The rising billionaire wealth amidst the pandemic

I have blogged here and here about how the pandemic exposed the elite capture of decision making processes and systems and have significantly increased economic inequality.  

Ruchir Sharma has a good essay in FT examining the rise of billionaire wealth in the top 10 each of the developed and developing economies. He writes about the pandemic.

As the virus spread, central banks injected $9tn into economies worldwide, aiming to keep the world economy afloat. Much of that stimulus has gone into financial markets, and from there into the net worth of the ultra-rich. The total wealth of billionaires worldwide rose by $5tn to $13tn in 12 months, the most dramatic surge ever registered on the annual billionaire list compiled by Forbes magazine. The billionaire population boomed last year as well. On the 2021 Forbes list, which runs to April 6, their numbers rose nearly 700 to a record total of more than 2,700. The biggest surge came in China, which added 238 billionaires — one every 36 hours — for a total of 626. Next came the US, which added 110 for a total of 724. The top 10 gainers in the US and China each saw already vast fortunes grow in just one year by sums that not long ago would have seemed impossible in a lifetime: from $25bn to more than $150bn for Tesla founder Elon Musk.

One of the largest increases has been in India, where billionaire wealth has soared to more than 17% of GDP, "with most of the gains accruing to a narrow set of families in industries prone to crony capitalism".

This is an excellent depiction putting the rise in billionaire wealth during the pandemic in perspective

Sharma classifies industries into good and bad, and inheritance, based on whether the wealth comes from clean and productive industries like IT, services, and Pharma, or from possibly corrupt sectors like real estate, infrastructure, mining, and oil. He finds that the largest share of the wealth of billionaires in developed countries and places like South Korea, Taiwan, and even China comes from "good" industries. 

This is interesting about the size of individual billionaire wealth, 

As the world’s richest man, Jeff Bezos’s $177bn may seem mind-boggling. But at 0.8 per cent of GDP, it is far from Rockefeller wealth, which at his peak amounted to 1.6 per cent of GDP. There are, however, many real Rockefellers in other countries, including five in Sweden, two each in Mexico, France, India and Indonesia, and one each in Spain, Canada, Italy and Russia. Top of the Rockefellers list are self-made fashion king Amancio Ortega of Spain, telecom titan Carlos Slim of Mexico and Bernard Arnault of France; each has a fortune equivalent to more than 5 per cent of his home country’s GDP.

Like with so many other things, where moderation is the need of the hour, Germany provides an example,

It has been boom times for German billionaires too. Their number rose by 29 to 136 last year, but their total wealth edged up only slightly as a share of GDP. Most keep a low profile, avoiding the superyacht scene in St Tropez, and there are no budding Rockefellers among them. The average wealth of the top 10 is $23bn, compared to $105bn for their American peers. Many large German fortunes classify as inherited, but often those tycoons arise from the Mittelstand; family-run, often small to medium-sized companies, which are the backbone of German industry and still a source of national pride.

Finally, he has a graphic on the countries with the highest proportion of billionaire wealth coming from inheritance, and good and bad industries.

Sharma argues that the preponderance of "good" billionaires may be keeping a lid on popular discontent against such dramatic inequalities.

Value capture from infrastructure projects

The economist Donald Shoup pointed to one of the biggest ironies of development, “Why is it so difficult to finance public infrastructure that increases the value of the serviced land by much more than the cost of the infrastructure itself?” The value addition from, say, urban infrastructure projects is well known. I have blogged here, here, and here about land value capture from infrastructure projects.

Arpit Gupta, Stijn Van Nieuwerburgh, and Constantine Kontokosta document the value creation due to the Second Avenue Subway (Q-train) extension in New York City, the most expensive urban mass transit project in recent memory, and use the local real estate prices to analyse the value capture by different stakeholders. 

We find compelling evidence that the 2nd Avenue Subway expansion led to strong changes in commuting patterns. Using our benchmark difference-in-difference specification, we find that residents in areas served by the new subway expansion experience a decline in commute lengths of 3–5 minutes (7.5% reduction). These gains increase to 14 minutes among subway commuters. We find evidence that new migrants into the area, who are likely to be marginal price setters in the real estate market, are disproportionately likely to take the Q-train.

We then link the subway expansion to a sizable increase in real estate values. Our benchmark difference-in-difference specification estimates a 8.3% increase in real estate values when comparing the prices ten years before 2013 to the prices six years after. Prices on the 2nd Avenue corridor increase 11.2% relative to 2003–2006, with nearly half of this gain (5.0%) manifesting during the construction period 2007–2013. The three alternative treatment definitions result in similar point estimates: 5.7%, 6.0%, and 6.8% when com- paring the post-period to the entire pre-period, and 8.2%, 7.9%, 7.3% when comparing the post-period to the pre-2006 period... we apply our baseline 8.3% price increase estimate to the $71 billion in aggregate property value, resulting in a $5.89 billion windfall to private real estate owners... Detailed analysis of property tax data shows that NYC recuperates 30.6% of the increase in market values in present value terms. This amounts to $1.8 billion in extra property tax revenue. As a result, though the subway generated more value than the $4.5 billion cost of construction, this value largely accrues to private landowners, rather than the city government. The city’s own cost-benefit shortfall is $2.7 billion.

This is significant value capture. 

The problems with the advocacy of stakeholder capitalism

I have blogged earlier about the problems with compassionate capitalism. 

Rebecca Henderson is among the leading ideologues for corporates in the US seeking to repackage capitalism without making any hard trade-offs. She has an article in Project Syndicate which pretty much captures everything at fault with the stakeholder capitalism advocacy.

Let's start with Henderson's diagnosis,

Corporate leaders are well aware that climate change is bad for business. It will be a lot harder to make money in a world where once-great coastal cities are underwater, agricultural failures produce massive waves of refugees, and unprecedented wildfires destroy hundreds of billions of dollars of property each year. At the level of the entire economic system, there is no fundamental incompatibility between maximizing profits and addressing climate change. But there is a massive collective-action problem: many individual firms simply have had no good business case for becoming a climate leader.

The collective action problem is a convenient straw man to absolve businesses off any responsibility. In fact, more than any collective action problem, there is a deep time inconsistency problem. Corporate leaders know that these harder realities are not likely to materialise during their tenures and can easily kick the can down the road for their successors. 

Even with the collective action problem, it is not as daunting as is being projected. In most major business segments in the US, nearly three-quarters of the market is dominated by no more than 4-5 companies, with many by even 2-3 firms. Is it a coincidence that not one of these segments has seen any collective effort by businesses, who by the way lose no opportunity to collude, to address fundamental issues of their stakeholders (at least of their workers)?

Then there is the issue of impact washing. Businesses pursuing legitimate commercial opportunities in the emerging environmentally beneficial areas should not be confused with stakeholder capitalism. 

In recent years, however, many other firms have been investing aggressively to exploit immediate, profitable opportunities to address climate change. Investors did not pour more than $280 billion into the renewable-energy sector last year out of the goodness of their hearts. The most successful initial public offering of the last two decades was Beyond Meat, a plant-based burger company. And electric-vehicle manufacturer Tesla seems poised to become the most valuable company in the automotive industry. In these and many other cases, the pursuit of shareholder value is driving the kind of system-level innovation that can transform entire industries.

It's disingenuous to even suggest Tesla or Beyond Meat are pursuing stakeholder capitalism. They are merely pursuing shareholder value maximisation. Tesla's aggressive pursuit of tax concessions is just one signature of stakeholder value destruction. Even in the most rapacious versions of capitalism, there will always be firms pursuing environmental sector businesses if there are profit opportunities. 

In fact, in the context of car companies like Tesla issuing green bonds to finance electric vehicles, Jonathan Ford points to this,

As one fund manager, Tom Chinnery of Aviva Investors, put it: “That’s business as usual. Every car company on the planet should be doing this.”

Ford points to another example of even more shameless impact washing by private equity firm, Carlyle,

The hydrocarbon producer, Clearly Petroleum, has operations in Texas alongside the Brazos river, where, thanks to more extreme weather events in recent years, the watercourse has become increasingly prone to heavy flooding. So the company’s owner, the buyout firm Carlyle, supported it in building flood barriers around its storage tanks and elevating electrical equipment, protecting the works from inundation. Pretty sensible you might think. At least if the plan is to pump oil. It doesn’t obviously do much for the planet. Yet, despite the fossil fuel bit and lack of any obvious carbon abatement, Carlyle claims that this is a green investment. The firm says that achieving impact “isn’t just about putting money into companies with strong records on environmental, social and governance factors”. “It’s also about making sure portfolio companies are in a good position to deal with the effects of climate change that are happening right now,” it says. You might argue that if that’s “green”, almost anything could fit the description.

In light of the incentive structures and pervasive practice of impact washing, claims of incorporating stakeholder interests should be subjected to strict scrutiny. Again, sample Henderson's unqualified claim about self-regulation, 

Moreover, some companies and sectors have turned to voluntary self-regulation. In November 2010, for example, the Consumer Goods Forum – comprising firms that together employ more than ten million people – committed to achieving net-zero deforestation in the key sectors of soy, palm oil, beef, and paper. This was entirely consistent with profit maximization. Growing consumer awareness of these sectors’ negative environmental impact had become a significant brand risk. Firms were increasingly worried about their ability to recruit talent or maintain viable supply chains. So, knowing that while costs might increase, they would increase equally for everyone, they took pre-competitive action.

How do we know this brings in real benefits, with associated costs, and is not impact washing? How do we know that it's not optical washing instead of meaningful reform? Where's the evidence that firms are increasingly worried about their ability to recruit talent because of their environmental track record? Where is the evidence that these have become anything close to being prohibitive enough as brand risks? Rigorous assessments, compared to Ms Henderson's corporate apologia, like this by Aswath Damodaran, debunks all such notions.

To be fair, she grudgingly acknowledges the limitations of this approach. But here too she sees a role for capital markets alongside governments. Again misleadingly, she points to the example of Japanese Government Pension Fund, whose focus on climate change is more a reflection of public action than any commercial interest. 

Some of these are emphatic claims, with liberal use of adjectives, and have no evidence,  

Nonetheless, the momentum behind coalition building in recent years has created a growing cohort of firms with strong economic interests in finding third parties to enforce cooperation... Massive institutional investors thus have strong incentives to push the firms in their portfolios toward climate action... The shareholder-value imperative is also leading firms to rediscover the central role of government in enforcing cooperation... Having oriented their business models toward addressing climate change, these firms have strong incentives to push for measures that will compel their competitors to make the same choices.

She concludes with pure feel-good hogwash,

To achieve a green recovery, we must reclaim the original promise of capitalism and its fundamental normative commitments to prosperity and freedom, not to making money at any cost... An authentic public purpose can give firms the courage, creativity, and talent needed to bear the risk of exploring new business models. For the smart ones, climate commitments can confer a productive and competitive edge. Adopting a purpose does not mean abandoning investors. It is possible to change the world for the better and make money, to reconcile moral duty and fiduciary responsibility – and it is imperative that we find a way to do so at scale.

Where did the stuff about "original promise of capitalism" come from? 

The idea behind all such feel-good propaganda about business self-regulation is to keep governments away from forcing hard choices required for any meaningful reform. 

On their own, companies, especially the largest ones, are never going to change track from single-minded pursuit of profit maximisation. The examples of corporate engagement with China and response to Covid 19 are only the latest exhibits. 

The profits-at-all-cost approach of Wall Street, Hollywood, Big Tech, National Football League is all well-known. In fact, the pace of worsening of US-China relations this year appears to have been outmatched by the pace of Wall Street's embrace of China. This story of craven compromise on Mesut Ozil by Arsenal and English Premier League is another reminder. 

Last year, nearly 200 large US companies, grouped under a Business Roundtable declaration, pledged their commitment to stakeholder capitalism. Their balance sheet when faced with Covid 19, according to a study by Tyler Wry of Wharton,

As COVID-19 spread in March and April, did signers give less of their capital to shareholders (via dividends and stock buybacks)? No. On average, signers actually paid out 20 percent more of their capital than similar companies that did not sign the statement. Then, as the coronavirus swept the country, did they lay off fewer workers? On the contrary, in the first four weeks of the crisis, Wry found, signers were almost 20 percent more prone to announce layoffs or furloughs. Signers were less likely to donate to relief efforts, less likely to offer customer discounts, and less likely to shift production to pandemic-related goods.

See this and this about the utter hollowness of the Business Roundtable resolution.  

The fundamental problem with advocacy of stakeholder capitalism is that it just does not add up, big time. Any meaningful attempt to reform capitalism has to involve making hard choices around trade-offs. For businesses it is fundamentally about increasing costs and lowering their profit expectations. It's about better treatment of workers and increasing their share of the incomes. It's about changing the distorted incentive structures within firms. It's about paying their proportionate share of taxes and eschewing the aggressive pursuit of tax avoidance. It's about drawing lines in the relentless pursuit of efficiency and making choices about resilience and sustainability. In simple terms, it's about rebalancing in several areas. 

At the industry level, it is about reining in the unfettered political power (the power to set the rules of the game concerning their own industries) exercised by big financial institutions and behemoth technology firms. As Herman Mark Schwartz has written, this requires fundamental shifts in capitalism and corporate incentives. It is about political mobilisation and choices thereon.

Update 1 (14.01.2022)

Aneesh Raghunandan and Shivram Rajagopal have a damning indictment of the Business Roundtable folks,

We find no evidence that BRT members – who voluntarily signed the Statement – have engaged in such stakeholder-centric practices. Relative to within-industry peer firms, publicly listed signatories of the BRT statement commit environmental and labor-related compliance violations more often (and pay more in compliance penalties), have higher carbon emissions, and rely more on government subsidies. BRT firms are also more likely to disagree with proxy recommendations on shareholder proposals. Preliminary evidence from the period subsequent to the signing of the Statement suggests that signatories did not sign the document as a credible signal of a future intention to improve stakeholder-centric behaviors. Our results suggest that firms’ proclamations of stakeholder-centric behavior are not backed up by any hard data on these firms’ operations.

This report has found that after the pandemic, the BRT signatories were no better than others in protecting jobs, workplace safety, labour rights, and in addressing racial inequalities. 

Reimagining capitalism

Contrary to expectations of wealth destruction and reduction of income inequality associated with a pandemic like Covid 19, the exact opposite trend is happening. Amidst the raging pandemic, the larger companies from US to India have been announcing record profits and cash surpluses, due in no small measure to wage cuts and furloughs, among other things. These corporates have used the opportunity to become more "efficient" by maximising labour productivity and thereby exacerbating an already disturbing trend of business concentration. 

Worse still, public policy too has tended to amplify these trends. With equity markets dictating policy making, governments have been forced into intervening aggressive with liquidity support and other measures, most of which have an inherent bias towards the bigger companies. Bailouts have been designed to primarily protect the interests of capital and financial market investors, while leaving workers to fend for themselves. This was a feature of the GFC too, when TARP focused on backstopping Wall Street and investors, largely ignoring the suffering of households facing foreclosures. 

This naturally resurfaces the issue of reimagining capitalism. 

In this context, I have blogged here and here, and here about the hypocrisy of the business groups advocating stakeholder capitalism like the Business Roundtable and their apologist ideologues. 

There are two articles that have come to notice in recent times in this regard.

The Times has an article about how co-operatives in Spain's Basque region have helped smoothen capitalism's rough edges and tide over the pandemic by being considerate with their workers. These co-operatives adopted flexible approaches like agreeing to small wage cuts and lesser working hours to keep workers from being laid off. 

The article describes the cooperative enterprises centred in the town of Mondragon, who have managed to reconcile the often-conflicting aims of profitability and protection of stakeholder interests,

Most of its workers are partners, meaning they own the company. Though the 96 cooperatives of the Mondragón Corporation must produce profits to stay in business — as any company does — these businesses have been engineered not to lavish dividends on shareholders or shower stock options on executives, but to preserve paychecks... Its cooperatives employ more than 70,000 people in Spain, making it one of the nation’s largest sources of paychecks. They have annual revenues of more than 12 billion euros ($14.5 billion). The group includes one of the country’s largest grocery chains, Eroski, along with a credit union and manufacturers that export their wares around the planet... In a world grappling with the consequences of widening economic inequality, cooperatives are gaining attention as an intriguing potential alternative to the established mode of global capitalism. They emphasize one defining purpose: protecting workers... Cooperatives... typically require that managers plow the bulk of their profits back into the company to prevent layoffs in times of duress... 

At Mondragón, salaries for executives are capped at six times the lowest wage... The lowest tier is now €16,000 a year (about $19,400), which is higher than Spain’s minimum wage. Most people earn at least double that, plus they receive private health care benefits, annual profit-sharing and pensions. Every cooperative pays into a collective pool of money that covers unemployment benefits and aid to member cooperatives that are struggling. When a crisis requires limiting production, workers continue to get paid as normal, while accruing balances of working time owed that management can assign later.

Its results have been very impressive,

The system proved robust during the global financial crisis of 2008, followed by the so-called sovereign debt crisis across Europe. Joblessness soared beyond 26 percent in Spain. But in Mondragón, the cooperatives apportioned the pain through wage cuts and advance payments on future hours. Unemployment barely budged. 

This about the history of Mondragon is fascinating,

In Mondragón, the cooperatives trace their origins to the wreckage of the Spanish Civil War in the early 1940s, when a priest, José M. Arizmendiarrieta, arrived in the area bearing unorthodox ideas about economic betterment... When the priest approached the owner of a private vocational school to see about opening it to everyone, he was rebuffed. So he started his own, today known as Mondragon University. The priest viewed cooperative principles as the key to lifting living standards. In 1955, he persuaded five of the first graduates of the local engineering program to buy a company that made heaters and run it as a cooperative. They elevated workers into owners — partners is the term of art — with each gaining a single vote in a democratic process that determines wages, working conditions and the share of profits to be distributed each year. Over the decades, scores of other cooperatives took root, dominating the town’s economy. Each business is autonomous, but they operate under shared principles, especially the understanding that if someone loses a job at one cooperative, he or she has the right to take a position at one of the others. If there is no job, partners are entitled to job training plus unemployment benefits lasting up to two years.

There is a lesson here for impact investors and entrepreneurs looking to create impact. In many respects, one José M. Arizmendiarrieta may have created more enduring impact than perhaps all the conventional impact investors combined. Instead of chasing quick-fix technology solutions to persistent development challenges, how many entrepreneurs and investors are even thinking of creating impact through such simple models that present an alternative to capitalism?

Another article, in the WSJ (HT: The Gold Standard) looks at how private equity investors and their practices are corroding franchisee relationships that power small businesses. As they pursue the profits at all cost approach, PE owners of franchised businesses are coercing franchises to accept tough and unreasonable terms. Franchising has been a successful part of the economy in recent years in businesses ranging from hairstyling shops to hotels, eateries, and tax-preparation outlets

Franchisees run 55% of American hotels, according to industry tracker STR. They operated 84% of U.S. chain restaurants last year, according to data from restaurant strategy firm Aaron Allen & Associates. The roughly 774,000 franchised establishments in the U.S. employed about 8.4 million people last year, according to the International Franchise Association, a trade group.

The pandemic may have exacerbated tensions and surfaced them. 

Modern franchising dates back to the use of outside sellers in the late 19th century by the company then behind Singer sewing machines. The contemporary model—in which head offices grant the right to sell, using brand-specific methods, under a company name in exchange for royalties or other revenue—took off after World War II... Franchisees pay brand owners tens of thousands of dollars, and spend significant additional amounts in some cases, for the right to open a franchised business. They sign multiyear contracts that spell out royalties or other money owed to the franchiser, such as a percentage of gross revenue, and agree to maintain the brand’s standards. Franchisees also agree to pay various fees and typically contribute to marketing funds the brand uses to buy national ads. In return, franchisees gain access to customers who trust the brand, plus training in how to operate profitably. The brand owner often sells the franchisees supplies and services at prices it sets. These sales and franchisers’ fees have both become points of contention in some franchise deals.

As profit maximising capitalism took over, the relationship between franchisors and franchisees have changed, often for the worse. Instead of acknowledging the deeply inter-dependent and mutually beneficial nature of their relationship, franchisors like PE funds, with their shorter time horizons, have tended to squeeze out as much as possible from their franchisee partners. Illustrating the point is the story of the Meineke car repair chain, 

Sam Meineke, the 89-year-old founder of his namesake car-repair chain, was part of a generation of entrepreneurs who helped transform the U.S. economy through legions of franchisees... Janet Cummings’s family opened the first muffler shop Mr. Meineke franchised, in Houston in 1972. As her family’s Meineke outlets grew, to a total of 18, so did her connection to the founder, who she said sent her a wedding gift and attended her parents’ funerals. “It was really like family,” she said.

Mr. Meineke sold the business in 1983. A private-equity firm that became its owner stopped sending franchisees reminder notices when it was time to renew contracts, Ms. Cummings said. That was a disadvantage because renewing early allowed owners to roll over contracts, on terms that might be better than those available if they had to negotiate a fresh one. Operators pushed to get the reminders back. “The further the owners are from the franchisees, the harder it is for them to understand what is good for the franchisee is good for the franchiser in the long run,” Ms. Cummings said. A different private-equity firm, Roark Capital Group, now controls Meineke, through a Roark-owned firm called Driven Brands. Ms. Cummings said she wasn’t sent a renewal reminder for a long-held Meineke location.

Reseting the relationship between franchisors and their franchisees to one which is a mutually beneficial partnership is a good example of an alternative form of capitalism. Given that across industries, a few franchisors dominate the market, it would be sufficient if they come together and endorse a code of conduct for them which takes the interests of their partners into account instead of the single-minded pursuit of profits.

Weekend reading links

1. Fascinating article on aging,

As the years pass, our chromosomes contract and fracture, genes turn on and off haphazardly, mitochondria break down, proteins unravel or clump together, reserves of regenerative stem cells dwindle, bodily cells stop dividing, bones thin, muscles shrivel, neurons wither, organs become sluggish and dysfunctional, the immune system weakens and self-repair mechanisms fail. There is no programmed death clock ticking away inside us — no precise expiration date hard-wired into our species — but, eventually, the human body just can’t keep going.

Social advances and improving public health may further increase life expectancy and lift some supercentenarians well beyond Calment’s record. Even the most optimistic longevity scientists admit, however, that at some point these environmentally induced gains will run up against human biology’s limits — unless, that is, we fundamentally alter our biology.

Or this on the case against extending the age, 

Perhaps the most common concern is the potential for overpopulation, especially considering humanity’s long history of hoarding and squandering resources and the tremendous socioeconomic inequalities that already divide a world of nearly eight billion. There are still dozens of countries where life expectancy is below 65, primarily because of problems like poverty, famine, limited education, disempowerment of women, poor public health and diseases like malaria and H.I.V./AIDS, which novel and expensive life-extending treatments will do nothing to solve.

Lingering multitudes of superseniors, some experts add, would stifle new generations and impede social progress. “There is a wisdom to the evolutionary process of letting the older generation disappear,” said Paul Root Wolpe, the director of the Center for Ethics at Emory University, during one public debate on life extension. “If the World War I generation and World War II generation and perhaps, you know, the Civil War generation were still alive, do you really think that we would have civil rights in this country? Gay marriage?”

2.  Fascinating story on the origins of venture capital, from the whaling industry,

To understand what was a risky venture in 19th-century America, visit the Whaling Museum in Nantucket. The industry thrived on this Massachusetts island, now transformed from an outpost for coarse sailors into a swanky beach spot. Two centuries ago, whales were valuable because of the lucrative oil in their head-cases. Captains amassed fleets of sloops and dozens of men armed with harpoons to hunt them. For lucky crews that found their “white whales” the rewards were enormous, but so were the risks of losing ships and souls in the hunt... The risk of losing all was too great for bankers, who refused to lend money to whalers. So a new breed, the whaling agent, stepped in to provide captains with capital in return for a share of profits. Although stakes in many voyages might be lost they spread the capital so that one successful voyage made up for it. This model was an oddity in the 1800s, but the trade-off will sound familiar to venture capitalists today.

3. Scott Galloway on the reality distortion antics of Elon Musk in what he calls the "spectacle economy". This nicely captures Tesla's profitability

4. Tyler Cowen makes the point that patent restrictions are not the binding constraint to expanding vaccine supply. Instead he points to investments in factories, supply of intermediates etc, and also argues that transferring technology like than on the mRNA is very difficult. 

These are not mutually exclusive. As is only too well known with Pharma industry in general, patents are a problem. But the other issues raised by Tyler too are as much a problem and need to be addressed. Mere emergency licensing is not going to get us anywhere. 

Licenses are widely available. AstraZeneca have licensed their vaccine for production with manufactures around the world, including in India, Brazil, Mexico, Argentina, China and South Africa. J&J’s vaccine has been licensed for production by multiple firms in the United States as well as with firms in Spain, South Africa and France. Sputnik has been licensed for production by firms in India, China, South Korea, Brazil and pending EMA approval with firms in Germany and France. Sinopharm has been licensed in the UAE, Egypt and Bangladesh. Novavax has licensed its vaccine for production in South Korea, India, and Japan and it is desperate to find other licensees but technology transfer isn’t easy and there are limited supplies of raw materials.

5. New paper by Dev Patel, Justin Sandefur, and Arvind Subramanian, that adds to the literature on convergence among developed and developing countries. They write,

At the country-level at least, we should update, perhaps even shed, three of the deeply entrenched ideas about cross-country growth: unconditional divergence, middle income traps, and volatile and unstable growth within poor countries over time. Since the mid-1990s, it's not just China, India, or a select group of Asian countries that have done well; developing countries on average outpaced the developed world. And in this era of unconditional convergence, middle-income countries far from being stuck in a trap experienced reduced volatility and more persistent growth. In other words, the facts have changed considerably. That convergence happened over the last 25 years is, of course, no guarantee that it will continue. Until we know what caused it (exogenous factors related to cheap nance, Chinese growth, and/or country-specific attributes), and until we know the impact of future developments (such as deglobalization, climate change, and rise of labor-saving technology), unconditional convergence cannot be taken for granted. That said, we must finally acknowledge that what has happened since the mid-1990s is historically remarkable. Developing countries as a group have broken from a pattern of development going back nearly 500 years. Between the 1400s and the industrial revolution, there was a reversal of fortune (Acemoglu et al., 2002) and subsequent divergence, involving today's poor countries that were once rich falling behind industrial nations. Since the industrial revolution, reversal gave way to divergence in growth rates between rich and poor nations (Pritchett, 1997). Both those historical trends have been arrested since the mid-1990s, making the unconditional convergence finding truly noteworthy.

6. Business Standard examines the Rs 4500 Cr production linked incentive scheme for encouraging solar manufacturing in India.  

PLI will be disbursed for five years, post the commissioning of manufacturing plants, on sales of high efficiency solar PV modules... The Centre will impose 40 per cent basic customs duty, BCD, on imported solar cells and modules from April 2022 in order to support dom­estic solar manufacturing. Close to 85 per cent of India’s solar capacity is built on imp­orted cells and modules, majority of which come from China. “BCD offers much better incentive to a foreign player to come and manufacture in India, rather than PLI. Under the PLI, the incentive is very less compared to their capex. For large scale manufacturers, neither the PLI scheme nor BCD is beneficial. Established solar component makers are based in special economic zones (SEZs) and the Centre has not offered any BCD exemption to them,” said a senior industry executive.

Eradicating extreme poverty - study in contrasts

The Economist has a very good article which outlines the strategy adopted by China to develop its most backward regions and end extreme poverty by 2020.

Since 2015, it has pursued a two-pronged strategy, relying on modern agriculture and moving people, in 832 identified counties (about 30% of the country's total) which were mostly inhospitable and mountainous and where extreme poverty was concentrated. 

The article writes, 

The first was to introduce industry—mostly modern agriculture. In Luomai, a village in Ziyun, the government created a 25-hectare zone for growing and processing shiitake mushrooms. About 70 locals work there. In the past their only options were either to migrate elsewhere or to eke out a meagre existence farming maize. But the shiitake are a cash crop, letting them earn about 80 yuan a day, a decent wage... The second approach to helping hard-up villages was more radical: moving inhabitants to better-connected areas. Between 2016 and 2020 officials relocated about 10m people. China has long moved people around on a huge scale to allow development—for instance clearing out homes to build dams. But in this case resettlement was itself the development project. The government concluded that it was too costly to provide necessary services, from roads to health care, to the most remote villages. It reckoned that moving residents closer to towns would work better.

The first, modernising agriculture, requires changing behaviours, agricultural practices, and embracing newer market opportunities. It requires awareness creation and high quality extension services. The highly decentralised and diverse nature of farming in India, and that too deeply rooted in tradition, means that such large scale change within a short period of time is impossible. 

Joe Studwell has described how East Asian economies created the conditions for long-term economic growth by deploying intensive agriculture on small land holdings which dramatically improved land productivity and farm incomes.

The second, moving people to where opportunities exist is even more difficult impossible at any reasonable scale. Democracies cannot undertake such large scale human resettlements. Besides, it is impossible for any country to mobilise and funnel the massive amounts of resources required for such projects. 

This highlights the challenge facing India.  

India has its version, the Aspirational Districts program, covering 117 districts across 28 states. This program has sought to focus on essential necessities of human development (education, health and nutrition), livelihoods (agriculture, skills, and financial inclusion), and basic infrastructure (water, electricity, and roads) in these areas. There cannot be any doubt that, instead of the Chinese program, this is far more comprehensive in scope and more sustainable. But it is also very difficult to implement. 

The human development interventions are among the hardest development challenges, one which has remained persistently elusive to public policy for long time. Since livelihoods are built on human capital investments, the weakness of the latter blunts the effectiveness of initiatives on the former. And infrastructure investments face the simple fiscal challenge - the demands are simply too much and the resources available too little, as to leave governments with spreading the butter to thinly to satisfy all constituents that its impact is diffuse and limited.

The Biden makeover of Government in the US

The tenure of Joe Biden as President of US may be a defining moment in the role of government in the US. He has so far announced $6 trillion worth programs to combat both Covid 19 and the longer term problems affecting American society. 

This graphic summarises the $4.1 trillion infrastructure and families plans of the Biden administration, of which the latter contains several permanent measures on welfare and social safety. 

This is the list of components in the Families Plan and this in the Infrastructure Plan.

A summary of the Families Plan,

Most of the spending and tax cuts in Wednesday’s proposal is directed at families, with provisions for a national paid family and medical leave program; child care subsidies; and extensions of several tax credit expansions from the most recent Covid-19 relief law. Newly proposed education spending includes universal prekindergarten for 3- and 4-year-olds; two years of free community college; an increase in the maximum Pell Grant award; and investments in colleges and universities serving minority groups. The plan also calls on Congress to adjust the unemployment insurance system so that it would automatically link the length and amount of benefits to economic conditions.

Many of the provisions cover upto 10 years.