Weekend reading links

1. Interesting analysis of foundation-owned companies.

Denmark’s weight loss drugmaker Novo Nordisk is the best known example. Support from a foundation holding 77 per cent of its voting rights allowed it to invest in the then-unfashionable area of obesity research in the 1990s. It is now Europe’s most valuable company, having made its owner the world’s biggest charitable foundation. Foundation-owned firms’ financial results are comparable to those of their other corporate peers, according to research by Steen Thomsen of the Center for Corporate Governance at Copenhagen Business School. They are particularly prevalent in Denmark — think Maersk and Carlsberg. Elsewhere, examples include Sweden’s Wallenberg empire, India’s Tata conglomerate, the UK’s Associated British Foods, Switzerland’s Rolex and California’s Patagonia. The latter — created in 2022 — is a rare US example, as unfavourable 1969 tax rules were only lifted in 2018

2. From Noahpinion, this post about zoning in Japan - zoning law is national, but cities have the flexibility to adapt it within limits; there are only 12 clearly defined zoning areas from low-rise residential to only industrial areas; almost all areas allow mixed-use, but some with use restrictions; no restriction on the nature of residential property etc.

3. Conflicts of interest in the legal services industry

Some US firms, most notably Kirkland & Ellis (the dominant legal adviser to the private equity industry), have allowed partners to invest hundreds of millions of their own dollars in the funds managed by the buyout groups they advise. Critics point out that having a personal financial interest in a certain outcome from an investment you have advised on could compromise your legal duty to give impartial advice. Accountants in the US and UK are barred by professional rules from investing in audit clients for just this reason.

4. Rana Faroohar rightly calls out China's recent decision to take the US to the WTO challenging its Inflation Reduction Act.

All I can think is: seriously? Is there anyone blind to the hypocrisy of China challenging tax credits that support US clean energy producers for breaking WTO rules, when its entire economic model benefits from a double standard in which everyone seems to accept its own wildly discriminatory policies? China’s economy is, after all, built on plans that lay out decades-long subsidies and protectionist ringfencing for the most strategic industries, including but not limited to clean energy, telecommunications and artificial intelligence. This massive problem hides in plain sight. 

The word “protectionism” tends to only come up when the US or Europe attempt to impose tariffs or subsidies to protect their own industries. This is true even when it’s for good strategic reasons such as the need to deal with climate change or create a just transition to the green economy for workers. And yet, when it comes from China, protectionism is understood to be the status quo. The rest of the world seems to simply accept that this is the starting point of China’s state capitalism; we sigh and wring our hands, all while hoping against hope that something in this picture will change... The entire nature of China’s political economy goes against the free trade assumptions of the WTO, not to mention the Washington Consensus... China’s new manufacturing stimulus plan, which is about to flood the world with even more cheap stuff, will only continue to expose the cracks in the current trade system. The true picture — that the WTO’s rules are often a straitjacket for everyone but China — is becoming ever clearer.

Faroohar's perspective is something which is missed by her colleague in FT Martin Sandbu who writes.

China has been willing to put in place the green tech subsidies and other government support that the west has until recently shied away from. What, precisely, is not to like about the resulting flood of cheap clean energy exports? Would it be better to reduce the flood to a trickle, so we have less of the kit it takes to decarbonise? Or to have a flood of expensive rather than cheap green tech supplies, to make decarbonisation costlier? The intellectual short-circuit that offends me is to simultaneously complain that it is too hard or expensive to decarbonise and that the tech to do so is too cheap and abundant. You can’t have this both ways. And the way to take it should, of course, be to celebrate cheapness.

It's striking that commentators like Sandbu are so blinkered on the cheap chinese solar imports as to be blind to the protectionism that China indulges in and the role of such imports in destroying manufacturing and jobs in the importing countries. 

5. Gillian Tett points to price-shrouding by companies as an example of market failure.

First, business competition does not always deliver true efficiency; markets can fail. Second, this market failure arises because consumers are not the all-knowing rational agents that they appear in economic models. They have cognitive biases that lead them to make poor choices and leave them ill-equipped to make judgments about inflation. And third, digitisation alone does not magically fix these competition problems. Yes, it can create more price transparency in some arenas, such as airline tickets. But the internet sometimes creates so much information overload that it can also lead to shrouding, particularly when consumers are busy or poorly educated. Indeed, the image — or illusion — of online transparency can actually make obfuscation worse... efficiency and efficacy would rise for the public and private sectors alike if there were anti-shrouding policies. These could include measures to impose standardised labelling for products and support price comparison websites, consumer advisory services and so on.

6. The phenomenon called K-pop

In its survey of the state of the global music industry in 2023, the International Federation of the Phonographic Industry (IFPI) reported that six of the world’s top 20 best-selling artists last year were South Korean. K-pop commanded all top three positions in the roster of the year’s best-selling albums. K-pop concerts collectively drew audiences in the millions. When other countries now think about lab-culturing an exportable, enchanting music monster, K-pop is the only genotype worth emulating.

7. India is, atleast till now, not gaining from the diversification away from China.

India’s share of global foreign direct investment (FDI) inflows fell from 3.5 per cent in the first nine months of 2022 to 2.19 per cent in the same period in 2023, according to OECD data. The sharp drop of 54 per cent is much steeper than the overall global FDI inflow decline of 26 per cent in the first nine months. FDI inflows to China have fallen dramatically from a share of 12.5 per cent in the first nine months of 2022 to only 1.7 per cent in the same period in 2023. It is not India but countries like the US, Canada, Mexico, Brazil, Poland, and Germany which gained the most from China’s loss by seeing their global share rise.

8.  Global supply of equities have been shrinking.

The number of listed companies in the US has fallen from more than 7,000 to fewer than 4,000 since 2000, according to Wilshire, the index provider. A similar trend has unfolded in Europe and the UK. Smaller companies hoping to raise funds but wary of the financial and regulatory burdens associated with being public are still turning to private markets or venture capitalists, according to strategists.

9. Interesting entrant in the race to secure control over minerals critical for the green transition, the Gulf countries!

Gulf nations, hungry to diversify their economies beyond fossil fuels, are redirecting petrodollars to secure copper, nickel and other minerals used in power transmission lines, electric cars and renewable power. Beyond the UAE, chief among them is Saudi Arabia which wants mining to contribute $75bn to its economy by 2035, up from $17bn. Oman has started construction of what could be the world’s largest green steel plant that plans to use iron ore from Cameroon, while the Qatar Investment Authority, the gas-rich state’s sovereign wealth fund, is now Glencore’s second-biggest shareholder... With Gulf nations raking in $400bn of fossil fuel revenues annually, but facing a future where hydrocarbons will be phased out, expanding into mining is a logical step... For resource-rich nations in Africa, Asia and Latin America, the entrance of these middle powers into the critical minerals battleground is a welcome alternative to decades of exploitative arrangements underpinned by either western colonialism or Chinese debt... These nations believe that selling to Gulf states can help sidestep tension between the US and China over their copper, iron ore and lithium — resources the two powers need to electrify their economies...

But Gulf investment also comes with risk, industry insiders warn. Sovereign wealth can bring opacity and complexity when what mining projects and local communities desperately need is more accountability and transparency. Despite this, Washington has welcomed the Gulf’s expanding role in mining for helping to break Beijing’s monopoly over processing critical minerals. The US has been actively brokering Saudi, Emirati and Qatari investment in riskier jurisdictions, such as the Democratic Republic of Congo, where western companies struggle to enter, in order to keep China out, according to executives from mining companies and trading houses, as well as a senior US government official. For international mining groups also seeking to navigate US-China tensions over natural resources, the Middle East offers a neutral venue for minerals processing, capital and corporate headquarters.

Their investment strategy mirrors that of China

Saudi Arabia aims to secure copper, iron ore, lithium and nickel from overseas for processing domestically through Manara Minerals, a joint venture established last year between state mining group Ma’aden and the Public Investment Fund. In return for minority investments into established operations run by blue-chip companies such as BHP and Rio Tinto, it aims to receive metals supply — a model Japanese trading houses have successfully deployed for decades... The emirate of Dubai, a key precious metals trading hub, already has a large foothold in Africa’s ports and logistics network, the fortunes of which are closely tied to commodities. Dubai government-owned DP World has won port concessions in DRC and most recently Tanzania’s Dar es Salaam, a crucial shipping juncture for copper from Zimbabwe and Zambia... Much like the Chinese, the Gulf states are promising resource-rich nations an investment package centred around mining; Zambia expects the UAE to invest in agriculture, tourism and energy.