Irrational Exuberance Redux?

There are no free lunches. Every time there is exuberance in any bidding for public contracts, it is prudent to step back and reflect. 

The aggressive bids based on over-optimistic traffic growth and low fuel price forecasts associated with road and power sector PPPs of the last decade, the get-at-any-cost bids in telecom 3G spectrum auctions, and the race to the bottom with solar tariffs are some recent examples from India. In each case, the triumphalism following the contracting and resource mobilisation proved short-lived and the longer term costs were considerable. The legacy of the first was over-leveraged infrastructure companies and banks with non-performing assets, that of the second telecom companies with no option but to skimp on capacity investments, and the third one is currently playing itself out. 

Last week the National Highways Authority of India (NHAI) signed a 30 year concession agreement with Macquarie Infrastructure and Real Assets (MIRA), world's largest infrastructure fund manager, to monetise a bundle of nine fully operational highways involving 648 km in Andhra Pradesh and Gujarat. This is the first concession under the Toll-Operate-Transfer (TOT) model which was approved by the Cabinet in 2016 to monetise 75 national highway stretches of 4500 km. MIRA will make an upfront payment of Rs 96.815 billion in return for maintenance of the highways and the 30 year toll collection rights. 

MIRA's bid was striking in its exuberance. Against the NHAI concession value of Rs 62.58 bn (assuming an IRR of 12-13%), MIRA bid Rs 96.815 bn, a premium of 55%. It was also 30% higher than the next highest bid.

It is of course possible that this first bundle had all great highway assets with very high traffic growth potential and MIRA was only betting on its realisation. But that does raise the question of how the government, which technically has more information than the concessionaire, came out on the other side of the information asymmetry and left money on the table with its low concession value. Or was it done strategically to tantalise market interest in light of the big pipeline of such offerings?

How do we assess such deals? Is it a case of MIRA sensing money of the table that nobody else saw? Or one where MIRA bid sensed several attractive medium-term exit options?

The table below captures the spectrum of choices that governments and concessionaires have with such contracts.

Clearly, the overall welfare maximising option (option IV) is to have the concessionaire making a commercially viable enough bid and government being able to realise a reasonable price for the asset. Given the information symmetries and uncertainties of a long-term contract, this is difficult to achieve in the real world. In the circumstances, options II and III are practical realities, and the objective should be to get as close as possible to option IV. 

Based on the experience of such projects from across the world, let us get a few practical considerations out of the way. One, 30 years is a long period and will encompass multiple business cycles and their respective downturns. Traffic flows and interest costs will accordingly vary widely. The upsides have to more than compensate for the downsides. Two, if the downsides persist and in case of doubts on medium-term commercial viability, the concessionaire will invariably seek renegotiations, and most likely get it. Three, MIRA may be the current owner, but can and will exit (presumably there is a lock-in period) in due course and there will be multiple ownership transfers over the concession period. The MIRA Fund from which resources were drawn to pay for the monetised highways would typically have a ten year life, after which it pays out and closes.

In the circumstances, there are two concerns. The first concerns the discount factor and the second over likelihood of asset stripping.

Let us examine the first. The two biggest drivers of commercial viability are traffic projections and interest rates used to discount the cash flow. One can assume that MIRA has made its offer based on its best assumptions of the traffic projections (based also on data made available by NHAI), and to that extent is completely accountable for the associated risks. 

But the interest rate used in discounting is determined by NHAI and can be just as critical. As Ajay Jain of Indusbridge Capital Advisors has written in Bloomberg Quint, the nominal interest rates in India since the millennium have varied between 14.5% and 4.25%. Getting this right can be the difference between winner's curse (for the concessionaire) and leaving money on the table (for the government).

If the discount rates are too low, then this would imply a higher estimate of the Net Present Value (NPV) of the cumulative life-cycle cash flows. This, while giving governments high revenues would also force bids which tread on commercially questionable terrains. But, as experience from across the world and across sectors shows, it is only a matter of time before the concessionaire throw up their hands and seek renegotiations. And again experience shows, the net outcome is always bad for the tax payers. On the other hand if the discount rate used is on the higher side, the NPV estimate would be lower. This would leave money on the table and generate a windfall for the concessionaire.

In this context, the Value for Money (VfM) analysis of UK's Private Finance Initiative (PFI) projects by the country's National Audit Office is instructive,

Making changes to the discount rate applied to future costs can also affect which financing route is assessed as VfM. The VfM assessment compares private finance costs with a government discount rate of 3.5%, which is 6.09% with inflation, known as the Social Time Preference Rate (STPR), which is higher than government’s actual borrowing costs. The higher the rate applied, the lower the present value of future payments. For example a payment of £100 in 12 years will have a present value of just £49 when discounted by the STPR. Discounting using a lower discount rate, which compares private finance with the actual cost of government borrowing, results in fewer private finance deals being assessed as VfM. Using a fixed discount rate, set in 2003, means that the VfM assessment does not reflect the additional cost of private finance above the prevailing cost of government borrowing. In the current low-interest-rate environment it is possible to privately finance projects below the 6.09% rate. When this is the case private finance will be assessed as costing less than public finance even though the actual long-term cash costs of debt servicing and repayment will be higher than government debt costs.

As the graphic below shows, the government's actual cost of borrowing has consistently and significantly been lower than the discount factor used in making VfM assessments of PFI projects.

In summary, if the government has used a lower discount factor, it has inflated the cash flows estimates, and set the stage for renegotiations. In contrast, a higher discount factor deflates the cash flows, and leaves money on the table. Only time will tell which of these two scenarios best fit the first round of TOT roads monetisation.

This brings us to the second, and more important concern, around asset stripping. This can arise through multiple pathways. One way, as the example of UK's water utility privatisation shows, can be by leveraging up to finance opex and maintenance, making disproportionately large payouts to the investors from profits accrued, gradually diluting equity, and finally selling off to the next buyer and exiting with handsome returns. Another option is to cut down on expenses by skimping on operational expenses, socialising externalities wherever possible, and stretching the boundaries on the interpretation of the pre-defined maintenance schedules. 

Both approaches are straight out of the playbook of Macquarie itself during its ownership of Thames Water, UK's largest water utility with more than 9 million consumers. In the 2006-17 period of its ownership of Thames Water, "Macquarie paid itself and fellow investors £1.6bn in dividends, while Thames Water was loaded with £10.6bn of debt, ran up a £260m pension deficit and paid no UK corporation tax". Macquarie exited by progressively selling off its stake to an emergent group of private equity, pension funds, and sovereign wealth funds. 

Consider this scorecard from the monetisation of UK's water utilities,

The owners of the nine companies — many of which are overseas investors, including sovereign wealth funds — paid out £18.1bn in dividends in the 10 years to 2016, even though post-tax profits amounted to £18.8bn during the decade, according to the Greenwich University researchers’ analysis of their financial reports... Consequently, almost all capital expenditure has been financed by adding to the companies’ debt piles. Collectively these now stand at a towering £42bn... Three companies — Anglian Water Group, Severn Trent Water and Yorkshire Water Services — have paid out more in dividends than their total pre-tax profits over the past decade... Greenwich researchers said the cost of maintaining and improving water and sewer infrastructure has been paid for almost entirely by an increase in debt, which has risen from almost zero at the time of privatisation to nearly £40bn in 2016. The interest payments on the debt are higher than what would be paid by the public sector, which can borrow more cheaply. Together, the £1.8bn in dividends and the extra £500m of debt interest payments each year pushed up bills for each of England’s 23m households by about £100 a year.

Now that asset monetisation is here to stay, what are the lessons? Some suggestions

1. For a start, it is important to attract the right kinds of investors in these assets. The financial logic of investing in such long-gestation assets is the relative stability and not the size of returns. Pension funds, insurers, sovereign wealth funds and so on, who value reasonable returns which are stable and long-term, are the most appropriate direct or indirect (through the likes of  infrastructure funds) investors in such assets. Private equity and other similar investors, who elevate returns over stability and tenor, are likely to have a different set of incentives with potential to engender distortions.

It is possible to encourage self-selection among investors by prioritising stability and tenor. Clarity in the principles of renegotiations, a very high likelihood event in long-term concessions and one fraught with significant uncertainties, can be an important signal to lower risk and promote stability. I had blogged earlier with a few suggestions on renegotiations. On the upside, it may also be useful to cap certain types of windfalls, like in the UK, by forcing the concessionaire share profits with the government. In simple terms, investments in operational infrastructure facilities should become a boring financial asset!

2. On a related note, the vast majority of capital for such monetised assets would and should come from domestic institutional investors and not foreign infrastructure funds. I have already blogged here, here, and here about the limited depth of dry powder among global infrastructure funds to invest in infrastructure in countries like India. More importantly, these assets generate revenues in rupee and it is only appropriate that they be financed by domestic capital, so as to avoid currency liability mismatches and the resultant higher cost of capital.

It is therefore an opportunity to deepen and broaden the financial markets, especially the pension and insurance businesses as well as the bond market. Complementary reforms to incentivise these market participants to absorb the supply of these instruments may be necessary. The promotion of Infrastructure Investment Trusts (InvITs), announced in the Union Budget 2018-19, is a step in the right direction. However, the government may need to walk the talk with this so as to ensure that this does not become one more in the long-list of less than effective reforms initiated over the last two decades to broaden and deepen the capital markets.

3. More specifically, given the experience of infrastructure privatisation and asset monetisation from across the developed world, the concession agreements should seek to build safeguards that explicitly guard against asset stripping. It may be useful to have clearly defined financial ratios and floors/thresholds to limit excessive debt accumulation and equity dilution, as well as maintain oversight on pension and other statutory payouts. 

4. It is never a good thing to base a 30 year contracting decision on a single discount factor. Given the impossibility of reliably predicting long-term rates, this is pretty much a lottery for both the government and the concessionaire. The longest credible enough measure of long-term interest rates are the 10 year Treasury bonds.

One option would be to do periodic discounting resets, say once in 7 years, based on the expected long-term interest rates (not the prevailing bank rates). The payouts could then be made as instalment bullet payments, which however may come in the way of meeting the government's fiscal requirements and may also not align life-cycle incentives. The other option would be to have the initial payment which is based on discounting with the rate for the ten-year T-Bonds and then adjust the initial payment every time the reset happens. The adjustment could be in the form of a one-off term payment (by either the government or the concessionaire) based on how the discount factor varies.

Update 1 (19.12.2018)
Expectedly, after the first flush of irrational exuberance and as reality dawns, the demand for the second round of bidding for the Toll-Operate-Transfer (TOT) roads appears to be muted. This round proposes to concession out 586 km of national highways across Rajasthan, Gujarat, W Bengal, and Bihar, at a base bid price of Rs 5362 Cr for a period of 30 years.

Universal health coverage is not universal health insurance

The Economist has a survey on universal healthcare. Surprisingly for an Economist Survey, though predictably very rich on facts and descriptives, it comes out as being very sloppy and misleading in its analysis and prescriptions. The most striking being the casual substitution of universal health care coverage with universal health insurance. 

In fact, this article has clearly made up the mind that universal health coverage is possible only with the insurance approach, and that too one which involves the universal coverage of a basic minimum set of commonly afflicted medical conditions. Sample this about the Thailand's universal health coverage scheme,

Introduced in 2002, Thailand’s scheme has become a model for other countries trying to extend coverage. It shows that universal health care can be affordable if policymakers think carefully about how to spend scarce resources. And it demonstrates the power of health insurance to bring “the magic of averages to the aid of millions”, as Winston Churchill put it.

Really? The successful Thai health care system, as we see it today, far from being a simple health insurance scheme introduced in 2001, is the result of persistent efforts initiated in the seventies. In fact, it is not even a health insurance scheme, based on the conventional understanding of market-driven health insurance. It is built on a robust network of world-class government owned health care facilities, very streamlined gatekeeping referral system, and an incentive compatible capitation based budget spending. The last two are, in many ways, critically dependent on the first. The so-called insurance, is just a dressing up of all the aforementioned ingredients and universal application across all population categories, and predominantly publicly financed.

I have blogged on several times, including this most recently, about the impossibility of realising satisfactory enough universal health coverage without improving primary health care. I have also written here about the fiscal unsustainability of doubly universal health coverage - cover both population and medical conditions. 

But the Survey has several very striking factual snippets. A few samples. On the importance of health to economic growth,

A study found that in Britain as much as 30% of the growth in GDP between 1780 and 1979 may have been due to better health and nutrition. A paper by two leading economists, Dean Jamison and Lawrence Summers, found that 11% of the income gains in developing countries between 1970 and 2000 were attributable to lower adult-mortality rates.

On the general state of global health care

A study, in 2015, for the Lancet, a medical journal, estimated that 5bn people around the world cannot get basic surgery such as a caesarean section, a laparotomy (an incision into the abdominal wall) or a repair for a fractured bone. According to the paper from the World Bank and the WHO, 800m people spend more than 10% of their household budget on health care, and nearly 100m are pushed into extreme poverty (defined as having less than $1.90 a day to live on) every year by out-of-pocket health expenses. This chimes with smaller-scale studies. A survey last year of patients at a government hospital in Uganda discovered that 53% of their households had to borrow money to pay for treatment and 21% sold possessions. About 17% lost their job... In rural India, for example, 66% of the population does not have access to preventive medicines, and 33% must travel more than 30km to get treatment.

In case of tertiary care like surgery, it is understandably even worse,

Nine in ten people living in developing countries do not have access to “safe and affordable” surgical care, according to a report in 2015 by the Lancet (see map). About 60% of operations round the globe are concentrated in countries with only 15% of the world’s population. In rich countries a rough rule of thumb suggests there will be about 5,000 operations per 100,000 people every year. But according to the African Surgical Outcomes Study, a survey of 25 African countries, the median rate on that continent is just 212 per 100,000... The 25 countries in the African Surgical Outcomes Study had an average of 0.7 surgeons, obstetricians and anaesthetists per 100,000 people, compared with a typical figure of more than 40 in the rich world. Over half the district hospitals in one study of eight African countries had no anaesthesia machine. Often the kit is donated, and few locals know how to fix it. One survey suggests that 40% of donated surgical equipment in poor countries is out of service... In 2010, 17m lives were lost from conditions needing surgical care, dwarfing those from HIV/AIDS (1.5m), TB (1.2m) and malaria (also 1.2m). Roughly one-third of the global disease burden measured by DALYs is from conditions requiring surgery.

But the challenges are immense. On the sorry state of healthcare in Sierra Leone, a reminder that these countries need hard resources, human and capital. Innovations, howsoever cute, is only tinkering at the margins. 

Life expectancy was already just 50 years, and an eighth of children died before their fifth birthday... Before the outbreak the country had just one doctor for every 50,000 people. (America has one for about every 400; China one for 275.) Then 7% of Sierra Leone’s health workers died from Ebola during the epidemic.

On the pervasiveness of informal providers,

In many developing countries people get their health care mostly from informal private providers such as drug shops or unqualified practitioners. In India, informal providers account for three-quarters of all visits. The figures in other countries are similar, if mostly less extreme: 65-77% in Bangladesh, 36-49% in Nigeria and 33% in Kenya.

Quality in health care, unlike in case of education, is less discussed. But it may be even worse, with disastrous consequences,

In one Chinese study the average consultation time was a minute and a half. In India the average length was double that, but one-third of the visits lasted just one minute and featured a single question: “What is wrong with you?” Only 30% of consultations in India and 26% in China resulted in correct diagnoses, and patients were more likely to receive unnecessary or harmful treatment than the correct sort. Studies in Paraguay, Senegal and Tanzania have produced similar results... In a study in Delhi only 25% of providers asked parents whether there was blood or mucus in the child’s stool, a clear symptom of such disease.

But there are a few shining lights,

In both Chile and Costa Rica income per person is roughly 25% of that in the United States and health spending per person just 12%, but life expectancy in all three countries is about the same. Rwanda’s GDP per person is only $750, but its health scheme covers more than 90% of its population and infant mortality has halved in a decade.

Is Thailand the most impressive healthcare story of our times?

Costa Rica is another impressive exception,

Between 1995 and 2002 Costa Rica established more than 800 “Equipos Básicos de Atención Integral de Salud”, or integrated primary-health-care teams, each looking after 4,000-5,000 people. The teams are made up of a technical assistant, who visits patients at home; a clerk who keeps up-to-date records; a nurse; a doctor; and a pharmacist. The doctors have a lot of scope to run the teams the way they think best, but the health ministry holds them accountable for their patients’ outcomes. Before the programme was in place, just 25% of Costa Ricans had access to primary health care; by 2006 the share had risen to 93%. It was introduced in stages, which enabled researchers to assess its impact. A study in 2004 found that for every five years it was in place, child mortality declined by 13% and adult mortality by 4%, compared with areas not yet covered. Another study estimated that 75% of the gains in health outcomes resulted from the reforms.

And this too is impressive,

Ethiopia since 2004 has trained more than 38,000 “health extension workers”, rural high-school graduates who undergo a year’s training before being sent back to their local area. They have helped cut child and maternal mortality by 32% and 38% respectively. In Rwanda each village has to have three community health workers, elected by their peers, who offer basic services and make referrals. “People who have a minimum education can do a lot,” says Agnes Binagwaho, a former health minister.

But the lessons drawn from these successes may have far less relevance than we think,

One lesson from countries like Rwanda is that closing the gap between knowledge and action requires reforms far beyond the consultation room. Training helps, but so do incentives and accountability. When Rwandan health workers were paid to adhere to clinical guidelines, their performance improved. And when rural Ugandans were given more information about the quality of local health services, clinicians did a better job. When Rwandan health workers were paid to adhere to clinical guidelines, their performance improved. And when rural Ugandans were given more information about the quality of local health services, clinicians did a better job.

These lessons may appear very simple and hardly innovative. And they are undoubtedly the way forward. But unfortunately, thanks to very weak state capacity, it is very difficult to translate these lessons into action in scale with high fidelity. One more illustration of why instead of expending disproportionate energies chasing innovation and technology, the international development community should be striving to fix state capacity. The returns are orders of magnitude higher. And it is true of every sector!

International trade and internet commerce - why are their effects viewed differently?

The Economist has an article on the troubles of post offices as they compete with technology and new business models which threaten to upend their own business,

Their struggles are also due to delivery startups. Investors are pouring money into gig-economy couriers that use cheaper, self-employed drivers. BCG reckons that investment in such firms grew from $200m to nearly $4bn in 2014-16. Post offices, weighed down by strident unions, high labour costs and costly networks of sorting centres, struggle to compete... E-commerce giants may prove a greater threat... Amazon has already hit Britain’s Royal Mail hard by starting its own door-to-door deliveries. In California it has launched a grocery-delivery service as a way of gaining greater scale to deliver its own e-commerce parcels itself. The biggest threat of all may come from Amazon’s Chinese rival, Alibaba, which is injecting $15bn into its own delivery arm, Cainiao, and aims to expand beyond China. By doing their own deliveries in cities, where profits are juicier, these firms could leave less money on the table for post offices to cross-subsidise rural services, where costs are higher.

e-Commerce and sharing economy firms are doubtless more efficient than their brick and mortar counterparts. But an equal, if not greater, share of their competitiveness arises from regulatory arbitrage. By not adhering to the standards and safeguards applicable for brick and mortar companies, they let society bear the attendant negative social externalities. This applies across sectors, and post offices and delivery startups are no different.

This is a teachable moment in the way our worldviews inform our values.

Consider the example of two entities, A and B, who compete with each other for selling widgets. A claims that B is undercutting it by lax widget making standards in the widget factories which allows it to sell cheaper than B.

Now consider two scenarios. In the first, replace A with United States, B with India, widgets with cars, and widget making standards with labour and environmental benchmarks and safeguards in car industry. In general, the distinction would apply to developed and developing economies and the entire manufacturing sector. The latter gets a competitive advantage by their less onerous standards and lower wages, and the former demands a level playing field for their companies. 

In the second, replace A with a national Post Office, B with gig-economy couriers, widgets with delivering courier services, and widget making standards with labour protections. This would apply to a wide cross-section of sectors and their real economy and gig economy counterparts.

Why is it that the same commentators who loudly advocate global harmonisation of labour and environmental standards without batting an eyelid, stoutly oppose or at the least hesitate to endorse any regulation of the sharing economy firms?

Ironically, the same commentators were in the early nineties dismissing concerns of developing countries that the sudden global trade liberalisation and the arrival of deep-pocketed and massive multinational corporations and its products were destroying their domestic industries.

Forget the commentators, my guess is that even normal people would have the same contrasting appreciation of the two scenarios, despite their near exact similarities. 

Conventional wisdom would have had it that the cold economic logic dictated the thinking and commentary and opinions on such issues. But in the real world, our values and cognitive biases come to distort the way we view them.

Are we confusing the internet economy with efficiency, itself often perceived as an almost absolute superior attribute, and are blind to its diffuse and slowly evolving negative externalities? Are we biased towards the problems in our backyards than those of people distant to us (why should we even be asking this question, isn't it obvious!)?

Weekend reading links

1. The agriculture distress cycle threatens to repeat again. Sample this latest status on farm prices in Maharashtra (unlikely to be much different elsewhere),

Barring soyabean, not a single commodity is trading at government-specified Minimum Support Price (MSP). In the case of perishables like fruits and vegetables, the situation is worse. Rabi tomato, which sells at the rate of Rs 10 a kg, is now trading at Rs 1-2 per kg at the markets of Narayangaon and Junnar. Onions, which till recently were fetching Rs 20 a kg at wholesale markets, are now priced at Rs 6 a kg... A crop like tur, which has reported lower sowing than last year, is also trading over Rs 1,200 per quintal below its MSP... Last year, the government had increased the procurement price of milk from Rs 24 to Rs 27 per litre. Dairies are, however, barely able to pay Rs 20 per litre to farmers owing to a glut of milk powder in the market. Sugar prices are on a steady fall which has made mills default in their payment. There are over Rs 2,200 crore in dues by the mills to cane farmers.

The result has been that farmers are staring at another debt trap. With no immediate relief in sight, the farmers find themselves with no option but to start a fresh stir. Their demands are no different from the last time — assured returns and a full loan waiver.

2. What explains economic growth? Free Exchange highlights the limitations of economic theories, 

An economist might explain China’s rapid growth in the 1980s by saying that it began to deploy more capital per worker and to adopt foreign technologies. Yet it was very clearly the result of a political decision to loosen state control over economic activity. It would similarly be accurate to say that China’s future growth will depend on how well it develops and deploys new technologies. But that depends on decisions about economic governance taken by its leaders, which will in turn be influenced by social and geopolitical forces that economists scarcely understand and generally ignore... a formula for growth that takes no account of social and political complexities is no formula at all... The economics of growth should therefore be central to the discipline, even though the questions it poses are objectively hard, and the answers rest more in history and politics than in elegant mathematics. Until they can give better answers in this area, economists should speak with greater humility about how this structural reform or that tax change might affect long-term growth. They have not earned the right to confidence.

3. India's state capacity problem in law and order management is acute even by the standards of the G-20 economies. 

4. Thomas Piketty uses evidence from France, Britain, and US for the 1948-2017 period to explore the long-run evolution of political cleavages and the rise of populist parties in recent times,

In the 1950s-1960s, the vote for left-wing (socialist-labour- democratic) parties was associated with lower education and lower income voters. It has gradually become associated with higher education voters, giving rise to a “multiple-elite” party system in the 2000s-2010s: high-education elites now vote for the “left”, while high-income/high-wealth elites still vote for the “right” (though less and less so). I have argued that this can contribute to explain rising inequality and the lack of democratic response to it, as well as the rise of “populism”. In effect, globalization and educational expansion have created new dimensions of inequality and conflict, leading to the weakening of previous class-based redistributive coalitions and the gradual development of new cleavages...Two main lessons emerge. First, with multi-dimensional inequality, multiple political equilibria and bifurcations can occur. Next, without a strong egalitarian-internationalist platform, it is difficult to unite low- education, low-income voters from all origins within the same party.

5. Tadit Kundu in Livemint explores the North-South taxation. I am not sympathetic to going down the numbers based approach on this issue. 

The issue here is not and was never about the cold logic of numbers. In fact, going down the numbers tunnel and framing the debate around it may actually be counter-productive. For example, establishing that fiscal transfers in per capita total population terms is not progressive, while refuting those critical of the current fiscal transfers regime, also makes it more difficult to moot any incremental progressivity. After all, after defending the status quo and the fact that transfers are not progressive, you cannot turn around and start arguing for increased transfers to the poor states. And the critics could come up with another framing, say, a fiscal transfers in per capita poor people population terms and maybe that is progressive? 

This is essentially a debate about being a nation state, a single country, and the appetite for the same. The numbers debate is a shadow-boxing for real and perceived emergent social and political trends. They need to be discussed in the open. In Econ-speak, it is about being an optimal currency area and the benefits of shared and mutually dependent prosperity. Net fiscal transfers across regions are necessary to sustain either a country or an optimal currency area. The counterfactual is the challenge with maintaining the European Monetary Union without a fiscal union. This has to be debated on those political and economic grounds. I have not seen too many of them. 

In any case, that federalism is never the case of each one's tax for himself, is borne out by the examples of other countries.

6. Just 13 years after the Multilateral Debt Relief Initiative which cancelled debt for African countries that met economic management and poverty reduction criteria, Africa stares at yet another debt crisis! The FT reports that 40% of Sub-Saharan African countries now are at high risk of debt distress - double that of five years - and the number of countries unable to service their debt doubled to eight last year.

It is taking a toll on public spending, as it eats up an ever increasing share of tax revenues and fiscal expenditures.

The problem with even a future debt relief becomes difficult given that almost half the region's debt comes from commercial sources instead of country governments, thereby making restructuring a difficult proposition.

Would be interesting to know how much is China's contribution?

7. Talking about China, sample the impact of Chinese loans funded railways investments in Pakistan,

In total, Islamabad says it has rehabilitated more than 300 locomotives, over 1,000 passenger coaches, nearly 5,000 freight wagons and 31 stations. Pakistan also purchased 75 high-powered locomotives last year in a $413.5 million deal with General Electric Co... Now the unprofitable state-owned Pakistan Railways has doubled its revenue to 40.1 billion rupees ($362 million) in the past five years and aims to do so again over the same time period... The drive is already attracting more passengers, up 25 percent to over 52 million people since 2013. Working through the carriages, 40-year-old Rana Iftikhar Ahmad has been selling snacks on trains for last 15 years and said his sales have grown as much as 50 percent in recent years. Five years ago a train from Karachi would take four days to get to Lahore, he said. That same route now takes just over half-a-day on the Green Line (22 hour express service from Islamabad to Karachi).

But the question is whether Pakistan can afford all these?

Beijing is set to upgrade a 1,163-miles track from Karachi to Peshawar near the Afghan border with an $8 billion loan to Pakistan. It’s part of Chinese President Xi Jinping’s Belt and Road trade initiative, which includes $60 billion of badly-needed works financed in Pakistan... To help ease increasing congestion in Pakistan’s second-largest city, a $1.6 billion metro-line in Lahore — funded by Chinese banks — is scheduled to open before this year’s vote.

8. On debt within China itself, nice summary of the problems by Henny Sender. The UBS estimate of debt-to-GDP ratio of 272%, itself a big concern, is surely on the lower side,

The biggest concern for a country with worsening demographics and which is trying to recalibrate away from investment to consumption is the rise in household debt, and in particular the spectacular growth of internet finance options like Peer-to-peer lending.

9. Adam Davidson thinks the Cohen raids form the beginning of the end for Trump,

Even if Trump pardons Cohen, the information the Feds have on him can become the basis for charges against others in the Trump Organization. This is the week we know, with increasing certainty, that we are entering the last phase of the Trump Presidency. This doesn’t feel like a prophecy; it feels like a simple statement of the apparent truth. I know dozens of reporters and other investigators who have studied Donald Trump and his business and political ties. Some have been skeptical of the idea that President Trump himself knowingly colluded with Russian officials. It seems not at all Trumpian to participate in a complex plan with a long-term, uncertain payoff. Collusion is an imprecise word, but it does seem close to certain that his son Donald, Jr., and several people who worked for him colluded with people close to the Kremlin; it is up to prosecutors and then the courts to figure out if this was illegal or merely deceitful... However, I am unaware of anybody who has taken a serious look at Trump’s business who doesn’t believe that there is a high likelihood of rampant criminality...

Cohen, Donald, Jr., and Ivanka monetized their willingness to sign contracts with people rejected by all sensible partners... There are important legal questions that remain. How much did Donald Trump and his children know about the criminality of their partners? How explicit were they in agreeing to put a shiny gold brand on top of corrupt deals? The answers to these questions will play a role in determining whether they go to jail and, if so, for how long.

10. Finally, India technical education fact of the day,

There were no takers for 51 per cent of 15.5 lakh BE/BTech seats in 3,291 engineering colleges in 2016-17.

The protectionist debate in perspective

As trade wars loom large (or is it one more example of this), it is worth remembering that everyone is equally to blame. Further, the historical trajectory of development of every country is filled with policies that have helped level the playing field for their local industries.

In fact, to the extent that development is a form of arbitrage play, whereby countries seek to exploit their advantages to squeeze their competitiveness compared to competitors, protectionism in some form or other has been always around the corner.

Times has a nice article which captures some of the protectionist policies that China and the US have resorted to. What has China been doing?

To stay in business in China, Apple has had to set up a data center there to store Chinese customers’ personal information. Amazon recently had to sell equipment to its Chinese cloud services partner to comply with new Chinese rules. Facebook and Twitter are blocked in the country; newer American players, such as Snap, are not even trying to enter anymore... China could require that foreign tech companies undergo costly additional tests for new products, or simply make it more difficult to operate in the country... It could also devise new regulatory hoops for foreign companies to jump through. China’s Ministry of Commerce has not yet approved Qualcomm’s proposed, $44 billion purchase of NXP Semiconductors, a Dutch chip maker. The deal, more than a year in the making, needs a signoff from Chinese antitrust authorities because the two companies count a large number of electronics makers in China as customers...

A Communist Party-linked newsmagazine singled out the American companies that it said had penetrated most deeply into China’s information infrastructure. The “Eight Guardian Warriors,” as they were called — Apple, Cisco, Google, IBM, Intel, Microsoft, Oracle and Qualcomm — had been able to “drive right into China,” the article said, whereas Huawei and another Chinese equipment maker, ZTE, had been kept out of the United States... Beijing banned government offices from installing the most recent version of Microsoft Windows, and antitrust investigators raided Microsoft’s offices. Cisco, Apple and Intel products were removed from state lists that officials use as guides when buying equipment. Qualcomm got slapped with a $975 million fine for anticompetitive behavior... Cisco partnered with a Chinese firm to sell networking systems. Microsoft, in conjunction with a state company closely tied to the Chinese military, developed a version of Windows more suitable for China’s government. Advanced Micro Devices, Intel and Qualcomm began working with Chinese organizations in microchips, which China imports in huge quantities to put into smartphones, computers and other electronics.

What has the US been doing?

In the United States, regulators have repeatedly thwarted attempts by Chinese tech groups to acquire American firms. And espionage concerns have for years kept Huawei — one of the world’s biggest suppliers of telecom gear, and a powerhouse of China’s tech scene — largely out of the American market... Mr. Trump recently blocked a hostile bid by Broadcom to buy Qualcomm. He did so not because the bidder was Chinese — Broadcom is headquartered in Singapore — but because the administration said the deal would weaken Qualcomm, leaving Huawei with a stronger hand to shape 5G, or fifth-generation mobile technology... Chinese attempts to scoop up foreign chip makers mostly have not worked out. State-owned Tsinghua Unigroup tried to buy Micron Technology, a memory chip maker based in Idaho, for $23 billion in 2015, but regulatory worries scuttled the deal. The Trump administration last year blocked a China-backed investor from buying Lattice Semiconductor, an Oregon-based manufacturer. And regulatory concerns scotched a Chinese investment group’s plan to buy Xcerra, even though the Massachusetts-based company makes chip-testing equipment and not chips themselves.

These restrictions have all along been imposed, albeit silently, without high-profile twitter rants. Chinese, in particular have never shied away from aggressive use of industrial policy to tilt the playing field for its businesses. 

Traditionally India has been on the defensive with respect to protectionist allegations on local content requirements, public procurements, food subsidy, and so on. These are perfectly legitimate policies which every developed country of note have pursued at their respective development stages. It therefore need not be defensive on these perfectly justifiable policy decisions. However, it needs to cautious in stretching this too far and falling back to a bygone era by introducing import restrictions and raising tariffs on a broad cross-section of goods.

The Xi Jinping turn in Chinese policies

The Economist gets to the heart of US-China trade dispute,

At the heart of the disagreement is China’s industrial policy. The Americans suspect the Chinese government of enticing their firms with the promise of a vast consumer market, only to use regulatory pressure to strip them of their bargaining power and expose them to the theft of intellectual property by forcing them into joint ventures. They spy a plot to undercut and eventually surpass American industry... Upon joining the WTO (and a further eight times since 2010) China’s government pledged not to make handing over technology a condition for market access. But the Americans say Chinese officials continue to pressure firms to do so. Such a claim is hard to prove—all the more so, given the opacity of China’s regulatory processes. And experience suggests that any deal would be devilishly difficult to enforce. The Chinese authorities can say that contracts involving technology transfer were signed voluntarily. They can make life hard for any foreign company that dares say otherwise.

Depending on which side you are on, it is hard not to be impressed by the Chinese playbook. I am surprised why India does not do the same with say, at least its strategic and large procurements - airlines, defence, metro rail, power etc? Or does India not yet have the economic leverage to play this hardball? Or is it that India does not have the stomach to play this game? Or is it not desirable at all?

But all that is beside the main point and to be discussed another time. Staying on the same topic, Chris Balding shines light at the creeping nationalisation of Chinese tech sector and how it could exacerbate trade tensions with the US. Consider this,

Communist Party committees have been installed at many tech firms, reviewing everything from operations to compliance with national goals. Regulators have been discussing taking a 1 percent stake in some giants, including Alibaba and Tencent, along with a board seat. Tech companies have been widely encouraged to invest in state-owned firms, in the hopes of making them more productive. The common denominator of all these efforts is that the government wants more control... One recent report found that 60 percent of Chinese unicorns have either direct or indirect investment from the Baidu Alibaba Tencent (BATs). China's venture-capital sector is dominated not by traditional tech dealmakers but by the state: There are more than 1,000 government-owned VC firms in China, controlling more than $750 billion.

The US is not the only aggrieved partner. Consider the situation as perceived by Germany, China's largest European trade partner. 

Not only has the opening of China shifted into reverse under President Xi Jinping, but Chinese firms have moved up the value chain far faster than many in Germany expected... In private, some executives liken the situation of German industry in China to the proverbial frog in a pot of slowly heating water which ends up boiling to death because it won’t or can’t jump out. Germany’s ambassador to China, Michael Clauss, warned at a meeting with industry chiefs in Berlin last month of “tectonic changes” in the relationship, according to participants... Bauer AG, which employs 11,000 workers in 70 countries, built its first production facilities in China in the mid-1990s. At the time, not a single Chinese firm could make the sophisticated drilling machines it produces – towering yellow structures used to build the foundations for skyscrapers, power stations and airports. By 2013 Bauer counted 36 Chinese competitors able to make such machines, a shift the CEO says was accelerated by European suppliers selling co-designed parts to the Chinese...

Today, what Bauer and other German firms say they are most worried about is the role of the Chinese state in the economy. Last year, China introduced a cyber security law which tightened state control over internet services, including secure VPN connections that are used by foreign firms to communicate confidentially with headquarters. More recently, some German companies have complained of pressure to accept Communist party officials on the boards of their joint ventures. The Bauer boss fears that Xi’s “Made in China 2025” strategy, which identifies 10 key sectors – including robotics, aerospace and clean-energy cars – where China wants to be a leader, represents a direct challenge to German manufacturing dominance. 

This blog, while cognisant of the several critical failings and distortions, has been in general an admiring observer of the awe-inspiring growth of China as well as its ability to put its money where its mouth is and execute both massive engineering projects as well as complex social and industrial policies. It has believed that the Chinese will eventually figure a way out of any problem. But that view may need to be revisited. 

Since its re-integration with the world economy nearly four decades back, the Chinese economic and foreign policy playbooks have been largely about recovering lost ground and catching up. Doubtless this has involved an aggressive industrial policy to nurture domestic industry and keepings it disputes with neighbours simmering as a low-cost strategy to retain its geo-political influence and focus its energies on economic growth and internal policies. 

But such industrial policies were not new. Which country would not have maximised their leverage and resorted to help local firms with subtle ways to force technology transfers or impose local content requirements? The fact is that China is such a big country and market conferred it with unique advantages of scale, unavailable to others. It did not hesitate to exercise the choice available. As mentioned earlier, I am sympathetic to India exercising the same options. Actually, any big enough country which has that leverage would have done. History is littered with such examples. 

The Communist Party had enough internal checks and balances to prevent the recurrence of a Maoist autocracy and align incentives of Party functionaries across the length and breadth of a large country with the country's development objectives. The Party Politburo was tolerant of the creative tensions on economic and political policy directions.  

Then came Xi Jinping and things have gradually taken a turn in domestic, economic, and foreign policies. This shift in China's policies is a qualitatively different paradigm. Consider the economic policy domain. 

Instead of focusing on improving its own productivity and national income, China is trying to achieve economic supremacy by dominating and controlling the markets of the future and that too by pushing the boundaries of unfair trade and investment practices beyond what may be construed as acceptable. The nationalisation and infiltration of corporate Boards with party functionaries is only one example. There was no need for this. Even without these practices, Chinese makers would have been at least dominant in these markets. 

The centralisation of authority within the Party with Xi is striking. All the safety valves to release the inevitable discontent have been shut. In fact, the discontent is now likely to be aggregated to the top. The different institutional forums to debate different perspectives on economic and social policies, albeit within the acceptable Party line, have been weakened. The internal checks within the Party to prevent the emergence of an echo-chamber have been destroyed.

On the foreign policy side, instead of keeping the disputes simmering, the objective now appears to be settle them at China's terms. More importantly, Beijing now seems to have the intent to engage aggressively with its external partners, neighbours and others. It wants to ring-fence its near-abroad from external influences and bring it firmly under its own control. It has not hesitate to use military brinkmanship to secure this objective. This is surprising since the Chinese can easily afford to be very generous with its ASEAN neighbours. Is Vietnam or Philippines even a remote threat to today's China? It has used economic levers, whether the sovereign loans to countries in Africa and Latin America or the One Road One Belt (OBOR) initiative, in pursuit of its larger global geo-political agenda.

One could always argue that this Xi turn was always likely. It was part of a larger plan to buy time to regain its economic might and then pursue aggressive policies for world domination. Or it is the latest incarnation of the Thucydides Trap - the inevitability of war when one power seeks to displace another. There is no satisfactory way to settle this debate. My personal inclination is to believe that this shift is part of the new paradigm that Xi Jinping has brought to Chinese polity. 

I am inclined to believe that this shift may actually carry the seeds of its own destruction. What was the need for aggrieving countries like Germany with whom the mutually beneficial partnership could have gone on for much longer? What was the need to pursue economic policies in such a nakedly exclusionary manner as to get every developed economy ganged up against China? After all, the global market is large enough to be able to support several firms in robotics, aerospace, drilling equipment and so on!

Anyways this is part of the several wrong turns that Xi has forced China to take during his tenure - aggressively exclusionary economic policies, expansionist foreign policy, repressive domestic policies, excessive centralisation within party etc. If in twenty years China falls short of its ambitions it has today, it may well have its roots in the shifts which are happening now. 

In cricket sometimes when two batsmen are batting very fluently and without a care in the world, it is often said that only way to get them out may be a run out. The Xi Jinping turn may well be the Chinese runout!

Update 1 (18.08.2018)

The Economist points to the Chinese government sponsored or supported attempts to infiltrate the start-up scene in the US by making large investments in start-ups.

In recent years China’s government and several firms have backed more than a dozen accelerators that cultivate startups and have opened “corporate innovation” centres in Silicon Valley. Baidu, the Chinese tech giant that is considered closest to the government, runs a centre focused on AI, and ZGC Capital, a group directly funded by Beijing’s government, has opened an innovation outpost. Next year a Chinese firm will open Oceanwide Centre, the second-tallest building in San Francisco, a symbol of China’s ambition to play a role in America’s technology capital. But China’s main influence comes from investing directly in startups. Estimates are hard to obtain, because venture-capital investments are private and notoriously opaque. But according to an analysis by the Defence Innovation Unit Experimental (DIUx), a group founded by America’s Department of Defence (DoD), in 2015 Chinese investors put $3bn-4bn into early-stage venture deals. Many prominent startups, including the ride-hailing firms Uber and Lyft, the messaging app Snap, virtual-reality firm Unity Technologies, cancer-testing firm Grail, financial-tech firm Sofi, augmented-reality firm Magic Leap and others, have taken Chinese money. From 2015-17, according to DIUx, China contributed 13% of total funds into American venture-capital-backed companies and ranked only second to Europe as the largest foreign source of capital for startups... China’s sovereign, provincial and local governments, state-owned enterprises, firms and individual investors often form their own funds and pool their money in each other’s investment vehicles. Many Chinese funds also have Western-sounding names, such as Westlake Ventures, which is owned by the city government of Hangzhou.

Update 2 (07.07.2020)

Kevin Rudd points to how Xi Jinping has abandoned Deng's foreign policy locus of "hide your strength, bide your time, and never take the lead".

Weekend reading links

1. My graph of the week, a fascinating one which nicely captures arguably the biggest challenge faced by our urban engines of growth, affordable housing, and its reason, restrictions on housing stock expansion due to restrictive regulations and other limits to growth (like spatial expansion).

2. As protectionist rhetoric dominates, a reminder about the benefits of trade and openness to foreign investment comes from Vietnam. The Economist explores how Foreign Direct Investment (FDI), especially from South Korea, has transformed the country. On the importance of Samsung, 

Samsung Electronics’ factories in Vietnam produce almost a third of the firm’s global output. The company has invested a cumulative $17bn in the country. But Samsung is as important to Vietnam as Vietnam is to it. Its local subsidiary’s $58bn in revenue last year made it the biggest company in Vietnam, pipping PetroVietnam, the state oil company. It employs more than 100,000 people. It has helped to make Vietnam the second-biggest exporter of smartphones in the world, after China. Samsung alone accounted for almost a quarter of Vietnam’s total exports of $214bn last year... The number of local firms listed as important suppliers to Samsung has increased sevenfold in the past three years.

And on FDI, especially from S Korea,

Of the $108bn of foreign direct investment (FDI) Vietnam has received since it joined the World Trade Organisation (WTO) in 2007, a third originated in South Korea... Vietnam received FDI worth 8% of GDP last year—more than double the rate that went to comparable economies in the region. Foreign-owned firms now account for nearly 20% of the country’s output. They have grown more than twice as fast as state-owned enterprises over the past decade, despite the country’s nominally communist government. 

3. SCMP reports on the latest big-bang reform from China - the announcement during Xi Jinping's visit there that Hainan, a 35000 sqkm island populated by 9.3 million people, and home to China's largest Special Economic Zone, will be the country's 12th and largest free-trade port. 

And it is not just an announcement, there is a clear vision and even a plan,

Xi said... that it was an important step in China’s opening up to the world and advancing economic globalisation. He urged the island authorities to speed up reforms in urban-rural integration, human resources management, fiscal policy and finance, income disposal and state-owned enterprises. Exchanges in international energy, shipping, commodities and carbon trading will also be established. Xi said Hainan would build a modern economy and develop information technology in fields such as big data, satellite navigation and artificial intelligence. The island will also focus on developing modern service industries such as tourism, the internet, health care, finance and hosting conferences and exhibitions. Direct international flights to the island will be increased and duty-free shopping will be expanded beyond the city of Sanya to the whole island. Authorities on the island will also be encouraged to pilot a scheme to attract foreign talent and technology experts. This will include measures to make it easier for people from overseas to find work and acquire permanent residency. Also, foreign students who have obtained master’s degrees will be allowed to start their own companies.

The thing about Chinese economic growth is that they seem to have this unending supply of big growth boosters, which are not just unveiled but is also executed in quick time. Of course, there is no doubt that the financing strategy and capital use efficiency is questionable. 

So even if we think the entire Chinese growth today is a giant Ponzi scheme, moving from one booster to another, we have the world's BIGGEST ever Ponzi scheme at work. Something to be looking at with awe, if only when the party is on...

How long will this last? Or will the dynamics of sustainable growth (increasing consumption, growing middle class, moving up the value chain etc) kick-in at some point to ensure that Ponzi scheme will not collapse but there will be a gradual and slow landing?

4. Good Survey in The Economist on Artificial Intelligence (AI). Sample this,

Ping An, a Chinese insurance company... lets customers apply for loans through its app. Prospective borrowers answer questions about their income and plans for repayment by video, which monitors around 50 tiny facial expressions to determine whether they are telling the truth. The program, enabled by artificial intelligence (AI), helps pinpoint customers who require further scrutiny... Johnson & Johnson, a consumer-goods firm, and Accenture, a consultancy, use AI to sort through job applications and pick the best candidates. AI helps Caesars, a casino and hotel group, guess customers’ likely spending and offer personalised promotions to draw them in. Bloomberg, a media and financial-information firm, uses AI to scan companies’ earnings releases and automatically generate news articles. Vodafone, a mobile operator, can predict problems with its network and with users’ devices before they arise. Companies in every industry use AI to monitor cyber-security threats and other risks, such as disgruntled employees.

The Survey is good all around - monitoring employees and workplace activities to make workplace more efficient and creepier; recruitment and human resource management practices in companies; making customer service more responsive and cost-effective; transforms supply chain management by making companies swifter, cleverer, and leaner.

And its costs on the labour market is never far away. Sample this,

China Merchants Bank, a commercial bank, uses a bot on the popular Chinese app WeChat to handle 1.5m-2m queries every day, a workload equivalent to around 7,000 human staff... Gartner, a research firm, expects the number of phone-based customer-service agents worldwide to decline by 10% by 2019.

But this FT article looks at the AI hype in banking and comes out less than impressed. 

5. Staying on with AI, this article by Erik Brynjolfsson and Andrew Mcafee presents a reality check on AI. This graphic captures some common use cases of AI systems.

6. Chris Balding shines light at the creeping nationalisation of Chinese tech sector. Consider this,

Communist Party committees have been installed at many tech firms, reviewing everything from operations to compliance with national goals. Regulators have been discussing taking a 1 percent stake in some giants, including Alibaba and Tencent, along with a board seat. Tech companies have been widely encouraged to invest in state-owned firms, in the hopes of making them more productive. The common denominator of all these efforts is that the government wants more control... One recent report found that 60 percent of Chinese unicorns have either direct or indirect investment from the Baidu Alibaba Tencent (BATs). China's venture-capital sector is dominated not by traditional tech dealmakers but by the state: There are more than 1,000 government-owned VC firms in China, controlling more than $750 billion.

The article talks about the likelihood of nationalisation in technology sector exacerbating trade tensions with US. This is where I do not agree. I can understand the argument that this nationalisation may be bad for the Chinese tech sector in the long-run. But the decision to nationalise is a conscious political decision by a sovereign country and why should it be constrained by any trade regulations? If international trade regulations favour private ownership over public ownership, a clear political choice that I strongly feel national governments should have, then I am inclined to abrogating those regulations. 

The case against public ownership is that State can lavish subsidies on their enterprises and thereby distort the level playing field. By the same argument, private market dynamics confers an unfair advantage to the larger firms which are more likely from developed economies? Why should the benefits of economies of scale not be considered a level playing field distorting problem, and a less disturbing concern to the benefits of public subsidies?

7. The Chinese One Belt and Road Initiative (OBOR), with its focus on sovereign loan financing, has the potential to become the largest indebtedness creating single initiative in history. Ananth points to a CGD paper that documents the likely implications in terms of indebted low income countries.

Pakistan and Maldives are among eight countries most vulnerable to become heavily indebted due to the OBOR loans from China. The IMF Chief Christine Lagarde has cautioned that “ventures can also lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payments challenges”.

8. The retaliatory airstrikes on Syrian chemical weapons facilities near Damascus and Homs by US, British, and French will most likely, as was the case with last year's bombing, turn out to have been made on fake news! And NYT was even suggesting that the strikes have been inadequate.

There is little to suggest that the Assad regime in Damascus was behind the alleged chemical weapons attack on civilians in Douma last week. In fact, the strikes came well before a fact-finding team from the Organisation for Prevention of Chemical Weapons even landed in Douma to establish whether it was indeed a chemical weapons attack. Even if it were so, what would Assad have gained by chemical weapons bombing at this point in time, a surefire invitation to Trump to retaliate, when he was clearly winning the war with the rebels almost flushed out and the US had even announced last week its decision to withdraw its troops from Syria? But wouldn't many others on the rebels side have had enough incentive to do so and blame Assad so as to suck the US into the situation and pre-empt a withdrawal?

Governments fabricating news (or at the least jumping into critical decision making without anything close to proportionately sufficient evidence) seems to have become the norm in US and UK. There was little evidence that Russia was behind the chemical agent attack on turncoat Russian spy Sergei Skripal when UK decided to impose sanctions on Russia. Similarly, it has since become clear that Assad was not behind last year's alleged chemical weapons attack which led to US air strikes on Syrian targets. 

There is clearly a narrative on among the liberals in the US. Anything that involves Donald Trump has to be a faith-based (and not fact-based) perception. And since Russia and Trump have become synonymous, anything involving Russia has to be bad. So the Syrian situation gets viewed through that lens. And this gets amplified by the instinctive urge to intervene unilaterally in some (not in others though, given what the Saudis are doing in Yemen is in no way any less repugnant) countries, bomb the hell out of them and effect regime change. 

A regime change in Syria may be the worst of all worlds, and pose a massive danger from stability in the region. It may well give a new lease of life to ISIS. 

In any case, isn't it striking that the liberals and the establishment want US to intervene and bomb Syria, whereas Trump supporters would prefer not to. And the liberals by their rhetoric in forcing Trump's hands may actually be only hardening his support base!

9. Fascinating interview in FT with Vladimir Potanin, one of the last two remaining of the seven original oligarchs who benefited from the Yeltsin era shock therapy and privatisations. He comes out as being practical and realistic. For example, this is a very surprisingly less understood insight,

“Some people like attention and to appear bigger than they are,” Potanin responds, with a sip of his wine. “Look,” he says, speaking very carefully. “I always felt smart enough and have good connections to bring my ideas to decision makers. But I have never felt I could push them through.”

And this perspective of the shock therapy may not be too inaccurate,

“Of course, the privatisation process has to be transparent. And in our case it was not. My plan was different. I wanted to privatise the companies with banks and qualified people, raise their value, and then sell them. “The choice was not between being fair and open or creating oligarchs. It was whether to leave these companies in the hands of [former Soviet] red directors and forget efficiency forever, or sell them in any way possible.” ... “Yes, it made me incredibly rich,” he says, glancing out over a frozen lake. “Everybody knows I won control of 38 per cent of Norilsk in loans for shares, cheap.” The last word drips with condescension. “There is a certain unfairness in treating those deals as evil. It was more complicated than that.... “When people come from a totally closed system to openness; from a planned economy to a market economy; from a powerful state to a state in difficulties, there is no place for fairness.”

10. Finally, Dileep Premachandran relays Victor Hugo Morales' commentary of Diego Maradona's memorable second goal against England in the 1986 Football World Cup,

Maradona on the ball now. Two closing him down. Maradona rolls his foot over the ball and breaks away down the right, the genius of world football. He goes past a third, looks for Burruchaga. Maradona forever! Genius! Genius! Genius! He’s still going... Gooooal! Sorry, I want to cry! Good God! Long live football! What a goal! A memorable run from Maradona. The greatest solo goal of all time. Cosmic Kite, which planet did you come from?

That would have been fabulous if it were written words. But to have come out spontaneously in a commentary is awesome!