Political and economic stability - the most important public goods

The geopolitical and economic tumult unleashed by Donald Trump has awakened us to the importance of political and economic stability. While their presence is rarely acknowledged, their absence becomes immediately evident. They are the invisible hand that guides development, progress, and prosperity. 

In this context, two articles in FT provide some food for thought. 

Bronwen Maddox has a very good article in FT which argues that defence is the greatest public benefit for all. 

“For 30 years, we have been taking money out of defence budgets and putting it into health and welfare,” one senior European minister told me. “Now, we will have to reverse that.” The point has been made by generations of US politicians and military leaders even before Donald Trump made the “freeloader” charge his own: Europe has relied for its defence on the US, making itself the continent of the proud welfare state. Ursula von der Leyen, head of the European Commission, acknowledged that earlier this year in her analysis of Europe’s competitiveness problems: that the continent had enjoyed years of cheap gas from Russia, in effect cheap labour from China through imports, and cheap defence from the US. Now it needed to compete without them. Easier said than done. Benefits, pensions and healthcare are popular with voters. Defence, not so much… politicians will have to persuade voters to surrender some of their benefits to pay for defence, perhaps the essential public benefit above all, even if it has been taken for granted for decades.

Robin Harding draws attention to Charles Kindleberger who, in the context of the Great Depression, highlighted the importance of a global hegemon or stabiliser. 

The world economy, he argued, needs a hegemon: a leader willing to incur some cost and risk for the sake of the whole. “For the world economy to be stabilised,” he wrote, “there has to be a stabiliser, one stabiliser.”… Without an economic hegemon in the 1930s, wrote Kindleberger, there was nobody to provide three crucial functions: to maintain a relatively open market where countries in distress could sell their goods; to provide long-term loans to countries in trouble; or to act as a global central bank, and offer short-term credit against collateral in times of crisis. The result was protectionism, currency devaluations, wrangling over war debts and contagious financial crises that swept from one centre to the next… 

Kindleberger published his book, The World in Depression, in 1973 and ended it with a few words on “relevance to the 1970s”… The “relevance to the 2020s” of Kindleberger’s book is greater and gloomier. We have two competing superpowers, the US and China. Both fancy themselves as hegemons; neither is willing to accept the responsibilities of the role. The US vows vengeance on anybody who threatens the primacy of the dollar even as its own actions put that primacy in doubt. China rails against its lack of status in the current economic system, even as it plays a prime role in destabilising it.

Since the War, and especially since the fall of the Berlin Wall, the US, as a global hegemon, intervened to contain civil wars and geopolitical tensions, became the buyer of last resort, absorber of excess liquidity and surpluses, provided a haven for investors, and shaped and maintained a global political and economic order. 

Trump’s actions have shaken the comforting political and economic consensus that underpinned the post-war order, which was reinforced by the collapse of the Soviet Union. The emergence of China appeared to have further reinforced the consensus in both political and economic realms. Democracy, free speech, free markets, trade, capital flows, technological collaborations, migration, and mutual defence commitments bound the Western countries together through a series of interlocking multilateral treaties, alliances, and agreements. There was a global order shaped by the US leadership that had become entrenched over the last seventy years. 

It survived several challenges over the years, including President Trump’s first term. The impressive resolve shown by the Western allies in quickly rallying together to respond to Russia’s invasion of Ukraine was only the latest demonstration of the strength of this alliance and the global order created by it. 

In fact, the high noon of this post-war consensus may have been the period from 1991 to 2015. The period between the collapse of the Soviet Union and the arrival of Xi Jinping’s China no longer willing to hide its strength and bide its time coincided with remarkable geopolitical stability and the Great Moderation economically. 

The biggest beneficiaries of global political and economic stability, underpinned by the US-built global order, are perhaps the East Asian economies, China, and India. These countries have been among the biggest beneficiaries of globalisation and unbundling of supply chains, trade liberalisation, cross-border capital flows, immigration to Western countries, access to US colleges, diffusion of technologies developed in the West, benign global macroeconomic conditions, resolution of regional disputes and containment of regional wars, and so on. Among them all, China has been the stand-out beneficiary. 

The resolution and localisation of conflicts, especially in Africa and the Middle East, were central to securing and assuring access to mineral resources critical to sustaining economic growth. Global oil and gas supplies were underwritten by the US. As also the security of global shipping routes, whose importance has been rudely reminded by the Houthi rebel attacks in the Red Sea area. It has allowed these countries to focus on development, economic investments, and the welfare of their citizens while allowing defence spending to decline as a share of the GDP. It provided them with certainty and stability that were critical to the long period of unprecedented global economic growth. 

On the same lines, the global response to all the major post-war economic crises has been coordinated by the US. They include the Latin American debt crises of 1980s, recurrent debt waivers and restructuring of low-income countries, the East Asian financial crisis of 1997, the global financial crisis of 2008-09, the pandemic response of 2020-21, all of which stabilised the global economy and backstopped contagion and economic depression. 

Closer home, India has benefited greatly from the post-war global order, especially in the last three decades. The two widely cited and proudly proclaimed achievements of post-independence India, its software industry and the hugely successful Indian diaspora in the US and Europe, owe their success almost completely to this consensus. 

While it is difficult to quantify the contribution of political and economic stability, it’s useful to think about a counterfactual world without these trends and institutions that are maintained by the prevailing global order. It’s hard to not believe that these countries could not have developed and prospered in the manner that they have done. 

Unfortunately, this counterfactual world now appears a reality in the face of the actions of the Trump administration.

I can think of three reasons for the support or at least approval of the Trump administration’s actions. The first explanation revolves around the conservative pushback at the swing towards excessive liberalism, manifest in the rise of woke attitudes and trends. The second is the blend of libertarianism and techno-optimism, coupled with the belief in some innate superiority of the private sector and that the government is incompetent, is impeding technological progress, and there should be large-scale deregulation. The third is the opportunistic belief that Trump’s political leanings make him more likely to contain China (belief in India), be tolerant to autocracies and willing to strike value-free “deals” (belief in the Middle East and Russia) etc. 

I confess to being sympathetic to the first and third explanations. 

But as Janan Ganesh has written in FT, it may be that we are not only past peak-woke but perhaps past even the peak of the anti-woke movement. The second is in keeping with the times of AI exuberance and the swing to deregulation is the latest fashion in macroeconomic policymaking. The third is more about parochial hope in a hostile world. 

It’s fair to argue that only someone like Trump could have reversed certain trends and practices that had gone overboard - erosion of conservative values, trade liberalisation, immigration, dependence on Chinese manufacturing etc. The woke capture of liberalism is loosening. On trade liberalisation, immigration, and China, Trump has succeeded in rebalancing and forging a new consensus within the US and Europe. These are all welcome developments. 

Shifts like Apple’s pivot to India have been hastened by Donald Trump. Climate transition and the abandonment of legacy energy sources had become too ideological and disconnected from its real costs, especially for developing countries. This needed rebalancing, though not to the extent that is now happening in the US. International development had become a cosy club of disconnected cosmopolitans and needed a shake-up, though not abruptly and destructively as is now happening with USAID. 

But all this is coming at a prohibitive cost to the two important public goods that underpinned sustained development, economic growth, and progress. Political and economic stability are the biggest casualties of the Trump administration. 

Besides, it does little to address the main problems that have been contributing to the gradually eroding social and political contract. This erosion manifests in the form of widening inequality, rising business concentration, and elite capture of the rule-making processes and institutions. Worse still, the Trump administration may end up reinforcing and turbocharging the dynamic of this erosion. The economic policies of the Trump administration appear most likely to benefit Big Tech and Wall Street but at the cost of Main Street. Capital at the cost of labour. Profits and efficiency maximisation at the cost of equity and resilience. 

But for how long? Is it the climax of the high noon of individualism, capitalism, and efficiency maximisation?

Perhaps the long period of excessive stability instilled a sense of complacency and sowed the seeds for the current tumult. This anti-thesis to the post-war liberal democratic capitalist thesis may be an essential requirement to develop a new synthesis. 

International development - dissonance between discourse and practice

I have consolidated the posts on international development into a working paper. It’s available here. The abstract is reproduced.

This paper will draw attention to some commonly observed dissonances between development thinking and its practice. While they are most salient in the thinking around international development, they manifest in several ways within the world of development practice too.

They cover the obsession with new ideas and innovations, especially technical fixes, and the belief that they can have transformative impacts; the marginalisation of priors and the elevation of rigorous evidence on what works; the importance attached to headline impact evaluations and the deceptive ideology of evidence-based policymaking; the critical importance of the implementation of ideas, the mechanisms of implementation, and the importance of effective management; and the ability to exercise good judgment being the biggest constraint to development, and the problems created by the grafting of best practice ideas using aid money.

This paper will present the perspective of a policymaker and policy implementor on these articles of faith that permeate the discourses and institutions of international development.

I want to make a contextual point here. While the manner of the Trump administration’s assault on regulations and the federal bureaucracy in the US, illustrated by the virtual shutdown of USAID, is both unacceptable and disastrous, the international development world needed a bit of shaking up. Its discourse, in general, has for long been disconnected from its practice.

Weekend reading links

1. It's reported that India has disbursed Rs 8700 Cr ($ 1 billion) to 19 companies under its production-linked incentive (PLI) scheme for smartphone manufacturing in the first three years of the scheme from 2022-23 to 2024-25. Foxconn, Tata Electronics, and Pegatron, the three contract manufacturers of Apple, have received over 75% of the amount, and the top five beneficiaries received over 98% of total disbursals. So far 32 companies have been approved in two rounds under the scheme. 

2. As the world figures out trade arrangements at a time when President Trump is waving the tariff stick, it may be useful to use the opportunity to push for certain reforms in WTO. One pointed out in this article is to revise the External Reference Price (ERP), an average price in the Agreement on Agriculture (AoA) established based on the base years of 1986-88 against which subsidies like India's MSP is compared to determine trade distorting subsidies.  

3. Donald Trump's reciprocal tariffs are a reversion back to the pre-WTO era. Reciprocal tariffs would mean the US matching imports tariffs on its exports - "an eye for an eye, a tariff for a tariff, same exact amount". While Japan, EU, and India have been identified as the main targets, the biggest relative costs will be faced by Indian exporters. India has the highest trade-weighted tariffs among all major economies at 17% (compared to 2.2% for the US), thereby making the US retaliate with similar rates on Indian exports. 

On the basis of tariffs, analysts at Morgan Stanley found India, Thailand and South Korea would be most exposed to retaliation, calculating they would be at risk of an increase of four to six percentage points in weighted average tariffs. Morgan Stanley also found that Japan, Malaysia and the Philippines could be targeted, based on their higher average tariffs. Analysts at Barclays added Indonesia and Vietnam to that list. The EU could also suffer. It levies 10 per cent on car imports, while the US only charges 2.5 per cent. Cars account for 8 per cent of EU exports to the US. The US trade-weighted average tariff is 2.2 per cent, according to the WTO. By contrast, India’s average rate is 12 per cent and reaches 177 per cent for oilseeds, fats and oils.

Also this

4. China's auto industry may be the latest example of its guided markets at work.

China’s auto industry, home to more than 100 carmakers, is vast yet deeply fragmented. Oversupply and a flood of unprofitable start-ups have created an unsustainably crowded market. As a result, investors have largely shunned the sector’s legacy carmakers, instead betting on newer, more innovative EV makers such as BYD and Xpeng... History provides a clear precedent: Beijing has regularly stepped in with policies to consolidate fragmented industries, from steel to telecom. That could be particularly helpful, too, to China’s most profitable EV makers, state-owned groups, such as SAIC Motor Corporation and Guangzhou Automobile Group, and private-sector giants such as Geely Auto Group and Great Wall Motors.

5. China's demographic problem in a graphic.

China’s 1.4bn population declined for a third consecutive year in 2024, despite government efforts to encourage family formation as part of a “birth-friendly society”. Marriages also plummeted. Births did increase last year, their first rise since 2016 and a rebound from a record low in 2023. The birth rate, at 6.77 per 1,000 people, compares with 11.17 births per 1,000 people in the UK in the same year. China’s retirement age is also among the earliest in the world, though policymakers last year outlined plans to raise it gradually, as the economy faces the prospect of a smaller working-age population. The retirement threshold will rise from 60 to 63 for men and from 55 to 58 for women in white-collar jobs. The retirement age for women in blue-collar work will climb from 50 to 55.

6. Tokyo Metro, which debuted last October in the stock market through Japan's largest IPO in six years, had its first fare increase in 28 years in March 2023. It has now signalled the possibility of further increases as inflation starts to bite across the Japanese economy. The Metro, with 6.5 million daily passengers (yet to recover from pandemic), is the most efficient and cheapest in the world and is still half-owned by government bodies and railway operators. 

7. Remarkable story of how South Korea's second largest city, Busan, faces the real likelihood of extinction. 

For most of the 20th century, Busan was a thriving hub of trade and industry. But the city is now in the throes of an exodus of the young that has left it ageing faster than any other metropolitan area in a country that already has the lowest fertility rate in the world. Located on the south-east tip of the Korean peninsula just across from Japan, Busan’s fortunes have worsened since the 1990s as local industries suffer from South Korea’s transition into a high-tech industrial economy... The city of 3.3mn shed 600,000 people between 1995 and 2023. Demographers warn this trend is accelerating as the city’s population ages and Seoul tightens its grip over the country’s economy... Busan retains both charms and assets — mountains and beaches, temples and nightlife, famous film and art festivals and proximity both to Japan and to industrial centres clustered along South Korea’s east coast. While it was the birthplace of leading conglomerates Samsung and LG, not one of South Korea’s 100 largest companies is headquartered in the city.

Busan's ebbs and flows are fascinating

Busan boomed in the second half of the 19th century because of its proximity to Japan — a bridgehead first for Japanese trade and investment and later for colonisation. Japanese industrialists set up factories in Busan producing cheap goods ranging from rubber and shoes to wood. After Tokyo’s defeat in the second world war, the factories were taken over by Koreans and Busan received a surge of returnees from Japan. North Korea’s 1950 invasion prompted a second wave of arrivals after the South Korean government temporarily retreated from Seoul to Busan. Between 1945 and 1951, the city’s population grew from 280,000 to 840,000...

Busan benefited from a “national development strategy” in the 1960s and 70s that built an industrial corridor between it and Seoul, with Busan’s port serving as the main trading hub for a booming export-oriented economy. But the city’s fortunes turned as South Korea moved beyond the production of cheap consumer goods in which Busan’s factories specialised. A Korean economy increasingly powered by the production and export of more sophisticated goods was exemplified by Samsung Electronics’ semiconductor fabrication plants on the outskirts of Seoul. Universities and research institutes migrated to meet the demand for skilled workers. The port of Incheon on the west coast — closer to Seoul, and more convenient for trading with China — supplanted Busan as the country’s leading export hub.

South Korea is at the same time facing a major demographic challenge.

At 0.72, South Korea’s fertility rate — the average number of children a woman is expected to give birth to in her lifetime — was in 2023 the lowest in the world. But despite attracting young people from all over the country, Seoul’s fertility rate in 2023 was even lower — at 0.55. The OECD considers a fertility rate of 2.1 to be necessary to ensure a broadly stable population.

8. Corporate India continues its slow down in Q3 of FY25. 

The combined net sales (gross interest earnings for lenders) of listed companies grew in single digits for the seventh consecutive quarter, while their combined net profit rose by a single digit for the third straight quarter. Total net earnings of 3,618 listed companies increased 6.2 per cent year-on-year (Y-o-Y) to approximately ₹3.47 trillion, while net revenue rose 7 per cent Y-o-Y to about ₹37.73 trillion in Q3FY25. With this, listed companies’ combined net profit rose 4.9 per cent Y-o-Y in the first nine months of FY25 (April-December 2024), against 27.4 per cent earnings growth in FY24 (full year). Their net sales climbed 7.2 per cent Y-o-Y in 9MFY25, a slight improvement from the 6.8 per cent Y-o-Y growth in the entire FY24. Overall earnings growth was primarily driven by improved margins, as manufacturing firms benefited from lower raw material, energy, and interest costs. However, banks and non-banking financial companies (NBFCs) saw margin compression due to rising interest expenses outpacing gross interest income. 

This is an important set of statistics that point to the reality of rich companies in a poor economy.

The profit before interest, depreciation, and taxes margin (PBIDTM), or operating margin, for the entire Business Standard sample expanded 155 basis points Y-o-Y to 28.7 per cent of total income in Q3FY25 -- the highest level in at least 21 quarters. Similarly, the profit before tax margin (PBTM) rose 76 basis points to 12.7 per cent, the second-highest in 21 quarters, while the net profit margin (PATM) increased by about 10 basis points to 8.9 per cent of total revenue from 8.8 per cent a year earlier... companies managed to sustain margins despite weak revenue growth through cost optimisation and reductions in discretionary spending. Other operating expenses — including promotions, advertising, and overheads — declined 1.4 per cent Y-o-Y in Q3FY25, compared with a 9.6 per cent Y-o-Y rise a year earlier and an 11.4 per cent Y-o-Y increase in Q2FY25. The numbers also suggest efforts to optimise labour costs, as total salary and wages expenses for listed firms grew just 6.2 per cent YoY in Q3FY25 — the slowest in at least 17 quarters.

Important pointers about where growth is good and where not so.

Among key sectors, telecom, capital goods & construction, pharmaceuticals, power, and IT services delivered double-digit earnings growth in Q3FY25. Meanwhile, oil & gas, cement, FMCG, mining & metals, and automobiles lagged, posting little to no earnings growth.

9. As foreign manufacturers seek to shift out of China, the country is raising obstacles.

Chinese officials had made it difficult for the Taiwanese-owned contract manufacturer (Foxconn) to send machinery and technical Chinese managers to India, where Apple is keen to build up its supply chain. A manager at another Taiwanese electronics company said that they too were facing challenges sending some equipment out of China to plants in India, though he noted shipments to south-east Asia remained normal. An Indian official alleged China was using customs delays to impede the flow of components and equipment heading south. “Electronic industry supply players have been told not to establish manufacturing and assembly operations in India,” the official said, asking not to be named. Media site Rest of World earlier reported on some of Foxconn’s issues. Analysts say Beijing’s emerging playbook resembles the western tech transfer restrictions it has loudly criticised as unfair. The informal controls appear in particular to target China’s geopolitical rival India, with some Chinese groups saying that projects in south-east Asia and the Middle East remain unaffected.

This on Apple's quest to make India rival China as its major manufacturing hub.  

10. Impressive success story of Nashik's grape farmers.

Sahyadri Farmer Producer Company Ltd (SFPCL) is one such company operating in Nashik district of Maharashtra, which provides a blueprint for success. Founded in 2004 under the leadership of Vilas Shinde, SFPCL started with just 10 farmers. It has grown into a network spanning 252 villages, 31,000 acres, and over 26,500 registered farmers in 2023-24. SFPCL’s annual turnover skyrocketed from Rs 13 crore in 2011-12 to Rs 1,549 crore in 2023-24. Of SFPCL’s total revenue, 64.6 per cent comes from the domestic market, while exports contribute 35.4 per cent, reaching 41 countries worldwide. Grapes and tomatoes lead the total revenue mix, together accounting for 51.7 per cent of the revenue, followed by citrus, dry fruits, and mangoes... At the core of Sahyadri’s success is its ability to bridge the gap between small farmers and global markets by integrating aggregation, value addition, processing, and direct market linkages. SFPCL has built strong relationships with international buyers, ensuring that Indian farmers get access to premium markets by adhering to stringent quality and traceability standards following Good Agriculture Practices (GAP). SFPCL is the largest grape exporter of the country... farmers receive, on an average, about 55 per cent of the FOB price.

11. Kyoto-based Murata Corporation, world's leading manufacturer of multi-layer ceramic capacitors, a major component of iPhones and electronics in general, plans to move some production to India, starting with packaging.

Murata’s components are found in almost all electronics, from Apple Inc. and Samsung Electronics Co. smartphones to Nvidia Corp. servers and Sony Group Corp. game consoles. The company has also helped put a NASA helicopter on Mars. Right now, it makes almost 60 per cent of its MLCCs in Japan... Murata is the world’s leading supplier of capacitors, which regulate the delivery of power to electric components... Murata to rent a plant in OneHub Chennai Industrial Park in India’s southernmost state of Tamil Nadu, where it plans to package and ship ceramic capacitors in the fiscal year starting April 2026. Murata is using the ¥1 billion ($6.6 million) five-year lease to test long-term demand in the country, before it commits to building a factory to span more production processes, Nakajima said. “It’s too early for us to build an integrated production facility in India, because the infrastructure for inputs such as power hasn’t reached the level we need, but we wanted to move early to build some capacity there as our customers shift production,” Nakajima said. “There’s growing consumer demand for electronics in the country, and we also should be ready to respond quickly when India introduces new incentives to encourage domestic manufacturing.”

11. Shyam Saran has a very good oped that looks at the ideological underpinning for the Trump administration, the so-called Dark Enlightenment. 

12. China's increasing influence in Latin America

China controls approximately two-thirds of the energy sector in Chile and virtually all of the power generation in Lima, Peru. In November, President Xi Jinping inaugurated a $3.5bn megaport north of the Peruvian capital, a state of the art logistics hub which serves as a critical link in the Belt and Road Initiative. China has now replaced the US as the predominant trading partner of many of the larger economies in the region, with the exception of Mexico and Colombia. As one observer put it, “the Chinese bring their cheque books and the Americans bring their notebooks”. As a result, the US is losing not just market share and influence, but also the ideological battle between free market, rule-of-law capitalism and state-owned-enterprise autocracy. Pleading with host governments not to strike deals with the Chinese is not an effective strategy. Instead, what the US must do is construct a viable American-led alternative to Chinese investment.

13. Very good summary of the progress made in India's space industry thanks to progressive government policies 

Government policies have been instrumental in nurturing India’s space startup ecosystem. A major boost came with the launch of 75 space-related iDEX challenges during DefExpo 2022. The establishment of IN-SPACe, a regulatory body for private sector involvement, and Isro granting access to its launch facilities, ground stations, and testing infrastructure have further accelerated progress. The government’s commitment is evident in the creation of a Rs 1,000 crore venture capital fund and the allocation of 31 out of 52 SBS-3 program satellites to startups, empowering this burgeoning sector. While Isro pioneered cost-effective space innovations, startups are taking efficiency to the next level. By focusing on smaller, application-specific LEO satellites, they leverage modular designs, commercial supply chains, and off-the-shelf components to build satellites faster and more affordably. Additionally, by utilising ride-share launch options, these startups significantly reduce overall costs.

14. Impressive trajectory of highway and rural roads formation in India.

The national-highway network nearly tripled in length from 52,000km in 2000 to over 146,000km last year, adding an average of around 3,900km a year. Less well-known is the infrastructure revolution in the countryside. In 2000 India had just 545,000km of surfaced rural roads, usually of dubious quality. By last year, the country had added an additional 773,000km, at an annual average of 33,500km, under one programme alone.

15. Important point for Europeans to consider when engaging with India.

Without the kind of outside security guarantor that has underpinned European security for decades, India has developed some measure of the “strategic autonomy” Europeans now crave. It has form when it comes to playing off potential partners against each other. Europeans winced when Mr Modi last year hugged Russia’s Vladimir Putin in Moscow (perhaps unsurprisingly given Russia is still its biggest supplier of arms) while also getting closer to America. That is the type of diplomatic contortion even a yogi would struggle to pull off. Europeans may not like it, but they should at least try to understand it.

16. The Economist has an article on the importance of shoes in running speeds. It talks about the transformation brought about by Nike when it introduced a new type of super shoes with its Zoom Vaporfly 4% model in 2016. 

They typically have curved soles made of a stiff carbon plate sandwiched between layers of specially engineered springy foam. The result is often very thick—up to 40mm tall at the heel, the maximum allowed for competitive racing (regular trainers are usually around 25-35mm tall). These features make running easier. Lab tests have shown that recreational runners use less oxygen and report feeling less tired while jogging in premium trainers compared with regular ones. Platformed soles encourage a slightly longer stride, which means fewer steps per kilometre. And a squishy base, which absorbs impact before bouncing back up, eases the strain on leg muscles. By reducing the energy needed to maintain normal pace, super shoes allow runners to put more effort into going faster.

Of the 50 fastest men’s marathon times only nine predate 2017; the figure for women is just three. In the eight years since the launch of the Nike Vaporfly, more than three times as many men’s marathons were completed in under two hours five minutes than in the eight preceding years. Before super shoes, only 26 women’s races had been run in less than 2:20. In 2024 alone there were 35. Studies estimate that the high-tech trainers have shaved between one and four minutes off elite marathon times... runners wearing super shoes completed races 4-5% faster than those in average trainers, even after controlling for ability and training... wearing the premium shoes gave runners a 73% chance of setting a personal best...Adidas’s top model, the Pro Evo 1... cost $500 and are marketed as a single-race shoe. As the miles add up, most super shoes quickly lose grip and the foam in the sole deteriorates, dampening their signature springiness.

Agriculture needs more dynamic entrepreneurship

I blogged here that supporting enterprising farmers is perhaps the highest value for money investments in agriculture and their activities have the highest local economic multipliers. 

Harish Damodaran has another story of agriculture entrepreneurship involving processing potatoes to make french fries and exporting them. He points to a stunning transformation in the market for french fries.

As consumption of the crispy straight-cut deep-fried potatoes grew, so did imports – crossing 5,000 tonnes annually by the mid-2000s and peaking at 7,863 tonnes in 2010-11 (April-March). But cut to 2023-24, when not only have imports practically ceased, India actually exported 135,877 tonnes of FF valued at Rs 1,478.73 crore. During April-October 2024, exports were 106,506 tonnes and worth Rs 1,056.92 crore. This turnaround – from an importer to an exporter of a highly western fast-food product – has been thanks to opportunity-seizing domestic entrepreneurs, who also harnessed the potential of processing potato varieties suitable for making FF and cultivating them in India…

The Ahmedabad-headquartered HyFun Foods Pvt. Ltd. accounted for about 85,000 out of the 175,000 tonnes of FF – plus another 8,000 out of 12,000 tonnes of potato hash browns – exported from India in the last calendar year. Other major exporters are Iscon Balaji Foods, Funwave Foods and ChillFill Foods (all from Gujarat) and the US-based J.R. Simplot (it also has a plant in the state). India’s export of FF exceeds its estimated domestic consumption of 100,000 tonnes. Roughly 80% of that comprises sales to businesses (the likes of McDonald’s, KFC and Burger King, besides hotels, restaurants and caterers) at an average Rs 125/kg realisation and the rest to the retail segment at Rs 200/kg, adding to a total market size of Rs 1,400 crore… 

In the 2023-24 season – potato is sown in October-November and harvested in February-March – HyFun procured 300,000 tonnes from 6,000 farmers in Banaskantha, Sabarkantha, Gandhinagar and Mehsana districts of Gujarat. For the current season, the company plans to buy 400,000 tonnes from 7,250 farmers growing in 30,000 acres of Gujarat, 1,500 acres of Madhya Pradesh and 500 acres of Uttar Pradesh… HyFun provides good quality disease-free seeds of Santana, Frysona and FryoM potato to its farmers. It sources their mini-tubers grown in tissue-culture labs by seed-potato companies: ITC Technico Agri Sciences, Mahindra HZPC and KF Biotech. These are multiplied first in 250-plus acres of HyFun’s corporate farms and then over two generations through contract seed growers in Punjab, Haryana and UP. The third-generation seed is what farmers like Patel plant for supplying back as commercial potato to HyFun.

The article informs how these firms contracted with farmers to grow potato varieties with higher dry matter (lower moisture content), high-reducing sugars, and large oblong-shaped that are best suited for fries by enabling the supply of seeds of Kufri variety developed by the Central Potato Research Institute, Shimla. It also highlights how HyFun collaborated with farmers to improve their productivity and bring down their cost of cultivation. This collaboration covered inter-cropping practices to improve soil fertility, demonstration plots to optimise planting space and depth, optimise fertiliser use, and adopt drip irrigation. 

Agriculture sector interventions by the government have hitherto been to create public goods - irrigation infrastructure, post-harvest facilities including godowns and cold storages, public procurement, and extension services - and provide subsidised inputs - seeds, fertilisers, power, credit, etc. By their very nature, all these are targeted to benefit all farmers. 

Instead, there’s a need for a complementary policy that looks at unlocking enterprise among farmers. The examples of HyFun, Sahayadri Farms in Nashik (grapes), shrimp farmers in the coastal districts of Andhra Pradesh, and Pomegranate farmers in Rajasthan show that successful examples arise from persistent problem-solving and seizing of emerging market opportunities by enterprising farmers.

Public policy should indulge in similar problem-solving in a focussed manner so as to catalyse at least hundreds, if not thousands, of such successes over a five-year period. 

What do entrepreneurs in agriculture and agri-processing need? What are the specific facilities or facilitations that they need? What regulatory enablers and financial and other forms of support are required? What market access support can be provided?How can existing markets be leveraged to provide those? What are the market-making requirements? What financial instruments can achieve the objectives? In general, what coordination failures can be addressed by governments and how? 

These are the kind of questions that must be explored in the design of this policy.

Public policy has focused on supporting entrepreneurs and their startups, and their successes, though mostly confined to those engaged in technology-based activities, have been celebrated. This salience should extend to the agriculture sector, and supporting agriculture entrepreneurs should occupy primacy in public policy. 

As a cautionary note, this policy initiative should stay clear of infrastructure and other publicly provisioned support to avoid any mission creep and remain focused. It should also steer clear of the politically sensitive regulatory reforms. In fact, it should avoid macro-interventions unless otherwise essential to meet its objectives. 

Instead, it should seek to support entrepreneurial farmers to access market facilities and incentivise the market to deliver services required by these farmers. Such support would involve facilitating market access to good quality seeds (including subsidies), affordable and timely credit, coordinating on accessing various post-harvest services, facilitating trade-related clearances and permissions, and generally supporting on market access interventions. 

A low-hanging fruit would be to harness the services of the several non-profits and for-profit startups engaged with the agriculture sector. This can be done by creating platforms systems that perform the market access and matching role - expose entrepreneurial farmers to these entities and allow enterprising startups to engage with similarly enterprising farmers. It should designed to encourage problem-solving and iteration by entrepreneurs to develop business models and access markets and similarly encourage market service providers to engage with entrepreneurial farmers. 

The central (or some state) government could consider a mission to unlock rural entrepreneurship by identifying and supporting enterprising farmers and rural startups in commercial agriculture production and agri-processing, which can localise value capture, increase farm-related incomes, and create productive jobs in rural areas. This would be expanding Startup India which is currently confined largely to technology-related sectors to cover agriculture, Startup India for Rural Entrepreneurs.

This initiative should avoid the pitfall of spreading the butter thin and trying to cover the entire country. Instead, it might have to be confined to a few prioritised geographies with potential for agricultural entrepreneurship.

Maximising value capture from national mineral resources

There’s a rich body of literature on the natural resource curse faced by low-income countries, especially in Africa. Not only does the mineral-rich country fail to capture value from its resources, but also the exploitation of the resource ends up weakening its economy (Dutch disease) and polity (corruption).

I have blogged here and here in the context of Guyana’s windfall from its discovery of Stabroek oil block off its coast and how it triggered a development versus climate change debate. It also highlighted the issue of limited value capture and contractual exploitation by Exxon Mobil. 

In this context, FT has a long read on how Indonesia took control of its nickel resource, a mineral critical for energy transition uses like in EV batteries and in smartphones and other electronics, and forced domestic value capture. In 2014, it banned the export of raw nickel ore and forced processors and refiners to establish factories in Indonesia. 

The decision encouraged Chinese companies, led by steel giant Tsingshan Holding Group, to spend billions of dollars to set up processing plants in Bahodopi and across other parts of the south-east Asian country of 281mn people. Today, Bahodopi is home to the world’s largest nickel processing site: Indonesia Morowali Industrial Park. Majority owned by China’s Tsingshan, the park spans over 4,000 hectares and has dozens of nickel smelters and steel plants, as well as its own port and airport… 

Before 2014, most of Indonesia’s nickel ore was sold to nickel and steel manufacturing plants in China… a total ban on exports of nickel came into effect in 2020 under then President Joko Widodo setting the stage for Indonesia’s nickel boom. Huge investments came from Chinese steel, nickel and battery manufacturers, including Tsingshan, CATL and Lygend, who partnered with Indonesian mining companies to set up processing facilities. Chinese stakeholders control over 75 per cent of Indonesia’s refining capacity, according to a recent report by C4ADS, a Washington-based security non profit. Not only did the companies bring capital, they also brought the knowledge to process Indonesia’s low-grade nickel reserves quickly and profitably… The Chinese had made advancements in rotary kiln electric furnaces, which turns nickel ore into raw material for steel. They had also mastered the high-pressure acid leach technology, a refining process that converts low grade nickel ore to battery-grade — a procedure that western companies had struggled with for years…

The transformation is a remarkable turnaround for a country that a decade ago was not even a major player in nickel. Although Indonesia held the world’s largest reserves — about 55mn tonnes as of 2024, according to the US Geological Survey — most of it was low-grade nickel that it had not yet figured out how to process efficiently. But with the help of Chinese technology, huge investment from Beijing and a dose of protectionism, Indonesia has gained control of the market and cemented itself as the epicentre of global nickel production for years to come. Last year, Indonesia accounted for 61 per cent of the global refined nickel supply up from just 6 per cent in 2015, according to Macquarie, the Australian bank and asset manager. Its market share is expected to grow to 74 per cent by 2028. This means Indonesia now controls more of the world’s supply of nickel than Opec did of oil at the cartel’s peak in the 1970s — then around half of global crude oil output.

This dramatic growth has prompted some complaints. European governments have accused Indonesia of using excessive protectionism, while Indonesian nickel has been criticised for being “dirty” due to deforestation and the use of coal-fired plants, claims that Indonesia disputes… But the export ban garnered global criticism and was challenged at the World Trade Organization by the EU, which argued the restrictions were unfairly harming its stainless steel industry… It has also created a conundrum for Western countries trying to build any critical mineral supply chain without Beijing. 

Indonesia’s dominance of the market has shaken up the global nickel industry.

For the global mining industry, this whirlwind growth has raised concerns over supply concentration — and the consequences of any possible disruption. Surging production in Indonesia has wiped out competition from companies such as the Australian mining group BHP and dramatically reshaped the global supply chain. By flooding the market and driving down prices, the Sino-Indonesian partnership has made it much harder for rivals to produce the metal economically elsewhere in the world… Nickel mines elsewhere in the world owned by western companies tend to be older, less efficient and more expensive to run, analysts say. They also rely on more expensive labour as well as higher costs of capital. 

Meanwhile, Chinese companies can build smelters quickly and hit full capacity within a year or less, while western companies take roughly three to five years or more. In other words, Indonesia’s explosive growth has been the undoing of the rest of the industry. Its rapid expansion has driven down nickel prices to below $16,000 per tonne. BHP, once one of the world’s largest nickel producers, is among the miners that have closed their nickel operations, blaming a “significant oversupply”. Australia’s Wyloo, run by billionaire Andrew Forrest, has also closed mines, while Brazilian firm Vale has launched a strategic review of its nickel assets in Thompson, Canada, including a possible sale. “Over 10 to 15 per cent of the rest of the world has gone out of business,” says Lennon. According to his estimates, Indonesian production rose by 1.5mn tonnes between 2020 and 2024, while the rest of the world fell by 500,000 tonnes.

Interestingly, the demand for battery-grade nickel being produced in Indonesia may be confined to western EV makers since the Chinese EV makers prefer to use Lithium Iron Phosphate (LFP) batteries in their EVs.

This is a good case study on the issue of value capture from the primary sector. Some observations:

1. The Indonesian government's decision to ban the export of raw nickel and mandate its processing is the kind of decision that resource-rich developing countries should be encouraged to make. If only more of those countries elsewhere could summon the courage to make these decisions. In less than a decade, it has transformed the economy of the mining region and provided Indonesia with invaluable strategic power. 

The original decisions were heavily criticised by the US and Europe and their mining firms. However, instead of criticising the Indonesian decision, they should have applauded it. The Widodo government did what very few developing countries generally tend to do and deserves the credit for making the decision. 

2. The decision was only the first step. The real challenge was to establish processing facilities and ensure value capture. This involves convincing investors to develop processing facilities and providing them with the enabling infrastructure and other support. Indonesia was fortunate that there were Chinese firms with both expertise and interest in such investment opportunities. Ideally, Indonesia should have entrusted the processing to a domestic firm or one with a majority domestic shareholding. 

In such cases, the biggest challenge faced by countries is their failure to extract even-handed contractual terms from private firms. Corruption and power imbalance are the main reasons for smaller developing countries being forced into exploitative contracts with private foreign (and also domestic) firms. As we discussed earlier, Guyana’s contract with Exxon was loaded in favour of the latter. It’s only to be hoped that the Indonesian government’s contract with Tsingshan Holding Group gives the country fair returns and enough strategic control. 

3. The Western mining giants like Vale and BHP, who are now crying hoarse, had the opportunity to invest in Indonesian mines after 2014. While I’m not aware of any details, it’s most likely that the Indonesian government would have reached out to potential investors. Tsingshan, with the active financial and diplomatic support of the Chinese government, would have reached out and offered the best terms. It’s most likely that the US foreign policy was oblivious to the importance of securing access to this strategic resource, and the Western firms were short-sighted and wanted more favourable terms. In any case, the Chinese were opportunistic and bagged the contract, and with it, access to a critical mineral. 

It’s a good example of how China has come to exercise control over critical minerals across the world. They were both alive and opportunistic to seize all such investment opportunities, whereas the US and allies preferred to look the other way. 

4. It’s now for Indonesia to do whatever is required to tighten control over the asset and leverage this control in its foreign policy. Specifically, it should guard against Chinese controlling the supply chain of the processed mineral. While the contract’s financials are already baked in, the host country surely has enough leverage to tighten its control over the supply chain. Especially since Indonesia is a large enough country and also has the appetite to do so. 

It’s also important for the US and allies to negotiate with Indonesia to gain a foothold on the supply chain of the processed mineral and prevent it from being controlled by China. As a start, Tesla could be nudged into investing in an EV battery manufacturing facility in the country. The Indonesian government has been courting Tesla without success. 

Weekend reading links

1. The mobile phone semiconductor chipset market in India is a virtual duopoly, with Qualcomm and MediaTek forming 72% of the market share in 2022. 

Chipsets constitute ~15% of a smartphone’s cost... As many as 152 million smartphones were shipped in India in 2022, according to Counterpoint Technology Market Research. Of this, 70 million contained Mediatek’s chipsets and 41 million had Qualcomm’s. Samsung’s Exynos chipset numbers stood at 13 million and Apple’s at 6.8 million, according to a senior executive with one of the chipset companies... Mediatek is inching up on the 5G market share as well. Analysts estimate that almost half of Mediatek shipments will be 5G phones by the end of 2023, bumping up its earnings further. The average selling price of the 4G and 5G chipsets from Mediatek is US$10 and US$20, respectively. For rival Qualcomm, the average selling price of 4G and 5G chipsets would be US$10 and US$25—nearly the same as Mediatek. For the flagship smartphone models, though, Qualcomm may sell at a 10-15% premium... One in two smartphones launched in the quarter ended September 2022 used Mediatek chips, according to market-research firm Techarc. From the time ODMs in Taiwan and China would give the company entry only to mid-level slots and reserve premium phone slots for Qualcomm, Mediatek is today marching lockstep with Qualcomm... In India, Mediatek has been in the trenches—it helped Indian phone makers such as Lava International, Micromax Informatics, and Karbonn Mobiles to launch feature phones and then 4G smartphones.

Mobile phone chipsets contribute 50-60% of revenues of both companies in India. They are now moving to supply chipsets for home broadband modems and set-top-boxes to both Airtel and Jio. Both see the Fixed Wireless Access (FWA) equipment market, where the Indian TSPs plan to cover 100 m households, as a major source of future revenue. 

2. Paul Krugman has an excellent post explaining succinctly the reasons for Canada's trade surplus with the US (almost entirely due to the oil exports from Athabasca tar sands to US midwest) and Japan's trade surplus (its ageing population and mature economy means that Japan has few investment opportunities, leading it to export capital, which in turn also means it must run trade surpluses).  

3. Useful description about President Trump's political beliefs.

Mr. Trump has never been particularly rooted to one ideology for all that long. He switched political parties five times before first running for president as a Republican in 2016, and at one point or another was for abortion rights, gun control, higher taxes on the rich and the invasion of Iraq before he was against all of them. His most consistent through line going back to his days as a real estate developer in the 1980s has been a conviction that the United States was being cheated by friends and enemies alike, which has informed his views of trade, security and alliances. Otherwise, he has been willing to shift direction if it suits his interests.

4. Despite high profile stories of large US companies ordering employees back to the office, work from home (WFH) continues to remain persistently high.

Stanford University economist, Professor Nick Bloom's... research, which includes monthly surveys of thousands of US workers, shows the share of work they do from home soared from well below 10 per cent before Covid to 61 per cent at the height of the pandemic in 2020, before sinking back to around 30 per cent in 2022. But those levels have stayed remarkably flat since late 2023, never dropping below 26 per cent. You can see a similar pattern in office visit levels... Some of the biggest fans of working from home are smaller, younger, less well known companies that are, as Bloom points out, among the fastest growing firms. Their expansion may be offsetting more noticeable cuts in homeworking at older businesses. Also, the longer hybrid working lasts, the more evident its advantages become for some firms... according to a paper Bloom and colleagues published on the trial last year. “Each quit cost the company approximately $20,000 in recruitment and training, so a one-third reduction in attrition for the firm would generate millions of dollars in savings.”

5. Trajectory of fiscal devolution in India over the last two finance commissions. 

The government had imposed a health cess of 5 per cent on imports of certain medical equipment in the 2020-21 Budget. The next year’s Budget imposed the Agriculture Infrastructure and Development Cess (AIDC) on imports of products such as gold, silver, alcoholic beverages, crude edible oils, etc. Besides, cess was also imposed from the excise side at the rate of ₹2.5 per litre on petrol and ₹4 per litre on diesel. That is why devolution to states now constitutes 26 per cent of the states’ own tax revenues, which is much lower than the pre-Covid period, barring 2014-15 and 2017-18.

6. RE in India hits a roadblock.

RE projects of 40 Gigawatts (Gw), tendered by four government-designated Renewable Energy Implementation Agencies (REIAs), have failed to find buyers. A February 5 review meeting of the Ministry of New and Renewable Energy revealed that these projects, awarded by RE-tendering agency Solar Energy Corporation of India (SECI) and state-owned generators NTPC, NHPC, and SJVN, have been pending for over a year because no state government has opted to sign power-sale agreements (PSAs) with the RE generator. The pending tenders amount to just under half the 94 Gw of RE-project bids issued by the four agencies in 2023-24. As a result, the option of pausing new tenders until all PSAs or power-purchase agreements (PPAs) are signed with the REIAs was being considered.

7. Investments by PE and VC firms in India's climate tech sector fell 61% in 2024 to $1.3 bn, mirroring global PE/VC investments which fell 40% to $30.9 bn. 

8. India health sector spending facts.

The social sector... share in total Union expenditure declining from 5.3 per cent in 2019-20 to just 3.9 per cent in 2025-26... The Budget allocates ~1.19 trillion to the health sector... The Union Health budget now accounts for 2.4 per cent of the total Union Budget and 0.33 per cent of the projected gross domestic product (GDP), down from 3.59 per cent and 0.56 per cent, respectively, in the 2021-22 Budget... The 11th Five-Year Plan proposed an increase in government health spending to a minimum of 2 per cent of GDP by 2012. The National Health Policy of 2017 recommended further elevating public health spending to 2.5 per cent of GDP by 2025. According to the latest National Health Accounts (2021-22), the Union government accounts for a modest 41.8 per cent of total government healthcare expenditure in India. A rough estimate suggests that the combined healthcare budget of the central and state governments for 2025-26 is approximately 0.79 per cent of the projected GDP... the per-capita Union health budget for 2025-26 is ~844 — 8 per cent lower than the pandemic year—raising concerns about achieving UHC by 2030.

9. A graphical summary of India's trade partners.

India also has the tenth largest trade surplus among US trade partners.

Long reads - fish market, airplane parts, North Vietnam, BYD, and social capital

This post is a compilation of a few good long reads.

1. A fascinating article on Tokyo’s Toyosu, the “world’s greatest fish market”, employing 42000 people, transacts more than a quarter of all fish sold in Japan, and with an average daily sales of ¥2bn ($12.9m). The market, which opened in 2018 to replace the old Tsukiji market, aggregates the finest fish from all over the world and conducts auctions where chefs from across the world are bidders. 

Many assume that tuna bought from Japan is superior because of the species, or where they are caught. That is partly true: bluefin tuna, which tend to be fattier than other species, fetch higher prices than the leaner bigeye and yellowfin, while skipjack and albacore often end up in cans. But holding species equal, the way a fish is caught and processed matters immensely to how it tastes—and therefore to its value. 

Expert tuna fishermen avoid nets, which make the creature thrash around in fear, producing lactic acid and adrenaline that mar its taste and texture. Instead, they reel it in slowly, and then begin a process called ikejime. First, they drive a spike into its brain, killing it instantly to avoid a stress reaction that ruins the meat. Then they remove the tail fin and slice beneath the gills to bleed the fish while its heart is still beating. Blood contributes to spoilage through bacterial growth; properly bled fish will last longer… With the tail fin removed, they run a long, stiff wire into the fish to destroy its spinal cord and prevent rigor mortis. Once killed, bled and paralysed the fish goes into the freezer—or, if sold fresh, is submerged in an ice-and-water slurry.

This is a nice description of the auctions process

Before the auction, the floor is a hive of silent activity… Atop each frozen tuna sits a sticker detailing provenance and weight, as well as a thick slice cut from the tail so buyers can see the colour. Some use hooked picks to dig out small chunks of flesh, kneading it as they walk around to determine the fat content through feel. Most carry clipboards; some acknowledge each other with a brief nod. Mekiki, experts in fish evaluation, set the floor price for each fish. 

Around 5.30am an auctioneer rings a bell and sales begin. Fresh bluefin tuna fetch the highest prices: an average of $25 per kilo between January and August 2024, with the priciest fish fetching $750,000 on January 5th. Auctioneers chant rhythmically, keeping up a patter as buyers show interest with idiosyncratic hand signals and, because two houses often hold auctions simultaneously right next to each other, with eye contact. Buyers wear baseball caps with plastic plackets bearing the names of their firms; officials from Tokyo’s government, which owns the market, wear blue caps and watch out for collusion. The action is hard to follow, relying on subtle gestures and clues… By 7am the auction floor is mostly empty and being hosed down… By 8am the tuna has been butchered and sent on its way: some to restaurants across Japan; some, still frozen, stuffed into styrofoam boxes and flown to New York, Sydney or Singapore. But some, perhaps, will find its way upstairs, to the first-rate sushi joints on the fourth floor, which open just after the tuna auction ends and close by mid-morning.

This is about the market participants, which makes it a form of managed capitalism. 

Only five companies are allowed to sell, and only certain species are flogged. Wholesalers are quick to say that they do not want to put their rivals out of business. Threats to their livelihood come not from neighbours, but from retailers bypassing the market and buying directly from fishing firms. Many outfits at Toyosu stretch back generations, often linked through kinship and marriage. Good behaviour and bad are remembered, and in time rewarded and punished.

In his magnificent book “Tsukiji: The Fish Market at the Centre of the World”, Ted Bestor, an anthropologist, argued that intermediate wholesalers “define much of the character of the marketplace”. The seven big wholesalers deal with shippers and suppliers; intermediates sell to restaurant groups, supermarkets and chefs. Many are family firms. The smallest may have just two employees: the husband or son who handles the fish, and the wife or mother who keeps the books. (Toyosu remains very male; book-keeping is the only job mostly held by women.)

The number of intermediate wholesalers has fallen from nearly 1,700 in the mid-1960s to 457 today. Many small firms refused, or were unable, to move to Toyosu. Others have merged. They are laid out on what look like streets that line their building’s ground floor: cheek by jowl, with some large enough to have hefty fish tanks, a dozen workers and butchering tables big enough for an entire tuna and an arm-size knife to cut it. Some specialise, selling just tuna or eel, but many are generalists… Relationships between wholesaler and buyer can last years, even generations. The former’s success depends not just on expertise in choosing fish, but on knowing clients’ tastes and anticipating their needs… most chefs have long relationships with specific wholesalers, and the former would no more desert the latter to save a few yen than the latter would overcharge the former.

This is similar to the traditional relationships that exist in many settings in India, none more so than that of the Arhatiyas, traders, and farmers in Punjab and Haryana. While mainstream discourse tends to demonise Arhatiyas for exploiting farmers, it glosses over a more nuanced and layered set of relationships and the useful roles performed by them.

2. On the after-life of retired airplanes.

A Boeing 747 has 6m parts, many of which can be reused. Parts need to be certified and have a comprehensive maintenance history, or else their provenance becomes suspect and value plummets. The robust-looking outer covering is in fact a millimetre-thin “skin” of aluminium alloy covering a metal frame, insulated with foam. That skin is harvested by firms such as Planetags, which turns it into keychains and other keepsakes. The most valuable part is the engine, usually the first thing to be harvested… Cockpit instruments can be removed and reused in other aircraft of the same type. Sometimes the entire cockpit is repurposed as a simulator for pilot training… Higher-class seats may be sold to other airlines or hobbyists but economy seats are, on the ground as in the air, the least desirable things on a plane.

Consider the Boeing 777. It has 132,500 unique parts and some 3m in total, including bolts and rivets. Beneath the soft, rounded surfaces of the passenger cabin is a bewildering tangle of sensors, radars, pumps, pistons, cylinders and drums. Miles of wires connect avionics to the cockpit. Hydraulic systems move the rudder or wing flaps or brakes. Airlines need a reliable supply of all these bits and pieces. The global aviation industry would grind to a halt without them… The industry’s insatiable appetite for parts is fed by retired planes…

The first things to come off when a plane arrives in Arizona are the engines. Next to go is the landing gear. Avionics, instruments, hydraulics and other components are either harvested and stored or removed gradually on the basis of need. Cockpits are sometimes removed to be converted into flight simulators for pilot training. Luxurious seats at the front of the plane find new homes with second- or third-tier airlines or in the basements and garages of aviation aficionados… Once everything—engines, components, interiors—has been stripped out, the metal structure is all that remains. Made of high-quality aluminium alloy, it commands premium prices in scrap. Airbus and Boeing both estimate that around 90% of their aircraft by weight is recycled or reused in some form. 

On modern aircrafts

The latest generation of long-haul planes—Boeing’s 787 “Dreamliner” and the Airbus A350—is less noisy and more stable in turbulence. The new jets can manage higher humidity levels, lowering the chances of dehydration for travellers, and maintain higher cabin pressures that feel closer to conditions on the ground… New planes are also more efficient. Fuel is the single largest cost for any airline. Engines and weight are major factors in determining consumption. The biggest modern aircraft have just two engines compared with four on the 747 or the enormous Airbus A380 double-decker, and much of the airframe is made of light composite materials, such as carbon fibre, instead of heavier aluminium alloys. Airbus boasts that the A350 consumes 25% less fuel per seat than its predecessors, producing comparably fewer emissions. 

3. By any yardstick, Vietnam should count as one of the most remarkable economic successes in history. The New York Times has an excellent article that describes how North Vietnam broke away from the prosperous and industrialised South to lead the country’s spectacular economic success over the last two decades. 

This is a very good description of the transformation

In 1954, after separating from France to become an independent nation, it was one of the poorest and least-developed countries in Asia, relying almost entirely on subsistence farming. Haiphong, the north’s main port, was pounded by the U.S. military with some of the heaviest bombing raids of the war, and in the decade after unification in 1975, all of Vietnam became what one scholar called “a poverty-stricken society beset by a stagnant economy.” Today, double-digit growth rates in the north are the norm, and Haiphong is a modern metropolis of two million people connected to Hanoi by a new highway. Cranes swing like weather vanes above more than a dozen construction sites. New bridges cross a river twisting through the city, where piers at industrial parks help ships move to one of the busiest ports in the world.

The election of Donald Trump in 2016 and his tariffs on Chinese imports and other trade restrictions were triggers for North Vietnam’s take-off. Now, with the re-election of President Trump, the wheel may have turned the full circle.

Six years ago... President Donald J. Trump hit China with tariffs, igniting a global search for alternatives to Chinese manufacturing. Few nations, if any, have benefited more than Vietnam from the scramble that followed — especially north Vietnam, historically an economic laggard compared to the more cosmopolitan south. Around Haiphong, a few hours’ drive from China, factories bloomed. The LG plant expanded exponentially; the industrial park nearby filled up with Chinese companies adding production abroad. Rural hamlets... grew almost overnight into boom towns of 30,000... Mr. Trump has vowed to punish countries that have large trade surpluses with the United States, and Vietnam now ranks third on that list, behind only China and Mexico. Officials in Hanoi say they worry... that Vietnam will be singled out for tariffs while competitors avoid Mr. Trump’s blacklist. South Korean companies (including LG and Samsung) are Vietnam’s biggest foreign investors, and some have already paused expansion plans, waiting on Washington... No matter what happens next, America’s once-and-future president can safely say he helped make north Vietnam great again.

Vietnam’s worry comes from a graphic that drives most of President Trump’s foreign and trade policy actions 

While Vietnam may have become a victim of its success, it may be simplistic to lay the blame on the relabeling of Chinese products. 

Between 2017 and 2023, foreign investors committed $248.3 billion to Vietnam for 19,701 projects, according to an analysis by Le Hong Hiep, coordinator of the Vietnam studies program at the ISEAS-Yusof Ishak Institute in Singapore. That’s more than half of all foreign investment since Vietnam opened its economy in the late 1980s. Vietnam’s growing trade surplus with the United States — reaching $104 billion last year, up from $38 billion in 2017 — has led to accusations that China uses Vietnam as a warehouse, rerouting its products to avoid tariffs. Chinese imports and investment have soared... Of the roughly 120 Japanese companies using government diversification subsidies, over 50 claimed them for Vietnam, more than any other country, according to Japanese officials... 

But in a country as wary of its neighbor as Vietnam, where 1,000 years of Chinese colonization lingers in national memory, the boom is by no means owned or operated by Beijing... A recent Harvard Business School study showed that illegal tariff avoidance was more rare than the trade imbalance might suggest — representing between 1.8 and 16.1 percent of exports to the United States in 2021. Researchers found that most exporters were making new products with inputs from many locations and local investment, not just relabeling Chinese products as Vietnamese.

What explains the success of the North?

Bruno Jaspaert, chairman of the European Chamber of Commerce in Vietnam and the chief executive of DEEP C, which runs industrial parks around Haiphong, said the waterway was just one regional advantage. Northern provinces have also had leaders better connected to Hanoi, yielding more infrastructure investment, plus more open, affordable land. Compared to the south, where an industrial base left over from the war made it easier for companies like Nike to get going in the 1990s, Mr. Jaspaert said the north “started later, they can plan better and they are also much faster.”

Pointing out the window of his office to Haiphong’s new city hall, surrounded by new apartment complexes, he emphasized that none of that was there when he moved to Vietnam in 2018. Northern Vietnam was already growing then, in a country that lifted 40 million people out of poverty from 1993 to 2014. But American tariffs became an economic accelerant — lighter fluid poured on a steady flame. And in the north, an epicenter of ancient Vietnamese civilization and Communist revolution, government officials’ quick action coincided with foreign investors’ own sense of capitalist urgency. Mr. Jaspaert said production decisions that once took 18 to 24 months now take six to nine. And while the south stagnates somewhat (Ho Chi Minh City’s subway line remains incomplete after 20 years of construction), the north races on. DEEP C’s revenues and profits have quintupled since the Trump tariffs…

Villages like Mr. Van Thinh’s have been transformed. When the LG plant expanded in 2019, the narrow streets of nearby hamlets quickly turned into commercial strips with restaurants and bold-colored barbershops for workers who make a solid local wage of around $400 to $550 a month. Every spare piece of land has been turned into worker housing. Mr. Van Thinh now manages 35 rooms with his family. Nearby, Pham Thi Cham, 55, drained a backyard pond where she raised fish to build eight rooms that she rents out for about $60 a month. Many of the workers come from central Vietnam. Instead of going south, they came north.

4. Bloomberg has a long read on the spectacular rise of Chinese automaker BYD, Build Your Dreams.

After increasing its annual sales in China 15 times over, to 3 million cars in only three years, BYD is now exporting to roughly 95 markets, including 20 new ones this year. The company is building, has recently opened or has announced plans for assembly plants outside China in 10 countries on three continents. The speed and scope of this expansion have caught the global auto industry off guard and triggered protectionist tariffs in the US and EU… BYD’s electric and hybrid vehicle car sales rocketedfrom just under 180,000 in 2020 to 1.86 million in 2022, giving (it)… the cash to fund a new overseas push… 

BYD, which stands for “Build Your Dreams,” is the brainchild of Wang Chuanfu, a 58-year-old battery scientist who in the 1990s saw an opportunity to start a rechargeable battery company to challenge Japan’s hold on the industry. It began by focusing on batteries for mobile phones and power tools, but in 2003 it decided to pursue cars. Wang’s battery and manufacturing innovations, cushioned by China’s EV-friendly government policies and the scale of its domestic auto market, have helped BYD do what Tesla Inc., Ford Motor Co. and the rest of the auto industry haven’t: build an affordable electric car for the masses and make money doing it. Since introducing a new battery technology in 2020, BYD has gone from being an also-ran in China’s crowded car market to cracking the top 10 automakers in the world…

It also wants to do what no Chinese carmaker has ever done: become a globally recognized consumer brand. It’s hoping to transcend geopolitics through the appeal of a plug-in hybrid sedan that can go 1,200 miles without stopping at a pump or a charger. Stella Li, BYD’s executive vice president and the face of its global expansion, says she wants consumers to see BYD as “a technological pioneer in changing the world.”… a playbook she has used whenever entering a new market: Do intensive market research; win hearts and minds on the ground; then tap BYD’s vast product portfolio to deliver whatever the locals want. One city might want a rail transit system, another an electrified municipal bus fleet. In London she started out with electric city buses to introduce the brand, then moved on to passenger cars. She did the same in Jakarta. In Brazil the playbook was jobs… As in Brazil, Li formed a partnership with taxi drivers through a ride-hailing app in Mexico City. She sold electric work trucks to Mexican conglomerates such as Grupo Bimbo SAB de CV and Cemex SAB de CV, and cut a deal with El Puerto de Liverpool, Mexico’s ubiquitous luxury department store chain, to sell EVs and at-home chargers at the mall.

The stories of Wang and Li are inspiring

Wang was thinking about cars as early as the 1990s. To him, BYD had always been more than just a low-cost battery manufacturer. It was a research and development machine that would use rechargeable batteries as a launchpad for products that could change entire industries. The orphaned son of farmers in rural Anhui province, he was raised by his siblings and earned an undergraduate degree in metallurgical physical chemistry in 1987, then a master’s from the Beijing Non-Ferrous Research Institute, where he became a government researcher… Wang started BYD in 1995 with a $350,000 loan from his cousin. He reasoned he could replace expensive automated Japanese manufacturing systems with one that made use of an abundance of low-cost Chinese workers to assemble batteries manually. But cheap labor was just a piece of the puzzle; the goal was to be as vertically integrated as possible, making not only batteries but also the components, tools and equipment necessary to produce and test them… In 2023, UBS AG did a teardown of the BYD Seal sedan, a challenger to the Tesla Model 3, and found that about 75% of the parts were made in-house, giving BYD a 25% cost advantage over American and European carmakers.

The company got its first big break thanks to a young saleswoman named Li Ke, known outside Chinese-speaking circles as Stella Li. If Wang is the visionary engineer guiding BYD’s elaborate skunkworks, Li, the company’s No. 2, is the driving force behind its expansion, representing BYD in meetings with customers such as Apple Inc. or leaders including the president of Brazil. She graduated from China’s prestigious Fudan University with a degree in statistics and joined BYD in 1996 as a marketing manager for global exports. Wang sent her to Europe and the US to set up offices, and her efforts in that role are the stuff of company lore. In her mid-20s and with a rough grasp of English, Li showed up with a box of battery samples and spent months courting the procurement team at Motorola’s battery R&D campus in the Atlanta suburbs. Motorola executives thought she was a pest, according to one who dealt with her at the time, but the cost savings she was promising were so great and Li was so persistent that they eventually agreed to test BYD’s battery cells. It took two years of evaluation to win the contract. At one point Motorola was so impressed with Li that the company tried to hire her for its sales team…

A year after taking BYD public in 2002, Wang bought a majority stake in a failing state-run car company, Xi’an Qinchuan Auto Co. Angry investors called BYD, appalled that it was wading into a market it knew nothing about—Wang didn’t even know how to drive at the time. But he saw cars as a natural extension of BYD’s battery business. In 2004 he gave a speech at the Beijing auto show declaring his intention to use batteries to change the future of the auto industry. It took almost 20 years for Wang to prove he was right. In 2008, BYD became the first company to produce a plug-in hybrid at commercial scale… Wang continued to pour money into product development, eventually building 11 R&D centers and a vertically integrated company that made everything including batteries, solar panels, printed circuit boards and semiconductors… BYD has equity stakes and long-term agreements with lithium miners, refiners and makers of cathode material, a key battery component… 

If the Motorola deal transformed BYD once, the Blade battery, unveiled in 2020—and now powering all of the company’s cars—would do it again. Most researchers outside China were trying to improve EV range by experimenting with nickel-based batteries. Wang chose lithium iron phosphate, or LFP, which was cheaper and less fire-prone but had been largely dismissed because it lacked energy density. Using LFP allowed Wang and his team to streamline the battery pack, do away with some of the clunkier fire-prevention components and fuse cells directly to the chassis. These improvements proved LFP could be harnessed for longer-range EVs, drastically reducing overall cost. It was so competitive that Toyota uses it in its cars in China, as do many Chinese carmakers.

5. One of the great paradoxes of our times is the co-existence of historically high levels of interconnectedness (trade, finance, migration, idea flows, social media etc.) amidst the growing economic, social, political, and geopolitical polarization. 

Andy Haldane finds an explanation in the work of Robert Putnam whose book at the turn of the millennium, Bowling Alone, sought to document the weakening of community ethics among Americans since the Second World War. He explained it in terms of the loss of social capital - an erosion of the social networks of trust and relationships and the fraying of the social fabric, within and between communities. Haldane writes ,

Putnam’s recent documentary, Join or Die?, shows that these patterns have worsened over the course of this century — and not just in the US. Unravelling of the social fabric has become an international norm. Research has shown just how large and lasting are the costs of bowling alone. From sub-par growth to stalling social mobility, from the epidemic in loneliness to the crumbling of communities, the erosion of social capital goes a long way to explaining some of our greatest scourges. 

He writes about the importance of social capital, compared to the conventional capitals, at individual, community, social, and even national levels.

At the national level, cross-country evidence points towards a strong, causal link between social capital and growth, even once the other “capitals” more often focused on by economists (human, physical and, infrastructure) are taken into account. A 10 percentage point boost in trust raises an economy’s relative economic performance by 1.3-1.5 per cent of GDP. If the UK could achieve Scandinavian levels of trust, this could add £100bn per year to our growth. One key mechanism through which social capital boosts growth is by unlocking opportunity. Recent research by Harvard economist Raj Chetty et al suggests social connectivity may be the single most important determinant of social mobility. Providing a poor (typically disconnected) child with the network of a rich (connected) child boosts their lifetime income prospects by 20 per cent, according to Chetty’s estimates. Few, if any, policy interventions, education or otherwise, yield so high a life-long return. 

These effects are just as large and lasting for non-financial measures of health. Century-long US studies tell us that the single best predictor of someone’s longevity and happiness is the quality of their relationships or social capital. As US Surgeon-General Vivek Murthy has observed, bowling alone is the equivalent of smoking 15 cigarettes a day, shortening lifespans and eroding mental health and wellbeing. What is true for individuals and nations is also true for communities. In the poorest, security and solidarity sit at the top of residents’ hierarchy of needs, Maslow-style. Social cohesion and connection are known to reduce crime and antisocial behaviour and build pride in place and belonging. That makes social capital an essential foundation in making successful places. Without it, they atrophy or, worse still, riot. The depletion of social capital matters in one further key dimension — the effectiveness of government. Government legitimacy and effectiveness requires public trust. This is currently in short supply.

Haldane advocates a focused endeavour to develop social cohesion and capital. 

Our current education systems are more often a recipe for social stratification than mixing. That calls for a radical rethink of curricula and extracurricular activities, and educational access criteria, to make social connection a fore rather than afterthought. Next, unplanned urban sprawl has contributed significantly to the Balkanisation of communities. In future, social cohesion should be at the heart of spatial planning. LSE professor Richard Sennett has proposed sociable housing, connecting disconnected communities through mixed tenure residences, communal spaces and an improved public realm… Social capital is built on strong social infrastructure — faith-based institutions, youth clubs, community centres, parks, sports and leisure facilities, libraries and museums. Yet investment in social infrastructure is meagre relative to physical and digital infrastructure. Reprioritisation and reinvestment are overdue. 

If citizen trust is to be rebuilt, new models of governance are needed too. Citizen panels and juries are effective in building trust and cohesion in diverse communities. Yet they are far from the democratic mainstream. In a return to the original Greek model of democracy, community-led coalitions could play a central role locally. In addition, mainstream and social media are a key conduit for both social connection and, increasingly, social division. Many countries are legislating to avoid online harm. But too little is being done to support online good where it nurtures social cohesion. Public service broadcasters and regulators have a vital role to play in doing so.