Monday, September 30, 2019

Lanka Land Reform and Productivity

This blog post is long reply to a good friends questions (in bold italics).

First: Productivity, Growth.  That is a concept that is used by the rentier classes to maximize profits.  Pay the least and and get the most.  How, does that benefit the avg joe.  Standard answer is cheaper goods, and you know that does not happen.  Maybe the Chinese.(See Box Below)

"in 1973 number of vehicles in Yala were less than 100,trackers were more respected, poaching was minimal, buffer zones had no settlements"

Sri Lanka population was 13.5 million. The country was poor and could not pay its debts. 
Because the price of rubber had collapsed (synthetic rubber production). Almost the whole country (including our family, I was 14) had to stay in long lines to get bread, rice.  Long means long. 4am to 6am to get 2 loaves moldy bread.  Sisters and I took turn to stay on the lines.

Who could afford to go to Yala in the 70's, the 1%.  Even in S Thomas, one of the schools of the 1%. Very few classmates went to Yala in the 70's.  Not my family for sure.  They did pre 1960.

After 2010, population is 21 million. There is peace and many people (including rural/small town) have disposable income and can do affordable trips, specially in large groups.  Yes, they will throw garbage out of the jeep, drinking and Yala and in in other vacation areas.  Sounds familiar, right, you get the same complaints about behavior of low income people in the US national parks, Beaches etc.

Yala 1950: Rippon Gall Teachers trip.
My mother Peace BeeBee, white dress on left

"land in areas not the best for successful cultivation and their usage was no better than slash & burn"
I have no idea where they do slash and burn these days.  This area where I live was one of the poorest because it was border country during the war.  People here had no option but to hunt in Wilpattu to have food on the table.  The Army and LTTE to hunted to have food.   However, when I came in 2012 there was no slash and burn.

"When Mrs, B broke up the estates down to 50 acres,how come these newly acquired land not used for land reform, productive agricultural areas?"

There was no way the hill country estates were going to be given en masse to the Estate Tamils. Racism and Political suicide. So the hill country Tea estates became  Govt/State owned, and run by either the Govt entity, Janawasama or leased to Private companies like Mackwoods.  The land is still owned by the state.

There were exceptions.  An estate in Katul Oya/Gomara, near Knuckles Range .  1/2 acre was given to the workers in lieu of pay.  Beautiful area, a small plain adjoing the Knuckles Reserve. I tried to buy 4 adjoining plots, too expensive for me. 

In the south (Deniyaya, Hiniduma etc)  many of the Tea Estates were broken up and 2 acres was given to villagers.  I personally know two families.  They make about 1-2 lakhs/month.  However, they have to do all the work themselves.  No hired labor on avg or the gains are gone.

70% of our tea comes from small holdings.

To quote from
"Of this, smallholders, often following a multi-crop model on landholdings of less than ten acres, cultivate about 60 per cent of the total tea land and account for more than 70 per cent of  the  total  production. "
"The smallholder subsector is better off than the corporate plantation sector in terms of productivity. "

"All that happen was a land grab by the competing elites, old money to new money."

Thats the the old money elite version.

Old money:  Most made their money because they had patronage of the Brits. I hope you have read "Nobodies to Somebodies",  Big money from selling alchol, legal monopoly of a drug, including the Senanayakes . Thats a story in itself.  Old money is also Land given by the Brits for brown nosing. 

Some of the old money has changed with the times and jumped on the band wagon. One thing for sure, the new money has to spread the money more to all.

"State run enterprises by politicians who lacked business acumen had no business taking over profitable enterprises!

Ha, this comes to productivity.  State run businesses are not profitable because they are over staffed.  But the pay goes to Sri Lankans, may be backside warmers. welfare in another way.  Can privatize and sell and the profits go overseas. Offshoring of US manufactiring ring a bell. (see box again)

Land Ownership and Land Reform
In the US, there are almost no small family farms left. All taken over by big agri business.  The people have moved to large cities to work in Factories.  Now that manufacturing has been offshored, the mid west rust belt has become one large meth and fentanyl fest.

In the UK, there were the Inclosure/Enclosure acts that drove the rural working class out of the countryside.  It was cheap labor for the factories of the biggest richest empire at that time.  However. Life for those in the factory cities was horrible. Read Dickens etc.

Even today half of England is owned by less than 1% of the population.  Average Joe in the UK less than 10%. (

Thank goodness in Sri Lanka we had land reform and ceilings on land ownership.  So no large migrations to cities and slums.

Arrack/Tavern renting
Legalized drug dealing monopoly enforced by the Jack boot.  Prior to the English the Sri Lankan Tamil and Sinhalese tapped their toddy drank it, shared it or sold some. Never was big or even small scale business.  Too much work for lotus eaters.

The English, passed laws that a family could keep only two bottles of tapped toddy.  The rest had to be given to the Toddy Tavern (and later distilleries) at a fixed price set by the English.  They had special police, called Excise police to enforce the laws.  The taverns were rented off to Sinhalese families, prominent among them the Senanayskes, de Soysas for example.

Productivity and Growth
How per Capita Income, Productivity and Growth hides rise in Inequalityand Poverty
Consider country which has only one Farm and Village of 10 people.

In the first year all 10 people work on the farm
Out per year is 10kg.  So productivity is 1kg/person.
Wages are $10/year per person. 
So per capita income is 10/year.

Next year they push people to work harder, less vacation and lay off 3 people.
Output increases to 11kg/year.  Now productivity is 1.57kg/person. (11kg/7)
Eureka, 57% Growth in Productivity

For the 7 remaining Wages are also increased to $14.5
Total wage are now $101.5 (14.5x7). 
Per capita Income is now $10.15
Eureka Per Capita Income Has gone up by 1.5%

Productivity and Growth has gone up 57%. , Wages have gone up and Per Capita income has gone up by 1.5%.
How do these upbeat stats help the three people laid off

Now lets have look at how Govt or Land owner gains
Let the price/kg be $10 and no change between years

Then in the first year
Gross income = $100 (10kg x 10)
Wages=$100 ($10x10)
Net Income=Gross Income-Wages
0= $100-$100
So, first year it is a break even

The second year
Gross Income = $110 (11kg x $11)
Wages=$101.5 (14.5x7).
Net Income=$8.5 ($110-$101.5)

Eureka the Govt/Land owner is making a Profit

As you can see Productivity, Growth, Increase in per Capita Income hide the fact the poor become poorer and the rich become richer.  This is the rise in inequality and wealth transfer from poor to the rich.

Saturday, September 21, 2019

Saudi Arabia, Iran and Repo Fundig freeze.

A set of FB posts arranged oldest to newest.  There is a thread connnecting dots

Houthi Drone/Missile attack on Saudi Arabia FB post on  2019/09/16

The oil and gas conditioning plant in Abqaiq is the largest of the world.
processes 6.8 million barrels of crude oil each day. More than two thirds of all Saudi oil and gas production runs through it.

it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Department of Energy."

This attack was by a piss poor set of rebels in Yemen a 1,000km to the South. Imagine if the attack is was from the much more well armed neighbors to the East or North. Complete shutdown, the Clown Prince aint very smart.

Huge Spike in Repo Rates  FB post on  2019/09/17
Important: US Repo rates went upto 10%. Should be a few basis points above Fed Fund rates
The NY Fed has stepped in an provided funding of 75 billion and stabilized the situation. Will the Fed have to continue to do this, i.e. a QE.
The big question is what caused the spike forn 2-3% to 10%. What do some banks etc know or suspect.
Note the US Repo market is about 4 Trillion

Excerpts from a Moon of Alabama Analysis FB post on  2019/09/18

How Russian And Iran Beat Their Opponents' Strategies
Interesting Analysis. Specially in conjunction of consequences with Saudi claims of "material evidence" that Iran was responsible for Aramco bombing.

It (Russia) had developed a number of new weapons that can defeat the ballistic missile defense the U.S. installed. It also put emphasis on its own air and missile defense as well as on radar and on electronic countermeasures that are so good that a U.S. general described them as "eye-watering".
U.S. allies, who have to buy U.S. weapons, have followed a similar defense investment strategy as the U.S. itself. They bought weapon systems that are most useful for wars of aggression but did not invest in defensive weapon systems that are needed when their enemies prove capable of hitting back.
That is the reason why Saudi Arabia has more than 350 modern fighter planes but only relatively few medium and long range air defense systems that date back to the 1970s.

Saudi Arabia does not have short range air defenses against drones and cruise missiles because the U.S. does not have such systems. It also does not have sophisticated electronic countermeasures because the U.S. can not provide any decent ones.

Note: Saudis spend the third largest amount on defense (67 billion) after US (649 bn) and China (250 bn). Most of Saudi defense spending are purchases from the US.

Drone/Missile attack on Saudi and Boeing 737:  FB post on 2019/09/10

The Saudis have evidence the Drones/Missiles were of Iranian Origin*. The Saudis claim it is an act of war by Iran.
The Trump/US has two loose loose choices
a) Go to war with Iran and see Oil spike to over USD 100/barrel and huge destabilization of mid east
b) Avoid war and more sanctions. That is sure to make the Saudis think many times before they buy arms from the US. Who knows they may even pivot to Russia and buy S-400's. Many other countries will also think twice in buying multi billion dollar US weapons. India and Turkey have already pivoted to Russia.

‘Made in Iran’ is not ‘launched by Iran’. What about arms made in US/UK etc.

This whole failure of defensive aspect of US weapons has parallels to the Boeing 737 MAX fiasco. It was blamed on foreign pilots, and no culpability of Boeing's slip shod systems (The NY Times feature on 2019/09/18 is a good example)
Well folks, 90% of Boeing aircraft sales are to foreign countries. All have either put their purchases on hold or cancelled.
The FAA reputation has also taken a hit. Countries/Companies are going to wait for alternate sign off by Aviation Authorities of other countries.

IRGC, Major General Hossein Salami FB post on 2019/09/22

Irans Islamic Revolutionary Guard Corps (IRGC), Major General Hossein Salami
"Be careful, a limited aggression will not remain limited. We will pursue any aggressor."
Bush, Obama/Hillary had the easy pickings. Iraq/Afganistan and Libya.
US/Trump is now left to deal with North Korea and Iran.
Iran keeps on pushing up the ante.

I feel sorry for Trump who contested on an anti war platform. How will he get out of this box. A real big man will make peace. Is Trump big enough or will his advisors push him to war.


Back to the Repo and SOFR rates.  FB post on 2019/09/22                             
To quote
"Richard Dzina, said that the New York Fed is examining "why banks with excess cash failed to lend to the overnight money market, following a week that revealed cracks in the US’s financial plumbing."

Are the banks seeing a possibility of loose loose situation and hoarding cash.
a) The US gets involved in a Saudi/Iran/Israel war
b) Even worse if the US does not step up to plate and attack Iran in support of the Saudis.
       i) The Saudis start pivoting to Russia like I said previously
        ii) Even much worse the Saudis decide the nuclear option against the US. Start selling oil in any currency or gold. The petrodollar ends, i.e. the necessity to buy USD to buy oil.
For those who dont know every single USD has to go thru a US bank and subject to inspection.

Tulsi Gabbard  FB post on 2019/09/22
And it’s a huge disgrace to hear our commander-in-chief basically put us in a position —the American people, our men and women in uniform, our military assets — in a position where we are servants of the Saudi kingdom. Standing by and awaiting their orders on how we should proceed.”

Specifically she had criticized the president's early remarks following the twin attacks on Saudi Aramco facilities last week, where Trump tweeted he's "waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!".

Fox (which prior to 2017 had a significant chunk of its parent company 21st Century Fox owned by Saudi investors) consistently toeing the Saudi line on everything from Syria to Yemen to Iran.

I didnt know that, i.e. Fox had significant Saudi investment itself. That is a story in itself, see comments. This is why I read ZeroHedge)

Prince Alwaleed Bin Talal owned 1.5 billion of Fox shares, approx 5% with voting rights.

Prince Alwaleed was "detained" at the Ritz Carlton in Riyadh, Saudi Arabia in Nov 2017. It was during that time period that he sold all his shares in Fox.