Weekend reading links

1. Dame Sarah Mullally, 63, becomes the 106th Archbishop of Canterbury, the first woman to serve as the senior-most bishop of the 85 million-strong Anglican Communion since the role's creation for Augustine of Canterbury in 597 AD!

2. Kevin Warsh as Fed Chairman may pursue significant changes to the way the Fed sets monetary policy.

The Fed’s vast bond-buying programmes, which Warsh initially supported as a Fed governor during the financial crisis, are at the centre of the Trump administration’s allegations that the central bank is acting far beyond its remit to keep prices in check and maximise employment. The... quantitative easing, expanded the Fed’s balance sheet from less than $900bn in 2008 to a peak of almost $9tn. The balance sheet now stands at $6.6tn, following a three-year reversal of QE — dubbed “quantitative tightening” — that the rate-setting Federal Open Market Committee has recently paused amid signs banks were falling short of reserves. Warsh has said he would like to shrink it much further... Warsh in April said successive QE programmes meant politicians found it “considerably easier appropriating money knowing that the government’s financing costs would be subsidised by the central bank”... 

Warsh’s claims that the response to the pandemic “was the biggest monetary policy error in 45 years”... Along with shrinking the balance sheet, Warsh would like to change the Treasury-Fed Accord, a 1951 agreement seen as the foundation for the US central bank’s freedom to set interest rates free from political pressure. Warsh has said he wants a “recommitment” to the accord that would entail a smaller, less powerful central bank, with some control of its balance sheet handed to the Treasury... Trump’s nominee will push the Fed’s staff to gather more “real-time information” to rely less heavily on official government data that comes on a longer lag... He could also deploy economists to find out whether his view is right that an AI-led productivity boom can boost US workers’ pay without stoking inflation — a move that could potentially pave the way for more interest rate cuts.

This is Warsh's WSJ op-ed of March 2023, where he called for an "economic regime change", including stopping the practice of providing forward guidance and stopping the provision of forecasts of the path of interest rates. The expectation now is that Fed may dispense with its widely followed dot plot showing the interest-rate projections of each participant of the FOMC, and end the tradition of press conferences by Fed chair following every FOMC meeting. 

3. Soumaya Keynes points to new research that links commerce and markets to the shaping of cultural norms.

One 2010 study ran money-sharing experiments across a diverse mix of communities, including smaller ones where people foraged or hunted for food. In those less marketised societies, norms around fairness towards strangers seemed weaker... A new study by Max Posch of the University of Exeter and Itzchak Tzachi Raz of Hebrew University takes a different approach, exploring the US economic transformation between 1850 and 1920. Thanks in part to a vast expansion of railroads, internal commerce became much easier. Mail-order catalogues served remote communities with items including shoelaces, suitcases and booze. The researchers compared places and people gaining more and less market access. Unsurprisingly, they found that in the places that enjoyed juicier connections, work shifted to involve co-operation with more distant partners...

Compiling many metrics, they found that on at least three dimensions, new markets did seem to affect culture. First, commercial opportunities made people more outward-looking. In places that became more connected, Americans became more likely to marry someone outside their local community and parents more likely to pick out nationally common names for their children. Second, access to markets raised tolerance levels, as measured by higher religious diversity and greater variation in family size, as well as mothers’ ages at their first birth. (The logic being that more dispersion should reflect more of a “you do you” attitude.) Third, greater market access came with higher trust towards others, as extracted from language in local newspapers. This measure wasn’t perfect, but reassuringly matched trends in more recent survey data, and fell during wars... Instead, they emphasised a story of rapid cultural adaptation among people who were most engaged with impersonal, anonymous exchanges. The changes in naming practices, for example, were concentrated among migrants working in industries that were more exposed to trade with other parts of the country. For those working in construction and entertainment, the market access had no effect.

4. Paul Blustein questions claims about the dollar's dethronement. 

Participants in this market are international banks, securities firms, multinational corporations, insurance companies and pension funds — the biggest private actors in the financial system. Their globe-girdling operations require the movement of immense amounts of money across borders on a constant basis. They use the market to hedge themselves against currency fluctuations by trading a pair of currencies (say, the dollar and Japanese yen) twice, first at the current exchange rate and then swapping back later at an agreed rate. Japanese life insurance companies, for example, invest their portfolios heavily in US Treasuries and other dollar securities. Because they have obligations in yen to their policyholders, they need to protect themselves against movements in the yen-dollar rate and they use swaps to do so. These sorts of transactions occur at such a huge scale that, according to data from the Bank for International Settlements, the amount of outstanding swaps currently stands above $100tn. Some 90 per cent involve the dollar, reflecting the myriad ways it is used. Unwinding all of this activity and subbing in another currency would be staggeringly costly and difficult.

The $12.6 trillion European holdings of US Treasuries confer less leverage to the Europeans than they appear.  

Europe’s US government debt holdings don’t translate into usable leverage, because most of them can’t be politically co-ordinated and selling would be self-defeating. The reason is simple. “Europe” may hold a lot of US assets, but that doesn’t mean Europe can control them or deploy them as a co-ordinated political tool. Much of Europe’s exposure actually sits in private portfolios — pension funds, insurers, banks, and asset managers — not in a single public balance sheet that can be mobilised strategically.

But while a deliberate and coordinated weaponisation is difficult, "a slow, decentralised buyers' strike, as investors gradually stop adding to US assets" is a distinct possibility.

5. Singapore's acclaimed public housing model.

More than three-quarters of its citizen and permanent resident population live in 1.1mn government-built flats, bought at subsidised rates... Rising property costs, notably in the resale market, have sparked concern over affordability, while the lottery system for allocating flats, which favours traditional nuclear families, is being tested by changing social norms. Over the longer term, property values are also being eaten away by the 99-year leases on which they are sold. “The main thing that worries me is that . . . as the lease clock ticks down and as the stock ages, housing equity drops to zero,” Gee added...

When Singapore introduced national service after gaining independence in 1965, home ownership was also encouraged as an incentive for conscripts to fight for their country. Today, more than 90 per cent of Singaporeans live in an owner-occupied home — among the highest rates in the world. Properties are allocated to would-be buyers via a lottery system to applicants who are typically required to be married, engaged or older than 35. Prices are eased through a raft of government subsidies based on personal circumstances. Singaporeans can also dip into their mandated savings and pension plans and obtain mortgages and loans from the HDB directly. But critics have said that the lottery system is unfair to singles and non-traditional families, for whom it is harder to get a flat. Singapore’s marriage rate has been steadily falling in recent decades, dropping from 57 per 1,000 unmarried males in 1994 to 42 in 2024. The HDB system has also been used by Singapore’s government to promote multicultural integration by setting limits on the proportion of different ethnic groups in the same estate. However, this policy has caused problems for some in the resale market by restricting potential buyers... Construction ground to a halt during the Covid-19 pandemic... Wait times to move into a property rose from three years to as many as six. As a result, more buyers turned to the resale market, where HDB owners can sell properties after five years of occupancy. This led to a sharp rise in resale prices, especially in more desirable estates.

6. FT has a long read on Latin America's rightward turn.

“Crime and violence is clearly the top concern of Latin Americans today,” says Jean-Christophe Salles, Latin America chief executive at pollster Ipsos. “It is the biggest concern in almost every country.” Some 55 per cent of Latin Americans name crime and violence as their prime worry, according to Ipsos data, against just 34 per cent worldwide. In Chile, the figure rises to 62 per cent. Fear of crime propelled arch-conservative José Antonio Kast to a landslide presidential election victory last month in Chile over a Communist opponent, Jeannette Jara. His broader rightwing message had failed in two previous elections, but this time he won by focusing on pledges to erect border fortifications, deport illegal migrants and reduce crime...

El Salvador’s President Nayib Bukele is the inspiration for many rightwing challengers across the region. His extraordinary success in transforming El Salvador from one of Latin America’s most murderous countries to one of its safest — albeit through mass incarceration and authoritarian rule — is firing up anti-establishment conservatives across the region just as it enters a major election cycle... Bukele’s newly built giant prison, the Centre for Confinement of Terrorists (Cecot), which has capacity to hold about 40,000 inmates, many detained indefinitely... Even Costa Rica, a country so peaceful that it decreed the abolition of its army in 1948, has been shaken by record levels of drug-related murders. Ahead of elections on February 1, its outgoing president, Rodrigo Chaves, appeared with Bukele to lay a foundation stone for Costa Rica’s own version of Cecot, a $35mn maximum security jail project with capacity for 5,100 prisoners... In Peru, which is set to go to the polls in April, leading presidential contender and former mayor of Lima Rafael López Aliaga is promising to fight what he calls “urban terrorism” with life sentences for serious crimes... In Mexico and Uruguay, leftwing incumbents are cracking down on violent crime to curry favour with voters.

7. The rising share of debt raising by hyperscalers (companies like Alphabet, Amazon, Meta, Microsoft, and Oracle) to finance their AI infrastructure rollouts.

8. What does the India-EU FTA mean for Europe?

9. Ed Luce has this description of the breadth of the Jeffrey Epstein network.

This includes the sitting US president and a previous one, big Wall Street figures, a network of Ivy League luminaries, Silicon Valley entrepreneurs, foreign government officials, Democrats, Republicans, a Maga influencer, a far left scholar, British and Norwegian royals, wives and girlfriends of powerful men, government lawyers, heads of law firms, movie directors and endless celebrities. Epstein’s network is an MRI of the establishment. The idea that anyone did not know about Epstein’s conviction as a sex abuser is absurd. Some people spurned his social approaches. Having been invited in 2010 to an Epstein dinner with Woody Allen and then Prince Andrew in New York, the magazine editor, Tina Brown, replied: “What the fuck is this . . .? The paedophile’s ball?” Brown’s reaction should have been everyone’s. So should that of Melinda Gates, the now ex-wife of Bill Gates, who stepped into Epstein’s home once and immediately regretted it. Alas, their reaction was all too rare.

10. Fascinating account of the egregiously one-sided US-Japan trade deal.

Proposed projects are screened for “strategic and legal considerations” by a committee of US and Japanese members, according to a joint MOU and a document prepared by Japanese officials. Projects are then sent to an investment committee headed by US commerce secretary Howard Lutnick, who chooses which proposals to send to the US president for approval. Donald Trump has the final say on which projects are “deemed to advance economic and national security interests”. Japan and its state-backed bank can delay or refuse to proceed but face potential penalties, including higher tariffs. Funds for approved projects — from JBIC or with guarantees from Japan’s insurance corporation — then flow into an SPV alongside “the provision of land, water, power, energy, offtake agreements, regulatory support, etc” from the US. Free cash generated by projects will be split equally until the Japanese loans are paid back, according to officials. After that, the US will receive 90 per cent. Officials believe Japanese companies outside the project can also make agreements with it separately, with terms negotiated that are different from the US-Japan split of cash flow... The way the agreement with the US is structured also means that if Japan delays or refuses to fund a project recommended by Trump, it could be liable for “catch-up” payments or an increase in tariff rates.

11. Elon Musk may have pulled off the biggest bluff of the century by merging SpaceX with xAI to create the most valuable private company at a combined valuation of $1.25 trillion. xAI, which had revenues in the low hundreds last year and is burning through $1 billion a month, was bought by SpaceX at an eye-popping valuation of $250 billion. Musk says that the move was needed to launch data centres into space, build factories on the moon and colonise Mars. Musk controls both the private companies, whose combined valuation has increased by over $1 trillion in 18 months. To pay for the deal, SpaceX will issue $250 bn in new shares, thereby diluting the existing shareholders.

This from the comments section sums up the deal

You set your own price for a company you own, sell it to another you own and, miraculously you can then leverage the hell out of it.

12. Thailand has become the sick man of Asia

South-east Asia’s second-largest economy has been stuck at about 2 per cent growth for the past five years, with its pivotal drivers of consumption, manufacturing and tourism all in decline... Making matters worse are prolonged political instability and frequent changes in leadership. The royalist-military establishment has been locked in a stand-off with reformist parties that have won the past two elections but have been blocked from power. Thailand has had three prime ministers in as many years... Signs of economic malaise are increasing. Banks worried about defaults are lending less, the property market is in its worst slump in three decades and headline inflation turned negative last year, signalling weak demand. Thailand’s stock market has been the worst performer in Asia over the past 12 months, declining 10 per cent in 2025 in local currency terms. The government has projected 2 per cent growth this year, but the IMF has forecast just 1.6 per cent, the slowest among major south-east Asian economies...

Manufacturing has been on the decline for years, weighed down by weak domestic demand, an influx of cheaper Chinese goods and intense competition from newer manufacturing hubs such as Vietnam. That has also taken a toll on Thailand’s once mighty auto sector. The country was a regional hub for car manufacturing but Nissan, Honda, Suzuki and others have shut down factories or scaled back production in recent years... Household debt-to-GDP is close to 90 per cent, among the highest levels in Asia, as wages have remained stagnant. And Thailand’s population has been shrinking for four years, with the birth rate hitting a 75-year low in 2025... Tourism, another economic engine, is sputtering and this has had a knock-on effect on retail, agriculture and hotel construction... Thailand recorded 32.9mn foreign visitors in 2025, a 7 per cent fall from the previous year and still below the pre-pandemic peak of 40mn tourists in 2019.

13. US federal debt is at pre-war highs.

14. With the purge of General Zhang Youxia and Gen Liu Zhenli, Xi Jinping has removed all the six members of the Central Military Commission (apart from himself), 35 out the 43 generals in leadership positions of the PLA.

15. Indian cities need much more buses.

While the Ministry of Housing and Urban Affairs recommends 40-60 buses per 100,000 people, India’s cities together have only about 47,650 buses, nearly 61 per cent of which are concentrated in just nine mega cities.

16. Primer on Project Vault, the $12 bn US program to procure and develop a reserve of critical minerals for civilian and other purposes through a public-private partnership involving the US federal government and US companies. 

Project Vault is a public-private partnership that will buy and store critical minerals and rare earth elements. These include gallium and cobalt, which are essential for modern technology and defence equipment. It will combine $1.67 billion in private seed funding with another $10 billion from the US government’s Export-Import Bank... Companies will make an initial commitment to buy materials later at a fixed inventory price. They will also pay some upfront fees. Based on these commitments, companies can give Project Vault a list of the materials they need. The project will then purchase and store those materials. Manufacturers will pay a carrying cost that covers loan interest and storage expenses.

16. Mihir Sharma has an excellent op-ed that raises the questions about the emerging international order arising from the US National Security Strategy released in December and the more recent National Defence Strategy. Both are anchored around an America First approach that narrowly defines its interests in terms of drug trade, energy security, immigration, etc. 

The rest of the world matters only as a market or as a source of certain raw materials that are not specifically available in the US. This is not a status-quoist view of the world, nor is it radical or aggressive. It is essentially defensive. US interests are defined far more narrowly than earlier, and are more localised. But they will be as aggressively and unilaterally defended as ever, perhaps more.

I'll blog on this in due course.

17. Some staggering numbers in the Big Tech capex plans announced this week, along with their quarterly earnings which have spooked the markets. 

Big Tech stocks sold off heavily after unveiling plans to spend $660bn this year on AI, as investors fret that the “breathtaking” capital expenditures are outpacing the earnings potential of the new technology. Amazon, Google and Microsoft are set to lose a combined $900bn in market value since filing their quarterly earnings over the past week... Along with social media giant Meta, their proposed outlay on data centres and specialised chips needed to train and run advanced AI models would mark a 60 per cent rise from the $410bn they spent in 2025 and a 165 per cent increase from $245bn in 2024... Even a 14 per cent boost to their combined annual revenue to $1.6tn was not enough to overcome the pessimism.

18. Big infrastructure deal in the UK, as Canadian pension fund majors CPPIB and Omers announced sale of their 34% and 33% stakes in Associated British Ports (ABP) in a deal estimated to value the UK's biggest port operator, owning 21 ports in the UK, at more than £10bn. ABP was taken private in 2006 by a group of investors including Goldman Sachs' infrastructure arm and Omers, for £2.8bn. Ownership has chaged over the years, with CPPIB taking stake in 2015, along with others like Singapore's GIC and Kuwait Investment Authority's Wren House Infrastructure. CPPIB manages C$777.5bn ($568bn) of assets and Omers manages C$141bn of assets.

Weekend reading links

1. Interesting points about the speed and scale at which the US national security state emerged.

The political unity and speed with which the postwar security state was constructed remains breathtaking. The US army in mid-1939 was smaller than Portugal’s; by the end of the second world war it was among the largest. In 1929, Henry Stimson, the US secretary of state, disbanded the US military cryptology agency with the endearingly optimistic assertion that “gentlemen do not read each other’s mail”, a sentiment resoundingly rejected with the creation of the CIA in 1947 and the National Security Agency in 1952.

2. Example of the deep dissonance between economists and how the economy functions.

In a 2016 survey of academic economists, not a single respondent said putting tariffs on China to encourage domestic production would be a good idea.

This was even as Donald Trump was about to start his war on Chinese imports, which has now become the norm through a bipartisan consensus.

3. Microsoft and other Big Tech chasing Nvidia.

Nvidia is now planning to announce the launch of its serverless API, Nvidia Cloud Functions, at its GPU Technology Conference to be held in San Jose in March, The Ken has learnt. In other words, Nvidia’s GPU users will no longer have to go through a third party’s middle layer of software—such as Azure’s development environment—to access cloud functions... cloud-service providers like Azure and AWS who derive quite a bit of their revenues from providing this layer.

4. The amount of VC funding aimed at semiconductor chip design in India is a tiny fraction of the total technology sector funding.

5. Important anecdote about the intergenerational disparity facing current generation of workforce entrants.

His paycheque of Rs 2 lakh a month is much more than what his father earned back in the day in real terms (assuming 6% average inflation over the years). His father, a banker then, had managed to feed a family of six for over three decades, educate his children, buy two plots of land, and hold a grand wedding for his daughter... Every morning, 31 year old Rajeev Sinha gets ready by 8, packs his suitcase, and heads for his clinic at Patel Nagar, a popular locality, in an auto-rickshaw. Later in the day, Sinha, a gastroenterologist, attends a few patients at nearby hospitals. He packs up by 8 p.m., and takes an auto-rickshaw to the upmarket locality, Boring Road, where his father runs a clinic. They then drive back home in his father’s car. “My parents were 30 by the time they had me. We had a car, too, by then. My mother’s a homemaker; so the house ran on my father’s income,” Sinha told The Ken over a phone call. “Today, I don’t have liquid savings worth even Rs 10 lakh. My investments are also not enough to get married.”

This is a sobering reminder about the housing affordability crisis.

Typically, personal-finance experts advise not to pay more than 20% of one’s monthly income as EMIs... If Goyal were to go by that, he should’ve ideally restricted his EMI to Rs 40,000. That would mean a maximum loan of nearly Rs 55 lakh, assuming an 8.5% interest rate for 30 years. Add to it the Rs 20 lakh he has saved up for the downpayment and the cost of the property shouldn’t be more than Rs 75 lakh. Surprise, surprise. “Finding a new three-bedroom flat in Hyderabad for Rs 75 lakh is almost impossible,” said Govinda Bhul, a real-estate broker in the city. “Some projects in the outskirts may have [such properties] but only if the construction is yet to begin. Prices shoot up as construction progresses.” Forget buying a new house. Finding even second-hand apartments for that budget is a tough task, said Bhul who’s been in business for a decade...

Brokers across Mumbai, Gurugram, Delhi, and Noida would probably scoff at the idea of buying a three-bedroom flat for Rs 75 lakh. But just 10 years ago, one could find such properties in certain pockets of Mumbai, the country’s most expensive real-estate market. India’s nominal GDP has grown by 80% and nominal income by nearly 130% in the period since, but that hasn’t been enough to keep up with the real-estate run. Now, you can either live in expensive, high-rise societies or be relatively unsatisfied with your home “because you can’t afford what you really want,” said Jayati Ghosh, former economics professor at Delhi’s Jawaharlal Nehru University... the average residential rents in India’s top eight cities—Delhi NCR, Bengaluru, Mumbai metropolitan region, Hyderabad, Ahmedabad, Pune, Chennai, and Kolkata—have gone up by nearly 30% in the last two years... And Noida, Greater Noida, and Bengaluru have seen rents rise by over 40%.

So what's driving the price increases?

“With the entire ‘luxury’ tag, investors believe everything will be sold, no matter the price. So, when a project is announced, they buy it to eventually sell at higher prices,” said a senior executive at JLL India, a real-estate-services firm. “They believe that the top 1% will buy everything, and so, they don’t want to lower the prices.” Rising land and construction costs are equally to blame, it seems. The profit margin of a three-bedroom flat is nearly 30% more than that of a two-bedroom one, according to a Gurugram-based developer. “It keeps going up as the size [of the property] increases. So it makes business sense, too.”

6. Adam Tooze points to the spectacular surge in Big Tech capex.

7. Stunning graphic on the secular decline in US manufacturing employment from a paper by Michael Strain (HT: Adam Tooze).

8. Changes in the occupational structure of the US labour market over the last century and a half (HT: Adam Tooze)

9. The application of weight-loss drugs creates another market.

... many dermatologists report that patients are seeking out treatment for so-called “Ozempic face” in regions where there is a higher penetration of drugs using GLP-1s such as the Middle East and North America. “If they lose eight to 10 kilos or more, they start showing facial sagging,” said Ørnskov. “There, people will need to use a filler.” Galderma’s most popular filler for weight loss drug users is a product called Sculptra, which was initially developed for HIV patients who experienced rapid weight loss, he added. At its initial public offering in March last year, Galderma raised approximately SFr2.3bn ($2.7bn) at a price of SFr53 a share. Shares in the company have more than doubled to SFr108.50 a share. Galderma’s net sales grew 9.2 per cent to $3.2bn in the nine months to September 2024, driven by its two largest divisions, dermatological skincare — which includes everyday skincare brands like Cetaphil — and aesthetic injectables. Its third prescription treatment division, has lagged behind, with sales growing 2.9 per cent in the period.

10. Excellent article with very good suggestions to reform excise taxes on alcohol.

In most parts of the world, especially in the richer and more developed OECD countries, policy levers like excise tax rates and controls on availability and marketing are adjusted according to beverage type and strength, to promote the production and consumption of lower alcohol-strength beverages, which in turn helps reduce alcohol-related harm at the population level. Such differentiation has been used to regulate alcohol around the world for centuries, including in the UK since the 18th century, Denmark since 1918, the United States since 1933, and in all EFTA Members, and all EU Members. Alcoholic beverages contain alcohol and water in different proportions, but people buy an alcoholic beverage for the alcohol it contains and not the water. If the taxes are on the basis of value or volume of the beverage, then in effect the consumers are paying tax not only on alcohol but also on water which, in the case of beer, is 93-95 per cent of the liquid in the bottle. That surely does not make sense. The UK reformed its alcohol tax structure in 2023 to make it simpler and more economically rational. Under the new system, all categories are taxed based on alcohol strength, so the higher alcohol by volume (ABV) products pay more tax per unit of alcohol than lower ABV products...

The state governments in India need to create clear daylight between excise policies for products with high alcohol content like liquor and that for milder options like wine and beer on taxation, availability and licensing. Taxation on an alcoholic beverage needs to be linked directly with the amount of alcohol it contains in as simple a manner as so many Rs per ml of actual alcohol content (Rs per ABV). Further, beer and wine licences should be liberalised to make these products far more easily accessible to consumers than hard liquor. To protect existing excise revenues, a good starting point would be a tax neutral position for liquor and then recasting of tax rates for wine and beer. This would deliver the ‘revenue positive substitution’ of harmful alcohol with less harmful alcoholic options, thus delivering both revenues and public health outcomes.

10. Content deluge in the media world

India now has over 900 channels, thousands of newspapers, and over 860 radio channels. We make more than 1,600 films in a normal year. Then streaming took off in 2018. The deluge became a flood. With more than 60 video streaming apps and a dozen music streaming ones, there is now an obscenely rich spread on tap... YouTube alone uploads 500 hours of video every minute.

And what does this mean and the challenge it poses?

One piece of research says that heavy screen users have an attention span of 8 seconds. That is less than that of a goldfish, which is famous for its 9-second attention span. How could you possibly tell any story or sell any product to this consumer?

11. Impressive numbers from Tata Electronics

Tata Electronics — which acquired Wistron’s iPhone facility in Narsapura, Karnataka, for $125 million in October 2023 — has significantly ramped up operations since mid-2024. The plant’s annual production soared to over Rs 40,000 crore during the January–December 2024 period — a 180 per cent surge compared to Rs 14,300 crore in the previous year. This performance positions the Tatas as responsible for 26 per cent of the total iPhone production in India, where Apple’s other vendors include Foxconn and Pegatron. During the year, Tata Electronics recorded a 63 per cent increase in direct employment at its iPhone assembly operations, with the workforce expanding to 31,000 from 19,000 in 2023. This growth elevated its factory to the position of India’s second-largest iPhone manufacturing facility in terms of direct job creation...

The factory now accounted for 17 per cent of the total direct employment generated across Apple’s iPhone ecosystem in India (185,000 workers as of 2024), which encompasses assemblers and component suppliers. By comparison, the largest factory, operated by Apple vendor Foxconn in Tamil Nadu, employed over 42,000 workers at its peak. Exports also surged, with over 77 per cent of the factory’s output shipped overseas in 2024. The export value for the year exceeded Rs 31,000 crore, up 125 per cent from Rs 13,751 crore in 2023. Tata’s contribution accounted for 29 per cent of India’s total iPhone exports in 2024... Of 31,000 workers directly employed by the Karnataka facility, 22,000 are women, most of whom are first-time job seekers aged 19–24. Over the past four years, the factory has consistently expanded its employee base; the previous year, it was in the 17,000–19,000 range.

12. Ruchir Sharma spots an important difference between politics in the developed and developing countries. 

Last year, incumbent parties lost 85 per cent of the elections in developed countries, up from 25 per cent on average in the early 2000s. In developing countries, the mood shifted the other way. Incumbents lost around 25 per cent of the elections in 2024, down from 50 per cent in the early 2000s. Opinion polls tell the same story: the share of respondents who approve of their leader has fallen to near 30 per cent in developed countries, while holding steady above 50 per cent in developing countries.

There are important departures in areas like inflation, immigration, inequality etc., between the two parts of the world.

By 2024 in the US the price of eggs, for example, was still 200 per cent higher than before the pandemic — compared with about 50 per cent higher in India and Indonesia. Even after adjusting for that broader surge in inflation, home prices were up 17 per cent in developed countries, versus just 3 per cent in developing ones, which helps explain why unaffordable housing is stoking strong anti-incumbent sentiment in the US and UK. Meanwhile, the surge in immigration had become a burning election issue in the west but not in developing countries, which are largely departure points rather than destinations for immigrants... Since 1980, the income share of the top 1 per cent has more than doubled in the US to 21 per cent, while inching up just 3 points to 18 per cent on average in the major developing economies. Most strikingly, Mexico is one of the few countries where the income share of the 1 per cent is falling... only about 20 per cent of Americans express trust in government, down from a peak above 70 per cent in the 1960s. In developing nations, trust is ticking up on average, lifted in the past decade by huge gains in nations where incumbents won last year. Nearly 50 per cent of Mexicans and over 70 per cent of Indians and Indonesians now express trust in their government.

13. Strongman leader, President Nayib Bukele of El Salvador. Now on his second five year tenure after a landslide win, he's among the most popular leaders in the world after almost eliminating violent crime, investing heavily in infrastructure, and generally boosting economic growth by promoting the likes of surfing tourism. These successes appear to have come at a cost, with 107,000 Salvadoreans among a population of just 6.3 million being in prisons. His support for bitcoins, which the country adopted as legal tender and made part of reserves in 2021, has made him a darling for western conservatives who see El Salvador as a model for emulation. 

14. Is India's tech sector undergoing a revival?

15. Initial results from New York's congestion pricing scheme are hugely encouraging.

Morning rush-hour speed from New Jersey through the Holland Tunnel, a main route under the Hudson River into Manhattan, has almost doubled to 28mph compared with a year earlier. Evening speed over the Manhattan Bridge to Brooklyn has increased from 13mph to 23mph... Most passenger cars entering the zone now pay a $9 toll, while trucks pay $14.40 and motorcycles, $4.50. Some autos, including emergency vehicles, are exempt. The scheme means New York joins London, Milan, Singapore and Stockholm in a small club of big cities with congestion pricing. Traffic in London, which introduced its programme in 2003, dropped by 14 per cent in its zone in the first year. Other cities experienced drops of more than 20 per cent... Of eight bridges and tunnels examined, seven experienced significant acceleration in at least one rush hour. Three bridges into Manhattan that are not connected to the congestion zone did not experience similar speed increases.

This is an interesting behavioural response.

Lewis Lehe, an assistant professor of civil engineering at the University of Illinois Urbana-Champaign, has found that drivers in other cities with congestion pricing respond more dramatically to the introduction of a toll than to later price increases — an idea he refers to as “large elasticity at introduction”.

Congestion pricing has already triggered market responses, nowhere more striking than in the restaurant industry which is one of Manhattan's great attractions. 

Jae Jung, the owner of Kjun in Murray Hill, said Friday that her produce, meat and fish vendors had announced new surcharges on each delivery. Because her restaurant is small and has limited storage space, she said, she receives deliveries three or four times a week, and will try to consolidate those into one or two... Several restaurateurs have jumped at the chance to appease and attract customers, offering rebates and discounts. Le Jardin Bistro, on the Lower East Side, Mr. Mehta’s restaurants and the Sushi by Bou omakase chain are offering a $9 discount on each check to customers who have paid the driving charge.

Weekend reading links

1. Interesting snippet about the investments and profits of car companies and Apple.

Ford and Apple each maintain $40bn or so in fixed assets and spend $8bn-10bn a year on capital investments. Yet in 2023 the iPhone-maker raked in more than twice Ford’s revenue and 23 times its net profit. Even if you add its $30bn in research and development (R&D) costs to its capital expenditure, Apple is matched by Volkswagen and Toyota, the world’s two biggest carmakers, neither of which sells as much. As a share of revenue, Apple’s combined R&D and capital spending, at 10%, is dwarfed by that of BYD, China’s EV champion, which last year spent 27%.

This about HP's outsourcing strategy

In 1993 Hewlett-Packard, then one of the world’s biggest makers of computer hardware, began outsourcing the production of its pcs, printers and servers. By 2000 virtually all its computers were made by third parties. In that period HP increased its revenues from $20bn to $49bn. It pulled this off while barely growing its fixed-asset base and nearly halving the share of sales going on R&D and capital expenditure, from 16-18% in 1988-92 to 9% by the end of the decade. Its global workforce shrank from 96,000 to 88,500. Net profit more than trebled. Return on equity improved from 12% in the early 1990s to an average of 19% between 1994 and 2000.

2. Johanna Deeksha has an excellent story that describes how SC/ST students who are awarded National Overseas Scholarships to pursue master's education abroad struggle with inadequate funding, procedural obstacles and delays in disbursements, and unreasonable conditionalities. 

The article is symptomatic of design problems with government schemes. One, in order to maximise coverage with a small pot of money, departments tend to spread the butter thin, thereby skimping on the unit allocation (in this case scholarship amount and the specific things to which it can be used). Second, the implementation is designed to primarily minimise the likelihood of fraud and wastage, even if it trades off against ease of access and service quality. Three, programs try to achieve multiple objectives, in the process struggling and failing with all objectives.

This is true of any program that provides government financing to individuals, companies, and organisations. The funding is inadequate at the unit-level, access is very difficult, and conditionalities are onerous. 

3. The Economist has a long read on the Space X phenomenon. Last week Space X's booster rocket, Starship, returned back to the launchpad after delivering several satellites. Space X already offers satellite-based internet services, Starlink, using over 6400 satellites located at low earth orbits (three-fourth of all satellites currently active) and is valued at $180 bn. Starship is an advanced version of Starlink's Falcon rockets that have already disrupted satellite launches by making space flight much cheaper and the rockets partially reusable. Unlike Falcon, Starship is almost fully reusable, have low turn-around times, and can put almost 150 tonnes into orbit far more than the 18 tonnes of Falcon 9. 

In the first quarter of this year the firm shot almost seven times as much into orbit as all its rivals put together, be they private firms or national space programmes.

Despite Starship’s enormous size, it is intended to be cheaper than a Falcon, too. SpaceX charges $70m to launch a Falcon 9. It hopes to drive down the cost of a Starship launch to $10m. The eventual goal is to transform the rocket business into something more like the aircraft one, via the mass production of a vehicle that is designed to be refuelled quickly and flown again and again. Mr Musk’s aspiration is that the “Starfactory” that SpaceX is building at its headquarters in Texas will churn out a new Starship every day, and that the firm’s fleet of them will fly hundreds or even thousands of times a year.

Space X threatens to upend the telecommunications market.

Its distinctive white antennae have popped up everywhere from remote schools in the Amazon to the bunkers and trenches on the front lines of the war in Ukraine... Traffic through its networks has more than doubled in the past year, as SpaceX has signed deals with cruise lines, shipping firms and airlines. Modelling by Quilty Space, another firm of analysts, suggests that Starlink’s revenue will hit $6.6bn this year, up from $1.4bn in 2022. That is already 50% more than the combined revenue of ses and IntelSat, two big satellite-internet firms that announced a merger in April...

Using satellites to provide internet access is not a new idea. Such firms as Hughes, ses and ViaSat already offer exactly this service, bouncing signals from subscribers back down to ground stations and on to the wider internet. But they rely on small numbers of satellites mostly in high orbit. That allows a single satellite to see a large portion of Earth’s surface and thus to serve many customers at once. Unfortunately, flying so high also means that signals take a noticeable amount of time to get up to the satellite and back down to Earth. That makes remote working, video calls and online gaming a pain. And having lots of people share one satellite risks congestion. For that reason... satellite internet has been seen as a last-resort option, useful only when nothing better is available. 

Starlink’s satellites fly in very low orbits, around 500km up. That slashes transmission delays, allowing Starlink to offer a connection similar to ground-based broadband. The trade-off is that each satellite can serve only a small area of Earth. To achieve worldwide coverage you therefore need an awful lot of satellites... SpaceX has firm plans to deploy 12,000 satellites, and has applied to launch as many as 42,000... One consequence of the satellites’ low orbits is that each has a lifetime of only around five years, before the tenuous atmosphere at that altitude drags it below orbital velocity. To maintain a constellation of 40,000-odd satellites would require replacing about 8,000 of them a year. Cheap launch costs are not the only secret of Starlink’s success. 

Vertical integration helps, too. SpaceX makes its own satellites and the high-tech antennas it sells to its customers... by making so many satellites and antennas, the firm can drive unit costs down... each antenna cost the firm around $3,000 to make in the early days... Last year SpaceX said it had managed to drive the cost of production below $599, the price at the time... A system made of thousands of comparatively small satellites rather than a handful of big ones can also be more easily tweaked and upgraded. Starlink’s newer satellites, for instance, sport laser links that allow them to talk to each other directly. That allows traffic to be routed between satellites before it is sent back down to Earth. That should limit the number of ground stations that Starlink needs to build—an important saving.

People living in remote areas, unconnected by terrestrial networks, governments for security purposes, shipping and cruise lines, airlines, and mines in remote areas, are among the likely customers for Space X's services. It currently charges a household $120 per month, clearly unaffordable for the vast majority of unconnected people across developing countries. 

4.  US Big Pharma tax avoidance fact of the day

In 2023, seven of America’s largest pharmaceutical companies reported losing a combined $14 billion on their US operations while earning $60 billion abroad. The absence of reported profits in the US translates directly into a loss of federal tax revenues.

5. Good read in Scroll.in on how DBT for school uniforms and textbooks introduced in Bihar in 2017 and withdrawn in 2021 not only struggled to make an impact but left students worse off.

6. Andy Mukherjee writes about the Hyundai Motor Company's IPO, India's largest ever,

Hyundai’s parent offered to sell as much as 17.5 per cent of its local unit not because anyone twisted its arm. The Korean firm did it to take advantage of India’s sizzling valuations. Suzuki Motor Corp. is worth $20 billion on the Tokyo stock exchange. Its Indian unit, in which the Japanese automaker owns a little over 58 per cent, has a market capitalization of $45 billion in Mumbai. Hyundai’s compatriot LG Electronics Inc. is also reported to be preparing for a potential IPO of its Indian unit. Whirlpool Corp., the American home-appliances giant, has already offloaded 24 per cent of its unit headquartered in Gurgaon, near New Delhi... Family-controlled enterprises account for 75 per cent of India’s GDP. But while a few of them have created enormous shareholder value, many more have destroyed wealth with impunity. Multinationals, generally more conservative with their investments, do reward investors: Hindustan Unilever Ltd. paid out 96 per cent of its last full-year profit. ITC Ltd., formerly Imperial Tobacco Co., distributed 84 per cent of its earnings as dividends.

7. Debashis Basu points to some trends about the Indian economy.

Growth in collection from goods and services tax (GST) fell to 6.5 per cent, its lowest level in 40 months. At 6.5 per cent, GST collection barely tracked inflation, which means there was no volume growth. The trade deficit widened to $29.7 billion in August from $24.2 billion a year earlier. India’s merchandise exports, its weakest spot and a tell-tale sign of India’s poor competitiveness, declined to $34.7 billion in August from $38.3 billion in the same month last year. The annual gross domestic product (GDP) growth rate is down from 7.8 per cent to 6.7 per cent. The index of industrial production (IIP), which tracks the output of eight core industries, such as coal, oil, and electricity, was negative in August for the first time in three years. In September, car sales fell by 19 per cent over the same period last year...

The PMI hit an eight-month low at 56.5 in September from 57.5 in August. The services PMI fell to 57.7 points in September to hit a 10-month low; it was 60.9 points in August 2024. Home loan disbursement was down 9 per cent in the first quarter, auto loans were up 2 per cent, and personal loans increased just 3 per cent. Credit disbursement by fintechs is stagnant. In April-August, diesel sales rose just 1 per cent year-on-year (Y-o-Y). A slowdown seems to have set in.

8. The Great Latin American Stagnation.

Income in the pink tide nations of Mexico, Brazil, Colombia, Chile and Peru is on average around a quarter that of the US, having gained no ground over the past 10, 50 or even 150 years.

9. The US VC industry facts of the day

New VC investments rising from $100 billion in 2014 to a peak of $700 billion in 2021. Today, new investments are around $350 billion — while this is half of the peak, it still represents a historically healthy level of investment. The issue is more with exits, which have collapsed to less than $75 billion per year in the US after peaking at over $700 billion 2021. Exits are down as private equity interest has been subdued due to higher rates, and the tougher regulatory regime in both the US and the EU makes it difficult for large technology behemoths to buy smaller startups. The initial public offering (IPO) market for new technology listings has also collapsed. Amazingly, since calendar 2022 onwards, there have been only 14 technology listings in the US, averaging fewer than six per year... Founders today can execute large secondary sales of their private stock to VCs and growth equity firms, ensuring liquidity not only for themselves but also for seed investors and employees... 

Many funds are still stuck with high-flying IPOs they bought in the last few years, which are still trading below issue price. If we look at the record of all technology IPO listings in the US since 2020, they have, on net, destroyed $140 billion in market value, with the median IPO down 40 per cent from its offer price. Thus, we have today almost 1,500 unicorns (unlisted companies with valuation over $1 billion), there are more unlisted technology companies with a valuation of greater than $1 billion than listed tech companies! This is an IPO backlog of over 25 years! Obviously, many of these companies will never list, nor are they actually worth billions. Due to the continued high rate of VC investment and very poor exits, the industry is today running a record cash negative, with the lowest distributions back to their investors on record. This has not always been the case; from 2010 to 2021, cash flows were positive every year except one, meaning the industry paid back to investors more than it invested. These record low distributions are creating a cash flow squeeze for many of the endowments, foundations, and pension plans that have historically been the largest investors into VC.

10. AK Bhattacharya has some useful datapoints on India's laudable tax revenues trajectory over the last quarter century.

According to an analysis by the Central Board of Direct Taxes (CBDT), the share of direct taxes in gross domestic product (GDP) in 2023-24 rose to a 24-year high of 6.64 per cent. In 2000-01, this number was about half, at 3.25 per cent... the decline in the share of indirect taxes in GDP... from 5.62 per cent of GDP in 2000-01, the share of indirect taxes fell to 5.11 per cent in 2023-24. The Union government’s gross tax collection efforts, therefore, rose from 8.8 per cent of GDP in 2000-01 to 11.7 per cent in 2023-24. Not only did gross tax collections maintain a steady growth rate in this period, but their composition also got better, with direct taxes accounting for 57 per cent of gross collections last year, up from about 36 per cent in 2000-01... The Centre’s annual expenditure at over 18 per cent of GDP was quite substantial in 1990-91. Over the last 34 years, this share has declined to about 15 per cent of GDP. The ability to have squeezed government expenditure even as the size of the economy kept rising has not received adequate appreciation... In 1990-91, the share of capital expenditure was relatively high at over 5.5 per cent of GDP and revenue expenditure accounted for 12.8 per cent of GDP. Worryingly, capital expenditure saw a steady fall over the next three decades and by 2019-20, its share in GDP fell to as low as 1.67 per cent of GDP... Barring the Covid year of 2020-21, when subsidy expenditure rose to a record level of 3.8 per cent of GDP, the outgo on subsidies has seen a southward turn, reaching a level of 1.5 per cent of GDP in 2023-24... The Centre’s efforts at collecting non-tax revenues have been sub-optimal. Last year, they were estimated at 1.36 per cent of GDP, down from a record high of 2.93 per cent in 2001-02.

11. It's reported that TSMC has achieved four percentage points higher production yield in its 4 nm chip production facility at Arizona, marking a major achievement for the chip maker in its efforts to establish chip manufacturing in the US. 

The latest yield advancement is notable for TSMC because it has historically kept the most advanced and efficient plants in its home island of Taiwan. Its Arizona site got off to a rocky start, as the company couldn’t find enough skilled staff to install advanced equipment and workers struggled with safety and management issues. TSMC reached an accord with construction labor unions late last year. The chipmaker originally planned to have its first Arizona plant start full production in 2024, but pushed back the target to 2025 over the labor issues. It later delayed the start date for its second fab to 2027 or 2028, from an initial target of 2026. That fueled concerns that the company might not be able to make chips in the US as efficiently as in Taiwan.

12. Business Standard points to a troubling trend with corporate income in India. 

For the corporate sector, the share of passive income has increased from 16.6 per cent in AY 2016-17 to 30.7 per cent in AY 2023-24. This sharp rise is primarily driven by increases in long-term capital gains and other incomes. Between AY 2016-17 and AY 2023-24, income from business for companies has increased at an average rate of 14 per cent per annum, significantly lower than 35 per cent growth reported for long-term capital gains. The surge in capital gains and in incomes from other sources for corporations could indicate a shift in corporate preferences in favour of financial investments, rather than physical or what are often referred to as productive investments. The sharp increase in stock market valuations during this period — average annual growth of over 12 per cent — alongside muted demand for goods and services attributable to economic shocks could induce such a shift. Poor recovery in private capex in the post-Covid period seems to reflect the challenges of this new evolving scenario. An issue of concern in this emerging context is whether a sustained bull run in the capital markets could act as a hurdle to encouraging real sector investments in the economy.

13. Finally, Yuval Noah Harari has a good oped in FT about AI algorithms ruling the world. The article has a nice description of how writing was transformative.

Consider, for example, the impact that written documents and the bureaucrats who wield them have had on the meaning of ownership. Before the invention of written documents, ownership relied on communal consensus. If you “owned” a field, it meant that your neighbours agreed it was your field, through both their words and actions. They didn’t construct a residence on that field, and didn’t harvest its produce, unless you allowed them to. The communal nature of ownership limited individual property rights. For example, your neighbours might have agreed that you had the sole right to cultivate a particular field, but they did not acknowledge your right to sell it to foreigners. At the same time, as long as ownership was a matter of communal consensus, it also hampered the ability of distant central authorities to control the land. In the absence of written records and elaborate bureaucracies, no king could remember who owned which field in hundreds of remote villages. Kings therefore found it difficult to raise taxes, which in turn prevented them from maintaining armies and police forces. 

Then writing was invented, followed by the creation of archives and bureaucracies... Ancient Mesopotamian bureaucrats used little sticks to imprint signs on clay tablets — which were basically just chunks of mud. But in the context of the new bureaucratic systems, these chunks of mud revolutionised the meaning of ownership. Suddenly, to own a field came to mean that it was written on some clay tablet that you owned that field. If your neighbours had been picking fruit there for years, and none of them ever said that piece of land was yours, but you nevertheless managed to produce an official chunk of mud that said you owned it, you could enforce your claim in court. Conversely, if the local community acknowledged that you owned a field, but no document gave it an official stamp of approval — then you didn’t own it. The same is still true today, except that our crucial documents are written on pieces of paper or silicon chips instead of on clay. Once ownership became a matter of written documents rather than communal consent, people could begin selling their fields without asking permission from the neighbours. To sell a field, you just transferred the crucial clay tablet to someone else. But it also meant that ownership could now be determined by the distant bureaucracy that produced the relevant documents, and perhaps held them in a central archive. The path was opened for levying taxes, paying armies and establishing large centralised states. The written document changed how power flowed in the world, and gave enormous clout to bureaucrats such as tax-collectors, paymasters, accountants, archivists and lawyers.

He points to the prospects of this world

In the coming years, millions of AI bureaucrats will increasingly make decisions about the lives not just of lions, but also of humans. AI bankers will decide whether to give you a loan. AIs in the education system will decide whether to accept you to university. AIs in companies will decide whether to give you a job. AIs in the court system will decide whether to send you to jail. Military AIs will decide whether to bomb your home.

Weekend reading links

1. Latest PISA results points to significant learning losses from Covid 19 pandemic across the world. 

One interesting finding is the relative decline of Finland's standards

Some of the largest declines in both equity and overall attainment occurred in Finland, once regarded as one of the more successful European education systems. Learning loss since 2018 was almost three times the OECD average in reading and four times higher in science, but educational outcomes in the Nordic country were deteriorating even before the pandemic. Andreas Schleicher, director for education and skills at the OECD, says this was because Finland relaxed its academic expectations for students... There have been significant changes to the Finnish education system in recent years, with traditional subjects scrapped in favour of an approach called “phenomenon-based learning” that requires students to draw on multiple subjects to solve problems. It is also unusual in having no standardised national tests, aside from the matriculation exam at the end of secondary school for students applying to university.

Estonia has emerged as the new model, though its approach may be hard to replicate in larger countries.

Estonia’s education minister, Kristina Kallas, says its community-based system that hands schools considerable autonomy over resources and curriculum is hard to replicate in other European countries. But there are successful practices in Estonia that can be replicated elsewhere. “The common aspects of [successful systems] are teacher competence and autonomy, and the student mindset . . . to aim high and work hard,” she says. Although children start school aged seven, later than in most other developed economies, most benefit from Estonia’s high-quality pre-school system where teachers are required to have a bachelor’s degree. Almost 90 per cent of children are enrolled in pre-school for at least three years, compared with the OECD average of 57 per cent. “[Children] have very affordable and accessible pre-school. It’s still mostly play and developing social skills, but it is a pedagogical approach and we have high quality requirements,” says Kallas.

2. China's consumer price inflation falls by 0.5 percent year on year in November, following 0.2 per cent decline in October. Producer prices have been on the negative territory for the past year. 

This comes on the back of a decision by rating agency Moody's to cut the country's sovereign credit rating to negative citing growing risks of persistently lower midterm economic growth and overhang from property sector crisis. 

3. China EV manufacturing facts of the day

More than 1.5 million people now work at dozens of electric vehicle companies in China and their suppliers. The largest of them, BYD, has 570,000 workers, compared with 610,000 worldwide for Detroit’s Big Three combined.

4. Argentine President Javier Milei will struggle to implement dollarisation in an economy struggling to survive and with no foreign exchange reserves. 

Argentina’s economy is in its most fragile state for two decades, with annual inflation running above 140 per cent. The central bank has exhausted its foreign exchange reserves, leaving businesses unable to buy the dollars to settle some $60bn worth of debt with foreign suppliers, and the government is at risk of going into arrears on its $43bn programme with the IMF, which Milei will need to renegotiate. Interest payments are spiralling on a pile of more than $20bn in short-term liabilities issued by the central bank to local financial institutions to mop up an excess of pesos in circulation.

In the meantime Milei's government has made his first major economic policy announcement to devalue the Peso by half, slash public spending, and reduce energy and transport subsidies.

The new government would move the official exchange rate to 800 to the dollar from levels just below 400 last week. Banks had already anticipated a sharp devaluation, but the new official level for the dollar was still some way below the black market rate of 1,045 on Tuesday. Federal budget transfers to the provinces would be cut to a minimum and all new public works projects halted, the minister said... Caputo also announced a temporary rise in taxes on imports but promised to scrap the existing system of government permits for imports. Export taxes, which are hated by Argentina’s powerful farming lobby, will be removed once the economic emergency is over. To offset the impact of the cuts on the more than 40 per cent of Argentines living in poverty, Caputo said the value of the government-provided food card would rise by 50 per cent and child benefits would double. The budget for one of Argentina’s largest welfare programmes, Potenciar Trabajo, would be frozen at 2023 levels.

5. Staying on in South America, in case you missed it in an extraordinary referendum, Venezeulans have voted overwhelmingly to claim rights over Guyanan territory. More than 10 million people voted with atleast 95% support in the referendum that the oil rich Guyana Esequiba region, which makes up 60% of Guyana, should become a Venezuelan state. And days after the vote, Venezuelan President Nicholas Madura ordered the state-owned companies to grant licenses for oil exploration in Essequibo.

6. Remarkable that profit margins of corporates in the US have spurted during the post-pandemic period. In fact, interesting that net profit margins of US S&P 500 companies have been rising steadily since 2010, even as labor wages have been relatively stagnant. 

Big companies that had previously pushed through one standard price increase per year are now raising prices more frequently. Retailers increasingly use digital price displays, which they can change with the touch of a button. Across the economy, executives trying to maximize profits are effectively running tests to see what prices consumers will bear before they stop buying... For big companies in the S&P 500 index, the average profit margin — the percentage of profit relative to revenue — soared in late 2020 and into 2021, as government stimulus and the Federal Reserve’s emergency interventions stoked consumer demand. At the same time, companies raised their prices so much that they more than covered higher costs for energy, transportation, labor and other inputs, which have recently started to come down.

Corporations as varied as Apple and Williams-Sonoma recently reported their highest-ever margins for the third quarter, while Delta Air Lines said its international routes generated record profitability over the summer... Average margins in nearly every sector in the S&P 500 are running near or above 10-year highs, according to Goldman Sachs.

It's also interesting that this accompanies a subtle shift in strategy by companies from chasing growth (which often entailed competing aggressively to lure customers) to focusing on margins.  

7. Andy Mukherjee points to the emerging Reliance-Sony duopoly in India's television and streaming market.

8. Fascinating long read in FT on Japanese savers who have over a three-decade span of near zero interest rates and having been scarred by the stock market crash of the late eighties preferred to save in currency and cash deposits over equities or real estate, but are now facing the prospect of higher interest rates on the back of inflation which has now spend more than 18 months above the BoJ's 2% target rate. 

Even after 30 lean, post-bubble years, Japanese households hold ¥2.1 quadrillion ($14.7tn) of financial assets, of which more than half ($7.7tn) is held in cash and deposits. By contrast, households in the US and UK respectively hold 13 and 31 per cent in deposits. In national terms, Japan’s cash savings alone are equivalent to the combined annual gross domestic product of Germany and India. In corporate terms, Mrs Watanabe could buy Apple, Microsoft and Saudi Aramco with what she has sitting (earning almost zero interest) in the bank. When prices in Japan were stagnant or falling, as they were for most of the past 25 years, Mrs Watanabe’s preference for holding the majority of savings in cash was reasonable, especially so after the government guaranteed bank deposits in 1995. The central bank’s long experiment with ultra-low interest rates, which began in the late 1990s, meant she was not making any returns, but nor was her wealth being significantly eroded as long as Japanese companies held back from raising prices. But as more and more Japanese companies have broken ranks and raised prices in the past couple of years, Mrs Watanabe has arrived at a pivotal moment...

After years of failed efforts to coax that exact switch into investment, the Japanese government has created an unprecedented inducement. From January 2024, a dramatically expanded version of the Nippon Investment Savings Account, or Nisa, will offer a remarkable lifetime tax exemption for individuals’ equity investments. They have also raised the limit on both annual contributions from ¥1.2mn to ¥3.6mn and the cumulative limit from ¥6mn to ¥18mn. If the ploy works, it will begin to offset an aversion to stocks that has bedded-in since the collapse of the 1980s stock bubble. Japanese households hold just 24 per cent (17 per cent direct and 7 per cent through their pensions) of their assets in equities — far lower than the 54 per cent in the UK and 75 per cent in the US. That sets up, over the coming weeks and months, one of the biggest questions ever asked of the Tokyo stock market, its constituent companies and of Mrs Watanabe. Are savers about to become serious, price-moving retail investors in a domestic Japanese stock market that they have long shunned like a casino? Even a relatively moderate positive answer and a mere 2 per cent reallocation of assets, say analysts at AllianceBernstein, could produce $150bn of inflows into equities. If that happened, it would be market moving, say brokers. Inflows of less than half of that from foreign investors triggered a rally of more than 25 per cent in the Topix this year...

In the 1970s, Japanese individuals owned 40 per cent of the Japanese stock market. After stocks peaked and then crashed in the late 1980s and early 1990s, that ratio began to sink towards its current level of just 17.6 per cent.

It's interesting that many companies are bundling "shareholder benefit schemes" - offers of food products, cash equivalent prepaid cards and other perks - along with share ownership. Supermarket chain Aeon, who shares are very popular, distributes benefit cards with store discounts, and Oriental Land offers a one-day passport to Tokyo Disneyland! 

9. Bloomberg article on Salesforce's marketing and sales focus 

Salesforce built an army of cheerful young people who spent a lot of their time checking in and hanging out with customers such as Amazon, PayPal, Spotify and Uber. The company’s “customer success” teams functioned as in-house consultants for clients, helping them set up applications and use new features—a service that consulting companies could have charged many thousands of dollars more for. “We recognized the more successful the customers are with your technology, the higher likelihood they’re going to spend more money with you going forward,” says Brian Millham, who joined Salesforce more than two decades ago as one of its first salespeople and now serves as chief operating officer.

The bet worked. Salesforce was bringing in $1 billion a year in revenue by 2009 and $26 billion by 2022. Some of that came from increased demand for its CRM software, but most of it came from selling leases for new tools, often ones Salesforce acquired. The 2013 purchase of ExactTarget gave the company a marketing product so Salesforce clients could email everybody who might have browsed, say, a pair of shoes on their site; Demandware, purchased in 2016, brought a tool for building those e-commerce sites. Salesforce has bought nearly 70 companies since its founding in 1999. One of its largest acquisitions, MuleSoft, gave Salesforce the means to stitch all these different software platforms together.

10. Two nice long reads in The Economist on UAE and London. Both have, in different ways and over differing time periods, proved how countries and cities can adapt to changes. UAE, with just 1 million citizens out of a total population of 10 million, has sought to diversify its economy away from oil and has done so successfully. It competes with Hong Kong and Singapore in attracting businesses and high networth individuals.  

Dubai, which has little oil of its own, led the way, creating lightly regulated, low-tax economic zones designed to attract multinationals... its basic economic formula, of turning itself into a trading entrepot, transport hub and financial centre, remains successful. At the same time, the UAE has invested its oil wealth in strategically important industries and strategically important parts of the world... Start with the Emirates’ role as an entrepot. The fact that it is within easy flying and shipping distance of most of Africa, Europe and Asia makes it a natural hub. DPWorld, a firm owned by the government of Dubai, runs Jebel Ali, one of the world’s biggest container ports. Dubai airport is the busiest in the world for international travel. Logistics have grown to account for nearly 8% of the country’s GDP.

But the business climate is as important as geography. In an index of economic freedom compiled by the Heritage Foundation, an American think-tank, the uae ranks 24th out of 176 countries—one notch above America. Foreigners laud the ease with which offices can be set up, flats rented, visas approved... In recent years, businesses have set up in Dubai at a frenetic pace: the number of new businesses joining the city’s chamber of commerce rose by more than 40% in the first half of the year, compared with 2022. A fifth went to Indian firms; the numbers of companies from China and elsewhere in the Middle East also grew rapidly... For Chinese ones, it has become an offshore trading hub. One example is Dragon Mart, a wholesale and retail complex in Dubai that bills itself as the biggest trading hub for Chinese goods outside China. Last year DP World helped set up Yiwu Market, which hopes to eclipse it. For Indian firms, the uae offers what Hong Kong and Singapore do for China and South-East Asia: an easier place to do business internationally, with more efficient courts, better infrastructure and access to capital and talent. It is also becoming a second home of sorts... Indifference towards Western sanctions has made the UAE a haven for businesses from shunned places. Iranian oil is often exchanged at sea off the emirate of Fujairah, blended with other crude and sold on. After traders in Geneva began shunning Russian crude, Dubai became the place to finance and trade shipments... Hong Kong’s seemingly never-ending lockdowns during the pandemic, meanwhile, sent some of its professionals fleeing to Dubai, where covid restrictions lasted only three months. Last year more millionaires moved to the UAE than anywhere else in the world, in net terms...

Its various sovereign-wealth funds have assets of more than $1.5trn in all manner of businesses. The varied holdings of Mubadala, one of them, include stakes in Chime, an American fintech firm, XPeng, a Chinese electric-vehicle maker, and Jio, Mr Ambani’s telecom network, among other things. Many of the investments are in logistics. DP World runs ports everywhere from London to Sydney. All told, no less than a tenth of the world’s container-shipping passes through the firm’s hands... In 2006 the UAE made a prescient bet, setting up a firm called Masdar to diversify its energy supply and build on its energy expertise by investing in renewables. Masdar is now one of the world’s biggest developers of wind farms and solar power.

And this about London

London is thriving—a hardiness that holds lessons for cities everywhere. Its globalised economy has weathered Britain’s exit from the European Union far better than doomsayers had predicted. For all the political bluster on immigration, it remains a magnet for ambitious newcomers. And it is better-placed than many cities to absorb the disruptions of covid-19. Traverse London from south to north and west to east, and you find that its biggest challenges are the results of its dynamism rather than decline... London has produced more tech unicorns than its three nearest European rivals—Berlin, Paris and Stockholm—combined...

London, after all, has absorbed all manner of shocks in its 2,000-year history. Its most precarious period, considers Tony Travers of the LSE, came after the Romans left in the fifth century AD. The Black Death killed much of its population in the 1340s; the Great Fire of 1666 razed swathes of it. A port city that adapted to the decline of its port, it was also an imperial capital that acclimatised to the loss of empire. It defied the Blitz of 1940-41—when, rather than sheltering in the Tube as urban myth has it, most Londoners simply slept at home... 

At the last count, disposable household income per person was 43% higher in London than in the country as a whole. Londoners are younger, more left-wing and far more diverse: ethnic minorities account for 46% of residents, over double the proportion in England and Wales. Two-fifths of Londoners were born abroad. Contrary to its reputation in the shires as a latter-day Gomorrah, on average London is slightly more socially conservative and less boozy than other regions. For that, thank its immigrants, many of whom are devout. They have also helped raise standards in London’s schools, which this century have been transformed from the worst-performing of any English region to the best.

London has managed to avoid the race to the bottom with subsidies to promote manufacturing by focusing on services.

London’s emphasis on services rather than manufacturing helped it to sidestep the worst fall-out from Brexit. Between 2016 and 2021 London’s exports of services grew by 47%. London’s status as a global financial centre remains intact even as its dominance within Europe has been eroded; it is a vibrant centre for tech startups. Politicians in America, Europe and Britain itself are shovelling subsidies towards manufacturing, but London is a reminder that high-value services—from law to coding, consulting to higher education—can be a better source of growth, jobs and innovation... Between 2016 and 2021 London’s exports of services grew by 47%, notes Emily Fry of the Resolution Foundation, another think-tank; for the rest of Britain the rise was just 4%. Places that import parts and export goods have suffered more Brexit-related costs and bureaucracy.

A remarkable feature of London has been the dispersed nature of its migrant populations.

Nigerians, South Asians and Latin Americans have taken the place of eu immigrants. Two-fifths of Londoners were born abroad. Most great Asian metropolises are far less heterogeneous: under 5% of Tokyoites are foreign-born, for example. London and New York are roughly as diverse but the British capital is not as ethnically segregated, in part because of the dispersal of social housing across every borough. Immigrants have helped raise standards in London’s schools, which have gone from the worst-performing of any English region to the best.

The long read on London has this interesting irony about Suella Braverman

Suella Braverman, twice forced out as home secretary in Conservative governments, recently claimed multiculturalism has “failed”. She is walking proof of the opposite: a Buddhist brought up in London by parents from Mauritius and Kenya, she found a Jewish husband and rose to one of the highest offices in the land. The London dream, you might call it.