Ford’s revamped electric-vehicle (EV) plant in Cologne, located on the banks of the Rhine in Germany’s industrial heartland, is one such example. The chassis and bodies of vehicles are coated in chemicals to prepare for painting and to prevent corrosion. This happens across multiple storeys; the number of workers involved in the work on site is precisely zero (two keep tabs remotely). Shiny yellow assembly robots further down the production line are sufficiently advanced as to be able to mostly monitor themselves. Although workers are required for assembly—about as many as for traditional petrol-powered vehicles—the activity requires a lot more training. This matches the national picture: according to a study by Wolfgang Dauth of the Institute for Employment Research and co-authors, industrial robots have made available work more complex.
2. For those scorning at industrial policy and government role in market making, look no further than the work of Indian Space Research Organisation (ISRO).
India has become home to at least 140 registered space-tech start-ups, comprising a local research field that stands to transform the planet’s connection to the final frontier. It’s one of India’s most sought-after sectors for venture capital investors. The start-ups’ growth has been explosive, leaping from five when the pandemic started. And they see a big market to serve... anticipates a global need for 30,000 satellites to be launched this decade... Driven more by private enterprise than by gigantic government budgets, space technology is fulfilling smaller-scale, commercial purposes. Imaging systems feed information about the planet back to Earth, helping India’s farmers insure their crops or commercial fishing fleets track their catch. Satellites bring phone signals to the country’s remotest corners and help operate solar farms far from India’s megacities. Since June 2020, when Mr. Modi announced a push for the space sector, opening it up to all kinds of private enterprise, India has launched a network of businesses, each driven by original research and homegrown talent. Last year, the space start-ups raked in $120 million in new investment, at a rate that is doubling or tripling annually...As ISRO, pronounced ISS-ro, makes room for new private players, it shares with them a profitable legacy. Its spaceport, on the coastal island of Sriharikota, is near the Equator and suitable for launches into different orbital levels. The government agency’s “workhorse” rocket is one of the world’s most reliable for heavy loads. With a success rate of almost 95 percent, it has halved the cost of insurance for a satellite — making India one of the most competitive launch sites in the world... there is money to be made launching equipment into space: That market is worth about $6 billion this year and could triple in value by 2025... India’s vendor ecosystem is staggering in size. Decades of doing business with ISRO created about 400 private companies in clusters around Bengaluru, Hyderabad, Pune and elsewhere, each devoted to building special screws, sealants and other products fit for space. One hundred may collaborate on a single launch.
In recent times, Elon Musk's Space X has dramatically altered the economics of space launch.
His company, SpaceX, and its relaunchable rockets brought down the cost of sending heavy objects into orbit so much that India could not compete. Even today, from American spaceports at $6,500 per kilogram, SpaceX’s launches are the cheapest anywhere.
This is a great opportunity for Indian startups to break the mould (of being mere copycats) and leverage the strong ecosystem and foundations for satellite launches and dominate the global market.
3. Pointing to the enormous potential for growth in mutual funds in India, it emerges that they are just a fifth of the total bank deposits.
4. Russia responds to the sanctions by expropriating the assets of western companies based in the country that have closed down operations. The long-term damage of these actions to Russia's credibility among international investors is serious.
It's ironical that the two strongmen leaders of China and Russia have arguably done more long-term damage to their countries interests than any enemy could ever have achieved.
5. Shyam Saran points to a possible Japanification of China
Inflation in China is remarkably low and it is an outlier in this respect. This is the result of weak demand and a fall in producer prices. This could be the start of a deflationary phase of the kind Japan experienced in the early 1990s, brought on by a combination of a property bubble bursting, bad debts multiplying and a rapidly ageing population. Japan went from constituting 18 per cent of the global economy in 1990 to only 8 per cent in 20 years.
Despite repeated policy announcements that the Chinese economy must shift from being investment-driven to one that is driven by rising consumption, this has not happened so far. Consumption is still at a relatively low level of 40 per cent compared to over 60 per cent in most mature economies. The Covid pandemic, spanning three years, has dampened consumer demand, and stagnant or falling incomes have made the situation worse. An article in the Nikkei reports that retail sales in China are still 10 per cent below the level reached pre-Covid. Chinese are saving more and these are mainly precautionary savings because the overall economic outlook has worsened. The household saving rate currently is 3 per cent above pre-Covid level, which suggests a continuing reluctance to spend.
As property markets are on their longest ever losing streak, there's pressure mounting on the government to undertake some form of pump priming. The government has so far resisted such measures, preferring to let the markets decline and thereby gradually lower the excessive dependence of the economy and local governments on property prices.
6. Ruchir Sharma has some statistics on the burgeoning US deficits and public debt stock,
During the pandemic, the US budget deficit tripled to more than 10 per cent of gross domestic product, more than double the peak in other developed economies. In coming years, the US deficit is expected to average close to 6 per cent of GDP — well above its historic norm, and a full six times the average in other developed economies... all the $6.7tn in new spending from the Biden administration came after 2020 was over. Most of it had nothing to do with pandemic relief. Instead, Joe Biden used the sense of crisis to launch a latter-day New Deal, building infrastructure and industry ostensibly to compete with China and combat climate change... The US has been running deficits almost every year since the 1960s without triggering a serious financial crisis. So the conventional wisdom is that deficits don’t matter. Many economists argue that they pay for themselves if the economic growth generated by new public spending exceeds the government’s interest payments. That feat was easier to achieve when interest rates were near zero, however. Now that rates are rising, it’s almost impossible...Through 2025, the trillions unleashed by this administration will push government spending up to 39 per cent of GDP, most of it not covered by new revenue... the US deficit is still projected to hover near 6 per cent of GDP throughout the next decade... While inflation did spike worldwide, it did so most sharply in nations that spent the most during the pandemic. Few spent more than the US. A recent study from the Federal Reserve attributed two-thirds of America’s recent inflation surge to excess demand, and half that increase in demand to deficit spending... it is now one of the most fiscally irresponsible nations. Its deficit has climbed the ranks to worst in the developed world, its public debt is already the third highest after Japan and Italy.
7. Scott Galloway has a great post that touches on many aspects, including Silicon Valley billionaire vanity,
The Dunning-Kruger effect is a cognitive human bias that causes us to overestimate our abilities in domains where we have low competence. This acutely affects some in the venture capital and tech communities. Enabled by their public profiles, wealth, and tech bro enablers, these folks shapeshift from one week to the next into geopolitical experts and constitutional law scholars and computer scientists. The less they know about a topic, the more confident their tone. We’re all enablers re Elon. If Zuckerberg announced he was building an EV or multistage rocket, wouldn’t we question the industrial logic?
This point about Musk's dramatic retrenchments at Twitter is instructive,
The business strategy that marked 2023 is not leveraging AI or adopting hybrid work, but focusing on bloat. Specifically how to reduce it. Whether you’re a critic or a stan, Elon’s 80% reduction in the bird’s workforce is the most impactful business decision of the year... The result is the Nasdaq’s best first half in four decades, fueled by the nitro and glycerin of AI hype and profits increasing thanks (mostly) to cost cutting. A new generation of business leaders discovered that a firm with a 20% operating margin can see as big an increase in value by cutting costs $1 billion as it can by increasing revenue by $5 billion. For all the complaints from Musk critics about a buggy site “on the precipice of crashing,” he’s maintained a minimum viable product while shedding 4 in 5 employees in six months... Elon didn’t fire 6,000 employees at Twitter, he (effectively) terminated over 300,000 workers across tech. Because every other tech CEO felt they could have the great taste of reduced expenses while avoiding the calories of collapsing revenue. Elon fired people for arbitrary reasons or no reason at all.
This on the spectacular implosion at Twitter
Twitter’s implosion is historic. There has never been a firm in the modern economy that’s fallen this far, this fast that has not been accused of fraud... The erosion of Musk’s guardrails as money and sycophants melt whatever better judgment or grace he had has resulted in a reputation experiencing the same trajectory as Twitter’s revenue. If Elon had never downloaded the micro-blogging app he’d be much wealthier and universally revered for his formidable accomplishments. Instead, he’s set a land speed record for hero to villain.
8. Very interesting set of graphics on Indian oil purchases from Russia over the last year. Since April 2022, India's oil imports from Russia have grown more than ten-fold, with its market share surging from 2% to 24.2%, touching 40.4% in May 2023. OPEC's share of Indian imports fell from 75.3% in May 2022 to 40.3% in May 2023.
The Russian oil has come at a discount, though risk pricing on freight, insurance etc has lowered the discount.
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9. Naushad Forbes makes his recommendations for increasing R&D spending in India.
Indian industry invests around 0.25 per cent of GDP in in-house R&D, to a world average of 1.4 per cent. Indian government spending on R&D, at 0.3 per cent of GDP, is reasonable by world standards. The problem is that unlike the rest of the world, research is not done in universities but in autonomous government institutes. Consequently, India allocates a mere 0.04 per cent of GDP for research done within the higher education system. So what we need to fix is clear: Indian industry must scale its investment in in-house R&D by at least a factor of five. And investment in publicly-funded research within the higher education system must grow eight times.
He points to the promise of the new National Research Foundation (NRF) that gets Rs 50,000 Cr over five years, or Rs 10,000 Cr a year, for research in higher education (in academic research institutions and not autonomous national laboratories), in both public and private institutions. This would double the research done in higher education system. This is interesting
Stanford, a private university, which in 2022-23 spent $2 billion (Rs 17,000 crore, more than every higher education institution in India put together) on research.
There's a bit of populist rhetoric, laced with hypocrisy, in the recommendation for governance of the NRF
Instead, getting a fully professional board (read: No bureaucrats!), headed by an illustrious professional willing to devote the time and energy this needs, would be a far more effective solution.
Such rhetoric does more harm than good. These are the same "illustrious professionals" who have headed Indian corporates and had great opportunities to themselves contribute to the identified failure of abysmal corporate R&D spending! Post-retirement sinecures for corporate executives are just as corrosive as that for bureaucrats.
10. Finally, interesting review of a book on Macquarie, the Australian investment bank firm famous for its infrastructure funds. Its origin can be traced to Hill Samuel, a venerable old British merchant bank and famous for creating the oil company Shell.
The authors show Macquarie’s culture was far more important than any particular business deal, strategy or innovation, with several of its peculiarities going back to the bank’s early days. The philosophy of David Clarke and Mark Johnson, who built Hill Samuel Australia in the 1970s, “was to give employees as much latitude as possible, while remaining consistent with safety and controls”. Throughout Macquarie’s history there has been little top-down strategy or capital allocation. Instead, the company empowers entrepreneurial individuals to evolve new business lines, from 24-hour foreign exchange dealing in Sydney, to gold bullion arbitrage with London, cash management trusts, cross-border leasing and later ideas in infrastructure and commodities.Macquarie loved to explore “adjacencies”. If it was doing well in gold bullion, it could push into other metals. Once it had pioneered infrastructure finance in Australia, it could take the same model abroad, making small bets, each with the potential to grow into a large business. Those that failed, Macquarie quickly shut down; those that succeeded got capital to grow, and the individuals behind them became exceedingly wealthy. Central management was there to support and monitor, while enforcing strict risk controls — another early part of the culture — to make sure nobody blew up the bank. Described like this, Macquarie does not sound so magical, but it is a rare management that truly backs its staff. Macquarie’s approach also differs notably from the strategies that European banks deployed on Wall Street: no transformational acquisitions, no mass hirings of mercenaries from larger companies, no attempts to buy market share by deploying a large balance sheet, and no promises to offer a full range of services — all approaches that led to bloated cost structures and unwise risk-taking.
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