Tuesday, August 22, 2017

Mid-week graphics link fest

1. The remarkable rise and stability in the US equity markets since the election of Donald Trump and the daily roller-coaster of uncertainty flies against conventional wisdom. The graphic below captures the Trump stability,

2. Talking about equity markets and widening inequality, John Mauldin points to this stunning graphic from BofA about the number of hours the average worker has to work to buy a notional share of the S&P 500.

3. This graphic, again from Mauldin, is even more stunning - the US has more indices today than there are stocks! ETFs are driving the equity markets, not stocks.  

4. The folks at GMO who forecast the 7-year asset class returns have dismal findings - US equities expected to decline by 4.2% annually and bonds by 1%. The only silver-lining being emerging market equities.

5. One of the major beneficiaries (and an amplifier) of this financialization have been the credit rating agencies, or the nationally recognised statistical rating organisations (NRSRO) in the US. 
The credit rating market is virtually consisting of just three firms!

6. It is well accepted that the Fed has played an important role in propping up the equity markets. This graphic of Fed balance sheet expansion and the rise of equity market from John Authers is pretty striking. 

7. This graphic shows that the Bank of England's lending rates are currently its lowest in its 323 year history! Since its founding in 1694, the BoE had never lowered its lending rate below 2 per cent till January 2009!

8. One of the most unfortunate things about the sub-prime mortgages induced crisis in the US has been the virtual absence of fixing accountability. This graphic shows that even as 324 Main Street mortgage lenders, loan officers, real estate brokers, developers and others have been convicted, US prosecutors have not been able to complete charges against even one Wall Street CEO. This despite over $150 bn having been realised in fines. 

9. I recently blogged about the declining interest in PPPs. The graphic below captures the sharp decline since 2007 in UK's pioneering Private Finance Initiative (PFI) to attract private investors to infrastructure deals. 
The decline should be an eye-opener for those mindlessly continue to hold up the PFI as an exemplar of best practice in PPPs.

Monday, August 21, 2017

Assessing India's economic growth prospects

Ruchir Sharma offers a nice dose of realism about Indian economy, the relationship between economics and politics, government's contribution to growth and more. He makes some interesting points. 

1. Lower growth rates are the new global normal. There is not a single region in the world which is growing faster now than a decade back. Exports, which provided the boost for the last two decades of growth has been stagnant this decade. To that extent, any growth rate above 5 per cent should be good for India. 

2. India has been out-performing its emerging market peer basket by about two percentage points for 2-3 decades, and that out-performance is likely to continue. It helps that the country's GDP per-capita at $2000 is only a fifth or so of the peer basket average, and therefore the boost from low base is significant. 

3. Empirical analysis of state elections shows that even in the past decade, anti-incumbency has been the dominant trend in Indian politics, even when states deliver impressive economic performance. Anti-incumbency has only marginally declined from 65% to 58% in the past decade.

4. The findings of the World Values Survey over the past 2-3 decades show that among the major countries India shows the highest increase in public preference for authoritarian leaders (as against one more answerable to the Parliament and favours more democracy). 

5. Economic growth in recent years has been driven by consumption than investment, as reflected in the buoyant performance of consumer stocks as against the poor performance of manufacturing and infrastructure sector stocks. To the extent that the former is less dependent on government policies than the latter, the government role in contributing to the high growth rate is marginal. 

6. The arrival of a new leader in emerging economies is associated with elevated stock market performance for 2-3 years, with an out-performance of 20-30%. Over the past three years, Indian stocks have out-performed emerging market peers by 10-15%. 

7. The quality of private sector companies, in terms of having consistently delivered 15% or more earnings growth on a steady basis for more than five years, driving equity markets in India is the best in the world. This is encouraging sign both for the sustainability of the bull market as well as for future growth. 

He writes,
The path has been one of incrementalism for a very long period of time and that is the path that we should expect over the next few years and therefore... to pay attention to politics in India is, from an economic perspective, is really a waste of time... this is a country... that consistently disappoints both the optimist and the pessimist. And so, that realism is what we need. You can always be an optimist and always say that this is going to happen. But for me, that is a money losing strategy and that is one thing which is also, we have not appreciated that if you look at what has happened over the last three years, had you bet on the government to deliver, look at it from a pure stock market perspective, you would have been a loser... the evidence suggests that there is really no connection between politics and economics in this country. On the other hand, it is this sentiment of nationalism and you see this, you see this across social media, you see it across television channels, it is this sentiment towards nationalism and stride at hyper-nationalism at times, it is this sentiment which is what is buoying Modi and the current administration... 
if you look at what has worked in the stock market over the last three years, you will find that there is nothing to do with the government or politics. The best performing sector since May 2014 has been the consumer staples sector. This reflects the fact that what is really driving the Indian economy over the last three years has been consumption. As we know from instances across the world, that the government really doesn't have much of an impact on consumption as much it has on investment. Investment is what the government can really drive by creating the investment environment for investment to pick up or pushing that. Instead if you look at investment related stocks in India, those have done quite poorly on a relative basis especially over the last three years.
And this is interesting and I agree,
So, my simple point being here that the connection between politics and economics in this country is rather limited and the stock market's behaviour over the last three years since this government came to power has only reinforced that notion. If you look at both the internals of the market, in terms of what has done well and also the overall market, neither the pessimists nor the optimists on the Modi government would have made any money based on a political view. So, in this country if you want to do well you have tune out the politics and be an internal exile as far as politics is concerned because that only interferes with sort of making money in this nation.
But, in favour of the government, it has to be argued that the counter-factual is impossible to have. To its credit, the government has not done any harm, and has largely been pursuing stable fiscal and macroeconomic policies. This is more than can be said of governments, not just in India previously, but also globally in emerging markets. 

It is here that I disagree with Ruchir, 
There are countries like China, Korea, Taiwan which have been able to grow at 10 percent plus. But my point has always been that to expect big bang reforms in India, to expect that some major big bang reforms will take place in India has always been a bad bet because that never happens. Our culture is one of incrementalism. We do things in incremental steps and I think that is what should be the operating assumption.
I do not think that there are big-bang reforms in India's context. When we talk of big-bang reforms, we think of one-off decisions like deregulation, privatisation, promulgation of new laws, and so on.  Take a decision and you are done. The sort of stuff like privatisation of banks and public sector units, while necessary, on their own, are unlikely to unlock massive growth energies.

The real reforms in India's context, as we laid out in our book, Can India Grow?, are more in the nature of steady and focused accumulation of human, physical and institutional capital, whose base is astonishingly low for an economy of India's size. Deficiencies in these are the binding constraints to sustainable high growth rates. No amount of big-bang can make up for them. For sure, there are some big-bang stuff there, as we outlined, but those are not the stuff the markets associate with big-bang reforms. They are in the nature of pulling complementary levers and persistent follow-up for long periods to address deep-rooted problems.

They would include reorientation of school education single mindedly towards learning outcomes; restructuring of UGC, MCI etc; facilitating the development of financial savings  instruments and enabling access to them, so as increase the savings rate; transition to outcomes-based financing in health care, away from line-items health funding; policies to provide tenure stability and address politicisation of officials postings; across the board standardisation, e-procurements, and third party quality audits; reforms to address decision paralysis and so on. Not the sexy stuff like repeal of Section 25N of Industrial Disputes Act 1947 or the privatisation of Air India or Indian Railways!

Friday, August 18, 2017

Historical asset prices

Ananth points to the FT Alphaville article that features the new work of Oscar Jorda, Alan Taylor and Co that examines the relative rates of return for equity, housing, bonds, and bills for 16 countries over the 1870-2015 period. Their finding,
Over the long run of nearly 150 years, we find that advanced economy risky assets have performed strongly. The average total real rate of return is approximately 7% per year for equities and 8% for housing. The average total real rate of return for safe assets has been much lower, 2.5% for bonds and 1% for bills. These average rates of return are strikingly consistent over different subsamples, and they hold true whether or not one calculates these averages using GDP-weighted portfolios. Housing returns exceed or match equity returns, but with considerably lower volatility—a challenge to the conventional wisdom of investing in equities for the long-run.
A summary of their finding below shows that while returns on housing and equity have been relatively similar, the former has been much less volatile than the latter.
The relative performances of all assets with respect to bills for the period from 1870 and from 1950 are below.
FT though points to a wrinkle to this assessment, highlighting that contrary to conventional wisdom capital appreciation is a smaller share of wealth effect from housing and a significant share of the returns to housing has come in the form of rental yields, something unavailable to the typical homeowner. This coupled with the cost of mortgage taken to finance the purchase means that the real return to the homeowner from a housing asset would be far lower. 

And in a nod to Thomas Pikketty and Co, the authors find that r, the real rate of return to capital, has consistently exceeded g, the real GDP growth, in the aggregate sample, except during the wars,
A robust finding in this paper is that r ≫ g: globally, and across most countries, the weighted rate of return on capital was twice as high as the growth rate in the past 150 years... In fact the only exceptions to that rule happen in very special periods—the years in or right around wartime. In peacetime, r has always been much greater than g.
They also find that risky rates, a measure of profitability of private investment, have remained more or less constant over the past four decades, whereas risk-free rates have declined over the same period,
Both risky and safe rates of return were relatively high in the pre-WW2 era, with an obvious dip for WW1. The risk premium between risky and safe rates grew large with the Great Depression and through the Bretton Woods era. Safe real rates were especially low in WW2 up to the late 1970s. After spiking in the 1980s, the safe return has gradually declined, yet risky returns have remained relatively close to their historical average level, and the risk premium is approaching post-1980s highs... We find that the real safe rate has been very volatile over the long-run, more so than one might expect, at times even more volatile than real risky returns. 
An equally important finding is the remarkable rise in correlation of cross-country risky asset returns, in particular equity returns, and attendant risk-premiums
Historically safe rates in different countries have been more correlated than risky returns. This has reversed over the past decades, however, as cross-country risky returns have become substantially more correlated. This seems to be mainly driven by a remarkable rise in the cross-country correlations in risk premiums. This increase in global risk comovement may pose new challenges to the risk-bearing capacity of the global financial system, a trend consistent with other macro indicators of risk-sharing.
This is one more datapoint in the growing pile of evidence about the global interconnectedness and systemic risks posed by excessive financial market integration.

Thursday, August 17, 2017

The contrasting trajectories of infrastructure and welfare sectors in development

Consider how roads were built even thirty years back in countries like India. Government officials would make the project reports and work estimates and get the road approved. Once approved, the local officials would procure materials like bitumen, hire workers, and use government owned machinery to lay the road. One group of officials from the department would do the field execution, another group would do the recording and check measurements, and yet another group would conduct quality control checks. Once constructed, another group of officials from the same department would be entrusted the responsibility of maintenance. As can be imagined, the government incurs the full expenditure for the road on its completion. 

Fast forward to now, and the scene has been transformed beyond recognition. Consultants make detailed project reports and estimates. Once approved, the department tenders the work out to contractors, who have the responsibility of construction to specified standards. The department owns no equipment and supplies nothing. It even outsources quality control and project management responsibilities to consultants. The maintenance responsibility is either bundled with the construction contract or outsourced after construction. What's more, the government even amortises its expenditure by making periodic payouts to the contractor on meeting agreed service levels. 

The department's role is to co-ordinate among a group of private providers. Contract management has replaced execution as the primary responsibility of government. Much the same transformation has happened across infrastructure sectors, including the urban sector. 

It cannot be denied that this transformation has had a very significant impact in the ability of governments to develop massive infrastructure projects, improve the quality of service delivery, lower corruption, and become all round more efficient. 

Now take the example of school education. Thirty years back, governments would construct school buildings, hire teachers, and run schools. The department would develop, print and supply text books; stitch and supply uniforms; run mid-day meal kitchens; buy and make available television and computers with operators; procure teaching material for teachers; and provide trainings on curriculum instruction, leadership, motivation and so on. It would also develop testing instruments, hold examinations, hire data entry operators to collect and consolidate data, and so on. 

Fast forward to now, and virtually nothing has changed. The government continues to do all the same set of activities! Much the same applies to health, nutrition, agriculture, and most other welfare sectors. 

In some sense, this also, at least partially, explains the relative stagnation in service delivery quality in welfare sectors.

In a world of twenty years hence, given very weak state capacity, it is highly unlikely that we would have achieved learning and other outcomes without having catalysed markets that offer services across welfare sectors. Therefore, catalysing markets and the emergence of an eco-system of service providers should be one of the primary objectives of public policy in social sectors in developing countries.

This is not an argument in favour of privatisation but one to leverage complementary strengths. The private or non-government sector is likely to be better at doing engagement intensive activities, which weak state capacity is likely to hinder state from being able to deliver effectively. While schooling and primary health care, being public goods, will have to remain mainly public responsibilities, governments should seek opportunities to leverage private sector strengths where possible. 

Tuesday, August 15, 2017

Is the tide turning on PPPs?

It is no hyperbole to claim that the tide on the unqualified embrace of PPPs has turned. The only thing surprising for me is that the likes of FT are leading the charge. Interestingly, the most intense debate on the issue is happening in UK, one of the countries which was at the forefront of the privatisation movement. I have blogged numerous times that PPPs are costlier, invariably run renegotiation risks, and suffer from governance failings, all of which make them extremely controversial.

The latest example of governance failings come from London's £4.2 billion 15 mile long "super sewer" project, which has been accused of profiteering at the expense of tax payers. The project, being developed by Thames Water through a very complicated project structure and with several government guarantees, is an over-flow super-sewer linking the 57 over-flow pipes across London. This sewer will serve as a catchment for sewerage water which prevent overflow into Thames when it rains heavily and the treatment system cannot cope up with the inflows. 
Of the £4.2 bn, £1.4 bn is being provided as equity by Thames Water, with the investments coming from investors through a very complicated company structure,

The FT article writes,
Thames Water paid £157m in dividends to its offshore investors in the year to March 31 2017 and currently carries £11bn of debt... The European Investment Bank has issued a £700m, 35-year loan and the balance is made up of a mix of bank debt and bonds. As of March 31 the investors had paid in £370m in equity and had bought a further £529m of subordinated debt — commonly used to reduce tax liabilities — receiving an interest rate of 8 per cent... the government has agreed to be the backstop for the project, minimising any risk. According to the terms of the contract, if the cost overruns exceed 30 per cent, the government could be forced to step in to provide additional equity to the Bazalgette consortium or the investors will be allowed to discontinue the project and receive compensation... Thames Water’s 15m customers, who will pay for the project through higher water bills — an increase of £12 to £15 a year currently, rising to £20 to £25 by the mid-2020s — paid £33m to Bazalgette last year, which used the money partly to cover the interest payments on the debt... 

Thames Water has a complicated offshore holding structure and so does Bazalgette, which is owned by Bazelgette Holdings Ltd, which in turn is owned by Bazelgette Ventures Ltd, which is owned by a holding company, Bazelgette Equity Ltd... Meanwhile, Bazalgette paid £2.2m in directors’ salaries in the year to March. Andy Mitchell, chief executive, saw his base salary almost double in the past year to £425,000. He also received a bonus of 66 per cent of his salary, or £281,000, taking his total package to £729,000. These rewards were made even though the management of the project has been outsourced to Amey OWR for system integration and Ch2MHill, which is project managing the three construction consortiums. All the management of the tunnel is doing is co-ordinating some contractors... The tunnel has also provided rich pickings for dozens of law firms, including Linklaters, Herbert Smith Freehills, Ashurst and Norton Rose Fulbright. UBS — which also advised on the sale of High-Speed One, Eurostar, Royal Mail and the Green Investment bank — was an adviser on the project, and the chief financial officer of Tideway was formerly a UBS employee.

Monday, August 14, 2017

The GIS mapping challenge in power distribution

This post is slightly technical and may interest those engaged in power distribution sector. A feature of distribution loss reduction programs across India over the past fifteen years has been the focus on GIS mapping of 11 KV distribution feeders emanating from sub-stations. This is also a major part of the government's latest distribution loss reduction thrust as well as an important priority under the UDAY distribution sector reform agenda. 

Interestingly despite tens of thousands of crores of rupees having been spent on GIS mapping by distribution companies, we do not yet have even a single 11 KV feeder anywhere in the country GIS mapped in a manner that it serves as decision-support. The last part is important since many discoms will claim to have GIS mapped their networks without delivering any reasonable functional utility. This should count as arguably one of the biggest technology scandals in any sector. And, what's more, I shall hazard the claim that we are unlikely to succeed any time in the foreseeable future with such GIS mapping. Here is why. 

A 11 KV distribution feeder is a network with a 11 KV spine that culminates in several distribution transformers from each of which further lines feed into several household connections. This network is a very dynamic system, especially in urban areas, with new connections being added and old ones disconnected, connection categories being changed, and transformers being split or upgraded. Further the distribution network itself undergoes constant changes due to strengthening works, road widenings, large property developments, and several other practical exigencies. 

In this context, any GIS map is reliable only if we have a system to capture these changes and update the network map in real time. This can be done only if the entire work-flow of the distribution company - approval of works, connection changes etc - is automated and captured in one application. Further, the work and completion plans of all network related works and connection changes should  respectively emerge from and be captured and integrated into the base GIS map. 

Even the best distribution companies in India especially those with significant rural areas, despite powerpoint presentations and tall claims, are still some distance away from being able to achieve this.

None of this is to deny the undoubted importance and urgency of distribution feeder mapping - identifying all the consumers under a feeder and each one of its distribution transformers. This is an essential starting point for any meaningful energy audit, critical for the reduction of distribution losses. But this is best done as a simple and diligent exercise of physical mapping of all connections under each feeder. Unfortunately, there are no technology shortcuts to this basic requirement.

This should also count as a teachable example of the limits of using technology in improving public systems. If ever there was the need for a negative screen for an "innovation", GIS mapping of electricity distribution network is the one!

Friday, August 11, 2017

Comments on lateral entry

One of the concerns expressed about the proposal we made on lateral entry into the IAS is that the entry conditions are too stringent as to make it unattractive to the best among prospective candidates. Instead, it is suggested, that lateral entry should include contract tenures for five years or so.

As a preface, it is useful to draw the distinction between lateral entry into the bureaucracy and appointments of technocrats into ministerial positions. All the standout successes belong to the latter category. We should also make the distinction from contract appointments for five year tenures to specific posts. I have argued in favour of such appointments and have covered them in an earlier article here.

This proposal is for an institutionalised system of lateral entry into the bureaucracy. It therefore stands to reason that it has to follow the bureaucratic rules of the game of a parliamentary democracy. A proposal to cherry-pick the bureaucratic features of a Presidential system (the federal bureaucracy in the US) and incorporate them into a Parliamentary system only reveals a profound lack of understanding of different political systems.

For a start, I am not willing to buy the argument that the lateral entry as proposed will not be able to attract the best and brightest. For example, the likely candidates could include at least some of the following, and they are likely to be a fairly significant number
  1. Private sector professionals who have made their money and experience a mid-career urge to serve the country
  2. People with passion and commitment who chose a career with non-government agencies and have risen to leadership positions there
  3. Government employees who have excelled in their careers and have exhibited leadership skills for greater responsibilities.
Second, it is very unlikely that lateral entrants, barring rare exceptions, can come straight from outside the government into positions of Secretary to Government of India and the like and succeed to any reasonable degree. The learning gap will be very steep and not easily bridged in a short time. 

Most lateral entrants would need exposure to not just field conditions, but also understand the dynamics of decision-making - negotiations with diverse stakeholders, trade-offs associated with a political system, engagement with states, co-ordination with other departments, navigating the bureaucracy, extracting work in public systems, being effective in systems with scarce resources and weak capacity, and so on. In this, there is no substitute for a few years of field experience. This is also the biggest differentiator between the IAS and the rest, including from the other civil services.  

Third, the proposal is to recruit bureaucrats and not Ministers. Their role is to plan and execute. Professional competence is just one of the desirable attributes. An arguably more important attribute is the ability to administer and navigate a formidable decision-making labyrinth to get stuff done. Experience can be invaluable in this regard. 

Four, an arrangement where some outsiders are able to cherry-pick their posts and be governed by a different set of administrative rules governing their postings, leaving the regular bureaucrats to be satisfied with the remaining posts, is not just untenable but also plain unfair. It would distort the cadre management within the IAS.

Five, high-profile lateral entrants are unlikely to be willing to rough it out to gain this experience. It is unlikely that they would be able to sub-ordinate themselves to their Ministers and play by the rules of a bureaucracy. They are better off being Ministers themselves.    

Six, I am inclined to believe that these criticisms are unlikely to disappear even with a five year contract. For there will still remain the uncertainty associated with postings and tenures. After all, even in the most optimistic scenarios, the tenure of a Secretary would be less than three years. Would the best lateral entrants be willing for a bargain which could run the risk of glamorous and unglamorous, and with uncertain tenures to boot?

Finally, the belief that outsiders, in general, can parachute in for a few years and make a significant enough dent on the complex development challenges of India betrays a very high degree of naivety. Lateral entry into the IAS has to be introduced without doing more harm than good in a complex political and administrative system. There are rarely any simplistic solutions to such complex development challenges.

Wednesday, August 9, 2017

A case for institutionalised lateral entry into the IAS

An evolution of my earlier view on lateral entry. I have a co-authored article here with Dr D Subbarao advocating an institutionalised system of lateral entry into the Indian Administrative Service (IAS).

Monday, August 7, 2017

The failings of post-modern capitalism

Consider this narrative. A combination of economies of scale, first-mover advantages and network effects have privileged a handful of firms across industries. The superstar firms lobby hard to capture the government and set the rules of the game through regulation and occupational licensing, as well as seek innovative approaches to erect entry barriers to competitors. They attract the smartest talent and compensate them with exorbitant salaries, which often border on the vulgar, far far higher than those affordable for their also-ran competitors, thereby engendering an ever widening skills inequality. They raise capital at the cheapest terms while also crowding out capital to the remaining majority. Finally, and most disturbingly, they also exercise market power egregiously to accumulate massive surpluses, which in turn finds its way back not as increased investments and more jobs but returns to shareholders in the form of share buy-backs at inflated prices. The result is heavily amplified market concentration and declined competition. Finance and technology sectors dominate this trend. 

As much as we sing paeans about these innovative and disrupting companies, this picture of post-modern capitalism is far from the orthodoxy associated with free market capitalism.  

This trend is most egregious with technology based firms, where the popular perception endures of start-ups in garages creating entire markets or disrupting entrenched incumbents. Instead the reality has been of a small group of massive firms, which benefited from being at the right place at the right time to take advantage of a nascent industry with dominant network effects and regulatory arbitrage potential. 

Consider the evidence. The Economist points to the work of Germán Gutiérrez and Thomas Philippon of New York University, who write, 
The US business sector has under-invested relative to Tobin’s Q since the early 2000s. We argue that declining competition is partly responsible for this phenomenon. We use a combination of natural experiments and instrumental variables to establish a causal relationship between competition and investment. Within manufacturing, we use Chinese imports as a natural experiment to test the main prediction of competition-based models of investment and innovation, namely that competition forces industry leaders to invest (innovate) more. We establish external validity beyond the manufacturing sector by showing that excess entry in the 1990s, which is orthogonal to demand shocks in the 2000’s, predicts higher industry investment given Q. Finally, we provide some evidence that the increase in concentration can be explained by increasing regulations and, to a lesser extent, stronger winner-takes-all effects in some industries.
The Economist elaborates on the investment slowdown,
Messrs Gutiérrez and Philippon benchmark investment against “Tobin’s Q”, the ratio of a firm’s market value to its book value. A high Q signals that an industry is earning a lot from its assets, which, all else being equal, suggests it should invest more. The authors show that America’s investment has fallen most substantially, relative to Q, in concentrated industries. In these sectors, investment has also fallen more than in Europe. To explore the issue further, the authors draw a distinction between “laggards” and “leaders”, defined as firms comprising the top third and bottom third, respectively, of an industry’s market value. Laggards, they reason, are more likely to wither in the face of competition, so their investment might be expected to fall. Leaders, though, should be up for a fight if rivals challenge them; their investment should rise. They find it is leaders, not laggards, who are responsible for the bulk of the investment slowdown, suggesting a lack of competition.
And its contribution to the declining labour share of profits relative to capital and widening inequality, 
Recent research by David Autor of MIT and four co-authors finds that “superstar” firms pay out less of their profits in wages. As these firms have grown in importance, labour’s overall share of GDP has fallen. Other research suggests that these firms nonetheless pay more, in gross terms, than ordinary firms, so their rise has directly contributed to inequality.
Rana Faroohar has this to say about its impact on the labour market and labour share of the income,
Finance takes 25 per cent of all corporate profits while creating only 4 per cent of jobs, since it sits at the centre of the dealmaking hourglass, charging whatever rent it likes. Meanwhile, wealth and power continue to flow into the technology sector more than any other — half of all American businesses that generate profits of 25 per cent or more are tech companies. Yet the tech titans of today — Facebook, Google, Amazon — create far fewer jobs than not only the big industrial groups of the past, like General Motors or General Electric, but also less than the previous generation of tech companies such as IBM or Microsoft. What’s more, it is not just the top sectors that control the majority of corporate wealth, but the top companies themselves. The most profitable 10 per cent of US businesses are eight times more profitable than the average company. In the 1990s, that multiple was just three. Workers in those super profitable businesses are paid extremely well, but their competitors cannot offer the same packages. Indeed, research from the Bonn-based Institute of Labor Economics shows that the differences in individual workers’ pay since the 1970s is associated with pay differences between — not within — companies. Another piece of research, from the Centre for Economic Performance, shows that this pay differential between top-tier companies and everyone else is responsible for the vast majority of inequality in the US.
Finally, Gillian Tett points to Thomas Philippon and Ariell Reshef who have shown how closely linked pay has been to deregulation of the sector.
However one slices the data, the case for more employee power and use of collective bargaining, direct regulatory action on anti-competitive practices, and enhanced role for public policy to address the failings of excessive competition has never been so clear. Just as the welfare state saved capitalism from the onslaught of socialism in the immediate post-war aftermath, these policies may be needed now to save capitalism from capitalists. 

Thursday, August 3, 2017

The Doklam stand-off

The Doklam stand-off involving the mobilisation of the Indian and Chinese forces in the Doklam area boundary of Bhutan and China is now a simple chicken game. Who will blink first?

In brief, the Indian forces moved into the area on a request by Bhutan under the Friendship Treaty 2007 following Chinese attempts to construct a road through Doklam, which is claimed by Bhutan and is under its control. Both China and India have been demanding that the other side pull back first.  But that is unlikely to happen. 

It will be perceived as a conclusive victory for China if it forces India to pull back, and vice-versa. Either scenario is politically suicidal for the respective countries. 

A simultaneous pull-back, while apparently fair, may be seen as a victory for India. It would likely signal that India intervened on behalf of a neighbour facing Chinese trespass and forced them out. It would further entrench the Bhutanese dependence on India. Not a signal that China, with ambitions of meddling in India's "near abroad", would want. 

This leaves us with two politically less problematic options for either side. One, the default option is to do nothing at all, and let the issue fade-off from public memory and for both sides to gradually demobilize. With time, even a few weeks, other events would have gripped the attention of media and opinion makers in both countries and demobilisation becomes easier. The risk though is the possibility of escalation, triggered by some small incident or by emergent domestic compulsions. 

The second option is for Bhutan to step in and play a role in separating the two armies. One way, as suggested here, is for Bhutan to swap its army with Indian army in the border area, with the latter retreating into Bhutan, and then for the armies of China and Bhutan demobilising to status quo ante. 

It is most likely that the denouement to this will be one of these two. Both sides will claim victory. But India being the weaker power, would have come out marginally ahead in this game of chicken, especially if it is the first option.

And that matters for India if this stand-off is an indicator of things to come, arising out of China's new assertiveness in its foreign policy. 

Monday, July 31, 2017

Transportation investments and urban development

"Connectivity is destiny", so says a nice NYT article on the ambitious Crossrail project in London. I  am very sympathetic. The article nicely captures the power of planned transportation investments in transforming the fortunes of neighbourhoods and keeping cities chugging as engines of economic growth.

Crossrail, the roughly 70 miles and $20 bn railway project, is Europe's largest infrastructure project, and which would cut crucial travel times by half and carry twice the number of passengers as London subway. Its objectives are nicely summarised,
Crossrail was intended as a kind of democratizing corrective, at once shrinking the city and expanding on a vision of London as a great, inclusive metropolis. While it will whisk bankers at new speeds from their office towers and multimillion-dollar aeries to Heathrow, it will also help millions of now-marginalized, lower-income workers, unable to afford runaway home prices in and around the center of the city, to live in cheaper neighborhoods often far from their jobs... Crossrail now promises to bring six million people and 80 percent of London’s corporations within an hour’s commute of the airport, up from three million and 50 percent today. 
London has been remarkably successful in adapting and even re-inventing itself to meet the demands of emerging economic challenges,
While Londoners love to moan about their public transit network, by comparison New York has barely managed to construct four subway stops in about a half-century and its aged, rapidly collapsing subway system now threatens to bring the city to a halt... During the past three decades, London has been transfigured by wild growth, much of it the consequence of government-sustained megaprojects: Along with Crossrail, there have been the stupendous renovations to King’s Cross and St. Pancras Stations, the wholesale invention of Canary Wharf, the addition of the Jubilee subway line, the Olympic makeover at Stratford in East London and the expansion of Heathrow Airport. These megaprojects, in different ways, helped remake London into the great global city-state of Europe, a 21st-century melting pot and Sybaris of culture and free-market prosperity — at the same time that they clearly exacerbated underlying urban inefficiencies and stirred resentment elsewhere in England toward the city... London... is historically poor in the east, rich in the west and along the periphery, although that east-west distinction has eroded as gentrification has seeped outward. Underserved and long-disconnected East London neighborhoods like Shoreditch and Whitechapel in recent years have become chic and largely unaffordable to many Londoners. The city has added light-rail lines to help some of those areas, but only Crossrail is capable of “tying together many of the developments that have transformed London". 
The economic benefits of such projects are high, as the example of King's Cross area renewal has shown,
The area around King’s Cross, once notorious for drugs and prostitution, has metamorphosed after the renovation of the decrepit King’s Cross station and its neighbor St. Pancras, now serving the Eurostar express train to Paris and other cities in Europe. King’s Cross today is home to an art school, The Guardian, a cluster of high-tech medical research centers and Google’s future European headquarters. The point: Major, long-term infrastructure projects support game-changing investments. 
Or the development of the Canary Wharf area,
From Heathrow, riders will need just over a half-hour via Crossrail to travel east to Canary Wharf, the defunct docklands turned world financial hub, which today employs more than 112,000 people. When the site opened in the late 1980s, the aptly named Narrow Street was its only real access road. Canary Wharf went belly up. Then London broke ground for the Jubilee subway line, linking Canary Wharf by mass transit to the heart of the city, and international banks started moving in... Foster & Partners, the celebrated London-based architecture firm, has designed Canary Wharf’s Crossrail Station, a spectacular glass and timber tubular structure, docked like a giant cruise ship beside the firm’s HSBC tower. Nearby, Canary Wharf plans to build thousands of new luxury (and some affordable) homes and other developments by high-end architects like Herzog & de Meuron to turn Canary Wharf into more of a neighborhood.
Even before its completion by end-2019, change is well afoot along Crossrail's alignment,
The final stop on that southeast spur of Crossrail is Abbey Wood, where Sainsbury’s, the chain store and a bellwether of gentrification and commercial investment, has lately opened a shop in anticipation of the train. Streets here are lined with terrace houses now occupied by plasterers and truck drivers. Record numbers of landlords in the area have been filing applications for renovations, believing that Crossrail will attract bankers and lawyers. Property values are expected to rise on average 10 percent around all future stations along the Crossrail route. Change is even more acute one stop before Abbey Wood, in Woolwich. The Berkeley Group, a big British real estate company, is building 5,000 sleek, mostly high-end apartments around the future Crossrail station, which the developer paid millions to help construct. Hugging the Thames River, Woolwich is the former site of the Royal Arsenal and Henry VIII’s dockyard, where Charles Darwin’s Beagle was built. Historically working-class, it, too, used to be all white but has come to attract Caribbean and Asian immigrants, with nearly 40 percent of residents today living in social housing. 
The article does maybe make a simplified and picture-perfect representation of transportation investments in London. But it makes a very strong point about the power of urban renewal built around transportation investments and transit oriented development planning.  

This is something which the largest Indian cities have to embrace. They need urban development authorities and municipal corporations to focus on the critical challenge of guiding densification, expansion, and renewal using the instrument of transportation investments. Unfortunately, not an area which are among the current priorities of these authorities.

Saturday, July 29, 2017

Weekend reading links

1. Metro rail projects on the rise in India, with 8 metro projects 370 km already operational, and over two dozen lined up or approved and under construction. Bar a handful, all of the rest are being executed by government owned entities. PPPs have proved a false dawn,
Interestingly, PPP for metro projects has been limited to five in India. Out of these five, one project (Mumbai Metro Phase 2) was terminated before it started, while another (Delhi Airport Line) was terminated after becoming operational. Currently, there are three operational PPP-based metro projects (one in Mumbai, and two in Gurugram) while one project is under implementation (Hyderabad Metro).
Mumbai and Gurugram are very small ones, and the former has already suffered several rounds of acrimony between the government and the operator. Much the same applies to the tortuous process of construction of the Hyderabad metro, despite the very generous land leverage subsidy for the project. This is unlikely to change given the inevitable need for public subsidy for metro rail systems.

2. Property prices in the most liveable cities have been rocketing in recent years on the back of cross-border purchasers, a significant share of whom are Chinese. London has been at the forefront of the froth. The Economist has this nice graphic of iconic London properties which are currently owned by foreigners.
3. Economist has this about India's push to improve transportation,
Local governments are paving and widening rural roads at a rate of 117km a day.
4. Even as expectations are of petrol prices staying low for a long time, oil and gas producers are turning on on their investment spigots on the face of falling development costs.
More new oil and gasfields were given the go-ahead in the first half of this year than in the whole of 2016 as companies such as ExxonMobil, Royal Dutch Shell and BP re-engineer projects to lower costs and accelerate speed of development. Average development costs have fallen 40 per cent since 2014, according to Wood Mackenzie, the energy consultancy, encouraging companies to revive investment despite continued weakness in the oil market. But they are doing so on a highly selective basis, with only the most attractive projects going ahead... the most risky or economically marginal projects are being cancelled, leaving billions of barrels of untapped resources “stranded” as long as weak prices persist. Producers are instead trying to mimic the “short cycle” model of US shale companies by focusing on resources that can be developed at the lowest cost in the shortest time. Almost three-quarters of conventional projects approved this year have been “brownfield” expansions of existing fields, or satellite developments connected to existing platforms and pipelines through so-called tie-backs... Conventional producers are trying to narrow shale’s cost advantage further by adopting a “no frills” approach to development. The “big is better” mentality of the $100-oil era has given way to smaller, simplified projects, often involving fewer wells than originally planned and advanced in phases rather than all at once.
This investment rush in turn only amplifies the prospects of lower prices for the foreseeable future.

5. The Economist points to the work of Michael Sances and Hye Young You who find racism at work in police jurisdictions in the US. They examined 9000 US cities and found, 
Those with more black residents consistently collected unusually high amounts of fines and fees—even after controlling for differences in income, education and crime levels. Cities with the largest shares (98%) of black residents collected an average of $12-$19 more per person than those with the smallest (0%) did. However, there was one subgroup of cities that bucked the trend: the relationship between race and fines was only half as strong in places whose city councils included at least one black member. This may be because black politicians are likelier than white ones are to respond to complaints from black constituents. Black councillors might also intervene to stop certain policies, like increasing court fees, from going into effect to begin with.
The attraction of fines as a valuable source of revenues for cash strapped local governments may amplify the problem,
Part of the problem is that fines are a very effective method for cash-strapped governments to shore up their budgets without having to raise taxes or cut spending. As a result, the temptation to tell police departments to dredge up violations, no matter how petty, can be hard to resist. City judges tend to rubber-stamp these penalties. For example, in Peoria, Arizona, two people were jailed for not trimming weeds more than six inches tall. In Ferguson, a black man resting in his car after playing basketball in the public park was stopped by police and charged with, among other things, not wearing a seat belt in his (parked) car and making a false declaration after giving the officer a shortened name (like “Bob” instead of “Robert”). Such fines may fall disproportionately on the backs of black citizens, because they tend to be poorer and lack the resources to contest the penalties.
6.  A team of analysts from UBS took apart the mass-market electric vehicle (EV), Chevrolet Bolt, which retails for $37000 and can do 238 miles on a single charge. They found compelling evidence that EVs could become mainstream far earlier than being anticipated, with the likelihood of achieving cost parity with internal combustion engine vehicles by early part of next decade. They found EV vehicles to have far less mechanical complexity - Bolt had just 24 moving parts compared to 149 for VW Golf, which means less wear and tear, and less number of workers in production line.

The report has several other interesting findings, including the fact that 56% of Bolt EV content comes from outside the traditional auto-supply chain, thereby indicating the possibility of significant disruption on the supply-chain side.
Further, with far less, almost negligible, maintenance costs, and no engine oil like consumables, the EV could hurt dealerships, who generate almost 40% of their revenues from after-sales maintenance.
As to its impact on the global market for minerals, the demand for cobalt, lithium, and graphite for batteries and rare earths for e-motor magnets would rise,

7. Two contrasting interpretations of Chinese historical perspective. Howard French talks in his new book about a Chinese neighbourhood policy motivated by its historically predominant position and the concept of tianxia, or "everything under heaven",
“Tianxia emerges as a paradigm for China’s geopolitics from a correct sense that it is vastly larger and, for most of its history, vastly richer than any neighbouring state,” French explains during our conversation. “Out of this flows an ideal, from the Chinese perspective, that order can best be established in our neighbourhood by a situation whereby the neighbours defer to us.” In the most technical sense, deference is expressed through a highly ritualised series of ceremonies: embassies dispatched to pay obeisance to the emperor; the adoption of the Chinese calendar and language. In broader policy terms, tianxia combines carefully deployed “sticks” and “carrots”. French points to historical evidence to argue that China uses inducements first and force only as a last resort: the Sino-Vietnamese war of 1979 is an example. Carrots include access to Chinese trade, to its potentially vast market, and to what French describes as “patents of authority. China essentially legitimates local leaders by endorsing them”. On this basis, “a harmonious pattern of coexistence can endure in the region. One could say only on this basis”.
Former Indian Foreign Secretary, Shyam Saran, refutes this interpretation of historic predominance
China uses templates of the past as instruments of legitimisation, to construct a modern narrative of power. One key element of the narrative is that China’s role as Asia’s dominant power restores a ­position the nation occupied through most of history. The period from the mid-18th century until China’s liberation in 1949, when the country was reduced to semi-colonial status, subjected to invasions by imperialist powers and Japan, is characterised as an aberration. The tributary system is presented as artful statecraft evolved by China to manage interstate ­relationships in an asymmetrical world. What is rarely acknowledged is that China was a frequent tributary to keep marauding tribes at bay. The Tang emperor paid tribute to the Tibetans as well as to the fierce Xiongnu tribes to keep the peace. History shows a few periods when its periphery was occupied by relatively weaker states. China itself was occupied and ruled by non-Han invaders, ­including the Mongols, from the 12th to 15th centuries, and the Manchus, from the 15th to 20th centuries. Far from considering these empires as oppressive, modern Chinese political discourse seeks to project itself as a successor state entitled to territorial acquisitions of those empires, including vast non-Han areas such as Xinjiang and Tibet.

Thus, an imagined history is put forward to legitimise China’s claim to Asian hegemony, and remarkably, much of this is increasingly considered as self-evident in Western and even Indian discourse. Little in history supports the proposition that China was the centre of the Asian universe commanding deference among less civilised states... recasting a complex history to reflect a ­Chinese centrality that never existed is part of China’s current narrative of power.
8. Ananthanageswaran and Praveen Chakravarthy provides these very sensible suggestions in response to this SEBI discussion paper to address the disproportionate skew towards derivatives in India's equity market. They find that investors in India's derivatives markets are primarily speculators and not hedgers, and have been encouraged by the lower Securities Transaction Tax (STT) on derivatives over stocks. The scale of distortion is not to be glossed over,
Indian equity investors have an inexplicable fetish for complex derivative products. In FY2017, just 700,000 individuals bought and sold nearly $4 trillion notional worth of derivatives. This is twice as much as all foreign institutional investors in India combined. India’s stock exchanges trade eight times more equity derivatives than the Hong Kong (HK) stock exchange, even though the value of all companies listed in HK is double that of India. Indian retail investors also seem to prefer the riskier of the two categories of derivatives products between stock futures and options. The potential gain or loss in futures is unlimited, while it is limited in options. Retail investors in India bet on a notional value of $800 billion of stock futures in 2016, more than the value of stock futures traded in all of Europe, Hong Kong and Singapore combined. Retail investors account for half of all the stock futures trading in India, while sophisticated institutional investors account for just one-tenth and prefer stock options instead. Not only do Indian retail investors have a puzzling fascination for high-risk derivative products, they seem addicted to the riskiest category.
In contrast, Ajay Shah takes an ideological view on the issues raised in the SEBI discussion paper and claims that India's equity markets "largely work well". I don't have the energy to litigate, but it is amazing that views like "objective of financial markets policy is to achieve liquid and efficient financial markets" persist. 

9. The latest in the search for fancy financing instruments to address development challenges comes with the world's first issuance of Pandemic Bonds by the World Bank. The details,
The World Bank says the probability of another pandemic in the next 10 to 15 years is high. That is why it has issued $425m in pandemic bonds to support its new Pandemic Emergency Financing Facility (PEF), which is intended to channel funding to countries facing a deadly disease. The bonds cover six viruses likely to spark outbreaks: new influenza viruses, coronaviruses (like SARS and MERS), filoviruses (like Ebola), Lassa fever, Rift Valley fever and Crimean Congo fever. Investors forgo their principal when a virus reaches a predetermined contagion level, based on rate of growth, number of deaths and whether it crosses international borders. The facility covers 77 of the world’s poorest countries.
This will raise probably a few millions over the next many years. Is it really worth the effort?

10. Finally, as India refused to enforce the follow-on despite having a lead of 304 over Sri Lanka, one cannot but help think that the follow-on requirement of 200 runs has to be changed. It should be made at least 300 runs, maybe 400 runs. In the age of modern batting (fast scoring and weakness on worn-out wickets), teams realise that a lead of 200 can be made to look very small even with just one session of batting. So, enforcing the follow-on is just inconceivable. 

Friday, July 28, 2017

Mexico City scraps minimum parking requirements for buildings

This blog has written earlier about how reducing traffic congestion has to involve the use of complementary levers that make vehicle ownership and usage costly. 

Minimum parking requirement in housing complexes is effectively a subsidy to vehicle owners in so far as it makes vehicle parking space less costly. While still marginal, a rising chorus of opinion has been calling for scrapping minimum parking requirements. 

Marginal Revolution points to the very bold decision by Mexico City to dispense off with minimum parking requirements in buildings
Mexico City eliminated requirements that force developers to build a minimum number of parking spaces in each project. The city will instead cap the number of parking spaces allowed in new development, depending on the type and size of the building. Existing parking spaces can also be converted to other uses. Mexico City Mayor Miguel Mancera signed the new regulations into effect last week. The policy change applies to every land use and throughout the entire city of 8.8 million residents. It promises to make housing more affordable, reduce traffic, and improve air quality... The old rules mandated parking even though only about 30 percent of Mexico City residents own cars and the city has a well-developed subway system. There are now parking maximums in place instead of minimums. For example, office developments had been required to include at least one parking space per 30 square meters of floor area. Now that is the maximum parking ratio developers can build. Within the central city, the new rules also require developers to pay a fee if they build more than 50 percent of the maximum parking allowed.
To put this in perspective, Buffalo, New York, is the only US city without a minimum parking requirement in its zoning regulations.

Wednesday, July 26, 2017

Is Uber the world's biggest Ponzi scheme?

The Economist digs out this from the financials of Uber, which was valued at $68 bn in its last funding round in 2016,
Underlying pre-tax losses were $3bn-3.5bn last year and about $800m in the most recent quarter. Some $1bn-2bn of last year’s red ink was because of subsidies that Uber paid to drivers and passengers to draw them to its platform. At least another $1bn went on overheads and on developing driverless cars; money is also being splashed on a new food-delivery venture and a plan to build flying cars. To put its 2016 loss in perspective, that number was larger than the cumulative loss made by Silicon Valley’s least profit-conscious big company—Amazon—in 1995-2002. Measured by sales, Uber is the world’s 1,158th-biggest firm. Judged by cash losses, it ranks in the top 20. It is now eight years old, but still probably years away from being stable enough to make an initial public offering of shares. In contrast, Amazon went public at the age of three, Alphabet at six and Facebook at eight... 

A discounted cashflow model gives a sense of the leap of faith that Uber’s valuation requires. After adjusting for its net cash of $5bn and for its stake in Didi, worth $6bn, you have to believe that its sales will increase tenfold by 2026. Operating margins would have to rise to 25%, from about -80% today. That is a huge stretch. Admittedly, Amazon and Alphabet, two of history’s most successful firms, both grew their sales at least that quickly in the decade after they reached Uber’s level, and Facebook is likely to as well. But over the same periods these firms’ operating margins show an total average rise of only one percentage point. Put simply, Uber finds it desperately hard to make money. It is not clear that it breaks even reliably across the group of cities where it has been active for longest.
Put simply, with these numbers, it is no stretch to argue that Uber may well turn out to be the world's biggest Ponzi scheme - you keep acquiring customers by bleeding money till you can take it no longer and the last ones wearing the hat takes the hit! 

As I have blogged earlier, the challenge is even greater in developing countries like India where the market is so price sensitive that any significant increase in price is most likely to see largescale customer exits, thereby snuffing out the only end-game of ride-sharing firms. Further, unlike Ponzi schemes where just the remaining investors take the hit, there is also the massive social damage likely to be caused by the immiseration of poor drivers who would have taken loans to buy cars to work for Uber. 

The potential social negative externality that results from Uber's business model cries out loud for regulation. Ride-sharing and room-sharing are probably the only two large economic activities that take place in unregulated environments, where the negative externalities, and they are very significant, are completely externalised.

Monday, July 24, 2017

Limits to progress, economic growth, and capitalism?

FT has more on the challenges facing retail in the US from the e-commerce market,
Credit Suisse estimates that as many as 8,640 stores with 147m square feet of retailing space could close down just this year — surpassing the level of closures after the financial crisis and dotcom bust. The downturn is hitting the largely healthy US labour market — the retail industry has lost an average of 9,000 jobs a month this year, according to the Bureau of Labor Statistics, compared with average monthly job gains of 17,000 last year.
The dramatic flurry of retail stores construction in the US has been a major contributor to this disruption,
PwC estimates that there is about 24 sq ft of retailing floorspace per person in the US, compared with 11 sq ft in Australia — the only other developed country that comes close to the US — and between 2 and 5 sq ft in Europe.
Amazon with less that 10% of US retail sales forms nearly 40% of US retailing valuations, 
The online giant’s shares are now worth $477bn, more than half as much as the rest of the listed US retailing world... Online-only purchases account for just over 10 per cent of all US retail sales, but the share is growing quickly.
And this is true not just of retail, but also in hotel and travel industry,
Priceline and Expedia are now valued at a combined $114bn, almost as much as all the hotels and hospitality groups in the S&P 500, or the airlines.
On labour intensity in retail, this is a stunning statistic,
Goldman Sachs estimates that ecommerce companies only require 0.9 employees per $1m of sales compared with 3.5 for a bricks-and-mortar store, and the sector is on course to lose about 100,000 jobs this year. This may be small compared with the overall retail economy — which employs almost 16m — but it is likely only the beginning of a broad, accelerating trend as even more shopping migrates online.
I have three observations.

1. One of the things that we tend to assume with development and economic growth is that it is always good and brings progress. In the long-run, or the general equilibrium, adjustments are made and losers compensated, it is assumed. However, there is little basis for this assumption. It is a faith-based argument. As Tyler Cowen has written recently, the pain and suffering associated with Industrial Revolution, was far from transient and tolerable. And unlike the 1700s, such adjustments are most likely to be even less acceptable. 

In general, there is nothing to suggest why automation should be accompanied by all the required labour market adjustments. In fact, what if in the future there are less human beings engaged in the work-force? There is no sound basis for the optimism of the techno-optimists. 

In the circumstances, being more cautious with the wholesale adoption of unqualified automation, even if it appears against progress, may not be that bad an idea. Public policy may need to more specifically explore the options to protect and keep meaningfully engaged those most vulnerable to labour market displacement from such trends. If we can exercise restraint on human cloning, we can as well be cautious on the adoption of driverless cars.

2. There is nothing to support the belief that economic growth of this generation and a couple earlier is the natural order of things. It is well-acknowledged that the growth spurt since the late nineteenth-century has not only been unprecedented but also outside the norm for centuries of human existence, and there is therefore nothing to suggest that it should continue. 

In fact, an empirical assessment points to a secular trend of stagnating incomes across the developed world. The Times points to an MGI analysis of 2016 that found 81% of the US, 97% of Italian, 70% of British, and 63% of French populations fall in an income bracket with flat or declining incomes over the last decade.

A world where economic growth is just enough to sustain living standards, while difficult to accept for our generation, should not signal doom. On a historic sweep, even if we are able to sustain the current living standards, with marginal and very gradual increases, it may be a big achievement. The far less desirable, but more likely eventuality (than another century of growth similar to the past century), is a decline in living standards.

3. Finally, this raises more questions about the sustainability of free-market capitalism. What if the inexorable dynamic of the market forces playing themselves out is a world without adequate work to support the billions and results in meaningless lives and pitiable suffering? On a 40-50 year horizon, I see no reason why this scenario is any less less plausible than the widely accepted argument that the "dictatorship of the proletariat" will eventually end up in an centralised and authoritarian system like in the Stalinist Soviet Union.

Update 1 (25.07.2017)

This - India won't allow driverless cars - is good public policy!