GCash IPO: Oversubscribed, Underbid

 

A 'sound' banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him—John Maynard Keynes 

In this issue: 

GCash IPO: Oversubscribed, Underbid

I. Blockbuster, by the Numbers

II. Follow the IPO proceeds

III. The Savings-Investment Gap is Not Weather

IV. The IPO Pitch and Its Circles

V. What Digitization Can and Cannot Do

VI. Big Names, Small Incentives

VII. PSEi Benchmarkism

VIII. The State at the GCash’s IPO’s Bell

IX. GCASH IPO: WHY NOW?

X. Benefiting Whose Balance Sheet?

XI. Conclusion: A Record IPO Is Not a Substitute for Savings 

GCash IPO: Oversubscribed, Underbid 

A record IPO met a thin bid: benchmarkism, the saving–investment gap, and whose balance sheet gets the mark 

Disclosure: 

The author has not subscribed to the IPO nor holds its shares as of this writing.

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I. Blockbuster, by the Numbers 

Blockbuster IPO, they say. 

At Php 60.9 billion with the greenshoe (Php 53 billion base), Mynt’s GCASH is the largest IPO in PSE history, ahead of Monde Nissin’s Php 55.9 billion (June 2021), Maynilad’s Php 34.3 billion (November 2025) and Converge ICT’s Php 29.08 billion (October 2020). 

Yet the trading debut disappointed. Shares closed flat at Php 6.60 on day one, then slid to Php 6.27, down 5%, over the first four sessions.

Figure 1

Interestingly, the PSE’s weekly average daily main board volume jumped 17.15%, from Php 5.380 billion to Php 6.303 billion. But that is smaller than the Php 10.722 billion in the week ending September 25 and the Php 7.698 billion in the week ending August 28. (Figure 1, upper chart) 

Ironically, in those four sessions GCASH generated Php 10.996 billion in turnover, or 40.9% of the Php 26.883 billion total. Four pesos of every ten went through GCASH, and that includes cross trades. (Figure 1, lower image) 

The concentration in the PSE manifested a trade-off: volume shifted in support of GCASH and ICTSI at the expense of the general market. Breadth was dominated by sellers, 405 decliners against 474 advancers. 

Yet despite a 40.9% share of turnover, GCASH could not generate a positive return. 

The data set is the tell: negative breadth, a negative return, an enormous share of turnover and unimpressive main board growth, for a supposedly monumental event. All of it points to a critical shortfall: the paucity of real savings. 

But of course, as a caveat, four days don’t make a trend. 

II. Follow the IPO proceeds 

Look at who got the money. 

Of the Php 53 billion base, only about Php 10.6 billion was new shares sold by Mynt. The other Php 42.4 billion was existing shares sold by private equity funds and other holders, and the greenshoe was secondary too. About one peso in five is new capital. The rest is savings changing hands so someone can exit. 

Savings are supposed to fund capital formation. Here, most of them funded a cash-out. 

Even the new money has a direction. The prospectus plan includes expanding Mynt’s lending business. In an economy short of savings, the one peso in five of fresh capital is meant, in part, to make more credit. 

III. The Savings-Investment Gap is Not Weather 

Some GCash advocates invoke the Philippines' saving–investment gap and prescribe more savings, as if the gap simply appeared in the national accounts. 

That is accounting masquerading as economics. 

The gap reflects the interaction of economic decisions, incentives, and policies. Easy money, deficit financing, and the diversion of resources toward “build and they will come” malinvestments, consumption and politically favored investments or projects affect how much income is saved, where capital flows, and whether investment generates sustainable returns. 

The problem is not merely how to mobilize savings, but how policies shape their creation and allocation. When credit expansion (unbacked by savings) and debt-financed activity distort economic calculation, financial claims proliferate while the underlying capital base weakens. 

Moreover, GDP-based savings-investment gap ratios inherit the limitations of the GDP denominator. Adding foreign income or OFW remittances changes the accounting perimeter; it does not explain the causal forces shaping saving relative to investment. 

Cite a statistic and call it economics. 

Yet, the GCASH IPO didn’t emerge from a vacuum. It is a response to years of easy-money policy and the pandemic lockdown that pushed transactions onto digital platforms. 

Financial mobilization cannot substitute for real savings, and a listing cannot repair capital consumed by distorted allocation. 

IV. The IPO Pitch and Its Circles 

The case for the IPO as a savings vehicle leans on three fallacies. 

The first is appeal to authority: the big names. 

The second is circular reasoning or begging the question: demand is real because the funds came in, and the funds came in because demand is real. 

One banker says strong appetite at Php 6.60 proves solid fundamentals. That is the circle. The same banker expects modest, mature-company returns at a Php 442 billion valuation, which is a growth price for a slowing business. 

The third is appeal to majority: millions of users, so it must be sound. 

V. What Digitization Can and Cannot Do 

Sure, GCASH may be the first major digital platform to list. 

It may help digitize the economy: faster and cheaper payments, less cash drag, more convenience. 

It may reach the informal economy, not just for transactions but for investments (GSave, GFunds, GStocks PH, GBonds, GCrypto, GInsure) and credit (GCredit, GLoan, GGives, GLoan Negosyo). 

But digitization carries its own risks: hacking, system breakdowns, power loss. 

Worse, it can become a political surveillance tool in an increasingly surveillance-driven economy. When every payment is tied to a verified identity, a ledger of conduct is one policy memo away, whatever political label it goes by: war on cash, social credit, infringement of liberty.

Figure 2

GCASH is also subject to the S-curve of technology adoption, assuming consumer conditions stay the same. Adoption peaks, as growth does, and that is another risk. (Figure 2, upper window) 

Take SWS: self-rated poverty ratings reached 55% in September (Q3), up from 49% in June, with another 9% on the borderline. Hunger rates also surged from 20.3% to 22.6% in September (Q3). (Figure 2, lower diagram) 

That doesn’t bode well for GCASH. 

Deepening stagflation—as this series has discussed—not only consumes savings but also undermines consumers’ health. 

Even the IPO’s boosters concede the curve is flattening. The platform has reached nearly every smartphone user, so growth must now come from extracting more revenue from each existing user. Those are the same users reporting 55% self-rated poverty. 

While GCASH may improve the current picture, it remains subject to prevailing economic conditions. If the saving–investment gap keeps draining savings and encourage balance sheet leveraging, GCASH’s source of growth is jeopardized. Sorry. 

A digital platform is only as good as the financial condition of its users. 

The real test is whether digitization improves price discovery, economic calculation, entrepreneurial investment and capital allocation. Faster payments alone don’t show it. 

Besides, first movers alone don’t guarantee a business model. They face competition within the industry and in technology. 

VI. Big Names, Small Incentives 

Many say GCASH has a solid roster of bookrunners and cornerstone investors: foreign funds, the IFC, domestic banks. Proponents say we should ‘trust’ them. 

But a roster of big names does not guarantee corporate viability or the welfare of those who buy alongside it. 

Bear Stearns and Lehman Brothers were big names too, and they vanished in the Great Recession. 

Recently, COA flagged SSS equity losses of Php 40 billion. Big name, big losses. 

After the 2008 crisis, Queen Elizabeth II asked why no one saw it coming. Author and mathematician Nassim Taleb’s answer is that a black swan is relative to the observer. It is a surprise to the dominant majority exposed to it and not to the few who saw the fragility. Crises don’t arrive while everyone is alert to them. 

Easy money feeds herding. Investors chase returns by leveraging up, the crowd defines the acceptable range of opinion, and risks outside it get dismissed as outliers. That is the pattern economist Hyman Minsky described (long calm breeds leverage as lenders extrapolate stability), Kindleberger (manias ride on credit expansion) and Reinhart and Rogoff (every boom is defended with “this time is different”). 

Number crunching is ex post. Theory is ex ante. Past performance doesn’t guarantee future results. 

On the day GCASH listed, South Korea’s data center Elice fell about 32% by the close of its trading debut, despite retail books 400x covered and institutional demand near 389x! 

Book-building demand is rationing, and the free market clears at a different price. 

Should global events bring tighter financial conditions, mass fund redemptions or a liquidity crunch, blessings may morph into a curse and the big names could be the major sellers. About 87% of post-IPO shares are under a 180-day lock-up, so the tradable float stays thin until roughly mid-April 2027. 

Besides, big names are involved for different reasons: some for profit, some for connections, some for exposure to a country or more. Naturally, there will be no evidence for personal affairs. Everything else is sold to the public as skin-in-the game. 

Buy-side and sell-side institutions (fees, commissions) also have different incentives from clients (returns). That is the principal–agent problem: the agent is paid on the transaction while the client bears the outcome. 

Relying on big names for the security of one’s portfolio is gambling, banking on appeal to authority and begging the question is a recipe for investment losses. 

VII. PSEi Benchmarkism 

Figure 3 

As of October 22, ICTSI carried 25.39% of PSEi weight and the top five (ICTSI, SM, BDO, BPI, SMPH) carried 55.06%, against under 3% and 42% in January 2020.  (Figure 3, upper pane) 

Trading, liquidity and broker activity are concentrated the same way. The pattern looks very much like coordination, and since nobody publishes the minutes, inference is all anyone has. 

Benchmarkism is the engineered substitution of index performance for the condition of the market beneath it. 

The PSE’s 2025 investor profile shows its unintended consequence: record enrollment, yet a historic low participation of only 11.8% of accounts active (institutions 14.6%, retail 11.7%). More registrations are not more capital. (Figure 3, lower visual) 

Concentration is the symptom. Benchmarkism is the disease. 

VIII. The State at the GCash’s IPO’s Bell 

Why has government been involved in promoting GCASH? The President rang the opening bell and said the timing mattered because the stock market needs renewed investor interest. The DTI cited MSME gains. Will they promote all IPOs? 

The President attended the last big one, Maynilad in November 2025, which also closed its debut slightly under its offer price—but closed at Php 16.9 (October 23rd) above its offered price at 15. 

Yet, note what the President conceded: the market is short of investors. If real demand existed, government’s say would not matter. 

Let there be no mistake: benchmarkism is happening at the political margins. 

The rules were also rewritten around the deal. 

The SEC lowered the minimum float for giant listings (MC 11, s. 2026), and GCASH was the first to use it, at 12%. In July, the PSE cut the PSEi float requirement from 20% to 15% for market caps of Php 250 billion and above, clearing the way for index entry. 

The PSE has since rewritten its index rules so a stock with a float this small can qualify for the PSEi. If Mynt gets in, every fund that tracks the index must buy it, whatever the price. 

Mandatory demand meeting thin supply is benchmarkism by design: the index mechanics set the price, and the price then passes for confidence. 

IX. GCASH IPO: WHY NOW? 

The biggest question is WHY NOW. 

Globe had teased the listing in 2024 and 2025, and the board and shareholders approved it on June 17, 2026, when the PSEi stood at 6,404. Given a depressed (bear) market, why even list? 

Three answers. 

The rules were ready, as above. 

Mynt’s growth is decelerating: net income rose 56% in 2025 but only 7.3% in the first half of 2026, so a listing at the top of the S-curve sells the growth, not the future. 

And the window: the maximum price filed in June was Php 10, and the final price was Php 6.60, a 34% cut that took valuation from about Php 669 billion to about Php 442 billion. A discount that size sits oddly beside a “super oversubscribed” book.

Figure 4 

As an aside, from June 17 (GCASH IPO announcement) to October 23 the PSEi returned -6.3%, AC +35% and GLO -14.32%. All things equal, that tells us the listing benefited Ayala Corp most. (Figure 4) 

Why not Globe? 

X. Benefiting Whose Balance Sheet?

Figure 5 

Globe’s Q2 revenue rose 8.02% to Php 46.954 billion, but income rose only 0.43% to Php 5.485 billion. Debt stood at a record Php 261.67 billion, up 5.56%, while interest expense and financing costs surged 16.7% to a record Php 4.67 billion. Cash was Php 19.7 billion, against Php 42.353 billion in Q1. (Figure 5) 

Globe’s equity share in Mynt’s net income was Php 3.7 billion in the first half, slightly below Php 3.8 billion a year earlier, and about 28% of its pre-tax income. 

The sale-leaseback of some 7,500 cell sites (2022–2025, Php 96.4 billion) didn’t stop debt from rising. 

Notice what the IPO did not do: Globe sold no shares, so no IPO cash reached it. This is not a cash bailout. The benefit runs through the value of what Globe already owns. 

Start with the 28%. Globe’s Php 3.7 billion share of Mynt’s first-half profit is a bookkeeping entry. The cash stays inside Mynt unless Mynt pays it out as a dividend. 

Now the stake. Globe holds about a third of Mynt. At the final price of Php 6.60, the market values all of Mynt at about Php 442 billion, so Globe’s third is worth roughly Php 145–150 billion on paper. Until the listing, that stake had no daily market price. Now it does, and a quoted price lets Globe borrow against the stake, sell part of it later, and record accounting gains. 

Globe’s own results show how much that matters. Its first-half profit fell 11% to Php 11.04 billion, and Globe blamed mainly a smaller “dilution gain” from Mynt than last year’s. A dilution gain is a paper gain Globe books when Mynt sells new shares at a higher price. Globe ends up with a smaller slice, but each slice is worth more. No cash comes in, yet reported profit moves, and the IPO’s new shares may generate another such gain. 

Now set the stake against the debt. Globe owes about Php 261.7 billion. Lenders watch a ratio: gross debt divided by EBITDA, which is roughly how many years of operating earnings it would take to repay what the company owes. Globe’s is 2.68x, and its loan agreements cap it at 3.5x. 

Our estimates suggest that this leaves room for roughly Php 80 billion more debt at today’s earnings. So this is not yet distress. It is collateral engineering: a bigger, quoted number on one side of the balance sheet to carry the debt on the other. 

Whose welfare? The one whose balance sheet gets the quoted mark. 

XI. Conclusion: A Record IPO Is Not a Substitute for Savings 

A record IPO needs a record bid. Instead, it got a rationed one: a price 34% under the filing ceiling, a flat debut, a slide to Php 6.27, four of every ten pesos of four-day turnover pulled from the rest of the market, four-fifths of the base deal an exit, and a President at the bell saying the market needs participants. 

That isn’t demand discovering a price. It’s a fixed pool of savings being re-sorted toward the issue the establishment needed priced. 

The platform may digitize payments. It cannot digitize savings into existence. A record listing is a financial event. A deeper capital market is an economic achievement. Collateral is not capital, and a listing is not a saving.

 

Heroes of Capitalism: The Humble Shipping Container

Many people hardly appreciate on the role played by the advances in technology in shaping social progress. Think the discovery of fire which initially allowed humans to cook, obtain warmth and protection. Fire eventually became important part of production. 

Other milestone innovative technologies such as the Gutenberg printing press, the steam engine and today’s internet has dramatically transformed people’s lifestyle.

For the majority, technology advances “just happens”, they hardly have an inkling of how these things take place.

There is one significantly underappreciated hero of global trade: the shipping container

The Economist explains: (hat tip Prof Mark Perry)

THE humble shipping container is a powerful antidote to economic pessimism and fears of slowing innovation. Although only a simple metal box, it has transformed global trade. In fact, new research suggests that the container has been more of a driver of globalisation than all trade agreements in the past 50 years taken together.

Containerisation is a testament to the power of process innovation. In the 1950s the world’s ports still did business much as they had for centuries. When ships moored, hordes of longshoremen unloaded “break bulk” cargo crammed into the hold. They then squeezed outbound cargo in as efficiently as possible in a game of maritime Tetris. The process was expensive and slow; most ships spent much more time tied up than plying the seas. And theft was rampant: a dock worker was said to earn “$20 a day and all the Scotch you could carry home.”

Containerisation changed everything. It was the brainchild of Malcom McLean, an American trucking magnate. He reckoned that big savings could be had by packing goods in uniform containers that could easily be moved between lorry and ship. When he tallied the costs from the inaugural journey of his first prototype container ship in 1956, he found that they came in at just $0.16 per tonne to load—compared with $5.83 per tonne for loose cargo on a standard ship. Containerisation quickly conquered the world: between 1966 and 1983 the share of countries with container ports rose from about 1% to nearly 90%, coinciding with a take-off in global trade (see chart).

The container’s transformative power seems obvious, but it is “impossible to quantify”, in the words of Marc Levinson, author of a history of “the box” (and a former journalist at The Economist). Indeed, containerisation could merely have been a response to tumbling tariffs. It coincided with radical reductions in global trade barriers, the result of European integration and the work of the General Agreement on Tariffs and Trade (GATT), the predecessor of the World Trade Organisation (WTO).

Read the rest here.

It is unfortunate that media and politics has successfully implanted on the public of the false importance of the short term or temporary visible gains of specific personalities or groups, such that "heroes" are characterized by victors of zero-sum activities, particularly in sports, the celebrity gossip culture and in politics.

Yet the real heroes are those inventions or ideas that ingloriously radicalized improvements on the way we live over the long run.

Flying Cars are Now a Reality

Step aside Marty Mcfly**, flying cars are now a reality.

**fictional character from the Back to the Future Trilogy

From the Daily Mail (including Photos) (hat tip lewrockwell.com)

The first flying cars are set to go on sale to the public as early as 2015.

Terrafugia has announced its Transition design, which is part sedan, part private jet with two seats, four wheels and wings that fold up so it can be driven like a car, will be on sale in less than two years.

The Massachusetts-based firm has also unveiled plans for a TF-X model that will be small enough to fit in a garage, and won't need a runway to take off.

Pls read the rest here

One thing leads to another. The flying car technology will mean more variants. Not only are these products of the marketplace, they are signify the deepening transition to the information age.

Markets in Everything: Solar Impulse, the Fuel Less Plane

Speaking of the gush of technological advancements from the deepening of the information age, here is another: the advent of fuel less solar driven airplane: the Solar Impulse

Here is an excerpt from Wall Street Journal (hat tip EPJ)

FOR BERTRAND PICCARD, the idea to build a solar-powered plane capable of circumnavigating the globe was hatched while running on empty. In March 1999, Piccard was on the final leg of an around-the-world journey by hot air balloon—the first-ever nonstop flight of its kind—when his Breitling Orbiter 3 swept low over the Egyptian desert and skidded to a halt on the corrugated plains. As Piccard stepped out onto the hot sand, he checked the fuel tanks mounted on his gondola and got a shock that became a defining moment. "We had left Switzerland with four tons of propane," he remembers. "We only had 40 kilos left! We almost didn't make it. I promised myself that next time I would fly around the world without using any fuel at all."

The 55-year-old Piccard, a trained psychiatrist with a confident, intense manner to match, is adept at making sure there is always a "next time"—no surprise, since he's descended from explorer royalty. His grandfather, Auguste, broke high altitude records in the '30s by designing a balloon with a pressurized cockpit, and later became the inspiration for Professor Calculus in the Tintin comics. In 1960, Piccard's father, Jacques, descended seven miles beneath the Pacific Ocean in another pressurized module to set a deep-dive record that has been matched only twice.

In 2003, Piccard approached European companies to sponsor what has become a $148 million project and began assembling a team of 80 engineers and technicians plucked largely from Swiss universities. After seven years of tinkering, they arrived at a machine with a deceptively simple design: Solar Impulse—with its sleek, clean lines, white-gloss finish and rakishly angled 208-foot wings (bent to increase the plane's stability)—resembles what you might get had Steve Jobs reimagined a child's balsa-wood glider in giant form.

Read more here

The wonders of human ingenuity.

Cancer treatment that kills every kind of cancer tumor

The information age will continue to bring about massive technological breakthroughs in various aspects of life. 

The “one drug that rules them all” in terms of cancer treatment may have just been discovered

From NY Post (hat tip EPJ)

Researchers might have found the Holy Grail in the war against cancer, a miracle drug that has killed every kind of cancer tumor it has come in contact with.

The drug works by blocking a protein called CD47 that is essentially a "do not eat" signal to the body's immune system, according to Science Magazine.

This protein is produced in healthy blood cells but researchers at Stanford University found that cancer cells produced an inordinate amount of the protein thus tricking the immune system into not destroying the harmful cells.

With this observation in mind, the researchers built an antibody that blocked cancer's CD47 so that the body's immune system attacked the dangerous cells.

So far, researchers have used the antibody in mice with human breast, ovary, colon, bladder, brain, liver and prostate tumors transplanted into them. In each of the cases the antibody forced the mice's immune system to kill the cancer cells.

"We showed that even after the tumor has taken hold, the antibody can either cure the tumor or slow its growth and prevent metastasis," said biologist Irving Weissman of the Stanford University School of Medicine in Palo Alto, California.

Why the Neo-Malthusian Premise of “Peak Resources” are Misguided

Writing at the Daily Reckoning, Chris Mayer, managing editor for several newsletters has a rejoinder to neo-Malthusians led by GMO’s Jeremy Grantham.

Yet whether it is oil or copper or iron ore or whatever resource, people insist on relying on the same faulty reasoning that “the easy stuff is gone.” They continue to make the same tired case for chronic natural resource shortages and a decline in our standard of living.

The great economist Joseph Schumpeter’s (1883-1950) criticism of the Malthusian position still holds. On Malthus and his ilk, he wrote: “The most interesting thing to observe is the complete lack of imagination which that vision reveals. Those writers lived at the threshold of the most spectacular economic developments ever witnessed.” Yet they missed it.

So here is my prediction: I believe we are on the cusp of even greater levels of innovation and development — another industrial revolution is in progress right now. So ignore the gloom and doom on natural resources. Contra Grantham, the days of abundant resources and falling prices are far from over.

Mr. Mayer is basically right.

But today’s high prices of commodities hasn’t just been a function of market prices operating from a laissez faire environment but importantly represents interventionism on a massive scale, particularly from central banks, whose inflationism has resulted to severe economic distortions that has been reflected on market prices. In short, prices of commodities may also represent monetary dislocations. 

Also the mining-energy industry, for instance, are tightly regulated, where regulations serve to inhibit supplies. There is also a political bias for green energy that has caused economic disruptions at the costs of taxpayers.

Nonetheless, despite these interventions, I would add that trends towards improving the supply side, buttressed by technology, are on the way. In the world of commodities, notably deep sea mining and asteroid mining are great examples.

On deep sea mining from wired.com

Deep-sea mining is poised as a major growth industry over the next decade, as large developing-world populations drive consumer demand for metal-containing products, climate change makes previously inaccessible regions like the Arctic Ocean seabed attainable, and improved extraction technologies turn previously uneconomical rock into paydirt.

Cindy Van Dover is a Professor of Biological Oceanography at Duke University and a leading voice in the development of policy and management strategies for deep-sea extraction activities.  Van Dover has studied the ecology of hydrothermal vents for years, and she takes a measured, pragmatic approach to the coming industrialization of her study sites.  If mining is going to happen – a event that the more strident faction of the environmental movement will no doubt contest – “we need to work with industry to make sure we do it right,” says Van Dover.

Taking a leaf out of deep sea mining, asteroid mining seems also in the pipeline. From Mining.com

A newly launched asteroid miner is looking to the history of deep sea mining as it attempts to navigate laws governing exploitation of space.

Deep Space Industries, which rolled out its plan for space mining today at a news conference in the Santa Monica Museum of Flying in California, said the laws regarding resource mining beyond the earth are largely unformed, and the company will rely on co-operation between the main players. (Video embed of the press conference is below.)

"If you look at parallels, like deep sea mining, that went forward without a global treaty. The companies that wanted to do deep sea mining shook hands: 'We won't interfere with you if you don't interfere with us', that was the general approach going forward," said David Gump, Deep Space's chief executive officer.

Gump said the company will be relying on the 1967 space treaty, which he says will give the company the right to utilize space resources but will not grant the right to claim any sovereign territory.

Like the shale gas boom which has exposed the major flaws in the economic interpretation of “peak oil theory”, neo-Malthusians always mistakenly construe the causal link of prices as signifying a fixed pie for the supply side while downplaying the importance of human capital in providing innovation that contributes to the rebalancing of the economics of commodities.

Professor Don Boudreaux aptly quotes the great Julian Simon from his 1996 book The Ultimate Resource 2 

“[N]atural resources are not finite in any meaningful economic sense, mind-boggling though this assertion may be.  The stocks of them are not fixed but rather are expanding through human ingenuity.”

Deepening of the Information Age: More Signs of Telecommuting

Why I don’t buy the mainstream’s embrace of the supposed deepening trend of urbanization? Because the past is hardly the future. Technological advances extrapolates to increasing decentralization of social activities. And this covers commercial activities that can be seen from corporate operations. 

Proof?

From Wall Street Journal Blog

With nearly half its employees working from home now, Aetna Inc. is convinced it is saving a good deal of money with no adverse effect on productivity.

A nine-month experiment at Ctrip, China’s largest travel agency, overseen by academic economists at Stanford and Beijing University, suggests Aetna’s experience may not be unique.

Ctrip, was looking to save money on real estate costs and cut turnover. It asked 996 employees in its Shanghai call center if they’d be interested in working at home four days a week. Half were interested, and 252 qualified for the experiment by virtue of having at least six months on the job and broadband access from a quiet corner of their home. Those with birthdays on even days were selected to work at home, those with odd birthdays stayed in the office, making this the sort of random experiment that academics relish.

And as I noted in the past

I would add that increasing specialization will hallmark the knowledge economy. And specialization will diminish the economics of urbanization.

The changing nature of work can be exemplified by the telecommuting jobs, which have been rapidly growing.

These jobs are based on the web, are flexible and are not location sensitive (working from home, or elsewhere).

The trend of web and knowledge based work localization and flexibility will further deepen.

Quote of the Day: Innovation Happens When Inventions Meet the Market

we must recognize one important insight about technology, social evolution, and economic growth. It is common for people to attribute the western world’s stunning economic growth over the last 200 years to technology. True, technology does contribute to growth in important ways, although it’s also true that economic growth helps create new technologies by generating capital to fund research. Technology, however, does not create wealth by itself, as decades of technology transfers to the third world demonstrate. For technology to lead to wealth, the right institutions are required. I like to call this the Three I’s approach: Innovation = Invention + (good) Institutions. More specifically, the market must be free enough that technology can be turned from simply an invention into an innovation. Rising wealth requires innovation, and innovation happens when inventions meet the market.

This is from Professor Steve Horwitz at the Freeman on the critical role of markets in fostering technological innovations.

Picture of the Day: Thanks to Capitalism, These Gadgets Now Fit in your Pocket

(Hat tip AEI’s Prof Mark Perry)

Capitalism has brought about dematerialization, which has converged the benefits of manifold technologies to fit in a single devise.

Make Way for 3D Printed Guitars

3D Printing has indeed been revolutionary. Many products today are being 3D "printed" such as guns and jaw replacements

Add to that list acoustic and electric guitars

Image from Businessweek/Bloomberg

From Businessweek/Bloomberg,

Scott Summit does unusual things on his vacations. For instance, he just spent a week up in the mountains, taking in the majestic scenery and all that, but also sitting at his laptop creating a 3D model of his ideal guitar. Then he sent the computer design to 3D Systems (DDD), which used its massive 3D printers to transform the graphic model into an actual acoustic instrument that Summit can play.

As far as anyone seems to know, this is the first 3D-printed acoustic guitar on the planet, and it raises all kinds musical possibilities. (As several readers noted, people have already made 3D printed electric guitars.)

As a kid, Summit pined after fancy guitars. “I wanted a $3,000 one like Jerry Garcia would play,” he says. At the time, Summit didn’t have the money, so he spent around $100 on wood and other parts and fashioned his own guitar. “It sounded like crap,” he says.

These days, Summit spends most of his time designing custom body parts and stylish prosthetics that get built from 3D printers. He is, in fact, one of the world’s leading 3D printing and design experts, and he decided to put those skills to use over a holiday, refining his childhood vision.

Yet the difference in quality seems to be negligible…

Since the acoustic guitar would be made from fused plastic, Summit figured it would have some serious shortcomings. If it actually worked, it would probably sound worse than his old $100 model. But chances were the guitar would break under the 200 pounds of string pressure that comes with tightening the strings via a tuning machine. Summit set up a video camera to record what would happen when the stringing process started. “I thought it would at least be cool if the guitar exploded,” he says.

But, no. It worked, and it sounds pretty good. “It’s rich and full and has a great tonal range,” says Summit, who’s been known to play at friends’ weddings and at dive bars.

3D made guitars signifies as a breakthrough with more innovations and product transformations ahead

Summit describes this version as a rough draft. He wants to start experimenting with more radical designs to see how they change the sound. Somewhere down the road he figures people will be able to use software to pick out what sort of treble, bass, or sustain they desire and then print a guitar to match those qualities. “It will arrive in the mail and sound just the way you wanted,” he says.

3D printing will alter the division of labor, production process, investment flows, increase specialization and will likely become a household necessity. Eventually too, 3D printing will become object of politicization from mostly the neo-luddites or even from socialists clothed with environmentalist rhetoric.

Natural-Shale Gas Revolution Spreads to Israel

The natural-shale gas boom spreads to Israel.

Reports the Financial Times (hat tip Carpe Diem’s Professor Mark Perry)

With reserves of almost 10 trillion cubic feet of natural gas, the Tamar field is a hugely valuable asset for the Israeli economy. Discovered in January 2009, it was the biggest gas find in the world that year, and by far the biggest ever made in Israeli waters. But the record held for barely two years. In December 2010, Tamar was dwarfed by the discovery of the Leviathan gasfield some 20 miles farther east – the largest deepwater gas reservoir found anywhere in the world over the past decade. The two fields, together with a string of smaller discoveries, will cover Israel’s domestic demand for gas for at least the next 25 years, and still leave hundreds of billions of cubic feet for sale abroad. The government take from the gasfields alone is forecast to reach at least $140bn over the next three decades – a staggering sum for a relatively small economy such as Israel’s.

It’s not just in Israel but as I previously pointed out the Natural-Shale gas revolution will become a world wide phenomenon.

And we are seeing some evidence of such progress. Again the FT,

Experts are convinced that Tamar and Leviathan will not be the last big Israeli discoveries. They point to the US Geological Survey, which estimates that the subsea area that runs from Egypt all the way north to Turkey, also known as the Levantine Basin, contains more than 120 trillion cubic feet of natural gas. Israeli waters account for some 40 per cent of the total. Should these estimates be confirmed through discoveries in the years ahead, Israel’s natural gas reserves would count among the 25 largest in the world, on a par with the proven reserves of Libya and ahead of those of India and The Netherlands.

Earlier Israel seems to have been devoid of energy resources.

For decades a barren energy island, forced to import every drop of fuel, Israel today stands on the cusp of an economic revolution, fuelled by the vast riches that lie below its waters.

left chart from Financial Times, right chart from Financial Post

But thanks to human ingenuity, massive advances in technology have transformed what was once resources of little economic value to become abundant highly economically valuable commodities.

Hopefully Israel’s newly discovered energy resources will serve as blessings than a (resource) curse. But this will depend on how the domestic and geopolitical trends in Israel and the Middle East will evolve.

Technology Breakthrough: A Coming Cure for Blindness?

Will blindness from retinal disorders find a lasting cure? A recent experiment which shows of the amazing pace of technological breakthroughs seems to give us that hope.

From Bloomberg, (hat tip Professor Mark Perry) [bold emphasis added]

Blind mice had their vision restored with a device that helped diseased retinas send signals to the brain, according to a study that may lead to new prosthetic technology for millions of sight-impaired people.

Current devices are limited in the aid they provide to people with degenerative diseases of the retina, the part of the eye that converts light into electrical impulses to the brain. In research described today in the Proceedings of the National Academy of Sciences, scientists cracked the code the retina uses to communicate with the brain.

The technology moves prosthetics beyond bright light and high-contrast recognition and may be adopted for human use within a year or two, said Sheila Nirenberg, a neuroscientist at Weill Cornell Medical College in New York and the study’s lead author…

About 20 million people worldwide are blind or facing blindness due to retinal degenerative diseases, such as macular degeneration and retinitis pigmentosa. The disorders cause a progressive loss of the retina’s input cells, or photoreceptors.

Nirenberg and co-author Chethan Pandarinath first monitored healthy eyes to determine the set of equations that translate light received by the retina into something the brain can understand. Then, they used special glasses to create a similar code and deliver it to the eye, which had been engineered to contain light-sensitive proteins. The cells received the code through the light sensitive proteins and fired electric impulses, which the brain could interpret as images.

Nirenberg’s research “is basically giving vision back to a system that doesn’t work,” said Aude Oliva, a principal investigator at the Massachusetts Institute of Technology’s Computer Science and Artificial Intelligence Laboratory in Cambridge, Massachusetts, who wasn’t involved in the research. “I’ve never seen, and other people have never seen, this quality.”

No foreseeable barriers should stop the movement into humans now that the technology has been created, Oliva said. Nirenberg said that if researchers can come up with adequate cash to fund clinical trials, she hopes to soon adapt the technology.

Macular degeneration is the leading cause of blindness in people older than 55 in the western world and may triple in incidence by 2025 according to a 2009 report by the American Optometric Society. Retinal diseases could find a “reasonable solution” in the technology, said Jonathan Victor, a professor in the department of neurology and neuroscience at Weill who was familiar with, but not involved in the research.

Yet it is one thing to be physically blind and another to be mentally blind, especially from politics. The above shows that there is hope for the former while the latter seems incorrigible.

Chinese Political Neo Luddites and How Productivity Means More Employment

The clashing visions of entrepreneurs, whom in general desires to improve productivity through the marketplace (profit and loss system), and political agents, who looks at immediate needs for the purpose of staying in power, can be best illustrated by the proposed wide scale adaption of robotics in China’s economy.

From technologyreview.com

One of the defining narratives of modern China has been the migration of young workers—often girls in their late teenage years—from the countryside into sprawling cities for jobs in factories. Many found work at Foxconn, which employs nearly one million low-wage workers to hand-assemble electronic gadgets for Apple, Nintendo, Intel, Dell, Nokia, Microsoft, Samsung, and Sony.

So it was a surprise when Terry Guo, the hard-charging, 61-year-old billionaire CEO of Foxconn, said last July that the Taiwan-based manufacturing giant would add up to one million industrial robots to its assembly lines inside of three years.

The aim: to automate assembly of electronic devices just as companies in Japan, South Korea, and the United States previously automated much of the production of automobiles.

Foxconn, one of China's largest private employers, has long played an outsize role in China's labor story. It has used cheap labor to attract multinational clients but now faces international scrutiny over low pay and what some see as inhumane working conditions.

"Automation is the beginning of the end of the factory girl, and that's a good thing," says David Wolf, a Beijing-based strategic communications and IT analyst. Wolf, who has visited many Chinese factory floors, predicts an eventual labor shift similar to "the decline of seamstresses or the secretarial pool in America."

Since the announcement, Guo hasn't offered more details, keeping observers guessing about whether Foxconn's plans are real. (Through its public-relations firm, Burson-Marsteller, Foxconn declined to describe its progress.) Trade groups also haven't seen the huge orders for industrial robots that Foxconn would need, although some experts believe the company may be developing its own robots in house.

"Guo has good reasons for not waving his flag about this too much," says Wolf. Keeping quiet could give Foxconn a jump on competitors. What's more, with the Chinese economy slowing down, "it is politically inadvisable to talk too much about replacing people with robots," he says.

China's leaders see employment as essential to maintaining a harmonious society. The imperative of creating jobs often trumps that of efficiency. For instance, Wang Mengshu, deputy chief engineer at China Railway Tunnel Group, says that labor-saving equipment isn't always used even when it's available. "If all the new tunnels were built with the advanced equipment, that would trim the need for the employment of about six million migrant workers," he says. "In certain fields we don't want to have fast development in China, in order to solve the national employment problem."

Political leaders are shown here as practitioners of neo-Luddism—opposed to many forms of modern technology.

They are either unaware that advances in technology leads to greater productivity and more employment or simply have been looking at their narrow interests.

Hedge fund Andy Kessler eloquently explains the causal relationship in layman’s lingo.

From the Wall Street Journal, (bold emphasis mine)

So how does productivity result in more employment?

Three ways. First, some new technology comes along that allows something never before possible. Cash from an ATM, stock trading from an airplane's aisle seat, ads next to Google search results.

The inventor or entrepreneur who uses the invention benefits from sales and wealth and hires people to produce the good or service. We don't hear about this. Instead we hear about the layoffs of bank tellers, stockbrokers and media salesmen. So productivity becomes the boogeyman for job losses. And many economic cranks would prefer that we just hire back the tellers and toll collectors.

This is a big mistake because new, cheaper technology becomes a platform for others to create or expand businesses that never before made economic sense. Adobe software killed typesetters, but allowed millions cheaply to get into the publishing business. Millions of individuals and micro-size businesses now reach a national, not just local, retail market thanks to eBay. Amazon allows thousands upon thousands of new vendors to thrive and hire.

Consider Uber, a 20-month-old start-up, whose smartphone app knows where you are and with a simple click arranges a private car pickup to take you where you want. It doesn't exist without iPhones or Androids. Taxi and limousine dispatchers lose. Customers win. We'll all be surprised by new tablet applications being dreamed up in garages and basements everywhere.

The third way productivity results in more employment is by attracting capital to satisfy new consumer demands. In a competitive economy, productivity—doing more with less—always lowers the cost of products or services: $5,000 computers become $500 tablets. Consumers get to spend the difference elsewhere in the economy, and entrepreneurs will be happy to sell them what they want or create new things they never heard of, but will want. And those with capital will be eager to fund these entrepreneurs. Win, win.

The mechanism to decide the most effective use for this capital is profits. The stock market bundles profits and is the divining rod of productivity, allocating capital in cycle after cycle toward the economy's most productive companies and best-compensated jobs. And it does so better than any elite economist or politician picking pork-barrel projects and relabeling them as "investments."

The productive use of capital is not an automatic process, of course. It is all about constant experimentation. And it is never permanent: Railroads were once tremendously productive, so were steamships and even Kodachrome. It takes work, year in and year out—update, test, tweak, kill off. Staples is under fire from Amazon and other productive online retailers. Its stock has halved since its 2010 peak and is almost at a 10-year low. So be it.

With all the iPads and Facebook and cloud-computing growth, why is unemployment still 8.2% and job creation stalled? My theory is that productivity is always happening but swims upstream against those that fight it. Unions, regulations and a bizarre tax code that locks in the status quo.

Read more of the fallacies of Luddism from must read classics of the great Frederic Bastiat from “That Which is Seen and That Which is NOT Seen” (Machinery) or from the equally distinguished Henry Hazlitt’s Economics in One Lesson (The Curse of the Machinery)

I am reminded by the recent conversation I had with the charter president of Rotary of Mandaluyong, Fred Borromeo, who at age 86 ironically is an avid fan of technology.

In his recent encounter with some local government neo-luddites who objected to his suggestion to adapt to new (farming) technology for the same reasons as Chinese politicians, Mr Borromeo told them, “the world will move along with or without you”. Indeed.