https://t.me/finera How will Imran govern Pakistan?

Germany sulks (not just about football)

Productivity: The hand-spinner’s tale

Liberalism’s greatest thinkers AUGUST 4TH–10TH 2018 In the line of fire Losing the war against climate change Financial Era Advisory Group https://t.me/finera Contents The Economist August 4th 2018 3

5 The world this week United States 28 The Democrats Leaders Splitting the difference 7 Global warming 29 Climate politics In the line of fire A slow thaw 8 Euro-zone austerity 30 Lipizzans Climbing the Greece-y pole Dancing horses 8 The Horn of Africa 30 The GDP figures Making Eritrea less Growing pains horrible 31 Defence spending Germany sulks Excessive 10 Brexit Pushing the boat out pessimism has become the No ordinary deal 32 Lexington A small win in Afghanistan country’s biggest threat: 12 Philosophy brief Charlemagne, page 27 On the cover The brains trust The world is losing the war The Americas against climate change: Letters 33 Brazilian banks leader, page 7.India shows 13 On Brexit, the Helsinki In the doldrums, full sails how hard it is to move beyond summit, Spain, cinema, 34 Argentina’s beef exports fossil fuels towards a Foucault Bull market renewable future, page16.In America some Republicans 34 Cannabis in Canada are inching towards action on Briefing The high street global warming, page 29. 16 Indian energy 35 Bello Software can model how a The black hole of coal Judging the judges wildfire will spread—and how to stop it happening, page 64. Middle East and Africa Russia’s nuclear ambitions, Britain Greece As it emerges from page 24 19 Brexit with no deal 36 Eritrea crisis, it still has a daunting Ready or not Unlock the desert gulag? path ahead: leader, page 8. 20 Stockpiling 37 Zimbabwe’s elections The economy is at last The Economist online Prepping for Brexit A bloody ballot expanding again, but the 38 Syria’s refugees crisis has caused lasting Daily analysis and opinion to 21 The Lib Dems damage, page 57 supplement the print edition, plus Entryist dads The long road back audio and video, and a daily chart 21 The right to die 38 Churches in Saudi Arabia Economist.com An end to proceedings Rethinking the ban E-mail: newsletters and 22 Slavery 39 Debtors’ prisons in Gaza mobile edition Of manacles and manicures From bankrupt to banged up Economist.com/email 23 Espionage and business Print edition: available online by Tinker, techie, startup, spy Asia 7pm London time each Thursday Economist.com/printedition 40 Pakistani politics A man, no plan, Imran Audio edition: available online Europe to download each Friday 24 Russia and nuclear power 41 Citizenship in India Economist.com/audioedition The global supplier Assamese, if you please 25 Turkey v America 41 Rebellion in the Erdogan’s hostages Philippines Eritrea Peace gives the North Murder in Mindanao Korea of Africa a chance to 26 Ukrainian politics open up: leader, page 8. The dark operetta 42 Seoul’s mayor Fan fare for a common man A repressive dictatorship 26 Biochips and Swedes ponders reform, page 36 Volume 428 Number 9103 Bjorn Cyborg 43 Banyan Japan’s work habits Published since September1843 27 Charlemagne to take part in "a severe contest between intelligence, which presses forward, and Cheer up, Deutschland an unworthy, timid ignorance obstructing our progress." Editorial offices in London and also: Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf Financial Era Advisory Group 4 Contents The Economist August 4th 2018

China Science and technology 44 Tianjin’s woes 64 Wildfires Where are the people? Forewarned is forearmed 45 Dog racing in Macau 65 Long sightedness Bow-wowing out I can see clearly now 66 Environmental safety International Hazchem or not? 46 The world order 66 Marine biology Coalitions without Trump The biter bit Pakistan Might Imran Khan Philosophy brief We begin our Books and arts surprise as prime minister? Business six-part series on liberalism’s Page 40. Donald Trump is 49 China’s new dealmakers 67 Ten years on greatest thinkers. Their ideas better on Afghanistan than his The venture whales The last crash, and the next still matter: leader, page 12. predecessor was: Lexington, 50 Bartleby 68 Classical music John Stuart Mill, the father of page 32 Mission implausible Making an orchestra liberalism, page 55 51 The technology industry 69 Mikhail Zoshchenko FATWIN v MAGA Soviet satire 69 Indian independence Subscription service 52 Food labelling For our full range of subscription offers, Got oats? Midnight at the margins including digital only or print and digital 70 Johnson combined visit 52 Business and demography Economist.com/offers Silver linings The cost of an accent You can also subscribe by mail or telephone at the details provided below: 53 Autonomous cars Telephone: +44 (0) 845 120 0983 Gently does it 72 Economic and financial Web: Economist.com/offers indicators 54 The blockchain and energy Post: The Economist Greens meet geeks Statistics on 42 economies, Subscription Centre, plus a closer look at P.O. Box 471, Haywards Heath, manufacturing RH16 3GY Mission statements When Philosophy brief UK visions and values descend into 55 John Stuart Mill verbiage: Bartleby, page 50 Obituary Subscription for 1 year (51 issues) Tyranny of the majority Print only UK – £145 74 Mary Ellis In love with Spitfires Finance and economics Principal commercial offices: 57 Greece The Adelphi Building, 1-11John Adam Street, Far from the finish line London WC2N 6HT Tel: +44 (0) 20 7830 7000 58 Consumer lending Rue de l’Athénée 32 Buy now, pay later 1206 Geneva, Switzerland 59 Asset management Tel: +4122 566 2470 How low can you go? 750 3rd Avenue, 5th Floor, New York, NY 10017 59 Myanmar’s state-owned Tel: +1212 5410500 enterprises 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Living fossils Tel: +852 2585 3888 Productivity The history of 60 Buttonwood Other commercial offices: spinners’ wages at the start of Made in Japan Chicago, Dubai, Frankfurt, Los Angeles, the Industrial Revolution 61 Free exchange Paris, San Francisco and Singapore could shed light on a modern Homespun economics mystery: Free exchange, page 61

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rate of25 per100,000 people is him, saying he had been an evangelical pastor who has Politics also the highest on record. “tyrannical” and “shameless”. been detained in Izmir since 2016 on questionable charges. Venezuela’s ruling United Google was reportedly devel- Mr Brunson was released from Socialist Party re-elected the oping a censored version ofits prison but placed under house country’s president, Nicolás search engine forChina. It was arrest. America imposed Maduro, as its leader in a con- said to have been working in financial sanctions on two ference that tookplace during secret on a censored-search Turkish ministers in response. a blackout. Mr Maduro, who app since last year, and to have normally blames the country’s demonstrated it to Chinese On their way home economic woes on “imperi- officials. Google left China in alism”, accepted responsibility 2010 to uphold its old motto, forthe distress. “Enough with “Don’t be evil”. whining,” he said. Australia’s Labor Party won Three people were shot and Going out to bat fouroffive by-elections held killed by the army in Zimba- Imran Khan began talking to on the same day. The fifth was bwe just hours after the elec- smaller parties about forming won by an independent candi- toral commission announced a governing coalition in date. The results leave the that the ruling Zanu-PF had Pakistan after his Tehreek-e- ruling Liberal-National won a majority in parliament Insafparty won the most seats coalition headed by Malcolm in the first elections since a in the National Assembly. The Turnbull with a one-seat coup removed Robert Mugabe losing Pakistan Muslim majority in Parliament. A North Korea handed over the last year. The supposedly League-Nawaz and the Paki- general election must be held remains of55 American neutral commission is taking stan Peoples Party backed before November 2019. servicemen killed during the time to release the results of away from pressing their claim Korean war to American the presidential election. that the election had been Abu Sayyaf, an Islamist group, authorities. Donald Trump rigged by security officials. was thought to be behind a thanked the regime forreturn- Three Russian journalists were Meanwhile, Pakistan was van bomb that killed ten peo- ing the remains, a concession killed in the Central African reported to be preparing to ask ple at a military checkpoint on that was agreed to at a summit Republic, apparently while the IMF fora bail-out, but the southern Philippine island between Mr Trump and Kim investigating the activities ofa America said it would oppose ofBasilan. The attackhap- Jong Un, the North’s dictator, Russian private military such a deal ifit was used to pay pened a few days after Rodrigo in June. The remains will be company, Wagner, that has offChinese loans. Duterte, the president, signed a examined by a forensics team deployed troops in the country law granting autonomy to in Hawaii foridentification. In and is helping to train its Muslims in the south. 1990 the remains ofwhat were armed forces. thought to be five American Data from the University of soldiers returned by North Jean-Pierre Bemba, a former Maryland showed that the Korea turned out to be seven. warlord, returned to the number ofterrorist attacks Democratic Republic of dropped by a fifth in 2017. Paul Manafort, Mr Trump’s Congo to contest presidential Deaths related to terror attacks formercampaign manager, elections later this year. He fell by 25%. The worst affected went on trial forfraud. He is was freed from prison in The countries were Iraq, Afghani- accused oflaundering money Hague after the International stan, India, Pakistan and the from his workfor pro-Russian Criminal Court overturned his Philippines. Their share of politicians in Ukraine and then conviction forwar crimes. attacks increased from 50% in avoiding tax. It is the first trial In Cambodia Hun Sen won 2015 to 57% last year. Islamic examining alleged links be- Iran’s economy continued to another term as prime min- State and the Taliban were to tween Trump aides and Rus- struggle, as the value ofthe rial ister, an unsurprising result blame fora fifth ofall attacks sian interests to stem from the sunkto a new low against the given that the main opposition and nearly halfofall deaths, a investigation led by Robert dollar. Nevertheless, Iranian party was barred from running total of12,045 people. Mueller, the special counsel. officials rejected Donald in the election. Hun Sen has Trump’sofferoftalks without been in power since 1985. The A game of chicken The start ofMr Manafort’strial preconditions. In May Mr vote was widely condemned. Michel Barnier, the EU’s Brexit seemed to rattle Mr Trump. He Trump pulled America out of a negotiator, issued a lukewarm publicly called on Jeff deal that curbs Iran’s nuclear- Lu Wei, once China’s top response to the British govern- Sessions, the attorney-general, weapons programme in return internet regulator, was charged ment’s latest proposals on to end the Muellerinvestiga- forthe lifting ofsanctions. with taking bribes. Prosecutors customs and the Irish border. tion (something that Repub- said that he abused his posi- British ministers stepped up licans have repeatedly warned Nothing to be proud of tion and accepted a “huge their warnings that European him not to do), despite Mr The number ofmurders in amount ofmoney and proper- intransigence could see Britain Sessions having recused Mexico increased by 27% last ty”. Mr Lu had risen to great crashing out ofthe EU without himselffrom the inquiry. year to a record 31,174, accord- heights under Xi Jinping, gain- a deal when it leaves in March. ing to the country’s statistics ing deferential treatment from Mr Trump also threatened to institute. It had earlier said Silicon Valley chieftains such A war ofwords erupted be- shut down the government there were a little over 25,000 as MarkZuckerberg. This year tween Turkey and the United unless Congress fully funds his homicides in 2017. The murder the Communist Party expelled States over Andrew Brunson, borderwall with Mexico. 1 Financial Era Advisory Group 6 The world this week The Economist August 4th 2018

attackwas more sophisticated, A rescue deal to save House of expertise ofstock-pickers Business using virtual private networks Fraserfell through when the towards low-cost, index-based to try to avoid detection. Chinese firm backing the funds. Diverging from other central arrangement pulled out fol- banks that have moved to lowing a steep fall in its share BMW raised the price ofsport- unwind their stimulus pro- FANG Plus* index price. That leaves the future of utility vehicles it sells in China grammes, the Bank of Japan September 19th 2014=1,000 the British chain ofdepart- to offset some ofthe cost of the said it was committed to keep- 3,000 ment stores in doubt. retaliatory tariffsthat China ing interest rates “extremely 2,750 imposed on American car low” forthe foreseeable future, 2,500 Bumper Profit imports. BMW makes its SUV and pledged to continue buy- 2,250 After years ofretrenchment models forexport to the coun- ing bonds. Haruhiko Kuroda, following the Deepwater try at a factory in South Caroli- 2,000 the central bank’s governor, Horizon disaster, BP reported a na, though it is ramping up said the forward guidance JFMAMJJ hefty jump in headline profit production in China. Tesla, 2018 should “counter speculation… *Ten leading forthe second quarter, to which has also raised the price Source: Thomson Reuters that the bankis heading technology stocks $2.8bn. The energy giant is ofits cars in China, reported a towards an early exit or an Twitter’s share price slumped increasing its dividend for the quarterly loss of$717.5m. But it increase in rates”. after it reported that the num- first time in fouryears. It is also pleased investors by burning ber ofmonthly active users to undertaking its biggest acquisi- less cash than had been ex- The Federal Reserve kept its its platform had fallen by1m in tion in two decades by agree- pected and by promising to benchmarkinterest rate on the second quarter compared ing to buy BHP’s shale assets turn a profit later this year. hold at its policy meeting. But with the previous three in America for$10.5bn. with the American economy months. And Netflix’s share Time to put your phone down growing by an annualised rate price tookanother hammer- With its income buoyed by A range oftools were unveiled of4.1% in the second quarter, ing; it recently reported a short- higher commodity prices, Rio forthe Facebookand Insta- its best performance since the fall in addingnew subscribers. Tinto announced a package of gram platforms that will en- middle of2014, the Fed is This came after Facebooktook returns to shareholders worth able users to limit the time widely expected to increase a drubbing in the markets $7.2bn. The mining company they spend engrossed on their rates in September. The Bank when it revealed similarly reported an underlying half- apps. Concerns about addic- of England raised its main rate disappointing user growth. year profit of$4.4bn. tion to social media are on the forthe first time since Novem- rise; surveys have revealed ber (and only the second time By contrast, Apple beat expec- Fidelity surprised its rivals by that on average people check since 2007) by a quarter ofa tations with its quarterly earn- becoming the first big invest- their phones 50 times a day. percentage point, to 0.75%. ings report. Revenue was up by ment firm to launch new The tools require a degree of 17% compared with the same index-tracking stockfunds discipline by users to be effec- Turkey’s central bankraised its three months last year, to with no feesforinvestors. It tive. But ifusers had that dis- forecast forthe country’s $53.3bn, boosted by the higher also slashed the charges on its cipline, perhaps they would inflation rate this year to 13.4%, price it charges forthe iPhone existing funds. The announce- not need time-limiting tools. from the 8.4% it had predicted X (sales oftotal iPhone units ment underscores fee competi- in April. A weaklira has only increased by1%). Net tion in the industry as it moves For other economic data and pushed up prices, but the profit rose by a third, to $11.5bn. away from a reliance on the news see Indicators section central bankhas not raised interest rates by much in response.

GDP in the euro zone expand- ed by 0.3% in the second quar- ter compared with the previ- ous three months. That was the slowest rate ofgrowth by that measure in two years, raising concerns that the pros- pect ofan escalating trade war with America might be hurting the region’s exports.

Political interference Facebook said that it had closed down several disinfor- mation accounts on its sites that were set up to disrupt the mid-term elections. Although smaller in scale than the at- tempt to influence the presi- dential election in 2016, it is thought that this was a similar Russian campaign to sow discord. However, the latest https://t.me/finera Leaders The Economist August 4th 2018 7 In the line of fire

The world is losing the waragainst climate change ARTH is smouldering. From oping Asia. In 2006-16, as Asia’s emerging economies forged ESeattle to Siberia this sum- ahead, their energy consumption rose by 40%. The use ofcoal, mer, flames have consumed easily the dirtiest fossil fuel, grew at an annual rate of3.1%. Use swathes of the northern hemi- ofcleaner natural gas grew by 5.2% and ofoil by 2.9%. Fossil fu- sphere. One of 18 wildfires els are easier to hook up to today’s grids than renewables that sweeping through California, depend on the sun shining and the wind blowing. Even as among the worst in the state’s green fund managersthreaten to pull backfrom oil companies, history, is generating such heat state-owned behemoths in the Middle East and Russia see that it created its own weather. Fires that raged through a coast- Asian demand as a compelling reason to invest. al area near Athens last week killed 91 (see Science section). The second reason is economic and political inertia. The Elsewhere people are suffocating in the heat. Roughly 125 have more fossil fuels a country consumes, the harder it is to wean died in Japan as the result ofa heatwave that pushed tempera- itself off them. Powerful lobbies, and the voters who back tures in Tokyo above 40°C forthe first time. them, entrench coal in the energy mix. Reshaping existing Such calamities, once considered freakish, are now com- ways of doing things can take years. In 2017 Britain enjoyed its monplace. Scientists have long cautioned that, as the planet first coal-free day since ignitingthe Industrial Revolution in the warms—it is roughly1°Chottertoday than before the industrial 1800s. Coal generates not merely 80% of India’s electricity, but age’s first furnaces were lit—weather patterns will go berserk. also underpins the economies ofsome ofits poorest states (see An early analysis has found that this sweltering European Briefing). Panjandrums in Delhi are not keen to countenance summer would have been less than half as likely were it not the end ofcoal, lest that cripple the bankingsystem, which lent forhuman-induced global warming. it too much money, and the railways, which depend on it. Yet as the impact of climate change becomes more evident, Last is the technical challenge of stripping carbon out of in- so too does the scale of the challenge ahead. Three years after dustries beyond power generation. Steel, cement, farming, countries vowed in Paris to keep warming “well below” 2°C transport and other forms of economic activity account for relative to pre-industrial levels, greenhouse-gas emissions are over half of global carbon emissions. They are technically up again. So are investments in oil and gas. In 2017, for the first harderto clean up than powergeneration and are protected by time in four years, demand for coal rose. Subsidies for renew- vested industrial interests. Successes can turn out to be illu- ables, such as wind and solar power, are dwindling in many sory. Because China’s 1m-plus electric cars draw their oomph places and investment has stalled; climate-friendly nuclear from an electricity grid that draws two-thirds ofits powerfrom powerisexpensive and unpopular. Itistemptingto think these coal, they produce more carbon dioxide than some fuel-effi- are temporary setbacks and that mankind, with its instinct for cient petrol-driven models. Meanwhile, scrubbing CO2 from self-preservation, will muddle through to a victory over global the atmosphere, which climate models imply is needed on a warming. In fact, it is losing the war. vast scale to meet the Paris target, attracts even less attention. The world is not short of ideas to realise the Paris goal. Living in a fuel’s paradise Around 70 countries or regions, responsible for one-fifth of all Insufficient progress is not to say no progress at all. As solar emissions, now price carbon. Technologists beaver away on panels, wind turbines and other low-carbon technologies be- sturdiergrids, zero-carbon steel, even carbon-negative cement, come cheaper and more efficient, their use has surged. Last whose production absorbs more CO2 than it releases. All these year the number of electric cars sold around the world passed efforts and more—including research into “solar geoengineer- 1m. In some sunny and blustery places renewable power now ing” to reflect sunlight backinto space—should be redoubled. costs less than coal. Public concern is picking up. A poll last year of 38 countries Blood, sweat and geoengineers found that 61% of people see climate change as a big threat; Yet none of these fixes will come to much unless climate list- only the terrorists of Islamic State inspired more fear. In the lessness is tackled head on. Western countries grew wealthy West campaigning investors talk of divesting from companies on a carbon-heavy diet of industrial development. They must that make their living from coal and oil. Despite President Do- honour their commitment in the Paris agreement to help nald Trump’s decision to yank America out of the Paris deal, poorer places both adapt to a warmer Earth and also abate fu- many American cities and states have reaffirmed their com- ture emissions without sacrificing the growth needed to leave mitment to it. Even some of the sceptic-in-chief’s fellow Re- poverty behind. publicans appear less averse to tackling the problem (see Un- Averting climate change will come at a short-term financial ited States section). In smog-shrouded China and India, cost—although the shift from carbon may eventually enrich citizens choking on fumes are prompting governments to re- the economy, as the move to carbon-burning cars, lorries and thinkplans to rely heavily on coal to electrify their countries. electricity did in the 20th century. Politicians have an essential Optimists say that decarbonisation is within reach. Yet, role to play in making the case for reform and in ensuring that even allowing forthe familiar complexities ofagreeing on and the most vulnerable do not bear the brunt of the change. Per- enforcing global targets, it is proving extraordinarily difficult. haps global warming will help them fire up the collective will. One reason is soaring energy demand, especially in devel- Sadly, the world looks poised to get a lot hotter first. 7 Financial Era Advisory Group 8 Leaders The Economist August 4th 2018

Euro-zone austerity The Greece-y pole

Emerging from crisis, Greece still has a daunting amount to do REECE is gradually coming gets are missed, private-sector lenders, on whom Greece will Greece GDP Gout of the deepest depres- rely,may question the sustainability ofits public finances. % change on a year earlier 3 sion suffered by any rich coun- Such fragility only adds to the need to improve the econ- 2 try since the second world war. omy’s growth potential. Greece’s productivity fell by 0.8% last 1 The economy is growing; unem- year, even as the euro-zone average rose by 0.9%. + 0 – ployment is falling (see Finance Structural reform is hard in any country, but Greece’s politi- 1 section). On August 20th, eight cians will have to change theirways afteryears ofinaction and 2016 17 18 years after it first sought help, delay.Ifthey set their mind to it, they have a huge opportunity. the country will emerge from its final bail-out programme Few records exist of who owns land, even though a compre- with official creditors. The three bail-outs cost Greece €300bn hensive registry has been in the works for decades. Without ($350bn)—without counting interest payments or the effects of one, sellingland oranythingon itcan be delayed for years, hin- harsh austerity.Before wildfires last weekplunged the country dering investment. Bureaucrats and judges slow business fur- into mourning, the left-wing government ofAlexis Tsipras had ther. The World Bank reckons that resolving a contract dispute hoped to markthe occasion with street parties. in court takes 1,580 days. Businesses need licences to expand Greece’s recent progress is welcome, but the country still production, but the grounds for winning approval are often faces immense difficulties. Although euro-zone mandarins vague. Privatisation and efforts to boost competition have will continue their inspections until most of the debts are re- been half-hearted. paid, the onus will henceforth be on the Greeks to solve their Tax collection is better than in the worst days of cronyism own problems. That has consistently proved beyond them, and corruption. But the base is too small, and high corporate- even when the crisis was at its deepest. and income-tax rates deter spending and investment. Those who can, evade. Plans to broaden the tax base in 2020 are rea- Never waste a post-crisis sonable, but demand rare political courage. The government’s The marks of the crisis and the subsequent austerity are deep- proposal to raise the minimum wage is sensible, as long as in- ly etched. Output, in real terms, is a quarter below its peak in creases do not outstrip productivity gains. 2007 and investment is down by two-thirds. The share of peo- Official creditors may think they are safe. But the crisis was ple living in poverty has doubled. One in five ofthe workforce an indictment of the euro zone as well as Greece. The euro is unemployed. Many ofthe most go-ahead have emigrated. zone was so anxious to avoid rewarding the country for its Although debt remains a crippling 180% of GDP, Greece profligacy before the crisis that it shunned official debt relief should once again be able to raise money, thanks to an agree- and realistic fiscal targets, the solutions most likely to get ment with creditors that extends the maturity of some loans Greece back on its feet. In the depths of the crisis, the currency byten years. Butin return, the countryhaspledged to achieve a bloc risked being brought down by a member state that made primary surplus, ie, excluding interest payments, of 3.5% of up less than 2% ofits overall GDP. A crunch in Italy, a much big- GDP every year until 2022 and 2.2% until 2060—an almost im- ger economy that also has a large public-debt burden, would possible task. If growth slows, interest rates rise or budget tar- be a severe test—and, going by Greece’s misery, a fatal one. 7

The Horn of Africa How to make Eritrea less horrible

Peace gives the North Korea ofAfrica a chance to open up

Red SAUDI ARABIA OMETHING good is happen- It is too soon to say what all this means, but the omens in Sea Sing in the war-ravaged Horn Ethiopia are good. As well as pursuing peace, its new leader SUDAN ERITREA YEMEN of Africa. Eritrea and Ethiopia has lifted a state of emergency, welcomed back exiled dissi- are makingpeace. Itisasif North dents, freed thousands ofpolitical prisoners and vowed to pri- DJIBOUTI and South Korea made friends, vatise lumbering state-owned enterprises. The big question- SOMALIA not just with platitudes at a sum- markhangs over Eritrea, the North Korea ofAfrica. ETHIOPIA mit but with actions on the The Eritrean regime hates being likened to North Korea’s— 500 km ground. In recent weeks Ethio- and it does not have nuclear weapons—but the comparison is pia’s new prime minister, Abiy Ahmed, and Eritrea’s dictator, unavoidable. Eritrea split from Ethiopia in 1993, after a 30-year Isaias Afwerki, have signed a peace deal and reopened tele- guerrilla struggle. The two countries fought a pointless war in phone and air links between their two countries. On July 30th 1998-2000 over a desolate border town; perhaps 70,000 peo- Eritrea agreed to restore diplomatic relations with Somalia; ple died. Eritrea is ruled by a despot-for-life whose critics wind there is talkofmending ties with neighbouring Djibouti, too. up dead or sweating in a gulag of shipping crates in the desert. 1 https://t.me/finera



 



 



  
 

  

 
 




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  Financial Era Advisory Group 10 Leaders The Economist August 4th 2018

2 The regime is isolated, mysterious, paranoid, has a history of to the sea. The war and its aftermath stopped Ethiopian im- stirring up trouble in the region and has always used the threat ports and exports from flowing through Eritrean ports, depriv- ofwar as a pretext for oppressing its people. National service is ing both countries of a fortune. Two-thirds of Eritrean exports compulsory and indefinite—many Eritreans serve more than used to go to Ethiopia. 20 years either bearing arms or digging ditches for a pittance. And he should abolish all non-military conscription. If the Those who try to flee the country risk being shot. Many bribe regime cannot bring itself to get rid of military service too it border guards to look the other way; hence the large number should at least impose a time limit. This would remove the sin- of Eritreans who have sought asylum in Europe. Isolation, or gle biggest grievance causing Eritreans to flee their homeland. “self-reliance” asthe regime callsit, haskeptEritrea wretchedly Some of the dynamic diaspora might even return to help re- poor. Only nine countries score worse on the UN’s human- build their country. Ending non-military national service development index. would also remove a huge obstacle to foreign investment. Rep- Could things be aboutto improve? Aswe reportfrom inside utable firmsshun Eritrea partlybecause anyventure is likelyto Eritrea (see Middle East and Africa section), the mood is sud- involve local partners who use conscripts—ie, forced labour. denly unsettled. Peace, if it sticks, would remove the regime’s Without this worry, they might help spruce up Eritrea’s crum- main excuse foritsatrociousbehaviour. IfEthiopia is no longer bling harbours, woeful telecoms and barely exploited tourist a threat, why should Eritreans spend decades doing national potential. Unshackled from semi-slavery, Eritreans would be service? If Eritrea is no longer on a war footing, why does it free to find or create jobs they actually want to do. need a military strongman to keep it safe? Strange to recall, be- fore it seized power a quarter-century ago, the ruling party Fleeing from slavery across the Red Sea promised Eritreans multiparty democracy with all the trim- It is too early to abandon the presumption that Eritrean refu- mings, including freedom ofspeech and religion. gees have a well-founded fear of persecution. Eritrea will not It would be naive after all this time to expect Mr Isaias sud- suddenly become a normal country. But by easing its state-im- denly to honour that promise. But he could take other steps to posed seclusion, it could become a less poor one. Outsiders make Eritrea less closed and miserable. Most important, he should encourage that. As and when the regime opens up, the must not go back to war. Progress is virtually impossible with- West should begin to engage with it. And some day, perhaps, out peace. He should also open up to trade, investment and Eritreans will start to enjoy the freedoms they were promised people. Ethiopia is a landlocked giant. Eritrea can give it access during their tragic revolution. 7

Brexit No ordinary deal

Britain’s dangerous bluffbetrays a misunderstanding ofits negotiation with Brussels N MOST negotiations, the Ano-deal outcome would be bad forthe EU, too, particular- Imaxim that “no deal is better lyIreland, whose small, open economyiscloselylinked to Brit- than a bad deal” makes perfect ain’s. But Britain would be hurt most by a hard landing. Trad- sense. If you are buying a car, ing with the EU on the terms of the World Trade Organisation, you must be ready to walk away which would raise both tariffs and regulatory barriers, would or the seller has you over a bar- reduce Britain’s GDP by 4% within five to ten years, according rel. The way to drive a hard bar- to the IMF. The EU’s GDP would fall by about1.5%. Worse still— gain is to persuade him that he again, for everyone, but chiefly for Britain—would be the tur- must offeryou a good deal or there will be no deal at all. moil from leaving without agreements in place over every- Theresa May has made this commonsense principle the thing from airline safety to the transferofradioactive material. foundation of her talks with Brussels over Britain’s exit from The supply of such essentials as food and medicine could be the European Union. “No deal for Britain is better than a bad disrupted, too (see Britain section). deal for Britain,” she said in January last year, setting out her red lines. With less than eight months until Britain is due to A hard landing leave the EU, and only about four months left to reach an For this reason, the EU has never taken seriously Mrs May’s agreement on the terms of its exit, her government is still claim thatBritain isreadyto walkawayfrom the negotiating ta- stressing its readiness to depart with no deal in place. ble. It sees her threat as a bluff—and it is right, judging by the The trouble isthatBrexitisnothinglike buyinga car. In most lackofpreparation in Britain fora no-deal outcome. Even with negotiations “no deal” means sticking to the status quo. If you extensive (and expensive) planning, leaving the EU without a are not prepared to pay the asking price, you can walk away deal would have been difficult. As things stand, almost no none the worse and try somewhere else. The Brexit talks are work has been done to prepare for such an eventuality. Lately, different. Ifno deal is reached Britain will not maintain the sta- Britain has taken to outlining desperate-sounding plans to tus quo ofits EU membership, but find its links to the continent stockpile medicine and set up electricity generators. Chaos abruptly and acrimoniously broken off. The metaphor is not would be hard to avoid. buying a car, it is buying a parachute—having already leapt out Yet, although the EU’s negotiators in Brussels do not buy it, of the aeroplane. “Walking away” would land Britain in a situ- Mrs May’s slogan that “no deal is better than a bad deal” has ation so calamitous that it should not even be on the table. strucka chord with the votingpublic. Asthe talkshave dragged1 https://t.me/finera Financial Era Advisory Group 12 Leaders The Economist August 4th 2018

2 on and the EU has extracted concessions, such as a promise by It is time to drop the pretence. Leaving without a deal was Britain to pay a large exit bill, the desire to walk away has only never a wise option. The government ought to have spent the grown. Polls show that nearly twice as many Britons would past two years steering the public through the painful trade- leave the EU with no deal as would support a compromise offsofleavingthe EU. As we have argued, Britain’s interests are along the lines Mrs May proposed last month. By this logic, her best served by a “soft Brexit” that preserves markets and secu- eventual settlementwith Brussels, ifshe reachesone, will look rity. Instead, big-mouth ministers have kept expectations sky even more like a bad deal because Britain will have to give high, claiming that the deal “will be one of the easiest in hu- more ground. Many voters will thus quote the prime minis- man history” and that “there will be no downside to Brexit”. ter’s own slogan backto her, and argue to crash out. Mrs May has belatedly come to accept the need forcompro- The government is trapped by its own rhetoric. The louder mise—to the fury of a small coterie of hardline Brexiteers who it shouts in Brussels that it is ready for no deal, the more it em- would sooner crash out of Europe, kamikaze-style, than main- boldens voters and Brexiteer MPs to call for just such an out- tain any kind ofobligation to the EU. The prime minister’s con- come. Yet the more the government argues at home that Brexi- tinued claims that Britain can simply walkaway play into their teers should avoid the miseries of crashing out by embracing hands. She must cease such talk. With a bit more compromise MrsMay’scompromise, the moreitconvincesBrusselsthat,ex- on both sides, a deal is reachable. Britain must seize that para- cept as a disastrous accident, “no deal” is not credible. chute before it is too late. 7

Philosophy brief The brains trust

This weekwe begin a series on liberalism’s greatest thinkers. Theirideas still matter IBERALS are in the market for would lead to disaster, as it did in 2008, liberals should have. Lnew ideas. For roughly 30 Mill thought that no argument was ever settled definitively. years, they ran the world. Start- Alexis de Tocqueville, the great chronicler of liberal America, ing in the early 1980s, free mar- cherished the diversity of local groups as a guard against state kets, globalisation and individ- power. Yet the liberals in charge before the financial crisis were ual freedoms flourished. Lib- convinced that they had all the answers. In protecting what eralism—in this broad classical they had, they stopped thinking. sense, rather than the narrow Were the great minds still humming today, three things American left-of-centre one—saw off communism as well as would trouble them. The first is the steady erosion of truth by social conservatism. Then, in the crash of2008, it all fell apart. “fake news”, Twitter storms and viral postings. Liberalism As this week’s Books and Arts section explains, the finan- thrives on conflict. But for argument to be constructive, it must cial crisis unleashed economic austerity and the rise of popu- be founded on good faith and reason. Today both sides talk lism. Liberals, in charge of government and the banks, got the past each other. The idea has become common, on both right blame. They have been paralysed ever since. and left, that when people put forward an argument you can- One source of new ideas is debate. That is the aim of our not separate what they say from who they are. Open Future project, marking The Economist’s175th anniversa- The second worryisthe erosion ofindividual freedom. Mill ry with essays, debates, reports, podcasts and films. Another popularised the term “the tyranny of the majority”. He sup- source is the past. That is the job of our philosophy briefs, ported democracy, including women’s suffrage, but warned which start this week with John Stuart Mill (pictured). The how, as now in Turkey and the Philippines, it could turn into ideas ofold liberal thinkers still hold lessons. mob rule. Separately, Isaiah Berlin, an Oxford academic, would have seen that “no platforming” in order to protect mi- Run ofthe Mill nority groups comes at the cost ofindividual speech. What emerges? Liberalism is pragmatic. John Maynard Last, the greatthinkerswould have lamented liberals’ falter- Keynes, a lifelong champion of the liberal ethos, advocated ing faith in progress. New technology and open markets were government intervention during recessions to avoid the social supposed to spread enlightenment and prosperity, but many ruin ofeconomic collapse. The welfare state was not a socialist people no longerexpect to live betterthan theirparents did. As creation, as both right and left assume, but a liberal one—so democracies drift towards xenophobic nationalism, universal that individuals are free to achieve their full potential. values are in retreat. And for the first time since the heyday of Thanks to this pragmatism, liberalism is a broad church. the Soviet Union, liberalism faces the challenge of a powerful John Rawls was a progressive American academic, his coun- alternative, in the form ofChinese state-capitalism. terpart Robert Nozick a libertarian. Keynes believed in inter- Today’s liberals like to think that they are grappling with vention; Friedrich Hayek and his fellow mid-20th-century uniquely difficult issues. They should consider their forerun- Austrian, Joseph Schumpeter, insisted on the freestof free mar- ners. Mill and Tocqueville had to make sense ofrevolution and kets. (We urge readerswho thinkourchoice ofdead white men war. Keynes, Berlin, Karl Popper and the Austrians confronted too narrow to add their favourite liberal thinkers to our Litera- the seductive evils of totalitarianism. Today’s challenges are ture ofLiberalism—economist.com/liberalthinkers.) real. But farfrom shrinkingfrom the task, the liberal thinkers of And liberals think concentrations of power pose a threat. If yesteryear would have rolled up their sleeves and got down to anyone should have known that intellectual dominance making the world a better place. 7 https://t.me/finera Letters The Economist August 4th 2018 13

Let’s do it again result, with perilous repercus- It’s good to talk after an unfairtrial in 1936. In sions forjobs and investment. his testament he did not want Youasserted that the Brexit IdonotshareThe Economist’s more blood to be spilled in alternatives could be “costed dim view ofthe American and wars between Spaniards. He and debated” in a second vote. Russian presidents’ recent was against the war and Yet unambiguous and compre- meeting (“Humiliation in against the military. He was hensive alternatives won’t Helsinki”, July 21st). In partic- killed when he was 33, just really be available, and how ular, the allegation that Presi- three years after the founda- much will the public actually dent Donald Trumpfailedto tion ofhis party. He was a very know about them? A referen- stand up forAmerica in the good friend ofFederico García dum held before Britain leaves wake ofthe election-meddling Lorca. His last handwritten the EU would not be held on a revelations. What was he manuscripts are summarised clear strategy forfuture rela- supposed to do, call Vladimir in a bookcalled “The Papers of tions with the EU. Putin a liar to his face in public? José Antonio”. Please read it What is most perturbing is How would that foster future and tell me ifhe was a fascist. You are right that, ifthe British the perils another referendum co-operation? Mr Trumpis PELAYO PRIMO DE RIVERA Parliament cannot agree on could impose upon our de- trying to build a relationship. If Madrid what sort ofBrexit it wants, the mocracy. The message would you exhibit trust in someone, people must be asked what be that, even afterthe country they are more likely to want to Depicting war they want, including whether reached a definitive outcome honour it than not. Children they want to leave the Euro- in the first referendum sub- are a good example. Whether Movies about the cold war pean Union at all (“The case sequent to a long campaign, you truly believe the trust is made by Hollywood and the fora second referendum”, July with a record turnout, Parlia- warranted is irrelevant; time inseparable British film in- 21st). But you also argue that it ment was not qualified or will tell in any event. dustry were not quite as Mani- would be better ifMPs made efficient enough to execute it. Neither do I buy the paral- chean as you suggest (“The up their own minds and To put it bluntly, the govern- lels you draw between the thaw”, June 30th). Ifyou con- spared the people the trouble ment cannot honour the desire Helsinki meeting and Mr centrate on “quality” films, and ofvoting again on the matter. ofits people. The long-estab- Trump’smore critical rhetoric strip away tongue-in-cheek This is wrong. lished and respected faith we towards the Europeans and (Bond), propaganda (“Green No form ofBrexit will be have in our democratic pro- Britain. Truefriends tell it like it Berets”), crass (“Rambo”), and good. We will either damage cesses would be brutally eradi- is.Tobeabletodosoisamark allegory (“The Alamo”), you our prosperity, by reducing our cated. Britain would be deeply ofthe strength ofa friendship, find a more-balanced judg- ties with our largest market; or divided: politically, socially not the reverse. ment. I suggest a reading of we will damage our power, by and economically. LES PEARCE “Reds”, “Dr Zhivago”, “Full following EU rules without a It is imperative that we Cranleigh, Surrey Metal Jacket”, “Platoon”, “The vote on them; or we will dam- ensure the upmost stability Bridges at Toko-Ri”, “Pork age both (the prime minister’s and unity now by accepting W.H.Auden once said poetry Chop Hill”, “Judgment at latest proposal). The only way the voters’ verdict and work makes nothing happen. But Nuremberg”, “Dr Strangelove” ofavoiding damage to both together to implement it as Helsinki perhaps proves him and many others to counter our prosperity and our power best we can. wrong: your view. Hollywood and the is to cancel Brexit. But Parlia- KARDO BECK British film industry at their ment should not do this with- London And how reliable can any truth best have been more imagina- be that is got out first asking the people. So By observing oneselfand then tive than you think, despite even ifMPs could agree what is Ifyou are going to fail, fail hard just inserting a Not? being hindered by the normal the least bad form ofBrexit, and fast. This allows you to degree ofnationalistic myopia. they should still askthe people dust yourselfoff, learn from JOHN GOODMAN SIMON STANDER ifthey want it. your mistake and move on. A Auckland, New Zealand Moncofa, Spain In the referendum two second referendum would years ago, the public was asked furtherdilute responsibility for Spain’s civil war Divisibility is a trap to choose between the reality Brexit, letting the Eurosceptics of“in” and Boris Johnson’s offthe hookforthe misinfor- The opening paragraph of Schumpeter’s final comment cake-and-eat-it fantasy of mation they have peddled. “Disturbing Franco’s ghost” on Foucault reminded me of “out”. Once Theresa May has And it would lead to a soft (July 21st) is biased. The Valley an old joke (June 23rd). There finished her negotiations, the Brexit. That would make it all ofthe Fallen was built to are two kinds ofpeople in this people have the right to choose too easy forthe Brexit extrem- remember the deaths on both world: those who like to divide between the reality of“in” and ists to say that it failed because sides in the Spanish civil war the world into two kinds of the reality of“out”. it was not a true Brexit, much and to serve as a reminder for people and those who don’t. HUGO DIXON as Marxists attribute the future generations. It was not RICHARD WEXELBLAT Chair demise ofa communist regime built by forced labour. West Brandywine, Pennsylvania 7 InFacts to it not being true commu- Inmates, well fed and paid, London nism. A hard Brexit would voluntarily helped its con- leave Britain sadder but wiser. struction, which was mainly Letters are welcome and should be The preparation and then cam- Sometimes a heart attackis the done by free workers. Last, but addressed to the Editor at The Economist, The Adelphi Building, paigning fora second referen- only way to shocka person not least, you call my grand 1-11John Adam Street, dum would create increasing into changing a profoundly uncle, José Antonio Primo de London WC2N 6HT indecision and insecurity for unhealthy lifestyle. Rivera, a fascist. He was a E-mail: [email protected] industries, a more calamitous ANDOR ADMIRAAL successful lawyer and poli- More letters are available at: problem than any specific The Hague tician who was killed in jail Economist.com/letters Financial Era Advisory Group 14 Executive Focus

The Economist August 4th 2018 https://t.me/finera Executive Focus 15

Recruitment of a Governor for the Central Bank of Somalia

Somalia is emerging from confl ict and rebuilding its economy, including its key economic institutions. The position of Governor of the Central Bank of Somalia (CBS) will fall vacant on November 1, 2018. The new Governor will lead the CBS through major ongoing reforms, including the issuance of a new national currency, rebuilding the CBS’s institutional capacity, developing monetary instruments, and implementing the CBS’s mandate, which includes the development of fi nancial intermediation and regulation of the fi nancial system. The Governor is the chief executive offi cer of the CBS and is responsible for its management under the general direction of the Board of Directors. The Governor also serves as the Chair of the Board, and is the principal representative of the CBS in its relations with the Federal Government of Somalia, other public entities and bodies and international fi nancial institutions. The successful candidate must hold a university degree in monetary, fi nancial, banking, accounting, legal or economic matters and have at least twelve years’ experience in the fi eld of economics, banking, fi nance or law, preferably internationally. Strong preference will be given to those with international banking experience. He/she will be a strong communicator, have good interpersonal skills, and be able to demonstrate strong leadership, management and policy skills. The successful candidate will have held a senior managerial position in a Central Bank, Government agency, private fi nancial institution or an international organization. He/she must be fully conversant with the functions and operations of a Central Bank. He/she must also be fully conversant with monetary policy and issues relating to fi nancial sector regulation and development. The successful candidate will be a person of undisputed integrity and standing. He/she shall be appointed by the President upon the proposal of the Council of Ministers and shall hold offi ce for a period of four years, with the possibility of a reappointment for one more term. Remuneration will be commensurate with the qualifi cation and experience of the candidate selected and will be competitive. Applications must be in English and should include a covering letter, CV and three written references. Applications should be sent electronically to: [email protected] The closing date for all applications is August 28th, 2018. Short-listed candidates will be contacted for interview. The Economist August 4th 2018 Financial Era Advisory Group 16 Briefing Indian energy The Economist August 4th 2018

Pakistan to the Philippines and South Ko- The black hole of coal rea. Such is the supply and demand that prices for thermal coal, the type used for generating electricity, are at their highest since 2012, and have more than doubled in the past two years. The environmental implications of this HAZARIBAGH, JHARKHAND STATE resurgence are deeply troubling. Asia ac- India shows how hard it is to move beyond fossil fuels towards a renewable future counts for more than half of the 9m pollu- ARKNESS is falling as coal starts its It is the same across much of Asia, where tion-related fatalities recorded in 2015, ac- Dlong, lawless journey from the pit. The coal consumption grew by 3.1% a year from cording to a recent study for the Lancet, a first signs are the cycle-pushing foot-sol- 2006 to 2016, accounting for almost three- medical journal. India’s 2.5m deaths is by diers, such as Ravi Kumar, a 26-year-old quarters of the world’s demand for the far the biggest share. Coal is the main cul- whose yellow shirt and grey turban are as most polluting fossil fuel. prit. It is also a wrecker of the climate. coal-smudged as his face and hands. Using Last year, justas Western banks and glo- Coal’s comeback helps explain why 2017 his bike like a wheelbarrow, he strains up- bal development agencies were shunning was the first year in four that global emis- hill with his back bent, then coasts down coal projects on environmental grounds, sions ofcarbon dioxide have risen, thwart- with one sandalled foot on the pedal, the India, the world’s second-biggest burner ing the planet-wide effort, accelerated by other scuffing the tarmac as a brake. The after China, consumed an additional 27m the Paris summit in 2015, to control climate bike is laden with half-a-dozen sacks of tonnes, a rise of4.8%. Thatled to the first in- change. BP notes that coal’s share of global coal, pilfered from a nearby mine. crease in global coal consumption in four electricity generation—by far the largest There are hundreds of other small-time years, says BP, an oil company. Demand in source at 38%—has not shrunk in over 20 thieves like him, he says nervously, supple- China also picked up slightly, and there years, despite the rise ofgasand renewable menting their income on a Sunday eve- were big increases from Bangladesh and energy (see chart1). ning by fanning out to sell bike-loads of No country is likely to contribute more coal to owners of iron works and brick to the growth in energy demand over the kilns, and tea brewers. Coal-fed braziers Coal is still king 1 next two decades than India, says the In- and stoves flicker by the side of the road, Global electricity generation, by fuel type, % ternational Energy Agency (IEA), a global black smoke pouring out. An Indian Dick- Renewables forecaster. When India submitted plans for 100 ens would be scribbling furiously. Oil climate-change actions at the Paris sum- Then there are the coal lorries—the Nuclear mit, it predicted that its electricity demand 80 heavy artillery. They gather at the edge ofa would triple between 2012 and 2030. If Hydro nearby village, 140 ofthem squeezed along 60 coal meets much of the growing appetite the roadside, ready to trundle off for the Gas for power, as the IEA expects it will, no nightlong journey to Hazaribagh, the big- 40 country will contribute more to the rise in gest city in this part of Jharkhand state. carbon emissions. Across eastern India, which sits on the Coal 20 India has plans foralternative means of country’s largest coal reserves, this ragtag generating electricity. Even before the Paris army sets out at dusk to feed the furnaces, 0 summit, Narendra Modi, the prime minis- fill the railway wagons, and fuel the power 1995 2000 05 10 15 17 ter, aimed to install 175 gigawatts (GW) of stations that get India’s economy moving. Source: BP Statistical Review of World Energy 2018 renewable-energy capacity by 2022, a vast 1 https://t.me/finera The Economist August 4th 2018 Briefing Indian energy 17

2 increase from today. That has now risen to ferpowerto its newly free citizens. At first it 227GW. In the meantime, prices of wind Sunny uplands 2 put the formerly British-owned mines into and solar power have tumbled. Recent India, power-sector investment, constant 2017 $bn private Indian hands but, after it became auctions have led to a 50% drop in the cost Coal Oil and gas Nuclear known as “slaughter mining” because of of solar power in the past two years, to Solar Wind Hydro an atrocious safety record, the industry about three rupees ($0.05) per kilowatt Other renewables Grid was nationalised in 1973. Power generation hour, about the same as wind. This can 60 was kept mainly in state hands. During the make both sources cheaper than building cold war, the Soviet Union backed the de- new coal-fired capacity. An excise tax on 50 velopment ofenergy infrastructure, which production and imports makes coal ever 40 helped entrench the state-owned model less attractive. After a massive spree of and produced power stations like Patratu. 30 building coal-fired power plants in recent Three factors help explain why coal is years, investment slumped last year, while 20 likely to remain ingrained underthe finger- that in alternatives surged (see chart 2). 10 nails of the nation—politics, economics, It is one thing to recognise the impera- and the complications of generating elec- tive for reducing coal in a country’s energy 0 tricity. First politics. Coal chokes India po- mix. It is another to consider the ramifica- 2010 11 12 13 14 15 16 17 litically, especially in states where it is tions ofshiftingfrom a cheap source offuel Source: International Energy Agency mined. Though Jharkhand sits on 40% of native to India. A swing through coal coun- India’s mineral resources, it is among the try provides a sobering illustration of how wander into the vast turbine hall, littered five poorest states. A Maoist insurrection hard it is to wean a country off fossil fuels. with boilers and other equipment. Some simmers on the edge ofcoal country, partly The first thing you notice, however obvi- boilers are broken open so that you can because the benefits have been so uneven- ous, is that coal is grimy. It cakes roadsides peer inside. The centrepiece is its control ly shared between those who exploit coal and blackens rivers and lungs with soot. room, built by Soviet engineers in 1962, still and those living on the land. Although coal is horribly filthy, India is furnished with itsoriginal knobsand dials. The “resource curse” is an argument for utterly dependent on it. It generates more Clambering through the mess gives a per- weaning the economy offcoal, yet it works than three-quarters of the country’s elec- verse thrill. both ways. Coal-related graft infects poli- tricity. Mining it and turning it into power The plant chugged on for more than tics, makingchange harder. “Gangs ofWas- accounts for a tenth of India’s industrial halfa century, producingits final trickles of seypur”, a Bollywood blockbuster of 2012, production. It provides jobs as well as power last year. But instead of facing ex- is a dramatisation of the mafia that for de- power. Coal India, a state-owned coal min- tinction, as many environmentalists cades has hijacked Jharkhand’s coal indus- er that is the world’s largest, employs, at would hope, Patratu is about to be resur- try, forpersonal and political gain. Ramesh last count, 370,000 people, and there are rected by NTPC, the state-owned power Sharan, vice-chancellor of the Vinoba up to 500,000 workingin the coal industry producer, and the Jharkhand government. Bhave University of Hazaribagh, says that at large. Far from reining in production, In May Mr Modi staged a televised event in about a third ofcoal output in Jharkhand is Coal India plans to increase it, from 560m which he unveiled a new foundation mined illegally, lining the pockets of busi- tonnes in 2017 to 1bn tonnes by 2020. The stone. The first phase of renewal will be a nessmen, politicians and bureaucrats, es- government’s target for national produc- 2.4GW power station, costing 186bn ru- pecially at election time. “Everybody’s a tion is1.3bn-1.9bn tonnes by 2030. pees. A second will add 1.6GW. shareholder in the coal mafia,” he says. Rohit Chandra, a political scientist who Mr Chandra describes coal as “deeply is writing a book on India’s coal industry, Backfrom the brink embedded and enmeshed” with the state. estimates that 10m-15m people benefit in- It is not a one-off. For all Mr Modi’s ambi- Efforts to reduce the government’s role in directly from coal, through social pro- tions for renewable energy, Patratu is part the industry have had perverse results. For grammes near mines. He notes that, in of a projected 48GW of coal-fired capacity instance, in the 1990sthe steel industryand eastern states, Coal India and its subsidiar- under construction or planned between other consumers were permitted to mine ies have provided roads, homes and water 2017 and 2022. Although it is a sharp slow- coal fortheirown use, which led to an infa- when local governments have been negli- down compared with recent years, it goes mous scandal, called “Coalgate”. In 2014 gent. It is also a big source of revenue for far beyond replacing 22.7GW that is due to the Supreme Court annulled mining con- state governments in poor areas. be retired and is not far short of the 69GW tracts awarded between 1993 and 2010, The mighty railways, which employ of renewable energy so far installed in In- after it became clear that they had been al- over1.5m, also depend on coal. Because the dia. For comparison it is almost as much as located in an arbitrary way at throwaway producingstatesare in the east, far from the the total thermal-power capacity of South prices, mostly as a result of crony capital- biggest cities, coal accounts for half the Africa, a coal-burning country. ism involving politically aligned firms, freight carried on the network. Patratu, and the coal fields that supply state-owned banks and local bureaucrats. To illustrate coal’s stubborn resilience, it, provide a glimpse of the interdepen- It cost the government the equivalent of considerthe Patratupowerstation in Jhark- dence between coal, power and the state $33bn. So embedded are such interests, hand. The building feels all but aban- that took root with the birth of modern In- which have largely gone unchallenged, doned. Sunflowers grow amid the rusted dia. After independence in 1947, the Indian that a swift transition from coal would struts of its substation. Buffalo sometimes government wrote an electricity law to of- meet“seriouspolitical opposition” in parts ofIndia, says Mr Chandra. The second factor behind coal’s persis- A burning issue 3 tence is economics. The coal-fired power India, electricity by fuel type, 2017/18, % of total Gas & diesel 7.4 Nuclear 2.0 industry is too big to fail. It is a huge source of financial vulnerability because it has Installed capacity Coal 57.3 Renewables 20.1 Hydro 13.2 grown too quickly in recent years, on a riv- er of money borrowed from state-owned Used for banks. During the past decade, private generation 75.1 4.2 7.7 9.7 2.9 GW Imports 0.4 firms built a massive 84 of coal-fired Sources: Central Electricity Authority; IEEFA generating capacity, more than a third of1 Financial Era Advisory Group 18 Briefing Indian energy The Economist August 4th 2018

2 India’s total, on expectations of a surge in tional pressure to clean up its act. India re- could put off developers. There are persis- electricity demand. siststhe idea thatitcannotputcarbon diox- tent risks related to land acquisition, rights That increase has so farfailed to live up ide into the atmosphere simply because of way and availability of local infrastruc- to expectations, in part because of pro- the rich world, which produced much ture, as well as uncertainty over funding blems with the national grid that contin- more per head during its own develop- costs. Banks and businesses were misguid- ues to leave large swathes of the popula- ment, has used up all the available “carbon edly bullish about coal in the past decade. tion without powerformuch ofthe day.As space”. In fact, the government continues Why trust them more on renewables? “I a result, coal-fired plants have suddenly to support coal projects to keep them don’t know why anyone would invest in found themselves awash with unwanted afloat. A report by the Centre for Financial renewables”, says Sajal Ghosh, an energy capacity. Revenues have plummeted. The Accountability,a think-tank focused on In- economist. “But I also don’t know why average load factor—the proportion of its dia, says that coal projects in India received anyone would invest in coal.” nominal capacity a plant generates—was almost three times as much support as re- Some still live in hope. Ajay Mathur of 60% in 2016-17, down from 70% in 2012-13. newable-energy projects in 2017, mostly The Energy and Resources Institute, a re- from government-owned banks. search body, points out that if the price of Unplugged The last factor supporting coal is that it renewables continues to fall to below two This has left parts ofthe industry,as well as is farfrom clear that India’s erratic electric- rupees per kilowatt-hour, roughly the vari- many of the banks that lent to it, in dire ity system is up to the task of carrying the able cost of coal-fired power (ie, excluding straits. Arvind Subramanian, the govern- quantity of intermittent renewables being the costofbuildingthe plant), solar will be- ment’s (outgoing) chief economic adviser, planned, or that low renewables prices are come the preferred choice for distribution points to estimates that some 40 to 50GW- sustainable. As everywhere, intermittency companies. “I’m not sure where the elec- worth of coal-fired plants are behind on is a problem because the sun does not al- tricity generated by these new power debt repayments. He says this represents ways shine or the wind blow. This means plants will be sold because coal-based about 15% of “stressed assets” in India’s that solar and wind generate less than power is becoming economically obso- banking system. Many of the banks are their installed capacity would suggest. lete,” he says. Navroz Dubash, of the Cen- state-owned, posinga riskforthe economy. They account for 20% of capacity, com- tre forPolicy Research, a think-tank, agrees. Mr Subramanian, Mr Chandra and oth- pared with 57% forcoal. But they generate a He says it is “kind of crazy” to think that ers fear that if coal-fired plants go belly up, meagre 7.7% of output because of intermit- there will still be investment in coal-fired the banking system would be badly tency, compared with 75% for coal (see power plants, which last for decades but strained. But bankruptcies are unlikely to chart 3 on previous page). could be redundant in years. He also de- be forced by banks that want to avoid write Old-fashioned grids, which carry elec- scribes the idea of supporting coal to bail downs on loans that will pay off when the tricity from power stations to homes and out the banks as “throwing good money expected surge in demand finally comes. businesses, need expensive upgradesto in- after bad.” Coal’s life will be made harder by in- tegrate widely distributed solar and wind creased competition from cheap solar and farms, so that power from states where the Grid pro quo wind. Because of that, Mr Subramanian sun is shining, for instance, goes to places More likely coal and renewables will live suggests that Mr Modi, his solar-evangelist where itisnot. The158GW ofrenewable ca- side by side for many years. A lot of Indi- boss, should slow down his roll out of re- pacity that is supposed to be built over the ans still go without power. The average In- newable energy. “In my ideal world India next four years could put an enormous dian uses a bit less electricity than a citizen should do a bit less renewable and a bit strain on the system, despite copious re- of Gabon, a bit more than a Guyanan. Mr more coal for the next10-15 years,” Mr Sub- cent investment in grids. Modi may have thrown his weight behind ramanian said in May. Some dismiss his There may also be a “renewables bub- solar and wind but, until other forms of comments as deliberately provocative. Yet ble” in India, pushing down prices below a backup power, such as storage, become he has rubbed salt into the wounds of en- sustainable level. Solar firms offering very cheaper, the system will still need coal to vironmentalists by describing efforts to low bids in power auctions (where the keep the lights on. Ifdemand forelectricity wean energy-poor countries such as India lowest-cost provider wins) may not be picks up, with growth in the number of offfossil fuels as “carbon imperialism”. able to supply what they promise. States electric vehicles, forexample, coal may be- Coal’s staying power may be reinforced may try to renegotiate prices agreed when come yet more important in the energy by India’s sense ofimmunity from interna- renewables were more expensive, which mix—and the gains from burning less pet- rol will be offset. In the long run, the strategy is to put new coal-fired power plants in places like Jharkhand, close to sources of coal and far from big cities. But even there, locals are unhappy. Sitting beside a coal-fired brazier during a blackout near Hazaribagh, a for- mer consular employee from Kolkata, who asks not to be named, picks up and in- spects a lump of coal: “‘Black diamond’, they call it,” he snorts. He complains that a new NTPC coal mine, whose giant slag heap is just visible against the night sky, is the result of illegal land grabs, which have led to the deaths of protesters. He mourns the pristine forest the mine has dug its way through. “The money behind [coal] is end- less, but none of it comes to the locals,” he says. “It is all about politics.” To a certain extent he is right. And the politics are not Riding India’s business cycle going to be resolved anytime soon. 7 https://t.me/finera Britain The Economist August 4th 2018 19

Also in this section 20 The economics of stockpiling 21 Lib Dem entryism 21 The right to die 22 Hidden slavery 23 Espionage and business Bagehot is away

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

Brexit with no deal agreed terms, notably a £40bn ($52bn) exit bill, a guarantee of EU citizens’ rights and Ready or not averting a hard border in Ireland. That would surely make a no-deal exit acrimo- nious, thereby aggravating its effects. A new study by the IMF finds that these would be bad forall EU countries, especial- ly Ireland and those near the Channel. But A rising chorus again pitches the case forwalking out ofthe European Union with they would be worst forBritain (see chart). no deal. It is delusional Many Brexiteers refuse to accept this. To HE lure has always been powerful. people in Brussels think it is. Another of its see why they are wrong, start with trade. TWhy negotiate with an organisation purposes is to win more support at home Brexiteers argue fortrading on World Trade you dislike, which also wants to erode any for Mrs May’s Chequers plan, by showing Organisation (WTO) rules, as most non-EU gains from leaving? Why not just walk out? voters the horrors that would result from countries already do. Yet with no deal, Brit- After all, no deal is better than a bad deal, rejecting it. So far, this is not working, ei- ain would be the only big country trading as Theresa May has often said. ther. Polls find that voters prefer no deal to solely on WTO terms. Others, even those Talk of a no-deal Brexit has revived Chequers by two to one. without trade agreements in place, have strongly since the prime minister laid out That may be because they think a no- side deals to facilitate customs inspections. fresh negotiating objectives in a meeting at deal separation would be amicable. Both Reverting to the WTO is also tricky. Britain Chequers, her country house, last month. sidescould agree to minimise disruption to is a member, but to take up its rights it must Tory MPs report deep dissatisfaction in the flights, food supplies and so on. Yet a divide import quotas with the EU. Efforts party with the plan, which many Brexi- friendly no deal is implausible. Whether it to do this have been opposed by America, teers think gives too much to the EU. Two happened by accident or design, it would Brazil and even New Zealand. cabinet ministers resigned for the same now mean Britain rejecting previously Nor would trade with other countries reason. Worse, Brussels wants more. Muj- be trouble-free. Britain benefits from the taba Rahman of the Eurasia Group, a con- EU’s trade deals with 50-odd countries, in- sultancy, says that behind the EU’s cau- Losers and losers cluding Mexico, South Korea and Japan. tious public welcome for Chequers, the Five-year effect on GDP of a no-deal Brexit, Britain hopes to roll these over after Brexit. private view is very negative. compared with no Brexit, % But that requires the EU’s assent, which Faced with such recalcitrance on all 43210– would be unlikelyaftera no-deal outcome. sides, Mrs May is reviving no-deal plan- Britain The other countries must also agree. David ning. Dominic Raab, her new Brexit secre- Henig, a former trade negotiator, says they tary, talks of stockpiling food and medi- Ireland would impose harsh terms, given Britain’s cine. Jeremy Hunt, the foreign secretary, Netherlands weakposition. says the probability ofno deal is increasing Denmark Customs would be a big problem. Brex- by the day. The government will soon pub- Belgium iteers say Britain should keep its borders lish advice to businesses and individuals Sweden open, without controls or tariffs. Yet the EU of the possible impact. The European Germany would be unable to reciprocate, not least Commission has issued similar notes. because WTO rules say that tariff-free ac- Poland A no-deal Brexit sounds simple, but it cess would have to be offered to all mem- comes in several guises. One is as a negoti- France bers. The number of customs forms for ex- ating tactic, to strengthen Britain’s weak Spain porters would quadruple, costing £20bn a bargaining position. But this works only if Source: IMF Italy year. An extra two minutes’ delay for lor- the threat of no deal is credible, and few ries at Dover would mean long queues in 1 Financial Era Advisory Group 20 Britain The Economist August 4th 2018

2 Kent. Unilateral free trade would ravage British farming and manufacturing. And one-way free trade does not help lorry drivers, who must return fully laden. No deal also means a hard Irish border. Again, Brexiteers say London and Dublin could agree not to have one. But with no deal, that would be illegal under the EU’s own rules, as well as those of the WTO. Agrifoods, which account for most of the trade across the border, would be badly af- fected. As well as tariffs, EU food-safety checks would have to be applied, to avoid Northern Ireland becoming an open con- duit to evade them. A hard border would rattle the delicate peace process. Then there are British firms’ supply chains. These are now widely spread across the single market. Supermarkets and carmakers alike rely on just-in-time deliveries that would be disrupted by a no- deal Brexit. Switching to non-EU sources would take time and money. So would The economics of stockpiling stockpiling supplies, which for most busi- nesses is impractical (see box). Prepping for Brexit Regulatory obstacles would be even worse. A no-deal Brexit would take Britain Stockpiling is the talkofthe country, but is anyone actuallydoing it? out of all the EU’s agencies, as well as its courts. Brexiteers may welcome this, but REXITEERS said that leaving the EU including AstraZeneca, Novartis and setting up alternatives would take years. B would lead Britain to a land flowing Sanofi have said that they will increase The EU is clear that trade in goods like with milkand honey. But as worries ofa their inventories. chemicals, pharmaceuticals or cars de- no-deal Brexit mount, the country is Yet the hoarders seem to be in the pends on Britain meeting its standards. instead talking ofhoarding emergency minority. Take JJ Churchill, a supplier of Britain’s car industry, which employs rations. Google searches forthe word turbine blades to the aviation industry. 800,000 people and exports 80% ofits out- “stockpile” have jumped in the past The firm held a board meeting on July 31st put, is especially vulnerable, as it would week, approaching the all-time high seen to discuss whether to stockpile parts, and lose EU certification for vehicles, as well as shortly after the referendum ofJune 2016. decided against, as it would tie up too facing10% tariffs. Some countries could just about cope much working capital. Andrew Chur- There are no domestic regulators to re- iftheir borders were closed to imports, at chill, the executive chairman, argues that place the European Medicines Agency and least in the short term. Britain is not one the fog ofBrexit makes it unclear which the European Aviation Safety Agency ofthem. Imports and exports are worth parts are vulnerable to disruption. (EASA). The first would stop drug exports, over 60% ofBritish GDP, twice America’s Economy-wide data reveal little evi- but also imports like insulin that may re- level. HalfofBritain’s food comes from dence offirms preparing for“no deal”. quire re-testing. Radio-isotopes needed for abroad, most passing through EU ports. Firms’ stocks ofinventories are, if any- cancer treatments could not be imported The Brexit secretary has promised, not thing, falling. Our analysis ofover 5,000 after Britain leaves Euratom. Outside entirely reassuringly, that there will be categories ofgoods shows that imports EASA, airlines could not fly within Europe. “adequate food” whatever happens; the ofparts, raw materials and machinery— Rules requiring majority EU ownership health secretary has said the NHS is “capital” and “intermediate” goods, in could cause problems for airlines such as preparing to stockpile medicine. Yet it is the jargon—are in fact declining. That is British Airways. not clear that enough is being done to consistent with a nervousness about the The list goes on. Apriority forBrexiteers honour these pledges. Britain spends future, though ofa different sort. It could is to stop free movement ofEU citizens. But some £50bn ($66bn) a year on medicine suggest that bosses are worried about the shortages of border guards and the lack of and non-perishable food from the EU. So strength ofdemand after Brexit, and may any registration system will make this im- stocking up with enough for just a month therefore be trimming investment in possible for many months. So free move- would cost around £4bn—more than the future production. ment would be likely to continue even entire no-deal planning budget of£3bn IfBrexit day approaches with no deal after a no-deal Brexit, says Joe Owen of the set aside in November. Nor is there any in sight, companies and the government Institute for Government, a think-tank. Se- sign that reserves are being built up. Food may decide that stockpiling is unavoid- curity co-operation would also suffer as and medicine imports have been steady able. At that point they would face a Britain fell out of the European Arrest War- in recent months. problem: a shortage ofwarehousing. rant and intelligence databases. Companies, many ofwhose manufac- Vacancy rates are already low, thanks in Brexiteers may call this Project Fear 2.0, turing methods rely on raw materials and part to the expansion ofe-tailers such as but the evidence is against them. Market components zipping between produc- Amazon. And stockpiling would require confidence would suffer. John Springford tion facilities in different countries, are a huge amount ofspace. Britain guzzles ofthe Centre forEuropean Reform, a think- also talking about stockpiling. Airbus 3bn litres ofimported booze every year. tank, says a no-deal Brexit would trigger says it has asked its suppliers to start A month’s supply would be enough to fill both a recession and a run on the pound. “ramping up” their stockofcomponents 100 Olympic-sized swimming pools. No deal is not a serious option, even if to- forits aeroplanes. Pharmaceutical firms Better start digging. day’s febrile politics pretends it is. 7 https://t.me/finera The Economist August 4th 2018 Britain 21

Britain’s third party ally with hard-leftists and former UKIP- The right to die pers. A Liberal Democrat party overrun by Entryist dads centrist entryists would look like, well, the An end to Liberal Democrats. “They aren’t Militant, are they?” says one insider, referring to the proceedings Trotskyist group that infiltrated Labour in the1970s and 80s. Potential defectors may be wary of the The Lib Dems market themselves as a Pro-life campaigners mourn defeat in Lib Dems. They have baggage. There is a vehicle fordespairing centrists the Supreme Court reason why the party’s vote fell from 6.8m NE is 46 years old, the other is a pen- in 2010 to 2.4m in 2015. After five years in NJUNE 2017 MrY, an active man in his fif- Osioner. One can dance Bhangra, the coalition with the Tories, people no longer Ities, suffered a heart attack and extensive other is a ballroom guy. One is prime min- liked them. Pollssuggesttheystill don’t: the brain damage. He died later that year, hav- ister of Canada, the other is leader of Brit- party limps along at about10%. ing failed to regain consciousness. In the fi- ain’s Liberal Democrats, who have just 12 Change could come from the top if MPs nal monthsofhislife, the NHS trustrespon- MPs. Justin Trudeau and Sir Vince Cable from other parties jumped ship. Labour’s sible forhis care went to court to clarify the are quite different, but the Lib Dem leader anti-Semitism saga flared again this week law. Hisfamilybelieved he would not have hopes to learn a trickortwo from his Cana- after it emerged that Jeremy Corbyn, the wanted treatment to keep him alive; the dian counterpart. party’s leader, hosted an event in 2010 at trust wanted to know whether it needed Mr Trudeau’s Liberal Party jumped which the actions of the Israeli govern- judicial approval to withdraw sustenance from third place to government in four ment were likened to those of the Nazis. (known as “clinically assisted nutrition years, after poaching votes from its rivals But despite disgust among his MPs about and hydration”, or CANH), given that doc- on left and right. What can it teach the Lib his handling of the row, there has been no tors agreed doing so was in his interests. Dems? Without a long career stretching be- wave of resignations. Nor has any ToryRe- On July 30th the Supreme Court ruled fore him, Sir Vince, 75, has the freedom to mainer MP been persuaded to defect, even that no such approval was needed. Fam- shake up his party.One plan under discus- as the government’s handling of Brexit has ilies will now end up in court only when sion in Lib Dem circles would give non- gone from bad to worse. they are divided over what a relative members a vote on the party’s next leader, Instead, Lib Dems are left hoping that would want, or when they disagree with a system the Liberals used during Mr Tru- an era of political polyamory will replace their doctors’ views. deau’s selection. Another idea is to copy the 19th-century system of monogamous Manypeople maybe affected bythe de- the Liberals in doing away with the re- party politics. New movements and par- cision. Improvements in medicine mean quirement that the party leader must be an ties should team up with the Lib Dems, be- people are increasingly likely to survive MP.(Onenon-MP mooted as a possible lieves Tim Farron, a former leader. “They events that leave them in vegetative or standard-bearer is Gina Miller, an anti- have a lot ofgenerals and naff-all army,”he minimally conscious states. A rough esti- Brexit campaigner, although both she and says. “We are your army.” Such post-party mate by DerickWade, a professorofneuro- the party deny this.) Sir Vince’s team has movements are starting to pop up. Cross- logical rehabilitation at Oxford Brookes been in touch with one ofMrTrudeau’s ad- party support is growing for a referendum University, suggests that as many as visers who helped to devise some of the on the Brexit deal, a Lib Dem demand ever 50,000 people in Britain may be in such a party’s reforms. since the first referendum. But it would condition. The court’s judgment also ap- The diminished Lib Dems are hardly a take Labour’s backing to go ahead. Unlike plies to those who are conscious but un- “natural governing party”, as Canada’s Canada’s Liberals, the Lib Dems are very able to swallow and to make a decision, of Liberals are known. But for all their faults, far from wielding power by themselves. whom there are more. they may still represent the best hope for But if some of their ideas end up being en- The decision built on one in 1993 by the Britain’s beleaguered moderates. The far- acted anyway, that may be good enough House of Lords. It ruled that CANH was a left and the unions have a tight grip on La- forthem. 7 medical treatment, meaning it could be bour,whiletheConservatives’fateisdeter- withdrawn if doctors and family agreed it mined by MPs with a penchant forpsycho- was no longer in the patient’s interests. But drama and a small collection of Rotary it suggested applications ought to be made Club members and tombola-spinners in to the High Court to get the go-ahead. Since the home counties. By contrast, the Lib then, fewer than 200 such applications Dems have low barriers to entry, making have been made. Celia Kitzinger of Cardiff the party an appealing home for disaffect- University expects withdrawal ofCANH to ed members ofother parties. become more common now that there is Talk of a new political movement has no need to navigate the courts. Pro-lifers been constant since the Brexit vote. But worry about this. Alistair Thompson of why bother launching your own party, Care Not Killing, a campaign group, says asks one senior Lib Dem, when you could that, though the old system had flaws, “the simply take over one that already exists? added layer ofprotection was sensible.” After all, the Liberal Democrats have The Supreme Court ruled that the deci- 100,000 members, 98 seats in the House of sion in 1993 was “no more than a rule of Lords and, crucially, a toehold in Britain’s practice”, and that there was no breach of ruthless first-past-the-post electoral sys- the patient’s human rights in withdrawing tem, which new parties find all but impos- CANH if continuation was not in their in- sible to crack. terests. It noted that withdrawing CANH Entryism presents dangers. But for the was common in cases with patients suffer- Lib Dems, scooping up disaffected Blairites ing degenerative neurological conditions, from Labour and liberal Cameroons from and saw no reason to treat those in a stable the Tories is much less risky than it has condition differently. It also accepted that been for Labour and the Conservatives to Yes, we have no MPs the need to go to court might have led fam-1 Financial Era Advisory Group 22 Britain The Economist August 4th 2018

2 ilies and doctors to make the wrong deci- sion in some cases. There is reason to think this is true. The belief that court approval was needed meant doctors often felt absolved of re- sponsibility for decisions, which led to “in- ertia”, says Ms Kitzinger. Moreover, NHS trusts that went to court to withdraw CANH faced a lengthy,complexand expen- sive process. All of this meant that it was mostly left to families to push for with- drawal. The British Medical Association, which represents doctors, is now expected to issue guidelines saying it should not be up to families to ensure regular assess- ments of whether treatment is in a pa- tient’s interests. The court’s decision is part ofa continu- ingshiftaway from a legal system based on the idea of the “sanctity of life”, towards one based on “patients’ autonomy”, says Thomas Davies ofDignity in Dying, anoth- ercampaign group. His organisation hopes that another change is on the way.It is sup- Caught red-handed porting an appeal to the Supreme Court by Noel Conway,a sufferer of motor-neurone rising fast, from 1,746 in 2013 to 5,145 last suspected cases ofslavery. disease, who argues that his inability to re- year, partly because of a new anti-slavery Different regions have their own pro- ceive help from a doctorto die infringes his law passed in 2015. blem industries. According to a report by human rights. The court is expected to de- Modern slavery used to be associated the Gangmasters and Labour Abuse Au- cide whether to hear the appeal by mid- with criminal enterprises such as brothels thority, which regulates firms that supply October. If it does, a more radical reconsid- and cannabis farms, whose illegality agricultural workers, the most exploitative eration ofthe rules around death could yet leaves workers fearful of reporting abuses. industry in Wales is shellfish picking, and be to come. 7 But the variety of businesses known to be in the past three years the nationality most using slave labour is broadening, with un- commonly taken advantage of there is Su- paid workers turning up in fields, factories danese. In Northern Ireland, the poultry Slavery and high streets across the country. and egg businesses are said to be the worst Vietnamese citizens are the nationality offenders. Of manacles and most commonly exploited for labour in A mixture of factors make certain in- Britain, according to the NCA. It says they dustries magnets for slavery, says Kevin manicures comprised nearlya fifth ofthe people iden- Hyland, the outgoinganti-slavery commis- tified as potential victims of forced labour sioner. Low-skilled work for which clients between 2015 and 2017. This is largely be- pay in cash makes it easier to keep workers cause of the widespread use of slave la- offthe books. And the lackofrules govern- Unpaid workers prop up unexpected bour in Vietnamese-run nail salons, which ing businesses like nail salons and car parts ofthe economy have been found exploiting teenagers who washes means less contact with official- IOTR was lured from Poland to Britain have been smuggled from Vietnam to Brit- dom. Even in industries that are more regu- Pby a friend who promised to find him a ain in the backs oflorries. lated, like agriculture and fast food, the au- good job. When he arrived, he found him- Sometimes such workers are rescued thorities can be slow to enforce the rules, self sharing a cold, dirty room with five from cannabis farms or other manicure says Mr Hyland, allowing criminals to others, and quickly realised this was a lie. bars, only to be “re-trafficked” by Vietnam- “sneakin”. Prosecutions are rare. Instead, he was put to work in a recycling ese gangs based in Britain, which put them That is also because distinguishing be- plantbycriminalswho tookawayhispass- to work elsewhere. In January, for exam- tween slavery and merely bad working port and said he owed them money for ple, three people were jailed for forcing conditions sometimes proves difficult. In transport, food and accommodation. Ares- trafficked Vietnamese teenagers to work in February police raided a daffodil farm in taurant owner eventually offered Piotr a nail bars around Britain. Two of their four Cornwall over concerns that 200-odd way out, only to make him wash dishes 60 victims had been re-trafficked after being workers at the site were slaves. But no char- hours a week for almost nothing. When taken into care. ges were brought. Indeed, on the night of Hope for Justice, a charity, found him, he Other nationalities end up in different the raid, some ofthe workers gathered out- was weakand malnourished. industries. Romanians in forced labour of- side the local police station to protest; they The Home Office believes Britain is ten toil at hand car-washes. That business later put out a statement indignantly say- home to 10,000-13,000 “modern slaves”, has become so common a centre ofslavery ing that they were not slaves at all, and de- by which it means people who are forced that in June the NCA and other agencies manding a public apology. to work or who have been trafficked into launched Safe Car Wash, a smartphone Identifying the real victims of slavery, the countryforexploitation. Othersput the app which helpsmotorists spot signs of ex- such as Piotr, remains the challenge for the figure much higher: the WalkFree Founda- ploitation. Workers in unsuitable clothing, police. As some exploited workers contin- tion, an anti-slavery group, reckons there living on-site and charging less than £6.70 ue to toil behind closed doors, others are could be as many as 136,000. The number ($8.77) per wash are among the giveaways. labouring in plain sight, in industries of people identified by the National Crime On July 30th Unseen, a charity, released a whose customers might never suspect Agency (NCA) as possible slaves has been similar app which allows people to report they were supporting slavery. 7 https://t.me/finera The Economist August 4th 2018 Britain 23

Espionage and business GCHQ’s Cheltenham base, costing £22m. This will mainly house cyber-security Tinker, techie, startup, spy firms, conveniently close forexpert advice. Not everyone at GCHQ was happy to be drawn into the world of startups and unicorns. Robert Hannigan, who founded the NCSC while head of GCHQ in 2014-17 (and now works for BlueVoyant, a New CHELTENHAM York-based cyber-security company), says Britain’s spooks get entrepreneurial it was “quite a culture shock”. But Chris En- AGLE TOWER, a distinctively ugly high- from, GCHQ staff. A similar site called sor, a deputy director, argues that making Erise, glowers over the Regency splen- Tommy’s (after Tommy Flowers, the Eng- GCHQ more open has been “hugely bene- dour of Cheltenham’s posh Montpelier lishman who built Colossus, the first pro- ficial” for the agency, “making us think district. However notorious an eyesore, it grammable electronic computer) has been more agilely.” is also a valuable one; the tower is the cen- created in Cheltenham. There have already been discussions tre of Britain’s cyber-security industry, More directly, GCHQ has started an “ac- on how to take GCHQ’s baby steps into the worth about £3.5bn ($4.6bn) a year. Chel- celerator” programme, to kick-start or scale commercial world further. For example, tenham used to have the feel of a glorified up companies with bright ideas in cyber- Britain could copy In-Q-tel, a venture capi- retirement home. Now it is home to about security. Nine firms have just finished a tal fund set up by the CIA in 1999 to invest 10,000 techies, more per person than al- year in Cheltenham, in which each com- in companies that could help the country’s most any other town in Britain. panygota grantof£25,000 and office space spies, including the National Security This makeover has a lot to do with the at a site called Ada (after Ada Lovelace, Agency, America’s equivalent of GCHQ. doughnut-shaped building on the edge of who laid some of the mathematical foun- In-Q-tel (whose name is a reference to Q, town, which houses the Government dations for the computer). The first compa- the quartermaster who supplies gadgets to Communication Headquarters, Britain’s nies have just joined a similar programme James Bond) is accessible and open, argues secret cryptography and eavesdropping in London that the NCSC helped to start. Mr Hannigan, making it still easier for te- centre.UntilafewyearsagoGCHQ, which chies to bring their new ideas into the se- has about 6,000 staff at its Cheltenham Licence to code cret world. site, was largely sealed offfrom the outside One participating firm in the Cheltenham Israel also holdslessons, in the waythat world. But that is changing rapidly. GCHQ accelerator is Cybershield, a startup that it fast-tracks former members of its secret is playing a central role in developing a specialises in detecting phishing e-mails. signals agency, Unit 8200, into successful cyber-security industry,in which Britain is Paul Chapman, Cybershield’s boss, argues cyber-startups. It has worked hard to culti- one of the West’s biggest players, along that having the company’s work scruti- vate a pipeline of tech talent, from school with America and Israel. nised and approved by GCHQ experts was onwards. Britain has copied some of this About five years ago some of the agen- the most valuable part of the exercise. Cy- with its Cyberfirst programme, which cy’s more entrepreneurial staff began leav- bershield also worked with GCHQ’s Socio- sponsors undergraduates to study for ca- ing to set up their own companies beyond technical Security Group, which draws on reers in cyber-security. But more could be the wire, in response to a boom in the behavioural science to examine how peo- done in schools, especially to get greater cyber-security business. One of the most ple interact with the online world—when numbers of women into the industry. Spy- successful of those original startups is Rip- choosing passwords, say. ing has long been portrayed as a game for jar, founded by Tom Griffin and other ex- More such collaborations are planned. tough guys and smooth talkers. These GCHQ colleagues. Based in Eagle Tower, A “cyberpark” is being built next to days, the game is being won by nerds. 7 Ripjar uses data analytics and AI to coun- ter financial- and cyber-crime. It has ex- panded rapidly. Earlier this year Sir Iain Lobban, a formerhead ofGCHQ, joined as an adviser. On July 23rd it was announced that Accenture, a big consultancy, had bought a stake in the company, in order to use its technology forits own clients. Previously people who left GCHQ tend- ed to be frozen out, regarded pretty much as deserters. But where Ripjar first ven- tured, GCHQ has officially followed. The agency has acknowledged that, as its main purpose is to protect Britain from online threats, it is useful to encourage a prolifera- tion of companies, and experts, that might help it to do that job. This is part of the gov- ernment’s larger cyber-security strategy, launched in 2016. For a start, GCHQ has created sites where its experts can work with tech com- panies. Thus the National Cyber Security Centre (NCSC) was set up last year in Lon- don. It is now recruiting a second cohort of participants in a scheme called Industry 100, in which cyber-experts from the busi- ness world can work alongside, and learn From Cheltenham with love Financial Era Advisory Group 24 Europe The Economist August 4th 2018

Also in this section 25 Turkey’s hostages 26 Filthy Ukrainian politics 26 Biochips in Swedes 27 Charlemagne: Cheer up, Deutschland

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

Russia and nuclear power over a large portion of a country’s electric- ity-generation capacity. In theory Russia Atoms for peace might threaten to raise the price of ura- nium, or simply to close a reactor operated by Rosatom. The relationship between ex- porter and customer is particularly close in a nuclear plant’s early years, when local employees are still being trained and the SOCHI exporting country is directly involved in The world’s worrying reliance on Russian nucleartechnology the plant’s operation. The threat is espe- N MARCH 2011 a tsunami engulfed the some ways a better bet, says Mr Solzhenit- ciallypotentin countrieswhere a new nuc- IFukushima power plant in Japan, ulti- syn. Reactor sales bring in more money lear plant represents a significant share of mately causing a meltdown. The worst nu- than fossil fuels, as they are generally ac- the electricity supply. Rooppur, the Rus- cleardisastersince Chernobyl, it was a dev- companied bya suite ofservices, including sian-built nuclear-power station in Bangla- astating blow to an industry that has been provision of nuclear fuel, training for engi- desh, for instance, will provide 2,400 in the doldrums since the 1980s. Nuclear neers and regulatory consulting. Each megawatts, accounting for15% oftotal gen- plants closed around the world. The plant is a multi-billion-dollar project, unaf- eration capacity. amount ofelectricity generated by nuclear fected by swings in commodity prices, and Vulnerable countries have long grown power plunged 11% in two years and has locks customers into decades-long rela- accustomed to Russia’s habit of wielding not recovered since. Within this declining tionships with Russia. energy as a geopolitical weapon. Ultima- industry, one country now dominates the Once completed, the plants offer an ob- tums over gas supplies were once a regular market for design and export of nuclear vious diplomatic lever in the form of sway feature of eastern European winters, but 1 plants: Russia. Flat domestic demand for electricity has curtailed construction ofnew plants at Hanhikivi Finland home, so Rosatom, Russia’s state-owned RUSSIA nuclear-power company, has been flog- Ostrovets ging its wares abroad. It is focused on what Hinkley Point Belarus Stephan Solzhenitsyn, a nuclear-energy Britain analyst with McKinsey, calls the “great New nuclear- Paks grand middle”: countries that are close al- reactor exports Hungary Rooppur lies of neither the United States nor Russia. Under construction Akkuyy Bangladesh Sanmen or planned Turkey China In April Russia started building Turkey’s July 2018 first nuclear plant, worth $20bn. Its first re- Barakah Russia UAE Kovvada actor is due for completion in 2023. Rosa- India tom says it has 33 new plants on its order China South Korea Kudankulam book, worth some $130bn. A dozen are un- India der construction, including in Bangladesh, France India and Hungary. United States Source: World Energy exports have long been a pillar Nuclear Association of Russian foreign policy, typically in the Atucha Thyspunt form of its abundant oil and gas supplies. Argentina South Africa Exporting nuclear plants is trickier, but in https://t.me/finera The Economist August 4th 2018 Europe 25

2 lately the threat has grown more sophisti- Repression in Turkey go easyon Halkbank, a Turkish state lender cated. In 2015 Russia launched a cyber-as- that faces penalties for helping Iran evade sault on Ukraine’s electrical transmission Erdogan’s hostages sanctions. But the deal collapsed after a system. Last week America’s department Turkish court merely remanded Mr Brun- of homeland security said that Russia’s son to house arrest. Mr Trump fumed that military intelligence agency had hacked America would impose “large sanctions” into the control rooms of American power on Turkey forthe prolonged detention. De- ISTANBUL plants. Cautious hosts might be forgiven nying that he had agreed to a swap, Mr Er- The detention ofan evangelical for wondering whether their new Russian dogan dismissed these threats as “psycho- preachersours relations with America nuclear plants come with back doors that logical warfare”. But they are rather more would enable similar attacks. T WAS all smiles and backslaps between than that. On August 1st the Treasury im- Still, Agneta Rising, director general of IDonald Trump and Recep Tayyip Erdo- posed financial sanctions on two Turkish the World Nuclear Association, says that gan, the presidents of America and Turkey, ministers. Congress is considering a bill geopolitics tends not to complicate Rosa- at a NATO summit in Brussels last month. that would block loans to Turkey from in- tom’s export plans. Any influence the And why not? The two men share a taste ternational financial institutions. The Turk- Kremlin can exert through its plants is lim- for demagoguery, handing government ish lira has tumbled. itedbythesupervision ofthe International jobs to relatives and insulting (or, in Mr Er- A series of other arguments has es- Atomic Energy Agency. Rosatom’s influ- dogan’s case, imprisoning) journalists. But tranged the two countries. Turkey is out- ence weakens over time, because custom- their relationship has suddenly soured. raged over American support for Kurdish ers typically insist that it trains local engi- The row centres on Andrew Brunson, a rebels in Syria. Fearing that its NATO ally is neers to run their plants. Customers can Presbyterian preacher from North Caroli- slipping into Vladimir Putin’s orbit, Ameri- source their nuclear fuel elsewhere. And na who was imprisoned in Turkey in 2016 ca is refusing to deliver a shipment of F-35 Russian potential mischief-making would on flimsyterrorism and espionage charges. fighter jets unless Turkey drops its plans to spookbuyers in other countries. For two decades Mr Brunson ministered to buy a Russian missile-defence system. Tur- Yet concerns persist. In 2017 a South Af- a tiny flock of Turkish Protestants in Izmir. key has detained a dozen or so Americans, rican court blocked a $76bn deal with Ro- Christian missionaries are often regarded and three Turkish employees at American satom that had been secretly brokered be- with suspicion in Muslim-majority Turkey. consulates, as part of a broader crackdown tween Presidents Jacob Zuma and ButMrBrunson’swoesare ofa more earth- in connection with the foiled coup. Vladimir Putin. Closer to home, this year ly sort. Relyingon secret testimony,Turkish This tangle of disputes means Mr Rosatom started building a reactor in Hun- prosecutors allege that he supported an Trump’sthreats may backfire. “Ankara sees gary months afterMrPutin was warmly re- abortive military coup in 2016 that Mr Er- Brunson as leverage in a grand bargain that ceived in Budapest by Viktor Orban, Hun- dogan says was orchestrated by Fethullah includesresolution ofall theirdifferences,” gary’s prime minister. The deal is financed Gulen, a cleric based in Pennsylvania. Mr said Sinan Ulgen, a former diplomat who by a €10bn ($11.6bn) loan from Russia, and Brunson also stands accused of links to runs EDAM, a think-tank in Istanbul. For Rosatom will operate the plant and supply Kurdish terrorists. His trial began in April. Mr Erdogan to free Mr Brunson now, he its fuel. That prompts fears that Russia The charges, which he firmly denies, carry adds, would be “perceived as buckling to could use the plant as diplomatic leverage. up to 35 years in prison. Mr Brunson’s fam- American extortion”. ily say he has lost weight and suffered de- Other Americans incarcerated in Tur- Two-state race pression, and was kept in overcrowded key are even worse off than Mr Brunson, Russia’s nuclear programme has endured conditions. His cause has been taken up by since they lack advocates in the White fortwo main reasons. Itsdesignsare cheap, evangelical Christians in America, led by House. In 2016 Serkan Golge, a 38-year-old and Rosatom enjoys the backing of the Mike Pence, the vice-president. Turkish-American physicist working for state, which helps it absorb hard-to-insure Last weekthe dispute appeared close to NASA, was arrested on suspicion of terro- risks like nuclear meltdowns. Its competi- resolution. Mr Trump believed that Turkey rism while on holiday in Turkey. In Febru- tors trail hopelessly: France’s Areva (now would free Mr Brunson in exchange for his ary he received a seven-and-a-half-year Orano) has started building only two efforts to persuade Israel to release a Turk- prison sentence. The evidence against him plants in the past ten years, in Finland and ish woman held on smuggling charges. included such enormities as having an ac- China; both are delayed and over budget. The Americans reportedly also offered to count at a Gulen-affiliated bank. 7 KEPCO, South Korea’s energy company, is facinga domestic backlash against nuclear power, while Westinghouse, in America, is only now emerging from bankruptcy. Russia’s only real competitor is China, another country where government and businessare tightlyentwined. Until recent- ly China has focused on meeting soaring demand for electricity at home. But im- porting raw materials and exporting tech- nology is a better long-term bet, and so it has started to lookabroad. A Chinese state- backed firm ispartlyfundingHinkley Point in Britain, and othersare involved in plants in Argentina and Turkey.Yet although Chi- na will surely catch up, for now Russia has no serious rivals in the export of nuclear technology.In a world that needs to gener- ate much more electricity from nuclear power if it is to take decarbonisation seri- ously,that is a sobering thought. 7 Brunson, the Sultan’s bargaining chip Financial Era Advisory Group 26 Europe The Economist August 4th 2018

Ukrainian politics Biochips The dark operetta Bjorn Cyborg

WhySwedes are inserting microchips into theirbodies KIEV N SOME Swedish trains, passengers where a professional gives chips to a Where corruption, violence and carry their e-tickets in their hands— group. Sometimes they get T-shirts that political chaos still prevail O literally.About 3,000 Swedes have opted say “I got chipped”. NE morning a history teacher wakes to insert grain-of-rice-sized microchips Jowan Österlund, the founder of Oup in Kievto find himselfelected pres- beneath the skin between their thumbs BioHax, a Swedish firm, claims chips are ident of Ukraine—thanks to a video secret- and index fingers. The chips, which cost more secure than mobile phones be- ly recorded by a pupil and uploaded to around $150, can hold personal details, cause they are hard to hack. But sceptics YouTube. It shows the teacher cursing Uk- credit-card numbers and medical records. still have concerns. RFID chips do not raine’s political class for their lies and its They rely on Radio Frequency ID (RFID), have GPS, but they leave a digital trail people for their indifference. “Our politi- a technology already used in payment when they interact with doors, printers cians don’t know history, butthey are bril- cards, tickets and passports. or turnstiles. In 2004 the Mexican at- liant mathematicians: they all know how By one estimate there are10,000 torney-general and his staffhad chips to add, divide and multiply their wealth,” cyborgs with chip implants around the inserted in their arms that tracked who he tells a colleague. The video goes viral, world. Sweden, home to several micro- had accessed sensitive information. and a local oligarch-prime minister backs chip companies, has the largest share. So why take the risk? Convenience is him in the hope of gaining a puppet. In- Fifty employees ofThree Square Market, one draw.The infrastructure formicro- stead, the new president imprisons the oli- a Wisconsin-based firm, volunteered to chip use exists wherever contactless IDs garch and goes after his cronies. receive chip implants that can be used to or payments are accepted. Sweden is well This is the plot of “Servant of the Peo- pay at vending machines and log in to suited, as the world’s second most cash- ple”, a satirical television show that first computers. Individuals can order do-it- less country (after Canada). aired in 2015. Since then 20m people—half yourselfkits, which come with steril- But the chips have little use unless of Ukraine’s population—have tuned in. isation tools and a needle to inject the companies play along. Few shops recog- Ironically, it plays on a channel owned by device, or attend “implant parties”, nise chip implants yet. Even those organi- IgorKolomoisky, an oligarch. Less amusing sations that do have had teething trou- is that Vladimir Zelensky, the comedian bles. When Swedish rail officials began who plays the teacher, is in some polls Uk- scanning passengers’ microchips, they raine’s second most popular presidential saw LinkedIn profiles rather than evi- candidate, beaten only by Yulia Tymosh- dence ofticket purchases. For now the enko, a veteran populist. Petro Poroshenko, chips are used largely as digital business the incumbent, scores just 5%. The election cards, substitutes for keys or to store may not be until next March, but the jos- emergency documents such as wills. tling forpower is in full swing. So exhibitionism is another explana- Ukrainian politics have long resembled tion. Chip enthusiasts include followers an “operetta”, as Mikhail Bulgakov, a Kiev- ofa “transhumanist” ideology that seeks born Russian novelist, scornfully de- to optimise human bodies with tech- scribed it in “The White Guard”, set in 1918 nology.Elon Musk, an American en- during a brief period of Ukrainian inde- trepreneur, has invested in tech that pendence. A century later Ukraine is still merges machines with human brains. struggling to assert its sovereignty in the Some Christians, meanwhile, fear that face of Russian aggression and crippling microchips are “marks ofthe beast” corruption. “The state is not performing its foretold in the Bible. Hardly,says Mr basic functions of providing security and Österlund. After all, “people once justice,” says Anatoly Grytsenko, a former thought the Beatles were the Antichrist.” defence minister and a presidential candi- date running, unusually, without the sup- port ofoligarchs. have created the anti-corruption infra- the son of Arsen Avakov, the powerful in- The job of regaining sovereignty is es- structure needed to break up an en- terior minister, which NABU had opened. pecially important for Ukraine, since Do- trenched system designed to siphon off Vitaly Shabunin, head of the Anti-Cor- nald Trump feels no urge to defend it. If public money into offshore accounts. This ruption Action Centre, a civicorganisation, anything he appears to resent the country includes an investigative bureau (NABU), a says that the old system has been rocked asa source oftrouble forPaul Manafort, his special prosecution service and an anti- butthatitisnowfightingback. He has been former campaign manager, who went on corruption court, finally set up in June un- harassed by the authorities himself. On trial thisweekin the United Statesfor fraud der pressure from the IMF and activists. July17th, as he campaigned forMr Kholod- charges stemmingfrom his activities in Uk- Yet Ukraine’s rulers have done every- nitsky to be fired, thugs attacked him with raine several years ago. thingin theirpowerto undermine these in- antiseptic dye in full view ofthe police. Yet, Mr Grytsenko points out, to be stitutions from within. NABU has accused “We are fighting for our life, and we treated like a sovereign country Ukraine Nazar Kholodnitsky, the chief anti-corrup- have not got much time,” says Mr Gryt- needs to behave like one. “We can’t blame tion prosecutor, of subverting its investiga- senko. His support has been rising despite Putin for internal corruption, deceit and tions by leaning on his own prosecutors to his lack of money or access to the oligarch- lack of reforms,” he says. Over the past drop cases, and tipping off suspects. (He controlled media. Some voters still crave three years America and the European Un- denies these charges.) Last month prosecu- honesty in their politicians. The risk is that ion, along with Ukraine’s civil activists, tors closed an embezzlement case against the bloody operetta will prevail. 7 https://t.me/finera The Economist August 4th 2018 Europe 27 Charlemagne Cheer up, Deutschland

The biggest riskto Germanyis excessive pessimism federal election. That saw the far-right Alternative for Germany (AfD) party enter the Bundestag for the first time, and prompted an unusually long and fractious process ofnegotiations, resulting in another uninspiring “grand coalition” under a weakened Mrs Merkel. Then in June the Christian Social Union, the chancellor’s conservative Bavarian allies, took her new administration to the brinkofcollapse over disagreements on asylum policy. So when the German team, the reigning champions, crashed out ofthe World Cup duringthe group stages—undera coach, Joa- chim Löw, widely compared to Merkel for his unflashy longev- ity—it seemed to symbolise a land in trouble. “The Torn-Apart Country” bellowed the cover of Stern, a news magazine, in the week of the match. “Germany in Crisis: once upon a time there was a strong country” ran a headline in Der Spiegel. Inside, the weekly diagnosed timidity and complacency in both the team and the nation it represented. The liberal hand-wringingintensified last month when Mesut Özil, the Turkish-German starmidfielder, resigned from the team. Right-wing politicians and football bosses had questioned his loyaltiesafterhe allowed himselfto be photographed with Recep Tayyip Erdogan, Turkey’s despotic president. “I’m German when VISITOR to Germany this summer will find a country living we win and an immigrant when we lose,” wrote MrÖzil. Bild, the Awell. Gentle chit-chat and the clink of glasses murmur from tabloid that led the criticism of him, increasingly portrays Ger- sun-dappled beergardens. Barges laden with exports chug up the many in doom-laden terms: a poorly governed country plagued Rhine. Prosperous vacationers travel to lakes and seaside resorts by criminals and barely tolerable Muslims. in new cars and slick, reliable trains. Yet striking up a conversa- tion with one of these seemingly contented locals, the traveller Don’t fear the wurst may well be told that the country is going to the dogs. The discus- This is all getting out of hand. Pessimism, and the associated per- sion might begin with disconsolate reflections on the national fectionism, may be a German strength—but in moderation. And team’s dismal performance in the football World Cup, then find that moderation risks succumbing to the latest bout of hyper- its way on to the storm clouds over German industry, political in- ventilating self-denigration, along with basic facts about the state stability and perhaps the difficulties of integrating the many mi- of the country. Germany’s economy, for example, is powering grants who have arrived in recent years. Are they really talking ahead. Unemployment is at a record low, and exports are boom- about the same country? ing. Its infrastructure is among the best in the world. Inequality Pessimism comeseasilyto Germans. Gloom stalked their liter- remains lower than in most other rich countries and the quality ature even before the traumas of the 20th century. “Simplicius of life higher (the fourth best in the world, according to the UN’s Simplicissimus,” the first great German novel, describes a peas- Human Development Index). German politics, it is true, is frag- ant wandering the devastated Holy Roman Empire after the Thir- menting, as in other European countries, but Mrs Merkel remains ty Years War; Goethe and his contemporaries imagined love- a sensible and decent leader, and moderate forces still dominate. struckromanticskillingthemselvesin darkforests; Wagner’sRing And the immigrants? By April this year 26% ofrefugees admit- Cycle ends with Valhalla in flames. Few Germans ever quite be- ted to Germany since 2015 were in employment, more than ex- lieve that calamity is not just around the corner, reckons John pected. Crime fell to a 30-year low last year, with the largest long- Kornblum, a former American ambassador. He relays a tale of a term falls among immigrants. If rightists are becoming more vo- woman who came up to him in the street unbidden and warned cal in their opposition to Germans ofimmigrant background, like him that he would trip over and die ifhe failed to tie his shoelace. MrÖzil, itisbecause theirmonocultural vision ofGermany islos- This also expresses itselfin perfectionism. Board a train with a ing the battle: the proportion of non-ethnic German residents is group ofGermans and one will soon start grumblingabout some rising fast, with ever more reaching prominent roles in public life. minutia: the temperature, the disorderly storage of luggage, a The share of MPs with a migrant background rose from 3% to 9% brief delay. The same habits undergird Germany’s industrial suc- over the two elections to 2017. Germany’s most popular politi- cess. Its factories are staffed by conscientious workers who treat cian, Cem Özdemir ofthe Greens, is ofTurkish origin, too. each blemish as an abomination, honing and re-honing produc- Germany overlooks such facts at its peril. Mainstream politi- tion processes until everything is in Ordnung (order). cians will not halt the rise of the AfD by parroting its inaccurate Lately, however, this propensity to fear the worst has become portrayal of the country as an unruly shambles. The country more pronounced. Perhaps it began when the upbeat Wilkom- doesnotinvestenough—threateningitscompetitivenessand con- menskultur (“welcome culture”) accompanying Angela Merkel’s tributing to international economic imbalances—but pessimists decision to keep the borders open to refugees in 2015 curdled into do not invest. Cracks in the liberal international order threaten a scepticism about how culturally compatible the newcomers German interests, but introspective gloom will surely prevent the reallywere—with several high-profile casesofmigrantcrime fuel- country from taking more responsibility for its preservation. For ling anxieties. Other factors include the rolling scandal over Ger- its own sake and that of others, it is time for Germany to lift its man carmakers’ cheating in emissions tests, and last September’s gaze from its navel, grasp the bigger picture—and cheer up. 7 Financial Era Advisory Group 28 United States The Economist August 4th 2018

Also in this section 29 The politics of climate change 30 Dancing horses in Illinois 30 Amazing GDP figures 31 Throwing money at defence 32 Lexington: Trump takes on Afghanistan

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

The Democrats ing-age population but just over half its registered voters. Ms Abrams claims to Splitting the difference have registered over 200,000 voters in the past five years, though some doubt that. She has certainly travelled widely and invested heavily in field offices and perso- nal appearances, especially in places HINESVILLE where Democrats seldom go. She has also StaceyAbrams does not just want to govern Georgia. She also wants to change how cultivated her national profile. One party Democrats campaign in the age ofTrump activist says that the two approaches rein- WO questions hang over this year’s She is fighting uphill. Not since 1998 has force each other. Rural voters want to meet Tmid-term elections: how will President Georgia elected a Democratic governor, the woman they see on TV shows like the Donald Trump affect Republican cam- and Democrats hold no statewide office. one presented by Rachel Maddow, a left- paigns, and how should Democrats re- ButMrTrump won the rapidlydiversifying winger. Ms Abrams is unlikely to win huge spond? For an answer to the first question, state by only five points, and Ms Abrams is numbers of rural votes. But, argues Al Wil- look at the Republican primary for gover- a strong candidate. She is detail-driven and liams, who represents a rural district in nor of Florida. Late last year Ron DeSantis policy-fluent, with a (Bill) Clintonian gift Georgia, “she’ll run as good as any Demo- was considered a long shot. Staunchly con- for retail politics. And she is running a dif- crat in conservative areas, and better than servative but little known outside his con- ferent sort of race—one that seeks to an- any in more diverse communities.” gressional district, he faced Adam Putnam, swer the second question, about how The Republican Governors’ Associa- a fixture in Florida politics since his elec- Democrats should respond to Mr Trump. tion has begun running advertisements tion to the state legislature in 1996. Then Mr For years, explains Bee Nguyen, a mem- calling Ms Abrams “too liberal for Geor- Trump endorsed him. Now Mr DeSantis, ber of the Georgia House, Democrats have gia”. In fact, while she was in the legisla- who on July 30th released a television ad- believed that “if we ran a more moderate ture, her centrism irked some Democratic vertisement showing him building a wall campaign with a moderate policy plat- colleagues. She is running on a standard with his children and reading from a book form…we can flip enough moderate Re- set of Democratic concerns: public educa- by Mr Trump, enjoys first place in the polls. publicans” to win. Theyhave mostlycourt- tion, Medicaid expansion and economic At a rally on July 31st Mr Trump called him ed white suburbanites, relying on development—helped in the last case by “a tough, brilliant cookie”. non-white voters to join them. That ap- Mr Kemp’s Trumpian rhetoric. During the The governor’s race in Georgia has proach has failed. In 2016 Jim Barksdale primary campaign he backed a measure to been Trumped, too. Brian Kemp, whose lost a Senate election by over 14 points. In withdraw a taxbreakfrom Delta, an airline campaign advertisements featured him 2014 two scions of Georgia’s political fam- that is a big local employer, to punish it for threatening a teenage boy with a shotgun ilies, Michelle Nunn and Jason Carter ending a discount for members of the Na- and boasting of his “big truck, in case I (grandson of President Jimmy) lost Senate tional Rifle Association. He has since en- need to round up criminal illegals and take and governor’s races. dorsed a move to suspend collecting taxes ’em home myself”, came second in the first By contrast, Ms Abrams is trying to ex- on jet fuel. Georgia’s many large firms round of the Republican primary after Ca- pand the electorate. In 2013 she founded might prefera steadier hand. sey Cagle, the current lieutenant-governor. the New Georgia Project, which aims to Ms Abrams is, in effect, building an After the president endorsed him, though, registerhundredsofthousandsofnew vot- Obama coalition of non-white, young and Mr Kemp won the run-offelection. ers. The project says that the people it calls white progressive voters, which Demo- In the general election he faces Stacey “the new American majority”—non- crats have seldom tried in conservative Abrams, who would be the first black whites, unmarried women and 18- to 29- and swing states. Rather than appealing to woman ever elected governor in America. year-olds—comprise 62% of Georgia’s vot- swing voters and hoping the Democratic 1 https://t.me/finera The Economist August 4th 2018 United States 29

2 base turns up because it has nowhere else And Mr Kemp was not the Republican es- coal-fired power stations and favour a car- to go, she is trying to broaden and energise tablishment’s first choice. Like Mr Trump’s bon tax on fossil-fuel companies, accord- the base while hoping to pull in some endorsement, that probably helped him ing to a survey conducted in March by the swing voters and suburban moderates re- prevail in the party primary. It may hurt Yale Programme on Climate Change Com- pelled by Mr Kemp. him in the general election. munication. Bob Inglis, formerly a Repub- Despite Ms Abrams’s voter-registration Whoever wins in November will gov- lican congressman representingSouth Car- efforts and an energised base, over 50,000 ern Georgia in 2020—a census year, when olina, who introduced a carbon-tax more Republicans than Democrats voted new congressional districts are drawn. A proposal nine years ago, still thinks it could in this year’s primaries. Still, that is hun- win by Ms Abrams may mean anotherreli- win support. Conservatives have long had dreds of thousands more than the Demo- ablyDemocraticcongressional seator two. difficulty talking about climate change be- crats managed in 2010 or 2014. Mr Trump’s More important, it would be a lesson for cause the debate is often framed in the approval rating in Georgia, though posi- the Democratic Party about how to build “language of repentance, guilt and doing tive, has slipped, giving her an opening. winning coalitions. 7 with less, which doesn’t work well in the conservative community”, Mr Inglis says. Carbon taxes are less preachy, especially if The politics of climate change they are balanced by tax cuts. Small signs of compromise can be seen A slow thaw at the edges of climate policy. In February Congress passed a bill that provides tax credits for carbon capture and storage, a technology that prevents emissions from entering the atmosphere by placing them underground. A bipartisan group of sena- WASHINGTON, DC tors also pushed through a bill that would Some Republicans are inching towards action on global warming speed advanced nuclear reactors to mar- ARLOS CURBELO, a Republican con- search Centre, 52% of Republican voters ket. Grander schemes are unlikely to suc- C gressman from southern Florida, rep- think there is “solid evidence” of global ceed during the presidency of Donald resents a district vulnerable to both cli- warming—up from 39% three years ago. Trump, who pulled out of the Paris climate mate change and a Democratic swing in Only 24% believe that human activity is to accord. On August1st he nominated Kelvin the mid-term elections this November. Per- blame, though, compared with 78% of Droegemeier, a respected weather expert, haps that is why, on July 23rd, he offered a Democratic voters. That huge partisan gap as his science adviser. Whether he will fol- bill that would tax carbon pollution. The has grown since the1990s, when President low his advice is a different matter. measure is symbolic and doomed to fail. Bill Clinton and Vice-President Al Gore The vicious partisanship over climate Just a few days earlier, Mr Curbelo’s fellow turned green and made it a Democratic change is bad for America and the world. Republicans voted overwhelmingly for a cause. “There’s a huge identity-based effect That a rich, well-run country cannot pass a resolution calling a carbon tax “detrimen- based on the cues Republicans have re- bipartisan law to deal with climate change tal to American families and businesses”. ceived from FoxNews, conservative media is a tragedy. But if much Republican oppo- Just six Republicans voted against the pro- and elected officials telling them that the sition to climate science is purely politi- posal. But even that represents progress. science isuncertain,” saysMatthewNisbet, cal—a way of identifying yourself as not a When an identical measure was offered in who studies political communication at Democrat—then it can be swayed. Two so- 2016, not one was brave enough to do so. Northwestern University. cial psychologists, Leaf Van Boven and Da- Republican orthodoxy on climate Yet moderate and younger Republicans vid Sherman, have found that Republican change can seem unassailable. The party are more likely to agree with the estab- voters will back carbon taxes if they are platform pooh-poohs climate change as lished science. And support for green poli- told Republicans favour such a policy. If a “far from this nation’s most pressing na- cies can be found in odd places. Slim ma- leading Republican were to start singing a tional security issue” and opposes any car- jorities of registered Republicans back different tune, admittedly a remote pros- bon tax—generally thought to be the most limiting carbon-dioxide emissions from pect, his or her party could soon join in. 7 market-friendly way of reducing emis- sions. But the odd crack is showing. Some coastal Republicans who must contend with the consequences ofa warming plan- et do not attempt to deny the scientific con- sensus. Carlos A. Gimenez, the mayor of Miami, was plain when talking about ris- ing sea levels last year: “It’s not a theory.It’s a fact. Welive it every day.” Others have been swayed by political currents. More than half of the Republi- cans who represent districts won by Hilla- ry Clinton in 2016 are members of the Cli- mate Solutions Caucus, a bipartisan group that advocates climate-change fixes. Some endangered Republicans defend the envi- ronment, ifonlyin a NIMBYish way.Unfor- tunately for the overall sanity of their party, those Republican politicians are the most likely to lose their jobs if a Democrat- ic wave transpires this autumn. According to a survey by the Pew Re- No, I can’t see it, either Financial Era Advisory Group 30 United States The Economist August 4th 2018

The GDP figures Growing pains

The economyis as strong as Donald Trump says—but perhaps not forlong TATISTICAL releases seldom propel Spresidents onto the White House lawn forpress conferences. But on July 27th Pres- ident Donald Trump was “thrilled” to an- nounce that America’s economy grew by the “amazing” rate of 4.1% in the second quarter of 2018—enough to put it on track foraverage annual growth ofover3%. Most important, he bragged, “these numbers are very, very sustainable.” Championing early estimates of GDP is a risky business, because perky perfor- mance can be revised away. In this case the numbers were an advance release based Lipizzans on incomplete data. Between 1993 and 2016 such estimates were revised by an average Dancing horses in the Midwest of 1.3 percentage points. (Of course, what can go down can also go up.) The 4.1% OLD MILL CREEK growth rate that Mr Trump found so stun- How the Habsburgs’ favourite horse conquered American hearts ning was an annualised one, which com- ITH their German and Austrian the hind legs), the Levade (sitting on the pounds quarterly GDP growth assuming Wancestry,midwesterners lovingly hind legs, with forelegs drawn up) and a three more quarters of identical change. cultivate many traditions brought from quadrille, which involves fourriders and That measure is prone to being bumped their Heimat. In autumn gallons ofbeer intricate pass-throughs. Mares and foals around by one-offeffects. The latest figures and brats are consumed at Oktoberfests, were released into the arena fora run were boosted by a temporary surge in ex- to the sound ofpolka bands. Christkindl around. The three- to five-month-olds ports of“foods, feed and beverages”, as ex- markets follow in December. But perhaps were dark: Lipizzans become pure white porters of soyabeans raced to get their pro- the most rarefied and labour-intensive as they get older. duce into China ahead of tariffs imposed import from Mitteleuropa to the Midwest Lipizzans have a rich history linked to on July 6th. Though very strong, the was the care of20 Lipizzans that Tempel the Habsburg monarchy.But many growth was hardly unprecedented. It was Smith, a steel magnate, brought from Americans learned about them by seeing higher four times during Barack Obama’s Austria to Illinois 60 years ago. Known “Miracle ofthe White Stallions”, a Disney presidency (see chart on next page). outside America as Lipizzaners, they are film released in1963. This depicts the Yet the figures are not to be scoffed at. Europe’s oldest and finest horse breed. dramatic rescue ofLipizzans confiscated Analysts were pleasantly surprised by the Smith and his wife Esther fell in love by the Nazis by American troops under composition ofgrowth, which appeared to with the horses after seeing them per- the command ofGeneral George Patton, be fuelled by American shoppers buying form at the Spanish Riding School in an avid equestrian who feared the beasts cars, clothing and footwear, as well as pay- Vienna. They soon built the largest pri- would be eaten by advancing Soviet ing for housing and health care. Using a vately owned herd ofLipizzans (peaking troops. The Tempel Lipizzans formed part smoother measure of growth, which com- at almost 500 horses in the1980s) and the ofthe inaugural presidential parade for pares quarterly GDP with the same quarter only farmin America where Lipizzans Richard Nixon in1969. They played a a year ago, the economy still grew in the breed, train and perform. “Tempelis very similar role forJimmy Carter, Ronald second quarterby a healthy 2.8%. Ifgrowth important forus, because we have few Reagan and BarackObama. for the year as a whole reaches 3%, as the private breeders in Austria,” says Max Americans are known forbastardising president has boldly predicted, few fore- Dobretsberger, who runs Piber, the state- and spoiling Old World imports, and this casters would be shocked. In April the IMF owned stud farmin Austria that is home is sometimes true (ofpizza, for example). forecast growth of 2.9%; the non-partisan to the breed. But midwesterners are making more of Congressional Budget Office (CBO) went Attired in green Austrian traditional an effortto keep the Lipizzan line going for3.3%. garb, Mr Dobretsberger attended Tempel than many private breeders in Europe. Mr Trump’s claim that a 3% growth rate Farm’s party to celebrate the 60th anni- The Europeans have grown keener on is sustainable is more dubious. The tariffs versary ofthe arrival ofthe Lipizzans in Hanoverians and Holsteiners, which are he loves to impose could blow the econ- Illinois at the end ofJuly.The white stal- exceptionally good at dressage competi- omy off course. Even if they do not, some lions, with their riders in Napoleonic red, tions. The good-natured, sociable Lipiz- part of the economy’s buoyancy is proba- blue and white uniforms and bicorne zans were bred forpleasure, not war—or bly only temporary, and related to a cycli- hats, performed the Capriole (in which cut-throat Olympic competitions. And cal upswing. Some is probably due to the the horse kicks out dramatically with its the Christkindl markets ofthe Midwest recent tax cuts, which the CBO estimates hind legs while making a tricky leap into are nicer and less kitsch than many Ger- will add around 0.3% to American GDP the air), the Courbette (forward jumps on man ones, too. this year and 0.6% next year. Beyond that, they reckon, the positive effectswill fade as1 https://t.me/finera The Economist August 4th 2018 United States 31

Defence spending monopoly in sea power or sea control”. Good, but hardly record-breaking Neither country can begin to match the United States, GDP, % change Pushing the boat American fleet ship for ship. But both are investing in technologies, from hypersonic 10 on previous quarter, out missiles to undersea drones, that could annualised threaten America’s dominance. When 5 President Vladimir Putin boasted in March + about Russia’s deadly new weapons, he Politicians are vying with each other to showed a video of the hypersonic Kinzhal 0 spend more on defence equipment on a year earlier – missile knocking out a cluster of ships. 5 N SOME democracies, politicians must Bluster, perhaps—but the intention was Ibe cajoled into spending money on ar- clear. China claims to have developed a mour and missiles rather than schools and uniquely stealthy submarine. 10 hospitals. Not in America. The $716bn de- Although America’s politicians and 2000 02 04 06 08 10 12 14 16 18 fence bill for 2019 now passing through military leaders concur that a rapid Source: Bureau of Economic Analysis Congress provides for an even faster arms build-up is needed, they do not quite agree build-up, of ships and submarines in par- on how it should be achieved. Whereas 2 bigger budget deficits crowd out private- ticular, than President Donald Trump’sad- legislators emphasise new boats, some na- sector investment. ministration proposed. val planners argue that the 355-ship target In the long run, America’s economic The House and Senate vied with each could be hit sooner if more money were potential depends on how many workers other to pile on procurements before com- spent on refitting old vessels. Bolting new it has and how productive they are. The promising on a plan that accelerates the weaponry, such as laser guns, onto old workforce is growing more slowly than in pace of submarine-building (raising from hulls will be tricky, given the colossal the past, partly because the large baby- ten to 12 the number of attack submarines amount of electric power that the latest boom generation is retiring and partly be- to be ordered by 2023) and adds a third air- weapons will gobble up. But Russia is try- cause the surge of women into paid em- craft-carrier to the two requested by the ing to show that smart new missiles can be ployment has run its course. Given how White House. Two extra combat ships of a put on old tubs. disappointing productivity performance smaller type were thrown in too. For American admirals, tightening up has been in recent years, it is unsurprising This contest to procure more hulls re- operational procedures on vessels now in that bodies like the CBO and the Federal flects something more than machismo or their prime is another priority, following a Reserve seem sceptical that the American political posturing. Since the final weeks of bad run of fatal accidents and collisions economy can sustain a real long-run the Obama administration, the navy has last year. For them, “readiness is as impor- growth rate farabove 2%. been committed to rebuilding its strength tant as new hulls,” says Nick Childs, an an- The president’s economic team may to 355 ships, from about 280 now. Ameri- alyst with the International Institute for protest that his tax reforms should stoke in- can defence planners speak bluntly about Strategic Studies. vestment, raising America’s economic ca- the main reason for this relentless con- In about a decade, America’s fleet of at- pacity. Business investment grew by an an- struction. The cause is the re-emergence of tack submarines will shrink, reflecting de- nualised rate of 7.3% in the second quarter what James Mattis, the defence secretary, cisions taken in calmer times. Even if new of2018. That is welcome, but it cannot real- calls “great-power competition”. boats are built as fast as possible, the num- ly be attributed to the tax package. About Russia and China, sometimes acting in ber will fall from 52 now to around 42 by half of the overall rise reflected a high oil concert, are challenging the mastery of the 2028. Bryan Clark, a naval specialist with price stimulating investment in mining ex- world’s oceans which the American navy, the Centre for Strategic and Budgetary As- ploration, shafts and wells. Alternatively, with its ten aircraft-carriers, has taken for sessments, an influential think-tank, be- critics of the Federal Reserve gripe that its granted since the end of the cold war. Ad- lieves Congress is right to hurry along with gloomy forecasts have been self-fulfilling, miral John Richardson, the chief of naval submarine building. He sees no need to ac- and that America’s persistently disap- operations, expressed current thinking celerate surface-ship construction, at least pointing wage and productivity growth when he told a congressional panel in until a new frigate has been designed. In over the past few years comes partly from March that China’s rise and a resurgent this case, America could be throwing too monetary policymakers’ unwillingness to Russia meant “America no longer enjoys a much money into the sea. 7 let the labour market roar. IfMrTrump is wrong, and the economy cannot sustain a growth rate of3%, policies to try to get it there may only stoke price in- creases. The rate-setters at the Federal Re- serve are keenly aware of this risk. On July 31st new figures revealed core inflation (ex- cluding volatile food and energy prices) to be 1.9%, close to the 2% target. Although they held interest rates steady when they met on August 1st, two more increases are expected this year. Rate-setters fear that a burst of inflation is too close for comfort, and that if they do not squeeze the econ- omy’s brakes slowly now, a more abrupt stop might be required later. In doing so, they are making Mr Trump’s hopes of 3% growth harder to realise. To the president, this may seem cruel. But he is not alone in the driver’s seat. 7 Financial Era Advisory Group 32 United States The Economist August 4th 2018 Lexington The gift of low expectations

Donald Trump is doing betteron Afghanistan than his predecessor in the first six months ofthis year than in any previous year on re- cord, in part because ofincreased American bombing. Yet there is at least more confidence that the Taliban can be prevented from taking a major town. And the 315,000-strong Afghan armed forces are said to be improving. Compared with the debacle Mr Trump inherited, this represents progress. Revelations that a senior American diplomat, Alice Wells, met Taliban representatives in Qatar last month are also encouraging. America and its Afghan ally have been keen to negotiate with the insurgents since the demise ofMrObama’s short-lived surge con- firmed their inability to end the war militarily. But they have gen- erally insisted that the government must lead that effort. Mean- while the Taliban, to underline that their foremost demand is the withdrawal of foreign troops, say they will only speak to Ameri- ca. It is therefore notable that Ms Wells’s meeting appears to have taken place without any Afghan official present. That represents an overdue acknowledgmentbyAmerica thatthe Taliban are for- midable enough to setnegotiatingterms. Italso implies an admis- sion that America is not merely the benevolent instrument ofAf- ghans’ democratic will it claims to be, but an independent actor in a multi-layered civil conflict, whose continued presence in Af- ONCE-popular argument that President Donald Trump’s ap- ghanistan is a legitimate subject ofdebate. Aproach to foreign policyisnotsubstantiallydifferent from Ba- Thisisstill a farcryfrom offeringMrTrump a wayout. Stitched rackObama’s is goingdown in a blaze oftrade agreements. Yet on together by British imperialists in the late 19th century, Afghani- Afghanistan it remains broadly true. Mr Obama came to power stan’sfeudingethnicgroupshave nevershared poweruncoerced, describingAfghanistan’sconflictasthe “warwe have to win”, but and 40 yearsofon-offcivil warhave made them even more reluc- never seemed convinced that that was possible. After a stab at es- tant to. The government is deeply divided along ethnic lines. It is calatingthe conflict, he devoted his presidency to ending it. It was hard to imagine how its members might accommodate the Tali- time, he said in 2011, the yearthe warbecame the longestin Amer- ban—even ifthey want to be accommodated. It is unclear that the ican history, “to focus on nation-building here at home.” Mr mullahs have given up on a military victory. It is even unclear Trump has long said the same. His decision to launch a much which faction of the Taliban, the fundamentalist leadership or smaller escalation last year came with the closest thing he can the more pragmatic rump, their representatives in Qatar might muster to an apology attached: “My original instinct was to pull speak for. If Mr Trump does view the putative talks as a means to out, and historically I like to follow my instincts.” Even so, his re- declare victory and quit Afghanistan, as some suspect, he has cord on Afghanistan, includingthis weeka promise ofpeace talks simply given up on the place. to add to that modest military reinforcement, is starting to look Ifthe president still wants to avoid that, however, he can prob- much better than his predecessor’s. ably do so indefinitely. The war has cost America a trillion dol- This chiefly reflects what a low bar Mr Obama set. Reluctantly lars—more in real terms than it spent on rebuilding Europe under persuaded thatwithdrawal from Afghanistan would spell defeat, the Marshall Plan—and the lives of 2,300 troops. Yet its current as the Taliban rushed to seize the territory vacated by over cost—roughly $45bn and around a dozen lives a year—is modest 100,000 Western troops, Mr Obama left 8,000 behind to hold the enough to invite little interest from Congress or the media. That line. But with the Taliban controlling or contesting 70% of the suggests Mr Trump’sstrategy is sustainable. country, the largely incompetent Afghan army flailing, and the Americans bound by strict rules of engagement, it was unclear Hindu koshed by reality how they could. At the request of his generals, who may fear the There are many ways it could go wrong nonetheless. Mr Trump’s strategic impact of defeat in Afghanistan as much as the prospect perceived success is fragile, being largely a reflection of Mr of it again falling into the hands of foreign terrorists, Mr Trump Obama’s failure. That indicates the degree to which America’s at- grudgingly agreed to send 3,500 reinforcements. He also relaxed titudes to Afghanistan have always been shaped as much by do- the rulesand increased American airstrikes, militarytrainers and mestic politics as Afghan reality. The Bush administration demo- mentoring of front-line Afghan troops. He presented these nised the Taliban as terrorists to justify the war on terror. Mr changes as a rebuke to his predecessor. They might alternatively Obama launched his surge in part because he had long harped be seen as an acceptance of Mr Obama’s shrivelled ambition—to on Afghanistan as a means to criticise the war in Iraq. Mr Trump stave off defeat in Afghanistan until the Afghan government can launched his mini-surge in part to repudiate Mr Obama. But Af- fend foritself—and a modest attempt to make that achievable. ghan reality always asserts itselfin the end. The presidential elec- Unsurprisingly, then, Mr Trump’s measures have not trans- tion due next year could provoke a crisis that might persuade any formed the battlefield, where the Taliban remain in the ascen- president to wash his hands ofthe place. dant. Instead ofencouragingthe Afghan government to take back Yet fornow something unexpected is happening. Mr Trump is territory, America is reported to be urging it to withdraw from re- scoring a modest foreign-policy win where Mr Obama failed mote outposts to reduce casualties. The level of violence contin- badly. And he is doing so despite sharing his predecessor’s views uesto be horrifying, especiallyamongcivilians. More were killed on Afghanistan and makingonlysmall alterationsto his policy. 7 https://t.me/finera The Americas The Economist August 4th 2018 33

Also in this section 34 A bull market for Argentine beef 34 Cannabis on Canada’s high street 35 Bello: Judging the judges

Brazilian banks age 20.5% for companies and 45.8% for households. On personal loans, credit In the doldrums, with full sails cards and overdrafts they run well into three figures. The banks insist that wide spreads re- flect not a cosy oligopoly but the high risk of default and the difficulty of pursuing SÃO PAULO debtors through slow, unsympathetic The economy is sluggish, but banks are highly profitable. A less distorted financial courts. Regulation also plays a part: a ban system would boost growth, without damaging the banks on overdraft fees inflates interest rates. RAZIL’S economic weather tends to- aging money. Now they operate in a finan- A recent study by the central bank sug- B wards extremes. During the 1980s and cial market riddled with other distortions. gests that the banks have a case. It ascribes early1990s hyperinflation raged. From late Some hurt their profits; others puff them 37% of spreads to the cost of default, 25% to 2014 to late 2016 GDP shrankby 7.7%, its lon- up. Public-sectorbankshave a bigand priv- administrative costs, 23% to taxes and only gest contraction ever. Conditions are now ileged role, which both constrains their 15% to banks’ margins. Spreads have nar- enervatingly calm. GDP grew by just1% last private-sector competitors and shields rowed as the Selic has declined. Yet the crit- year, and in June the central bank cut its them from risks, like some lending to the ics have a point, too. Tony Volpon, an econ- growth forecast for 2018 from 2.6% to 1.6%. government’s favoured sectors. omist at UBS and a former central banker, A truckers’ strike in May and uncertainty All of this means that lending, especial- estimates that consumers pay around 20 about the outcome of elections in October ly to consumers and small firms, is lower percentage points more than they should, have curbed economic activity, weakened and more expensive than it should be. Al- given the low Selic, declining defaults and the currency and pushed up government- though voters are worrying mainly about banks’ RoEs. Big companies’ borrowing bond yields. corruption, crime and unemployment, the costs, by contrast, seem “about right”. Yet the country’s big private-sector winner of the presidential election will That may be because corporations can banks have prospered regardless. In the re- have to consider how to make banking a shop around more easily than individuals. cession, neither Itaú Unibanco nor Bra- more normal business. Indeed, that is al- Years of high inflation have accustomed desco, the two biggest, saw their return on ready quietly happening. Brazilian consumers, by contrast, to buying equity (RoE, a measure of profitability) fall The market’s most striking features are goods in instalments, with hefty borrow- below15.9%. On July 30th Itaú reported net the dominance of a few banks—strength- ing costs in effect built into prices. income for the first half of 2018 of 12.5bn ened in the past two years by the retreat of reais ($3.3bn), and an RoE of 20.1%. A few America’s Citigroup, which sold its con- Buying on credit is so dicey days earlier Bradesco and Santander, the sumer business to Itaú, and Britain’s HSBC, Market forces and government actions are local arm of a Spanish lender, reported which sold to Bradesco—and the state’s im- making banking more competitive. En- RoEs in the high teens. Most European portance as both supplier and regulator of trants fired by digital technology and un- banks are stuck in single digits. As the cen- credit. Three private-sector lenders and encumbered by the costs of branch net- tral bank slashed its interest-rate target, the three public ones—Banco do Brasil, of works (including tight security) are trying Selic, from 14.25% in October 2016 to a re- which the government owns 59%, Caixa to upset the incumbents. Banco Inter may cord low of 6.5% in March this year, some Econômica Federal, a savings bank, and clock up 1m customers for its fee-free ac- analysts predicted a squeeze on profits. It BNDES, a development bank—account for count by September. Nubank has pushed hasn’t happened yet. 82% of banking assets and 86% of loans. on from credit cards into savings. Creditas The resilience of Brazil’s banks reveals Regulations steer almost halfofloans to fa- is offering loans secured on houses and much about the way the economy func- voured purposes, funded by private sav- cars at far lower rates than on unsecured tions, notall ofitgood. Backwhen inflation ings and the state. Interest rates on ear- credit. (Most Brazilian homeowners, ex- was “1½% a day”, says Candido Bracher, marked lending average 8.9%, according to plains Creditas’s boss, Sergio Furio, have Itaú’s chief executive, banks were forced to the central bank. On the unrestricted re- no mortgage, giving them room to bor- become efficient at transferring and man- mainder, they can be sky-high. They aver- row.) Valor Econômico, a newspaper, has 1 Financial Era Advisory Group 34 The Americas The Economist August 4th 2018

2 reported that the central bank will restrict ful. After a decade of decline, beef exports Cannabis in Canada Itaú to a minority stake in XP Investimen- began recovering in 2015.Last year Argenti- tos, a brokerthathasbeen a thorn in banks’ na re-entered the list of the world’s top ten The high street sides which Itaú wants to buy. beef exporters. Foreign sales surged by The central bank is also trying to nudge 60% in the first half of this year. That is be- down borrowing costs. Last year it obliged cause Mauricio Macri, Argentina’s presi- banks to switch customers who repeatedly dent since 2015, has ended the populist OTTAWA roll over credit-card debt to cheaper loans. policies of his predecessors, which ground The shopping experience will vary a lot It recently eased some reserve require- ranchers into mince. across the country ments on banks. In 2005 Argentina’s then-president, The expansion of lending by state Néstor Kirchner, imposed a15%tax on beef ELAX. Unwind. Centre. Enhance.” banks at ruinous, subsidised rates under exports in an effort to hold down inflation, “RThese hippy-dippy blandishments Dilma Rousseff, president forfive years un- which was around 12%, and to please vot- will appear in big bright letters on govern- til her impeachment in 2016, has been re- ers. Each Argentine eats 59kg(129lb) ofbeef ment-owned shops in Nova Scotia, a prov- versed under her successor, Michel Temer. a year; only Uruguayans consume more. ince in Canada’s north-east. They will add BNDES has cut disbursements from 188bn When the levy failed to control prices, colour to outlets that otherwise resemble reaisin 2014 to just71bn reais, and hasintro- Kirchner, who died in 2010, banned ex- post offices. Business will begin on Octo- duced higher fixed and floating rates ports for180 days. That worked, briefly.Be- ber17th, when the sale of recreational can- linked to the market. Dyogo Oliveira, its tween 2007 and 2011 ranchers sent more nabis will become legal across Canada. In head, says it has switched lending from big than 12m cows, a fifth of the herd, to the the western province of Alberta, Tokyo companies to infrastructure and smaller slaughterhouse, creating a glut. But then Smoke, a private-sector firm, plans to open firms. Banco do Brasil has cut 10,000 jobs they stopped breeding cattle, or switched pot shops that are more like hipster cafés. and raised its RoE from a paltry 4% in late to smaller breeds that required less feed In British Columbia illegal outlets have 2016 into double figures. and produced less meat. Prices jumped. longmasqueraded as“dispensaries”. New- Removing subsidised lending and oth- Both producers and consumers suf- ly legal, some plan to kit themselves out er distortions, argues Arthur Carvalho of fered. Exports plunged, from 771,000 like upmarket pharmacies. Morgan Stanley, should have an extra, tonnes in 2005 to 199,000 tonnes in Under Canada’s scheme for legalising macroeconomic benefit. It should enable 2015. More than 15,000 farm workers lost cannabis, the federal government will reg- the Selic to be lower, other things being their jobs. Some ranchers switched to ulate production and set minimum stan- equal. The link between monetary policy soyabeans (growing them, not eating tofu dards for safety. Consumers must be 18 or and the interest rates paid by businesses themselves); others moved to neighbour- older and may possess no more than 30 and households would also be tighter. ing Uruguay.Foreign leather firms, such as grams. But each of the ten provinces and And if the next president is serious about Italy’s Italcuer, left the country. The third- three territories will decide how to distri- getting Brazil’s public finances under con- largest exporter of beef in 2005, Argentina bute the stuff to 12m potential consumers trol, and long-terminterestratesfall,invest- fell to number 11 by 2013, during the presi- (the number of Canadians who say they ment and growth should at last pick up. A dency of Kirchner’s widow, Cristina Fer- have indulged at least once) plus visitors. narrower gap between long- and short- nández de Kirchner. Even tiny Uruguay In typically Canadian fashion, every term rates would squeeze banks’ margins. and Paraguay sold more. province’s legislation has its own “quirks”, But demand for credit would rise—and a Mr Macri is now repairing the damage. says Michael Armstrong, a business pro- stronger economy would mean faster sail- In his first weekin office, in December 2015, fessor at Brock University in Ontario. Five ing forall. 7 he scrapped the export tax and floated the will make the sale ofcannabis a provincial peso, making exports more competitive. monopoly, as most provinces do forspirits. He has opened new markets. In January Government-run shops will take especial- Argentina’s beef exports this year China agreed to buy chilled Ar- lyseriouslytheirmission to safeguard pub- gentine beef for the first time. On July 23rd lic health and supplant the black market, Bull market Mr Macri boasted in a tweet that the first says Rebecca Brown of Crowns Creative, shipment of Patagonian beef had left Ar- an advertising agency that specialises in 1 gentina for Japan under an agreement reached in May. Argentina is on course to export 450,000 tonnesofbeefthisyear,up BUENOS AIRES from 312,000 in 2017. The economyis on the verge of “We are still very far from capacity,” recession. But cattle ranchers are happy says Ulises Forte, head of Argentina’s Beef OWS, sheep, pigs and llamas are the Promotion Institute. Ranchers are rebuild- C stars of ExpoRural, Argentina’s biggest ing their herds. That takes time. With inter- agricultural show,which tookplace on July est rates at 40%, borrowing to expand is ex- 18th-29th. They made a racket in their stalls pensive. Even so, ranchersare bullish. “The at a Buenos Aires showground as their situation is improving day by day,”says Mr owners brushed and vacuumed them to Forte. Mr Macri, who is expected to run for prepare for a barnyard-themed beauty re-election next year, hopes for a political contest. Outside, spectators filled a grand- payoff.“Forevery100,000 tonnesmore we stand to watch Hereford bulls parade be- export, we create 10,000 jobs,” he says. To fore a judge, the beasts’ hoovessinkinginto secure victory, he will have to spread the the mud. Nearby, Toyota, Ford and other ranchers’ good cheer to Argentines with manufacturers showed off new 4x4 pick- other beefs. 7 up trucks. House-sized combine harvest- ers loomed over the crowd. Correction: Our Bello column on July 28th (“Damned is the peacemaker”) said that former FARC guerrillas Argentina’s economy is in a slump and granted seats in Colombia’s congress could not vote in inflation is at 30% but ranchers are cheer- the legislature. They can. Sorry. Taking party parsley to parliament https://t.me/finera The Economist August 4th 2018 The Americas 35

2 cannabis. Their design is thus likely to be able to sniffthe weed. plies from neighbouring provinces with “pleasant, but not too pleasant”. Thingswill be livelierin the other areas, glitzieremporiums? Maybe not. Mostprov- In Ontario, the most populous prov- including Alberta, British Columbia and inces limit how much people can transport ince, cannabis shops will keep the product Manitoba, where the private sector will be across borders. They may do the same for out of sight. Customers will fill out order allowed. In some cases it will compete cannabis, says Kirk Tousaw, a lawyer. Brit- forms, which employees will execute in with government-owned online and ish Columbia already has a “ridiculous back rooms. (The province’s new premier, bricks-and-mortar retailers. Private shops and unenforceable” requirement that any- Doug Ford, whose late brother was a crack- will be freer to “pursue a delightful retail one bringing cannabis from outside report smoking mayor of Toronto, may have oth- experience”, says Ms Brown, though the to provincial authorities. “It boggles the er ideas. He has mused about allowing delight will be curbed by a federal rule that mind that in 2018 you can’t cross an imagi- sales in private shops.) New Brunswick, an cannabis be sold in plain packages bearing nary line and buy 24 beers or 30 grams of eastern province, will require cannabis to large, yellow labels and smaller red ones cannabis without filling out a form or pay- be kept behind glass. In Nova Scotia it will warning of health hazards. There will be ing your own province,” Mr Tousaw be displayed behind a counter, except in room (just) for the logo ofthe producer. fumes. Canadians waving goodbye to pro- one central store, where customers will be Will Canadian tokers be able to get sup- hibition will be tangled up in red tape. 7 Bello Judging the judges

Why is strengthening the rule oflaw so difficult? NE morning this year, in a window- tem”, as a committee set up by Martín Oless modern courtroom, Jorge Al- Vizcarra, the country’s president, report- berto Rodríguez faced justice. He was ac- ed last month. One judge was taped ap- cused of driving a stolen car with parently arranging to absolve a suspect of changed number plates. The judge began raping a 13-year-old girl; several had ques- by explaininghis rights to him. His lawyer tionable contacts with politicians. then tried to trip up the policemen whom The president of Callao’s high court is the prosecution had produced as witness- now in jail. The justice minister and the es. To no avail: after an adjournment to al- seven members of the National Judicial low a missing defence witness to appear Council, which appoints judges, were via video link, the judge found Mr Rodrí- fired, while the head of the judiciary and guez guilty. That seemed to square with the public prosecutor resigned. The case the evidence. Having been on bail for the confirmed what Peruvians had suspect- nine months since his arrest, he was given ed. Their courts are beholden to politi- a suspended jail sentence of five years cians and people who can pay. and fined 15,000 pesos ($800). Yet the scandal presents an opportuni- Such a trial could have taken place in a ty. Mr Vizcarra has proposed a referen- British magistrate’s court. In fact, it was in search centre in Mexico City. dum on the committee’s recommenda- Mexico City. The case was conducted un- Mexico’s experience is not unique. tions to appoint the judicial council and der a radical judicial reform. This replaces Since the 1990s the main focus of judicial judges through a public competition, and an inquisitorial model, long the norm in reform in Latin America hasbeen on crimi- to set up a similarly chosen body to scruti- Latin America, under which judges inves- nal procedures. In all, 15 countries have nise the judiciary. Areferendum will have tigated and evidence was all in writing, made the switch to the adversarial system. to be approved by congress, most of with an Anglo-Saxon adversarial system This is an improvement, but not a panacea. whose members belong to parties (Popu- and oral trials. The new system has taken It “hasn’t reduced impunity, nor has it in- lar Force and APRA) that are thought to more than a decade to roll out and is more creased citizen trust in the system”, writes have undue influence over the judiciary. expensive. But it has several advantages. Luis Pásara, a Peruvian legal scholar. “There are people with an interest in not Fewer defendants are remanded to over- Many Latin American countries have changing the current system,” the com- crowded jails, casesare heard more quick- reformed their economies, electoral sys- mittee noted. Public anger may be strong ly and the prosecution must publicly tems and welfare states. But establishing enough to overcome resistance. prove its case. Under the old system, the rule of law is much harder. Courts de- In Brazil’s Lava Jato corruption cases, judges relied on confessions (often ex- pend on many other actors, especially po- judges and prosecutors have brought tracted by torture). lice and prosecutors, as well as politicians many powerful figures to book, though Yet the reform is much criticised. Its in- and citizens. Judicial reform nearly always they have occasionally committed ex- troduction has coincided with a big rise in involves trade-offs, especially between in- cesses. Judicial reform in Chile, as well as violence in Mexico. Although this was dependence and accountability. And bet- Mexico, has produced some improve- caused mainly by the fragmentation of ter procedures do not in themselves create ments. Peru has some honest judges and criminal gangs and their move into new better judges or justice. prosecutors. But public vigilance has to be lines of business, many politicians blame Take Peru, which made the procedural sustained if a reformed judicial system is the reform instead. Judges and prosecu- switch starting in 2004. While investigat- not to lapse into bad ways. The Spanish ti- tors are insufficiently trained in the new ing a drug-trafficking ring in Callao, police tle of Mr Pásara’s book translates as “An ways and many are going back to “old found calls to judges on suspects’ phones. Impossible Reform”. But he concludes practices”, such as relying on confessions That led to the exposure of “corruption, in- that accumulated experience and a great- and shelving cases that need investiga- fluence-peddling and the existence of or- er thirst for justice may mean the impossi- tion, says Sandra Serrano of Flacso, a re- ganised networks inside the judicial sys- ble is merely improbable. Financial Era Advisory Group 36 Middle East and Africa The Economist August 4th 2018

Also in this section 37 Zimbabwe’s bloody ballot 38 Syria’s suffering refugees 38 Churches in Saudi Arabia 39 Debtors’ prisons in Gaza

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

Eritrea raped by officers and forced to work as their servants. As in North Korea, the gov- A flicker of light in a prison state ernment locks in its citizens. Those subject to the draft cannot get passports or exit visas. Border guards have orders to shoot to kill—a power they often abuse to extort money or sex from would-be refugees. Apart from two big mines that are joint ASMARA AND MASSAWA ventures between the government and A repressive dictatorship that enslaves its people ponders reform overseas firms, there has been almost no RITREA, one of Africa’s newest coun- ed to the army or to a system of compul- foreign investment. The government says Etries, was born in battle. First it fought sory non-military service. This was origi- this is because investors are frightened off for 30 years to break away from Ethiopia, nally set up by President Isaias Afwerki in by an arms embargo, yet its own policies itsbiggerneighbourto the south, achieving 1995 to rebuild the newly independent are also to blame. There is almost no priv- that goal in 1993. In 1998 it was embroiled in country. Citizens were meant to serve for18 ate sector and construction is carried out another bloody war that cost perhaps months, afterwhich theycould geton with only by companies that belong to the rul- 70,000 livesafteritinvaded Ethiopia overa their lives. But in 2002 the government ing party and that are staffed by conscripts. trifling border dispute. A decade later it in- made the term indefinite, which the UN Asmara is littered with boarded-up shops vaded tiny Djibouti over an argument says amounts to mass enslavement. and empty factories, most of which date about whether the border ran along the Some conscripts serve in the army, back decades to when Eritrea was one of top or sides ofsome hills in the desert. though all are expected to head to the front the most industrialised parts of Africa. Reminders of its violent history are if war breaks out. “We all know how to There are no ATMs and no mobile internet. everywhere. In Asmara, the highland capi- handle a gun,” smiles Yared Ambaw, a 28- Funerals are advertised on noticeboards so tal, posters and murals commemorate its year-old accountant at a bar in the capital. thatbereaved familiesneedn’tmake lots of war of independence. On the edge of the Many do forced labour, such as building calls from public telephone boxes (mobile city lies a graveyard for tanks. In the Red roads or dams. The luckier ones are sent to phones, especially outside Asmara, re- Sea port town of Massawa stand the re- government departments. Many teachers, main rare). Teff, a staple grain, costs about mains of an Italian-era bank battered by journalists, accountants and even hotel fourtimes as much as in Ethiopia. aerial bombardment three decades ago. staff are conscripts paid pitiful salaries. Imports are restricted to control scarce Eritrea signed a peace deal with Ethio- Only married women with children, and hard currency. Shop shelves in Asmara are pia in 2000, but the latter agreed to imple- the most sickly or well connected, can spartan. Electronics, such as old televi- ment it only on July 8th, saying it would hope to be discharged early. The UN has sions, can cost hundreds ofdollars because hand back the almost worthless strip of said that female conscripts are routinely the price includes the cost of the seller’s re- land that was disputed. In the intervening turn flight to the Gulf. In Massawa, a city of years Eritrea has remained a garrison state. 400 km pristine beaches that ought to be full of SAUDI “With the war everything stopped,” says Red ARABIA tourists, hotels and apartment complexes Samuel, a middle-aged Eritrean who grew Sea are empty and unfinished for want of up in Massawa but later moved to Ethio- building materials. pia. When war broke out in 1998 he was ERITREA Peace with Ethiopia has brought hope. SUDAN Massawa sent home, along with some 70,000 of his Asmara The government seems to be preparing to compatriots. Ethiopians in Eritrea were YEMEN unwind national service, though it has not Blue sent the other way. Samuel was forced into Nile ETHIOPIA said so. New conscripts have been told military service. Twenty years later he is DJIBOUTI they will serve only 18 months. Some of yet to be discharged. those who completed the programme this He is one of hundreds of thousands of White year have been sent home. Eritreans who have either been conscript- Nile SOMALIA Meanwhile, the government has re-1 https://t.me/finera The Economist August 4th 2018 Middle East and Africa 37

2 leased about 100 prisoners (again without tion without weakening his grip on power. Three people were killed. any official statement), including some On July 30th the former guerrilla chief re- For Zimbabweans these scenes stirred locked up fortheirfaith. Eritrea allows only stored ties with Somalia. There is little sign memories of 2008, when the ruling elite four denominations: Orthodox, Lutheran, thathe plansto introduce political reforms, rigged the presidential vote to prevent an Catholic and Sunni. Yet a Protestant Pente- such as implementing the constitution MDC victory, before unleashing a cam- costal preacher from Eritrea was recently drawn up in1997 but shelved with the out- paign of murder and torture. A repeat on seen proclaiminghis faith loudly on a busy break of war. Eritrea has never had a na- that scale seems unlikely. But the violence street in Asmara. Ethiopian music, also tional election and parliament has not met is a sign that “the New Dispensation”, as banned, is playing in public once again. since 2002. Mr Isaias governs alone, sur- Mr Mnangagwa calls his post-Mugabe re- Senior officials have admitted to for- rounded by a clique of ageing veterans of gime, looks a lot like the old one. eign diplomats that a great deal must now the independence struggle. In a café on a Not that this should come as a surprise. change. But openingup (officials are loth to tree-lined avenue in Asmara, a 40-year-old For weeks local human-rights groups, and speak of “reform”) will be hard. The gov- conscript points to a photograph of the American and European observers, have ernment is said to want to release its oldest president on his phone. “You see this warned that Zanu-PF was again trying to conscripts, some of whom are in their 60s. man?” he asks. “That man is a dictator.” rig an election. An hour or so before vio- But nobody knows for sure how many Almost everyone in Eritrea lost mem- lence broke out, Elmar Brok, the chief EU there are or whether the government will bers of their family during its decades of observer, listed the ways in which Zanu-PF grantthem exitvisas. “In principle [reform] conflict. “Everywhere you feel the weight had sought to sway the vote, from handing should be gradual,” says Mehreteab Med- of war,” says Yemane Gebremeskel, the in- outfood, seed and fertiliserin rural areas to hanie, a ruling-party official. formation minister. For decades the gov- threats of violence. “A truly level playing Mr Isaias, the only president since inde- ernment used conflict and the threat posed field has not yet been achieved,” he noted. pendence, appears to be gambling that he by Ethiopia to justify its repressive policies. Observers declined to estimate the in- can bring Eritrea out of international isola- But now the war is over. 7 fluence of these practices on the final re- sults. As The Economist went to press the Zimbabwe Electoral Commission had an- Zimbabwe’s elections nounced that Zanu-PF won 144 out of the 210 contested seats in the National Assem- A bloody ballot bly (with three outstanding). Tallies from the separate presidential ballot had not been released. These results raise a question. If victory seemed in sight, why did the government HARARE resort to violence? For some it is a sign that A violent response to a disputed election shows that Zimbabwe’s rulers are still up Mr Chamisa may be the rightful winner. to theirold tricks For others it reflects growing divisions be- O MUCH for a fresh start. The elections ing began, however, the MDC Alliance, the tween the army and ruling party. The sim- Sin Zimbabwe on July 30th were meant main opposition bloc, complained that the plest answer might be that this is the natu- to usher in a new era for a country ruined vote was rigged. On August 1st thousands ral reaction ofa regime steeped in blood. by nearly four decades of misrule by Rob- of its supporters flocked to downtown Ha- Whatever the reason, the conse- ert Mugabe. But the vote and its aftermath rare, claiming that their leader, Nelson quences may be far-reaching. Although have showcased an all-too-familiar mix of Chamisa, had won the presidential race. Western observers had already seemed chicanery and violence on the part of Some protesters set fire to tyres and hesitant to endorse the fairness of the elec- Zanu-PF, the ruling party, and its military pulled down posters of President Emmer- tion, those from the African Union and the backers. After toppling Mr Mugabe in a son Mnangagwa, the leaderofZanu-PF.Mr Southern African Development Commu- bloodless coup in November and promis- Chamisa has been irresponsibly claiming nity appeared minded to give it a pass. But ing a clean election, they have returned to a colossal victory for weeks, whipping up dead protesters make it hard for all but the form. And in doing so they have thrown his supporters. But the response by securi- blindest observer to say that this election into jeopardy their plans to end Zimba- ty forces was brutally disproportionate. At shows that Zanu-PF has changed. bwe’s pariah status. first police dispersed MDC supporters us- And it puts Mr Mnangagwa, should he The week began peacefully enough. ingwatercannonsand teargas. Then, asar- triumph by foul means or fair, in some- Under the gaze of observers from three moured vehicles rolled into Harare and thing of a bind. An orderly election was continents, election day was the most or- military helicopters whirred overhead, supposed to be the first hurdle cleared on derly in recent memory. As soon as count- soldiers beat and shot those in the way. the path to getting loans from the IMF (which, in turn, would be a signal to other creditors). But even if his government now embarks upon IMF-friendly economic re- forms, the chaos of the election makes it more difficult for America and the EU to support IMF loans. Lining up to vote on July 30th, Munya- radzi Sibanda, a 35-year-old security guard from Harare, noted that his pay had been flat foreight years while prices in the shops kept rising. He cycles two hours to and from work every day to save on transport costs. He gets back just in time to see his children for ten minutes before they go to bed. “We just need change,” he says. Sadly, The ruling party’s new voter-outreach programme there seems little on the way. 7 Financial Era Advisory Group 38 Middle East and Africa The Economist August 4th 2018

Syria’s refugees them, but they must obtain a certificate of good conduct from the police. Anyone The long road with ties to the opposition is unlikely to get one. Many Sunni homes and shops have back already been given to regime loyalists. There are plenty of other reasons why refugees are staying away. Returning men BEIRUT face military conscription. Some have Refugees have become a pawn in the been arrested and tortured for alleged struggle forSyria links to the rebels. Neighbourhoods are lit- EW believed President Bashar al-Assad tered with mines and unexploded bombs. Fwould survive the rebellion that swept Millions of homes have been flattened or his country seven years ago. But Syria’s damaged in the fighting. blood-soaked dictatoris on the brink ofde- But Mr Assad’s policies, such as Law 10, feating those who tried to topple him. The also act as a magnet. Many refugees want only rebels left are boxed into a corner of to claim their assets before it is too late. Syria’s north-west, in Idlib province. Re- Others fear that if they don’t go back soon, gime forces are mustering at its edge, hav- they may be kept out forever. And as life in ing recently seized rebel-held areas near The courageous few refugee camps grows more miserable, the border with Jordan and Israel, in the some are choosing to return. Back home, south. The fallof Idlib would sound the re- The UN says Syria is still too unsafe for though, their fate is uncertain. “My hus- bellion’s death knell. most refugees to return. Nevertheless, it is band went back to make sure our house Trapped between rebels and the regime rampingup supportforthose comingback. wasn’t sold,” says Sara al-Hussein, a refu- in Idlib are 2.6m civilians. More than half It has opened nearly100 centres to provide gee in Lebanon. “He’s now living in a tent have already fled fighting in other parts of handouts, such as plastic sheeting for war- in a camp for displaced people. There is no the country. The offensive in the south damaged homes. If the trickle of returning future forus, not here and not in Syria.” 7 pushed hundreds of thousands of Syrians refugees turns into a flow, the West may out of their homes. The UN warns that an feel increasing pressure to help rebuild assault on Idlib could displace 2m more. their houses, schools and hospitals. Saudi Arabia Turkish border guards are likely to shoot Mr Assad says refugees, especially busi- them (as they have done in the past) if they nessmen, are welcome to return. But he Hosannahs in the try to cross into Turkey. seems in no rush to take back many of Even as this potential exodus looms, them. Most are Sunnis, who were once a sand? there isincreasingtalkofsendinghome the large majority in Syria—and the backbone 6m Syrians who have already fled to coun- of the rebellion. Mr Assad, who is Alawite JUBAIL tries such as Turkey, Lebanon and Jordan (an esoteric offshoot of Shia Islam), says The kingdom maybe about to relaxits (see map). Russia, which props up Mr As- Syria has “won a healthier and more ho- ban on Christian churches sad, wants to help 1.7m refugees, including mogenous society”. Refugees must obtain 200,000 from Europe, go back in the near permission from the securityservices to re- OR a generation the Saudi antiquities future. It sees their return as confirmation turn. Thousands have applied; only a few Fauthority has kept it under wraps. The that the war is ending, Mr Assad has won have been allowed back. ruins remain out of bounds behind metal and the country is stable. As part of the Mr Assad is using reconstruction to gates and wire fencing. A guard shoos the plan it has asked America and European punish refugees and reward loyalists. He is curious away with threats of arrest. But if countries to pay for Syria’s reconstruction, reluctant to take money from the West, independent studies are correct, tucked in which could costasmuch as$250bn, a sum which would have strings attached. In- the dunes and palms near the eastern oil- Russia and the Assad regime cannot afford. stead he takes from his people. A decree, fields lies a 7th-century monastery, the ex- European powers have struggled to called Law 10, allows the regime to grab istence of which suggests that Islam once cope with the influx of Syrian refugees, property from Syrians unless they can tolerated church-building in Arabia. which hasfuelled populism. Buttheyinsist prove their ownership—hard for those Muhammad bin Salman, the moder- that they will not be blackmailed. They who have fled. Refugees can designate nising crown prince, has defied clerics by want to use reconstruction money as a bar- family members in Syria to represent allowing cinemas, open-air pop concerts gaining chip to force Mr Assad to make and even female drivers in his puritanical

concessions and set Syria on a less tyranni- 200 km kingdom. But approving churches for the Syrian refugees cal path. The dictator, though, has no inter- TURKEY 1.4m Christiansin Saudi Arabia risksbreak- est in negotiating over a war he is winning. By destination*, m 3.54 ing one taboo too many. “Elsewhere it’s no America has not replied publicly to Rus- problem, but two dins, or religions, have sia’s plan, but President Donald Trump 0.83 no place in the Arabian peninsula,” says a seems to want little to do with Syria. Europe SYRIA senior prince, reciting a purported saying IDLIB Russia has already begun reaching out Internally of the Prophet Muhammad. Churches to Jordan and Lebanon, which grumble CYPRUS displaced* were expunged by the first community of 6.50 about the difficulty of absorbing huge E Muslims14 centuries ago, he insists. uph LEBANON 0.98 ra te numbers of Syrian refugees. The Russian s Excavation at Jubail and other sites Mediterranean Damascus IRAQ plan has gone down especially well in Leb- Sea along the eastern coast suggests otherwise. anon, which has started to send refugees 0.25 Chroniclersrecord the existence ofa synod back. About1,200 returned on July28th, ac- 0.03 ISRAEL in a diocese called Beit Qatraye, near Ju- North Africa JORDAN cordingto Syrian state television. Even Leb- bail, in 676AD, more than 40 years afterthe 0.67 anese officials opposed to Mr Assad say EGYPT SAUDI ARABIA Prophet’s death. Moreover, the peninsula’s they are willing to co-operate with Russia 0.13 six other countries all have churches. Qa- and the regime ifit means more follow. Source: UNHCR *July 2018 or latest available tar, which follows the same Wahhabi 1 https://t.me/finera The Economist August 4th 2018 Middle East and Africa 39

2 school of Islam as Saudi Arabia, let one be built a decade ago. Bahrain did so in 1906. The Palestinians This year it broke ground on Our Lady of Arabia, a new cathedral. From bankrupt to banged up Saudi exceptionalism matters because NUSEIRAT the kingdom is home to Islam’s holiest Othercountries abolished debtors’ prisons long ago. In Gaza, they are full sites and is the prime propagator of the faith. In October Prince Muhammad said IAD AL-ZAYYANtraded his home for ers ofmany staples. Instead he offers tiny he wanted Saudi Arabia to be “open to all Zhis freedom. For years he ran a profit- bottles ofvegetable oil and sachets of religions, traditions and people around the able business importing ceramic tiles to coffee. “They cost only one shekel, and globe”. But off the Saudi coast in Bahrain, Gaza. In 2016 he tookout a loan to pay for people still put them in the book,” Mr Camillo Ballin, the Catholic bishop of an order worth 80,000 shekels ($20,830). Habash says, gesturing to his ledger. Northern Arabia, complains that nothing But in a besieged territory with 43% Raed al-Shawa supplies gas to 1,500 has changed for Saudi Arabia’s Christians. unemployment, fewer and fewer people customers in northern Gaza. His resi- Private prayer is tolerated, but the public can afford to fix up their homes. Mr Zay- dential clients have always struggled to display of Christian symbols is not. Com- yan could not find any customers for his pay. Last year, though, even factories and munion in a country that bans wine is pro- last order. Desperate to pay offhis credi- restaurants started bouncing cheques. He blematic. Priests sneak in as cooks or me- tors, he sold his flat in Nuseirat, a refugee stopped accepting them and now de- chanics to tend to their flocks. camp south ofGaza City.He got $17,000 mands cash up front. “We lost 40% ofour The bishop’s website likens clandestine for it, 23% less than what he paid three usual sales,” he says. That means he prayer meetings to the tribulations of early years earlier. “Allofthat money went to cannot always pay his 22 employees on Christians under the Roman empire. In the cover the loan,” he says. time. He worries they will fall behind on wing of a foreign embassy in the Saudi His alternative was jail. Most coun- their own debts, deepening the cycle. capital, Riyadh, next to the bar, a table cov- tries have abolished debtors’ prisons. The unluckiest find themselves in ered in black cloth serves as the altar. A Palestine should have, too. It signed a UN front ofMuhammad Nofal, one oftwo priest raises a bible and pronounces the treaty that forbids them. But they still financial judges in Gaza City. His court sacrament. A packed multinational con- exist in Gaza, which has been ruled since handles up to 40 cases each day. Not all gregation sings the Gloria. “For your suffer- 2007 by Hamas, a militant Islamist group. ofthe guilty go to jail; some work out ings you will be saved,” incants the priest. Israel and Egypt imposed a blockade on deferments or payment plans. In March Some Saudi theologians call for a re- the territory after it tookpower. Last year the public prosecutor offered a one- think. They insist that the Prophet’s prohi- the Palestinian Authority (PA), which month amnesty for debtors to settle up. bition against two dins has been mistrans- governs the West Bank, added its own Still, Mr Nofal has sent hundreds to jail lated (din means religious authority, not sanctions to press Hamas into ceding over the past year forterms ranging from religion) and claim he never intended the control. The PA has cut public-sector pay months to years, depending on the debt. ban on non-Muslim worship to cover the in Gaza by over 40% and forced thou- Mr Zayyan wants to wind down his entire peninsula. His Declaration of Medi- sands ofcivil servants into retirement. business, but no one wants to buy his na, a treaty providing for coexistence with The economy,stagnant fora decade, inventory or his commercial property. He Jews, “could yet be our model”, says an of- has gone into freefall.Last year Gazans spends his days idling in cafés, occasion- ficial at the Islamic affairs ministry. bounced cheques worth more than ally selling small batches ofhis remain- Abdullah, the previous Saudi king, 400m shekels, an 80% increase over 2016. ing tiles. No longer a homeowner, he opened an interfaith centre, but located it More than 42,000 people were arrested pays1,000 shekels a month fora rented in far-off Vienna. More courageously, for fallingbehind on their debts. Issa apartment. His savings are running out Prince Muhammad has hosted Christian Habash, a grocer in Nuseirat, estimates and he fears he will soon fall behind on clergymen at home. Saudi media have run that two-thirds ofhis customers owe him the rent. “I’m reaching the breaking footage ofthe Maronite patriarch and a pa- money.Hoping to cut backon the prac- point,” he says. “I can’t continue. But I pal emissary, Cardinal Jean-Louis Tauran, tice, he no longer sells full-sized contain- can’t leave, either.” dressed in full religious regalia, crucifixes included, meeting the king. A decree strip- ping the religious police of their powers to arrest gives sanctuary to Christians who stage large prayer meetings at home. Bigot- ed preachers have been removed from the airwaves and injunctions to fight the unbe- lievers deleted from primary-school text- books. The openingofa papal legation and construction of a church, predicts a royal adviser, are only a matter of time. One po- tential venue is Neom, a planned city in the far north-west, which could be de- clared outside the Arabian peninsula. Much hangs on the whim ofPrince Mu- hammad. His jailing of critics has curbed dissent. The chief mufti, who called for an end to church-building on the peninsula after Kuwait built one in 2012, judiciously holds his tongue. But suppression could provoke a backlash. “Toleration is more palatable when applied tolerantly,” says a nervous Saudi author. 7 In the red? Free bed Financial Era Advisory Group 40 Asia The Economist August 4th 2018

Also in this section 41 Counting aliens in Assam 41 Rebellion in the Philippines 42 Slumming it in South Korea 43 Banyan: Japan’s painful work habits

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

Pakistan’s new prime minister gotiating one will require finesse. Pakistan is in hock to China which, through a bally- A man, no plan hooed China-Pakistan Economic Corridor, has promised $62bn of infrastructure spending. This week America’s secretary of state, Mike Pompeo, insisted that his country would block any IMF bail-out that profited China. The task of stitching a deal ISLAMABAD together will fall to Asad Umar, Mr Khan’s How will Imran Khan govern? probable finance minister. He is a good WEEKaftera general election rocked by the PML-N. That would cap a remarkable choice: the formerhead ofEngro, the coun- Asuspicions of fraud, the dust is begin- fall for the Sharif brothers: Nawaz, the try’s biggest private conglomerate, Mr ningto settle. Itlooksall butcertain thatIm- “Lion of Punjab”, who was prime minister Umar is reform-minded and admired. ran Khan, a former captain of Pakistan’s until last year and is now in jail facing cor- The terms of an IMF deal will bring a cricket team, will be sworn in as the coun- ruption charges, and Shahbaz, Punjab’s populist party down to earth—so much for try’s next prime minister. His party, Paki- formerchiefminister. Mr Khan’s wild promises of an “Islamic stan Tehreek-e-Insaf (PTI), will dominate welfare state”. The next challenge is the the legislature. The outgoing Pakistan Mus- Yes, he Khan electricity sector. In office, the PML-N did lim League-Nawaz (PML-N) and the Paki- Mr Khan, who now commands about 115 much to fix Pakistan’s notorious blackouts, stan Peoples Party cried foul, noting that seats in the National Assembly, still needs helped by China building new capacity. the army had come out strongly in Mr a handful of allies—independents and But a tangle of debts among state genera- Khan’s favour, muzzling the press and smaller parties—in order to govern. The tors, energy suppliers and banks has been sending security agents to meddle in poll- PTI’s chief bankroller, Jahangir Tareen, has exacerbated bytheftfrom the grid. This can ing stations. But the fact that these two an- been flattering independents by flying be resolved by reducing subsidies, raising cient rivals are now making common them in to Islamabad, the capital, on his energy taxes and recapitalising state enti- cause as the loyal opposition suggests that private jet. The grubby promises to them ties. Mr Khan has long bemoaned Paki- they accept the result. Few Pakistanis want are the kind of thing Mr Khan used to de- stan’s institutional decay. Renewal starts endless street protests and political tur- cry. His wooing of the Muttahida Qaumi with fixing the electricity mess. moil. So the democratic show rolls on. For Movement, or MQM, the most unsavoury Then come security and foreign policy. the second time in Pakistani history, power of Karachi’s parties, is making some PTI Islamist violence marred the election and has been democratically transferred. leaders gag. But at least it means that Mr is a constant threat to Pakistan. Meanwhile, For over two decades Mr Khan has Khan doesnotneed radical Islamist parties the regional situation grows trickier, with railed against a sleazy system ofhereditary to form a governing coalition. Before the rivalry between America and China, and politicians and patronage networks. Yet election, he pandered to zealots. China and India. That comes on top of this is the first time the PTI has shown a Meanwhile, over the economy there is rocky relations with America itself, the fes- broadly national appeal in a country of no time to lose. Not for the first time, an in- tering sore of war-torn Afghanistan to the 207m. Its 4m more votes than the PML-N coming government faces a balance-of- north-west, and Pakistan’s age-old and bit- represent a notable popular victory, one payments crisis. The current-account defi- ter animosity towards India. only partly undermined by vote-rigging al- cithaswidened and the currencyissliding. Mr Khan would seem ill-suited for legations. Most remarkable is the PTI’s win Pakistan imports three-quarters of all its these challenges. He has been more critical in Karachi, a city of powerful local ma- energy needs. Yet foreign-exchange re- of America, especially over its use of chines and thuggish street politics. The PTI serves are down to just $9bn—barely two drones to kill jihadists, than of the extrem- may yet wrest Punjab, the country’s bread months’ import cover. An IMF bail-out, of ists themselves. And he is pally with an basket and most populous province, from perhaps $12bn, looks all but inevitable. Ne- army that is the chief obstacle to better re-1 https://t.me/finera The Economist August 4th 2018 Asia 41

2 lations with India, the sworn enemy. Bajwa, is relatively doveish towards India, But that is for the future. For now, Mr There is room forsurprises, though. Un- acknowledging that home-grown jiha- Khan, who has seldom attended parlia- der Nawaz Sharif, the civilian government dism is a fargreater threat to Pakistan. Paki- mentary sessions and who has described and the army clashed. The generals dis- stan, via the generals, may yet find the will the assembly as “the most boring place on trusted, and then thwarted, Mr Sharif’s to seekbetter Indian ties. earth”, must find a sense of dedication, de- overtures to his Indian counterpart, Naren- One day, though, Mr Khan will surely tail and compromise that has evaded him dra Modi. Relations with India, they make clash with the generals. He speaks of open- till now.He mustlearn to workwith a polit- itclear,are theirremit. Butperhaps, saysSe- ing the border with Afghanistan, an idea at ical class he has only slammed. And he har Tariq of the United States Institute of odds with the 2,300km-long fence the must gently let down his most enthusiastic Peace, “harmony” between civilian rulers army wants to build. And he wants to supporters from the irresponsible highs he and the army (ie, civilian subservience) spend heavily on health and education, generated for them—for instance, by pro- could “reap dividends” over India. High- money which can only be found by crimp- mising to end corruption within 90 days. It level exchanges have recently taken place ing the armed forces’ budget. Farooq Tir- will require dogged strength, which he has between the two countries’ armed forces. mizi, an analyst, predicts a fight that will in abundance, and humility—which, Pakistan’s army chief, General Qamar come down to “guns versus textbooks”. equally,he lacks. Over to the captain. 7

A controversial register of citizens in north-east India Rebellion in the Philippines We are Assamese if you please Murder in DELHI Mindanao Some 4m worry whetherthey are suddenly about to become stateless IVEN the problem, it seemed a rea- governments, hotter ones accuse the MANILA sonable solution. The north-eastern opposition ofbeing unpatriotic and G Abombing tells peacemakers to make state ofAssam is among the most ethni- playing “vote-bankpolitics” with Mus- haste cally,linguistically,religiously and topo- lims, who make up over a third ofAs- graphically mixed bits ofIndia. It is also sam’s population. One BJP legislator TDID nottake longforIslamicState (IS)to the most combustible. In the 1970s and from far-offsouthern India declared that Iclaim responsibility for a bomb on the is- 1980s thousands died in unrest, mostly ifBangladeshi or Rohingya immigrants land ofBasilan, part ofthe southern region (but by no means entirely) sparked by (the latter fleeing persecution in Myan- of Mindanao in the Philippines, that killed fears ofthe biggest group, Assamese- mar) do not leave, they should be shot. nine soldiers and civilian bystanders, speaking Hindus, ofbeing swamped by Assam remains calm, fornow. Local along with the driver of the van the bomb an influx ofBengali-speakers. An impov- leaders insist the register is just a draft, wascarried in. The armysuspectsthe work erished country, Bangladesh, had sprung and that anyone may challenge their of Abu Sayyaf, a brutal kidnapping-for- up next door in 1971, pushing both perse- status. As it is, many have spent weeks ransom gang from Basilan and the neigh- cuted Hindus and Muslim migrants over and months, as well as fortunesin legal bouring island of Jolo which these days a border so porous that162 bubbles of fees, to digup the dusty old documents claims allegiance to IS. foreign territory, some no bigger than a needed to prove ancestral links to the The attack, on July 31st, highlighted the few rice paddies, had been left trapped state—ifthese even exist. Those left off dangers of dragging out a slow, stumbling on either side. So why not, the state’s the current list include officers in the peace process that had made a leap for- leaders suggested in 2005, do a tally to Indian army, one from a pair oftwins, ward just days before, when President Ro- sort out Assam natives from recent in- tens ofthousands ofwomen from fam- drigo Duterte enacted the Bangsamoro Or- truders, and send anyone who came ilies too poor, unlettered or conservative ganic Law. The law is key to ending half a after1971packing? to have considered registering their births century of rebellion by Filipino Muslim Fast-forward to July 30th, when the or marriages, and several serving or separatists in Mindanao which has cost state government released a draft of its formermembers ofAssam’s local legisla- tens of thousands of lives. It is surely key, National Register ofCitizens. The much- ture—including one from the BJP. too, to ending the chaos in which jihadists delayed count, undertaken in earnest such as IS thrive. only in the past three years, suggests that Congress in Manila, the capital, had tak- some 4m out ofthe state’s 33m people, en years to pass the new law, which pro- most ofwhom are Bengali-speaking vides for greater autonomy for the home- Muslims, have failed to prove they are land of the Bangsamoro, Muslims who are pukka Assamese. The prospect ofso in a majority in their part of Mindanao many being made stateless, and possibly (which is predominantly Christian, like the expelled, has understandably aroused a country). In return, the main rebel group, furore. the Moro Islamic Liberation Front (MILF), Opposition politicians decry the has dropped its demand for Bangsamoro exercise. They say the ruling Bharatiya independence. Greater autonomy was Janata Party (BJP, which reigns in Assam promised in a peace agreement signed by as well as in Delhi, India’s capital) has the government with the MILF in 2014. cynically designed it to rally its Hindu- The armed campaign for Bangsamoro nationalist base in advance ofnext year’s independence began in 1969. The 2014 general election. Mamata Banerjee, chief agreement was the culmination of de- minister ofneighbouring WestBengal cades of on-and-off negotiations between state, warns of“a civil war, a bloodbath”. the government and Muslim separatist re- While cooler heads in the BJP note that bels, first the Moro National Liberation the count was started under previous Counting who counts and who doesn’t Front and then its less secular offshoot, the MILF. During those years, war-torn, im-1 Financial Era Advisory Group 42 Asia The Economist August 4th 2018

250 km LUZON Slumming it in South Korea Manila South Fan fare for the common man China Sea PACIFIC SEOUL PHILIPPINES OCEAN The mayorofSeoul sleeps in a shack Y WIFE can barely contain her grievances. Yet some are sympathetic. Sulu “M happiness,” ParkWon-soon, the “It’s a good thing he’s doing,” says one Palawan Sea mayor ofSeoul, South Korea’s capital, neighbour playing in the street with her Marawi Zamboanga wrote on his Facebookpage on July 27th. little grandson. “Why would I complain Peninsula MINDANAO The occasion forher ecstasy was that an about someone trying to understand electric fan had arrived in the household. more about our lives?” Jolo Davao Basilan In the circumstances, the excitement The mayor’s stint ofliving like com- Maguindanao was understandable. Five days earlier the mon folkis a reminder that beyond the MALAYSIA couple had moved into a rooftop shack in city’s glitzy centre many Seoulites still Proposed Bangsamoro region Samyang-dong, a dilapidated neigh- live in flimsy, barely legal dwellings INDONESIA bourhood on the northern fringes of the similar to Mr Park’s temporary lodging. megalopolis. The shackis not air-condi- These people cannot afford the capital’s 2 poverished Mindanao spawned a pletho- tioned, and in the sweltering recent sky-high property prices. In many areas, ra of armed groups: some Muslim separat- weather—South Korea’s hottest on re- particularly north ofthe Han river, ists, some communists, some simply cord—temperatures inside topped 50°C. houses are poorly equipped forSeoul’s violent criminals. Jihadists took advantage Plus, the fan came with a message of steamy summers and biting winters. of the general lawlessness to recruit fight- solidarity from the president, Moon For a long time, the city’s approach ers to their cause. Jae-in, a political ally. was to raze such quarters and build bru- After the peace agreement was signed, Mr Park, who in June was elected to tally utilitarian tower blocks in their Congress shied away from passing the leg- his third term as mayor, says that by place, says Rieh Sun-young, an architec- islation it entailed when current and for- spending a month in Samyang-dong he ture professor at the University of Seoul. mer MILF fighters killed 44 paramilitary will learn first-hand about the difficulties Yet such flats are still expensive and do policemen operating against jihadists. that Seoul’s poorer residents face. The not always meet the needs ofthe people When Mr Duterte, whose power base is in stunt has earned him a fairamount of they displace—for instance, they are too Davao, the largest metropolitan region in mockery. When City Hall workers deliv- big fortoday’s smaller families, couples Mindanao, became president in 2016, he ered ready-made rice porridge to him or young singles wishing to live alone. said he was determined to complete the over the weekend, onlookers questioned Ms Rieh hopes that the mayor’s time on peace process. the seriousness ofMr Park’s quest to the roofwill help him develop a more Yet Congress was still slow to pass the experience “ordinary life”. (City Hall said nuanced approach to urban regener- legislation, fearful lest it turn out to contra- the porridge was fora breakfast meeting ation. Widening streets, refurbishing vene the country’s constitution. In 2008 with neighbours.) Ha Tae-kyung, from houses and improving local transport the Supreme Court had declared a previ- the conservative opposition, described links, libraries and child care would do ous peace agreement unconstitutional, so the move to the roofas a “comedy”. Ifthe much more fordeprived areas than infuriating one faction of the MILF that it mayor really wanted to know about simply razing them to the ground. broke away. The splinter group, the Bang- ordinary life, he said, “he should live in Whether he learns any rooftop les- samoro Islamic Freedom Fighters (BIFF), the neighbourhood forhis entire term.” sons or not, Mr Parkleaves his Samyang- later pledged allegiance to Islamic State. Locals queue up at all hours outside dong shacklater this month, to return to The Bangsamoro Organic Law may yet the mayor’s temporary home to air their his air-conditioned apartment. be challenged in court. That is one reason (admittedly of several) why Mr Duterte has called for the constitution to be rewrit- ten to turn the Philippines from a unitary state into a federation. A bloody attempt last year by groups, including Filipino adherents of IS, to cap- ture and hold the city of Marawi was crushed when the army laid siege for months, destroying the city to save it. In that siege, one notable Abu Sayyaf leader, Isnilon Hapilon, was killed. Yet BIFF guer- rillas and Abu Sayyaf terrorists remain ac- tive in the south, as the latest bombing in Basilan showed. Not just the government but also the MILF chairman, Al-Hajj Murad Ebrahim, believe peace and economic de- velopment in Mindanao will defeat the ji- hadists by drying up their sources of re- cruits. The battle for Marawi, and now this latest bombing, are warnings that jihadists are lurking, ready to pounce unless Mr Mu- rad and Mr Duterte make haste to end the separatist conflict. 7 https://t.me/finera The Economist August 4th 2018 Asia 43 Banyan When everyone is the last one out

No one is happywith Japan’s workstyle, but it is proving hard to change workplace risk all if they have children, after which it is hard to pick up careers again. A large number of women don’t return to workat all. As forJapan’s young, many opt out ofcorporate life to open or staff boutiques, cafés and the like. There they accept low pay ratherthan toil in bleakoffices. None ofthis helps companies either—Japan has the lowest productivity ofthe G7. Government and businesses increasingly acknowledge a pro- blem, but struggle to deal with it. It is telling that “Cool Biz”, a bal- lyhooed campaign launched in 2005 to get people to take off ties and jackets at work, was motivated not by a need to please work- ers but to save on summer air-conditioning. These days, bureau- crats dress down during the sweltering summer months, but em- ployees at banks and the like rarely dare. Pressure to create a better workenvironment is growing. After a young female employee at Dentsu, Japan’s advertising behe- moth, committed suicide in 2015, a court ruled that it was because of karoshi. That was the cause of much hand-wringing. But more broadly, at a time when an expanding economy and a declining population are creating severe labour shortages, companies with a reputation for grinding work struggle to attract staff. One wom- an, a senior executive who barely saw her children as she OSHIHISA AONO could be a model for Japanese executives. climbed the corporate ladder, wonderswhetherthe sacrifices she YThe offices of Cybozu, his software company, would appear made were worth it. staid were they in Palo Alto. But they are radical forcentral Tokyo, Some companies really are trying to change. A consultant on where each day waves of black-suited Stakhanovites make their matters ofemployee well-beingsays she has neverbeen so much way to grimly utilitarian offices. Slap-bang in the centre of Cy- in demand. Panasonic, which in 1965 was the first Japanese com- bozu’s headquarters are stuffed-toy monkeys and parrots. Staffin pany to introduce a five-day week, now lets people work from casual wear and trainers perch on stools sipping coffee and tap- home and wear jeans in the office. Yet powerful instincts of con- ping away at laptops. Mr Aono himself leaves work at 4.30pm to formity and self-sacrifice still mark Japanese society. Panasonic see his three children. He takes paternity leave, unlike most Japa- admits that few are willing to leave work early or wear jeans be- nese fathers. Good lord, he even goes on holiday. fore other colleagues do the same first. People in authority need To many Japanese, Mr Aono’s work style will seem extreme. to lead by example. Tokyo’s governor, Yuriko Koike, shuts her of- To many in the West, it is Japan’s long working hours that are out- fices each evening at 8pm; staff have no choice but to leave. By landish. Japanese work notoriously hard—to which the abun- contrast, after weeks of debating radical change, the Diet (parlia- dance of comatose passengers on the commuter trains attests. ment) recently passed greatly watered-down legislation. Over- Many men work so late, or get so sozzled after work to relieve time hours were capped at an exhausting100 hours a month. stress, that they don’t make it home. Hence the ease with which, early the next morning, you can buy a cheap shirt and tie in the Workharder, at reform convenience storesin the businessdistrictsofNagoya, Osaka and Japanese continue to work long hours because, almost without the capital. exception, big companies continue to judge employees by input Twelve-hour days are common. Holidays are stingy—just ten not output. They base promotion and pay not on merit, but on days a yearwhen you start out at work—yet Japanese workers, on age and years at the company. It is almost impossible, by law, to average, take only halftheirdue. Japan leads the world in paterni- fire incompetent staffhired on permanent contracts. ty leave—up to a year. Yet barely 5% of men take advantage of it, Only a drastic overhaul of the labour system will do, not tin- and then usually for just a few days. Japan has given the world kering at the edges. Above all, the law needs to make it easier to the term karoshi, or death by overwork. hire and—especially—fire, so that people move jobs much more Japan’s worksystem dates to the end ofthe second world war, than now. That would shake up the relationship between em- when defeated soldiers swapped uniforms for suits. Salarymen ployers and employees. Productivity would rise. Workplaces became the shock battalions of Japan’s economic miracle, re- would be more diverse. Women would have many more buildingthe countryduringan era ofturbocharged growth. Com- chances. But so, too, would men: forinstance, fathers could play a panies needed lots of male workers quickly (women worked as greater part in bringing up their offspring. With better work pros- secretaries and then became homemakers once they had found a pects, couples might even have more babies, an obsession with husband—often at work). In return for absolute loyalty, workers Japanese demographers worrying about the country’s falling at big companies got regular wage rises, generous benefits and population. the guarantee of employment for life. Company ties were some- The time is ripe for change. The economy is in relatively good times stronger than family ones. shape. Japanese companies are keen to adapt to be competitive The model now holds Japan back. It is miserable for male abroad. Yet too many of Japan’s politicians and corporate titans workers, especially as companies no longer make the money to are male, hidebound and timid. Many workers are undemand- offernew employees the same benefits and guarantees. It is even ing. Conformism remains powerful, at work more than any- worse for women. Those who succeed in a male-dominated where. Change is coming, but it is coming all too slowly. 7 Financial Era Advisory Group 44 China The Economist August 4th 2018

Also in this section 45 Greyhound racing in Macau

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

Trouble in Tianjin stopped a few years ago. The skyscraper’s skeleton is nearly 600 metres tall, and sur- Where are the people? rounded by a dozen other abandoned building sites, which are a short drive from a fledglingpolo club, itselfringed by empty luxury residences. Corruption fuelled the excesses. In the city centre, Zhao Jin, a property magnate, TIANJIN paid off bureaucrats to flout zoning rules. What used to be China’s fastest-growing region is now its slowest He had permission to build three towers of IANJIN, a northern mega-city, has pro- firm. That flatters the reality. One whole no more than 35 storeys, but instead went Tduced some ofChina’swittiestcomedi- floor of the New Finance Building, a glis- for 66 storeys. He and the bureaucrats ans. It is a good thing that its 15m residents tening complex, has been converted into (some ofthem, anyway) are now in jail; his have a sense of humour. Their hometown “escape rooms” foradventure games. “The development, an unfinished eyesore, was was, at points over the past decade, the buildings are great,” Zhang Junkai, a port listed for demolition. In another case, at fastest-growing of China’s 31 provincial- worker who lives nearby, says with a wry the port, managers of a chemical ware- level regions. Since the beginning of last smile. “It’s just that we don’t have enough house exploited connections to pass in- year it has been the slowest (see chart). people in them.” spections on matters from fire safety to Businesses joke that the sole part of the lo- Some 60km away, on the city’s western chemicals handling. In August 2015 a mas- cal economy that is expanding these days fringes, the waste is even more striking. A sive explosion obliterated the warehouse isthe value ofassetsseized from corrupt of- private developer wanted to create a high- and the surrounding area, killing173. ficials. The city’s sharp deceleration serves tech zone, anchored by the world’s fifth- The deadly blast seems to have marked as a stress test of China’s economic pro- tallest skyscraper. Construction all but a turning point. Huang Xingguo, mayor blems, and as a warning of the difficulty in since 2007, was jailed last year for corrup- fixing them. tion. Li Hongzhong, Tianjin’s new Com- Other areas of China are also grappling First to worst munist Party boss, has presided over a with subdued growth. Commodity-pro- Tianjin, ranking of GDP growth among clean-up. Corruption investigations in the ducing regions have struggled to adapt to a Chinese provinces first halfofthis yearhave already exceeded modernising economy, as has the rust-belt the total for 2015. The government has also 1 north-east. ButTianjin standsoutas a place changed its economic course. It has tight- that should be doingbetter. It boasts a busy 5 ened its belt, budgeting nearly 15% less port and good universities. A skilled 10 spending this year. Once-busy building manufacturing hub, it has attracted firms sites have attracted scavengers. Ads for from Airbus to Motorola. Just half an hour 15 metal-recycling services are plastered on from Beijing by train, it is well situated. construction walls in the high-tech zone. The problem is that the city’s planners 20 Tianjin, along with a handful of other got far ahead of themselves. They built a 25 Chinese regions, has admitted that its eco- big new financial district, which they nomic record was grossly inflated. Binhai, billed as China’s Manhattan, in the Binhai 31 which accounts for half the city’s output, district, on the city’s far-east side. Nearly 2000 05 10 15 18* declared in JanuarythatitsGDP wasa third 70% ofofficesthere are vacant, according to Sources: CEIC; Economist *Estimate to smaller than previously reported. Partly as Jones Lang LaSalle, a property-services Intelligence Unit June 30th a result of correcting for past fabrication, 1 https://t.me/finera The Economist August 4th 2018 China 45

2 Tianjin’s annual GDP growth has averaged just 3.5% since 2017, compared with 13.5% Greyhound racing in Macau under Mr Huang, a precipitous drop. Tianjin’s woes are an extreme version Bow-wowing out of China’s. Over the past decade cities have rushed to expand. Yang Weimin, a se- Asia’s last dog-racing trackhas closed nior official, revealed this year that, based on electricity usage, China’s housing va- HE kennels reeked ofexcrement. The more than had been betting on the races. cancy rate is higher than Japan’s, which Tdogs inside looked weak. Many were The Canidrome is one ofthe last stands at 13%. In downtown Tianjin that is sufferingfrom visible injuries. Such was vestiges ofa grittier, seedierMacau. The almost palpable. Colonial buildings, dat- the scene that greeted Zoe Tang at the greyhound trackopened in 1963 (after a ing to the 19th century, have been beauti- Canidrome, a greyhound-racing stadium false start in the 1930s), when Macau was fully restored. Yet they are eerily quiet. “All in Macau, an autonomous region of a Portuguese colony, and drew crowds of the units have been sold, but few people China, on the morning ofJuly 21st. The day-trippers from Hong Kong. Owned by have moved in,” says a guard at the Tai’an evening before, its billionaire boss had the family ofStanley Ho, who once en- Avenue luxury complex. left behind all 533 race dogs owing to the joyed a stranglehold on local gambling The question ofwhether Tianjin can re- expiry ofthe venue’s operating conces- concessions, it was the last place in Asia cover, then, is ofnational salience. Coming sion, forcing the authorities to step in to where punters could wager legally on clean about its problems is a good first step. mind them. Since then Ms Tang (pic- dog racing. But in the new Macau, with its But in two otherways, the Tianjin example tured), who works forAnima, a local glitzy casinos, it had lost its lustre. Atten- is worrying. First, local officials appear animal-welfare organisation, has been dance dwindled to just dozens a day. willingto tolerate only a limited reckoning. recruiting volunteers to help feed, walk Animal-rights groups had urged the Tianjin, like otherparts ofChina, has relied and bathe the forsaken canines. Hun- trackbe closed. They alleged that grey- on government-owned companies to pay dreds ofpeople have turned up daily, far hounds were put down ifthey failed for investments. Zhang Zhiwei, an econo- repeatedly to win races. In 2011the head mist with Deutsche Bank, has estimated ofMacau’s animal-control division said that in Tianjin these companies only have that 30 dogs a month were being killed. enough revenue to cover about 40% of Angela Leong, wife ofMr Ho, boss of the what they owe in interest, the third-worst Canidrome and an elected lawmaker, ratio among China’s provinces. Tianjin is, denied any cruelty. She said her charges he says, a “pilot experiment” for how the were the “happiest dogs in the world”. government will resolve its debts. Macau’s government had threatened The experiment is not going all that to fine Ms Leong up to 100,000 patacas well. In May two city-owned developers ($12,330) foreach abandoned greyhound. flirted with defaults on loans that together On July 27th she announced a plan to were worth 700m yuan ($103m). In both house them at a new air-conditioned cases they conveniently came up with facility. Anima agreed to run it. Ms Tang cash in the end. But some analysts saw that says the priority now is to find perma- as a missed opportunity. In the absence of nent homes forthe pooches. About 700 genuine defaults banks will go on lending prospective owners have filed applica- to rotten state firms, knowing the govern- tions, though she worries that some ment will always prop them up. “China might spirit them to illegal tracks, or even hasn’t killed off this implicit guarantee,” dinner tables, elsewhere in China. Candi- Mr Zhang says. dates will be scrutinised closely. Victory Second, Tianjin shows that China’s pre- But the rabbit got away for the greyhounds is in sight at last. ferred solution to debt problems—growing out of them—is getting harder. As the econ- omy slows, it takes longer to digest bad in- of China’s most rapidly ageing cities. Near- 5,800 applicants made the first cut. vestments. Binhai is not a ghost city, but it ly a quarter of those with local hukou, or There is one big wild card in Tianjin’s is far from attaining critical mass. The train residency permits, are more than 60 years future. The central government talks of to Tianjin’scentre isa tenth full during rush old, up from a tenth in the 1980s. As pen- unifying it with Beijing, to create a huge hour. The big excitement these days is that sion and health-care costs rise, social-secu- city cluster. If it truly did that, and moved the Juilliard School, an American perform- rity provisions will consume nearly half of some government functions from Beijing, ing-arts conservatory, will open a campus Tianjin’s pared-down budget this year. Tianjin’s office gluts could vanish, says Tin in Binhai next year, its first such venture Younger migrants have also started to drift Sun of CBRE, an international property abroad. But it is also a marker of reduced away to faster-growing regions in China’s agency. So farit has taken only baby steps. ambitions. The Juilliard will occupy just interior. Tianjin lost 52,000 residents last In the meantime Tianjin istrying to pick one new building. Planners hoped that year, its first such decline in five decades. itselfup. It is pitching itselfto companies in many more would house big firms by now. In May the city made a bold move to at- Beijing as a location for back-offices. Tech The appeal of Tianjin for foreign inves- tract young professionals. It offered hu- firms, including Bytedance, a developer of tors has waned amid soaring labour costs. kous, usually hard to obtain in big cities, to popular apps, have based censorship Its GDP per person has passed $17,000, ten anyone under 40 with a university degree teams in Tianjin. This is not the glitzy fu- times higher than in the late 1990s, when willing to live in Tianjin. In one day ture of the city’s dreams, but it pays the manufacturing firms flocked to the city. 300,000 people applied. With a Tianjin hu- rent. On July17th, when Tianjin officials re- Samsung, a South Korean electronicsgiant, kou, they could send children to local ported a grim batch ofeconomic data, they once operated several factories in Tianjin. schools, a big enticement. But many appli- added a rallying cry: “we must summon It has shifted its focus to Vietnam, where la- cants simply wanted to base their families the courage that it takes to roll a rock up a bour is much cheaper. in the city. So officials added a condition, mountain.” A worthy ambition, so long as It does not help that Tianjin is also one requiringapplicants to workthere, too. Just they can avoid the fate ofSisyphus. 7 Financial Era Advisory Group 46 International The Economist August 4th 2018

Saving the world order since 2011in the share of people who trust America to act responsibly; at 55%, trust in Picking up the pieces America is at a historic low, only just ahead of trust in China (52%). “The order we have known forthe past70 yearshasended,” ac- cording to Allan Gyngell, a former head of Australia’sOffice ofNational Assessments, Australia’s main intelligence agency. “It’s As the American-led, rules-based world orderapparentlyfragments, coalitions of not changing. It’s over.” the like-minded are forming to help reinforce it The D10 framework “takes on even OR the past four years senior officials world order forged after the second world greater meaning at this time ofuncertainty Ffrom a group of leading democracies, war. Mr Trump himself has called the EU a surrounding America’s global role,” be- calling themselves the “D10”, have quietly “foe” on trade. Donald Tusk, president of lieves Mr Jain, who runs the D10 initiative been meeting once or twice a year to dis- the European Council, has spoken bluntly at the Atlantic Council, an American think- cuss how to co-ordinate strategies to ad- of trans-Atlantic relations: “With friends tank, in partnership with a Canadian vance the liberal world order. Foreign min- like that, who needs enemies?” counterpart, the Centre for International istry policy-planners and a few think-tank An overreaction, perhaps. Defenders of Governance Innovation. The liberal order types would discuss responses to Russia, MrTrump’sstrategysayhe isseeking notto it stands for has always been an amor- China, North Korea, Iran—but largely be- bury the rules-based order but to reinvigo- phous concept. Now that it is at risk, hud- lowthe radar, so asnotto be seen as a cabal rate it, by questioning the role of institu- dling together both to define and defend it of the “old West”. The idea has been to en- tions that have become inefficient or inef- becomes more urgent. The D10 group is hance co-operation among “a small num- fective. As supporting evidence, they can part of a broader trend of intensifying ef- ber of strategically like-minded and highly point to the ceasefire declared on July 25th forts to rally the “like-minded” to that end. capable states”, as Ash Jain, a formermem- in the trade war with Europe. Others sug- Mr Trump’s America First approach is ber of the State Department’s policy-plan- gest that things might revert to normal promptingpolicymakers from Canberra to ning staff, put it in a working paper in 2013. when someone newisin the White House. Ottawa to cast around forcoalitions to lim- But, at their next meeting, in Seoul in Yet it would be risky to rely on the hope it the damage of his onslaughts and, even- September, the D10 (America, Britain, that Trumpism will pass. American ambiv- tually perhaps, fill gaps left by an Ameri- France, Germany, Italy, Canada, Japan, alence about multilateralism is not new. can retreat from its global role. Australia and South Korea, plus the Euro- George W. Bush, for example, in his first Crudely, these efforts to rally the like- pean Union) will have a new agenda item: year as president pulled back from half a minded come in four varieties. The first in-1 America’s global role. Whereas the main dozen international agreements, including threat to the rules-based order used to the Anti-Ballistic Missile Treaty and the come from outside the leading democra- Kyoto protocol on climate change. cies, some now fear it comes from within. Around the world, the view that the The Economist has also entered the fray in PresidentDonald Trump’shostilities on change is both deep and lasting is gaining defence of the liberal world order. This trade, his attacks on the policies of NATO ground. A mere 9% of Germans think year we launched “Open Future”, to allies and ditching of international agree- America under Mr Trump is a reliable remake the case for the classical liberal ments, such as the Paris climate accord and partner for the security of Europe, accord- values on which this newspaper was the Iran nuclear deal, have led even some ing to a recent poll by ZDF Politbarometer. founded 175 years ago. The articles, of America’s closest partners to conclude In Australia annual pollingby the Lowy In- debates and discussions can be found at that he wants to wreck the American-led stitute, a think-tank, shows a 28-point fall Economist.com/openfuture https://t.me/finera The Economist August 4th 2018 International 47

2 volves appealingto Americans beyond the global “campaign for democracy” is a wants to maximise economic pressure on Trump administration. Diplomats in Transatlantic Commission on Election In- the Iranian regime, and isthreatening sanc- Washington, DC, say defenders of the lib- tegrity, to bolster defences against outside tions on international companies doing eral order need to build support in Con- interference. It is co-chaired by Mr Rasmus- business with the country. Without the in- gress and to get on planes to other parts of sen and Michael Chertoff, a former secre- centive ofcloserbusiness ties to support its the country and explain why the system tary of homeland security in America; Joe struggling economy, Iran could decide to Mr Trump is undermining has served Biden, America’s former vice-president, is abandon the nuclear self-restraint at the America well. “Europeans need to engage, among the other 13 commissioners. They heart ofthe deal. engage, engage: with Congress, with gover- have urgent work to do. Mr Rasmussen However, the 12-country Trans-Pacific nors, with America’s business community points out that 20 elections will be held Partnership, a trade deal intended to set and civil society,” wrote Wolfgang Ischin- across EU and NATO countries between free-market rules for the region’s trade be- ger, a former German ambassador who now and the next American presidential fore China’s influence becomes over- chairs the annual Munich Security Confer- contest in November 2020. whelming, has defied expectations. It has ence, in the New York Times on July 22nd. Characteristically, it is France’s “Jupiter- reinvented itself as an 11-country grouping Canada has been the most energetic in ian” president, Emmanuel Macron, who after America, by far the biggest partner, pursuingthis strategy. Its ministers, mayors has the most ambitious project. His Paris decided to pull out when Mr Trump be- and diplomats have mounted a concerted Peace Forum, to be held on November came president. Renamed the Compre- effort at state and local level to draw atten- 11th-13th, is envisaged as an annual event hensive and Progressive Agreement for tion to the American jobs and industries bringing together governments and civic Trans-Pacific Partnership (TPP), it was that depend on trade with Canada. This groups to discuss the world’s problems. signed in March in Chile and is expected to did not stop Mr Trump from slapping hefty come into force around the end ofthis year, metals tariffs on Canada and calling Justin once at least six countries have ratified it. Trudeau, its prime minister, “dishonest Similarly, some hope that, should Mr and weak” after the recent G7 summit he Trump’s distaste for the multilateral trad- hosted. Canada’s “smooth” diplomacy, ing system lead to America’s quitting the and the resultingstream ofrepresentations World Trade Organisation, the global body on its behalfto the White House, may even could carry on without it. have ended up irking Mr Trump. Canadi- ans must hope that in the long term the Groping forgroupings bottom-up approach will pay off. Japan and Australia led efforts to keep the But relying on popular support in TPP alive. Both countries are also active in America for its global role might be too op- the fourth way of clubbing together: new timistic. So a second approach to conven- coalitions between like-minded countries ing the like-minded—with a broader, inter- in the pursuit of shared interests, from national focus—is also being tried. Like a trade to defence. On July 17th Japan signed Davos for the once-powerful, this mission a free-trade deal with the European Union, is attracting gaggles of global grandees, as eliminating most tariffs and creating the ex-presidents, former prime ministers and world’s largest open economic area, cover- retired diplomats lend their weight to the ing over 600m people and nearly a third of effortto save the world they used to run. global GDP. Negotiations quickened in re- The D10 process has spawned a new, sponse to America’s trade threats. Shinzo wider enterprise, called the Democratic Abe, Japan’s prime minister, said at the Order Initiative, that seeks to engage the signing ceremony in Tokyo that the deal public behind support for the internation- The idea is to show that “there is still a con- “shows the world the unshaken political al rules-based system. Launched on June stituency for collective action, among will of Japan and the EU to lead the world 23rd in Berlin by the Atlantic Council, with states and civil society...beyond populism as the champions of free trade at a time backing from Madeleine Albright (a for- and interstate tensions.” when protectionism has spread.” mer secretary of state), Stephen Hadley (a MrMacron wants ideas from all sorts of Australia has historically relied on a former American national-security advis- organisations, including governments, culturally similar foreign ally to guarantee er), Carl Bildt (a former prime minister and businessassociations, NGOs, trade unions, regional security: first Britain, then Ameri- foreign minister ofSweden) and Yoriko Ka- religiousgroupsand think-tanks. The mod- ca. China’s rise and America’s inward turn waguchi (a former Japanese foreign minis- el is COP21, the summit in 2015 that pro- are concentrating minds. In “Without ter), it aims to articulate core principles of duced the Paris accord on climate change. America: Australia in the new Asia”, an es- the rules-based order and mobilise public Mr Trump has decided to pull America out say published last November, Hugh White and official backing forthem. of that agreement, which is itself an exam- of Australian National University (ANU) In the same vein, the Alliance of De- ple ofthe third varietyofeffortbehind like- predicts a not-too-distant future in which mocracies Foundation was set up last year mindedness: keeping international deals China is Asia’s dominant power. But how to “strengthen the spines” of the world’s alive in America’s absence. to respond? “Our best hope”, suggests Mi- democracies. A brainchild of Anders Fogh No country has followed America in chael Wesley, also of ANU, writing in Aus- Rasmussen, a former Danish prime minis- abandoning the Paris accord. All the other tralian Foreign Affairs, “is not for some ter and NATO secretary-general, it held an 194 signatories are sticking with it, and grand coalition to balance China but for inaugural “Democracy Summit” in June hope America will one day rejoin the fold. each of China’s larger neighbours to assert and envisages annual winter gatherings in Within America, state governments, cities its interests when they are challenged.” Colorado, as well as summer ones in Co- and businesses have in many cases com- In the absence of a grand coalition, penhagen. In the absence ofclear ideologi- mitted themselves to carbon reductions in smaller ones may play a role in resisting an cal leadership from the White House, says the spirit ofParis. over-mighty China. In January when Aus- Mr Rasmussen, the rest of the free world European attemptsto keep the Iran nuc- tralia’s prime minister, Malcolm Turnbull, needs to advance and defend democracy. lear deal alive without America are prov- visited Japan, the two countries pledged to The first initiative of the foundation’s ing trickier. The Trump administration deepen and broaden defence co-opera-1 Financial Era Advisory Group 48 International The Economist August 4th 2018

2 tion. A “reciprocal access agreement” is be- working towards “ever-closer union”, dis- world to suit its interests. China has found- ing concluded to allow joint military exer- cerning who is really like-minded is be- ed bodies such as the Asian Infrastructure cises. In July Australia, Japan and India coming harder, as populist forces have Investment Bank, the “16+1” gathering of16 held high-level trilateral talks in New Del- gained influence. In Italy, for example, the central and eastern European countries hi, raising the possibility of joint naval ex- Five Star Movement that is now the largest plus China, and the world’s largest region- ercises. Another trio involving Australia, party in the country’s coalition govern- al grouping (in terms of its members’ com- includes France as well as India. In a ment has threatened to block the EU’s free- bined population), the Shanghai Co-oper- speech at a naval base in Sydney in May, trade agreement with Canada. “Before ation Organisation (bringing together Mr Macron called for a “Paris-Delhi-Can- thinking of defending the liberal order China, India, Kazakhstan, Kyrgyzstan, Paki- berra axis” to become an established re- globally there’s a problem of defending it stan, Russia, Tajikistan and Uzbekistan). gional structure, with France, India and within the EU,” says Marta Dassù, of the And Mr Xi’s flagship project is the Belt and Australia defining a joint strategy for the Aspen Institute Italia. Road Initiative, a sweeping plan to build Indo-Pacific. “Ifwe want to be seen and re- In some cases, hard-headedness may infrastructure along China’s trade routes. spected by China as an equal partner,” he be just as important as like-mindedness. A As America retreats, expect China to said, “we must organise ourselves.” He en- lot depends on what the common ap- cultivate such networks even more ener- visages regular trilateral talks between for- proach is trying to achieve. In the words of getically. “The world is moving towards eign and defence ministers. Donald Rumsfeld, when he was America’s multipolarity,” Mr Xi told the recent sum- Back in Europe, the French president is defence secretary at the time of the inva- mit of the BRICS (Brazil, Russia, India, Chi- also trying to bring the like-minded togeth- sion of Afghanistan in 2001, “the mission na and South Africa) in Johannesburg. He er on defence. His European Intervention determines the coalition.” appealed to a shared interest among this Initiative (EII for short) was signed into ex- Sometimes it may be enough to be only group in the evolution of the global gover- istence by nine countries, including Britain partially like-minded, in pursuit of a com- nance system, championing the develop- and Germany, in June. The idea is to im- mon interest. China, for example, is seek- ment of emerging markets. “We BRICS prove strategic co-operation so that co- ing to make common cause with the Euro- countries should…play a constructive role alitions of willing European countries can pean Union in defence of the global in building a new type of international re- be readyforjointaction in crises, if need be trading order that has served both well. At lations,” he said. without America. a summit meeting with the European Un- The next few years are likely to see a Such coalitions raise many questions. ion in Beijing in July President Xi Jinping boom in what might be called the like- One concerns their effectiveness. Innova- said they should “join hands to defend mindednessindustry. In the shortterm this tions such as the EII may be good ideas, but multilateralism and a rules-based free- isunlikelyto impinge much on MrTrump’s the gap between strategic dialogue and co- trade system”. The two sides issued a joint solipsistic world-view, let alone to alter his alitions in a military operational sense is a communiqué supporting the system, America First course. Other countries’ plu- wide one. For that, points out François something that had eluded them in their rilateral initiatives will mostly be beneath Heisbourgofthe Geneva Centre forSecuri- two previous summits. It suits the Euro- his notice. But he might fight back against ty Policy, you need both interoperability peans to flirt with China, to show America those that succeed in directly thwarting his and agility. “You can’t just improvise, you that they should not be taken forgranted. intentions. The most obvious danger of a have to have it built up.” Still, without common values, co-oper- clash is over Iran, should the other parties ation is likely to remain limited. The Euro- to the nuclear deal manage to keep it afloat Does size matter? peans are far more worried about Mr Xi’s despite his attempt to scuttle it. Another reservation relates to the groups’ authoritarian waysthan aboutMrTrump’s Like startups in the business world, scale. Do they really amount to much? tendencies—and they share Mr Trump’s many new coalitions of the like-minded Even if they club together, for example, it is objections to China’s own mercantilist will fail. But some could flourish. Mr Gyn- hard for other countries to match China’s policies. For Europe, “the temptation to en- gell predicts that the current “hub and clout in Asia. And there is no real substitute roll China into the like-minded isvery dan- spoke” order will give way to a power grid forAmerica’s overall influence and power. gerous,” warns Ms Dassù. in which “networks and links will be ever The country spends more on defence than China shows that not all initiatives of more important.” This effervescent, entre- the next seven countries combined, pro- the like-minded involve champions of the preneurial period in global affairs could duces 23% ofglobal GDP (measured at mar- liberal order. It has become an institutional help to save the existing world order—or ket exchange rates) and has the world’s entrepreneur in an effort to shape the start to shape a new one. 7 dominant currency. Still, Mr Rasmussen believes that a joint effort can make a dif- ference while Mr Trump is president. “A group of midsized and wealthy democra- cies could join forces and protect the rules- based world order.” How “like-minded” do countries need to be to work together? Canada and 16 Lat- in American countries have formed the “Lima Group” backing a restoration of de- mocracy in Venezuela. They have blocked regional recognition of Venezuela’s vote fora ConstituentAssemblylastyearand of a sham presidential election in May. Now, however, some wonder whether Mexico will retain its like-mindedness when An- drés Manuel López Obrador takes over as president in December, and whether Brazil will afterits election in October. Even in Europe, despite decades of https://t.me/finera Business The Economist August 4th 2018 49

Also in this section 50 Bartleby: Mission implausible 51 Tech giants’ earnings 52 Milk wars 52 Selling to Japan’s elderly 53 Commercialising autonomous cars 54 The blockchain and energy Schumpeter is away

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

China’s venture titans azon, Facebookand Google, also mainly in consumer-internet products. But for sheer Feeding frenzy breadth and firepower, look to China. Ac- cording to McKinsey, a consultant, Ameri- ca’s giants make just 5% of all domestic VC investments, whereas between them the BATs account for close to half of those in HANGZHOU China (though Baidu’s are relatively mea- Alibaba and Tencent have become China’s most formidable investors. Their gre). Tencent has a portfolio of 600 stake- gorging is shaping the next shoal ofstartups holdings acquired over the past six years ENSETIME, the world’s most valuable hailing and food delivery, clashing fre- (see chart), many unannounced. There is Sartificial-intelligence startup, was not quently along the way. Mature and power- barely a trace of bombast when Jack Ma, one to “bow and scrape for five pecks of ful, they are ruthlessly blocking and tack- Alibaba’s founder, says that he eventually rice”, said Tang Xiaoou, one of its co-foun- ling not only each other, but any firm that hopes to see former Alibaba employees ders, last September. Yet within two sides with the enemy. running 200 ofthe top 500 Chinese firms. months the proud firm, which is worth More startups are thus becoming Wen Feixiang, IT Juzi’s founder, says $4.5bn, had buckled and taken investment locked into a proxy war over the consumer that it is becoming received wisdom that to from Alibaba, a Chinese e-commerce titan. internet, in turn shaping how young busi- grow into a unicorn, a young firm has no For ambitious entrepreneurs, it was all of a nesses strategise and grow. The risk is that choice but to join one of the two camps. piece with a bleak scene that Mr Tang had China developsa sortofmandated form of Alibaba and Tencent are offering more described: “Google and Facebookahead of entrepreneurship, driven by the strategies than just large cheques. Their platforms you; behind you, a gaggle of small compa- of a near-duopoly. That would be a disap- have become irresistible. WeChat, Ten- nies thinking of copying you. And above pointing turn of events for a calibre of in- cent’s instant-messaging service, counts you, three big mountains.” novators unseen in the country foryears. over 1bn users. Alibaba’s emporia are Those three Chinese mountains are To venture-capital (VC) firms in Ameri- home to 1m merchants. Between them Baidu, an online-search giant, Alibaba and ca, the story may well sound familiar. they account for 94% of mobile transac- Tencent, a social-media and gaming titan, There the talk is of a “kill-zone” around ac- tions through WeChat Pay and Alipay, collectively known as BAT. Ever fewer pro- quisitive technology giants including Am- their rival payment systems. mising young Chinese companies seem In America, venture capitalists shy able to escape the reach of their insatiable away from backing startups whose busi- investment teams. The tech triumvirate A net cast wide ness centres on the consumer internet, be- has already invested, directly or indirectly, Number of venture-capital investment rounds* cause the likes ofGoogle and Facebook are in half of the 124 startups counted as “uni- so dominant there. In China that is not yet corns” (those worth $1bn or more) by IT 80 the case, and early-round financing re- Alibaba Juzi, a database of startups in Beijing. By Tencent mains plentiful. Many VCs try to sniff out the time firms hit the $5bn mark, over 80% 60 the sparkiest startups, anticipating a gener- have taken a form ofBAT investment. Their ous exit later when the giants buy in. Then reach is a growing concern among entre- 40 dozens of young firms race each other to preneurs, though few openly admit it. secure funding from Alibaba or Tencent. Of the triumvirate, two are colossi. That race helps propel entrepreneur- 20 Even after declines in their share prices, ship, argues Gan Jie, a professor and board Alibaba and Tencentare still worth close to member of DJI, a whizzy drone firm that, half a trillion dollars. In recent years both 0 despite its valuation of$15bn, hasnot taken 2008 10 12 14 16 17 have moved out of their core businesses investment from either Alibaba or Tencent Source: Crunchbase *Includes subsidiaries into areas as varied as bike-sharing, ride- (it, along with other Chinese hardware 1 Financial Era Advisory Group 50 Business The Economist August 4th 2018

2 companies, has found it easier to resist). 2015 a merger occurred which made Ali- tally by Sanford C. Bernstein, a research But it also means the giants get to deter- baba feel insecure in food delivery. Mei- firm. An Alibaba vice-president has been mine who wins and who loses, she adds. tuan, backed by Alibaba, joined with its installed as its new chiefexecutive. When Tencent invested $600m last sum- arch-rival, Dazhong Dianping, backed by Asambition shrinkswithin startups, in- mer in Mobike, a shared-bike startup, for Tencent. Soon afterwards Meituan-Dian- novation suffers. Few are trying to build a example, Alibaba countered with a $700m ping raised $3.3bn in a funding round led platform of users, because they expect to stake in a rival, Ofo. In a flash, dozens of by Tencent, giving the latter more sway. rely for traffic on WeChat. Startups which smaller competitors were out ofthe race. Alibaba’s riposte was to dump almost win Tencent’s orAlibaba’s favourexpect to The duopoly’s rivalry also thwarts am- the entirety of its shares in Meituan. Seek- profit from reams of data, logistics net- bition at younger firms. The story of ing a new way to rival it, Alibaba invested works, payment gateways and technologi- Ele.me, a food-delivery platform founded in Ele.me and in April bought the platform cal support, too. Gordon Orr, a former a decade ago, whose name roughly means outright, in a deal that valued Ele.me at head of China for McKinsey, says that en- “Hungry yet?”, is illustrative. It was expect- $9.5bn. It is now merely part of Alibaba’s trepreneurs tend to prefer a data-sharing ed to growinto an independentfirm with a arsenal, one among 60 investments the agreementcemented with an equityshare- valuation as high as $20bn or more. But in giant has made since 2017, according to a holdingthan one without. ForAlibaba and1 Bartleby Mission implausible

When visions and values descend into verbiage UR mission is what drives us to do Of course it is difficult to boil down The danger is that, by aiming to in- “Oeverything possible to expand your activities to a single sentence. Like the spire, firms produce pious platitudes in- human potential.” As a credo, it sounds Spanish Inquisition’s “diverse elements” stead. Forexample, Exxon Mobil says “we suitably inspiring. But which member of in the sketch by Monty Python, the tempta- must continuously achieve superior fi- the Dow Jones Industrial Average has this tion is to keep adding points until confu- nancial and operating results while si- as a mission statement? And which com- sion results. Cisco has a mission statement, multaneously adhering to high ethical panysaysthat“ourpurpose unifiesusin a a vision statement and a list of values, in- standards.” Sounds good. But how will common cause and growth strategy of cluding “win together” and “always do the Exxon bring it about? Recent financial re- improving more consumers’ lives in right thing”. sults have not been good; it is hard to small but meaningful ways each day?” While God made do with just ten com- judge ethical standards from the outside. Top marks if you knew that the first mandments, Goldman Sachs has 14 busi- The danger with grand expressions of statement came from Nike, which makes ness principles. Some ofthese do not seem virtue is that they induce cynicism. It is all sportswear, and the second from Procter to be “principles” at all, but unexciting de- very well forfirms to say they “value their &Gamble(P&G), a consumer-goods scriptions of the nature of investment people”. But that is best demonstrated not group. But the slogans could have been banking, such as, “our business is highly by verbiage, but by concrete measures switched between the two companies competitive and we aggressively seek to such as reducing the gender pay gap or without stretching credulity. expand our client relationships.” paying staffabove the minimum wage. Mission statements are not compul- In the face of such long-windedness, Indeed, mission statements are most sory but they appeal to executives seek- JPMorgan Chase might at first glance de- worth analysing for the things they fail to ing to emphasise that their business is serve credit forhavinga list ofjust fourcore mention. None of the firms cited as a core about more than making money. That in principles. Alas, the quartet is pretty ano- principle that they should provide their turn, they hope, should draw recruits dyne—“a great team and winning culture” workers with a decent pension. Few if who want to join a company with a is one example. And each principle comes any state that they try to avoid compul- broader purpose, which is an aim of with its own sub-principles, making 20 in soryredundancies.Amongthe Dowcom- many millennial employees. all, including such convoluted efforts as ponents, Johnson & Johnson, a consum- Some of these statements are better “we are field and client driven; we operate er-products group, is unusual for stating than others. While P&G’s is wordy, there at the local level” and “we maintain an that it must “bear our fair share of taxes”. is something pleasingly punchy about open, entrepreneurial meritocracy for all”. Paying tax is a pretty good way ofdemon- Caterpillar’s credo—“our solutions help strating corporate citizenship. our customers build a better world”—and The best statements are short and de- it is linked to the firm’s core business of scribe the business in a way that custom- construction machinery. ers and employees can understand and But many groups talk in such grandi- appreciate. McDonald’s is admirably suc- ose, world-saving terms that they may re- cinct: “to be our customers’ favourite mind listeners of Ralph Waldo Emerson’s place and way to eat and drink”. Visa, joke: “The louder he talked of his honour, with economical elegance, says its vision the faster we counted our spoons.” Cisco is “to be the best way to pay and be paid wants to “change the world”, Walgreens foreveryone, everywhere.” And Walmart Boots Alliance says it is “caring for people talks of“savingpeople money so theycan and communities around the world” and live better”. It is not the stuff of inspiring Chevron talks of “enabling human pro- oratory. But such clear, direct statements gress by developing the energy that im- at least create the impression that the proves lives and powers the world for- company knows what it is doing. ward”. And you just wanted enough petrol to get you to the shops. Economist.com/blogs/bartleby https://t.me/finera The Economist August 4th 2018 Business 51

2 Tencent, these often come with a board Richard Peng, a former investment chief trajectories. seat and voting rights. forTencentwho nowrunsGenesisCapital, This year the FAANGs and a few other The Chinese government, for its part, is a China-based venture-capital firm. high-flying tech firms provided more than surely delighted that its national technol- Last year Meituan set up its own invest- halfthe returns in the S&P 500 share index. ogy champions are snapping up stakes in ment fund, opening a new channel for Netflix’s share price, for instance, more hundreds of startups. Being able to man- startups (that is at some distance from Ten- than doubled between January and July. age a handful of established private play- cent). It will doubtless be closely moni- Twitter’s almost did so. Facebook’s market ers with long-standing links to the Com- tored by the duopoly. The two firms have value quickly recovered from a low in munist Party, with their tentacles in many rarely been so watchful of the other, in a March, after revelations that its data on young firms, makes the whole tech indus- competition that Tencent’s Pony Ma says 87m users had leaked to a British political- try easier to control, be it through censor- has been “formalised in our country”. campaign firm. ship directives or in directing its know- Even he has confessed on occasion that it is With their shares priced for near-per- how to the state’s industrial plans. an unhealthy one. But the two giants fect results, the firms were vulnerable to For that reason, the government is un- should be on their guard for another rea- bad news. This duly arrived, starting with likely to want to break up the “walled gar- son: having for so long fostered innova- Netflix, a video-streaming service, which dens” that the giants have built round their tion, they are now at risk of sapping it. said in mid-July that it had added fewer offerings, in which startupsmustalso oper- They would be among the first to suffer. 7 subscribers than expected. A few days lat- ate. WeChat does not let users send friends er Facebook gave downbeat guidance direct links to Taobao, Alibaba’s main about future growth and margins. Then shopping site. Apps owned by the two Twitter, a microblogging site, announced firms tend to make it either finicky or im- that its number of active users had de- possible to pay using their rival’s payment clined. All three firms’ share pricesplunged system. Startups with backing from Ali- by about a fifth. baba or from Tencent have therefore come News of the wipeout overshadowed to expect to be frozen out of parts of the the fact that the other tech titans continue market. Liu Zihong, founder of Royole, an to do well, as also evidenced in July. Micro- independent startup valued at $5bn that soft, the world’s biggest software firm, makes flexible displays, says that, as a rule, reached $100bn in annual revenue for the “if you band with one giant you lose the first time. Alphabet shrugged off the $5bn chance to workwith the other”. fine recently imposed on it by European As independents, plenty of startups are trustbusters and posted strong results. Am- giving Alibaba and Tencent a run for their azon announced a record quarterly profit. money, often serving markets into which These divergingresultspointto a broad- the giants have been slower to move. Pin- er development. Throwing all the FAANGs duoduo, a discount-buying app, built its and otherbigtech firmsinto one basket has group-buying platform by targeting Chi- always been lazy. In the future they will na’s poorer cities. Tencent soon took a probably be seen as two different groups: a stake. Douyin and Huoshan, short-video The technology industry consumer-oriented one, which could, apps backed by Bytedance, a technology somewhat awkwardly, be called “FAT- firm with no current ties to the two giants, FATWIN v MAGA WIN” (Facebook, Twitter and Netflix) and have hooked youngsters and left Tencent a more business-to-business group, which scrambling to create a rival offering. some already dub “MAGA” (Microsoft, Fast-growing platforms such as You- Amazon, Google and Apple). miao, a luxury-handbag rental firm based The first group shows signs of reaching in Hangzhou (also home to Alibaba), reck- maturity. It is not that the firms will now on they can take their pick of the giants’ in- stagnate. Facebook’s revenues grew by The era ofthe FAANGs maybe over vestment offers (Alibaba and Tencent 42%; Twitter’s were up by 24%. But signs came calling within months of Youmiao’s N THE end, it wasn’t enough, at least for abound that social media’s best days are launch). Some firms reject investment Inow. On July 31st Apple announced re- over. Advertising revenues are not infinite. from the duopoly. Lea Liu of QingCloud, sults for its third quarter that handily beat Users are exhibiting social-media fatigue. an ambitiouscloud-computingplatform in analysts’ expectations. Revenues rose by And regulators will continue to prod firms Beijing, says that “ifyou want to be IBM for 17% compared with the same period in to police their platforms (one of the rea-1 the cloud, you cannot be a pawn in a 2017, and profits were 32% higher. The giant’s data-technology strategy”. firm’s shares jumped by nearly 4% in after- Many entrepreneurs also welcome the hours trading. But Apple did not quite Trillion-dollar wannabes recent rise of a new tech trinity: TMD, for manage to become the world’s first widely Market capitalisation, $trn Toutiao (a news-aggregation app owned held listed company with a market capital- 1.0 by Bytedance), Meituan and Didi Chuxing isation of$1trn (see chart). Apple (a ride-hailing service). The trio are among The near miss is a fitting coda to the lat- Amazon Alphabet 0.8 China’s fastest-growing platforms, all est round of results in techland. Momen- Microsoft founded since 2010. Meituan and Didi tum in this most upwardly mobile of in- 0.6 both rose with backing from a giant, but dustries is unbroken; sales and profits are Facebook Bytedance publicly fell out with Alibaba- still rising. But the laws of economic gravi- 0.4 backed Weibo, a Twitter-like platform that ty have not been repealed. In fact, the era eventually retracted its investment from ofthe FAANGs— asFacebook, Amazon, Ap- 0.2 Netflix the bolshie tech startup. It has since pur- ple, Netflix and Google’s parent, Alphabet, Twitter sued its own course. “Nobody thought that are collectively known—may be coming to 0 2014 15 16 17 18 a company like Toutiao would emerge to an end, giving way to a period in which rival the likes of Tencent and Baidu,” says two groups of tech firms follow different Source: Thomson Reuters Financial Era Advisory Group 52 Business The Economist August 4th 2018

2 sons for Facebook’s shrinking margins is its cloud-computing arm, as were Micro- ing revenues ofnearly $10bn. thatithasbeen hiringthousandsofmoder- soft’s expanding revenues. Google, too, is Overall, tech firms will continue to ators to vet users’ posts). The firm’s earn- making more money from the cloud, al- thrive, says Brian Wieser of Pivotal Re- ings call should be seen as a “bigreset ofin- though it still depends on advertising as its search. Yet all bets will be offshould Amer- vestor expectations”, says Mark Mahaney main engine. As for Apple, being mainly a ica’s trade war with China continue to get ofRBC Capital Markets, a bank. hardware-maker, it stands apart. Although hotter. Apple is most vulnerable. Not only The second group benefits from the fact it did not ship as many iPhones as expect- are most of its devices made in China, but that companies continue to embrace cloud ed, it sold them at a higheraverage price. Its the country is its second-largest market. If computing, particularly as it starts to en- services business, which includes the Apple gets hit by tariffs, another company compass artificial-intelligence services. iTunes music store and the iCloud bundle is likely to get to $1trn first. But right now, Amazon’s record profits were generated by of offerings, had its best quarter ever, post- that prize seems within its reach. 7

Food labelling Business and demography Got oats? Silver linings

Plant-based milkalternatives disrupt the dairy business HE humble oat doesn’t exactly ooze consumers via baristas rather than retail- TOKYO Instagrammable cool. Yet it is fast ers, “the snowball just started rolling and T Japanese firms get betterat selling to the becoming the star in trendy coffee shops, hasn’t stopped,” says Ishen Paran, a country’s legions ofelderly favoured by baristas as their faux milk of spokesperson. Customers started de- choice thanks to its “mouthfeel”, taste manding supermarkets stockit, first in BRANCH of Renaissance, a Japanese and ability to foam and be swirled into Europe and now in America. It all led to Achain of fitness centres, would not “latté art”. Demand foralternatives to an oat-milkdrought in late 2017, with seem the likeliest place to find crowds of dairy has accelerated over the past six prices on Amazon soaring as well-off the elderly, but they abound. Older wom- months, says Robert Robinson, the co- parents scrambled forthe goods. A sure en chat as they leave the facilities with wet founder ofNotes, one coffee chain in sign ofa fad, critics scoffed. hair; a couple of seniors sit in the lounge London where oat milkhas become the The dairy sector would certainly like reading books and sipping coffee. The firm favourite over soya and almond. “It to thinkso. It is lobbying forprotection in lounge is something the chain introduced works so well with the acidity ofespres- Europe and America and promoting with the grey-haired in mind. “Our older so and just tastes better,” he adds. educational campaigns such as #Milk- clients like community and hospitality,” Plant-based milks are booming as Truth. Last year the European Court of says Naoki Takazaka of Renaissance. All consumers seekto eliminate dairy from Justice ruled in its favour and forbade the staffmust make time to chat with them. their cereal bowls and coffee cups, mostly use ofterms such as “milk” and “butter” Japan’s population is ageing more rap- forhealth, welfare or environmental for plant-based products, which now call idly than any other country’s. Those over reasons. A survey by Mintel, a research themselves “drinks”. Producers in Ameri- 65 years ofage make up 28% ofthe popula- firm, found that halfofa sample of ca want the same. In July Scott Gottlieb, tion, a proportion expected to rise to 40% Americans bought non-dairy milkover head ofthe Food and Drug Administra- by 2065. Any business that wants to the past three months. Last year Britain’s tion, said the agency would clarify what prosper has to cater to their needs. It is an Office forNational Statistics added non- could be marketed as milk, adding that opportunity rather than a problem, says dairy milkas a subsection ofmainstream “an almond doesn’t lactate, I’ll confess.” Masahiko Uotani, chief executive of Shi- goods in its consumer-price index—a sure Not all dairy firms are resisting. Some, to seido Group, a cosmetics behemoth: older sign that the trend is here to stay. Innova their credit, have brought out lactose-free people live longer, are active for longer Market Insights expects the global market or dairy-free products. Following the than past generations and are relatively to surpass $16bn in 2018. consumer, after all, is usually the best rich. “But you have to take the time to find As consumers separate the wheat route to a cash cow. outwhattheyactuallywantsince itis often from the chaff, soya, the original alt milk, not what you expect,” he says. has been losing market share. Experi- The obvious opportunities are in care ments with peas, pecans and flax all had of the elderly and end-of-life services such their problems. Almond milk, an estab- as funerals. Big companies such as Kobe lished favourite in America, suffered Steel and Hitachi, two industrial heavy- when its environmental credentials were weights, sell private housing to seniors. questioned; one almond requires five Several providers of nursery schools have litres ofwater to produce. also started care homes for the more nu- Oat milk’s environmental footprint is merous people at the other end of life. Ro- modest by comparison and its health botics firms are developing tools to help properties are solid. Albeit from a low old people live independently for longer. base, sales in Britain grew last year by Manufacturers of walking sticks and adult 76%, according to Nielsen, compared nappies are faring well. with 24% forcoconut (also a newcomer), Unexpected avenues of business are 14% foralmond and 5% forsoya milk. also opening up. Renaissance realised ear- Europe’s leading producer, Oatly, has lier than other companies that older peo- made the drinkfordecades, though ple want to stay fit and started to offer dis- mostly just for people with dietary re- counted memberships for those over 60. strictions. After it revamped its branding By 2016, 30% of its customers were over 60 a few years ago and decided to appeal to Cream of the crop compared to just over 3% in 1994. People in this age group are much less likely than 1 https://t.me/finera The Economist August 4th 2018 Business 53

2 younger members to give up their mem- bership, which is good for business, says Mr Takazaka. Many retirees simply want the same things as those a decade younger, slightly tweaked. O-net, Rakuten’s matchmaking arm, in 2013 launched a dating service for seniors which is growing. Shiseido beauti- cians go into care homes to teach old peo- ple how to do their make-up, at a cost (to the care home) of¥10,000-20,000 ($88-177) per visit; a process with therapeutic bene- fits. Since older people often spend longer in a shop, making them more likely to spend, some convenience-store chains have tried to become places to socialise by adding dining facilities or having person- nel make coffee rather than offering it from a machine, says Ming Li ofLawson, a chain ofconvenience stores. Companies have also noticed how, in Japan too, elderly folkare reluctant to shop online. Lawson is rolling out stocks of books in some shops while it and other Commercialising autonomous vehicles convenience-store chains (so ubiquitous that older people can often walk to them) Gently does it are competing with supermarkets by stocking more food, cleaning products and over-the-counter medicines. Despite the plethora of initiatives, busi- nesses are only in the early days of work- ingout how to target olderconsumers, says A six-month trial in Texas focuses on what self-driving technology can do now Hiroyuki Murata, who heads the Centre forStudieson AgeingSocietiesand advises OBODY likes it when a taxi takes lon- called, and plan their routes dynamically.) firms on targeting the silver-haired. Few Nger than expected to arrive. But that is Use ofthe service is free ofcharge for now. companies have yet started opening early, what is happening with self-driving cars. The vans are painted a garish orange forexample, when old people say they like Building a vehicle that can handle a busy and clearly labelled as self-driving vehi- to get out and about. Most stores have yet street, with cyclists, pedestrians, road- cles. “We weren’t going for pretty, we were to improve access for the infirm with, say, works and emergency vehicles, is a tall or- going for distinctive,” says Mr Ng, who handrails (public facilities have brought in der. In March a pedestrian was killed in draws an analogy with yellow school bus- features such as slow escalator speeds). Tempe, Arizona when a self-driving Uber es: people understand that some kinds of Marketing to older people is another vehicle failed to spot her as she wheeled vehicles behave in particular ways, and ac- area that needs work. They want to be sub- her bicycle across an empty road at night, commodate them accordingly. Screens tly targeted, says MrUotani, ratherthan be- and the vehicle’s safety driver failed to hit mounted on the vans’ exteriors let them ing reminded of their age through, say, ad- the brakes. There is a growing sense that communicate with pedestrians and other verts using someone advanced in years or the technology has, so far, overpromised road users, for example to tell a pedestrian with wrinkles. “I’m 64 and I am not old!” and underdelivered. So a trial of self-driv- that it is safe to cross a road. Rather than he says. His firm seems to have pulled this ing vans that began in Frisco, Texas on July trying to build a vehicle that mimics a hu- off; sales of Shiseido’s Prior range of cos- 30th is notable for its realistic approach to man-piloted one, Drive.ai is making the metics aimed at those over 50, with simple what the technology can do today. self-driving nature ofits vehicles explicit. packaging and instructions on how to use Drive.ai, a startup, has deployed seven Similarly, rather than trying to build a the products in a large font, have risen by minivans to transport people within a lim- vehicle that can navigate roadworks (a no- 120% per year in the two years since its ited area of the city that includes an office toriously difficult problem, given inconsis- launch in 2015. parkand a retail area. “We are identifying a tent signage), Drive.ai has arranged for the Another sizeable opportunity may lie valuable use case that we can deploy with city authorities to tell it where any road- in what firms can then export in terms of today’s technology,” says Andrew Ng, a works are each day, so that its vehicles can know-how as other countries follow Ja- board member and a pioneer of “deep avoid them. The company has also liaised pan’s demographic trajectory. Last year learning”, the technique that underpins with emergency services (another poten- Shiseido started to run its care-home cos- the current boom in artificial intelligence. tial source of confusion for autonomous metics lessons in Taiwan. Renaissance has As the technology evolves, he says, so will vehicles) and held a series of town-hall developed Synapsology, a programme of autonomous-vehicle services. For now, meetings to answer questions from locals. simple but ever-changing exercises for the though, Drive.ai is keeping things simple. Drive.ai will limit the service to day- brain, and now makes money both taking All pick-ups and drop-offs happen at light hours, which makes things simpler the programme into care homes and certi- designated stops, to minimise disruption and safer. Each vehicle will initially have a fying people to run the course. It has struck as passengers get on and off. Riders hail the safety driver, who will shift to a passenger a deal for a South Korean company to host vans using an app and go to the nearest seat ifall goes well. Ifa van gets confused it it locally. That fits nicely with another pri- stop; a vehicle then appears to pick them can stop and call for help: a remote super- ority of which Japanese firms often talk: up. (The vehicles do not circulate continu- visor then advises it how to proceed (rath- becoming more global-minded. 7 ously like shuttle buses, but wait to be erthan drivingthe vehicle remotely, which1 Financial Era Advisory Group 54 Business The Economist August 4th 2018

2 would not be safe, says Mr Ng). There islotsofhype and a degree ofher- Among many initiatives, the EWF is pio- It might sound as though Drive.ai is esy, given that stodgy utilities are making neering a blockchain application that cheating, by simplifying the problem in so use of an anti-establishment technology. tracks renewable-energy certificates used many ways. But the end result is still a use- Almost all blockchain applications are still to offset carbon emissions to make them ful service; letting workers visit the retail experimental. But the scope of potential more transparent and granular. park for lunch without having to worry blockchain-energy businesses is so wide Experts say it is important to bust two about driving or parking. And it provides a that there may be successes to come. The myths—one too positive, the other too neg- foundation from which to expand the ser- applications range from ways to promote ative—about the blockchain and energy. vice in future, in Frisco and elsewhere. buying, selling or trading of clean energy First, there is a view, promoted in many ini- Drive.ai plans to license its technology between individuals (also called peer-to- tial coin offerings, that everyone will be to others, and has struck a deal with Lyft, a peer trading), to balancing wholesale elec- able to use the blockchain and cryptocur- ride-hailingfirm, to operate vehicles in and tricity markets (ensuring that supply al- rencies to trade locally-generated energy around San Francisco. “I think the autono- ways matches demand), to trading carbon (rooftop solar, for instance) with each oth- mous-vehicle industry should be upfront credits. Further uses are enabling house- er, without a centralised utility in the mid- about recognising the limitations of to- holds to provide charging stations for elec- dle. This is largely nonsense. Electricity still day’s technology,” says Mr Ng. It is surely tric cars, and funding the development of needs to travel down poles and wires, for better to find pragmatic ways to work solar power in poor countries. which the transmission and distribution around those limitations than pretend Numbers are hazy. The Energy Futures companies will want hard cash. The block- they do not exist or promise that solving Initiative, a think-tankled by Ernest Moniz, chain will be used, if at all, at either end of them will be easy. 7 a former American energy secretary, says the grid. that $100m-300m has been invested in On the negative side, a view prevails over 100 blockchain-related energy ven- that the blockchain will guzzle too much The blockchain and energy tures. Specialists at the Council on Foreign electricity for energy applications to make Relations (CFR), an American think-tank, sense. But this assumes that projects will Greens meet geeks say most investment so far has gone into use a public blockchain such as bitcoin, peer-to-peer trading and grid-balancing which anyone can access with the right applications. A“try-anything” attitude pre- software, requiringlots ofcomputing pow- vails. “It is like looking at cell phones circa er and time to verify each transaction and 1995 and not knowing what the future of protect the blockchain. Energy firms could mobile communications will be,” says in fact employ blockchains in which only Hope, hype and heresyas energyrides Sam Hartnett of the Energy Web Founda- trusted participants can join, making the the cryptowave tion (EWF), a non-profit venture aimed at process ofmaintainingthe blockchain fast- EPCO, Japan’s largest energy firm, is an developingcore blockchain technology for er and less energy-hungry. Tunlikely advocate of techno-anarchy. the energy industry. MrHarnett says that, while bitcoin tran- The firm isbestknown forthe meltdown at Tepco, for instance, appears to be sactions can consume the energy of a me- its Fukushima Dai-ichi nuclear-power throwing the digital equivalent of spaghet- dium-sized country when done regularly, plant in 2011, during which its buttoned- ti at the wall to see what sticks. In Decem- those of EWF are “of the order of a medi- down executives showed corporate Japan ber, it made an investment of an undis- um-sized office building”. The use of at its most stultified. Yet it is trying to rein- closed sum in Electron, a British trusted pools of participants is where the vent itselfas a pioneerofone ofthe edgiest blockchain company that is focusing chief- utilities spy an opportunity to co-opt a po- forms ofenergy.It is embracing blockchain ly on handling the multiplying options for tentially insurgent technology; they will technology with an aim, no less, of over- flexible demand in electricity systems. In use it to remain central to the decentralisa- throwing the old order in the electricity April Electrify, a Singapore-based startup, tion of electricity. “The [blockchain] ven- business to make it more decentralised. said it had signed a memorandum of un- tures most likely to achieve commercial Blockchains, the technologieson which derstanding with Tepco to experiment traction in the coming years will largely bitcoin and other cryptocurrencies are with peer-to-peer electricity trading. The work within the existing system and built, may at first appear to be an uneasy fit Japanese group is also one ofmore than 70 partner with incumbents such as utilities,” with the energy business. Electricity has in firms, including utilities Duke Energy and saysthe CFR report. OrasElectrify’sMartin the past been generated centrally, run Centrica, and oil firms Royal Dutch Shell Lim colourfully puts it, “It’s ironic. Every across vast physical grids, with constant and Equinor, that are part of the EWF. subversive turns into a dictator.” 7 management by system operators to keep power flowing smoothly. Blockchains are distributed digital ledgers, which are not managed by a central authority,but collec- tively by a group of users. If anything, cryptocurrency blockchains are a drain on energy rather than a support for it. Digico- nomist, a blog, estimates that just one bit- coin transaction usesasmuch electricity as an average household in the Netherlands uses in a month. Yet in an era when more businesses, communities and households are generat- ing their own energy, chiefly via solar and wind power, startups and big utilities alike believe blockchains will help speed the move towards decentralisation. They are finding ways to do this with minimal ener- gy consumption. Cryptohipster joins the grid https://t.me/finera Philosophy brief Liberal thinkers The Economist August 4th 2018 55

brilliant autobiography, published after his death in 1873, he confided that he grew up “in the absence of love and in the pres- ence of fear”. The result was a breakdown in his early 20s. He later came to believe that there must be more to life than what Benthamites term the “felicific calculus”— the accounting ofpleasure and pain. He turned to the poetry of William Wordsworth and Samuel TaylorColeridge, which taught him about beauty, honour and loyalty. His new aesthetic sense pushed him away from gung-ho reform- ism and gently towards conservatism. If the societies ofthe past had produced such good art, he reasoned, they must have something to offerhis age. Mill did not reject utilitarianism as thor- oughly as his contemporary Thomas Car- lyle, who argued that only pigs would viewthe seekingofpleasure asthe founda- tion of all ethics. Instead, Mill qualified it. Unlike Bentham, who thought that push- pin, a board game, was “of equal value with...poetry”, he maintained that some sorts of pleasure were superior to others. He denied that these nuances meant he was no longera utilitarian at all. What may at first seem a purely virtuous act that en- John Stuart Mill genders no immediate pleasure—being true to your word, say—may eventually Against the tyranny of the majority come to seem essential to well-being. This refinement of utilitarianism dem- onstrated a pragmatism thatisone of Mill’s intellectual hallmarks. On many issues it is difficult to pigeonhole his stance, or even to pin down exactly what he believes. Part of what makes him a great thinker is that Why the fatherofliberalism still matters today he qualifies his own arguments. His views Y THE age of six, John Stuart Mill had evolved over the course of his life, but for B written a history ofRome. By seven, he In this series most of it he rejected absolutes and recog- was devouring Plato in Greek. “This looks nised the world’s mess and complexity. like bragging,” his father James told a 1 John Stuart Mill John Gray, a philosopher, writes that Mill friend when the boy was eight; “John is was “an eclectic and transitional thinker 2 Alexis de Tocqueville now an adept in the first six books of Eu- whose writings cannot be expected to clid and in Algebra.” 3 John Maynard Keynes yield a coherent doctrine.” The hot-housingthatbegan atthe youn- Above all, though, like all liberals Mill 4 Schumpeter, Popper and Hayek ger Mill’s birth in 1806 yielded its intended believed in the power of individual result: a prodigy with a profound faith in 5 Berlin, Rawls and Nozick thought. His first big work, “A System of the power of reason. He became the lead- Logic”, argues that humanity’s greatest 6 Rousseau, Marx and Nietzsche ing exponent of the philosophy of liberal- weakness is its tendency to delude itself as ism, formulating ideas about economics to the veracityofunexamined convictions. and democracy that shaped the political ams, an American historian, referred to He renounced shibboleths, orthodoxies debates of the 19th century. His reflections Mill as “his Satanic free-trade majesty”. In and received wisdom: anything that on individual rights and mob rule still res- the few surviving photos of him, he looks stopped people thinking for themselves. onate today. Especially today. somewhat cold and unfeeling. He wanted them to be exposed to as Mill grew up at a time ofrevolution. De- He wasn’t. True, in his early years Mill wide a range of opinions as possible, and mocracy was on the march. America had was a dyed-in-the-wool utilitarian. His for no idea or practice to remain unchal- broken free from Britain; France had over- mentor was Jeremy Bentham, who had ar- lenged. That was the path to both true hap- thrown itsmonarchy. In 1832 Britain passed gued that the principle underlying all so- piness and progress. To protect freedom of the first Reform Act, which extended the cial activityoughtto be “the greatesthappi- expression he formulated his “harm prin- franchise to the middle classes. The Indus- ness of the greatest number”. The aim of ciple”: “the only purpose for which power trial Revolution was in full swing. The old political economy, as economics was then can be rightfully exercised over any mem- social order, in which birth determined so- known, was to maximise utility. Like Grad- ber of a civilised community, against his cial position, was disintegrating. Nobody grind in Charles Dickens’s “Hard Times”, will, isto preventharm to others,” he wrote could be certain what would replace it. Mill initially followed Bentham in seeing in “On Liberty”, his most famous book. Many today see Mill as an avatar for the humans as mere calculating machines. As Richard Reeves’s biography makes ruthless capitalism of his era. Henry Ad- But that was only the young Mill. In his clear, Mill thought the coming industrial, 1 Financial Era Advisory Group 56 Philosophy brief The Economist August 4th 2018

2 democratic age could enable human flour- displayed “general indifference to those all followed them,” as Alan Ryan, a politi- ishing in some ways, but hinder it in oth- kinds of knowledge and mental culture cal theorist, puts it. ers. Take free trade, forwhich he was an en- which cannot be immediately converted One solution was to give educated vot- thusiast (despite working for a long time into pounds, shillings and pence.” Follow- ers greater power. In this dispensation, for the East India Company, perhaps the ing Alexis de Tocqueville’s premonitions, people who could not read or write, or world’s biggest-ever monopoly). He Mill saw America as the country where who had received the 19th-century equiva- thought free trade increased productivity: there was less genuine freedom of thought lent of welfare benefits, would not get a “Whatever causes a greater quantity of than any other. How else could it live with vote. (Mill also thought certain citizens of anything to be produced in the same place, such a huge inconsistency at its heart: a Britain’s colonies, including Indians, were tends to the general increase ofthe produc- proclamation ofliberty forall which co-ex- incapable of self-government.) University tive powers of the world,” he wrote in isted with the institution ofslavery? graduates might get six votes, unskilled “Principles of Political Economy”. He criti- workers one. The aim was to give those cised the Corn Laws, tariffs which largely In praise of experts who had thought deeply about the world benefited holders ofagricultural land. Democracy itself threatened the free ex- more say. The lower orders would be re- Yet Mill was even more taken by the change of ideas in a different way. Mill minded that they required political and philosophical argument forfree trade. “It is thought it right that ordinary people were moral guidance, though in time more of hardly possible to overrate the value, in the being emancipated. But once free to make them would join the ranksofthe educated. present low state of human improvement, their own choices, they were liable to be Although that approach looks snob- of placing human beings in contact with taken in by prejudice or narrow appeals to bish, orworse, Mill was enlightened for his personsdissimilarto themselves, and with self-interest. Give the working classes a time. Indeed, he would have approved modes of thought and action unlike those vote, and chaos could result. many of the social changes in the 21st cen- with which they are familiar.” This applied Thatin turn mightcramp society’sintel- tury, including the universal franchise and to everyone: “there is no nation which lectual development, the views of the ma- women’s rights. does not need to borrow from others.” He There would be much to concern him, practised what he preached, spending a lot too. Take Brexit. WhetherornotMill would of time in France and seeing himself as a have been a Brexiteer, he would have ab- sort of interlocutor between the revolu- horred the referendum. Why get laymen to tionary passion of French politics and the decide a matter on which they have little buttoned-down gradualism ofEngland. knowledge? He would have watched the As democracy spread, he anticipated, rise of President Donald Trump, whose ideas would clash. He supported the Re- anti-intellectualism he would have form Act of1832, which, as well as extend- loathed, and say: “I told you so.” He might ing the franchise, did away with “rotten have been surprised that America had tak- boroughs”, constituencies with tiny elec- en so long to elect a demagogue. torates, often controlled by a single person. The intellectual climate on both sides He praised France’s move in 1848 to insti- of the Atlantic would have depressed him. tute universal male suffrage. Each voter’s “[T]he peculiar evil of silencing the expres- views would be represented—and each sion of an opinion is, that it is robbing the would have reason to be informed. Partici- human race,” Mill wrote in “On Liberty”. pation in collective decision-making was “Ifthe opinion is right, they are deprived of forMill part ofthe good life. the opportunity of exchanging error for For the same reason he was an early truth: ifwrong, they lose, what is almost as proponent ofvotes for women. “I consider great a benefit, the clearer perception and [sex] to be as entirely irrelevant to political livelier impression of truth, produced by rights as difference in height or in the col- its collision with error.” He would not be our of the hair,” he wrote in “Consider- jority stifling individual creativity and impressed by no-platforming. ations on Representative Government”. thought. Those who challenged received He might well argue that, before 2016, After becoming an MP in 1865, he present- wisdom—the freethinkers, the cranks, the liberal thought had succumbed to a ty- ed a petition calling forfemale suffrage. Mills—might be shunned by “public opin- ranny of conformity. Until recently there Mill believed that society was advanc- ion”. Expertise could be devalued as the was little talk in liberal society about the ing. But he also foresaw threats. Capitalism “will ofthe people” reigned supreme. “left behind” or the losers from free trade. had flaws; democracy had an alarming The upshot was frightening. Paradoxi- Many liberals had fallen into a decidedly tendency to undermine itself. cally individual freedom could end up be- unMillian complacency—assumingthatall Take capitalism first. In 1800-50 average ing more restricted under mass democracy the big arguments had been settled. annual real-wage growth in Britain was a than under the despotic sovereigns of No longer. Mr Trump’s victory has pathetic 0.5%. The average working week yore. Mill famously refers to this as “ty- prompted liberals to revisit the case for was60 hourslong. Attimeslife expectancy ranny of the majority”. But he worries just everything from free trade to immigration. in some cities dipped below 30. Mill sup- as much about middle-class “respectable” Brexit has led to a lively debate about the ported trade unions and legislation to im- opinion as working-class ignorance. proper locus of power. And universities prove working conditions. He pondered how to counter the tyran- have become a battleground over the lim- He worried, though, that capitalism nical tendencies inherent in economic and its of free speech. Like Mill’s, these are dis- could inflict spiritual damage that would political liberalism. Experts had a vital role orienting times—urgently requiring the in- be harder to fix. The pressure to accumu- to play, he thought. Progress required peo- tellectual flexibility and boldness late wealth could lead to passive accep- ple with the time and inclination for seri- epitomised by the father ofliberalism. 7 tance of the world as it was—what Mill’s ousstudy—a secularclergy, ofsorts, termed disciples call the “tyranny ofconformity”. the “clerisy” (a word borrowed from Cole- Mill loved the idea of a country found- ridge). The clerisyhad a utilitarian justifica- ed on liberty, but he feared America had tion: its members would devise “rules that Read more on classical liberal values and fallen into precisely this trap. Americans would maximise human well-being if we thinkers at Economist.com/openfuture https://t.me/finera Finance and economics The Economist August 4th 2018 57

Also in this section 58 Consumer lending 59 Asset management 59 Myanmar’s state-owned enterprises 60 Buttonwood: Made in Japan 61 Free exchange: Homespun economics

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Greece in the public finances is vulnerable to missed targets, slow growth or a sharp rise Far from the finish line in interest rates. In a report released on July 31st the IMF said that further debt relief might be needed. After years of contraction, followed by stagnation, the economy is growing again. But Mr Vourvoulakis and most of his com- ATHENS patriots are yet to feel the benefit. The crisis Greece’s economyis expanding again, but the crisis has caused lasting damage caused profound damage to the economy. O ONE buys furniture in a crisis,” have miles to go before they reach normal- In real terms, GDP and investment are sig- “Nlaments Konstantinos Vourvoula- ity. Public spending is still severely re- nificantly below pre-crisis peaks (see kis. He and his father used to sell hand- strained. The Greek government has chart). A fifth of the workforce, and two- made furniture, but as customers became signed up to exceedingly ambitious targets: fifths of young people, are unemployed. strapped for cash, they shut up shop in primary surpluses (that is, excluding inter- For Greeks lucky enough to have jobs, 2014. A chatty man with a sunny disposi- est payments) of 3.5% of GDP until 2022— wages have been slashed and taxes raised. tion, he started drivinga taxi instead, ferry- which only a few non-oil-producing coun- Hundreds of thousands of mostly young ingtourists around Athens and offering tra- tries have achieved in the past 30 years— and skilled people have left the country in vel tips. But he doubts he will be able to and an average of 2.2% until 2060. In the search ofbetter livelihoods. afford a holiday himselfany time soon. early years, creditors will monitor progress The crisis exposed deep flaws in Greece’s public-debt woes triggered an every quarter. Greece’s economic model. It relied too economic collapse that lasted longer than Euclid Tsakalotos, the finance minister, much on low interest rates, which funded the Great Depression in America. In 2009 is confident that Greece will beat these tar- splurges on public spending and housing, the new prime minister admitted that bud- gets, freeing up budgetary space for tax and too little on exports. Wageshad far out- get-deficit figures had been understated for cuts and greater investment and social stripped productivity, making the country years, and were perhapsdouble those orig- spending. But Greece’s public-debt burden less competitive than many others in the inally reported. Ratings agencies down- of 180% of GDP means that creditors’ faith euro zone. The government bureaucracy graded its debt. Interest rates surged. In and courts were corrupt and inefficient. 2010 the government turned to the euro Greece was a forbidding place for foreign zone and the IMF for help. Their loans had Hopeless in Hellas investors and new businesses. strings attached: that Greece implement Greece, 2007=100 The situation isnowimproving, though deep spending cuts and structural reforms. slowly. Exports have risen, partly thanks to 120 On August 20th Greece exits the last of Exports of goods and services a doubling in the number of tourists visit- three bail-out packages. Both its creditors 100 ing Greece (though Spain and Ireland, and its government think its public fi- which also struggled after the financial cri- nanceshave improved enough foritto bor- 80 sis, have seen exports grow more). Com- GDP row from the markets again. Debt relief 60 petitiveness has improved because of fall- agreed on in June helps cushion its return. ing nominal wages—a painful way to The maturity of some loans has been ex- 40 adjust, but the only one possible in a cur- Gross fixed investment tended, and interest-rate relief offered on 20 rency union with low inflation. others. A cash buffer of €24bn, enough to The government’s belt-tightening has cover nearly two years of Greece’s funding 0 been drastic—and counterproductive, needs, should also reassure investors. 709200 11 13 15 17 18 many economists argue. Tax rates are now But the public finances and economy Source: Haver Analytics higher than in most of the European Un-1 Financial Era Advisory Group 58 Finance and economics The Economist August 4th 2018

2 ion, points out Miranda Xafa ofthe Centre Consumer lending for International Governance Innovation, Higher purchase and may be choking growth. The tax-free Buy now, pay later United States, unsecured personal-loan threshold is higher than the median priv- balances outstanding, first quarters, $bn ate-sector wage, meaning revenues de- 120 pend on a small share of taxpayers. The 100 marginal rate for Greeks earning €40,000 ($46,500) or above (including social-secu- 80 A crop oftech startups are reviving an rity contributions) is around 70%. Ms Xafa old financial product 60 thinks that evasion may be rising, as self- employed people conceal their income. At MERICANS shopping for a mattress on- 40 its creditors’ insistence, the government Aline may find the selection at Casper, a 20 will broaden the tax base in 2020. New York-based mattress startup, some- Growth is still disappointing. GDP rose what lacking. Unlike brick-and-mortar 0 2005 07 09 11 13 15 17 18 by 1.4% in 2017, and is expected to increase shops, which offer dozens of models, the Source: TransUnion by around 2% this year. The IMF is gloomy startup sells just three. And yet Casper’s about the economy’s potential, partly be- customers are spoiled for choice at the till. cause ofa rapidly ageing population. Those who cannot afford to pay with a San Francisco, was founded by Max Lev- The banking system is still ailing. Just debit or credit card, or PayPal, can pay by chin, who co-founded PayPal. It has agree- under half of existing loans are non-per- instalments over six to 12 months. Those ments with 1,500 online retailers, includ- forming, and banks have little appetite to who make payments on time can enjoy ing Nest, which sells smart thermostats, offernewcredit. Theyare nowbetter setup the service free. and Peloton, which sells internet-connect- to sell non-performing assets, but working Such “point-of-sale” loans, which have ed exercise bikes. out how much collateral is worth and been around fordecadesin one form or an- Affirm’s loans, which typically range which indebted businesses can survive other, are becoming increasingly popular from $500 to $5,000, tend to carry higher will take time. Even if banks’ targets are hit in America. Consumers who might previ- interest rates than traditional credit cards. by the end of 2019, bad loans will still ac- ously have financed big-ticket purchases But the firm says borrowers end up paying count forover a third ofthe books. such as furniture, electronics or home-im- less because they are not subject to hidden The biggest barrierto growth, though, is provement projects with a credit card are fees or compound interest, and have a set that it is still harder to do business in now opting to borrow at the checkout, of- pay-off date. Its figures suggest that mer- Greece than in other European countries. ten with an initial 0% interest rate. These chants using the service see revenue in- Take the €8bn privatisation of Hellenikon, short-term credit products were once the crease by 7-12% thanks to shopping baskets the site of the old Athens airport. The lease domain of big banks like Wells Fargo, that are bigger and less likely to be aban- for the land was put out to tender in 2011 which finances consumer purchases, and doned before checkout is complete. and eventually bought by a consortium of Synchrony Financial, an issuer of store- Other lenders partner with brick-and- Greek, Chinese and Emirati investors, who branded credit cards. Now tech startups mortar sellers. GreenSky, an Atlanta-based intend to turn it into a holiday resort. But are entering the market with innovative lender founded in 2006, arranges financ- delays, arguments over terms and investi- techniques for underwriting and approv- ing for home improvements, elective med- gations by environmental agencies mean ing potential borrowers, often in seconds. ical procedures and other pricey items. that the buyer has yet to breakground. Demand is driven, in part, by younger Rather than lend the money, it matches Improvements to the business environ- consumers. Many young Americans tell merchants like Home Depot with banks ment, justice system and public adminis- pollsters that they dislike big banks. And like SunTrust and Regions Financial to fi- tration are all on Mr Tsakalotos’s agenda. they seem to have been scared off revolv- nance their loans. Loans are arranged face- Butcriticsdoubthisgovernment’scommit- ing credit by the financial crisis; according to-face by the retailer or contractor making ment to reform. Greece rose rapidly up the to the Federal Reserve Bank of St. Louis, the sale, cutting the riskoffraud. GreenSky, World Bank’s Doing Business rankings un- those aged 20-35 hold about a third less which makes money by charging fees to til 2015, when a coalition government led credit-card debt than the same age cohort both merchants and banks, earned $326m by Syriza, a radical left-wing party, came to did in 2001. But they are willing to borrow in revenue and $139m in netincome in 2017. power. It has rowed back on some of its over a fixed term for specific purchases It went public in May and is now valued at predecessors’ reforms, such as liberalising such as a phone or car. $3.5bn, making it America’s fourth most highly regulated professions and curbing Some traditional banks have piled into valuable fintech company. collective wage-bargaining. The IMF frets the point-of-sale market. In 2015 CitizensFi- Investor enthusiasm for online lenders thatpayrisesmightonce again become un- nancial Group, a regional bank, began pro- can be fickle, however. LendingClub and tethered from productivity gains. viding instalment loans to customers up- OnDeck Capital, two lenders that went grading their iPhones at Apple stores. Its public in 2014 promising to shake up the Here’s looking at Euclid portfolio ofsuch merchant-financingloans bankingindustry, have struggled with high With a general election due by October grew from $700m to $1.2bn over the past sales-and-marketing costs, and difficulty 2019, the government could roll back even year. Millennials toting iPhones are not the finding cheap and stable funding forloans. more reforms in order to win the support only ones borrowing more. In the first Since its initial public offering, Lending- of interest groups. Economists suspect that quarter of 2018, personal-loan balances in Club’s share price has fallen by 82%; On- both financial markets and creditors pay America surged by 18% year-on-year to Deck’s has dropped 76%. Neither company more attention to the fiscal targets being $120bn, according to TransUnion, a credit- turned a profit in 2017. GreenSky, which pursued by Mr Tsakolotos. That leaves im- scoring firm (see chart). Credit-card debt, bills itself as a technology company rather portant and politically difficult reforms by meanwhile, rose by just 6%. than a lender, hopes to fare better by part- the wayside. Some new entrants offer credit mainly nering with traditional banks rather than The road is still uphill. “We have a great through online merchants. Many target af- tryingto beatthem attheirown game. That history,” Mr Vourvoulakis says in Athens, fluent youngsters with simple borrowing may not be as striking as the strategy of as he drives through the old town. “But I terms and partnerships with high-end other fintech startups. But it has the advan- don’t know ifwe have a good future.” 7 brands. Affirm, an online lender based in tage that it is already profitable. 7 https://t.me/finera The Economist August 4th 2018 Finance and economics 59

Index investing shares is suffering. Over the past decade, giants. After all, to make a decent income an average of 87% of actively managed from such activities as lending shares to How low can American equity funds underperformed short-sellers means doing it at scale. their benchmark indices. Average active- In recentyearsFidelityhaslost business you go? management feesin 2017were 0.57%. to rivalswho had moved earlierto focus on Active-only asset managers have tried passive investing and to squeeze costs. It to respond to pressure from passive funds was already shifting its emphasis. In June a by consolidating. Examples include merg- net $5.6bn flowed into its passive fund of- Amilestone is reached with the first ers between Janus, an American fund ferings, even as it $2.6bn net flowed out of zero-cost trackerfunds house, and Henderson, an Anglo-Austra- its active strategies. Its new zero-cost funds INCE 1975, when the first retail invest- lian firm; and in Britain, between Aber- will surely accelerate this trend. Sment fund that aimed simply to mimic a deen Investments and Standard Life. But it The price war in asset management stockmarket index was launched by Van- is hard to see a reversal of the shift toward was already fierce. Will anyone go to the guard, such “passive” funds have squeezed passive management, which, by some esti- wall? At the very least, it is hard to imagine margins and profits right across the asset- mates, already approaches half of all as- that Fidelity’s rivals can hold off from low- management industry. On August 1st that sets in managed American equity funds. ering or even scrapping their fees, too. As trend reached its logical endpoint with the Fidelity’s move is likely to prompt further free current accounts show, once some- launch oftwo zero-cost tracker funds by Fi- consolidation amongpassive-fund provid- thingis provided fornothing, it is very diffi- delity, a Boston-based firm built on active ers, too, even though many are already cult ever to start charging again. 7 investing that is the industry’s fourth-larg- est, with $2.5trn under management. With no minimum investment required and an Myanmar’s state-owned enterprises expense ratio (that is, net cost to investors) of zero, it will further shake up an industry Living fossils that was already undergoing a major struc- tural shift. Fidelity’s competitors immediately felt the heat. Shares in BlackRock, the world’s largest asset manager and largest provider THAGAYA of passive exchange-traded funds (ETFs), The bureaucraticleviathans showhowmuch economicreform is still needed closed 4.7% down on the day, as share- holders digested the implications for its OTHING has been made in the engine about 145,000 people and provide about business model. Those in Invesco, the Nfactory in Thagaya, in the south of halfofgovernment revenue, excluding for- fourth-largest ETF provider, dropped by Myanmar, since April last year. Yet around eign aid. They collect around 12% ofGDP in 4.2%, and those in State Street (which, 350 employees still turn up each day. In fiscal revenue and spend about the same. though the third-largest ETF provider, also 2016 government-owned factories like this But the junta-era law that regulates them is has many business lines besides asset one made a loss ofmore than $200m. a vaguely worded two-page document management) by1.2%. When Myanmar moved from military that is silent on what they are supposed to Competition had already driven char- dictatorship to a form of democracy, its do. It simply states which sectors are gov- ges on index-tracking mutual funds and new government embarked on a series of ernment monopolies and promises prison ETFs to very low levels. Fees for the index- reforms. Since 2011 it has passed at least to anyone who encroaches. tracking mutual funds at Vanguard and two dozen laws related to the economy. Myanmar now has 31 SOEs. Some are Charles Schwab most similar to Fidelity’s Foreign investment, much ofit from China, decrepit industrial complexes like that in new offerings are just 0.14% and 0.09% re- has helped the economy to grow at around Thagaya, but others deal with juicy sectors spectively.The ETF versions of those funds 7% a year. But it remains one ofthe region’s such as airlines, gems, oil and gas, telecom- cost even less, at 0.04% and 0.03%. There poorest countries. And vast swathes of the munications and timber. Their economic are economies of scale in index investing, economy remain untouched. impact is huge. They not only pursue com- since costs do not rise in line with assets State-owned enterprises(SOEs) employ mercial activities; most also collect taxes under management. and regulate the sectors they operate in. Without skimming any explicit fee A recent report by two think-tanks, the from the new funds, Fidelity will have to local Renaissance Institute and the Nation- find other ways to make money,such as by al ResourcesGovernmentInstitute, in New lending shares to short-sellers for a consid- York, details their freedom from govern- eration. It may also see the new funds as ment oversight. The SOEs have no specific loss-leaders, hoping that investors will performance targets or formal appoint- eventually migrate to its other offerings. To ment procedures for senior staff—most are make that more attractive it has cut fees for run by former army men. Their accounts its existing stock and bond index funds by are kept by hand, in physical books. Audits around a third, which will save investors consist of nothing more than checking $47m annually,and done away with mini- bank statements against the figures they mum investments across the board. And it provide. Only their total budgets are re- surely hopes it will be able to “upsell” cus- ported to members of parliament, who do tomers more lucrative products, such as fi- not get to see detailed line items. nancial advice. Exceedingly conservative accounting That it was Fidelity that went to zero rules require them to set aside 55% of their first was something of a surprise. Its repu- profits. Myanmar Gem Enterprise, for in- tation was made on the prowess of its stance, holds enough cash to run itself for stockpickers. The move therefore reveals 172 years, earning no interest in a state- just how much active management in owned bank. In January 2017 SOEs held 1 Financial Era Advisory Group 60 Finance and economics The Economist August 4th 2018

2 $8.6bn. Officials admit that much of that There are a few glimmers of improve- San Suu Kyi, Myanmar’s de facto leader, money is sitting idle. ment. Myanmar’s government has joined has the authority to pass reforms. But the Myanmar’s SOEs are not unique in the an Asian forum on how best to monitor economy is not her priority and she tends region in beinglegaciesofdirigiste military SOEs. It recently rid itself of a finance min- to tread carefully when it comes to the rule. But they are probably the most ister, Kyaw Win, who had been accused of armed forces’ interests. opaque and badly run. Other countries corruption and admitted in 2016 that his MPs from the lower house’s public-ac- generally require their counterparts to PhD was fake. His replacement, Soe Win, counts committee are keen to look into the publish annual reports. Thailand’s have may do more to promote oversight. He mess, says Aung Min, their chair. But they adopted international reportingstandards. used to workforDeloitte, a global account- lack administrative support and, in many A few in the Philippines have private mi- ing firm, and sits on the board of the Re- cases, expertise. And few other parliamen- nority shareholders. Malaysia uses perfor- naissance Institute. tarians would welcome scrutiny of zom- mance indicators for some SOEs’ manag- But formidable obstacles remain. Dif- bie factories in their constituencies. Work- ers. In China bosses’ pay is linked to ferent ministries are responsible for differ- ers in Thagaya, for their part, feel secure. performance (which, admittedly, encour- ent SOEs and the finance ministry has no The factory cannot close, one says, “be- ages the fiddling ofstatistics). control over their spending. Only Aung cause it belongs to the government”. 7 Buttonwood Made in Japan

Its economichefthas declined, but Japan’s influence on global financial markets is still strong T IS the summer of 1979 and Harry battle Japan’s persistently low inflation. Its ofany major currency. I“Rabbit” Angstrom, the everyman-hero benchmark interest rate is negative (-0.1%). Investors from Japan have also kept a of John Updike’s series of novels, is run- It is committed to purchasing ¥80trn lid on bond yields in the rich world. They ning a car showroom in Brewer, Pennsyl- ($715bn) of government bonds each year own almost a tenth of the sovereign vania. There is a pervasive mood of de- with the aim of keeping Japan’s ten-year bonds issued by France, for instance, and cline. Local textile mills have closed. Gas bond yield around zero. And it is buying more than 15% of those issued by Austra- prices are soaring. No one wants the baskets of Japan’s leading stocks to the lia and Sweden, according to analysts at traded-in, Detroit-made cars clogging the tune of¥6trn a year. J.P. Morgan. Japanese insurance compa- lot. Yet Rabbit is serene. His is a Toyota niesown lotsofcorporate bondsin Amer- franchise. So his cars have the best mile- Tokyo storm warning ica, although this year the rising cost of age and lowest servicing costs. When you These measures, once unorthodox but hedging dollars has caused a switch into buy one, he tells his customers, you are now familiar, have pushed Japan’s banks, European corporate bonds. The value of turning your dollars into yen. insurance firms and ordinary savers into Japan’s holdings of foreign equities has “Rabbit is Rich” evokes the time when buying foreign stocks and bonds that offer tripled since 2012. They now make up al- America was first unnerved by the rise of better returns than they can get at home. most a fifth ofits overseas assets. a rival economic power. Japan had taken Indeed, Japanese investors have loaded up What happens in Japan thus matters a leadership from America in a succession on short-term foreign debt to enable them great deal to an array of global asset of industries, including textiles, consum- to buy even more. Holdings of foreign as- prices. A meaningful shift in monetary er electronics and steel. It was threatening sets in Japan rose from 111% of GDP in 2010 policy would probably have a dramatic to topple the car industry, too. Today Ja- to 185% in 2017 (see bottom chart). The im- effect. It is not natural for Japan to be the pan’s economic position is much re- pact of capital outflows is evident in cur- cheapest place to buy a Big Mac, a latté or duced. It has lost its place as the world’s rency markets. The yen is cheap. On The an iPad, says Kit Juckes of Société Géné- second-largest economy (and primary Economist’s Big Mac index, a gauge based rale. The yen would surge. A retreat from target ofAmerican trade hawks) to China. on burgerprices, itisthe mostundervalued special measures by the BoJ would be a Yet in one regard, its sway still holds. signal that the era of quantitative easing This week the board of the Bank of Ja- was truly ending. Broader market turbu- pan (BoJ) voted to leave its monetary poli- Saving gluttons lence would be likely. Yet a corollary is cy broadly unchanged. But leading up to that as long as the BoJ maintains its cur- its policy meeting, rumours that it might Net international investment position, 2017, $trn rent policies—and it seems minded to do 3 make a substantial change caused a few 2 so for a while—it will continue to be a jitters in global bond markets. The anxi- 1 prop to global asset prices. ety was justified. A sudden change of tack 0 Rabbit’s sales patter seemed to have a by the BoJ would be felt far beyond Ja- Switzerland China Germany Japan similar foundation. Anyone sceptical of pan’s shores. Japan, international investment position his mileage figures would be referred to One reason isthatJapan’sinfluence on % of GDP the April issue of Consumer Reports. Yet global asset markets has kept growing as 200 one part of his spiel proved suspect. The decades of the country’s surplus savings Assets dollar, which he thought was decaying in have piled up. Japan’s net foreign assets— 150 1979, was actually about to revive. This re- what its residents own abroad minus 100 coveryowed a lotto a bigincrease in inter- what they owe to foreigners—have risen Liabilities est rates by the Federal Reserve. It was to around $3trn, or 60% of the country’s 50 also, in part, made in Japan. In 1980 Japan annual GDP (see top chart). liberalised itscapital account. Its investors But it is also a consequence of very 0 began selling yen to buy dollars. The loose monetary policy. The BoJ has de- 1996 2000 05 10 15 17 shopping spree for foreign assets that ployed an arsenal of special measures to Source: Haver Analytics started then has yet to cease. https://t.me/finera The Economist August 4th 2018 Finance and economics 61 Free exchange Homespun economics

The Industrial Revolution could shed light on modern productivity Britain’s industrialisation lies in the expansion of commerce and trade thatpreceded it. Thathad pushed up wagesforBritish work- ers, while pay elsewhere in Europe stayed flat. On the eve of the Industrial Revolution, British firms operated in a market where coal was cheap but labour was dear. It thus made sense for firms to seekways to use coal-fired machines to wringmore out oftheir workers. At British wage rates, tinkering with new spinning or weaving equipment made sense, Mr Allen writes, whereas in France, say, new modes of production were less likely to pay off. Not until decades of mechanisation and innovation in Britain hadboostedthe efficiencyofnewequipmentwasitworth adopt- ing on the continent. Mr Allen’s workhas prompted a wave ofresearch delineating the contours of the high-wage argument. No systematic income data existed at the time. Scholars must instead glean wage infor- mation wherever history chanced to leave it. They must deter- mine how productive workers were (hence the debate about daily spinning rates), and whether they were typical of most la- bourers. And then theymustworkoutwhatsuch workersbought with their earnings, and at what price. Consumption of expen- sive wheat bread might imply that real wages (that is, adjusted for OWmuch yarn perdaycould an18th-centuryBritish woman living costs) were low—unless those workers could have bought Hspin? Such questions are catnip for economic historians, cheaper bread, made from oats or barley, which would suggest whose debates typically unfold unnoticed by anyone outside they earned enough to afford a luxury. their field. But a running debate concerning the productivity of This work has galvanised efforts to understand a critical per- pre-industrial spinners, and related questions, is spilling beyond iod in economic history. New research by Jane Humphries and academia. Each probably produced between a quarter of a Benjamin Schneider, for example, reveals information on the pound and a pound ofyarn a day, the historians have concluded. economic role of women and children, who earned less than But at issue is something much more profound: a disagreement men, in the spinning industry. Judy Stephenson has uncovered regarding the nature oftechnological progress that has important new details about construction workers in London and shown implications forthe world economy. that many estimates ofworking hours are probably too high. Economic growth of the sort familiar today is a staggering de- Those who disagree with MrAllen’sthesistryto find evidence parture from the pattern of pre-industrial human history. More to support a rival, older, theory that the impetus to industrialise than a century of study has not resolved the question of why it came from low wages rather than high ones. In this story vast began where and when it did. This is a matter of more than his- pools of cheap labour in pre-industrial societies were a poten- torical interest. Weakgrowth in productivity has economists ask- tially lucrative resource and anyone who could put it to betteruse ing whether humanity is running out of ideas, and whether it is stood to benefit enormously. In Mr Allen’s narrative, spinners’ losing its ability to turn new technologies into rising incomes. A wages, though very low by modern standards, were high enough clearer understanding of what exactly happened in 18th-century to motivate the development and deployment of equipment like Britain could shed light on the matter. the spinning jenny. For Ms Humphries, however, capitalists Those studying the productivity slowdown typically focus on found the spinning jenny attractive because it enabled them to supply-side factors such as workers’ skills and investment in re- squeeze more out ofthe cheap labour ofwomen and children. search and development. Explanations of the Industrial Revolu- tion often draw on similar factors, namely the characteristics of Tinkertailor Britain that made it a fertile place to apply new technologies to For now Mr Allen’s theory looks more compelling, though fur- production. Some scholars emphasise institutional features such ther work might easily alter the balance. Yet the central role of la- as the emergence of stable parliamentary democracy,the rule of bour costs in both theories has lessons for economists studying law and secure property rights. Others credit Britain’s capital productivity growth today. They tend to treat wage growth as a markets, communities ofskilled tinkerers and cultural habits that function oftechnological progress, rather than an influence on it. encouraged disciplined effortand entrepreneurial ambition. The ability to produce new ideas surely depends upon supply- But if such factors are necessary for industrialisation, they do side factors, from the number and quality of engineers a society not appear to be sufficient. Though other parts of north-west Eu- producesto the competitive environmentfacinglarge firms. Butif rope shared many such features with Britain, it was in Britain productivity is growing slowly,that might also be because labour alone that industrialisation began. Economic historians have costs discourage experimentation with new technologies. therefore considered the “demand side” of industrialisation: the Such experiments are slow,risky and expensive. When profits conditions under which firms found it worth experimenting are high and wages stagnant, they are hardly worth the trouble. with unproven technologies. In particular, scholars are em- Until wages become too high, human burger-flippers and call- broiled in a debate concerning the “high-wage hypothesis” put centre workers, like hand-spinners, will do. 7 forward by Robert Allen...... Over the past two decades Mr Allen has argued that the key to Sources for this article can be found at economist.com/spinning Financial Era Advisory Group 62 Property

Chateau in Normandy, France For Sale - EUR 1.9m

18th century French chateau in the heart of Calvados - Normandy, France, set within 12 acres (4.8 hectares) of walled parkland. The grounds feature a fountain, well-manicured lawns, flower gardens, woods and tennis court. The chateau is comprised of 9 bedrooms, 8 bathrooms and 3 living rooms, with listed hand painted wall murals, and has been beautifully restored by the current owner/occupier. Facilities are in place both inside and outside to host weddings and events. Additionally there are numerous outbuildings, including a 3 bedroom guest cottage, two 1 bedroom apartments and office space. The property is surrounded by fields, and is 30 minutes from the sea, 2.5 hours from Paris, and 40 minutes away from both Caen and Deauville international airports.

http://www.lemesnildo.fr/ Contact: Guillaume +447532003972 [email protected] The Economist August 4th 2018 https://t.me/finera Property 63

The Economist August 4th 2018 Financial Era Advisory Group 64 Science and technology The Economist August 4th 2018

Also in this section 65 Glasses and productivity 66 Assessing chemicals for safety 66 Coral that eats jellyfish

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Wildfires vices of Canada and France, as well as the United States) design precise patterns for Forewarned is forearmed planned burns, in order to clear surface ve- getation without destroying tree canopies. All of which is well and good for the purposes of prevention. But, if prevention fails, the question remains ofwhether soft- ware can then be used to forecast a fire’s SANTA BARBARA spread, assisting those fighting it, and help- Software can model how a wildfire will spread—and how to stop it happening ing those threatened get out in time. EST anyone doubt the speed with which land-fire technology specialist at Esri, even This is a more challenging problem, for La brush fire can strike, consider how entering the diameters of tree trunks and forecasting a fire’s behaviour requires a rapidly flames engulfed Mati, a seaside re- the sites of clogged culverts (which alter staggering number of calculations. FIRE- sort near Athens, on July 23rd. Less than 90 patterns of water flow) is grist to the soft- TEC, for example, divides the fire-threat- minutes after fire was reported, flames had ware’s accuracy. ened space under analysis into one-metre reached densely populated areas. Hordes cubes called voxels, and then crunches es- of people fled into the sea, the only refuge, Fire! Take aim... timates for each voxel of fuel, moisture, to escape. At least 91were killed. Once a piece of fire-forecasting software temperature and airflow, taking into ac- That toll could have been avoided, says such as Esri’s knows how much inflamma- count drag created by foliage and other ob- Gavriil Xanthopoulos, a wildfire expert at ble stuff there is on the land, it can bring in jects. As a simulation progresses, the val- Greece’s Ministry of Rural Development data on rainfall, snowfall, sunshine, tem- ues in each voxel affect adjacent ones, thus and Food, if proper use had been made in perature and the like, to work out how this creating feedback which produces impres- advance of fire-simulation software. Fed might change in the future, as well as how sive verisimilitude. Unfortunately, it does with data on the area’s vegetation, build- much moisture the vegetation holds. It can not do so quickly. FIRETEC’s simulations ing materials, paved surfaces, paths to the also take into account past fires and the lie run more slowly than real fires burn, mak- sea and weather patterns, such software ofthe land. A south-facing slope, for exam- ing it useless forreal-time forecasting. would have suggested, he says, those ple, dries out faster(at least, in the northern To calculate, in a useful amountof time, places where trees and brush should have hemisphere) than one facing north. the spread of a fire that has already started been removed, roads widened and evacu- Another model, developed at the Uni- thus requires compromise. A model called ation paths built—not to mention how zon- versity of California, Santa Barbara, by CAWFE has voxels with sides 370 metres ing laws could have been better devised in Christina Tague, is called RHESSys. Dr by 370 metres by ten metres. That makes it the face offire risk. Tague has loaded RHESSys with fuel- and less accurate than FIRETEC, but according Greece, Dr Xanthopoulos laments, has moisture-data forroughly 800km2 ofwild- to Janice Coen, of the National Centre for been slow to adopt such software. Others land, most of it in California. This shows Atmospheric Research, in Boulder, Colora- are not so dilatory. America’s Forest Ser- forestry officials where best to bulldoze fire do, who is leading the development of the vice, for instance, uses a model developed breaks, cut down trees or clear scrub. software, it spits out a forecast of a wildfire by Esri, a geographic-information firm in Rod Linn of Los Alamos National Lab- in just a quarter of the time that the fire Redlands, California, to assess fire risk. oratory, in New Mexico, who helped de- takes to burn. This model feeds on data on the distribu- sign yet another piece of modelling soft- Such forecasts are about to get better. tion and types of trees, bushes and other ware, FIRETEC, describes this as Using infrared images captured by aircraft, vegetable ground cover, and on construc- “engineering” the behaviour of wildfires. DrCoen istrainingCAWFE to predictwhen tion materials used in an area. FIRETEC is so sophisticated that it even and where a wildfire is likely to produce These data are collected mainly by sat- models how the flames of a planned burn, several infrequent but terrifying types of ellites and aircraft, but rangers and crews intended to clear vegetation in a controlled tendrils that reach out beyond the fire line. of firefighters contribute detail from the way, will be fed by the wind they generate. These include “fire whirls” (see picture on ground. According to Chris Ferner, a wild- This lets users (who include the forest ser- next page), which can snap and hurl trees; 1 https://t.me/finera The Economist August 4th 2018 Science and technology 65

Long sightedness rected rose by 39%. It rose for the others, too, showing the importance in such trials I can see clearly of having a control group. But that rise was only 18%. The rise in productivity for those now with glasses was the largest caused by a medical intervention that has ever been shown in such a trial (others have been of mosquito nets and micronutrients). Since tea-picking is piecework, productivity Wearglasses. Earn more translates directly into money. TTHE end ofthe dayI would be anx- Before Dr Congdon’s trial, none of the “A ious,” says Anil Awasthi, a 44-year- 751 had worn glasses. Given the potential old garment worker in Delhi, “thinking gain in income, and the cheapness and what mistakes of mine would be pointed simplicity of spectacles, that seems odd. It out.” He was worried about what was go- is not, however, unusual. Some 1.1bn peo- ing to happen as his sight deteriorated, un- ple suffer from uncorrected long sight. In til—courtesy of VisionSpring, an American this, as in many areas of health, both gov- social enterprise—he got reading glasses. ernments and the market fail the poor. “I’m confident now that my work will Poverty is one explanation. Liberia, meet my boss’s expectations,” he says. “I says Dr Congdon, has but two eye doctors, go home satisfied.” both in the capital. Even in China, which is A twisty-turny thing For the rich, the worst consequence of far better-served, half of those with poor long sightedness is having to wear the sight do not have the glasses they need. 2 pairs of counter-rotating “horizontal roll” world’s most ageing accessory. For the There are social issues: some people worry fire vortices that form in mid-air but can poor, things are more serious. “It’s the 42- that spectacles make them look ugly. There collapse onto the ground; and “flame fin- year-old seamstress or tailor,” says Jordan are regulatory hurdles, too. In some coun- gers” that have smitten firefighters even Kassalow, VisionSpring’s founder. “If they tries, only licensed operators may sell 100 metres from a fire’s edge. can’t see, they can’t do their jobs, and if glasses, so hardly anybody does. And be- The most extreme 1% or so of wildfires, they can’t do their jobs they end up break- cause long sight creeps up on people, vic- however, are likely to remain unmodella- ing rocks by the side ofthe road.” tims get used to it: “They probably thought, ble for some time. These include the “ex- The first randomised control trial to ‘you get to 50, you can’t pick like you used plosive” wildfires that ravaged central Por- measure the impact on productivity of to’,” says Dr Congdon of the tea-pickers. tugal last year. On June 17th 2017 wildfires reading glasses was carried out recently in “But by the end ofthe trial, their productiv- broke out around Pedrógão Grande, near a tea estate in Assam, in north-eastern In- ity was as good as the youngsters’.” Coimbra. Initially, meteorologists reck- dia, paid for by Clearly, a charity. Nathan VisionSpringis tryingto nudge the mar- oned that these fires would advance at Congdon, a professor ofophthalmology at ket to workbetter by using the “Avon-lady” about 3kph, but the soaring flames soon Queen’s University, Belfast, and his col- model. It introduces middle-aged women changed direction and accelerated to six leagues gave spectacles to half of a group to glasses, then provides them with the times that speed. Sixty-seven people died, of 751 tea-pickers aged over 40. The other wherewithal to sell them door-to-door. nearly halfofthem trapped motorists. halfgotnone. Over11weeks, the productiv- That idea is spreading slowly, but clear Flames that rose roughly 100 metres ity of those whose sight had been cor- sight is a surprisingly hard sell. 7 into the sky during these fires generated a gale and searing “pyrocumulus” clouds, a process too complex for today’s best soft- ware to model, according to Marc Castell- nou, a member of the technical commis- sion that studied the disaster. Francisco Castro Rego, an expert on fire forecasting at the University of Lisbon, reckons that at least two more years of development will be needed to model such fires. Fire-modelling is, however, getting bet- ter all the time. New satellites, with short- wave-infrared sensors, can detect fires as small as a backyard barbecue. Satellites and aircraft with rangefinders that use li- dar, an optical version of radar, can map the height of vegetation precisely, which helps forecasting software work out whether a brush fire is likely to ignite trees. As statistics on fires accumulate, new cor- relations will be identified, such as how fluctuations in average temperature influ- ence burn sizes on a given landscape. Such intelligence will be needed increasingly in the future. Predictions based on the likely effects of climate change suggest that, by the middle of the century, fires will burn twice as much acreage as they do today. 7 Looking to the future Financial Era Advisory Group 66 Science and technology The Economist August 4th 2018

Environmental safety the database to be compared. The result, enough to worry about. Anything that which the two researchers reported in scores above 0.8 should be regarded as a Hazchem or not? 2016, did indeed provide some insight into problem without further ado. Anything the prevalence ofdifferenttypesoftoxicity. below 0.2 can be regarded as safe. Chemi- But to make more general predictions, they cals scoring between those values should needed a larger data set still. be treated with caution until more data Mr Luechtefeld has therefore spent the come in to push their scores up or down. BOSTON past year scouring public data sets like Mr Luechtefeld is now Dr Luechtefeld, It should soon be easierto find out those from PubChem, which is run by having obtained his PhD a few weeks ago. without killing animals America’sNational InstitutesofHealth. He He and DrHartungclaim, in a recent paper, HE number of chemicals that might now has relevant data on 80,908 chemi- that the algorithm’s assessments are more Tcome into contact with a human being cals and is able to correlate their features accurate than animal testing. By this they is staggering. The European Chemical with 74 types of hazard. These are not just mean that if a given molecule’s toxicity, as Agency (ECHA) recognises over 130,000 medical threats. They also include such predicted by the algorithm, is compared molecules. Its American counterpart re- things as fire hazard and potential to harm with its read-across result, the two are cognises 85,000. Testingall ofthese for tox- the ozone layer. more likely to coincide than are two inde- icity is well-nigh impossible. Animal test- His latest algorithms focus on nine pendent animal tests on that molecule. ing, in particular, is controversial, slow, types of toxicity, including skin irritation, They are now waiting to hear from the costly and often cruel. Nor is it reliable. Its eye irritation and mutation-causing poten- authorities whether their method will be results are often irreproducible. tial, which are conventionally assessed by formally adopted, alongside conventional Things would be better if there were animal trials. Using data from tested sub- read-across, as a legal alternative to animal some way to predict the likely toxicity of a stances these algorithms are able to esti- tests. Regardless of whether it is, though, substance before animals get involved. mate the toxicity of untested ones. Instead what they have come up with should help That would permit the riskiest-looking to of a single number, such as the median le- understanding of the underlying mecha- be prioritised. To this end, toxicologists like thal dose in an animal test, they provide a nisms of toxicity. And that will be an im- Thomas Hartung of Johns Hopkins Uni- probability that a substance is hazardous portant step forward. 7 versity, in Baltimore, have been trying for years to find objective links between a chemical’s molecular structure and its bio- logical activity. And now Dr Hartung thinks he has one. It relies, as do so many advances these days, on machine learning. A way to link molecular structure and biological activity does already exist. It is called “read-across” and attempts to infer the hazards of an untested chemical by comparison with those of a tested one with a similarstructure. In 2015 read-across was accepted as an alternative to animal testing for meeting the ECHA’s Registra- tion, Evaluation, Authorisation and Re- striction of Chemicals (REACH) require- ments. But read-across depends on expert analysis and opinion, making it subjective and also difficult to generalise beyond small, well-studied groups ofchemicals. Dr Hartung believes machine learning, Marine biology with its power to find patterns in large quantities ofdata, could help close the gap. The biter bit His right-hand man in this work is Thomas Luechtefeld, a computer scientist who Corals eat jellyfish joined him as a PhD student in 2013. To tap into machine learning’s capabilities, the ROM the human point ofview Pelagia trap and consume jellyfish. They catch two of them first needed lots of good data. Fnoctiluca is an enemy.It is a jellyfish, hold ofvarious parts oftheir prey to stop When Mr Luechtefeld started work, these abundant in the Mediterranean Sea, that it swimming away,and slowly dismem- were unavailable. He had adequate data is the chiefcause ofstings to swimmers ber it. As the team describe in a paper in foronly about 250 chemicals. In 2014, how- in that popular holidaymakers’ destina- Ecology, each polyp then consumes part ever, he began to build a database that tion. But, as this picture shows, Pelagia ofa tentacle or ofthe pulsating umbrella overcame this limitation, by downloading noctiluca has enemies ofits own. The the jellyfish uses to swim. 816,048 toxicity studies on 9,801 com- other creatures in shot are polyps of Corals are, essentially,sea anemones pounds registered with REACH. Astroides calycularis, a type ofcoral. with stony cases. Both they and jellyfish He spent a year training an algorithm to Normally, Astroides calycularis feeds belong to the phylum ofanimals known read these studies, process the text they on small creatures ofthe plankton. But to zoologists as Cnidaria, the characteris- contain and extract pertinent information. researchers led by Tomás Vega Fernández tic feature ofwhich is stinging cells called This algorithm automatically correlates ofthe Zoological Station in Naples, div- nematocysts. Cnidarians use these to chemical features like the presence of par- ing offthe coast ofItalian islands such as disable their prey.In this example, then, it ticular groups of atoms with measures of Pantelleria, have show that individual is a case not so much of“the biter bit” as hazard such as the median lethal dose in coral-polyps sometimes collaborate to “the stinger stung”. an animal test, allowing all chemicals in https://t.me/finera Books and arts The Economist August 4th 2018 67

Also in this section 68 How to make a great orchestra 69 Satire and the Soviet Union 69 Love, war and Indian independence 70 Johnson: The cost of an accent

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Ten years on rope’s banks also had balance sheets stuffed with dodgy loans. Meanwhile in The last crash, and the next America, the Bush administration got its crisis measures through Congress only with support from Democrats, but biparti- sanship stopped the moment Barack Obama tookoffice. Perhaps the most dangerous failure, though, lies in the unwillingness to deal A monumental account ofthe crisis and its aftermath with problems which lie at the heart of the HEN asked how he went bankrupt, system and persist today. The finance sec- Wone of Ernest Hemingway’s charac- Crashed: How a Decade of Financial tor, which caused the crisis, looks remark- ters replies: “Two ways. Gradually and Crises Changed the World. By Adam ably unaltered. Banks may now hold more Viking; 720 pages; $35. Allen Lane; then suddenly.” That’s rather how the Tooze. capital and their bonuses are now tied to £30 crash was for the world. There was an ex- longer-term performance. But bonuses are tended build-up, with cracks in the system still very high; the average payout on Wall emerging during the course of 2007. Then first was the immediate post-crisis re- Street last year was $184,220, just shy of the there was the sudden shock, when Leh- sponse, in which the banks were rescued 2006 record. Scandals over banks’ bad be- man Brothers collapsed in September and both the monetary and fiscal taps haviour, in areas such as price-fixing, mon- 2008 and the global banking system tee- were loosened. The second was the euro- ey laundering and mis-selling continue to tered on the edge. The tenth anniversary of zone crisis, which hit Greece and Ireland come to light. that frightening moment approaches. hardest, but also affected Portugal, Italy Anyone who fell asleep in 2006 and There were some impressive takes from and Spain. The third was the shiftin the de- woke up to lookat the financial markets to- authors in the immediate aftermath of the veloped world after 2010 to a more austere day would have no idea there had ever turmoil, such as Andrew Ross Sorkin’s fiscal policy. The fourth wasthe rise ofpop- been a crisis. Share prices in America have “Too Big to Fail” and Michael Lewis’s “The ulist politics in Europe and America. repeatedly hit new highs and valuations Big Short”, which was made into an Oscar- MrTooze sideswith mosteconomists in have been surpassed only in the bubble winning film. “Inside Job”, a documentary, taking the view that the immediate post- eras of 1929 and 2000. The interest rates was a scathing attack on the culpability of crisis response was necessary, butunfortu- paid by governments and corporations to the finance industry for the crisis. And a nate in that executives in the banking in- borrow money are very low by historical new adaptation of a three-part play about dustry paid too low a price for their folly; standards. In global terms, the amount of the history of Lehman has just opened at that Europe was slow and narrow-minded debt relative to GDP is about as high as it the National Theatre in London. in dealing with the peripheral countries; was before the crisis. As the author points Adam Tooze, a historian noted for his and that the switch to austerity was a mis- out, it is far from clear that governments works on the interwar period, is aiming to take. Taken together, the backlash against will be willing to take decisive action be less entertaining than authoritative: he bankers, frustration with EU governments when the next crisis hits. takes on the financial and economic his- and the impact of austerity led to the rise The debate about macroeconomic poli- tory of the last decade in a monumental ofpopulism, the election ofDonald Trump cy goes on in much the same way as it al- tome of nearly 700 pages. Yet with the and the Brexit vote. ways has. Those who believe that govern- events it covers so recent and so dramatic, A big part of the problem, as the author ments can afford to borrow and spend the book is as much reportage as historical points out, was a failure of political leader- more are still arguing with those who analysis. ship. European politicians initially dis- think that debt is already too high. Those Four big themes emerge from Mr missed the crisis as an American problem, who want central-bank policies to return Tooze’s account of the post-2008 era. The generated on Wall Street, even though Eu- to normal (higherrates, no more purchases1 Financial Era Advisory Group 68 Books and arts The Economist August 4th 2018

2 of government bonds) are still arguing Classical music with those who believe that premature monetary tightening will damage a still- How to make a great orchestra fragile economy. The big change has been in the public mood. The idea that markets, left to their owndevices,willefficientlyandfairlyallo- cate resources had gained adherents in the WASHINGTON, DC 1990s and early 2000s. Centre-left govern- An Italian maestro works his magicin America ments, such as Tony Blair’s, were happy to leave the financial marketsto geton with it. HE birth of Washington’s National great, rather than merely good, matters, Now those middle-ground politicians are TSymphony Orchestra (NSO), in 1931, even if concert-goers might not always be out of office, as voters peel off towards the was modest, not to say eccentric. Milton able to tell the difference. A reputation for far-left and nationalist right. Schwartz, a local violinist, later described greatness attracts better musicians and Even the Republican Party in America beingapproached bya “seedy-lookingper- larger audiences, plus invitations to per- has swallowed its free-market instincts son in an old coat” who announced: “I am form at superior outside venues. All that and is tolerating President Trump’s protec- here to form a symphony orchestra. I just results in more philanthropic giving, the tionist measures and threatening behav- heard you play and I like you very much.” lifeblood of many arts institutions in iour towards firms he takes against. Many The person was Hans Kindler, then the America (and increasingly in Europe, too). British Conservatives have been overtly principal cellist of the Philadelphia Or- The stakes make those rehearsals vital. hostile towards those business leaders chestra. Kindler was well-respected, but In them, a maestro must work his magic who express fears about Brexit. The idea his reputation—and those of several subse- with 100-or-so professionals who may that trade makes everyone better off in the quent music directors, including the Rus- have performed the standard repertoire long run is no longer universal; indeed Mr sian cellist Mstislav Rostropovich—never dozens oftimes. MrNoseda says they must Trump sees it as a zero-sum game. These managed to elevate the NSO to the orches- feel as though they are performing the views are showing up in the numbers: glo- tral big league. The New York Philharmon- world premiere of, say, Beethoven’s Fifth bal trade has stopped growing much faster ic, the Boston and Chicago symphonies, Symphony, rather than the millionth ren- than GDP, as it did before the crisis. and the Cleveland and Philadelphia or- dition of it. To that end, he strives to find This change of mood raises fears about chestras are all considered superior, as are undiscovered aspects of each score. After what will happen when another storm the Berlin Philharmonic, the orchestra of explaining his approach to his musicians, hits the world economy.The level ofco-op- the Vienna State Opera and London en- he conveys his ideas mostly through ges- eration that occurred in 2008 and 2009, sembles such as the London Symphony tures. Above all, he wants the orchestra’s such as when America’s central bank Orchestra (LSO). Until now,at least. members to listen to one another: “I try to made dollars available to its cash-strapped Last year the NSO hired Gianandrea create an atmosphere ofchamber music.” European counterparts, may not be easy to Noseda, an Italian conductor, as its music It seems to be working. As his first sea- achieve next time around. director. In recent years he has revitalised son in Washington came to an end, a con- Tomorrow’s chroniclers will be grateful Turin’s Teatro Regio; he is also principal cert combining Bach with Luciano Berio, for Mr Tooze’s assiduous research. He guest conductor of the LSO. Improving an an Italian experimental composer, was leaves no mortgage-backed security un- orchestra, MrNoseda explains, isa less tan- well-attended, with a strikingly large con- covered, no collateralised debt obligation gible business than turning around a com- tingent of 20- to 30-somethings. The or- unexamined in his effort to produce the pany: “You have to make the musicians chestra played exquisitely. Gary Ginstling, most comprehensive account of this com- feel that they’re burning in their hearts and the NSO’s executive director, says that plex and gripping subject. The general souls.” The players, however, cannot sim- since Mr Noseda’s arrival, the NSO has at- reader might find it a bit of a slog. It is not ply be instructed to ignite. As Mr Noseda tracted new board members and sizeable thatthe authorcannotsee the wood forthe points out, “you don’t get there through donations. Subscription sales are up—the trees, more that the forest is so large and philosophy,but through rehearsals.” first increase in a decade. Perhaps the big dark that it is easy to get lost. Sometimes In the ecology of orchestras, being league beckons. 7 the broader themes simply get overshad- owed by an account of another round of cliffhanger meetings. Mr Tooze ends by comparing events to- day with those in 1914, when the world sleepwalked into conflict. But arguably it is the interwar period that is the most perti- nent parallel. The armistice ended the first warbutthetensionsthatgeneratedthefirst conflict simmered and finally exploded once more. For policymakers, another deadly met- aphor is perhaps more appropriate. Cen- tral banks brought a global economic heart attack to an end by performing emergency surgery. But the patient has gone back to his old habits of smoking, heavy drinking and gorging on fatty foods. He may be looking healthy now. But the next attack could be even more severe and the medi- cal techniques that worked a decade ago may not be successful a second time. 7 Noseda lights the fire https://t.me/finera The Economist August 4th 2018 Books and arts 69

His contemporaries wondered whose Indian independence “side” he was on. Zoshchenko writes around, rather than Midnight at the about the revolution. He observes the mi- nute miseries of the individual life that margins transcend collective traumas. “As for the limp—which is, anyhow, hardly notice- able—that’s just a sore foot,” he writes of The Last Englishmen: Love, War and the one of his heroes. “It dates back to the tsar- End of Empire. By Deborah Baker. Graywolf ist era.” He notes the wild swings of for- Press; 352 pages; $28. Chatto & Windus; £25 tune that shift the structure of society: a former landowner is reduced to begging CCOUNTS of the last years of British “thanksto the newdemocraticwayoflife,” Arule in India in the 1930s and 1940s he deadpans. And he never loses sight of typically dwell on the actions of powerful the enduring traits of human nature, figures in Delhi and London. Rival inde- which—pace Marxist ideology—remain re- pendence campaigners and, especially, sistant to changes in material conditions. British politicians preoccupied by war in What results is less a dystopia than a cut- Europe helped to cause immense suffering ting send up of the promised utopia. “And in India. Indians got theirfreedom but only will it really be that wondrous, this future after a wartime famine in Bengal killed at life? That’s another question,” he muses. least 2m. Partition, as Pakistan broke away, “For the sake ofhis own peace ofmind, the displaced millions more and led to deaths author chooses to believe that this future of hundreds of thousands. life will be just as full ofnonsense and rub- A few individuals had outsized influ- bish as the one we’re living.” ence on this. The Harrow- and Cambridge- Such scepticism proved prescient with educated Jawaharlal Nehru co-led agita- respect to his own fate. The turn to the offi- tion for independence and became India’s cial aesthetic doctrine of Socialist Realism prime minister for 17 years. Urbane, elo- in the 1930s forced Zoshchenko into cre- quent and an Anglophile, he quipped he ative compromises, such as participating was the last Englishman to rule the coun- in a hagiographic bookabout the construc- try. Another Anglophile, Muhammad Ali tion of the White Sea Canal by Gulag la- Jinnah, did most to bring about partition. Mikhail Zoshchenko bourers. Though he survived the Stalinist Winston Churchill’s wartime government terrorhimself, he fell foul ofthe authorities drew heavily on economic and military Satire and the in 1946, and was expelled from the Soviet help from India but he bitterly resisted its Writer’s Union. He was rehabilitated only freedom. His peacetime successors over- Soviet Union after Stalin’s death—but upset the party saw a rushed end to imperial rule. again by proclaiming his innocence in an These rulers and liberators appear in appearance before foreign students a year Deborah Baker’s narrative, but remain later. Zoshchenko’s literary output never mostlyin the background. The resultis a re- Sentimental Tales. By Mikhail Zoshchenko. recovered from the persecution, and he freshingly novel account. She focuses on Translated by Boris Dralyuk. Columbia died impoverished and depressed. Yet smaller, but nevertheless noteworthy, fry: University Press; 207 pages; $30 and £24 after his death, reprints of his early works mostly characters entering adulthood, SANYONE who hastried (and failed)to flew off the shelves—an ending fitting of passing their time in Calcutta or the Hima- Acrack a joke in a foreign language one ofhis tales, which often leave the read- layan foothills—occasionally in Lon- knows, humour is the marker of linguistic er uncertain whether to chuckle helplessly don—as war and independence loom. mastery. The only thing harder than crack- at life’scruel absurdity orsuccumb to its in- These are poets, mountaineers, scientists, ing jokes may be translating them. Perhaps effable sadness. romantics, nationalist blowhards, police this is why Mikhail Zoshchenko remains a In “Sentimental Tales”, Zoshchenko informers, communist spies and forlorn lesser-known Russian writer among Eng- trains his sights on the literary scene itself. lovers. Some are Britons, half-hearted ser- lish-language readers, despite being one of Assuming the voice of Ivan Kolenkorov, a vants ofempire. They interact with and are the Soviet Union’s most beloved humor- flailing writer struggling to fulfil the role of influenced by journalists, politicians and ists, a satiristin the best traditions ofGogol. the new model Soviet artist, Zoshchenko thinkers who are eager for self-govern- Boris Dralyuk’s new translation of “Senti- stumbles and bumbles through dreadful ment but unsure how their lives will mental Tales”, a collection of Zosh- descriptions, turning intentional inepti- change because ofit. chenko’s stories from the 1920s, is a delight tude into art. The metafictional device The most engrossing of all the charac- that brings the author’s wit to life. readsasdelightfullymodern: imagine a be- ters is Sudhindranath Datta, a young, Zoshchenko’s writing career began in loved sit-com seton the outskirtsof the ear- “handsome and quick-witted” Bengali. He the wake ofthe Russian revolution, follow- ly Soviet Union. Zoshchenko is a master of knew his family had prospered through ing stints in the army during the first world stylised voices, a subtle observer of lan- alliances with the occupiers. He also be- war and on the side ofthe Red Army in the guage and the ways it reflects social status, lieved English law and literature had Russian civil war. He became popular dur- and Mr Dralyuk manages to capture both brought profound benefits to India. Datta ing the 1920s for tales that tackled the con- his irony and his lyricism. Following his presided over an “adda”, a regular gather- tradictions of everyday life during the equally magical renderings of Isaac Ba- ing ofthinkers and writers who mixed “se- short-lived liberalism of the New Eco- bel’s “Red Cavalry” and “Odessa Stories” riousness and silliness” as they discussed nomicPolicy. AsMrDralyuknotesin his in- in recent years, Mr Dralyuk has positioned culture and politics. He also founded Pari- troduction, Zoshchenko “hid behind so himself as a master of the era’s language, chay, a literary and scientific journal that many masks that it was impossible to de- injecting welcome new life into an under- became an outlet for Bengali men (it was termine whom, exactly, he was mocking.” appreciated school ofRussian literature. 7 almost always men) ofletters. 1 Financial Era Advisory Group 70 Books and arts The Economist August 4th 2018

2 Ms Baker draws from a rich stock of un- maker, mountaineer and younger brother By focusing on less exalted characters, published memoirs, journals, police re- of Stephen Spender, a writer, are among often of a literary bent, Ms Baker produces ports and other documents, deploying the “last Englishmen” ofthe book’s title. So a highly readable and intimate view of an fresh material with a light touch. A promi- too, arguably, are the Bengalis who rage unusual time and place. At times her fluent nent character is John Auden, brother of againstcolonial rule duringdebatesat liter- writing beguiles: it is easy to forget this is poet W.H. Auden, a geologist and lonely ju- ary salons and yet feel affinity to some non-fiction and wonder how a novelist nior colonial official in Calcutta who is dis- parts of Britain, treasuring its universities, might have invented a more satisfying plot enchanted with his duties. He finds so- writers and freedoms. They are torn over for her well-sketched characters. Nancy lace—and relief from morale-sapping the degree to which they should oppose Spender, wife of Michael and a noted heat—in trips to the Himalayas. Auden ob- Britain. At one extreme was Subhas Chan- painter, would have made a glamorous serves soon after arriving in India that dra Bose, a charismatic Bengali who fled to foundation for a triangular love story, for “most ofwhat he has been told…is useless Nazi Germany and fought beside Japanese instance. Yet as narrative history this is skil- or absurd, like the lines and props for a forces who invaded India. But many Indi- ful work, showing ordinary individuals as play whose run is long over.” ans, like Nehru, kept some affection for theycope—orbuckle—while greatgeopolit- Auden and Michael Spender, a map- Britain despite itsnoxiousimperial project. ical events twist and shape their lives. 7 Johnson The cost of an accent

Sounding blackhas a profound impact on Americans’ lives Y COINCIDENCE, two big new films Ms Wright is now updating Mr B feature race, voice and the telephone Baugh’s study, calling property managers in America. In Spike Lee’s “BlacKkKlans- to find out whether they respond with of- man”, based on a true story, a black po- fers, enticinginformation orspecial deals. liceman, successfully putting on his whit- Overt discrimination—“you can’t see the est-sounding voice, convinces a Ku Klux place”—remains rare, she says; subtle Klansman he is a supporter. (When the steering towards this or that kind of home time comes to meet the group in person, is commoner. he enlists a white partner.) And in Boots The British discriminate on the basis Riley’s “Sorry to Bother You”, the down- of class and region more than race. British on-his-luck young black protagonist, Cas- newspapers often report on studies of sius Green (Lakeith Stanfield), takes a job which accents sound the most pleasant or in telemarketing. A wise old black col- intelligent (Received Pronounciation, league (played by Danny Glover) tells south-eastern and posh without being him: “You wanna make some money grand), which the most annoying or ill- here? Use yourwhite voice.” And asifflip- educated (Birmingham, Liverpool and ping a switch, Mr Glover’s character dem- Manchester). Ambitious people from out- onstrates it. Cassius learns his own white side the south-east are told to “lose their voice (played by David Cross, a white co- accents” (speak RP, in other words) if they median), and soon he is on a rocket-ride want to do well. to success. The consequences of voice discrimi- “Sorry to Bother You” is an absurd nation are profound. Considerthose stud- magical-realist romp. The truth of race was mostly offered white neighbourhoods ies ofestate agents. Ahouse in a good area and voice in America is not. The second and when he used his Hispanic voice he is a ticket to a good school, which allows half of the film is more about free-for-all was mostly offered Hispanic ones. your children to mix with the right sort of capitalism than it is about race. But the Two decades on, Kelly Wright, a gradu- people and thus acquire the right accent thread that links them is that sounding ate student at the University of Michigan, so thatthe virtuouscycle continues. All of black is costly. carried out a similarstudy. Ms Wright is the this, of course, works the other way Americans know instinctively that daughter of a German mother and an Afri- around, too. “Cassius Green” is more likely to be black can-American-Cherokee father, was raised Society can approach this problem in than white, and many studies have in Knoxville, Tennessee, and has a native two ways. One is to expect everyone to shown that applicants with typically command of black, standard American learn the most mainstream, least notice- blacknames get fewer responses from po- and southern white accents. She made re- able accent. Black Americans who sound tential employers than otherwise identi- cordings of all three accents, and had a like Barack Obama can expect to be con- cal ones with white names. But voices of- group of 340 subjects rate the person they descendingly called “articulate”, but at fer clues to race, too, through timbre and heard. Speaking in her black accent, she least they will face less discrimination. accent. In 1999 John Baugh, a blackprofes- was judged to be more “difficult” and Not everyone, however, has a white par- sor at Washington University in St Louis, “poor” than when she used the other two. ent from whom to learn that accent, and who grew up in Philadelphia and Los An- The white accent was considered the most adults can’t easily change the way they geles and has several accents at his com- “pleasant”, “educated”, “attractive”, “confi- speak. An alternative is for people to stop mand, rang round estate agents and dent”, “trustworthy” and “rich”. The judging each other on the basis of their found that they were less likely to offer southern accent scored between the two voices. People can be inarticulate in stan- him properties in white or Hispanic on most of the rankings. Sounding south- dard accents, or eloquent in looked- neighbourhoods when he used his black ern and white costs you a bit; sounding down-upon minority ones. Accent preju- voice. When he used his white voice, he blackcosts a lot. dice isn’t just wrong; it’s irrational. https://t.me/finera Tenders 71

The Economist August 4th 2018 Financial Era Advisory Group 72 Economic and financial indicators The Economist August 4th 2018

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2018† latest latest 2018† rate, % months, $bn 2018† 2018† bonds, latest Aug 1st year ago United States +2.8 Q2 +4.1 +2.8 +3.8 Jun +2.9 Jun +2.5 4.0 Jun -465.5 Q1 -2.7 -4.6 2.97 - - China +6.7 Q2 +7.4 +6.6 +6.0 Jun +1.9 Jun +2.2 3.8 Q2§ +115.1 Q1 +0.7 -3.5 3.20§§ 6.80 6.72 Japan +1.1 Q1 -0.6 +1.1 -1.2 Jun +0.7 Jun +1.0 2.4 Jun +199.5 May +3.8 -3.8 0.06 112 110 Britain +1.2 Q1 +0.9 +1.3 +0.8 May +2.4 Jun +2.4 4.2 Apr†† -106.3 Q1 -3.6 -1.8 1.45 0.76 0.76 Canada +2.3 Q1 +1.3 +2.3 +3.8 May +2.5 Jun +2.2 6.0 Jun -53.8 Q1 -2.7 -2.3 2.37 1.30 1.25 Euro area +2.1 Q2 +1.4 +2.2 +2.4 May +2.1 Jul +1.6 8.3 Jun +474.0 May +3.3 -0.7 0.48 0.86 0.85 Austria +3.4 Q1 +9.7 +2.9 +6.2 May +2.0 Jun +2.1 4.7 Jun +9.5 Q1 +2.3 -0.6 0.48 0.86 0.85 Belgium +1.3 Q2 +1.2 +1.7 +2.9 May +2.2 Jul +1.9 6.0 Jun +0.2 Mar -0.4 -1.1 0.79 0.86 0.85 France +1.7 Q2 +0.6 +1.9 -0.9 May +2.3 Jul +1.9 9.2 Jun -9.9 May -0.8 -2.4 0.75 0.86 0.85 Germany +2.3 Q1 +1.2 +2.1 +3.1 May +2.0 Jul +1.8 3.4 Jun‡ +317.4 May +7.7 +1.1 0.48 0.86 0.85 Greece +2.3 Q1 +3.1 +1.8 +0.9 May +1.0 Jun +0.7 20.2 Apr -2.0 May -1.2 -0.3 3.97 0.86 0.85 Italy +1.1 Q2 +0.7 +1.3 +2.1 May +1.5 Jul +1.2 10.9 Jun +56.1 May +2.5 -2.0 2.81 0.86 0.85 Netherlands +2.8 Q1 +2.3 +2.6 +3.2 May +1.7 Jun +1.5 4.8 Jun +91.3 Q1 +9.6 +0.8 0.53 0.86 0.85 Spain +2.7 Q2 +2.3 +2.7 +1.6 May +2.3 Jul +1.7 15.2 Jun +20.7 May +1.5 -2.7 1.24 0.86 0.85 Czech Republic +3.4 Q1 +2.2 +3.5 +1.4 May +2.6 Jun +1.9 2.4 Jun‡ +0.9 Q1 +0.5 +0.9 2.22 21.9 22.1 Denmark -1.4 Q1 +1.8 +1.8 -1.7 May +1.1 Jun +1.1 3.9 Jun +20.2 May +6.3 -0.7 0.44 6.38 6.30 Norway +0.3 Q1 +2.5 +1.9 -5.7 May +2.6 Jun +2.3 3.8 May‡‡ +22.8 Q1 +7.4 +5.4 1.88 8.17 7.90 Poland +5.2 Q1 +6.6 +4.4 +6.8 Jun +2.0 Jul +1.7 5.9 Jun§ -1.0 May -0.6 -2.2 3.16 3.65 3.60 Russia +1.3 Q1 na +1.7 +2.1 Jun +2.3 Jun +2.9 4.7 Jun§ +64.6 Q2 +3.5 +0.3 8.13 62.9 60.0 Sweden +3.3 Q2 +4.2 +2.7 +3.7 May +2.1 Jun +1.8 7.2 Jun§ +16.8 Q1 +3.3 +1.1 0.60 8.81 8.11 Switzerland +2.2 Q1 +2.3 +2.2 +9.0 Q1 +1.1 Jun +0.8 2.6 Jun +72.9 Q1 +8.7 +0.8 0.04 0.99 0.97 Turkey +7.4 Q1 na +4.2 +7.0 May +15.4 Jun +12.1 9.6 Apr§ -57.6 May -5.9 -2.8 18.55 4.92 3.52 Australia +3.1 Q1 +4.2 +2.9 +4.3 Q1 +2.1 Q2 +2.2 5.4 Jun -36.8 Q1 -2.6 -1.0 2.65 1.35 1.25 Hong Kong +4.7 Q1 +9.2 +3.4 +1.0 Q1 +2.4 Jun +2.1 2.8 Jun‡‡ +14.2 Q1 +3.9 +1.9 2.24 7.85 7.81 India +7.7 Q1 +10.1 +7.3 +3.2 May +5.0 Jun +4.7 5.6 Jul -48.7 Q1 -2.5 -3.6 7.70 68.5 64.1 Indonesia +5.1 Q1 na +5.3 +11.6 May +3.2 Jul +3.5 5.1 Q1§ -20.9 Q1 -2.3 -2.5 7.69 14,440 13,322 Malaysia +5.4 Q1 na +5.7 +3.0 May +0.8 Jun +0.8 3.3 May§ +12.2 Q1 +2.9 -3.3 4.06 4.07 4.29 Pakistan +5.4 2018** na +5.4 +2.7 May +5.8 Jul +5.2 5.9 2015 -18.0 Q2 -5.8 -5.4 10.00††† 124 105 Philippines +6.8 Q1 +6.1 +6.6 +19.8 May +5.2 Jun +5.1 5.5 Q2§ -1.9 Mar -1.6 -2.7 6.53 53.1 50.4 Singapore +3.8 Q2 +1.0 +3.2 +7.4 Jun +0.6 Jun +0.8 2.1 Q2 +61.7 Q1 +18.6 -0.7 2.49 1.36 1.36 South Korea +2.9 Q2 +2.8 +2.9 -0.4 Jun +1.5 Jul +1.7 3.7 Jun§ +72.0 May +4.8 +0.9 2.59 1,121 1,121 Taiwan +3.3 Q2 +3.1 +2.6 +0.4 Jun +1.3 Jun +1.6 3.7 Jun +84.8 Q1 +13.4 -0.9 0.87 30.6 30.2 Thailand +4.8 Q1 +8.1 +4.1 +4.7 Jun +1.5 Jul +1.2 1.1 Jun§ +49.2 Q1 +9.7 -3.0 2.57 33.1 33.3 Argentina +3.6 Q1 +4.7 +1.7 -2.9 Jun +29.5 Jun +27.1 9.1 Q1§ -33.8 Q1 -4.7 -5.3 9.22 27.7 17.6 Brazil +1.2 Q1 +1.8 +1.7 -6.7 May +4.4 Jun +3.5 12.4 Jun§ -13.9 Jun -1.0 -7.1 8.84 3.74 3.11 Chile +4.2 Q1 +4.9 +3.7 +5.0 Jun +2.5 Jun +2.6 7.2 Jun§‡‡ -3.1 Q1 -1.2 -2.0 4.54 641 652 Colombia +2.8 Q1 +2.8 +2.5 +2.9 May +3.2 Jun +3.3 9.1 Jun§ -9.8 Q1 -3.1 -2.0 6.94 2,892 2,969 Mexico +2.7 Q2 -0.4 +2.3 +0.3 May +4.6 Jun +4.4 3.4 Jun -15.9 Q1 -1.8 -2.3 7.77 18.6 17.8 Peru +3.2 Q1 +5.6 +3.7 +10.5 May +1.6 Jul +1.4 6.6 May§ -2.9 Q1 -1.6 -3.5 na 3.27 3.24 Egypt +5.3 Q4 na +5.4 +3.8 May +14.4 Jun +16.1 10.6 Q1§ -7.7 Q1 -2.4 -9.6 na 17.9 17.9 Israel +4.1 Q1 +4.7 +3.9 +4.2 May +1.3 Jun +1.3 3.9 Jun +9.7 Q1 +2.2 -2.4 2.03 3.67 3.56 Saudi Arabia -0.9 2017 na +1.0 na +2.1 Jun +4.4 6.1 Q1 +21.6 Q1 +7.5 -3.9 na 3.75 3.75 South Africa +0.8 Q1 -2.2 +1.6 +1.4 May +4.6 Jun +4.7 27.2 Q2§ -12.2 Q1 -2.9 -3.6 8.62 13.2 13.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. https://t.me/finera The Economist August 4th 2018 Economic and financial indicators 73

Markets % change on Manufacturing activity Dec 29th 2017 Purchasing managers’ indices* Index one in local in $ The latest purchasing managers’ indices Compared with the previous month Aug 1st week currency terms (PMI) painted a bleak picture. Despite 62 United States (DJIA) 25,333.8 -0.3 +2.5 +2.5 mild improvement on June’s 18-month Euro area China (Shanghai Comp) 2,824.5 -2.7 -14.6 -18.5 60 Japan (Nikkei 225) 22,746.7 +0.6 -0.1 +0.6 low, the euro zone posted its second- 58 Britain (FTSE 100) 7,652.9 -0.1 -0.5 -3.5 weakest expansion since November 2016, United States Canada (S&P TSX) 16,376.8 -0.3 +1.0 -2.8 reflecting worries over tariffs. Russia’s 56 Euro area (FTSE Euro 100) 1,217.4 +0.9 +0.6 -1.9 manufacturing sector contracted for the 54 Euro area (EURO STOXX 50) 3,509.2 +1.2 +0.2 -2.4 third successive month, on higher raw- Britain 3,426.2 +1.8 +0.2 -2.4 Russia Austria (ATX) material costs and weakening foreign 52 Belgium (Bel 20) 3,894.6 +0.8 -2.1 -4.6 demand. And Britain’s PMI dipped to a China France (CAC 40) 5,498.4 +1.3 +3.5 +0.8 three-month low of 54.0, largely because 50 Germany (DAX)* 12,737.1 +1.3 -1.4 -3.9 of Brexit concerns and a sluggish econ- South 48 761.7 +1.2 -5.1 -7.5 Korea Greece (Athex Comp) omy. China too may be suffering from Italy (FTSE/MIB) 21,791.5 +1.1 -0.3 -2.8 46

PMI Contracting Expanding Netherlands (AEX) 572.9 nil +5.2 +2.5 trade tensions; its slipped to just Spain (IBEX 35) 9,799.3 +1.0 -2.4 -4.9 50.8. Cost pressures also led America’s 2017 2018 PMI Czech Republic (PX) 1,089.5 -0.1 +1.1 -1.7 to slip, though confidence remained Sources: IHS Markit; *Based on a survey of Denmark (OMXCB) 936.1 -0.2 +1.0 -1.7 strong. Nikkei; Caixin; CIPS purchasing executives Hungary (BUX) 36,207.7 +3.6 -8.0 -13.3 Norway (OSEAX) 1,014.8 +1.2 +11.9 +12.3 Poland (WIG) 60,226.4 +2.1 -5.5 -10.2 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,160.1 +1.6 +0.5 +0.5 2005=100 % change on % change on Sweden (OMXS30) 1,612.5 +1.2 +2.3 -4.7 Dec 29th 2017 one one Switzerland (SMI) 9,174.3 +1.7 -2.2 -3.7 Index one in local in $ Jul 24th Jul 31st* month year Turkey (BIST) 97,210.6 +1.9 -15.7 -34.9 Aug 1st week currency terms Dollar Index Australia (All Ord.) 6,362.1 +0.3 +3.2 -1.8 United States (S&P 500) 2,813.4 -1.1 +5.2 +5.2 All Items 142.3 144.3 -1.1 nil Hong Kong (Hang Seng) 28,340.7 -2.0 -5.3 -5.6 United States (NAScomp) 7,707.3 -2.8 +11.6 +11.6 Food 144.9 148.4 +2.2 -3.4 India (BSE) 37,521.6 +1.8 +10.2 +2.5 China (Shenzhen Comp) 1,549.3 -4.6 -18.4 -22.2 Indonesia (IDX) 6,033.4 +1.7 -5.1 -10.7 Japan (Topix) 1,769.8 +0.9 -2.6 -2.0 Industrials Malaysia (KLSE) 1,788.3 +1.4 -0.5 -0.9 Europe (FTSEurofirst 300) 1,526.8 +0.7 -0.2 -2.7 All 139.6 140.0 -4.6 +4.1 Pakistan (KSE) 42,810.0 +3.6 +5.8 -5.8 World, dev'd (MSCI) 2,149.4 -0.6 +2.2 +2.2 Nfa† 137.2 137.3 -2.4 +6.2 Singapore (STI) 3,329.0 +0.1 -2.2 -4.0 Emerging markets (MSCI) 1,086.9 -0.2 -6.2 -6.2 Metals 140.6 141.2 -5.5 +3.3 South Korea (KOSPI) 2,307.1 +1.5 -6.5 -10.5 World, all (MSCI) 519.0 -0.5 +1.2 +1.2 Sterling Index Taiwan (TWI) 11,098.1 +1.2 +4.3 +1.4 World bonds (Citigroup) 933.2 -0.7 -1.8 -1.8 All items 196.8 200.1 -0.7 +0.9 Thailand (SET) 1,722.0 +1.9 -1.8 -3.8 EMBI+ (JPMorgan) 796.9 -0.3 -4.7 -4.7 Argentina (MERV) 29,387.8 +0.1 -2.3 -32.8 Hedge funds (HFRX) 1,262.9§ -0.3 -1.0 -1.0 Euro Index Brazil (BVSP) 79,301.6 -1.1 +3.8 -8.3 Volatility, US (VIX) 13.2 +12.3 +11.0 (levels) All items 151.2 153.3 -1.6 +1.0 Chile (IGPA) 27,187.2 -0.9 -2.8 -6.6 CDSs, Eur (iTRAXX)† 61.6 -1.9 +36.6 +33.1 Gold Colombia (IGBC) 12,224.0 +1.0 +6.5 +10.0 CDSs, N Am (CDX)† 58.6 -1.4 +19.3 +19.3 $ per oz 1,227.7 1,222.0 -2.6 -4.0 Mexico (IPC) 49,449.4 -0.3 +0.2 +5.1 Carbon trading (EU ETS) € 17.8 +2.9 +118.7 +113.1 West Texas Intermediate Peru (S&P/BVL)* 20,407.9 +0.3 +2.2 +1.1 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 68.5 68.8 -7.3 +39.9 Egypt (EGX 30) 15,670.2 +3.2 +4.3 +3.7 †Credit-default-swap spreads, basis points. §Jul 31st. Israel (TA-125) 1,413.5 +0.8 +3.6 -2.1 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) 8,289.0 -1.3 +14.7 +14.7 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 57,399.5 +1.8 -3.5 -8.8 series, go to: Economist.com/indicators †Non-food agriculturals. Financial Era Advisory Group 74 Obituary Mary Ellis The Economist August 4th 2018

judice. When she flew Wellington bom- bers, glorious aircraft, so reliable and well- mannered, some ground crews were flab- bergasted she was the pilot. (This did not put her off, and she was training to fly four- engine Lancaster bombers when the war ended.) In the ATA itself, which took wom- en from 1940, about 12% of the pilots were female, and not all ferry pools would ac- cept them. The worst, she found, were RAF airfields, where the ground crews often ig- nored her and, if one wanted to spend a penny, one had to find a bush, as the loos were men-only. She learned early in the ATA not to drink too much tea before a flight—only afterwards, when she some- times managed a quick bike ride home to her parents near the airfield at Brize Nor- ton, for a cup and a spot of tennis. They never really knew what her job was. At least after 1943 there was equal pay formen and women ofthe ATA, about £6 a week. For, after all, they faced the same dangers and had the same scrapes—flying, as they did, without radios, relying only on compasses and Bradshaw’s Railway Guides. She met anti-aircraft fire over Bournemouth, barrage balloons suddenly In love with Spitfires popping up, doodle bugs coming for her, and engine failure. Friends got killed. Each ofthose horrors she dealt with calmly; one didn’t get excited, just got on with the job. Besides, men did not own war; women knew about duty, too. It was terribly an- MaryEllis, née Wilkins, ferry pilot in the AirTransport Auxiliary, died on July24th, noying when after one crash-landing she aged 101 had to be rescued by men from a field, be- HE first time Mary Ellis, then Wilkins, and blasting out a three-second show of cause she was besieged by curious cows. Tsaw the sleek small fighter aircraft flame. But the wonderful aircraft itself had All through, the Spitfire remained her parked in the distance on a runway, she fell become her outer layer, a dynamic metal soulmate. When in 1946 she flew one in love. Perhaps it sounded like nonsense, sheath like the feathers on a hawk. The alone for the last time, she reflected that to fall foran aeroplane. Butwhen she came whole experience, she had to admit, was neveragain would youngwomen have the to make her first flight in one, as a 25-year- sexual and orgasmic, and like a dream. chance to fly such a beautiful aircraft so of- old pilot ferrying aircraft between Britain’s Who needed love, with all its tortures and ten and so freely. Still in love with the fast airfields in the second world war, she entanglements, when there was this? From and the furious, she joined the RAF for a knew forcertain. the age of three she had wanted her wings time, flying Gloster Meteor jetfighters, and The date was October 15th 1942. From to grow so she could reach the shimmering bought a gorgeous black Allard K1 sports the moment she picked up her chitty in the sky. Now she had them she was free, full of car in which she whipped about the roads morning, with the list of planes she had to adrenalin and purpose. and won rallies. She took on the manage- deliver that day, her heart was pounding She had flown many kinds of planes ment of Sandown airport in the Isle of with joy. Asshe climbed in, justthe ticketin since, at15, she was allowed to skip hockey Wight, setting up a school there where her Air Transport Auxiliary uniform of at her school in Burford and take flying les- women could learn to fly. Later she mar- dark navy slacks, fur-lined boots and navy sons instead. Most of them were pretty lit- ried Don Ellis, a gliding instructor, which jacket with golden wings, she caught a tle aircraft, such as Tiger Moths and Swal- brought happy years, though she never glimpse of her blonde curls in the Perspex lows. If women were to fly at all, an odd tookto gliding. She missed engine power. canopy of the cockpit. She never wore a thought in itself, those seemed the right As the liveliest member of the shrink- leather helmet; it didn’t do much for the type. Though the shapely Spitfire was of- ing band of ATA veterans, straight-backed hairstyle, and she was fond of fashion. But ten seen as a lady’s plane, the notion of a and without a stick even at 100, she never she had not forgotten lipstick and nail pol- girl at the controls ofthe sexiest thing going missed a chance to wear her uniform, trim ish, because this was an assignation. sent a shudder through commanding offi- navy with its golden wings. And at100 she Inside the cockpit it was warm, snug cers everywhere. The demands of war, the also, for 15 minutes, took the controls of a and quiet. As she slowly commanded the need to get fighter planes to the RAF boys Spitfire again. Another flew alongside as propeller to turn, turn and spin fast, she felt as fast as possible, meant they just had to an escort ofhonour, and a co-pilot sat with the Spitfire respond to every move of hers. put up with it—even when this particular her, but of course it would have been even The thrust and virility she also felt, right girl, all five feet two ofher, was silly and ro- more wizard without them. For in her through her bones, building to 2,400 revs mantic enough to write “Wilkins ATA” in dreams a feisty little Spitfire was always perminute and a take-offspeed of150mph, the cockpit of one Spitfire, in the hope out on the horizon, waiting forher to climb came from the magnificent 12-cylinder some handsome chap might get in touch. in and become a bird again; away into the Merlin engine, erupting like a symphony The bigger the plane, the worse the pre- clouds, close and fast, on and on. 7 https://t.me/finera

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