Weekend reading links

1. The Economist has an article on the distortions in the UK's direct and indirect taxation system. This about exemptions from VAT for smaller firms is interesting,

Companies with a turnover of less than £85,000 a year do not have to register for VAT at all. Such exemptions are forecast to cost the exchequer £67bn in the 2022-23 tax year, about half the total actually raised through VAT... the threshold incentivises companies to stay below a certain size. They are duly piling up at the £85,000 mark, which has been frozen in cash terms since 2018. By the time the freeze ends in the 2025-26 tax year the OBR expects the number of firms remaining just below the threshold to have nearly doubled, from 23,000 in 2018-19 to 44,000. This is not only bad for the public purse, which misses out on VAT receipts payable by larger firms, but for the economy as a whole, since bigger businesses tend to be more productive. A lower threshold would make staying small a less viable option. It would also move Britain more into line with the European norm—German companies only need revenues of €22,000 ($24,050), for instance, to start paying VAT.

This has resonance with the composition scheme in the GST, which exempts firms with less than Rs 1.5 Cr from filing monthly returns.

2. Another article points to Britain's problem with affordable housing shortage, attributed to restrictive regulations,

Strict planning rules, which protect the green belt around cities, are effective at stopping urban sprawl. Too effective: just 6% of the land in Britain has been built on. The Countryside Charity claims there are enough vacant or derelict brownfield sites in London to build nearly 400,000 homes there. But brownfield sites can be unappealing places to live and often require costly clean-ups.

Another one concerns affordable housing quotas

Affordable housing quotas also weigh on developers’ profits. In 2021 London’s mayor, Sadiq Khan, unveiled targets calling for 50% affordable housing on all new sites, higher than the 35% threshold set in 2016. Greater numbers of residential sites are being turned over to commercial uses (such as warehouses) as a result, says Emily Williams of Savills, or are concentrated in areas with higher property values such as Canary Wharf. Where high-rise projects succeed, they often do so by sidestepping affordability targets in favour of cash handouts to local communities or promises to build cheap homes elsewhere. Nearly 200 new towers have been built in London over the past decade but many of them have been filled with luxury flats, and boast gyms, private cinemas and rooftop lounges. Buyers are often investors; apartments are frequently left empty... New schemes in London must adhere to stringent restrictions on height and must not obstruct certain views of landmarks such as St Paul’s Cathedral. There is often resistance to high-rise developments from local residents: planning applications for new schemes have been dismissed for being too bulky, too strange or just plain ugly.

3. Is America the biggest wealth generation entity the world has ever seen?

In 1990 America accounted for a quarter of the world’s output, at market exchange rates. Thirty years on, that share is almost unchanged, even as China has gained economic clout. America’s dominance of the rich world is startling. Today it accounts for 58% of the G7's GDP, compared with 40% in 1990. Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person. Average incomes have grown much faster than in western Europe or Japan. Also adjusted for purchasing power, they exceed $50,000 in Mississippi, America’s poorest state—higher than in France... America has nearly a third more workers than in 1990, compared with a tenth in western Europe and Japan. And, perhaps surprisingly, more of them have graduate and postgraduate degrees... American firms own more than a fifth of patents registered abroad, more than China and Germany put together. All of the five biggest corporate sources of research and development are American; in the past year they have spent $200bn. Consumers everywhere have benefited from their innovations in everything from the laptop and the iPhone to artificial-intelligence chatbots. Investors who put $100 into the S&P 500 in 1990 would have more than $2,000 today, four times what they would have earned had they invested elsewhere in the rich world.

This is important pointing to increasing generosity of US social safety nets,

America’s spending on social benefits, as a share of GDP, is indeed a great deal stingier than other countries’. But those benefits have become more European and, as the economy has grown, they have grown even faster. Tax credits for workers and children have become more generous. Health insurance for the poorest has expanded, notably under President Barack Obama. In 1979 means-tested benefits amounted to a third of the poorest Americans’ pre-tax income; by 2019 these came to two-thirds. Thanks to this, incomes for America’s poorest fifth have risen in real terms by 74% since 1990, much more than in Britain.

On this point, this is a distribution of household income in the US in 2019 after transfers

4. Amidst all the Chinese grandstanding, what do the Taiwanese people think about independence? How have their views changed over time? Sample this

Fewer than 6% want reunification immediately, and less than 12% want it at all. And both these trends have been stable or declining for the last three decades. In contrast, there has been a sharp spike in those wanting independence in some form or other. 

5. From MR, striking fact on New York shoplifting incidents

Nearly a third of all shoplifting arrests in New York City last year involved just 327 people, the police said. Collectively, they were arrested and rearrested more than 6,000 times, Police Commissioner Keechant Sewell said. Some engage in shoplifting as a trade, while others are driven by addiction or mental illness; the police did not identify the 327 people in the analysis. The victims are also concentrated: 18 department stores and seven chain pharmacy locations accounted for 20 percent of all complaints, the police said.

6. Rana Faroohar writes that immigration into the US is back to pre-Trump trends

In the US, immigration accounted for about half of the growth in the working age population between 1995 and 2014 according to Pew Research... Over the course of four years, according to a February paper from the San Francisco Federal Reserve, the Trump administration took 472 executive actions aimed at reducing immigration, from increasing immigration enforcement to freezing refugee admissions to moving away from family immigration. Between 2016 and 2019, the number of new permanent residents dropped 13 per cent and the number of student F1 visas declined 23 per cent... The two trends together fuelled a strong tightening in the labour markets, according to the San Francisco paper. The authors found that the drop in immigration from 2017 onwards resulted in a 5.5 percentage point increase in the vacancy to unemployment ratio in the US. But happily, the recent uptick has resulted in a 6 percentage point reduction to that ratio. More than 900,000 immigrants became US citizens during 2022 — the third highest level on record and the most in any fiscal year since 2008, according to Pew.

This underlines the importance of immigration to US economy,

While immigrants represent 13.6 per cent of the US population, they start a quarter of new businesses. Indeed, a study by the American Immigration Council last year found that 43.8 per cent of the Fortune 500 companies were started by immigrants or their children. 

7. TN Ninan points to how important Suzuki's entry into the Indian car market in the early eighties was for India's manufacturing and asks whether the same would be the case with Apple.

Suzuki entered in partnership with the government, and enjoyed special benefits and protection from competition for an extended period, whereas benefits offered to Apple and its suppliers are also available to competitors. Suzuki introduced contemporary cars to Indians (alongside Japanese companies that entered the motorcycle and commercial vehicle markets at about the same time), and has enjoyed dominance in the small-car market ever since. Apple is entering a bitterly competitive market that is already used to the best as well as the cheapest products on offer. Importantly, Suzuki brought with it a slew of Japanese vendors to set up shop in India and become suppliers for its Maruti cars. The result is India’s internationally competitive auto component industry. Since a car factory is largely an assembly unit, it is the vendor ecosystem created by Suzuki that has proved to be crucial. Part of that ecosystem is the steel industry itself, which had to start making special grades like deep-drawing steel.

8. The hollowing out of American cities,

The weekly average number of passengers arriving by train at Embarcadero station, which serves the downtown area, has fallen by about 70 per cent since 2019, according to the body that runs rapid transport. By contrast, the number of passengers commuting into New York’s central subway stations is down between 30 and 40 per cent, per official state figures... Vacant office space in San Francisco now totals more than 21mn square feet, according to real estate agency Cushman & Wakefield, while rents have fallen more than 15 per cent from pre-pandemic peaks. Vacancy rates have surged to 30 per cent, compared with 16 per cent in Manhattan and 8 per cent in London, according to real estate agency JLL. 

Amidst the gloom of the hollowing out, there is the silver lining it presents in terms of putting downward pressure on rents. This is perhaps the way in which these cities will become more affordable and thereby attractive newer people. 

9. A fascinating profile of Ursula von der Leyen, the former German Defence Minister and now European Commission President. 

Von der Leyen told me she had been aware that her vaccination strategy would take a bashing in Germany, because EU-wide procurement meant doses were spread among member states, rather than going to countries with the deepest pockets. “It was of existential importance for the EU — if you are big or small or rich or not so rich — that you have the same access to the vaccine. Otherwise it would have torn Europe apart,” she said. “In hindsight, it was right.” Instead of breaking von der Leyen’s presidency, the episode marked a turning point. In spring 2021, vaccines started flowing far more freely, and the commission emerged from the crisis with its powers enhanced. It is now working on plans to replicate the model of common EU procurement to increase the production of weapons and ammunition for Ukraine. 

Von der Leyen helped set another important precedent when member states agreed on €800bn of joint borrowing in 2020 to pay for Covid recovery. It was a major expansion of the commission’s fiscal power and a potential blueprint for future collective action. It also conferred a PR opportunity, as von der Leyen toured European capitals blessing local recovery plans and lining up multibillion-euro cheques. “We have learnt that if the situation is serious and requires European-wide action, it will be tackled rapidly at an EU level,” says Welle, the retired European parliament official.

For all its criticism, the European Union is a truly remarkable project. It's strong living proof that countries will give up their sovereignty, but only if backed with sufficient history. It's also remarkable that a long-serving German minister has managed to set aside her German nationality and put the interests of Europe at the front in managing the affairs of EU, even when the latter conflicts with the former.

10. Finally, a good snapshot of the sources of debt of emerging and developing countries.