Dec 12, 2019

Axios Capital

By Felix Salmon
Felix Salmon

Situational awareness: One of the great things about New York is that it's in the perfect time zone for watching U.K. election results.

  • I'm going to be at the Churchill Tavern tonight, on 28th Street and Park Avenue. Come say "hi" if you're in town.

In this week's newsletter: Trump kills the WTO; Intel and Uber come clean; Diddy and Dalio; an illegal banana; and much, much more. All in 1,941 words, which should take about 7 minutes to read.

1 big thing: Multilateralism RIP

Illustration: Sarah Grillo/Axios

Internationalists have always dreamed of a court with jurisdiction over all the countries of the world. In 1995, the World Trade Organization was created — allowing the world's countries to press claims against one another for the first time.

The state of play: That era lasted just 25 years. On Tuesday, the Trump administration — to all intents and purposes — brought it to an end.

Why it matters: By defanging the WTO, Trump ensures that almost every nation will be hurt — including the U.S., which won a record $7.5 billion award in October after it sued Europe for granting illegal subsidies to Airbus.

How it works:

  • By blocking all new appointments to the WTO's dispute-resolution court, President Trump has allowed the body to dwindle from seven members to just one remaining judge.
  • That's not enough for the court to issue a binding ruling.
  • From now on, countries will be able to appeal any ruling they don't like to the WTO's highest court. Since that court will have no power to rule against them, they'll be free to continue infringing any WTO rule they want.

Flashback: For some 350 years — from the Treaty of Westphalia in 1648, which marked the beginning of the modern system of nation-states — no such court existed.

  • Then, the WTO was created — and, for the first time ever, the world's countries could take one another to court.

Be smart: "America First" implies an expansion of unilateralism at the expense of the kind of multilateralism exemplified by the WTO, which marked a post-Cold War high point of international cooperation.

What they're saying: Carla Anderson Hills — who was U.S. Trade Representative when the WTO was created under President George H.W. Bush — tells Axios that the WTO is already being replaced by plurilateral agreements.

  • The Trans Pacific Partnership (which continues without U.S. involvement) and RCEP, the China-dominated Regional Comprehensive Economic Partnership, are two examples.
  • USTR referred Axios to a statement made Monday by Dennis Shea, the U.S. ambassador to the WTO. Shea's main complaint is that the WTO court hasn't been abiding by its own rules, as laid down in 1995.

Winners: Donald "Tariff Man" Trump (his words) can now impose whatever tariffs he likes, without fear that the WTO might find them illegal.

My thought bubble: The WTO was negotiated before China dominated international trade — and before the internet disrupted all global commerce. A new agreement is desperately needed.

  • While there's no way that Trump and U.S. Trade Representative Robert Lighthizer will negotiate such a deal, Trump's successor might yet do so.
Bonus: America's allergy to international courts

Illustration: Sarah Grillo/Axios

Shea's statement against the WTO is in line with America's historical opposition to international courts. Here's an excerpt:

Some WTO Members believe that the Appellate Body is an independent "international court" and its members are like "judges" who inherently have more authority to make rules than the focused review provided in the DSU [Dispute Settlement Understanding].
A related cause could be that some Appellate Body members view themselves as "appellate judges" serving on a "World Trade Court" that is the "centerpiece" of the WTO dispute settlement system. ...  Such an expansive vision of the Appellate Body is not reflected in the DSU and was not agreed to by the United States.

Flashback: During their presidential terms, George W. Bush infuriated human rights organizations when he refused to sign on to the International Criminal Court in 2002, and Ronald Reagan withdrew the U.S. from the jurisdiction of the International Court of Justice in 1985.

  • Trump's actions at the WTO are more drastic than anything that Bush or Reagan did. While his predecessors just wanted to insulate the U.S. and its citizens from prosecution, Trump is ensuring that no countries can face a WTO ruling.

The big picture: America's current position is that it never agreed that the WTO should have a court at all. That's why Shea is careful to put words like "court" and "judges" in scare quotes. But the WTO judges were indeed the core of what the WTO did, at least since its member states stopped trying to negotiate a new agreement. Without those judges, the body is otiose.

2. The ultimate Brexit backstop has disappeared

Illustration: Sarah Grillo/Axios

Millions of Britons are casting their votes today in what could be the most consequential election in living memory. One question now has less of a clear answer than ever: What will happen to Britain's terms of trade if it leaves the EU single market?

  • Polling suggests that Boris Johnson's Conservative Party will win about 43% of the votes. Under Britain's winner-takes-all voting system, that'll be enough to give him a modest overall majority in Parliament.
  • With a majority, Johnson will be able to take the U.K. out of the EU on January 31. Johnson is adamant that he won't abide a "Brexit in name only" — which means that he's going to risk a hard Brexit where Britain trades on WTO rules. Whoops.

The bottom line: Trump could not have eviscerated the WTO at a worse time for Johnson, who is in many ways his British doppelgänger. If WTO rules are worthless, Britain will have even less negotiating leverage against trading partners like the U.S. and the EU.

3. Pension chart of the week
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Data: Office for National Statistics, Wealth and Assets Survey; Chart: Danielle Alberti/Axios

Britain, like the U.S., is seeing its defined-benefit pension plans inexorably replaced by defined-contribution schemes. This chart shows just how bad a deal that is for workers.

  • 10 years ago, there were roughly twice as many active members of defined-benefit schemes as there were in defined-contribution plans. Today, the numbers are roughly equal.

By the numbers: The median member of a defined-benefit pension plan in the U.K. has £83,200 ($110,000) in pension wealth. The median member of a defined-contribution scheme, by contrast, has just £5,000 ($6,600) in their plan.

  • Britons are eligible for a state pension — the U.K. version of Social Security. That caps out at £129.20 per week, which is less than $9,000 per year; hence why pension plans are so important.
4. Intel and Uber come clean
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Data: Intel 2017 and 2018 EEO-1 Pay Disclosure; Chart: Danielle Alberti/Axios

If you're a white man who works at Intel, there's a 27.8% chance that you make more than $208,000 per year. If you're a black woman who works at Intel, there's only a 9.5% chance that you make that much.

This ugly truth was revealed by Intel in a pay disclosure this week the like of which I can't ever recall seeing from corporate America.

  • The Intel report came on the heels of Uber's own warts-and-all safety report, which disclosed nearly 6,000 sex assaults of various types over two years.
  • The Uber report revealed 107 deaths in two years from 97 fatal crashes — including the death of 32 pedestrians and two cyclists. Plus, another 19 "fatal physical assaults" and 464 incidents of "non-consensual sexual penetration."
  • The report was restricted to the U.S., despite the fact that most of Uber's business (and almost certainly the majority of total murders and rapes that happen on its platform) is in other countries.

Why it matters: Most companies like to keep bad news under wraps. Intel and Uber are bringing transparency to their failings, which, we can only hope, will encourage other companies to follow suit. Problems denied are problems that will never be solved.

5. When Dalio met Diddy

Photo: J. Countess via Getty Images

Ray Dalio is more investor than businessman, Axios' Courtenay Brown writes. Still, after making billions in the rarefied world of finance, he found himself on a Forbes magazine's list of "100 Greatest Living Business Minds," which in turn led to him being introduced to entrepreneur and rapper Sean Combs (aka Diddy) — who also made the list.

Driving the news: Dalio released a 24-minute video of a "mentor session" he had with Combs, all part of his quest to "help other people." It's even more excruciating than the Blackstone holiday mascot video, if only because it's longer.

  • Given the opportunity to ask questions of the world's 3rd wealthiest hip hop artist — the marketing genius who's behind Cîroc vodka and who also founded Bad Boy Entertainment, Revolt, and the Sean John clothing line — Dalio instead talked to Combs about spec sheets, "radical open-mindedness," and how "pain and reflection equals progress."
  • The racial dynamics are hard to ignore: A white billionaire explains to a successful black entrepreneur the ideal "formula for success" — despite the fact that Dalio has just as much to learn from Combs.
  • This is a rather stark contrast to the genuine and symmetrical friendship seen between Martha Stewart and Snoop Dogg.

What they're saying: Axios asked for a comment from Bridgewater about what Dalio learned from Combs. Dalio replied he “learned that [Combs] has that powerful combination that exceptionally successful people have of humble open-mindedness, intelligence and determination.”

  • Dalio’s response points out what he learned about Combs, not from him.

Felix's thought bubble: A one-on-one mentoring session with Dalio can be looked at as an invitation to the world's worst VIP room. It's something extremely exclusive, and certain people would pay a lot of money to experience it, but it ultimately provides nothing of real value.

6. Illegal banana

Illustration: Aïda Amer/Axios

I mentioned The Banana last week as an interesting and funny art-world curiosity, but since then it has metastasized into a full-on news meme.

  • The work itself — "Comedian," by Maurizio Cattelan, is genuinely good. (Also, my apologies to Cattelan: In a brief brain freeze, I said that he was Spanish instead of Italian.)
  • The piece is part of a long tradition of "readymades" dating back more than a century to Marcel Duchamp's "Fountain" of 1917; it also references Andy Warhol's iconic 1967 album cover for the Velvet Underground.
  • As the crowds at Art Basel Miami Beach and rampant media attention attest, "Comedian" has managed to capture something about the 2019 zeitgeist. The buyers lucky enough to have picked up one of the bananas for $120,000 now own an artwork that is certainly worth significantly more.

The equally comic financial angle is that the entire market in "Comedian" might be an SEC violation. That's because the thing being bought is not the actual banana, but rather a certificate of authenticity, which falls under the purview of U.S. securities law.

  • Selling conceptual art like "Comedian" is illegal in Miami, or anywhere in the U.S., according to University of Kentucky law professor Brian L. Frye. In a forthcoming article in the Creighton Law Review, he writes:
It should be obvious that conceptual art, or at least the market in certificates purporting to convey ownership of works of conceptual art, violates the Securities Act of 1933. A certificate of ownership of a work of conceptual art is quite obviously and literally a security.
The purchaser of a work of conceptual art invests money in a concept, with the expectation of profiting based on the efforts of the artist. But it is trivially the case that the sale of a work of conceptual art is the illegal sale of an unregistered security.
7. The world’s most expensive insulation

Illustration: Aïda Amer/Axios

The essential purpose of a Gulfstream V of one’s own or unlimited access to a Boeing Business Jet was to keep a safe distance from the masses — what the writer Tom Wolfe described in "The Bonfire of the Vanities" as a need to "Insulate, insulate, insulate."
— William D. Cohan, on private jets, in Vanity Fair

As climate activist Greta Thunberg wins Time's Person of the Year award, business writer Cohan has some eye-popping data points on private jets in the latest Vanity Fair.

  • Sergey Brin and Larry Page, co-founders of Google, reportedly own nine jets between them, including two Boeings and two Gulfstream Vs.
  • Saudi Prince Alwaleed bin Talal, meanwhile, owns a private Airbus A380.

The bottom line: "A private plane is alchemical, translating a nine-figure bank account into actual power," Cohan writes. If you want to reduce the power of the ultra-rich, preventing them from buying private jets would be a step in the right direction.

8. Coming up: Moar tariffs (maybe)

Illustration: Rebecca Zisser/Axios

Another $165 billion worth of Chinese imports — including video game consoles and certain toys — could be subject to a 10% tax starting on Sunday, Courtenay writes.

Why it matters: Moving forward with the tariffs would worsen the tone of the U.S.-China trade negotiations, which the president says are going well.

  • The Trump administration has reportedly offered to call off the tariffs and cut back already existing ones — but no official announcement has yet been made.
9. Building of the week: Moscow's Battle of Borodino Panorama Museum

Photo: Sergei Savostyanov\TASS via Getty Images

The Battle of Borodino Panorama Museum, which opened in 1962, was the first museum in Moscow to be constructed in the U.S.S.R. (Up until then, Soviet museums were housed in repurposed churches, mansions, and the like.)

  • Architects Alexander Korabelnikov, Sergei Kuchanov and Alexander Kuzmin designed the building around one exceptional object: Franz Roubaud's epic 380-foot long (and 50-foot-high) 1912 panorama commemorating the centennial of the bloodiest battle of the Napoleonic Wars.
  • Some 250,000 soldiers fought on Sept. 7, 1812, split between Imperial Russian forces and Napoleon's invading army. At least 70,000 men died that day.

The museum has now reopened after a two-year renovation. Entrance is 300 rubles, just under $5.

Felix Salmon