The past year has been a trashy year, and not just because of the United States’ tumultuous political climate. Rather, the problems with trash have become more central to environmental and economic reform than ever before.

For some, plastic straws sparked the conversation when Seattle banned single-use plastics this past summer, an event that swept the internet and inspired mass numbers to act against pollution. The real trash tale, however, is much grimmer than the sliver of environmental hope provided by any limit placed on plastic drinking tubes. With the United States producing the most waste globally and China recently enacting limitations on how much foreign garbage it will import, the trash is piling up. Americans are now coming face-to-face with a hard reality: reduce waste or suffocate under the consequences.

It’s no secret that the United States has a huge problem with waste. Though home to only 4 percent of the world’s population, the U.S. produces more than 30 percent of the planet’s total waste, according to a report by Frontier Group. The average American throws out 7 pounds of materials each day, with over half of all materials scrapped by homes and business ending up in landfills and only a third being recycled or composted.

Source: Frontier Group

The expanding $60 billion solid waste industry in the U.S. indicates the large-scale effort required to domestically manage all of the garbage produced. At this rate, however, the U.S. has not been capable of managing all of its own trash. While the wasteful reality of the U.S. may be “Land of the free, home of the brave… and lots of garbage in between,” the U.S. has made every attempt to steer away from such a reputation within its physical landscape. As a result, the U.S. has been exporting about one-third of its recyclables, with half going to China, according to NPR. To paint a global picture, nearly half of the planet’s plastic trash since 1988 — including single-use plastics, food wrappers and plastic bags — has been sent to China to be recycled into other forms of plastic goods, according to The Verge.

At first, this was a mutually beneficial trade agreement for both the U.S. and China: the U.S. would have significantly less trash to deal with on its home turf, and industrial China was able to acquire foreign currency while turning plastic into profit. The USC-US China Institute reported that, as time went on, the U.S.’s biggest dollar value export to China was trash, with Bloomberg reporting that Americans shipping more than $5.6 billion worth of scrap to China in 2016. At its peak, the Chinese recycling industry supported nearly 12 million jobs, and the recycled plastic was being turned into products valued over $64 billion a year. Environmentally, recycling also provided China a means to save energy when compared to industries like mining and logging. It was a business model that seemed to be indestructible.

Source: Bloomberg

Come 2012, however, what appeared to be an untouchable, powerful and productive market took a turn for the worst. China’s labor market shrunk for the first time. U.S. scrap exports to China fell for the first time since 1996. The next year, more foreign direct investment went to Southeast Asia than China. Then, the big one hit at the end of 2017: China notified the World Trade Organization that it had decided to ban imports of 24 categories of solid waste, effective March 2018. Now that China is post-industrial and rests on more financially-steady ground, the trash ban is the country’s next step toward improving the quality of life for its citizens by reducing emissions and creating a more sustainable nation.

“There was no doubt there was a great deal of discontent within China, and if they had announced a five-year transition, they would have faced domestic opposition,” said Dr. Douglas Becker, an international relations and environmental studies professor at the University of Southern California. “The reports coming out of the areas near the largest trash dumps in south China are a lot worse that people realized, and not by a small amount. So they sensed that they needed to do something fairly drastic.”

China is not backing down from the ban. Considering this change was essentially put in place immediately, though, the policy threw the U.S.’s trash processing system for a whirlwind.

“If it doesn’t go to China for two to three months, you’ll have 1 million tons of paper stacked somewhere in the American economy,” said Ranjit Baxi, president of the Brussels-based Bureau of International Recycling, to Bloomberg.

Baxi was exactly correct, as the U.S. is already feeling the effects of the ban. The Washington Post reported that states like Massachusetts and Oregon are changing some of their waste restrictions, dumping recyclable material into landfills. In California, the effect has been “heavy” according to a Waste Dive report that has been tracking the outcomes of China’s scrap limitations since Nov. 2017. Locally, an LA County Sanitation Districts official told Marketplace that 15-20 percent more material is ending up in the Puente Hills facility as residual contamination. Managing waste domestically in a sustainable fashion already posed a significant challenge, but now with China out of the picture, trash is pouring out of American landfills.

“Depending on the areas and cities, landfills are filling a bit more quickly, and I know there has been some talk about large cities trying to find the landfill space further and further from their city centers, perhaps even in different states,” Becker said. “That tends to engender quite a bit of opposition.”

The scariest thing? Even though the trash trade went on for decades, the ban has only been in practice for less than a year, but the consequences are already eliciting drastic results.

Source: Asian Review

China’s decisions to limit its importation of trash is like a form of self-care: by cutting out toxic relationships, the country is now able to focus on improving the life quality of its citizens. America, however, cannot function without exporting its scrap, so Southeast Asian countries have become China’s replacement. Thus, China itself may be on a greener path, but the waste problem at large simply has simply shifted from one landmass to the next, raising the same environmental issues for different people groups.

“I think the same concerns the Chinese had with the areas of toxicity are also valid in South and Southeast Asia where the trash is going,” Becker said. “As far as Southeast Asia is concerned, for some, they do want the materials to help them industrialize, but it’s largely a means by which to make money. So, I imagine [importing trash] would be pretty bad for the local populations, the same reason why the Chinese chose to end this.”

In essence, Southeast Asian countries are importing waste for similar reasons that China did. Recycling was an introductory means toward progress, but processing trash is not a long-term environmental or economic solution. Countries such as Malaysia and Thailand are already expressing frustration at the burden the increasing amounts of trash have placed on the countries.

Steve Wong, managing director of Fukutomi, a plastic recycling and trading company in Hong Kong, told Asian Review that Southeast Asian nations cannot handle even half of the volume China imported in the past.

“The abrupt China ban leaves [Southeast Asian] countries unprepared to receive the huge influx of waste,” Wong said.

Waste in Thailand. Source: Asian Review

From Jan. to March 2018, Thailand imported 121,000 tons of trash, a 17.7 percent increase from the same period a year before, according to data released by the Global Trade Atlas. Malaysia’s trash importation increased fourfold, and Vietnam, Taiwan and South Korea also have seen significant increases. Meanwhile, China and Hong Kong have seen more than 90 percent decreases.

Just because China banned the import of scrap in favor of the environment, however, doesn’t mean Chinese recyclers were financially happy with the decision. According to Wong, an estimated 1,700 licensed Chinese recyclers were affected by the import ban, and about 40 percent of them have relocated their operations to Southeast Asian countries.

“Up to 1,000 Chinese businessmen are asking for licenses to do recycling in Thailand, with total investment of up to 250 million baht ($7.6 million),” said a senior official at Thailand’s Industry Ministry. As a result, Thailand has put an indefinite hold on licensing to counter Chinese land ventures, according to Asian Review.

Between fights for land, trash and the environment, the entire trash trade narrative boils down to the same core problems: How do we fix our massive trash habits, and why is waste so problematic?

Frontier Group lists several environmental consequences of waste production. Most notably, about 42 percent of all greenhouse gas emissions are created from the production, transportation and disposal of goods, which is a direct contributor to global warming. Garbage that does not get dumped in landfills or recycling plants often ends up in the ocean, which is detrimental for marine biodiversity, habitats and overall water quality. Air quality is affected. Discarded materials waste natural resources. Landfills decrease property value and overall quality of life. The list, really, could go on forever.

U.S. citizens, however, can only do so much because the larger issue of waste is a top-down problem. Though each American disposes an average of 2,555 pounds of materials per year, those materials only make up 3 percent of all solid waste in the United States. When a majority of waste comes from industrial processes like mining, manufacturing and agriculture, encouraging individual choices, ultimately, can only make so much of a difference.

So, as a quick anecdote, let’s return to the plastic straw ban. Though Seattle issued a ban in July on all single-use plastic straws and utensils at all food service businesses, it was not the first city of its kind to enact such a ruling. Seattle made the plastic straw ban trendy, though, because the city is the birthplace of Starbucks, which is an inherently trendy brand. Therefore, the small-scale straw issue became widespread as Seattle-based Starbucks no longer could utilize their famous green single-use plastic straws.

As the negative view of plastic straws caught on, many were suddenly switching their plastic straws for paper or stainless steel ones and felt they were saving the planet as a result. The truth? There are eight million tons of plastic streaming into the ocean annually, and plastic straws only make up 0.025 percent of that waste, according to National Geographic.

“[The plastic straw ban is] not going to solve the problem, but it’s at least raising awareness for a lot of people — an increasing amount of recycling, pressure being placed on corporations in particular to try and manage some of the packaging issues,” Becker said. “There’s a greater public awareness as a result of this. I think that’s probably going to continue.”

The plastic straw ban is more of a poster child for larger environmental and economic problems associated with waste than it is the actual solution to waste itself. Even if the U.S. were to completely rid of every plastic straw in sight, the U.S.’s need to export recyclables and deal with the environmental consequences of trash would not be impacted. The plastic straw ban, however, does have the potential to start a chain reaction with eradicating bigger forms of plastic. With China’s limitations on trash and increased awareness surrounding waste, maybe in coming years the world won’t be such a trashy place after all.

As innovation in technology expands, so does the impact on many traditional industries. Accompanying these advances comes a shift in which jobs are in higher demand, and which jobs are threatened. Uber has revolutionized the car service market. It provides its customers with low prices, convenience, and comfort. This has caused harm to taxi companies, especially in cities like New York with an embedded high demand for taxis. Uber and other similar services have caused devastating change for traditional taxi drivers. New York City has made attempts to regulate Uber and other for-hire services in order to create a more competitive field for taxi drivers. Despite these efforts, it is unclear how long the advances in technology can be controlled. 

New York City taxis operate under a system that is controlled by medallions which are essentially licenses needed in order to operate a yellow cab. A driver who bought a medallion for a low six-figure sum could borrow against its rising value, and then use those proceeds to improve his quality of life. There are some family-run fleet operators who own hundreds of medallions. Unfortunately for established drivers, the cost of a medallion has plummeted since Uber has entered New York. (Berger) In 2013, the cost to purchase a medallion hit $1.3 million. However, by March of 2017 the price of a taxi medallion crashed to its lowest level in a decade when one was sold for $241,000. In January 2017, medallions accounted for 48% of total trips logged by yellow taxis, which is down from 68% in January 2016. Additionally, in 2016 lenders foreclosed on 39 medallions, which is more than triple the amount of 2015. (Agovino) Banks stopped lending to the majority of medallion buyers a few years ago because they were no longer solid investments. Mr. Daus heads a firm with several clients with large medallion portfolios. He believes that taken together the sales show that “the market has already bottomed out,” and indeed there are signs that the market for medallions may have stabilized. New York City closely controls the issuance of medallions, which number around 13,600 which prevents further devaluation. The problem is that given the market declines, many medallion owners owe more than the value of their medallions. (Berger) Once Uber entered the New York City market, too many drivers were chasing too few passengers and that pressure seems unlikely to change.

While it was originally assumed that Uber was only targeting neighborhoods with an already limited supply of taxis, this appears to not be the case.  

This graph demonstrates that there is an increase in Uber drivers in the central business district, which is known to be a hotspot for taxi hailers. From June 2013 to June 2015, Uber’s pickups in the central business district rose from around 175,000 to 1.8 million, while taxi pickups have fallen by around 1.4 million. This means that in a neighborhood where Uber and taxis directly compete, only 13% of the growth in Uber rides resulted from a growth in demand. The remaining 87% have replaced trips that would have gone to taxis. Additionally, passengers tend to use Uber more for late night trips due to its convenience and comfort. Citywide, taxi rides between the hours of 11pm to 5am have fallen by 22% from June 2013 to June 2015, while taxi ridership has declined by 12% in the hours of 5am to 11pm. (“A Tale of Two Cities”) Given the meaningful market share of Uber, it is clear that many passengers seems to favor Uber’s services. 

Uber’s original business approach was geared towards growing quickly so that others couldn’t replicate its model. CEO Travis Kalanick instilled a hyperactive management style that valued speed over integrity. He did this to preemptively wipe out competition by gaining market share and dollar gains in its early days. However, the finish line for this strategy is yet to be in sight. Despite the disruptive effects of Uber’s aggressive pursuit of market share, the overall demand for rides is still surging. Uber has recorded that the number of completed rides in the first quarter of 2017 has tripled compared to the first quarter of 2016. Currently, the momentum of the company coupled with its $7.2 billion cash hoard should ensure Uber’s survival. Looking forward, Uber’s best plan of action would be to engage in vertical integration in order to beat out its competition. This would consist of controlling the newest automobile technology. While Uber does not seem to be willing to lock down its employees using employment contracts, it could dominate the market by eventually owning a fleet of self-driving cars. These vehicles could be the realization of Uber attaining tech-giant status. (Mims)

Uber’s business model relies on the network effect. This means that the indirect values and goods of the company grow as more people use the service. Uber was able to out-compete traditional taxis with lower prices. However, it is impossible to determine how long Uber can maintain these low prices. Uber does offer its customers other advantages in addition to pricing. It provides ease of use through its simplified ordering process, ability to track the driver, simplified payment process, and easy ability to split fares. It instilled practical features such as its method of rating drivers, its consistent branding, its electronic receipts, and its choice of cars which range from standard to lux. The business model of Uber in itself is quite simple. It does not own any cars so all that is required is the use of technology to connect drivers with rides. The company, then, takes a portion of the transaction. In the early stages of the company, Uber spent almost no money on marketing relying on word of mouth. Uber’s initial challenges consisted primarily of: how easily and cheaply competitors could replicate the service. Competitors could improve on Uber’s model in certain cities and take market share. Additionally, the requirement that Uber launch in many cities around the world in order to preempt competition was difficult to manage. Clearly, Uber’s biggest obstacle is competition. (Koch)

In seeking growth, Uber hugely effected the lives of taxi drivers. Some drivers suffered extreme consequences. Nicanor Ochisor was an immigrant from Romania who worked as a NYC taxi driver. Ochisor had bought his medallion almost three decades ago. Initially that was an excellent investment, but after the introduction of Uber, the value plunged by 2018. Despite working 12 hour shifts, he was bringing home less money than before. In March of 2018, Nicanor Ochisor committed suicide. There has been a marked increase in deaths of drivers  given the economic pressures facing many taxi and livery drivers. Between January of 2018 to May of 2018, 4 drivers took their own lives. (Fitzsimmons) The situation has become so drastic that it has become clear that regulations are needed to prevent Uber and other similar services from destroying the taxi industry. 

To combat Uber’s growth, the New York City Council created a cap on the number of for-hire delivery and transportation vehicles in the city. Additionally, in August 2018 the council put a halt on issuing new for-hire vehicle licenses for 12 months giving the counsel time to study the rapidly growing industry. Companies like Uber and Lyft will be required to provide the council data on usage and charges or they will face a $10,000 fine for noncompliance. New York is Uber’s most profitable market, yet it is the first United States city to propose a temporary restriction on the total number of vehicles. Yellow taxis are a staple of New York and the council is fighting to keep them afloat. Uber is arguing that creating a cap will leave drivers without an income. It will also disproportionately harm low-income and minority residents in New York’s outer boroughs who lack easy access to many forms of public transportation as well as access to taxi services. (Wodinsky) Despite Uber’s protests, New York does plan on mandating benefits for Uber drivers with these new changes. 

New York City regulators are planning on raising wages for Uber and similar services. Uber is known to be less expensive and more comfortable than taxis, but many of the drivers are struggling to earn a good living given the pay structure. Under the new regulation, if a driver’s profit fall below $17.22 per hour over the course of a week, the companies will be required to make up the difference. Currently, in New York City, about 40% of drivers have incomes so low that they qualify for Medicaid while about 18% qualify for food stamps. Some drivers bought vehicles believing the claim that they could make up to $5,000 during their first month of driving. They now feel trapped as their earnings fall short. (Fitzsimmons, Scheiber) Uber’s objection is that this will cause a rise in prices for consumers. This impact on pricing actually helps the regulators’s initiative. If Uber must pay their drivers higher wages, then the number of drivers hired will be limited and the cost of Uber will go up. Being unable to hire more drivers will enforce the cap on Uber and higher Uber prices will create more equal competition between Uber and taxi drivers. 

Taxi drivers in European cities have also faced decline in business due to Uber. The responses there have been more aggressive. In London, drivers brought streets around Trafalgar Square to a stop while honking their horns and holding signs in protest of the new technologically savvy driving services. In Madrid, hundreds of drivers marched through the streets blowing whistles. One banner read, “For the security of passengers and the future of taxis: Uber is illegal.” Also in Madrid, protestors surrounded and pounded on two black sedans that were unlicensed taxis. The front and rear windows of the one of the cars were broken. In Italy, taxi drivers handed out leaflets denouncing Uber and hung a banner that read, “Illegality Reigns Sovereign!” In Naples, dozens of taxi drivers protested in the city’s center, blocking traffic for hours. In Paris, hundreds of cabbies led strikes causing traffic jams and altercations between taxi drivers and drivers for other services. Finally, protests spread as far as Rio de Janeiro. While the city prepared itself for the 2014 World Cup, dozens of taxis formed lines and moved slowly along the Copacabana. (Fleisher) Clearly, taxi drivers around the world are prepared to fight for their jobs.

Uber was created as an industry disrupter seeking to defeat many of its competitors. Uber’s goal was to revolutionize the for-hire car service industry. The strategy was to grow quickly and gain a large customer base. Uber accomplished its goal by starting up in cities all over the world and by providing low prices. Unfortunately, this strategy decimated traditional taxi companies and its drivers and owners. Taxis have experienced massive declines in ridership which is especially felt in New York City where Uber has one of its largest customer bases. While regulations have been put in place to help the taxi industry, it is unclear whether these trends will ever be reversed. 

https://www.wsj.com/articles/with-kalanick-out-ubers-troubles-are-just-beginning-1498049054

https://www.entrepreneur.com/article/286683

https://www.cbsnews.com/news/how-much-is-a-nyc-taxi-medallion-worth-these-days/

https://www.wsj.com/articles/is-the-market-for-new-york-taxi-medallions-showing-signs-of-life-1516228199

https://www.nytimes.com/2018/07/02/nyregion/uber-drivers-pay-nyc.html

https://www.theverge.com/2018/8/8/17661374/uber-lyft-nyc-cap-vote-city-council-new-york-taxi

https://www.nytimes.com/2018/05/01/nyregion/a-taxi-driver-took-his-own-life-his-family-blames-ubers-influence.html

https://www.wsj.com/articles/londons-black-cab-drivers-protest-against-taxi-apps-1402499319

https://www.economist.com/united-states/2015/08/15/a-tale-of-two-cities

a hukou book’s photo (photo by Chengdu Living)

A Chinese migrant worker couple Jianhong Fang and Zhou Wang have worked in Suzhou, one of wealthiest cities in China with high GDP per capita 145,205 CNY (21,868 USD), for the past 15 years. They work at the same electronic factory, earn money to support their daily lives and send the rest of the earnings to their parents and eight-year-old son Ming Wang.

Ming Wang has studied at his hometown Yancheng with his grandparents for the past eight years. Although in the same province, Yancheng’s economic development is much slower than Suzhou does. The city’s GDP per capita was 58,299 CNY (8,780 USD) in 2015, 0.4 times of Suzhou’s GDP per capita.

What has distinguished Ming Wang and his parents is the hukou system, a household registration system that the government has implemented to allow each citizen to only enjoy their social benefits in the registration place and then control population imbalance within big cities.

According to the China Labour Bulletin, there were more than 287 million rural migrant workers in 2017, making up 36 percent of the entire working population in China. Because of the natural drive of the economy, workers who were born in an urban area tend to search for a job in a metropolitan area. China’s economic rise has relied on these rural migrants.

Although some workers may access the healthcare and social benefits of their working cities by having their employers paid accumulation funds for them, their children usually cannot go to school in their working cities.

Ming Wang’s hukou is in Yancheng. So, without giving up their satisfying jobs in Suzhou, Fang and Wang may never live together with their little son.

Children like Ming Wang have been called “left-behind children,” which means migrant workers have left their children with family members, usually children’s grandparents, in their hometown.

At the end of 2015, Fang and Wang decided to have a second child after the Chinese Communist Party announced the new two-children policy, which allows Chinese couples to have two children without paying extra fees, would replace the old one-child policy.

After one year, their second son Jin Wang was born. Fang and Wang said because of the revision of the hukou policy in 2014, they may be able to let their second son to be educated in Suzhou.

 

The History & Revision of the Education Hukou Policy

 

The vast population of China requires its government to control labor distributions within each region more effectively. Therefore, since 1949, the Chinese government has used the hukou system to assign each citizen a household registration identity. Each citizen has a hukou that demonstrates his or her name, date of birth, citizen identity number and, most importantly, birthplace. This is a pass for everyone to access education, healthcare, housing and other social benefits locally.

In 1949, due to the lack of transportation and slow-development of the economy, most Chinese citizens tended to stay where they were born.

The hukou system had its first revision in 1958 that set a rural and urban divide. Specifically, children were required to stay at their hukou registration places to achieve an education. However, more migrant workers wanted their children to go to school in the city they worked. For example, although Ming Wang was born in Suzhou, he was still defined by the policy as a migrant child and should go back to his parents’ household registration place to achieve an education. In 2001, 20 percent of the youth population in China were migrant children.

Therefore, hukou policy had its second revision in 2014, which allows migrant children to go to school in cities. This is why Jianhong Fang and Zhou Wang couple immediately had their second child after the new hukou policy and the two-child policy was published.

The Chinese central government and the education department have designed to allow migrant children to receive education in cities. Based on the Chinese Ministry of Education policy, all migrant children are encouraged to complete nine-year compulsory education (six-year elementary school and three-year middle school) in the city that their parents work. According to China’s mandatory education policy, public school usually charge a small fee, which is about 700 CNY (100 USD) per semester.

Zhou Wang said they would keep their second son with them this time.

 

Where Can Migrant Worker’s Children Get Educated In The Cities Now?

 

Public School

Based on the education policy, the education cost of a public school should have no significant difference with a migrant school. Therefore, if given a fair chance, most migrant parents would choose a public school for their children due to the experienced teachers and good-quality equipment there.

However, discrimination among migrant students is still alive at most public schools in the cities, according to the new analysis in the Global Education Monitoring Report.

Reputable public schools in the cities have the right to fill up local students first and usually leave no space for migrant students. Even when some public schools open some seats, local governments and schools request burdensome paperwork to each migrant applicant. For example, in Suzhou, migrant parents need to present at least five supporting documents, which can be proof of residence, temporary resident permit, work permit, income report, place of origin certificate, etc. Human Rights Watch reported that over 90 percent of migrant families could not obtain these documents.

Although public schools are not allowed to charge extra fees to migrant students, some public schools may still request different kinds of renamed fees such as school selection fees, miscellaneous fees or out-of-district fees.

Additionally, transportation is another extra cost for migrant parents who live on the border of the urban and rural area. In Shanghai and Beijing, migrant workers need to reach certain social credits to purchase a car. However, even the point system application process is overwhelming for most migrant workers. Also, the Chinese government has imposed heavy taxes on automotive goods. Therefore, it usually costs a migrant student more than two hours to reach his or her school by public transportation.

These obstacles have forced migrant students to either choose migrant schools or return to their hukou registration places.

Migrant School

Migrant schools, which usually run privately, are a type of schools designed for migrant students who are not accepted by public schools.

For most migrant parents, migrant schools are always their second option. Unlike well-equipped public schools, migrant schools lack teachers, nutritious food supply, facilities and sometimes even licenses.

Some teachers in migrant schools are retired teachers or volunteers or young graduates. According to the 2013 China Labour Bulletin report, the turnover rate among migrant school teachers was about 51 percent in Beijing because most young teachers treated migrant school positions as their stepping stone to public schools.

The overcrowded public facilities and unqualified lunch is another serious issue. Because migrant parents often busier and pay no attention to children’s dinner food, the limited access to drinking water and poor nutrition food at school make children’s health problems worse.

More importantly, the old migrant education policy didn’t allow any private migrant schools; therefore, most current migrant schools are still illegal or have no teaching licenses. In 2011, the Beijing government closed more than 20 local migrant schools.

According to a recent NPR report, a Beijing migrant school’s volunteer said that her students and their parents feel like being kicked out by the city if the government closes their school.

Although the new migrant education policy was published in 2014, it hasn’t spurred some local governments to build more legal migrant schools. So, the plan has not reached out the majority of the migrant population.

 

What Has Caused Returned Students?

 

Migrant workers’ children have made up one of the third student population in China. The new hukou policy has planned to solve their education difficulties. Nine-year compulsory education is one of the most important strategies.

However, discrimination in migrant education cannot be eradicated overnight. ‘Returned children’ refer to the students who have to return to their province of origin after finishing the nine-year compulsory education in the cities.

Furthermore, they have to achieve higher education and take the college entrance examinations, also called gaokao, where their hukou is registered.

The gaokao policy is another invisible disadvantage coming from these children’s hukou. For students who have a hukou of big cities such as Shanghai and Beijing, their college entrance examination is usually designed relatively easy.

In China, most parents have a higher expectation on their children to go to an ideal college because they believe that gaokao is a fair game for every student. If a student wins this game, he or she may have a better chance to enter the middle class. However, the Chinese government still wants to control the population imbalance within a large country. When migrant students pass the scoreline of universities in big cities, they can temporarily hold a city hukou based on their school certificates. The local governments and universities have set score barriers preventing a large number of other provinces’ students from entering their ideal universities.

For example, in 2016, Tsinghua University and Peking University, the top 2 universities in China that located in Beijing, accepted 84 students out of every 10,000 Beijing students and less than three students out of every 10,000 students from other provinces.

Without achieving good-quality education, Ming Wang may never be able to compete with students who have a city hukou. When asked Jianhong Fang and Zhou Wang what kind of future they want for their second son, they said they don’t want Jin Wang to follow Ming Wang’s road.

 

With 130 million subscribers, reaching an estimated 300 million people worldwide, Netflix has become an international phenomenon that has millions of people now binge-watching a variety of TV shows and movies. Netflix has completely disrupted and changed the distribution and content creating landscape in the entertainment industry. What started as a DVD rental delivery service has transformed into a streaming service spending over $11 billion a year on creating original, exclusive content. Netflix has effectively put Blockbuster out of business, is shrinking cable companies by the quarter and has studios scrambling to innovate to avoid being the company’s next casualty. The enormous effect the streaming giant has had on entertainment has led people in the industry to coin the term, “the Netflix effect.”

After Reed Hastings walked into a Blockbuster in 1997 and paid $40 in late fees after returning his VHS copy of Apollo 13, he came up with the idea of Netflix. Blockbuster operated 10,000 stores at its peak and had a market value of $5 billion in 2002 (Harvard Business Review). A company that once seemed unbeatable was being disrupted by a company that offered a more convenient business model and was significantly less expensive – especially without the dreaded late fees. At its beginnings, Netflix was a competitor of Blockbuster but not yet close to putting it out of business. Ironically, in the early 2000s, CEO Reed Hastings wanted Netflix to be bought by Blockbuster. When a deal wasn’t met, Netflix continued to grow on its own. Hastings clearly saw the opportunities the internet offered, and he invested in streaming. In 2007, Netflix launched its streaming service – they were no longer offering the same service as Blockbuster, they were offering more, and at a cheaper price. By 2010, Blockbuster filed bankruptcy and four years later all Blockbuster stores were closed.

Netflix has continued to expand its business, launching its first piece of original content in 2013 with House of Cards. At this point, their stock (NFLX) began to sky-rocket and their number of subscribers domestically and internationally were growing rapidly.

The vast amount of content Netflix was offering – from people’s favorite old TV shows to movie classics to fresh, original content – was extremely valuable to customers, at a still very low monthly fee. Studios and networks were benefiting off of Netflix as well; they were now able to sell Netflix TV shows and movies that had been collecting dust in their archives for years, and begin to make money off of that property again. It is cable companies who began to see “the Netflix effect” after the launch of original content in 2013, and have suffered tremendously ever since.

Netflix subscribers doubled from 2012 to 2017 while cable subscriptions were simultaneously declining quarter after quarter. In 2017, total Netflix subscribers surpassed total cable subscribers in the United States (Forbes).

More and more people started to see the value in cutting their expensive cable subscriptions for cheaper, commercial-free content. This had led cable providers, like Xfinity, to launch their own streaming services. But these have not been successful – live sports are the only thing keeping cable companies afloat at the moment.

As of December 2016, Netflix had a 75 percent market share in the streaming services market. YouTube was closest behind, at 53 percent, while Hulu, Amazon and HBOGo were all competing closely for market share (TechCrunch). While Netflix still maintains its dominance in the market, the landscape of competitors is about to drastically change, with traditional studios entering the market.

Netflix is now heavily spending on original content and this has studios, who were once working harmoniously with the company, trying to compete directly with them through launches of their own streaming services. Disney pulled all of their content off of Netflix earlier this year in preparation for the launch of their direct-to-consumer service, Disney+. Similarly, WarnerMedia has announced they are launching a streaming service, using their library of 7,000 films and 5,000 TV shows in order to attract customers.  Additionally, there have been massive moves towards consolidation in the industry – most recently with Disney purchasing 21^st Century Fox, effectively eliminating an entire studio. Disney now has more content at their disposal, and one less competitor trying to edge out Netflix.

Netflix has been challenging the studio system for a few years now, forcing them to modify their traditional practices. They have lured some of the most coveted industry talent away from their long-time studio homes with enormous contracts. Ryan Murphy, creator of Glee and American Horror Story, signed a $300 million deal with Netflix, leaving 21^st Century Fox. Creator of Grey’s Anatomy, Scandal and How to Get Away with Murder, Shonda Rhimes, left ABC (Walt Disney Co.) after over a decade for a $150 million deal. These deals have not only increased hostility between Netflix and studios, but they have changed the entire economic system of the industry. Producers used to own a piece of their shows outright, potentially earning hundreds of millions of dollars by selling the rights to reruns. Tom Werner, for instance, made enough money from The Cosby Show and Roseanne to buy a sports team. Friends creators and talent are still earning residuals every time an episode is aired on Nick At Night or TBS – or sold to Netflix. There’s no back end on Netflix. “You get more upfront with less risk, but potentially less upside in success,” explains Chris Silbermann, Rhimes’s agent at ICM Partners. Rhimes now is working on developing and producing several shows at once through Netflix, something she would not have been able to do at ABC.

In order for studios and networks to maintain their top talent, they must now offer extremely competitive contracts to their employees. Warner Bros. recently offered one of their star producers, Greg Berlanti, a contract worth $400 million to stay at Warner Bros. until 2024. Berlanti currently has fifteen shows on the air, the most of any TV producer in history. Warner Bros. cannot afford to lose him and his success, so they must pay the extremely high price that Netflix has set for them. Lionsgate and Disney have made similar deals with their top executives. Traditional studios are tired of Netflix, and they are beginning to fight back relentlessly. A talent agent at Creative Arts Agency, Joe Cohen, has noted how harsh of an environment this has become in the industry, “There is a lot of crazy stuff happening in the market today, and there is an aggressive dividing line between what is now considered old media companies and new media companies.” This is a line that old media companies are trying to blur as much as they can, and have put an enormous amount of their efforts and money into doing so.

All of these major changes in the entertainment industry prompted by Netflix’s disruption are so significant, and have gained so much media attention, because the industry has not shifted this much and this dramatically since 1948. Then, the supreme court hearing, United States v. Paramount, ended studios being able to own theaters and exclusively show their own movies at those theaters. The studio system completely collapsed and studios were forced to adjust. Now, the old media companies, which now encompass the studios, must adjust to the disruptions caused by Netflix and begin to innovate themselves. The result is an aggressive environment, with no signs of the growing disruptor slowing down. For reference, AT&T shares have sunk 15 percent in five years compared to a 480 percent rise for Netflix.  (The Hollywood Reporter)

With all of Netflix’s massive successes – unbelievable subscription numbers, huge international reach and 112 Emmy nominations in 2018 – it is easy to overlook their massive debt problem. They spent $11.7 billion on new content in the last year, but only brought in $14 billion in revenue. The reality is, Netflix is a barely profitable company that has approximately $10 billion in outstanding debt, with no signs of slowing down on their spending. Steven Birenberg, founder of Northlake Capital Management, notes, “Netflix seems to have proved that a model of all types of content, all genres for all people, can be successful — at least if success is measured by subscribers.”

With more players entering the direct-to-consumer market, many industry professionals are wondering how sustainable Netflix’s business model is. Many financial analysists already believe that Netflix stock is overvalued, but when their market share soon begins to be eaten into by streamers with a library of premium content, they will no longer have such a unique business. Big tech companies like Amazon and Apple, who have a lot of money to spend, are also working for their share of the pie in the streaming space. With the potential of Netflix being disrupted itself in future years, investors will likely take notice to the change in landscape and urge Netflix to cut back its spending in order to maintain long-term success. Already in the last six months, NFLX stock has declined dramatically – a perceived correction of an over-evaluation by analysts and investors.

Not only are all of these changes affecting companies internally, and within the Company Town of Los Angeles, but navigating this new landscape poses a potential challenge for consumers. It will be a battle among marketing and public relations professionals to communicate to them in the future. Will a single household be subscribing to Netflix, Hulu, HBOGo, a Disney service and a Warner Bros. service? Or will there be even more consolidation?

 

Sources:

https://www.hollywoodreporter.com/news/netflix-effect-can-rivals-compete-by-bulking-up-content-1162416

https://www.hollywoodreporter.com/features/welcome-hollywoods-new-age-anxiety-1127792

https://www.forbes.com/sites/ianmorris/2017/06/13/netflix-is-now-bigger-than-cable-tv/#217b95cf158b

https://hbr.org/2013/11/blockbuster-becomes-a-casualty-of-big-bang-disruption

https://www.latimes.com/business/hollywood/la-fi-ct-att-streaming-service-20181010-story.html

https://www.bloomberg.com/news/articles/2018-10-04/netflix-is-forcing-hollywood-into-a-talent-war

Netflix reaches 75% of US streaming service viewers, but YouTube is catching up

Widespread fires burn through thousands of California homes year over year. This doesn’t only affect the homeowners and their families but also lays immense pressure on firefighters in these dry areas in addition to the struggles of insurance companies that insure these households and properties that are prone to blow up in flames.

The aftermath of recent Northern California wildfire. Source: NBC News

Considering the recent fires burning through Northern and Southern California, I am discussing the economic impact that this disaster-prone state has on insurance companies. As one of the driest states in the United States of America, it seems like insurance companies struggle as California officials don’t do much to mitigate these risks. There is not much of a boundary for homeowners to build on land that is so dry that the probability of a wildfire is high. It feels like these fires that happen on a yearly basis are not enough for someone to take a step in the direction for safer housing, which would result in insurance companies saving money, as well. While public resources are spent defending or salvaging what is left of those homes which shouldn’t have been built in the first place, insurance companies must defend themselves or they are at risk for driving themselves out of business.

As California residents sift through the ash and hope to rebuild, funds may be insufficient, as insurance companies don’t need to cover one homeowner’s lost property, but the entire community (if not more). According to a Forbes article discussing insurance and loss of use for the recent victims of the Woolsey and Camp Fire in Los Angeles and Ventura County, “What is often overlooked is loss of use coverage. How long will it take to repair or rebuild?” (Gorman). Loss of use, or living expenses during the duration of the recovery process, usually covers living expenses and rental value. Although, not all insurance plans have this, and when a fire causes destruction, Californians may be surprised when their insurance companies don’t fully cover these temporary living costs. Homeowners in these high-risk areas must understand that in cases of natural disasters, they may be left with a much lighter wallet than expected.

According to a Los Angeles Times article discussing fleeing insurers, insurance companies in high-risk areas for natural disasters are no longer agreeing to insure homes. For example, a couple living in Lake County in Northern California is denied insurance. In the area which the couple resides, “50% of the land has been burned by fires in the past several years” (Newberry). With an already expensive premium of $2,100, their rate had skyrocketed to $5,800 in only two years (Newberry). The increase in California wildfires leads to more fleeing insurers. What insurers have continued to do in California is to inflate the price of insurance in high-risk areas to veer builders away from this land, and make home buyers think twice before buying a property with a likelihood to catch fire.

The Los Angeles Times article also provides statistics on the California Department of Insurance: This department acknowledges that the trend of inflating insurance prices is a rational and fair response on the part of the insurance companies. In 2017 alone, they “received nearly $12 billion in claims from wildfires that destroyed more than 32,000 homes. It makes sense that companies will write fewer – if any – policies in areas where they predict losses will outweigh what they can recoup through premiums.

What’s next? Legislators must act to protect home buyers and homeowners who have made efforts to reduce wildfire risk.

The Nature of Wildfires

The risks of more intense wildfires ahead increase due to climate change and the expansion of urban living near forest areas. The geography in California, especially near the coast which is a popular place to live is mountainous and dry. There are dense populations living in California locations which have a high risk of wildfire around them. According to Lloyd’s report, Wildfire: A Burning Issue for Insurers, global warming “is expected to increase average global temperatures and, in some regions, drought frequency and severity will increase” (Doerr). This could lead to a longer season of more frequent fires.

The Lloyd’s report, Wildfire: A Burning Issue for Insurers, also discusses the socio-economic and land use changes in society: “Population growth at the fringe of urban and wildland areas in North America has raised the likelihood of wildfire ignitions, whereas rural depopulation and abandonment of traditional agriculture has led to vegetation build-up, increasing the risk of severe fires” (Doerr).

Not only is it important to understand the weather and living trends of people to analyze potential risk of fires, but sometimes fires start from actions out of our control. Maybe lightning strikes a tree in the middle of a desert, or someone forgot to stop their cigarette from burning. In densely populated areas, accidental human ignitions are a common cause to wildfires. These wildfires pose a threat to lives and infrastructure; massive losses can occur, which will affect insurance companies.

Wildfire Risk

Recently, the insurance industry has taken hit after hit with regards to covering damage due to California wildfires. The threat of wildfires extends beyond the months of summer, but even when the Santa Ana winds blow in the fall.

According to Risk and Insurance’s article about living with wildfire risk, “The evolution of wildfire risks creates challenges for the insurance industry, especially as events occur more often in areas with significant insurance penetration” (Amaral). Therefore, the expected increase in wildfires in urban areas will have some implications for the insurance industry.

Risk and Insurance further discusses the risk management which insurance companies undergo to protect their companies. According to Kevin Van Leer, product manager at RMS (Risk Management Solutions), “‘From a (risk) modeling point of view, probabilistic methods can enable insurers and reinsurers to better manage their accumulations of exposure, particularly in the wildland-urban interface.’ But several challenges remain on proper aggregation of exposures” (Amaral). Factors like the amount of rainfall in the summer and snow in the winter must be considered to understand and mitigate risk. The unpredictability of weather trends leaves insurance companies walking on eggshells deciding which areas to choose are the most prone to yet another fire.

Mitigating Risk

For less houses to be burned down and more healthy and happy humans to live in society, a joint effort between public agencies and private owners is necessary. According to Lloyd’s Wildfire: A Burning Issue for Insurers, “Different public policies can increase the commitment of private landowners, such as subsidizing private spending on fuel treatments, enacting legislation that marries insurance availability and premiums to risk mitigation behavior and providing education about wildfire risk and mitigation. For instance, laws exist in some US states that require fuel treatments on private land” (Doerr). But, why don’t laws exist in all US states, especially the states more prone to fires? Although the government and insurance agencies have taken steps to fix the problem, there is still a long way to go.

Inflated premiums could prove effective, as it would drive away the lower income homeowners that are unlikely to pay a high insurance premium each month. Although, the wildfire risk affecting more valuable homes still poses an issue for insurance companies even if the homeowners can afford it. In a case when the home burns down, the insurance companies are still accountable for paying the losses. Rather than raising premiums in high-risk areas, insurance companies should minimize areas available for homebuilding.

Introducing zoning regulations prohibiting or limiting building in high wildfire risk areas would be a significant advancement in wildfire mitigation.

Often, homeowner’s and insurance agencies’ preferences differ. Neighborhoods form as many homeowners adore the natural aesthetic living in wildfire-prone areas; therefore, effective mitigation should be enforced on a neighborhood level. Insurance companies must zone these high-risk areas by either restricting all homeowners to build property. The other option is restricting none, but inflating the insurance premiums higher than their 3 story roofs. Insurance companies will need to offer similar mitigation efforts for adjacent properties to maintain homeowner trust and commitment.

The “new normal” which insurance companies face is almost double the costs of damages from the previous year. Based on Insurance Journal, an analysis from Moody’s breaks down the losses of the recent fires in Northern and Southern California. The losses in California generated last year were around $12.5 billion, while these recent fires in the past few weeks alone have predicted losses of $6.8 billion— and fire season is not finished just yet (Jergler). With years of wildfire history showing fires worsen year over year, it is shocking to see neither insurance companies or government agencies taking more action to minimize the risk.

What the Future Holds

Milliman, a management consulting published an article written by consulting actuaries David Chernick and Paul Anderson, about how insurance companies react to California wildfires. While California real estate continues to rise, “the amount of coverage selected by policyholders had not kept pace with the increase in home values, especially on policies that were 10 or more years old” (Anderson).

Paul Anderson is asked how wildfires will affect insurers’ future decisions on where to write policies. After a major wildfire, insurance companies will “look to re-underwrite their books to ensure that their exposure and their risk are appropriately spread out in these wildfire-prone areas” (Anderson). Chernick adds that companies should not write insurance policies for an entire area, as a natural disaster can spike the losses if insurance companies write policies for all houses in a concentrated area (Chernick).

Getting insurance is becoming harder as companies reject to insure houses just close enough to the woodlands that a spark of fire could burn up an entire city. There are many of those houses still standing in California. In an article explaining the effect of wildfires on Insurance companies in California published by the Insurance Journal, author Sarah Skidmore Sell discusses that it is harder for in-state residents to find and hold on to insurance (Sell).

“We are not at a crisis point yet, but you can see where the trends are going,” Insurance Commissioner of California, David Jones, stated in an interview (Sell). Jones’ expectations for the future of insurance companies is to “opt not to renew policies or to simply stop writing homeowners policies in areas with the highest fire risk” (Sell). Rate increases and reclassifications of fire-prone areas are also expected.

As claims continue to settle and policyholders and insurance companies undergo huge losses during times of natural disaster, it is shocking that we haven’t seen any necessary corrections in the insurance industry.

Rather than targeting the main issue that has led to the most disastrous fires of all time—climate change—insurance companies are canceling policies, boosting their prices and crossing their fingers that they get lucky enough to insure houses that don’t burn down.

How Insurance Companies Should Protect Themselves

According to the Union of Concerned Scientists, “the effects of global warming on temperature, precipitation levels, and soil moisture are turning many of our forests into kindling during wildfire season” (Is Global Warming Fueling..). The dry and hot areas in California are getting drier and hotter. This article on global warming impacts proves that global warming is a pressing issue that insurers must face: In the western United States, wildfires have been “increasing in frequency and duration since the mid-1980s. Between 1986 and 2003, wildfires occurred nearly four times as often, burned more than six times the land area, and lasted almost five times as long when compared to the period between 1970 and 1986” (Is Global Warming Fueling..).

Mike Scott, a contributor to Forbes who writes about the intersection of the environment and business, questions why insurance companies are not investing in a low-carbon economy. “The impacts of climate-related risks are a growing reality for the insurance sector. This reality has key implications for that sector’s valuation,” the report adds. “Weather-related financial losses, regulatory and technological changes, liability risks, and health impacts related to climate change have implications for the business operations, underwriting, and financial reserving of insurance companies.”Yet, the insurance industry is not aligning itself with initiatives to improve the issues that are causing the insurance companies to bury themselves in their own grave.

 

Works Cited:

Amaral, Rodrigo. “Living With Wildfire Risk.” Risk & Insurance, 12 Sept. 2017, riskandinsurance.com/living-wildfire-risk/.

Anderson, Paul, and David Chernick. “California Wildfires: Implications for Insurers and Policyholders.” Milliman, 2 Nov. 2007, www.healthcarefinancenews.com/news/transitional-policies-risk-corridor-tweaks-bring-new-market-implications.

Gorman, Megan. “What California Wildfire Victims Should Know About Insurance And Loss Of Use.” Forbes, Forbes Magazine, 18 Nov. 2018, www.forbes.com/sites/megangorman/2018/11/13/what-california-wildfire-victims-should-know-about-insurance-and-loss-of-use/#19d68f4e5423.

“Is Global Warming Fueling Increased Wildfire Risks?” Union of Concerned Scientists, 24 July 2018, www.ucsusa.org/global-warming/science-and-impacts/impacts/global-warming-and-wildfire.html#.XAdAky2ZOu4.

Jergler, Don. “How Insurance Industry Might React to ‘New Normal’ of California’s Historic Wildfires.” Insurance Journal, 14 Nov. 2018, www.insurancejournal.com/news/west/2018/11/13/507414.htm.

Johnson, Alex, et al. “ Northern California Wildfires Claim at Least 15 Lives as More Than 100K Acres Burn.” NBCNews.com, NBCUniversal News Group, 10 Oct. 2017, www.nbcnews.com/storyline/western-wildfires/one-killed-major-wildfires-ignite-overnight-across-northern-california-n809206.

Newberry, Laura. “As California Fire Disasters Worsen, Insurers Are Pulling out and Stranding Homeowners.” Los Angeles Times, Los Angeles Times, 31 Aug. 2018, www.latimes.com/local/lanow/la-me-ln-wildfire-homeowners-insurance-20180830-story.html.

Sell, Sarah Skidmore. “Fires May Make It Harder for Homeowners to Get Insurance in California.” Insurance Journal, 14 Aug. 2018, www.insurancejournal.com/news/west/2018/08/14/497977.htm.