Weekend reading links

1. In a generally dismal world of public and civic life, I thought that the flood relief work in Kerala was exemplary. Every one displayed remarkable and very rare maturity and dignity in their response, both words and action, not to speak of commitment. I was impressed by the local media (and not the Delhi media) and the local political leaders, not two constituencies that are expected to cover themselves in glory in our times.

This Livemint story of exemplary courage, commitment, and hardwork by different people and groups is very good. Surely something others can learn from Kerala!

2. South Korea market specialisation fact of the day,

According to the Hyundai Research Institute, semiconductors have accounted for as much as 20 per cent of exports so far this year, up from 12 per cent in 2016.

And the chaebol market power graphic

3. Rana Faroohar has a very good article on the challenges posed by the sharing economy and the need for them to share benefits with their clients,

In reality, most Uber drivers are black, Asian or Latino and making below minimum wage. And, on the whole, algorithmic management puts dramatically more power in the hands of platform companies. Not only can they monitor workers 24/7, they benefit from enormous information asymmetries that allow them to suddenly deactivate drivers with low user ratings, or take a higher profit margin from riders willing to pay more for speedier service, without giving drivers a cut. This is not a properly functioning market. It is a data-driven oligopoly that will further shift power from labour to capital at a scale we have never seen before...

Airbnb often touts its ability to open up new neighbourhoods to tourism, but research shows that in cities like New York, most of its business is done in a handful of high end areas — and the largest chunk by commercial operators with multiple listings, with the effect of raising rents and increasing the strains caused by gentrification. Officially Airbnb has a “one host, one home” policy in New York, but better enforcement is needed.

4. Last week the British Government took back control of HM Prison Birmingham, one of the country's largest prisons which had been outsourced to G4S. This followed a surprise visit to the facility early this month by the Chief Inspector of Prisons which revealed Dickensian conditions and rampant hooliganisms. 

HMP Birmingham was graded “poor” across all four categories — safety, respect, activity and resettlement... Inspectors found open drug dealing, blood and vomit left uncleaned, broken windows and leaking toilets. Some staff were found asleep, while others had locked themselves in their offices. The chief inspector told the BBC Today programme that he had had to leave one area of the prison after feeling the effect of narcotics in the air. Mr Clarke said in his report that he was “astounded” that the prison had “been allowed to deteriorate so dramatically over the 18 months since the previous inspection”. He added that he had “no confidence in the ability of the prison to make improvements”... HMP Birmingham recorded 1,434 assault incidents in the 12 months to July this year, the largest volume of any jail in Britain.

This is the first time the Government has exercised its power to strip a prison contractor since the first privatisation in 1991. Prisons have been buffeted by sharp increase in prisoner population and drastic cuts in public financing. Of UK's 123 prisons, 17 are run by private companies. 

This is bound to amplify the debate on renationalisation that had been gathering ground in recent times, and had been aided by the liquidation of outsourcing contractor Carillion in January and the nationalisation of East Coast railway line a few weeks later.

5. The current rise of the US S&P 500 stock index crossed the longest bull market in history, at 3453 days. It has soared 320% since March 2009 creating $18 trillion of wealth.

6. Has Trump managed to unsettle the Chinese as none before? Yes, it would appear so given their frenzied domestic policy responses,

Chinese officials are pushing banks to lend more and allowing indebted local governments to spend money on big projects again. They have moved to shore up the value of the country’s currency. They have also helped out the stock market... China is taking steps to make sure its companies and spenders have enough money. The central bank announced on Aug. 10 that it would make sure enough credit reached companies. China’s banking regulator announced on Aug. 11 and again over the weekend that it wanted the country’s state-controlled banking sector to provide ample credit to exporters, small and medium-size businesses and infrastructure projects. Regulators are taking other steps to give banks the financial space needed to step up lending. The official China Securities Journal reported on Tuesday that financial regulations may soon be changed to let banks keep practically limitless holdings of local government bonds without including them in their calculations of their ability to endure hard times... The authorities are also encouraging local projects. The Finance Ministry is helping deeply indebted local governments borrow far more money this autumn so that they can restart stalled infrastructure projects. China’s central planners have allowed a series of big local government projects to proceed that had previously been blocked because of debt concerns... Its banking regulator has begun encouraging the country’s four big asset management companies to aid highly speculative peer-to-peer lending schemes that have been collapsing in recent months, though the details of that help remain unclear. And the government has deferred plans for a more stringent crackdown on various kinds of informal lending, or shadow banking, including off-balance sheet lending by banks.

Unfortunately, this also means all the old practices - excess credit, shadow banking, over-building etc - are back. And the much anticipated recalibration takes two steps back.

7. Despite ample evidence on the harmful effects of business concentration and the imperative to take steps to address it, some like Robin Harding of FT think it is still a matter to debate. Selective reading of the literature is the mark of such articles. 

Consider the reference to the famous Loecker-Eckhout paper which claimed mark-ups have rise from 18% to 67% in the US since 1980, and its apparent disputation by referring to the James Traina paper which includes other costs. But leaving this debate as such without reference to this more comprehensive IMF paper on publicly traded companies across 74 countries for the 1980-2016 period is nothing but selective application of evidence. It had found that markups increased by an average of 39% in developed economies, broad based across industries and countries.

In fact Robin Harding's argument to focus at least as much on governance and corporate behaviour is a classic diversion tactic of the incumbents. As much as you may want to and may even get the system to focus on such issues, the concentration of business power makes such efforts almost invariably certain to fail.

8. Talking about business concentration, FT sets the stage for the annual Jackson Hole meeting where the issue is expected to be an important focus. Contracting competition is leading to business concentration...

... leading to higher business profits, but lower labour income share.

In fact, the Herfindhal-Hirschmann Index of business concentration has risen by 48% since 1996, and it has risen in more than three-quarters of US industries. 

Robin Harding should read more of the likes of his colleagues like Sam Fleming and Bloomberg's Noah Smith!

9. A nice snippet that captures the extent of lobbying that goes on at the highest levels, especially by the technology companies,

According to lobbyfacts.eu, Google for example had 120 lobby meetings with a commissioner, cabinet member or director-general of the EU between 2014-16.

10. Convulsions in the #MeToo movement. Asia Argento, one of the first to accuse Harvey Weinstein, stands accused of sexual harassment of a minor and paid hush money to silence her accuser. Avital Ronell, a Professor of German and Comparative Literature at NYU, who was found guilty by the University of sexual harassment   of one of her students and suspended for one academic year, has got unqualified support from some of the luminaries of the Feminist movement seeking to discredit her accuser. See this and this.

11. Finally, the Kansas Fed's annual Jackson Hole Symposium papers available here.