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Saturday, June 8, 2019

Weekend reading links

1. Very good survey in The Economist on the future of the aviation industry. This in particular is a great summary of the science and the commerce behind the manufacturing process of a passenger aircraft.
Each of the finished planes sits at the apex of a system of supply chains which fans out across the world, bringing 3.5m components together into a single product. An A 350’s airframe is composed of seven sections. Three are assembled into the fuselage, two being made at another site in France and the third in Germany. The two wings are made in Britain, then transferred to Germany to be finished. The tail fin and the horizontal-stabiliser assembly are made in Spain. All of these pieces are flown to Toulouse in special transport aircraft called Belugas—after the whale, which they resemble, rather than the sturgeon, which they do not. They are made, mostly, of carbon-fibre-reinforced plastics (CFRPs). These are composite materials that cannot be riveted in the way metal is because of the damage this causes to the fibres. They are therefore held together by lock-bolts inserted through 10,000 specially drilled holes in the flanges where the sections overlap.


Connecting the sections involves fitting them together, drilling the holes (a process less damaging than riveting), unfitting them, cleaning the holes and surrounding areas of debris, applying a sealant to the flanges, fitting the pieces back together again and then inserting the lock-bolts. At this point the myriad cables which keep a modern aircraft flying, and which have been pre-fitted into the airframe sections, are linked up. Before their final bonding, however, the fuselage sections have had what are known as “monuments” installed. These are bits of equipment—galleys, crews’ quarters and so on—that would be too big to carry through the cabin doors later. Afterwards, the rest of the fitting-out is done, the plane is painted in the customer’s livery and the crucial finishing touches, a pair of engines, one under each wing, are added. The whole process takes about a month.
2. This summarises the giant leap made by the mobile phone market in India,
In 2014, the cost of one GB of mobile data was ₹270. Now, it is ₹10 per GB. As a result, mobile data consumption has soared. In late-2014, an average user on Airtel’s network (India’s largest telecom operator back then) used 622 megabytes (MB) of data in a month. By late-2018, the number of users had tripled, but, despite a broader base, average data usage stood at 10GB a month.
The Economist has a good briefing article on how entertainment is driving the penetration and use of internet, and India leads this trend - "internet is the leisure economy of the world's poor"or "timepass". 
“Timepass” is the essence of the internet. The vast majority of the top 25 apps by revenue in both Google’s and Apple’s app stores are games (and both companies announced new paid gaming services this year). Tencent became one of China’s internet giants because of games. Facebook grew into the world’s sixth-most valuable company by giving people a place to “do timepass”. YouTube is the gateway to several lifetimes’ worth of timepass. The fastest-growing new apps of recent years have all been aimed at timepass: Fortnite, WhatsApp, Instagram, Snapchat. TikTok, which consists of 15-second videos, is timepass in its essence, made by bored kids in mofussil towns who have found vast audiences by doing silly things.
In fact, India has the cheapest mobile internet in the world, nearly 48 times cheaper than the US to download a GB of mobile data!
3. IndiaSpend has a good series on informalisation of labour market in India. This and this covers the trend of contractualisation whereby firms prefer to contract than recruit workers, allowing them to skimp on benefits and statutory payments and keep wage costs down. This covers the fate of the 1.5 million people employed by ride-hailing providers,
Our interviews with workers... revealed that many of them were migrants to the city and spent long hours on the job to earn incentives to be able to send savings back home or make their existence in their adoptive city a bit more comfortable. They had little or no employment benefits such as insurance, and complained that their incomes were declining... All drivers for app-based cab companies complained about falling earnings due to increased competition--more and more cabs are plying every day.
4. The fastest growing retail activities in UK are the classic non-tradeables,
The article itself is a very good account of the disappearance of retail shops,
Technology will continue to transform shopping, and there are some good arguments for embracing this. Why shouldn’t people have easier lives, if the fridge tells you when it is on the last yoghurt and the supermarket delivers an hour after you’ve ordered on its website? The reason isn’t obvious: it will reveal itself only slowly, as the gift of sociability that shops give for free is withdrawn... The disappearance of shops, where the commercial exchange can be encased in a social one, will be something of a disaster if nothing of equal social use takes their place.
5. Jarrod Kimber revives the dying art of great cricket writing with this beautiful article.

6. Hubert Horan nails the Uber story, taking on the sustainability of its business model, cost structure, and commercials. This is a good summary,
An examination of Uber’s economics suggests that it has no hope of ever earning sustainable urban car service profits in competitive markets. Its costs are simply much higher than the market is willing to pay, as its nine years of massive losses indicate. Uber not only lacks powerful competitive advantages, but it is actually less efficient than the competitors it has been driving out of business... Uber pursued a “growth at all costs” strategy financed by a staggering $20 billion in investor funding. This funding subsidized fares and service levels that could not be matched by incumbents who had to cover costs out of actual passenger fares. Uber’s massive subsidies were explicitly anticompetitive—and are ultimately unsustainable—but they made the company enormously popular with passengers who enjoyed not having to pay the full cost of their service. The resulting rapid growth was also intended to make Uber highly attractive to those segments of the investment world that believed explosive top-line growth was the only important determinant of how start-up companies should be valued. Investors focused narrow­ly on Uber’s revenue growth and only rarely considered whether the company could ever produce the profits that might someday repay the multibillion dollar subsidies... Uber’s longer-term goal was to eliminate all meaningful competition and then profit from this quasi-monopoly power... Uber’s most important innovation has been to produce staggering levels of private wealth without creating any sustainable benefits for consumers, workers, the cities they serve, or anyone else...
This is not a case of a company with a reasonably sound operating business that has managed to inflate stock market expectations a bit. This is a case of a massive valuation that has no relationship to any economic fundamentals. Uber has no competitive efficiency advantages, operates in an industry with few barriers to entry, and has lost more than $14 billion in the previous four years. But its narratives convinced most people in the media, invest­ment, and tech worlds that it is the most valuable transportation company on the planet and the second most valuable start-up IPO in U.S. history (after Facebook). Uber is the breakthrough case where the public perception of a large new company was entirely created using the types of manufactured narratives typically employed in partisan political campaigns. Narrative construction is perhaps Uber’s greatest competitive strength. The company used these techniques to completely divert attention away from the massive subsidies that were the actual drivers of its popularity and growth. It successfully framed the entire public discussion around an emotive, “us-versus-them” battle between heroic innovators and corrupt regulators who were falsely blamed for all of the industry’s historic service problems. Uber’s desired framing—that it was fighting a moral battle on behalf of technological progress and economic freedom—was uncritically ac­cepted by the mainstream business and tech industry press, who then never bothered to analyze the firm’s actual economics or its anticompetitive behavior.
And even the less worse (albeit heavily red) bottomline comes from squeezing driver pay,
If Uber drivers still received their 2015 share of each passenger dollar, Uber’s negative margins would still be in the triple digits... Starting in 2015, Uber eliminated most of the incentives it had used to attract drivers and unilaterally raised its share of passenger fares from 20 percent to 25–30 percent. Almost all of Uber’s margin improvement since 2015 is explained by this reduction of driver compensation down to minimum wage levels, not by improved efficiency. These unilateral compensation cuts resulted in a direct wealth transfer from labor to capital of over $3 billion.
7. Pramit in Livemint has a graphical summary of the ongoing controversy over Indian GDP statistics.  

8. Fascinating article on kidnapping and ransom insurance, with its 20 odd firms operating out of Lloyds of London. This captures the essence of how it is able to get kidnappers and insurance providers to work together,
"It's a one-off transaction between the family and the kidnapper, but it's a repeated interaction for the insurance market."
9. Ananth points to a very good article by Andy Mukherjee with actionable proposals (a refreshing change from the general 36000 ft ideas that oped writers typically offer) to address the liquidity squeeze that is being faced in India's shadow banking sector. While the suggestions are all logical, the problem is with getting the government too deep into solving these problems. For example, the incentive distortions likely with a government sponsored refinance facility are numerous. 

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