Philippa Kaur

DCL LOGISTICS, like so many American companies, had a problem last year. Its business, fulfilling orders of goods sold online, faced surging demand. But competition for warehouse workers was fierce, wages were rising and staff turnover was high. So DCL made two changes. It bought new robots to pick items off shelves and place them in boxes. And it reduced its reliance on part-time workers and hired more full-time staff. “What we save in having temp employees, we lose in productivity,” says Dave Tu, DCL’s president. The company’s full-time payroll has doubled in the past year, to 280.As American firms enter another year of uncertainty, the workforce has become bosses’ principal concern. Chief executives cite worker shortages as the greatest threat to their businesses in 2022, according to a recent survey by the Conference Board, a research organisation. On January 28th the Labour Department reported that companies had spent 4% more on wages and benefits in the fourth quarter, year on year, a rise not seen in 20 years. Labour costs go some way to explaining why profit margins in the S&P 500 index of large firms, which have defied gravity during the pandemic, are starting to decline. In January companies from fast food to finance reported swelling wage bills, as paycheques of everyone from McDonald’s burger-flippers to Citigroup bankers grew fatter. At the same time, firms of all sizes and sectors are testing new ways to recruit, train and deploy staff. Some of these strategies will be temporary. Others may reshape American business.The current jobs market looks extraordinary by historical standards. There were 10.6m job openings in November, up by nearly 50% from January 2020. In the last months of 2021 just seven workers were available for every ten open jobs (see chart 1). Predictably, employees seem unusually comfortable abandoning their old positions and seeking better ones. This is evident among those who clean bedsheets and stock shelves, as well as those building spreadsheets and selling stocks. In November 4.5m workers quit their jobs, a record. Even if rising wages and an ebbing pandemic lure some of them back to work, the fight for staff may endure.For decades American firms slurped from a deepening pool of labour, as more women entered the workforce and globalisation and offshoring greatly expanded the ranks of potential hires. That expansion has now run its course, notes Andrew Schwedel of Bain, a consultancy. Simultaneously, other trends have conspired to make the labour pool more shallow than it might have been. Men continue to slump out of the workforce: the share of men either working or looking for work was just 68% in November, compared with more than 80% in the 1950s. Immigration, which plunged during Donald Trump’s nativist presidency, has sunk further, to less than a quarter of the level in 2016. And the pandemic may have prompted more than 2.4m baby boomers into early retirement, according to analysis by the Federal Reserve Bank of St Louis.These trends will not reverse quickly. Boomers will not sprint back to work en masse. With Republicans hostile to immigrants and Democrats squabbling over visas for skilled foreigners, immigration reform looks doomed. Some men have returned to the workforce since the depths of the covid recession in 2020, but the male participation rate has plateaued below pre-pandemic levels. As a result, a tight labour market may be less an anomaly than the new normal. Both workers and employers are adapting. For the most part, they are doing so outside the construct of collective bargaining. Despite a surge of activity—Starbucks baristas in Buffalo and Amazon workers in Alabama will hold union votes in February—total unionisation rates remain paltry. Last year 10.3% of American workers were unionised, matching the record low of 2019. Within the private sector, the unionisation rate is just 6.1%. Strikes and pickets will be a headache for some bosses. But it is quits that could cause them sleepless nights.Pay as they goCompanies’ most straightforward tactic to deal with worker shortages is to raise pay. If firms are to part with cash, they prefer the inducements to be one-off rather than recurring and sticky, as with higher wages. That explains a proliferation of fat bonuses. Before the Christmas rush Amazon began offering workers a $3,000 sign-on bonus. Compensation for lawyers at America’s top 50 firms rose by 16.5% last year, in part thanks to bonuses, according to a survey by Citigroup and Hildebrandt, a consultancy. In January Bank of America said it would give staff $1bn in restricted stock, which vests over time.But base pay is rising, too. Bank of America says it will raise its minimum wage to $25 by 2025. In September Walmart, America’s largest private employer, set its minimum wage at $12 an hour, below many states’ requirement of $13-14 an hour but well above the federal minimum wage of $7.25. Amazon has lifted average wages in its warehouses to $18. The average hourly wage for production and nonsupervisory employees in December was 5.8% above the level a year earlier; compared with a 4.7% jump for all private-sector workers. Companies face pressure to lift them higher still. High inflation ensured that only workers in leisure and hospitality saw a real increase in hourly pay last year (see chart 2).Raising compensation may not, on its own, be enough for firms to overcome the labour squeeze, however. This is where the other strategies come in, starting with changes to recruitment. To deal with the fact that, for some types of job, there simply are not enough qualified candidates to fill vacancies, many firms are loosening hiring criteria previously deemed a prerequisite. The share of job postings that list “no experience required” more than doubled from January 2020 to September 2021, according to Burning Glass, an analytics firm. Easing rigid criteria may be sensible, even without a labour shortage. A four-year degree, argues Joseph Fuller of Harvard Business School, is an unreliable guarantor of a worker’s worth. The Business Roundtable and the US Chamber of Commerce, two business groups, have urged companies to ease requirements that job applicants have a four-year university degree, advising them to value workers’ skills instead. Another way to deal with a shortage of qualified staff is for the companies to impart the qualifications themselves. In September, the most recent month for which Burning Glass has data, the share of job postings that offer training was more than 30% higher than in January 2020. New providers of training are proliferating, too, from university-run “bootcamps” to short-term programmes by specialised providers, such as General Assembly, and by big employers themselves. Companies in Buffalo have hired General Assembly to run data training programmes for local workers who are broadly able but who lack specific tech skills. Google, a technology giant, says it will consider workers who earn its online certificate in data analytics, for example, to be equivalent to a worker with a four-year degree. Besides revamping recruitment and training, companies are modifying how their workers work. Some positions are objectively bad, with low pay, unpredictable scheduling and little opportunity for growth. Zeynep Ton of the mit Sloan School of Management contends that making low-wage jobs more appealing improves retention and productivity, which supports profits in the long term. As interesting as Walmart’s pay increases, she argues, are the retail behemoth’s management changes. Last year it said that two-thirds of the more than 565,000 hourly workers in its stores would work full time, up from about half in 2016. They would have predictable schedules week to week and more structured mentorship. Other companies may take note. Many of the complaints raised by organisers at Starbucks and Amazon have as much to do with safety and stress on the job as they do wages or benefits.New-model armouryAs a last resort, companies that cannot find enough workers are trying to do with fewer of them. Sometimes that means trimming services. Many hotels, including Hilton, have made daily housekeeping optional. Increasingly, it also involves investments in automation. Orders of robots in the third quarter surpassed their prepandemic high, by both volume and value, according to the Association for Advancing Automation. New business models are pushing things along. Consider McEntire Produce, in Columbia, South Carolina. Each year more than 45,000 tonnes of sliced lettuce, tomatoes and onions move through its factory. Workers pack vegetables in bags, place bags in boxes and stack boxes on pallets destined for fast-food restaurants. McEntire has raised wages, but staff turnover remains high. Even as worker costs have climbed, the upfront expense of automation has sunk. So the firm plans to install new robots to box and stack. It will lease these from a new company called Formic, which offers robots at an hourly rate that is less than half the cost of a McIntire worker doing the same job. By 2025, McEntire intends to automate about 60% of its volume, with robots handling the back-breaking work and workers performing tasks that require more skill. One new position, introduced in the past year, looks permanent: a manager whose sole job is to listen to and support staff so that they do not quit. More

IN 2018 A field technician working for Telstra, an Australian telecoms firm, built an app that unified 70 messaging systems for reporting phone-line problems. The technician did this despite having no coding experience. The interface may look cluttered: the landing page jams in 150 buttons and a local-news ticker—the app equivalent of an airplane cockpit, quips Charles Lamanna of Microsoft, who oversees the software titan’s Power Apps platform that made it possible. But it has been a hit. Some 1,300 other Telstra technicians employ it, saving the firm an annual $12m.Professional developers (pro devs) might poke fun at the technician’s DIY app. But the trend it exemplifies is no joke. Since well before 2017, when Chris Wanstrath, co-founder of GitHub, a coding-collaboration site, declared that “the future of coding is no coding at all”, so-called low code/no code (LC/NC) tools have burgeoned. They allow anyone to write software using drag-and-drop visual interfaces alone (no code) or with a bit of code creeping in (low code). Under the hood, this is translated into pre-written or automatically generated code, which then whirs away.Such tools are in hot demand. Just 25m people around the world are fluent in standard programming languages, reckons Evans Data Corporation, a research firm—one for every 125 people in the global workforce and 1.4m fewer than needed. That shortfall will rise to 4m by 2025, says IDC, a research firm. LC/NC products expand the pool of coders to “line-of-business” employees who seldom speak C++, Java or Python. And beyond. Cheryl Feldman went from a junior position in a hair salon to a technical career at Salesforce, a software firm, thanks to LC/NC. Samit Saini changed jobs after 13 years as a security guard at Heathrow to become an “ IT solution specialist” at the airport after making software on Microsoft’s Power Apps.Overcoming language barriersIDC reckons the low/no coders numbered 2.6m globally in 2021. It expects their ranks to swell by an average of 40% a year until 2025, three times as fast as the total developer population. The number of organisations using Power Apps more than doubled in 2021. It now has 10m monthly users. BASF, a chemicals firm, uses it to let 122,000 workers write software. A study last year by Aite-Novarica Group, a consultancy, found that over half of American insurers have deployed or plan to deploy LC/NC. Unqork, a no-code startup valued at over $2bn and backed by Goldman Sachs, is convincing other financial firms to take the plunge. Mr Lamanna envisages a global population of a billion low/no coders.The dream of codelessness is not new. Tony Wasserman of Carnegie Mellon University’s branch in Silicon Valley dates it back to the concept of “automatic programming” in the 1960s. Since then successive waves of simplification and abstraction have made life easier for programmers by distancing coding languages further from the machine code understood by computer hardware. In the early 1990s Microsoft tried to simplify things further by launching Visual Basic, an early stab at LC/NC. In the next decade firms like Appian, Caspio, Mendix and Salesforce began offering products aimed expressly at line-of-business types.Recently LC/NC’s potential has been unlocked by the cloud, which lets people connect to data easily and collaborate in real time, says Ryan Ellis, who leads LC/NC products at Salesforce. Last year Amazon Web Services (AWS), the online giant’s cloud-computing arm, introduced Amazon SageMaker Canvas, a set of tools that lets people deploy machine-learning models without writing code. It also offers Honeycode, a no-code app builder, in beta version.LC/NC used to be chiefly about making pro devs more efficient. Now it is also about pulling more humans into creating applications, says Adam Seligman of AWS. In terms of impact, he says, the latest wave “will race higher up the beach”. For one thing, firms in a hurry to digitise appreciate that when line-of-business people design software, it speeds things up. “A field worker making something for other field workers is hugely valuable as the feedback loop is faster,” says Adam Barr, a former Microsoft pro dev and author of “The Problem with Software: Why Smart Engineers Write Bad Code”. As digital natives enter the workforce they are also demanding automation of repetitive or manual data-entry tasks, often on pain of walking out.In addition, LC/NC is fast becoming the secret sauce in modern software development, notably in machine learning, says Arnal Dayaratna of IDC. The mastery of Python or Java required for this type of artificial-intelligence (AI) software is daunting even for pro devs. Bratin Saha, who oversees AWS’s machine-learning services, wants SageMaker Canvas to empower regular business analysts—from marketing or finance, say—to deploy machine learning. That could increase the number of AI specialists available to businesses by an order of magnitude, he predicts.Some scepticism is warranted. Just because non-programmers are able to build an application with LC/NC tools does not mean it will be any good, says Mr Wasserman, just as bug-ridden spreadsheets yield faulty results. They could also become a headache for corporate IT departments if citizen developers collect customer data that are worthless or, worse, that violate privacy. Especially with no code, businesses can find that the functionality they need does not yet exist. No-code platforms make the first 90% of delivering a useful application easy, and the last 5% often impossible, says Tim Bray, a pro dev formerly of AWS. And many pro devs remain resistant. Although they turn to LC/NC to simplify some tasks, plenty of pros see it as the programming cousin of pin-it-on neckties, in the words of one commentator. Some worry that specialising in LC/NC makes them look like dilettantes, reports Mr Barr.LC/NC will not displace “full” coding altogether, as its evangelists insist. Pro devs will continue writing their firms’ core products and mission-critical enterprise systems. But they will increasingly be complemented by legions of enterprising line-of-business workers with a software-development string to their bow. For employers, this means greater productivity. For employees, it could be life-changing. In 2019 the Telstra technician became senior business specialist for field digitisation and has since been promoted again. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Going codeless” More

SUPPLY CHAINS have seldom featured in companies’ earnings reports over the three decades since globalisation took off in earnest, save for the occasional mention of the benefits of low costs and lean inventories. This earnings season, though, covid-induced shortages are among the first problems mentioned by many firms. The Omicron variant has worsened the logjams by forcing workers, in many industries and the logistics business that weaves them together, to quarantine. And shortages of both staff and materials are contributing to inflation, raising costs across the board.On January 25th disappointed investors sent GE’s share price down by 6% after Larry Culp, the industrial icon’s boss, said that supply-chain “headwinds” had hit its health-care business especially hard. Fourth-quarter revenues declined by 3.5%, year on year. On the same day Gregory Hayes, boss of Raytheon, presented mixed results, noting that the defence firm had “seen its share of supply disruptions”. Others sniff trouble coming. On January 26th Boeing said that supply chains were not a “constraint” because its airliner production was low and inventories full. But, it added, raw materials, labour and logistical challenges were a “watch item”. Hours later Tesla said supply-chain snags had forced it to run factories below capacity.European firms are not immune. On January 21st Siemens Gamesa, a wind-turbine giant, blamed supply-chain woes for poor results and a profit warning. Vestas, a rival, has voiced similar concerns. EY, a consultancy, reckons that British-listed firms issued 19% more profit warnings in the last quarter of 2021 than a year earlier. A record number blamed supply-chain disruption and rising costs.Shortages are like nothing seen before (see chart). A chip crunch knocked nearly 10m units, or more than 10%, off annual car production in 2021 as firms slashed orders at the start of the pandemic and were pushed to the back of the queue when demand rebounded. Signs of improvement are scarce. This month Toyota said that it would cut output by 150,000 vehicles, or around 18%, in February for a lack of chips. GE blamed part of its health-care arm’s woes on the chip crunch. Large American firms surveyed by America’s Commerce Department reported that their chip inventories had fallen from 40 days in 2019 to less than five days in 2021—and expected no improvement for at least the next six months. The department has warned that continuing shortages could force factories to close.The transport of goods is not getting much freer, either. Container-shipping rates are creeping back up to the record levels of last summer. Analysts do not expect much relief before the second half of the year. Shortages of workers are making life harder still. IHS Markit, a consultancy, notes that America’s labour force is 4m below pre-pandemic levels, Europe’s has been disrupted by reduced movement of migrant workers and Asia’s by strict new lockdowns. Raytheon blamed a tight supply of “castings”, vital for jet-engine turbine blades, on a dearth of skilled welders. American Trucking Associations, a trade body, said last year that the industry faced a shortage of 80,000 lorry drivers.These constraints are all adding to costs of parts, materials and wages. Throw in higher energy prices and industrial companies everywhere face a tough start to 2022. With all these obstacles showing little signs of disappearing, supply chains may well come high up the list of excuses if firms unveil disappointing quarterly results in a few months’ time. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “More pain, no gain” More

AMID A CHIP shortage that has hobbled producers of everything from toys to wind turbines, chipmakers are on a spending spree. On January 13th Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest contract manufacturer, said it would spend up to $44bn on new capacity in 2022. That is up from $30bn last year, triple the number in 2019 and ahead of earlier plans to spend over $100bn in total over the next three years. Intel, an American rival, plans to burn through $28bn this year. On January 21st it said it would build two big new factories in Ohio by 2025 at a total cost of $20bn. An option to build six more later would take the overall price tag to $100bn. Samsung of South Korea, TSMC’s closest technological rival, has hinted that its capital spending for 2022 will surpass last year’s $33bn. Smaller firms, such as Infineon in Europe, are also splurging.IC Insights, a research group, reckons that, across the industry, capital spending rose by 34% in 2021, the most since 2017. That torrent of money is welcome news for the industry’s customers, who have been struggling with shortages for over a year. For the industry itself, it is the latest iteration of a familiar pattern. Bumper revenues, like those reported by Intel on January 26th and Samsung the next day, compel companies to expand capacity. But because demand can change much more quickly than the two or more years needed to build a chip factory, such booms often end in busts. The chip business has swung between over- and undercapacity since it emerged in the 1950s, observes Malcolm Penn of Future Horizons, a firm of analysts (see chart). If history is a guide, then, a glut is in on the way. The only question is when.Soon, many analysts think. Demand for smartphones may be cooling, especially in China, the world’s biggest market. Sales of PCs, which boomed during covid-19 lockdowns, also seem poised to weaken, says Alan Priestley of Gartner, a research firm. A survey by Morgan Stanley, a bank, found that, partly thanks to the shortages, 55% of chip buyers were double-ordering, which artificially inflates demand. High inflation and looming interest-rate rises could hit economic growth—and chip demand with it. Mr Penn expects the cycle to turn in the second half of 2022 or in early 2023.This time the glut, when it comes, may not affect all chipmakers equally. TSMC’s boss, C.C. Wei, said this month that a correction could be “less volatile” for his firm thanks to its position at the technological cutting-edge. Much of its new capacity is already booked up in long-term agreements with customers such as Apple, which needs a regular supply of the most sophisticated chips for its newest iPhones.The current cycle may differ from previous ones for another reason. The shortages, and America’s tech-flavoured trade war with China, have reminded politicians how vital chips are to the modern economy—and how over-reliant their supply is on a few giant firms. Worries about the sector’s excessive concentration have led trustbusters to challenge the $40bn acquisition by Nvidia, an American chip designer, of Arm, a British one—successfully, if news reports this week that the deal is being scrapped are to be believed.But governments’ favoured way to deal with the over-reliance is to lure more chipmaking home, mostly from East Asia, with subsidies. On January 25th America’s Commerce Department issued a report to that effect, urging Congress to pass a bill, already approved by the Senate, that includes $52bn in handouts for chipmakers. Mark Liu, TSMC’s chairman, was frank in 2020 when he said such subsidies were vital to persuade his firm to build a new plant in Arizona, one of only a few outside Taiwan. Intel chose Ohio for its factories partly because of incentives offered by the state. Pat Gelsinger, its boss, has been touring rich places that have made similar offers.The EU is keen to match the Americans, potentially putting itself on the hook for tens of billions of dollars of its own. It aspires to double Europe’s share of chipmaking, currently around 10%. In May South Korea’s government talked of a national mission to provide $450bn of capital spending over ten years to protect and expand its national industry. In November Japan unveiled a scheme of its own, with TSMC thought to be getting some $3.5bn. China has long nurtured ambitions—invigorated by American sanctions but so far unsuccessful—to build a fully fledged chip industry.Adding taxpayer cash to chipmakers’ already rich spending plans, says Mr Penn, could lead them to build even more excess capacity than usual. That should give politicians and chip CEOs pause. The bigger the boom, the deeper the subsequent bust. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Party on” More

WHAT IS THE meaning of mayonnaise? For Unilever, a consumer-goods giant whose products are all meant to stand for something, the purpose of its Hellmann’s brand is to reduce food waste by making leftovers tasty. For Terry Smith, a fund manager fed up with Unilever’s dipping share price, this is crazy. “The Hellmann’s brand has existed since 1913,” he wrote earlier this month. “So we would guess that by now consumers have figured out its purpose (spoiler alert—salads and sandwiches).”Mr Smith’s concern is the financial performance of Unilever (in the face of investor disquiet, the firm is now planning management cuts and an overhaul of its operating model). But his underlying point, that doing the obvious job well can be purpose enough, is one that has much wider application. For it is true of colleagues as well as condiments.The very idea of a purposeful employee conjures up a specific type of person. They crave a meaningful job that changes society for the better. When asked about their personal passion projects, they don’t say “huh?” or “playing Wordle”. They are concerned about their legacy and almost certainly have a weird diet.Yet this is not the only way to think about purpose-driven employees. New research from Bain, a consultancy, into the attitudes of 20,000 workers across ten countries confirms that people are motivated by different things.Bain identifies six different archetypes, far too few to reflect the complexity of individuals but a lot better than a single lump of employees. “Pioneers” are the people on a mission to change the world; “artisans” are interested in mastering a specific skill; “operators” derive a sense of meaning from life outside work; “strivers” are more focused on pay and status; “givers” want to do work that directly improves the lives of others; and “explorers” seek out new experiences.These archetypes are unevenly distributed across different industries and roles. Pioneers in particular are more likely to cluster in management roles. The Bain survey finds that 25% of American executives match this archetype, but only 9% of the overall US sample does so. Another survey of American workers carried out by McKinsey, a consulting firm, in 2020 found that executives were far likelier than other respondents to say that their purpose was fulfilled by their job.This skew matters if managers blindly project their own ideas of purpose onto others. Having a purpose does not necessarily mean a desire to found a startup, head up the career ladder or log into virtual Davos. Some people are fired up by the prospect of learning new skills or of deepening their expertise.Others derive purpose from specific kinds of responsibility. Research by a couple of academics at NEOMA Business School and Boston University looked at the experience of employees of the Parisian metro system who had been newly promoted into managerial roles. People who had been working as station agents before their elevation were generally satisfied by their new roles. But supervisors who had previously worked as train drivers were noticeably less content: they felt their roles had less meaning when they no longer had direct responsibility for the well-being of passengers.Firms need to think more creatively about career progression than promoting people into management jobs. IBM, for example, has a fellowship programme designed to give a handful of its most gifted technical employees their own form of recognition each year.Another mistake is to conflate an employee’s commitment with good performance. A recent paper from Yuna Cho of the University of Hong Kong and Winnie Jiang of INSEAD, a business school, describes an experiment in which groups of people with managerial experience listened to two actors playing the part of colleagues. One group heard an “employee” saying that he was looking forward to retirement; another group heard the employee saying that he did not want to retire at all. In all other respects the conversations were the same. The observers assigned a bigger bonus and a higher raise to the employee who appeared to have more passion.There is some logic here. Employees with a calling could well be more dedicated. But that doesn’t necessarily make them better at the job. And teams are likelier to perform well if they blend types of employees: visionaries to inspire, specialists to deliver and all those people who want to do a job well but not think about it at weekends. Like mayonnaise, the secret is in the mixture.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Purpose and the employee” More

LAKSHMI MITTAL has two passions: the steel industry and his family. His embrace of the first turned a poor boy from Rajasthan into the “Carnegie from Calcutta”, a man who built the world’s second-biggest steel empire from scratch, culminating in a takeover in 2006 of Arcelor, a European champion. The second sometimes sounds like tabloid fodder: lavish weddings in Paris; family homes—one known as the Taj Mittal—on London’s “Billionaire’s Row”. Yet Mr Mittal’s family knows the steel business inside out. Last year Aditya, his 46-year-old son, became CEO of ArcelorMittal. It now falls to him to transform the industry again.That is because about half of ArcelorMittal’s revenue comes from Europe, where pressure to decarbonise steel production, source of up to a tenth of global carbon-dioxide emissions, is becoming irresistible. The region is laden with coal-burning blast furnaces, the carbon-heaviest of steelmaking technologies. Many are on their last legs. Rather than refurbishing them, some firms are opting to replace these with new direct-reduced-iron (DRI) and electric-arc-furnace (EAF) plants. Blast-furnace steelmaking is doubly carbon-intensive: it uses coking coal to soak up oxygen from iron ore, as well as dirty energy to heat the furnaces. DRI-EAF technology, hitherto dependent on natural gas, can use hydrogen and renewable energy instead. Once scaled up, it could mark a revolution in steelmaking. By jettisoning their once-cherished blast furnaces, European steelmakers hope to start slashing emissions this decade in order to become net-zero by mid-century.Aditya Mittal still has his 71-year-old father, ArcelorMittal’s executive chairman, by his side. But the challenge ahead is uniquely tough. Whereas the older Mr Mittal made his own luck, Aditya is not master of his own destiny. He needs a vast infrastructure of hydrogen and carbon capture to emerge from nowhere to achieve his ambitions, not to mention a market for expensive “green steel”. Unlike his father, who made his fortune by taking privatised steelworks off government hands, he will not succeed unless ArcelorMittal receives taxpayer support. He is not alone in seeking that. The whole industry believes that rapid decarbonisation will be impossible unless governments foot part of the bill. History, however, suggests the state and steel are unpromising bedfellows.ArcelorMittal starts with some advantages. For decades the elder Mr Mittal bought mini-mills in different parts of the world that used DRI pellets and EAFs rather than blast furnaces and basic oxygen furnaces. The technology is still only a bit-player in Europe. Fuelled by hydrogen and renewable electricity, it could become the dominant one within a decade. ArcelorMittal is not the most advanced among European steel companies in developing zero-carbon mills. It has three low-carbon DRI-EAF projects under way, in Spain, Belgium and Canada. SSAB of Sweden is ahead of it. Yet it has reduced debt to shore up its balance-sheet, giving it the flexibility to increase spending. Moreover, its presence in poorer countries such as India, where steel use per person is a fraction of its level in the West, gives it plenty of growth opportunities.The transition will be costly, though. McKinsey, a consultancy, estimates that decarbonising steel requires investment of $145bn a year on average for the next 30 years, and could push the cost of making the stuff up by 30%. ArcelorMittal says its three low-carbon plants will cost $10bn in total by 2030, which is doable for a company with annual capital expenditure of about $3bn. However, its strengthened balance-sheet is raising investors’ hopes of higher payouts, and it needs to weigh their demands against big investments in green steel. Even with modest government support for capital and operating expenditures, says Jefferies, a bank, returns would be too low to justify a normal steel project.That is why the industry believes hefty state backing is essential. ArcelorMittal expects governments to fund about half of its $10bn decarbonisation commitments over the next ten years. Investors argue that subsidies for operational expenses such as electricity bills should be thrown in, too. The same, they say, goes for aid to ramp up production of clean hydrogen, whose price must fall by 60% for clean steel to become cost-competitive with the alternatives, according to McKinsey. On top of that, government money is needed to speed up the roll-out of more renewable energy required to power the clean furnaces. Jefferies estimates that total electricity demand by EU steelmakers will more than double by 2030. The developing world’s blast furnaces, which are younger than Europe’s, will probably be fitted with carbon capture and storage rather than replaced. That nascent technology, too, needs a leg-up from the government.It goes beyond that. By the mid-2020s, Europe’s steelmakers will begin losing the free allocations of carbon permits they receive under the EU Emissions Trading System. To compensate, they await the introduction of a carbon-border-adjustment mechanism, starting in 2026, which will protect them further from importers selling cheaper dirty steel. They also need governments to help kick-start demand for green steel. Some sectors, such as carmakers, are keen to buy it, believing that they can pass the costs on to carbon-conscious consumers. But the construction industry, the steel firms’ biggest market, is not nearly as enthusiastic. Hence steelmakers say they need lots of public works built with low-carbon steel to justify their investments.Kicking the coke habitSome state action is warranted. In the long run subsidies for electric vehicles may curb emissions by less than curing the steel industry’s coal addiction. But the cure must be judicious. It is all too easy for a closer relationship with governments to degenerate into job-safeguarding schemes, protectionism and a revival of the old revolving door between bureaucrats and business. That is what happened the last time the state and steel were intertwined. Until, that is, the elder Mr Mittal made his fortune prising them apart. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The greening of steel” More

LIKE SEEMINGLY everyone these days, Moxie Marlinspike has created a non-fungible token (NFT). These digital chits use clever cryptography to prove, without the need for a central authenticator, that a buyer owns a unique piece of digital property. Alongside cryptocurrencies such as bitcoin, NFTs are the most visible instantiation of “web3”—an idea whose advocates and their venture-capital (VC) backers hail as a better, more decentralised version of the internet, built atop distributed ledgers known as blockchains. Digital artists, celebrities and even the occasional newspaper have issued and sold them to collectors, often for hefty sums (the immaterial version of The Economist’s cover image fetched over $400,000).Although it looked cryptographically sound like any other NFT, however, Mr Marlinspike’s token could shift shape depending on who accessed it. If you bought it and viewed it on a computer, it transformed into a poop emoji. After a few days the NFT was taken down by OpenSea, a marketplace for digital artefacts. This played into Mr Marlinspike’s hands. For his aim was not to raise cash but to raise awareness. His token showed that NFTs are not as non-fungible as advertised. And OpenSea’s reaction illustrated that the supposedly decentralised web3 has its own gatekeepers.The Marlinspike caper was the latest turn in perhaps the biggest controversy to erupt in tech world for several years. On one side sit techno-Utopians, firms offering assorted web3 services and their VC backers. They claim that web3 is the next big thing in cyberspace, that it is truly decentralised—and that it promises juicy returns to boot. Globally, the value of VC deals in the crypto-sphere reached $25bn last year, up from less than $5bn in 2020 (see chart). Last week Andreessen Horowitz (a16z for short), one of Silicon Valley’s most illustrious VC firms and its biggest web3 champion, was reported to be raising a $4.5bn web3-related fund, to add to three existing ones worth a total of $3bn. A senior partner left a16z this month to set up her own firm focused on web3.Pitted against them are the sceptics. They range from Mr Marlinspike, highly respected even among the techno-Utopians for creating the secure-messaging app Signal, to Jack Dorsey, who founded two platforms of the sort that web3 promises to supersede (Twitter in social media and Square in payments). They argue that a truly decentralised internet is a pipe dream—“You don’t own ‘web3’. VCs and their [limited partners] do,” Mr Dorsey warned last month. And a dangerous one at that for the unwary investor: since November some $1trn of the value of cryptocurrencies, the most mature province of web3, has gone up in flames.The feud may seem abstruse. But the stakes are big. It could change the trajectory of the internet—and the multitrillion-dollar business models that it has enabled.The centre cannot holdThe history of modern computing is a constant struggle between decentralisers and recentralisers. In the 1980s the shift from mainframes to personal computers gave more power to individual users. Then Microsoft clawed back some of that power around its proprietary operating system. More recently, open-source software, which users can download for nothing and adapt to their needs, took over from proprietary programs in parts of the industry—only to be reappropriated by giant technology firms to run their mobile operating systems (as Google does with Android) or cloud-computing data centres (including those operated by Amazon, Microsoft and Google).The web3 movement is a reaction to perhaps the greatest centralisation of all: that of the internet. As Chris Dixon, who oversees web3 investments at a16z, explains it, the original, decentralised web lasted from 1990 to about 2005. This web1, call it, was populated by flat web pages and governed by open technical rules put together by standards bodies. The next iteration, web2, brought the rise of tech giants such as Alphabet and Meta, which managed to amass huge centralised databases of user information. Web3, in Mr Dixon’s telling, “combines the decentralised, community-governed ethos of web1 with the advanced, modern functionality of web2”.This is possible thanks to blockchains, which turn the centralised databases to which big tech owes it power into a common good that can be used by anybody without permission. Blockchains are a special type of ledger that is not maintained centrally by a single entity (as a bank controls all its customers accounts) but collectively by its power users. Blockchains have outgrown cryptocurrencies, their earliest application, and spread into NFTs and other sorts of “decentralised finance” (DeFi). Now they are increasingly underpinning non-financial services.The portfolio of a16z offers a glimpse of this wild new world. It already includes more than 60 startups, at least a dozen of which are valued at more than $1bn. Many are developing the infrastructure for web3. Alchemy offers tools for other firms to build blockchain applications, much as cloud-computing provides a platform for developers of web-based services. Nym has built something called “mixnet”, a decentralised network to mix up messages in a way that means literally no one else can tell who is sending what to whom.Other a16z investments are serving end users. Dapper Labs creates NFT applications such as NBA Top Shot, a website where sports fans can buy and sell digital collectables such as key moments in basketball games. Syndicate helps investment clubs to organise themselves into “decentralised autonomous organisations” (DAOs) governed by “smart contracts”, which are rules encoded in software and baked into a blockchain. And Sound.xyz allows musicians to mint NFTs to make money.What all these companies have in common, explains Mr Dixon, is that it is hard for them to lock in customers. Unlike Google and Meta they do not control their users’ data. OpenSea, in which a16z also has a stake, and Alchemy are just pipes to the blockchain. If their customers are unhappy, they can move to a competing service. Even if he wanted, he could not keep them from leaving, says Nikil Viswanathan, Alchemy’s boss. “As a business, I would love to have proprietary choke points. But there aren’t any. We tried to find them.”The idea is that this makes web3 companies try harder to satisfy customers and keep innovating. Whether they can do this while also making pots of money is another matter. It is not clear how much demand exists for truly decentralised projects. That was the problem of early web3 offerings (then called “peer-to-peer” or “the decentralised web”). Services such as Diaspora and Mastodon, two social networks, never really took off. Their successors could face the same problem. A service like OpenSea would be much faster, cheaper and easier to use “with all the web3 parts gone,” says Mr Marlinspike.Or can it?A more fundamental problem is that even if web3 worked as smoothly as its immediate predecessor, it may nevertheless lend itself to centralisation. Lock-in, reckons Mr Marlinspike, tends to emerge almost automatically. The history of the internet has shown that collectively developed technical protocols evolve more slowly than technology developed by a single firm. “If something is truly decentralised, it becomes very difficult to change, and often remains stuck in time,” he writes. That creates opportunities: “A sure recipe for success has been to take a 1990’s protocol that was stuck in time, centralise it, and iterate quickly.”Centralisation and lock-in have been incredibly lucrative. In fact, a16z has made billions from Meta, in which it was an early investor; one of a16z’s founders, Marc Andreessen, sits on Meta’s board to this day. Web3’s VC boosters may be counting on something like this happening again. And to a degree, it already is. Despite being a relatively recent phenomenon, web3 already exhibits signs of centralisation. Because of the complexity of the technology, most people cannot interact directly with blockchains—or find it too tedious. Rather they rely on intermediaries such as OpenSea for consumers and Alchemy for developers.Albert Wenger of Union Square Ventures, a VC firm that started investing in web3 firms a few years ago, points to other potential “points of recentralisation”. One is that the ownership of the computing power that keeps many blockchains up to date is often very concentrated, which gives these “miners”, as they are called, undue influence. It could even allow them to take over a blockchain. In other systems the ownership of tokens is heavily skewed: at recently launched web3 projects, between 30% and 40% is owned by the people who launched them.These dynamics, combined with the latest crypto crash that may cool enthusiasm for the sector among investors, suggest that web3 is unlikely to displace web2 altogether. Instead, the future will probably belong to a mix of the two approaches, with web3 occupying certain niches. Whether or not people keep splurging on NFTs, for example, such tokens make a lot of sense in the metaverse, where they could be used to track ownership of digital objects and to move them from one virtual world to another. Web3 may also play an important role in the creator economy, another buzzy concept. Li Jin of Atelier, a VC firm, points out that NFTs make it much easier for creators of online content to make money from their wares. In this limited way, at least, even the masters of web2 see the writing on the wall: on January 20th both Meta and Twitter integrated NFTs into their platforms. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

WORK AND shopping have, for better or worse, been permanently altered by the pandemic. The airline industry hopes that its own covid-19 disruption proves temporary. Luckily for those deprived of holidays, visits to family and friends, or even the odd business trip, flying in 2022 will look a bit more like the pre-pandemic jet age—with differences between domestic and international routes, short-haul and long-haul ones, and east and west.The numbers taking to the skies have risen steadily since March 2020, when the pandemic first grounded flights. Most forecasters expect that by 2024 as many passengers will fly as did in 2019. IATA, a trade body, reckons that 3.4bn people will buckle up in 2022. That is nearly double the number in 2020, though still some way shy of 2019, when 4.5bn took to the air.Uncertainties remain, however, not least the pandemic. Consider the Omicron variant. Ed Bastian, boss of America’s Delta Air Lines, has described navigating the past few weeks as “hellacious”, after some 8,000 of his staff, about 10% of the total, contracted the virus. Crew shortages, tighter travel restrictions and bad weather conspired to force the cancellation of 60,000 flights worldwide between December 24th and January 3rd, calculates Cirium, an aviation-data firm. That corresponds to roughly one in every 40 flights. The fact that the worst Christmas period for a decade still made December the busiest month of 2021 illustrates just how far the industry has to go.Covid-19’s unpredictable course shows that even bright spots can cloud over. Large domestic markets, unaffected by international travel bans and other unco-ordinated border restrictions over vaccinations and testing, have led the recovery. Within America, the world’s biggest internal market, demand for seats has nudged above 80% of pre-covid levels. In China it has exceeded pre-covid times on occasions over the past year, thanks in part to the country’s strict “zero-covid” strategy. Although lockdowns to snuff out recent outbreaks in the run-up to the Winter Olympics in Beijing next month have slapped the chock blocks back on, China’s aviation regulator still expects domestic traffic at around 85% of pre-pandemic levels in 2022.The plans for restoring capacity among the world’s airlines give a sense of the likely shape of improvement on international routes, which IATA predicts will reach only 44% of pre-crisis demand this year. Some low-cost airlines serving short-haul connections in America and Europe, where travel restrictions may soon be relaxed, could surpass pre-covid capacity, reckons IBA, another aviation-research firm. America’s big three network carriers will also benefit from the reopening of the lucrative transatlantic market, which this year is expected to bounce back to where it was in 2019. Delta will approach pre-covid capacity in 2022, and United may exceed it. Some of Europe’s legacy airlines may benefit, too. IAG, owner of British Airways, is expected to restore all of its flights across the Atlantic by summer 2022.Airlines in the Asia-Pacific region are likeliest to remain stuck. Many governments, relying on isolation to control the virus, have toughened already strict travel rules to contain Omicron. Capacity is still around 60% below previous highs. Singapore Airlines will run at half of its pre-covid capacity for at least the first couple of months of 2022; Australia’s Qantas may operate at just 45% this year.Even if Omicron were the last of covid, airlines have other things weighing them down. As Andrew Charlton of Aviation Advocacy, a consultancy, notes, governments have doused beleaguered airlines with cash to keep them aloft. Much of that—around $110bn, says IATA—needs to be paid back. And that is on top of new debts owed to private-sector creditors. Moreover, so long as demand remains weak airlines will find it hard to pass the rising cost of fuel on to passengers. The industry’s net losses will narrow from the staggering $138bn in 2020 and $52bn in 2021. Collectively, airlines are expected to lose another $12bn this year. Better—but hardly stellar. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Flight tracker” More