Restoring the balance in politics, economics, and beyond

A recurring underlying aspect of many problems that we see today in the economy, polity, and society is that of imbalance in the pursuit of ideas and ideologies. 

In public discourses, we see it in the prioritisation of individual rights over the social and the collective. This manifests in the dominance of liberalism on social issues and free-market principles on economic issues. 

In recent years, especially in the US, woke liberalism has been squeezing out conservative views. The resultant tensions manifest in the political realm on issues like family values, transgender rights, and most prominently in debates on immigration. It has resulted in the near-complete polarisation between the liberal and conservative political camps, with almost no meeting ground. The political centre stands egregiously vacant. 

In economics, it’s about the pursuit of free market and efficiency-maximising ideologies gone too far. I have blogged hereabout 25 economic orthodoxies that conflict with reality. Generally, in Western economies (again, especially the US), it is about consumption marginalising production, and the elevation of virtual innovation (software or digital) over physical innovation. The near deification of AI and the complete neglect of the (perhaps more important) emerging electro-industrial-tech stack is an illustration. 

In international trade, trends like tariff reduction, trade liberalisation, globalisation of value chains, and offshoring have clearly gone too far. The most striking manifestation of this trend is China’s stranglehold on the world economy in manufacturing, and the associated destruction of manufacturing bases and loss of manufacturing jobs across countries.

Nowhere is the loss of balance as salient as in finance. It manifests in the disproportionate and growing importance of private (venture capital and private equity) over public markets (banks and capital markets) in financial intermediation. I have written here about the problems and consequences of financialisation going too far. It is evident even in the preference among youth for liberal arts education over STEM courses in colleges. 

In important areas of global concern like climate change, this imbalance has led to a headlong plunge into renewable energy sources and electric vehicles and wholesale abandoning of fossil fuels and traditional industries. It has swept aside daunting transition challenges like financing sources, sunk costs of legacy systems, unsustainable mitigation and adaptation costs for developing countries, technical problems of integrating energy systems, and so on. 

This imbalance is also stark in our engagement with emerging technologies like Artificial Intelligence (AI). The agenda on automation and the application of AI is almost exclusively framed and driven by Big Tech companies. The public narrative is framed in terms of innovation and human progress, the most desirable of all objectives. But the driving force behind the race to adopt these technologies is efficiency maximisation and cost reduction, which enhance business competitiveness and increase profits. Its larger consequences are never a consideration, and adoption is done without any public debate.

On this issue, as I blogged here, Daron Acemoglu and Simon Johnson have shown how ideas and technologies have deep political significance and how agenda-setting shapes the nature of the “progress” arising from these ideas and technologies. The agenda framing makes certain aspects of the issue salient while obscuring certain others. This process is deeply political. The political power balance determines what’s made salient and what’s obscured.

Another imbalance surrounds the marginalisation of the role and importance of governments and the elevation of the private sector. For example, the ever-expanding use of consultants and outsourcing of services has enfeebled government capabilities and left the state open for capture by vested interests (see this and this). It has amplified the self-fulfilling dynamic of governments are inefficient and therefore should deregulate and exit. There’s a real risk that the new movement of deregulation will add to this enfeeblement without achieving anything substantial in its original objective. 

In development, it is about neglecting plumbing issues, such as state capability, in favour of innovation, management theories, and the application of IT solutions. For example, in school education, the fundamental issue of improving classroom instruction quality (and therefore teacher capabilities, motivation, pedagogical techniques, and teacher-student engagement, among others) is often overshadowed by the pursuit of smart classrooms, digital content, and blended learning, among other initiatives. I have blogged here on ten things in development orthodoxy that deviate from reality. 

The common thread in all these examples is that of an idea or ideology being taken to its extremities, sweeping aside counter-views. The resultant common deficiency is that of balance. Any idea or ideology unrestrained by countervailing views and unmoderated by reason and prudence becomes unbalanced and verges towards fanaticism. 

The Greeks had a word for balance, meson, or the middle. At a philosophical level, the Bhagavad Gita refers to the highest state of balance, or equipoise. In physical and social systems, this balance is achieved in a state of equilibrium (it is a different matter that there might be multiple equilibria). The essence of stability in any system is this balance. 

However, the innate dynamic of ideas and phenomena generates a gravitation or swing to the extreme. This is just as true of social systems as it is of physical systems. Any trend - capitalism, socialism, statism, globalisation, liberalisation, privatisation, deregulation, financialisation, automation, etc - if left to itself, follows a self-reinforcing feedback loop that ends up destroying countervailing forces and spawns its excesses. 

I blogged here about a universal dynamic to how ideas evolve and play out. They trigger interest and get gradually adopted, with their degree of adoption increasing over time. This, in turn, creates distortions that cause a backlash against the idea. The backlash strengthens over time and results in a correction of the excesses that had seeped into the idea. 

A simple framework to explain this is the Hegelian dialectic, wherein as a thesis (idea) evolves, it conflicts with its emerging antithesis to generate a synthesis, often a better state of affairs. As Hegel wrote, thesis begets anti-thesis, both of which undergo a struggle to generate a synthesis, and so on it goes.

In their highly influential book, The Fourth Turning, Neil Howe and William Strauss describe a cyclical trend in history. Their century-long cycle encompasses four phases, or turnings as they call it - High, Awakening, Unravelling, and Crisis. Each turning lasts a social generation of about 20-25 years. 

The work of Howe and Strauss has resonance in other similar interpretations of history. In this essay from 1976, Sir John Bagot Glubb, the former Commander of the Arab Legion, describes history in terms of cycles of around 250 years, or 10 generations of 25 years each. Peter Turchin, an expert in cliodynamics, uses maths to model historical changes and find historical cycles.

Be that as it may, this imbalance has inevitably forced backlashes across fields - politics, economic policies, trade, financial markets, public systems, etc. Across them, orthodoxy is on the retreat. Populist politics, anti-immigrant sentiments, protectionism, revival of manufacturing, retreat of globalisation and offshoring, support for fossil fuels, etc., are a result of this backlash. 

In the circumstances, the challenge for us is to identify and acknowledge the imbalance within systems, and then figure out ways to deal with the problem. There’s a need to consciously cultivate or encourage countervailing forces to achieve a dialectical balance. Only open systems can engage meaningfully through such a process to achieve balance. 

In this context, it is also useful to draw from a concept formulated by Aristotle, phronesis, or practical wisdom. It is the ability to exercise good practical judgement, as the highest intellectual virtue. Unlike theoretical knowledge or technical skill, it is about knowing how to act rightly in specific situations by balancing general rules with context, ethics, and experience to achieve good outcomes. Its critical value is underlined by Albert Hirschman, describing the ability to exercise good judgment as the binding constraint in development.

This is important since a related theme associated with the imbalance is the supremacy of expertise and technocracy, and the marginalisation of prudence and politics. This trend must be acknowledged and reversed for any meaningful effort to restore balance in these realms.

Weekend reading links

 1. US equity market exceptionalism may have peaked, says Ruchir Sharma. 

A weakening dollar helped the rest of the world outperform the US in 2025, reducing the country’s share of the global stock market index from a high point of 66 per cent at the end of 2024 to 64 per cent now. While “American exceptionalism” may have peaked, this shift has ample room left to run given the still wide disconnect between America’s market cap and its 26 per cent share of the global economy.

I agree with this assessment of the Chinese economy. 

China’s domestic economy is hardly growing, weighed down by a busted property market, too much debt and a shrinking population. But strength defines the export sector, which is expanding its share of global markets and propping up the overall economy. Without the export surge, nominal GDP growth would be barely 3 per cent, significantly lower than the officially reported rate of about 4 per cent. Wall Street analysts and economists keep urging China to unleash new stimulus, but their Keynesian bias is blinding them to the underlying problems. China’s total debt including households and corporations is already above 300 per cent of GDP; its augmented fiscal deficit (which includes its influential local governments) is above 11 per cent of GDP. Lacking the money for stimulus, Beijing will be hard pressed to spend more, and the domestic economy will keep disappointing... For the last two years, China has engineered a dramatic increase in its export volumes by slashing prices and holding down the value of the renminbi. As a result, China continues to gain global market share at the expense of rival exporters.

2. Adam Tooze points to an important consequence of Trump's Venezuela invasion: the stabilisation of Guyana's oil market. 

3. This about the invasion of Venezuela and the kidnapping of Nicolas Maduro, and the emerging Donroe Doctrine generally is important. 

Competition with China over resources in America’s “backyard” will only get fiercer, predicts Stephanie Junger-Moat, chief executive of Karcsi Global, a corporate consulting firm focused on Latin America. Chinese companies have extensive interests in both oil and mining in Latin America. They have invested in the “Lithium Triangle” of Argentina, Chile and Bolivia to supply their battery industry and have significant stakes in Chilean copper and Peruvian iron ore. Junger-Moat says competition could intensify if Trump moves to exert more control over the Panama Canal, which handles 5 per cent of maritime trade, and puts pressure on Latin American countries to limit Chinese trade and investment. “The clear short-term losers would be the countries stuck in the middle of this that are resource rich but with little negotiating power,” she says.

Given China's significant investments in mineral extraction in Latin American countries, the US invasion raises the prospects of a face-off between the two countries in America's backyard.

China has gone from doing nearly no business in the region two decades ago to bilateral trade worth more than $500 billion in 2024. Chinese mining companies extract copper from Peru and lithium from Argentina. China’s agricultural conglomerates import lifeline commodities like soybeans from Brazil. Chinese utilities power entire cities. China controls much of the shipping infrastructure and the ports that transit goods across the Pacific. Latin America’s 670 million consumers are also buying Chinese brands. In Mexico, dealerships sell gasoline-powered Chery cars and MG sedans. In Brazil, the fast-food chain Mixue sells ice cream, the e-commerce platform Meituan delivers food and the ride-hailing service Didi ferries people around. In Peru, Xiaomi smartphones are popular...

China’s pursuit of deeper ties in Latin America began two decades ago. At the time, Chinese companies were scouring the world to secure copper, oil and iron ore to power China’s breathtaking economic growth. Chinese banks extended ever-larger loans to countries across Latin America in exchange for oil and critical minerals, and along the way China began building railways and highways and selling its goods. Since then, China has economically displaced the United States in 10 of 12 countries in South America alone, according to research by Francisco Urdinez, an associate professor of political science at the Pontifical Catholic University of Chile. China now engages in more trade, investment and development financing than the United States in most of the region, including Central America. China is Latin America’s largest official source of aid and credit, offering an estimated $303 billion in financing across the region between 2000 and 2023, according to AidData, a research institute at the College of William and Mary in Williamsburg, Va. Between 2014 and 2023, for every $1 lent or given in aid by the United States in Latin America and the Caribbean, China provided $3, said Brad Parks, the executive director of AidData. These investments in many cases have left the countries saddled with debt and obligations to fulfill contracts for commodities like oil.

Venezuela itself may well become the first flash point. 

China is still owed, by one estimate, about $10 billion that Venezuela is paying off through oil shipments. In 2024, more than half of its crude exports — or 768,000 barrels — went to China, according to Kpler, a global oil monitoring service.

4. Some facts about India's Electronics Manufacturing Service (EMS) providers.

Dixon, a 30-year-old company, is on track to produce around 40 million smartphones in FY26, capturing over 50% of India’s mobile outsourcing market. Yet, it spends less than 1% of its revenue on R&D, according to its annual reports. In contrast, Chinese ODM Huaqin Technology, which also started off as a contract manufacturer, spends around 5% of its revenue on R&D... India’s largest listed EMS players with foreign-partner JVs—the likes of Dixon, Syrma SGS, and Amber Enterprises—spend 0.2–0.9% of their revenue on R&D. Their patents reflect this: Dixon’s are valued at a mere Rs 2 crore, while Syrma’s intangible assets, valued at over Rs 1.5 crore in FY25, grew through acquisitions rather than internal R&D.

They have also not been able to capitalise on their JVs with foreign design companies (ODMs). 

Indian EMS players have chased this be-all-end-all through joint ventures (JV) with Chinese, American, and Taiwanese original design manufacturers (ODM). They’ve brought home some of the biggest ODMs through JVs such as Dixon-Longcheer, Bhagwati-Huaqin, and Syrma SGS-Shinhyup Electronic... On the face of it, Dixon and its ilk’s JVs with foreign partners seem a win-win Indian companies learn to manufacture complex products such as smartphones and TVs, and foreign players get access to one of the largest consumer-electronics markets in the world. But there’s often an implicit power imbalance in the way they’re structured. 

“Such partnerships transfer process discipline, quality systems, and operational know-how, but core design authority and roadmap ownership usually stay with the foreign partner,” says Sanchit Vir Gogia, an analyst at tech-research-and-advisory firm Greyhound Research. Another executive at an EMS firm put it more directly. “Even if they tell us how a certain printed circuit board is made, it’s limited to supporting its manufacturing in our factories. We never know what future technologies foreign companies are working on back home,” he says. The result: partnerships meant to facilitate tech-transfer from one partner to another don’t actually end up doing so. The little design that is getting localised in India is that which is tweaking pre-existing products for local use cases... Foreign partners carefully control what—and how much—knowledge flows to their Indian counterparts, which creates a hierarchical power dynamic within the partnership.

On top of it all, the integration of design and manufacturing ecosystems remains broken. “India has research institutions and it has manufacturing lines. What it lacks are applied industrial labs tied directly to clusters—places where engineers solve production problems, test reliability, and feed learning back into design,” says Gogia. Without this shared infrastructure, firms face a beguiling choice: over-invest individually or under-invest collectively. Most end up choosing the latter. Most EMS firms operate on razor-thin margins. “Where capital costs are already high, long-horizon R&D stops being a strategic bet and starts looking like a threat to liquidity,” says Gogia. The only thing that makes it viable is scale.

5. In a reflection of ageing and weak infrastructure, parts of Berlin suffers a power outage that stretches from Saturday to Wednesday, in Germany's longest outage since the Second World War!

6. India's declining tax to GDP ratio

And tax buoyancy

I'll blog more on this separately. But this is intriguing. 

7. On India's public e-bus systems.

Under India’s electric bus programme, cities don’t buy e-buses directly. Procurement runs through central agencies earlier under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, and now under PM-ebus sewa. These agencies aggregate demand, float tenders, and sign long-term contracts with manufacturers and operators. The goal is scale and cost control. It also shifts control away from cities. Central government agencies such as CESL and NVVN act as buyers of record. They sign contracts with OEMs and hold warranties. Payments flow through them. Meanwhile, state transport undertakings (STUs) operate the buses. They schedule routes, deploy drivers, and handle breakdowns on the ground—paying a per-kilometre fee which goes to the OEMs. “This structure wasn’t accidental,” said a former NVVN official. “The electric bus push came from the Centre, and the subsidy came from the Centre. So control also stayed central. That’s very different from how states normally buy buses.”

... The model works when buses run as expected. When they do not, authority fragments. STUs can log faults and track downtime. They cannot escalate repeated failures directly to manufacturers or demand design fixes. Those decisions sit higher up the chain and move through contract clauses and payment cycles... The state transport units can track downtime and flag violations, but the actual fines are processed by the contract owner—the central aggregator agencies in this case. What follows is less a punishment than a reconciliation exercise. Numbers are logged. Penalties are calculated. And eventually, amounts are just adjusted against future payments, often weeks later... More importantly, those deductions are capped by design. Under the gross cost contracts used for electric buses, penalties apply only after fleet availability falls below a defined threshold, usually around 85–90%. Contracts also set a maximum amount that can be deducted in a day and another cap for the entire month. Once those caps are reached, deductions stop, even if the buses continue to remain idle. Effectively, a bus that breaks down briefly and one that is out of service for several days can end up facing similar financial penalties.

8. Elon Musk tweeted in response to Nvidia's launch of its own autonomous driving software. 

What they will find is that it’s easy to get to 99% and then super hard to solve the long tail of the distribution.

This is the challenge for AI applications

Musk is right that it is the edge cases that have made fully autonomous driving so hard. The real world is way messier than any computer simulation. A good example occurred in San Francisco in December when a power outage knocked out scores of traffic lights, causing problems for the robotaxis operated by Waymo, owned by Alphabet. In spite of its fleet clocking up more than 100mn miles of autonomous driving, Waymo’s cars froze when the lights went dark, clogging the city’s streets. In such unexpected circumstances, remote human interventions are still needed to instruct the cars how to respond. Waymo uses an app called Honk to summon human gig workers to solve other problems too, such as shutting car doors after passengers have left them open.

9. China's EV manufacturing is increasingly dependent on exports for survival.

The China Passenger Car Association, an industry group based in Beijing, has forecast the country’s auto exports will rise by 20 per cent this year, driven by EV sales from Tesla rival BYD... Mexico, Middle East, Russia and parts of Europe are among the top export markets, according to Chinese data. Chinese carmakers are rapidly setting up factories and sales networks around the world to circumvent rising tariffs, except in the US, where they are limited by levies and security controls. Overseas sales, which include exports and cars made by Chinese companies in markets outside China, account for about 20 per cent of the Chinese industry revenue and close to half its earnings, according to UBS. Seven of China’s biggest auto groups — BYD, Great Wall Motor, Chery, SAIC, Changan, GAC and Geely — have 31 factories overseas. Shenzhen-based BYD, UBS analysts noted, was “the most aggressive” with plans to double the number of its European stores from about 1,000 to 2,000 by the end of 2026. The domestic outlook in China remains tough as Beijing scales back tax breaks and subsidies for electric cars. This will put financial pressure on a crowded EV market where more than 100 companies face wafer-thin margins and a regulatory crackdown on unsustainable discounting practices. Goldman Sachs analysts said profits this year would be further diminished with “aggressive” EV competition, with the release of 119 new models — roughly one every three days — and slowing volume growth.

This is an excellent graphic on technology disruption: in the Chinese automobile market.

As China’s economy boomed and car ownership soared, annual ICE sales rose from 3.9mn in 2005 to peak at 23.9mn in 2017, according to data from the China Association of Automobile Manufacturers, another local industry group. Now, having retreated to about 14.5mn in 2025, ICE sales in China are set to sink to below 5mn by 2030, their lowest level in about 25 years, UBS has forecast.

10. Labour market skills in the age of AI

An alternative telling of the boom in software employment and salaries is a boom in demand for people who — while certainly mathematically skilled — are primarily distinguished by their aptitude in using these skills to work closely with others in finding creative solutions to complex and multi-faceted problems. Contra the narrow focus of policymakers on Stem subjects or coding, now more than ever our economy rewards broad skillsets: team players, problem solvers, good communicators and creative thinkers.

And this.

Even within tech and other deeply quantitative fields, roles combining strong coding skills with creativity and collaboration are the ones in which people have thrived. People in mathematical jobs with the lowest emphasis on social skills (actuaries and mathematicians among others) have fared markedly worse both in terms of employment and earnings than those for whom collaboration, creativity and interpersonal interaction play a larger role (software developers among them).

11. Finally, the job market for economists in the US is bleak.

Thoughts on civil litigation involving governments

Civil litigation involving the government is about half the massive backlog of civil cases pending before various courts in India. These cases mainly cover four broad areas: property-related claims and disputes, taxation-related matters, employee service matters, and contractual issues. This post will offer some suggestions on addressing the litigation load from such cases. 

Given the government’s role as the biggest litigant, and also the large numbers of cases continuously being added to the already massive pile of cases pending before the Courts, there must be a policy focus on what can be done to limit the incremental case load. Such measures should complement measures at the court system level to expedite the processing of pending cases. 

In theory, litigation arises when a party disputes an order or direction issued by a government official or entity. Such litigation can be triggered either by a genuine dispute that necessitates judicial intervention or by largely avoidable actions by the government or a private party. This post concerns the latter. While there are no estimates of such cases, I am inclined to argue that they would form the major share of litigation involving governments. 

I can think of five categories of such litigation:

1. Litigation involving procedural lapses and poor quality of orders by public officers is perhaps the largest source of litigation. This kind of litigation arises mostly due to the apathy and incompetence of frontline officers. They are commonplace in land, taxation, and government employees’ service matters. 

2. A small set of cases (which are also likely high stakes, involving large amounts) involves needless cascading litigation, where the government’s claim is tenuous. In such defensive litigation, government officials prefer to exhaust the full process of appeals to pre-empt vigilance inquiries. Land and taxation cases are examples. 

3. Litigation provoked by the abusive practices of government officials or entities that belong to two categories. The commonly known are malafide orders in favour of some vested interests (over other genuine claimants). A lesser-known one, perhaps bigger than the first, is that arising from actions of self-righteous (denial of rightful land title claims on so-called government lands) or overzealous (issue of bulk notices to taxpayers) officials. These are pervasive in land and taxation matters.

4. Collusive litigation by private parties, especially in taxation and contractual disputes, to avoid payment of rightful dues or cover up defaults on contractual obligations or force contract renegotiations. They include wrongful admissions, interminable stay orders, cases not being listed by court registries, etc. All such cases involve collusion by the judicial system. 

5. Administrative litigation by employees arising from delays in concluding long-drawn disciplinary cases, disputes in promotion seniority lists or in actual promotions, and disputes in the interpretation of service rules. This will include genuine cases of injustice due to administrative deficiencies and lapses. However, there is also a fair share of litigation done with the intent to obstruct or delay the due process. In each of the latter, courts contribute their fair bit to complicating matters by issuing conflicting orders and setting questionable precedents (most often forced on governments) that are selectively invoked by employee litigants.

So what can be done to address these cases?

Procedural lapses and poor quality of orders could be significantly addressed through process and technology solutions. Workflow automation and checklists could be useful in the case of the former, while the use of AI applications (trained on a template and a repository of orders) to prepare draft orders is emerging as a very promising area to control the quality of orders issued by public officials. Specifically, there’s a strong case for public investments and efforts on the latter front.

Defensive litigation could be addressed by solutions like explicitly forcing the consideration of the strength of the government’s case during the administrative decision-making process and placing accountability thereon, routing appeal decisions through Committees, and placing annual limits on the number of cases that can be appealed.

This kind of litigation is pervasive and is a big administrative and economic inefficiency. I blogged earlier, indicating that the government’s track record of recovering dues (in terms of ensuring payment into the Treasury) is abysmally poor. 

Abusive practices could be curbed by explicit restrictions on those, like the issue of bulk notices, except in extraordinary instances, to be clearly and sufficiently justified and issued by an appropriately higher authority.

Such abusive practices emerge from an administrative environment where the loss caused to the public exchequer attracts far greater scrutiny and punishments than the denial of the rights of citizens. One reason for this equilibrium is the administrative ease of identifying and documenting the former and the difficulty in doing the same for the latter. It may therefore be useful to formulate appropriate guidance that covers the latter in explicit terms, and force the consideration of the same while making decisions. More generally, a practical approach to revising undesirable administrative norms is to explicitly acknowledge the problem and then directly force its consideration into the decision process. 

The onus of limiting collusive litigation should, to a large extent, lie with the courts. Courts should exercise restraint with admissions and follow the process before admission, except in those cases demanding immediate remedy. Stay orders should have a sunset and mandatory listing. Further, the process of listing cases should be made transparent, even automated. Finally, the government agencies concerned should have a capable and responsive legal team that can represent their side promptly, accurately, and effectively through their counsels. The last is clearly dependent on state capability. 

In the case of administrative litigation, the judicial system must become aware of its own central role in contributing to the problem. The common types of such cases can be identified, and the Supreme Court could consider issuing guidance on such matters to prevent their recurrence and also clear the existing stalemates. Is there a way to clear up conflicting judgments on service matters, at least at the level of High Courts? However, notwithstanding these efforts, the fourth and fifth arise respectively from the political economy and pervasive state capability weaknesses, and therefore are perhaps unavoidable to some extent. 

In any case, it would be useful to analyse a sample of litigation in any state based on this framework to help prioritise actions along the lines discussed above.

Weekend reading links

1. Adani plans to enter wind turbine manufacturing, unsettling Suzlon.

After scaling India’s renewable energy landscape faster than anyone else, across solar parks, transmission networks and green hydrogen, the Adani Group now wants to manufacture wind turbines not just for itself, but for the market... Adani has said it wants to deploy around 30GW of wind capacity by 2030, or a third of the country’s 100GW target by then. Until recently, Adani’s turbine manufacturing was widely assumed to be a captive exercise, designed primarily to feed the group’s own rapidly expanding power needs... For Suzlon Energy Ltd, India’s largest wind turbine maker and one of the few global survivors in a brutally cyclical industry, the timing is unsettling. The company has only just emerged from a long financial winter. It is debt-free, profitable again, and benefiting from a renewed policy and market push for wind as India confronts a structural mismatch in its power mix... Apart from Adani, the JSW Group and Reliance Industries Ltd have also disclosed their intent to manufacture turbines. These are conglomerates that can absorb early losses, compress supply chains and tolerate long gestation periods.

2. Italian and Spanish bond yields have declined as markets reward them for measures taken for fiscal discipline. 

Government borrowing costs paid by Italy and Spain have fallen to their lowest level relative to Germany in 16 years, as investors reward Rome and Madrid for belt-tightening and grow more worried about surging debt elsewhere in the Eurozone. The extra yield on 10-year Italian debt compared with German Bunds — a closely watched measure of the risk associated with lending to Italy — narrowed to within 0.7 percentage points this month, the lowest since late 2009. Strong economic growth in Spain has helped to cut its 10-year spread with Germany to less than 0.5 percentage points. That is also the lowest since before the Eurozone crisis, when high debt loads drove up both countries’ borrowing costs and stoked worries about the currency bloc breaking up... Investors point to Spain’s improving economic trajectory and Italy’s prudent fiscal policies under a politically stable government, as part of a broad reduction in fiscal risks for these countries as well as for other previous debt hotspots such as Greece.

3. Roger Federer's commencement speech at Dartmouth College is a classic. He makes the point by invoking the fact that, though he won almost 80% of his 1526 singles matches, he only won 54% of all points. 

“When you lose every second point, on average, you learn not to dwell on every shot,” he told the crowd. “You teach yourself to think, ‘OK, I double-faulted. It’s only a point.’ When you’re playing a point, it has to be the most important thing in the world, and it is. But when it’s behind you, it’s behind you. This mindset is really crucial, because it frees you to fully commit to the next point and the next point after that, with intensity, clarity and focus.”

This has resonance elsewhere. 

It’s an easy concept to apply to almost any field. In 2022, Ronald van Loon, a portfolio manager at BlackRock, authored a paper on the percentage of investment decisions that need to be correct to beat market benchmarks for returns. He researched markets, crunched the numbers and came up with a number: As low as 53 percent.

4. Men's athletics records dating back to the 20th century.

Jonathan Edwards (triple jump, 18.29m, 1995), Mike Powell (long jump, 8.95m, 1991), Jan Železný (javelin, 98.48m, 1996), Javier Sotomayor (high jump, 2.45m, 1993) and Yuriy Sedykh (hammer throw, 86.74m, 1986)

5. Frothy US equity markets

The so-called Shiller cyclically adjusted price-to-earnings ratio of the US stock market, which is ending 2025 just shy of 40, an extremely high level relative to history. The only time the S&P 500 has had a higher ratio was just prior to the dotcom bubble bursting in the early 2000s. Starting from valuations at this level, Adler said, the market has never generated a return above inflation for investors.

6. The Big Three IPOs expected in 2026

OpenAI, which is currently valued at $500bn, is engaged in discussions with investors about a new fundraise at a valuation of $750bn or more... SpaceX is working on a secondary stock sale which would value it at $800bn, according to multiple people with knowledge of the deal. Anthropic is also in talks for new funding, which investors expect will value the company at more than $300bn... Figma, Klarna, CoreWeave and Chime were among the technology groups to list in 2025, contributing to a total of more than $30bn in US IPO proceeds in the first nine months, the bulk of it from technology groups, according to EY. This year’s total is likely to dwarf that sum, if even one of the three big start-ups goes public. SpaceX alone is widely expected to surpass Saudi Aramco’s $29bn raise in 2019 to become the largest public listing.

7. Good interactive graphic of President Trump's epic conflicts of interest in his government deal-making.

8. Japanese scallop exports have become the latest victim of China's weaponisation of trade. 

As China has emerged as a global economic power, its 1.4 billion citizens have become critical consumers of international goods. Beijing has dangled market access to its growing middle class as a diplomatic lever, imposing import restrictions for Taiwanese pineapples, Australian wine, American soybeans and Lithuanian beef in recent years... 

The latest trade spat between Japan and China began in August 2023, when Beijing suspended imports of Japanese seafood after the release of treated wastewater from the decommissioned Fukushima Daiichi nuclear plant. While Japanese officials and U.N. regulators defended the move — noting the water was filtered and heavily diluted — Beijing protested. Before the freeze, China was the top buyer of Japanese seafood, with scallops accounting for most of that trade. Hokkaido’s scallops, harvested from the region’s nutrient-rich, frigid waters, are prized for a distinct buttery flavor and deep umami. They command a premium in China, where they have become a staple luxury at high-end celebratory banquets... In 2022, the year before the halt, Japan exported roughly $641 million worth of scallops, with China accounting for more than half of all sales. Scallop exports plunged 30 percent in 2023 from a combination of China’s trade ban and a fallow period of production... 

Japan’s prime minister, Sanae Takaichi, stated in the National Diet that a Chinese attack on Taiwan could be a “survival-threatening situation,” a legal trigger implying Japan could use military force. It was a rare public declaration regarding an island that Beijing considers a breakaway province. Within two weeks, Beijing abruptly froze all new seafood export applications.

9. Nokia's successful reinventions.

By 2000, Nokia had 26.4 per cent of the global handset market, according to CCS Insight. At its peak in 2000, amid the mania of the dotcom bubble, Nokia was worth about €286bn and was estimated to be contributing about 4 per cent of Finland’s GDP… However, Nokia’s failure to grasp the signficance of the smartphone era, ushered in with the release of the first iPhone in 2007, ultimately cost it dearly… With the writing on the wall, Nokia sold its devices and services division — which housed its once world-beating mobile phone business — to Microsoft for €5.4bn in 2014. Its revenues had fallen from a peak of €37.7bn in 2007 to just €10.7bn by the time it was sold…

With the Nokia brand rapidly disappearing from consumers’ minds, it fell to new chief executive Rajeev Suri to chart a new course for the company. Nokia’s €1.7bn acquisition of Siemens’ stake in a networks joint venture in 2013 suddenly made up about 90 per cent of Nokia’s revenues after it got out of the handset business. “That had to be the foundation because you cannot invent a company on a weak core,” Suri, who left Nokia in 2020, told the FT, adding that his “first priority” was to “remove any ambiguity about what Nokia was going to be”. To turn Nokia into a major player in the networks business. Suri made the biggest acquisition in Nokia’s history: a contentious €15.6bn deal for French network provider Alcatel-Lucent in 2015.

10. BSE Sensex

The BSE Sensex has compounded at just over 13.5 per cent annually over the past four decades, making the Indian stock market one of the best performers globally in US dollar terms.

11. Another K-shaped signature of the US economy (HT: Adam Tooze)

12. Finally, the audacious US invasion of Venezuela and capture of President Nicolas Maduro and his family will be discussed much in the days ahead. The NYT has an early editorial that highlights one aspect.

Mr. Trump’s recently released National Security Strategy... claimed the right to dominate Latin America: “After years of neglect, the United States will reassert and enforce the Monroe Doctrine to restore American pre-eminence in the Western Hemisphere.” In what the document called the “Trump Corollary,” the administration vowed to redeploy forces from around the world to the region, stop traffickers on the high seas, use lethal force against migrants and drug runners and potentially base more U.S. troops around the region.

Venezuela has apparently become the first country subject to this latter-day imperialism, and it represents a dangerous and illegal approach to America’s place in the world. By proceeding without any semblance of international legitimacy, valid legal authority or domestic endorsement, Mr. Trump risks providing justification for authoritarians in China, Russia and elsewhere who want to dominate their own neighbors. More immediately, he threatens to replicate the American hubris that led to the invasion of Iraq in 2003.

For India, the National Security Strategy, and its operationalisation through actions like the above, should be a wake-up call that the US can no longer be relied on in any meaningful manner in case of any conflict with China. 

Year in charts 2025

1. The defining personality of the year was Donald Trump, who, among other things, transformed the US government with his sweeping and untrammelled executive orders. 

2. The defining global economic theme of the year was tariffs. 

3. This is a progression of the Trump tariffs through the year.

4. The Trump tariffs may have disrupted the global economy and virtually ended the WTO era, but it has lowered the US trade deficit and sharply increased revenues from tariffs.

5. A clear casualty of the Trump policies has been the dollar, which has been on a declining trend. 

6. On the back of a weakening dollar, the US equity markets were eclipsed by global stocks for the first time since 2009.

7. South Korean KOSPI was the standout performer, and India was among the worst performers. 

8. But US technology stocks continued their march to multi-trillion dollar valuations on the back of the AI bubble.

9. However, the standout investment asset of the year was not gold, but silver which has risen by over 125% in the year.

It was the worst year for the dollar since 2017.

10. But gold had the best year in nearly half a century. 

11. At the other end, bitcoin and crypto investors took the highest risk for the lowest returns.

12. Amidst the grandstanding success with the US, the Chinese economy has continued to weaken. 

13. 2025 was also the year when AI truly arrived.

14. The top 10 Gen AI use cases in 2025 indicate a shift from technical to emotional applications, and in particular, growth in areas such as therapy, personal productivity, and personal development. 

15. AI-related investment drove all of US GDP growth in the first half of 2025.

16. A big question on AI investments is whether the AI stocks will follow the trend of the railway bubble or the dotcom mania. 

17. The year has been one of rate cuts as the global economy weakened, with Japan being the exception. 

18. India stands out the fastest growing major economy.

19. Jakarta has emerged as the most populous mega city in the world.

20. Finally, the visualisation pages in Bloomberg here and NYT here are excellent. Also this from Goldman Sachs, thisand this from McKinsey. Here is the FT journalists’ pick of stories of the year. Also this from Rest of World. 

WISH YOU A VERY HAPPY NEW YEAR!