The fall of Aleppo

Psychoanalysing Park Geun-hye

The uselessness of management theory

Inside DeepMind DECEMBER 17TH–23RD 2016

China’s digital dictatorship An experiment in social control Contents The Economist December 17th 2016 7

10 The world this week 33 Tiny colleges Small wonders 34 Chopping down trees Leaders Fetch the chainsaws 13 Big data and government 35 The trial of Dylann Roof China’s digital dictatorship Mother courage 14 War in Syria 36 Lexington The fall of Aleppo The Obama way of war 15 South Korean politics Decide and rule The Americas 15 The Federal Reserve Russian hacking America’s Janet’s job 37 Canada’s climate deal Walking the walk election result was not decided 16 The trial of Geert Wilders in the Kremlin. But the response In defence of hate speech 38 Bello Viva la ignorancia! to Russian hacking shows how On the cover partisan division has weakened China is experimenting with Letters the country, page 31. The new means of social control: Middle East and Africa history of Russian meddling, 18 On oil taxes, China, leader, page 13. Mass page 32 renewables, refugees, 39 Syria electronic surveillance and Last rites for Aleppo trees, science, economists big data give China’s rulers 40 Israel’s settlers new ways to monitor and The Amona remainers influence citizens, pages Briefing 20-22 41 Violence in Egypt 20 China’s social-credit A massacre of Copts system 41 Saudi Arabia and the Creating a digital Gregorian calendar The Economist online totalitarian state The prince’s time machine Daily analysis and opinion to supplement the print edition, plus 42 Gambia and Ghana Asia You say goodbye and I say audio and video, and a daily chart Economist.com 23 Democracy in India hello The do-nothing Lok Sabha E-mail: newsletters and The fall of Aleppo Vladimir mobile edition 24 Taiwanese politics Europe The KMT goes from riches Putin’s victory; the West’s Economist.com/email 43 Terror in Turkey to rags failure; and a warning of what Print edition: available online by Semtex pretext happens when interests 25 The economy of 7pm London time each Thursday 44 Romania’s election triumph over values: leader, Turkmenistan Economist.com/print Conviction politics page 14. The fate of up to A stan, a plan, a cabal Audio edition: available online 44 Italy’s new prime 100,000 trapped civilians is 25 Race relations in to download each Friday minister terrifyingly unclear, page 39. Singapore Economist.com/audioedition Spot the difference America’s friends are preparing With reservations for a bumpy ride, page 50 45 Igor Sechin 26 Rodrigo Duterte Russia’s oil boyar A liar or a killer 46 Charlemagne 28 Banyan Brexit, the sexiest job Park Geun-hye, the in Brussels Volume 421Number 9020 daughter in the Blue House Published since September 1843 to take part in "a severe contest between Britain intelligence, which presses forward, and an unworthy, timid ignorance obstructing China 47 Business and Brexit our progress." When the red tape unravels 29 The one-China policy Editorial offices in London and also: Mr Trump wades in 48 Police for hire Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, BOGOF bobbies Lima, Mexico City, Moscow, Mumbai, Nairobi, 30 Hong Kong’s leadership New Delhi, New York, Paris, San Francisco, A race, of sorts, looms 49 Bagehot São Paulo, Seoul, Shanghai, Singapore, Tokyo, South Washington DC The breaking of Boris Psychoanalysing Park Johnson Korea’s first woman president United States seemed a path-breaker. In 31 Russian interference fact, she is haunted by the The plot against America past: Banyan, page 28. Lawmakers have impeached 32 Interference past Park Geun-hye. They must now Substandard subversion get down to policy, not 33 Rex Tillerson politicking: leader, page 15 Oily diplomacy

1 Contents continues overleaf 8 Contents The Economist December 17th 2016

International Science and technology 50 Pax Trumpiana 68 Oncology America’s anxious allies Cancer’s master criminals 69 Planetary science Business Stardust memories 53 Artificial intelligence 70 Drug addiction Google’s DeepMind Souring the poppy’s milk 54 The future of Alphabet 70 Climate science Still searching How hot is the sea? 55 Fox’s pursuit of Sky 71 Sexual selection Corporate tax in America Curing cancer To tackle Skyfall Boning up Much-needed reforms may tumours, doctors should look to come with some unpleasant 56 Vivendi and Mediaset proteins as well as genes, side-effects, page 60 Breton v Berlusconi Books and arts page 68 56 Packaging and the 72 Nutrition environment Bittersweet Wrap stars 73 Humans and Subscription service For our full range of subscription offers, 57 Older workers in Germany decision-making including digital only or print and digital Elders not betters Thinking about thinking combined visit Economist.com/offers 58 Amancio Ortega 73 Animals and intelligence You can subscribe or renew your subscription Behind the mask of Zara Smart arms by mail, telephone or fax at the details below: Telephone: +65 6534 5166 59 Schumpeter 74 Johnson Facsimile: +65 6534 5066 The flaws in theory Off with their heads Web: Economist.com/offers E-mail: [email protected] 75 Fiction Post: The Economist Finance and economics Managing the traffic Subscription Centre, Tanjong Pagar Post Office 60 American corporate tax 75 New York theatre PO Box 671 DeepMind Google’s parent The Republicans’ big plan Bard off-Broadway Singapore 910817 company, Alphabet, has plenty Subscription for 1 year (51 issues)Print only of AI expertise, so why does it 61 Buttonwood Australia A$425 need DeepMind? Page 53. As Financial globalisation 76 Economic and financial China CNY 2,300 Hong Kong & Macau HK$2,300 Alphabet continues to seek its 62 China and trade indicators India INR 7,500 Statistics on 42 economies Japan Yen 41,000 next big money-maker, its own Market economy or not? 3 plus a closer look at world Korea KRW 44,000 lucrative search business may 62 UniCredit Malaysia RM 780 GDP New Zealand NZ$460 need to be rethought, page 54 Passing Mustier Singapore & Brunei S$425 Taiwan NT$8,625 63 The Asian Development Thailand US$288 Bank Obituary Other countries Contact us as above The incumbent 78 John Glenn Right up there 64 Foreign exchange Principal commercial offices: The dollar’s muscularity 25 St James’s Street, London sw1a 1hg 64 European insurers Tel: +44 20 7830 7000 Feeling squeezed Rue de l’Athénée 32 1206 Geneva, Switzerland 65 Fiscal rules Tel: +4122 566 2470 Freezing spending 750 3rd Avenue, 5th Floor, New York, NY 10017 65 Venezuela’s monetary Tel: +1212 5410500 madness 1301Cityplaza Four, Cash and grab 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Luther and business gurus Tel: +852 2585 3888 66 Free exchange Management theory is Other commercial offices: becoming a compendium of Place-based policies Chicago, Dubai, Frankfurt, Los Angeles, dead ideas. It needs a Paris, San Francisco and Singapore Reformation: Schumpeter, page 59

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António Guterres was sworn A Dutch court convicted Geert be chosen in March by a 1,200- Politics in as UN secretary-general. Wilders, a populist politician, strong committee packed with The formerPortuguese prime forinciting racial discrim- loyalists ofthe Communist minister and head ofthe UN ination in a speech from 2014 Party in Beijing. refugee agency is taking over in which he asked, “Do you from Ban Ki-moon. want more or fewer Moroc- Copying India cans?” Mr Wilders described A Russian attack the decision as “a great loss for The CIA confirmed that Russia democracy and freedom of had tried to influence the result expression”. He leads the polls ofthe presidential election by fornext year’s election. hacking and leaking sensitive Democratic e-mails. The alle- Park drive gations were rubbished by South Korea’s National Donald Trump’steam. Ameri- Assembly voted to impeach ca’s spooks are sure that Russia ParkGeun-hye, the president. Syrian rebels inside Aleppo, did try to intervene in the The Constitutional Court now who have been reduced to election; some are less certain has six months to review the holding just a sliver ofthe city, than the CIA about the intent charges against her. were reported to have surren- behind its actions. Venezuela withdrew the dered. But a deal under which In Indonesia the governor of 100-bolívar bill, its highest- they would be allowed to Jakarta, Basuki Tjahaja valued banknote, from circula- leave forthe province ofIdlib Purnama (known as Ahok), tion. It represented 77% ofthe promptly ran into difficulties, went on trial forinsulting country’s cash. Savers formed and fighting resumed. Any- Islam. The case has thrown hours-long queues to deposit where from 50,000 to 100,000 open the election forgovernor. the nearly worthless bills in civilians are still trapped inside banks. the tiny remaining enclave. Rodrigo Duterte, the president ofthe Philippines, told a Justin Trudeau, the prime A bomb at a Coptic Christian group ofbusinessmen that he minister ofCanada, strucka church in Cairo killed at least had personally killed suspect- deal with the leaders of11 25 worshippers, two days after ed criminals in an effortto provinces and territories to two bomb attacks targeted encourage vigilantism while start a carbon-pricing scheme police in the Egyptian capital. mayor ofthe city ofDavao. nationwide. Ifimplemented, it Mr Trump nominated Rex would put the country on track America said it would limit its Tillerson as secretary ofstate, Japan’s parliament passed a to meet its emissions targets arms sales to Saudi Arabia, a surprise choice given that the bill to overturn a ban on casi- under the Paris agreement. following concerns about the chiefexecutive ofExxonMobil nos, taking a punt that rich high number ofcivilians being has no experience offormal gamblers can be lured away Just in time for Christmas killed by Saudi air strikes in diplomacy, though he does from Macau and Singapore. Consumer prices in Britain Yemen aimed at Houthi rebels. have friendly ties with Russia. rose to 1.2% in November, a RickPerry, a formergovernor Donald Trump angered China two-year high. The increase, The president ofGambia, ofoil-rich Texas, is to head the by challenging the “one Chi- driven mainly by the higher Yahya Jammeh, retracted his Department ofEnergy, which na” policy. Some Taiwanese cost ofpetrol and clothing, earlier concession ofdefeat he once forgot he wanted to are glad that the idea of“one puts inflation at more than and challenged the result of an abolish. China” has been questioned— twice the level it was at in June, election on December1st, they disagree with China’s when Britain voted to leave which he lost. Leaders of There have been so many assertion that Taiwan is part of the EU. With pay stagnant, neighbouring states have been Paolo Gentiloni was sworn in it. Some also fear, however, inflation is eating into real pressing him to stand down as Italy’s new prime minister that their island may become a wages. Meanwhile, the govern- with threats ofsanctions and following Matteo Renzi’s bargaining chip. ment said that it would not the use offorce against him. resignation after his defeat in a publish its Brexit plan until referendum on political re- A US think-tankreported that February. Muhammadu Buhari, the forms. Mr Gentiloni’s new China appeared to have put president ofNigeria, proposed cabinet got to workas Mr Renzi anti-aircraft systems on the A strike by train drivers on a budget that will increase retreated to his home in Tusca- seven artificial islands it has one ofBritain’s busiest railway government spending by 20% ny. He may not be gone for built in the South China Sea. networks gave commuters the in a bid to restart growth in an long. He signed offwith: “Back The Asia Maritime Transpa- winter blues. Those trying to economy that has slumped in touch soon, friends.” rency Initiative used satellite get away from it all will have to into recession. imagery to tracktheir construc- contend with industrial action In Turkey a bombing outside a tion. China has always denied called by British Airways’ Nana Akufo-Addo, the leader football stadium in Istanbul that the islands were built for cabin crews. But Post Office ofGhana’s opposition New killed at least 44 people and military purposes. workers could deliver some Patriotic Party, won the presi- left scores wounded. The festive cheer. They are also dency. It was the country’s Kurdistan Freedom Falcons Hong Kong’s unpopular chief threatening to strike, so any seventh more-or-less peaceful claimed responsibility, the executive, Leung Chun-ying, future union ballots might get poll since the return ofmulti- second attackit has carried out said he would not run fora lost in the post before they do party democracy in 1992. in the city this year. second term. His successor will more damage to the economy. 1 The Economist December 17th 2016 The world this week 11

cancelled short-term debt ment to acquire the 61% ofSky ($7.8bn), includes the Pilsner Business reliefmeasures for Greece, it does not already own for Urquell brand produced in the afterthe government boosted around $14bn. But the offeris Czech Republic. Earlier this The Federal Reserve lifted the pensions forthe poor without not yet formal. Making it offi- year Asahi bought the Grolsch range forits benchmark consultation. The second cial could trigger a referral by and Peroni brews from SAB. interest rate by a quarter of a review ofthe current Greek the government to the compe- percentage point to between bail-out is stuck; the IMF re- tition regulators, and some Santa’s little helper 0.5% and 0.75%. It was the first cently ran a blog post criticis- politicians remain opposed to rise in a year and only the ing the European approach. Mr Murdoch’s ambitions. second since June 2006, and comes as the short-term pros- Test flight Vivendi said it had bought a pects improve forgrowth in In the first multibillion com- 12% stake in Mediaset, an the American economy. The mercial contract since 1979 Italian broadcaster controlled Fed forecasts that it will in- between Iran and an Ameri- by Silvio Berlusconi, a col- crease rates three times over can company, Boeing signed ourful formerprime minister, the course ofnext year. an agreement to deliver 80 and that it intended to increase aircraft to Iran Air for $17bn. its holding to 20%. The pur- It has to end some time Airbus is close to securing a chase was unsolicited, prompt- At its meeting on December similar contract. The deals ing Mediaset to describe it as a 8th, the European Central have been made possible by hostile takeover attempt. Bank decided to extend quan- the lifting ofsanctions since a Amazon made its first com- titative easing fora further nuclear deal was signed with Yahoo discovered another mercial delivery ofgoods to a nine months to December 2017, Iran, but Republicans in Con- breach ofits security systems. customer by drone, transport- but also to reduce the monthly gress, and the incoming Trump A cyber-attackin 2013 accessed ing a TV device and popcorn to pace ofbond-buying from administration, are opposed to the passwords and other infor- a farmhouse near the English €80bn ($85bn) to €60bn be- that accord and could scrap the mation ofmore than 1bn users, town ofCambridge. Britain ginning in April. Investors tried contracts. Speaking the Trump twice the number ofa similar was the prime choice forAma- to figure out whether this language, Boeing plugged the hackofYahoo’ssystems that zon to markits achievement as marked the start ofa tapering benefits ofits deal for“tens of tookplace in 2014. The revela- regulators there have imposed ofits stimulus programme. thousands” ofAmerican tion could affect Verizon’s fewer restrictions on drone workers. planned takeover ofthe strug- tests than in America. The With the clockticking on an gling internet company. drone flew two miles over end-of-year deadline, Monte Five years after a first takeover open country in 13 minutes dei Paschi di Siena, Italy’s attempt failed amid public Asahi, Japan’s biggest beer- carrying a package weighing most-troubled bank, prepared anger at the hacking scandal at maker, will become Europe’s less than 2.2kg (5lb). Sceptics a last-ditch attempt to raise the his British newspapers, Rupert third-largest brewer following thinkdrones will be a niche €5bn ($5.3bn) in new capital it Murdoch launched another its acquisition ofeast European service, at best, and won’t needs to stay afloat. Italy’s gov- bid to buy Sky, Britain’s big- assets that SABMiller is selling workin urban areas. ernment was on standby to int- gest pay-TV network. Mr as part ofits amalgamation ervene ifthe bankfalls short of Murdoch’s 21st Century Fox with Anheuser-Busch InBev. Other economic data and news raising the cash on the markets. said it had reached an agree- The deal, worth €7.3bn can be found on pages 76-77

UniCredit, the only Italian bankdeemed to be a riskto global markets ifit goes bust, published its turnaround plan. It includes a €13bn ($14bn) share issue to begin next year; reworking almost €18bn- worth ofbad loans and selling them to two investment firms; and more job cuts.

There was some good news for one European bankat least when shareholders in Bank of Cyprus approved its plan to list on the London StockEx- change. During the euro crisis three years ago the bankwas on its knees and was rescued through a contentious “bail-in”, converting savers’ deposits to equity.

As a reminder that the euro crisis is not entirely over, the euro zone’s finance ministers Leaders The Economist December 17th 2016 13 China’s digital dictatorship

The Communist Partyis experimenting with newmeans ofsocial control HEN communism crum- scores might result in sanctions, such as being denied a bank Wbled in the Soviet Union, loan or permission to buy a railway ticket, even for political 25 years ago this week, the Chi- reasons. They have reason to worry. The government decreed nese Communist Party seemed this year that the system should record such vaguely defined to many to be heading irrevers- sins as “assembling to disrupt social order”. ibly downwards. Yes, the tanks In the West, too, the puffs of data that people leave behind had leftTiananmen Square after them as they go about their lives are being vacuumed up by crushing a revolt in 1989, but the companiessuch asGoogle and Facebook. Those with access to war appeared lost. Even China’s breakneck growth, which these data will know more about people than people know took off a year after the Soviet collapse, looked likely only to about themselves. But you can be fairly sure that the West will tear the party furtherfrom its ideological bedrock. In 1998 Pres- have rules—especially where the state is involved. In China, by ident Bill Clinton intimated that he foresaw an inevitable contrast, the monitoring could result in a digital dystopia. Offi- democratic trajectory. He told his Chinese counterpart, Jiang cials talkofcreatinga system that by 2020 will “allow the trust- Zemin, that China was “on the wrong side ofhistory”. worthy to roam everywhere under heaven while making it Yet, while the Westhassuffered from the financial crisis and hard forthe discredited to take a single step.” the fallout after a failed attempt to implant democracy in the So far, the scheme is only experimental, in about 30 areas. Middle East, China’s Communist Party has clung on to its mo- The government itself seems unsure how far to take it. There nopolyofpower. Itsleadersbehave asifChina will never have has been much debate about how to ensure that citizens can to undergo the democratic transformation that every rich challenge their ratings. Indeed, attempts to use the system to country has passed through on the way to prosperity. Instead give the party more muscle are meeting opposition. Official they seem to believe that the party can keep control—and media have reported misgivings about one experiment in some officials are betting that the way to do so lies in a new which citizens visiting government offices to complain about form ofdigital dictatorship. miscarriages of justice were punished with poor scores. The media have even quoted critics comparing such tactics to the A party apart Japanese handing out “good citizen” certificates to trusted Chi- Under its leader, Xi Jinping, the party looks from the outside to nese during the imperial army’s hated wartime occupation. be stronger than at any time in decades. Since Tiananmen, That the party has given publicityto such concerns suggests stale apparatchiks have been replaced by bright technocrats— it may heed some ofthem. But it is just as likely that the experi- and even entrepreneurs. Citizens enjoy freedoms unimagin- ments markthe beginningofsomethingbiggerand more sinis- able a generation ago—to do business, to travel abroad and to ter. They are of a piece with China’s deep-seated bureaucratic pursue freewheeling lives. Using Western techniques of pub- traditions of coercion and paternalism. The government feels lic relations, the party reminds ordinary Chinese how every- thatithasa rightto intrude on citizens’ lives. Publicresentment one, thanks to mass consumerism, is having a jolly good time. has made no difference to brutal, ill-judged efforts to dictate And yet the party is still profoundly insecure. During the howmanychildren familiescan have. WheneverMrXi ischal- past few years it has felt the need to impose a fierce clamp- lenged, his instinct always seems to be to crackdown. The rou- down on dissidents and their lawyers. It is bullying activists in tine succession of threats any government faces is more likely Hong Kong who challenge its authority and is terrorising rest- to lead to oppression than to a free, informed debate or a deci- less minorities. Rapid economic growth has created a huge sion that the state should forsake the digital tools available. new middle class who relish the opportunity to get rich, but who are also distrustful of everything around them: of offi- Turn the spotlight on the rulers, not the ruled cials who ride roughshod over property rights, of a state Instead of rating citizens, the government should be allowing health-care system riddled with corruption, ofbusinesses that them to assess the way it rules. Vast digital systems are not routinely peddle shoddy goods, of an education system in needed for that. For all democracy’s weaknesses, the ballot which cheating is the norm and ofpeople whose criminal and box can still work. Too much to ask for in China, perhaps? Not financial backgrounds are impossible to assess. ifthe government is to be taken at its word. Its outline ofthe so- The party rightly worries that a society so lacking in trust is cial-credit scheme grandly calls for “complete systems to con- unstable. So it is experimenting with a striking remedy. It calls strain and supervise the use of power” and steps to “broaden this a “social-credit system” (see page 20). It says the idea is to channels for public participation in government policymak- harness digitally stored information to chivvy everyone into ing”. That sounds a lot like democracy. behaving more honestly, whether fly-by-night companies or Sadly, Mr Xi shows little interest in experiments of that tax- and fine-dodging individuals. That sounds fair enough. kind. Witness the thugs who were recently deployed outside But the government also talks about this as a tool of “social the home ofa Beijingcitizen who dared to tryto stand in a local management”: ie, controlling individuals’ behaviour. This is a election without the party’s permission. Instead Mr Xi contin- regime that already tries to police how often people visit their ues to develop digital tools and systems forcontrolling people. parents. How much further could it go? Citizens’ ratings are to That will fuel anger and resentment towards the government. be linked with theiridentity-card numbers. Manyfear thatbad In the long run it will prove that Mr Clinton was right. 7 14 Leaders The Economist December 17th 2016

War in Syria The fall of Aleppo

VladimirPutin’s victory; the West’s failure; and a warning ofwhat happens when interests triumph over values ROZNY, Dresden, Guernica: Plenty of people share the blame. After Mr Assad drenched Gsome cities have made his- hispeople in nerve gas, crossing an American red line, Britain’s tory by being destroyed. Alep- parliament voted against taking even limited military action. po, once Syria’s largest metropo- As millions ofpeople fled to Syria’s neighbours, including Leb- lis, will soon join their ranks. Its anon and Jordan, most European countries looked the other 1,000-year-old Muslim heritage way—or put up barriers to keep refugees out. has turned to dust; Russian air- Particular blame falls on Barack Obama. America’s presi- craft have targeted its hospitals dent has treated Syria as a trap to be avoided. His smug predic- and schools; its citizens have been shelled, bombed, starved tion that Russia would be bogged down in a “quagmire” there and gassed (see page 39). Nobodyknowshowmanyofthe tens has proved a historic misjudgment. Throughout his presiden- of thousands who remain in the last Sunni Arab enclave will cy, Mr Obama has sought to move the world from a system die crammed inside the ruins where they are sheltering. But where America often acted alone to defend its values, with a even ifthey receive the safe passage they have been promised, few countries like Britain riding shotgun, to one where the job their four-year ordeal in Aleppo has blown apart the principle ofprotectinginternational norms fell to all countries—because that innocent people should be spared the worst ravages of everyone benefited from the rules. Aleppo is a measure of war. Instead, a nasty, brutish reality has taken hold—and it how that policy has failed. As America has stepped back, the threatens a more dangerous and unstable world. vacuum has been filled not by responsible countries that sup- To gauge the depth of Aleppo’s tragedy, remember that the port the status quo, but by the likes of Russia and Iran which first protests against Syria’s president, Bashar al-Assad, in 2011 see the promotion of Western values as an insidious plot to saw Sunnis marching cheerfully alongside Shias, Christians bring about regime change in Moscow and Tehran. and Kurds. From the start, with extensive help from Iran, Mr Assad set out to destroy the scope forpeaceful resistance by us- Welcome to the bazaar ing violence to radicalise his people. Early on, his claim that all In theory, the next American president could seek to reverse rebelswere “terrorists” wasoutrageous. Todaysome are. There this. However, Donald Trump embodies the idea that liberal were turning-points when the West might have stepped in—by intervention is for suckers. The nomination of his new secre- establishing a no-fly zone, say; or a haven where civilians tary of state, Rex Tillerson, the boss of ExxonMobil (see page could shelter; or even a full-scale programme ofarming the re- 33), only reinforces his campaign message: as president, Mr bels. But, paralysed by the legacy of Iraq and Afghanistan, the Trump wants to notch up deals, not to shore up values. West held back. As the fighting became entrenched, the need Striking deals is an essential part of diplomacy—especially to intervene grew, month by bloody month. But the risk and with adversaries like Russia and Iran and competitors like Chi- complexity ofintervening grew faster. As Mr Assad was about na. But a foreign policy that lurches from deal to deal without a to topple, Russia joined the fray, actingwithout conscience and strategy or being anchored in values poses grave risks. One is to devastating effect. Aleppo’s fall is proof that Mr Assad has that allies become bargaining chips. Mr Trump has already prevailed and of Iran’s influence. But the real victory belongs dangled his support for democratic Taiwan, which China to Russia, which once again counts in the Middle East. claims as a renegade province, as something to be traded in ex- Likewise, the defeat is not just a blow to Mr Assad’s oppo- change forhelp cutting America’s trade deficit with China (see nents, but also to the Western conviction that, in foreign policy, page 29). A grand bargain that Mr Tillerson brokers with his values matter as well as interests. After the genocide in Rwan- friends in Russia and which, for instance, pulls American da in 1994, when Tutsis were slaughtered as the world turned troops back from NATO’s front-line states in exchange for con- its back, countries recognised that they have a duty to con- certed diplomatic action against Iran orChina would leave the strain brute force. When members of the UN accepted respon- Baltic states exposed to Russian aggression. An unparalleled sibility to protect the victims ofwar crimes, wherever they are, network of alliances is America’s great strength (see page 50). conventions against the use of chemical weapons and the Mr Trump must care for his allies, not trade them away. reckless killing ofcivilians tookon a new relevance. The desire An order based on deals also risks being unpredictable and to promote freedom and democracy was not farbehind. unstable. IfMrTrump failsto strike his bargain with Russia, the two countries could rapidly fall out—and never would Mr Dust and ashes Obama’s cool head be more missed. When might is right, This ideal of liberal intervention has suffered grievously. The small countries are locked out or forced to accept poor terms American-led campaigns in Afghanistan and Iraq demon- while the great powers strut their stuff. Without a framework strated that even the most powerful country in history cannot to bind them in, deals require frequent renegotiation, with un- impose democracy by force alone. The tragedy of Aleppo is certain outcomes. Complex, transborder problems such as cli- less conspicuous, but just as significant. Confronted by Mr As- mate change are even harder to solve. sad’s atrocities, the West has done no more than rehearse dip- The world has seen what happens when values cannot lomatic phrases. By failing to stand up for what it is supposed hold backthe chaos and anarchy ofgeopolitics. In tragic, aban- to believe in, it has shown that its values are just words—and doned Aleppo the fighting has been merciless. The people that they can be ignored with impunity. who have suffered most are the poor and the innocent. 7 The Economist December 17th 2016 Leaders 15

South Korean politics Decide and rule

Lawmakers have impeached the president. Theymust nowget down to policy, not politicking OR South Korea, a democra- rejected. The country cannot afford to drift without a hand on Fcy not yet three decades old, the tiller. Ms Park should resign straight away, and fresh elec- the impeachment on December tions should be held. Even then, it will take time to form a new 9th of its unloved president, government, so parliament must step up. Park Geun-hye, was the culmi- The priorityissecurity. Donald Trump takesoffice in Ameri- nation of a remarkable few ca in late January, when South Korea will almost certainly find weeks of participatory politics. itselfwithout an elected president. He has made vague threats AsMsParksankeverdeeper into to withdraw troops from the South even as Kim Jong Un in an influence-peddling scandal involving a former confidante, North Korea tests missiles and bombs with new gusto. Mr Kim millions joined protests and called on their MPs to oust her. likes to test new leaders (the North’s third underground nuc- Four-fifths of South Koreans demanded her eviction; four- lear explosion came two weeks before Ms Park took office). So fifths ofparliamentarians gave them what they wanted. the South Korean opposition should not delay the deploy- The result suspends Ms Park’s powers, over a year before ment of an American-funded missile-defence system, called her term ends (see Banyan). But already the consensus that THAAD (Terminal High-Altitude Air Defence), as it is threaten- produced it is cracking. The verdict has riven Ms Park’s Saenuri ing to do. Nor should lawmakers scrap a vital military-intelli- party—half of whose MPs were among the 234 who voted to gence-sharing deal with Japan, approved last month. This impeach her. Saenuri’s floor leader abruptly resigned this month’s three-way summit of leaders with China and Japan week; the party may split as it tries to reinvent itself. The oppo- will now not take place; South Korean envoys should quickly sition, which controls parliament, wants to ditch deals made reassure both that nothing fundamental has changed. by Ms Park’s conservative administration, and threatens to The country’s lawmakers should also pass some of the hobble the unpopular prime minister and acting president, many pending bills aimed at energising the sagging economy, Hwang Kyo-ahn. That would be a mistake. Instead, politicians which may barely grow by 2% next year. Three hitherto con- need to put policy ahead ofpoliticking. tentious ones deserve their attention: one to boost its unpro- ductive service industry; another to cut regional red tape; plus Unfit fora Kim a package of reforms to loosen the rigid labour market, includ- Both parties are in turmoil as they gear up for a possible early ing provisions for pay to be tied to merit rather than seniority. presidential election, with no clearfront-runner. But a decision These would help create jobs—especially for the young, a fifth on Ms Park’s permanent removal, which rests with the Consti- ofwhom are neither studying nor in work. tutional Court, could take up to six months. A vote for her suc- The finance minister was among those whom Ms Parktried cessor would take place within 60 days if six of the nine jus- but failed to replace last month after the opposition refused to tices agree to impeach her. But they may not: two justices will confirm her new appointee. Mr Hwang was another. For liber- soon retire, and Mr Hwang is unlikely to replace them. Five of al MPsboth are political adversaries, butiftheyhelp them gov- the seven who would remain have a conservative bent. ern, MPs would be making good on their pledge, when they South Korea’smesswill onlygrowworse ifimpeachment is impeached Ms Park, to be working forthe people. 7

The Federal Reserve Janet’s job

The Fed was right to raise rates this week. It should be cautious about its next move HEN, a year ago, the Fed- soggy quarters of growth, America’s economy is now much United States Weral Reserve raised inter- the stronger forthe pause. It grew at an annualised rate of 3.2% 3 Core prices est rates for the first time since in the third quarter of the year. Unemployment has fallen to % increase on a year earlier 2 the financial crisis, it did not in- 4.6%, the lowest since August 2007. The labour-force participa- tend to dilly-dally. Rate-setters tion rate for 25- to 54-year-olds, which tumbled after the reces- 1 pencilled in four more rises for sion, has recovered about a third of its decline, after its fastest Fed funds target rate, % 0 2016. In the end it took until this growth spurt since 1985. Inflation, too, is slowly gathering 2008 10 12 14 16 week for the Fed to lift rates speed. Core prices, which exclude food and energy, are 1.7% again, to a target range of 0.5-0.75%. The delay reflected both a higher than a year ago, still below the Fed’s 2% target, but up wobbly world economy and the Fed’s realisation that the from 1.4% when itfirstraised rates. In Septembermarkets’ infla- structural forces keeping rates low, such as slow productivity tion expectations began to pick up, too. All of this is welcome. growth, are more powerful than it had previously thought. Monetary policy is still relaxed, even ifthe Fed has withdrawn The Fed was right to sit on its hands for a year. After a few a quarter-point ofstimulus. The issue is what happens next. 1 16 Leaders The Economist December 17th 2016

2 The complexion of the central bank’s task has altered since to set monetary policy is to stick with the cautious, data- the election of Donald Trump. Stockmarkets in America have dependent approach ofthe past year. rallied, the dollar has surged and Treasury yields have jumped The Fed’s rate-setters know that they still face an asymme- in anticipation offiscal stimulus. Such a stimuluswould imply, try of risks: should they raise rates too quickly, they cannot cut all else beingequal, that the Fed should now raise interest rates them by a lot if the economy sours. By contrast, the Fed can al- more quickly. The political backdrop is more complicated, too. waystighten policyasmuch asitlikes. Itwould thus be unwise to react hastily to the mere prospect of fiscal easing. Nobody Fed up. Now what? yet knows how soon, by how much and to what effect Mr During his campaign, Mr Trump attacked Janet Yellen, the Trump will cut taxes (see page 60), or how his trade policy will Fed’s chair, for keeping rates low. Her image was used in a TV work. And if the dollar, up by nearly 5% since September, goes advert in which he denounced “global special interests”. The higher, emerging markets with dollar-denominated debts will incoming president will have opportunities to put his stamp look even more fragile than they do today. Weak growth on the central bank: two of seven Fed governorships are va- abroad would wash back up on America’s shores. Financial cant. Ms Yellen’sterm is up in 2018, as is that of her vice-chair, conditions are already tighter, thanks to the dollar’s strength Stan Fischer. Daniel Tarullo, the de facto vice-chair forbanksu- and higher bond yields. If after years of undershooting, infla- pervision and a vocal proponent of regulation, is unlikely to tion surpasses the Fed’s 2% target, that would not be a disaster. be confirmed in that position. If all three of these individuals How many rate rises are needed in 2017 depends on the bal- were also to resign as governors, MrTrump could pack the cen- ance of risks. The Fed’s forecast of three is probably a maxi- tral bank’s board with his picks. mum. Over the past year a strong dollar, fragile emerging mar- The best way for the Fed to avoid interference is to stay out kets and the risk of over-tightening have stood in the way of of political debates, whether over the right amount of fiscal rapid rate rises. Today the economy is stronger and the labour stimulusoroveritsown mandate. And the bestwayforthe Fed market a bit tighter, but the case forcaution is much the same. 7

The trial of Geert Wilders In defence of hate speech

Governments that tryto ban offensive speech onlyempowerbigots EERT WILDERS, a Dutch Mr Wilders enhances his malign influence over Dutch politics Gpolitician, says some horri- and makesitmore likelythathe will one daywield real power. ble, inflammatory things. He The Netherlands is far from the only democracy to crimi- has called Islam a “fascist ideol- nalise “hate speech” that denigrates racial, religious or other ogy” and referred to Muham- groups. Such laws have widespread support, but they are mis- mad, Islam’s prophet, as “a dev- guided. Free speech isthe oxygen ofdemocracy—without it, all il”. He is no friend offree speech, other political freedoms are diminished. So the right to free ex- either: he wants to ban not only pression should be almost absolute. Bans on child pornogra- the Koran but also preaching in any language other than phy and the leaking of military secrets are reasonable. So, too, Dutch. The Economist deplores his views; but he should be al- are bans on the deliberate incitement of violence. But such lowed to express them. prohibitions should be narrowly drawn. Standing outside a mosque shouting, “Let’s kill the Mus- Wild thing, you make my heart sink lims!” qualifies. Complaining that your country has admitted Prosecutors in the Netherlands have reached a different con- too many migrants ofa particular nationality does not. People clusion. On December 9th a court found him guilty of insult- should be free to debate immigration policy. Advocates of a ing and inciting racial discrimination against Dutch Moroc- liberal approach, such as this newspaper, should try to per- cans. At issue was a nasty line from a speech in 2014. “Do you suade those who disagree with them, not lockthem up. wantmore orfewerMoroccans?” MrWildersasked supporters Proponents of hate-speech laws argue that they foster so- of his anti-immigrant Party for Freedom (PVV). The crowd re- cial harmony by forcingpeople to be more polite to each other. plied: “Fewer! Fewer! Fewer! Fewer!” Mr Wilders smiled and The opposite is more likely to be true. Criminalising some- said, softly: “We’ll take care ofthat.” The audience chuckled. thing as subjective as the giving of offence encourages more The court decided not to impose a fine, arguingthat the con- people to say they are offended, so they can use the law to sup- viction itself was punishment enough. Some punishment. press views they dislike. This enrages those who are silenced; Three months before an election, Mr Wilders can pose as a vic- hardly a recipe forsocial tranquillity. tim of an illiberal law and a politically correct elite who, he Such laws also provide an excuse for autocrats to censor claims, are letting Islam undermine Dutch civilisation. Mr their critics. China uses laws against inciting ethnic hatred to Wilders’simage asa martyrisfurtherenhanced bythe fact that trample on Tibetans who demand autonomy. In Saudi Arabia Islamist radicals have threatened to kill him forhis words. and Pakistan anti-blasphemy laws are used to terrorise minor- All this makes him stronger. His party leads the polls, with ities and settle private scores. In all these cases censorious gov- the support ofa third ofvoters. The PVV will probably not win ernments cite similarly worded Western laws as precedents. control of the country—mainstream parties will club together Enough. Governments should stop trying to police politeness. to keep it out of office. But using the law to attempt to silence It stifles debate and helps bigots like Mr Wilders. 7 18 Letters The Economist December 17th 2016

A taxon oil companies China’s ethnic diversity. again” may require Team Science trek In accordance with a rule Trump to thinktwice before It was surprising to see The adopted by the National turning its backon the climate Economist repeat, uncritically, People’s Congress Standing agenda. claims made by green activists Committee in May1996, Hong NICK MOLHO and a trade union with an Kong’s Immigration Depart- Executive director industrial axe to grind, that a ment is authorised to handle Aldersgate Group “gas-extraction tax is bringing all nationality applications in London in less revenue than expected” accordance with China’s na- (“Poor credit”, November tionality law on behalfofthe Bold thinking on refugees 26th). The tax in question, the central government. From July petroleum resource rent tax, is 1997 to the end ofDecember Europe’s populists are just one ofmany taxes paid by 2010, the Immigration Depart- obsessed with migration the oil and gas industry. For ment approved 10,975 nation- (Charlemagne, November almost 30 years, Australia has ality applications from a wide 26th). But it is the UN conven- used the PRRT as a super- diversity ofpotential entrants tion on refugees that under- The paradox in Roger profits tax. It encourages in- from different ethnic and pins Europe’s crisis. It was Shawyer’s EMDrive is easily vestment by only taxing pro- national backgrounds. The drafted in the aftermath of the explained (“Ye cannae break jects when upfront costs have number ofnationality applica- second world war and is out- the laws ofphysics”, Novem- been recovered and profits tions approved in Hong Kong dated. It should be scrapped ber 26th). There would be an exceed a modest benchmark continues to rise. and replaced with something axial component ofradiation rate. However, when these This is another good ex- better. No single country pressure on the conical walls conditions are met, the PRRT, ample ofhow Hong Kong would riskbeing ostracised by ofthe chamber, not just on the in conjunction with the com- contributes to the diversity abandoning the convention on flat ends. This invention is a pany tax, applies an effective and modernisation ofChina. its own, but the EU as a whole benign piece ofwhimsy. tax rate of58 cents on every REGINA IP has the diplomatic and moral More worryingly in my dollar ofprofit. When projects Member of Hong Kong’s heft to succeed. Apart from own field, energy conserva- are not profitable, usually Legislative Council taking backthe initiative from tion, flawed science is because prices are depressed the populists it would also be routinely used to peddle bogus or upfront costs have not been Why Trump should go green in the interest ofrefugees. products. Vendors claim that recovered, Australia still Instead ofgranting asylum to combustion can be improved applies a 30% company tax to As you pointed out, many of anyone who reaches its shores, by passing fuel through revenue. the incentives to invest in Europe could focus on those magnetic fields, that refrigera- As indicated in your article, low-carbon technologies in most in need ofprotection but tion circuits can be made more the profits-based PRRT has America are at the state or lacking the means to make the efficient by injecting heat and encouraged $200bn through business level (“The burning journey. that multiple layers ofreflec- investment which will deliver question”, November 26th). Ifone really wants to rub it tive foil enhance the effect of farmore revenue, over the Earlier this year, governors in the face ofMarine Le Pen et insulation quilt, to name but investment cycle, than would from 17 states, both Repub- al, there should be a Europe- three spurious technologies. be likely to occur with a crude licans and Democrats, agreed wide referendum on the issue. Sadly, as well as post-truth royalty. to co-operate on rolling out ANDERS LONNFALT politics, we are entering an era MALCOLM ROBERTS and cutting the cost ofclean Olofstrom, Sweden ofpost-science engineering. Chief executive energy and transport technol- VILNIS VESMA Australian Petroleum Production ogies. Indeed, many renew- Trees a crowd Director and Exploration Association able-energy federal incentives Vesma.com Canberra, Australia are backed by many Repub- The chart in “For peat’s sake”, Newent, Gloucestershire licans. The solar- and wind-tax (November 26th) suggests that Immigrants in Hong Kong credits were recently renewed tree-cover loss is the same as Classifying economists forfive years by a Republican- deforestation. It is not. Trees Yourbriefing on China’s view led Congress. This isn’t just grow backwhen sustainably Youasked, what is the most ofethnicity and nationhood because renewables are fast harvested or after forest fires. appropriate collective noun for painted a generally accurate coming down in cost, they The tree-cover loss is only a group ofeconomists (Free picture ofChina’s Han-centred have also become important temporary. The chart indicates exchange, November 26th)? At order (“The upper Han”, industries in Republican that Canada lost 7.3% ofits tree least forthose ofus doughtily November19th). That has been strongholds such as North cover between 2000 and 2014. ploughing the rough terrain of the case forthousands of Carolina, which invested $7bn But sites that were harvested macroeconomics, the answer years, mainly because the Han in the technology in 2015, and and replanted in 2000 are now is clear: an aggregate. people are by farthe majority Texas, where over100,000 covered in trees that are four PROFESSOR MICHAEL BEN-GAD and Han culture has proved to people are employed in the metres or taller. The Canadian Department of Economics be resilient despite many renewables industry. Forest Service reports that the City, University of London 7 challenges. But in decrying the As the cost ofgreen technol- deforestation rate in Canada is low numbers ofimmigrants ogies continues to come down, 0.02% a year, orless than 0.3% naturalised in China the size ofthe American clean- between 2000 and 2014. Letters are welcome and should be PHILIP GREEN addressed to the Editor at compared with other coun- energy industry continues to The Economist, 25 St James’s Street, tries, you overlooked the grow and the export market for Chief executive London sw1A 1hg important role that Hong Kong, low-carbon goods and services First Resource Management E-mail: [email protected] under “One Country, Two becomes increasingly signif- Group More letters are available at: Systems”, contributes to icant. “Making America great New Liskeard, Canada Economist.com/letters 20 Briefing China’s social-credit system The Economist December 17th 2016

its wartime occupation ofChina. Creating a digital totalitarian state Butthe partyand governmentseem un- daunted, issuing outline plans for the so- cial-credit system in 2014 and more de- tailed guidelines this year. About 30 local governments are collecting data that would support it. The plan appears hugely BEIJING ambitious, aiming explicitly to influence Big data gives Chinese rulers newways to monitorand control citizens the behaviour of a whole society. By 2020, ARY SHTEYNGART’S novel of 2010, nor how far it will withstand the criticism Chinese officials say, it will “allow the G“Super Sad True Love Story”, is set in a ranged against it in the state-controlled me- trustworthy to roam everywhere under near future when the Chinese yuan is a dia. But an outline is complete and some of heaven while making it hard for the dis- global currency and people all wear an the building blocks are in place. The early credited to take a single step.” “apparat” around their neck with RateMe signs are that China is starting on the most The project is a response to the party’s Plus technology. Personal details are dis- ambitious experiment in digital social con- biggest problems: the collapse of confi- played in public on ubiquitous Credit trol in the world. dence in public institutions, and the need Poles, posts on street corners with “little A pilot scheme in Suining county, in to keep track of the changing views and in- LED counters at eye level that registered Jiangsu province north of Shanghai, gives terests of China’s population (without let- yourCredit rankingas you walked by.” The clues about what such a system might ting them vote). It seeks to collect informa- protagonist’s are summed up thus: mean in practice. Starting in 2010, the local tion on the honesty of ordinary citizens, LENNY ABRAMOV. Income averaged over government awarded people points for public officials and companies alike. five-year span, $289,420 yuan-pegged…Cur- good behaviour(such as winninga nation- rent blood pressure: 120 over 70. O-type al honour of some kind) and deducted A question of trust blood…Thirty-nine years of age, lifespan es- points foreverything from minor traffic of- Despite years of economic growth, popu- timated at eighty-three…Ailments: high cho- fences to “illegally petitioning higher au- lar discontent at widespread corruption lesterol, depression…Consumer profile: thorities forhelp”. Those who scored high- has grown stronger. A series of scandals heterosexual, nonathletic, non-automotive, est were eligible for rewards such as about everything from shoddy housing to nonreligious…Sexual preferences: low-func- fast-track promotion at work or jumping out-of-date vaccines has led to public cyni- tioning Asian/Korean…Child abuse indica- the queue for public housing. cism about companies and the govern- tor: on…Last purchases: bound, printed, nonstreaming Media artifact” [ie, book]. The project was a failure. The data on ment’s ability to enforce rules. Social-cred- which it was based were patchy. Amid a it scoring aims to change that by cracking The novel is a fictional dystopia about the public backlash, a report in China Youth down on the corrupt officials and compa- destruction of privacy. China’s Commu- Daily, a state-owned newspaper, criticised nies that plague Chinese life. And it aims to nist Party may be on its way to inventing the system. It said “political” data (such as keep a closer track on public opinion. In a the real thing. It is planning what it calls a petitions) should not have been included, society with few outlets for free expres- “social-credit system”. This aims to score declaring that “people should have rated sion, big data might paradoxically help not only the financial creditworthiness of government employees and instead the make institutions more accountable. citizens, as happens everywhere, but also government has [rated] the people.” An- But it could also vastly increase snoop- their social and possibly political behav- other state-run newspaper, Beijing Times, ing and social control. In other countries iour. It is not yet clear how extensive the even compared the scheme with the “good there have been many scare stories about system will be, nor whether it will work, citizen” certificates issued by Japan during Big Data leading to Big Brother. Most have 1 The Economist December 17th 2016 Briefing China’s social-credit system 21

2 proven false. But China is different. It is a lage”. Winners get money, a higher pen- 700m internet users. That would be enor- one-party state, with few checks on its sion, better health insurance and the right mously ambitious but probably not im- power, a tradition of social control and, in to jump the queue for public housing. The possible. According to leaked documents, President Xi Jinping, a leader even more honours system is valued by the leader- America’s National Security Agency can prone to authoritarianism than his imme- ship. Last year, all seven members of the collect 42bn internet records a month and diate predecessors. The extent of social- country’s highest decision-making body, 5bn mobile-phone location records a day. creditscoringwill depend on whatthe gov- the Standing Committee of the Politburo, To make such surveillance work, the ernment intends, whether the technology attended the awards ceremony of the Na- government has to match the owners of works and how the party responds to pub- tional Model Worker programme. devices with the digital footprints they lic concerns. Wholesale surveillance, increasingly of leave. So laws passed in 2012 and 2016 re- Start with intent. The “planning out- the digital sort, is a central pillar ofChinese quire internet firms to keep their custom- line” published in 2014 said the govern- communist rule. A system of block-by- ers’ real names and other personal infor- ment “pays high regard to the construction block surveillance called “grid manage- mation. But there are lots of fake of a social-credit system”—suggesting the ment” is being set up in several parts ofthe registrations. And it is unclear how censors project has the imprimatur of Mr Xi and Li country: police and volunteers keep tabs plan to tackle virtual private networks, Keqiang, the prime minister. Social credit, on groups of a few hundred people, sup- which maska user’s IP address. it declared, “is an important component posedly to ensure the rubbish is collected …ofthe social-governance system”: in oth- and disputes resolved. It is part of a tradi- Who’s naughty and nice erwords, itispartofgoverningthe country. tion of self-policing that stretches back to The emerging social-credit system builds The paper did not set out how the sys- the Song dynasty in the 11th century. on this history of monitoring and control tem would work but was clear about its Newer forms of monitoring involve the of people’s private lives. Lists are central to aims. They are to strengthen confidence in ubiquitous use of closed-circuit television the project: you need lists of identities to the government by improving its efficien- cameras. In 2009 China had 2.7m of them; order the data you gather. And lists are a cy through big data; to crackdown on com- now it may have overtaken America as the Chinese speciality. China’s tourist author- panies that cheat and sell unsafe goods; country with the largest number of CCTV ity keeps a no-fly list for ill-mannered trav- and to “encourage keeping trust and pun- devices. According to Jack Ma, head of Ali- ellers, who can be banned from going ish breaking trust…throughout the entire baba, China’s largest internet firm, the abroad forup to ten years. The Cyberspace society”. Social credit, it concluded, would company’s home town of Hangzhou has administration keeps a “white list” of fa- be “an important basis for…buildinga har- more surveillance camerasthan NewYork, voured media firms that may sell their arti- monious socialist society”. a somewhat larger city. cles to other outlets. And so on. Asinternetuse hasgrown (see chart), so The list at the heart of the social-credit Getting to know you have China’s comprehensive controls in system is called the “judgment defaulter’s Such thinkingisin keepingwith the party’s cyberspace—from the Great Firewall, the list”, composed ofthose who have defied a long record of using bureaucratic tools to system that blocks access to tens of thou- court order. If two people or companies restrict freedom and invade privacy in the sands of websites (Economist.com among have a contract dispute, or if couples are name of public order. Almost everyone them); to the Golden Shield, an extensive fighting over a divorce or child support, the has a hukou (household registration) docu- online surveillance system; and the Great parties can go to a civil court for judgment. ment that determines where citizens can Cannon, a tool to attack hostile websites. If the losing party then defaults on pay- get publicservices. Most people once had a China’s cyber-censors can suspend inter- ment, he, she or it is put on the list. Names dang’an (personal file) containing school net or social-media accounts if their users of offenders are displayed on an electronic and work reports, and salary details. Both send messages containing sensitive terms crawl outside court houses. According to controls have been relaxed, notably the such as “Tibetan independence” or “Tia- the supreme court, there were 3.1m defaul- dang’an. But both still exist. nanmen Square incident”. ters on the list at the end of2015. Increasing numbers of people in gov- The scale of the data-collection effort All countries have problems enforcing ernment, state-owned firms and universi- suggests that the long-term aim is to keep civil judgments in financial cases, so the ties are required to hand over their pass- track of the transactions made, websites list may not look unusual. But it is. It is ex- ports “for safe keeping”. Holders of visited and messages sent by all of China’s ceptionally long, and made available to 1 passports in some parts of the restless re- gions of Xinjiang and Tibet have also been told to hand them over to the police. Towards an all-seeing state Punishments and rewards for behav- Target date for completion of social-credit system 2020 iour are woven into the government’s ac- 60 1997 Internet“Great Firewall users 1997 of China”,2,016 Cyber-security law adopted tivities. The one- (now two-) child policy the Chinese government’s tool Guidelines on social-credit system are issued Per 10,000 people3.2 5,030 National security law remains the extreme example of a sup- to censor the internet, is launched “Planning outline” of social-credit system is published posed greater good trampling over private “Great interests. But it is not the only one. The El- Cannon”, 40 der-care law of 2013 requires all adult chil- Supreme a tool to dren, on penalty of fines or jail, to visit par- “Golden Shield” People’s Court attack surveillance system issues websites, ents over 60 “often” (the courts define becomes operational provisions on is first Law requires judgment used what counts as often). A few people have internet defaulters list been fined under the law and one official companies to 20 said their offences might be entered onto demand that China, internet Social-credit users register Elder-care law their dang’an, though there is no sign that penetration experiment launched their real names adopted this has been done. rate,% in Suining county, China has “an administrative rewards Jiangsu province system” in which hundreds of thousands 0 ofpeople a year receive honours and titles, 2003 04 05 06 07 08 09 10 11 12 13 14 15 16* such as “outstanding cadre”, “spiritually Sources: China Internet Network Information Centre; The Economist *To June advanced individual” and “civilised vil- 22 Briefing China’s social-credit system The Economist December 17th 2016

2 dozens of government departments and ernment unrestricted access to almost all criminals to steal or change information. party organisations, all ofwhich can apply personal data. Civil-liberty advocates who How to analyse the data would be their own sanctions to defaulters. People might protest are increasingly in jail. And, equally problematic. The feature of the so- on the list can be prevented from buying according to America’s Congressional Re- cial-credit system that has attracted the aeroplane, bullet-train or first- or business- search Service, companies that hold data, most attention and alarm is the notion of class rail tickets; selling, buying or building such as Alibaba, Baidu (China’s largest ascribing “credit scores” (points) to social a house; or enrolling their children in ex- search engine) and Tencent (which runs a and political activity. Here, the model pensive fee-paying schools. There are re- popular social-messaging app) routinely seems to be America’s marketing industry. strictions on offenders joining or being obey government demands fordata. Companies work out credit scores that promoted in the party and army, and on re- Big-data systemsin democraciesare not predict people’s patterns of consumption ceiving honours and titles. If the defaulter designed for social control. China’s explic- based on things such as job security, health is a company, it may not issue shares or itly would be. And because its leaders con- risks and youth delinquency. But errors bonds, accept foreign investment or work siderthe interestofthe partyand society to abound. The World Privacy Forum, a non- on government projects. By August 2016 be the same, instruments of social control profit organisation, says credit scores are defaulters had been stopped from buying can be used for political purposes. Earlier based on hundreds of data points with no airline tickets about 5m times. This goes far this year, for instance, the party asked Chi- standards of accuracy, transparency or beyond normal legal enforcements. na Electronics Technology Group, one of completeness. As the report concluded, the country’s largest defence contractors, “error rates and false readings become a Sins with Chinese characteristics to develop software to predict terrorist big issue.” Garbage in, garbage out. From blacklisting debt-defaulters the sys- risks on the basis ofpeople’s job records, fi- tem could be expanded a bit, say, to keep nancial background, consumption habits, What could go wrong? track of companies that sell poisoned milk hobbies and data from surveillance cam- The government is well aware of these dif- or build shoddy houses. Yet guidelines is- eras. Sifting data to seek terrorists can easi- ficulties. It has allowed an unusual sued in May and September suggest it ly morph into looking for dissidents. It is amount of discussion on them in state-run could go much further. They call the de- telling that Western intelligence agencies media, suggesting it may be testing the wa- faulters list “an important component of have tried to use data-mining schemes to ters before deciding how farto plunge in. A social-credit information”, implying that it identify individual terrorists, but failed be- recent high-level “social-credit summit” in is part ofa larger system, and that financial cause ofan excess of“false positives”. Shanghai, for example, talked about how offences are only one category of wrong- So can a vast social-credit system work? scores can be checked, and mistakes recti- doing. Other sorts of “untrustworthy be- The Chinese face two big technical hur- fied; many argued that legal protections haviour” meriting attention include: “con- dles: the quality of the data and the sensi- needed to be improved. Zhang Zheng, di- duct that seriously undermines…the tivity of the instruments to analyse it. Big- rector of the China Credit Research Centre normal social order…seriously under- data projects everywhere—such as the at- at Peking University, said multiple pro- mines the order of cyberspace transmis- tempt by Britain’s National Health Service blems remain unsolved, and that the ad- sions”, as well as “assembling to disrupt to create a nationwide medical database— ministration needed to be reined in. social order [and] endangering national have stumbled over the problem ofhow to A commentary in Beijing Times com- defence interests”. Such broad categories preventincorrectinformation from fouling plained about plans to punish people who imply the system could be used to rate and the system (this undermined the Suining do not pay their electricity bills by limiting punish dissent, expressionsofopinion and experiment, too). Problems of bad data foreign travel and bank borrowing. “I have perceived threats to security. would be even more onerous in a country never opposed the establishment and im- Although not spelled out clearly, the of 1.3bn people. Vast treasuries of data provement of a credit-information sys- guidelinescould, on the face ofit, allow the would also give big incentives for cyber- tem,” wrote the author, Yang Gengshen. “I state to integrate itsmanydatabases: every- am only against using credit to expand the one’s hukou and dang’an, information power of the strong and further compress from electronic surveillance, the tourist the space forcivil rights.” blacklist, the national model-worker pro- Much about the social-credit system re- gramme and more. Even regulations on mains unclear. The government has not video games published in December say yet determined whether it wants the sys- that firms and gamers that violate the rules tem mainly forcrackingdown on crooks or could be blacklisted and inscribed in the to go the full Big Brother. It is uncertain social-credit database. At worst, the social- about how much of the information it credit project could become a 360-degree holds should be incorporated into the sys- digital-surveillance panopticon. tem. The surveillance technology is largely That may sound like scaremongering. untested at the vast scale ofChina. And the After all, Google, Facebook, data-brokers fragmentation of China’s intelligence and marketing companies in Western agencies would have to be overcome. countries—even American presidential- But the government is creating the ca- election campaigns—all hold vast quanti- pacity for a long-tentacled regime of social ties of personal information without caus- control. Many of the elements are ready: ing serious harm to civil liberties, at least the databases; the digital surveillance; the not so far. system ofreward and punishment; and the But China treats personal information we-know-best paternalism. What remains differently from the West. In democracies, is to join the pieces together. If and when laws limit what companies may do with it that is done, China would have the world’s and the extent to which governments can first digital totalitarian state. As another get their hands on it. Such protections are character in “Super Sad True Love Story” imperfect everywhere. But in China they writes to a friend: “This is what happens do not exist. The national-security law and when there’s only one party and we live in the new cyber-security law give the gov- a police state.” 7 Asia The Economist December 17th 2016 23

Also in this section 24 Taiwan’s former ruling party in crisis 25 Turkmenistan’s hobbling economy 25 Race and paternalism in Singapore 26 Rodrigo Duterte is at it again 28 Banyan: Park Geun-hye, the daughter in the Blue House

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

Democracy in India other years, entire month-long sessions have passed with no business getting done The do-nothing Lok Sabha at all. Mr Modi’s Bharatiya Janata Party (BJP) blames its foes for resorting to “dis- ruption”, but when in opposition it did ex- actly the same thing. And whereas rowdy parliaments are common enough, an addi- tional problem with India’s is that its two DELHI houses meet only rarely. In the 1950s, soon Everyone is talking about demonetisation—except parliament after independence, their three annual ses- ARLY in November India’s government ber 16th. Instead, MPs spent much of their sions typically added up to 140 days a year, Etook a momentous decision by abrupt- time shouting at each other about demo- not unlike the parliaments of, say, Britain ly voiding 86% of the cash in circulation. netisation, obliging the speakers of both or Canada. The average is now closer to 60 The effects have been painful: businesses houses to suspend proceedings repeatedly. (see chart). cannot pay workers or suppliers; day-long Both Mr Modi and the most prominent op- India’s many state legislatures are even queues stretch outside banks as citizens position leader, Rahul Gandhi, who is vice- lazier: most ofthem meet forfewer than 30 jostle for new notes that cannot be printed president of the Congress Party, comically daysa year. The assemblyin one state, Har- fast enough to meet demand. The govern- chorused charges that neither one was al- yana, met forjust12 days on average in 2011- ment said the trouble would be over by lowing the other to speak, even as their 2015, says M.R. Madhavan, the president of year’s end. It is clear now that the hurt will parties traded blame over the legislative PRS Legislative Research, a privately fund- last far longer. Few in India can talk about logjam. And to make matters even worse, ed watchdog in Delhi. Haryana’s debates anything else—yet India’s parliament has both the government and its opponents are so perfunctory that its legislators man- barely managed to discuss it at all. took their fight outside parliament, mutu- aged to pass 14 bills in just 90 minutes at In any other parliamentary democracy, ally leaking news stories that appeared to one point this year. such a glaring bungle would have implicate their opponents in corruption. There are many reasons for the creaki- prompted a strong legislative response. To Sadly, the parliament’s failure to ad- ness of India’s democratic institutions. cause a sharp slowdown in a perfectly dress such a crucial issue is not unusual. In One of them is a constitution that puts healthy economy would invite fierce ques- more power in the hands of executive and tions and perhaps a vote of no confidence. judicial branches than in other democra- Governments have fallen forlesser goofs. Bums off seats cies, where legislatures tend to be more But in the world’s biggest democracy, Indian parliament houses, sittings per year powerful. It is no coincidence that whereas things are different. True, India’s bicameral America’s Congress grandly occupies Cap- 150 parliament did convene in mid-November Lok Sabha itol Hill, the palatial residence ofIndia’s fig- for its month-long winter session, and op- 125 urehead president, built for a British vice- position MPs loudly attacked “demoneti- roy, looks down from the hill it shares with sation”. Yet nothing like a formal parlia- 100 the main ministriesupon the lowlyhouses mentary debate has taken place. Narendra 75 ofparliament (pictured). Modi, the prime minister, has neither ex- Rajya Sabha As in the days ofthe Raj, it is India’s gov- plained his policy norfaced questions on it 50 ernment that summons parliament and in either the 545-member Lok Sabha or in 25 determines how many days it will sit. the 245-seat upper house, the Rajya Sabha. When it is not in session, the government In fact, only two minor bills have been 0 can pass ordinances that have the force of debated and passed in the parliamentary 1952 60 70 80 90 2000 10 16* law, which provides an incentive to keep session that is due to conclude on Decem- Source: PRS Legislative Research *To December 9th MPs idle. Parliament must approve ordi-1 24 Asia The Economist December 17th 2016

2 nances within six months, but govern- ruling party has a strong outright majority. ten, bar membership fees, donations and ments can sometimes get around this. Four “I have always argued the first priority is to the funding political parties receive from times Mr Modi’s government has renewed represent voters,” says Mr Tharoor, “but the government. The law allows the gov- an ordinance perpetuating the confisca- there are many MPs who see their job as ernment to freeze the KMT’s assets while a tion of“enemy property”, in spite of oppo- performers in a theatre, since the outcome committee assesses whether the party is sition from the Rajya Sabha and even ofvoting is anyway preordained.” the rightful owner, and to seize them if it though Indian citizens have won title to In the rumpus over demonetisation, judges otherwise. The KMT will only be such inherited properties in court. Indian the BJP repeatedly rejected the opposi- able to reclaim assets it can prove it ob- governments can also sign foreign treaties tion’s demand that a debate should be tained legitimately. without parliamentary approval. held with Mr Modi present and under In late November the committee decid- The rulesofthe parliamentitself dimin- rules that require a vote. That may have ed that the KMT should hand over two big ish its democratic role. Prime ministers are saved Mr Modi embarrassment, but it has holding companies, worth NT$15.6bn under no obligation to answer questions pushed backa crowded legislative agenda, ($490m). One of them owns the party’s themselves; they can delegate someone including debate over how to apply a uni- headquarters. In September, it had already else. Unusually, too, a constitutional fied sales tax whose passage the BJP had frozen the party’sbankaccounts, afterKMT amendment from the 1980s gives immense hailed as its biggest achievement of the officials attempted to withdraw NT$520m. power to party whips: it provides that MPs previous parliamentary session. To pay staff in September and October, the who vote against their own party may lose And how was that important bit of leg- KMT’s leader, Hung Hsiu-chu, was forced their seat. “Party leaders love the anti-de- islation passed? One jaded, neutral MP to take a personal loan of NT$90m. Half fection rule,” says Mr Madhavan, “but it says it was a combination of two things. came from the ageingmotherofTerryGou, means MPs have no choice but to follow “We functioned well last session because who heads Foxconn, the world’s largest orders—they represent neither their own MrModi got offhis high horse, and also be- contract manufacturer of electronic goods conscience nor constituents.” cause some opposition people were per- (it makes iPhones, among other things) Shashi Tharoor, a CongressMP, saysthe suaded it was in their interest to get on and half from an anonymous donor. The rule makes sense when weak coalition board.” The persuasion, it seems, was a KMT, which argues that the committee is governments are trying to hold together, whiff of scandal such as the tales of cor- unconstitutional, found itself in the hu- butiscounterproductive when, asnow, the ruption that are now surfacing. 7 miliating position of begging it to release some funds so that the party could pay tax- es, among other things. Taiwanese politics At the end of November the committee relinquished just enough money to allow From riches to rags the KMT to provide the severance pay re- quired to layoffmore than halfitsstaff. The party has launched a frantic fund-raising drive among its 300,000-odd members. It says the DPP is on a politically motivated “witch hunt”; it is attempting to have the TAIPEI confiscations overturned in the courts. What was once Taiwan’s most powerful party is suddenly broke and adrift But even the KMT concedes that its HE Kuomintang (KMT) was once reput- KMT’s assets, the DPP believes, should be wealth is doing it more harm than good Ted to be among the world’s richest po- returned to the state, or in some cases to and that it needs to make amends for the litical parties. Its leaders fled mainland people or companies from which they way it enriched itself. A spokesman says it China in 1949 with shiploads of loot, in- were expropriated. would consider making donations to char- cluding an estimated 138 tonnes of gold In July the DPP passed a law that as- ity as a form ofrestitution. Polling suggests and the finest treasures of Beijing’s Forbid- sumes that all the KMT’s property is ill-got- that a little over half of Taiwanese see the den City (see picture). The party then ab- new law as justified; only a third see it as a sorbed state property and other govern- political ploy. ment assets that had been handed over by The KMT is out of step with voters in Taiwan’s departing Japanese colonial ad- other respects, too. As part of its fund-rais- ministrators in 1945. During the Kuomin- ing drive, it is offering donors a copy of the tang’s long single-party rule, which lasted original registration form of its forebear, until 1987, it amassed a vast business em- the Chinese Revolutionary Party, founded pire, complete with banks and television by Sun Yat-sen in 1914. Such gestures do not stations. So the fact that it is laying off 428 resonate with most ordinary Taiwanese, of its 738 employees for lack of money to particularly the young, who increasingly pay them is, to say the least, a reversal. feel they have a unique Taiwanese identity At elections in January the indepen- that is distinct from the rest of China. For dence-minded Democratic Progressive much the same reason, the KMT is strug- Party (DPP) won a majority in Taiwan’s gling to attract young leaders, for whom its parliament for the first time, as well as the Chinese roots do not appeal. Ms Hung, presidency. The DPP, naturally, thinks the during the presidential election campaign, KMT’s wealth gives it an unfair advantage had talked about eventual reunification in elections. Its staff, before the lay-offs, with China. Her stance was so abhorrent was five times bigger than the DPP’s. More- to most voters that the KMT dumped heras over, the DPP considers the KMT’s wealth its candidate. The KMT says its lackoffunds illegitimate, in that it stems from the is preventing it from acting as a proper op- party’s unfettered authority and the blur- position and monitoring the conduct of ring of state and party assets during Tai- the government. But that may not be the wan’s 40-year dictatorship. Most of the Patrimony or party money? only problem. 7 The Economist December 17th 2016 Asia 25

The economy of Turkmenistan try’s gas, might allow it to develop more of Gas leak its own vast gasfields, and thus import less. A stan, a plan, a Turkmenistan Unhelpful or unstable neighbours block GDP Exports of goods most export routes (see map), leaving Chi- cabal % increase on a year earlier $bn na as the only other customer for Turkme- 10 20 nistan’s gas. But it is uncertain how much 8 16 cash it earns from those sales: much of the gas it sends to China serves as payment in A fanciful development scheme in a 6 12 kind forbillions ofdollars in loans it has re- Central Asian despotate ceived since 2009. HEN the price of natural gas was 4 8 Mr Berdymukhammedov’s answer is Whigh, Turkmenistan raked in $10bn a 2 4 to develop a different industry: tourism. In yearfrom exports—a tidysum fora country September a new, falcon-shaped airport of 5m people. Most of it went on the gran- 0 0 opened in Ashgabat. It reportedly cost 2012 13 14 15 16* diose schemes of Gurbanguly Berdymuk- $2.4bn to build and is the largest in Central Source: Economist Intelligence Unit *Forecast hammedov, the authoritarian president Asia, with a capacity of 17m passengers a and self-proclaimed “Protector”, or was year. The government is also spending distributed to his cronies. But the economy bat, after dismantling one put up by his $5bn on a marble-clad sports complex that nonetheless grew at an average annual predecessor. Although widespread unrest will host the Asian Indoorand Martial Arts rate of 11% between 2010 and 2014, accord- is unlikely—Turkmenistan is a police Games next year. The Avaza region in the ing to official statistics. state—Mr Berdymukhammedov doubtless west is being transformed into a “Turkmen The price of natural gas has since wants to restore at least a semblance of Las Vegas”, replete with big casino resorts, halved, however, with dire consequences. economic stability before the next stage- according to the foreign ministry. Gas accounted for a quarter of GDP and managed election in February. (In the most The Central Asian despotate makes an half of all government revenue. The low recent election, in 2012, he ran against six unlikely tourist magnet. It has one of the price means the economy has slowed other candidates, but still managed to at- most restrictive visa policies in the world. markedly (see chart), and the budget has tract 97% ofthe vote.) Those who manage to obtain a tourist visa swung from a surplus ofnearly10% ofGDP Stabilising the economy will be diffi- must still hire a guide, who doubles as a in 2012 to a projected deficit of 3% this year. cult. Russia, which once imported 40bn cu- government minder. There is not much in Dwindling foreign-exchange reserves bic metres of Turkmenistani gas a year, the way of spectacular ruins, pristine equate to just nine months ofimports. called off all purchases in January. The lift- beaches or pulsing nightlife. There is no For ordinary people, life is getting ing ofWestern economic sanctions against shortage of spectacular white elephants, tougher. The government has raised the Iran, another important buyer of the coun- however. 7 prices ofsubsidised electricity, gas and wa- ter. The devaluation of the manat, the cur- rency, has pushed up already-high infla- Race relations in Singapore tion: food prices rose by 28% in 2015. There are shortages of basic goods, such as flour, With reservations in some provinces. Bosses at state-owned firms, which dominate the economy, have ordered mass lay-offs. Even farming is state-controlled. Foreign analysts estimate thatasmanyas60% ofworkersare in effect SINGAPORE unemployed. For many of those who do A play, an election and an illiberal but effective approach to race still have jobs, wages are said to be months in arrears. N A side street in the centre of Singa- free speech. Recent sackings of high-level govern- Opore, a Muslim-American lawyer “Wounding the religious or racial feel- ment officials suggest that the president is beats his wife bloody, only to be treated to ings of any person” and “promoting enmi- trying to deflect growing public frustration rapturous applause. The lawyer is Amir ty between different groups on the ground over the deteriorating state of the econ- Kapoor, the central character in Ayad Akh- of religion or race” are both punishable by omy. He also continues to foster a cult of tar’s play “Disgraced”, which recently com- up to three years’ imprisonment. On Racial personality: he has added books he claims pleted a run at the Singapore Repertory Harmony Day, observed every July 21st to have written to the national curriculum, Theatre (SRT). The play centres on a heated since 1997 in commemoration of a deadly for example, and erected a gold statue of argument about identity, assimilation and communal riot in 1964, students come to himselfin the middle ofthe capital, Ashga- stereotypes among Amir, his white wife school in their traditional ethnic dress and and two friends, an African-American law- try each other’s food. Duringthis year’s cel- RUSSIA yer and a Jewish art dealer. ebration Lee Hsien Loong, the prime minis- Selected gas pipelines, 2016 Though Mr Akhtar’s play has been per- ter, cautioned Singaporeans against taking formed around the world, itwassurprising good race relations forgranted. KAZAKHSTAN to see it in Singapore, where the govern- Gaurav Kripalani, who played Amir ment has long been touchy about race and and is the SRT’s artistic director, believes

C religion. Around 74% of Singaporeans are that even five years ago Singapore’s Media a s UZ p B of Chinese ethnicity, 13% Malay, 9% Indian DevelopmentAuthority(MDA), which reg- i EK a IS n T KYRGYZSTAN A and the rest “other”. The government sees ulates theatres—the existence of such a S N

e TURKMEN- a CHINA the country’s laudably harmonious multi- government agency is telling—would not Avaza ISTAN TAJIKISTAN Ashgabat culturalism as fragile, to be nurtured and have allowed “Disgraced” to be per- guarded by policies such as ethnic quotas formed. Its approval this year came with IRAN AFGHAN- LOCATOR ISTAN in housing, guaranteed minority-group two conditions: only people over 18 could 750 km representation in parliament and limits on watch the play, and the actors had to host a 1 26 Asia The Economist December 17th 2016

Rodrigo Duterte A liar or a killer

SINGAPORE The president ofthe Philippines boasts about personally killing drug suspects HE tough-talking president ofthe taking office by tossing the bodies of TPhilippines, Rodrigo Duterte, boasts criminals into Manila Bay to fatten the ofkilling people, ordering executions or fish—a vow so swaggering that it seemed wanting to kill someone about as often as comical at the time. Yet since he became Donald Trump boasts ofbeing rich. But president in June, around 6,000 suspect- as with Mr Trump, it is hard to know how ed drug dealers and users have in fact much to trust Mr Duterte’s boasts. At best, been killed without the benefit ofa trial. that makes the boss ofthe Philippines’ He has also threatened to kill suspects’ police and prosecutors not only a liar, but lawyers and human-rights advocates a cheerleader forextra-judicial killings. At who oppose his bloody but popular war worst, it makes him a criminal who on drugs. should be in prison, not the presidential This weekhe crossed a new Rubicon: palace. he admitted to having killed people During the many years Mr Duterte himself. “In Davao I used to do it perso- was mayor ofDavao, the biggest city in nally,” he told a group ofbusinessmen, the southern part ofthe country, a vigi- “just to show the guys ifI can do it, why lante group known as the Davao Death can’t you?...I was really looking for a The old way of ensuring racial harmony Squad gunned down drug suspects and confrontation so I could kill.” others whom the gunmen thought were Did he really kill anyone? Who can 2 discussion of its themes after the show. Al- criminals. Mr Duterte has at times say? Just a few hours before this admis- though the discussion was voluntary, most seemed to admit involvement in the sion, he protested, “I am not a killer.” Mr people stayed, and the conversation was group and at others denied its existence. Duterte’s spokesman has grown adept at lively. On a recent night one audience In September a formermember ofthe walking backor reinterpreting his Grand member castigated the play for being rac- outfit testified to a congressional commit- Guignol statements. ist, while another praised it for “talking tee that, as mayor ofDavao, Mr Duterte Even ifMr Duterte has killed suspect- about things most people don’t really say had ordered him and others to kill. Mr ed criminals, would anyone dare bring out loud”. Mr Kripalani, a native Singapor- Duterte, through a spokesman, denied charges against him? It is unlikely. No ean, believes these discussions and the the accusation. prosecutor wants to find himselfsudden- MDA’s approval of the play show that “we As a candidate, Mr Duterte promised ly out ofoffice, missing or bobbing life- are growing up.” to “end crime” within six months of lessly in Manila Bay. But Singapore’s paternalism has not gone away. In early November the govern- ment announced that only ethnic Malays would be permitted to run for president next year. The constitution will be amend- ed to mandate that presidential elections be reserved for members of a certain eth- nic group if nobody from that group has served as president forthe past five terms. Until 1993 parliament chose the presi- dent—a largely ceremonial post. Since Sin- gapore began electing its presidents di- rectly, two Chinese-Singaporeans and one Indian-Singaporean have served. The last Malay president was Singapore’s first, Yu- sofIshak, who held office from 1965 to 1970. Possible candidates in next year’s election, which must be held before August, include Halimah Yacob and Abdullah Tarmugi, the current and previous Speakers of Parlia- The president wants the opposite ment. MrLee hassaid the move will ensure that every citizen will “know that some- one of his community can become presi- has dismissed the idea that such a base may trust its citizens to analyse racial ste- dent and in fact, from time to time, does be- motive played any part in its decision as reotypes in the comfortofa theatre, but the come president”. “factually false”. ballot box is another story. Yet some Malays have decried what Kenneth Paul Tan of the National Uni- Condemning such an approach as pa- they see as shallow tokenism. Others have versity of Singapore sees a simpler expla- tronising or illiberal is easy. Condemning it noted that the rule bars Tan Cheng Bock, a nation: the bleak realism of Singapore’s as ineffective—particularly in comparison former minister who is critical of the gov- government, which believes that “racial with Malaysia, Singapore’s neighbour, ernment and nearly won the previous feelings are such that you have to design from which it split in 1965 and which is presidential race, from running (he is Chi- things around them, rather than trying to racked by toxic racial and religious poli- nese). A spokesman for the government transform them.” Singapore’s government tics—is much harder. 7 28 Asia The Economist December 17th 2016 Banyan The daughter in the Blue House

South Korea’s first woman president seemed a path-breaker. In fact, she is haunted by the past sweatshops and increasing repression by the state. In 1974 a North Korean sympathiser failed to assassinate the dictator but shot and killed his wife, YukYoung-soo. Motherless, Ms Parkbecame the Blue House’s first lady, accompanying her fa- ther during official engagements. Five years later he too was assassinated, overa meal ofwhisky, sliced beefand kimchi, byhis intelligence chief, Kim Jae-gyu. That was when she first left the Blue House, which she will have to do again, perhaps sooner than she expected.

Blue period It was after Yuk’s death that a vulnerable Ms Park fell under the sway of a cult leader—part shaman, part pseudo-evangelist— called Choi Tae-min. He seems to have convinced Ms Park that he could contactherlate mother. Kim Jae-gyuclaimed athis trial that one of his motives for killing the president was concern about Choi’s hold overMs Park. Choi Soon-sil, now in jail awaiting trial, is Choi Tae-min’s daughter, and has retained his influence. Loneliness opens up chasms. At 64, Ms Park has never mar- ried. She is estranged from her younger sister and brother—so as to be immune to nepotism, she has said. She long relied on court- VER the past two months, as the weekly candlelit protests iers, mainly yes-men who had advised her father, but they are Oalong Sejongno, Seoul’s main boulevard, swelled from a now trickling away—and three of her close aides have been in- few thousand participants to 2m, the calls bouncing off the high- dicted for corruption and related offences. She last met a foreign rises forParkGeun-hye to step down are said to have become au- dignitary more than a month ago. She issaid to eatdinner alone, a dible even in the Blue House, the president’s official residence dish of self-pity and despair. “In my life’s scale,” she wrote in her and office, a short distance to the north, where Ms Park had clois- autobiography in 1993, “the worthwhile times have never out- tered herself away. The protests look set to continue, despite Ms weighed painful ones.” Park’simpeachmentbythe National Assemblyon December9th. Duty more than desire seems to have propelled her bid forthe The Constitutional Court has six months to rule on her fate. Blue House. In the words of a former aide, “South Korea was her While she waits, Ms Parkhas been stripped ofherpowers. But the country, built by her father. The Blue House was her home. And protesters will not be satisfied until she is gone forgood. the presidencywasherfamilyjob.” To MsPark’scritics, itisall ofa Aspects of Ms Park’s downfall verge on soap opera. The presi- piece: she is imperial, aloofand out oftouch. This first hit a public dent, by her own admission, has long been close to a woman, nerve more than two years ago, when the president disappeared Choi Soon-sil, who seems to have dictated or at the least influ- from view for seven hours on the day of a national disaster, the enced her decisions on everything from handbags to affairs of sinking of a ferry, the Sewol, in which 300 people died, many of state. Ms Choi has been indicted on charges ofextortion, abuse of them schoolchildren. One of the theories aired in recent days— powerand possession ofclassified documents. Ofparticular out- and only partially denied by the Blue House—was that she spent rage to ordinary Koreans are accusations that she secured educa- an hour and a halfofthat period getting her hair done. tional preferment for her daughter and that she held an almost South Koreans have fought hard and spilled much blood for Rasputin-like power over the president. their democracy. There have been several spells of tumult since Perhaps none of this would have come into the open had not the second world war. Thisone, admirably, isendingwithout vio- Ms Choi fallen out with a toyboy over his inattentiveness to her lence. Many, perhaps most, of Seoul’s protesters sense a system, daughter’s puppy. Ms Choi, he claims, arrogantly upbraided him ofeducation and employment, unfairly rigged against them, and for heading off to play golf, leaving the puppy alone. Embittered, of a ruler who has only reinforced the inequities. Those are sen- he began collecting evidence against her. timents that Western fans of individualism and freedom would The president’s downfall has been swift and spectacular. But easily recognise. for all the jubilation on Seoul’s streets—the protests, after all, Harder to grasp, but nonetheless essential, is the disappoint- brought on the impeachment—there is something sobering in Ms ment that many other, particularly older, South Koreans feel. Park’s predicament. Her story encompasses all the elements of They voted forMs Parkbecause herpresidency to them offered to Greek tragedy, including the downfall and suffering of a flawed reinstate an older and more certain Korean hierarchy, emblemat- but in many ways admirable person. The only element that is ic of her father’s rule, in which everyone had their place in an or- missing is the pity ofthe audience. ganic whole—a hierarchy without shame. In this Korean imagin- It is no coincidence that the Blue House, whose walls are now ing, which the government avidly propagates in North Korea, the witness to Ms Park’s despair, was also her childhood home. In leader is the parent-in-chief, whose virtues define the nation. Ms 1961, when she was nine, her father, Park Chung-hee, an officer Park never became that parent-in-chief—a matter of glee in the trained in the Imperial Japanese Army, seized power in a coup, North’s propaganda and a source of great shame to South Kore- ending a short-lived period of democratic rule. His strongman ans who backed her. It was always a tall order. Surrounded by the presidency ushered in a period of breakneck growth and devel- photographs and relics of her parents, she never could grow out opment, but also harsh working conditions in South Korean ofthe predicament ofbeing the lonely child. 7 China The Economist December 17th 2016 29

Also in this section 30 A race, of sorts, in Hong Kong

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

The one-China policy policy unless we make a deal with China having to do with other things, including Caught in the middle trade,” he said. Mr Trump listed ways in which America was being “badly hurt” by China, such as by the fall in the value of its currency and its island-building in the South China Sea. He accused China of“not BEIJING AND TAIPEI helping us at all with North Korea”. Donald Trump’s challenge to a hallowed principle ofChinese nationhood has Many Taiwanese worry that this could reopened a dangerous sore mean their island will be treated by Mr Y THE end of this month, say Chinese mind its citizens, as well as America, of Trump as a bargaining-chip. Memories are B officials, work will be completed on a what happened when that principle was still fresh in Taiwan of secretive dealings big upgrade of facilities at a monument to last challenged by the United States with a between America and China during the one of the scariest moments in the recent decision in 1995 by its then president, Bill cold war, which resulted in America sever- historyofrelationsbetween China and the Clinton, to allow his Taiwanese counter- ing diplomatic ties with the island in 1979. United States: an upsurge oftensions in the part, Lee Teng-hui, to pay a private visit to Ms Tsai’s government has avoided direct Taiwan Strait in the mid-1990s that saw the America. Handy, then, that Pingtan will be comment on Mr Trump’s remarks. Appar- two nuclear powers inching towards the able to handle extra busloads of visitors to ently to avoid raising tensions with China, brink of war. The structure is a concrete that hilltop where China’s brass surveyed she has also avoided public crowing over tower on an island in the strait, just off the the pretend assault. her phone call with Mr Trump. Chinese coast. Atop it more than 100 gener- Relations between China and America Mr Trump’s remarks would have riled als watched a mock invasion of Taiwan by are far less precarious than they were dur- the Chinese leadership at any time. But China’s army on a beach below. “Unite the ing those tense months, when China fired they are particularly unwelcome at this motherland, invigorate China”, says a slo- dummymissilesnearTaiwan and America juncture forChina’sleader, Xi Jinping. He is gan in gold characters down the side of the sent two aircraft-carrier battle groups close absorbed by preparations forcrucial meet- building. The meaning of these words at a to the island to warn China not to attack it. ings due to be held late in 2017 at which place where tanks and troops once China, though enraged by Mr Trump’s re- sweeping reshuffles of the Politburo and stormed ashore with warplanes streaking marks (and a congratulatory call he took other Communist Party bodies will be an- overhead is: we want Taiwan back, by from Taiwan’s president, Tsai Ing-wen, on nounced. Those trying to block his ap- force ifnecessary. December 2nd), is unlikely to take retalia- pointments would be quickto seize on any The building work involves an expan- tory action unless Mr Trump continues to sign that he is being soft on America over sion ofthe tower’s car park, improvements challenge the notion ofone China after his such a sensitive matter as Taiwan. Should to the road up to it and other changes to inauguration on January 20th. Mr Trump persist in challenging the one- make the place on Pingtan Island in Fujian China idea, the risk of escalation will be province more tourist-friendly. The timing The chip is down even greater than usual in the build-up to may be fortuitous. On December 11th Taiwan has been in the doghouse anyway the conclaves—all the more so, perhaps, America’s president-elect, Donald Trump, since Ms Tsai took office in May. China has given MrXi’s insistence that differences be- in an interview with Fox News, ques- cut off channels of communication with tween China and Taiwan “cannot be tioned what China regards as a sacred un- the island to show its displeasure with her passed on from generation to generation”. derpinning of its relationship with Ameri- own refusal to embrace the one-China Hawkish colleagues may say that it is time ca: the principle that there is but “one idea. But Ms Tsai may have reservations to settle the issue by force. China” (which, decoded, means that the herself about the way Mr Trump phrased Street protests in China against Ameri- government of Taiwan is illegitimate). Chi- his one-China scepticism. “I don’t know ca orTaiwan would also make it more diffi- na, bristling with rage, may well seek to re- why we have to be bound by a one-China cult for Mr Xi to compromise: he would 1 30 China The Economist December 17th 2016

2 fear becoming a target himself of Chinese the Taiwan Relations Act, which was opponents joined a demonstration in cen- nationalists’ wrath. But the riskofthis may passed by Congress in 1979 to reassure Tai- tral Hong Kong. Some held up placards be low. Since Mr Xi took over in 2012 there wan that America still had an interest in attacking him (see picture). have been no major outbreaks of the island’s defence, despite the severance The party, however, is doing a good job nationalist unrest, partly thanks to his of official ties. Many Republicans sympa- itself of riling Hong Kongers. Its opposition tightening of social and political controls thise with Taiwan and would be reluctant to full democracy, which many thought (including locking up ever more dissi- to support any change to that law (itself a they had been promised when China took dents). Sun Zhe of Tsinghua University challenge to the one-China idea with over, has fuelled a small but growing pro- says people are unlikely to demonstrate which China has—very grudgingly— independence movement which worries overTaiwan “because they understand the learned to live). the party even more. With the help of a new rules, the new emphasis on political They might also take solace in what ap- constitutional ruling by China’s national discipline in the last few years.” He says a pearsto be a change in the Chinese govern- parliament, it has supported recent efforts lot of people in China still admire Mr ment’s tone since the war games 20 years by Hong Kong’s government to get several Trump for his wealth and his unexpected ago. In April Global Times, a newspaper in independence-leaning and other pro-de- political success. They thinkthat “he wants Beijing, published a poll showing that 85% mocracy lawmakers disbarred from the to make a deal with China.” of respondents supported unifying China Legislative Council, or Legco, on the In Taiwan, some take comfortin the dif- with Taiwan by force, and that 58% agreed grounds that they took their oaths improp- ficulty Mr Trump would face in changing the best time would be within the next five erly. Two have been excluded and cases in- the terms of America’s relations with Tai- years. It was reportedly chastised by Chi- volving another four are being considered wan, such as by announcing a permanent na’s internet regulator for “hyping sensi- by Hong Kong’s High Court. end to arms sales. These are guaranteed by tive events” by running such a survey. 7 Officialsin Beijingwill nowbe wonder- ing who best can pursue the seemingly im- possible task of containing pro-indepen- Hong Kong’s leadership dence and pro-democracy sentiment, while at the same time winning the sup- Any colour, as long as it’s red port of Hong Kongers. So faronly two peo- ple have declared their intention to stand. One is Woo Kwok-hing, a retired judge who has little hope of gaining the party’s backing. The otheris Regina Ip, a former se- HONG KONG curity minister who is now a member of Leung Chun-ying’s surprise decision not to run fora second term has cheered many Legco. She threw her hat in the ring on De- people. But will a newleadermake a difference? cember15th. Mrs Ip is best known for help- HIEF executives of Hong Kong have word forthe animal. Duringthe “Umbrella ing with a failed attempt to push through a C never basked in public adoration. The Movement” of 2014, when busy commer- securitylawin 2003. Publicopposition to it first one under Chinese rule, Tung Chee- cial areas were disrupted by weeks of sit- dealt a huge blow to the popularity of Mr hwa, resigned after a massive public out- ins, protesters demanded his resignation, Tung, the first chief executive, and led to cry against his policies. The second, Do- as well as free elections. The party was Mrs Ip’s resignation. She says she would nald Tsang, ended his term with allega- doubtless pleased by his resolute refusal, “definitely go ahead” with efforts to revive tions swirling around him of improper in line with its own, to countenance such the bill should she win. conduct (he denies them). Now the third, concessions. But it must also have worried Another possible is John Tsang, Mr Leung Chun-ying, has said he will not that keeping Mr Leung in place for another Leung’s former finance minister. Mr Tsang stand for another five-year term. Though term would goad demonstrators backonto resigned from that post on December 12th, he cites family reasons, his rock-bottom the streets and risk plunging Hong Kong fuellingspeculation that he wants to stand. popularity may well have been a factor. into yet more unrest. A day after Mr Some analysts believe that a job he once Nearly 20 years after taking back Hong Leung’s announcement, hundreds of his held as private secretary to Hong Kong’s Kong, the Communist Party in Beijing may last British governor, ChrisPatten, may rule be wondering whether it can ever pick a him out: the party regards Mr Patten as the winner to lead the formercolony. font ofHong Kong’s post-colonial ills. It had been widely assumed that, de- The party may prefer Carrie Lam, who spite Mr Leung’s low opinion-poll ratings, has served as head of the civil service un- the party would give him tacit backing in a derMrLeung. MrsLam had said she would race getting underway for the post of chief retire next year, but now says she has had executive. The choice will be made in “no choice” but to reconsider following Mr March by the 1,200 members ofan election Leung’s announcement. There is unlikely committee stuffed with the party’ssuppor- to be a pro-democracy candidate. The elec- ters in Hong Kong. It only takes a nod from tion committee is mostly made up ofrepre- leaders in Beijing to swing votes in favour sentatives of businesses and occupations ofthe party’s preferred candidate. that tend to be pro-government. In polls But on December 9th Mr Leung told re- held by such groups on December 11th to porters at a hastily arranged press confer- fill election-committee seats, supporters of ence that he would not join the race in or- greater democracy took more than 320, up der to protect his family from the from around 200 in 2011. But the pro-de- “intolerable stress” of it. It is likely that offi- mocracy camp does not want to appear to cials in Beijing had cold feet because of legitimise the gerrymandered election pro- public contempt for him. He is often called cess by proffering a candidate. Mr Leung’s “the wolf”—a reference to his aloof and critics are resigned to a successor who is all cunning demeanour and a play on his sur- but certain to be as faithful to the party as name, which sounds like the Chinese No crying for the wolf he has been. 7 United States The Economist December 17th 2016 31

Also in this section 32 Russian interference past 33 Rex Tillerson 33 Tiny colleges 34 Cutting down trees 35 The trial of Dylann Roof 36 Lexington: The Obama way of war

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

Russian interference House Intelligence Committee, Represen- tative Devin Nunes of California, said that The plot against America he believes Russia is guilty, but then turned his fire on the Obama administration, blaming the president’s desire fora reset of relations with Moscow. Yet Republicans are not conceding a NATIONAL AIRBORNE OPERATION CENTRE more incendiary idea: that, in what seems The election result was not decided in the Kremlin. But the response to Russian to be the CIA’s view, the authoritarian, hacking shows howpartisan division has weakened the country anti-American government of Russia tried HY is it unsettling to see Republicans spectators when he turned up in Baltimore to help Mr Trump. Mr Nunes, a prominent Wand Democrats squabbling afresh to watch the Army-Navy football game, an Trump supporter, calls that “innuendo” about Russian meddling in last month’s annual pageant of patriotism. based on “lots of circumstantial evidence, presidential election? After all, the allega- And that is what is, or should be, so un- that’s it.” Others are taking the view that it tion being debated has been known for settling. Russian interference in elections is all very complicated and murky. “All this months: namely, that in 2015 and again in across the Western world is a nasty virus ‘news’ of Russian hacking: it has been go- 2016 at least two groups of hackers with (see next story). Normally, America is pro- ing on for years,” Senator John Cornyn of known links to Russian intelligence broke tected by powerful, bipartisan immune re- Texas, a memberofRepublican leadership, into the computer systems of the Demo- sponses against such a menace. It also tweeted. “Serious, but hardly news.” Ac- cratic National Committee, as that party’s boasts some of the world’s most sophisti- cording to unnamed officials quoted in national headquarters is known, and into cated intelligence and cyber-defences, and the Post, some Republican members the private e-mail system ofsuch figures as when spooks tell the Republicans and agreed that Russia was a hostile actor, but John Podesta, the chairman ofHillary Clin- Democrats who lead Congress and sit on then argued that logically this meant the ton’s presidential campaign, then released the House and Senate intelligence commit- government in Moscow would be more a slew of embarrassing e-mails to Wiki- tees of hostile acts by a foreign power, love likely to want Mr Trump defeated. Leaks. Before the election a joint public of country generates a unified immune re- Democratic leaders, who are in the mi- statement by the director of national intel- sponse. It is not kicking in this time. nority in both chambers ofCongress, have ligence and secretary of homeland securi- responded by trying to embarrass Republi- ty said that intelligence agencies were Active measures cansinto takinga bipartisan approach. The “confident” that the Russian government The problem is not that all Republicans dis- incoming Senate minority leader, Senator directed the hacking. miss the claim that Russia tried to meddle Charles Schumer of New York, called it All that has changed is that—thanks to in the election. Committee chairmen have “stunning and not surprising” that the CIA reporting by the Washington Post and- promised urgent hearings. “We cannot al- should charge Russia with trying to elect New York Times—we now know that the low foreign governments to interfere in Mr Trump. “That any country could be CIA briefed senior members of Congress our democracy,” said Representative Mi- meddling in our elections should shake before and after the election that, in the chael McCaul, a Texas Republican and both political parties to their core,” Mr consensus view of intelligence analysts, chairman of the Homeland Security Com- Schumer said in a statement. Others have the Russians’ motive was not just to under- mittee. Senator John McCain of Arizona, thanked MrObama fororderingan investi- mine confidence in American democracy, chairman of the Senate Armed Services gation into what is known about Russian but to seek Mrs Clinton’s defeat. Outside Committee, told reporters: “Everybody meddling, and expressed hopes that as Washington, Americans (who mostly dis- that I know, unclassified, has said that the much as possible of the probe would be like President Vladimir Putin according to Russians interfered in this election. They made public before the next president’s in- polls) seem to have shrugged off the news. hacked into my campaign in 2008; is it a auguration on January 20th. President-elect Trump was cheered by surprise to anyone?” The chairman of the The reasons for this partisan stand-off 1 32 United States The Economist December 17th 2016

2 are not mysterious. MrTrump has declared Interference past campaign of his Democratic rival, Hubert that the allegations of Russian hacking are Humphrey. (Nixon’s impeachment over simply unproven, and launched an attack Substandard Watergate caused dismay in the Kremlin, on the credibility of the intelligence agen- which used dirty tricks and eavesdropped cies that he will soon command without subversion on journalists as a matter ofroutine). obvious precedent. Interviewed recently In November 1984 the Kremlin tried to by Time magazine, Mr Trump said of the stop Ronald Reagan from being re-elected. hacking: “It could be Russia. And it could As part of its active-measures programme, Russia has often tried to influence be China. And it could be some guy in his Moscow promoted the slogan “Reagan elections, with little success home in New Jersey.” Asked about his de- Means War!” To discredit him, Russia prop- sire for a reset of relations with Mr Putin— N January 1984, Soviet KGB spooks reaf- agated stories about Reagan’s militaristic precisely the strategy held against Mr Ifirmed a priority that was set by the adventurism, rising tensions among NATO Obama by Republicans—Mr Trump is un- Kremlin after the second world war. “Our allies, discrimination against ethnic mi- apologetic. “Why not get along with Rus- chief task is to help to frustrate the aggres- norities and corruption. In the end, Reagan sia?” he asked Time. The Russians are “ef- sive intentions of American imperial- won a landslide victory, exposing the lim- fective” and “can help us fight ISIS.” Still ism…We must work unweariedly at ex- its ofSoviet power. Astudent ofthe Andro- more remarkably, a statement from the posing the adversary’s weak and pov Academy, Vladimir Putin would al- Trump transition office mocked American vulnerable points.” As Vasili Mitrokhin, a most certainly have undergone training in intelligence agencies. “These are the same KGB archivist who defected to the West active measures. In a book of interviews, people that said Saddam Hussein had with a large number of KGB files, ex- Mr Putin described how he used these weapons of mass destruction,” it read. plained, “exposure” in the parlour of the techniques against dissidents at home, John Bolton, auditioning for a job in the KGB meant disinformation fabricated by spoiling and hijacking their events. next administration, questioned whether service A, the active-measures branch of It is hardly surprising that Mr Putin— the hacking was carried out by America’s the First Chief Directorate of the KGB. This who used disinformation in his war government to smear Mr Trump. unit was charged with foreign disinforma- against Ukraine, who has targeted Euro- Many elements of Mr Trump’s policies tion, which it spread through a network of pean countries, including Germany, who make thoughtful Republicans queasy to officers outside Russia. uses cyberweapons against his enemies in the point of misery, from his fondness for At the height of the cold war, service A Russia—should try backing Donald Trump, Mr Putin to his willingness to pick up the numbered some 15,000 officers who en- who ran against establishments of all telephone and bully company bosses, as if gaged in psychological warfare and disin- stripes, by hacking into both parties’ com- he were a Gaullist French president. But formation. Their operations included puters but only leakingDemocratice-mails many of those Mr Trump brought into the planting stories about John F. Kennedy be- to the media. What is probably more sur- party are Trump voters more than they are ing killed in a secret CIA plot, AIDS being a prising, to Mr Putin at least, is that Mr Republicans, and they frighten and cow virus developed by the Pentagon and Trump actually won. Firmly convinced members ofthe party that he now heads. sending fake letters from Ku Klux Klan to that all elections get rigged one way or an- Some grass-roots conservatives also see the Olympic committees of African coun- other, he might also have been surprised much to like in a Russian-style approach to tries. “We are opposed bya monolithicand by the government’s inability to fix the fighting Islamic terrorism, if that means an ruthlessconspiracy that reliesprimarily on vote in Hillary Clinton’s favour. unsqueamish willingness to back secular covert means for expanding its sphere of But if Russian interference to boost Mr autocrats in the Middle East, and attack tar- influence,” Kennedy warned in 1961, “on Trump isnow beyond doubt, this does not gets in Syria with indifference to who is un- infiltration instead of invasion, on subver- mean that Russia caused his victory. derneath. Mr Trump is clearly tempted to sion instead of elections.” In 1968, in an at- “While the correlation is clear, the causa- do a deal with Mr Putin in which America tempt to head off the election of Richard tion is not,” says Peter Pomeranzev, an ex- applauds as Russian warplanes carry out a Nixon, the Kremlin offered to subsidise the pert on Russia’s disinformation. Had Mr campaign promise to “bomb the shit out of Trump lost the election, Russian active ISIS”. The bet in Trump Tower is that the measures would have been deemed no other side of any such deal, perhaps in- more successful than those of the Soviet volving the lifting of sanctions on Russia, KGB in 1984. By blaming Mrs Clinton’s de- or a promise not to back any further en- feat on Russia, her allies risk echoing Mr largement of NATO, will be greeted by the Putin’s allegations that a wave of protests American public with a yawn. against his third presidential term in 2012 There is of course no evidence of collu- were the result ofan American conspiracy. sion between MrTrump and Russia. MrPu- The main reason Mr Putin appears a tin’s fierce dislike of Mrs Clinton, who as victor in America as well as in Europe, secretary of state questioned the validity where nationalism is on the rise, is that he of the 2011elections in Russia, is more than identified right-wing populist movements enough motive to want her defeated. It as potential winners from the start. But it is seems unlikely that last-minute leaks of Mr Trump’s affinity with Mr Putin, rather Democratic e-mails changed the result. than Russia’s active measures, that helped Most straightforwardly, a close election is him win. As George Kennan, a diplomat, over and Democratic leaders are not ques- observed in 1946, the ability to rebuff Rus- tioning the result. Does the squabble mat- sia’s disinformation, “depends on health ter then? Yes. When the next president of and vigour of our own society. World America takes his oath of office in January, communism is like a malignant parasite officers of Russian intelligence will think which feeds only on diseased tissue”. they pulled offa historic win. That this fact There were enough American voters who, has divided rather than uniting the two like Mr Trump, believed that the country is parties that run the world’s great democra- a “hellhole, and we’re going down fast”. cy should unsettle anyone. 7 Laboratory of democracy Mr Putin no doubt agrees. 7 The Economist December 17th 2016 United States 33

Tiny colleges Small wonders

MARLBORO, VERMONT Small colleges are struggling to stay that way ISITORS stand out at Marlboro Col- enrolment at these institutions has fallen Vlege’s bucolic campus in the woods of by more than 5% since 2010, while the Vermont, but not because they are spe- student population has increased overall. cial or even unexpected. With 190 matric- To attract students, some colleges are ulated students and just a few dozen reducing their sticker price, but this is not faculty and staff, everyone knows every- sustainable for colleges without healthy one. The student-faculty ratio is five to endowments. According to the National one, about the lowest in the country. The Association ofCollege and University college administration has worked hard Business Officers (NACUBO), 49% of to stay small: the student population has independent colleges and universities rarely topped 350. But in the years since give discounts, up from 38% a decade ago. its founding after the second world war, Alice Brown, a formerhead ofthe Marlboro has often skirted financial ruin. Appalachian College Association, a In 1993 it had only a few payrolls left in networkoftiny colleges in the Appa- the bank. It was rescued by a foundation. lachian Mountains, thinks more must Today it is looking forways to save itself merge or close. The Berklee College of and already seeing some success. Music (4,371students) and the Boston The next secretary of state Marlboro is not alone in facing rev- Conservatory (730 students) merged in enue and enrolment pressures. Burl- June. Small colleges often share accoun- Oily diplomacy ington College (70 students), also in tants or laboratories already. Vermont, shut its doors over the summer. Is there still a place forthe tiddlers? Sweet Briar, a well-regarded women’s “That’s an unequivocal yes,” says Bob college in Virginia, nearly closed to its 245 Shea ofNACUBO, “but do there need to students last year. A last minute bout of be mergers and acquisitions? That’s an fundraising by alumni saved it, for now. unequivocal yes as well.” Many small RexTillerson could be one ofthe more Moody’s, a credit-ratings agency, said in colleges serve niche markets, including a competent members ofthe next cabinet 2015 that the pace ofclosures and mergers large faith-based one. “Many students DIPLOMAT that happens to be able will accelerate and could triple from an wouldn’t go to college at all or would be “A to drill oil.” That is how Reince Prie- average offive per year over the next few lost in a large one,” says Ms Brown. bus, Donald Trump’s incoming chief of years. Dennis Gephardt ofMoody’s says Some tiny colleges rely on donations staff, described Rex Tillerson, the boss of closures and mergers will be concentrat- to save the day. Alumni are concerned ExxonMobil, who was nominated this ed among the smallest colleges. about the value oftheir own degree ifthe week as America’s next secretary of state. Part ofthe problem, at least for small college closes, but donors can grow wea- In fact, Mr Tillerson, 64, is an oil driller liberal arts institutions, is that parents ry. Marlboro, meanwhile, is using its through and through, has spent 41 years and would-be students are questioning endowment to offerscholarships to one furthering the ambitions of one of the the value ofthe liberal arts. They want a student from each state in an effort to world’s largest companies, and has some- solid return, in the form ofa well-paying expand its usual pool from New England times sidelined the American government job, fortheir four-year investment. There and to open up new student pipelines. It because he felt ExxonMobil was better are still an awful lot ofsmall places: saw success straight away. It increased its able to lookafter world affairs itself. about 40% ofdegree-granting colleges student population by 6% this academic Yet Mr Tillerson also has a reputation have fewer than 1,000 students. But year, after years offalling enrolment. for dependability and small-town Texan values that has enabled him to stand up to, and win respect from, some notoriously 1975, never lived for long outside America, vez, without bargaining away his princi- slippery world leaders. Making someone and speaks with a drawl. Jack Randall, a ples on the importance of markets and the with no experience of government service friend from university who is also an oil- sanctity ofoil contracts. secretary of state is a risk. But unusual is industry veteran, recounts how Mr Tiller- In a book on ExxonMobil, “Private Em- better than incompetent. Depending on son still spends time after work fixing up pire”, Steve Coll recounts Mr Tillerson’s what his confirmation hearings reveal the decking on his lakeside home, despite early dealings with Mr Putin during efforts about his views on Russia when not serv- having numerous employees who would to rein in an unruly Russian partner, Ros- ing Exxon’s shareholders, and assuming do it for him. “He’s a regular guy who has neft, on the Sakhalin development. When he severs his financial ties to the company, lived the American dream,” he says. “He’s Mr Putin offered to write an executive or- Mr Tillerson could be one of just two or a Texan, an engineer and a Boy Scout. That der pushing ahead with the project, Mr Til- three members of Mr Trump’s cabinet is where his values come from.” lerson refused, saying that the Russian whom it is possible to see serving in a nor- Yet as an oilman and ExxonMobil’s president lacked the legal authority to live mal administration. chief executive since 2006, he has run op- up to his company’s standards. Though Mr For a leader of the world’s corporate erations in some of the most inhospitable Putin “blew his stack”, he gave in to Mr Til- elite, MrTillerson hasparochial roots. Born parts of the world, from ice-encrusted Sa- lerson’s demands. in Wichita Falls, Texas, he grew up as a Boy khalin in the Russian Far East, to poverty- In a later oil era, in 2011, ExxonMobil Scout, went to the University of Texas, and stricken Chad. That has meant dealing and Rosneft struck a deal to develop oil in rides horses in a cowboy hat in his spare with populist strongmen, from Vladimir Russia’s Kara Sea, which Mr Putin said time. He has worked at ExxonMobil since Putin to Venezuela’s late leader Hugo Chá- could lead to a whopping $500bn ofArctic 1 34 United States The Economist December 17th 2016

2 co-developments. In 2013 Mr Putin award- moving about 40% of tree and plant-life in ed Mr Tillerson Russia’s Order of Friend- these areas, the Forest Service wants to do ship. The Arctic deal was scuppered be- more than put extra water in reservoirs. cause of American sanctions against The goal is also to reduce the severity of Russia, following its annexation of Crimea wildfires and to get water into the bigger in 2014, which were opposed by Mr Tiller- trees left standing—more than five years of son. James Henderson, an expert on Rus- droughthave killed more than 66m treesin sian oil at the Oxford Institute for Energy California, aerial surveys show. Studies, says the Kremlin came to respect Thinning efforts are off to a great start ExxonMobil under Mr Tillerson because, but must accelerate, says Timothy Quinn, although it was uncompromising about head of the Association of California Wa- ensuringall deals were above board, it was ter Agencies. Five times as much forest also “dependable”. should be thinned every year, estimates Mr Tillerson’s ties to Mr Putin are likely Roger Bales, a hydrologist at the University to complicate his confirmation hearings, of California, Merced. To find out how especially after Russian hackers interfered much extra water a thinned watershed with America’s presidential election to produces, the university has placed sen- help Mr Trump. But decades of business in sors in thinned and control plots in the Sta- the country mean he is almost bound to nislaus-Tuolumne Experimental Forest understand the way it works better than north of Yosemite National Park. Depend- some of his predecessors at the State De- ing on landscape and precipitation, partment. Moreover, his defenders are ad- thinned areas shed 10-40% more waterinto amantabouthisintegrity. “The chancesare streams, Mr Bales estimates. better that Mother Teresa was stealing More accurate numbers will be avail- money from her charity than Rex Tillerson Environmental policy able next year. The hope, says Eric Knapp, a will do anything with Putin that is not in Forest Service ecologist in Redding, is that a the best interests ofthe United States,” says Fetch the new thinning technique will prove to pro- Mr Randall, the friend from college. duce even more waterwhen flow volumes What is less clear is how he will deal chainsaws from next spring’s snowmelt are known. with America’s traditional allies, such as Some plots are not thinned evenly, but Europe, who fear Russian meddling in Uk- rather by clear-cutting gaps with a diame- SANTA BARBARA raine, for example. His appointment will ter one or two times the height of sur- Removing small trees leaves waterfor rekindle suspicions that American diplo- rounding trees. The idea is to clear an area biggertrees and dwindling reservoirs macy is about securingoil and otherscarce big enough for a good snowpack to form, resources. NGOs allege that ExxonMobil N THE early 1900s, an average forested but small enough for shade to reduce evap- has a poor record of promoting human Iacre in California supported fewer than oration and extend the melting season. rights in countries where it operates, and 50 or so trees. After a century of efforts to California’s governor recently signed a has flip-flopped on climate change. fight wildfires, the average has risen to bill that facilitates thinning watersheds. Yet as well as having an oilman’s re- more than 300 (albeit mostly smaller) But some environmentalists resist “cutting source-hungry mindset, he could also trees. Some might reckon such growth any tree for any reason”, as the Forest Ser- bring useful industry traits to the State De- wonderful, butitisa problem farmore seri- vice’s Mr Murphy puts it. And some think partment and to a Trump presidency. Find- ous than, say, the fact that horses can no thinning doesn’t produce meaningfully ing and drilling oil requires elaborate mod- longer trot through areas where they once more run-off. That’s the opinion of Chris elling—both ofunderground geologies and could. The extra fuel turns today’s wild- Frissell ofFrissell & Raven Hydrobiological messy aboveground geopolitics—to make fires into infernos hot enough to devastate and Landscape Sciences, a consultancy in money over the long-term. Reputedly his the landscape, torching even the big older Polson, Montana. Thinning has become engineering background makes him a trees that typically survived fires in the old popular in the state, but, he says, it disturbs stickler for evidence-based decision-mak- days. Beyond this, the extra trees are wors- soil, generating silt that harms aquatic life. ing. He is also considered “patient and un- ening California’s driest ever drought. Clearing trees with fire is cheap if all emotional” on ExxonMobil’s side of the “Like too many straws in a drink,” trees goes to plan but only makes sense in cer- negotiating table. suck up groundwater before it can seep tain areas. Thinningwith bigchainsaws on Such traits would make him very differ- into streams that feed reservoirs, says Da- wheels can cost up to $650,000 per square ent from Mr Trump, who lives by the gut. vid Edelson of The Nature Conservancy. mile. This could be recouped with timber “Rex is not a guy who wets his finger and The project director for the Sierra Nevada revenue ifbigtreesare felled. Butthe chain- puts it up in the air to see which way the range, source of 60% of California’s con- saws are usually only let loose on smaller wind is blowing, and he’ll tell Mr Trump sumed water, notes that as a warmer cli- trees, so taxpayers must cough up. what he thinks,” Mr Randall says. In some mate lengthens the growing season, trees’ One solution would be to get water util- respects his opinions differ from Mr thirst will only increase. This has led to a ities or hydropower producers to fund the Trump, too. Though once a climate-change push for large numbers of trees to be cut or thinning. AMP Insights, a consultancy denier, he now believes mankind has burned down. Overgrown forests catch which has estimated the value of water helped cause global warming. This year more snow and rain on leaves and nee- flowing out of the Sierra Nevada, reckons ExxonMobil applauded the Paris agree- dles, where wind and sunlight increase the the extra flow would defray the cost of re- ment on climate change. In the past he has amount ofmoisture lost to evaporation. moving trees by 20% and, in wet years, by strongly rebuffed calls (recently supported To reduce what Tim Murphy, a Forest 60% or more. Denver Water agreed in 2010 by Mr Trump) to make America energy in- Service ecologist, considers an excessive to pay the Forest Service $16.5m for thin- dependent. With luck, he will not only number of trees in forests, the service ning and other watershed work in the have the tactical skills to further America’s thinned 600 square miles of California’s Rocky Mountains. The Forest Service is interests abroad. He will also have the in- watershed in the year to October, up from checking to see where other such “Forests tegrity to talksense into his boss. 7 367 the previous year. By burning or re- to Faucets” schemes might be set up. 7 The Economist December 17th 2016 United States 35

The trial of Dylann Roof And, although the Confederate flag— with which Mr Roof liked to pose—was re- Mother courage moved from the statehouse grounds, it still flies from porches and is emblazoned on pick-up trucks. It was on display, occasion- ally, at rallies held by the president elect; it is beloved by some members of the newly infamous alt-right movement. Meanwhile, CHARLESTON although Mr Roof’s view of American his- The perpetratorofa racist massacre faces the jury tory was morbidly extreme, his conviction CRATCHING his ear, sipping water, tive in their support for a life sentence. that whites are the country’s real victims Ssometimes chatting with his defence Initially, he says, Mr Roof’s age (he is now (“White people are being murdered daily team, Dylann Roof looks for all the world 22, but looksyounger), plusa hunch that he in the streets”), and that black suffering is like an ordinary human being, more sullen could not have acted entirely alone (as he exaggerated, is hardly unique. As it hap- adolescent than monster. Yet, almost as- appears to have done) inclined them to pens, a planned African-American muse- tonishingly, the slight, pockmarked figure mercy; so did their faith, which informed um in Charleston aims to address such who slouches into his chair in the federal the superhuman forgiveness many ex- misconceptions. Perhaps, speculates Mi- courtroom in Charleston—his face averted tended in the crime’s immediate after- chael Moore, the project’s boss, Mr Roof from the relatives of his victims—is, by his math. Still, their stance has challenged ad- might have acted differently, “if he had a own admission, the man who killed nine vocates of capital punishment, just as Mr broader sense of the humanity of the peo- people at the Emanuel African Methodist Roof’s savagery has challenged its critics. ple in that room.” Episcopal Church on June 17th last year. Mr The federal government sought the death Roof’s culpability is not in doubt; the hard- penalty, thinks Mr Savage, on the basis 88 bullets er question, as often with monsters, is how that, “If not in this case, when?” (Mr Roof is The jury was set to consider its verdicts far he reflects broader pathologies in the due to face a separate capital trial in state soon after The Economist went to press. society that spawned him. court, though the outcome of the federal The last witness to be called, Polly Shep- He has been tried on 33 federal charges one may obviate it.) pard, described how Mr Roof said he because prosecutors rejected his offer to The grace ofthe relatives after the trage- would let her live to tell her story. The first, plead guilty in exchange for life imprison- dy, and subsequent shows of unity from Felicia Sanders, recalled the trickling ofher ment. Thus far the proceedings may not the city at large, suggested that, far from ig- son’s blood as she desperately shielded have bolstered his chances of avoiding a niting the race war about which Mr Roof her granddaughter from the carnage. The death sentence. The court has heard how, fantasied, its effect would ultimately be second part of the trial, which will deter- in a delinquent pattern that echoes the on- therapeutic. Outside Mother Emanuel, as mine MrRoof’s punishment, is expected to line radicalisation of would-be jihadists, the church is known, beside the Christmas begin in January. He hasopted to represent hishateful white supremacism wasfuelled wreaths and lights that contrast starkly himself in that phase, which explains the by an internet search for “black on White with its beautiful pale façade, a sign reads: repeated efforts of his distinguished law- crime”. He seems to have completed his “We thank you for your many acts of kind- yers to bring up his disrupted home life, own deranged manifesto, in which he de- ness”. Yet, in truth, tensionsand grievances and troubled state of mind, while they scribed African-Americans as “stupid and persist, not least because, on the eve of Mr could. MrRoofmayyetretain them (he pre- violent”, on the afternoon of the atrocity. Roof’s appearance, a deadlocked jury re- viously asked to dispense with his lawyers The jury watched the cold, even flippant sulted in a mistrial in the case of a white altogether); but if he sticks to his plan, Mr confession he made the following day. police officer who, in an encounter caught Savage says his clients will appreciate the “Well, I killed them, I guess,” he said. on camera, fatally shot a black man as he chance to lookMr Roofin the eye. The absence of“regret orremorse”, says ran away. Opinion polls indicate that, in Fortheirpart, the prosecutors traced the Andrew Savage, a lawyer for three survi- the wake of the church massacre, white steps that culminated in his driving into vors of the shooting and some of its vic- South Carolinians have a farrosier view of Charleston with a list ofsix blackchurches tims’ relatives, has made some less asser- race relations in the state than do blacks. and magazines loaded with 88 bullets, a number that, to neo-Nazis, symbolises “Heil Hitler”. Intermittently they removed the pistol he used from its evidence bag in the centre of the courtroom. Because he had admitted possession of a narcotic ear- lier in the year, MrRoofought to have been disqualified from buying it. But, owing to a glitch in the FBI’s background-check sys- tem—now the subject of civil lawsuits by the survivors and relatives—he was able to. In dry testimony that was nevertheless heart-wrenching in its way, and which was central to another of the case’s broader les- sons, the manager of the gun store he visit- ed, in April 2015, outlined the process. Since the FBI did not respond within the al- lotted three-day period, he said, they went ahead with the sale. Most shops would have done the same, he reckoned. Eventu- ally he did receive a call instructing him to turn Mr Roof away. That was on June 29th, The accused 12 days after the slaughter. 7 36 United States The Economist December 17th 2016 Lexington The Obama way of war

Ourcolumnist travels with America’s outgoing defence secretary to Afghanistan and Iraq base on December11th with the outgoing defence secretary, Ash- ton Carter, during a two-week, 25,000-mile farewell tour of the world. “Moon dust” is one American soldier’s description of the fine beige dirton which the base isbuilt. As a cold winter sun sets, the otherworldly atmosphere is enhanced by freshly installed concrete blast walls that block all views of the country beyond. “Q-West”, as the Pentagon calls it, was IS-held territory as recently as July. Back then it was a “dot on the map”, as Mr Carter reminds troopsthere, spotted asa potential base forco-ordinating the fight in Mosul. To repair a runway blown up by IS fighters American engineers trucked in 1.9m pounds of cement, welcoming their first fixed-wing aeroplane in late October. The base betraysthe casualtyaversion ofthe Obama doctrine. Mr Carter and his party are driven around within the base in mine-proof armoured vehicles. Just under 900 coalition troops, most of them American, sleep in two-man bunks made of thick concrete slabs, within tents made a bit less austere by sporting banners and children’s drawings and, outside, a Christmas tree made of green webbing round a pyramid of heavy chains. Be- hind another ring of blast walls an anonymous tent houses a Combined Joint Operations Centre, manned by Iraqi officers and O AMERICANS who despise Barack Obama—and even to earnest American troops with laptops at long plywood desks. Tsome who admire him—it is jarring to hear the 44th president When journalists are not present, large screens show live stream- refer to himself as commander-in-chief. Mr Obama leaves office ing video from unmanned aerial vehicles and other intelligence with critics convinced that he is a passive observer of a chaotic platforms. A whiteboard bears the label “Open Strike Requests”. world. That notion is enthusiastically advanced by Donald A clinical calm conceals a machine for delivering violence Trump, who charges that a soft Obama administration has stu- from the sky. Thatinvolvessome risksforAmerican advisers near pidly—and he has even hinted, treasonously—refused to keep the the front lines, who can call in air strikes and artillery fire and of- country safe, notably by attacking Islamic State (IS). ferguidance on ground movements. It involves grave risks forIra- Mr Trump promises to end nation-building overseas and start qis fighting block-by-block, who—according to American offi- spending money on American roads, bridges and airports. He cers—have so far taken back between a quarter and a third of pledges to be more self-interested, obliging feckless allies to pay eastern Mosul and killed or seriously wounded 2,000 IS fighters. for their own security. Above all Mr Trump, a skilful storyteller, Pinning medals on soldiers and black-clad members of the Iraqi has a tale to tell patriotic Americans about why the country they Counter-Terrorism Service, an elite unit, MrCarternotes thatthey love has been fighting terrorism worldwide for 15 years without have braved snipers, mortarfire and car-borne improvised explo- winning. His story involves elites (and he includes President sive devices. Asked when Mosul might fall, he hedges: “It’s a war: George W. Bush in this group) who naively toppled autocrats— the answer is, as soon as possible.” “foreign regimes that we know nothing about, that we shouldn’t be involved with,” as he puts it—when they should have been No we can’t hunting down terrorists with pitiless, single-minded violence. When Mr Trump denounces the waste of hundreds of billions of Mr Trump’syarns about hand-wringing Mr Obama fire up his dollars in Iraq and Afghanistan on ambitious nation-building, he supporters, who long to hear that with a more ruthless president isboth correctand out ofdate. Interviewed on December 9th, just in the Oval Office America will instantly become safer. But his before visiting Afghanistan, Mr Carter describes today’s narrow tales are a distortion of the real Obama military doctrine. If parts American objectives for that unhappy country: “To make sure of the world are drenched in bloody, tragic chaos, as in Syria, the that a 9/11 never emerges again from Afghanistan and to have a softness ofthe outgoing president is not the cause. stable counter-terrorism platform there.” The Obama doctrine Mr Obama is no nation-builder. As the years passed he be- also includes pressure on others to take more of the burden. If came coldly pragmatic about working with far-from-democratic Americanssubstitute forlocal forces, MrCarterargues, thatmight leaders. He isintentlyfocused on American national interests. Mr cause local people to “sit on the sidelines or even fight the co- Obama broods about possible unintended consequences when alition”. Sending Americans as infantry among foreign popula- he hears calls to intervene. His focus on domestic politics makes tions squanders America’s advantages in air power, intelligence- him wary of putting American boots on the ground. He has is- gathering and special forces. Finally, he says, it invites the ques- sued strict executive orders about avoiding civilian casualties. tion ofwho will govern territory taken backfrom IS. But he is no pacifist. Mr Obama is willing to order enemies killed, President Trump may be less squeamish than his predecessor. whether by drone strikes, special forces, local allies or ideally a Expect him to downplaythe importance ofcivilian casualties, for combination ofall three. instance. Mr Trump says he plans to work with Russia against IS, The Obama way of war can be seen with unusual clarity at even though to date Russian talk of fighting terrorists is mostly Qayyarah West, a fortified airbase newlyrisen from the Iraqi des- cover for backing the Assad regime in the Syrian civil war. But Mr ert35 milessouth ofMosul, where asmanyas5,000 IS fighters are Obama’s military doctrine is already unsentimental. In that, the engaged in brutal combat with Iraqi forces. Lexington visited this two men may be more similar than they care to admit. 7 The Americas The Economist December 17th 2016 37

Also in this section 38 Bello: Viva la ignorancia!

Canada’s climate deal ised, and no national plan would be politi- cally viable without the assent ofthe prov- Walking the walk inces—many of which rely on polluting industries. One stroke of luck for Mr Tru- deau was that in 2015 Alberta, home of the carbon-belching tar-sands oil patch, elect- ed a premier from the left-wing New OTTAWA Democratic Party, ending 44 years of un- Justin Trudeau has secured the support ofmost provinces fora national broken rule by the centre-right Progressive carbon-pricing scheme. He may need more carrots to keep them on side Conservatives. That removed what was ALK is cheap. Since 1997 Canada has try on track to hit its 2030 target, set out in likely to be a strong source ofopposition. Tsigned five global climate deals pledg- 2015 in the Paris accord, of523m tonnes. Even then, it took Mr Trudeau a year to ing to lower its greenhouse-gas emissions. The most immediate reason for Cana- herd the fractious premiers towards the However, it has never implemented a na- da’s about-face was Mr Trudeau’s election. deal. Both BC and Alberta had longstand- tional climate plan. Instead, its ten prov- His Conservative predecessor, Stephen ing requests for the federal government to inces and three territories have mostly Harper, was a big fan of fossil fuels. By the approve oil and gas projects, including one been free to do their own thing. 2015 election, his attitude proved out of to export liquefied natural gas from north- Provinces rich in hydropower, such as step with public opinion. Mr Trudeau ern BC, and another to transport Albertan Quebec and Ontario, made bigstrides, and made tackling climate change a central crude to a port near Vancouver. The public British Columbia (BC) even introduced a plank of the Liberal Party’s platform, and favours these initiatives: three out of four carbon tax. However, big fossil-fuel pro- was rewarded with a surge in turnout from respondents to the Abacus poll said they ducers such as Alberta sat on their hands. young green voters. This October two out would accept more approvals. However, The results were predictably disappoint- of three respondents told Abacus, a poll- environmentalists and indigenous groups ing. In 1990, the base year for the Kyoto ac- ster, that Mr Trudeau was on the right track threatened to blockconstruction. cord, national emissions were 613m in promising a national carbon price. Even though the new infrastructure tonnes. By 2014 they had risen to 732m However, Canada is highly decentral- would yield more fossil-fuel production tonnes, the world’s ninth-highest total. and carbon emissions, Mr Trudeau has au- Canada withdrew from Kyoto in 2011 after thorised three big projects. According to deciding that its targets were unattainable. A long way to go Paul Boothe, a former deputy environ- But following nearly two decades of in- Canada, total greenhouse-gas emissions mentminister, that decision maywell have action, Canada may have reached a turn- m tonnes of CO2 equivalent brought Alberta and BC on board. “They ing point. On December 9th Justin Tru- needed to be assured they can develop CLIMATE AGREEMENTS CANCÚN DURBAN deau, the prime minister, and 11 of 13 KYOTO* COPENHAGEN PARIS their resources,” he says. “It was a very im- provincial and territorial leaders an- 800 portant part of the political calculus.” Mr nounced that they had agreed on a nation- Trudeau also allowed Nova Scotia to con- RECESSION al climate framework. The deal combines tinue burningcoal forelectricityafter 2030, disparate provincial efforts, and overlays 700 so long as it cuts other emissions by an off- them with two federal imperatives: by setting amount. 2018 each province must have in place ei- 600 Two provinces are still holding out. ther a carbon tax or a cap-and-trade 2030 TARGET Manitoba is expected to join, assuming it (Paris agreement) scheme that puts a minimum price on car- 523 can extract a satisfactory increase in bon ofC$10 ($7.63) a tonne, rising to C$50 a health-care funding. But even though pro- tonne by 2022; and by 2030 coal will no 1990 95 2000 05 10 15 vincial governments are free to spend the longer be used to generate electricity. Ifim- Source: Environment and revenue raised by a carbon tax or emis- Climate Change Canada *Canada withdrew in 2011 plemented, the plan would put the coun- sions-credit sales however they wish, Brad 1 38 The Americas The Economist December 17th 2016

2 Wall, the premier of Saskatchewan, re- if Saskatchewan were seen to be free-rid- So Mr Trudeau will have to work fast to fill mains unconvinced. He fears that a carbon ingon theirsacrifices. And any more defec- in details that require provincial agree- price will hinder the energy, mining and tionsmightprove fatal. Fornow, the federal ment, and to encourage the provinces to agriculture industries, and particularly government has only secured handshake pass the necessary laws promptly. To harm companies that compete with Amer- commitments from the premiers, leaving grease the wheels, the federal government ican firms that do not have to pay for their their successors free to reverse course. BC is offering at least C$49bn in green hand- emissions. He is also concerned that Do- will hold an election in May. Ontario, Que- outs, for everything from public transport nald Trump may reverse Barack Obama’s bec, New Brunswick and Nova Scotia all to helping provinces link their electricity environmental efforts, and argues that follow in 2018. Although the federal gov- grids. It is also deciding how much money Canada’s climate policy should not get too ernment says it has the right to impose a to give the provinces for their health-care farahead ofits largest trading partner’s. carbon tax unilaterally on recalcitrant or systems, an unrelated issue that might Mr Trudeau could probably trudge backsliding provinces, that power has not sway wavering premiers. Mr Trudeau’s ahead without Saskatchewan, which gen- been tested in court. charm isformidable. But it could take some erates just 4% of Canada’s GDP. However, For now, nothing besides the fear of a old-fashioned bribery to turn his vision of otherprovinceswould surelylookaskance flip-flop binds the premiers to their word. a green Canada into a reality. 7 Bello Viva la ignorancia!

A small act ofnational suicide in Peru OR most of this century, Peru’s econ- ular Force’s leader, by just 50,000 votes Fomyhasshone: income perperson has out of18m, after her campaign was hit by doubled in the past dozen years. But edu- a last-minute scandal. Her surprise defeat cation failed to keep up. In 2012 Peru stung; she has not talked to Mr Kuczynski ranked last among the 65 countries that since the election. He only reached the took part in the Programme for Interna- run-off after two other candidates were tional Student Assessment (PISA), which disqualified on questionable grounds. tests the reading, maths and science profi- Hispartyhasjust17 ofthe 130 seatsin Con- ciency of15-year-olds. gress, while Popular Force has 72. Fortunately, Peru then found an out- Mr Kuczynski could have turned Mr standing education minister. Jaime Saa- Saavedra’s future into an issue of confi- vedra, an economist whose mother was a dence in the cabinet as a whole. Lose two teacher, spentten yearsatthe World Bank, such votes, and Peru’s constitution gives rising to be vice-president for poverty re- the president the right to dissolve Con- duction. Appointed three years ago to the gress and call a fresh legislative election. education portfolio, he was the only min- But this has never been tested, and Popu- ister to keep his job when Pedro Pablo lar Force hinted that it would hit back by Kuczynski replaced Ollanta Humala as ruption in the purchase of computers by declaring the presidency vacant. On De- Peru’s president in July. He has general- the ministry. MrSaavedra convincingly de- cember 13th Mr Kuczynski announced ised a previous pilot plan to link teachers’ nied knowledge of these problems and re- that he had rejected this course, calling for pay to performance, overhauled teacher sponsibility for them. So why is Popular dialogue with the opposition. He could training and school management and be- Force, the main opposition party, so hostile seek a coalition with Popular Force, invit- gun a crash programme of repairing di- to him? Many commentators ascribe this ing them to take cabinet posts. But that lapidated school buildings. He has also to the links several of its legislators have to would appal many of his own suppor- championed a law passed in 2014, which universities that are lucrative businesses ters, who voted for him purely to stop Ms for the first time subjected universities to but offer poor value to students and face Fujimori, whose father controversially minimum standards for probity and edu- new scrutiny under the law regulating ruled Peru as an autocrat in the 1990s and cational outcomes. them (though that also applies to some is serving jail sentences for corruption. Mr Saavedra’s stewardship has pro-government lawmakers). The alternative may be to submit to years brought results. Performance in national The congressional hearing was remark- ofharassment from Congress by an oppo- tests has risen sharply. The latest PISA fig- able for its mixture of ignorance and bad sition intent on showing its power. ures, which were released on December faith. One legislator claimed that the PISA As for Mr Saavedra, his likely depar- 6th, confirmed this trend: Peru was the tests, which are organised by the OECD, a ture illustrates the vicious circle that fastestimprover in Latin America and the club ofmainly rich countries, were a “smo- makes sustaining good policies so diffi- fourth-fastest in the world. Far from cele- kescreen” and a “business” paid for by Mr cult in Latin American democracies. Pop- brating this achievement, the following Saavedra’s ministry. Others said the PISA ularForce hastoo manychancerswho see day the opposition majority in Peru’s tests were “adulterated” or an exercise in a state that long failed to provide proper Congress subjected Mr Saavedra to an 11- psychological warfare. This is bosh: even public services as a vein to be mined for hour interrogation, conducted with the the harshest serious critics of PISA accept private profit. That the party represents so manners of a playground bully. On De- that it is properly conducted. many Peruvians is in part an indictment cember15th it was due to vote to sack him. The censure ofhis best minister on such of the country’s educational backward- The ostensible reasons were a delay in spurious grounds is a frontal challenge to ness. Bettereducation is no guarantee ofa preparations forthe Pan-American games Mr Kuczynski, less than five months after better-quality democracy, but it certainly to be held in Lima in 2019 (the education he took office. It lays bare the weakness of helps. And it is essential if Peru is ever to ministry handles sport) and alleged cor- his mandate. He beat Keiko Fujimori, Pop- grow truly prosperous. Middle East and Africa The Economist December 17th 2016 39

Also in this section 40 Israeli settlers and the law 41 Mayhem in Egypt 41 Saudis advance six centuries 42 A tale of two African elections

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

Syria they prepared to leave. Some burned pos- sessions they could not carry, rather than Last rites for Aleppo see them fall into the regime’s hands. But the evacuation, which was sched- uled to begin at 5am on December 14th, failed to happen. By midday, warplanes were backin the skies above Aleppo, bom- barding neighbourhoods in the tiny rebel pocket as tanks and artillery guns shelled The fate ofup to 100,000 trapped civilians is terrifyingly unclear the area once again. Russia announced HEN members of the Muslim Broth- spearheaded by Iranian-backed Shia mili- that the regime had captured yet another Werhood rose up against the Syrian tias from Iraq and Lebanon, have cornered district. Terrified residents desperately government in 1982, killing hundreds of rebel forces in a tiny sliver of territory in sought shelter. Some described seeing bo- soldiers in the city of Hama, the regime’s the east of Aleppo, the country’s largest dies lying in the streets as they ran. Others response was swift and brutal. Under or- city before the war. said the bombardment was too intense to ders from President Hafez al-Assad, gov- On December13th, as part ofa deal bro- rescue the wounded. In one field clinic bo- ernment warplanes and artillery pounded kered by Russia and Turkey, the rebels dies lay in rows on the floor where they the city for weeks. By the time the army’s agreed to surrender. A ceasefire followed had been left for days, their relatives too bulldozers had finished flattening entire as buses prepared to evacuate rebel fight- scared to collect the corpses. districts, the regime had killed as many as ers and civilians to opposition-controlled The deal broke down mainly because 25,000 people. territory west of the city. Residents gath- Iran, which supports a number of Shia mi- In 2011, almost 30 years after the Hama ered in the bitter cold and driving rain as litias fighting alongside Mr Assad’s troops, massacre, Hafez’s son, Bashar, faced his imposed new conditions, including an own revolt when peaceful protests against 100 km evacuation of Shias from two rebel-be- his rule erupted across Syria. Some be- TURKEY sieged villages. As The Economist went to lieved that the soft-spoken ophthalmolo- press on December 15th, there was re- gist would show more restraint than his Aleppo newed hope that the evacuation might Raqqa Eu blood-drenched father. Butaftermore than Latakia Idlib ph soon begin; but local disagreements could ra IDLIB t five years of war no one thinks that any e all too easily delay or scupper it. s Russian more. Mr Assad junior has systematically air base Hama SYRIA The failure of the world to act means Deir starved, bombed and shot his own people, al-Zor that what happens next to the remaining laying siege to civilians in rebel-held areas Mediterranean Sea Homs population of east Aleppo, numbering Palmyra while bombing their hospitals, markets Beirut anywhere between 50,000 and 100,000 SPARSELY and schools. His scorched-earth tactics POPULATED people, could be atrocious. In recently cap- LEBANON Douma have killed the vast majority of the war’s Damascus IRAQ tured neighbourhoods, pro-regime troops 400,000-plus dead and driven millions of have begun to slaughter civilians inside

Syrians abroad as refugees. The massacre ISRAEL Deraa their homes, according to reports received UN his father oversaw in Hama seems small JORDAN by the and sources inside the city. and local in comparison. Amman In what it described as a “complete These tactics, along with Russian air meltdown of humanity” inside Aleppo, power and Iranian military expertise, now Areas of control, December 2016 the UN said reports suggested that at least appear to have propelled Mr Assad to his Government Rebels Kurds Islamic State 82 civilians, including11women and 13 chil- greatest victory so far. Pro-regime forces, Contested Source: Institute for the Study of War dren, have been murdered in recent days. 1 40 Middle East and Africa The Economist December 17th 2016

2 Government forces have also detained Yet Mr Assad’s ambition to reassert his over Iran, especially in Syria, is Russia. hundreds ofmen, the UN said; others have control over the entire country is unrealis- The overarching question about Syria’s been conscripted into the Syrian army. tic. The recapture of Palmyra by IS is an in- future could therefore hinge on America’s The remainingtrapped civiliansare pet- dication of the difficulties Mr Assad still relations with Russia, which MrTrump has rified. “Some are hiding, waiting to know faces. His priority over the next few said he wants to put on a more co-opera- their fate. Others are fleeing to the regime’s months is therefore likely to be to consoli- tive footing. It also depends on the extent part of the city. Imagine a family fleeing to date his recent gains in what he calls “es- to which Russia’s and Iran’s goals in Syria its killers. That’s the only option now: to sential Syria”, the urbanised spine of the may differ. Russia says it is committed to flee to their killers,” said Ammar al-Selmo, country between Aleppo and Damascus. UN Security Council resolution 2254, the head ofthe city’s White Helmets, a vol- He should also not assume that the which is designed to reunify the country unteer rescue service. Evacuation, if it hap- Trump administration will be unalloyed following an 18-month transition period pens, will take many days. good news for him. Andrew Tabler of the afterwhich democratic elections would be Washington Institute for Near East Policy held under a new constitution. Iran, by After the fall reckons that “big changes are coming.” contrast, wants above all to preserve the Terrible though the situation in Aleppo What most distinguishes Trump appoint- Assad regime. Its aim is a rump Syria as a now is, the city’s fall will not end the war. ments, such as retired Marine General Jim client state, and an arc of Shia dominance Mr Assad has repeatedly vowed to reclaim Mattis as defence secretary and retired running through it from Iraq to Lebanon. the entire country. Though the capture of General Mike Flynn as national security Given Mr Trump’s transactional ap- Aleppo will leave the government in con- adviser, is their conviction that Iranian in- proach to international relations, Russia’s trol of all Syria’s main population centres, fluence in the region must be confronted president, Vladimir Putin, will want to including its four largest cities, large and rolled back. Handing victory to Mr As- know what kind of deal the new adminis- swathes of territory remain beyond the re- sad also meanshandingvictoryto the mul- tration will offerhim to partcompany with gime’s authority. lahs in Iran, something they will be loth to his Iranian ally. After the fall ofAleppo, he Islamic State (IS), which retook the an- do. The one country that has real influence will surely demand a high price. 7 cient city ofPalmyra on December11th, still rules wide tracts of (sparsely populated) land in the east. Rebel forces control the Israel’s settlers province of Idlib, parts of Deraa in the south, a large chunkofthe border with Jor- The Amona remainers dan and a few pockets of territory around the capital, Damascus. Turkish and Kurd- ish rebels have also carved out enclaves in the north ofthe country. Once Aleppo is secured, Mr Assad will AMONA probably turn his attention to those pock- The prime ministeris backing plans to “regularise” illegal settlements ets of rebellion that remain around the capital, while securing the main highway HE fate of42 Israeli families, living on a But even if the Amona row is defused, that leads from Homs to Aleppo. He will Twindswept hilltop in the West Bank to get this far Mr Netanyahu has been then want to go after rebel forces in Idlib, half an hour’s drive north of Jerusalem, forced to placate his hardliners by endors- where he has corralled much of Syria’s in- could change the rules of Israel’s 49-year- ing a proposed “Regulation Law” forsettle- surgency. The province is dominated by a old occupation of the area. The settlement ments built under similar circumstances. hardline Islamist group, Ahrar al-Sham, as was built in 1995 on what was in fact pri- Its purpose is to legalise retroactively the well as militants from Jabhat Fatah al- vately owned Palestinian land. The settlers supposedly inadvertent expropriation of Sham, a jihadist group with ties to al- claim they were not aware of this—which privately owned land in the West Bank, on Qaeda. The regime is calculating that their may be true, as land records in the West which some Jewish settlements have al-1 presence will dampen any Western sup- Bank are not always clear or complete, dat- port for the rebels holding out in Idlib, al- ing as many of them do back to Ottoman lowing it a free hand. times. Despite a High Court order to evict It is difficult to see how the opposition them by December 25th, and repeated gov- can bounce back. America’s president- ernmentoffersofalternative housing near- elect, Donald Trump, has threatened to by, the settlers are refusing to budge from withdraw already limited support for Syr- what they see as their homes in historical- ia’s moderate opposition and concentrate ly Jewish territory. They have promised instead on defeating IS. This would suit not to use violence when the security both Mr Assad and his Russian backers, forces come to remove them, but large swinging the course of the war even fur- signs like “On Amona we will go to war”, ther in the dictator’s favour. and the dozens ofyoung settlers who have “The crushing of Aleppo, the immea- already arrived as reinforcements, suggest surably terrifying toll on its people, the the opposite. bloodshed, the wanton slaughter of men, This puts Prime Minister Binyamin Net- women and children, the destruction—and anyahu’s coalition in a bind. Members of we are nowhere near the end of this cruel the hard-right Jewish Home party are conflict,” the UN’s High Commissioner for threateningto leave the coalition if Amona Human Rights, Zeid Ra’ad al-Hussein, said is forcibly cleared, which could cost Mr on December 13th. “What is happening Netanyahu his slender Knesset majority. with Aleppo could repeat itself in Douma, (Jewish Home has eight members; the in Raqqa, in Idlib. We cannotletthis contin- prime minister’s majority is only six.) The ue.” For now, though, there seems little to government is struggling to make a deal prevent furthertragedies unfolding. with the settlers as the clockticks down. We’re here because we’re here The Economist December 17th 2016 Middle East and Africa 41

2 ready been built, and oblige the legal own- Mayhem in Egypt his supporters. ers to accept eitherfinancial compensation One problem with this argument is that or alternative land. The law will not affect Murder in the Egypt itself looks increasingly volatile. On Amona, which is specifically excluded, but December 9th a bomb targeting a police it could affect more than 2,000 buildings, cathedral vehicle in the city of Kafr al-Sheikh killed a some in tiny “outposts” and others in larg- civilian and injured three policemen. On erurban settlements. Itisseen bysettlers as the same day another bomb killed six po- CAIRO a big achievement. licemen on the road to the pyramidsin Cai- Terrorism in Egypt compounds the Naftali Bennett, the leader of Jewish ro, breaking months of relative calm in the president’s problems Home and a supporter of the settlers, capital. Two days later, yet another tore made his motives clear last week, when he ECURITY and order have always been through Cairo’s Coptic cathedral during said the law is a step towards formally an- Sthe priority for Abdel-Fattah al-Sisi, Sunday mass, killing at least 25 worship- nexing parts of the West Bank, a long-term Egypt’s president and self-proclaimed pro- pers, mostly women and children. goal of many hardliners. This contradicts tector. Since toppling a democratically Disgruntled Islamists have been Mr Netanyahu’s stated position of favour- elected but unpopular Islamist govern- blamed for the violence—and have taken ing a deal to recognise two separate states ment in 2013, Mr Sisi, a former general, has some credit for it. A shadowy group called for Israelis and Palestinians. Israel applies attempted to stabilise the country with the Hasm (decisiveness) movement its laws to the eastern part of Jerusalem, draconian laws and a crackdown on dis- claimed responsibility for the bomb near captured from Jordan in the SixDay War of sent. Without his firm hand, Egypt would the pyramids. It has staged several attacks 1967; but it has so farrefrained from annex- look like its blood-soaked neighbours, say in revenge forMrSisi’s bloody suppression1 ing other parts ofthe West Bank. The Geneva Convention says that an “Occupying Power shall not deport or Saudi Arabia’s calendar transfer parts of its own civilian popula- tion into the territory it occupies.” Israel The prince’s time machine says this does not apply to the West Bank, RIYADH which did not belong to a sovereign state Hauling Saudi Arabia into the 21st century asthe territorywasnotofficiallypart ofJor- dan. It also says the convention doesn’t ap- HE kingdom presented its shift from ply to Jewish settlers who are there volun- Tthe Islamic to the Gregorian calendar tarily, rather than having been deported or as a leap into modernity. In April the transferred. Most international lawyers re- dynamic deputy crown prince ofSaudi ject this interpretation. Even Israel’s closest Arabia, Muhammad bin Salman, chose allies, including America and Britain, re- to call his transformation plan Vision gard the settlements as illegal. 2030, not Vision 1451after the corre- Some see the Regulation Law as mark- sponding Islamic year as traditionalists ing the first time that Israel is openly exer- might have preferred. Recently his cabi- cising sovereignty over the West Bank. net declared that the administration is “The law is effectively a measure of annex- adopting a solar calendar in place of the ation of the West Bank, contrary to Israel’s old lunar one. Henceforth they will run long-held claim that it’s not engaged in an- the state according to a reckoning based nexation,” explains Professor Yael Ronen on Jesus Christ’s birth, not on the Prophet ofthe Sha’arei Mishpat Centre forLaw and Muhammad’s religious mission. Science. “It is a law that expressly states its But puritans in Islam’s birthplace are aim is to develop the settlements in Judea wincing at their eviction from control and Samaria.” Others disagree. They insist first over public space, and now of time. that regularising settlements does not im- Guardians ofthe Wahhabi rite, who seek ply annexing the land they are built on; it to be guided by Muhammad’s every act, merely lets the settlers live without fear of askwhether they are now being required ing passing days. But for measuring years eviction—for now. If ever a peace deal is to follow Jesus. A slippery slope, the it is a poor approximation. It loses some 11 reached between Israel and Palestine, clergy warn, to forgetting the fasting days a year, ensuring that Islamic holy many of the isolated settlements would month ofRamadan altogether; the au- days rotate round the seasons every 32 doubtless have to be abandoned, with or thorities are rewinding the clockto the years. The Saudi administration, hopes without forcible eviction. jahiliyyah, or pre-Islamic age ofigno- one official, should now be more orderly Mr Netanyahu, although forced by po- rance. The judiciary, a clerical bastion, and in step with the rest ofthe world. But litical constraints to tell his whole coalition still defiantly insists on sentencing mis- having spent a lifetime learning dates to vote for the law, is clearly concerned creants according to the old calendar. from the year Muhammad fled from aboutitslegal and diplomaticripples. Gov- The clerical unease has been matched Mecca to establish the first Islamic state in ernments around the world have con- by that ofgovernment employees. Under Medina (622 in the Gregorian calendar), demned it in advance. So far, it has passed his transformation plan, the prince has counting from Jesus’s birth is likely to only its first reading. Even ifit passes the re- already docked their perks and slashed leave many scratching their headscarves. maining two votes, as yet unscheduled, it pay. To add to their misery, they now Still, Saudi Arabia is not alone in could well be struck down as unconstitu- complain they will have to workan extra wrestling with ancient calendars. It is tional bythe High Court. The attorney-gen- 11days each year. Yet another example, 1395 in Iran, 2628 in Kurdistan, and 5776 in eral says he will refuse to defend it in court. they gripe, ofglobalisation favouring Israel’s Knesset. Nor is it just the Middle Mr Netanyahu is trying to avoid fights with rulers at the expense ofthe ruled. East that is out ofsync with the times. It is the settlers, his coalition, the court and his A lunar calendar made sense when 2559 in Thailand, though only year 28 (of foreign allies. But right now he is on a colli- the moon was the simplest way ofcount- the Heisei era) in Japan. sion course with all ofthem. 7 42 Middle East and Africa The Economist December 17th 2016

2 of the Muslim Brotherhood, the Islamist Gambia and Ghana Ghana’s peaceful vote was its seventh group that led the ousted government (and since the return of multiparty elections in which claims to be peaceful). Islamic State You say goodbye 1992. Although the country’s democracy is (IS) has claimed responsibility for the ca- far from perfect—politicians are wont to thedral attack. But the interior ministry and I say hello hand out rolls of banknotes hidden inside saysexiled Brotherhood leadersdirected it, T-shirts at rallies and much of the country sending the bomber to train with jihadists still votes along tribal lines—it is streets linked to IS in the northern partofthe Sinai ahead of many others on the continent. Gambia’s despot refuses to leave as peninsula. Despite all the advantages of incumbency, Ghana welcomes a newgovernment It is not clear how much co-ordination Mr Mahama was ejected after just one there is between the Sinai-based militants, OTORCADES are not an unusual fea- term by voters fed up with how he had mostly drawn from among the local Bed- Mture of African political life. But a squandered Ghana’s new oil wealth and ouins, and groups like the Hasm move- hush fell in Serekunda, Gambia’s largest allowed the country to be blighted by dou- ment, which are active in Egypt proper. For town, as the presidents of Ghana, Liberia, ble-digit inflation and a youth unemploy- several years the army has tried to beat Nigeria and Sierra Leone sped by in black ment rate of almost 50%. And if Mr Akufo- back an insurgency in Sinai, adopting Rolls-Royces. Gambians hoped the re- Addo fails to deliver on promises like “one scorched-earth tactics. But this has not de- gion’s otherheads ofstate would persuade district, one factory”, voters are likely to terred the rebels, who have carried out sev- their own erratic president to step down. punish him too. eral hundred attacks in the area since 2012. Yahya Jammeh, who has ruled the tiny In Gambia the vote was less about eco- Lastmonth theykilled eightsoldiers with a West African nation for 22 years (and once nomics (although it too suffers from job- car bomb; in October they claimed the as- said that, if Allah decreed it, he would con- lessness that prompts thousands of young sassination of an Egyptian general. The tinue for a billion), decided that, in fact, he people to take “the back way” to Europe) most active insurgents have pledged their wanted to remain in power despite unex- than it was a revolt against Mr Jammeh’s loyalty to IS and declared their region to be pectedly losing an election two weeks ago. brutality. And fearofthe mercurial dictator a “province” ofthe so-called caliphate. Having gracefully conceded defeat and has yet to abate as he plots ways ofclinging In claiming the Coptic bombing, IS promised to step down after the votes to the throne. Mr Jammeh has filed a peti- vowed to continue its “war against apos- were counted, he changed his mind and tion with the Supreme Court, but it is not tates”. Egypt’s Christian Copts, who make challenged the result, encouraged perhaps clearthat it is even able to hearthe case giv- up about 10% of the country’s population, bythe foolhardypledgesofsome ofthe op- en that it has just one justice. are a common target. They have long faced position to arrest him for his many abuses West African leaders still hope to ham- persecution by the Muslim majority. Many of human rights. The president-elect, mer out a deal. But if diplomacy does not have supported Mr Sisi, believing he Adama Barrow, refuses to say whether his succeed by Gambia’s inauguration day on would protect them—even when Islamists government would prosecute MrJammeh. January18th, military force is an option, an attacked dozens of Coptic churches and The delegation of regional leaders, act- official of the Economic Community of homes afterhis coup. But his gestures, such ing unusually firmly against a despot, West African States (ECOWAS) said. It is as briefly attending Christmas mass, have nonetheless went home empty-handed. A not clearthat Gambia’s neighbours would, done little to ease the tension. And there deal “is not something that will happen in in fact, be willing to take tough action. But are signs that Coptic support for the presi- one day”, said Liberia’s weary-looking Gambia is casting a shadow over a region dent is fading. “The people demand the president, Ellen Johnson Sirleaf. moving towards democracy: Senegal and downfall of the regime,” shouted those The inclusion of Ghana’s outgoing Nigeria have experienced successful gathered outside the cathedral after the leader on the trip was no accident: John democratic transitions in recent years and bombing. Television presenters seen as Mahama had conceded electoral defeat Burkina Faso’s dictator was ousted after supportive of the president were pushed just three days earlier. There are no signs of street protests in 2014. Asked whether he away by the crowd. him changing his mind, either—even after would return to Gambia again to mediate, These are difficulttimesforMrSisi, who the victorious Nana Akufo-Addo prom- Mr Mahama smiled: “I have my own tran- is also dealing with a moribund economy. ised a corruption probe. sition to handle.” 7 Egypt has struggled to lure back investors and tourists who fled after the revolution of2011. The plummeting value ofthe Egyp- tian pound and inflation, which is at an eight-year high, have caused the public much pain. After years of delaying, the government has finally begun to imple- ment some economic reforms, thereby se- curing a $12bn loan from the IMF. But these reforms, which include floating the curren- cy and cutting subsidies, are likely to com- pound Egyptians’ pain in the short term. The risk is that Mr Sisi will respond to the pressure in all the wrong ways—for ex- ample, bycrackingdown harderon dissent and delaying or rescinding economic re- forms. The parliament, which supports the president, has already called forchanges to the penal code that would curtail civil lib- erties. The foreign ministry has used the vi- olence as an excuse to attack NGOs. The government seems intent on storing up yet more trouble forthe future. 7 The quickest billion years ever Europe The Economist December 17th 2016 43

Also in this section 44 A landslide election in Romania 44 Italy’s new prime minister 45 Igor Sechin, oil boyar 46 Charlemagne: The sexiest job in Brussels

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

Terror in Turkey fortwo more five-year terms, to 2029. In theory, the executive presidency Semtex pretext should be within Mr Erdogan’s reach. His alliance of Islamists and nationalists has become a magnet for those galvanised by the coup attempt in July. Mr Erdogan has fanned outrage over the failed coup and stoked fears ofanother to intimidate oppo- ISTANBUL nents and justify the arrests of up 40,000 A horrifying bombing helps the president grab more power people, including about 100 journalists. HE first attacker, driving a car packed the prime minister, Binali Yildirim, un- Outside observers and the political oppo- Twith up to 400kg (880lb) of explosives, veiled a raftofconstitutional amendments sition have recoiled at the scale of the struck near an Istanbul stadium after pull- to do just that. The changes would do away crackdown. But nationalists and conserva- ing up next to a riot-police vehicle. The sec- with the office of prime minister, enshrine tives have embraced it, persuaded that Tur- ond detonated his suicide vest less than a the presidency as the seat of executive key faces an existential threat from plotters minute later, after a group of policemen power, and give Mr Erdogan the authority beholden to foreign powers. Some blame surrounded him in a neighbouring park. to appoint senior civil servants, declare a only the Gulen movement, an Islamic sect The December10th bombings, the latest in state ofemergency, and issue decrees. They believed to have been involved in the a wave of terror attacks that began in the must clear parliament before being put to a coup; others add conspiracy theories in- summerof2015 (see chart), killed atleast 44 popular referendum next spring. volving Germany, America and Britain. people, including civilians heading down- Officials from the ruling Justice and De- Yet Mr Erdogan is starting to face head- town on a Saturday night. The first blast velopment (AK) party argue that the provi- winds. The economy contracted by 1.8% in was so powerful that firefighters were seen sions would preclude turf battles between the third quarter, its worst performance collecting body parts from the stadium’s presidents and prime ministers. Critics say since a recession in 2009. The lira is testing roof. Agroup called the Kurdistan Freedom it is hard to imagine what such turf battles new depths; the government has asked Falcons, widely considered a front for the might be: Mr Erdogan already governs people to defend it by selling dollars and outlawed Kurdistan Workers’ Party (PKK), without many checks. The purpose of the euros. Support for the executive presiden- claimed responsibility. constitutional changes, they say, is to for- cy hovers below 50%. As enraged demonstrators took to the malise one-man rule. They would take ef- Mr Erdogan likes to cast himself as a streets, Turkey’s government pledged to fect in 2019 and could let Mr Erdogan rule cure for the chaos spreading across Turkey. destroy the PKK once and for all, some- Yet he is also one ofits causes. Courting the thing its predecessors have promised but nationalist vote, Mr Erdogan has ruled out failed to do since 1984, when the group Brutal surge peace talks with the PKK. Responding to launched an insurgency in the Kurdish Turkey, terrorist attacks PKK attacks against security targets in 2015, southeast. Turkish jets struck PKK bases in he inflamed the conflict by arresting Kurd- 25 northern Iraq. Police have detained over ATTACKS ish politicians, pulverising towns in the 500 people, some for sharing allegedly 0 southeast, and displacing some 500,000 pro-PKK content on social media, as well as people. The offensive has dealt the PKK a two parliamentarians from the pro-Kurd- 25 heftyblow, butithasalso pushed droves of DEATHS ish Peoples’ Democratic Party (HDP). Ten 50 desperate young Kurds into its arms. other HDP deputies, including Selahattin Earlier this year, a PKK leader boasted Demirtas, a former presidential candidate, 75 that his group sought to topple Mr Erdo- have been in prison since early November. 100 gan’s government. The threat now sounds Recep Tayyip Erdogan, Turkey’s presi- hollow. Experience shows that Mr Erdo- dent, argues that the only way to solve Tur- 125 gan’s main enemies often turn out to be his key’s turmoil is to place all executive pow- 2008 09 10 11 12 13 14 15 16 most effective enablers. Turks and Kurds er in his hands. Hours before the bombing, Sources: START, University of Maryland; press reports are left mourning their dead. 7 44 Europe The Economist December 17th 2016

A landslide election in Romania Italy’s new prime minister Conviction politics A new man in the ejector seat

ROME AfterRenzi’s frenzy, a gentle Gentiloni BUCHAREST TALY’Snew prime minister, Paolo The Social Democrats win despite a Gentiloni, could scarcely be less like his leaderwith a rap sheet I frenetic forerunner, Matteo Renzi. In HE centre-left Social Democratic Party place ofa provincial toughie known as T(PSD) entered Romania’s parliamenta- “The Demolition Man”, Italy has ac- ry election on December11th with what, in quired an affable Roman aristocrat with a most countries, would be considered a preference forcompromise. His inaugural handicap. Its leader, Liviu Dragnea, was speech to parliament on December13th convicted in 2015 of attempting electoral was memorable largely forits dullness. fraud three years earlier. But many see Mr Mr Gentiloni’s cabinet, however, will Dragnea’s conviction as politically moti- be almost identical to that ofhis prede- vated, and in Romania many parties are cessor, who resigned after his plan to tainted by corruption. The PSD came first reform the constitution was rejected in a bya wide margin, winning46% ofthe vote, referendum. The composition ofthe new well ahead ofthe centre-right National Lib- team suggested that the handover of eral Party (PNL), which tookjust 20%. power is more apparent than real, and The PSD’s victory has led to worries that Mr Gentiloni is expected to keep the that Romania’s anti-corruption drive, a formerprime minister’s seat warm as Mr model for the region, may slow down. The Renzi plots his return. Only one minister country’s independent National Anticor- from the previous cabinet was dropped. ruption Directorate (DNA) prosecutes Another, Maria Elena Boschi, who Two Italians walk into a palazzo more than 1,000 people a year, and con- steered the reform bill through parlia- victs most of them. Mr Dragnea is not the ment, becomes Mr Gentiloni’s under- wrought by the earthquakes that have only PSD leader to fall foul of the DNA: a secretary. That will give her control ofthe struckcentral Italy this year. Just as urgent year ago Victor Ponta, then the prime min- cabinet’s agenda—and Mr Renzi a trusted are the problems ofItaly’s banks (see ister, was forced to resign amid mass de- associate at the centre ofpower. Angelino page 62), including the teetering Monte monstrations. The DNA had charged him Alfano, the formerinterior minister, took dei Paschi di Siena. But another immedi- with forgery and conflicts of interest, and Mr Gentiloni’s place as foreign minister. ate taskis to pass a new electoral law. anger peaked after a blaze killed 64 people The new cabinet includes a minister Most ofthe opposition wanted a snap at a nightclub in Bucharest where inade- forthe south, which voted solidly against election after the referendum, as did Mr quate fire-safety measures were blamed Mr Renzi in the referendum. Mr Gentiloni Renzi. But Sergio Mattarella, the presi- on graft. also refused a cabinet post to a band of dent, who alone has the power to dis- Romania’s president, Klaus Iohannis, conservative lawmakers who provided solve parliament, refused to call an elec- has vowed not to appoint anyone convict- Mr Renzi with external support. That will tion until the rules forthe two houses ed of corruption as prime minister. That make the new government a less easy were harmonised. The current law, could rule out Mr Dragnea, but several oth- target forcritics (the right-wing group’s passed in 2015 on the assumption the er PSD figures have been mooted. Any of leader has a conviction foraiding and constitutional reform would succeed, them would probably form a coalition abetting corruption). But it will be more only applies to the lower house. (The with the Liberal Democratic Alliance vulnerable to parliamentary ambush. reform would have turned the Senate (ALDE), a small party that has attacked the The government and its remaining allies into an indirectly elected chamber.) anti-corruption agency and called for the have an assured majority in the lower Mr Renzi needs an election before his resignation of its straight-arrow director, house. But in the 320-member Senate momentum ebbs entirely. But electoral Laura Codruta Kovesi. And some see the they will be living from vote to vote. laws are incredibly difficult to agree on. It victoryofthe PSD, which promised to raise Mr Gentiloni said his priorities would will take all Mr Gentiloni’s conciliatory the minimum wage and increase pension be creating jobs and tackling the damage skills to frame a new one. payments, as a sign that anger at cronyism is giving way to economic concerns. “It’s a real test” of Romania’s legislation, institu- World Bank, Hungary has grown more cor- 2015, the justice minister, Hristo Ivanov, re- tions and political parties, said Laura Ste- rupt under its prime minister, Viktor Or- signed in protest over their inadequacy. fan, an analystatthe ExpertForum, a think- ban, who has used cronyism to entrench Judges marched in the streets in solidarity, tankin Bucharest. his Fidesz party. Bosnia, Moldova and Ser- some dressed in their court robes. Anti-corruption efforts have earned Ro- bia have stagnated orworsened. And there The European Commission’s most re- mania praise from the European Commis- are worries about Poland, where the Law cent review of Bulgaria urges the country sion, which reviews the country’s gover- and Justice government embraces Mr Or- to establish an independent anti-corrup- nance each year as a condition of its ban’s populist model. tion body like Romania’s. The president- accession to the European Union in 2007. In Bulgaria, which joined the EU at the elect, Rumen Radev, hinted duringhis cam- On the corruption-perceptions index com- same time as Romania, the percentage of paign this summer that he might support piled by Transparency International, a people who payed bribes doubled in the such a move. That is unlikely to happen. watchdog, Romania improved its rank past five years, according to the Centre for The lesson many politicians have taken from 69th in the world in 2014 to 58th in the Study ofDemocracy, a think-tankin So- from Romania is that the more indepen- 2015. Several other countries in the region fia. After limited changes to the country’s dent the prosecutor, the greater the likeli- have been getting dirtier. According to the judiciary were passed by parliament in hood they will land in jail. 7 The Economist December 17th 2016 Europe 45

Russia’s Igor Sechin In 2014 Bashneft’s owner, Vladimir Yev- tushenkov, was arrested after reportedly The oil boyar rebuffing Mr Sechin’s offer for the com- pany. (Rosneft denies making any offers or having any involvement in the arrest.) Mr Yevtushenkovwasreleased afterhe agreed to give up control. Initially Lukoil, Russia’s largest private oil firm, was seen as the MOSCOW most likely buyer; Alexei Ulyukaev, the Howa longtime aide to VladimirPutin became an energy kingpin economy minister, called Rosneft “unsuit- ELLO, you’ve called Rosneft,” goesa contact details of visitors. “Igor is like that, able”. But MrSechin got MrPutin’s support “Hjoke makingthe roundsin Moscow. he lovesmilitarydiscipline and subordina- and paid $5.3bn for the state’s stake in Oc- “Ifyouhave an oil assetand youdon’tplan tion,” says Mr Konyushkov. When Mr Pu- tober. “The strongest one won,” says Leo- to sell, press the hash key.” The Russian tin moved to Moscow, Mr Sechin trailed nid Fedun, Lukoil’s vice-president. The fol- word for hash key, reshetka, also means behind him at the airport, carrying a duffel lowing month Mr Ulyukaev was arrested “bars”, as in jail—where those who cross bag. “He treated Putin as a god before Putin while allegedly accepting a bribe during a Rosneft’s head, Igor Sechin, tend to land. wasa god,” saysKonstantin Simonov, head sting operation in Rosneft’s offices. MrSechin isone ofthe mostfeared men of the National Energy Security Fund, a Rosneft’s links to Russia’s secret police, in Russia and an essential instrument of consultancy in Moscow. the FSB, workthrough “secondment”, a So- Vladimir Putin’s power. A major player Mr Sechin served as deputy head of Mr viet-era tradition restored by Mr Putin. Of- among the siloviki (former and current Putin’s presidential administration. “To ficers work undercover at important insti- members of the security services), he epi- see Putin, you had to go through Sechin,” tutions, state or private. The operation tomises Russia’s nexus between political saysa formerseniorofficial. In 2004 MrPu- against Mr Ulyukaev, for example, was led power and property. Despite being a target tin appointed him head ofRosneft’s board. byOlegFeoktistov, a seniorFSB officerwho of American sanctions, earlier this month That is where Mr Tillerson, then an Exxon- became head ofsecurity at Rosneft. he succeeded in selling a 19.5% stake in Ros- Mobil executive, would first have seen him neft to Glencore, a commodities firm, and in operation. In 2003 ExxonMobil had Oil spillover the Qatar Investment Fund, raising $11bn. been negotiatingwith Mikhail Khodorkov- Mr Sechin has been equally active abroad, The deal, the biggest foreign investment in sky, the head of Yukos, Russia’s largest oil where he sees Rosneft as a vehicle of geo- Russia since the start of the Ukraine crisis firm at the time, to buy 40% of the com- political influence. “They’re tryingto create in 2014, pleased the Kremlin no end. “Putin pany. Instead Mr Khodorkovsky was ar- a strong foundation, hence the consolida- needs that like he needs air,” says Olga rested and jailed for ten years, and in 2004 tion inside Russia, from which to expand,” Kryshtanovskaya, a sociologist who stud- Yukos was dismembered by the state, its says James Henderson of the Oxford Insti- ies the Russian elite. assets swallowed by Rosneft. Mr Khodor- tute for Energy Studies. Rosneft has signed Another boost to Mr Sechin’s prestige kovsky claimed Mr Sechin was the driving partnerships with ExxonMobil, Eni, and came with the nomination of Rex Tiller- force behind the attack. Statoil. A $270bn supply deal with China’s son, the boss of ExxonMobil, as America’s The Yukos affair empowered the silo- CNPC has helped resolve Rosneft’s cash- secretary of state. The two men’s long rela- viki in the Kremlin. Unlike the oligarchs of flow problem. More recently, Rosneft has tionship was consummated by the deal the 1990s, who aimed to maximise their invested in refineries in India; in natural they struck in 2011 for their firms to work profits, the siloviki simply wanted control. gas in Egypt; and in a joint crude-process- jointly in the Arctic. Mr Sechin is now And whereas Mr Sechin’s conflict with Mr ing venture in Venezuela. “He is looking at poised to become an intermediary be- Khodorkovsky was partly personal, Ros- ExxonMobil and BP and Shell [as a mod- tween Moscow and Washington. neft’s later takeover of Bashneft, a mid- el],” says a formerRosneft executive. Mr Sechin has come a long way since sized oil producer, was pure business. What matters to Mr Sechin is size, not the early 1990s, when he was the office co- value. His doctoral dissertation in 1998 on ordinator for Mr Putin, then deputy mayor oil transport networks drips with con- of St Petersburg. He owes his rise to his tempt for market forces. Whereas market dogged work ethic, his loyalty to the presi- economies evaluate projects based on ex- dent and his willingness to inflict pain on pected returns on investment, Mr Sechin opponents. “When he first arrived in Mos- praised the Soviet nuclear-weapons and cow no one tookhim seriously,” says Stani- space programmes, which he said operat- slav Belkovsky, a pundit. “He showed ed on a different principle: “at any price everyone they were wrong.” necessary”. Running Rosneft has made Mr Sechin a Trusty sidekick very rich man. His salary, including bonus- A native of Leningrad like Mr Putin, Mr Se- es, ran to as much as $11.8m in 2015. As sto- chin studied at Leningrad University’s ries about his allegedly lavish lifestyle prestigious philology department. As a have appeared in the Russian press, he has working-class child, he was “an outsider”, struck back. So far this year, Mr Sechin has says a classmate. In the 1980s he went to won libel cases against the Russian publi- Angola and Mozambique as a military cations Vedomosti, Novaya Gazeta, and translator(a common cover for intelligence RBC, a leadingbusiness publication. MrSe- agents, though Mr Sechin has never con- chin is seekingto “become an untouchable firmed being one). He was “upset” when topic, like the president’s family”, says the Soviet Union collapsed, says Nikolai Derk Sauer, a vice-president at Onexim, Konyushkov, a college friend. which owns RBC. “He feels himself to be a After Mr Putin became deputy mayor very important guy, a representative of the in 1991, Mr Sechin ran his office, keeping a state, and anything you write can be per- diary where he meticulously recorded the Burning bright ceived as an attackon the state.” 7 46 Europe The Economist December 17th 2016 Charlemagne The sexiest job in Brussels

Europe’s Brexit negotiators calmly prepare fordisaster spectacle unfolding across the Channel. Some British ministers appear to believe that the entire relationship can be recast, rather than merely the divorce settlement finalised, in the two-year per- iod Article 50 allows. European negotiators who think it is essen- tial to act as one are staggered to hear some ministers cling to the delusion that Germany’s need to sell cars to British motorists will ensure that Mrs May secures a good deal. Gloom is thus descending on the European side. The EU will probably insist on settling the terms of Britain’s withdrawal be- fore discussing future arrangements, and each is ripe for the fierc- est of rows. Top of the list is the departure bill that the European Commission, which will lead the talks on behalf of the EU, will place before Britain. The commission puts the sum at up to €60bn ($64bn), roughly equivalent to three-quarters of Britain’s projected budget deficit for 2016-17. Brexiteer diehards, and their allies in the pit-bull press, will transfertheir fury from the domes- tic “Remoaners” they accuse of holding up Brexit to perfidious Europeans making outrageous demands. One EU official puts the chances ofBritain walking out ofthe talks next year at 50%. Even if catastrophe can be averted, the negotiations will offer endless opportunities for rancour. Take the question of what to REXIT is so fascinating!” exclaims a French official. Few do with the 2.8m EU citizens living in Britain and the 1.2m Britons “B Europeans wanted Britain to quit the European Union. But in the restofthe EU. At first blush it seems simple: both sides agree now that it is happening, foreign ministries and policy units to guarantee the ongoing rights of citizens who arrived before a across the EU are relishing the task ahead. As an intellectual exer- given date—perhaps the notification of Article 50. Indeed, Mrs cise, managing the multifaceted complexities of Britain’s depar- May has sought to strike such a deal before beginning the formal ture from the EU offers the kind of satisfaction rarely found in withdrawal talks (concerned that she was seeking to play divide- policy work. As a historic negotiation without precedent—no and-rule, her European counterparts rebuffed her). country has left the EU before, let alone one of Britain’s size and But closer inspection reveals a never-ending string of com- stature—it is a wonderful CV-builder. In Brussels, where the talks plexities. Do governments have the administrative wherewithal will take place, officials are scrambling to involve themselves to process applications for permanent residence? Will the chil- with what one calls “the sexiest file in town”. dren of EU citizens have the right to cheap university tuition? The preparations forBrexit on either side of the English Chan- What about accrued pensions or other benefits? None of these nel offera Homeric parable ofchaos and order. In Britain Theresa questions is intractable. But each requires detailed negotiations May, the prime minister, exudes swanlike calm, restricting her ut- and technical work. The same goes forothermatters to be tackled terances on Brexit to warm banalities. But below the surface her in the withdrawal talks, from the pensions of British Eurocrats to government is paddling furiously to avoid being submerged by the management of safety at Britain’s nuclear plants. Untangling the awesome bureaucratic task bequeathed to it by Britain’s vot- a 43-year-old relationship, it turns out, is devilishly complicated. ers. One leaked note from a consultancy portrays a flailing gov- ernment that needs up to 30,000 more civil servants to manage Triumph ofthe won’t? Brexit. Mrs May says she will notify the EU of Britain’s intention This in turn explains why concluding a separation deal within to leave underArticle 50 ofthe EU treatybythe end ofMarch 2017. two years will not be easy. (In fact the months needed for proce- That leaves barely three months to settle basic questions such as dural matters and ratification will cut the negotiation time to whether Britain should aim to stay in the EU’s customs union. around 15 months.) The scale of the task, and the economic The contrast with the EU’s institutions, and the larger capitals, thump many Europeans thinkis headingBritain’s way—inflation, is striking. The 27 remaining EU countries quickly established a diverted investment and swooning public finances—mean some common line towards Britain on matters like the indivisibility of still harbour a hope Brexit may be averted. But that misreads the the EU’s single market. At a summit on December 15th, as The British mood. Ifthings turn sour the blame will be heaped not on Economist went to press, they were due to issue a formal declara- Brexit, but on the obstructionist EU. tion outlining the format for the talks to come. The Brussels insti- The ingredients for Brexit—a departing country confused tutions have largely established their respective roles, bar a wob- about its leverage, a club distracted by other problems and deter- ble from the European Parliament, and now spend their days in mined to avoid more fractures, a procedure without precedent, a quasi-academic contemplation of trade models or security co- tight deadline—make a combustible mix. Yet both sides should operation protocols as they wait for the games to begin. Officials feel the historic weight ofthese talks. Although Britain will be the everywhere insist that their priority will be preserving the inter- first victim ifthings go wrong, a club assailed by crisis on all sides ests of the EU, not keeping Britain happy. “This is a negotiation knows it cannot afford to oversee a Brexit debacle, however fasci- where we have to defend Europe, not undo it,” says Guy Verhof- natingthe exercise. Forthe EU, atleast, thatmeansplacinghope in stadt, the European Parliament’s Brexit point-man. a British government that it fears may not warrant it. “From a ra- European officials have refused to engage with Britain until tional point of view, we can’t fail,” says an official in Brussels. Mrs May triggers Article 50. But they observe goggle-eyed the “But I’m not sure the rationality is there in the UK.” 7 Britain The Economist December 17th 2016 47

Also in this section 48 Police for hire 49 Bagehot: Theresa May and the breaking of Boris Johnson

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

Business and Brexit rective. As of last year, 95% of every new carsold in the EU has to be reusable or recy- When the red tape unravels clable. In theory, Britain could opt out of such rules afterBrexit, reducingcarmakers’ costs. Yet it is unlikely to. One reason is to maintain the ability to export to Europe. The other is that Britain itself has been one of the strongest advocates in Brussels of Many British industries have been shaped by European Union law. They may find stricter environmental laws. that much ofit remains long afterBrexit Something similar is true in competi- NOTHER week, another EU regulation: new regulatory order. tion policy, where free-market Britain has Anumber1169/2011, to be exact, concern- Those expecting a post-Brexit bonfire of been a big force behind beefing up EU law. ing“food information forconsumers”. Like paperwork may be disappointed. The gov- Decisions on mergers and takeovers in te- much that comes out of Brussels, it sounds ernment sensibly plans to import all exist- lecoms are referred to the European Com- innocuous, but has already had far-reach- ing EU rules into British law via a (mislead- mission byBritain’sdomesticregulator, Of- ing and costly consequences. The new ingly named) Great Repeal Bill; any com; on leaving the EU these powers will rules, which came into force on December unwanted regulations will be abolished be repatriated. In practice, it may make lit- 13th, specify font sizes on food labels, re- only gradually. And if Britain wants to go tle difference. In May, for example, the quire details on allergens in prepared food on trading with its neighbours, its export- commission blocked the proposed take- and a lot more. They may improve safety, ers will have to keep following their rules. over of O2, a mobile-phone operator, by but they have forced producers to rejig NearlyhalfofBritain’sexportsgo to the EU. Three, a rival—but this had already been their manufacturing processes once again. European countries will still demand com- recommended by Ofcom itself. “We The breadth of EU regulation in the pliance with their environmental, safety wouldn’t see very different outcomes,” be- food industry is extraordinary, covering and other standards, so Britain may decide lieves Andrew Griffith, an executive at Sky, everything from hygiene to storage, says to keep manyofthese on the statute books. a broadcaster and mobile operator which Helen Munday, the chiefscientificofficer at Those industries that depend on com- is the target of a takeover bid by 21st Cen- the Food and Drink Federation, a lobby plex supply chains and “just-in-time” de- tury Fox (see page 55). He points to other group. Conforming to these rules over the liveries will be most affected, says John transnational regulations—co-ordinating past four decades has shaped an industry Fingleton, a former competition regulator. radio frequencies, forinstance—which Brit- that now employs 400,000 people in Brit- British carmakers dread the bottlenecks at ain will remain within. ain. The Europe-wide regulations are a faff, ports that could be caused by customs in- There is more concern regarding the re- but they allow British firms to trade on spections and paperwork, holding up the placement of regulatory bodies. Britain’s equal terms with other companies in the imported parts that keep their factories go- life-sciences firms, which do nearly half EU’s single market and maintain seamless ing. “Lean manufacturing” requires them their business with the EU, worry that if supply chains across the continent, with- to hold little stock; a couple of days’ delay the European Medicines Agency ups sticks outlengthyinspectionsofimported Italian ofone part could have greater knock-on ef- from London they will lose influence. Sim- mushrooms at national borders. fects. Remaining a member ofthe EU’s cus- ilarly, food companies fret that after Brexit Executives and lawyers are now scram- toms union would avoid this problem— they will lose access to the pooled exper- bling to understand how Brexit, and the though it would also prevent Britain from tise ofthe European Food Safety Authority. likely withdrawal of much EU regulatory signing free-trade deals with third coun- Setting up new domestic regulators will oversight, will reshape British business. As tries, a key aim ofBrexiteers. take time and money. the government prepares fordivorce nego- The EU’s environmental regulations are Public procurement, worth about tiations, firms must identifythe pitfalls and among those most complained about by £240bn ($300bn) a year in Britain, has also opportunities presented by the coming Brexiteers. Take the End ofLife Vehicles Di- been shaped by European regulations. 1 48 Britain The Economist December 17th 2016

2 Central governments have to put out to much else, forBritain’s government, but its 17% across the rest of England and Wales. competitive tender any contract worth boss, Rupert Soames, says that EU rules But in London the number of community- over €135,000 ($143,000). According to Ali workin the public interest. It would be “ut- support officers, civilian staff used to bol- Nikpay, a partner at lawyers Gibson Dunn, terly wrong in principle” to encourage mo- ster the police who are often the ones seen this obligation could be abandoned on nopolies at home, he says. Britain might in the streets, has plunged from 3,832 in Oc- Brexit, so contracts for supplying police have to set up its own body to monitor tober 2011 to 1,480 today. Mr Smith is keen cars, for example, could be awarded to do- state aid, if it is to convince the EU that its to make sure his BOGOF officers are out in mestic carmakers instead offoreign ones. firms are competing fairly for public au- Brixton. After dealing with an aggressive This could tempt the government into thorities’ business in the EU, which is beggar in a Brixton coffee shop recently, industrial policy by stealth, especially as worth about14% ofthe union’sGDP. And if they handed the case over to the local po- the prime minister, Theresa May, has an- Britain favoured its own firms at home, lice to avoid being tied up in court for days. nounced her interest in promoting an as that could invite a tit-for-tat response from With money for policing in short sup- yet ill-defined “industrial strategy”. State European governments, warns Mr Nikpay. ply (the Met’s budget has been cut by al- aid is subject to the World Trade Organisa- Britain’sbusinesslandscape hasindeed most a fifth since 2011), those paying for ex- tion’s anti-subsidy rules, but the govern- been shaped by EU regulations. Yet it will tra officers want to make sure they are ment could choose to interpret those rules find that leaving the union does not mean exactly that—extra. Mr Smith checked Brix- more loosely than Brussels has done. it can ignore them. The main difference ton’s policing numbers and rotas carefully Yet anti-competitive tendering would after Brexit will be that Britain no longer before his officers started work. The Met is rip off taxpayers. Serco runs prisons, and has a say in how those rules are written. 7 allowed to recall BOGOF officers in emer- gencies, such as riots, but they are not meant to replace normally funded police. Police for hire Such schemes raise some uncomfort- able questions. What happens ifthe priori- BOGOF bobbies ties of those paying for the officers do not align with those ofthe Met? Councils insist that no conflict has arisen so far, but the po- tential surely exists. Increasing the number of police in one area might result in crimes being displaced elsewhere. Gavin Hales of the Police Foundation, a think-tank, won- London’s police force offers a buy-one-get-one-free deal on officers dersifsuch schemesriskcreatinga two-tier ROM the platform outside his office, can contact them directly. police economy, with rich areas able to af- Fhigh in a building made of chilly ship- Boosting police numbers might lessen ford more officers, even ifthey need fewer. ping containers, Michael Smith can gaze Britons’ long-standing anxiety about their Residents and community groups can down upon the bright lights of Brixton. He visibility. Changes in crime trends and pol- theoretically hire their own BOGOF offi- is the director of the Brixton Business Im- icing methods, as well as budget cuts, cers, though none has to date. In Hamp- provement District, a group of local busi- mean fewer officers walk the streets. In stead, a posh bit of London, residents last nesses keen on improving the area. In this June the head ofthe National Police Chiefs’ yearstumped up £210,000 in fourweeks to part of south London, which has seen an Council said the era ofbobbies on the beat pay for officers through the scheme. They extravagance ofbars, clubs and restaurants was ending. According to a poll in August were unable to get the idea off the ground appear in recent years, that includes mak- by Ipsos MORI, a third of people said they after meeting some institutional resis- ing the streets safe. To do so, since August had not seen a uniformed police officer in tance; Jessica Learmond-Criqui, one of the organisation has been paying for two their local area in the past year. those involved, reckons they were seen by extra police officers through MetPatrol The capital has lost fewer officers than some as wealthy types trying to get more Plus, a scheme run through the London other forces—just 4% between March 2010 protection. Expect more such arguments if mayor’s office. As the police are squeezed, and March 2016, compared with a fall of the ranks ofBOGOF bobbies grow. 7 such ideas have growing appeal. MetPatrol Plus has been in place since 2008 (a variation of it existed before then). It is dubbed “buy-one-get-one-free”, or BO- GOF, policing; local authorities, business improvement districts and parish councils pay for police officers and the Met then matches their funding, meaning areas get two cops for the price of one. Prices range from £66,000 ($84,000) a year fora consta- ble to £95,000 foran inspector. Across 24 of London’s 32 boroughs 348 officers are cur- rently funded in this way. The extra coppers can be used to tackle particular local concerns. In Newham they accompany council officers to deal with dodgy landlords. Brent wants them to fo- cus on dealing with gangs and violence against women and girls. In Brixton they work with nightclubs to crack down on drug-dealers and pickpockets. Mr Smith’s business organisation has provided its two officers with mobile phones so companies Call 999 while stocks last The Economist December 17th 2016 Britain 49 Bagehot The breaking of Boris Johnson

Theresa May is transforming the role ofthe cabinet liament on December14th she allowed that her acronym for him was FFS (“Fine Foreign Secretary”, she explained, though the hint was something else). Most striking was a joke last month in which—referring to an account of Michael Heseltine, a former deputy prime minister, strangling his mother’s dog—she looked her foreign secretary in the eye and boomed: “Boris, the dog was put down...when its master decided it wasn’t needed any more.” Notwithstanding a dry private wit, Mrs May is not the sort who takes humour lightly. Her mockery of Mr Johnson serves a purpose: control. This speaks to her statecraft, which differs sub- stantially from that ofDavid Cameron. Her predecessor ran what might be described as a liberal dictatorship. The major decisions were reached in a tight cabal containing the prime minister, George Osborne and their advisers. The cabinet made relatively few big, meaningful decisions. Yet day to day, individual minis- ters were mostly free to run their fiefs as they saw fit: Michael Gove to enact his education revolution, Iain Duncan Smith to try (and broadly fail) to overhaul the welfare system, Mrs May to run the Home Office as a sort ofprivate fortress. Under her premiership things could hardly be more different. The cabinet makes real decisions. Its subcommittees plunge into VERYTHING in politics comes back to Machiavelli in the end. the details. Ministers are expected to know each other’s patches. EThat much Friedrich Schiller understood. From the 18th cen- To rub itall in, the prime ministergave them a bound collection of tury dramatist’s pen flowed imperfect, squishily human charac- past cabinet transcripts for Christmas: the cabinet is back, is the ters who have read “The Prince” and know that to exert their will message. Individually, however, ministers are weak. David Da- in the world they must become iron. Take “Mary Stuart”, his play vis, the Brexit secretary, has received the “not speaking for the about the Queen ofScots, now on at the Almeida Theatre in Lon- government” treatment. Justine Greening, the education secre- don. Elizabeth I isloth to sign hercousin and rival’sdeath warrant tary, must bang the drum for new grammar schools despite her until, in a sylvan encounter, Mary fails to show due humility. own doubts. Philip Hammond, though friendly with Mrs May Schiller depicts a side of Gloriana that England opts to forget: and outspoken on Brexit, eschews the imperial ostentations of even dear Old Bess had to be cynical, sly and brutal to keep pow- most of his recent predecessors. The prime minister has appoint- er in her society. She had to breakpeople. ed her own economic adviser. She has also ordered the seizure of Bagehot would not reach for the comparison if Theresa May the phone and e-mail records of ministers suspected of leaking did notdo so herself. The prime ministerhas named Elizabeth the newsto the press. The braverin theirmidst, and top civil servants, historical figure with whom she most identifies: “She stood up whisper of the U-turns and bottlenecks caused by the require- for Britain…had a very clear vision about what she wanted to ment that policies go through Nick Timothy and Fiona Hill, Mrs do.” And there is something there: images of the munificent, na- May’s granitic chiefs of staff, and by the verbal invigilations the tion-uniting leader (the prime minister’s party is close to its high- prime minister puts them through before approving things. est poll numbers in decades) up against perfidious continentals mingle awkwardly with the brutality she patently feels she has to Full throttle mete out to stay on top. This Sturm und Drang extends beyond the cabinet. Mrs May did Consider Boris Johnson. The foreign secretary is no Queen of not just dismiss Mr Osborne and Mr Gove when she took office; Scots. Mrs May would lose little sleep over finishing him off (po- she gave each a dressing down in the process. Gavin Williamson, litically, at least). Yet like Schiller’s Elizabeth, she is intensely sus- her parliamentary enforcer, lets a tarantula named Cronus (after picious of prospective rivals, especially ones who do not defer to the castrator of Greek myth) scuttle about his desk during meet- her authority and threaten to upset her plans. Mr Johnson ticks ings—supposedly to intimidate MPs. When Nicky Morgan, the those boxes: routinelyveeringoffmessage, issuingfreelance poli- formereducation secretary, made a snippyremarkabouta pairof cy announcements and flashing Eurosceptic ankle at Tory MPs leather trousers worn by the prime minister, Downing Street who are destined to be disappointed byMrsMay’seffortsin Brus- blew a gasket: “Don’t bring that woman to No 10 again,” stormed selsnextyear. a text from Ms Hill to another former minister. The prime minister has responded with jaw-dropping feroc- It pays to markthe limits ofwhat one might call Mrs May’s au- ity. When the man she made foreign secretary only five months tocratic democracy. MrTimothy is not, as some accounts put it, a ago (correctly) accused Saudi Arabia of conducting proxy wars in “Rasputin”. Ms Hill is neither truly “terrifying” nor “paranoid”. the Middle East he was publicly disowned: the comments were And the prime minister did not “threaten to exterminate” Mr “not the government’s position”. This, after a torrent of prime Johnson. Yet there is something of Elizabeth about Britain’s still ministerial mockery: “I seem to remember the last time he did a new and little-understood prime minister. She is severe and pugi- deal with the Germans he came back with three nearly new wa- listic, more so than her predecessor. Done right—as Schiller im- ter cannon,” she tweaked in the summer, when the two were ri- plied in “Mary Stuart”—this mastery of the will is the essence of vals for the top job; in her October conference speech she feigned power. Done wrong, Machiavelli warned, it leads to enemies, re- shock that he had stayed “on message for a full four days”; in Par- sentment and downfall. It’s all in the execution. 7 50 International The Economist December 17th 2016

Pax Trumpiana Allies and interests

America’s friends are preparing fora bumpy ride URPRISED and shaken by Donald ousted) president, Park Geun-hye, Mr Modi, to make of the call between Mr STrump’s victory, America’s allies are Trump said that he would uphold Ameri- Trump and Pakistan’s prime minister, Na- hoping forthe best while desperately seek- ca’s security alliance with South Korea and waz Sharif? America’s relationship with ingguidance on what his presidency might maintain a “strong, firm” defence posture Pakistan is severely strained by its security mean for them. Mr Trump’s statements on in the region. service’s covert support for the Afghan Ta- the campaign trail were contradictory and Mr Trump had also described NATO as liban and otherjihadist groups. But accord- often disturbing. Many countries see the “obsolete” and suggested that America ing to the transcript published by the as- 70-year-old Pax Americana as a source of would come to the aid of a threatened tonished Pakistanis, Mr Trump called Mr security and prosperity. That the president- memberonly ifit had paid its dues. But in a Sharif “a terrific guy”, offered to come to elect might place little value on this system call with the security alliance’s secretary- his“fantasticcountry, fantasticplace offan- of alliances and rules is as incredible to general, Jens Stoltenberg (who diplomati- tastic people” and declared himselfwilling many as it is alarming. cally thanked him for having raised the is- “to playanyrole youwantme to playto ad- Since the election, Mr Trump has made sue of inadequate European defence dress and find solutions to the outstanding some moves to calm such fears. Foreign spending), Mr Trump spoke ofNATO’s “en- problems”. To Indian ears that sounded leaders who have spoken with him report during importance” and discussed how like a highly unwelcome proposal to medi- that he was friendly and largely reassuring. the alliance wasadaptingto newthreats, in ate in the two countries’ territorial dispute Before the election he had suggested that particular, countering terrorism. over Kashmir. Japan, for example, should either pay The only one of America’s big allies America a lot more for its defence or build publicly to hint at disquiet has been Ger- The view from Trump Tower its own nuclear forces. But after meeting many’s chancellor, Angela Merkel. Before Mr Trump’s world view is shaped by a set him on November17th Shinzo Abe, Japan’s speaking to Mr Trump, she said that Ger- of beliefs that he has held since the 1980s, prime minister, declared himself “con- many and America were “bound by com- argues Thomas Wright ofthe Brookings In- vinced that MrTrump is a leaderin whom I mon values” such as democracy, freedom stitution, a think-tank in Washington. can have confidence”. Katsuyuki Kawai, a and respect for the rule of law. It was on These are quite unlike those held by any senior aide to Mr Abe, said that members that basis that the two countries, and lead- American president since the second of Mr Trump’s transition team had told ers, could co-operate, she said. Her state- world war. “He believes that the US has him that not all ofthe president-elect’s pre- ment was interpreted by some as a willing- been taken for a sucker by other countries election remarks should be taken literally. ness to champion those values, should Mr because of trade deals and security com- South Korea, too, was identified during Trump fail to. mitments,” saysMrWright. Bystudying Mr the campaign as a free rider that could be Amid all the mixed signals, the truth is Trump’spublic statements over the past 30 left to defend itself from its nuclear-armed that America’s allies have no real idea years, he concludes that the president-elect neighbour, north ofthe 38th parallel. But in what they are dealing with. What, for ex- thinks that America has no strategic inter- a telephone call with its (soon-to-be- ample, is India’s prime minister, Narendra est in military engagement in Asia or main-1 The Economist December 17th 2016 International 51

2 taining troops in Europe. In the Middle posed on Russia after its invasion of Uk- lamic State (IS) in Syria and Iraq is proba- East, he has talked about forcing Kuwait to raine are ringing alarm bells in the capitals ble, although what will follow is a mystery. hand over a quarter of its oil revenues as ofNATO members. More troops are likely to be sent to Afghan- payment for its security and said that Sau- “Mr Trump’s approach will be ‘transac- istan to contain the Taliban, though no one di Arabia “would not be around” were it tional’,” says Andrew Shearer, a recent knows how many or for how long. Af- not for“the cloakofAmerican protection”. Australian national-security adviser now ghans fret that Mr Trump’s views on their Presidents from Jimmy Carter to Barack at CSIS. “His narrative is very much about country have been wildly inconsistent. He Obama have lamented the failure of the cost of alliances. He will want to know once tweeted: “It is time to get out of Af- America’s allies to pull their weight. But how allies are helping US interests.” The ghanistan. We are building roads and there is a big difference between Mr biggest unknown, Mr Shearer thinks, is Mr schools for people that hate us.” Later he Trump’s views on burden-sharing and Trump’s attitude to China. He clearly said that American troops should “proba- those of his predecessors. Mr Obama wants to go on the offensive on economic bly” staybecause the state would “collapse would have been delighted if every other issues, but does he see a link between geo- about two seconds after they leave”. “No NATO member honoured its obligation to political assertiveness and the value of al- one can tell you [what’s going to happen],” spend at least 2% of GDP on defence (only lies in helping America achieve its aims? says an Afghan official. “We’re very wor- Britain, Estonia, Greece and Poland now Will Mr Trump’s phone call with Tai- ried,” says another. do; see chart). But what MrTrump seems to wan’s president, Tsai Ing-wen, on Decem- Mr Obama’s attempt to improve rela- want is that America’s allies in the western ber 2nd create trouble for allies in the re- tions with Iran by encouraging would-be Pacific and Europe write a cheque to cover gion? Mr Trump appeared to question the reformers is likely to be shelved. Although the entire cost of keeping American forces “One China” policy(wherebyAmerica has General Mattis thinks the nuclear deal on their territory, which he says amounts long acknowledged that the governments struck in 2015 worth preserving, he was to “trillions ofdollars” over the years. in Taipei and Beijing both agree that there sacked by Mr Obama from running Cen- Realistically, there islittle likelihood ofa is only one China, even though neither re- tral Command (which covers an area from Trump administration turning these ideas cognises the other as ruler of it). China re- Egypt to Pakistan) because he continued to into policies. But a peculiarity of his cam- acted furiously. see Iran asan unrelentingthreatthat had to paign is causing great uncertainty for Will China now stop co-operating with be countered. America’s allies, says Mike Green, a for- America over sanctions relating to North eign-policy adviser to Mitt Romney during Korea’s nuclear programme? And will Mr Shouldering the burden his presidential run who now works at the Trump proceed with his predecessor’s Mr Trump will surely insist that America’s Centre forStrategicand International Stud- plans to base rotational forces in Vietnam allies spend more on defence and more to- ies (CSIS) in Washington. Usually, the tran- and the Philippines as a deterrent to Chi- wards the cost of maintaining its forces in sition from campaign to administration in- nese bullying in the South China Sea? their countries. The Pentagon will get extra volves the candidate’s policy wonks Those were in jeopardy after Mr Obama cash, which will go towards a bigger navy workingfrom hisspeechesto produce a co- criticised the murderous anti-drug cam- and modernised nuclear forces. Both are herent platform. But MrTrump had no seri- paign of Rodrigo Duterte, the Philippines’ potentially positive for allies, says Mr ouspolicyadvisersbefore hiselection, and president. But in a phone call, MrTrump re- Shearer, because they boost deterrence. most of his instincts about foreign policy portedly had only praise for Mr Duterte, Despite Mr Trump’sremarks during the are “unexecutable”. whose utterances are even less restrained campaign, the allies who may have least to Mr Green thinks that the president- than his own. (Mr Duterte has called the fear are Japan and South Korea. That is elect’s inner circle will strive to get as close pope a “son of a whore” and this week partly because they have a good story to to his “original intent” as possible, but the boasted of having personally killed sus- tell, argues Mr Green: “Their defence bud- bureaucracy will push back. In past ad- pected drug-dealers, though no one knows gets are growing and they want to do ministrations, the ideologues whom presi- ifhe is bluffing.) more.” Japan has loosened the restrictions dents have brought into office with them America’salliescan make some educat- that had been imposed by its pacifist con- have tended to disappearovertime as their ed guesses about Mr Trump’s administra- stitution on contributing to missions that policy preferences collide with reality: tion. Curbing jihadist terrorism will be a go beyond self-defence. It is playing a big- Ronald Reagan got through six national-se- priority. With General Mattis at the Penta- ger role in regional maritime security. curityadvisersin eightyears. And comfort- gon and General Flynn urging him on, a South Korea’s military spending is rising ingly for worried allies, Mr Trump’s pick more muscular approach to destroying Is- by 7% a year; it fields half a million well-1 for defence secretary, retired Marine Gen- eral Jim Mattis, is a soldier-scholar with long experience of fighting alongside part- Sharing and shirking ners. He is utterly committed to America’s Defence spending forceful engagement in upholding the lib- NATO members, as % of GDP Global, $bn TOTAL eral international order. Others 1,670.6 Number of 4.0 † 312.2 Against that, Mr Trump is showing no members above/ China United States 214.8 Russia 66.4 sign ofbeing weighed down by the dignity below spending 3.5 guideline of office. His appointment as national-se- Saudi Arabia India 51.3 3.0 87.2 curity adviser, retired General Mike Flynn, 6 France 5 Japan South Korea is a prickly character given to conspiracy 2.5 40.9 36.4 Britain Greece Others 119.6 theories and Islamophobic rhetoric. And NATO 2.0 GUIDELINE France Germany his choice of Rex Tillerson to be secretary Poland 39.4 1.5 50.9 of state, announced on December 13th, is Estonia Germany disconcerting. The chief executive of Ex- 1.0 United Britain NATO 55.5 xonMobil is well-travelled and a consum- 16 19 members States 0.5 596.0 mate dealmaker. But his personal ties with 861.4 Vladimir Putin, long business relationship 0 with Rosneft (Russia’s state-owned oil 2006 2016* 2015 † firm) and opposition to the sanctions im- Sources: NATO; SIPRI *Forecast Estimate 52 International The Economist December 17th 2016

2 equipped troops and is investing in a new designate the Muslim Brotherhood asa ter- missile-defence system. Both countries rorist organisation, which would make it pay around 40% of the cost of hosting easier to justify repressing them. American forces (54,000 in the formerand But there should be uneasiness, too, 28,500 in the latter). They are also hoping says Jon Alterman, a Middle East analyst at that their commitment to the alliance will CSIS. Many in the region are uncomfort- be measured not just in dollars but by their able about the way Mr Trump and General willingness to take more riskand responsi- Flynn characterise Islam. Mr Trump has bility and to build military forces that can said that “Islam hates us”; General Flynn operate well with their American allies. once tweeted that “Fear of Muslims is RA- According to a South Korean official TIONAL…”. Much though the Saudis who has experience of negotiating with would welcome a tougher stance towards the Americans, when the current five-year Iran, their widely criticised and inconclu- financial-support agreement comes up for sive military intervention in Yemen has renegotiation in 2018, Mr Trump’s con- given them reason to doubt their ability to cerns about burden-sharing will be taken manage the consequences ofa forceful Ira- into account. However, by then North Ko- nian pushback. Mr Pollack predicts that if rea’s vile regime may be just a couple of Mr Trump does indeed team up with Rus- years away from being able to launch a nu- sia to destroy IS in Syria, as he has suggest- clear strike, not only on South Korea but ed he will, the result would be to hand vic- also on Washington. He notes that South Transactions cost tory in Syria’s civil war to its president, Korea is very close to a resurgent Russia, Bashar al-Assad, and his main backer, Iran. and to an increasingly assertive China. The mitment to reach the 2% target within five And what of Iraq, where any prospect implication is clear: America’s own securi- years, with more money being made avail- of creating order from chaos will depend ty interests are more entwined than ever able to “project stability” outside Europe. on America thwarting Iran’s strategy of with those of the region, making it a pecu- In histelephone call with MrTrump, Mr turning it into a Shia fief? Jordan, too, will liar time to consider scaling back its mili- Stoltenbergoutlined the waysin which the require support to survive the destabilis- tary presence. alliance isadaptingto meetnewthreats, in- ing consequences of the war in Syria. The Opinion polls suggest that Americans’ cluding transnational terrorism, cyber idea ofjust “taking swings” at jihadists will support for defending South Korea and Ja- warfare and mass migration, which even a not work, says Mr Pollack. Mr Trump may pan remains solid, at around 70%. Many fortress America cannot tackle alone. Sir dislike the region even more than Mr Trump voterswill also be well aware of the Nigel Sheinwald, a former British ambas- Obama, “but it sucks you backin”. hundredsofthousandsofwell-paid Amer- sador in Washington, reckons that Euro- Mr Trump has indicated that with ican jobs in manufacturing created by Jap- pean allies should frame their arguments America no longer needing Middle East oil anese and South Korean firms. Backing for to appeal to the new president by pointing it can leave the Saudis to look after them- NATO, however, is softer. The latest poll by outthe commercial interestAmerica has in selves. At the very least, he will demand the Pew Research Centre found that just European security and the extent to which they stump up even more ifAmerican mil- 53% of American voters—and just 43% of the economies of the European Union and itary support is to continue. But if Mr Republicans—support the alliance. America are integrated. Trump’s carbon-friendly energy policies Since the 1970s, American presidents If Mr Trump listens to General Mattis, keep oil prices low, they may struggle to have periodically inveighed against the he will be reminded of how America’s find the money. To preserve at least the no- “free riding” of European allies. The pro- NATO allies both answered the call and tion of a strategic alliance, Mr Alterman blem became worse in the 1990s in the stayed the course in Afghanistan. But the thinks the Saudis’ best bet will be to point rush to claim a peace dividend after the idea of NATO as a “community of desti- out what their unique intelligence net- end of the cold war, and worse still be- ny”—an alliance of like-minded people works bring to the fight against terrorism. cause of budget-tightening after the 2008 with shared values who stand by each oth- financial crisis. But the oft-quoted number er through thick and thin—is “unlikely to Buckle up! that America’s defence budget accounts cut it with Mr Trump”, says Mr Vershbow. Soon America’s allies will be able to stop for 72% of NATO spending is somewhat He fearsthatMrTrump will quicklystrike a guessing about the effects of Mr Trump’s misleading. It reflects America’s global deal with Mr Putin over Ukraine, which presidency and start to deal with the reali- reach, not just what it spends on defending would be “very divisive”. Some NATO ty. They will be able to gauge much from the North Atlantic. Even so, says Mr Stol- members might go along with it; others his words and behaviour at the next NATO tenberg, the imbalance is untenable. Ger- would be appalled. summit, which may be as early as spring, many, which has more budgetary room for America’s allies in the Middle East have and the G7 meeting in the summer—as- manoeuvre than any other NATO country, more to ponder on than they may yet real- suming, that is, that he shows up. spends a paltry1.2% ofits GDP on defence. ise. Ken Pollack, a former CIA analyst now One possibility is that, after all the cam- But European complacency has been at the Brookings Institution, says that they paign bluster, Mr Trump turnsout not to be jolted by Russia’s annexation of Crimea, appear “very confident” that Mr Trump particularly interested in foreign policy. frequent large-scale military exercises by will be an improvement on Mr Obama: Much of the responsibility for managing Russian forces close to NATO’s border, con- “He hates Iran; we hate Iran.” The hawkish America’s alliances would then fall to stant probing of NATO’s air defences and Israeli prime minister, Binyamin Netanya- General Mattis, Mr Tillerson and congres- Mr Putin’s thinly veiled nuclear threats. hu, will applaud any attempt to put Iran sional leaders ofa more traditional conser- Last year its defence spending stopped fall- back in its box. At least in the short term, vative bent. The other is that some kind of ing; this year it will increase by 3%. Mr America’s relationship with Israel will be Trump doctrine emerges—and that it Trump’sstrictures may provide further im- under less stress: Mr Trump has shown lit- throws America’s alliances into turmoil. It petus, says Sandy Vershbow, a formerdep- tle interest in reviving the moribund peace is a measure of just how much Mr Trump uty secretary-general of NATO. Next year’s process with the Palestinians. Egypt and differs from his predecessors that nobody, NATO summit could provide an opportu- most ofthe Gulfstates will be thrilled ifMr perhaps not even the president-elect him- nity forevery member to make a firm com- Trump follows through on a promise to self, knows which ofthe two it will be. 7 Business The Economist December 17th 2016 53

Also in this section 54 The future of Alphabet 55 Fox chases Sky 56 Vincent Bolloré v Silvio Berlusconi 56 Packaging and the environment 57 Older workers in Germany 58 Amancio Ortega, reclusive retailer 59 Schumpeter: Dead theories

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

Artificial intelligence DeepMind’s horizons stretch far be- yond talent capture and public attention, Google’s hippocampus however. Demis Hassabis, its CEO and one of its co-founders, describes the company as a new kind of research organisation, combiningthe long-term outlookofacade- mia with “the energy and focus of a tech- nology startup”—to say nothing of Alpha- bet’s cash. He founded it in 2010, along Alphabet has plentyofAI expertise, so why does it need DeepMind? with Mustafa Suleyman and Shane Legg. EEPMIND’S office is tucked away in a crosoftand Amazon. The KingsCrossoffice Mr Legg and Mr Hassabis met as neurosci- Dnondescriptbuildingnextto London’s already houses about 400 computer scien- ence researchers at University College, Kings Cross train station. From the outside, tists and neuroscientists, and there is talk London; Mr Suleyman is a childhood it doesn’t look like something that two of ofexpanding that to 1,000. friend ofMr Hassabis’s. the world’s most powerful technology Another boost to the mother ship The firm’s overall mission, as Mr Hassa- companies, Facebook and Google, would comes in the form of prestige. DeepMind bis puts it, is to “solve intelligence”. This have fought to acquire. Google won, buy- has reached the cover of Nature, a highly would allow the firm to create multifunc- ing DeepMind for£400m ($660m) in Janu- regarded academic journal, twice since it tional, “general” artificial intelligence that ary 2014. But why did it want to own a Brit- was acquired. Gigantic copies of the rele- can think as broadly and effectively as a ish artificial-intelligence (AI) company in vant covers adorn the walls of the office human. BeingboughtbyGoogle had sever- the first place? Google was already on the lobby. The first was for a video-game-play- al attractions. One was access to the tech- cutting edge of machine learning and AI, ing AI programme the second for one that nology firm’s computing power. Another its newly trendy cousin. What value could learned to play the ancient Asian board was Google’s profitability; a weaker buyer DeepMind provide? game of Go. Named AlphaGo for its par- would have been more likely to require That question has become a little more ent, that software went on to make head- DeepMind to make money. This way Mr pressing. Before October 2015 Google’s gi- linesaround the world when itbeatLee Se- Hassabis can focus on research rather than gantic advertising revenues had cast a dol, a South Korean champion, in March the detail of running a firm. And by keep- comfortable shade in which ambitious, 2016 (the match is pictured above). ingDeepMind in London, ata safe distance zero-revenue projects like DeepMind from Google’sSilicon Valleybase in Moun- could shelter. Then Google conjured up a tain View, he can retain more control over corporate superstructure called Alphabet, Smart money the operation. slotting itself in as the only profitable firm. Artificial intelligence deals, worldwide Were he to succeed in creating a gen- For the first time, other businesses had AI mergers and Number of eral-purpose AI, that would obviously be their combined revenues broken out from acquisitions*, $bn transactions enormously valuable to Alphabet. It Google’s on the balance-sheet, placing 2.0 40 would in effect give the firm a digital em- them under more scrutiny (see next arti- ployee that could be copied over and over cle). But understanding DeepMind’s worth 1.5 30 again in service of multiple problems. Yet is not a simple financial question. Its value DeepMind’s research agenda is not—or not 1.0 20 is deeper than that. yet—the same thing as a business model. DeepMind’s most immediate benefit to 0.5 10 And its time frames are extremely long. Mr Google and Alphabet is the advantage it Hassabis says the company is following a gives in the strategic battle that technology 0 0 20-year road map. DeepMind aims to in- companies are waging over AI (see chart). 2011 12 13 14 15 16† vent new kinds of AI algorithms, he adds, It hoovers up talent, keeping researchers *Only deals where that are inspired by the way the human Source: CB Insights value disclosed †Forecast away from competitors like Facebook, Mi- brain works. This explains the firm’s large 1 54 Business The Economist December 17th 2016

2 number of neuroscientists. Mr Hassabis they would not have been able to train If it can solve these problems, however, claims that seeking inspiration from the their AI systems. DeepMind will hold immense value as brain sets his firm far apart from other Mr Hassabis downplays the impor- something entirely new for Alphabet: an machine-learning research units and in tance ofdata acquisition to DeepMind’s fu- algorithm factory. That would go far be- particular from “deep learning”, the pow- ture. He claims that it is enough for human yond simply being the technology giant’s erful branch of machine-learning that is engineers to build simulations of the pro- long-term AI research outfit and talent- being used by the Google Brain unit. blem to be solved; then DeepMind un- holdingpool. The data that DeepMind pro- Even if DeepMind never achieves hu- leashes learning agents within them. But cesses can remain the property ofthe orga- man-level (or indeed, superhuman) artifi- thatisnothowmostmachine-learning sys- nisations they come from (which should cial intelligence, however, the learning tems that are currently in operation work. help to allay concerns about privacy), but software that it creates along the way can AlphaGo itself first learned on a database the software that learns from that data will still benefit other Alphabet businesses. of millions of individual moves from belong to Alphabet. DeepMind may not This has already happened. In July the 160,000 human-played Go games, before ever make significant revenue of its own company announced that its learning soft- iteratively training against itself and im- by applying AI programmes to complex ware had found a way to reduce the quan- proving. But if DeepMind does need to problems. But the knowledge it sends into tity of electricity that is needed to cool hoover up lots of personal information, it learning software from those same sets of Google data centres, bytwo-fifths. The soft- will have to deal with consumer concerns data may justify the bidding war that ware learned about the task by crunching about corporate access to data. brought it into Alphabet’s compass. 7 data-centre operation logs, and then opti- mised the process by running it over and over again in a simulation. The future of Alphabet DeepMind is also applying its AI re- search to solve problems in its own right. Still searching Mr Suleyman, who leads these efforts, has expressed an ambition for DeepMind to help manage energy infrastructure, hone health-care systems and improve access to SAN FRANCISCO clean water, in return for revenue streams. Alphabet is still looking forits next big moneymaker, and its current cash cowfaces The company has already started on a big challenge ofits own health care. Its first paid work came in No- vember in the form ofa five-year deal with UDGE a man by his questions, rather the Royal Free London, an NHS Founda- “Jthan his answers,” Voltaire advised. tion Trust, to process 1.7m patient records. Google has become one of the most Earlierthis yearit gained access to two data successful firms in history by heeding that sets from other London hospitals: one mil- advice. It evaluates the intention of web- lion retina scans that it can mine and there- surfers’ queriesand returnsrelevantadver- by identify early signs of degenerative eye tising alongside search results. But for conditions, and head and neck cancer im- years there has been a lingering question agerywhich, fed into itsmodels, will allow about Google: can it create a new, highly DeepMind’s AI to distinguish between profitable unit to rival its search business? healthy and cancerous tissues. Not yet. In the past five years, Alphabet, formed as a holding company for Google Da Neu Ron Ron and other disparate projects in October Skilful programmers and powerful com- 2015, has spent $46bn on research and de- puters are crucial to this applied AI busi- velopment (see chart on next page). Much ness. But access to data about the real- has gone to so-called “moonshot” projects, world environment is also vital. When sys- such as self-driving cars, smart contact tems like hospitals, electricity grids and lenses and internet delivered via balloons. factories are targeted for improvement us- Its British artificial-intelligence unit, Deep- ing AI and machine learning, data about Mind, also falls into the category of other their specific operations are needed. projects. Since the start of 2015, these bets Deflated hopes Alphabet, of course, holds huge vol- have together recorded a loss of $6bn. umes of data that can be mined for these Advertising still accounts for nearly months executives overseeing several ini- purposes. But DeepMind will have to ac- 90% of Alphabet’s revenues and almost all tiatives, including those focused on ven- quire lots more in each of the fields it aims of its profits, according to Brian Wieser of ture capital, drones, self-driving cars, high- to examine. In the case ofa recent project it Pivotal Research Group in New York. speed internet and smart thermostats, was involved in on lip-reading, for exam- Search advertising in particular makes up have left. Alphabet has also been trying to ple, it was the acquisition of an unprece- around three-quarters of Alphabet’s total sell its malfunctioning robotics business, dentedly large data set that made it a suc- ad revenues. (YouTube, a video site, and a Boston Dynamics. cess. A group of researchers at the business that places ads on non-Google- The reason for these departures is Al- University of Oxford, headed by Andrew owned sites are other contributors.) phabet’s ambivalence about how tightly it Zisserman, a computer-vision researcher, On December12th Alphabet put its self- should manage costs, say people close to led the work. The BBC gave the researchers driving car project into a separate unit the firm. When Nest, the thermostats mak- hundreds of thousands of hours of news- called Waymo so staff can better focus on er, was acquired for$3.2bn in 2014, its exec- caster footage, in the absence of which achieving commercial viability. In truth it utives were promised they could invest is not much ofa separation, as the firm will and expand their business for years. But Correction: In our November 26th special report on oil, still be inside Alphabet and will not dis- when the Alphabet structure was sudden- the chart on page 5 is wrong. It shows proven reserves of natural gas, not oil. A corrected version of the chart close more financial details. Other splits ly adopted, the message changed. Over- is available online. Sorry. have been more drastic. In the past six night, units were expected to pay for their 1 The Economist December 17th 2016 Business 55

gine. By one estimate, 55% of internet users works, Fox Broadcasting and a film studio; In the searchlights now begin researching products on Ama- News Corporation would keep the com- Alphabet zon, depriving Google of the opportunity pany’s newspapers. Investors cheered the to deliver an ad. split. Even before the hacking scandal, 25 Return on Alphabet has confronted worrisome many had urged Mr Murdoch to divide his invested capital, % 20 transitions before, such as the shift from ageing print assets from his faster-growing desktop PCs to mobile. Its ad business is entertainment business. 15 still booming, because it devised a way to Now the entertainment business has deliver ads on small screens. It is possible woes of its own. Consumers spend less 10 that Google’s ad model could in future time watchingtelevision, choosingstream- R&D spending as % of revenue shift to taking a fee for each transaction it ing video on their phones and tablets in- 5 facilitates. This is already the case in air tra- stead. If they do watch TV, they are in- vel: people searching for flights scan op- clined to record shows and fast-forward 0 tions via one ofGoogle’s tools, and airlines through ads. It is not a problem that is un- 2006 08 10 12 14 16 payifa person booksa ticket. Google could ique to Fox. The firm has the benefit of a Source: Bloomberg do the same if someone said to their strong brand, a lucrative conservative phone, “order me a pizza”. But how it news network, and the leadership of 2 share of overhead, which irked some exec- would choose which firm to place the or- James Murdoch, who is seen as a strong utives who remembered how the parent der with, and whether consumers would manager. Even so, Fox’s television busi- company had itself doled out big salaries be happy with that order being routed to ness has disappointed investors. and other luxuries (like free food). Few at the firm that paid most, are tricky ques- Sky has recently struggled, too. Be- the firm are optimistic that Alphabet is tions, to which it is unlikely that even Goo- tween 2015 and 2016 the share of custom- closer to devising a business as lucrative gle knows the answer. 7 ers dropping their subscriptions ticked up and large as search continues to be. As one in each of its markets—Britain, Ireland, Ita- former executive says, “You’re unlikely to ly, Germany and Austria. Investors fret win the lottery twice.” Fox’s pursuit of Sky over the rising cost of buying the rights to Meanwhile, the way that people navi- broadcast sport in Britain, Sky’s biggest gate their way around the internet is also Skyfall market. And fewer people are watching its changing, which could eventually pose a best-known football programmes in Brit- threat to Google’s search-advertising busi- ain (see chart), which suggests that more ness. There are two big impending shifts. subscribers might leave. One is the use ofvoice as a way to get infor- Whether21st Century Fox’s purchase of NEW YORK mation, and the other is the rise of virtual Sky—if it comes off—would do much to A newdeal signals that much has assistants. Already, around a fifth of change all of this is a matter of debate. Sky changed forthe Murdochs searches on Android devices are done by is cheaper than it would have been not voice (as opposed to text), and that share T WOULD seem to be a stunning come- long ago, thanks to a falling share price and will grow as speech recognition improves. Iback for Rupert Murdoch and his clan. the weak pound. Having all of it could be Voice will also become more important Five years ago News Corporation was en- better than owning just 39%. In narrow fi- with the spread ofstand-alone devices that gulfed byscandal. One ofitsBritish papers, nancial terms, Fox is currently taxed twice answer questions, such as Amazon’s Echo the News of the World, had routinely on Sky’s earnings, and that would end. and Google’s own new product, Google hacked private phones. In the aftermath Others see far less benefit. Marci Ryv- Home, which do not support advertising. the company gave up a bid it had made for icker, an analyst at Wells Fargo, a bank, had As interactions with devices like these BSkyB (now simply called Sky), a satellite thought that, given the choice ofbuying all become more complex, people will be able broadcaster in which it had a stake. A par- of Sky or selling its stake, Fox might actual- to rely on them to complete tasks they liamentary report declared Mr Murdoch ly choose the latter. The two businesses are might have done online, such as ordering unfit to lead a large company. James Mur- largely complementary, so a deal is unlike- gifts, booking flights and locating nearby doch, his son, resigned as chair of BSkyB ly to bring big savings beyond the tax ad- stores. Although Google has helped bring and chief of the newspaper division. Of- vantage. And it is unclear if Sky will be of about this future with its Home device, its com, Britain’s media regulator, eviscerated much help with Fox’s biggest headaches— snazzy virtual assistant that predicts users’ his leadership as “difficult to comprehend its battle against Netflix, for example, and needs and its messaging app, called Allo, it and ill-judged”. Amazon’s many video offerings. Sky does is unclear that these offerings will be Now the Murdoch empire appears to have a streaming service, Now TV, but it 1 healthy for its bottom line. In future, be striking back. On December 9th, 21st “searches” will be more focused on com- Century Fox, the Murdochs’ entertain- pleting tasks and fetching information in ment business, said it had reached a pre- Heading for half-time environments where it will feel dissonant liminary deal to pay £11.2bn ($14.1bn) for Average audience for Sky Sports’ Super for ads to appear, such as in messaging the 61% of Sky it does not already own. Sunday football programme, Britain, m apps or on smart-home devices. “As Goo- JamesMurdoch isascendingonce more: in- 2.0 gle shifts more away from being a search deed, thisdeal ischieflyhisdoing. Lastyear engine to an answer service, its utility will he succeeded his father as boss of 21st Cen- 1.5 go up. But the business model will fall tury Fox, and in January he reclaimed his apart,” argues Ben Thompson, who writes Sky chairmanship. But the show of 1.0 Stratechery, a blog on technology. strength comes with new weaknesses. As well as the fact that Amazon delivers Much has changed in five years. In 2012 0.5 ad-free information via the Echo, the retail Rupert Murdoch moved to quarantine his giant poses a direct threat to Google be- scandal-wracked newspaper business. 21st 0 2010- 11- 12- 13- 14- 15- 16- cause more people are startingsearches for Century Fox would henceforth house the 11 12 13 14 15 16 17* electronics and other kit directly on its site, company’s entertainment companies, in- Sources: BARB; Bloomberg *First eight games rather than through a general search en- cluding dozens of cable television net- 56 Business The Economist December 17th 2016

2 may be small: it does not disclose its num- ly’s terrestrial television market (and, ber ofsubscribers. through an offshoot, some 43% ofthe Span- It is also an open question if, and when, ish market). If the Italian economy perks the deal will close. Once a formal offer for up, these would profit handsomely. Sky comes, the government will have to He also wants to match those firms’ ac- decide whetherto referthe bid to Ofcom to tivities with his own media interests in investigate whether there would be a re- France, notably Canal Plus, to form a big duction in media “plurality”. The Mur- “Mediterranean” broadcaster. In the An- dochs can argue that the deal will not stifle glo-Saxon media world, notes a person competition: 21st Century Fox does not close to Vivendi’s board, grand alliances own British papers. They can also point are common. Many European TV types outthatthe share ofnewsconsumption ac- reckon it is about time that the region had a counted for by News Corporation and Sky conglomerate on the scale of America’s is about half what it was in 2010, thanks to Time Warner or Disney. (The last time Vi- dwindling newspaper circulation and the vendi tried to fulfil such ambitions, how- end ofthe News ofthe World, aswell asSky ever, under its former CEO Jean-Marie News’s lower share of total news viewing Messier, the result was a gigantic mess that as people switch to online information. brought the firm close to bankruptcy.) That will help the case for a merger. But it A more distant goal could be to unite points to ebbing power, too. 7 Italian content with distribution. This year Vivendi bought a quarter ofTelecom Italia. Mr Bolloré may plan to combine media Vivendi and Mediaset and telecoms operations in the country. In the short term, he will try to weaken Bolloré v the grip of Mediaset’s largest shareholder, Fininvest, the family holding company of Berlusconi Silvio Berlusconi, a former prime minister. On December14th Mr Berlusconi called Vi- vendi’s actions hostile and vowed to de- PARIS fend his interests. Fininvest slightly raised A bold Breton makes a move forSilvio its own stake in Mediaset to nearly 40%, producers and processors record accurate- Berlusconi’s Mediaset and it may find ways to get more shares. ly what they throw away, and supermar- O BOSS in French business can match Mr Bolloré may see an opening in re- kets resist sharing such information. But NVincent Bolloré for swagger and ag- ports of divisions in the Berlusconi clan, some estimatesexist: retailersare reckoned gression. Variously described by the press says François Godard ofEnders Analysis in to mark down or throw out about 2-4% of in France as a stubborn Breton, a ruthless Paris. Mr Berlusconi’s son, Pier Silvio Ber- meat, forexample. Even a tiny reduction in profiteer and a smiling killer, the 64-year- lusconi, runs Mediaset, but his siblings that amount can mean millions of dollars old corporate raider has acquired interests may worry more about a battle against in savings forlarge chains. in media, transport, advertising, telecoms cash-rich Vivendi. A face-off between the Waste also damages the environment. and more, scattered across Europe and Af- elder Mr Berlusconi, now aged 80, against The amounts of water, fertiliser, fuel and rica. Opinion at home is divided between Mr Bolloré, a formerfriend, looks set to en- other resources used to produce never- those who say his methods are too brutal thrall audiences in several Mediterranean consumed food are vast. The emissions and others who welcome his effect on an markets and beyond. 7 generated during the process of making often dozy business world. wasted food exceeds those of Brazil in to- This week it was the turn of Italian tal. Squandering meat is particularly da- newspapers to rant against the French “pi- Retailing and the environment maging: livestock account for more emis- rate” and “mercenary”. On December 13th sions than the world’s vehicle fleet. the news came that France’s Vivendi, a me- Wrap stars Consumption of the red stuff is also set to dia firm in which Mr Bolloré’s company, increase bythree-quartersbythe middle of Bolloré Group, owns 20% (he effectively the century as newly-rich diners in China, controls it) was racing to buy up shares in India and elsewhere develop a taste for it. Mediaset, Italy’s biggest TV-broadcaster. The UN wants to halve food waste per per- Things moved swiftly. By the next day Vi- son in shops and in households by 2030 Why food packaging can actually cut vendi had a 20% stake in Mediaset, up from under its Sustainable Development Goals. emissions 3% two days earlier. The Italian firm claims Help is at hand in the sometimes a hostile takeover attempt—the smiling OUGHLY a third of food pro- squishy, see-through shape of packaging. killer’s speciality—is under way. Rduced—1.3bn tonnes of the stuff—never Far from being the blight that green critics Mr Bolloré has long aimed at winning a makes it from farm to fork, according to the claim it is, food wrappings can in fact be an share ofMediaset. Earlierthisyear, Vivendi UN’s Food and Agriculture Organisation. environmental boon. By more than dou- had agreed a plan with Mediaset in which In the poor world much of this waste oc- bling the time that some meat items can each would swap small stakes in the oth- curs before consumers even set eyes on stayon shelves, forexample, betterpackag- er’s firm, and Vivendi would take control items. Pests feast on badly stored produce; ing ensures that precious resources are of Mediaset Premium—an unprofitable potholed roads mean victuals rot on slow used more efficiently. Planet and profits pay-TV arm in Italy. After the deal fell apart journeys to market. In the rich world, both benefit. in the summer, followed by legal threats waste takes different forms: items that nev- Vacuum packaging helps enormously against Mr Bolloré, Mediaset’s share price er get picked off supermarket shelves; food here (even though shoppers tend to prefer tumbled, so Vivendi bought its new hold- that is bought but then goes out ofdate. their cuts draped behind glass counters, or ing in Mediaset relatively cheaply. He cov- Such prodigious waste exacts multiple nestled on slabs of black polystyrene). The ets its channels’ combined 58% slice of Ita- costs, from hunger to misspent cash. Few plastic packs, which prevent oxidation, The Economist December 17th 2016 Business 57 mean meat can stay on shelves for be- tween five and eight days, rather than two Older workers in Germany to four. It also makes it more tender. The equipment to vacuum-pack meat costs a Elders not betters few hundred thousand dollars, and its flimsier nature requires different methods What happens when mature subordinates must answerto young supervisors of stacking. British retailers are pioneers when it comes to reducing waste through F THEYresented me they didn’t talk versity ofCambridge and WHU, a Ger- clever wrappings, says Ron Cotterman of “Ito me about it,” says a young Ger- man business school, to be published in Sealed Air, an American packaging giant man manager at a media firm in Frank- the Journal of Organizational Behaviour, that works in more than 160 countries and furt. Still, he says it was noticeable that suggests this could be a problem. whose clients include huge chains such as when a subordinate 20 years older than As in many countries, German work- America’s Walmart and Kroger. him thanked him forbuying lunch he places are legally obliged to overlook age J. Sainsbury, a British grocer which also had to swallow twice before adding the when deciding whom to promote. Yet works with Sealed Air, is already benefit- word “boss”. according to Jochen Menges, one ofthe ing from a new approach. Jane Skelton, its Older workers sometimes begrudge authors, when a whippersnapper leap- head of packaging, says that in the last fi- being managed by a callow colleague. frogs a more experienced worker it can nancial year the store reduced waste by Precocious youngsters, too, can feel leave the latter with feelings of“anger, more than half after moving more beef- awkward about bossing their elders fear and disgust”. People tend to judge steak lines into vacuum packing. Kroger around. But in Germany a shortage of their own standing by the success of their now ensures that cheeses arrive at its deli skilled workers means that such situa- peers, and to see failure in being bossed counters in vacuum-packaged bags ready tions are becoming ever more common. about by someone younger. The relation- for slicing; Walmart is searching for better The country’s population is projected ship between feelings ofangst and the ways to wrap meats. to shrink. Among rich-world countries, age ofthe boss is linear, according to Mr Packaging works wonders for custom- only in six nations including Japan and Menges. A manager who is younger by ers, too. The resealable kind keeps certain Greece are populations expected to one year is somewhat unsettling; a gap of dairy products fresher for farlonger in cus- decrease faster. As more Germans retire, 20 years is farmore demoralising. tomers’ fridges. The practice ofpackaging a fewer youngsters are entering the work- All ofthis may be affecting the bottom lump of produce in portions allows the force to replace them. As a share of the line. In a study of61German firms the growing number of singletons to prepare working population the number of15- researchers found that forevery two-year exactly what they need and freeze the rest. to-24-year-olds has fallen by ten percent- increase in the age between subordinates Tesco, a British grocer, now offers chicken age points since the 1980s, says the Ger- and supervisors, a basket ofperformance in pre-portioned packaging, for example. man Federal Employment Agency. Firms measures declines by 5% (after taking into In 2016 the chain said it aimed to reach a competing to retain young talent are account other variables such as company point where no edible food would be tempted to promote them earlier as a size and the industry involved). That is binned from its stores by the end of 2017— result. A paper by professors at the Uni- not because older managers are better at down from 59,400 tonnes a year now— their jobs: the study found that it was not with a little help from appsthatallow char- the absolute age ofthe supervisor that ities to collect unwanted items. mattered, only the age gap. Longer-lasting products ought to mean German firms certainly should not fewer trips to the shops. But according to revert to a system in which age equates to Liz Goodwin, a food-waste expert at the rank, reckons Gerhard Rübling, labour World Resources Institute, a think-tank, director ofTRUMPF, a midsized engineer- half of the money shoppers save through ing outfit; meritocracy must prevail. But better-lasting products winds up in retail- young people need to be sensitive about ers’ tills anyway. Aspiring cooks are more managing upwards. And older workers likely to buy premium items if they know should be encouraged to see the bright they will use them before they spoil. side oflearning new skills from tech- savvy up-and-comers. Daimler, a big The wages of bin German car firm, says it promotes age- Vacuum packs and other kinds of wrap- mixed teams, so that knowledge can be ping do themselves consume energy and transferred between generations. It also resources in their manufacture. But they supports young managers by asking make more sense than letting food go to retired employees to provide temporary waste. Mark Little, who is in charge of re- support. After all, you are never too old to ducing food waste at Tesco, points out that Who’s the daddy? learn. Or too young to manage. every tonne of waste means the equiva- lent of 3.5 tonnes of carbon dioxide are re- leased without purpose. In contrast, a retailer, which was among the first to start Brazil, where retail chains are growing tonne of packaging causes emissions of 1-2 adopting vacuum-packaging a decade apace, to follow suit (even if issues of hy- tonnes. ago). The next frontier for the world of giene and refrigeration are more pressing This fact is insufficiently recognised by packaging, he says, is ensuring that as concerns at the moment). By the middle of many rich-world retailers. Some super- much of it can be reused as possible. That the century, when the UN projects the markets are trying to cut down on packag- will be a challenge, however, given the world’s population to be almost 9.7bn peo- ingbecause the common perception is that hard-to-recycle layers of plastics that go ple, nutrition needs mean that farms, food it is wasteful. But cutting the amount of into most vacuum packs. processors, shops and homes will need to plastic covering food makes no sense if The hope is that rich-world adoption of use resources far more efficiently. Unpack products then spoil faster, says Simon Ox- more efficient packaging could encourage the numbers, and it is clear that wrapping ley of Marks and Spencer (another British supermarkets in places such as China and up well will help. 7 58 Business The Economist December 17th 2016

Amancio Ortega him pre-flotation that investors who visit- ed awkwardly confused him with other Behind the mask of Zara staff. But that low profile means there is room for other top executives to shine. In- ditex’s chairman and CEO, Pablo Isla, has run things since 2011, yet Mr Ortega shows up to work every day. In many firms a pro- fessional manager might chafe against the LA CORUÑA presence ofa revered founder, butthere are The management style ofEurope’s most successful businessman no such reports at Inditex. T IS a short walk from a tiny shop with In one respect at least, Mr Ortega is Ipeeling yellow paint in downtown La A cut above more typical of European billionaires. Like Coruña, in northern Spain, to a dazzling Share prices, May 22nd 2001=100, $ terms other rich recluses—such as Ingvar Kam- five-storey store, opened in September by prad, the Swedish founder of the IKEA fur- 1,000 Zara, by far the world’s most successful Inditex niture chain—he goes in for only limited purveyor of “fast fashion”. In this stroll 800 philanthropy. He pays for 500 annual across three city blocks, the career of scholarshipsforSpanish studentsin Amer- Amancio Ortega unfolds: from teenaged 600 ica and Canada and gives to Catholic char- apprentice in the corner shop, Gala, a ities and for emergency relief. Larger-scale H&M men’s clothing business, to Europe’s rich- 400 philanthropy would bring unwanted pub- est entrepreneur, the majority owner of licity. Like others in southern Europe, he one ofits best-performing firms. 200 may also be wary of inviting political at- 100 According to one employee of Zara Gap tacks, such as when Pablo Iglesias, of the who works with him, “the true story of 0 left-leaning Podemos party, insinuated 2001 05 10 16 Amancio Ortega hasnotbeen told.” MrOr- during a lament about inequality that Mr Source: Thomson Reuters tega, the son ofan itinerantrailway worker, Ortega was a “terrorist”. who started at the corner shop aged 13, had The managers of his wealth, which a basic upbringing: an ex-colleague says he close to home. Some 55% happensin Spain, grows by some €1bn a year, say they are talks of meals of “only potatoes”. He has Portugal and Morocco—near the firm’s now scrambling to have slightly less de- lived mainlyin Galicia, a relatively poorre- main markets. That in turn allows twice- pendence on Inditex, in line with normal gion with no historyin textiles. Yet there, in weekly deliveries of small but up-to-the- investing principles—a difficult task be- 1975, he founded Zara—a manufacturer- minute fashion collections to every store. cause Mr Ortega only wants property, an cum-retailer that, along with its sister Inditex’s share price has soared tenfold investment “he can touch” but which is brands, has over 7,000 shops globally. since its flotation in 2001, outstripping ri- time-consuming to buy and manage. This Mr Ortega (pictured) is now 80 but he vals such as Gap and H&M (see chart). month he spent $517m on Florida’s largest remainsenergeticand involved in the busi- His leadership style appears to favour office tower, the Southeast Financial Cen- ness (if uninterested in wearing trendy extreme introversion. A video from a sur- tre in Miami. clothes). He owns nearly 60% of Inditex, prise 80th birthday party in March shows Most of his income is still from Inditex the holdingcompany ofZara and the other him tearful and backing off from assem- dividends. On December 14th the firm re- chains, which is worth some €100bn bled staff. He almost neverspeaksin public ported results that, once again, methigh ex- ($106bn). According to Forbes magazine, in nor accepts national honours—aside from pectations in financial markets. The num- September his total assets, ofnearly $80bn a “workers’ medal” in 2002. Colleagues bers will have doubtless gratified the including his properties and other hold- say he resented a rare biography of him, limelight-loathing Mr Ortega, who is said ings, briefly surpassed those ofBill Gates. from 2008, by a fashion journalist, Cova- in private to chide others to admire his The manner in which he rose does not donga O’Shea. So few photos existed of company, nothimself. 7 fit the usual template. His lack of formal education has profoundly affected his managementstyle. Those close to him con- firm that he does read—novels and news- papers—but he is reportedly ill-at-ease with writing at length. He has never had his own office, desk or desktop computer, preferring to direct his firm while standing with colleagues in a design room of Zara Woman, the flagship line. One former long-term CEO of Inditex, and Mr Ortega’s business partner for 31 years, José María Castellano, says that his ex-boss’s working method is to discuss things intensely with small groups, delegate paperwork, listen hard to others and prefer oral over written communication. This preference for close personal inter- action may even have helped him concoct the formula behind Zara’s success. At a time when the fashion industry mostly outsourced production to China and other low-wage countries (as it still does), Mr Or- tega decided to keep most manufacturing Dedicated leader of fashion The Economist December 17th 2016 Business 59 Schumpeter Out with the old

Management theory is becoming a compendium ofdead ideas particularly advanced in America, says a report in 2016 by the Council of Economic Advisers, which also showed how compa- nies engaged in consolidation are enjoying record profits. Tech- nology is high on the list of industries that are concentrating. In the 1990s Silicon Valley was a playground for startups. It is now the fiefofa handful ofbehemoths. A second, and related, dead idea is that we live in an age ofen- trepreneurialism. Gurus including Peter Drucker and Tom Peters have long preached the virtues of enterprise. Governments have tried to encourage it as an offset to the anticipated decline of big companies. The evidence tells a different story. In America the rate ofbusinesscreation has declined since the late 1970s. In some recent years more companies died than were born. In Europe high-growth ones are still rare and most startups stay small, in part because tax systems punish outfits that employ above a cer- tain number of workers, and also because entrepreneurs care more about work-life balance than growth for its own sake. A large number of businesspeople who were drawn in by the cult of entrepreneurship encountered only failure and now eke out marginal existences with little provision fortheir old age. The theorists’ third ruling idea is that business is getting faster. EXT year marks the 500th anniversary of the event which, There issome truth in this. Internetfirmscan acquire hundredsof Nmore than any other, gave birth to the modern world: Martin millions ofcustomers in a few years. But in some ways this is less Luther promulgated his 95 theses and called the Catholic church impressive than earlier roll-outs: well over half of American to account for its numerous theological errors and institutional households had motor cars just two decades after Henry Ford in- sins. Revisionist historians have inevitably complicated the story troduced the first moving assembly line in 1913. And in many re- (includingquestioningwhetherhe did actuallynail his proposals spects business is slowing down. Firms often waste months or to the door of All Saints’ Church in Wittenberg) but the narrative years checking decisions with various departments (audit, legal, remains clear. The church was ripe for change. It was sunk in cor- compliance, privacy and so on) or dealing with governments’ ruption and divorced from the wider life of society. And by un- ever-expanding bureaucracies. The internet takes away with one leashing that change, Luther brought the Christian faith, includ- hand what it gives with the other. Now that it is so easy to acquire ing Roman Catholicism itself, a new lease oflife. information and consult with everybody (including suppliers The similaritiesbetween medieval Christianityand the world and customers), organisations frequently dither endlessly. ofmanagement theory may not be obvious, but seekand ye shall find. Managementtheoristssanctifycapitalism in much the same Flat Earth society way that clergymen of yore sanctified feudalism. Business A fourth wrong notion is that globalisation is both inevitable and schoolsare the cathedralsofcapitalism. Consultantsare itstravel- irreversible—the product of technological forces that mere hu- ling friars. Just as the clergy in the Middle Ages spoke in Latin to man decisionscannotreverse. Thishasbeen repeated in a succes- give their words an air of authority, management theorists speak sion of bestselling books—most notably Thomas Friedman’s in mumbo-jumbo. The medieval clergy’s sale of indulgences, by “The World is Flat” of 2005—and propagated in corporate adver- which believers could effectively buy forgiveness of their sins, is tising such as HSBC’s “The World’s Local Bank” campaign. But a echoed by management theorists selling fads that will solve all look at history shows that it is nonsense. In 1880-1914 the world your business problems. Lately, anothersimilarity has emerged. was in many ways just as globalised as it is today; it still fell victim The gurus have lost touch with the world they seek to rule. Man- to war and autarky. Today globalisation shows signs ofgoing into agement theory is ripe fora Reformation ofits own. reverse. Donald Trump preaches muscular American national- Management theories are organised around four basic ideas, ism and threatensChina with tariffs. Britain isdisentangling itself repeated ad nauseam in every business book you read or busi- from the European Union. The more far-sighted multinationals nessconference youattend, thatbearalmostno relation to reality. are preparing foran increasingly nationalist future. The first idea is that business is more competitive than ever. Skim The backlash against globalisation points to a glaring underly- popular titles such as “The End of Competitive Advantage” (by ing weakness of management theory: its naivety about politics. Rita Gunther McGrath) or “The Attacker’s Advantage” (by Ram Modern management orthodoxies were forged in the era from Charan) and you will be leftwith the impression ofa hyper-com- 1980 to 2008, when liberalism was in the ascendant and middle- petitive world in which established giants are constantly being of-the-road politicians were willing to sign up to global rules. But felled by the forces ofdisruption. today’s world is very different. Productivity growth is dismal in A glance at the numbers (or indeed a trip on America’s in- the West, companies are fusing at a furious rate, entrepreneurial- creasingly oligopolistic airlines) should be enough to expose this ism is stuttering, populism is on the rise and the old rules of busi- as fiction. The most striking business trend today is not competi- ness are being torn up. Management theorists need to examine tion but consolidation. The years since 2008 have seen one ofthe theirchurch with the same clear-eyed iconoclasm with which Lu- biggest-everbull markets in mergers and acquisitions, with an av- ther examined his. Otherwise they risk being exposed as just so erage of 30,000 deals a year worth 3% of GDP. Consolidation is many overpaid peddlers ofdead ideas. 7 60 Finance and economics The Economist December 17th 2016

Also in this section 61 Buttonwood: Financial globalisation 62 China’s trade contretemps 62 UniCredit’s recovery plan 63 The Asian Development Bank at 50 64 The dollar’s muscularity 64 European insurers under stress 65 Fiscal rules in emerging markets 65 Venezuela’s monetary madness 66 Free exchange: Place-based policies and populism

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

American corporate tax clutches altogether by merging with a for- eign company and moving to its tax juris- Gain and pain diction (although the Obama administra- tion has penned rules making such “inversions” harder). Mr Trump wants to offer a one-time tax rate of 10% to firms that repatriate their cash. To put an end to the barmy incen- WASHINGTON, DC tives, Mr Ryan, adopting a pet cause of Ke- Cuts in corporate taxmay come with some unpleasant side-effects vin Brady, chairman of the influential INCE Donald Trump won America’s poses to expand the tax base in two main House Ways and Means Committee, Spresidential election investors have sal- ways. The first is to kill off the deduction would stop taxing foreign profits. In fact, ivated over the prospect of lower taxes. Mr for debt interest, putting a welcome end to he wants to ignore foreign activity alto- Trump has promised to cut corporation the incentive for companies to binge on gether, including profits made selling tax, a levy on firms’ profits, from 35% to 15%. debt. The savings from this would be spent American goodsabroad. Meanwhile, firms Republicans remain in charge of both on letting businesses deduct the full cost of would no longer be able to knock off the houses ofCongress; Paul Ryan, the speaker their investments when they make them, cost of imported goods when adding up of the House of Representatives, wants to however they are financed. their profits. In combination, these two cut the levy to 20%. The coming reforms, The second concerns geography. changes are dubbed “border adjustment”. though, are about more than just lower Uniquely in the G7, America taxes firms’ This would make America’s corporate rates. Republicans want to overhaul busi- global profits (net of any payments to for- taxvery similarto a value-added tax (VAT), ness taxes completely. Unfortunately, this eign taxmen). But companies need pay a kind of border-adjusted sales tax, says task is far from straightforward. only when they bringprofits home, so they Kyle Pomerleau of the Tax Foundation, a America’s corporate-tax rate, which keep cash overseas—some $2.6trn-worth, think-tank. Most rich countries have both a reaches 39.6% once state and local levies by one estimate. Some escape Uncle Sam’s VAT and a corporate tax (see table). When, are included, is the highest in the rich say, Rolls-Royce exports a jet engine from world. But a panoply of deductions and Britain to France, it pays French VAT on the credits keeps firms’ bills down. These in- American exceptionalism sale and British corporate tax on its profits. clude huge distortions, such asa deduction Tax rates, 2016, % But while America levies the corporate tax for debt-interest payments, as well as Corporation tax* VAT on exporters’ profits, it imposes no VAT on smaller scratchings of pork like special 010203040 imported goods (except for state and local NASCAR treatment for racetracks. After all United States † sales taxes). Mr Ryan’s proposal would the deductions are doled out, corporate- more or less reverse this. France tax revenues are roughly in line with the Border adjustment penalises imports average in the rest of the G7, according to Italy and subsidises exports. So some hope it economists at Goldman Sachs. Germany would help to close the trade deficit. Mr Still, a high tax rate and a narrow tax Trump has often complained about the base is a glaringly inefficient combination. Japan VAT Mexico imposes on American goods, Politicians of all stripes have sought to im- Netherlands when Mexican exports flowing north in- prove things. For instance, since 2012 Ba- China cur no such levy. America is “the only ma- rack Obama has proposed cutting the rate Unites States jor country that taxes its own exports,” la- to 28%, while doing away with (mostly un- (proposed‡) † mented Mr Brady in June. specified) tax breaks. That idea never got a Britain Economists are suspicious of these look in. But analysts are poring excitedly Sources: Goldman Sachs *Including local taxes complaints. In theory, border adjustments over Mr Ryan’s plan, which is for now the Global Investment †Average sales-tax do not affect trade, because export subsi- Research; OECD ‡By House Republicans most detailed Republican offering. It pro- dies and import taxes both push up the 1 The Economist December 17th 2016 Finance and economics 61

2 dollar. So imports are taxed more, but get up by 24% on a trade-weighted basis since tion rules. cheaper. Exports escape tax, but get pricier. mid-2014; repeating that appreciation That bodes ill for the size of the overall In combination, the currency and tax ef- would hammer those emerging markets corporate-tax cut. Since America imports fects should balance exactly. with sizeable dollar-denominated debts much more than it exports, border adjust- In reality, it might take time for the dol- and threaten the health of the world econ- ability would raise fully $1.2trn over a de- lar to rise. If so, American exporters would omy. It would also reduce the dollar value cade, covering almost two-thirds of the benefit in the interim. But big importers ofAmerican investments abroad. costofcuttingthe taxrate to 20%, according would take a hit. The Retail Industry Lead- Despite the plan’s appealing simplicity, to the TaxPolicyCentre, a think-tank. With- ers Association, a trade group, is already it seems unlikely that Congress will pass a out that money, Republicans would have campaigning against the change. proposal that would cause such volatility to scale back their plans, disappointing in- However long the dollar took to appre- in currency markets. Senate Republicans vestors. And it might force the government ciate, it would be no small adjustment. To have been largely mum on the House plan. to borrow more, widening the budget def- offset a border-adjusted tax of 20%, the And unless America switches to a full- icit, and putting short-term upward pres- greenback would have to rise by a stagger- fledged VAT, border adjustability may also sure on the dollar. Either way, markets ing25%, accordingto Goldman. It is already be judged to breach World Trade Organisa- could be in fora few surprises yet. 7 Buttonwood Not passing the buck

Global capital flows have slowed down OR more than two decades after the sector from foreign commitments. Fearly1980s, it seemed as ifthe financial Trickling down Part of this may reflect a lack of de- markets were moving in only one direc- Global capital flows by type, $trn mand forloans from companies and indi- tion. More and more money was flowing viduals that had overstretched during the across borders; capital markets were be- 12 boom years. But the biggest reason is coming increasingly integrated. probably the weakness of the banking Loans 9 Since the 2008 financial crisis this par- sector. It has been deprived of some ticular aspect of globalisation has stalled, sources of funding (money-market mutu- Foreign direct 6 and even partly retreated. The reversal is investment al funds, for example) and has been illustrated by the triennial survey of for- 3 forced by the regulators to rebuild its Bonds eign-exchange markets, conducted by the + balance-sheet. Bank for International Settlements (BIS). Equity 0 In the currency markets, the BIS says, Daily turnover in April was $5.1trn, down – there has been a shift in the type of peo- from $5.4trn in April 2013. 3 ple that are participating. Institutional in- That is still a huge number compared 2007 2015 vestors such as pension funds and insur- with the turn of the century, when daily Source: McKinsey Global Institute ance companies are being more active. turnover was around the $1trn mark. But They may decide to buy, say, Japanese eq- it is a sign that markets are getting a little hot money flows out and the exchange rate uities without wanting to be exposed to less frenetic; spot (or instant) currency collapses, those borrowers will struggle to fluctuations in the yen, so they will hedge trading has fallen by19% in three years. repay their debts. The result can be a finan- this exposure in the currency markets. In Other data from the BIS confirm the cial crisis. contrast, there has been a reduction in trend. Cross-border banking claims The implications of deglobalisation de- risk-taking activity by hedge funds and peaked in the first quarter of 2008 at pend on why the slowdown is happening. bank trading desks, which suffered a big $34.6trn. By the second quarter of 2010, There may be a link to economic funda- shockin January 2015 when the Swiss Na- they had dropped to $27.9trn, and they mentals. World trade volumes were regu- tional Bank suddenly abandoned its poli- have never recovered their pre-crisis lev- larly growing at an annual rate of 5-10% in cy of capping the franc’s exchange rate. els. In the second quarter of this year (the the run-up to the crisis; in recent years they The sharp jump in the value of the franc most recent data), claims were $28.3trn. have managed only 2% or so. In 2015 ex- that followed caused turmoil for some Part of this may be a consequence of ports were a smaller proportion of global brokers, forcing them to raise their fees events in the euro zone, where the sover- GDP than they were in 2008. If trade is and cut their client lists. eign-debt crisis caused banks to cut back growing less rapidly, so is the demand for A market less in thrall to speculators their lending to weaker economies. Add credit to finance it. might seem like an unalloyed boon. But up all financial flows, including direct in- However, as the BIS points out, trade ac- the retreat ofbanks from currency trading vestment, and in 2015 cross-border vol- counts for only a small proportion of capi- (and from market-making in other instru- umes were only half 2007’s level, accord- tal flows. The downturn is mainly because ments such as corporate bonds) may not ingto McKinsey, a consultancy (see chart). ofevents within the financial sector itself. be quite such good news. In a crisis, the This is not necessarily bad news. After Before the crisis, cross-border banking banks may not be around to trade with in- all, as Asian countries found out in the activity was closely correlated with mea- vestors seeking to offload their positions; 1990s, too much “hot money” flowing sures ofriskappetites. When the economic the BIS notes signs of“volatility outbursts into an economy can be destabilising. It outlook was good, banks were happy to and flash events”. Lots of investors and can drive exchange rates out of line with lend abroad; in the face of shocks, they re- companies want to hedge their currency economic fundamentals, making a coun- treated back to their home base. Research exposure. They need an institution to take try’s exporters less competitive. A rising by the Bank of England shows that the pic- the other side ofthe trade. currency may also tempt domestic com- ture changed afterthe crisis; there was sim- panies to borrow abroad. Then, when the ply a more general retreat by the banking Economist.com/blogs/buttonwood 62 Finance and economics The Economist December 17th 2016

China and trade UniCredit Up in the dumps Call of duties US imports from China Passing Mustier $bn, 2015 prices 500 400 300 A messy trade battle is brewing without 200 Italy’s biggest lenderboldly holds out Donald Trump lifting a finger 100 hope. The oldest barely holds on to it 0 NNIVERSARIES should be happier 1990 95 2000 05 10 15 HIS is no time to be timid. Or so Jean- Athan that on December 11th, marking TPierre Mustier seems to think. On De- China’s 15 years as a member of the World As % of total cember 13th, after five months in the job, Trade Organisation (WTO). On that day, 10 the chief executive of UniCredit presented 8 China expected to be unshackled from its Subject to: anti-dumping duties his plan for Italy’s biggest bank. He didn’t legal label asa “non-marketeconomy” and 6 hold back. UniCredit is shedding €17.7bn 4 attain “market-economy status”. In the counter- worth ($18.8bn) of bad loans, taking a one- vailing 2 event, America and the European Union duties offprovision of€8.1bn. It will save €1.7bn a refused to give it the nod. On December 0 year by 2019, cutting 6,500 jobs on top of 1990 95 2000 05 10 15 12th the Chinese reacted: see you in court. 7,500 previously announced to shrink its Source: Peterson Institute for International Economics The fight will focus on the wording in workforce by14%. And in a rightsissue next the original accession agreement. The year it will raise €13bn—just €2bn less than Americans and the Chinese are both confi- mentation ofWTO rules, not half.” itsmarketvalue before the announcement. dent ofwinning. Legal experts are divided. A long legal slog lies ahead. Officially, The marketslapped itup: the sharesgained The WTO does not provide a clear defini- China will wait for the WTO court deci- 16%, before retreating the next day. tion of a “market economy”. And clumsy sion—probably at least two years away— Mr Mustier had already been busy. The legal drafting does not help. before applying retaliatory duties. Unoffi- previous day UniCredit sold Pioneer, its as- The meat of the row is over the method cially, the Chinese may start poking their set-management arm, to France’s Amundi WTO members use to protect their indus- trading partners sooner. (though it will still distribute Pioneer’s pro- tries against cheap Chinese imports. Alleg- A defeat for China would represent hu- ducts). It recently unloaded its stake in ing that Chinese companies enjoy subsi- miliation, and a broken promise. An all- Bank Pekao, in Poland, as well as 30% of Fi- dised credit, energy and raw materials, out trade war would also be disastrous for neco, an Italian online bank of which it America and the EU slap anti-dumping du- the Chinese economy. But some sort of de- will retain control. The bad-debt write- tieson 7% (see chart) and 5% respectivelyof scent into tit-for-tat protectionism seems down, restructuring costs and other bits their Chinese imports. The agreement wel- highlylikely, againstthe background ofDo- and bobs will partially offset the gains comingChina into the WTO explicitly gave nald Trump’s“America First” tough talk on from these sales and the rights issue. But other members licence to treat it as a non- trade. Even if China wins the initial set of the boss expects UniCredit’s ratio ofequity market economy until December11th 2016. cases, WTO law does not force other coun- to risk-weighted assets—a gauge of capital This meant they could ignore domestic tries always to use exact Chinese prices in strength—to rise from 10.8%, second-weak- Chinese prices when working out the ap- their anti-dumping measures. The full est among the euro zone’s most important propriate value of Chinese imports. Mexi- scope ofwhat they can do is still legally un- banks (see chart), to at least12.5% by 2019. can prices, for example, help set the 48.5% certain. Mark Wu, an assistant professor at UniCredit has already tapped share- duty on EU imports ofChinese bicycles. Harvard Law School, thinks that “what holders twice since the financial crisis, for As China interprets the original acces- we’re seeing now is the opening salvo of a €4bn in 2010 and €7.5bn in 2012. Not long sion agreement, it was promised that, after long series oflitigations.” ago analysts thought it might have to beg 15 years, it would be treated like any other The underlying difficulty is that China’s for another €4bn-9bn. Asking for €13bn market economy in the WTO: it would be particular type of capitalism makes it diffi- may therefore appear unduly bold. guilty of dumping only if the export price cult to fit into a binary view of a market, or Perhaps boldness is in order. The bank was lower than the price in China. Ameri- non-market, economy. “That makes it real- has been in a rut for years. Although less ca’s reading is that after December 11th, ly hard forthe WTO to adjudicate this type than half its revenue comes from Italy, it China is no longer automatically a non- of issue,” says Mr Wu. Ultimately, these has been weighed down by its homeland’s market economy. But WTO members can heavyweights of the world economy will woeful economic performance and a 1 use their discretion as to whether it is a have to reach a political settlement if they marketeconomy. Since, accordingto Amer- wantto avoid yearsofdestructive, compet- ica’s own criteria (and any simple smell itive protectionism. For now, such a settle- Uncomfortable cushions test), China is not, it can keep using third- ment seems improbable. A highly techni- Banks’ fully loaded common equity Tier-1 ratios Q3 2016, % country prices in anti-dumping cases. cal issue has been simplified into a crude Return on tangible The European Commission is con- nationalistic argument. In America and equity, 2015, % vinced ithasfound a betterway. In Novem- the EU it may seem obvious that hopes in 051015 ber it offered proposals that would rip up 2001that China was on the road to becom- ING 8.4 the list of market and non-market econo- ing a market economy have been dashed. Crédit Agricole 9.6 mies, and use a “country-neutral” method For China, this is beside the point: the West Société Générale 6.9 for calculating anti-dumping duties. But should keep its promise. Mr Trump may this is unlikely to placate the Chinese: it get a trade war without even trying. 7 BNP Paribas 8.9 would still give plenty ofdiscretion to refer Deutsche Bank -13.3 to third-country prices when setting du- Clarification: In our story last week on “Insurance’s UniCredit 4.0 ties. Tu Xinquan, of the China Institute for Jarndyce v Jarndyce”, we wrote that AJA assigned its interest in the case to Samuel Lohman and Martin Santander 11.0 WTO Studies in Beijing, concedes it is an Kenney. The two lawyers helped set up and raise capital Source: Bloomberg improvement, but “we want full imple- for the claimants’ vehicle, but took no stake in it. The Economist December 17th 2016 Finance and economics 63

2 heavy burden of dud loans. Of its €49.7bn budgeting for revenue to grow by just 0.6% couple of years. When China in 2013 pro- (gross) of non-performing Italian debt a year, as low interest rates drag down in- posed a new development bankin Asia fo- marked “non-core”—for eventual dispo- come from lending. Better asset quality cused on infrastructure, it seemed aimed, sal—€43.2bn-worth dates from 2010 or ear- will help: default rates are falling. So will at least in part, at dethroning the ADB. lier: high time to clear it out. In April At- cuts, both at head office and in the field: Much as the Chinese economy has leap- lante, a new bank-rescue fund, took over 944 branches will go in Italy, Germany frogged the Japanese economy in size, the UniCredit’s guarantee of a €1.5bn share (where UniCredit owns HypoVereins- assumption of many was that it would sale by an ailing smaller lender. That em- bank, ranked fourth by assets) and Austria onlybe a matteroftime before the Chinese barrassment helped to seal the fate of Mr (BankAustria, second). bank would eclipse the ADB, which was Mustier’s predecessor, Federico Ghizzoni. Italy’s biggest bank may at last perk up. initiated by Japan in the 1960s and has al- Even after this week’s leap, UniCredit’s Itsthird-largestand the world’soldest, alas, ways been led by a Japanese president. shares were trading at below one-third of is tottering. The European Central Bank is This impression was only reinforced when net book value. They are down by about insisting that Monte dei Paschi di Siena China overcame American opposition to half this year. Mr Mustier is scarcely pro- raise €5bn in equity by the end of the year. the AIIB, signing up even staunch Ameri- mising the moon: just a “simple, pan-Euro- Although bankers are persevering with a can allies in Asia and Europe as members pean commercial bank” with a return on private-sector plan, a state rescue looks (it now has 57 in all). tangible equity of 9% within three years, likely. Under European rules, that means Despite the hoo-ha about the AIIB, also more than double 2015’s figure but still less pain forretail bondholders. Italy’s banking known as “China’s own World Bank”, than the estimated cost of equity. He is woes are farfrom over. 7 however, it remains a fledgling. The ADB has 3,100 permanent staff; the AIIB just 80 or so. The ADB has missions in 28 coun- tries; the AIIB only its base in Beijing. Most crucially, the ADB lendsabout$16bn a year; the AIIB is aiming for $2bn next year. In fact, some of the AIIB’s initial loans have been co-financings with the ADB, in effect piggybacking on its projects in Pakistan and Bangladesh. But the ADB knows it cannot be com- placent. Mr Nakao is pushing what he calls a “stronger, better and faster” strategy. Thanks to its nearly impeccable lending history, it is expanding. The target is to in- crease its annual loans by more than 50% from a figure of $13bn in 2014, to $20bn in 2020. Second, it is wideningthe scope ofits lending. About 70% ofits loans still finance infrastructure development. It is now aim- ing to raise the portion that goes to educa- tion, health care and the environment. Fi- nally, itwantsto speed up the wayit works, giving resident missions in countries more authority over managing projects. The Asian Development Bank Still, there are speed limits. Mr Nakao says it is in the ADB’s fibre to tread carefully The incumbent in dispensing advice: “We try not to tell countries to do something.” It also has no intention of lessening oversight of its lend- ing operations. The ADB relies on a perma- nent board of directors in Manila, even though that can delay approvals. The AIIB MANILA has no such board, allowing much quicker Fifty years old and underpressure from China, the ADB tries to evolve decisions and lower costs. UST outside the Asian Development poorest areas and a focus on all aspects of If the ADB’s reluctance to water down JBank (ADB) headquarters, a barefoot girl development, from education to anti-cor- risk controls is admirable, organisational in a tattered yellow shirt stretches out her ruption projects, not just infrastructure. rigidity is less so. Just as no rule stipulates hand as a few of its employees walk past. It also has an impressive track record. that an American must lead the World One gives her change—not exactly a text- December 19th will mark the ADB’s 50th Bank or a European the IMF, nothing de- book approach to development lending anniversary. It funds projects and provides crees that the ADB’s president must be Jap- but a natural-enough impulse. “It reminds policy advice from Georgia in the west to anese. Yet it has always been Japanese offi- you of what you’re doing every day,” he the Cook Islands in the east. It had a hand, cials, often from the finance ministry, who says as he reaches into his wallet. albeit a small one, in the economic miracle have taken the ADB’s helm. Mr Nakao was It is also a small reminder of what sets Asia has witnessed in its lifetime. It has recently re-elected for a five-year term. But the ADB apart from its China-led challeng- never suffered a default on the $250bn that it is not too early to start drumming up can- er, the Asian Infrastructure Investment it has doled out over the years “We have didates for 2021 from elsewhere in Asia. Bank(AIIB). Since its formal launch in 2015, been very prudent,” says Takehiko Nakao, That would go a long way to proving that the AIIB has garnered much more atten- ADB president and master of understate- the ADB truly is Asia’s development bank, tion than the ADB. Butthe ADB isstill much ment (pictured above). and not just a Japanese-led incumbent fac- bigger, with a presence throughout Asia’s Yet the ADB has also had an awkward ing a Chinese upstart. 7 64 Finance and economics The Economist December 17th 2016

Foreign exchange European insurers A losing battle Feeling squeezed

European insurers sufferfrom continued low interest rates NSURANCE is banking’s boring cousin: Why a cheapercurrency can sometimes it lacks the glamour, the sky-high bo- dampen economic growth I nuses and the ever-present whiffof N SEPTEMBER 2010 Brazil’s then-finance danger. So European stress tests for insur- Iminister, Guido Mantega, gave warning ers, whose results were due to be pub- that an “international currency war” had lished on December15th after The Econo- broken out. His beef was that in places mist went to press, have attracted far less where it was difficult to drum up domestic attention than those forbanks in July. Yet spending, the authorities had instead insurance also faces a grave threat, from sought to weaken their currencies to make prolonged low interest rates. their exports cheaper and imports dearer. Insurers invest overwhelmingly in The dollar had recently fallen, for instance, bonds, so low interest rates make their because the Federal Reserve was expected lives difficult. The last time the European to begin a second round of quantitative Insurance and Occupational Pensions easing. The losers in this battle were those Authority (EIOPA) conducted an insur- emerging markets, like Brazil, whose cur- ance stress test, in 2014, a quarter ofpar- rencies had soared. Its currency, the real, ticipants scored poorly: they would not was then trading at around 1.7 to the dollar. have met their capital requirements in These days a dollar buys 3.4 reais, but the test’s long low-interest-rate scenario. no one in Brazil or in other emerging mar- The proportion jumped to 44% in an kets with devalued currencies is declaring alternative scenario involving an asset- ises fora while yet without going under. a belated victory. Acheap currency has not price shock. The new results are unlikely But profits will be hit badly. Stringent EU proved to be much of a boon. Indeed new to be better. Each year oflow interest capital requirements, known as Solvency research from Jonathan Kearns and Nikhil rates worsens the problem. Higher-yield- 2, introduced this year, have helped. But Patel, of the Bank for International Settle- ing bonds mature and insurers end up interpreting and policing the rules varies. ments (BIS), a forum for central banks, with ever more newer ones with low, or Insurers are regulated only at the nation- finds that at times a rising currency can be even negative, interest rates. al level, even though insurance is as a stimulant and a fallingcurrency a depres- Insurers are focused on the problem. much a cross-border business as banking: sant. They looked at a sample of 44 econo- One strategy is to outsource more to the leading 30 insurers derive 31% of mies, half of them emerging markets, to external asset managers, who are often income from the rest ofthe EU, and only gauge the effect ofchanges in the exchange cheaper because oftheir greater scale. 41% at home (compared with 23% and rate on exports and imports (the trade Another is to buy new types ofassets. 54% forthe largest 30 banks). channel) and also on the price and avail- According to Robert Goodman ofGold- DirkSchoenmaker ofBruegel, a think- ability ofcredit (the financial channel). man Sachs, insurers want to allocate tank, proposes giving EIOPA greater They found a negative relationship be- more to better-yielding, but more illiquid, supervisory powers over larger insurers tween changes in GDP and currency shifts asset classes like infrastructure, private as part ofan “insurance union”, analo- via the trade channel. In other words, net debt and private equity. Access is ham- gous to the EU’s banking union. But trade adds to economic growth when the pered not only by a limited supply but furtherregulatory centralisation may be currency weakens and detracts from also by regulatory capital requirements. a hard sell in today’s EU. growth when it strengthens, as the text- So European insurers are looking at The best hope forEurope’s insurers books would have it. But they also found proxy investments, such as American would be an improved macroeconomic an offsetting effect of currencies on finan- municipal bonds (whose proceeds are outlook. Long-term dollar and euro bond cial conditions. For rich countries, the often spent on infrastructure). yields have perked up a bit in recent trade-channel effect is bigger than the fi- A shortage ofcapital is an especially weeks. But the European Central Bank, nancial-channel effect. But for 13 of the 22 acute problem for life insurers in north- by extending its quantitative-easing emerging markets in the study, the finan- ern Europe. Many, in better times, sold programme until the end of2017, has cial effect dominates: a stronger exchange annuities with guaranteed annual re- pushed interest-rate rises farinto the rate on balance speeds up the economy turns of3-4%. Analysts expect German future. Europe’s insurers still have a long and a weaker one slows it down. life insurers to be able to meet their prom- hard slog ahead. This attests to the growing influence of a “global financial cycle” that responds to shifts in investors’ appetite for risk. Prices sponsive to attitudes to risk. When the Fed channel works mainly through invest- of risky assets, such as shares or emerging- lowers its interest rate, it not only makes it ment, which reliesmore on foreign-curren- market bonds, tend to move in lockstep cheaper to borrow in dollars but also cy borrowing than does consumer spend- with the weight of global capital flows drives up asset prices worldwide, boosting ing. Their results are sobering for from rich to poor countries. These flows in the value of collateral and making it easier emerging-market economies. They suggest turn respond to changes in the monetary to raise capital in all its forms. A few days that a cheap currency cannot be relied on policy of rich-country central banks, nota- before Mr Mantega declared a currency to give a boost to a sagging economy. More bly the Federal Reserve, which influences war, Brazil’s government was celebrating a worrying still, the exchange rate might not the scale of borrowing in dollars by gov- bumper $67bn sale of shares in Petrobras, always act as a shock absorber; rather it ernments and businesses outside Ameri- its state-backed oil company, forinstance. may, through the financial channel, work ca. Global financial conditions are thus re- The BIS researchers find the financial to amplify booms and busts. 7 The Economist December 17th 2016 Finance and economics 65

Fiscal rules One simplification is to set rules for spend- makers, for example, think government ing alone, rather than the overall budget should not exceed 30% of GDP. Brazil’s Fiscal cryogenics balance, thus escaping the need to project think it should not exceed 1.24trn reais revenues. Emerging economies comply ($373bn) in today’s money. Rules on defi- with their spending rules about two-thirds cits or debt, in contrast, are compatible of the time, according to a 2015 IMF work- with government ofall sizes, provided that ing paper, whereas their compliance rate taxes are kept in line with spending. for budget-balance rules is less than 40%. The appropriate size of fiscal deficits, HONG KONG AND SÃO PAULO Despite theirsimplicity, spendingrules can given the stage of the business cycle, is a Freezing the size ofgovernment make fiscal policy more countercyclical. In technocratic question, which can yield a ROM its headquarters in Brasília, a ster- upswings, they deter overspending; in bipartisan answer, as Chile shows. Such a File, technocratic city, Brazil’s federal gov- downturns, they permit government rev- consensus can be formalised in a political- ernment doles out money for health, edu- enues to fall of their own accord, without ly robust fiscal rule, capable of surviving a cation, generous pensions and artistic requiring demand-sapping tax hikes. change of government, as Chile’s has also awards, among other things. Over the past Spending rules do, however, pose a done. It is harder to imagine all parties two decades, this spending has grown by philosophical riddle: they require policy- agreeing on the appropriate size ofgovern- more than 185% in real terms. Over the next makers to settle the age-old question ofthe ment. Debate on that question is, after all, 20 years, its growth will be zero. proper size of government. Georgia’s rule- one reason why multiple parties exist. 7 That, at least, is the intention of a consti- tutional amendment passed this week by Brazil’s Senate. The measure, which allows Venezuela’s monetary madness federal spending (excluding interest pay- ments and transfers to states and munici- Cash and grab palities) to grow no faster than inflation, is CARACAS an unusually ambitious example ofa fiscal Venezuelans are getting really good at queuing rule: a quantitative limit on budget-mak- ing, which lasts beyond a single year and NYTHING India does, Venezuela can the Venezuelan currency, and sneaking perhaps beyond a single government. Ado worse. Last month, in a dramatic across the border to buy up price-con- The best known, and least loved, fiscal effortto curb corruption, India’s govern- trolled goods. Given Venezuela’s soaring rule is the euro area’s stability and growth ment cancelled all its high-denomination inflation, this seems improbable. “The pact. But such rules are also now common banknotes without warning. Since 98% idea that anybody would want to hoard a among emerging economies. According to oftransactions in India are done in cash, currency that has lost 60% ofits value in the IMF’s latest count, 56 developing coun- commerce seized up. It is a huge mess, but the past two months is absurd,” says tries in 2014 had rules ofsome kind, includ- India will after a while print enough David Smilde ofthe Washington Office ing 15, like Brazil, that impose limits on the replacement notes. And it has a plausible on Latin America, a think-tank. growth ofpublic spending. plan to help its many poor people join Nonetheless, on December11th Mr The reasons so many emerging-market the cashless digital economy. Maduro announced that the 100-bolívar governments choose to limit their fiscal Not so Venezuela. President Nicolás note would cease to be legal tender with- choices vary. Some recognise that it is bet- Maduro says that the constant shortages in 72 hours. It is the most valuable note in terto abide bytheirown limitsthan testthe ofmore or less everything in Venezuela circulation, accounting for77% ofthe markets’. Bycuttingthe scope forfiscal mis- are caused by evil speculators. (They are nation’s cash. (On the blackmarket, it is chief in the future, a credible fiscal rule can actually caused by his price controls.) Mr worth three American cents.) The gov- make a government’s bonds more appeal- Maduro claims that “mafias” in Colom- ernment says people can deposit the old ing today. The risk of profligacy goes hand- bia are stockpiling lorryloads ofbolívars, notes in banks and they will be replaced in-hand with the danger of “pro-cyclical- with new ones in denominations as high ity”. Governments in emerging economies as 20,000 bolívars. Eventually. tend to overspend in good times and cut Massive queues—ofordinary people back in bad times, adding to economic in- who use cash to survive—quickly formed stability rather than dampening it. outside banks. They brought boxes of old Do fiscal rules help? A famous example banknotes and waited hours to deposit is Chile’s 15-year-old rule, which requires them. Venezuela is one ofthe most crime- fiscal tightening when economic growth, ridden countries on Earth but few mug- copper prices and the price of molybde- gers bothered to rob people oftheir soon- num (a metal used in steel alloys) rise to-be-worthless cash. Tempers frayed, above their long-term trends, and permits however, and fights broke out. “It’s an fiscal easing in the opposite case. Several abuse,” says one disgruntled queuer after numbers—such as the trend rate of growth standing two hours in a line at a Caracas or long-term copper price—can only be shopping mall to pay in the equivalent of guessed, not observed. But the guesses are less than $20. “The government deliber- made by an independent expert commit- ately wastes our time,” grumbles Bianca tee, so the government cannot make its Manrique, a doctor. own fiscally convenient estimates. This month Mr Maduro’s regime also Othercountries, includingPeruand Co- seized millions oftoys from a toymaker lombia, have tried to implement similarly that, it said, was charging too much. The sophisticated rules. But it is not easy. They government will distribute them to work best in countries with a reasonably children and try to take the credit. Mr stable taxbase and a well understood mac- Maduro may see himselfas Saint Nick, roeconomic rhythm. Elsewhere, simpler Bum notes but few Venezuelans are convinced. rules can be easier to monitor and enforce. 66 Finance and economics The Economist December 17th 2016 Free exchange Rage against the dying of the light

Regional inequalityis proving too politically dangerous to ignore OW do you solve a problem like Ohio? Over the course of a do are less likely to head for richer places. Enrico Moretti of the Hgeneration America’s once-thriving industrial heartland has University of California, Berkeley and Chang-tai Hsieh of the withered. Economic stress has contributed to rising rates of drug University of Chicago argue that American GDP might now be as addiction and falling life-expectancy. Frustrated, Ohioans and much as13.5% lower than it ought to be as a result. But although a other Midwesterners pushed Donald Trump to victory in No- speedier and more complete reallocation would boost GDP and vember. That has focused attention on the plight of declining in- the economic fortunes of those who choose to migrate, it would dustrial areas in the rich world. Yet orthodox economics has few hardly improve the outlook for those who remain behind—and answers to the problem ofregional inequality. many inevitably would. Economists used to think the best policy was often merely to More generous transfers from “winners” to “losers” might wait. From 1880 to 1980 the incomes of poorer and richer Ameri- help. In many rich economies prosperous areas already support can states tended to converge, at a rate of nearly 2% per year, ac- poor ones. Subsidies—health and pension payments, as well as cording to research by Peter Ganong and Daniel Shoag of Har- industrial and agricultural protections—provide a cushion vard University. That pattern has since broken down (see chart). against regional decline. But they are not a basis for long-run eco- Yet the shift of resources and the movement of people from de- nomic recovery, and have not been enough to stem the growth of clining places toward thriving ones remains an important part of populist political movements. Many people want it both ways: the process of economic growth. In theory, the gains should be not only redistribution but also good jobs, without having to big enough to compensate those harmed by the shift, leaving move too farto get them. everyone better off. “Governments should not try to rescue fail- Attempts to jump-start local economies are another obvious ing towns,” The Economist wrote in 2013. “Instead, they should response. Governments have a long record of experimentation support the people who live in them.” with such “place-based” policies: from the massive infrastructure This position never lacked for critics. Declining places can be- investments of the Tennessee Valley Authority (TVA) to EU struc- come poverty traps. A shrinking tax base means a deterioration tural funds and “enterprise zone” programmes, providing incen- in local services (including the public education that might pro- tives for hiring and investment in struggling areas. These efforts vide youngpeople with the skillsto succeed elsewhere). Lowand do boast a certain economic logic. Modern cities thrive because falling housing costs disproportionately attract people on fixed ofthe benefitsto firmsand workersofcrowdingtogether. Cluster- government incomes, like pensioners, who tend to take more in ing speeds the flow of ideas, cuts the cost of dealing with clients government services than they add to the local economy. What’s and enriches social lives. more, people resent as elitist the notion that the decay ofbeloved cities is an acceptable part ofthe rough-and-tumble of a dynamic Wise men at their end economy. That resentment can motivate votes against the institu- Yet studies of place-based policies offer something less than a tions ofglobalisation. Just as America’s Midwest helped carry Mr ringing endorsement. Though some programmes appear to Trump to power, Brexit triumphed thanks to support from de- boost employment orthe numberoffirms, others fail to have any industrialising places like Middlesbrough and Wolverhampton. significant effect orbringlocal benefits only at the expense ofoth- The liberal-minded are learning that they ignore regional dispar- ers. Research suggests that the TVA, for instance, fostered a manu- ities at their peril. facturing cluster in its own area but to the detriment of other re- Economists are woefully short of compelling solutions, how- gions. It is hard to help one place without harming another. ever. Some reckon the main problem is that the process of reallo- Indeed, more immigration would in many ways be an elegant cating resources has occurred too slowly. Constraints on growth solution to regional decline. By putting together underused infra- in thriving cities, from strict zoning regulation to inadequate in- structure and rich-world institutions with foreign labour, immi- frastructure investment, mean that they have become pricier gration would be good for migrants, while also bringing new rather than much larger. Mr Ganong and Mr Shoag suggest that spending and entrepreneurial activity to struggling places. Some these constraints make Americans less likely to move; those who leaders, like Rick Snyder, the governor of Michigan, have ex- pressed interest in place-based visa programmes which would allow struggling areas to recruit immigrants from abroad, so long Rustbelt blues as they remain in the place issuing the visa for a set amount of Regional inequality* of income per person, 1980=100 time. An intriguing idea: but now is not the moment when gov- ernments are likely to promote the potential ofimmigration. 130 So more creative solutions may be needed. In the late 19th cen- 120 tury America’s federal government gave land to states, which United States GREATER they could sell to raise proceeds for “land-grant universities”. (Metropolitan areas) INEQUALITY 110 Those universities (today including many of the country’s finest) were given a practical task: to develop and disseminate new tech- 100 niques in agriculture and engineering. They have become centres of advanced research and, in some cases, the hub of local eco- 90 nomic clusters. Mainstream academic economists might tut at a European Union† modern-day version of the programme, meant to foster new (NUTS-2 regions) 80 ideas, train workers and strengthen regional economies. But if 1980 85 90 95 2000 05 10 15 economists cannot provide answers, populist insurgents will. 7 Sources: US Bureau of Economic Analysis; *As measured by the ratio of the standard Cambridge Econometrics, European Regional Data deviation to the mean †Incl. Norway Economist.com/blogs/freeexchange 68 Science and technology The Economist December 17th 2016

Also in this section 69 Micrometeorites in city gutters 70 A vaccine against drug addiction 70 How hot are the oceans? 71 Sexual selection and penis bones

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Oncology Califano, whose father-in-law was a Mafia prosecutor in Italy, likens these to the Cancer’s master criminals bosses of a network of organised crimi- nals. He sees his job as working out the links between them, in the same way that a detective might study a gang in order to find out who is in charge. So far, he has analysed data from 20,000 tumour samples and generated Doctors should lookto proteins as well as genes to tackle tumours maps for 36 types of tumour. All told, he NE of the most important medical in- cancer can be triggered in the first place. has identified about 300 proteins that are Osights ofrecent decades is that cancers This week, therefore, in a paper in Na- probably master regulators in at least one are triggered by genetic mutations. Cash- ture Reviews Cancer, he and Mariano Alva- sort of cancer. These are organised into ing that insight in clinically, to improve rez, a colleague at Columbia, pull together groups of ten to 30 in each tumour type, treatments, has, however, been hard. A re- overa decade ofworkin an effortto under- and are probably, collectively, responsible cent study of2,600 patients at the M.D. An- stand how the proteins that regulate can- forcontrolling most human cancers. derson Cancer Centre in Houston, Texas, cer are organised. Dr Califano and Dr Alva- The master regulators, it turns out, are showed that genetic analysis permitted rez call this organisation “oncotecture”. all proteins that affect transcription—the only 6.4% of those suffering to be paired process that copies information in DNA with a drug aimed specifically at the muta- The 300 club into messenger molecules that carry it to a tion deemed responsible. The reason is Creating the oncotectural blueprint for a cell’s protein factories. In Dr Califano’s that there are only a few common cancer- cancer starts by analysing the gene-expres- view, itisthese masterregulatorsthat drug- triggering mutations, and drugs to deal sion profiles of cells from samples of that makers should concentrate on, since drugs with them. Other triggering mutations are cancer. A gene-expression profile de- that modify such proteins’ activities are numerous, but rare—so rare that no treat- scribes which genes are active in a cell’s likely to be widely applicable, in contrast mentisknown nor, given the economics of DNA, and how active they are. Because to those focused on genetic mutations. drug discovery, is one likely to be sought. genes encode proteins it gives a sense of Indeed, the choice of best targets may Facts such as these have led many can- which proteins, and how much of them, a be even narrower than this, he says—for cer biologists to question how useful the cell is making. Many of these proteins are amonghismasterregulatorslurka few capi gene-led approach to understanding and involved in regulating cellular activity, in- di tutti capi. In the view ofGordon Mills, of treating cancer actually is. And some have cluding growth and cell division (the M.D. Anderson, one example of such a gone further than mere questioning. One things that go wrong in cancer), via signal- capo is an oestrogen-receptor that is in- such is Andrea Califano of Columbia Uni- ling pathways in which one protein volved in breast cancer. This is a transcrip- versity, in New York. He observes that, re- changes the behaviour of others (some- tion factor that controls the expression of gardless ofthe triggering mutation, the pat- times hundreds or thousands of others), many genes. Disabling it with a drug such tern of gene expression—and associated each ofwhich then changes the behaviour astamoxifen, so thatitcan no longer run its protein activity—that sustains a tumour is, of others still—and so on. Applying a part of the network, is thus particularly ef- for a given type of cancer, almost identical branch ofmathematics called information fective. Dr Mills says it gives an “incredible from patient to patient. That insight pro- theory to these data, to make them man- outcome”, regardless of the mutations that vides the starting-point for a different ap- ageable, Dr Califano then maps the con- triggered the cancer in the first place. A sec-1 proach to lookingfortargets fordrug devel- nections inside a cell. opment. In principle, it should be simpler One of his most important discoveries Correction: In “The remains of the day” (December 10th) to interfere with the small number of pro- is that the resulting networks have a few the rubric said that “Ancient eclipses show how days have shortened through history”. The article then went teins that direct a cancer cell’s behaviour “master regulator” proteins, which control on to show how, and by how much, days have actually than with the myriad ways in which that the largest numbers of other proteins. Dr lengthened. Sorry The Economist December 17th 2016 Science and technology 69

2 ond example he cites is Bruton’s tyrosine drugs. Second, not all of the master regula- from gutters in his hometown, Oslo, and kinase, another transcription factor, which tors suggested by Dr Califano’s modelling also from rooftops in several cities that he regulates various malignancies of white work have been shown to act as such in a visited to playjazzorto attend conferences. blood cells. laboratory. More experiments are needed Micrometeorites contain magnetite, a On top of these specific actions master to see which of his candidates really are naturally magnetic form of iron oxide, regulators, like pieces ofbadly written soft- proteinaceous mafiosi and which mere commonly known as lodestone. Mr Lar- ware, can also set up loops that feed back stool pigeons that have had the finger sen’s first step was therefore to pass his on themselves and so, once activated, do pointed at them incorrectly. slurry, about 300kg ofit, past a magnet and not shut down. In aggressive prostate can- To that end, several studies are under keep anything that stuck. He then exam- cer, Dr Califano observes, two proteins way. One, at Columbia itself, is recruiting ined the 30kg or so of debris that resulted called FOXM1and CENPF act together in volunteers with cancer to see if attacking under a microscope, to hunt for cosmic this way to promote a tumour’s growth. In putative master regulators in their tu- dust. Micrometeorites melt as they zip glioblastoma, a cancer of the brain, three mours works in cell cultures or when parts through Earth’s atmosphere at speeds of proteins collaborate to start and maintain of the tumours in question are grafted into around 12km a second. The globules then the cancer. And, according to John Minna mice. If this approach yields dividends, cool into spherical grains, and the minerals of the University of Texas Southwestern that will suggest that attacking master reg- ofwhich these are composed take on a dis- Medical Centre, in Dallas, two master-reg- ulators could be an effective way to treat tinctive stripy appearance (see picture). An ulator proteins in particular govern the cancer. Along with existing drugs tied to experienced eye, such as Mr Larsen’s, can malignancy ofsmall-cell lung cancer. particular mutations, and a newly emerg- thus pick them out from other particles, Dr Minna does, though, argue caution ing class of pharmaceuticals that mobilise which tend to be jagged and lack these in the master-regulator approach. First he the immune system against tumours, mas- markings. Altogether, he found about 500 observes, lots of known and suspected ter-regulator blasters could provide a third ofthese “spherules”, each around 300-400 master regulators are in classes of protein form ofprecise molecular attack upon this microns in diameter(a few times the width that have proved difficult to affect with most feared ofdiseases. 7 ofa human hair). To confirm that the spherules were in- deed micrometeorites Mr Larsen needed both expertise and more heavyweight equipment than he had at home. He there- fore turned to Matthew Genge of Imperial College, London and his colleagues. They analysed 48 items from Mr Larsen’s Oslo and Paris collections under a scanning electron microscope. They were able to confirm that the composition of these matched that of micrometeorites, which tend to be rich in olivine, a greenish semi- precious gemstone. Most tellingly, Mr Lar- sen’s samples contained iron and nickel al- loys common in micrometeorites, but rare Planetary science in Earth-bound rocks because these metals oxidise rapidly. Stardust memories Micrometeorites dredged from the sea may have fallen to Earth any time within the past 50,000 years or so, depending on the depth ofsediment recovered. Likewise, those found in Antarctic ice may have ar- rived up to a million years ago. In both in- stances the recovery technique mixes old An amateurenthusiast finds micrometeorites in city gutters and new, so it is impossible to identify BOUT 4.6bn years ago, a spinning disc history. They normally collect them by specimens that have arrived in the past Aof gas and dust began to coalesce into dredging up ooze from the ocean bed, then few decades. Some of the micrometeorites balls of matter. The largest sphere, at the sifting and filtering it to find a few precious MrLarsen hascollected, on the other hand, disc’s centre, collapsed under its own grav- particles, or by melting tonnes of ice from must have touched down less than six ity to form the sun. Other clumps of dust, the Antarctic to see what precipitates. years ago, because the gutters they came scattered around its periphery, became Those two locations have the advantage of from were cleaned then. planets and asteroids. In planets this dust being isolated and reasonably free of dust Intriguingly, these recent arrivals are has long since metamorphosed into rock. from industrial sources. Now, in a study more densely striped than an average But in many asteroids it is still more or less just published in Geology, a group of re- specimen plucked from Antarctica or the intact. As a consequence, when asteroids searchers have identified about 500 micro- ocean floor. That, Dr Genge says, suggests collide, some of it is liberated—and a small meteorites from an unlikely source: gutter that they arrived at particularly high veloc- fraction of that material eventually falls to sediment from the roofs of buildings in ity. The speed with which they hit the at- Earth as micrometeorites. This micromete- two ofEurope’s capital cities. mosphere is dictated by the combined oritic dust arrives at a rate of around six Enthusiastic amateur astronomers gravitational forces on them of the solar tonnes a day. Spread over Earth’s surface, have claimed to have found cosmic dust in system’s planets. That they are apparently that amounts to just one particle per such urban slurry before. Professional sci- arriving faster now than in the past may be square metre each year. entists, however, tend to be sceptical of because the planets’ orbits are in slightly Researchers go to great lengths to gather such claims, and none has been verified. different positions relative to each other these grains, because they can reveal de- Jon Larsen, a Norwegian musician, refused than they were a million years ago. tails of the solar system’s composition and to be discouraged. He collected detritus This is to be expected. Planetary orbits1 70 Science and technology The Economist December 17th 2016

2 are elliptical, rather than circular, and their sion of the pathogen itself). But it does not again in the future. gravitational interactions with one anoth- have to be. And, though opioids them- Dr Janda’s vaccines also seemed to pro- ermay cause the shapes ofthese ellipses to selves do not provoke the attention of the tect animals receiving them from the risk change over the years. On Earth, such immune system, theycan be made to do so ofdyingfrom an overdose. When he inject- changes are believed to contribute to the if they are chemically tweaked and at- ed unvaccinated mice with dangerously waxing and waning of ice ages. If micro- tached to an appropriate carrier protein. high levels of hydrocodone, only 25% of meteorites could be collected from con- That lures the immune system into making them survived for even a day. In contrast, ventional sources in ways that recorded anti-opioid antibodies. 62.5% of the vaccinated animals were still when they had arrived, that might aid un- This approach has not, to date, resulted alive a day later. For oxycodone, the corre- derstandingofsimilarchangesin the orbits in an effective vaccine. The anti-opioid sponding figures were 14.2% and 37.5%. ofother planets. antibodies it produces do not glom on to Dr Janda suggests that all of these re- Even if this proves difficult, Dr Genge their targets strongly enough to make the sults are a consequence of the antibodies and Mr Larsen hope the guttering of the drug ineffective. Dr Janda thinks he knows elicited by his new vaccines binding more world’s roofs will prove a useful third why this is. In his view, the tweaked ver- tightly than their predecessors could to cir- source of micrometeorites for general sions of the drugs, known as haptens, do culating drug molecules. If he is right, and study. Oscar Wilde once wrote, “We are all not sufficiently resemble the originals. In if a similar response can be generated in in the gutter, but some of us are looking at particular, in order to ease the attachment people, then his approach may prove an the stars.” Little did he suspect that looking of a hapten to its carrier protein, previous important step towards rescuing opioid in the gutter itself would also yield a little researchershave replaced one ofitsmethyl addicts from their addiction, no matter ofthe stufffrom which stars are made. 7 groups (a carbon atom attached to three how it started. 7 hydrogens) with an amide group (a nitro- gen attached to two hydrogens). Dr Janda’s Drug addiction experiments, using haptens derived from Climate science oxycodone and hydrocodone, two of the Souring the most commonly prescribed opioids, did How hot is the sea? not do this. Instead, they linked haptens to poppy’s milk proteins using methylene groups (a carbon atom attached to two, ratherthan three, hy- drogens, and connected to its parent mole- San Francisco cule by a double bond, not a single one). A long-sought vaccine against opioids A novel way to measure howmuch heat That closely replicates the methyl structure may nowbe on the cards the oceans are hiding found on opioids and allows tight connec- NCIENT Egyptians, Sumerians, Greeks tions with antibodies to form. OBODY really knows” was Donald Aand many others knew the powers of Once the new vaccines were ready, Dr “NTrump’s assessment of man-made opium poppies and employed them exten- Janda injected mice either with one of global warming, in an interview on De- sively. So, too, do modern doctors. Drugs them or with a saline solution to act as a cember 11th. As far as the atmosphere is derived from poppy juice, such as mor- control. When he subsequently gave these concerned, that puts him at odds with phine, codeine, oxycodone and hydroco- animals the relevant opioid and then ex- most scientists who have studied the mat- done, known collectively as opioids, form posed their tails or feet to heat, in order to ter. They do know that the atmosphere is the very foundation of pain management induce pain, those vaccinated for real re- warming, and they also know by how and are used in hospitals the world over. sponded to the heat far faster than did much. But turn to the sea and Mr Trump Unfortunately, opioids are also highly those that had been given the saline. Vacci- has a point. Though the oceans are warm- addictive. Illicit consumption of them is nation was, in other words, successfully ing too, climatologists readily admit that reaching epidemic proportions—and not blocking a drug’s effect. Moreover, repeat- they have only a rough idea how much just among those who have wilfully cho- ed trials showed that this blockage re- heat is going into them, and how much is sen from the beginning to take such drugs mained effective forbetween two and four already there. recreationally. Many addicts were once months. Ifsomethingsimilarwere the case Many suspect that the heat capacity of prescribed an opioid legitimately, by a doc- in people, that period should be long seawater explains the climate pause of re- tor, and then found that they could not enough to help break any addiction, but cent years, in which the rate of atmospher- stop. The upshot is a lot of premature short enough to allow the opioid in ques- ic warming has slowed. But without de- deaths (see chart). Many researchers have tion to be used clinically on that patient cent data, it is hard to be sure to what extent therefore tried to find a way to deter those the oceans are acting as a heat sink that who have been given a brief taste of damps the temperature rise humanity is opioidsfrom continuingto take them. Now Too high visiting upon the planet—and, equally im- one group, led by Kim Janda at the Scripps United States, drug-overdose deaths, ‘000 portant, how long they can keep that up. Research Institute in La Jolla, California, re- This state ofaffairs will change, though, ports in ACS Chemical Biology that it has 15 if a project described by Robert Tyler and Natural and developed an anti-opioid vaccine. semi-synthetic Terence Sabaka to a meeting of the Ameri- Vaccines work by teaching the immune medical opioids can Geophysical Union, held in San Fran- system to recognise a molecule as a threat, 10 cisco this week, is successful. Dr Tyler and and to respond by making antibodies to Dr Sabaka, who work at the Goddard Heroin that molecule. Antibodies are special im- Space Flight Centre, in Maryland, observe mune-system proteins which are custo- 5 that satellites can detect small changes in mised to recognise and lock onto specific Earth’s magnetic field induced by the molecules, thus stopping those molecules Synthetic movement of water. They also observe reacting normally. The threatening mole- medical opioids that the magnitude of such changes de- cule employed to make a vaccine is usually 0 pends on the water’s temperature all the 1999 2005 10 15 part ofa pathogen, such as a virus or bacte- way down to the ocean floor. That, they Source: Centres for Disease Control and Prevention rium (or, often, simply a neutralised ver- think, opens a window into the oceans 1 The Economist December 17th 2016 Science and technology 71

2 which has, until now, been lacking. To and how ocean water is displaced, the group of females, then your sperm are un- measure things in the deep sea almost al- changes in the magnetic field, as seen from likely to be competing directly with those ways requires placing instruments there— a satellite, will tell you the heat content of of other males. You therefore need to gen- either by lowering them from a ship or by that water. Dr Tyler and Dr Sabaka there- erate fewer sperm, and so can get away putting them on board submarine devices. fore built a computer model which tried with smaller testes. This, the story goes, is The supply of oceanographic research ves- this approach on one reasonably well-un- why gorillas, which form harems, have sels, though, is limited, and even the addi- derstood form of oceanic displacement, much smaller testes, relative to their body tion in recent years of several thousand the twice-daily tidal movement caused by sizes, than do chimpanzees, which are pro- “Argo” probes (floating robots that roam the gravitational attraction ofthe moon. miscuous. (Men’s testis size lies between the oceans and are capable of diving to a Sadly, when they had crunched all the these two extremes.) depth of 2,000 metres) still leaves ocean numbers, they found that with the avail- It might therefore be expected that ba- temperatures severely under-sampled. able magnetic data, understanding the culum size correlates with testis size. Sur- Satellites, however, can look at the tides alone is not enough to calculate the prisingly, Ms Brindle and Dr Opie found whole ocean—and, if they are properly oceans’ heat content. That requires one or that it does not. They did, however, find equipped, can plot ways in which Earth’s both of two things to happen: adding the three different but pertinent correlations. magnetic field is deflected by seawater. effects of other water movements, such as First, despite the lack of a relationship be- This deflection happens because seawater ocean currents and solar (as opposed to lu- tween baculum size and testis size, there is both electrically conductive and always nar) tides to the calculation, and collecting was a clear one between the bone’s length on the move. Such a moving conductor better magnetic data. The second ap- (scaled for the size of the animal in ques- will deflect any magnetic field that passes proach, at least, is already in hand. Three tion) and a species’ promiscuity: more pro- through it. Crucially, saltwater’sconductiv- recently launched European satellites, miscuous species had longer bacula. Sec- ity increases with its temperature. This known collectively as Swarm, are busy ond, species with specific mating seasons, means the deflection increases, too. And gathering just the sort of data required. So ratherthan all-year-round mating, had lon- since the magnetic field originates from ifDrTylerand DrSabaka can upgrade their ger bacula. Third, there was a strong corre- within Earth, it penetrates the whole model of ocean movement appropriately lation between the length of the bone in a ocean, from bottom to top. So any heat, to receive Swarm’s data, they may yet an- species, and the average length of time in- whether in the deepest troughs or near the swer the questions of how much heat tromission lasted in that species. surface, contributes to the deflection. there is in the sea, and how much more it All of these observations make sense if All this means that, if you know where might reasonably be expected to absorb. 7 the baculum’s purpose is to compete with the mating efforts of other males. Promis- cuity increases the risk that a female will Sexual selection be inseminated by another male before the first male’s spermatozoa have had a Boning up chance to fertilise the female’s eggs. Sea- sonal breeding similarly piles on the pres- sure, by concentrating mating attempts into a small period of time. And increasing the length of coitus, which a baculum’s stiffening presence permits, reduces the time available for competitors to engage in Some male mammals have a penis bone. Some do not. Why? a successful mating oftheir own. ENAL stiffness is the stuff of smutty which the bone is particularly prominent.) Ms Brindle’s and Dr Opie’s prediction Pjokes. In Darwinian terms, though, it is The researchers predicted that species thus turns out to be correct—and it applies no laughing matter. Intromission, the with a baculum would be those in which to people, too. The lackofa baculum in hu- meeting of penis and vagina, is crucial to male-male competition is worked out mans is ofa piece with the lackofa mating reproduction. With insufficient stiffness, more at the level of the sperm, in the fe- season and with the existence of a pair- intromission will not happen and the male’s reproductive tract, than it is at the bonded mating system that has, by com- genes of the male will fail to make it into level of the individual, by fighting and fan- parison with many otherspecies, only lim- the next generation. cy display. There is a precedent here. In pri- ited levels of promiscuity. As for the length It is no surprise, therefore, that many mates, testis size is inversely correlated of time that sexual congress lasts in Homo male mammals have a bone, known as a with harem formation. If you, as a male, sapiens, the adequacy of that is, perhaps, baculum, in their penises to add to stiff- have fought off the competition and estab- not a matter into which science should ness. What is surprising is that many oth- lished reasonably exclusive access to a dare to trespass. 7 ers—men included—do not. What causes a baculum to evolve is not clear. But a study just published in the Proceedingsofthe Roy- al Society, by Matilda Brindle and Christo- pher Opie of University College, London, has shed some light on the matter. Ms Brindle and Dr Opie have reviewed what data exist about mammalian bacula, especially those of primates and carni- vores, and compared these with what is known about different species’ sex lives. They picked primates and carnivores be- cause both groups contain some species whose males have a baculum and others whose males do not. (The picture is of a skeleton of an extinct wolf species, in Mine’s bigger than yours 72 Books and arts The Economist December 17th 2016

Also in this section 73 Decision-making 73 Animals and intelligence 74 Johnson: off with their heads 75 Fiction: people trafficking 75 A memorable “Othello”

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Nutrition Sugar is intoxicating in the same way that drugs can be, writes Mr Taubes. Was it Bittersweet not Niall Ferguson, a British historian, who once described sugarasthe “uppers” ofthe 18th century? A medieval recipe even sug- gests sprinkling sugar on oysters. The crav- ing seems to be hard-wired: babies instinc- tively prefersugar water to plain. As sugar shifted from being a “precious Why sugaris bad foryou. Really bad product” in the 11th century to a cheap sta- HRISTMAS is the most fattening time ple in the 19th century, the food industry The Case Against Suga . y Ga y Ta es. of the year. There are claims that the r B r ub proceeded to binge on it, with unheeded C Knopf; 368 pages; $26.95. To be published average Westerner will consume 6,000 consequences. The biggest consumers to- in Britain by Portobello in January calories on December25th, well overtwice day are Chilean (see chart). The Dutch, the recommended daily intake for men Hungarians, Belgians and Israelis are not and more than that for women. He or she cant change in diets as populations be- far behind. Saudi Arabians also have a could put on nearly two kilos in the last come Westernised, urbanised and affluent sweet tooth. In only ten countries do peo- week of the year. Short winter days and is the amount ofsugar consumed, then the ple eat fewer than 25 grams ofsugar a day. too much slouching in front of the televi- conventional wisdom linking fat with Sugar lurks in peanut butter, sauces, sion accounts for some of that. But the chronic disease does not square up. Cul- ketchup, salad dressings, breads and more. main cause of festive obesity may well be tures with diets that contain considerable Breakfast cereal, originally a wholegrain sugar, an essential ingredient in Christmas fat, like the Inuit and the Maasai, experi- health food, evolved into “breakfast can- pudding, brandy butter, chocolate, marzi- enced obesity, hypertension and coronary dy”—sugar-coated flakes and puffs hawked pan, mince pies and alcohol. disease only when they began to eat pro- to children by cartoon pitchmen like Tony “Sugar spoils no dish,” averred a 16th- fuse amountsofsugar. Likewise, diabetes— the Tiger and Sugar Bear. A 340ml (12- century German saying. But it certainly virtually unknown in China at the turn of ounce) fizzy drink contains about ten tea- spoils and savages people’s health, says the 20th century, but now endemic in 11.6% spoons of sugar. Even cigarettes are laced Gary Taubes, an American science writer ofthe adult population, 110m in total. with it. Bathing tobacco leaves in a sugar who has focused heavily on the ills of sug- solution produces less irritatingsmoke; it is ar over the past decade and is the co-foun- easier and more pleasant to inhale. derofan initiative to fund research into the Sweet and sour Woe, however, to the scientist incau- underlying causes of obesity. In “The Case Sugar consumption per person tious enough to challenge the party line ex- Against Sugar” he argues that dietary fat Selected countries, grams per day, 2015 onerating sugar. Mr Taubes tells the story was fingered fordecades as the perpetrator WHO GUIDELINE ofJohn Yudkin, a nutritionistatthe Univer- of obesity, diabetes and heart disease. 0 25 50 75 100 125 150 sity of London. In the 1960s, Yudkin pro- Abetted by an industry that funded scien- Chile posed that obesity, diabetes and heart dis- tific research linking fat with coronary dis- Netherlands ease were linked with sugar consumption. Hungary ease, sugar, the real culprit according to Mr Belgium Though he acknowledged that existing re- Taubes, was allowed to slip offthe hook. Israel search, his own included, was incomplete, The author sets out to prove that be- Germany he became embroiled in a scientific spit- cause of its unique metabolic, physiologi- United States ting match with Ancel Keys, a well-known cal and hormonal effects, sugar is the new Slovakia American researcher. Keys, whose work tobacco. It is detrimental to health, yet also Brazil on dietary fat as the prime cause of coro- defended by powerful lobbies. If, as he Saudi Arabia nary disease had been supported by the Sources: Euromonitor International; WHO contends in one example, the most signifi- Sugar Association for years, ridiculed Yud-1 The Economist December 17th 2016 Books and arts 73

2 kin, calling his evidence a “mountain of tion with how people repeatedly make the Some governments have tried to act on nonsense.” The clash—Mr Taubes calls it a same kinds of irrational mistakes. “We these insights. Barack Obama hired Cass “takedown” of Yudkin—is a sad chapter in study natural stupidity,” Tversky quipped. Sunstein, a scholar heavily influenced by what Robert Lustig, a paediatric endocri- At times, the two were “sharing a mind”, Mr Kahneman and Tversky, to design be- nologist at the University of California, Mr Kahneman said, sitting at the typewrit- havioural “nudges” that encourage people San Francisco, calls “a long and sordid his- er together and blissfully unaware of who to do the right thing without forcing them. tory of dietary professionals in the U.S. had contributed what to their work. They Britain created its own “nudge unit”, who have been paid off by industry”. also had their tensions: Mr Kahneman which for example reworded a request for When Yudkin retired as chair ofhis depart- was, for example, envious of Tversky, who organ donation by first asking people if ment in 1971, the university replaced him attracted far more attention. But they re- they would want to receive an organ if with an adherent ofthe dietary-fat theory. mained so close that when Tversky was di- they needed one. Positive response rates Because research specific to sugar’s agnosed with cancer, Mr Kahneman was jumped by enough to increase the donor deleterious effects is wanting, the science, the second person he told. rolls by100,000 per year. Mr Taubes concedes, is not definitive. But it Academic work can be intellectual Like Mr Lewis’s13 previous books, “The is compelling. The case against sugar is navel-gazing. But the Kahneman-Tversky Undoing Project” is a story of remarkable gaining traction. In October the World partnership wasalwaysengaged in the real individuals succeeding through innova- Health Organisation urged all countries to world, thanks to both men’s early experi- tive ideas. Here, the balance is geared more impose a tax on sugary drinks. Mexico had ences in Israel. At 21 Mr Kahneman was as- towards the ideas, and the pace is slower already done so in 2013. In America cities signed to the army’s psychology unit. He than, say, “Liar’s Poker”, his first book. Yet, including Chicago, Philadelphia and San overhauled the assessment of recruits, im- with his characteristic style, Mr Lewis has Francisco are following suit. Britain will proving judgments by reducing the weight managed the unusual feat of interweaving implement a soft-drink levy in 2018. South given to gut feelings; the methods have psychology and the friendship between Africa and the Philippines have measures barely been tweaked since. During the the two men. Two decades after he died, under consideration. Perhaps at long last, Yom Kippur war in 1973, the two psycholo- Tversky’s partnership with Mr Kahneman sugar is getting its just desserts. 7 gists told the army to see what food sol- is still changing the world. 7 diers threw into the rubbish in order to give them food they really wanted, and Humans and decision-making persuaded the air force to scrap investiga- Animals and intelligence tions into a squadron suffering terrible Thinking about losses: with a small sample size, the extra Smart arms deaths were probably random. As their thinking work on irrational decision-making has made its way into the wider world, it has also irritated incumbent pundits. When Daryl Morey, the general manager of the The Undoing Project: A Friendship that Other Minds: The Octopus, the Sea, and the Houston Rockets basketball team, used be- Changed Our Minds. By Michael Lewis. W.W. Deep Origins of Consciousness. By Peter havioural economics to influence his Norton; 362 pages; $28.95. Allen Lane; £25 Godfrey-Smith. Farrar, Straus and Giroux; 255 choice of players, Charles Barkley, a com- pages; $27. To be published in Britain by URING the second world war a young mentator and former NBA star, denounced William Collins in March 2017; £20 DJewish boy was caught after curfew him and those like him: “They never got on the streets of Nazi-occupied Paris by an the girls in high school and they just want IKE life itself, the mind first emerged in SS soldier. The soldier picked him up, to get in the game.” In decision-makingcer- LEarth’s oceans. What is less well appre- hugged him, showed him a photograph of tain flaws are much easier to identify than ciated is that it evolved there in at least two another boy and gave him money. The amend, it seems. distinct ways. One sentient branch of the young Daniel Kahneman left more certain tree of life is descended from the animals than ever that his mother was right: “Peo- that crawled onto dry land hundreds of ple were endlessly complicated and inter- millions ofyears ago. It comprises humans esting.” His curiosity about human think- and other mammals, and birds. The other ing would lead him to a pioneering career branch remained water-bound and even- in psychology, exploring the systematic tually produced another collection of crea- flaws of decision-making, in a remarkable tures possessing higher intelligence: the partnership with his collaborator, Amos cephalopods, a class of animals that in- Tversky. In 2002 Mr Kahneman (pictured) cludes squid, cuttlefish and octopus, prob- won a Nobel prize in economics, for work ably the smartest of them all. In “Other on how people overvalue losses relative to Minds”, Peter Godfrey-Smith, a philoso- gains. Tversky would have shared it had he pher, skilfully combines science, philoso- not died in 1996. phy and his experiences of swimming This is the terrain of Michael Lewis’s among these tentacled beasts to illuminate new book, “The UndoingProject: AFriend- the origin and nature ofconsciousness. ship that Changed our Minds”. It is part An octopus’s body contains 500m neu- biography ofa friendship and part account rons, roughly the same as a dog’s, but most of psychology’s impact, while also taking of these reside in the cephalopod’s arms in much of modern Israel’s history. It is a and allow the tentacles to act indepen- fine showcase ofMr Lewis’s range. dently from the brain (their arms literally Mr Kahneman was introverted, formal have a life of their own). The type of con- and pessimistic, and worked conventional sciousness experienced by an octopus, hours; Tversky was extroverted, informal then, is wholly alien to humans. and incorrigibly optimistic, keeping the Early experiments assumed that the in- hoursofa bat. Butthe two shared a fascina- The original fast and slow thinker telligence of animals could be estimated 1 74 Books and arts The Economist December 17th 2016

2 by their ability to carry out tasks, such as than the scientific literature suggests. De- with an opportunity to meet. “Some will learning to pull a lever in exchange for spite these displays of chutzpah, however, pass by others without incident, but an oc- food. Octopuses perform quite well in they have failed to become as smart as topus might also send out an arm to poke such tests but not as well as rats. Yet it is the mammalsorbirdsbecause, asa short-lived or probe at another,” Mr Godfrey-Smith anecdotes buried in research papers or re- and solitary species, they have not had to writes. “An arm, or two, might come back lated to him by scientists who work with contend with the many challenges of so- in response, and this leads sometimes to a animals that Mr Godfrey-Smith contends cial living that seem to drive the evolution settling-down, with each octopus going on are often more revealing than the experi- ofcomplex brains. its way, but in other cases it prompts a ments themselves. One researcher told “Other Minds” presents an intriguing wrestling match.” Could interactions like him of an octopus that expressed its dis- possibility in the form of Octopolis, off the these lead, over many thousands of years, pleasure with the lab food by waiting until east coast of Australia. A patch of sand a to the octopus becoming a brainier spe- she was looking before stuffing the few metres in diameter covered in thou- cies? It might if there were thousands of unwanted scrap ofsquid down the drain. sands of empty scallop shells, Octopolis such sites in the world’s oceans. Sadly, According to the author, such behav- appears to host up to a dozen or so octo- Octopolis is the only known example. If iour shows octopuses are more intelligent puses at any one time and presents them only, ifonly. 7 Johnson Off with their heads

The obsession with “elites” is absurd N ACADEMIC, a politician, a journal- you’re campaigning for, bashing elites anti-authority cultural changes of the Aist, a film star, a nobleman and a bank- seemsa safe bet, while admittingto being a 1960s, itseems, broughtwith them a rising er walk into a bar. They order different member ofan elite is an absolute no-go. concern with elites and their apologists. drinks, and sit at separate tables each do- The obsession with elites is relatively Data from the New York Times show ing their own thing. There is no punch recent: the oldest citation in the Oxford an even sharper spike in mentions of line; these people do not belong together English Dictionary (OED) dates back to elites since about 2010, as article after arti- in any sensible way. Yet members of these 1823. It was only a singular noun, from a cle has tried to diagnose anger at elites. groups and others are regularly given the past participle in French, meaning “cho- Populist anger is hardly surprising: elite fi- same label: “elites”. Careful writers sen”; from the same root as “to elect”. (Its nanciers tanked the global economy, elite should avoid this word; it is becoming a veryFrenchnessmaymake elite such a del- economists failed to foresee it and politi- junk-bin concept used by different people icious word for some Anglophones to hurl cal elites failed to respond effectively to mean wildly different things. as an insult.) The OED says the English enough. Those elites in the crosshairs had It is easy to understand why people noun is “The choice part or flower (of soci- to find other elites to blame, and they did reach for “elites”. If pundits can agree on ety, or ofany body or class ofpersons)”. so. Elite scientists and Hollywood liberals anything about 2016, it is surely that it has This entry has not yet been updated to whining about climate change cost coal- been bad for elites. Populist wave after include its more recent sense, the pejora- minerstheirjobs. Elite London journalists populist wave has broken over Western tive version, often plural, which can be noshing on sushi ignore the problems politics, with a vote forBrexit, the election glossed as “people with unearned privi- that hard-working northern Brits suffer as ofDonald Trump and Italy’s loss ofa pop- leges who keep honest folks from getting a a result ofimmigration. Cultural elites po- ular young prime minister over a consti- fair shake”. Data from Google Books show lice what can be said about minorities. tutional referendum that he called—and the plural word “elites” beginning to be And so on. lost. The masses are out forblood, and the used in about1940, with the obviously pej- But the rush to blame elites has nearly elites are quaking. orative “elitist” rising from about1960. The everyone in the crosshairs: Sketch Engine, But if you can picture those masses in a digital tool for lexicographers, finds your mind—pitchforks, torches, perhaps among the common modifiers for elite overalls—what do the elites look like? For not just obvious ones like “ruling”, Mr Trump, the hated elites comprise the “wealthy”, “monied”, but also “secular”, Washington political establishment and “cultural”, “educated”, “metropolitan” the press. But for his own opponents, the and “bureaucratic”. Elites are no longer very idea of a billionaire who lives in a “the choice part or flower” of a group, but golden tower swanning in and winning merely anyone in a position of influence himself the presidency just goes to show someone else thinks they do not deserve. what elite status can get you. Words aimed more precisely serve Campaigners for Brexit railed against their purpose better. Elites are an abstrac- liberal elites—the economists, academics tion. If people are angry at bankers or at and journalists who warned of its conse- climate scientists, they should say so spe- quences. But the face of the Leave cam- cifically. Those seeking to diagnose the paign was Boris Johnson, an Eton- and causes of the current wave of populism Oxford-educated toff. Michael Gove, an- need to understand what populist voters other Leaver, said that folks were tired of are truly angry about. Those who are an- “experts”. But Mr Gove, like Mr Johnson, gry at elites generally, but can’t say more is a former president of Oxford’s leading specifically who they are angry at or why, debating society, the Oxford Union, and should think twice before voting for a one of politics’ pointier heads. In other populistwho promisesto find and punish words, no matter who you are or what those elites, whoever they are. The Economist December 17th 2016 Books and arts 75

Fiction This is Mr Gold’s first Shakespeare play. For a director who tends to collaborate Managing the with living playwrights on new work, this marks a departure. Mr Gold was eager for traffic the challenge ofa more formally rhetorical play, particularly if his experiment could be off-Broadway. “The smaller the audi- ence, the easier it is for me to deliver the More. By Hakan Gunday. Translated by kind of performance that interests me,” he Zeynep Beler. Arcade Publishing; 398 pages; explains. Tackling the bard is “scary stuff”, $25.99 he admits, but he has tried to treat “Othel- TILLin hismid-teens, the precocious but lo” as if it were “a new play, without the Sdisturbed narrator of “More”, a novel burden of Shakespeare’s importance and about people-smugglers in Turkey, takes the rules that come along with it”. charge of a group of 33 Afghan refugees The 220-seat theatre’s small size means locked in a covered reservoir. As the that too few people will see this produc- “deity” of a “small country”, he watches tion, but it also means the actors can afford how authority and control evolve amid to be subtle. Because they know every- this microcosm of desperate humankind. thing they do can be seen and heard, their Effective leadership, he observes, rests on a performances often sound more like talk- ruler’s ability to foment a mood of “sus- ing than orating. Nearly everyone wrings tainable crisis”: a never-ending blend of out as much authenticity as possible from hope and dread that tightens his grip on their lines. At times the actors are so at ease power. in their roles that it seems like they are de- Ambitious, compelling, but relentlessly parting from the original script. This is an bleak, “More” suggests that the influx of illusion. The play has been trimmed slight- migrants into Europe from war-ravaged ly, but the text is unchanged (except that a regions of Asia and the Middle East has rousing rendition of “Hotline Bling” re- itself become a sustainable crisis. Though places the original drinking song). The pro- published in Turkey in 2013, Hakan Gun- duction runs for more than three hours, day’s first-person story ofa tormented traf- but it races by like a train hurtling towards ficker is set in the past: after his liberation its inevitable crash. from the trade, the narrator hears news of New York theatre The ensemble includes a few stand- the Taliban’s demolition of the Bamiyan outs. In yoga leggings and a cardigan, Ra- Buddha statues in March 2001. Bard chel Brosnahan is a sweet and perceptive Gaza, the wounded anti-hero, joins his Desdemona; Finn Wittrockis a fine, strong- father’s business, aged nine, as a transpor- off-Broadway jawed Cassio; and Matthew Maher nearly ter of human souls in 18-wheeler lorries steals all of his scenes as the otherwise across Turkey to the Aegean. Historical fic- marginal dupe, Roderigo. But the show of tion rather than a tale wrenched from re- course belongsto the two stars: David Oye- The stars align fora memorable cent headlines, his desolate testimony lowo as Othello and Daniel Craig as Iago production of“Othello” hints that the flow of the dispossessed has, (pictured). It is a marvel to see the raw tal- like the perpetual chaos of Afghanistan, F YOU see only one production of ent of these masters up close, without the become a fixed feature ofthe world. In this I“Othello” in your lifetime, make it the smoke and mirrors ofthe cinema. emergency without end, figures such as one which is on at the New York Theatre Mr Craig is a magnetic Iago, a thuggish Gaza and his demonic dad will always Workshop (NYTW) until January18th. Tick- weasel in a T-shirt and shorts who delivers offer to carry into paradise “those who’d ets sold out ages ago, but a cluster of hope- his lines as comfortably as he breathes. Per- escaped from hell”. fuls stand shivering outside before shows haps to subdue the glimmer of his celebri- Through the voice of this damaged in case ofreturns. They are right to try. ty (and evade the annoying habit of en- youngster, a “child pharaoh” whose or- From the start, it is clear something is trance applause), his first scenes take place deals drive him into a post-traumatic going on. The entire auditorium is plas- in total darkness. This is an intriguing breakdown, Mr Gunday measures the tered in plywood, with stadium seating ar- choice, which helps introduce the patter of harm inflicted on a bright boy “raised by ranged in the round. The set evokes an Shakespeare’s poetry to the ear without wolves to become one myself”. Zeynep army barracks, with mattresses arranged the distraction of Mr Craig’s impossibly Beler, the translator, lends the voice of this in rows. Two men are already onstage be- blue eyes. As for Mr Oyelowo, his transfor- damaged lad a scorching intensity. The cat- fore the play even starts, dressed like sol- mation from a regal, self-assured soldier alogue of violence and abuse, and the in- diers on break(camo shorts, chiselled mus- into a bloodthirsty creature undone by sistence that the refugee cargo contains its cles, shaved heads) and engrossed in the jealousy must be seen to be believed. share of “thieves, murderers, rapists and video-game “Guitar Hero”. Ifmost produc- Mr Oyelowo says he had long avoided child-molesters”, means “More” finds no tions ofShakespeare heighten how remote playing Othello, deeming it a bit “too obvi- sentimental upliftin itstheme. The visceral these workscan feel bysettingthe action at ous” a role. But he was won over by Mr punch and drive of its prose in many bra- a distant time in a distant land (a place Gold’splansto stage the play“in a world of vura passages—notably, the lorry crash where even American actors mysteriously now”. He adds that after a ten-year hiatus, that buries Gaza in a tide of corpses— sound English), this one, directed by Sam it also felt like it was time to return to the evokes Irvine Welsh or William Burroughs Gold, capitalises on the ways “Othello” is stage. “Nothing gets you closer to the truth more than “Oliver Twist”. Gaza is no angel, not just timeless but also timely. Atragedy of storytelling than live theatre,” he says. but as much a victim as the “meat” he about love, jealousy, war, ambition, race “There’s nowhere to hide. Ifyou’re not tell- helps shift: a hapless child soldier in our and rage, it feels startlingly appropriate in ing the audience the truth, you feel it. But “omnipresent state ofwar”. 7 the world oftoday. when it works, it’s magical.” 7 76 Economic and financial indicators The Economist December 17th 2016

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicdataGross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ † † † † Statisticslatest on 42qtr* economies 2016 pluslatest a latest 2016 rate, % months, $bn 2016 2016 bonds, latest Dec 14th year ago United Statescloser +1.6 look Q3 at +3.2world +1.6 GDP -0.6 Nov +1.6 Oct +1.3 4.6 Nov -488.2 Q2 -2.6 -3.2 2.49 - - China +6.7 Q3 +7.4 +6.7 +6.2 Nov +2.3 Nov +2.0 4.0 Q3§ +266.6 Q3 +2.5 -3.8 2.95§§ 6.90 6.46 Japan +1.1 Q3 +1.3 +0.7 -1.4 Oct +0.2 Oct -0.2 3.0 Oct +184.2 Oct +3.7 -5.6 0.07 115 121 Britain +2.3 Q3 +2.0 +2.0 -1.2 Oct +1.2 Nov +0.6 4.8 Sep†† -146.9 Q2 -5.7 -3.7 1.53 0.79 0.66 Canada +1.3 Q3 +3.5 +1.2 +2.8 Sep +1.5 Oct +1.5 6.8 Nov -53.6 Q3 -3.5 -2.5 1.79 1.31 1.37 Euro area +1.7 Q3 +1.4 +1.6 +0.6 Oct +0.6 Nov +0.2 9.8 Oct +376.3 Sep +3.2 -1.7 0.30 0.94 0.91 Austria +1.2 Q3 +2.4 +1.5 +2.6 Sep +1.3 Oct +1.1 5.9 Oct +8.2 Q2 +2.1 -1.4 0.60 0.94 0.91 Belgium +1.3 Q3 +0.7 +1.2 +4.4 Sep +1.8 Nov +1.9 7.9 Oct +4.8 Jun +0.7 -2.8 0.70 0.94 0.91 France +1.1 Q3 +1.0 +1.2 -1.8 Oct +0.5 Nov +0.3 9.7 Oct -40.0 Oct‡ -1.1 -3.3 0.79 0.94 0.91 Germany +1.7 Q3 +0.8 +1.8 +1.2 Oct +0.8 Nov +0.4 6.0 Nov +296.2 Oct +8.8 +1.0 0.30 0.94 0.91 Greece +1.6 Q3 +3.1 +0.4 +6.8 Oct -0.9 Nov nil 23.1 Sep -0.2 Sep -0.2 -5.6 7.10 0.94 0.91 Italy +1.0 Q3 +1.0 +0.8 +1.3 Oct +0.1 Nov -0.1 11.6 Oct +47.8 Sep +2.4 -2.6 1.80 0.94 0.91 Netherlands +2.4 Q3 +3.0 +2.0 +0.6 Oct +0.6 Nov +0.2 6.8 Oct +59.7 Q2 +8.5 -1.1 0.50 0.94 0.91 Spain +3.2 Q3 +2.9 +3.2 -2.1 Oct +0.7 Nov -0.4 19.2 Oct +23.5 Sep +1.6 -4.6 1.44 0.94 0.91 Czech Republic +1.6 Q3 +0.9 +2.4 -1.7 Oct +1.5 Nov +0.6 4.9 Nov§ +3.7 Q3 +1.5 nil 0.53 25.4 24.5 Denmark +1.1 Q3 +1.7 +0.9 -0.3 Oct +0.4 Nov +0.3 4.2 Oct +23.2 Oct +5.9 -1.0 0.45 6.98 6.77 Norway -0.9 Q3 -1.9 +0.7 nil Oct +3.5 Nov +3.5 4.8 Sep‡‡ +18.0 Q3 +4.9 +3.0 1.76 8.47 8.68 Poland +2.0 Q3 +0.8 +2.6 -1.3 Oct nil Nov -0.7 8.2 Nov§ -3.4 Oct -0.5 -2.7 3.47 4.16 3.96 Russia -0.4 Q3 na -0.5 -0.3 Oct +5.8 Nov +7.0 5.4 Oct§ +30.2 Q3 +2.4 -3.7 8.45 61.1 70.7 Sweden +2.8 Q3 +2.0 +3.1 -0.5 Oct +1.4 Nov +0.9 6.4 Oct§ +22.2 Q3 +5.0 -0.3 0.60 9.16 8.48 Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 -0.3 Nov -0.4 3.3 Nov +66.1 Q2 +9.4 +0.2 -0.03 1.01 0.98 Turkey -1.8 Q3 na +2.9 +0.2 Oct +7.0 Nov +7.8 11.3 Aug§ -33.8 Oct -4.8 -1.8 11.50 3.47 2.99 Australia +1.8 Q3 -1.9 +2.9 -0.2 Q3 +1.3 Q3 +1.3 5.7 Nov -47.9 Q3 -3.5 -2.1 2.74 1.33 1.38 Hong Kong +1.9 Q3 +2.5 +1.6 -0.1 Q3 +1.2 Oct +2.8 3.4 Oct‡‡ +13.6 Q2 +2.6 +0.6 1.72 7.76 7.75 India +7.3 Q3 +8.3 +7.2 -1.9 Oct +3.6 Nov +4.9 5.0 2015 -11.1 Q3 -0.9 -3.8 6.41 67.5 67.1 Indonesia +5.0 Q3 na +5.0 -2.7 Oct +3.6 Nov +3.5 5.6 Q3§ -19.2 Q3 -2.1 -2.6 7.78 13,296 14,078 Malaysia +4.3 Q3 na +4.3 +4.2 Oct +1.4 Oct +1.9 3.5 Sep§ +5.6 Q3 +1.8 -3.4 4.14 4.45 4.33 Pakistan +5.7 2016** na +5.7 +1.9 Sep +3.8 Nov +3.8 5.9 2015 -4.1 Q3 -0.9 -4.6 8.03††† 105 105 Philippines +7.1 Q3 +4.9 +6.4 +8.3 Oct +2.5 Nov +1.7 4.7 Q4§ +3.2 Jun +0.7 -1.0 4.56 49.7 47.3 Singapore +1.1 Q3 -2.0 +1.3 +1.2 Oct -0.1 Oct -0.6 2.1 Q3 +63.0 Q3 +21.5 +0.7 2.45 1.42 1.41 South Korea +2.6 Q3 +2.5 +2.7 -1.6 Oct +1.3 Nov +0.9 3.1 Nov§ +99.9 Oct +7.2 -1.3 2.13 1,170 1,185 Taiwan +2.0 Q3 +3.9 +1.0 +3.7 Oct +2.0 Nov +1.3 3.9 Oct +74.7 Q3 +14.4 -0.5 1.12 31.8 32.9 Thailand +3.2 Q3 +2.2 +3.1 +0.1 Oct +0.6 Nov +0.2 1.2 Oct§ +47.4 Q3 +7.8 -2.3 2.57 35.6 36.1 Argentina -3.4 Q2 -8.0 -2.0 -2.5 Oct — *** — 8.5 Q3§ -15.4 Q2 -2.5 -5.0 na 15.9 9.78 Brazil -2.9 Q3 -3.3 -3.4 -7.3 Oct +7.0 Nov +8.3 11.8 Oct§ -22.3 Oct -1.1 -6.4 11.86 3.32 3.89 Chile +1.6 Q3 +2.5 +1.8 -7.4 Oct +2.9 Nov +3.7 6.4 Oct§‡‡ -4.8 Q3 -1.9 -2.7 4.37 656 712 Colombia +1.2 Q3 +1.3 +1.8 +4.0 Sep +6.0 Nov +7.5 8.3 Oct§ -15.7 Q2 -5.1 -3.7 7.33 2,959 3,354 Mexico +2.0 Q3 +4.0 +2.1 -1.4 Oct +3.3 Nov +2.8 3.6 Oct -30.6 Q3 -2.8 -3.0 7.27 20.2 17.4 Venezuela -8.8 Q4~ -6.2 -13.7 na na +424 7.3 Apr§ -17.8 Q3~ -2.8 -24.3 10.57 10.0 6.31 Egypt +4.5 Q2 na +4.3 -4.9 Oct +19.4 Nov +13.1 12.6 Q3§ -18.7 Q2 -7.0 -12.4 na 18.5 7.83 Israel +5.0 Q3 +3.2 +3.2 +2.6 Sep -0.3 Oct -0.5 4.5 Oct +13.3 Q3 +2.9 -2.4 2.19 3.80 3.86 Saudi Arabia +3.5 2015 na +1.1 na +2.6 Oct +3.8 5.6 2015 -61.5 Q2 -5.6 -11.7 na 3.75 3.75 South Africa +0.7 Q3 +0.2 +0.4 -1.3 Oct +6.6 Nov +6.3 27.1 Q3§ -12.3 Q3 -4.0 -3.4 8.93 13.7 15.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% †††Dollar-denominated bonds. The Economist December 17th 2016 Economic and financial indicators 77

Markets % change on World GDP Contribution to growth, percentage points Dec 31st 2015 The world economy grew by 2.7% in the China India United States Index one in local in $ third quarter of 2016 compared with a Russia Brazil Other emerging markets Dec 14th week currency terms Markets year earlier, down from 2.8% the previous All other countries United States (DJIA) 19,792.5 +1.2 +13.6 +13.6 quarter. Growth remains steady in India i 3,288.3 -2.5 -11.2 -16.5 Total, % increase Ch na (SSEA) on a year earlier* 3.5 Japan (Nikkei 225) 19,253.6 +4.1 +1.2 +5.8 and China: together they accounted for Britain (FTSE 100) 6,949.2 +0.7 +11.3 -4.1 65% of world growth. Other emerging 3.0 markets struggled: they contributed Canada (S&P TSX) 15,197.2 -0.3 +16.8 +23.9 2.5 Euro area (FTSE Euro 100) 1,087.7 +2.2 -0.6 -2.5 16%, down from 21% in the previous Euro area (EURO STOXX 50) 3,211.7 +2.2 -1.7 -3.6 quarter, their lowest share since 2008. In 2.0 Austria (ATX) 2,596.7 +0.1 +8.3 +6.2 particular, falling smartphone exports 1.5 Belgium (Bel 20) 3,545.9 +0.4 -4.2 -6.0 took a heavy toll on South Korea. Norway 1.0 France (CAC 40) 4,769.2 +1.6 +2.9 +0.9 was the only rich country in our sample Germany (DAX)* 11,244.8 +2.3 +4.7 +2.6 whose economy contracted, partly be- 0.5 Greece (Athex Comp) 619.2 -3.3 -1.9 -3.8 + cause of a decline in oil-related activities. 0 Italy (FTSE/MIB) 18,606.3 +2.6 -13.1 -14.8 – Netherlands (AEX) 472.2 +2.2 +6.9 +4.8 The United States was a bright spot: the 0.5 Spain (Madrid SE) 929.0 +3.1 -3.7 -5.6 economy expanded faster than it did in 2013 14 15 16 Czech Republic (PX) 903.0 +1.0 -5.6 -7.4 the second quarter, boosted by exports Sources: Haver *Estimates based on 57 economies Denmark (OMXCB) 772.7 +2.4 -14.8 -16.1 and federal government spending. Analytics; IMF; representing 83% of world GDP. The Economist Weighted GDP at purchasing-power parity Hungary (BUX) 31,374.3 +4.1 +31.2 +29.5 Norway (OSEAX) 757.6 +2.1 +16.7 +22.1 Poland (WIG) 51,357.8 +1.9 +10.5 +4.9 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,148.9 +7.7 +27.1 +51.8 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,541.4 +2.5 +6.5 -2.0 Dec 31st 2015 The Economist commodity-priceone index one Switzerland (SMI) 8,140.4 +2.7 -7.7 -8.5 Index one in local in $ Dec 6th Dec 13th* month year Turkey (BIST) 76,880.8 +1.1 +7.2 -9.7 Dec 14th week currency terms Dollar Index Australia (All Ord.) 5,639.7 +1.9 +5.5 +8.7 United States (S&P 500) 2,253.3 +0.5 +10.2 +10.2 All Items 144.3 144.3 +3.1 +14.5 Hong Kong (Hang Seng) 22,456.6 -1.5 +2.5 +2.4 United States (NAScomp) 5,436.7 +0.8 +8.6 +8.6 Food 156.6 155.0 +0.7 +4.4 India (BSE) 26,602.8 +1.4 +1.9 -0.2 China (SSEB, $ terms) 345.0 -1.7 -14.0 -19.1 Indonesia (JSX) 5,262.8 nil +14.6 +18.8 Japan (Topix) 1,538.7 +3.2 -0.6 +4.0 Industrials Malaysia (KLSE) 1,643.3 +0.7 -2.9 -6.2 Europe (FTSEurofirst 300) 1,406.7 +2.4 -2.1 -4.0 All 131.5 133.2 +6.1 +29.6 Pakistan (KSE) 46,185.3 +3.8 +40.7 +40.7 World, dev'd (MSCI) 1,774.0 +1.4 +6.7 +6.7 Nfa† 134.9 140.6 +9.5 +29.1 Singapore (STI) 2,954.1 -0.2 +2.5 +2.2 Emerging markets (MSCI) 877.2 +1.1 +10.5 +10.5 Metals 130.0 130.1 +4.6 +29.8 South Korea (KOSPI) 2,036.9 +2.3 +3.9 +4.1 World, all (MSCI) 427.5 +1.4 +7.1 +7.1 Sterling Index Taiwan (TWI) 9,368.5 +1.1 +12.4 +16.2 World bonds (Citigroup) 884.7 -1.2 +1.7 +1.7 All items 206.6 207.0 +0.7 +35.8 Thailand (SET) 1,521.3 nil +18.1 +19.4 EMBI+ (JPMorgan) 765.5 -0.6 +8.7 +8.7 Argentina (MERV) 16,918.4 -1.6 +44.9 +17.8 Hedge funds (HFRX) 1,203.2§ +0.4 +2.5 +2.5 Euro Index Brazil (BVSP) 58,212.1 -5.2 +34.3 +59.9 Volatility, US (VIX) 12.6 +12.2 +18.2 (levels) All items 167.3 168.7 +3.9 +17.5 Chile (IGPA) 21,134.4 +0.3 +16.4 +25.8 CDSs, Eur (iTRAXX)† 70.8 -4.4 -8.2 -10.0 Gold Colombia (IGBC) 9,905.6 +1.1 +15.9 +24.3 CDSs, N Am (CDX)† 67.8 -0.2 -23.3 -23.3 $ per oz 1,171.2 1,159.8 -5.3 +9.3 Mexico (IPC) 46,220.5 +1.3 +7.5 -8.1 Carbon trading (EU ETS) € 5.0 +16.5 -39.6 -40.7 West Texas Intermediate Venezuela (IBC) 32,579.3 -9.8 +123 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 50.9 53.0 +15.7 +42.1 Egypt (EGX 30) 11,317.2 -0.3 +61.5 -32.6 †Credit-default-swap spreads, basis points. §Dec 12th. Israel (TA-100) 1,271.6 +1.0 -3.3 -1.1 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) 7,066.0 -0.8 +2.2 +2.3 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 50,716.3 +2.5 nil +13.5 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary John Glenn The Economist December 17th 2016

important thing, he mused later, was not fear, but what you can do to control it. The splashdown proved flawless. At Cape Canaveral he was greeted and deco- rated on the spot by President John Kenne- dy. In NewYork, 4m people turned outfor a ticker-tape parade. Mr Glenn ranked with the greatest aviators, the Wright Brothers and Charles Lindbergh, in the American pantheon. Ajoint session ofCongress gave him a standingovation. He wasso popular, the BBC’sAlastairCooke said onlyhalf-jok- ingly, that he could have “abolished the Constitution and been proclaimed presi- dent overnight”.

What on earth did he do? His success had opened the way for the moon landings, yet his popularity kept him grounded. Without the astronaut’s knowledge, JFK ruled out any more space flights. America’s idol was too precious to lose—and perhaps more useful elsewhere. The Kennedys urged him to enter politics. His early steps were faltering, and a frailer soul might have been daunted by his men- tors’ fate; in 1968 it was Mr Glenn who had to tell BobbyKennedy’schildren oftheir fa- Right up there ther’s assassination. But in 1974 he stormed through the Democratic primary in his home state of Ohio after the incumbent senator, a tax- dodging tycoon, implied that the challeng- er lacked real-world experience. With cos- mic scorn, Mr Glenn suggested that his op- John Glenn, astronaut and politician, died on December8th, aged 95 ponent visit a veterans’ hospital and “look OO big, too unschooled, too old—only mid-Westerner. His austere approach grat- those men with mangled bodies in the Tnarrowly did John Glenn gain entry to ed on some colleagues—though Mr Glenn eyes and tell them they didn’t hold a job”. the training programme which made him insisted he was not the “pious saint”, nor In many ways he was a model lawmak- America’s space hero. To meet NASA’s size the other guys the “hellions” depicted in er, diligent and moderate. There was just requirements, he briskly lost 28lb (nearly the film version of Tom Wolfe’s “The Right one whiff of scandal in 24 years, when he 13kg), even putting books on his head to try Stuff”. unwisely associated with Charles Keating, to squeeze a little offhis height. Gloom and ire alike ended on February a fraudster in search of a bail-out. He pro- Nothing could be done about his age 20th 1962. To the words “Godspeed, John moted environmentalism, nuclear non- (pushing 40), nor his lack of scientific qual- Glenn” from Mission Control he and proliferation and (of course) space travel: it ifications—he had dropped out of his engi- America’s hearts soared to the heavens in wasn’t whether America could afford the neering course in 1941 after learning to fly. the Friendship 7. In the space of four hours programme, but whether it could afford But what flying it was: 149 combat mis- and 55 minutes he saw three sunrises, cir- not to. He strongly defended evolution, sions, first against Japan in the Pacific, then cling the Earth at more than 17,000mph too. Science and religious belief did not in the Korean war; one of them left more (27,000kph). Puzzlingly, he also saw what clash: they reinforced each other. He had than 200 bullet-holes in his plane’s fuse- looked like fireflies, resting on the window. seen more of God’s creation than most lage. They earned him the nickname “The A malfunction on the spacecraft? A sign of people, he would note. MiG-mad Marine”, six Distinguished Fly- failing eyesight? A celestial mirage, or even He was bad at delegating and a dull ing Crosses and 18 clusters on his Air Med- (some wondered) a miracle? Laterit turned speaker: his fireside chats would put out al. And he was a celebrity already, having out that they were frozen crystals of con- the fire, people said unkindly. His sole bid just made America’s first transcontinental densation, catching the sunlight. for the Democratic nomination, in 1984, supersonic flight, in a record three hours 23 The run-up had been testing, with ten crashed amid humiliation and debts. His minutes, testing a new fighter aircraft. delays stretching over two months. But legislative achievements were modest. His country’s spirits needed lifting in once in orbit, a more serious worry But in 1998, in his final year in the Sen- 1959. The Soviet space programme seemed dawned. Some controls in the capsule had ate, he became, aged 77, the oldest person unbeatable. Communist scientists had put apparently failed, meaning that the astro- to go into space. In theory, the mission was the first satellite, dog and man into orbit, naut himself would have to work out the to study the ageing process. But in truth, while America’s efforts flared and fizzled angle of his re-entry to the Earth’s atmo- most reckoned, it was a favour from his on the launch pad. Despite the mishaps, sphere. Worse (but also wrongly) NASA friend President Bill Clinton. Few be- there was intense rivalry for the privilege had received a signal suggesting that the grudged him his last hurrah. Not until the of perching in a flimsy metal capsule on capsule’s heat shield had, lethally, broken age of 90 did he give up flying: old people, top of100-plus tonnes of rocket fuel. It was loose. In the nerve-racking final minutes of he insisted, should not let the calendar dic- another contest just made for the clean-cut the flight, his pulse raced from 87 to 132. The tate their lives. 7