But consensus is not enough... The first reason is that reform is not delivered by declamation. It is slow, detailed and difficult... It is dangerous to invest too heavily in the idea of government as a start-up. Agile work processes are effective for new and discrete projects, but organisations whose decisions affect millions of lives cannot “move fast and break things”... Whitehall reform must also ultimately mean taming the often-obstructive Treasury... The most successful reforms have come from ministers, like Gove or David Blunkett at education, who reached office with clear intent and who eschewed big bang change in favour of grappling with manageable problems one at a time. Labour arrived unprepared and with too little of its agenda worked through in detail.
This has universal relevance.
2. On the value of using praise as a productivity-enhancing tool.
Once you earn enough to meet what you deem to be basic needs, you are more inclined to value non-remunerative aspects of work, such as praise and appreciation. Put another way, people can stay in jobs that pay less than the market rate if they feel their work is regularly and properly valued. To be more specific, if they are recognised at least monthly, they are 33 per cent more likely to say they are not job hunting in the year to come, some research shows. Yet the share of US workers who say they have been praised or recognised in the past seven days for doing good work sank to a 15-year low this year, mirroring a slump in the percentage who say they are extremely happy with where they work. This raises a question: why don’t managers deploy praise more adroitly? It is hard to think of anything else that costs so little, takes such a piffling amount of time, and yet achieves so much, as a short email or a brief chat to praise someone’s work. For employees whose work is largely unseen, or only noticed when they muck up, this recognition can be seriously significant... even star employees on big salaries in high-profile jobs like to be praised. And there’s much to be said for being recognised by peers, too.
3. Debashis Basu echoes Joe Studwell
What is the one thing that could drive India’s economic success? Gary W Keller and Jay Papasan, in their bestselling book The One Thing, argue that there is often one action that makes everything else easier or unnecessary. For most countries that answer is clear: Double-digit export performance for years together and climbing up the global value chain... The incentive has to be linked to export, not just import substitution or higher production. Initially it will be hard, which will automatically reveal what needs to be done to make each of the sectors export-competitive. In each of the four countries that have recorded extraordinary growth, the government worked with the manufacturers to help them import technology, arranged cheap finance, culled the weaker players, and relentlessly imposed export discipline. India should learn from this and adapt.
4. McKinsey has agreed to pay $650 million to the US Department of Justice and settle an investigation into its work with the opioid maker Purdue Pharma. The consultant had worked closely with the company to turbocharge the sales of its flagship OxyContin painkiller amid an opioid addiction epidemic that was killing hundreds of thousands of Americans. Top Purdue Pharma executives have already pleaded guilty to federal crimes relating to the sales of the drug, and prosecutors have said McKinsey worked to boost its sales despite knowing the risks and dangers associated with OxyContin. The firm earned $93 million over 15 years of work involving 24 consultants.
In July 2009, McKinsey wrote that Purdue Pharma’s “top priority” should be “driving a more impactful OxyContin franchise.” In subsequent years, as the opioid crisis grew, McKinsey continued to formulate new ways for the drugmaker to increase profits, including targeting “opioid naïve” patients, a term used to describe individuals not currently using the drug or those who had used it only once... Congress held hearings in 2022 focusing on the firm’s simultaneous work with opioid makers and the Food and Drug Administration after reports in The Times and elsewhere. A congressional report found that since 2010 at least 22 of the firm’s consultants had worked for both Purdue and the F.D.A., sometimes at the same time. McKinsey’s marketing pitch to drugmakers included touting its work with the F.D.A. “We serve the broadest range of stakeholders that matter for Purdue,” one senior partner at the time, Rob Rosiello, wrote in a 2014 email to Purdue’s chief executive. While it is company policy not to identify clients, Mr. Rosiello wrote, “one client we can disclose is the F.D.A., who we have supported for over five years.”
This follows settlements by the consultant to pay $1 bn to cities, states, and others on its work with Purdue and other opioid makers. It has already paid $122 million to settle suits relating to violation of the provisions of Foreign Corrupt Practices Act relating to its work with South African government.
I have blogged here and here on McKinsey's work with Purdue Pharma and the South African government.
5. Good NYT article on the contrasting paths taken by venture capital funds Andreesen Horowitz (raise big money and do large deals) and Benchmark Capital (raise smaller money and do smaller deals).
6. Forget chips, there's an even more basic area of vulnerability vis-a-vis China for the US, shipping. Rana Faroohar writes,
Mark Kelly, a Democrat Senator, told me last week. “Today there are 80. China, on the other hand, has 5,500. This is a huge vulnerability.” As Mike Waltz put it at a recent event with Kelly: “We talk a lot about China’s ability to turn off things that they now produce and we no longer do — like pharmaceuticals or rare earth minerals or . . . chips . . . but they literally could turn off our entire economy by essentially choking off that [commercial] shipping fleet and, conversely, turn theirs into warships or into levers of geopolitical influence. It’s just completely unacceptable.”
7. A report says that Solar Energy Corporation of India (SECI) has changed its renewable purchase contracting process by mandating that 75% of its new bids will be based on demand from states against the current practice of aggregating supply and then finding buyers.
I'm inclined to think that SECI should be wound up. It had some role a decade or so back when renewable power contracting had to be de-risked. Now that its contracting is like the thermal power generation segment, state discoms should be able to make their demand-based assessments and procure power as needed. This will also ensure that the generation is close to demand centres, unlike the current practice of having massive generation concentrated in one or two states with all attendance transmission losses and evauation infrastructure requirements.
8. Nitin Desai makes an assessment of the Nehru era.
9. Analysis of Huawei's latest Mate 70 phones, released last month, indicates that the company has mde little progress towards more advanced chips in the past year. The chips appear to have been made using the same manufacturing process as the ones in last year's phones. If correct, this would point to the sanctions being binding constraints on the Chinese technological progress in chip technology. The chips were made by SMIC, the country's largest chip maker, but with a manufacturing process and equipment that TSMC had perfected by 2018.
10. African countries need to open up their borders to visitors from other African countries.
Citizens from the Democratic Republic of Congo, for example, need visas to access the Republic of Congo. Yet their respective capitals, Kinshasa and Brazzaville, are separated only by the Congo river. A journey between the two takes less than half an hour by ferry. Ethiopia does not guarantee visa-free travel to all citizens of the continent despite housing the headquarters of the African Union... European and US citizens can often travel across the continent more freely than African nationals...Intra-African trade made up only 15 per cent of the continent’s trade in 2023, according to the African Export–Import Bank, at $192bn. The African Continental Free Trade Area was borne out of a desire to foster more deals. A key tenet of the agreement, modelled on the EU’s single market, is the free movement of people. The Free Movement of Persons Protocol of the African Union was codified in 2018 to allow African citizens to move visa-free across the continent for up to 90 days, a reasonable amount of time. Yet half a decade after the agreement, only 32 of Africa’s 54 countries have signed up to it and a measly four — Mali, Niger, Rwanda and Sao Tome and Principe — have ratified it. This falls short of the 15 nation-minimum required to bring it into force.
11. Global EV sales by car makers
It is hard to even imagine how the companies could catch up with Tesla and BYD, which accounted for 35 per cent of global EV sales last year. Rather than trying to build EV manufacturing scale, traditional carmakers should seek out a different route. They might take inspiration from the personal electronics industry, which has outsourced manufacturing to where it is cheaper and better. That would leave them free to focus on features that differentiate EV models such as software and design...Tariffs and general protectionism mean that a truly integrated global auto supply chain is a long way off. Carmakers, too, may be reluctant to abandon manufacturing. Factories are hard to dismantle. Should industrial competences lose their importance, design and software companies such as Apple would be well-placed to eat their lunch. Reports that Taiwan’s Foxconn — the contractor which makes Apple phones and much else besides — has been circling Nissan provide some idea about the direction of travel.
The Chips Act has prompted a doubling of investment in factories, at a total cost to taxpayers of $39bn. The five largest global logic and memory manufacturers are now investing in the US, according to the Department of Commerce. No more than two are active in any other country.
13. The US equity markets tanked and dollar rose sharply following the Fed's 'hawkish' forecast on inflation and rate cuts next year. What are the numbers that triggered this reaction?
Wednesday’s projections showed most officials expect the policy rate to fall to 3.25 per cent to 3.5 per cent by the end of 2026... They also raised their forecasts for core inflation to 2.5 per cent and 2.2 per cent in 2025 and 2026, respectively, and predicted the unemployment rate would steady at 4.3 per cent for the next three years.
These are numbers that a country like the US should consider as representative of a healthy economy. The rates are thereabouts of where it should be given the state of affairs. The narrow goal of driving inflation down to the arbitrarily selected 2% target is distorting reactions everywhere.
14. Alan Beattie writes that amidst all the talk of protectionism, globalisation has continued apace in 2024.
Two weeks ago, China said it was banning exports of antimony, germanium and gallium to the US, tightening up on restrictions it imposed last year. The problem with this as a threat is that, according to customs data, the US has this year already essentially stopped importing germanium and gallium from China. And yet the American semiconductor producers that use the minerals haven’t noticeably ground to a halt. China continues to export to other countries, notably including Germany and Japan, suggesting that gallium ends up in the US via one route or another. In any case, germanium and gallium aren’t uniquely found in nature in China: they’re extracted from zinc and aluminium ores. If prices are high enough, supply will come. The mining company Rio Tinto is looking to set up gallium production in Canada.
15. Finally, important data points about corporate India's tepid investments
India’s corporate sector turned from a very large net borrower to only a small deficit (to surplus) sector recently. It essentially means that corporate investment has been almost equal to or only marginally higher than the sector’s savings in the past many years (FY17-24), compared to net borrowing of as high as 6-8 per cent of GDP between FY06 and FY11. This is because while corporate savings (the sum of retained earnings and depreciation) were at an all-time high of 13-14 per cent of GDP in the past decade (which possibly picked up further in FY24), corporate investment continued to hover at around 14 per cent of GDP during the corresponding years, compared to above 17 per cent of GDP in many years up to FY16. At the same time, fiscal net borrowing is higher than in pre-pandemic years (though it has come down substantially since FY21), and the household net surplus (ie net financial savings, NFS) declined dramatically in recent years. According to the official data, household NFS were at a four-decade low of 5.3 per cent of GDP in FY23, which we estimate to have improved marginally in FY24. Overall, this suggests that India’s CAD is contained because of the highly cautious corporate sector.
Nikhil Gupta also points to an important requirement for growth to reach 8%.
Assuming that the investment ratio needs to rise by 3-4 percentage points of GDP to 36-37 per cent of GDP in order to achieve 8 per cent real growth, we do not have too much space to fund higher investment through external borrowing (or the CAD). At most, we can widen the CAD by 1.0-1.2 percentage points of GDP, which means that at least two-thirds of the rise in investment has to be funded by the rise in GDS. This seems like a tall task at this time, considering the lack of clarity on further fiscal consolidation post-FY26 and consumer spending... When we analyse the incremental capital-output ratio (ICOR), it is prudent to consider the real net fixed investment ratio rather than nominal gross investment. Compared to the nominal gross investment-to-GDP ratio of 33 per cent, India’s real net fixed investment ratio was 23.5 per cent of GDP in the past three years (FY22-24E), similar to what it was in the pre-pandemic decade (FY11-20). At an ICOR of 3.5 (the average of the 2000s decade, excluding the worst [FY09] and the best [FY04] years), real net fixed investment must rise to 28 per cent of GDP to support 8 per cent real GDP growth. Therefore, whether nominal or real, India’s investment rate needs to increase by 3-4 percentage points of GDP to support 8 per cent real growth. In order to be sustainable, it must be financed by higher GDS, which, to my mind, presents the biggest conundrum to higher growth at this time.
No comments:
Post a Comment