Snippings

Here in the U.K. we are having something of an issue with the economy. In order to get nice things, such as pay rises and trains that work, we have to improve productivity. And when it comes to productivity, we are behind. We are about a sixth less productive than our G7 friends and compared with them the contribution of capital deepening to labour productivity growth in the UK has, according to the Office for National Statistics (ONS) “been weak”. This is not new. When Philip Hammond was Chancellor of the Exchequer he pointed out that “the productivity gap is well known, but shocking nonetheless” and went on to lament that it takes British workers five days to produce what German workers produce in four, meaning that  too many British workers work longer hours for lower pay than their counterparts.”

There are obviously many reasons for this sorry state of affairs. The economy is complex. Nonetheless, there are a couple of factors that stand out. In France (and to a lesser extent Germany) restrictions on working hours, industrial pay bargaining and limits on redundancies make hiring workers more expensive and risky than in the U.K.m which in turn encourages French and German firms to invest in technology.

There is a rather useful case study to illustrate how we diverge from our continental neighbours, and that is the car wash. Car washing is a big business (around half a billion pounds a year on commercial car washing) but instead of using the high-tech car washes at our local garages we (me included) pay people to wash our cars using the most inefficient means available: a hose, bucket, water, soap and sweat. The hand car wash has grabbed around half of the commercial car wash market in the U.K. (there are now 20,000 hand car wash sites in Britain) and the number of car wash machines has more than halved. We have successfully reversed industrialisation, which was the source of our rising prosperity of 7th last couple of hundred years.

As the economist commentator Duncan Weldon said “It’s more like the people are taking the robots’ jobs.”

One analysis of our productivity nightmare concluded that outside of London and finance, almost every British sector has lower productivity than its Western European peers. While the economy is not built on car washing, it does serve to illustrate what may be a core problem. According to the International Federation of Robotics (IFR), U.K. manufacturing industry is less automated than in just about any other similarly rich country. With barely 100 installed robots per 10,000 manufacturing workers in 2020, the U.K.’s robot density is below that of Slovenia and Slovakia. 

In the robot league table, our old rival France currently ranks 2nd within the European Union ( and the U.K. would be in 10th place were it still part of the club). No guesses for who is in first place, of course. What does the mean for the economy? Well, look at the German automobile sector, which has twice the robot density of the U.K.and “As a result of the ongoing trend to automate production, employment in the German car industry rose by about 93,000 jobs to 813,000 during the period 2010 to 2015.”

That’s right. More spending on robots increased employment!

What’s the global trend? Well, half a million new robots were installed around the world last year – but only a couple of thousand of those were in the U.K. and the automotive sector has traditionally led in robotics, installations in that sector actually reduced by 42% in 2021. That wasn’t true on the continent where demand in the automotive sector was steady (and demand from general industry was up by a half). Things are going from bad to worse, because five years ago the U.K. had already slipped down the world rankings to 22nd place for industrial robot density and the most recent figures show that we continue to lag behind. While installations of general purpose robots in Europe increased by 24%, uniquely in Britain the number fell by 7%.

The problem has deep roots. Twenty years ago the British Automation and Robot Association (BARA) was greatly concerned by U.N. figures showing that in 2002, robot investment in the United Kingdom fell by two-thirds while across the world as a whole robot orders were up a quarter. That U.N. report showed that for every 10,000 persons employed in the United Kingdom manufacturing industry at the end of 2002, there were 36 industrial robots, compared with 135 in Germany, 109 in Italy, 67 in France, and 66 in Spain. It’s a long way back.

Let’s not make the same mistake in financial services. The City needs to go all in on this. As Professor Scott Galloway said, you’re not going to lose your job to AI, your going to lose your job to someone who uses AI better than you do.

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Cross-border retail spending (including tourism) and remittances will hit $5trn this year; business-to-business payments are worth eight times that.

From The fight over the future of global payments:

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Information from 160 of 230 councils where polls were held this year shows 26,165 voters were initially denied ballot papers at polling stations.
Of these, 16,588 people came back with valid ID, whilst 9,577 did not return.

From Local elections 2023: Thousands didn’t vote due to ID rule, data shows – BBC News.

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Information collected so far suggests the people initially turned away were a small proportion of the overall voter base, generally less than 1% and in many cases less than 0.5%.

This echoes the findings of voter ID trials conducted in 2018 and 2019, which put the proportion of people initially refused a ballot at around 0.4% of the total votes cast.

David Cowling, a former BBC polling expert who is now a visiting research fellow at King’s College London, also says it must be borne in mind that some voters initially turned away later return with ID.

He says evidence from metropolitan borough councils, and the pilots, suggests around 60% of people initially refused a ballot return with valid ID – producing a rough figure of 0.2% refusals of the votes cast.

A dragon is an company that deliver returns equivalent to whole of the fund that invested in it.

 

I spoke to Richard Abrahams at Sprout, one of the several new platforms that helps private investors discover, invest and monitor venture and private fund investments about the “unicorns vs. dragons” debate and he told me that when it comes to mythical beasts, it is the dragons who deliver. So falling numbers of unicorns does not mean the opportunities for funds to find dragons are diminishing! 

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One trial by the Bank for International Settlements (bis), a club of central banks, called mBridge, linked the central banks of China, Hong Kong, Thailand and the uae using a distributed ledger to settle cross-border payments. Overseas trade can be cumbersome because few banks have accounts in other countries. A sender bank must transfer funds to a correspondent bank that has an overseas account, driving up costs.

In theory systems like mBridge could reduce costs. In a trial in 2022, 20 banks across the four places transacted some $22m in 164 payments. The bis has yet to disclose how efficient this was: indeed, it had to turn to traditional markets outside its platform because it did not have enough liquidity. But Mr Sun of hsbc, which joined the trial, says that the system worked technically. The questions left concern alignment of standards and finding enough liquidity.

From Could digital-payments systems help unseat the dollar?:

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Start with differential pricing, often in the form of a “surcharge” on card usage or a “discount” for using cash. The idea is intuitive enough: why not make users of expensive cards pay for them? Surcharges are popular in Australia. When restrictions on surcharges were lifted in Canada in 2020, a survey of 4,000 businesses by the Canadian Federation of Independent Business found that nearly 20% were considering introducing them. They exist in parts of America.

Many have tried regulation instead. In 2015 Europe capped interchange fees for credit cards at 0.3%, several times less than most American ones. Australia introduced caps for credit cards at 0.8% and for debit cards at 0.2%. It also encouraged surcharges across a wide swathe of merchants so that shops would not have to worry about losing business to competitors if they imposed them. America’s Congress passed the Durbin amendment in 2011, capping debit-card fees at $0.21 plus 0.05% of transaction values for cards issued by large banks. Yet the amendment had unintended consequences. Because debit-card fees fell, rewards associated with them did so as well. Consumers migrated to credit cards, which do not have fee caps. America now props up the global profits of the card networks and issuers. Insiders reckon that half of Visa’s and Mastercard’s revenues come from America.

 

American regulators are unlikely to go the European way. Instead they want more competition. Some hope the Federal Reserve’s FedNow, which will facilitate instant account-to-account transfers when launched in July, will be a game-changer like India’s upi or Brazil’s Pix. Similar hopes exist for other fast systems like Real-Time Payments, launched in 2017, and the existing card networks’ new systems. Mr Siddiqui is optimistic about business-to-business payments. Systems like FedNow are a big improvement on today’s wire transfers, which cost $25-35 as they must be manually checked. Automated clearing-house transfers are cheaper, but they are slow and do not tell senders whether the money has gone through. Businesses are more open to new payment methods and to case-by-case pricing than consumers, so they may switch.

 

Consumer payments are less assured. Although person-to-person bank transfers have taken off in Britain and Europe, they have struggled to make headway with retailers, where the real money is.

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Hence a third strategy, to build an alternative payment method for existing repeat customers, rather like the RedCard of Target, a big retailer. RedCard offers customers 5% discounts on Target purchases, encouraging them to spend at Target over its competitors. Some 20% of the firm’s $100bn annual revenues come through RedCard. The interesting aspect, says Mr Rampell of a16z, is that for its debit cards, Target takes the money direct from a customer’s bank account, sidestepping normal card fees altogether.

The potential gains are large. Target would save around $2bn a year if all its customers used RedCard rather than their normal credit cards. Other companies might follow suit.

From The old bank/card model is still entrenched in the rich world:

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The Treasury select committee said in a report that proposals for the Financial Conduct Authority to regulate the crypto industry could create “a ‘halo’ effect” that gives the impression crypto is “safer than it is” and might tempt people to put money into a speculative market they should avoid.

From MPs call on UK ministers to regulate crypto like gambling | Financial Times:

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While the UK leads the region in digital wallet share, it is behind in A2A adoption. A2A accounts for only 9% of the U.K. total e-commerce spend ($319billion in 2022) but is around two-thirds total transaction value in Poland and the Netherlands.

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A powerful cross-party group of MPs has called on the UK government to abandon plans to regulate crypto as a financial service and instead treat it as gambling.

From MPs call on UK ministers to regulate crypto like gambling | Financial Times:

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This supports the view that the crypto market is not a financial market as we currently understand and regulate as such.

From (1) How Should We Regulate Crypto? – by David G.W. Birch:

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The Organised Crime and Corruption Reporting Project (OCCRP) revealed how $2.9bn (£2.3bn) of dirty money – cash stolen from Azerbaijan’s people and economy – had been spirited away by members of the country’s elite. It was largely for their own benefit, but also to bribe European politicians.

From Javad Marandi: Tory donor’s link to massive money laundering probe – BBC News.

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