Monday, February 28, 2022

Informal outsourcing within government

The mainstream discussion on outsourcing in government pertains to the transfer of certain public services to private contractors. This is a welcome development in so far as it generates significant efficiency gains.

A more pernicious form is the practice of informal outsourcing of their core activities by individual public employees. It comes in several forms, all questionable and some plain illegal.

The commonest, and now largely accepted practice, is to contract teachers and lecturers in schools and colleges, and doctors and paramedical staff in hospitals. The perverse result is that the regular employees end up outsourcing their teaching and treatment responsibilities to these contract staff. From teachers relieving themselves on the likes of vidya volunteers or contract teachers, to Associate Professors and upwards in Universities and Medical Colleges informally transferring their instructional responsibilities to contract lecturers, the practice has become pervasive and with very damaging consequences.   

At a more institutional level, it's now very common for consulting organisations to be outsourced the task of thinking on behalf of government departments and prepare detailed project reports and contract documents, appraise programs, and even prepare Cabinet Notes. Government officials. The Secretariats and Commissionerates of Departments, and public research institutions have ceded space on public policy making and project design to them. I've blogged here about its corrosive effects. 

Then there is the completely illegal practice of teachers hiring outsiders at a fraction of their salary to take their place and attend school duties, so that they can attend to their business activities and make more money. In many offices, including State and central government secretariats, it's increasingly common to find outsourced data entry operators (DEOs) performing the file processing responsibilities of Section Officers and Assistant/Deputy Secretaries. It's worse still in the district offices of line departments. In fact, outside of the lower and middle-level staff, it's not uncommon to have senior officers of the government outsource their office work to individual consultants, some of whom even operate their digital file management system. 

It's surprising how little of this gets discussed in the public realm. It's time for journalists and newspapers to expose this problem and generate public debates on the issue. It's also an important area for academic researchers to engage. It's central to the enfeebling of state capability in India. It's likely the case in many developing countries, though India may be at the vanguard of this trend. 

Sunday, February 27, 2022

Weekend reading links

1. FT reports that the courts are the latest means by which western multinationals operating in China are being squeezed,

Businesses, including Sweden’s Ericsson, Finland’s Nokia and Sharp of Japan, have lost money after China’s supreme court banned them from protecting their patents by securing licensing deals in foreign courts, the European Commission said. Chinese courts set licence fees at around half the market rate previously agreed between western technology providers and manufacturers such as Oppo, Xiaomi, ZTE and Huawei, it added. The lower licensing fees set by Beijing deprive smartphone makers and other mobile telecommunications businesses of a crucial source of revenue to reinvest in research and development... Smartphone makers have agreed global standards for telecommunications networks. In return, technology manufacturers must license their patents to others. If they cannot agree on a price, they go to court to set it. Chinese courts generally set prices at half the level of those in the west, meaning their companies pay less for the technology from overseas providers.

2. Simon Kuper has a brilliant essay on the 30 years of English Premier League. This quote by Greg Dyke, the head of ITV Sport which won the broadcast rights to EPL sums up an important reason for the success of EPL,

“Who could have foreseen that we’d end up with English football being largely owned by foreign owners, managed by foreign managers, and disproportionately played by foreign players?”

Kuper highlights the pioneering roles played by Eric Cantona, Arsene Wenger, and Roman Abramovic in this transformation. The article has several snippets - no English manager has won the EPL; almost every English club that existed a century ago survives today; EPL's bottom club gets more TV income than every European club bar Real Madrid, Atletico Madrid, and Barcelona.

3. Tamal Bandopadhyay has an explainer on the bank frauds involving Rishi Agarwal and his ABG Shipyard. 

The alleged fraud has all the usual elements: The creation of close to 100 associates, affiliates and subsidiaries; diversion of funds for money laundering; ever-greening of bank loans; and creating personal assets... Since 2012, ABG Shipyard has allegedly defrauded 28 banks and financial institutions of Rs 22,842 crore. ICICI Bank Ltd tops the list with a Rs 7,089 crore exposure, followed by IDBI Bank Ltd (Rs 3,639 crore) and State Bank of India (Rs 2,925 crore).

4. Ajay Shah highlights an interesting point about source of funds for Indian corporates,

Equity made up 22.4 per cent of the total liabilities of private domestic non-financial firms in 1991-92, and has risen dramatically to its highest ever value of 39.43 per cent in 2020-21... (In the same period) Bank+FI financing went down from 27.7 per cent of the balance sheet to 10.8 per cent.

5. From an NYT article which discusses the housing market in the US using the example of Spokane town in Washington state,

The typical home in the Spokane area is worth $411,000, according to Zillow. That’s still vastly less expensive than markets like the San Francisco Bay Area ($1.4 million), Los Angeles ($878,000), Seattle ($734,000) and Portland ($550,000). But it’s dizzying (and enraging) to long-term residents. Five years ago, a little over half the homes in the Spokane area sold for less than $200,000, and about 70 percent of its employed population could afford to buy a home, according to a recent report commissioned by the Spokane Association of Realtors. Now fewer than 5 percent of homes — a few dozen a month — sell for less than $200,000, and less than 15 percent of the area’s employed population can afford a home. A recent survey by Redfin, the real estate brokerage, showed that home buyers moving to Spokane in 2021 had a budget 23 percent higher than what locals had.

6. The Russian invasion of Ukraine is a defining moment of our era. It upends the widely accepted reality that we're past the times of one country invading another. It's a reversion to the historical trend. 

The Russian strategy of backing pro-Russian regimes in "frozen conflicts" involving Russian speaking majority areas to control its neighbourhood is well known. Transnistria in Moldova for over three decades, Abkhazia and South Ossetia in Georgie in 2008, Crimea from Ukraine in 2014, and now Donetsk and Luhansk in Ukraine are examples. It has used supporting rebels and limited conflicts to control its neighbourhood. This one marks a departure from trend in so far as it's a full-fledged invasion. 

The western response to the invasion will be a test case for China. It will scrutinise all the reactions in minute detail to make an assessment of what could be the likely response in case of it itself invades Taiwan. That assessment will play a critical role in shaping the world of at least the next quarter century. Sanctions have so far been imposed on Russian banks and industry, on top leaders including Vladimir Putin, Oligarchs. Germany has cancelled its certification of the Nordstream 2.0 Gas Pipeline. Several countries have barred the Aeroflot from using their airspace. They are now considering severing Russian banks from the international payments network, SWIFT. Are these enough to make the Chinese blink? 

Russia is the biggest gas supplier to Europe, making up a third of the continent's needs

The impact of the tensions has constrained supply and boosted prices,

European gas futures jumped almost 70 per cent to €142 per megawatt hour after the invasion began. A year ago they were €16.

Over the week, the Russian President has given two rambling long speeches. In both, especially the second, he vented the frustration and anger at the eastward expansion of NATO and EU and the perceived threat thereof. 

The importance of Ukraine is highlighted in this long read in FT

As the Soviet Union was crumbling in 1991, US defence secretary Dick Cheney advised his boss that Washington should do everything possible to accelerate that collapse. The US secretary of state, Bush’s old friend and tennis doubles partner James Baker, disagreed vehemently... Torn between Cheney’s and Baker’s views, the Bush administration became badly split. As its senior figures fought over what to do, Ukrainians forced the matter by holding a referendum on December 1 1991 on whether to become an independent state. The result was lopsided: with 84 per cent turnout, the vote was over 90 per cent in favour of independence. Support for breaking away ranged from 54 per cent in Crimea to over 95 per cent in western districts and in Kyiv. Even in Donetsk, Luhansk and neighbouring eastern districts, the vote in favour was more than 80 per cent. The then US ambassador in Moscow, Robert Strauss, advised Washington that this result was devastating for Russians — “the most revolutionary event of 1991 for Russia may not be the collapse of Communism, but the loss of something Russians of all political stripes think of as part of their own body politic, and near to the heart at that: Ukraine.”

Ukraine emerged from the break-up as the third largest nuclear power, bigger than even France or UK.  

Earlier in the week Russia recognised the two breakaway Ukrainian regions of Donetsk and Luhansk, thereby effectively ending the Minsk agreement of 2014. This is an explainer. Jeff Sachs calls for NATO foreswearing its expansion to include Ukraine in return for Russian withdrawal and demobilisation. 

7. The disturbing trend of fiscal dominance in India

If Korea needs to improve its fiscal balance by 2.5 per cent of GDP, non-interest spending would need to be reduced by 11 per cent (2.5 percentage points divided by non-interest spending of 22.3 percentage points). This would be a tall order. But it might be feasible. In contrast, in India the same reduction in deficit would require non-interest spending cuts of 20 per cent (2.5 percentage points divided by 12.7 percentage points), nearly double the reduction in Korea. This would be politically impossible and not desirable either.

8. From the US State Department's just released Indo-Pacific strategy document,

We will continue to... steadily advance our Major Defense Partnership with India and support its role as a net security provider... We will continue to build a strategic partnership in which the United States and India work together and through regional groupings to promote stability in South Asia; collaborate in new domains, such as health, space, and cyber space; deepen our economic and technology cooperation; and contribute to a free and open Indo-Pacific. We recognize that India is a like-minded partner and leader in South Asia and the Indian Ocean, active in and connected to Southeast Asia, a driving force of the Quad and other regional fora, and an engine for regional growth and development.

9. An example of China's extra-territorial actions in trying to kidnap its nationals living in foreign countries and accused of corruption etc in China,

Grace Meng, the wife of the former Interpol chief Meng Hongwei, who was seized and jailed by the Chinese authorities in 2018... a businesswoman and former member of the jet-setting elite whose Chinese name is Gao Ge, and her husband, a vice-minister of public security until he was jailed, are among the highest profile of the many Chinese politicians, activists and business leaders to have been targeted at home and overseas by Xi and the CCP in recent years. In interviews with the FT in Paris and Lyon she described how days after her husband was detained in 2018, Chinese agents made at least two attempts to kidnap her from Lyon — the French city where Interpol is based and where the couple lived — and take her back to China.
Shortly after her husband’s disappearance in Beijing, she fled to a hotel after her home alarm was triggered and her car appeared to have been broken into. Two Chinese men tried to find her at the hotel before she moved to a new location. At the same time, a Chinese acquaintance tried to persuade her to join him on a private jet from Lyon for a business trip to eastern Europe but she smelled a trap and declined to go. On yet another occasion, the Chinese consul in Lyon invited her to come and collect a letter from her husband, but she responded that she would only meet in a public place in the presence of journalists and with the knowledge of the French authorities. The meeting never took place and she says she never saw any letter from her husband.

There is an interesting contrast in the relatively lukewarm coverage for such egregious actions, which are now increasingly commonplace, to the outrage generated in UK by similar Russian actions (see here and here). Is it case of implicit acknowledgement of China's might and a belief that they can get away with aggressive response in case of a less strong Russia. 

10. The fortunes of Netflix in India underlines two aspects about the Indian market. One, the addressable market is really small (small middle class). Two, it's extremely price sensitive.  

The first comes from this graphic 

And the second from this graphic

This captures the problem,
Back in 2016, when Netflix launched in India, Bollywood welcomed the godfather of streaming with open arms. “Producers looked at Netflix as this hen that’s going to lay golden eggs,” said one studio executive. Yet more than five years later, Netflix’s ambitions to find 100mn subscribers from India look like hubris. Today, Netflix has just 5.5mn subscribers in India, according to Media Partners Asia (MPA), a research and consulting company. In contrast, MPA estimates that Netflix’s competitors, Amazon Prime Video and Disney Plus Hotstar, have 16mn and 50mn, respectively — the latter boosted by holding the rights to air Indian Premier League (IPL) cricket matches.

Wednesday, February 23, 2022

The NHAI financing conundrum

The National Highways Authority of India (NHAI) poses a conundrum to the Government of India. It has a debt burden of Rs 3.44 trillion, a steep 14-fold increase from Rs 24,188 Cr in 2014-15. In order to address this problem, the Union Budget 2022-23 has proposed to finance the entire NHAI expenditure for next year through budget transfer of Rs 1.34 trillion. This allocation is double that of 2021-22.

I had blogged here arguing that the roads construction targets of NHAI are unrealistic and that it ought to be financed primarily through public finance (budget or public debt). The Government of India is now proposing to do exactly that.

In fact, the idea that national highways in India can be financed mainly (or even significantly) by leveraging private capital through the likes of BOT (for greenfield projects) and monetisation (of brownfield assets) does not square up with facts. There is no country in the world, including the United States, which has managed to achieve either in any large-scale manner. 

India's experience too bears this out. In the initial years of the NHAI, the low hanging fruits involving the commercially viable routes were all tolled out. But in the last decade EPC and HAM (both are effectively public financed) have emerged as the preferred NHAI construction approaches, and there have been hardly any BOT project. Similarly, after the initial euphoria on monetisation, subsequent monetisation bids have evoked lukewarm interest and some have had to aborted. Both are a reflection of the market's lack of appetite to finance such projects, and not due to any lack of enabling policies. 

I have also blogged on multiple occasions that expectations of large scale monetisation and alternative financing of NHAI, including significant foreign investments, are misplaced. 

On the face of it, the cleanest structure in terms of accounting would be to transfer the road assets to the books of NHAI and also treat the toll revenues as its income. The NHAI thereby becomes a revenue generating entity which leverages the toll income from its road assets to raise debt and finance its new projects. 

However, this may create a problem for the government in so far as it both reduces the government's revenues (the toll revenues going to the Consolidated Fund of India) and also its capital expenditure (the toll revenues being assigned to the NHAI). But to the extent that revenues were anyway a pass-through, this change would not have any substantive impact. 

But this raises an important issue. A typical private company would optimise leverage to make its equity go longer in its investments. In the case of NHAI, it can appear that the Government of India is committing to  finance the entire NHAI capital expenditure budget from 2023-24 from budgetary resources (its equity).

The government have clarified that it has resorted to this approach so as to reduce the burden on a deeply indebted NHAI. It has claimed that a few years of budget support would enable the NHAI rein-in its debt ratios and help reach a sustainable growth path. This explanation appears entirely reasonable. 

There may be one more reason to favour this. While budget financing can appear like equity funding, the large fiscal deficit means that the government is effectively borrowing to finance this equity investment. In other words, government is channeling its debt to NHAI. 

This raises the question of why should the government do this round-about approach when the NHAI can raise debt on its balance sheet. Here it should be pointed out that the Government can raise debt at cheaper rates than NHAI. And given the volumes and long tenor, the savings from this arbitrage can be significant.

In conclusion, the government is right in restricting debt issuance by NHAI and sharply increasing its budget allocation so that NHAI can get its debt under control. Once debt has been pared down, it can allow NHAI to regain access to the debt markets. But more broadly, it's a welcome acknowledgement of the reality that India's highway construction program has to be largely public financed. 

The experts advocating PPPs and fancy financial engineering are a distraction. At least some are self-serving and represent market interests who stand to benefit commercially. 

Monday, February 21, 2022

Some thoughts on the Ukraine crisis

As tensions escalate in Ukraine, there is an intense debate on reading President Putin's mind. We can set aside the Russian claim that they are responding to Ukrainian intentions to invade the eastern Donbas region controlled by Russian backed separatists or Ukrainian plans to conduct an ethnic genocide on Russians in the country. 
Instead, the questions are whether Putin is a global expansionist who wants to exercise control over the entire Europe, or is he trying to reassert Russian supremacy in its Slavic (or at least Eastern Slavic) near-abroad? I am inclined to think it's the latter. While it's cold comfort that it's only the latter, it should be an important consideration while responding to Russian actions. 

The likes of John Mearsheimer and even the late George Keenan claimed that it's the latter. What Mearsheimer wrote in 2014 when Russia annexed Crimea is just as relevant now,
The United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement, the central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West. At the same time, the EU’s expansion eastward and the West’s backing of the pro-democracy movement in Ukraine—beginning with the Orange Revolution in 2004— were critical elements, too. Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement, and in recent years, they have made it clear that they would not stand by while their strategically important neighbor turned into a Western bastion. For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president—which he rightly labeled a “coup”—was the final straw. He responded by taking Crimea, a peninsula he feared would host a NATO naval base, and working to destabilize Ukraine until it abandoned its efforts to join the West.
They point to the consistent misreading in the west of the intentions of Soviet era leaders starting from Joseph Stalin to Vladimir Putin. They have therefore argued that the NATO expansion deep into Eastern Europe in the nineties was a fatal mistake. It convinced the Russians about the intention of the West to encircle and contain Russia. This expansion was probably inevitable given the capture of the US foreign policy establishment by the Cold War generation, who have long believed that the Russians had aspirations of global conquest. The Times has an article which captures many of the elements of this line of thinking,
Russian foreign policy experts generally see the standoff over Ukraine as the latest stage in Mr. Putin’s years long effort to compel the West to accept what he sees as fundamental Russian security concerns. In the 1990s, that thinking goes, the West forced a new European order upon a weak Russia that disregarded its historical need for a geopolitical buffer zone to its west. And now that Russia is stronger, these experts say, it would be reasonable for any Kremlin leader to try to redraw that map... Since Mr. Putin’s past attempts to negotiate with the West over arms control and NATO expansion failed, they say, the Kremlin chose to raise the stakes to a point at which its interests became impossible to ignore.
The Eastern European countries may have reasons to be genuinely concerned with what are President Putin's intentions. The FT has an interview of the Estonian Prime Minister Kaja Kallas where she captures these concerns,
That memory of the terror and deprivations of Soviet rule, and an intense desire never to return to those days, explains why Estonia has consistently warned the west about the dangers of a revanchist Russia, especially after Putin’s first aggression in Georgia in 2008 and even more so after its 2014 annexation of Crimea... one of the dividing lines between western and eastern Europe is their differing views of the second world war. In the west, Nazi Germany tends to be seen as the sole aggressor. But in the east, there are long memories too of the crimes and abuses by the Soviet Union... Wages have grown 45-fold, pensions 60-fold, and its income per capita, which was once 40 per cent of the EU average, is now 86 per cent and bigger than that of Greece, Portugal or Poland... She underscores: “Our development has been quite rapid, but for me it’s very important to understand that it’s not for granted. We could lose it all again.”

FT has an article that explains the concerns among the three Baltic republics. 

Are Putin's ambitions confined to the Eastern Slavic neighbourhood or the entire Slavic region? Or is there a belief that the Eastern Slavic areas should be part of Russia and the rest a strategic buffer to the west? Given that the USSR has dissolved and the Slavic region is now full of independent countries, a reality that cannot be reversed, what can be done to assuage Russian fears? Or can they be assuaged at all? What should be the western strategy to address these scenarios?

As the crisis deepens, the Americans have joined the Russians on a high-stakes public brinkmanship. Putin has proved adept at mounting pressure on neighbours and getting them to back down and to tow the Russian line. In realisation, the Americans have sought to put pressure on the Russians through an unprecedented information disclosure campaign. President Biden has repeatedly raised the ante by releasing information to back claims that a Russian invasion is imminent. The Americans clearly don't want to be caught on the backfoot as happened with the Russian invasions of Crimea in 2014 and Syria in 2015. However, on the flip side, this approach also reduces the space available for diplomacy and negotiations. 

But an invasion of Ukraine could end up achieving the exact opposite of what Putin is hoping in so far as it would consolidate the now fragmented opposition in the West against Russia. It would also increase the pressure on NATO to strengthen its forces deployment along the Eastern frontier. The containment could end up tightening. 

The only big winner here is China. On the one hand, the crisis has provided a convenient digression for the US policy establishment away from the more important task of managing the emergence of China. On the other, it has driven Russia deeply into the Chinese side and cemented an alliance among them, and that too at Chinese terms. The two Presidents recently met and issued a joint statement which committed to a partnership with "no limits", opposed NATO expansion, Washington's Indo-Pacific strategy, and affirmed Taiwan as an inalienable part of China. 

Update 1 (28.02.2022)

Map which captures the graphic detail of the NATO-EU encirclement which has been a major concern of the Russians.

Sunday, February 20, 2022

Weekend reading links

1. The Times has an article on the pandemic induced trend of reverse migration to suburbs and small towns in the US. The main driver is lower housing costs, which more than off-sets any disadvantages. 

2. The Times has an article on the expanding bus lanes in large global cities. 

Beijing has set a blistering pace for bus lanes, carving out 624 miles since the first one opened in 1997 to stem soaring car ownership. The average travel speed in the lanes is 12.4 m.p.h. at peak times, over 50 percent faster than the average bus speed in New York. London, with 180 miles of bus lanes on its busiest roads, has placed some of them at pinch points to improve traffic flow and expanded to 24/7 service on many lanes, which has helped improve travel times and reliability... The bus lanes in London have been a “a real success story” that helped turn around its bus system and “remain incredibly important and a backbone of road based public transport,” according to Philipp Rode, the executive director of LSE Cities... San Francisco, a city of just 47 square miles, now has 65 miles of transit lanes, of which nearly 15 miles were added in the last two years. 

Bus lanes have more than doubled in Boston while pop-up bus lanes were added to key routes in Chicago. Houston’s first bus rapid transit service, the Silver Line, opened on a five-mile bus lane through a bustling employment and retail center... New York plans to build 150 miles of new bus lanes over the next four years, adding to 140 miles of existing lanes to create one of the largest such networks in the world... New York’s outdated and inefficient bus system, where the average speed is 8.1 miles per hour, is used primarily by low-income riders who do not have cars and often live far from the subway.

3. Adam Tooze points to a chilling fact about the Ukrainian economy,

Ukraine’s performance between 1990 and 2017 was not just worse than its European neighbors. It was the fifth worst in the entire world. Between 1990 and 2017 there were all told only 18 countries with negative cumulative growth and even in that select group, Ukraine’s performance puts it in the bottom third. Amongst the four countries that delivered less growth for their citizens than Ukraine were the Democratic Republic of Congo, Burundi and Yemen.
4. Is RBI falling behind the curve?
5. Mihir Sharma has a good oped on crypto-currencies. It's wild fluctuations and no underlying means that it fails on all three counts - a medium of exchange, store of value, and unit of account.

6. How does the equity market react when the US Fed hikes rates?
The Fed hiked rates 17 times from mid-2004 to mid-2006. And yet, during those rate hikes, the S&P500 rallied 46 per cent. There were nine rate hikes from 0.25 per cent to 2.5 per cent from December 2015 to December 2020. How did the S&P react? It went up non-stop, from around 1,900 in December 2015 to 2,800 in December 2017. The index wobbled in 2018 at the end of the three-year rate hike cycle — not at the beginning. After the Fed cut rates in August 2018, the market went up again before the Covid-driven crash in March 2020.

7. Via Rana Faroohar, an important perspective on private equity,

As Eileen Appelbaum, co-director of the Center for Economic and Policy Research, put it in her influential book with Rosemary Batt, Private Equity at Work, the rise of private equity represents “a fundamental shift in the concept of the American corporation — from a view of it as a productive enterprise and stable institution serving the needs of a broad spectrum of stakeholders, to a view of it as a bundle of assets to be bought and sold with an exclusive goal of maximising shareholder value.”

8. This is a partial explanation for the rise of the likes of populism,

Recent polls suggest that 26 per cent of Americans agree that “Joe Biden is a puppet president” controlled by a Deep State; while 31 per cent of Americans, 28 per cent of French people and 23 per cent of Germans think it is definitely or probably true that there is a “single group of people who secretly control events . . . and run the world together”.

Whether we like it or not, such misinformed views are held by a disturbingly large share of population.  

9. FT points to the flattening of the yield curve in the US, which points to expectations of weaker economy and possible recession.

The difference between two and 10-year yields shrunk to 0.4 percentage points on Monday, its narrowest point on a closing basis since April 2020, having declined sharply in the wake of last week’s US inflation data. The difference in these two yields was about 1.2 percentage points a year ago. Parts of the yield curve have even begun to flip upside down, typically an ominous signal for investors’ economic outlook. For example, seven-year yields on Monday ticked up above 10-year yields... The gap between two and 10-year yields is just 0.09 percentage points, while the yield curve is inverted in several places. Three-year bond yields, at 1.48 per cent, are higher than 50-year bond yields.

10. Scott Galloway has this striking graph of political polarisation in the US. 

It's interesting that Democrats are more strongly biased against Republicans than the latter are towards the former. Does this again reinforce the point about liberals being more intolerant than the conservatives?

11. Brazil monetary policy fact of the day,

Brazil, for example, has steadily increased its policy rate from 2 per cent in March last year to 10.75 per cent today. It is expected to peak at 12 per cent before being pared back towards the end of this year. Consumer price inflation, running at more than 10 per cent, is expected to fall to 5.5 per cent over the same period.

12. Good set of statistics about Life Insurance Corporation of India.  

13. The scarcely believable story of Chitra Ramakrishna, the former CEO of National Stock Exchange, being controlled through emails from an unknown swami is only the latest exhibit on India's corporate governance problems. 

14. India is witnessing the tightest labour market for formal sector skilled workers.

Attrition rate is at a two-decade high. 

15. In the age of burning and growing with private capital, Livemint points to the contrasting route of boot-strapping, profitability, and ploughing back followed by the likes of Zerodha and Zoho.

16. The semiconductor industry has been witnessing a massive boom in investments, with TSMC planning a $44 bn investment this year and Intel a $100 bn multi-year investment. A driver, according to the chip maker Applied Materials is that semiconductor content in devices and equipment is rising fast,

Wednesday, February 16, 2022

The quality problem in education and health care

The issue of quality in public service delivery has been a constant theme in this blog. This post covers the latest evidence on this front from school education and basic health care in India. 

Alexis Le Nestour, Laura Moscoviz, and Justin Sandefur have a working paper which examines quality and access in school education across 87 countries in the 1950-2000 period. Its findings are disturbing. Lant Pritchett has a blog here. It has this about India's learning outcomes progress,
In India between the birth cohorts of 1958 and 1995 those with 5 or more years of schooling expanded from 36.6 to 77.3 percent. But the likelihood a woman completing just primary school could read, Read@G5 fell from 89.8 percent to 51.4 percent.

In contrast, successes of Peru and Vietnam,
Peru shows a positive picture in both dimensions. In the birth cohort of 1952 71.7 percent of women completed Grade 5 or higher and that rose to 93.7 by the birth cohort of 1992. Similarly, the share of those with Grade 5 complete who could read rose from 69.4 percent to 84.9 percent. In Vietnam between the birth cohort of 1958 and 1994 the fraction with schooling of grade 5 or more increased from 76.7 to 88.7 and Read@G5 rose from 72 to 94.1 percent.
This graphic pretty much sums up the general trend of declining quality - India's performance is among the poorest, worse than any of its neighbours. Pakistan and Indonesia improved their learning quality.
Quality is a problem in health care too. A friend pointed me to a Gates Foundation commissioned Harvard TH Chan School study to assess health care quality in Odisha. They used the now standard approach of vignettes study - send decoy patients ostensibly suffering from various diseases, and measure the diagnosis done by doctors (questions asked as per the WHO treatment protocols), average time spent, and accuracy of diagnosis. 

Their findings are here (see slides 15-18) and here. Just 6.8% of providers (MBBS doctors) diagnosed TB! A summary,
No significant difference between MBBS doctors, AYUSH & unqualified. Providers trained at government colleges were slightly more competent than those at private institutes. Providers in urban areas were more competent than those in rural areas. Private sector providers were more competent than public sector providers at PHCs. There was no significant difference between providers who received inservice training versus those who did not. Diagnostic competence was not significantly correlated with the amount of time spent per patient. No significant difference between providers with more or less years of work experience...
~60% cases diagnosed correctly. Providers wrongly diagnosed as a less serious illness (E.g., cold, fever for TB, headache for preeclampsia, acidity & body ache for heart attack). Only ~2% providers advised correct treatment. Although ~50% prescribed at least one correct drug. ~40% prescribed only unnecessary (sometimes harmful) drugs/antibiotics – raising concerns of low-value care, anti-microbial resistance.
This is confirmed by several similar vignettes studies in recent years - this one even finds Indian physicians (in Delhi and MP) being worse than physicians from Tanzania and Indonesia in the diagnosis of multiple medical conditions. 

In this context, it strikes me that there is little public acknowledgement of the health quality problem, even though it's just as dismal as learning outcomes which is now widely acknowledged. Perhaps this highlights the importance of agencies like Pratham and its ASER reports in highlighting the issue. I don't know of any such large and long-drawn non-government efforts that focus on health care quality. 

We now have a major problem in the quality of health and education being delivered. There are at least two factors at work. One, at the intensive margin, for a variety of factors, the average quality of educational instruction and health treatment is itself declining. Two, at the extensive margin, the rapid expansion in supply of training institutions (medical and degree colleges, and teacher training institutes) and professionals (teachers, doctors, paramedics etc) is naturally eroding the average quality of professionals passing out from these institutions. This is re-affirmed by the findings of the Sandefur et al paper - "the fall in observed quality is greater where enrollment grew faster, and after the abolition of user fees". 

One policy point to think about. How about a five year phased increase in allocations under the flagship National Health Mission (NHM) and Samagra Siksha Abhiyan (SSA) towards quality (and away from infrastructure and inputs)? Let the Health Department of Government of India do something for assessing the quality of primary and secondary health care which is similar to NAS (National Assessment Survey) which measures learning outcomes in Grades 3, 5, and 8. 

Ideally, there should be independent standardised quality determination through sample surveys done by DMEO or privately (and not by the Department). The Health Department in consultation with DMEO should formulate survey instruments and survey methodology. It should then initiate periodic standardised quality surveys through independent agencies across the country. A combination of this, coupled with quality focused inputs and processes, should form the focus of fiscal resource allocations. 

Monday, February 14, 2022

The political economy of monetary policy response

In response to a call for wage restraint by Bank of England Governor, Andrew Bailey, Martin Sandbu tweeted an important question,

Why does the governor of the Bank of England encourage restraint in wage demands but not call for restraint in businesses’ attempts to protect their profit margins? Intellectual bias, ideology, greater resignation wrt price- than wage-setting, or something else?

As Sandbu writes in his column, Bailey said that “we do need to see a moderation of wage rises, now that’s painful. I don’t want to in any sense sugar that, it is painful. But we need to see that in order to get through this problem more quickly.”

Sandbu puts the issue in perspective,

The wage-price spiral depends on not one but two mechanisms: wage demands trying to catch up with price rises and price increases to pass on rising wage costs. Calling for wage moderation can only be read as an attempt — or perhaps a wish — to weaken the first mechanism. But what about the second? Theoretically, you can prevent a wage-price spiral by disabling either of its two links: workers’ attempt to protect (or increase) their real wage, or businesses attempt to protect (or increase) their profit margin or real return. In other words, you could prevent a terms-of-trade shock from creating domestic inflation by forcing business owners to take the hit from higher imported input prices (and wage rises enough to cover the related consumer inflation) in a compressed profit margin...

An instinctive focus on wage demands and neglect of profit margins echoes the eurozone’s obsession with “unit labour costs” (the wage costs per unit of output produced) a decade ago. Then, the perceived imperative was to boost “competitiveness”, but nobody ever looked at whether “unit capital costs” (which can be defined in an equivalent way) should or could be squeezed instead... In terms of the theoretical model, assumptions about how wages are determined have no lesser status than assumptions about how prices are set... A lower profit margin could, in theory, discourage investment, and a person could logically believe that less investment is worse than lower real wages... Over the past four decades, the labour share of national income has gone down in most rich economies, and the capital share has gone up (they have been fairly constant in the UK, however) — but investment rates have largely fallen rather than risen.

I am inclined to agree with his diagnosis,

My best guess is simply that there is a blind spot in most economic policymakers’ mental model of the economy. It is so ingrained to ask how wage demands affect inflation that it is easy to miss the equivalent question about margin and profit protection. This is, I suppose, ideological in the sense that it unwittingly frames the problem so that the plausible answer favours the interests of one economic class.

This reaction has its resonance in several other areas in public life and economics. Subsidies to the poor is bad and to be reformed, whereas fiscal concessions and investment credits to attract investments is great. Keeping borrowing costs low to boost investment is fine, but not so to keep debt servicing affordable for middle class and low income housing mortgage holders (it creates bubbles!). 

This brings us to the central issue here. Is inflation transient or persistent? I have blogged earlier on the debate here. What will be the future course of inflation is the most important question facing the world economy. 

Here is a small thought experiment. If the Fed believes inflation is persistent and steps in aggressively to raise rates and bring inflation under control, it's certain to bring the markets crashing down and also plunge the economy into a recession. Rates will rise and so too will cost of debt servicing, impacting fiscal balances across developed countries. But it will cool down the labour market and nip in the bud the nascent signs of a recalibration of profit distribution between capital and labour towards the latter. It'll in the process also contribute to asset value destruction. However, historically it's observed that post-recession, asset values recover much faster than labour markets.

Instead, if the Fed believes inflation is transient and navigates cautiously and prefers to do only the minimum without adversely impacting growth, it'll go for smaller and fewer rate hikes. This will perhaps not rock the markets and keep rates under control. Rates too will inch up gradually. But there is the big risk that it'll not be enough and inflation surges and stays at double digit for an extended time, bringing the risk of stagflation. 

I made a table of the possible reactions of all stakeholders to the two scenarios - gradual and limited tightening Vs aggressive tightening. 

The gradual tightening scenario appears to align the incentives of some of the important stakeholders, including the Democratic Party establishment and financial market groups. The Fed could use a mix of 25 basis points rate hikes and unwinding of the quantitative easing measures to keep shaping expectations. But corporate interests may join hands with the Fed to follow this course. It would end up killing two birds with one stone - tame wage pressure, and also calm the bond and currency markets. Is Andrew Bailey hinting in that direction?

However, given the strong urge within the ruling establishment to avoid a recession and also prevent the markets from popping, I am inclined to think that the former would prevail. Aggressive tightening in the form of the first off-cycle rate hike since 1994 or a 50 basis points hike appear unlikely. This is likely to remain so unless the bond markets react violently to emerging news on inflation etc.

Sunday, February 13, 2022

Weekend reading links

1. India's stock market capitalisation is at a record high.

It's also 3% of the global stock market capitalisation. 

2. Instead of rising rapidly in a large and growing economy, India's two-wheeler demand has been on a falling trend

The volume for FY22 will be the lowest in a decade.

3. From the latest budget, on the stagnating tax-to-GDP ratio

4. Truck drivers suffer arguably one of the harshest work conditions. In developing countries like India, they suffer from health problems, familial disruptions, alcohol and other abuses, and so on. The Times has a long read on the harsh conditions faced by truck drivers in the US.

While in developing countries, the absence of choices leaves the market with no dearth of potential truck drivers, in the US, trucking companies suffered a record deficit of 80,000 drivers in the aftermath of the pandemic. The article talks about how deregulation of the trucking industry 
Until the 1980s, truck driving was a lucrative pursuit in which one union — the Teamsters — wielded enough power to ensure favorable working conditions, Mr. Viscelli recounts in his book “The Big Rig.” But the Carter administration deregulated the industry in the name of fostering competition, clearing the way for an influx of new trucking companies that diminished pay and increased demands on truckers. The result was an opening for big-box retailers, which harnessed increasingly cheap freight and international trade to stock enormous stores with a vast profusion of wares. Along the way, truck driving was downgraded from a middle-class profession to one best avoided.

5. Lant Pritchett has a blog on a new paper by Justin Sandefur et al on the long-term trends in school attendance and learning quality. This about India,

In India between the birth cohorts of 1958 and 1995 those with 5 or more years of schooling expanded from 36.6 to 77.3 percent. But the likelihood a woman completing just primary school could read, Read@G5 fell from 89.8 percent to 51.4 percent.

This about the very few success stories,

Peru shows a positive picture in both dimensions. In the birth cohort of 1952 71.7 percent of women completed Grade 5 or higher and that rose to 93.7 by the birth cohort of 1992. Similarly, the share of those with Grade 5 complete who could read rose from 69.4 percent to 84.9 percent. In Vietnam between the birth cohort of 1958 and 1994 the fraction with schooling of grade 5 or more increased from 76.7 to 88.7 and Read@G5 rose from 72 to 94.1 percent. Guatemala shows a massive expansion in schooling between the birth cohorts of 1967 and 1994, increasing from 39.6 to 67.3 while the Read@G5 stayed roughly constant at 95 percent.

6. TT Rammohan argues that the government is right to tread cautiously on privatisation. I think he's right. 

7. Is nuclear energy industry on a revival?

After the Fukushima nuclear disaster 10 years ago, Germany announced it would shut down all of its nuclear power plants by 2022 and Belgium vowed to close all of its facilities by 2025. However, there has been a wave of renewed interest in nuclear power over the past year. The governments of France, the US, China and India have all recently come out in favour of building new nuclear plants in the years ahead, with French president Emmanuel Macron expected to outline new orders in the coming weeks. Investments in nuclear are expected to total $45bn in 2022 and $46bn in 2023, up from $44bn in 2021, according to analysis by Rystad Energy, with 52 reactors at present under construction in 19 countries worldwide.

This about the stunning costs of nuclear waste disposal,

There is little discussion of the huge costs and complexity of dismantling the plants at the end of their approximately 50-year lifespan. And nobody has yet given a satisfactory answer to the question of what to do with thousands of metric tonnes of high-level nuclear waste, some of which can remain radioactive, and thereby lethal, for up to 300,000 years. A quarter-million metric tonnes of spent fuel rods are believed to be spread across 14 countries worldwide, mostly collected in cooling pools at closed-down nuclear plants, as engineers and waste specialists puzzle over how to dispose of them permanently. Many believe these are sitting ducks for terrorist organisations and that they could potentially cause catastrophic spills or fires. The cost of maintaining these sites can be extraordinary, and last for decades. Sellafield in the UK, for example, contains the largest stock of untreated nuclear waste on earth, including 140 tonnes of plutonium. Though the plant was shut down in 2003, it remains the biggest private employer in Cumbria. More than 10,000 people continue to undertake a colossally expensive clean-up that is expected to take more than 100 years and cost above £90bn.

8. Fascinating extract about Arthur Rock, the pioneer of venture capital industry, from Sebastian Mallaby's new book on the industry. In 1957, Rock financed the "Traitorous eight" who rebelled and left William Shockley's lab at Stanford's Research Park to form a new company, Fairchild Semiconductor, to pursue their interests without the domineering and suffocating presence of Shockley. This was perhaps the first big venture capital deal. 

The pivotal moment in Rock’s still-early career arrived in the summer of 1957, in a letter mailed to the New York brokerage where he worked. The sender was Eugene Kleiner, one of the Eight and later himself a venture investor. Because venture capital barely existed at this point, Kleiner and his comrades had not thought of starting a new enterprise. Rather, they asked Rock’s firm to identify an alternative employer — “a company which can supply good management.” Rock understood that the researchers wanted to escape the tyrannical Shockley, the semiconductor inventor whose scientific brilliance was matched only by his prodigious arrogance. Rock also understood that they wanted to keep their team together, believing they could be most inventive as a group. Rather than seeking out a new employer for them, Rock flew to the West Coast and proposed an unexpected alternative.

“The way you do this is you start your own company,” he told them. By striking out on their own, the scientists would capture the rewards of their creative wizardry... Rock’s idea shocked the researchers. “We were blown away,” recalled Jay Last. “Arthur pointed out to us that we could start our own company. It was completely foreign to us.”... Rock promised the scientists at least $1 million, an ungodly sum of capital at the time. He also stressed that they would each own shares in their start-up. The scientists duly launched Fairchild, and the results soon proved more raucous, and more glorious, than even Rock had imagined.Rock promised the scientists at least $1 million, an ungodly sum of capital at the time. He also stressed that they would each own shares in their start-up. The scientists duly launched Fairchild, and the results soon proved more raucous, and more glorious, than even Rock had imagined.

The rest is history,

At the formation of the company, Rock had ensured that each of the Eight bought $500 worth of stock. Two years later, Fairchild sold to its main backer, and each founding scientist received $300,000, a bonanza amounting to around 30 years’ salary at the time... By the 21st century, an astonishing 70 percent of the publicly traded tech companies in the Valley could trace their lineage to Fairchild Semiconductor; and every hoodie-wearing innovator owed something to that crucible moment when it raised venture finance...

Only a fraction of 1 percent of firms in the United States receive venture-capital backing, yet this tiny minority accounts for fully 47 percent of the nonfinancial companies that do well enough to go public and 76 percent of the market capitalization of these firms. Venture-backed companies have delivered more progress in applied science than any kind of rival: more than centralized corporate research and development units, more than isolated individuals tinkering in garages and more than government attempts to pick technological winners. Studies repeatedly find that start-ups backed by good VCs are more likely to succeed than others.

The problem is that contrary to the tale of smart and foresighted venture capital investors, the reality is that success is more good luck than any skill, especially at the start.

9. Informative article by Arjun Srinivas in Livemint about the struggles of Indian Railways to attract private capital. 

10. MGI charts the rising inflation levels in US and Europe.

11. Finally, more reminder that green transition comes with a steep cost. This for a transition to more green shipping fuels like ammonia and methanol.

Friday, February 11, 2022

The world of freelance experts

In the age when employment tenures have lost their relevance, and even full-time employment is no longer an aspiration for many, a significant proportion of the global elite workforce are effectively free-lancers. They have had an important and hardly noticed role in shaping the global agenda and trends in many areas. 

They provide consultancy, advisory, advocacy, documentation, evaluation, and other services across several areas. They juggle multiple very well-paid individual consultancy and advisory assignments, and are part of Committees and Panels. 

They are part of niche universes, elite clubs. Each such universe consists of the primary actors (the businesses or agencies concerned), their support services (the consultants, advisors, etc), and the disseminators or influencers. Each of these worlds are largely globalised and its participants are right to consider themselves global citizens to this extent. Global clubs consisting of global citizens! 

There are numerous such universes of elites, spanning the worlds of the various international development sectors, private capital finance, public private partnerships, infrastructure financing, environment, gender, fintech, impact investing, and so on. The inhabitants of these global clubs set the agenda and influence governments, as required, to frame the rules of the game. It is also a feature that most of the end-users or clients or customers of these worlds are rarely represented in these elite worlds.

So the poor people (and their countries) who are the targets of development, the retail investors and borrowers who depend on the world of finance, the various governments who bid out infrastructure projects, the poor people for whom the environmentalists and gender activists claim to work, are rarely heard and even rarely represented in the conferences and workshops, often at exotic locations, where the decisions that impact them get taken. The supreme irony of the disenfranchisement, most often in the name of empowerment and development, cannot be lost. 

There are a few features of the free-lance service providers of this universe. They are all highly educated, often coming from a small network of universities and colleges, and very articulate. They are all globally mobile, having lived and worked across the world, and like to travel and experience diversity, even if only at a superficial level. They consider themselves global cosmopolitans. Most such, but not all, clubs are remarkably gender equal or neutral. In terms of values, they are mostly liberal and espouse (with what depth is a matter of debate) progressive causes like gender equality, environmental conservation, animal rights etc. It's surprisingly rare to find such global clubs as a whole being largely conservative.

The free-lancing nature of their work in turn means these elites need to be constantly in search of opportunities and also creating networks that appreciate their value proposition. Also, despite all talk of global citizenhood, the worlds they operate are typically niche and limited. As Dani Rodrik has written, virtue signalling on global citizenhood comes with national shirking. More importantly, it's a world where members are largely familiar with each other. Social media and LinkedIn helps. This also means that they are subject to the rules of repeat games.

As Larry Summers brilliantly described to Yanis Varoufakis, they have to remain 'insiders' or be subject to the ostracism threat. So, notwithstanding professions of liberalism and diversity, individual behaviours broadly conform to the norm. This deep underlying dynamic also lends a level of adhesion to the elite collective in each of the clubs. This is true of each of the different worlds mentioned earlier.

This is not to say there is no discordance. In fact discordance exists and is even celebrated in high-profile enough manners, but strictly within implicitly understood boundaries. Most often the discordance is led by some super-elite opinion leader who, for a variety of possible reasons, has come to assume significant influence. They have their small factions with followers within the club. But even these leaders understand the boundaries and rules of the game and largely abide by them. 

The handful who occasionally fall out, get slowly marginalised. They are not invited to those conferences or meetings of important people, or not offered consultancies and advisory services, or not made part of Committees and panels. These mechanisms that have been evolved by these clubs are powerful enough to keep discipline and achieve conformity.

In simple terms, while freelancing may be empowering to people individually, the aggregate impact of the trend may not be so benign. Someone should write a book that peers inside this labour market.

Alongside consultants and managers, freelancers form the troika of opinion makers, ideologues, and even enforcers for those plutocrats who hold the purse strings in the world economy today.

There are the rich plutocrats (the global 0.05%) who own the economy and sets the rules of the game. They are serviced by an executive level managerial elites. The credibility for the edifice constructed by both of them is provided by the various kinds of opinion shapers and ideologues - academics, consultants, media commentators, global cosmopolitans etc. The politicians merely pretend to be in charge of the political system whose rules are laid down by the plutocrats. Dismal. Isn't it? The endurance of this whole thing is comparable to the never-deflating bubble that equity markets today appear to be. Both will pop.

Thursday, February 10, 2022

Feeling good without doing good - the case of ESG and greenwashing

Ananth points to a recent tweet storm by Lyn Alden,
"ESG investing" in its current form is similar to people who take selfies of themselves in fancy locations to show they were there, while barely experiencing it for real. Mostly theater, little substance.

For example, we pollute, but buy offsets to make it someone else's problem. We outsource our manufacturing base to another country to reduce headline energy consumption, but then buy products they make while blaming them for polluting. This is deflection, not reform.

Software companies that build a business around addicting teens to their platform with regular dopamine hits & abuse user data sit atop the ESG investment indices, while fossil fuel producers that keep billions of people alive and comfortable are often excluded as a whole sector.

There's a trend to cut off existing energy production before having viable replacements. Solar and wind for example, are intermittent. They require grid-scale storage, which doesn't exist in cost-effective form yet. It requires massive copper/nickel/other-metals production. If you run the math on how much copper, nickel, and other metals the world needs to produce in order to reduce oil/gas/coal usage as a percentage of global energy production, it's far beyond what we can currently produce. And those metals require fossil fuels to dig up... We cut existing nuclear production and end up relying more on coal than we otherwise would have. We overbuild intermittent sources of power production, without proper storage, run into energy shortages, and then act surprised and resort to coal...

We rightly condemn human rights violations that China is doing to Uyghurs, but the biggest holding in Vanguard's ESG ETF is Apple, which signs quarter-trillion dollar deals with the CCP. So people sell their Chinese shares, buy Apple shares instead, and pat themselves on the back. Meanwhile their phone, computer, chair, sneakers, cookware, electronic devices, and kids' toys are all partly Chinese made. A lot of it is window dressing.

The bottom line is that ESG investing limits profits and creates winners and losers. In fact, there is only so much that can be done without reducing profits. And, therefore, only so much that can be achieved in mitigating climate change etc through market forces. 

Real-ESG investing is that which seeks to force businesses to internalise social and environmental costs and engage in more equitable sharing of returns with labour. The former would involve businesses seeking to mitigate the environmental and social consequences of their actions by establishing effluent and other pollution abatement mechanism, eschewing tax avoidance etc. The latter would involve revising the balance between capital and labour, and pruning down executive compensation and increasing the wages and benefits for their workers. Is it at all reasonable to imagine any of these steps being taken by businesses on their own volition? 

Globally the volume of assets under management in funds committed to the UN supported Principles for Responsible Investment, a proxy for ESG funds, amounts to $121 trillion. As the feel-good virtue signalling associated with ESG rises in importance and its volumes grow, the ESG market is naturally incentivised to undertake window-dressing (impact or green-washing) and sometimes, even outright fraud.

James Mackintosh has a series of articles in WSJ on the problems with ESG investing. He highlights the problems with the big three pro-ESG arguments,

First, if companies treat the environment, workers, suppliers and customers better, it will be better for business. This could work where companies have missed something to boost profits, such as add solar panels on a sunny roof or create a better employee retention program. Early ESG activists plucked the low-hanging fruit here, but management has become painfully aware of changing customer and employee expectations, so there is less opportunity ahead... The second ESG point is that by shunning stocks or bonds of dirty companies, and embracing those of clean companies, it will direct capital away from bad things and toward good ones. After all, a lower stock price or higher borrowing cost in the bond market should make it less attractive for dirty companies to expand, and vice versa for clean companies. In practice, there has been a very weak link between the cost of capital and overall corporate investment for at least a couple of decades. Small changes in the cost of capital pale in comparison to the risk and return projections of a new project... The third claim from some ESG investors is that they are just trying to make money, and that involves shunning firms that are taking unpriced risks with the environment, workers or customers. Since they call themselves “sustainable” or use “ESG integration,” funds doing this look very like the rest of the ESG industry.

He also points to four ways to cut fossil fuel usage - government action, shareholder pressure on fossil fuel companies, technological changes make fossil fuels more expensive, and people consume less of fossil fuels - and the challenges with them.

The four options laid out here lead to directly opposing approaches for investors who want to improve the world. The philanthropic approach means buying fossil fuel stocks to leave the carbon in the ground. The new technology approach means buying clean-energy startups to work on fusion, algae, cranes that store power, and the like. When the government gets involved, either with regulation (option one) or taxes (option four), investors should expect fossil reserves to be worth a lot less, perhaps zero.

This summary by Mackintosh is very apt,

My big concern about ESG investing is that it distracts everyone from the work that really needs to be done. Rather than vainly try to direct the flow of money to the right causes, it is simpler and far more effective to tax or regulate the things we as a society agree are bad and subsidize the things we think are good. The wonder of capitalism is that the money will then flow by itself. 

In other words, any meaningful solution to these problems have to involve at least some coercive element of regulation.  

In the context of ESG, last year, the US Securities and Exchange Commission had issued an ESG Alert. Some of its findings
This rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks. For instance, the variability and imprecision of industry ESG definitions and terms can create confusion among investors if investment advisers and funds have not clearly and consistently articulated how they define ESG and how they use ESG-related terms, especially when offering products or services to retail investors... Portfolio management practices were inconsistent with disclosures about ESG approaches... Controls were inadequate to maintain, monitor, and update clients’ ESG-related investing guidelines, mandates, and restrictions... Proxy voting may have been inconsistent with advisers’ stated approaches... Unsubstantiated or otherwise potentially misleading claims regarding ESG approaches... Inadequate controls to ensure that ESG-related disclosures and marketing are consistent with the firm’s practices... Compliance programs did not adequately address relevant ESG issues.

Aswath Damodaran has several useful posts highlighting the folly of chasing the ESG dream. 

It's hard not to come away with the belief that ESG investing is a giant diversion from taking the required steps for making the economy more accountable (G), equitable (S) and sustainable (E).  

Update 1 (12.02.2022)

More reminder that green transition comes with a steep cost. This for a transition to more green shipping fuels like ammonia and methanol.