Getting the Big Ideas Right | October 7, 2020October 7, 2020 Other
This week, I found myself returning to a phrase that historian David McCullough once ascribed to President Harry S. Truman, “it takes 50 years to settle on history.” As I write this, the President is receiving medical care at Walter Reed, where General Dwight D. Eisenhower was visited by then President Johnson in the final year of his life. It was in this suite where Eisenhower’s son David met Henry Kissinger and ushered Kissinger forward into the Nixon Administration months later. Humanities scholar Clay Jenkinson has written a very insightful piece on illness and the Presidency, “the most dramatic case” being Woodrow Wilson, who suffered a massive stroke in the final year of his Presidency. That was 1919 and 1920. Influenza had come in 1918.
October has arrived!
“Getting the Big Ideas Right” this week, we look at the history of illness and the Presidency and then study Influenza to use as a model to compare how America and the world have cared for one another to contain the spread of the Coronavirus. Next, we do a dive into the U.S. economy and track its competitiveness on the world stage. We look at the status of the SCOTUS confirmation hearings, government funding, an update from Capitol Hill, updated rules from the IRS, tax policy, the Presidential race, and a review of international leaders and events that have significance in a changing world. We feature ongoing developments between global governance and big tech. We highlight insights from several international business leaders including David Rubenstein of the Carlisle Group, Mastercard’s Michael Froman, and Bridgewater’s David McCormick.
Have a great week,
Librarian of Congress Carla Hayden hosted Carlisle Group CEO David Rubenstein for a book discussion on Influenza, which she framed as “the greatest pandemic in history.” David Rubenstein interviews Influenza scholar John Barry in his 2004 book on the subject. We learn that the pandemic was first called the “Spanish Flu.” Nobel Laureate Macfarlane Burnet determined that 50-100 million people died around the world from the Influenza (adjusted to today’s global population that would mean 225-450 million people could have died from the Influenza).
Historian David McCullough notes that 500,000 Americans died from Influenza between 1918 and 1919 (adjusted to today’s population, that we would mean 1.5 million Americans could have died from Influenza).
McCullough then offers encouragement for the future, saying: “We got through it, just as we got through the Civil War which was the most catastrophic experience of our story, we got through the Depression, and two world wars.” He concluded with a smile with Winston Churchill’s words saying: “We haven’t journeyed this far because we are made of sugar candy.” He concludes that the American character is honest and strives to improve.
Looking at the above data on Influenza, it is well worth a measure of how Coronavirus has compared with Influenza. We know that as early as February 2020, the most senior-level intelligence in our government was being briefed that the Coronavirus “is much more aggressive in its transmission than anything we have seen in recent history. It’s probably more akin to the 1918 pandemic.” As of October 1, 2020, Johns Hopkins University reports that 1,014,958 people around the world have died from the Coronavirus, with 34 million cases tracked. October 1, 2020, the Center for Disease Control data shows that 205,000 Americans have died from the Coronavirus and over 7 million cases have been confirmed in America. Comparing the Coronavirus and Influenza, through contract tracing and social distancing measures, Americans have been able to curb the death rate of infected cases to under 4%. Comparatively, in 1918 and 1919, there was very little warning or preventive communication from the government or the about healthcare best practices. By taking steps to protect their fellow citizens, Americans have kept the Coronavirus at a fraction of the death rate of Influenza.
India, whose population is 1.3 billion people, has reported more than 6 million cases of the Coronavirus. A new study out of India has identified the contract tracing for 85,000 cases finding 600,000 nodes of transmission. The report finds that children can and do become infected with the virus and are a significant contact point in transmission.
In June the G20 encouraged countries to continue implementing adaptive stimulus packages of: broad based tax relief, economic support for households, and measures to preserve the workforce. For a review of how every economy around the globe has responded to the Coronavirus, here is the G20 data set.
At the beginning of the Coronavirus, economists forecast a V or a U shaped recovery, based on the time horizon of economic rebound. The American economy may be experiencing more of a K shaped recovery in what the Atlantic Council describes as follows: “The U.S. economy is recovering quickly, but many industries – and many people – are being left out.” The report examines Q2 GDP (with Q3 data coming out on October 29) and compares the United States with the United Kingdom, India, Japan, Germany, and China. The report also tracks fiscal response on a global comparative scale and provides a state-by-state tracker of Q2 tax revenue.
Without additional stimulus and government intervention, certain areas of the hospitality market could continue to struggle for the foreseeable future. As PPP loans begin to drain, hotel owners are worried how they will keep occupancy levels up and staff on board. A recent study conducted by the American Hotel & Lodging Association found that 74% of the respondents stated they will be forced to lay off more staff without further governmental assistance.
Moreover, 67% of hotels reported that they will only be able to last six more months at current projected revenue and occupancy levels with no additional relief.
Looking at larger trends, older-built hotels located in the suburbs stand the most risk while economy-grade and limited-service hotels off the highway are seeing occupancy levels begin to pick back up.
The disruption in the hospitality industry due to COVID has provided a significant opportunity for distress property investments and merger and acquisitions that can fuel growth. You can read our full hospitality newsletter report here . Virtua Partners and Hotel Equities believe they are well positioned to capitalize on future opportunities.
The American economy added 661,000 jobs in September with unemployment lowering another half a percentage point to 7.9%.
Bloomberg reports this past week that “women helped pull the U.S. economy out of the last recession. This time around they are falling behind.” Women between the ages of 25 and 54 are “increasingly dropping out of the workforce” and African American and Hispanic female unemployment remains above 10%.
Walt Disney Company has announced 28,000 workers across the company’s theme-park, cruise-line, and retail operations. 67% of these workers are part-time. Broader market pressures include American Airlines’ October timeframe to shed 19,000 employees and United Airlines planning to cut 12,000 jobs. Goldman Sachs has let nearly 40,000 employees go since the beginning of the Coronavirus.
The United States Senate is full-steam-go on the confirmation schedule for Amy Coney Barrett on October 12, 2020 despite at least three U.S. Senators having tested positive for the Coronavirus. Senator Majority Leader has scheduled the Senate to return a week later, on October 19, 2020.
The House of Representatives has gone into recess and will return after the November elections despite broad bipartisan consensus from Capitol Hill to the White House that there is a need for additional economic relief now. Heading into the weekend, House Democrats approved a $2.2 trillion stimulus bill which the White House has scaled back to $1.6 trillion. On Tuesday, President Trump announced he would halt all negotiation processes for broad stimulus measures until after the election. Later that evening he remarked that he would sign a bill for stimulus checks directly for Americans. We have yet to see or hear of any major developments following President Trump’s requests.
The International Revenue Service (IRS) has released a series of final rules this past week, including income tax withholding from employee wages, meal and entertainment deductions, and new rules to determine source of income from the sale of personal property, as well as both final and proposed rules to foreign tax credits.
The tax policy team at Pricewaterhouse Coopers has compiled a comprehensive report on where President Donald Trump and Vice President Joe Biden intend to take the United States in future tax policy. The Biden Campaign has also produced a Buy America fact sheet.
The China Task Force in the United States House of Representatives outlined 400 tax and trade policies that strengthen America’s competitiveness and national security as it relates to China.
This past week I have been reading Graham Allison’s compilation of interviews with the founder of modern Singapore, Lee Kuan Yew. He outlines the strategic coordinates which created economic stability and social order allowing Singapore to transform from the third world to the first world from 1965-1990. He challenges policymakers to think about whether they want a fast or slow growing economy and concludes that populations must be educated, and talent must be recruited to succeed in a knowledge economy. He offers prescriptive insights on how the United States might choose to manage the strategic evolution of its relationship with a reawakened China.
Bank of America has produced a global insights paper targeting five areas that are driving changes to geopolitical order in the global marketplace. We can henceforth understand this as “BC” or “before Coronavirus” and “AC” or “after Coronavirus” where the world will be defined by competition between the eagle and the dragon.
Here is a CliffsNotes summary:
– The new world order is all about the relationship of cyber and technology between China and the preexisting rules-based system
– Wealth creation will be tied to technological supremacy
– Governments have fundamentally altered their social contracts with big implications for civil liberties, privacy, safety, security, and risk
– Public health has been reframed in how we allocate public resources
– We now have “Generation Z” affectionately titled as “The Zoomer” with new economic productivity and cultural habits
In what has been called “the definitive book” on China’s geopolitical aspirations through the Belt Road Initiative, author Jonathan Hillman sat down with Bethany Allen-Ebrahimian for a conversation about China’s changing power status through an imperial lens of empire building. Hillman recently returned from 16 countries which make up China’s new economic corridors where they have taken on major scale infrastructure projects. He considers how to balance benefits in wealth creation to the risks to transparency and competition. Seven out of ten of the largest construction companies in the world are Chinese state-owned enterprises. Hillman frames the conversation by noting that China is not asserting a weak or constrained set of behaviors and provides a very thorough understanding for global businesses and policymakers.
Mastercard’s Vice Chairman and President of Strategic Growth, former U.S. Trade Representative and Deputy National Security Advisor, Ambassador Michael B.G. Froman sat down in Washington this past week to talk about transparency standards, trade norms, and the dynamics of a rapidly changing global economy. He affirms that technology innovation is where economic data shows the highest alignment of wages growth and job creation matched with new wealth creation.
David McCormick, CEO of the world’s largest hedge fund, provided insights on the challenges to American leadership around the world and the need for a new generation of leadership in economic statecraft. He equates where we are in history as being akin to the advent of the industrial era. As a former National Security Council and Treasury official, McCormick provides concrete steps to improve the policymaking process to include a more comprehensive understanding of how to balance threats and manage strategic risks. He cites that the “rules of competition are changing,” revealing divergent underlying tensions that undermine American economic growth, technology innovation, and national security. McCormack says that America risks losing its leadership position if it does not adapt its decision making processes. He cites the winner-take-all political institutions as being detrimental to strategic thinking. He concludes that “economic security is national security” and urges policy responses that:
– Restores Certainty
– Creates Wealth
– Leads Global Standards and Innovation in Cyber and Artificial Intelligence
The Harvard Business Review notes that countries with women in leadership have suffered 6x fewer cases of the Coronavirus. Angela Merkel of Germany, Sanny Marin of Finland, and Tsai Ing-wen of Taiwan were profiled by national security professor Dr. Joan Jonson-Freese at the Naval War College in a late September publication with Our Secure Future, a nonprofit that promotes “a peaceful future transformed by women’s full participation.” The author asks whether “humility,” “empathy,” and “trust” as “female traits” have been more valuable to public policy than “over-confidence,” and “decisiveness” which would be male traits.
Fifty United States Senators have sent a letter to the United States Trade Representative urging the start of a bilateral trade agreement with Taiwan.
Winston Churchill once said that “the only thing worse that fighting with allies is fighting without them.” Americans will go to the polls this November for national elections. Germany is scheduled to have its national election next year. In a video conference this past week with lawmakers in Washington and Berlin, the issues discussed were front and center: China and Russia continue to apply significant pressure to undermine the values of democracy and free markets; the economic fallout from the Coronavirus gives the marketplace a natural policy space to find greater efficiencies.
The outgoing head of MI6 (code name “C”) sat down with the Financial Times this past week. The spy chief Sir Alex Younger’s insight to the western democratic institutions and alliances: “The Russians did not create the things that divide us – we did that.” He cited that ongoing “operational efforts” by the agency had missed the big idea of where the greatest security challenge existed, not in counter-terrorism but instead from Russia and China, which he categorizes as the real “boiling frog.” He said the big lesson for history is that economic liberalism does not create political freedom.
All is not so quiet on the eastern front in Belarus. The landlocked eastern European state of roughly 10 million people spends 1.2% of its GDP on defense, including an armed forces of 45,000 troops. Since being elected in a contested election in 2019, Alexander Lukashenko has further integrated his country’s military training with Moscow: Joint Russian-Belarusian military exercises will begin monthly and Russia has already deployed 1,000 airborne forces to expand the partnership’s air capabilities in Brest alongside Poland’s border.
The European Union has appealed a ruling which protect Apple from having to pay a $15.2 billion tax bill this past week. The matter has been unresolved since 2016 and demonstrates an example of where tech giants are seeking new political standards for productivity and competition.
The U.S. Department of Justice has tapped corporate defense attorney Ryan Shores to litigate the American government’s antitrust case against Google. Shores is a former clerk for Supreme Court Chief Justice William Rehnquist. Leading Google’s defense will be Kent Walker who is a former Assistant U.S. Attorney at the Department of Justice.
This week, the 137 nations which make up an OECD economic framework will meet to review tax policy in the context of a digital economy. In advance of the G20 Finance Ministers meeting on October 14, the body will be releasing a two-phase report on recommendations for profit reallocation and a digital taxation.
The U.S. Marine Corps is activating its first new base since 1952 in Guam, the American territory in the Pacific Rim. Camp Blaz, named in tribute to the late Marine Brigadier General Vincent “Ben” Tomas Garrido Blas, a Guam native. More than 5,000 Marines will transition from Okinawa, Japan in the coming 5 years.
Oliver Schwab is executive vice president of government affairs at Virtua Partners. Oliver supports and provides strategic guidance to the Virtua team, investors and owners with an active voice, shaping and understanding government policy.
In additional to Oliver’s work with Virtua, he leads a family office that he co-founded. Oliver is also trustee and treasurer of a private foundation. He served as a chief of staff in the United States Congress from 2011-2018. Oliver has experience as a principal in tax, trade, financial services and national security policy. He continues to support public diplomacy as a national security scholar.
Oliver is a visiting lecturer at the European Business School in Germany and the University of Warsaw in Poland. He is also a graduate student in strategic studies at the United States Naval War College, China scholar at the Center for Strategic and International Studies, and has been a fellow at the Woodrow Wilson Center for International Scholars and the Council on Foreign Relations. Oliver focuses his research on the relationship between policy, strategy and decision making. He and his wife Ana are the incoming cabinet co-chairs at the Thomas Jefferson Foundation.
*The article from Hotel Business incorrectly states that Virtua Partners has invested $500MM in Hotel Equities. Virtua Partners intends to invest up to $500MM in Hotel Equities over time on opportunities like the recent transaction with the Witness Group.