Welcome to the Week in Business, a look at some of the biggest stories in business and economics.
Less than two weeks after its release, Pokémon Go has become one of the most successful mobile games of all time. The augmented-reality game, which requires players to walk the streets hunting down animated creatures, has been downloaded more than fifteen million times and is already on more than ten per cent of all Android phones. Unsurprisingly, that has investors excited about the profits the game could bring in for Nintendo, which introduced the original Pokémon twenty years ago and which now owns a stake in Niantic, the game studio that built Pokémon Go. Across a few days, Nintendo’s market capitalization rose by more than twelve billion dollars.
Pokémon Go’s business model is built on microtransactions. You can download and play the game for free, then pay for items that will help you succeed—for instance Poké Balls, egg incubators, or incense. Microtransactions are at the heart of most popular mobile games, and they can be enormously lucrative; the mobile-games developer Supercell, which makes Clash of Clans, for example, brought in more than two billion dollars in revenue last year, despite having only a hundred and eighty employees. But unlike most games, Pokémon Go has another important potential revenue stream: since most people playing the game give it access to a great deal of data about their locations and movement, Niantic could build a huge database of customer information that it could then sell to marketers and advertisers. Niantic could also cut deals for in-game sponsorships—Gizmodo reported on Thursday that the company is finalizing such a deal with McDonald’s.
Still, even with all this, it’s hard to see how the game could be worth as much as twelve billion dollars to Nintendo. To begin with, the company is only taking home a small fraction of the profits that the game makes. (It hasn’t disclosed exactly how much.) More important, even given the additional revenue sources, the microtransaction model depends on keeping users playing regularly and bringing new ones in. In the traditional video-game model, those concerns are less important, since companies earn revenue as soon as someone purchases the game (though sales of downloadable add-ons have become economically important to the industry, as well). Pokémon Go might be immensely popular today, but it could be harder for its maker to sustain people’s interest than investors are imagining. While most accounts of the game have focussed on its use of augmented reality, its appeal clearly also relates to users’ nostalgia for the original Pokémon game. (The vast majority of people who have downloaded Pokémon Go were tweens, or younger, when Pokémon first appeared.) That may not translate into long-term commitment.
Even more challenging could be the active nature of the game—you don’t walk around only to find Pokémon; once you’ve captured them, you also have to walk around in order to “evolve” them and increase their power. And while that’s part of what makes the game novel and appealing at the moment, it’s easy to see how the charm might wear off over time. Pokémon Go is also the rare video game whose economic success will be determined in part by the weather. It’s a great summertime game, but will anyone bundle up to go Pikachu-hunting when winter rolls around?
The American Dream: Frozen in Time
In recent years, it has become generally accepted that a significantly larger portion of the country’s income goes to those at the very top of the income pyramid than it did forty or fifty years ago, and that America is a far more unequal society as a result. But some have argued that a rise in inequality doesn’t matter, so long as people can still move up the income ladder. In this reading, what we should really be concerned about isn’t income inequality, but income mobility. That, after all, is the foundation of the American Dream: the chance for a poor person to become rich.
Unfortunately, even if you set aside the fact that mobility doesn’t, of itself, cure the ills of inequality, new research shows that it, too, has been significantly diminished in recent decades. According to a new working paper by the economists Michael D. Carr and Emily E. Wiemers, which the Washington Center for Equitable Growth spotlighted this week, income mobility in the U.S. has fallen since the early nineteen-eighties. Comparing worker incomes across two periods, 1981 to 1996 and 1993 to 2008, the authors found that workers today have a harder time moving up the income ladder—and, interestingly, that they are slightly less likely to move down, as well. The mobility of middle-class workers with college educations had declined the most.
The U.S. becoming a more economically static society is, to be sure, an unwelcome finding, particularly since the concept of equal opportunity has been such a crucial part of American ideology. And this new paper amplifies the prevailing view that the U.S. economy has not, in recent decades, worked well for ordinary workers. Not only has the economy grown more unequal and more static; it has also failed at its most important task: delivering sustained improvements in the standard of living of most workers. In the years between the Second World War and the mid-nineteen-seventies, the economy’s most distinctive and impressive feature was the steady increase in real wages. But since then, there have been few stretches when that was the case, and the problem has worsened since the Great Recession. The recent announcements by JPMorgan Chase and Starbucks that they’re hiking wages are positive signs, as are the recent minimum-wage increases in big cities, but workers have a lot of lost ground to make up.
The lack of broad-based wage growth is especially consequential because, even in a relatively mobile society, most workers are going to remain close to where they started on the income ladder. But in a healthy economy, staying on the same rung should still permit your life to improve. In fact, when economic growth is robust, the whole ladder should, as it were, move up, so that even if you’re staying in place relative to everyone else, your real standard of living rises. That has failed to happen for most American workers in recent decades, and while part of the cause is having more of the fruits of economic growth go to a small percentage of people, the bigger issue has been that the economy has, in general, not expanded fast enough to make labor markets tight and worker wages rise. The U.S. economy needs less inequality and more mobility, but it also needs faster growth.
Vancouver Real Estate: Cooling Mechanisms
The Canadian city of Vancouver has for years been one of the hottest real-estate markets in North America, if not the world. Even though household incomes there haven’t risen all that much over the past decade, real-estate prices have, to the point that even average homes in Vancouver can sell for more than a million dollars. As I wrote in 2014, that disconnect seems to be the result of a flood of money from foreign buyers, and in particular from Chinese buyers, who see owning real estate in Vancouver as a hedge against the possibility of political upheaval or dramatic climate shifts in China. In this, Vancouver is a particularly dramatic example of a phenomenon that cities like New York and London are also wrestling with.
If you’re a longtime Vancouver homeowner, the steep rise in real-estate values has been a tremendous boon. But it has effectively priced many younger residents out of the housing market. And the boom in non-resident buyers has also meant that a sizable chunk of apartments and homes in the city are vacant for much, if not all, of the year. That has negative implications for the city’s tax base, and for community life as a whole.
Not surprisingly, many people have been agitating for the city to do something about both home prices and absentee owners. In June, the city’s mayor announced that Vancouver would levy a tax on any property that lies vacant for twelve months; this week, the province of British Columbia said that it would give the city the statutory powers required to implement the tax.
That is, at least, a first step. But it is a timid one, and it will be so challenging to administer and so easy to circumvent that it will be unlikely to have any real impact on speculators. It’s also unclear how the city will know if a property is vacant. Will it send inspectors door to door? Rely on the reports of neighbors? Plus, by requiring properties to be vacant for a full twelve months, the proposal practically invites absentee landlords to rent out their properties for a few days in order for them to qualify as “occupied.”
If Vancouver is serious about limiting speculation and encouraging occupancy, it would do better to embrace a proposal that was unveiled earlier this year by a group of economists at the University of British Columbia. Under this plan, the city would essentially levy a 1.5-per-cent tax on any property owned by someone who didn’t file their income taxes with a Vancouver address. That approach has the virtue of being both simple to administer and well-targeted, since the only people who would have to pay the tax would be those who, by definition, weren’t working in the city. The proposal could also decrease vacancies and increase the supply of rental properties in the city, since renting out your property (and thereby collecting income from it) would exempt you from the tax. In addition, all of the revenue from the levy would be returned to taxpayers in Vancouver, in the form of a tax credit, which should make it politically appealing.
Ultimately, if Vancouver is serious about solving its affordable-housing problem, it needs to rethink its zoning regulations and allow more construction, which would increase the supply of apartments in the city. But raising the price of speculation can help to curb the problem—if it’s done effectively.
What’s More
It could take six years for the U.K. to leave the European Union.
Pokémon Go is everything that’s wrong with late capitalism. (Probably not, but it’s an interesting argument, nonetheless.)
Investors will now pay Germany for the privilege of lending it money for ten years.
The preëminent Wall Street law firm Cravath, Swaine & Moore will be run by a woman for the first time ever.
