Laws introduced to protect privilege distort the incentives and disincentives to such an extent that the normal market mechanisms lose their efficiency
The Declaration of Independence of the United States contains a false assumption. Although it might be agreed that people are endowed with certain unalienable rights, it is absurd to believe that they were created equal. Some people are more intelligent or better looking or more verbal or better coordinated than others. Some people were born to wealth. Some were born to be kings or princes, while others are born into poverty. The random nature of birth for any country has little to do with economic growth. What is important are the possibilities during life. Potential individual merit is often limited by lack of personal connections.
In game theory there are two types of systems, rule-based systems and relationship-based systems. In rule-based systems agreements, laws and regulations are dependent upon enforced rules. In relationship-based systems outcomes are determined by networks. One system is not morally better than the other. Both systems co-exist in all countries. What is true is that rule-based systems are more economically efficient.
The distinctions between rule-based and relationship-based systems are not black and white. Instead there is a spectrum. Even in law obsessed countries like the United States and France, relationships are exceptionally important. In France, seven of the past 12 prime ministers, and two of the past three presidents, including both current incumbents, went to one of the “grandes écoles” as did 50% of the chief executive officers (CEOs) of the CAC 40 index companies.
Emerging markets are more on the relationship end of the spectrum. The economic impact can be enormous. The Philippines, in theory, has a democratic system. It has a lively press and regular elections. In contrast, China has an authoritarian one-party state where information and speech is regulated and suppressed.
It would seem that these countries have little in common. China has been growing rapidly over the past twenty years in a seemingly unstoppable drive on the road to development. In contrast the Philippines seem stuck. Their per capita income is less than half of the income for Thailand, less than a quarter of Malaysia and only a tenth of the average income of Taiwan. This was not always the case. In the 1950s Philippines and Japan were considered prime candidates for rapid economic growth.
What has gone wrong? One possibility was suggested by the great economist Mancur Olson. Olson argued that certain elite power groups tended to subvert laws and institutions to their benefit. They take more of the economic pie rather than enlarging it. The real damage is not the extra money that the elite garner, in any economy certain commodities including talent are worth more than other commodities. What slows the economy and eventually decreases the pie are the laws. The laws introduced to protect privilege distort the incentives and disincentives to such an extent that the normal market mechanisms lose their efficiency. The result is that over time the economy slows.
The Philippines, like many Latin American economies, has a very few spectacularly rich citizens and masses of the abjectly poor. With the odds stacked in their favour, the rich have huge economic incentives to maintain the system— often at any cost. Worse they become rent seekers, so the system keeps getting worse. The only potential limit is the law itself. Since the law is controlled by the elite, its function is reversed and it is used to extend their power rather than restrict it.
In emerging market after emerging market the pattern repeats although by different names. In Russia the present ruling elite are known as “siloviki”, "strong guys" from the security services who surround prime minister Putin. In Africa they are known as Big Men, who utilize regulations to monopolize imports like petrol for Nigeria. India must labour under the caste system and now a new generation of political heirs from the Gandhi progeny to alumni of the Doon School, Stanford, Harvard Business, and investment banking continue a system that distorts investment.
Still Russia, Nigeria and India are all as least nominally democratic and all three countries have multiple parties and some speech is protected in widely varying degrees. The laws that allow these rights provide some limits to the power of the elites. Not so in China. In this nominally socialist country the higher ranks are dominated by so called taizidang or "princelings".
These children of senior Communist party officials are blessed with superior connections denied mere mortals and foreign investors. In an unstable and often arbitrary legal environment these connections are often the only way to get things done, so the princelings are on the A list of every western investment bank and have amassed wealth to match their status.
When capital is limited to connections, it fails to find the most economical efficient path. Over time these decisions will slow the economy as has occurred in the Philippines and will eventually occur in China.
Xylo brand managers must be the rare marketers who conceal the good and reveal the rubbish
So, that multi utility vehicle (MUV) called Xylo has come a long way. From 'The Time of Your Life' nonsense, they have moved on to promising many 'Happy Legs'. Looks like a step in the right direction. Or so it seems.
Xylo’s earlier commercial totally went over my head. The swank gaadi boasts some cool features: foldable flight trays, walk-through aisles, flatbed seats, individual reading lamps, digital drive assist system, etc. And what did the commercial highlight? Hard partying dudes and tight close ups of anatomies. All grooving to the eighties track, ‘Have the time of your life!’ Serious ad spend down the tube, is the most polite way to describe this.
Well, at last they seem to have found their bearings. Only somewhat. Now the ad is pushing space and comfort. Well, at least that’s tangible, at least now Xylo stands for something! And in order to make the effort a little more memorable, fashion photographer Atul Kasbekar has been hired to do the honours. No issues with that. A much better choice than the done-to-death movie and cricket stars. He doesn’t plug a hundred other brands, so that’s unique for Xylo. What the photographer does in the commercial is to place lots of pretty, leggy models in his Xylo, who, because of the ample space in the car, arrive at the location of the shoot with happy legs, and perform well.
Now here’s where things go horribly wrong, although the strategic intent is right. The commercial is extremely shoddily conceptualised, directed and edited. The expressions from Kasbekar and the models are forced and artificial, and whatever little they may have captured at the shoot, gets lost in the edit suite. In fact, the film is so badly crafted, even the legs of the pretty models give out no expressions! And that’s saying a lot. And Kasbekar looks so out of place and lost, it’s almost as if he’s yelling loudly, “Guys, please let me be BEHIND the camera!” And just in case you forgot their earlier ridiculous commercial, this one ends with the same old: ‘Have the time of your life!’
Wow, some more fat loads of money down the drain! What I don’t understand is this: Mahindra Xylo has great features. Why don’t they create nice little commercials revolving around them, so that at the very least the audiences know about them, at least the ad offers something fresh. And yes, if they have signed a long-term contract with Atul Kasbekar, their best bet is to hire his services to do what he’s best at: shoot cool stills of the sexy, lovely legs.
Xylo brand managers must be the rare marketers who conceal the good and reveal the rubbish.
While the London Stock Exchange requires 25% minimum public shareholding, the Singapore and Hong Kong stock exchanges also stipulate public shareholding between 12% and 25%, based on the market capitalisation of the company
Crisil Equities today said implementation of the government's proposal to increase public holding in companies to 25% could witness a spate of issues, garnering over Rs2 lakh crore from the primary market, reports PTI.
Crisil said there are 179 listed companies that have public shareholding below 25% and implementation of the government's proposal will significantly increase liquidity in the equity markets, make fair price discovery more robust and enhance investor participation.
"Based on the current market price and the extent of promoter holding, it is estimated that these companies will raise Rs1.6 trillion (Rs1.6 lakh crore) if they opt for sale of shares and Rs2.1 trillion (Rs2.1 lakh crore) if they plan to dilute their stake via issue of fresh shares," Crisil Equities said in a statement.
It added that about 82% of the estimated funds are likely to be raised by 29 listed government entities in order to adhere to the proposal.
The finance ministry and the Securities and Exchange Board of India (SEBI) have been contemplating increasing public shareholding of listed entities to a minimum 25%. At present, most of the initial public offers (IPOs) come with a 10% float and certain listed public sector undertakings (PSUs) have holding below that threshold.
Crisil research director, capital markets, Tarun Bhatia said, "The proposal is in line with practices followed in developed economies globally and is expected to improve the liquidity in these companies."
While the London Stock Exchange requires 25% minimum public shareholding, the Singapore and Hong Kong stock exchanges also stipulate public shareholding between 12% and 25%, based on the market capitalisation of the company.
Mr Bhatia cautioned, however, that companies would need adequate time to fulfil the 25% listing requirement, because they would find it difficult to raise the estimated amount of money in the short term, as it could impact their market values.
Mr Bhatia said, "Such a significant step should be implemented in a gradual manner, as the overall quantum of fund raising is almost three times average annual fund raising observed in the recent past."
Crisil said that over the past six years, companies have raised Rs500-550 billion (Rs50,000 crore to Rs55,000 crore) annually on an average through equity issues, including IPOs.