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CEO Daily: Thursday 17th November

Good morning.

As I’ve written previously, Election 2016 was a repudiation of the globalization trend that helped drive post-World War II growth but in recent decades has spread its benefits unequally across the population. Less explicit in the election rhetoric was the fact that technology also has been a driver of the increased inequality that has so many Americans feeling left out.

But is it possible that globalization and digitization now could become solutions to the very problems they helped create?

That’s the prospect raised by the McKinsey Global Institute in a new paper out this morning., entitled The U.S. Economy: An Agenda for Inclusive Growth. The paper correctly diagnoses the U.S. economic problem as a slowdown in the growth of productivity, which in turn limits growth in pay. It offers five areas where targeted government action could make a substantial difference. And the top two actually involve accelerating digitization and expanding U.S. trade with the world.

The McKinsey analysts argue the U.S. has to date realized “only 18 percent of its digital potential.” That has contributed to a gap between those working in the sectors that have made more progress in digitizing – tech, media, finance – and those that have made less – government, health care, education, hospitality, construction, small manufacturing.

“Narrowing the gap between the laggards and those at the frontier of digitization could help accelerate productivity and growth,” it says.

The McKinsey paper also argues that the vast majority of current trade happens at large multinational companies. But new platforms, like those run by Alibaba and Amazon, could open that trade to smaller players, and also help reduce inequities.

In addition, the McKinsey analysts call for improving urban infrastructure, enhancing education and training, and encouraging innovation in all forms of energy to increase productivity and growth.

You can read the full paper here. It provides a hopeful framework for thinking about the next phase of globalization and digitization. That’s a good thing, since any effort to stop those powerful forces will only add to U.S. economic woes.

More news below.

Alan Murray

Top News

Target Defies Its Own Pessimism

A day of mixed fortunes for Main Street: Target’s shares rose 6.4% after it announced a strong rise in online sales volumes in the third quarter and also reported higher footfall in its physical stores. Comparable sales fell only 0.2% on the year, compared with the 2% drop the company had guided for, helped by strong performances in areas it had singled out for differentiating itself against Wal-Mart (such as children’s items). Target also revised up slightly its forecast for the holiday quarter. Things didn’t go as well for Lowe’s: its shares fell 3% after it missed expectations and cut its profit forecast. That hurt all the more because rival Home Depot had beat the market with its quarterly results on Tuesday. Fortune

Apple Can’t Exploit Samsung’s Disaster

Samsung’s share of the world smartphone market suffered its biggest-ever quarterly decline in the three months to September, due to the S7 Galaxy Note fiasco. According to research from Gartner, its share fell to 19.2% from 23.6% a year earlier. Apple was unable to capitalize: it also lost market share to Chinese makers Huawei, BBK and Oppo. Samsung’s problems are far from over. There are other reports of S7 phones exploding too. Apple’s batteries have a different problem: the Chinese regulator is looking into reported instances of them shutting down despite still having plenty of power left. Fortune

Facebook Finds More Ad Metric Errors

Facebook discovered it had been mis-measuring the effectiveness of its ads in more ways than it had originally thought, news that will further anger advertizers upset at being overcharged on the basis of bogus metrics. The company overestimated page views by as much as 55% over a month, while it also overestimated the time spent reading its “Instant Articles” pages by 7%-8%. However, it also found it had short-changed itself in other areas, underestimating the proportion of videos watched to completion by around 35%. FT, metered access

Jack Dorsey, Meet Victor Frankenstein

Stung by recent criticism of enabling widespread abuse and hate speech, Twitter apparently blocked a number of ‘alt-right’ accounts, including some associated with white-power groups. The company is falling deeper into a trap of its own making, caught between its professed belief in the 1st Amendment and the realities of giving a platform to views that poison civil discourse and all too often incite criminal behavior. If only there were a metaphor for creating with good intentions a monster that one couldn’t ultimately control… Fortune

Around the Water Cooler

Deutsche Goes After Bosses’ Bonuses

Not to be outdone by Wells Fargo, Deutsche Bank is looking into clawing back some of the bonuses it paid to the top managers whose oversight, or lack of it, bred the chickens that have now come home to roost in the form of endless misconduct-related litigation. The Sueddeutsche Zeitung said the bank is looking to reclaim bonuses awarded to former CEOs Anshu Jain, Juergen Fitschen and Josef Ackermann as well as three other former management board members. The SZ hinted that the amount being sought from Jain is over 10 million euros ($11 million). German labor law will limit clawbacks only to non-vested awards, which are a drop in the ocean compared to the fine coming down the line from the Justice Department, but incumbent CEO John Cryan apparently feels that he has to appear to be doing something to appease regulators, employees and shareholders. Sueddeutsche Zeitung

Decision Day for Tesla, SolarCity Shareholders

Shareholders of Tesla Motors and SolarCity get to vote on their controversial proposed merger today. It’s not the best time for the solar rooftop industry­–growth is slowing in many areas and installations were virtually flat year-on-year at both SolarCity and Vivint, a leading rival. First Solar, a maker of solar equipment, said yesterday it is cutting 1,600 jobs–over a quarter of its global workforce–in a response to an overcapacity problem that has its roots (where else?) in China. The rooftop solar industry continues to be supported by increasing affordability, but even its biggest boosters admit that the days of its fastest growth are probably over. Fortune

Can McDonald’s Succeed Where Coke Failed?

McDonald’s is testing out a new recipe for the Big Mac for the first time since it was introduced in 1967. Not surprisingly, the experiment is being limited to a small pilot first, so you’ll have to head to one of only 126 restaurants in Columbus, Ohio, to find out whether it’s better with Sriracha Mac sauce (and you only have until Dec. 31 to do it). The change may be rolled out nationwide after that. The archetype for experiments of this sort remains Coca Cola’s ill-fated adventure with ‘New Coke’. The big difference between the two is that McDonald’s is responding to the challenge of changing consumer tastes, whereas Coke was responding to changing distribution patterns (notably, the rise of supermarkets and the decline of soda fountains).   Fortune

Rakuten Throws Money at Messi, Neymar & co.

Japanese e-commerce giant Rakuten signed a four-year deal to sponsor FC Barcelona, arguably the world’s most famous soccer club, for a minimum $230 million. The deal sets a new milestone for soccer sponsorship, and includes add-ons for national and European titles won during the contract. These seem more than likely given that Barcelona’s ability to attract and nurture the world’s best talent from Lionel Messi to Brazilian star Neymar. Rakuten has been eclipsed by its Chinese peer Alibaba and is eager to raise its global profile. It’s currently rethinking its strategy for Europe in particular after closing down its existing operations in Spain and the U.K. in June. The new strategy will need to be good to justify that kind of money. BBC