Category Archives: Economics

Suzhou Industrial Park in China

I had an opportunity to go Shanghai last weekend and I took the opportunity to visit Suzhou Industrial Park which is about 1.5 hours away from the city centre of Shanghai.

img_2015

Suzhou Industrial Park is a landmark project between Chinese and Singaporean governments to create an ecosystem to enhance people’s lives through creating jobs, providing healthcare and education services.

img_2031

In the late 1980s, when China modernisation gained momentum, Chinese delegations visited Singapore and they were eager to learn modern management methods from Singapore. In 1992, the idea of developing a modern industrial city with Singapore flourished when China’s leader Deng Xiaoping told the public that they must tap into Singapore’s experience and learn how to manage better from Singapore’s good social order.

img_2032

After several rounds of discussion, both governments decided to develop a modern industrial park in the east of Suzhou, which was founded on February 1994 when Chinese Vice Premier Li Lanqing and Singapore Senior Minister Lee Kuan Yew signed an agreement on the joint development of Suzhou Industrial Park in Suzhou. Suzhou Industrial Park has a total jurisdiction of 288 km2 where China-Singapore cooperation area covers 80 km2 with a residential population of 1.2 million.

Of course, this huge project has gone through many different phases and there were a lot of disagreements with both governments during the journey. Because of these disagreements, Singapore has decreased its share in the park from 65% to 35%. Also, between 1994 and 2000, the park made huge losses. The profit between 2000 and 2003 has erased all the losses made during the period between 1994 and 2000.

img_2017

The numbers speak for themselves today. Today, the park generates one of the highest incomes per capita in China. The regional GDP per capita is 257,900 yuan in Suzhou Industrial Park where Suzhou is 136,700 yuan and Jiangsu is 88,000 yuan. The per capita disposable income of urban residents in SIP is 56,696 yuan, in Suzhou 50,390 and 37,173 yuan in Jiangsu.

Another interesting statistic is that patents per ten thousand people are 86 in SIP, 25.46 in Suzhou and 14.22 in Jiangsu. A lot of international companies have presence in the park such as Bosch, Samsung, Hitachi, Nokia, Loreal and Panasonic.

img_2027

Can Turkey copy this model in southeast of Turkey to generate economic growth, to educate Syrian migrants with the Southeastern Turkish population and most importantly to eradicate terrorism in the region?

I will write this in my next article in the coming days. Please keep following!

Best from Singapore.
Sukru Haskan

Twitter: @sukru_haskan

Fintech idea #2: SmartBonds

images-2

Last week, I published the deposit shifting fintech idea and I got quite a lot of positive and negative feedback as to why it would work or not.

It is always great to get some feedback.

This week, I will publish another fintech idea which specifically targets retail and low end HNW clients.

As many of you know, USD denominated international bonds have been quite popular for the last few decades as interest rates were declining steadily and these bonds were a great source of income for investors.

Although with interest hikes in the coming years, the trend will not be that sexy anymore, there will always be an interest in the bond market since it provides a fixed income, unlike the uncertain and highly volatile equity and commodity markets.

These markets are not easily accessible by retail investors since many of new issue require a minimal nominal investment of USD 200K. This is a substantial amount of money and it keeps many investors out of this market.

SmartBond can solve this problem by aggregating demand and it can help retail investors to have access to international bonds.

Since there are many bonds in the market, SmartBonds can market bonds in a Groupon fashion (an e-commerce site which aggregates demand for specific products for a certain period with some discounts to its customer by achieving economics of scale). SmartBond can collect bond orders from retail clients and, once the minimum order amount is reached, it can trade in the market and allocate accordingly after the trade.

SmartBond will be a full pledged technology company like Groupon and it will not recommend any specific bonds to buy or sell. From this point of view like SmartDeposit, it should not be regulated as a financial institution.

Clients may choose to keep their bond holdings in any bank available through the SmartBond platform or in an institution of their own choice.

One may ask what would happen when the client wants to sell their holding since they will again need a minimum order amount of a nominal 200K. The same logic will apply and there will be sell platform along with a buy platform and once the order is aggregated, it will be executed.

In the beginning phase, it will not be possible to include all the bonds available for trading. According to the demand from clients, the platform can be enhanced and this could be a very profitable business if it reaches enough volume quickly.

Please continue to post your positive/negative feedback through my blog, twitter or email.

I will continue to write my ideas in the coming weeks.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

 

 

Fintech business idea: SmartDeposit

I have a fintech idea ‒ actually I have more than one, but I will publish only this one as a start.

images

The environment of low interest rates has pushed many investors to hunt for a yield, and this has led many super-risky asset prices to skyrocket.

Especially, the extended period of ultra-low interest rates has hit pension funds and insurance companies hard, since they have to generate a certain level of income to ensure their sustainability and the ability to pay their liabilities.

High-net-worth individuals and retail clients are not happy either, since their capital is not working for them for the first time in history. Some of them are even paying banks to deposit currencies such as the euro, yen and Swiss franc, since banks are demanding that these investors are charged interest instead of receiving interest from them.

There is nothing new until now …

Everybody who follows the financial markets knows these facts very well.

What if these investors still want to invest simply in plain vanilla deposits but are happy to take higher credit risks in countries such as Brazil, Turkey, Russia or India?

Because of their counterparts’ risk parameters, these pension funds and insurance companies are mainly stuck with high-credit banks, such as all tier 1 global banks, and tier 1 global banks cannot offer any sexy interest rates.

Here, my idea kicks in ‒ what if they could place their deposits with low-investment-grade banks or even banks with junk credit quality that pay a much higher level of interest if they are happy with the risk?

The reams of paperwork for all different types of different banks and the regulatory requirements are a big hassle at the moment.

What if we could create a platform that can place deposits with many different banks without opening an account in each bank and simply shift the deposits from one to another when another bank in the world becomes more attractive?

It may be hard to attract institutional money in the first instance, but I believe high-net-worth (HNW) individuals and retail clients would be happy to test the proposition.

To visualize the idea, let us say that we open an account with ICICI in India, Garantibank in Turkey, VTB in Russia and BTG in Brazil. Assuming that ICICI offers 2.5% p.a., Garanti offers 3% p.a., VTB offers 3.25% p.a. and BTG offers 4% p.a., we can compare these with a tier 1 bank’s 0.30% p.a. deposit rate.

The investor can choose to place his deposit with any institution on the platform, so the availability of different institutions is an important factor to be attractive to investors. Clients will be able to place a deposit in India for a month and then shift it to Brazil in the next month.

The platform would enable emerging market banks to have a diversified deposit base and access to non-conventional HNW and retail investors from all around the world.

Since we are not advising clients and the deposits are held in segregated accounts for the tech company, how should our fintech be regulated? Just like banks or differently? I believe we should be much more lightly regulated.

It is a kind of UBER of finance ‒ simply a technology company facilitating a service rather than a bank.

The main challenge for this fintech would be the KYC (know your customer). It should be possible to know who is placing deposits and that the funds are coming from legitimate sources. We can overcome this hurdle with the help of blockchain technology, which will enable each investor’s details and transactions to be stored safely.

In addition, there is a new business opportunity here to create a global KYC company in which the banks are also stakeholders so that a verified KYC could be used between different banks instead of providing each different bank with thick sets of paper.

Regulators are really the key in this business idea, and they will be the key in any fintech ideas. They will decide whether to kill the fintechs in favour of conventional banks or help them to thrive. Many regulators, such as those in Singapore, the UK and Switzerland, are really helping this industry to excel, so I am quite optimistic.

I will publish another fintech idea for retail clients next week. If you would like to exchange ideas and/or simply discuss matters, please keep in touch through my blog, twitter or email.

All the best from Singapore,

Sukru Haskan
Twitter: sukru_haskan

Book Review: Prisoners of Geography by Tim Marshall

Whilst I was in London last month, one of the books that I bought was “Prisoners of Geography” by Tim Marshall. Tim Marshall tells us how the leaders of the world are restricted by their geographies and how their decisions are influenced by it. It is a great book that looks at historical turning points of different nations and helps us understand why they behaved in a certain way. His book is divided into ten sections: Russia, China, USA, Western Europe, Africa, the Middle East, India and Pakistan, Korea and Japan, Latin America, and the Arctic.

The book contains a lot of anecdotes about each region.

Image result for prisoners of geography

Russia:

Russia covers eleven time zones and, even now, it takes six days to cross it by train. Russians were fighting on average in and around the North European Plain once every thirty-three years. By 2004, just fifteen years after 1989, every single former Warsaw Pact state bar Russia was in NATO or the European Union. Russia is the biggest country in the world, twice the size of the US or China, five times the size of India, twenty-five times the size of the UK. Although 75 per cent of Russian territory is in Asia, only 22 per cent of its population lives there.

China:

Xinjiang is the largest province of China. It is the twice the size of Texas, and you can fit the UK, France, Germany, Austria, Switzerland, the Netherlands, and Belgium in it and still have room for Luxembourg. Xinjiang is too strategically important to allow an independence movement to get off the ground: it not only borders eight countries – thus buffering the heartland – but it also has oil and is home to China’s nuclear weapons testing sites.

Large-scale migration south to north can be expected, which will, in turn, give China more leverage in its relations with Russia.

China intends to become a two-ocean power. This is China’s way of reducing its overreliance on the Strait of Malacca, through which almost 80 per cent of its energy supplies pass.

USA:

By 1814 the British had gone and the French had given up on Louisiana. In 1867 Alaska was bought from Russia. Many US government foreign policy strategists are persuaded that the history of the twenty-first century will be written in Asia and the Pacific. Half of the world’s population lives there, and if India is included it is expected to account for half of the global economic output by 2050.

Western Europe:

There are unprovable theories that the domination of Catholicism in the south has held it back, whereas the Protestant work ethic has propelled the northern countries to greater heights.

France is the only European country to be both a Northern and Southern power.

Geographically, The Brits are in a good place. Good farmland, decent rivers, excellent access to seas and their fish stocks, close enough to the European Continent to trade and yet protected by dint of being an island race. There is a theory that the relative security of the UK over the past few hundred years is the reason it has experienced more freedom and less despotism than the countries across the Channel.

Africa:

We are all from Africa since that’s where homo sapiens originated 2,000 years ago. Challenge is the rivers ince parts of it navigable by shallow boats, but there are parts that do not interconnect, thus limiting the transportation of cargo. The ethnic conflicts within Sudan, Somalia, Kenya, Angola, the Democratic Republic of the Congo, Nigeria, Mali and elsewhere are evidence that the European idea of geography did not fit the reality of Africa’s demographics.

About a third of China’s oil imports come from Africa. South Africa is one of the very few African countries that do not suffer from the curse of malaria, as mosquitoes find it difficult to breed there. Is it a coincidence that European colonialists chose to settle there and that South Africa is the biggest African economy today?

Middle East:

Prior to Sykes-Picot, there was no state of Syria, no Lebanon, nor was there a Jordan, Iraq, Saudi Arabia, Kuwait, Israel, or Palestine. Lebanon’s most recent civil war lasted for fifteen years and, at times, it remains close to another one. Syria may suffer a similar fate.

The Mongols were the last force to make any progress through Persian territory in 1219–1221 and since then attackers have ground themselves into dust trying to make headway across the mountains.

Turkey granted its women the vote two years ahead of Spain and fifteen years ahead of France.

India – Pakistan:

There is an approximately 1,900 mile long border between the countries. Pakistan received just 17 per cent of the financial reserves that had been controlled by the pre-partition government.

In the spring of 2015, the two countries agreed to a USD 46 billion deal to build a superhighway of roads, railways, and pipelines running 1,800 miles from Gwadar to China’s Xinjiang region. This would make it possible to bypass the Strait of Malacca.

The Afghan-Pakistani border is known as the Duran line. Sir Mortimer Durand, the Foreign Secretary of the colonial government of India, drew it in 1893 and the then ruler of Afghanistan agreed to it.

Korea – Japan:

Satellite images and witness testimony suggest that at least 150,000 political prisoners are held in giant work and re-education camps.

The territory of the Japanese islands together make up a country that is bigger than the two Koreas combined, or in European terms bigger than Germany.

Latin America:

The Latin American population, including the Caribbean, is over 600 million, and yet their combined GDP is equivalent to that of France and the UK, which together comprise about 125 million people.

In 1914 the newly built, 50 mile long, American controlled Panama canal opened, thus saving an 8,000 mile journey from the Atlantic to the Pacific oceans and leading to economic growth in the canal region.

The Texas-based geopolitical intelligence company stratfor.com estimates that Brazil’s seven largest ports combined can handle fewer goods per year than the single American port of New Orleans.

The Arctic:

The Arctic Ocean is 5.4 million square miles; this might make it the world’s smallest ocean but it is still almost as big as Russia, and one and a half times the size of the USA.

I highly recommend that you have this book on your bookshelf, as it will not only enhance your vision, but also make you understand where the world is going. Prisoners of Geography is the kind of book that you could easily go back to many times as a good source for references.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

 

 

 

Israel – Turkey – GCC Union?

Whilst I was studying as an undergraduate in Turkey in 2003, I was asked by my professor to present an alternative plan to the EU for Turkey.

Back then, Turkey was struggling to start accession talks with the EU on the back of several issues.

My very basic plan then was to bring Turkey together with Israel and the GCC—the Cooperation Council for the Arab States of the Gulf (Kuwait, Qatar, Bahrain, Saudi Arabia, Oman and the UAE)— and I named this project Sukru’s Utopian Alliance.

turkeyisraelgcc

When I presented my plan, it received some attention from my fellow students and the professor, but I have to say that they were not truly fascinated by the idea.

While I was on holiday for two weeks 13 years later, my brain somehow started again to ponder on the same project, and this time I am more equipped to address the issues concerned.

When we look at the reasons for the foundation of the EU (formerly the EEC), we see that it was necessary to form bonds between European countries such as France and Germany to make sure that their economic interests were aligned in order to avoid another world war in the coming decades.

Even though the EU has suffered in the last couple of years, at least the aims of bringing economic interests onto one platform and preventing another world war have succeeded.

The EU does not want to allow Turkey into the Union, at least for the foreseeable future. The GCC and Israel have no chance of joining the EU since their lands are located entirely in the Middle East.

Turkey and Israel have long historical, economic and cultural ties. In fact, Turkey was one of the first countries to recognise Israel. Furthermore, Turkey has fairly good relations with the GCC. In this equation, Turkey can play a key role in bringing Israel and the GCC into a union.

The part of the equation which is clearly hard to solve is how can Israel and the GCC agree to be on the same economic platform?

From Israel’s point of view, the country has developed economically and reached around USD 40,000 per capita. This is a tremendous success without any natural resources. In the meantime, there is a continuous security threat which reduces the country’s true potential and Israel, like any other nation, does not want to fight continuously with its neighbours.

From the GCC point of view, the USA is already rapidly diversifying its energy needs and they are very likely not to need as much oil from the Middle East as is currently the case. We can already see the effects of this, as the USA does not show the same level of interest as previously.

If the GCC is not able to diversity its income sources, it faces a big potential economic threat. Places such as Dubai and Qatar are trying to achieve this diversity fast, but since human capital is mainly imported, I personally do not see the current system as sustainable.

And the GCC does not really function very well alone. Interestingly, there are also some internal conflicts. It is no secret that Qatar and Saudi Arabia do not get along very well.

Turkey has relatively cheap labour, massive land and a skilled white collar work force. Israel has a huge talent pool, where the proportion of university graduates in the country is the highest amongst the developed world. Furthermore, not only does it have a wealth of graduates, but it supports a culture with an entrepreneurial attitude.

The GCC has an extensive land area, and still valuable natural resources such as oil and gas, but it lacks human capital. These different parts of the equation can combine to help create an economic union to leverage their potential.

A potential union will not only help us to solve the conflicts between the countries quickly, but also could potentially draw people closer and help them to understand each other better.

I know it sounds like a utopia, but big achievements always grow from what many believe to be impossible.

Of course, we also need politicians with clear intentions, no hidden agendas and international support to establish this platform.

A project on this scale would be a stepping stone for the Middle East and the end of its bloody history.

So why not try?

Best regards from Singapore,

Sukru Haskan

 

Great Article to Global Elites by Martin Wolf

1

Martin Wolf, chief economics commentator at the Financial Times, published an article titled ‘Global elites must heed the warning of populist rage’ last week, and I want to draw your attention to this great article this week in my blog.

Mr. Wolf wants to bring attention to the rising populist politicians around the globe and the possible effects on global elites.

“If governing elites continue to fail to offer convincing cures, they might soon be swept away and, with them, the effort to marry democratic self-government with an open and co-operative world order.”

Income inequality in 2016 has reached its highest since World War II. Stagnant incomes, if not declining purchasing power parity in the developed and developing world, have reached new highs. This most threatens the global elites: they have continued to ignore it to date, but a possible shift in the world order will affect them most.

“McKinsey has examined personal satisfaction through a survey of 6,000 French, British and Americans. The consultants found that satisfaction depended more on whether people were advancing relative to others like them in the past than whether they were improving relative to those better off than themselves today. Thus people preferred becoming better off, even if they were not catching up with contemporaries better off still. Stagnant incomes bother people more than rising inequality.”

If your parents were farmers 50 years ago and you decided to become a farmer, you would very likely be worse off in 2020. If your father was an army officer during World War II and you are an army officer in 2016, you are likely to be very much less significant in 2016 compared to your father. Even if your father was a banker in the 1980s and 1990s and you are a banker now, very likely you will not have his standard of life either.

So how can we create a system where the children of such parents not only work to survive, but also to excel and grow with the same amount of effort and input that their parents made?

My answer is simply by allowing everyone access to a high quality, updated and non-prejudiced education system.

You have to do something different to do better than your parents, and access to high quality education is the key to grab that chance to improve.

“Citizenship of their nations is the most valuable asset owned by most people in wealthy countries. They will resent sharing this with outsiders. Britain’s vote to leave the EU was a warning.”

This is exactly what happens when you cannot improve your standards beyond those of your parents: you start blaming immigrants or other external factors such as globalisation for your stagnant income, and your biggest commodity becomes your passport.

The UK vote to leave the EU is one thing, but I personally see the increasing popularity of Marine Le Pen and her equivalents in other countries as the biggest threat to stability and peace in the world.

“Accelerate economic growth and improve opportunities. Part of the answer is stronger support for aggregate demand, particularly in the Eurozone. But it is also essential to promote investment and innovation. It may be impossible to transform economic prospects. But higher minimum wages and generous tax credits for working people are effective tools for raising incomes at the bottom of the distribution.”

I don’t really agree with Mr. Wolf on the higher minimum wage and generous tax credits, but it is at least an offer to partially solve the problems. But it is a very short term solution.

My solution instead of offering a higher minimum wage would be tax credits and tax cuts to channel those means to grant everyone access to the best available education in the country.

This will not solve the short term problems, but it will certainly solve the long term ones.

Martin Wolf finishes his article by gently (!) warning us: “Our civilisation itself is at stake.”

Indeed, it is.

Especially for those that have the most comfort right now…

You can read the full article here: https://next.ft.com/content/54f0f5c6-4d05-11e6-88c5 db83e98a590a

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

Misallocation of resources and sharing economy

19fd88b79ea7d8bf32a31e9938bf211c-2

The world’s population is fast approaching 7.5 billion and many people are still suffering from hunger and a lack of basic needs such as clothing, sanitation and housing.

I always reject the idea that the world’s resources are not enough to feed that many people. We are currently suffering purely from a misallocation of resources, rather than a lack of resources.

According to the UK government, 3,569 people slept rough on any one night in England in 2015. This number is over double that counted in 2010. In addition, 12,330 households applied to their local authority for homelessness assistance in 2014/15, a 26 per cent rise since 2009/10.

  • How many houses in London alone are kept empty most of the year simply because their owners are using them only ten days a year on average?

According to an article published in The Guardian, in London alone there are generally 22,000 empty houses. There are thought to be 700,000 long-term empty houses in the UK.

The World Food Programme, the world’s largest humanitarian agency fighting hunger worldwide, estimates that 795 million people in the world do not have enough food to lead a healthy active lifestyle.

  • How often do you see seeing people throwing away food?

The EU Commission reports that in the EU alone, around 88 million tonnes of food are wasted annually, with associated costs estimated at 143 billion euros.

Transportation is the main source of carbon emissions and we are not good at managing that, either. Business Insider reports that nearly 20 per cent of seats are empty on US flights. According to the same report, the figure is no better in China, Brazil or Japan.

The same challenge applies to cars.

  • How often do you see a single person in a car in which five people can fit comfortably?

No offence to ladies, but this question especially goes to them:

  • How many clothes/shoes do you have in your wardrobe that you haven’t worn for more than six months?

I am not a utopian and I understand that we cannot really achieve full efficiency and allocate 100 per cent of resources—but we can improve a lot.

And that’s where the sharing economy comes into effect.

Uber, AirBnb, Vestier Collective, Carousell, and BookCrossing are some of the sharing economies’ innovative and disruptive companies.

We have to start sharing our unused resources and there is a financial incentive for us to use them too, since you can make money out of your unused resources.

Interestingly, and maybe unsurprisingly, many governments around the world are against these disruptive companies even though the total benefit of using them is greater than the cost element for society.

If not voluntarily, through these companies we should promote the inclusion of idle resources for the common use of human beings.

My main worry for my life span and that of my child is another world war.

Since the inequality level is increasing to levels comparable with those of the world wars and masses are unable to meet their basic needs, this will create much bigger problems than we currently have unless we find an immediate solution.

We represent a very lucky portion of the world population that can travel, read and enjoy living. If you are not interested for other communities, you should start thinking of eliminating this misallocation of resources for your own sake.

All the best from Singapore.

Twitter: @sukru_haskan
Sukru Haskan

Financial Markets in Q1 ’16

It has been a very interesting year for the financial markets so far…

28045030-composing-for-up-and-down-in-the-financial-markets

The market has tumbled quite a bit since the beginning of the year and financial and energy companies are the main losers.

Warren Buffet’s famous quotation is, “Be fearful when others are greedy and greedy when others are fearful.” Even though the current climate is quite fearful, I would personally continue to be fearful rather than greedy in the coming months.

Financials are getting sold off as the street is expecting loan books to deteriorate and non-performing loans to increase and energy companies are being sold off since the investors do not believe that the juicy profits will be there anymore for an extended period as all the commodities across the board have been sold off sharply since last year.

The market always likes to overreact to any news.

When there is a bull market, we overbuy and when there is a bear market, we stay overcautious. I think we are entering again another oversold era, but it may continue to stay as it is before getting any worse. (Do not forget that markets can stay irrational for an extend period of time.)

It is not a difficult prediction to make that the loan books are likely to deteriorate as the exposure to energy and other challenging sectors will likely bring some defaults in the near future.

It is almost impossible to predict the price of oil as the price has been affected by many factors rather than the simple supply and demand mechanism, but the longer the oil price along with other commodity prices continue to stay low, we will continue to experience more defaults. Due to this simple fact, I would rather try to get away from energy company bonds as much as possible, as well as heavily commodity dependent countries such as Venezuela.

FED hiked the interest rates last December; many analysts started expecting three to four hikes in 2016. I don’t see that this is now happening. I would look for a one rate hike if we are lucky this year. Any aggressive stance from the Fed may shake the markets in a much uglier way.

The 10-year US interest tumbled as low as 165 basis points, which is clearly a sign that the money is again flowing into “safe havens”.

In 2015, many analysts were recommending getting into equities as they were seeing more value in equity markets than in the bond market. Those analysts were again wrong because since the turbulence start happening in June 2015, the bond market has performed relatively well compared with other asset classes.

We are living in such a different era that nowadays many banks are charging their clients to deposit EUR, JPY and CHF with them.

In the debt market, the EM debt crisis is approaching closer and closer as the currencies of these countries depreciated along with the revenues and it will be real challenge to produce USD for the repayment of the interest and the principal. Investing in quality names in the debt market will continue to be the challenge and one should not go simply for a high yield.

USD is very likely to continue to be a main beneficiary as with the last few years.

The spotlight is on “China”, but China is relatively doing better than its peers and I think the spotlight is again focusing on the wrong place.

Beside all these challenges, Syria is likely to teach an important lesson to human history. When there is a war, what happens to financial markets is not a difficult question to answer. Maybe gold is returning to its shiny days because of that?

I would keep a large portion of my assets in cash along with buying some (5–10%) gold at these levels. I would actively seek an entry point for blue chip companies with a target holding period of three to five years. The lowest point the market hit was on 5 March 2009, and I would wait for that kind of a day carefully. In addition, high quality debt papers that can pay continuously 4–5% are still not a bad asset to hold for 20–25% of your portfolio.

This is a period where you should protect your wealth rather than making a risky bet.

I will be travelling in Kuwait and Istanbul this week before coming back to Singapore. Have a wonderful week ahead!

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

 

 

Book Review: Sapiens by Yuval Noah Harari

IMG_8504

A couple of months back, I published my next five books to read and one of them was Sapiens. Since this week marked Chinese New Year (Gong Xi Fa Cai!), it was a great opportunity to read Sapiens over the four-day break. I will share some of the author’s own sentences with my own comments and I hope that you find it interesting enough to read the whole book.

The author, Yuval Harari, divided the book into four different parts according to humankind’s developments: the cognitive revolution, the agricultural revolution, the unification of humankind, and the scientific revolution.

“The cognitive revolution kick-started history about 70,000 years ago. The agricultural revolution sped it up about 12,000 years ago. The scientific revolution, which got under way only 500 years.”

The author argues that prehistoric humans were insignificant animals with no more impact than gorillas, fireflies and jellyfish, and our closest living relatives include chimpanzees, gorillas and orang-utans. Legends, myths, gods and religions appeared for the first time with the cognitive revolution.

The transition to agriculture began around 9500–8500 BC in the hill country of south-eastern Turkey, western Iran and the Levant. Yuval believes that the agricultural revolution was history’s biggest fraud since the average farmer worked harder than the average forager, and received a worse diet in return.

He names this fraud as the luxury trap by stating that, “The pursuit of an easier life resulted in much hardship, and not for the last time. It happens to us today. How many young college graduates have taken demanding jobs in high-powered firms, vowing that they will work hard to earn money that will enable them to retire and pursue their real interests when they are 35? But by the time they reach that age, they have large mortgages, children to school, houses in the suburbs that necessitate at least two cars per family and a sense that life is not worth living without really good wine and expensive holidays abroad. What are they supposed to do, go back to digging up roots? No, they double their efforts and keep slaving away.

He rightly argues throughout the book that worries about the future became major players in the theatre of the human mind.

So why study history? Unlike physics or economics, history is not a means of making accurate predictions. We study history not to know the future but to widen our horizons, to understand that our present situation is neither natural nor inevitable, and that we consequently have many more possibilities before us than we imagine.”

So true… Everything is happening because of a series of past events and it is important to evaluate the reasons and continue our lives accordingly.

The scientific revolution started with human beings accepting the Latin injunction ignoramus, in other words “We don’t know”. This is still a huge problem in many countries as people think they know everything. Instead, when you accept that you don’t know enough, it opens the door to investigate, observe and learn.

He explains the necessities of holding societies together in quite a comprehensive way and explains why scientific revolution took place in Europe rather than anywhere else.

“In 1500, annual per capita production averaged $550, while today every man, woman and child produces, on the average, $8,800 a year.” 

The scientific revolution has definitely increased our productivity, but has it really improved the overall satisfaction of our lives as well? The book also discusses this point in quite a nice way as well.

“Each year the US population spends more money on diets than the amount needed to feed all the hungry people in the rest of the world. Obesity is a double victory for consumerism. Instead of eating little, which will lead to economic contraction, people eat too much and then buy diet products – contributing to economic growth twice over.”

This is another sad fact of our age. Because our distribution of goods and services channels are not well developed (or maybe we don’t want to develop?) whilst many people suffer from famine, some other people battle against obesity.

He argues that there will not be a large-scale war in the future, which I don’t really agree with. He puts forward the argument that the economical benefits of peace are so great that countries will avoid a large-scale war. Even though the economic benefits of peace along with social benefits are huge, these benefits are being shared by only fraction of the world’s population. Due to this fact, I personally expect a large-scale war to arise from low income people if these issues are not addressed immediately.

He finishes his book with a question: “Is there anything more dangerous than dissatisfied and irresponsible gods who don’t know what they want?”

Overall, the book enlightens us about the series of past events that took place in the history of the humankind and it helps us to think why certain institutions, beliefs and behaviour exist in our lives.

I rate this book 5/5 and recommend you to read it as well. Yuval Harari also has a website where you can watch his videos and even subscribe to his public courses.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

Convergence in Economies, Is it really happening?

Emerging-Markets5

In my third year in university in 2004, I followed the Economic Development course delivered by a very good professor, Elif Çepni, in Istanbul. I remember her telling us about the convergence in economies over time.

The concept is pretty simple and logical. It is the hypothesis that the emerging market economies and developed market economies will in the end converge in terms of GDP per capita. The underlying reasoning is that the rate of the growth in the developing world is higher than the rate of the growth in the developed world.

Have developing economies really been catching up with the developed economies since 2004?

 

The share of the developing world’s population living on less than $1.25 a day (the international definition of poverty) has fallen from 30 per cent in 2000 to below ten per cent according to an estimate by the Centre for Global Development, based on new data published by the World Bank in April 2015.

According to an article in The Economist in 2014, were the emerging world able to maintain a 4.5 percentage point growth advantage over the rich world, then, all other things being equal, its average income per person would converge with that in America in just over 30 years—scarcely a generation.

Unfortunately, since the global financial crisis in 2008, a lot of things have changed. The growth rate of emerging market economies has slowed down and the convergence has faltered.

Growth rate is not the only factor, but it is one of the main reasons that convergence is not happening. Emerging markets have been still dealing with implementing efficient governing policies, productivity levels (technology) and rules of law.

Red tape in emerging markets is very high and corruption does not really help. According to a recent report by Transparency International, emerging markets continue to be more corrupt than the developed world. This reports highlights that Brazil and Turkey have seen the largest fall in terms of cleanliness in the last four years.

Unfortunately, corruption leads to less productivity, and less productivity leads to poor citizens, which in turn leads to less educated communities and bad governing policies along with weakened rule of law.

It is a vicious circle for emerging markets.

I personally believe India has very much potential, but with the current red tape level (opening a business is one of the hardest), the potential of the country is still not being realised. President Modi has been elected to change this, but easier said than done: it will take time.

A paper written by Harvard economist Dani Rodrik in 2011 argues that generalized, rapid convergence is possible in principle, but unlikely in practice. His baseline scenario has to be one in which high growth remains episodic. Sustained convergence is likely to remain restricted to a relatively small number of countries. I totally agree with his conclusions.

According to an Oxfam report, the combined wealth of the richest one per cent will overtake that of the other 99 per cent of people next year unless the current trend of rising inequality is checked. Oxfam made headlines at Davos last year in 2015 with the revelation that the 85 richest people on the planet have the same wealth as the poorest 50 per cent (3.5 billion people). That figure is now 80—a dramatic fall from 388 people in 2010. The wealth of the richest 80 doubled in cash terms between 2009 and 2014.

 

A prominent Turkish conglomerate, Ali Koc, has mentioned in a conference that we have to sort out the inequality in the system in order not to face bigger problems in the near future. The existence of large inequalities always open the door for correction, which may lead to a global war. The migrant crisis, for example, is an early symptom of this.

Sustainable growth is unlikely, so it will remain just a hypothesis. It is true that we have more middle class now, but we have still one in nine people living below the poverty line (less than $1.25 per day).

On the other hand, there are some voices claiming that the emerging markets’ catch-up with the developed markets will continue into the 2020s. A prominent economist, Kemal Dervis, believes it is not the end of the party for the emerging markets yet.

As a final note, I would like to share with you Dani Rodrik’s 2013 slides about the subject, with which I completely agree.

With low commodity prices; capital flowing back to the mainland; the Chinese slowdown and discussion about whether the landing will be soft or hard; geopolitical developments in the Middle East and Russia, it is likely that the growth rate of the emerging markets will be surpassed in the near future.

This weekend I am in Bintan, a beautiful island just one hour away from Singapore. I will write my observations about the island and my short journey next week.

All the best from Indonesia.

Sukru Haskan
Twitter:@sukru_haskan