Would Finland be better off without euro?

New Year’s Day is always special, but for Finland in 2002, the day was very, very special. In the afternoon, I walked across Esplanade Park in Helsinki heading to a restaurant and stopped by on an ATM to withdraw money.

The cash machine did not give me Finnish marks, as it would have done the day before, but pumped out euro notes.

My home country had a new currency. I was holding my first euros in my hands.

euro markka

Euro had come into existence virtually on January 1, 1999, and now, two years later, notes and coins started to circulate. Eleven EU countries took part in common currency’s first phase, and Finland was one of them – alone in Northern Europe.

I was an undergraduate student and did not have much on my bank account but I was thrilled about the euro. I no longer needed to exchange money when travelling to Central Europe. I bemoaned euro hadn’t been there already year before when I spent an exchange semester in a journalism school in Brussels.

I thought my Swedish and Danish friends were so unlucky not to be part of the joy. Their countrymen had rejected euro membership in referendums and they still had their boring crones.

I considered very carefully how much Finnish marks I would save for the future as a reminder of the “old times”. People said that some day marks could be considered rare items of collection. Would I want to give marks to my children some day?

The dual circulation period lasted two months, and at the end of February 2002, I put some mark notes and coins to an envelope. Shops no longer accepted them. I solemnly thought they were for the future generations.

 

I couldn’t have guessed that just 15 years later there would be serious talks about getting marks back as our currency, as soon as possible.

No one is celebrating euro anymore. It is now the common currency in 19 out of 28 EU countries and used by nearly 340 million people every day – and it has become a synonym of a crisis.

In 2015, Finland’s economy is in recession nearly for the fourth consecutive year, and many blame euro.

The former Minister of Foreign Affairs, Paavo Väyrynen, is one of the loudest critics. Last summer the stubborn old statesman started collecting signatures for a petition to get Finland’s departure of euro membership before the Finnish parliament.

I have no idea where my envelope of old Finnish marks has gotten. Should I start looking for it?

Could I possibly use them one day?

 

Paavo Väyrynen, at present a member of the European parliament, says that with the petition he is doing what is necessary. With its own currency, Finland could reign its own monetary policy and devalue.

Finns remember what devaluation means, as it solved the country’s most severe peacetime crisis in 1993. Economy overheated largely due to a change in the banking laws in 1986.

Eventually Finland let mark float and adjustment mechanisms worked. More competitive exchange rates enabled the country sell its products at a cheaper price.

Väyrynen was elected into Finnish parliament for the first time in 1970, and he’s served in eight cabinet of ministers of Finland. He’s now got over 50,000 signatures on the petition which means Finnish parliament might to have a look at the issue. Väyrynen wants the parliament to debate whether the country should exit eurozone and to enact a law that would make “Fixit” – Finland’s euro exit – possible.

In his opinion, the elite of the country cannot admit they made a mistake.

”Elite does not want this topic even to be discussed,” Väyrynen wrote me.

I asked him why did he decide to collect signatures – and what are his party colleagues thinking of it. Väyrynen’s party Keskusta – The Center – is Finland’s prime minister party at the very moment, and Prime Minister Juha Sipilä is not criticizing euro at all – on the contrary.

Väyrynen answered me saying he is sure his petition will proceed into the parliament and as he no longer has official status in Finland he feels the petition is justified as a method of exercise of power.

Väyrynen has objected euro and Finland entering the eurozone from the beginning. His party was eurosceptic but as soon as it won the election last spring, the ones in power have committed themselves to the common currency. The official stand is that euro brings “stability”.

Väyrynen says that half of his party does not believe in that but the others remain silent.

 

On December 10, 2015, the governor of the Bank of Finland, Erkki Liikanen, held a press conference about the economic situation of Finland. I watched it online (here: http://cloud.magneetto.com/suomenpankki/2015_1210_liikanen/angular). It was a very monotonous talk for which Liikanen had given a very dry and long title. The translation into English would be something like: “About economics, monetary policy and financial stability in Finland. Ten year’s economic development 2007-2017 from five different perspectives.”

I was anyway curious to find out what Liikanen’s five perspectives were, as other experts seemed to have just one viewpoint. The economy of Finland is miserable, no matter where you look at it.

In the third quarter of this year, Finland’s economy contracted by 0.6 percent. Odds are that this year will end up being the country’s fourth consecutive year of recession.

There are – for now – some nice numbers and qualifications related to Finnish economy: rating AAA- of sovereign debt. Quite moderate 62 percent government debt-to-GDP ratio. Ranking among the top ten most competitive economies in the world by the World Economic Forum.

But these don’t seem to help (and the last one, in my opinion, has to be a miscalculation).

Finland’s debt-to-GDP ratio is now nine percent bigger than in 2007. The Bank of Finland estimates it to grow from present 62 percent to 68 percent by 2017.

Between 2008 and 2014 Finnish exports shrunk by 12 percent.

This is why country’s Prime Minister Sipilä’s goal is to bring about internal devaluation as quickly as possible. The former businessman has been in power since the spring 2015 and has shaken the Finnish political culture. He is ruling like a CEO, not like a negotiator. He is determined to get the labor costs down in spite of the trade unions’ strong objection.

He believes in austerity, as does the governor of the Bank of Finland Erkki Liikanen.

 

In the press conference Liikanen offered five familiar explanations to Finland’s state, no fresh viewpoints.

Finland’s overall production is in a downturn because both productivity and the amount of workers are decreasing.

The age structure of Finland is a disaster. According to the Bank of Finland’s estimate, in 2017, there will be 200,000 more pensioners, 50,000 more unemployed, 5,000 more under 15-year-olds and 50,000 less workers than in 2007.

In the third quarter of 2015, the value of exports was 19 percent smaller than in the second quarter of 2008, which was the best economic quarter of 2000s in Finland. ”No other developed country has seen this big decline in exports during these years,” Liikanen said and reminded us that Finland’s eastern neighbor Russia, the main export market, is in a ”deteriorating economic state”.

Bank of Finland estimates that between 2007 and 2017 the debt to GDP ratio will raise from 53 percent to 68 percent. The same time the deficit in the whole eurozone is about to decrease by two percent in the average.

Because pensioners and unemployed now bring more costs, the government of Finland has less to spend on other areas. In 2007, money spent on pensions was 29 percent of country’s budget. In 2017, it will be 32 percent.

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”Actions are necessary,” Liikanen said in the end, not surprisingly.

Necessary actions, according to Liikanen, include improving cost competitiveness and restructuring the pension system and social security system. People should a have more active work years in their lives, he continued.

”Electronic and forest industry are highly cost competitive areas of business.”

Electronic industry have suffered from Nokia’s collapse. It used to be the biggest employer of Finland and played a major role in exports. Forest industry is still the basis of Finland’s exports. But:

”Salaries have risen more than in the eurozone on average, and at the same time, Finnish companies’ ability to pay salaries have gotten worse. Companies must be able to offer their products overseas with competitive prices,” Liikanen said in his laconic style.

He added that Finland needs less regulation and more competition. He undoubtedly meant that trade unions have too much much power. Finland is ranked 103rd out of 144 countries for labor flexibility in 2015 by the World Economic Forum.

”When there are new entrepreneurs, there is more competition and thus more innovations,” Liikanen said.

 

As the Governor of the Bank of Finland Liikanen is also a member of the Governing Council of the European Central Bank and a Governor of the International Monetary Fund for Finland.

He has strong ties to European Union’s institutions. In 1990, he became the first Finnish ambassador to the European Union and in 1994 he became the first Finnish Member of the European Commission. He was Commissioner for Budget, Personnel and Administration.

I wouldn’t expect him to critisize euro. But I would have expected him to talk more about ECB:s monetary policy.

All he said was: ”Monetary policy is already supporting the recovery of national economics but as the interest rates are low, we must take care that negative side effects do not occur. So macroeconomical stability policy is needed.”

Liikanen pointed out that statistics show that Finland has used more mechanisms of finance policy than any other country in eurozone to help its’ economy to recover.

He rejected stimulation by saying:” Because Finland’s problems lie in exports, stimulation is not an answer. The biggest losses are in the industry, whereas the service sector has grown. This is why raising the internal demand by stimulus is not a solution. However, public investments that are likely to accelerate private investments are to be implemented.”

Finland’s largest sector of the economy is services at 65.7 percent. Manufacturing and refining together make up 31.4 percent. Primary production is 2.9 percent.

 

Journalist Simon Nixon sounded just like the Finnish government on November 25, 2015, when he wrote on Wall Street Journal that “Finland’s Problem Isn’t the Euro”.

”It is easy to exaggerate the role devaluation played in the British and Swedish recoveries”, Nixon wrote.

Sweden has cut its public spending from over 60 percent of GDP in the mid-1990s to just over 50 percent now. Finland’s public spending is at present 59 percent of GDP.

Finland’s working-age population economically active is five percentage points below that in Sweden — “a serious problem for a country whose workforce is already shrinking as a result of having the worst demographic profile in the EU,” Nixon compared.

He reminded his readers that ”two of the fastest-growing economies in the EU now are Ireland and Spain, both of which are in the eurozone.”

And that Finland has benefited from unprecedentedly low funding costs since the start of the euro crisis. ”That reflects Finland’s high levels of fiscal credibility, based on its low debt and deficits and its commitment to complying with the eurozone’s fiscal rules.”

Helena Yli-Renko, Assistant Professor of Clinical Entrepreneurship at University of California, also emphasizes the positive effects euro has had. Common currency has helped Finnish companies to grow global, she said to me. ”Common currency has been a way of simplifying processes.”

 

Opinions about euro are many and mixed so I asked even more of them.

Unto Hämäläinen is eminent political commentator in Finland and senior editor of the leading newspaper Helsingin Sanomat. He pointed out that, first of all, Paavo Väyrynen has revenge going on with his petition.

Väyrynen is bitter of not getting minister’s post after this year’s elections, after which he decided to stay in The European Parliament and get back at the party’s leader, Prime Minister Sipilä. Väyrynen is an attention seeker, Hämäläinen said.

Hämäläinen in convinced that Fixit won’t happen and is not even discussed about because the two parties that were originally against euro are now the two ruling parties of Finland. In Finnish parliament, there is no party that would support Fixit.

Another journalist, prominent economic writer Paavo J. Teittinen says that he believes Finland would be better off without euro. He himself supports Fixit, but he does not believe mark will ever come back. In Teittinen’s opinion, it’s ridiculous that Finnish politicians blame other countries for not following the euro regulations because the biggest problem in euro is the regulations themselves. Currency it’s not planned well at all.

Euro was just a mission of peace in Europe.

It allowed Finland to position itself in the core of Europe and away from the unpredictable Russia.

Ove the years the ones who have been against euro are the ”foolish conservatives” or the ”provincialists”. The populist right-wing party Perussuomalaiset had the departure of euro in their agenda – until they became a governing party.

Many others are just unrationally attached to euro.

 

 

Teittinen hopes that the possibility of the exit would anyway be studied thoroughly and discussed seriously.

We do not want to be in a situation where we face more troubles and ask ourselves silently if they are due to a malfunctioning currency.

I agree.

I will not climb to the attic to look for my envelope full of Finnish marks. Not yet.

 

Sources also: The Wall Street Journal

Bank of Finland

Helsingin Sanomat

The World Economic Forum.

Obesity and Socioeconomic Status

It’s lunch time in Westlake Elementary school in Mississippi, the fattest state in the fattest country in the Western world. Uniformed lunch ladies stand ready behind the counter. Elementary students line up with trays in hand. Yes to chocolate milk, yes to chicken nuggets, yes to cheese fries, yes to orange jelly, no to salad. Bowls of iceberg lettuce and cherry tomatoes sit rim to rim, rejected.

Persuading children to eat vegetables is hardly a new struggle, nor would it seem to rank high on the list of world priorities. In an age of abundance, individuals have the luxury of eating what they like. Yet the U.S., for all its libertarian ethos, is now worrying about how its citizens eat and how much exercise they do. But it is no surprise, as it has become an issue of national concern.

The statistics are grim: Roughly two out of three U.S. Adults are overweight. This is defined as having a body mass index (BMI) of 25 or more, which for a man standing 5’9’’ means a weight of 170 pounds or more. Alarmingly, 36% of adults and 17% of children are not just overweight but obese with a BMI of at least 30, meaning they weigh 200 pounds or more at the same height. If current trends continue, by 2030 nearly half of American adults could be obese.

Americans may be shocked by these numbers, but for the rest of the world, they fit the stereotype. Burgers, sodas and fried foods are considered as American as the Stars and Stripes. But there is a glimmer of good news. After two decades of dramatic growth, childhood obesity rates are showing signs of leveling off. Government researchers at Proceedings of National Academy of Sciences (PNAS) have even reported slight declines among certain subgroups (such as young children and girls), leading some experts to speculate that the epidemic may have reached its peak.

But this turn around applies to some kids more than others. A closer look at the data indicates that this average decline doesn’t tell the whole story.

The researchers looked at adolescent obesity (an important predictor of adult obesity) by analyzing two large health surveys done by the NHANES and NSCH. While they confirmed that the obesity rate among adolescents is no longer climbing — after it “more than doubled over the past three decades” — this did not hold true across different socioeconomic groups.

Obesity is decreasing amongst adolescents who come from well-educated families, but it has continued to increase in poor teens. Looking at the obesity rate overall, this reads as a plateau.

It is unfair to aggregate trends in groups that are so different, the reality of the situation becomes unclear and misleading.

For adolescents whose parents have at least a college degree (black dots), obesity is on the decline. But for those whose parents have no more than a high school diploma (red dots), obesity rates are still rising — and the gap seems to be getting larger. (The short lines above and below the dots show the possible margin of error.)

Why are the rates of obesity so different among members of different socioeconomic groups, to the point where they are actually trending in opposite directions? The answer is more complicated than it might seem.

Exercise

A difference in exercise habits, not just eating habits, has been driving the obesity gap in children and adolescents. Take a look at the physical activity chart, which seem to mirror the obesity rate charts above:

On the left, NHANES, counts children as active in the if they had at least 10 minutes of physical activity in the past 30 days, an alarmingly low standard. On the right, NSCH counts children as “active” if they had at least 20 minutes of physical activity in the past seven days.

The disparity in rates of physical activity increased sharply in 2010 just like the disparity in obesity rates.

While the proportion of high socioeconomic-status adolescents has stayed about the same in recent years (most recently 94.7%), the latest NHANES counted just 82.1% of low socioeconomic-status adolescents as active — down from 90% in 2003.

Though there isn’t an exact reason for what’s causing the different levels of physical activity, a potential reason might be due to money and opportunities. Adolescents from poorer families are less likely to participate in school sports, which can cost money, and are more likely to attend schools that have had to reduce or eliminate their sports programs.

Parks and recreational facilities are funded by tax dollars collected within the surrounding area. In wealthier neighborhoods, tax revenue is higher and residents of the area will insist on these establishments. As a consequence, low income neighborhoods do not have as many parks or space to exercise. Though this is not the case everywhere, it is the case for many. The few opportunities combined with the safety of a neighborhood can affect whether kids are able or allowed to run outside or use parks or other recreational facilities.

A lead researcher at Xiaozhong Wen, a postdoctoral fellow at Harvard Medical School, shares interesting theories to the dramatic increase of obesity rates in adolescents whose family incomes are the below the poverty line. He draws his conclusions from distinguishing families based on needs of medicaid. “The health insurance is a proxy, or indicator, for some underlying… reasons for this disparity,” he says. “I think it might be the family environment, how the parents feed the children, how do they control or monitor the child’s eating or physical activity.”

Compared to more affluent children, Wen says, kids on Medicaid may be less likely to live in neighborhoods where they can play and exercise safely outdoors, and their caretakers are less likely to have access to supermarkets selling fresh, healthy foods.

Upper and middle-class adolescents are also four times as likely as lower class adolescents to have a regular doctor, so they may be more exposed to the importance of regular exercise. More contact with doctors, safer neighborhoods, more green space and better school programs may be part of the solution to encourage kids and adolescents to exercise. They doesn’t have to be competing in state level sports, healthy changes like a walk to the grocery store or an active video game can lead to positive results.

Parental Guidance

Parents of lower income families that lack education and job mobility are likely to work in low wage jobs with long hours. They have less time to be physically active and to encourage a healthy lifestyle for their kids from a young age. And when time and money are tight, it is cheaper to rely on fast-food meals than to buy and prepare fresh food.

In recent decades gender equality has improved and the work force is accepting more women. However, this improvement may have resulted in the growing percent overweight kids. A new study released in the Journal Child Development finds, “For each additional five-month period his or her mother is employed, a child of average height can be expected to gain 1 extra pound over and above normal growth” In addition, sixth graders with working mothers were found to be six times more likely than those with stay-at-home moms to be overweight.

Mothers who have jobs don’t directly cause weight problems in their children, but busy families may accelerate weight gain by relying too much on cheap convenient fast food rather than healthy meals. Food and lifestyle choices are definitely the direct cause of obesity, but it can also occur against a backdrop of physical and psychological challenges that can make weight watching a low priority.

In a recent study, published in Pediatrics, found that preschool-age girls in big cities were more likely to be obese if they had undergone stressful experiences such as witnessing household violence, having a mother who was depressed or abusing alcohol or drugs, or living in a tenuous housing situation.

Growing up in a unstable life with violence, moving around a lot or depression certainly means obesity goes down the rank of importance. These factors, however, were not associated with a higher obesity rate in preschool boys, which highlights the difficulty of making sweeping conclusions about obesity and socioeconomic status.

Children from low income families are hardly a homogenous population, and the relationship between obesity and family income varies wider by gender, age, ethnicity and geographic area.

A 2006 study in the American Journal of Clinical Nutrition that looked at several decades of national data found that obesity was strongly tied to socioeconomic status only among white girls. Mexican-American and African-American girls showed similar trends, yet they were still more likely to be obese compared to girls from white families of similar socioeconomic status.

Beauty is in the eye of the beholder

Regardless of age, race and socioeconomic class, girls all around the world strive to be beautiful. Whether it is to achieve the perfect skin tone, the perfect weight or the perfect hair color, many young females have the ability to improve their beauty if they tried hard enough.

The mean BMI of an African American women is 29.8 and mean Caucasian woman is 26.7. Interestingly enough there was no significant difference for BMI for men based on race. Though there is no research to explain this data, we are all quite familiar with the extremely thin standard of beauty immortalized by Barbie.

Sarah Constance from Irvine, Orange County, recalls a teenage memory. “Growing up in a primarily white and asian upper middle class suburb,I remember meeting up with other girls to get ready together before big dances. Each time we would all criticize our own bodies, and bemoan the fact that we weren’t measuring up to the ideal Victoria Secret model.”The girls always talked about what they ate and how much of it, as if it was a contest and the winner was whoever ate the least.

Sarah was surprised when a male from of Mexican heritage told her how sexy it was for girls to have “thick thighs”. A similar appreciation for a more voluptuous body type is also found in African-Americans. This could potentially relate to why Hispanic and African-American women are statically more likely to be obese, since those cultures do not equate such thinness with beauty and sex appeal.

The Cost of One Percent

The “New Compton” is a phrase that has fallen out of the mouths of Compton politicians for decades now. It promises safety and economic revitalization, it whispers hope into an area marked by blight.

It’s easy to single out the crack epidemic of the ’80s and the gang violence of the ’90s as causes for Compton’s economic woes. But whatever the problems in the past were, the economic trials of Compton’s present are exacerbated by something as simple and mundane as a credit rating.

Or rather, the lack thereof.

Because just as a credit rating has a profound effect on where a person can live — and how well — a city’s credit rating can dictate how a city governs itself and how well it can take care of its citizens.

[Read more…]

“Education is Not a Business”, or Is It?

U.S. college tuition is one of the world’s most expensive; yet, Chinese parents are willing to pay the bills for American higher education anyways. In 2014, Chinese students in American colleges and universities alone contributed $9.8 billion to the U.S. economy, according to U.S. Department of Commerce.

As China joins the World Trade Organization (WTO) in 2001, free trade with other countries of all kinds, including the trade of culture and education began to happen. As a result, University campuses in the United States have since accommodated triple times of total international students from China throughout the past ten yeas. Currently, students from China make up about 29 percent of total international students studying in the United States (WSJ). In the academic year of 2014/15, total number of students from China studying in the U.S. is 304,040, which is a 10.8% increase from previous year. Compared to ten years ago, when total Chinese students studying in the U.S. was around 62,582, the number today has more than tripled. Among all Chinese students currently studying in the US, or one year post-graduating from colleges, a majority of 41 percent are pursuing undergraduate degrees, 39.6 percent are graduate students, 5.3 percent are enrolled in other institutions such as private boarding high schools, and 14.2 percent are in the process of Optional Practical Training (OPT).

The growth in number of international students coming to the U.S. has created “significant positive economic impact” on the United States, commented the Open Doors Data. According to the U.S. Department of Commerce, “international students contributed more than $30.5 billion to the U.S. economy” (Open Doors Data).Most international students receive their funding for tuition and general daily expenses from their families overseas. Other than tuition, international students spend money on rent, cars, and daily expenses. For wealthy Chinese kids, expenses also include shopping for luxury goods, paying for vacations and other leisure expenses.

College tuition in the U.S. is not cheap. In fact, the US has one of the world’s most expensive higher education system in the world. On average, a private four-year institute costs from $45,000 to $50,210 per academic year. A public four-year institute, such as University of California—Los Angeles (UCLA) costs $12,753 for in-state students and $35, 631 for out-of-state students. Unlike most domestic students in the United States, for most international students, college tuition fee comes entirely out-of-pocket. American students have the option of applying for Federal student loans and pay back their tuition gradually after graduation; however, most international students are ineligible for financial aid or student loans, they have no other option than paying their bills all at once. About 64 percent of Chinese students cover 100 percent of their college education cost (Open Doors Data).

There is no surprise that Chinese families are willing to pay for these expensive tuition bills. As part of the Chinese cultural norm, Chinese parents have high expectations for their children. They expect their kids to succeed, which is usually judged by which schools their kids go to, which degrees their kids acquired, what type of jobs their kids do and how much money their kids are capable of making. Therefore, college education is viewed as the first stepping stone for success. Many Chinese families would rather save money to send their children abroad than making investments with their money. As China’s GDP soars after opening the gate for free trade, overall improving economic conditions in China allow more Chinese families to send their children overseas to receive higher education with higher quality.Additionally, because of China’s one-child policy, most college-age students are “only children” of their families; thus their parents, their grandparents might spoil him/her by granting financial support for luxurious lifestyle while studying abroad. The United States, known for its high quality in education, became one of the most popular destinations for studying abroad. 

Based on recent trends in leap of students coming from China, many people cannot help but wonder: are numbers of Chinese students in the U.S. booming since the 2000s because of their excellent academic performance or simply because they are profitable?

Chinese students applying to US colleges and universities with fake high school transcripts, fake recommendation letters is almost old news. Service agencies in China that assist students with their college applications charge students various amount of service fees, based on the number and rank of schools that students intend to apply to. The wave of a growing study-abroad population has created a rising new market for service agencies in China, where fraud is a norm.

The real problem is, once these students step into their admitted colleges and universities, their academic performance do not match with their application resume. In order that these students become capable of joining mainstream programs, some schools provide language courses for international students whose language fluency level has not met the mainstream class standards yet. Of course, these intense language courses are not free, a 15 week intensive english program usually cost $5395.

However, some Chinese students facing academic struggles opted for other tacks. Since the 2012/13 academic year, universities in the U.S. have expelled as many as 8,000 Chinese students in three years (Kutner, Newsweek). The most common reasons for suspension and expulsion is cheating, plagiarism, and low academic performance. “I became aware of some services that Chinese students pay for getting their essays written, getting their exams taken and so on”, says Nansong Huang, a professor teaching Chinese literature courses at USC, “I think these students are wasting their parents’ money.”

Throwing back to ten years ago, when few Chinese students came to study in the United States, much fewer suspension and expulsion cases have been reported. One reason might have been the lack of social exposure back then, another reason is that compared to Chinese students now, most students came to study with full scholarship or financial aids provided by universities ten years ago. The group of students from China on US university campuses today are no longer the 1 percent most talented, intelligent and hardworking students; instead, they are more likely to have wide ranges of interests, passion for American culture and more willing to join fraternities and sororities. Therefore the images of Chinese students studying in the U.S. today is entirely different from the “nerdy” Asian image before.

This is a result of American colleges and universities’ expansion on their international enrollment since 2000. Since the 2000s, American higher educational institutions have been raising tuition fees at the rate of 2.8 percent approximately. For example, USC’s tuition fee in 2005 was $44, 582 per year; today, USC’s tuition has reached $66,754 per year, an increase of almost 50 percent.

In American higher educational institutions, about 40 percent of institutional revenues for colleges and universities come from tuition, the rest consists of endowment and other income, state/local appropriations and federal appropriations. For domestic students, tuition is paid by Federal aid, non-federal aid and students themselves, among which Federal aid including loans, grants, tax benefits and work-study make up 55 percent (Department of the Treasury). For international students, tuition is mostly paid by themselves. This explains why US universities cannot resist the attraction of international students. 

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However, complains have been voiced by domestic students in the US, arguing that international students have “crowded local students out of their own state schools” (Stephens, Washington Monthly). “The university (USC) has admitted too many international students, in my opinion,” comments Professor Huang, “Resources at the university compared to the size of the student body is immensely inadequate. Sometimes professors have to argue with the university when assigned class schedules and classrooms, because no one wants to teach a Friday class.”

Some institutions such as UCLA are making new policies to restrict the number of out-of-state and international undergraduate students admitted each year, in order to create more opportunities for in-state students while preserving high student academic quality. “But the reality is”, says Professor Huang, “the university needs the money from international students, thus it is a difficult bargain.” “For many institutions who are looking to balance their budgets, increasing the number of students from countries where they’re willing to pay full tuition is a strategy”, says Michael Bastedo, director of the Center for the Study of Higher and Postsecondary Education at the University of Michigan (Kutner, Newsweek).

Professor Huang predicted that “as anti-corruption policies tighten up in China, there might be a decrease in the number of Chinese students overseas in the future.” Meanwhile, as Chinese college-age population shrinks, the sudden boom in study-abroad is likely to slow down in the future. China’s economic slowdown might also lead to some changes in Chinese’s saving and spending choices. In addition, Chinese education department is working on retaining high school students in the country’s local universities while attracting students from overseas to come to China. On the other hand, US universities would still remain an attractive destination for Chinese students pursuing higher education. In the meantime, US universities’ interest in Chinese students will not fade away anytime soon. Chinese students, together with international students from other parts of the world, not only bring economic benefit to the United States, but also contribute intellectually in areas such as the STEM fields. Therefore, the relationship between Chinese students and US universities might still remain positive in the future.

 

http://www.iie.org/Research-and-Publications/Open-Doors/Data/Fact-Sheets-by-Country/2015

http://www.wsj.com/articles/international-students-stream-into-u-s-colleges-1427248801

http://www.washingtonmonthly.com/magazine/september_october_2013/features/international_students_separat046454.php?page=all

https://www.treasury.gov/connect/blog/Documents/20121212_Economics%20of%20Higher%20Ed_vFINAL.pdf

http://blog.collegetuitioncompare.com/2012/12/usc-tuition-cost-10-years.html

http://www.newsweek.com/us-colleges-expelled-many-8000-chinese-students-3-years-337445

Inking A Common Currency – A Thought After The Leap

A peek into the Eurozone does not bring a smile on an onlooker’s face. Despite its third bailout in five years, Greece’s economic problems remain largely prevalent. Within that period, its economy has shrunk by a quarter, and its unemployment rate currently sits above 25%. The problem, however, spans throughout the region. At present, 18 million people across the Eurozone are unemployed. This equates to 11.1% of the workforce. Additionally, government debt burdens are fairly high: 130% of GDP in Italy and Portugal, and above 100% in Belgium and Cyprus. To compound their misery, most of the European economies are predicted to grow by less than 2% for the coming year (IMF forecast). The Eurozone is in a crisis. The ongoing troubles in Europe point to the difficulty in creating and more importantly sustaining a common monetary union, and a common policy to adhere to the needs of individual countries (unless you are Germany). The failure of the Euro to live on its promise of a successful monetary union has threatened the implementation of monetary alignment in regions across the globe.

Despite the above warnings, South of Europe, the East African Community (EAC) is working towards a common monetary union with the notion of introducing a common currency for the entire region. While the challenges of macroeconomic convergence and loss of national sovereignty, not forgetting the failure of Euro, act as barriers, the EAC has taken positive steps towards this ambitious goal. While continuing to work towards fiscal convergence, the EAC has made progress through harmonization of financial, social and institutional laws and regulations. Although a monetary union is a work in process, the member states can definitely rejoice over the advantages that such a union will bring to the region in the future. With increased stability and investment being the primary positive outcomes. “Yes, the risks are evident, but the progress and benefits are even more apparent. The EAC’s decision to introduce the East African Monetary Union (EAMU) is certainly bound to be a successful endeavor,” Mr. Wayne Sandolhtz, Professor of International Relations, USC.

EAC 1

The Community’s Work

The EAC is a regional intergovernmental organization of five East African countries. Initiated in 1999 by Kenya, Tanzania and Uganda, the community welcomed two new members in 2007: Burundi and Rwanda. “The community was established with the intention of encouraging strong economic and political relationships within the economies in the region,” Mr. Sandolhtz. Since its induction, the EAC has worked towards this goal. Introduction of the Customs Union (2005) mitigated tariff and non-tariff barriers to trade, promoting intra-regional trade, and harmonizing standards for goods produced in East Africa. Moving a step further, the EAC initiated the Common Market (2010) to encourage free movement of capital and labor across the region. As a result, the region profited from economical development through increased investments, cross listing of stocks and joint infrastructure development projects, most notably the Arusha-Namanga-Athi River Road, which covers Tanzania, Kenya and Uganda. The countries have also joined hands to move towards social alignment. Standardization of university fees for citizens, implementation of cross-border disease control programs, and harmonization of procedures for granting work permits have encouraged movement of people to achieve labor efficiency in the region. Additionally, the countries share criminal intelligence and surveillance to combat cross-border crime.

EAC 2

The EAC functions as a community to work towards collective social and political progress. But more importantly, it is an economic union. In addition, the EAC hosts four of the emerging economies of Africa: Rwanda, Kenya, Uganda and Tanzania. Hence there is a collective need to work towards economic growth through regional integration and implementation of a common currency. Therefore, on November of 2013, the EAC announced its decision to introduce EAMU and the East African Shilling by the year 2024. “East African community is now fully embarked on enormous, ambitious and transformational initiatives for our people,” Uhuru Kenyatta, Kenya’s president.

Plausible Future Gains

Before delving into the feasibility of such an enterprising act, one must understand the reasoning behind the EAC’s decision to introduce a common currency. Surely, the future gains should be greater than the risks and costs associated with building a union.

For more than two decades, the currencies of the five individual economies have remained EAC 3unstable. “Besides experiencing poor economic growth, the East African region remains a conflict zone; hence the exchange rate fluctuation,” Mr. Sandolhtz. “Introduction of a single currency will eliminate the volatility experienced by individual currencies, bringing in a more stable currency.” More importantly, for past 25 years the currencies have devalued against the dollar. Implementing a single stable currency will also mean a stronger currency. A single currency will serve to eliminate transaction cost and quicken cross-border payments. The reduced cost of operations will lead to a direct increase in businesses transacted in the region. Besides, a single currency will ensure that prices across the region are fairly represented.

Reduction in the cost of business supplants the Common Market incentive to increase flow of capital and people within the region. With movement across the region financially feasible and affordable, there will be increased mobility of people within the region. As a result people can move across the region in search for better job and educational opportunities. Consequently, people will have increased access to resources, and benefit from reduced costs of mobility. This will aid in the efficient allocation of labor throughout the region. Adding to the benefits from increased movement of capital in the region, the EAC will also attract foreign investors through reduced cost of business and currency stability. Besides representing the growing economies of Africa, the EAC boasts oil through Uganda and Kenya, with 250 trillion cubic feet of oil discovered in the Indian Ocean. Additionally, the realization of 30 trillion cubic feet of natural gas reserves in Tanzania will also guarantee influx of foreign capital.

Tourism is most likely going to experience a boom in the coming years. In addition to already initiated joint infrastructure projects, the EAC has introduced a single tourist visa for East Africa. This will supplant the policy to apply a common currency across the region to ease the movement and expenditure of tourists. Both, improved infrastructure through influx of capital and ease of operation will encourage greater international tourism for the region.

Towards Monetary And Fiscal Convergence

Understanding the advantages of a common currency does not make this a success story. It is just partial progress. The real challenge lies in implementing and maintaining policies that cater to the requirements for a establishing a successful monetary union.

A proposed move for the EAMU goes beyond a piece of paper. In theory, the idea seems to work. But executing the required policies to achieve fiscal and monetary alignments requires great commitment. That being said, the heads of state have already implemented a protocol towards attaining common policies, which is to be followed by 2021, three years before the introduction of the currency.

EAC 4

The heads of state have already begun introducing common laws and regulations to aid the implementation a common monetary policy. The EAC has achieved an integrated banking and financial system, and established an integrated payment system. This not only encourages business activities within the region, but also eases the introduction of a common currency. The protocol sets the target for fiscal deficit to be 3% of the GDP (including grant) in all the economies of the region. Although this target is set for 2021, all five economies, since 2004, have maintained the required criteria.

One barrier in the EAC’s progress towards monetary convergence is the required willingness of economies to loose unilateral control over instruments such as the exchange rate policy, which are crucial in dealing with specific macroeconomic shocks. Seceding this privilege to the EAMU will not only lead to loss of national sovereignty but will also mean that individual economies must surrender an important tool of economic adjustment. However, the perks of increased investment and job opportunities have garnered great public support and political will. Thus, it’s likely to eliminate the above-mentioned problems.

Achieving A Suitable Economic Structure

In addition to aligning their policies, members of the EAC must sustain an ideal economic structure, which is feasible for implementation for a common monetary union. The suitable structure entails macroeconomic convergence through common income and inflation targets, similarity in proportion of sectors as a percentage of GDP, and diversified products. These alignments are important, as a similar structure ensures that the countries have similar economic shocks, making a common policy an effective solution.

Real GDP growth averaged about 6 percent for the region during 2009–14, with individual country growth rates in the range of 4 % (Burundi) to 7 % (Rwanda and Tanzania). Currently, the economies inflation rates vary greatly, with the average price level ranging from 3.3% in Rwanda to 8.3% in Tanzania. Although there is a substantial gap, the protocol has set a common inflation rate of 5%, which must be achieved by 2021. Given that the economies are growing, it will be a difficult task to sustain an inflation rate as low as 5%. Hence, the protocol could renew its definition of inflation relative to the best performing member, which is Kenya. Although this may not be in the best interest of the other economies, it is a pill they musty swallow for a better health. Nevertheless, the countries’ alignment in terms with income and inflation remains a positive.

Each of the five economies has a similar sector allocation towards revenue. The agricultural sector accounts for 23 to 35 percent of the economy in all five countries. Coffee and tea are major exports for Burundi, Kenya, Rwanda, and Uganda. While Tanzania exports mostly gold, tobacco, and coffee, Kenya exports horticultural products as well. An almost similar revenue model points to the fact that these economies are most likely to be affected by similar economic shocks, be it internal or external. Hence a common monetary policy would serve as a universal solution.

Countries with a diverse set of products are more likely to survive economic shocks or hardships. Dependence on a range of products ensures that the country does not rely on a single product to generate its revenue, making it a stable economy. A similar ideology is followed in East Africa, where countries are working towards diversifying their revenue sources. The more stable the EAC is, the more likely it is to hold a monetary union. The implementation of the Common Market has gone a long way in encouraging this ideology. Free movement of goods, labor and capital, coupled with minimal barriers to trade has brought in variety of goods and labor in each region. This has spread each country’s horizon beyond agriculture, towards manufacturing, mining and construction. The discovery of oil in Uganda and Kenya, and natural reserves in Tanzania will further help the cause.

Progress So Far

 Potential Risk

Recent natural resource discoveries in Kenya, Tanzania, and Uganda will eventually lead to an increase in export of oil and natural gas from these regions, contributing to higher export values and lower external deficits in the future. Export concentration in these countries is also expected to rise, and the balance of trade dynamics would move in the opposite direction to their neighbours, Burundi and Rwanda, who are largely importers of oil. This may pose challenges on dealing with asymmetric shocks within the monetary union. For example, during periods of lower global oil and gas prices, Kenya, Tanzania, and Uganda would favour pushing for looser monetary policy and lower interest rates compared to Burundi and Rwanda.

 At Europe’s Expense

The EAC can certainly imbibe valuable knowledge from the EU, which is not to be like the EU. “The EU was considered as model for a monetary union, especially Africa, but the recent years have gone a long way in disproving that assumption,” Mr. Sandolhtz. Nevertheless, the EAC can implement the positives and discard the negatives at the EU’s expense.

The Werner Plan envisaged the creation of a European monetary union. This was to be achieved in stages, with each step encouraging member nations to establish patterns of coordination towards macroeconomic convergence in order to facilitate convergence of national currencies and reap other cooperative advantages (greater intra-regional trade). This plan served as a blueprint for the EAC in its establishment of the EAMU. “The ceiling conditions of 3% government budget deficit and public debt up to 60% of GDP mentioned in the EAMU protocol mimic those stated in the Werner Plan,” Mr. Sandolhtz.

Among the several problems responsible for the failure of the EU, the most significant one is that its economies are in different growth stages. This has been one of the problems

Financial Crisis in European Union - Domino Effect

underlying the Euro from the beginning, with the core countries having quite different economic conditions and cycles to those peripheral countries such as Portugal, Ireland, Greece and Spain, which are now suffering the impact of a monetary policy, which was inappropriate for the prevailing conditions. The EAC, however, learning from the failure of the EU has decided to make the entire region function within a certain economic band. The protocols ensure that by 2021, the economies have achieved macroeconomic convergence, and are working in unison with one another. Besides all the economies are expected are in the development phase. Hence fast forward 10 years, the EAC will have been successful in achieving a similar growth cycle for all its members.

 Shilling’s Success Story

No doubt, the EAC has opted for a tough assignment. Currently, the entire region benefits from economic and social progress. The Customs Union and the Common Market continue to serve the goal of regional integration. With progress already taking place, the EAC’s decision to introduce a common currency comes as an added advantage, supplanting the existing growth potential within the region. Countries are likely to benefit from closer integration, increase in intra-regional trade, price harmonization, reduced cost of business, increase in foreign investment, and increased efficiency through improved allocation of labor and capital. The EAC, following the Werner Plan, has set an agenda to introduce the East African Shilling by 2024, but first it must bring the five economies at level with regards to fiscal and structural alignment. The signs of progress are already visible. Given its advantages and feasibility, the Shilling could turn out to be a success story replacing its predecessor, the Euro, as a successful model for a monetary union. Perhaps, the potential success can draw the economies of South Sudan and Somalia towards the EAC, resulting in increased benefits through further integration. Perhaps, this success can ignite Africa’s ultimate goal of a common currency for the entire continent.

The Travel Industry: The Forgotten (?) Agents & Online Booking

By Alexa Ritacco

“Travel Agent? What’s the point?” said the 18 year old, as he finalized his booking for his senior spring break trip to Cancun on Expedia. With a click of a button he books his flights, all-inclusive hotel, airport transfer and adventure trips for a 5-day vacation for him and 3 of his friends.

Travel-industry-in-India

Yes, nowadays it is extremely easy to book a trip to literally anywhere. You want to go to Bali? Go right ahead. Paris? Just go! All you have to do is visit some sort of travel site, whether it be Expedia, Orbitz or Priceline, and you’re halfway there. There is nothing complicated about booking travel these days. But obviously it wasn’t always this way.

Fifteen plus years ago was the age of the travel agent. These people had all of the power when it came to getting you from point A to point B, and dealing with your travel needs. It seemed as though they were the only way one could easily book and handle their travel plans. There was a point in time where one could not simply go to American Airlines’ website and view all of the possible flight times. Schedules were displayed in complicated codes, often through the popular travel system of Sabre, that generally only a travel agent could access and work properly. The same went for hotel bookings.

Consumers were able to call and book their own travel through airline telephone lines as well as hotel telephone lines, but comparing prices, times and schedules could get extremely time consuming and frustrating for both parties involved. Enter the Travel Agent. A magical person who could do all of the dirty work, and leave the customer with the easy part, which was picking and choosing what best suited their budgets and schedules.

With the Internet boom of the late 90’s that led into the early 2000’s, like many business models of the 1990’s, the travel industry saw a major change. Their entire business model was suddenly disrupted. All of the services a travel agent had to offer began to be readily available online. Flights could be easily booked on their own. Schedules, times and prices could be easily displayed and collected with a single click. Same with hotel rates. As more and more hotels began building websites, reservations could easily be made online.

But what really killed the true art of the travel agent were the bundle websites, sites like Orbitz, Expedia, Priceline, and Travelocity. These sites can book your flights, hotels, cars, excursions, airport transfers, you name it. The rise of these sites seemingly erased the need for this particular job.

So you’d think by 2015 the profession would be dead, if not close to dying, right? Well actually, wrong. The popularity, or rather mainstream-ness of travel agencies has most certainly decreased. But the need is most definitely still there. Believe it or not, members American Society of Travel Agents report the booking of over 144 million vacations each year. And in 2012, ASTA reported $17 billion dollars in revenue. As the industry witnessed extreme changes in the flow of their business model, travel agents adapted and found new holes to fill.

In an effort to alter consumers’ views of the profession, John Pittman, a vice president at ASTA, said the society prefers to use the term “travel professional.” This title illustrates the profession more broadly as most current travel agents do much more than simply act as the go-between for travelers, airlines and hotels.

In what used to be a business that targeted everyone, travel agencies have begun focuses largely on targeted markets. These markets include luxury, business and nice travelers, as well as large groups and corporate travel, and the often not as tech savvy elderly. Many boutique travel agencies exist for the sole purpose of catering to some of the nation’s most wealthy travelers. Or others cater for many Fortune 500 companies, booking corporate travel, retreats and company outings.

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Valerie Ferrara began her career as a travel agent at Liberty Travel, one of the very few chain travel agencies that is currently left standing. What she witnessed there was a turn from serving the travel needs of her surrounding community, to the travel needs of anyone in the nation. Liberty Travel, which operates in free standing stores and shopping centers around America, developed an online matching system that connected consumers with an agent either via email or phone, depending on preference. Their agents began taking on the role of virtual agent. Customers still have the freedom to browse their options, but have the support and consulting perks of a personal agent. This is one example of how agencies have adjusted. But what about the smaller ones?

Currently Ms. Ferrara works at a much smaller, boutique travel agency as a travel consultant. Here, they specialize in luxury and group travel. She had this to say about the majority of their clientele, and how the money keeps coming in:

“I’m sure the average person would be surprised to learn that all of the agents in my office make a more than decent living off of being a travel agent. Our clients are booking regular vacations that can sometimes total up to $200,000. Just a few days ago I booked and planned a trip for $50,000 for a family of four going to New Zealand for 13 days. We plan the little details that the online sites just can’t, and probably won’t ever be able to handle. We also have incredible connections and great relationships with hundred of hotels and service providers around the world. It’s unbeatable in many, many ways. Our clients are extremely needy, and the services provided online will probably never be up to par for them. I can’t tell you how many times we have had clients come crying back to us after booking disastrous vacations online. To most, their situations would probably not be considered ‘disastrous’ but with this particular clientele, they have very specific travel needs and only the services of an agency can provide.”

So clearly, public perception of travel agencies does not tell the whole truth when it comes to the actuality of the business. But of course that side of the business has suffered, taken a hit, and has had to adjust as a result. And what’s been taken from that side has been crazily multiplied and expanded into what is now a huge business of online travel booking.

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Expedia, one of the largest online travel booking empires, was founded in 1996 and is now worth $16 billion. In just under 20 years it has almost taken over the online travel booking market, having acquired other travel giants like Orbitz, Trivago, Travelocity, and most recently, online rental service HomeAway. In fact, much of the travel industry has seen a large consolidation over the past few years. Whether someone is booking on Orbitz, Expedia or Travelocity, their money is going to the same place. Think you have a lot to choose from when it comes to car rentals? Sure, you’ve got Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, Payless and Thrifty. Except not. Those 9 are collectively a part of 3 corporations, those being Avis, Enterprise and Hertz. Same goes for airlines, cruise lines and hotel giants.

What do these mergers mean for the consumer? Well typically giant company mergers, in general, have not often benefitted consumers. In most industries, the consumer’s benefit most from fiery competition in an effort to please them the most. Yet executives at Expedia and Priceline have remained positive that this will not be the case with the online travel industry. Expedia CFO explained how the online travel industry is a $1.3 trillion dollar industry, yet what Expedia owns is likely in the single digits.

But one issue that mergers do help to remedy is the idea of an approaching perfect market that the online travel industry could potentially set up. A perfect market can happen under such conditions when all parties are selling identical products or good, when parties can no longer control the market price of what they’re selling, when all parties have a relatively small market share, and when buyers have complete information of what’s being sold and what the price should be. Having giants like Expedia own large portions of the market has helped prevent this from occurring.

Since the 1990’s the travel industry has undergone some incredibly major changes. It shifted from being an agent dominated field, to a self-booking online industry giant. Yet, somehow agents have managed to survive and evolve and continue creating a place in the market for themselves. While the agent does not dominate the travel market by any means, it is naïve to say that the profession of a travel agent is dead. The industry has grown so rapidly, and there is more than enough room for everyone, even as more and more keep hopping on the travel train.

It is important to note that the changes seen and experienced in the travel industry are not unique to just this industry. Similar growth and change has occurred in the music and transportation markets, and it is an interesting comparison to be made for such varying industries.

 

http://www.usatoday.com/story/travel/columnist/mcgee/2015/03/04/airline-mergers-expedia-orbitz/24319965/

http://www.cnbc.com/2015/07/01/online-travel-industry-is-booming-report.html

http://www.huffingtonpost.com/us-news-travel/when-to-use-a-travel-agen_b_4611806.html

http://www.cnn.com/2013/10/03/travel/travel-agent-survival/

http://www.businessinsider.com/why-you-should-use-a-travel-agent-2015-7

http://www.ajhtl.com/uploads/7/1/6/3/7163688/article_37_vol_3_1.pdf

The Undercover Economist by Greg Ip

 

 

 

The Transformation of Journalism

“Hey, have you seen the BuzzFeed video I shared on Facebook yesterday?”

Instead of saying “Hey, have you seen the headline for the newspaper yesterday?”, nowadays a daily conversation between two friends often begins with discussing the trending articles/topics on BuzzFeed and other social media sites. The Internet has been selected as one of the most important inventions in human history. It brings us convenience, provides us a chance to connect with the rest of the world at our fingertips, further accelerates the evolution of print journalism, and starts a new chapter for digital journalism.

When looking specifically at the way content is distributed to audiences, from the beginning of 1800s to the 21st century, the development of newspaper can be divided into three main eras, Push, Pull, and the combination of Push and Pull. The Push era started with the birth of traditional journalism and newspapers. The word “Push” essentially means providing content, or pushing content toward its audience. For instance, news reporters will pursue and generate stories that are assigned by their editors and the audience will become a receiver of the stories and information provided by the newspaper. In the Push era, advertisement plaid an important role in the way newspapers operated. Aside from annual subscription fees, advertisements became a major revenue source for the newspapers. Take prominent newspaper, The Huffington Post, as an example; in order to attract audiences of all types to read its newspaper, The Huffington Post delivers new stories and content on a wide variety of topics such as “Politics, business, entertainment, environment, technology, popular media, lifestyle, culture, comedy, healthy living, women’s interests, and local news” through multiple platforms. (“The Huffington Post”, 2013) Huffington Post’s online website generates huge levels of viewership, making it extremely valuable to advertisers seeking high-visibility advertising space. Its’ uncanny ability to attract viewership valued it at above 300 million at the time it was sold to its current parent company, AOL.

In 2014, according to a Pew Research Center analysis of Alliance for Audited Media (AAM) data, “both weekday and Sunday circulation of newspapers fell around 3% from the previous year.” (Barthel, 2015) With the decline of circulation, newspapers and journalists were trying to develop new ways to attract the audience. Demand Media, an Internet and content driven company based in Santa Monica, California, serves as an example of the Pull era. Owning online website eHow and Cracked, Demand Media is known for its ability to generate content based on its audiences’ needs, and enables its content creators to reach larger audiences in various categories. Demand Media’s “eHow” website owns massive amounts of articles and more than 2 million videos for its users to find answers to their questions and encourage its users to share their experiences with each other. By means of extensive research, Demand Media understands what kind of content its users need, and creates websites based on its category. The company also believes that content wouldn’t survive without community and conversation. Besides the website eHow, which focuses on topics such as cooking recipes, decorations and lifestyles, Demand Media has also created the on-line website “Cracked” in order to fulfill the needs of the younger generation and audiences who are interested in light-hearted content.

Although Demand Media and its content-driven websites have been very successfully in the first few years, critics have cast doubt on Demand Media and other similar websites’ abilities to “place search engine optimization goals over factual relevance” in order to obtain high amount of revenue in advertising. Through multiple analysis on Google search and the realization of what content is needed by the mass public, Demand Media utilizes its freelancers to create fast and cheap content. It is using the quantity over quality strategy. “No need for quality content produced by well-paid journalists: if you know how to perform search engine optimization, your low quality, rapidly-produced video or “article” will top Google’s results and dwarf playing-by-the-book regular media’s traffic.” (Decugis, 2011)

With the birth of the Internet, more and more people, especially younger generation, prefer to consume news online relative to the percentage of people who consume news via television. Nonetheless, the percentage of people who consume news on the Internet, which 40%, is still 30% lower when compared to the percentage of people who consume news on the television, which is 70%. The percentage of people who consume news on the Internet is continuing to rise, while on the other hand, the percentage of people who consume news on the television is continuing to fall throughout the years. (Grabowicz, 2014) In both the Push and Pull eras there has existed a one-way communication between newspaper and its audiences. In the Push era, reporters and newspapers possess the bargaining power between the communications. The audience accepted and received news content that was selected and being processed by the newspapers. In the Pull era, the audience retrieved the bargaining power; they have the say in what content should be produced.

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Different than the Push and the Pull era, the combination of the Push and Pull era enables two-way communication between news organizations and its audiences. Rather than one side holding the bargaining power, in the combination of the push and the pull era, both side of the communication serve as the provider and the receiver. In the combination of the Push and Pull era, BuzzFeed is one of the most successful examples. Jonah Peretti and several others co-founded BuzzFeed, a social news and entertainment company, in 2006 in New York City. Besides generating breaking news, entertainment news, and videos, BuzzFeed creates Quizzes to better engage with its audience. It currently has more than 200 million monthly unique visitors, with the number still growing rapidly. Recognizing the potential traffic its audience might bring to the website, BuzzFeed focuses on the shareable aspect in every story and ensures that each story is relatable for its audience. Creative director of BuzzFeed, Philip Byrne, once said “the company spends 50 percent of its time on creating content and 50 percent of its time thinking of how to make it shareable.” (George, 2015) Native advertising is one of the keys to BuzzFeed’s success.

“Native advertising is a form of paid media where the ad experience follows the natural form and function of the user experience in which it is placed.” Tyler James, Sharethrough’s Director, shared before his keynote presentation on native advertising. (Canarte, 2015) Take one of BuzzFeed’s quizzes as an example, “Which Donut Are You?”, in the quiz, the audience is asked a series of questions and based on those results, the audience is told in the end which kind of donut they are. It might not be hard to figure out the donut brand Dunkin Donut is the sponsor of this native advertising. Even though this native advertising is more obvious than the others, in the sub-heading, BuzzFeed put “you have to know” to encourage its audiences to click in. By incorporating native advertising to its website and capturing the important shareable aspect of its new content, BuzzFeed is able to generate content for its audience as the pusher and also as the receiver when receiving personal data from its audiences.

Tsan Chang, the general manager of ETtoday.net, one of the major online news website in Taiwan, has pointed out three future trends that carry possibility to dominate the online news and digital journalism. “ Having the experience to work in newspaper agency, witnessing the transformation of journalism from traditional, which is print journalism, to digital, which is online journalism, and currently working in an online news organization, I think the future trends for journalism as a whole is the rise of the mobile application increase dependence on social media, and the combination between data and journalism.”, Chang said.

Nowadays, people reply more and more on their cell phones. The percentage of people checking daily news using the mobile application has increased over the years. Many news organizations have developed their own mobile application in order to attract more audiences. Most of the mobile applications focus on providing as much information as it can to the mobile users in the shortest amount of time. Take the CNN mobile application as an example; when opening the application, major or breaking news content is displayed in the middle. Besides news content, the application notifies the mobile users first-hand breaking news when it happens. When asked whether social media servers as a threat to its online news organization, Chang replied, “instead of a competitor, for our online news organization, it is a plus. We have strong collaboration ties with social media such as Facebook. Many traffic of our website are brought by Facebook; when the audiences browsed through Facebook and saw our Facebook post of the news content, when wanted to know more, they would click on the picture, and that direct the users to our website.”

According to Chang, data servers as much more than an indicator of when to publish, what content to produce, where to post, and how to generate news content. Journalism has encountered a new trend of storytelling exclusively through data. More than just numbers in an excel document, data can take various forms and can be combined through a wide-variety of platforms to tell an interesting story. In the past, eye-catching and sensational content served as the key for online news websites. It attracted audiences and generated massive traffic to their website in order to create advertising revenues. Nowadays, data surpasses content as the key for online news websites.

It might be too early to judge whether the Internet has helped or destroyed the development of journalism. It certainly serves as a major factor and has pushed and accelerated the transformation of journalism from traditional to digital. Many news organizations are forced to change and adapt during the transformation; however, no matter it is pull, push, or pull and push, taker or receiver, journalism remains as an essential aspect of our lives.

 

 

Gentrification: A Revival Movement in Downtown Los Angeles

Tucked away in the quiet Arts District of downtown Los Angeles (DTLA) stands the aged brick alleyway of Daily Dose Café, which once served as the primary railroad passage to deliver goods in the city; however, it now operates as a local gathering place for the growing community of entrepreneurs, artists and young professionals settling in the area. Photographers cluster at the entrance of the pathway setting up their camera equipment and preparing for a photo shoot while a group of twenty-something year olds chat and sip their iced coffees at a nearby table. The image of downtown Los Angeles has radically changed within the last few decades. The Daily Dose Café and Arts District are prime examples of the transforming social and physical landscapes that DTLA has undergone in recent years.

Timeworn structures ranging from the historic theatres on Broadway to the old, abandoned warehouses and factories that are scattered throughout the downtown area, especially in the Arts District, are being revitalized and transformed into lofts, hybrid industrial (HI) living and work spaces, restaurants, and bars to appease its latest residents. The redevelopment projects and revitalization efforts to repurpose these existing structures and urban neighborhoods would be considered one of the primordial stages of a process known as gentrification.

The newly renovated Clifton’s Cafeteria which reopened in September 2015 as a bar and restaurant.

What is Gentrification?

The process of gentrification begins when investors and development companies start infiltrating an existing city in an effort to renew and restructure abating areas to accommodate the influx of middle-class and affluent citizens moving into the city. Subsequently, the gentrification process displaces the city’s original, lower-income residents and business owners that are incapable of paying the higher cost of rent to live and operate a business in the city. The debate as to whether or not gentrification is a progressive or adverse development for a city remains at question.

A Change for the Better?

Certainly there are both positive and negative sentiments that could be shared regarding the issue of gentrification depending on whom you ask. Dana Cuff, a professor of architecture and urban design at the University of California at Los Angeles (UCLA), has highlighted a few of the issues that arise when gentrification occurs.

6258839515_424d7aee98The first problem that would occur would be change in housing affordability, whereas the second would be compromising the overall character of an existing neighborhood as a consequence of the method.

Gentrification challenges the concept of social justice within a city amongst its residents. The process leaves the lower-income residents in the city with no other option than to relocate, as they are now unable to afford the higher living costs of the area. As a result, this in turn causes individuals and families to either become homeless or are forced to transfer to higher crime rate neighborhoods that may leave them more susceptible to gang and street violence.

Additionally, by relocating a city’s indigenous residents, neighborhoods lose the rich cultural identity that it once possessed. Because the culture of the prior neighborhood is not preserved an area that may have once been known as being predominately Hispanic, for example, would lose that unique characteristic value.

On the other hand, a few positive features that are often upheld regarding the justification of gentrification are that it can boost a city’s economic standing as well as establish a platform for the city to ultimately flourish. Gentrification generates jobs and property-tax revenue for a city. Designing and opening dog parks and new coffee shops would purportedly prompt further development in the city, which would increase property-values. City officials and public figures are particularly attracted to the concept of gentrification because it can guarantee monetary advances for a city.

Loretta Lee, a professor of Human Geography at King’s College, disclosed that the financial gains that gentrification presents for a city are great. Lee stated that gentrification aids in a city’s overall effort to garner tourist dollars, new residents and attract more investors in the universal scale of capitalism and competition amongst cities.

Another celebrated effect of gentrification is that it reduces crime rates within cities because greater numbers of law enforcement officers are usually recruited to generate a sense of safety for its newest residents. Typically, along with the gentrification process comes the demand for improved policing.

Los Angeles Police Chief Charlie Beck has stated that implementing community policing, in which law enforcement officers patrol a neighborhood on foot and become personally involved with the community members and develop a safer community by establishing a better relationship with the community, has operated as a significant contributor to the waning crime rates that Los Angeles has been experiencing for the past decade (Aguilar, “LAPD: Crime in Los Angeles).

Moreover, Los Angeles Mayor, Eric Garcetti, has revealed that crime rates declined for the 11th consecutive year as 2013 came to a close. According to Garcetti’s office, Part 1 crimes, which would include homicide, rape and burglary, were down 5.2 percent (“LAPD Highlights Drop”).

Who is Moving Downtown?

There have been numerous articles published in recent years that have pondered and investigated the latest desire that many young Americans possess to move to the golden coast. The New York Times recently published an article stating that many east coast natives are choosing to relocate to Los Angeles for the opportunities that are arising in the business, technology and creative industries.

la-1428646-et-hyperionpublic-1-lkh-jpg-20130517Examining the demographics provided by the 2013 Downtown of Los Angeles Demographic study, which was published by the Downtown Center BID and the United States Census Bureau’s demographics for Los Angeles County, has revealed that there are approximately 52,400 individuals that reside in downtown, which is nearly double when compared to its 2000 numbers that documented a total of 27,849 residents; and roughly 64 percent of current inhabitants in Downtown Los Angeles rent property.

Of these residents, the average annual household income figure is $98,700. The 2013 average household income figure has increased tremendously when compared to the city’s 2007 average annual household income amount, which was around $54,000 (“Big Numbers and Big Money in Downtown Survey”). Furthermore, the current average rental price for a loft, apartment, or condo is $1,900.

The influx of new residents wanting to settle in Los Angeles can be perceived positively as it will enhance the city’s economic standing, but it begs the question as to where the new occupants will reside.

A Rising Housing Market

Downtown’s rising popularity and its low availability have enabled developers to raise their asking prices for living spaces, and it is growing increasingly common for rental prices to be more than $4 a square foot. Even at $4 a square foot that is about a 50% increase than what prices were a decade ago.

These statistics would indicate that neighborhoods in downtown have become primarily composed of middle and upper class individuals and families. Higher housing costs would clearly create a large disparity between the type of individuals that would be residing downtown, and it would force those whom do not make enough income to move out of the area.

rents-los-angeles

An anecdote that seamlessly illustrates this concept would be that of Vanny Arias. Vanny Arias, whom is a single mother of three residing in a neighborhood a few miles east of Downtown Los Angeles, has revealed that the consequences of gentrification are evident within her community. Arias had to move out of her former home off of Avenue 52 and York Boulevard when rent became unaffordable, and she now resides in a single bedroom apartment with her children. “I can’t help but feel angry. How are they going to raise our rent like that? Everything I know is here.” Arias shared (Solis, “Highland Park Residents”).

As what is demonstrated in Arias’ story, gentrification places one faction of individuals at odds. The California Supreme court attempted to ease the affordable housing crisis that the state is currently facing by passing a housing ordinance that would require developers building 20 or more units to list 15 percent of them below-market price or to pay into a city fund for low-cost housing. But even with the Supreme Courts efforts, housing affordability remains a huge concern for Angelenos as most are unable to keep up with the speed at which housing prices are rising.

For Those Who Can Afford to Stay, Where to Settle?

The city’s redevelopment efforts have extended beyond the constraints of the central downtown area. Redevelopment project are occurring throughout the entire perimeters of Los Angeles County. Gentrification can be observed to the north of downtown around Echo Park and Silverlake, to the east around the Boyle Heights area and to the south and west near USC and Koreatown.

BHTo address these concerns, there have been public hearings held at the Los Angeles City Hall recently regarding the proposal of investors and developers to begin improvement projects to the area Northeast of downtown in hopes of transforming nonoperational factories and warehouses into hybrid industrial living and work spaces.

The proposed Hybrid Industrial Live-Work Zone Ordinance states that the city has a dire need for these transformations.

The ordinance states, “It called for new zones that address the full range of industrial areas found in the City, including industrial mixed use districts—areas that retain a jobs focus but which may support limited residential uses… The proposed zone is a new zoning tool that would permit new construction of live/work, mixed use projects in appropriate industrial areas as a means to implement City policies related to economic development, job retention, and housing production” (“HYBRID INDUSTRIAL LIVE/WORK”).

Jesse Martin, the founder and owner of Value Produce, which is located off Central Avenue in Downtown Los Angeles, has witnessed the transformation of downtown since opening his business in 1992. Value Produce is a family owned and operated produce company that supplies Southern California markets with produce from around the world, including: Chile, Peru, Brazil, and Ecuador amongst others. The location of Value Produce cradles the border of the Arts District and the Fashion District in downtown Los Angeles. Both of which locations are appealing areas that investors and developers have already begun renovating.

When questioned about his sentiments regarding gentrification, Martin said that he perceives the process positively. He stated how he could recall the way the city was prior to the changes. “It [Gentrification] allows cities to grow and businesses to grow to help make the economy stronger,” said Martin.

Currently, Martin has over 50 active employees. None of which live downtown, but rather in cities 20 minutes away. Martin shared that he supports the Hybrid Industrial Live-Work Zone Ordinance, as he would like to see more of his employees have an easier commute to work.

“These guys work hard and the commute to and from work could easily take over an hour with traffic. After a hard day’s work – which includes labor intensive tasks like lifting palettes – a long drive is the last thing my guys want to do,” said Martin.

Whether you encourage gentrification or oppose it, the redevelopment process is a part of our country’s past, present and will undoubtedly continue to be present in its future. Aside from Los Angeles, traces of gentrification can be identified in any major city within the United States.

While some entities, such as civic leaders and political actors, encourage redevelopment efforts and gentrification as a measure to improve a city’s value, there remains a faction of others, such as low-income renters, whom oppose the process.

Therefore, as citizens, we must become aware and knowledgeable about issues that will impact us directly, such as gentrification. We must ask questions and truly evaluate at what cost we are paying for this change and to determine if it is really worth it both socially and economically?

 

 

SOURCES

http://www.ladowntownnews.com/news/big-numbers-and-big-money-in-downtown-survey/article_16ec53d8-cda8-11e0-94dc-001cc4c03286.html

http://losangeles.cbslocal.com/2014/01/13/lapd-expected-to-highlight-drop-in-crime-rates-for-11th-straight-year/

http://www.vice.com/read/gentrification-comes-to-las-skid-row-and-the-homeless-get-the-shaft

https://www.highbeam.com/doc/1P3-3718902691.html

http://planning.lacity.org/Documents/policy/HIZoneFAQandOrdinance.pdf

http://www.kcet.org/socal/departures/highland-park/northeast-los-angeles-gentrification-in-comparative-and-historical-context.html

Lomeli, M. (2014). White nostalgic redevelopment: Race, class, and gentrification in downtown los angeles (Order No. 3645664). Available from ProQuest Dissertations & Theses Full Text; ProQuest Dissertations & Theses Global. (1626384695).

http://www.laweekly.com/news/is-gentrification-ruining-los-angeles-or-saving-it-pick-a-side-5342416

http://www.theeastsiderla.com/2014/12/highland-park-residents-share-stories-of-gentrification-during-saturday-night-demonstration-vigil/

http://www.economist.com/news/united-states/21644164-gentrification-good-poor-bring-hipsters

http://www.nytimes.com/2015/05/03/style/los-angeles-and-its-booming-creative-class-lures-new-yorkers.html?_r=0

Challenging the Status Quo – Tesla Motors

How does a company like Tesla Motors, which sells only 50,000 vehicles a year, a number which is deemed as microscopic when compared to much larger companies such as BMW, which sells over a million number of cars in a single year, be a multi billion dollar company?

With the increasing number of Tesla products out in the public right now, it will come as no surprise that the company is doing very well financially in the past few years. There was a significant increase in revenue between 2012 and 2013, increasing by 487% and then again from 2013 to 2014, increasing by 59.9%. Out of the $3,198,356,000 of revenue collected in 2014, $3,192,723,000 was gained from automotive sale alone.

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The sudden increase in revenue in 2013 caused the stock price for Tesla to skyrocket and almost reach its peak in the mid of 2014. Although the stock market price decreased in 2015, the stock market price for the company is predicted to increase when the new Model X and Model 3 are released in the next 2 years.

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Although Tesla Motors has shown a promising number of revenue for a company that was founded a little over 10 years ago, its numbers are like a drop in the ocean as compared to the numbers produced by its competitors across the board. Take BMW, for example, which is like Tesla Motors, is a company that manufactures luxury vehicles. BMW made a total of US $87,363,726,600 in revenue in 2014, that’s 27 times more than what Tesla made in the same year. The main reason for this is because of the far more diverse vehicle models that BMW has available for purchase as compared to Tesla, which currently only has 1 model, the Model S, available for purchase.

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Thus, as compared to BMW, Tesla will need to grow exponentially. It’s hard to imagine this sort of growth happening any time soon, regardless of Tesla’s product offerings as BMW has a total of 25 different models versus Tesla, which currently offers 1 model of vehicle available for consumers. Even when both the Model X and Model 3 are released for the public eventually, that would round up Tesla’s model line-up to a grand total of 3, which is not at all a number sufficient enough for the company to beat out its competitors.

With such a significant difference in the amount of revenue that the two companies are making, one might think that the market capital of BMW would be much greater than that of Tesla. However, that is not the case at all. Tesla has a market capital that is only half the amount of the market capital of BMW. That is pretty impressive for a company that is making 27 times less in revenue than its competitor. In fact, it is even much more impressive that a considerably small company like Tesla is able to reach a billion dollars in market capital, considering the fact that the company only produces about 30,000 vehicles a year.

    Screen Shot 2015-12-07 at 11.22.46 PM Screen Shot 2015-12-08 at 10.36.44 AM

Tesla Motors Inc., founded in 2003 by Martin Eberhard and Marc Tarpenning, is an American company that focuses on designing and manufacturing electric cars. Tesla Motors is the first public American Car Company since Ford Motors became public in 1956. The company has led the revolution by mass-producing the first line of all-electric vehicles in the world. Elon Musk joined Eberhard and Tarpenning in 2004, where he contributed $ 7.5 million to help fund the company.

Musk went on to become the Chairman of Tesla’s Board of Directors. Tesla was founded, in Musk’s own words, “to accelerate the advent of electric cars”. Every model designed, every vehicle manufactured had to be more than competitive; it had to be flawless. A single defect could set the electric movement back decades, as it had been in the past. Musk played a very active role within the company and oversaw the design and manufacture of Tesla’s first production vehicle, the Tesla Roadster.

The Tesla Roadster is an all-electric sports car that was the first highway-capable all-electric vehicle for sale in the United States. General production of the car began on March 2008. On June 29, 2010, Tesla launched its initial public offering on the NASDAQ, which raised $226 million for the company, selling 13.3 million shares of stock. By the end of 2011, Tesla stopped selling Roadster models in the United States, to focus on the launch of its newer, more defined Model S electric sedan. While not necessarily revolutionary, the Roadster was instrumental in establishing the Tesla brand.

The past few years have been looking pretty good for the company. The highly anticipated Model S, an all-electric, 4 door luxury lift-back sedan was released in 2012, saw global sales that totaled to 22,500 vehicles in the year 2013, selling a whooping 6.900 vehicles in the fourth quarter of that year, pushing the year-sale beyond the company’s target.

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Most recently, Tesla Motors just announced new additions to the Tesla Family by introducing the Model X, a four door, seven-seater car that will be out for release in 2016 and the Model 3, the first affordable electric car that Tesla will produce will be released in 2017. Due to the different features and capabilities that all 3 cars have individually, the 3 vehicles have enough differentiating features from each other to prevent intercompany sales cannibalization despite all 3 of them being a high performance electric luxury vehicle.

In addition, Tesla Motors broke ground on the Gigafactory in 2014 in Nevada, which is expected to begin cell production in 2017. The Gigafactory, which would greatly increase battery production and reduce its manufacturing cost is expected to reach full capacity by 2020, and produce more lithium ion batteries annually than were produced worldwide in 2013.

There is also an increasing number of Superchargers that are available in the United States right now. The Supercharger, which is a high-powered facility where Tesla drivers can get free electricity to extend their range while traveling much like gas stations for electric vehicles, grew over 200% in the United States between the year 2014 and 2015. The company added 958 Supercharger and destination charger locations throughout the country, which bring the total to 1,346. 90% of the US population is within 175 miles of a Supercharging location, close enough to get access to the countrywide charging network.

charging Untitled

In the contrary, much like any other successful company in the business, there have been setbacks that Tesla Motors has faced as a company. For instance, a month ago on November 2015, Tesla Motors announced that they were conducting a voluntary recall of all the 90,000 Model S cars due to a single report in Europe of a front seat belt not being properly connected. The shares for Tesla Motors fell immediately after the issue was reported, it slid 1.9% to $217.49 on the same day, a 3-year low for the company.

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Another major issue that Tesla faces is probably the fact that, as mentioned before, the company is not able to sell as much cars as its competitors. In an interview with Automotive News, Musk revealed that he “wants the company’s estimated 2013 U.S. volume of 20,000 units to soar to 250,000 and to 500,000 globally by the end of the decade.” However, it is easier being said than done as Tesla’s established rivals, companies such as Audi and BMW have begun offering capable electric vehicles of their own, hence Tesla will not be the only choice for long-range zero-emission transportation in the future. With the introduction of the all-electric luxury vehicles such as the i8 and the E-Tron models released by BMW and Audi respectively, Tesla will no longer have the electric vehicle market to themselves in the near future. Therefore, with a new range of selections for the consumers to choose from, it is very unlikely that Tesla is able to sell 500,000 vehicles globally by 2020 despite Musk’s vision.

So back to the original question: how did Tesla become a multi billionaire company as compared to other companies that produce cars in much greater volume?

To start, we have to take into account that the valuation of an automotive company is based on scale. This means that the company has to operate the business by allocating and optimizing resources to drive the greatest results and volume across market segments. Companies that scale have operating leverage, which means they can grow revenue with minimal or no increase in operating costs.

To add on, the automotive industry is also a capital-intensive business. These automotive companies require substantial amount of capital for the production of their vehicles. This is because the automotive companies require high value investments in capital assets, such as the materials needed to manufacture a car.

With big automotive companies such as BMW, which produces an average of 2 million cars over the past few years, the marginal cost to make a few extra vehicles will not be as high as the marginal cost it would take for Tesla Motors to do the same thing.

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BMW sells an average of 2 million cars in the past 3 years

Hence, with the minimal marginal and operating cost despite the increase in the number of cars available for purchase, it is no wonder that a company like BMW is as successful as it is. Moreover, considering the fact that the price for a BMW vehicle ranges from $30,000 to $80,000, and the gross profit for the company in the year 2014 was $17 billion, it is no surprise that BMW, a company that was found almost a hundred years ago has a market cap of over $60 billion.

In contrast to BMW, Tesla produces only 30,000 vehicles on average for the past few years. Therefore, based on the difference in the number of quantity of cars produced by both companies alone, it is fair to conclude that the marginal cost to make extra vehicles for Tesla is larger than that of BMW. However, despite the statistics showing net loss for the company, the unprofitable company has a market capitalization of $31 billion, as mentioned previously.

Well this is because Tesla Motors is unlike any other automotive company out there in the market right now. There are a few factors that Tesla Motors possesses that make it stand out from its competitors, and hence leading investors to assign so much value to the company.

Tesla has a larger gross profit margin as compared to its competitors in the present, and it is very likely to continue to increase in the future with the completion of the Gigafactory.

When Tesla’s gross profit and revenues are compared to 4 other traditional automakers, Tesla’s gross profit percentage exceeded that for the other car manufacturers with 22.7%. Moreover, since the cost of goods sold per vehicle will most likely drop as production volume increases, Tesla’ gross profit will continue to increase and extend its gain over the likes of BMW.

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In addition to that, when the new Tesla Gigafactory is completed in 2017, the cost of the battery pack will be reduced by 30%, which will further increase the profitability of Tesla Motors in the near future. Tesla’s battery packs are routinely estimated to be a good tier cheaper than other EV batteries, all thanks to Tesla’s continual improvement of the battery packs. Tesla’s constant work to improve its batteries is one side of the cost-cutting calculus, but another important side is simply scale. Scaling up production results in greater manufacturing efficiencies, manufacturing improvements, and cost reductions. Tesla is scaling up its production big-time via the Gigafactory, and no competitor is showing that anything similar is in the works.

Tesla-Gigafactory

Apart from the Gigafactory, Superchargers and high profit margin, the main difference Tesla Motors has that gives it a competitive edge from other companies is probably the unique way the company operates. Tesla has shown repeatedly that it cares more about providing the customer with good service, a good product, and honesty than making a little more money off of them. For example, Tesla sells vehicles directly to the public through its own stores and the Internet, rather than relying on dealerships like traditional automakers. This makes the experience of purchasing Tesla’s products more intimate and personal as compared to buying your vehicle through a dealership. That kind of reputation for integrity and morality is something long lacking in the automobile industry, and there’s no doubt that customers have found it to be very refreshing and desirable. If Tesla keeps it up, it’s going to gain more and more brand loyalists and hence increasing the company’s number of investors.

In conclusion, Tesla is only just beginning its outstanding journey as the revolutionary multi-billion dollar company that will change the way people look at Electrical Vehicles. Its innovative vehicles and operations will continue to redefine standards across the automotive industry and Tesla will probably be a name that one will hear a lot more of in the near future.

Sources:

http://www.fool.com/investing/general/2014/01/14/tesla-motors-inc-stock-jumps-on-big-numbers-at-det.aspx

http://cleantechnica.com/2015/11/25/tesla-superchargers-grow-200-in-usa-in-1-year/

http://www.bloomberg.com/news/articles/2015-11-20/tesla-to-recall-90-000-model-s-cars-to-check-front-seat-belts

http://www.economywatch.com/world-industries/capital-intensive.html

http://www.encyclopedia.com/topic/automobile_industry.aspx

http://evobsession.com/tesla-competitive-advantage-5-big-ones/

http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html

http://www.reuters.com/article/us-teslamotors-cash-insight-idUSKCN0QE0DC20150810#D938UoHbViWob8l8.97

https://www.quora.com/How-can-Tesla-survive-when-it-competes-with-companies-that-produce-cars-in-much-greater-volumes

http://www.fool.com/investing/general/2014/02/05/7-reasons-i-invested-in-tesla-motors-inc.aspx

http://www.autonews.com/article/20140113/OEM/301139981/audacious-growth-plans-will-stretch-tesla-beyond-its-comfort-zone

http://www.investopedia.com/articles/active-trading/072115/what-makes-teslas-business-model-different.asp

http://www.elonmusk.com

http://www.youtu.be/L-s_3b5fRd8

Bits and bytes to blockchain: the far-reaching impact of an enigmatic technology

Metro-Goldwyn-Mayer

Metro-Goldwyn-Mayer

Pay no attention to the man behind the curtain.

Dorothy and her travel companions didn’t listen, of course, and peeked behind that curtain to find out that the great wizard was just a man with a machine. The financial industry is experiencing the inverse, as it examines a machine that is run by a “man” who does “his” best to avoid existing.

More than 30 of the largest banks in the world are digging into what has been one of the most vexing technological advances of the past decade—the emergence and rise of bitcoin, the world’s most famous (or infamous) cryptocurrency, which was created by an individual under the pseudonym Satoshi Nakamoto.

With an etymology tied to the Greek word “kruptos” which means “hidden,” it’s not surprising that outside of a handful of techies and economists, cryptocurrencies are not well understood. However, for the first time, mainstream finance is taking notice of cryptocurrencies and trying to harness their algorithmic backbone—known as blockchain technology—before it challenges the entire industry’s structure by completely disrupting payment and banking.

Background on bitcoin and cryptocurrency
The main questions here are:

  1. What, exactly, is it?
  2. Who uses it?
  3. Where did it come from?

What is bitcoin?
At its most basic form, a cryptocurrency is a digital medium of exchange that is regulated solely by computer coding. Algorithms determine both the creation of new units and the security of transactions made in the units already in circulation. The alpha of this virtual market, of course, is the anarchic, open-source, peer-to-peer (P2P) “currency” bitcoin, which came into existence under ambiguous circumstances—more on that in a second—in 2009.

Bitcoin operates by controlling supply. Its algorithm is set up to distribute 21 million units over the course of 10 years, so its value is determined solely by demand, which has grown over the first five years of its existence.  Its value peaked in late 2013, reaching a value of more than $1,100 amid a corresponding spike in the amount of compute power dedicated to “mining” for new units.

22bitcoin-tmagArticle

New York Times

Of course, the cause of the demand and compute power spikes is an increasing number of people investing an obscene amount of money into unlocking new blocks of bitcoin, thereby pricing out much of the digital money’s previous user base of currency aficionados and hobbyists.

Who uses it now?
The second question of who uses bitcoin is where the story begins to get considerably more complicated. The short answer is that no one knows, exactly. Without a central regulator akin to the Federal Reserve or the International Monetary Fund, transactions are monitored by a distributed ledger, which is basically an algorithm that shares every proposed transaction with every node in the bitcoin network. The result is complete anonymity as transactions being placed into blocks that every bitcoin-capable machine can see and verify without shedding any light on the individuals or entities carrying out these transactions.

While transactions are secure in and of themselves, the lack of transparency into who is using this anonymous digital monetary system has made bitcoin a lightning rod in broader discussions about national/international security and criminal activity. Most notably, the anarchist founder of the online narcotics hub Silk Road was an early adopter and evangelist for bitcoin—not exactly an ideal advocate for a technology struggling to find mainstream success.

Nonetheless, illegal as Silk Road’s activities might have been, they were a huge source of bitcoin’s visibility and, thus, the primary driver of its demand-determined value.

When it comes to ambiguity, though, end users aren’t the only part of bitcoin that has been shrouded in mystery. The very source of the world’s preeminent cryptocurrency had been nothing more than a pseudonym—until last week.

Where did it come from?
From recent coverage in Wired and Gizmodo, it appears that the man behind the bitcoin curtain is a 44-year-old Australian named Craig Steven Wright, who “coincidentally” had his home and office raided by the Australian Taxation Office just this week. While authorities claim that the raid had nothing to do with the news that Wright was, in fact, the mysterious Nakamoto, the timing is certainly curious, and the fact that the bitcoin founder’s fortune is estimated by some to exceed $415 million certainly does not support that it is coincidental.

Regardless, the mystery appears to be solved, and no one seems to be debating the value of bitcoin now. In fact, a whole new set of stakeholders has emerged and is taking a good, hard look into its enabling technology—blockchain.

Taking blockchain mainstream
While they’re not interested in using bitcoin as is, 30 of the largest banks in the world are working as part of a collective evaluating whether or not its enabling blockchain technology and the distributed ledger it creates have wider-reaching uses within the financial services industry. This collective is operated by R3 CEV, a global financial tech company comprised of veteran financial professionals, technologists and tech entrepreneurs.

“This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system,” said David Rutter, CEO of R3. “Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”

In comparison to the other aspects of bitcoin, the blockchain and distributed ledger concept is fairly simple. When one user pays another in bitcoin, the transaction is known as a block and is announced to every node (compute device loaded with the appropriate software) on the bitcoin network. Every node then approves the block, which is added to a “chain” of other blocks, creating a running record of every transaction across the entire network. With every node in the network verifying every transaction, in real time, the entire system remains self-regulating.

basic blockchain

Financial Times

The collective takes it as truth that some form of this blockchain and distributed ledger is going to become the norm in the banking industry but is looking to establish the necessary standards and protocols—common practice for an emerging technology that necessitates interoperability across multiple platforms (or in this case, the entire financial industry). These banks are essentially trying to implement this technology to virtualize their transactions with each other—analogous to businesses moving to the cloud as opposed to storing every bit of data on their own servers.

While the potential cost savings and scalability improvement are obvious from an infrastructure standpoint, it’s less clear how much additional investment would be required to perform the necessary network upgrades to increase reliability and security to meet the standards of the highly regulated finance industry.

“Right now you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success,” said Kevin Hanley, Director of Design at Royal Bank of Scotland. “The R3 model is changing the game.”

bank blockchain

Financial Times

Furthermore, “the game” being changed has expanded into the way financial markets operate with banks frequently facing the question of how technologies such as cryptography and distributed ledgers can contribute to improvements.

“These new technologies could transform how financial transactions are recorded, reconciled and reported – all with additional security, lower error rates and significant cost reductions,” said Hu Liang, Senior Vice President and head of Emerging Technologies at State Street. “R3 has the people and approach to drive this effort and increase the likelihood of successfully advancing the new technology in the financial industry.”

Assuming this implementation is as inevitable as the R3 collective believes, the next question becomes one of how far the technology might go.

Disruptive potential
The holy grail for a new technology (or, in this case, the reemergence of an existing one), can be boiled down to one of the tech industry’s favorite buzzwords: disruption. Everyone wants to know what this technology is capable of doing to upend the way business is done.

The potential implications of blockchain and distributed ledgers as they pertain to transactions in commercial banking are intuitive, but as Liang and others have alluded to, these technologies threaten established practices well beyond.

Coincidentally, around the same time bitcoin was emerging, investment banks and other financial entities were engaged in an arms race to maximize compute power and, therefore, the speed with which they received information about the markets. Just as computers replaced phone calls and turned minutes into seconds on the trading floor, high-performance computer power was turning seconds into fractions of seconds, providing the edge to those who get the information first—even if that lead time is literally the blink of an eye.

The compute power is still of vital importance, and virtualizing the ledger process would theoretically speed up transactions even more by freeing bandwidth that could be reallocated to processing incoming data.

On a more micro level, the best disruption analogy is third-party payment services, which offered the first viable set of alternatives to cash or credit. PayPal gave users the first option for decoupling their bank accounts or credit cards from their online purchases. Mobile payment services from Google and Apple took this concept to smartphones, and Venmo extended it to person-to-person transactions.

Blockchain and its associated capabilities can have a similarly disruptive effect by redefining the process by which these transactions take place. By being agnostic to the endpoints of the transactions, the technology would eliminate the need for a payment company to be in the middle of every transaction.

Of course, the major question that remains as to how to get the different players in a competitive market to work together to develop the level of interoperability necessary to make this blockchain-backed ledger system a reality—a tall order, indeed.

When’s the last time Google and Apple worked together to make something interoperable?

It was certainly longer ago than the current collaboration among Bank of America, Wells Fargo and 28 of their competitors. Raise your hand if you ever thought of a scenario in which banks were more visionary than tech companies.

That might be the real magic trick.