The Atlantic: “[Airlines] turned frequent-flier systems into the sprawling points systems they are today. And they turned airlines into something more like financial institutions that happen to fly planes on the side. Here’s how the system works now: Airlines create points out of nothing and sell them for real money to banks with co-branded credit cards. The banks award points to cardholders for spending, and both the banks and credit-card companies make money off the swipe fees from the use of the card. Cardholders can redeem points for flights, as well as other goods and services sold through the airlines’ proprietary e-commerce portals. For the airlines, this is a great deal. They incur no costs from points until they are redeemed—or ever, if the points are forgotten. This setup has made loyalty programs highly lucrative. Consumers now charge nearly 1 percent of U.S. GDP to Delta’s American Express credit cards alone. A 2020 analysis by the Financial Times found that Wall Street lenders valued the major airlines’ mileage programs more highly than the airlines themselves. United’s MileagePlus program, for example, was valued at $22 billion, while the company’s market cap at the time was only $10.6 billion.”
Katharina Pistor: “Finance used to be a means to an end, not an end in itself. From food and housing to family vacations, everything in our daily lives must be paid for one way or another. If we don’t have cash on hand, we turn to a lender for a credit line. Companies do the same. They routinely finance their operations by borrowing or issuing equity stakes to investors, who will part with their money in the expectation of future returns. By bringing these counterparties together, capital markets play a crucial role in the economy. So far so good. But finance is no longer just an intermediary that channels money from savers to borrowers. No longer are its functions confined to putting money in the hands of people who will pledge to pay back the principal, plus interest, in the future. On the contrary, finance is now in the driver’s seat, setting the agenda for others, including governments. There are two big problems with this: finance is both dumb and dangerous.”
40 global technology companies beating their Western rivals. (From Rest of World). “Some of them won by market combat: Years of bruising competition led to lucrative acquisitions by their Western rivals, or acquisitions of the Westerner’s local assets. A few just dominate their sector outright. Others beat the West by paying attention. They saw what foreign entrants missed, and tailored their products and platforms to local user needs with surgical precision. Or they proved a certain model could work in developing economies written off by outsiders.”
Suyash Rai reviews the Make in India initiative, concluding: “It is important to remember that it is very difficult to get industrial policy right, especially in a moderate-capacity state like India. This calls for care and caution. Any strategy of industrial policy implies a particular theory of change, which is underpinned by a view on what objective is worth pursuing, a perspective on how the world works, and assumptions about how policies will be implemented. The theory can be wrong on any of these counts, but the sunk cost fallacy is quite common in such matters, especially in a context where there is a large community of narrative-shapers who are willing to claim success too easily. Therefore, only careful analysis can help the government realize the need for timely course corrections.”