Pull out all the backstops: Boris Johnson in Europe

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Hello and welcome to the Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Decades after FedEx disrupted the world of shipping, the firm is itself being disrupted by the likes of Amazon. Shipping companies are upping their game, building up fleets of trucks and planes. After all these years, can FedEx still deliver the goods? And everyone knows the stereotype that smoking marijuana leads to voracious snacking. But we wanted data. Luckily, two economists have weighed in with a decade's worth of shop receipts. Yes, weed causes the munchies, but it seems that it also reduces boozing. First up, though, Britain's Prime Minister Boris Johnson is in Paris today for talks with French President Emmanuel Macron. Yesterday he met with the German Chancellor, Angela Merkel. He's ostensibly there to renegotiate elements of Britain's divorce deal with the European Union. Mrs. Merkel hinted that solutions could still be found.

It was said we will probably find.

A solution in two years, but we could also find one in the next 30 days. Why not?

Mr. Johnson is playing a high stakes game. As the Brexit deadline approaches, he's insisting on removing what's called the Irish backstop, a plan to avoid a hard border between the Republic of Ireland and Northern Ireland.

The backstop. That particular arrangement, which I do think is has grave, grave defects for a democratic country, a sovereign democratic country like the UK that plainly has to go. But once we get rid of it, if we can change it, then I think there is the real prospect of making progress very rapidly indeed.

There's fear that changes at the border would rekindle the violence associated with decades of unrest known as the Troubles. As expected, little has happened on Mr. Johnson's tour because both sides are making a show of not budgeting. Even before the meeting in Paris, Mr. Macron insisted there would be no concessions on his part.

Boris Johnson has been Prime Minister for a little over a month now, and this is his first visit to continental Europe. This is the first time he's met Chancellor Merkel in Germany and President Macron in France.

John Peat is the Economist's Brexit editor.

His first encounter with fellow European leaders will be very important for the future of the Brexit negotiations, which what happens on October 31st when he's threatening to leave the European Union with no deal? He's written a letter to the Europeans setting out a very tough position on Brexit, and this is the first time he will have a chance to actually discuss it with them.

And in that letter, he outlined his reasons for wanting to get rid of the backstop. He said some of the legislation is anti democratic. He said that it defeats some of the key aims of the Leave campaign. Why is he taking such a hard line on the backstop?

I think his real reason for wanting to kill it is simply that it didn't go through Parliament. And his own hard. Brexit supporters just don't like it because they think it keeps Britain too close to the European Union. That's a reasonable position to take. But what he hasn't done is offered an alternative. The purpose of the backstop was to prevent there ever being a border between Northern Ireland and the Republic. And the European leaders do not believe he's come up with any alternative. So he's really playing politics with this issue, and some people think he's presenting a very hard line and a hard position in order to justify leaving the EU with no deal at all.

We've talked before about how Britain is preparing itself for this increasingly likely no deal outcome. How is Europe preparing for that?

I think over the last sort of year or so, more or less, since it became clear that there were going to be difficulties for the British Parliament to ratify the Brexit deal that was negotiated by Boris Johnson's predecessor, Theresa May, who the other countries have got More worried that one consequence might be that Britain does leave with no deal. And they have put in place quite a lot of measures. They've passed quite a few rules saying that they will do things like allow airplanes to continue flying. The Germans and French have invested in better port controls, more customs facilities, which would deal with some of the extra red tape. But I think it is also fair to say that nobody wants an odial Brexit. The other countries of the European Union would suffer from an odial Brexit. Ireland would certainly suffer a lot. So they have a strong incentive to avoid it. But that doesn't mean they're going to give Boris Johnson what he wants.

Is there no part of the calculation that is people on the Europe side wanting there to be chaos, wanting there to be a great failure of this British project so that no one else amongst their constituencies or elsewhere in Europe wants to try the same thing?

I think there is a clear desire in Europe, in the European Union, first of all, to protect what they've got, which is their single market. So they're not willing to bend the rules of the single market to accommodate a Britain which will be outside the single market. And there is definitely a desire not to see Brexit being too successful in case other countries decide maybe they too should get free from the rules of Brussels. But having said that, they also don't want a no deal Brexit. Their line, I think, has been, since that is likely to be much more damaging for the UK than for any continental European country, they don't really believe it will happen. And they are hopeful that if it came to a crunch, Boris Johnson wouldn't do it or he would be stopped from doing it by his own party in Parliament.

And so if it did happen, how would a no deal Brexit affect Europe?

I think it would have a bad effect on Europe. It would clearly have an adverse effect on the uk. And there's been leaks of various studies within government showing that there will be things like food shortages, there will be hold ups at the ports, there will be chaos on the roads, there could be medicine shortages. So it will be disruptive, but it will also be disruptive, particularly for France, the Netherlands and Germany. They export far more to the UK economy than most of the rest of Europe. And also, particularly in the case of France and the Netherlands, the ports that interact with Dover will find their lives complicated and more difficult. And there will be more controls in effect in the English Channel and that will affect the countries that are along the English Channel and a sort of standoff between the UK which is an important market for the European Union, and the other countries of Europe will be damaging to all sides. The trouble is that if you've got into a position where both sides seem to be sticking to their guns and refusing to negotiate or compromise, just because it would be damaging for everybody doesn't mean it might not happen.

Mr. Johnson's trip is kind of a run up to the G7 meeting this weekend. Will Brexit play into discussions there at all?

I think there will be some discussion of Brexit at the G7. I mean, obviously it will be mainly about the outlook for the world economy and China and so on, but there will be some discussion because Brexit is one of the three or four reasons why the outlook for the world economy is looking a bit cloudy at the moment, because it could be quite damaging if there is a no deal. Brexit to Europe and the European economies have clearly all slowed down, including the British economy this year. So there will be some discussion of it. I don't think there will be any negotiation that will have to take place in Brussels probably during September, and at the moment it doesn't look like negotiation will produce a result.

And when conversation turns away from Brexit, what else is Mr. Johnson facing as he tackles his first G7?

I think most of the other countries there will want to know what he's going to do about Brexit, because that's the immediate issue since he's threatening to leave with no deal on October 31st. But there will be other issues at the G7, most notably continuing difficulties in trade, war with China, the outlook for the world economy and what to do about Iran and about the Strait of Hormuz, where they are still holding a British flagged ship. So those issues will come up and I think the Europeans will be wanting to watch to see if Boris Johnson tries to sort of deviate from what has been a European consensus on all these issues towards stronger support for Donald Trump. Mr. Trump has been quite a fan of Brexit and has sometimes said he thinks that Britain and the United States should do a very quick trade deal. And I think the Europeans are interested in seeing whether part of Boris Johnson's plan is to sort of be more supportive of the United States than Britain has been in the past.

In a sense, watching for Mr. Johnson to behave diplomatically as if Britain has already unhinged itself from Europe.

I think that's right and I think there's been some talk already. And Donald Trump has occasionally intervened himself, he seems to think that Brexit is a great idea. He likes Boris Johnson and he suggested the UK should get a trade deal with the United States very soon and very easily and very quickly. Most Europeans are very skeptical that that will happen, but they are watching to see if the UK which has for most of the past 20 or 30 years been clearly part of the European project in is it trying to drift off across the Atlantic?

John, thank you very much for coming in.

Thank you.

Wimpus if this package isn't in Peoria by tomorrow morning, it's your job.

Freeman if this package isn't in Peoria by tomorrow morning, it's your for nearly 50 years, the FedEx or Federal Express Corporation has been known for its overnight package delivery service. But for many insiders, FedEx is best known for its visionary founder, an old style disruptor.

Fred Smith is One of those CEOs that is folklore under himself Henry Tricks.

Writes Schumpeter, our column on global business.

He is well known for a somewhat apocryphal story about the fact that is it he came up with the business idea for FedEx, the idea of air freighting packages, while a student at Yale University. And supposedly he got a C for the paper. Actually, that's not true, but it's something that Donald Trump likes to repeat regularly whenever he talks about Fred Smith, which he does quite a lot. A story almost too good to check is that he wagered some of the firm's last money, the blackjack tables in Las Vegas in 1973, just after it had started to keep it afloat and he won. So he's one of those daring do entrepreneurs of the old school. He's a former Marine. But it is quite impressive what he's achieved. I mean, he started in 1973 with just 14 planes, delivering a few hundred packages a day. Now he's got something like 700 planes and he delivers 15 million packages a day. It's certainly the biggest cargo airline in the world. It's almost as big as some of the biggest commercial airlines.

So is he doing a good job?

FedEx is a place that's always voted one of the best places to work in America. So employees are pretty impressed. He has very good relations with Polygon politicians, with congressmen. They like a lot of the things that he's done. Shareholders, however, are not as impressed. FedEx should be one of these companies that grows with the American economy. The American economy, as we know, has been growing through an unprecedentedly long boom. And yet in terms of share price at least FedEx has badly underperformed the S&P 500 over the last 10 years, actually. And things aren't looking particularly good this year either. It's caught on the wrong side in the trade war. It has a growing rivalry with Amazon, which is obviously huge in E Commerce, which is a big business for FedEx. And it has problems in Europe trying to integrate a big acquisition that it made a few years ago.

So what's it been trying to do to keep the likes of Amazon at bay?

It's a tough challenge. You know, FedEx is a business, although we think of it probably as a consumer business because we all use it to send our packages from time to time. It's actually very much a business to business firm. One of its main jobs as a freight company is delivering products along the supply chain from factory to factory, that sort of thing. This sort of just in time manufacturing relies heavily on FedEx. E Commerce has really changed the rules of the game. It basically means that it has to provide in very short order at very low cost to houses, to people's homes all over America, not just in cities or all over the world, really. This is causing it to have to invest quite a lot in. In upgrading its trucking services, especially in America. It's now promising to deliver seven days a week. But it's tough competition because Amazon itself is growing its own freight business. FedEx stopped trucking parcels for Amazon, basically deciding to throw its lot in with Amazon's competitors like Walmart and Target, in a sense trying to stand up against what the company that is emerging as a competitor.

You said that FedEx is embroiled in some way in the trade war. How is the company being affected by that?

It's a troubling situation. The first effect is just the potential slowdown in world trade that comes from a result of the trade war that is likely to affect FedEx's volumes. But also it's recently launched a lawsuit against the US government, against the Trump administration, because it's basically trying to force FedEx to investigate the packages that it sends to China, for example, making sure that there aren't products by Huawei, which is on a U.S. blacklist. And FedEx thinks that this is an unfair burden. But also China is unhappy with the way that it's been treating Huawei. It made a mistake and it repackaged some products that were meant for Huawei. It's actually potentially on a blacklist in China as well. So these are tough times.

And to your mind is what FedEx is doing in terms of investing in its business and expanding its logistics and buying, buying, buying. Is that the way to weather these storms?

It certainly makes sense for FedEx to make a strong show to the emerging competitors that it is in for the long haul, that it is investing in its businesses and that, you know, it intends to have the world's biggest fleet for years or decades to come. The trouble is that it's facing some incredibly deep pocketed competitors, the likes of Amazon and Alibaba. Fred Smith continues to believe that it's fantastical the idea that they could catch up. We've seen other companies disintermediated by these tech giants in recent years. It's not inconceivable that FedEx will be one. It's a company that's shown itself a little bit flat footed recently in responding to these kind of competitive pressures.

So is Fred Smith the FedEx leader for these times, do you think?

There are very few people who can conceive of FedEx without Fred. Interestingly enough, the board this year has just extended the mandatory retirement age for its executives beyond 75. He's 75 years old now, so that effectively means that he can stay at the company for the rest of his life if he wants. There doesn't seem to be a move within to push him out. The trouble is, is that he's also surrounded by lieutenants. The average tenure of the top 10 executives at FedEx is more than 30 years. They're not exactly operating as a very impartial sounding board to him. They're actually some of his best and oldest friends. Given the fact that he's surrounded by company loyalists, it may actually be time either to change the executive team and if not, well, to change him. What we would say Fred exit.

Henry, thank you very much for your time.

Thanks, Jason.

Marijuana is now legal for medical use in 22American states. Eleven more permit recreational use and that's giving more people the munchies, at least according to a new study from two economists, Michele Baggio and Alberto Chong.

This study has found that when legalizing marijuana, the sales of junk food go up.

Miranda Aldersley is a researcher at the Economist.

And the sales of alcohol go down.

What kind of snack foods are we talking about here?

Pretty much the stereotypical snacks. Anything sweet, anything salty. Cookies went up by 4% and potato chips went up by 5.3%. These numbers may sound small, but in economic terms, and when you consider the percentage of people who smoke marijuana regularly in America, only about 10%, they're actually pretty significant.

And what's the inverse link with alcohol? How does that measure up?

So, when medicinal marijuana was legal, alcohol sales fell by more than 12% and the trend continued for two years after legalisation.

And so that drop in alcohol, what might that suggest?

Interpretations vary, but it would appear to suggest that some people who were buying alcohol every week, maybe they were self medicating. So when marijuana became legal for medicinal purposes, that took away the necessity for them to buy alcohol so often.

And so how did these researchers find all of these correlations?

Basically, they looked at retail scanning data from drugstores, convenience stores, big outlets like Walmart over the course of a decade in 48 states. Because the marijuana laws came into effect at different times, the researchers were able to accurately compare before and after in neighboring states that would otherwise be very similar. So, for example, they might share a border, but in one state marijuana would be legal and in another it would be illegal.

So this goes beyond previous studies on the subject. Why does knowing people's purchasing habits make this study significant?

So I think this study is more robust than previous data. A lot of the previous reporting in this field came from surveys where people are likely to downplay their own alcohol consumption. Using direct sales data makes this study much more reliable and potentially very important to policymakers who are weighing up the potential public health risks or benefits of legalising marijuana.

How so?

So with any new law, it's important to understand not just the direct consequences of the law, but also any unintended behavioural consequences that might arouse as a result of it. So it's interesting for policymakers to weigh up. Potentially legalising recreational marijuana might have a bad effect on the country's waistlines, for example, but equally, if alcohol sales went down, that would also maybe have a public health interest.

And I suppose that these, these kinds of policy decisions will start to become more widespread, more. More common, more important as. As legalization itself spreads.

Exactly. So there's no sign that the trend for legalising marijuana is going to go away. Just this month, for example, Luxembourg announced that it plans to be the first European country to legalize production and consumption, and called on other European countries to follow suit as well.

Miranda, thank you very much for your time.

You're very welcome.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple podcasts and you can subscribe to the economist@exterator.com radio. Offer 12 issues for $12 or 12 pounds. See you back here tomorrow.