practice and hone their verbal skills. The ability to practice with simulations of trauma victims of all different backgrounds provides doctors with a depth of insight that they could only otherwise develop from a long career of interviewing victims of and analyzing mental health problems. Such simulations allow doctors to practice with a greater range of patients, an experience that provides them with the opportunity to improve their skills at an unparalleled pace. Ultimately, such medical simulations provide both patients and doctors with

a new medium within which to rehabilitate and learn, respectively. A WORLD UNKNOWN

Personalization, convenience, and innovation are just the basis of what makes virtual reality technology so unique. With time, virtual reality producers will not only expand the breadth of their capabilities, but also improve the capabilities they already have. Additionally, as the field grows in mainstream appeal, prices will adapt to accommodate this increased market and more people will be able to enjoy these technologies. Virtual reality is our new reality, and itâ&#x20AC;&#x2122;s time to accept it as a new reality of life.

â&#x20AC;&#x153;Personalization, convenience, and innovation are just the basis of what makes VR technology so unique.â&#x20AC;?

Vikas Rajasekaran

BLOCKCHAIN. THE DEATH OF TRADITIONAL FINANCE? A Look at the Blockchain Technology Reshaping Markets

veryone has heard the buzzwords surrounding Bitcoin coming out of pundits, economists, and even that family member who has suddenly decided to act as a financial advisor. The news headlines commonly cover its role in black markets as deregulated currencies are perfect payment methods for criminal activity. For the layperson, Bitcoin is nothing more than an underground currency. However, what’s even more mysterious and impactful in the world of finance is the technology supporting Bitcoin: the Blockchain. From high frequency and algorithmic trading to the automatization of brokerages, the industry has continuously evolved with the advances in tech. Blockchain’s potential is no different.

Blockchain is a mechanism that keeps records of transactions -- think of it as an online database, where each block is like a line in a ledger that represents the information from a transaction made using Bitcoins. For every transaction, a block is added that contains the transaction information. The unique part is that the Blockchain database is not stored on a single mainframe or source, but is part of an ecosystem of networks that hold copies of the database. For a block to be added, there is a verification process through third parties known as bitcoin miners. In exchange for their role in verifying transactions, Bitcoin miners

“The government wants to bring back trust in finance and with Blockchain, Wall Street can deliver.”

THE BUILDING BLOCKS

With

respect

get paid Bitcoins for each block they add to the chain. When a transaction occurs, the bitcoin miners, to verify the authenticity of a transaction, must solve a time-intensive coding problem in a process known as “hashing”. A hashing algorithm takes in a piece of data and then translates the data into a coded data message, leaving it up to the Bitcoin miners to come up with a way to find the original piece of data using the translated data. In Bitcoin’s case, different pieces of data about the transaction are transformed through the hashing process into encrypted data. With this encryption, Blockchain provides a secure platform for

Bitcoin, 48

“Blockchain devolves power from the current institutions of finance to the retail consumer.” Bitcoin users. DEREGULATION DANGER

A major consequence of a Blockchain-dependent currency is the decentralization of the money supply. The Federal Reserve and other central banks have no control over the value of crypto-currency. Many of the Fed’s tools to fight recessionary trends such as open market operations are worthless because of the way crypto-currency’s supplies are controlled in the Blockchain. Because of the lack of centralized control, the currency is no longer subject to regional inflationary pressures or country-specific malaises. Currently, the lack of government regulation in cryptocurrencies provides a perfect mechanism for criminal activity to occur in the black market. The encryption of data in the blockchain makes it essentially impossible for governments to track criminal financial activity. Yet, the negative consequences of Bitcoin through the black market should not outweigh the potential Blockchain has in the world. There are multitudes of possible payment mechanisms for criminals and targeting Bitcoin alone would not solve the issue at hand.

IN BLOCKCHAIN WE TRUST

In the world of business, nothing is more valuable than trust. When customers purchase goods, they expect payments to go through, for the goods to match the claims, and for ownership to be properly transferred. Blockchain provides a platform that fosters a system of credibility in the transaction itself because of the safeguards in place to prevent faulty transactions. Whether the transactions are being used for good or bad purposes is an entirely different question. This ledger of information on the Blockchain is visible for all, providing greater transparency. Blockchain technology is especially useful for promoting trust in government institutions, where unalterable databases can be shared with the public. Currently, the public’s trust is placed in large swaths of institutions such as banks and governments to control the flow of capital. With Blockchain, there is no need for large investments to be cleared by banks or third parties, but they can instead be passed directly through the Blockchain. In doing so, Blockchain displaces power from the current institutions of finance and puts it in the hands of the retail 49

Jake Goodman

DOES JACK DORSEY HAVE TO GO? How Twitter and Square’s CEO Manages to Run TWO Public Companies

Have you ever been to a hip coffee shop that has you swipe your credit card through a little white square connected to an iPad? Few people recognize that this technology, the product of Square, is yet another creation of the founder and CEO of Twitter, Jack Dorsey. Now the captain of two ships, Dorsey’s dual-CEO role at two public companies is well known in the tech world. While most people know of Twitter as Dorsey’s popular social media platform, Square is a young and thriving lower-profile mobile payment company that provides marketing, financial, and point-ofsale services worldwide. With

recent news of Twitter’s financial struggles, investors are beginning to question whether Dorsey’s dual-CEO role can remain sustainable for both companies. ENTREPRENEUR IN TRAINING

Dorsey’s entrepreneurial spirit began at an early age. Growing up in St. Louis, Dorsey began programming in high school. He took an early interest in the technological coordination of taxi drivers and other vehicles that needed to stay in real-time communication with each other. By the age of 15, he wrote a dispatch software that remains in use by some taxi companies today. Dorsey attended Missouri University of Science

and Technology before transferring to New York University. In the tradition of other famous tech-entrepreneurs, he dropped out of college before attaining his degree to move to California and pursue an online version of his dispatch software. His experience with real-time communication for dispatch services influenced his ultimate creation: Twitter. STEPPING UP TO THE PLATE

Sensing it had potential for growth, Square. went public in November of 2015 and has since vacillated in stock price, peaking at $15.48 but also dipping to $8.37. The company has continued to grow since its initial public offering, thriving within the small business ecosystem.

“While jumping from one great idea to the next, an entrepreneur may complicate their relationship with their core project.” 50

During the company’s most recent earnings report, it beat analysts’ expectations with a jump in net revenue from $439 million to $333.2 million and lifted its full-year revenue forecast. Square also seems to have an eye toward the future. It has begun courting larger companies, those with gross payments exceeding $500,000 annually, to ensure a more stable customer base. While facing competition from Paypal’s recently-acquired Venmo, investors generally remain bullish on Square’s prospects as a young, growing company. DOUBLE BUBBLE, TWITTER AND TROUBLE

However, news about Square has largely been overshadowed by sale rumours concerning Twitter. The social media company hired investment bankers to pursue a possible sale. Jack Dorsey, who was originally

resistant to a sale, has become more receptive to one. Salesforce. com Inc., The Walt Disney Co., and Alphabet Inc. expressed interest in acquiring Twitter, but each individually decided against an acquisition, sending Twitter shares plummeting. Analysts consider Twitter’s overpriced market valuation and the opinion that Twitter is too much work to fix as contributing factors to its failure to be sold. Shares for the social media company are down 40 percent in the past month due to its unprofitability, with analysts expecting share return to fall 5.04 percent. Twitter’s troubles do not end there. Bloomberg reported Twitter would fire 8 percent of its workforce, around 300 employees, the same number fired when Jack Dorsey took over last year as CEO again after a series of leadership shifts since 2008. Additionally, the company recently decided to discontinue Vine, a video social media app that struggled to survive after its brief popularity. These troubles point to imminent changes at Twitter. Some critics have called for one pivotal change: find a new CEO. TWO HATS ONE ENTREPRENEUR

Dorsey seems to have weathered the criticism so far. CNBC reported that sources at Twitter told the network that Twitter’s board is not actively pushing Dorsey to choose between his two companies and will continue to fully support him. Dorsey detailed his opinions about running both companies at a panel discussion moderated by CNBC

“The thrill of innovation eventually will eventually lead him to a new project, and the tech world should expect his next innovation to be as influential as his past two.” SQUARE AND TWITTER STOCK 2016 30 20 10 0

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Data Source: Forrester Research (data in billions)

at Money 20/20, a global trade show and conference centered upon financial service innovation. He described the functions of both companies as “foundational”. Asked about juggling the challenges of two different industries, Dorsey replied, “I want to work on things that people interact with every single day, and that empower them in particular ways, and finance and commerce is one such [way] and communication is another.” IT TAKES TWO TO TANGO

Dorsey is not the first high-profile entrepreneur to work as CEO of two companies. Steve Jobs, co-founder of Apple and CEO, ran both Pixar and Apple and struggled to balance the workloads of the two companies. Elon Musk is another current high profile dual-CEO. Yet, Dorsey’s situation is unique. Unlike 51

other dual-CEOs who operate in similar industries, he has access to two different markets, working on the cutting edge of social media and financial technology. Additionally, it may be possible for Dorsey to form partnerships between his two projects, bridging two growing industries. However, it is unlikely for Dorsey to stay wholeheartedly devoted to either project. Because he must split his time, he suffers the burden of pursuing two entrepreneurial passions. While not completely due to Dorsey, Twitter is clearly struggling. Dorsey will have to make some tough executive decisions in the near future to save his original success. THE LITTLE SOCIAL MEDIA NETWORK THAT COULD

Ultimately, Dorsey may provide a case study in the limits of entrepreneurship. While

Benjamin Winston

A NEW POWER SOURCE Harnessing Kinetic Energy From Our Movement to Charge Our Devices A dead battery can ruin your day. Whether during a phone interview, researching an essay online or using a flashlight, a dead battery is never convenient. As we rely more on mobile technology, battery life is becoming a bigger concern. In order to thrive in an increasingly mobile-dependent world, technology startups must address the need for portable, regenerative chargers. REDEFINING THE WHEEL

Harnessing kinetic energy to use as a power source is nothing new. Primitive kinetic-energy storing devices have existed for decades. The foot-powered potter’s wheel

produced energy and served as the model for modern flywheel designs, a revolving machine that stores energy. With advances in power electronics technology and available resources, society is now able to construct more efficient flywheel systems and kinetic energy storing devices. NASA’s G2 flywheel, developed for energy storage on a spacecraft, displays the potential of supplementing and replacing batteries with flywheels and other similar energy based storage and production systems. AN UNDENIABLE NEED

Thad Starner, Professor at Georgia Tech’s College of Computing, regards battery energy and efficiency as falling behind the trends in mobile computing. In a study of top-of-the line computers from 1990 to 2004, Starner shows that disk capacity has increased by over 4000 times but battery energy density has only gone up by 300 percent. The limitations of batteries restrict both the design and use of mobile technology. While scientists experiment with radioactive batteries and microturbines as future power sources, there is a solution that is imminent and effective:

“While scientists experiment with radioactive batteries and microturbines as future power sources, there is a solution that is imminent and effective: portable, regenerative batteries.” 52

portable, regenerative batteries. These batteries harvest the energy from everyday actions and later use it to power lights or charge batteries. Alternative energy sources have the potential to power mobile devices but struggle to attract mainstream recognition. Consumers tend to care more about the energy efficiency of larger devices, such as cars, than smaller ones, such as a phone. Thus, companies neglect Research & Development programs into battery efficiency as they focus on improving consumer appeal. While solar panels and electric cars receive widespread publicity, minimal attention is paid to powering smaller yet important electronics such as phones and laptops. ENERGY 1, POLLUTION 0

Uncharted Play is a technology startup in Harlem, New York, seeking to convert the movement of objects into energy. Founder Jessica Matthews was determined to address the access to electricity in Nigeria,

where disrupted electric supply was a fact of life. Combining the global passion for soccer with the need for energy, Matthews designed the SOCCKET, a soccer ball that converts and stores its kinetic energy inside a lithium-ion battery. Thirty minutes of soccer with the SOCCKET creates an average of three hours of power and light. Uncharted Play has now generalized this concept into its Motion-based, Off-Grid, Renewable Energy (MORE) device that can attach to a variety of objects and store kinetic energy. Uncharted Play’s customizable, low cost micro generators can power phones, computers, lights and other smaller devices. In regions that lack the necessary infrastructure or power sources, the MORE technology platform satisfies a growing demand for electricity

and energy. SOCCKETS have been donated to impoverished communities throughout the world. Uncharted Play is a piece of the puzzle in addressing global energy problems. RUNNING FOR YOUR BATTERY LIFE

AMPY MOVE is a startup transforming our daily movements into a power source. This rechargeable 1800mAH lithium-ion battery pack stores the kinetic energy produced from our movements. From running to class, biking across campus or swimming laps, AMPY converts an hour of exercise into an hour of battery life for an iPhone 6. Smartphones connect to the device via USB cable and charge just as fast as with a wall outlet. The device is the size of a deck of cards, weighs 5.5

source: http://www.gsmnation.com/

ounces and stores kinetic energy as long as it is moving with the individual, regardless of where it is located. Mike Geier, cofounder of AMPY, understands the applications and demand for his product. In an interview with Crain’s Chicago Business he remarks, “We are also working on shrinking the technology inside to incorporate it into smartwatches, fitness trackers, smart garments and on other wearable

“Consumers tend to care more about the energy efficiency of larger devices, such as cars, than smaller ones, such as a phone.”

Saanya Jain

FIRST THE AUTO INDUSTRY, NEXT STOP START-UP FUNDING Uber takes on the world of private investment

At $68 billion, Uber is the highest-valued private tech start-up in the world. It has revolutionized the start-up space to such a degree that “uberized” has entered the common lexicon, a portent of disruption that is applicable to industries as diverse as healthcare and music. Now, the company is also “uberizing” the world of private equity and debt. Uber is no deer in headlights; rather, the company is accelerating forward with its new alternatives for funding. THE NETWORK EFFECT

One of Uber’s biggest challenges and assets as a company is the network effect, or the feedback loop between the two types of users that Uber’s platform brings together: passengers and drivers. As the number of passengers demanding rides increases, the numbers of drivers supplying them also increases. Creating and maintaining its rider-driver network is difficult, but it is equally – if not more challenging – for Uber’s rivals to retain their users as Uber’s network grows in size. This results in a company-wide mad dash to expand and control one’s market share by heavily subsidizing new members of the platform. In game-theory parlance, this can be characterized as a zero-sum game: one company’s gain in customers is another company’s loss. UNDERWRITING THE RULES OF THE GAME

In addition, Uber is intensifying this win-lose game through the staggering amount of capital it is raising, especially in comparison to its rivals. This

“Creating and maintaining its rider-driver network is difficult, but it is equally – if not more challenging – for Uber’s rivals to retain their users as Uber’s network grows in size. ” 52

happens theoretically in two ways. First, the more investors the company associates itself with, the fewer available for its competitors to raise money from, since investors will not invest against their own interests. Second, it becomes foolish even for investors who are not linked to Uber to invest in its rivals. The primary reason for this motivation derives from the fact that the ride-sharing economy is a market in which multiple firms cannot simultaneously succeed. This strategy of raising capital seems to be working; through these investments, Uber is worth more than all of its competitors combined. However, some investors, including Black Rock, are backing both Uber and Didi, its Chinese ride-sharing counterpart, perhaps in the hope that the two companies will merge one day. OUTRUN, OUTLAST, OUTSPEND

Uber is also using its influx of cash to outspend rivals. The major increase in spending is motivated by a desire to protect its stake in profitable markets and expand its market share in China and India, countries with great promise for large market shares. Uber is subsidizing customers and drivers to gain market share, a strategy through which it is currently on track to lose $2 billion annually in India and China. This is especially important in China, where a competitor,

source: https://contently.com

Didi, just raised $7 billion, $1 billion of which came from Apple; however, not only the way it is spending capital, but also the way it is raising it, is noteworthy. In addition, Uber recently gained $3.5 billion from Saudi Arabia’s sovereign wealth fund as well as $2 billion more through the leveraged loan market. Both are unprecedented sources of financing for a start-up. The investment from Saudi Arabia is unusual because its wealth fund is not known for venture capital investing. Individual royal family members have invested in private companies before such as Lyft, one of Uber’s competitors, but never on such a grand scale. The use of the leveraged loan market is equally surprising. In general, a leveraged loan is a private junk bond with which banks loan money to companies with credit ratings that are below investment grade, or companies that carry a higher risk of default. Those banks, in this case Goldman Sachs, Citigroup, Morgan Stanley

and Barclays, then sell these bonds to professional investors such as mutual funds and hedge funds. Uber’s use of leveraged loans is unusual since, in most cases, these bonds are not attractive to professional investors because of the uncertainty associated with startups, a field for which financing is most often left to venture capitalists. It would have been presumed that debt investors, who tend to look primarily at a company’s ability to generate cash, would be less comfortable with Uber’s high-growth and low-profit strategy -- but we are seeing the opposite. In

“Consumers tend to care more about the energy efficiency of larger devices, such as cars, than smaller ones, such as a phone.” all likelihood, Uber’s aim to provide a yield of about 4 to 4.5 percent on this debt is the main feature attracting investors in this otherwise low interest rate environment.

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