Philippa Kaur

AMERICA’S SHALE patch is a testament to bottom-up capitalist enterprise. It was conquered by wildcat frackers, who came up with clever ways of horizontal drilling and releasing oil trapped in the rock formations. Independent shale specialists such as Devon Energy, EOG Resources and Pioneer Natural Resources became some of the country’s biggest oil producers, helping boost domestic output from 8m barrels per day in 2005 to 15m in 2015—and turn America from a net importer of oil to an exporter. Oil giants such as ExxonMobil and Chevron trod more gingerly into shalelands such as the Permian basin, not least because the wildcatters’ expansionary zeal earned fracking a reputation for torching billions in investors’ money.image: The EconomistMore recently, the supermajors’ shale ambitions have grown. In June ExxonMobil’s boss, Darren Woods, stated his intent to double its shale-oil production over five years. It may not take that long. On October 11th ExxonMobil said it would buy Pioneer for $60bn in one of the biggest oil mergers ever. The deal would nearly double ExxonMobil’s domestic oil output in an instant, putting it top of the ranking of American producers (see chart). It is also likely to prompt more consolidation in what remains a fragmented industry. And it could once again make American shalemen the world’s swing producers.Shale looks a much more profitable bet than it did a few years ago. A focus on costs has weeded out wasteful practices and improved operational efficiency. JPMorgan Chase, a bank, estimates that a dollar spent on exploration and production in America, a lot of it shale-based, produces twice as much oil today as it did in 2014. Rather than let methane, a potent greenhouse gas often produced alongside shale oil, escape into the air, big operators have begun—under pressure first from regulators and then, methane being a component of natural gas, from commercial logic—to recover the stuff and sell it. Nowadays, says Tom Ellacott of Wood Mackenzie, an energy-advisory firm, American shale is less carbon-intensive than conventional fields, as well as quicker and cheaper to develop.The biggest frackers have also responded to pressure from Wall Street to increase returns rather than output. This newfound capital discipline withstood the surge in oil prices after Russia’s invasion of Ukraine in February 2022. Later that year Pioneer’s chief executive, Scott Sheffield, insisted that his firm would continue to exercise restraint “whether it’s $150 oil, $200 oil, or $100 oil”. Philip Verleger, a veteran energy economist, says that by refusing to drill, baby, drill, big shale firms have helped support oil prices for the past three years.The Exxon-Pioneer deal may change that. As Mr Verleger points out, ExxonMobil has an explicit strategy of investing to raise production if the oil price and forecast profits are high enough. They may well be. Matthew Bernstein of Rystad, a firm of energy analysts, reckons that the region has “another 15-20 years of high-quality drilling”. That, he thinks, may convince ExxonMobil to ramp up output.Environmentalists may wince at the prospect. Shale has long been their bête noire, partly because of those dirty methane emissions. As methane gets managed properly it may become one of the best—and cleanest—ways to meet stubbornly rising global oil demand. Even the International Energy Agency, an official forecaster committed to net-zero emissions by 2050, favours short-cycle investments like shale over long-term projects, into which producers get locked for decades. Shale will remain noire, but maybe less of a bête. ■ More

ON OCTOBER 4TH more than 75,000 employees of Kaiser Permanente, a large health-care chain, began a three-day strike. The walkout was the biggest in the history of America’s health sector, and called attention to the staffing shortages plaguing the country’s hospitals and clinics. In the same week ten drugmakers said they would negotiate medicine prices with Medicare, the public health-care system for the elderly, following legislation which all but forced them to. It will be the first time that companies have haggled over prices with the government.These events are symptoms of the deeper malaise in America’s dysfunctional health-care system. The country spends about $4.3trn a year on keeping citizens in good nick. That is equivalent to 17% of GDP, twice as much as the average in other rich economies. And yet American adults live shorter lives and American infants die more often than in similarly affluent places. Pharmaceutical firms and hospitals attract much of the public ire for the inflated costs. Much less attention is paid to a small number of middlemen who extract far bigger rents from the system’s complexity.Over the past decade these firms have quietly increased their presence in America’s vast health-care industry. They do not make drugs and have not, until recently, treated patients. They are the intermediaries—insurers, pharmacies, drug distributors and pharmacy-benefit managers (PBMs)—sitting between patients and their treatments. In 2022 the combined revenue of the nine biggest middlemen—call them big health—equated to around 45% of America’s health-care bill, up from 25% in 2013. Big health accounts for eight of the top 25 companies by revenue in the S&P 500 index of America’s leading stocks, compared with four for big tech and none for big pharma.Big health began as a constellation of oligopolies. Four private health insurers account for 50% of all enrolments. The biggest, UnitedHealth Group, made $324bn in revenues last year, behind only Walmart, Amazon, Apple and ExxonMobil, and $25bn in pre-tax profit. Its 151m customers represent nearly half of all Americans. Its market capitalisation has doubled in the past five years, to $486bn, making it America’s 12th-most-valuable company. Four pharmacy giants generate 60% of America’s drug-dispensing revenues. The mightiest of them, CVS Health, alone made up a quarter of all pharmacy sales. Just three PBMs handled 80% of all prescription claims. And a whopping 92% of all drugs flow through three wholesalers.With little room left to grow in their core businesses, and trustbusters blocking attempts to buy direct rivals, the oligopolists have in recent years expanded into other bits of the health-care supply chain. Besides adding to the top line, such vertical integration is also juicing margins. The Affordable Care Act of 2010 limited the profits of health insurers to between 15% and 20% of collected premiums, depending on the size of the health plan. But it imposed no restrictions on what physicians or other intermediaries can earn.The law created an incentive for insurers to acquire clinics, pharmacies and the like, and to steer customers to them rather than rival providers. The strategy channels revenue from the profit-capped insurance business to uncapped subsidiaries, which in theory could allow insurers to keep more of the premiums paid by patients.According to Irving Levin Associates, a research firm, between 2013 and August 2023 the nine health-care giants spent around $325bn on over 130 mergers and acquisitions. Some of these deals have pushed the firms deeper into each other’s turf. In 2017 CVS offered $78bn for Aetna, a large health insurer and a competitor of UnitedHealth’s. The following year Cigna, another big insurer, swallowed Express Scripts, a big PBM, for $67bn. In 2022 UnitedHealth paid $13bn for Change Healthcare, a data-analytics firm which processes insurance claims for large parts of the industry, including UnitedHealth’s rivals.Both UnitedHealth and CVS have been buying up health-care providers, too. Optum Health, a subsidiary of UnitedHealth, has spent over $23bn on such transactions in the past six years, and now treats more than 20m patients through a network of 2,200 clinics. It has more doctors on its books—70,000 employed or affiliated physicians—than the biggest hospital chains in the country. CVS runs 1,100 or so neighbourhood clinics and this year alone paid $18bn for two companies focused on the lucrative elderly-care market.Industry executives say that bringing all parts of patient care—primary-care clinics, pharmacy services, PBMs and insurance—under one roof is beneficial for all. In the old fee-for-service model, big health argues, doctors or hospitals are paid for each service they provide, encouraging them to perform as many as possible and charge as much as they can. If doctors and insurance companies are part of the same business, by contrast, incentives should be aligned and overall costs should be lower.That, at least, is the theory. And there is some truth to it. Despite its recent labour troubles, Kaiser Permanente has historically been hailed as a role model for efficient and high-quality health care. Its business, with 39 hospitals and over 24,000 doctors, is highly integrated, with Kaiser’s insurance plans covering members’ treatment at its hospitals and clinics. This April Kaiser announced it would acquire Geisinger Health, a Pennsylvania-based health system, to expand its model of integrated care to more states.Yet vertical integration can have adverse side-effects. For example, many studies have found that after hospitals acquire physician practices, prices increase but quality of care does not. A health-care company that controls many aspects of patient care could raise prices for rivals wishing to access its network. Some also worry about physicians being nudged towards offering the cheapest treatment to patients, lowering the quality of care.There is as yet no evidence of trouble with the model, argues Richard Frank of the Brookings Institution, a think-tank. But elsewhere in big health signs of oligopolistic behaviour are already on display. Consider PBMs. These middlemen are in the crosshairs of lawmakers and regulators for their role in determining drug prices. At least four different bills that seek to regulate PBMs are making their way through Congress. For almost two decades, the Federal Trade Commission (FTC), America’s main antitrust agency, pushed back against efforts to increase oversight of PBMs, arguing that such moves would harm consumers. In July 2022, however, the ftc changed tack and launched an investigation into the business practices of the largest PBMS.At issue is PBMs’ opaque pricing, which takes a drug’s list price and shaves off discounts that the PBM wrangles from drugmakers. PBMs claim that they are a counterweight to big pharma. But critics argue that large PBMs don’t pass on the discounts to the health plans, instead keeping much of the difference for themselves, and limit access to treatments that are less profitable for them. In August Blue Cross of California, a regional health insurer, ditched CVS’s PBM in favour of smaller firms to save on drug costs for its nearly 5m members.Indeed, America’s health-care intermediaries are unusually profitable. Research by Neeraj Sood of the University of Southern California and colleagues found that intermediaries in the health-care supply chain earned annualised excess returns—defined as the difference between their return on invested capital and their weighted average cost of capital—of 5.9% between 2013 and 2018, compared with 3.6% for the S&P 500 as a whole.Big health’s giant pool of excess profits is at last attracting newcomers. Upstart health insurers like Bright Health Group and Oscar Health have positioned themselves as a transparent and consumer-friendly alternative to the old guard. Mark Cuban Cost Plus Drug Company, an online pharmacy started by the eponymous billionaire, bypasses the middlemen by buying cheaper generics directly from manufacturers and selling them to consumers at a fixed 15% mark-up.Perhaps the biggest disruption to big health could come from Amazon. In 2021 its health-care ambitions suffered a setback owing to the closure of Haven Healthcare, a not-for-profit joint venture with JPMorgan Chase, America’s biggest bank, and Berkshire Hathaway, its biggest investment firm. Haven had aimed to reduce health-care costs for the three firms’ own employees. But despite Haven’s failure, Amazon is still expanding its health-care business. Last year it paid $3.9bn for One Medical, a primary-care provider. It also runs Amazon Clinic, an online service offering virtual consultations, and RxPass, which lets members of its Prime subscription service buy unlimited generic medications for a small fee. John Love, who heads Amazon’s pharmacy business, believes that the tech giant’s focus on customer experience, combined with its vast logistics network, makes it well-suited to shake up the industry.So far the newcomers’ impact has been muted. Lisa Gill of JPMorgan Chase reckons that most of them underestimate the complexity of the business of health. The entrenched firms have built their networks of doctors, hospitals, insurers and drugmakers over decades. Replicating that takes time and institutional knowledge. Mr Cuban admits that it is difficult to get drugmakers to list branded drugs on his pharmacy, as they are wary of upsetting the large PBMs. And without branded drugs and the support of large health insurers, his firm’s reach remains small. The cap on insurers’ profits makes life tough for upstarts in that business, who struggle to compete against the negotiating power of the integrated giants. Even Haven, which represented its three backers’ 1.2m American employees, did not command enough market power to compel lower prices from health-care providers. Amazon’s pharmacy business has yet to break into America’s top 15 pharmacy chains. Big tech may be powerful. But for now even it bows before big health. ■ More

Sometimes it seems as if the cloud is swallowing corporate computing. Last year businesses spent nearly $230bn globally on external (or “public”) cloud services, up from less than $100bn in 2019. Revenues of the industry’s three so-called “hyperscalers”, Amazon Web Services (AWS), Google Cloud Platform and Microsoft Azure, are growing by over 30% a year. The trio are beginning to offer clients newfangled artificial-intelligence (AI) tools, which big tech has the most resources to develop. The days of the humble on-premises company data centre are, surely, numbered.image: The EconomistOr are they? Though cloud budgets overtook in-house spending on data centres a few years ago, firms continue to invest in their own hardware and software. Last year these expenditures passed $100bn for the first time, reckons Synergy Research Group, a firm of analysts (see chart 1). Many industrial companies, in particular, are finding that on-premises computing has its advantages. A slug of the data generated by their increasingly connected factories and products, which Bain, a consultancy, expects soon to outgrow data from broadcast media or internet services (see chart 2), will stay on premises.The public cloud’s convenience and, thanks to its economies of scale, cost savings come with downsides. The hyperscalers’ data centres are often far away from the source of their customers’ data. Transferring these data from this source to where they are crunched, sometimes half a world away, and back again takes time. Often that does not matter; not all business information is time-sensitive to the millisecond. But sometimes it does.image: The EconomistMany manufacturers are creating “digital twins” of their brick-and-mortar factories, to detect problems, reduce down- time and improve efficiency. They are also constantly tweaking new products under development, often using data streaming in from existing products out in the world. For all such purposes data need to be analysed in as close to real time as possible, ideally with no “jitter” (inconsistency of data transfer), data loss or service outages, all of which are surprisingly common in the public cloud. Many firms also prefer to keep any data on which they train their AI models close to their chest. Giordano Albertazzi, chief executive of Vertiv, which provides data-centre infrastructure, thinks this may become a competitive advantage.Running your own data centre close to your factory also pre-empts looming requirements on localisation and “data sovereignty” from governments afraid of letting data leak across their borders. Countries which have passed some version of data-sovereignty laws include China, where plenty of manufacturers have factories, and India (though its rules apply primarily to financial companies for now).It is for such reasons that industrial firms are still spending on their data centres to house the data needed to hand, while shipping off less-time-critical information to the hyperscalers. Companies that embrace this dual approach include industrial champions such as Volkswagen, a German carmaker, Caterpillar, an American maker of diggers, and Fanuc, a Japanese manufacturer of industrial robots.Businesses that do decide to go it alone rather than rely on the hyperscalers have several options. They can build, equip and run their own facilities. These can be large or not so large. Companies like Vertiv and Schneider Electric sell small modular data centres that can be installed at or near industrial sites and linked to the data sources using 5G networks (whose range means these cannot be too far away).Data users can also build their own data centres but rent the servers (computer-makers such as Lenovo and Dell now offer such a service) and outsource day-to-day management to specialist firms like Serverfarm. Or they can lease space in a data centre owned and managed by someone else. Tenants typically bring their own computing and networking kit, and foot the bill for running costs (including energy). In return, the landlord guarantees basics like space, physical security, access to power and cooling. The decision to build or rent may depend on a user’s data intensity. Consider a firm in America with a medium-sized data centre which thinks its computing load will rise roughly four-fold over a decade. In that case, building its own breaks even in seven years or so, and ends up being 5% cheaper overall than leasing, according to data from Schneider Electric. If the load remains stable, renting is the less expensive option, by a similar amount (assuming a flat cost of capital).Several factors may affect such calculations. The price of power, land, material and labour is rising. The construction of some data centres is running two years behind schedule. This is pushing up rents, which are up by more than 20% since 2021, a faster rise than for all commercial property. Upgrading to AI-capable servers won’t be cheap, either. Counterpoint Research, another analysis firm, estimates an AI server is between ten and 30 times the price of a general-purpose one. The hyperscalers are buying up AI chips from manufacturers they already work with, such as Nvidia, leaving little for other buyers.The cloud giants are not standing still in other ways. In order to get closer to clients and cut jitter, they are building data centres in new places such as Saudi Arabia, South Africa and Thailand. AWS is selling prefabricated data centres not unlike the micro ones from Vertiv or Schneider Electric. The software arm of Toyota, a Japanese carmaker, is using AWS’s fridge-size Outpost prefabs in America. The Pentagon has opted for larger AWS kit, the size of a shipping container. The hyperscalers’ AI prowess is likely to attract some industrial custom, too. Even so, believes Arun Shenoy of Serverfarm, which works with both hyperscalers and data users, many large firms will think twice before they stick their heads completely in the cloud. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

The highest private terrace in Manhattan belongs to an algorithmic-trading company called Hudson River Trading. Its offices, spread across several floors near the top of Three World Trade Centre, are more theme park than workplace: a games room, gym, dining areas, stupefying views, happy hours and drawers unexpectedly stuffed full of sweets to give employees a surprise. You come away wishing you had concentrated more in maths at school.You also come away wondering about one of the silver linings of the post-pandemic office for bosses who dislike the idea of home-working. If fewer people are coming in on any one day, at least they don’t need as much space: they can find unassigned desks and the firm can save some money. The trouble is that hot-desking flies in the face of two things, one deeply embedded in the human psyche and the other a direct consequence of the pandemic.The first is territoriality. This is a word with negative connotations. It conjures up someone who sees information as something to be hoarded and feedback as an intrusion—the kind of person who buys a padlock for the items they store in the communal fridge. But territoriality is also natural. Just as it is hard not to bridle a little at the unsolicited observations of co-workers, so people like having a space to call their own.Personalised territory seems to be correlated with a sense of belonging. A study in the 1970s looked at the longevity of first-year college students who shared rooms. People who lasted the academic year had covered twice as much space above their beds with personal decorations than the dropouts had. In the office, too, workers claim territory with everything from photographs and files to crumbs and crumpled tissues.A pre-pandemic study of behaviour among hot-deskers, conducted by Alison Hirst of Anglia Ruskin University in Britain, divided people into “settlers” and “vagrants”. Settlers, who often arrived earlier or were more senior, tried to claim the same desk each day, in order to have a space and a set of neighbours they knew and liked. Vagrants, who tended to be later arrivals, had to waste time searching for a desk. Sitting in a spot normally taken by someone else was fraught with social discomfort.Firms can avoid some of this time-wasting by having people book desks—“hotelling”, in the dreadful phrase. And they can avoid stratification by requiring people to clear their spaces each night. Under this model, people do have their own territory but instead of a desk, it is a locker. Think “High School Musical”, but without the music or the highs.If territoriality is the deep-seated problem with hot-desking, then the more recent one stems from the pandemic. Employers need to think harder about why people should do the commute at all. There is no single answer. The office is the place to do the sort of collaborative work with colleagues that requires physical proximity. It is a way to spread company culture as well as covid. Less intuitively, a survey of American workers in 2022 by Gensler, a firm of architects, found that the most common reason to come in was to focus on work. But the common theme is that the office is no longer the default; it has to be appealing.That sits uncomfortably with a cut-price version of hot-desking, in which office footprints shrink and people grab a spot wherever they can. Cohesion suffers if teammates are dispersed randomly through a building; collaboration is harder if there aren’t enough meeting rooms to accommodate demand. The company culture may be absorbed, but only in the sense that everyone feels hard done by. And focused work is easier if you aren’t suddenly plonked next to someone who sounds like Beaker from “The Muppets”.For penny-pinchers, the unpalatable conclusion is that hot-desking works best when people have lots of space. In Cisco’s newly refitted offices in Manhattan, for instance, no one has an assigned desk (bosses included) but there are oodles of options and people are encouraged to move about repeatedly during the day. The office is everyone’s territory.Back at Hudson River Trading in New York, employees all have their own desks, but also licence to move around as they wish. Space feels abundant: there are roughly as many meeting-room spots on its latest, post-pandemic floor as there are assigned seats. You can use hot-desking to save money or you can use it to create flexibility and a sense of belonging. It is hard to do both. ■Read more from Bartleby, our columnist on management and work:What if Hollywood blockbusters were remade as workplace dramas? (Sep 28th)Why it is a bad idea for managers to attempt to engineer office friendships (Sep 21st)Who is the most important person in your company? (Sep 14th)Also: How the Bartleby column got its name More

BILL ACKMAN is hunting for deals. The boss of Pershing Square, a hedge fund, is on the lookout for “large private growth companies” which are seeking to raise $1.5bn or more, but are wary of the “risks and expenses” of a conventional initial public offering (IPO). His solution: a special-purpose acquisition-rights company, or SPARC. On September 29th regulators approved the novel investment vehicle, which Mr Ackman bills as a fairer, cheaper alternative to its tainted cousin, the special-purpose acquisition company (SPAC), which enjoyed a boom in 2021.There is much to like about this financial innovation. First, unlike SPACs, which raise a pot of money via an IPO and then scour the market for potential targets, the SPARC will find a merger candidate first. Helpfully, Mr Ackman has more time to make the deal—ten years, compared with two years for SPACs. He has also lined up potential investors: Pershing Square has granted SPARC rights at no cost to shareholders of its previously disbanded SPAC. Pershing Square itself can retain up to 5% of the new company.Once a deal is agreed with a target firm, the SPARC’s shares can start trading on an exchange. The SPARC rights-holders can then purchase stock at a price agreed in the deal within four weeks of the stockmarket debut. If an investor chooses not to exercise the rights, they expire. By pledging to chip in between $250m and $3.5bn as anchor investor, Pershing Square is aligning its incentives with those of its investors.For the firm merging with his SPARC, Mr Ackman promises certainty and lower fees. In an old-school IPO the amount of money a company raises is not determined until its shares are priced just ahead of its trading debut. By contrast, a business merging with a SPARC knows exactly how much capital it will raise: it is the price at which it will combine with the already listed SPARC. Moreover, a SPARC does not have to pay bankers expensive fees to find investors and underwrite the share issue. SPACs offer their merger targets the same certainty, but at a high cost to anyone other than early backers (or “promoters”), who receive preferential warrants (the right to buy shares at a set price later).image: The EconomistFor subsequent offerings Mr Ackman hopes to “roll over” the investors in the first SPARC, creating a pool of capital without the overhead of a finder’s fee. His pitch also appeals to two other groups. The first is startup founders who grumble about the hefty fees charged by bankers to shepherd a public listing. They also harbour suspicions that banks deliberately underprice offerings, at their companies’ expense, to get an opening-day “pop” for favoured clients. The second group is retail investors keen to get in on IPO action that banks typically reserve for those same clients.SPACs got a bad name because of a poor stockmarket record (see chart) and a few spectacular implosions. Many failed to find a merger target in time and had to return cash to shareholders. Whether Mr Ackman’s vehicle can avoid the same fate will depend on whether he really can keep costs down and find an attractively priced target. Many tech startups raised funds at high valuations before interest rates shot up. Few will relish a public listing that would raise capital at a more modest valuation. The SPARC may be a bright idea. But it is not a sure-fire one. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

THOSE WHO want to gauge India’s economic prospects often look to businesses that erect homes, produce consumer staples, manufacture inexpensive vehicles and provide basic services like electricity or discretionary ones like travel. Each of these sectors is currently sending mixed messages—enough good news to justify hope, but with caveats that counsel caution. One industry, though, is sending an unequivocal signal. And a loud one.Since April the share price of Premier Explosives has more than doubled. That of a larger maker of things that go boom, Solar Industries, has quadrupled since 2021. Other dynamite producers are enjoying a similar streak. Besides being a gift to pun-lovers, this explosive growth reflects changes in an industry well placed to capture everything that is going right for India’s economy.image: The EconomistIndia began producing explosives in the 1940s, around the time it gained independence from Britain. Most of the engineers and technology came from Imperial Chemical Industries, a British concern. Coal India, a state-owned miner at the heart of both domestic energy production and industrial development, has long been the biggest customer. Because its mines are spread throughout India, and because transporting old types of explosive over long distances used to be best avoided, separate companies were created to serve Coal India’s individual sites. That geographical dispersion was preserved as other customers emerged, leading to a fragmented market. Today India boasts 36 large explosives producers.For many years business was merely good. The rosier outlook of late stems from the confluence of several factors. Demand from Coal India, which is tasked with feeding the country’s growing energy needs, remains robust. This has been supplemented by a boom in the domestic construction industry. Explosives are used in the mining of limestone, which is needed to make cement and to produce steel. They are also indispensable in the vast land clearance for new roads and tunnels that is happening as part of the central government’s infrastructure ambitions.Lastly, explosives-makers are benefiting from increased defence spending, in India and elsewhere. Business Line, a newspaper, has reported that Munitions India, created in a reorganisation of state-controlled companies in 2021 to manufacture ammunition, bombs and rockets, as well as explosives, is booked up with orders until March 2025. Buyers include seven companies in Europe, four in Africa and two in the Middle East.In the past such exports were constrained by worries about transporting things that might blow up. The basic raw materials to produce explosives, such as various sorts of nitrates, were also well understood and widely available. Modern explosives are considerably more stable, which makes them less hazardous to move around, even as safety and environmental concerns are putting many countries off domestic production. Until recently it was China, the other big explosives manufacturer, that got a lot of the outsourced business. As geopolitical tensions mount, many customers, especially in the West, are seeking alternatives to Chinese suppliers. Excitement over firms like Premier and Solar will not be fizzling out soon. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

These are anxious times for the bosses of Western multinational companies. After decades of being wooed by governments the world over, many now live with an ever-present fear of being caught in the crossfire of fraying geopolitical relations. An increasingly assertive China has now taken to slapping exit bans on the executives of foreign firms. The latest example came on September 29th, when a Hong Kong-based restructuring consultant at Kroll, an American advisory firm, was reported to have been barred from leaving the mainland.Doing business in China is far from the only source of worry. American chief executives are contending with the regulatory zeal of Brussels just as their European counterparts are dealing with a more interventionist America. Both groups are trying to tap the cash gushers of the Gulf without appearing to cosy up to its authoritarian rulers. A diplomatic spat between Canada and India over the alleged assassination of a Sikh activist on Canadian soil will have sent shivers down the spines of many Western business grandees. Trouble, it seems, is everywhere.Luckily, an industry of consiglieri is at hand to help multinational firms traverse these treacherous waters. Although geopolitical advisers have existed for decades, demand for their services is now soaring, thanks to the growing complexity of doing business abroad. Bankers, lawyers and management consultants are pouring into the field. What was once a niche and secretive business is entering the mainstream of professional services.Retiring statesmen have long sought to cash in on their knowledge and foreign connections. In 1982 Henry Kissinger, previously America’s secretary of state, set up Kissinger Associates to that end. Later administrations produced their own equivalents, from McLarty Associates and Albright Stonebridge Group to WestExec Advisors and plenty more. All are packed full of former government luminaries.Lee Feinstein, a one-time ambassador who now works for McLarty, notes that many clients value advice from those who have been “in the room where it happens”. The exact services these firms offer are opaque and vary between them, but generally range from gauging the policy intentions of foreign governments to helping open doors for companies that want to sell or manufacture in a new market.Spooky action at a distanceSuch “formers” are not the only source of specialist counsel available to multinationals. Geopolitical consultancies like Eurasia Group and Oxford Analytica rely less on retired bigwigs and more on professional analysts who monitor global affairs and provide briefings to clients. (EIU, The Economist’s sister company, competes in this business.) Another flavour of service is provided by Hakluyt, a firm founded in 1995 by former British spooks. It sources intelligence from a global network of associates with connections in high places, and offers clients the inside scoop on anything from a regulator’s opinion of a possible takeover to the probity of a potential supplier. Geopolitics now permeates nearly everything it does, says Varun Chandra, the firm’s managing partner. (The chairman of Hakluyt is also chairman of The Economist’s parent company.)In recent years the breadth of advice being sought has widened. Amy Celico of Albright Stonebridge notes that the focus of her firm’s work has broadened from helping companies expand overseas to also helping them defend themselves against a deteriorating geopolitical climate. An increasing number of multinationals are finding themselves used as pawns in global politics, rarely to their advantage. In May China banned memory chips made by Micron, an American company, from being used in the country’s critical infrastructure. The firm generates a quarter of its sales in China, half of which it now expects to lose. Advisers can help businesses pre-empt such blows, and in some cases lobby against them.The focus of geopolitical advice is expanding beyond emerging markets, too. Mr Chandra observes that America’s technology giants are increasingly coming to Hakluyt for assistance in navigating Brussels. An executive at another firm notes that America’s Inflation Reduction Act, with perhaps $1trn in handouts for climate-friendly investments, has brought many clients to its doors.The upshot has been a surge in growth. Most advisers keep their revenue figures closely guarded. Hakluyt, which does not, has doubled its sales in the past four years, according to Mr Chandra. Younger entrants are also gaining steam. Macro Advisory Partners, founded a decade ago, has more than doubled the size of its team since 2018, according to Nader Mousavizadeh, its chief executive.Larger corporate advisers, eyeing an opportunity, have muscled in. McKinsey, a management consultancy, has launched a geopolitical-risk practice. Ziad Haider, who co-leads it, says that demand from clients has rocketed. EY, a professional-services giant, has set up a similar service.Dentons, a multinational law firm, helped launch Dentons Global Advisors (DGA), a stand-alone advisory firm that acquired Albright Stonebridge in 2021. Ed Reilly, DGA’s boss, explains that its services have a “natural adjacency” to the practice of law. Lazard, an investment bank, is also building a geopolitical advisory business. Teddy Bunzel, who oversees the effort, says that geopolitical questions have become central to much of Lazard’s conventional advisory work. In October last year the bank hired Jami Miscik, formerly the chief of Kissinger Associates.Such moves are happening thick and fast as firms in the industry race to nab talent. The supply of good geopolitical advice is constrained, argues Ms Miscik. Michèle Flournoy, managing partner of WestExec, says that her line of work “is all about the people, and those people can’t be manufactured”. But they can be acquired. After the takeover of Albright Stonebridge by DGA, McLarty and WestExec were bought by, respectively, Ankura and Teneo, two management consultancies. Eurasia now has a partnership with KPMG, a professional-services heavyweight.After years of trimming their public affairs departments, many multinational companies have been busily hiring geopolitical experts, too. Mr Reilly says such teams are fast becoming DGA’s biggest competitors. Eventually, that could force the fragmented industry of advisers to consolidate. For now, it reinforces the growing realisation among multinationals’ bosses that global politics will shape their success in the years ahead. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

WHEN A BEAMING Mark Zuckerberg took the stage in Menlo Park on September 27th to announce a new array of Meta products, the Facebook supremo may have buried the lead. He began talking about Quest 3, Meta’s virtual-reality (VR) headset, which is understandable considering that his obsession with the metaverse is now inscribed in his company’s identity. Techies, though, were more excited by what came later: an announcement that Meta, in combination with Ray-Ban, would soon launch smart glasses incorporating an artificial-intelligence (AI) virtual assistant. The specs will be able to see and hear, as well as answer their wearers’ questions. With luck, they will not hallucinate.You can be dismissive of smart glasses. They have been hyped before. But lending Meta credibility this time is the fact that the same week OpenAI, the generative-AI pioneer, announced that its hit chatbot, ChatGPT, can now see, hear and speak, besides conversing by text. Moreover, it emerged that OpenAI was in talks with Sir Jony Ive, Apple’s former designer, to create a new gadget for the AI era. What form it will take is still unclear. But if the idea is to build a new consumer-electronics device better suited to the back-and-forth of seeing, talking and listening AIs, there is a fair chance it will no longer be reliant on the touchscreen.The smartphone has had a good innings. Yet you only need to talk to Sky, one of ChatGPT’s new audio avatars, to feel the joy of freeing yourself from its tyranny. Your columnist got a taste when he asked Sky how she thought screens might eventually be replaced: Glasses? “Absolutely!” she enthused, “especially those equipped with augmented reality [AR] and AI”. Asked whether this would be a good thing, she recommended two books that explore the enormous impact that screens have had on modern life: “The Shallows: How the Internet is Changing the Way We Think, Read and Remember” by Nicholas Carr, an American writer, and “Screened out” by Jean Baudrillard, the late French philosopher. Then, when further prompted, she summarised each in crisp, insightful language with barely a moment’s hesitation. It wasn’t exactly Scarlett Johansson in “Her”. But it felt like having a Stanford University intellectual murmuring in your ear.This is all rather refreshing. Just as the year-long excitement over “foundational” models and other mind-boggling bits of AI infrastructure has begun to fade, along comes the chance that gen AI, to use the industry shorthand, will unleash an onslaught of new consumer technology. Tech pundits are debating the best “form factor” for the chatbot era. Ben Thompson of Stratechery, a blog and podcast, puts it in epochal terms: “There is a hardware breakthrough waiting to happen just like the internet created the conditions for the smartphone breakthrough to happen.” The ability to talk and listen to chatbots makes Meta’s bet on AR glasses and VR headsets “drastically more compelling”, he writes.Mr Zuckerberg was early to see this coming. He has ploughed a fortune into VR and AR despite misgivings from investors. He remains excited by the metaverse. This was clear from a remote interview he recently took part in with Lex Fridman, a podcaster, which used VR tools to make their virtual faces so lifelike they felt as if they were in the same room together. (As Mr Fridman quipped, it could reproduce realistic facial movements even from two famously inexpressive people.) And yet gen AI has so dramatically accelerated the use case for smart glasses, Mr Zuckerberg told another interviewer, that there is now “no question” they will be the bigger of the two markets. He likens AR specs to mobile phones and VR headsets to desktops. In both cases he appears to hope they will transcend screens, which he says inhabit “a completely different plane from our physical lives”.The two-dimensional screen is not headed for the scrap heap yet. Incumbent technologies are always hard to dislodge. Meta’s mobile apps such as WhatsApp, Facebook and Instagram, with their billions of users, still dwarf AIs like ChatGPT in terms of monthly visits, and they remain dependent on smartphones. As Mark Shmulik of Bernstein, an investment firm, notes, the smartphone era has never stopped people from using PCs. Moreover, it will not be clear until people start buying the smart glasses from the shops how compelling a product they are.The business case for the all-seeing, all-hearing chatbots will also take time to emerge. OpenAI charges $20 a month for access to its family of talking avatars; Meta’s AI-infused smart glasses will start at $299. Yet developing them is bound to be lossmaking at first. If there ever is a case for monetising them via advertisements or virtual shopping, that will probably take years. Meta’s modus operandi, after all, is to launch a consumer product, scale it up and start making money from it only if it is adopted by the masses.In the meantime, obvious safety concerns must be tackled. Consumer technology powered by AI is likely to be more immersive than social media, potentially making it even more isolating for some, or triggering unhealthy attachments. Mr Zuckerberg argues that AR and VR devices could help bring people together. But Mr Shmulik says investors will not want Meta to move too fast. “The last thing they need is another negative PR event where they are back in the cross hairs of regulators,” he says.Glasses half full For now Mr Zuckerberg, who this time last year was fighting fires on several fronts, looks prescient. That is largely thanks to gen AI. Meta’s foundational model, LLama 2, has been an open-source hit and is underpinning the firm’s consumer-tech ambitions. New devices such as smart glasses and headsets could eventually free Facebook and others from their dependence on the iPhone, where Apple has hindered their ability to track data, hurting Meta’s ad business. In a backhanded compliment to Mr Zuckerberg, Apple is launching its own high-end AR/VR headset. The iPhone-maker, too, may be sensing the twilight of the screen era. ■Read more from Schumpeter, our columnist on global business:Customer service is getting worse—and so are customers (Sep 28th)What Arm and Instacart say about the coming IPO wave (Sep 21st)The Mittelstand will redeem German innovation (Sep 14th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More