Chief of Bloomberg Businessweek all about global technology. Why now do this . Megan technology has always been a franchise that Bloomberg Businessweek. It is something we have distinguished ourselves on. We pride ourselves on the covers, the stories we are able to tell. We really wanted to keep global tech as a franchise and even make it more global than it already was. What you see in this issue are two themes. One is here are some of the companies in developments and entrepreneurs that are changing the world, like tencent. And also, the future is closer than you think. Whether that is fish skin being used to treat wounds or the race for space, things we thought were Science Fiction almost are not so much. We wanted to bring that to readers. Oliver this has got to be one of the Coolest Stories you guys ever had in one magazine. We want to keep this sort of Business Economic thing open, but the stuff is so exciting. What to you is most exciting that maybe you had not heard about or got you jazzed up . Megan i think the space piece. Ashlee vance talks about ashlee vance talks about satellites. Im 43 years old i figure satellites as these huge behemoth things. We are talking about satellites the size of a boombox. An old radio. They are going up in the space and think you can almost carry into a briefcase. The start of technologies around space and how it is capturing satellite imagery. That they can monitor events going on in ukraine from a satellite the size of a briefcase and track that visibility. We are being watched all the time from everywhere. Whether you think its a good thing or a bad thing, it is happening. I think this really gets to the heart of that race for space and how fundamentally it has changed and how cheap it is getting. Carol you mentioned companies you know, but there are companies that you dont maybe focus on. Tencent. Its one of those stories. Megan they have 940 million active users. It obviously has the we chat chat app, its main thing. In china, people spend an average of four hours on it. Its embedded in everything you do from ordering in a restaurant or talking with your friends to buying a new shirt. It is almost impossible to get into any aspect of commerce without having wechat. We go to the guys who have really moved it forward. Martin lau, the driving Operational Force behind tencent. This is a guy when he was going to make a presentation to buy a videogame, played the videogame so much he eventually got the 97th highest score. He is a former banker with a list of credentials as long as your arm. In charge of a company fundamentally Free Shipping the way people live their lives. Carol and it took two job offers to get in there. Megan exactly. Oliver what i found interesting was the juxtaposition between ubiquity of tencent in another part of the world, and then now there is attempts to expand beyond that world. To find out what they are going to do, we talked to brad stone. Brad if youre unfamiliar with tencent and are interested in business or the internet, you need to learn about this company. It is sidebyside with alibaba one of the Technology Giants of asia. Known most prominently for the messaging service wechat. What is wechat . If youre not familiar with it, i could draw parallels to facebook messenger, but it really is so much more. In the u. S. We tend to have one app for everything we do online, to buy movie tickets or make payments or message with our friends. Wechat is like the dominant way people in china spend their time online. Is really the internet bundled into a messaging service. You can get your news, search the web. You talk to friends and contacts, but there are apps within the app for dating, buying tickets, ordering stuff online, ecommerce. It has become really over the past five years or so the largest planet in the chinese internet solar system. That is the best way to describe it. I think 900 million daily users. Almost two thirds of chinese internet population. And they are spending about two hours a day each on it. It is a tremendous asset for the shenzhenbased company tencent. Carol you talk about two individuals closely tied to tencent. They are not really out in the public that much but crucial to this company. Brad that is right. one of the five original founders, one of the wealthiest people in china, very quiet, does not do a lot of interviews. We jokingly referred to this photo with the chinese president , with all the Worlds Technology executives lined up, this is about two years ago. There was a photo shoot. Everybody is looking at the and pony mamiling, is staring down. There was something very characteristic about it. He does not do a lot of interviews. No one at this company does. We got this tremendous opportunity to talk to the second in command, ponys collaborator martin lau. We described him as the Michelle Sheryl sandberg of tencent. Before that he worked at Goldman Sachs and he helped take tencent public. He guided the international expansion, created a culture at tencent, and help steer we chat to what it is today. Carol i want you to tell me more about this guy because he is obviously important to tencents next step. He was offered a job and said no thanks. It was the second job offering . Brad we had a lot of fun talking to him. Lulu chen and i went to visit martin in hong kong. Lulu chen of our asian tech i wentorrespondence and to visit martin lau in hong kong. This was a unique opportunity. He rarely talks. We sat in their Hong Kong Office and he reviewed his trajectory and his journey into tencent. When he was first given the opportunity by pony ma back when they were taking tencent, he turned down the job. Could it overcome the pessimism in the market . It was a one trick pony, no pun intended. They were doing deals with mobile phone operators in china to get the prescription revenue. That is why there was optimism around the ipo, and why it year later when they made the offer, martin lau excepted. Oliver turning the future of technology into the cover image was the job of rob ardis. Rob with these special issues we dont want to seem like its about this one story. We shot the facilities for lab, whichled rocket was mentioned in one of the stories. There was a shot inside the rocket we felt was nice. Kind of abstract. It is not too specific, but it also kind of immediately gets you to the point that this is a tech issue. Carol when i first looked at it, i had read some of the stories, but i had no idea what this was about. How did you get that picture . Rob a lot of the rockets in the facility were in progress. We got inside and shot it. That is what we ended up with. Carol it is not what you put a lot of other mentions in the other stories on there. It is very clean. Rob exactly. We have the cover flap with the table of contents. They give you more of what is inside. When you open the magazine, you see the shot of the man standing inside these tubes. That is also what is here. Carol up next, the middlemen behind drug price hikes. Oliver also, Emmanuel Macrons plan to update french labor laws. Carol this is Bloomberg Businessweek. Carol welcome back to Bloomberg Businessweek. I am carol massar. Oliver i am oliver renick. Us online atcatch businessweek. Com. Health insurers hire pharmacy benefit managers to negotiate drug prices with pharmaceutical companies. Carol that has led the price hikes and lawsuits. Pharmacy benefit managers work on behalf of health plans, employers, unions, anyone providing health plans to employees. The role of the pharmacy benefit manager is to represent the health plan in its dealings with drug manufacturers and to negotiate discounts, which are referred to as rebates, on the drug manufacturers so the health plan pays less than the publicly advertised list price. That is the first step in understanding what they are going to do. It gets a lot more complicated after that. Carol how is that working out in terms of reducing costs . Paul it does reduce costs for to some degree for the health plans, but the seeking of the rebates has the perverse kind of side effects of causing drug manufacturers to raise their list prices, so the list price is higher and a rebate can be taken from the higher list price. Give a bigger rate to the pbms, so the pbms reap a slice of that rebate. They have incentive to see the list price go higher so their percentage rebate goes higher. That would all be fine of dont actually paid the list price, but that is not the way the world works. In fact, a lot of people do pay list price. If you are among the millions of americans who still Lack Health Insurance at this moment, and there may be millions more of those people if the republican Obamacare Repeal and replace bill is enacted, if youre one of those uninsured people, when you go to the pharmacy you pay list price. A medicareif you are recipient, there is a coverage gap in medicare where the recipients have to pay for their own drugs, again, you will pay the list price. Carol and a medicare recipient, if you go above that, all of a sudden you have to pay list price. Correct. Oliver at first it seems here the price it takes to make the drug and distribute it, but i found it similar to when you go and buy a phone. Phones have a very high list price from the manufacturer. Ultimately, most people dont pay for that because they get a plan, get a discount. It is analogous that you feel it when you have lost her phone a couple of times and you say this is what they charge. Who is a pang that and falls into that gap and have to pay the list price . Paul the Biggest Group of people who are uninsured. Even after obamacare was enacted , there was still some 27 million americans who pay full price. Moreover, under obamacare there is more provision of insurance, but often with high deductibles. Lets say you have a 4000 deductible, 5,000 deductable, 6,000 deductible, until you hit your deductible, you are paying list price. List price is due by a lot of people. Carol what i love about your story is a given a personal edge. You talk about about david hernandez. Tell us about his story. He is someone who is diabetic. Paul he is diabetic. He is a restaurant worker in new jersey, so he does not make a lot of money. For a period of years he had no insurance whatsoever. During that time he had to scrimp on insulin, and is that this had horrific effects on him. He went blind in one eye and ultimately needed a kidney transplant. He now is covered under a new jersey public plan for the disabled, but his coverage will expire at the beginning of next year. Then his costs will be Something Like 300 a month for insulin. Is a very big burden for someone who is not making much more than minimum wage. Carol in the economic section, french president Emmanuel Macron is wasting no time tackling the most explosive item on his Economic Policy agenda. Oliver that would be frances famously rigid labor laws. He promised labor reform as a central part of his campaign. It is about two weeks. Actually, the new assembly got sworn in this week, so two weeks since the second round of the elections. He presented his proposal on tuesday. Carol wait, it is a 3000page labor code. This is not an easy thing to do, is it . They are not going to revamp the whole thing, but they want to make significant changes. It is not easy to do. We have seen three previous president s of france try and fail. Carol there are a ton of issues that impact workers. Everything is codified, down to the size of the windows and in offices, the length of bathroom breaks, and if you email a French Worker on the weekend, he does not necessarily have to reply to you. It is in his contract. Carol what is he going to go after specifically then . Oliver one issue is the cost of severance. The cost itself is not the highest in europe, but employees can easily drag companies in the courts. The courts are very employee friendly. It is a process that is long as well as expensive. The other big important issue is to let companies negotiate directly with workers. In france, less than 10 of the workforce is unionized, but still companies are bound by these sector wide agreements that are negotiated by unions. That would give companies a lot of flexibility if they can deal directly with workers. Oliver why is one of the first orders of business for macron , because i feel the debate throughout the Election Campaign was not so much centered on this. The economy comes into account, but it was about Foreign Policy and immigration. And here we are attacking this thing that is well rooted within society for decades. I mean, why is he choosing to go after this . A lot of people have identified it as a key economic impediment. France has unemployment that is has hovered around 10 for five years. Germany and spain both saw unemployment fall after they introduced their own labor reforms. For young people, it is even worse. 21 to 22 . How it has happened in the absence of reform is that more companies have been relying on these temporary contracts. It is really hard as a young person. You cannot go and rent an apartment, never mind buy, by showing a landlord a temporary contract. Carol next, if youve wondered what Jeff Sessions has been up to since recusing himself on the russian investigation, we will tell you. Carol illinoiss budget woes go from bad to worse. Oliver this is Bloomberg Businessweek. Oliver welcome back to Bloomberg Businessweek. I am oliver renick. Carol i am carol massar. You can listen to us on radio on sirius xm channel 119, a. M. 1200 and boston, 91 fm in washington, d. C. Oliver and in asia on the Bloomberg Radio plus app. Arol in the politics section, Jeff Sessions may not be involved in the russian investigation. Oliver he has been trying to roll back a lot of obama era policies. For the attorney general, it has been pretty much business as usual. He has been able to use this time while everybody is focused on the russia investigation to kind of remake the Justice Department and move them in a direction that he wants them to move towards, which is a focus on violent crime. A large part of this has been stripping back a lot of obama era initiatives and legal legacy. Carol talk to me a little bit more about the specifics of what he has been undoing in terms of the obama legacy. Sure. He has been rolling back, charging policies that have sort of taken a softer approach to nonviolent drug offenders and essentially ordering all prosecutors to charge the harshest go for the harshest penalties in cases that they bring. This is kind of a bit counter to the way prosecution have been handled over time. He also has been taking a harder stance and harder look at these settlements we entered into with various cities over Problematic Police departments, saying he wants to review all the settlements because his view is that they dont the fed meddling and handcuffing police officials. Carol i think its interesting. We watched this trade going into the elections based on what we heard on the campaign trail. , some of the rhetoric there, specifically to do private prisons. We have been moving away from that. Jeff sessions is moving us back towards a relationship, the u. S. Government having relations with private prisons. Tom he has done a number of these things with the private prison memo coming out last august by then Deputy Attorney general sally yates. It was to try to phase out the governments use of private prisons for a number of reasons. But he has been able to kind of come right in and sort of immediately issue his own memo saying that is gone. With a number of these issues, he has been able to quickly dismantle a lot of items that have been in place, some very recently, others in place for several years. Oliver also in the politics section, with 6 billion in debt, the state of illinois is on its way to another credit downgrade. Carol here is elizabeth campbell. Illinois is in crisis right now. We are on the verge of entering her Third Straight fiscal year without a budget. If lawmakers and the governor dont come together by july 1, we are going to start fiscal year 2018 without a spending plan, billions of dollars in the red, and the state is in big trouble. We are actually headed for another credit downgrade which junk territory. Carol but a number on how much they are in debt. Right now because of the ongoing budget impasse, about 15 billion of unpaid bills. That is a record. At the same time, our deficit is in the neighborhood of about 6 billion. If things keep going, the state comptroller says we are effectively hemorrhaging cash. We willtroller has said have to cut into things like core services. She did emphasize that debt service is a priority and will continue to be paid regardless. Oliver these costs will keep adding up because if and when the downgrade does happen, that takes it down to junk. That is the first state that ever happened to. What kind of yield does that bring us to . What kind of cost will put on the state . If illinois goes to the bond market again, if they have a junk rating, borrowing costs will go up. Illinois, according to bloomberg data, already has the highest spread on its bonds compared to venture debt. It has the highest spread over triplea bonds. In terms of the unpaid bills, we are looking at about 800 million in interest and late fees alone. And that comes on top of any future bonding costs when they go to market. Oliver as a state, they cannot file for bankruptcy. This is not to try it could file for bankruptcy. How did they get to the state . Why are they constantly in the red . Illinois has been running deficits since 2002, but at the start of 2015, tax increases expired, leaving the state with hole of about 4 billion to 5 billion. They did not cut expenditures connected with the declining revenue. The governor, the first republican to lead the state since 2003, he has been battling the democraticcontrolled legislature over that deficit, and they cant agree. He has issued