Saturday, September 18, 2021

Weekend reading links

1. The big news late last week was the ruling of the US District Judge Yvonne Gonzalez Rogers in the case between Apple and games maker Epic, that directed Apple to give developers in the US bypass the App Store's in-app payment tool by including links or directions to "purchasing mechanisms" outside of the platform. This deprives Apple off the monopoly position in the  very high margin (15-30%) and more than $60 billion of App Store transactions per year. Apple made $6.3 bn last year from in-app purchases and subscriptions. 

Epic Games CEO Tim Sweeny has expressed his disappointment, saying that this is not a victory for either developers or consumers. Apple has proclaimed victory. It will be a relief to Apple that the judge has not inviolated the prevailing anti-trust paradigm by ruling that "Apple is not a monopolist under 'either federal or state antitrust laws'". Besides, the Judge also said that, "Apple provides a safe and trusted user experience on iOS, which encourages both users and developers to transact freely and is mutually beneficial."

The judge also didn’t force Apple to change its fees or let third-party app stores on its platform, which would have been a far larger blow to the company’s revenue. The ruling states that Apple must let developers communicate with customers “through points of contact obtained voluntarily from customers through registration within the app.” Last month, as part of minor concessions designed to settle a class-action lawsuit with app makers in the U.S., Apple had already agreed to allow those direct communications between developers and end users. The ruling in the Epic trial only applies to the U.S., while Apple’s previous App Store changes — relating to communications and reader apps — were designed to be global... The ruling is believed to mean that users would be able to make purchases via the web, rather than having a competing payment system in apps themselves. That means Epic would need to build a website to let users make purchases and include a link to that site in Fortnite in order to comply with the rules. That’s something Sweeney appears to be implying that Epic doesn’t want to do. Epic wants a built-in payment system, not the option to steer to the web.
This is what Epic wanted,
What it really wanted was a frictionless in-app payment mechanism that deprived Apple of its cut, rather than the ability to hyperlink to a payment website outside of the app. Epic also wanted to skirt around the App Store entirely and allow people to download its game to their devices much as they do on a PC. And it wanted the judge to declare Apple an illegal monopoly. It lost both arguments.

2. Andy Mukherjee has a story on the less reported but more important part of India's e-commerce market - the B2B aggregation between brands and wholesalers with the millions of small stores in more than 660,000 villages and over 8000 cities and towns of India. 

The wholesalers rely on their knowledge of (and trust in) retailers in their vicinity. But these relationship-oriented networks are small and expensive. Throwing them wide open with digitization is the big opportunity. Leading the charge is Udaan, a startup that in five years has taken 80% of the business-to-business e-commerce market, delivering goods it stocks in 200 warehouses nationwide to more than 1.7 million retail stores in 900 cities every day. Suppliers receive their cash on time after Udaan takes their products. Retailers get credit they would have otherwise obtained at high interest rates from wholesalers. Everything happens on a smartphone app, which helps small shopkeepers build a history of reliability in payments. Banks and financiers gain the confidence to lend the required working capital, and brands get less convoluted access. From manufacturers and millers to farmers, pharmacists, hotels, restaurants and grocers, the platform has 3 million registered buyers and sellers... (Udaan) isn’t looking to fundamentally alter behavior. (They are) simply removing inefficiencies to speed up the flow of capital. This is crucial for retailers who work on 10% to 12% margins, half of what their peers in the West make. The business-to-consumer side of retail is both deeply political and booby-trapped with regulatory minefields.
This, like Rivigo, is a rare example of a start-up which has identified an important market failure unique to Indian context, figured out a business model, demonstrated value proposition and acquired customers, and scaled up. 

3. Livemint long read on the problems with the Poshan tracker smartphone application being used by the Government of India to monitor the activities of Anganwadi workers (including attendance of themselves and beneficiaries, details of nutrition services rendered, uploading images of activities etc).

Like with other e-governance endeavours this too has struggled with issues of poor connectivity, inadequate smartphones, lack of tech literacy, excessive information upload requirements, trying to capture too much information etc. 

4. Is China going to buck the too big to fail (TBTF) theory by allowing its largest property developer Evergrande fail? The developer is faced with more than $300 bn in debt, nearly 800 unfinished residential buildings, angry suppliers who have shut down construction sites, nearly 1.2 million buyers many of whom who have partially paid for their properties have filed lawsuits.
In its glory days a decade ago, Evergrande sold bottled water, owned China’s best professional soccer team and even briefly dabbled in pig farming. It became so big and sprawling that it even has a unit that makes electric cars, though it has delayed mass production... The company, which was founded in 1996, rode China’s epic property boom that urbanized large swathes of the country and resulted in nearly three quarters of household wealth being tied up in housing... 

Evergrande might have been able to keep going if it weren’t for two problems. First, Chinese regulators are cracking down on the reckless borrowing habits of property developers. This has forced Evergrande to start selling off some of its sprawling business empire... Second, China’s property market is slowing and there is less demand for new apartments.

Investors and institutions financed companies like Evergrande because they believed that Beijing would step in to rescue if things got shaky. But that now looks likely to be upended as the government has shown greater willingness to let companies fail and have talked tough on Evergrande. 

But this can be dangerous, especially in a country where three-fourth of household wealth is locked up in housing and where property market is critical to sustain activity in several sectors of the economy. 

5. Denmark becomes perhaps the first country to lift all Covid related restrictions as it returns to complete normalcy after more than 75% of its population has been vaccinated twice. 

6. Washington Post has a nice set of graphics on the US pandemic stimulus plans. 

7. Livemint points to a study by Anarock Property Consultants about the property market in 2020-21,

Among the top seven cities, Bengaluru, Hyderabad, and Chennai saw their combined share of office leasing increase to 66% in 2020-21, compared to 47% in 2017-18... The net office absorption in 2020-21 in the top cities was 21.32 million sq. ft and these three southern cities absorbed roughly 14.06 million sq. ft. The Mumbai Metropolitan Region (MMR) and Pune absorbed 4.56 million sq. ft (21%) and the National Capital Region (NCR) took up 2.3 million sq. ft (11%). In 2017-19, 31.15 million sq. ft of office space was leased in the top seven cities. Of this, cities in the southern region accounted for 47% net absorption, the western region 33%, and the northern region 17%. In terms of new office supply too, Bengaluru, Chennai, and Hyderabad have continued to ramp up their share from 40% in FY18 to nearly 63% in FY21. Of the total new office space completion of 40.25 million sq. ft in FY21 across the top seven cities, the southern cities had a 63% share, with about 25.55 million sq. ft. The office supply share of the main western markets shrank to 19% in FY21 from 40% in FY18.

8. Interesting snippet about the composition of stock market in India and China,

As per CLSA, China’s largest firms in most industries are SOEs. Further, 91 of the 124 Chinese companies that are part of the Fortune Global 500 are government-owned enterprises. Over a one-year and two-year time frame, the top SOEs of China have gained 11 per cent and 18 per cent, respectively. The private firms, on the other hand, have soared 42 per cent and 233 per cent. Moreover, the market cap split between SOE and non-SOE in the top 50 is 45 per cent and 55 per cent, highlighting how dominant government undertakings are... To put the number in context, in India, listed SOEs (called public sector undertakings, or PSUs in domestic parlance) account for 10 per cent of India’s market cap, while private firms account for 90 per cent.

9. Latest data from the Periodic Labour Force Survey (PLFS) is disturbing news about the Indian economy,

A close look at the PLFS data is disquieting since the implication of the sectoral trends is that there has been a decline in good-quality employment opportunities since the last PLFS and workers have been forced into less remunerative and less secure jobs. The share of regular salaried workers has been declining for some years, reflecting problems with the much-touted formalisation of the economy. The proportion of the non-agricultural workforce working in the informal sector rose to almost 70 per cent. There has also been a sharp rise of 2.6 percentage points in the proportion of people working in household enterprises who receive no compensation. Women are working more, apparently — but not necessarily out of choice, since most of the increase is as unpaid family workers in agriculture. These facts are worrying enough, but the most problematic data point is surely that there has been a more than three percentage point increase in the share of workers in agriculture — the first time that this has happened in the modern statistical era. By all accounts, therefore, the PLFS indicates that India — far from modernising and formalising its economy — seems to be moving backwards in terms of the employment available.

The data should also be validated to ensure it's right. If true, it's very disturbing.

10. Data summary of the National Infrastructure Pipeline and National Monetisation Pipeline. Public finance is expected to make up 43% with state governments the highest, and with a very small share for private capital. 

Interestingly, hardly any road identified for monetisation may be able to meet the benchmark of Rs 6 Cr per km.

The GoI's roads monetisation benchmark of Rs 6 Cr per km is arrived at based on the Rs 8262 Cr (Rs 6500 Cr upfront and balance over three years) bid for the 140 km Mumbai-Pune corridor over a period of 10 years. 

Assuming there is a benchmark figure indicated formally for monetisation, and this figure is Rs 6 Cr perk km, it's most likely to haunt NHAI and state government agencies as they go about monetising roads. Very few roads are likely to attract traffic that meets anywhere close to this benchmark. The presence of the benchmark would be a big deterrent to officials and agencies to awarding tenders. Many would repeat tenders and time could be wasted. 

This is a good example of how governments pursuing private participation as a means to enhance public revenues could struggle to meet their objectives. 

11. Gurbachan Singh points to an interesting snippet about public finance in India,

In 2020-21, the taxes on oil for the GoI were about Rs 3.4 trillion, the so-called dividend income from the RBI was about Rs 1.33 trillion on an annualised basis, and the taxes on income were about Rs 4.59 trillion, according to the revised estimates. So, the collection for the GoI from the oil tax and the so-called dividend income from the RBI were together more than the entire income tax collection! With so much regressive tax being collected from the public, it is hardly surprising that the consumption has been substantially affected.
Obviously, this says little about the other factors contributing to consumption squeeze. I was initially ambivalent, even favourable, to the use of oil taxation to bridge the deficit. Now, perhaps the degree of taxation and its duration may have gone too much and too long to be starting to hurt. So, is it possible that the fuel taxes may have been a non-trivial contributor to the economic stagnation since the middle of last decade? 

12. Australia, US, and UK announce a new defence agreement AUKUS which will help Australia deploy eight nuclear powered submarines and tomahawk cruise missiles. This marks a definitive departure for Australia in declaring its intent to contain China in the South China Sea. And China may have none but itself to blame for having brought about this turn by Australia, which till three years back had maintained that it would not choose between US and China and would closely with both. 
Some security analysts argued that China’s recent retaliation against Australia over its harder line — slashing imports of coal, wine, beef, lobsters and barley, along with detaining at least two Australian citizens of Chinese descent — appeared to have pushed Australia in the Americans’ direction. In response, China may extend its campaign of economic sanctions. Australia seems to have calculated that Beijing has little interest in improving relations. “I think the fear of doing this would have been much more palpable even three or four years ago, maybe even two years ago,” said Euan Graham, an Asia-Pacific security analyst at the International Institute for Strategic Studies who is based in Singapore. “But once your relationship is all about punishment and flinging of insults, frankly, then that’s already priced in. China doesn’t have the leverage of fear, of being angry, because it’s angry all the time.”

Friday, September 17, 2021

An alternative perspective on evidence and impact analysis

This post will present an alternative perspective on impact analysis (and use of evidence), one which questions some of the settled assumptions in assessing the impact of a development intervention.  

I believe that the prevailing perspective and dominant methodologies to generate evidence to assess the impact of development interventions has three problems. It implicitly assumes that a good idea or program design translates to outcomes, outcomes become apparent soon, and there is some definitive marker for success with any intervention. 

1. The translation of an idea to action involves three parts - design of the intervention, its implementation, and availability of essential complementary conditions. If the intervention is well-designed, implemented as intended, and complementary requirements are met, then outcomes follow. Unfortunately, both design and implementation are dependent on the context, and complementary requirements are beyond our control.

2. Realisation of impact in terms of outcomes generally takes a long time, often well after the intervention is completed. This is true of most of the commonly observed interventions in development. 

3. There is nothing like a binary outcome of success or failure with an intervention. Instead there is only degree of success or failure. There are no absolute failures or successes. And assessment of degrees of success or failure is hard, even impossible. This assessment is made harder still by the three constraints mentioned above and the time requirement for outcomes to surface. 

Instead the impact assessment enquiry has to be more nuanced. What's the degree of impact generated from the intervention, given the context and subject to its design constraints and implementation deficiencies? What's an acceptable enough degree of impact, given the limitations? What improvements can be made in the design and implementation of the intervention?

This shifts the primary objective of evidence generation for impact analysis away from headline outcomes assessment and towards relaxing design constraints, bridging implementation deficiencies, and addressing complementary requirements. And also figuring out good proxy indicators for likelihood of outcomes realisation. The enquiry is more about using qualitative and quantitative techniques to generate evidence and insights that can help with the aforementioned three requirements. 

This perspective is also amplified by the reality that the landscape of development consists overwhelmingly of large scale ongoing programs (running schools and hospitals, immunisation programs, insurance, scholarships, nutrition delivery, toilet construction, housing, agriculture extension services etc), which are either essential public mandates or which cannot be discontinued for political economy and other considerations. The space available for altogether new interventions is very limited and of marginal relevance. The word innovation is a much hyped superfluity and distraction in development - improvisation is a better alternative. 

Instead, the space available for improvisation with design tweaks, implementation improvements, and complementary factor enhancements is large and less politically contested. The methodological approaches required for exploring improvements in these areas are a combination of qualitative and quantitative ones. 

Once we agree with this perspective, several aspects of the dominant narrative on impact analysis (and evidence-based policy making) in international development will have to change.

Thursday, September 16, 2021

Market failures at supply and demand sides, the case of hospitals in the US

It's widely accepted that the United States has one of the most expensive health care system. It's also a good example of the limitations of the less regulated model of health care, and free markets in general. Market failures abound in the deregulated US health care market. Pharma prices are generally multiples of those prevailing elsewhere. This post draws attention to the exorbitant hospital prices as well as the vast variations in them. 

Elizabeth Rosenthal draws attention to hospitals as being a major driver of high medical costs in US. While insurers and Pharma companies get all the public indignation, hospitals, which make up 44% of personal expenses for the privately insured and hospital prices have risen by 42% from 2007-14 for inpatient care. 

The cost of a hospital stay in the United States averaged $5,220 a day in 2015 — and could be as high as over $17,000, compared with $765 in Australia. In a Rand study published earlier this year, researchers calculated that hospitals treating patients with private health insurance were paid, overall, 2.4 times the Medicare rates in 2017, and nearly three times the rate for outpatient care. If the plans had paid according to Medicare’s formula, their spending would be reduced by over half. Most economists think hospitals could do just fine with far less than they get today from private insurance.

This inflation in hospital prices applies just as much to non-profit institutions,

It would be unseemly for these nonprofit medical centers to make barrels of money. So when their operations generate huge surpluses — as many big medical centers do — they plow the money back into the system. They build another cancer clinic, increase C.E.O. pay, buy the newest scanner (whether it is needed or not) or install spas and Zen gardens.Some rural hospitals are genuinely struggling. But many American hospitals have been spending capital “like water,” said Kevin Schulman a physician-economist at Stanford. The high cost of hospitals today, he said, is often a function of the cost of new infrastructure or poor management decisions. “Medicare is supposed to pay the cost of an efficient hospital,” he said. “If they’ve made bad decisions, why should we keep paying for that?”

If hospitals were paid less via regulation or genuine competition, they would look different, and they’d make different purchasing decisions about technology. But would that matter to medical results? Compared with their European counterparts, some American hospitals resemble seven-star hotels. And yet, on average, the United States doesn’t have better outcomes than other wealthy nations. By some measures — such as life expectancy and infant mortality — it scores worse than average.

The high prices are complemented with wide variations in prices charged by the same hospital on different insurers. The Times has an investigation of the variations in the prices that hospitals charge insurers.  

This year, the federal government ordered hospitals to begin publishing a prized secret: a complete list of the prices they negotiate with private insurers. The insurers’ trade association had called the rule unconstitutional and said it would “undermine competitive negotiations.” Four hospital associations jointly sued the government to block it, and appealed when they lost. They lost again, and seven months later, many hospitals are simply ignoring the requirement and posting nothing.
What does the data show?
It shows hospitals are charging patients wildly different amounts for the same basic services: procedures as simple as an X-ray or a pregnancy test. And it provides numerous examples of major health insurers — some of the world’s largest companies, with billions in annual profits — negotiating surprisingly unfavorable rates for their customers. In many cases, insured patients are getting prices that are higher than they would if they pretended to have no coverage at all.

For example, at Memorial Regional Hospital, Florida, a MRI costs $1827 with a Cigna Plan, $2148 with a Humana Plan, $2455 with a Blue Cross Plan, and $262 with a Medicare Plan. At the University of Mississippi Medical Center, a colonoscopy costs $1463 with a Cigna Plan, $2144 with a Aetna Plan, and $&82 with no insurance at all. At Aurora St Luke's Milwaukee, a MRI costs $1093 with United's HMO Plan and $4029 with United's PPO Plan. 

Why don't insurers push back to lower prices?
Until now, consumers had no way to know before they got the bill what prices they and their insurers would be paying. Some insurance companies have refused to provide the information when asked by patients and the employers that hired the companies to provide coverage. This secrecy has allowed hospitals to tell patients that they are getting “steep” discounts, while still charging them many times what a public program like Medicare is willing to pay. And it has left insurers with little incentive to negotiate well.

The peculiar economics of health insurance also help keep prices high. Customers judge insurance plans based on whether their preferred doctors and hospitals are covered, making it hard for an insurer to walk away from a bad deal. The insurer also may not have a strong motivation to, given that the more that is spent on care, the more an insurance company can earn. Federal regulations limit insurers’ profits to a percentage of the amount they spend on care. And in some plans involving large employers, insurers are not even using their own money. The employers pay the medical bills, and give insurers a cut of the costs in exchange for administering the plan.

The high drugs and hospital prices negates the conventional wisdom that bulk buyers like large employers and insurers can negotiate and contract the best possible rates. 

Update 1 (17.09.2021)

Important RAND study of drugs prices across countries. The takeaway is that apart from unbranded generics, the US drug prices are much higher than those in other countries. 

Wednesday, September 15, 2021

Is Steve Jobs the Josiah Wedgwood of 21st century?

FT has a fascinating extract from Tristram Hunt's biography of Josiah Wedgwood, the potter from Staffordshire, who's been called the Steve Jobs of the 18th century. The extract points to several teachable aspects. 

Wedgwood's creamware, jasper, and basalt pottery came to occupy not only the dining shelves and tables of Georgian England but also globally. 

... he invested his innate genius in experimentation and an unceasing array of new glazes, colours, designs, shapes and sizes soon filled Wedgwood’s pattern books... His early designs were a riot of rococo, chinoiserie and ornamental bravado: teapots shaped like cauliflowers in deep green, pineapple tea caddies in startling yellows, and cups and saucers replete with Orientalist romance. Wedgwood’s innovative coloured glazing techniques extended to the production of pickle-dishes, dessert services, sauce boats, plates and ceramic handles for cutlery... Whether he caused it or captured it, Wedgwood was the master salesman to Europe’s first mass consumer society...

Apart from being a master craftsman, Wedgwood was a master at marketing, a very early pioneer of modern marketing, 

In a noisy and discerning retail environment, the challenge for Wedgwood and Bentley was how to distinguish brand strength. The answer, as any Instagram influencer knows, was to capture the mood makers. “The progress of the arts, at all times, and in every country, depends chiefly upon the encouragement they receive from those, who by their rank and affluence are legislators in taste,” Wedgwood wrote. So when he perfected his creamware body — an affordable earthenware to which transfer designs could be applied easily — he sought the approval of the ultimate legislator in taste, Queen Charlotte. Creamware became Queensware — “a name has a wonderful effect,” he informed Bentley — and Wedgwood took out adverts styling himself “Potter to Her Majesty”.
There is barely a technique in modern marketing — from product placement to advertising to free delivery to limited edition designs — that Wedgwood and Bentley did not anticipate. His West End showroom was more commercial gallery than shop: a space “to shew various table & desert [sic] services completely set out on two ranges of tables . . . in order to do the needful with the Ladys [sic] in the neatest, genteelest & best method”. When he completed his “Frog Service” dinner set for Empress Catherine II of Russia, he sold tickets for exclusive viewings. And when neoclassicism took over from rococo, Wedgwood seamlessly shifted his designs from baroque extravagance to austere elegance, with his jasperware vases becoming keenly desired ornaments for every stately home of note. Studiously, he never discounted because “low prices must beget a low quality in the manufacture, which will beget contempt, which will beget neglect, & disuse, and there is an end of the trade.”

He was the rare breed of technologist and businessman rolled into one, 

Above all, the product was superb. Wedgwood was a virtuoso businessman who combined technical proficiency with a gifted eye for trends. His marriage of technology and design, retail precision and manufacturing efficiency means it is not too much of a stretch to regard him as the Steve Jobs of the 18th century... Wedgwood in his interdisciplinary thinking, aesthetic control, production oversight and relentlessly experimental frame of mind.

He was also one of the leaders of the industrial revolution and modern manufacturing, 

Unlike Apple, he kept production local and manufactured his pottery at a markedly reduced cost by transforming ceramic production. The beginnings of the Industrial Revolution can be found in a modest Stoke-on-Trent potbank he named Etruria, in honour of the preclassical civilisation renowned for its ceramics. Whereas previously the making of ceramics — from mixing of the clay to throwing the pots to dipping in slip to firing in a kiln — had taken place at different sites, Wedgwood consolidated them into a single conveyor belt-style process. He established a clear-cut division of labour to “make such machines of the men as cannot err” and, to eliminate waste, initiated the earliest system of cost accountancy in British corporate history. Alongside Richard Arkwright’s Cromford cotton mills in Derbyshire and Matthew Boulton’s Birmingham Soho Manufactory for metal goods, Wedgwood’s Etruria became a symbol of the coming industrial age of mass production.

His industrial manufacturing came with its flip side,

The Bloomsbury critic Roger Fry never quite forgave him. “As pottery, Wedgwood’s work is beyond praise, though it probably finally contributed to the destruction of the art, as an art,” he wrote, a little unfairly, “since it set an example of mechanical perfection which to this day prevents the trade from accepting any work in which the natural beauties of the material are not carefully obliterated by mechanical means.”
His politics was progressive - 'liberty under law, protestantism, and progress'. He even managed to sweetly converge his politics and business in a manner which would have made Steve Jobs proud.
Wedgwood’s most lasting contribution to 18th-century radicalism was his campaign against the slave trade, where he used his profound gifts of design and marketing to create a medallion that became the defining symbol of anti-slavery activism. Composed of white jasper with a black relief and mounted in gilt-metal, it depicts an enslaved African man on half-bended knee raising up his shackled arms. On the edge of the tiny medallion is inscribed the challenge: “Am I not a man and a brother?” Produced and distributed at Wedgwood’s expense, it was known as the Emancipation Badge and still stands as one of the most noble displays of what, in today’s sour expression, might be termed virtue signalling. “Of the ladies, several wore them in bracelets, and others had them fitted up in an ornamental manner as pins for their hair,” wrote the abolitionist Thomas Clarkson. “At length, the taste for wearing them became general; and thus fashion, which usually confines itself to worthless things, was seen for once in the honourable office of promoting the cause of justice, humanity, and freedom.”

On an issue which has strong resonance today, he was determined to beat the Chinese in their own art, 

This combination of marketing, design, manufacturing efficiency, and global ambition fostered in Wedgwood his historic determination to see off China. “I shall be glad to give you joy on the conquest of Peking,” he had boasted to Bentley, when he first heard of his jasperware being exported to China. Since the early 1600s, when the Dutch introduced Chinese porcelain to Europe, it was the “white gold” sailing from Canton that dominated the ceramics market. Sending his pottery up the Trent and Mersey Canal, from Stoke to the Liverpool docks and then to Europe, the Americas and empire, Wedgwood sought to turn the tide — and the affordability and durability of his creamware, in contrast to the expense and fragility of porcelain, did just that... China — the land that had fired exquisite ceramics for thousands of years, had invented porcelain and filled the cabinets of Europe with blue and white ware — was now to be reinstructed in the mystery of clay, by pottery from Staffordshire.

There is also something on the failings of his successors, especially the most recent ones,

When China’s export machine moved into gear in the 1990s, its effect on British ceramics, among many other markets around the world, was punishing. In 1984 there were 66 major potteries in Staffordshire employing 30,000 workers; by 2011, it had fallen to 33, employing some 8,000. For Wedgwood it was even worse, as the business simultaneously faced managerial missteps under the stewardship of the O’Reilly family. Confronting falling sales and explosive debt, Waterford Wedgwood (as it had become) outsourced the skilled work of Stoke painters, lithographers, glazers and dippers. The company bought Royal Doulton to acquire a new ceramic factory in Indonesia, which delivered low labour costs but at the cost of brand annihilation. “They did something . . . silly,” reflected Japanese-born ceramic artist Kaoru Parry, “when they moved their production to Indonesia. Because Japanese people loved Wedgwood, but they wouldn’t buy it unless it was made in England.” The move didn’t save them. Waterford Wedgwood went bankrupt in 2009 because of its sustained disavowal of Josiah Wedgwood’s precepts for success. From cost control to product design to technology to brand equity, the inheritors of the Wedgwood legend killed value by upending the business ethos that had been established back in 1759... the new managers thought the key to success was not to rival China, as Wedgwood had sought to do, but instead give in to a low-quality solution with its offshored production — even as it marketed the brand as classic, English tableware.
Instead of calling Josiah Wedgwood the "Steve Jobs of the 18th century", a more apposite description to either men would be call Steve Jobs the "Josiah Wedgwood of the 21st century"!

Monday, September 13, 2021

China turns - towards Middle Kingdom or Bad Emperor?

When the history of China is written, it's likely that the early years of this decade will be remembered as a definitive turning point. This post will illustrate some features of this turn. 

For now, two things in particular stand out. One, emboldened by the apparent failings of the western countries and its own better performance in combatting Covid 19 pandemic, the government under President Xi Jinping (see this and this) has definitely shed any pretensions of tao guang yang hui (hide your strength and bide your time) in its foreign policy. Second, the government has clearly signalled its intent to very actively insert "the party into the private sector and family lives in a way that has not been seen since Deng launched the 'reform and opening' era in 1978". 

On the face of it, these actions may appear as part of the course shift driven by President Xi Jinping's policies. However, as Rush Doshi has written, it's also in consonance with the long term intentions of the Communist Party. 

The shift towards a more aggressive foreign policy was gradually building up for nearly a decade and was also inevitable given the rise of China as a new superpower. It coincides with the building and expansion stages of the Communist Party's policy to restore the Middle Kingdom. The actions of President Trump and the pandemic may only have hastened it. 

But the shifts in domestic policy appears more abrupt and less anticipated. In recent months, the government has actively intervened in technology, education, alcohol, video game, real estate, and entertainment sectors. Consider the example of crackdowns on fan clubs of singers and actors, 

Experts said the fan groups’ propensity for organisation and effective social action is the chief concern for Xi’s administration as China embarks on a sweeping reassertion of party and state control across the country’s technological, business and cultural landscape. “They see the potential to organise, to mobilise. For the government, that is a very big concern,” said Yun Jiang, a China expert and former policy adviser to the Australian government now with the Australian National University.

In all these cases, reining in private enterprise perceived as going rogue, widening inequality, stigmatisation of ostentation, and denouncing of moral corruption are the main themes. 

Consider another example, the pushback against English, which has long been a craze among the elite Chinese,

The education authorities in Shanghai, the most cosmopolitan city in the country, last month forbade local elementary schools to hold final exams on the English language... Many call the phenomenon “reversing gears,” or China’s Great Leap Backward, an allusion to the disastrous industrialization campaign of the late 1950s, which resulted in the worst man-made famine in human history. Last year, China’s education authority barred primary and junior high schools from using overseas textbooks. A government adviser recommended this year that the country’s annual college entrance examination stop testing English. New restrictions this summer on for-profit, after-school tutoring chains affected companies that have taught English for years.

FT has a twin essays on these changes. This about how the Party and Xi are marching into the private sector and family lives to control them in a move that has strong Maoist echoes, 

“A monumental change is taking place in China. The economic, financial, cultural and political spheres are undergoing a profound revolution,” Li Guangman, the pen name of a prominent leftist commentator, wrote in a commentary that captured the zeitgeist. “It marks a return [of power] from capitalist cliques to the people . . . It is a return to the revolutionary spirit, to heroism, to courage and righteousness.”... The most recent shot in Xi’s “profound revolution” came on August 17, when the party’s financial and economic affairs committee, which normally concerns itself with technocratic regulatory and policy matters, declared that it was necessary to “regulate excessively high incomes” in order to ensure “common prosperity for all”. Like almost all important party organs, the committee is chaired by Xi... institutions including the state tax administration, the Supreme People’s Court and the housing ministry began rolling out a government-wide effort to enforce common prosperity. Over the past fortnight the tax administration pledged to crack down on tax dodgers and fined Zheng Shuang, one of the country’s most popular actresses, $46m for tax evasion. The Supreme Court declared the 72-hour work weeks common at many private-sector companies to be illegal. And the housing ministry said on Tuesday that it would cap annual residential rent increases at five per cent.

The "common prosperity" theme has become an important part of Xi Jinping thought and is a convenient fig leaf to justify the Party's massive endeavour to control people's lives through the use of data. This raises the sceptre of digital Maoism

In recent weeks, Beijing has pushed through reams of regulations and policies designed to shore up China’s data security, reinforcing the control it exercises over huge volumes of data used in governing the country, boosting the economy and ordering people’s lives. Such moves comprise a crucial part of the vision of Xi Jinping, China’s leader, to build what some analysts call a “techno-authoritarian superpower” in which people are monitored and directed to an unprecedented degree through the agency of government-controlled cyber networks, surveillance systems and algorithms... 

Xi’s data vision has always stressed control. In 2013, he said that “whoever controls data has the upper hand”. A year later he said that control of information has become an important aspect of a country’s “soft power and competitiveness”. The official classification of data in 2020 as a “fifth factor of production”, alongside labour, land, capital and technology, further revealed its importance to Beijing. Personal data is collected not only through online interactions but also through a whole panoply of technologies designed to order a society of 1.4bn people. Digital social security cards, digital money, smart cities, surveillance cameras, social credit systems and other technologies are being rolled out across the country, creating a grand experiment for 21st century authoritarian governance.

There have been legislative changes that impose tight restrictions on data transfers,

One law, the Personal Information Protection Law, which is due to take effect in November, stipulates that data being moved out of China must either pass a security assessment by the Cyberspace Administration of China, a government regulator, or obtain other forms of official approval. Another law which came into effect this month, the Data Security Law, requires the protection of “important data” and “core data”, the latter of which is defined as information involving national and economic security, people’s welfare or important public interest. The definitions are so broad, they could cover almost anything related to private data, experts say. 

“The laws mean or will mean that all data generated in China must stay in China, unless you have explicit permission to send some of it overseas on a case-by-case basis,” says a senior executive at a large Chinese tech conglomerate. “China is becoming a data empire unto itself.” This leaves multinationals operating in China with little choice but to establish data centres to keep all their customer data. In practice, this means that if law enforcement agencies wish to check consumer data collected by a multinational in China, they will be able to do so at any time they choose

In stark contrast to the brouhaha that is raised when the Indian government insists such data localisation, all the major multinationals operating in China have fallen into line without even a murmur. 

Tesla, for example, was quick to see that setting up a data centre was a route to greater harmony with Chinese authorities. It did so in Shanghai in May... Apple is another revealing case. In response to Beijing’s stiffening data controls, Apple set up a data storage centre in the southern province of Guizhou in 2017. The following year it announced that its iCloud service in China would be managed by the state-owned data management company Guizhou-Cloud Big Data Industry Co... the company also complies with Chinese law enforcement requests to hand over customer data to authorities... The foreign company held up most often by Chinese officials as a “model” of how multinationals should behave is Microsoft. The US tech giant already has four data centres in mainland China, all operated by local partner 21Vianet, and a fifth is due to go live next year, it said.

The data control regime raises some interesting scenarios and ushers in a world of techno-authoritarianism,

“I argue that the CCP has overcome the information acquisition problem, thanks in large part to the digital ecosystems it has established,” says Dimitar Gueorguiev, associate professor at Syracuse University, author of a new book on the topic, Retrofitting Leninism. “As a result, today’s China is more perceptive of public opinion, less prone to policy blunders, and better equipped to manage its own bloated bureaucracy.”... “It’s been called digital Leninism or techno-authoritarianism,” says Andrew Gilholm, a director at Control Risks, a risk consultancy. “The concept certainly has that huge element of political control to it but it is not solely focused on that. The vision is also about governing more effectively using various technologies to overcome perennial governance problems. And it’s not only about the big brother stuff... The appeal for Beijing is you use e-governance instead of electoral accountability to rein in local corruption. You can use data instead of privatisation to boost competition.”... 

The installation of an estimated 415m surveillance cameras all over the country — with densities of over 8,000 cameras per square mile in cities such as the southern manufacturing hub of Shenzhen — makes China’s population by far the world’s most surveilled... But in terms of their capacity for social control, such technologies pale next to the digital renminbi, which has been undergoing tests in several cities this year and may be ready for a formal launch after next year’s Winter Olympics, which are scheduled to be held in Beijing. The currency is designed so that all transactions are traceable in real time, providing a state surveillance capability that does not exist with the current mixture of cash and digital payments operated by private platforms such as WeChat Pay and Alipay.

All these actions have come at significant economic cost, which the authorities obviously think is acceptable or even desirable given their larger objectives. In fact, it can be argued that the Chinese authorities hardly care about foreign investment. The four largest Chinese technology firms have lost over a trillion dollars in value in the last ten months since the November 2020 cancellation of the Alibaba IPO. 

The scale and pace of policy shifts happening on the political, economic, and social terrain in China is unprecedented in history. There are too many uncertain elements. The desire for control begets greater desire for control. Absolute power corrupts absolutely. It's an oft-observed feature that too much control is a recipe for breakdown of control. 

Francis Fukuyama has pointed to China's recurrent bad emperor problem, one where the supreme leader in an authoritarian regime derails the country's progress. Is Xi Jinping the latest bad emperor? Or is China set to reclaim its position as the Middle Kingdom?

Update 1 (14.09.2021)

Shyam Saran has an excellent article on China's new turn,

What are the key changes brought about by Xi Jinping? The supremacy of the party is exercised through its active participation in governance, not mere supervision. The State Council under the premier, as government, is now only an executive body, with policy-making in the hands of party committees headed by Xi Jinping himself. Xi is not only the chairman of the powerful Central Military Affairs Commission of the party, but also the Supreme Commander of the PLA. In 2018, the fixed two-term tenure of the president laid down in the Chinese Constitution was removed. Xi can thus remain in office beyond the second term, which ends in 2022. State-owned enterprises have once again assumed a leading role in the Chinese economy, while new constraints have been placed on private enterprises. In foreign policy, the new slogan is “fenfa youwei”, which roughly translates to “striving for achievement”, which is linked to Xi’s striving to realise the “China Dream.” Keeping a low profile has given way to an assertive foreign policy often manifested in aggressive “Wolf-Warrior” diplomacy.

Saturday, September 11, 2021

Weekly reading links

1. Mint quotes a Jeffries report to highlight the overvalued Indian equity markets,

“Nifty’s premium over EM and AxJ (Asia, excluding Japan) index has risen to near the all-time high of 68%/50% as compared to the average of 37% and 25%, respectively. We also find that our favoured valuation gauge of yield gap (1/PE less 10-yr G Sec yields) has spiked to a high of 165 basis points (bps) as against the long-term average of 95bps."

2. Carlyle is raising $1 bn in debt from a group of international banks like Nomura, HSBC, Goldman etc to acquire Hexaware Technologies, an IT services firm owned by Baring Private Equity Asia for $3 bn in a competitive bidding. At a time when equity deals by foreign PE firms are taking centre stage, this LBO will be among the biggest debt deals by a PE firm in India. The debt is likely to be structured as a one year bridge loan, to be later taken out by an international bond offering. 

3. Apple's India manufacturing performance in perspective,

Faisal Kawoosa, founder of Techarc which tracks volume production, says that in 2017, the volume of Apple phones made in India as a percentage of the total sold here stood at only 5 per cent. In 2020, it went up to 60 per cent. Currently, it is 75 per cent after the Apple 12 also started being manufactured in India. According to sources in the know, Apple value addition in the country for mobile devices currently was around 15 per cent. However, the three contract manufacturers have committed to the government that they will raise this figure to 30 per cent in five years under the PLI scheme. To provide a reference point, Apple’s value addition in China is around 40-45 per cent... the company will hit revenues of $3 billion in India by the end of its fiscal year which has just ended in September... However, despite the sharp increase, India still accounts for less than 1 per cent of Apple’s global revenue which is expected to hit $330-$340 billion.

4. Scott Galloway has this graphic which shows the shrinking of corporate taxes as a share of all US government tax revenues,

5. The long-term damage of school closures will be large. India has had the longest school closures.

The article has links to the research on harmful effects of school closures. Sample more,

The study revealed that only 8 per cent of children study online in rural areas and 24 per cent in urban areas. In rural India, just 28 per cent of students are studying regularly and 37 per cent aren’t studying at all. The figures were slightly better but scarcely encouraging for urban underprivileged households, with about 19 per cent not studying at all and 47 per cent studying regularly. Strikingly, smartphone ownership did not guarantee access to learning in these households, either because they are used by working adults, or due to poor connectivity or lack of money for data networks.

6. AK Bhattacharya analyses the recent improvements in India's exports, which comes after a near lost decade in export performance.

Between 2011-12 and 2020-21, they remained range bound within $262 billion and $330 billion a year, with the annual export number falling below $300 billion on as many as three occasions. Worse, from a high of 17 per cent, the share of exports in India’s gross domestic product has seen a steady decline to about 11 per cent during the last ten years.

He points to the rising share of China in India's exports and the tepidness in automobile exports, and the rebound of pearls, gems, and jewellery exports.  

7. Interesting snippets on global cuisine trends from an oped by Krishendu Ray

By the 17th century, the European appetite for spices and aromatics peaked. With spices so accessible in Europe, the elites started pulling away. French countesses travelling on the peripheries of Poland and Spain could be heard complaining about the unpleasant reek of saffron and cinnamon in their foods. The 17th-century French writer Nicolas de Bonnefons asserted the new orthodoxy: “Cabbage soup should taste of cabbage, leeks of leeks, turnips of turnips.” The rejection of spices and vinegar-based sauces for more butter-and cream-based herbed ones marked the shift within French gastronomy towards a new essentialism, the sine qua non of European haute cuisine... elites in Arab, Persian, and South Asian courts, who would continue to prefer complex, aromatic and sweet-and-sour culinary constructions. Here, elevation was not in the use of spices per se, but in the selection of prohibitive ones — saffron as opposed to the cheaper turmeric to lend a vibrant colour — and labour-intensive techniques: Rice dishes bejewelled with pomegranate seeds, stuffed and layered breads, hand-squeezed sherbets, and finely-ground koftas and kebabs... French, Japanese, New American, and Italian top the list that American customers are willing to pay well for, while Indian, Chinese, and Thai round out the bottom. Thus, it is not surprising that the World’s Top 50 restaurant lists are dominated by French, Italian, New American, and Japanese restaurants while we see almost none from mainland China, sub-Saharan Africa, South Asia or the Arab world, home to more than half of the world’s population and more varieties of cuisine, including court cuisines, than elsewhere.

8. Times points to how educational attainment and college education is contributing to political preferences in the US,

When the Harvard-educated John F. Kennedy narrowly won the presidency in 1960, he won white voters without a degree but lost white college graduates by a two-to-one margin. The numbers were almost exactly reversed for Mr. Biden, who lost white voters without a degree by a two-to-one margin while winning white college graduates. About 27 percent of Mr. Biden’s supporters in 2020 were white voters without a college degree, according to Pew Research, down from the nearly 60 percent of Bill Clinton’s supporters who were whites without a degree just 28 years earlier. The changing demographic makeup of the Democrats has become a self-fulfilling dynamic, in which the growing power of liberal college graduates helps alienate working-class voters, leaving college graduates as an even larger share of the party... College graduates attribute racial inequality, crime and poverty to complex structural and systemic problems, while voters without a degree tend to focus on individualist and parochial explanations. It is easier for college graduates, with their higher levels of affluence, to vote on their values, not simply on economic self-interest. They are likelier to have high levels of social trust and to be open to new experiences. They are less likely to believe in God...
The concentration of so many left-leaning students and professors on campus helped foster a new liberal culture with more progressive ideas and norms than would have otherwise existed... As college graduates increased their share of the electorate, they gradually began to force the Democrats to accommodate their interests and values. They punched above their electoral weight, since they make up a disproportionate number of the journalists, politicians, activists and poll respondents who most directly influence the political process. At the same time, the party’s old industrial working-class base was in decline, as were the unions and machine bosses who once had the power to connect the party’s politicians to its rank and file. The party had little choice but to broaden its appeal, and it adopted the views of college-educated voters on nearly every issue, slowly if fitfully alienating its old working-class base. Republicans opened their doors to traditionally Democratic conservative-leaning voters who were aggrieved by the actions and perceived excesses of the new, college-educated left... Environmentalists demanded regulations on the coal industry; coal miners bolted from the Democrats. Suburban voters supported an assault gun ban; gun owners shifted to the Republicans. Business interests supported free trade agreements; old manufacturing towns broke for Mr. Trump.

9. FT has a graphical story on the supply chain constraints faced by manufacturers. This from Europe,

Nearly half of EU rubber, machinery and computer producers, and most electrical equipment makers, and nearly 60% of carmakers report supply shortages. 

Transport costs have surged
Fares between China and Europe have risen seven-fold compared to August last year. 

10. The framing of insurance policies as also an investment in India has always intrigued me,
Everywhere else in the world, insurance is sold as insurance and not as an investment. In India, unfortunately, it’s the other way around. Aggressive agents and “relationship managers” in banks mis-sell insurance as an investment product. Life insurers and, indeed, the government itself, are party to this mis-selling. As far as the government is concerned, the Life Insurance Company of India is a cash cow, and so it has no incentive to stop mis-selling of life insurance as an investment. The tax code is designed to aid this mis-selling, with life insurance premiums and unit-linked insurance plans traditionally classified alongside tax-saving investments such as the provident fund in Section 80C. (Health insurance is deductible up to Rs 20,000 under Section 80D.) There is thus an unhappy equilibrium in India where everyone is served but the customer. Insurers are focused on remunerative segments or mis-selling; and neither the regulator nor the government has an incentive to change things.
The insurance penetration remains stubbornly low. The ratio of insurance premium paid to GDP is 3.76%, of which a percentage point is non-life insurance. And the annual growth rates have remained stuck in low single digits. Another pointer to the "missing middle class"?

11. More missing middle class indicators come in the form of news that Ford is shutting down all its manufacturing activities in India and take a $2 bn write down,
Ford will wind down an assembly plant in the western state of Gujarat by the fourth quarter, as well as vehicle and engine manufacturing plants in the southern city of Chennai by the second quarter of next year... Foreign automakers have found it difficult to gain a foothold in the value-conscious Indian market dominated by Maruti Suzuki India Ltd.’s cheap cars. The government’s high tax regime, which imposes levies as high as 28% on gasoline vehicles, has also been a major roadblock. Toyota Motor Corp. last year said it won’t expand further in India due to high tariffs, while Harley-Davidson Inc. has exited the market. General Motors Co. pulled out in 2017... The local units of Japan’s Suzuki Motor Corp. and South Korea’s Hyundai Motor Co. together control more than 60% of the market.

Reinforcing the point on the size of the market,

In fact, the number of cars sold a year is broadly the same as it was in 2014. CMIE data indicates that “car sales between 2011-12 and 2018-19 grew at the rate of 1.3 per cent per year”

TN Ninan too weighs in on the issue, pointing to why the top four global manufacturers have just 6% market share in India. This too is important,

India is a market for low-priced cars with low running costs. The global majors don’t have models that fit into that framework because most of the world goes for larger cars. Only Maruti and Hyundai (which between them command two-thirds of the market) have successful entry-level models.
12. Interesting article on the use of recycled plastics in fashion industry. Recycled polyethylene terephthalate (rPET) is used in everything from clothing to sneakers and consumer goods packaging.  
Globally, plastic recycling rates are estimated to be between 14-18 per cent, according to the OECD. In the US, only 30 per cent of PET bottles are recycled, according to the US Environmental Protection Agency... Even if fashion brands fulfil their recycled content targets, and the world ups its recycling capacity, there is another looming long-term problem: recycled polyester is not itself mechanically recyclable. Just like most virgin plastics, it will probably end up in landfill. The only way to achieve circular textile-to-textile recycling at scale is through chemical recycling, a process in which plastic waste is broken down into chemicals or oils, providing raw material for future plastics.

13. FT has a good article that points to the trade-offs in the use of biofuels.

A search for lower-carbon motor fuel is pitting food companies against the energy industry over tightening supplies of a humble commodity: vegetable oil... The raw materials are typically edible oils extracted from plants or animal fat. The push has alarmed food companies coping with record prices for many edible oils this year... Food groups have long opposed biofuels targets in the US, notably over corn ethanol mandates that were sharply raised in 2007... In food and agricultural circles, “it’s become the diesel vs doughnuts debate as food and fuel compete for that oil”, said David Widmar, an agricultural economist and consultant. The US Department of Agriculture predicts the price of soyabean oil will average 65 cents a pound this year, more than double the price of two years ago... Tensions are at their highest in the US, where federal policy and low-carbon fuel mandates in states such as California are driving heavy investment in renewable diesel production capacity. The amount of soyabean oil used to make biofuels in the US is expected to total 11.5bn lbs this year, up by a third from 2019 and more than 45 per cent of domestic soyabean oil consumption, according to USDA estimates... Sky-high vegetable oil prices are also having a global impact, recently forcing Brazil and Argentina to reduce biodiesel mandates and putting Indonesia’s fuel-blending plans at risk, said Michael Magdovitz, analyst at Rabobank...

Oil companies have flocked to renewable diesel markets over the past two years. Last month, ExxonMobil proposed a renewable diesel investment in Canada. Independent oil refiners Marathon, Phillips 66 and HollyFrontier are also pursuing projects. Some oil companies are adding agricultural processing to their assets. Marathon and Archer Daniels Midland have formed a joint venture to crush soyabeans in the farmlands of North Dakota, sending the soyabean oil to a new renewable diesel plant that Marathon is developing. Chevron last week said it planned to invest $600m in a soyabean joint venture with Bunge, the world’s largest oilseed processor, to create what the two companies called a “reliable supply chain from farmer to fuelling station”.

Clearly, there are no free lunches. The promise of biofuels come with a trade-off on food prices.

14. Long read on the plight of rural schools in the US,

Most of the country’s poorest counties are rural... decades of population loss and divestment by state governments has left many rural communities facing “nothing less than an emergency” when it comes to educating children. Nationwide, more than 9.3 million children — nearly a fifth of the country’s public-school students — attend a rural school... Not only are rural communities more likely to be impoverished, they’re also often disconnected from the nonprofits and social-service agencies that plug holes in urban and suburban schools. Many don’t have access to broadband internet, and some don’t even have cellphone service, making it hard for young people to tap outside resources. Rural schools have a difficult time recruiting teachers and principals... rural children were learning in aging buildings with broken HVAC systems and sewers too old to function properly.

The problems are similar to those faced by schools in developing countries. The solutions too are unlikely to come from just pouring more money into inputs.

15. Good primer on account aggregators in India. 

Wednesday, September 8, 2021

Land monetisation - theory and reality

Commentators advocate land monetisation to unlock value and raises fiscal resources. Apart from generating revenues, it is argued that this would increase the supply of real estate and thereby put downward pressure on rising property prices. This is a perfectly logical argument. But reality can be very different. 

This post will illustrate this dissonance with two examples of property sales and real-estate development through PPP. 

On sales of government lands, there are at least three practical problems. For one, there is the difficult political economy of selling government lands and consequent bureaucratic reluctance to undertake potentially controversial land sales. Then there are also the issues of vacant government lands being mired with encumbrances and private claims, and the likelihood of large land sales getting stuck up in litigations including public interest litigations. Even if both of these are overcome, the bigger challenge is with the market's ability to absorb meaningful volumes (in raising resources or adding to supply) at an acceptable price point. This is a very strongly under-estimated constraint even in the metropolitan cities.  

An alternative to outright land sale that is often suggested is to capture greater value through property development by public private partnerships (PPP). Conventional wisdom is that bus and railway stations are ideal locations for such development. Here too reality diverges from theory. 

Even overlooking the formidable task of undertaking such contracting in capacity constrained public systems, there is the questionable commercial viability of such projects. Apart from Class A commercial real estate, rental yields are low in India. Rental yields on residential real estate are very low, and those on regular commercial property are only slightly better. Then there is the old problem of market demand that can absorb all but limited supply of Class A property. 

In case of transit stations, there are also cultural factors. They are stigmatised locations in developing countries. Home owners loath living inside stations. The vast majority of people working in Class A commercial real estate use personal transport, thereby reducing the attraction of transit oriented development. The combination of these two factors work against other commercial developments too - malls, shopping complexes, theatres and other entertainment etc. 

These problems apply just as much to PPP development of lands in general. The daunting realities of political economy, contracting capacity weakness, commercial viability of most rental real estate in India, and the market's ability to absorb significant supply means that public land monetisation anywhere is far from being the low-hanging fruit that it's portrayed in mainstream commentary. Conventional wisdom bites the dust when faced with these harsh realities. 

It's not as though public land monetisation has been successful elsewhere. Even the much discussed example of Canada Land Company is confined to selling a couple of thousand acres in nearly 70 years of existence and managing a modest land portfolio. By that yardstick of scale, some Urban Development Authorities in India could boast bigger achievements. 

Peter Drucker famously said that "culture eats strategy for breakfast", implying that no matter how rigorous and comprehensive the strategy, absence of organisational culture will necessarily lead to failure. Much the same can be said about reality and theory in public policy. How much so ever rigorous and comprehensive the theory, reality has funny ways of dismantling it. Reality eats theory for breakfast, lunch, and dinner! 

This is not to reject public land monetisation, but merely to put the issue in perspective. 

Foremost, the objective of the policy should be to manage property prices and resource mobilisation should merely be the incidental benefit from sales. Unfortunately, the theory-reality dissonance strikes here too. Fiscally strained governments (as most often governments are) are disincentivised to take the long view when the illusion of fiscal returns from the short-view (resource mobilisation) are very high. 

In any case, some specific useful steps could be the establishment of a dedicated entity in Government of India and states entrusted with all land sales (instead of asking individual Departments and agencies to undertake the same); creation of land banks; scheduling sales in the form of a pipeline with calibrated draw down; the pipeline to be calibrated based on some objective criteria like an index of property prices like Residex; the principle behind the extents to be monetised and periodicity of monetisation to be clearly outlined etc. These are essential to shape market expectations and enhance the credibility of such sales, which is critical to both influencing the real estate market meaningfully as well as to maximise value capture for governments. 

In this context, two pointers about how one could structure such sales. One, the periodic number plate auctions that authorities in places like Shanghai use to calibrate the numbers of vehicles on the city's roads is a good example to keep in mind while designing a policy. Second is a co-authored paper here with Dr TV Somanathan where we propose a Floor Area Ratio (FAR) trading model involving the calibrated release of FAR as Transferable Development Rights (TDR) on a digital platform.