The problems of additionality and technology sector skew in the public funding of startups and innovation

Public risk capital funding of innovation and startups in India is done almost entirely through the VC-driven Fund of Funds (FoF). The RDIF is only the latest effort. 

However, as I have blogged earlier, there are two important concerns with public funding of innovation through the FoF approach. 

One, would it primarily expand the investable universe of startups (genuine additionality) or primarily subsidise returns on investments that would have happened anyway (returns-amplification for private investors)? Second, would it prioritise scalable digital technology innovations at the cost of manufacturing and industrial innovations? 

The evidence on both suggests returns amplification for private investors and the dominance of technology innovators. This should raise concerns about whether scarce public funds are being deployed most effectively. This post points to yet more evidence in this regard. 

The Ken has analysed the performance of the Self-Reliant India (SRI) Fund, a Rs 50,000 Cr fund with 20% government contribution (the rest coming from VC and PE) to finance MSMEs, and found both concerns being validated. 

The SRI fund model is described here.

SRI Fund is being implemented by NSIC Venture Capital Fund Limited (NVCFL), which is an Alternative Investment Fund (AIF) of Category II registered with SEBI. SRI fund is oriented to provide the funding support through NVCFL to the Daughter Funds for onward provision to MSMEs as growth capital, in the form of equity or quasi- equity, for the following:

Since the start of the fund in 2020, it has backed around 750 companies and catalysed more than Rs 16,000 crore of investment. 

Nearly seven out of every 10 companies it has backed are tech-heavy businesses. Only three are in traditional manufacturing… In fact, several of these companies had already been backed by VC firms before the SRI Fund got anywhere near them. Truemeds, for instance, is backed by Accel, Peak XV, and Westbridge, while Chai Point is backed by Eight Roads Ventures and Saama Capital. Understandably, this dims, if not outright flouts, the proposition of the SRI Fund, which was supposed to scope out companies “ignored” by venture capitalists… 

“Fund managers get empanelled under SRI with the intention of backing underserved MSMEs,” said Ishaan Ajay, a development-and-sustainable-finance consultant. “But when faced with the choice between a profitable but slow-growing industrial supplier and a software platform capable of scaling rapidly, they tend to gravitate towards the latter. It’s what they understand the best.” Just consider the numbers. Suppose there’s a precision components manufacturer growing 15% annually with, say, 18% Ebitda margins. That may be a great business, but if you invest Rs 10 crore today, you’ll get only 2–3X your money over seven years. Contrast this with a spacetech company, which, if it succeeds, could be worth hundreds of crores.

“Venture funds are built around the second outcome,” said an analyst at a VC firm. This explains why SRI-funded companies tend to be tech-heavy. For every Bellatrix Aerospace in the portfolio, there’s an invisible machine-parts manufacturer outside it that was passed up… startups are generally more innovation- and tech-heavy, whereas MSMEs tend to be traditional, manufacturing-heavy businesses…

The government, for its part, tries its best to redirect funds towards their intended purpose. If it doesn’t agree with a fund’s investment choices, it expresses its objections, according to a VC with knowledge of the matter. But at the end of the day, it’s one LP among many. And when it can’t sway others, it ends up “recusing” itself from investing in that particular portfolio company, added the VC… “There is no prescription that a certain percentage of the fund must necessarily go towards traditional manufacturing or non-tech MSMEs,” a VC said. Which is the one thing that might have prevented all the confusion.

The point about returns amplification for private investors has also been highlighted in a study of IFC’s blended finance deals in the 2000-20 period, which found comparable financial returns to non-blended projects but “no statistically significant excess private mobilisation beyond what IFC’s standard lending would attract.” In other words, blending did not increase the quantum of private investment — it redistributed risk between IFC and private co-investors. 

This finding is echoed in a 2023 study of SIDBI’s Fund of Funds for Startups (FFS) 1.0 by the Impact and Policy Research Institute (IMPRI), India’s Startup Engine: A Policy Review of the Fund of Funds Initiative. It finds that most FFS 1.0 capital went to established VC funds that would have raised capital independently. It also found that “crowding-in effect was primarily reputation/signal, not financial additionality”; the government’s involvement functioned more as a validation of fund managers to private investors than as a necessary injection of capital. While FFS 1.0 delivered a 2x mobilisation ratio, it was mostly in already-functioning VC markets.

As I have blogged several times, the startup and innovation sector is going through the same journey that the infrastructure sector has undergone over the last three decades. Multiple policy experiments to catalyse DFIs - IDFC, IIFCL, NIIF, and now NaBFID - have struggled to crowd in private capital into the riskier infrastructure segments like water supply and sewerage, mass transit, solid waste management, street lighting, energy-saving companies, electricity distribution, etc. Instead, these institutions and instruments may have ended up competing and crowding out private capital in the entirely derisked segments of the infrastructure sector. 

In this context, it is also useful to ask the question whether the VC model is the right instrument for the funding of non-technology startups and innovations. 

Livemint has two long reads that describe the emergence of consumer food brands catering to the niche category of health-conscious people. Sample this

The past few years have seen a spurt in new food brands specializing in regional staples and cooking ingredients. From rural Bengal winter specialty date palm jaggery (nolen gur) to ancient emmer wheat flour (Khapli atta) from Maharashtra, regional staples are finding customers beyond their states of origin. Some brands like Gurugram-based Anveshan and Two Brothers Organic Farms from Pune have crossed a critical mass, with annual sales close to ₹200 crore in 2025-26… Anveshan sources ingredients from key growing regions—like Pollachi in Tamil Nadu known for its high-quality coconuts and aromatic varieties of groundnut from elsewhere in Tamil Nadu and Karnataka—suited to make cold-pressed oils. The ghee, made from the milk of native breeds like the Gir from Gujarat is made using the traditional bilona process where milk is first set to curd and later churned to separate the butter (this has resulted in a new category called ‘cultured ghee’)…

Venture capital funds are betting on these brands: in September last year, Two Brothers raised a $15 million round taking its total fundraise to $25 million (and its post-money valuation to $85 million or ₹781 crore as per data from market intelligence platform Tracxn)… In April this year, KisaanSay, which markets single-origin grocery items like cardamom from Idukki and black raisins from Nashik, raised ₹34 crore ($3.6 million), taking the total funding at the Gurugram-based startup to $5.6 million since it was set up in mid-2022.

In a way, these brands have also helped promote traditional farming practices with more farmers returning to heirloom grain varieties such as the fragrant, short-grain Kala Namak rice grown in eastern Uttar Pradesh and emmer wheat in Maharashtra and Karnataka. These grains have a low glycemic index (a measure of the spike in blood sugar levels from carbohydrate intake) making them suitable for diabetics and often have higher protein and fiber content compared to conventional hybrid varieties… Three distinct factors—growing consumer willingness to pay for clean food driven by a surge in lifestyle diseases, the rise of quick commerce (allowing brands to quickly test consumer response), and influence of social media platforms are reshaping the premium staples market.

All these businesses are distinct from the rapidly scalable technology startups. Take the story of the Two Brothers Organic Farms.

They use organic farming and traditional methods of primary processing to make ghee, jaggery, Khapli flour, and cold-pressed oils. The jaggery is made using native sugarcane with lady finger extract used as a coagulant. “In Khapli, we have created a revolution. We own a seed bank and pay farmers 2.5-times the price of regular wheat. More than 800 farmers grow this wheat for us in 3,000+ acres,” Satyajit said. “It took us ten years to build this brand. At the back-end, our farms are open to everyone (to visit). Consumers trust us and we have a 70% retention rate. But a proliferation of brands (offering traditional, hand-processed staples) also carries the risk of a dilution in quality standards,” he added with a note of caution.

Much the same can be said about most businesses outside of technology - food, textiles, footwear, manufacturing, recycling, etc. Building these businesses requires painstaking efforts for several years, and there are natural limits to their scalability. They are unsuitable for the VC model of funding, as the second Livemint story about the plant-based nutrition startup Oziva shows.

Venture funding, Aarti Gill (co-founder of Oziva) points out, comes with built-in expectations around exits within five to eight years. Unlike venture-backed software companies, consumer health brands compound slowly through trust, habit and repeat behaviour. “If you have investors willing to stay for 10 or 15 years, that changes the equation completely,” she adds. Gill broadly sees three paths for consumer brands: staying profitable and scaling independently over a long period, going public after reaching meaningful scale, or partnering strategically with a larger company. For Oziva, the third route eventually felt like the most practical one. And, that’s where HUL came in… For Oziva, the partnership offered distribution scale, capital and the ability to build beyond a digitally native audience.

Therefore, at a conceptual level and as a framework, it may be a prudent choice for public policy on the funding of startups to distinguish between technology and non-technology sectors. While VCs are appropriate for technology, with their smaller and rapid growth phase, the same may not be appropriate for non-technology startups, which require longer incubation and growth periods. However, in India, most public risk capital funding happens through the VC-driven FoF strategy, which raises concerns of returns amplification and a preference towards technology startups and innovations. 

This is also a concern since technology innovations, far from creating jobs, often also tend to destroy jobs, whereas the non-technology innovations, especially in manufacturing, create good jobs. The graphic below captures the problem.

Note: The percentage breakup is probably even more skewed in favour of technology startups.

It also raises the question of effective strategies - instruments and institutions - for funding such non-technology innovations. How are such innovations funded globally? Are there institutional structures in India (state or central governments) that offer promise and can be adopted with tweaks? What are the lessons from the likes of the Maharashtra Aerospace and Defence Fund? What are actionable recommendations on funding of non-technology startups? If it also requires the government to directly fund them, what institutional structures are most practical and realistic? I’ll explore these in another post. 

Indian economy's cost competitiveness constraints - a graphical summary

I had blogged here, arguing that the Indian economy faces a cost-competitiveness constraint. I had written that on many inputs, domestic firms face the cost structure of a developed country. This post will examine the empirical evidence in this regard. 

This cost structure reflects in the global competitiveness of the country’s manufacturers. India suffers from a persistent and high price disability compared to peers across manufacturing sectors. 

What are the contributors to this competitiveness wedge?

Indian factory wages (~$2.1/hour) are the lowest in Asia, about two-thirds of Vietnam's and a third of China's. Its effective corporate tax rate at 17.2% is among the lowest, its GST rates are comparable, and its logistics costs (while contested) are at least not much higher. 

So if India loses on net cost, the disability is entirely in non-wage factors: land, capital, power, fuel, scale, tariffs on inputs, and labour productivity.

Start with land, the largest cost wedge. Urban land is priced like that of a rich country, and, most problematically, hoards the nation's savings. Mumbai ranks among the world's 20 most expensive prime markets, and Indians park ~77% of household wealth in real estate. The high land valuations result in capital misallocation and squeeze out the capital that would otherwise have resulted in investment. 

In fact, high land valuations, even in the smaller cities, appear to be a big entry barrier for businesses. An Indian manufacturer pays roughly 5–15 times more for industrial land than a Chinese counterpart in a comparable tier-2 city, and 1–4 times a Vietnamese peer. That gap is policy-made. China's local governments subsidise industrial land to attract production, whereas India's restrict supply (FSI, fragmented titles, slow acquisition) and treat land as a fiscal asset to maximise revenues.

Now, come to power tariffs. Indian industrial users pay ~₹7.5–9/kWh ($0.09–0.11), materially above what comparable Asian peers' large industrial users effectively pay. Indian electricity is among the world's most expensive on a PPP basis, with one of the world's widest spreads across consumer types. 

The comparisons of electricity prices based on averages are misleading. For example, India and China have similar average electricity tariffs at $0.08/kWh. It conceals that India has one of the world's widest cross-subsidy spreads (farms near zero, industry penalised). The rate that matters for competitiveness is the industrial slab, which is materially higher. Industry overpays to cross-subsidise farms and households, again, another policy choice. To this, we must add another 15–25% for diesel backup against unreliable supply.

The same applies to gasoline prices. Kept outside GST as a revenue mainstay for state governments, petrol and diesel carry stacked central excise plus state VAT. Roughly half the pump price is tax. In raw dollars, India's fuel is dearer than China's, Vietnam's or America's, despite far lower incomes.

The cost of capital adds to the wedge. The credit-to-GDP ratio measures the availability of capital. The other half of the problem is the price. Indian firms pay materially more than peers - across banks, bonds and the SME segment. In fact, after stripping out inflation, the gap stays large, which is the more realistic measure of whether real investment can clear its hurdle rate.

The capital markets are no different. An Indian mid-cap pays roughly 2–3 times the bond yield a Chinese mid-cap pays and ~50% more than a US one, in nominal terms. After inflation, the gap narrows but doesn't vanish. India's real lending rate (~5%) is ~2 percentage points above China's, and the real MSME rate is among the world's highest. Combined with credit availability stuck at 55% of GDP, this means Indian firms, and especially the missing middle, face the worst combination of dear and scarce capital among large economies.

Let’s dig a bit deeper into the capital cost wedge. 

Econ 101 informed that the high cost of capital is a reflection of the demand-supply mismatch. On the demand side, as we have seen, the high land valuations are encouraging resource misallocation. What about the supply side?

The country’s reasonable gross domestic savings rate (~30%) conceals a disproportionately high share of illiquid assets. When 77% of wealth sits in physical assets (land and gold), and only ₹40 for every ₹100 of household financial savings reaches the financial system, the banks have less to lend, the bond market stays thin, and the price of credit rises. 

In other words, there’s a link between the land and capital problems facing the economy. The causal chain goes something like this - physical-asset preference (land + gold) → low household financial savings (5.3% of GDP) → shallow bank deposits & bond market → low credit-to-GDP (55%) → dear capital (~9% vs ~3.5% in China). The same wealth-allocation pattern that raises land prices also raises the cost of capital. It is one mechanism, not two.

Worsening matters, the net household financial savings fell from ~11.5% of GDP in FY21 to 5.3% in FY24, a 50-year low. The table below breaks down how the cost wedge feeds itself. Households are borrowing more (against assets), and routing more new savings back into physical assets. 

The cost constraints impact the economy in two ways. One, it restrains private investment. Second, it weakens global competitiveness and hurts exports. 

Take the first. Overall investment slid from a 35.8% peak in 2007-08. Public capex has since surged, but private corporate investment never recovered, flat near 11-12% of GDP. Flush with cash, firms deleveraged and bought financial assets instead of building capacity. I blogged here on this. 

The East Asian economies found exports to rich countries as the outlet to overcome thin domestic demand and drive economic growth. Unfortunately, in India’s case, this is exactly the outlet that the cost wedge closes: dear capital, costly logistics, unreliable power and the world's highest tariff walls all erode competitiveness. The result is that India is losing its share of labour-intensive exports to Vietnam and Bangladesh , even as its overall merchandise share stalls near 1.8%.

In fact, the Economic Survey 2016-17 chapter Clothes & Shoes: Can India Reclaim Low-Skill Manufacturing? warned that the space China vacated was being taken by Bangladesh and Vietnam in apparel, and Vietnam and Indonesia in leather and footwear. A decade later, the warning could not have been more prophetic. 

In the net, India wins on wages (~$2.1/hour) but loses on net cost. So the disability is entirely from non-wage factors: capital, power, logistics, scale, tariffs on inputs, and productivity. India has a cost structure that is comparable to that of a developed country. That's the central analytical point.

India enters every labour-intensive sector with the world's cheapest workers and exits with a 10–20% cost disability. This is proof that wages aren't the binding constraint. The wedge comes from the rest - scale, input tariffs, capital, power, logistics and productivity, in a market structure that punishes the firms that should be growing. This is why India hasn't replaced China, where Vietnam and Bangladesh have, despite the structural opportunity being identical for all three.

Indian businesses (and especially manufacturers) face a structural cost constraint. It does not have to do with taxation or wages, but with factors like land, power, fuel, cost of capital, input tariffs, labour productivity, and business size/scale. A disproportionate attention and effort go into taxation reforms instead of these more important structural limiting factors.  

Weekend reading links

1. New research by Emma Harrington, Natalia Emanuel, and Amanda Pallais shows that remote work is adversely impacting mental health. They paraphrase Robert Putnam to argue that Americans "typing alone" brings serious social consequences. 

In 2024, nearly 80 percent of workers said they would be happiest if they could work remotely... Surveys of over half a million Americans from the last decade and a half revealed an uncomfortable truth: Despite its advantages, remote work has significantly deepened Americans’ isolation and distress. Our estimates indicate that remote work explains a third of the deterioration in mental health between 2011 and 2024... Our study compares workers in jobs that could be done remotely, such as finance and software engineering, with workers in jobs that must be done in person. People in remote-capable jobs worked from home three times as often in 2024 as in 2019. As they did, their days became far more solitary. Eighty-four percent of remote workers spend their workday entirely alone. Over half report feeling less connected to their colleagues. Even when communicating online, people working from home receive less feedback from their co-workers and contact fewer people outside their immediate teams.

These workers did not compensate by socializing more outside work. More days passed with no social contact of any kind... In one study, when commuters were instructed to connect with a stranger near them, they reported being happier than those who continued in silence as usual, much to their own surprise. With fewer social encounters, workers in jobs that can be remote saw steeper increases in distress, mental health visits and prescriptions for antidepressants than other workers did... The pain was not evenly shared. People who lived with their spouse and kids saw their mental health hold fairly steady, while those who lived alone experienced a 20 percent decrease in mental well-being. Overall, we found that the rise of remote work increased distress by 7 percent, which accounts for a third of the total increase over the 13-year period we measured.

They argue that face-to-face time with colleagues has no substitute.

2. Katie Martin points to the different ways in which bonds and equities are reacting to Trump policies.

US government bonds, or Treasuries, have never recovered from the drop in price they suffered around the start of the war. Investors in this market, who broadly consider themselves a more cerebral bunch than those in stocks, never bought the hints of a ceasefire with Iran. Bond prices have still not returned to square one, leaving borrowing costs markedly higher. With the prospect of interest rate rises ahead to douse inflation pressures exacerbated by the Iran war, and relentless more borrowing, this is likely to remain the case for some time.

3. As AI threatens to bring down India's tech sector, this is a good article.

On the whole, Indian IT companies spent around 3.7 per cent of their total revenue on R&D in the year that the report covered. This is minuscule compared to around 15 to 25 per cent that Silicon Valley companies spend on R&D. The top IT companies are laggards of first order. For example, in 2022-23, Infosys spent just 0.9 per cent of its total revenue on R&D. The figure for TCS was 1.30 per cent. For Wipro it was 0.5 per cent while for HCL it was 1.60 per cent. The other big companies don’t fare all too well. Reliance, a giant in every way, spent only 0.53 per cent of its total turnover on R&D in 2022-23. Tata Steel is at 0.67 per cent. Maruti Suzuki spent 0.65 per cent on R&D.

4. Indian markets have more to fall before they become competitive.

The FPI outflows have tracked the decline of rupee, feeding a self-fulfilling cycle.

5. The costs of RBI's FCNR (B) deposits and foreign currency borrowing schemes. 

If the scheme were to attract $50 billion of FCNR (B) deposits and $20 billion of foreign borrowing by banks and public-sector enterprises, the mark-to-market loss on the RBI’s swap position could approach ₹64,000 crore at current market prices, besides increasing the RBI’s balance-sheet risk. This is not merely an accounting cost. The subsidy is real and will be monetised by participating non-resident Indians (NRIs), banks and borrowers.   

Large Indian banks are raising five-year FCNR (B) deposits in dollars at 6 per cent. Their attractiveness is evident from the willingness of overseas banks to lend against the same deposits at around 5 per cent. This, in turn, will allow wealthy NRIs to achieve double-digit leveraged dollar returns against India cross-border risk. Indian banks can further transform the FCNR (B) deposits into clean five-year rupee funding at around 6.4 per cent, below comparable government bond yields.

Will the RBI regret having offered the FCNR (B) deposits to NRIs?

Banks are being permitted to offer leverage to NRIs. The currency risk on such deposits will be borne by the RBI. As reported by this newspaper, State Bank of India is offering leverage of up to nine times on deposits of more than $1 million. Calculations indicate that this could translate into returns of over 14 per cent. Other banks are likely to come up with similar schemes for NRIs.

Banks are competing aggressively for FCNR (B), and are also offering leverage to increase returns.  

6. A new large-scale survey experiment of EU companies shows that firms substantially underestimate competitors' current AI investment, and when updated about their competitors' future AI investment plans they increase their own AI investment plans in a statistically significant manner. But this effect, while strong for domestic peers, is weak for information on foreign peers. 

We documented large underestimation of competitor AI investment, substantial belief updating in response to information, and a clear asymmetry in how firms react to domestic versus foreign competition... A 1 pp increase in the expected share of domestic peers investing in AI raises a firm's own expected AI investment rate by 0.570 pp. These complementarities are absent across borders: the effect of an increase in the expected share of foreign peers investing in AI on a firm's own expected AI investment rate is statistically insignificant... Firms update both domestic and foreign beliefs when informed, but their own expected AI investment rate responds primarily to domestic posterior beliefs. These findings suggest that strategic complementarities in innovation weaken with distance, broadly understood to include not only geography but also informational, cultural, and market frictions... This asymmetry helps explain why AI diffusion may remain geographically uneven, even within an integrated economic area like Europe. While firms may observe and learn from foreign competitors, their behavioral response to such foreign signals is much weaker compared to domestic competitors.

7. Aswath Damodaran makes a great point about hedge funds, private equity, and private credit - all niche businesses which had a role, but have vastly overextended themselves and set themselves up for failure. 

Each one began as a genuinely good niche business solving a real problem. Hedge funds 30 years ago produced positive alpha, beating passive investing by 3 to 5 percent annually. Today they look like expensive mutual funds, underperforming passive by roughly 1.5 percent. Private equity started as a focused, disciplined strategy for a small set of operators and has grown into a sprawling category that now struggles to deliver the returns that justified its emergence. Private credit had a legitimate original purpose, which was lending to borrowers that banks structurally could not serve. What killed each of these businesses was the same disease. Overreach. A $200 billion niche business gets sold as a $20 trillion opportunity. When that scaling happens, sloppiness follows, bad actors enter the space, and the average quality of every participant deteriorates. The original alpha disappears not because the strategy stopped working, but because too much money chased too few good deals. The danger with private credit is far more severe than the parallel problems in private equity and hedge funds. Equity investors take their losses and move on. Lending businesses, when they overreach, take others down with them. Banks. Pensions. Insurance companies. Sovereign wealth funds. The systemic linkages run far deeper than most participants understand, and the social costs of a real default cycle in private credit would extend well beyond the funds themselves.

8. Friedrich Merz initiates measures to address Germany's rising pension burden, which took up 41% of all federal government welfare spending in 2024. The proposals came from a bipartisan committee of MPs who were appointed to examine and make suggestions. 

Germany’s pay-as-you-go system is facing widening deficits, with 16.5mn baby boomers retiring by 2036 and only 12.5mn new workers joining the workforce, according to the Cologne Institute for Economic Research. The government in 2024 paid €118bn to plug holes in the system, or about a quarter of the total federal budget. That share could double to 50 per cent within the next two decades, according to economists... Under the proposal, a compulsory individual contribution of 2 per cent of salaries would “be managed centrally and invested in capital markets”... The move would be a novelty for risk-averse and cash-loving Germans, who have been more reluctant than European peers to embrace capital markets to invest their large savings... Other recommendations include linking the statutory retirement age — currently 67 — to the country’s life expectancy and withdrawing early-retirement incentives. For every year gained, people should work eight months longer, the commission proposed. The experts also suggested raising the age — currently 64 — at which people who have made contributions for 45 years are able to go into retirement with their full pensions. Unions are likely to oppose the measure.

9. India has been a laggard in attracting FDI.

10. Ten years on, Brexit has turned to 'Bregret'!

The Brexiteers persuaded a small majority — the vote was 52 percent to 48 percent — that Britain could throw out the austerity that had followed the 2008 global financial crash, reverse the hollowing out of well-paid manufacturing jobs and trade freely and profitably on international markets. Immigrants who had flocked to Britain from Eastern and Central Europe would be sent home. Europe merely held Britain back, and to choose to leave was to believe, as Britons had before, that the nation was meant for more... 

It was, of course, a fantasy... The economy has stalled and trade has shrunk. Britain is poorer than it might have been. Its gross domestic product is at least 4 percent — but could be as much as 8 percent — lower, according to independent calculations, while business investment is more than 10 percent lower. It added new frictions to the lives of Britons: new border checks when traveling to E.U. countries, stricter residency rules for living there, fewer opportunities for students to study abroad. Even just using a cellphone while “roaming” often costs more than it used to. There have been other costs, one of them a weakening of the glue between the nations of the United Kingdom itself. The referendum result was more a statement of English than of British nationalism — majorities in Scotland and Northern Ireland voted to remain. Forced to leave, Scottish nationalists claimed stronger cause to promote their case for full independence from England, and the complex political arrangements for Northern Ireland needed to protect the Good Friday peace agreement between Irish nationalists and British unionists in the province have weakened the cause of the unionists.

Rather than a newly independent Britain cutting a swath on the international stage, economic realities forced cuts in spending on foreign aid and diplomacy. The hopes among Brexiteers for a new Anglosphere, adding the English-speaking Commonwealth nations of Canada, Australia and New Zealand to Britain’s “special relationship” with the United States, turned to dust, and Britain’s privileged place in Washington was lost to Mr. Trump’s disdain for traditional alliances.

11. Fascinating graphic that maps the values of AI models.

The models’ answers, in English, on topics ranging from political petitions to God, suggest values that are different from those of most people. In fact, the models are often more extreme than the average respondent in every country included in the polling. On the survey’s “cultural map”, " AI models fall overwhelmingly into the quadrant populated by rich countries. The worldview of GPT models, created by OpenAI, is more secular than any country on earth (see chart 1). Gemini models, made by Google, place more weight on individual freedom (for example, “homosexuality is justifiable”) than people do anywhere. No model reflects the worldviews of most African or Muslim countries.

12. The Economist looks at the issue of popular backlash against AI. This scenario in particular is important.

Scenarios in which some countries give in to popular rage but others forge ahead are also worrying. If America succumbs, it could cede the global ai frontier, and the attendant cyber and military capabilities, to authoritarian China. Europe and Canada are more risk-averse than America. If they choked off ai while the rest of the world kept pushing forward, their losses could be unrecoverable. More than two centuries after the Industrial Revolution, few countries have managed to catch up with the first movers.

13. Rolex SA is a profit-making company with $12-13 bn in revenues and $3-4 bn in profits whose ultimate owner is a spiritual holding company (SHC), a charitable trust called the Hans Wildorf Foundation. Rolex SA has no public shareholders, investors, or owning family, and has been so since 1960. A similar example is Robert Bosch GmbH, the German engineering giant, which has 94% ownership by the Robert Bosch Foundation (SHC) holds 94 per cent and the Bosch family the rest. In both cases, the management and ownership have been clearly separated.