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6 The world this week 35 Shakers Not too shaken 36 Jeff Sessions Leaders Past and prologue 9 Technology and education 37 National parks Lifelong learning An Ear-full 10 Trump and the 38 Lexington intelligence agencies How to use superpowers Speaking post-truth to power 10 Trump and Mexico The Americas Handling a bully 41 Mexico and Trump Countdown With his relentless Bracing for impact criticism, Donald Trump is 11 Renewable energy destroying trust in the A greener grid 42 Transport in Toronto Laggard on the lake intelligence agencies: leader, On the cover 12 Proliferating parties page 10. Theatrics from the It is easy to say that people Splitters president-elect, page 33. need to keep learning Special report: Lifelong Mr Trump may dispense with throughout their careers. Letters education intelligence that other The practicalities of lifelong presidents have relied on, 16 On liberalism, Brexit, Learning and earning learning are daunting: After page 42 page 34. His new plan to put Syria, data, economists leader, page 9. The faint his firm at arm’s length doesn’t outlines of a system for go far enough, page 35 creating continuous Briefing Middle East and Africa connections between 20 Manufacturing 43 Arab startups education and employment They don’t make ‘em like Set them free are now emerging. See our that any more 44 The death of Rafsanjani special report after page 42. The ayatollah’s long Manufacturing in the rich shadow Asia world has changed 45 Botswana dramatically from the 23 Indian politics Rocks and hard places metal-bashing days. So have Non-stick PM the jobs that go with it, 45 Ivory Coast 24 Royal politics in Thailand Mutiny for a bounty pages 20-22 The king intervenes 46 Congolese pop 24 South Korea and Japan The sound of politics Bickering again The Economist online Nervous Mexico 25 Anti-Chinese protests in How America’s southern Europe Daily analysis and opinion to Sri Lanka neighbour should deal with supplement the print edition, plus Deep water 47 The French left the threat from the new audio and video, and a daily chart Battling for survival Economist.com 26 Banyan president: leader, page 10. Asia’s drug policies 48 The European Parliament Coping with Donald Trump, E-mail: newsletters and Liberals and populists page 41 mobile edition 48 Italy’s Five Star Economist.com/email China Movement Print edition: available online by 27 High-speed rail What does it stand for? 7pm London time each Thursday Risks ahead Economist.com/print 49 The Yugoslavia and 28 Infrastructure Kosovo tribunals Audio edition: available online Hunting white elephants Better than nothing to download each Friday 30 Police brutality Economist.com/audioedition 50 Political fragmentation An enduring scandal Parliaments get bitty 51 Charlemagne United States The cruel Mediterranean 33 Trump and his critics Where there’s brass Congolese music Congo’s pop Volume 422 Number 9023 34 Intelligence agencies stars and its politicians have a Burn before reading Published since September 1843 strangely symbiotic to take part in "a severe contest between 35 Conflicts of interest relationship, page 46 intelligence, which presses forward, and an unworthy, timid ignorance obstructing Two out of four our progress." Editorial offices in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC 1 Contents continues overleaf 4 Contents The Economist January 14th 2017

Britain 69 China’s currency Squeezed to life 52 Northern Ireland Into the unknown 69 Chinese tax High-cost manufacturing 53 Business and the EU Labour pains 70 Free exchange A sense of crisis among 54 Bagehot economists Keeping the economy airborne Science and technology International 71 Power transmission Guantánamo A stain on Rise of the supergrid Supergrids China’s embrace of 55 Guantánamo America’s reputation is a new electricity-transmission A legal quagmire 72 Astronomy unlikely to be wiped clean De Nova Stella technology holds lessons for soon, page 55. The endless 57 A military trial others: leader, page 11. Al-Qaeda in the dock 73 Medical diagnostics wait of an alleged al-Qaeda String-driven thing Electricity now flows across killer, tortured by the CIA, continents, courtesy of direct page 57 74 The menopause current, page 71 Business A whale of a tale 58 Formula One 74 Underwater drones Nifty manoeuvres One that didn’t get away Subscription service 60 The blockchain For our full range of subscription offers, A patent war looms including digital only or print and digital Books and arts combined visit 60 Ride-hailing for children Economist.com/offers Baby, you can drive in 75 A walk across Washington You can subscribe or renew your subscription District line by mail, telephone or fax at the details below: my car Telephone: +65 6534 5166 61 Iron ore in Guinea 78 Spying in America Facsimile: +65 6534 5066 The Snowden effect Web: Economist.com/offers A pig of a project E-mail: [email protected] 62 Advanced manufacturing Post: The Economist Adidas’s new factory 80 Economic and financial Subscription Centre, indicators Tanjong Pagar Post Office 63 Schumpeter PO Box 671 Inflation returns After two Statistics on 42 economies, years of unduly modest price Foreign companies in Singapore 910817 America plus our monthly poll of Subscription for 1 year (51 issues)Print only rises in the rich world, things forecasters Australia A$425 are picking up, page 64. Our China CNY 2,300 Hong Kong & Macau HK$2,300 Big Mac index reflects the Finance and economics India INR 7,500 dollar’s unusual strength, Obituary Japan Yen 41,000 64 Inflation Korea KRW 344,000 page 67 82 Akbar Hashemi Malaysia RM 780 A welcome revival New Zealand NZ$460 Rafsanjani Singapore & Brunei S$425 65 Buttonwood Shark of Persia Taiwan NT$8,625 Franc discussions Thailand US$288 Other countries Contact us as above 66 Emerging markets Argentina’s back! 66 Supply-chain finance Principal commercial offices: Every little helps 25 St James’s Street, London sw1a 1hg Tel: +44 20 7830 7000 67 The Big Mac index Rue de l’Athénée 32 The all-meaty dollar 1206 Geneva, Switzerland 68 Fintech in Singapore Tel: +4122 566 2470 Out of the box 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 68 Japanese tuna Out of love Foreign firms were 1301Cityplaza Four, Bluefinger 12 Taikoo Wan Road, Taikoo Shing, Hong Kong lukewarm on America long Tel: +852 2585 3888 before Donald Trump: Other commercial offices: Schumpeter, page 63 Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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© 2017 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Publisher: The Economist. Printed by Times Printers (in Singapore). M.C.I. (P) No.030/09/2016 PPS 677/11/2012(022861) 6 The world this week The Economist January 14th 2017

A founder of Iran’s revolution land’s military junta, asking Winning the pools Politics Ayatollah Akbar Hashemi for changes that would make Switzerland won a lawsuit in Rafsanjani, a formerpresident him more powerful. Elections the European Court ofHuman ofIran and hugely influential scheduled forthis year may be Rights over requiring mixed- since the 1979 revolution, died. delayed. sex swimming classes. A Mus- He was 82. lim couple sued the state for Tsai Ing-wen, the president of insisting that their daughters A Palestinian attacker killed Ta iwa n , visited Texas and met swim with boys as part ofthe four Israeli soldiers by driving Ted Cruz, a senator, and Greg school curriculum. The court a lorry into them near the Old Abbott, the governor. China found that concerns about City in Jerusalem. said the meetings would harm integration outweighed the relations with America. parents’ demand fora religious Yoweri Museveni, who has exemption. ruled Uganda for 31 years, Hong Kong’s most senior civil named his eldest son as a servant, Carrie Lam, submitted The Greek-Cypriot and Turk- special adviser in a move her resignation. She said she ish-Cypriot leaders opened A dossier compiled about interpreted as preparing him to had done so in order to run for talks in Geneva to discuss alleged links between Donald become president. His son, the post ofchiefexecutive, as conditions forthe reunification Trump’s campaign and Russia, Muhoozi Kainerugaba, used to the territory’s leader is known. ofCyprus, such as the division and containing lurid tittle- lead a special-forces unit The choice will be made in ofpower and territory. Other tattle about the president-elect, tasked with protecting him. March by a committee stacked European leaders are partici- was published on BuzzFeed. with the Communist Party’s pating on security issues. The dossier was based on supporters in Hong Kong. unverified material prepared Germany said that 280,000 by an investigative firm for Mr China said its president, Xi people seeking asylum arrived Trump’sopponents. America’s Jinping, would attend the in the country last year, a sharp intelligence agencies included annual World Economic Fo- drop from the 890,000 in 2015. a classified summary ofits rum in Davos. Mr Xi will be the The government thinks mi- findings in its assessment of first Chinese president to grant numbers have fallen alleged Russian interference in attend and he is expected to because ofthe closure ofa the election. A spokesman for stress China’s openness to route through the Balkans and the Kremlin said it had no international trade. the EU’s deal with Turkey. compromising documents on Mr Trump and called the alle- Murder most foul Arlene Foster, Northern Ire- gations “absolute fantasy”. Mutinous soldiers in Ivory Members ofa criminal gang at land’s first minister, came Coast seized the city of a prison in Brazil killed 31 under pressure to quit because The Senate started the process Bouaké and kidnapped the inmates, decapitating most of ofa scandal involving sub- to vet Mr Trump’snominees to defence minister in a dispute their victims. This came a sidies forrenewable energy key posts. Democrats, pointing over pay. They returned to weekafter gang fights at anoth- which could cost taxpayers to a letter to them from the barracks after promises of er jail left 56 prisoners dead, £490m ($600m). Martin head ofthe Office ofGovern- more cash. But the country, most ofwhom had their limbs McGuinness, the deputy first ment Ethics, said the confir- which fought a civil war in the chopped off. Anotherprison minister from the opposition mation hearings were being early 2000s, remains riven by riot left fourdead. Sinn Fein party, resigned, rushed and the vetting was far ethnic tensions. which may force an election. from complete. Rex Tillerson, The crisis could affect Brexit. Mr Trump’spickforsecretary No let-up The Supreme Court will soon ofstate, responded to concerns Afghanistan suffered a series decide whether approval is about his close business ties to ofterrorist attacks. A bomb needed from the UK’s de- Russia by saying the country’s near the parliament in Kabul volved assemblies before actions were a danger and claimed over 30 lives; another starting the process ofleaving NATO was right to be worried. in the southern city ofKanda- the EU. The deputy leader of har killed 11people, including the Scottish nationalists called A jury sentenced Dylann Roof, five diplomats from the United forthe postponement ofBrexit a white nationalist, to death Arab Emirates. Another attack, negotiations. formurdering nine black in the nearby city ofLashkar people at a church in Charles- Gah, killed several pro-govern- Clare Hollingworth, a jour- ton, South Carolina, in 2015. ment militia leaders. nalist who reported the “scoop In Mexico, rioting sparked by ofthe century” predicting the Barack Obama gave his Chinese military aircraft flew the government’s withdrawal outbreakofthe second world farewell speech as president. close to Japan and South ofpetrol subsidies as part ofits war, died at the age of105. Ms Just as Washington warned Korea, and its sole aircraft- liberalisation ofthe energy Hollingworth spotted German about factional parties and carrier sailed close to Ta iwa n , industry left at least six people tanks massing on the border Eisenhower fretted about the prompting all three countries dead. Petrol prices increased with Poland in late August rise ofthe military-industrial to scramble forces in response. by up to 20% at the start ofthe 1939. A long career saw her complex, Mr Obama year, leading to many knock- report from Jerusalem, Cairo, cautioned his fellow Ameri- King Vajiralongkorn withheld on price rises in goods and Paris, Beirut and Hong Kong. cans not to take democracy for his assent forthe draft constitu- services. Roads have been She was the last person to granted. tion championed by Thai- blocked and shops looted. interview the Shah ofIran. 1 The Economist January 14th 2017 The world this week 7

MarkCarney told Parliament standards in America. He was 1781selling traditional Japa- Business that Brexit is no longer the arrested trying to catch a flight nese and Chinese remedies. It biggest riskto Britain’s finan- to Germany. entered the American market The pound fell sharply after cial stability. The governor of in the 1970s and has situated Theresa May reiterated her the BankofEngland said great- In South Korea, Lee Jae-yong, some ofits research in Boston’s position that Britain’s exit from er risks were posed by high the vice-chairman ofSamsung meditech hub. the EU would be a clean break, consumer credit and the weak Electronics and heir apparent frightening investors who pound, among other things, forthe top job, was questioned Publishers can legally use want the government to pur- which a messy Brexit could as a suspect in an influence- software to detect ifan online sue a more nuanced negotiat- magnify. peddling scandal that has led reader is using an adblocker ing strategy that prioritises to the impeachment ofthe and can askthem to switch it trade deals with Europe. The Slowly getting there country’s president. Investiga- off, according to a proposed prime minister has said that The British government re- tors are looking at ties between rule in the European Union. she will not provide a running duced its stake in Lloyds Bank- Korea’s chaebol and politicians, Privacy groups have argued commentary on Brexit; her ing Group to below 6%, mean- and at claims that the presi- that the detection software is remarks helped push sterling ing that it is no longer the dent ordered the state’s pen- illegal and requires readers’ to a three-month low against bank’s largest shareholder sion fund to vote forthe merg- consent before being enabled. the dollar at $1.21. (that is now BlackRock, a titan er oftwo Samsung businesses in asset management, which in which it held shares. Alexa takes the biscuit holds 6.3% ofthe shares). The The default setting on Turkish lira per dollar Treasury bailed out Lloyds The annual battle fororders Amazon’s Echo, a voice-dri- Inverted scale during the financial crisis in between the world’s biggest ven internet-connected device, 3.0 2008 along with Royal Bank of aircraft-makers was won by caused the company some 3.2 Scotland, in which it still holds Airbus last year. It chalked up embarrassment. An American 3.4 a majority stake. The public’s 731net orders, including 320 in news report that a girl had 3.6 remaining stake in Lloyds is December alone, compared asked Alexa, the device’s 3.8 expected to be sold this year. with Boeing’s 668. The Ameri- voice-operated system, to 4.0 can company bested its Euro- order a doll’s house and bis- Oct Nov Dec Jan Volkswagen pleaded guilty to pean arch-rival in supplying cuits. That caused Alexa to go 2016 2017 Source: Thomson Reuters criminal charges in America jets to airlines however, deliv- rogue in other households and related to its cheating in emis- ering 748 aeroplanes to order the same goods, appar- A limited intervention by sions tests on diesel cars and a Airbus’s 688. ently prompted by the TV Turkey’s central bankto halt subsequent cover-up, and will presenter repeating the in- the slide ofthe lira did little to pay penalties amounting to Ta ke d a , a Japanese drugs struction. Amazon has added stop the currency from plung- $4.3bn. Reinforcing the govern- company, said it was ready to voice-ordering from restau- ing further. The lira has de- ment’s tough stance against make furtherglobal acquisi- rants to the Echo’s skills, so this clined by almost10% since the VW, six ofits executives were tions, following its $5.2bn might not be the only Alexa start ofthe year, partly because charged fortheir role in the agreement to buy Ariad, which incident to make a meal of. the political crackdown that scandal, including the person is based in Massachusetts and followed an attempted coup responsible for the carmaker’s specialises in treatments for Other economic data and news last July shows little sign of compliance with emissions cancer. Takeda was founded in can be found on pages 80-81 abating amid a wave ofvio- lence. This weekthe central bankincreased the supply of dollars to Turkey’s financial system and said it would take the “necessary measures” to curb “unhealthy” currency speculation.

The Trump effect The Mexican peso fell to a new low against the dollar after Fiat Chrysler warned it might have to shut factories in Mexico if the new American govern- ment imposes tariffson im- ported cars. Meanwhile, the share prices ofdrug compa- nies plunged following Do- nald Trump’scomment that they “are getting away with murder” in what they charge the government formedicine. The industry has taken a politi- cal battering forwhat some claim are exorbitant price increases forcertain drugs. Leaders The Economist January 14th 2017 9 Lifelong learning

It is easy to say that people need to keep learning throughout theircareers. The practicalities are daunting HEN education fails to in, say, self-drivingcars orthe Android operatingsystem. By of- Wkeep pace with technol- fering degrees online, universities are making it easier for pro- ogy, the result is inequality. fessionals to burnish their skills. A single master’s programme Without the skills to stay useful from Georgia Tech could expand the annual outputofcomput- as innovations arrive, workers er-science master’s degrees in America by close to 10%. suffer—and if enough of them Such efforts demonstrate how to interleave careers and fall behind, society starts to fall learning. But left to its own devices, this nascent market will apart. That fundamental insight mainly serve those who already have advantages. It is easierto seized reformers in the Industrial Revolution, heralding state- learn later in life if you enjoyed the classroom first time funded universal schooling. Later, automation in factories and around: about 80% of the learners on Coursera already have offices called forth a surge in college graduates. The combina- degrees. Online learning requires some IT literacy, yet one in tion ofeducation and innovation, spread overdecades, led to a four adults in the OECD has no or limited experience of com- remarkable flowering ofprosperity. puters. Skills atrophy unless they are used, but many low-end Today robotics and artificial intelligence call for another jobs give workers little chance to practise them. education revolution. This time, however, working lives are so lengthy and so fast-changing that simply cramming more Shampoo technician wanted schoolingin at the start is not enough. People must also be able Ifnewwaysoflearningare to help those who need them most, to acquire new skills throughout their careers. policymakers should be aiming for something far more rad- Unfortunately, asourspecial reportin thisissue sets out, the ical. Because education is a public good whose benefits spill lifelonglearning that exists today mainly benefits high achiev- overto all ofsociety, governmentshave a vital role to play—not ers—and is therefore more likely to exacerbate inequality than just by spending more, but also by spending wisely. diminish it. If 21st-century economies are not to create a mas- Lifelong learning starts at school. As a rule, education sive underclass, policymakers urgently need to work out how should not be narrowly vocational. The curriculum needs to to help all their citizens learn while they earn. So far, their am- teach children how to study and think. A focus on “metacogni- bition has fallen pitifully short. tion” will make them better at picking up skills later in life. But the biggest change is to make adult learning routinely Machines orlearning accessible to all. One way is for citizens to receive vouchers The classicmodel ofeducation—a burstatthe startand top-ups that they can use to pay for training. Singapore has such “indi- through company training—is breaking down. One reason is vidual learning accounts”; it has given money to everyone the need for new, and constantly updated, skills. Manufactur- over 25 to spend on any of 500 approved courses. So far each ing increasingly calls forbrain workrather than metal-bashing citizen has only a few hundred dollars, but it is early days. (see pages 20-22). The share of the American workforce em- Courses paid for by taxpayers risk being wasteful. But in- ployed in routine office jobs declined from 25.5% to 21% be- dustry can help by steering people towards the skills it wants tween 1996 and 2015. The single, stable careerhas gone the way and by working with MOOCs and colleges to design courses ofthe Rolodex. that are relevant. Companies can also encourage their staff to Pushing people into ever-higher levels of formal education learn. AT&T, a telecoms firm which wants to equip its work- atthe startoftheirlivesisnotthe wayto cope. Just 16% ofAmer- force with digital skills, spends $30m a year on reimbursing icans think that a four-year college degree prepares students employees’ tuition costs. Trade unions can play a useful role as very well for a good job. Although a vocational education organisers of lifelong learning, particularly for those—workers promises that vital first hire, those with specialised training in small firms or the self-employed—for whom company-pro- tend to withdraw from the labour force earlier than those with vided training is unlikely. A union-run training programme in general education—perhaps because they are less adaptable. Britain has support from political parties on the right and left. At the same time on-the-job training is shrinking. In Ameri- To make all this training worthwhile, governments need to ca and Britain it has fallen by roughly half in the past two de- slash the licensing requirements and other barriers that make cades. Self-employment is spreading, leaving more people to ithard fornewcomersto enteroccupations. Ratherthan asking take responsibility for their own skills. Taking time out later in for300 hours’ practice to qualify to wash hair, forinstance, the life to pursue a formal qualification is an option, but it costs state of Tennessee should let hairdressers decide for them- money and most colleges are geared towards youngsters. selves who is the best person to hire. The market is innovating to enable workers to learn and Not everyone will successfully navigate the shifting jobs earn in new ways. Providers from General Assembly to Plural- market. Those most at riskoftechnological disruption are men sight are building businesses on the promise of boosting and in blue-collar jobs, many of whom reject taking less “mascu- rebooting careers. Massive open online courses (MOOCs) line” roles in fast-growingareas such as health care. But to keep have veered away from lectures on Plato or black holes in fa- the numbers of those left behind to a minimum, all adults vour of courses that make their students more employable. At must have access to flexible, affordable training. The 19th and Udacity and Coursera self-improvers pay for cheap, short pro- 20th centuries saw stunning advances in education. That grammes that bestow “microcredentials” and “nanodegrees” should be the scale ofthe ambition today. 7 10 Leaders The Economist January 14th 2017

Trump and the intelligence agencies Speaking post-truth to power

With his relentless criticism, Donald Trump is destroying trust in the intelligence agencies ONALD TRUMP doesn’t repeatedly suggested that the agencies had done the leaking, Dgive many press confer- casting doubt on their conduct and loyalty. ences. But when he does, as on Mr Trump would hardly be the first president to have January 11th—for the first time scratchy relations with the intelligence services (see page 34). since July—they are utterly un- Career officers mutter about Barack Obama’s reluctance to like the press conferences of any stand up to China and Russia and whattheysawashis softline other American president-to-be. on spy-catching. However, Mr Trump’s disputes are in a differ- Speaking without notes, Mr ent class, because they eat away at trust. Trump threatened and cajoled Mexico and the pharma indus- The agencies’ job is to tell the president about threats and try (its shares tumbled). He boasted about his genius for busi- opportunities facing the United States. Even though America’s ness (and went some way to reduce his own conflicts of inter- intelligence machine is the world’s most formidable, it deals est—see page 35). He poured scorn on a shocking report that mostly in judgments and informed speculation, not certain- Russian intelligence had dirt on him and had worked with his ties. In speaking truth to power, intelligence officers will some- people during the election (he shouted down a reporter from times have to bear bad news. They take that risk and the presi- the news channel that revealed the report’s existence). And dent listens to what they have to say because it makes the that was just the highlights. It was such a spectacle (see page 33) United States better prepared forwhatever is coming its way. and pointed in so manydirectionsatonce thatyoucould fail to By ridiculing the agencies for their findings, Mr Trump has catch a drumbeat which, forthe safety and security of the Un- signalled that he does not want to hear their bad news. By say- ited States, Mr Trump needs to silence immediately: his con- ing he cannot be bothered with the president’s daily briefing, tinuing hostility towards America’s intelligence agencies. he suggests their work is of little value. By claiming that the agencies have a political agenda, his people are themselves Intel outside politicising intelligence work. By impugning their motives, he Relations were already rocky. Before the election the agencies is undermining public confidence, which was already dam- let it be known that they had concluded Russia hacked, stole aged by Edward Snowden (see page 78), and which, as with and leaked documents which damaged Hillary Clinton, Mr any institution, is essential ifthey are to go about their duties. Trump’sopponent. Most ofthe agencies (but not all) think that If he wants America to be safe, Mr Trump must make Russia’s intention was to help Mr Trump win. He responded amends. He took a first step by criticising Russia for the Demo- by mocking them for being wrong before the invasion of Iraq cratic hack (albeit reluctantly and mildly). Unlike his national in 2003 about weapons of mass destruction. This week things security adviser, his nominees as directors of the CIA and of got uglier, when it was leaked that the agencies had supplied national intelligence enjoy support among spooks. In 90 days, MrTrump with a summaryofthe report, whose claimsremain he has said, they will produce a report on hacking: he should unverified, despite plenty of effort by plenty of people. In a follow its advice. As president, he needs to stop criticising the tweet, Mr Trump complained that enduring such leaks was agencies and demonstrate they have his backing. None of that like “living in Nazi Germany”. And in his press conference he is hard. Except that it is a test ofMr Trump’sself-control. 7

Trump and Mexico Handling a bully

HowMexico should deal with the threat from America’s newpresident MERICA’S allies and trading States,” he declared. Apartners await Donald IfMr Trump matches his aggressive words with actions, the Trump’s arrival in the White consequences will be grave. Mexico’s economy is closely en- House on January 20th with twined with that of the United States and Canada under the trepidation. None is more anx- North American Free-Trade Agreement (NAFTA). The value of ious than Mexico. Mr Trump be- bilateral trade with its northern neighbour is equivalent to gan his election campaign by nearly half of its GDP. America buys three-quarters of Mexi- damning Mexicans as rapists co’s exports. The 35m people of Mexican origin living in the and killers of American jobs. He has repeatedly threatened United States send back$25bn a yearin remittances. MrTrump carmakers that invest in Mexico with import tariffs. Ford can- puts all that in jeopardy. celled plans to build a $1.6bn plant there. He renewed his vow Already, Mexico is feeling the effects (see page 41). The peso to make Mexico payforhisborderwall ata pressconference on has dropped to a record low against the dollar, weakening January 11th. “Mexico has taken advantage of the United Mexico’s wan economy. If Mr Trump, who has called NAFTA1 The Economist January 14th 2017 Leaders 11

2 “the worst trade deal maybe ever signed anywhere”, launches sneak across Mexico into the United States. And Mexico has a trade war, Mexico will probably fall into a recession. That paid a price to keep relations warm: some 100,000 Mexicans would worsen a political environment that is already poison- have died since Mexico joined America’s war on drugs. ous. Mexico’spresident, Enrique Peña Nieto, hasthe lowest ap- Mexico should also seize on Mr Trump’s occasional hints proval ratings of any recent leader. He is reviled for failing to that he is open to renegotiating NAFTA rather than ripping it control corruption and for allowing crime to surge. On Janu- up. The 23-year-old agreement could usefully be updated to ary 1st the government raised petrol prices by up to 20%. En- cover new sectors, such as digital commerce and energy. raged drivers blocked roads, looted shops and occupied petrol IfMrTrump isreallydetermined to starta trade war, Mexico stations; six people died in the unrest. has few good options. A broad strategy of fighting tariffs with Mexico is due to hold its next presidential election in 2018. tariffs will hurt its own consumers most, while inflicting only The nationalism and misery provoked by Mr Trump could modest damage on America’s vast economy. There is scope for bring to power Andrés Manuel López Obrador, a left-wing artful use of targeted measures within the rules of NAFTA and populist. Mr Peña’s weakness threatens to discredit vital re- the World Trade Organisation, an approach that Mexico has forms he enacted early in his tenure, includingliberalisation of wielded adroitly before. In 2009, after America blocked Mex- energy and telecoms. A dismantling of NAFTA, which helped ican lorries from operating north of the border—to protect the create the right conditions forreforms, would doom them. jobs of American drivers—Mexico imposed tariffs on nearly America would suffer, too. Its trade with Mexico is worth 100 American products, from Christmas trees to felt-tipped just 3% of its GDP, but some 5m American jobs depend on it. pens, choosing industries with clout in congressional districts The design, manufacture and servicing of everything from ap- whose representatives had a say in the dispute. The American pliances to medical equipment is spread across both borders. blockwas eventually lifted. Cars made in Mexico are stuffed with parts manufactured in Mexico’s best defence against a bullying neighbour, how- America; some 40% of the value of Mexican exports consists ever, will be to seek freer trade elsewhere and to strengthen its of inputs bought from the United States. If Mexico is not al- own economy. It needs to build more infrastructure: whereas lowed to sell cars, aerospace equipmentand fruitto America, it northern Mexico has good transport links to America and the is likely to send more immigrants and drugs. coasts, the poor south is largely cut off. Most Mexican workers have unproductive informal jobs. Shifting firms into the for- Accentuate the positive mal economy will be hard so long as the government fails to How should Mexico respond to Mr Trump? First of all, by re- curb corruption; many Mexicans are loth to pay taxes they as- minding his administration that the relationship is mutually sume will be stolen. Mr Trump’s anti-Mexican populism beneficial. Alongside trade, Mexico has been a partner in con- threatens to help usher in a leftist government that will aban- trolling illegal immigration. It stops many of the 200,000- don reforms. But it makes those modernising policies more 300,000 Central Americans and others who try every year to necessary than ever. 7

Renewable energy A greener grid

China’s embrace ofa newelectricity-transmission technologyholds lessons forothers OU cannot negotiate with moving energy around the planet. That is wildly premature. UHVDC lines in China nature. From the offshore But one country has grasped the potential ofthese high-capac- Completed or under construction Y Cumulative total wind farms of the North Sea to ity links. State Grid, China’s state-owned electricity utility, is 20 15 the solar panels glittering in the halfway through a plan to spend $88bn on UHVDC lines be- 10 Atacama desert, renewable en- tween 2009 and 2020. It wants 23 lines in operation by 2030. 5 nil ergy is often generated in places That China has gone furthest in this direction is no surprise. 0 200910 11 12 13 14 15 16 17* far from the cities and industrial From railways to cities, China’s appetite for big infrastructure *Forecast centres that consume it. To boost projects is legendary (see page 27). China’s deepest wells of re- renewables and drive down carbon-dioxide emissions, a way newable energy are remote—think of the sun-baked Gobi des- must be found to send energy over long distances efficiently. ert, the windsweptplainsofXinjiangand the mountain ranges The technology already exists (see page 71). Most electricity of Tibet where rivers drop precipitously. Concerns over pollu- is transmitted today as alternating current (AC), which works tion give the government an additional incentive to locate well over short and medium distances. But transmission over coal-fired plants away from population centres. But its em- long distances requires very high voltages, which can be tricky brace of the technology holds two big lessons for others. The for AC systems. Ultra-high-voltage direct-current (UHVDC) first is a demonstration effect. China shows that UHVDC lines connectors are better suited to such spans. These high-capaci- can be built on a massive scale. The largest, already under con- ty links not only make the grid greener, but also make it more struction, will have the capacity to power Greater London al- stable by balancing supply. The same UHVDC links that send most three times over, and will span more than 3,000km. power from distant hydroelectric plants, say, can be run in re- The second lesson concerns the co-ordination problems verse when their output is not needed, pumping water back that come with long-distance transmission. UHVDCsare as above the turbines. much about balancing interests as grids. The costs of construc- Boosters of UHVDC lines envisage a supergrid capable of tion are hefty. Utilities that already sell electricity at high prices 1 12 Leaders The Economist January 14th 2017

2 are unlikely to welcome competition from suppliers of renew- fragmented. There are 3,000 utilities, each focused on supply- able energy; consumers in renewables-rich areas who buy ing power to its own customers. Consumers a few states away electricityatlowpricesmaybalkatthe idea ofpaying more be- are not a priority, no matter how much sense it might make to cause power is being exported elsewhere. Reconciling such in- send them electricity. A scheme to connect the three regional terests is easier the fewer the utilities involved—and in China, grids in America is stuck. The only way that America will State Grid has a monopoly. create a green national grid will be if the federal government That suggests it will be simpler for some countries than oth- throws its weight behind it. ers to follow China’s lead. Developing economies that lack an established electricity infrastructure have an advantage. Solar Live wire farms on Africa’s plains and hydroplants on its powerful rivers Building a UHVDC network does not solve every energy pro- can use UHVDC lines to get energy to growing cities. India has blem. Security ofsupply remains an issue, even within nation- two lines on the drawing-board, and should have more. al borders: any attacker who wants to disrupt the electricity Things are more complicated in the rich world. Europe’s supply to China’s east coast will soon have a 3,000km-long ca- utilities work pretty well together but a cross-border UHVDC ble to strike. Other routes to a cleaner grid are possible, such as grid will require a harmonised regulatory framework. Ameri- distributed solar power and battery storage. But to bring about ca is the biggest anomaly. It is a continental-sized economy a zero-carbon grid, UHVDC lines will play a role. China has its with the wherewithal to finance UHVDCs. It is also horribly footon the gas. Others should follow. 7

Proliferating parties Splitters

Too manyparties can spoil politics O ENTER parliament, a apart easily. They also take longer to form, distracting politi- European elections TDutch political party need cians from the business of governing. Spain’s recent shift from Parliamentary, number of parties winning more than 1% of the vote only win enough votes for one two major parties to fourproduced a stand-offthat left it with- 10 seat. With no minimum thresh- out a government for most of last year. Its citizens had more 8 6 old, there are lots of parties. choiceswhen theyvoted, butthen spentten monthsunder the 4 Eleven succeeded in 2012, in- rule ofunelected caretakers—not a clear gain in democracy. 1950-60- 70- 80- 90- 2000- 15- cluding two liberal parties, three Small parties may render government incoherent by seiz- 54 64 74 84 94 04 16 Christian ones and one that ing control of the policy areas they care about. In Israel tiny cares about animal rights. In the next election, this March, right-wing parties in effect write the rules for West Bank settle- polls suggest the total could rise to 13, with the addition of a ments. Splintering can also foster graft. In Brazil politicians pro-immigrantpartyand an anti-immigrantone (the country’s form new parties to get public subsidies and then demand second). Assmall partiesmultiply, the large onesare shrinking. more goodiesto join coalitions. Farfrom increasingreal choice, In the 1980s governing parties often held 50 seats in the 150- multiplying parties can allow politicians to hide the fact that seat parliament; today they are lucky to reach 40. what matters is patronage. Voters may be bewildered when As with the Netherlands, so with Europe. The ideologies confronted with the People’s Front of Judea and the Judean that held together the big political groupings of the 20th cen- People’s Front—or with National Liberals, Democratic Liberals tury are fraying, and the internet has lowered the barriers to and Liberal Reformists, as they were in Romania in 2014. forming new groups. So parties are multiplying (see page 50). Some see this as cause for celebration. A longer menu means What have the Romanians ever done forus? that citizens can vote for parties that more closely match their Sometimes, new policies need new parties to champion them. beliefs. Thisisgood in itselfand also increasespolitical engage- For all their flaws, the left-wing Podemos party in Spain and ment. Countries with proportional-representation systems, the populist, anti-immigrant Sweden Democrats represent which tend to have more parties, have higher voter turnout voters whose voices were not being heard. But some politi- than first-past-the-post countries like America and Britain. cians form new parties for selfish reasons. Candidates who re- Yet excessive fragmentation has drawbacks. As parties sub- ceive a low spot on their party’s list may decide to start their divide, countries become harder to govern. A coalition of own. Others hunger for the subsidies and free broadcasting small parties is not obviously more representative than one time that many countries grant to each party. big-tent party. Big parties are also coalitions of interests and Forall these reasons, thresholdsare a good idea. Germany’s ideologies, but they are usually more disciplined than looser requirement that parties win 5% of the vote to enter parlia- groups, and so more likely to get things done. ment keeps cranks and extremists out without disenfranchis- Having too many parties is often unwieldy. Coalitions be- ing parties that poll strongly, like the new Alternative for Ger- come harder to form and often include strange bedfellows. In many. The 5% rule also keeps German coalitions from growing Greece the far-left Syriza party governs with the far-right Inde- unwieldy. Parties are middlemen between government and pendent Greeks; in Denmark the centre-right government voters, organising a multiplicity of policies into a simpler needs the support of the Liberal Alliance, which wants to cut menu ofoptions. That menu can be too short (as in China). But social spending, and the Danish People’sParty, which wants to it can also be so long and confusing that voters can’t tell what raise it. Such oddball pairings rarely act decisively and fall they are ordering—and probably won’t get it. 7 16 Letters The Economist January 14th 2017

The liberal disorder Jefferson’s counsel that “eter- Out with regime change sites. Such Big Data insights are nal vigilance is the price of much richer than those which liberty” requires citizens, not Youpointed out that after the can be gathered from simply just the elite, to desire to seek genocide in Rwanda, many analysing sale data. the truth to be free. countries agreed that they Adding concealed cameras BERTRAND HORWITZ have a responsibility to and microphones in shops, Asheville, North Carolina intervene ifa government fails coupled with machine-learn- to protect its own people (“The ing algorithms, allows retailers What’s on the Brexit table? fall ofAleppo”, December to linkfoottraffic with details 17th). But you then said that of age, gender, ethnicity and It was good to see The Econo- “The desire to promote free- the dialect ofboth the shopper mist discuss the options for dom and democracy was not and any shopping compan- trade under WTO rules when farbehind.” Conflating “the ions, including children. All of Britain becomes once again a responsibility to protect” with this will soon be more tightly Youstressed one aspect of sovereign customs authority regime change is, in effect, one controlled in the European liberalism’s attitude to power (Free exchange, January 7th). reason the tragic civil war in Union by the General Data and neglected the other two But it was disappointing that Syria is continuing. Privacy Regulation, which (“The year ofliving dangerous- you chose to discuss mainly Although almost 200 coun- comes into effect in May 2018. ly”, December 24th). Liberals procedural matters and ig- tries have committed to the From that date, companies believe in protection from nored the economic options UN’s Responsibility to Protect, with EU customers will be undue power, whether the this gives us. As we have re- which entails the right to use more restricted in their col- coercive power ofthe state, the peatedly emphasised during force to intervene in the lection and use ofpersonal economic power ofconcen- the referendum campaign and internal affairs ofothers, many data, including data that can be trated wealth or the unfiltered since, the best economic op- ofthem strongly oppose coer- linked to a smartphone. power ofpopular majorities. tion is forus to open up our cive regime change. So when There will still be a rich By focusing too long on undue markets in food and manufac- America made it a precondi- analysis offoot-traffic statistics, state power, free-market liber- turing to the world by scrap- tion fornegotiating a settle- ideally benefiting the customer alism contributed to the politi- ping the EU’s protectionist ment in Syria that Bashar as well as the retailer, but it will cal difficulties liberal democra- tariffsand non-tariffbarriers al-Assad must go, Russia cor- become increasingly impera- cy now faces with the second on these goods, just as we have rectly viewed this condition as tive that such data are dealt and third aspects ofundue always had open markets in a threat to the survival of its with in ways that both respect power: an over-concentration services. The gains from this last ally in the Middle East. the customers’ privacy and ofwealth and unanchored will be much lower prices for The same issue arose in that shield the retailer from popular distrust. our consumers and the reallo- Libya, where the West first legal and reputational risks. To take only Britain, the cation ofour resources accord- intervened because it held DAVID STEPHENSON liberal founders—Mill, ing to comparative advantage. there was a genocide in the Chief data scientist Gladstone, Hobhouse— This prescribed course is en- making. However, when DSI Analytics grasped that what was needed tirely consistent with WTO Muammar Qaddafi offered to Amsterdam was not less government but rules, and farfrom being as negotiate a settlement, the better government; not less complicated as you suggest, West forcefully insisted on A pack of economists politics, but better politics. The reverting to a zero tariffwould regime change. What followed great liberal achievements of be straightforward and not is another civil war. Since then Further to the letter ofMichael state schools, public works, subject to anyone else’s say-so. Russia, China and others have Ben-Gad (December17th) I health and welfare and a We can follow this up with soured on the responsibility to thinkthe appropriate col- world trading order all came free-trade agreements around protect. A better policy would lective noun for economists about thanks to ambitious the world on broader issues of be to decouple armed humani- should be “a quandary”. thinkers, ambitious politicians investment and property tarian intervention from coer- COLIN MCALLISTER and ambitious states. rights. We hope that the EU cive regime change, and pro- St Andrews, Fife To liberalism’s present will follow our lead in this mote democracy only by travails, your suggested sol- policy offree trade, but if they non-lethal means. Given the conflicting opinions utions ofnew gadgets, devolu- do not, that is a problem for AMITAI ETZIONI between economists, I tion and deregulation sound their consumers and their Institute for Communitarian propose “a befuddlement”. by contrast almost magical. economies, not ours. Ifthey Policy Studies DARREN GALPIN EDMUND FAWCETT are stupid enough to impose Washington, DC Bristol London tariffson our manufacturers, which average only around Store detection The optimum choice must The rise ofuniversal free edu- 3.5% in any case, we should not surely be “a surplus of cation in the 19th century was, be distracted by this from “Following the fashion” economists”. as you note, essential forthe opening up our own markets (December 24th) looked at J. BROOKS SPECTOR growth ofcommerce and to free trade. Our manufactur- what retailers might gain from Johannesburg 7 democracy. The decline ofthe ers can easily take these tariffs collecting detailed data on quality and increasingly un- in their stride, given our highly customers’ in-store move- equal distribution ofthat competitive exchange rate and ments. In fact, the competitive Letters are welcome and should be addressed to the Editor at required education is at the pro-business policies. advantages (and privacy con- The Economist, 25 St James’s Street, source ofthe challenge faced PROFESSOR PATRICK MINFORD cerns) forsuch tracking within London sw1A 1hg by democratic societies, from Co-chair physical stores are very similar E-mail: [email protected] voters unequipped and unable Economists for Brexit to those from tracking online More letters are available at: to seekthe truth. Thomas Cardiff browsing behaviour on web- Economist.com/letters 20 Briefing Manufacturing The Economist January 14th 2017 create “millions of manufacturing jobs”. Hence the vision articulated by George Os- borne, Britain’s finance minister from 2010 to 2016, of “a Britain carried aloft by the march of the makers”, and the central role ofmakingthingsin the “comprehensive in- dustrial strategy” promised by the current prime minister, Theresa May. Hence calls from the EU for a European industrial revo- lution and the need for things to be “Made in France” identified by Marine le Pen, leader ofthe country’s National Front. The problem with such rhetoric is that manufacturing has not really gone away. But nor has it held still. The vice has gone unreplaced, but in almost everything else there has been change aplenty. Some pro- cesses that used to be tightly held together are now strung out across the world; some processes that used to be quite separate are now as close as the workers and designers who share the shop floor in Brixworth. As- sembling parts into cars, washing ma- chines or aircraft adds less value than once it did; design, supply-chain management, aftercare, servicing and the like add much more.

Ride the carousel Once you understand what manufactur- ingnowlookslike, youcome to see that the wayitisrepresented in official statistics un- derstates its health, and that the sector’s apparent decline in the rich world is over- stated. But that does not solve the politi- cians’ problem. The innovations behind the sector’s resilience have changed the number, nature and location of the jobs that it offers. There are still a lot of them; but many of the good jobs for the less skilled are never to return. Both in terms ofemployment and inno- vation manufacturing is worthy of politi- cal attention. Manufacturers are more like- They don’t make ’em like that ly to be exporters than businesses in other parts of the economy and, as you would any more expect given the demands of competing in a broader market, exporting firms tend to be more productive than non-exporting Manufacturing in the rich world has changed dramatically from the metal-bashing firms. Such firms also tend to be more capi- days. So have the jobs that go with it tal-intensive, because selling into those broader markets allows firms to reduce HE vices are what strike you. The Mer- ing better than the vice has come along. capital costs per unit sold. And a sector that Tcedes AMG factory in Brixworth, a Manufacturing exerts a powerful grip has higher-than-average productivity and town in England’s midlands, is a different on politicians and policymakers in the rich high capital intensity will, other things be- world from that of the production line of world. It is central to what they want for ing equal, be able to offerbetter wages. yore. Engine making was once accompa- their countries, they say; it needs to be The structure of20th-century manufac- nied by loud noises and the smoke and brought home from abroad; it must be giv- turing helped ensure that those better smells of men and machinery wrestling en renewed primacy at home. This is be- wages were indeed offered. Factories lumps of metal. Here things are quiet and cause it used to provide good jobs of a par- brought lots of modestly skilled people to- calm. Skilled mechanics wield high-tech ticular sort—jobs that offered decent and gether with massive capital equipment tools amid operating-theatre cleanliness as dependable wages for people, particularly that cost owners dearly when idled by they work on some of the best racing-car men, with modest skills, and would do so strikes. Unionisation helped those work- engines in the world. Banks of designers throughout their working lives. Such jobs ers win a large share ofthe value generated and engineers sit in front of computers are much more scarce than once theywere, by industry. nearby. The only vestige of the old world and people suffer from the lack of them. In In the latter part of the century, though, are the vices. There is one on every work their suffering, they turn to politicians— this system came undone. Better shipping bench. At some point, making things of and can also turn against them. and information technology allowed metal requiresholdingpartsstill, and noth- Hence Donald Trump’s promise to firms to unbundle the different tasks—from1 The Economist January 14th 2017 Briefing Manufacturing 21

2 design to assembly to sales—that made up world added two-thirds ofthe final value. an important part of the manufacturing the business of manufacturing. It became In terms of the perception that manu- process. Environmental legislation is forc- possible to co-ordinate longer and more facturing moved to poor countries lock ing companies to take responsibility for complicated supply chains, and thus for stock and barrel, it hasn’t helped that the their products after they have served their various activities to be moved to other low-value work which did go overseas of- purpose by recycling components or dis- countries, or to other companies, or both. ten involved the final stages of assembly. posing of them. Carmakers have to make At the same time computers and comput- Putting the components that make up a sure that the batteries that power electric er-aided design made automation more product together looks like the essence of cars are not thrown away. In some coun- capable. High wages gave owners the in- the manufacturing process. But it often tries white-goods firms are required to pay centive they needed to take advantage of adds little to the finished product’s value. for recycling fridges, washing machines those opportunities. And while politicians Even foras complex and pricey a mach- and other appliances. now like the good jobs unionised factories ine as a passenger jet, assembly is a low- At the same time as the value chain has provided, at the time when those unions value proposition compared with making been stretched, otherchangeshave led offi- were flexingtheirmuscles many were hap- the parts that go into it. By some estimates, cial statistics to exaggerate the loss of jobs py to see them reined in. putting together Airbus airliners in Tou- in the sector. In the past, some jobs that As a result many manufacturing jobs louse accounts for just 5% of the added val- would not today be seen as manufacturing vanished from the rich world (see chart 1). ue of their manufacture—even if ensuring were counted assuch, inflatingthe total; to- In Britain manufacturing’s share of em- the aircraft were put together in France has day some jobs that seem obviously part of ployment had hovered at around a third been a non-negotiable point of national manufacturing are not counted as such, re- from the 1840s to the 1960s. Today official pride forthe French government. Similarly, ducing it. data show that around one in ten workers assembly in China accounted for just 1.6% Manufacturing companies increasingly is involved in manufacturing. In the late ofthe retail cost ofearly Apple iPads. bring in other firms to take care of things 1940s manufacturing accounted for one in like marketing or accounting. Because stat- three non-farm jobs in America. Today’s Changing corporation names isticians generally categorise firms accord- figure is just one in eleven. Even in Ger- Most pre-production value added comes ing to what their largest block of employ- many, the rich country where making from R&D and the design of both the pro- ees does this looks like the loss of things has clung on tightest, only one in duct and the industrial processes required manufacturing jobs. The replacement of a five workers is in manufacturing. to make it. More is provided by the expert tea lady with a canteen run by a contractor The way official figures are put together management of the complex supply is statistically indistinguishable from the means that these declines are exaggerated. chains that provide the components for fi- loss of a factory-floor metal basher (even if But tens of millions of jobs did vanish, and nal assembly. After production, taking pro- the tea lady is still there in the canteen). as manufacturing became more produc- ducts to market and after-sales repair and But some outsourcing cuts the other tive, and prices dropped, its share of GDP service and, in some cases, disposal all add way. Jaguar Land Rover (JLR), a British car- fell, too. At the same time the number of more value—while stretching the idea of maker owned by India’s Tata Group, hand- people in manufacturing in developing what it is to manufacture something ever ed over much of the management of its countries exploded, with many of them furtherfrom the factory floor. supply-chain logistics to DHL, a delivery working, directly or indirectly, forthe same Dismantling, for example, is becoming giant, in 2009. Not only does DHL deliver firms that were employing fewer people in parts from suppliers to JLR’s factories, it rich countries. But the jobs that appeared gets them to the exact bit of the assembly were not, for the most part, simply the old The change that came 1 line where they are needed; its employees jobs relocated. whizz around the shop floor in forklift Manufacturing Companies were using technology and As % of total employment trucks. It is hard not to see the service they newpracticesin waysthatmade iteasier to 30 are offeringas an integral part ofthe manu- separate straightforward, well-delineated facturing process. work from the more complicated bits of 25 Many aspects of R&D, product design Developed countries the enterprise. The routine work, which 20 and technical testing are now sometimes was not particularly valuable, was easily All countries looked after by service companies, along moved to poor countries where labour 15 with lots of accounting, logistics, cleaning, was cheap. (If poor places had had the ca- Developing countries personnel management and IT services. pacity to take the high-value bits, they 10 Production itself can be outsourced, too. would not have been poor.) 5 Apple and ARM, a British chip company re- This is why promises to bring jobs back cently acquired by SoftBank of Japan, own ring hollow. Valuable semi-skilled manu- 0 no factories of their own. They make all facturing jobs are not, forthe most part, go- 1981 85 90 95 2000 05 10 their money from design, distribution and ing to return to America, or anywhere else, Manufacturing value added servicesassociated with theirproducts. An because they were not simply shipped As % of GDP OECD committee is currently mulling abroad. They were destroyed by new ways 30 whether these sorts of firms should still be of boosting productivity and reducing Middle income classified as manufacturers. 25 costs which heightened the distinction be- A study published in 2015 by the Brook- tween routine labourand the restofmanu- 20 ings Institute, an American think-tank, World facturing. There is no vice that can squeeze High income reckoned that the 11.5m American jobs those genies backinto their bottles. 15 counted as manufacturing work in 2010 Low income The UN Industrial Development Orga- were outnumbered almost two to one by 10 nisation (UNIDO) reckons that, in 1991, jobs in manufacturing-related services, 234m people in developing countries 5 bringing the total to 32.9m. A British study worked in manufacturing. By 2014 the conducted by the Manufacturing Metrics number was 304m—and there were just 0 Experts Group in 2016 came to a similar 1981 85 90 95 2000 05 10 63m manufacturing jobs in the rich world. conclusion: that 2.6m production jobs sup- But the sixth of the workers in the rich Source: UNIDO ported another1m in pre-production activ-1 22 Briefing Manufacturing The Economist January 14th 2017

2 ities and 1.3m in post-production jobs. ed innovation, says Ludovico Alcorta at Pinning down the number of manufac- Above its weight 2 UNIDO. When production is moved else- turing jobs is sure to get harder. Not only United States, advanced industries* where, opportunities to learn how to do it will service providers penetrate ever deep- As % of total, 2015 better are often lost. The development of er into manufacturers; some manufactur- 0 20406080100 new products and processes can suffer, as ers also see themselves increasingly as sell- Private sector R&D can interactions with research organisa- ers ofservices. tions and universities. In the 1980s Rolls-Royce, an engineering Patents As that suggests, though, the potential giant that makes jet engines, started to Engineers for new jobs in manufacturing is not quite push “power by the hour”, providing an the boon politicians would like. Advanced engine, servicing and maintenance at a Exports manufacturing provides very good jobs fixed cost per hour of flying time. As Andy GDP (see chart 2) but they are the jobs of the fu- Neely of the Institute for Manufacturing at ture, not the past; they need skill and Cambridge University points out, this way Workers adaptability. They will change a lot over of turning manufacturing into a service of Source: Brookings *Involved in high-tech and complex the lifetimes of those who hold them, and Institute design and manufacturing sorts provides more stable revenues by they will never provide anything quite like locking in customers rather than selling the mass employment ofthe past. them one-off items. Moreover, margins isoften betterdone amid the designers and Governments should “start with mod- tend to be higher for such services than for engineers who thought up the product. est expectations” for manufacturing, says the goods themselves. Linking the design ofboth the product and James Manyika ofthe McKinsey Global In- Industrial machinesand the goods they its manufacturing process more closely to stitute, a think-tank. The policiesthat might turn outare increasinglypacked with inter- production can help improve all three. At help are mostly fairly obvious. Improve net-connected sensors. Manufacturers are the Mercedes AMG engine plant in Brix- education to ensure that engineers and te- thus able to gather data on how their ma- worth designers are deliberately placed in chies are in good supply. Provide more vo- chines perform out in the world. Their inti- the middle ofproduction engineers so that cational training, along the lines that Ger- macy with the product and the amount of they cannot avoid meeting and talking. many uses to support its Mittelstand. And data they accumulate gives them a base develop retraining programmes to refur- from which to sell services which no third The golden future bish the skills of current or formerworkers party can match. A maker of cars, or wind Ifbeingin the same place reallyhelps, tech- (see this week’s special report). turbines, or earth movers can use data nology and redesigned production meth- If manufacturing cannot be counted on from every product it has made to work ods might be used to bring assembly and to bring back good jobs for semi-skilled out what is going on with any one ofthem, some other forms of production back to workers, its history nonetheless suggests a and thus increase the value to the user— rich countries. 3D printing, though more route to providing good work in other sec- who is increasingly likely to pay for the ser- expensive than traditional mass manufac- tors. First, workers still tend to do better vice that the manufactured object offers, turing, is being used to make more luxuri- when they are able to work within profit- rather than the object itself. The car indus- ous and pricier wares, such as motorbikes, able companies, rather than as employees try, for most of the 20th century the arche- in the heart of cities like London and New of service firms which contract with those type of metal bashing, increasingly sees its York, close both to designers and consum- companies. Second, workers do better future in the provision of “mobility ser- ers. Using new technologies to keep design when they are able to improve their bar- vices” rather than as a seller of boxes with and manufacturing tightly coupled can gaining power by means of a union. But wheels at the corners. Running their own shorten lead times in industries driven by neither is easy to implement, or popular fleets of cars with which to offer autono- fad and fashion (see page 62). across the political board. mous or shared rides looks to many like Some firms recognise that outsourcing A real commitment to helping people the wave ofthe future—and possibly a very production to cheaper locations has erod- find work in and around manufacturing profitable one. could undoubtedly do good. Simply The enthusiasm for moving into ser- threatening companies that seek to move vices extends well beyond the makers of jobs overseas and the countries keen to high-end machinery with whom the trend host them, as Mr Trump has, will not. Dis- started. Henrik Adam at Tata Steel in Eu- rupting the complex cross-border supply rope says he has a team of experts able to chains on which manufacturers rely with intervene in a customer’s production line tariffs would damage the very sector he and “improve their manufacturing perfor- purports to champion. Clamping down on mance and yield by specifying the best migrants with skills that manufacturers type ofsteel to match processingcapability cannot find at home will do harm, not and market ambitions.” LafargeHolcim, a good. Policies that favour production-line cement-maker, says its product can be de- workers over investment in automation livered as a service. Increasingly compli- will end up making American industry cated cement structures require experts to less competitive. advise on design, use ofspecialist products Industrial manufacturing was never as and the logistics of pouring a continual simple as those far from the shop floor stream ofthe stuff. imagined it to be. Today it has become This should be comforting to politi- more complex still. There are reasons to cians on the lookout for manufacturing help manufacturing; it tends to be more jobs. Well-paid tasks could increase in productive, and by some measures more number as services related to manufactur- innovative, than the rest of the economy. ing grow. There are other encouraging But doing so requires careful thought, a trends, too. In some fields innovation and lighttouch and managed expectations. The production are increasingly interwoven. application of brute force will not turn the Capital-intensive high-tech manufacturing What next? clockback. It is more likely to break it. 7 Asia The Economist January 14th 2017 23

Also in this section 24 Thailand’s king sticks his oar in 24 South Korea and Japan bicker again 25 Anti-Chinese protests in Sri Lanka 26 Banyan: Asia’s misguided drugs policies

For daily analysis and debate on Asia, visit Economist.com/asia

Indian politics 87% the year before. The liking is personal: Mr Modi regularly scores higher in such Non-stick PM polls than either his party or his policies. Some pundits speakof“Modi magic” to explain his immunity from criticism, but there are more straightforward reasons. One is the prime minister’s talent as a poli- tician. Although often dour in counte- DELHI nance, Mr Modi is a pithy speaker in Hindi, Narendra Modi has an uncanny abilityto shrug offembarrassment with an unerring nose for the class-driven DDRESSING a conference in his home prints more money to replace the scrapped grudges that often guide voter sentiment. Astate of Gujarat on January 10th, Na- notes. Yet just as would-be foreign inves- In debates over demonetisation, he suc- rendra Modi, India’s prime minister, exud- tors seem happy to continue boosting Mr cessfully projected himself as a champion ed confidence. India’s economy is the fast- Modi, many Indians also still trust and ad- of the common man against currency est-growing and one of the most open in mire the prime minister. Like America’s hoarders and tax evaders. He is also ex- the world, he declared, reaffirming his gov- president-elect, Donald Trump, who once tremely protective of his own image as a ernment’s commitment to reform. The claimed he could “shoot somebody” and man above the fray. Mr Modi’s dress, ges- 5,000-strong audience, sprinkled with for- not lose votes, Mr Modi’s support seems tures and public appearances are theatri- eign heads of state and corporate bigwigs, oddly unaffected by his flaws. Anecdotal cally staid and uniform, punctuated by applauded warmly. One multinational’s evidence, online polling and informal sur- meaningful looks and silences. He does boss drew cheers with a sycophantic call veys all suggest that the prime minister’s nothold pressconferences, preferring to re- for India to “export” Mr Modi to run his misstep has scarcely dented his standing. tain control ofhis narrative via carefully re- home country, America, too. Opinion polls in India have a poor re- hearsed interviews and his monthly The optimism and praise, however, cord, and none published since the demo- “From the Heart” radio address. contrasted with sobering economic news. netisation drive has specifically measured Since November rating agencies have Mr Modi’s popularity. However, two sur- Pygmy-slayer sharply lowered their growth forecasts. veyscarried outin Decemberin the state of Mr Modi is also lucky. His well-funded, Small and medium-sized firms report big Uttar Pradesh, India’s most populous, sug- highly disciplined and pan-Indian party lay-offs. Vehicle sales fell in December by gest that his Bharatiya Janata Party (BJP) re- faces an unusually divided and uninspir- 19% compared with the previous Decem- mains poised to perform well in imminent ing opposition. Congress, a party that ran ber, their steepest drop in 16 years, says a state elections. When the results from sev- India fordecades and still commands a na- car-industry lobby group. Housing sales in eral rounds of voting are tallied in March, tionwide base, is burdened by squabbling India’s eight biggest cities slid by 44% in the the BJP could be basking in its biggest tri- and corrupt local branches and a lack of last quarter of 2016 compared with the umph since Mr Modi won national elec- clarity over ideology and the role of the year before, reckons Knight Frank, a global tions in 2014. The party has not suffered in Gandhi dynasty. India’s many other par- property firm, in a report. “The Indian gov- municipal votes in several states since No- ties are all parochial, tied to the interests of ernment’s demonetisation move on No- vember and is well positioned in several one state, caste or other group, and so with vember 8th brought the market to a com- other looming state polls. little hope ofplayinga national role. Hand- plete standstill,” it says, alluding to Mr Prior to the demonetisation drive, Mr ed the golden opportunity of Mr Modi’s Modi’s surprise order to withdraw 86% of Modi had handily weathered other demonetisation fumble, the opposition the notes used in daily transactions. storms. Murderous communal riots tar- has failed to mount a united charge. There is little doubt that Mr Modi’s as- nished his long term as chief minister of Other institutions that might check Mr sault on cash has caused ordinary Indians Gujarat, for instance. Yet according to Pew, Modi’s ambitions, such as the press and disruption, annoyance and, particularly a research firm, the prime minister’s popu- the judiciary, are also not as vigilant as in forthe poorest, severe distress—though the larity in mid-2016, at an enviable 81%, had other democracies. Some parts of the me- pain is easing now as the government declined only marginally from a stunning dia are owned by Mr Modi’s friends and 1 24 Asia The Economist January 14th 2017

2 supporters; others by business groups final arbiter at times of political crisis—a South Korea and Japan with interests that are vulnerable to retri- role which had traditionally fallen to the bution. Journalists, whistle-blowers and king—as well as an article which intro- Future tense activists are keenly aware that critics ofthe duced a requirementforsome royal procla- government often pay a price, whether in mations to be countersigned by a minister. the form of “trolling” on the internet, ha- Thais have been watching for signs of rassment by officials or spurious lawsuits. friction between the armed forces and the SEOUL AND TOKYO India’s courts, meanwhile, do often clash monarchy—the country’s two biggest Two neighbours choose a bad time to with the government but are cautious in sources ofpolitical power—since the death resume bickering about the past picking fights: on January 11th India’s su- in October of Bhumibol Adulyadej, King preme courtairilydismissed a public-inter- Vajiralongkorn’s long-reigning father. The HE sudden deal struck in late 2015 by est lawsuit demanding investigation of new king is viewed warily by Bangkok’s Tthe leaders ofSouth Korea and Japan to documents that appear to implicate doz- elites, who have sometimes worried that settle their dispute over “comfort women” ens ofofficials in bribe-taking. he sympathises with populist politicians was supposed to be “final and irrevoca- Even Mr Modi’s foes believe his admin- whom the army has twice kicked from ble”. ButSouth Korean groupsrepresenting istration is less corrupt than previous ones power. On the whole relations have the formersexslaves—tensofthousands of have been. However, as the banknote de- looked cordial. King Vajiralongkorn has whom were pressed into prostitution by bacle revealed, it is not necessarily much stacked his privy council with generals Japan’s imperial army during the second more competent. The most iron-clad rule plucked straight from the junta’s cabinet; world war—had fiercely opposed the deal ofIndian politics is anti-incumbency. Even the junta has looked to the palace to help as a sell-out. One year on, a bronze statue the investors vyingforMrModi’s attention adjudicate in a long-running and volatile of a teenage sex slave (pictured), set up by may take note that, for all the talk of open- dispute over who should fill a vacant post one of the civic groups last month outside ness, India still has some of the world’s at the head of Thai Buddhism, which the Japan’s consulate in Busan, South Korea’s most tangled rules, highest corporate tax military government had appeared ill- second-largest city, threatens to under- rates and most capricious officials. 7 equipped to handle alone. mine the agreement. The row, in turn, has But although the king’s right to reject upset a short-lived detente between neigh- the draft constitution is enshrined in an in- bours at a treacherous time. Royal politics in Thailand terim charter which the generals them- Koreans have long felt that Japan has selves wrote, his decision to interfere re- not properly atoned for its wartime atroc- Return to sender mains a surprise. Under King Vajira- ities. Activists have erected 30-odd statues longkorn’s father the palace preferred to to lament the suffering of the comfort maintain the fiction that Thailand’s mon- women, including one near the Japanese archy holds a symbolic role which is embassy in Seoul, South Korea’s capital. “above politics”, even while itmeddled en- As part of the deal Shinzo Abe, Japan’s ergetically behind the scenes. The blunt- prime minister, apologised for the wom- BANGKOK ness of King Vajiralongkorn’s interven- en’s ordeal. Japan pledged to pay ¥1bn (just The new king pulls rank tion—and the determination it reveals to over $8m) into a new South Korean fund to OR more than two years Thailand’s rul- resist relatively small checks on royal pow- care for the surviving comfort women Fing junta, which seized power in a coup er—is both a snub to the junta and a worry (there were 46 at the time, but seven have in 2014, has been cooking up a constitution for democrats, some of whom had dared since died). That was something of an which it hopes will keep military men in hope that the new king might be happy to about-turn for Mr Abe, who had previous- control even after elections take place. In take a backseat in public life. ly said he doubted the women had been August the generals won approval for the The junta says it will make all the re- coerced—a view that his many ultranation- document in a referendum made farcical quested changeswithin a fewmonths, and alist supporters espouse. Japan maintains 1 by a law which forbade campaigners from that the new text will not need to be put to criticising the text. Yet on January 10th, a second referendum. But it has clearly only weeks before the charter was due to been caught by surprise. It says it will first come into force, the prime ministersaid his have to revise the interim charter which government was tweaking the draft. Pray- has been in force since the coup. This docu- uth Chan-ocha said changes were neces- ment allowed forthe kingto reject the draft sary because King Vajiralongkorn, the constitution in its entirety but appeared country’s constitutional monarch, had de- not to provide for the possibility that he clined to give the document royal assent. might askto strike out lines he did not like. There is much to dislike about the pro- Some Thais worry that a lasting power posed constitution, which will keep elect- struggle is brewing. Others see a minor ed governments beholden to a senate spat over language, which will quickly be nominated by the junta and to a suite of forgotten. Since the 1930s Thailand has meddlingcommittees. ButMrPrayuth says written and torn up 19 constitutions; hard- the king’s objections relate only to “three ly anyone expects this effort to be the last. or four” articles—all of which appear to The one certainty is that the redrafting will limit the sovereign’s power slightly. The delay by several months the general elec- generals say the palace has asked them to tion that was supposed to be held at the amend a rule which requires the monarch end of this year. Mr Prayuth has implied to nominate a regent when he leaves the that elections cannot now be held until kingdom (probably because King Vajira- after King Vajiralongkorn’s coronation, longkorn plans to spend much of the year which itself cannot take place until after reigning from his residences in Germany). his father’s elaborate cremation, sched- They also say they will revise an article uled for October. All this boots the long- which makes the constitutional court the promised polls well into 2018. 7 Bronze of contention The Economist January 14th 2017 Asia 25

2 that the relocation of the statue outside its embassy was part of the deal, and that the Anti-Chinese protests erection of the new statue in Busan vio- lates its “spirit”. South Korea says that it Deep water only agreed to ask civic groups to relocate COLOMBO the statue in Seoul. Sri Lankans balkat ever-expanding Chinese investment Japan has recalled its consul-general in Busan, as well as its ambassador to Seoul, OR generations, Priyantha Ananda’s again. But some in the area have already and suspended negotiations over a Ffamily sold kalu dodol—a sticky sweet received notices ofacquisition. planned currency-swap agreement. Such made ofcoconut milkand rice flour—on The size ofthe industrial zone is not huffiness is not unusual: Japan also re- the old Tangalle road in Hambantota. The yet known. A government minister said called its ambassador in 2012 after Lee government moved his wayside shop in the Chinese investors have requested Myung-bak, the South Korean president of 2008 to build a sprawling commercial 15,000 acres. The prime minister says it the day, visited an islet claimed by both port, financed by Chinese loans. He was will be 1,235. But even the smaller area countries. Yet Japan, too, can be accused of one ofaround 40 street vendors forced to has not yet been demarcated: the govern- violating the spirit of the deal. On Decem- relocate to another neighbourhood, far ment’s chiefsurveyor says public anger ber 29th Tomomi Inada, its defence minis- from their homes, where business is forced his staffto stop work. ter, visited the Yasukuni shrine in Tokyo, slow. Mostdistressing ofall, the authori- The government accuses the opposi- which commemorates the spirits of 2.5m ties have told them not to erect any per- tion, and in particular supporters of Japanese war dead, including14 high-rank- manent buildings. That suggests they Mahinda Rajapaksa, a formerpresident, ing war criminals. The bronze statue in Bu- might be displaced again, this time for an ofstoking discontent in Hambantota san, which local authorities had removed industrial zone being developed by with talkof“Chinese colonisation”. That two days before for obstructing a pave- Chinese investors. is especially ironic, since the develop- ment, was allowed to be replaced the day Resentment at such schemes boiled ment ofthe port was begun under Mr after Ms Inada’s visit. over this week, when thousands demon- Rajapaksa, who was criticised at the time Mr Abe doubtless worries that the deal strated at the inauguration ofthe indus- forsigning uncompetitive contracts forits will collapse: its other signatory, Park trial zone. As Ranil Wickremesinghe, the construction that lumbered Sri Lanka Geun-hye, South Korea’s deeply unpopu- prime minister, and Yi Xianliang, China’s with heavy debts to the Chinese govern- lar president, was impeached by parlia- ambassador, grinned forthe cameras, ment. The new government plans to ment last month. The constitutional court police beat backstone-throwing prot- grant a state-controlled Chinese firm has yet to rule on her permanent removal. esters with tear gas and water cannons. called CMPort an 80% stake in a 99-year But already presidential hopefuls are vy- The Chinese must not have any more lease ofthe port, for$1.2bn—a step it says ing for votes before an expected early elec- land in Hambantota, insists Mr Ananda. is necessary to defray some ofthe debt. It tion—and the main opposition party, The sweet-seller says he will not move also maintains that the industrial park whose likely candidate is in the lead, last will attract $5bn in investment and create year threatened to ditch the sex-slave deal. 100,000 jobs. South Korea’s acting president, Hwang The signing ofthe lease on the port Kyo-ahn, sensibly said this week that the has been postponed, however, after settlementshould be respected byall (34 of Arjuna Ranatunga, the ports and ship- the 46 surviving comfort women had giv- ping minister, complained to Maithripala en their approval). But he has scant politi- Sirisena, the current president, about cal capital. A professor at Seoul National some ofits clauses. One grants CMPort University who advises the foreign minis- control over internal security; another try says that no resolution will be found allows it to claim feesfornavigation. Mr until a new South Korean government is in Rajapaksa, who used to be the member place. South Korean diplomats are hob- ofparliament forHambantota and still bled by the lack of strong leadership; a wields considerable political influence, is meeting between the leaders of South Ko- railing “against giving the rights ofthe rea, Japan and China was postponed last landlord over the industrial zone to a month. Unlike Mr Abe, the besieged Ms foreign private company” and raising Parkwasunable to meetDonald Trump be- concerns about “control and sovereign- fore he takes office this month. ty”. That is the height ofhypocrisy—but it The strain on the ties between the two Sri Lankan water torture has clearly strucka nerve. neighbours is all the more alarming at a time when China is increasing pressure on South Korea. It is miffed about the planned appears to be accelerating. Some now be- cost of keeping some 28,500 American deployment this year on South Korean soil lieve it may manage to build a nuclear- troops stationed there (it currently pays of an American anti-missile system called tipped missile that can reach America dur- about 40% of the total), or he would with- THAAD (Terminal High-Altitude Area De- ing Mr Trump’spresidency. draw them; he also suggested that South fence). THAAD is intended to repel North Barack Obama, America’s outgoing Korea and Japan could develop their own Korean attacks, but China says it could be president, put a lot of effort into getting nuclear weapons instead of relying on used against it too. It appears to have South Korea and Japan to make up, in the America’s nuclear umbrella (he now de- blocked imports of South Korean cosmet- hope of balancing China’s rise and pre- nies having said that). ics, barred Korean dramas and pop stars senting a united front to North Korea. Yet, An American retrenchment, ifit materi- from its screens and turned down a recent on the campaign trail at least, Mr Trump alises, would add to the unease the two request by South Korean airlines for addi- has been a destabilising influence, says countries feel at China’s rise and North Ko- tional flights to China. Joint military events Scott Snyder of the Council on Foreign Re- rea’s belligerence. In such fraught times, re- have also been cancelled. Even more wor- lations, a think-tank. Mr Trump said South kindling historic wrangles looks uncom- ryingly, North Korea’s nuclear programme Korea should contribute more towards the monly unwise. 7 26 Asia The Economist January 14th 2017 Banyan Still just saying no

As drug policies soften in the West, Asia remains wedded to prohibition Singapore’sneighbours, Malaysia and Indonesia, also execute drug offenders. Indonesia’s previous president, Susilo Bambang Yudhoyono, reportedly disliked the death penalty, and imposed an unofficial moratorium on executions from 2008 to 2013. Joko Widodo, his successor, has no such qualms: since taking office in 2014 he has approved the execution of18 drug traffickers, and has pledged to show “no mercy” to anyone in the business. The Philippines ended capital punishment in 2006, but its new president, Rodrigo Duterte, has found a workaround: killing people without the bother of a trial. Since taking office six months ago, more than 6,200 suspected drug dealers or users have been killed in his anti-drug campaign. While his bloody drug war has drawn criticism from human-rights activists in the Philippines and abroad, it remains wildly popular among ordin- ary Filipinos. The ten-member Association of South-East Asian Nations is committed to eradicatingdruguse, processing and traf- ficking by 2020—an implausible goal, especially since the Golden Triangle, the region where Laos, Myanmar and Thailand meet, produces a hefty share ofthe world’s opium. Harsh penalties for drug offences are common across Asia. The sortsofalternativesnowfavoured in the West, such asdivert- OR the first few days,” explains Aki, a young man who ing addicts to effective treatment programmes instead of trying “Fhelps run a drug rehabilitation centre on the outskirts of them and saddlingthem with criminal records, are virtually non- Myitkyina, the capital of Kachin State, in northern Myanmar, existent. Several countries require drug offenders to enter reha- “some ofthem tryto run away. So we have to keep them like this.” bilitation programmes, but these are often like prison. Staff at re- A young man, naked except fora tattered pair ofshorts, lies prone hab centres in Vietnam have reportedly beaten inmates and on a filthy mattress, one leg locked in a wooden device resem- forced them to toil in the fields; guards in Cambodia have report- bling medieval stocks. He sweats and shakes, like many suffering edly raped female inmates. heroin withdrawal. Dozens ofother men mill around the clinic: a Asia’s harsh anti-drug policies are falling out of step with the dimly lit, mattress-lined, hangar-like building reeking of sweat rest of the world. Marijuana for recreational use is now legal in and foul breath. Beyond the back door is a much smaller, con- eightAmerican states; 28 have legalised itformedical use. Dozens crete-floored room with a wooden bath, a squattoiletand, nextto of countries have decriminalised marijuana consumption. Her- it, a tinypadlocked cell crammed with fourpainfullyskinny men: oin is available on prescription in several European countries. they, too, had tried to escape. The rich world increasingly treats addiction as an illness rather The men receive no medication; treatment consists solely of than a crime. herbal baths and Bible study (many Kachin are Baptist). For the These trends have Asia’s drug warriors worried. Last April the first15 days of their three-month stay, they receive no counselling UN General Assembly convened a special session on drugs. The because, as Aki explains: “They never tell the truth, because they previous time it did so, in 1998, it vowed to make the world drug- are addicts.” Aki’sboss, the Reverend HsawLangKawYe, takes an free by 2008. It later moved the target date back to 2019—the year equally dim view of his region’s many opium farmers: he is part by which Canada now wants to set up a legal market forcannabis ofa citizens’ group that cuts down theircrop. Asked ifhe provides for recreational use. At the UN meeting Mexico’s president, En- the farmers with any compensation, he scoffs: “We don’t give rique Peña Nieto, urged the world to “move beyond prohibition”. them anything. We just destroy opium fields.” Kasiviswanathan Shanmugam, Singapore’s fearsome law and This attitude is typical of drug policy in much of Asia: need- home-affairs minister, was unmoved: “Show us a model that lessly severe and probably ineffective. According to Harm Reduc- works better,” he told the general assembly, “that delivers a better tion International, a pressure group, at least 33 countries have outcome for citizens, and we will consider changing. If that can- capital punishment on the books for drug offences, but only sev- not be done, then don’t askus to change.” en are known to have executed drugdealerssince 2010. Five are in Mr Shanmugam has a point: in Singapore, drug consumption Asia (the other two are Iran and Saudi Arabia). is admirably low. But Singapore is small, with secure borders, lit- tle corruption, effective anti-drug education and laws that allow Offwith their heads warrantless searches and detention without trial. In poorer and In Singapore, capital punishment is mandatory for people caught less well-run countries the consequences of prohibition have with as little as 15 grams of pure heroin. The arrival cards foreign been depressingly predictable: prisons packed with low-level of- visitors must fill in at Singaporean immigration posts warn, in red fenders, corruption and thrivingblackmarkets. Demand remains block capitals: “DEATH FOR DRUG TRAFFICKERS UNDER SIN- strong: between 2008 and 2013 the amount of methamphet- GAPORE LAW”. Singapore may kill fewerpeople than it used to— amine seized in East Asia, South-East Asia and Oceania quadru- between 1994 and 1999 no country executed more people relative pled. Eventually, Asia may reach the same conclusion as much of to its population—but its executioners are not idle: less than two America, Europe and Latin America: that the costs of prohibition months ago a Nigerian and a Malaysian were hanged fortraffick- outweigh the benefits. But for now, asMr Duterte’s popularity at- ing cannabis and heroin respectively. tests, drug wars are good politics. 7 China The Economist January 14th 2017 27

Railways Also in this section The lure of speed 28 Is all that infrastructure worth it? 30 Protesting against police brutality

SUZHOU, ANHUI PROVINCE Bullet trains are reshaping China’s economy. Will even more ofthem help? HESE are fields of hope,” says Gu tentative verdict is possible. In the densest commutes. Now, each ofthese three mega- “TZhen’an, gesturing at a barren scene. parts of China, high-speed rail has been a cities is developing commuter corridors. A burly chain-smoker, he spent 25 years boon: it is helping to create a deeply con- Little wonder: house prices in satellite overseeing road-building crews in central nected economy. But further inland, risks towns and cities tend to be much cheaper. China. But three years ago, when he fin- are mounting ofexcessive investment. In Kunshan, for example, homes cost ished paving a highway to a new high- In China’s three big population cen- about 70% less than in nearby Shanghai. speed railway station in this quiet corner tres—the areas around Beijing in the north, But the bullet train between the two cities of Anhui province, he decided it was time Shanghai in the east and Guangzhou, the takes just 19 minutes and costs a mere 25 to switch industries. The land still looks capital of Guangdong province, in the yuan ($3.60). And Kunshan is just one of empty, served by first-rate infrastructure south—life and workhave started to follow many options for those seeking to escape but home to few people and fewer busi- the sinews of the high-speed rail system. Shanghai’s high costs. There are now nesses. Mr Gu, however, sees things differ- Trains were previously too infrequent, too about 75m people living within an hour of ently: he expects a city to sprout up around slow and too crowded to allow for daily the city by high-speed rail. 1 the train station. In anticipation, he has built an old-age home, with plans to ex- RUSSIA pand it into a complex for5,000 people. KAZAKHSTAN Hegang To appreciate the extent of China’s Hulun Buir high-speed rail ambitions, take Mr Gu’s dreams and multiply them many times MONGOLIA over. Less than a decade ago China had yet Urumqi to connect any of its cities by bullet train. Beijing N. KOREA Today, it has 20,000km (12,500 miles) of JAPAN high-speed rail lines, more than the rest of the world combined. It is planning to lay S. KOREA another 15,000km by 2025 (see map). Just Suzhou as astonishing is urban growth alongside (ANHUI) CHINA Nanjing the tracks. At regular intervals—almost Kunshan wherever there are stations, even if seem- Shanghai ingly in the middle ofnowhere—thickets of High-speed Xiaogan Suzhou newly built offices and residential blocks railways in China (JIANGSU) “Eight-by-eight” East rise from the ground. network BHUTAN INDIA China China’s planners hope these will be Operational Sea Planned like the railway towns that sprouted (at a Other important BANGLA- Kunming GUIZHOU PACIFIC slower pace) in America and Britain in the city/regionalDESH TAIWAN Operational OCEAN 19th century. In their rush to build, waste is Planned Hong Kong inevitable. The question is whether gains Sources: National MYANMAR Development and VIETNAM Guangzhou will outweigh losses. Five years after the Reform Commission; busiest bullet trains started running (the National Railway LAOS South China Administration THAI- PHILIPPINES Beijing-Shanghai line opened in 2011), a LAND Sea 750 km 28 China The Economist January 14th 2017

2 Surveys show that more than half of Shanghai says the government should passengers on the busiest lines are “gener- turn isolated stations into transportation ated traffic”—that is, people making trips hubs by adding new rail connections to that they would not have made before. other nearby places. That, though, would This is unquestionably good for the econ- be another big expense. omy. It means the trains are expanding the Dangers are all too visible in the city of pool oflabourand consumers around Chi- Suzhou in Anhui province (not to be con- na’s most productive cities, while pushing fused with the successful example of Su- investment and technology to poorer zhou in Jiangsu). Its station is 45km from ones. Xu Xiangshang, a dapper business- the city centre in the barren landscape man, oversees sales of apartments built where Mr Gu lives in hope. The govern- next to high-speed railway stations in less mentthoughtitwould sparkdevelopment. well-offparts ofAnhui. These are less than It paved eight-lane roads to serve a vast in- half an hour from Nanjing, a prosperous dustrial park on one side of the station. In- cityof8m thatisthe capital ofJiangsu prov- vestors built clothing, food and pharma- ince. “Bullet trains are becoming just like ceutical factories. But all are closed, except buses,” he says. for a paper mill. Undeterred, the govern- The economic benefits are hard to mea- ment is building a commercial district on sure precisely. Traditional analyses focus the other side ofthe station. on the financial performance of high- Xi makes the trains run on time Nearby, Mr Gu’s old-age home is off to a speed rail lines, plusindirectresults such as good start, with help from a local hospital. reduced road congestion (see next story). world’smostprofitable bullettrain, pulling Down the road there is a drab collection of But bullet trains are more than just a mode in 6.6bn yuan last year. But in less populat- stores, restaurants and houses. This was of transport. China wants to build a “high- ed areas, they are making big losses. A meant to be the kernel of the new railway speed rail economy”. Itisa twiston the the- state-run magazine said the line between town: people were resettled here to make ory of urban agglomeration—the idea that Guangzhou and the province of Guizhou way for the tracks. Two older residents say the bigger the city, the wealthier and more owes 3bn yuan per year in interest pay- they are sure that better days are just productive its people tend to be. The idea is ments—three times more than it makes around the corner. They have heard that to cap the size of mega-cities, but achieve from ticket sales. the government will move in 100,000 peo- the agglomeration effect with the help of Many had thought China would rein in ple from a part of western China plagued bullet trains. China reckons that the result- its ambitions after the fall of Liu Zhijun, a by landslides. Suzhou will provide the ing networkoflarge, but not oversize, cities railway minister who was once revered as new arrivals with a place to live and they, will be easier to manage. The World Bank, the father of the bullet-train system. In 2011 in turn, will provide the town with the for one, is optimistic. In a report published he was removed for corruption. Shortly population it needs to thrive. But it is im- in 2014 itsaid the benefitsofhigh-speed rail after, a high-speed rail crash caused by a possible to confirm the rumour—one more would be “very substantial”, potentially signalling failure killed 40 people. The article of hope in what China likes to call boosting the productivity of businesses in mighty railway ministry was disbanded its “high-speed rail dream”. 7 China’s coastal regions by10%. and folded into the transport ministry. Chi- na slowed its fastest trains down from a Not all are aboard world-beating 350kph to a safer 300kph. Infrastructure But might regular, reliable, fast-enough The bullet trains have run with few glitch- trains around big cities have been almost es since the tragic crash. Hunting white as good as high-speed rail, at a fraction of But the network expansion now under the price? The OECD, a rich-country think- way is even bolder than Mr Liu had envis- elephants tank, reckons it costs 90% more to build aged. China has a four-by-four grid at pre- lines for trains that reach 350kph than it sent: four big north-south and east-west HONG KONG does to lay ones that allow speeds of lines. Its new plan is to construct an eight- China’s mega-projects are less wasteful 250kph. For longer lines with more than by-eight grid by 2035. The ultimate goal is than you think 100m passengers a year and travel times of to have 45,000km of high-speed track. five hours orless—such as the one between Zhao Jian of Beijing Jiaotong University, HINA is proud of its infrastructure: its Beijing and Shanghai—the more expensive who has long criticised the high-speed C cavernous airports, snaking bridges, type may be justifiable. push, reckons that only 5,000km of this wide roads, speedy railways and great It is less so for journeys between com- will be in areas with enough people to jus- wall. This national backbone (minus the muter towns, during which trains only tify the cost. “With each new line, the wall) bears the weight of the world’s sec- briefly accelerate to top speeds. For longer losses will get bigger,” he says. ond-largest economy and its biggest hu- journeysservingsparse populations—a de- Making matters worse, China has often man migration, as hundreds of millions of scription that fits many ofthe lines in west- placed railway stations far from city cen- people move around the country during ern and northern China—high-speed rail is tres. Bigger cities should eventually grow the lunar new-year holidays—the rush offi- prohibitively expensive. around their stations, but suburban loca- cially begins on January13th. The overall bill is already high. China tions will not produce the same economic Western leaders often shake their Railway Corporation, the state-owned op- dividends as central locations. In smaller heads in disbelief at the sums China erator of the train system, has debts of cities, prospects are even bleaker. In Xiao- spends on its huge projects. And some an- more than 4trn yuan, equal to about 6% of gan in Hubei province, the station was alysts question how much of it has been GDP. Strains were evident last year when built 100km from the city. The decision to wisely spent. In a widely circulated study China Railway Materials, an equipment- base stations so far away reflects the reali- published last autumn, Atif Ansar of Ox- maker, was forced to restructure part of its ties of high-speed rail: for trains to run fast, ford University’s Saïd Business School and debts. Six lines have started to make oper- tracks need to be straight. But that limits his co-authors say the world’s “awe and ating profits (ie, not counting construction potential gains from lines as they traverse envy” is misplaced. More than half of Chi- costs), with the Beijing-Shanghai link the China. Wang Lan of Tongji University in na’s infrastructure projects have “de-1 30 China The Economist January 14th 2017

2 stroyed economic value”, they reckon. If the ratio is assumed to be 3, the propor- to being bullied by the police. Most victims Their verdict is based on 65 road and rail tion ofduds falls to just 8%. are poor and cannot fight back. Mr Lei, projects backed by the Asian Development The authors also assume that any traffic however, was well-educated and worked Bank (ADB) or the World Bank since the shortfall persists throughout its life. That is at a state-linked think-tank. mid-1980s. Thanks to the banks’ involve- notalwaysthe case. Trafficon Yuan-Mo, for Relatives challenged the official version ment, these projects are well documented. example, has rebounded, according to the of events. They said that his bloodied, One example is a 147-km, four-lane toll road’s operator. By 2015 it was 31% higher bruised body suggested he had suffered road in southern Yunnan province, which than the ADB projected back in 1999. something other than a heart attack. They was built with the help of an ADB loan ap- Around last year’s lunar new-year holiday insisted MrLei was goingto the airport, not proved in 1999. The ADB expected the the road handled record numbers. Some a brothel. A high-profile lawyer sought le- Yuanjiang-Mohei highway (Yuan-Mo for white elephants turn grey with age. 7 gal action against the five officers on behalf short) to cut travel times, reduce traffic acci- of the family. “We want our most basic dents and lower the costs of fuelling and rights to personal safety, civil rights and ur- repairing vehicles, adding up to a compel- Public opinion ban order,” former classmates of Mr Lei at ling economic return of 17.4% a year. By the prestigious Renmin University in Bei- 2004, however, traffic was 49% below pro- Once upon a crime jingwrote in a petition. They said his death jections and costs were more than 20% was “a tragedy arising from the system”. over budget, thanks to unforgiving terrain The government took its familiar steps prone to landslides. to quell the outcry. President Xi Jinping Were such setbacks enough to damn said the police should behave better, a BEIJING overhalfofthe projectstheyexamined? As commentthatPeople’s Daily, a Communist Public angerovera death in police a rule, the ADB and World Bank will ap- Party mouthpiece, directly linked to Mr custody refuses to subside prove an undertaking only if they expect Lei’s case. An autopsy in June corrected the its broad benefits (the economic gains from HE Chinese Communist Party has a cause of death to choking. The police in- reduced travel times, fewer accidents, etc) Tformula for responding to crises. In the volved were put under investigation. And to exceed its costs by a large margin, leav- Mao era itburied unpalatable news. That is censorship was stepped up: online search- ing ample room forerror. Mr Ansar and his harder to pull off when smartphones and es forMr Lei’s name were blocked. co-authors assume this margin is 40%: they social media provide a steady flow of reve- But anger grew again in December posit a ratio ofexpected benefits to costs of lations about schools built on toxic soil, when prosecutorsdropped chargesagainst 1.4 for every project. They scoured the tainted foodstuffs, poorly stored vaccines the police. They said “inappropriate pro- banks’ review documents for examples of and other scandals. Instead the govern- fessional conduct” by the officers had cost overruns and traffic shortfalls. Given ment tries to manage public sentiment. It caused his death, but the wrongdoing was these assumptions, a project becomes un- releases some information, raises ques- “minor” (Mr Lei, after all, had resisted ar- viable if costs overrun by more than 40%, tions and very often launches an investiga- rest). The family acquiesced, citing exhaus- traffic undershoots by 29%, orsome combi- tion. Later, a senior official makes a pro- tion and “great pressure”. Mr Lei’s remains nation of the two. Of the 65 projects, 55% nouncement on the issue and a few people were cremated on January 6th. fell into this category. Yuan-Mo was one. are fired. But in most cases almost nothing But the public continues to fume, circu- These projects may not be representa- is done to fix the underlying problem. So- lating petitions and online articles decry- tive of China’s infrastructure-building as a phisticated censorship prevents follow-up ing the verdict. The decision not to press whole. But there is little reason to think reports; public anger fades. charges was “extremely evil”, one micro- they are unusually bad. They are often One recent scandal, however, has re- bloggerwrote. Anothersaid thateven ifMr managed with greater rigour, thanks to the fused to die. Last May a 29-year-old envi- Lei had hired a prostitute, he would have involvement ofoutside lenders. ronmental scientist, Lei Yang, died in po- been rightto run awaybecause the penalty The authors’ conclusion, however, rests lice custody in Beijing. Officers said he had for such an offence was so high—“steal a on their assumption about the margin for a heart attack after being arrested for solic- dog and get your hand cut off,” as the au- error built into the projects they looked at. iting a prostitute. Chinese people are used thor put it. Mr Lei’s case was widely touted Take Yuan-Mo, for example. Its projected as evidence that the rule of law, which Mr benefits, over its first 20 years of operation, Xi says he wants, has yet to materialise. were several times greater than its costs. State media, however, have dismissed But as often with roads, the costs arrive ear- such complaints as sensationalism and ru- ly; the benefitsare spread thinlyover many mour-mongering. The clamour spooks the years. In the time it takes foran investment government, which is keen to keep the to pay off, the resources used could have middle class onside. Particularly chilling been earning a return elsewhere. So it is for the authorities is the involvement of necessary to reduce the future payoffs by graduates ofRenmin University, who have some annual percentage, known as a “dis- kept up their efforts to draw public atten- count rate”. The higherthis is, the lower the tion to the case. Thousands ofthem belong value placed today on tomorrow’s gains. to discussion groups on WeChat, a popular So a lot turns on what rate is chosen. For social-media service. The party has been historical reasons, the ADB adopts a high terrified of student-led movements since it one of 12%. At that rate, Yuan-Mo’s ratio of crushed pro-democracy protests in Tian- expected benefits to costs equals 1.5, anmen Square and elsewhere in 1989. It roughly in line with the authors’ assump- has now shut down many of these online tions. But at a gentler rate of 9%, the ratio conversations. In the days after the deci- improves to about 2. At a rate of 5.3% (more sion not to charge the officers, censorship in line with government borrowing costs) on Weibo, a microblogging site, rose to a the ratio rises to 3. With these higher mar- three-month high, according to Weibo- gins for error, many fewer elephants turn scope, which tracks such things. The white. At a ratio of 2, the share falls to 28%. party’s old habits die hard. 7 United States The Economist January 14th 2017 33

Also in this section 34 Spies and the presidency 35 Conflicts of interest 35 Last of the Shakers 36 Jeff Sessions, attorney-general 37 Obama’s monumental legacy 38 Lexington: How to use superpowers

For daily analysis and debate on America, visit Economist.com/unitedstates Economist.com/blogs/democracyinamerica

Donald Trump and his critics lieved Russia was behind the hacking—but, he added, “it could have been others also”. Where there’s brass Mr Trump has made his reputation by stirring conflict. It was his damn-your-eyes style, as much as any policy proposal, that chimed with the anti-establishment senti- ment of his keenest supporters. This was not only posturing; he appears to view life, WASHINGTON, DC whetherin business, politics ortrade nego- The president-elect against the muckrakers tiations, as a series of fights from which INE days before Donald Trump’sinau- separately online, he claimed that he was only the winner emerges with credit. His Nguration as the 45th president, it was too canny to misbehave, as had been lurid- victory, naturally, has not changed that. as if he was still fighting for election. In a ly alleged, in a foreign hotel room. “In Asked to justify his claim that Americans press conference on January 11th, his first those rooms, you have cameras in the are not bothered by his, highly irregular, re- for six months, Mr Trump was as thin- strangest places, cameras that are so small fusal to release his tax returns, despite poll- skinned, loose-lipped and scrappy as he with modern technology.” Anyway, he ing to suggest that they are bothered, Mr has ever been. He taunted his rivals and added, “I’m also very much a germa- Trump replied simply: “I won.” Beneath critics, real and suspected; he compared phobe.” Whether the allegations, which the bluster, however, he has offered hints America’s intelligence agencies to Ger- had been circulating among journalists, ofgreater pragmatism. many’s Nazi regime. He bragged contin- should have been attached to the intelli- For example, he maintains that he will ually (“Nobody has ever had crowds like gence briefing is hard to say. The agencies honourhissignature campaign promise, to Trump has had”), scrambling the fact- apparently considered the British source build a wall along America’s southern bor- checkers of media outlets, some of whom credible; though one or two of its milder der, and make Mexico carrythe cost. But he he also decried. He called CNN a pedlar of claims were swiftly disproved. suggests that will not be in terms of “pay- “fake news”. Mr Trump’s fans said they Mr Trump’s fulminating against CNN ment”. Perhaps he has in mind the pro- wanted a different kind of leader. America was part of a pattern. Journalists can ex- ceeds of another campaign promise, to is about to get one. pect to be lambasted by the next president levy a “major border tax on these compa- That Mr Trump seemed exercised was whenever their reports displease him. In nies that are leaving”. In the absence of fur- understandable. The previous day CNN re- the past few weeks, he has gone after ther details, Republican congressmen will ported that the agencies had attached a America’s spies, rubbishing the agencies’ hope this turns out to be less protectionist summary of some unsubstantiated allega- conclusion that Russian hackers worked to than it sounds. Some are lobbying Mr tions about the president-elect to an intelli- hurt Hillary Clinton’s chances and boost Trump’s team to consider a possible alter- gence briefing on Russian hacking, which his, during the election. He also ques- native arrangement to tariffs, known as they delivered to Barack Obama and him. tioned the spooks’ credibility: “These are borderadjustment, designed to incentivise Amongthe allegations, which were report- the same people who said Saddam Hus- exports. It would involve firms losing the edly furnished by a British intelligence sein had weapons ofmass destruction”. right to deduct the cost of imports from company working for opponents of Mr It never looked wise for Mr Trump to their taxable profits; at the same time, they Trump, were claims that the Russians held lambast proud institutions he will soon would no longer be taxed on foreign earn- compromising financial and personal in- preside over. The same could be said of his ings. Itispossible to imagine MrTrump ear- formation about him, and that members attacks on judges, generals and environ- marking Mexico-related revenues from of his campaign team had been in contact mental regulators. It is tempting to see border adjustment to pay for whatever with Russian officials. CNN’s leaked story as an early sign of the wall, or fence, he ended up building. Mr Trump denounced the claims. Un- backlash such attacks have invited. In his To the consternation of some Republi- able to refrain from addressing some of press conference, he was more concilia- can hardliners, he has also weighed in on their spicier details, which were published tory. He said for the first time that he be- their efforts to scrap Mr Obama’s health-1 34 United States The Economist January 14th 2017

2 care reform. As The Economist went to fact passed off fairly smoothly. Ahardliner eign-policyadvisershave received a six- to- press, Republicans in the Senate were ex- on criminal justice and immigration, eight-page daily brief(known as the PDB or pected to pass a budget plan that would al- dogged by historic allegations of racism, “the daily book of secrets”), now put to- low them to evade the filibuster and start Mr Sessions was treated pretty gently by gether by the director of national intelli- dismantling Obamacare. Mr Trump says his fellow senators. The putative next sec- gence’s office but drawing on all America’s he wants it repealed pronto. But to min- retaryofstate, RexTillerson, former bossof vast intelligence resources. According to imise the disruption this would cause, he Exxon Mobil, got tougher questions, espe- David Priess, a formerseniorCIA presiden- also says the reform must be replaced by cially over his former closeness to the Rus- tial brieferwho has written a history ofthe an alternative arrangement “essentially si- sian government. MrTillerson appeared to PDB, at its best it provides presidents with multaneously”. That is sensible, even if the struggle overExxon’spastlobbyingagainst unique insights into foreign leaders’ think- time-frame is unrealistic; neither Mr possible sanctions on Russia and when ing and emerging threats. Trump norhis party has settled on an alter- asked to condemn President Vladimir Pu- The only president who declined to re- native to Obamacare. The issue may prove tin as a war criminal. ceive the PDB was Richard Nixon, who be- to be the first test of the accommodation This was a reminder that concerns lieved (without any evidence) that the sup- Republican congressmen have made with about Mr Trump’s strange fondness for Mr posedly liberal-leaning CIA had sabotaged a leader few supported in the primary. Putin go beyond salacious, unverified alle- his 1960 election campaign by providing There was also potential for discord gations. It is not clear why the next presi- exaggerated estimates of a “missile gap” over the Senate confirmation hearings that dent seems reluctant to condemn Mr Pu- with the Soviet Union that Kennedy was took place this week for several of Mr tin’s excesses or fully accept the conclusion able to exploit. But unlike Mr Trump, after Trump’scabinet picks. One of the most ea- on Russian hacking reached by America’s eight years as vice-president Nixon was a gerly-awaited, for Senator Jeff Sessions, in own spy agencies. That is troubling. 7 genuine foreign-policyexpert. AsMrPriess points out, he also had the formidable Henry Kissinger as his NSA. Mr Trump has Intelligence agencies and the presidency already suggested that he will not want to see the PDB every day. Burn before reading General Michael Hayden, a former di- rector ofthe National Security Agency and George W. Bush’s last director of the CIA, says that intelligence briefers have the same challenge with any new president: “There’s the fact [intel] guy and the vision guy; one’s a pessimist, the other’s an opti- Donald Trump may dispense with intelligence that otherpresidents have relied on mist. The intel guy has to find a way to get HE meeting on January 6th between into the head of the president while not TDonald Trump and America’s four forgetting what got him into office.” How- mostseniorintelligence officialswas never ever, Mr Hayden admits that Mr Trump going to be easy. For months, Mr Trump represents that challenge in a particularly had poured scorn on the conclusion of extreme form. America’s intelligence agencies that Russia Mr Hayden wonders whether some- had launched a hacking operation aimed one who has so much confidence in his in- at subverting the presidential election. Mr stincts and doesn’t read much will take on Trump was even more miffed by the recent board what the spies are telling him. His allegation that the hacking had been in- advice for the new head of the CIA, Mike tended to secure his victory. Although no Pompeo, is that his people cannot allow view had been expressed by the intelli- this to affect their work. He believes that gence agencies as to whether the Kremlin’s the way to “break in” will be through the efforts had affected the outcome of the vice-president-elect, Mike Pence. The PDB election, Mr Trump suspected a ploy to un- will also go to Generals Jim Mattis at the dermine his legitimacy. Worse still, the Pentagon and John Kelly at Homeland Se- agency heads had also decided to apprise curity, both ofwhom know how to absorb Mr Trump of serious but unsubstantiated intelligence (he thinks the same should be allegations that Russia had compromising true ofRex Tillerson, the formerboss ofEx- material on the president-elect and on Rus- xon Mobil, who has been nominated to be sian contacts with his campaign team. secretary ofstate). Unhelpfully, Mr Trump’s choice of na- Circle of trust The intelligence agencies will do their tional security adviser (NSA), Lieutenant- best to adapt to a Trump presidency. But General Mike Flynn, was fired from his job gence agencies, particularly over Islamist the chances offinding a workable compro- as head of the Pentagon’s Defence Intelli- extremism, which he felt they were under- mise with the new president are not gence Agency (DIA) by one of the spy playing. He had a point, but in the two helped by the presence of Mr Flynn, who chiefs in the room, Lieutenant-General years after leaving the DIA his views have sees himself as a provocateur rather than James Clapper, the director of national in- become stridently Islamophobic. Another someone like Brent Scowcroft or Stephen telligence, and had entered into a losing hobby horse, not shared by many other in- Hadley (two NSAs under Republican presi- turf war with another, John Brennan, the telligence officers, is that Russia can be an dents) who viewed their job as making ev- directorofthe CIA. MrFlynn had been a re- ally in restraining Iran and fighting jiha- ery element of the foreign policy and na- spected intelligence officer, helping special dists. Given this history, MrFlynn is not the tional security machine hum on behalf of forces in Iraq and Afghanistan. But once person to ease his master’s suspicions of the president. As one person who knows picked by Mr Clapper to gee up the 16,000- America’s spooks. and used to admire Mr Flynn puts it: “You strong DIA bureaucracy, he struggled as a Since the time ofJohn F. Kennedy, presi- might not want him to be the one shooting manager and clashed with other intelli- dents and their closest defence and for- pool with this president.” 7 The Economist January 14th 2017 United States 35

Conflicts of interest Shakers Two out of four Not too shaken

SABBATHDAY LAKE, MAINE The death ofone ofthe last Shakers may not mean the community’s demise NEW YORK ’M GLAD I am a Shaker”, sang some MrTrump’s new plan to put his firm at 300 people in the chapel ofthe arms length doesn’t go farenough “I dwelling house ofthe last active Shaker HE president-elect’s press conference settlement in the world. They clapped Ton January 11th touched on fake news, and stamped their feet on the wooden the F-35 combat jet, beautiful military floors during the hymn’s chorus. “O bands, the incredible smallness of hidden Brethren Ain’t Ye Happy?” is an old Shak- cameras in hotel rooms, JackMa, a Chinese er song and one ofthe few “motion tycoon, the Miss Universe contest, a very, songs” still in the Shakers’ repertoire. But very, very amazing property developer in only two people in the packed chapel Dubai, and Rhona, his personal assistant, were actual Shakers. The rest had come among other things. Buried in there was to the Sabbathday Lake, a Shaker village also Donald Trump’sproposal to deal with about 25 miles from Portland, Maine, to a problem that could ruin his presidency: say goodbye to Sister Frances Carr (pic- the potential for conflicts of interest be- tured), the last lifelong Shaker, who died tween his business interests and his public on January 2nd. But since the two re- office. Unfortunately, Mr Trump’s new maining Shakers, Brother Arnold Hadd plan only gets halfmarks. and Sister June Carpenter, are aged 60 Under a quirk in American law the and 78 respectively, some wondered president is exempt from the normal rules aloud whether this was a prelude to a that police politicians’ conflicts. Mr funeral forthe entire sect. Trump’ssternest critics argue that the only At their height in the mid-19th century, Frances Carr, last in a long line remedy is forhim to sell the Trump Organi- Shakers numbered about 6,000, with 19 sation, a mediocre, medium-sized proper- settlements, mainly in New England, well-made simple furniture. Shakers ty firm whose commercial clout is exagger- New Yorkand Kentucky. An offshoot of dress plainly and might be mistaken for ated by both Mr Trump and his enemies. Quakers, the Shakers began in England in Amish, but they do not shun society. But that is both impractical and unfair. A the 1740s. Seeking religious freedom, they Since the sect’s earliest days, members full disposal or initial public offering of a left forthe colonies on the eve of the sold goods to outsiders and shared oxen portfolio worth some $4bn could take a American Revolution. Their rise coincid- and other equipment. They also like year or more. And it does not seem reason- ed with a religious fervour sweeping the technology: the Sabbathday Lake Shak- able that entrepreneurs involved in public frontier. Decades before emancipation ers are on Facebook. life should have to liquidate theirbusiness. and 150 years before women had the In Sabbathday Lake as in other former Instead, Mr Trump needs to show that he vote, Shakers practised social, gender and Shaker villages, Friends ofthe Shakers has put his firm at arms length. racial equality forall members. raise money to preserve archives and To be convincing there are four tests Shakers believe in the three “C’s”, buildings. Many Friends attend Sunday that any plan has to meet. First, MrTrump’s celibacy, communal living and confes- services, but few opt to join the faith. business interests need to be gathered into sion. They do not marry, so must rely on Presumably they will want to continue one holding company. At the moment the conversion to fill their ranks. Men and worshipping even after the last Shaker is Trump Disorganisation would be an accu- women live as brothers and sisters. Re- gone. In the meantime, the Shakers con- rate name for his activities, which sprawl cruits must give up their families, proper- tinue to lookforrecruits. Over the past 40 over about 500 legal entities, most of them ty and worldly ties. Stephen Stein, author years, a few dozen have joined, but only zombies and most held by him directly. of“The Shaker Experience in America” a handful stayed. A decade ago there was The proposal passes this first test: by Janu- compares them to a monastic group. In a fourth Shaker at Sabbathday Lake, but ary 20th, his lawyers promise, all his assets many ways theirs is an American creed. he left when he fell in love with a visiting will be folded into a single trust. Shakers value hard work, seeing labour journalist. More recently, a young man The second test is that the Trump Orga- as a form ofprayer. They strive for perfec- joined, but left after a year. The Shakers nisation should stop seeking out new in- tion, which earned them a reputation for pray for new movers. vestments and instead run its existing op- erations as cash cows and distribute any profits. Here the plan only gets half-marks. knowledge of what is happening and thus cians can run companies without raising Mr Trump has ruled out new foreign in- make conflicts less likely. It’s a silly argu- ethical problems. But MrTrump’stwo sons vestments. New deals at home will be sub- ment: Mr Trump is already intimately fa- were closely involved in his political cam- ject to “severe restrictions” and vetted by miliar with his own firm. Much better to paign and have established no separate ethics experts, but not banned. put everything out in the open. business identities or serious credentials Third, the business must be transparent Lastly, to be at arms length from the of their own. They aren’t independent of to the public. It should publish consolidat- presidency, the business would need to be him. So the plan fails the fourth test. ed accounts that reveal its operations and run byan independentboard and manage- Perhaps Mr Trump and his lawyers will finances in detail. Again, the plan scores ment. Under the proposals Mr Trump’s el- further improve the plan. If they don’t Mr only half marks, here. Mr Trump’slawyers dest sons, Donald junior and Eric, will run Trump may find that his presidency is say it will publish only simplified financial the firm, along with Allen Weisselberg, a dogged by allegations of corruption. They statements. Their logic is that this will pre- long-standing Trump executive. There are have until January 20th to come up with vent Mr Trump from having detailed circumstances in which relatives of politi- something a bit better. 7 36 United States The Economist January 14th 2017

Jeff Sessions approach could create a perception among police that there is “no oversight”, embold- Past and prologue ening miscreants and in turn heightening tensions between officers and minorities. A long career can be hard to assess de- finitively not only because norms evolve and memories fade, but since it is liable to be complex, even contradictory. On the ra- ATLANTA cially charged question of criminal justice, The nominee forattorney-general has some troubling ideas about justice for example, Mr Sessions’s record has OME were on the right side from the be- mission, as a young man at a segregated wrinkles. He pushed to reduce the dispari- Sginning. Other white southern gentle- school and then a Methodist college, he ty in punishments for crack and powder men of Jeff Sessions’s vintage—the incom- was no civil-rights hero; rather, as Mr Flynt cocaine offences. On the other hand, he re- ing attorney-general is 70—changed their puts it, he “moved with the culture”, in sisted reforms embraced by most Republi- views on race and society after moments which overt racism was declining. How to cans, cleaving to mandatory minimum of epiphany. Still others made crab-like ac- judge this history, and the statute of limita- sentences. His views on drugs are omi- commodations with reality, considering tions on old mistakes, might seem moot nously antiquated. “Good people don’t themselves free from prejudice on the debates—except, say Mr Sessions’s critics, smoke marijuana,” he said last year. groundsthattheyopposed itsviolent man- these episodes are connected to his latter- ifestations. Where Mr Sessions belongs on day policy views, together casting doubt Throw away the key this spectrum ofconscience was an implic- on his ability to do his new job fairly. At the committee he tweaked his prior it theme of his confirmation hearing this Take voting rights. He spoke this week stance on waterboarding, which he now week before the Senate Judiciary Commit- of upholding the “integrity of the electoral accepts is illegal. In the classic manner of tee. Given the powers ofhis new office, it is process,” again raising wildly overblown those who prefera small state except when more than an arcane question. fears of fraudulent voting and justifying they like it big, he had previously rebutted His career in public service began in voter-ID laws, some of which federal criticism of interrogation techniques, as Mobile, Alabama—as, in a sense, did Do- judges have found discriminatory. Under well as favouring broad powers of elec- nald Trump’s campaign, at an encourag- Barack Obama, the Department of Justice tronic surveillance. (Likewise he approves ingly big rally that Mr Sessions attended. has helped to bring complaints against of civil asset forfeiture, whereby property His long spell as a federal attorney there, such laws, in particular after the Supreme allegedly linked to crime can be seized.) At before a short one as the state’s attorney- Court neutralised the bit of the Voting least on immigration, the issue that general, also gave rise to allegations that Rights Act that required some states (in- brought him and Mr Trump together, he is derailed his nomination to a federal judge- cludingAlabama) to clearnew votingrules consistent. He has opposed reform, as well ship in 1986. Then the judiciary commit- in advance. Mr Sessions applauded that as executive actions that forestalled some tee—on which, as senator, he later sat— damaging judgment; how keenly he will deportations. Now, after his confirmation, heard accounts of racially insensitive com- defend voting rights is unclear. So is the he is set to oversee the immigration courts. ments, such as a disparaging reference to strength of his commitment to gay rights, Mr Sessions’s mantra was that the law the NAACP, a joke about the Ku Klux Klan given his opposition to extending various was sacrosanct even ifhe disagreed with it, and an accusation that he addressed a legal protections on the basis ofsexuality. as he does on issues such as abortion and black underling as “boy”. A crux then, re- Next, policing. The outgoing adminis- same-sex marriage. In that vein he repudi- visited this week, was a trial in 1985 in tration has investigated and enforced re- ated not only waterboarding but an out- which Mr Sessions oversaw the prosecu- form in police departments such as Fergu- right ban on Muslim immigration, another tion forvote-tampering ofthree civil-rights son, Missouri’s, which have forfeited the of the president-elect’s erstwhile notions. activists, one a former associate of Martin trust of their communities. Mr Sessions He also said he would recuse himselffrom Luther King, a case seen by some as a selec- has voiced scepticism about that process any decisions on investigating Hillary tive bid to intimidate black voters. and might curtail it; he worried this week Clinton. “This country does not punish its “Damnably false charges,” Mr Sessions that police officers have been “unfairly ma- political enemies,” he averred. Those who insisted. “I abhor the Klan,” he protested, ligned”. Inimai Chettiar of the Brennan think him a threat to America’s rights and invoking his role in the capital conviction Centre for Justice predicts that a hands-off freedoms may not be entirely reassured. 7 ofa Klansman fora murderin 1981. In a sub- mission to the committee he also highlight- ed caseshe pursued involvingvotingrights and school desegregation. (In a tetchy ex- change, Senator Al Franken quoted law- yers who say Mr Sessions exaggerated his part in some of those.) Old friends in Mo- bile, where he still lives, vouch for his fair- mindedness. Charles Hale, his pastor, has “never seen one iota of racial prejudice”, adding that Mr Sessions and his wife have “humble hearts” and modest tastes: “they live by their faith”. “I don’t believe any- thing they have accused him of,” says Billy Bedsole, in whose law practice Mr Ses- sions worked fortwo stints. Wayne Flynt, a historian, suggests Mr Sessions’s outlook on race should be judged less on contested remarks than by his actions, or lack of them. By his own ad- A change is going to come The Economist January 14th 2017 United States 37

The designations might not stick. A president has not rescinded a previous president’s monument designation since the Antiquities Act was introduced. An at- torney-general’s opinion from 1938 sug- gests doing so might be legally thorny. But no law clearly prohibits such an action. Mr Trump has vowed to reverse all of his pre- decessor’s executive orders on his first day in office; Jason Chaffetz and Rob Bishop, two of Utah’s congressmen, hope that in- cludes Mr Obama’s “midnight” monu- ment proclamations. The two collaborated on legislation last year that aimed to balance conservation and development in the Bears Ears area. (The bill failed to pass before Congress ad- journed for the winter holidays.) “The National parks president elected to do what the radical en- vironmentalists wanted him to do without An Ear-full taking into consideration economic devel- opment, energy development and all the things that should have been taken into consideration,” Mr Chaffetz complains. If Mr Trump does not reverse it, he and Mr BEARS EARS, UTAH, AND GOLD BUTTE, NEVADA Bishop plan to push for a legislative rever- Conservationists are delighted by President Obama’s two new monument sal. The transfer of federal lands to state designations. Conservatives are irate hands was included in the Republican TCHED into the sandstone of “Newspa- Party’s platform at last July’s convention. Eper Rock” in Gold Butte, Nevada—an Monumental Congressional rules passed on January area ofvividly coloured desert punctuated US, Net area of national monuments created 3rd, the first day of the House’s new ses- by Joshua trees and sublime rock forma- By president, top five, acres m* Obama sion, included a provision drawn up by Mr 2009-17 tions—are more than 650 depictions of tor- G.W. Bush Bishop that will make such transfers easier toises, feet and cradleboards chiselled by F.D. Carter Clinton 2001-09 by assuming they would have no impact Roosevelt 1977-81 1993- native Americans as long as 2,000 years 1933-45 2001 on the federal budget. ago. On December 28th, Barack Obama 56.0 218.8 553.5 Those who think the federal govern- designated Gold Butte as a national monu- 2.9 5.6 ment should remain in charge fear state ment, usingthe AntiquitiesActof1906. The Source: National Parks ownership would result in reduced public same day he also granted the same status Conservation Association access foractivities such as hiking, hunting *Includes marine areas and resizing of existing monuments to Bears Ears in south-eastern Utah. During and fishing, or that land would be flogged his eight years as president, Mr Obama has to private buyers. It is expensive and com- designated 553m acres as national monu- American tribes for whom the area is sa- plicated to manage; federal-land advocates ments—more than twice as much as any cred. The tribes have occupied the land for worry that states might acquire land only other president. centuries—many Navajos sought refuge to be forced to sell it to balance their bud- Gold Butte, where he set aside 300,000 there to avoid the guns of Kit Carson, an gets. A report by the Wilderness Society, an acres of Nevada desert, and Bears Ears, American soldier and frontiersman, and advocacy group, reveals that Idaho has where he protected 1.35m acres surround- forced relocation by federal government in sold 40% of its land since statehood. A poll ing twin buttes that jut upwards from the the 1860s. The area remains rich in stone by the Colorado College State of the Rock- landscape like ears from a bear’s head, are carvings and ruins of Navajo dwellings. ies Project suggests most westerners op- the final additions. The celebrations and “The way that we live is finally being ac- pose transferring control of public lands to uproar sparked by the new monument knowledged,” says Jonah Yellowman, a the states. designations are a proxy for a long-run- Navajo spiritual leader, at his home over- Mr Trump’s past statements and cabi- ning debate over federal land, which looking the buttes ofMonument Valley. net selections suggest that even if he sides makes up more than half the territory of Other Utahns are less excited. Tim with Mr Bishop when it comes to Bears the 13 states west ofTexas. During the 1970s Young, a pharmacist and the mayor of Ears, he might resist a push to give states and 1980s, Sagebrush Rebels, named after Monticello, a town of 2,000 that abuts control ofpublic lands. His pickfor interior the sagebrush steppe that covers much of Bears Ears, has adorned his pharmacy’s secretary, Ryan Zinke, stepped down from the rural West, fought for increased local windows with stickers that read “NO his position as a Republican convention control of public lands, if not the outright MONUMENT” inside the outline of a black delegate last year because he disagreed transfer of them to states. The fracking bear. He is not against a monument in gen- with the position on federal-land transfers. booms enjoyed by other states rich in eral but he says that the size—nearly twice In a conversation with Field & Stream mag- wide-open spaces have given fresh impe- that of Utah’s five national parks com- azine last January, Mr Trump said: “I don’t tus to those who dream that the desert bined—is a prime example of federal over- like the idea because I want to keep the West might be a gold mine, if only the feds reach. He has explored the area at length lands great, and you don’t know what the would get out ofthe way. on his dirt bike and says that while there state isgoingto do…Are theygoingto sell if The recognition of Bears Ears as a na- are certainly bits worthy of protection, they get into a little bit of trouble? And I tional monumentisparticularlycontrover- some ofthe new national monument land don’t think it’s something that should be sial. The most strident calls for its protec- is “just sand and rock”. He adds: “Whoever sold. We have to be great stewards of this tion came from a coalition of five native says otherwise hasn’t visited.” land. This is magnificent land.” 7 38 United States The Economist January 14th 2017 Lexington How to use superpowers

The incoming foreign-policy team has in mind a revolution in great-powerrelations American regional leadership and credibility, with China stand- ing to gain strategically and economically.” Jacob Sullivan, a close adviser to Mrs Clinton, cited the deal to curb Iran’s nuclear ambitions and the Paris agreement on climate change as examples of imperilled co-operation. Stephen Hadley, who held Ms Rice’s job under President George W. Bush, ex- pressed concerns that the American-led international order itself is “under assault”. He imagined a conversation in which Presi- dent Vladimir Putin of Russia and President Xi Jinping of China agree that America is a menace peddling hostile ideas of democ- racy from Ukraine to Hong Kong. Trump aides, by contrast, are impatient with talk of fragility and complexity. Though they worry about terrorism and rogue states with nukes, they also see a world in a thrillingly plastic state. It is anyone’s guess where Mr Trump’s foreign policies will end up—he shunned details on the campaign trail and has ap- pointed figures with clashingviews to some top jobs. But suppor- ters of Team Trump express confidence that curbing the menace of Iran, for instance, requires more pressure and sanctions, not concessions to strengthen pragmatists within the regime. They scoff at the idea that the natural environment is fragile enough to HE world is a mess,” observed Madeleine Albright this need a climate-change pact—and indeed hail cheap American oil “Tweek at a gathering of men and women who have, be- and gas as a source ofglobal leverage. tween them, witnessed every crisis to buffet American national As for nationalism and populism, they are not a menace: they security for40 years. That crisp summary by the formersecretary are howMrTrump won. Stephen Bannon, MrTrump’schiefstrat- of state prompted bipartisan agreement at a “Passing the Baton” egist, has told visitors to Trump Tower, with relish, that he thinks conference organised by the United States Institute of Peace an anti-establishment revolt will sweep the far right to power in (USIP) in Washington, DC, on January 9th and 10th. France and topple Chancellor Angela Merkel in Germany. Mr The meeting featured future leaders of Donald Trump’s na- Bannon would like America to unwind sanctions against Russia, tional security team, their predecessors from the Obama govern- imposed after the annexation of Crimea, in order to secure Rus- ment and—gamely emerging from post-election seclusion—folk sian help in constraining Iran, Islamic terrorism and even China. who would have filled some of the same posts under Hillary Clinton. However, once participants began to ponder the ways in Other people’s nationalists which the world is messy, agreement gave way to revealing divi- A retired general, Mike Flynn, chosen as Mr Trump’s national se- sions. On one side stood Republican and Democratic ex-ambas- curity adviser, spoke freely in 2016 about his hopes that Russia sadors, officials, generals and academics who do not cheer a and America could join forces against their“common enemy”, Is- world in disarray. They see the rise of iron-fisted nationalists in lamist extremism. Now, amid a furore about Russian meddling in China, Russia and Turkey, and fear that democracy’s post-cold- the American presidential election, as detailed in a report issued warmarch is over. They contemplate the fragility ofinternational by Mr Obama’s spy chiefs, Mr Flynn contented himself with dis- pacts, organisations and alliances and wonder if the rules-based creet hints that Mr Trump would “examine and potentially re- order founded by America after the second world war will sur- baseline our relationships around the globe”. vive. On the other stand leading members of Team Trump, who MrFlynn’sdeputyin the NSC will be K.T. McFarland, a veteran call today’s global turbulence an exciting chance to reshape inter- Republican hawk. She described a world where tectonic plates national relations to suit America. are moving, offering once-in-a-generation opportunities to exert The first group make the American-led, rules-based order leverage and realign policies. Where once Ronald Reagan pro- sound precious but brittle. Susan Rice, the national security ad- moted human rights in the Soviet Union, Ms McFarland chides viser to Barack Obama, called the global security landscape “as America for “constantly” telling other countries “how they unsettled as any in recent memory”. She listed some threats that should think”. She sees Mr Trump gaining global strength, above worry MrTrump asmuch as herboss, from North Korea’s nuclear all, from the breadth and intensity of his domestic support, after ambitions to attacks by transnational terrorist groups. But then he drew in voters who had tuned out ofpolitics. Such disaffected she ran through more divisive problems—areas of vulnerability citizens feel “back in the game”, she says. That makes their coun- which, in her telling, cry out for patient American attention. Ms try not just indispensable—the old claim made forAmerica byBill Rice would have America lead global action on climate change, Clinton—but “unstoppable”. and prop up a Europe thatfeelsbuffeted byrefugee flows from the Team Trump ismakinga beton assertive nationalism as a way Middle East, by the Brexit vote and by “Russian aggression”, in- ofimposingAmerica’s will on a world that can stand a bit ofarm- cluding deliberate campaigns by Russia to meddle in elections twisting. Peace through strength, they call it, reviving a Reagan- across the West. Ms Rice lamented her boss’s fruitless efforts to era slogan. But other countries have assertive populations, too. In ratify a trade pact with Asia-Pacific nations, the Trans-Pacific Part- the absence of clear global rules, Mr Trump may find himself pit- nership (TPP). “If we don’t define these rules of the road, others ting his populist mandate to “make America great again” against will,” she declared. “Failure to move forward on TPP is eroding Chinese nationalism, say. Could get messy. 7 The Americas The Economist January 14th 2017 41

Also in this section 42 Toronto’s transport snarl Bello is away

Mexico and the United States dency poses two main dangers. The first is that the United States will renounce Bracing for impact NAFTA, which it can do after six months’ notice, or simply shred it by putting up trade barriers. The second is that, as a way of forcing Mexico to pay for the wall, Mr Trump will carry out his threat to block re- PUEBLA mittances from immigrants in the United Dealing with the consequences ofDonald Trump States. These inject some $25bn a year into Mexico’s economy. HEN an asteroid hit Earth 66m years “taking advantage” of the United States. The president-elect’s other big anti- Wago, wiping out the dinosaurs and Mexicans can only wait and wonder how Mexican idea, to dump millions of illegal 75% of plant and animal species, it hurt he intends to act on that misguided notion. immigrants on Mexico’s northern border, Mexico first. Donald Trump’sinauguration The Trump presidency streaking to- is seen as a lesser threat. Under Barack isfarlessfrightening, butMexicans can talk ward Mexico is already causing problems. Obama, the United States deported some oflittle else. Inflation has started rising in response to 175,000 Mexicans a year; Mr Trump will Outside a massive Volkswagen (VW) the devaluation of the peso caused by his find ithard to increase thatnumber. Repub- factory in Puebla, two hours’ drive from election. The central bank raised interest lican plans to tax imports as part of a re- Mexico City, workers fret about Mr rates five times in 2016; it will probably form of corporate income tax would hit Trump’sthreats to whack big tariffs on cars have to continue tightening. After a sharp Mexico hard. The government sees that as made in Mexico. One American carmak- rise in public debt as a share of GDP over a problem to be addressed by the United er—Ford—cancelled plans to build a $1.6bn the past several years, the government States’ trading partners in concert, rather plant in San Luis Potosí, some five hours must curb spending. than by Mexico alone. farther north. It may have had other rea- Over the past few months economists sons fordoingso, but workers in Puebla are have lowered their forecasts for GDP It’s Donald. Duck! not reassured. growth in 2017, from an average of 2.3% to Mr Peña’s instinct is to act as ifMr Trump is “We’re frustrated,” says Ricardo Mén- 1.4%. On January 1st the government cut a more reasonable than he seems. He dez, an equipment repairman who works popular subsidy by raising petrol prices by showed his conciliatory side when he in- forone ofVW’ssuppliers. He had expected up to 20%. Six people died in the ensuing vited Mr Trump to Mexico City in August his employer to send him to work at the protests. during the election campaign. The ersatz new Ford plant. Between bites of spicy If Mr Trump declares economic war, summit, at which Mr Peña failed to tell Mr chicken taco, Santiago Nuñez, who works things could get much worse. The econ- Trump publicly that Mexico would not pay for another VW supplier, vows to boycott omy could stumble into recession, just as for his wall, so enraged Mexicans that Luis the American carmaker. Mexico is preparing for a presidential elec- Videgaray, the finance minister who had The anger and bewilderment in Puebla tion in 2018. MrTrump’spugilism increases suggested the meeting, was forced to quit. is felt across Mexico. Mr Trump’s promises the chances that Andrés Manuel López Now Mr Peña has brought him back, as for- to make Mexico pay for a border wall, de- Obrador, a left-wing populist, will win. He eign minister. But his tone has become port millions of illegal immigrants and rip would probably counter American protec- tougher. Mr Peña now rejects Mr Trump’s up the North American Free-Trade Agree- tionism with the sort of self-destructive attempts to influence investment “on the ment (NAFTA) were among the few consis- economic nationalism to which Mexico basis offear or threats”. tent policies in his largely substance-free has disastrously resorted in the past. Vital To some, the rehiring of Mr Videgaray election campaign. He has not lost his taste reformsofenergy, telecomsand education, lookslike a smartmove. He isthought to be for Mexico-bashing. In a press conference enacted under Mexico’s current president, friendly with Jared Kushner, Mr Trump’s on January 11th, his first since July, Mr Enrique Peña Nieto, might be reversed. son-in-law, who is to become an adviser in Trump repeated his claim that Mexico is Mexican officials thinkthe Trump presi- the White House (on trade, among other 1 42 The Americas The Economist January 14th 2017

2 things). Mr Trump himself praised Mr Vi- Transport in Toronto sure that could be construed as waging degaray after his sacking as a “brilliant fi- “war on the car”. The city council backed nance minister and wonderful man”. Laggard on the Mr Tory’s toll scheme on December 13th. But Mexicans regard him with disdain. He now awaits approval from Ontario, To- In turningto a memberofhisinnercircle to lake ronto’s province. manage Mexico’s relationship with the But history suggests that SmartTrack United States, Mr Peña missed a chance to and the toll could falter. Earlier schemes TORONTO hire someone with fresh ideas. Mr Videga- failed when provinces refused to pay for A mayor’s plans may run into ray “can have lunch at the White House”, them or newly elected city councils tossed roadblocks notes Shannon O’Neil of the Council on them out. In 1995 a new provincial govern- Foreign Relations in New York, but she EW cities these days have the cachet of ment abruptly stopped construction of a worries that his focus “will just be on the FToronto. It ranks high on lists of the subway line and filled in the hole. Kath- Oval Office”. To press its case that the Un- world’s most “liveable” cities (the Econo- leen Wynne, Ontario’s premier, may be re- ited States has more to gain from working mist Intelligence Unit, a sister company of luctant to approve a charge on drivers. She with Mexico than from walloping it, the The Economist, put it fourth last year). faces a tough re-election fight next year. government must talk to congressmen, Drake, a popular rapper, is an enthusiast Transport infrastructure is plagued by state politicians and business leaders. It for his home town. Lovers of diversity are three problems of governance. The first is should also mobilise the 35m people of attracted to Canada’s biggest metropolis. that the municipality of Toronto does not Mexican origin living in the United States. Yet native Torontonians who have moved have a party system. In the 45-member city Mexico thinks it has killer arguments away are strangely resistant to returning council the mayor is merely first among forbuilding on the partnership rather than home. John Tory, the city’s mayor, who equals. His proposals must muster a ma- destroying it. Some 5m American jobs de- tries to lure them back, says they give two jority from his council colleagues, each pend on trade with Mexico; when Mexico main reasons for saying no. The first is that fighting for the interests of his or her ward. ships goods north, 40% of their value the jobs are better in places like London Without party discipline, support for pro- comes from inputs bought from the United and Hong Kong. The second is that To- jects can expire with each election. States. Officials hope that the new admin- ronto’s public transport is much worse. The second problem is that responsibil- istration will optforthe fluffiestversions of Toronto’s subway system has changed ity for transit is shared among the city, the Trumpism. Instead of repealing NAFTA, little since 1966, the year an east-west line province and a provincial agency called perhaps Mr Trump will renegotiate it, in- was added to a U-shaped north-south Metrolinx, which runs commuter trains. corporating new standards for protecting track. In a ranking ofsubway systems in 46 They do not co-ordinate enough with one intellectual property and the environ- cities by the OECD, a club of mostly rich another, says Matti Siemiatycki of the Uni- ment. Another tactic under consideration countries, Toronto placed 43rd, with just versity of Toronto. Finally, there is the role is to boost imports from Mexico’s NAFTA 19km (12 miles) of track per square km of of the federal government, whose offers of partners. The thinking is that reducing territory in 2003. The situation has not im- money tempt cities to embark on silly pro- Mexico’s trade surplus with the United proved since then, while the population jects. Critics point to federal backing for a States, about $59bn last year, would give has grown. The last big extension of the proposed 6km subway extension that will Mr Trump a victory he could sell to his pro- network of buses, streetcars and surface cost C$3.2bn and have just one station. tectionist supporters. rail opened more than a decade ago. Mr Tory cannot solve these problems If conciliation fails, Mexico has few at- The city has been no more successful at himself. His ambition is more modest: a tractive options. In a trade war, it would building roads. Ambitious plans to build second term as mayor starting next year suffer horribly. Raising its own tariffs expressways into the city centre were can- that would allow him to see through would hurt its own consumers. Yet that celled or only partially realised, because SmartTrack and his proposed road toll. does not mean that Mexico is defenceless. they either went over budget or faced pub- That will not solve Toronto’s transport pro- In 2009 it imposed tariffs on nearly 100 lic opposition. Jane Jacobs, an urbanist, blems, but it might persuade ex-Toronto- American products, including strawber- and Marshall McLuhan, a media theorist, nians to give their city a second chance. 7 ries and Christmas trees, after the United led a protest against the Spadina Express- States barred Mexican lorries from its way, which was cancelled in 1971. The re- roads to protect the jobs of American driv- sult is more traffic jams. According to the ers. That got the attention ofAmerican pol- TomTom traffic index, Toronto was among iticians: the pro-trade lobby prevailed. the ten most congested cities in North Mexican analysts are thinking about America in 2015. how the country might fight the next skir- Mr Tory is the latest in a long line of mish. Maize, grown mainly in states that mayors who has promised to get the city voted forMr Trump, will be a tempting tar- moving again. His plan, dubbed Smart- get. The United States sold about $2.5bn- Track, calls forbuilding a new light-rail line worth to Mexico in 2016. Faced with the (modelled on London’s Crossrail) and add- loss of their biggest market, American ing six stations to existing commuter rail maize farmers might press the White lines. He wants to help pay for that (and House to relent. On January 6th 16 Ameri- other transport projects) by charging tolls can farming groups warned in a letter to on two highways that funnel traffic down- Mr Trump and Mike Pence, the vice-presi- town. That would raise C$200m ($152m) a dent-elect, that disruptingtrade with Mexi- year. The federal and provincial govern- co and other countries would have “devas- ments would put up most ofthe money. tating consequences” for farmers, who are The toll proposal is bold. Earlier mayors already suffering from low prices. have refused to put forward plans to fi- For now, Mexicans are praying that Mr nance transport schemes. None has dared Trump will prove more temperate in office take on suburban car owners so directly. than during his meteoric rise. There is little Rob Ford, a crack-smoking mayor who evidence that will happen. 7 died in 2016, was a fierce foe of any mea- Joining an underground movement SPECIAL REPORT LIFELONG EDUCATION January 14th 2017

Learning and earning SPECIAL REPORT LIFELONG EDUCATION

Learning and earning

Technological change demands stronger and more continuous connections between education and employment, says Andrew Palmer. The faint outlines of such a system are now emerging THE RECEPTION AREA contains a segment of a decommissioned Un- CONTENTS derground train carriage, where visitors wait to be collected. The surfaces are wood and glass. In each room the talk is of code, web development 5 The role of employers and data science. At first sight the London office of General Assembly Cognition switch looks like that of any other tech startup. But there is one big difference: whereas most firms use technology to sell their products online, General 6 The ageing brain Old dog, new tricks Assembly uses the physical world to teach technology. Its office is also a campus. The rooms are full of students learning and practising code, 8 Upstarts and incumbents many of whom have quit their jobs to come here. Full-time participants The return of the MOOC ACKNOWLEDGMENTS have paid between £8,000 and £10,000 ($9,900-12,400) to learn the lin- gua franca ofthe digital economy in a programme lasting10-12 weeks. 12 Career planning Apart from those mentioned in Pathway dependency the text, thanks for their help in General Assembly, with campuses in 20 cities from Seattle to Syd- preparing this report are due to: ney, has an alumni body of around 35,000 graduates. Most of those who 13 Low-skilled workers David Autor, Bill Blase, Anna enroll for full-time courses expect them to lead to new careers. The com- The elephant in the truck Breman, Brian Callaghan, Tom Davenport, Shernaz Daver, Rasmus pany’s curriculum is based on conversations with employers about the Enemark, Karen Evans, Charles skills they are critically short of. It holds “meet and hire” events where Fadel, Jose Ferreira, Jonathan firms can see the coding work done by its students. Career advisers help Finkelstein, Alison Fuller, Art students with their presentation and interview techniques. General As- Graesser, Guy Halfteck, Kathleen Hogan, Peter Horrocks, Denis sembly measures its success by how many ofits graduates get a paid, per- Hurley, Jerry Kaplan, Ewart Keep, manent, full-time job in their desired field. Ofits 2014-15 crop, three-quar- Nathan Kuncel, Rose Luckin, ters used the firm’s career-advisory services, and 99% ofthose were hired Christian Lyhne Ibsen, Robert within 180 days ofbeginning their job hunt. Lyngman, Michael Moe, Mona Mourshed, Liz Rees, Laurent The company’s founder, Jake Schwartz, was inspired to start the Reich, Bart Rienties, Sanjay companybytwo personal experiences: a spell ofdriftingafter he realised Sarma, Stefano Scarpetta, David that his degree from Yale conferred no practical skills, and a two-year Schejbal, Nicole Smith, Mitchell MBA that he felt had cost too much time and money: “I wanted to change Stevens, Andrew Tolmie, Anders Vind, David Willetts, Dan Willing- the return-on-investment equation in education by bringing down the A list of sources is at ham and Jonathan Zimmerman. costs and providing the skills that employers were desperate for.” 1 Economist.com/specialreports

The Economist January 14th 2017 3 SPECIAL REPORT LIFELONG EDUCATION

This analysis buttresses the view that technology is already Brain drain playing havoc with employment. Skilled and unskilled workers US, average cognitive intensity of tasks done by employed college graduates alike are in trouble. Those with a better education are still more 1990=100 likely to find work, but there is now a fair chance that it will be 103 unenjoyable. Those who never made it to college face being squeezed out ofthe workforce altogether. This is the argument of 102 the techno-pessimists, exemplified by the projections of Carl-Be- nedikt Frey and Michael Osborne, of Oxford University, who in 101 2013 famously calculated that 47% ofexisting jobs in America are 100 susceptible to automation. There is another, less apocalyptic possibility. James Bessen, 99 an economist at Boston University, has worked out the effects of automation on specific professions and finds that since 1980 em- 98 1980 85 90 95 2000 05 1011 ployment has been growing faster in occupations that use com- Source: “The Great Reversal in the Demand for Skill and Cognitive Tasks”, puters than in those that do not. That is because automation by P. Beaudry, D. Green & B. Sand, NBER Working Paper 18901 tends to affect tasks within an occupation rather than wiping out jobs in theirentirety. Partial automation can actually increase de- mand by reducing costs: despite the introduction of the barcode 2 In rich countries the linkbetween learning and earning has scanner in supermarkets and the ATM in banks, forexample, the tended to follow a simple rule: get as much formal education as number ofcashiers and banktellers has grown. you can early in life, and reap corresponding rewards for the rest But even though technology may not destroy jobs in aggre- ofyourcareer. The literature suggeststhateach additional yearof gate, it does force change upon many people. Between 1996 and schooling is associated with an 8-13% rise in hourly earnings. In 2015 the share of the American workforce employed in routine the period since the financial crisis, the costs of leaving school office jobs declined from 25.5% to 21%, eliminating 7m jobs. Ac- early have become even clearer. In America, the unemployment cording to research by Pascual Restrepo of the Massachusetts In- rate steadily drops as you go up the educational ladder. stitute of Technology (MIT), the 2007-08 financial crisis made Many believe that technological change only strengthens things worse: between 2007 and 2015 job openings for unskilled the case for more formal education. Jobs made up of routine routine worksuffered a 55% decline relative to other jobs. tasks that are easy to automate or offshore have been in decline. In many occupations it has become essential to acquire The usual flipside of that observation is that the number of jobs new skills as established ones become obsolete. Burning Glass requiring greater cognitive skill has been growing. The labour Technologies, a Boston-based startup that analyses labour mar- market is forking, and those with college degrees will naturally kets by scraping data from online job advertisements, finds that shift into the lane that leads to higher-paying jobs. the biggest demand is for new combinations of skills—what its The reality seems to be more complex. The returns to edu- boss, Matt Sigelman, calls “hybrid jobs”. Coding skills, for exam- cation, even for the high-skilled, have become less clear-cut. Be- ple, are now being required well beyond the technology sector. tween 1982 and 2001 the average wages earned by American In America, 49% of postings in the quartile of occupations with workers with a bachelor’s degree rose by 31%, whereas those of the highest pay are for jobs that frequently ask for coding skills high-school graduates did not budge, according to the New York (see chart). The composition ofnew jobs is also changing rapidly. Federal Reserve. Butin the following12 yearsthe wagesofcollege Over the past five years, demand for data analysts has grown by graduates fell by more than those of their less educated peers. 372%; within that segment, demand for data-visualisation skills Meanwhile, tuition costs at universities have been rising. has shot up by 2,574%. Acollege degree at the start ofa workingcareerdoes not an- A question of degree, and then some swer the need for the continuous acquisition of new skills, espe- The decision to go to college still makes sense for most, but ciallyascareerspansare lengthening. Vocational training isgood the idea of a mechanistic relationship between education and at giving people job-specific skills, but those, too, will need to be wages has taken a knock. A recent survey conducted by the Pew updated over and over again during a career lasting decades. Research Centre showed that a mere 16% ofAmericans thinkthat “Germany is often lauded for its apprenticeships, but the econ- a four-year degree course prepares students very well for a high- omy has failed to adapt to the knowledge economy,” says An- paying job in the modern economy. Some ofthis may be a cycli- dreas Schleicher, head of the education directorate of the OECD, cal effectofthe financial crisis and its economic aftermath. Some a club of mostly rich countries. “Vocational training has a role, of it may be simply a matter of supply: as more people hold col- buttrainingsomeone earlyto do one thingall theirlives isnotthe lege degrees, the associated premium goes down. But technol- answer to lifelong learning.” 1 ogy also seems to be complicating the picture. A paper published in 2013 by a trio of Canadian econo- mists, Paul Beaudry, David Green and Benjamin Sand, questions optimistic assumptions about demand for non-routine work. In Code to riches the two decades prior to 2000, demand for cognitive skills US, % of online job postings requiring coding skills, by income quartile, 2015 soared as the basic infrastructure of the IT age (computers, serv- 020406080100 ers, base stations and fibre-optic cables) was being built; now Top Frequent requirement No requirement that the technology is largely in place, this demand has waned, say the authors. They show that since 2000 the share ofemploy- Third ment accounted forby high-skilled jobs in America has been fall- Second ing. As a result, college-educated workers are taking on jobs that are cognitively less demanding (see chart), displacing less edu- Bottom cated workers. Source: Burning Glass Technologies

4 The Economist January 14th 2017 2 Such specific expertise is meant to be acquired on the job, but employers seem to have become less willing to invest in trainingtheirworkforces. In its2015 EconomicReportofthe Presi- dent, America’s Council of Economic Advisers found that the share of the country’s workers receiving either paid-for or on- the-job training had fallen steadily between 1996 and 2008. In Britain the average amount of training received by workers al- most halved between 1997 and 2009, to just 0.69 hours a week. Perhaps employers themselves are not sure what kind of expertise they need. But it could also be that training budgets are particularly vulnerable to cuts when the pressure is on. Changes in labour-market patterns may play a part too: companies now have a broader range of options for getting the job done, from automation and offshoring to using self-employed workers and crowdsourcing. “Organisations have moved from creating talent to consuming work,” says Jonas Prising, the boss of Manpower, an employment consultancy. Add all of this up, and it becomes clear that times have got tougher for workers of all kinds. A college degree is still a prere- quisite for many jobs, but employers often do not trust it enough to hire workers just on the strength of that, without experience. In many occupations workers on company payrolls face the prospectthattheirexistingskillswill become obsolete, yetitis of- ten not obvious how they can gain new ones. “It is now reason- able to ask a marketing professional to be able to develop algo- rithms,” says Mr Sigelman, “but a linear career in marketing doesn’t offeran opportunity to acquire those skills.” And a grow- ing number ofpeople are self-employed. In America the share of The role of employers temporary workers, contractors and freelancers in the workforce rose from 10.1% in 2005 to 15.8% in 2015. Cognition switch Reboot camp The answer seems obvious. To remain competitive, and to give low- and high-skilled workers alike the best chance of suc- cess, economies need to offertraining and career-focused educa- tion throughout people’s working lives. This special report will Companies are embracing learning as a core skill chart some of the efforts being made to connect education and employment in new ways, both by smoothing entry into the la- A STRANGE-LOOKING SMALL room full of vintage furni- bourforce and by enablingpeople to learn newskillsthroughout ture—an armchair, a chest of drawers, a table—was being their careers. Many of these initiatives are still embryonic, but built in the middle ofInfosys’s Palo Alto offices when your corre- they offer a glimpse into the future and a guide to the problems spondent visited in November. Tweed jackets hung from a raised by lifelong reskilling. clothes rack; a piano was due to be delivered shortly. The struc- Quite a lot is already happeningon the ground. General As- ture was rough and unfinished. And that, accordingto Sanjay Ra- sembly, for example, is just one ofa numberofcoding-bootcamp jagopalan, was largely the point. providers. Massive open online courses (MOOCs) offered by Mr Rajagopalan is head ofresearch and design at the Indian companies such as Coursera and Udacity, feted at the start ofthis business-services firm. He is a disciple of “design thinking”, a decade and then dismissed as hype within a couple of years, problem-solving methodology rooted in observation ofsuccess- have embraced new employment-focused business models. ful innovators. His goal is an ambitious one: to turn a firm that LinkedIn, a professional-networking site, bought an online train- built a global offshoring business by following client specifica- ingbusiness, Lynda, in 2015 and isnowofferingcoursesthrough a tions into one that can set the terms ofits projects for itself. service called LinkedIn Learning. Pluralsight has a library of on- Design thinking emphasises action over planning and en- demand training videos and a valuation in unicorn territory. courages its followers to lookat problems through the eyes ofthe Amazon’s cloud-computing division also has an education arm. people affected. Around 100,000 Infosys employees have gone Universities are embracing online and modular learning through a series ofworkshops on it. The first such workshop sets more vigorously. Places like Singapore are investing heavily in the participants a task: for example, to improve the experience of providing their citizens with learning credits that they can draw digital photography. That involves moving from the idea ofmak- on throughout their working lives. Individuals, too, increasingly ing a better camera to considering why people value photo- seem to accept the need for continuous rebooting. According to graphsin the firstplace, asa wayofcapturingmemories. Asideas the Pew survey, 54% ofall working Americans think it will be es- flow, people taking part in the workshops immediately start pro- sential to develop new skills throughout their working lives; ducing prototypes with simple materials like cardboard and pa- among adults under 30 the number goes up to 61%. Another sur- per. “The tendency is to plan at length before building,” says Mr vey, conducted byManpowerin 2016, found that93% ofmillenni- Rajagopalan. “Our approach is to build, build, build, test and als were willing to spend their own money on further training. then plan.” Meanwhile, employers are putting increasing emphasis on That baffling structure in Palo Alto was another teaching learning as a skill in its own right. 7 tool. MrRajagopalan had charged a small team with reimagining 1

The Economist January 14th 2017 5 SPECIAL REPORT LIFELONG EDUCATION

2 the digital retail experience. Instead of coming up with yet another e-commerce Old dogs, new tricks site, they were experimenting with tech- nologies to liven up a physical space. (If a weary shopper sat in the chair, say, a pot As people age, the brain changes in both good ways and bad of tea on an adjacent table would auto- matically brew up.) The construction of IF YOU ARE over 20, look away now. Your hypothesis, but a range of tentative explana- the shop prototype in Infosys’s offices cognitive performance is probably already on tions has been put forward. One points the was being documented so that employ- the wane. The speed with which people can finger at myelin, a white, fatty substance that ees could see design thinking in action. process information declines at a steady rate coats axons, the tendrils that carry signals Infosys is grappling with a vital from as early as their 20s. from one neuron to another. Steady reduc- question: what do people need to be A common test of processing speed is tions in myelin as people age may be slowing good at to succeed in theirwork? Whatev- the “digit symbol substitution test”, in which down these connections. Another possibility, er the job, the answer is always going to a range of symbols are paired with a set of says Timothy Salthouse, director of the involve some technical and specific skills, numbers in a code. Participants are shown the Cognitive Ageing Laboratory at the University based on knowledge and experience of a code, given a row of symbols and then asked of Virginia, is depletion of a chemical called particular industry. But with design to write down the corresponding number in dopamine, receptor sites for which decline in thinking, Infosys is focusing on “founda- the box below within a set period. There is number with advancing age. tional skills” like creativity, problem-solv- nothing cognitively challenging about the Fortunately, there is some good news to ing and empathy. When machines can task; levels of education make no difference go with the bad. Psychologists distinguish put humans to shame in performing the to performance. But age does. Speed consis- between “fluid intelligence”, which is the routine job-specific tasks that Infosys tently declines as people get older. ability to solve new problems, and “crystal- once took offshore, it makes sense to Why this should be is still a matter of lised intelligence”, which roughly equates to think about the skills that computers find an individual’s stock of accumulated know- harder to learn. ledge. These reserves of knowledge continue David Deming of Harvard Universi- to increase with age: people’s performance ty has shown that the labour market is al- on vocabulary and general-knowledge tests ready rewarding people in occupations keeps improving into their 70s. And experi- that require social skills. Since 1980 ence can often compensate for cognitive growth in employment and pay has been decline. In an old but instructive study of fastest in professions across the income typists ranging in age from 19 to 72, older scale that put a high premium on social workers typed just as fast as younger ones, skills (see chart, next page). even though their tapping speed was slower. Social skills are important for a They achieved this by looking further ahead wide range of jobs, not just for health- in the text, which allowed them to keep going care workers, therapists and others who more smoothly. are close to their customers. Mr Deming What does all this mean for a lifetime of thinks their main value lies in the rela- continuous learning? It is encouraging so tionship between colleagues: people long as people are learning new tricks in who can divide up tasks quickly and ef- familiar fields. “If learning can be assimilated fectively between them form more pro- into an existing knowledge base, advantage ductive teams. If work in future will in- tilts to the old,” says Mr Salthouse. But creasingly be done by contractors and moving older workers into an entirely new freelancers, thatcapacity forco-operation area of knowledge is less likely to go well. will become even more important. Even geeks have to learn these skills. Ryan Ros- lansky, who oversees LinkedIn’s push into online education, notes that many software engineers are clude Pratt & Whitney, a maker of aircraft engines, and Otis, a lift taking management and communications courses on the site in manufacturer. Since 1996 UTC has been running a programme order to round themselves out. under which its employees can take part-time degrees and have tuition fees of up to $12,000 a year paid for them, no strings at- Building a better learner tached. Employers often balkat training staffbecause they might Another skill that increasingly matters in finding and keep- leave for rivals, taking their expensively gained skills with them. ing a job is the ability to keep learning. When technology is But Gail Jackson, the firm’s vice-president of human resources, changing in unpredictable ways, and jobs are hybridising, hu- takes a different view. “We want people who are intellectually mans need to be able to pickup new skills. At Infosys, Mr Rajago- curious,” she says. “It is better to train and have them leave than palan emphasises “learning velocity”—the process ofgoing from not to train and have them stay.” a question to a good idea in a matter of days or weeks. Eric Such attitudes are becoming more common. When Satya Schmidt, now executive chairman of Alphabet, a tech holding Nadella took over as boss of Microsoft in 2014, he drew on the company in which Google is the biggest component, has talked workofCarol Dweck, a psychologyprofessoratStanford Univer- ofGoogle’s recruitment focus on “learning animals”. MarkZuck- sity, to push the firm’s culture in a new direction. Ms Dweck di- erberg, one of Facebook’s founders, sets himself new personal vides students into two camps: those who thinkthat ability is in- learning goals each year. nate and fixed (dampening motivation to learn) and those who An emphasis on learning has long been a hallmark of Un- believe that abilities can be improved through learning. This ited Technologies (UTC), a conglomerate whose businesses in- “growth mindset” is what the firm is trying to encourage. It has 1

6 The Economist January 14th 2017 SPECIAL REPORT LIFELONG EDUCATION

customers in the order in which they arrive in the game, for ex- Getting along and getting on ample, might serve as an indicator of integrity. Intellectual curi- US, change in employment share by skills required, 1980=100 osity is one ofthe traits that Knacktests for. The second question is whetherit is possible to train people 108 to learn. Imaging techniques are helping unlock what goes on in the mind of someone who is curious. In a study published in High maths, high social skills 104 2014 in Neuron, a neuroscience journal, participants were first asked to rate their curiosity to learn the answers to various ques- Low maths, high social skills tions. Laterthey were shown answers to those questions, as well 100 as a picture of a stranger’s face; finally, they were tested on their High maths, low social skills recall of the answers and given a face-recognition test. Greater curiosity led to better retention on both tests; brain scans 96 showed increased activity in the mesolimbic dopamine system, Low maths, low social skills a reward pathway, and in the hippocampus, a region that matters 94 forforming new memories. 1980 90 2000 06 12 It is too early to know whether traits such as curiosity can Source: “The Growing Importance of Social Skills in the Labor Market”, by David Deming, Aug 2016 be taught. But it is becoming easier to turn individuals into more effective learners by making them more aware of their own thought processes. Hypotheses about what works in education 2 amended its performance-review criteria to include an appraisal and learning have become easier to test because ofthe rise ofon- of how employees have learned from others and then applied line learning. MIT has launched an initiative to conduct interdis- that knowledge. It has also set up an internal portal that inte- ciplinary research into the mechanics of learning and to apply grates Lynda, the training provider bought by LinkedIn (which the conclusions to its own teaching, both online and offline. It Microsoft itselfis now buying). uses its own online platforms, including a MOOC co-founded AT&T, a telecoms and media firm with around 300,000 with Harvard University called edX, to test ideas. When MOOC employees, faces two big workforce problems: rapidly changing participants were required to write down their plans for under- skills requirements in an era of big data and cloud computing, taking a course, for example, they were 29% more likely to com- and constant employee churn that leaves the company having to plete the course than a control group who did not have to do so. fill 50,000 jobs a year. Recruiting from outside is difficult, expen- Information about effective learning strategies can be per- sive and liable to cause ill-feeling among existing staff. The firm’s sonalised, too. The Open University, a British distance-learning answer is an ambitious plan to reskill its own people. institution, already uses dashboards to monitor individual stu- Employees each have a career profile that they maintain dents’ online behaviour and performance. Knewton, whose themselves, which contains a record of their skills and training. platform captures data on 10m current American students, rec- They also have access to a database called “career intelligence”, ommends personalised content to them. Helping people to be which shows them the jobs on offer within the company, what more aware of their own thought processes when they learn skills they require and how much demand there is for them. The makes it more likely they can acquire new skills later in life. 7 firm hasdeveloped shortcoursescalled nanodegreeswith Udac- ity, the MOOC provider, and is also working with universities on developing course curriculums. Employees work in their own Upstarts and incumbents time to build theirskills. ButAT&T appliesboth carrotand stick to encourage them, bywayofgeneroushelp with tuition fees (total- ling $30m in 2015) for those who take courses and negative ap- The return of the MOOC praisal ratings forthose who show no interest. As continued learning becomes a corporate priority, two questions arise. First, is it possible for firms to screen candidates and employees on the basis of curiosity, or what psychologists call “need for cognition”? Getting through university is one very Alternative providers of education must solve the rough proxy for this sort of foundational skill, which helps ex- plain why so many employers stipulate degrees for jobs which problems of cost and credentials on the face ofit do not require them. THE HYPE OVER MOOCs peaked in 2012. Salman Khan, an investment analyst who had begun teaching bite-sized les- Curiouser and curiouser sons to his cousin in New Orleans over the internet and turned More data-driven approaches are also being tried. Man- that activity into a wildly popular educational resource called power, a human-resources consultancy, is currently running the Khan Academy, was splashed on the cover of Forbes. Sebas- trials on an app that will score individuals on their “learn- tian Thrun, the founder of another MOOC called Udacity, pre- ability”. Knack, a startup, offers a series of apps that are, in effect, dicted in an interview in Wired magazine that within 50 years gamified psychological tests. In Dashi Dash, for example, partici- the numberofuniversitieswould collapse to justten worldwide. pants play the part of waiters and are asked to take the orders of The New York Times declared it the year ofthe MOOC. customers on the basis of (often hard to read) expressions. As The sheer numbers ofpeople flocking to some ofthe initial more and more customers arrive, the job of managing the work- courses seemed to suggest that an entirely new model of open- flow gets tougher. Every decision and every minute change in access, free university education was within reach. Now MOOC strategy is captured as a data point and sent to the cloud, where sceptics are more numerous than believers. Although lots of machine-learning algorithms analyse players’ aptitudes against people still sign up, drop-out rates are sky-high. a reference population of 25,000 people. An ability to read ex- Nonetheless, the MOOCs are on to something. Education, pressions wins points for empathy; a decision always to serve like health care, is a complex and fragmented industry, which 1

8 The Economist January 14th 2017 SPECIAL REPORT LIFELONG EDUCATION

requirement for teachers to draw a pension from the industrial- Learning curve ist’s nascent pension scheme forcollege faculty. Students in their Massive open online courses, main international providers early 20s can more easily afford a lengthy time commitment be- Cumulative Courses by subject, 2011-17*, ’000 cause they are less likely to have other responsibilities. Although Registered number of millions of people do manage part-time or distance learning in users, m courses*, ’000 0 0.3 0.6 0.9 1.2 1.5 later life—one-third of all working students currently enrolled in 70 7 Business & management America are 30-54 years old, according to the Georgetown Uni- 60 6 Computer science & programming versity Centre on Education and the Workforce—balancing 50 5 Science learning, working and family life can cause enormous pressures. Social sciences 40 4 Moreover, the world ofworkincreasingly demands a quick Humanities response from the education system to provide people with the 30 3 Education & teaching desired qualifications. To take one example from Burning Glass, 20 2 Health & medicine in 2014 just under 50,000 American job-vacancy ads asked for a 10 1 Art & design CISSP cyber-security certificate. Since only 65,000 people in 0 0 Engineering America hold such a certificate and it takes five years of experi- 2011 12 13 14 15 16 17 Mathematics ence to earn one, that requirement will be hard to meet. Less de- Source: Class Central *By start date manding professions also put up huge barriers to entry. If you want to become a licensed cosmetologist in New Hampshire, you will need to have racked up 1,500 hours oftraining. 2 makes it hard to gain scale. Despite those drop-out rates, the In response, the MOOCs have tried to make theircontent as MOOCs have shown it can be done quickly and comparatively digestible and flexible as possible. Degrees are broken into mod- cheaply. The Khan Academy has 14m-15m users who conduct at ules; modules into courses; courses into short segments. The least one learning activity with it each month; Coursera has 22m MOOCs test for optimal length to ensure people complete the registered learners. Those numbers are only going to grow. course; six minutes is thought to be the sweet spot for online vid- FutureLearn, a MOOC owned by Britain’s Open University, has eo and fourweeks fora course. big plans. Oxford University announced in November that it Scott DeRue, the dean of the Ross School of Business at the would be producing its first MOOC on the edX platform. University ofMichigan, says the unbundling ofeducational con- In their search for a business model, some platforms are tent into smaller components reminds him of another industry: now focusingmuch more squarely on employment (though oth- music. Songs used to be bundled into albums before being disag- ers, like the Khan Academy, are not for profit). Udacity has gregated by iTunesand streaming services such as Spotify. In Mr launched a series of nanodegrees in tech-focused courses that DeRue’s analogy, the degree is the album, the course content that range from the basic to the cutting-edge. Ithasdone so, moreover, is freely available on MOOCs is the free streaming radio service, in partnership with employers. A course on Android was devel- and a “microcredential” like the nanodegree or the specialisa- oped with Google; a nanodegree in self-drivingcars uses instruc- tion is paid-foriTunes. tors from Mercedes-Benz, Nvidia and others. Students pay $199- How should universities respond to that kind of disrup- 299 a month foras long as it takes them to finish the course (typi- tion? For his answer, MrDeRue again draws on the lessons ofthe cally six to nine months) and get a 50% rebate if they complete it music industry. Faced with the disruption caused by the internet, within a year. Udacity also offers a souped-up version of its na- it turned to live concerts, which provided a premium experience nodegree for an extra $100 a month, along with a money-back that cannot be replicated online. The on-campus degree also guarantee ifgraduates do not find a job within six months. needs to markitselfout as a premium experience, he says. Coursera’scontentcomeslargelyfrom universities, not spe- Another answer is for universities to make their own pro- cialist instructors; its range is much broader; and it is offering full ducts more accessible by doing more teaching online. This is be- degrees (one in computer science, the other an MBA) as well as ginning to happen. When Georgia Tech decided to offer an on- shorter courses. But it, too, has shifted its emphasis to employ- line version of its masters in computer science at low cost, many ability. Its boss, Rick Levin, a former president of Yale University, were shocked: it seemed to risk cannibalising its campus degree. cites research showing that half of its learners took courses in or- But according to Joshua Goodman of Harvard University, who der to advance their careers. Although its materials are available has studied the programme, the decision was proved right. The without charge, learners pay forassessment and accreditation at campus degree continued to recruit students in their early 20s the end of the course ($300-400 for a four-course sequence that whereasthe online degree attracted people with a median age of Coursera calls a “specialisation”). It has found that when money 34 who did not want to leave their jobs. Mr Goodman reckons is changing hands, completion rates rise from 10% to 60% . It is in- this one programme could boost the numbers of computer-sci- creasingly working with companies, too. Firms can now inte- ence masters produced in America each year by 7-8%. Chip Pau- grate Coursera into their own learning portals, track employees’ cek, the boss of2U, a firm that creates online degree programmes participation and provide their desired menu ofcourses. for conventional universities, reports that additional marketing These are still early days. Coursera does not give out figures efforts to lure online students also boost on-campus enrolments. on its paying learners; Udacity says it has13,000 people doing its nanodegrees. Whatever the arithmetic, the reinvented MOOCs Educational Lego matter because they are solving two problems they share with Universities can become more modular, too. EdX has a mi- every provider oflater-life education. cromasters in supply-chain management that can eitherbe taken The first of these is the cost of learning, not just in money on its own or count towards a full masters at MIT. The University but also in time. Formal education rests on the idea of qualifica- of Wisconsin-Extension has set up a site called the University tions that take a set period to complete. In America the en- LearningStore, which offers slivers ofonline content on practical trenched notion of “seat time”, the amount of time that students subjects such as project management and business writing. En- spend with school teachers or university professors, dates back thusiasts talkofa world of“stackable credentials” in which qual- to Andrew Carnegie. It was originally intended as an eligibility ifications can be fitted together like bits ofLego. 1

The Economist January 14th 2017 9 SPECIAL REPORT LIFELONG EDUCATION

2 Just how far and fast universities will go in this direction is something faintly regressive about the world of microcreden- unclear, however. Degrees are still highly regarded, and in- tials. Like a university degree, it still involves a stamp ofapproval creased emphasis on critical thinkingand social skills raisestheir from a recognised provider after a proprietary process. Yet lots of value in many ways. “The model of campuses, tenured faculty learning happens in informal and experiential settings, and lots and so on does not work that well for short courses,” adds Jake ofworkplace skills cannot be acquired in a course. Schwartz, General Assembly’s boss. “The economics ofcovering fixed costs forces them to go longer.” Gold stars for good behaviour Academic institutions also struggle to deliver really fast- One way of dealing with that is to divide the currency of moving content. Pluralsight uses a model similar to that of book knowledge into smaller denominations by issuing “digital publishing by employing a network of1,000 experts to produce badges” to recognise less formal achievements. RMIT University, and refresh itslibraryofvideoson IT and creative skills. These ex- Australia’s largest tertiary-education institution, is working with perts get royalties based on how often their content is viewed; its Credly, a credentialling platform, to issue badges for the skills highest earner pulled in $2m last year, according to Aaron Skon- that are not tested in exams but that firms nevertheless value. Be- nard, the firm’s boss. Such rewards provide an incentive for au- linda Tynan, RMIT’s vice-president, cites a project carried out by thors to keep updatingtheircontent. University faculty have oth- engineering students to build an electric car, enter it into races er priorities. and win sponsors as an example. Beside costs, the second problem for The trouble with digital badges is MOOCs to solve is credentials. Close col- that they tend to proliferate. Illinois State leagues know each other’s abilities, but University alone created 110 badges when modern labour markets do not work on it launched a programme with Credly in the basis of such relationships. They need 2016. Add in MOOC certificates, LinkedIn widely understood signals of experience Learningcourses, competency-based edu- and expertise, like a university degree or a cation, General Assembly and the like, baccalaureate, however imperfect they and the idea ofcreating new currencies of may be. In their own fields, vocational knowledge starts to look more like a reci- qualifications do the same job. The pe forhyperinflation. MOOCs’ answer is to offer microcreden- David Blake, the founderofDegreed, tials like nanodegrees and specialisations. a startup, aspires to resolve that problem But employers still need to be confi- by acting as the central bank of creden- dent that the skills these credentials tials. He wants to issue a standardised vouchsafe are for real. LinkedIn’s “en- assessment of skill levels, irrespective of dorsements” feature, for example, was how people got there. The plan is to create routinely used by members to hand out a network of subject-matter experts to as- compliments to people they did not know sess employees’ skills (copy-editing, say, for skills they did not possess, in the hope or credit analysis), and a standardised of a reciprocal recommendation. In 2016 grading language that means the same thing to everyone, everywhere. Pluralsight is heading in a similar di- People are more likely to invest in training if it confers a rection in its field. A diagnostic tool uses a technique called item response theory to qualification that others will recognise. But they also workout users’ skill levels in areas such as need to know which skills are useful in the first place coding, giving them a rating. The system helps determine what individuals should learn next, but also gives companies a the firm tightened things up, but getting the balance right is hard. standardised way to evaluate people’s skills. Credentials require just the right amount of friction: enough to A system of standardised skills measures has its own pro- be trusted, not so much as to blockcareer transitions. blems, however. Using experts to grade ability raises recursive Universities have no trouble winning trust: many of them questions about the credentials of those experts. And it is hard can call on centuriesofexperience and name recognition. Cours- for item response theory to assess subjective skills, such as an era relies on universities and business schools formost ofits con- abilityto constructan argument. Specific, measurable skills in ar- tent; their names sit proudly on the certificates that the firm is- eas such as IT are more amenable to this approach. sues. Some employers, too, may have enough kudos to play a So amenable, indeed, that they can be tested directly. As an role in authenticating credentials. The involvement of Google in adolescent in Armenia, Tigran Sloyan used to compete in mathe- the Android nanodegree has helped persuade Flipkart, an Indi- matical Olympiads. That experience helped him win a place at an e-commerce platform, to hire Udacity graduates sight unseen. MIT and also inspired him to found a startup called CodeFights Wherever the content comes from, students’ work usually in San Francisco. The site offers free gamified challenges to needs to be validated properly for a credential to be trusted. 500,000 users as a way of helping programmers learn. When When student numbers are limited, the marking can be done by they know enough, they are funnelled towards employers, the teacher. But in the world of MOOCs those numbers can spi- which pay the firm 15% ofa successful candidate’s starting salary. ral, making it impractical for the instructors to do all the assess- Sqore, a startup in Stockholm, also uses competitions to screen ments. Automation can help, but does not work for complex as- job applicants on behalfofits clients. signments and subjects. Udacity gets its students to submit their However it is done, the credentialling problem has to be coding projects via GitHub, a hosting site, to a network of mach- solved. People are much more likely to invest in training ifit con- ine-learning graduates who give feedbackwithin hours. fers a qualification that others will recognise. But they also need Even if these problems can be overcome, however, there is to know which skills are useful in the first place. 7

10 The Economist January 14th 2017 SPECIAL REPORT LIFELONG EDUCATION

Career planning positions in industries like retailing and health care. The pro- gramme starts by going into workplaces and identifying key events (how an IT helpdesk handles a call from an irate custom- Pathway dependency er, forexample) that distinguish high performers from the rest. Curriculum designers then use that analysis to create a full- time training programme lasting between fourand 12 weeks that covers both technical knowledge and behavioural skills. The programme has gone live in America, Spain, India, Kenya and How to turn a qualification into a salary Mexico. By the end of 2016 it had 10,000 graduates, for whom it claims an employment rate of 90% and much higher retention UNIVERSITY EDUCATION IS designed to act as a slipway, rates than usual. The trainees pay nothing; the hope is that em- launching students into the wider world in the expectation ployers will fund the programme, or embed it in their own train- that the currents will guide them into a job. In practice, many ing programmes, when they see how useful it is. people getstuckin the doldrumsbecause employersdemand ev- idence of specific experience even from entry-level candidates. A little help from your friends Whether this counts as a skills gap is a matter of debate. “If I can- Such experiments use training to take people into specific not find a powerful, fuel-efficient, easy-to-park car for $15,000, jobs. In the past, an initial shove might have been all the help that doesn’t mean there is a car shortage,” says Peter Cappelli of they needed. But as middle-skilled roles disappear, some rungs the Wharton School of the University of Pennsylvania. But on the job ladder have gone missing. And in a world of continu- whether the fault lies with the educators or the employers, there ous reskilling and greater self-employment, people may need is a need for pathways that lead individuals into jobs. help with repeatedly moving from one type of job to another. Sometimes those pathways are clearly defined, as in medi- Vocational education is good at getting school-leavers into work, cine and the law. Vocational education combines classroom and but does nothing to help people adapt to changes in the world of work-based learning to prepare young people forspecific trades. work. Indeed, a cross-country study in 2015 by researchers at the In many European countries, one-third to half of later-stage sec- HooverInstitution suggests that people with a vocational educa- ondary schoolgoers are on a vocational path (see chart). Britain tion are more likely than those with a general education to with- is due to introduce an apprenticeship levy in April. drawfrom the labourforce astheyage. The pattern isparticularly But pathways are needed to smooth transitions in other marked in countriesthatrelyheavilyon apprenticeships, such as countries (America, for example, lacks a tradition of vocational Denmark, Germany and Switzerland. education); in less structured occupations; and when formal Large companies may have the scale to offer their employ- education has come to an end. The nanodegree is an example of ees internal pathways to improve their skills, as companies like such a pathway, asisGeneral Assembly’sbootcamp model. Both AT&T do. But many workers will need outside help in deciding rely heavily on input from employers to create content; both use which routes to take. That suggests a big opportunity for firms jobs rather than credentials as a measure ofsuccess. that can act, in effect, as careers advisers. Some are better placed That is particularly important in the early stages of people’s than others to see where the jobs market is going. Manpower, careers, which is not just when they lack experience but also which supplies temporary workers to many industries, last year when earnings grow fastest. An analysis of American wage launched a programme called MyPath that is based on the idea growth by economists at the New York Federal Reserve showed of an iterative process of learning and working. It allows Man- that the bulk of earnings growth took place between the ages of power’s army oftemporary workers in America to earn a degree 25 and 35; on average, after the age of 45 only the top 2% of life- from Western International University at no financial cost to time earners see any earnings growth. So it is vital for people to them. The degree is structured as a series of three or four epi- move quickly into work once qualified, and to hold on to jobs sodes of education followed by periods in work, in the expecta- once they get them. tion that Manpower has a good overview of the skills leading to That is the insight behind well-paid jobs. LearnUp, a startup that works LinkedIn is another organisation with a decent under- with applicants without col- standing of wider trends. The professional-networking site likes lege degrees for entry-level po- Practical types to call the data it sits on “the economic graph”, a digital map of sitions. Users applying fora job Students* enrolled in vocational the global economy. Its candidate data, and its recruitment plat- online can click on a link and programmes, as % of total form, give it information on where demand from employers is take a one-hour online training 2014 greatest and what skills jobseekers need. And with LinkedIn 020406080 session on how to be a cashier, Learning it can now also deliver training itself. sales clerk or whatever they are Czech Republic The firm can already tell candidates how well their qualifi- after. Employers pay LearnUp a Switzerland cations forany advertised job stack up against those of other ap- fixed fee to improve the pool of Italy plicants. In time, its data might be used to give “investment ad- candidates. Recruitment and Poland vice”, counselling its members on the financial return to specific retention rates have risen. Norway skills and on how long they are likely to be useful; or to show Generation, a philan- OECD average members how other people have got into desirable positions. thropically funded programme France The difficulty with offering mass-market careers advice is run by the McKinsey Social Ini- finding a business model that will pay forit. LinkedIn solves this Germany tiative, a not-for-profit arm of problem by aiming itself primarily at professionals who either the consultancy, uses a boot- China pay for services themselves or who are of interest to recruiters. camp approach and some typi- Britain But that raises a much bigger question. “There is no shortage of cally McKinsey-esque thinking Denmark options for folks of means,” says Adam Newman of Tyton Part- to train people from difficult Japan ners, an education consultancy. “But what about LinkedIn for backgrounds formiddle-skilled Source: OECD *15- to 19-year-olds the linked-out?” 7

12 The Economist January 14th 2017 SPECIAL REPORT LIFELONG EDUCATION

tion of sensors on motorways, that might prompt retraining. “Thisisa boiling-frogproblem,” he says. “Itisnotthoughtabout.” For lower-skilled workers of this sort the world of MOOCs, General Assembly and LinkedIn is a million miles away. Around 80% of Coursera’s learners have university degrees. The costs of reskilling, in terms oftime and money, are easiest to bear forpeo- ple who have savings, can control their working hours or work for companies that are committed to upgrading their workforce. And motivation is an issue: the tremendous learning opportuni- ties offered by the internet simply do not appeal to everyone. Whosoever hath not The rewards of retraining are highest for computing skills, but there is no natural pathway from trucker to coder. And even if there were, many of those already in the workforce lack both the confidence and the capability to make the switch. In its Pro- gramme for the International Assessment of Adult Competen- cies, the OECD presents a bleakpicture ofskills levels in 33 mem- ber countries (see chart). One in five adults, on average, has poor reading and numeracy skills. One in four has little or no experi- ence of computers. On a measure of problem-solving ability us- ing technology, most adults are at or below the lowest level of proficiency. Low-skilled workers Moreover, learning is most effective when people are able to practise their new skills. Yet many jobs, including lorry-driv- ing, afford little such opportunity, and some of them are being The elephant in the deskilled further. Research by Tom Higgins of Cardiff University suggests that the numeracy requirements forretail assistants and truck care-home workersin Britain wentdown between 1997 and 2012. The head ofone ofthe world’s biggest banks worries that a back- office operation in India has disaggregated its workinto separate The emerging system of lifelong learning will do little tasks so effectively that employees are no longer able to under- stand the processesasa whole, letalone make useful suggestions to reduce inequality forimproving them. IMAGINE YOU ARE a 45-year-old long-distance lorry So the truckers’ dilemma will be very hard to solve. “It’s dif- driver. You never enjoyed school and left as soon as you ficult when you don’t have a good answer even in an ideal could, with a smattering of qualifications and no great love of world,” says Jesper Roine, an economist who sat on a Swedish learning. The job is tiring and solitary, but it does at least seem to commission to examine the future of work. But as a thought ex- offer decent job security: driver shortages are a perennial com- periment it highlights some of the problems involved in upgrad- plaint in the industry, and the average age of the workforce is ing the stock of low-skilled and mid-skilled workers. Any decent high (48 in Britain), so the shortfalls are likely to get worse. Amer- answer will need a co-ordinated effort to bring together individ- ica’s Bureau of Labour Statistics (BLS) says there were 1.8m truck- uals, employers and providers of education. That suggests a role ers in 2014 and expects a 5% rise in their number by 2024. “As the fortwo entities in particular. economy grows, the demand for goods will increase and more One is trade unions. They have an industry-wide view of truckdrivers will be needed to keep supply chains moving,” pre- trends that may not be available to smaller employers. They can dicts the BLS website, chirpily. also accompany people throughout their working lives, which 1 But the future might unfold very differently. For all the ex- citement over self-driving passenger cars, the freight industry is likely to adopt autonomous vehicles even faster. And according to a report in 2014 by Morgan Stanley, a bank, full automation The new literacy might reduce the pool of American truck drivers by two-thirds. Adults’ problem-solving skills using a computer None Low High Those projections came hedged with caveats, and rightly so. The 2015 or latest available, % of total by skill level No data pace of adoption may be slowed by regulation. Drivers may still 020406080100 be needed to deal with unforeseen problems; ifsuch jobs require Sweden more technical knowledge, they may even pay better. Employ- Finland ment in other sectors may grow as freight costs come down. But Singapore there is a chance that in the not too distant future a very large Canada numberoftruckerswill find themselvesredundant. The implica- Germany tions are immense. Britain* Japan Knowing when to jump is one problem. For people with United States decades of working life still ahead of them, it is too early to quit OECD average but it is also risky to assume that nothing will change. Matthew Israel Robb of Parthenon-EY, a consultancy, thinks that governments Poland should be talkingto industry bodies about the potential formass Greece redundancies and identifying trigger points, such as the installa- Source: OECD *England

The Economist January 14th 2017 13 SPECIAL REPORT LIFELONG EDUCATION

2 may become increasingly important in a world of rising self-em- ones, to club together to signal ployment. Denmark’s tripartite system, for example, binds to- their skills needs to the work- Offer to readers getheremployers, governmentand unions. Firmsand unions get force at large. Individual learn- Reprints of this special report are available. A minimum order of five copies is required. together to identify skills needs; collective-bargaining agree- ing accounts have a somewhat Please contact: Jill Kaletha at Foster ments enshrine rights to paid leave for training. The country’s chequered history—fraudulent Printing Tel: +1 866 879 9144 Ext: 168 famed “flexicurity” system offers unemployed workers a list of training providers helped scup- e-mail: [email protected] 258 vocational-training programmes. per a British experiment in the Corporate offer In Britain a well-regarded programme called UnionLearn early 2000s—but if well de- Corporate orders of 100 copies or more are uses union representatives both to inform workers about train- signed, they can offer workers available. We also offer a customisation ingoptions and to liaise with employers on workers’ requests for educational opportunities with- service. Please contact us to discuss your training. Employees seem more likely to discuss shortfalls in ba- out being overly prescriptive. requirements. sic skills with union representatives than with managers. An Tel: +44 (0)20 7576 8148 e-mail: [email protected] analysis by academics at Leeds University Business School Any fool can know For more information on how to order special shows that between 2001 and 2013 union members in Britain In June 2016, this newspa- reports, reprints or any copyright queries were a third more likely to have received training than non- per surveyed the realm of artifi- you may have, please contact: unionised workers. cial intelligence and the adjust- The Rights and Syndication Department The second entity is government. There is much talk about ments it would require workers 20 Cabot Square lifelong learning, though few countries are doing much about it. to make as jobs changed. “That London E14 4QW The Nordics fall into this less populated camp. But it is Singapore will mean making education Tel: +44 (0)20 7576 8148 Fax: +44 (0)20 7576 8492 that can lay claim to the most joined-up approach with its Skills- and training flexible enough to e-mail: [email protected] Future initiative. Employers in the city-state are asked to spell out teach new skills quickly and effi- www.economist.com/rights the changes, industry by industry, that they expect to happen ciently,” we concluded. “It will over the next three to five years, and to identify the skills they require a greater emphasis on Future special reports will need. Theiranswersare used to create “industrytransforma- lifelong learning and on-the-job Mass entertainment February 11th tion maps” designed to guide individuals on where to head. training, and wider use of on- The future of Europe March 25th April 8th Since January 2016 every Singaporean above the age of 25 line learning and video-game- The Pearl River delta hasbeen given a S$500 ($345) creditthatcan be freelyused to pay style simulation.” forany training courses provided by 500 approved providers, in- The uncertainties around Previous special reports and a list of MOOC forthcoming ones can be found online: cluding universities and s. Generous subsidies, of up to the pace and extent of techno- economist.com/specialreports 90% for Singaporeans aged 40 and over, are available on top of logical change are enormous. this credit. The programme currently has a budget of S$600m a Some fear a future of mass un- year, which isdue to rise to S$1billion within three years. Accord- employment. Others are san- ing to Ng Cher Pong, SkillsFuture’s chiefexecutive, the returns on guine that people will have time to adapt. Companies have to thatspendingmatterlessthan changingthe mindsetaround con- want to adopt new technologies, afterall, and regulators may im- tinuous reskilling. pede their take-up. What is not in doubt is the need for new and Some programmes cater to the needs of those who lack ba- more efficient ways to develop and add workplace skills. sic skills. Tripartite agreements between unions, employers and The faint outlines of a new ecosystem for connecting em- government lay out career and skills ladders for those who are ployment and education are becoming discernible. Employers trapped in low-wage occupations. Professional-conversion pro- are puttinggreateremphasis on adaptability, curiosity and learn- grammesoffersubsidised trainingto people switchingto newca- ing as desirable attributes foremployees. They are working with reers in areas such as health care. universities and alternative providers to create and improve Given Singapore’s size and political system, this approach their own supply of talent. Shorter courses, lower costs and on- is not easily replicated in many other countries, but lessons can line deliveryare makingiteasierforpeople to combine workand still be drawn. It makes sense foremployers, particularly smaller training. New credentials are being created to signal skills. At the same time, new technologies should make learning more effective as well as more necessary. Virtual and augmented The outlines reality could radically improve professional training. Big data of- fer the chance for more personalised education. Platforms make of a new it easier to connect people of differing levels of knowledge, al- ecosystem lowing peer-to-peer teaching and mentoring. “Education is be- comingflexible, modular, accessible and affordable,” says Simon for Nelson, the boss ofFutureLearn, the Open University MOOC. connecting But for now this nascent ecosystem is disproportionately likely to benefit those who least need help. It concentrates on ad- employment vanced technological skills, which offer the clearest returns and and are relatively easy to measure. And it assumes that people have the money, time, motivation and basic skills to retrain. education Thanks to examples like Singapore’s, it is possible to imag- are ine ways in which continuous education can be made more ac- cessible and affordable for the mass of citizens. But it is as easy— becoming indeed, easier—to imagine a future in which the emerging infra- discernible structure of lifelong learning reinforces existing advantages. Far from alleviating the impact of technological upheaval, that would riskexacerbating inequality and the social and economic tensions it brings in its wake. 7

14 The Economist January 14th 2017 Middle East and Africa The Economist January 14th 2017 43

Also in this section 44 Iran after Rafsanjani 45 Botswana’s struggling economy 45 A mutiny in Ivory Coast 46 Music and politics in Congo

For daily analysis and debate on the Middle East and Africa, visit Economist.com/world/middle-east-africa

Startups in the Arab world make it hard to hire and fire workers, espe- cially foreigners, even though schools fail Set them free to equip many locals with desirable skills, such as coding. Tax authorities are often confounded by startups, says Con O’Don- nell, who started Sarmady, an Egyptian on- line-media company, which he sold to Vo- dafone in 2008. “They don’t understand CAIRO the Amazon model,” says Mr O’Donnell, It’s hard to build a startup culture when bankrupts face jail referring to the e-commerce giant, which OULD Beirut become the Silicon bankruptcy law, failure can mean a prison lost money but grew quickly during its first “C Valleyofthe Middle East?” So asked term ifdebtsare notpaid on time. Closing a two decades. a Lebanese news website in 2015. With an company can take five to ten years and Amazon is thought to be in talks to buy educated population, relatively liberal cul- reams of paperwork. Those that stay in Souq, a large online retailer based in the ture and large banking system, Beirut, the business must navigate outdated legal and United Arab Emirates (UAE). Founded in capital of Lebanon, seemed well-placed to regulatory systems that make it difficult to 2005, Souq is often touted as a success become a hub for internet startups in the do things that are routine for startups else- story by investors in the region. But Souq region. But there was at least one glaring where, such as paying employees with apart, high barriers to trade have prevent- problem. “Let’sface it—the internetin Leba- stock options. This is on top of the chal- ed e-commerce more generallyfrom taking non [is] abysmally bad!” wrote Tony Fa- lengesthataffectall Egyptian firms, such as off. Getting goods through customs can be dell, the Lebanese-American co-creator of rising prices and predatory officials. a bureaucratic nightmare, made worse by the iPod, in November. Due to government Elsewhere the story is much the same. high tariffs, varying regulations and fluctu- mismanagement, the country has some of In countries such as Jordan and Lebanon, ating currencies. “People talk about the re- the slowest download speeds in the world. which claim to be startup-friendly, it is ac- gion as if it is 200m people, but try to ship Across the Middle East in recent years, tually quite difficult to start up (see chart). to these people,” says Louis Lebbos, the young men and women have created new Across the region, labour laws tend to founder of AstroLabs, a hub for tech start- products, started new companies and in- ups in Dubai. Several well-funded ven- spired hopeful talk of replicating the start- tures have tried—and failed. Souq, which up scenes in America and Europe. These Not so easy anywayshipsmostlyto the sixcountries in entrepreneurs are a potential boon to the Ranking*, selected countries, 2016 the Gulf Co-operation Council, a customs region’s economies, which suffer from By ease of: doing business starting a business union, is the rare exception. slow growth and high unemployment, es- E-commerce is one ofseveral industries pecially among the young. A pity, then, Easiest =1 25 50 75 100 125 150 in which startups could do much more to that so many obstacles stand in their way— United Arab fill market needs. Others include financial and that so many are put there by govern- Emirates technology, as most Arabs do not have ments. No place in the Arab world comes Morocco bank accounts or credit cards; and health close to Silicon Valley in terms of dyna- Tunisia care, with rates of obesity and other dis- mism. But, slowly, progress is being made, Saudi Arabia eases rising across the region. But firms in say entrepreneurs. Jordan these industries often have to seek approv- To understand what startups in the re- Egypt al from slow-moving government agen- gion are up against, consider that most of Lebanon cies. This can add years to a business plan. them will fail. That is true throughout the “In more developed systems, startups are world, but in a country like Egypt, with no Source: World Bank *Out of 190 countries more willing to jump ahead of regulation 1 44 Middle East and Africa The Economist January 14th 2017

2 and the regulation catches up,” says Mr The death of Akbar Hashemi Rafsanjani under house arrest. Lebbos. “But here the axe falls on those They have also silenced Muhammad who jump ahead.” The ayatollah’s Khatami, his reformist successor as presi- For decades, the region’s socialist- dent, banned his name from the media, minded governments showed little inter- long shadow and barred him from attendingthe funeral. est in encouraging private enterprise. Hassan Rouhani, though the current presi- Many leaders are wary of empowering dent and also a protégé, is too cautious young people, who may also seek more and, as a former intelligence officer, too political freedom. But as the region’s econ- much a plodding functionary, to defy the A pragmatic ex-president passes away omies struggle, there is pressure on govern- establishment alone. Under Mr Khame- ments to improve their handling of start- HEY came to praise him and to bury nei’s watchful eye, he will now be a safe ups—and to keep up with each other. In Thim. The eminent former butts of his bet forre-election in May. November, when Mr Fadell tweeted about criticism filled the front rows of his funeral Still, Mr Rafsanjani’s appearances al- Lebanon’s slow internet, Saad Hariri, the and showered him with accolades. Ayatol- ways had an uncomfortable habit of veer- prime minister, quickly responded: “I am lah Akbar Hashemi Rafsanjani was the ar- ing off-message. From the covered court- listening Tony, it’s on top of our future gov- chitect of Iran’s revolution, they said, who yard of Tehran University in 2009, he ernment agenda.” In Egypt the cabinet has protected it during the Iran-Iraq war, and challenged the authorities to heed the peo- just approved the country’s first bankrupt- rescued it from economic siege afterwards. ple’s voice, when they massaged the vote cy law, one of several economic reforms Ayatollah Ali Khamenei, Iran’s supreme to award Mr Ahmadinejad a second term aimed at encouraging investment. leader, with whom he spent two decades and opened fire on protesters. “We need an Several governments have also injected sparring, tweeted that he was “his old open societyin which people can saywhat money into the system and guaranteed friend and comrade”, and read the last they want,” he preached. “We should not some of the risk involved in backing start- rites. Fellow clerics organised the biggest imprison people.” ups. Most notably, Lebanon launched a funeral since Ayatollah Khomeini’s, as- Eight years later, even though he now $400m package four years ago to encour- signed him a golden tomb next to the revo- lay in a casket, his supporters took up the age lending from banks. Such outlays, lution’s founder, and promised to name a refrain. From the back of the same court- paired with the relatively small number of street after him. They closed schools and yard came the cries of dissent. Some worthy startups in the region, have led to broadcast the ceremony live. Over 2m Ira- donned green wristbands and T-shirts, fears of a bubble. But more recent invest- nians attended, said the authorities. sporting the colour of the protest move- ments have been smaller and more organ- The hardliners now hope that at last Mr ment, and chanted “Hail, Khatami”. Oth- ic. Lastyear, forexample, Morocco received Khamenei can be truly supreme. Already ers replaced the hardliners’ mantra of some $50m from the World Bank to create rejoicing in friendly Russia’s growing pres- “Death to America” with “Death to Rus- two new venture-capital funds, part of a ence in the region, and the prospect of vic- sia”, just as they had in 2009 when Russia’s plan to cultivate its growing startup scene, tory in Syria, the hardliners will finally president had been the first foreign leader while international investors poured also gain control of the powerful Expedi- to congratulate Mr Ahmadinejad on his re- $275m into Souq and $350m into Careem, a ency Council that Mr Rafsanjani led for 28 election. Eventually the sound technicians ride-hailing app based in the UAE. years, a recurrentthorn in theirsides. Help- drowned out the dissenters with mourn- In mostcountriesthere are nowclusters fully, the security forces have ensured that ing music. of startups, brought together by co-work- the late Mr Rafsanjani had no one to pass In a sense both requiems were right. ing spaces like Astrolabs in Dubai or Cogite his mantle to. Mir Hossein Mousavi and Ayatollah Rafsanjani was both a pillar of in Tunisia, which have connections to ac- Mehdi Karroubi, the two presidential can- Iran’s theocratic establishment and its celerators, incubators and investors. Col- didates he backed against the anti-Wester- prime critic. He both fuelled criticism and laboration is common. Last month the nising Mahmoud Ahmadinejad, are safely harnessed it within acceptable parame- GreekCampus, a hub forstartups in down- ters. But for his manoeuvring, many more town Cairo, hosted the Rise-Up summit, disgruntled Iranians might have aban- one of the largest gatherings of entrepre- doned the doctored electoral process and neurs in the region. Many younggeeks aim sought other means to voice dissent. The to do good as well as make money. Abdel- merchant classes would have despaired of hameed Sharara, who started the event in the possibility of normal trade with the 2013, says he was motivated by the failures West. And the clerics in the holy city of ofthe Arab spring. “I felt there was another Qom, who shy from mixing Islam and pol- way to make it happen.” Many in atten- itics, would more vociferously have ques- dance share his sense of purpose. “We are tioned the legitimacy ofthe Islamic Repub- figuringouthowto feed people better, how lic. “We thought that he would be the one to empower women, how to educate chil- who could secure the transition to a more dren,” says Waleed Abd El Rahman, the moderate pro-Western regime,” says a founder of Mumm, a home-cooking deliv- young mourner in shockat his passing. ery service in Cairo. For a moment this week, Mr Rafsanjani Unfortunately, the difficulty of doing brought Iran’s contradictory forces togeth- business in the region, and the repressive er. All thronged to his funeral, and—re- nature of most governments, have caused markably in the Middle East—kept it peace- many of the brightest minds to move ful. But maintaining that common ground abroad. But these challenges also force without the centrist may be harder. Rulers those who remain to think creatively and ruled will have fewer restraints. Prot- about how to work around the system. esters could increase their demands for the And this makes for better companies, say release of opposition leaders; hardliners many entrepreneurs. “If you can succeed might sense a freer hand to suppress them. in a country like Egypt, everywhere else is The wounds that Mr Rafsanjani helped easy,” says Mr Sharara. 7 After the tears, the protests? bind while alive riskbeing reopened. 7 The Economist January 14th 2017 Middle East and Africa 45

Botswana 108th in the International Telecommunica- tion Union’sICT DevelopmentIndex, with Between rocks only 27.5% ofits people online. A more realistic strategy to diversify and hard places away from diamonds is to attract more tourists. But instead much of the govern- ment’s focus has been on deepening its de- GABORONE pendence on the shiny stones by trying to A sparkling performerfalls on rough become a global centre forcutting and pol- times ishing them. Its flagship policy involved NPHAKALANE, an affluent suburb of strong-arming De Beers, the world’s big- IBotswana’s sleepy capital Gaborone, a gest diamond firm (of which it owns 15%), modern assembly line spits out thousands to bring its sales and sorting operations of batteries destined for southern African over from London. cars. Whether in glitzy Bentleys beloved of For Mr Khama, the diversification plans the South African elite or the beaten-up have gained renewed urgency. His Botswa- Toyotas swerving to avoid Harare’s pot- na Democratic Party (BDP), which has held holes, the devices made by employees of power since independence in 1966, is fac- Chloride Exide keep the region moving. ing its first real challenge at the ballot box. Yet trouble is brewing just beyond the The BDP’s share of the vote dipped below Barrack o’ drama factory gates. Less than 25 miles (40km) 50% for the first time in the 2014 general away in South Africa, the company’s larg- election, amid frustration with unemploy- attracting money into the country. est export market, a slowdown has crip- ment and with water and power short- Yet while Mr Ouattara’s economic re- pled demand. In the past year some ages. Like South Africa’s African National cord is commendable, his political one is 30,000 fewer batteries than usual were Congress, the BDP is nervously looking less so. Most of the soldiers leaving their shipped across the border. To make things ahead to an election in 2019. 7 barracks were former rebels, integrated worse, sales to Zimbabwe, once a big buy- into the national army after the end of the er, have been hit by import restrictions. short war which brought Mr Ouattara to In September Botswana exported just Ivory Coast power. Their demands, apparently includ- $54m to South Africa, according to govern- inga call for$8,000 each (five times annual ment figures, and imported $371m worth Mutiny for a GDP perhead), date backto promises alleg- ofgoods from its big neighbour. Local busi- edly made duringthat conflict, which start- nessmen grumble that South African firms bounty ed when Laurent Gbagbo, the previous with operations in Botswana do not spend president, refused to leave office after los- enough locally. Business Botswana, a lob- ing an election in 2010. For most of the de- by group, is callingon South African super- cade before then, Ivory Coast was em- Trouble in one ofAfrica’s strongest market chains to boost local procurement broiled in a longer civil war and divided economies above 10%. into two parts: a rebel-held, mostlyMuslim Ian Khama, Botswana’s president, has AR, said Carl von Clausewitz, is poli- north, and the government-held more repeatedly criticised his neighbours. In Wtics by other means. In Ivory Coast, Christian coast. Much of the country’s re- September he renewed a feud with Robert the country at the heart of Francophone cent rapid growth has involved catching Mugabe, the ailing autocrat who has im- West Africa, so too is mutiny. On January up after that lost decade ofstrife. poverished Zimbabwe, again urging him 6th soldiers seized Bouaké, the second- Soldiers are not the only people to feel to step down. He has also chided Jacob largest city in the country. Over the week- aggrieved: teachers and civil servants have Zuma, South Africa’s beleaguered presi- end they briefly kidnapped the country’s also gone on strike recently, notes Mama- dent. In June Mr Khama accused South Af- defence minister and shooting was heard dou Diallo, a consultant in Abidjan. Plenty rica of stifling industrialisation in the re- in Abidjan, the commercial capital. of Ivorians feel left out of the economic gion by branding itself as a “regional Purportedly, the dispute was about sol- boom, he says. The army, which also muti- gateway” for investment, and argued that diers’ pay. On January 8th, having been nied in 2014, remains an unruly alternative it was treating its neighbours as little more promised generous bonuses, the soldiers source ofpowerin a country with weak in- than a marketplace forexports. returned to their barracks. Alassane Ouat- stitutions. Many Ivorians suspect that the Mr Khama is undiplomatic perhaps be- tara, the president, sacked the army and mutineers were actually incited into ac- cause he is anxious. The diamonds that police chiefs. However, many Ivorians tion by politicians who want to make sure propelled Botswana’s exceptional growth found the timingofthe mutiny suspicious. that they are included in the new govern- and paid for impressive infrastructure It came a few days before Mr Ouattara dis- ment that Mr Ouattara was expected to an- could be exhausted before 2050. In 2014 solved his government in anticipation of nounce as The Economist went to press. Russia overtook Botswana as the world’s implementing a new constitution. This is part of a process of implementing a biggest producer. Global rough-diamond In economic terms, Ivory Coast has in new constitution, which passed in a refer- sales to cutters fell by some 30% between recent years been one of Africa’s star per- endum in October. 2014 and 2015, leaving Botswana with its formers. Between 2012 and 2015 its GDP Ivory Coast’s recent relative stability first budget deficit in fouryears. grewatan average rate of8.5% peryear. Ab- should not be taken for granted. So far, for- The government is taking note. In Feb- idjan’s crumbling 1970s brutalist skyline eign investors have remained calm. An al- ruary it launched a fiscal stimulus pro- has been transformed by a wave offoreign Qaeda attackthat killed 19 people in March gramme to tackle unemployment, estimat- projects. New offices, malls, a Heineken last year at Grand Bassam, a pretty resort ed at around 19% in a population of 2m. breweryand variousfactorieshave sprout- town that was once the French colonial Government investment promoters in ed. This is largely thanks to the policies of capital, did little to ruffle them. A return to swanky premises in downtown Gaborone Mr Ouattara, an American-educated econ- full-blown war is extremely unlikely. But if talk up Botswana’s potential as a hub for omist who came to power in 2011. He has investors suspect it is even possible, they tech firms or green energy. But it ranks prioritised infrastructure investment and may close their wallets. 7 46 Middle East and Africa The Economist January 14th 2017

Congo the opposition listen to my songs at their rallies,” she says, nonchalantly. The sound of politics And indeed, the expectation that musi- cianswill be mercenaryisuniversal. On ra- dio stations across Congo, it is common to hear the names of politicians punctuating songs. This is known as “Libanga” (literally, “small stone”, of the sort that a child might KINSHASA throw to attract attention). It is not done Congo’s pop stars and politicians have a strangely symbiotic relationship out of ideological conviction. Werrason, N THE Democratic Republic of Congo but with even more flamboyant clothes. one of Congo’s most famous musicians, Ithere are three ways to make it big, says The politicians are happy with this ar- once produced a song in which he named Lexxus Legal, a rapper (pictured). Standing rangement. In a country where almost no- 110 different people, many ofwhom would in his house in Kinshasa, the capital, un- body reads newspapers and everyone has have paid forthe privilege. Only breweries derneath a mural of Congo’s first prime a radio, music is the easiest way for them to and mobile-phone companies, with their minister, Patrice Lumumba, he lists them. reach potential supporters. Musicand poli- big marketing budgets, can match politi- First, you can become a politician. Second, tics in Congo are thus entwined. And with cians’ largesse. you can join the army (“but you need to be an election looming in 2017, the relation- Does it matter that Congo’s music, its at the top: a general, not a footsoldier”). Fi- ship will only grow closer. biggest cultural export, is polluted by poli- nally, you can set up a church. “That is On a plump sofa, Tshala Muana, a sing- tics? David Van Reybrouck, the author of what you call having power,” he says. No- er, explains how she began as a dancer in an excellent history of Congo, says close ticeably, he rules out his own profession. the 1970s. Under Congo’s then dictator, ties have “always existed between music “The musicians in this country are beg- Mobutu Sese Seko, she wasn’t allowed to and politics”. The country’sfirsthitwas the gars,” he says. “Theyare obliged to singand sing. As part of his effort to create a single song “Independence Cha-Cha”, which dance to please politicians and business- national identity (a policy he called au- was first performed in January 1960, a few men. If you sing as I do, controversially, thenticité), songs in Lingala were favoured months before Congo won independence you really have no chance.” and those in otherlocal languages—such as from Belgium. Music is probably Congo’s most influ- Tshiluba, in which Ms Muana sings—were ential export, though nowhere near as lu- discouraged. Her luckturned in 1997, when Independence cha-cha declared Oh Freedom cha-cha we’ve conquered crative as copper or gold. Whereas in the Mobutu fell and was replaced by Laurent At the Round Table they won West the country’s name inspires pictures Kabila. He invited Ms Muana, who had Oh Liberty cha-cha we’ve conquered! of child soldiers fighting bloody battles, in moved to West Africa, back to Kinshasa. most of Africa it is associated with “rumba “Musicians should live in their own coun- Mobutuism was supported by Franco Lingala” (Lingala is the language ofthe Kin- try,” she recountshim tellingher. “So he be- Luambo, one of the original rumba stars. shasa street). This upbeat music has be- came my sponsor.” Even the launch of the Congolese franc, come genuinely pan-African in the 60 Now, Ms Muana sings for his son, Jo- which replaced the hyperinflated zaire in years since Congolese musicians were first seph Kabila, who became president in 1997, was supported by a musical propa- inspired by Cubans. It can now be heard 2001 when his father was assassinated. ganda campaign. from Abidjan to Dar es Salaam; in Congo, Her songs in Lingala and French include Yet Mr Legal, who raps in French about its home, it is practically a religion. such hits as “Votez Joseph Kabila” and “Ka- war and corruption, thinks it is a problem. Alas, like the country itself, Congolese bila tres fort”. When she met your corre- “Everything that we Congolese do is dri- music is blighted by corruption. Since Con- spondent, a few days before the end of Mr ven by music,” he says. “But in music it is go hasfewproducersorstudios, only a tiny Kabila’s second (and supposedly final) difficult to explain 10,000 dead people. We market for sales and a population who al- term in office, many wealthy residents had keep dancing instead ofanswering the real most all live on a few dollars a day, Congo- fled, fearing riots. Ms Muana says she isn’t questions.” Congolese living abroad tend lese musicians have to survive from pa- worried by her association with the presi- to agree. Before the elections of 2006 and tronage, like Mozartin 18th-centuryVienna dent. “I maysingforthe president, but even 2011, musicians associated with the gov- ernment were boycotted by Congolese in Europe. Werrason was assaulted twice in restaurants in Brussels and Paris because ofhis support forMr Kabila. This year, Congo is meant to hold elec- tions to replace Mr Kabila, under a deal struck with the opposition on New Year’s Eve. Already, music naming politicians is filling the airwaves on Kinshasa’s Lingala radio stations. “It is nothing but politics now,” says Ms Muana. IfMrKabila does in- deed step down, the ensuing rush for jobs will spark a festival of patronage. Sadly, few thinkMrKabila, who has already over- stayed his mandate, plans to give up the job. And after 16 years in which their lives have not improved much, few people sup- porthim. Ifhe doesintend to stayin power, he will need more than a few songs. 7 ...... Links to some of the artists mentioned are available at Beggars with attitude www.economist.com Europe The Economist January 14th 2017 47

Also in this section 48 Italy’s Five Star Movement 48 The liberal and the populist 49 War crimes and punishment 50 Europe’s fragmented politics 51 Charlemagne: The cruel Mediterranean

For daily analysis and debate on Europe, visit Economist.com/europe

The French left drop the name “socialist”, has pushed for looser labour laws and takes a hard line on Battling for survival security and integration. But many Social- ist primary voters want a French version of Bernie Sanders or Jeremy Corbyn. Mr Valls is trying to recast himself as acceptable to radicals. He spoke this month of creating more government jobs, new welfare for EVRY the poor and young, and opposing rule by Facing a grim year, the Socialists could picka surprise presidential candidate executive decrees (which he routinely TROLL through Evry, a suburb south of cumbency. Before resigning in December used in office). Few are convinced. SParis crammed with tower blocks and to campaign for the presidency, he was the One serious rival is Arnaud Monte- fresh construction, and you will find Ma- prime minister of François Hollande, a bourg, a statist who was forced to resign as nuel Valls a popular man. Mr Valls was president whose popularity has sunk to industry minister in 2014 after opposing mayor here for 11 years, before he became historic lows and who last month became MrHollande’s increasingly liberal policies. interior minister and then prime minister, the first French president not to seek re- In the Socialists’ first primary in 2011, he and did much to improve a run-down election since the founding of the Fifth Re- won 17.2% support to Mr Valls’s 5.6%. Per- neighbourhood. On his way to the publicin 1958. Hisleadingrole in an unpop- haps a bigger threat is the populist Benoît mosque, Abdoulaye Sambe, an immigrant ular government will force him to squirm Hamon, another ex-minister who resigned from Senegal, calls Mr Valls a “good in debates, deciding how much of his re- in 2014. Voters like his proposal for a uni- leader”; he credits him for the neighbour- cord to disavow. Rivals such as Vincent versal basic income. Whoever reaches the hood’s congenial inter-ethnic relations. Peillon, a former education minister, will second round has a good chance of top- The proprietor of a juice stand in a shop- relish the chance to skewer him. pling Mr Valls, especially ifturnout is high. ping centre praises him for getting more A related problem is ideology. Mr Valls, No matter whom the Socialists nomi- surveillance cameras installed. Students a Blairite who once called for his party to nate, their chances of winning the presi- lounging in the foyer of a university laud dential election in May are slim. But the So- him forsprucing up the area. cialist nominee will influence the chances But as Mr Valls competes for the Social- Voter pour qui? of other candidates on the left. Two other ist nomination in this year’s presidential France, support for candidates in the first round figures on the left have already declared election, he faces a problem: none of these of the presidential elections, % polled that they are running as independents. January 2017 denizens of Evry plans to vote for him. A 0 5 10 15 20 25 30 One is Jean-Luc Mélenchon, a hard-left series of televised debates between the Marine Le Pen member of the European Parliament. An- seven candidates in the Socialist primary (National Front) other is Emmanuel Macron, an economic François Fillon began on January 12th, to be followed by (The Republicans) and social liberal and former economy the primary’s first round on January 22nd Emmanuel Macron minister. Many bigwigs and financiers are (En Marche!) and a run-off on the 29th. The polls show Jean-Luc Mélenchon quietly backing him. He will siphon away Mr Valls in the lead, but in fact the race is (La France insoumise) many of the young, educated, internation- wide open. As in the Republican primary Manuel Valls* ally minded voters on whom the Socialists (Socialist Party) in November, when the candidate in third François Bayrou† would normally depend (see chart). place, François Fillon, stormed to a win, (Democratic Movement) “The leftis a mess,” says Laurent Bouvet there is every likelihood ofan upset. *Current party primary frontrunner of Versailles University. He thinks only Source: Ifop †Currently undeclared One of Mr Valls’s disadvantages is in- 40% of voters would consider backing any 1 48 Europe The Economist January 14th 2017

2 left-leaning candidate. If the leftist con- tion. On the centre-right Mr Fillon, who Italy’s populists tenders split their share of the vote close to trumpets his Catholic identity, is winning evenly, none has a chance of winning over small-town voters who might once Five Star mystery 20-25%, which is probably the minimum to have voted Socialist but are uneasy about make the run-off in May. But if the Social- liberal moves such as France’s legalisation ists picka hard-left candidate this month, it of gay marriage. Muslim voters, mean- could leave the way open for a centrist like while, mistrust the left’s dedication to the Mr Macron. Bookmakers give him the best strict French secularism known as laïcité. ROME odds of any on the left. Yet he is still a long After the presidential election, the So- What does Beppe Grillo’s partybelieve? shot, says Philippe Marlière, a political sci- cialists risk a mauling in legislative elec- entist at University College London. tions in June. They have been here before: F AN election were held in Italy today, ac- The longer-term future of the Socialists in 1993 they won just 57 of the 577 seats in Icording to the latest polls, the winner looks precarious. Marine Le Pen of the Na- the National Assembly. But the months would be Beppe Grillo’s Five Star Move- tional Front is appealing to blue-collar vot- ahead are set to be the gloomiest they have ment (M5S). Termometro Politico, a web- ers worried by globalisation and immigra- seen in many years. 7 site that averages poll results, currently puts it fractionally ahead of the governing Democratic Party (PD). But what—if any- The European Parliament thing—does the M5S stand for? The move- ment claims to be neither right nor left; its Opposites attract positions on issues are often contradictory. And after the most humiliating setback in the M5S’s brief history, the answer is less Forabout five minutes clear than ever. UYVERHOFSTADT, leader ofthe M5S’s activists argue for a revolution- Gliberal ALDE grouping in the Euro- ary, internet-based form ofdirect democra- pean Parliament, once dismissed Italy’s cy. They despise mainstream parties. They upstart Five Star Movement (M5S) as inveigh against the Transatlantic Trade and “incompatible” with his pro-European- Investment Partnership (TTIP). They dis- ism. Beppe Grillo, its leader, called Mr like the European Union’s sanctions Verhofstadt “unpresentable”. Since then against Russia. And while many of Mr Mr Verhofstadt, a former Belgian prime Grillo’s followers are less hostile than he is minister whose answer to every problem to the EU itself, the Movement’s demands is a rousing cry of“More Europe!”, has include a consultative referendum on leav- positioned himselfas a bulwarkagainst ing the euro. the anti-European populism ravaging the Yet on January 8th Mr Grillo proposed EU—precisely the sort ofthing Mr Grillo on his blog that M5S’s representatives in has made his stock-in-trade. So when the European Parliament should leave Eu- plans fora parliamentary alliance be- rope of Freedom and Direct Democracy tween the two men emerged on January (EFDD), the Eurosceptic parliamentary 9th, pundits scratched their heads. ALDE A liberal interpretation group to which they have belonged since and M5S vote against each other as often first winning seats in 2014, and join the Al- as not (see chart). Most ofALDE’s 69 MEPs er to divine. One explanation might be liance of Liberals and Democrats for Eu- were horrified at the prospect ofjoining the fact that he is running forthe presi- rope (ALDE), a centrist group that disagrees forces with a party that stood forevery- dency ofthe European Parliament (the with the M5S on all of the points above— thing they detested. Before the day was incumbent, Martin Schulz, is leaving to and many besides. out they had squashed the plan. rejoin German politics). The chamber Some analysts speculated that Mr Mr Grillo’s excuse was that Brexit was votes on January17th, and M5S’s17 MEPs Grillo was trying to woo moderate, pro- going to make his existing partnership would have helped the ALDE leader in European voters. Othersplumped forcyni- with UKIP, an anti-EU British party, de- his bid. But his candidacy was always a cal opportunism. The EFDD’s biggest mem- funct. Mr Verhofstadt’s motives are hard- long shot. ALDE is dwarfed by the parlia- ber is the UK Independence Party (UKIP), ment’s centre-left and centre-right group- which will depart when Britain leaves the ings, one ofwhich will almost certainly EU. That will leave the EFDD with fewer All over the map provide the next president. members than it needs to form a parlia- Share of votes in the European Parliament where An expanded group would also have mentary group and strip its remaining con- the Five Star Movement’s vote matched those of been eligible formore funding. But what- stituent parties of funding and administra- other political groups, 2014-16, % ever the reason forMr Verhofstadt’s tive support. The M5S stands to lose an 0 20406080 gambit, it backfired spectacularly. His estimated €340,000 ($362,000) a year. GUE tactics compounded the sin. Many of his The morningafterMrGrillo’sunexpect- Greens/EFA MEPs heard about the proposal in the ed announcement, an online poll of the S&D press, fuelling their fury. Some gave him Movement’s registered members was an earful at a closed-door party meeting. held. His plan for the most unlikely mar- ALDE One suggests his “idiotic hubris” means riage since Kermit the Frog and Miss Piggy NI* hisdaysasALDE leader are now num- won a 79% endorsement. Soon afterwards, EPP bered. So in short order Mr Verhofstadt Mr Grillo published a farewell letter to Ni- ECR infuriated his allies, destroyed his bid for gel Farage, the EFDD president. But by then EUROPEAN GROUPINGS PARLIAMENT the presidency and exhibited precisely (see box) a revolt was brewing in the ALDE UKIP the sort ofpolitical cynicism he claims to and the plans were cancelled. Source: VoteWatch *Non-attached MEPs stand against. Not a bad day’s work. Mr Grillo’s mishandling ofthe affair led to scathing criticism from rank-and-file 1 The Economist January 14th 2017 Europe 49

2 members on his blog. But the effect on the in the Balkans, “is that it did anything at broader electorate could prove more da- all.” Judge Carmel Agius, the president of maging. The M5S has always insisted that, the tribunal, admits it has been “a troubled by ignoring ideology, it can cherry-pick journey” but is proud ofits achievements. policies that work. The European Parlia- The tribunal’s biggest failure was its in- ment fiasco suggests that it simply lacks ability to convince people in the former principles. It also sheds a disturbing light Yugoslavia that it was impartial. Many in on the ability of Mr Grillo (pictured) to the region saw it as a foreign imposition. It mesmerise his acolytes into backing con- was created by outsiders at a moment tradictorypositions. The percentage voting when the world had the will to demand foran alliance with ALDE was almost iden- justice for war crimes wherever they were tical to that three years earlier for cosying committed. But trials have dragged on for up to the radicals ofthe EFDD. years, and judges and lawyers are paid The M5S has nevertheless shown a re- handsomely. People in the former Yugosla- markable capacity for survival. And be- via, Mr Agius says, suffer from a habit of cause of a Constitutional Court decision “blaming foreigners or someone else” for on January 11th, it is unlikely to face the their disappointments. But, he says, “not a electorate soon. The judgesstymied a refer- single mass grave would have been exca- endum aimed at nullifying the centrepiece vated” ifthe tribunal had not existed. ofa 2014 employmentlaw—the main struc- Mirko Klarin, a journalist who urged tural reform of the previous government, the court’s creation in an article in 1991, led by Matteo Renzi. Mr Renzi, who re- says one success was expanding the defini- signed after losing an earlier referendum A man of many principles tion of war crimes. Yet this, he thinks, may on constitutional reform, continues to have been the court’s downfall. Starting in head the PD. The governmentofhissucces- are expected to deal with both of them be- 2012, several acquittalscalled into question sor, Paolo Gentiloni (also ofthe PD), had in- fore then. Sergio Mattarella, Italy’s presi- the court’s “command responsibility” dicated that, rather than face a vote that dent, is reluctant to call an election before precedents, which held leaders culpable might have nullified Mr Renzi’s proudest the country has a new election law. Since for war crimes committed in operations achievement, the government would join such laws are notoriously hard to agree on, they had ordered but not directly led. calls to dissolve parliament and hold elec- Mr Gentiloni could be prime minister for Many observers believed that powerful tions, which would have postponed the longer than either he or Mr Renzi expected. Western countries worried that such stan- referendum for a year. If, that is, his health holds. He underwent dards might be applied to theirown armed Two other labour issues will be put to a heart surgery after feeling unwell on his re- forces or politicians, and used their influ- national vote in the spring, but ministers turn from Paris on January10th. 7 ence to turn the tide. The suspicion that war-crimes tribu- nalsare an alien imposition also afflicts the The Yugoslavia and Kosovo tribunals new Kosovo court. In fact the court is not a UN body. It is a tribunal set up under Kos- Better than nothing ovo law, with foreign judges, funded most- ly by the EU and in response to allegations made in a Council of Europe report in 2011. (One was that several prisoners held by what was then the Kosovo Liberation Army were murdered fortheirorgans.) Flo- THE HAGUE rina Duli, who runs the Kosovar Stability As one war-crimes court shuts down, anotherstarts up Initiative, a think-tank, says many of her TWASa historicdayforinternational jus- ing indictments for Kosovars accused of compatriotsare convinced thatthe new tri- Itice, but it did not look like it. On Decem- crimescommitted between 1998 and 2000. bunal is a tool of “big countries and the ber 15th Ratko Mladic sat in the dock at the Created in 1993 by the UN Security European Union”. They think the threat of UN’s Yugoslavia war-crimes tribunal in Council, the Yugoslavia tribunal ultimate- indictments will be used to blackmail The Hague, grumblingand readinga news- ly indicted 161 people and sentenced 83 of Kosovar leaders to do what the Europeans paper. When the prosecutor accused him them. “Its greatest success,” says Eric want, such as keeping the EU-sponsored of organising the massacre of more than Gordy, the author of a book on war crimes dialogue with Serbia going. 7,000 Bosniak Muslim men and boys after David Schwendiman, the prosecutor, the town of Srebrenica fell to his Bosnian 120 km concedes that the aims ofthe new tribunal SLOVENIA HUNGARY Serb forces in 1995, he wagged his finger in Zagreb are more modest than in decades past. His denial. It was the last day of his trial, Ljubljana work may not deter fighters from commit- CROATIA ROMANIA though the verdict could be a year in com- Belgrade ting crimes in Syria. Still, he sees a duty to ing. Verdicts about the court itself, mean- build a body of law with which to try such while, are already being handed down. BOSNIA Srebrenica criminals when the political will to do so The case against Mr Mladic brings to an SERBIA returns. In the meantime, the tribunals end the trials of the important figures in- Adriatic SeaSarajevo “[help] people learn what happened, but dicted by the tribunal. (Appeals are being MONTE- Pristina not be consumed by it.” As an effort to re- NEGRO dealt with by another body.) In the Bal- Podgorica KOSOVO cord history, the Yugoslavia tribunal with kans, there is widespread disappointment its archive of millions of pages is an undis- ITALY Skopje at the role it has played. Meanwhile, as one Tirana MACEDONIA puted success. That, and the convictions it tribunal shuts down, a new one forKosovo has achieved, says Mr Gordy, are “defi- was launched in the Netherlands on Janu- ALBANIA nitely better than nothing—and most con- ary 1st. Later this year it should begin issu- GREECE flicts get nothing.” 7 50 Europe The Economist January 14th 2017

Political fragmentation come of Europe’s richest 10% grew almost three times faster than that of the poorest Going to bits 10%, according to the OECD, a club ofmost- ly rich countries. As wages became more dispersed, voters’ preferences grew more polarised, with the rich supporting the sta- tus quo and the poor opposing it. Polarisa- tion among the public begets fragmenta- tion in parliament. At the same time the Europeans are splitting theirvotes among evermore parties values of urbanites increasingly diverged FTER two months and three failed from those of rural folk. Such splintering Arounds of negotiations, Iceland has a Splintering creates distinct pockets of voters to which government at last. On January10th Bjarni Europe, parliamentary elections, average: smaller parties can appeal. Benediktsson, leader of the Independence share of the vote received number of parties with Anotherfactorisplummetingparty loy- Party, announced that he had struck a deal by the winning party, % more than 1% of the vote alty. In the 1960s roughly 10% of Britons with two other centre-right groups. Yet his 40 10 were members of a political party. Today a tenure as prime minister may be short. Op- 38 9 mere 1% are. A similar pattern holds across position politiciansare alreadycalling for a Europe. Mainstream media organs once vote of no confidence and fresh elections. 36 8 tended to support one of the two main po- And even if the coalition survives for the 34 7 litical powers and cover only a handful of moment, with a measly one-seat majority, curated topics. Today politics can be more it is unlikely to last long. 32 6 personal. An ardent green votermight read Iceland is not alone in its coalition- 30 5 only environmental news, sharing it with buildingwoes. AcrossEurope politics isbe- like-minded souls on social media. coming more fragmented and govern- 1950- 60- 70- 80- 90- 2000- 15- Some electoral systems are designed to ments harder to form. Smaller parties, 54 64 74 84 94 04 16* keep smaller parties out ofpower, thus dis- Five-year averages among them populists and single-issue couragingfragmentation. Butthese mecha- Sources: ParlGov database; The Economist *2015-16 only outfits, are popping up and stealing sup- nisms are less effective than they used to port from the traditional powers. In the be. Greece awards a 50-seat bonus to the early 1980s the average number of parties theysiton the political spectrum, the fewer winning party. Yet Syriza, the ruling left- winning more than 1% of the vote at each laws they will pass. wing outfit, still failed to secure a parlia- election was seven. Now it is nine. Mean- Because coalition governments have mentary majority after the latest election while the share of the electorate that the more mouths to feed, they can be expen- in 2015. Even Britain, which has a first-past- winner claims has fallen from 37% to 31%, sive. One paper by Kathleen Bawn and the-post system, was forced into coalition on average (see chart). Frances Rosenbluth, both political scien- government after the 2010 election. tists, looked at public-sector expenditure One strategy for coping with fragmen- Party up across 17 European countries from 1970 to tation is to form so-called “grand co- In many ways, a greaterdiversity ofparties 1998. It found that adding a party to a co- alitions” of parties across the left-right di- is a good thing. It allows more voices to be alition increased spending by 0.5% of GDP. vide. Such coalitions currently govern in heard, and can increase citizens’ engage- For countries with strong economies and Germany, Austria and the Netherlands. Yet ment with politics. But it also has draw- low debt, such as the Netherlands, this this often reinforces the dynamic: voters backs. The most obvious is time-consum- may not be a problem; for countries like become frustrated by the colourless cen- ing coalition wrangling. Irish lawmakers Greece and Italy it is. trism of such governments, and drift fur- took 63 days to strike a deal after an elec- One reason for rising fragmentation is ther to the extremes. On the bright side, tion last March. In OctoberSpain’s Popular growing inequality, explains Simon Hix of this brings even more political diversity. As Party cobbled together a minority govern- the London School ofEconomics. Between forthe darkside ofpolitical fragmentation, ment following ten months of political the mid-1980s and 2008 the disposable in- Europe may simply have to live with it. 7 deadlock and two elections. After a 2010 ballot Belgians went a record 589 days without a government. Such awkward coalition governments tend to be shorter-lived than those with fewer parties and clearer mandates. Since 1970 single-party majority governments in rich European countries have lasted around 1,100 days. Minority coalitions made it less than halfthat time. In addition, coalitions made up of widely disparate parties struggle to pass laws. Finland’s current government, made up of two centre-right parties and the True Finns, a populist, nationalist outfit, came to blows in 2015 over a proposed health-care reform. After more than a year of negotia- tionsand the prime ministerthreatening to dissolve the parliament, a deal was finally struck in December 2016. Studies suggest that this fits a pattern: the more parties there are in a coalition or the farther apart The Economist January 14th 2017 Europe 51 Charlemagne The cruel sea

The Mediterranean will be at the heart ofMalta’s EU presidency—forall the wrong reasons EU partners went nowhere. Its relationship with Italy soured in rows over responsibility for migrants picked up at sea. How things have changed. Thanks, say some, to a mysterious deal between Italy and Malta not acknowledged by either side, few irregularmigrants now disembarkin Malta; the Central Med- iterranean route runs almost exclusively between Libya and Italy. More importantly, a separate crisis in the Eastern Mediterranean jerked migration to the top of Europeans’ concerns. The refugee crisis of 2015-16, when over 1m migrants hopped from Turkey to Greece and thence towards Europe’s heart, so traumatised Eu- rope’sleadersthattheyhave turned to the Central Mediterranean route with renewed vigour. Here the numbers have edged rather than rocketed up: 181,000 reached Italy in 2016. The difference is that they now have Europe’s attention. Perhaps the trickiest task of Malta’s presidency will be an in- ternal one: brokeringagreement amongthe EU’s governments on how to share the burden of irregular migration. But Joseph Mus- cat, the prime minister, has bigger ideas. He wants the EU to strike deals with African countries similar to that agreed with Turkey in March 2016, which drastically slowed the flow of migrants to Greece. Details are unclear, but Mr Muscat mentions joint naval LL that concerns the Mediterranean is of the deepest inter- patrols of North African waters. Others have revived an old no- “A est to civilised man,” wrote Edward Forbes, a 19th-century tion of offshore asylum-processing centres in Egypt and Tunisia. naturalist. Europe’s great sea will loom large as Malta, the Euro- “I’m aware these are controversial ideas,” says Mr Muscat. “But pean Union’s smallest member, takes up the rotating presidency there is no other option.” He will advance his arguments at an EU of its Council of Ministers for the first half of 2017. That is fitting, summit in Malta next month. forthe Mediterranean has defined the destiny ofthis speck south The prime minister says most EU leaders agree with him. But of Sicily. The Great Siege Road, which runs along the northern the Turkey deal offers few lessons for Africa. Almost half of the edge of Valletta, Malta’s handsome capital, recalls the island’s re- migrants in Greece last year fled the civil war in Syria. But most of pulsion of Ottoman invaders in 1565, an act of defiance that reso- the migrants in the Central Mediterranean are seeking better nated across Christian Europe. A covetous Napoleon said con- wages, not fleeing war, which means their asylum bids are likely quering the strategically located island was “worth any price”. to fail. Failed asylum-seekers are devilishly difficult to deport, as Centuries later a bull-headed Maltese prime minister shoe- countries like Germany have been learning. And where Turkey is horned a chapteron Mediterranean securityinto the Helsinki Ac- well governed (if increasingly despotic), Libya is in chaos. This cords, a cold-war compact between the West and the Soviet bloc. weekItalyreopened itsembassyin Tripoli and signed a migration Yet Malta’s fellow Europeans have not always been so inter- and security agreement with one of Libya’s two governments. ested in the Mediterranean. The accession ofMalta and Cyprus to But such is the volatility in Libya, says Mark Micallef, a Maltese the EU in 2004 marked the end of the club’s expansion in the re- Libya-watcher, that there is no guarantee Italy will have any gion. An ill-fated “European Neighbourhood Policy” failed to partner at all in a few months. drawthe littoral statesto the eastand the south closer to the EU. In 2008 Nicolas Sarkozy, then France’s president, launched a 43- The thick blue line country “Union for the Mediterranean” to much fanfare but zero The Mediterranean is not without hope. Against the odds Tuni- effect. Since then the menace of Russia and the plight of Ukraine sia, just 300 milesfrom Malta, is consolidatingits post-revolution- have drawn European attention eastwards. To the south, the EU ary democracy. The EU seems determined to buttress Libya’s no- has merely watched helplessly as the promises of the 2011 Arab tional government, if only to have a partner to help it stem the uprisings were swallowed by counter-revolution and civil war. migrant flows. To Malta’s east, hopes are high that 2017 may final- Today the Mediterranean may be back, but not for happy rea- ly bring an end to the decades-long division ofCyprus (reunifica- sons. If, in the words of David Abulafia, a historian, the sea was tion talks were beingheld as The Economist went to press). A Cyp- once “the most vigorous place of interaction between different riot deal could improve the EU’s relations with Turkey, unlock oil societies on the face of the planet”, for Europe it now represents and gas supplies in the eastern Mediterranean and smooth the only danger and instability. Malta’s presidency plan draws atten- burgeoning relationship between the EU and NATO. tion to the Mediterranean’s “ongoing conflict, socioeconomic But the EU has cleaved the sea in two. “Club Med” may have challenges, terrorism, radicalisation and human-rights viola- struggled inside the euro, but EU membership has consolidated tions”. Analysts warn ofa “wall ofpoverty” to Europe’s south. democracyin Portugal, Spain and Greece. Malta itselfis economi- Chief among the concerns, of course, is migration. This is cally thriving and a far more relaxed place than the hidebound nothing new for Malta; between 2002 and 2012 thousands of ref- country that joined the EU in 2004. Outside the union, to the ugees fleeing war-torn African states like Somalia and Eritrea south and east, the Mediterranean is a sea of troubles. Malta’s threatened to overwhelm the tiny island. Utterly unprepared for politicians have often warned that if the EU fails to export stabil- the arrivals, the Maltese shoved them into grim detention cen- ity to its southern neighbourhood it will find itself importing in- tres, which remain open today. Malta’s bid for solidarity from its stability instead. So far, they have been proved right. 7 52 Britain The Economist January 14th 2017

Also in this section 53 Firms prepare for fewer migrants 54 Bagehot: Keeping the post-Brexit economy airborne

For daily analysis and debate on Britain, visit Economist.com/britain

Northern Ireland the politics ofthe past year, which they say exposed Mrs Foster’s opposition to the Into the unknown principle of “parity of esteem” in which the parties are supposed to hold each oth- er. In recent years there have been signs of deepening disillusion with the Assembly in the republican strongholds of Belfast BELFAST and south Armagh. Although Sinn Fein Amid simmering frustration with the political settlement, a sudden resignation leaders, among them Mr McGuinness, pitches the region into crisis have been willing to keep trying in the As- OARSE of voice and frail in demea- gion £490m ($600m). Mrs Foster initially sembly, many at the grassroots have con- Hnour, the Martin McGuinness who said she could not be expected to scruti- cluded that Stormont is a waste oftime. announced his resignation from Northern nise “every single jot and tittle” in her de- A key moment came in December Ireland’s government on January 9th was partment. But later she admitted there had when one of Mrs Foster’s ministers cut a different figure to the strapping Irish Re- been “a catalogue ofmistakes”. She has ac- £50,000 in funding for teaching the Irish publican Army (IRA) commander that the cepted that an investigation should go language, which republicans regard as a public once knew. MrMcGuinness’s trans- ahead, but maintains she did no wrong touchstone issue. A curt e-mail to teachers formation over the past few decades, from and thus need not stand aside. Facing a announced: “Because of efficiency sav- a member of a terrorist organisation to the barrage of criticism, she declared: “There’s ings, the department will not be providing region’s second-most senior politician, ex- a lot of it personal…a lot of it, sadly, mi- the Liofa bursary scheme in 2017. Happy emplifies the change that Northern Ireland sogynistic as well.” Christmasand HappyNewYear.” On Janu- has undergone. Now his resignation from Votersmaysoon getthe chance to deliv- ary 12th the move was reversed, but by office—and, perhaps, permanent with- er their own verdict. Mr McGuinness’s res- then the damage had been done. drawal from politics—has created a crisis in ignation as deputy first minister has As the government in London works to the region at a time when it already faces brought the operation of Belfast’s de- steady Northern Ireland’s political settle- grave threats to its stability. volved administration to a shuddering ment with one hand, it is rocking it with The departure of Mr McGuinness, a halt, since its rules demand that it be joint- the other. The vote last year to leave the member of Sinn Fein, was provoked by ly headed by a unionist and a republican. European Union—in which the Northern what he called “the most crude and crass The British government is holding talks to Irish voted to remain—presents several bigotry” of the Democratic Unionist Party patch things up between Sinn Fein and the problems. The Good Friday Agreement of (DUP), with which Sinn Fein shares power. DUP. If those efforts fail—as most believe 1998, which established Northern Ireland’s In one year as first minister the DUP’s they will—a new election is on the cards. devolved government, was signed on the leader, Arlene Foster, has proved to be a Such a contest would be “brutal”, Mrs assumption ofBritain and Ireland’s shared flinty head of government who, national- Fosterhas said. Both the DUP and Sinn Fein EU membership. The Supreme Court is ists complain, shows little flexibility in her would face challenges from smaller oppo- currently considering whether Northern dealings with Mr McGuinness and others. sition parties. But in Northern Ireland, Ireland’s Assembly should therefore be The final straw came when it emerged where old voting habits die hard, the DUP consulted before the government can trig- that a green-energy initiative she organ- and Sinn Fein would be favourites to gerArticle 50, the legal route to Brexit. Ifthe ised as enterprise minister in 2012 would emerge again as the main forces. The num- court rules in favour, elections in Northern cost breathtaking sums of money. Busi- ber of seats in the Assembly at Stormont is Ireland could delay the process. nesses received large subsidies to keep due to fall from 108 to 90 in a cost-saving ex- Nor does anyone in London yet have a wood-fired boilers going—even to heat ercise. Small parties are likely to lose out. good answer to the question of what will empty sheds—in what has been dubbed Whatever the outcome of any election happen to the open border with Ireland in the “cash for ash” or “burn to earn” affair. or inquiry, republicans are already insist- the eventthatthe United Kingdom opts out The scheme could eventually cost the re- ing that they will not agree to a return to of the free movement of people to and1 The Economist January 14th 2017 Britain 53

2 from the EU (see next story). A harder bor- valuable in assuring republicans that it is of the pound since the referendum, a good der, including checks on people and goods, worth keepingStormont going. And he has number of Polish drivers have not both- could rattle both Northern Ireland’s econ- built bridges with unionists, too. Talking to ered to return to Britain after the Christmas omy and its political settlement. the queen last year he asked about her break. In this sense, argues Mr Semple, It would be a bad time to lose Mr health and she was overheard replying: Brexit has come early. So his organisation is McGuinness from politics. He will not say “Well, I’m still alive anyway.” His friendly trying to rebrand the industry to attract what explains his sudden poor health, nor relationship with the queen, a second school-leavers. Driving a lorry was seen as whether he will fight the next election. cousin of whom was murdered four de- dull, smelly and underpaid; now, appar- During ten years as deputy first minister cades ago by the IRA, shows how farthings ently, it’s an IT-driven essential service. his authority and charisma have been have come—and how much is at stake. 7 Anotheroption isto widen Britons’ par- ticipation in the labour market. The Reso- lution Foundation, a think-tank, estimates European migrants and business that a further2.6m people, including the el- derly and disabled, could join the work- Labour pains force by 2020. The question is how to tempt them in. Higher pay could help: the minimum wage isdue to rise to £9 perhour by 2020. Yet businesses may struggle to foot these extra costs. From April any firm with an annual wage bill ofmore than £3m Businesses will have to adapt quickly to survive the expected loss ofworkers from will face a new “apprenticeship levy”. Europe. Some are already doing so Businesses are also grappling with a new Y RIGHTS, the general manager of the requirement automatically to enroll em- B Royal Lancaster shouldn’t have much All work and no stay ployees in pension schemes. An idea float- to worry about. With sweepingviews over EU nationals working in Britain by industry ed by the immigration minister on January Hyde Park and a glitzy history of hosting Q2 2016, % of all workers 11th, to charge businesses £1,000 a year for footballers and pop stars, the posh central 0102030 every skilled EU worker that they employ London hotel has ticked along nicely since Domestic staff 18 post-Brexit, got a cool reception and was Accommodation it opened in 1967. Now, however, Sally Beck and food services 243 hastily withdrawn. has a headache: Brexit. And, specifically, Manufacturing 311 An alternative would be to invest in la- how she will keep going if that means los- bour-saving technology. Some Brexiteers ing unfettered access to workers from the Transport and storage 154 see this as a bonus of leaving the EU: de- Administrative and European Union. support services 144 prived of cheap labour, companies would Like many hotels and restaurants, the Construction 210 be forced to become more efficient, and Royal Lancaster depends on migrants. Wholesale, retail, Britain’s low rates of productivity would About half its staff, including a third of its repair of vehicles 277 improve. Ms Beck, for example, says that Agriculture, forestry 22 managers, were born in continental Eu- and fishing Brexit is speeding up her plans to phase in rope. These proportions are common in Health and social work Total, ’000 215 automated minibars at the Royal Lancas- the capital, and even in the regions can be ter. The ordinary sort take many man- Source: Labour Force Survey as high as 40%, says Ufi Ibrahim, the head hours to check and restock, whereas auto- of the British Hospitality Association, a mated oneshave sensorsthattell reception lobbygroup. Overall, the hospitality indus- workers. Even if those Europeans already when a guest is raiding the brandy. The Ag- try—the country’s fourth-largest by in- employed in Britain are granted the right to riculture and Horticulture Development come—employs 4.5m people, of whom at stay after Brexit, as seems likely, the flow of Board, a quango helpingfarmers to moder- least 700,000 are from the EU. new migrants could reduce to a trickle in nise, is funding experiments in automated Other industries are similarly reliant on just a couple of years. Bosses are therefore broccoli-harvesting. Brexit has given such EU workers (see chart). Jack Semple of the being compelled to rethink their employ- tests an added urgency. Road Haulage Association, an industry ment practices. The options before them Yet there are limits to how easily man- group, estimates that Britain has 600,000 are not enticing, but they could change the power can be replaced by machines. Broc- licensed lorrydrivers, ofwhom atleast 10% way that Britain does business. coli is pretty robust, but picking soft fruit are from the EU, mostly the eastern part. In The employers’ main problem is a tight like raspberries will probably have to be agriculture the proportion of EU workers labour market. Employment is at a record done by hand forthe foreseeable future. So rises in the summer, to pick fruit and vege- high. Most studiesagree that, in general, EU farmers are hoping that, if free movement tables. There are also large numbers work- migrants have not displaced many British does come to an end, the government will ingin health and social care. Overall the to- workers, nor put much downward pres- reinstitute the Seasonal Agricultural Work- tal of EU citizens in Britain more than sure on wages. Rather, Britain’s relatively ers Scheme, abolished in 2013. Ministers trebled, from 0.9m in 1995 to 3.3m in 2015, fast-growing economy has created mil- have dropped hints that such visa schemes followingthe accession of13 newcountries lions of jobs. Equally, argues Jonathan could be established in farming and other to the EU after 2004. Wadsworth of the London School of Eco- industries. At least, maybe. For some industries it is thus the free nomics, immigrants’ need for housing, If they are not, and if recruiting Britons movementoflabourthatisthe mostprized food and transport has created more op- or robots to do the workturns out to be too advantage of being in the EU—more even portunities. So it is idle to presume that difficult or expensive, firms have another than membership of the single market. Yet there is an army offrustrated, unemployed option: to up sticks and move to another Theresa May, the prime minister, has indi- British workers ready to pick up the span- country with a good supply of labour. The cated that controlling immigration from ners ofdeparting Polish plumbers. hotel business, by its nature, can’t do this. Europe will be central to her approach to Still, this does not mean that businesses But industries such as food manufacturing Brexit. And on January 10th Jeremy Cor- cannot do more to recruit in Britain. Take could. If Britain’s firms cannot import byn, Labour’s leader, said he was no longer road haulage. Hauliersalreadyface a short- enough workers, the country may simply “wedded” to the free movement of EU age ofdrivers. With the 13% fall in the value export their jobs. 7 54 Britain The Economist January 14th 2017 Bagehot Staying airborne

Britain’s globetrotting chancellorponders the country’s post-Brexit economic model markets is slow, hard work. “Youdon’t just wake up one morning and say: ‘I thinkI’ll take the Chinese market today.’ Youbuild. You build your product’s presence, your business presence, your net- works, your distribution capability, confidence in your brand. It all takes time.” Hence the urgent need for clarity about Brexit. He compares British firms to patients in hospital: whether the news is good or bad, they want to know it. Hence, too, his fiscal policy. In November he ditched a plan to reach a surplus by 2020, giving himself room to cushion any shocks (though not this year, he says, ifGDP growth hits the projected 1.4%).

Fasten your seat belts So far, so “Spreadsheet Phil” (the chancellor has a reputation for dour competence). But he becomes exuberant on turning to the government’s second Brexit-related job: building new sources of growth. He says Britain is better than Germany at moving fast to grab new opportunities—“We accept that things can change quickly”—citing London’s success since 2002 at luring interna- tional firms put off New York by the Sarbanes-Oxley Act, which tightened America’s corporate governance rules. What would a similar British coup look like now? Here he waxes optimistic O FLYin one ofthe Royal Air Force planes that ferry ministers about biotechnology, synthetic technology (creating new indus- Tabout the world is to experience a corner ofold, imperial Brit- trial materials) and “fintech” (where Britain’s deep capital mar- ain. Under a framed black-and-white picture of Balmoral Castle, kets give it an edge even over Silicon Valley, he argues). He is scep- uniformed pursersserve afternoon tea. Aneatpile oftweed blan- tical about the claim by Andy Haldane, the Bank of England’s kets sits in a basket, the seats and carpet are a faded royal blue and chief economist, that 15m British jobs could be lost to robots. The the wooden trim bears the queen’s cipher (“EIIR”) in swirly let- costs of capital may rise, making human labour more competi- ters. A photo of the plane somewhere in the Middle East illus- tive; firms and individuals adapt and find new work (“Didn’t we trates the safety leaflets. Like the inside of Downing Street, it has have this discussion…20 years ago about shorthand typists?”). In the grand-shabby air of a posh hotel that has seen better days. any case, “If anywhere in Europe is going to get [a Google-type The jet shudders and creaks through the air: Downton Abbey technology giant], culturally the UK is in the best position.” with jet engines attached. Yourcolumnist was struck by the contrast with Theresa May. Such were Bagehot’s impressions on January 9th when he ac- Askthe prime ministerto name the country’seconomic strengths companied Philip Hammond, the chancellor of the exchequer, and she will probably mention the same things as herchancellor. back from a visit to Dublin. Another was the plane’s symbolism But the two differ drastically on the costs they attach to them. For of Britain’s reinvention over the past four decades; its shaping of Mrs May, the dislocation caused by a freewheeling labour mar- the remnants of empire into a new economic role. Remnants like ket, the excesses associated with deregulation, the rift between its merchant banks and insurance houses, universities, language, services-rich boomtowns and forgotten, post-industrial regions vast soft power and trusted legal system, which it successfully put their very legitimacy and sustainability in question. In a parlayed into specialisations in services and high-end manufac- speech on January 8th she argued that the Brexit vote was about turing. From Margaret Thatcher onwards, governments of left much more than EU membership: it was a rejection of “laissez- and right strived for the right conditions: an open and flexible la- faire liberalism”. Mr Hammond recognises no such crux: bour market, low inflation, a liberal regulatory regime, modest “Where’s the evidence for the assertion that the Brexit vote was taxes and tariffs. Britain’s prosperity was built on imperial traces, saying something about this or that or the other? It was saying memories and networks that live on, and span the globe. something about Britain’s membership of the European Union.” Ofthat Mr Hammond has more experience than most. Before Forhim, those costs can be fixed with the right policies, like better entering politics he exported medical equipment and consulting skills provision and the economic integration of two London- services to Asia, Latin America and Africa. He has been foreign sized agglomerations: the English north and the Midlands. secretary. As chancellor he is travelling the world proclaiming This gap is about more than the differences between the job of that Britain’s liberal business model can survive Brexit. Visiting chancellor and that of prime minister. It is part of a grand debate Kuwait, Qatar and the United Arab Emirates recently, he says he that Britain is having, without noticing, on the basic transaction found investors still enticed by its legal, financial, business and at the heart of its post-imperial business model: more disruption professional services, as well as plain familiarity: “They know (industrial, cultural, social) in return for more prosperity. Current the UK, they’ve got homes here, they feel comfortable.” arguments over immigration, integration, student visas, industri- Brexit, he says, demands two main things from policymakers. al policy, high pay (the Labour Party is flirting with the idea of a First: limit the damage. In a rebuke to his more gung-ho cabinet maximum wage) and, of course, Brexit are all ways of probing colleagues he warns: “If our businesses are cut off from those this. Perhaps it would help to acknowledge this fact more openly. [European] supply chains, it isn’t necessarily the case that tomor- Because one day, in spring 2019, Britain is due formally to leave row they’ll stop producing axle parts and start making, I don’t the EU. It will have Brexited. The question, about which Mr Ham- know, high-end suitcases for the Korean market.” Building new mond has clearly thought more than most, will be: what now? 7 International The Economist January 14th 2017 55

The Guantánamo conundrum Also in this section A legal quagmire that still stinks 57 A military trial

GUANTÁNAMO A stain on America’s reputation is unlikely to be wiped clean soon T IS always twilight in the circular pas- Mecca. Air-conditioning keeps the place of orchestrating the attack on the World Isage where the guards keep watch cool, even cold, inside; some of the detain- Trade Centre on September 11th 2001) are around the clock through wide windows, ees prefer to loaf outside, where noon-day held in Camp Seven, the most hidden and eyeingthe “foreverdetainees” in Camp Six temperatures nudge 38°C. Occasionally a highly guarded block. The remaining 18 at America’s naval base at Guantánamo. prisoner gesticulates towards the window. have been cleared for transfer to third These are the men who are deemed too Aguard puts on a plastic visoragainst what countries. According to the New York dangerous ever to be set free but whose ji- the authorities call “splashing”, meaning Times on December19th, the governments hadist activities were apparently too shad- spitting at a jailer or, in past years when of Italy, Oman, Saudi Arabia and the Un- owy to provide enough evidence to secure prisoners were sometimes “non-compli- ited Arab Emirates were willing immedi- convictions in court. The passage is murki- ant”, throwing excrement or vomit. The ately to accept17 or18 ofthose cleared to go; ly lit so that the guards—and the rare visit- guard opens a door, exposing a narrow four had gone by January 11th. So 41 or 42 ing journalist—can peer through one-way chain-linked limbo between the guards’ may be left in Guantánamo by the time Mr glass unobserved by the detainees. and prisoners’ sections, and asks in sign Trump moves into the White House. The official mantra is that the detainees’ language what is wanted. Usually it is a re- treatment must be “safe, humane, legal, quest, readily met, fortoilet paper or soap. Lock up some more transparent”. But to anyone who believes When your correspondent visited, one Whereas Barack Obama had promised to in innocence until proof of guilt, visiting is prisoner, somehow sensing the journalists empty the place and close it down, during a discomfiting experience. These men, peeringthrough the one-way window, had the election campaign Mr Trump said the however heinous their alleged crimes, propped up a painting ofa white question- opposite. “We’re gonna load it up with have been detained without trial, most of mark on a grey background, with a pad- some bad dudes, believe me, we’re gonna them for more than a decade. They have lock at the bottom instead of a dot. The load it up,” he said in February. Ifhe keeps had little prospect of freedom, or even of most plausible interpretation was that it his word, the remaining prisoners are like- facing trial in America. Though the Carib- expressed uncertainty about the inmates’ ly to stay there, perhaps for life. Conceiv- bean laps against the shore nearby, none of future after January 20th, when Donald ably they could be joined by Islamic State them ever sees it. Trump assumes the American presidency. fighters captured in Iraq and Syria. The In each walled-off section, ten prison- By January 11th 55 prisoners remained camp commanders say they can close the ers or so mill around in a communal area in Guantánamo, all but one said to be prison forthwith if so instructed, or con- with steel tables bolted down. Some “highly compliant”. Yemen had the most versely make room for another 70-100 de- lounge in chairs or on a sofa. A few read. citizens still detained (23), followed by tainees. A cell block being renovated could Five times a day they line up and prostrate Pakistan and Saudi Arabia (six each) and soon caterfor200 more. At its zenith Guan- themselves in prayer, with arrows painted Afghanistan (five). Apart from 22 in Camp tánamo held around 684; up to 780 have on the floor helpfully pointing towards Six, another 15 (including the five accused passed through it. Atleastseven are known1 56 International The Economist January 14th 2017

2 to have committed suicide. monitor, to have been “an absolute disas- former Rhodes Scholar with a stellar aca- When the first al-Qaeda suspects were ter”. Defence lawyers describe them as a demic record at Oxford and Harvard, says flown to the naval base in 2002, members “legal black hole”. A senior man in the In- you cannot compare the commissions ofGeorge Bush’s administration advanced ternational Committee of the Red Cross with a federal court. The commission over- several reasons for holding them there. If describes Guantánamo as “a Kafkaesque sees a “sharply adversarial process” they were jihadists determined to wage legal conundrum”. where, since the reforming act of 2009, war on Americans and other Westerners, The accused have much weaker rights “much greater weight is given to the de- they should be held for the duration of than in a federal court. Instead of a ran- fence.” The accused, he insists, are given a hostilities to prevent them from returning domly selected jury of civilians, the “con- fair trial. Court-martials, he avers, have a to the battlefield, like prisoners-of-war in vening authority” in the person of the pre- higher acquittal rate than civilian courts. any conflict. While incarcerated, they siding military judge chooses fellow The accused in Guantánamo, he claims, might provide useful intelligence, helping officers. “Many of the protections in nor- have sturdier legal defences than those at to prevent furtherterrorist atrocities. mal courts are stripped away,” says David Nuremberg after the second world war. However, as “unlawful enemy combat- Nevin, defence lawyer for Khalid Shaikh ants” who followed none of the laws of Mohammad, the alleged chief planner of Looking forthe key war, Mr Bush’s lawyers reasoned, they the September 11th attacks, known widely Perhaps the biggest puzzle is why Mr were not entitled to all the protections of as KSM. “There isno requirementforthe ac- Obama has failed to fulfil his promise to the Geneva Conventions, such asthe rights cused to be brought speedily to trial [as un- close the place down. Plainly he found it not to be interrogated, and to correspond der the constitution’s sixth amendment]. much harderthan he had expected. At first, with families. And since they were being He was taken into custody in 2003 and according to some in his inner circle, he held outside America, they fell outside the held incommunicado for three-and-a-half was persuaded to keep it open temporarily jurisdiction ofAmerican courts. Moreover, years. He had no lawyer until 2008. The as a bargaining chip with Congress in his so the argument ran, since al-Qaeda views prosecution did not start until 2012. There quest to enact contentious domestic re- its war against the West as eternal, it may is no right to exclude coerced statements; forms, for instance in health care. Soon never formally end, so its captured adher- no exclusion of evidence derived from tor- after he came to office, he did manage to ents could be held indefinitely. ture; no ban on hearsay evidence.” The list improve the commissions, getting Con- Starting with Camp X-Ray, where the ofshortcomings could go on. gress to pass an act that gave detainees a spectacle of shackled and blindfolded de- The trial proper has yet to begin. The wider scope for defence and brought in re- tainees in cages appalled people world- irony, as another lawyer puts it, is that “if view boards that allowed prisoners every wide, including many who had sympa- KSM had been tried before a grand jury in six months to argue forrelease. He also ap- thised with America after September 11th, New York the trial would have been over pointed “special envoys for Guantánamo the camps rapidly filled up. Nearly all the years ago”—and would probably have led closure”. These speeded up transfers of de- prisoners had been handed to the Ameri- to a conviction. He was recorded on Al Ja- tainees to third countries, more than 40 of cans by allies in Pakistan, Afghanistan and zeera, a Qatar-owned television channel, which (including such strange bedfellows elsewhere, often with the lure of bounties. boasting of masterminding the September as Albania, Cape Verde, Estonia, Kazakh- Many turned out to be marginal figures 11th attack. His lawyers’ best approach is stan, Palauand Uruguay) have agreed to re- who had tenuous, ifany, links to al-Qaeda. probably to stress the CIA’s admission that ceive some of those set free. Recently For the first few years the camps were it had tortured him forseveral years. Oman, Saudi Arabia and the United Arab ill-run and the inmates mistreated. Accord- A further indictment of the commis- Emirates have been the most willing. ing to Clive Stafford Smith, a British lawyer sions is that, ten years after they were set But as relations with Congress wors- who has defended a clutch of prisoners up, they have achieved only eight convic- ened and he lost control to the Republicans from the beginning, for four years all were tions, of which four have been wholly or after 2010, Mr Obama found himself held incommunicado; no one even knew partly overturned. Only ten detainees in blocked on virtually every front. Even their names. After 2006 a new batch of Guantánamo are currently facing trial or though a number of leading Republicans, supposedly high-value prisoners, includ- awaiting sentencing. The rest are simply such as Senator John McCain, had called ing the alleged planners of September 11th, detained without trial. forGuantánamo to be closed, it became an arrived, having been tortured by CIA But the prosecutor in the two biggest article of faith for most of Mr Obama’s op- agents, among others, in secret “black cases, Brigadier-General Mark Martins, a ponents and many Democrats that it1 sites”, in contempt of international law and America’s own values ofjustice. As unease mounted at home and espe- Offloading them cially abroad, Mr Bush sought to create the Guantánamo, number of people detained/transferred Jan 2017: End of Obama presidency, semblance of a judicial system by getting SEPTEMBER 11TH ATTACKS May 2006: Bush says he would like to close Guantánamo camps 41 or 42 prisoners* Congress to pass a law creating “military 750 commissions” where some of the prison- Oct 2006: Congress enacts Military Commissions Act DETAINED allowing detainees to be tried in new hybrid courts ers could be tried. The Supreme Court be- 500 Feb 2016: Donald Trump gan to nudge the camps towards at least Jan 2009: End of Bush says he will “load it up presidency, 242 prisoners with some bad dudes” partiallydeferringto American law, declar- 250 ing that detainees had the right to petition Jan 2009: Obama Jan 2002: First detainees arrive issues executive order to close detention facilities for habeas corpus to challenge the reasons 0 for their confinement. Later Mr Bush him- Sep 2009: Congress amends Military Commissions Act to set up Periodic Review Board self began to call for the camps’ closure. By 250 Dec 2014: Senate report on CIA’s the time Mr Obama tookoffice, saying that Jun 2004: Supreme Court rules detention programme reveals he would close them within a year, the that prisoners may petition widespread use of torture for habeas corpus in “black sites” 500 tally of detainees had fallen to around 242. TRANSFERRED Since March 2008 no more have arrived. 750 Virtually all human-rights lawyers con- 200102030405060708091011121314151617 PRESIDENT: GEORGE W. BUSH BARACK OBAMA sider the commissions, in the recent words Sources: New York Times; The Economist *Predicted ofHuman Rights Watch, a New York-based The Economist January 14th 2017 International 57

2 should stay open. Hillary Clinton, among Was he truly the mastermind or just a others, began to wobble, though she had foot soldier within al-Qaeda? Above all, previously declared that Guantánamo re- may the fact that he was tortured, admitted cruited more terrorists than it kept off the by the CIA, be used in his defence? What battlefield and had suggested holding about the videos of his interrogation, trials, perhaps including military commis- which may have been destroyed? “You sions, in mainland America. need to hear from the torturers them- Mr Obama, too, had at first hoped to selves,” says Richard Kammen, Mr Nash- bring the alleged planners of September iri’s chief lawyer, who for decades has de- 11th to trial before a federal court in New fended, with notable success, Americans York. But when a wave of emotion was facing the death penalty. stirred up by the president’s foes against The court feels not at all martial, more the idea that the mass-murderers could like a conference room in a dreary hotel. ever set foot on American soil, he quailed. The six rows of desks allocated to the ac- And when he campaigned for re-election cused are furnished with computer in 2012, some of his most influential advis- screens; the five defendants in the Septem- ers were adamant that if detainees were ber 11th case are being charged together in brought to the mainland and tried in feder- the same room. The onlyclue thatthis isno al courts or even before the new military ordinaryforum are the shackles, unused in commissions, he would lose his job. Mr Nashiri’s case, screwed into the grey The Department of Justice and the Pen- carpetbeside each ofthe defendants’ seats. tagon encouraged Congress to be obstruc- Behind a window is a soundproofed gal- tive, citing, amongotherthings, an analysis A military trial lery for 50-odd visitors, including family ofthe freed detainees. A report from the di- members of the victims of the accused. rector of National Intelligence concluded Through a glass, There are curtains they may draw, should that of 647 former detainees under scruti- theywish to weep. The audio transmission ny, 18% have definitelyreverted to jihad and silently has a 40-second lag so that the judge can 11% are suspected of doing so. But of those switch off any mention of classified infor- released since Mr Obama came to office, mation. Mr Nashiri’s lawyers repeatedly GUANTÁNAMO MILITARY COMMISSION the recidivism rate has dropped sharply; ask for information to be aired that the The endless wait ofan alleged al-Qaeda only nine, according to the National Secu- prosecution claims would jeopardise na- killer, tortured by the CIA rity Council, have definitely “re-engaged” tional security. with jihad. Yet, says Brigadier-General HE accused, Abd al-Rahim al-Nashiri, a It is more than a decade since Mr Nash- Martins, “By letting them go you could be Tdiminutive, clean-shaven Saudi aged iri, having been nabbed in Dubai in 2002, sentencing someone else to death.” 52, looks innocuous as he shuffles into was waterboarded in one of the CIA’s Among Mr Trump’s picks, General James court between two burly guards, a blue- “black sites” (secret interrogation cells in Mattisassecretaryfordefence and General gloved hand on each of his shoulders. A places such as Poland or Thailand). He was John Kelly at homeland security are said young paralegal in his defence team em- probably first held in Afghanistan. A recent strongly to support keeping Guantánamo braces him. If found guilty by a jury of memoir by a CIA interrogator (“Enhanced open. Mr Trump, by the by, has said torture handpicked uniformed officers, he faces Interrogation” by James E. Mitchell) de- is sometimes necessary. the death penalty. scribes how Mr Nashiri kept slipping off Mr Nashiri is one of Guantánamo’s 15 the contraption he was tied to, because he Missing the early boat most “high-value” prisoners, kept in a spe- was too slight for the straps holding him Yet Mr Obama repeatedly declared his in- cial jail known as Camp Seven whose lo- down when he was immersed in water. tention to close the place—and admitted cation has never been made public. He is It is public knowledge that, over the last year that he should have done so on charged with masterminding an attack by course ofseveral years, he was subjected to his first day. “He had absolute executive au- two suicide-bombers who steered an ex- a string of other mistreatments by the CIA, thority to do so,” says Mr Nevin. So why plosives-laden skiff into the side of an including force-feeding through the rec- didn’t he? “He could’ve done it before the American naval destroyer, the USS Cole, in tum, sleep deprivation, extremes of tem- politics metastasised,” says Richard Kam- Aden harbour in 2000, killing17 American perature, screeching noises and being men, who is defending another ofthe pris- sailors and wounding many more. jammed for long periods in stress posi- oners facing the death penalty (see next ar- Nowadays he is what officials at Guan- tions. All this is admitted in a report of the ticle). “He made great speeches but not tánamo call “highly compliant”. He polite- American Senate’s Select Committee on much else,” he adds, lamenting Mr Oba- ly declines an offer made by the judge, an Intelligence controversially released in ma’s inability to persuade the agencies air-force colonel, of prayer-breaks. He sits 2014, widely known as “the torture re- that have been supposedly under his con- patiently, often looking bored, sometimes port”. Mr Kammen says that Sondra Cros- trol to do his bidding. “If Bush had been quizzical, occasionally adjusting the head- by, an American psychiatric expert on the president and had wanted to close Guantá- phones through which he listens to simul- after-effectsoftorture, reckonshe is “one of namo, it would have been closed, because taneous translation into Arabic, as argu- the most damaged victims of torture” she he knew how to deal with the agencies,” ments are batted laboriously back and has ever examined. surmises Mr Kammen. forth between prosecution and defence. It was at least four years after his cap- Whatever the reason, not closing Guan- What evidence may be admissible when ture that Mr Nashiri first saw a lawyer and tánamo isone ofMrObama’smostpainful the trial proper begins? How much secret nine before pre-trial hearingsbegan. Itmay failures, putting an enduring stain on intelligence may be divulged? What medi- be another two before his trial proper be- America’s human-rights record. Mr cal details may be aired? Who may be gins. In a federal court in the United States, Obama sounds ashamed as well as frus- called as witnesses, seeing that most ofthe his longwait behind bars and his acknowl- trated. Asked in 2015 what he wished he key ones were interviewed about 15 years edged torture would probably mean the had done differently as president, he cited ago in Yemen by the FBI, under a brutal case being thrown out. But not in the legal Guantánamo. “It’s not who we are.” 7 government long since overthrown? penumbra ofGuantánamo. 7 58 Business The Economist January 14th 2017

Also in this section 60 Who owns the blockchain? 60 Ride-hailing for children 61 The Simandou saga 62 Adidas’s new factory 63 Schumpeter: They’ve lost that loving feeling

For daily coverage of business, visit Economist.com/business-finance

Formula One when the European Commission closed a two-year antitrust probe into F1. In return Nifty manoeuvres for the file being closed, the FIA, whose grand headquarters are on Paris’s Place de la Concorde, undertook to “modify its rules to bring them into line with EU law”. These changes included limiting its role to that of a regulator, “with no commercial conflicts of interest”. To prevent such con- A controversial transaction sits at the heart ofLibertyMedia’s takeover flicts, the FIA sold all itsrightsin the Formu- N JANUARY 17th shareholders of Lib- the Super Bowl” and helping F1 overcome la One world championship. Oerty Media Corporation, an Ameri- its two big challenges: its weak presence in Max Mosley, who ran the FIA from 1993 can firm controlled by John Malone, a bil- America and its lack of almost any online to 2009, said last year he had queried its lionaire, are expected to approve a presence. Liberty will use digital platforms purchase of the 1% stake, which he de- transaction that many hail as the sports to deepen viewers’ engagement with the scribed as “problematic” and “arguably deal of the decade. In September 2016 Lib- sport. The virtual-reality possibilities look contrary” to the 2001 undertaking. He said erty agreed to buy the Formula One (F1) particularly enticing. the FIA argued the stake was in keeping motor-racing franchise from CVC, a priv- But F1 may bring Liberty grief as well as with the agreement because it was too ate-equity group, for$8bn. F1, which gener- glamour. The day after its own share- small to be considered material. He said he ates annual revenue of $1.8bn, is now cen- holders’ vote, the Fédération Internation- was surprised by that argument, because tral to Liberty’s global plans: in a sign ofthe ale de l’Automobile (FIA), the racingsport’s the stake’s value was equivalent to a year’s importance he attaches to the deal, Mr Ma- governing body, is expected to give its ap- turnoverwhen he ran the FIA, “and I didn’t lone has installed Chase Carey, a former proval to the deal. That is perhaps unsur- see that as ‘de minimis’.” president of Rupert Murdoch’s 21st Cen- prising: Liberty is a reputable buyer. But The transaction is already attracting of- tury Fox, as F1 chairman. The main Liberty even ifit were not, the FIA has an incentive ficial attention. Anneliese Dodds, a mem- subsidiary is to be renamed Formula One to give the transaction the green light be- ber of the European Parliament for south- Group. cause ofa cut-price share transfersigned in east England (home to several F1-related The deal has lots of attractions. For F1 it 2013, which gave it a 1% stake in F1 that can businesses) has written to the commission offers a potential solution to the problem only be monetised ifF1 is sold. several times to air concerns about the of who will take over from Bernie Eccles- The transfer all but guaranteed the go- sport’s structure and arrangements. Her tone, its 86-year-old impresario. There was verning body a big payout in the event ofa latest letter, sent last September, called for no credible succession plan for the man sale of F1. It puts the FIA at risk of a conflict closer scrutiny ofthe sale to Liberty in light whose wheeling and dealing has long held of interest. And its timing raises questions ofthe FIA’s stake. together the sport and its fractious collec- about whether it was used by F1’s owners tion of racing teams. With Mr Carey lead- as an inducement for the governing body In the rear-view mirror ing the search, there could be. to approve a change of ownership, regard- Some insiders reckon that Liberty has paid As for Liberty, F1 offers the sort of live, less of who emerged as a buyer. Formula a lot for F1 without really understanding it. exclusive content it needs to lock in audi- One Management (FOM), F1’s commercial- Greg Maffei, Liberty’s CEO, has admitted ences that are peeling off to on-demand rights holder, denies any impropriety. The he didn’t know F1’s business at all until streaming services such as Amazon and FIA denies any conflict of interest. Liberty they started negotiating. The acquisition Netflix. The American firm has big plans refused to comment. could cause legal headaches down the for F1, including selling race-naming rights, The stake appears to breach an agree- road. “They definitely don’t understand turning each event into “the equivalent of ment with Brussels that was struck in 2001 the legal and reputational risks,” says one 1 The Economist January 14th 2017 Business 59

2 seasoned observer. ing colours. But it wasn’t in the picture in ties, but was not notified to the European CVC—which had itself taken over F1 in July 2013; it didn’t contact the sellers until Commission, apparently because it fell be- 2006—had originally wanted to exit via a later that year. At the time, it wasn’t clear low EU merger-review thresholds. stockmarket flotation of Delta Topco, F1’s who would emerge as a possible buyer. The commission says it is assessing a Jersey-based parent company. But that What if it was a borderline case when it complaint about alleged breaches of com- plan came unstuck thanks to market tur- came to vetting—say, an oligarch with a petition law brought by two F1 teams, moil following the global financial crisis. chequered past? Might F1’s owners have though this is not specifically related to the The final nail in the coffin was the disclo- seen giving away a 1% option grant for just takeover. It won’t comment on the under- sure in July 2013 that Mr Ecclestone had $458,197 as a price worth payingto increase takings made in 2001by F1 and the FIA, but been indicted by a German court on char- the odds ofapproval? it is believed to consider them “unilateral” gesofpayingpartofa bribe to steer the sale They deny this. In response to ques- and the agreement not legally binding— of a 47% stake in F1 to CVC. (Mr Ecclestone tions sent to CVC, FOM confirmed that the even though it had earlier identified prac- settled the case in 2014 for $100m, with no share transfer was completed on the terms tices it believed to be out of line with EU ruling on guilt or innocence.) stated in the document we have seen. law. Ithasnoted thata numberofsports go- It is hard to imagine a successful flota- However, it says the transfer was “not a verning bodies hold stakes in competi- tion of a company whose boss faces possi- deal to ‘sell’ a stake to the FIA at market val- tions or manage them and that this is not ble imprisonment. The indictment there- ue, but rather part ofa wider deal to obtain necessarily “problematic from a competi- fore left CVC with the prospect ofhaving to the FIA’s commitment to deliver and im- tion point ofview”. divest F1 through a sale. This, unlike a flota- plement its Concorde obligations through tion, would have required the FIA’s con- to 2030 in return for a package of financial Tussles with Brussels sent. The approval process involves, measures to help the FIA with its over- But there are differences between the typi- among other things, performing “fit-and- heads, which had increased significantly. cal sport and governing body set-up and proper” tests on the suitor. The shares awarded to it were from a pool the FIA’s relationship with F1. For one A document seen by The Economist of unissued shares that had been reserved thing, the combination of the FIA’s re- shows that on July 22nd 2013—just a few for this kind of transaction, and they were quired consent and its potential payoff days after the IPO-killing indictment of Mr issued to the FIA at the same price as had leave it particularly at risk of bias. Further- Ecclestone was announced—F1 signed a been paid by other parties awarded shares more, it oversees not only F1 but other mo- deal to grant the FIA options on a 1% stake from this pool, including the executives torsport competitions too—and it is sup- in Delta Topco. These were duly exercised that are members of Delta Topco’s man- posed to treat them neutrally. A towards the end ofthat year. A striking fea- agement equity plan.” (“Concorde” refers commercial interest in F1 gives it an incen- ture ofthistransaction—apartfrom the tim- to a tripartite agreement—between the FIA, tive to favour the sport over rival race se- ing—was its price. The FIA was being of- F1 and the teams—setting out the basis for ries, includingproposed newcompetitions fered a stake with a value of $72m for a participation in the championship.) that could take business away from F1. This mere $458,197. As for the suggestion that the transfer was one of the issues the agreement with Crucially, thisattractive offercame with was an inducement to the FIA to approve a Brussels was supposed to deal with. a catch: the FIA could only monetise its sale to a corporate buyer, FOM says “there The commission’s shrugging of shoul- stake in the event ofCVC selling its control- can be no inference” that this was the case; ders over the FIA’s apparent flouting of its ling stake. For the governing body to get its “no such transaction was contemplated” rules stands in contrast to its generally money, a buyer would have to be found, at the time because Delta Topco was still tough stance on such agreements. One and the FIA would have to approve it. (Lib- “contemplating and preparing for an IPO”. possible explanation is that its earlier tan- erty plans to buy out all existing share- It says that the timing of the July 2013 op- gles with F1 in the late 1990s were scarring, holders.) This gave the FIA a clear financial tions grant was unconnected to the indict- evolving into the sort of bruising encoun- incentive to wave through any takeover it ment of Mr Ecclestone. Rather, the deal ter it may be loth to repeat. At one point the was tasked with vetting—and in the pro- was “the result of a 12-month negotiation” commission was forced to apologise pub- cess also unlock $3bn for CVC through the over renewing the Concorde Agreement. licly after the FIA’s indefatigable lawyers sale of its controlling stake. The FIA’s own The FIA said in a statement that there is exposed it as havingleaked warningletters code of ethics requires all of its “Parties” no conflict of interest on its part with re- to the press. The commission now argues (including the FIA itself) to “endeavour to gard to the potential change ofcontrol atF1, that “governance issues” involving the FIA avoid any conflict ofinterest”. that it “would naturally be happy to dem- are best delegated to arbitration bodies The combination ofthe timing ofthe 1% onstrate this to any competent authority and national courts—which have no rea- sale and the stipulation that the FIA can that may so request”, and that its sole con- son to care about breaches ofEU law. only cash out in the event of a takeover re- cern is the “best interests” ofthe sport. It remains to be seen how much any of quiring its approval also raises questions Nonetheless, the risk of a conflict of in- this will trouble Liberty, which is zooming for CVC and Delta Topco. To some it could terest at the FIA is something that might ahead with its takeover of a sports fran- look like inducement. Liberty, as a reputa- concern competition authorities and other chise it calls “iconic” and “unique”. The ble international media firm, was always regulators. The Liberty takeover was re- media firm has repeatedly disclosed that likely to pass a fit-and-proper test with fly- viewed by a number of national authori- its takeover needs FIA approval, but has not highlighted the fact that the FIA has a stake in the sport it regulates. An investor The old formula presentation listing F1’s shareholders Formula One Group ownership, % lumps all those holding less than manage- Bambino Holdings* F1 management ment, with 6.1%, in the “Other” category. It 0 20406080100is unclear whether the Nasdaq-listed firm had an obligation to disclose this. (Liberty Before declined to comment.) Its shareholders CVC Waddell & LBI† Other‡ takeover Reed Financial will have no reason to kick up a fuss if the takeover goes well. But they will surely start asking more questions if it spins off Source: Liberty Media *Ecclestone family trust †Lehman Brothers Inc. ‡Includes FIA 1% the track. 7 60 Business The Economist January 14th 2017

Intellectual property Uber for kids Blockchain of Baby, you can drive in my car

command SAN FRANCISCO Will ride-hailing forchildren grow up into something big? ELICOPTER parent” may sound Annette Yolas, who works in sales at The technology underlying bitcoin may like an insult, but given the AT&T, a wireless and pay-TV giant, reck- be in fora patent war “H chance, most parents would probably opt ons she spends around $200 a month on OR fans ofbitcoin, a digital currency, the forthe help ofa chopper to zoom little HopSkipDrive, a service that operates in Fyear got off to a volatile start. On Janu- ones between school, football practice several markets in California, forher ary 5th one bitcoin changed hands for and piano lessons. Getting children three kids to get to the school bus on time nearly $1,150—almost as much as the record where they need to go is a huge hassle and to ballet practice, and says it has been set three years ago. It has since dropped by and expense, especially in homes where a “life-saver” by allowing her to work 33%. Elsewhere in the land of monetary both parents work. Hailing rides through longer hours. Meanwhile, kids avoid the bits, things move more slowly but trouble firms like Uber and Lyft has made life embarrassment ofa relative pulling up at is brewing: a potential patent war looms more convenient foradults. But drivers school blaring mom rock. over the blockchain, a distributed ledger are not supposed to pickup unaccompa- But ride-hailing firms forkids may end that authenticates and records every bit- nied minors (although some are known up like the children in Neverland, and coin transaction. to bend the rules). never mature. They face several chal- Heated fights over intellectual property Youngsters represent a fresh-faced lenges. One is finding enough drivers. All are nothing new in promising technology opportunity. Ride-hailing forkids could users need rides during the same limited markets. But given that the blockchain is be a market worth at least $50bn in set ofhours: before and after school, expected to shake up everything from the America, hopes Ritu Narayan, the foun- which makes it hard to offerdrivers way precious diamonds are safeguarded der ofZum, one ofthe startups pursuing enough work. It can also be challenging to the waysharesare traded, the legal fights the prize. These services are similar to to lure parents, who have drilled it into could be especially fierce. Uber’s, except they allow parents to children never to get in a stranger’s car. On the face of it, the blockchain does schedule rides fortheir children in ad- And while ride-sharing companies not lend itself easily to staking out intellec- vance. Children are given a code word to can irkadult passengers by cancelling or tual-property claims. Bitcoin’s creator, ensure they find the right driver, and being late, when children are involved known only by his pseudonym, Satoshi parents receive alerts about the pick-up such behaviour can be disastrous. Shud- Nakamoto, published a paper about his in- and ride, including the car’s speed. These dle, an early entrant in the taxis-for-kids vention, coded the first implementation services promise more rigorous back- business, which shut down in 2016, had and then disappeared—meaning that the ground checks, fingerprinting and train- only two out offive stars on Yelp for that core of the technology is now part of the ing than typical ride-hailing companies. reason, and reams ofnegative reviews public domain and only important addi- from parents. It had made money on tions and variations could be patented. rides mainly by raising prices ever higher. And the blockchain’s components are Its demise has not deterred Uber itself, widely known. In America court decisions which is expected soon to launch a pilot as well as a new law on the granting of pat- programme forteenagers under18. Par- ents make it difficult to claim ownership ents may be happier to use services they forsuch financial innovations. are familiar with. But Uber’s entrance is This hasn’t stopped firms from trying to likely furtherto dim the prospects of get patent protection on meaningful im- child-focused ride-hailing businesses as provements to the blockchain, including they compete for customers and new security and encryption techniques, says funds. Already, the mood in Silicon Val- Colette Reiner Mayer of Morrison & Foer- ley has soured against tiny startups that ster, a law firm. Applications are now be- provide services on demand, such as coming public, because America’s patent taxis, massage therapy and meals. Ac- office must release them 18 months after cording to Sean Behr, an entrepreneur they are filed. A search of Espacenet, a glo- who runs an on-demand parking startup bal database, yields 36 hits; hundreds more named Stratim, “saying you’re the Uber are said to be in the pipeline. ofX category is not a pitch that will get Financial firms are among the most as- you funded by venture capitalists today.” siduous filers: MasterCard, for instance, is Grown-ups can be so boring. seeking four payment-related patents; Goldman Sachs has put in for one outlin- ing a distributed ledger that can process that they intend to use patents only “defen- opening up their IP. Chain, Digital Asset foreign-exchange transactions. Startups, sively”, meaning to protect themselves Holdings and Hyperledger have made including Coinbase, Chain and 21Inc, have against lawsuits. Still, legal battles look their software open-source, so that the un- been busy, too. And then there is Craig likely: incumbent banks may go after new- derlying recipe is freely available, which Wright, an Australian who claims to be Mr comers, and “non-practising entities” (also also makes it more attractive to users and Nakamoto but has failed to provide con- known as “patent trolls”) may attempt to developers. Some programs even come clusive proof. He has filed, via an Antigua- shake down other firms. It could slow the with a licence that makes it impossible to registered entity called EITC Holdings, for pace of innovation, warns Brian Behlen- enforce patents against those who use the 73 patents in Britain. dorfofHyperledger, an umbrella group for organisation’s code. Blockstream, another Only a very few patents have been is- several blockchain-related projects. startup, has signed a “patent pledge”, vow- sued so far. And known applicants all say To limit such fights, several startups are ing not to sue others—as long as they don’t1 The Economist January 14th 2017 Business 61

2 use their own patents offensively. mament is sufficient to avoid another pat- America on racketeering charges. There are also discussions over forming ent war will be clear only when and if The backdrop for this battle was the a patent pool, much like the Open Inven- blockchains have become a multi-billion high price of iron ore as China hungered tion Network, created in 2005 to protect dollar business. This week DTCC, a pro- for steel. The irrational exuberance of the memberfirms against suits forusingLinux, vider of clearing and settlement services, times helps explain why Rio incorporated the popularopen-source operatingsystem. announced that it will base the next gener- into the $20bn development plan for its The OIN acquires patents and then li- ation of its trade-information system on a blocks the construction ofa trans-Guinean censes them freely to members, which blockchain, and SWIFT, a payments net- railway to ship the ore, as well as Guinea’s agree not to assert their own patents. work, said it was exploring the technology. first deepwater port. These ideas came a Whether this strategy of mutual disar- That might prompt more applications. 7 cropper once the price ofiron ore crashed. As a result, the allure of the project for Mr Jacques has waned. He had sought to Iron ore in Guinea wash his hands of it by agreeing to transfer Rio’s Simandou stake to Chinalco last Oc- A pig of a project tober for a song. But it was the following month that the board sacked its two offi- cials, including Alan Davies, its minerals chief, after leaked e-mails revealed a $10.5m payment to a French consultant who was close to President Condé and helped guarantee Rio’s mineral rights at Si- Africa’s largest iron-ore deposit has tainted all who have touched it mandou. Rio also handed over a trove of N THE flanks of the Simandou moun- a hurry to draw a line under the whole af- related e-mails and other data to authori- Otains in south-eastern Guinea live re- fair, which is proving difficult. ties in America, Britain and Australia. mote colonies of West African chimpan- It was two decades ago that Rio Tinto Rio pointed out that the sackings did zees. They alone should be grinning over won a concession to explore the world’s not prejudge the results of any investiga- the fate of those who have sought to turn largest untapped iron-ore deposit in Si- tion, but they jolted many employees, their tropical habitat into Africa’s biggest mandou. At the time, Guinea was ruled by some of whom thought them overhasty. iron-ore mine. No one else is laughing. a dictatorship that, in 2008, suddenly Mr Davies said his dismissal lacked due Rarely has such a group of billionaires, stripped Rio of half its blocks and trans- process and vowed to fight it. Some sus- hedge-fund barons, mining firms, govern- ferred them to the Guinean arm of BSGR, a pected the draconian measures reflected ment officials and go-betweens been foundation whose main beneficiary is Mr Mr Jacques’s impatience to put Simandou snagged in such a woeful saga. Steinmetz. BSGR then sold a 51% stake in quickly behind him and move on. In theory, the prospect of digging up the blocks to Vale, Rio’s Brazilian rival, But that has proved tough. Mr Stein- 2bn tonnes of ore from a country that is which incensed Rio. metz has seized on the dismissals to make among the poorest on Earth should be en- Then Rio recovered its footing some- two accusations: that Rio paid a “facilita- couraging, if corruption is kept in check. what. In 2011, after Guinea’s first democrat- tion fee/bribe” which contributed to the The government of Alpha Condé prom- ic elections, the new Condé government withdrawal of BSGR’s mining rights in ised to do so upon taking office in 2010. But granted it the right to develop its remaining Guinea; and that it launched a public-rela- in reality the line between paying go-be- blocks in partnership with Chinalco, Chi- tions campaign that criticised the firm. Last tweens to help win concessions and lining na’s state-owned aluminium firm, in re- month BSGR threatened legal action un- officials’ pockets is so blurry that it can turn for a (disclosed) $700m payment. less Rio settles a damages claim first. Both cause mining firms endless trouble. Even sweeter for Rio, in 2014 the Condé sides expect Rio to respond in the coming In recent months the plotline has shift- government stripped BSGR/Vale of their weeks. For all except the Chinese (and the ed. During the past half-decade the busi- Simandou assets, alleging they had been chimps), the fallout from Simandou per- nessman painted as the saga’s pantomime obtained through bribery. Rio then sought sists. And it has yet to produce an ounce of villain has been Beny Steinmetz, a globe- (unsuccessfully) to sue BSGR and Vale in commercial iron ore forany ofthem. 7 trotting Israeli diamond merchant, worth billions, whose lurid battles over Siman- dou with Rio Tinto, one of the world’s big- gest mining companies, have involved vol- leys ofaccusations about bribery. Mr Steinmetz was briefly put under house arrestin Israel on December19th last year in connection with the Guinea case. He denies wrongdoing. His backers allege that a “conspiracy” robbed him of his rightsto Simandou. Hisoffice in London, as well as havinga picture ofSimandou’s red- streaked mountain top in the lobby, has a sign saying “All bullshit stories” that is lit up when a journalist visits. But now Rio Tinto is also on the back foot. In November it sacked two of its top executives upon discovering a payment to a go-between in Guinea from 2011 that it says failed to meet its code-of-conduct standards. Jean-Sébastien Jacques, the firm’s new chiefexecutive, appears to be in Now everyone sees red 62 Business The Economist January 14th 2017

Advanced manufacturing ordering components that will be assem- bled into a new pair of trainers, the Speed- The new manufacturing footprint factory will instead make most ofthe parts itself from raw materials, such as plastics, fibres and other basic substances. The machines carrying out this work will be highly automated and use process- es such as computerised knitting, robotic cutting and additive manufacturing, Adidas prepares a high-tech plant to bring production oftrainers backto Germany which involves building up shapes layer EHIND closed doors in the Bavarian by layer. Industrial 3D printing machines B town of Ansbach a new factory is tak- are appearing in many different forms and ing shape. That it will use robots and novel are capable of handling an increasing vari- production techniques such as additive etyofmaterials. Driven bysoftware, the ro- manufacturing (known as 3D printing) is bots, knitting machines and 3D printers not surprising for Germany, which has take their instructions directly from the maintained its manufacturing base computer-design program, so they can through innovative engineering. What is switch from making one thing to another unique about this factory is that it will not quickly, without having to stop production be making cars, aircraft or electronics but for what can amount to several days in or- trainers and other sports shoes—an $80bn- der to retool conventional machines and a-year industry that has been offshored instruct manual workers. largely to China, Indonesia and Vietnam. Not every job in the Speedfactory will By bringing production home, this factory be automated. Robots can be slower and is out to reinvent an industry. less precise at some tasks, such as the final The Speedfactory, as the Ansbach plant shaping of a shoe. So each Speedfactory is called, belongs to Adidas, a giant Ger- will create 160 production jobs, compared man sports-goods firm, and is being built with a thousand or more in a typical fac- with Oechsler Motion, a local firm that toryin Asia. The newfunctionswill also be makes manufacturing equipment. Produc- more highly skilled. Adidas wants the new tion is due to begin in mid-2017, slowly at plants to complement the Asian opera- first and then ramping up to 500,000 pairs tions, not to compete with them. But as ad- of trainers a year. Adidas is constructing a vanced manufacturing expands, the need second Speedfactory near Atlanta for the for armies of manual workers in Asian fac- American market. Ifall goes well, they will tories will surely diminish. spring up elsewhere, too. Impossible is nothing Sneakerheads are likely to approve. The numbers are tiny for a company “This will lead to products that will look that makes some 300m pairs of sports working up production and eventually and perform differently,” says Mr Manz. shoes each year. Yet Adidas is convinced shipping the finished goods to the shops Leaving behind manual production meth- the Speedfactory will help it to transform can take the industry as long as 18 months. ods will allow Adidas to come up with the way trainers are created. The tech- Yetsome three-quartersofnewtrainers are novel shapes and finishes. One new mate- niques it picks up from the project can then now on sale for less than a year. An order rial the firm has already experimented be rolled out to other new factories as well to replenish an existing, in-demand de- with is Biosteel, a synthetic silk made by as to existing ones, including in Asia— sign—the latest edition ofthe NMD R1, say, a AMSilk, a German biotech company. Pro- where demand for sports and casual wear popular trainer in 2015-16—can take two or duction will also become more custo- is rising along with consumer wealth. three months to reach the shelves, unless mised, perhaps even with bespoke train- Currently, trainers are made mostly by the shoes travel not in a shippingcontainer ers fashioned from a computer scan of hand in giant factories, often in Asian but at huge cost in the hold ofan aircraft. how a person walks or runs. countries, with people assembling compo- In such a competitive and trend-driven nents or shaping, bonding and sewing ma- On your marks... market, one thing is certain: Adidas’s arch- terials. Rising prosperity in the region The Speedfactory’s main strength is to rival Nike will not just sit on the touchline. means the cost of manual work out- shorten the supply chain, and so the time The American company faces similar cost sourced to the region is rising. Labour to shops, to less than a week, perhaps even increases in Asia and is equally keen to shortages loom. Certain jobs require craft to a day, once the trainer design is com- shorten the time it takes to get new pro- skillswhich are becomingrarer; many peo- plete. The design process itself is increas- ducts to market. ple now have the wherewithal to avoid ingly done digitally. The trainers are not One of its initiatives is a form of com- tasks that can be dirty or monotonous. just styled on a computer screen but can puterised knitting to make the upper parts Adidas’s motivation for its Speedfac- also be tested by the computer for things of a range of trainers it calls Flyknit, much tories, however, goes well beyond labour like fit and performance. To enhance the like the way a sock is knitted. Nike has also cost. People wantfashionable shoesimme- process, the Speedfactory will also have a set up what it calls an Advanced Product diately, but the supply chain struggles to digital twin: a virtual computer model in Creation Centre at its headquarters in Bea- keep up. “The way our business operates is which production of the new trainers can verton, Oregon, to explore other automat- probably the opposite of what consumers be simulated. Once all is well, the digital ed production methods, including 3D desire,” says Gerd Manz, the company’s productwill then move to the physical pro- printing. The company has already em- head oftechnology innovation. duction system. ployed these techniques to produce custo- From the first sketch of a completely Adidas claims its new production sys- mised shoesforsome top athletes. The race new pair of trainers to making and testing tem is extremely fast and highly flexible. between the world’s biggest sports-shoe prototypes, ordering materials, sending The details are being kept secret for now. makers is about to become much more samples backand forth, retooling a factory, What is known, however, is that instead of fleet offoot. 7 The Economist January 14th 2017 Business 63 Schumpeter They’ve lost that loving feeling

Foreign firms were lukewarm on America long before Donald Trump Second, waves of mergers and acquisitions have made the economymore concentrated. Thathasraised the barriersto entry for outsiders. If you split the world’s companies into 68 indus- tries, American firms are the largest in two-thirds of them. For- eign companies in America are often subscale and too small to buythe leadingfirmsin theirsector. So theytryto grow organical- ly or buy weaklings instead. In 2013 SoftBank, a Japanese technol- ogygroup, paid $22bn to buya strugglingmobile-phone operator, Sprint, which is now losinga billion dollars a year. The most prof- itable investment in living memory by a foreign firm in America was not a gutsy triumph but a passive stake in a domestic oligop- oly: Vodafone’s 45% share of Verizon Wireless, which it sold for $130bn in 2014. The third reason for foreign firms’ discontent is the growth in lobbying, litigation and regulatory action in America. Foreign companies feel they are at a competitive disadvantage. In the most regulated sector of all—banks—their market share has fallen to 14% from 18% in the past 24 months, partly, they argue, owing to onerousnewrules. Mostfinesinvolve lotsofofficial discretion. In carmaking and energy, Volkswagen and BP have admitted their respective responsibilities for fake emissions tests and the Deep- HICH is it? The home offree speech, the rule oflaw and the water Horizon oil spill. But many European bosses believe that Wrich world’s most dynamic economy? Or a land of social the cumulative $70bn of legal costs and penalties they have paid decay, septic politics and the rich world’s worst roads and orcurrently face farexceed those that General Motors and Exxon- schools? America divides foreign observers. It divides foreign Mobil paid for similarly grave mistakes. In December Barclays firms, too. Some bosses fall head over heels for its insatiable con- vowed to fight a $5bn-odd fine for mortgage mis-selling, which it sumers and dazzling technology. Other executives are put off by argues is harsher than those faced by American banks. its insufferable lawyers and hypocritical protectionism. Donald The Trump administration could well awaken a protectionist Trump promises to give foreign firms a rude awakening when he impulse at bigdomestic firms that lies not farbeneath the surface, reaches the White House: this month he beat up Toyota for mak- reckon the most pessimistic of all. Jamie Dimon’s latest letter to ing cars in Mexico and selling them north of the border. But in the shareholdersofJPMorgan Chase warnsthatAmerican banks’ truth many foreign firms fell out oflove with America years ago. dominance could be threatened by Chinese rivals. A report on The conventional view is that foreign companies are irresist- semiconductors for the White House this month, written by a ibly attracted to the place. If one affair ends in tears, there is al- body that includes the bosses of Google, Qualcomm and Nor- ways a new paramour in the wings. In the 1970s British bucca- throp Grumman, recommends protecting the chip industry from neers, led by Sir James Goldsmith, picked up neglected firms. In Chinese competition. America’s airlines constantly complain the 1980s Japanese firms lost their financial virginity by paying about unfaircompetition from Emirates and other rivals. too much for Hollywood studios and Californian skyscrapers. A decade later continental European firms rushed across the pond, Takeovers or makeovers culminating in Daimler’s doomed tryst with Chrysler, a rival car- A more populist America may require fresh tactics from foreign- maker. By this account, Chinese firms are the latest to get the love ers. Some are workingon theirconnections. Masayoshi Son, boss bug, with China’s richest man, Wang Jianlin, in the role of the be- ofSoftBank, pledged to invest $50bn in America aftermeeting Mr sotted tycoon, having paid a blockbuster $4bn to assemble a Trump in December. The head of Anbang Insurance, a Chinese chain ofmature American cinemas since 2012. firm that is no stranger to relationship-based capitalism at home, But this narrative is hopelessly out of date. The most accurate dined with Mr Trump’s son-in-law, Jared Kushner, in November. metaphor for foreign firms in America today is of disappointed Anbang owns the Waldorf Astoria, among other American as- hopes. Their share of private output has been flat at about 6% sets. Another approach is to buy a well-placed oligopoly. InBev’s since 2000. The share ofsales that European firms make in Amer- purchase in 2008 of Anheuser-Busch, maker of Budweiser Beer, ica has declined from 20% in 2003 to 17% now, according to Mor- has become a model forwinning in America. Other deals in 2016 gan Stanley, a bank. Foreign firms’ profits in America fell from echoed it. Bayer agreed to buy Monsanto, which dominates the $134bn in 2006 to $123bn in 2014, the latest year for which figures agricultural-seed business, and BAT is bidding for Reynolds are available. Theirreturn on equity fell to 6%, compared with 11% American, which has a big share ofthe tobacco market. in 2006. American multinationals make 12% on their home turf. A last option is for foreign firms to assume a more American This souring romance reflects three deep shifts in America’s identity. In sensitive sectors, they already try to take on a local economy. First, technology has a greater importance than it used character. BAE Systems, a defence concern, has a separate Ameri- to. At the same time the gap between Silicon Valley’s giants and can board stacked with former brass hats. After the trade spats of theirpeersabroad hasgrown wider. Ageneration ago Europe and the 1980s, Asian car firms localised their production and manage- Japan had real contenders in the technology industry, such as No- ment. Rupert Murdoch shifted his media empire’s domicile from kia and Sony. Now they have no answer to the likes of Apple, Australia to America in 2004. As any dating-website veteran will Google and Uber. tell you, ifyou can’t find love, change your appearance. 7 64 Finance and economics The Economist January 14th 2017

Also in this section 65 Buttonwood: Franc discussions 66 Argentina’s bonds return to the fold 66 Supply-chain finance 67 The Big Mac index 68 Singapore’s fintech ambitions 68 Economy of scales: Japanese tuna 69 China’s currency management 69 Chinese corporate taxation 70 Free exchange: A sense of crisis among economists

For daily analysis and debate on economics, visit Economist.com/economics

Inflation where underlying inflation is lower (see chart), the yen and euro have weakened. A welcome revival The second big influence on inflation is the amount of slack (or spare capacity) in the domestic economy. The unemploy- ment rate, measuring labour-market slack, is often a convenient gauge. On that basis, America’s economy, with unemployment at 4.7%, is close to full capacity. Average Aftertwo years ofunduly low inflation in the rich world, things are picking up wages rose by 2.9% in the year to Decem- T WAS telling that Germany, a country falling for 54 months, producer prices in ber, the highest rate since 2009. Assuming Iwith a phobia of rising prices, in the first China are climbing at last. Prices at the fac- that trend productivity growth is around week of 2017 reported a jump in inflation. tory gate rose by 5.5% in the year to Decem- 1%, then wage growth of around 3% is con- Its headline rate rose from 0.8% to 1.7% in ber. China’s supply glut, though still vast, is sistent with a 2% rise in unit-wage costs, in December. After two years of unusually shrinking. An improving demand climate line with the Fed’s inflation target. low price pressures, inflation across the is reflected in upbeat surveys of manufac- The picture is cloudier in other parts of rich world issetto revive thisyear. Much of turing purchasing managers across Asia the rich world. Euro-area jobs markets are this is because of the oil price, which fell and in the rich world. It is also visible in a more rigid and run into bottlenecks more below $30 a barrel in the early months of revival in commodity prices. readily than America’s. Even so, the euro- 2016 but has recently risen above $50 (see So rich countries are importing a bit area economy has fargreater slack. The un- chart). Underlying inflation, too, seems more globally made inflation. How big an employment rate is 9.8%. The big southern poised to drift up. That is good news. The impact that has depends on the exchange euro-zone economies, such as Italy and story for2017 is not ofinflation running too rate. And in much ofthe rich world, curren- Spain, have ample spare capacity. So if in- hot but rather of a welcome easing of fears cy markets are proving helpful. In Ameri- flation is to get back to the European Cen- ofdeflation. ca, where underlying inflation is close to tral Bank’s target of close to 2%, it will re- To understand why, consider the three 2%, the Federal Reserve’s goal, the dollar quire other economies, notably Germany, big drivers of inflation in the rich world: has risen. In Japan and the euro area, to generate inflation rates well above 2%. 1 the price of imports, capacity pressures in the domestic economy and the public’s ex- pectations. Startwith imported inflation. A Many happy returns! year ago, global goods prices were falling Oil price, West Texas Intermediate Forward five-year inflation Core* consumer prices because of a slide in aggregate demand $ per barrel expectation rate, % % change on a year earlier and a seemingly endless glut of basic com- 70 4 3 modities and manufactures. China’s econ- 60 United States† United States 2 omy wobbled. Emerging markets in gen- 50 3 eral were in a funk; two ofthe largest, Brazil 40 1 and Russia, were deep in recession. 2 Euro area + Thingslookperkiernow. Emerging mar- 30 0 20 ‡ – kets still have plenty of trouble spots, but 1 Japan 1 the bigger economies are stabilising. After 10 Euro area

Awards: Tom Easton, our American finance editor, was 0 0 2 named journalist of the year by the CFA Society of the 2015 16 17 2009 11 13 15 17 2009 11 13 15 16 † UK in a ceremony on January 11th. The Economist was *Excluding food and energy Personal-consumption Sources: Thomson Reuters; The Economist ‡ named publication of the year. expenditure prices Excluding effects of consumption tax The Economist January 14th 2017 Finance and economics 65

2 That is not as implausible as the form tion, notes Ralf Preusser of Bank of Ameri- late aggregate demand, and thus the level book suggests. Germany has a tight labour ca Merrill Lynch. Average core inflation has of slack, expectations should converge on market. The unemployment rate is just been around 1.1% since 2010. German firms the central bank’s inflation target, usually 4.1% and the workforce has shrunk as the have absorbed rising wage costs without 2% in rich countries. But expectations are population ages. And after a decade or increasing prices. In Japan, where the jobs also influenced by what inflation has been more of restraint, wages have picked up a market is even tighter, wage growth has recently. In rich countries, it has fallen bit. Compensation per employee has risen struggled to reach even 1%. short. Inflation expectations in financial atan average annual rate of2.5% since 2010, That wages have not risen faster owes markets have recently perked up, but in the according to the OECD, a rich-country much to the third big determinant of infla- euro area are still well shy ofthe target (see think-tank. That is faster than in any other tion—expectations. Firms will feel freer to chart on previous page). In Japan, two de- G7 country, but still not enough to drive push up prices, and employees to bargain cades of deflation have taught firms and German inflation up to the sorts of levels for bigger wage rises, if they expect higher wage-earners to expect a lot less than 2%. needed to push euro-zone inflation close inflation. In theory expectations are in the Put the pieces of the jigsaw together to 2%. Faster wage growth has not fed gift of central banks. If they can convince and the following picture emerges. Head- through to higher consumer-price infla- the public that they have the tools to regu- line inflation in the rich world is likely to 1 Buttonwood Franc discussions

What will markets do ifMarine Le Pen becomes the French president? OW do you solve a problem like Ma- Were currency risk to return, then Hrine? MsLe Pen, leaderofFrance’sfar- Pay pressure spreads would widen again. That hap- right National Front, has indicated that Unit labour costs, 1999=100 pened during the euro crisis of 2011 and she hopes to reintroduce a national cur- 2012 and it took determined action by the rency if she is elected president in May. In 140 European Central Bank (ECB) to bring a recent speech, she suggested that gov- them back down. There are already some 130 ernment bonds would be redenominated France signs of French yields edging up, relative in francs instead ofeuros. 120 to those in Germany, with the spread at a The proposal was dressed up in tech- three-year high because ofpolitical risk. nicalities. The franc would be revived as a 110 If currencies were to float again after “parallel” currency for official transac- Germany such a long period, a big adjustment tionsand used alongside the euro in a ver- 100 would be needed. Since 1999, unit labour sion of the systems (the snake and the ex- costs have risen by 32% in France but by change-rate mechanism) that existed in 90 just 15% in Germany (see chart). Making the 1970s and 1980s. Such schemes tied 1999 2002 04 06 08 10 1214 16* French workers competitive again could European currencies together but were Source: OECD *Q3 2016 require a 12% devaluation. subject to regular crises, with France per- Even if that figure is too large, imagine iodically devaluing the franc. Even if she wins, she might not be able what would happen if the Le Pen plan Investors would pretty quickly see to implement the policy she favours. Rein- were implemented. Investors would through the façade. There is not much troducing a national currency could in- flockto the safety ofGerman government pointin bringingbacka national currency volve leavingthe EU. That would be a huge bonds. They would be happy to accept unless you want the right to devalue it. step; only a fifth of French people think it negative yields of1-2%, given the scope for And there is not much point in redenom- will happen in the next ten years. much larger losses from holding French inating government bonds in francs un- Still, in the wake of the Brexit and assets. The revived franc would come un- less you want to pay creditors back less Trump votes last year, some investors will der immediate selling pressure as inves- than they expected. (This might techni- be nervous about another surprise. “I’m tors hedged their risk. cally count as a default, according to not certain that we should be quite as com- Countering that selling pressure Moody’s, a rating agency; it depends on fortable as the polls suggest given the his- would involve one of three things. First, the exact circumstances.) If that hap- tory of the past four to five years,” says Si- the French government could sell euro as- pened, itcould triggeran enormous finan- mon Derrick, a strategist at BNY Mellon, a sets and buy its own bonds. But it doesn’t cial crisis in Europe. After all, if France bank. IfMs Le Pen is pitted against François have enough reserves to sustain that poli- were to devalue, what would stop the Ital- Fillon, a Thatcherite conservative, in the cy. Second, the French could raise interest ians or the Greeks from following suit? second round, left-wing voters might stay rates to attract capital. But that would It all makes for a tricky calculation for at home. damage the economy, hardly the out- investors, multiplying the probability ofa To understand the scale ofthe potential come Ms Le Pen is seeking. Or, third, the Le Pen victory against the potential de- decline, thinkbackto the late 1990sand the ECB could step in to buy French bonds. cline in the value of French bonds if it oc- era ofthe “convergence trade”. Asthe intro- But it wouldn’t do so if France seemed to curs. The consensus is that, even if Ms Le duction of the euro approached, investors be heading out ofthe euro. Pen makes it through to the second round realised that the currency risk of owning It would all be an enormous mess. So of the presidential election, she will be European bonds would disappear. So it be- long as the probability of a Le Pen victory defeated easily. That is what happened to came much cheaper for many European is still low, markets won’t shift much. But her father in 2002, when voters united countries to borrow. In the early1990sItaly if her victory chances rise to 40% or so, around the conservative Jacques Chirac. often had to pay four percentage points prepare fora turbulent spring. Gamblers put the odds ofa Le Pen victory more than Germany to borrow, and France at around 30%. more than one percentage point. Economist.com/blogs/buttonwood 66 Finance and economics The Economist January 14th 2017

2 rise quickly in early 2017, thanks largely to itswaybackfrom the financial periphery. It Supply-chain finance rising oil prices and a generally firmer glo- has floated its currency and lifted capital bal backdrop. Underlying inflation will controls, recently abolishing a remaining Every little helps grind up more slowly as above-trend requirement that foreign investors keep growth eats away at available slack. A their money in the country for at least 120 burst of stronger headline inflation this days. In April the government sold $16.5bn year might drive up inflation expectations of dollar bonds to international investors and set the stage for bolder wage claims in in a single day (a record for an emerging northern Europe and Japan in 2018. market). Later this year, MSCI will decide How fintech helps the small fryget paid Analysts at JPMorgan Chase expect whether to welcome Argentina’s shares higher inflation to add one percentage back into its emerging-market index, start- ROWING up on a sugar-cane farm in point to global nominal GDP in 2017, spur- ing with companies with an overseas list- GAustralia, Lex Greensill had a front- ring a revival in profits and setting the ing, such as Adecoagro, which farms sugar seat view of the strains suppliers suffer as scene for a recovery in capital spending and soyabeans, among other things. And they wait to be paid. After harvesting his (even without tax cuts in America). Fore- on January 5th, JPMorgan Chase said it crops, Mr Greensill’s father had to wait a casters often now look for extreme out- would admit Argentina’s peso bonds into yearormore to receive payment. Across in- comes, but rich-world inflation this year its widely tracked benchmark indices, dustries, buyers are eager to conserve their may turn out to be a tale of moderation: probably from February. cash. Delayingpayment is one way to do it: enough to grease the wheels, but not The emerging-market asset class has among the most important for some, such enough to upset the cart. 7 not lacked drama in Argentina’s absence. as big retailers, says Mr Greensill. Many The introduction of quantitative easing buyers expect theirsuppliers to accept pay- (QE) after the financial crisis inspired a ment months after delivery. Even so, many Emerging markets rush into higher-yielding emerging-market still pay late—47% of suppliers surveyed by bonds. Talk of “tapering” QE in 2013 Taulia, a fintech firm, said they had this Back from the prompted a partial reversal. As a borrow- problem. In 2011 Mr Greensill founded ingcurrency, the dollarhaswaned in signif- Greensill Capital, one of a cluster of new frontier icance relative to local currencies such as fintech firms overhauling how supply the rupiah or real. Dollar-denominated chains are financed. bonds have been a better buy for investors The details vary but their basic ap- in recent years, but less popular among proach is to take advantage of buyers’ low One ofthe original emerging markets government issuers. The share ofhard-cur- credit risk to pay suppliers’ invoices returns to the fold rency debt declined from roughly half on promptly. The buyer—a large supermarket MERGING markets have not been the average in 2000 to about a quarter in 2014, chain, say—approves a supplier’s invoice Esame without Argentina, a country that according to Moody’s, a rating agency. and transmits it to the fintech lender. (The embodies the promise and peril, the ro- Much of this evolution has passed Ar- lender can raise money in different ways: mance and the rockiness of the asset class. gentina by. Until 2016 its government had Greensill raises funds in the capital mar- In 1988 it was one of the ten original mem- to sell most of its bonds to fellow Argen- kets.) The lender pays the supplier on the bers of the most popular emerging-market tines, including the country’s banks and its agreed date or, if requested, earlier, less a equity index, introduced by MSCI. In the public-pension reserve fund. But although small discount. With interest rates at pre- late 1990s it was also the biggest member it was mostly sold to locals, the debt was sent low, the period of finance short and of the benchmark-bond indices compiled chiefly denominated in dollars. Over 70% the credit risk that of the supermarket by JPMorgan Chase. But once it defaulted of the government’s debt is still denomi- chain rather than the supplier itself, the 1 at the end of 2001, Argentina was exiled nated in foreign currencies, according to from global debt markets. And after it sub- the ministry of finance. The high inflation sequently imposed capital controls on and capricious currency policies of the “hot money”, its shares suffered a similar post-default years meant Argentines did banishment, ejected from MSCI’s index in nottrustthe peso to hold itsvalue. So forall 2009. It became a remote “frontier mar- of the nationalist fire of Ms Kirchner and ket”, like countries such as Bangladesh. her husband, her predecessor as president, Since Mauricio Macri succeeded Cris- their policies left them heavily reliant on tina Fernández de Kirchner as president at the greenbackto attract creditors. the end of2015, Argentina has been finding Argentina’s expulsion from global debt markets came within days ofChina’s entry into the World Trade Organisation. Asia Putting on weight now accounts for about 70% of emerging- Emerging-market regional weights*, % of total market GDP and a similar share of MSCI’s Asia Europe, Middle East & Africa emerging-market equity benchmark (see Latin America chart). The bond indices, in contrast, re- 020406080 main far more evenly balanced between the regions. JPMorgan Chase’s most popu- GDP lar local-currency version still excludes China’s vast market altogether. Equities That may not last. In the past year Chi- (MSCI Emerging Markets Index) na, too, has eased the capital controls that fenced offitsdebtmarkets. China maythus Bonds (JPMorgan EM follow Argentina into the benchmark indi- Global Diversified ces in due course. Emerging markets have Index) not been the same without Argentina. But Sources: IMF; MSCI; JPMorgan; The Economist *Latest nor have they stayed the same. 7 Still waiting for the invoice approval The Economist January 14th 2017 Finance and economics 67

2 discount may be so low as to be almost un- working-capital efficiency. A survey by ket, says Prabhat Vira of Tungsten, a sup- noticeable. The lender later collects the full KPMG, a consultancy, suggested that more ply-chain financier. Of the suppliers Tung- value of the invoice from the buyer. This than 70% of businesses worldwide still sten serves, 80% are small or improves the cashflow for suppliers with- lack a supply-chain financing programme. medium-sized enterprises. Fintech firms out shortening payment terms for buyers, A report by McKinsey, a consultancy, maybe more nimble, butbankshave great- freeing up working capital for both parties shows market penetration has remained er resources. Both sides talkup the benefits and creating a healthier, more secure sup- very low: only about one-tenth of the po- of working in partnership. As they gather ply chain. tential global market for supply-chain fi- more data, it may become possible to start In America and Britain, government nance has been captured, it reckons. paying suppliers even before invoices are initiatives have encouraged supply-chain Fintech firms are not taking business approved. That, says Ganaka Herath, a financing as a means for corporations to from banks so much as expandingthe mar- partner at McKinsey, “is the holy grail”. 7 support small businesses and meet social- responsibility goals. The more integrated approach also means buyer and supplier The Big Mac index are not pitted against each other, squab- blingoverwhen the cash will be forthcom- The all-meaty dollar ing. According to Mr Greensill, his clients have enjoyed improved relationships with their suppliers. Though banks have offered this form of financing since the 1990s, it remained a bit of a backwater until the financial crisis. As Burgernomics gets to grips with a strong greenback revenues fell stagnant, companies tried to squeeze the most from their internal re- T IS perhaps not surprising that the raise interest rates to defend the currency. It sources by improving the management of Iworst-performing major currency in the has plunged to record lows. According to their working capital and extending pay- world this year is the Turkish lira. Many the Big Mac index, our patty-powered cur- ment terms, says Richard Hite, director of emerging-market currencies have taken a rency guide, it is now undervalued by supply-chain finance at Barclays, a big Brit- battering since the election in November 45.7% against the dollar. ish bank. This further compounded the of Donald Trump raised expectations of The Big Mac index is built on the idea of plight of suppliers, many of them small faster monetary tightening in America and purchasing-power parity, the theory that and medium-sized enterprises already sent the dollar soaring. But the lira has in the long run currencies will converge struggling to stay afloat. The crisis created many other troubles to contend with, too: until the same amount of money buys the an acute need for a better system to terrorist bombings, an economic slow- same amount of goods and services in ev- strengthen supply chains. It helped galva- down, alarm over plans by the president, ery country. ABigMac currently costs $5.06 nise an inchoate industry. Recep Tayyip Erdogan, to strengthen his in America but just 10.75 lira ($2.75) in Tur- Mr Hite sees the market for supply- powers, and a central bank reluctant to key, implying that the lira is undervalued. chain finance expanding as more compa- However, other currencies are even nies start to understand its benefits. It has cheaper. In Big Mac terms, the Mexican tended to cater to manufacturing and retail The Big Mac index peso is undervalued by a whacking 55.9% businesses; now it is taking off in other in- Local currency under(–)/over(+) valuation against the greenback. This week it also dustries such as oil and gas, where lower against the dollar, % plumbed a record low as Mr Trump reiter- oil prices prompted companies to cut costs. January 2016 January 2017 Big Mac price*, $ ated some of his campaign threats against In 2004 no one knew what supply-chain fi- 80 60 40 20 0+– 20 40 Mexico. The peso has lost a tenth of its val- nance was, says John Monaghan, who ue against the dollar since November. Of runs Citigroup’s programme. Now compa- Switzerland 6.35 big countries, only Russia offers a cheaper nies come to the bankasking forit. Norway 5.67 Big Mac, in dollar terms, even though the rouble has strengthened overthe past year. Best factor award Sweden 5.26 The euro zone is also prey to political But much ofthe growth is being driven not uncertainty. Elections are scheduled this Brazil 5.12 by banks but by fintech firms. Old-fash- year in the Netherlands, France and Ger- ioned “factoring” to turn invoices into cash United States† 5.06 many, and possible in Italy. The euro re- was time-consuming, laden with pa- centlyfell to itslowestlevel since 2003. Brit- ‡ per workand an expensive form ofcredit— Euro area 4.06 ain’s Brexit vote has had an even bigger the resort to which was sometimes seen as Britain 3.73 effect on the pound, which has fallen to a sign offinancial stress. Fintech firms offer $1.21, a 31-year low. According to the Big Mac new technologies that make early pay- Japan 3.26 index, the euro and the pound are under- ments possible at the click of a button. China§ 2.83 valued against the dollar by 19.7% and They can quickly set suppliers up on their 26.3%, respectively. platform. Banks’ early-payment pro- Turkey 2.75 One ofthe drawbacks ofthe Big Mac in- grammes have also typically been re- dex is that it takes no account of labour Vietnam 2.66 served for the largest suppliers. But fin- costs. It should surprise no one that a Big techs have made supply-chain finance India** 2.49 Mac costs less in Shanghai than it does in available to the tiddlers, too. San Francisco, since Chinese workers earn The marketwasalso ripe forinnovation Mexico 2.23 far less than their American counterparts. in other ways. Globalisation has made Russia 2.15 So in a slightly more sophisticated version supply chains longer and more complex. of the Big Mac index, we take account of a *At market exchange rates (Jan 11th 2017) †Average of For every buyer there are an increasing four cities ‡Weighted average of member countries country’s average income. numberofsuppliers, manyofthem now in §Average of five cities **Maharaja Mac Historically, this adjustment has tended Asia, which lags behind other regions in Sources: McDonald’s; The Economist to raise currencies’ valuations against the 1 68 Finance and economics The Economist January 14th 2017

2 dollar, so emerging-market currencies tend to look more reasonably priced. The Chi- Japanese tuna nese yuan, for example, is 44% underva- lued against the dollar according to our Bluefinger baseline BigMacindex, butonly7% accord- ingto the adjusted one. The deluxe Big Mac Tokyo’s showy fish auctions do not augureconomic growth index has typically made rich-world cur- rencies look more expensive. Because IYOSHI KIMURA does not like to lose. Japan’s economic fortunesand Tokyo’s western Europeans have higher costs of KFor the past six years he has outbid all season-opening tuna prices seem to float living and lower incomes than Americans, comers forthe first bluefin tuna of the rather erratically (see chart). A deep dive the euro has traded at around a 25% pre- year sold by Tokyo’s famed Tsukiji fish by The Economist suggests that tuna mium against the dollar in income-adjust- market. Last weekMr Kimura, who owns prices explain only 6% ofthe fluctuation ed burger terms since the euro’s inception. a chain ofsushi shops, paid ¥74.2m in GDP. The correlation is a red herring. But what once seemed to be an immu- ($642,000) to win the first fish. That nets Environmentalists, meanwhile, are table axiom of burgernomics is true no out to some $3,000 per kilogram. gutted. Bluefin tuna are endangered; longer. So strong is the dollar that even the Folkwisdom has it that high tuna- stocks have plunged by 97% from their adjusted Big Mac index finds the euro un- auction prices signal future economic peak, according to one estimate. The dervalued. The dollarisnowtradingat a 14- buoyancy. MrKimura has said that he annual Tsukiji auction always spawns year high in trade-weighted terms. Emerg- pays the exorbitant prices to “encourage protest, even ifsushi lovers remain ing-world economies may struggle to pay Japan”. But that rationale seems fishy. hooked. Roughly 80% ofall bluefin fished off dollar-denominated debts. American After a rival Hong Kong bidder baited is eaten in Japan. A single piece of o-toro, firms may find themselves at a disadvan- him, Mr Kimura paid three times as much the fattiest ofbluefin slices, can be sold to tage against foreign competition. And forthe Tsukiji tuna in 2013 as in the previ- finicky buyers foras much as $24. To American tourists will getmore burgers for ous year—a record-high ¥155.4m. GDP breakeven, Mr Kimura would need to their buckin Europe. 7 growth did not replicate that rise, how- bring in $85 a piece; they go for$3.40 in ever, sinking from 1.7% to 1.4%. In fact, his shops. A raw deal.

Fintech in Singapore Economy of scales Out of the box Tsukiji market, first tuna prices v Japan GDP growth, 2008-17 6 2010

SINGAPORE A financial hub confronts the 3

job-shredding potential offintech 2012 + END TREND † 2013 N AN era when architectural master- 2015 2016* 2017 Ipieces curve and bloom (Zaha Hadid), or 0 shimmy and fold (Frank Gehry), designers 2014 2011 START of central-bank buildings remain reassur- – 2008 ingly fond of right angles. The Monetary Authority of Singapore (MAS), the city- 3 state’s central bankand financial regulator,

is housed in a boxy tower just south of the on a year earlier % change Annual GDP growth,

central business district. But tucked into 2009 one corner is a room called “Looking- 6 0525075 100 125 150 175 Glass@MAS” that desperately wants to be Tuna (whole fish) price, ¥m Silicon Valley: witnessthe scruffily dressed † young men, whiteboards on wheels cov- Sources: IMF; press reports *GDP estimate GDP forecast ered in buzzwords and the kitchen along one wall. big banks. The MAS has vowed to invest cure, rich, low-risk Singapore before ex- This is the MAS’s fintech lab, where Sin- S$225m ($158m) in fintech by the end of porting them to bigger markets. Singapore gapore is trying to put its own twist on the 2020. Sopnendu Mohanty, its fintech guru, also makes much of its efforts in “reg- technologies disrupting the financial sec- says he wants to attract fewer “disrupters” tech”—software helping banks comply tor. A report from Citigroup published in than “enablers”. He hopes fintech can help with increasingly complex regulations. 2016 warned that as fintech lets customers banks by cutting expenses and opening up But Mr Mohanty stresses that, although do more online and cuts into banks’ lend- new sources of revenue, through products the MAS has eased regulation forsmall fin- ing and payments activities, European and that can slot into banks’ front- or back-of- tech experiments, “there is no compromise American banks could lose almost 2m jobs fice systems. The idea is to combine the on principles” : ie, cyber-security must be in the next ten years. Similarfears stalk Sin- cost-effective nimbleness of fintech with flawless. Having been caught up in Malay- gapore, home to more than 200 banks, and the trust, solidity and customer base of sia’s sprawling 1MDB scandal, Singapore dependent on finance for12.6% ofGDP. mainstream banks. Translation: even if has also been ranked by Oxfam, a charity, In London, Berlin and San Francisco, you can beat them, join them. as the world’s fifth-biggest corporate-tax many fintech innovators are betting One attraction of Singapore for fintech haven (“inaccurate”, said the government). against the big banks. Singapore, typically, entrepreneurs is what Mr Mohanty calls So the employment-destroying peril of fin- is trying to play both sides of that bet. It the “sandbox”: a relaxation of some regu- tech isnotthe onlythreatto the health ofits wants a thriving fintech industry that sup- latory requirements to allow small-scale financial sector: Singapore may also be ports, rather than undermines, incumbent experiments. This lets firms test ideas in se- worried about its reputation. 7 The Economist January 14th 2017 Finance and economics 69

China’s currency In normal circumstances, central banks is sounder than it was two years ago, when would be expected to inject money to ease the yuan’s gradual descent began. A prop- Squeezed to life such shortages. But the Chinese authori- erty boom has breathed life into heavy in- ties did little to stem the cash crunch, dustry. Producer-price inflation is running pleased to see it hurt those betting against at its fastest in more than halfa decade. The the yuan. To make money by “shorting” a central bank is tightening monetary condi- currency, investors borrow it, sell it and tions, however gingerly. As China’s eco- Shanghai then hope to buy it back after its value has nomic and policy cycles more closely track The yuan defies predictions ofgloom fallen. With borrowing rates so high, this those in America, there is less scope for with a strong start to the year becomesall but untenable. As the liquidity runaway strength in the dollar, which in HE omens for the Chinese yuan squeeze has abated in recent days, the off- turn takes pressure offthe yuan. Tseemed bad heading into 2017. The cap- shore yuan has pared its earlier gains. Even so, manyofthe factorsremain that ital account looked as porous as ever, mak- China’s success in defending the yuan led the yuan to drop by 7% last year, its ing a mockery of the government’s at- suggests that, as the government tightens steepest fall on record. The broad money tempts to fixthe leaks. The new year, when capital controls, they are having more ef- supply is still growing at a double-digit residents received fresh allowances for fect. In the past two months it has started rate. Chinese companies and households buying foreign currency, was due to bring reviewing all transfers abroad by compa- still have a ravenousappetite forforeign as- even more pressure. Analysts braced for a nies worth $5m or more. Transfers by indi- sets. Most analysts expect the yuan soon to stampede for the exits from China. The viduals will also soon face more scrutiny. start fallingagain, though that consensus is yuan had fallen sharply at the beginning The controls should slow the erosion of no longer rock-solid. China’s central bank of 2016, catching them by surprise. This China’s foreign-exchange reserves, which has long said that it wants to make the time, they were ready. are down to $3trn from $4trn in 2014. yuan more volatile and less predictable. Instead, the yuan began the year as one Most important, the Chinese economy On that score, it has surely succeeded. 7 of the world’s star performers. This was particularly so in the offshore market, where foreigners trade it most freely. It Chinese tax gained 2.5% against the dollar over two days in the first week of 2017, its biggest Making China great again two-day increase since 2010, when trading began in HongKong, its main offshore hub. A tycoon shatters the country’s reputation forlow-cost manufacturing Within China itself, price increases were more subdued, but the yuan still climbed HEN China was gripped by politi- Cao’s complaints do have some merit. In to a one-month high. Wcal turmoil in the 1960sand 1970s, its annual “Doing Business” rankings, the Currency markets are notoriously fick- Cao Dewang cut his teeth as an entrepre- World Bankestimates that China’s total le, so it is dangerous to read too much into a neur. Mao’s chaotic rule forced him out tax rate as a percentage ofprofits is 68%, few days of price swings. But in China the ofschool and he tookto the street, a roughly two-thirds more than in high- government has always had a tight grip on scrappy teenager selling fruit and ciga- income countries. the yuan. So the currency’s strength raised rettes. Looking back, Mr Cao has said that This points to bigger flaws in China’s the question of whether it was simply be- it was actually a good time to do busi- taxation system: an overreliance on ing propped up—or whether the yuan’s ness: the government was too busy wag- indirect taxes and poor design ofdirect prospects were in fact improving. ing ideological campaigns to enforce its taxes. According to a 2015 analysis by W. The Hong Kong rally has the Chinese regulations. Mr Cao went on to become a Raphael Lam and Philippe Wingender of central bank’s fingerprints all over it. The billionaire, as China’s biggest manufac- the IMF, taxes on corporate and personal proximate cause was a shortage of yuan in turer ofautomotive glass. Last month he incomes account for just a small fraction Hong Kong. As its residents have turned sparked controversy by complaining that ofChina’s tax revenues. Instead, more away from the Chinese currency, deposits life was tough forbusinesses in China. than halfofrevenues come from indirect there have fallen to just over 600bn yuan There are, he said, fartoo many regu- taxes on goods and services. As for direct ($86.7bn), their lowest level since early lations—especially taxes and fees. These taxes, they are deeply regressive: social- 2013. That has led to periodic liquidity days the government is much more security contributions account for90% of squeezes, making the cost of borrowing effective in enforcing them. tax liabilities formost households. yuan in Hong Kong prohibitive: the over- Mr Cao hit a nerve with his claim that China is slowly tackling some ofthese night rate soared to 61% at the start of2017. it was more costly to run a business in issues. Reform ofthe value-added tax China than in America. He should know. system (which has replaced a cruder tax His company, Fuyao Glass, bought an old on revenues) will lower the govern- Pop-up currency General Motors factory in Ohio in 2014 ment’s take ofindirect taxes. It has eased Chinese yuan per $, inverted scale and announced plans to invest $200m the burden ofsocial-security payments there. Mr Cao claimed that the overall tax forits poorest citizens. Richard Bao, a 6.0 on manufacturers is 35% higher in China partner with Grant Thornton, an ac- 6.2 than in America. Once China’s higher counting firm, says that China is making Onshore land and energy costs are factored in, the the tax-filing process simpler forcompa- 6.4 advantages ofits lower labour costs nies, at the same time as it is tightening 6.6 disappear, he said. the net around those who dodge it. And Offshore The State Administration ofTaxation Mr Cao’s criticism suggests that China 6.8 tried to refute the claims. It noted that might also be making progress in another 7.0 overall tax revenues as a percentage of respect. Like all rich countries, it, too, now GDP are just 30% in China, lower than the has tycoons who threaten to invest 7.2 average of42.8% in developed countries abroad ifthe government does not cut 2015 16 17 and 33.4% in developing ones. But Mr their tax bills. Source: Thomson Reuters 70 Finance and economics The Economist January 14th 2017 Free exchange Get off of my cloud

Trying to stay above politics, economists riskbeing not just wrong, but irrelevant fect human behaviour. Narratives matter, he argued. Powerful ideas, captured in memorable stories, can spread like epidemics, wreaking economic havoc as they go. Views such as these, however, are notable for their rarity. Economists in Chicago debated the likely effect of the fiscal ex- pansion expected underthe Trump presidency, justasthey had in past years debated the need for more of a fiscal boost during the outgoing Obama administration. Hardly discussed at all, how- ever, was why deficit spending that seemed politically impossi- ble then is on the political agenda now. Afew years ago it might have boosted an American economy struggling to overcome weak growth and near-zero inflation; now the unemployment rate is just 4.7% and both growth and inflation are accelerating. Economists seem to feel that such political questions are out- side their area of concern. Yet politics helps determine the value ofeconomic-policy recommendations. Many aspects ofthe stim- ulus plan passed early in Barack Obama’s tenure, such as the money provided to states to plug budget holes and protect public services from large spending cuts, were chosen because they were judged to have a high multiplier effect—ie, each dollar in new government debt generated a more-than-equivalent rise in VERY January more than 10,000 economists meet for the an- output. But the spending remained largely invisible to voters, Enual conference of the American Economic Association who had little idea as a result whether (or how) they had benefit- (AEA). This year, the shindig was in balmy Chicago, a stone’s ed from it. That, in turn, made stimulus easy to demonise, hinder- throwfrom itssecond-tallestbuilding, the name TRUMP stamped ing subsequent attempts to boost fiscal spending and harming la- in extra-large letters across its base. Most papers had been written bour markets. Policies that look effective in the absence of monthsin advance; fewsessionstackled the electoral earthquake political constraints can prove anything but in the real world. in November. Yet there was no mistaking the renewed sense, fol- Similarly, economists are rightly beginningto wrestle with the lowing its failure to foresee the 2007-08 financial crisis, ofan aca- threat artificial intelligence could pose to jobs. But they are doing demic field in a crisis ofits own. The election was seen as a defeat so in almost purely economic terms, when it is the political im- for liberalisation and globalisation, and hence for an economics pact that may prove most interesting and important. Besides profession that had championed them. If economists wish to re- modelling an economy where machines do 100% of the work, it main relevant and useful, the modest hand-wringing at this might be worth thinking through the potential political effects of year’s meetings will need to yield to much deeper self-reflection. a world in which, say, 20% ofworking-class adultsare deprived of Their theories had always shown that globalisation would good, meaningful work. Long before the last human worker produce losers as well as winners. But too many economists wor- clears his desk, protectionist or Luddite reactions might anyway ried that emphasising these costs might undermine support for have destroyed the path to this brave new world. liberal policies. A“circle the wagons” approach to criticism of glo- balisation weakened the case for mitigating policies that might It’s the politics, stupid have protected it from a Trumpian backlash. Perhaps the greatest Many economists shy away from such questions, happy to treat omissions were the questions not asked at all. Most dismal scien- politics, like physics, as something that is economically impor- tists exclude politics from their models altogether. As Joseph Sti- tant but fundamentally the business of other fields. But when ig- glitz, a Nobel laureate, putiton one star-studded AEA panel, econ- noring those fields makes economic-policy recommendations ir- omists need to pay attention not just to what is theoretically relevant, broadening the scope of inquiry within the profession feasible but also to “what is likely to happen given how the politi- becomes essential. Some justifiably worry that taking more ac- cal system works”. count of politics could destroy what credibility economists have Researchers on topics of political relevance—from the global left as impartial, apolitical experts. Yet politics-free models are no effects of dollar appreciation to the economics of the production insulation from political pressures—just ask a climate scientist— of fake news—promised in Chicago to produce more timely re- and nothing would boost economists’ reputations more than re- search. One recent example: just after the election, David Autor, sults which match, and even predict, critical outcomes. of the Massachusetts Institute for Technology, and others pub- Political and social institutions are much harder to model and lished a short paper comparing congressional-district election re- quantifythan commodityorlabourmarkets. Buta qualitative ap- sults against data they had previously gathered assessing local- proach might actually be far more scientific than equations offer- area exposure to Chinese imports. Similarly, Anne Case and An- ing little guide to how the future will unfold. Donald Trump cam- gus Deaton of Princeton University were able to compare their paigned (and may well govern) by castigating the uselessness of results on recent increases in mortality rates in parts of America experts. To prepare for a time when expertise comes back into with voting patterns. fashion, economists should renew their commitment to generat- In a keynote address, Robert Shiller—a Nobel prizewinner, ha- ing knowledge that matters. 7 bitual freethinker and outgoing AEA president—suggested that economists should think more broadly about the factors that af- Economist.com/blogs/freeexchange Science and technology The Economist January 14th 2017 71

Also in this section 72 Predicting a stellar explosion 73 A cheap medical centrifuge 74 The evolution of the menopause

I A 750 km L O 74 A submersible drone for anglers G O N M XINJIANG E R I N N Beijing

JIANGSU TIBET ANHUI Shanghai SICHUAN

Ultra-high-voltage direct-current Xiangjiaba dam projects in China Operating line YUNNAN Planned line Population density, 2015 (est) For daily analysis and debate on science and No data technology, visit Sources: State Grid; Centre for International Earth Science Information Network Economist.com/science

Power transmission favour in the 19th century was the transfor- mer. This allows AC voltages to be in- Rise of the supergrid creased after generation, for more efficient transmission over longish distances, and then decreased again at the other end of the line, to supply customers’ homes and businesses. At the time, direct current had had no such breakthrough. When one eventually came, in the Electricitynow flows across continents, courtesy ofdirect current 1920s, in the form ofthe mercury arc valve, HE winds ofthe Oklahoma panhandle Thislong-distance ultra-high-voltage di- AC was entrenched. Even the solid-state Thave a bad reputation. In the 1930s they rect-current (UHVDC) connector will be thyristor, a cousin of the transistor invent- whipped its over-tilled topsoil up into the the first of its kind in America. But the pro- ed in the 1950s, offered no great advantages billowing black blizzards of the Dust Bowl. blem it helps with is pressing everywhere. over the tens or hundreds of kilometres The winds drove people, Steinbeck’s dis- Fossil fuels can be carried to power sta- that power grids tended to span. Some possessed, away from their livelihoods tions far from mines and wells, if neces- high-voltage DC lines were built, such as and west, to California. sary, but where wind, solar and hydro- that under the English Channel, linking Today, the panhandle’s steady winds electric power are generated is not Britain and France. But these were justified are a force for creation, not destruction. negotiable. And even though fossil fuels by special circumstances. In the case ofthe Wind turbines can generate electricity can be moved, doing so is not desirable. Channel link, for example, running an AC from them at rock-bottom prices. Unfortu- Coal, in particular, iscostlyto transport. Itis line through water creates electromagnetic nately, the local electrical grid does not better to burn it at the pithead and tran- interactions that dissipate a lot ofpower. serve enough people to match this poten- sportthe electricitythus generated instead. Over transcontinental distances the tial supply. The towns and cities which Transmitting power over thousands of balance of advantage shifts. As voltages go could use it are faraway. kilometres, though, requires a different up, to push the current farther, AC employs So Oklahoma’s wind electricity is to be sort of technology from the AC now used (and thus wastes) an ever-increasing exported. Later this year, lawsuits permit- to transmit it tens or hundreds of kilo- amount of energy in the task of squeezing ting, work will begin on a special cable, metres through local grids. And in China, its alternations through the line. Direct cur- 1,100km (700 miles) long, between the Europe and Brazil, as well as in Oklahoma, rent does not have this problem. Long-dis- panhandle and the western tip of Tennes- a newkind ofelectrical infrastructure isbe- tance DC electrical linesare also cheaper to see. There, it will connect with the Tennes- ing built to do this. Some referto the results build. In particular, the footprint of their see Valley Authority and its 9m electricity as DC “supergrids”. pylons is smaller, because each DC cable customers. The Plains and Eastern Line, as can carry far more power than an equiva- it is to be known, will carry 4,000MW. Higher voltage lent AC cable. Admittedly, thyristors are ex- That is almost enough electricity to power AC’s ubiquity dates from the so-called pensive—the thyristor-packed converter Greater London. It will do so using direct “war of the currents” that accompanied stations that raise and lower the voltage of current (DC), rather than the alternating electrification in the 1880s and 1890s. the Plains and Eastern line will cost about current (AC) that electricity grids usually When electricity flows down a line as AC, $1bn, which is two-fifths of the project’s to- employ. And it will run at a higher voltage energy travels as a wave. When it flows as tal bill. But the ultra-high voltages required than such grids use—600,000 volts, rather direct current, there is no oscillation. Both for transcontinental transmission are still than 400,000. work well, but the deciding factor in AC’s best achieved with direct current. 1 72 Science and technology The Economist January 14th 2017

2 For all the excitement surrounding the UHVDC connectors being referred to as su- real needs ofgrid operators. Plains and Eastern Line, however, America pergrids, they are rarely actual networks. Such projects—which are transnational is a Johnny-come-lately to the world of Rather, they tend to be point-to-point links, as well as transcontinental—carry risks be- UHVDC. Asian countries are way ahead— from which fanning out is impossible. yond the merely technological. To out- China in particular. As the map on the pre- Some utilities are therefore looking at source a significant proportion of your vious page shows, the construction of them to move power over relatively short electricity generation to a neighbour is to UHVDC lines is booming there. That boom distances, as well as longer ones. invest huge trust in that neighbour’s politi- is driven by geography. Three-quarters of One such is 50Hertz, which operates cal stability and good faith. The lack of China’s coal is in the far north and north- the grid in north-east Germany. Almost such trust was, indeed, one reason Deser- west ofthe country. Four-fifths ofits hydro- half the power it ships comes from renew- tec failed. But if trust can be established, electric power is in the south-west. Most of able sources, particularly wind. The firm the benefits would be great. Earth’s wind- the country’s people, though, are in the would like to send much of this to Ger- blasted and sun-scorched deserts can, if east, 2,000km or more from these sources many’s populous south, and on into Aus- suitably wired up, provide humanity with ofenergy. tria, but any extra powerit puts into its own a lot of clean, cheap power. The technol- China’s use of UHVDC began in 2010, grid ends up spreading into the neighbour- ogy to do so is there. Whether the political with the completion of an 800,000-volt ing Polish and Czech grids—to the annoy- will exists is the question. 7 line from Xiangjiaba dam, in Yunnan prov- ance ofeveryone. ince, to Shanghai. This has a capacity of 50Hertz is getting around this with a 6,400MW (equivalent to the average pow- new UHVDC line, commissioned in part- Astronomy er consumption of Romania). The Jinping- nership with Germany’s other grid opera- Sunan line, completed in 2013, carries tors. This line, SuedOstLink, will plug into De Nova Stella 7,200MW from hydroelectric plants on the the Meitingen substation in Bavaria, re- Yalongriver in Sichuan province to Jiangsu placing the power from decommissioned province on the coast. The largest connec- south-German nuclear plants. And Boris tor under construction, the Changji-Gu- Schucht, 50Hertz’s boss, has bigger plans quan link, will carry 12,000MW (half the than that. He says that within ten years Astronomers predict a stellarexplosion average poweruse ofSpain) over3,400km, UHVDC will stretch from the north of Swe- will happen in five years’ time from the coal- and wind-rich region of Xin- den down to Bavaria. Afterthis, he foresees jiang, in the far north-west, to Anhui prov- the development of a true UHVDC grid in MATEUR astronomers have a new date ince in the east. This journey is so long that Europe—one in which the lines actually in- Afor their diaries. In 2022, in the constel- it requires 1.1m volts to push the current to terconnect with each other. lation ofCygnus, they will be treated to the its destination. That will require new technology—spe- sight of a nova, or “new star”. By them- China’s UHVDC boom has been so suc- cial circuit-breakers to isolate faulty cables, selves, novas are not particularly notewor- cessful that State Grid, the country’s mo- and new switch gear—to manage flows of thy. Several dozen a year happen in Earth’s nopolistic electricity utility, which is be- current that are not simply running from A home galaxy, the Milky Way, alone. But hind it, has started building elsewhere. In to B. But, if it can be achieved, it would this one will be special fortwo reasons. 2015 State Grid won a contract to build a make the use ofrenewable-energy sources One is its intensity: provided you are 2,500km line in Brazil, from the Belo Monte much easier. When the wind blows strong- somewhere reasonably dark (in the coun- hydropower plant on the Xingu River, a ly in Germany, but there is little demand tryside, in other words, rather than a big tributary ofthe Amazon, to Rio de Janeiro. for the electricity thus produced (at night, city) it will be bright enough to be seen by China’s neighbour India is following for instance), UHVDC lines could send it to the naked eye. The second is that it will be suit—though its lines are being built by Scandinavian hydroelectric plants, to the first nova whose existence was predict-1 European and American companies, pump water uphill above the turbines. namely ABB, Siemens and General Elec- That will store the electricity as potential tric. The 1,700km North-East Agra link car- energy, ready to be released when needed. rieshydroelectricpowerfrom Assam to Ut- Just as sources of renewable energy are of- tar Pradesh, one of the country’s most ten inconveniently located, so, too are the densely populated areas. When finished, best energy-storage facilities. UHVDC per- and operatingatpeakcapacity, itwill trans- mits generators and stores to be wired to- mit 6,000MW. At existing levels of de- gether, creating a network of renewable re- mand, that is enough for 90m Indians. The sources and hydroelectric “batteries”. country’s other line, also 6,000MW, car- In Asia, something similar may emerge ries electricity 1,400km from coal-fired on a grander scale. State Grid plans to have power stations near Champa, in Chhattis- 23 point-to-point UHVDC links operating garh, to Kurukshetra, in Haryana, passing by 2030. But it wants to go bigger. In March Delhi on the way. 2016 it signed a memorandum of under- standingwith a Russian firm, Rosseti, a Jap- Overdose anese one, SoftBank, and a Korean one, Valuable though they are, transcontinental KEPCO, agreeing to the long-term develop- links like those in China, Brazil and India ment of an Asian supergrid designed to are not the only use for UHVDC. Electricity move electricity from windswept Siberia is not described as a “current” for nothing. to the megalopolis ofSeoul. It does behave quite a lot like a fluid—in- This project is reminiscent of a failed cluding fanning out through multiple European one, Desertec, that had similar channels if given the chance. This tenden- goals. But Desertec started from the top cy to fan out is another reason it is hard to down, with the grand vision of exporting corral power over long distances through the Sahara’s near-limitless solar-power AC grids—for, being grids, they are made of supply to Europe. Today’s ideas for Asian multiple, interconnected lines. Despite and European supergrids are driven by the X marks the spot The Economist January 14th 2017 Science and technology 73

2 ed before the fact. Assuming everything goes according to schedule, the credit for thatwill belongto Lawrence Molnar, an as- tronomer at Calvin College, in Michigan, and his team, who have set out their pre- dictions in a paper to be published soon in the Astrophysical Journal. It is a tale of scientific serendipity. “Nova”, which is Latin for “new”, comes from the title ofa book(also the title ofthis article) published in 1573 by Tycho Brahe, a Danish astronomer. This recorded what would now be called a supernova that had happened the year before. By proving that the “new star” in question was a very great distance away—at the least, further than the Moon—Brahe dealt a mortal blow to the Aristotelian belief, widespread in Eu- rope at the time, that the heavens were per- fect and unchanging. Medical diagnostics But the name is a misnomer. Novas are not new stars. Rather, they are explosions String-driven thing that take place on existing ones, drastically but temporarily increasing their bright- ness. There are several kinds, but Dr Mol- nar’s nova will be caused when one mem- ber of a two-star system collides with the other, causing an enormous and violent A cheap centrifuge that separates blood cells from plasma in minutes outpouring ofenergy. Dr Molnar’s interest was piqued at a AKE a cardboard disc and punch two with glue, act as receptacles forsmall tubes conference in 2013, when Karen Kinemu- Tholes in it, on either side of its centre. that contain the blood to be centrifuged. chi, another astronomer, presented some Thread a piece of string through each hole. Once the straws have been loaded, the puzzling findings on a particular star seen Now, pull on each end of the strings and two discs are attached face to face with Vel- by Kepler, a space telescope designed chief- the disc will spin frenetically in one direc- cro, sandwiching the tubes between them. ly to hunt forexoplanets. When Dr Molnar tion as the strings wind around each other, For string, Dr Prakash uses lengths of fish- and his team observed the star—named and then in the other, as they unwind. ing line, tied at each end around wooden KIC9832227—they discovered that it was a Versions of this children’s whirligig or plastic handles that the spinner holds. “contact binary”, a pair of stars so close to- have been found in archaeological digs The result, which spins at over 300 rev- gether that the smaller orbits within the at- across the world, from the Indus Valley to olutions per second (rps) and generates a mosphere ofthe larger. the Americas, with the oldest dating back centrifugal force 10,000 times that of gravi- They also found that the smaller star to 3,300BC. Now Manu Prakash and his ty, is able to separate blood into corpuscles wasorbitingmore quickly—and thuscloser colleagues at Stanford University have, and plasma in less than two minutes. This to its bigger companion—than it had been with a few nifty modifications, turned the is a rate comparable to that of electrical when Dr Kinemuchi made her measure- toy into a cheap, lightweight medical cen- centrifuges. Spinning samples for longer ments. Further observations confirmed trifuge. They report their workthis week in (about 15 minutes is ideal, though that is a that the smaller star was indeed spiralling Nature Biomedical Engineering. lot of effort for a single spinner) can even towards its companion. Based on observa- separate red corpuscles, which may be in- tionsofanothercontactbinary, V1309 Scor- What goes around... fected by malarial parasites, from white pii, which became a nova in 2008, the re- Centrifuges’ many uses include the separa- ones, which cannot be so infected. The searchers were able to offer a prediction of tion of medical samples (of blood, urine, team is now trying the system out for real, the time of impact that, they hope, should sputum and stool) for analysis. Tests to to find out what works best, by conducting be accurate to within about seven months. spot HIV, malaria and tuberculosis, in par- blood tests formalaria in Madagascar. (The most likely date is a fifth of the way ticular, require samples to be spun to clear Once samples have been separated, through 2022—ie, mid-March.) them of cellular debris. Commercial cen- they still need to be analysed. Fortunately, Successfully predicting a nova will be trifuges, however, are heavy and require the paperfuge is not the first cheap labora- of interest to more than just amateur sky- power to run. That makes them impracti- tory instrument Dr Prakash has invented. watchers. Astronomers have built mathe- cal for general use by health-care workers In 2014 he unveiled the “foldscope”, a mi- matical models to describe what happens in poor countries, who may need to carry croscope made from a sheet ofpaper and a during such events, but testing them out diagnostic tests in the field without ac- small spherical lens. The foldscope goes on against reality is hard. All previous novas cess to electricity. They also cost hun- sale this year, but his laboratory has al- have been detected after the fact. Anyone dreds—often thousands—ofdollars. ready distributed more than 50,000 of wanting to study what happens before the Dr Prakash’s device, which he calls a them to people in 135 countries, courtesy of explosion must therefore sift back through “paperfuge”, costs 20 cents and weighs just a charitable donation that paid for them. old observations, hoping that some infor- two grams. The standard version (pictured He plans to ship a million more by the end mation about the pre-nova star will have above) consists of two cardboard discs, of 2017. Putting this together with a paper- been recorded by chance. Armed with Dr each 10cm across. One of the discs has two fuge means it is now possible to separate Molnar’s prediction, though, astronomers 4cm-long pieces of drinking straw glued to biological samples and analyse them un- will be able to watch the build-up as well it, along opposing radii. These straws, der a microscope using equipment that as the denouement. 7 which have had their outer ends sealed costs less than a couple ofdollars. 7 74 Science and technology The Economist January 14th 2017

The evolution of the menopause Underwater drones A whale of a tale One that didn’t get away

A submersible drone to help anglers OST pastimes nowadays involve But most failed to spot something. Flying Intergenerational conflict may explain lots ofhigh-tech gadgets. For fish- drones communicate using radio waves, loss offemale fertilitywith age M ermen these range from electronic bite but, whereas sound travels well in water, HE menopause is a puzzle. Why do alarms to carbon-fibre rods, specialised radio waves do not—especially through Twomen, unlike most female mammals, clothing and tackle boxes stuffed with seawater, which is highly conductive and stop reproducing decades before they die? various odd and ends. There is so much thus readily absorbs radio signals. This is Analysing birth and death records shows clobber that some anglers use trolleys to why submarines usually need to surface that the assistance they give in bringing up lug around their gear. Now the ultimate to use their radios. The clue to how Pow- grandchildren does have a measurable ef- piece ofkit has arrived: a fishing drone. erRay gets around this problem can be fect on those grandchildren’s survival. But The device, called PowerRay, comes found in a suspicious-looking plug socket that does not prove such assistance is more from PowerVision, a dronemaker in amidships. valuable in evolutionary terms than con- Beijing. It is a submersible that carries a The drone has, in fact, to be tethered to tinued fertility would be. video camera to send images ofNep- its operator by plugging in a 30-metre- Two other mammals undergo a meno- tune’s kingdom backto the angler on the long umbilical cord. PowerVision ex- pause, however. These are killer whales bankor boat above. These pictures, either plains that this cord serves two purposes. and short-finned pilot whales. And a long- still or video, can be viewed on the One is to cope with the “challenging term analysis of killer-whale populations, screen ofthe hand-held unit that controls transmission environment”, by relaying by Darren Croft ofthe University ofExeter, the drone, or on a smartphone. Those commands and video data through the in England, and his colleagues, just pub- who really want to get into the swim can cable. The other is rescue, forifa big fish lished in Current Biology, suggests the don a pair ofvirtual-reality goggles to came along and snatched the bait the missing part of the explanation may be watch them. drone was carrying, the device might be thatthe menopause notonlyfreesa female PowerRay is equipped with a fish dragged down to Davy Jones’s locker. to help raise the grandoffspring, but also re- detector. This uses sonar, sending out The cord lets the angler haul the drone in duces competition between her and her sound waves and picking up the reflec- manually, with or without the offending gravid and nursing daughters. tions that bounce offnearby objects. whopper still holding on. Dr Croft’s killer whales swim off the PowerVision claims that the system can The company hopes to offerfuture coasts of British Columbia, in Canada, and distinguish between species, permitting versions ofthe PowerRay without a cord, its southern neighbour, the American state the angler to identify the target he wants. probably using low-frequency systems ofWashington. Theyhave been monitored The drone can then be used to carry a which could provide limited range in by marine biologists every year since 1973. baited hookto the spot, and let it go. Just fresh water. These would be intended for They live in pods of 20-40 animals and are forgood measure, it can also emit an underwater photography. For the fish- now so well known that individual ani- alluring hue ofblue light which is sup- ermen, it is also looking at how to deliver mals can be identified by the shapes of posed to attract fish. a baited hookdirectly to a specific desti- their fins, the patterns of their saddle The PowerRay caused something ofa nation on the river bed or sea floor, and patches and from scratches that they have buzz among excitable geeks at CES, a then settle down to keep a watch over it. picked up in the rough and tumble of oce- consumer-electronics show held in Las Anglers will thus have direct video evi- anic life. Their sexes are known, too. Vegas, where it was unveiled this week. dence ofthe one that got away. Though killer whales’ genitalia are not vis- ible from the outside, distinctive pigmenta- tion patterns around their genital slits dis- lyse the lives of 525 calves born into three caused directly by the mother’s age. In the tinguish males from females. And which of the pods. He found that if an elderly fe- absence of such coincidence of birth, the calves belong to which mothers can be de- male gave birth at around the same time as calves of elderly mothers were just as like- duced by seeing who spends most time a youngster, her calf was, on average, 1.7 ly to live to 15 as those of young mothers. with whom. times more likely to die before the age of15 But when it came to head-to-head arroga- The data thus collected let Dr Croft ana- than the youngster’s was. This was not tion of resources for offspring, the young- sters outcompeted their elders, and their offspring reaped the benefits. Plugging these numbers into his model, Dr Croft showed that the diminution of fe- cundity in elderly females that this inter- generational competition creates, com- bined with the fact that the youngsters an elderly female is competing with are often her own daughters (so it is her grandoffspr- ing that are benefiting), means it is better forherposterity ifshe gives up breeding al- together, and concentrates her efforts on helping those daughters. Whether women once gained the same sorts of benefits from the menopause askillerwhalesdo re- mains to be determined. But it is surely a Hurry up, Grandma reasonable hypothesis. 7 Books and arts The Economist January 14th 2017 75

Also in this section 78 Spying in America

For daily analysis and debate on books, arts and culture, visit Economist.com/culture

A walk across Washington peaceful itis—all wood-clad and brick colo- nial homes with their porches, set back District line amid trees and lawns: the suburban Amer- ican dream. A short detour leads to the Francis A. Gregory Library, built in 2012 by David Adjaye, the Ghanaian-British archi- tect who has just been knighted by the WASHINGTON, DC queen and who made his name in Ameri- A day’s stroll from one end ofAmerica’s federal capital reveals how the culture and ca designing the newly opened National topography ofthe cityare evolving Museum of African-American History & ELCOME to Washington, DC”, long-neglected one eastofit. Arecent study Culture, the latest addition to the Smithso- “Wsays the solid, red, white and blue of the census tracts within a mile’s radius nian. If anything, the local library, an ele- sign on the corner of Branch and Southern of one of the bridges across the river gives gant mix of glass and diamond-shaped Avenues, in this leafy entry to the nation’s an idea of the gulf: unemployment of 6.6% plywood, is the more pleasing ofthe two. capital. A stream of traffic is carrying in and child poverty of 20% on the western On the morningstretch yourcorrespon- mostly African-American commuters side; 20.7% jobless and 53% child poverty to dent is accompanied by a friend from his from Maryland’s Prince George’s County. the east. The median value ofan owner-oc- time as The Economist’s Washington It is eight o’clock on a clear blue morning: a cupied home in the west was two-and-a- bureau chief in the 1990s, and by Mark perfect day fora walkacross Washington. halftimes that in the east. Puryear, an ethnomusicologist and native The distance from one end of the Dis- A quarter of a century ago Washington Washingtonian. An hour into the walk the trict ofColumbia to the other is only about was known as the “murder capital” of friend, Alissa Stern from Bethesda, Mary- 11 miles (18km). Today’s zigzag route (see America, a result of a crack-cocaine epi- land, confesses to being “shocked” by how map, next page) is perhaps 17 miles. The demic (and the illicit market it gave rise to) nice this area is. eyes of the world will be on Washington from the mid-1980s. The number of mur- True, Mr Puryear has planned our route on January 20th, the day of Donald ders peaked at 482 in 1991, falling to below into Anacostia with care. It meanders past Trump’s inauguration as America’s 45th 100 in 2012. Despite the dip, crime remains civil-war defences with commanding president. The idea ofwalkingacross itis to uncomfortably common: Washington views overthe city and across the Potomac do a double dissection of the city: a geo- ranks only just outside the ten worst large river into Virginia. It includes the Anacos- graphical one (a leisurely look at its con- cities in the country for violent crime, and tia Community Museum, a branch of the trasts, from the poorer south-east to the in 2015 itexperienced a nastyuptickin mur- Smithsonian where a recent exhibition, prosperous north-west, where your corre- ders. In 2016 it had 135 homicides. “Twelve Years that Shook and Shaped spondentlived in the mid-1990s); and a his- A disproportionate share of the killing Washington: 1963-1975”, covered an earlier torical and cultural one (a sense ofhow the happens east of the river. The typical vic- period of dramatic change for the city, in- place has changed). On both dimensions, tim is “a 24-year-old black man in the cluding the riots that erupted after the as- big surprises lay ahead. south-east, who most likely knew their sassination of Martin Luther King in 1968 killer,” says Jennifer Swift, the editor of D.C. and the redevelopment that pushed many A tale of two cities Witness, which monitors every murder. African-American families into public Washington is known to be deeply divid- People who live on the other side of town housing in Anacostia. Farther down, we ed—not just between warring Democrats tend to venture east of the Anacostia with reach the Anacostia home of Frederick and Republicansbutalso between the rela- a degree ofwariness, ifat all. Douglass, a 19th-century abolitionist and tively affluent and diverse city west of the So the first surprise along gently undu- orator. The site is now run by the National Anacostia river and the largely black and lating Branch Avenue is how pleasant and Park Service; the visitors there are among 1 76 Books and arts The Economist January 14th 2017

nation—more a place than a path,” says FINISH Scott Kratz, the project’s director, over a freshly made sandwich at the Anacostia MARYLAND UNITED Washington Arts Centre’s café. The river has divided DISTRICT OF Van Ness STATES COLUMBIA Street Washington for generations, he says; now it can bring together “people who wouldn’t normally cross paths”. Pre-con- struction work has started, and he hopes Rock the parkwill open in late 2019. Creek Washington Mr Kratz is busy not just raising the Park $45m needed for the bridge, but working Georgetown Shaw on waysto avoid itsmostfeared side-effect: Trump International Hotel H Street gentrification. His “Equitable Develop- NoMa corridor The White ment Plan” includes leveraging the project House Capitol to encourage small businesses, and a Potomac building Lincoln homebuyers’ club so locals can capture Capitol Park National Museum Hill Eastern some of the rising equity that is coming of African American Market their way. VIRGINIA History and Culture Yards Francis Park AnacostiaAnacostia Gregory Boomtown, USA The Pentagon 11th St Bridge Arts Centre Library To see what gentrification looks like, you Park (proposed) Anacostia have only to cross the river. Already from the bridge, massive building development Frederick Douglass DC House MD starts to come into view. The third surprise Potomac Smithsonian Anacostia of the walk is the scale of the boom that is 3 km START Community Museum under way in many parts ofthe city. Yards Park, next to the Navy Yards, is a 2 the few white faces we see this morning. arts, recreation and education, opened in good example. Washington was founded Mr Puryear notes an abundance of one 2005 and is now planning to add a third on the confluence ofthe Anacostia and Po- thing and a scarcity of another. The abun- building. The Department for Homeland tomac rivers, but it had largely turned its dance is ofchurches. In front ofthe modest Security is consolidating its headquarters back on the Anacostia, heavily polluted Kingdom Hall of Jehovah’s Witnesses, a in the Anacostia area. The District has and lined with industrial buildings and smartly dressed Mary Ushbry is picking thrown its support behind a $65m project parking lots. Now it is clearing these away; bits of litter off the street in preparation for for a practice facility for the Washington a boardwalk, jetties, park facilities and a service this morning which, she says, is Wizards basketball team and an arena for apartment blocks with river views are going to “bring some good news”. The the women’s team, the Mystics. coming. A sign by a building site even an- granderOurLady ofPerpetual Help enjoys In a former Woolworths building on nounces an imminent “District Winery”. a stunning view over the city. Good Hope Road, the Anacostia Arts Cen- “People forget, we’re a water city,” says The scarcity is of shops. Only three tre housesexhibitions, a restaurant, a small Charles Allen, the council member for supermarkets serve all of Wards 7 and 8, theatre and a fewboutiques. Downstairs, it Ward 6, which straddles all four quadrants the administrative districts east ofthe river provides a home for (mainly African- of the city. The river is not only becoming that, together, are home to about 140,000 American) start-ups and charities. Its head, more accessible again, it is gradually being people. “It’s a classic food desert,” says Mr Duane Gautier, says the area lacks the dis- cleaned up. Mr Allen points across to a Puryear. Nam’s Market, a small blue- posable income to attract the amenities pontoon where ospreyshave been nesting. fronted store near the Frederick Douglass that regeneration needs; his idea is to bring Bald-eagle chicks have been spotted, too. It house, keeps most of its wares—including visitors from outside, using the arts to revi- still would not be wise to eat fish caught in cup noodles, tinned stew, Frooties— talise Anacostia’s historic district. the Anacostia, but a group is out on a boat securely behind a glass partition and a The centre, which opened in 2013, fishing this afternoon. bolted door. There is nothing fresh in sight. seems to be having some modest success. Two decades ago the District was a pot- Yet vegetables are sprouting a couple of It is drawing in people: some 26,000 visi- holed basket-case thatwaslosingpeople to blocks away on spare land between build- tors in 2015. Ajuice bar has opened around the suburbs. Now its finances are healthy ings in the centre of Anacostia, in 80 raised the corner on Martin Luther King Jr Ave- and it is gaining about 1,100 newcomers a beds, thanks to volunteers from Union nue, as have a couple of sit-down restau- month. Being home to the federal govern- Temple Baptist Church. And Martha’s Ta- rants and a radio station. A trendy Busboys ment helped Washington weather the fi- ble, a 37-year-old charity supporting access and Poets restaurant—in Washington, a nancial crisis with relative ease. More re- to healthy food, ismoving its headquarters leading indicator of a community on the markably, what was once just a staid from the west of town to the east, where up—is coming soon. federal city is attracting young entrepre- the need is greatest. Its “Joyful Food Mar- But the idea that could have the most neurs and becoming hip—a place of cycle kets” distribute fruit and vegetables to dramatic impact on Anacostia is the 11th lanes, fancy coffee shops, communal li- schools; by 2018 it aims to have such Street Bridge Park. This aims to use the pil- brary boxes and yoga mats. monthly markets in every elementary lars from a disused road bridge across the The population has grown by some school in Wards 7 and 8. river to create a recreation space that 100,000 over the past 15 years, to 670,000. would help to unite the two sides of the The ethnic mix is changing, too. In 1980, A river runs through it city. About the length of three American- 70% of the population was black; this has Such projectsare partofthismorning’ssec- football fields, the bridge would have dipped below 50%. ond surprise: the energy and imagination lawns, waterfalls, an amphitheatre and a “There’s no question, the city is going of the efforts under way to improve lives picnic garden. through a complete reshaping,” says Mr east of the river. Existing initiatives are be- The concept has something of New Allen. “We are in the middle of that.” Two ing expanded: THEARC, a large centre for York’s High Line about it. “It will be a desti- groups in particular are moving in, he 1 The Economist January 14th 2017 Books and arts 77

2 explains. One are 25- to 35-year-olds, start- across the crowds and flags to the Lincoln ernous and lacks atmosphere, a missed op- ing out on their careers. The other are 55- to memorial two miles away that will greet portunity to do something more imagina- 65-year-olds, empty-nesters from the baby- President Trump on his inauguration. No tive with a grand space. Already the hotel, boom generation, who want arts, culture one could invent a better backdrop for with its “Presidential Ballroom”, has and restaurants within walkable reach. “making America great again”. proved to be a magnet for receptions and The worry in many parts of town has Yet, until recently, America’s “front (thanks to its name and ownership) for switched from copingwith crime to coping yard” was in danger ofbecoming a symbol controversy. with the soaring house prices that come of national decline. Its lawns, a much- From here it is a short walkto the White with gentrification. trodden carpetfor24m visitors a year, were House. The ability to drive past it along Shaw, once down-at-heel, is very looking the worse for wear, and the Mall Pennsylvania Avenue ended, for security trendy. NoMa, as the area “North ofMassa- and its monuments were badly in need of reasons, in 1995. Walkingby it is still a thrill. chusetts Avenue” is now branded, has sim- maintenance after decades of neglect. The But Washingtonians now shudder at the ilar aspirations. The “H Street corridor” Washington Monument, an emblem of thought of its next occupant: 90% of their boasts cool restaurants and a lively theatre: American aspiration, reopened in 2014 votes in November were for Hillary Clin- “It’snotup and coming, it’scome,” marvels after $15m ofrepairs for damage it suffered ton, just 4% forMr Trump. a visitor from another part oftown. It is the in an earthquake in 2011, but its lift broke A block away, on 17th Street, are the of- same story around Union Market (“This down last August and it will remain closed fices of Holland and Knight, a law firm was a war zone,” says another visitor). to visitors until 2019. Still, fresh investment with another superb view across town. Streets near Eastern Market are lined with has been coming in, along with new Whayne Quin, a lawyer with long experi- restaurants; a nearby resident has counted attractions. ence of development in the District, 45 of them within a short walk from his Two recent additions in the heart of the spreads out a giant, multicoloured map of home. Eateries and bars have moved into capital are drawing attention. The first is Washington’s “Comprehensive Plan”, parts of town, like 14th Street, where you the National Museum of African-Ameri- which shows the city’s ambitions for the used to trip over needles and condoms. can History& Culture, approved in 2003 by use of its 61square miles ofland and seven In 1994 your correspondent reported on President George W. Bush and opened, fit- square miles of water. The green areas of a twice-weekly evening “orange hat” pa- tingly, by President Barack Obama on Sep- the extensive park system at its core stand trol around the Lincoln Parkarea east ofthe tember 24th. It is intended to be the last of out amid ample amounts of yellow (“low- Capitol that sought to keep the neighbour- the buildings on the Mall. When tickets density residential”) and pockets of red hood safe. One of those orange-hatters, were released for the three months to the (“high-density commercial”). Mr Quin who moved out when his wife had their end ofthe year, theywere snapped up in 42 points out that the development across the first child as this seemed no place to raise a minutes. The place is packed. The visitors, city has happened despite significant con- family, is stunned by the change he sees mostly African-Americans, seem totally straints, notably on building height (sky- when he returns. As we revisit the area the absorbed: quietly contemplative or softly scrapers are conspicuous by their absence day before the walk across the city, we sharing their responses (“They wouldn’t here). The planners have been flexible, come across a young couple with their serve me at the counter”). Starting in sub- though, allowing taller buildings provided three-year-old daughter from northern Vir- terranean exhibits on the slave trade, the certain obligations are met, forexample on ginia. They are here to view a house. They civil war, segregation and civil rights, the mixed use and social housing. are drawn by the free pre-school—and it’s crowd moves up into the light towards A pragmatic approach to planning is two blocks from Lincoln Park, “and you floors devoted to communities and cul- one of several factors that have combined can’t get much better than that.” ture. This would justify a full day’s walk of to change Washington’s fortunes, in Mr its own. Quin’s view. Sensible financial manage- Centre of attention The second is the five-star Trump Inter- ment is another: the city has balanced its The next part of the walk—skirting by the national Hotel, which opened on Septem- budget since Congress imposed a Finan- Capitol Building, down the National Mall ber12th in the Old Post Office building. To- cial Control Board from 1995 to 2001to stop towards the Washington Monument—is a day there is even a glimpse of the Donald the rot. A third is diversification beyond reminder of Pierre L’Enfant’s vision in de- himself—though only on the four large the core industry of government. The signing America’s capital on such a grand television screens behind the bar. The staff Washington area has become a hub for scale in the 1790s. Hence the majestic vista are friendly, but the central court feels cav- technology, and for the services that 1

So much on offer 78 Books and arts The Economist January 14th 2017

2 techies demand. Young newcomers are that he now lives in Moscow as a guest of putting down roots, reinforcing a cultural Russia’s security service, the FSB, are mere change, especially on race. “It’s now a very side-issues, easily explicable by exigency diversified, progressive and forward-think- and urgency. For his foes, nothing Mr ing city,” says Mr Quin, “but that wasn’t so Snowden says is trustworthy, whereas when I came here in 1964.” statements made by officials are true. Half an hour’s walk beyond, across Mr Epstein is a formidable investigative Rock Creek, the loveliest of all the many journalist and his quarry is worthy of his green spaces in Washington, lies George- talents. He has unearthed many new de- town, which has long been upscale, but if tails and assembles them, with the public- anything now seems more so. There’s time ly known information, into a coherent and for a quick peek at an addition to the capi- largely damning account. tal’s embassy scene—the world’s youngest The first part of the book examines Mr country, South Sudan, flies its flag in an Snowden’s rather patchy professional ca- alleyway down from the Chesapeake and reer. He was neither (as many believe, and Ohio Canal—then it’s a long uphill march he has claimed) a successful and senior in- along Wisconsin Avenue towards the final telligence officer, nor was he a computer destination. wizard. Mysteriously, possibly through his family’s extensive connections with the The home stretch spy world, he joined the CIA, but proved Across the city, posters calling for state- untrustworthy and incompetent. On leav- hood for the District have been a reminder ing, he kept his security clearance, making that its lack of full representation in Con- him eligible for a good job in the private gress remains an issue. In a telephone con- sector, where computer-literate ex-spooks versation at the start of the day, Anthony are at a premium. But secrecy rules meant Williams, the former mayor who oversaw that nobody could checkon his past. the recovery from Washington’s nadir in Spying in America The author agrees that Mr Snowden the 1990s, says that one strategy for the fu- performed a “salutary service in alerting ture is to keep drawing attention to Wash- The Snowden both the public and the government to the ington the city rather than Washington the potential danger of a surveillance levia- federal capital. The District has leveraged operation than”. The “bureaucratic mission creep”, the presence of the national government he argues, “badly needed to be brought un- well, he says, but since federal spending is der closer oversight by Congress”. He also likely to remain flat further diversification notes that Mr Snowden inadvertently How America Lost Its Secrets: Edward will be essential. He describes the state of highlighted the security consequences of Snowden, the Man and the Theft. By the city succinctly: “It’s improved, but “contractorisation”—outsourcing spook Edward Jay Epstein. Knopf; 350 pages; $27.95 there’s still a very great divide.” workto the private sector. Indeed, in some respects, the contrast HE effects of Edward Snowden’s heist But he also shows that the vast majority between the morning walk and the last Tof secrets from America’s National Se- of stolen documents had nothing to do stretch couldn’t be greater. Most of the curity Agency (NSA) in 2013 can be divided with Mr Snowden’s purported concerns faces are now white. Instead of a food des- into the good, the bad and the ugly, writes about privacy and government surveil- ert, there is a cornucopia of Safeways, Edward Jay Epstein in a meticulous and lance. He switched jobs in orderto have ac- Giants and Whole Foods Markets. Recre- devastating account of the worst intelli- cess to much bigger secrets. He gave away ational spaces abound: boys are playing gence disaster in the country’s history, American technical capabilities—such as after-school softball and a group of girls “How America Lost Its Secrets”. the ability to snoop on computers that are are starting rugby practice. Even that categorisation is contentious. not connected to the internet—which are Moreover, unlike Anacostia, where Mr Snowden’s fans do not believe he did of real value in tracking criminals, terro- change is in the air, this part of north-west anything wrong at all: he simply lifted the rists and enemies. To believe that was justi- Washington seems almost exactly as your lid on a rogue agency, risking his liberty on fied, you have to regard America as being correspondent left it 20 years ago. The behalf of privacy everywhere. For their no better than Russia, China or al-Qaeda. flower store is still there. Our old house on part, his foes believe his actions lack any He also stoked an ugly, misplaced cynicism Van NessStreet, a picture-bookredbrick co- justification: he is a traitor masquerading about the trustworthiness ofgovernment. lonial, is just the same as ever—except, of as a whistle-blower, who exposed no Mr Epstein is cautious on the biggest course, forits value, which according to Zil- wrongdoing but did colossal damage. question: whether Mr Snowden was act- low, an online property database, has risen These stances rest more on faith than ing alone, or under the control of Russian more than threefold since we left it. facts. Their adherents regard as secondary intelligence. The crucial evidence, he says, And yet in another respect these two the details ofMrSnowden’s career, and the is Mr Snowden’s contact with digital-pri- ends of town are remarkably similar—and means by which he took millions of pieces vacy activists such as Glenn Greenwald. that is the final surprise of this walk across of top-secret information from the NSA’s No Russian handler would allow a well- Washington. The houses in the two neigh- computers. More important for such peo- placed and valuable spy to make such a bourhoods look interchangeable. The ple is whetheryou trust American and oth- risky move, Mr Epstein argues. Better to landscaping is the same. The evening tran- er Western institutions, or regard them as keep him in place, to steal yet more secrets. quillity in the north-west, amid the green- inherently corrupt and oppressive. That may be too categorical. The intelli- ery and the birdsong, feels much like the Mr Snowden’s fans believe that the au- gence world is full of bluffs and double- morning peace in the south-east. It’s seven thorities, especially intelligence agencies, bluffs—and errors. Agents misbehave. o’clock and getting dark at the yellow-bor- lie about everything. Nothing they say Aims change over time. But certainly no- dered sign on Massachusetts Avenue say- about the case can be believed. Any pecu- body reading this book will easily retain ing “Maryland welcomes you”, and it feels liarities—such as inconsistencies in Mr faith in the Hollywood fable of Mr Snow- almost as ifthe walkhas come full circle. 7 Snowden’s public statements, or the fact den’s bravery and brilliance. 7 80 Economic and financial indicators The Economist January 14th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicdataGross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Jan 11th year ago United StatesStatistics +1.7 Q3 on +3.542 +1.6economies, -0.6 Novplus +1.7our Nov +1.4 4.7 Dec -476.5 Q3 -2.6 -3.2 2.38 - - China mont+6.7hly Q3poll of+7.4 forecasters +6.7 +6.2 Nov +2.1 Dec +2.0 4.0 Q3§ +264.6 Q3 +2.3 -3.8 2.96§§ 6.93 6.58 Japan +1.1 Q3 +1.3 +0.9 +4.6 Nov +0.5 Nov -0.2 3.1 Nov +189.1 Nov +3.7 -5.6 0.06 117 117 Britain +2.2 Q3 +2.3 +2.0 +1.9 Nov +1.2 Nov +0.7 4.8 Sep†† -138.1 Q3 -5.6 -3.7 1.40 0.83 0.69 Canada +1.3 Q3 +3.5 +1.2 +1.6 Oct +1.2 Nov +1.5 6.9 Dec -53.6 Q3 -3.5 -2.5 1.68 1.33 1.42 Euro area +1.7 Q3 +1.4 +1.6 +0.6 Oct +1.1 Dec +0.3 9.8 Nov +380.4 Oct +3.3 -1.8 0.25 0.96 0.92 Austria +1.2 Q3 +2.4 +1.5 +0.2 Oct +1.3 Nov +1.0 5.8 Nov +8.0 Q3 +2.2 -0.9 0.54 0.96 0.92 Belgium +1.3 Q3 +0.7 +1.2 +2.8 Oct +2.0 Dec +1.9 7.6 Nov +3.4 Sep +0.9 -2.8 0.74 0.96 0.92 France +1.0 Q3 +1.0 +1.2 +1.8 Nov +0.6 Dec +0.3 9.5 Nov -28.6 Nov‡ -1.2 -3.3 0.81 0.96 0.92 Germany +1.7 Q3 +0.8 +1.8 +2.1 Nov +1.7 Dec +0.4 6.0 Dec +296.9 Nov +8.8 +1.0 0.25 0.96 0.92 Greece +1.6 Q3 +3.1 +0.4 +2.3 Nov nil Dec nil 23.1 Sep -1.0 Oct -0.3 -7.7 6.89 0.96 0.92 Italy +1.0 Q3 +1.0 +0.9 +1.3 Oct +0.5 Dec -0.1 11.9 Nov +49.5 Oct +2.4 -2.6 1.86 0.96 0.92 Netherlands +2.4 Q3 +3.1 +2.1 +2.9 Nov +1.0 Dec +0.2 6.6 Nov +57.1 Q3 +8.6 -1.1 0.44 0.96 0.92 Spain +3.2 Q3 +2.9 +3.2 +4.6 Nov +1.6 Dec -0.3 19.2 Nov +23.0 Oct +1.7 -4.6 1.47 0.96 0.92 Czech Republic +1.6 Q3 +0.9 +2.4 +7.1 Nov +2.0 Dec +0.6 5.2 Dec§ +3.7 Q3 +1.5 nil 0.37 25.8 24.9 Denmark +1.1 Q3 +1.5 +1.0 +13.3 Nov +0.5 Dec +0.6 4.2 Nov +23.9 Nov +7.5 -1.0 0.36 7.10 6.87 Norway -0.9 Q3 -1.9 +0.6 +2.6 Nov +3.5 Dec +3.5 4.8 Oct‡‡ +18.0 Q3 +4.4 +3.5 1.62 8.65 8.95 Poland +2.0 Q3 +0.8 +2.6 +3.3 Nov +0.8 Dec -0.7 8.3 Dec§ -2.4 Oct -0.5 -2.7 3.56 4.17 4.02 Russia -0.4 Q3 na -0.5 +2.6 Nov +5.4 Dec +7.0 5.4 Nov§ +29.0 Q3 +2.3 -3.7 8.31 60.4 76.0 Sweden +2.8 Q3 +2.0 +3.1 +0.1 Nov +1.4 Nov +1.0 6.2 Nov§ +22.2 Q3 +4.9 -0.3 0.59 9.12 8.54 Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 nil Dec -0.5 3.3 Dec +68.2 Q3 +9.4 +0.2 -0.17 1.02 1.00 Turkey -1.8 Q3 na +2.7 +4.6 Nov +8.5 Dec +7.8 11.3 Sep§ -33.7 Nov -4.7 -1.8 11.81 3.91 3.03 Australia +1.8 Q3 -1.9 +2.4 -0.2 Q3 +1.3 Q3 +1.3 5.7 Nov -47.9 Q3 -3.2 -2.1 2.73 1.36 1.43 Hong Kong +1.9 Q3 +2.5 +1.6 -0.1 Q3 +1.3 Nov +2.4 3.3 Nov‡‡ +13.3 Q3 +2.9 +1.6 1.73 7.76 7.76 India +7.3 Q3 +8.3 +7.0 -1.9 Oct +3.6 Nov +4.9 5.0 2015 -11.1 Q3 -0.6 -3.8 6.39 68.3 66.8 Indonesia +5.0 Q3 na +5.0 -2.3 Nov +3.0 Dec +3.5 5.6 Q3§ -19.2 Q3 -2.1 -2.3 7.56 13,329 13,875 Malaysia +4.3 Q3 na +4.3 +6.2 Nov +1.8 Nov +1.9 3.5 Oct§ +5.6 Q3 +1.8 -3.4 4.27 4.47 4.38 Pakistan +5.7 2016** na +5.7 +2.3 Oct +3.7 Dec +3.8 5.9 2015 -4.1 Q3 -1.4 -4.6 8.20††† 105 105 Philippines +7.1 Q3 +4.9 +6.9 +14.6 Nov +2.6 Dec +1.8 4.7 Q4§ +3.1 Sep +0.9 -1.0 4.98 49.6 47.3 Singapore +1.1 Q3 +9.1 +1.3 +11.9 Nov nil Nov -0.6 2.1 Q3 +63.0 Q3 +21.5 +0.7 2.39 1.44 1.43 South Korea +2.6 Q3 +2.5 +2.7 +4.8 Nov +1.3 Dec +1.0 3.2 Dec§ +99.0 Nov +7.2 -1.3 2.13 1,196 1,210 Taiwan +2.0 Q3 +3.9 +1.0 +8.8 Nov +1.7 Dec +1.3 3.8 Nov +74.7 Q3 +14.4 -0.5 1.18 31.9 33.4 Thailand +3.2 Q3 +2.2 +3.2 +3.8 Nov +1.1 Dec +0.2 1.0 Nov§ +47.9 Q3 +11.8 -2.3 2.64 35.6 36.3 Argentina -3.8 Q3 -0.9 -2.1 -2.5 Oct — *** – 8.5 Q3§ -15.7 Q3 -2.6 -5.3 na 15.9 13.9 Brazil -2.9 Q3 -3.3 -3.4 -1.1 Nov +6.3 Dec +8.4 11.9 Nov§ -20.3 Nov -1.2 -6.3 11.09 3.22 4.05 Chile +1.6 Q3 +2.5 +1.8 -1.4 Nov +2.7 Dec +3.8 6.2 Nov§‡‡ -4.8 Q3 -1.9 -2.7 4.13 673 732 Colombia +1.2 Q3 +1.3 +1.6 +0.4 Oct +5.7 Dec +7.5 7.5 Nov§ -13.7 Q3 -4.8 -3.7 6.83 2,995 3,267 Mexico +2.0 Q3 +4.0 +2.1 +1.3 Nov +3.4 Dec +2.9 3.6 Nov -30.6 Q3 -2.8 -3.0 7.69 21.9 17.9 Venezuela -8.8 Q4~ -6.2 -13.7 na na +424 7.3 Apr§ -17.8 Q3~ -2.9 -24.3 10.43 9.99 6.31 Egypt +4.5 Q2 na +4.3 -4.9 Oct +23.3 Dec +13.2 12.6 Q3§ -20.8 Q3 -6.8 -12.2 na 18.7 7.83 Israel +5.1 Q3 +3.4 +3.3 -0.8 Oct -0.3 Nov -0.5 4.5 Nov +13.3 Q3 +2.8 -2.4 2.28 3.86 3.94 Saudi Arabia +1.4 2016 na +1.4 na +2.3 Nov +3.6 5.6 2015 -46.8 Q3 -5.5 -11.2 na 3.75 3.76 South Africa +0.7 Q3 +0.2 +0.5 -1.3 Oct +6.6 Nov +6.3 27.1 Q3§ -12.3 Q3 -3.9 -3.4 8.82 13.9 16.7 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% †††Dollar-denominated bonds. The Economist January 14th 2017 Economic and financial indicators 81

Markets % change on The Economist poll of forecasters, January averages (previous month’s, if changed) Dec 31st 2015 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP Markets Jan 11th week currency terms 2016 2017 2016 2017 2016 2017 2016 2017 United States (DJIA) 19,954.3 +0.1 +14.5 +14.5 Australia 2.1 / 2.9 2.1 / 3.0 2.4 (2.9) 2.6 (2.8) 1.3 2.1 -3.2 (-3.5) -2.3 (-3.0) China (SSEA) 3,284.4 -0.7 -11.3 -16.9 Brazil -3.6 / -3.2 0.5 / 1.5 -3.4 0.9 8.4 (8.3) 5.2 (5.3) -1.2 (-1.1) -1.4 (-1.3) Japan (Nikkei 225) 19,364.7 -1.2 +1.7 +4.9 Britain 1.9 / 2.1 0.6 / 1.5 2.0 1.2 (1.1) 0.7 (0.6) 2.5 -5.6 (-5.7) -4.7 (-4.4) Britain (FTSE 100) 7,290.5 +1.4 +16.8 -4.4 Canada 1.0 / 1.4 1.2 / 2.3 1.2 1.8 (1.9) 1.5 1.9 (2.0) -3.5 -2.9 Canada (S&P TSX) 15,491.5 -0.2 +19.1 +24.7 China 6.6 / 6.8 6.2 / 6.8 6.7 6.4 2.0 2.2 (2.1) 2.3 (2.5) 2.1 (2.2) Euro area (FTSE Euro 100) 1,119.1 -0.2 +2.3 -1.5 France 1.1 / 1.3 1.0 / 1.6 1.2 1.2 0.3 1.2 (1.1) -1.2 (-1.1) -1.2 (-1.1) Euro area (EURO STOXX 50) 3,307.9 -0.3 +1.2 -2.4 Germany 1.7 / 1.9 1.2 / 2.3 1.8 1.5 (1.4) 0.4 1.6 (1.5) 8.8 8.2 (8.1) Austria (ATX) 2,669.5 -0.5 +11.4 +7.3 India 6.0 / 7.6 6.9 / 8.4 7.0 (7.2) 7.4 (7.5) 4.9 4.8 (4.9) -0.6 (-0.9) -0.9 (-1.0) Belgium (Bel 20) 3,619.5 -1.3 -2.2 -5.7 Italy 0.7 / 1.0 0.4 / 1.3 0.9 (0.8) 0.8 -0.1 1.0 (0.9) 2.4 2.2 France (CAC 40) 4,888.7 -0.2 +5.4 +1.6 Japan 0.5 / 1.0 0.7 / 1.5 0.9 (0.7) 1.1 (1.0) -0.2 0.7 (0.6) 3.7 3.5 Germany (DAX)* 11,646.2 +0.5 +8.4 +4.5 Russ a -0.7 / -0.2 0.6 / 2.6 -0.5 1.3 (1.2) 7.0 5.0 (5.2) 2.3 (2.4) 2.8 Greece (Athex Comp) 663.4 +0.9 +5.1 +1.3 i Italy (FTSE/MIB) 19,486.9 -0.7 -9.0 -12.3 Spain 2.9 / 3.3 2.0 / 2.6 3.2 2.3 -0.3 (-0.4) 1.5 (1.4) 1.7 (1.6) 1.5 (1.4) Netherlands (AEX) 486.6 -0.2 +10.1 +6.1 United States 1.5 / 1.9 1.9 / 2.8 1.6 2.3 (2.2) 1.4 (1.3) 2.4 (2.3) -2.6 -2.5 (-2.8) Spain (Madrid SE) 949.4 -0.7 -1.6 -5.2 Euro area 1.6 / 1.7 1.2 / 2.5 1.6 1.4 (1.3) 0.3 (0.2) 1.4 (1.3) 3.3 (3.2) 3.0 Czech Republic (PX) 927.9 -0.7 -3.0 -6.5 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 810.6 +0.6 -10.6 -13.5 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 32,972.2 +1.0 +37.8 +36.1 Norway (OSEAX) 774.6 +0.3 +19.4 +22.2 Poland (WIG) 53,709.3 +1.8 +15.6 +9.4 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,155.5 -1.8 +26.3 +52.6 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,511.9 -1.2 +4.5 -3.5 Dec 31st 2015 The Economist commodity-priceone index one Switzerland (SMI) 8,427.2 +0.9 -4.4 -6.5 Index one in local in $ Jan 3rd Jan 10th* month year Turkey (BIST) 77,666.6 +2.0 +8.3 -19.2 Jan 11th week currency terms Dollar Index Australia (All Ord.) 5,823.7 +0.6 +9.0 +11.4 United States (S&P 500) 2,275.3 +0.2 +11.3 +11.3 All Items 141.9 144.7 +0.3 +18.3 Hong Kong (Hang Seng) 22,935.4 +3.6 +4.7 +4.6 United States (NAScomp) 5,563.7 +1.6 +11.1 +11.1 Food 154.8 157.0 +1.3 +8.7 India (BSE) 27,140.4 +1.9 +3.9 +0.6 China (SSEB, $ terms) 342.4 -0.7 -14.3 -19.7 Indonesia (JSX) 5,301.2 nil +15.4 +19.4 Japan (Topix) 1,550.4 -0.3 +0.2 +3.3 Industrials Malaysia (KLSE) 1,675.2 +1.7 -1.0 -5.0 Europe (FTSEurofirst 300) 1,443.2 nil +0.4 -3.3 All 128.5 131.9 -0.9 +32.9 Pakistan (KSE) 49,371.6 +1.4 +50.4 +50.4 World, dev'd (MSCI) 1,778.2 +0.2 +6.9 +6.9 Nfa† 138.1 142.1 +1.2 +33.7 Singapore (STI) 3,000.9 +2.7 +4.1 +2.6 Emerging markets (MSCI) 886.7 +1.8 +11.7 +11.7 Metals 124.4 127.6 -1.9 +32.6 South Korea (KOSPI) 2,075.2 +1.4 +5.8 +3.7 World, all (MSCI) 428.9 +0.4 +7.4 +7.4 Sterling Index Taiwan (TWI) 9,345.7 +0.6 +12.1 +15.4 World bonds (Citigroup) 879.2 +0.2 +1.1 +1.1 All items 210.8 216.1 +4.4 +39.6 Thailand (SET) 1,572.9 +0.6 +22.1 +23.5 EMBI+ (JPMorgan) 778.1 +0.3 +10.5 +10.5 Argentina (MERV) 18,467.8 +1.8 +58.2 +29.1 Hedge funds (HFRX) 1,208.1§ nil +2.9 +2.9 Euro Index Brazil (BVSP) 62,446.3 +1.4 +44.1 +76.8 Volatility, US (VIX) 11.3 +11.9 +18.2 (levels) All items 169.9 169.9 +0.7 +21.0 Chile (IGPA) 20,995.5 +0.9 +15.7 +21.8 CDSs, Eur (iTRAXX)† 69.1 +1.7 -10.5 -13.7 Gold Colombia (IGBC) 10,286.1 nil +20.3 +27.6 CDSs, N Am (CDX)† 66.2 +4.3 -25.1 -25.1 $ per oz 1,156.1 1,188.1 +2.4 +9.0 Mexico (IPC) 45,933.7 -1.4 +6.9 -15.9 Carbon trading (EU ETS) € 5.6 +4.7 -33.8 -36.2 West Texas Intermediate Venezuela (IBC) 32,736.7 +2.8 +124 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 52.3 50.8 -4.1 +66.1 Egypt (EGX 30) 13,089.1 +3.8 +86.8 -22.1 †Credit-default-swap spreads, basis points. §Jan10th. Israel (TA-100) 1,276.4 -0.9 -2.9 -2.0 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 6,894.7 -4.2 -0.2 -0.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,437.9 +3.3 +3.4 +14.9 series, go to: Economist.com/indicators †Non-food agriculturals. 82 Obituary Akbar Hashemi Rafsanjani The Economist January 14th 2017

next 30 years tussling forpower. He ended the war with Iraq, first gain- ing the military advantage, and then arm- twisting his colleagues to accept a UN-bro- kered ceasefire. He restored diplomatic ties with most Sunni Muslim countries: nota- bly, he was the only senior Iranian figure on cordial termswith the Saudi leadership. He decisively backed Iran’s nuclear agreement with the West—outfacing those who thought that any dealing with the en- emy was weakness or treason. The “world oftomorrow is one ofnegotiations, not the world ofmissiles”, he tweeted in March.

Interests of state Earlier. he was embroiled in the Iran-Con- tra affair, in which Ronald Reagan’s admin- istration illegally sold Iran American weapons, in exchange for help in freeing hostagesand financing(also illegally) Nica- raguan anti-communist insurgents. When his role was revealed, he had the source, Mehdi Hashemi, jailed, while, characteris- tically, escaping opprobrium himself. At home he eschewed sloganeering (he pressed for “Death to America” chants to be dropped from Friday prayers) and de- Shark of Persia cried fanaticism, calling it “Islamic fas- cism”. Instead, he promoted economic change: liberalisation, privatisation, cut- ting subsidies and building infrastructure. His political hero was Amir Kabir, a 19th-century reformist chief, of whom he Ayatollah AkbarHashemi Rafsanjani, an Iranian politician, died on January8th, wrote an appreciative biography. He was aged 82 also a leading critic of the austere sexual N DEATH as in life, Akbar Hashemi Raf- power base was as much the bazaar as the and social mores ofthe Islamic Republic. It Isanjani defied categorisation. He was a mosque. He was dubbed kooseh, the shark, was wrong, he said, to criminalise young- stalwart ofa regime dubbed an exporter of partly for hidden menace, but also mock- stersforfollowingtheirGod-given and nat- terror and heresy. Yet regional arch-foes ingly: his smooth skin sprouted only a ural instincts. such as Bahrain and Saudi Arabia wispy beard, rather than the monumental His own instincts were finely tuned. As mourned his passing, as did the Great Sa- growths ofthe heavyweight theocrats. the occasion required, he could be steely, tan itself, via a State Department press Arrested ten times under the shah’s charming, witty or lachrymose (especially briefing. Athome, embattled reformists felt American-backed regime, jailed for a total in response to his own rhetoric). He held they had lost their prime protector. of more than four years (and on one win- court in lavish public buildings, while liv- Ruthless guile was his hallmark. During ter’s day, he said, tortured from dusk to ing in the same house as before the revolu- his early years in power, the death penalty dawn) he was not anti-Western on princi- tion. His family thrived: a business empire was applied freely to dissidents, commu- ple. Indeed, he sniped at those who were: reputedly included the second-biggest air- nists, Kurds and Bahais. Foreign countries “if people believe we can live behind a line, a near-monopoly on the pistachio blamed Mr Rafsanjani for ordering mur- closed door, they are mistaken. We are in trade and the largest private university. In dersofémigrésin Paris, Berlin and Geneva, need of friends and allies around the 2003 Forbes magazine put his personal and terrorist attacks on a Jewish cultural world.” Unlike his colleagues, he had trav- wealth at over $1billion. Lies, said his fans. centre in Buenos Aires in 1994 and on elled widely in America and elsewhere An underestimate, said his foes. American forces in Saudi Arabia in 1996. and spoke, in private, excellent English. His biggest political setback was in Though a pragmatist to the point of Those colleagues were often fuelled by 2005, when he failed to win a third presi- cynicism, his career was rooted in zealotry. rage. He was driven by frustration: with dential term: hard-up Iranians voted cross- His greatest political asset was his friend- Iran’s backwardness, isolation and outsid- ly for the puritanical, doctrinaire Mah- ship with Ayatollah Khomeini, the instiga- ers’ bullying. His aim was to fortify the re- moud Ahmadinajad. Yet Mr Rasfanjani tor of the Islamic revolution of 1979. As gime, not consume its strength in pointless held on to power as head of the Expedi- memories ofthat upheaval faded, his abili- fights at home and abroad. ency Council, a previously obscure power- ty to assert confidently what the great man As the first speaker of the Majlis (parlia- broking body which links Iran’s theocratic would have thought became ever-handier. ment), he shaped the Islamic Republic’s and civil institutions. Lately, he tacked to- Other credentials were shakier. He had constitution, reconciling limited electoral wards reformism, backing political and studied at the great seminary in Qom, but mandates with divine inspiration: a bal- media freedoms in a speech in 2009, and he was no theologian; nor was he able to ancing act which few Muslim countries supporting President Hassan Rouhani’s wear the black turban reserved forthe Pro- manage. He helped make his old ally, Aya- campaign for re-election. Was it sincere? phet’s direct descendants. His family were tollah Ali Khamenei, Supreme Leader. It Anyone who knew him, or Iranian poli- prosperous pistachio farmers, and his was a rare mistake: the two men spent the tics, knew better than to ask. 7