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○ Marie Kondo folds fat stacks 14 ○ Restaurants pivot to delivery 54 ○ Great, another arms race 10

February 4, 2019

Carlos Ghosn

never saw it
coming

Inside the takedown of an auto titan 38

 February 4, 2019

 Cardiologist Yuri
Deychakiwsky at his
home in Maryland,
where he monitors news
of the fighting in Ukraine
(page 48)

1
PHOTOGRAPH BY SARAH BLESENER FOR BLOOMBERG BUSINESSWEEK

FEATURES 38 The Takedown That Put Carlos Ghosn in Jail

Renault-Nissan’s globe-trotting chairman never saw it coming

48 The Art of Crowdfunding War

Volunteers have bolstered Ukraine in its fight against Russia, but at a cost

54 Taking the Sad Desk Lunch Off the Menu

Restaurants remake themselves to meet the growing hunger for delivery
  CONTENTS Bloomberg Businessweek February 4, 2019

 IN BRIEF 5 Chapter 11 for PG&E; Apple raps Facebook’s knuckles How to Contact
Bloomberg
 AGENDA 6 U.K. interest rates; Alphabet earnings; Trump’s SOTU Businessweek
 OPINION 6 It’s time for May and Parliament to accept reality on Brexit
Editorial
212 617-8120
 REMARKS 10 Trump and Putin resurrect the risk of nuclear war Ad Sales
212 617-2900
731 Lexington Ave.,
BUSINESS 14 Decluttering guru Marie Kondo is cleaning up New York, NY 10022
1 16 Tariffs lift demand for U.S. steel, but not for steelworkers
Email
bwreader
18 Pondering a post-Lagerfeld Chanel @bloomberg.net
Fax
212 617-9065
TECHNOLOGY 20 Facebook’s YouTube killer is not killing it Subscription Customer
2 22 The U.S. pushes its allies to pick a side on Huawei
Service URL
businessweekmag
23 A mobile app helps spot kids’ vision troubles early .com/service
Reprints/Permissions
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FINANCE 24 Emerging markets have a China problem or email
3 25 A small pension takes hedge fund Bridgewater to task
businessweekreprints
@theygsgroup.com
26 You can’t call utility stocks boring anymore
Letters to the Editor
can be sent by email,
ECONOMICS 28 Enterprising black Americans flock to Atlanta fax, or regular mail.
They should include
the sender’s address,
phone number(s),
and email address if
available. Connections
with the subject of
the letter should be
disclosed. We reserve
the right to edit for
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31 High inflation fences in Argentina’s ranchers

PHOTOGRAPH BY SHEILA PREE BRIGHT FOR BLOOMBERG BUSINESSWEEK

POLITICS 32 Maduro’s grip on power grows tenuous in Venezuela

35 Immigration opens cracks in Swedish liberalism
36 Hope for peace in the southern Philippines
37 Unpacking Elizabeth Warren’s wealth-tax plan

 PURSUITS 59 Forget a fitness resolution. You need a gym addiction

63 High-end watchmakers splash on the color
64 St. Barts is back and better than ever
66 Models and marketers escape blame in the Fyre fiasco
67 Better sleep and a happier life wrapped up in a blanket
Cover:
Eugene Hoshiko/
 LAST THING 68 Big Tobacco is still burning cash in Florida courtrooms AP Photo
 insurance and you could save.

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 Numbers tell
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T. Rowe Price Investment Services, Inc., Distributor.

 IN BRIEF
○ Besieged German lender
Deutsche Bank received a
much-needed commitment
for investment from a
deep-pocketed partner:
the Qatar Investment
Authority. Qatar already
owns a stake in Deutsche,
which is exploring a merger
with crosstown rival
Commerzbank.
○ Harley-Davidson saw
its profit for 2018 wiped
out in the fourth quarter
and predicted another
difficult year for 2019. The
American icon is struggling
to reach a younger
audience with its chunky
motorcycles.
BRUMADINHO: DOUGLAS MAGNO/AFP/GETTY IMAGES. HARLEY: COURTESY HARLEY-DAVIDSON. KWARTENG: JACK TAYLOR/GETTY IMAGES
○ Prosecutors
in the U.S. filed
criminal charges
against Huawei
Technologies.
The government alleges that China’s
largest technology company stole
trade secrets from an American rival
and committed bank fraud by violating
sanctions against doing business
with Iran.  22
○ Japanese airline ANA ordered $5 billion worth of aircraft from Boeing and Airbus to expand its short-haul fleet.
○ Three banks from Abu Dhabi will merge to form the Persian Gulf’s fifth-biggest lender, with about $114 billion in assets.
○ Thieves stole graffiti attributed to street artist Banksy from a Paris nightclub targeted in a 2015 terror attack.
○ Novak Djokovic beat Rafael Nadal in the final of the Australian Open, securing a record seventh title in Melbourne.
Bloomberg Businessweek February 4, 2019
By Benedikt Kammel
○ PG&E filed for Chapter 11
protection in the biggest
utility bankruptcy in U.S.
history. The company
estimated it has potential
liabilities of about
$30b
from the wildfires that
have ravaged Northern
California.  26
○ The Brumadinho dam near Belo Horizonte, Brazil, ruptured, sending mining
waste barreling down a valley, burying buildings and vehicles in several meters of
mud. At least 65 people died; hundreds more remain missing.
○ The U.S. ○ Robo-calls placed in the
○ “They want
U.S. climbed to more than
Federal Reserve
said it will be
“patient” on any
future interest-
rate moves.
26b
in 2018, an increase of
almost 50 percent from the
a deal, we
want a deal,
both sides
previous year. The calls are
so annoying, according to are going 5
spam-monitoring service
It also signaled flexibility on the path
Hiya, many Americans to have to
no longer answer their
of reducing its balance sheet. The
announcement was a sharp shift from
the Fed’s bias just last month toward
phones at all. compromise.
higher rates.
If there is no
○ Apple revoked key app- ○ The U.S. deal, they
development credentials
for Facebook and blocked government
internal tools its employees tightened won’t get a
use every day. The move sanctions on penny pinch
followed a TechCrunch
report that Facebook Venezuela’s
circumvented Apple’s App state-owned oil from uss.”
Store distribution rules company.
by paying iPhone users, British MP Kwasi Kw warteng
urging the European Union
including teens, to share to renegotiate the most
m
personal data. Facebook Effectively blocking President Nicolás contentious part of the Brexit
Maduro’s regime from exporting crude divorce. For now, Brrussels is
shut down the program to the U.S., the Trump administration vowing not to give Prime
P
after the news broke. aims to escalate pressure on the Minister Theresa May
autocrat to resign and cede power what U.K. lawmakerrs
to National Assembly leader Juan say they need to
Guaidó.  32 ratify the separation
n.
  AGENDA
Bloomberg Businessweek February 4, 2019

 Google parent Alphabet  Donald Trump delivers his

releases fourth-quarter
earnings on Feb. 4. Sales
are expected to have risen
21 percent from a year ago,
to $31.29 billion.
State of the Union address
before Congress on Feb. 5,
a week behind schedule
because of the monthlong
government shutdown.

 BP reports fourth-  Germany announces

quarter earnings on Feb. 5.
Oil prices have surged
as the political crisis in
Venezuela threatens global
crude supplies.
 In the Eye of the Brexit Storm  Twitter releases earnings
The Bank of England announces its latest interest-rate on Feb. 7. The company’s
decision on Feb. 7, as political uncertainty engulfs the U.K. financial health has
The Commons voted on Jan. 29 to send Prime Minister improved in recent months,
Theresa May back to a recalcitrant European Union to benefiting from live video
renegotiate Brexit, which must take place on March 29. and personalized content.
industrial output for
December on Feb. 7.
Investors were surprised
by a contraction in
November.
 Angela Merkel travels to
Bratislava on Feb. 7 to meet
with the Visegrád Group,
which is made up of the
Czech Republic, Hungary,
Poland, and Slovakia.

 BLOOMBERG OPINION

U.K. output and is reducing public revenue by some £320 mil-

6
Disastrous Dithering
○ If U.K. Prime Minister Theresa May has a realistic new
Brexit plan, she’s keeping it to herself
On the night of Jan. 29, the U.K. sent a resounding message to
the European Union: “We demand that you give us what we
want.” Don’t expect the audience to be receptive.
Parliament was considering changes to Prime Minister
Theresa May’s Brexit deal, which it rejected by a spectacular
margin two weeks before. One measure that carried the day,
and which May supported, was a kind of ultimatum. In effect,
it tells the EU to reopen the agreement that the two sides
reached in November, to do away with the so-called back-
stop that avoids a hard border with Ireland, and to replace it
with … well, something else.
EU officials have said they won’t. Even if they were open
to some renegotiation—as in fact they should be—asking them
to rip up the most contentious provision of the hard-fought
agreement in favor of an entirely unspecified alternative is
lion ($419 million) a week. The government’s farcical no-deal
planning has demanded billions more pounds, not to men-
tion the attention of more than 10,000 civil servants. Many
businesses have fled, and others are issuing dire warnings.
Talk of martial law hasn’t helped, with the Times of London
reporting that the government is discussing the use of the
Civil Contingencies Act 2004 in case of public disturbances
upon Britain leaving the EU on March 29. All this, remember,
is before anything has actually happened.
Perhaps May is hoping that the ticking clock, and the
looming disaster of a no-deal exit, will be enough to get a
majority back on board with her original bargain, maybe with
some cosmetic embellishments. But ponder for a moment
what that would mean. The prime minister would be ask-
ing Parliament to affirm an agreement that it first rejected
by an historic margin, that she herself had then ripped up
in an effort to run out the clock, and that has no redeeming
qualities or benefits of its own. And this, by the way, is her
best-case scenario.
Eventually, reality will intrude. The Brexit extremists
in May’s party should accept that they’re in no position to
impose their will at this late stage. May should concede that
ILLUSTRATION BY XAVIER LALANNE-TAUZIA

absurd. If May has a more detailed plan that could feasibly
satisfy them and mollify all 27 EU countries that would wield
a veto over it, she’s kept it to herself.
This latest vote means weeks more of theatrical dithering—
before, you guessed it, another vote. It might be comical if
it weren’t so costly. According to an estimate by the Centre
for European Reform, Brexit has already cut 2.3 percent from
no prime minister could willingly accept a no-deal exit and
that the Brexit countdown must be stopped. Parliament
should debate alternatives that the EU could realistically
accept. And the government should start planning to give the
public another say. 
Written by the Bloomberg Opinion editorial board
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  REMARKS
10
○ You thought the threat of
nuclear war was history?
Better think again. Hard
○ By Peter Coy
While the world’s attention is occupied by Brexit, Venezuela,
and a hundred other concerns, an almost forgotten monster
is raising its head: the threat of nuclear war.
Nuclear war gets surprisingly little attention consider-
ing there are enough nukes to end human civilization in
hours. It feels like a relic of another era—of perestroika and
glasnost and that famous walk in the woods. We’ve moved
on to other concerns. Besides, what can anyone really do?
The reason to pay attention is that arms control—especially
between the U.S. and Russia—has broken down. A fresh nuclear
arms race appears to be taking shape. As for what anyone can
do: Arms control moves forward in response to public pres-
sure, when humanity speaks louder than arms merchants and
bellicose world leaders. Sanity can prevail. It’s been more than
70 years since the U.S. detonated the first two atomic weapons
in war, and not one has been used in combat since.
Feb.  2 is when the Trump administration has said it
could suspend its obligations under the Intermediate-Range
Nuclear Forces (INF) Treaty. If it announces a full withdrawal,
the treay will die in six months. A treaty controlling anti-
ballistic missiles was allowed to expire in 2002. That would
leave just one binational treaty: New Start, which covers long-
range missiles. Up for renewal in 2021, it has grim prospects.
Trump has called it “one of several bad deals negotiated by
the Obama administration.”
At that point there would be very little to constrain a
race for nuclear supremacy between the two countries
that together own more than 90  percent of the world’s
nuclear warheads. “All signs point in the direction of a seri-
ous combined nuclear-conventional arms race in Europe,”
Nikolai Sokov, a former Soviet and Russian arms negotiator
who is now a senior fellow of the Middlebury Institute of
International Studies at Monterey, Calif., wrote in an email.
Meanwhile, China is modernizing its arsenal as it tries to
edge the U.S. military out of its growing sphere of influence
in Asia; nuclear states India and Pakistan remain nemeses;
and North Korean leader Kim Jong Un seems to be reneging
on promises to denuclearize. On Jan. 24, the Bulletin of the
PHOTO ILLUSTRATION BY 731; PHOTO: CORY LUM
Atomic Scientists announced it is keeping the Doomsday Clock
at 11:58 p.m. for a second year. This is the closest it’s ever been
to midnight, tied with 1953, the year the U.S. and Soviet Union
began testing hydrogen bombs.
It’s dismaying how far arms control efforts have backslid
since 1987, when Soviet Premier Mikhail Gorbachev joined
President Ronald Reagan to sign the INF Treaty. A chuck-
ling, relaxed Reagan salted his remarks at the ceremony with
 REMARKS Bloomberg Businessweek
three Russian folktales. Gorbachev, speaking in Russian,
dared to hope that the date of the signing (Dec. 8) might
“be inscribed in the history books” and that the agreement
would create a better future “for our children and grandchil-
dren, and for their children and grandchildren.”
To keep those kids safe, it makes sense to start with the
brewing arms race between the U.S. and Russia, the most
potent nuclear powers. Russian President Vladimir Putin
has been playing a dangerous game of brinkmanship on sev-
eral fronts. Su-27 fighter jets have repeatedly intercepted
U.S. military aircraft flying in international airspace in the
past year, raising the risk of an accident. China is a bigger
long-term threat to U.S. dominance because of its economic
strength, but at the moment it’s Russia’s very weakness that
makes it dangerous. As North Korea’s Kim knows, nukes are
an underdog’s best friend.
The Trump administration’s approach to a warlike Putin is
essentially “peace through strength.” The president took the
advice of John Bolton, his hawkish national security adviser,
when he gave preliminary notice in October of his intent to
pull out of the INF Treaty, which bars all nuclear and con-
ventional ground-launched ballistic and cruise missiles with
ranges of 500 to 5,500 kilometers (300 to 3,400 miles).
Echoing President Obama, Trump accuses the Russians
of developing a cruise missile that violates the INF Treaty.
On Jan. 23 the Russian military showed foreign envoys the
missile—known as the SSC-8 to Americans and the 9M729 to
February 4, 2019
11
the Russians—and contended that it wasn’t covered by the
treaty because it couldn’t fly more than 500 kilometers. The
Americans say the Russians are lying, and NATO allies agree.
Defense analysts say the U.S. also wants out of the treaty
so it’s free to deploy missiles in East Asia to counter China,
which didn’t sign the pact. Ditching the treaty will free
the U.S. to respond to Beijing’s militarization in the South
China Sea while matching and eventually outdoing Russia
in Europe. “Until people come to their senses, we will build
it up,” Trump told reporters the day after giving notice in
October. “It’s a threat to whoever you want. And it includes
China, and it includes Russia, and it includes anybody else
that wants to play that game. You can’t do that. You can’t play
that game on me.”
Trump is right that Putin is the main bad actor. The trou-
ble with a peace-through-strength strategy, though, is that
neither Russia nor China is willing to cede nuclear superi-
ority to the U.S., so all the U.S. gets from pulling out of the
treaty, instead of trying again to rescue it, is a fresh arms
race. America also loses the right to inspect Russian mis-
sile sites, which Reagan—the “trust but verify” president—
made sure was in the 1987 treaty. And the U.S. can’t count on
spending its rivals into submission, because nuclear weap-
ons are actually quite cheap compared with conventional
armaments on a megadeath-per-dollar basis. They are, in
more than one sense, the Great Leveler.
While Trump’s strategy for offensive weapons is
  REMARKS Bloomberg Businessweek
problematic, his defensive strategy has issues as well.
Like several of his predecessors, he wants to build a virtual
shield to protect the U.S. from incoming missiles. “Our goal
is simple. It is to ensure that we can detect and destroy any
missile launched against the United States any time, any-
where, and any place,” he said on Jan. 17 at the Pentagon.
A shield seems unobjectionable. But Putin worries, rightly
or wrongly, that having one in place would tempt the U.S. to
go nuclear first in the heat of battle, knocking out most of
Russia’s firepower and then hunkering down behind its vir-
tual wall to survive the retaliation. That sounds far-fetched to
Americans, but Putin has often cited the U.S. withdrawal from
the Anti-Ballistic Missile Treaty in 2002 as justification for
Russia’s pursuit of advanced missiles. In December, Russian
state television reported a successful test of the Avangard
hypersonic glide vehicle. Flying 27 times the speed of sound,
it “essentially makes missile defenses useless,” according to
Deputy Prime Minister Yury Borisov.
As the Avangard demonstrates, the main result of
Trump’s missile defense strategy could be to engender the
creation of ever-more-dangerous enemy missiles. That’s why
some game theorists of arms control recommend the prin-
ciple of mutual assured destruction. Their idea is that the
world is paradoxically safer when neither nuclear super-
power can defend its people from a nuclear onslaught,
12 because then neither will dare go nuclear. (This logic does
not, unfortunately, apply to a sneak attack by a regime such
as Kim’s, which is why some kind of missile shield may be
valuable after all. Designing a shield that would thwart Kim
but not Putin is a complicated problem.)
The main goal of U.S.-Russian nuclear arms control must
be to prevent nukes from ever being launched, because
even a small attack by one side could precipitate an all-out
nuclear war. A firm commitment to no first use would dimin-
ish the chance of that. But the weaker side, the one that uses
nukes as an equalizer, won’t make that promise. The U.S.
refused to commit to “no first use” during the Cold War; it
used the threat of nukes to keep Warsaw Pact forces from
routing outnumbered NATO troops in Europe.
Now that the tables have turned and Russia is the one
lacking conventional military strength, it’s Putin who could
launch nukes first—or even just threaten to launch them—as a
way to back an enemy down. These would be smallish weap-
ons capable of wiping out battalions, not continents. The
Pentagon assumes, based on mixed signals from Moscow,
that Russia has formally adopted the Orwellian strategy of
“escalate to de-escalate,” which is a bet that it could bloody
the nose of the West without provoking a massive nuclear
counterpunch. Pakistan and North Korea show the way. They
“have engaged in coercive and violent provocations, calcu-
lating that their larger rivals would concede rather than risk
escalation that could lead to nuclear use,” says a 2014 analy-
sis by CNA, a research group in Arlington, Va.
To thwart the presumed Russian escalate-to-de-escalate
strategy, the Trump administration wants the U.S. to develop
February 4, 2019
its own arsenal of smallish weapons so it could respond pro-
portionally to a Russian first use. The thinking goes that Russia
won’t strike first if it knows the U.S. will swiftly retaliate at
the same level. The Nuclear Posture Review released by the
Department of Defense last year called for the U.S. to delib-
erately weaken some of its submarine-launched ballistic mis-
siles, increasing the plausibility they could be used in combat.
Production of the new warheads has begun. The administra-
tion also wants to develop a new sub-launched, nuclear-armed
cruise missile if the INF Treaty dies. An air-launched version,
the Long-Range Stand-Off cruise missile, is already in the plan-
ning stages. The goal, says the Pentagon, is to “counter any
mistaken perception of an exploitable ‘gap’ in U.S. regional
deterrence capabilities.”
Nobody knows if the U.S. gambit would work to pre-
vent or quickly end a nuclear war. However, building lots of
nuclear weapons that are conceivably usable in wartime feels
a lot like building tall piles of dry tinder and hoping no one
lights a match. “There are so many more pathways for what
could go wrong,” says Hans Kristensen, director of the Nuclear
Information Project at the Federation of American Scientists.
Meanwhile, the demise of INF also casts a pall over New Start,
which went into force in 2011. That treaty limits each side to
1,550 strategic nuclear warheads, whether they’d be launched
from the ground, submarines, or heavy bombers.
The death of arms control would benefit shareholders
of Boeing, Honeywell International, Lockheed Martin, and
Northrop Grumman, among others. “Great Power compe-
tition should be good for heritage defense contractors,”
Byron Callan, an analyst for Capital Alpha Partners, wrote
in a Jan. 24 note to clients, while cautioning that “the U.S.
defense budget will be fiscally constrained.”
It would be less positive for the general public, of course.
For decades, defense contractors and the Pentagon have
offered the American people the following weirdly ratio-
nal deal: You give us trillions of dollars, and we will use the
money to build nuclear weapons that will never be used. A
single Ohio-class nuclear submarine—a “boomer”—can mete
out 2,000 times the destructive power of the A-bombs that
leveled Hiroshima and Nagasaki. If all goes well, it will prowl
beneath the sea for decades and then go to the scrapyard
without having fired as much as a harpoon in anger.
Mutual assured destruction—the balance of terror between
the U.S. and Russia—kept the peace precisely because it
was balanced. Arms control agreements ensured that nei-
ther side was able to gain an unbeatable advantage. The
demise of arms control could lead not just to more weap-
onry but to more instability and uncertainty. The less each
side knows about the other’s capabilities and intentions,
the more likely it is that war will break out by accident.
“The situation we face today relative to nuclear dangers is
equal to the darkest days of the Cold War, and nobody seems
to understand that,” says William Perry, 91, who was secretary
of defense under President Bill Clinton. “Our policies don’t
reflect it, either in the United States or in Russia.” 
 Income meets
performance.
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$200,000
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Bloomberg Barclays U.S. Aggregate Bond Index
$189,288
$180,000

$160,000

$140,000

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Average Annual Total Returns Life of Fund

as of 12/31/2018 1 year 3 year 5 year 10 year Since 10/15/2002 Expense Ratio
Fidelity® Total Bond Fund –0.67% 3.08% 2.86% 5.43% 4.61% 0.45%2
Bloomberg Barclays U.S. Aggregate Bond Index 0.01% 2.06% 2.52% 3.48% 4.01%

Performance data shown represents past performance and is no guarantee of future results.
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The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged broad-based, market value–weighted benchmark that measures the performance of
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securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS. It is not possible to invest directly in an index.
2
Expense ratio is the total annual fund operating expense ratio from the fund’s most recent prospectus. Expense ratio as of 12/31/2018.
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses.
Contact Fidelity for a prospectus, offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2018 FMR LLC. All rights reserved. 833628.5.0
 Bloomberg Businessweek
B In Praise of Mindful
Consumption
U Decluttering guru Marie Kondo has tapped
S Americans’ desire to clean up their complicated lives
I On a cold January afternoon in Manhattan, Riley
Soloner was visiting the Upper East Side outpost
of the Container Store, a retailer that specializes in
N goods to help customers better organize the messes
of modern life. Soloner was searching for a new laun-
dry hamper because his old one no longer brought
him joy. For many, that wouldn’t be adequate rea-
E son to consign it to the trash heap. But for adherents
of Japanese home organization guru Marie Kondo—
including Soloner, 30, who has watched her popular
14 show on Netflix and read her best-selling books—
S
even a mundane hamper is expected to bring happi-
ness to its owner or be discarded. “I’m getting a high
and mighty feeling over people [who are] just doing
this now,” says Soloner, who is on his second round
S
of winnowing down the possessions in his home.
Kondo, Japan’s reigning queen of tidiness, wants
to save the millions of people like Soloner from
clutter—and perhaps clean up financially along the
way. The home organizing consultant is riding a
huge media wave thanks to the success of her Netflix
show, Tidying Up With Marie Kondo, which made its
debut on Jan. 1. Her decluttering method, in which
personal possessions are tossed or retained depend-
ing on whether they “spark joy,” is catching on with
Americans oppressed by way too much stuff.
The show’s premise is simple: Kondo visits fam-
ilies across the U.S. to bring order to their homes
and thereby their lives, item by item. As families
go through their clutter, they’re told to thank and
say goodbye to the things that no longer bring joy.
What’s ensued has been nothing short of a cultural
moment, as viewers become devotees. They’re
flooding social media with photos of items stored in
neat rows and containers, engaging in debates over
whether things such as books should be tossed,
and creating memes that poke fun at Kondo’s
consumerist minimalism.
Edited by
James E. Ellis
Netflix has another likely hit on its hands, and
and David Rocks there’s been a noted uptick in social media chatter
February 4, 2019
about home organization in the U.S. Meanwhile, as
people say goodbye to their no-longer-wanted items,
Goodwill and Salvation Army stores have reported
higher donations than usual for January.
Although analysts say the long-term impact for
retailers from the decluttering mania is uncertain,
the Kondo craze reflects the rising movement of
mindful consumption. “There might be a hand-
ful of players that benefit in the short term,” says
Mary Brett Whitfield of retail consultancy Kantar
Consulting. “But I do think the trend does tie into
many long-term trends we’ve seen from shoppers—
to simplify, streamline.”
Kondo’s less-is-more ethos coexists with a
shrewd business sense. Her KonMari Media Inc., of
which she is the founder and chief visionary officer,
is expanding as well with sales of her trademarked
KonMari method through a network of certified
consultants around the world. Her two books, The
Life-Changing Magic of Tidying Up and Spark Joy,
have been published in 42 countries, and the first
one has been on the New York Times best-seller list
for almost 150 weeks.
Kondo is a bigger celebrity in the U.S. than in
Japan, where she had some buzz when her first
book came out in 2010 and then became known for
being famous in America. “In the U.S., it’s become
a how-to for self-realization,” says Satoko Suzuki, a
marketing professor at Hitotsubashi University in
Tokyo. “It’s not about cleaning up—cleaning up is
just a tool to help yourself, understand yourself, and
develop yourself. Whereas in Japan it’s really about
cleaning up—the process.”
The idea behind Kondo’s method is the Japanese
decluttering concept of danshari—the term is
written using the Chinese characters for “refuse,”
“dispose,” and “separate.” Although Kondo drew
from a common principle, she deserves credit for
turning it into a high-value concept and then suc-
cessfully making a business out of it, Suzuki says.
PHOTO ILLUSTRATION BY 731. PHOTO: SETH WENIG/AP PHOTO. GETTY IMAGES

 BUSINESS
Bloomberg Businessweek
February 4, 2019

15
  BUSINESS
Apart from her books and television series,
Kondo makes money from schooling others in
the ways of KonMari, who then spread her advice
around the world. Anyone aspiring to become a
tidying consultant must first read her books and
then submit photographs of their own home
that has been made immaculate according to the
KonMari method. They also must pay for training,
which consultants say can cost up to $2,700, and an
annual $500 fee to maintain certification.
Interest in the qualification is keen: Upcoming
seminars in New York and London are sold out,
according to Kondo’s website. In Australia, KonMari
consultant Gemma Quinn says the Netflix show
has bolstered interest in her services. Quinn, who
previously worked in advertising, says she’s able
to make a living from the organizing role and is
“platinum” certified, which requires having had at
least 300 consultations with 30 clients.
Kondo’s popularity has also sparked controversy.
Her advice on getting rid of printed books drew
heated discussion among authors on social media,
with some saying it evoked dystopian notions of
mind control. Kondo has since said her suggestion
to have no more than 30 books was influenced by
16 Japan’s small homes with little space for bookshelves
and its humid climate that leads to mildew.
All but three of the 217 consultants listed on the
KonMari English-language website, from Venezuela
to Beijing, appear to be women. That reflects the
reality of housework in Japan, where a govern-
ment survey showed that in 2016 men did 19 min-
utes’ worth a day, compared with 2 hours and
24 minutes for women. “I wish her well as an indi-
vidual, while I also recognize that she is not fun-
damentally changing ideas about how women in
general should participate in society and the work-
force,” says Chelsea Schieder, associate professor
at Aoyama Gakuin University.
The rise of Kondo is a win for Netflix’s focus on
developing local-language and cross-border shows.
Analysts estimate that no single Asian market has
surpassed 2 million customers for the streaming
service, compared with 58.5 million in the U.S. as
of Dec. 31. Still, the streaming company is push-
ing forward with Asian content and has more than
100 projects in production in the region. Netflix
couldn’t be reached for comment. But in its 2018
earnings release, the company said that Netflix
originals, such as Tidying Up With Marie Kondo,
now account for a majority of total unscripted view
share on Netflix, while viewing of all unscripted
programming increased meaningfully last year.
“You’d get laughed out of your career at a
Hollywood studio if you proposed a KonMari show
Bloomberg Businessweek February 4, 2019
in Japanese and English 10 years ago,” says Larry
Mahl, the former head of acquisitions for Sony
Pictures Entertainment Japan. “Netflix is changing
the face of what’s possible.”
Other Netflix hits with a connection to Japan
include Terrace House, a reality-TV show about the
careers and love interests of a group of twenty-
somethings living together in Japan, which is pro-
duced with local broadcaster Fuji TV. In January,
one of Netflix’s biggest hits, Queer Eye, announced
it would film four episodes in Japan. Netflix also has
in development five anime series, a genre that has
its roots in the island nation.
Meanwhile, Kondo’s approach is likely to con-
tinue reaping financial results as Americans find
comfort in her teachings. “What we’re seeing
reflected in what she’s saying is we can’t control
the big things like the government shutdown or
markets,” says Wendy Liebmann, chief executive
officer of consultancy WSL Strategic Retail. “But
we can control the little things—where we buy,
what we buy, and how chaotic our life is.” —Lisa
Du, Isabel Reynolds, and Carmen Reinicke, with
Lucas Shaw
THE BOTTOM LINE Besides two best-selling books and a Netflix
series, Kondo is building a business of certifying consultants who
follow her precepts for home organization.
Why Trump’s Tariffs
Haven’t Boosted
Steel Jobs
○ The trade tactics have raised demand, but
excess capacity and tech tamp down hiring
Visiting the massive steel mill in Crawfordsville,
Ind., operated by Nucor Corp., the largest
American steelmaker, helps explain why the
much-ballyhooed steel tariffs promoted by Donald
Trump have so far been a bust for the steelwork-
ers he successfully courted in his 2016 presidential
bid. The Crawfordsville facility, set amid sprawling
acres of farmland, looks like many other plants. But
the 30-year-old factory has the ability to shrink or
expand production at will, depending on demand
 BUSINESS
by customers, while employing pretty much the
same number of workers.
That flexibility is why, as the first year of
Trump’s steel tariffs comes to a close, the U.S.
industry’s biggest players are enjoying increasing
demand and revenue but adding few of the jobs
promised during the campaign. “They’re expand-
ing production, demand is really strong in the
country, and crude steel production will rise as
imports remain low, but they’re not hiring much,”
says Cicero Machado, a steel analyst at metals
researcher Wood Mackenzie. The firm forecast
that the number of U.S. steel jobs barely budged
last year despite a bump in output from the tariffs.
The number of employees at the country’s
iron and steel mills has tumbled 53 percent since
1990, to 87,700 in November 2018, according to
the Bureau of Labor Statistics, whereas U.S. steel
production dropped only 2.2 percent in the same
period, according to the World Steel Association.
Throughout his presidential campaign, Trump
told voters in industrial battleground states such
as Ohio and Indiana that he would enact trade
policies that would spark a revival in steel jobs. In
February 2018 the Commerce Department deter-
mined that steel imports threaten the viability of the
American steel industry, endangering U.S. national
security. So the department recommended Trump
impose 24 percent tariffs on imported steel to boost
capacity utilization among domestic producers to
80 percent, from about 74 percent. Nucor Chief
Executive Officer John Ferriola told Bloomberg
News in May that an 80 percent capacity utilization
level was “the minimum needed for the industry’s
long-term financial health and viability.”
The tariffs, which have made imported steel
more costly, are having an impact. The American
Iron and Steel Institute (AISI), a trade group,
reported that average capacity utilization industry-
wide touched the 80 percent level in the first week
of 2019, up 7 percentage points from a year ear-
lier. That’s one reason analysts expected U.S. Steel
Corp. to report a 175 percent jump in 2018 profit, to
an estimated $936.2 million, on Jan. 30.
Yet Wood Mackenzie predicts that while steel
production rose 4 percent, the total number of
American steel jobs increased just 1 percent in 2018.
“I was expecting much more jobs to be created,”
Machado says.
One reason for the employment sluggishness:
Producers remember the pain suffered after the
financial crisis and the subsequent collapse in
commodities demand, which precipitated massive
cost cutting and significant job losses. So as they
enjoy today’s tariff-induced boost in demand, many
Bloomberg Businessweek February 4, 2019
are selling the excess capacity at their underutilized “It takes the
plants while keeping a lid on payrolls. Nucor, for same amount
instance, says it has more than enough current of people to run
employees at its Crawfordsville plant to keep the a blast furnace
factory running around-the-clock, and it has no or an electric
plans to add workers. “It takes the same amount arc furnace
of people to run a blast furnace or an electric arc at 100 percent
furnace at 100 percent utilization or 70 percent utilization or
utilization,” says Curt Woodworth, a steel analyst 70 percent”
at Credit Suisse. The industry is “just turning up
the dial on capacity.”
Growing productivity among American steel-
makers is another reason they can do more with
the same number of—or fewer—employees. U.S.
Same Steel, Fewer Payrolls
Change since 1990
Raw steel production U.S. workers in iron and steel mills*
20%
0
-20
17
-40
-60
1990 2018
*SEASONALLY ADJUSTED
DATA: WORLD STEEL ASSOCIATION, BUREAU OF LABOR STATISTICS
workers produced about 478 tons per person in
1990, when about 185,400 people worked in the
industry, according to government data. By 2018,
production had hit almost 1,000 tons a person,
with 87,700 workers in the sector. This means that
in less than 30 years, steelworkers have become
twice as productive.
To be sure, some plant expansions have been
announced, which portend new jobs, and steel-
makers have been careful to tie the tariffs to those
additions. Nucor has announced multiple expan-
sions at existing plants and several new plants. The
company says that one it announced in January was
made possible in part because of Trump’s policy.
But Nucor also stressed that it made these decisions
because of longer-term trends in which it sees con-
sumption growing for the next few years.
U.S. Steel reopened two blast furnaces last
year, which Trump attributed to his tariffs.
However, the company said the decision was more
broadly due to “market conditions and customer
demand,” including the impact of tariffs.
  BUSINESS
Likewise, Steel Dynamics Inc. told investors
in January that a plant it’s building will be viable
regardless of future U.S. trade policy.
Analysts are skeptical that domestic steelmakers
would make these long-term capital expenditures
solely on the basis of trade tariff policy that could
end when Trump leaves office—or before. “I think
the steel companies are looking at expansions as a
multiyear thing, and they see free cash flow the next
several years, and they’ve been looking to reinvest.
So they’ve got multiple motivational factors support-
ing that decision,” says Woodworth at Credit Suisse.
While employees haven’t benefited much from
Trump’s policy, surprisingly neither have sharehold-
ers. The price of steelmakers’ stocks tumbled last
year. Nucor’s fell about 19 percent, its worst annual
decline since the Great Recession. U.S. Steel’s fell
48 percent, and AK Steel’s dropped 60 percent.
As producers boosted capacity utilization to
18 Karl’s ‘Bad Cold’ and
The Future of Chanel
○ The 85-year-old design chief missed a show, raising the delicate issue of succession
For more than three decades, Karl Lagerfeld
has ruled over the Chanel fashion house,
designing as many as eight collections a year:
spring, fall, skiwear, haute couture, and more.
And at every rollout, Lagerfeld—instantly recog-
nizable in his signature powder-white ponytail and
fingerless gloves—takes his bows, peering out from
behind dark glasses alongside celebrity endorsers
such as Keira Knightley and Pharrell Williams.
So when Chanel last month said the 85-year-
old designer was too “tired” to appear at his
spring-summer haute couture show in Paris, his
absence made more news than the hand-stitched
floral gowns, sequined tweed suits, and feather
capes on the catwalk. Conversation quickly turned
to what was really ailing the designer, how long he
could stay in fashion’s top job, and what Chanel
plans to do next. “Lagerfeld has embodied the
spirit of this brand for such a long time that it’s hard
to imagine,” says Delphine Dion, luxury professor
Bloomberg Businessweek February 4, 2019
80 percent, investors worried the increases would
result in too much supply for an economic cycle
that’s peaked. Adding in new plants, Keybanc
Capital Markets estimates that about 10 million to
15 million more tons of annual capacity will come
online over the next three to five years, or about a
15 percent increase from 2018’s total production.
“The reason why investors hate the industry
right now is they hate those numbers,” says Phil
Gibbs, a steel analyst at Keybanc. “To fulfill that
supply gap, you’ll need more import displacement
[replacing imports with domestic-made steel], a
stronger economy, and you’ll probably need some
infrastructure spending. It’s why steel investors
haven’t responded in kind and don’t want to have
anything to do with the sector.” —Joe Deaux
THE BOTTOM LINE While annual steel production in the U.S. has
been almost flat since 1990, the number of steel jobs has fallen by
half. That productivity gain argues against increasing jobs.
at the business school HEC Paris. “His aura, his per-
sona is still very important.”
In the statement, Chanel said studio chief
Virginie Viard—Lagerfeld’s deputy who greeted
guests at the show in his stead—and image direc-
tor Eric Pfrunder would “continue to work with
him and follow through with the brand’s collec-
tions.” While Chanel hasn’t said anything further
about Lagerfeld’s health, a spokesman for the
Karl Lagerfeld fashion line, a separate, lower-cost
brand that he designs on the side, said the company
wishes him a “quick recovery from his bad cold.”
Chanel’s owners, the brothers Alain and Gérard
Wertheimer, haven’t named a successor to the ○ Lagerfeld
designer, who was instrumental in the transforma-
tion of French luxury fashion into a global indus-
try with mass appeal. But when top talent such
as former Yves Saint Laurent chief Hedi Slimane,
Lanvin’s Alber Elbaz, or Celine’s Phoebe Philo have
left jobs in recent years, the gossip mill has gone

into high gear with speculation that they might take
over from Lagerfeld.
The sharp-tongued Lagerfeld—known for lines
such as “wearing sweatpants is a sign of defeat”—
was brought in to revamp the brand in 1983.
Founder Coco Chanel had died 12 years earlier,
and in the interim the company had muddled
through, propped up by apparel licenses and sales
of its No. 5 perfume. Seeking to rejuvenate Chanel,
the Wertheimers turned to Lagerfeld, a Hamburg
native who’d won the prestigious Woolmark Prize
for design at age 21 and by 1965 had become cre-
ative director of both Parisian fashion house Chloé
and Roman furmaker Fendi (where he still over-
sees womenswear).
At Chanel, Lagerfeld quickly sexed up the
brand’s iconic tweed skirt suits with more femi-
nine tailoring and boosted use of glitzy elements
such as pearls, chains, and the double “C” logo.
*ALL BRANDS EXCEPT CHANEL CONVERTED FROM EUROS ON JAN. 28; †HSBC ESTIMATE. DATA: HSBC, BLOOMBERG
While Chanel fiercely guards its image by crafting
$15,000 gowns and $5,000 quilted-leather hand-
bags, it’s managed to maintain a broader appeal
with lipstick that can come in below $30 and per-
FROM LEFT: ANGELA WEISS/GETTY IMAGES; ANNE-CHRISTINE POUJOULAT/GETTY IMAGES.
fumes for less than $100 a bottle. Lagerfeld “is a
marketing genius,” says Elodie Nowinski, profes-
sor of fashion studies at EM Lyon Business School.
“He knows how to take this elite vocabulary from
haute couture and make it desirable to the masses.”
That combination of mass-market appeal and
ultraluxe exclusivity has helped Chanel grow into
a fashion colossus with beauty counters and bou-
tiques worldwide, 20,000 employees, and oper-
ating profit of $2.7 billion on $9.6 billion in sales
in 2017. BNP Paribas estimates the brand’s value
at more than $50 billion, and the Wertheimers
are among France’s five wealthiest citizens. With
other holdings such as Bordeaux vineyards, a
thoroughbred horse stable, and paintings by
February 4, 2019
 Paris show: The
designer’s absence
made more news than
the floral gowns and
tweed suits
20th century masters, each brother has a net
worth exceeding $19 billion, according to the
Bloomberg Billionaires Index.
While the Wertheimers, both around 70, hav-
en’t revealed any succession plan, they’re clearly
thinking of the future. They’ve named independent
board members and regrouped Chanel and dozens ○ Luxury brand
revenue* in 2017
of subsidiaries—including suppliers of embroidery,
feathers, leather gloves, and watch components 19
acquired over the years—in a single holding com-
pany registered in London. Long an e-commerce
holdout, the company revamped its website last
summer, adding sunglasses to offerings of makeup
and perfume, and finally started publishing prices Louis Vuitton†
$10.6b
for its fashions and accessories online (though pur-
chasing them still requires a trip to a shop). A year
ago, Chanel took a stake in the e-commerce plat-
form Farfetch, which is helping develop digital
tools for the brand’s stores.
Chanel has denied it’s planning for an initial
Chanel
public offering or sale, but speculation has surged $9.6b
as the Wertheimers have reshaped the corporate
structure. Just as many top designers would jump
at the chance to fill Lagerfeld’s chair, suitors ranging
from luxury groups LVMH, Kering, and Richemont
to private equity funds would race to the table if
the Wertheimers were to show an interest in a deal. Gucci
$7.1b
Mario Ortelli, luxury consultant at Ortelli & Co., says
that while the Wertheimers appear to be prepar-
ing for some kind of change—anything from adding
men’s clothing to selling the company—it’s unlikely
they’ll reveal anything until they’ve finalized their
Hermès
plans. “The family has all the levers,” Ortelli says. $6.3b
“But sooner or later there will be a generational
change at Chanel.” —Robert Williams
THE BOTTOM LINE By combining ultraluxe exclusivity with mass-
market appeal, Lagerfeld has helped create a fashion colossus that Prada
could be valued at more than $50 billion. $3.5b
 Bloomberg Businessweek February 4, 2019

T
E
C
H
N
20
O
L
O Facebook Watch
G Isn’t Living
Y Up to Its Name ILLUSTRATION BY JONATHAN DJOB NKONDO; DATA: TDG RESEARCH, 2018 POLL

audience. Although the company accounted for

○ The company’s lackluster
video tab still has a lot to prove
to both viewers and advertisers
Three long years ago, when the world knew little
about Cambridge Analytica and laughed off the
specter of fake news, Mark Zuckerberg had a very
different kind of problem. Facebook wasn’t adding
Edited by
many users in key ad markets, so it needed to fig-
Jeff Muskus ure out how to wring more money from its existing
an impressive 45 minutes of its average user’s day,
that wasn’t in chunks big enough to send them the
ever-growing number of ads at the heart of the
company’s business model. The average Facebook
session lasted less than 90 seconds, according to
people familiar with the matter—while you were
waiting in a checkout line, trying to avoid eye con-
tact between subway stops, or sitting on the toilet.
Zuckerberg and other executives decided to try to
boost that number by pushing their way into a much
older kind of advertising model: TV. Like a lot of
 TECHNOLOGY
things at Facebook these days, it’s not going great.
You’re probably not watching much Facebook
Watch. The company committed about $1 bil-
lion last year to buying shows for its stream-
ing video tab, reasoning that even a single hit
could leech a significant piece of the average
two hours Americans spend in front of the TV,
or the Facebook-level amount of time they spend
on Google’s YouTube. It hasn’t produced a hit
like the Netflixes, Amazon Primes, and Hulus of
the world. So far, some of its biggest names have
been network castoffs (MTV’s Loosely Exactly
Nicole) and refugees from other streaming services
(Comcast Watchable’s I Want My Phone Back).
When Facebook reported its quarterly earnings on
Jan. 30, investors and analysts were mostly listen-
ing for news about ad sales for its messaging apps
and the stories feature it copied from Snapchat.
(Bloomberg Media produces a show funded by
Facebook for the Watch platform.)
While researcher EMarketer estimates that
Facebook as a whole will take in nearly double
YouTube’s $4.3 billion in video ad sales this year,
it expects Watch to account for a single-digit
percentage of that figure. “I don’t think it’s yet
become a must-buy for brands,” says Abbey
Klaassen, chief marketing officer at New York mar-
keter 360i. “They are in a stiff competition for this
kind of advertising and inventory.” Last summer,
a year after Watch went live in the U.S., half of
consumers hadn’t heard of it and three-quarters
hadn’t used it, according to media researcher
Diffusion Group.
“I think we’re making a ton of progress,” says
Matthew Henick, Facebook’s head of content strat-
egy and planning, who just pitched the service to
advertisers at this year’s CES, the annual consumer
electronics show in Las Vegas. He’s making the
case that a product more like TV or even YouTube,
where people choose what they’re watching more
than they do scrolling through Facebook’s news
feed, makes it easier to target them with ads.
Seventy-five million people use Watch every day,
Henick says. About 1.5 billion use Facebook daily.
The stakes are higher for Facebook than they
were a few years ago. This past July, the com-
pany warned investors to expect slowing revenue
growth and narrower margins over time, because
it’s already signed up most humans with an internet
connection, its service has fundamental problems
that would be very costly to fix, and it’s spend-
ing a lot on initiatives like Watch. The announce-
ment wiped out a record-breaking $120 billion
of Facebook’s market value in a day. All told,
the company lost 26 percent of its value in 2018.
Bloomberg Businessweek February 4, 2019
It’s perhaps less of a surprise, then, that
Watch is so thirsty. An annoying, persistent red
notification dot over the Watch icon on Facebook’s
home screen produces an itch-you-can’t-scratch
feeling, one that isn’t much alleviated by the thin
lineup if you do click through. The videos start
playing automatically—allowing Facebook to
bolster its statistics but without helping its case
to advertisers that people are watching them
intentionally. And the tab is packed with adver-
tising, including banner ads that appear below
videos while they’re playing and, in some cases,
pre-roll ads that play before they start.
This wasn’t quite what Zuckerberg had in mind
back in 2016. He considered Watch a direct com-
petitor to YouTube, which in some markets was ○ Awareness of
Facebook Watch
starting to beat Facebook in terms of time spent, among Facebook users
says a person familiar with the matter. When
Watch was conceived, the CEO insisted, among
other things, that there be no pre-roll ads, espe-
cially given how short the sessions on Facebook
tend to be, according to another person familiar
with the matter.
Now Facebook and its advertisers are tak-
ing a kitchen-sink approach to Watch revenue,
including making branded videos and selling 21
subscriptions, as the company struggles to per- Never heard of it
50%
suade people to lounge with its social network at
night. “We just haven’t figured out how to make it
a superpower of ours,” Henick says.
Watch can still be successful if Facebook hews
to a modest view of what success looks like— Heard of, never used
24%
snatching ad dollars from cable and YouTube on
the margins. Unlike big spenders such as Netflix,
Facebook has said it doesn’t intend to pay upfront
for shows in the long term. Its idea is that shows Use it
20%
will be able to attract enough viewers on Watch so
Use it daily 6%
that the producers’ share of Facebook ad revenue
will account for their compensation.
That’s assuming, of course, that people are
watching. Facebook still has a lot to prove on that
front, says Jeff Ratner, chief media officer at ad
agency iCrossing. “It’s been up and running for
a while now, but there’s no indication it’s getting
major traction from users,” says Ratner. And as
Mark Wagman, a managing director at consult-
ing firm MediaLink, notes, even Facebook can’t
coast on its size if it can’t differentiate itself from
all the other streaming TV options online. The
big question for advertisers, says Wagman: “Am I
buying into something I can’t get anywhere else?”
—Sarah Frier, with Gerrit De Vynck
THE BOTTOM LINE A year and a half in, Facebook Watch, the
company’s would-be YouTube killer, is a jumble of ads with no hit
shows and a tiny slice of overall video revenue.
  TECHNOLOGY
America’s Warning to the
World: Beware Huawei
The U.S. indictments handed down against Huawei
Technologies Co. on Jan. 28 didn’t explicitly men-
tion anything about 5G networks or China’s spy
agency. But they sent a clear message to world
leaders weighing whether to use Huawei equip-
ment for the next-generation wireless networks:
China’s largest technology company is a threat to
your national security.
In a 13-count indictment in Brooklyn, N.Y., U.S.
prosecutors accused Huawei, two affiliated com-
panies, and Chief Financial Officer Meng Wanzhou
of bank and wire fraud as well as conspiracy in
connection with business in Iran. Charges filed
in Washington state allege that the company stole
trade secrets from T-Mobile USA Inc. and offered
bonuses to employees who succeeded in get-
ting technology from rivals. The cases “expose
22 Huawei’s brazen and persistent actions to exploit
American companies and financial institutions and
to threaten the free and fair global marketplace,”
FBI director Christopher Wray said at a press con-
ference in Washington announcing the charges.
The case complicated talks in Washington with
Chinese President Xi Jinping’s top economic aide,
an effort to stave off more tariff increases. It’s also
a clear indication that wider security and business
tensions between the world’s two largest econo-
mies will persist even if they reach a deal to end
a monthslong trade war. “They aren’t just going
after the notion that there is hard evidence of pre-
vious spying,” says Graham Webster, a fellow at
Washington think tank New America who studies
China’s digital economy. “They are trying to under-
mine trust in Huawei overall, saying that this com-
pany cannot be trusted in your infrastructure.”
The indictments intensify the spotlight on
Huawei, which has come to symbolize China’s eco-
nomic rise and challenge to the U.S.’s status as the
world’s superpower. Especially riling to Beijing:
the decision to prosecute Meng, the daughter
of billionaire Huawei founder Ren Zhengfei. On
Jan. 29, Huawei issued another statement say-
ing it had done nothing wrong. Since Meng was
arrested in Canada on Dec. 1 at the request of the
U.S., Huawei has struggled to convince the world
that its equipment won’t be used for espionage.
In a rare press appearance at Huawei’s Shenzhen
Bloomberg Businessweek February 4, 2019
○ Criminal
indictments allege
that spying is part
of the Chinese
company’s business
headquarters in January, Ren said the company
doesn’t help Beijing spy. Last month, Poland
arrested a Huawei employee for spying, prompt-
ing the company to disavow him.
The indictments outline a pattern of fraud and
espionage. In one, the U.S. alleges that Ren and
Meng have misrepresented Huawei’s business with
Iran to the American government and four finan-
cial institutions since 2007, in violation of U.S.
sanctions. The indictment also accused the com-
pany of destroying evidence once it became aware
of the investigation.
The other set of charges cites emails between
Huawei USA and China to allege that engineers
conspired to steal trade secrets from T-Mobile.
The government says they show employees in
China repeatedly pressing colleagues to collect
key information on “Tappy,” a T-Mobile robot
used to test mobile phones that Huawei wanted
for its own use. When T-Mobile complained about
the attempted theft, Huawei allegedly covered up
the matter with a flawed internal investigation and
blamed rogue employees for any wrongdoing. In
fact, the U.S. alleges, Huawei had set up an inter-
nal committee that handed out monthly bonuses
to employees who stole the most valuable intellec-
tual property from competitors. Twice a year, spe-
cial bonuses were paid to employees from three
regions who had collected especially import-
ant confidential information. “Employees were
directed to post confidential information obtained
from other companies on an internal Huawei web-
site, or, in the case of especially sensitive informa-
tion, to send an encrypted email to a special email
inbox,” the indictment says.
Taken together, the charges bolster the Trump
administration’s case that Huawei is operating
at the behest of the Chinese government. While
there’s no explicit evidence that the company’s
products are compromised, it’s extremely diffi-
FROM LEFT: COURTESY GOCHECK KIDS
cult to know for sure—a risk the U.S. argues is too
big for critical infrastructure such as 5G. Already,
Australia and New Zealand have joined the U.S. ○ Meng
in keeping Huawei out of their 5G networks.
Australia’s TPG Telecom Ltd. on Jan. 29 pulled the
plug on plans to build the country’s fourth mobile
network, saying it no longer made financial sense
 TECHNOLOGY

Innovation
after the government banned Huawei. Other coun-
tries such as Canada, France, Germany, and the
U.K. have yet to make a decision.
Mobile Pediatric Eye Exam
It’s not an easy choice. On the commercial side,
Huawei presents a cheaper option than its compet- GoCheck Kids is the first iPhone app registered with the
itors: The company has said it’s already won more U.S. Food and Drug Administration to screen young children
than 30 5G contracts globally, including 18 from for correctable vision impairment with a simple photo.
European countries. “Because the global market Among other things, it’s meant to reduce the risk of permanent
is now deeply consolidated and Huawei enjoys vision loss among the 18 million American kids younger than 6;
a lead in technology and solutions, I don’t think most medical practices can’t afford the industry-standard
the recent news about the company will impact $20,000 screening devices used to diagnose rare eye diseases.
Huawei’s 5G deployment,” says Bing Duan, an ana-
lyst with Nomura Asset Management.
Even more than with current technology, con- Innovator
trol over 5G networks, meant to connect every- David Huang
thing from self-driving cars to supertankers, could Age 54
Ophthalmology
allow an enemy to carry out mass industrial sabo- professor at Oregon
tage and create chaos, according to U.S. officials. Health and Science
University and co-
Shortly before the indictments were handed down, founder of Gobiquity
the European Union’s digital chief, Andrus Ansip, Inc., a 20-employee
startup in Nashville
said in an interview with Bloomberg News that
companies should reconsider partnerships with
Chinese companies. Ansip said that what worried Origin
him was a Chinese law that says any organization Huang, who grew
(i.e., company) or citizen must assist Beijing’s spy up nearsighted
in rural Taiwan, got
agencies with investigations. his ophthalmology 23
China’s government sees the charges as part Ph.D. from MIT

of a bigger U.S. plan to hold back its economy.

and his medical
degree from
How It Works
On Jan. 29, the foreign ministry in Beijing urged Harvard. He came
up with the idea
the U.S. to revoke Meng’s arrest warrant and stop for GoCheck Kids ① A pediatrician uses Gobiquity’s app on her iPhone
its “unreasonable crackdown” on Chinese compa- in 2011 during a to photograph a child’s eyes, highlighted by the phone’s
conversation with flashlight, from a distance of about 3 ½ feet. GoCheck
nies. “For some time now, the United States has his mentor, eye- software analyzes how light refracts off the patient’s eyes
used its national power to smear and attack spe- cancer specialist to identify risks for nearsightedness, farsightedness,
Lin Murphy. They or eye cancer or other diseases.
cific Chinese enterprises in an attempt to stifle partnered with
their legitimate operations,” foreign ministry ophthalmologist
Hiroshi Ishikawa
spokesman Geng Shuang said in a statement. and developer
② If the software identifies a risk factor, a Gobiquity screening
team confirms it and sends an alert to the child’s electronic
“There are strong political attempts and manip- Tommy Tam to
health record, which notifies the pediatrician for a referral.
create Gobiquity,
ulation behind this.” Since December, China has incorporating
threatened countermeasures against governments in 2013.

that ban Huawei and detained two Canadians on Next Steps

espionage charges.
Users
5G equipment and security are only part of
the fight. The U.S. is also looking to curb China’s So far, “They don’t replace pediatric
4,000 pediatricians
“Made in China 2025” plan to dominate other vital in 43 states have ophthalmology, and they don’t diagnose
technologies, from robotics to new-energy vehi- used GoCheck to disease, but it’s a piece of the puzzle,” says
screen 900,000
cles to biotechnology. “The tech war between the kids, detecting about Barry Wasserman, a pediatric eye surgeon
U.S. and China is going to intensify over the course 50,000 at risk of at Wills Eye Hospital in Philadelphia,
vision impairment.
of this year,” says David Loevinger, a former who calls GoCheck a welcome addition to
Treasury official who is now a managing director his field. “It’s so sensitive, it’s not going
at asset manager TCW. In the near term, though, Funding to miss too much.” Gobiquity says it hopes
Huawei will remain front and center. —David to screen 20 million children by 2020
Gobiquity has raised
Tweed and Yuan Gao $20 million from and to introduce a product next year that’s
investors including calibrated to screen adults.
Salesforce founder
THE BOTTOM LINE Even if the U.S. and China settle this round of Marc Benioff. —Adam Popescu
tariff disputes, Huawei and other potential Chinese 5G architects
will likely remain in American sights.
 Bloomberg Businessweek February 4, 2019

F
I
N
A
N
24
C
E

Asia. Rob Arnott, founder of Research Affiliates and

○ Stocks in developing
countries look cheap.
There’s one big caveat
To hear some big-name investors talk, 2019 is set to
be a great year for emerging markets. Mark Mobius,
co-founder of Mobius Capital Partners and a pio-
neer in emerging-market investing, says he’s buy-
ing stocks in places such as Brazil, India, and Turkey,
predicting a “terrific recovery” in their econo-
mies. Howard Marks, the billionaire co-founder of
Edited by
Oaktree Capital Group LLC, is giving “a lot of atten-
Pat Regnier tion” to developing-nation assets, particularly in
co-manager of the $17 billion Pimco All Asset Fund,
is so optimistic that he’s boosted the fund’s stake
in emerging-market equities to 23 percent, near the
highest it’s been since its inception in 2002.
If they’re right, it would be quite a turnaround. In
2018, MSCI’s gauge of emerging-market companies
fell almost 17 percent. Shares were weighed down
by slowing economic growth, interest-rate increases
from the Federal Reserve, and the U.S.-China trade
war. Two key nations, Turkey and Argentina, saw
ballooning trade deficits, soaring inflation, and polit-
ical chaos. The Argentine peso lost half of its value,
and the country received a record $56 billion bailout
from the International Monetary Fund.
  FINANCE
This year, though, the MSCI benchmark has
surged 6.6 percent through Jan. 29. Investors seem
to be reacting in part to a change in Washington—
the Fed is expected to hold off rate hikes for a while,
dimming the outlook for the U.S. dollar. (A weaker
dollar makes holding assets in other currencies more
attractive.) They may also be noticing that with a
price-earnings ratio of 12, emerging-market stocks
look about 25 percent cheaper than those in rich
countries. “Now is the time to be buying emerging
markets,” Mobius said on Bloomberg Television on
Jan. 25. “Valuations are very attractive.”
Yet cheaper assets alone may not be enough
to sustain a rally. The developing world still has a
China problem, according to strategists at Citigroup
Inc. and UBS AG. The complications are twofold.
First, China’s trade frictions with the U.S. and
Beijing’s mounting corporate debt have dragged
down growth in the world’s second-largest econ-
omy, which buys everything from South African
iron ore to South Korean computer chips. Second,
China’s government has avoided flooding the
economy with a big stimulus. Instead, it’s taking
a drip-feed approach, focusing on infrastructure
spending, tax cuts, and making more credit avail-
able for small companies.
Such focused spending will probably have less
of a positive spillover on the rest of the world,
compared with the real estate spending spree
three years ago that helped spur the global recov-
ery, according to Bhanu Baweja, deputy head of
global macro strategy at UBS. “The willingness of
the Chinese to give you the same degree of stimu-
lus is much lower,” he says.
Even without a significant slowdown in China,
the economy’s structural shift could threaten
developing markets for years, according to David
Lubin, head of emerging markets economics at
PHOTO: KEVIN CHEN/EYEEM/GETTY IMAGES. DATA: BLOOMBERG, INTERNATIONAL MONETARY FUND
Citigroup in London. China used to rely on invest-
ment in manufacturing and housing for growth.
But consumption accounted for three-quarters
of its growth last year, double the portion in 2010.
Developing countries such as Brazil and South
Africa have relied heavily on the nation’s voracious
appetite for their iron ore and copper. They don’t
produce much of the cars, cosmetics, and other
goods Chinese consumers want.
“The decade of prosperity for emerging markets
was the longest boom in commodities since the late
1700s—and that’s China,” says Carmen Reinhart, a
Harvard economist. But the share of China’s total
imports that comes from developing nations slid to
33 percent in 2017 after surging to an all-time high
of 36 percent in 2012, data compiled by Bloomberg
show. China’s iron ore and soybean imports fell last
Bloomberg Businessweek February 4, 2019
year for the first time in almost a decade, while ○ MSCI Emerging
Markets Index, monthly
inbound coal shipments declined to their lowest
rate in seven years.
Emerging-market pessimists are in the minority 1300
now, at least among traders. A Bloomberg survey
in December showed that more than 80 percent of
investors and strategists expect developing-nation
assets to have positive returns this year. Brazil 900
was the top pick for all three asset classes, while
Indonesia was another standout. (Brazil’s market
was briefly shaken in late January after a dam owned
by mining giant Vale SA failed, with hundreds of peo- 500
ple missing and dozens known to be dead.) 12/2007 12/2018
Lukewarm performance has been more of a rule
than an exception in emerging markets over the
past decade. Since the beginning of 2008, the coun-
tries’ stocks returned merely 14 percent, includ- ○ Value of Chinese
imports, by source
ing reinvested dividends. That’s a fraction of the
 Advanced economies
139 percent gain in the S&P 500. In comparison,
 Emerging and
emerging-market equities returned 349 percent in developing markets
the seven years since the beginning of 2001, when  Other
China joined the World Trade Organization, or
13 times the gain in U.S. stocks. $2t
“In the first phase of China’s modern develop-
ment, it was EM that benefited” more than rich
countries, says Stephen Jen, chief executive officer 25
of Eurizon SLJ Capital and a former economist at 1
the IMF. “Going forward, it will be very different. It’s
a good wake-up call.” —Ye Xie and Ben Bartenstein
THE BOTTOM LINE China’s shift to a consumer-driven economy 0
means its growth could be less of a boon to the emerging-market
countries that provided it with raw materials. 2000 2017
The Little Pension
That Dumped Dalio
○ A California retirement plan parts ways with
a big, expensive Bridgewater hedge fund
With $2.9 billion in assets, the San Joaquin County
pension fund is a small-fry retirement plan. By con-
trast, Bridgewater Associates is a hedge fund colos-
sus, with $160 billion in assets under management.
That hasn’t stopped the Northern California fund
from taking the firm run by famed investor Ray Dalio
to task. After reviewing an investment for more than
a year, the county decided in January to pull its
entire $81 million from Bridgewater’s Pure Alpha II
fund. That fund gained 14.6 percent last year, but
  FINANCE
the decision stems from its mostly mediocre per-
formance since 2012. It’s also a sign of the frustration
hedge fund clients are feeling about disappointing
returns across the industry, even as managers con-
tinue to earn high fees for themselves. While San
Joaquin’s stake was small—about a tenth of a percent
of the $80 billion in Pure Alpha portfolios—it could
presage more redemptions.
San Joaquin’s consultant, Pension Consulting
Alliance, first recommended putting Westport,
Conn.-based Bridgewater under review in
November 2017. At the time, the Pure Alpha II fund
had posted annualized returns before fees of 6.9 per-
cent for the five years ended Sept. 30, 2017, accord-
ing to a report on the pension fund’s website. After
paying a fixed fee of 3.69 percent, the fund ended
up with a 3.1 percent annualized return, meaning
that Bridgewater took more than half of the money
it made for the county fund in those years.
Even with last year’s strong performance,
Bridgewater made just 4.1 percent annualized net
of fees for the pension fund in the five years ended
November 2018. While that beat some other large
hedge funds, it fell short of San Joaquin’s target. The
Pure Alpha II fund employs a macro strategy, mean-
26 ing that its managers bet on a wide range of curren-
cies, commodities, bonds, and stocks based on their
view about economic trends.
San Joaquin County lies about 80 miles east
of San Francisco in California’s Central Valley. Its
pension fund covers more than 13,000 current and
retired county employees, including law enforce-
ment personnel, court officers, and public ceme-
tery workers. San Joaquin officials and Bridgewater
declined to comment.
Despite the modest size of the investment, Dalio’s
team fought to save the account. Bridgewater crafted
a three-page letter—not including the appendix—to
defend itself and the fund’s track record and fees.
In the letter, dated January 2018 and posted on San
Joaquin’s website, Bridgewater argued that it’s “crit-
ical to look beyond three- or five-year performance
to the underlying quality and consistency of the
investment process and what to expect from it over
full market cycles.” It noted that the investment had
returned an annualized 10.4 percent after fees since
the pension fund’s initial investment in 2006.
Bridgewater stood by its fees, writing that “Pure
Alpha has shown to be a good and diversifying
return stream over the long term. Those charac-
teristics are valuable and hard-to-find additions to
any portfolio, which is the reason Pure Alpha is
priced as it is.”
The risk for Bridgewater is that other Pension
Consulting Alliance clients may follow San Joaquin
Bloomberg Businessweek February 4, 2019
out the door. “Typically, if a consulting firm raises
concerns about a money manager with one of its
clients, there’s a good chance it will do so with
its other clients,” says Brad Alford, head of Alpha
Capital Management in Atlanta, which helps insti-
tutions review and hire investment consultants.
Pension Consulting Alliance, which is in the pro-
cess of a merger, advises clients that collectively
oversee more than $1.4 trillion. The company
didn’t return calls for comment.
Hedge fund clients have pulled a net $94 bil-
lion from the $3.1 trillion industry since the end
of 2015 on the back of disappointing returns. But
Bridgewater’s funds have been an exception.
They’ve remained about the same size, and they’ve ○ Dalio
been closed to new investments, a sign that they hav-
en’t suffered a lack of client demand. San Joaquin
will continue to invest $186 million in Bridgewater’s
cheaper All Weather product, a diversified, passively
managed fund. —Katherine Burton
THE BOTTOM LINE After a fixed fee of 3.69 percent, a Bridgewater
hedge fund delivered an annualized return of just 4.1 percent over five
years. San Joaquin County was not impressed.
How Utility Stocks
Got Risky
○ Climate change and PG&E’s fall force
investors to rethink a once-stodgy sector
It wasn’t so long ago that investors saw utilities as
safe, boring, and modestly profitable. With depend-
able revenue from monthly electric bills and regular
dividends, they were a favorite among penny-saving
retirees and portfolio managers wanting to hedge
against volatility in the broader market.
That was then. Things began to change with the
deregulation of the 1990s, but global warming and
rooftop solar panels have also steadily been chip-
ping away at the notion that the sector is a safe
haven. And now there’s PG&E Corp.: California’s
largest utility owner filed for Chapter 11 on Jan. 29
in the face of as much as $30 billion in potential lia-
bilities from wildfires that killed more than 100 peo-
ple in the state in 2017 and 2018.
“It has absolutely become more complicated
to invest in utilities,” says Jan Vrins, head of the
  FINANCE
energy practice at Navigant Consulting Inc. “The
energy transformation is accelerating.” For a start,
utilities are having to figure out how to navigate
the rise of renewable energy sources. Utilities that
invested heavily in giant nuclear and coal plants
have found themselves saddled with mounting
costs from generating facilities struggling to com-
pete against cheap natural gas and wind and solar
farms that have seen costs plunge.
A wrong bet by a utility can be its undoing.
Scana Corp., South Carolina’s largest utility, spent
nine years working to expand a nuclear plant
before pulling the plug in 2017, when projected
costs ballooned to more than $20 billion. Its shares
plummeted, and it was acquired by Dominion
Energy Inc. this year.
And utilities that embraced solar and wind
energy early have benefited, says Jay Rhame, chief
executive officer at Reaves Asset Management,
which has $2.8 billion under management. Look no
further than NextEra Energy Inc., the largest U.S.
provider of renewable energy. Its shares have dou-
bled in value since 2014. “A lot of utilities are now
trying to get into renewables after seeing NextEra’s
success,” says Rhame.
The traditional utility business model is also fac-
ing competition from some of its own customers,
who are generating their own power by putting
solar panels on their roofs. Total U.S. residential
power installed is forecast to reach 20 gigawatts
next year, according to BloombergNEF, more than
triple the amount at the end of 2015. (For com-
parison, a typical nuclear reactor has about 1GW
of capacity.) That, along with energy-efficiency
improvements and smarter homes, has sapped
many utilities of a traditional source of growth:
delivering more power.
Global warming is literally changing the land-
scape for utilities, with hotter summers making
PHOTO: GIULIA MARCHI/BLOOMBERG. DATA: BLOOMBERG; ILLUSTRATION BY NICHOLE SHINN
wildfires more common. And in states such as
California, where strict liability laws mean power
companies can be held responsible for fire dam-
ages, that means much more financial risk. PG&E
has explicitly blamed its downfall on climate
change after the state’s bone-dry hillsides were rav-
aged by fires in 2017 and 2018. Investigators have
cited the company’s equipment as the ignition
source of 17 blazes in 2017, though it was cleared in
late January in that year’s most deadly blaze. PG&E
equipment remains under investigation for the 2018
Camp Fire, which killed 86 people.
Still, there’s a climate upside for some utili-
ties. A warmer-than-normal summer last year led
to increased air-conditioner use, boosting earn-
ings at companies that include Duke Energy,
Bloomberg Businessweek February 4, 2019
FirstEnergy, and American Electric Power.
Stronger, more destructive hurricanes have led
some power providers to increase spending on
transmission lines and grid-hardening technol-
ogy. Regulators give them a guaranteed return on
such investments. It’s a back-to-basics strategy
that many investors applaud. 27
“Infrastructure investment is the key theme
here,’’ says Tim Winter, associate portfolio man-
ager for the Gabelli Utilities Fund. “Utilities in gen-
eral, they are as safe if not safer than they’ve ever
been.” Low natural gas prices have helped keep
fuel costs down, allowing utilities to avoid hitting ○ Change in price
since 1/24/14
customers with big rate increases. Winter sees the
S&P 500 Utilities
sector posting average annual earnings growth of Index
5 percent to 6 percent through 2021, compared NextEra Energy
with the 3 percent to 4 percent utilities have typ- PG&E
ically earned.
The safest utility investments are in companies 100%
that own only own poles and wires, not power
plants, says Michael Weinstein, a utility analyst at
Credit Suisse Group AG. In the 1990s, regulators
in some states made generating power and deliv- 0
ering it to customers into separate businesses.
Companies that had long enjoyed monopolies now
had to compete for revenue. Many utilities got
burned in the process, making them seem risky -100
for traditional investors. Weinstein says compa- 1/24/14 1/25/19
nies that have stuck to running the power grids
still benefit from predictable returns. “A lot of
investors want the pure-play utility,” he says. “The
less complicated the better.” —Jim Efstathiou Jr.
and Chris Martin
THE BOTTOM LINE Utility stocks can still be stable income
producers, but conservative investors need to know how
companies plan to address the shift to natural gas, wind, and solar.
 Bloomberg Businessweek February 4, 2019

E Atlanta’s
C Drawing Power
O The Super Bowl host city is a magnet for young
blacks with ambitions in entertainment and business

N
It’s a Tuesday afternoon in January, and Ryan
Wilson is holding court at the Gathering Spot, a
sleek co-working space and business networking
club that sits on the site of an old railway yard west
As the multimillion-dollar extravaganza that is
the Super Bowl descends on Atlanta for the first
time since 2000 (and the third time in its his-
tory), the Gathering Spot is emblematic of the

O of downtown Atlanta. Dressed in a jean jacket,

hoodie, and Salvatore Ferragamo sneakers—
Wilson’s take on the uniform of a Silicon Valley
chief executive—the club’s 28-year-old co-founder
city’s ascendant role within the black community.
Between 2010 and 2017, the black population here
soared by 288,600—far and away the biggest such
gain of any U.S. metropolitan area.

28
M surveys the room, acknowledging the city’s new
power players with waves of his hand. The direc-
tor of a six-day hip-hop festival swings by his
table to chat about potential business ventures.
Many of the recent migrants were drawn here by
the presence of creative types. Some of the biggest
names in hip-hop, including Ludacris and T.I., call
the city home, as do movie producers Tyler Perry

I
Passing by is one of the creators of Partpic, an
app she sold to Amazon.com Inc. Seventy percent
of the club’s members are black. “Part of what the
Gathering Spot proves day-to-day is we are not a
and Will Packer. A source of local pride is that Black
Panther, a Marvel film with an almost entirely black
cast, was filmed in and around Atlanta.
While some are coming because of the enter-

C
second-tier market in the way that people have tainment scene, many are drawn here by the metro
traditionally thought about the city,” Wilson says. area’s comparatively hot economy, which averaged

How Atlanta Stacks Up

S U.S. metro areas with the largest black populations

 Highest  Lowest

Black population
2017
Change,
2010-2017
Change in high-
income black
Share of black
individuals living
Black-owned
businesses, 2016
households, 2010- above the poverty

PHOTOGRAPH BY SHEILA PREE BRIGHT FOR BLOOMBERG BUSINESSWEEK; DATA: U.S. CENSUS.
2017 line, 2017

New York 3.5m +195k +30k 80% 2.5%

Atlanta 2.0m +289k +12k 81% 7.3%

Chicago 1.6m -65k +4k 73% 2.1%

Washington 1.6m +126k +22k 74% 6.5%

Miami 1.3m +145k +4k 77% 2.8%

HIGH INCOME DEFINED AS $200K OR MORE

Philadelphia 1.3m +30k +8k 73% 2.6%

Houston 1.2m +159k +10k 80% 3.5%

Dallas 1.2m +207k +8k 80% 2.8%

Detroit 961k -16k +2k 70% 3.0%

Edited by Los Angeles 879k -4k +7k 78% 1.5%

Cristina Lindblad
 ECONOMICS Bloomberg Businessweek February 4, 2019

growth of 3.7 percent in the five years through 2017,

the most recent data available. The number of black
households earning at least $200,000 has jumped
145 percent since 2010, U.S. Census data show, best-
ing the overall U.S. rate of 107 percent. Atlantans are
among the most enterprising of America’s blacks—
more than 17 percent are self-employed, essentially
putting the city in a tie with New Orleans for the
No. 1 spot, according to a study by the Center for
Opportunity Urbanism.
One of the Gathering Spot’s luminaries is Jewel
Burks. A native of Nashville, Burks was working in
customer service in 2012 at a company that sold
industrial supplies such as fasteners. She was field-
ing angry calls about misidentified parts when she
got the idea of creating a digital tool that could
identify different types of screws from photos. She
brought in a co-founder and went poking around
the Georgia Institute of Technology looking for tal-
ent to actually develop the software. A few years
later, after raising a couple of million in invest-
ment capital, she sold Partpic to Amazon.com for
an undisclosed price.
“When I moved out to Silicon Valley, I felt like I
was one of the only black people I’d see for days,”
says Burks, who worked in sales at Google for a 29
time. She found inspiration in seeing other black
entrepreneurs after relocating to Atlanta. “You feel
there’s a higher likelihood you can do the same.”
Corporate America has taken notice of the
growth and the aspiration, shifting market-
ing and investment dollars from New York and
Chicago south to Atlanta. Procter & Gamble Co., historically black colleges. “I wanted to come  Burks created an
app that was bought
for instance, acquired Walker & Co., a Palo Alto because I saw A Different World, and my friends by Amazon
company that markets health and beauty products told me HBCUs were like Jack and Jill conferences.
to blacks, in December and plans to move it here I said, ‘I’m going to Atlanta,’ ” recalls Gordon, a
by the middle of the year so it can be close to its marketing consultant whose iPhone holds more
target customers. French cognac maker Martell & than 2,000 contacts, ranging from entrepreneurs
Co. took over a luxury condo in downtown Atlanta and lawyers to entertainers such as rapper Waka
a year ago, where it invites celebrities and other Flocka Flame.
“influencers” to parties. The goal is to burnish The Koo Koo Room, a speakeasy-like club tucked
Martell’s brand among blacks and Asians, both key among midtown Atlanta’s office towers, is just get-
customer groups in the U.S., according to brand ting its vibe around midnight on a Tuesday night
lifestyle manager Karim Lateef. “I don’t think as Gordon arrives. He quickly begins working the
there’s any perfect city, but this is the city that room, where two young women, laboring to speak
gives you the best shot, especially if you’re black,” over the din of hip-hop, identify themselves as two-
says Wilson’s business partner, TK Petersen, a thirds of an up-and-coming girl group called Levi
native of St. Croix in the U.S. Virgin Islands who Johnson. Ludacris’s manager is here. Basketball
moved to Atlanta in 2015. great Charles Barkley, who films Inside the NBA in
The city is full of enterprising transplants. the city, is squeezing his way toward the far cor-
Erik Gordon grew up in Stockton, Calif., attend- ner of the bar.
ing meetings of Jack and Jill of America, a leader- Many in the crowd work for entertainment com-
ship development club for black children. Now 38, panies, such as BET Networks, or do publicity for
Gordon—inspired by a late 1980s sitcom—moved them. Almost all are millennials. From 2010 to 2015,
to Atlanta in 1998 to attend one of the area’s Atlanta logged the biggest gain in black young
  ECONOMICS
adults among U.S. cities, adding almost 54,000,
according to a 2018 report by Brookings Institution
demographer William Frey. Dallas ranked second
with about 41,000. Chicago and Detroit saw their
black populations shrink in recent years, confirm-
ing there’s been a reverse migration of blacks back
to the South.
Atlanta has been a draw for African Americans
since the years following the Civil War, when
northern white missionaries and southern blacks
swarmed the city in search of jobs and opportu-
nity. Its tag as a “Black Mecca” dates to at least
the 1970s, when lawyer Maynard Jackson became
the city’s first black mayor and demanded a big-
ger share of the budgetary pie for blacks, partic-
ularly in building and operating the municipally
owned airport. (The primary hub for Delta Air
Lines, Atlanta’s airport is now the busiest in the
world.) The portion of city contracts awarded to
minorities soared from 1 percent to 39 percent
during Jackson’s first term in office, which, along
with more subcontracting work at the airport
for minority-owned businesses, helped expand
the class of well-to-do black people. In his sec-
ond term, Jackson also had a hand in clinching
30 Atlanta’s bid for the 1996 Summer Olympics, an
event that earned the city renewed attention in
the eyes of American corporations.
Still there are those who say Jackson and a
string of black successors have made creating a
welcoming environment for businesses a prior-
ity over policies that bridge the gap between the
haves and have-nots. “If Atlanta has progressed,
it’s for a very small minority,” says Illya Davis, a
professor of African-American studies and philos-
ophy at the historically black Morehouse College.
The percentage of black households in the Atlanta
metropolitan area earning under $25,000 a
year is 22 percent, compared with 13 percent of
white households.
Atlanta ranked second-worst in upward mobility
for all races over the past two decades in a research
paper published last fall by Harvard University
economist Raj Chetty and several co-authors that
covered 50 U.S. metropolitan areas. Only Charlotte
afforded disadvantaged children less opportunity
to move out of poverty, the study found.
Chetty spoke to the city’s community leaders in
October at the invitation of Federal Reserve Bank
of Atlanta President Raphael Bostic, the first black
Fed president in the central bank’s history. The aca-
demic says the big gaps in wealth, in large part a
legacy of decades of segregation, are “potentially
changeable” because Atlanta’s continuing high
growth rates in employment and wages provide
Bloomberg Businessweek February 4, 2019
 Wilson, a co-founder
of the Gathering Spot
abundant opportunities for high-paying work.
Out-of-town strivers are one of the forces shift-
ing Georgia politics, turning the state’s reliably
red electorate a purplish shade. In November
black state legislator Stacey Abrams lost Georgia’s
gubernatorial race by slightly more than 1 percent
to her white Republican challenger, Brian Kemp.
She captured 65 percent of the vote in Atlanta,
and got 766,000 more votes statewide than did
the Democrat who ran for governor four years
earlier—President Jimmy Carter’s grandson,
Jason Carter.
FROM LEFT: PHOTOGRAPH BY SHEILA PREE BRIGHT FOR BLOOMBERG BUSINESSWEEK; PANTHER MEDIA GMBH/ALAMY.
Jessica Stewart studies patterns of African-
American migration and, as a black person mov-
ing to Atlanta later this year to join the faculty of
Emory University, she’s part of the trend she’s
researching. Many of Atlanta’s black migrants have
come from New York and Chicago, with a smaller
number coming from Los Angeles, Stewart says. ○ Top R&B/hip-hop
Plentiful jobs and affordable housing provided the artists by hometown
initial pull, but less tangible factors, such as the  Atlanta
city’s network of graduates from historically black  New York
DATA: BILLBOARD’S 2018 YEAREND ARTIST CHART, ALLMUSIC
colleges, play a role.  Los Angeles
“It contributes to the feel of Atlanta,” she says. “A  Miami
city where blacks feel appreciated and celebrated  All other
and where there’s a strong black culture that per-
meates the whole city, and not just some neighbor-
hoods, like the Southside of Chicago.” —Michael
Sasso, Steve Matthews, and Margaret Newkirk
THE BOTTOM LINE The number of black households in Atlanta
earning at least $200,000 a year is up 145 percent since 2010, yet
the city still gets low scores for upward mobility.
  ECONOMICS
Pain on the Pampas
Juan Eiras was born into a family of ranchers. If
not for that, he says, the 55-year-old would have
quit the business in 2018, the worst year for rais-
ing cattle on Argentina’s Pampas plains in almost a
decade. Now he’s worried about how he’s going to
make it through 2019.
For many of Argentina’s cattlemen, the pain
of last year’s currency crisis endures. With the
benchmark interest rate sitting at 56 percent—the
world’s highest—Eiras and others are pretty much
cut off from credit. At the same time, feed costs
have soared, pushed up by inflation that’s running
at 48 percent. That’s forced farmers to sell off some
of their cattle just so they can feed the rest, flood-
ing the market with cheap beef.
Meatpackers, meanwhile, are making a kill-
ing because beef exports are denominated in dol-
lars. Shipments abroad rose 77 percent through
November, to their highest level in nine years.
“Exporters are profiting at the cost of ranchers,”
says Eiras, who runs a feedlot in Brandsen, a town
in Buenos Aires province. In Argentina, most beef
cattle are raised on grasslands but fattened on grain
before they’re slaughtered. The price of corn feed
has doubled over the past year, so many farmers
are sending fewer cows to feedlots or shortening
the time they spend there. “Our lives are rooted in
ranching,” says Eiras, whose operation is running at
40 percent of capacity. “If it weren’t for that, we’d
have sold out in August.”
Francis Macadam’s ancestors were ranchers
who came to Argentina from Britain after World
War I. Macadam has kept the family business in
Santa Fe province going, but now he’s mulling
slashing the 1,500-strong herd by a third. “There
may come a time when traditions go out of the win-
dow. You can’t keep losing money forever,” he says.
Farmers have reached the point where they’re
dispatching more and more female cows to meat-
packers, according to the Chamber of Beef Industry
and Trade (CICCRA). In 2018 females accounted for
*ESTIMATE; DATA: U.S. DEPARTMENT OF AGRICULTURE
45.5 percent of cattle slaughtered, the most since
2009, when then-President Cristina Fernández de
Kirchner sent the industry into a tailspin with price
and export controls amid a severe drought. Once the
slaughter of female cows surpasses a certain thresh-
old, the size of the overall herd can only decline. “A
perfect storm has gathered that could destroy the
sector,” warns Miguel Schiariti, who heads CICCRA.
Argentina’s cattle industry had been riding a
Bloomberg Businessweek February 4, 2019
○ Argentina’s cattlemen lose, exporters
win as herds are sold off cheaply
wave of optimism after President Mauricio Macri ○ Argentine beef and
veal shipments abroad,
took office in December 2015. Agriculture was cen- in metric tons
tral to Macri’s plan to revive the economy, and his
administration quickly set about dismantling con- 600k
trols instituted by his predecessor. Cattle numbers
rebounded, and eventually so did beef shipments,
returning Argentina to the No. 5 position among
global exporters. But when investors began unload- 300
ing Argentine securities last April because of con-
cerns about the fiscal deficit, the peso plunged. By
yearend the currency had lost half its value.
Government-imposed austerity and the sky-high 0
interest rates required to shore up the peso are 2006 2018*
weighing on the economy. Gross domestic product
shrank an estimated 2.4 percent in 2018, and a fur-
ther 0.5 percent contraction is expected this year.
The livestock industry’s problems have a silver
lining for steak lovers. In Argentina, whose resi-
dents vie with those in neighboring Uruguay for
the title of world’s biggest consumers of beef, prices
have risen less than inflation. 31
 Cooking beef
ribs the traditional
Argentine way
Not all ranchers are ready to call it quits. In La
Pampa province, Julio Reumann is thinking about
expanding his 2,000-head herd by buying some
calves on the cheap, betting that prices will firm
up by the time the animals are ready for slaugh-
ter. “In Argentina, we live from crisis to crisis,”
says the fourth-generation cattleman. “The only
way to live here is by looking for opportunity.”
—Jonathan Gilbert
THE BOTTOM LINE Sky-high interest rates plus soaring prices
for feed are forcing Argentina’s ranchers to send more animals to
slaughter, risking smaller herds in the future.
 Bloomberg Businessweek February 4, 2019

P
O
L
I
T
32
I
C Venezuela Balances
On a Knife’s Edge
S ○ Events are moving fast in Venezuela, and not in President
Nicolás Maduro’s favor. Scattered protests in Caracas the night
of his second inauguration, on Jan. 10, quickly grew into organized
demonstrations as thousands heeded opposition leader Juan
Guaidó’s call to march against the regime. At press time, Maduro
remains in office, but he faces a litany of threats: the economy,
which has been devastated by low oil prices; powerful interna-
tional interests, including the U.S., which condemned his 2018
reelection as illegitimate; Guaidó, head of the National Assembly,
who’s claimed the title of interim president until new elections can
be called; and the military, whose loyalty Maduro needs above all
else to hold on to power. The president made a show of courting
the armed forces’ support and has sent security forces into areas
of unrest. But every day Guaidó roams freely in Caracas, hold-
Edited by ing rallies and building a government in waiting, Maduro’s grip on
Jillian Goodman and
Anne Reifenberg power becomes more tenuous. —Patricia Laya
  POLITICS
○ The Military
Guaidó supporters first fanned out to military
bases and national guard stations around Caracas
in the days after he declared himself president
on Jan. 23. They carried copies of a law from
the National Assembly granting amnesty to any
member of the armed forces who defects to
the anti-Maduro cause. So far the top brass has
stood behind the commander-in-chief, who long
ago secured their loyalty with lucrative prizes: the
reins of Petróleos de Venezuela SA (PDVSA), the
state-owned oil company; control of the ports;
contracts for housing projects; and the rights to
valuable mining and oil-services concessions.
Caracas on Jan. 23:
It would be a surprise if military leaders broke
ranks and moved against the authoritarian
PROTESTERS, MILITARY: CARLOS BECERRA/BLOOMBERG (2). MADURO: YURI CORTEZ/AFP/GETTY IMAGES. GUIADO: MARCO BELLO/BLOOMBERG
regime, says historian Tomás Straka of Andres
Bello Catholic University in Caracas: “Their eco-
nomic interests and vision are completely fused
with Maduro’s.” Despite the outreach from the
Assembly, they’ll be in trouble if he falls. Several
high-ranking officers have been sanctioned by
the U.S., accused by American prosecutors of
graft, drug running, and other crimes.
Many in the rank and file also remain behind
Maduro, at least publicly. More than a few were
photographed burning the amnesty documents.
Still, dissent has simmered since before Maduro’s
tenure. A military coup deposed his predeces-
sor and mentor, the late Hugo Chávez, for a few
days in 2002. The mood among the soldiers has
only soured since, as the economy has crumbled,
with those down the chain of command strug-
gling along with the rest of the population. They,
too, have to deal with desperate shortages of
food and medicine, blackouts, and water taps
that run dry. There have been reports of deser-
tions. Asked for their reactions to the amnesty
offer over the weekend, some men in uniform
patrolling the city, rifles slung over their shoul-
ders, gave a wink or a thumbs-up.
Bloomberg Businessweek February 4, 2019
○ The World
While key allies Russia and China continue to
support Maduro, the pro-Guaidó faction swelled in
just over a week to more than 20 countries, includ-
ing Canada, Israel, and the U.K. In Latin America,
11 countries lined up to follow President Trump’s
lead in pushing for regime change. ○ Maduro
Among their motivations: More than 3 million
people have fled Venezuela, according to the
United Nations High Commissioner for Refugees,
mainly to neighboring lands. “This isn’t merely a
question of applying democratic principles, this
is a question of countries bearing the brunt of the
negative consequences,” says Benjamin Gedan,
a former South America director at the White
House’s National Security Council.
Not all in the region are on board. Mexico ○ Guaidó
and Uruguay have called for de-escalation;
Bolivia, Cuba, and Nicaragua have reiterated
their support for Maduro. The European Union
Protesters rally for the
stopped short of giving Guaidó the nod, though it opposition; Defense
signaled it would do so if Venezuela didn’t sched- Minister Vladimir
Padrino Lopez and the
ule “free, transparent, and credible presidential military high command
elections” by the beginning of February. speak to the press
33
Meanwhile, the U.S. has been assisting Guaidó
in a kind of smoke-and-mirrors game of brink-
manship, insinuating that it may be building up a
military force in Colombia to invade if necessary.
Addressing the UN Security Council, U.S. Secretary
of State Mike Pompeo was blunt. “Now it is time for
every other nation to pick a side,” he said. “Either
you stand with the forces of freedom, or you’re in
league with Maduro and his mayhem.”
○ THE WORLD DIVIDES ITS LOYALTIES
As soon as Guaidó invoked the constitution to claim the presidency,
global leaders began taking sides. —Andres Martinez
 Supports Guiadó  Supports Maduro  Calling for dialogue  Calling for new elections
Venezuela
  POLITICS
○ The Money
The Trump administration dealt its hardest blow
yet to Maduro when it put new sanctions on
PDVSA. Once Latin America’s largest producer,
Venezuela is pumping less than North Dakota
does these days, but oil sales remain its main
source of revenue. Sanctions will effectively block
the national oil company from exporting crude to
the U.S. and crimp the regime’s cash flow. Its U.S.
subsidiary, Citgo, will be allowed to continue oper-
ating, but all revenue will be held in accounts the
Maduro regime can’t access. Guaidó has vowed
to appoint his own boards to PDVSA and Citgo—a
mostly symbolic gesture for now, but one that
nevertheless adds to his aura of authority.
Pompeo took another step toward starving out
Maduro on Jan. 29, granting Guaidó control over
Venezuelan assets and property in U.S.-insured
banks, including the Federal Reserve Bank of New
34
York. (The State Department has declined to say
how much money is in the accounts.) American
officials also successfully lobbied the Bank of
England to deny Maduro access to $1.2 billion in
gold the Venezuelan government holds in London,
stymieing its efforts to pull in funds from abroad.
Maduro’s government owes Russia and China
billions of dollars in loan payments, but that’s
unlikely to faze the sitting president. Since the
Trump administration began slapping sanctions
on Caracas in 2017, the government has defaulted
on more than $9 billion in debt owed to bondhold-
ers, yet both creditors have been staunch so far
in their support.
The real problem for Maduro is losing the abil-
ity to dole out money. The more of the economy
Guaidó gains control over, the harder-pressed
Maduro will be to keep key allies on his side. The
military, for instance, is unlikely to stick around if
he loses the power of the purse.
Bloomberg Businessweek February 4, 2019
○ The People
 Protesting Maduro’s
government near
Parque Cristal in
Caracas on Jan. 30
Hungry, broke, and exhausted, Venezuelans are
angrier than ever with Maduro. And after more
than a year of silence in the wake of the mass
demonstrations of 2017, Guaidó has reignited  Employees unload
fuel at a PDVSA gas
their passion for protest. station in Caracas on
Almost two years ago, millions turned out and Jan. 29
encountered tear gas and violence at the hands
of security forces. Thousands were arrested
during months of demonstrations, and hundreds
died. This time the protests have been mostly
peaceful. Security officers were out when Guaidó
supporters again took to the streets of Caracas
on Jan. 30, but they largely kept ranks as protest-
ers marched past.
PDVSA: CARLOS BECERRA/BLOOMBERG. PROTESTORS: JUAN BARRETO/AFP/GETTY IMAGES. MALMO: MIKAEL SJOBERG/BLOOMBERG
Earlier, Maduro launched a series of night-
time raids in the working-class neighborhoods
and slums that were once rock-solid Chavista
bastions but have begun to shift away from him.
There, under the cover of darkness, members
of the deadly Special Action Force used tear
gas, guns, and even grenades against demon-
○ The U.K. prevented
strators. “Maduro won’t let go of power easily,” Venezuela from
says Jesus Gonzalez, a motorcycle taxi driver in removing gold from the
country worth
the vast Petare slum. “He doesn’t mind pumping
anyone who protests against him full of lead.”
Through all of this, Guaidó hasn’t been
$1.2 b
arrested. Although Maduro has prevented him
from leaving the country, he’s so far been free
to travel locally, meet with foreign leaders, and
speak to the press. Social media blackouts have
curtailed his reach at times, while Maduro has
been touring the country’s military installations
trailed by a TV crew filming generals as they
swear their allegiance.
At press time, Guaidó was still leading march-
ers and planning further protests for Feb. 2, when
the EU’s deadline runs out.
 POLITICS Bloomberg Businessweek February 4, 2019

Swedish Liberalism
Begins to
○ The struggle to hold back racist forces risks fracturing the government

The longest political standoff in Sweden’s history A refugee himself, Arif came to Malmo from the
ended on Jan. 18 with the government looking much Balkans when he was 6 years old. “The debate has
as it had before elections were held four months ear- been very much black or white, either you’re for
lier. Stefan Lofven, leader of the moderate Social or against immigration,” he says. “It’s about find-
Democrats, was again named prime minister, while ing a balance.”
the nationalist Sweden Democrats continue to be In 2015, Lofven bowed to public pressure and
isolated in Parliament. The new four-party alliance agreed to restrict migration. The three other par-
hailed its agreement as a victory against insurgent ties in the new governing coalition are all pro-
forces of racism and intolerance. immigration, however, and their agreement with the
In reality, the deal merely papers over the dis- Social Democrats includes a promise to allow more
content that’s been eating away at Swedish liberal- refugees to bring their families to Sweden. According
ism since the beginning of the Syrian refugee crisis. to the Swedish Migration Agency, the new policy
An influx of migrants has stretched the country’s would make the country one of the most welcom- 35
social services to near the breaking point—a sit- ing in Europe and lead to about 8,000 more asylum-
uation the governing agreement fails to address. seekers over the next three years.
Sweden Democrats received almost 18 percent of Forming a government “underlines the sta-
the September vote, and their sidelining in the gov- bility that I think most people associate with
ernment could further alienate that substantial and Sweden,” says former Finance Minister Anders
growing voting bloc. Borg. Yet that could change quickly: “There’s a
The four allied parties—primarily the Social risk that you get problematic migration numbers,
Democrats and the environmentally focused Green and you get a political reaction where the Sweden
Party, supported by the traditionally center-right Democrats become the winners.” While they hav-
Center Party and Liberals—have fundamental dis- en’t yet resorted to the overt send-them-back mes-
agreements on taxation, regulation, and other sage of Donald Trump or Hungary’s Viktor Orban,  Malmo’s Rosengard
issues. Despite the temporary return of stability, Sweden Democrats say the country can’t afford neighborhood
the potential for crisis remains high.
Sweden once welcomed more refugees per capita
than any other European Union nation. In the past
five years, the country of 10 million accepted more
than 400,000 asylum-seekers and relatives of previ-
ous immigrants.
Among large Swedish cities, Malmo, just across the
Oresund Strait from the Danish capital Copenhagen,
has seen the greatest influx of migrants per cap-
ita. Last year, 509 families with children in Malmo
required emergency housing, up from 64 in 2009,
forcing the city to rent rooms in hotels and hostels, at
a cost of 500 million kronor ($55 million) a year. “We
can’t accept an unlimited number of people,” says
Sedat Arif, a local council member in charge of hous-
ing policy. “We need to consider what kind of recep-
tion we want to give people who come here.”
  POLITICS
additional refugees. They want Sweden to stop
accepting migrants and to tighten the rules for unit-
ing families. Even some people who oppose the
Sweden Democrats say more must be done. “The
government needs to show that it makes a differ-
ence,” Arif says. “We need to stop always relating
to what Sweden Democrats thinks. We need to con-
sider what challenges we have.”
Nationalists around the world have cited Malmo as
an example of what can go wrong in a welfare society.
Gang violence has long been a problem, especially in
crowded, run-down areas. In Almgarden, a neighbor-
hood about evenly split between white Swedes and
immigrant families, 41 percent of residents voted for
the Sweden Democrats, among the highest percent-
ages of any district in the country. “People think all
criminality stems from immigration,” says Almgarden
resident Jeanette Palsson. Some of her neighbors
have become increasingly hostile. “We have friends
who we struggle to hang out with, especially outside,
because they’re openly racist.”
More than a dozen cameras were put up last
March along a kilometer-long stretch in Rosengard,
the high-crime neighborhood that encompasses
Almgarden. These have helped curb violence.
36 There was a stabbing a few months ago; officers
apprehended the killer within 15 minutes thanks to
the surveillance, says Malmo police superintendent
Stefan Wredenmark. “We have journalists coming
here all the time, and when they see this area their
reaction often is that ‘this isn’t a war zone,’” he says.
Will Bangsamoro Mean Peace in the Philippines?
○ A largely Muslim region in the country’s south passed a referendum that could end decades of violence
For decades, poverty in the resource-rich island
of Mindanao in the southern Philippines has been
exacerbated by an insurgency. The rebels want a
majority-Muslim section of the island to break away
from the rest of the country, which is overwhelm-
ingly Catholic. With a recent vote for greater self-
rule, the area now has a realistic chance for change.
In a Jan. 21 referendum, the Muslim region over-
whelmingly favored the creation of a political unit,
Bangsamoro, that would have its own parliament,
greater federal funding, and full control of the
area’s natural resources, which had previously been
shared with the national government. The new unit
will govern a greater territory than the system it’s
Bloomberg Businessweek February 4, 2019
 Malmo council
member Arif
“It used to be a no-go zone, but it’s not anymore.”
While certain types of highly visible crimes, includ-
ing deadly shootings, have gone up, “the number
of reported crimes—the general crime rate—is going
down,” says fellow superintendent Glen Sjogren.
For longtime Malmo residents like pensioner
Yvonne Vigstrand—as well as other Swedes attempt-
ing to cling to the values that made the country a
beacon of liberal democracy—that comes as little
comfort. She opposes the Sweden Democrats, but
she can understand how there was a surge in sup-
port for the nationalists. Now they just add to the cli-
mate of fear in Sweden. “Nothing has ever happened
to me, so I have no reason not to feel safe,” she says.
“But I won’t go out late at night.” —Amanda Billner
and Rodney Jefferson
THE BOTTOM LINE Mainstream Swedish politicians have chosen
to ignore problems created by immigration rather than having
uncomfortable conversations about race.
replacing, thanks to the addition of Cotabato, one
of the more prosperous cities on the island, which ○ Philippines
 Autonomous Region
opted to be included. Other, smaller areas will vote in Muslim Mindanao
on Feb. 6 on whether they want to join.
The vote was the culmination of years of govern-
ment peace talks with rebels from the Moro Islamic
Liberation Front, who sought greater autonomy in
exchange for laying down their arms after a four- Manila
decade struggle that’s killed tens of thousands.
(Bangsamoro succeeds the Autonomous Region
in Muslim Mindanao, which the Front criticized
for a lack of autonomy, in spite of its name.) The
Bangsamoro framework—which requires the govern-
ment to pour 5 billion pesos ($95 million) annually
  POLITICS

Taxes Wealth
into the Muslim region for the next decade to aid
in rebuilding—stands to propel growth in the poor- Democratic presidential hopeful
est part of the Philippines, according to Finance Elizabeth Warren dove headfirst into
Secretary Carlos Dominguez. “We have the chance
to recover the lost years, to redeem the lost genera- her campaign on Jan. 25 by proposing
tions,” he said in a Jan. 28 statement. a new tax on the rich—an area her
The Muslim region’s economy—already among party has traditionally danced around.
the fastest-growing in the country—is expected to
expand 7.4 percent once the framework is in place, —Laura Davison, with Peter Coy
according to the Japan International Cooperation
Agency. That will have little benefit to the overall How would it work? Why tax wealth? What’s the catch?
growth picture for the Philippines, says London-
The Massachusetts The plan would tax all of The wealthy might
based Capital Economics, which slowed to a three- senator is calling for a household’s assets, not try to insulate their
year low of 6.2 percent in 2018. a 2 percent levy on just income—a feature assets from the
household wealth in experts say is necessary taxman by transferring
Nevertheless, the success of the referendum is excess of $50 million, to prevent avoidance. titles outside the
also a success for President Rodrigo Duterte, who and 3 percent on wealth While it stands to affect U.S. Famed French
above $1 billion. The just 75,000 Americans, economist Thomas
hails from Mindanao. Apart from being the site of annual asset valuations the wealth tax could Piketty, recognizing this
the ongoing conflict, Mindanao is home to an esti- this would require raise $2.75 trillion over a possibility in his 2014
are relatively simple decade, vs. the estimated book, Capital in the
mated $300 billion of mineral deposits. Duterte sup- to calculate for bank $353 billion that a 70 per- Twenty-First Century,
ported the autonomy vote as a way to deliver on accounts and publicly cent tax on income over called for a global
traded investments, but $10 million, proposed by tax on wealth—but
a campaign pledge to achieve peace and increase much harder to do for New York Democratic such a thing would be
development in the south as a whole. While almost closely held businesses, Representative Alex- unimaginably complex.
real estate, and art. andria Ocasio-Cortez,
half of Philippine citizens are still undecided about would generate.
the region’s new status, according to a survey done
by pollster Social Weather Stations, a large majority
of the Muslim population supports it. Family median net worth by Even a domestic wealth tax would be 37
income percentile, 2016
More autonomy may not be enough to fully an administrative nightmare. The IRS
 Increase since 2013
address security issues, says Amina Rasul, who already does total-asset valuations
heads the think tank Philippine Center for Islam Under 20 $7k when a wealthy individual subject to
and Democracy. Just days after the referendum, the estate tax dies. But such analyses
20–39.9
two explosions killed at least 20 people in a Catholic are highly subjective, and a wealth tax
church in Sulu province, whose vote against join- 40–59.9 would require them to greatly expand
ing the Bangsamoro region was overwhelmed by 60–79.9 their capabilities. More broadly, critics
the tallies in surrounding areas. The Islamic State say taxes on accumulated wealth would
80–89.9
claimed the attack, but police said a local bandit discourage innovation and investment
90–100 $1.6m
group may be behind the blasts, which happened and could be unconstitutional.
while Mindanao is under martial law.
The region will also need the national govern-
ment’s help while it transitions to greater self-rule, What do voters think?
says Ishak Mastura, who heads the area’s investment
authority. Poor infrastructure, high electricity costs,
ARIF: MIKAEL SJOBERG/BLOOMBERG. WARREN: CHIP SOMODEVILLA/GETTY IMAGES.

U.S. adults saying the economic

and a cumbersome bureaucracy could still deter While there hasn’t been much
system unfairly favors the powerful
DATA: FEDERAL RESERVE SURVEY OF CONSUMER FINANCES, PEW RESEARCH

investment. Infrastructure projects worth more than polling on a wealth tax, Democrats
Democrat/lean Democrat
22 billion pesos ($422 million) have been lined up for especially think the system is
Republican/lean Republican
the region this year, on top of the expected funding rigged against the little guy. In the
Total
support, says the economic planning agency. lead-up to the 2017 overhaul, about
“If you’re an investor who wants quick returns 43 percent of all voters said taxes 90%

and doesn’t want challenges, then our region may should be raised on incomes higher
not be for you,” Mastura says. “If you’re someone than $250,000, while just 24 percent
who understands the risks and you’re looking for wanted to cut them. In a January
an opportunity to be the first mover, you can take a 2019 poll, however, 59 percent of 50

chance on us.” —Andreo Calonzo voters surveyed supported

Ocasio-Cortez’s proposal to raise 30
THE BOTTOM LINE A referendum on autonomy for a largely the top rate to 70 percent. 2/2014 9/2018
Muslim area of the southern Philippines stands to end decades of
conflict that have depressed the local economy.
 Bloomberg Businessweek February 4, 2019

CARLOS GHOSN
NEVER
SAW IT COMING
38

THE TAKEDOWN OF A GLOBE-TROTTING CEO

BY MATTHEW CAMPBELL, KAE INOUE, MA JIE,

AND ANIA NUSSBAUM
ILLUSTRATIONS BY WOSHIBAI
39
 Bloomberg Businessweek
ONE MORNING LAST NOVEMBER, SEVERAL HUNDRED
businesspeople filed into an auditorium on the third floor
of a skyscraper in Tokyo’s financial district. The occasion
was a forum marking the centenary of the French Chamber
of Commerce and Industry in Japan. Among the keynote
speakers was an exemplar of the two countries’ warm
relationship: Hiroto Saikawa, the chief executive officer of
Nissan Motor Co. and a linchpin of its almost 20-year alliance
with France’s Renault SA.
In his address, Saikawa extolled the partnership, a con-
fection of cross-shareholdings and joint production whose
durability had consistently surprised skeptics. “The alliance
allowed us to compete with our major rivals,” said Saikawa,
who’s 65, thin, and fairly tall, with a mostly unlined face and
cheeks lightly mottled by freckles. He wore rimless glasses, a
purple tie, and a dark navy suit with a gold pin in the shape of
Nissan’s all-caps logo at the left lapel. Rarely one for elegant
rhetoric, he instead boasted of Renault-Nissan’s accomplish-
ments: combined operations that had generated billions
in savings, a strong position in electric vehicles, more than
10 million cars sold in 2017.
To those present, the speech was unremarkable, even
boring. But as he spoke, Saikawa was harboring a secret
known only to a tiny number of Nissan managers and a
team of prosecutors in the Special Investigations Unit, an
40 elite arm of Japanese law enforcement. En route to Tokyo
at that moment, aboard a Gulfstream G650 with the regis-
tration number N155AN, was Carlos Ghosn, the charismatic
executive who’d engineered the Renault-Nissan alliance and
now served as chairman of both companies. He’d be landing
February 4, 2019
at Haneda airport in less than six hours, prepared for a busy
week: a board meeting, discussions with important Japanese
officials, then a trip to China. Saikawa knew none of that
would take place.
When the plane touched down, at about 3:30 p.m. that
Monday, Nov. 19, Ghosn prepared to hand over his passport
for inspection, a procedure performed hundreds of times
since he’d arrived at Nissan in 1999. This time, though, a
group of black-suited prosecutors filed up the jet’s stairs to
tell Ghosn he was being arrested for violating Japanese finan-
cial law. Furious and confused, he refused at first to surrender,
according to two people familiar with the events, demand-
ing to know the charges and the evidence behind them. A
lengthy argument followed, but it eventually became clear
the men weren’t making a request. More than an hour after
they boarded, Ghosn agreed to go.
As Ghosn was debating the prosecutors, another member
of Nissan’s board, a dour American lawyer named Greg Kelly,
was in a car heading into town from Tokyo’s other airport,
Narita. He’d just landed on another company plane, sched-
uled by Nissan to coincide with Ghosn’s arrival. The plan
was to surprise Kelly, who’d run Ghosn’s office before shift-
ing to an advisory role, at his hotel in central Tokyo, bring-
ing him into custody almost simultaneously with Ghosn in
case one of them tried to warn the other, destroy documents,
or flee. Traffic, according to three people familiar with the
matter, intervened. As the risk grew that Kelly would learn
of Ghosn’s detention, word went out to the team of prosecu-
tors tailing behind: Pull him over. Kelly was soon arrested at
a highway rest stop.
Bloomberg Businessweek
That night, Ghosn and Kelly slept in bare cells at the Tokyo
Detention House, a place no executive of Ghosn’s stature had
ever been held. Kelly was released on bail, but Ghosn remains
confined there more than two months later, with little pros-
pect of release. He’s been indicted for concealing his true
compensation in regulatory filings by deferring as much as
$80 million of pay to his retirement, and of a more serious
“breach of trust” offense stemming from a 2008 decision
to move personal trading losses temporarily onto Nissan’s
books. The charges carry decade-long prison terms, and
Ghosn, who’s 64, is fighting them in a country where prose-
cutors boast a conviction rate, rounded to the nearest integer,
of 100 percent. Meanwhile Nissan, which fired Ghosn as chair-
man almost immediately after his arrest, has accused him of
a wide range of further misconduct, essentially claiming he
used the company as a personal piggy bank. He vehemently
denies all the allegations. Kelly, who’s been charged in the
deferred-compensation case, does as well.
Ghosn’s descent is the most vertiginous in the recent his-
tory of global business; during an age when corporate scan-
dals often end with a CEO enjoying a generous severance
and a lucrative second or third act, the prospect of a top
executive facing incarceration is genuinely shocking. Yet
while Ghosn (whose name rhymes with “lone”) may have
exceeded the boundaries of acceptable corporate behav-
ior, it’s increasingly clear that his downfall had multiple
authors. The arrests were the culmination of a torrid power
struggle at Nissan, one with far dearer stakes than Ghosn
could have known. Riding on the outcome, in addition to
his personal position, were the future of the unprecedented
partnership between two of the world’s largest automotive
companies and a principle the Brazilian-French-Lebanese
executive viewed as sacred: that in a global economy, the
bigger-is-better logic of 21st century capitalism supersedes
national differences.
In a statement, Nissan said that “the cause of this chain of
events is the misconduct led by Ghosn and Kelly,” for which
the company found “substantial and convincing evidence”
after investigating a whistleblower’s report. Nissan’s focus, it
said, “is firmly on addressing the weaknesses in governance
that allowed this misconduct to happen.”
Barred until recently from speaking with anyone except
consular officials and his lawyers, Ghosn has appeared in pub-
lic only once since his arrest, at a brief January court hearing
where he asserted his innocence. Even his allies don’t know
entirely what to make of the allegations against him. But to
some of them, his situation looks like more than the come-
uppance of an executive who flew his Gulfstream too close
to the sun. It looks like a palace coup.
GHOSN AND SAIKAWA’S PARTNERSHIP DATES TO 2001,
two years into a corporate alliance struck when Renault res-
cued Nissan from the edge of bankruptcy by paying $5.3 bil-
lion for about a third of its shares. Installed as Nissan’s chief
operating officer with a mandate to ruthlessly cut costs, much
February 4, 2019
as he’d done at Renault, Ghosn chose Saikawa to head a new
office that would coordinate purchasing between the two. A
Nissan lifer who’d joined the company straight out of univer-
sity in 1977, Saikawa recounted in an interview with Bloomberg
News that he was surprised to be tapped for such a critical
function. Nissan was a financial mess, and he’d expected to
take direction from French executives rather than the reverse.
He began shuttling between Tokyo and Paris, keeping an office
at Renault’s headquarters. His colleagues joked, one recalls,
that he’d received a transfusion of (tricolor) blue blood.
Supplies and components purchased from third parties
can account for more than half of a car’s manufacturing cost.
Saikawa’s job was to squeeze better deals out of vendors,
including by severing many of Nissan’s ties to its keiretsu, a
uniquely Japanese grouping of suppliers that receives prefer-
ential access to contracts. He excelled at the task. Brusque,
demanding, and seemingly incapable of talking about anything
other than business, he worked long hours even by Japanese
standards and made few friends, according to several former
Nissan executives. During a stint overseeing Nissan’s North
American operations, he was seldom seen anywhere but the
office he used in Nashville or a nearby conference room; slap-
ping backs on the local factory floor, the sort of thing Ghosn
delighted in doing, was practically out of the question.
The Renault-Nissan relationship evolved in a direction that
might charitably be described as awkward. The companies 41
officially came to share engineering resources, but current
and former Nissan staffers say French and Japanese teams
often worked together uneasily, disagreeing about techni-
cal standards and which technologies to prioritize. Obvious
opportunities for collaboration were missed as each company
stuck to its own plans—to this day, for example, Nissan’s flag-
ship Leaf electric vehicle and Renault’s comparable Zoe share
no major components. Yet the financial and strategic over-
haul Ghosn imposed gradually restored Nissan to health, if
never quite to the point of challenging Toyota Motor Corp.
as Japan’s top automaker.
Nissan could be a hard-edged place to work, marked by
intense rivalries and pressure to hit numerical targets. One
former executive jokes that his time there reminded him of
The Firm, the Tom Cruise movie about a law office where
professional ambitions reach murderous extremes. The ulti-
mate currency was Ghosn’s confidence, which Saikawa cer-
tainly enjoyed. One of a small corps of executives referred to
internally as the “Ghosn children,” he was promoted repeat-
edly, eventually to chief competitive officer, with responsibil-
ity for research and development, manufacturing, and a slew
of other functions. When, in early 2017, Ghosn announced
that he would step down as Nissan CEO to concentrate on
running Renault and the broader alliance, Saikawa took his
place. “Saikawa-san is somebody I have been grooming for
many years,” he said.
As Saikawa settled into the job, however, the tone of
their relationship changed. His early tenure was dominated
by revelations that for more than three decades, some
 Bloomberg Businessweek February 4, 2019

Nissan cars had been inspected by auditors who weren’t

properly certified. More than a million vehicles had to be
recalled, and the company took the unprecedented step
of shutting down its Japanese production for two weeks to
investigate. Although Saikawa had been in the job less than
a year, he absorbed the blame, performing the ritual apol-
ogies expected of dishonored Japanese bosses. He also took
a voluntary pay cut, shrinking a compensation package that
was already a small fraction of Ghosn’s. Ghosn, who’d actu-
ally been in charge for much of the period at issue, never
formally apologized and even, according to a person with
knowledge of the matter, chided Saikawa for moving too
slowly to address criticism and implement an action plan.
Over the following months, Ghosn began planning an over-
haul of Renault and Nissan’s ties that might have brought the
two companies under a single corporate parent or into an out-
right merger, according to half a dozen people familiar with
the ensuing discussions. (They, like other sources interviewed
for this story, requested anonymity while discussing sensitive
information.) As a larger, more integrated company, the think-
ing went, Renault-Nissan would be better positioned to pursue
emerging technologies such as autonomous vehicles. It would
also possess what investment bankers call “deal currency”—
shares valuable enough to parlay into a major acquisition
should another big carmaker become available. The French
42 government, Renault’s largest shareholder, had made its pref- his days as CEO could be numbered. The conversation wasn’t
erence for a tighter alliance clear, seeing an opportunity for an isolated incident—the same source says Ghosn had criti-
the company to become the core of a global industrial giant. cized Saikawa for weak performance in the U.S., where Nissan
Saikawa hated the idea, arguing internally that Nissan is badly lagging rivals. And at one point, according to a person
should remain independent or be the dominant force in any close to Ghosn’s family, he told his children Saikawa had only
deeper union. He was particularly concerned with ensuring until the end of 2018 to turn things around. (In its statement,
that Nissan’s electric vehicle technology wouldn’t be cannibal- Nissan said suggestions that Ghosn and Saikawa were divided,
ized to benefit Renault, the smaller and less profitable partner. whether over the inspections crisis, a potential merger, or
In late April, Saikawa made his objections public, telling the Nissan’s performance, are based on “unsubstantiated specu-
business newspaper Nikkei that he saw “no merit” in combin- lation and hearsay,” and that claims Saikawa’s job was at risk
ing Nissan and Renault. are “baseless.”)
Ghosn was livid. The next time he saw Saikawa at Nissan’s Ghosn enjoyed a significant advantage in both pay and
headquarters just outside Tokyo, he dressed his successor power. He was still Nissan’s chairman, in addition to being
down, telling him he’d damaged the company’s credibility, Renault’s CEO and chair, and chair of the Amsterdam-based
and his own, by questioning the plan, according to a person entity that oversees the alliance. Under a structure that’s
familiar with the exchange. He also suggested to Saikawa that changed little since the 1999 rescue, Renault also controlled

His ascent began ○ MARCH 1999 ○ SEPTEMBER 2002 ○ APRIL 2005

in 1996 when, as
Renault’s executive The alliance between Now Nissan’s chief Ghosn becomes
vice president, he Renault and Nissan executive officer, he CEO of Renault while
started implementing forms, with Ghosn enters the Chinese retaining the top job
the equivalent of becoming chief market by setting up at Nissan, making him
HOW GHOSN €3 billion in cost cuts.
They helped turn the
operating officer
of the Japanese
a joint venture with
Dongfeng Motor.
the first executive to
oversee two major car

BUILT AN carmaker profitable

again and earned
company. companies at once.

him the nickname “Le

EMPIRE Cost Killer.” Ghosn
then embarked on a
decades-long mission
to make the company
more global. —Ma Jie
and Frank Connelly With then-CEO of
Donfeng, Miao Wei
Bloomberg Businessweek February 4, 2019

43 percent of Nissan’s shares, giving it the power to veto
major decisions. Regardless of Saikawa’s position, Ghosn
could probably make deeper integration happen.
In the months before his arrest, people familiar with the
discussions said, tentative plans were made to announce the
new structure and a leadership team as soon as early 2019.
Ghosn, whose Renault contract had been extended to 2022,
would be at the top. Saikawa was at risk of being cast aside,
and of seeing the company to which he’d devoted his entire
career subsumed into a global conglomerate.
GHOSN’S LIFE HAS BEEN DEFINED BY A COSMOPOLI-
tanism extreme even among the international business class.
He has three passports, speaks four languages, and, until his
recent change in circumstances, split time among five or more
cities. But while he might be a caricature of the borderless
Davos Man, he is by all accounts a true believer in the values
of the often mocked Swiss economic forum. Understandably
so—a man born in remote western Brazil, raised in Beirut,
educated in Paris, and entrusted with an iconic company
in insular Japan can be forgiven for assuming that national
boundaries no longer bind global commerce.
When Ghosn landed in Tokyo to take charge of Nissan,
his prior experience of Japan consisted of brief visits. The
Japanese press compared his arrival in 1999 to that of the
kurofune, or black ships—the American gunboats that forced
the country open to trade in the 19th century. As his efforts
at Nissan took hold, he became a living rebuttal to the notion
that Japan couldn’t again participate fully in a new global
era. His proudest accomplishments included deals to incor-
porate China’s Dongfeng Motor Co. and AvtoVAZ PJSC of
Russia, hulking relics of communist central planning that
became modern and well-organized components of the
larger alliance.
The longer Ghosn spent traversing the globe, the more
fully he inhabited his Davos Man character. In the early 2000s
he got Lasik surgery and ditched his Coke-bottle glasses.
He bought sharper suits and flattened his already unplace-
able accent; his thinning hair became bushy and jet black.
Remarkably, he never bothered to learn more than basic
Japanese, but he seemed beloved in Tokyo anyway, stopped
on the street for photos and courted by politicians looking
to inject their campaigns with modern flair.
For all that, Ghosn was well and variously compensated.
He had at least three salaries: in 2017 about $6.5 million
from Nissan, $8.4 million from Renault, and $2 million from
Mitsubishi Motors Corp., the troubled Japanese automaker
that’s also now part of the alliance. Nissan and Mitsubishi
say Ghosn received an additional $8.9 million from a Dutch
joint venture, Nissan-Mitsubishi BV, without approval from
either company.
It was over compensation that his troubles began. Relative
to U.S. standards, Japanese and French corporate bosses are
modestly paid. But Ghosn handled discussions of pay with
his habitual combativeness, vigorously rebutting his critics.
Often he had help from his steadfast ally Kelly, who com-
missioned annual tables from a respected consulting firm
to demonstrate that Ghosn made less than his counterparts
at automakers such as Ford Motor Co. and General Motors
Co. That wasn’t quite the full picture, though. Japanese com-
panies generally provide homes for their senior executives,
and for Ghosn, Nissan provided five—in Paris, Tokyo, and
Amsterdam, but also in Beirut and Rio de Janeiro, where he
had negligible business ties but extensive personal ones.
Last spring, a person with direct knowledge of the events
says, Hari Nada, who’d taken over managing many of Ghosn’s
affairs from Kelly, began to question the propriety of the 43
housing arrangements. Nada declined interview requests,
and it’s unclear what motivated his concerns. A person-
able Malaysian-born lawyer, he’d worked at Nissan since the
1990s and had long been loyal to Ghosn and Kelly. He and
Kelly were friends, part of a clique of senior expatriates who
met frequently at Charcoal Grill Green, a burgers-and-beer
bar near Nissan’s headquarters. Nada had also been inti-
mately involved with many aspects of the chairman’s com-
pensation. For instance, he was one of three administrators
of Zi-A Capital BV, a Dutch subsidiary of Nissan created by
Kelly in 2010; it purchased Ghosn’s Beirut house two years
later for $8.8 million, then spent $6 million renovating it with
opulent touches, including two chandeliers totaling $74,000.
Nada was also aware of documents proposing that pay-
ments totaling as much as $80 million be made to Ghosn

○ DECEMBER 2007 ○ APRIL 2010 ○ DECEMBER 2012 ○ DECEMBER 2013 ○ OCTOBER 2016 ○ DECEMBER 2017

Renault expands He signs a strategic The Renault-Nissan Renault and Dongfeng After Nissan engineers Renault buys
into another growth pact with Germany's alliance becomes the agree to build and discover fuel-economy 49 percent of
market when Ghosn Daimler to generate controlling share- sell Renault-branded discrepancies in cars Brilliance China
outbids General greater economies holder of AvtoVAZ, SUVs in China by made via a joint ven- Automotive Holdings’
Motors for a 25 per- of scale and increase and Ghosn becomes 2016, working with ture with Mitsubishi minibus unit so it
cent stake in AvtoVAZ, product offerings. chairman of the com- Nissan as part of what Motors, Ghosn seizes can produce light
COURTESY NISSAN (2); COURTESY RENAULT

Russia’s largest bined undertaking. Ghosn calls a “golden on a depression in commercial vehicles
car company by triangle” to gain Mitsubishi’s stock in China, with the goal
market share. synergies in costs price to buy a of selling 150,000
and technologies. 34 percent stake. annually by 2022.
Ghosn takes over as
chairman and sets
out to turn around the
carmaker, which joins
Next to Daimler CEO the Nissan-Renault
Dieter Zetsche Renault Kadjar alliance.
 Bloomberg Businessweek
GHOSN IS AN ATYPICAL DEFENDANT, AND
AN ATYPICAL VERDICT — ONE OTHER THAN
GUILTY— ISN’T OUT OF THE QUESTION
after his eventual retirement—some related to noncompete
agreements, others in advisory fees. He approached a col-
league for advice on what he presented as an ethical dilemma:
whether he’d abetted improper behavior, and if so what to
do about it. The colleague told Nada that what he described
seemed questionable and agreed to help him look into it.
Nada also got another member of Ghosn’s staff, an administra-
tor named Toshiaki Onuma, to assist with what soon became
an investigation.
The group learned that Nissan’s auditors had been
curious about Zi-A for more than a year and had at one
point sent someone to the Netherlands to try, unsuccess-
fully, to learn more about it. After comparing findings, they
and the auditors began working together, interviewing com-
pany staffers and pulling documents. Keeping the group’s
efforts from Ghosn wasn’t particularly difficult. He rarely
44 traveled to Japan more than once a month and was increas-
ingly focused on the alliance and Renault, which received
no word of the investigation.
When the men became concerned that some of what they
found verged on criminal, they consulted with former pros-
ecutors then working in private practice. With Nada and
Onuma’s approval, those lawyers passed the information to
former colleagues at the Special Investigations Unit, who by
August had opened a criminal probe. Given Nada and Onuma’s
involvement in Ghosn’s compensation arrangements (Onuma
was also a Zi-A administrator), they too risked becoming sub-
jects of interest in the inquiry. Happily for them, Japan had
recently introduced its first-ever rules allowing plea bargains;
according to local media, both men secured deals in exchange
for providing evidence against Ghosn.
Meanwhile, Nada, Onuma, and a Nissan auditor named
Hidetoshi Imazu worked on a formal report for Saikawa, lay-
ing out what they viewed as extensive misconduct. They pre-
sented it in October. Nissan officials say Saikawa knew nothing
of the investigation before he received the document—which
would mean that Nada and Onuma, moderately senior man-
agers in a hierarchical Japanese company, had taken the
decision largely on their own to report Ghosn and Kelly to
prosecutors, a step almost certain to plunge Nissan into crisis.
Saikawa might not have been completely in the dark,
however. According to two people with direct knowledge of
the matter, in August he informed the Ministry of Economy,
Trade, and Industry, which keeps a close eye on marquee
Japanese companies, that Nissan was likely to face a serious
problem later in the year. In its statement, Nissan said Saikawa
February 4, 2019
was “entirely unaware” of the investigation in August and that
he communicates regularly with the ministry—including about
the ongoing matter of vehicle inspections, for which the com-
pany announced an additional recall in December.
Whenever it was that Saikawa learned of the probe, he made
no effort to protect his former mentor. A person with direct
knowledge of the investigation says Saikawa quickly agreed to
cooperate with prosecutors, right down to helping organize the
intricate operation to arrest his chairman and another member
of the board. He and Nada knew Ghosn’s next trip was sched-
uled for Nov. 19, and their teams kept in regular contact about
his plans to avoid creating the impression anything was amiss.
Getting Kelly to Japan on the same day was more complicated.
Semiretired, splitting his time between Nashville and Florida,
and preparing for surgery to address painful spinal stenosis,
he’d planned to join a late-November board meeting by video-
conference. But Nada insisted that he be there in person. Nada
also made the unusual offer to let Kelly use one of Nissan’s
private jets, assuring him he’d be home well in advance of his
operation. Kelly agreed to make the trip.
A few hours after the arrests, Saikawa summoned
reporters to Nissan headquarters for a press conference in the
same room where he’d taken the blame for the inspections
scandal a year earlier. This time there were no ritual bows of
apology. Instead, Saikawa unloaded on his former ally. “We
can only say that the incident that has been discovered is the
dark side of Ghosn’s long reign,” he said. Three days later,
Nissan’s board voted unanimously to remove its chairman.
THE TOKYO HOUSE OF DETENTION COULD PASS FOR A
hospital or suburban office campus. There’s no barbed wire;
the external fences might otherwise surround a soccer field.
Unarmed guards walk lazy circuits of the perimeter, passing
within a few steps of the parking lot for an apartment com-
plex next door. Many of the cars are Nissans.
The term “Kafkaesque” is often used imprecisely. But as
a way of describing the Japanese justice system, it’s fairly
apt. Suspects can be held without charge for as long as
23 days, and they have no right to a lawyer during question-
ing. Prosecutors also have the power to forbid family visits.
When the 23-day period expires, a suspect can be rearrested
for another offense, resetting the clock to zero. And once
someone has been indicted, the outcome is all but predeter-
mined, leaving defense attorneys to focus on coaching their
clients to confess in the least damaging way.
Ghosn spent the weeks after his arrest being interrogated
Bloomberg Businessweek
daily, while Kelly was questioned elsewhere in the same facil-
ity. After Ghosn’s first indictment, for failing to properly dis-
close his proposed retirement pay (a seemingly technical issue
that carries a penalty of as much as 10 years in prison), he and
his lawyers had started making plans on the assumption that
he would be granted bail in time for the holidays. According to
people familiar with his defense, the preparations were elabo-
rate: Ghosn would be whisked from jail to the French Embassy,
then onto a flight to Paris, where Emmanuel Macron’s gov-
ernment had agreed to supervise the accused and ensure his
return to Japan for trial.
Instead, he was rearrested less than an hour before the bail
hearing, this time for a breach of trust charge relating to his
decision, in 2008, to temporarily use Nissan’s balance sheet
to provide collateral for personal foreign exchange contracts.
(Kelly was released in late December. Barred from leav-
ing Japan before he’s tried for the deferred-pay charges, he
recently underwent back surgery near Tokyo.)
While Nissan has said that Ghosn engaged in a wide pat-
tern of unethical behavior, the criminal charges against
him pertain only to the foreign exchange transaction and
to allegations that he concealed the true scale of his retire-
ment compensation—money he has yet to receive. At trial,
his lawyers will likely argue that the proposals for post-
retirement payments were only ever that—proposals, sub-
ject to negotiation, with no certainty they’d be disbursed or
in what amounts. Therefore, they could claim, the proposals
shouldn’t be regarded as deferred compensation or income,
meaning Ghosn was under no obligation to disclose them.
The second indictment is more complex. During the 2008
financial crisis, with Nissan’s share price and the yen’s value
February 4, 2019
gyrating, the Japanese lender Shinsei Bank Ltd. demanded
more collateral from Ghosn to maintain hedging contracts he’d
entered to shield his salary from currency fluctuations. Ghosn
didn’t have enough in his personal accounts, so he arranged for
Nissan to take on the contracts temporarily. Later he took them
back, secured by a letter of credit from Khaled Juffali, a Saudi
businessman whose family firm later received $14.7 million in
payments from Nissan’s CEO Reserve, a source of money the
company says Ghosn controlled with little oversight. Ghosn’s
representatives maintain that the transaction was properly
approved and that Juffali, who owns a car dealership chain,
was paid for helping with regional distribution, not for getting
Ghosn out of a jam.
Judges in Japan tend to defer to prosecutors when decid-
ing whether to grant bail, and Ghosn’s most recent appli-
cation for release was denied on Jan. 22. It looks likely he’ll
remain locked up until his trial, which has yet to be sched-
uled. According to a person familiar with the conditions
of Ghosn’s detention, he wasn’t permitted to take notes
while being interrogated or to keep writing implements
in his roughly 75-square-foot cell. Prosecutors were under
no obligation to inform his defense team of the evidence
against him, so he tried to memorize what they asked him
and details from the documents they showed him. That was
the only way he could give his lawyers some idea of what
they might face at trial. 45
Despite the long odds against him, Ghosn is an atypical
defendant, and an atypical verdict—that is, one other than
guilty—isn’t out of the question. Legal vindication wouldn’t
be enough, though, to repair his relationship with Nissan.
In a brief jailhouse interview on Jan. 30 with Nikkei, Ghosn
said he had “no doubt” he was the victim of “plot and trea-
son” by rivals who opposed closer integration with Renault.
Nissan’s internal investigation is still going on, according to
people there, and has expanded to consider Ghosn’s and other
executives’ relationships with dealers, distributors, and other
business partners worldwide. Remarkably, given his own
involvement in some of the conduct under investigation, Nada
is still assisting. At one point after the arrest, someone familiar
with Ghosn’s defense says, Nada reached out to Ghosn’s first
wife, Rita, to seek information on her ex. (She didn’t return
calls from Bloomberg Businessweek seeking comment. Nissan
declined to comment.)
Meanwhile, new information about Ghosn’s conduct and
spending habits is appearing at frequent intervals in the
Japanese and foreign press. Many of the revelations have
been awkward for Ghosn, if not necessarily legally damning.
(A spokesman for his family declined to comment on them.)
Nissan covered the cost of his Rio yacht club membership, and
his sister was on the company payroll for more than a decade,
performing ill-defined consulting duties in Brazil. And during
one of the worst phases of the 2017 inspections crisis, he’d
sent an email urging the company to speed up payments to
the contractors who’d renovated the Beirut house. The delays,
he wrote, were “preoccupying.”
46
Bloomberg Businessweek
THERE’S NEVER A GOOD TIME FOR A COMPANY TO BE
consumed by infighting and criminal prosecutions, but
this moment is particularly bad for Renault and Nissan.
Automotive sales are sluggish in the U.S. and declin-
ing in China, and the industry is muddling through an
unprecedented upheaval, struggling to manage the transition
to electric and autonomous vehicles and the attendant chal-
lenges from companies such as Tesla Inc. and Waymo LLC,
the self-driving technology arm of Alphabet.
Ghosn was a relatively farsighted advocate of new tech-
nologies. He championed the Leaf, the world’s best-selling
electric car since Nissan brought it to market in 2010. And
his integration plan was predicated on achieving the scale
needed to keep pace with traditional rivals and Silicon Valley.
Put together, Nissan, Renault, Mitsubishi, and the smaller
brands in their confederation make as many cars as any
other manufacturer, but virtually no one else in the industry
views the fragmented alliance as a real rival to the true global
giants, Volkswagen AG and Toyota. Creating a more united
front would have been difficult, to say the least; according
to people familiar with debates inside the alliance, Ghosn’s
earlier efforts to consolidate production produced fierce
opposition within Nissan—particularly a series of decisions
to assemble Nissan cars at Renault plants in France.
Despite public pressure from Saikawa, Renault declined to
fire Ghosn, and he remained the chairman and CEO of record
until resigning on Jan. 23. The company has said that an inter-
nal investigation of his pay found no evidence of wrongdoing,
but that it’s continuing to look into the compensation of Ghosn
and his inner circle. And though the arrests have undoubt-
edly widened divisions between the two companies, Renault
and Nissan both say they’re committed to their partnership.
Unscrambling 20 years of even imperfect integration would be
a monumental task—a sort of corporate Brexit.
Saikawa has said he’ll work to improve governance at
Nissan, then look to “pass the baton” once the company has
been stabilized. There’s considerable evidence, in the mean-
time, that he also intends for the Japanese side to gain more
control within the alliance. He’s said he wants Nissan to take
a more proactive role in decision-making; it might, for exam-
ple, seek to alter a stipulation that Renault’s leader is automat-
ically head of the alliance. Late last year, according to people
familiar with Nissan’s plans, the company also began prepar-
ing to move more than $1 billion from its Chinese joint venture
back to headquarters. That money could help it buy shares in
Renault, at the risk of a major confrontation with the French
state, which jealously guards its position as the dominant stake-
holder in key companies. (Nissan says that it would be “base-
less” to suggest anything unusual was occurring and that it
doesn’t intend to use repatriated funds to buy Renault stock.)
Before Nissan moves on from the Ghosn era, it will have to
deal with its own legal issues. The company was also indicted
on deferred-pay charges relating to Ghosn and could face fur-
ther legal jeopardy—including in the U.S., where the Securities
and Exchange Commission has opened an inquiry into its
February 4, 2019
compensation disclosures. If more trouble ensues, it will be
hard to take the spotlight off Saikawa, who was a senior exec-
utive and board member throughout the period concerned.
The Nissan case, like Ghosn’s, will turn on a simple question:
How could a sophisticated global automaker, with battalions
of lawyers and auditors and abundant bureaucratic infrastruc-
ture, not know what it was paying its chairman?
BEFORE THIS YEAR, JANUARY FOR GHOSN MEANT A
return to his spiritual home: Davos. Unfailingly, he’d carve
out the better part of a week from his map-hopping itiner-
ary to speed-walk from panel discussions to TV interviews to
“bilateral” meetings with other winners of the global game.
This year his absence was marked mainly by the revelation
from France’s finance minister, in an interview at Davos with
Bloomberg TV, that Ghosn had resigned from his position
with Renault. Otherwise, the forum carried on all but obliv-
ious to Ghosn and the possibility that his was a cautionary
tale of disconnection and entitled excess.
Spending much of his time at 30,000 feet, confident that
Kelly and others had worked out the details of his ample
compensation, Ghosn didn’t notice that some of his closest
colleagues in Japan were working to engineer his arrest. At
times, he’d been collecting more than twice as much pay as
the rest of Nissan’s directors combined, in addition to his other
salaries and five company residences. He might simply have 47
been enjoying the spoils of corporate success, as his defend-
ers insist. Or, as Nissan and prosecutors argue, he might have
transgressed legal and ethical bounds. Either way, he gave his
enemies an opening.
Ghosn’s most recent public appearance was Jan. 8, in a util-
itarian hearing room at the Tokyo District Court. A few days
earlier his lawyers had used an obscure legal maneuver com-
pelling a judge to justify his continued detention—a long-shot
strategy but one that guaranteed their client the opportunity
to address a court. Court sketches and reports depicted Ghosn
sitting behind a blond wood podium, wearing a dark suit with
an open-necked white shirt and flimsy, jail-issued plastic slip-
pers. His hands were cuffed in front of his body, and guards
had looped a rope around his waist—standard practice for
prisoners appearing in Japanese court. He was thinner than
before, and gray was visible at the roots of his hair.
“I have dedicated two decades of my life to reviving Nissan
and building the alliance. I worked toward these goals day and
night, on the Earth and in the air,” Ghosn said after reading out
a series of rebuttals to the charges against him. An interpreter
translated for the judge. “I have always acted with integrity
and have never been accused of any wrongdoing in my several-
decade professional career. I have been wrongly accused and
unfairly detained.” He concluded: “Thank you, Your Honor,
for listening to me.”
He spoke for about 10 minutes. Soon afterward, guards in
blue uniforms led him out of the courtroom to begin the long
drive across Tokyo, back to his cell.  —With Ruth David and
David Welch
 Bloomberg Businessweek

CROWDFUNDERS

OF THE
UKRA

Ruslan Shpakovich, a former

rental-car company worker,
trains a soldier whose unit
relies partly on privately
purchased equipment, in
Mykolaivka Druha, Ukraine
 February 4, 2019

Volunteers and
nonprofits have been the
backbone of Ukraine’s
fight against Russia.
What happens when ordinary
citizens conduct a war?

By David Gauvey Herbert

Yuri Deychakiwsky thinks he was home in North Potomac,

AINIAN Md., when he saw the video. He can’t recall exactly. After writ-
ing so many checks to support the war effort overseas, even
watching bombs rain down on strangers doesn’t quite regis-
ter in his memory.
Born in Cleveland to Ukrainian immigrants, Deychakiwsky
is a 61-year-old cardiologist at Johns Hopkins Community
Physicians in Bethesda. Around Christmastime in 2017, he
wired $3,000 to a Ukrainian émigré in Syracuse, N.Y., for what
his contact cryptically codenamed “our grasshopper”—a drone

WA R
whose specs Deychakiwsky declines to share—which was to
be used by the Ukrainian Volunteer Army, a battalion fighting 49
Russian-backed separatists.
And now there it was on Deychakiwsky’s smartphone
screen, dropping explosives on trenches in eastern Ukraine as
enemy militants scrambled for cover. In one clip, a bomb deto-
nated near a separatist. The man stood stunned for a moment,
then sprinted for cover before falling down and crawling on
his belly, possibly suffering from a leg wound. “It gives me an
uneasy feeling as a physician and a Christian that I’m partici-
pating in this,” Deychakiwsky says. “I try not to step on ants.
I don’t hunt. I couldn’t shoot Bambi. But of course I eat ham-
burgers, too.”
After decades caught between Russia and the rest of Europe,
Ukraine saw its post-Soviet identity crisis come to a head in
2013, when pro-Russian President Viktor Yanukovych aban-
doned a trade deal with the European Union. Massive politi-
cal protests and street battles in Kiev followed—the so-called
Euromaidan Revolution—and in February 2014, Yanukovych
climbed into a Russian military helicopter and fled into exile
across the border. Within days, Russia had taken advantage
of the unrest to seize Crimea. It also began arming separatist
forces in the eastern Donbas region and (though it denied this)
sending soldiers and mercenaries of its own.
Fighting broke out that spring, and many Ukrainians were
drawn deep into the business of war. The country’s military
was in ruins. Decades of corruption and neglect had left, by the
government’s own count, just 6,000 of 41,000 land troops com-
bat-ready. As separatists won a series of victories, armored cars
requisitioned from a local bank ferried Ukrainian troops to the
front. Soldiers were issued medical kits whose only useful
 Bloomberg Businessweek February 4, 2019

item was a condom. Some arrived in sandals or were forced aid reached the front. Engineers buy, design, and retrofit
to scavenge weapons from dead separatists. Many wounded cheap, reliable drones. Coders write targeting software for
troops returned to Kiev and died in military-hospital hallways artillerymen to use on tablet computers. The org chart, from
for lack of beds and surgical instruments. funding through to delivery, would be familiar to any startup.
Volunteers rushed into the gap. More than 15,000 men and There are pitfalls to all this innovation, though. Ukraine’s
women, many of them veterans of the Euromaidan protests, oligarchs backed some of the battalions, prompting concerns
streamed to the front. They assembled in battalions that some- about militia loyalties. The parallel supply chain bypasses
times had ties to ultranationalist groups, who were united by Ukraine’s endemic corruption instead of fixing it. And there
Russophobia and an obsession with Ukrainian identity—to the are few checks to keep weaponry out of the hands of neo-Nazis
point, in some cases, of racism. An improvised supply chain or criminals. Vigilante war financiers may have saved the coun-
formed to keep the war effort operational. A former marketing try and battled Russian proxies to a standstill, but Ukraine will
manager for Danone SA drove back and forth to the east, even- be reckoning with their legacy for years to come.
tually delivering $2 million in basic provisions. The owner of a
manufacturing company rehabbed mothballed Soviet tanks for In May 2014, Vitaliy Deynega, a freelance IT specialist, was
$500 a pop and got them rolling to the front. An aikido instruc- chain-smoking in his kitchen in Kiev, reading about the
tor started a volunteer ambulance corps. Russian-backed separatists gaining ground in the east. Deynega
And a network of private donors emerged to fund it all. is a vegetarian who admires Mohandas Gandhi’s views on
They paid for sniper rifles and thermal scopes, for veterans’ nonviolent resistance and once attended Burning Man. But
medical treatment and, later on, mental health services. Within that night, he posted on Facebook that he would personally
a year the Volunteer Council, a civil group within the Ministry spend 10,000 hryvnias, about $900 at the time, to buy body
of Defense, had cataloged donations totaling about $12 mil- armor and night vision scopes for Ukrainian troops. Friends
lion to $14 million, an accounting that didn’t cover all volun- applauded him, and he began fundraising; within six weeks,
teer groups, nor donations from corporations,
in-kind support, or manpower. Diaspora groups Deychakiwsky, the
in the U.S., Canada, and Europe gave millions of Maryland cardiologist,
in his garage
50 dollars more.
They kept giving, albeit in lower numbers, even
as the war entered a phase frequently described
in the Western press as a “frozen conflict.” Despite
the term, eastern Ukraine remains a tinderbox.
The Organization for Security and Co-operation
in Europe has counted hundreds of thousands
of annual cease-fire violations along the roughly
300-mile contact line; in November, Russia seized
three Ukrainian naval vessels and 24 sailors,
prompting President Petro Poroshenko to declare
martial law in border areas. International moni-
tors reported a doubling of cease-fire violations
in the two weeks that followed.
Deychakiwsky won’t say on the record how
much money he’s given, but he keeps a spread-
sheet, and the amount he provides off the record
is substantial. “I could have retired by now,” he
says with a laugh. “It’s why I drive a Chevy.” Most
of his donations go to humanitarian assistance,
he’s quick to add, not bomb-dropping drones.
Some of the donor activity has familiar histor-
ical echoes—think Golda Meir raising $50 million
for Israel’s young military or Irish groups passing
tin cups around Boston and New York bars for the
Troubles back home. But Ukraine’s crowdfunded
war is something new. Volunteer battalions trum-
pet victories on social media. Medics collect dona-
tions through mobile payment services, then use
smartphones to gather visual evidence that the
 Bloomberg Businessweek
he’d raised 100 times his original
stake. He soon formed Come Back
Alive, which would become one
of the country’s most celebrated
charities—or perhaps more accu-
rately, one of its leading quasi- Come Back Alive’s
military organizations. Deynega in his
Kiev apartment
Come Back Alive could get
equipment to the front with
stunning efficiency. A few months into the war, an army cap-
tain named Andrii Skorokhod recalls, he requested a thermal
scope, to identify sources of body heat, and promptly forgot
about it. One night not long after, a bus arrived at his position
near Donetsk filled with journalists, volunteers, and a woman
shouting, “Where is Andrii?” He signed a form, and she handed
him a new Pulsar scope worth several thousand dollars.
Deynega’s group has spent about $5 million on equipment
to date. Donors are listed in neat rows on the charity’s website,
for contributions ranging from a few cents to $50,000. “I just
want to help my army fight bad guys,” he says. “We don’t want
to mess with lethal equipment.” It’s true that thermal scopes
aren’t themselves lethal, but the claim is disingenuous: Late
one night in May 2015, Skorokhod moved to intercept a party
of separatists. Without the scope, he says, he would have stag-
gered around in the dark hoping to spot them first. With it, he
could detect their heat signatures and direct rifle fire from his
half-dozen men and a .50-caliber machine gun team until the
separatists were dead.
The informal supply chain sprung up in part because
Ukraine’s European allies refused to sell the country weap-
PREVIOUS SPREAD: PHOTOGRAPH BY BRENDAN HOFFMAN FOR BLOOMBERG BUSINESSWEEK. DEYCHAKIWSKY: PHOTOGRAPH BY SARAH BLESENER
ons for fear of intensifying the conflict. American support has
been limited to advisers sent by President Obama and antitank
missiles sent by President Trump. Donor cash filled the breach
early on, helping keep military defeats at Ilovaisk, Debaltseve,
and Donetsk International Airport to merely disastrous levels
FOR BLOOMBERG BUSINESSWEEK. DEYNEGA: PHOTOGRAPH BY BRENDAN HOFFMAN FOR BLOOMBERG BUSINESSWEEK
rather than existentially threatening ones.
To date, nearly 13,000 people on both sides have died in the
fighting, most in the early years. In February 2015, Ukraine,
Russia, and separatists signed the Minsk II agreement, which
called for a cease-fire and the withdrawal of heavy weaponry
from the front. Everyone dug in, and the frozen conflict began.
Donations have since fallen off, but they’ve been sufficient
for volunteers to buy targeting software, drones, and sniper
rifles suitable for the new normal of trench warfare. And when
Poroshenko declared martial law late last year, donations to
Come Back Alive shot up tenfold before settling back down.
On the July afternoon I visit Pisky, a front-line town that
saw heavy fighting in late 2014 and early 2015, it’s abandoned.
A once-upscale gated community I pass through is now a ruin
of bombed-out homes and overgrown flora. It seems peace-
ful, but it’s an illusion. Shrapnel crunches underfoot—my guide
from the 56th Brigade points out a house that was destroyed by
mortars just two weeks prior. A few days later, not far away, a
teenage couple will wander into a field and step on an explo-
sive, adding their names to the list of dead.
February 4, 2019
Not far down the road, Andrii
Moruga sits atop a BMP-1 light
infantry vehicle and directs a
baby-faced lieutenant to aim the
cannon at a transmission tower
as part of a training exercise.
Moruga was wounded during
the monthslong battle for the
Donetsk airport when an artillery
shell landed near him, sending shrapnel into his back and sev-
ering three of his fingertips. The shrapnel also cut a comrade
in half. While recuperating in a hospital, he watched a docu-
mentary in which American troops called in mortar strikes
using a smartphone. “Why can’t we do that?” he asked himself.
Now he spends two weeks a month on the front lines
training troops to use Armor, tablet-based software that lets
tank and mortar crews target separatists. The program was
designed by GIS Arta, a loose collection of Ukrainian program-
mers who banded together after troops kept getting lost using
outdated Soviet maps. Come Back Alive provides the tablets
and rugged laptops that run the software.
A few miles to the northeast, in Avdiivka, Ruslan
Shpakovich, a former rental-car company worker, is in town
to install scopes on Remington sniper rifles privately purchased
for the 92nd Brigade. Shpakovich, who learned his trade as a
junior marksman during the Soviet era, says there are hun- 51
dreds of such rifles on the front lines. Russia ships a steady
stream of domestically manufactured models to separatists
in rebel-controlled territory; on the Ukrainian side, Kiev’s gun
retailers serve as snipers’ de facto armory. Private donors pur-
chase hunting rifles—from $3,000 for the Savage 110 BA Stealth
model to $19,000 for the Accuracy International AI-AX—and
ship them to the trenches.
The closer you get to death-dealing arms, the more elusive
donors’ names become. Shpakovich alludes to an unnamed
millionaire businessman who lost assets in Crimea and east-
ern Ukraine and now buys 20 rifles a month that are in turn
affixed with sniper scopes purchased through an anonymous
expatriate in the Czech Republic. Ammunition is expensive,
Shpakovich says, so volunteers—again unnamed—make thou-
sands of sniper rounds by hand every month. I ask if I can
meet some of the suppliers. His only response is a conspirato-
rial twinkle of the eye.
When I later visit the Kramatorsk headquarters of the
Ukrainian Volunteer Army, the ultranationalist battalion that
received Deychakiwsky’s grasshopper, officials tell me about
a Moscow proctologist who, for reasons they won’t expand
upon, buys them scopes. I press them for his name. “American
spy,” one man calls me, in English. The question of whether or
not it’s a joke hangs in the air for the next half-hour.
The source for much of the military aid is the estimated
20 million people of Ukrainian descent living abroad. The
wealthiest portion of the diaspora is in the U.S. and Canada,
and their story has numerous chapters: late-19th-century,
 Bloomberg Businessweek
Nearing Five Years of Conflict
Belarus Controlled by separatists
Donbas region
Poland
Kiev
Donetsk
Ukraine Pisky Russia
Mariupol
Romania
Crimea
Serbia (annexed by
Black Sea
Russia in 2014)
post-World War II, and post-Soviet waves. The 2010 U.S. cen-
sus recorded 345,000 foreign-born Ukrainian-Americans.
When the conflict began, these different groups came
together. The result was organizations such as Revived Soldiers
Ukraine, founded by Irina Vashchuk Discipio, who’d moved
to Pasadena to run middle distances for the University of
Southern California track team in 2003. Her charity has helped
more than two dozen wounded veterans—by raising money,
arranging flights, and negotiating cheaper surgeries from
doctors, some of them Ukrainian-American.
52 Trump’s cozy relationship with the Kremlin has kept the
diaspora’s pump jacks bobbing for cash. Yuri Pleskun, a real
estate investor who immigrated to New York in the 1980s,
recalls asking the late Senator John McCain during a meeting
in 2017 whether he could start ferrying sniper rifles to Ukraine.
McCain demurred. “Senator,” Pleskun recalls saying, “I will
personally fly those weapons.” (McCain’s office didn’t respond
to a request for comment before he died in August.)
Pleskun loves telling this story. But it highlights the legal and
ethical issues of vigilante funding. David Laufman, who until
recently served as chief of the Counterintelligence and Export
Control Section at the U.S. Department of Justice, says certain
forms of assistance could violate export control laws and the
Foreign Agents Registration Act, among other federal laws.
Of the most popular companies for foreign fund transfers,
PayPal Holdings Inc. adheres to a U.S.-led export regime called
International Traffic in Arms Regulations. PayPal reports that
it’s shuttered Deynega’s Come Back Alive accounts at least
three times for violating its terms of service, along with those
of dozens of other Ukrainian nonprofits. Deynega says he con-
tinues to accept donations through MoneyGram and Western
Union, which Deychakiwsky also describes using. (MoneyGram
International Inc. didn’t reply to a request for comment, while
a Western Union Co. spokeswoman says the company has “a
sophisticated filtering program in place that screens every
Western Union transaction in real time against internal and
government watch lists.”)
Then there’s the question of where the money ends up.
The U.S. spending bill signed in March 2018 banned assistance
to the Azov Battalion, a volunteer group that subsequently
February 4, 2019
incorporated with the Ukrainian military and whose logo bears
a striking resemblance to the Nazi SS insignia. But Azov is only
the most flagrantly problematic remnant of the ultranation-
alist groups that formed volunteer battalions early on and
that persist as a sort of shadow force today. Others have been
absorbed by the Ukrainian army, but they often still wear bat-
talion patches and remain loyal to old commanders.
I meet Julia Paevska, the founder of a volunteer ambu-
lance corps and a former member of Right Sector, a leading
ultranationalist group, at a restaurant in Mariupol, a port city
just 12 miles from the front line. Everyone I talk to describes
Paevska, dappled with Buddhist tattoos and sporting dyed
blue hair, as motivated purely by patriotism. Her organization,
whose equipment includes an old Chevrolet Suburban retrofit-
ted with a night-vision camera on the grille, has saved 450 sol-
diers with serious or critical injuries in the past four years, by
her estimate. She runs through about $20,000, half of it from
abroad, in cash, fuel, and medical supplies every month.
For lunch, we order shashlik. Paevska’s driver, a stoic,
bearded man, sits facing the entrance. The waitress appears
with the plate of grilled kebabs and some dull cutlery. The
driver doesn’t jump—but I do—when Paevska’s six-inch switch-
blade flashes open with a loud crack. She spears herself
a chunk of pork. “Volunteers have rights,” she says. “They
poured their blood on the land. It’s their land. It’s our land. I’ll
bite my enemy’s throat.” She wipes down her knife, retracts
the blade, and pockets it.
Some politicians in Kiev would prefer that the volunteers
fade away. They served their purpose, and now they’re a rep-
utational liability among Western allies and a potential domes-
tic political threat; vigilantism is on the rise, and last year the
Carnegie Endowment for International Peace warned of “the
potential for business tycoons to use volunteer forces as small
private armies to settle corporate raiding disputes.” Paevska,
who left Right Sector amid infighting, makes clear that politi-
cians can’t wish the movement away. “There’s no such thing
as ex-Right Sector,” she says.
The next day, I share a disconcerting moment with Max,
a 25-year-old medic in Paevska’s corps who won’t give his
last name. We meet at an abandoned seaside restaurant that
serves as her base of operations near Shyrokyne, just over a
mile from the trenches. He’s wearing a T-shirt from the neo-
Nazi apparel company Sva Stone and an Iron Cross ring. I
play dumb and ask what the insignia represents. “It has a lot
of meanings,” he says. Waves lap against the beach as I con-
sider the possibilities.
The diaspora tends to depict characters like Max as an
unfortunate footnote to the wider struggle. “Any of those ele-
ments are a discredit to the cause,” Deychakiwsky says. Roman
Fontana, a Maryland-based attorney and Iraq War veteran
whose mother has Ukrainian ancestry, spent three months in
the country in 2015 as a privately paid military trainer of young
officers who’d previously been members of Azov Battalion. Of
the 45 he trained, he says, four had outright neo-Nazi views.
He depicts their ideology as a confused brew of nationalism,
 Bloomberg Businessweek
racism, and centuries-old anxiety about territorial integrity.
“When I was in the Marines,” Fontana tells me, “we’d have the
occasional hillbilly Klansman, too.”
Even granted the legal hurdles, Ukrainian citizens and diaspora
members have never had more tools for organizing or ways
to get involved, from coding military software to slipping
hardware and money around international arms controls.
It’s not hard to imagine the Ukrainian model replicating itself
in Taiwan, the Baltic states, and other countries living in the
shadow of larger, hostile powers.
Yet Ukraine can also be viewed as a cautionary tale. Although
Ukrainians often vilify Russia for its meddling, their country’s
military crisis was largely self-inflicted, and it continues today.
The government is spending more on its military—$6.1 billion
last year, up 28 percent from 2017—but graft persists. Ukraine
ranked 130th on Transparency International’s 2017 Corruption
Perceptions Index (tied with Myanmar and Sierra Leone,
among others), and while that score reflects steady improve-
ment since 2013, military procurement remains a mess. Last
year, for example, AC Bogdan Motors JSC, owned by a busi-
ness partner of President Poroshenko, sold 100 ambulances for
Paevska in
Berdianske
$32,000 apiece to the military in a no-bid contract. The vehi-
cles turned out to be overpriced and defective, a major scan-
PHOTOGRAPH BY BRENDAN HOFFMAN FOR BLOOMBERG BUSINESSWEEK
dal for the president. (Bogdan Motors denies any impropriety
in obtaining the contract.)
“The cost of corruption in the military is the lives of sol-
diers,” says Daria Kaleniuk, executive director of the Anti-
Corruption Action Center, one of many good-governance
nonprofits founded by veterans of the Euromaidan resis-
tance. We meet the day after she and other activists protested
a decision by Ukraine’s anticorruption office to close its inves-
tigation into a $520,000 embezzlement scheme involving mil-
itary backpacks and the interior minister’s son. (He denied
involvement.) Her hands and forearms are still stained green
with zelionka, a Soviet-era antiseptic-turned-weapon. It’s used
February 4, 2019
against reformers in Russia and now in Ukraine. Paid thugs had
doused her and her colleagues with it.
Kaleniuk’s nonprofit has successfully overturned about
$150 million in dubious government tenders since 2012, by the
group’s count. But reform is stuck in a liminal state: There’s
more information than ever about corruption but few mech-
anisms to imprison offenders and confiscate their ill-gotten
wealth. Lots of important people want Kaleniuk to fail. As we
finish chatting, her smartphone, clad in a “F--- Corruption”
protective case, chirps. A colleague who posted photos of the
zelionka attack online and asked for help identifying the assail-
ants is getting anonymous threats.
Elections will take place in March, and former Prime
Minister Yulia Tymoshenko leads in presidential polling. She’s
no revolutionary—her central policy plank is modest bumps for
the minimum wage and pensions. She also spent more than
two years in prison in connection with a 2009 Russian gas
deal she brokered while prime minister, though her prosecu-
tion was widely believed to have been politically orchestrated.
With the vote coming soon, the volunteers have taken a
small step back; in the months after we speak, Paevska, for
example, will join an official army medic unit while continuing
to run her ambulance corps. But they won’t go away.
Warts and all, the volunteer organizations are Ukraine’s
most trusted institution, according to a June poll by the
nongovernmental Ukrainian Centre for Economic and 53
Political Studies. They’re ahead of the church and mil-
itary, not to mention parliament, the presidency, and
the judiciary, which finished near the bottom of the
list. And tensions with Russia persist. In December,
the interior minister warned that Russian propaganda
interference in the upcoming election will be “colos-
sal.” The following month, Ukrainian Christians broke
from the Russian Orthodox Church, a move that out-
raged political and religious leaders in Russia.
It all adds up to a delicate moment for Ukraine. A
nervous energy surrounds Kaleniuk and everyone else
I meet. They pluck flower petals at cafe tables, arrive
early to meetings, fiddle with cellphones. That energy
must go somewhere. It’s a threat to Russia and its prox-
ies, to Ukrainian oligarchs and politicians hungry to
resume feeding at the trough, to international conflict media-
tors, and to Western arms-trafficking laws.
“The machine continues because so many people love it,”
Anna Sandalova, the former Danone marketing manager who
ferried food to the front, says of corruption in Ukraine. She
mothballed her charity in 2016 and is now a Kiev city coun-
cil deputy for a minority party, where she has limited power
to effect change. “I stay in waiting for the third Maidan,”
she says, harking back to the 2004 Orange Revolution and
the 2013 Euromaidan protests. “When things are ready.” 
—With Pavel Stepanenko and Oksana Parafeniuk
Reporting for this piece was facilitated by a grant from the Pulitzer
Center on Crisis Reporting.
 FARM
54
TO
DESK
Bloomberg Businessweek
Fast-casual restaurants like Dig Inn are overhauling their menus
and reinventing their kitchens in a pivot to delivery
BY ELIZABETH DUNN
PHOTOGRAPHS BY CAROLINE TOMPKINS
n any given weekday, millions of office workers descend
O on downtown streets in search of a decent lunch. At
noon on a Tuesday in December, some have found them-
selves at Dig Inn on East 52nd Street in New York, in line for
a healthful-but-hearty grain bowl. Four employees dish out
portions of brown rice and Brussels sprouts as several oth-
ers speed around the open kitchen, replenishing trays of wild
salmon and charred chicken. Off to one side, six employ-
ees bustle around two banks of steam tables, frantically
assembling an endless stream of desk lunches for the grow-
ing number of customers who decide not to make the trek.
An open laptop displays incoming orders from three differ-
ent delivery platforms. Every few seconds a digital klaxon
announces the arrival of another order, giving the feel of a
nuclear power station on the verge of a meltdown.
Scott Landers, Dig Inn’s 27-year-old director of “off-site”
(delivery and catering), surveys the scene with barely contained
torment as dozens of pink paper bags pile up on an aluminum
shelving unit. In 2017, Dig Inn hired Landers, an MIT grad with
a background in civil engineering, to rethink the way the com-
pany handles delivery—a segment of the industry that has grown
faster than many restaurant groups can manage. At this loca-
tion, it’s not unusual for 60 to 90 minutes to elapse from the
time an order is placed to when it’s delivered. “If you look at
Yelp scores for delivery vs. guests who come in, it looks like two
different brands,” Landers says. Delivery orders score an aver-
age of 1.5 stars on Yelp, whereas Dig Inn’s overall rating is a 4.0.
Dig Inn was founded in 2011 by Adam Eskin, a private equity
associate turned food entrepreneur, as what he calls a “farm-to-
counter” restaurant: food cooked from scratch, sourced directly
from regional farms, priced at about $12 a meal. The brand has
earned a loyal following for its vegetable-centric fare, expand-
ing to 26 locations in New York and Boston. Seven years after
it first opened, the East 52nd Street location relies on delivery
orders for 30 percent of its sales. But Eskin concedes that it’s not
a very good culinary experience. “Often things are missing, it’s
incredibly delayed, it’s not at the right temperature,” he says.
One issue is capacity: Many of the restaurants can’t cook
the food as fast as they can sell it. Another is that the cuisine
Dig Inn has become known for simply isn’t great for delivery.
Guests choose from a selection of three bases—greens or one
of two grains—10 sides, and six proteins. “Not even getting into
modifications,” Landers says, revealing a series of equations
scribbled in a small notebook, “that’s 810 combinations,” so
mistakes abound. And then there’s the issue of temperature.
February 4, 2019
Landers inspects one of the outbound meals, a bowl containing
farro, broccoli, tofu, and kale Caesar salad, ordered more than
an hour earlier. “The hot stuff probably went in at 145 degrees,
and the kale Caesar probably went in at 40 degrees,” he says,
retrieving a thermometer from his pocket. “It’s now a solidly
lukewarm 82—and hasn’t even left the restaurant yet.”
Dig Inn accepts orders directly on its website, but the vast
majority come in through third-party platforms, each with its
own advantages and limitations. Grubhub Inc. drives about
70 percent of Dig Inn’s delivery business, but its commissions,
which can run as high as 20 percent per order for restaurants
joining the marketplace, eat into Dig Inn’s profits. As more and
more of Dig Inn’s customers have shown they’d rather stay
at their desk at lunchtime, Eskin has poured resources into
figuring out how to cater to them. “It’s become pretty clear
there needs to be significantly more intention than just putting 55
a lid on the food and throwing it in the bag.”
wenty years ago, when the digital ordering platform
T SeamlessWeb arrived, the delivery business revolved
around pizza; by 2022, according to research by Morgan Stanley,
digital delivery may account for more than 10 percent of all U.S.
restaurant sales. Demand has grown sharply in the past five
years, with the arrival of Uber Eats, DoorDash, Caviar, and other
services, all competing to transport your lunch for a fee, plus a
cut of the restaurant’s profits. In New York and San Francisco,
for example, delivery is newly prevalent at lunchtime, allowing
office workers to juice an extra few minutes of productivity out
of their day. Meanwhile, in cities across the U.S., an explosion of
fast-casual chains has disrupted lunch itself. The old-fashioned
deli sandwich has given way to endless build-your-own salads
and bowls and burritos, ethical burgers, and artisanal pizzas.
Restaurants have greeted the rise of delivery with a mix of
hopefulness and resignation. “When you start out as a restau-
rant owner, it’s not what you envision,” says Leo Kremer,
the co-founder of burrito chain Dos Toros Taqueria, with 20
locations in New York and Chicago. “You envision having the
guest experience the service, the design, the playlist, the tables
and chairs that you so carefully curated. But there’s this increas-
ingly significant group of guests who want their food delivered,
so we’ve been trying to get better at it.” Accepting digital orders
boosts sales, but it also means coordinating couriers, soothing
unhappy customers, and absorbing third-party fees that can
top 30 percent. It’s an arrangement that many in the industry,
including Kremer, see as financially unsustainable.
 ROOM SERVICE
 A chef slices a fillet  Workers package
of salmon into equal cold entrees (top) at
4-ounce portions separate stations from
and places them on a hot ones (bottom) to
baking tray. keep them from ending
up at room temperature.
Fast-casual restaurants have been forced to view delivery
as a strategic priority rather than an afterthought, especially
with a growing number of their diners using marketplaces such
as Uber Eats and Grubhub, which accepts more than 400,000
orders on an average day. “When you’re relying on third-party
services, you lose your relationship with the customer,” says
Lauren Hobbs, the founder of LEH Consulting, which advises
hospitality brands on technology.
Instead, restaurants are hoping to funnel customers
through their own digital channels. Sweetgreen Inc., the
upscale salad and grain-bowl chain, released its own digital
56 order-ahead app in 2016, and now 50 percent of its sales come
in this way. The company also uses custom software to help
employees assemble orders accurately. When pick-up custom-
ers found it tricky to add in their dressings in Sweetgreen’s
standard bowls without spilling, the company commissioned
industrial designers to devise hexagonal ones optimized for
deskside mixing. Their kitchens have been rejiggered to
include one or more separate production lines dedicated
to fulfilling digital orders, a layout that’s becoming the new
standard among fast-casual chains including Dos Toros, Cava
Group, and Chipotle Mexican Grill. In seating areas, pickup
shelving units are edging out tables and chairs.
Many restaurants lack the expertise or investment necessary
to build their own digital ordering systems. They turn to soft-
ware providers that help for a set monthly fee rather than the
steep per-order commissions that marketplaces levy. Wingstop
Restaurants Inc., Five Guys Enterprises LLC, and other fast-
food chains work with a company called Olo to power digital
RESTAURANT DELIVERY SALES
FROM ONLINE ORDERS
 Third-party platforms  Restaurants’ websites and apps
Estimates
2015
 Quality control includes  Using sales history to
occasional checks for anticipate demand, the
taste and temperature. kitchen preps orders in
Above, a chef checks on advance and stores them
some beet Wellington. in a cold drawer or under
an industrial warmer.
ordering and delivery directly through the restaurants’ websites
and apps. Olo now works with 250 restaurant brands, triple the
number it served in 2016, with more than 50,000 locations.
A rival, ChowNow Inc., offers a similar service geared toward
independent operators; it’s in use at 11,000 restaurants in the
U.S. and Canada. Noah Glass, Olo’s founder and chief executive
officer, says some of his clients woo customers by guaranteeing
the best menu pricing on their own platforms, marking up what
they sell through third-party marketplaces.
Once customers get in the habit of ordering through a
marketplace, it can be challenging to lure them off. But some
restaurants are making inroads. Luke’s Lobster LLC, a seafood
chain with 39 locations in the U.S., Japan, and Taiwan, intro-
duced its own app in 2018 and has converted about a quar-
ter of its digital orders to that channel by offering a loyalty
program and referral credits. Bareburger Group LLC, a
sustainability-focused burger chain, has seen similar results
by running promotions available only on its app and mobile
website; it intends to sever ties with ordering marketplaces
by 2020. When Dig Inn starts its revamped delivery offering,
called Room Service, at the end of January, the company wants
to tempt its diners away from Grubhub with an even larger
draw: a new menu optimized for delivery, available exclusively
through the Dig Inn website and app.
or the past 18 months, while Landers has worked to build
F Dig Inn a better delivery machine, the company’s chief
culinary officer, Matt Weingarten, has been developing a new
menu that’s specifically designed to travel. Up until now,
Weingarten says, delivery has been a simple race against
the clock, with food quality gradually degrading as time
passes. “Now we’re figuring out how we make it improve over
time. How do you set the temperatures and textures so that
$32b they’re good now but actually better in 20 or 30 minutes?”
In mid-2017 he hired a young chef named Gabriel Dilone to
experiment with these questions full time. Dilone has been
16 working from three new subterranean delivery kitchens
DATA: MORGAN STANLEY
across Manhattan, from which the company will eventually
be able to reach much of the borough.
0 Dig Inn isn’t the first company to deal with the toll
2022 that delivery takes on dishes that were designed to be
  Orders are routed
using an iPad near
the warming station,
where they’re retrieved
and bagged.
eaten immediately. Ando, David Chang’s now-shuttered
delivery-only restaurant, and Maple, a failed delivery kitchen
in which Chang was an investor, were both developed with
transit in mind. They drew praise for their food, but struggled
with the economics of a delivery-only business. Zume Pizza
Inc., an automated pizza-delivery company in Mountain View,
Calif., has delivery trucks that can cook pies en route to their
destination. But the vast majority of restaurants simply bag
up what they sell in-house. Weingarten and Dilone say they’re
hoping that a little kitchen science can substantially improve
on what customers have come to expect from delivery.
All Room Service offerings have been designed so that hot
and cold items are packaged separately, to avoid an unpleas-
ant room temperature mix. At Dig Inn’s Midtown delivery
kitchen, Weingarten showed me a salade niçoise with rosy
slices of tuna loin, vibrant green beans, and a six-minute egg,
and a heartier option of roasted mushrooms, turnips, walnuts,
frisee, and duck confit. Warm entrees are designed to arrive
hot but not overcooked, and many were conceived to finish
cooking as they travel. Dilone roasts a wild king salmon fillet in
a CVap—a controlled vapor technology oven that steam-roasts
food, helping keep it moist—just until it hits 105F before plac-
ing it on top of screaming-hot fennel-potato puree. By the time
the dish has sat on a warming tray for 5 to 10 minutes, then
traveled 5 or 10 minutes in a delivery bag, the puree transfers
its heat into the fish, cooking it to a perfect 125F.
Kale polenta and sunflower risotto are sent for delivery
while still “loose”; starches thicken as they cool on the way
to the customer. Rather than offering steak—which should be
served pink in the middle but would overcook as it travels—
Dilone and Weingarten are experimenting with braised chuck
roll, a fork-tender hunk of beef that holds heat well. “Focusing
on confits and braises lets us get a more even cook all the way
through, so that you don’t have to worry about it changing in
weird ways,” Weingarten says.
Gone from the delivery menu are Dig Inn’s customizable
bowls with 810 iterations in favor of a rotating selection of six
to eight entrees, plus sides, snacks, and drinks. Entrees will
be priced between $15 and $20, including the cost of delivery.
Weingarten believes this will cut down substantially on both
inaccuracies and the time it takes to fulfill orders. With a
 A courier from Relay
typically arrives within
three minutes to whisk
food out for delivery.
proprietary predictive algorithm that uses sales history to
estimate demand for each dish, the kitchen crew can stay
a few minutes ahead of orders as they come in. Rather than
employing its own fleet of couriers, Dig Inn will work with
the logistics company Relay Delivery, Inc.—in testing, their
couriers retrieved an order within an average of three minutes.
The size of each delivery zone has been limited so travel times
don’t exceed 15 minutes. All told, Dig Inn expects the new
system to shave delivery times down to 30 minutes or less.
When Room Service starts, it will be available only through
the Dig Inn app and website; this strategy is intended to
decrease and eventually eliminate the company’s reliance 57
on third-party marketplaces. Dig Inn is starting slow: Initially
Room Service will be available from only one kitchen, in down-
town Manhattan, and only for dinner—a time of day when the
company is hoping to bump up sales. Eventually the new hubs
will all be open for lunch, and Dig Inn will phase out its legacy
delivery operations altogether.
In a basement kitchen near Times Square, a staff of five
is going through a mock service run, simulating how the
space flows at full speed. The operation hums along quietly,
with orders coming in as fast as they do on East 52nd Street.
Landers whisks salades niçoises and bowls of lamb couscous
into bags within seconds of an order hitting the dashboard.
Eskin says the Room Service kitchens will turn out as many
as four orders per minute at peak times, but he doesn’t know
whether that will be enough to meet demand. “We’re realizing
now, with these hub kitchens that we’ve built, it’s already obvi-
ous that we’ve built them way too small,” he says.
After I left, I texted Eskin, asking whether, like Dos Toros’s
Kremer, he worries about making delivery too appealing,
hastening a future in which meals lose their social aspect
entirely and we all have fewer reasons to look up from our
desk. “If it were possible for consumer behavior to evolve
in reverse, whereby more and more folks were coming in
to the restaurant for an experience and less and less were
ordering delivery, we’d all be better off for it (humans,
restaurant businesses—all),” Eskin replied in a text message.
But the world is changing around Dig Inn, and the choices
are to evolve with it or sit back and watch while some other
restaurant eats your lunch.
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 P
U
R
S
U
I
T
S 59

63
All in on rainbow time

64
A weekend in optimistic
St. Barts

66
The Fyre Festival’s
ongoing blame game

67
Tired? Try a weighted
blanket

Want to know why

your New Year’s fitness
resolution is already
kaput? Because you
don’t like exercise.
But that can change
By Naureen S. Malik
February 4, 2019

Edited by
A spinning class Chris Rovzar
at 4Ward Fitness
in Hong Kong Businessweek.com
 Training
Mate
FITNESS
B
y the most optimistic of guesses, only about 30 per-
cent of New Year’s resolutions to get healthy will
succeed. And yet the global fitness industry has
been filling classrooms more than ever, inventing
creative, intense workouts that draw users over
and over again. Look at Orangetheory Fitness, with its 600,000
members worldwide, or Peloton Interactive Inc., which has
1 million. CrossFit has quadrupled its gyms, to almost 14,000
since 2012, and Barry’s Bootcamp gets 900,000 hardy souls
in its studios every week. The fitness-booking MindBody app
processes 5.5 million classes every day.
What have those people got that you ain’t got?
Time isn’t an excuse. Studios now offer half-hour classes,
often with more intensity and fewer breaks—think of Mile High GREATEST HIITS
Run Club’s Dirty 30 treadmill class or the fast-paced Four30 at
Project by Equinox. “We are definitely seeing a trend toward High-intensity interval training goes global
shorter workouts,” says Jordan Metzl, a sports medicine phy-
sician at the Hospital for Special Surgery in New York, who
adds that short classes can be a fun way to test something new. TRAINING MATE
With 4,000 workouts in its
But according to Metzl, the best way to stick with a work-
database, you’ll be hard-pressed
out is to find a place where you feel you belong. “Having fun to do the same routine twice.
and being part of a community are the most important fac- The most popular class among
tors,” he says. In a July survey for MindBody, almost 60 per- its three Los Angeles locations is
cent of exercisers said working out with a friend or partner the Sydney Circuit, a 45-minute
helps them stay motivated. all-body workout that focuses on
“High-pressure cities can be unforgiving and lonely,” says three stations (rowing machines,
60
Luke Milton, a transplanted Australian who founded Training resistance bands, bikes) with
three exercises each, for
Mate, a gym that hosts one of the most consistently booked
45 seconds on and 15 seconds of
workouts in Los Angeles. “The whole point is to create a fam- rest in between. But the biggest
ily within the four walls.” (Or sometimes outside.) draw is a friendliness that’s
A year ago, Reese Scott started Women’s World of Boxing, reflected in the studio’s name.
the first female-owned boxing gym in New York and, accord- “We focus on that word, ‘mate-
ing to ClassPass, the most popular workout in Manhattan on ship,’ ” says Aussie founder Luke
its app. “This is truly a female fight house,” she says. “I built Milton, a former pro rugby player.
“People ask if I miss rugby. But
this place, and you know who’s in your own house. I know
what I really missed was the
everyone’s name, and immediately we realize we’re all in camaraderie.” He’s planning to
this together.” open locations in New York and
San Francisco by the end of
the year. $130 for five classes;
trainingmate.com
SWITCH
PLAYGROUND
Started by fitness guru Steve
Uria in Cape Town, Switch
Playground has four locations
in South Africa and two in New
York, and it’s looking to expand
in Los Angeles and London.
It follows the high-intensity
interval training method, with
one instructor upfront leading
the class and 4 to 10 trainers
on the floor teaching moves.
The live DJ helps, too. Switch
Playground’s class includes
20 challenges in the 60-minute
Switch Playground workout (for example, a
kettlebell clean jerk and press,
then a jump lunge). Another
selling point: Participants are
paired to challenge each other.
“We’ve had people get married
who met on our playground,”
Uria says. $150 for five classes;
switchplaygroundusa.com
MIDTOWN STUDIO
Even Paris is wooing fitness
junkies: Witness the surging
popularity of spin-style classes
at Dynamo and Let’s Ride. The
trendiest workout, however,
is in the darkened rooms at
Midtown Studio, the first urban
boot camp in the City of Love.
(Its two locations are in the 1st
and 16th arrondissements.) The
45- to 60-minute sessions are
intense, using weights, running
machines, and ropes. Class sizes
are limited to 10 participants and
give off an intimate, chummy
vibe. €140 ($158) for five classes;
midtown-studio.com
F45
PREVIOUS PAGE AND THIS PAGE ALL PHOTOGRAPHS COURTESY VENDORS
Merging three trendy training
styles—HIIT, circuit, and
functional training—F45 is one
of the fastest-growing gyms
anywhere: By the end of this
year, it will have 1,500 franchises
in 36 countries. There are
31 different 45-minute classes,
and instead of a barking
instructor upfront, screens
illustrate the workouts while
specialized trainers are on hand
to help out. $349 for unlimited
monthly classes; f45training.com
 FITNESS
CYCLE IN 4D IN
HONG KONG
Workouts at 4Ward Fitness,
a “Korean-style” gym in the
bustling Mong Kok district,
feel more like being inside a
video game. In the 4D Spinning
class, participants watch their
progress on a massive screen
with wall-to-wall flashing LED
lights. Other options play footage
of a winding road, complete
with wind effects. The popular
50-minute Holofit class is held
in a futuristic studio with vibrant
lights and interactive floors that
mark where to plant your feet
and hands as you do squats,
jumps, planks, and burpees. And
if the upbeat K-pop and techno
tunes aren’t enough to get your
adrenaline pumping, the screens
that flash participants’ heart
rates and burned calories—
and rank the top three who
worked the hardest—might
stir your competitive instincts.
The 24-hour gym also offers
yoga, muay thai, and K-pop
Rō Fitness
4Ward Fitness
Bloomberg Pursuits
USE A SPORT TO MAKE IT FUN
dance classes alongside Korean
military-inspired boot camps.
Memberships start at HK$500
($63) a month.
GET IN THE RING
IN NEW YORK
When Reese Scott started
boxing 15 years ago, “it was
a lonely sport being the
only woman in the gym,” she
says. So she finally opened
Women’s World of Boxing in
January 2018, and it’s quickly
caught on among female
Manhattanites. Part of the
appeal lies in the positive
motivation she provides during
sessions, using her own life
lessons to help people discover
inner strength—“whether they
want to fight in the ring or not.”
Classes are an hour long and
capped at 14 students, and
Scott approaches teaching
like a karate instructor: A
beginner’s class is solely
about fundamentals—balance,
footwork, and maintaining a
boxing stance. Kickboxing and
yoga classes are also available.
The popular TKO package is
$250 a month and includes
16 group classes and a personal
training session with Reese.
GO A-ROWING
IN AUSTIN
In the heart of downtown Austin
overlooking Lady Bird Lake is
the Waller Creek Boathouse,
where you’ll find Rō Fitness.
Co-founded by University of
Oklahoma rower Chelsea Moore,
the workout has addictive
qualities that come from the
setup: A monitor on the wall
times and measures your
distance so you’re “racing against
yourself,” as Moore puts it. If the
view doesn’t seduce you (sunrise
classes are held outside), the
team mentality of rowing might.
“There’s a meditative quality to
seeing all these bodies working
together in the same motion,”
she says. “Though everyone is
working on their own stroke,
District Warrior
February 4, 2019
you still have to work together.”
Classes are $20 per session and
$175 for a month, unlimited.
MASTER MUAY THAI
IN VANCOUVER
Founded in 2016 by Ali Khanjari
and Farinaz Lari, the first
Iranian woman to win the World
Kickboxing Championships,
District Warrior offers workout-
focused classes such as
MuayHIIT, a new offering that
teaches you how to kick butt
and get in shape. Students wear
a heart-rate monitor while large
screens act as competition
boards. The 45-minute class
is organized into rounds—
think three minutes on, as in a
traditional fight round, with a
minute of rest. This month, the
studio is offering a diet challenge
and working with a local meal-
prep company. “Some people
want to defend themselves,” Lari
says, “but our newest clients are 61
here to get in shape.” Unlimited
classes run $300 a month.
 Solidcore

FITNESS

GO FOR HIGH-IMPACT …
Equinox opens a new kind of gym,
and it’s just for runners
An exercise class called Precision Run is the most popu-
lar workout at Equinox fitness clubs nationwide. More than
500 sessions are offered at its locations every week, but that
hasn’t been enough to meet demand. “The classes in Santa
Monica [Calif.] are completely sold out, as they remain sold
out in all of our clubs around the country,” says Harvey
Spevak, the executive chairman and managing partner of
Equinox Holdings Inc.
It’s become such a sensation that the company’s Santa
Monica and Chestnut Hill, Mass., locations began develop-
ing their own specialized rooms for the class.
This spring, Equinox is officially taking Precision Run out
of the fitness club and making it a standalone studio in the
Flatiron district of New York City. A Los Angeles location will
follow. (Anyone can sign up; one class is $36.)
Precision Run is like doing interval training but on a
treadmill. Developed by creative director David Siik and
62 launched in 2014, it’s a workout that customizes the vari-
ables of treadmill running—speed, duration, incline, and
recovery—to your own needs and style, and in a cool, immer-
sive group setting.
Classes can have 30 to 40 participants, each on individual
treadmills, as an instructor guides the 50-minute workout.
Part of the appeal is that runners determine their one- … OR LOW-IMPACT
minute personal record (PR) from which to measure their
progress and build subsequent sessions.
“It’s not a race against the person next to you,” says some- Where slow movement is a core tenet
time participant Spevak. “It’s for people who want to take
it to the next level, but also people who want to have a fun If you want to feel as if you workouts, all to target one’s
experience and optimize their performance.” worked hard without actually core, waistline, arms, and
Treadmill running was the fastest-growing exercise trend looking as if you’ve worked legs. Mahlum says among the
of 2018, with an 82 percent increase in classes from the year hard, try Anne Mahlum’s community, “the authenticity
before, according to Shari Castelli, director of empowerment five-year-old Solidcore, a is palpable,” whether it’s at
concept that’s been described one of her five locations in
funding and expansion at ClassPass Inc. “New equipment
as “Pilates on steroids.” The North Dakota or the Adams
companies like Woodway and TrueForm have redesigned exercise is resistance-based Morgan neighborhood in
the treadmill in a way that lets you run longer and faster and relies on slow movements D.C. where she first opened.
without risking injury,” Castelli says, “making running on practiced on the class’s own “Every person who works
a treadmill more appealing to both amateur and experi- version of the Megaformer here started as a client,”
PHOTOGRAPHS COURTESY SOLIDCORE

enced runners.” machine, the Sweatlana, she says. “Now it’s like this
The Flatiron Precision Run studio will feature slat-belted which can provide up to cool tribe of people.” There
Woodway treadmills housing a dashboard, or interval training 400 pounds of weight. Each are 41 locations around the
50-minute class has 25 to country; she’s aiming to have
screen, that adapts to individual running habits by autopop-
30 exercises developed from 68 by the end of the year.
ulating speed and incline. There will also be dedicated apps. planks, lunges, and squats, $195 for a five-class package;
Inside the studio, the lights can be customized; the water can as well as some upper-body solidcore.com
be infused with cannabidiol, if that’s your thing; music setlists
are programmed for maximum efficiency; and even the air you
breathe is enriched with oxygen.
Additional reporting by Colin Bertram and Kristine Servando
 STYLE Bloomberg Pursuits February 4, 2019

Arm Yourself
With Rainbows
A colorful style is
brightening wrists this year
By David Graver

A rainbow, in many of its myriad representations, is meant to

represent inclusiveness. It can symbolize a hope for humans to
get along peacefully or pride in the diverse queer community.
But that’s not why watch companies are marketing an
array of new rainbow-themed watches to both men and
women. Rather, they’re betting that bright, flashy, colored
gemstones will appeal to anyone who wants to flaunt his
money on his wrist. The trend has been championed by
at least five major brands including Rolex, Chopard, and
Hublot, which over the past two years have released time-
pieces with a florid gradient of precious or semiprecious
stones on the bezel. 63
Crissy Fetcher, senior designer at branding consulting firm
Wolff Olins Ltd. and an instructor at Pratt Institute, notes that
smartwatch designers were first to the rainbow trend—and for
a reason. “Rainbow color palettes have become very prom- Audemars Piguet 11 rainbow-colored sapphires as
inent in design, especially among tech brands,” she says. Royal Oak Double Balance indexes. The 40mm timepiece
“There’s an optimism associated with them, which I think Wheel Openworked gets an exclamation point by
people are looking for right now.” Although not organized by The 18-karat frosted-gold way of a midcase encrusted
gradient, both Apple and Samsung Galaxy watches’ interfaces piece features 32 baguette- with 56 brilliant-cut diamonds.
pop with all the colors of the rainbow—tantalizing, like wrist- cut sapphires running in $96,900
color sequence around the
size Wheels of Fortune.
bezel. That’s 2.24 carats of Chopard Happy Sport
Rolex SA helped pioneer the rainbow bezel trend on precious stones on the 37mm The 18-carat rose-gold Happy
mechanical timepieces. With three versions of a rainbow skeletonized wristwatch. Sport pairs a gradient of
Daytona watch in different types of gold, the company has $104,600 36 colored sapphires in the bezel
racked up a waiting list for each since introducing them in 2012. with seven loose gems that float
Audemars Piguet Holding SA joined Rolex this year, perhaps Parmigiani Tonda 1950 across the mother-of-pearl dial.
a sign of internal optimism at the company. Chief Executive Parmigiani Fleurier set Chopard was the front-runner on
Officer François-Henry Bennahmias says 2018 sales rose 10 per- 36 baguette-cut precious and the rainbow trend, introducing
semiprecious stones on the this watch. $80,900
cent, to 1.1 billion Swiss francs ($1.1 billion).
bezel of this ultr m)
Parmigiani Fleurier SA, a smaller company known for
WATCHES: COURTESY BRANDS. BACKGROUND: GETTY IMAGES

watch. That’s 21 s s in Hublot Unico

elegance and complications, presented its new Tonda 1950 shades of blue, pink, orange, Sapphire Rainbow
Rainbow to appeal to the fashion-conscious. “There are casual, and yellow, plus three rubies, six With more bezel space around
sporty, and elegant watches, but this piece is for a kind of tsavorites, and six amethysts. this 45mm watch comes greater
individual looking for something different,” says Gustavo The carat total lands at 3.73. capacity for gems. Hublot
Calzadilla, U.S. general manager. $72,900 with rose-gold bracelet adorns the 18-karat white-gold
ring, itself set into a polished
Almost all of these watches showcase the same clockwise
Rolex Cosmograph Daytona sapphire crystal case, with
color gradient: Red is at 12 o’clock, and the colors run around Rainbow in Everose gold 48 baguette-cut stones
to violet at 11. Only Hublot SA’s 45-millimeter Big Bang varia- Not only does the bezel present including sapphires of various
tion runs counterclockwise. But truly, is there any one way 36 baguette-cut sapphires, color as well as ruby, tsavorite,
to make a rainbow? but the dial also sports and topaz. $84,000
 TRAVEL Bloomberg Pursuits February 4, 2019

GO HERE NOW

St. Barts Is Back

The glamorous getaway is
just as you remember. But better
By Nikki Ekstein

64

PHOTOGRAPH COURTESY LE SERENO

The pool at Le Sereno

TRAVEL Bloomberg Pursuits February 4, 2019

From where I sit on a deep, citrine- infrastructure, a healthy economy, closed: the tucked-away beach bar
colored couch in the living room of Villa wealthy landowners, and a low poverty O’Corail and La Gloriette.
Marie, it’s hard to imagine that anything rate. After the storm, tourism officials, To my surprise, most of the foliage
around me is new. The African beaded business owners, and residents stoically is lush and fully regrown. (“Mother
necklaces, displayed on shelves just emphasized these upsides rather than Nature works fast here,” several peo-
so, feel like they were arranged there the devastation. It was a way to be sen- ple tell me.) One exception is the tam-
long ago by a careful collector. The sitive, Zipkin says, and a strategic way to arind standing barren at the entrance
shuttered windows and beams in the persuade visitors to return soon. of Tamarin restaurant, my favorite din-
plantation-style ceiling vividly evoke By December 2017, most of the high- ing spot.
colonial-era Caribbean originals. The end retail shops, restaurants, and galler- At Le Sereno, a laid-back hangout for
server who brings my fennel-and-ginger ies were open for business in the capital, windsurfers on tranquil Grand Cul de Sac
detox juice is decidedly youthful, but Gustavia. The yacht crowd returned beach, the hotel’s crooked palms look
also practiced and charming. slowly. The island’s 800 villas came back just as I remember them. Asked about
And yet this is St. Barts, where almost one by one, most in time for the spring the miraculous surviving trees, manag-
all things have been rebuilt from scratch. regattas. Ahead of the 2018 holiday sea- ing director Samy Ghachem laughs. “The
“Everything you see, it was all gone,” son, all but two of the five-star hotels on original ones got wiped out,” he says.
says Nicolas Rondelli, the hotel’s gen- St. Barts flicked on the lights for the first “I sent someone to Miami to individu-
eral manager. He, too, is new—a recent time in 15 months—most with fully reno- ally hand-pick trees with character—we
transplant from Corsica. “The roof above vated interiors and expanded amenities. didn’t want this to look like your generic
our heads? This is what it looked like just “Everything is better than before,” a Marriott when we rebuilt.”
over a year ago,” he says, pulling out a gray-haired, very tan gentleman ahead of Almost everywhere I go, the tone is
photograph taken on Sept. 6, 2017, the me in the customs line at the airport told giddily optimistic. Hotel Manapany, on
day after Hurricane Irma made land- me. “Except that Eden Rock is closed.” choppy Anse des Cayes beach, has been
fall as a Category 5 storm. I see the same He’s right. It takes some effort to find any upgraded from a flight-crew bolt-hole to
room we’re sitting in, but it’s ravaged, signs of damage around the island. From a plush ecoresort with colorful bunga-
with upturned chairs, blown shutters, the new white-on-white beach bar and lows and a Dr. Hauschka spa. Marche de 65
and a wide-open sky overhead. overhauled Mediterranean restaurant at St. Barts is a lively, open-air market in
“It looked like King Kong came in Cheval Blanc, I spot one villa in disrepair, Gustavia that brings together local cof-
with a temper tantrum,” recalls David but sales director Eva Sitarz says it’s been fee roasters, bakers, and artisans on the
Zipkin, co-founder and vice president that way “for years.” first Sunday of each month.
of regional airline Tradewind Aviation. Many changes aren’t obvious. Roads Nowhere is more consistently packed
“Boats in the street, cars stacked three and pedestrian paths now have reflec- than Nikki Beach, with its new sushi bar
on top of each other.” tors to help mitigate the island’s long- and performative bartenders. When I
The hurricane was the island’s first standing lack of overhead lighting; swing by for a last lunch en route to the
major crisis since it became auton- there are fewer electrical poles, as well, airport, every seat is taken. The hostess
omous from France in 2007. Still, as the island expedites a plan to put suggests I try Eden Rock. Wait, what?
it had plenty of advantages over its utilities below ground. Of all St. Barts It turns out the iconic hotel has
hard-hit neighbors, including a strong hot spots, only two were permanently quietly opened a water sports center,
pop-up spa, and bar on a small deck
LITTLE BLACK BOOK at Villa Marie, feels like between palm trees. But makes interline transfers where there used to be beach suites.
dining in Paris. Dishes the tide can be rough easier. (You can check In the sapphire waters off St. Jean
Where to Stay include sole meunière and and the shore is rocky your luggage straight
With Moroccan-tiled a Grand Marnier soufflé and shell-strewn. Love through, even though beach, a young British and American
bathrooms and private for two. (Young sommelier to swim? Le Barthélemy your connecting flight crowd ride motorized surfboards and
plunge pools, the best Jordan Crozier is a talent has one of the cleanest, is on a different airline.) Seabobs, while the waitstaff energet-
rooms on the island are to know.) For healthier most tranquil stretches St. Barth Commuter
the Jacques Grange- fare, try Tamarin—it of sand—grab a snorkel has also added flights, ically deliver chicken pesto panini,
designed beach suites favors lightly cooked and seek out sea turtles. with new routes from burgers, and buckets of rosé. For those
at Cheval Blanc. Also fish such as Thai-style Saline Beach is low-key, Guadeloupe, plus of us who’ve made it to Eden Rock, it
impeccable are the eight tuna tataki and draws an pristine, and great for additional scheduled
townhouse-style rentals appropriately model-size jumping waves. options from St. Martin feels like we’re having more fun than
at Le Toiny. All-white clientele. and Antigua. Keep in anyone else on the island.
and airy, with expansive How to Get There mind: If you’re planning “When are you coming back?” the
pool decks, they’re on Where to Tan Flying to St. Barts is to take the affordable
the scenic, mountainous The beach club at easier than ever now that 45-minute ferry, bartender asks as I sign the check.
eastern end of the island. Le Toiny is at once Tradewind has expanded St. Martin’s recovery is “Whenever you guys open for good,”
secluded and a scene; its service from San running behind that of
I tell him, half-joking. “Try for late
Where to Eat the chaises are shaded Juan, Puerto Rico. A St. Barts, and its airport
François Plantation, a with thatched umbrellas, single-ticket agreement is partially operating out October then,” he says. “It’ll be a huge
classic French restaurant and hammocks are slung with United Airlines of a tent. party.” 
 CRITIC Bloomberg Pursuits
Bad Influence
Don’t just blame the bro in
charge. There are other ways to
prevent another Fyre Festival
By Misyrlena Egkolfopoulou
Everything is Billy McFarland’s fault.
The Fyre Festival creator is a sham and a fraud, a con artist
who deliberately manipulated and deceived investors, ticket
holders, and employees. He’s a sociopath, we were told by
documentaries out in January, one by Hulu LLC and another
by Netflix Inc. “It’s on me,” McFarland conceded in an inter-
view with Hulu’s producers, for which he was paid. He’s now
serving a six-year federal prison sentence.
Before it became the schadenfreude delight of the decade,
the Fyre Festival was promoted on Instagram and beyond as
an ultra-exclusive music festival, a luxurious experience on a
remote island in the Bahamas with some of the world’s biggest
66 celebrities and influencers; ridiculously wealthy millennials
spent as much as $250,000 on tickets. But in the end, “luxu-
rious” meant scattered disaster relief tents, stranded guests,
stolen baggage, minimal food and water, no plumbing, no cell
service—and no music acts to speak of.
McFarland was in charge of the finances, but what caused
Fyre to be such a colossal flare-up was marketing. It was for
a brief moment in time “the best coordinated social influ-
encer campaign ever,” as described in the Netflix doc. Jerry
Media, the social media marketing company hired by Fyre,
planned to “stop the internet.” Cue videos of exotic Bahamian
beaches, recherché food, and yachts
idling just offshore.
And the group promoted it
hard, until the bitter end, only
to shrug off any responsibil-
ity as soon as the truth was
revealed. Suddenly, influenc-
ers were denying the power of
their influence, and marketing
agencies were downplaying the
success of their campaigns. “If you
get hired to do a BMW commercial, and that
BMW then has a faulty engine, how the f--- can
you possibly know whether they were going to
do good on what they said they were going to do?”
asked Brett Kincaid of Matte Projects LLC, which
was also involved in promoting Fyre, during the
Netflix documentary.
The two films take different approac es to
February 4, 2019
culpability. The Hulu version is holistic, including quotes
such as “Who’s to blame? Everybody.” Also: Should “Kendall
Jenner, who allegedly gets $250,000 a post, have any level
of responsibility?” Oren Aks, a designer on the social media
campaign, asks, “What have I done? My child is like Satan.”
Netflix essentially frames everybody but McFarland as a vic-
tim in its doc co-produced by Jerry Media. (Yes, the same com-
pany that created an entire illusion was charged with painting
an accurate picture of the events that unfolded.)
Yet in the lead-up to the debacle, instead of disclosing the
truth, Jerry Media actively hid problems in the key final hours.
It even silenced critics. Attendees asking questions about
logistics on social media were blocked. Any comments that
included the words “fake,” “details,” “flight,” “fraud,” “scam,”
and even “information” were deleted within seconds.
Moving further down the responsibility ladder, what about
the supermodels paid to boost the event? Jenner, Bella Hadid,
Emily Ratajkowski, and Hailey Bieber collectively amass almost
163 million followers on Instagram alone.
To encourage transparency for consumers, the Federal
Trade Commission has become increasingly aggressive in
requiring influencers to disclose if they’re being paid to pro-
mote a good or service by using hashtags like #sponsored, #ad,
or #paidcontent. In 2017 the FTC sent a series of warning let-
ters to about 90 celebrities; violating the endorsement guide-
lines allows the commission to impose fines or injunctions.
But “the guidelines don’t have the force of law,” says Richard
Newman, an FTC advertising compliance attorney.
It may seem silly—models don’t pretend to be objective,
like journalists—but as the Fyre documentaries prove, the
consequences of misleading followers can be quite serious.
Ratajkowski was reportedly the only one who used the hashtag
#ad. Hadid apologized to her fans. Most of them, including
Jenner, have since deleted their posts.
And what about the marketers?
“Everyone in the chain that’s involved in the [social media]
post” falls under the FTC’s guidelines, says David
Klein, an internet marketing attorney. “This would
be those who are doing the post, the influencer,
the company that’s been hired to get the word
out.” Enforcing fines on this type of thing, espe-
cially in such a public case, could discourage
future repeats, according to the compliance
lawyer Newman.
Both Jerry Media and the influencers claim
they didn’t know anything. The films, even
Jerry Media’s, indicate otherwise. Whether
they can be held responsible hinges on that
knowledge and whether the agencies were
aware they were engaging in meaningful
deception. Perhaps attorney Ben Meiselas
says it best in the Hulu documentary:
ILLUSTRATION BY 731
“Don’t just focus on Billy. … There are
people who helped Billy commit fraud
so that they could make their money.” 
THE ONE Bloomberg Pursuits THE COMPETITION They’re made by
• Those who need Sew for Hope, which
help getting their provides refugees
Zs will like knowing with sewing
If you did a #10Year the blue chambray machines and jobs.
Challenge focused Weighting Comforts • The cover fabric for
on your attitude blanket (10-pounders the BlanQuil Chill—a
toward sleep, start at $195) has clean white polyester
chances are in already aided others. weave covered
2009 you bragged in a honeycomb
about how little you blue stitch—stays
needed, but in 2019 cool to the touch
you’re showing off long enough for
how much you’re a hot sleeper to
getting. We’ve go gently into
learned a lot about that good
the literal value of a night. It’s even
good night’s sleep; in Kardashian-
her book The Sleep approved ($299).
Revolution, Arianna • Bedding’s biggest
Huffington says names, including
sleep deprivation Sleep Number
costs the U.S. Corp., are trying to
economy more than hog the covers. Its
$63 billion a year in Relaxation weighted
absenteeism and blanket ($199)
lost productivity. But comes in three
we’ve also learned colors and three
how difficult it can weights.
be to get a night
of solid shut-eye.
Thus, weighted
blankets such as
67
the Napper ($259)
from Bearaby
have exploded
in popularity.
Their makers
tout the benefits
of deep-touch
pressure, which
originally Gravity Blanket,
was found to have glass beads
have soothing inside.) Bearaby
effects among founder Kathrin
people with autism, Hamm, who came
ADHD, and even from the sleepless
PTSD. THE CASE high-pressure world
Bearaby’s 20-lb., of finance, working
48-by-78-inch for the World Bank in
Napper takes Washington, Dubai,
the comfort of a

Under
and Mumbai, is now
weighted blanket a full-on proponent
and turns it into of napping, saying
something stylish that “workplace

Pressure
enough for your productivity
sofa. The chunky increases even
open-weave design just with a short
is made of nothing 20-minute nap.”
more than organic Snuggling under the
The Bearaby weighted blanket cotton enhanced
with a touch of
blanket is like being
soothingly embraced
might be the secret to smoother stretchable elastane. in a full body hug,
sleep—and even a happier life (Some options,
such as the $250
or being very cozily
shrink-wrapped.
Photograph by Stephen Lewis category-leading $259; bearaby.com
 LAST THING With Bloomberg Opinion

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Big Tobacco Lawsuits
Still Smolder in Florida
By Joe Nocera

① THE ORIGIN Remember the tobacco wars of the 1990s? Among the many
68 lawsuits aimed at bringing down Big Tobacco was a class action, Engle v. Liggett
Group Inc., filed in Florida in 1994. Six years later, finding that the tobacco
companies had hidden the deadly nature of cigarettes, a jury awarded the
plaintiffs $145 billion in punitive damages. Alas, six years after that, the Florida
Supreme Court reversed that award and decertified the class. End of litigation,
right? Not so fast …

② THE TWIST In its ruling, the court said the Engle plaintiffs could still bring
individual suits. And to make things a little more palatable for the smokers and
their families, who’d waited through 12 years of trial and appeal, it ruled that
the evidence of negligence and other bad conduct by the tobacco companies
unearthed during the Engle litigation could be assumed to be true in any sub-
sequent trial. With the deck thus stacked in their favor, thousands of former
Cote v. Philip Engle plaintiffs filed suit. Judith Berger was one of them.
Morris USA
③ THE LAWSUIT Berger started smoking in 1959, when she was 14, and
Case No. 15-15633 received a diagnosis of pulmonary disease when she was 54. During her 2014
trial, she admitted that Philip Morris USA’s “misrepresentations about the haz-
ards of cigarettes” weren’t a factor in her decision to smoke. Nonetheless, the
○ ONLY IN FLORIDA ○ BURNING CASH jury awarded her $27 million, $20 million of it in punitive damages.
The Florida suits are How much is all this
the last big litigation costing tobacco
against Big Tobacco. companies? It’s not ④ THE RESULT The district court judge quickly tossed the punitive damages,
Only the “Engle going to break them,
progeny,” as they’re but it’s not peanuts, noting that Philip Morris could hardly be held responsible for misleading a
known, can still bring either. Altria Group smoker who testified she hadn’t been misled. But a federal appeals court
ILLUSTRATION BY GEORGE WYLESOL

suits with a good Inc., Philip Morris’s

chance of winning. parent company, overturned the district court. Why? Because Berger had once been an Engle
But their suits aren’t spends $50 million plaintiff, and therefore the tobacco company’s bad conduct was a given.
stopping anytime to $100 million a year
soon: There are on the cases. The (Berger died in 2017. The appeal was brought by Bernard Cote, who represents
still 3,000 to 4,000 company told me it her estate.) Jurors could simply assume she didn’t know the health effects
plaintiffs waiting for plans to keep fighting
their turn in court. them for as long as it of smoking. Thus, on Jan. 17, the district court restored the $20 million. 
takes. Good luck. —Nocera is a business columnist for Bloomberg Opinion
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