The Economist - USA (2020-02-22)

22 The EconomistFebruary 22nd 2020

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Letters

Disruptionandcompetition

Schumpeter’sotherwise

worthyencomiumforClayton

Christensenmakesthemistak-

enclaimthatheasserteda

monopolyondisruptive

wisdom(February1st).After

hisseminal“TheInnovator’s

Dilemma”,Claytononlyever

wrotewithco-authors,andhe

tookeveryopportunityto

attributethestayingpowerof

thetheorytootherwriters,for

hevaluedworkthatchallenged

thetheoryevenmorethan

workthatconfirmedit.

Furthermore,claimingthat

Clayton“shruggedoff”Apple

and“brushedoff”Teslaand

Uberisalsomistaken.Clayton

pointedout,correctly,that

thesecompanieswerenot

followinga disruptivepathto

successoverrivals.Apple

disruptedthepersonalcom-

puter,butit didnotdisrupt

NokiaorBlackBerry:it out-

competedthemingoodold-

fashionedMichaelPorterstyle.

Clayton’smistakenprediction

thatApplewouldfailledhim

todevelopa morecareful

specificationofthelimitsof

disruptiontheory,which

placeshisworkwithinthe

contextofothertheoriesthat

explaindifferentphenomena.

SubsequentanalysesofTesla

andUber(neitherofwhich

havefolloweddisruptivepaths

regardsrelevantcompetitors)

reflectthis.Thatisa storyof

learningandprogresstowhich

weshouldallaspire.

michaelraynor

Mississauga,Canada

Nevada? South Carolina?

The answer to Lexington’s

question “Could it be Bernie?”

is a resounding no (January

25th). It is inconceivable to me,

a life-long Republican who will

not be voting for Donald

Trump, that the Democrats

could choose the only person

whom Mr Trump could beat.

When Bernie Sanders jumped

to the lead, Mr Trump tweeted

nice things about him. He

knows he can beat Bernie with

an impeached arm tied behind

his back. The Democrats’ man-

tra should be electability, plain

and simple. Choosing Bernie

wouldonlyshowthattheycan

screwupthesleevesona vest.

stephencooney

Pottstown,Pennsylvania

Treatingtransgenderkids

Regardingpubertyblockersfor

transgenderchildren(“Pill-

pushers”,February1st),it broke

ourheartstowatchourbril-

liant,funnykiddescendintoa

deepdepressiononcepuberty

started.It tookeveryounceof

courageshehadtotellusshe

wastransgender.Wetookher

atherword,andhavesup-

portedherthesepasttwoyears

asshebeganhertransition.We

weretoldoftherisksofhor-

monetherapy,butforusthere

wasneveranyquestion.On

hormones,ourchildhasa

chancefora happyandfulfill-

inglife.Withoutthem,we

mighthavelosther,andthatis

a riskwesimplywerenot

willingtotake.

jessicaveter

Dundas,Canada

Debt and private equity

Your otherwise excellent re-

port on private markets repeat-

ed a well-known shibboleth in

private equity (“Privacy and its

limits”, February 1st). This is

the idea that buy-outs use high

external debt levels to sharpen

the performance of operating

managers, which is sometimes

called the “discipline of debt”.

For 30 years the story has

been that high debt levels give

buy-out managers a financial

incentive to focus on maxi-

mising cashflow. On the face of

it that sounds plausible. The

flaw in the argument where

private equity is concerned is

that buy-out firms already have

all the financial incentive they

need: their “carried interest”

typically pays them 20% of the

profits they generate. The idea

that buy-out firms need high

interest payments as well as

this incentive to focus on

cashflow defies belief.

High debt levels in private

equity are not just logically

redundant. At least one empiri-

cal example shows high debt is

unnecessary in practice, too.

Melrose Industries, a publicly

listed company, follows a

strategywhichit calls“Buy,

Improve,Sell”.Thisisprivate

equityinallbutname.Melrose

hasgeneratedhighreturnsand

itsmarketcapitalisationis

nowalmost£12bn($15.5bn).

ButMelrosehasnotneeded

highleverage.It makesa point

ofusingthelowerdebtlevels

seeninquotedcompanies.

It suitsbuy-outinsiders

andinvestorstosuggestthat

theiruseofhighdebtinvolves

morethanjustfinancialengi-

neering.Unfortunately,this

ideafailstopassmustereither

intheoryorinpractice.

petermorris

London

Keep’empeeled

Withoutmoreresources,you

say,increasingthenumberof

policeofficersinBritainwill

resultinmoreoftheaccusedin

courtsandmoreprisoners

(“What’sgoingwronghere?”,

January18th).Butthereisalso

anopportunitycost.Bobbies

onthebeatareassociatedwith

crimeprevention.Potential

criminalsfeelmorerestrained

if detectionratesimproveand

theythinktheycouldget

caught.Soif 20,000extra

policeareputonthestreets

andintodetectionandtech-

nologychannels,a lotofcrime

couldbeprevented.

deepsagar

Formerchair

Auditandassuranceboard

NationalPoliceChiefs’Council

Berkhamsted,Hertfordshire

The coronavirus epidemic

You hold a prejudice against

China’s political system when

reporting on the country’s fight

against the coronavirus epi-

demic (Chaguan, February 1st).

The Communist Party puts a

priority on people’s lives and

health. President Xi Jinping

has set up a task force to lead

effective prevention and con-

trol, describing the coronavi-

rus as a “devil”, which “we will

not let hide”. Under strong

leadership China has taken

swift and concerted action to

contain the disease. Infor-

mation has been released in an

open and transparent manner.

China has closely co-operated

with the whoand the wider

international community to

safeguard the safety of people

in Hubei province, in China

and in the world.

Tedros Adhanom Ghebreye-

sus, the who’s director-gen-

eral, has hailed the speed and

scale of China’s actions. He has

said that other countries

should learn from China’s

experience, pointing out that

President Xi’s personal guid-

ance and deployment show his

great leadership capability.

Turning a blind eye to

China’s hard efforts and their

effective results and trying to

politicise the issue is not con-

ducive to the prevention and

control of the novel coronavi-

rus epidemic. The Chinese

people are united and have full

confidence that we can win

this battle.

zeng rong

Spokesperson of the Chinese

Embassy

London

Love will tear us apart

The Graphic detail on why

people listen to sad songs in

February (February 8th)

brought to mind “The Saddest

Music in the World”. Directed

by Guy Maddin, known for his

homages to Russian and Ger-

man Expressionist films, it

stars Isabella Rossellini as a

brewery heiress with plexi-

glass prosthetic legs (filled

with beer, of course). She holds

a contest to find which country

has the saddest music, parody-

ing the Olympics. Great fun.

keith carlson

Belmont, Massachusetts

Missing from your analysis

was the Valentine’s Day factor.

That’s the time when broken

hearts get to see their ex-

partner Instagramming cuddly

pictures with their new catch.

There’s no happiness in that.

zumme mphatso chirwa

Blantyre, Malawi