1. Railways looks set to come the full circle back to government control in the UK. From an FT editorial last week
A bill set for a lightning third reading on Tuesday will return franchised passenger rail services to public hands when existing contracts end or reach a breakpoint — which at least means this renationalisation has little upfront cost. The government says it will produce a more centralised network, under the “directing mind” of a still-to-be-created arms-length body, Great British Railways. It touts the potential to cut costs by removing duplicative bureaucracy, and to simplify the unpopular maze of ticketing.
And this
The Labour government is set to launch legislation to nationalise the railways as a matter of priority, with takeovers of some of the UK’s busiest operators expected within months. Nearly three-quarters of train journeys in Britain are expected to be on nationalised rail services within a year under Labour’s plan... The legislation is intended to renationalise the rest of the railway after about 40 per cent of services were taken over by the previous Conservative administration as operators failed over the past decade... Under the bill, contracts to run train operators that are let to private companies will be permanently returned to the government as soon as they expire.
2. Jean Pisani Ferry has some wise words on green transition costs
The reality is that it’s a combination of supply and demand shocks. The demand shocks caused by the additional investment are obviously positive. The supply shocks are mostly negative, at least in the short term. And the reason for that is that one way or another, you’re basically paying for a resource — a stable climate — you used not to have to pay for. It is the same if the investment is triggered by regulations instead of the pricing of carbon: economic agents are compelled to spend significant amounts for capital expenditures that do not improve the efficiency of capital and labour... the overall magnitude is equivalent to the first oil shock of 1973-74. And the first oil shock isn’t remembered as something very positive...So essentially, we are going to invest 2 to 3 per cent of GDP for 10, perhaps 25 years. Burning fossil fuels is significantly less capital intensive than investing in clean energy. And we’re substituting that with a system in which upfront investment is required to transform the energy system and to ensure it does not rely on fossil fuels. It means investment that’s normally devoted to improving overall efficiency, improving total factor productivity or saving labour, has to be diverted to saving on fossil fuels. And that’s not going to improve your economic performance. That is, unless — and it’s possible in the long term — the new technology proves to be much more efficient than the old technology. So that’s what makes me hopeful that in the long run, I mean at the 20- to 25-year horizon, it may be that the use of such technologies proves to be more efficient overall. But that does not eliminate the transition cost... job-neutral globally — which I don’t think it will be, because the labour intensity of an EV [electric vehicle] is much lower.
And he has a very good comparison
At the time of the Industrial Revolution, there were agrarian interests versus manufacturing interests: there was a fight between those two strands of capitalism. And I think it’s a bit the same. There is a green capitalism that has developed and has gained strength. It’s a war between two strands of capitalism — green and brown.
3. As the frequency, intensity, and damages from forest fires rise, state governments in the US are reviving an age-old practice of triggering small beneficial fires in an effort to prevent the accumulation of the fuel that sustains large fires.
According to one study from researchers at Columbia and Stanford, low-intensity fires, a category that includes mild natural fires and prescribed burns, reduce wildfire risk by about 60 percent. Experts also say that prescribed burns have reduced the severity of previous wildfires, including in Yosemite National Park, where researchers found that they helped protect giant sequoias during the Washburn fire in 2022. Most of California’s ecosystems have evolved to adapt to or depend on fire, which can rejuvenate forests and help nutrients return to the soil. But federal and state land management agencies banned intentional burns for many decades, arguing that all fires were dangerous and could hurt the timber industry. This, along with aggressive efforts to suppress wildfires, allowed vegetation to accumulate, a condition that could supercharge blazes...Federal and state agencies, as well as other groups that work with them, including private citizens and businesses, are setting fires that burn the dry grasses, small trees and other vegetation that could otherwise fuel an intense wildfire... Land managers in the state, including the California Department of Forestry and Fire Protection, and federal agencies have set a target of intentionally burning 400,000 acres annually by next year, an amount of land that when combined would be larger than the city of Los Angeles. The goal is to chip away at the 10 million to 30 million acres that officials estimate would benefit from some form of fuel reduction treatment. In 2022, the most recent year for which there is data publicly available, about 96,000 acres were burned by these land managers... Since then, intentional burn practices, including planned fires and cultural burning by Native American tribes, have been gradually reintroduced. Nowadays, these efforts are carried out by various entities across the state, including Cal Fire, the U.S. Forest Service, tribal organizations and private citizens...In addition to the need for more funds... controlled burn programs face a number of other hurdles. Already limited in number, firefighters who would staff a prescribed fire are often called away to battle an active blaze. There are also only so many days in a year that conditions are right for a fire, and access is a challenge in some locations. And local communities may oppose a controlled burn... The U.S. Forest Service has said that over 99 percent of these fires go as planned, but mistakes can be destructive. In 2022, the agency lost control of two prescribed burns in New Mexico. The fires merged and grew to become the largest recorded fire in the state’s history, destroying hundreds of homes.
4. What has been driving Nvidia?
5. India R&D facts of the day
Notably, less than 5 per cent of Indian patent citations refer to other Indian patents, reflecting a low level of local knowledge creation and heavy reliance on foreign sources. By comparison, China and South Korea have local citation rates of 10 and 20 per cent, respectively. India also ranked 42nd out of 55 countries on the 2024 International Intellectual Property Index, with an overall score of 38.64 per cent, unchanged from the previous assessment... the ratio of big businesses to unicorns in India is just 0.1, compared to 0.9 in the US, 0.4 in China, 0.5 in Germany, 0.25 in Brazil, and 0.6 in South Korea.
6. Some numbers on ESIC and EPFO deductions
Take the example of Sarita, a (fictitious) new employee in Mumbai earning Rs 15,000 per month (Rs 1.80 lakh annually). She must pay a profession tax of Rs 2,500 annually... Next, Sarita (Rs 1,350) and her employer (Rs 5,850) must pay a total of Rs 7,200 annually to the Employees’ State Insurance Corporation (ESIC). However, getting claims from ESIC is notoriously difficult, effectively making it another tax. ESIC holds Rs 1,17,000 crore in reserves. The claims paid (Rs 14,000 crore) are 83 per cent of contributions (Rs 17,000 crore), and investment income (Rs 7,000 crore) is 41 per cent of contributions (Source: Accounts for year ended March 31, 2023). The numbers reveal a system where contributors have long given up hope of receiving claims. Then you have the Employees’ Provident Fund Organisation (EPFO) triplets. Sarita contributes Rs 1,800 monthly to her EPF, while her employer contributes Rs 600 to her account, plus Rs 75 in administrative charges. In addition, her employer contributes Rs 1,200 to her Employees’ Pension Scheme (EPS) account and Rs 900 for her life insurance (of Rs 7 lakh), under the Employees’ Deposit Linked Insurance (EDLI) scheme.
All these small deductions add up. Sarita pays Rs 25,450 per year (Rs 21,600 EPF + Rs 2,500 profession tax + Rs 1,350 ESIC), leaving her with Rs 1,54,550 from her salary of Rs 1,80,000. Meanwhile, her employer pays a total of Rs 39,250 (Rs 7,200 EPF, Rs 24,400 EPS, Rs 900 EDLI, Rs 900 administrative charges and Rs 5,850 ESI), making Sarita’s total cost to the employer Rs 2,19,250. The difference (Rs 64,700) between her employer’s cost and Sarita’s take-home pay is 42 per cent—coincidentally the same tax rate for individuals earning over Rs 5 crore annually. Effectively, the lowest-paid employees are taxed at the same rate as the highest earners.
7. Fascinating story of William Phillips, the famous economist of Phillips curve fame, who travelled from a farm in New Zealand to become the world famous economist at LSE who in 1949 demonstrated to an astounded audience of superstar economics professors "the first ever computer model of a country's economy", the Moniac.
Phillips might have been expected to go to university — he passed every exam — but there was a problem. In 1929, a collapse in share prices... had set in motion the Great Depression. Its effects lasted for years, and reached as far as a dairy farm in Te Rehunga. Prices for agricultural commodities plummeted, and Harold and Edith simply couldn’t afford to send their son off to study. Phillips became an apprentice electrician at a hydroelectric power station instead... In 1935, the apprentice electrician left Te Rehunga to see the world. Steve Levitt, a co-author of Freakonomics, was once dubbed “the Indiana Jones of economics”, but if that swashbuckling label belongs to anyone, it’s Phillips. In between leaving New Zealand and his first brush with economics in 1946, Phillips worked in a gold mine, hunted crocodiles, busked with a violin, rode the Trans-Siberian railway and was arrested by the Japanese and accused of spying. He eventually pitched up in London and signed up for the LSE. Then the war started, and he joined the Royal Air Force, which promptly sent him back to the other side of the world. In the RAF, Phillips established himself as an outstanding engineer, working to upgrade the obsolete aeroplanes that were supposed to defend British-held Singapore from Japan. Days before Singapore surrendered, he found himself on the last convoy to flee the city, onboard the Empire Star. The cargo ship designed to carry 23 passengers had been packed with 2,000, many of them women and children. When the convoy was discovered and attacked by Japanese planes, Phillips found a new use for his talents as an engineer. He brought a machine gun up on deck and improvised a mounting for it. Then he stood there for hours, fending off the attackers as bombs fell around him.This extraordinary performance earned him the MBE medal, but didn’t spare him from spending more than three years in a Japanese prisoner-of-war camp. Conditions were bad. Phillips later said that the small men survived and the taller men starved. He was one of the small ones. By the end of the war, he weighed just seven stone (45kg). To keep everyone cheerful and up to date on news from the outside world, Phillips continued with his engineering improvisations. He built concealed radio sets, one of which was tiny enough to be hidden from the guards in the heel of his shoe. He would have been tortured and killed had it been discovered. He also designed and built little immersion heaters, which the inmates used every evening to make hundreds of morale-boosting cups of tea. The guards never worked out why the camp lights flickered and dimmed each evening... In the summer of 1945, he was one of thousands of men transferred to a death camp, where they watched their captors mount machine guns on the walls, pointing inwards, and were forced to dig their own mass graves... When Phillips returned to London at the war’s end, he resumed his studies at the LSE. He took up sociology, a degree that contained some basic economics modules, and became intrigued by the engineering-style mathematical equations that were becoming popular in the new subject of macroeconomics... The LSE’s establishment rushed to give Phillips a job. Within a decade, he had been made professor, then a rare honour in British academia. For a man with no honours degree and no economics qualifications of any kind, he hadn’t done so badly.
The Moniac, or Phillips machine, could solve differential equations using hydraulics and not differential calculus. It could solve nine differential equations simultaneously and within a few minutes.
Even in the 1950s, economic models were worked out by rooms full of human “computers”, typically women armed with paper and calculators to provide the mathematical equivalent of a typing pool. It would be years before digital computers could support economic models as complex as the Moniac’s. Phillips made 14 machines in all, most Mark II Moniacs, expanded versions of the original machine. The original machine went to the University of Leeds. Others ended up at Cambridge, Harvard, Melbourne, Manchester and Istanbul. Some went to corporations or ambitious governments in developing countries, from the Ford Motor Company to the Central Bank of Guatemala... If the Moniac was the result of exquisite engineering skill, Phillips’s flash of inspiration — that hydraulics could be used to solve complex systems of equations — was close to genius...
Each equation quite literally had to be carved into the flow-control system of the Moniac, in small squares of Perspex set in a neat white frame, with a thermometer-like scale along the side. The equations themselves were slots, one in each piece of Perspex, each with a particular shape and angle, snugly holding a peg that ran smoothly on brass rails. Each peg was attached to a float and a sluice gate, so that as the water level in a tank rose, the peg would move up and — depending on the shape of the slot — would also move sideways, opening or closing the sluice gate. Phillips had calibrated his equations to what was then known about the British economy: how much income people tended to put aside as savings, for example, or the overall response of supply and demand to prices. To his surprise, he found that the machine was watertight enough to be accurate to within 2 per cent — a higher level of precision than was required given the quality of the economic statistics of the day.
8. Some facts about housing in the US
Real prices in the US are currently 25 per cent above the pre-crisis peak in 2006... Astonishingly, the US is building no more new homes and 80 per cent fewer “entry level” homes than it was half a century ago — when the population was much smaller. And the time it takes to complete a new multi-unit dwelling has doubled, with most of that increase coming in the past two decades — as “NIMBY” resistance spread.
Since 2000, according to Zillow, the average household income has doubled but the average price for its listings has tripled to $360,000. Over that period, the time it takes to save for a 20 per cent down payment has risen by nearly half to eleven years. And the share of income that goes to mortgage and insurance payments has risen by more than a third to 35 per cent — into the unaffordable zone. Because developers are building homes much more slowly than Americans are forming new households, the shortage is growing by several hundred thousand residences a year... Housing takes up a greater and growing share.
9. Interesting points about the need to map supply-chain risks.
Data from the US commerce department indicates that 57 per cent of industries in America would require six months to return to normal capacity if there was even a single week of transport disruption... there are unexpected areas of workforce and trade vulnerability that couldn’t have been predicted without burrowing deep into granular data down many levels of global supply chains... the department has developed the Scale Tool, a computational system which includes data from the entire American goods economy. This is identified and ranked across various industries, geographies and risk metrics (geopolitical, environmental, national security, public health, and so on). The aim is to create an extremely granular picture of where vulnerability and resiliency in the American economy actually lies. That has required Raimondo and her officials to become familiar with things as esoteric as, for example, the components that go into an AI data centre cooling system. While it’s been widely understood for some time that AI capacity was a potential point of vulnerability for the US, this was thought of mainly in terms of the large amounts of power required for data centres, and whether the grids supporting them were resilient.
10. The definitive graph that blares out China's disturbing hold on clean manufacturing technologies.
11. India textile industry fact of the day
Between 2016 and 2023 the value of Indian apparel exports fell by 15%, whereas Bangladesh’s increased by 63%.
12. Peru's spectacular rise as a blueberry exporter in a graphic.
Back in 2013 Peruvians earned about $17m exporting blueberries; by last year receipts had soared to $1.7bn. In 2019 Peru became the world’s single biggest exporter of fresh blueberries. Nowadays it sends more than twice as many berries abroad as its closest rivals... Peru’s blue revolution relies on newfangled “low chill” varieties, developed in the United States, that thrive on Peru’s coast. The International Blueberry Organisation, an industry group, says that in 2022 the yield of a typical Peruvian blueberry farm was nearly double the global average (which is nine tonnes per hectare)... it takes only about two years for a new farm in Peru to start turning a profit. In other places four years is more common... Blueberry farmers have also gained from trends that have boosted all manner of Peruvian produce. These include tax breaks and irrigation megaprojects that have opened up land along Peru’s desert coastline. Between 2000 and 2023, total annual Peruvian farm exports grew 16-fold to $10.5bn.
13. Japanese company valuations.
The price-to-book ratios of listed companies, a measure of their value relative to the worth of their assets, is a mere 1.5. By contrast, American companies are worth five times as much as the assets they hold. Japan’s non-financial firms now hold ¥372trn ($2.6trn) in cash and bank deposits, a figure that has risen by 82% in nominal terms since the end of 2012, suggesting that too many executives are resting on their laurels.
14. Developing country cities are growing upwards.
This is a welcome development, most likely a reflection of having hit the limits to suburban sprawls. This process must be expedited.
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