Superstar effects in industries, firms, and cities

Good MGI analysis of the prevalence of superstar effects in firms, sectors, and cities.

For firms,

For firms, we analyze nearly 6,000 of the world’s largest public and private firms, each with annual revenues greater than $1 billion, that together make up 65 percent of global corporate pretax earnings. In this group, economic profit is distributed along a power curve, with the top 10 percent of firms capturing 80 percent of economic profit among companies with annual revenues greater than $1 billion. We label companies in this top 10 percent as superstar firms. The middle 80 percent of firms record near-zero economic profit in aggregate, while the bottom 10 percent destroys as much value as the top 10 percent creates. The top 1 percent by economic profit, the highest economic-value- creating firms in our sample, account for 36 percent of all economic profit for companies with annual revenues greater than $1 billion... Today’s superstar firms have 1.6 times more economic profit on average than superstar firms 20 years ago. Today’s bottom-decile firms have 1.5 times more economic loss on average than their counterparts 20 years ago, with one-fifth of them (a growing share) unable to generate enough pretax earnings to sustain interest payments on their debt... In each of the past two decades (corresponding to a business cycle), nearly 50 percent of all superstar firms fell out of the top 10 percent during the business cycle and when they fell, 40 percent fell to the bottom 10 percent. The top 1 percent is also contestable, with two-thirds being new entrants to this top rank in the last cycle... Superstar firms from emerging economies, for instance, have a higher churn rate of 60 percent compared with 40 percent for firms from developed economies. Overall, after adjusting for the growth of M&A activity since the 1990s, we find no evidence of an economy- wide reduction in churn over time; in other words, contestability has remained about the same... The sector and geographic diversity of firms in the top 10 percent and the top 1 percent by economic profit is greater today than 20 years ago. The 575 superstar firms in our analysis exhibit widely acknowledged markers of successful firms: they include 315 of the world’s 500 largest firms by market capitalization, 230 of the world’s 500 most valuable brands, 188 of the world’s 500 best employers (as rated by their employees), and 53 of the world’s 100 most innovative companies.

About sectors,

For sectors, we analyze 24 sectors of the global economy that encompass all private- sector business establishments. We find that 70 percent of gains in gross value added and gross operating surplus have accrued to establishments in just a handful of sectors over the past 20 years. This is in contrast to previous decades, in which gains were spread over a wider range of sectors. While the superstar effect is not as strong for sectors as it is for firms, what we have identified as superstar sectors over the past 20 years include financial services, professional services, real estate, and two smaller (in gross value-added and gross operating-surplus terms) but rapidly gaining sectors: pharmaceuticals and medical products, and internet, media, and software. The shift in global surplus to today’s superstar sectors amounted to nearly $3 trillion in 2017 alone across the G-20 countries... In addition to global superstar sectors, we also identify regional superstar sectors where the dynamics are more localized: for example, regional superstar sectors include automobile and machinery production in China, Germany, Japan, and Korea; construction in China, India, and the United States; hospitality services in France, Italy, and the United Kingdom; and recently, natural resource production in the United States and Canada. Today’s superstar sectors share one or more of the following attributes: fewer fixed capital and labor inputs, more intangible inputs, and higher levels of digital adoption and regulatory oversight than other sectors. With the exception of real estate, superstar sectors are two to three times more skill-intensive than sectors declining in share of income in the G-20 countries. In addition, superstar sectors tend to have relatively higher R&D intensity and lower capital and labor intensity than other sectors. The higher returns in superstar sectors accrue more to corporate surplus rather than labor, flowing to intangible capital such as software, patents, and brands. 

And cities,

For cities, we analyze 3,000 of the world’s largest cities, each with a population of at least 150,000 and $125 million GDP (adjusted for purchasing power parity), that together account for 67 percent of world GDP. Fifty cities are superstars by our definition, among them Boston, Frankfurt, London, Manila, Mexico City, Mumbai, New York, Sydney, Sao Paulo, Tianjin, and Wuhan. The 50 cities account for 8 percent of global population, 21 percent of world GDP, 37 percent of urban high-income households, and 45 percent of headquarters of firms with more than $1 billion in annual revenue. The average GDP per capita in these cities is 45 percent higher than that of peers in the same region and income group, and the gap has grown over the past decade. Emerging-market superstar cities have increased their contribution to global GDP by 30 to 40 percent in the past decade while advanced-economy superstar cities have increased their share of global GDP by 20 to 30 percent. Over the past decade, we find a 25 percent churn rate among superstar cities... Of the 50 superstar cities, 31 are ranked among the most globally integrated cities, 27 among the world’s 50 most innovative cities, 26 among the world’s top 50 financial centers, and 23 among the world’s 50 “digitally smartest” cities. Twenty-two are national and regional capitals, while 22 are among the world’s largest container ports.

And the interaction among the three,

We find linkages between firms, sectors, and cities that may be reinforcing superstar status and that raise the question of whether a “superstar ecosystem” exists. For example, superstar sectors generate surplus mostly to corporations rather than to labor, driving a geographically concentrated wealth effect in superstar cities with a disproportionate share of asset management activity and high-income-household investors. Labor gains from superstar sectors are also concentrated in narrow geographic footprints within countries, often in superstar cities and accrue mostly to high-skill workers. 

How Japan is overcoming the demographic challenge

Is Japan the most impressive economic growth story among developed economies over the past decade? If we take the working age population index, we see this for real GDP per capita per working ages person...

... and this on employment

Greg Ip has a very good article exploring the contributing factors,

Since 2012, its working-age population has shrunk by 4.7 million, yet the number of people working has surged by 4.4. million... The proportion of the population in the labor force has risen sharply since 2012, by more than in any other major advanced economy. Japan is refreshing its labor force from three often-neglected pools: the elderly, women and foreigners. This offers important lessons for the many other countries that now, or will soon, face similar demographic pressures... The Japanese government has long sought to lengthen working lives; in 2004 it began raising the social security retirement age from 60 to 65 and required companies to either raise or abolish the retirement age or introduce a system for re-employing workers who do retire. This has kept Japanese men on the job well into their 60s and 70s... In 2012, female participation was 63%, marginally above the Organization for Economic Cooperation and Development average of 62%. By 2017, it had shot up to 69%, five points above the OECD average. Part of this is due to more older women working. Since 2012, the participation rate of women aged 55 to 65 has shot from 54% to 63%... 

In 2015 it began admitting foreign construction workers to alleviate shortages as the country rebuilt from its 2011 earthquake and prepared for the Tokyo Olympics in 2020, and for housekeepers in special zones. In 2017 it did the same for nursing-care workers. It now allows foreign “technical interns” to stay for three to five years, and issues “green cards”—permanent residence—to highly skilled professionals after a one-year stay. Last month, the Abe government created two new visa categories that it expects to draw 340,000 additional mostly blue-collar workers from abroad, over the next five years. There has been a surge of foreign students who are permitted to work as long as they attend school in Japan... The number of foreign-born workers nearly doubled between 2012 and 2017 to 1.3 million... The combined effect of the elderly, women and foreigners on labor force has been to sustain Japan’s underlying growth rate in the past few years as well as hold off the wage and inflationary pressures that would ordinary emerge when unemployment is so low.

In addition the government have enacted policies that allowed for extended parental leave, including six-hour days if the worker asked for it and flexible work times; increased child care facilities; rewards for firms that promote work-life balance by reducing overtime and encouraging men to spend more time at home; greater parental leave encouraging men to share parental care; adding more women to company Boards etc.

Japanese government policies, including but not only by the Shinzo Abe government, to address the country's demographic challenge have been admirable not just in terms of its range but also how they have emerged. These policies have emerged over time, being gradually phased in especially in areas like immigration, a politically sensitive topic in a closed and homogenous society, or where shifts in deep-rooted cultural traits are required like with getting women with infants to work more or fathers to share parental responsibilities. A Japanese version of "crossing the river by feeling the stones"?

For many developed countries facing similar demographic challenges with demanding political economy constraints to change, Japan shows the path.

Weak controls and corruption in cross-border capital raising

Credit Suisse is the latest to join the company of the likes of McKinsey and Goldman Sachs in being accused of abetting corrupt practices in developing countries. 

Recall the case of $850 m Tuna Bonds, whereby Mozambique's state-owned fishing company Ematum issued Eurobonds to finance shipping fleet expansion so as to increase the country's fishing exports. Much of that money was siphoned off. It was part of the surge in foreign bond issuances by African countries which gained much praise in the financial media. 

In a case with strong parallels with the Malaysian 1MDB scandal involving Goldman Sachs, Bloomberg reports that US prosecutors have charged three former Credit Suisse employees and Mozambique's former Finance Minister with defrauding investors over $2 billion of state-backed loans for the country which generated at least $200 m in bribes and kickbacks. 

The charge sheets in the two cases set out the lengths to which information was hidden internally: In Credit Suisse’s case, prosecutors argue that much due diligence — from company directors to competitive tender processes — was faked. But the common thread is also one of boom-time activity, when red flags might be more likely to be missed. The backdrop to these alleged frauds was a time, around 2012 and 2013, when banks were desperate for new sources of profit after the financial crisis. Between 2008 and 2012, annual emerging-market bond issuance rose from $487.3 billion to $1.6 trillion. Amid that boom, risk controls appeared to take a back seat.

The lucrative fees added an incentive. The $600 million Goldman netted from 1MDB’s fundraising amounted to a stunning 10 percent of the $6.5 billion raised. A report by Kroll, disputed by Credit Suisse, alleges the Swiss bank received about $160 million in fees for arranging $2 billion of loans in Mozambique. This included $141 million of “contractor fees,” which were, however, passed on to other banks. The cost of these transactions may now become more apparent: As the orchestrators of the Mozambique deal lined their pockets, according to prosecutors, the government found itself sinking deeper into costly debt.

Sample this snippet on currency volatility which underlines the risk about foreign currency loans, especially when backed against local currency revenues,

Analysis by TCX and Carnegie Consult, an investment advisory service, of 95 currencies since the end of the Bretton Woods system of fixed exchange rates in 1971 suggests that, on average, one-in-eight developing world currencies fall 20 per cent or more against the dollar in any given year, and one-in-20 crash by 50 per cent.

This blog had then urged caution, here, here, and here, about such African bond bubbles. Don't be surprised if similar stories tumble out from Zambia, Kenya and others who hired western investment banks to raise large amounts of foreign capital in the 2011-13 African Eurobond boom. 

There are three issues here.

1. Original sin and all means that foreign credit market access comes at a prohibitive cost for developing countries. Weak state capacity and macroeconomic instability merely exacerbate the problems. In 2016 Mozambique was accused by the IMF of hiding $1 bn in debt and turned off its funding, whereupon the country defaulted and underwent debt restructuring. Last year the country grew at its slowest pace in 18 years!

2. In boom times, when capital inflows into developing countries surge, internal control on both the lending and borrowing sides weaken and distortions invariably creep in. Further, capital costs decline steeply, far out of proportion to the risks being assumed, thereby lulling everyone into a false sense of comfort with such borrowings. In a financialized global economy, the surges itself are generally the result of spillovers of monetary policy and other actions in developed economies. This makes the RBI's self-restraint in keeping out foreign capital all the more remarkable. 

3. Finally, such capital raising and other related assistance is never far away from corruption. This, while always suspected, though never raised prominently, is now fast becoming evident in the series of scandals that have been surfacing in recent times. None of the leading US and European financial institutions and consultancies appear to have been averse from indulging in corrupt practices. In fact, it is fair to say that when faced with high-stakes engagement in less than transparent countries, their dealings appear to generally raise questions. 

It is very likely that the ongoing bromance of western financial institutions and consultancies with Saudi Arabia will reveal a lot of muck once the tide comes down in a few years and new information surfaces. 

The inequality graphic of the day

The ovarian lottery can perhaps claim to be the highest return lottery ticket. If you take birth in a rich family, you are most likely all set for life. And it appears to have become even more so in recent decades.

This graphic which highlights the gap in resources that families at different income levels spend on children is striking. It has declined for the last three quintiles, stagnated for the fourth, and ballooned spectacularly for the highest.

And underlining the point,

A full 29 percent of last year’s freshman class at Harvard were relatives of Harvard graduates.

India's e-commerce market observations

Interesting developments in India's e-commerce market. Some observations.

1. Mukesh Ambani's announcement of Reliance's decision to enter e-commerce was only to be expected given its very strong footprint in retail and telecommunications. And it has the potential to truly shake up India's retail and lead to the emergence of a genuine home-grown global ecommerce giant.

It could stoke rural entrepreneurship like Alibaba's Taobao which would involve going beyond me-too e-commerce with just IT applications and building a feet-on-the ground logistics and distribution network. Amazon has just started doing it, and  given its track-record with Jio, Reliance is most certain to go the full-hog in taking e-commerce (both on the seller and buyer sides) to beyond the top 10% of Indian market and into rural areas. It already has about 4000 Reliance Retail stores, 50 warehouses, and 4000 Reliance Jio outlets. A race between Amazon and Reliance could well turn out to be among the most interesting things to look for in the global e-commerce market itself, and unlike even in the US, Amazon is far from certain to emerge as a winner.

2. Mr Ambani has also called for an end to "digital colonisation", and ownership of Indian citizen's data by citizen's themselves and not by corporates much less foreign ones. Little to argue against this. It is also an open support for the Government of India's e-commerce restrictions and data relocation policies that would hurt foreign e-commerce and payment companies. The Government should promulgate the Personal Data Protection Bill 2018 and enact regulations that protect personal data across sectors, something which regulators especially in the US have been averse to committing to. 

But in the coming days, this will most certainly provoke articles and op-eds accusing the Government of India of pandering to Reliance, even being captured by it. Without getting into the merits of any such allegation, it raises an interesting point about the dynamics of public policy regulations in such areas which invariably ends up favouring one or other large incumbents. Favourable public policy has played a critical role in entrenching the big American internet behemoths. The biggest lobbyists in the US have been the tech companies, and there too the largest tech companies. This blog has written several times about the capture of political institutions and rule-making by tech companies.  

3. I will go further and argue that such levelling-the-playing field policies may perhaps be the only way to make markets with network effects competitive. The publicly-driven emergence of Union Pay and RuPay in China and India respectively could have been the only way to disrupt the rent-seeking market in payment gateways that the trio of American Express, Visa, and MasterCard had been enjoying for decades. The likes of Amazon, Facebook, and Google with their near monopoly over individual's data dominate their respective markets in the US and raise insurmountable entry barriers for competitors even in external markets. There is no reason to think why those privileges should be globally harmonised.

Surely, even with all the efficiencies and cutting-edge technologies associated, we would not want any market globally dominated by one or two firms, much less one which captures arguably one of the most important resources of modern economy, data. Further, whether we like it or not, the fact remains that individual data is being "colonised" by foreign  companies and that too is not desirable. And all this becomes even more compelling when we realise that these behemoths have repeatedly failed on their fiduciary responsibilities, adopts socially harmful profit maximisation strategies, and  their leaders have even demonstrated shocking incompetence with managing large organisations. 

4. The roles being played by Amazon, Alibaba, Rakuten, and Reliance in their respective markets indicates that, for all the hype around nimble and small innovators, true disruption still requires deep pockets and large players. 

5. Finally, the grouse of the foreign e-commerce firms and their supporters accusing the Government of India of whimsically changing the rules of the game is plain disingenuous. While the GoI has whimsically changed the rules of the game on many occasions, this is surely not one of the cases. 

The original e-commerce policy while allowing ecommerce companies to run virtual "marketplaces" that connect independent sellers to consumers, had explicitly barred them from selling goods themselves and being online supermarkets. The foreign firms in turn gamed the rules by establishing local partnerships and creating new on-seller companies. The entity formed by Amazon's partnership with NR Narayanamurthy's Catamaran Investments, Cloudtail is the overwhelmingly largest seller on Amazon India. The new rules stipulate that no seller on  online marketplaces can source more than a quarter of its inventory from a wholesaler linked to the marketplace, and bars sales on the marketplace by any entity owned by the marketplace or any of the its group companies. 

This reminds me of Indian infrastructure companies who have bid aggressively, overlooking explicit provisions that would have made their sustainability unviable, in an attempt to bag the contract and get back to renegotiate the terms later. Companies like Amazon did exactly the same thing, accepting the GoI's e-commerce policy and entering the market, in the hope that they would be able to either continue gaming the extant rules or be able to lobby and change the policy itself.

Weekend reading links

1. Fascinating article in FT by a neurosurgeon, Henry Marsh, on brains and artificial intelligence. Consider the technical challenge, 

It consists of some 85bn nerve cells, each of which is connected to many thousands of other nerve cells, with some 150tn connections... There are significant practical limitations on the extent to which we can experiment and explore our own brains. The resolution of the best MRI brain scanners, for instance, is about one cubic millimetre, and one cubic millimetre of cerebral cortex can contain up to 100,000 neurons and a billion synapses. The temporal resolution is a little less than one second, and much cerebral activity is measured in milliseconds, so what we see with MRI scans are, in effect, blurred snapshots... The energy consumption of a human brain is 20-30 watts — a dim lightbulb. An exascale computer, capable of a quintillion calculations per second, scaled up to the size of a human brain, would consume hundreds of megawatts. Computer engineers talk of the “von Neumann bottleneck”, a problem with classical computer design in which memory is stored separately from the Central Processing Unit, and one of the reasons why computers use so much energy.

And on the limitations of modern AI,

The remarkable progress in AI in recent years is largely based on “neural networks” and machine learning... Neural networks only resemble brain networks in a very loose way. They consist of layered assemblies whose output can feed back and modify their input in accordance with a pre-programmed target, so that they “learn”. They are engines of statistical association and classification. They neither explain nor do they understand. They have no internal model or theory of what is being analysed. The literature, however, abounds in anthropomorphisms — AI programmes are said to “see” and “think”. Google’s DeepMind programme AlphaGo “vanquished” champion Go player Lee Se-dol. This is all nonsense. It is easy to get carried away. The predictive texting on your smartphone prompts you simply by calculating the probability of the next word from mindless analysis of previous text. Google Translate has trawled the entire contents of the internet without understanding a single word... all current machine intelligences can only perform one task. This form of intelligence is reminiscent of the patients described in some of Oliver Sacks’ writings — people who can carry out remarkable feats of calculation but are utterly helpless in normal society... The Holy Grail for AI is “general intelligence” — a computer programme that could not only play games with simple rules but also perform other tasks, such as speech and face recognition, without being re-programmed. On present evidence it looks unlikely that neuronal networks and deep learning will ever be able to do this. 

And what to expect in the future,

I find it strange that some people are so certain that the arrival of “superintelligent” machines is only a matter of time. Filled with a fervour reminiscent of the Second Coming and the Rapture, they talk of the Singularity, a time when AI will equal human intelligence. This belief — which is all it is — often comes with the hope that the human brain and all its contents can be re-written as computer code and that we will find the life everlasting as software programs. These ideas are not to be taken seriously, although they certainly sell books... There is no risk, however, in the foreseeable future, of superintelligent AIs replacing us, or treating us as we have so often treated, and continue to treat, animals.

2. The graphic shows why China's economic growth has truly been extraordinary,

There have been two big drivers of the growth, especially in the recent times. One is private sector debt...

... and another has been exports.

3. But, as John Mauldin writes pointing to an IMF study, this growth has come at a cost. In particular, the credit intensity of growth in recent years has been rocketing upwards.

The IMF study writes,

In 2007-08, about RMB 61⁄2 trillion of new credit was needed to raise nominal GDP by about RMB 5 trillion per year. In 2015-16, it took more than RMB 20 trillion in new credit for the same nominal GDP growth.

4. Upshot points to the latest research by David Autor which shows that while cities are the place to be for high skilled American workers, they may be becoming less so for low-skilled workers. 

As to the reasons,

Mr. Autor attributes the declining urban wage premium in this chart to the disappearance of “middle-skill jobs” in production but also in clerical, administrative and sales work. Many of these jobs have gone overseas. Others have been automated out of existence. This kind of work, he argues, was historically clustered in cities (meaning the entire labor market around cities, within commuting zones). And because of that, workers with limited skills could find better opportunities by moving there. Now, the urban jobs available to people with no college education — as servers, cleaners, security guards, home health aides — are basically the same kind as those available in smaller towns and rural communities.

5. Faced with low interest rates and low returns on conventional assets, pension funds are facing the brunt, with the gap between liabilities and assets rising and rising.

6. Tadit Kundu has a good graphical feature on the various Universal Basic Income option costs.

And the cost of Rythu Bandu type farm income support will far exceed loan waivers.

7. From Lazard's annual levellized cost of various energy sources. We are well past convergence.

8. Bill Gates has a nice article which calls out the success of "financing and delivery" entities in global health care, like GAVI (children's vaccination), Global Fund (for HIV, TB, and Malaria), and Global Polio Eradication Initiative. Gates has spent $10 bn on the three entities which buy medicines and get them delivered to end-users. In terms of return to investment, Gates writes,

Suppose that our foundation hadn’t invested in Gavi, the Global Fund and GPEI and had instead put that $10 billion into the S&P 500, promising to give the balance to developing countries 18 years later. As of last week, those countries would have received about $12 billion, adjusted for inflation, or $17 billion if we factor in reinvested dividends. What if we had invested $10 billion in energy projects in the developing world? In that case, the return would have been $150 billion. What about infrastructure? $170 billion. By investing in global health institutions, however, we exceeded all of those returns: The $10 billion that we gave to help provide vaccines, drugs, bed nets and other supplies in developing countries created an estimated $200 billion in social and economic benefits... Institutions such as Gavi, the Global Fund and GPEI are the closest things that we have to surefire bets to alleviate suffering and save lives. 

9. Finally, very good article by Chinmay Tumbe on internal migration in India, which is more than 100 m today.

The rural economy conundrum

The farm sector challenge is arguably the biggest political issue in India. And given the sheer proportion of people involved, it is only right that the problem get the sort of attention. But I am not sure whether the solutions being proposed are likely to lead us afar. 

All kinds of things are being proposed, though among those on the table, I am inclined to believe that the direct cash transfer is perhaps the best option. Nice comparison here of the different cash transfer options - loan waiver, MSP, and direct cash transfer - by Ashok Gulati. 

But I am not sure whether even this would be enough, given the exclusion of tenants and the near impossibility of bringing them too into the fold. Telangana government managed to some extent mitigate this, thanks to high level political commitment and bureaucratic resolve. But to expect weak state capacity and socially more polarised states in North India to be able to do anything close is perhaps unrealistic.

The importance of some form of universal social safety nets assume significance here. India is still, for the major part in rural areas, a very poor country. Whatever the causes, it is perhaps the case that the dynamics of liberalisation, globalisation, and progressive politics (all of which accelerated in the noughties) has disrupted rural economies - internal (mostly informal) stabilisers have been unsettled and external forces have been disruptive. One can identify several ways in which the land, labour, and capital markets in rural areas have been disrupted by these forces. 

It is for this reason that I am inclined to be cautious with policies like deregulation of agriculture land markets. Such policies are all great as part of a package of policies. But when implemented in silos, as is most certain given that this is just a simple statutory change and others in the package are mostly longer-drawn measures whose effective implementation will be constrained by weak state capacity, such deregulation on rural livelihoods can be, especially in the medium-run potentially more damaging and socially destabilising. Merely increasing value of land and providing the farmer with a booster shot of land sale windfall without any complementary increase in access to opportunities to sustainable livelihoods can be of limited value. A very distortionary real estate speculation induced equilibrium can be long-lasting. The strong connections of real estate market with black money and corruption only makes this more likely. The asymmetric nature of the impact of these measures is under-appreciated.

This paper has cross-country regressions on growth accelerations and growth maintenances and finds that only the latter led to inclusive growth, and the former without proactive engagement to promote inclusive institutions can be detrimental,

Once growth has accelerated, it is important to facilitate the emergence of inclusive institutions as the greater the inclusivity of institutions, the more likely that economic growth will be inclusive.

Just like trade, economic growth too has distributional consequences. While being beneficial in the aggregate, they leave us with winners and losers. A mix of both redistributive programs and inclusive growth promoting institutions are required. Like with trade, the losers are likely to be concentrated in pockets of geographies, population categories, or sectors. And like with trade, contrary to theoretical wisdom, adjustments rarely happen on their own. Discontent and social instability is never far away.

A program like the NREGS, even with its flaws, was a stabilising force given its universal social safety net nature. It was an inclusive policy measure. We need something like that, maybe one which is more efficient and less distortionary. 

All the above is just a hypothesis. Unfortunate that there have been no serious macro-level studies of India's rural economy that examine such dynamics. 

Asset-stripping in airports

FT reports about asset stripping in the UK airports,

Investors in the UK’s busiest airports received £6.7bn in dividends in the past decade even as those airports issued billions of pounds in debt... The scale of the dividends has provoked criticism from some in the aviation industry given airports are imposing high landing charges on airlines — which are passed on to customers through air fares — and are preparing to invest in expensive new runways and terminal buildings... Payouts from.. Heathrow, which had 78m passengers last year... totalled £4.3bn since 2011, and in 2017 investors received £847m... At the end of September 2018, Heathrow had £13.8bn in net debt... Heathrow... is owned by a consortium that includes Spanish infrastructure company Ferrovial, Qatar’s sovereign wealth fund, a Canadian public pension fund and one of China’s sovereign wealth funds.

Asset skimming by way of dividend payouts and using leverage to finance investments is common place across privately owned infrastructure and has been a cause of controversy in UK. 

In the decade between 2006 and 2016, Australian infrastructure bank Macquarie, owner of Thames Water, paid itself and fellow investors £1.6bn in dividends, while the utility was loaded with £10.6bn of debt, ran up a £260m pension deficit and paid no UK corporation tax. The UK’s third and fourth busiest airports, Manchester and London’s Stansted, are both owned by the Manchester Airports Group, which has received around £760m in dividends since 2009. After payouts of £20m in the first three years, levels rose to more than £100m each year since 2015. Unlike Heathrow and Gatwick, Manchester Airports Group has a majority of local authority control, meaning dividends flow into the public purse: Manchester City Council owns 35.5 per cent and nine other Greater Manchester councils, 29 per cent. IFM Investors, owned by Australian pension funds, took a 35.5 per cent stake in 2013... Luton, the fifth-largest airport, is owned by the local council but is operated under a concession held by private equity firm AMP Capital (since April 2018) and Spanish airports operator Aena. It has paid out £152m in dividends since 2010.

Gatwick announced the sale of 50.01% stake from a consortium led by Global Infrastructure Partners (GIP) to the French transport group Vinci, the world's largest private airport operator with 46 airports. The deal values Gatwick at £8.3 bn. 

It is also a reminder of how fast the industry has been privatised: over 50% of European airports have some private participation, up from 22% in 2010. Nearly half of winning bidders since 2008 have been financial investors... Returns have been juicy. GIP bought Gatwick for £1.5bn in 2009; it and its co-investors have made twice that by selling half of the airport, and earned £1.5bn in dividends in the interim.

Asset stripping by way of excessive dividend payouts, running up pension deficits, using excessive leverage to finance capital expenditure, sale-and-lease back arrangements on assets, and so on have become standard operating procedure for private owners of not just infrastructure assets. They are the second generation issues of infrastructure contracting that governments which concession out such contracts have to bear in mind.

It is imperative that governments in countries like India learn from these trends and incorporate provisions in model contracts that limit these practices. The experience of Delhi Airport Metro was a foretaste of what could happen in India with its concessions. 

Make no mistake, there is a massive moral hazard lurking in these contracts. Everybody knows that the owners could easily recover their investments and walk away once the leverage becomes unsustainable and declare bankruptcy. Governments will have no choice but to takeover the assets and the pension liabilities. And given the bank exposures, especially public sector ones, those liabilities too would have to be borne by the tax payers. There is no point in crying hoarse then.

Reimagining rural drinking water supply

Have you ever thought about the differences between how international development agencies, social enterprises, and governments in developed countries view the same development challenge. Let me illustrate with the example of providing drinking water to rural areas.

The world of international development agencies view rural water supply in terms of providing hand bores or submersible borewells with delivery standposts (and often storage tanks). Accordingly, the multilateral and bilateral agencies spend billions of dollars annually in providing rural drinking water supply. There are also local variants, ranging from chlorination of local stream water to even local primary treatment based facilities. 

The world of impact investing relies on social entrepreneurs who have devised innovative business and delivery models and technologies to deliver drinking water to people in villages on a sustainable basis. 

Finally, there is the world of public service delivery in developed countries. Like urban areas, rural water supply in developed countries is provided by treating river/lake water and delivering them to a catchment of population through a network of pipes, storage tanks, and booster stations. How many developed countries, at any stage of their economic development, has had water supply in rural areas through bore wells?

I agree that in deeply resource constrained environments, piped drinking water in villages is a pipe-dream. But it cannot be also denied that all the other approaches currently being tried out are weak holding operations at best and deeply unsustainable ones too (how much ground water can you draw after all). And in at least the middle-income countries, piped water rural water supply is no longer an unrealistic pitch as Telangana is showing. 

I can also understand the perspective of social enterprises. They are after all very marginal, almost negligible, players in addressing the global problem. Much the same applies to the non-profits too engaged with the problem. 

The hold of this narrative is such that academics, philanthropists, aid agency personnel and others engaged with development are so consumed with such ideas as to be not able to view such first-order development problems in their true perspective. So the provision of rural roads and electricity supply and so on are evaluated for impact and value for money on a partial equilibrium basis. 

Lant Pritchett has talked about "kinky development", the process of "defining development down",

Across the board, rich countries are backing away from the national development goals of poor countries, such as broad-based prosperity and effective government—i.e. productive economies, capable states, citizen controlled polities, and modern social interactions—towards a narrow agenda of low-bar goals, such as reducing “dollar a day” poverty; “completing primary schooling” (with no mention of quality of learning or education beyond primary); accessing basic water and sanitation; or focusing less on health and more on specific diseases. This is what I have called the “kinky development” agenda, as it doesn’t attempt to raise well-being across the board in developing countries, but just “kink” the distribution at arbitrarily low levels... 

Consider in this context the “Power Africa” initiative announced by the Obama Administration in June 2013 to improve access for the 600 million Africans who lack electricity. The press brief claimed: “Power Africa will build on Africa’s enormous power potential, including new discoveries of vast reserves of oil and gas, and the potential to develop clean geothermal, hydro, wind and solar energy.” Of course coal—which in 2013 supplied 39 percent of all American electricity—is not mentioned, because both the US and the World Bank had announced a ban on funding coal plants. But then America’s 2014 Appropriations Act declared that Senator Patrick Leahy, whose state of Vermont relies on hydropower and who endorses hydropower for his state, was able to insert a clause to block support for precisely what Power Africa supports, and to do so with more or less political impunity. Perhaps promoting energy source diversification is why President Obama, while touring a power plant in Africa, thought it politically expedient to promote the Soccket ball. For those of you who still have not been introduced to this technological marvel, the Soccket ball is a soccer ball containing a battery that is charged by the kinetic energy of being kicked. This contraption is perhaps one of the best illustrations of the gap between development realities (the average Ethiopian consumes 52 kwh of electricity and the average American 13,246 kwh) and the “solutions” being proposed by the world’s elite: ban coal and limit hydro and if Africans want power, let them kick some soccer balls round.

There is something about the need to reimagine development away from what is the propagated narrative that has been foisted by external do-gooders. For far too long, the development narrative in India has been entrapped in what is peddled by international development experts. And rural water supply is but only one example. 

At this stage of its economic development, India needs to shed the narratives that international development agencies have long peddled. No more handpumps and motor borewells, the time for treated piped water supply is well past. It needs more like the Telangana's Mission Bhagiratha and not some World Bank funded piecemeal rural water supply schemes.

Weekend reading links

1. When delays and cost over-runs in infrastructure projects are passe, the Mumbai metro rail project appears an impressive achievement.

More than 8,000 workers and a fleet of 360-foot-long boring machines are working 24 hours a day—even through monsoon rains—to finish the 27-station, 21-mile subway through some of the world’s most densely populated neighborhoods, around the edge of one of Asia’s biggest slums, below an airport and under temples and colonial buildings to end at a green edge of forest where leopards still roam. The train is also cutting a path through the country’s religious traditions, legal system and every layer of its society, with challenges at each stop... Despite the difficulties, the subway, which was started in 2016, is now getting built at a pace of just over one mile a month. So far, 9 miles are complete. The $3.3 billion “Metro Line 3,” Mumbai’s first underground train, is on track to be finished and open by the end of 2021.

All the more so given that this is not a PPP but a purely public project.

2. A good article by Rohit Prasad in Mint about the farm loan waivers and corporate NPA write-off equivalence.

The equivalence arises when conditions warrant that the state must indirectly bear the burden of corporate NPAs by infusing funds into banks, as had happened in the US following the 2008 financial crisis and as is happening now in India. Equivalence can also be drawn when the problem of corporate NPAs repeats itself in the same sectors implying that, for some reason, banks keep lending to the same sectors even in the absence of structural improvements... Another ground for equivalence arises if the resources of the exchequer are used to buoy companies that would otherwise go into bankruptcy. 

And this is interesting,

It is true that there has been a marked increase in the share of large loans in agriculture since 1990. In the same vein, the top 12 corporate houses received close to 15% of ₹70-80 trillion in total advances to the corporate sector and accounted for approximately 25% of the NPAs. The share of these borrowers in credit from the formal sector is almost the same as that of the entire agriculture sector. Four of these have been resolved within a year with about 52% recovery, representing only 14% of the dues from these 12 accounts.

And this point about the agriculture cross-subsidy, from farmers to (especially urban) consumers,

It is believed that food prices for consumers must be kept low through restrictions on farmers and subsidies to consumers. The Organization for Economic Co-operation and Development (OECD) estimates that the average yearly revenue lost by Indian farmers between 2014 and 2016 on account of export restrictions, net of subsidies received, is ₹1.65 trillion... Historical performance shows that the credit quality of large corporate borrowers is not superior to that of agriculture/priority sector lending. In that context, interest rates charged by banks to large corporate borrowers have been kept artificially low and incommensurate with the risks involved.

Even in terms of incentives, the distortions are similar.

3. Very interesting extract from a chapter by Christophe Jaffrelot on the Gujarat model in a new book on business and politics in India. Drives home the point about the relative superiority of growth that is built on SMEs than on a few large businesses. Sample this,

In the Nano plant, out of 2,200 employees, 430 are “permanent workers”. They earned ₹12,500 in 2016, whereas the informal workers earned about ₹3,300 a month... in 2013, Gujarati industry represented 17.7% of the fixed capital of India but only 9.8% of the factory jobs, whereas the industry of Tamil Nadu represented 9.8% of the fixed capital but 16% of the factory jobs.

4. The problem with many PPP policies is that about attendant downstream policy interventions that distort markets. For example, creating the private sector supply-side for Ayushman Bharat by providing land and/or viability gap funding to establish private hospitals in smaller towns. In addition, other subsidies like interest subvention on loans, electricity at residential rates etc are being proposed.

For weak states, which struggle to effectively regulate even those small number of existing PPP and other subsidised private facilities, this expansion of contract management may prove simply unmanageable. And worse, private hospitals know this is most certain and unscrupulous promoters will bid to capture the land or subsidy. Every major Indian city has public land allotted to large private hospitals with contractual obligations to provide some share of free/subsidised care to poor patients, and perhaps no city has been able to enforce them.

Further, apart from the monopoly problems in smaller towns, there is also the problem of private providers across the state coming together and holding the state to ransom demanding periodic unreasonable rate increases. The case of Aarogyasri is well known.

Amidst all this, nobody seems to be talking about the one obvious solution to address the problem, strengthening and expanding public facilities.

5. Fascinating account of the trolley problem in different cultures, economies, and geographies.

Participants from collectivist cultures like China and Japan are less likely to spare the young over the old—perhaps, the researchers hypothesized, because of a greater emphasis on respecting the elderly. Similarly, participants from poorer countries with weaker institutions are more tolerant of jaywalkers versus pedestrians who cross legally. And participants from countries with a high level of economic inequality show greater gaps between the treatment of individuals with high and low social status. And, in what boils down to the essential question of the trolley problem, the researchers found that the sheer number of people in harm’s way wasn’t always the dominant factor in choosing which group should be spared. The results showed that participants from individualistic cultures, like the UK and US, placed a stronger emphasis on sparing more lives given all the other choices—perhaps, in the authors' views, because of the greater emphasis on the value of each individual. Countries within close proximity to one another also showed closer moral preferences, with three dominant clusters in the West, East, and South.

6. Ananth points to this excellent Lynn Stout article which lays bare the critique against modern finance. Its questions the arguments about finance's role in capital raising, liquidity provision, and resource allocation. This is the summary,

Doctors and nurses make patients healthier. Firefighters and EMTs save lives. Telecommunications companies and smart phone manufacturers permit people to communicate with each other at a distance. Automobile executives and airline pilots help people close that distance. Teachers and professors help students learn. Wall Street bankers help—mostly just themselves.

7. Evidence (HT: MR) that traders exhibit greater skill and rationality while buying than when selling,

Most research on heuristics and biases in financial decision-making has focused on non-experts, such as retail investors who hold modest portfolios. We use a unique data set to show that financial market experts - institutional investors with portfolios averaging $573 million - exhibit costly, systematic biases. A striking finding emerges: while investors display clear skill in buying, their selling decisions underperform substantially - even relative to strategies involving no skill such as randomly selling existing positions - in terms of both benchmark-adjusted and risk-adjusted returns. We present evidence consistent with limited attention as a key driver of this discrepancy, with investors devoting more attentional resources to buy decisions than sell decisions. When attentional resources are more likely to be equally distributed between prospective purchases and sales, specifically around company earnings announcement days, stocks sold outperform counterfactual strategies similar to buys. We document managers' use of a heuristic that overweights a salient attribute of portfolio assets - past returns - when selling, whereas we do not observe similar heuristic use for buys. Assets with extreme returns are more than 50% more likely to be sold than those that just under- or over-performed. Finally, we document that the use of the heuristic appears to a mistake and is linked empirically with substantial overall underperformance in selling.

8. Nice article by Shailesh Chitnis in Mint on the state of startup universe. Among the world's fastest growing startups, just 9% are apparently doing truly innovative and cutting-edge work. Just 27 of the world's 289 unicorns, which have sucked in $980 bn in investment capital, are creating innovative new products. Sample this on how innovation is getting more expensive,

Nicholas Bloom, an economist at Stanford University, and his colleagues studied research productivity across a variety of sectors. Their findings suggest that the cost of finding new ideas has increased, both financially and in the number of researchers needed. In aggregate, they compute that research productivity falls in half every 13 years. To maintain a constant growth in per capita GDP, the US must double the amount of research effort every 13 years. Simply put, coming up with new ideas is getting more expensive... The number of researchers required to double chip density today is more than 18 times larger than the number required in the early 1970s.

9. Finally, from Marginal Revolution, this is a superb economics cheat sheet. 

The right kind of urbanisation

Edward Glaeser has declared cities as humankind's greatest invention. Cities are indeed the engines of economic growth. 

But these engines are stuttering on both sides of the divide, developing and developed countries for contrasting reasons. In developing countries rapid urban expansion has been associated with sprawls, deficient infrastructure, traffic congestion, unaffordable housing, and slums and squatter settlements, all of which threaten to choke urban growth. In developed countries, urban growth has been associated with gentrification and sky-rocketing housing prices which have priced out all but the richer sections of the population from cities. 

Emily Badger captures the challenge facing American cities,

You don’t want to become Manhattan (too dense), Portland (too twee), Boston (too expensive), Seattle (too tech-y), Houston (too sprawling), Los Angeles (too congested), Las Vegas (too speculative), Chicago (too indebted). San Francisco has come to stand for the most specific set of horrors. It is the place where extreme poverty and tech wealth occupy the same block, while the schoolteachers and firefighters all live two hours away... In truth, most of these cities have qualities other cities would reasonably desire. Denver has one of the country’s fastest-growing tech labor forces, with minorities and women relatively well represented in those jobs. Seattle and Portland have among the fastest all-around job growth. New York has some of the fastest-growing wages. San Francisco has unemployment well below the national average and household incomes among the highest in the country.

But San Francisco-ization and the other -izations don’t refer to the process of acquiring any of these good things. Rather, those terms capture the deepening suspicion of many communities that the costs of urban prosperity outweigh the benefits. The tech jobs and the high wages aren’t worth having if they come with worsening congestion, more crowded development or soaring housing costs... Once you let tech giants in the door, you have a homeless crisis. Once you allow more density, you’re surrounded by skyscrapers. Once housing costs begin to rise, the logical conclusion is San Francisco... It’s much harder to point to cities that have gotten all of this right — the growth without the congestion, the tech jobs without the homeless crisis, the affordable housing without the sprawl.

The challenge for cities everywhere is to become engines of inclusive economic growth. This would reconcile economic growth with exclusionist trends like gentrification, unaffordable housing, suburban sprawls et al. In fact, given the importance of urbanisation, this should become one of the defining challenges of our generation.

And in this direction, Citylab points to the new Minneapolis's comprehensive plan to promote denser affordable housing. The Minneapolis 2040 has been described as the most radical up zoning plan in in any US city. It upzones almost the entire city, 75% of which is currently zoned for single-family units, and allows for building four-floor triplexes in most of the city and higher density in transit zones. It also eliminates off-street minimum parking requirement, the fourth US city after Buffalo, Hartford, and San Francisco. The Minneapolis plan assumes significance since upzoning rows of single-family homes set behind landscaped front yards have hitherto been off-table in zoning debates across US cities. 

"Big data" ain't "strong data"

This is very significant. Evidence from Alibaba's experimentation with Sesame credit scoring system raises doubts about the value of big-data based credit-scoring systems. Since Ant Financial launched it in January 2015, it still has not made lending decisions using Sesame credit scores. 

Sesame, which is an opt-in feature of the Alipay mobile payments app, draws upon the biggest pool of non-traditional ratings data in the world. It synthesises details from hundreds of sources — ranging from purchases on Alibaba’s Taobao marketplace to subway fares — into a single trustworthiness number for each user, called a “Sesame score”. But one Ant Financial employee conceded there was a difference between “big data” and “strong data”, with big data not always providing the most relevant information for predicting behaviour, and analysts say the best predictor of whether someone will default on a loan in future is often their previous loan repayment history, rather than their likelihood of returning a rental car. Banking and transaction data remain fundamental to predictive credit scoring... Martin Chorzempa, a fellow at the Peterson Institute of Economics think-tank, agreed, saying trustworthiness is “very context specific”. “Someone evading taxes might always pay back loans, someone who breaks traffic rules might not break other rules,” he said. “So I don’t think there is a general concept of trustworthiness that is robust.”... Critics have also questioned how Sesame crunches thousands of data points into a single score, saying there needs to be a strong correlation between hundreds of different behaviours — from trashing a hotel room to stealing a mobile charger — in order for the metric to be meaningful.

And the Chinese authorities have even barred private credit rating agencies, 

earlier this year, China’s central bank stopped allowing independent companies to provide credit ratings, and required all credit ratings to be given by a new public body called Baihang — effectively ending Sesame’s credit ratings business altogether.

This has forced Sesame to pivot to other use cases,

Sesame’s business now relies on tie-ups with hundreds of other companies. When a company joins the Sesame platform, it gives Sesame some of its user data, which helps inform Sesame scores. In return, Sesame helps the companies decide how likely different users are to violate their contracts. The companies often give perks to users with a high Sesame score, such as deposit-free rentals for umbrellas, bicycles or even apartments. Ant Financial will regularly promote the discounts on the Alipay mobile payments app... Analysts have compared the platform to a glorified loyalty card, rewarding users for buying Alibaba’s and its partners’ products, but not predicting behaviour.

This is a cautionary tale for the hundreds of start-ups in developing countries, supported by venture capital, seeking to use various types of digital activity trails to develop credit worthiness measures for poor people and for small entrepreneurs. If Alibaba with its vast treasure of data of all kinds is not able to establish credible enough correlations to make lending decisions, then it does not bode well. 

Is good governance a political good?

Can good governance deliver electoral victories in India? Would better schools and hospitals or cleaner neighbourhoods or safer streets or better quality utility services or hassle-free access to statutory services help governments retain power? Could these improvements play an important part in keeping governments in power? Is good governance an important enough electoral good?

The answers to each of the above in the affirmative is most often taken for granted and underpins much of the theoretical discourse on good governance. However, it may be worth a re-examination.

Let us assume the median politician. He is unlikely to be intrinsically motivated. His drive is most likely a single-minded desire to be in power. In fact, this is likely true of all but a handful of politicians.

Consider a program to improve student learning outcomes or traffic congestion or law and order or the delivery of any government scheme. Let us assume a system where the same state affairs in each of these areas has been persisting for years. It has neither gotten better nor worse in any significant manner. With a new program, given the weak state capacity, even when implemented with all the best intent, it is very unlikely to have anything like a transformative impact in five years. The impact of such initiatives are likely to be small and diffuse, and hardly visible to the average citizen. Suffice to say, these are really hard problems and bringing about change which is significant enough for the primary stakeholders, citizens, in a short time is almost impossible.

Then there is also the underlying assumption that good governance is a more appealing political good than sectarian/identity based and populist causes. There is no evidence that this is the case. In fact, there is a compelling theoretical argument drawing from Mancur Olson's work on collective action that populist and sectarian causes, with their concentrated impact on a cohesive minority,  are likely to exert far greater influence on the politician than good governance, with its diffuse impact on the fragmented majority. 

In the circumstances, the politician's incentive to support such initiatives is limited. In fact, far from supporting, the politician is likely to be put-off by reforms since by their very nature they are most likely to unsettle entrenched vested interests and rent-seekers who are likely his supporters. Also such reforms are also unlikely to favourably tilt the power balance towards another group who are his supporters.

Most importantly, electoral battles are mostly fought on state-wide or country-wide issues, which in turn surface in the most unpredictable manner and from unexpected quarters, and often just before the elections. The emergent factors most often crowd out all else. The politician understands this reality. This is one more reason for the politician to be sceptical of the value of good governance as an electoral strength. 

In fact, it need not actually be the case that electoral verdicts are decided on such emergent state-wide or nation-wide factors. It could actually be that good governance matters. But that's not important. What is of relevance is what politicians collectively believe as determining factors in electoral battles. 

So, is this all a lost cause?

The one scenario of promise arises when the politician (Minister or Chief Minister) gets a bureaucrat who is both intrinsically motivated (more likely than with the politician) and has a good rapport with the politician. Such a bureaucrat can then drive the change with the support of the Minister - sustainable and significant enough reform invariably needs political commitment. However, he will have to take care to ensure that the Minister's important political constituencies are not too adversely affected. Realistically, this should not be a problem given the vast scope of the reform agenda in each of these cases on a state-wide canvas.

The Minister would then have the best of all worlds - the theoretical electoral gains from any reform even while keeping his supporters happy - and leave him with the bonus of this potential electoral gain as he fights to maximise the gains from the emergent 'real' political factors.

Weekend reading links

1. It appears that I was premature about Jerome Powell's resolve to decouple Wall Street from  monetary policy decision making and stay the course with the current Fed trajectory. In a significant U-turn, most likely motivated by the market's downbeat response to the Fed's failure to indicate a pause in its December meeting and his own statement that the Fed's balance sheet shrinking was on autopilot, he said the Fed would take a "patient" approach to monetary tightening. He also said that he "wouldn't hesitate" to change balance sheet policy if needed. This reversal also vindicates President Trump who has railed against the Fed's perceived hawkishness.

The problem with monetary policy has been that it has been following Wall Street instead of responding to Main Street signals. Accordingly, despite the robust jobs report and tightening labour market conditions, and the near unanimity about the unsustainability of the equity market boom (second longest post-war boom), the Fed has again preferred to follow the stock markets and keep conditions loose to allow the bubble to remain inflated.

Powell has chickened off, like Janet Yellen in 2016 when faced with Wall Street's tumbles, from pursuing a monetary policy which balances financial market stability with economic growth.

2. Staying on with central banking, this blog has held the view that central bank communications was becoming more distortionary with increasing transparency. Now former Fed Vice Chairman, Donald Kohn has sought greater clarity with Fed communications,

Mr. Kohn believes that some of the ways the Fed now communicates to markets—by way of its “dot plot” of interest-rate projections, as well as its other forecasts—have come to be viewed as more certain than they are. He believes the Fed, both in the presentation of these views and in the remarks of officials, has reinforced the certainty of its outlook, even when officials already know much about the future is unknowable. The Fed’s quarterly forecasts should be aligned with “the rhetoric of uncertainty and data dependency and the true state of economic knowledge,” Mr. Kohn said. The Fed should stop summarizing key projections with medians, and portray the amount of uncertainty the Fed has around its various forecasts, he said. Mr. Kohn also believes the public profiles of the regional Fed officials could change. He noted the Washington-based governors are less-frequent speakers compared with the leaders of the 12 regional banks. And while the governors tend to speak about policy issues in terms of the Fed’s consensus outlook, regional bank presidents spend more time touting their own views and engaging in specifics about interest-rate changes they favor.

Some form of asymmetric ignorance is useful to keep markets honest.

3. More skeletons from the McKinsey cupboard. This time from its role in advising Boeing in 2006 to procure titanium from Andhra Pradesh in India through a partnership with an Ukrainian oligarch, Dmitry V Firtash, by paying $18.5 m in bribes to politicians and officials.

Boeing asked McKinsey to evaluate a proposal, potentially worth $500 million annually, to mine titanium in India through a foreign partnership financed by an influential Ukrainian oligarch. McKinsey says it advised Boeing of the risks of working with the oligarch and recommended “character due diligence.” Attached to its evaluation was a single PowerPoint slide in which McKinsey described what it said was the potential partner’s strategy for winning mining permits. It included bribing Indian officials.

And this characterisation of bribery is delightful,

The slide stated that Mr. Firtash’s group, Bothli Trade, “has identified key Indian officials and has crafted a strategy to gain their influences.”... The partner’s plan, McKinsey noted, was to “respect traditional bureaucratic process including use of bribes.” McKinsey also wrote that the partner had identified eight “key Indian officials” — named in the PowerPoint slide — whose influence was needed for the deal to go through. Nowhere in the slide did McKinsey advise that such a scheme would be illegal or unwise

Firtash and an Indian member of parliament from Andhra Pradesh were subsequently convicted in the US by a federal grand jury for bribery.

4. Times has another exposure, this time of the corruption and conflicts of interest within Memorial Sloan Kettering Cancel Centre. Its Chief Medical Officer, one of the most reputed breast cancer specialists, was accused of having received millions by drug and health care companies and having failed to disclose those ties more than 100 times in prestigious medical journals like Lancet and NEJM, and others had made lucrative side deals with companies to earn handsome profits.

The decision to license images of the patients’ tissue slides to a for-profit company also highlights the broader debate over the use of personal medical data, ranging from genetic information to, in this case, images of a person’s cells, for research and commercial purposes... Hospital pathologists have strongly objected to the Paige.AI deal, saying it is unfair that the founders received equity stakes in a company that relies on the pathologists’ expertise and work amassed over 60 years. They also questioned the use of patients’ data — even if it is anonymous — without their knowledge in a profit-driven venture. In addition, experts in nonprofit law and corporate governance have questioned whether Memorial Sloan Kettering, one of the nation’s leading cancer centers, complied with federal and state law governing nonprofits when it set up the deal. The experts pointed out that charitable institutions like Memorial Sloan Kettering must show that they didn’t provide assets to insiders for less than the fair market value.

Times reports of similar concerns of conflicts of interest at some of the most famous non-profit cancer research institutes in the US.

Ethicists and health experts say having leaders and researchers at nonprofit hospitals sit on corporate boards is especially problematic. When they serve on the board of a publicly traded company, they have a legal duty to the corporation and its shareholders, which can clash with their duty to their patients and primary employers. Those who sit on boards are often paid hundreds of thousands of dollars a year... A report in November in BioPharma Dive found that 12 of the 19 largest pharmaceutical and biotech companies had at least one board member who also worked at a nonprofit health care institution. A 2014 study in JAMA found that about 40 percent of the largest publicly traded drug companies had a leader of an academic medical center on their boards. 

Robert Benezra, who heads a lab at Memorial Sloan Kettering that focuses on how tumors grow, is the president, chief executive officer and a board member of AngioGenex, a tiny, publicly traded biotech that is developing drugs to treat cancer based on the discoveries made in his lab. Though he takes no salary from AngioGenex, Dr. Benezra owns nearly nine percent of the company he helped found through stock or options, setting him up for a lucrative payday if the company is acquired or its drugs come to market.

5. Closer home in India, Uday Kotak, one of the self-cultivated champions of corporate India throws aside all corporate governance norms to delay, obfuscate, and litigate on compliance with RBI's regulatory requirements so as to retain shareholding control over his holding companies even at the risk of exposing the Kotak Mahindra Bank depositors to the entire group's risks.

It is very apparent that Uday Kotak as chairman of a committee on corporate governance argues for greater than the minimum transparency but Uday Kotak as promoter-CEO of KMB practices the bare minimum.

And this is telling testament to India's financial media,

Strangely, for a bank with a market cap of Rs 2,36,386 crore which adopts the reckless action of filing a strongly worded writ petition against the banking regulator, the media appears uninterested to disclose the contents of the writ... The writ contained correspondence which is rarely seen by the public, and the business media should have actively competed to disclose and analyse its contents. But in doing so, the media would have had to criticise the conduct of one their much-sought-after CEOs. CNBCTV18 conducted a panel discussion on the issue, but such is Uday Kotak’s stature that not a single panelist was willing to publicly reprimand him and the bank; instead they gave excuses justifying the bank’s conduct. Hence, apart from merely reporting that the bank had filed a writ and that the Bombay High Court had rejected the stay, the business media have been content to sit it out as mere spectators.

6. Link with numerous interesting factoids from Times. Sample this

White Americans earn about 77 percent of total income in the United States.

And this,

The sweet potato is one of the most valuable crops in the world, providing more nutrients per farmed acre than any other staple.

7. Prevailing telephone and other data anonymisation techniques are reversible and allow for re-identification.

8. Amazon improvises with its business model and logistics chain to penetrate rural Indian market.

The Seattle giant has modified its app to work with inexpensive smartphones and patchy cellular networks. It has added hundreds of thousands of Indian language descriptions of products and videos for those who can’t read, and it has opened physical Amazon stores to walk people through the process of ordering online. It brought on tens of thousands of local distributors to deliver packages, often by bicycle down dirt roads, where it will accept cash or digital payment on delivery...

Amazon is enlisting the small stores as package depots along its distribution network. Other small retailers have become Amazon learning centers for new shoppers. Arjun, 29, runs a tiny Amazon store in Maddur, in the southern state of Karnataka, where people can get help learning how to search and order. Customers walk in with screenshots of something their favorite Bollywood stars wore, and Mr. Arjun, who uses one name, gets the search started. Seated at linked computer screens, the customers, most of whom aren’t comfortable with English or typing, can follow along as he pulls up options. He helps them pick the right size using a chart on the wall and a foot measuring device. Later, customers come back to pick up their orders and pay cash at the store. There is even a changing room so they can try on clothes before paying...

Amazon used data showing the location of people searching its site to figure out which parts of India need more delivery capability. Then it reached out to small businesses for help. Nogenchandra Das, 31... signed up for the “I Have Space” program, along with more than 20,000 mom-and-pop stores, offering to take packages and deliver in neighborhoods for a commission. Amazon gave him a uniform, a bag and a week of training. A motorcycle deliveryman brings about 25 packages a day from a small distribution center nearby. Customers can come pick them up at his shop, or he will deliver them on his own motorcycle. 

9. For the December quarter, new investments in India have plunged to their lowest since mid 2004, and with stalled projects at record levels. Indian companies announced new projects worth Rs 1 trillion, 53% lower than previous quarter and 55% lower than a year-ago. For new private sector projects, it fell 62% and 64% respectively, and 37% and 41% for public sector.

As regards stalled projects, the CMIE data shows its value increased marginally, with private sector stalling rate hovering at near record high of 24% and overall stalling rate is slightly lower at 11%.

Power sector formed 35.4% of stalled projects. As to the reasons for stalling, the biggest were lack of funds, problems with fuel and raw materials, and unfavourable market conditions.