India: fracturing from within--a continuing trend/adjustment

ANALYSIS: "States of desire: India; Demands for statehood in areas marginalized by uneven economic growth may change the post-colonial administrative map but add to uncertainties for foreign investors," by Amy Kazmin, Financial Times, 21 April 2010.

ASIA: "India's criminal tribes: If they were crooks, wouldn't they be richer? Millions of poor Indians are considered criminal by tradition. Most are nothing of the sort." The Economist, 24 April 2010.

I long spoken and written about globalization's remapping function, especially its tendency to incite secessionism among a nation's most ambitious players.

But the flip-side also holds: sometimes the ones pushing for break-up are those who feel most left behind.

India has been remapping itself for a while, or basically since it won independence and found itself divided into a few gargantuan states that made little sense (thank you Britain). So, in the 1950s the state reorganized the nation into a host of new states that better matched the linguistic layout. The Hindi-speaking belt, for example, was divided into multiple states, a process that the FT says resumed about a decade ago--meaning more fracturing.

So what we have in India is what many has long fantasized about happening in the U.S.: states splitting into multiples. As with us, the states that catch the most attention are the biggies, like Uttar Pradesh, with 180m people! Here we're into Jean Jacques Rousseau territory: democracies can only be so big, otherwise the transactions between ruler and ruled become too long to maintain.

The counter-fear is natural enough: Balkanization poisoning foreign direct investment. The places that seem to want to break off most are poor places with mining concentrations--or mini-chunks of Africa-like economies.

So this remains a huge question for India: how far down to devolve political power? And, depending on how far you go, how much risk comes with linguistically-defined states? No simple answer. Dividing by language has kept India relatively stable in the past, but that was with the "Hindu rate of growth."

Globalization has changed--and challenged--all that, along with the ancient caste system by which people are still born into undesirable categories and kept unfairly on the economic fringes.

A good but broken record

Found here

COMMENT: "China is the key to unwinding new global imbalances," by Arvind Subramanian, Financial Times, 21 April 2010.

Is it just me, or does this guy Subramanian have this subject cornered at the FT? Seems like he writes on it every week!

His basic point: the rebalancing of East-to-West that's come with surging consumerism in the former and the new austerity in the latter is only temporary and will ultimately be reversed because of monetary policies in each. The East will ruthlessly clamp down on inflation, lest the emerging middle class freak out, while the West will respond less intensely.

In truth, the opposite should be occurring for the rebalancing to continue: the East should let its currencies rise--or, putting it more succinctly, China must let the yuan move as nature intends.

China, naturally, wants its cake (no inflation) and to eat it too (keep attracting FDI). The problem is, if anybody does the right thing, then the FDI simply gets diverted to others who do not--like China.

So, as China goes, so too must most of the developing world.

And gradualism by Beijing (the usual trick) won't be enough:

Rectifying the new imbalance will require an even more ambitious move by China. With that in place other emerging economies can then allow more flexibility in their currencies. De facto policy co-ordination is possible and China moving soon and substantially can help bring that about.

Thus, the perceived "superiority" of authoritarian capitalism is nothing more than the usual catching-up-by-cheating that most advanced economies used in the past--including the US, which discovered seriously free trade only after WWII. In short, the political system doesn't determine that path.

Wolf's "doomsday machine" economy

COMMENT: "The challenge of halting the financial doomsday machine," by Martin Wolf, Financial Times, 21 April 2010.

The gist: a progressive rise in bank risk while the state's safety net likewise widens and deepens, or what Wolf calls the "Red Queen's race" of the system running as fast as possible just to stay in place.

The combination of state insurance (which protects creditors) with limited liability (which protects shareholders) creates a financial doomsday machine.

Globalization meets moral hazard big time.

The only way to justify: the current system creates so much good that it must be suffered.

As a result of the crisis, mainstream opinion is turning against any such judgment.

Too much wealth being transferred from outsiders to insiders, with illusory gains on the upside and real pain on the downside.

So where do we go from here?

The just-say-no philosophy of Republicans on bailouts is a "delusion."

Since financial institutions are powerfully interconnected, the government cannot credibly commit itself to not rescuing the system when in peril.

How about the too-big-to-fail notion?

Here, Wolf sees some value in skepticism: the bigger the bank, the more insurance it enjoys from the government. But there isn't much economies of scale in such hugeness, especially when the complexity of management is included. As for their ability to diversify risk, that's an illusion. Being so big, they naturally become vulnerable to economy-wide risks.

Then again, you look at oligopolistic Canada's banking system: dominated by a few biggies and no problem in the last go-around. They're just more careful bankers.

Final notion examined: rule set gaps (regulatory completeness, in Wolf's vernacular). Wolf is skeptical here too, saying it's not scope but how incentives are managed.

With these three "common ideas" now "put in their place," Wolf explores two big answers:

1) raise capital rates, and

2) structural reform (does the "tax" notion go here?).

We're left to next week's column for that exploration.

Creativity from below: the Prahalad vision realized--and recognized

LEADERS: "The new masters of management: Developing countries are competing on creativity as well as cost. That will change business everywhere," The Economist, 17 April 2010.

SPECIAL REPORT: "The world turned upside down: A special report on innovation in emerging markets," by Adrian Wooldridge, The Economist, 17 April 2010.

How fitting that The Economist comes out with this special report the week C K Prahalad passes on.

The editorial starts off by reminding us that we went through this realization before with Japan (and then, with the other Tigers).

The new reality:

Emerging countries are no longer content to be sources of cheap hands and low-cost brains. Instead they too are becoming hotbeds of innovation, producing breakthroughs in everything from telecoms to carmaking to healthcare. They are redesigning products to reduce costs not just by 10%, but by up to 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. Forget about flat--the world of business is turning upside down

New Core --> New Rules.

This is why Enterra is getting into healthcare in a big way: the partnership opportunities with New Core companies is just too great to pass up. Plus, the rule-set automation opportunities driven by the recent healthcare reform is likewise huge. The combination makes me very optimistic that cheaper healthcare is there for the taking, and that this process, prompted by the New Core's rise and emergent IT technology in the West, will be incredibly renewing for our economy just when we need it most.

The Economist editorial on this:

Change will indeed be painful for incumbents, as disruptive innovation always is. But cheaper goods and services will be a blessing for Western consumers, who are likely to face years of slow income growth. It could also be good news for rich-world governments, which are plagued with deficits even before the baby-boomers begin to retire. Frugal innovation may well prevent America's health-care system (which already consumes 17% of its GDP) from swamping the rest of the economy. Clever ways of applying economies of scale and scope in new ways could boost public-sector productivity.

As for the "loss" of R&D leadership in the West, understand that much of that is simply Western companies moving R&D to emerging markets--co-locating necessity and invention where the former is at its height right now (the underlying dynamic of my "equation"). Example: Fortune 500 companies have 98 R&D facilities in China and 63 in India. IBM already employes more people in developing economies than in America. Then there's clear R&D risers like China's Huawei, a telecoms giant that applied for more patents in 2008 than any other firm in the world.

Bottom line: much to be excited about in terms of all these new capitalists coming on-board. Kenya, not known as the source of any innovation, suddenly leads on money-transfer by mobile phone, teaching everybody something new in the process. This is why I saw the 2010s will be dominated by the rise of the global middle class, but the 2020s will be characterized by a huge revolution in resource utilization ("frugal innovation"): necessity --> invention means New Core --> new rules.

Best part: all this income growth buoys the world economy in optimism. Over 90% of Indians and Chinese, according to polls, are optimistic about the future. Meanwhile, Americans ring in at about 15-20% (yes, it is lonely to be optimistic nowadays).

And we should be too:

Moreover, it is in the nature of innovation to feed upon itself. Innovation in the emerging world will encourage, rather than undermine, innovation in the rich world. Western carmakers learned the techniques of lean production from their Japanese rivals, just as the Japanese had earlier learned the techniques of mass production from the Americans. This great insurrection, like its predecessors, will make us all richer.

Over 21,000 multinational corporations now exist in the emerging world: still think globalization is a conspiracy of Western firms? Then why did their plot to rule the world somehow create all these self-empowering, innovative competitors in the supposedly "exploited" South? How come over 70% of the world's growth over the next few years will come from non-Western sources? Wasn't this evil scheme supposed to make all the poor more poor?

Meanwhile, the West's new austerity arrives just in time to prep us for what comes next.

Brave new frontier for Islamic banking: restructuring

Found here

COMPANIES | INTERNATIONAL: "Islamic banks caught between two worlds: Adhering to both sharia and secular laws is proving difficult," by Robin Wigglesworth, Financial Times, 20 April 2010.

The trick here is the unprecedented requirements for corporate restructurings caused by the financial crisis. So we're simply talking about new territory for a field that has strong strictures on how debt is rendered. Then there's the usual problems of conducting finance in the Middle East: underdeveloped legal systems, poor transparency, inexperienced commercial courts and a "head in the sand" approach in general.

Islamic banking went from nowhere about a decade ago to now being roughly $1T in total assets.

The key test case is the recent $3.5B restructuring of The Investment Dar (Kuwaiti). Last year it defaulted on an Islamic bond.

Islamic banking bars interest payments and promotes equity-based risk sharing (i.e., linked ownership). The danger? When things go bad, Islamic firms may bail on religious grounds (the bet we placed was non-sharia, so we shouldn't have to lose any money) that, to Western partners, seem like a dodge.

Another tricky bit: Islamic banks are never supposed to lose money for investors, and when they do, all other depositors are theoretically responsible for the loss--sort of a pre-FDIC notion that could trigger runs on the bank (as in, get MY money out now!).

An Islamic bank has never failed in the region, and states are fully expected to step in if any did--Islamic or conventional. But such interventions would contravene the sharia notion, so that would be uncomfortable territory.

The experiments in suitable rationalization continue . . ..

Score two for the good guys

This U.S. military photo is said to show Abu Ayyub al-Masri, one of two al-Qaeda leaders said to have been killed in a joint U.S.-Iraq operation. (U.S. Military/Associated Press)

FRONT PAGE: "Allies Kills 2 Chiefs Of Iraqi Al Qaeda," by Yochi J. Dreazen, Wall Street Journal, 20 April 2010.

The bombings in Iraq aren't likely to go away any time soon, but neither will the pressure on Al Qaeda in Iraq (loosely affiliated with the main AQ), as demonstrated by the recent killings of two top leaders long sought by both the Americans and Iraqis.

Larger sense: AQI was estimated to stand at a personnel strength of 10,000, with strongholds in Anbar, Diyala and Ninevah plus Baghdad. They had their own factories for munitions.

Today the group is much diminished, so the deaths of the top guys will have more impact. AQI today is seen as having a stronghold only in northern Nineval, and a max population of "several thousand"--suggesting something less than 5k.

Nonetheless, it a regular for any contesting insurgency to ramp up its bombings as the occupying force departs, no matter what their standing. It is crucial for them to claim a "leading" role in driving out the invaders.

So, while diminished, AQI remains tactically motivated for the near term.

Dealing with the debt is THE Obama legacy

Found here

COMMENT: "America's disastrous debt is Obama's biggest test," by Roger Altman, Financial Times, 20 April 2010.

Altman argues that Greece in peanuts compared to the signals sent by Washington in coming days regarding its mounting public debt.

The CBO is predicting the US will face public debt that represents more than 90% of its GDP by the end of this decade, which is getting back up to WWII-ending levels.

And when that happens, Altman argues, the world will force nasty choices upon Washington, just like Greece is facing today--unless steps are taken in the meantime.

The trajectory seen: growth from $7.5T to $20T over ten years, or an increase of 250%. Again, there is no peacetime precedent for this--just WWII. By 2020, we'd be putting up $5T just to service that debt.

The healthcare bill is seen as having little impact, one way or the other, on this trajectory.

Nothing will shape Obama's legacy more, says Altman, that what he does next on this issue, even though his initiatives are only responsible for about 15% of this mess.

With Obama's debt/deficit commission in motion, Altman says the obvious elements of any solution are:

‚Üí the deficit/GDP ratio must be reduced by at least 2 percent, meaning $300B in annual cuts;

‚Üí cuts to entitlements and higher taxes are also obvious outcomes, with a value-added tax a serious possibility.

Obama needs to craft a budget-balancing path like Clinton did. Without it, and suffering the usual polarizing paralysis, America is likely to come under increasing pressure from abroad, the danger being we strike back irrationally.

Altman is not optimistic, sensing our political system will not respond and thus global capital markets will crash the dollar in a manner not unlike 1979.

The trigger? Who knows. But it'll likely be some budget submission that continues the unreality to the point of absurdity, and then we'll be called on it.

Altman is a smart guy, no doubt, but he tends toward fatalism. Granted, the way politicians are behaving right now, such pessimism seems unfortunately quite reasonable.

Old Core: ease up on the preaching right now

Found here

GLOBAL INSIGHT: "Brazil's cuddly ways are barrier to seat at the top table," by John-Paul Rathbone, Financial Times, 20 April 2010.

A fairly arrogant piece, I would say. Brazil is conducting "bad" diplomacy because it seeks common ground between good states and rogues.

But as Rathbone points out, most rising powers are reticent right now to buy into America's efforts to discipline rogues--especially those with energy resources. Their attitude is suitably snotty: "you protect the non-democratic Saudis who support terrorism all over the place and yet you demand we have nothing to do with, say, Iran, for all the same reasons!"

Naturally, all such talk from Lula about the New Core needing to create a new international order makes us nervous, but, quite frankly, from their perspective, our economics and national security policy are considered unsustainable, with our strident positions on Iran just being another example.

The middle of the piece is a listing of democracy causes that Lula has blown off, along with Venezuela's meddling in Colombia.

Brazil is rightfully described as a sort of neophyte great power, so we may dismiss these early mistakes.

But frankly, this approach of telling the rising East and South about the "tough choices ahead" is a loser right now. As the competing ledgers go, they feel the Old Core West faces more.

That isn't exactly true either, but it's true enough for us to stop talking down to them like this.

The eternal search for global rules on valuing companies

ANALYSIS: "Carried forward: Accounting; After being stalled by the crisis, efforts to agree to a global standard for how companies present their books are beginning to reach make-or-break," by Rachel Sanderson and Jennifer Hughes, Financial Times, 20 April 2010.

An exploration of the work of the Financial Accounting Standards Board, based in CT. It was instructed by the G-20 a while back to work with its international equivalent, the London-based International Accounting Standards Board, to come up with a global rule set for measuring the value of companies--or an improvement on the "fair value" notion known as "mark to market."

In modern times, being able to compare accounts across borders has become a holy grail for the world's accountants as well as many investors and financial analysts. They argue that this uniformity means capital would be allocated in a more efficient way, that companies could less easily pick their regulators to suit them, and even that accounting scandals such as those at Enron, WorldCom and Parmalat would occur less often.

But the world financial turmoil drew particular attention to one fundamental questions: how to measure what an asset is worth. The reason was that during the market panic, prices for most comlext financial products such as derivatives plunged as market froze--virtually regardless of the quality of the underlying assets. For some it created bargains that were snapped up. For most banks and hedge funds, however, it led to devastating holes on balance sheets because of the practice of marking assets at current market prices.

The writedowns created a vicious circle where falling values prompted lenders to demand more collateral against their loans, which in turn forced overleveraged groups to sell assets, pushing prices down further. As a result, policymakers began to look with renewed favor at alternative procedures: allowing managers to judge values themselves or report them at what they originally cost and what cash they were expected to generate before they were sold.

The opinion that "fair value" accounting weakens financial and economic stability has persisted among many regulators and politicians, mostly in Europe but also in Asia. But some investors, notably in the US, have remained staunch in their defense of fair value because they say it is more transparent. Hence the G20's keenness to see a single standard by June 2011.

The SEC will decide if US companies should stop using the American "Generally Accepted Accounting Principles" (GAAP) and more to the IASB's International Financial Reporting Standards, used in most of the rest of the world.

Investors generally favor convergence, but fear any rushed effort.

What they fear more is America going its own way.

So we watch.

Hard not to agree that the American "mark to market" valuing system is not more transparent. But the big question is one of latency--as in, how fast do you want that reflection of current market conditions to impact company valuation? America, as usual, likes it fast. Europe, as usual, wants it slower (meaning, you don't all of a sudden have all extant financial deals revalued by a market surge or drop). Asia seems to be siding with Europe here, so it'll be hard for us to hold off after being perceived as the cause of the recent financial crisis.

The way out?

No one really wants to see competing rule sets in the three big poles of Europe, Asia and the US. The Lehman case is seen as a serious lure to the Americans: much of the dangerous tricks pulled by the firm never would have been allowed under the IFRS system. Then there's just the reality of two (Asia, Europe) against one (US).

One to watch: does America realign itself with the world or go-it-alone?

Figuring out the flow

While I was working my way through the backlog, I created a simple rule: 10 posts each workday and then 10 spread across the weekend (6 on Saturday and 4 on Sunday).

Now that I'm settling into my new flow, I find that 10 posts can generate too many words. I was going to post 10 tomorrow and then saw that it constituted almost 4,000 words!

So here's the new rule:

No more than 10 posts on a weekday and no more than 10 on the weekend, but I cut off at 2,500 words weekday, 1500 Saturday and 1000 Sunday.

So it's now whichever comes first.

Creating a backlog for next week now so as to clear my decks for effort on new site.

Spoke at Financial Planning Association's annual retreat in San Antonio

Flew to San Antonio TX via Atlanta on Wednesday afternoon, catching a shuttle to the Hyatt Regency Hill Country Resort and Spa around 9pm local. The event was the annual FPA Retreat 2010.

Crashed and slept til I felt fresh. Hit the continental breakfast on the club floor, where I was staying, and then worked brief for about three hours. Got those Easterly cellphone penetration maps in the opening Core-Gap map slide. I used the 30/100 numbers because the 2001 map is basically only Old Core, then the 2004 is almost a perfect outline of the Gap (with some penetration into the Gulf) and then 2008 is the Gap shrunk down to just interior Africa. Made a bunch of other changes too.

Got dressed and headed down around 1300, skipping any lunch (never eat close to speaking time). Luckily, the conference was having some opening stuff elsewhere and the ballroom was up and running but empty. Nice wide but shallow room, with two giant screens on either side of the platform stage. I immediately knew I'd stay off the platform and roam the audience, because the more I can move around, the better the delivery.

Projectors a bit on the dark side, so spent about 30 minutes proofing and making adjustments. Then ran the whole brief from start to finish, only to back click my way all the way to the front. If you do that, then all the animations run that much smoother (trick). Had the staff bring me two big cups of Joe. Tested the fancy theater-style mike (attaches to ear and "caucasian"-colored line snakes around cheek to mouth (like actors wear on stages nowadays). Used before and I like them plenty, because then there's no risk of my gesticulating with my arms causing my lapels to hit the tie-clip-on mike.

Was finishing just as the masses entered (far above 500 but I'm guessing no more than 1,000). Opening speakers go at it, and then I'm intro'd a bit late at 2:25. Supposed to be out of room at 3:30, so I cut the brief off before the last 4 slides to make it exactly 3:30.

I was the opening keynote speaker, so everybody was in the room. I love doing opening keynotes. I am built for them.

Great audience. Very responsive. And, as such, I gave a great, very funny brief.

Lots of great immediate feedback as the hour closed. Then whisked off to "bookstore" where I signed copies of all three volumes for 30 minutes straight, answering questions here and there.

Then whisked off to side meeting room prearranged for those who wanted to spend time with me following to ask questions. Found about three dozen people waiting for me. Supposed to go an hour. I got out 2 hours and 15 minutes later with the last guy.

Then swapped out clothes, dropped off gear, and headed back down for cocktail hours. Dealt with more well-wishers/questions. Then headed over to big outdoor tent for TX-style BBQ (great), where I sat with a couple of people who wanted deeper follow-up.

Crashed about 9:30 and got up 0400 for the flights home.

Overall, a great gig that--hopefully--leads to some more. Fielded a bunch of questions about whether or not I'd do this elsewhere and, of course, I said yes. Besides SEI and CFA, this is the third big financial industry association that I've now developed relationships with, which is great.

Finally got my four copies of the Turkish language edition of "Blueprint for Action"

A bit shorter and more squat than the US version, which ran 440 pages. This one goes 507.

Very cool. Always a great day when you get to place a new edition of one of your books on your shelf.

Sudan's election: At least it was fair in the south

MIDDLE EAST AND AFRICA: "Sudan's elections: Half horrid, half hopeful; Rigged in the north, more or less fair in the south," The Economist, 17 April 2010.

The "tale of two Sudans," befitting its history as a fake state stitched together by outsiders. Bashir rigs it in the north, but the Sudan People's Liberation Movement wins fairly enough in the south, boding well for its prospective "divorce" next year. The vote was considered a dry run for that upcoming plebiscite.

The north, meanwhile, will likely remain totally mired in Bashir's war-criminal-worthy dictatorship.

I repeat again, emerging markets are hot!

COMPANIES & MARKETS: "Investors target emerging market private equity," by Martin Arnold, Financial Times, 19 April 2010.

COMPANIES & MARKETS: "Investors set to double private equity in emerging markets," by Martin Arnold, Financial Times, 19 April 2010.

Weirdest mistake I've ever seen in a major newspaper: The same story--as in, word for word--printed twice on the same page, with slightly different headlines!

Key bit: share of total private equity commitments going to emerging markets will double in the next two years to about 11-15 percent on average, according to a recent poll of fund managers.

Some naturally worry about too much money chasing too few good ideas, but the numbers in places like Brazil remains small (under a billion), so that sort of bubbling shouldn't happen for a while, one hopes.

Kraft starts targeting India for real now that Cadbury's in the fold

MARKETPLACE: "Tang in India and Other Kraft Synergies," by Anjali Cordeiro, Wall Street Journal, 19 April 2010.

CEO makes it clear: Kraft bought Cadbury for the distro channels into emerging markets like Mexico and India.

Kraft has little choice, given the limited uptick in consumer spending in the U.S.

Globalization as a profit imperative.

BRICs: training day

INTERNATIONAL: "The BRICs: The trillion-dollar club; Brazil, Russia, India and China matter individually. But does it make sense to treat the BRICs--or any other combination of emerging powers--as a block?" The Economist, 17 April 2010

BUSINESS: "An emerging challenge: Antoine van Agtmael thinks that firms in the rich world have not fully digested the rise of the emerging markets," by Schumpeter, The Economist, 17 April 2010.

In the Brasilia meets recently, interesting to see the Brazil-India-South Africa "democracies" summit happen before the regular BRIC meet, who first met in Russia last June. BRIC foreign ministers have met annually since 2006. The Brasilia meet included side meetings of BRIC commercial banks, BRIC development banks and BRIC think tanks.

The cause for the article's title: the BRICs are the only non-OECD economies that top the trillion-dollar mark. Even more telling, the quartet now hold 40% of the world's reserve currencies. Collectively, the quartet owned virtually none back when the Wall fell. Now, if the BRICs decided to set aside one-sixth of their reserves, they could generate their own IMF--kind of a useless notion but basically the mag reaching for rare hyperbole.

Bottom line: all four have become magnificently enmeshed in the global economy in a historically brief burst of connectivity. Did they do so according to the Washington Consensus of the 1990s? No. They did so according to the Washington Consensus of the 1790s--or the catch-up model we once pursued under Hamilton and his grand strategy successors (Clay, Lincoln, TR). Do the BRICs represent a clear alternative to that alleged consensus? Not exactly. Each does whatever to catch up.

China sees the BRICs as just another venue to mask its bilateral demands in a multilateral venue. The others see the BRIC forum simultaneously as self-empowerment and a way to keep an eye on China's rise--especially long-time rival India. Plus, India and Brazil tire of the usual multilateralism, and feel like they get treated more seriously in this venue. Russia, no longer booming, is just happy to stay in the picture.

What none of them seem to want: any great restructuring of the international liberal trade order set in motion by the US almost seven decades ago. Why? They need globalization to continue working even more than the West. Across the Gap, they mostly compete with each other, less so with the West.

The serious divide is both political (dems versus authoritarians) and economic (Russia and China depend on exports for 1/3 of the GDP, while India and Brazil are more like one-fifth, thus the authoritarians have big current account surpluses).

Probably the easiest explanation of their cooperation: it's cost free. They can all complain about the world system while none of them do anything real to take any responsibility for it.

In short, this is a training-wheels experience.

Agtmael's nice point:

Where Samuel Huntington predicted a "clash of civilizations," he hopes for a "creative collision" that will lead to innovation. He points out that some of the most fraught economic rivalries in recent history--the space race of the 1960s and Japan's rise in the 1980s--provoked creative rather than defensive responses.

Except for strategic missile defense dreams, I would agree.

Deconstructing the recent bottoming-out of Sino-American relations

Found here

ASIA: "Bottoming out: But the stomach-churning descent of the Chinese-American roller-coaster should concern everyone," by Banyan, The Economist, 17 April 2010.

Next strategic forum comes in May, and one expects some revelation about the ending of the currency peg coming out of that, so all now seems well in the relationship--well enough.

Banyan's verdict: Chinese hubris was the major cause, along with Beijing's unsightly anger over the usual bits (Taiwan, Dalai Lama). Short-sightedness is now replaced with bigger-picture realizations.

More prosaically, the Chinese government bureaucracy simply isn't up to the speed required by its rising global role, so what gets viewed as prickliness is often just slowness. Then there's the growing government fear of "internet nationalism."

But the larger concerns remain: the Politburo is too opaque. If somebody important had gotten a serious bug up his you-know-what recently, killing what was apparently enough solidarity on the subject in that body to keep things from boiling over, then this bottoming-out could have gone much worse without the world really knowing why.

Eventually, the serious miscalculation/misread WILL happen, and when things get bad, the most angry player in the equation will be the Chinese people.

R&D spending/patents animated over time

ANIMATION: "Redrawing the map of innovation," Economist.com.

Tracks from early 1980s through 2007, showing link between R&D spending and number of patents.

Striking to see China suddenly appear in early 1990s and then rocket up the chart starting last decade.

India: universal education, then universalizing the delivery

BUSINESS EDUCATION: "India poised to widen horizons of education: Schulich School of Business looks to become of the first international institutions to set up a campus in the country," by Amy Yee, Financial Times, 19 April 2010.

It's not just NRIs (non-resident Indians) over here in the States that obsess over education. Inside India itself, it is a government-wide obsession, convinced as bureaucrats are there that India's massive population either gets properly educated or growth will slow down long before India feels itself truly developed.

So, in addition to the moves to implement the recent universal education legislation, we see some promising accommodation of a foreign biz school that's partnering up with a local one (fairly rare). Until recently, Indian law allowed FDI into the education system, but it disallowed campuses in-country. Last month the cabinet altered the second part of that equation.

No illusions about foreign universities bridging any serious capabilities gap on their own; India is just too big for that. But you have to understand that roughly half of India's 20k colleges and 400 universities were created in the last decade alone, so the more, the merrier.

If I was a US-based university official who worked such stuff, I would definitely be looking for some way to link up.

Can Americans get affordable drugs? CanAmericans can!

Enterra's switching me in terms of healthcare coverage. Nothing dramatic, but the old gateway provider to Blue Cross/Blue Shield was getting too expensive, so now we go with Anthem BC/BS, which is the one we ended up with locally in Indiana anyway, so no real change for us.

Difference, though, in Rx provider. Vonne and I both made a huge effort to get prior authorization for Xyzal, the new concentrated antihistamine that, as anyone who's tried it will tell you, is a generation better than Allegra, Zyrtec, Claritin, etc. Truly, it's a stunning leap in capability, and once I tried some, I had to have it, because it's the difference between feeling bad most of the time and feeling great almost all the time.

Tried to get it for oldest child, who really needs it, but she was turned down by the Rx provider, and we tried every special justification (and we had plenty).

Let me be clear: the Rx company doesn't reject our legal prescriptions; it just says it won't pay because it wants us to use something cheaper that it claims is just as good (their opinion, not our ENT's). The Rx company doesn't say we can't use Xyzal, only that it's too cost-conscious to pay for it.

Anyway, Vonne and I were paying a harsh copay of $50 per month's supply (30 tabs), and the new Rx provider's site made it sound like it was hugely hard to get re-approval for it.

So I went online and found CanAmerica, where I can buy 3 months supply for less than $110. We get them direct from a UK pharma company. Takes 2-3 weeks, with a marginal shipping cost.

Bottom line: sometimes the drug not being on the Formulary ain't the end of the road.

Sometimes it's the beginning of a discount.

The inescapable reality of needing a valid prescription still holds, however. Buying prescription drugs without a prescription is illegal, no matter the venue. Here, getting our prescriptions switched over was pretty easy. Just a phone call.

As for the comment below on legality, see http://www.ehow.com/facts_4911225_legal-buy-prescription-drugs-canada.html

Key bit:

Under U.S. law, it is illegal to import drugs from Canada. The Food and Drug Administration (FDA), however, does not prosecute anyone who imports prescription drugs for personal use. Americans may import up to a three-month supply of medications without fear of prosecution. Though drug companies and lawmakers continue to argue over the practice, Americans are either purchasing medications through valid online Canadian pharmacies or driving over the border, prescriptions in hand.