Philippa Kaur

WHEN BERND OSTERLOH, the mighty boss of Volkwagen’s council that represents workers, announced his resignation in April many investors breathed a sigh of relief. Frequent, acrimonious clashes between him and Herbert Diess, the group’s no-less-mighty chief executive, had become a distraction from the big changes required to push VW into the electric age. The culmination was Mr Osterloh’s attempt to topple Mr Diess.Yet only six months after the departure of his near nemesis Mr Diess is again locking horns with labour representatives. This time observers say the brash Bavarian may have gone too far. After all, Volkswagen’s workers have enormous clout. Their representatives occupy half the seats on the group’s 20-member supervisory board. They can count on the loyalty of the two board representatives of Lower Saxony, the western German state that owns a fifth of VW. The Volkswagen law from 1960 that limits voting rights of any shareholder to 20% gives Lower Saxony a de facto veto on any big decision.How did the relationship hit bottom so quickly? The biggest bone of contention is the extent of changes required to enable VW to rival Tesla as a leading maker of electric cars. In an email that was leaked to the works council, Mr Diess suggested cutting 30,000 jobs, which would mostly affect the bloated bureaucracy at VW’s headquarters in Wolfsburg. Yet job losses are likely to be an unavoidable part of the electric-vehicle age, because EVS take less time to assemble than cars with internal combustion engines. Amid the ensuing outcry, Mr Diess toned down his plans for job cuts.But the damage is done. A four-member mediation committee is discussing Mr Diess’s future even though his contract was extended to 2025 only in July. Most agree he is the right man to steer change at VW, but say he lacks diplomacy. Various names of possible successors are circulating. Tesla, of course, faces no such headwinds. Its boss, Elon Musk, has used social media to warn workers against unionisation. The American firm, which is building a gigafactory not far from VW’s headquarters, presumably views Germany’s system of powerful worker representation on boards as a cautionary tale.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 “Golf’s course” More

IN THE REAL WORLD a flywheel is a mechanical contraption that stores rotational energy. In Silicon Valley it has come to mean something else: a perpetual-motion business that not only runs forever but is self-reinforcing. Thanks to powerful network effects, the theory goes, a digital platform becomes more attractive as it draws in more users, which makes it even more attractive and so on. The end state is a venture that has gathered enough energy to self-levitate and throw off tons of cash.The payout on one of the most richly-funded bets of the past decade or so revolves around whether ride-sharing and delivery firms—which once were part of something known as the “sharing economy” but are better described as the “flywheel economy”—can actually ever live up to their heady promise. The outcome will matter to more than just venture capitalists who backed their growth. Whether these flywheels do gather unstoppable momentum is also of interest to regulators worried about technology’s propensity for winner-takes-all business models, not to mention paid-by-the-gig workers caught in its cogs.Consider the results of Uber and DoorDash, the largest Western ride-sharing and delivery apps respectively. The distorting effects of the pandemic—which severely limited ride sharing, but gave a big boost to food delivery—warped their business models in recent months. Nonetheless optimists will have seen plenty to cheer them. On November 4th Uber proclaimed it was finally profitable, albeit only the flattering metric of “adjusted EBITDA”. Strong third-quarter figures from DoorDash, which were released on November 9th, could fuel an already heady rally in its shares (the firm also announced the acquisition of Wolt, a Finnish food-delivery company, for $8bn).But look deeper and evidence is mounting that business flywheels are not defying the laws of capitalism. The money that went into building them recalls the railway mania among other past speculative investment crazes. The nine firms that have gone public so far—Uber, its American rival Lyft; Didi, a Chinese ride-sharing app; and six delivery firms, from DoorDash and Delivery Hero, which is based in Berlin, to China’s Meituan and India’s Zomato—collectively raised more than $100bn. In most cases, the capital was intended to jumpstart those network effects and make market dominance a self-fulfilling prophecy. Seemingly bottomless pits of investors’ cash went to subsidising rides and deliveries to juice demand. This reached absurd points: a pizzeria could make money by ordering its own food for a discounted price on DoorDash (which then paid back the regular amount). To justify such profligacy, interested parties pointed to the huge “total addressable market”, another popular term in Silicon Valley. Bill Gurley of Benchmark, an early investor in Uber, argued in in 2014 that the firm could vie for as much as $1.3trn in consumer spending if one saw it as an alternative to car ownership.Measured against such visions, the flywheel economy has proven a disappointment. To be sure, the nine listed flywheel firms are still growing nicely—at 103% on average in their latest reporting period compared to the same period the previous year. This explains why they are collectively worth nearly $500bn. But self-levitating they are not. Nor are they profitable. Sales for the group amounted to $75bn over the past twelve months and the operating loss to nearly $11.5bn.As the firms have discovered, their businesses are less perpetual motion machines than real-world flywheels that inevitably lose energy to friction, says Jonathan Knee of Columbia Business School and author of a book entitled “The Platform Delusion”. The network effect in fact has proved much weaker than expected. Many users switch between Uber and Lyft. Drivers also flit between them, or to delivery apps, depending on which model offers the best pay. This bargaining power from both sides means the system does not become self-reinforcing after all.Technology, too, has turned out to be less beneficial than anticipated. Data collected by the firms help optimise their operations, but are not the decisive factor some had hoped for. Regulators keep pushing back. In London they have forced Uber to pay drivers minimum wages and pensions. In San Francisco they capped the fees DoorDash can charge restaurants for delivering their meals.Uber’s tortuous path to stemming losses should temper investor optimism. It eked out a profit of $8m on revenues of $4.85bn. That excludes important expenses that are unlikely to disappear, such as stock-based compensation. The company has crawled out of its sea of red ink mostly by slashing costs, shedding technology assets such as its autonomous-car unit, charging higher prices and increasing its “take rate”, the share of the fares it keeps. As a result, an Uber is now no cheaper—and often more expensive—than conventional cabs, plenty of which can be hailed via apps these days. What is more, the company is now more of a delivery service than a ride-hailing app: Uber Eats generates more than half of sales. Add its other newer and still far smaller services, such as groceries and package delivery, and Uber looks much more like an old-economy logistics conglomerate than a metaverse-era tech company that merits a market capitalisation of more than $85bn.DoorDash, whose revenue has grown more than four-fold since the last quarter of 2019, was expected to suffer as more people dine out, but revenue held up in the latest quarter at nearly $1.3bn, although net losses more than doubled to $101m compared with the same period a year ago. Regardless, investors have pushed it to a punchy $65bn valuation, up 101% since it went public in December. That bakes in success in new markets that it has recently entered, including groceries and pet food, and implies that it can convince restaurants to pay it more to feature their wares high up in its app.Real business flywheels do exist. Software makers have managed to lock users in and thus generate gross margins typically above 70%. Lured by the promise of riches, venture capitalists are hoping against all hope to find news ones. They are already pouring money into the next generation of flywheel contenders: instant-delivery startups, which offer gratification in 30 minutes or less. Coupon-collecting consumers in cities such as New York now get at least a week’s worth of groceries for nothing from such services as Buyk, Fridge No More and Gopuff. Eventually, these firms’ champions promise, their economics will be far better than those of an Uber or a DoorDash. In the flywheel economy hope and hype spring eternal, at least as long as interest rates remain low and capital is essentially free. More

HOLLYWOOD LABOUR disputes have a certain theatrical flair. When Scarlett Johansson sued Disney in July, claiming she had been underpaid for her role in “Black Widow”, the studio launched an Oscar-worthy broadside against the actress’s “callous disregard for the horrific and prolonged global effects of the covid-19 pandemic”. In September film crews marched to demand better conditions, brandishing placards designed by America’s finest prop-makers. And when WarnerMedia decided to release “Dune” on its streaming service on the same day it hit cinemas in October, the movie’s director, Denis Villeneuve, huffed magnificently that “to watch ‘Dune’ on a television… is to drive a speedboat in your bathtub.”The streaming revolution has sent money gushing into Hollywood as studios vie to attract subscribers. Last month Netflix boasted that its content slate in the fourth quarter would be its strongest yet, with new titles such as “Don’t Look Up”, starring Leonardo DiCaprio, and the final season of “Money Heist”, a Spanish bank-robbing saga. On November 12th Disney will announce its latest commissioning blitz, with new shows for Disney+ expected to include “Star Wars” and Marvel spin-offs.Yet despite the largesse it has been a turbulent year in Tinseltown, as everyone from A-list stars to the crew who style their hair has gone to war with the film studios. Some of the disputes have arisen from the pandemic, which has upended production and release schedules. But the tension has a deeper cause. As streaming disrupts the TV and movie business, the way that talent is compensated is changing. Most workers are better off, but megastars’ power is fading.Start with the pandemic. As cinemas closed, studios scrambled to find screens for their movies. Some, like MGM’s latest James Bond flick, were delayed by more than a year. Others were sent to streaming platforms—sometimes without the agreement of actors or directors. Those whose pay was linked to box-office revenues were compensated, either behind the scenes (as WarnerMedia did in the case of “Dune”) or after very public spats (as with Disney and Ms Johansson).Yet even before covid, streaming was changing the balance of power between studios and creatives. First, there is more cash around. “There’s an overwhelming demand and need for talent, driven by the streaming platforms and the amount of money that they’re spending,” says Patrick Whitesell, executive chairman of Endeavour, whose WME talent agency counted Charlie Chaplin among its clients. Three years ago there were six main bidders for new movie projects, in the form of Netflix and the five major Hollywood studios. Now, with the arrival of Amazon, Apple and others, there are nearer a dozen. Streamers pay 10-50% more than the rest, estimates another agent.Below-the-line workers, such as cameramen and sound engineers, are also busier. Competition among studios has created a “sellers’ market”, says Spencer MacDonald of Bectu, a union in Britain, where Netflix makes more shows than anywhere outside North America. In the United States the number of jobs in acting, filming and editing will grow by a third in the ten years to 2030, four times America’s total job-growth rate, estimates the Bureau of Labour Statistics.The streamers’ hunger for variety means their seasons have half as many episodes as broadcast shows, and are less frequently renewed. That means “people are having to hustle for work more often,” says one script supervisor. A fatal accident on the set of “Rust”, a movie starring Alec Baldwin, has stirred a debate about safety amid the frantic pace of production. But the streamers’ short, well-paid seasons allow more time for CV-burnishing side-projects, and the work is more creatively rewarding. “Netflix and Apple both nominate every role, in every category they can” for awards, reports one set-designer—who adds that the price of that can be 90-hour weeks. IATSE, a union which represents 60,000 below-the-line workers in America, has reached an agreement with studios for better pay and conditions; its members will begin voting on the deal on November 12th.More controversial is the streamers’ payment model, which is creating new winners and losers. Creative stars used to get an upfront fee and a “back end” deal that promised a share of the project’s future earnings. For streamers, a show’s value is harder to calculate, lying in its ability to recruit and retain subscribers rather than draw punters to the box office. Studios also want the freedom to send their content straight to streaming without wrangling with a star like Ms Johansson whose pay is linked to box-office takings. The upshot is that studios are following Netflix’s lead in “buying out” talent with big upfront fees, followed by minimal if any bonuses if a project does well.That suits most creatives just fine. “Buy-outs have been very good for talent,” says Mr Whitesell. “You’re negotiating what success would be… for that piece of content, and then you’re getting it guaranteed to you.” Plus, instead of waiting up to ten years for your money, “you’re getting it the day the show drops”. America’s 50,000 actors made an average of just $22 per hour last year, when they weren’t parking cars and pumping gas, so most are happy to take the money up front and let the studio bear the risk. Another agent confides that some famous clients prefer the streamers’ secrecy around ratings to the public dissection of box-office flops.For the top actors and writers, however, the new system is proving costly. “People are being underpaid for success and overpaid for failure,” says John Berlinski, a lawyer at Kasowitz Benson Torres who represents A-listers. The old contracts were like a “lottery ticket”, he says. Create a hit show that ran for six or seven seasons and you might earn $100m on the back end; make a phenomenon like “Seinfeld” and you could clear $1bn.A few star showrunners such as Shonda Rhimes, a producer of repeat TV hits currently at Netflix, can still swing nine-figure deals. But creators of successful shows are more likely to end up with bonuses of a couple of million dollars a year. And though actors are receiving what sound like huge payments for streamers’ movies—Dwayne Johnson is reportedly getting $50m from Amazon for “Red One”, for example—in the past they could make double that from a back-end deal. Some creative types grouse that the newcomers simply don’t understand showbusiness. With its “phone-company mentality”, AT&T, a cable giant that acquired WarnerMedia in 2018, turned Hollywood’s most storied studio into “one of the last stops you’d make”, complains one agent. Disney’s new boss, Bob Chapek, came up through the company’s theme-park division. The Silicon Valley streamers are more comfortable with spreadsheets than stardust.But their unwillingness to venerate A-listers also has an economic rationale. The star system, in which actors like Archibald Leach were transformed into idols like Cary Grant, was created by studios to de-risk the financially perilous business of movie-making. A blockbuster, which today might cost $200m to shoot plus the same in marketing, has one fleeting chance to break even at the box office. The gamble is less risky if a star guarantees an audience.Today, studios are de-risking their movies not with stars but with intellectual property. Disney, which dominates the box office, relies on franchises such as Marvel, whose success does not turn on which actors are squeezed into the spandex leotards. Amazon’s priciest project so far is a $465m “Lord of the Rings” spin-off with no megastar attached. Netflix’s biggest acquisition is the back-catalogue of Roald Dahl, a children’s author, which it bought in September for around $700m.What’s more, streaming’s approach to generating hits is different. Whereas winning at the box office required betting big on a few mammoth projects, Netflix’s method is “more like a random walk where ‘hits’ are first discovered by their users, then amplified by… algorithms,” notes MoffettNathanson, a firm of analysts. Netflix served up 824 new episodes in the third quarter of this year, more than four times as many as Amazon Prime or Disney+. Its biggest success, “Squid Game”, has a cast that is largely unknown outside South Korea. “Competition is not limited to who has the best content; it is also framed around who has the best tech” for discovering it, says MoffettNathanson. In the new Hollywood stars are neither made nor born: they are algorithmically generated.■ More

THOR, THE Norse thunder-god, was reputed to carry a hammer known as Mjollnir—a tool for destroying enemies and blessing friends. The hammer has provided suitable inspiration for the name of a powerful new drug to fight covid-19: molnupiravir. That drug has just been approved by Britain’s national medicines regulatory agency—the first in the world to do so. Molnupiravir, made by Merck, a big pharma firm, and a Florida-based biotech called Ridgeback Biotherapeutics, is the first oral antiviral medicine available to treat covid-19. The approval marks another milestone in the world’s fight against covid-19.Other countries are also working quickly to approve the new medicine, which has provoked keen interest. Last month the interim results of a trial found that patients with a risk factor for covid-19 were 50% less likely to be hospitalised or die if the oral antibiotic was taken in the first five days after symptoms. Britain has secured 480,000 courses of molnupiravir, and sales of the drug are already brisk. America, Australia, Britain, the Philippines, Indonesia, Japan, New Zealand, Malaysia, Thailand and Vietnam are some of the countries that have secured deals, or are in the process of doing so. Demand is likely to be very high. The drug will be used to treat patients who have not been vaccinated, or who remain at high risk despite having had a jab. Doctors now have a medicine to offer those most at risk from covid, which patients can take at home. The drug is also expected to be affordable globally. It is expected that rich countries will pay $700 a course for the drug, but low-income ones will pay something closer to $20—and maybe less as time goes on. Given the difficulties that low- and middle-income countries have faced in obtaining vaccines this year, it is reasonable to wonder whether rich countries are going to hoard the supply of this new drug, or even prevent it from being exported from the countries in which it is made. That seems unlikely. Since the summer of last year when it bought the rights to the new molecule from Ridgeback, Merck has been looking for ways to make the drug widely available, such was its promise. Known then as EIDD-2801 the molecule had been shown to inhibit the replication of RNA viruses including SARS-CoV-2 but had not yet been through trials in humans to test its efficacy. As part of its covid-19 response, Merck chose to work on two vaccines and two drugs. With the exception of molnupiravir all its other products failed during development. Merck increased its own production and has licensed the drug to be made by others. It expects to produce 10m courses of treatment by the end of 2021 and hopes to be able to double manufacturing capacity next year. At the same time, five Indian manufacturers of low-cost generic drugs, including Cipla, Dr Reddy’s and Sun Pharmaceuticals have already signed deals to make generic versions of molnupiravir. Merck says it is also setting aside 3m courses of its own supply for low- and middle-income countries, to make sure not all early supplies are snaffled up by rich countries. Another notable move came on October 27th. Merck signed a voluntary licensing agreement with the Medicine Patent Pool—a United Nations-backed organisation that negotiates drug licences on behalf of less wealthy countries. The agreement will allow many more firms around the world to manufacture generic versions of molnupiravir. (One lesson of the pandemic has been the need to have a global manufacturing footprint.) Trevor Mundel, president of global health at the Gates Foundation, says that because many generic drug firms are waiting to gauge demand for molnupiravir in less wealthy countries, the foundation has made $120m available to get manufacturing going. This money will support guarantees to manufacturers that a certain volume of the new drug will be bought. The foundation says it is hoping to speed up production by generic manufacturers, some of which can make as many as 10m courses a month. In the past year firms such as Pfizer and Moderna have been criticised for the lack of global access to their vaccines and their unwillingness to share the know-how to make them. Will Merck get much thanks for all its generosity? Mr Mundel thinks the speed and global breadth of the launch of molnupiravir will be without precedent in history. If so, that will mark a high-water mark in global health. Not everyone is happy. Médecins Sans Frontières, a humanitarian charity, says the Merck licence from the MPP does not go far enough. James Love, director of Knowledge Ecology International, a “social justice” non-profit, disagrees, saying that the agreement goes further than any other company has done during the pandemic. Asked how much Merck had invested in its covid-19 research programme so far, the firm would only say “billions”. It is not likely to recoup this soon from low- and middle-income countries. There are also concerns about whether the drug will be safe for everyone to take. Its ability to cause mutations in viruses could also pose a risk to fetal development. Regulatory agencies may thus choose to limit the use of the drug to certain groups for these reasons. Nonetheless, countries struggling to beat down high numbers of covid hospitalisations and deaths, will find molnupiravir a powerful new hammer. ■Dig deeperAll our stories relating to the pandemic can be found on our coronavirus hub. You can also find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe. More

ENES KANTER’S campaign against China’s Communist Party has been unrelenting. The basketball star has recently walked into professional games sporting custom shoes that read “Free Tibet”, a slogan that has long raised hackles in Beijing. He has invited the co-founder of Nike, a sportswear firm, to visit “slave labour camps” in China’s north-west (Nike says it does not source products from the region). On November 2nd Mr Kanter, who plays for the Boston Celtics, posted a message for China’s president on Twitter: “Ruthless Dictator XI JINPING…hear me loud and clear: Hong Kong will be FREE!”.The slam-dunk on China, America’s National Basketball Association (NBA) and clothing brands such as Nike has the potential to do extraordinary damage. Tencent, the Chinese internet giant contracted to stream NBA games, has already blocked the Celtics. The league relies heavily on Chinese sponsors and has already had a taste of what cancellation means. The airing of NBA games was halted for more than a year in China starting in October 2019 after the general manager of the Houston Rockets voiced support for anti-government protesters in Hong Kong. The embargo was painful. Nearly all Chinese corporate partners cancelled or suspended their arrangements at the time. The league’s commissioner estimated as much as $400m in lost revenue. It has projected income of $10bn for the current season.Mr Kanter has also brought more unwanted attention to clothing brands caught in a controversy over sourcing cotton from China’s Xinjiang region, homeland of the Uyghurs and where human-rights groups say forced labour is common. Multinationals are being forced to take a side on free-speech issues, says Badiucao, the Chinese artist who designed Mr Kanter’s evocative shoes (he goes by a pseudonym). Some are doing just that. Yahoo, an American internet giant, said on November 2nd that it would pull out of China, citing challenging business conditions. Weeks earlier LinkedIn, a professional-networking group, announced it would shut down its main China operations after it was forced to comply with increasingly tough censorship rules.The NBA is wildly popular in China. Many fans disavowed the league in 2019 but were eager to resume watching it last year. Communist Party authorities must balance the popularity of the sport with their instinct to punish critics, says David Bach of the Institute for Management Development, a Swiss business school. Instead of stirring up sentiment against the NBA and announcing an all-out ban on broadcasts, as in 2019, so far only Celtics games have been blocked. The NBA has neither criticised Mr Kanter nor affirmed his rights to such speech. The stand-off amounts to a form of bargaining between the NBA and the Communist Party, says Mr Bach. ■This article appeared in the Business section of the print edition under the headline “The audacity of hoops” More

MCDONALD’S HAS employed a “barbell” pricing strategy for decades, luring customers with low-cost items in the hope that they will then splurge on pricier fare. This balancing act is now at risk. On October 27th the fast-food giant said that, due to rising costs, prices at its American restaurants will increase by 6% this year compared with 2020. The burger chain says labour expenses have risen by 10% at its franchised restaurants and 15% at its company-owned locations. Add the rising cost of ingredients and the result is higher prices for burgers and fries. For now, it seems, customers can stomach it. Chris Kempczinski, McDonald’s boss, said the increase “has been pretty well received”. After digesting the news, investors have sent shares in the fast-food firm up by 6%.A growing number of companies are raising prices as costs for labour and raw materials rise, often with no ill effects. This summer PepsiCo, an American food giant, lifted prices for its fizzy drinks and snacks to offset higher commodity and transport costs; it plans further increases early next year. Ramon Laguarta, the firm’s boss, suggested in an earnings call in October that customers do not seem bothered. “Across the world consumers seem to be looking at pricing a little bit differently than before,” he said. In September Procter & Gamble, a multinational consumer-goods giant, raised prices for many of its products. The effect on demand was minimal. “We have not seen any material reaction from consumers,” Andre Schulten, the firm’s chief financial officer (CFO), told analysts last month.“Pricing power”, the ability to pass costs to customers without harming sales, has long been prized by investors. Warren Buffett has described it as “the single most important decision in evaluating a business”. It is easy to see why. When hit with an unexpected expense, firms without pricing power are forced to cut costs, boost productivity or simply absorb the costs through lower profit margins. Those with pricing power can push costs onto customers, keeping margins steady.Today, firms are eager to flaunt their price-setting clout. “We can reprice our product every second of every day,” Christopher Nassetta, boss of Hilton Worldwide, a hotel operator, told investors last month. “We believe we’ve got pricing power really better than almost anybody if not everybody in the industry,” boasted John Hartung, CFO of Chipotle, a restaurant chain, in October. Companies such as Starbucks, Levi Strauss and GlaxoSmithKline make similar claims. “We are a luxury company, so we do have pricing power,” bragged Tracey Travis, CFO of Estée Lauder, a cosmetics firm, on November 2nd.They are not alone. Of the S&P 500 companies that have reported third-quarter results, over three-quarters beat projections, according to Bank of America Merrill Lynch. “This earnings season there was a lot of angst on the part of investors that higher input costs would erode margins,” says Patrick Palfrey of Credit Suisse, a bank. “In fact, what we have seen is another spectacular quarter on behalf of corporations so far in spite of input cost pressures.” According to Savita Subramanian and Ohsung Kwon of Bank of America mentions of “price” or “pricing” in American earnings calls—a proxy measure for pricing power—increased by 79% in the third quarter from a year earlier. In the second quarter, such mentions were up by 52% year on year.If costs spiral out of control, the power to raise prices will become ever more important. On November 2nd JPMorgan Chase’s global purchasing-managers index, a measure of manufacturing activity, showed that input prices in the sector increased in October at the highest rate in more than 13 years. But the prices of manufactured goods and services also rose at the fastest pace since records began in 2009. A gap between input and output price inflation is typically interpreted as a sign that firms are struggling to raise prices and that margins are being squeezed. That isn’t happening yet.Identifying firms with pricing power is crucial for investors. Analysts tend to look for three things. The first is a big mark-up—the difference between the price of a good and its marginal cost—which only firms with market power can get away with. Big and steady profit margins are another sign of pricing power. “If you are a firm that is dominant in your market, you are much more resilient to shocks,” explains Jan Eeckhout, an economist and the author of “The Profit Paradox”, a book published earlier this year.Size is another factor. All else equal, bigger companies with greater market share have more pricing power than smaller ones. A recent survey of American CFOs conducted by Duke University and the Federal Reserve Banks of Richmond and Atlanta found that 85% of large firms reported passing on cost increases to customers, compared with 72% of small firms.A “pricing-power score” for companies in the S&P 1500 compiled by UBS is based on four indicators: mark-up, market share, and the volatility and skew of profit margins. The bank found that firms providing consumer staples, communication services and IT have the most pricing power and that energy, financial and materials companies have the least (see chart 1). When UBS compared the financial performance of companies with strong and weak pricing power, they found that the former have delivered more profit growth since 2010 and generated better stock returns, particularly during periods of high inflation (see chart 2).Firms that score well on this index have lagged in the past year, notes UBS. This may be explained by cyclical factors. When profit margins are expanding, the argument goes, firms with pricing power tend to generate relatively low returns; when margins are shrinking, they produce high returns. At the moment, profits are still healthy.For now, demand is robust and consumers seem relatively insensitive to price changes. But companies are planning more price increases. A survey by America’s National Federation of Independent Business, a trade group, found that the margin of small-business owners planning to raise prices in the next three months over those planning to lower them grew to 46%, the biggest gap since October 1979.This is a concern for some central bankers such as James Bullard, president of the Federal Reserve Bank of St Louis. In October he noted that for years companies have worried that if they raised prices, they would lose market share. “That may be breaking down,” he says. ■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 “Passing the buck” More

AN OFFICE IS meant to bring people together. Instead, it has become a source of division. For some, the post-pandemic return to the workplace is an opportunity to re-establish boundaries between home and job, and to see colleagues in the flesh. For others it represents nothing but pointless travelling and heightened health risks. Many ingredients determine these preferences. But one stands out: seniority.Slack, a messaging firm, conducts regular surveys of global knowledge workers on the future of work. Its latest poll, released in October, found that executives are far keener to get back to the office than other employees. Of those higher-ups who were working remotely, 75% wanted to be in the office three days a week or more; only 34% of non-executives felt the same way.The divide has played out publicly at some companies. Earlier this year, employees at Apple wrote an open letter to Tim Cook, the firm’s chief executive, objecting to the assumption that they were thirsting to get back to their desks: “It feels like there is a disconnect between how the executive team thinks about remote/location-flexible work and the lived experiences of many of Apple’s employees.” Why are bigwigs so much keener on the office?Three explanations come to mind: the cynical, the kind and the subconscious. The cynical one is that executives like the status that the office confers. They sit in nicer rooms on higher floors with plusher carpets. Access to them is guarded, politely but ferociously. When they walk the floors, it is an event. When they sit in meeting rooms, they get the best chairs. On Zoom the signals of status are weaker. No one gets a bigger tile. Their biggest privilege is not muting themselves, which isn’t quite the same power rush as using the executive dining room.The kind explanation is that executives believe that in-person interactions are better for the institutions they lead. Working from home “doesn’t work for people who want to hustle, doesn’t work for culture, doesn’t work for idea generation,” was the verdict of Jamie Dimon, the chief executive of JPMorgan Chase, earlier this year. Ken Griffin, the boss of Citadel, a hedge fund, has warned young people not to work from home: “It’s incredibly difficult to have the managerial experiences and interpersonal experiences that you need to have to take your career forward in a work-remotely environment.”These concerns have substance. Virtual work risks entrenching silos: people are more likely to spend time with colleagues they already know. Corporate culture can be easier to absorb in three dimensions. Deep relationships are harder to form with a laggy internet connection. A study from 2010 found that physical proximity between co-authors was a good predictor of the impact of scientific papers: the greater the distance between them, the less likely they were to be cited. Even evangelists for remote work make time for physical gatherings. “Digital first does not mean never in person,” says Brian Elliott, who runs Slack’s research into the future of work.But the advantages of the office can also be exaggerated. The Allen curve, which shows how frequency of communication goes down the farther away colleagues sit from each other, was formulated in the 1970s but still rings true today. Every workplace has corners that people never visit; no gulf is greater than that between floors. And the disadvantages of remote working can be overcome with a bit of thought. Research by a trio of professors at Harvard Business School found that lockdown-era interns who got to spend time with senior managers at a “virtual watercooler” were much likelier to receive full-time job offers than those who did not.If physical workspaces have drawbacks, and remote working can be improved upon, why are executives clear in their preferences? The subconscious supplies a third explanation. As Gianpiero Petriglieri of INSEAD, a French business school, observes: “people advising youngsters to go into the office are those who made their way in that environment.” Executives who have achieved success by working in an office are the least likely to question its efficacy.That is a problem, especially since a majority of executives say that they have designed return-to-work policies with scant input from employees. A hybrid future beckons, in which workers divide their time between home and office. Managers need to improve both environments, not assume that one is obviously superior to the other.This article appeared in the Business section of the print edition under the headline “Why executives like the office” More

FOR EIGHT CONSECUTIVE years ver.di, Germany’s second-biggest trade union, has called a strike during the pre-holiday season at Amazon’s fulfilment centres, the vast warehouses where packages are prepared for delivery. This year the tradition continued. Around 2,500 Amazon employees at seven centres walked out on November 2nd. The union warned that the strikes could continue up to Christmas.Ver.di demands an“immediate” salary increase of 3% this year, followed by 1.7% next year, in line with a collective labour agreement for the retail sector. Amazon is making heaps of money in Germany and cannot continue to “refuse wage increases that other companies in the sector pay”, says Orhan Akman of ver.di. Mr Akman vows not to give up as strikes in previous years yielded results. Union pressure forced Amazon to increase wages several times, he states.The wider goal of the strike is the preservation of the Tarifvertrag, a periodic agreement between unions and bosses that sets wage levels for each industry. It is credited with playing a big part in Germany’s harmonious labour relations. Such “tariff” agreements have been eroded over the past couple of decades, especially in eastern Germany. Many firms in service industries in particular no longer adhere to them.“Amazon is an excellent employer without the tariff agreement,” insists Michael Schneider, a company spokesman. In the summer Amazon raised pay for all employees to at least €12 ($14) an hour—the minimum wage is €9.60. After two years workers earn on average €2,750 a month.Half of its 19,000 employees have worked at Amazon for over five years and seem unwilling to walk out.Amazon is hiring an additional 10,000 temporary employees for the busy Christmas season in its second-biggest market.The company says it can fulfil all orders in spite of the strikes. In likelihood this year’s industrial action will end like the others every year since 2013 with Amazon making some concession. But by not adhering to the Tarifvertrag, the company is further chipping away at wage agreements both for the retail industry and Germany as a whole. ■This article appeared in the Business section of the print edition under the headline “Strike season” More