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CEO Daily: Thursday, May 5

May 5, 2016, 11:25 AM UTC

The productivity of American workers declined 1% in the first quarter–the fourth decline in the last six quarters. That’s a continuation of a decade of poor productivity growth that has had profound effects on American society, fueling flat wages, stagnant living standards, and the rise of Donald Trump and Bernie Sanders. Trump blames workers’ problems on bad trade deals; Sanders attributes them to rising inequality. But a return to the productivity growth of the decade before 2005 – not to mention the period from 1920 to 1970 – would do far more to improve workers’ fortunes than any change in trade balances or redistribution of income.

What makes the dreary data especially mystifying are the stories I hear almost daily from CEOs and others who believe technology — particularly ubiquitous data and rising computer intelligence – is remaking the business landscape. I’m in Utah this morning to report on one such story for our Fortune 500 issue. Earlier this week, I was at the Consensus 2016 Bitcoin and Blockchain conference, where participants were predicting massive productivity gains in the world of finance as distributed ledger technology takes inefficiencies out of the current system of credit card, foreign exchange, securities, real estate, and other transactions.

Robert Gordon’s book “The Rise and Fall of American Growth” has become the new bible on productivity. The full tome requires a serious time commitment, but Chapter 17 gives Gordon’s take on the role of innovation in productivity growth. He surveys the evidence and concludes there’s no reason to expect a return to the productivity growth highs of 1994-2004, much less 1920-1970. I lack his economics pedigree, but can’t help but disagree. Something big is afoot in the world of business, and– eventually–the productivity numbers should show its effects. Former Treasury Secretary Lawrence Summers, whom I interviewed at Consensus, said he is inclined to agree.

More news below.

Alan Murray


Top News

 Elon Musk Raises the Stakes Again

Tesla is accelerating its schedule for developing the Model 3, its first car aimed at the mass-market, despite losing two more key executives, Greg Reichow and Josh Ensign, SVPs for production and manufacturing, respectively. Founder and CEO Elon Musk said Wednesday that the company will have produced 500,000 cars by the end of 2018--two years ahead of schedule. The gung-ho announcement deflected attention away from the fact that Tesla's losses widened in the last quarter and again missed its sales targets. So much so that Musk was able to announce that he'll be tapping shareholders yet again to finance the upscaling, rather than relying on cash up front from the 400,000 people who have ordered the Model 3 without even seeing it. Fortune

 India Kills Apple's Plan to Sell Used iPhones

As expected, the Indian government has rejected a plan by Apple to import used iPhones--a strategy that the company had hoped would give it a proper foothold in a vast but overwhelmingly low-income market. The plan ran into some determined opposition from local manufacturers who said it would breach India's anti-dumping rules, and it's those companies, who are doing more to implement Prime Minister Narendra Modi's "Make in India" strategy, who had the government's ear. Apple has only a 2% market share in India, due in part to not having its own network of stores there. Although its sales have risen sharply from a very low base, they depended largely on cheaper, older models such as the iPhone 5s.  Daily Mail

Canada's Wildfires Ravage the Oil Patch

The devastation from wildfires raging in Alberta is reaching biblical levels. Fort McMurray, a town of 88,000 people that is the center of the region's oil sands production, has been evacuated, and oil companies are reducing shipments by hundreds of thousands of barrels a day. It's going to be the biggest natural disaster in Canada's history. Producers such as Shell, Suncor and Husky have all either shut down their sites or are reducing operations, but so far none has said there will be permanent damage to their assets. Pipeline operator TransCanada has also played down any risk to its trunk pipelines for natural gas, which are buried underground.  Reuters

 All Power to Erdogan 

Political power in Turkey, a NATO member, a neighbor of Syria and a key U.S. ally in the Middle East, looks likely to be concentrated even more in the unpredictable hands of President Recep Tayyip Erdogan. Erdogan has pressured his Prime Minister Ahmet Davutoglu into stepping down from his position as leader of the ruling AK Party, Erdogan's power base, essentially for not cooperating in Erdogan's plan to consolidate constitutional power in the office of the president (a plan that Erdogan's many critics see as creating a de facto dictatorship). The news came almost immediately after the E.U. Commission announced it would back a plan to allow Turks visa-free travel to the passport-free "Schengen" area from October. Erdogan had insisted on visa-free travel in return for allowing the E.U. to deport migrants back to Turkey. Davutoglu had been seen in European capitals as a more predictable negotiating partner. Turkey's currency and stock market have fallen sharply while the crisis was coming to a head.  Bloomberg


Around the Water Cooler

Regulators Vs Drones

Intel CEO Brian Krzanich is set to get a key position in a new committee that will advise the Federal Aviation Administration on how to regulate the use of drones in future. The committee will work the FAA to identify things the agency should be doing. Members will come from industry, government, research and academia, and the retail and tech worlds. Intel has been puting a lot of effort into drone research, recently buying Germany’s Ascending Technologies to improve drones’ awareness of their surroundings and thereby boost safety.  The agency’s announcement closely followed that of a new drone advocacy group in the U.S. that includes Cisco, CNN and various drone startups. Meanwhile in Europe, the European Aviation Safety Agency (EASA) announced a new task force that will work to “assess the risk of collision between drones and aircraft.” In this case, the non-EASA members of the task force will come from the aircraft and engine manufacturing industry. They will keep track of incidents across European countries, look at existing studies on the impact of impacts, look at vulnerabilities and conduct tests on things like aircraft windshields.  Fortune

London Votes

London, a diverse city of 8 million overwhelmingly secular and hedonistic persuasion, is set to elect a Muslim as mayor today, in what will be a striking refusal to ram the adherents of one of the world's major faiths into the same pigeonhole as ISIS. Sadiq Khan, the Labour Party candidate, is profiting from a negative and largely unsuccessful campaign by the Conservatives to tar him as a security risk (albeit one that has gained some traction due to a bigger row about anti-Semitism in the Labour Party). His chief opponent, Conservative candidate Zac Goldsmith (son of James, the late founder of British American Tobacco) hasn't done his cause any good by coming out in favor of leaving the E.U., in a city that has prospered by being the bloc's financial capital and depends hugely on free access to its market for financial services. Environmental activism has let to not a single candidate on the ballot risking support for a new runway at Heathrow, which a government commission says is the best way to add much needed airport capacity. Bloomberg

Paper Tigers

Tribune Publishing's board has unanimously rejected Gannett’s unsolicited takeover offer, preferring to pursue a strategic plan to revive its print business and tap growth in digital content. Gannett, the owner of USA Today, made a cash bid for Tribune worth roughly $815 million. Tribune owns the Los Angeles Times and Chicago Tribune newspapers, as well as metro dailies like the Orlando Sentinel.  Tribune told Gannett’s management to take a hike.  “The price reflected in the proposal understates the company’s true value and is not in the best interests of our shareholders.” Tribune Publishing thinks of itself as being in the early stages of a strategic transformation, which will one day be reflected in a higher share price. Hence its refusal may be more an issue of timing and relative valuations, rather than denial of the logic behind consolidation.  Fortune

 Ralph Lauren Shakes up Management

Ralph Lauren's new CEO Stefan Larsson is shaking up his top management, trying to put some pep back into preppiness. According to Bloomberg, Valerie Hermann will be promoted to the expanded role of global brand president for luxury, women’s collections and accessories, while a raft of current executives, including global brand president for Lauren Christine Beauchamp, will leave the company later this month. Larsson is under a bit of pressure to act, having presided over a 17% drop in the company's share price this year. He had joined in November from Gap's Old Navy chain.  Bloomberg