Europe’s Electric Slide, Top Airports and Where Women Rule

With the political landscape looking Dune-like to many and as we here at INTN increasingly worry that we will not witness the Seattle Mariners in the World Series in our lifetime (a certain shortstop and first baseman are on our list–that list is long and extensive with not nearly enough repercussions), it is always helpful to step back and get a little perspective about our world. Our species has been around for but a blink of an eye as illustrated nicely by the blogger, Jason Kottke, who publicized the concept of The Great Span. This is the idea that it is easy to connect two historical events or figures across large swathes of history, illustrating just how short human history is. For example, “two empires [Roman & Ottoman] spanned the entire gap from Jesus to Babe Ruth. Three civil war widows were alive in the 2000s. President John Tyler’s grandson is still alive.” So worry not too much about current events, today is but a flash in the expanse of time and space. Nonetheless, the brevity of human existence leads us to delve into how to power electric vehicles in Europe, discover where the largest airports are and gape in astonishment at where women executives rule. It’s this week’s International Need to Know, remembering that Vin Scully was announcing when Connie Mack was still manager, even as we pass on international wisdom in nanoseconds (relatively speaking) of time.

Without further ado, here’s what you need to know. 

The Electric Slide

For ten years, from 1989 to 1999, the Electric Slide was the number one dance in the world. If more evidence is needed for both the agony and the ecstasy of the 90s, you will not get it here. We dance our own electric slide examining a new report from the European Environment Agency (EEA) about the rise of electric cars and the new infrastructure required to support them. The EEA examines two scenarios for the year 2050, one in which half of cars in the EU are electric and one in which 80% are electric. Either scenario should be good news, right? But the agency rightly points out that an increase in the use of electric cars does not help the environment unless that electricity is generated by renewable resources. Under Europe’s current energy infrastructure, there would be a net reduction of CO2 emissions (see chart below) and for some other pollutants. But, because cars emit very little sulphur dioxide, there would actually be a net increase in 2050 of this pollutant unless the electricity for the vehicles is not generated by fossil fuels. Fortunately, as we’ve pointed out previously, thanks to advances in solar power generation and storage, we are likely to no longer need fossil fuels to a large degree long before 2050 (probably by 2030).  It’s electric, boogie woogie woogie.

 

Come Fly With Me

There’s a reason why Boeing and Airbus eye China and the rest of the Asia Pacific region like a seven-footer seated in coach greedily eyes first class. Thar’s gold in them there skies. Airports Council International released their latest data on who and what is flying from where. The Asia Pacific region continues to be the largest air passenger market with 2.46 billion passengers, an 8.6% increase over the previous year. But as fast as the Asia Pacific traveling market is growing, the Middle East is actually the fastest growing region with a 9.6% increase (though far few passengers overall–334 million). Of course, the Middle East market is benefitting from Emirates Airlines efforts to successfully make Dubai an international airport hub–Dubai is now the second-largest international airport as measured by international passenger traffic. One worrisome sign in the data is the relatively modest growth in air cargo (2.6%), another sign of the slowdown in international trade we noted earlier this year. 

Where the Women Executives are

The United States may, or may not, elect a woman president this year. If we do, we’d be catching up to other countries, many of which have long ago elected female leaders. The United States is not only behind other parts of the world in electing a woman president but is also lagging behind some countries on the number of women business executives. You may be surprised to learn that Russia leads the world in the percentage of women in senior roles in business, coming in at 45 percent. In fact, Eastern Europe as a whole does well with 35% of senior roles held by women. In the United States, 23% of women hold senior roles in business. China is at 30%. Maybe in the future a crazy, loud-mouthed businesswoman can run for president.

  

Refugees, Quantum Computers and China’s Box Office

We were knee deep in research for a client this week and chuckling at the fact that the most clicked link this year in one of our posts was for the inflatable Irish pub when red alerts started flashing here at the INTN worldwide headquarters about the great, sudden and unexpectedBrangelexit. We, of course, dropped everything at the news and even wondered whether we would need to cancel this week’s edition of INTN. But calmer heads prevailed allowing us to still dive into the state of the world refugee problem, examine one possible savior of Moore’s Law and speculate about China’s box office. It’s this week’s International Need to Know, paying no attention to the rumor that Angelina Jolie left Brad Pitt for Mr. Brexit, former British Prime Minister David Cameron while we bring you the world’s laundry, dirty and clean, but certainly folded and ironed for your reading pleasure.

Without further ado, here’s what you need to know.

Refugees from Reason

One of the more tragic, complicated and perhaps misunderstood stories of the last few years has been that of refugees. The huge increase of refugees has stressed national and international political systems. Which countries have taken in the most refugees? Germany takes the top spot. Perhaps consequently, Angela Merkel’s party did the worst it’s ever done in the Berlin state elections earlier this week. Sweden has taken in the most refugees per a percentage of its population. Perhaps also consequently, the ruling party is at its lowest rating in the history of Swedish polls. This is another example of a transnational challenge taking place at a time when people, whether here in the United States or in other countries, are losing their faith in existing institutions. We discussed the loss of confidence in institutions during the Brexit vote, and the subject is likely to come up often in the future. This all takes place even as in many ways the world is more peaceful and prosperous than ever. But perhaps people anticipate a future with different challenges that will require different structures. Or maybe they’re just scared. We have theories about fear and will delve into the emotion and its affect on the world as we go forward, but one of the grand challenges of our time is to refine current and perhaps develop new global structures that people will trust.

  

Moore’s Law Slowing, Quantum to the Rescue?

It’s not been talked about loudly but Moore’s Law is slowing. Instead of computer chips doubling in transistors every two years, it has slowed down to every two and a half years. Intel admittedearlier this year this trend may continue and worsen. There are a number of mid-term solutions in the works to keep Mr. Moore and his law happily churning away but we stop for a moment to consider the long-term solution, the paradigm shifting possibility of quantum computers. Such machine beasts could ” take advantage of odd subatomic interactions to solve certain problems far faster than a conventional machine could.”  So who is working on this technology? Lots of people. But Europe leads the way. The European Union outspends in research and funding and has more published research on quantum computers than both the U.S. and China. Moore’s Law may be slowing down but the globalization of innovation is not.

Bombing China Box Office

In our continuing quest to figure out what is really going on in China we turn to the movies. Specifically the box office numbers for China. In either a worrisome sign for China’s economy or for the state of the movie business nowadays, we see that box office receipts in China are down 18% percent year over year. Some of the decrease apparently is due to online ticket vendors no longer providing discounts in an attempt to gain market share for their businesses. But even so, that’s a huge drop and can’t be blamed only on horrible Hollywood blockbusters since the government limits the number of foreign films shown in China. No, more than likely this is another sign the Chinese economy is not as robust as portrayed in official economic numbers, combined with unsuccessful movies and the rise of other entertainment for our eyeballs and wallets. But what the heck, let’s blame the lame Suicide Squad anyway.

More Evidence of Peak Oil Usage, Who is Retiring and what is the most popular liquor

Humans are a remarkable species. We have transformed from simple cave painters to creating masterpieces on the ceiling of the Sistine Chapel. We have discovered prime numbers, built machines that can fly, developed self-driving cars and created a computer network through which all the world can communicate. It’s a remarkable development for any universe. But perhaps the species has peaked with the invention of the inflatable Irish pub. Yes, two Irish immigrants now living in Boston (see, immigration is good for America), have developed what they call the Paddy Wagon Inflatable Pub. So, even as we pour a Guinness and order one of these pubs online, we find more evidence for the coming of peak oil usage, discover where young people are retiring (not just in Portland, Oregon) and most appropriately find out what the most popular liquor in the world is. It’s this week’s International Need to Know, trying not to grow faint at the American presidential race as we deliver healthy and sane doses of the world to your inbox.

Without further ado, here’s what you need to know.   

More on Peak Oil Usage

Keen INTN readers will recall that earlier this year we speculated on peak oil usage coming to a world near you and noted that while oil prices may rise in the mid-term, in the long term they would stay low as other energy sources increasingly power the world. This week brought two bits of news increasing the likelihood of this scenario.  First, the International Energy Agency (IEA) reported that oil consumption growth is below their projections, growing at only 1.3 thousand barrels per day. Yes, oil consumption continues to grow worldwide but at a slower rate than previously and below expected growth rates. The IEA believes slowdowns in China and India is one reason for the slower growth in world oil consumption. If so, perhaps this is more evidence that China is not growing as fast as advertised. But slow economic growth leading to slower growth in oil consumption is a bridge, perhaps over troubled economic waters, to other future factors that will slow the growth in oil and eventually lead to decreasing consumption. General Motors announced this week that they are releasing a Tesla before Tesla. Their new Chevy Bolt that will be released later this year will have a range of 238 miles, slightly more than Tesla’s Model 3 coming next year. Analysts believe the 200-mile range is the tipping point for making electric cars viable. The Bolt will cost a somewhat reasonable $30,000 (after a $7,500 federal rebate). In addition, new non-electric cars have much better gas mileage than their predecessors. Our new Subaru gets about 20% better gas mileage than the 2007 Subaru we owned previously (by quota, 47% of all Seattle citizens must own a Subaru). Gas mileage is mandated in the U.S. to become even more fuel efficient in the future. More people around the world will be driving (though the advent of self-driving cars will change that) but the amount of oil used to power those cars will decrease. Peak oil usage is not here yet but it’s coming sooner than people realize with all the benefits and economic disruption that will entail. 

 

 

Living Longer, Retiring Earlier

Life spans are increasing all over the world as health and nutrition improves. Perhaps surprisingly, people are also retiring at a younger age. The OECD (Organization for Economic Cooperation and Development) informs us that, “In almost all OECD countries, the effective retirement age has declined substantially since 1970.” The OECD defines “effective retirement age” as “the average age of exit from the labour force during a 5-year period.” In most OECD countries, the effective retirement age is now below the age when citizens receive retirement benefits (what the OECD terms the “normal” retirement age). Japan and Korea are the exceptions where men on average retire at age 70 despite the “normal” retirement age being age 60. Perhaps not surprisingly given challenges in OECD economies, the trend of retiring at a younger age has abated or in some cases reversed in the last decade. But, even so, people still retire at a younger age than in 1970. Below is a list of retirement age changes for men for a variety of countries in 1970 compared with today. Women on average retire two years younger than men. 

The Most Popular Liquor in the World

Like most who have traveled overseas often for work, we have sampled a wide range of tasty and on occasion dubious liquors. In Korea, of course, we drank soju, an alcohol made out of rice, barley and increasingly today from potatoes and sweet potatoes. Koreans drink soju in large quantities but we were surprised to learn this week that it is the most consumed liquor in the world (and even more surprised to learn of this through the sports and pop culture website, The Ringer). Much as we have been impressed by Koreans drinking ability, obviously this is an indication that soju is popular throughout Asia (and now there is a big push of it into America). This is perhaps appropriate since soju’s origins date to the Mongol invasion of Korea in the 1300s. History, as always, circles around itself (or stumbles drunkenly as may be the case). According to IWSR (which tracks such things), soju dominates the top spirits sold around the world, claiming three of the top ten spots. In second is India’s Allied Blender & Distiller’s whiskey, Officer’s Choice. Smirnoff’s takes fifth place. The top ten below is full of surprises, at least for this internationally traveling imbiber.

Asia’s Rise, More on Chinese SOE’s and Decreasing Chinese Productivity

Here at INTN worldwide headquarters, we romanticize beginnings. The evolution of jazz in early 20th century New Orleans is an almost mythical time for us, as are the Sun Studio recordings of the early 1950s. So it is not a surprise that we are a big fan of The Get Down, the new Netflix show that fancifully tells the story of the beginnings of hip hop in 1970s NYC. One of our fondest memories as a youngster is visiting our grandparents on the lower eastside of Manhattan and being allowed at the end of the day to pull the security gate down on their children’s shoe store. The five boroughs back then also had a mythical feel, full of noise, grime, crime, fantastical creatures and above all, creativity. New York is safer and cleaner nowadays but not nearly as interesting. Even as we speculate that somewhere, someplace a new musical or cultural moment is being born today (probably either in an impoverished city overseas or in a down and out suburb of America) we ponder on Asia’s recent rise out of poverty, gaze again at China’s state owned enterprises and at the same time worry about Chinese productivity.  It’s this week’s International Need to Know, using our digital crayon to find the get down on international happenings.

Without further ado, here’s what you need to know.

Asia’s Rise Out of Poverty…

Via Ian Bremmer, we recently saw the graph below from the Harvard Business Review(HBR) showing the amazing income gains of the Asian middle class. As Branko Milonovic of HBR notes, “The ‘winners’ were the middle and upper classes of the relatively poor Asian countries and the global top 1%.” But the relative “losers”, at least for the years 1998-2011, were lower and middle income percentiles in the already rich countries. The researchers also note that, “It’s also the first time that global inequality has declined in the past two hundred years.” They calculate that the global Gini number (a measure of inequality—in our estimation a very crude measure) decreased to 64 from 69 (but not 867-5309–wait, Gini, not Jenny). This is an underreported phenomenon: income inequality has gone up within many countries but for the world as a whole, income inequality is down. But, the Harvard Business Review takes this one step further, believing increases in Asian incomes must occur at the expense of Western incomes: “If we then visualize the world over the next 30-50 years, in which other, even poorer countries, become the ‘new Chinas,’ the stagnation of middle-class incomes in the rich countries may continue.” But there are many roads, highways and even back alleys to prosperity. Most need not be lined with western stagnation. Today’s future has very different starting conditions than the last two decades and so the path forward will lead in a different direction. As the investment advisors say, even while selling swampland in Florida (or southern China), past performance is not an indicator of future results.

    

More on China’s SOE’s

No sooner do we write last week that China’s corporate debt is in many ways government debt because state owned enterprises account for more than 50% of such liabilities, than Fortunemagazine comes out with their list of the 500 largest companies (ranked by revenue) and lo and behold it trumpets that China now has more than 100 companies on the list. Three of these are in the top ten and every single one of them is a SOE—China National Petroleum, State Grid and Sinopec Group. I expect this top ten list to be volatile, partly because the Fortune 500 is volatile(the Global 500 likely even more so) and partly because China is changing so quickly that so too will its companies on this list. We live in a Ferris Bueller world, if you don’t stop and look around every once in a while, you’ll miss it. Many of the companies on this list will disappear soon like Cameron’s father’s Ferrari.

The World is Doing Nothing

A number of months ago we noted the worldwide decrease in productivity. The chart we posted showed slowdowns in productivity around the world but did not include China. However, China’s productivity growth, while still above Europe’s, Japan’s, Korea’s and the U.S., is also steadily decreasing, now down to 6.6%. It peaked at 13% growth in 2007 and has gone down ever since. Are Chinese workers just as susceptible to cat videos on the Internet as the rest of us? As we noted in the previous post, the worldwide decrease in productivity is worrisome for the prospects of future GDP growth. GDP can only grow through increased productivity or working age population growth (the latter is decreasing in most countries save Africa and India). More worrisome for China, though their productivity and economic growth has been extraordinary the last 25 years, they have still not caught up to developed countries (see second chart below) or even to the world average. Each Chinese worker is producing far less than a Japanese, European or American, even as the costs of Chinese labor rises, leading to more automation. As we saw above, the Harvard Business Review is worried about Asian workers’ gains causing western income stagnation. The story is likely to be more complicated than that. As always, we await the next chapter eagerly but also with a bit of trepidation.

 


   

Autonomous Ships, China’s Corporate Debt and Cities Domination of Economies

Late Monday night we stumbled upon a story that implied that the organization, Search for Extraterrestrial Intelligence (SETI), believed we have found signs of life on a planet only 95 light years away. A signal detected by some Russian scientists exhibited signs of being transmitted intentionally and SETI is now monitoring the planet. Our immediate thought was, wow, this is the biggest news of the century. Then we thought, crap, now we’re going to have to build a wall around earth to keep out the illegal aliens. But upon further reading, and fortunately for interstellar defense budgets, it is extremely unlikely that this relatively nearby planet contains life. So we remain focused for the moment on the strange life forms of our own planet, particularly the advent of autonomous ships, China’s so-called corporate debt and the outsized effect cities have on countries’ economies. It’s this week’s International Need to Know, miraculously pulling relevant information out of the black hole that is our data rich world.

Without further ado, here’s what you need to know

If I Had a Boat

Now that autonomous cars are so old-hat that even Pittsburgh has them, we turn, as so many old men* have before, to the sea. Across the pond we discover that Rolls Royce is working with universities and other companies to develop an autonomous cargo ship. A press release from Rolls Royce announces that the company “is testing sensor arrays in a range of operating and climatic conditions in Finland and has created a simulated autonomous ship control system.” Like self-driving cars, these ships would be equipped with infrared detectors, high-resolution cameras and laser sensors. Rolls Royce will begin with remote controlled ships, claiming “We will see a remote controlled ship in commercial use by the end of the decade.” From there, they will develop completely self-driving boats. The big challenge for autonomous ships has been lack of high speed bandwidth to transmit the massive amounts of data needed to guide the ships. But, new satellite technology is making fast affordable bandwidth possible. Rolls Royce believes autonomous ships could reduce costs by 22%. So all the cargo on the ships can be sold at a much lower cost to customers who won’t have any money to buy these goods because they lost their jobs to autonomous cars, boats and other vehicles.

*Not that we’re copping to being old, mind you.       

China’s So-Called Corporate Debt

Ahh, China. Complicated, large, ever changing. We have seen a number of people recently ringing alarms over China’s corporate debt. We like to clang that bell of worry as much as the next person and will even note that China’s corporate debt is now 145% of GDP. But, Chinese corporate debt isn’t your average country’s corporate debt. More than half (55%) is attributable to state-owned enterprises so in a sense this is government debt not corporate debt. David Lipton of the IMF notes that SOE’s only account for 22% of economic output. For the most part, these SOEs represent the “old” Chinese economy. China is attempting to transition from a manufacturing export economy to a more high tech, services economy. But it also wants to maintain high rates of growth (China continues to claim a 6.7% growth rate this year). To do that they are pumping credit into the economy and propping up the SOEs to prevent massive job losses. The worry is that more credit is now needed to achieve the same levels of GDP growth. And, of course, they are doing this partly by preserving inefficient, large companies. Yesterday, China announced the latest Purchasing Manager Index (PMI) figures (see chart below). The index rose for large companies (many of which are SOEs) but for small and medium size companies, it decreased. Where this credit pumping, SOE backing will ultimately lead, no one knows, probably not even those in charge of China. But, the rest of us can humbly speculate.

  

When the City is the Economy

We are in the midst of the great urbanization of our world. For the first time in history, more humans live in cities than in rural areas. Studies have shown that the United States economy is organized around metro regions. But in a few countries, the largest cities are essentially the economies of the country. Oslo, for example, accounted for nearly 90% of Norway’s GDP growth from 2000 to 2013. Copenhagen was responsible for three-fourths of the economic growth in Denmark and Santiago drove half the growth in Chile. These are all relatively smaller population countries where a large share of the people have congregated in these large urban areas. But even though these urban areas make up between 22% and 36% of their countries’ respective populations, their economic impact is still outsized. Tokyo, which believe it or not, is home to 25% of the Japanese population, accounted for 38% of Japan’s economic growth. This is still out of proportion to the size of its population but not to the extent of these other cities. At any rate, for the foreseeable future, cities rule.