1. FT points to this graphic on average debt refinancing requirement of different countries,
India has the lowest requirement, which should be a rare matter of comfort.
2. This is just extraordinary in terms of impact - Mo Salah and attitudes towards Muslims in Liverpool (HT: @MilanV)
Can exposure to celebrities from a stigmatized group reduce prejudice toward that group writ large? We estimate the causal effect of Mohammed Salah—a visibly Muslim soccer player— joining Liverpool Football Club on Islamophobia, using hate crime reports throughout England, 15 million tweets from British soccer fans, and a survey experiment of Liverpool F.C. fans. We find that hate crimes in Merseyside (home to Liverpool F.C.) dropped by 16% compared to a synthetic control, and Liverpool F.C. fans halved their rates of posting anti-Muslim tweets relative to fans of other top-flight clubs. Our survey experiment suggests that the salience of Salah’s Muslim identity enabled positive feelings toward Salah to generalize to Muslims more broadly. Providing real- world behavioral measures of prejudice reduction and experimental evidence from a naturalistic setting, our findings provide support for the parasocial contact hypothesis, indicating that positive exposure to outgroup celebrities can reduce prejudice.
2. Asian Americans in a graphic - the dominance of Indians (HT: @MilanV)
3. The Economist uses valuations of stock market and unicorns to write that US and China are the dominant hubs for economic innovation and that Europe has fallen behind.
America and, increasingly, China are ascendant, accounting for 76 of the world’s 100 most valuable firms. Europe’s tally has fallen from 41 in 2000 to 15 today... One way of capturing the dominance of America and China is to compare their share of world output with their share of business activity (defined as the average of their share of global stockmarket capitalisation, public-offering proceeds, venture-capital funding, “unicorns”—or larger private startups, and the world’s biggest 100 firms). By this yardstick America accounts for 24% of global GDP, but 48% of business activity. China accounts for 18% of GDP, and 20% of business. Other countries, with 77% of the world’s people, punch well below their weight... only America and China have been able to marshal the process of creative destruction. Of the 19 firms created in the past 25 years that are now worth over $100bn, nine are in America and eight in China. Europe has none.
I can only say that in this world of grossly inflated valuations, this is just such a disappointing argument. In fact, there is a strong possibility that European businesses may actually better off having avoided this corrosive culture of chasing valuations. It'll be interesting to see what The Economist will write when the whole thing pops, as it must, and these two economies pick up the pieces from it.
4. Global debt increased by $32 trillion in 2020 to $290.6 trillion, or from 88% to 105% of global GDP, as governments, businesses and households struggled to combat Covid. Advanced countries contributed 67% of the government debt increase and EM corporates contributed 64% of the corporate debt increase.
5. Business Standard points to the spectacular $43 bn increase in the wealth of Gautam Adani over the year. It highlights the disturbing fact that a few Mauritius-based funds hold a chunk of the Group companies shares, thereby reducing the public float and increasing the vulnerability of the stocks.
The Adani group has been dogged by accusations of being a rent-seeking corporate, with limited execution and business creation track record. One way for the Group to be considered one of the country's greatest wealth creators and not a mere rent seeker who benefited from circumstances is to emerge as a global leader in wafer/cell manufacturing. It's only appropriate for a company which has already declared its ambitions of being the largest global solar energy supplier. It's all the more so given the entry barriers against Chinese imports including the 40% basic customs duty (BCD) on modules and 25% on cells.
However, even after this, it does not emerge as a global leader in at least module manufacturing with significant downstream integration, it will only lend further credence to the Group's present reputation.
6. The irony of the winners and losers from Covid 19.
In relative terms, China may prove to be the clear “winner” from the Covid-19 disaster, US and ASEAN-5 do reasonably well, while Europe, UK, Mexico and South Africa are the clear “losers” …and India is among the also-rans in the middle of the pack.
7. It is increasingly evident that Serum Institute of India bungled its vaccine manufacturing plans. The series of flip flops and publicity seeking nature of the CEO's actions are hardly representative of a professionally managed firm.
It's one thing to be a leader in a market whose main customers were people in developing countries and an altogether different thing to be leader in a market for a product which is likely to be in heavy global demand for the foreseeable future. It was a great opportunity for the company to seize the opportunity and emerge as a true global leader in a global market. It's difficult to not imagine that SII's credibility has seriously eroded due its pandemic response. Another example of an Indian company falling short.
8. Srinath Reddy summarises the evidence available on the efficacy of single dose and existing vaccines against the newer variants,
A single dose of either the AstraZeneca or the Pfizer-BioNTech vaccine does not provide adequate protection against the D variant which is dominant in India. Two doses provide better protection. Shortening the dosing interval for the AstraZeneca vaccine to 8 weeks is the right response to that variant, based on current scientific evidence. If the Pfizer-BioNTech vaccine becomes available in India, those doses too should be administered with a 4-8 week interval. Wider spacing of vaccine doses does not appear rational against the D variant.
‘Hallyu’ was a term that the Chinese used in 2001 (pejoratively at first) to refer to the growing global popularity of South Korea’s creative economy, especially its entertainment industry, including K-pop and other forms of music, TV shows, dramas and movies... South Korea has used its cultural exports not only as a means of ensuring economic success, but also to increase the nation’s appeal to a global audience. While K-pop idols like BTS, Blackpink, etc, have made Korean food, fashion, language and culture desirable, the government has been encouraging a fresh wave of Hallyu by focusing on Korean language education, promoting cultural exchanges, and providing information on overseas markets and support for translation and online marketing. Fans of K-pop, called Stans, or those of BTS, called the A.R.M.Y., too have contributed to K-pop’s appeal. These fans are assiduously cultivated by these idol groups themselves, who interact with them via social media, dedicate their music to them, and build bonds of intimacy and trust. While the BTS and the K-pop phenomenon is far more complex, with both positives and negatives, Korea’s cultural industry presents an alternative model of gaining soft power, and thereby achieving development.
10. Business Standard analyses the implications of the recently announced global corporate tax harmonisation measures. The two pillars mandate a minimum 15% corporate tax rate (failing which the country of nativity of the corporation can mop up the differential) and country of business generation having the taxing rights on at least 20% of the profit exceeding a 10% margin on the largest and most profitable multinational enterprises.
Whatever the details of the announcements, this marks a definitive shift in the global trend towards lowering of corporate tax rates.
Alex Cobham of Tax Justice Network writes about the two pillars,
But the OECD has narrowed this substantially, and the G7 has narrowed it still further. Now only 100 multinationals are likely to be affected, and only a fraction of their profits above a 10 per cent margin will be apportioned to their sales jurisdiction (with no weighting for the jurisdictions where employment occurs). The OECD estimates this will bring in additional revenues of $5bn to $12bn a year, a 2-5 per cent reduction in the estimated annual losses of $245bn due to profit shifting. The benefits of pillar two are much greater. The OECD estimates that a global minimum tax rate of 12.5 per cent, which would apply to perhaps 8,000 multinationals, could yield nearly $100bn a year in additional revenues. Our estimates show a 15 per cent minimum rate could raise as much $275bn a year. A 21 per cent rate, favoured by the Biden administration, or a 25 per cent rate as recommended by the Independent Commission for the Reform of International Corporate Taxation, would raise far more.
He writes about how the current proposal favours developed over developing countries,
The OECD approach privileges headquarter countries. This means that if a French multinational shifts profits out of Brazil to benefit from Bermuda’s 0 per cent tax rate, it would be France that could “top up” the taxes on that profit to 15 per cent. As most of the largest multinationals are headquartered in OECD countries, the majority of the benefits would go to them. G7 members, with 10 per cent of the world’s population, stand to receive more than 60 per cent of the additional revenues. The alternative proposed by the Tax Justice Network, the Minimum Effective Tax Rate (METR), would allocate undertaxed profits according to the location of the multinationals’ real activities. They would be taxed at the national headline rate, rather than at the agreed global minimum, to avoid incentivising profit shifting. A 15 per cent rate would raise as much as $460bn in additional revenues. For major G20 members outside the G7, the difference is stark. At a rate of 15 per cent, India could gain $13bn rather than $4bn; and China $72bn rather than $32bn. Additional revenues would double or even triple for countries such as Brazil and South Africa.
In the coming years, there is an eminently justifiable window available for developing countries to push the agenda further on pillar one and entrench the principle of corporate taxation of multinational corporations towards the location of their business activity.
11. Andrew Haldane has an excellent article drawing attention to the inflationary risks associated with the ongoing monetary accommodation (HT: Ananth).
The battle lines are clearly drawn on this issue and there are formidable voices on both sides. As with all such issues, we have to make judgements in real time and live by their consequences.
One thing though does strike me. The case for continuing accommodation rests on the risk that the post-Covid recovery is tenuous and may not be sustained and the economies may fall into a recession. The case for reversing accommodation rests on the risk of inflationary pressures rising and getting out of control.
Central banks across developed countries have been engaged in monetary accommodation since 2008. There have been multiple instances over the past fourteen years when the economies in Europe and US have started to look up. On each occasion the central banks have justified their persistence with monetary accommodation on the grounds that any tightening will nip the green shoots of economic growth. This justification is a slippery slope - with any type recovery, this argument can be invoked to justify the continuation of accommodation.
In contrast, if history is any guidance, the risk of inflation becoming unhinged and taking off is real. And irrespective of whether it's transient or structural, nobody can deny the signatures of overheating and oversupply of credit. In the circumstances, is there a case for erring on the side of the inflation risk as against the recession risk?
12. When rules and norms that restrain corrupt behaviour are weak, it is only natural that corrupt practices surface. And higher the stakes, greater the human incentive for rent-seeking. This truism applies to any context, public or private sectors. Weak enforcements of disciplinary rules and poor corporate governance are features of public and private landscapes in India.
Further, even with the tightest rules, decision making always involves the exercise of discretion and judgement. Insider trading in equity markets or preferential access to influential businesses in setting the rules of the game will always be exploited by people in private and public sectors. It's a myth to make the generalised claim that somehow incentives are aligned in the private sector as to limit corrupt practices. When stakes are high and
The latest high-profile example of insider trading comes from Franklin Templeton's mutual fund business, where the husband-wife duo of Vivek Kudva and Roopa Kudva have been found by the market regulator to have indulged in insider trading.
Sebi noted that the husband-wife duo and Vivek Kudva’s late mother Vasanthi redeemed their personal investments from the six beleaguered debt schemes of Franklin Templeton Mutual Fund based on confidential and non-public information. Franklin Templeton Mutual Fund had decided to shut six debt schemes on 23 April 2020 by suspending redemptions for more than 300,000 investors. The Kudvas redeemed their investments before the decision was taken.
It's surprising that private sector leaders with known history of dubious integrity, like Roopa Kudva, get such good press and acclaim and even get appointed to lead high profile philanthropic institutions and use their pulpits to preach about good governance, poverty eradication and so on. Given the clear nature of the SEBI indictment, if Omidyar Networks has any regard for propriety in public life, it should fire its Managing Director. However, it's more likely that she'll either stay on or be allowed a graceful exit.
This is only the latest example to expose the pervasive culture of cutting corners and corruption that characterises corporate India.
13. China graphic of the day - the global share of oil and mineral extraction and processing:
14. From the same article, wind power fact of the day
At 107 metres, the three carbon-fibre blades of a Haliade-X marine wind turbine are longer than the wingspan of any airliner ever made. The generator which transforms their rotation—over 300km an hour at the tip—into power requires over 100 powerful magnets made of exotic metals and untold lengths of coiled-up copper. The blades, generator and associated gubbins, weighing around 900 tonnes all-in, have to be installed on a pylon so tall that the blade-tips reach almost as high above the waves as the pinnacle of the Transamerica Pyramid rises over the 600 block of San Francisco’s Montgomery Street.
Blades 107 long and 900 tonnes heavy!!
The article also points to how raw materials like rare earths which underpin green energy may become critical bottlenecks to the growth of green energy sectors.
Batteries depend on cobalt, lithium and nickel; neodymium and other rare-earth elements (which despite their name are not necessarily rare, though some are) make the magnets for electric generators and motors; the veins and arteries of the green economy run with copper... Raw materials now represent 50-70% of battery costs, up from 40-50% five years ago, making prices more vulnerable to expensive commodities.
15. Finally, fascinating interview of Zvonimir Boban, former Croatian soccer captain. He rates Maradona as the best ever and this free kick for Napoli against Juventus as the best goal ever. He says,
If Ronaldo (Brazilian), Pelé and Messi were touching the soul of the ball, we’ve been feeling the leather of the ball, but Maradona took the soul from the ball.
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