Economist 5/3/14

  1. Tracker”, or “passive”, funds do not try to beat the market. They just replicate the components of an asset class, and their fees amount to only a few “basis points”.This distinguishes them from “active” funds where a manager tries to select assets that will do better than average. Such funds have higher costs and, unless they outperform markets over the long term (which the average fund does not), those costs eat into returns.Three factors are driving this commoditisation of fund management. The first is the rise of exchange-traded funds (ETFs)—portfolios of assets that track indices and trade on exchanges. Around $2.45 trillion is now invested in ETFs, up from just $425 billion in 2005, according to ETFGI, a consultancy (see chart 2). That makes this sector almost as big as the hedge-fund industry. The average fees on ETFs are just over 0.25%, but that proportion is inflated by specialist funds. State Street’s huge Spider fund, which tracks the S&P 500 index, charges only 0.09%.The ETF sector is still small relative to the rival mutual-fund industry, which manages $27 trillion in assets, but it is beginning to close the gap.One reason for the rise of ETFs is the changing behaviour of financial advisers. The best way to insure advisers’ independence is for them to be paid by the client, not the fund. But few clients wanted to pay an upfront fee when the cost of commission-based advice appeared to be free (because it was subsumed within the cost of the product).The third trend behind commoditisation is the steady rise of defined-contribution (DC) corporate pensions. For most of the 20th century employers offered defined-benefit (DB) pensions, which are linked to the final salaries of employees. If the pension scheme had insufficient funds, the employer was required to top it up. This gave employers an incentive to look for high investment returns—and to employ active managers who charged high fees.In Britain DC pensions are virtually universal for new private-sector employees, and the total size of DC schemes is slowly overtaking the old DB funds .
  2. The problem is global and affects common infections and many antibiotics. In China standard drugs are now ineffective over a third of the time against a bacterium that can cause severe lung infections. In America a standard antibiotic for treating infected wounds fails to work over half of the time in hospitals. A commonly-used treatment for UTIs is now often ineffective in Cuba.At least 2m Americans are thought to suffer antibiotic-resistant infections each year, leading to some 23,000 deaths directly and many more from complications to other illnesses.A fast rate of reproduction, and the ability to pass genes among themselves, mean bacteria evolve quickly. Misuse of antibiotics is speeding things up further. A recent move to cut farmers’ use of antibiotics in America, where as much as four-fifths of all antibiotics (by weight) are fed to animals, should help—though exempting use for veterinary purposes leaves a loophole. And member states are expected to ask the WHO to develop a global plan to tackle antibiotic resistance at its annual meeting in May.No new class of antibiotics has been discovered since 1987. This is partly because research has failed to make breakthroughs.
  3. METRES from the ornate facades and posh cafés of Retiro, one of the wealthiest districts in the city of Buenos Aires, lies Villa 31, a sea of ramshackle brick hovels with aluminium roofs. According to TECHOS, a non-profit organisation, there are 56 informal settlements in the city.Despite strong economic growth, the population in such settlements rose by 50% between 2001 and 2010. Everyone, from city authorities to NGOs, agrees that thevillas must be “urbanised”, or incorporated into the formal fabric of the city. In 2011 the mayor of Buenos Aires, Mauricio Macri, created a body called the Secretariat of Habitat and Inclusion (SECHI) to co-ordinate such efforts.But many villa residents chafe at the pace of change. Since April 21st a small group of them have been staging a hunger strike in central Buenos Aires to protest that the city has not done enough to improve their districts, many of which lack access to sewerage, electricity, running water and public transport.
  4. Raising the minimum wage in USA is broadly popular: a Pew poll conducted last month found over 70% in favour of a rise to $10.10, as Democrats propose; a more recent Washington Post/ABC poll found that half of American adults support the idea, 30% are indifferent and the remaining 20% are hostile. If the politics of the minimum wage are less than clear, the opposite is true of the economics. In theory minimum wages are job killers: The Economist opposed the introduction of the minimum wage in Britain in 1999 on these grounds. In practice the picture is not so clear.Britain’s minimum wage works like this: it is set by a panel of technocrats called the Low Pay Commission that doesn’t need to get each increase past Parliament. 
  5. In the past few months, at least 14 of India’s biggest industrial houses have taken advantage of a new law to set up electoral trusts.The legal framework for these trusts in India was introduced in January 2013, ostensibly with the idea of bringing transparency to the way campaigns are funded. For the first time, in this election private firms can donate money to political parties without any restriction—in exchange for disclosing what they have donated.An estimate by the Centre for Media Studies in Delhi puts the total cost of this season’s campaigns for seats in India’s parliament and state assemblies at $4.9 billion. That would make it the second-most expensive in world history, trailing just behind America’s of 2012, which cost $6 billion. The cap set by the EC has been revised upwards but never beyond a pitiful fraction of what it takes to be competitive. This year the limit is 70 lakh (7m) rupees ($115,000) per campaign for a parliamentary seat. In fact a candidate might spend 50 to 100 times more money than that, if he hopes to win. Even the Chief Election Commissioner knows it. The most visible expenditures are the least of it: transport, billboards, seats and refreshments for rallies—this is what catches the EC’s watchful eye. But discreet wads of cash and chits for liquor are the mainstays of this shadow economy.

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