May 30, 2018

Axios Future

By Bryan Walsh
Bryan Walsh

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1 big thing: 'Gale of creative destruction'

Robot models in Harbin, China. Photo: VCG//Getty

There is a new threat from Beijing, which is increasingly buying or reverse-engineering big tech breakthroughs and transforming them into cheap, commodity products, according to a Harvard professor.

Why it matters: Speaking at a conference in Dallas, Willy Shih, an economist at Harvard Business School, forecast "a gale of creative destruction," in which "whole [American] industries will be transformed, or may disappear."

The background: China does steal intellectual property, and pressures U.S., German and other foreign companies to relinquish proprietary know-how in exchange for market access, Shih explains in a piece out today in MIT Sloan Management Review.

But he says Western companies are confronted with another challenge, and that's the commoditization of their most precious intellectual property, contained within sophisticated tools that often "took years or even a generation to develop."

A big battleground is cars: Companies like BYD and Dongfeng have leapfrogged into direct competition with sophisticated engineering products made by VW, Honda and GM, Shih says.

  • "Tacit knowledge and know-how" can be reverse-engineered more easily than ever before, Shih writes. "Young competitors can skip years of practice and experience-building, and become competitive threats almost instantly."
  • Chinese companies also can buy such tools from western developers who spend years creating them, but sell them because "only then can they justify the substantial investments and risks associated with pushing the boundaries on new technology."
  • This approach turns science "into simply a matter of following a recipe. The tools make the process repeatable and take out the variability and risk. This can lead to rapid commoditization of whole product areas: All you need is the money to purchase the tools."

A key fact: "Computing power is almost free," Shih told the conference. "It's much harder for U.S. companies to keep the technical lead."

Read the whole thing.

2. The taxi suicides

Protesting at City Hall in March. Photo: Erik McGregor/Pacific Press/LightRocket/Getty

New York taxi drivers, emboldened by five suicides in their ranks and desperate financial straits, are pressing for laws to protect them against ride-hailing companies.

Why it matters: Like cabbies around the world, New York drivers have suffered a plunge in income since the rise of Uber, and city leaders say they are considering laws to help them, including a cap on ride-hailing vehicles in the city.

  • Speaking before a rally yesterday, Bhairavi Desai, head of the New York Taxi Workers Alliance, also urged a minimum metered fare across the car transport business, including taxis and Uber.
  • The rally came two days after authorities pulled the body of taxi driver Kenny Chow from the Harlem River. Chow was having trouble paying off a $700,000 loan for his taxi medallion, the license to operate a yellow cab.

In a statement to Axios, the New York Taxi Workers Alliance called it a suicide, the fifth in five months. It blamed "financial ruin" caused by the chaotic driving industry, its numbers only loosely controlled by the city.

Worth over $1 million as recently as 2014, the medallions now sell for as little as $175,000, according to the NYT.

  • By the numbers: The WSJ's Paul Berger reports, "About 70,000 app-based vehicles compete with more than 30,000 black cars and livery cars, 13,500 yellow taxis and about 4,000 green taxis, according to the New York City Taxi and Limousine Commission."

Read the whole thing.

3. The economic risk when skills are short

Ford's Dearborn, MI plant, 1928. Photo: Hulton Archive/Getty

For the first time in a decade, the U.S. worker shortage is so pronounced that it is visible in suppressed aggregate hiring numbers, economists say, and it will probably become worse.

Quick take: Ahead of Friday's new U.S. jobs report from the Bureau of Labor Statistics, ADP, the payroll company, said the economy produced 178,000 new jobs in May, which economists said is strong but muted compared with demand.

  • Mark Zandi, chief economist at Moodys Analytics, said the number could have been higher if companies had been able to hire as many workers as they wanted.
  • "Job growth is constrained for the first time in a decade," he said in a conference call this morning.
  • A record number of positions are unfilled in manufacturing, transportation, health care, financial services, leisure and hospitality businesses, Zandi told Axios in a followup exchange of emails.

All of this has occurred without the full effect of the $1.5 trillion tax cut, economists said.

Read the whole post.

4. The charmed life of (some) old retail

In Glendale, Ca. Photo: Robyn Beck/AFP/Getty

The demise of brick-and-mortar retail is no longer a sure investment bet.

What's going on: With Amazon on the march, a favorite target of short sellers has been Dick's Sporting Goods, a chain spread through 47 states and 600 stores, especially since it stopped selling assault rifles following the Parkland shootings.

  • But their dark hopes went south today: Dick's shares surged by as much as 28% after surprisingly solid first-quarter earnings and a forecast of a rosy year ahead, reports the WSJ's Elizabeth Winkler.
  • That left them exposed: "Nearly 15% of the company’s shares available for trading had been sold short as investors bet against the stock. Dick’s strong performance forced investors to buy them back, exaggerating Wednesday morning’s bounce," Winkler wrote.
  • It's not only Dick's: Last Friday, Foot Locker, another sports retailer, saw its shares spike by 15% on an earnings report.

The big picture: "Legacy brick-and-mortar retailers who have been treading water for years are dying. Dick’s, however, which is a last man standing in the sporting goods category, is doing fine," Mark Cohen, director of retail studies at Columbia University, tells Axios.

The bottom line: "There’s a Darwinian process occurring in brick-and-mortar retail that’s been accelerated by the presence of emerging e-commerce," says Cohen. "The retail industry is perfectly healthy, but not every retailer is basking in the glow."

5. Worthy of your time

Illustration: Lazaro Gamio/Axios

What happens when you cut to the bone in England (Peter Goodman - NYT)

Blockchain: good for security, not so much for privacy (Robert Plant - WSJ)

Walmart is the latest to offer college to employees (Corrine Ruff - Retail Dive)

A new women's liberation wave (Mike Allen - Axios)

The world is a better place, which means new challenges (Martin Wolf - FT)

Racism could scale to the size of the internet (Dave Gershgorn - Quartz)

6. 1 fun thing: Galactic archaeology

1.7 billion stars in the Milky Way and neighboring galaxies, taken by the European Space Agency's Gaia spacecraft from July 2014 to May 2016. Photo: ESA/Gaia/DPAC

With the richest vein of crystal-clear images of the galaxy to date, researchers are mapping the past orbits of stars to get closer to understanding the Milky Way's history.

What's going on: The practitioners of this science call it "galactic archaeology," which has gotten a huge boost with a burst of images from Gaia, an observatory launched into orbit by the European Space Agency in 2013 (see image above.)

Why it matters: "Astronomers, who had previously catalogued just 2.5 million of the brightest stars in the galaxy, are hailing a new era of precision astronomy," reports Quanta magazine's Natalie Wolchover.

  • The observatory has tracked 1.7 billion stars with often astonishing precision. It provided the position of 14,000 asteroids and a half million quasars, galaxies that are powered by "supermassive black holes at their core."
  • "For some of the brightest stars in the survey, the level of precision equates to Earth-bound observers being able to spot a Euro coin lying on the surface of the Moon," the European Space Agency said in a news release.
  • The result "places us in a unique position to ... open the most exciting Galactic archaeology playground to date," researchers from the University of Strasbourg said in a paper.

What's next: Walchover quotes Khyati Malhan, lead author of the paper: “The idea is to trace the streams backward in time along their orbits in order to contemplate the galaxy’s past and its formation history.”

Go deeper: 360-degree visualizations from Gaia

Bryan Walsh