The alphabet of success
What qualities do superstar companies possess?
The alphabet of
success
Superstars need a dazzling range of
qualities
GENERAL ELECTRIC, THE product of an alliance
between Thomas Edison, America’s greatest inventor,
and J.P. Morgan, its greatest banker, was the
technology superstar of the early 20th century.
Edison’s patents have long since expired and
electricity has become a commodity, but GE remains a
commercial empire, the only intact survivor of the
companies that made up the original Dow Jones
The only way to remain on top for
any length of time is to hire the right
people and turn them into loyal
corporate warriors
The Economist
index. GE employs 330,000 people in 180 countries,
owns $493 billion-worth of assets and earned $117
Every superstar company is a superstar in its own way.
billion in 2015. It has survived where other
Great companies have distinctive cultures and
technology stocks have faded because it has fully
traditions that are all their own and inhabit well-
mastered the art of management. Its slogan,
defined market niches. But they also share a set of
“Imagination at work”, could just as easily be
common characteristics. The first is an obsession with
“Management at work”.
talent. The only way to remain on top for any length
of time is to hire the right people and turn them into
loyal corporate warriors. GE spends a billion dollars a
year on training. Its success has been such that
between 2003 and 2011 about 40 GE vice-presidents
have become CEOs of other major companies. Google,
which is doing for information what GE once did for
electricity, is similarly obsessed with training.
Superstar companies tend to be unashamedly elitist.
GE fast-tracks its most promising employees.
majority of the world’s electronic devices. Its fibre
Remaining focused on the long term is difficult in a
Hindustan Unilever compiles a list of people who
optics carry information around the world. Its
world where public companies are answerable to the
show innate leadership qualities (and refers to them
“Gorilla” glass helps prevent your iPhone from
stockmarket every quarter, and it turns out that a
throughout their careers as “listers”). Laszlo Bock,
shattering when you drop it, and is starting to be
remarkable number of superstar companies have
Google’s head of human resources, argues that a top-
used in cars. Next will be huge glass screens that
dominant owners who can resist the pressure for
notch engineer “is worth 300 times more than an
cover entire walls, flexible ones that can be rolled up
short-term results. According to one study, more than
average engineer”.
like scrolls and windows that operate like giant
one in ten of tech companies that went to the market
sunglasses for the office. The company’s R&D centre
between January 2010 and March 2012 had dual
in upstate New York resembles a university campus.
voting structures giving their founders extra rights.
Its best scientists have the equivalent of academic
Both Facebook and Google explicitly justify such
tenure (some stay around into their 90s), publishing
structures by the need to pursue long-term projects.
Such companies keep a watchful eye on their highflyers throughout their careers. Jeff Immelt, GE’s
boss, prides himself on his detailed knowledge of the
600 people at the top of his company, including their
family circumstances and personal ambitions.
Hindustan Unilever’s managers constantly test
academic papers and notching up scientific
breakthroughs.
Family companies frequently punch above their
weight because their dominant owners are free to
potential leaders by moving them from one division
The same obsession can be found in all successful
think about the long term. Companies in emerging
to another and subjecting them to “stretch
tech companies. Amazon sacrificed dividends for
countries typically put more emphasis on long-term
assignments”. Procter & Gamble talks about
years in order to establish its mastery of online
growth than on short-term results. The best widely
“accelerator experiences” and “crucible roles”.
shopping. Today it is taking an equally long-term
held companies have developed formidable skills at
view of the computer cloud by pouring money into
managing the financial markets and making the case
servers. Google is putting the riches generated by its
for long-term goals.
The second obsession superstar firms share is with
investing in their core skills. Corning, the company
that made the glass for Edison’s first light bulb,
started life producing the raw material for bottles and
windows. It now manufactures the glass used in the
search engines into more adventurous technologies.
BMW is investing in new materials such as carbon
fibre and enhancements such as parking assistance.
"Coca-Cola does not just
want to sell a lot of fizzy
drinks, it wants to put a can
of Coke within easy reach of
everyone on the planet"
But investors cannot be expected to be patient for
ever; they need a mechanism to tell them when they
are pouring money down the drain. Striking the right
balance between the long and the short term is the
first on a long list of balancing acts that superstar
companies have to perform in order to earn their
laurels.
All of them set themselves extravagant goals. CocaCola does not just want to sell a lot of fizzy drinks, it
wants to put a can of Coke within easy reach of
everyone on the planet. And when they have achieved
those goals, they move the goalposts. Google has
expanded its vision from “just” wanting to organise
detail. When Steve Jobs was in charge of Apple, he
cry out an early warning”. These Cassandras are often
agonised over every tiny detail, down to the exact
middle managers who “usually know more about
shade of grey to be used for the signs in its stores’
upcoming change than the senior management
lavatories. Ingvar Kamprad, the founder of IKEA, a
because they spend so much time ‘outdoors’ where
homeware giant, continually toured his stores until
the winds of the real world blow in their faces”. GE
well into his 80s (he is now 90). Superstar companies
insists that its high-flying executives, most of whom
are particularly good at establishing a link between
are engineers by training, take courses in painting in
their strategic vision and their everyday operations.
order to “loosen them up” a little.
Disney, for instance, is utterly committed to
projecting wholesomeness.
Great companies combine a strong
sense of identity with a fierce
hostility to groupthink
The Economist
the world’s information to wanting to use that
information to reinvent transport, beside a host of
other things. Amazon, having become the world’s
biggest bookstore, now wants to be the world’s
biggest everything store.
At the same time they all pay endless attention to
Great companies combine a strong sense of identity
with a fierce hostility to groupthink. Andy Grove, a
CEO of Intel, advised CEOs to balance the sycophants
they inevitably attract by cultivating “Cassandras”
who are “quick to recognise impending change and
Such companies also regularly reassess their
investment decisions in the light of changing
markets. McKinsey measured the agility of more than
1,600 companies by looking at how much of their
capital they reallocated every year, and found a
strong positive correlation between the companies’
willingness to move their capital around and the total
return to shareholders.
How to stay lithe
using less sugar and more familiar flavours such as
employment-light. In 1962 Exxon, one of the world’s
Superstars do everything they can to remain agile
green tea.
most durable and financially successful corporations,
despite their size. They fight a constant war against
bureaucratic bloat, unnecessary complexity and
overlong meetings. They often locate themselves in
the latest tech hotspot in order to absorb its ideas
and energy. In 2014 Pfizer opened an R&D facility
with 1,000 employees near MIT in Cambridge,
Massachusetts. Apple and Intel have set up R&D labs
in Carnegie Mellon’s Collaborative Innovation Centre
in Pittsburgh. Every car company worth its salt has
opened an office in Silicon Valley. They also form
close relationships with startups. In 2012 GE
launched GE Garages, a lab incubator, to provide
startups with access to its experts and to equipment
such as 3D printers and laser cutters.
Successful big companies strike a balance between
global scale and local roots to become “rooted
cosmopolitans”. LG, a South Korean conglomerate,
can tailor its products for specific markets: microwave
ovens destined for east India, for example, have an
autocook option for Bengali fish curry. Kraft has reengineered the Oreo biscuit for Chinese taste buds,
Such companies also understand that they need to
keep undergoing radical changes in order to survive,
as companies such as Google and Facebook have done
had 150,000 employees; today it has half as many. As
for the new breed of tech firms, they typically employ
as few people as they possibly can.
on several occasions. They are even willing to disrupt
But for all their virtues, superstar companies, both
their own core businesses before someone else does.
old and new, have their dark sides.
Netflix disrupted its video-delivery business by
embracing streaming. China’s Tencent disrupted its
own social-media business by introducing WeChat, a
platform that allows users to book taxis, order food
and so on. Again, GE was a trailblazer. In the 1980s
and 1990s its then boss, Jack Welch, decreed that it
should be among the world’s top three in all the
businesses it was involved in, or get out. Now Mr
Immelt is restructuring the company for the digital
age, selling off GE appliances, buying France’s
Alstom, investing heavily in the internet of things
and moving the company’s headquarters to Boston to
be closer to the heart of high-tech.
Thanks to all these changes, even the classic
companies are becoming more asset- and
Liquid lunch
How a startup wants to change the way people consume
calories
Liquid lunch
“ONE should eat to live, not live to eat,” wrote
break from work. Their bad diets can damage their
Molière, the French comedic playwright. Some
health. Several years ago Sam Altman, an
A startup called Soylent wants to change
the way people consume calories
workaholic entrepreneurs have taken him at his word.
entrepreneur who is now president of Y Combinator, a
Soylent, a two-year-old startup, is trying to save
startup boot camp, was so cost-conscious and
consumers time and money by selling them a healthy,
focused on building his first company, Loopt, that for
cheap “meal” that they can drink. Each vegetarian
weeks he ate only ramen noodles and coffee ice
portion has only around 400 calories, costs around $3
cream, until he developed scurvy. He later became an
and boasts of being as nutritious as, and more
investor in Soylent. At first the product was sold as a
environmentally-friendly than, processed food and
powder, but even that was a hassle for some
meat.
consumers, so on September 9th it started shipping
version 2.0, which comes already mixed and bottled.
Each vegetarian portion has only
around 400 calories and costs
around $3
The Economist
Soylent has found a place among American
workaholics who resent the cost and hassle of
preparing regular meals. This is especially true in
Silicon Valley, home of many “early-adopter”
engineers too consumed with coding the future to
"Yucky-sounding ingredients
like algal oil will put many
off, as well as reviews from
early users that Soylent
makes them gassy"
The name Soylent is a tribute to a 1966 sciencefiction novel, “Make Room! Make Room!”, set in an
overpopulated world where everyone eats a mixture of
lentils and soy (and, in the film version, human
flesh). Rob Rhinehart, the drink’s 27-year-old creator,
came up with the idea when he was working on a
different startup, focused on wireless internet. He
was so poor that he started mixing his own food, and
later dropped the other project to focus on food
technology. He is, by any measure, extreme. He
considers shopping at grocery stores, in the presence
of “rotting” produce, a “multisensory living
nightmare”, and no longer owns a fridge.
Soylent has proved that it can appeal to a niche, as
well as to a handful of financiers: in January the firm
raised $20m from investors, including Andreessen
Horowitz, a well-regarded venture-capital firm. But it
has plenty of obstacles to overcome. Yucky-sounding
ingredients like algal oil (yes, derived from algae) will
put many off, as well as reviews from early users that
Soylent makes them gassy. “I prefer my food with
both flavour and texture,” says one young, vegetarian
entrepreneur who has tried it. Mr Rhinehart insists
that Soylent’s “neutral” taste is the best way to
appeal to the broadest group of people. Just how big
that group really is, however, remains to be seen.
Capitalism and its
discontents
Anti-capitalism is being fuelled not just by capitalism’s
vices but also by its virtues
Capitalism and its
discontents
Anti-capitalism is being fuelled not just
by capitalism’s vices but also by its
virtues
DAVE SPART has been a stalwart of Private Eye, a
British satirical magazine, since the 1970s. The
bearded Bolshevik has never wavered in his
enthusiasm for denouncing capitalism (“totally
sickening”). But in recent years the Eye’s editors gave
their fictional columnist progressively less space as
A Gallup poll of confidence in
American institutions found "big
business" came second to bottom
The Economist
the left made its peace with free markets and
consumerism. Now, Mr Spart is back—not only on the
pages of Private Eye but in the corridors of power.
Why is anti-capitalism gaining ground? Dave Spart
Britain’s main opposition Labour Party this week held
would no doubt argue that the people are finally
its first conference under a new, hard-left leader,
realising that the free market is an illusion. Big
Jeremy Corbyn. In Greece and Spain new left-wing
companies act as rent-seeking monopolies, with their
parties have emerged. Greece’s Syriza has come out
executives lobbying politicians for special favours
on top in two successive elections and Spain’s
and tax breaks. The boss-class awards itself huge pay
Podemos is set to make big advances in December’s
packets regardless of success or failure: it is said that
general election. In the United States, Bernie
Martin Winterkorn, the departing CEO of Volkswagen,
Sanders, a self-described independent socialist, is
may leave with a pension-plus-severance package
making a spirited run for the Democratic nomination.
worth €60m ($67m). This argument is gaining ground
And in the Vatican Pope Francis denounces the
on the right as well as the left. On September 25th
“invisible tyranny of the market” and recommends
Charles Moore, Margaret Thatcher’s official
“returning the economy to the service of human
biographer, wrote in the Wall Street Journal that Marx
beings”.
had a valuable insight “about the disproportionate
power of the ownership of capital”. A Gallup poll of
confidence in American institutions found that “big
business” came second to bottom, just above
Congress, with only 21% expressing “a great deal” or
“quite a lot” of confidence in it.
Free-marketeers have a ready-made answer to this
argument. Messrs Spart and Moore are complaining
about the problems of corporatism rather than
capitalism. The best way to solve the problems of
“bad capitalism” (monopolies and cronyism) is to
unleash the virtues of “good capitalism” (competition
and innovation). The welcome news for such freemarketeers is that good capitalism is gaining ground.
Look how hard it is nowadays for big firms and big
bosses to entrench themselves. The average time a
company spends on the Fortune 500 list has fallen
from 70 years in the 1930s to about 15 years today;
and the average job tenure of aFortune 500 CEO has
gone from ten years in 2000 to five years today. The
bad news is that good capitalism may be doing as
much as bad capitalism to create the current
backlash.
"Digital technology allows
businesses to become huge
in no time"
Globalisation and digitisation have speeded up the
pace of creative destruction. Successful firms can
emerge from obscure places such as Estonia (Skype)
and Galicia (Inditex) to straddle the globe. Digital
technology allows businesses to become huge in no
time. WhatsApp, a mobile-messaging platform,
reached 500m users within five years of its launch.
But the champions of this brave new world can be
disconcerting. They are usually light on both people
and assets, partly because digital services are highly
automated and partly because of outsourcing. Ten
years ago Blockbuster had 9,000 shops in America
with 83,000 employees. Netflix employs just 2,000
people and rents the computing power for its
streaming video from Amazon. Gerald Davis of the
University of Michigan’s Ross School of Business
calculates that the 1,200 firms that have gone public
in the United States since 2000 have each created
fewer than 700 jobs worldwide, on average, since
then. They are also ruthless: the new champions are
constantly reinventing and reconfiguring themselves
in order to avoid the fate of former champions such as
AOL and Nokia.
Rapid change is provoking anxiety—and resistance.
Supporters of good capitalism argue that
employability is what matters, not employment. But
what happens when change is so fast that “skills
security” goes the way of job security? Those in the
good-capitalism camp say, too, that rapid change is
the price people pay for prosperity. But surely people
value stability as well as the fruits of technology? In
1988 William Samuelson and Richard Zeckhauser, two
economists, described a case in which the German
authorities wanted to move a small town, so the coal
underneath it could be mined. They suggested many
options for the new town but, rather than something
more suited to the age of the car, its citizens chose a
design “extraordinarily like the serpentine layout of
the old town, a layout that had evolved over centuries
without (conscious) rhyme or reason.”
I am Spart
Pro-capitalists rightly argue that the creative bit of
creative destruction outweighs the destructive side.
Thanks to Google and its likes we can search a good
portion of human knowledge in an instant. Thanks to
firms like Apple we each carry a supercomputer in our
pockets. Thanks to sharing-economy companies such
as Uber and Task Rabbit, people who do not want to
work regular hours can find work whenever it suits
them. The best way to solve some of our most
nagging problems is to unleash the power of
innovation. Airbnb is cutting the cost of temporary
accommodation and MOOCs (massive open online
courses) are democratising access to an Ivy League
education.
But pro-capitalists should also remember two things.
The first is that most people do not distinguish
between good and bad capitalism: they see a world in
which the winners are unleashing a tide of
uncertainty while reserving themselves luxury berths
on the lifeboats. The second is that the forces
sweeping through the capitalist economy are also
sweeping through politics: the old party machines are
imploding, and political entrepreneurs have the
wherewithal to take over old parties or to build new
ones. Anti-capitalism is once more a force to be
reckoned with.
The world is going to
university
But is it worth it?
The world is going to
university
But is it worth it?
“AFTER God had carried us safe to New England, and
we had builded our houses, provided necessaries for
our livelihood, reared convenient places for God’s
worship and settled Civil Government, one of the next
things we longed for and looked for was to advance
learning and perpetuate it to posterity.” So ran the
first university fundraising brochure, sent from
Harvard College to England in 1643 to drum up cash.
America’s early and lasting enthusiasm for higher
education has given it the biggest and best-funded
system in the world. Hardly surprising, then, that
other countries are emulating its model as they send
ever more of their school-leavers to get a university
education. But, as our special report argues, just as
America’s system is spreading, there are growing
concerns about whether it is really worth the vast
sums spent on it.
University enrolment is growing
faster even than demand for that
ultimate consumer good, the car
The Economist
The modern research university, a marriage of the
Oxbridge college and the German research institute,
was invented in America, and has become the gold
standard for the world. Mass higher education started
in America in the 19th century, spread to Europe and
East Asia in the 20th and is now happening pretty
much everywhere except sub-Saharan Africa. The
global tertiary-enrolment ratio—the share of the
student-age population at university—went up from
14% to 32% in the two decades to 2012; in that time,
the number of countries with a ratio of more than half
rose from five to 54. University enrolment is growing
faster even than demand for that ultimate consumer
good, the car. The hunger for degrees is
understandable: these days they are a requirement for
a decent job and an entry ticket to the middle class.
There are, broadly, two ways of satisfying this huge
demand. One is the continental European approach of
state funding and provision, in which most
institutions have equal resources and status. The
second is the more market-based American model, of
mixed private-public funding and provision, with
"OECD countries spend 1.6%
of GDP on higher education,
compared with 1.3% in
2000"
brilliant, well-funded institutions at the top and
If the American model continues to spread, that
poorer ones at the bottom.
share will rise further. America spends 2.7% of its GDP
The world is moving in the American direction. More
on higher education.
universities in more countries are charging students
If America were getting its money’s worth from higher
tuition fees. And as politicians realise that the
education, that would be fine. On the research side, it
“knowledge economy” requires top-flight research,
probably is. In 2014, 19 of the 20 universities in the
public resources are being focused on a few privileged
world that produced the most highly cited research
institutions and the competition to create world-class
papers were American. But on the educational side,
universities is intensifying.
the picture is less clear. American graduates score
In some ways, that is excellent. The best universities
are responsible for many of the discoveries that have
made the world a safer, richer and more interesting
place. But costs are rising. OECD countries spend
1.6% of GDP on higher education, compared with
1.3% in 2000.
poorly in international numeracy and literacy
rankings, and are slipping. In a recent study of
academic achievement, 45% of American students
made no gains in their first two years of university.
Meanwhile, tuition fees have nearly doubled, in real
terms, in 20 years. Student debt, at nearly $1.2
trillion, has surpassed credit-card debt and car loans.
None of this means that going to university is a bad
money, why might that be? The main reason is that
investment for a student. A bachelor’s degree in
the market for higher education, like that for health
America still yields, on average, a 15% return. But it
care, does not work well. The government rewards
is less clear whether the growing investment in
universities for research, so that is what professors
tertiary education makes sense for society as a whole.
concentrate on. Students are looking for a degree
If graduates earn more than non-graduates because
from an institution that will impress employers;
their studies have made them more productive, then
employers are interested primarily in the selectivity
university education will boost economic growth and
of the institution a candidate has attended. Since the
society should want more of it. Yet poor student
value of a degree from a selective institution depends
scores suggest otherwise. So, too, does the testimony
on its scarcity, good universities have little incentive
of employers. A recent study of recruitment by
to produce more graduates. And, in the absence of a
professional-services firms found that they took
clear measure of educational output, price becomes a
graduates from the most prestigious universities not
proxy for quality. By charging more, good universities
because of what the candidates might have learned
gain both revenue and prestige.
but because of those institutions’ tough selection
procedures. In short, students could be paying vast
sums merely to go through a very elaborate sorting
mechanism.
If America’s universities are indeed poor value for
What’s it worth?
they have taught their students to think critically.
remain grounded.
More information would make the higher-education
market work better. Common tests, which students
would sit alongside their final exams, could provide a
comparable measure of universities’ educational
performance. Students would have a better idea of
what was taught well where, and employers of how
much job candidates had learned. Resources would
Some governments and institutions
are trying to shed light on
educational outcomes
The Economist
flow towards universities that were providing value
for money and away from those that were not.
Institutions would have an incentive to improve
teaching and use technology to cut costs. Online
courses, which have so far failed to realise their
promise of revolutionising higher education, would
begin to make a bigger impact. The government
would have a better idea of whether society should be
investing more or less in higher education.
Sceptics argue that university education is too
complex to be measured in this way. Certainly,
testing 22-year-olds is harder than testing 12-yearolds. Yet many disciplines contain a core of material
that all graduates in that subject should know. More
generally, universities should be able to show that
funding and participation from them, the effort will
Some governments and institutions are trying to shed
light on educational outcomes. A few American stateuniversity systems already administer a common test
to graduates. Testing is spreading in Latin America.
Most important, the OECD, whose PISA assessments of
secondary education gave governments a jolt, is also
having a go. It wants to test subject-knowledge and
reasoning ability, starting with economics and
engineering, and marking institutions as well as
countries. Asian governments are keen, partly
because they believe that a measure of the quality of
their universities will help them in the market for
international students; rich countries, which have
more to lose and less to gain, are not. Without
Governments need to get behind these efforts.
America’s market-based system of well-funded, highly
differentiated universities can be of huge benefit to
society if students learn the right stuff. If not, a great
deal of money will be wasted.
Generation uphill
Are millennials being given enough of a chance to reach
their full potential?
Generation uphill
SHEN XIANG LIVES in a shipping crate on a
parents worked there. Instead he had to make do with
construction site in Shanghai which he shares with at
a worse one back in his village
Millennials are the brainiest, besteducated generation ever. Yet their
elders often stop them from reaching
their full potential, argues Robert Guest
least seven other young workers. He sleeps in a bunk
and uses a bucket to wash in. “It’s uncomfortable,” he
says. Still, he pays no rent and the walk to work is
only a few paces. Mr Shen, who was born in 1989,
hails from a village of “mountains, rivers and trees”.
He is a migrant worker and the son of two migrants,
so he has always been a second-class citizen in his
own country.
Mr Shen doubts that he will ever be
able to buy a flat in Shanghai..."It's
unfair," he says
The Economist
Now he paints hotels. The pay is good—300 yuan
($47) for an 11-hour day—and jobs are more plentiful
in Shanghai than back in the countryside. His
ambition is “to get married as fast as I can”. But he
cannot afford to. There are more young men than
young women in China because so many girl babies
were aborted in previous decades. So the women
today can afford to be picky. Mr Shen had a girlfriend
once, but her family demanded that he buy her a
house. “I didn’t have enough money, so we broke up,”
he recalls. Mr Shen doubts that he will ever be able to
buy a flat in Shanghai. In any case, without the
right hukou his children would not get subsidised
education or health care there. “It’s unfair,” he says.
There are 1.8 billion young people in the world,
In China, many public services in cities are reserved
for those with a hukou (residence permit). Despite
recent reforms, it is still hard for a rural migrant to
obtain a big-city hukou. Mr Shen was shut out of
government schools in Shanghai even though his
roughly a quarter of the total population. (This report
defines “young” as between about 15 and 30.) All
generalisations about such a vast group should be
taken with a bucket of salt. What is true of young
Chinese may not apply to young Americans or
Burundians. But the young do have some things in
This report takes a global view, since 85% of young
Yet much of their talent is being squandered. In most
common: they grew up in the age of smartphones and
people live in developing countries, and focuses on
regions they are at least twice as likely as their elders
in the shadow of a global financial disaster. They fret
practical matters, such as education and jobs. And it
to be unemployed. Over 25% of youngsters in middle-
that it is hard to get a good education, a steady job, a
will argue that the young are an oppressed minority,
income nations and 15% in rich ones are NEETs: not
home and—eventually—a mate with whom to start a
held back by their elders. They are unlike other
in education, employment or training. The job market
family.
oppressed minorities, of course. Their “oppressors” do
they are entering is more competitive than ever, and
not set out to harm them. On the contrary, they often
in many countries the rules are rigged to favour those
There are 1.8 billion young people in
the world, roughly a quarter of the
population
love and nurture them. Many would gladly swap
who already have a job.
The Economist
places with them, too.
Education has become so expensive that many
In some respects the young have never had it so
students rack up heavy debts. Housing has grown
good. They are richer and likely to live longer than
costlier, too, especially in the globally connected
any previous generation. On their smartphones they
megacities where the best jobs are. Young people
can find all the information in the world. If they are
yearn to move to such cities: beside higher pay, they
female or gay, in most countries they enjoy freedoms
offer excitement and a wide selection of other young
Companies are obsessed with understanding how
that their predecessors could barely have imagined.
people to date or marry. Yet constraints on the supply
“millennials” think, the better to recruit them or sell
They are also brainier than any previous generation.
of housing make that hard.
them stuff. Consultants churn out endless reports
Average scores on intelligence tests have been rising
explaining that they like to share, require constant
for decades in many countries, thanks to better
praise and so forth. Pundits fret that millennials in
nutrition and mass education.
rich countries never seem to grow out of adolescence,
with their constant posting of selfies on social media
and their desire for “safe spaces” at university,
shielded from discomforting ideas.
"Over 25% of youngsters in
middle-income nations and
15% in rich ones are NEETs"
For both sexes the path to adulthood—from school to
work, marriage and children—has become longer and
more complicated. Mostly, this is a good thing. Many
young people now study until their mid-20s and put
off having children until their late 30s. They form
families later partly because they want to and partly
because it is taking them longer to become
Politicians in democracies listen to the people who
established in their careers and feel financially
vote—which young people seldom do. Only 23% of
secure. Alas, despite improvements in fertility
Americans aged 18-34 cast a ballot in the 2014 mid-
treatment the biological clock has not been reset to
term elections, compared with 59% of the over-65s.
accommodate modern working lives.
In Britain’s 2015 general election only 43% of the
Throughout human history, the old have subsidised
the young. In rich countries, however, that flow has
recently started to reverse. Ronald Lee of the
University of California, Berkeley, and Andrew Mason
at the University of Hawaii measured how much
people earn at different ages in 23 countries, and how
much they consume. Within families,
intergenerational transfers still flow almost entirely
from older to younger. However, in rich countries
public spending favours pensions and health care for
18-24s but 78% of the over-65s voted. In both
countries the party favoured by older voters won a
thumping victory. “My generation has a huge interest
in political causes but a lack of faith in political
parties,” says Aditi Shorewal, the editor of a student
paper at King’s College, London. In autocracies the
young are even more disillusioned. In one survey,
only 10% of Chinese respondents thought that young
people’s career prospects depended more on hard
work or ability than on family connections.
the old over education for the young. Much of this is
All countries need to work harder to give the young a
paid for by borrowing, and the bill will one day land
fair shot. If they do not, a whole generation’s talents
on the young. In five of 23 countries in Messrs Lee
could be wasted. That would not only be immoral; it
and Mason’s sample (Germany, Austria, Japan,
would also be dangerous. Angry young people
Slovenia and Hungary), the net flow of resources
sometimes start revolutions, as the despots
(public plus private) is now heading from young to
overthrown in the Arab Spring can attest.
old, who tend to be richer. As societies age, many
more will join them.
Do you think millennials the world
over are being given a fair shot?
No, the challenges stacked against millennials
are far too great
Yes, no previous generation has had it so good
Still a must-have
MBAs remain surprisingly popular, despite the headwinds
Still a must have
THE master of business administration (MBA) is no
It's no stranger to criticism, but the MBA
is still hugely popular
influential report commissioned by the Ford
stranger to damning criticism. In the 1950s an
Foundation lambasted the degree for being weak and
irrelevant. In the 1980s Business Week reported that
firms were bemoaning “the inability of newly minted
MBAs to communicate, their overreliance on
mathematical techniques of management and [their]
expectations of becoming chairman in four weeks”. In
192,000 masters degrees in business
were awarded in America in 2012,
making it easily the most popular
discipline among post-graduate
students
The Economist
the 2000s observers noticed that firms involved in
corporate disasters, such as Enron and Lehman
Brothers, tended to be run by alumni from prestigious
business schools.
Yet the MBA remains hugely popular. Nobody knows
exactly how many people study for the degree
globally, but 192,000 masters degrees in business
were awarded in America in 2012, making it easily the
most popular discipline among post-graduate
students. Worldwide 688,000 people sat the GMAT,
the de facto entrance exam for MBA programmes, in
2014—although this is down considerably from 2008,
when 745,000 took the test.
The reason for this drop is partly cyclical: people tend
to apply to business schools during downturns in an
attempt to shelter themselves from the economic
storm. But the MBA faces many longer-term problems.
The most pressing is tighter visa requirements in
after they graduate. Predictably, countries with a
Such concerns highlight the fact that MBA graduates
parts of the rich world. It may seem obvious that
more welcoming attitude, such as Canada, are seeing
are still in demand among employers. At schools
countries would wish to attract and retain the
applications from abroad rise. In contrast, the
included in The Economist’s latest ranking of full-
brightest young minds. But to the despair of
proportion of applicants interested in American
time MBA programmes, 89% of students found a job
business-school deans, both America and
schools fell from 83% in 2007 to 73% in 2015,
within three months of graduating. Their median
Britain—the two most popular destinations for
according to GMAC, a business-school body.
basic salary is close to $100,000, an increase of 88%
foreign students—now place tougher restrictions on
foreign students who want to stay and work in the
country after they finish studying.
Canada and other countries do not just covet
foreigners deciding whether to apply to American
schools. The Canadian government has hired giant
compared with their pre-study salaries. But some
things have changed: banks, for instance, have
become much less keen on MBAs since the financial
crisis (perhaps because business-school alumni were
In America foreign MBA graduates must find a firm to
billboards in Silicon Valley reading “H-1B Problems?
sponsor them for an H-1B visa, which entitles them to
Pivot to Canada” to attract disgruntled foreign
work for up to three years in the country, with the
graduates. “If [American firms] can’t import the
Western business schools are also losing ground to
possibility to extend to six years. But the demand for
talent, they will export the jobs,” says Matt
those based in emerging economies. The share of
these visas by far exceeds supply. America caps the
Slaughter, the dean of the Dartmouth College’s Tuck
students who send their GMAT scores to an Asian and
number of H-1Bs at a total of 85,000 (the first 20,000
School of Business. “Unlike lawyers or doctors, the
Australasian business school—a good proxy for
applications are reserved for students of a master’s
MBA qualification is transferable across borders.”
applications—has nearly doubled to 8.1% since 2007.
degree). These are snapped up within days. In Britain
graduates must find work even before their student
visa expires if they want to stay in the country.
Such restrictions are a particular problem for MBA
programmes because many students choose a
business school based on where they want to work
"Western business schools
are losing ground to those
based in emerging
economies"
often singled out as the culprits).
Eight-and-a-half Asian business schools now make it
into our ranking of full-time programmes (INSEAD has
campuses in France and Singapore). These numbers
are small, but they are likely to rise. China, in
particular, plans to improve its business schools to
meet demand for local managers.
Established schools are also disrupting themselves.
Those taking an economics class in one of them might
Over the past five years the number of master-in-
reasonably expect a shakeout. Alas, in the world of
management (MiM) degrees, which unlike MBA
business schools such laws do not seem to apply. No
programmes admit students straight from university
matter how few people an MBA programme can
without prior work experience, has shot up. In
attract, few schools will countenance dropping the
America even schools such as Michigan, Duke and
programme altogether: a business school is defined
Notre Dame are embracing what was once considered
by its MBA. As Stephen Hodges, the president of Hult
a strictly European qualification. Despite covering
International Business School, puts it: “Is a business
much of the same ground as an MBA, MiM programmes
school really a business school if it doesn’t offer an
also tend to be much cheaper. Every student who
MBA?”
graduates from them is likely to be one fewer
lucrative MBA candidate in the future.
Not all business schools are affected in the same way.
Students will always, it seems, want an MBA from
Harvard, Chicago or London Business School. It is
those with lesser reputations that face the toughest
times. More than two-thirds of full-time programmes
costing under $40,000 a year reported either flat or
declining application numbers in 2015, according to
GMAC. In contrast, most of those charging more than
$40,000 said that their applicant pool had grown.
That suggests an oversupply of MBA programmes.
Watching the world go by
Executive jets faster than the speed of sound are ready to
fly off the drawing board
Watching the world go
by
Executive jets faster than the speed of
sound are ready to fly off the drawing
board
SUPERSONIC travel for airline passengers came to an
emerged. But a supersonic executive jet may be a
end on October 24th 2003 when a British Airways
different matter.
Concorde completed the last scheduled flight from
New York to London.
With the ability to cruise at
2,160kph the fastest a Concorde
made it across the Atlantic was a
shade under three hours
The Economist
"Instead of windows it will
have a "multiplex digital
cabin""
One contender is the S-512, which is being developed
by Spike Aerospace, a Boston company. Instead of
windows it will have a “multiplex digital cabin”—a
thin-screen video display either side of the passenger
compartment that would be fed with a live view taken
by six exterior cameras (a pair of conventional
With the ability to cruise at 2,160kph (1,350mph, or
around Mach 2—twice the speed of sound) the
fastest a Concorde made it across the Atlantic was a
shade under three hours, compared with the seven or
eight hours it takes in a subsonic airliner. A number
of things did for Concorde, including heavy fuel
consumption, its sonic boom restricting speed over
land and a fall in passengers after an Air France
Concorde crashed in Paris in 2000, killing all 109
people on board. No replacement aircraft has ever
windows would be retained). The interior effect would
be dramatic although, as the company points out, for
much of the time there might be little to see apart
from clouds or the stars in a night-time sky. On those
occasions films could be shown instead—or even a
PowerPoint presentation for workaholics.
Using video windows would make
the jet lighter, quieter and less
expensive to build
The Economist
Using video windows would make the jet lighter,
quieter inside and less expensive to build, says Vik
Kachoria, Spike’s chief executive. The S-512 could
carry 12-18 passengers at Mach 1.6 and, unlike
Concorde, would have the range to fly from Los
Angeles to Tokyo in just six hours. Although at an
early stage in its development, Mr Kachoria says the
company has received $5m deposits for several of the
roughly $100m jets, which it hopes to start delivering
in 2020.
Advanced aerodynamics and its relatively small size
should reduce the sonic boom of an executive jet.
Aerion, a company based in Nevada, is hoping to
make a Mach 1.6 executive jet called the AS2.
Throttled back to around Mach 1.2, the company
reckons it could fly over land without the boom ever
reaching the ground. In 2014 Airbus agreed to
collaborate with Aerion on the project, which aims to
have a prototype ready for test flights in 2019. If
supersonic travel does return, it looks like being more
exclusive than Concorde ever was.
Millennials and work
Why youth unemployment is a massive waste of resources
Millennials and work
CRISTINA FONSECA CAUGHT pneumonia a week before
Why youth unemployment is a massive
waste of resources
When she recovered, she reassessed her priorities. As
her final exams. “I thought I would die,” she recalls.
a star computer scientist, she had lots of job offers,
but she turned them all down. “I realised that I didn’t
want to spend my life doing anything that was not
really worthwhile.”
She decided to start her own business. After a year of
false starts she co-founded a company called
Talkdesk, which helps other firms set up call centres.
By using its software, clients can have one up and
running in five minutes, she claims.
"Elite youth today are
multilingual, global-minded
and digitally native"
Ms Fonseca’s success helps explain why some people
are optimistic about the millennial generation in the
She sounds very much like several other young
entrepreneurs your correspondent met while
researching this report, such as a Russian who set up
a virtual talent agency for models (castweek.ru); an
Asian-American electric cellist who teaches people
how to make new sounds using a laptop
(danaleong.com); and a Nigerian starting a new
publishing house for African romantic novelists
(ankarapress.com).
workplace. At 28, she is providing a completely new
Elite youth today are multilingual, global-minded and
service in support of another service that did not
digitally native; few can remember life before the
exist until quite recently. She lives in Portugal but
internet or imagine how anyone coped without it. The
does business all over the globe.
best-known of them changed the world before they
turned 30, including Facebook’s Mark Zuckerberg,
labour code, workers on permanent contracts receive
Insiders v outsiders
Google’s Sergey Brin and Larry Page, and Instagram’s
generous benefits and are extremely hard to get rid
Kevin Systrom. The global economy works well for
of. So French firms have all but stopped hiring
Youth unemployment in France (using the ILO
such people. Digital startups require far less capital
permanent staff: four-fifths of new employees are on
than, say, building a factory, and a brilliant piece of
short-term contracts. Ms Moreau has had eight jobs,
software can be distributed to millions at minimal
none lasting for longer than 16 months. With a small
cost. So today’s whippersnappers of great wealth have
child at home, she has to keep looking for the next
made their money much faster than the Rockefellers
one. “It’s tiring,” she sighs. One employer suggested
and Carnegies of old.
that she should become an “entrepreneur”, doing the
same job as before but as a contractor, so that the
Youth unemployment in France is
25% and has been scandalously high
for three decades
firm could keep her on indefinitely without incurring
heavy ancillary costs. She refused.
definition of youth as 15-24-year-olds) is 25% and
has been scandalously high for three decades.
Occasionally the government tinkers with labour
rules, but voters have little appetite for serious
reform. Ms Moreau rejects the idea that insiders enjoy
too many legal protections, and that this is why
outsiders find it so hard to break in. She blames
exploitative employers, and doubts that any
government, left or right, will fix the problem.
Rigid labour rules are tougher on young workers than
older ones. People without much experience find it
harder to demonstrate that they are worth employing.
The Economist
And when companies know they cannot easily get rid
of duds, they become reluctant to hire anyone at all.
But the world of work has been less kind to other
young folk. Florence Moreau, a young architect in
Paris, had the double misfortune to leave university
in 2009, when the world economy was on its knees;
This is especially true when the economy is not
growing fast and they have to bear the huge fixed
cost of all the older permanent employees they took
on in easier times.
and to be French. “I really need a full-time,
France is not alone in having such problems. In the
permanent job,” she says. Under France’s 3,800-page
euro area, Greece, Spain and Italy all have rules that
coddle insiders and discourage outsiders. Their youth
fiscally ruinous. If the young cannot get a foot on the
unemployment rates are, respectively, 48%, 48% and
career ladder, it is hard to see how in time they will
40%. Developing countries, too, often have rigid
be able to support the swelling number of pensioners.
labour markets. Brazilian employees typically cost
Fourth, joblessness can become self-perpetuating.
their employers their salary all over again in legally
The longer people are out of work, the more their
mandated benefits and taxes. South Africa mixes
skills and their self-confidence atrophy, the less
European-style labour protections with extreme racial
appealing they look to potential employers and the
preferences. Firms must favour black job applicants
more likely they are to give up and subsist on the
even if they are unqualified, so long as they have the
dole.
“capacity to acquire, within a reasonable time, the
This “scarring” effect is worse if you are jobless when
ability to do the job”. Some 16% of young Brazilians
young, perhaps because that is when work habits
and a stunning 63% of young South Africans are
become ingrained. Thomas Mroz of the University of
unemployed. Globally, average youth unemployment
North Carolina, Chapel Hill, and Tim Savage of Welch
is 13% compared with the adult rate of 4.5%. Young
Consulting found that someone who is jobless for a
people are also more likely than older ones to be in
mere six months at the age of 22 will earn 8% less at
temporary, ill-paid or insecure jobs.
23 than he otherwise would have done. Paul Gregg
and Emma Tominey of the University of Bristol found
that men who were jobless in their youth earn
Joblessness matters for several reasons. First, it is
miserable for those concerned. Second, it is a waste
of human potential. Time spent e-mailing CVs or lying
dejected on the sofa is time not spent fixing boilers,
laying cables or building a business. Third, it is
13–21% less at age 42. And David Bell of the
University of Stirling and David Blanchflower of
Dartmouth College found that people who were
unemployed in their early 20s are less happy than
expected even at the age of 50.
Over the next decade more than 1
billion young people will enter the
global labour market, and only 40%
will be working in jobs that currently
exist
The Economist
“The first ten years are essential. They shape careers
in the long term,” says Stefano Scarpetta of the OECD,
a think-tank for mostly rich countries. This is when
people develop the soft skills that they do not pick up
regulatory barriers can also boost job creation. Mr
Scarpetta applauds recent attempts in Spain, Italy
and Portugal to make labour rules a bit more flexible,
but argues that such laws should generally be much
simpler. For example, it would be better to scrap the
stark distinction between temporary and permanent
Trade unions often favour a minimum wage. This can
contracts and have only one basic type of contract in
help those who already have jobs, but if it is set too
which benefits and job security accumulate gradually.
high it can crowd out those with the fewest skills and
Denmark shows how a labour market can be flexible
the least experience, who tend to be young. It makes
and still give workers a sense of security. Under its
more sense to subsidise wages through a negative
“flexicurity” system companies can hire and fire
income tax, thus swelling take-home pay for the
easily. Unemployed workers are supported by the
lowliest workers without making them more expensive
state, which helps them with retraining and finding
for the employer. But this costs taxpayers money, so
new jobs.
many governments prefer to raise the legal minimum
wage, passing the cost on to others. America’s
at school, such as conscientiousness, punctuality and
teamwork.
Over the next decade more than 1 billion young
people will enter the global labour market, and only
40% will be working in jobs that currently exist,
estimates the World Bank. Some 90% of new jobs are
What type of role do you see yourself
working in in 10 years time?
In a job/career path that currently
exists
created by the private sector. The best thing for job
creation is economic growth, so policies that promote
growth are particularly good for the young. Removing
See results
A role that hasn't been invented yet
Democratic Party is pushing to double the federal
minimum wage, to $15 an hour—a certain job-killer.
Putting the tyke into tycoon
Making it easier for young people to start their own
business is essential, too. They may be full of energy
and open to new ideas, but the firms they create are
typically less successful than those launched by older
entrepreneurs. The young find it harder to raise
capital because they generally have a weaker credit
example of a poor-country entrepreneur. He goes to
sophisticated, demand for cognitive skills will keep
history and less collateral. They usually also know less
school from 8 to 12 every morning, then spends the
rising. The world’s schools are not even close to
about the industry they are seeking to enter and have
afternoon in the blazing sun selling small water
meeting it.
fewer contacts than their older peers. A survey by the
sachets to other poor people without running water
Global Entrepreneurship Monitor found that
in their homes. He makes $1 a day, half of which goes
businesses run by entrepreneurs over the age of 35
on his school fees. He wants to be a doctor one day.
were 1.7 times as likely to have survived for more
than 42 months as those run by 25-34-year-olds.
Some youngsters from well-off families forge careers
as “social entrepreneurs”, seeking new ways to do
"As economies grow more
sophisticated, demand for
cognitive skills will keep
rising"
good. Keren Wong, for example, recognises that she
Young sub-Saharan Africans show the greatest
more effectively.
enthusiasm for starting their own business: 52% say
they would like to, compared with only 19% in rich
Western countries. This is partly because many have
little choice. There are fewer good jobs available in
poor countries, and in the absence of a welfare state
few people can afford to do nothing.
Bamaiyi Guche, a Nigerian 17-year-old, is a typical
was “born into privilege”. (Her parents were
prosperous enough to support her at Cornell
University.) A Chinese-American, she now runs a nonprofit called BEAM which connects teachers in rural
Chinese schools so they can swap ideas for teaching
Alas, there is a huge mismatch everywhere between
the skills that many young people can offer and the
ones that employers need. Ms Fonseca says she
cannot find the right talent for Talkdesk. “I need very
good engineers, very good designers and people who
speak very good English. But there aren’t enough of
them,” she says. As economies grow more
Picture credits: Getty Images, Rex Features, Derek Bacon, Alamy,
Jon Berkeley, The Economist, Reuters, Bloomberg
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