The Five Biggest Business Stories of 2016

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Not that long ago, Elizabeth Holmes, the founder and C.E.O. of Theranos, was lauded as a Steve Jobs in the making. Today, her blood-testing company is seen as a cautionary tale at best, and a fraud at worst. Not that long ago, Elizabeth Holmes, the founder and C.E.O. of Theranos, was lauded as a Steve Jobs in the making. Today, her blood-testing company is seen as a cautionary tale at best, and a fraud at worst.CreditPhotograph by Carlos Chavarria / The New York Times / Redux

While 2016 is a year that lots of people would like to forget, it is also a year that no one is going to have any trouble remembering. Here are five stories about business and the global economy that made a big impression.

The Trump Election. Donald Trump’s Presidential election was obviously the biggest story of the year in politics, but it was also the biggest story of the year in business. In the weeks leading up to the election, the expectation on Wall Street was that a Trump victory would lead to a market crash. Trump’s lack of experience and his erratic temperament, coupled with his promises to clamp down on immigration and scrap free-trade deals, seemed like a recipe for the kind of uncertainty that investors are supposed to hate. In fact, as Trump’s victory began to seem more likely on Election Night, stock-market futures did tumble. But the Trump crash turned out to be among the most short-lived in history: by the time the stock market opened on November 9th, nearly all of the losses had been recouped, and by market close on that Wednesday, the Dow was actually up two hundred and fifty-seven points. In the weeks since, the Trump rally has only continued, with both the S. & P. and the Dow now near all-time highs.

What investors seem to have recognized is that, for all the uncertainty he will inject into the system, Trump will be extraordinarily friendly to corporate interests, while the Republican-controlled Congress can be counted on to shape policy in a way that’s beneficial to capital and to the wealthy. Many of the regulations enacted during the Obama Administration, including those on the financial industry, will be rolled back. Others will simply not be enforced, which is why it’s not surprising that banks have been among the biggest winners in the stock-market rally. Corporate-tax reform, which Republicans are going to try to enact, could not only slash rates but also allow companies to repatriate at a low tax rate the trillions of dollars they have stashed overseas. And while Trump’s plans for infrastructure spending and tax cuts would send the deficit ballooning, they’d also help fuel economic growth, which could also help corporate profits.

That’s not to say all investors have been thrilled by Trump’s victory. The bond market, in particular, has been crushed by his win, as worries over higher deficits have driven rates up and bond prices down. Businesses that depend heavily on foreign imports—or on exports, for that matter—are concerned that Trump could push for higher tariffs on foreign goods and spark a trade war. With conservative Republicans controlling Congress, however, it’s unlikely that Trump will be able to enact anything that interferes too much with free trade. The honeymoon period may not last, but for now, investors seem to have concluded that even if he turns out not to be good for anything else, Trump will at the very least be good for business.

Read more stories about the year in culture and politics. Read more stories about the year in culture and politics.

Brexit. Trump’s election was, of course, only the second huge electoral surprise of the year. The first was the Brexit vote, in June, when British voters chose to leave the European Union. And as with Trump’s election, Brexit was not just a political story but very much a business one as well. Exiting the E.U. has the potential to wreak havoc on British banking, which is the country’s most important industry. As part of the E.U., British banks have so-called passporting rights, meaning they can do business in any European country. Leave supporters insist that the U.K. will be able to cut a deal with the E.U. to allow banks to keep those rights even after Brexit, but European policymakers aren’t giving any indication they will agree to such terms. Brexit also significantly complicates Britain’s trade relations not just with Europe but with the rest of the world (since all of its trade deals with other countries flow through the E.U.). Not surprisingly, then, Brexit hit the U.K. stock market hard and sent the value of the pound plummeting. European stock markets, meanwhile, also fell sharply on fears that Brexit might lead other countries to leave the E.U. as well. But, as with the Trump crash, the Brexit panic didn’t last. Perhaps in part because it hasn’t actually happened yet (though all the wheels are in motion), Brexit has so far not proved disastrous for the U.K. economy. The value of the pound remains low (not a bad thing, as it happens, for British exporters), but the U.K. stock market has rebounded and the economy has continued to grow.

Still, that Brexit’s effect on the British economy has been delayed doesn’t mean it won’t be real. And the Leave vote’s symbolic impact also resonated around the world, since it represented an embrace of nationalism over globalization. Indeed, the Leave campaign tapped into many of the same anxieties and fears that the Trump campaign did. Both traded on voters’ frustration with what they perceived as pointy-headed bureaucrats telling them how to live their lives. Both depicted globalization as a process that sacrificed jobs at home for jobs abroad. Both called for a renegotiation of trade deals. And both insidiously leveraged people’s fear of immigrants and outsiders. (Both also relied on a hefty dollop of false facts and fake promises to win over voters.) The abiding assumption of policymakers in most developed countries in the past two decades has been that the benefits of integrating into the global economy far outweigh the costs. Brexit, and Trump’s election, suggest that many voters disagree.

The Fifteen-Dollar Minimum Wage. When the “Fight for $15” movement to bring about a fifteen-dollar-an-hour minimum wage got started, four years ago, it seemed like a thoroughly quixotic quest. Previous increases in the minimum wage had typically been small. The kinds of workers that “Fight for $15” was looking to mobilize—most notably fast-food workers—have historically been difficult to organize, since they’re younger and often don’t stay in their jobs for long. And the goal of more than doubling the national minimum wage seemed outlandish.

“Fight for $15” doesn’t seem so quixotic anymore. Seattle, San Francisco, and Los Angeles have now all approved a fifteen-dollar minimum. More than a dozen states have voted to increase their minimum wages by varying amounts, and both New York and California passed laws that will raise the minimum wage to, yes, fifteen dollars an hour, although not for several years. These victories emboldened the “Fight for $15” movement—in late November, it staged its twelfth national fast-food-worker strike, coupled with protests across the country.

These increases in local minimum wages are important in two ways. First, while higher wages are obviously an enormous boon to workers who have jobs (and not just minimum-wage jobs, since raising the minimum wage has a ripple effect on other wages as well), we have no real idea whether they will also make businesses less likely to hire new workers or keep the ones they have. A sizable body of economic research suggests that minimum-wage hikes do not have a significant impact on employment. But all of that work is about minimum-wage hikes that were relatively small. A fifteen-dollar minimum wage, by contrast, takes us into uncharted territory, which is why even liberal economists have often been leery about endorsing it. So the experience of cities like Seattle will tell us quite a bit about the impact of a much higher minimum wage. We’ll see whether businesses end up passing along the costs to customers in the form of higher prices, invest more in automation that would reduce the need for cheap labor, cut hours, or simply see profits fall. And that, in turn, will help shape national policy going forward.

What the local hikes in the minimum wage also point to is the way cities are increasingly differentiating themselves by the economic policies they enact. This has, of course, always been true on the state level—California, famously, has much tougher environmental regulations than other states, while the South’s right-to-work laws have made unions rare in those states. But cities are increasingly setting their own policies, often independent of what the state wants to do. Higher minimum wages, in particular, represent an interesting gamble by cities like Seattle that they can both improve the lives of workers and continue to attract businesses at the same time. Local initiatives like these are going to become only more important under the Trump Administration, given that Trump’s nominee for Secretary of Labor is a fast-food magnate, Andy Puzder, who has been a vocal critic of the “Fight for $15” movement and opposed the Obama Administration’s attempt to raise the national minimum wage from $7.25 to $10.10.

Interestingly, though, not all cities are even going to be allowed to take action to improve workers’ wages. In February, for instance, Alabama passed a law prohibiting Alabama cities from setting their own minimum wages, thereby voiding a Birmingham ordinance that would have hiked the city minimum to $10.10. That could magnify geographical and regional differences in the way low-skilled workers are treated and paid. Flipping burgers may be the same job everywhere, but in some parts of the U.S., it’s going to be much easier to make a living while doing it.

State laws. When we talk about the relationship between local government policy and business, we usually think about policies explicitly geared toward business: tax incentives, zoning requirements, workplace regulations, and, now, minimum-wage initiatives. But this year, state governments found that even policies that seem to have nothing to do with the economy can play a huge role in attracting—or repelling—businesses. North Carolina, Georgia, and Mississippi all passed laws that, in different ways, made discrimination against L.G.B.T. people legal, and all faced a powerful backlash not just from progressive activists but also from big corporations.

The North Carolina law (which, among other things, required transgender people to use bathrooms that matched the sex they’d been assigned at birth) led to a corporate boycott that, according to some estimates, could cost the state upwards of five billion dollars. PayPal cancelled plans for a new operations center, Deutsche Bank nixed plans to expand in the state, and the N.B.A., N.C.A.A., and the A.C.C. all cancelled plans to hold championship events there. Disney said that it would stop making movies in Georgia (which has become home to lots of movie productions) if the anti-L.G.B.T. bill became law. And a number of corporate projects were cancelled in Mississippi. All of this was in line with what happened last year, when Indiana faced a massive corporate boycott, including twelve conventions relocating away from the state, after it passed a so-called religious-freedom law,

Companies have framed their opposition to these laws not just in terms of “corporate values.” They’ve also said that these laws hurt their businesses, by making it harder for them to hire and keep the people they need. And that opposition has often been remarkably effective—Indiana quickly amended its law last year, and this year governors in both Georgia and South Dakota (which also passed a bathroom law) vetoed the bills in question, in an implicit acknowledgment that their states couldn’t afford to alienate major employers. Corporate opposition also helped fuel public discontent with these laws—North Carolina’s governor, who had signed and defended the state’s anti-L.G.B.T. ordinance, was defeated on Election Day. Oddly, then, 2016 was the year that big corporations became progressives’ unlikely ally in the fight for L.G.B.T. rights.

Theranos. No year in business is complete without a scandal, and 2016 saw the culmination of one of the oddest, and most perplexing, scandals in business history: the collapse of Theranos, the company that was supposed to revolutionize the blood-testing business. Theranos was, not that long ago, one of the hottest companies in America, with a multibillion-dollar valuation, funding from key venture-capital firms and prominent investors, a founder and C.E.O., Elizabeth Holmes, who was lauded by the press as a Steve Jobs in the making, and, most important, a revolutionary new technology that was supposed to make the slow and expensive process of blood testing quick and cheap. Today, it’s seen as a cautionary tale at best, and a fraud at worst.

In May, the company told regulators that it had nullified the results from all the tests it had done in 2014 and 2015 on its so-called Edison machine. In July, regulators revoked Theranos’s license to run its blood-testing lab in Newark, California, a decision the company is appealing, and banned Holmes herself from the blood-testing business for two years. In October, the company announced that it would lay off forty per cent of its workforce and shut down its clinical labs, and said it is no longer in the blood-testing business. Finally, last month, Walgreens, which had partnered with Theranos to handle blood tests for its customers, sued Theranos, alleging that it had broken all of its promises and “failed to meet the most basic quality standards and legal requirements.” And after all this, no one—at least no one outside of the company—really seems to know whether Theranos ever had a blood-testing technology that worked, or if the entire company was purely smoke and mirrors.

One now-familiar take on Theranos is that a too-credulous press corps was taken in by a charismatic C.E.O. But if there’s a bigger moral to be drawn from the Theranos story, it’s that the Silicon Valley ethos of “move fast and break things” (to quote Mark Zuckerberg) is a poor fit with a regulated industry like health care, where people’s lives and well-being are at stake. Theranos’s approach seems to have been predicated on the idea that if it just kept moving forward, eventually the kinks would work themselves out. That’s a model that works fine with things like video games or mobile phones, where users have become accustomed to beta versions and recognize that imperfection is built into the process. It’s not a model that works very well when it comes to test results that people are using to make important health decisions. Theranos thought crossing every “T” and dotting every “I” was an outmoded approach. This year, it learned how wrong that was.

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