Deregulation as an organisational culture

A recent op-ed in the Business Standard had this to say about how corporate social responsibility spending is regulated.

The additional problem with legally mandated CSR spending is the opportunity it affords for increasing government intrusion. In a throwback to the licence raj era, the law already tells companies how much to spend and what they can spend it on. It is not outside the realm of possibility that the discovery of the skewed geographical nature of CSR spending would prompt the government to stipulate region-wise targets next. The legal obligation creates additional headaches. In 2018, for instance, the government issued preliminary notices to 272 companies for not complying with their CSR obligations. 

Another had this about the UGC’s regulations. 

In principle, determining and maintaining standards of teaching, examinations and research at universities is among the primary functions of the UGC… It performs the functions of licensing, regulation and disbursement. These three functions are not performed by one institution anywhere in the world because this eliminates all checks and balances. Such power enables the UGC to exercise enormous control over universities. Its interventions at political behest and its belief that one-size-must-fit-all drives its fetish for standardisation, whether curricula, appointments, promotions, salaries, evaluation, administration or institutional architecture. Such levelling crowds out or pre-empts excellence, because it stifles diversity, pluralism and differentiation in higher education, all of which are necessary to develop academic excellence.

Deregulation is back with a bang globally. Also, I had blogged earlier, highlighting the point that there are very few stroke-of-pen deregulation measures.

It’s also important not to see deregulation as a one-time exercise. While easing existing laws and rules/regulations/orders is important, an equally important focus should be on ensuring new rules and orders are formulated, keeping in mind the concerns of ease of doing business and ease of living. Otherwise, it’s only a matter of time before things get back to where they started. I blogged here proposing that a set of principles be outlined that govern all law/rule-making processes and be kept in mind by officials who are processing them. 

Statutes passed by a legislature are generally too high-level and broad-sweep to impact the ease of living or doing business directly, at least in most cases. These laws are operationalised through executive directives - rules (by government departments), regulations (by regulators), and administrative guidelines (by any government entity). The difference between the three is the authority levels (Cabinet/Minister/Officers) at which they are approved. In one way or the other, at each level, there is often an element of interpretation of the objectives of the law, and this gets reflected in the directives issued at that level. 

In other words, these executive directives interpret the statute and outline the details of implementation. It’s most often in the details of these operational directives (and not in the statutes themselves) that the problems with ease of doing business and ease of living lie. 

As an illustration, while the statute would empower the government to prescribe building rules, the details of those rules are prescribed in executive directives (Government Orders, Office Memorandum, etc.) that the Department typically issues internally. They define how various urban planning elements like Floor Area Ratio (FAR), setbacks, road-width, plot-size, building height, and land-use would apply in combination to different areas/localities. 

This can create issues in implementation that detract from the purpose of the reforms. For example, over the years, state governments have claimed to have initiated “reforms” to building byelaws that have either done away with FAR or considerably raised FAR. But in reality, its objectives were defeated by defining high minimum road width and plot size requirements (and height restrictions), which meant that very few properties were eligible to avail these incentives. Similarly, some other states eased building regulations, but only below a certain height and above another height, which effectively excluded the most relevant categories of apartments. 

Or take the issue of processes and requirements that are put in place as safeguards to access a service. Often, as newspapers report stories of abuse of the process, instead of taking actions to address them as governance failures, government entities prefer to respond with additional layers of safeguards and requirements. So, for example, as instances of fake invoices and Input Tax Credit (ITC) claims in the Goods and Services Tax (GST) rose, registration requirements were progressively made so tough as to make it difficult even for the vast majority of genuine businesses (till a recent directive addressed this partially). 

There are similar examples across departments where the operationalisation of laws and reacting to emerging adverse news items have spawned unintended regulatory thickets.

Therefore, all directives are double-edged swords. They can be used to promote their objectives or detract from their objectives, as in the aforementioned examples. The choice is exercised both by the leadership within the Departments, who formulate and guide the implementation of the directives, and by the frontline functionaries who implement the directives. 

No sustained and meaningful change in the regulatory environment is possible without instilling a culture of regulatory concern, or restraint, or thoughtfulness among officials across all levels regarding issues of ease of doing business and ease of living. The principles outlined here could form a basis for building this culture. 

As an institutional process, every executive directive issued by the Department that directly impacts businesses or citizens should be screened for its compliance with a set of principles on smart regulation. This can be in the form of a checklist (like with the Cabinet Note) that must be certified by the proponent officials as a procedural requirement before approval of the directive. Even at the risk of this becoming perfunctory over time, it can be a good starting point to focus the attention of the system on concerns of regulatory excess. 

Another step would be to initiate a high-profile system-wide awareness campaign to sensitise officials across levels about the importance of caution with administrative directives to ensure ease of doing business and ease of living concerns. For example, each Department could be asked to identify one or two of its most important services and re-engineer them from the perspective of ease of doing business and ease of living. As a process, the collective learning from this exercise could be significant. These kinds of measures could be supplemented with employee training using simple and easily understood illustrative examples that highlight the importance of this endeavour. 

The fundamental point is that while we can deregulate by liberalising existing laws/rules, any sustained deregulation cannot happen without the spirit of deregulation being imbibed by officials across levels.

Internal trade barriers and deregulation

In the context of the debate on deregulation, internal trade barriers are a significant but less discussed cost. 

This blog post by Luis Garciano (HT: Marginal Revolution) points to an IMF report that looked at internal barriers to trade within the European Union (EU) and found them to be equivalent to tariffs at 45% for goods and 110% for services.

The IMF report finds that while trade costs for goods dropped 16% for EU imports, they fell only 11% for internal EU trade. It finds that internal trade among EU countries is less than half that between US states. 

It also highlights the various types of non-tariff and other barriers affecting different goods and services sectors. The graphic below is the total tariff equivalent for various service sector segments.

Garciano points to the lack of harmonisation among EU member countries’ rules across sectors and the failure to adopt mutual recognition as a means to such harmonisation. 

Tej Parikh has a good graphical summary of the importance of internal barriers as an economic friction.

He points to a graphic from QuantGov that highlights the wide variations in regulatory restrictions across US states, arising especially in occupational licensing, tax disparities, and zoning laws. 

Since the volume of internal freight flows in the US is about $20 trillion annually, even small improvements can have significant effects. 

A striking reflection of internal barriers is that Canada trades more with the US than among its provinces!

Such barriers contribute significantly to regional disparities, as in India. 

And they come in the way of integrating markets and realising scale, the major attractor for foreign investors. 

Fortunately, there are several examples from across the world on the impact of reforms to ease internal barriers. Australia’s Mutual Recognition Act in 1992 enabled goods sold in one state or territory to be sold in another without needing to meet further requirements, and also established equivalence in occupations. This contributed to increased domestic freight movement and productivity growth.

India’s GST led to the dismantling of border checkposts and dramatic reductions in border-crossing times across state borders. 

It also translated into increased household expenditures in districts more exposed to the faster border crossings. In fact, faster border crossings increased household expenditures by 2% to 23% across districts. 

A Canadian study found that varying regulations faced by the truck transportation sector in the country added approximately 8.3% to freight rates. 

Finally, in the context of removing internal barriers, Luis Garciano echoes the critical point that I blogged here, that deregulation in general should not be seen as a stroke-of-pen reform but as one that requires sustained engagement. He points to examples of how the implementation of deregulation often seriously detracts from achieving its objectives. 

There are two problems: first, rather than replacing national regulations, EU rules pile on top of them. Second, member states often engage in ‘gold plating’ – adding extra national requirements when implementing EU directives. The result is that even when the EU does create common rules (directives or regulations aiming to harmonize), the outcome is often not a truly single market. New EU rules often don't replace old national ones. Instead, they create additional layers of regulation. A toy manufacturer might need to obey an EU toy safety directive while simultaneously navigating older national rules about specific materials… In a paper on capital market regulations in a top finance journal, Christiansen, Hail and Leuz (2016) find that, in fact, countries' rules diverge more (!) after harmonizing regulations… 

In other words, the new rules often only serve to add new layers of legislation. For instance, the Single Supervisory Mechanism supervises the banks, but so do the national central banks who impose their own requirements of capital or liquidity on all banks operating in their territory. If a French bank operates in Belgium, it has to satisfy French, Belgian and European regulators. This reduces the synergies of operating across borders, and is the main reason our banking systems are, even today, mostly national. Or consider General Data Protection Regulation, which (in spite of being a regulation) still means we have regulators at EU, national and regional level…A publisher that trades across the EU must now keep separate analytics setups for Austria, France, and Italy, while the same tool remains legal elsewhere. The Draghi report notes that there are around 90 tech-focused laws and more than 270 regulators active in digital networks across all EU countries…

Despite EU directives aimed at facilitating the free movement of professionals, a specialized engineering company based in, say, Portugal, that wins a contract for a major infrastructure project in Germany might find that German authorities require their engineers to undergo a lengthy ‘equivalence check’ despite holding qualifications recognized under EU frameworks. For smaller firms or individual professionals, these hurdles can be prohibitive. 

These problems echo across countries.

Weekend reading links

1. Some snippets about the Dharavi redevelopment project master plan that has been approved by Maharashtra government.

The Dharavi redevelopment is being carried out by Dharavi Redevelopment Project Private Limited (DRPPL)—a special purpose vehicle that is a joint venture between the state government’s Slum Rehabilitation Authority (SRA) and the Adani Properties Private Limited (APPL). The DRPPL is now called the Navbharat Mega Developers Private Limited (NMDPL), in which APPL holds 80 per cent stake while the remaining 20 per cent is with the SRA... According to official estimates, a total of 72,000 tenements will be constructed for rehabilitation, which includes 49,832 residential units for eligible slum dwellers, 8,700 renewal units for residents with valid tenure,12,458 commercial/industrial units and 1,010 commercial renewal units. According to the master plan, out of the total net usable area of 108.99 hectares available for development, 47.20 hectares is for rehabilitation of Dharavi tenants, 10.88 hectares for additional facilities such as museums, hostels and community halls, 2.96 hectares for utility and the remaining 47.95 hectares is land that will be developed for market sale by the SPV NMDPL. The total estimated cost of the project is Rs 95,790 crore... the special purpose vehicle that is undertaking the Dharavi redevelopment on the 251.24 hectares of Dharavi Notified Area... it needs to construct 72,000 housing and commercial units on 47.20 hectares. According to the special purpose vehicle, only those who occupy ground floor structures will be eligible for rehabilitation

The real challenge will be now with the claims and counterclaims on the actual number of eligible beneficiaries. And disputes are already out in the open.

“In Dharavi, there are one lakh ground-floor structures, whose residents are eligible for rehabilitation. Apart from that, there are at least 1.5-2 lakh tenants who reside on the second and third floors. If only 72,000 units are there for eligible tenants, are they going to declare the remaining 30,000 tenants ineligible for rehabilitation? Is their survey accurate? Have they completed the survey?,” said Rajendra Korde, president of Dharavi Redevelopment Samiti.

See also this on exemptions and concessions sought by NMDPL, which has also been allotted 541 Acres outside the city.   

2. Andy Haldane suggests that countries should shed the focus on GDP and instead focus on what he feels citizens value, intergenerational or social mobility.

Based on surveys of citizens, academic Carol Graham’s research suggests upward mobility is more important to public satisfaction than income. For example, poorer communities and countries, where prospects have improved significantly relative to earlier generations, are happier than richer places where generational prospects have faltered or fallen. In short, generational journeys matter more than GDP destinations. When it comes to wellbeing, then, social mobility trumps national income. Lasting societal success relies more on unlocking opportunity than on maximising output... 

The American dream has, for many, died. Surveys suggest only around a quarter of Americans now believe “the American dream holds true”. As recently as 2010, it was more than half. The “Opportunity Atlas” constructed by economist Raj Chetty suggests these perceptions accurately reflect a new reality in which social mobility has stalled, or is in retreat, across many parts of the US over the past half-century. UK measures of social mobility suggest a similar stalling or retreat. The average person today in their twenties and early thirties is earning less than their parents at an equivalent age, after accounting for inflation. Many are less likely to own homes than their grandparents and some than their great-grandparents. For them, the opportunity escalator has stalled or is in reverse...GDP measures everything except that which is worthwhile. These words of Robert F Kennedy in 1968 are even truer now than then. Stalled social mobility has blocked the only reliable road to sustained wellbeing and growth.

3. Apparently, 478 unicorns were created in the US in 2021, about 31% of all VC-backed unicorns ever created. It came on the back of "the combination of low interest rates, abundant capital, sugar-high valuations and the rush to digital platforms during the Covid lockdown was the industry’s happy hour".

4. Football as an urban regeneration anchor?

The football stadium is the linchpin. Clubs are building new stadiums or refurbishing existing homes to target fans with the money to splash on high-end hospitality. They are also competing to host the world’s most famous singers and bands to squeeze additional revenue out of their infrastructure. The money helps clubs to buy top players and pay their multimillion-pound salaries. But Wagner and the other wealthy owners buying into England’s favourite sport want to convince the government that new stadiums can also be the catalyst for broader urban regeneration and economic growth... Local politicians are also considering setting up an urban development corporation — a tool first used in the city in the 1980s, intended to fast-track planning — across part of that area. Birmingham and Manchester are considering similar vehicles, headed up by metro mayors, to fast track their own football-led regeneration schemes...

One of the most controversial proposals for stadium-led regeneration is in Manchester. Sir Jim Ratcliffe, the Monaco-based billionaire co-owner of Manchester United, is making the case for building a “Wembley of the North” — referring to the £750mn national stadium in London that was built with private and public funding and boosted the local area through investment in roads, rail and routes for pedestrians. Ratcliffe argues that a new 100,000-seat stadium can “be the catalyst for social and economic renewal of the Old Trafford area”. The project’s cheerleaders have requested more than £200mn in June’s spending review to unlock development around the stadium. The funds would ostensibly pay to remove an adjacent freight terminal to open up space for the new stadium.

5. Contrary to popular narrative, India's deep tech innovation funding is limited.

Even in 2022, its peak, deep tech funding was just $2.6 bn, and is now less than a billion dollars. 

6. Innovation is required in areas of importance for countries like India. An example is air conditioners, which are still stuck in the more than a century-old technology of compression and gasification of climate-unfriendly coolants.

7. Last week President Trump paused the exports of airplane and semiconductor technologies to China. This is a serious problem for the Chinese aeroplane manufacturing endeavours. 

In 2008, China established the state-owned Commercial Aircraft Corporation of China, or COMAC, with the goal of putting a single-aisle commercial jet into service by 2016. Development of the plane has been slow. The company, which occupies a large expanse of newly built hangars and design studios in Shanghai, suffered delays despite extensive assistance from American and European companies. Its plane, the C919, did not go into commercial service until 2023... At least 40 percent of the C919 is made by companies in the United States and other countries in the West... The C919 is similar to an Airbus A320, a popular single-aisle jet made by the European aviation manufacturer. It also competes with the Boeing 737... the C919 also depends on engines and other key components controlled by the United States... COMAC had put only 16 C919s into service by the start of this year, but is now ramping up production and has amassed close to 1,000 orders... China has shared limited information about the plane, which only mainland China and Hong Kong have approved for use... 

General Electric in particular has played a central role on the C919. It has worked with a Chinese military contractor to supply avionics computers for navigation, communication and controls. And a GE joint venture with Safran Aircraft Engines of France supplies the plane’s jet engines... Less than two years after COMAC was founded, when the C919 was still a distant dream, General Electric agreed to a partnership with the Aviation Industry Corporation of China, or AVIC, a leading Chinese defense contractor. General Electric shared its most advanced commercial avionics with AVIC for the C919, the same state-of-the-art system it had just developed for Boeing’s 787 Dreamliner jet. General Electric and AVIC worked together on equipping the C919 with an advanced computer core processing system. AVIC has also developed China’s most advanced bombers and its latest stealth fighter jets. It does much of its production in Xi’an, the hub of China’s military aircraft manufacturing industry.

8. NYT has an article on the one topic that should have attracted more attention, the impact of job losses from US tariffs on the Chinese economy and society. Estimates point to job losses in the range of 6-9 million in China with reduced exports to the US. 

9. President Trump monetises the presidency for the private benefit of him and his family, normalising activities that would have been scandalous in any other times. A sample.

After dinner at Mar-a-Lago, Jeff Bezos agreed to finance a promotional film about Melania Trump that will reportedly put $28 million directly in her pocket.. The Trumps... have done more to monetize the presidency than anyone who has ever occupied the White House. The scale and the scope of the presidential mercantilism has been breathtaking. The Trump family and its business partners have collected $320 million in fees from a new cryptocurrency, brokered overseas real estate deals worth billions of dollars and is opening an exclusive club in Washington called the Executive Branch charging $500,000 apiece to join, all in the past few months alone. Just last week, Qatar handed over a luxury jet meant for Mr. Trump’s use not just in his official capacity but also for his presidential library after he leaves office. Experts have valued plane, formally donated to the Air Force, at $200 million, more than all of the foreign gifts bestowed on all previous American presidents combined. And Mr. Trump hosted an exclusive dinner at his Virginia club for 220 investors in the $TRUMP cryptocurrency that he started days before taking office in January. Access was openly sold based on how much money they chipped in — not to a campaign account but to a business that benefits Mr. Trump personally... The money Mr. Trump’s family is now bringing in from the Middle East is going into their personal accounts through a variety of ventures.

This is an interesting observation about the lack of public outrage.

Paul Rosenzweig, who was a senior counsel to Ken Starr’s investigation of President Bill Clinton and later served in the George W. Bush administration, said the lack of uproar over Mr. Trump’s ethical norm-busting has made him wonder whether longstanding assumptions about public desire for honest government were wrong all along. “Either the general public never cared about this,” he said, or “the public did care about it but no longer does.” He concluded that the answer is that “80 percent, the public never cared” and “20 percent, we are overwhelmed and exhausted.” “Outrage hasn’t died,” Mr. Rosenzweig added. “It was always just a figment of elite imagination.”

10. India's private fixed capital formation has been stagnant at about 25% for more than a decade. 

11. Regulation in the US

The California Environmental Quality Act (CEQA) was passed in 1970, a law that grants standing to all 40mn residents of California to sue any project they want, public or private. The suits can be anonymous. By one estimate, only 13 per cent of CEQA lawsuits are launched by environmental organisations; the rest are filed by business competitors, Nimby neighbours or labour unions. It is less an environmental law than a tool for extortion. In one recent case, the University of California at Berkeley wanted to add a few thousand students to their student body; the school’s upper middle class neighbours sued under CEQA on the grounds that the extra students would in effect constitute an environmental pollutant. A judge agreed, and the school’s expansion was blocked. While it is usually conservatives who complain about excessive permitting, it was progressives who initially backed CEQA because they didn’t trust the government to enforce its own rules. This has led to the ironic result that building renewable energy infrastructure is being blocked by environmental regulations like CEQA that make it very hard to do things such as construct transmission lines or offshore wind farms.

And the big, beautiful bill adds to this. Gilliant Tett writes

But what investors should also fret about, if they care about the state of Treasuries or are a non-American entity holding US assets, is a clause buried in the bowels of this behemoth called section 899. This would enable the US Treasury to impose penalties on “applicable persons” from “discriminatory foreign countries” by increasing US federal income tax and withholding rates by up to 20 percentage points on their US investments, on a variable scale. It might thus be viewed as a novel “revenge tax” (as some lawyers call it) that Trump could use to bully friends and foes alike in trade negotiations.

12. The US is powering ahead on AI.

In 2024, private expenditure in AI grew to $109bn, nearly 12 times China’s $9.3bn and 24 times the UK’s $4.5bn, according to Stanford University research. US-based institutions produced 40 “notable AI models, significantly surpassing China’s 15 and Europe’s . . . three”, according to the Stanford researchers.

13. Switzerland's paradox of a strong currency with rising exports.

The world’s richest major economy has both a strong currency and a strong manufacturing base. The Swiss franc has been the top-performing currency over the past 50 years, 25 years, 10 years and five years. It is near the top even over the past year when some of the more beleaguered currencies have staged a comeback against the dollar. Nothing can compare for durable strength. Yet Switzerland also defies the assumption that a strong currency will undermine a nation’s trading prowess by making its exports uncompetitive. Its exports have risen and are near historic highs both as a share of Swiss GDP (75 per cent), and as a share of global exports (near 2 per cent). The global conversation has become unduly obsessed with currency valuations, which are just one of the factors that shape a nation’s competitive position. Like Germany and Japan in their heydays, Switzerland has gained a reputation for goods and services of such high quality that the rest of the world is willing to pay a currency premium for the “Made in Switzerland” label...

It generates more than $100 in GDP per hour worked — that’s more productive than any of the other 20 largest economies. Its decentralised political and economic system encourages the rise of small enterprises, which account for over 99 per cent of Swiss companies. It also has a large share of globally competitive businesses in sectors from pharmaceuticals to luxury goods. Harvard’s Growth Lab ranks Switzerland number one among major economies for the “complexity” of its exports, a measure of the advanced skills needed to produce them. And its exports range from chocolates and watches to medicines and chemicals — belying the notion that strong currencies kill factories. At 18 per cent of GDP, its manufacturing sector is one of the largest among developed economies. Over half its exports are “high-tech” — more than double the US level. Since advanced goods are more expensive, this has helped Switzerland keep its current account in surplus, averaging more than 4 per cent of GDP since the early 1980s.

14. Trump Always Chickens Out (TACO) is the new buzz phrase. This is the finding of research by Jeremy Shapiro of the European Council on Foreign Relations. 

Trump enjoys issuing blood-curdling threats of the use of force. But he very rarely follows through... Looking at Trump’s two periods in office, Shapiro finds 22 occasions so far in which he has threatened the use of force — but only two in which he has actually followed through. There have been 25 actual uses of force — mainly limited strikes against terrorist groups such as Isis or al-Qaeda. But only on two occasions were they preceded by a presidential threat. Surveying the record, Shapiro comes to a clear conclusion: “Trump uses threats and force much like a playground bully: while large and outwardly powerful, he actually fears the use of force in any situation even vaguely resembling a fair fight . . . Actual violence only occurs against much weaker foes that have no hope of striking back.” 

15. Simon Kuper on government successes.

The narrative of government failure is trumpeted by anti-system politicians and amplified by their supposed adversary, the media. The journalistic maxim says, “If it bleeds, it leads.” The corollary is that if somebody stops the bleeding, the story stops being a story. And if politicians make such an efficient early intervention that a disaster never happens, it never becomes a story in the first place. Take the US bailout of banks in 2008/09, which arguably prevented the financial crisis from spiralling... The moment a societal problem is ameliorated, it is practically forgotten.

16. The challenge with reshoring manufacturing to the US in sectors like textiles and footwear.

There just aren’t enough workers. American factories are already struggling to fill around 500,000 manufacturing jobs, according to estimates by Wells Fargo economists... Mr. Trump’s crackdown on immigration has made things worse. Factory jobs moved overseas to countries, like Vietnam, that had growing populations and young people looking for jobs to pull themselves out of poverty... Mass production in America is tough. A sewing machine operator earns $4,000 a month in Los Angeles, compared with $500 in Vietnam.

17. Indebtedness in the developed world is spooking the bond markets.

At the heart of the global economy, long-term yields in the $29tn US Treasuries market have topped 5 per cent in recent weeks, close to the levels reached in 2023 — when investors feared interest rates would have to stay higher for longer to contain inflation — and before that their highest since the financial crisis. This is taking place just as a tax and spending bill that could add more than $2tn to America’s debt makes its way through Congress... France’s debt burden was described as a “sword of Damocles” last year by then prime minister Michel Barnier. Europe’s third-largest economy is expected to spend €62bn on debt interest this year, roughly equivalent to combined spending on defence and education, excluding pensions. In the UK, 30-year government borrowing costs reached their highest levels since 1998 this year amid investor concerns over the growing debt pile and ministers’ lack of headroom against their self-imposed fiscal rules. Even Germany, a historically reticent borrower with much lower debt levels, is planning to increase Bund issuance. In Japan, where the central bank’s ultra-loose monetary policy kept long-dated yields below 1 per cent for years, a brutal sell-off has taken them to record highs. The 30-year yield on Japanese government bonds is hovering around 3 per cent.

This has come on the back of record sovereign debt issuance after the pandemic.

18. Finally, the epic fallout between Donald Trump and Elon Musk was always on the cards. The US government is itself now finding out the perils of relying on Musk in particular and on one individual in general, as the example of NASA's reliance on SpaceX shows. A more powerful latent enemy who could inflict greater pain on Musk is Steve Bannon. 

Some observations. One, Elon's firms will feel squeezed in multiple ways, and Tesla, Starlink and Space X will be the biggest impacted. Two, the competitors to these firms will get a leg up. Kuiper in particular will be a big beneficiary. Three, will this be the beginning of the end of Musk's China relationship? Four, what message does this send to governments worldwide who had been rolling out the red carpet to Musk's companies? Finally, we may have seen Peak Musk, and the decline could be very steep and terminal if a few things play out. 

Given his drug addiction and other skeletons, in normal times it would have been a safe bet that if the US Government put its mind to it, Musk could come out of all this seriously damaged and diminished. But it's also possible in these times that the plutocrats and moneyed influencers in the Trump coalition could get both people together for a compromise to keep the gravy train running.  

Anyways, last word to Paul Krugman, whose verdict on the public spat is spot on.

Musk believes that he delivered the presidency to Trump, and may well be right. He gave Trump and his allies a lot of money; he helped Trump regain confidence after his disastrous debate; he brought in the bro vote. And Musk clearly believes that this entitles him to receive special favors from the White House — not policies he likes in general, but contracts and specific actions that benefit him personally. He even seems to have imagined that he was effectively co-president. That is, he simply assumed that U.S. policy was for sale, and thought he had bought it. Trump, for his part, hasn’t responded by saying “How dare you suggest such a thing?” Instead, he has threatened retaliation — again, not in the form of general policies Musk won’t like but in the form of specific actions aimed to hurt Musk’s bottom line...

The point is that both men start from the presumption that the U.S. government is an entirely corrupt enterprise, with the president in a position to hand out personal favors or engage in personal acts of vengeance. And everyone takes it for granted that both men are right. Musk’s only mistake was in underestimating the depths of Trump’s lack of principles, imagining that he was the kind of corrupt politician who stays bought, as opposed to a guy who always breaks his promises the moment it seems expedient to do so. In short, we no longer have rule of law, just rule by the Leader’s whims. We have abandoned everything America was supposed to stand for.

Weekend reading links

1. A reality check on who owns agricultural land in South Africa.

White farmers still own roughly half of the country’s land although only 7 per cent of citizens are white.

2. Tej Parikh has a very good graphical summary of America's healthcare market.

The US spends more than $4.5tn annually on healthcare — and is projected to soon account for one-fifth of its economy. Even on a per capita basis, other large, rich nations spend about half as much as America. Healthcare is the largest component of US consumer spending on services (well above expenditure on recreation, eating out and hotels)… The economy has created 3.9mn private sector jobs since the start of 2023. More than half have come from healthcare and social assistance… studies have estimated that approximately 25 to 30 per cent of health spending could be considered waste.

Healthcare is such a major contributor to growth that any reduction will automatically impact job creation and economic growth. 

3. ExxonMobil, Occidental Petroleum, Equinor, and others are piloting a new drilling technique for lithium, direct lithium extraction (DLE), in the Smackover Formation area of the Southern US that has a massive brine aquifer. 

Underground brine reservoirs flowing across Arkansas and neighbouring states contain high concentrations of the silvery-white metal; a US Geological Survey study published in October estimated the total resource in south-west Arkansas alone at up to 19mn tonnes... “DLE could do for the US lithium industry and economy what fracking did for the US oil industry almost 20 years ago,” says Andy Robinson, a geoscientist and co-founder of Standard Lithium, which is seeking to develop a $1.5bn project near El Dorado in partnership with Norwegian energy group, Equinor.

Proponents say DLE offers a faster and less environmentally damaging alternative to existing extraction methods. For oil companies, which have extensive skills in drilling, pumping and processing fluids, it represents a useful way to diversify their businesses... But experts warn that US lithium pioneers must prove the new technology can be commercially successful at scale and compete with both existing extraction technologies and rival DLE projects in lower-cost countries...

Between 2020 and 2024 global demand for lithium tripled to around 1.2mn tonnes, according to energy research group Wood Mackenzie, which is forecasting lithium consumption will reach 5.8mn tonnes by 2050. To meet demand, producers have over the past decade expanded hard rock mining in Australia and China and lithium brine extraction in Latin America, giving these three regions control of more than 80 per cent of the extraction industry. Hard rock mining of lithium is much like any other metal production process; ores such as spodumene are excavated from open pit mines, crushed and chemically processed to separate the lithium. Brine extraction involves pumping lithium-rich brines into large ponds, typically in regions with a hot, dry climate. The water gradually evaporates, leaving behind concentrated lithium salts that can be processed...

Until recently, US-based lithium miners have struggled. They face higher costs, tougher mining regulations and less favourable geological and climatic conditions than in the “lithium triangle” in Chile, Argentina and Bolivia. The development of direct lithium extraction, which usually involves using solvents or ceramic materials to separate lithium from the brines, has changed all that. DLE takes a matter of hours to separate lithium from brines, while evaporation ponds can take as long as 18 months. Recovery rates are around 70 to 90 per cent, according to Wood Mackenzie, compared to 40 to 60 per cent for evaporation ponds, and DLE also uses less land and less water. Combined with the discovery of high concentrations of lithium in oilfield brines within the so-called Smackover Formation, which extends across Arkansas, Louisiana, Texas, Alabama, Mississippi and Florida, DLE has opened up an opportunity. Existing oil and chemical infrastructure in the formation also makes these resources more accessible than greenfield sites.

4. Great primer in NYT that has the list of all items Americans import from China. Goods that Americans import mostly from China.

The highest value of goods imported from China.

And America's biggest exports to China.

5. Tata Electronics bets big on iPhone manufacturing. But it comes with exacting standards on quality and productivity.

The company’s ambition to become an iPhone-manufacturing hub collides with the reality of high attrition, relentless production targets, and the ever-present pressure of Apple’s quality control. Inside the factory, each worker undergoes two to three weeks of intensive training before stepping onto the assembly line. Once there, their tasks are highly compartmentalised—a deliberate strategy to protect Apple’s intellectual property. Most workers only know how to assemble a specific section of the phone, with little visibility into the broader production process... An iPhone must pass through at least 600 quality checkpoints before it leaves the factory. A single defect can jeopardise an entire batch, sending costs skyrocketing and potentially damaging the supplier relationship. This is why Tata has invested heavily in automated equipment from suppliers like Delta Electronics, aiming to reduce defect rates and increase efficiency... the workers... shifts are standard eight-hour stints—6 am to 2 pm, 2 pm to 10 pm, or 10 pm to 6 am... That compartmentalised operation is about efficiency but also about Apple’s intellectual property. Keeping workers focused on their slice of the process helps prevent any accidental leaks of trade secrets.

6. Starlink compared to other telecom companies.

Also this article on Business Standard.

7. China tries to increase its soft power. The one area it appears to be having some success is gaming. 

Four of the ten highest-grossing mobile games of 2024 were made in China. One such is Genshin Impact, a role-playing adventure which rakes in over $1bn a year. Last year a Chinese firm released Black Myth Wukong, the country’s first blockbuster video game. Featuring the mischievous Monkey King, it is steeped in Chinese folklore. Some 30% of its 25m players are said to be outside the country.

8. One of the genuine successes of the Indian state, the taming of the Naxalite movement, which is perhaps in its end stages.  

9. Global Capability Centres (GCCs) are driving a boom in Grade A real estate in India that are ESG-compliant, and equipped with smart technology systems. 

Between 2022 and the first half of 2024, GCCs have leased 53 million square feet (msf) of office space. In 2024, they accounted for 36 per cent of total leasing activity, occupying 27.7 msf of the 77.2 msf transacted... The momentum has continued into Q1 CY25. Colliers reported that GCCs absorbed 6.5 msf of Grade-A office space in the quarter — constituting 41 per cent of overall office space demand across the top seven cities in India... In Q1CY25, GCCs leased 88 per cent of the total office space in green buildings as part of their broader commitment to achieving carbon neutrality...

According to Vestian’s sustainability report, green-certified office buildings commanded an average rental premium of 12–14 per cent over non-certified buildings. GCC-occupied office space in Bengaluru has been leased at a 50 per cent premium compared to non-GCC-occupied office space in FY25. The premium is 13 per cent in NCR and 9 per cent in Hyderabad... office rentals across the top Indian cities have grown between 9 to 28 per cent from 2022 to 2025, mainly driven by GCCs... real estate costs for the GCCs are not more than 6-7 per cent of their total cost of a GCC setup, which does not deter them from going for high-quality locations... According to Nasscom-KPMG report, the GCC market size in India tripled from $19.6 billion in FY15 to $64.6 billion in FY24. It is further anticipated to touch $110 billion by 2030, despite ongoing trade tensions and geopolitical frictions.

10. US-India pre-Trump merchandise trade tariffs.

11. Bola Tinubu's shock therapy appears to be working for the Nigerian economy.

On day one Tinubu removed a ruinously expensive fuel subsidy. More important still, the central bank has restored monetary policy orthodoxy after a shambolic era in which only cronies with access to cheap dollars benefited. After a dangerous overshoot, the naira has stabilised, with the gap between the official and black market rate shrinking to almost nothing. The central bank has stopped printing money to pay for government profligacy. Politicians still spend too much, often on fripperies like an extravagant presidential jet, but at least the government has begun to increase tax receipts. Investors do not live in constant fear of a devaluation and can readily access dollars. That may eventually help Nigeria to diversify, but shorter term it is positive that oil production has recovered from a nadir of 1mn barrels a day to nearly 1.5mn last month. Oil theft has been reduced and local companies are squeezing more out of marginal fields.

12. The decline of net FDI into India.

In 2020-21 and 2021-22, gross FDI inflows were adversely impacted by repatriation and outward investments to the tune of 46 per cent and 54 per cent, respectively. The extent of this impact rose sharply in the following three years — to 61 per cent in 2022–23, 86 per cent in 2023–24, and 99 per cent in 2024–25... the amount of repatriation and disinvestment in 2019-20 was about $18 billion, or about 25 per cent of gross FDI inflows. But the following two Covid years saw repatriation and disinvestment rising to account for a 33-34 per cent share of gross FDI inflows. In 2023-24, this trend became alarming, with the share of repatriation and disinvestment in gross FDI inflows jumping to 62 per cent. In 2024–25, the share inched up further to 63 per cent.

What this implied was pretty serious. Foreign investors in Indian companies were showing a marked preference for ploughing back their gains from here to reinvest in other markets elsewhere. Note that this trend has continued for the last two years... Indeed, reinvested earnings by existing foreign investors have stayed at well below a third of gross FDI inflows in these years. Nor has there been a marked desire on their part to increase reinvested earnings... Contributing to such gloomy prospects on the net FDI inflows front is last year’s data that shows how Indian companies are raising their outward FDI in a big way. Indian companies have stepped up their outward FDI during the post-Covid years — from $14 billion in 2022-23 to $16.6 billion in 2023-24, and to $29 billion in 2024-25.

In 2024-25, while India attracted $81 bn in FDI, foreign firms repatriated over $51 bn, and Indian firms' outward investment was $29.2 bn, leaving the net FDI inflows at only $0.35 bn. 

13. In a bid to overturn a system that the government believes is biased against it, Mexico goes to polls on June 1 to elect judges!

In elections on June 1, Mexico will replace almost 900 judges at the federal level and hundreds more across 19 state-level jurisdictions in a voting process never tried elsewhere that was implemented in just eight months... A random lottery decided which half of federal judges would be replaced on Sunday, and which in 2027. Most candidates for the vote were chosen by the ruling party and were not allowed any public or private funding. Some are openly associated with the ruling Morena party... The electoral institute expects turnout of about 8 to 15 per cent, compared with more than 60 per cent in last year’s presidential election... “Less than 1 per cent understand what they are voting for,” Jorge Sepúlveda, vice-president of the Mexican Bar Association. “Those that’ll vote will mostly be people propelled by the government.”... In Mexico City, voters must fill out nine ballots, choosing about 50 names from a choice of almost 300. Specialist judges were assigned to certain districts, meaning voters in parts of the capital will choose all the country’s competition and telecoms judges... An all-powerful disciplinary tribunal will be able to remove judges. Of 38 candidates for that, at least 10 have ties to the ruling party, including two who worked directly for López Obrador... One anti-corruption group identified 17 “high risk” candidates in judicial elections, including one who had worked for the Sinaloa Cartel’s leader and another who had worked for the leader of the Los Zetas criminal group. Saúl López, professor at Tecnológico de Monterrey’s school of government, said that the new system would offer “the maximum degree of capture, not just by organised crime but other economic powers”.

14. The disturbing monopoly in cloud computing.

Unlike traditional utilities, the dominant cloud providers Amazon, Google and Microsoft — which together control two-thirds of the global market — operate with minimal transparency or public oversight. This leaves governments, businesses and citizens vulnerable to systemic risks, while giving these corporations immense power to shape the digital economy to their advantage. It is no accident that the same behemoths that dominate ecommerce, digital advertising and operating systems also control the cloud computing infrastructure that underpins these services. Cloud is an extraordinarily capital-intensive business, with high barriers to entry and significant network effects. The data, technological capabilities and financial reserves controlled by these behemoths secured them advantages that smaller, independent rivals simply couldn’t match when cloud computing began to take off. But the companies haven’t just benefited from structural advantages; they’ve also engaged in anti-competitive practices, as documented by competition authorities across Europe, the US, Australia and Japan. These include opaque and discriminatory pricing, technical barriers to switching provider, excessive fees for data transfers and bundling cloud services with other products...

The dependence of many nations on a small number of US cloud giants is a geopolitical threat. Several existing US laws — including the Cloud Act — require providers to hand data to the American government when asked, even if stored on foreign soil... Big Tech’s cloud oligopoly undermines innovation. In artificial intelligence, for example, tech giants have been accused of trading cut-price access to cloud resources for intellectual property rights, equity stakes and strategic influence over leading start-ups, reinforcing their dominance across the sector.

Possible responses to this monopoly

Fortunately, most of the tools we need to address these problems already exist. Established frameworks — including utility regulation, competition policy and public procurement — can be drawn on to restructure and govern cloud infrastructure in the public interest. For instance, regulators should mandate fair and non-discriminatory access to cloud services, mirroring rules already applied to telecoms. This should include transparent, consistent pricing and a ban on unfair contract terms. Providers should be required to implement robust processes to ensure the stability and security of their infrastructure, with regular audits and stress tests. Governments should also rethink their procurement practices. Public institutions should not reinforce monopoly power by defaulting to the dominant providers. Finally — and most ambitiously — governments should consider structural separation. Requiring Amazon, Google and Microsoft to spin off their cloud divisions would eliminate their ability to use this critical infrastructure to extend their dominance into new markets.

15. With high tariffs comes trade crime.

In April, for example, Chinese exports to the United States fell 21 percent from a year earlier, but Chinese exports to Southeast Asian countries rose by the same percentage... An analysis by Exiger, a data analytics firm, found that more than 3,000 companies in Mexico depended on Chinese shipments for 75 percent or more of their supply chain. Many of these companies are subsidiaries of Chinese state-owned enterprises, and most sell products to the United States, the report said.

16. As PSG faces Inter Milan in this weekend's Champion League final, Simon Kuper writes that Paris has become global football's biggest talent pool.

Paris finally acquired a serious football club in 1970, when little Paris FC and Stade saint-germanois merged into PSG. (Paris FC soon walked out again.) At the time, the city’s growing suburbs, the banlieues, were filling with kids who had few entertainments besides football. In new towns short on markers of belonging, millions grew up supporting PSG as a way to feel Parisian. The popular claim that it’s a fake club with money but no fans is nonsense. The French state funded accredited coaches and artificial pitches in the banlieues. Soon, Greater Paris was producing more top footballers than certain continents. French teams packed with Parisians have reached four of the seven World Cup finals since 1998, winning two, and losing two only on penalty shoot-outs. The previous time PSG reached the Champions League final, against Bayern Munich in 2020, they lost to a goal by Bayern’s Parisian exile Kingsley Coman, but Parisian talent goes a long way down... PSG’s rise began in 2011, when the French president Nicolas Sarkozy, a fan, encouraged a wing of Qatar’s state to buy the club for a piffling €70mn or so. Sarkozy rooted out the hooligans, and Qatar bought superstar players. Two years ago, PSG’s front three were Kylian Mbappé, Neymar and Leo Messi. Yet PSG fans (I have two in my apartment) prefer today’s younger, harder-working, less-spoilt side.

17. Manish Sabharwal has a good compilation of "regulatory cholesterol"

Can women in India work the same jobs and the same way as men? No, they are banned from 32 operations and 200 sub-processes, including pottery manufacturing, cashew-nut processing, and glass manufacturing. Can employers think about hiring men and women for night shifts similarly? No: Women attract 59 special conditions for employers across states. Can factories use all their land? No: Fifty per cent of an industrial plot is lost to just three standards; micro and small factories lose the most land to standards more stringent than those of countries 10 times richer. Can workers work the hours they want? No: A factory worker loses 270 plus hours of annual earnings to working hour restrictions, and these limits force workers to give 156 to 416 fewer hours in a quarter than in Japan. Is building one 300-worker factory cheaper than two 150-worker factories in India? No: One 300-worker factory needs 40-80 per cent more land than two 150-worker factories. Do India and Singapore require the same number of floors to build a hotel with the same number of rooms? No: The same number of rooms requires three floors in Singapore and seven in Noida. Can all of rural India industrialise? No: Fifty per cent of rural areas cannot be industrialised due to minimum road width norms.