Weekend reading links

1. FT has a long read on the challenges facing the global market for luxury goods. Asian shoppers accounted for more than 60% of the $300 bn (including cars) plus market in 2021.  

This is a stunning snippet

South Korea’s Shinsegae department store in the Gangnam district of Seoul recording sales of $2bn in 2021 — the highest turnover for a single store in the world.

Harrods in London had for long held the top spot.  

2. Another long read on the exploration for Lithium mining in the US, which may have the fifth highest reserves but very little of which is exploited. The search for efficiency and cost cutting, coupled with the dominance of environmental interests meant that there was little incentive to mine its own minerals.

The US’s willingness to allow its manufacturing to take place overseas has attracted criticism... “We outsource everything for slightly lower costs,” says Emily Hersh, an analyst at consultancy DBDC Group, and the chief executive of a company undertaking a lithium brine exploration project in Nevada. “We have punted the supply chains behind the technology we use and love to cheaper jurisdictions, or jurisdictions without stringent environmental policy, so that we can get them cheaper and faster.”

As the EVs market expands, the demand for battery minerals will grow dramatically

3. The rising interest rates have turned spotlight on housing markets in developed countries, which have experienced a sharp increase since the pandemic. The Economist has a good graphic which captures the health of housing market in western economies. 

As can be seen, outside of the Nordics, the western economies remain well placed to weather out the housing market bubble. 

4. It has long been an orthodoxy of management that financial incentives in the form of bonuses spur productivity growth in businesses. Notwithstanding serious doubts, it has endured as a narrative. In this context Pilita Clark points to a study of by Professor Klaus Möller of Switzerland’s University of St Gallen which refutes this conventional wisdom,

Professor Klaus Möller of Switzerland’s University of St Gallen co-authored a study of salespeople at the Lichtenstein-based Hilti group, a family-owned company that sells construction products and services in 120 countries and wanted advice on reforming its pay-for-performance schemes. In early 2019, 190 Hilti salespeople in eastern Europe were switched from a salary that was 65 per cent fixed and 35 per cent dependent on meeting performance targets to an almost entirely fixed salary. (Small, non-monetary rewards such as family dinner vouchers were paid to teams that won internal company competitions for their performance.) The results were impressive: the country group outperformed the market by a factor of 1.4 in 2019, double the rate of 2018. Staff turnover fell by more than 4 per cent and satisfaction with pay rose by 19 per cent, double the company-wide increase. Crucially, sales efforts did not drop off... Hilti teams in other countries have adopted similar systems...

In many countries, bonuses first emerged in factories during the previous century to spur people doing simple, repetitive tasks to work faster and harder. It was relatively easy to judge how many widgets an individual worker produced each day, and pay a bonus accordingly. Today, more office workers collaborate in teams on complex tasks requiring co-operation and creativity. That makes it harder to judge exactly who is hurting or helping performance, yet bonuses have persisted.

Clark also refers to another study done by a big German retail chain which wanted to know if an attendance bonus would reduce absenteeism, 

A study was duly done of apprentice employees in 232 stores who were offered either extra money or more vacation days if they came to work as planned each month. Alas, the time-off bonus had no effect on absenteeism and the cash incentive made it worse: absenteeism surged by about 45 per cent, the equivalent of more than five extra days of absence a year per worker... It turned out that paying people to turn up to work sent unintended signals. Some staff thought it meant bunking off was rife — otherwise why would the company be paying for attendance? So they felt less guilty about being absent themselves. Others thought it showed the work they were being asked to do was unpleasant and underpaid, so they stayed home too.

5.  The application by Finland and Sweden to enter NATO is truly a landmark turn. To put it in perspective,

Sweden and Finland judged neutrality to be in their interests when faced by the Soviet threat, and in the Swedish case for centuries before that. They did not alter course, although they did join the European Union, in the more than three decades since the Cold War’s end. The shift in sentiment in the two countries in the past several months has been dramatic, one measure of how Mr. Putin’s determination to push NATO back and weaken support for it has produced the opposite effect — the rebirth of an alliance that had been casting around for a generation for a convincing reason to exist. Where no more than a quarter of the population in Sweden and Finland supported joining NATO last year, that number has risen sharply today — hitting 76 percent in a recent poll in Finland. Sweden’s governing Social Democratic Party, the country’s largest party and long a bastion of nonalignment, has embraced NATO membership in an extraordinary turnabout... Germany, a generally pacifist nation since it emerged from the rubble of 1945, has embarked on a massive investment in its armed forces, as well as an attempt to wean itself of dependence on energy from a Russia it had judged as, if not innocuous, at least a reliable business partner.

6. Here is the long list of businesses which have paused or exited from Russia. The latest are McDonalds and Renault. 

7. Jeff Bezos, like Elon Musk, appears to have lost it in this spat between him and the White House on the issue of rich not paying enough taxes. It's natural for the richest to take the cover of libertarian ideology to justify tax evasion. 

8. Shyam Saran reads the tea leaves from Chinese policy statements and speeches of top leaders and finds circumspection

The overall impression one gets from reading these speeches and their further elaborations is that China sees that the “changes unseen in a lifetime”, which had provided a strategic opportunity to advance China’s geopolitical influence, are shifting in a more adverse direction. China senses it is confronted with greater vulnerabilities even as the more positive factors appear to be losing steam. Its economy has slowed down and the persistence of its zero-Covid policy is leading to prolonged economic disruptions. The manner in which Russia has been crippled by economic and financial sanctions has heightened China’s vulnerability especially since its economy is far more integrated with the still West-dominated trade and financial systems. China may have declared victory too early. There are signs of a more cautious external posture going forward.

9.  From Business Standard on the carbon emissions from different energy sources

And the decline in storage costs

10. Kudumbashree self-help groups in Kerala should count as a genuine development success. It could be seen as the social counterpart to the political movement to decentralise governance. 

11. Sri Lanka becomes the first country in Asia-Pacific region after Pakistan in 1999 to undergo a hard default on its sovereign bonds.

12. A good summary of all the recessionary headwinds facing the world economy. 

13. Even as the world grapples with an inflationary spiral, Japan seems to be facing much calmer inflationary situation - while consumer prices rise 2.5% in April over the year earlier, core inflation was up just 0.8% from a year earlier. FT points to an interesting dynamic at work,

In the US and Europe, companies usually respond to a rise in raw material and commodity prices by transferring those costs to consumers. In Japan, however, businesses fear a public backlash if they raise prices, while workers — beaten down by decades of stagnant pay — do not demand the higher wages that would let them afford higher prices in the shops. If companies must pay more for imports but cannot increase their retail prices, they will suffer a squeeze on profits. They often react by seeking to cut wage costs, ultimately creating deflationary and not inflationary pressure. 

It points to other factors contributing to the muted inflation response,

First, a big chunk of the April inflation number reflected the disappearance from annual comparisons of cuts in mobile phone tariffs engineered by the then prime minister Yoshihide Suga last year. That means underlying inflation is less than the numbers suggest. Second, Japan’s economy has yet to recover to pre-pandemic levels, even though the country has never imposed the strict lockdowns carried out in other parts of the world. While there were fewer restrictions on economic activity, people have continued to take precautionary measures, even after most of the elderly were vaccinated against Covid-19. Japan is still closed to tourists. That has hit consumer spending hard. Third, while weakness in the yen used to provide a big stimulus to the Japanese economy, that effect is more muted than in the past. Big Japanese companies have relocated much of their supply chain to China. Demand for the capital goods Japan does still export has been heavily hit by the weakness of the Chinese economy.

14. From an FT long read about long distance truckers, this snippet about cross-border restrictions due to Brexit,

... requiring trucks going into the Republic of Ireland from the UK to present 700 pages of documents that take eight hours to prepare. Archie Norman, chair of Marks and Spencer, said this week: “Some of the descriptors, particularly of animal products, have to be written in Latin and in a certain typeface.” Every sandwich containing butter, he said, requires an EU vet certificate, which means employing 13 vets and budgeting for 30 per cent more driver time... The metaphor of supply “chains” makes the process sound orderly and smooth, but from the first this journey along them was more like an adventure through a wild ecosystem in which we were a prey, dashing between safe habitats such as lorry parks and filling stations, hunted by authorities, legislation and customs rules that sought to charge, delay or stop us.

15. Chinese economy, an April 2022 status check,

Retail sales down 11 per cent from a year earlier, against an expected decline of less than 7 per cent. Industrial production dropped 2.9 per cent. Manufacturing was particularly weak, with auto production falling 41 per cent. Export growth was 4 per cent, a screeching slowdown from 15 per cent growth in March. Real estate activity collapsed, with construction starts falling 44 (!) per cent