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Sunday, August 4, 2019

Weekend reading links

1. Cash surpluses mount across corporate America. Berkshire Hathaway's cash pile jumped to $122 bn amidst the rising stock markets,
Mr Buffett has struggled to clinch a significant takeover in recent years. In a letter to shareholders in February he warned that prices for businesses were “sky-high” and that the group is likely to invest in stocks as it hopes for an “elephant-sized acquisition”... “The inability to identify attractive operating companies to acquire…that is a problem that has persisted for a long time,” James Shanahan, an analyst with Edward Jones said. “This cash balance growing out to a new record level is frustrating to a lot of investors, but they have been taught over decades to appreciate the management team will be cautious and wait for opportunities.”
Google's parent Alphabet has overtaken Apple to hold the largest cash pile in corporate America, touching $117 bn. Faced with pressure from activist investors, Apple has had to pare down its surplus to $102 bn from $163 bn at end of 2017. Google's rising pile is despite spending $25 bn last year, much of it on real estate - office holdings in cities and data centres. Since the end-2017 US tax reform lowering the tax rate on US companies' overseas cash reserves, 
Apple has responded to the change by spending $122bn on buying back stock and paying dividends in the past 18 months. Other companies to dig deep include Cisco Systems, which has cut its cash holdings from $35bn at the time of the new tax law to only $11bn. Alphabet’s stock buybacks, by contrast, have been paltry. In the nearly four years since it began repurchasing its own stock, it has spent an average of only $1.7bn a quarter.
2. Very good profile of Annagret Kramp-Karrenbauer, the Secretary General of the ruling Christian Democratic Union (CDU) in Germany and the new Defence Minister, and also the women tipped to replace Angela Merkel as German Chancellor.
“I don’t know what she stands for,” says Christoph Hartmann, a former liberal politician who was her deputy prime minister in Saarland. “[Former chancellor Helmut] Kohl stood for German reunification, [Gerhard] Schröder for welfare reform, [Willy] Brandt for rapprochement with the Soviet bloc. But AKK — she has no vision. She is like Merkel — a person without qualities.”
3. FT has a fascinating article at how Russia is using cutting-edge technology to track and tax transactions in real time, thereby dramatically lowering leakages in VAT,
To address the leakage, Russia built two huge data centres and legislated so that companies had to submit every invoice between businesses. It also mandated every retailer to buy new cash registers that were linked securely and directly to the data centres. In real time it can now check every invoice to ensure VAT refunds it pays are linked to invoices where companies have remitted the same money to the authorities. Then using artificial intelligence, it can quickly find patterns in the data and companies which have many broken links, allowing the authorities to target certain companies for a tax audit. Since everything is linked, it can also spot tax officials with a low collection rate from the companies for which they are responsible... The authorities receive the receipts of every transaction in Russia, from St Petersburg to Vladivostok, within 90 seconds... The 20 per cent VAT gap has now fallen to 1 per cent and, as collection has become more efficient, receipts have soared. Between 2014 and 2018, the money collected from VAT rose 64 per cent, compared with a 21 per cent increase in nominal household consumption over the same period...The VAT tax gap between revenue due and revenue collected was about 20 per cent in Russia before its reforms, according to Mr Mishustin, and in a mature economy such as the UK, HM Revenue & Customs estimated it at 9.1 per cent in 2017-18.
And Russia and other countries are using nudges to get tax-payers to comply,
The Russian authorities are seeking to extend technology-led tax collection into the informal economy... Those that sign up to a new smartphone app pay 4 per cent of turnover, deducted automatically from their bank account, on services. Take-up so far this year has exceeded expectations since compliance guarantees the authorities will not chase people further for unpaid tax... Portugal, an early adopter, added an extra incentive for shoppers to pay VAT and ensure retailers did the same. If consumers add their personal tax number to an electronic receipt, the number is added into a monthly lottery for a substantial prize, such as a new car... consumers in areas that have seen high VAT evasion, for example restaurants, can get a 15 per cent deduction on the VAT paid from their annual income tax assessment... In many Nordic countries, Mr Sanger says, the authorities have sufficient verified data that they can hand out pre-filled tax returns and ask individuals to simply approve them.
Quite apart from its role in plugging leakages, given this, technology, by helping screen and zoom into the real evaders, may well turn out to be a big contributor to limiting harassment by tax authorities. 

4. The bidding for third round of India's toll-operate-transfer (TOT) concessions for India's national highway roads has been flagged off, with 27 companies showing interest. The TOT bundle comprises 9 stretches covering 566.27 km across four states, and has a reserve price of Rs 4995.48 Cr.

The first round in February 2018 saw Macquarie offer Rs 9691 Cr against the expectation of Rs 6258 Cr for 700 km, while the second bundle over 584 km was cancelled due to bids being far below expectation.

5. Simon Kuper advocates abolishing undergraduate teaching at Oxford and Cambridge to break down elitism in England,
Oxbridge recruits more pupils from eight schools (six of which are thought to be fee-paying) than from 2,900 British state schools combined, and spits them out at the other end as the proto-ruling class... After all, Canada, Australia and Sweden have private schools, but they also have above-average social mobility... That’s partly because private school in these countries doesn’t lead to a world-beating university, since Canada, Australia and Sweden don’t have world-beating universities. They just have lots of good ones, none of which confers a life-changing advantage... It’s similar in Germany, the Netherlands and the other Nordic states. You get a decent education, then have to prove yourself on the job market. Interestingly, all these countries are wealthier and almost all have better state schools than Britain. They also avoid many British nightmares: no doors closed at 17 to everyone who doesn’t get the letter from Oxbridge. No bitterness as the excluded are slow-tracked through their careers, overseen by an Oxbridge Brahmin caste... And in countries without elite universities, it’s rare for one class to capture the national heights: careers are decided more in adulthood, by which time people’s trajectories depend slightly more on their achievements than on their parents.
6. Yet more evidence of how closed a group the elite consensus in the US is, this time from the educational backgrounds, in terms of where they studied, of newspaper interns in the US,
65% of summer interns from a group of publications including The New York Times, the Washington Post, the Wall Street Journal, NPR and Los Angeles Times, came from among very selective universities in the nation. The New York Times, The Washington Post and Wall Street Journal especially recruited from the top 1% of schools ranked by selectivity.
In Why Nations Fail we argue that it is indeed differences in economic institutions that explain the comparative development of the Koreas, and the rest of the world. We make a distinction between inclusive economic institutions; which create broad based economic incentives and opportunities; and extractive economic institutions, which do not. The source of these institutions is political. They are chosen collectively as a consequence of social choices which are heavily shaped by political institutions. A society gets inclusive economic institutions because itís political institutions generate them as an equilibrium phenomenon. We call institutions which do this inclusive political institutions which have two dimensions; a broad distribution of political power and a strong (or effective or capable) state. When either condition fails, when power is narrowly concentrated or when there is a weak or ineffective state, we say there are extractive political institutions. In a nutshell, poor countries have extractive economic institutions as a consequence of extractive political institutions. Rich countries have the opposite combination, inclusive economic institutions underpinned by inclusive political institutions.
If we accept this argument, then the biggest danger of widening inequality is that it can lead to capture of the political institutions and their becoming extractive in nature. It is then only a matter of time before the economic institutions too become extractive.

8. Finally, an India NBFC fact of the day which underlines their importance and the impact of a liquidity squeeze among them,
In India, NBFCs have in recent years helped fund nearly 55-60% of commercial vehicles both new and used, 30% of passenger cars and nearly 65% of the two-wheelers in the country, according to rating agency ICRA.

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