Weekend reading links

1. Robin Harding writes that AI advances may not help much in the development of humanoid robots.

The obstacles to making an economically viable robot that can cook dinner and clean the toilets are a matter of hardware, not just software, and AI does not in itself address, let alone resolve them. These physical challenges are many and difficult. For example, a human arm or leg is moved by muscles, whereas a robotic limb must be actuated by motors. Each axis of motion through which the limb must move requires more motors. All of this is doable, as the robotic arms in factories demonstrate, but the high-performance motors, gears and transmissions involved create bulk, cost, power requirements and multiple components that can and will break down. After creating the desired motion, there is the challenge of sensing and feedback. If you pick up a piece of fruit, for example, then the human nerves in your hand will tell you how soft it feels and how hard you can afford to squeeze it. 

You can taste whether food is cooked and smell whether it is burning. None of those senses is easy to provide for a robot, and to the extent they are possible, they add more cost. Machine vision and AI may compensate, by observing whether the fruit is squashed or the food in the pan has gone the right colour, but they are an imperfect substitute. Then there is the issue of power. Any autonomous machine needs its own energy source. The robot arms in factories are plugged into the mains. They cannot move around. A humanoid robot is most likely to use a battery, but then there are trade-offs with bulk, power, strength, flexibility, operating time, usable life and cost. These are just some of the problems.

2. Nvidia does not seem to agree as it bets on robotocs as its next big growth driver. 

Nvidia... is set to launch its latest generation of compact computers for humanoid robots — dubbed Jetson Thor — in the first half of 2025. Nvidia is positioning itself to be the leading platform for what the tech group believes is an imminent robotics revolution. The company sells a “full stack” solution, from the layers of software for training AI-powered robots to the chips that go into them... The push into robotics comes as Nvidia is experiencing more competition for its powerful AI chips from rival chipmakers such as AMD, as well as cloud computing groups such as Amazon, Microsoft and Google that are looking to reduce their dependence on the US semiconductor group... a shift in the robotics market is being driven by two technological breakthroughs: the explosion of generative AI models and the ability to train robots on these foundational models using simulated environments. The latter has been a particularly significant development as it helps solve what roboticists call the “Sim-to-Real gap”, ensuring robots trained in virtual environments can operate effectively in the real world, he said... Nvidia offers tools at three stages of robotics development: software for training foundational models, which comes from Nvidia’s “DGX” system; simulations of real-world environments in its “Omniverse” platform; and the hardware to go inside the robots as its “brain”.

3. Pakistan drastically reduces pension benefits of retired civil and armed forces personnel to reduce its growing pension bill, the fourth largest expenditure in the budget. 

The Ministry of Finance on Wednesday issued three separate notifications to discontinue multiple pensions, reducing both the first home take pension and also lowering the base for determining future increases in pensions... According to the Ministry of Finance’s notification, on the recommendations of the Pay and Pension Commission of 2020, “it has been decided that henceforth, in an event where a person becomes entitled to more than one pension, such person shall only be authorised to opt to draw one of the pensions”... Instead of taking a pension on the basis of the last drawn salary, the new pensioner will get a pension based on the average salary of the last two years... It also ended the annual compounding of the pension and any increase would be treated separately from the base pension, a concept that is similar to the ad-hoc salary increase that is not made part of the basic salary to avoid compounding. The changes will take effect from January 1 and will be applicable to both retired civil and military personnel. Many serving federal government employees, who are taking salary and pension, would also be affected by the changes. The finance ministry’s notifications stated that the changes in the pension rules have been made on the basis of recommendations given by a commission constituted by the government of former prime minister Imran Khan in 2020.

4. A good description of how Chinese exporters are responding to US tariffs.

In industry after industry, Chinese companies have found footholds abroad that allow them to bypass trade barriers with the United States. After the United States put hefty tariffs on Chinese solar panels, for example, many Chinese companies opened solar factories in Southeast Asia... U.S. efforts to block critical minerals and electric vehicle batteries from China from receiving government subsidies have also pushed Chinese companies to set up battery-making subsidiaries in Morocco and Singapore... In some cases, global companies have also used accounting and tax tricks to make it appear that their shipments from China are lower, and thus pay fewer tariffs, without making major changes to their supply chains... For example, an electronics company might move one important stage of its supply chain out of China and into Vietnam. That could allow the company to report to U.S. customs agents that the export came from Vietnam, even if the good is still finished in China and exported from China to the United States. Another lever companies could play with, Ms. Brown said, is valuation. They can officially lower the value of the import by stripping out certain “intangible” costs, like payments for intellectual property, royalties, brand or research and development, and recording those to other global subsidiaries. By lowering the value of the import, they then pay a lower tariff.

5. Important point about the origins of uncertainty and risks in the global order today.

According to John Ikenberry of Princeton University, a leading theorist of international relations, “a revisionist state has arrived on the scene to contest the liberal international order . . . it is the United States... Trump is poised to contest almost every element of the liberal international order — trade, alliances, migration, multilateralism, solidarity between democracies, human rights”. As a result, rather than supporting the international status quo, the US is poised to become the leading disrupter. “Every talk I’ve ever given on the geopolitical risks that we face in the world started with China and Russia,” says Ivo Daalder of the Chicago Council on Global Affairs. “But the biggest risk is us. It’s America.” America’s traditional allies are among the countries that feel most threatened by a change in the way that the US exercises its power. Middle-power democracies such as the UK, Japan, Canada, South Korea, Germany and the entire EU have got used to a world in which American markets are open — and the US provides a security guarantee against threatening authoritarian powers... The question of whether and how to respond to Trump tariffs is exercising diplomatic minds across the western world. Finding an answer is all the more difficult because Trump’s true intentions remain unclear.

6. Interesting inequality trends

So we have seen no increase in aggregate inequality. The story for the lowest-paid is unambiguously good but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for a decidedly uncomfortable situation. If the middle class looks upwards, the rich are pulling further away. A top-tier life feels further out of reach than ever. But look down, and the floor is coming up fast. This simultaneous rise of resentment and precarity is a dangerous cocktail, and could certainly have fed into recent political undercurrents.

Professions once considered aspirational are at the sharp end. In Britain, doctors, nurses and police officers have all been slipping down the income rankings in recent years. In the US, the highest-paying jobs are increasingly shared among a handful of ultra-high-status occupations. Tech workers now account for one in six of the top 5 per cent of salaries, up from one in 20 in 1990... In the 1980s, 40 per cent of the highest-paying jobs in America didn’t require a degree. The upper reaches of the income scale included plenty of engineers and doctors, but also senior schoolteachers and the most skilled factory and construction workers. People from all sorts of backgrounds with all sorts of skillsets could dream of making it. Today, the upper part of the scale is dominated by highly skilled tech and healthcare workers. Almost half of the top jobs require an advanced degree. And a huge section of the population knows at a pretty early age they’re not on that path.

7. Some numbers of household savings in India.

Net household financial savings in India rose from 7.7 per cent of gross domestic product (GDP) in 2019-20 to 11.7 per cent in 2020-21, largely because of precautionary and forced savings during the pandemic, but moderated thereafter to a multi-decade low of 5.3 per cent in 2022-23... The share of low-cost current and savings accounts in total deposits has declined the past few years from a peak of 44-45 per cent in recent years to 38-39 per cent. In contrast, mutual funds, especially equity and hybrid schemes, have seen a surge in inflows and have delivered higher returns over the past few years. The share of mutual funds constituted around 6.1 per cent of household savings in 2022-23, with the number of mutual-fund folios jumping from 146 million at the end of 2022-23 to 178 million at the end of 2023-24.

8. Finally, after years of wrangling including several lawsuits, congestion pricing in busy hours goes live in mid-town Manhattan from the morning of 6th January.

Most passenger cars will now have to pay $9 to enter Manhattan south of 60th Street at peak hours, rather than the original $15. Small trucks will have to pay $14.40; large trucks, $21.60. Discounted rates will be offered overnight when there is less traffic. M.T.A. leaders expect the new tolls to help generate $15 billion through bond financing that will pay for a long list of transit repairs and improvements, including modernizing subway signals and stations and expanding the electric bus fleet... State officials said the original plan was expected to reduce the number of vehicles in the congestion zone by roughly 17 percent. They have not specified how the scaled-back program will compare except to say they expect it to cut traffic by at least 10 percent... The tolling plan also does not directly charge drivers and owners of for-hire vehicles, which have exploded on city streets since Uber’s arrival in 2011. Instead, a small per-trip fee — $1.50 for Ubers and Lyfts; 75 cents for taxis — will be added to each fare and paid by passengers... Within the congestion zone, the average travel speed has dropped to under 7 miles an hour for the first time since records were kept in the 1970s, he said. The slowest traffic crawls along at just 4.7 miles per hour in Midtown.

See also this.  

9. As Saudi Arabia wins the bid for the 2034 Football World Cup, FT writes on the country's ongoing boom in infrastructure investments.

Saudi Arabia has launched real estate and infrastructure projects worth $1.3tn since Vision 2030 was unveiled in 2016, according to estimates by consultancy Knight Frank. These projects, such as the Neom linear smart city, include adding more than 362,000 hotel rooms and 7.4mn square metres in retail space. Football has become one of Prince Mohammed’s prime targets for sporting investment. The country’s sovereign wealth fund acquired English Premier League side Newcastle United, while superstars such as Ronaldo and Neymar have been lured to play in the Saudi Pro League. Saudi Arabia’s bid said the 48-team World Cup would be played in 15 stadiums across five cities. Eight stadiums would be in or close to Riyadh, which is already undergoing a construction boom that includes an entertainment zone to the west and a major expansion to the capital’s airport.

10. Adam Tooze points to a UNTD report that highlights the large differences in the cost of debt between Western countries and low-income ones.

11. Doing business, Huawei style.

Huawei’s first business was importing telephone switches before building its own, cheaper versions, copying foreign designs in the process. It later benefited from a government policy to rip out foreign technology in China’s communications network. Huawei developed a reputation for generosity towards government officials and telecoms executives, paying for international travel and hosting lavish banquets at its campus. Dou portrays Ren as an expert networker, including sending birthday cakes to retired telecoms experts who had helped Huawei.

12. Divisions in the Trump coalition that will only grow.

The Maga crowd and the globalists disagree not only on immigration, but on defence, employment and free speech. This is a coalition whose most significant overlap was a desire to take down the previous government. Now that they have, I think it’s unlikely they’ll come together on anything else.

13. Stunning figures about the US economy from Ruchir Sharma

Following the pandemic, government spending rose sharply as a share of GDP. More than 20 per cent of new US jobs are now created by government, up from 1 per cent in the 2010s. Public transfers including Social Security account for more than a quarter of residents’ income in more than 50 per cent of US counties — up from just 10 per cent in 2000.

14. Corporate India's acute deficit of global brands

Many Indian brands have either disappeared or ceded space to foreign competition. Where Onida and Videocon once dominated the domestic market for TVs, washing machines, and household appliances, Japanese, Korean, and, increasingly, Chinese brands now rule the showrooms. In cars, the Premier Padmini and Ambassador vanished when Japan’s Suzuki set up its joint venture to launch the Maruti, an Indian brand only in name. Here, too, it is the Japanese, Koreans, Germans, and Chinese that offer consumer choices, with Tata and Mahindra & Mahindra being the only indigenous exceptions. In fast-moving consumer goods, brands such as Anchor, Nirma, Uncle Chipps, and Binny’s, which once gave multinational players a run for their money, have all vanished or receded to the margins of the market... The abdication of Indian brands to global competition — with many of them converting themselves into contract manufacturers — reflects the lack of long-term thinking and strategic imagination, which are critical to brand-building.

15. This is what US Treasury Secretary-nominee Scott Bessent thinks.

Bessent has also suggested that countries with military protection from America should be forced to buy more dollar debt, as a quid pro quo. “Is there some kind of statecraft to do where you go to [these countries] and say we have these 40- or 50-year military bonds [to buy]?” he said, citing Japan, Nato members and Saudi Arabia.

16. Finally, Tej Parikh presents some facts about European stocks that go against conventional wisdom. Excluding Nvidia, European stocks outperform S&P 500 since the latest bull market started in October 2022!

European stocks are undervalued compared to their American peers.

Tech accounts for around just 8 per cent of the Stoxx Europe 600. AI euphoria has mostly passed the continent by... The Granolas... covers a diverse group of international companies spanning the pharmaceutical, consumer and health sectors. Together, they account for about one-fifth of the Stoxx 600. Their performance against the Magnificent Seven has only recently diverged. The S&P 500 — which has around 70 per cent revenue exposure to the US — got a jolt following the election of Donald Trump... Small listed European businesses also tend to outperform their American counterparts. About 40 per cent of US small caps have negative earnings, compared with just over 10 per cent in Europe. The winner-takes-all dynamic may be stronger in the US, where tech behemoths suck capital and talent away from smaller companies... European corporates also rely more on relationship-based, illiquid funding, unlike in the US, where listed equity dominates. That may encourage longer-term corporate governance in Europe... Regarding the Trump tariff threat, it’s not all disaster for European companies either. Stoxx 600 groups derive only 40 per cent of their revenues from the continent... A stronger dollar would also boost the earnings of European companies with sizeable US sales.