Transcript: The Democratic convention kicks off in Chicago

This is an audio transcript of the FT News Briefing podcast episode: ‘The Democratic convention kicks off in Chicago’

Kasia Broussalian
Good morning from the Financial Times. Today is Monday, August 19th, and this is your FT News Briefing.

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Top Democrats in the US are all heading towards Chicago. And major global fashion brands are cutting their orders from Bangladesh. Plus, we’ll look at how climate change is upending the insurance market. I’m Kasia Broussalian and here’s the news you need to start your day.

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The Democratic National Convention officially kicks off in Chicago today, and it’s a big moment for Vice-president Kamala Harris. She’ll be looking to capitalise on her brat summer. Harris’s campaign has been in a sort of honeymoon phase ever since President Joe Biden stepped aside. Just take a look at the polls. Harris has pulled ahead of former president Donald Trump in some key states, like Michigan and Wisconsin. The DNC should be a real test of whether she can maintain that momentum.

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Bangladesh has been on edge for weeks now. First, there were the student protests and then the bloody crackdown that killed hundreds of people. It led to the ouster of the country’s longtime leader, Sheikh Hasina. But now the turmoil is hitting Bangladesh’s economic engine, the garment and shoe industry. My colleague Ben Parkin was in Dhaka for much of the last week, and he joins me now. Hey, Ben.

Benjamin Parkin
Hi. Thanks for having me.

Kasia Broussalian
Thanks for coming on the show. So tell me what’s been going on in the country’s garment and shoe industry?

Benjamin Parkin
So the protests started to get really intense after a couple of weeks, and the government of Sheikh Hasina ordered a curfew across the country in order to try and stop them. So this meant that garment factories had to close for several days. Now, this was really tough. If you run a factory and you’re part of a competitive, low margin global supply chain, even a couple of days of shutdown can be pretty disastrous. So all of this has meant that some of the big global brands that rely on Bangladesh have started saying that they’re gonna be placing orders for the upcoming season elsewhere, which is really concerning for the Bangladeshi industry.

Kasia Broussalian
Yeah, so some pretty big disruptions. Now you are in the capital last week, what places did you go while you were there?

Benjamin Parkin
So I visited Apex Footwear, which makes shoes for a bunch of global brands. In this particular facility, there are about 8,000 people working across a handful of buildings. When you walk in, it’s almost like the production lines just going as far as the eye can see. Machines that you wouldn’t even thought existed, you know, cutting leather in all sorts of different ways. You have machines that are attaching the metal rims onto the holes for laces. Just really specific stuff that you would never even think of unless you visited.

Momtazul Marafin
Actually, in shoemaking we need to cutting then sewing then assembling, this assembling last section.

Benjamin Parkin
So while I was there, I met Momtazul Marafin, he’s one of the people responsible for running the factory on a day-to-day basis. He told me Bangladesh is a good place to make shoes because they’ve been doing it for decades.

Momtazul Marafin
At Apex, we are making shoe last 32 years, so we know how to make shoe, how to make leather shoe, how to make safety shoe and how to make the performance shoe.

Benjamin Parkin
And so he thinks that Bangladesh has a real advantage.

Kasia Broussalian
Yeah, and just give me a little bit of a history here, how did the garment and shoe industry become so important to Bangladesh’s economy?

Benjamin Parkin
So Bangladesh got its independence from Pakistan in 1971. It was one of the poorest countries in the world, and infamously was described by Henry Kissinger as a basket case. Now, over time, thanks to some really strategic and good policymaking, it began setting up a lot of textile factories that became really competitive and ultimately became the second largest garments exporter in the world and a crucial supplier to H&M, Zara, pretty much all the big global clothing brands you can think of. The former prime minister, Sheikh Hasina, played a role in this.

Md Nasrullah
So basically, the previous regime for the business community, in a nutshell was good because a, the stability was there.

Benjamin Parkin
While I was at the factory, I met Md Nasrullah, the head of Apex’s international business. He told me about how Sheikh Hasina knew that she had to keep business and exporters on side. And so she spent a lot of money on, say, developing the country’s infrastructure, roads, ports that helped exporters remain competitive.

Md Nasrullah
Then there was the digitalisation project that the government helped massively improve, especially the government office works.

Benjamin Parkin
She was in power for 15 years in a row. This put an end to a lot of the political turmoil that they’d become used to in Bangladesh, the sort of protests and everything until it came back.

Kasia Broussalian
Yeah, which brings us back to some of the problems that the garment industry is facing now. So just how big of a job does Bangladesh’s new interim leader, Muhammad Yunus, have in making sure that it all gets back on track?

Benjamin Parkin
He has a big task ahead of him. So one of the first things that Muhammad Yunus has to do is to restore law and order. There’s been a huge amount of violence and chaos on the streets. So he needs to convince, you know, these big global brands, the H&M’s and Zara’s of the world, that Bangladesh is still a safe place to do business.

Md Nasrullah
Unless you are a stable country, it’s difficult to continue the business. So we hope he will be able to get this happen because the whole Bangladesh is behind him supporting.

Benjamin Parkin
And why is he the right person? I asked Md Nasrullah about this. He said Muhammad Yunus has a good chance because there’s a lot of support for him in the population. People were really disillusioned with the previous government.

Md Nasrullah
He has a wide acceptance across the boards. I think that is going to help a lot.

Benjamin Parkin
So the business community is really hoping that that will help to restore investor and business confidence in Bangladesh.

Kasia Broussalian
Ben Parkin is the FT’s South Asia correspondent. Thanks, Ben.

Benjamin Parkin
Thank you very much.

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Kasia Broussalian
Start-ups in the US are dealing with a massive hangover these days. Failures have shot up by about 60 per cent in the last year. That’s because founders are running out of cash. They raised a ton of it during the tech boom between 2021 and 2022, you know, back when interest rates were low and money was cheap. But since then, venture capital investment into new companies has fallen off a cliff. Thanks to high inflation, the Federal Reserve has hiked up interest rates and kept them up there. Now the problem could spill into the wider economy. Start-ups employ millions of people and their jobs are increasingly on the line.

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Extreme weather is hitting closer to home these days, literally. And the safety net that we used to rely on in case of damage or destruction, you know, homeowners insurance, well in some areas it’s not as available anymore. Insurers are facing higher costs and a lot of them are now saying, I’m out. My colleague Ian Smith has been looking into the issue and he joins me now. Hey, Ian.

Ian Smith
Hey, Kasia.

Kasia Broussalian
So tell me a bit more about this problem. How are insurers reacting to the threats from climate change?

Ian Smith
Yeah. So there’s now a consensus that climate change is making extreme weather events more severe and more frequent. And that’s mixed with other factors such as inflation and rebuild costs and population growth in areas that were exposed to natural disasters to create a toxic mix for US homeowner insurers when it comes to their underwriting. They’ve just had some of the worst underwriting losses in many years last year. And as a result, they have kind of acted to protect themselves, either by pushing up prices for people in at risk areas or by withdrawing from some states, such as California, altogether for new business. And that’s put a huge amount of affordability pressures on households and businesses.

Kasia Broussalian
Yeah. Can you give me some of those examples, like what does it mean for people when an insurer essentially backs out of an entire region or state?

Ian Smith
So across the world, and including in the US, there’s a patchwork of state insurers of last resort and other schemes to help people get affordable insurance. So there’s normally some cover for people to find, but that cover might not be as holistic as something that was traditionally there. So mostly in the private market well, they can get excess insurance above that. But that excess insurance has got a lot more expensive. And for the average person, if insurance becomes unaffordable, that’s really the same as saying that they are uninsurable really is whether you can actually afford to pay for the cover that counts.

Kasia Broussalian
And now we’ve been talking about places in the United States, but is this trend of insurers pulling back specific to the US?

Ian Smith
No, not at all. So in Australia, you see similar problems, in some areas of southern Europe you’re starting to see some stress in the sectors, though not as severe. In the UK, insurance claims relating to weather damage last year hit a record after a series of severe storms. And that’s driven prices up here. So what we’re seeing is home insurance prices everywhere rising, getting more difficult to get cover. But in the UK, to some degree, people are already being protected from the worst of this three state schemes.

Kasia Broussalian
OK, so it sounds like there are some government options at least. But what about the private sector’s response?

Ian Smith
So I’d say the private sector response falls into a couple of buckets. One is new types of insurance policies. And another would be trying to better analyse the risk presented now in that first bucket of parametric insurance. And that’s where business customers put a water sensor on the wall of the premises. And if there’s a flood and the water reaches the sensor, then that insurance cover that has been agreed will be paid out. Now, that is intended to provide some cover to businesses and people that are at risk from frequent events. And then on the risk profiling, you see some businesses here, Lloyd’s of London or in the global insurance market that are using satellite data and other forms of data, along with closer risk modelling to get a better picture of the risk of a natural disaster to a given home or commercial property.

Kasia Broussalian
And, you know, things like getting insured for homes and businesses, it’s not a small thing, right? These things are a huge part of most people’s wealth. So how should we all be thinking about insurance and climate change going forward?

Ian Smith
I think ultimately the answer’s going to be a combination of prevention. So homeowners and businesses thinking about what they can do to prevent severe financial losses. I think for policymakers, there’s going to be increasing pressure on them to consider whether they need to tighten building codes. And then there’s a bigger social question about where we choose to build and whether a sustainable given the rising challenge from climate change.

Kasia Broussalian
Ian Smith is the FT’s insurance correspondent. He has a whole series about how climate change is upending the market. We’ll link to that in our show notes. Thanks, Ian.

Ian Smith
Thank you.

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Kasia Broussalian
This has been your FT News Briefing. Check back tomorrow for the latest business news.