Philippa Kaur

A city rivalry is heating up between Shanghai and Chengdu. The highest temperatures and lowest rainfall since records began 60 years ago have led to severe power shortages across the south-western province of Sichuan, where Chengdu is located, and in its neighbouring municipality, Chongqing. As a result Sichuan has been forced to curb energy use at thousands of industrial firms. That in turn has threatened the supply of parts to carmakers, such as Tesla in Shanghai. Listen to this story. Enjoy more audio and podcasts on More

The death knell for corporate America’s greatest individual experiment in mergers and acquisitions sounded in November 2021 when General Electric announced its intention to split in three. A thousand deals were struck by Jack Welch, its notoriously gung-ho boss who ran the American industrial and financial giant between 1981 and 2001, a pace that did not slacken under his successor, Jeffrey Immelt. The result has been a monumental destruction of shareholder wealth. The firm’s market value peaked at $594bn in 2000. Today it is a relatively measly $83bn.This lesson notwithstanding, bosses just cannot shake the need to shake hands. In 2021 dealmaking reached fever-pitch: a record $5.9trn-worth were announced globally, $3.8trn by operating companies and the balance by private-equity funds and special-purpose acquisition companies. Competition for assets was fierce and due diligence frenetic. The cost of capital was historically low and buyers paid top-notch prices, at a record median valuation of 15.4 times earnings before interest, tax, depreciation and amortisation (ebitda), according to Bain, a consultancy. The number of deals for highly-valued technology firms soared, accounting for a quarter of the total volume.If history is any judge, many of these deals will destroy value. It is easy to identify disastrous deals: large goodwill write-downs or even bankruptcy are useful signposts. But measuring the performance of the average deal is tough; relative share price performance is a quick but noisy measure and asking a counterfactual “what if” question is crystal-ball stuff. A recent review of academic literature by Geoff and J. Gay Meeks at Cambridge University, estimates that only a fifth of studies conclude that the average deal produces higher combined profits or increases the wealth of the acquirer’s shareholders. McKinsey, another consultancy, reckons that firms pursuing large deals between 2010 and 2019 had only a coin-flip chance of creating excess shareholder returns. Enough to put average Joes off dealmaking, but not budding Neutron Jacks. Those chances of success are further reduced by the circumstances in which the latest crop of deals were struck. Times of frenzy, like last year, are particularly bad for matching suitable buyers and sellers. Dealmaking tends to snowball as chief executives, keen to expand their dominions (and compensation), watch others make their moves and are unable to stand idly by while competitors make hay. Unprecedented competition from private-equity funds only intensifies the urge to move fast. Compounding their zeal are the middlemen. Investment bankers, who get paid by the deal rather than by the hour, convince them anything is possible: flattery is hard currency in the market for advice.There are few brakes on this train. Where activist investors might agitate on the sell-side of a transaction for a higher price (often successfully), this kind of scrutiny is less common on the buy-side. Strong shareholder dissent in reaction to Unilever’s abortive $66bn bid for gsk’s consumer health-care division in December 2021 is an all-too-rare example of owners holding trigger-happy management to account. Today the division, called Haleon, is listed on the London Stock Exchange, valued at around half of Unilever’s offer.The result is ambitious deals made at high prices. Lower asset values are already exposing the flawed logic of some struck at the top of the market. In August Just Eat Takeaway.com, a European food-delivery firm, announced a write-down of the value of Grubhub, its distracting American misadventure, by $3.3bn, barely a year after completing this $7.3bn deal.As equity markets tumbled this year, the shotgun weddings announced in 2021 were being consummated. After the thrill of courtship begins the hard task of post-merger integration. This complex process is the domain of consultants, organisational charts and budgeting, rather than clandestine negotiations and punchy projections. It is being turned on its head by a mix of inflation and slowing growth. Bosses bet big that high prices would be justified by higher profits. They are now running new businesses in a new world. Buyers tend to overestimate the operational benefits of lumping two firms together (“synergies” in corporate speak). Often promised but seldom fully delivered, these projections persuade bosses that the pin factory is better in their hands than those of private-equity’s financial wizards. Scale was the idée fixe of dealmaking during 2021. Such deals are usually predicated on heavy cost cutting, which is far harder while inflation rages. Add current supply-chain chaos to yo-yoing input costs, and managers soon find their powers waning. That difficulty is apparent at Warner Bros Discovery, an American media giant formed in April 2022 through the merger of Discovery and WarnerMedia. In an industry among the worst at realising such targets came a promise of $3bn of annual savings. Rising costs and cyclical pressures on advertising revenue mean that integration will be more difficult than planned. Expectations for ebitda in 2023 are now $12bn, rather than $14bn when the merger was announced. The response of David Zaslav, the firm’s boss, has been to tighten the screws even further (see next article). Labour is often the first cost bosses turn to, even if heavy layoffs grow the chance of rifts between new bedfellows. Many of the most spectacular blow-ups have involved cultural transplant-rejection at the highest levels, though as in aol and Time Warner’s ill-fated $165bn tie-up in 2001 this is usually a symptom rather than cause of strategic mismatch. Yet the real risks occur further down the food-chain as labour markets continue to convulse. The ability to retain good workers (“talent” in the integration dictionary) is critical. It comes high on the list of reasons why deals succeed in a recent survey conducted by Bain.The war for talent has quickly turned into a great hiring freeze in the technology sector, but elsewhere labour shortages are the norm. Significant challenges await the integration of Canadian Pacific Railway and Kansas City Southern, a $31bn deal announced in September 2021 which is awaiting its final regulatory stamps. The merger in 1968 of Pennsylvania and New York Central Railroad provides a warning from history. Shortly before the new entity’s bankruptcy in 1970, an internal report laid bare the role of high staff turnover in its failed integration: 61% of train masters, 81% of transport superintendents and 44% of division superintendents had been in their job for less than a year.The dealmakers of 2021 entered the present inflationary period with a high bar to clear in order to justify the top-of-market deals they struck. As of now the mega-disasters of this wave of mega-deals are matters of speculation, though no one doubts they will emerge. Even this will not be enough to convince bosses to kick their dealmaking habit, at least while corporate balance-sheets remain strong, and activity has been remarkably resilient in 2022. Until bosses can be persuaded of other uses for their profits, new challenges mean only new types of deals. At least this year there may be a few bargains to be had. ■ More

Half a billion dollars’ worth of swordplay, sorcery and sex is on its way to a small screen near you. On August 21st Warner Bros Discovery will launch “House of the Dragon”, a spin-off of its racy smash-hit, “Game of Thrones”, made at a reported cost of over $150m. Hot on its heels, on September 1st Amazon Prime Video will release “The Rings of Power”, a more chaste but even pricier drama based on the “Lord of the Rings” books. With a rumoured pricetag of $465m, Amazon’s offering will be the most expensive piece of television ever made.The near-simultaneous releases will make for an epic ratings battle. But they are also part of a longer-running war that pits old Hollywood studios against new streaming upstarts. Warner Bros, one of America’s most venerable film studios, will mark its 100th birthday next year. Amazon, which makes its money from e-commerce and cloud computing, launched its video sideline only five years ago. As the streaming wars intensify, each side believes it has an advantage over the other.Lately the dragons of old Hollywood have gained ground. Investors flocked to streaming specialists during the lockdowns of 2020-21, but have lost interest as new subscribers have dried up. Netflix, which once talked of a potential market of 800m households, appears to have stalled at 220m and has seen its share price fall by 60% this year. On August 10th old Hollywood claimed a symbolic victory when Disney announced that it had overtaken Netflix, with 221m streaming subscriptions. That figure double-counts subscribers to Disney’s various services, and ignores the fact that many are in low-paying countries like India. But Disney’s success has banished any doubt that ageing studios can play the streaming game.Hollywood’s old hands are also refocusing on the business of making money, after two expensive years of chasing subscribers. Disney says its main streaming service, Disney+, will see its losses peak this year before turning a profit in 2024. A steep price rise, beginning in December, will help. On a recent earnings call David Zaslav, Warner’s new boss, bluntly criticised the old approach of “spend, spend, spend and then charge very little”. Warner will aim for its streaming business to generate a gross operating profit of $1bn by 2025, he said. “If we do that, I don’t really care what the [subscriber] number is…We want to make sure we get paid.”Old media formats will play a role in that. Cinemas, whose worldwide takings fell by 80% in 2020, are open again. The box office is still not what it was: Cineworld, the world’s second-largest theatre chain, is preparing to file for bankruptcy, according to the Wall Street Journal. But Paramount, a 110-year-old Hollywood dragon, held back the release of “Top Gun: Maverick” during the pandemic and was rewarded in May with a box-office run of over $1bn. Warner, which in 2021 released all its films on its streaming platform at the same time that they launched in cinemas, has gone back to exclusive theatrical runs.Theme parks are full again, too, with Disney’s American ones generating record revenues and margins. Even broadcast and cable tv, long in decline, look like relative safe havens as the streaming business gets tougher. “We effectively have four, five or six cash registers,” Mr Zaslav told investors. “And in a world where things are changing, and there’s a lot of uncertainty and there’s a lot of disruption, that’s a lot more stable and a lot better than having one cash register.”That may be a convincing argument against an upstart like Netflix, which depends entirely on streaming. The trouble for old Hollywood is that some of its new competitors have even bigger and more varied cash registers. Whereas Warner’s path to profit will involve drastic cuts—it has already scrapped its streaming news service, cnn+, and canned unfinished productions including “Batgirl”—Amazon shows no sign of tightening its belt. Besides the lavish “Rings of Power”, it recently bought Metro Goldwyn Mayer, the studio behind “James Bond”, for $8.5bn, acquired rights to the America’s National Football League worth a reported $1bn a year, and expanded its international output with its first Nigerian originals. Morgan Stanley, an investment bank, estimates that Amazon will spend $16bn on media content this year, the bulk of it video. That is more than Netflix’s $14bn. Next year Amazon’s spending could reach $20bn.Unlike the old Hollywood dragons, some new streamers don’t even need to make sure they get paid, in Mr Zaslav’s words. Amazon Prime Video exists to keep people signed up to Prime, whose main benefit is free delivery of Amazon purchases. Apple’s steadily expanding tv+ service is geared towards keeping customers in Apple’s ecosystem of phones and computers, where the company makes its real money. The video services from Amazon and Apple also provide future real estate for advertising, a business in which both companies have ambition to grow.Old Hollywood is fighting back, offering viewers bigger “bundles” of content at a reduced cost. Warner plans to combine its main streaming service, hbo Max, with Discovery+ next summer. Disney is experimenting with discounted packages of services like espn+ and Hulu; some wonder if entry to its parks could one day form part of a Disney mega-bundle.Yet Hollywood’s new rivals offer bundles of a different sort. Apple’s video vault is far smaller than that of Disney or Warner, but its “Apple One” package includes not just tv but music, games, storage, news and fitness. (A subscription to the iPhone itself is reportedly in the works.) Amazon Prime comes with a similarly eclectic bunch of benefits. As households look for savings, all-media deals like these may prove tempting.That may be why some old Hollywood dragons are deciding to do business with the upstarts. On August 15th Paramount announced a deal with Walmart, a giant retailer, in which members of Walmart+, the store’s answer to Amazon Prime, will get free access to the Paramount+ streaming service. Like Amazon and Apple, Walmart sees media as a way to keep customers loyal to its main business. It recently added music to the Walmart+ bundle, via a deal with Spotify, the leading audio streamer.As competition for viewers intensifies, the battle between old and new Hollywood is proving as bloody as an episode of “Game of Thrones”. For consumers, who have more choice and more deals than ever, it is just as entertaining.■ More

Humans have been honed over millions of years of evolution to respond to certain situations without thinking too hard. If your ancestors spotted movement in the undergrowth, they would run first and grunt questions later. At the same time, the capacity to analyse and to plan is part of what distinguishes people from other animals. The question of when to trust your gut and when to test your assumptions—whether to think fast or slow, in the language of Daniel Kahneman, a psychologist—matters in the office as much as in the savannah. Listen to this story. Enjoy more audio and podcasts on More

Just over five years ago jbs and its then chief executive, Joesley Batista, embodied everything that was wrong with Brazilian business. Mr Batista, son of the meat giant’s eponymous founder, José Batista Sobrinho, was fleeing Brazilian prosecutors, his Italian-made yacht Why Not? in tow, over his role in a gargantuan bribery scandal. (He was eventually caught.) jbs was fending off accusations of selling dodgy meat and razing the Amazon to raise cattle (both of which it denies). Investors and customers stampeded out. “It took a lot of work to make sure what happened in the past didn’t happen again,” says Gilberto Tomazoni, who became the first non-Batista ceo in 2018. His efforts to rebuild jbs’s image—and investors’ trust—are paying off. On his watch its market value has nearly doubled, to $14bn. Last year it sold $67bn-worth of packaged food, more than any rival (see chart). On August 11th it reported revenues of 92bn reais ($19bn) in the second quarter, up by 7.7% year on year. Under Mr Tomazoni, jbs has “simplified and consolidated its ownership structure, making it more transparent to outsider investors,” explains Paulo Terra of fgv, a business school in São Paulo. It has drilled its 250,000 employees in compliance. It has also restructured its debt, selling off billions in assets to pay off creditors. That allowed it to go shopping. In 2021 jbs bought an American smoked-meat processor, an Australian hog breeder and an Italian sausage-maker. It is angling for a share of the seafood business, swallowing sellers of plant-based protein and gobbling up startups developing lab-grown meat. Geographical diversification has made the company more resilient. It controls a quarter of beef processing in America, and last year benefited from a combination of low live-cattle prices and a hunger for beef. Now that inflation has made pricey meat less appetising to Americans, dragging jbs’s beef sales there down by 4.6% year on year, it can lean more on growth in Australia and Brazil. At home in particular, a wider product range, which includes cheaper pork, poultry and fish, has helped it at a time when less diversified competitors struggle with rising prices of feed.The whiff of scandal will continue to scare off some investors. Wesley, nephew of Joesley, was recently made the global president of operations. Joesley and his brother, both of whom spent time behind bars on charges of corruption, remain a powerful force. The family’s holding company, j&f, retains a 42% stake. Some of their past deals remain under scrutiny. In America, accusations of price-fixing and worries about workers’ welfare have made meatpackers the focus of congressional probes. Criticism of its links to deforestation in the Amazon has pressed jbs to declare sustainability its “core business strategy” and to pledge to emit no net carbon by 2040. Humankind is “eating the planet”, admits Mr Tomazoni, so it needs to produce food in a new way. jbs may find it increasingly hard to sustain rapid growth. Even as sales rose, net profit declined last quarter, by 10% year on year, as drought shrank grazing lands and the cost of animal feed spiralled. Weakening demand in America will continue to squeeze profit margins in beef and pork. So will a slowdown in China, a smaller but faster-growing beef market where the middle class is eating more beef. jbs’s share price is down by 17% since its recent peak in April. Having whetted investors’ appetites, Mr Tomazoni will need to keep working hard in order to keep them sated. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

If germans were to elect their chancellor directly they would, a new poll implies, vote for Robert Habeck, the economy minister in Olaf Scholz’s coalition government. Mr Habeck and Annalena Baerbock, the foreign minister, who are both from the Greens, regularly top such surveys. The next chancellor could well be a Green.Listen to this story. Enjoy more audio and podcasts on More

One of your columnist’s favourite ways of passing a hot afternoon in Monterrey, three hours south of Mexico’s border with Texas, is with a cold bottle of locally brewed Bohemia beer alongside a plate of cabrito (roast kid). For a business writer, it is a justifiable use of the expense account. Beers like Bohemia helped make Monterrey the industrial hub that it is. The Cuauhtémoc brewery, now owned by Heineken, a global giant, was started in 1890 by members of the Garza and Sada families, who went on to become Mexico’s biggest industrialists. Lacking suppliers in the arid north, they made their own bottles, caps and packaging, giving rise to conglomerates that fuelled the country’s modernisation. Today Mexico is the largest exporter of beer in the world. Monterrey is still awash with beer. But it is also stricken by drought. This has left millions of residents reliant on leaky public pipes desperately short of water, even as the industries that employ them guzzle the stuff, thanks to higher-quality private infrastructure. The brewers say they consume less than 1% of the local water, most of which is used by farmers who have no incentive to conserve it. That has not stopped President Andrés Manuel López Obrador, never one to waste an opportunity to bash the rich, from blaming the industrialists. He has told the beer firms to up sticks and move south, where rivers still run in torrents. The industry is keeping its head down, treating this as populist rhetoric rather than a genuine threat to transplant breweries lock, stock and barrel to the other end of the country. Yet the imbroglio is illustrative, too. It shows how water shortages, combined with reputational damage and regulatory overreach, could affect many hydro-dependent industries, from food production, mining and power generation to apparel and electronics. Colin Strong of the World Resources Institute (wri), an ngo, says that though the private sector is trying to use water more efficiently, scarcity will be exacerbated by climate change, population growth and the greater water use that comes with growing prosperity. He quotes a pithy refrain common in environmental circles. “If climate change is the shark, water is its teeth.”Heat and drought are leaving teeth marks everywhere. In Chile, the world’s biggest copper producer, the driest decade on record has forced mining firms such as Anglo American and Antofagasta to reduce output this year. In recent days companies such as Toyota, a carmaker, and Foxconn, which makes iPhones for Apple, halted production in south-western China after a drought caused hydropower shortages. On August 16th the American government took unprecedented steps to reduce water consumption in states in the Lower Colorado River Basin to safeguard reservoirs crucial for generating electricity. Norway, known as the battery of Europe for its abundant hydropower, says that water shortages may force it to curb supplies to its neighbours’ grids. In Germany, the Rhine has fallen so low that it has affected the ferrying of cars and chemicals north, and coal and gas south. Across unusually rain-free Europe, grain crops have frazzled in the heat. So have cotton fields in thirsty Texas.The problem is not a lack of water per se. Climate change may make some places drier and others wetter. It is the uneven distribution of freshwater—of which fast-growing places like India are woefully short—that provide the conditions for a crisis. This is made worse by waste, pollution and the near-universal underpricing of water. Some governments, notably China’s, have created pharaonic projects to transport water to where it is needed. Others, such as Mr López Obrador’s, peddle the quixotic idea of moving demand to where the water is. The best outcome in the long term, on paper at least, is the simplest: that less of the stuff is used, and more of what is used is treated better. It is something the private sector is just starting to grapple with. Industries directly affected by water shortages have got a head start. Global mining firms are using desalination plants in Chile. Beer and soft-drinks companies, existentially reliant on clean water, have targets for improving efficiency (Heineken says it uses 2.5 litres of water to make a litre of beer in Mexico, about half the global industry average). In collaboration with the wri, Cargill, an agro-industrial behemoth, recently extended the monitoring of water use from its own operations to the farmers who supply its crops. Fashion retailers, whose suppliers are often heavy users of water and dyes in dry areas, are considering similar moves, to avoid angry flare-ups by local residents who worry about being second in line to the taps.This calls for careful stewardship. When Cape Town was in danger of running out of water in 2017, ab InBev, one of the world’s largest brewers, helped municipal authorities reduce water loss from the network. Ingenuity also helps. In Singapore, NewBrew makes craft beer out of reclaimed sewage. Andre Fourie, head of sustainability at ab InBev, says that in the future many companies will have to treat and reuse water to overcome scarcity. Last ordersThe looming shortages still do not get the attention they deserve. As a heavily subsidised raw material, water is so cheap that many ceos overlook it. A report this year by Planet Tracker and cdp, two ngos, said that about a third of listed banks do not assess water risks in their portfolios. For shareholders, it mostly comes far behind carbon emissions as an environmental, social and governance (esg) concern. It is not a risk that can easily be squeezed into oversimplified esg ratings. It is so dependent on local conditions that it requires myriad approaches. In the words of Will Sarni, a consultant, water is an enigma. “It’s a personal thing. It’s a social issue. It’s got a spiritual dimension.” He hopes new technologies that use solar power to capture moisture from the air could bring creative destruction to the supply of water. Schumpeter, Bohemia in hand, would drink to that. ■Read more from Schumpeter, our columnist on global business:Tencent is a success story bedevilled by the splinternet (Aug 11th)The Spirit deal is a missed opportunity for creative destruction (Jul 28th)Meet Keyence, consultant to the world’s factories (Jul 23rd)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

To american executives, Rob Portman is the ideal senator. Smart, reasonable and experienced, he served as the top trade representative and budget director for George W. Bush, the Republican president from 2000 to 2008, before becoming a senator for Ohio more than a decade ago. Mr Portman has just one shortcoming: he is retiring. The party’s nominee to replace him is J.D. Vance, backed by Donald Trump, the most recent Republican commander-in-chief. Mr Vance calls big technology firms “enemies of Western civilisation” and casts elite managers as part of “the regime”, with interests anathema to those of America’s heartland. Democrats, with their leftier lean, remain companies’ most persistent headache—firms were caught off guard this month by Senate Democrats’ passage of a rise in corporate-tax rates and new restrictions on the pricing of drugs. But, in the words of an executive at a big financial firm, “We expect Democrats to hate us.” What is new is disdain from those on the right. There used to be a time, one lobbyist recalls with nostalgia, when “you would walk into a Republican office with a company and the question would be, ‘How can I help you?’” Those days are over. The prospect of Republicans sweeping the mid-term elections in November and recapturing the White House in 2024 no longer sends waves of relief through American boardrooms. Executives and lobbyists interviewed by The Economist, speaking on condition of anonymity, described Republicans as becoming more hostile in both tone and, increasingly, substance. Public brawls, such as Disney’s feud with Ron DeSantis, Florida’s Republican governor, over discussion of sexual orientation in classrooms, or Republicans blasting BlackRock, the world’s largest asset manager, for “woke” investments, are only its most obvious manifestations. “It used to be the axis was left to right,” says an executive at one of America’s biggest firms. “Now it is an axis from insiders to outsiders; everyone seems intent on proving they are not part of the superstructure and that includes business.” Long-held right-of-centre orthodoxies—in favour of free trade and competition, against industrial policy—are in flux. As Republicans’ stance toward big business changes, so may the contours of American commerce. The close partnership between Republicans and business has helped shape American capitalism for decades. Companies’ profit-seeking pursuit of free trade abroad and free enterprise at home dovetailed with Republicans’ credo of individual freedom and anti-communism. By the 1990s even Bill Clinton and other Democrats embraced new trade deals, giving firms access to new markets and cheaper labour. As Glenn Hubbard, former dean of Columbia Business School and a top economic adviser to Mr Bush, puts it, “social support for the system was a given and you could argue over the parameters.” The 2012 presidential battle between Barack Obama and Mitt Romney “felt like a big deal at the time”, says Rawi Abdelal of Harvard Business School. “But in terms of the business stakes, it wouldn’t have mattered at all.” Four years later Republicans were still attracting about two-thirds of spending by corporate political-action committees (pacs), which give money to candidates in federal elections, and a big corporate-tax cut in 2017 was the main legislative achievement of Mr Trump’s term. Yet Mr Trump had campaigned on ordinary Americans’ sense that they were being left behind. Executives hoping that his fiery campaign rhetoric would be doused by presidential restraint instead had to contend with his trade war with China, curbs on immigration and dangerous positions on climate change and race. Bosses felt compelled to speak out out against his policies, which appalled many of their employees and customers. In the eyes of Trump supporters, such pronouncements cast the ceos as members of the progressive elite bent on undermining their champion. After Mr Trump’s defeat to Mr Biden, companies wondered if their old alliance with Republicans might be restored. In July 17 Republican senators voted for a bill to provide, among other things, $52bn in subsidies to compete with China by making more computer chips in America—which chipmakers such as Intel naturally applauded. This month nearly all Republicans opposed the Democracts’ $700bn climate and health-care bill, known as the Inflation Reduction Act (ira), which raises taxes on large companies and enables the government to haggle with drugmakers over the price of some prescription medicines. This apparent business-friendliness-as-usual conceals a deeper shift, however. The Republican Party has attracted more working-class voters—an evolution accelerated by Mr Trump’s willingness, on paper if not always in practice, to put the interests of the American worker ahead of those of the American multinational. For most of the past 50 years more Republicans had a lot of confidence in big business than had little or no confidence in it, often by double-digit margins, according to Gallup polls. Last year the mistrustful outnumbered the trusting by a record 17 percentage points, worse than at the height of the global financial crisis of 2007-09. Republican election war chests are increasingly filled either by small donors or the extremely rich. Both of these groups are likelier to favour ideologues over pragmatists, notes Sarah Bryner of OpenSecrets, an ngo which tracks campaign finance and lobbying. The result of all this is growing Republican support for policies hostile to America Inc. Josh Hawley, a senator from Missouri, wants companies with more than $1bn in revenue to pay their staff at least $15 an hour. His colleague from Florida, Marco Rubio, has backed the formation of workers’ councils based at companies, an alternative to unions. In March Tom Cotton of Arkansas called for Americans to “reject the ideology of globalism” by curbing immigration, banning some American investments in China and suggesting Congress “punish offshoring to China”. Republicans in Congress have co-sponsored several bills with Democrats to rein in big tech. Mr Vance, who has a good shot at joining them after the mid-terms, has proposed raising taxes on companies that move jobs abroad. Mr Trump himself repeatedly promised to lower drug prices. That Republicans opposed the ira—and other business-wary Democratic initiatives—may mean simply that they loathe Democrats more than they dislike big business. Many bosses fret that the Republican Party will advance punitive policies once it is back in power. “There is no person who says, ‘Don’t worry’,” sighs one pharmaceutical executive. “You ignore what a politician says publicly at your peril,” warns another business bigwig. That is already evident at the state level, where Republicans often control all levers of government and are therefore free to enact their agenda in a way that is impossible in gridlocked Washington. After Disney spoke out against a Florida law to restrict discussion of gender and sexual orientation in schools, Mr DeSantis signed a law revoking the company’s special tax status. Texas has a new law restricting the state from doing business with firms that “discriminate against firearm and ammunition industries”. Kentucky, Texas and West Virginia have passed similar laws barring business with banks and other firms that boycott fossil-fuel producers; about a dozen other Republican-run states are considering doing the same.Such laws present a problem for companies. In July West Virginia’s treasurer said that anti-fossil-fuel policies of some of America’s biggest financial firms—BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo—made them ineligible for state contracts. The definition of what counts as discriminating or boycotting is hazy. JPMorgan Chase, which does not lend to firms that sell military-style weapons to consumers, first said that the Texan law prevented it from underwriting municipal-bond deals in that state, then bid for a contract (unsuccessfully). In Texas, Republican lawmakers are threatening to prosecute firms that pay for staff to travel out of state for abortions, which the Texan legislature has severely restricted. Right-wing culture-warriors have always been part of the Republican Party but the line between them and their pro-business country-club colleagues has collapsed. These days, worries another business grandee, both parties see it as “acceptable to use state power to get private entities to conform to their viewpoints”. “esg is a four-letter word in some Republican offices,” says Heather Podesta of Invariant, a lobbying firm, referring to the practice, championed by BlackRock among others, of considering environmental, social and governance factors, not just returns, in investment decisions. Senator Ted Cruz of Texas has blamed Larry Fink, BlackRock’s boss, for high petrol prices. “Every time you fill up your tank,” he growled in May, “you can thank Larry for the massive and inappropriate esg pressure.”Companies are adjusting to this new, more volatile political reality. Some are creating more formal processes for reviewing the risks of speaking out on a particular social issue that may provoke a political backlash, including from Republicans. The way companies describe their strategy to politicians is changing, too. Lobbying is no longer confined to the parties’ leaders in the two houses of Congress. Because politicians of both parties are increasingly willing to flout party leadership, says an executive, “you have to go member by member.” Neil Bradley, policy chief of the us Chamber of Commerce, which represents American big business, says that his organisation has had to redouble efforts to “find people who have interest in governing”. Sometimes that means supporting more Democrats. In 2020 the chamber endorsed more vulnerable freshman Democratic incumbents, who were mostly moderate, than in previous years. That prompted Kevin McCarthy, then the top Republican in the House of Representatives, to say he didn’t want the organisation’s endorsement “because they have sold out”. So far this year corporate pacs have funnelled 54% of their campaign donations to Republicans, down from 63% in 2012 (see chart). Firms’ employees have beaten an even hastier retreat, with just 46% donating to Republican candidates, compared with 58% ten years ago, according to OpenSecrets. If the result of this is divided government, that would suit American business just fine. As one executive remarks, “We might not have improvements but we won’t get more cataclysmic policies.” ■ More