When I saw the story that Japan was going to switch to wooden beer bottles and paper straws, I was reminded of this story and this story. I hope it is not a case of ‘from the frying pan to the fire’. The difference is that paper is biodegradable and that trees can be grown. We need to be sensible about these things and not dogmatic or religious. Being religious about many things, including being irreligious, can be harmful.
Early on Tuesday morning, read this interesting (and sad, to an extent) piece in the Nikkei Asia Review on Japan’s scenic golf courses in rural parts. But, the story is interspersed with narratives of dwindling populations and innovation.
The town of Nemuro lost its only obstetrician last year since its birthrate had fallen so low. Its fishing industry may be strong — global tennis star Naomi Osaka’s grandfather once served as chairman of the cooperative — but nobody new is moving there.
The lament is not particularly constructive but I doubt if any reconstruction is possible:
Somehow Japan has lost its will to innovate, to develop new technologies and to compete with the rest of the world. A pervasive conservatism has infected much of working and social life, leaving regional Japan a museum-like landscape of rural beauty and Asian culture. Buddhist temples of astonishing grace, Shinto shrines of perfect simplicity, small fields of rice or vegetables, and orchards of flawless fruit decorate the countryside. Yet behind it all are dying towns, shuttered shops, and unending road projects or concrete barriers piled up along island shores to protect against typhoons.
Abenomics works to preserve the tranquil beauty of rural Japan and sustain its culture. but what is going to save rural Japan from the hollowing out that you can see, hear and feel? The digital economy is barely discernible here, stunted by too many large corporations whose overweening presence in national policymaking makes the startup sector a minor sideshow instead of a pathway to the future.
Demographics are long-term and slow-moving trends in motion. They have impact on innovation and investments, etc.
Somehow, I feel that Buddhist Japan will and is handling its aging better than the Christian West would do or is doing. The swing towards relative and growing intolerance of strangers amidst dwindling economic prospects could be traced not just to a financial crisis but also due to demographic transition towards a greying population in the West.
The crisis pulled the economic rug from under the feet of millennials. More debt in America and youth unemployment in Europe. The older generation is reacting to the economic loss (networth wiped out by the decline in asset prices and having to work into old age) and the social aspects of globalisation.
Each and everyone of us who have crossed 50 can reflect on how their own attitudes towards many things have shifted and are shifting with age, slowly, imperceptibly but surely.
At a policy level, to counter this with even more forced immigration is a policy disaster which is what ‘liberals’ would want governments to do. One has to accept the costs of the economic crisis and demographic trends and work with them rather than seek to overturn the consequences forcefully. That ends up feeding the resentment.
Robin Harding of FT wrote an article on why Japan should not withdraw its monetary policy stimulus and listed instances in which the Japanese economy went into recession when the stimulus was withdrawn ‘prematurely’. May be, true. But, if it is always the case that one has to increase the intensity of the treatment, when would one consider the possibility that the treatment was wrong, in the first place?
Is it possible to keep an economy on life support all the time? What are the costs of doing so? A reader had sent a good set of comments on the Harding column:
Japan’s central bank now owns bonds and shares equivalent to a full year of national economic output. Real interest rates have been negative for years, something not seen in 5,000 years of recorded debt history. The long-term effects of such monetary policies are quite simply unknown, but the asset bubble created by QE has been nothing short of obscene.
The results on Japan’s domestic economy have been, at best, unimpressive, and at worst, an absolute disaster for the country’s competitiveness. Why bother to adhere to good corporate governance principles if the government is going to prop up your stock price anyway? Or why bother to make money if you can borrow to pay back interests? Mr. Harding is actually calling for more of this madness. What has the world come to? The end of capitalism is in sight.
This comment correctly focus on many unintended consequences of policy decisions and actions.
The re-election problems of PM Modi [Link]
Suzuki commits to ‘Make in India’ with electric vehicles [Link]
Suzuki will test run its first electric cars in India in October! This news is from September. I do not know if it happened [Link]. If it did not, then we know how to read the previous link, though.
Japan is still struggling to come to terms with its relaxed foreign worker visa policies. The resolution passed but after a lot of doubts and scepticism were expressed [Link]
Philippines compromises (or, attempts to) with China on South China Sea [Link]
Two well-known Chinese economists-critics of China’s economic growth model actually blame China for the trade dispute with the United States. [Link]
A story in FT on how Mauritius still makes its revenues through assisting tax evasion although the African state confirms that it is compliant with all tax-evasion international laws and treaties. Indeed! India has scrapped its double-taxation treaty with Mauritius. Full capital gains tax will apply on capital gains earned by Mauritius-registered entities from 1st April 2019. Let us see.
China allows share buybacks to boost stock market – when in doubt, ape the West and yet claim superiority to Western model of economics and finance!
American college undergraduate students are now ambivalent on capitalism. Wall Street Journal is alarmed! While most of the points made by James Freeman are valid, he would have been more correct had he also exhorted capitalists to introspect on why things have come to such a pass.
China banks are leading the world in assets rankings just as Japanese banks did in 1988 and American and European banks did in 2007. Ahem. [Link]
China – US trade spat is the start of the cold war, says Conor Sen. I agree.
There is loan fatigue on the part of lenders and borrowers in China. That is something to watch for. That spells trouble.
China underestimated Trump and also over-read the trans-Atlantic fissures. Well, not just China made that mistake. Many did and very few are willing to admit to it and correct themselves. They are digging deeper.
David Fickling compares the OBOR infrastructure spending (or loans to other countries) with the Soviet Union’s Siberia infrastructure buildout that strained their finances.
Two days ago, America’s Secretary of State Rex Tillerson made a very important speech. That it was delivered on the same day that China’s President Xi Jinping delivered his address to the 19th National People’s Congress is, may be, an interesting coincidence. May be not.
The full speech is here. ‘Trust but verify’ AND ‘Verify but trust’ have very different implications. Should India go for the latter with the US now or is it already doing that? I think India should be inclined towards the second.
A very detailed article in ‘Economic Times’ on the various Japanese assisted infrastructure schemes. It is welcome, in more ways than one.
Once again, the same old hackneyed arguments about whether India needs Bullet trains had cropped up. There is a deliberate conflation of arguments that the money could be used elsewhere. That is patently false and a lie. That money – on very concessional terms – is available from Japan only for this project. I had blogged on some of these patently misleading and mischievous arguments in December 2015. There are likely strong and sizeable multiplier effects. I am glad Ajit Ranade agrees with me. He makes the right arguments on India’s space missions and on India’s public transportation projects.
A friend shared this piece by Gordon Chang on how India and Japan are encircling China.
A Deloitte report that paints India in brighter light than China is briefly reported here in Bloomberg.
If the previous link set you up for listening to or reading only ‘Feel Good’ stuff on India, this could make you ecstatic. It is a speech by Nilesh Shah of Kotak Mutual Fund.
Merryn Somerset Webb ‘Editor in Chief’ of Moneyweek provides a stiff competition to Nilesh Shah, in print. I hope it is not behind a paywall.
Swaminathan Anklesaria Aiyar relishes the prospect of promoters leaving and workes staying as bankruptcies become de rigueur in India. Debashis Basu has a more detailed article on how the Bankruptcy resolution of Synergies-Dooray was handled. It is more lucid than some of the other press articles on the ‘sham’ resolution. I had covered this case in my blog post here.
If the sceptic in you rears its head, then here are the links for you on the failure of National Skill Development Mission to hit its targets. One is based on a research report by Indiaspend.org (which, in turn, is based on the Sharada Prasad Committee report, I think) and the other is a news-story. The first link is more about Skill Development Franchisees that failed to deliver in terms of placement. Both appeared in ‘Business Standard’:
Data shows that the NSDC, through its partners, only managed to skill around 600,000 youth till September 1, 2017, and could place only 72,858 trained youth, exhibiting a placement rate of around 12 per cent. Under PMKYV 1, the placement rate stood at 18 per cent.
We should probably look for the Sharada Prasad Committee report and read it ourselves since newspapers can choose to highlight some aspects and not others, etc. The report was submitted in December 2016 and made public in April 2017.
Business Standard reports on a research report by the State Bank of India research team. It calls for a boost to public spending, disregarding the potential concerns that credit rating agencies would express on fiscal slippage.
Ajit Ranade writes a brief and clear article calling for fiscal boost to the economy. Spells out three areas where they can go – affordable housing, pensions and labour costs to be borne by government to boost hiring and enhanced support for manufacturing and export service support schemes. I am not sure of the third. I am fully behind the second and on the first, I am neutral. Enough policy boost has been given for the first.
If I were recommending, I would boost public sector banks’ capitals in return for some stringent accountability and wholesale changes to their governance and accountability.
India missed the boat on fiscal boost to economic growth in 2014-15 when the new government, thoughtlessly, engaged in pro-cyclical fiscal consolidation to the extent of 1.1% to 1.8% of GDP in 2014-15 by inheriting implausible assumptions and accepting expenditure postponement of the outgoing government. The target of 4.1% for fiscal deficit/GDP ratio in 2014-15 was an impossible one. The previous achievement of 4.5% in 2013-14 was not a real achievement. UPA II’s economic misdeeds of omission and commisison would take years to show through.
Given all that, the government should have come out with a White Paper on the economc situation and proceeded to tighten fiscal policy more gradually. It should have used the oil price crash windfall to reform banks, recapitalise and clean up balance sheets and get private sector credit growth going. Instead, it was used to achive fiscal deficit targets in the hope that a credit rating upgrade would be coming. It has not. India missed an opportunity to provide the needed boost to growth when private sector balance sheets were (and are still) being mended.
On 8th September 2015, I was one of the few people invited for a conversation with the Prime Minister at 7, Race Course Road. I had said that a specific 0.5% fiscal stimulus earmarked for banking recapitalisation would be desirable, at that stage. Evidently, it was not heeded.
I am not viscreally or intellectually opposed to a fiscal stimulus now. But, I am guarded. I can react better when I see the details. That would make all the difference between another wasted effort with negative consequences and a smart growth multiplier. I am concerned that one could commit the mistake of thinking that two wrongs make a right.
I am als concerned that the calls for fiscal stimulus do not take into account the fiscal stimulus already in motion. The State governments have managed to spend even more than their much improved revenues under the generous Fourteenth Finance Commission. They have, as usual, promised fiscal prudence from 2017-18 onwards. But, fiscal years 2015-16 and 2016-17 have seen slippages. No major asset creation has happened.
In 2016-17, state governments spent less than budgeted by about 7% as per Credit Suisse estimates. Capital expenditure is a small portion of the overall expenditure and there too, they spent less than budgeted. But, note that it does not mean that their deficits would be lower. They spent less than what they budgeted. We have to wait for deficit numbers to see if there was any meaningful reduction in overall State fiscal deficits in 2016-17 compared to 2015-16 or a further slippage.
Farm loan waivers announced by eight states would amount to 1.3% of GDP spread over 2-4 years, as per Neelkanth Mishra of Credit Suisse. That too is a fiscal stimulus. But, he noted,
loan growth could be affected: the slowdown by banks in April may last several quarters. (Credit Suisse Asian Daily 13 June 2017)
This is what happened from 2009 onwards. When loans are waived and even prudent borrowers take the wrong hints, loan growth actually takes a hit. It is not good for borrowers and lenders. So, it is bad fiscal stimulus and unsound economic policy. But, the train has left the station.
That is why when one comes down on the side of fiscal stimulus, the questions of what for, how, how much and for how long and economic quid pro quo (accountability, outcomes and productivity, to name just three) matter.
Then, there is the Seventh Pay Commission recommendations that are not yet fully impelmented by the Centre and then States would folow suit. So, I am not sure if the calls for fiscal stimulus (SBI, Ajit Ranade) take into account these expenditure already in motion.
One of the most useful set of policy recommendations with as much specifics as is possible in a newspaper column is to be found in this article by Shankkar Aiyar, published on 10th September 2017. This is not high altitude platonic stuff but specific action areas are pinpointed.
Sometimes, the more effective stimulus is leadership that understand, accepts and acknowledges the problems and is focused on resolving them. The problem may not be money but all the uncertainty that unco-ordinated and thoughtless sequencing of policy actions and reforms with no heed for the short and medium term side effects. Listening to the so-called intellectuals who are willing to speak truth to the power, at least once in a while, will do more good than harm. Throwing money at problems may not solve and may, on occasions, worsen the situation.
Think of UPA I and II. They were not afraid to throw money at the problems. What did they leave behind for India? A big mess. What were they missing? Credible, sincere, competent and focused leadership.
[Postscript: Those who clamour for fiscal and monetary stimulus and yet claim that the economy is in fine fettle must stop and accept that they canot have it all!]