Weekend reading links

1. Debashis Basu writes about the case of C&C Towers Ltd (CCTL), the latest example of the unholy nexus between bankers and businessmen that has resulted in socialised losses.

It had signed a 20-year concession agreement with the Greater Mohali Area Development Authority (GMADA) in April 2009 for an inter-state bus terminal (ISBT), three multi-storey towers with retail and office spaces, a multiplex, a five-star hotel, a banquet hall, hypermarkets, and a helipad on top of one of the towers. The project turned bankrupt and went into liquidation, and was admitted for debt resolution. On October 19, the Chandigarh Bench of the National Company Law Tribunal (NCLT) passed an order... against an admitted claim of over Rs 579 crore, the resolution plan could provide for only Rs 81.5 crore, or just 14.08 per cent... The moment CCTL bagged the large multiplex project, it immediately gave an advance of Rs 110.78 crore as pre-construction advance and Rs 63.30 crore as mobilisation advance to a group company, C&C Construction Ltd (a listed firm which is also bankrupt). As always, a bunch of public-sector banks sanctioned money in November 2010. CCTL also collected Rs 490 crore from 400 property buyers. Construction was inordinately delayed, leading to the GMADA issuing termination notice in April 2016 and invoking bank guarantees of Rs 11.90 crore. A corporate insolvency resolution process (CIRP) started on October 10, 2019...

Consider these details of related-party transactions. CCTL had extended an advance to the extent of 35 per cent of the contract price to C&C. The transaction auditor has pointed out that the general business/industry practice is to advance 15-20 per cent of the contract value. As much as Rs 25.93 crore of the advance is still unadjusted against construction. CCTL had also made an excess payment of Rs 40.87 crore to C&C over and above the bills and mobilisation advances allowed. No lender approval had been sought for this payment, said the NCLT order. According to the terms of the contract, CCTL had the right to impose and levy liquidated damages of 0.25 per cent of the contract value per week or part of a week, a maximum of up to 5 per cent of the total contract value, ie Rs 15.82 crore in the case of default by the contractor (C&C). The work was scheduled to be completed within 18-30 months from December 16, 2009, for the ISBT and the hotel & commercial complex. Despite inordinate delay, CCTL has not imposed liquidation damages on C&C.

Basu is spot on in his assessment,

The CCTL promoters crafted a contract to drain substantial amounts of money and got away with it. The bankers and “independent engineers” of the GMADA did not monitor the project and did nothing to prevent money from being drained off to group companies. They are primarily responsible for this fraud, but they too got away... What were the bankers doing? What were the engineers of the GMADA doing? The answer is crystal clear in all such bankruptcy cases (especially in real estate involving public-sector banks), but it is one that we don’t want to see: Rampant fraud and corruption by everybody involved... The source of humungous bad loans that are written off periodically has nothing to do with poor bankruptcy laws, as claimed by bankers, such as Arundhati Bhattacharya, former State Bank of India chairperson. Yet, there is widespread opposition (even articulated by former Reserve Bank of India governor Raghuram Rajan) to criminal action against bankers because they would like to label these normal “business failures”.

Solutions like IBC and privatisation of banks without addressing fundamental issues of governance and political economy are like band-aid policies. 

2. Interesting that the technology companies have laid off more people in India this year than all but the US! And layoffs among startups in India this year has already exceeded that for the full of last year.

This hiring winter comes even as Infosys and Wipro which together hired 208,000 graduates last three years have announced that they'll not be hiring this year. This is the first time since 2008 that any of the big Indian IT firms have not hired. 

3. China's Belt and Road Initiative (BRI) is at a crossroad.

The decline in investments has also been accompanied by rising criticism and domestic opposition in BRI countries, even as those countries struggle to repay the loans. 

The best example is Pakistan where projects worth $62 bn have been committed. But 40% of projects have run into problems of corruption, cost overruns, funding shortfalls or adverse environmental impacts, and 20% have been cancelled or delayed indefinitely.

The current problems should also not take away from the scale at which BRI was done and its unprecedented promise.

Recipient countries such as Pakistan find themselves able to finance projects they could never have dreamt of under old-style foreign bilateral or multilateral aid programmes, from power plants to high-speed data networks... “In some senses, it was an absolute game changer,” says Bilal Gilani, executive director of Gallup Pakistan, a consultancy. He added that China was bringing in almost as much foreign investment into energy alone than “what Pakistan received as FDI in total in various sectors in 25 years prior to CPEC”. Hussain, the Pakistani senator, goes further, saying infrastructure on this scale was inconceivable in the country prior to BRI. “The only two projects which we have successfully done with a certain sustainability, with a certain perseverance, with a certain determination — one was the nuclear bomb . . . and the second is CPEC.”

A big problem has been the absence of private sector linkages. The Chinese have avoided seeing BRI as an economic investment opportunity. Instead, they have followed the model of lending, contracting, and supplying, thereby multiplying the value capture from the loans and limiting local spillover benefits. 

“[We hoped] to get some Chinese companies to invest in Pakistan, in our special economic zones and then to export,” says a former Pakistani official, who declined to be identified. “That never took place. It’s OK to borrow money and build infrastructure, but it’s more difficult to bring investors into our zones to make stuff and sell it.” This lack of follow-through from Chinese private companies has arguably been CPEC’s biggest shortcoming. Analysts say that few Chinese businesses have shown an interest in setting up factories there, depriving the Pakistani government of the foreign currency earnings needed to service its non-rupee borrowings.

4. Livemint points to the annual survey of Indian cities by Janagraha and has some interesting graphics. This on the human resource deficiencies of Indian cities

This on the the low degree of devolution of powers to municipalities. 

This on how poorly paid municipal councillors are.

5. Tell-all memoirs by senior government officials like this do a lot of dis-service. Most often, as in this case, it's driven by personal agendas and egos. If that's not bad, it immediately increases risk-aversion in already risk-averse governments. 

Senior bureaucrats earlier too used to write their memoirs. But there are three differences. One, their memoirs used to be atleast some years after their retirement. Two, even when it came out, it avoided controversial topics and playing to the galleries. Three, these memoirs used to be dignified accounts. 

6. Some snippets on the emerging trends with the Indian economy.

Sample this about wages

Real wages of casual wage workers in agriculture shows a negligible growth of 0.1% per year compared to the wages in 2019. For non-agricultural wages, they are yet lower than the level in 2019, with a decline of 1.1% from a year earlier... The situation for regular workers is no better... The latest Periodic Labour Force Survey (PLFS) gives their earnings in 2022-23. Still, they fare worse, with real earnings remaining lower compared to the pre-pandemic levels. For the April-June quarter, real monthly earnings of regular workers have declined 0.5% per annum compared to their 2019 level. This is also true for the July-September quarter of last year, which shows real earnings decline at 1.6% per annum compared to their 2019 levels. But even compared to 2017-18, which is the year when the PLFS series begins, real earnings are lower for every quarter of 2022-23 compared to their levels in 2017-18. The decline is greater when compared to 2017-18, at an average 1.8% per annum.

This on a possible K-shape in the housing loans sector,

The housing loan interest rates before May 2022 had stood at 6.5-7%. Now they are at around 8.4% to 10%, with housing loan equated monthly instalments (EMIs) having jumped 20%. But this hasn’t slowed down their disbursal. Why? The answer lies in looking at the breakdown of housing loans between priority sector loans and the non-priority loans. Priority sector housing loans are defined as: “Loans to individuals up to ₹35 lakh in metropolitan centres (with a population of 10 lakh and above) and up to ₹25 lakh in other centres… provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh, respectively." The remaining loans are non-priority loans.

In the months leading up to May 2022, priority sector housing loans formed around 35-36% of the overall outstanding housing loans of banks. By June 2023, they had fallen to 31.5%, implying that banks are giving out more non-priority housing loans. Of course, these loans are largely taken on by the well-to-do, who do not get impacted much by the rise in EMIs. In fact, the outstanding priority sector housing loans of banks from January to June have been just 1-2% higher than during the same months in 2022. When it comes to non-priority housing loans of banks, they have been around 22% higher from January to June in comparison to the same months in 2022. Further, the percentages don’t explain this inequality well enough. The outstanding priority sector housing loans from June 2022 to June 2023 went up by ₹137.76 billion. In comparison, the non-priority sector housing loans went up by ₹2.47 trillion, nearly 17 times more.

And this about automobile sales in India. 

Vehicle sales have been declining since 2018-19 and car and passenger vehicle sales have been nearly stagnant since 2011-12. The real growth in all categories happened from 2003-04 to 2010-11.  

7.  One of the intriguing things has been the stock market's calm reaction to geopolitical events like in the Middle East. But Ruchir Sharma points to historical data which appears to inform that the reaction now is par for the course.

In the days after the terror attacks in the US on 9/11, much cited as an analogue to 10/7 in Israel, America was on red alert for a follow-up. The S&P 500 fell by 12 per cent, the fall magnified no doubt by the fact that the US was six months into an eight-month recession. But that phase passed quickly — the S&P 500 would recover all its losses by October 11. The same pattern can be traced back much earlier. Looking at the stock market reaction to 25 of the most significant geopolitical crises since the second world war, including cross-border conflicts from Korea in 1950 and acts of terror from the first World Trade Center bombing in 1993, the S&P 500 dropped on average by around 4 per cent, reaching bottom in 15 days, but recovering fully in 33 days. Sixteen of these events took place in the Middle East or stemmed from conflicts or terror groups there — such as the bombings on public transport that hit Madrid in March 2004 and London in July 2005. After an initial impulsive sell-off, the market usually recovered the losses quickly. And the market sell-off on the latest conflict in the Gaza Strip is so far less striking than it has generally been. The bigger worry is rising interest rates.

We tend to overreact to present crises

The collective mind of the market, in contrast, recognises geopolitical risk as a historical constant, and frames fraught moments in that context. Is it clear, for example, that the Middle East is more precarious now than during any of the major conflagrations there since the second world war? That Russia is a more dangerous power after the loss of half its combat capacity in Ukraine? That China is a greater threat today, despite the steady weakening of its economy? The sum total of these threats is highly uncertain and debatable; the market, an aggregation of millions of views, is inclined not to rush to judgment. I met the legendary investor Julian Robertson in the late 1990s, when the hopes for world peace that followed the collapse of the Soviet empire were erased by new risks, including India and Pakistan carrying out a series of nuclear tests. Robertson advised me, as a young rookie investor, not to overreact.

This is a very wise article. 

There's a natural propensity of humans to be more alarmed by their present and be blind to the long view. Are we really in a more fractured times? Is it worse than in 1972-73 or 1979, or earlier times of convulsions, especially during the peak of the Cold War? I'm being deliberately contrarian here.

8. On the implications of India's decision to ban on rice exports on the face of rising prices

By the end of July, India had banned exports of non-basmati white rice and followed this in August with a minimum sale price for basmati rice and a 20 per cent tariff on parboiled rice, extended until March. “It’s tough when a country that accounts for 40 per cent of global trade slaps a ban on half of what they export, and duties on the other half,” says Joseph Glauber, senior research fellow at food security think-tank International Food Policy Research Institute (IFPRI) and a former chief economist at the US Department of Agriculture... the benchmark rice prices in Thailand and Vietnam, the world’s second and third largest rice exporters, have risen 14 and 22 per cent since India imposed its ban. Arif Husain, chief economist at the UN World Food Programme, points out that the countries likely to be worst affected are already suffering from a litany of woes: sky-high food prices, soaring debt and depreciating currencies... 

... countries in west Africa... are particularly exposed to India’s export ban, says the WFP’s Husain. In Togo, for example, almost 88 per cent of all rice imports came from India in 2022 and 61 per cent for Benin, the world’s largest importer of Indian broken rice. In Senegal, where 47 per cent of rice imports come from India... 

The rice export ban is also important since over 40% of the global rice exports come from India. 

The article points to concerns about global rice production going forward and its ability to meet the rising demand

Today’s predicament, analysts warn, is not so easily fixed. Fifteen years ago the world was not lacking in the grain, but that is no longer the case. The world population is set to reach close to 10bn by 2050 with the biggest growth in Africa and Asia. Researchers estimate this rise will increase demand for rice by almost a third, but yields are not keeping pace. After decades of rapid growth thanks to the development of new varieties, yields are stagnating in four big rice-producing countries in south-east Asia, according to a recent study in Nature Food, an academic journal. Globally, on average yields increased 0.9 per cent a year between 2011 and 2021, a slowdown from 1.2 per cent a year between 2001 and 2011, according to data from the UN. 

The chief reason for this setback is climate change. Because rice grows in hot climates — 90 per cent of the world’s rice is produced in Asia — it is often assumed that a few extra degrees will not matter... This is not the case. Above certain temperatures, rice yields drop, explains Sander, adding that the grain is particularly sensitive to night-time heat. A 2017 study found that a global increase in temperature of 1C was likely to reduce rice yield by an average of 3.3 per cent. Temperatures have already risen by at least 1.1C since pre-industrial times. Modelling by commodity data group Gro Intelligence forecasts that by 2100, Asia’s top rice exporters will all experience a sharp increase in the number of days above 35C, with Thailand potentially seeing an 188 additional days above this threshold in a worst-case scenario. For Asia’s rice-producing deltas, from the Mekong to Ganges, climate change could present other complications. As temperatures increase, sea levels rise and salty water flows into fresh water rivers, irrigation channels and the soil, reducing yields or making growing impossible.

9.  Parental income determines your SAT score in the US. Among SAT takers, the children of the richest 1% were 13 times and top 20% seven times more likely to score 1300 than children of the poorest quintile. 

Given the low proportion of SAT takers among poor students, the disparity becomes even greater when we compare the ratio for all students who score more than 1300.

And the picture of the distribution of SAT score by income is even worse.

10. Aswath Damodaran writes the obituary of ESG investing

Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making... If an asset is less risky, it should have lower expected returns. Thus advocates who argue that improving ESG will make firms less risky are directly contradicting other claims that investors will earn higher returns if they invest in high ESG companies. Adding an ESG constraint to investing will lower expected returns, with the only question being how much, leaving fund managers who have fallen for its charms in a fiduciary bind.

And he points to an unintended perverse consequence of the ESG fetish,

ESG pressures have led publicly traded fossil fuel companies to reduce spending on exploration and to divest fossil fuel assets, but private equity has filled the investment void. Is it any surprise that after trillions of dollars invested in fighting climate change, we are just as dependent on fossil fuels now as we were a decade or two ago?

11. Rana Faroohar points to the latest UNCTAD report that highlights rising business concentration among exporters,

High levels of export concentration among the largest 2,000 firms globally increased during the pandemic. This was particularly true in developing countries, where data shows that the top 1 per cent of exporting businesses within each country received between 40 and 90 per cent of total export revenues for the nation as a whole. The median rate of corporate export concentration in a database of 30 developing countries is a whopping 40 per cent... The rise in corporate concentration has also mirrored the continued decline of labour share globally, which is down from 57 per cent in 2000 to 53 per cent today. As the authors put it: “The declining labour share and the rising profits of [multinationals] point to the key role of large corporations dominating international activities . . . [and] driving up global functional income inequality”.

12. Newspapers are reporting that Reliance is close to clinching a deal to buyout Walt Disney Co.'s India operations, Disney Star, at $7-10 bn. This would be a big coup for Reliance, coming on the back of pipping Disney Star to buy IPL rights for $2.7 bn and clinching a multi-year pact to broadcast Warner Bros Discovery Inc.'s HBO shows in India. 

This of course raises concerns about India's media landscape and the control that Reliance would exert on it, over advertisers, content producers, and audiences. 

13. India should refrain from pushing hard on IMF voting reform for now unless it has a good proposal with reasonable backing from others. As Alan Beattie has written here, any reform of IMF quotas in terms of voting rights proportionate to contributions or economic output is playing into China's hands and would leave India even worse off. He estimates that it would increase China'a voting rights from 6.4% to 14.1% and India's from 2.7% to 3.5%, a multiple of four compared to 2.25 now. 

For now, replenishing IMF and WB's finances without change in voting pattern would be in India's interest. This is an area where India and US align perfectly.

14. Akash Prakash explains the perspective of foreign portfolio investors to the Indian equity market

The primary concern regarding India is its valuations. India is now, along with the US, the most expensive market in the world. Most allocators are naturally hesitant to commit capital with such high expectations already priced in. The most common questions remain on what can go wrong and what are we missing? What are the flaws in the India story? Some mentioned that we have been here before only for India to disappoint in the past. Why is this time different? My sense is that on any correction, a wall of money is waiting to come in, as few doubt the long-term potential of India. Every allocator we met was clear that five years from now they will have a lot more capital in India than they have today. While new investors are hesitant to commit capital today, most of the existing India investors are happy to live with the current valuations and keep their allocations largely unchanged. I heard the comment that India has always been expensive many times from this set of investors. There seemed to be no desire to take profits off the table in any significant manner.

15. Seven US tech companies not only dominate the US S&P 500 but also the global markets.

Seven large US tech companies have driven all of the gains in global stocks this year, pushing the US dominance of equity markets to new heights. The so-called “magnificent seven” — Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla — have been propping up the S&P 500 index of blue-chip US companies for most of the year because of investor excitement about the growth of artificial intelligence. The trend has become so extreme that it is dominating markets abroad. But for the seven companies, MSCI’s benchmark All-Country World index of almost 3,000 large and midsized companies would have declined in the year to date, according to Bloomberg data. The seven have added almost $4tn in market capitalisation in 2023, compared with $3.4tn in gains for the MSCI index as a whole. They have added a combined 40 points to the index, which has risen 37 points overall. Unless there is a sharp turnaround by December, 2023 will mark the eighth year in the past decade that the US share of global market capitalisation has risen. US companies now account for 61 per cent of the $60tn index, compared with less than 50 per cent a decade ago. The largest 10 stocks make up almost 19 per cent of the index, up from 8 per cent in 2013.

This dominance has been accompanied by a rising concentration in valuations at the top in global equity markets. 

16. I have blogged on multiple occasions about the need for startup businesses to establish their value proposition to build long-lasting businesses and not focus on scaling/growth for its own sake. Here's what Nitin Kamath of internet stock brokerage firm Zerodha said while referring to his firm's valuation being "way higher than reality".

All of us on the core team have never thought of notional valuations right from the start because they can go up and down with market conditions. Focus on ever-changing valuations is a distraction... The focus has always been on building a resilient business, which means never having to rely on external capital.

17. Evoking memories of its crackdown on Jack Ma following his questioning of the government, China has cracked down on Foxconn

Two months ago, Terry Gou was talking big. Announcing his intention to run for president in his native Taiwan, Foxconn’s billionaire founder argued that China — home to most of the factories where the world’s largest contract electronics manufacturer churns out Apple’s iPhones — could not touch him or his company. “If the Chinese Communist party regime were to say, ‘If you don’t listen to me, I’ll confiscate your assets from Foxconn’, I would say: ‘Yes, please do it!’ I cannot follow their orders, I won’t be threatened,” Gou said, insisting his business interests would not make him beholden to China. Now, Beijing has called his bluff on that boast. Tax inspectors have descended on Foxconn subsidiaries in two Chinese provinces and are investigating land use by group companies in two others, in a co-ordinated large-scale probe that Taiwanese executives and government officials say smacks of a politically motivated crackdown... His presidential bid has irked the Chinese leadership because it further fragments votes for Taiwan’s opposition and makes a victory for the Democratic Progressive party — which refuses to define the island as part of China — more likely, said a person close to Foxconn.

This might perhaps be the crossing the Rubicon moment for China's relationships with foreign investors. For decades, Chinese provinces and the central government have courted foreign investors. Foxconn in particular was especially feted. But now that Chinese companies have acquired enough expertise across the value chain of manufacturing in many sectors, Beijing feels that it can afford to arm-twist foreign investors who refuse to follow the Party line.

Weekend reading links

1. Tim Harford points to the practice of people subscribing to services they don't use.

A new working paper from economists Liran Einav, Benjamin Klopack and Neale Mahoney attempts an answer. Using data from a credit and debit card provider, they examine what happens to subscriptions for 10 popular services when the card that is paying for them is replaced. At this moment, the service provider suddenly stops getting paid and must contact the customer to ask for updated payment details. You can guess what happens next: for many people, this request reminds them of a subscription they had stopped thinking about and immediately prompts them to cancel it. Relative to a typical month, cancellation rates soar in months when a payment card is replaced — from 2 per cent to at least 8 per cent. Einav and his colleagues use this data to estimate how easily many people let stale subscriptions continue. Relative to a benchmark in which infallible subscribers instantly cancel once they decide they are no longer getting enough value, the researchers predict that subscribers will take many extra months — on average 20 — to get around to cancelling.

This is a rare free lunch, one that exploits people's cognitive failures.  

2. Chinese EV makes enjoy large subsidies from the government. Sample this about Nio

Nio lost $835 million from April through June, or $35,000 for each car it sold. Nio and other companies in China’s sprawling electric car sector have formidable government backing that allows them to withstand such losses and keep growing. When Nio nearly ran out of cash in 2020, a local government immediately injected $1 billion for a 24 percent stake, and a state-controlled bank led a group of other lenders to pump in another $1.6 billion.

3. The Economist has an article on the emergence of consultants like McLarty Associates, Hakluyt, and Albright Stonebridge who offer geopolitical advice to multinationals. 

Lee Feinstein, a one-time ambassador who now works for McLarty, notes that many clients value advice from those who have been “in the room where it happens”. The exact services these firms offer are opaque and vary between them, but generally range from gauging the policy intentions of foreign governments to helping open doors for companies that want to sell or manufacture in a new market.

The management consultants like McKinsey too have established their geopolitical consulting arms. The opaque and secretive nature of the work of these consultants raises several concerns. In many respects, this is effectively legalisation of cross-border spying. And we already know the problems with just management consulting itself. 

4. The Economist examines the erosion of authority and credibility of the Palestinian Authority and the further strengthening of Hamas as the de facto leadership of the Palestinian people. A combination of leadership weakness, corruption within the ruling Fatah party, and Isreali high-handedness have rendered the PA to be nothing more than a municipal authority, and that too one which does a bad job of even that.

This is a timeline of the region's history. 

5. Bond markets have been in turmoil, driving up treasury yields and accumulating MTM losses in bond portfolios 

Paper losses on the most opaque part of US banks’ bond portfolios are now close to $400bn — an all-time high, and 10 per cent above the peak at the start of the year that caused the collapse of Silicon Valley Bank — according to Matthew Anderson, an analyst at bond data firm Trepp. Most banks, and in particular the largest ones, will not have to sell and so will never realise those losses... If paper losses on bond portfolios were realised they would have caused a 200 basis point hit to the common equity tier 1 ratios — a measure of financial strength — of the largest US lenders at the end of June, according to Stuart Graham, head of banks at Autonomous Research.

6. Suyash Rai has an excellent assessment of Make in India initiative by numbers. 

At 14.7 percent, the share of manufacturing in GVA in 2022–23 was the lowest since 1968–69. Even in 2019–20, the year just before the pandemic, it was only slightly better—14.72 percent... Even if we do not consider the pandemic years, when capital investments were difficult to make, there has been no progress on gross fixed capital formation in manufacturing since the Make in India initiative was announced... Between 2016–17 and 2022–23, the number of persons employed in manufacturing fell by almost 1.57 crore. Part of this seems to have happened due to the pandemic, but even before that, there was a large decline... In the eight full financial years since the launch of the initiative, the FDI has averaged 1.76 percent of the GDP, while in the preceding eight years (2007–08 to 2014–15), it had averaged 2.14 percent of the GDP... India’s merchandise exports have declined for much of the last one decade, except for a few quarters in 2021 and 2022, when opportunities temporarily created in developed economies led to a spike in exports, which have since declined.

7. Rai also points to a paper by Chang-Tai Hsieh and two others who argue that China's extraordinary economic growth comes from "special deals" cut by local governments with favoured private firms. They claim that local leaders derive personal benefits, either political or monetary, from these, and competition among local governments limits the predatory effects. 

Its simplicity is striking.

Given the effectiveness of this system depends on the discretion of local officials, on incentives being appropriately aligned among local officials to ensure that they not only maximise investments and job creation but also limit rent-seeking at sustainable levels, and on minimising the damage borne by firms not getting special deals, the authors call this strategy a "high wire act". 

8. Ruchir Sharma points to the difficulty of smart money investors

Since 2000, there have only been three years in which a majority of large cap funds outperformed. In the 2010s, on average, 8 out of 10 mutual funds and 9 out of 10 institutional funds underperformed in the US markets, after fees. The share of pros who beat the market was only slightly better before fees and was equally low in the stock markets of Europe, Asia and the rest of the world... Within the community of retail punters, the most active 20 per cent of traders earn returns far lower than the least active 20 per cent. The losses are not just for day traders in individual stocks. Through bad timing, active amateurs lower their returns by 20 per cent when they are pulling in and out of mutual funds.

He also points to the value of insider information

One of the more interesting insights on information superiority comes from studies of (legal) trading by company insiders. Senior executives tend to sell ahead of abnormal declines and buy ahead of abnormal surges in a company’s shares. Chief executives and chief investment officers tend to do better than less senior executives, probably because they have more complete information. In this well-informed circle, following the herd can work. Local information can provide a similar edge. In emerging markets, big global funds have often assumed they can teach the locals a thing or two about investing, only to learn humility the hard way. In the run-up to currency crises, my research has found that locals often pull out well ahead of foreign investors and then are the first to return, sniffing an economic turnaround. Superior on-the-ground knowledge gives them an edge.

9. The Azerbaijani ethnic cleansing of Armenians in Nagorno Karabakh with the support of Turkey has hardly received any global attention. 

After a 10-month blockade, Azerbaijan launched an attack on Sept. 19, claiming the enclave in a day and causing nearly the entire ethnic Armenian population to flee... For Armenians, a classic relic ethnic minority whose Christianity and peculiar alphabet date to the epic struggles between the Romans and the Parthians, it was another genocide. For the Azerbaijanis, Turkic in language and historically Shia Muslim, a great triumph... in its emboldening of traditional regional powers like Turkey, scrambling for geopolitical spoils after the retreat of superpowers, it’s a harbinger of the coming world disorder.

Nagorno-Karabakh, a mountainous region in the South Caucasus, is perennially contested. Ceded by Persia to Russia in the 19th century, it fell into dispute with the emergence of the Soviet Union, Armenia and Azerbaijan both claiming it. In 1921, Stalin attached the enclave to Azerbaijan, home to oil resources and a thriving intellectual culture... By 1994 the Armenians, mobilizing around the traumatic memories of genocide, succeeded in expelling scores of Azeris from the enclave.

The region is also at the centre of a major geopolitical tussle

President Recep Tayyip Erdogan, a master of vertiginous visions, has already tried Islamic liberalism, joining Europe, leading the Arab revolts, challenging Israel and negotiating peace in Ukraine. He now has another dream: opening a geopolitical corridor from Europe through Central Asia, all the way to China. This is the “Zangezur corridor,” a 25-mile-long strip of land to be carved through Armenia as part of a peace deal imposed at gunpoint.

Iran is not happy with Azerbaijan’s victory. As openly as the Iranians ever do, they’ve threatened to use force against any changes to the borders of Armenia. Iran, a millenniums-old civilization central to a whole continent, cannot tolerate being walled off behind a chain of Turkish dependencies. India, similarly, is on Armenia’s side and has been sending a regular supply of weapons. One spur for such support, no doubt, is Pakistan’s joining the Azeri-Turkish alliance. In the jargon of American lawyers, this opens a whole new can of worms. Then there’s Russia, whose absence from the denouement in Nagorno-Karabakh was striking. Even after the 1990s, Moscow still remained by far the biggest supplier of weapons to both Armenia and Azerbaijan. Their economies and societies, above all the elites and their corruption networks, were until very recently molded together. What we are seeing now, as both nations slip out of Russia’s orbit, might be the second round of Soviet collapse.

10. Good list of 40 companies in developing markets that are beating western multinationals in their markets. 

11. The shocks of 2020-22 have been greater on the low-income countries, as reflected in their GDP shortfall.

Real domestic demand as reflected in private consumption and capital formation too has taken a big hit in the low-income countries. The biggest hit on private consumption has been in China.

And the economic growth projections going forward are not encouraging

12. This is a telling snippet about how financial markets lost all their discipline

In 2017 Argentina’s new president Mauricio Macri was keen to show that the country had changed, and celebrated its return to the fixed income market by selling a $2.75bn bond maturing in 2117, with a yield of 7.9 per cent. The then-finance minister crowed that “such an issuance is possible thanks to our recovery of the world’s credibility and confidence in Argentina and in the future of our economy”. It went about as well as you might expect. Macri was out by 2019 and Argentina defaulted on and restructured the century bond in 2020... Argentina’s creditors received on average 54.5 cents on the dollar. But the 2117 bond was actually sold at 90 cents on the dollar to entice investors, and paid at least a few chunky coupons before it was restructured and exchanged for a lower-value new bond, which would have ameliorated the pain somewhat... It turns out that if you bought at issuance and reinvested the coupons back into the 2117 bond you would have lost about 30 per cent going into the restructuring, and roughly 53 per cent on the other side of it. (NB, the gap is unusually large, which means the Bloomberg data might be a bit shonky.) If you held on to the restructured exchange bonds that mature in 2046 and reinvested the new coupon payments into that, you’d today be staring at a ca 63.7 per cent loss.

But the Alphaville report also points to the fate of the 100 year bonds issued by Austria at the same time. 

That’s an almost 40 per cent loss in price since inception. The miserly semi-annual 2.1 per cent coupon payments helps only a little, crimping the total loss is 31.27 per cent, according to Bloomberg data. If you were unlucky/foolish enough to buy the Austrian century bond at its peak price/record low yield in 2020 then you’re looking at close to a 75 per cent loss. There are few better examples of the explosive power of duration when the interest rate cycle turns.

13. Voting share in WB/IMF and respective national outputs for the major economies

14. Katharina Pistor makes two important observations about Finance 

Finance is no longer just an intermediary that channels money from savers to borrowers... finance is now in the driver’s seat, setting the agenda for others, including governments. There are two big problems with this: finance is both dumb and dangerous. It is dumb because it can only read numbers, unable to understand, much less assess, difficult social problems or complex business or engineering strategies. And it is dangerous because the people at the helm of financial institutions think they are smarter than they are, which leads them to assume that they should steer the ship.

If you are looking only at price tags, ruling the world seems easy. Everything becomes comparable, and you need only buy low and sell high to make a profit. Unless you are one of the few moral investors who wants to feel good about where you direct your money, the nature of what you are buying or selling matters little. The price mechanism dispenses with the need to understand an asset’s real-world qualities, negative attributes, or possible side effects. In fact, the less investors know or care about such matters, the more liquid the market.

15. Finally, there's more emerging troubling trends on climate change. Latest data show that September was 0.5 degree celsius hotter than the prior record, and July and August were around 0.3 degree hotter since reliable global records began in the mid-1800s and probably for the past 2000 years. 

There has been a sharp acceleration in global warming in the last 15 years. 

The rate of warming we’ve measured over the world’s land and oceans over the past 15 years has been 40 percent higher than the rate since the 1970s, with the past nine years being the nine warmest years on record.

Weekend reading links

1. A new working paper estimates the level of work from home persisting in the US

Full days worked at home account for 28 percent of paid workdays among Americans 20-64 years old, as of mid 2023, according to the Survey of Working Arrangements and Attitudes. That’s about four times the 2019 rate and ten times the rate in the mid-1990s that we estimate in time-use data... it is higher in the United States than other countries.

2. Another NBER working paper examines the revenues impact of tax rate reduction coupled with tax enforcement from an RCT involving 38,028 property owners in the DR Congo. 

We study a policy experiment in the D.R. Congo that randomly assigned 38,028 property owners to the status quo tax rate or to a rate reduction. This variation in tax liabilities reveals that the status quo rate lies above the revenue-maximizing tax rate (RMTR). Reducing rates by about one-third would maximize government revenue by increasing tax compliance. We then exploit two sources of variation in enforcement — randomized enforcement letters and random assignment of tax collectors — to show that the RMTR increases with enforcement. Including an enforcement message on tax letters or replacing tax collectors in the bottom quartile of enforcement capacity with average collectors would raise the RMTR by about 40%. Tax rates and enforcement are thus complementary levers. Jointly optimizing tax rates and enforcement would lead to 26% higher revenue gains than optimizing them independently.

This is an interesting paper. Two observations. One, the results are intuitive. Tax rates are typically kept higher in weak state capability environments, and enforcement naturally lower. Two, the operationalisation of this in a real tax department setting is difficult. For one, how much should one decrease the rate, if at all? The marginal impact of tax reduction is most likely to be be non-linear which means that figuring out the tipping point rate reduction is critical. But that's almost impossible. The joint impact of rate reduction and enforcement adds to the complexity. Similar logic applies to the extent of state capability. What's the likely marginal impact of enforcement?

The problem is that any reduction that's lower than the estimated rate will result in reduction in revenues, an unacceptable political economy and fiscal situation. Experimentation is difficult to administer and gets vitiated by leakages. 

3. President Joe Biden has swept aside convention by throwing in his weight behind striking United Auto Workers (UAW) union and supporting their demand for a 40% pay increase over the life of the next contract. Sample this (HT: Adam Tooze)

Speaking to workers in Michigan, Biden declared, “Wall Street didn’t build this country, the middle class built this country. The unions built the middle class. That’s a fact. Let’s keep going, you deserve what you’ve earned. And you’ve earned a hell of a lot more than you’re getting paid now.” Asked by a reporter whether he was specifically endorsing the UAW’s demand for a 40 percent pay increase over the life of the next contract, a chorus of chanting workers pressured Biden into saying “yes.”

Biden's actions are part of the efforts to win back the non-college-educated 

This is left-wing populism. And there's no point wailing at this turn of the tide. Given the extent to which the pendulum had swung and the rule making processes had become captives of the elites, such backlash was only to be expected. And populisms are by nature aimed at rebalancing to the other extreme. Biden's comments should be seen in that perspective. 

4. Adam Tooze has an excellent blog that highlights the importance of the car industry in American history

Henry Ford’s model of mass production, first pioneered with the Model T introduced in 1908. was credited with a gigantic and unprecedented surge in productivity. Ford’s River Rouge plant became a site of pilgrimage for industrial engineers from all over the world. In 1914, Ford’s introduction of the $5-day, made possible by the exhausting productivity of his mass assembly lines, transformed the wage-price bargain. By the mid 20th century Fordism had come to stand for a particularly American style of mass production, which would enable workers themselves to consume the fruits of their labour... It is hard to exaggerate how closely the rise of US power In the 20th century was associated with the car. In the aftermath of World War II, a staggering 80 percent of all cars manufactured around the world were made in America. By the 1960s Detroit was the city with the highest per capita income in the United States. Fordism was a productive force with geopolitical consequences. Detroit was pivotal to America’s emergence as the arsenal of democracy. If you could mass-produce cars, you could mass-produce bombers, that at least was Ford’s idée fixe.

It was a productivist vision that echoed down more than half a century to the present day, where both advocates of the Green New Deal and Donald Trump’s Operation Warp Speed cite mass production of aircraft in World War II as evidence for what American industry is capable of doing under the right kind of direction. Today, figures from tech and finance are the pinups of capitalism. In the mid-century moment, car executives were at the cutting edge. In the 1950s and 1960s the Secretaries of Defense for Eisenhower, Kennedy and Johnson were auto executives - Charles Wilson of GM and Robert McNamara of Ford. Fordism was not simply a system of mass production. It was also a social model. Insofar as America had a post-World War II welfare bargain, it was defined by the struggles between the auto firms and organized labour between the sitdown strike of 1936-1937 and the Treaty of Detroit struck in 1950 between General Motors and the United Autoworkers. This effectively set America on course for a model of welfarism based on private provision of health care and pensions, unemployment benefits and cost of living based wage adjustment. This agreement between the UAW and the auto industry founds the ongoing conflation in the United States between the “middle class” and the “working class”.

The post-war compact between the labour represented by unions and capital represented by employers played out in the fifties and sixties. But once the US auto industry faced external competition and imports flooded in, the unions refused to accommodate and their aggressive strike actions triggered reaction from the employers and governments. This is emblematic

The global employment figures at GM tell a tale of the rise and decline of the industry. GM’s US employment peaked in 1979 at 618,365, making it the largest private employer in the United States. Worldwide employment was 853,000. Since then it has been one way decline. In 2022 GM employed 167,000.

But since 2013 there has been a resurgence, which is now being driven by the EV industry.  

This EPI paper is a good resource on the trends in US auto industry.  

5. An excellent example of value capture in chocolate manufacturing - Fairafric chocolate factory in Amanase, 35 miles from Ghana's capital Accra, established by the German social entrepreneur Hendrik Reimers. The company processes local cocoa to make branded chocolate, thereby creating local jobs all through the value chain and ensuring farmers receive far more than the mere 5-6% of what a chocolate bar sells for in western cities. 

6. If you thought Mumbai was the touchstone for inequality, sample this about New York City

The wealthiest fifth of Manhattanites earned an average household income of $545,549, or more than 53 times as much as the bottom 20 percent, who earned an average of $10,259, according to 2022 census data, released earlier this month.

7. The EU's Carbon Border Adjustment Mechanism (CBAM) has come into force from October 1, 2023. 

In CBAM's pilot phase importers of aluminium, cement, electricity, fertiliser, hydrogen, iron and steel will need to report “embodied” emissions (those generated through production and transport). Then, from 2026, importers will have to pay a levy equivalent to the difference between the carbon cost of these embodied emissions in the EU's scheme and any carbon price paid by the exporter in their domestic market. Free permits for sectors will also be phased out, and the housing and transport industries will be brought into the market... Before CBAM's introduction, Europe’s carbon price meant that domestic industries faced an extra cost compared with those in countries with less ambitious decarbonisation plans. This gave importers an incentive to source material from abroad, even if these inputs were dirtier. To compensate for this, the EU handed out permits to industrial producers. These will now be phased out as CBAM is phased in. During the pilot phase, CBAM simply presents an extra hurdle (what economists call a “non-tariff barrier”) for exporters to the bloc. To comply, European firms must report the embodied emissions of their imports. If such data do not exist, importers must use reference values provided by the EU.

This has been the problem with carbon pricing schemes

The EU's current price of €80-90 ($85-95), which is itself only approaching climate economists’ estimate of the social cost of carbon. For instance, half the coal plants covered by China’s emissions-trading scheme face a negative carbon price, meaning that they are in effect paid to burn the dirty fuel, since their emission intensity is below the national average... The scheme also fails to create an incentive to shift from coal to other sources of power... Across the world, activists criticise the ability of firms to use offsets to indulge in what they term “greenwashing”, where companies falsely present themselves as environmentally friendly. Some schemes also struggle to prove they have led to emissions reductions. In 2022 a team of academics, led by Andrew Macintosh of Australian National University, argued that reforestation used as carbon credits in Australia’s scheme either did not happen or would have happened irrespective of payments for offsets... Yet even carbon-pricing programmes that are limited will still help change behaviour, for the simple reason that they encourage the monitoring of emissions.

All said and done, the CBAM is a forced formalisation of carbon emissions by firms in developing countries. It remains to be seen how it'll impact the competitiveness of these firms.  

8. On the problems with IMF quota reform

An admittedly mechanical exercise in updating quotas according to the latest data on GDP, economic openness, variability and currency reserves would increase China’s voting share from 6.4 per cent to 14.1 per cent, while the US’s quota would fall from 17.4 per cent to 14.8 per cent and advanced Europe’s from around 32 per cent to 29 per cent. The current US administration, unsurprisingly, wants to increase the IMF’s overall lending firepower without changing the current voting weights. India, the second-ranked EM, would rise to just 3.5 per cent of total quota. Some middle-income countries, including Brazil and Mexico, would actually see their share fall.

And this about Chinese opportunism

In recent years China, a major bilateral lender to developing countries, has prolonged the suffering of debt defaulters such as Sri Lanka and Suriname by refusing to participate in creditor committees backed by the IMF... China disingenuously portrays its loans as assistance from one developing country to another and resists writedowns. This is absurd and unjust. Beijing cannot credibly be a custodian of a multilateral institution while simultaneously undermining it with a vast opaque parallel system of bilateral lending. Overall, China is an opportunistic multilateralist that participates enthusiastically in institutions it can influence (the Brics and parts of the UN system) and disengages from those it cannot (the G20). There is no guarantee it wants to play a constructive role in the IMF.

9. Wet leasing and tax avoidance are not the only economic distortions with Ireland. Sample this on data centres,

There are 82 data centres operating in the Republic of Ireland, for example, with most in the greater Dublin area. Another 40 have planning approval and 12 are under construction, according to Bit Power, an Irish market research firm. These centres consumed 19 per cent of Ireland’s total energy use in 2022. This share is set to increase to 28 per cent by 2031, according to Eirgrid, the Irish transmission system operator. Due to concerns about the capacity of its grid, Eirgrid has stopped issuing new grid connections to data centres in the Dublin area until 2028.

10. TN Ninan has a very good article about how China pulled off an "industrial coup" to dominate critical industrial sectors even as US and Europe were caught napping. 

Today China has in place enough manufacturing capacity to supply much if not all of world demand for electric vehicles (EVs), solar panels, and wind-energy turbines, plus the equipment for making them. It may not be allowed to swamp markets, but ending Chinese dependence will take many years. Meanwhile, Beijing is in a position to threaten trade sanctions, such as the recent stoppage of supplies of gallium and germanium, critical for chip manufacture.

The West should blame itself. At the turn of the century, Germany promoted the installation of rooftop solar panels and encouraged China to meet the new demand. Other European countries did likewise. China then moved quickly to acquire scale, thereby gaining huge cost advantages (added to which were state subsidies) that forced hundreds of competitors in the West to go out of business. It now dominates the full value chain from polysilicon to the end product, solar modules. China also accounts for 60 per cent of the wind turbine market, and controls the market for active pharmaceutical ingredients (API), on which India’s feted pharma industry depends. Meanwhile, Chinese car companies saw the coming of EVs as an opportunity to upstage the legacy players focused on internal combustion engines. In battery technology, key to EVs, the Chinese achieved critical technological breakthroughs that made batteries cheaper. Sales soared off the charts as Chinese car companies began turning out low-cost EVs. Also, Tesla was encouraged to invest in a Shanghai giga-factory, the company’s largest.

The extent of strategic foresight (and the absence of it elsewhere) is most visible with regard to raw materials. China moved early to sew up much of Congo’s cobalt (displacing Western companies) and Bolivia’s lithium. When Indonesia banned the export of raw nickel, Chinese refiners descended on the country in droves. China also bought up companies in Australia, the US, and Europe that had technology, or made critical equipment.

11. Very good FT long read on how TSMC is struggling to built its $40 bn chip manufacturing facility in Arizona. This about construction techniques goes to the point about the differences in construction contracting methods in Taiwan and the US. 

The company’s way of awarding engineering contracts caused a lot of friction, leading to delays. In the US, chipmakers tend to choose three separate contractors for the office building, the central utility building which houses all electrical and plumbing infrastructure, and the cleanroom where the chip manufacturing itself happens. But TSMC typically subdivides the work in 20 or more packages. “TSMC will slice those contracts very thinly for the sake of saving cost,” says Charles Lee, co-chief executive at Topco, a Taiwanese company which manages certain chemicals and parts supplies for TSMC. “They are used to handling everything in a top-down manner. In Taiwan, contractors are used to following those orders obediently and adapting to quickly changing instructions, but in the US there will be miscommunication.” More recently, TSMC has struggled to find enough skilled workers for the installation of key advanced machinery.

Then there's the differences in the nature of work management,

The company’s success has been built on its ability to quickly raise yield — the ratio of chips without defects — at every new stage of process technology, which it has achieved by empowering engineers to experiment on the fab floor. This contrasts with some other chipmakers’ practices. Intel, for example, has for many years followed an approach called Copy EXACTLY!, under which each new fab must operate under the exact parameters transferred from the company’s technology development centre in Oregon. Any request to deviate from that has to be approved through a written process including experiments to demonstrate the merit of the proposed changes. The company needs this controlled process to ensure consistent products across its network of fabs, which operate in a number of US states and in countries from Ireland to Israel. At TSMC, however, “fab workers have more autonomy to tweak dials to improve yield”, Patel says... But TSMC’s approach relies to a large extent on having the R&D team, which develops new process technology, only an hour-long high-speed rail ride away. With 20 hours of flight time between Arizona and headquarters, new procedures are needed... 

But once they begin putting silicon wafers through the equipment, “it’s about making the small tweaks to see how we can optimise the process”. Hiring locally But industry experts caution that the flexibility TSMC grants its Taiwan fab workers will be hard to replicate with a US workforce. “You can empower fab workers more as long as they are that highly skilled, but you can’t have that in the US,” Patel says. Technicians in Taiwan typically have completed four years of engineering school, he adds. But engineering graduates in the US “have job opportunities that pay more and are more inspiring, like developing new lenses for Apple or working for Meta, than in a fab.” In Phoenix, that problem is clearly evident. TSMC has already hired more than 2,200 of the 4,500 staff it plans to employ there once the two fabs are in production. But almost half of those hired so far are assignees sent from Taiwan, according to two people familiar with the situation.

Weekend reading links

1. Brett Christophers has a very good article which links to several examples of infrastructure funds and private equity ownership of infrastructure assets gone wrong. It has become conventional wisdom that governments should stay out of infrastructure and should, at best, use public finance to de-risk projects so that private investors can come and invest. The main source of private investment in infrastructure is nowadays from infrastructure funds. Christophers writes that the number of global infrastructure focused funds rose from fewer than 100 in 2016 to more than 250 by 2020, with the total assets under management having quintipled since 2009. 

Led by Macquarie, an Australian financial services group that is the sector pioneer, asset managers began investing substantially in Asian and European infrastructure in the early 1990s. Today, in countries such as South Korea and Britain, infrastructure funds are the leading owners of major infrastructure assets in a range of sectors, among them energy, transportation and water.

The story of asset-manager-led infrastructure investment is overwhelmingly a negative one. Asset managers are focused on optimizing returns on the assets they control by maximizing the income they generate while minimizing operating and capital costs. Many users of infrastructure that has come under asset manager ownership have suffered, as service rates have risen quickly and service quality has deteriorated. Nowhere is this better illustrated than in Britain. There, numerous types of infrastructure have come substantially under asset manager ownership. This has led to consistently negative outcomes in, for example, care facilities, schools and water supply. Many observers have concluded that essential infrastructure and asset manager ownership simply don’t mix.

And in South Korea, Macquarie’s eight-year investment in Metro Line 9, part of the Seoul subway system, involved a bitter spat with the metropolitan government over a proposal to hike fares by nearly 50 percent. That led Macquarie and other shareholders in 2013 to unceremoniously sell their stake, in what commuters came to call the subway line from hell. Local critics charged Macquarie with taking excessive profits without assuming any risk, an accusation that has been a consistent drumbeat accompanying the phenomenon of asset manager infrastructure investment around the world. Macquarie said that it is committed to its operations in Korea and that its Korean infrastructure fund is a “passive financial investor” that has cooperated fully with the city of Seoul. 

The story has been much the same when housing is owned by asset managers. There have been allegations of skimped maintenance and egregious eviction practices in some areas. Such outcomes have been reported in Spain, for example, a notable hot spot of asset manager investment in housing since the global financial crisis, by a series of academic researchers. If the United States has been a relative laggard in asset-manager-owned infrastructure, it has been in the vanguard of asset-manager-owned housing.

2. Productivity booms lag behind inventions.

3. FT feature on South Africa's izinyoka's or copper thieves who steal for survival or to maintain drug addiction.

Copper was the new gold, as far as their gang was concerned, and anywhere it could be found was fair plunder. Theoretically, the sale and export of scrap copper is carefully controlled by South African officials. But the properties that make it the world’s third most-used metal also make copper a smuggler’s dream. Malleable and recyclable, it is easily melted down, after which its origin becomes virtually untraceable. It was February 2021 and prices had hit a 10-year high, reaching $9,000 a tonne on international markets. Any number of unscrupulous dealers would buy the coveted metal, then resell it in South Africa or, more likely, help smuggle it to booming markets in China and India... That made a ragtag group of izinyoka the first link in a lucrative supply chain ultimately controlled by international syndicates... in their time working together, they had all hacked down telephone poles, dug up underground cables and broken into industrial plants. Train stations were a favourite target. By the end of that year, izinyoka had ripped out more than 1,000 kilometres of overhead cable from Transnet, the state-owned freight rail operator, prompting it to contemplate switching from hybrid electric locomotives to diesel-only models that don’t require cabling...

In January, the consequences of industrial-scale theft in South Africa included: three security guards killed during heists; three hospitals scaling back operations because stolen copper plumbing hampers their ability to pipe oxygen to intensive care units; trains cancelled due to stolen signalling cable or track sleepers; parts of the city going without electricity for days after thieves toppled pylons. Mining, South Africa’s largest industry, has been severely disrupted. Pits across the country churn up gold, gemstones, rare earth metals and coal, and the country is home to about 90 per cent of known deposits of platinum, vital for electronics and electric vehicles. One morning in March, a platinum operator discovered 300 metres of copper cabling had been stolen from a production site. Workers at Royal Bafokeng Platinum laid new cables the following day, but the thieves were back by nightfall... City Power, Johannesburg’s main power utility, reported the cost of replacing cables stolen between July 2022 and February this year at R380mn ($21mn).

4. Edward Glaeser and Carlo Ratti write about reviving New York City, which like other cities around the developed world is facing large office vacancies in the aftermath of the pandemic

New York needs to attract the rich and talented, but the poem beneath the Statue of Liberty reminds us that the city’s greatness comes just as much from being the landing site for “your tired, your poor, your huddled masses” that it is now pricing out. One way to balance these two governmental imperatives — to help the poor and generate tax revenue from the affluent — is to view the city as a for-profit real estate development company wholly owned by a nonprofit poverty-alleviation entity. The for-profit company focuses on keeping the city attractive to the rich, and the revenue it generates gets plowed into schools and support for the poor.

This about how the office spaces can be converted into residential spaces and people brought back to the streets

Modern office towers have deep floor plans meant to maximize square footage, but units in residential buildings need windows and their natural ventilation and daylight. To achieve conversion at scale, we must therefore look past the architecture of the traditional apartment. Deep-core office buildings could be converted into new kinds of spaces optimized for co-living and co-working. Bedrooms, with windows, could line the perimeter while common areas for cooking, laundry, work, exercise and socializing could fill the middle. Such arrangements could also help meet one of the social challenges of our time: loneliness... The urban playground should be constantly rearranged: Streets could be cleared for weekends, annual festivals and temporary exhibitions; food bazaars and pop-up shops could multiply. Movie theaters struggle to compete with boundless streaming catalogs available on cheap 4K televisions. More outdoor screenings on summer nights could tip the balance back toward collective experience. These easy interventions are especially useful for garnering public support. To draw people into the Playground City, we need to show, not tell.

5. TSMC is facing a crunch on its most important resource, skilled chip engineers. Taiwan's chip sector employs around 326,000 engineers. There is an acute shortage of chip engineers, with China reporting an estimated shortage of 200,000 engineers. 

6. The debate on the proper role of the corporation has a century old echo

Chief executives have been debating the proper role of corporations — to make profits for shareholders or to serve society at large? — for more than a century. The Michigan Supreme Court considered the question in 1919, when the Dodge brothers, as shareholders in the Ford Motor Company, complained that Henry Ford was diverting profits into expanding the business and lowering the price of cars, rather than paying dividends. More than 50 years before Milton Friedman would famously declare that an executive’s responsibility was to make “as much money as possible,” Ford argued the opposite, saying the purpose of a corporation was to increase employment and pay good wages, and only incidentally to make money. The court ruled in favor of the Dodges. Some business leaders sided with Ford. Owen Young, the chairman of General Electric, said in the 1920s that, in addition to paying a “fair rate of return,” corporations had an obligation to labor, customers and the public.

7. Norway is at the vanguard of the shift to electric vehicles

Last year, 80 percent of new-car sales in Norway were electric, putting the country at the vanguard of the shift to battery-powered mobility. It has also turned Norway into an observatory for figuring out what the electric vehicle revolution might mean for the environment, workers and life in general. The country will end the sales of internal combustion engine cars in 2025. Norway’s experience suggests that electric vehicles bring benefits without the dire consequences predicted by some critics. There are problems, of course, including unreliable chargers and long waits during periods of high demand. Auto dealers and retailers have had to adapt. The switch has reordered the auto industry, making Tesla the best-selling brand and marginalizing established carmakers like Renault and Fiat. But the air in Oslo, Norway’s capital, is measurably cleaner. The city is also quieter as noisier gasoline and diesel vehicles are scrapped. Oslo’s greenhouse gas emissions have fallen 30 percent since 2009, yet there has not been mass unemployment among gas station workers and the electrical grid has not collapsed.

8. The Economist has an article which suggests that in relative economic terms China may already have peaked and it may never surpass the US GDP. 

Capital Economics, a research firm, argues that China’s economy will never be number one. It will reach 90% of America’s size in 2035 and then lose ground. In so far as the Peak China thesis can be captured in a single projection, this is it. What accounts for the lower expectations for China’s economy? And how much of a reduction is warranted? The answers hinge on three variables: population, productivity and prices. Start with population. China’s workforce has already peaked, according to official statistics. It has 4.5 times as many 15- to 64-year-olds as America. By mid-century it will have only 3.4 times as many, according to the un’s “median” forecast. By the end of the century the ratio will drop to 1.7...

The biggest swing in sentiment relates not to population but to productivity. Back in 2011 Goldman Sachs thought labour productivity would grow by about 4.8% a year on average over the next 20 years. Now the bank thinks it will grow by about 3%. Mark Williams of Capital Economics takes a similar view... As China ages, it will have to devote more of its economic energies to serving the elderly, leaving less to invest in new kit and capacity. What is more, after decades of rapid capital accumulation, the returns to new investments are diminishing... 

If China’s prices or exchange rate fail to rise as Goldman Sachs expects, then China’s gdp might never overtake America’s. If China’s labour productivity grows just half a percentage point slower than Goldman Sachs envisages, its gdp, everything else constant, will also never surpass America’s (see chart). The same is true if America grows half a point faster (as Capital Economic projects). If China’s fertility rate declines further (to 0.85 children per woman by mid-century), it might eke out a lead in the 2030s only to lose it in the 2050s. Even if China’s economy does become the biggest in the world, its lead is likely to remain small.

9.  For all the talk about its decline, The Economist points to some staggering numbers about the American economic progress over the decades, and it continues.

America’s $25.5trn in GDP last year represented 25% of the world’s total—almost the same share as it had in 1990. On that measure China’s share is now 18%... In 1990 America accounted for 40% of the nominal GDP of the G7, a group of the world’s seven biggest advanced economies, including Japan and Germany. Today it accounts for 58%. In PPP terms the increase was smaller, but still significant: from 43% of the G7‘s GDP in 1990 to 51% now... A hundred dollars invested in the S&P 500, a stock index of America’s biggest companies, in 1990 would have grown to be worth about $2,300 today. By contrast, if someone had invested the same amount at the same time in an index of the biggest rich-world stocks which excluded American equities they would now have just about $510... 

America’s working-age population—those between 25 and 64—rose from 127m in 1990 to 175m in 2022, an increase of 38%. Contrast that with western Europe, where the working-age population rose just 9% during that period, from 94m to 102m... between 1990 and 2022 American labour productivity (what workers produce in an hour) increased by 67%, compared with 55% in Europe and 51% in Japan... TFP in America increased by about 20% between 1990 and 2019. The G7 as a whole averaged less than half that... roughly 34% of Americans have completed tertiary education... Only Singapore has a higher rate... America is home to 11 of the world’s 15 top-ranked universities in the most recent Times Higher Education table.

And some pointers of economic dynamism,

In 2013 a Gallup survey found that about one in four adult Americans had moved from one city or area within the country to another over the past five years, compared with one in ten in other developed countries. About 5m move between states each year... Stockmarket capitalisation runs to about 170% of GDP; in most other countries it comes in below 100%... about half of the world’s venture capital goes to firms in America... 5.4m new businesses started in 2021, an annual record and a 53% increase from 2019... an OECD measure of the personal cost of failure for entrepreneurs consistently puts America and Canada at the bottom... (in the) World Management Survey America sits at the top of their ranking. Fierce competition... helps to explain America’s corporate culture. Bosses are more comfortable with firing employees... Markets are readier to reward companies for evidence that they are well run. America’s managerial strength, the survey finds, explains as much as half of the productivity lead that it has over other developed countries.

10. Novovax struggles with getting countries to comply with their advance market commitments to purchase Covid 19 vaccines. The lack of demand has led to governments either reneging or seeking to renegotiate their AMCs. The same problem is there with other vaccine makers' AMCs too. 

11. Berggruen Institute Governance Index for 2022 is here. This is the report. 

12. Indian Express article on Kerala's neighbourhood women's groups, Kudumbashree, that is the largest women's collective in the world and has completed 25 years of existence. 

It runs 49,200 micro-enterprises — 31,589 individual units and 17,611 group enterprises. So ubiquitous that in every half a kilometre in the state, you bump into one initiative or the other of Kudumbashree... Kudumbashree’s 46,16,837 members have organised themselves into 3,09,667 neighbourhood groups (or NHGs, called ayalkootam in Malayalam). The neighbourhood group is the primary level unit of Kudumbashree that has a three-tier hierarchy. The next rung is the Area Development Society (ADS) that functions at the level of the ward, followed by the Community Development Society that works at the local government. The NHGs usually begin with thrift and credit programmes, lending money to members using the group’s savings. Subsequently, NHGs are graded and once they qualify, they are eligible for bank loans. These loans address the immediate financial needs of the group members. Subsequently, the state government supplies grants and subsidies, besides administrative support. Banks provide loans to members at low interest rates. The total thrift collected by NHGs in the state, according to Kudumbashree’s website, stands at Rs 5,786.69 crore and the internal loans generated are to the tune of Rs 23,852.45 crore.

This is a striking achievement

Besides social mobility, the movement has armed women with political mobility too. Of the 11,000-odd seats reserved for women, 7,038 were won by active Kudumbashree members in the 2020 local body elections, up from 848 in 2005.

13. Argentina's latest bout of hyper inflation, spike in interest rate, currency collapse, foreign debt default, IMF bailout, economic contraction is on.

Argentina will announce on Monday a new round of emergency government measures, including raising interest rates 600 basis points to 97 per cent, to try to stave off the country’s worst economic crisis in two decades. The Peronist government is desperate to avoid a big devaluation before elections in October. But the South American country is also running out of foreign exchange reserves as Argentines abandon the fast-devaluing peso and embrace the US dollar. Fuelled by money-printing to finance a large government deficit, Argentine inflation hit 109 per cent a year in April, the highest level since 1991. The economy ministry said the new measures, to be announced Monday, would involve the central bank stepping up intervention in the foreign exchange market to try to slow the peso’s fall. Economy minister Sergio Massa is also trying to persuade the IMF to bring forward the disbursement of agreed loans and will travel to China on May 29 to seek greater use of the renminbi in foreign trade.

14. The Business Standard has an article which analysed 10 infrastructure stocks over the last twenty years and found them big wealth destroyers. 

Companies in the construction and infrastructure sector have been among the biggest underperformers and wealth destroyers in the stock market in the past 20 years. The sector has also seen a wave of corporate failures and bankruptcies, making it tough for retail or non-promoter shareholders to make money on their investments. The numbers suggest that companies in the infrastructure sector go through a typical boom-and-bust cycle. First, there is a sharp rally in the share price as companies report rapid growth in revenues and profits, but then earnings growth loses steam, triggering a big sell-off in these stocks and a further decline in share prices that lasts for years. For the poor showing by these companies, analysts blame high debt, poor return on capital and equity, and the inability of these firms to sustain growth and earnings when financial and macroeconomic conditions turn adverse.

15. Ghana signs a $3 bn bailout from IMF following defaulting on its $34 billion debt in December last. The IMF estimates another 19 countries in the continent could face the same fate. 

The government borrowed heavily to insulate the economy from the effects of the pandemic and may have avoided a recession as a result. But the country’s debt as a percentage of GDP went from 62.7 per cent in 2020 to more than 100 per cent last year, according to finance minister Ken Ofori-Atta. Debt servicing now takes up about 70 per cent of government revenue... The administration stopped charging for mains water and brought in cheaper tariffs on electricity... The government saw an opportunity in leveraging the Covid pandemic to engage in reckless expenditure in view of the 2020 election... Much of the Ghanaian government’s spending took place in a world of low-interest rates. Ghana gorged on cheap money, raising almost $17bn in eurobonds that the Ministry of Finance frequently said were oversubscribed for nine straight years. But as central banks began raising rates to control inflation — the Bank of Ghana has raised rates by 1,250 basis points since March 2022 — Ghana found itself shut out of international debt markets as concerns grew over its ability to repay what it owed. The government has since been forced to rely heavily on a domestic capital market, where interest rates are as high as 40 per cent, and central bank financing of 37.9bn cedis ($3.2bn) in 2022. Some of the money being injected into the economy by the central bank may have helped to fuel inflation.

Historically, Ghana, like Sri Lanka, has been a relative good performer in the region.

16. Finally, Gillian Tett has more data on how bad mobile phone use is on children's mental health.

A group called Sapien Labs, which studies mental health, has polled almost 28,000 18-24-year-olds. Part of Gen Z, Sapien describes this cohort as “the first generation who went through adolescence with this technology”. It’s no surprise that this research shows that Gen Z’s mental state is worse than earlier generations. As psychologist Jean Twenge notes in Generations, teenage mental health has worsened sharply in the past decade, the period after smartphones went mainstream. Covid-19 has exacerbated the problem, according to the Centers for Disease Control and Prevention. What’s most interesting, however, is that Sapien tracked the age at which respondents first got cell phones and compared this with their reported mental health. This showed a clear pattern: kids who received phones at a younger age had worse mental health, even after adjusting for reported incidents of childhood trauma. The share of females experiencing mental health challenges ranged from 74 per cent for those who received their first smartphone at age six to 46 per cent who received it at age 18. For males, the numbers were 42 per cent and 36 per cent... The pattern was particularly stark in one of six mental health categories, known as the “social self”, which tracks how we view ourselves and relate to others.