Philippa Kaur

CALL IT THE multiplication of the metaverses. Ever since Mark Zuckerberg, the boss of Facebook—sorry, Meta—laid out his vision in late October for immersive virtual worlds he thinks people will want to spend lots of time in, new ones are popping up all over. An entertainment metaverse will delight music fans, influencers will flock to a fashion metaverse to flaunt digital clothes, and there is even a shark metaverse (it has something to do with cryptocurrencies). Mostly these are the brainchildren of marketeers slapping a new label on tech’s latest craze.One new virtual world deserves real attention: the “enterprise metaverse”. Forget rock stars and fancy frocks, this is essentially a digital carbon copy of the physical economy. Building living, interactive blueprints that replicate the physical world might, in time, come to shape it. The vision of what this might mean has become clearer in recent days. Microsoft, the world’s largest software firm, earlier this month put it at the centre of its annual customer shindig, as did Nvidia, a big maker of graphics processors, on November 9th.Corporate virtual worlds are already more of a reality than Meta’s consumer version, where people will get to hang out with their friends at imaginary coastal mansions. Unlike that metaverse, which is populated mostly by human avatars, the corporate version is largely a collection of objects. These are “digital twins”, virtual 3D replicas of all sorts of physical assets, from single screws to entire factories.Crucially, they are connected to their real selves—a change on the shop floor, for instance, will trigger the equivalent change in its digital twin—and collect data about them. This set-up enables productivity-enhancing operations that are hard today, for example optimising how groups of machines work together. Simulating changes virtually can then be replicated in the real world. And, its boosters hope, a path would be laid to automate even more of a firm’s inner workings.Whether the enterprise metaverse becomes a reality is not simply of interest to aficionados of corporate information technology (IT). Innovations unlocked through insights gleaned from digital mirror-worlds can help firms become more adaptable and efficient—helping them reduce carbon emissions, for example. Promoters of the concept even argue that it will put to rest the old adage, coined by Robert Solow, a Nobel-prizewinning economist, that you can “see the computer age everywhere but in the productivity statistics”.The concept of this “twinworld”, as the enterprise metaverse might be called (a spiffy moniker will surely be found), is not new. Some of the necessary technologies have been around for years, including devices with sensors to capture data, known as the “internet of things” (IoT)—another field still waiting for a moniker upgrade. Software to design detailed virtual replicas originated in computer games, the current benchmark for immersive worlds.But other bits have only recently become good enough, including superfast wireless links to connect sensors, cloud computing, and artificial intelligence, which can predict how a system is likely to behave. “Digital twins aggregate all of these things,” explains Sam George, who runs the enterprise-metaverse effort at Microsoft.As is its wont as a maker of corporate software, Microsoft has developed an entire platform on top of which other firms can develop applications. This includes tools to build digital twins and analyse the data they collect. But this “stack”, as such collections of code are known, also provides technology which allows people to collaborate, including Mesh, a service that hosts shared virtual spaces, and HoloLens, a mixed-reality headset, with which users can jointly inspect a digital twin.Nvidia’s roots in computer graphics mean it focuses more on collaboration and creating demand for its chips. Its Omniverse is also a platform for shared virtual spaces, but one that allows groups of users to bring along elements they have built elsewhere and combine these into a digital twin they can then work on as a team. The common technical format needed for such collaboration will come to underpin digital twins in the same way HTML, a standard formatting language, already underpins web pages, predicts Richard Kerris, who is in charge of Omniverse.Both platforms have already attracted a slew of startups and other firms that base some of their business on this technology. Cosmo Tech, for instance, takes Microsoft’s tools to do complex simulations of digital twins to predict how they might evolve. And Bentley Systems, which sells engineering software, uses Omniverse to optimise energy infrastructure. Both Microsoft and Nvidia have also teamed up with big firms to show off their wares. AB InBev, a beer giant, collaborates with Microsoft to create digital twins of some of its more than 200 breweries to better control the fermentation process. In the case of Nvidia, the top partner is BMW, which uses Omniverse to make it easier to reconfigure its 30 factories for new cars.Despite all this activity, it is not a given that the enterprise metaverse will take off as fast as its champions expect, if ever. Similar efforts have failed or disappointed, including many IoT projects. “Smart cities”, essentially attempts to build urban metaverses, turned out to use technology that was just not up to snuff and relied too much on proprietary standards.If the enterprise metaverse does indeed take shape, though, it will be an intriguing process. Will it be based on proprietary technology or on open standards (there is already a Digital Twin Consortium)? And, asks George Gilbert, a veteran observer of the IT industry, how will software-makers such as Microsoft be paid for their wares? Since their code will be more embedded than ever in firms’ products and services, some may ask for a slice of revenue instead of licensing or subscription fees.And then there is the question of how the overall metaverse economy will function. Since most business activity will be digitally replicated, economists may have unprecedented insight into what is going on. Digital twins could exchange services between themselves and perhaps replace firms as the main unit of analysis. If digital twins live on a blockchain, the sort of platform that underpins most cryptocurrencies, they could even become independent and own themselves. Expect at least as many possibilities as metaverses to unfold.■This article appeared in the Business section of the print edition under the headline “Virtual world, Inc” More

PERHAPS THE most remarkable characteristic of General Electric (GE) over its 129-year history has been how thoroughly it reflected the dominant characteristics of big American business. Most of its history was a chronicle of boisterous expansion, then globalisation—followed by painful restructuring away from the now-unloved conglomerate model. On November 9th Lawrence Culp, its chief executive, announced that GE would split its remaining operations into three public companies.Each of these entities will be large, essential and very modern. One will make jet engines, which GE reckons already power two-thirds of all commercial flights. Its power business will provide the systems and turbines generating one-third of the world’s electricity. The health-care division will continue to be the backbone of modern hospitals. Yet it speaks to GE’s remarkable role that this is a modest reach given its past sprawl. From the late-19th to the late-20th century its products lit dark streets; provided the toasters, fans, refrigerators, and televisions (along with the stations beamed to them), which transformed homes; delivered the locomotives that hauled trains; and then built a huge business financing all that and more.The ambition to be everything was enabled by the perception that it could manage anything. The 21st century punctured that perception.Jack Welch, an acquisitive chief executive reputed to be a managerial genius, retired in 2001 after receiving a mind-boggling $417m severance package. Ever-better results during his tenure beguiled investors and sent the share price soaring. But problems soon arose. The structure Welch left behind was in effect bailed out during the financial crisis. Losses at GE Capital, the sprawling financial unit he fostered, were blamed, though the company’s industrial core turned out to have plenty of problems, too.Recent years have been spent spitting out one notable business after another. The timing of the break-up announcement was determined by the sale of a large aircraft-financing unit. The transaction reduced debt by enough to provide the three soon-to-be independent companies with an investment-grade credit rating. Mr Culp, the firm’s boss since 2018, speaks of the “illusory benefits of synergy” to be traded for the certain benefits of focus. “A sharper purpose attracts and motivates people,” he says.Having boasted of its management nous, it now seems that poor management is what did it for a unified GE. The contest to replace Welch was widely seen as pitting the best global executives against one another, with the losers hired to run other big firms. But his successors struggled. Jeffrey Immelt, Welch’s hand-picked replacement, retired under a cloud in 2017. John Flannery, once seen as a wizard behind the rise of the health-care division, took over but was fired after little more than a year. Mr Culp was brought in from outside, a step last taken in the 19th century.During much of Welch’s tenure and its immediate aftermath GE was the most valuable company in the world, reaching a peak market value nearly five times its current $121bn. It is tempting to conclude that GE’s failure illustrates the demise of the conglomerate. That is refuted by the diversification of today’s most valuable companies: tech firms that have branched out into driverless cars, cloud computing and so on. Rather, GE’s story reflects how even the most valuable American companies may be flawed—and if flaws emerge, may be thoroughly transformed.■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 “Not so general” More

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