Thursday, March 17, 2016

Inside Apple CEO Tim Cook’s Fight With the FBI - TIME Tech

In an exclusive interview with TIME, Cook discusses your privacy, America’s security, and what’s at stake in the battle over encryption

The day after the massacre in San Bernardino, Calif., where Syed Rizwan Farook and Tashfeen Malik shot to death 14 people and wounded 22 others at a holiday luncheon for the county department of public health, an FBI Evidence Response Team descended on the couple’s townhouse in nearby Redlands.
They recovered, among other things, 12 pipe bombs, thousands of rounds of ammunition of severaldifferent calibers, and three cell phones: two from a dumpster behind the townhouse and one from the center console of a black Lexus IS 300 parked outside. The two phones in the trash had been crushed by the terrorists, but for whatever reason–maybe an oversight, maybe there was nothing useful on it, who knows–the third phone was intact. It was placed in the care of the Orange County Regional Computer Forensics Laboratory. When investigators booted it up–it was an iPhone 5c running iOS 9, on the Verizon network, serial number FFMNQ3MTG2DJ–the phone asked them for a four-digit pass code.
What followed was like a kid’s game of fortunately-unfortunately. Unfortunately, they didn’t have the pass code, and the person who did was dead. (Farook and Malik were killed in a shoot-out with police a few hours after the attack.) They could have tried to guess it, but the phone was set up to erase itself after 10 wrong guesses. Fortunately, the phone was Farook’s work phone, so technically it belonged to San Bernardino County. Unfortunately, the county didn’t have the pass code either, nor did it have the password for the iCloud account associated with the phone, which in the Apple security ecosystem is different from the phone’s pass code.
But the county did have the power to reset the iCloud password, which it did. That iCloud account turned out to contain several full, unencrypted backups of the phone. Unfortunately, Farook hadn’t backed up his phone to iCloud since Oct. 19, so the data was out of date. Further misfortune: not all the information on an iPhone is necessarily included in a backup.
All that data was still on the phone, but encrypted with a pass code that nobody had. Not even, amazingly, the company that made the phone: Apple.
different calibers, and three cell phones: two from a dumpster behind the townhouse and one from the center console of a black Lexus IS 300 parked outside. The two phones in the trash had been crushed by the terrorists, but for whatever reason–maybe an oversight, maybe there was nothing useful on it, who knows–the third phone was intact. It was placed in the care of the Orange County Regional Computer Forensics Laboratory. When investigators booted it up–it was an iPhone 5c running iOS 9, on the Verizon network, serial number FFMNQ3MTG2DJ–the phone asked them for a four-digit pass code.
What followed was like a kid’s game of fortunately-unfortunately. Unfortunately, they didn’t have the pass code, and the person who did was dead. (Farook and Malik were killed in a shoot-out with police a few hours after the attack.) They could have tried to guess it, but the phone was set up to erase itself after 10 wrong guesses. Fortunately, the phone was Farook’s work phone, so technically it belonged to San Bernardino County. Unfortunately, the county didn’t have the pass code either, nor did it have the password for the iCloud account associated with the phone, which in the Apple security ecosystem is different from the phone’s pass code.
But the county did have the power to reset the iCloud password, which it did. That iCloud account turned out to contain several full, unencrypted backups of the phone. Unfortunately, Farook hadn’t backed up his phone to iCloud since Oct. 19, so the data was out of date. Further misfortune: not all the information on an iPhone is necessarily included in a backup.
All that data was still on the phone, but encrypted with a pass code that nobody had. Not even, amazingly, the company that made the phone: Apple.
different calibers, and three cell phones: two from a dumpster behind the townhouse and one from the center console of a black Lexus IS 300 parked outside. The two phones in the trash had been crushed by the terrorists, but for whatever reason–maybe an oversight, maybe there was nothing useful on it, who knows–the third phone was intact. It was placed in the care of the Orange County Regional Computer Forensics Laboratory. When investigators booted it up–it was an iPhone 5c running iOS 9, on the Verizon network, serial number FFMNQ3MTG2DJ–the phone asked them for a four-digit pass code.
What followed was like a kid’s game of fortunately-unfortunately. Unfortunately, they didn’t have the pass code, and the person who did was dead. (Farook and Malik were killed in a shoot-out with police a few hours after the attack.) They could have tried to guess it, but the phone was set up to erase itself after 10 wrong guesses. Fortunately, the phone was Farook’s work phone, so technically it belonged to San Bernardino County. Unfortunately, the county didn’t have the pass code either, nor did it have the password for the iCloud account associated with the phone, which in the Apple security ecosystem is different from the phone’s pass code.
But the county did have the power to reset the iCloud password, which it did. That iCloud account turned out to contain several full, unencrypted backups of the phone. Unfortunately, Farook hadn’t backed up his phone to iCloud since Oct. 19, so the data was out of date. Further misfortune: not all the information on an iPhone is necessarily included in a backup.
All that data was still on the phone, but encrypted with a pass code that nobody had. Not even, amazingly, the company that made the phone: Apple.
The FBI did ask. “We didn’t hear anything for a few days,” says Tim Cook, Apple’s CEO and the successor to the late Steve Jobs. “I think it was Saturday before we were contacted. We have a desk, if you will, set up to take requests from government. It’s set up 24/7–not as a result of this, it’s been going for a while–and the call came in to that desk, and they presented us with a warrant as it relates to this specific phone.”

At 55, Cook is wiry and silver-haired, with an Alabama accent that he has carefully transplanted to Silicon Valley. We spoke in his office at Apple’s headquarters in Cupertino–the address, famously, is 1 Infinite Loop. It’s a modest office, an askew trapezoid, almost ostentatiously unostentatious, with a few framed “Think Different” posters on the walls, some arty photographs of Apple stores and a large wooden plaque with a quote from Theodore Roosevelt on it (the “daring greatly” one). Jobs’ office is next door. It’s dark, with curtains drawn, but the nameplate is still there.
To be clear: Apple complied with, and actively assisted, the FBI’s investigation, right up until it didn’t. There was plenty of cordial back-and-forth, exchanges of information and know-how. “We gave them some unsolicited advice–we said, take the phone to the home or apartment and power it, plug it in and let it back up. And as it turned out, they came back and said, Well, that didn’t work.” It emerged that resetting the iCloud password had been a serious tactical error: they could’ve gotten the phone to make a fresh backup of itself automatically, but once you change the iCloud password, it won’t back itself up without the pass code.
That’s when the FBI made a further request: O.K., Apple didn’t have the pass code, but maybe it could code up a new version of iOS 9 without the 10-guess limit (and without enforced pauses between guesses, another security measure) and then persuade the San Bernardino phone to install it? A four-digit pass code has only 10,000 possibilities. The FBI could brute-force that in a day and everybody could go home.
Inside Apple this idea is nicknamed, not affectionately, GovtOS. “We had long discussions about that internally, when they asked us,” Cook says. “Lots of people were involved. It wasn’t just me sitting in a room somewhere deciding that way, it was a labored decision. We thought about all the things you would think we would think about.” The decision, when it came, was no.
Cook actually thought that might be the end of it. It wasn’t: on Feb. 16 the FBI both escalated and went public, obtaining a court order from a federal judge that required Apple to create GovtOS under something called the All Writs Act. Cook took deep, Alabaman umbrage at the manner in which he learned about the court order, which was in the press: “If I’m working with you for several months on things, if I have a relationship with you, and I decide one day I’m going to sue you, I’m a country boy at the end of the day: I’m going to pick up the phone and tell you I’m going to sue you.”
It also wasn’t lost on Cook that the FBI chose not to file the order under seal: if Apple wasn’t going to help with a case of domestic terrorism, the FBI wanted Apple to do it under the full glare of public opinion.
The spectacle of Apple, the most admired company in the world, refusing to aid the FBI in a domestic-terrorism investigation has inflamed public passions in a way that, it’s safe to say, nothing involving encryption algorithms and the All Writs Act ever has before. Donald Trump asked, “Who do they think they are?” and called for a boycott of Apple. A Florida sheriff said he would “lock the rascal up,” the rascal meaning Cook. Even President Obama, whose relations with the technorati of Silicon Valley have historically been warm, spoke out about the issue at South by Southwest: “It’s fetishizing our phones above every other value. And that can’t be the right answer.”
As against that, Apple has been smothered in amicus briefs from technology firms supporting its position, including AT&T, Airbnb, eBay, Kickstarter, LinkedIn, Reddit, Square, Twitter, Cisco, Snapchat, WhatsApp and every one of its biggest, bitterest rivals: Amazon, Facebook, Google and Microsoft. Zeid Ra’ad al-Hussein, the U.N. High Commissioner for Human Rights, spoke out in Apple’s defense. So did retired general Michael Hayden, former head of both the NSA and the CIA. The notoriously hawkish Senator Lindsey Graham, who started out lambasting Apple, switched sides after a briefing on the matter. Steve Dowling, Apple’s vice president of communications, showed me a check for $100 that somebody sent to support the world’s most valuable technology company in its legal fight. (Apple didn’t cash it.)
You can see what the fuss is about. The optics of Apple’s decision are pretty terrible, and the reasons for it aren’t obvious or simple. The main reason is technical: if Apple created what amounts to a tool for cracking open iPhones, Cook argues (and security experts tend to agree), and that tool got out into the wild, through hacking or carelessness, the security of every iPhone everywhere would be compromised. This is not an unlikely scenario: code, like the dinosaurs in Jurassic Park, often finds a way to get free. Under this scenario, GovtOS would be the holy grail for hackers everywhere and a gift to authoritarian governments willing and eager to pry into their citizens’ secrets. “To invent what they want me to invent,” Cook says, “puts millions of people at risk.”
To be clear, Cook doesn’t mean people are at risk of having their nude selfies put online. He sees the risks of hacking as real, real enough to weigh against the nightmare of a possible terrorist attack. “It’s not that one side has life and one side is your financial information or your photo or whatever,” he says. “Think about something that happens to the infrastructure, where there’s a power-grid issue. Think about the people who are on a medical device that depends on electricity … these aren’t fantasy things by any means.” (He also doesn’t think that GovtOS would help the FBI much anyway, but more on that later.)
The FBI has argued that the new code could be tailored to just that one phone in particular, but modifying the code to attack other phones would be relatively simple. Apple also maintains (and the FBI has as good as conceded) that this case isn’t a one-off: it will set a legal precedent. And even if Apple deleted the tool as soon as the FBI was done with it, there would be a line around the block of district attorneys clutching iPhones in evidence baggies demanding that Apple write it all over again. “It’s not about one phone,” Cook says. “It’s very much about the future. You have a guy in Manhattan saying, I’ve got 175 phones that I want to take through this process.” (The guy in question being New York County district attorney Cyrus Vance, who did in fact say that.)
This is the technical argument. Apple’s legal argument in the case hinges on the interpretation of the All Writs Act, which is something of a catchall: it authorizes federal courts to issue “all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” Apple’s lawyers argue that to compel the company to write, test, debug, deploy and document the necessary software would be excessively burdensome and exceed the bounds of the All Writs Act. (This isn’t the first time Apple has been on the business end of the All Writs Act, by a long chalk. In October a similar case came up in Brooklyn involving a meth dealer who claimed to have forgotten his iPhone pass code, and Apple made a similar argument. On Feb. 29 the judge ruled in Apple’s favor, though that ruling has no legal bearing on the San Bernardino case.) Apple also floated a slightly more fanciful claim to the effect that compelling Apple engineers to write code they objected to would violate their First Amendment rights.
But these arguments are just the legal and technical shadows cast by another, larger one, which is that people have a right to privacy, and devices like the iPhone, with which we live on terms of unprecedented intimacy, provide both hackers and law enforcement with a way of invading that privacy like never before. Encryption is the only possible countermeasure. “When I think of civil liberties, I think of the founding principles of this country,” Cook says. “The freedoms that are in the First Amendment, but also the fundamental right to privacy. And the way that we simply see this is, if this All Writs Act can be used to force us to do something that would make millions of people vulnerable, then you can begin to ask yourself, If that can happen, what else can happen? In the next Senate you might say, Well, maybe it should be a surveillance OS. Maybe law enforcement would like the ability to turn on the camera on your Mac.”
It’s an argument in favor not just of privacy but of a new kind of privacy, one forced on us by the utterly changed nature of the technological environment we now live in. Device by device, service by service, we have built over the past decade a world in which an amazing amount of what we do is recorded by our personal devices: our social lives, our health, our money, what we watch, who we talk to, where we go, what we look at. Ten years ago, if I went for a jog, any and all information relating to that jog would evaporate as soon as it happened. It would go uncaptured. Now that information is not only preserved–where I went, how far I went, how fast I went, what I listened to, what my heart rate was–it gets uploaded to the cloud and propagated across my social networks.
The legal scholars Peter Swire and Kenesa Ahmad have coined a phrase for this: the Golden Age of Surveillance. Idly and thoughtlessly, purely because we like the little conveniences and personal services that smart devices give us, we have comprehensively bugged ourselves but good. Devices like Amazon’s Alexa or Samsung’s smart TVs or even Mattel’s Hello Barbie not only monitor the conversation around them but stream it to the cloud to be run through speech-recognition algorithms. They listen and report.
George Orwell knew mass surveillance would invade our homes. The twist he didn’t see coming was that it wasn’t Big Brother who would do it. We did it to ourselves. “It wasn’t very long ago when you wouldn’t even think about there being health information on the smartphone,” Cook says. “There’s financial information. There’s your conversations, there’s business secrets. There’s probably more information about you on here than exists in your home.” The question is, now that we have this deeply, richly, intimately installed new surveillance infrastructure, should Big Brother be allowed to access it? And if so, when and how? Or should private citizens have the means to protect it, from hackers and thieves but also from the government?
Oddly enough, this particular fight has actually been fought before, more than 20 years ago, in what is known as the Crypto Wars. In 1993, jittery in the face of the growing power of encryption, the White House announced a device called the Clipper Chip that would encrypt digital communications while allowing the government to keep a key. Needless to say, the industry resisted the Clipper Chip on any number of grounds, including the fact that it would render American-made communications technology distinctly unattractive to foreign buyers. By 1996 it was effectively dead, and by 2000 the government had thrown up its hands at the whole quixotic business of trying to legislate encryption.
Strong encryption remained the exception rather than the rule, even as American cybersurveillance ramped up in the wake of Sept. 11. But by 2011 law enforcement was getting concerned again about its practical ability to monitor electronic communications. The FBI’s general counsel described them as “going dark,” a phrase that has become something of a rallying cry.
After the Edward Snowden revelations in 2013, some technology companies began integrating encryption more tightly and seamlessly into their products and enabling it as the default setting–Apple’s iOS 8, released in 2014, was a watershed in that respect. Google’s next release of Android did the same. There were already rumblings about encryption legislation long before lightning struck in San Bernardino. Last year, the Washington Post quoted an email from Robert S. Litt, second general counsel in the Office of the Director of National Intelligence, which speculated, presciently, that the general climate for such legislation “could turn in the event of a terrorist attack or criminal event where strong encryption can be shown to have hindered law enforcement.” And here we are.
Law enforcement has long been accustomed to obtaining warrants to search almost anything it wants, subject to the limits spelled out in the Fourth Amendment. (That’s the one about “unreasonable searches and seizures.”) But encryption creates a new kind of warrant-proof space, a virtual bolt-hole in which private citizens can put the vast amounts of sensitive personal data they generate. It’s still accessible to law enforcement in theory, but in practice it’s impenetrable without a pass code.
FBI Director James Comey put this new predicament starkly in a congressional hearing on the San Bernardino case in February. “Law enforcement, which I’m part of, really does save people’s lives, rescue kids, rescue neighborhoods from terrorists,” he said. “And we do that a whole lot through court orders that are search warrants. And we do it a whole lot through search warrants of mobile devices. So we’re gonna move to a world where that is not possible anymore? The world will not end, but it will be a different world than where we are today and where we were in 2014.”
Comey, who declined to be interviewed on this subject, has framed the conflict as a choice between privacy and security, a zero-sum trade-off. If it were that simple, Apple would have a steep battle indeed: whatever benefits we get from encryption would have to be weighed against the possibility of lives lost to acts of terrorism. But Cook flatly rejects this view as a red herring. “I think it’s very simplistic and incorrect,” he says. “Because the reality is, let’s say you just pulled encryption. Let’s you and I ban it tomorrow. And so we sit in Congress and we say, Thou shalt not have encryption. What happens then? Well, I would argue that the bad guys will use encryption from non-American companies, because they’re pretty smart, and Apple doesn’t own encryption.”
In other words, GovtOS wouldn’t help much, because there’s no legislating away encryption. The bad guys will remain encrypted as ever, no matter what. “The Internet doesn’t have boundaries,” Cook says. “You can wind up getting an app from Eastern Europe or Russia or wherever, it doesn’t matter which country, just outside the United States. And that app would give you end-to-end encryption.” Sure, you might get the data off Farook’s phone, but that’s the last one you’d get. Then you’re back where you started, except worse off, because everybody else’s crypto is now more vulnerable, with their data ripe for the pillaging. You’re only punishing the good guys.
The stakes are rising on both sides. In 2015 alone, the federal Office of Personnel Management was hacked to the tune of 22 million personal records; hackers released 32 million accounts from AshleyMadison.com, a site that facilitates adultery; and Anthem, the IRS and the director of the CIA got hit as well. “Think about the things that are on people’s phones,” Cook says. “Their kids’ locations are on there. You can see scenarios that are not far-fetched at all where you can take down power grids by going through a smartphone.” This isn’t entirely speculative: in December somebody managed to take down part of the power grid in western Ukraine, leaving 230,000 people without electricity. “We think the government should be pushing for more encryption,” he says. “That it’s a great thing. You know, it’s like the sun and the air and the water.”
Except that it protects terrorists as well as good guys. “We get that,” Cook says. “But you don’t take away the good for that sliver of bad. We’ve never been about that as a country. We make that decision every day, right? There are some times that freedom of speech, we might cringe a little when we hear that person saying this and wish they wouldn’t. This, to us, is like that. It’s at the core of who we are as a country.”
Encryption is one of those technological realities that are so ubiquitous and powerful that they alter political realities–it has a whiff of revolution about it. It changes the balance of power between government and governed.
Apple isn’t in the business of revolution, or not that kind anyway. Cook’s emphasis is on the extent to which encryption protects your data from the bad guys, the hackers and other malefactors, rather than from law enforcement–but at the same time he does convey a certain leeriness about the government’s unseemly eagerness to get at personal information. “I’m the FedEx guy,” Cook says. “I’m taking your package and I’m delivering it.” He doesn’t want Apple to be in the position of storing messages for the government to read. “I’m not saying that from a cost point of view or anything else, I’m saying it from an ethics and values point of view. You don’t want me to hold all that stuff. Right? I think you guys should have a reasonable expectation that your communication is private.”
He also points out that the All Writs Act doesn’t specify what kinds of criminal investigations it applies to. “This case was domestic terrorism, but a different court might view that robbery is one. A different one might view that a tax issue is one. A different one might view that a divorce issue would be O.K. And so we saw this huge thing opening and thought, You know, if this is where we’re going, somebody should pass a law that makes it very clear what the boundaries are. This thing shouldn’t be done court by court by court by court.” (Cook can’t completely conceal his irritation at the un-Apple-ish vagueness of the All Writs Act: “You can tell it was written over 200 years ago.” As if to say, they ought to let Jony Ive loose on that thing, get it milled to the proper tolerances, upgrade it to a respectable level of precision.)
Whether it will or won’t be decided by courts is an open question. The FBI, in a series of increasingly strident court filings, has accused Apple of undermining “the very institutions that are best able to safeguard our liberty and our rights: the courts, the Fourth Amendment, long-standing precedent and venerable laws, and the democratically elected branches of government.” It has also threatened, not very subtly, to unleash a nuclear option: subpoena the iOS source code and Apple’s “private electronic signature,” the certificate with which it identifies its code as valid to its devices, which is the software equivalent of the secret name of God.
As for Cook’s talk about privacy and civil liberties, the FBI dismisses it as “marketing.” It’s fair to say that emotions are running high on both sides. “Do I like their tactics?” Cook says. “No, I don’t. I’m seeing the government apparatus in a way I’ve never seen it before. Do I like finding out from the press about it? No, I don’t think it’s professional. Do I like them talking about or lying about our intentions? No. I’m offended by it. Deeply offended by it.”
To be sure, Cook has been positioning Apple as a defender of personal privacy for some time now, at the expense of several of his key rivals–Cook is fond of pointing out that Apple’s business model doesn’t involve harvesting and mining its users’ data the way that, say, Google, Facebook and Amazon do. (At Apple a lack of interest in customer information is practically gospel–Jobs used to claim that Apple didn’t even use focus groups.) Cook’s stance is also of a piece with Apple’s well-known obsession with top-down control of every detail of its products. For the government to come in and get its grubby, inky federal fingers on Apple’s perfect gleaming code must be excruciating at 1 Infinite Loop.
It’s ironic that Cook’s tough stand on privacy has forced him further into the spotlight. By nature he’s as intensely private as the CEO of Apple can be. It also represents another step in a curious trend that has Silicon Valley engineers increasingly acting like statesmen and policymakers, taking positions and making decisions on political and social issues. As more and more of our social and cultural fabric gets integrated into the Internet, power over that fabric is being siphoned off, through mysterious cross-country subterranean channels, from Washington to Northern California. “We’re in this bizarre position where we’re defending the civil liberties of the country against the government,” Cook says. “I mean, I never expected to be in this position. The government should always be the one defending civil liberties, and yet there’s a role reversal here. I still feel like I’m in another world, that I’m in this bad dream.”
Cook is doing his best to wake up. He says he doesn’t actually want to make this decision. What he’s pushing for is to get it out of the hands of a judge and into Congress; a commission could study the issue and presumably propose some sensible laws to clarify it. “We see that this is our moment to stand up and say, Stop and force a dialogue,” he says. “There’s been too many times that government is just so strong and so powerful and so loud that they really just limit or they don’t hear the discourse.” He stresses that whatever the outcome, when the law is handed down, Apple will follow it.
In the meantime, product development in Cupertino will continue to race ahead at the speed of technology, which is considerably faster than that of congressional commissions. It has been reported–though not confirmed–that Apple is evolving a version of the iPhone that even it couldn’t crack, not even with the help of GovtOS. It’s theoretically possible: if, just for example, the 10-guess requirement in iOS 9 could be incorporated into the phone’s hardware, rather than its software, then even modifying the operating system wouldn’t get rid of it. No one talks about future products at Apple–to do so would bring the ghost of Jobs howling back from Silicon Valhalla–but Cook says nothing that makes me think it’s not going to happen. “I would never do what you’re saying with the intention of doing that,” is how he puts it. “Our intention is never anything to do with government. It’s to protect people. Is it a consequence of it? Yes, I mean, over time you do more and more and more. That’s the road we’ve been on for a decade.” The effect would be to render controversies like the present one moot and remove Apple from the legal equation completely, bootstrapping it out like the Lorax.
Cook also suggests that with all those huge invisible billowing clouds of data we leave behind everywhere we go, the encrypted data on phones just isn’t that big a deal anymore. Law enforcement shouldn’t be whining about iPhones; it should be rolling around in all the other free information that criminals and terrorists are spewing through social networks and Nest thermostats, surveillance cameras and Hello Barbies. Apple even has the keys to iCloud backups, which are readily subpoenable, so why get hung up on the device itself? Which, by the way, 10 years ago didn’t even exist? “Going dark–this is a crock,” Cook says. “No one’s going dark. I mean really, it’s fair to say that if you send me a message and it’s encrypted, they can’t get that without going to you or to me, unless one of us has it in our cloud at this point. But we shouldn’t all be fixated just on what’s not available. We should take a step back and look at the total that’s available, because there’s a mountain of information about us.”
Its slightly exasperated tone aside, this argument echoes the findings of a report published in February by Harvard’s Berkman Center for Internet & Society and signed by an impressive roster of legal and security professionals. The report points out that there are powerful trends at work that balance the spread of encryption: the prevalence of business models that rely on mining users’ data; the growth of cloud computing, which puts data on central servers that are more easily accessible; and the proliferation of networked devices referred to collectively as the Internet of Things. “These are prime mechanisms for surveillance,” the report says, “alternative vectors for information-gathering that could more than fill many of the gaps left behind by sources that have gone dark–so much so that they raise troubling questions about how exposed to eavesdropping the general public is poised to become.”
In fact, we seem to be going through two equal and opposite crises at the same time, depending on who you listen to. On the one hand we’re going dark, and on the other we’re giving away our privacy left and right. These are local effects that need to be integrated into a bigger picture. Bottom line: the Internet is a vast, messy, porous place, and that same messiness that makes encryption impossible to regulate also means that however strong and seamless and pervasive encryption gets, it can only ever cover a fraction of the data that flows out of us all day, every day.
The next round in the shoving match between Apple and the FBI is set for March 22, when both sides will appear at a hearing in federal court in Riverside, Calif. Sooner or later, all that shoving will have to yield to a delicate balance, one that takes into account the realities of what encryption is and what it isn’t, and leaves us with a legal framework strong and clear enough to spare us from having to refight the Crypto Wars a third time. “You know as well as I do, sometimes the way we get somewhere, our journey is very ugly,” Cook says. “But I’m a big optimist that we ultimately arrive at the right thing.”

This appears in the March 28, 2016 issue of TIME.

Wednesday, March 16, 2016

Lyft and Uber Are ‘Allies’ in the Transit Revolution - Fortune

Posted: 15 Mar 2016 03:32 PM PDT

At a press conference announcing a new study about mobility in American cities on March 15, Lyft’s director of transportation described her company and competitor Uber as “allies.” And it is clear that city transit organizations are increasingly becoming part of the same alliance, one aimed at leveraging software and smartphones to lessen congestion and improve the efficiency of metropolitan transportation.
“We together can have a catalytic impact,” Lyft’s Emily Castor said at an event in Washington, D.C., in a fairly rare moment of solidarity with a company that aggressively competes for the same drivers and passengers in cities across the country.

The study, commissioned by the American Public Transportation Association (APTA), analyzed the usage of personal cars, public transit and other “shared modes”—such as bikesharing, carsharing and the use of ride apps such as Uber and Lyft—in seven major cities: Austin, Boston, Chicago, Los Angeles, San Francisco, Seattle and Washington, D.C. What the study found is that these newer shared modes complement public transit, are linked to lower rates of car ownership and that public-private partnerships are the way forward.
“Still in their infancy”
Both Uber and Lyft have been working in this arena for some time, positioning themselves not just as a convenience for millennials but also a solution to America’s traffic and carpooling problems.
But as they say in Silicon Valley, this mission is especially part of Lyft’s DNA, which began as a ride-sharing service, while Uber began as a black-car service. On March 14, Lyft announced that the company was launching a new carpooling feature in the app, in partnership with the Bay Area’s Metropolitan Transportation Commission, marking “the first time a government program has partnered with a ridesharing company on a new product.” And it is a harbinger of more partnerships to come, though the study notes that such collaborations are “still in their infancy.”
At the press conference, Uber’s David Plouffe and Lyft’s Castor were both adamant that improving mobility and working with cities to do that will be a focus of the companies’ missions going forward. “The math is the math, our cities are already bursting at the seams,” Plouffe said. “The only way our society is going to deal with that is to have fewer cars on the road.” On March 15, the company announced that it would be expanding its pooling option in the Bay Area down to San Jose, as well as farther-out towns like Hayward and Fremont, making it available to millions.
Plouffe added that taking cars off the road goes hand in hand with putting more people in the cars that remain. As part of the study, the researchers interviewed 4,500 people from those seven cities, and about 40% of them said they frequently drive alone. According to the U.S. Census Bureau, the numbers are bleaker nationwide, with more than three of every four people driving to work in an otherwise empty car.
“First mile, last mile”
One area of emphasis among transit reformers is improving what is known as “first mile, last mile” service, referring to a mode of transportation that gets you right to your doorstep or office building either side of infrastructure like a subway or bus that takes you in that general direction. Cities such as Dallas, which was represented at the conference, are working on technology allowing people to buy tickets for all those modes, public and private, in a single app on their smartphone.
Putting the likes of Uber and city-run transit in one place, argued Dallas Area Rapid Transit’s Morgan Lyons, makes public transit “more relevant to people who might not have considered it.” And Lyft’s Castor said that it works the same way for the private companies, citing the positive effects of ad campaigns in places like San Francisco and Chicago that touted the paired use of public transit and Lyft, positioning them not as alternatives but as links in a chain. “We believe by doing that we can access customers that otherwise we wouldn’t be able to access,” Castor said.
The study identified a group that researchers dubbed “supersharers,” those who routinely use shared modes of transportation, and found that since starting to use those shared modes, many of them also started saving money on their transportation costs (30%) and either postponed buying a car (21%) or sold one and didn’t replace it (27%).
Trying to suss out the before-and-after picture is key. Lyft has repeatedly published statistics that, for example, show that big portions of rides in cities like San Francisco or New York originate near train stations. But unless you know what the person taking that ride was doing before they downloaded the Lyft app (e.g. driving their own car and clogging up the road, versus walking, versus taking a bus), it’s hard to understand the full effect these companies might be having on the transportation ecosystem.
In their remarks, Uber and Lyft also emphasized that they’re helping to fill the gaps for people in what are sometimes called “transportation deserts,” those areas in or around a city where public transportation isn’t readily available and cabs aren’t common. “That is something that can really change the equation in terms of transportation access and economic mobility,” Castor said.
According to the study, however, the biggest gaps the companies are currently filling are in the public transportation schedule, particularly late at night and very early in the morning. While about 20% of respondents said they had used transportation apps for their commute or to run errands in the past three months, more than half said they used them for a social or recreational trip. About 100 respondents mentioned, unprompted, that drinking was a factor in that decision.
The “contentious” topics
In addition to the survey, the study involved interviews with public agency officials and employees at private companies, as well as the analysis of data provided by those companies. When the panel at the event was asked about whether this research took into account controversial issues such as the status of workers who make money through ride apps or safety concerns, the first response was that the study simply wasn’t focused on that part of the puzzle. (Plouffe then added that users in generally “feel very secure.”)
The research does acknowledge that questions about how to regulate the likes of Uber and Lyft remain “contentious.” But based on the interviews with public agency officials, it’s clear that there is mutually beneficial ground on the horizon. “Public transit agencies recognize ridesourcing as part of the new urban fabric,” the study notes, adding that city officials are “happy to let private providers lead in developing customer-facing technologies.”
The study and panel also discussed future ways to improve, like figuring out ways to provide more paratransit options for the disabled and focusing on increasing mobility for the elderly—both “highly regulated” areas—as well as figuring out how the services provided by through these apps can be used by people who don’t have money for a smartphone. As APTA chair Valarie J. McCall noted in a fair and fitting cliche, “this is just the beginning.”

Tuesday, March 15, 2016

China’s Communist Party Is Looking for Answers in Reaganomics - TIME Business

Posted: 08 Mar 2016 08:59 AM PST

You’ve really got to give China’s Communist Party propagandists an A for effort.
As part of a new roll out of reforms designed to bolster falling growth, the Party PR team has launched a state-approved rap song that puts policy to a back beat. “Reform the supply side, upgrade the economy,” runs the tune. Maybe it looses something musical in translation. But the question is whether it makes any sense economically. “Supply side” economics, a term most associated with the tax cuts and deregulation of Reagan years in America, seems an unlikely reform slogan for China’s state-led economy. After all, the Reagan Revolution represented the kind of naked free-marketism Karl Marx bemoaned and the Chinese revolution claimed it would redress.
But a kind of supply side economics is what’s being pushed this week at the National People’s Congress in Beijing, as leaders acknowledge the existence of “zombie firms” that may require “bankruptcy liquidations.” Translation: policy makers are talking openly about the fact that large swaths of China’s economy are in meltdown, and trillions of dollars of government stimulus has done nothing to offset the fact.
Can supply side economics help China? It depends on how the concept is implemented. Though supply side theory has become synonymous with the laissez-faire, trickle-down Capitalism—which in an age of rising inequality have been largely discredited—the core idea was developed, ironically, by a French economist, Jean-Baptiste Say. Say said that supply—the creation of new goods, products, and services—created its own demand, by dispersing money into the economy in the form of wages and profits, which could then be spent by a rising consumer class. The key and often-forgetten caveat is that Say believed there could be supply and demand mismatches – powerful institutions like the state or large financial firms could distort the rules of the game. Wealth, in effect, didn’t always trickle down if it was being funneled off the side by vested interests.
That’s exactly what’s happening in China now. The Chinese economy has slowed because its outdated economic model, which is predicated on cheap capital and cheaper labor, has stopped working. This is a fact even top policy makers all-but-openly admit. When the U.S. and Europe stopped spending in the wake of the 2008 crisis, China’s export economy tanked, and the government stepped in to prop things up with a stimulus plan of unprecedented proportions. This resulted in a debt bubble that grew three times as fast as the ruinous American subprime bubble. Result: there’s so much debt in the Chinese economy now, that about half of new loans are going to pay off interest on existing ones. This creates a snowball effect of slower growth, which the government has desperately tried to buffer with more credit. This “self reinforcing relationship” is what’s caused the “large disruptions in the financial markets” recently, says Peking University economist Michael Pettis, a highly regarded China observer.
Traditional supply side theory is in compatible with the Middle Kingdom in the sense that it would assume that the government just needs to stimulate more production, and demand will follow. In fact, just the opposite has happened. China’s state-led construction boom has created to ghost cities and asset bubbles. But to the extent that supply siders acknowledge that powerful forces can distort the natural laws of supply and demand, they are on to something. The Chinese state desperately needs to move its economy from a government-led model in which cheap capital of consumers gets funneled into unnecessary and unproductive infrastructure projects. (This only bolsters the wealth of a small minority of very rich people and Party elites, a Venn diagram with considerable overlap.) The country has to find a way to, instead, boost household wages and consumer spending.
That is happening, but slowly. As Pettis points out, consumption has only been rising as a percentage of the Chinese economy since 2012—and only by about 1/5th the amount that’s needed to really change the model. Meanwhile, debt continues to rise twice as fast as growth—a nosebleed rate that has market watchers worried about more stock crashes and bond defaults.
This means China’s policy makers could actually stand to take some lessons from the Reagan years. Despite all the political rhetoric about a smaller state and less spending, debt—both government and consumer—actually rose during the 1980s in the U.S. That’s because politicians used financial markets and easy money to buffer the fact that the American economy had actually been growing more slowly for years. The potential solutions to the real underlying problem—creating a true national competitiveness program for a more globalized world, reforming education, and figuring out a way to share corporate wealth more broadly—were too contentious to touch. It was basically a continuation of the “guns and butter” debate that began in the 1970s, and led politicians to cede control to the free markets, which proceeded to blow up every so often, a reminder that asset bubbles aren’t the same thing as real growth.
China is going through much the same thing now. (Indeed, the government has actually started repacking subprime type loans to try and offload some of its bad debts.) And so far, it’s unclear what “supply side” reform will really mean in the Chinese context. The government has called for policy proposals from think tanks, which run the gamut from closing down old coal fired power plants to liberalizing financial markets to focusing on creating more upscale goods and services. None of them are bad ideas, but they will only work in the context of fixing the real problem by shifting more of the society’s wealth from government- and state-run corporations to individuals.
It’s impossible to know how China’s version of Reaganomics might accomplish that. What we do know, it didn’t work in the US.

Monday, March 14, 2016

Fact-Checking Donald Trump on Free Trade - TIME Business

Posted: 11 Mar 2016 10:02 AM PST

Conversations about trade used to be so simple as to not need articles: free trade good, tariffs bad. But between the surging candidacies of Donald Trump and Bernie Sanders, that has changed radically. This campaign season has reopened the debate around how trade shapes our economy, in often-astonishing ways. And, to a certain extent, the conversation about trade has become a proxy for the one about globalization–is it good for Americans, or bad? The suspicion among voters that elites have been lying to them about the value of trade and globalization for decades is one of the things fueling voter anger and support for both Trump and Sanders.
The truth is mixed. Globalization and “free” trade—the term is a misnomer, really, since it’s never been free—have increased wealth and prosperity at a global level. But they have also increased the wealth divide within countries, in part because these forces created concentrated groups of economic losers in specific parts of our country. One of them, of course, is the Midwestern Rust Belt, where I grew up—that’s why the extent to which both Sanders’ and Trump’s messages resonated in Michigan was no surprise to me at all.
So does that mean that slapping 45% tariffs on American goods, as Trump again admitted might be necessary during the Mar. 10 GOP debate, is the way to go? No. Does it mean Donald Trump would be able to force Chinese president Xi Jinping to change the way his country’s currency is valued? Probably not. But I do think we are entering a new era for trade, because the low hanging fruit in many countries (not just the U.S.) has been plucked. Western elites are going to have to acknowledge something that most on the political right and many on the left have refused to say aloud: free trade doesn’t benefit everyone, all the time. There are winners and losers; the real question is how to properly protect the latter.
On that note, let me fact check some of the points that Trump has been making on the campaign trail, and offer alternates:
  1. China’s trading strategy has not, as Trump says, represented the biggest “theft” in the history of the world.China has its own economic and political goals, which are centered around creating as many jobs as possible to avoid the social unrest that would collapse the Communist system. But the country hasn’t “stolen” the majority of U.S. manufacturing jobs. According to the McKinsey Global Institute, the U.S. lost about 1/3rd of its manufacturing base between 2000 and 2010, some 6 million jobs. Only about 700,000 were lost to China, in “tradable” areas like apparel and electronics. The rest were lost because of decreasing consumer demand in the U.S. and elsewhere, largely as a result of economic downturns like the 2008 crisis.That demand loss particularly impacted areas like cars, white goods, machine tools, and lots of other things that U.S. businesses and consumers alike tend to buy at home. By the way, Americans make 73% of what they buy here at home, as BCG consultant Hal Sirkin recently reminded me, a point worth remembering in all this. On that note, there is a bit of good news: America brought back 1 million manufacturing jobs since 2010. That of course doesn’t alleviate the pain in the Rust Belt, but my article on the new American manufacturingexplains a bit about why the dynamics of the industry are changing in ways that smart U.S. policy could exploit. Unfortunately, none of them are being discussed by Trump. 
  2. That doesn’t mean that the global trading system and economy isn’t screwed up and in desperate need of reform. As countries like China and other emerging markets have entered the global trading system, they’ve often not played by the rules of the game developed by the World Trade Organization, the chief referring body for the global economy. Its not just the far right and left that are concerned, but folks at places like the Council on Foreign Relations (see its report on the topic).This fact has many people on both sides of the aisle talking about why we might need to bring back a third rail word–industrial policy. That doesn’t mean the government picking winners, but it does move us toward the government helping connect the private sector and the public sector in new and innovative ways that will keep more good jobs at home. 
  3. Bullying China to change its currency policy is of limited value. As Trump tells it, China devalues its currency to “steal” our jobs. There have certainly been some competitive devaluations of the RMB over the years, but overall, Chinese currency has appreciated against the dollar over the last decade. What’s more, when China takes actions to try and manage or manipulate its currency, you can bet there’s more than one thing in play. Recently, for instance, China has been desperate to try and prop up its currency to keep a flood money from leaving the country (a trillion bucks has already flooded out in the last year). That’s one reason why the Chinese react so badly when they are blamed for U.S. job losses: China is desperately trying to keep money and jobs at home, too, as it finds itself loosing both to other, cheaper, emerging markets. 
  4. Huge tariffs aren’t the answer. Progressive labor policy is. Tariffs are a tax that everyone pays, while the losses from global trade remain concentrated amongst a smaller group. Helping those folks should be the priority. There are several ways to do that, but let me focus on one straightforward way here: When the next president visits China, he or she will have a big agenda—getting access to Chinese financial markets for U.S. banks, getting intellectual property protection for Silicon Valley companies, and discussing labor standards and wages.Labor rights, usually at the bottom of the list because it’s seen too often as just a human rights issue in faraway places, should go to the top. That’s the right way to show voters supporting Trump and Sanders, many of which are rightfully angry about not being well protected by their government, that the U.S. cares as much about working people as the 1 %. It would also help push China to push up its own wages, which would be a move in the right direction towards rebalancing its own economy
Global trade isn’t a zero sum game; it doesn’t have to feel like one. To the extent that Sanders and Trump have opened the debate up, they are doing a service to American workers and workers around the world. But to move forward, many—voters and candidates alike—will have to change, and deepen, their thinking on the topic.

Saturday, March 12, 2016

These New Nest Features Could Change Smart Home Technology - Fortune

Posted: 10 Mar 2016 07:34 AM PST

Nest is adding two features that will help make its connected products a better fit for the connected home. The first feature uses data from users’ phones to contribute to their home and away settings, and the second lets them add more than one person to the Nest account.
This may seem small, but it represent a shift in thinking. For years the connected device industry has followed the trend of the mobile world, building links between a single person and their device. But with the smart home and the Internet of things, the challenge for device and app makers is to think about building links between a device and the home, which generally contains multiple people.
These two features are a start. The first, Family Account, lets users add up to 10 people to control their Nest devices. Originally, Nest users who wanted to remotely control their thermostat, camera, or smoke detector would log into their app on a mobile phone. But if your spouse was the person who installed and set up the Nest account, you’d have to share a password with him or her if you wanted to also access the device on your own phone.
One solution would be to give your home an email account and let anyone living there have the credentials, but this isn’t something many people will think about in their initial excitement of getting a new Nest product.
The second feature solves the challenge of having the Nest thermostat turn itself into Away mode even if someone is home. The Nest typically decided if people were home by using algorithms and a proximity sensor in the thermostat. But if the thermostat was located in a remote part of the house, it’s possible that people who were home wouldn’t trigger the sensor. At that point the Nest would decide that people were gone and would turn the air or heat off.
Several companies currently offer sensors that can tie into the Nest account to offer more granular information about who is in the home as a way to solve this problem, but Nest has decided to solve the problem for itself. The new feature adds geolocation on phones to determine if someone is home, so even if a person never triggers the sensor, the Nest product knows they are there.
For now this is a simple feature, but Nest could turn it into something far more powerful if it chooses. By using the combo of family accounts and geolocation, Nest can determine not only that someone is home, but who that person it is. That allows Nest to offer an interesting array of features such as setting individual temperature preferences.
If the Nest saw only I was at home, based on the cell phone information, it might set the temperature to my preferred setting. Thanks to integrations with other companies it might also change lighting preferences and more using the additional data. It’s a neat way to offer personalization if users opt in to these new features.
The Home/Away Assist and Family Accounts features are available by downloading the latest Nest update.
This article originally appeared on Fortune.com

Thursday, March 10, 2016

Aung San Suu Kyi picks close aide to be Myanmar president - Financial Times

http://www.ft.com/cms/s/0/d642925c-e684-11e5-ac45-5c039e797d1c.html#ixzz42VFbqLai

March 10, 2016 6:29 am

Aung San Suu Kyi picks close aide to be Myanmar president

(FILES) In this file picture taken on No...(FILES) In this file picture taken on November 13, 2010, Htin Kyaw (L), a senior National League for Democracy (NLD) official stands next to Aung San Suu Kyi (R) at her residence on the day of her release from house arrest in Yangon where she was detained for nearly two decades. Aung San Suu Kyi's party on March 10, 2016 nominated her former driver and close aide, Htin Kyaw, to be Myanmar's next president, as the Nobel laureate looks to rule her former junta-run homeland through a trusted proxy. / AFP / Soe Than WINSOE THAN WIN/AFP/Getty Images©AFP
Htin Kyaw, pictured with Aung San Suu Kyi in 2010
Aung San Suu Kyi has picked a long-time confidant to become Myanmar’s history-making new president, after failing to overturn a controversial constitutional clause that blocks her from the top job.
Htin Kyaw, a friend of 20 years who runs a charity for the veteran pro-democracy leader, was chosen for what she has said will be a proxy job to carry out her decisions.
Thursday’s nomination by the lower house of parliament dominated by Ms Aung San Suu Kyi’s National League for Democracy will need to be approved by a vote of the full legislature, notching another landmark in the country’s long transition from military rule. The NLD has comfortable majorities in both houses of parliament, so it would be a big surprise were her choice to be rejected.
Mr Htin Kyaw, a 70-year-old author and Oxford university graduate, has been an adviser to Ms Aung San Suu Kyi since the 1990s and the start of her 15 years of house arrest. The new president will from 1 April lead a government to replace the military-backed administration, which has held power since the ruling junta of almost 50 years stepped down in 2011.
Mr Htin Kyaw’s nomination is final confirmation that Ms Aung San Suu Kyi will be denied the honour of leading the first administration since the 1960s to be chosen after a full, free and fair election. The NLD made a late effort to use its sweeping mandate from November’s poll to bargain with the still-powerful military for a change in the constitution, but talks broke down.
Ms Aung San Suu Kyi’s domestic and international supporters will be disappointed she has not managed to take the top job and fulfil what many people see as the legacy of her father, a murdered nationalist hero. But excluding her from the presidency has for years been the strategy of a military that has carefully controlled the political transition and still holds important positions in parliament, ministries and a committee with powers to overrule the legislature.
“The Myanmar story has never really veered far from the basic plot set 10 years ago,” tweeted Thant Myint-U, a historian and analyst, who advised the outgoing government on its internal peace process. “Observers looking for a dramatic climax miss the point.”
He added that Mr Htin Kyaw was “a stellar choice, well respected, unimpeachable integrity and a very nice man”.
Earlier on Thursday Ms Aung San Suu Kyi, who is banned from the presidency because her two sons hold foreign passports, called for people to be patient as the country seeks to shake off military rule. Her party has been waiting months since a landslide election victory in November, stoking already high expectations about what a government steered by the woman known to many simply as “The Lady” can achieve.
“I would like to appeal for people to support and stand by the NLD with wisdom and farsightedness,” she said. “The NLD is determined to meet people’s expectations and will do its best.”
Under Myanmar’s constitution, Mr Htin Kyaw is one of three people nominated — by each house of parliament and the military — to contest the presidency and two vice-presidential posts. The NLD has also chosen Henry Vantriu, a member of the Chin minority whose ancestral home is close to Myanmar’s borders with India and Bangladesh. The identity of the military’s pick is still not known.

Tuesday, March 8, 2016

As China’s NPC Meets, Here Are Four Danger Signs to Watch for in the Nation’s Economy - TIME Business

Posted: 07 Mar 2016 12:22 AM PST

As China’s stock markets careen, global bourses follow in a punishing display of wave theory. With each 10th of a GDP percentage point shaved off of China’s growth figures, mines and mills across the world idle, sending some resource-rich nations into recession. China’s economic outlook affects not only the fates of 1.3 billion Chinese but also the fortunes of many nations across the planet.
Little wonder, then, that as China’s National People’s Congress (NPC) got under way last weekend for its annual conclave in Beijing, the state of the world’s second largest economy was at the forefront of people’s minds. The nation’s propaganda department chose the meeting of the rubber-stamp body to introduce a curiously worded political slogan, “the four consciousnesses,” referring to President Xi Jinping’s order to highlight the primacy of the Communist Party in Chinese life. But it was Premier Li Keqiang’s announcement on Saturday that the government expected the economy to grow between 6.5% and 7% that made far bigger headlines.
After all, last year, China narrowly missed its self-proclaimed target of 7% GDP expansion, recording the nation’s slowest economic uptick in 25 years with 6.9% growth. This year’s figure is the first time the government has set a goal below 7% in two decades. On Sunday, amid NPC meetings in Beijing, a top economic-planning official, Xu Shaoshi, dismissed fears of a hard landing in China, saying there was “no way” such a slowdown would ensue, according to the official Xinhua news agency. But here are four economic indicators to be concerned about in the year ahead:
1. Overcapacity
China now has a lot of factories that make a lot of things that people no longer want. That’s bad news, not only for nations that supply the Chinese economic engine with natural resources but also for workers at home who haven’t been paid in months or who, equally concerning, keep churning out unneeded products.
Last week, the Chinese government announced it would lay off 1.8 million workers in the state-owned steel and coal industries over an unspecified time period. Mass layoffs in the 1990s claimed more than 30 million jobs at state-owned enterprises. Back then, though, double-digit growth rates ensured alternative job creation. This time around, is China committed to eradicating so-called “zombie” enterprises, especially given the potential for worker unrest during an era of slower growth? “China has not followed through on the attempts it has made over the last decade to address overcapacity,” said Jörg Wuttke, president of the European Chamber of Commerce in China, as the business organization released a report on the overcapacity plaguing eight key industries. “Without a sustained effort to address it now, overcapacity may well seriously impede the effectiveness of China’s economic reform agenda.”
2. Market sentiment
As President Xi’s anticorruption campaign kicks in and the business community gets used to a “new normal” of lower growth rates, worries have coalesced that people — along with dirty money — are beginning to flee China. That vague sense has gained more definitive contours with data showing surging capital outflows. Can the very people who profit most from China’s nexus of business and politics be losing confidence in the nation’s economy?
Meanwhile, last month the Shanghai stock market hit its lowest point since 2014. In truth, a smaller proportion of Chinese are exposed to the stock market than are Americans. (Far more wealth is invested in China’s massive property market, which carries its own problems.) Still, stock-market sentiment counts for a lot, and the Chinese government’s response to last year’s free fall — ham-fisted and expensive attempts to order the market to turn around — didn’t do much for the reputation of the nation’s economic planners.
Since then, the nation’s stock-market regulator has been sacked. But the stock-market woes, followed by clumsy efforts to stabilize the yuan, which have eaten up hundreds of billions of dollars in foreign-currency reserves — continue to raise questions about the stewardship of China’s economy. Speculators have bet that the yuan will continue its slide, which will, in all likelihood, lead to even more capital outflows as Chinese invest their money abroad before their yuan is worth less than it is now.
3. The innovation economy
Premier Li has tied his economic plan to the economic buzzwords of the 21st century: green growth, IT investment, entrepreneurship. China does need to transition from a manufacturing-based economy to a more service-based one. Technocrats realize that the country’s punishing pollution — the air last week in Beijing spiked to toxic levels, even as thousands of political delegates descended on the capital — could drive away precisely the kind of young, educated citizens on whom the nation is counting. Already, the nation has made strides in alternative-energy development and digital innovation.
Yet even as Beijing pledges itself to new economic drivers, politics seem at odds with the nation’s stated commitment to an innovation economy. Xi’s ideological campaign to force the Communist Party back into people’s lives works against the notion of global openness. The Internet beyond China’s borders is harder to access than before. The space for critical debate — often considered key in nurturing innovation — has narrowed. Fewer foreign companies are investing in a closing China.
Li, who holds a doctorate in economics, also possesses less power than his predecessors Wen Jiabao and Zhu Rongji did. Instead, Xi, the country’s most powerful leader in decades, has deposited his trusted aides in economic-planning committees. The Chinese President has also taken personal charge of “leading small groups,” the powerful cliques that can direct policy more decisively than the bureaucracy supposedly in Li’s hands.
4. Numbers game
About that 6.9% GDP growth from 2015: most independent economists place little faith in the numbers produced by China’s state-employed statisticians. Earlier this year, the chief of China’s National Statistics Bureau was sacked and is now being investigated for “serious disciplinary violations.” The question is, Just how inflated are China’s growth figures?
There’s little doubt, however, in at least one figure — the nation’s growing debt burden. At the same time, now that China has committed to at least 6.5% GDP growth for 2016, some economists worry that efforts to meet even that target will undercut motivation to carry out badly needed reform. Earlier this month, Moody’s Investors Service downgraded its outlook for Chinese government credit ratings from “stable” to “negative.” One reason, according to the ratings agency? “Uncertainty about the authorities’ capacity to implement reforms — given the scale of reform challenges — to address imbalances in the economy.” But a brittle response from a state-linked researcher in the People’s Daily, the Chinese Communist Party’s mouthpiece, decried the Moody’s downgrade as a misjudgment “attributed to a poor understanding of the Chinese economy.” In China, politics are never far from economics.

Monday, March 7, 2016

Labor Market Strong as Economy Adds 242,000 Jobs - Associated Press

Posted: 04 Mar 2016 06:11 AM PST

WASHINGTON (AP) — U.S. employers added a robust 242,000 workers in February as retailers, restaurants and health care providers drove another solid month for the resilient American job market.
The Labor Department said Friday that the unemployment rate held steady at 4.9 percent.
The pickup in job gains shows that the U.S. economy has largely weathered a broader global slowdown without suffering much blowback. Worker pay slipped last month after accelerating in January. But more Americans who had been sitting on the sidelines began searching for jobs and found them.
Employers expect solid consumer demand in the months ahead even though the stock market has turned turbulent, oil prices have hurt energy industry jobs and a stronger dollar has reduced export sales.
Retailers added 54,900 jobs last month. Restaurants and bars added 40,200.
Hiring by construction companies, retailers and health care providers has offset layoffs at manufacturers and fossil fuel companies — two sectors squeezed by the pressures of uncertainty in China, sluggishness in Europe, declining oil prices and a stronger dollar.
Job losses for the mining sector — an area that includes the battered energy industry — have totaled 140,400 in the past 12 months. And manufacturing has added just 12,000 jobs over that time.
Consumers have provided the foundation for much of the job market’s improvement in what’s become something of a self-sustaining cycle. More than 2.7 million workers hired over the past 12 months have bolstered spending on autos, housing and meals out. As unemployment has dropped, more companies have begun to raise pay to attract workers, thereby fueling more hiring as people’s ability to spend, invest and save has increased.
Friday’s jobs report is sure to be closely monitored by the Federal Reserve and presidential candidates as a gauge of how well the economy is extending its 6½-year rebound from the Great Recession.
Recent reports have pointed to continued improvement. Over the past 12 months, average hourly earnings have risen 2.5 percent. Annual pay growth has perked up after having increased at a roughly 2 percent pace in the previous few years. The wage acceleration has fed optimism among many economists despite the difficulties worldwide.
The hiring and rising incomes have translated into more consumer spending in several key sectors. Auto sales rose 7 percent over last February to 1.3 million vehicles, according to Autodata Corp.
Purchases of existing homes rose 0.4 percent last month to a seasonally adjusted annual rate of 5.47 million, according to the National Association of Realtors. That improvement followed a solid 2015, when sales achieved their highest level in nine years.
And spending at restaurants has risen 6.1 percent over the past 12 months.
Still, troubles abroad have tempered U.S. economic growth. China, the world’s second-largest economy, is struggling with high corporate debts and slower growth. Oil prices have tumbled amid relatively low demand. The strong dollar has crushed exports, while the stock market has dropped in an extended bout of volatility this year.
Mining companies, including oil and gas drillers, have shed 130,600 jobs in the past 12 months. Factories have hired just 45,000 workers from a year ago as job gains in the manufacturing sector have slowed after a strong 2014.
The Fed is looking for further wage growth. The central bank is considering whether to raise interest rates again in the face of global risks that could imperil broader economic growth. In December, the Fed raised rates from record lows — its first increase in nearly a decade.
Investors have largely dismissed the likelihood of another rate hike at the upcoming Fed meeting March 16-17.

Sunday, March 6, 2016

Chinese Firm Makes $1.1B Deal to Become America’s Biggest Movie Chain - TIME Business

Posted: 04 Mar 2016 09:06 AM PST

LOS ANGELES (AP) — AMC Entertainment is acquiring rival Carmike Cinemas to create the world’s largest movie theater chain.
AMC, which Chinese conglomerate Dalian Wanda Group bought in 2012, said Thursday it is paying $1.1 billion including debt for Carmike.
The combined company will be the dominant theater chain in North American and signals Wanda’s further expansion into the entertainment industry. Just two months ago, it said it would spend $3.5 billion to acquire mid-level studio Legendary Entertainment, the co-financier of blockbusters like “Jurassic World” and “The Dark Knight.”
Wanda is also behind a multibillion-dollar studio complex being built in eastern China that was used to shoot the upcoming movie, “The Great Wall.”
AMC will pay $30 in cash per share, about 19 percent higher than the $25.11 Carmike shares closed at Thursday.
The acquisition will boost AMC’s theater locations by more than 70 percent to well over 600 and increase its screen count by half to nearly 8,400. Regal Entertainment Group, the current leader, runs nearly 7,400 screens in about 570 theaters.
The boards of both companies approved the deal, which is expected to close by the end of the year following a review by government competition authorities.
AMC CEO Adam Aron said he hopes the combination will boost profits in 2017 and enable about $35 million in annual savings, while bringing upscale amenities like alcohol service, reclining chairs, and expanded food offerings to more venues.
He said the cost of upgrading would be “reasonable” and profitable. He also said Wanda, which owns 75 percent of AMC, was supportive of the deal, but he declined to speak on behalf of Wanda.
“Clearly, they are supportive of what AMC is doing, and what AMC is doing is we’re growing our business,” Aron said.
Aron said any possible theater closures would “depend on a conversation with the Justice Department.”
He noted there are only a few markets where the companies’ theaters overlap and where closures might occur. AMC is focused on larger cities while Carmike is in smaller markets.
AMC Entertainment Holdings Inc. is based in Leawood, Kansas, which will be the combined company’s new headquarters. Carmike Cinemas Inc. is headquartered in Columbus, Georgia.

Saturday, March 5, 2016

Inside China’s National People’s Congress - Financial Times

http://www.ft.com/intl/cms/s/0/c4eddaf6-e108-11e5-9217-6ae3733a2cd1.html#axzz41wEMxggf

March 3, 2016 9:13 am

Inside China’s National People’s Congress

Thousands of delegates from around China are gathering in Beijing this week for the National People’s Congress, an annual conclave that is the closest the ruling Communist party gets to seeking broader public input on its decisions. 
What is the NPC?
China’s version of the legislative branch of government, the NPC meets once a year for about 10 days in March. The meeting opens with pomp and ceremony at the Great Hall of the People, a temple to communist architecture built in the 1950s. The interior features thick red carpets, marble columns and lush decorations that aim to reflect the diversity of China’s provinces. The 2,943 delegates range from meek “model workers” and token ethnic minorities in colorful costumes to ministers and provincial party secretaries or captains of state-owned industry. The latter have been thinned by a two-year anti-corruption probe.
Is the NPC a rubber-stamp parliament?
Yes — every law that goes up before the NPC is passed and every ministerial appointment approved. But the body is not as supine as it appears on the surface. Many draft laws never make it to the NPC for a final vote, either because they have been blocked by industrial lobbies, are too socially controversial or because party backers realise opposition within the ranks is too high. Similarly, China’s tea-leaf readers love to count the votes on ministerial approval as a clue to who is genuinely popular and who is held in relative disregard.
Why do Chinese refer to the ‘two meetings’?
The NPC meets at the same time as the Chinese People’s Political Consultative Congress, an advisory body made up of 2,220 representatives from business, academia and the eight powerless “dwarf” parties that allied with the Communists during the Chinese civil war. While lacking formal power, CPPCC delegates tend to bring views from a broader segment of society. Some are also very active in organising fact-finding tours to explore social and economic issues, the results of which can influence national policy. The CPPCC’s fortunes waned under the absolute rule of Chairman Mao Zedong but the body was revived and expanded under Jiang Zemin in the 1990s, during a time of rapid economic opening.
So what do they do during those 10 days?
Delegates spend most of the time broken into groups, either by province or by affinity group, in the case of the CPPCC. Every delegate has to read a statement reflecting on the premier’s work report presented at the first session and senior leaders rotate among the delegations. The slogan-filled meetings may drone on but many delegates manage to inject their own priorities into their statements. Others come armed with dozens of proposals for how China can be better governed, many of which get an enthusiastic airing in the Chinese press. Some make their way into future policy initiatives.
Do the ‘two meetings’ ever change?
The openness of the meetings and the degree of genuine discussion as oposed to parrotting slogans varies considerably with the political climate. Since unusually lively meetings in 2007 and 2008, a power consolidation under Xi Jinping, China’s president and general secretary of the Communist party, has been reflected in much more stilted and closed NPC sessions.