Weekend reading links

1. Nice historical examination of the trends in public debt over the past 150 years by Barry Eichengreen et al. Interesting examples of debt consolidation by running primary surpluses, Great Britain between 1815-1914, and US between 1867-1917. The rise in advanced country debt since mid-seventies has been stunning.

2. This article about Airbus's decision to stop production of its jumbo A380 by end of 2021 is classic hindsight analysis. Launched in 2000, the 555 seater aircraft has so far cost $17 bn in development costs and would have sold just 251 aircrafts, far fewer than the 750 that were promised to have been delivered by end of 2019. Sample this,

The world’s largest passenger plane exposed dysfunction inside the European aerospace company and now offers a textbook case of a company misjudging its market and losing big... How did some of the world’s best engineers get their numbers so wrong? Airbus misjudged market trends and underestimated emerging technologies. It compounded the error by justifying its decision with emotion and European pride, some former Airbus officials have said. Then its production system, organized for politics more than efficiency, failed... Steven Udvar-Házy, a pioneer of aircraft-leasing (says)... “The technological achievement was formidable, but the A380’s “commercial viability was always dubious.”... With the A380, Airbus planners bet prevailing market conditions would persist. They assumed airlines would keep using big, increasingly congested hub airports to transfer passengers between connecting flights, and need to fly large, four-engine jetliners on very long routes. Both changed around the time A380s started flying. Not long after Airbus began developing the A380, Boeing in 2003 embarked on its smaller, hyper-efficient twin-engine 787 Dreamliner. It quickly became a best seller. Only in 2006 did Airbus respond with a big two-engine model, the A350. Together, the twins rewrote the economics of long-haul flying, hurting the A380.

If only it were so simple and the experts and journalists could have predicted with such smug definitiveness that the airline market would turn out very different from what was the dominant paradigm when Airbus launched A380 - the hub-and-spokes model with smaller aircrafts relaying passengers to hubs from where large aircrafts took over. 

Further, even today, it is difficult to claim with any confidence that the age of large aircraft is beyond us. For example, a prolonged period of low fuel prices or shifts in location/patterns of long-distance travel or emergence of 3-4 Emirates type hub-based airlines could take us back to the hub-and-spokes model with demand for bigger aircrafts. 

3. FT has a profile of the new darling of Africa, President Abiy Ahmed of Ethiopia who has had several successes in just 10 months. Sample this,

He has made peace with Eritrea; freed 60,000 political prisoners, including every journalist previously detained; unbanned opposition groups once deemed terrorist organisations; and appointed women to half his cabinet. He has pledged free elections in 2020 and made a prominent opposition activist head of the electoral commission. In a country where government spies were ubiquitous, people feel free to express opinions that a year ago would have had them clapped in jail.

In many respects, Abiy is reaping the benefits of the economic growth foundations laid by the late Meles Zenawi. The real challenge will be managing the tension between political liberalisation and the stability required to sustain economic growth in one of Africa's most heterogeneous of countries. While it is easy to advocate that leaders in these countries liberalise and provide political freedoms, unqualified actions in this regard is most often likely to become counter-productive.

What is perhaps required as an objective is policies that can contribute to political and economic stability. Economic and political liberalisation cannot become the end in itself, as is the case in international development debates. 

4. I would have been surprised if the World Bank's $320 million "pandemic bonds" had turned out any different,

It was a way of “leveraging our capital market expertise,” said then-president Jim Yong Kim, “to serve the world’s poorest people”. Just a year later, a severe attack of Ebola hit the Democratic Republic of Congo. So far it has claimed almost 500 lives and become the second-largest outbreak ever recorded, according to Médecins Sans Frontières. Yet the bonds have yet to pay out a penny. A linked emergency cash facility at the World Bank has paid the DRC more than $11m and is preparing to disburse more. But the lack of support so far from the pandemic bonds, which mature in July 2020, has prompted questions about the limits of financial innovation... The pandemic bonds came in two classes: one covering diseases such as influenza, which pays investors a coupon of 6.5 per cent over Libor, and the other, which covers Ebola and other diseases, paying 11.1 per cent over Libor. The coupons are paid by donor nations Germany and Japan. If the bonds mature without paying out, investors get their money back, plus the chunky coupons. The pandemic bonds are just one example of a wider trend: investors have also bought into vaccine bonds, while the growing market for catastrophe bonds is another example of how private finance is being tapped to replace traditional funding structures such as disaster aid. The aim of the pandemic bonds, according to the World Bank, is to tackle social ills through private investment.

Supporters rationalise this apparent failure to "bad design",

The bonds’ criteria include the requirement that a disease must spread across an international border before the affected nation can receive the cash — which has so far not been the case with the DRC and Ebola.

Well this may be so. But such design flaws are unlikely to ever end. If the cross-border condition is the problem this time, it will most likely be something else another time, and so on. 

5. Atal Gawande offers a cautionary tale on the impact of computerisation and electronic medical records on the doctors in the US,

My hospital had, over the years, computerized many records and processes, but the new system would give us one platform for doing almost everything health professionals needed—recording and communicating our medical observations, sending prescriptions to a patient’s pharmacy, ordering tests and scans, viewing results, scheduling surgery, sending insurance bills. With Epic, paper lab-order slips, vital-signs charts, and hospital-ward records would disappear. We’d be greener, faster, better. But three years later I’ve come to feel that a system that promised to increase my mastery over my work has, instead, increased my work’s mastery over me. I’m not the only one. A 2016 study found that physicians spent about two hours doing computer work for every hour spent face to face with a patient—whatever the brand of medical software. In the examination room, physicians devoted half of their patient time facing the screen to do electronic tasks. And these tasks were spilling over after hours. The University of Wisconsin found that the average workday for its family physicians had grown to eleven and a half hours. The result has been epidemic levels of burnout among clinicians. Forty per cent screen positive for depression, and seven per cent report suicidal thinking—almost double the rate of the general working population. Something’s gone terribly wrong. Doctors are among the most technology-avid people in society; computerization has simplified tasks in many industries. Yet somehow we’ve reached a point where people in the medical profession actively, viscerally, volubly hate their computers.

And this,

The I.B.M. software engineer Frederick Brooks, in his classic 1975 book, “The Mythical Man-Month,” called this final state the Tar Pit. There is, he said, a predictable progression from a cool program (built, say, by a few nerds for a few of their nerd friends) to a bigger, less cool program product (to deliver the same function to more people, with different computer systems and different levels of ability) to an even bigger, very uncool program system (for even more people, with many different needs in many kinds of work)... People initially embraced new programs and new capabilities with joy, then came to depend on them, then found themselves subject to a system that controlled their lives... As a program adapts and serves more people and more functions, it naturally requires tighter regulation. Software systems govern how we interact as groups, and that makes them unavoidably bureaucratic in nature. There will always be those who want to maintain the system and those who want to push the system’s boundaries. Conservatives and liberals emerge... The Tar Pit has trapped a great many of us: clinicians, scientists, police, salespeople—all of us hunched over our screens, spending more time dealing with constraints on how we do our jobs and less time simply doing them.

So how have doctors been responding?

We force at least a certain amount of mutation, even when systems resist. Consider that, in recent years, one of the fastest-growing occupations in health care has been medical-scribe work, a field that hardly existed before electronic medical records. Medical scribes are trained assistants who work alongside physicians to take computer-related tasks off their hands. This fix is, admittedly, a little ridiculous. We replaced paper with computers because paper was inefficient. Now computers have become inefficient, so we’re hiring more humans. And it sort of works... Scribes aren’t a perfect solution. Underpaid and minimally trained, they learn mostly on the go, and turn over rapidly (most within months). Research has found error rates between twenty-four and fifty per cent in recording key data. 

And a new form of off-shoring,

During the past year, Massachusetts General Hospital has been trying out a “virtual scribe” service, in which India-based doctors do the documentation based on digitally recorded patient visits. Compared with “live scribing,” this system is purportedly more accurate—since the scribes tend to be fully credentialled doctors, not aspiring med students—for the same price or cheaper. IKS Health, which provides the service, currently has four hundred physicians on staff in Mumbai giving support to thousands of patient visits a day in clinics across the United States. The company expects to employ more than a thousand doctors in the coming year, and it has competitors taking the same approach... Yet can it really be sustainable to have an additional personal assistant—a fully trained doctor in India, no less—for every doctor with a computer?

6. For all talk of the eclipse of the dollar and rise of renminbi, the reality has been very different.

The renminbi makes up just 2% of global reserves.

7. From The Economist on tax avoidance,

The oecd reckons that exchequers worldwide lose $100bn-240bn a year to corporate tax avoidance. An imf study in 2016 suggested that the total could be over $600bn—equivalent to a quarter of all corporate tax collected globally. Avoidance has grown in line with intangible assets, such as intellectual property, which are easier to shift to tax havens than physical assets. An analysis of American multinationals and their international subsidiaries in 2017 found that the share of profits declared elsewhere for tax purposes had risen from 5-10% in the 1990s to 25%. Poor countries are hit hardest because they rely more on corporate tax revenues than rich countries, and because international tax rules, originally crafted to suit advanced economies, are stacked against them.

The "billions to trillions" folks could spend their energies many times more effectively if they get behind the campaign to curb tax avoidance and bring in transparency to cross-border capital flows.