1. Larry Summers resurrected Alvin Hansen's argument on secular stagnation to explain the low productivity growth in the US. The likes of Robert Gordon, Nicholas Bloom and Tyler Cowen have point to a plateauing of transformative innovations, increased cost of new inventions, and low hanging fruits having been plucked.
Now comes Valerie Ramey with the argument that this may be technological lull,
The slow recovery of the economy from the Great Recession and the lingering low real interest rates have led to fears of “secular stagnation” and calls for government aggregate demand stimulus to lift the growth rate of the economy. I present evidence that the current state of the U.S. economy does not satisfy the conditions for secular stagnation, as originally defined by Alvin Hansen (1939). Instead, the U.S. is experiencing a period of low productivity growth. I suggest that long intervals of sluggish productivity growth may be natural in an economy whose growth is driven by technological revolutions that are large, infrequent, and randomly-timed. If this is the case, then the best description of the recent experience of the U.S. economy is a technological lull. In this situation, traditional government aggregate demand stimulus policies are not the appropriate response. Instead policies that can increase the rate of innovation and its diffusion may be more appropriate.
2. From an excellent essay by Derek Thompson peering into the post-Covid future. Sample this about restaurant industry,
Americans before the crisis spent more money dining out than in grocery stores—something that had never happened before 2015. But COVID-19 could bring this golden age to an abrupt close. OpenTable reservations have collapsed all the way to zero. Restaurant spending has fallen by about 60 percent across the country, with the sharpest declines in fine-dining, lunch, and late-night food. The situation is especially bad for independent restaurants.
Social distancing requirements, likely for the foreseeable future, will worsen the problem for mom-and-pop eateries and coffee shops. This is a fascinating prospect,
Like Prohibition did 100 years ago, a delivery-first restaurant business could change the American palate. Pizza and Chinese food are well positioned for the transition, since they already account for 70 percent of the U.S. delivery market, according to a report by the investment firm Cowen and Company. But not every entrée is made to be left in a car for 30 minutes. Grilled salmon and medium-rare steak don’t benefit from a microwave zap. Neither do Michelin-star entrées... It would be glib to suggest that most restaurants can survive by simply pivoting to delivery. Indeed, many won’t—and not just because some consumers might be afraid of lukewarm trout. The bigger problem is that the most popular delivery items (appetizers and entrées) tend to be the least profitable, while delivery consumers rarely order the higher-margin items, like dessert and booze, that actually pay the rent... Summarizing these dizzying changes to the food industry, Parsa said: “Food that travels is the future.”
And this about the retail industry,
We are entering a new evolutionary stage of retail, in which big companies will get bigger, many mom-and-pop dreams will burst, chains will proliferate and flatten the idiosyncrasies of many neighborhoods, more economic activity will flow into e-commerce, and restaurants will undergo a transformation unlike anything the industry has experienced since Prohibition... the pandemic is accelerating the retail reckoning. Over the past 50 years, the number of American malls grew almost twice as fast as the U.S. population, to the point that in 2015, the U.S. had 10 times more shopping space per capita than Germany. Such abundance makes no sense in the age of Amazon. Overleveraged, overbuilt, and oversprawled, American retailers had a long way to fall as the country moved toward online shopping. In 2017, and again in 2019, physical-store closures reached an all-time high, led by the decay of suburban totems like Sports Authority and Payless. The year 2020 may bring the death of the department store, marking the end of that 200-year-old retail innovation after decades of decline. Macy’s has furloughed more than 100,000 workers. Neiman Marcus has filed for Chapter 11. More legacy department stores and apparel retailers will almost certainly follow them to bankruptcy court or the corporate graveyard. As these anchor stores shutter, hundreds of malls that were already wobbling in 2019 will be knocked out in 2020.
And this about home delivery,
In the past month, online shopping has gone from a regular habit for a minority of consumers to a crucial part of America’s recreational infrastructure. One-third of Americans bought groceries online in the past month, and tens of millions of them did it for the first time. Walmart deliveries have skyrocketed, and Amazon now delays deliveries of nonessential items to deal with unprecedented demand. Online shopping’s share of total retail sales has been increasing approximately one percentage point per year, but a recent UBS analysis predicted that COVID-19 will immediately increase that share from 15 percent to 25 percent—a decade of change concentrated in several months.
The country had a 28% share of mattress imports in the recent numbers compiled by Raymond James, up substantially from earlier levels. Man Wah, a large Chinese upholstery producer, said it had built a 2.5 million square feet factory in Vietnam in just nine months and is rapidly shifting production to reflect the changing trade situation. From zero, it now ships 1,100 containers a month from Vietnam, a rate it expects to increase to 2,000 a month by the end of the year and eventually to 4,000 per month as it builds out production.
But furniture isn’t the only industry were Vietnam is gaining market share. Sourcing Journal, an online industry newsletter, reports that footwear imports from Vietnam are up 11.3% year-to-date and the country’s share of the American market is now just over 26 percent. That still trails China’s nearly 50% share but marks a significant shift in a product classification that once was overwhelmingly dominated by China.
4. Very good article in the Economist on private entrepreneurship in China. This goes to the underlying philosophy,
The People’s Republic recognised its first private business in 1980, when a 19-year-old street hawker named Zhang Huamei registered her stall selling buttons and toys in the port city of Wenzhou. Since then the party has developed its own form of “economic gardening”—the notion, popularised in America in the 1980s, that grassroots entrepreneurs drive growth. It told business folk what not to do—certain industries, such as tobacco, were out of bounds—but otherwise let them grow unimpeded. As Jonathan Woetzel of McKinsey, a consultancy, puts it, China’s garden has had more in common with the deliberate wilderness of an English one than with manicured French lawns. This approach has let entrepreneurship put down deep roots in China over the past 40 years. By 2017 budding business owners were registering close to 6m firms a year—or more than 15,000 a day—nearly three times the figure in 2010. Private firms contribute three-fifths of gdp and four-fifths of urban employment. Private wealth funds 70% of investment.
Success begets success, and this matters,
... a belief that anyone can make it big. Chen Long, provost of the Hupan School of Entrepreneurship in Hangzhou, a startup-rich city in Zhejiang province, puts his compatriots’ entrepreneurial vim down to “countless examples of success”, which give “a sense that you can change your own fate”. In Fujian, a hive of business activity in pre-Mao days, people asked about the secret of business success recite a folk song: “Three parts of your life the heavens determine, the other seven you can if you’re hard-working.” Tales like that of Jack Ma, who twice failed to get into university and started Alibaba, an e-commerce titan, in a cramped Hangzhou apartment, enrapture millions. Biographies of rock star founders like him or his namesake Pony Ma of Tencent, an online games-to-payments giant, fly off the shelves. Their pronouncements become aphorisms.
5. Another good article, a review of a new book by Geoffrey Cain on Samsung, the company whose success upends the conventional wisdom on many standard toolkits of management. Sample these,
Long before Kim Jong Un, North Korea’s dictator, disappeared from view in April, Samsung’s chairman, Lee Kun-hee, vanished into hospital. The 78-year-old has not been heard from since 2014. No one outside the family knows how ill he is. His only son and heir-apparent, Lee Jae-yong, aged 50, faces a retrial on charges of influence-peddling, for which he spent almost a year behind bars in 2017-18... The chaebol’s corporate culture is no less eyebrow-raising. Mr Cain describes a leadership style at Samsung Electronics that is military-like, macho and intolerant of mistakes... Mr Cain recounts numerous expletive-filled tirades by the firm’s top brass. And yet Samsung Electronics continues to be South Korea’s most prestigious employer and a magnet for bright graduates...
Samsung makes diversification seem like a virtue, not a distraction. When sales of phones and other gadgets suffer, as they did in the first quarter owing to the covid-19 crisis, the memory-chip business provides ballast; it got a boost from lockdown-related use of cloud-based servers, Samsung said on April 29th. Ten years after the Lees decided to further diversify the conglomerate by 2020, the pandemic has helped turn Samsung Biologics, a manufacturer of vaccines and other pharmaceuticals, into South Korea’s third-most-valuable company.
And the Group may be in for further turmoil with its Chairman now facing the possibility of returning to jail for an extended period.
6. Graphic which captures the financial strength and external vulnerability of 66 emerging economies.
Bangladesh's financial strength is very impressive.
7. Fascinating account of profiteering in times of Covid 19 by manufacturers in medical equipment,
7. Fascinating account of profiteering in times of Covid 19 by manufacturers in medical equipment,
A small number of Chinese factories are certified by the Food and Drug Administration to make N95 masks, and “those are the diamonds right now,” said Lily Liu, a Chinese hospital executive turned Silicon Valley entrepreneur who now helps run Operation Masks. “What’s happening at those factories is France shows up in the morning, and then they get Germany at breakfast, and then Italy after lunch, and then the U.S. in the afternoon,” she said. “In between they get distributors showing up at their doorstep with stacks of cash.” That demand has fueled the spike in prices. While some factory owners are probably making handsome margins, much of the price increase is likely spread across the supply chain, from the firms that ship and inspect the masks to those that make the masks’ fabric and the machines that assemble them.
This is a fascinating account of enterprising hoarders profiteering from the pandemic outbreak in the US and how Amazon's marketplace has been the outlet for cashing out.
8. Encouraging that Indian manufacturers have stepped up to provide most of the medical equipment procurement during the Covid 19.
9. Very good summary of options to support MSMEs in Indian Express,
While each case is unique, all are united over the basics they want the government to ensure: cheaper bank loans to help them tide over the working capital problem, permission for longer daily working hours in major business districts during initial weeks, and easing of supply-chain constraints to ensure availability of inputs and outflow of finished goods and services... since cash flow is the biggest issue, the government could consider providing some sort of refund or money transfer linked to payment history of income tax or GST by the company... the government can consider splitting the package in different ways: interest waiver on working capital loans at least for a quarter, moratorium on repayment for three quarters, some tax relief such as a cut in GST rate to 5 per cent, safety net to workers such as part-payment of wages, PF contributions for micro and mini enterprises, and easing labour laws allowing them to let staff work overtime.
And this very informative article on why MSMEs are very important. In the absence of further support, the already high non-performing assets of banks with MSMEs are expected to rise even further.
10. Rahul Jacob worries about Covid 19 ushering in a return to the license raj in the form of capricious and impractical directives on the nature of local restrictions on economic activities. This is a headline symptom,
According to PRS Legislative Research, a think-tank, the central government has issued almost 600 notifications and state governments a further 3500.
This is sobering,
Exporters are especially vulnerable as this depressing saga of threats to businesses and misconstrued messaging within the government apparatus plays out. Many exporters were already weakened by the complications of the goods and services tax regime. Now, with China, Vietnam and Bangladesh running factories at close to normal levels, the risk of losing business permanently looms large. Oblivious to this challenge, the Modi government has instead been arguing that the covid-19 crisis will allow India to position itself as a manufacturing alternative to China. Tiruppur-based Elangovan has heard such predictions before. For the past couple of decades, companies in the West have been looking to diversify their outsourcing requirements and pursuing a China+1 strategy. “India has never been a candidate; the ecosystem is not there. We cannot replace China for 50 years to come," he told a roundtable organized by Apparel Resources, an online trade publication. Impressed by how well the finance ministry in Dhaka works with garment manufacturers and exporters in Bangladesh, Elangovan had a more realistic goal for India: “Let’s compete with Bangladesh."
11. Michael Kremer et al argues for advance market commitment (AMC) for Covid 19 vaccine,
Today, the U.S. government could go big and create a Covid-19 vaccine A.M.C., guaranteeing to spend about $70 billion on new vaccines — enough to make direct investments to support capacity installation or to repurpose capacity and to pay, say, $100 per person for the first 300 million people vaccinated... An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.
The “push” incentive guarantees firms partial reimbursement for production capacity built or repurposed at risk and partial reimbursement as they achieve milestones. The partial reimbursement ensures that manufacturers have “skin in the game,” while inducing them to build large-scale capacity before approval is certain.
An AMC assumes the lack of incentive to pursue a particular goal with vigour and speed. I struggle to understand how either should be missing now among the leading global pharmaceutical companies. Isn't the possibility of windfall gains for the first mover, despite the risk of losing out to competition, adequate enough incentive? In fact, isn't this exactly the opportunity that pharma companies are primed to pursue?
12. The IMF's latest Fiscal Monitor has a good graphic of the Covid 19 economic response by G-20 economies.
12. The IMF's latest Fiscal Monitor has a good graphic of the Covid 19 economic response by G-20 economies.
Clearly the developed countries have been able to turn fully open the fiscal spigots, whereas the developing countries have had to do with modest stimuluses. India comes second last in the size of its stimulus, despite the toughest lockdown.
13. Fascinating insight that highlights why quick resolution of stressed companies is important,
Consider what happened to now-famous House of Debt firms, the 17 large companies (excluding Essar Steel and the Adani group) that Credit Suisse long ago identified as stressed. In March 2010, their market value was Rs 3.1 lakh crore. A decade later, their value had fallen to just Rs 0.8 lakh crore, a loss of Rs 2.3 lakh crore or nearly 75 per cent. Accounting for inflation over this period, the real value of that loss is even greater.
Zombie companies kept alive on ventilators merely get worse and adds to the pile of accumulated debt.
14. Finally, the Reliance deleveraging continues at a rapid clip. The company has committed to pare down its $21.4 bn debt to zero by 2021. First it was Facebook investing $5.7 bn for a 9.9% stake in Jio Platforms Ltd at a valuation of $65.95 bn (Rs 4.62 trillion pre-money). Then came PE firm Silverlake Partners taking a 1.15% stake at an enterprise value of Rs 5.15 trillion. Now comes a 2.32% stake sale to another PE firm Vista Equity Partners at enterprise value of Rs 5.16 trillion. The total amount raised in the three deals concluded in three weeks comes to $8 bn.
All this is on top of a rights issue worth Rs 53, 125 Cr and a $15 bn stake sale in RIL to Aramco which is currently on hold.
No comments:
Post a Comment