1. Fascinating tweet thread by Ed Conway about the Bretton Woods System that pegged the exchange rates of 44 countries with the IMF entrusted the responsibility of managing it. This graphic illustrates the remarkable currency stability among these countries in the 29 years of its existence.
This currency stability combined with a few other things resulted in a period of remarkable economic prosperity. This is a striking graphic about productivity and compensation in the US.
2. Good article that evaluates the semiconductor chips making in India, specifically the partnership between Tata Electronics and PSMC, one of the smaller Taiwanese chip manufacturing companies.
This is unlike the venture the other big player, Taiwan SemiconductorManufacturing Company (TSMC), is undertaking abroad – the company’s new fab in the Japanese city of Kumamoto, two $40 billion facilities in Phoenix, Arizona, and a commitment to invest nearly $4 billion to build a fab in Dresden, Germany. In these new fabs, apart from significant equity investment, TSMC, the ninth-most valuable business in the world, is an equity partner, and has invested in the ecosystem; it has taken along its key vendor base of some 25-30 companies to each of these locations, and is also undertaking large-scale training of manpower on the nuances of chip fabrication, a high tech-intensive job. In the Tata-PSMC venture, much of the heavy lifting is done by the Tatas, who have no real experience in chip manufacturing so far... The fact is, for TSMC to be successful outside Taiwan, it takes more than just its expertise. It takes its suppliers along so that an ecosystem develops locally for the construction expertise, material supplies, and equipment deliveries. For instance, TSMC has moved around 40 Taiwanese companies to Japan (for the new plant in Kumamoto), and taken around 30 of them to Arizona for the new plants.
3. NYT has an interview with Robert Putnam.
We looked at long-run trends in connectedness, trends in loneliness, that sort of thing, over the last 125 years. And the short version is, it’s an upside-down U curve. We were socially isolated and distrustful in the early 1900s, but then there was a turning point, and then we had a long upswing from roughly 1900 or 1910 till roughly 1965, and that was the peak of our social capital. People were more trusting then, they were more connected then, they were more likely to be married then, they were more likely to join clubs then, etc. And then for the next 50 years, that trend turned around...That trend in political depolarization follows the same pattern exactly that the trends in social connectedness follow: low in the beginning of the 20th century, high in the ’60s and then plunging to where we are now. So now we have a very politically polarized country, just as we did 125 years ago. The next dimension is inequality. America was very unequal in what was called the Gilded Age, in the 1890s and 1900s, but then that turned around, and the level of equality in America went up until the middle ’60s. In the middle ’60s, America was more equal economically than socialist Sweden! And then beginning in 1965, that turns around and we plunge and now we’re back down to where we were. We’re in a second Gilded Age. And the third variable that we look at is harder to discuss and measure, but it’s sort of culture. To what extent do we think that we’re all in this together, or it’s every man for himself, or every man or woman? And that has exactly the same trend.
He makes the distinction between bonding and bridging social capital.
Ties that link you to people like yourself are called bonding social capital. So, my ties to other elderly, male, white, Jewish professors — that’s my bonding social capital. And bridging social capital is your ties to people unlike yourself. So my ties to people of a different generation or a different gender or a different religion or a different politic or whatever, that’s my bridging social capital. I’m not saying “bridging good, bonding bad,” because if you get sick, the people who bring you chicken soup are likely to reflect your bonding social capital. But I am saying that in a diverse society like ours, we need a lot of bridging social capital. And some forms of bonding social capital are really awful. The K.K.K. is pure social capital — bonding social capital can be very useful, but it can also be extremely dangerous. So far, so good, except that bridging social capital is harder to build than bonding social capital. That’s the challenge, as I see it, of America today.
4. In an interesting reversal of fortunes, developing countries have become more fiscally prudent compared to their developed counterparts, and central banks across developing countries are exhibiting greater responsibility and independence. Sample this from Gavekal.
Across the emerging markets, political leaders with populist leanings are calling for looser fiscal policy. Many are also berating local central banks for failing to do more to support growth, and leaning on them to loosen monetary policy. For the most part, central bankers, jealous of their independence, are pushing back and keeping monetary conditions relatively tight to counter inflation. This raises the prospect of loose fiscal, tight monetary policy settings in a number of key emerging markets, argues Udith Sikand. It also throws the contrast between emerging and developed market central banks into sharp relief. Arguably, developed market central banks have caved in to fiscal dominance, keeping real rates for the most part low or negative over recent years to prevent public debt burdens from becoming unsustainable. By contrast, emerging market central banks are likely to maintain positive real rates in order to attract funding to cover growing fiscal deficits. The bottom line is that this sets up conditions for a potential triple merit scenario in emerging markets over the coming years, with local risk assets and currencies rising strongly.
A total of 353 companies earning above Rs 500 crore accounted for 55.7 per cent of the Rs 14.7 trillion in gross total income recorded by all companies in 2018-19. A total of 842 companies made more than Rs 500 crore in 2023-24 and accounted for 62 per cent of the Rs 34.6 trillion in gross total income recorded by all companies.
6. India's textile industry facts of the day
India's textile industry, valued at USD 250 billion, provides jobs to 50 million people. The sector is divided into three broad categories - Textiles (fibre, yarn, and fabrics); Garments and; Made-ups (Bed sheets, curtains etc.). India is present across all parts of the value chain. In 2023, China exported USD 114 billion worth of garments, followed by the EU (USD 94.4 billion), Vietnam (USD 81.6 billion), Bangladesh (USD 43.8 billion), and India with just USD 14.5 billion. From 2013 to 2023, Bangladesh's garment exports grew by 69.6 per cent, Vietnam's by 81.6 per cent, and India's by only 4.6 per cent. "As a result, India's global market share in garment trade has declined from 2015 to 2022. The share of knitted apparel dropped from 3.85 per cent to 3.10 per cent, and the share of non-knitted apparel decreased from 4.6 per cent to 3.7 per cent," GTRI founder Ajay Srivastava said. He said that the garment imports too surged by 47.90 per cent, from USD 1.06 billion in 2018 to USD 1.56 billion in 2023. Textile imports also saw a notable increase of 20.86 per cent, from USD 5.77 billion to USD 6.97 billion.
7. A new NBER working paper points to more evidence of price markups in the US economy. It uses data on price data from more than 100 distinct product categories in the US in the 2008-19 period.
We estimate demand with flexible consumer preferences and recover time-varying markups for individual products under the assumption of profit maximization. Our results indicate that markups increased by about 30 percent during our sample period. This reflects within-product changes and is primarily due to reductions in marginal costs, rather than increases in (real) prices. Changes in marginal costs, along with declining consumer price sensitivity, account for the vast majority of the time series variation in aggregate markup changes between 2006 and 2019. Our model indicates that consumer surplus has increased despite rising markups, though the increases are concentrated among higher-income consumers.
8. Interesting snippet about the Bill and Melinda Gates Foundation
Between 2006 and 2023, Mr. Buffett had given more than $39 billion to the Gates Foundation. By comparison, Mr. Gates and Ms. French Gates gave $39 billion between 1994 and 2022, including $22 billion to get the foundation going in 2000. In some years, the former couple gave less than half a billion. In 2021, they pledged $15 billion to the foundation’s endowment, and the following year, they transferred that money, as well as another $5 billion Mr. Gates had contributed.
9. Important point made by Richard Rorty (HT: Rana Faroohar)
National pride is to countries what self-respect is to individuals: a necessary condition for self-improvement. Too much national pride can produce bellicosity and imperialism, just as excessive self-respect can produce arrogance. But just as too little self-respect makes it difficult for a person to display moral courage, so insufficient national pride makes energetic and effective debate about national policy unlikely.
10. An important trend to be kept in mind as we follow China, the sharply increasing Chinese emmigration.
The number of Chinese citizens living in Malaysia has almost doubled over the past three years, driven by a jump in students and new investors, according to government officials, academics, schools, and business and community associations... China’s slowing economic growth as well as a more heavy-handed approach to business have driven more of its citizens to seek new lives abroad. Wealthy Chinese citizens have flocked to destinations such as Singapore and Malta where they have acquired citizenship through investment, and they make up the largest source of golden visa applicants in Portugal and Greece. Chinese citizens also form one of the largest groups of illegal migrants attempting to enter the US from Latin America...Malaysia... is home to a centuries-old Chinese diaspora that makes up about 23 per cent of its 34mn citizens. Most new Chinese arrivals are middle-class families who see south-east Asia as a more affordable destination, or students shying away from anti-China sentiment in the west, making Chinese people the largest group of foreign students and long-stay residents in Malaysia. Universities and international schools in Malaysia are reporting soaring demand. The nation’s higher education institutions had 44,043 Chinese students enrolled last year, up 35 per cent from 2021, according to the education ministry... the number of Chinese pupils in international schools more than doubled in the same timeframe from 2021 to 2023. More than 56,000 Chinese immigrants now hold Malaysia My Second Home long-stay visas, more than double last year’s number. Chinese investors are also contributing to the boom in expatriate numbers. There are about 45,000 owners, managers and workers of Chinese companies in Malaysia, up from an estimated 10,000 in 2021, according to a Chinese trade official... The rise in Chinese residents mirrors an earlier trend in Thailand. Sivarin Lertpusit at Thammasat University in Bangkok said the number of new Chinese immigrants in Thailand was “rapidly increasing”, reaching 110,000-130,000 living in the country in 2022, most of them entrepreneurs, employees, students and their family members as well as lifestyle migrants.
11. The week saw a US federal judge ruling on a DoJ suit that Google spent billions of dollars on exclusive deals to maintain an illegal monopoly on search, a sector where it handles more than 90% of online queries. The judge, Amit Mehta, of the US District Court for the District of Columbia, said, "Google is a monopolist, and it has acted as one to maintain its monopoly."
The DoJ argued the search giant paid tens of billions of dollars a year for anti-competitive deals with wireless carriers, browser developers and device manufacturers — and in particular Apple. These payments, which cemented Google as the default search engine, totalled more than $26bn in 2021, according to the decision... The proceedings will now enter a second phase in which the court will determine what remedies Google needs to take. The DoJ has not yet indicated what penalties it would seek, but it may focus on curbing Google’s ability to strike the deals at issue in the case. The decision is the biggest win against Big Tech by US antitrust enforcers in decades... the DoJ’s antitrust division, led by Kanter, has sued Apple and has a second case pending against Google, accusing it of allegedly exercising monopolistic control of the digital advertising market. The second Google trial is set to begin next month. The Federal Trade Commission, chaired by Big Tech critic Lina Khan, has also filed lawsuits against Amazon and Meta.Google’s years-long agreement with Apple to make it the default search engine on the iPhone’s Safari browser has long drawn scrutiny. Unsealed court documents showed that Google paid Apple $20bn in 2022 alone. This would amount to a substantial portion of Apple’s $85bn-a-year services business, which includes its App Store and Apple Pay... Also at issue in the case were contracts the tech giant reached over the years with browser developer Mozilla, Android smartphone makers Samsung, Motorola and Sony, and wireless carriers AT&T, Verizon and T-Mobile... The ruling strikes at the heart of Google’s most prominent business. The company made $175bn in revenue from its search-based advertising last year, more than half its $307bn of total revenue... Google’s “distribution agreements foreclose a substantial portion of the general search services market and impair rivals’ opportunities to compete”, Mehta said in the ruling. “Google has not offered valid pro-competitive justifications for those agreements.” The deals deny competitors “scale”, he said, which is “the essential raw material for building, improving, and sustaining” a general search engine. Google benefits from a “feedback loop” in which parties “routinely renew” exclusive distribution deals with the company, Mehta added. “That is the antithesis of a competitive market.”
Judge Mehta pointed to three ways in which Google distorted competition
The company’s grip over 90 per cent of the search market enabled it to make super-profits from advertisers. Its business model, based on surveillance advertising, compromised user privacy, which rival search engines might otherwise prioritise. And its massive payments to Apple, and other tech companies, for default distribution of Google search on their devices and services in effect buy off potential competitors, stifling innovation.
This about the extent of Google's dominance
According to Mehta’s decision, nearly 90 per cent of US search queries flowed through Google in 2020, and 95 per cent for mobile. It has no serious rivals — the next closest, Microsoft’s Bing, accounted for just 6 per cent. The advertising business Google has built around its search business generates enormous revenue: $175bn last year, more than half its $307bn total. It has spent lavishly to protect its cash cow: Google’s total payments to the likes of Apple and Mozilla to make it their default search engine reached more than $26bn in 2021 alone, Mehta said.
This is a summary of the cases against the other Big Tech companies.
12. This blog has long held that India's objective should be to grow at 6% for the next 30 years, and use the occasional tailwinds to opportunistically engage for episodes of slightly higher rates. TT Rammohan points to the WDR 2024 and makes this important point.
The WDR 2024 report complements the findings of a study carried out by the World Bank in 2008 under the leadership of Nobel Laureate Michael Spence. That study showed that growth of over 7 per cent for over 25 years from any starting point, not just from a MIC starting point, is a tall order — only 13 economies had been able to do so. Of these, nearly half were small economies. The economies that had grown rapidly had had the benefit of a post-World War II world environment that was substantially open to free trade.
M Govinda Rao points to the accounting challenges with India's growth aspirations
According to the World Bank’s definition, a developed country in fiscal 2025 has a per capita gross national income (GNI) of $14,005. India’s GNI is estimated at $2,600, implying that to leapfrog into the developed country club, India must multiply its per capita GNI by 5.3 times. This translates into an average annual growth of about 7.5 per cent in per capita GNI or about 9 per cent per year in overall GNI for the next 23 years... Accelerating growth requires the economy to enhance both investments and productivity. At the present incremental capital-output ratio of 5, the investment rate must increase to 40 per cent of gross domestic product (GDP) from the prevailing 34 per cent. Any shortfall will have to be compensated by increasing productivity.
13. Some striking numbers about the role of state in today's capitalist society.
Sovereign Wealth Funds (SWFs) controlled more than $11.8 trillion in 2023, beating hedge funds and private equity firms combined, up from $1 trillion in 2000. State-owned enterprises (SOEs) had assets worth $45 trillion in 2020, the equivalent of half of global gross domestic product, up from $13 trillion in 2000. The Organization for Economic Cooperation and Development calculates that half of the world’s 10 biggest companies and 132 of its 500 biggest are SOEs...For the most part, these SOEs are different from the state-owned bureaucracies of old. The state acts as a passive shareholder (sometimes with a majority but often with a minority share) rather than as a hands-on owner. The chief executives tend to have MBAs from fashionable schools and, in many cases, experience in the private sector. And the companies participate fully in global markets rather than, like old fashioned state-owned companies, hiding behind national walls... Big European SOEs have been buying up smaller private companies across Europe: France’s SNCF and Deutsche Bahn AG have purchased British railway companies, creating the oddity of foreign state companies running Britain’s privatized railways, while Spain’s Telefonica SA has expanded across Europe and the Americas. The Norwegian sovereign wealth fund is so big, controlling more than $1.7 trillion in assets, that it owns almost 1.5 per cent of the shares in all the world’s listed companies.
14. Some interesting snippets about China's priortisation of science education and applied research in areas close to the country's strategic priorities.
A majority of undergraduates in China major in math, science, engineering or agriculture, according to the Education Ministry. And three-quarters of China’s doctoral students do so. By comparison, only a fifth of American undergraduates and half of doctoral students are in these categories, although American data defines these majors a little more narrowly... China’s lead is particularly wide in batteries. According to the Australian Strategic Policy Institute, 65.5 percent of widely cited technical papers on battery technology come from researchers in China, compared with 12 percent from the United States. Both of the world’s two largest makers of electric car batteries, CATL and BYD, are Chinese. China has close to 50 graduate programs that focus on either battery chemistry or the closely related subject of battery metallurgy. By contrast, only a handful of professors in the United States are working on batteries...The roots of China’s battery successes are visible at Central South University in Changsha, a city in south-central China and a longtime hub of China’s chemicals industry. Central South University has nearly 60,000 undergraduate and graduate students on an extensive, modern campus. Its chemistry department, once in a small brick building, has moved to a six-story concrete building with labyrinths of labs and classrooms. In one lab, which is filled with glowing red lights, hundreds of batteries with new chemistries are tested at the same time. Electron microscopes and other advanced equipment occupy other rooms... Peng Wenjie, a professor, has set up a battery research company nearby that employs more than 100 recent doctoral and master’s program graduates and over 200 assistants. The assistants work in relays for each researcher so that the testing of new chemistries and designs continues 24 hours a day... Building and equipping an electric-car battery factory in the United States costs six times as much as in China, said Robin Zeng, the chairman and founder of CATL. The work is also slow — “three times longer,” he said in an interview.
It would be useful to go back and check on similar articles that compared the scientific research focus in the Soviet Union and its comparison with the US. The Communist Party recognised the importance of higher education and research, and the USSR was a leader in basic sciences education and in applied research, competing on level terms in many of the cutting-edge areas of technology. We now know that it didn't go much far.
Not saying that the same fate awaits China. But it's useful to keep history in mind and judge such trends with some perspective, and not in any absolute terms.
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