Weekend reading links

1. FT has this graphic of the transformation that is happening in the music industry.

The speed with which this transformation appears to be happening is staggering.

2. For those in India who wail about the lack of government initiatives to broaden and deepen capital markets, Larry Fink's call for Europe to do the same should provoke some thought,

“In the years since the crisis, much of Europe’s economic potential has been locked up. Strengthening capital markets and retirement systems can help unlock that potential, and doing so will be vital to Europe’s economic future,” he said. While the US, where BlackRock, the world’s largest asset manager with about $5tn under management, is based, has much more developed capital markets, European companies are highly dependent on bank lending, which provides about 70 per cent of their funding. European bond markets are also complicated by different insolvency laws across member states. “The lack of a unified European corporate bond market raises costs for companies, deters investors and holds down liquidity,” Mr Fink said... the European Commission in 2015 put forward a range of proposals for unifying and broadening European capital markets, known as the “capital markets union”.

I have blogged several times about the difficulty of developing capital markets. Despite extensive efforts across the world, especially in Latin American countries, bond markets have remained still-born. They are a reasonably large share of corporate financing only in the US. 

3. Livemint points to India's marginal income tax rates being lower than in developed countries but higher than in its emerging Asia peers.

These tax rates pose a conundrum. Developed countries started with very high marginal tax rates than their EM peers today. This allowed them to lower the tax rates progressively and still have a large enough government spending as a share of GDP, a necessity as countries develop and the demand for high quality public goods and social safety net increases. In contrast, the EM economies start out with much lower tax rates, leaving them with limited cushion to lower rates further and struggle to find the resources required to finance social safety and public goods. This is going to be yet another difference in the development trajectory of the EM economies compared to that of their now developed counterparts. 

4. Even as Xi Jinping positions China as the global leader in defending globalisation, the graphic below on the balance sheet of globalisation is interesting.

It is clear that the only substantive gainers of globalisation were those belonging to emerging Asia (China, India, and SE Asian tigers), whose PPP adjusted share of the world economy almost trebled from 12.53% to 31.84% over the last quarter century. For the others, even in the aggregate, it has been disappointing. This does not mean that they gained nothing since even retaining their existing growth shares on the face of the spectacular growth of emerging Asia would have been better than business as usual growth. 

5. India has 4% of the global unicorns, or 8 among 186. And no surprises, all of them are cut-and-paste companies. Entrepreneurs they are (it is a test of great skill to do business here), but innovators they are not. And I would not be one bit surprised if none of the eight survive the coming five years. 

6. Greece is a very sad tale. The country is paying a very heavy price for "decades of mass tax evasion, lavish public sector salaries, inefficient social spending and generous state pensions". Despite three EU bailouts, including the last for 86 billion euros, the eight years of economic pain has battered the economy and the society,

Today the country has become a byword for the brutal economic, political and social fallout that followed the 2008 crisis. The economy shrunk almost a third in the ensuing years, and the government is effectively bankrupt without outside support: it owes about €320bn — not far from double its gross domestic product of €181bn... Unemployment is at 23 per cent and 44 per cent of those aged 15-24 are out of work. More than a fifth of Greeks get by without basics such as heating or a telephone connection. n 2015, 15 per cent of the population lived in extreme poverty compared with 2 per cent in 2009, according to a recent study by Dianeosis, a Greek NGO. There are families that do not have anything to eat... Spending on hospitals, schools and social safety nets has been slashed, leaving increasing numbers of Greece’s most vulnerable without support... Many local schools have been shut or had budgets trimmed. Bus routes, an essential link to nearby towns, have been axed, forcing villages to operate community taxi schemes...

Last year pension payments were cut by as much as 40 per cent, while this year will bring €1bn worth of new taxes on cars, telecoms, television, fuel, cigarettes, coffee and beer, and a €5.7bn cut to public sector salaries and pensions. It is a drastic return to reality for many in a country where, for decades, tax enforcement has been lax and social benefits generous... Fifty-two per cent of Greek households rely on pensions to pay their monthly expenses, according to a 2015 study. Yet Greece has only 2.7 million pensioners — 25 per cent of the population. Austerity measures mean that close to half of pensioners now have a monthly income that puts them below the country’s poverty line, according to a recent report by a group of retiree associations. New taxes have eroded disposable incomes still further. Value added tax has increased to 24 per cent on food, disproportionately hurting the poor, for whom living costs represent a far higher proportion of income. Most detested is the Enfia property levy, which brings in €2.65bn a year — roughly €650 from each of Greece’s four million households.

When taxes are rising and incomes are falling, such suffering is inevitable. The more disturbing thing is that the scale of the country's indebtedness makes repayment almost impossible. Greece needs less of debt rescheduling and more of debt write-downs.

7. Amidst all the dismal news, something encouraging from Gambia. The decision by Yayha Jammeh, who ruled Gambia for 22 years, to step down and hand over power to Adama Barrow, who won the democratic elections in December, should count as a red-letter day in the history of the country as well as West Africa. The outcome is a tribute to African diplomacy, especially the Economic Community of West African States (ECOWAS) which had mounted intense pressure on Jammeh to resign. Now, the ball is with Barrow to fulfil the faith repose on him.

8. Finally, a fascinating video about Venice, a conglomeration of 124 islands and a city without automobiles!