Some thoughts on how transformations happen

I have blogged here and here about pathways to system transformation in development to address what Horst Rittel and Melvin Webber described as wicked problems. 

In another post, I summarised some of the requirements for genuine system transformation

It involves some or all of these - cultivate champions at all levels; empower extensively, even at the risk of short-term failures; nurture positive deviances and encourage their diffusion; trigger conversations at all levels about the need for change; create the conditions for internal ruptures etc. This is very difficult to sustain. The toolkits are very different from what modern management teaches.

The most difficult (to comprehend) part of this approach is that it cannot be planned in any detail. You have to initiate the process with a few carefully thought out interventions or reforms which resonate with the felt-needs of all stakeholders, is important enough in the system's overall perspective, and which the system has the capacity to engage with meaningfully. Once initiated, the challenge is to watch and engage opportunistically based on emergent dynamics of the system and steer the course without letting things get off control. It is a long-drawn effort with uncertain pathway of change. This needs patience, tact, and an ability to continuously step back and in as required.

Tim Harford writes about how the German town of Freiburg underwent a long-drawn transformation and became a pleasant and walkable city,

In the 1960s, Freiburg’s beautiful Münsterplatz was a car park. When I visited this summer, the square was lined with pavement cafés and hosting a well-attended open-air concert. But this transformation did not happen overnight. It required the sustained accumulation, over decades, of one cycle lane or tramway at a time... Two academics, Rachel Aldred and Anna Goodman, recently examined the consequences of outer London’s low-traffic-neighbourhood investments. They found that car ownership took several years to fall steadily by 20 per cent. It takes time to change our habits and time to see the benefits...  

The Netherlands, meanwhile, was not always a utopia for cyclists: 50 years ago, pro- and anti-car factions literally fought in the streets... Its transformation began in the early 1970s, the seeds sown by a seemingly unrelated argument: when the federal government proposed a nearby nuclear power station, an unlikely coalition of church leaders, students and conservative farmers decided that they were all environmentalists.

Freiburg’s historic city centre, the Altstadt, was pedestrianised in 1973, a radical idea at the time. Local businesses were initially against the idea, but were appeased by the construction of car parks just outside the Altstadt. (They needn’t have worried; shops and cafés are buzzing.) The city expanded the tram lines, introduced an affordable season ticket branded “the environmental card” and arranged buses to feed the tram network rather than compete with it. An extensive network of cycle lanes and bridges were constructed. Freiburg’s traffic was also restrained: most streets have a speed limit of 30kph (18mph), and parking is controlled by residential permits and meters. The result of all this has been a walkable city centre that fizzes with commerce, surrounded by residential areas where children safely play in the streets. Both cycling and public transport increased by about 50 per cent between the early 1980s and the late 1990s, yet driving is perfectly possible and remains a popular way to get around.

This is a very good example of a system change driven transformation in the public realm. The same applies to several changes that we aspire for in our areas - cleaning up a river, making the city clean, integrating a mass transit system, lowering traffic congestion, making housing affordable, embracing energy or water conservation, transit-oriented-development, energy transition and so on. It applies just as much to the success of landmark regulations like the Insolvency and Bankruptcy Code (IBC), Real Estate Regulation Authority (RERA), Tradeables and Receivables Exchange of India (TREDS) (all from the Indian context). 

Such transformation endeavours have the following features

1. Such systemic transformations generally take a long time, even a generation or more. So patience with such transformations is essential. Shortening the cycle is both nearly impossible and counter-productive in so far as forced and rapid changes create its set of distortions.

2. In general, such transformations involve a combination of physical investments (infrastructure, equipment etc), institutional changes (enabling urban planning and other policies), co-ordination (bringing together different stakeholders), market response (businesses adapting and new business models emerging), and citizen/customer behaviour changes. 

3. This diversity of requirements demands bringing together several stakeholders. This poses a significant co-ordination challenge, one which can generally be solved only through active government engagement. Market dynamics can rarely achieve such co-ordination, even in the long-run. But government engagement also brings with it the risks of top-down diktats, resource misallocation, skew in priorities, and other distortions. This is where such transformations generally struggle to succeed. 

4. Such transformations also require long-drawn painstaking accumulation. This requires a long term perspective. But politicians and bureaucrats, with their short time horizons, have limited incentive to stay the course for the long term. Therefore the critical need to have a broad-based consensus on the objectives and the final destination. This is essential to ensure that such projects do not get junked with changes in governments. 

Once a consensus is forged, a practical approach would be to make a perspective plan and have it formally and authoritatively adopted. But even such consensus and planning is no insurance for success. Once the plan is in place, its components can be implemented in a phased manner based on the priorities of governments and market dynamics. 

5. With all such projects, change (in terms of the destination sought) is diffuse and imperceptible in the short-run. However, some components of the plan may generate perceptible changes. Further, certain components meet the priorities of the government of the time. This means that the course of such changes is mostly dictated by opportunism. 

The debate on driverless cars

I have blogged earlier here and here about the role of agenda-setting in shaping the trajectory of ideas and technologies. A disturbing trend has been the capture of this agenda-setting process by corporate and elite interests. The example of driverless cars is yet another illustration. 

The widespread adoption of driverless cars throws up several public problems. Foremost, automating driving squeezes out the very large low-income occupational category of vehicle drivers. The technology creates taxis and vehicles without drivers. There is nothing on the horizon to accommodate the tens of millions so displaced. 

Second, in a world of driverless cars, making taxis cheaper and allowing more vehicles on the roads, will worsen the current preferential treatment that cars have over public transit. More people will exit public transit systems and the voices supporting public transport will be even more silenced. The public funding for mass transit will decline further and its neglect will worsen. 

Third, at a time when we are trying to limit transportation-related carbon emissions, this trend would work in exactly the opposite direction. 

These public costs will have to be weighed against the private benefits by way of greater profits to a few large corporations and greater convenience to taxi users and those who can afford driverless vehicles. 

The trickle-down positive externalities that supporters of such technologies claim are generally too slow to realise, too little to be of significance, and too concentrated among a few as to be of no relevance to the vast majority. In any case, these collateral benefits have to be weighed against the negative externalities arising from the elimination of an entire economic segment.

Surprisingly none of these high-level issues are considerations when decisions on the adoption of driverless vehicles get taken by governments. The San Francisco example is illustrative. 

FT has a long read on the debate surrounding a vote in San Francisco on whether to allow robotaxis on its roads. The support for robotaxis is overwhelmingly from corporate interests, many based in the city (GM-owned Cruise, Amazon-owned Zoox, and Alphabet-owned Waymo). They tout several benefits

Driverless car executives have touted the potential to bring dramatic safety improvements. Robots do not get sleepy, distracted or enraged. Nor will they drive drunk, talk on the phone or rush to get to work. For passengers who feel vulnerable hailing a ride with a stranger, especially late at night, a driverless car can be a sort of refuge.

Note the framing of the benefits of robotaxis - all centred around safety, convenience, and efficiency. No mention of any of the important aforementioned public issues. Once the debate gets anchored around the likes of safety and convenience, it's only a matter of time before the narrative overwhelms any opposition. 

The California State Public Utilities Commission, which regulates self-driving cars in the state, voted 3-1 to permit Cruise and Waymo to offer paid rides anytime during the day throughout the city. The seven hour hearing on the issue by the Commission was almost entirely on concerns of road safety. Even the dissenting Commissioner's vote was on concerns of safety. This narrow technical framing of the hearing, overlooking the important public issues mentioned above, is a teachable example of what's wrong with the decision making progress on technology adoption. 

The Commission's vote came overruling strong opposition from local officials, including the San Francisco Departments of Public Works and Fire Services, Municipal Transportation Agency, and Planning Commission. The local government has had no role in the decision, that was appropriated by technocrats in the State Government. 

Even the media debates fall unwittingly into this framing. Consider this from an article in NYT on the San Francisco debate,

Are the driverless cars an interesting and safe transportation alternative? Or are they a nuisance and a traffic-blocking disaster waiting to happen?

The article makes only passing mention of the serious social and public policy problems caused by the introduction of robotaxis.

We cannot also overlook the non-trivial technical problems - see this, this, this, and this - that driverless vehicles are unable to surmount even today. 

There was the recent incident when a fleet of driverless vehicles froze and blocked traffic during a Friday night concert at North Beach. Days later, an autonomous car got stuck in wet cement at a construction site, and then a robotaxi crashed into a firetruck responding to an emergency call. Weeks earlier, pet lovers were mortified when a vehicle struck and killed a small dog.

Corporate interests frame their endeavour as part of the widely accepted narrative of technological progress and have lobbied hard to capture regulatory and standards-setting institutions and important decision makers. They are right to believe that once robotaxis are introduced and are able to demonstrate successful adoption, the prevailing hostility and apprehensions among some groups will dissolve over time. 

It's not surprising given the financial stakes involved. To put that in perspective, it's estimated that investors have poured more than $50 billion into the idea of driverless cars even before one robotaxi service has been introduced.  

However, the marginalisation of public debates on the adoption of robotaxis to narrow technical issues, overlooking the critical public problems unleashed is a testament to the elite capture of the political institutions and the broken nature of the political process. 

Weekend reading links

1. Fascinating article by Sandeep Goyal on the retromania in sneakers, where Addidas is raking in the moolah with its Samba and Gazelle retros. This is interesting about Nike Air Jordans

The Nike Jordans were so popular for so long because they were hard to get. You couldn’t walk into a store and pick one up at the retail price, so your only option was to go to a reseller who would sell the shoes at a premium. Nike figured this out early, and for a long time, they would only produce a limited number of the new Jordan shoes to make sure demand outpaced supply. In the last couple of years, Nike got too greedy and produced too many shoes at too high a price point. It was a kiss of death for Nike’s Jordan.

2. On a possible reason for the mystery of India's low female labour force participation rate, 

“Once you run out of men, you have to employ some women,” said Alice Evans, a senior lecturer at King’s College London. “But those labor shortages never materialized in India.” Economists say a boom in jobs could help overcome the social stigma that remains a barrier to more women working. Japan and South Korea both had female labor participation rates below 50% before their economies began to take off in the 1970s and ’80s. China’s rise, too, was bolstered by women who joined its labor force. As millions of women flocked to factories in the cities, its female participation rate soared to over 70% by the early 1980s, according to data from the United Nations’ International Labor Organization... Bangladesh had a female labor-force participation rate of 38% last year, up from 28% in 2000.

3. Ireland should be called a rogue economy whose tax policies impose serious negative externalities. This graphic, which highlights how Ireland steals other countries (mostly US) tax returns is stunning.

There have been wild swings in Ireland's industrial production data

While a double-digit percentage move in industrial production is rare for most countries, Ireland has recorded 14 of them in the past 24 months.

4. NYT and FT have articles on mispricing of climate risks. The former has an article which describes the consequences of an increase in the pricing of climate risks by reinsurers. 

Reinsurers’ increased prices have accelerated changes in an industry grappling with a new sense of uncertainty. The world is warming; storms are getting more intense; inflation has increased the cost of rebuilding after a disaster; and a global increase in interest rates is making money itself more expensive. Since the beginning of the year, insurance companies have paid out $40 billion to U.S. customers, putting them on track for another record in yearly losses. At every level, the costs of guarding against risk are rising and everyone... Prices for reinsurance rose as much as 40 percent on Jan. 1 from a year earlier... 

The price increases jolted insurers, who then made changes to where and for what they offered coverage... State Farm announced in May that it would stop accepting new applications for certain policies in California... Allstate... paused some of its activities in California. Last month, reinsurers specializing in agriculture insurance announced that they were pulling out of Iowa, where, three years ago, a severe windstorm caused nearly $4 billion in damage. As a result of rising reinsurance costs, insurers also raised prices where regulations allowed. The cost of insuring big new developments of stick-frame housing... skyrocketed... Severe thunderstorms in the United States have caused nearly 70 percent of the losses that insurance companies around the world have incurred this year from natural disasters.

The FT article talks about a possible 'Minsky Moment' for asset values as they get repriced downwards as climate risks become increasingly apparent. It points to a recent study that explored how a portfolio of 60% of global equities and 40% of bonds would fare over the next 40 years under different climate policies compared to the baseline returns (without assuming these climate risks).   

Morgan Stanley estimated in a report last year that at least 44 per cent of wheat, 43 per cent of rice, 32 per cent of maize and 17 per cent of soyabean production comes from at-risk areas. Climate change-induced disasters could put at least $314bn of annual production in jeopardy... Unilever estimates that extreme weather events could increase palm oil prices by 12-18 per cent by 2050, depending on the extent to which rising temperatures can be limited, and other food and commodities ingredients by 14-21 per cent...

Recently published research suggested that US residential properties exposed to flood risk are overvalued by between $121bn and $237bn... insurance premiums for wildfire protection were just $1.5bn in 2021; damages were six times bigger. A move by insurers to close that gap could result in a drop of up to $495bn in property values... One cubic metre of desalinated water can cost between 40 cents and $1 compared with 10-25 cents for the same measure of normal tap water... For southern Europe, intolerable summer temperatures will force writedowns of hotels and resorts in countries including Spain, Italy, Cyprus, Portugal, France and Greece.

A very high proportion of manufacturers of various kinds are exposed to climate change.

5. Services "shrinkflation" in Japan as the country grapples with labour shortages. 

6. Some facts about the global Lithium ion battery market. About a third of the cost of an EV is in the battery,

Invented in the 1970s by US-based scientists and commercialised in 1991 by Japan’s Sony to power its Handycam video cameras, lithium-ion cells pack far more punch in smaller and lighter units than the lead acid or nickel cadmium units that previously dominated the rechargeable battery market. Having helped give birth to the portable electronics industry, lithium-ion batteries have fought off competing technologies to become the dominant force in electric cars after a 90 per cent drop in cost over the past decade. Total global deployment of the technology could top 1 terawatt-hours this year, equivalent to 17mn average-sized electric cars, according to London-based battery consultancy Rho Motion... Global lithium ion battery revenues will grow to $700bn a year by 2035, according to consultancy Benchmark Mineral Intelligence, by which time $730bn will have to be poured into battery plants, mines and processing facilities to meet the need not just for lithium but for other ingredients including nickel and cobalt.

7. The end of Yevgeni Prigozhin and the putsch within the Russian military leadership has been swift and chilling. 

8. Profile of Jackson Lake Lodge, 30 miles from Jackson town in Wyoming, built by John D Rockefeller Jr on the land he donated to the Grand Teton National Park, which has since 1982 been the site of the Kansas City Fed's annual conference. The Conference is today popularly known as the Jackson Hole meeting of central bank leaders and economists.  

The town was once so remote that it was a go-to hideaway for outlaws. In 1920, when Jackson’s population was about 300, The New York Times harked back to a not-so-distant era when “whenever a serious crime was committed between the Mississippi River and the Pacific Coast, it was pretty safe to guess that the man responsible for it was either headed for Jackson’s Hole or already had reached it”... High on its list of charms, the Jackson Lake Lodge was close to excellent fly fishing — a surefire way to appeal to the Fed chair at the time, Paul A. Volcker. He came, and between the A-list attendees and the location’s natural beauty, Jackson Hole quickly became the Fed event of the year... 

Teton County, home to Jackson (now a bustling town of 11,000) and Jackson Hole, hosts more millionaires than criminal cowboys these days. It has become the most unequal place in America by several measures, with gaping wealth and income divides. The event, billed as rustic, now struggles to pretend that its backdrop isn’t posh. And the Fed gathering itself has gained more and more cachet. Alan Greenspan delivered the opening speech at the conference in Jackson Hole in 1991, when he was Fed chair, and then kept up that tradition for 14 summers until he stepped down. His successors have mostly followed suit.

9. Interesting snippet about ISRO

What draws broad support for ISRO’s missions — with Wednesday’s landing welcomed with prayers, music and special screenings in schools across the country — is a culture of humility, teamwork and efficiency... India has a number of large and famed state-funded technology institutes, whose graduates dominate Silicon Valley. But many of the leaders of the lunar mission are graduates of smaller, more modest engineering schools. The leaders, in their humble tucked-in shirts and plain saris, and the hundreds of scientists clapping for them at the moment of touchdown made for an image that middle-class India could easily relate to... After the successful landing, Indian television channels broadcast emotional images from inside the simple home of P. Veeramuthuvel, the project director. His father, P. Palanivel, a former railway employee, sat in front of his television set wiping tears of joy before visitors came with sweets.

10. Subway, the family owned sandwich chain with more than 37,000 stores, has agreed to sell itself to the US PE group Roark Capital for more than $9 billion in upfront payment and $600 million over the next three years. The sale marks the end of more than 50 years of family ownership of the company, a pioneer in the use of franchised stores to grow quickly with minimal capital costs. 

Over the past decade, Roark has spent more than $10bn to buy restaurant chains including Arby’s, Buffalo Wild Wings and the parent company of Dunkin’ Donuts, among others. The privately held investment group, which is controlled by Neal Aronson, has $37bn in assets under management. It is named after Howard Roark, the protagonist of Ayn Rand’s libertarian novel The Fountainhead, and is known for turnaround efforts that focus on the use of franchises for expansion. The private equity group also owns Driven Brands, a conglomeration of recognisable auto service brands such as Maaco, Meineke and 1-800 Radiator. In addition, it has invested in gyms, fitness centres and petcare clinics that rely on franchises. Roark emerged the winner from a process that included several other private equity bids after Subway hired JPMorgan earlier this year to manage a sale process... Roark will consider options such as securitising some of Subway’s stores after the takeover closes.

Watch this space on the fortunes of Subway going forward.

11. FT long read on three initiatives of Xi Jinping government to build an alternative world order. They are the Global Development,

The key to China’s blueprint is to steadily institutionalise its leadership over the developing world by creating, expanding and funding a raft of China-led groupings of countries, according to Chinese officials and commentators. They add that the aims of this strategy are largely two-fold: to ensure that a broad swath of the world remains open to Chinese trade and investment and to use the voting power of developing countries at the UN and in other forums to project Chinese power and values... Global Development Initiative, which is now gaining recognition as a foundation stone in China’s blueprint for an alternative world order to challenge that of the US-led west... is a Chinese-led multilateral programme to promote development, alleviate poverty and improve health in the developing world... along with two follow-up initiatives also announced by Xi — the Global Security Initiative and the Global Civilisation Initiative — it represents China’s boldest move yet to enlist the support of the “global south” to amplify Beijing’s voice on the world stage and build up China’s profile in the UN, Chinese officials and commentators say... 

A study by AidData, a US-based research lab, shows that the 20 countries... have displayed impressive loyalty to China in the form of votes at the UN. Between 2013 and 2020, each of them have voted with China on at least 75 per cent of occasions in the UN General Assembly, the main policymaking body which issues recommendations on global crises, manages internal UN appointments and oversees the UN’s budget... In the case of Cambodia, Pakistan, Tajikistan, Uzbekistan and Zimbabwe — all of which owe hefty debts to China — their voting alignment with China in the UN General Assembly registered at 80 per cent or above... The correlation between increased lending and greater voting fealty was consistent across the sample. “When countries vote with China in the UN General Assembly, they are richly rewarded,” says Bradley Parks, executive director of AidData. “Beijing is dusting off an old playbook and using its largesse to purchase foreign policy favours. “On average, a 10 per cent increase in voting alignment with China in the UN General Assembly yields a 276 per cent increase in aid and credit from Beijing,” he adds, quoting research on voting patterns from a new book by Axel Dreher and colleagues called Banking on Beijing.

12. Fascinating graphics from John Burn-Murdoch on transportation infrastructure construction costs across countries

If phase 1 of HS2, the high-speed rail project connecting Britain’s capital to its second-largest city, is ever finished, it will be the world’s most expensive such scheme, coming in at a cool £396mn for each mile of track... When neighbouring France opened a new 188-mile stretch of its high-speed network in 2017, it cost £46mn per mile in today’s money, just over a tenth as much, and took 12 years to deliver from the start of planning to the first passenger-carrying train, half the anticipated 23 years for the initial phase of HS2... Averaged over a dozen recent major rail projects, and adjusted for inflation, British schemes cost £262mn per mile, compared with £145mn per mile for Japan’s bullet train network, £92mn in Sweden, £74mn in Italy, £42mn in France, and £34mn in Germany. And it’s a similar picture for roads, where new motorway bridges in the UK cost more than three times as much per lane mile than in France, Denmark or Norway, and additional lanes on existing British roads are twice as expensive as in Germany. In both cases, only the US faces even higher costs.

On the coverage of mass transit services across large cities

And on public transport usage

Sam Dumitriu and Ben Hopkinson have a blog post explaining in detail why it costs much more to build infrastructure in the UK. 

Green energy transition - some more thoughts

A three-part series (this, this, and this) in NYT draws attention to the rapidly emerging green energy economy. This and this are two very good reads on the sources of carbon emissions and on the bottlenecks in the US electricity transmission grid respectively. 

In just 15 years or so, renewable technologies have emerged and replaced conventional energy as the main energy generation source in the economy. 

Since 2009, the cost of solar power has plunged by 83 percent, while the cost of producing wind power has fallen by more than half. The price of lithium-ion battery cells fell 97 percent over the past three decades. Today, solar and wind power are the least expensive new sources of electricity in many markets, generating 12 percent of global electricity and rising. This year, for the first time, global investors are expected to pour more money into solar power — some $380 billion — than into drilling for oil.

More than $1.7 trillion worldwide is expected to be invested in technologies such as wind, solar power, electric vehicles and batteries globally this year, according to the I.E.A., compared with just over $1 trillion in fossil fuels... Wind and solar power are breaking records, and renewables are now expected to overtake coal by 2025 as the world’s largest source of electricity... Those investments are driving explosive growth. China, which already leads the world in the sheer amount of electricity produced by wind and solar power, is expected to double its capacity by 2025, five years ahead of schedule. In Britain, roughly one-third of electricity is generated by wind, solar and hydropower. And in the United States, 23 percent of electricity is expected to come from renewable sources this year, up 10 percentage points from a decade ago... The U.S. solar industry installed a record 6.1 gigawatts of capacity in the first quarter of 2023, a 47 percent increase over the same period last year.

The Biden administration has ramped up support for clean technologies with extraordinary measures ranging from direct subsidies to both manufacturers and consumers, and with favourable regulations.

In the United States, President Biden signed a trio of laws during his first two years in office that allocated unprecedented funds for clean energy: A $1 trillion bipartisan infrastructure law provided money to enhance the power grid, buy electric buses for schools and build a national network of electric vehicle chargers. The bipartisan CHIPS and Science Act set aside billions of dollars for semiconductors vital to car manufacturing. And the Inflation Reduction Act, which marks its first anniversary on Aug. 16, is by far the most ambitious attempt to fight climate change in American history. 

That landmark law provided tax breaks related to electric vehicles, heat pumps and energy efficiency upgrades, solar panel and wind turbine manufacturing and clean hydrogen production. The government is also investing in efforts to capture carbon emissions and store them before they can reach the atmosphere, as well as technology that can remove them directly from the air. Originally estimated to cost roughly $391 billion between 2022 and 2031, the tax breaks are proving so popular with manufacturers and consumers that estimates now put the cost as high as $1.2 trillion over the next decade. Combined, the three laws have prompted companies to announce at least $230 billion in manufacturing investments so far. In Georgia, a Korean solar manufacturer, Qcells, is building a $2.5 billion plant. In Nevada, Tesla is building a new $3.6 billion electric truck factory. And in Oklahoma, the Enel and Canoo facilities are primed to benefit from the Inflation Reduction Act, as is a new $4.4 billion battery factory being considered by Panasonic, the Japanese conglomerate...

Mr. Biden has proposed tough new federal pollution limits on tailpipes and smokestacks, but several states are acting on their own. California, with market muscle that influences the entire auto industry, plans to halt sales of new gas-powered cars by 2035 and new diesel-powered trucks by 2036 — and a handful of states are following suit. In May, New York became the first state to ban gas hookups in most new buildings, requiring all-electric heating and cooking starting in 2026. Several cities, including New York and San Francisco, have similar prohibitions... Heavy investment by the United States has spurred a spirited reaction from other wealthy nations. Countries that initially complained that the United States was unfairly subsidizing clean energy manufacturers have since engaged in a sort of friendly subsidy race...

Federal tax credits of up to $7,500 have made the least expensive electric vehicles competitive with gas-powered cars. And about two dozen states offer additional tax credits, rebates or reduced fees, further pushing down their cost. Government action is also helping heavier vehicles go electric. Sales of electric school buses are soaring, largely because of $5 billion in federal grants that can cover 100 percent of the cost for low-income communities. The Postal Service plans to spend nearly $10 billion to purchase 66,000 electric mail trucks — roughly 30 percent of its fleet — over the next five years. 

The market dynamics too are working to solve the emerging constraints,

Concerns among consumers about the availability of charging stations as well as the cost of some models have helped to cool sales somewhat, leading some automakers to slash prices... Companies that provide charging stations are springing up to meet the demand. Francis Energy has more than 400 chargers across Oklahoma and is expanding nationwide. EVgo, which has one of the largest fast-charging networks in the United States, plans to more than double the 3,000 charging stalls it operates... In an unusual move, seven carmakers — BMW Group, General Motors, Honda, Hyundai, Kia, Mercedes-Benz Group and Stellantis — are spending $1 billion in a joint venture to build 30,000 charging ports on major highways and other locations in the United States and Canada. The shift is happening so quickly that some of America’s most iconic automakers are preparing for a world beyond gasoline-powered cars and trucks. General Motors, which has the largest market share of any carmaker in the United States, has committed to selling only zero-emissions vehicles by 2035... Ford Motor, G.M. and dozens of other companies are investing hundreds of billions of dollars to refit factories and build new ones to produce electric vehicles.

Accordingly, there has been a boom in green energy investments across the US

But the pace and scale of the transition, coupled with the large space and right of way requirements for renewables generation and transmission, is raising local opposition,

If lawmakers want to ramp up renewables as fast and cheaply as possible, they’ll need to bulldoze or build over some places that people treasure. From the desert suburbs outside Los Angeles to the rolling hills along the Ohio River to the Jersey Shore, residents are crying out against solar farms, wind turbines and new power lines. They are suing, passing laws and taking other steps to stop or slow projects, some of which would power the nation’s largest towns and cities with renewables. 

“Decisions that are not meant to be personal — they’re being experienced on a very personal level,” said Alison Bates, an environmental studies professor at Colby College in Waterville, Maine, who is studying ways to communicate with residents about offshore wind proposals. Many opponents of renewable energy, she added, “are worried about the impacts to their very way of life.” While Americans broadly support renewable energy, polls show, they are less enthusiastic about having it in their backyard. One survey from 2021 found that only 24 percent of Americans were willing to live within a mile of a solar farm; the number dropped to 17 percent for wind farms.

A big challenge with harnessing renewable energy is that the energy sources need large spaces and are therefore most often located distant from consumption centres, which necessitate laying long transmission lines. The right of way acquisition often takes inordinately long times. Then there are compliances and permissions related to environmental and other regulations, which take up significant construction time for renewable projects.

Across the country, clean energy projects of all types are tied up in lengthy permitting processes. For offshore wind, it can take up to 10 years to secure approval before construction can begin... Some environmentalists say that these stringent reviews are crucial for protecting fragile ecosystems or public health... Yet others concerned about climate change say the balance has tipped too far toward paralysis. Permitting has proved especially difficult for the nation’s antiquated and fragmented electric grid. The United States has some of the best renewable energy resources in the world, including gusty winds in the Great Plains and scorching sun in the Southwest. But to tap those resources, which are often far from population centers, developers will need to build thousands of miles of new high-voltage transmission lines. Yet building long-distance power lines can be a brutal slog. Reviews and permitting alone can take a decade or longer, and any state or county in the path of the lines can throw up roadblocks. Since 2000, the United States has barely built any major transmission lines that connect different regions of the country... Projects that manage to secure permits still need materials and workers, both of which are scarce... Supply chains are being further stretched by an effort to reduce America’s dependence on China.

Finally, there's the issue of behaviour change and adoption of these new technologies by consumers, which most often than not is about the costs.

Most people won't buy green technologies unless it'll clearly save them money and wows them with stunning designs or jaw-dropping performance. Many, conservatives in particular, chafe at the prospect of the government forcing them to buy electric cars or ditch their natural gas appliances, polls show. That’s perhaps why those pitching the technology often avoid mentioning climate change. They emulate evangelists who don’t lead with Jesus when trying to win over nonbelievers. A clean energy future will require painstaking and individually tailored persuasion campaigns. About half of Americans say they are not interested in buying electric cars, and a little more than half say they have not seriously considered solar panels, heat pumps or electric water heaters, a recent Pew Research Center survey found... 

“Nobody’s ever going to make a decision unless it benefits them in a money sense”... Cost was crucial, according to Mr. Leach. “I said, ‘I just want to know at the end of the month, am I going to be paying less even with my investment in solar?’ And that has been the case”... “I’ve had several friends of mine that were, you know, not necessarily trying to save the planet,” he said. “They just wanted to save money.”

Some observations.

1. One can think of three phases in the evolution of the renewable energy transition. The first phase was in continental Europe, especially Germany, Nordics, and Spain, which demonstrated the scale utilisation of renewable energy. These countries pioneered the technologies, commercialisation, and government support strategies. 

In the second phase, the Chinese leveraged the economies of scale (from its own massive market and the global market) and massive market-wide subsidies to commoditise and sharply drive down the price of renewables generation. In many respects, Chinese subsidies have been the biggest stimulus for renewables generation. 

The third phase is the US government activism described in the three articles. This phase may well carry the tailwinds required to boost green technologies across the world. 

The central role of industrial policy in all three phases has to be noted. The American announcement looks massive if only because unlike the others they have quantified and announced the life-cycle costs of the subsidy. 

2. In the context of green energy technologies, I think we'll need to make the distinction between renewable generation and green transportation. The former has undergone the transition required to reach price convergence (parity) with conventional sources, and has gone beyond that in many countries. However, green transportation remains far behind price parity with conventional internal combustion engines. 

3. Green transportation technologies need to solve their first-mover costs problems. Tesla has been a big disruptor, shortening the market development cycle, and Chinese makers like BYD have been quick to jump on the bandwagon and capitalise. 

But these companies are largely involved in serving the upper and middle market segments. In developing countries like India, the lower segment forms the largest volume market. These consumers being extremely price sensitive are unlikely to be swayed by environmentalism and other societal considerations. The same could be said about the middle segment too. Price convergence is therefore critical before green vehicles can make any significant dent in the private four-vehicle segment. And this, I feel, is likely to take several more years. 

4. In general, price convergence with conventional energy and transport sources can take place through two pathways - technology and regulation. The former leads to a reduction in the cost of green sources, and the latter results in an increase in the cost of conventional sources. While the developed countries have relied on the latter just as much as the former to achieve parity, developing countries may have to rely on the former much more than the latter. Their lower baseline incomes and very price-sensitive customers are unlikely to be able to absorb any significant regulatory costs. 

In this context, it's worth bearing in mind that the success of green transition in developed countries has been critically, or almost completely, dependent on the cost curve of these technologies. The pace and scale of transition have been dependent on the government and market's ability to drive down prices to make them comparable to or cheaper than conventional technologies. 

This dependence will be even more so in extremely price-sensitive markets of developing countries. But unlike their developed economy peers, developing countries face daunting challenges. Their governments do not have anything close to the deep pockets required to subsidise the energy transition. And their private sector does not have the capabilities and financial strength to absorb these technologies at the same pace and scale. And the vast majority of their customers cannot afford any additional costs of the energy transition. In the circumstances, the pace and scale of energy transition in developing countries, especially with green transportation, will be much slower and smaller.

5. Two-wheelers are likely to emerge as the pathway for green technologies into the automobile market in developing countries. But here too, some more distance need to the travelled before convergence and the subsidy regime has been tarnished by controversies. 

Incidentally, this market presents a good opportunity for corporate and startup Indian companies to put their hands up and become global leaders. With developed country entrepreneurs and investors interested in chasing cars and other vehicles, Indian entrepreneurs have the market laid out for them. Will they be able to seize the opportunity?

6. I'm inclined to believe that Africa's renewable electricity transition will take more time and will require significant public funding. There's the fundamental problem of the commercial viability of private electricity distribution. High transmission, distribution, and collection losses, coupled with low tariffs mean a high differential between the cost of supply and revenue realisation. This is a bigger affordability, state capability, and political economy problem that we cannot wish away. In the circumstances, private investments, critical to drive the adoption and scaling of renewable energy sources, are likely to stay away. 

The only way is for governments to commit to power purchase agreements and subsidise the differentials while also trying to reduce the losses. Till then the current trends of piecemeal decentralised renewable energy options will meander.

Chinese economy update - August 2023

The pile of bad news from the Chinese economy keeps growing - property market defaults are rising, economic growth is slowing, exports are declining, foreign investment is cratering and some like VC and PE are vanishing, bank lending is falling, and youth unemployment is rising. And all this is being exacerbated by the tightening of US-led sanctions. These stories have triggered commentaries offering explanations. 

Adam Posen has declared the end of the end of the Chinese economic miracle and argued that we are now past Peak China. He argues that things were fine as long as the government allowed the private sector to work and attributes the reversal in fortunes to Xi Jinping's turning against the private sector. 

Michael Pettis disagrees and writes a long Twitter thread that's worth quoting almost entirely

China implemented a high savings, high-investment model that was extremely successful when the economy was severely underinvested for its level of institutional development. But once China closed the gap between the investment it had and the investment it could productively absorb, given its particular set of business, legal, financial and political institutions, like every historical precedent, instead of switching to a different model, it continued with the same model of high savings and now-excessive investment, which led – as in every one of the precedents cases – to asset bubbles, especially in real estate, and an ultimately unsustainable rise in debt. 

As this happened, the locus of economic activity automatically shifted from hard budget-constrained sectors to soft budget-constrained sectors. The turn against the private sector, in other words, was a consequence of China's rising imbalances, and not the cause. For certain economists, any rapid growth is by definition a consequence of private sector initiative, while any slowdown, also by definition, is a consequence of government intervention. But this is not at all what happened in China.

China's ferocious growth in the first three decades of reform was the result of heavy government intervention. This included policies that forced up the savings rate and corralled the resulting savings into a highly controlled banking system that was designed to flood the investment and manufacturing sectors of economy with cheap financing. It also included heavy currency intervention, tough labor restrictions, and a whole series of direct and indirect subsidies to the manufacturing sector that led to explosive growth in infrastructure and made Chinese manufacturers the most competitive in the world, albeit at the expense of Chinese households. To say that three decades of some of the most spectacular growth in history came simply from "unshackling" the private sector makes no sense at all...

What perhaps should've been obvious a decade ago has now become obvious to most economists in China: China's biggest problem isn't "government intrusion" (although that certainly doesn't help). It is the distortion in the distribution of income that keeps domestic demand too weak to support domestic business investment. Without resolving weak domestic demand, it is all but impossible for China to maintain high levels of economic activity except by maintaining the high levels of non-productive investment that have caused the very malaise it is supposed to cure. Business investment is weak, in other words, not because of government intrusion but because of weak demand. Government intrusion is the consequence of weak business investment. The way to fix the economy is to fix the demand side of the economy.

Martin Sandbu echoes Pettis and his diagnosis is largely focused on the garden variety debt overhang that invariably hurts.

Local governments, which borrowed (often in obscure ways) to drive growth through local construction, are at the crux of the balance sheet mismatch between assets and liabilities. That means they stop financing new projects, which in turn kills the business model of the construction sector as well as a principal engine of growth. On the creditor side, doubt spreads whether those who financed local governments will get the return they expect — or even their money back at all. This largely means the household sector, whether directly or through banks (with private sector deposits funding banks’ loans to local governments and property developers). In the former case, you will get a direct effect of lost wealth. In the latter case, you will get a banking crisis thrown in.

He compares China's present situation to that of Japan in the 1990s, the US in 2008, and the Eurozone in 2010. He argues that all of them waited for too long to act on restructuring of balance sheets, and even when they acted they preferred bailouts that spiked public debt and stifled subsequent growth. Instead, he recommends Beijing acts fast to restructure debts with writedowns so that it will remove the uncertainties about the real worth of assets and liabilities, and allow for lending, investing, and planning projects to restart. 

The news of deflation in July has sparked conversations about possible Japanification. Robin Wigglesworth cites a recent JP Morgan report to highlight similarities and differences with Japan. Japanification is the phenomenon of an economy stuck in an extended period of "deflation, economic sluggishness, property market declines and financial stress as households/companies/governments try to deleverage after a debt binge". A big concern is that China is both poorer and aging more rapidly than Japan was in the early nineties. However, being a much larger country, it also has more sources of growth than Japan.

Some thoughts

1. Michael Pettis, I think, gets it right. The facts support his narrative. The Chinese government got things largely right for a long time with its directed growth model and industrial policy. But it went too far. Worse still, it tried to keep the economy growing at the same level by following the same recipe of directed growth. And a booming real estate market was an essential requirement to raise resources and sustain growth. Thanks to the size of the economy and favourable global factors (and good management), this appeared to work well for longer than it ought to have. This, in turn, lulled Beijing into believing its policies and continuing things for longer. And it meant that the government could gloss over and postpone the trickier challenges like rebalancing the economy toward consumption, services, and domestic demand growth. 

The chickens are now coming home to roost. The greater the misallocation, the worse the problems. It's simple Econ 101 that countries can and should try to grow only at the rate at which the system can support. There are natural limits to growth, dependent on the country's accumulated financial, physical, human, and institutional capital. Any growth beyond this rate triggers overheating and inevitable crises. Only the nature of the crisis varies across contexts. 

Pettis sums it up nicely in an FT oped from 2020

As long as Beijing requires growth that is substantially higher than the economy’s real, underlying growth rate (probably around half reported growth rates) China has no choice but to expand the government’s presence. This will also reduce the market’s role in allocating resources.

This is a teachable moment for India too. It would do well to keep this lesson in mind as it strives to engineer high economic growth rates. Sustained high growth rates require strong foundations of capital accumulation. India is far from having that foundation.   

2. Pettis argues in favour of rebalancing the economy towards consumption and boosting household demand, by redistribution of wealth from local government and elites to ordinary households. This too is easier said than done. Any such rebalancing in practice runs into several challenges. 

One, it's not clear as to how such rebalancing can be achieved. What instruments, to what degree, at what pace, and in which sequence? Two, even if it happens, it'll take time. How long is acceptable enough? Three, any rebalancing will involve significant cooling down of the economy and losses for the entrenched elites, along with all the attendant uncertainties. How much rebalancing is sufficient and how much uncertainty will be enough to avoid any hard landing? Four, the entrenched interests will obviously oppose any efforts that are perceived to be detrimental to their interests or redistributing sources of wealth and power. What would take for the elites and governments to give up their sources of income and power?

The same problem of practicality applies to the prescription suggested by Sandbu,

My view is, therefore, that the sooner you restructure balance sheets through writedowns, the better. The difficult policy and political choice you then have to make is who you force to bear the losses: local governments, banks, investors, or households. In each case you need to have a plan for how to move on. You need to organise what happens to a bankrupt local administration (and its officials). You need new, well-capitalised banks to populate the banking system. You need to compensate innocent victims among households, at least those too poor to bear the losses they face. But if you do, it will be a lot cheaper than a bailout, and unlike the other policy paths it will set China up for renewed growth, perhaps of a higher quality. Investors, lenders, developers and local administrators will have learned they need to choose projects that really create economic value.

Again easier said than done. How many write-downs will serve the purpose? How should the write-downs be distributed among sectors or segments of the economy? How to backstop the write-downs to preempt economic and financial market runs? How can the losers be compensated? Most importantly, how can the political economy be primed to accept and undertake such decisions?

3. While the underlying contributors have been building up the trigger for the current woes has to be placed at the Xi Jinping turn. There are at least four reasons. One, in order to also justify his pitch for the unprecedented third term, he has forced the economy to grow at the same rates for longer than it could have. Two, he has shut down many of the sources of dynamism in the economy for a variety of reasons - to tighten the Communist Party's control, to achieve shared prosperity, to rein in cultural degeneration etc. Three, in his overreach to declare the country's arrival as a superpower, he has junked the wise policy of "hide your strength, bide your time", and opened up several hostile foreign fronts. Finally, by suppressing dissent and centralising powers, he has dismantled the various checks and balances that often prevent or atleast attenuate distortions and closed down feedback channels. 

4. The danger is that now the economy may have fallen into what James Kynge calls a "psycho-political funk", where a self-fulfilling doom loop may have been triggered on consumer confidence. And this is precisely at a time when consumption may be the only economic engine intact and is critical to the country's long-term rebalancing. 

5. It's hard not to feel that Adam Posen is right in assuming we are past Peak China. Or at least that China which grew consistently and effortlessly at five plus percentage points, which was the factory of the world, which contributed an outsized and growing share of the world output in many areas, whose growth formed 40% of the global growth, whose exports and surpluses kept growing at a rapid clip, and so on. China will continue to remain the second largest economy and be an important factor in all these. But its relative importance will only decline with time.  

Weekend reading links

1. Michael Anton has a nice article on the enduring relevance of the themes in The Godfather. This is a good description of the attributes of the Don and his three sons.

Coppola has said that he approached The Godfather as a sort of gangster King Lear, the saga of a great chieftain with three sons who each inherited one of his “qualities,” but none the whole package. (That isn’t really what Lear is about, but whatever.) Sonny has the don’s ferocity and courage, Fredo his compassion and warmth, Michael his cunning and patience. 

The don succeeds because he has all three. He manages Machiavelli’s quasi-impossible combination of being at once feared and loved. Sonny is feared by all, and loved by those closest to him, but not by the Corleones’ wider circle. Contrast that with the parade of supplicants to the don in the film’s opening sequence; all but Bonasera the undertaker don’t merely fear and respect, but genuinely love him. Part of the story is how Michael gradually, painstakingly acquires both respect and fear—first from his immediate family, by the end from everyone. But Michael is never loved, except by his father, for whom he is clearly the favorite.

This is an interesting take on statecraft.

In Machiavellian terms, Michael knows how to use “the fox and the lion.” A prince needs both natures, “because the lion does not defend itself from snares, and the fox does not defend itself from wolves. So one needs to be a fox to recognize the snares and a lion to frighten the wolves.” A more perfect description of Michael Corleone couldn’t be penned. Machiavelli immediately continues: “Those who stay simply with the lion do not understand this.” A more perfect description of Sonny Corleone couldn’t be penned... 

“The state is never impersonal but always ‘someone’s state.’”

The Corleone family is rather much more akin to—almost identical with—the personal state of Machiavelli. As Harvey Mansfield explains, for Machiavelli, “stato means both status and state; stato is the status of a person or group while dominating someone else.”... This, more than Vito’s sons’ lacking all his qualities, is the don’s ultimate succession problem, and the ultimate reason why Michael fails. The latter can, and arguably does, make the strategically and tactically correct move in every situation. But he can’t create the same web of loyalties that encircled and enriched his father. In the sequel, Michael explains to Tom Hagen, “All these men”—meaning his henchmen—“are businessmen. Their loyalty is based on that.” Could one say the same of Luca Brasi’s relationship with Vito? Of Nazorine the baker’s?

... As Machiavelli explains, while principality is necessary to found states, republican institutions best preserve them. The perpetuation of states is the hardest challenge in politics—more difficult even than founding. Michael not only held on tightly to his power; he constantly increased it. Machiavelli, by contrast, counsels against inheritance and even (contrary to his reputation as this may sound) against one-man rule—after, that is, the necessary foundations have been laid. Power must be shared. A republic will last only “if it remains in the care of many and its maintenance stays with many.”

This is an interesting snippet. 

As Leo Strauss put it, for Machiavelli, “the foundation of justice is injustice. The foundation of morality is immorality. The foundation of legitimacy is illegitimacy or, in our language, revolution. The foundation of freedom is tyranny.”

2. Here Anton makes a pessimistic case (from the conservative side) about the future based on his reading of the present. This is an important reality

We still choose, sort of, but that hardly matters, because the people we nominally elect do not hold real power. And when they do, they often use it for unconstitutional ends. America’s real rulers are not the constitutional officers we nominally elect, and certainly not the American people, whom our understanding of political legitimacy asserts to be sovereign. They are, rather, a network of unelected bureaucrats, revolving-door Cabinet and subcabinet officials, corporate-tech-finance senior management, “experts” who set the boundaries of acceptable opinion, and media figures who police them.

This is a very good summary of the conservative case on a social, economic, and political crisis. Note that on many issues there will be convergence with the left. 

3. Nikkei Asian Review has a good story on why US technology companies will struggle to shake-off dependence on China. You can't replace such levels of revenue dependence in any time soon.

4. One area where China lagged behind India till end of 2020 was in the export of cars. In less than three years, its exports have rocketed, past even the US, and is now competing with Japan and Germany. 

The arrival of the electric vehicles has been behind the surge in Chinese exports. What does the stagnation in its exports compared to China's boom inform us about India's domestic automobile industry?

5. Smartphone usage across the world has been rising and stands at 4-5 hours per day.

See this report.

6. Interesting factoid about the UK economy - London's outsized importance in its total output. 

Removing London’s output and headcount would shave 14 per cent off British living standards, precisely enough to slip behind the last of the US states... By comparison, amputating Amsterdam from the Netherlands would shave off 5 per cent, and removing Germany’s most productive city (Munich) would only shave off 1 per cent. Most strikingly, for all of San Francisco’s opulent output, if the whole of the bay area from the Golden Gate to Cupertino seceded tomorrow, US GDP per capita would only dip by 4 per cent.

If you take out London, the GDP per capita of UK will be lower than that of the poorest US state of Mississippi! 

7. UK water privatisation facts of the day

After being privatised without debt in 1989, and given a £1.5bn government handout to make improvements to the network, water companies had ramped up £60bn in borrowing by March 2022 and paid out more than £70bn in dividends while presiding over leakage and pollution failures, including unknown quantities of untreated sewage pouring into coastal waters and rivers.

8. An FT editorial advocates restrictions on the tax deductibility benefit for interest payments,

The bias in the corporation tax system towards debt should be reduced. Debt interest payments can be deducted from taxable corporate income, whereas equity financing receives no such treatment. This encourages businesses to load up on debt. Higher corporate indebtedness leads to lower investment and innovation, and greater economic volatility. Allowing full expensing as well only raises the subsidy for debt-financed investment. One option would be to gradually curb the amount of interest that can be deducted, which would help cushion the short-term outlay of extending allowances too.

9. Interesting snippet about copper mining in Zambia

In the early years of independence from Britain after 1964, Zambia produced more than a tenth of the world’s copper. After nationalising the industry in the 1970s in order to fund development, Kenneth Kaunda, Zambia’s founding father and its first president, proudly declared that its citizens were “born with a copper spoon in our mouths”. The move paid for nation-building ventures that define Zambia to this day, such as the Tazara railway line to Tanzania, the hydropower that is the country’s primary energy source and the education of future generations of mine engineers. 

By the 1980s, that birthright was spent. Global copper prices tumbled. ZCCM, as the manager of mines, could not finance investment. Kaunda’s one-party regime crumbled in 1990, not least due to resistance from unions and voters in the Copperbelt. The mine privatisations that followed were slow to turn around the disrepair and came with what are now seen as one-sided tax breaks. Exploration died off.

Zambia borders DRC, the current leading global copper miner, and the government of President Hakiainde Hichilema has now committed to more than tripling production to 3 million tonnes by 2032. And that requires certain things to be addressed.

To even come close, Hichilema, a businessman who was elected in 2021, needs to attract deep pockets for new exploration but also investors with the appetite to turn around old underground mines that have faced high power costs to sustain. “Every tonne counts,” he said in March. The other thing that matters is geography. Zambia shares the same high-class copper endowment as the DRC, but its copper must travel 1,800km or more, largely by truck, to ports such as Namibia’s Walvis Bay or Dar es Salaam. It does, however, enjoy far more political stability in comparison.

Given the post-independence success with nationalised mining and disaster with privatisation, there's a strong case that mining activity in Africa should be done by state-owned companies. Yes, state-owned companies run the risk of corruption and cronyism. But privatisation runs the equal risk of corruption and aggrandisement by foreign mining companies. 

Under the circumstances, the strategy should be to figure out a mechanism to strengthen and insulate state-owned mining companies and enable more transparent management of the mining profits. 

10. Devastating expose of David Solomon, Goldman Sachs CEO, by Jen Wieczner. It's stunning how such leaders are allowed to get away in these times. Another example of the hypocrisy of liberals?

11. Windfall taxes are on the rise in Europe. 

Data from KPMG and the Tax Foundation show that more than 30 windfall taxes, several of which now cover multiple sectors, have been introduced or proposed across Europe since the start of 2022. A total of 24 EU countries have announced, proposed or implemented a windfall tax on energy companies, which European Commission officials put forward after energy prices soared at the start of 2022. The UK has also imposed a levy on profits made from the extraction of oil and gas from the North Sea. 

But banks have increasingly become a target, with the Czech Republic, Lithuania, Spain and now Italy imposing charges on the sector. Latvia could follow... Hungary has imposed levies on all financial institutions, including insurance companies, as well as pharmaceutical groups. Portugal introduced a 33 per cent levy on food distributors with excess profits generated in 2022 and 2023. Croatia has gone further still, introducing a windfall tax that potentially applies to all companies that report a revenue above K300mn (€40mn) for 2022. Bulgaria is also planning an economy-wide windfall tax... The IMF has also argued in favour of levies on excess profits becoming a permanent feature of the tax system.

This about historical examples

Before the outbreak of war in Ukraine, such taxes had not been widely used in decades. The levies were first introduced over a century ago in Europe during the first world war. In 1915, Denmark introduced the Gulasch tax, named after the German stew, on Danish food exporters that continued to trade with Germany during the war. At least 22 countries, including the UK, US, France, Italy and Germany, adopted some form of extra tax on “excess” corporate profits during the conflict. The second world war also saw the use of windfall taxes by the UK, Canada and the US. Other more recent examples include a windfall tax on crude oil enacted by the US government in 1980 and a 1981 one-off bank levy introduced by Margaret Thatcher’s British government. The UK’s Labour government also brought in a windfall tax on utilities in 1997, arguing that the previous Conservative government had sold off the companies cheaply.

This is the IMF report supporting some form of institutionalised windfall taxes.  

12. Akash Prakash has a good summary of the bullish case for India.

No other large EM country can grow real gross domestic product (GDP) at 6 per cent plus for an extended period irrespective of the economic environment in the West. No other large EM has spent the last five years rebuilding corporate and bank balance sheets. Corporate confidence and the private capex cycle are visibly improving. From a relative perspective, there are limited alternative choices in the EM world where you can deploy capital in size. Geopolitics has never been more favourable, and India finally seems to have a chance to build a credible manufacturing story. The country is far more relevant today, a top 10 market for virtually every product, among the fastest-growing, and a clear alternative to China for sourcing everything except the very basic assembly operations.

He also points to an interesting financial market paradox

One has never seen a bigger divergence between enthusiasm for the top-down view of the country and the ability to deploy capital on a stock-specific micro perspective. Almost every investor I talk to is finding it difficult to find new ideas. Markets are expensive, and the well-known quality stocks even more so.

13. The Biden administration continues its squeeze on China as part of its "small yard, high fence" approach of restricting access to advanced technologies. A new executive order limits US investment into China into strategic national security related areas like semiconductors, quantum computing, and artificial intelligence. It also restricts US private investments into these sectors in China. US funding into China-focused VC and PE fell to $14 bn in 2022 from $95 bn in 2021. 

14. Good timeline in The Ken highlighting Byju's slow decline.

The company's valuation has dived from $22 bn to $8.4 billion, and it looks set to continue. Its 2021-22 accounts are yet to be filed. 

There's now a Byju's stigma for ex-employees in the job market!

Some companies have specifically told recruiters not to look at Byju’s employees as they are concerned about their ethics... “When giving hiring mandates, certain companies have specifically told us not to look at Byju’s employees,” said Vivek Mehta, Partner at ABC Consultants... These people are not viewed as coming from a great organisation or company They have taken shortcuts to growth, shown inflated sales, and now this is what is coming to bite its employees. It’s not universal, but it has made recruiters cautious.

15. Tallying the competitiveness of Pharma API manufacturers in India and China.