Weekend reading links

1. This summary of sectors of activity for India's start-ups indicates where the priorities lie.

Clearly copy-cat 'innovations'.

2. Very insightful graphic about the traffic challenge facing cities, this case Mumbai.

Quite apart from the doubling of vehicle numbers over the decade with pretty much the same road space, there is also the disproportionate share of road space occupied by private cars.

3. Fascinating profile from 2013 of Qassem Suleimani in the New Yorker by Dexter Filkins. Clearly, this is no ordinary "terrorist", not even ordinary general. Is this likely the most influential political assassination of our times?

4. MR points to the Economist on state capacity facts in some African countries,

Government revenues average about 17% of gdp in sub-Saharan Africa, according to the IMF. Nigeria has more than 300 times as many people as Luxembourg, but collects less tax. If Ethiopia shared out its tax revenues equally, each citizen would get around $80 a year. The government of the Democratic Republic of Congo is so penurious that its annual health spending per person could not buy a copy of this newspaper.

How much can these countries realistically collect?

The best estimates are that they lose revenues worth 2% of gdp through corporate-tax avoidance, of all kinds, and perhaps another 1-2% through individual wealth stashed offshore. The revenue forgone through tax expenditures is roughly 5% of gdp. It is neither feasible nor desirable to close all those gaps, so the realistic gains are smaller. Other measures, such as increasing compliance or expanding property taxes, could also add a few percentage points.

5. The landslide election victory in Taiwan of anti-mainland and formal independence advocating Democratic Progressive Party of incumbent President Tsai Ing-wen presents an intriguing challenge to China.

6. This WSJ summary of the residential real estate crisis in India is spot on,

The housing crisis reflects the sea change that has taken place in India’s financial industry amid liberalization efforts to meet the needs of a fast-growing economy. Two decades ago it was close to impossible for most people to get a mortgage, and red-tape made it difficult and unprofitable for developers to attempt large projects. Even the best-paid usually had to save until near retirement before they could afford a home.

When market liberalizations in the early 2000s made it easier to raise money on the stock market and with loans, as well as to obtain home mortgages, buyers and builders went overboard. Across the country there was an explosion in new apartment construction. Complexes with a total of five million apartments and villas were launched between 2009 and 2019 according to PropEquity, a real-estate research company. Real-estate loans at India’s banks, as well as at nonbanking finance companies known as shadow banks, quadrupled to more than $70 billion.

The developers, though, quickly ran into problems getting government clearances and finding enough workers to build their projects. Apartments that were supposed to be built in three years ended up taking five years or more. Then, funding for projects dried up, as banks and shadow banks cut back amid growing piles of soured real-estate and infrastructure loans. This forced more delays and even the mothballing of many projects. More than 450,000 apartments have been delayed for more than three years, according to a recent government survey. The value of all the delayed projects is more than $50 billion, 10 times the number five years ago and still half of what it will be in the next few years, according to PropEquity.

As has been written in Can India Grow?, the country clearly does not have the capital accumulation or customer base to support such rapid growth.

7. A good primer on private debt.

8. Investigative reporting on the sorry state of correctional facilities in Mississippi and the pervasive use of mobile phones sneaked in by inmates. Indian jails are no worse than these.

9. A very balanced assessment by David Leonhardt of China's progress over the last decade and its comparison with US's stagnation or even decline. This conclusion is very appropriate

China has now exceeded the world’s expectations for three decades in a row — which, of course, does not guarantee that the streak will continue in this new decade.

10. WSJ writes that the bilateral US-China trade deal, which keeps aside the WTO's dispute resolution system, may be trendsetter in the global settlement of trade disputes, thereby raising the possibility of the unravelling of the existing world trade order.

11. Thomas Philippon argues that "US only pretends to have free markets", whereas the real freer markets are in Europe,

Internet service, cellphone plans, and plane tickets are now much cheaper in Europe and Asia than in the United States, and the price differences are staggering. In 2018, according to data gathered by the comparison site Cable, the average monthly cost of a broadband internet connection was $29 in Italy, $31 in France, $32 in South Korea, and $37 in Germany and Japan. The same connection cost $68 in the United States, putting the country on par with Madagascar, Honduras, and Swaziland. American households spend about $100 a month on cellphone services, the Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics indicates. Households in France and Germany pay less than half of that, according to the economists Mara Faccio and Luigi Zingales. None of this has happened by chance. In 1999, the United States had free and competitive markets in many industries that, in Europe, were dominated by oligopolies. Today the opposite is true. French households can typically choose among five or more internet-service providers; American households are lucky if they have a choice between two, and many have only one. The American airline industry has become fully oligopolistic; profits per passenger mile are now about twice as high as in Europe, where low-cost airlines compete aggressively with incumbents.

He argues that the European integration project ended up favouring the forces of competition, with countries wary of allowing other country domestic champions being promoted by their regulators. This led to a consensus on strong regulators.

Politicians were more worried about the regulator being captured by the other country than they were attracted by the opportunity to capture the regulator themselves. French (or German) politicians might not like a strong and independent antitrust regulator within their own borders, but they like even less the idea of Germany (or France) exerting political influence over the EU’s antitrust regulator. As a result, if they are to agree on any supranational institution, it will have a bias toward more independence. The case of the industrial giants Alstom and Siemens provided an almost perfect test of my theory. After Germany’s Siemens and France’s Alstom decided in 2017 to merge their rail activities, the EU’s two largest and most influential member states both wanted the merger approved. But the EU’s powerful competition commissioner, Margrethe Vestager, stood her ground. She and her team concluded that the merger “would have significantly reduced competition” in signaling equipment and high-speed trains, “depriving customers, including train operators and rail-infrastructure managers, of a choice of suppliers and products.” The European Commission blocked the merger in February 2019.

And on the costs of business concentration and lack of competition,

What the middle class may not fully understand, however, is that much of its stagnation is due to the money that monopolists and oligopolists can squeeze out of consumers. Telecoms and airlines are some of the worst offenders, but barriers to entry also drive up the prices of legal, financial, and professional services. Anticompetitive behavior among hospitals and pharmaceutical companies is a significant contributor to the exorbitant cost of health care in the United States. In my research on monopolization in the American economy, I estimate that the basket of goods and services consumed by a typical household in 2018 cost 5 to 10 percent more than it would have had competition remained as healthy as it was in 2000. Competitive prices would directly save at least $300 a month per household, translating to a nationwide annual household savings of about $600 billion. 

And this figure captures only half of the benefits that increased competition would bring. Competition boosts production, employment, and wages. When firms face competition in the marketplace, they also invest more, which drives up productivity and further increases wages. Indeed, my research indicates that private investment—broadly defined to include plants and equipment, as well as software, research and development, and intellectual property—has been surprisingly weak in recent years, despite low interest rates and record profits and stock prices. Monopoly profits do not translate into increased investment. Instead, just as economic theory predicts, they flow into dividends and share buybacks.  

Taking into account these indirect effects, I estimate that the gross domestic product of the United States would increase by almost $1 trillion and labor income by about $1.25 trillion if we could return to the levels of competition that prevailed circa 2000. Profits, on the other hand, would decrease by about $250 billion. Crucially, these figures combine large efficiency gains shared by all citizens with significant redistribution toward wage earners. The median household would earn a lot more in labor income and a bit less in dividends.