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Tuesday, January 14, 2020

Seven decadal stories

1. On the outsourcing industry from the WSJ,
The number of active Uber drivers in the U.S. grew from a base of almost zero in 2012 to more than 460,000 at the end of 2015, according to a paper by Uber’s economist Jonathan Hall and the late Princeton University economist Alan Krueger... In addition, the researchers found, most online-platform workers earned less than $2,500 in 2016 from their gigs. That suggests workers on the whole use gigs to supplement income or tide them over between jobs, not as a replacement for traditional work with stable pay and in many cases benefits...
Experts say it’s typical for contractors—who usually get paid less than workers hired directly by corporations—to make up 20% to 50% of a large company’s total workforce. Google parent Alphabet Inc. has more outsourced workers than full-time employees. These 100,000-plus TVCs—an abbreviation for temps, vendors and contractors—test Google’s self-driving cars, review legal documents and manage data projects, among other jobs. They wear red badges at work, while Alphabet employees wear white ones.
Ten years ago, the U.S. ranked third in global oil production, trailing Saudi Arabia and Russia. A decade later, it leads the world in oil as well as natural-gas output, having more than doubled the amount of crude it pumps while raising gas production by roughly two-thirds, according to federal data. There is a simple reason for the surge: fracking. Horizontal drilling and hydraulic fracturing techniques spurred a historic U.S. production boom during the decade that has driven down consumer prices, buoyed the national economy and reshaped geopolitics... A decade ago, drilling and fracking in tight rock formations such as shale produced less than one million barrels of oil a day in the U.S., according to data from the Energy Information Administration. Today that figure is roughly eight million barrels a day.
This is perhaps one of the most important geo-political graphics of the last decade,
But its sustainability is called to question by the commercial viability of shale gas for its investors. This has reduced the flow of capital, and forced companies to pull-back on investments and even production.
3. The rise of big technology companies has been among the most definitive trends of the last decade.
Over the past decade, five big technology companies morphed into five great technology empires. The stock market values this group— Apple Inc, Microsoft Corp, Amazon.com Inc, Google parent Alphabet Inc and Facebook Inc — at more than $4 trillion, while the six surviving men behind four of those companies are together worth nearly $450 billion, according to Forbes... Such an accumulation of wealth is unparalleled perhaps since Standard Oil... As the five tech superstars blazed, they changed practically everything they touched. They vacuumed up data, hired so many top engineers and bought out so many rivals, the breadth of their powers not only kept expanding but reshaped and redefined the technology universe... As successful as the tech giants have been, however, such concentration of power, both in computing and in the marketplace, has also come at a cost. As the decade ends, our dependency on these platforms is feeding a backlash over privacy, screen addiction, software algorithms that mislead users, the spread of misinformation and online mobs that pollute political discourse, and more... Facebook, Google’s YouTube and Amazon have allowed unfettered growth on their platforms for so long, they are difficult to police.
Aside from network effects, there are also other entry barriers,
Over the past decade-plus, Amazon turned the computing infrastructure that supports its own operations into a juggernaut new business, Amazon Web Services, powering other companies’ systems in its cloud. AWS is on pace for $35 billion in revenue this year, up 20 times since 2012, the first year Amazon reported the entity’s stand-alone results. It also carries the fattest profit margin among Amazon’s businesses. Microsoft and Google are trying to catch up in providing their own cloud services. The three companies have such vast computing infrastructure, it’s hard for others to compete, another example of how scale spins the flywheel powering the companies’ momentum.
These types of regulatory arbitrages have been at the heart of big-tech's rise,
To date, the giants have grown mostly unfettered because a powerful if little-known law lets them avoid responsibility for what is posted on their platforms, from hate speech to third-party sales of dangerous products. If the “techlash” ever pushes politicians to rewrite that rule, it could change the internet as we know it.
Another example of regulatory arbitraging has been the legal status of the 'employees' of internet companies as independent contractors,
California passed a law in 2019, going into effect Jan. 1, that would classify some independent contractors as employees. The result could be improved wages and benefits for gig workers, but also higher costs and liabilities to gig companies. Uber, Lyft and DoorDash, which argue that they offer flexible hours and low-commitment work, and address consumer demands that would otherwise be economically unfeasible, were among those that opposed the law. Meanwhile, other states including New York and New Jersey are also looking at ways to classify gig workers as employees. 
4. The financial market trend of the decade was the avalanche of capital flowing into startups, inflating valuation bubbles everywhere. A Bloomberg opinion piece calls it the flow of "other people's money".
In 2009, $27.2 billion was invested in U.S. tech startups, according to figures from the National Venture Capital Association. In the 12 months ended in September, that figure was more than $143 billion... There is more money than good ideas, which provides incentives to rationalize bad businesses and bad behavior.
Ananth draws attention to this very good article by Anand Sridharan highlighting how the era of plentiful, cheap, and recklessly deployed capital has had a corrosive effect on entrepreneurship and capitalism. A generation or more of entrepreneurs will struggle to shake off its adverse legacy.

5. The scorecard of American Unicorns which had IPOs this year,
This, despite the soaring equity markets.

6. One of the most transformational developments has been the rapid emergence of the smart phone as the ultimate personal device. Over this decade, the smart phone has come to render obsolete the camera, satellite navigation system, camcorder, music devices like iPods, and messaging devices like Blackberry.

7. Joe Nocera, describing the decade as "private equity decade, writes that the decade exposed the disturbing practices of private equity.
In 2009, private equity firms completed 1,927 deals worth $142 billion, according to the financial data firm Pitchbook. By 2018, there were 5,180 private equity deals worth $727 billion.
This assessment of PE is spot on,
What has also become clear this decade is the high-minded rationale the private equity industry once used to justify its deals has largely evaporated. You don’t hear much anymore about how taking a company private will remove short-term incentives, impose necessary restructuring, yadda, yadda, yadda. The main thing private equity has done this decade is to pile debt onto companies — imposing repayment costs while pulling out fees and dividends that have no bearing on what the private equity firm has actually done. Famously, Toys “R” Us went bankrupt because it was buried in private equity debt. So did Gymboree, Sports Authority, Linens ’n Things, and many others. In 2017, when the Limited announced it was shutting down its 250 stores — and throwing its employees out of work — the private equity firm that owned it, Sun Capital Partners Inc., reported to investors that it had nearly doubled its money, thanks to the dividends and fees it had paid itself... In other words, whatever larger purpose private equity might have once had, the 2010s exposed an industry that cared about lining its own pockets — often at the expense of the companies it bought. It has become dealmaking for its own sake.
I had blogged earlier about this Daniel Rasmussen article. This summary is apt,
As an industry, PE firms take control of businesses to increase debt and redirect spending from capital expenditures and other forms of investment toward paying down that debt. As a result, or in tandem, the growth of the business slows. That is a simple, structural change, not a grand shift in strategy or a change that really requires any expertise in management.

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