Marketplace - American Public Media

Snapchat worth as much as Campbell's Soup?

Tue, 2015-03-17 14:03

Pinterest is the latest company to get a multi-billion dollar valuation. But how do investors and the startup founders decide what a company is worth in the first place?

Marketplace host David Gura spoke with Sarah Frier of Bloomberg Business to find out.

“The founder will go out and take meetings with venture capitalists, sovereign wealth funds, institutional investors like the big banks who are trying to get in on these big deals and they’ll negotiate,” Frier says. 

Take Snapchat, for example. The company is valued at almost $15 billion — which might be proof that a messaging app is worth about as much as Campbell’s Soup, a company that actually makes food.

“What you don’t hear is the steps that it took to get there,” Frier says.

Companies are realizing how easy it is to get funded by venture capitalists. And investors are eager to provide that cash.

“It’s easy to go to investors who have fear of missing out on the next Google or Facebook. They want to get in your company early,” Frier says. 

Much ado about rusting

Tue, 2015-03-17 12:33

Every year, the U.S. military spends more than $20 billion combatting the effects of rust. Rust takes ships out of commission and even grounds warplanes. In the civilian world, rust damages vital infrastructure such as bridges, the neglect of which can wind up costing money … and lives.

“We associate it somewhere between cholesterol and hemorrhoids,” says Jonathan Waldman, author of the book, “Rust: The Longest War.” “There’s a database where you can look up all of the State of The Union addresses, and if you look up the word ‘rust,’ you’ll find mention of the word ‘thrust,’ and ‘trust,’ but you won’t find the word, ‘rust.’”

It’s not like President Obama hasn’t had to deal with the problem, there's even an office of Corrosion Policy and Oversight, headed by Daniel Dunmire -- the “Rust Czar,” if you will.

“For what it’s worth, his boss’s boss reports to the President,” Waldman says.

Waldman contends that if we don’t rethink rust, corrosion will continue to cost us billions annually. And he says simply painting over the problem isn’t enough.

“I think the solution going forward is one of addressing maintenance and thinking about the long term livelihood of what we build, and not necessarily some new fancy alloy that nobody can afford that is hard to manufacture in the first place.”

An excerpt from “Rust: The Longest War”

They say a lot of things about boats. They say a boat is a hole in the water that you throw money into. They say boat stands for “bring out another thousand.” They say that  the pleasures of owning and sailing a boat are comparable to standing, fully clothed, in a cold shower while tearing up twenty-dollar  bills. Consequently, they say that  the best day of a sailor’s life, aside from the day he buys a boat, is the day he sells it.

Ignoring all of this wisdom, I bought a forty-foot sailboat. This was at the end of 2007. She was in San Carlos, Mexico, at a pretty marina on the Sea of Cortés. There were palm trees and haciendas, with deep sparkling water to the west, a rugged volcanic tower to the east, and an immaculate Sonoran sky overhead. With  two friends, we split her three ways. I’d thought  she was a bargain, but the marina was more bonita than our new boat.

Our sloop was thirty years old, and showed her age. There were little rust rings around every screw on the deck, rust stains on the stanchions, bow pulpit, and pushpit, streaks of rust down the topsides. A white powder surrounded the rivets in the mast. The jib car tracks had corroded so badly that  there was a layer of goop beneath  them. Some of the bronze through-hulls  had turned a frightening green, while a few of the seacocks were so corroded that they wouldn’t budge. The stainless steel water tanks had rusted, too, and they leaked. Her appearance was at first so grim that I wished we had named her the Unshine, which would have been a very easy change from Sunshine. Instead we chose an obscure Greek word that nobody could pronounce or define.

But if Syzygy had cosmetic defects, we didn’t care. Then we took her sailing. The diesel engine overheated on the way out of the marina, because the heat exchanger was caked up with rust. The reef hook had rusted so badly that  it snapped the  first time we furled the  mainsail. Blocks had seized up, and the winches were so tight they offered little mechanical advantage. The wind vane almost fell off. Instruments  didn’t work, because the copper wires winding through  the bilge had corroded so thoroughly that  they no  longer conducted  electrical current. Shackles, turnbuckles, clevis pins, chain plates, backing plates, furler bearings, engine parts, the windlass axle—everything that could rust had rusted. Water, salt, air, and time had taken their  standard  toll, and corroded my bank account, too. That’s how rust ate into my life...

Rust has knocked  down  bridges, killing dozens. It’s  killed at least a handful of people at nuclear power plants, nearly caused reactor meltdowns, and challenged those storing nuclear waste. At the height of the Cold War, it turned our most powerful nukes into duds. Dealing with it has shut down the nation’s largest oil pipeline, bringing about negotiations with OPEC. It’s rendered military jets and ships unfit for service, caused the crash of an F-16 and a Huey, and torn apart the fuselage of a commercial plane midflight. In the 1970s, it was implicated in a number of house fires, when, as copper prices shot  up, electricians resorted  to aluminum wires. More recently, in the “typhoid Mary of corrosion,” furnaces in Virginia houses failed as a result of Chinese drywall that contained strontium sulfide. They rusted out in two years. One hundred fifty years after massive ten-inch  cast iron  guns attacked  Fort  Sumter,  rust  is counterattacking. Union forces have mobilized with marine-grade epoxy and humidity sensors. Rust slows down container ships before stopping  them  entirely by aiding in the untimely removal of their propellers. It causes hundreds  of explosions in manholes, blows up washing machines, and launches water heaters through  the roof, sky high. It clogs the nozzles of fire sprinkler heads: a double whammy for oxidation. It damages fuel tanks and then

engines. It seizes up  weapons, manhandles  mufflers, destroys highway guardrails, and spreads like a cancer in concrete. It’s opened up crypts.

Twenty-five miles northeast of San Francisco, one of the country’s largest rust headaches bobs at anchor in Suisun Bay, and puts Syzygy to shame. Fittingly, the National Defense Reserve Fleet belongs to the US Department of Transportation, an agency that nearly plays God in its attempt to placate the needs of man and machine. Scores of people inspect on a daily basis as many old merchant  ships that, in earlier extralegal times, would have been scuttled offshore. Now, the ships are too fragile to be hauled out and repainted, and not worth towing to Texas to be scrapped. Lacking other options, to Texas they’ve gone. Confounding  matters, the US Coast Guard  insisted in 2006 that the hulls of the ships be cleaned of invasive mussels before being moved, while the  California  Water  Quality  Control Board demanded  that  the bay not be polluted during said cleaning, and threatened  to fine the Maritime  Administration  $25,000 a day until it came up with a plan. Environmental  groups sued, demanding  studies. While  ten biologists, ecologists, toxicologists, statisticians, modelers, and mapping experts collected clams and mussels and took hundreds of sediment samples, the ships went on rusting. Big surprise: they contaminated the bay. At least twenty-one tons of lead, zinc, barium, copper, and other toxic metals have fallen off of the ships. What  to do about the Reserve Fleet conundrum is such a touchy question that Senator Dianne Feinstein, who has a position on every environmental issue in California, officially has no position on the matter.

On the other coast, two dozen flip-flop-wearing employees of the US Naval  Research  Lab  fill their  time  studying  corrosion-resisting  paints under palm trees at Naval Air Station  Key West. Long before the place was an air station, in 1883, the Naval Advisory Board tested anticorrosive concoctions there, because rust was plaguing the navy. Today’s paints self-heal, or can be applied underwater, or change color when exposed to rust—and still, rust plagues the navy. Rust, in fact, poses the number one threat to the most powerful navy on earth. By many measures, and according to many admirals (who sound as if they’re employed by the DOT), the most powerful navy on earth is losing the fight. The name of one of the department’s annual maintenance  conferences: Mega Rust. The motto  of that Florida lab: “In rust we trust.”

Fewer homeowners are now 'underwater'

Tue, 2015-03-17 10:19

From 2009 to 2011 — after home prices had crashed in the wake of the housing crisis — more than 25 percent of American homeowners were underwater. CoreLogic now reports that as of the end of 2014, 10.7 percent of homeowners were underwater: A situation also known as negative-equity, in which a homeowner owes more on their mortgage(s) than the house is currently worth.

Percentage of U.S. homeowners who are 'underwater' and have negative-equity in their property, i.e., they owe more on their mortgage (or multiple mortgages) than the mortgaged property is currently worth.  

CoreLogic

CoreLogic senior economist Frank Nothaft says some of the decline in negative equity in recent years is due to underwater homeowners losing their homes to foreclosure, or eliminating their mortgage through a short-sale. But he says most of the improvement has resulted from the gradual rise in home prices. Nothaft anticipates that the improvement will continue, with home prices rising 5 percent in 2015.  

CoreLogic reports that some states still have very high rates of negative equity: Nevada (24 percent), Florida (23 percent), Arizona (19 percent), Mississippi (17 percent), Illinois (16 percent), Rhode Island (16 percent), and Ohio (15 percent). Those rates have also fallen; as many as 50 to 75 percent of homeowners were underwater in some of these states during 2009-11.

CoreLogic

The current nationwide negative-equity rate of 10.7 percent is still extremely high by historic standards, says Nothaft. “We still have about 5 million homeowners underwater, but continuing to be current on their mortgages and making their monthly payments,” he says.

Such a homeowner may not face foreclosure or bankruptcy, but they’ll find it difficult to sell — to upsize or downsize as their lifestyle or family-composition changes — or to relocate to a different region for better job opportunities or retirement.

“I think of it as freezing people in place,” says Kenneth Johnson, senior demographer at the University of New Hampshire's Carsey School of Public Policy. Domestic migration fell dramatically during and after the recession, he says, with people’s mobility limited by “houses they couldn’t sell and fear of changing jobs.”

Now, domestic migration is picking up again. Johnson says a direct causal link to the improving job and housing market is hard to prove, but he believes that’s part of what’s driving the change.

“One of those places where we're seeing growth pick up is in amenity and retirement areas, places with lots of golf courses and things like that,” says Johnson. Florida, for instance, is again gaining population — likely driven in part by retirees selling their homes in northern climes.

Also, employers are now competing more aggressively for qualified workers, says economist John Canally at LPL Financial. So a potential employee who is locked in by negative equity might now be able to move, care of their new employer. “Companies today might be a little more willing to help someone who’s relocating,” says Canally, “to buy that person's home in Miami and help them relocate in Dallas, where four or five years ago they were not.”

Fewer homeowners are now 'under water'

Tue, 2015-03-17 10:19

From 2009 to 2011 — after home prices had crashed in the wake of the housing crisis — more than 25 percent of American homeowners were underwater. CoreLogic now reports that as of the end of 2014, 10.7 percent of homeowners were underwater: A situation also known as negative-equity, in which a homeowner owes more on their mortgage(s) than the house is currently worth.

Percentage of U.S. homeowners who are 'underwater' and have negative-equity in their property, i.e., they owe more on their mortgage (or multiple mortgages) than the mortgaged property is currently worth.  

CoreLogic

CoreLogic senior economist Frank Nothaft says some of the decline in negative equity in recent years is due to underwater homeowners losing their homes to foreclosure, or eliminating their mortgage through a short-sale. But he says most of the improvement has resulted from the gradual rise in home prices. Nothaft anticipates that the improvement will continue, with home prices rising 5 percent in 2015. 

CoreLogic reports that some states still have very high rates of negative equity: Nevada (24 percent), Florida (23 percent), Arizona (19 percent), Mississippi (17 percent), Illinois (16 percent), Rhode Island (16 percent), and Ohio (15 percent). Those rates have also fallen; as many as 50 to 75 percent of homeowners were underwater in some of these states during 2009-11.

CoreLogic

The current nationwide negative-equity rate of 10.7 percent is still extremely high by historic standards, says Nothaft. “We still have about 5 million homeowners underwater, but continuing to be current on their mortgages and making their monthly payments,” he says.

Such a homeowner may not face foreclosure or bankruptcy, but they’ll find it difficult to sell — to upsize or downsize as their lifestyle or family-composition changes — or to relocate to a different region for better job opportunities or retirement.

“I think of it as freezing people in place,” says Kenneth Johnson, senior demographer at the University of New Hampshire's Carsey School of Public Policy. Domestic migration fell dramatically during and after the recession, he says, with people’s mobility limited by “houses they couldn’t sell and fear of changing jobs.”

Now, domestic migration is picking up again. Johnson says a direct causal link to the improving job and housing market is hard to prove, but he believes that’s part of what’s driving the change.

“One of those places where we're seeing growth pick up is in amenity and retirement areas, places with lots of golf courses and things like that,” says Johnson. Florida, for instance, is again gaining population — likely driven in part by retirees selling their homes in northern climes.

Also, employers are now competing more aggressively for qualified workers, says economist John Canally at LPL Financial. So a potential employee who is locked in by negative equity might now be able to move, care of their new employer. “Companies today might be a little more willing to help someone who’s relocating,” says Canally, “to buy that person's home in Miami and help them relocate in Dallas, where four or five years ago they were not.”

Romneycare helps reform how doctors are paid

Tue, 2015-03-17 08:45

For years, Massachusetts has sat at the front lines of health reform. Before we had the Affordable Care Act, there was "Romneycare."

Now, as the Obama Administration looks to better control healthcare spending, the nation once again turns to the Bay State.

How do you spend less on healthcare? One way is to get doctors to stop doing stuff that they get paid to do right now, like order tests, and send patients to the hospital. In Massachusetts, they’re stopping thanks to an agreement between Blue Cross Blue Shield and medical providers, says Harvard’s Michael Chernew.

“It looks like a meaningful reduction in spending, roughly upwards 10 percent of spending,” he says.

The state’s largest insurer effectively gives doctors a budget and a choice: go under and share some of the savings, or go over and face a penalty. Chernew’s work suggest this could be a national model.

The challenge is making sure those incentives don’t make docs stint on care, says primary care Dr. Tim Ferris.

“That could work to undermine the trust between a patient and a doctor. Is the doctor doing everything they can to help the patient,” he says.

Still Ferris, a payment reform cheerleader, says not only can change lower spending, it can also make care more convenient for patients.

 

 

Housing market recovery is limping along

Tue, 2015-03-17 08:45

The Census Bureau and Department of Housing and Urban Development report on residential construction for February is out Tuesday.

Economists expect a moderate decline in housing starts from January, and a slight uptick in housing permits. In January, housing starts were up 18.7 percent from the previous year; permits were up 8.1 percent year-over-year.

Economist Patrick Newport at IHS Global Insight says the housing sector – both homebuilding and existing-home sales – is growing by approximately 5 percent on an annual basis at this point. To contribute meaningfully to the economic recovery, he says the sector would have to grow by at least 20 percent annually.

Instead, he says, “the market for single-family construction has hardly improved at all in the last 18 months.” Multifamily housing is doing much better, with many young people moving to hip urban centers on the coasts — like Seattle, Portland, San Francisco, New York and Washington, D.C. — and choosing to rent or buy small apartments. Luxury home-building is also doing better than the market for single-family starter- and move-up homes; people in upper wealth brackets have experienced more recovery in their assets since the recession ended than lower- and middle-income Americans.

These developments mirror the struggle of many mid-market homebuilders, and their construction workforce. Construction payrolls peaked in March 2007 at 7.7 million; the crash left only 5.4 million construction workers employed by January 2011, a 30 percent decline. Now, construction employment in the U.S. has recovered to 6.3 million—still nearly 20 percent below the peak.

Employment, hours, and earnings in the construction sector, from the national Current Employment Statistics survey.

Courtesy:Bureau of Labor Statistics

“The housing market started crashing about ten years ago, and we’re just barely a third of the way back, so we’re just improving at a snail’s pace,” says Newport.

The biggest challenge is demographic, says Daren Blomquist at RealtyTrac. “With the homeownership rate at historic lows, especially among the younger crowd, the first-time homebuyer is largely absent in this market,” he says.

Female power fuels Pinterest's value

Tue, 2015-03-17 08:43

The buying power and influence of women is fueling interest in Pinterest, the online photo-sharing site that's something of a digital scrapbook.

The company says it has raised $367 million in its latest round of funding, valuing Pinterest at $11 billion — more than double its previous valuation less than one year ago.

"Women still are some of the biggest spenders. They control a lot of the... family budget. In categories where they are not the buyer, they are also an influencer," says Carol Phillips, president of the marketing consultancy Brand Amplitude and professor of marketing at the University of Notre Dame.

Pinterest has some important user stats. Women make up about 70 percent of its users. And, one-third of its users are in $100,000+ households, which is also important, says Don Stanley, who teaches digital marketing at the University of Wisconsin and is founder of 3Rhino Media.

"Pinterest is a mature network," Stanley says, "It has the deepest penetration in demographics that tend to have the higher socioeconomic statuses."

Congressman resigns over Downton Abbey faux pas

Tue, 2015-03-17 08:43

Last month, the Washington Post published a piece about a Republican congressman. 

Aaron Schock, who's 33, had outfitted his Capitol Hill office with "a gold-colored wall sconce," a "crystal chandelier," and "massive arrangements of pheasant feathers." 

All that was inspired by one of the congressman's favorite shows, "Downton Abbey." 

That article raised some questions — namely, about how he paid for that redecoration, and Schock ultimately spent $40,000 to re-pay the government.

Well this morning, Politico reported Schock "billed the federal government and his campaign for logging roughly 170,000 miles on his personal car," but when he sold that car, it "had ... roughly 80,000 miles on the odometer." 

This afternoon, Congressman Schock resigned.

And so, he'll have to give up something that was so important to Lord Grantham: His title.

This.sucks for companies

Tue, 2015-03-17 08:43

ICANN,  the organization that governs internet domain names, recently rolled out hundreds of new domain extensions. We still have ".com" and ".net," but they're joined by ".app" and ".baby," as well as foreign language extensions. 

The domains that had multiple bids went to auction or arbitration, and Google broke records by paying $25 million for ".app". Johnson & Johnson paid $3 million for ".baby" and a Chinese corporation paid $600,000 for ".信息" which is Chinese for "information."

The most controversial new domain may be ".sucks" which will be administered by a company called Vox Populi. They won the rights to administer the extension in an auction — the exact price they paid is confidential. 

Vox Populi says ".sucks" will serve as a place for consumers to publicly air grievances against companies, but the pricing scheme raised eyebrows by allowing trademarked corporations to purchase their ".sucks" domain names early for $2,500

 

Starbucks leaves room for a conversation about race

Tue, 2015-03-17 07:37
21,878

The number of Starbucks locations worldwide as of late 2014. Now, some of those cafes could also start serving discussion on race relations. A new company initiative has baristas writing "Race Together" on cups, and striking up a conversation about racial divides in the U.S. It's upping the ante significantly from McDonald's "Pay with Lovin'" promotion, and it's skewered thoroughly over at the Washington Post's Compost blog.

500,000

The estimated number of Americans who spend any given night homeless on the street. Oakland, California carpenter Greg Kloehn is trying to fight homelessness in his city by building tiny houses on wheels out of salvaged wood, appliance parts and other debris.

$28.5 billion

The bonus pool for securities employees in New York last year, according to a report from the city comptroller last week. That's almost twice the roughly $15 billion all American workers earning minimum wage made in 2014, according to the New York Times' Upshot.

$2,353,077

The total amount of money remaining on former San Francisco 49ers linebacker Chris Borland's contract. Borland announced Tuesday he plans on retiring from the NFL. Borland cited health concerns over concussions for leaving the league after playing professionally for one year.

$33.94

The price for a pack of Gillette Fusion ProGlide razors on Amazon. That's especially startling when razor handles can be purchased more or less for a song. You've always wondered by blades are so expensive, so we looked into it for our ongoing series investigating your questions about business and the economy.

PODCAST: A cost/benefit analysis for playing in the NFL

Tue, 2015-03-17 07:35

First up: San Francisco 49ers linebacker Chris Borland surprised the sports world by announcing he'll retire from professional football at age 24, due to the risks associated with concussions. We chat with Sports Business Journal's Daniel Kaplan about Borland's decision and what it means for the game. Then, it's a short trip over to Oakland, where we talk to carpenter Greg Kloehn, who uses salvaged wood and junk to build tiny homes for people without them.

Quiz: Women at the head of the class

Tue, 2015-03-17 07:32

Most college professors are male, but that’s not the case in earlier education, according to the U.S. Census Bureau.

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Chris Borland retires from NFL, citing brain concerns

Tue, 2015-03-17 07:19

San Francisco 49ers linebacker Chris Borland is retiring at age 24, citing concerns about the long-term health consequences of repeated head injuries.

What makes Chris Borland a unique case is that he’s choosing to leave the NFL without having racked up numerous concussions while playing in the league. says sports economist Victor Matheson, a professor at The College of the Holy Cross.

“Think about Chris Borland as the gambler at the casino,” says Matheson. “He’s been on a great winning streak so far. He’s had a great rookie season, made over a million dollars, and the question is, ‘Is now the time to walk away with the winnings or do you play for a couple extra seasons and let the money ride?’”

Between Borland’s contract and potential endorsements, Matheson says this could be the best paying job the linebacker will ever have -- yet he decided the income wasn't worth the potential health problems. 

It’s a cost-benefit calculation players – at all levels – have to make, says John Culhane, a professor at Widener Law School. He’s studied compensation and health risks in the sport and thinks more players may begin to follow Borland's lead, either in the NFL or in school and recreational leagues.

He says NFL players may decide “if my brain's not operating when I’m 40 years old, it doesn’t matter if I have $5 million or $10 million.”

While it’s difficult to predict the cost of brain injuries, Culhane says players with severe health problems could eventually rack up million dollar medical bills to go with those million dollar paychecks. 

The path to the middle class in China

Tue, 2015-03-17 07:05

It’s three in the morning in the most populated city of the world’s most populated country. Most of Shanghai’s 24 million inhabitants are fast asleep, but it’s rush hour inside the city’s largest wholesale fish market.

The Tongchuan Road market supplies the metropolis with one of its most popular staple foods. Vendors wearing rubber boots rush through miles of twisting, cramped corridors covered with a thick film of fish guts. It’s a slimy, lively labyrinth that’s difficult to navigate, not unlike finding one’s way into China’s elusive middle class.

Zhang Wenquan knows this all too well. The tall, muscular 47-year old kicks off his sneaker. He pulls on a pair of camouflaged rubber boots before entering the sprawling market, oblivious to the calls from competing vendors. Zhang grew up in the impoverished countryside of Anhui province. When he turned 17, he came to Shanghai to work on an assembly line. He met his wife at the factory, and they now sell fish at a small neighborhood market. Zhang wakes up at midnight each day to buy his merchandise here.

“Buying fish is tougher than raising children,” Zhang says. “By this afternoon, everything I just bought will be dead and worthless.”

His children, on the other hand, could someday be the family’s ticket into China’s middle class. “I’m not working this hard so that my daughters end up working as fish sellers like me,” Zhang says. “They’ve got to go to good colleges and find good jobs with good salaries.”

Zhang has twin daughters, a stroke of luck in a country with a one-child policy — but that’s where he sees his luck ending. His girls are 16. They were born in Shanghai and call the city home. Yet Zhang and his wife had to send the girls to the countryside last year so that they could finish their schooling. “They can’t legally attend high school in Shanghai because they don’t have Shanghai Hukou,” he explains.

Hukou means ‘household registration’. If you don’t have Hukou for Shanghai – in other words if you’re not registered to live there – then you’re not eligible for social benefits like health insurance, a pension, or even a high school education for your children. You have to return to where your family originally came from to qualify for those benefits.

China’s modern Hukou system has its roots in the country’s old communist-style command economy. Former Chinese leader Mao Zedong revived the ancient household registration system in 1958 as a mechanism to restrict peasants from swarming into the country’s largest cities. After the economic reforms of the 1980s, the system was relaxed to allow migrants to move to the city, but strict rules remain governing where their children can attend school and take college entrance exams.

Hukou supporters say controlling China’s massive population like this has helped prevent the creation of slums around its biggest cities that are common sights in the developing world.

The Zhang family Hukou belongs to his wife’s ancestral village in the countryside of Jiangsu province, and that’s why the couple has been without their daughters for more than a year.

At six in the morning, Zhang arrives at his stall in a wet market in the Xujiahui neighborhood of central Shanghai. He’s dropped off the fresh fish, and his wife, Shi Huiqun, takes over the work so that he can go home and sleep. The 42-year old tells me business is tougher than it’s ever been. “Competition here is fierce," she says with a sigh. "We used to be able to save money, but now we’re paying for our daughters to attend school back in my hometown, so we’re close to breaking even.”

Shi and Zhang own an apartment in Shanghai, a house in the countryside, a foreign car, and they make around the equivalent of $15,000 a year – three times more than the average urban family makes in China. Yet when I ask her if she considers herself middle class, Shi shakes her head.  “I don’t think small business owners like us belong to the middle class. We don’t make that much money,” she says.

"It's a system that many think is holding China's economy back," says James McGregor, Asia Chairman of APCO and author of the book, "One Billion Customers." "Now they need to legalize these people because they need a new stage of consumption. And the next consumers are these migrants."

McGregor says the first wave of China’s middle class were the 400 million people who grew up in China’s largest cities and are now – on paper – upper class. They became wealthy on China’s real estate boom and they now drink Starbucks, own iPhones, and drive imported luxury cars.  “Maybe the middle class is China’s next wave of migrant workers who are getting legal registration in the cities and getting city services and becoming the next consumers,” says McGregor.  “Actually, if you look at studies of the future of Chinese economy, that group of people, if you can get 10 million of them a year and they can become consumers, you can have 6 percent growth in China for 20 years.”

Nearly half of Shanghai’s 24 million residents are in the same conundrum as Zhang and Shi: According to Shanghai’s municipal statistics bureau, some ten million children can’t attend Shanghai schools because they don’t possess city Hukou. Nationwide, it adds up to nearly a third of China’s urban population: a quarter of a billion Chinese lack legal rights to social welfare and high school for their children in the cities where they reside.

China’s leaders have vowed to reform the Hukou system, but so far, meaningful change has not taken place. Meanwhile, migrants continue to move into the country’s largest cities.

Today, though, Shi Huiqun is heading in the opposite direction. She’s driving two hours north of Shanghai to her rural hometown to visit her twin daughters. Shi has rented a bare, unfurnished apartment for them located next door to their private middle school. The 16-year olds have had to repeat the 9th grade, because the curriculum in their new school is a year ahead of that of their former middle school in Shanghai.

When their mother arrives, the twins are studying their textbooks side by side. Their grandmother, who can’t read or write, stands guard behind them, making sure they complete their homework.  Zhang Ming studies physics while Zhang Yue reads her English homework out loud. “Our own planet, the Earth is becoming more and more crowded and polluted because of the rapid increase of p-p-p-population,” she recites in broken English with help from her sister.

The two are identical twins. They wear identical jackets and identical hairstyles – it’s nearly impossible to tell them apart. Throughout our conversation, though, their mother recites their differences to me: Zhang Ming is ranked 4th in class, Zhang Yue is 15th; Zhang Ming’s eyesight is worse; Zhang Yue is quieter; Zhang Ming is temperamental; Zhang Yue is lazier. The girls nod in unison.

Shi’s daughters tell me school here is much more demanding than in Shanghai. They’re in class from six in the morning until 9 at night, and they attend half days on Sundays. “I’d prefer to be in Shanghai,” says Zhang Yue. “I feel like a foreigner here. I think China should allow children to attend school where they grew up. We consider ourselves Shanghainese, but according to our Hukou, we’re not.”

Despite what their Hukou says, the family has come a long way. Shi accompanies me to the farm she grew up on down the road from the school – a couple acres of crops, pigs, chicken, and sheep. “I grew up here in a house with a dirt floor,” Shi tells me.

Life is better now, but not for everyone. Hukou laws have forced parents throughout China to leave their children behind – they’re called ‘left-behind children,’ and there are an estimated 60 million of them, nearly as much as the entire population of the United Kingdom. Shi isn’t too worried about her daughters because she and her husband are just a two-hour drive away. But for most left-behind children, that’s not the case. With their parents in another part of China, many of them drop out of school, all but removing an entire population of Chinese from the dream of making it into the middle class.

Tiny houses give homeless a foothold

Tue, 2015-03-17 06:00

On a given night, over half a million people in the U.S. are out on the streets. That statistic comes from the federal government's point-in-time count last year.

In Oakland, California, carpenter Greg Kloehn is trying to help those around him without a place to live. His project is a small one — tiny to be exact.

We're driving in Kloehn's beat-up van through North Oakland's industrial landscape, looking for building materials. He pulls over at a pile of construction debris from an old Victorian house. We get out and he picks up a few old two-by-fours from the heap. "These are what I like", he says.

Kloehn turns trash into tiny houses. He's made about 30 so far. They're rectangular structures, big enough to sleep in, but not stand in. Kloehn builds them on wheels, so they're mobile. Then he gives them to people without homes, like Gregory Clinton.

Clinton's regular-sized house was foreclosed on ten years ago. Now he lives below a highway in a community of people with Kloehn's tiny houses. Clinton calls them “street homes.”

The houses are lined up like a wagon train, each made of different objects—old wood studs, futon frames, plywood. Some have glass refrigerator shelves for windows. One has a washing machine top for a door. The houses are a variety of colors, whatever paint Kloehn could find dumped around Oakland.

Clinton says Kloehn has inspired him to improve his tiny home. He built a little addition and has decorated. He used pieces of hard, white plastic to hide the wheels so his house looks more like a permanent residence than a mobile home.

Outside, Clinton has plants and artwork: a print of Van Gogh's "Cafe Terrace at Night." He didn't know it was so famous.

"I love that one," he says. "See the little people and the stuff. It's got everyone coming out to eat at the cafe. It's nice."

Clinton's neighbor, Sheila Williams says her tiny house is much better than living in a tent. “I feel a lot safer,” she says, “When you live in a tent you get sick when it rains in the winter time. Your shoes get wet and you have to stuff them with paper or change your socks. And the rats come in and get all over you.”

Williams says this is her first home in 32 years. She's proud of it. In the back, she points out a little mailbox with a red flag. It says "no soliciting" on the side.

While living in her tiny home, Williams has been able to meet with a case worker and is scheduled to move into an apartment soon. She plans to give the tiny house away to her neighbor, who lives in a tent and has breast cancer.

These tiny homes are not going to solve homelessness says Kloehn. But he says they give people a little more stability so they can work on getting off the street.

Back at his workshop, Kloehn shows me a new house he's finished up. It's all ready to go, he just has to decide who will get it. That's hard to do, he says. The demand these days is high.

Alison Bechdel on storytelling "for the forces of good"

Tue, 2015-03-17 04:01

This week Marketplace Tech is exploring South by Southwest Interactive, the tech-oriented event that draws tens of thousands of people to Austin, Texas every year.

We spoke with cartoonist and memoirist Alison Bechdel, who came to SXSW to talk about telling stories that work “for the forces of good.” For 25 years, Bechdel chronicled the lesbian community in her comic strip "Dykes To Watch Out For." Since then, she has published her second graphic memoir, won a MacArthur Fellowship, and watched the Bechdel test take on a life of its own. We talked with her about record-keeping, Google image search,and putting Silicon Valley through the Bechdel test.

I want to ask you something about record keeping. This is something you have done since you were a kid. Diaries, pictures, stuff like that. It’s informed your work. How do you keep records now?

A lot of my record keeping is now digital. I’ve got email, photos and I keep my diary on my computer. Somehow that doesn't make it any easier to find anything. I thought it would but...

Do you have a folder that says "diary"?

I do. Sort of, yeah. My archives are just proliferating. The older I get, the more stuff there is. It's sort of like my aging brain. It gets harder to find stuff.

Do memoirs matter in a world where Facebook summarizes your year for you every year?

Well, yeah. you can't reflect meaningfully on something that you're posting in half a second. I think memoir is still really an important act.

I want to ask about your process a little bit. How has technology the cartoonist’s job since you’ve started?

Oh man. It’s changed it on every level, profoundly. I started way before the internet, way before photoshop when I drew stuff by hand and you copied at the copy shop and put it in the mail. I think the most profound shift for me has been Google Image Search. If you wanted to find out what a 1968 Oldsmobile looked like, you had to go to the picture file at the library where someone hopefully had clipped out a photo of that car. Now that I can draw anything in the universe, my tendency is to want to draw everything in the universe, which is its own sort of problem, but I’m working on that.

Do you get more sleep now that you’re a MacArthur “genius?” Or did you get more sleep before?

I definitely got more sleep before. It’s a very nerve-wracking experience. I am still adjusting to it. But it’s really making me feel like I better up my game.

What are your plans for upping your game?

I don’t know. I’m just working. I’m trying to work harder.

This is something you’re probably very bored of talking about, but I wanted to ask you about the…

The Bechdel test

Yes.

This is my great legacy.

How do you feel about that?

At first I was sort of bewildered by it and didn’t feel like it was really mine. It was an idea I stole from someone else who probably stole it from Virginia Woolf. But now I am very proud of it. I feel like it reflects the idea that a woman can be a human, a fully human character and subject.

You may have heard that there is a diversity problem in the tech industry.

Oh really...

This may come as a shock to you. But I wanted to ask you if you would consider what a Bechdel test might be for a company?

Are there more than two women in managing positions?

We would hope so.

Do they talk to each other? I don’t know. But it’s a good template that you can apply to any  number of fields.

I think we are at a good moment right now. In the tech industry but also in the media. We are becoming more aware of white male hegemony. How do straight white men help to create a society where there is more power sharing with people outside of their group?

The fact that we are even able to see this, that people are aware of it is because that hegemony is not as hegemonic as it once was. The demographics of this country are really changing. I guess just to examine your privilege. It’s very hard to see what privilege is. We all want to believe that we deserve everything we have. And we don’t all have the same chances. So just looking carefully at that, I think, is the most anyone can do.

We’re asking people while we're here about their pitch...

Yeah. I am on a panel about storytelling and I want to talk about what makes a story good. Not just a compelling story, but what makes a story a story that works for the forces of good.

What is a story that works for the forces of good?

Oh, anything. You know most things. Advertising, propaganda...I think it’s important for any kind of story, especially journalism or non-fiction storytelling, to allow for its own possibility of being wrong.

Alison Bechdel on storytelling "for the forces of good"

Tue, 2015-03-17 04:01

This week Marketplace Tech is exploring South by Southwest Interactive, the tech-oriented event that draws tens of thousands of people to Austin, Texas every year.

We spoke with cartoonist and memoirist Alison Bechdel, who came to SXSW to talk about telling stories that work “for the forces of good.” For 25 years, Bechdel chronicled the lesbian community in her comic strip "Dykes To Watch Out For." Since then, she has published her second graphic memoir, won a MacArthur Fellowship, and watched the Bechdel test take on a life of its own. We talked with her about record-keeping, Google image search,and putting Silicon Valley through the Bechdel test.

I want to ask you something about record keeping. This is something you have done since you were a kid. Diaries, pictures, stuff like that. It’s informed your work. How do you keep records now?

A lot of my record keeping is now digital. I’ve got email, photos and I keep my diary on my computer. Somehow that doesn't make it any easier to find anything. I thought it would but...

Do you have a folder that says "diary"?

I do. Sort of, yeah. My archives are just proliferating. The older I get, the more stuff there is. It's sort of like my aging brain. It gets harder to find stuff.

Do memoirs matter in a world where Facebook summarizes your year for you every year?

Well, yeah. you can't reflect meaningfully on something that you're posting in half a second. I think memoir is still really an important act.

I want to ask about your process a little bit. How has technology the cartoonist’s job since you’ve started?

Oh man. It’s changed it on every level, profoundly. I started way before the internet, way before photoshop when I drew stuff by hand and you copied at the copy shop and put it in the mail. I think the most profound shift for me has been Google Image Search. If you wanted to find out what a 1968 Oldsmobile looked like, you had to go to the picture file at the library where someone hopefully had clipped out a photo of that car. Now that I can draw anything in the universe, my tendency is to want to draw everything in the universe, which is its own sort of problem, but I’m working on that.

Do you get more sleep now that you’re a MacArthur “genius?” Or did you get more sleep before?

I definitely got more sleep before. It’s a very nerve-wracking experience. I am still adjusting to it. But it’s really making me feel like I better up my game.

What are your plans for upping your game?

I don’t know. I’m just working. I’m trying to work harder.

This is something you’re probably very bored of talking about, but I wanted to ask you about the…

The Bechdel test

Yes.

This is my great legacy.

How do you feel about that?

At first I was sort of bewildered by it and didn’t feel like it was really mine. It was an idea I stole from someone else who probably stole it from Virginia Woolf. But now I am very proud of it. I feel like it reflects the idea that a woman can be a human, a fully human character and subject.

You may have heard that there is a diversity problem in the tech industry.

Oh really...

This may come as a shock to you. But I wanted to ask you if you would consider what a Bechdel test might be for a company?

Are there more than two women in managing positions?

We would hope so.

Do they talk to each other? I don’t know. But it’s a good template that you can apply to any  number of fields.

I think we are at a good moment right now. In the tech industry but also in the media. We are becoming more aware of white male hegemony. How do straight white men help to create a society where there is more power sharing with people outside of their group?

The fact that we are even able to see this, that people are aware of it is because that hegemony is not as hegemonic as it once was. The demographics of this country are really changing. I guess just to examine your privilege. It’s very hard to see what privilege is. We all want to believe that we deserve everything we have. And we don’t all have the same chances. So just looking carefully at that, I think, is the most anyone can do.

We’re asking people while we're here about their pitch...

Yeah. I am on a panel about storytelling and I want to talk about what makes a story good. Not just a compelling story, but what makes a story a story that works for the forces of good.

What is a story that works for the forces of good?

Oh, anything. You know most things. Advertising, propaganda...I think it’s important for any kind of story, especially journalism or non-fiction storytelling, to allow for its own possibility of being wrong.

Why are razor blades so expensive?

Mon, 2015-03-16 13:15

A trip to the local drug store prompted listener Paul Fuligni to wonder why razor blades are so expensive, such that they’re now often in locked containers or behind the counter at the drug store.  

It turns out, lots of people have thought a lot about the pricing of razors and blades. There have been dozens of academic papers written about it and any good MBA student will have studied it.

“This tends to be called 'razors and blades pricing' or a 'two-part tariff',” says Richard Schmalensee, an emeritus professor of economics and management at MIT and the author of his own paper on razor blade pricing.

Companies woo customers with an inexpensive, maybe even below-cost product (like the razor handle) and then charge more a related good (such as the refill blades). It’s a way to lock customers into a product line, but Schmalensee says it’s also a way to charge higher prices for customers who use the product more often.

“The person who uses a new blade every day, that’s a person who values a close shave and that’s the person I, as the manufacturer, know would pay a high price,” he says. “And I’d be happy to charge them that high price.”

A slew of other products use the razors and blades model: Video consoles and video games, printers and ink cartridges, e-readers and e-books, and even in some ways, phone carriers who subsidize a cell-phone handset when purchased with subscription to their service.

However, there’s another reason why blades are so expensive.

“Razor blades are really, really difficult to make,” says Jeff Raider, the co-founder of Harry’s, a start-up that sells shaving products directly to customers through its website.

Raider says before he started Harry’s, he had no idea how complicated razor production would be or that there’s only a few companies in the world producing blades. He wound up purchasing a German factory in order to get the blades and quality he wanted.

 “It actually starts with buying really fine razor steel,” explains Raider. “You have to grind steel so that it’s very sharp at its tip and very strong at its base. That gives it both stability and a really crisp cutting surface.”

The combination of strength and precision minimizes the risk of nicks or razor burn.

The metal is then heated and cooled, “actually changing the molecular composition of the steel,” says Raider. Next it’s ground at “specific angles that are proprietary to the razor blade manufacturer, in machines that the manufacturers actually make themselves.”

Because creating the blades is an intricate, complicated, expensive process with high barriers to entry, the few companies that make blades have an advantage: Without many competitors, they’re able to charge higher prices.

“Historically, the companies that have known how to make razor blades have been able to charge people vastly different prices for razor blades than the actual cost,” say Raider.

Police don't ask: Why are we getting sued?

Mon, 2015-03-16 12:05

Cities across the country have paid out large sums for police misconduct lawsuits. Chicago, for one, paid out more than half a billion dollars over 10 years. However, many cities have not taken a step that seems like common sense: Looking for data that could help them avoid future lawsuits. 

Police liability is Lou Reiter’s turf. He’s a former Los Angeles deputy police chief who trains police officials on “liability management,” and he’s been an expert witness for both plaintiffs and police departments in misconduct cases.

He says police departments rarely ask themselves: What could we have done to avoid this lawsuit?

"Most departments that I’m familiar with simply say, 'Oh it’s that wishy-washy court,'" he says. "Or: 'They don’t understand our problems. We’re not doing anything wrong.'"

So, they don’t ask, for instance:  Is there one group of officers who are getting us into trouble?

In Chicago, law professor Craig Futterman found the answer to that was "yes."

Futterman, who runs the University of Chicago's Civil Rights and Police Accountability Project, has won some cases against police. For one such case, he got the numbers on whether some officers had an unusually-high number of complaints against them.

As it turned out, a relative handful accounted for almost half of all complaints, and they were almost never disciplined.

"There’s a small percent who have been allowed to just do this with darn near impunity," he says. "Despite the bills racking up, and despite all the complaints."  

He also found that the Chicago Police Department had never run the numbers to identify those officers.

UCLA law professor Joanna Schwartz says this is not unusual. In fact, she says, Chicago keeps better records than a lot of places.

For one study, Schwartz asked 140 law-enforcement agencies — including 70 of the biggest ones —  for information about police-misconduct cases. A common answer: We don’t know.

So, she asked the law departments, everybody. Which didn’t always help.

"Eighteen of the largest cities and counties," she says, "and these are cities that include San Diego, New Orleans— counties like Harris County, Baltimore County— they reported that they had no records in any government agency or office reflecting how much they spent in lawsuits involving the police."

One might think they would want to know: What do we even get sued for?  

"You would think," says Schwartz. "And in other kinds of industries— certainly in medicine— there are risk managers who are tasked with doing that very thing."

She thinks if settlements came out of the police budget —  instead of the general fund — departments might be more cost-sensitive.

An environmental movement is awakening in China

Mon, 2015-03-16 11:51

China’s Premier Li Keqiang said this week the government is serious about cutting smog and will impose harsher fines on polluters. Keqiang's comments came after the online release this month of a groundbreaking — at least, for China — documentary on the country’s air pollution crisis, called “Under the Dome” (video).

The country’s environment minister compared it to Rachel Carson’s “Silent Spring,” the book that paved the way for the U.S. environmental movement, but Chinese officials have been silent on the film since — and it’s even been taken offline in the country, presumably by government censors.

Still, China observers say this may be the country’s “Silent Spring” moment.

“The Chinese public has come to believe they have a right to a clean environment,” says Jennifer Turner, director of the China Environment Forum at the Wilson Center. 

Like the early U.S. anti-air pollution movement, mothers worried about pollution's health effects have initiated much of the dissent, and big polluting industries are resisting change. Change in China is complicated by the fact that powerful local governments have little incentive to curb the dirty industries that fuel their economies, and often try to skirt the central government’s regulations.

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