Game of Groans AUGUST 12TH–18TH 2017Roadkill Fiduciary: It’S the Word Independent Advisors Live By

Fire and fury over North Korea

The Fed’s runners and riders

Was Google right to sack him?

Competitive punning: game of groans AUGUST 12TH–18TH 2017Roadkill Fiduciary: It’s the word independent advisors live by.

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5 The world this week Asia 28 America and North Korea Leaders Tone Defcon 7 The death of the internal 29 Tokyo’s vanishing combustion engine bath-houses Roadkill Troubled waters 8 South Africa 29 Singapore’s first family Long walk to cronyism Bad blood 10 Google and gender 30 Muslim minorities (1) Not evil, just wrong Trampled in Thailand American health care If you 10 Russia and NATO 31 Muslim minorities (2) want to fix a system that is Dangerous games Myanmar’s scapegoats 32 Banyan buckling under pressure, look 12 University finances to Europe, page 22 The English solution Phones v state in North On the cover Korea The internal combustion engine had a good run. But Letters the end is in sight for the China 14 On Brexit, America, machine that changed the edtech, carbon emissions, 33 Rural Hong Kong world: leader, page 7. The virtual reality, the Big Housing ding-dong battery industry has vaulting Mac index 34 Tourism ambitions. Can it achieve Love yurts them? Page16.Atomic power stations that float on Briefing the ocean, or are anchored 16 Batteries Middle East and Africa beneath it, may have Electrifying everything 35 Kenya’s disputed election advantages over those built A country on edge on land, page 63 Russia By refusing to allow 36 Scions behaving badly United States observers at next month’s Despots’ brats on Instagram 19 Attitudes to immigration Zapad 2017military exercise, The Economist online Still yearning 36 Iraqi Kurdistan Vladimir Putin is stoking fear Inching towards Kexit 20 College admissions and suspicion: leader, page10. Daily analysis and opinion to 37 Hizbullah Why NATO is so alarmed, page 39 supplement the print edition, plus After affirmative action When the guns come home audio and video, and a daily chart 21 Labour unions Economist.com One and done 38 Israeli politics Prime suspect E-mail: newsletters and 22 Prisons mobile edition Company town Economist.com/email 22 Health care Europe Print edition: available online by European lessons 39 War games in Europe 7pm London time each Thursday 24 Lexington Mr Putin flexes his muscles Economist.com/print The Democrats 40 A Croatian firm’s collapse Audio edition: available online Supermarket chain reaction to download each Friday 40 Mediterranean drought Economist.com/audioedition The Americas Nor any drop to drink 25 Charter cities in Honduras 41 Freedom for the Faroes Kenya As the opposition A shadowy experiment Fishing for liberty contests the count, a peaceful 27 Chile 42 Charlemagne vote is threatened by violence, Lifting the abortion ban France v Italy page 35 Volume 424 Number 9053 27 Ecuador Published since September1843 Moreno asserts himself Britain to take part in "a severe contest between 43 Higher education intelligence, which presses forward, and an unworthy, timid ignorance obstructing University challenge our progress." 45 Bagehot Editorial offices in London and also: Has Corbyn peaked? Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf 4 Contents The Economist August 12th 2017

International Science and technology 46 The global techlash 63 Nuclear energy Chaining giants Putting to sea 64 Genetic engineering Business Cracking down on PERVs 48 Silicon Valley’s culture 65 Hypersonic travel You’re fired Hot stuff 49 Israeli business Startup and leave nation Books and arts 50 Fox’s bid for Sky 66 Puns and punning North Korea Donald Trump’s Language Why English is the What the Fox said Away with words bluster may thwart efforts to tongue of word champuns, get the nuclear dictatorship to 50 Helen Alexander 67 Henry David Thoreau page 66 negotiate, page 28. The best of bosses Wild American Smartphones help North 52 The business of airports 67 “Jane Eyre” Koreans keep track of what’s Ready to depart The secret history Subscription service going on. Unfortunately, they For our latest subscription offers, visit 53 Schumpeter 68 Bernardo Atxaga’s fiction Economist.com/offers also help the regime keep Suspicious minds Nevada days For subscription service, please contact by track of its people: Banyan, telephone, fax, web or mail at the details 68 Autism page 32 provided below: Economics brief The rise of the North America autie-biography The Economist Subscription Center 54 Say’s law P.O. Box 46978, St. Louis, MO 63146-6978 Glutology 69 Beit Beirut Telephone: +1 800 456 6086 Museum of memory Facsimile: +1 866 856 8075 E-mail: [email protected] Finance and economics Latin America & Mexico 72 Economic and financial The Economist Subscription Center 56 The Fed’s next chair P.O. Box 46979, St. Louis, MO 63146-6979 indicators Telephone: +1 636 449 5702 Rate race Facsimile: +1 636 449 5703 Statistics on 42 economies, E-mail: [email protected] 57 Buttonwood plus our monthly poll of Not as smart as they think forecasters Subscription for 1 year (51 issues) 58 Banking in Australia United States US $158.25 (plus tax) Canada CA $158.25 (plus tax) Cuckoo in the nest Obituary Latin America US $289 (plus tax) 58 Dutch disease Google There were better ways 74 Jeanne Moreau The Nigerian complaint of dealing with an outspoken Life as defiance Principal commercial offices: employee than immediately 59 American infrastructure 25 St James’s Street, London sw1a 1hg sacking him: leader, page10. Idle shovels Tel: +44 20 7830 7000 An internal memo inflames the 59 Risky sovereign bonds Rue de l’Athénée 32 debate about sexism and free Still crazy 1206 Geneva, Switzerland Tel: +4122 566 2470 speech at work, page 48. Even 60 Football finance 750 3rd Avenue, 5th Floor, New York, NY 10017 as big tech firms thrive, they Shooting stars are facing more government Tel: +1212 5410500 scrutiny than ever, page 46 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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Senate killed a proposal for a opposition to the country’s The state has drifted towards Politics referendum in which voting authoritarian regime. Ms the Republicans partly would be mandatory. But the Ortega had called it a “mock- because ofthe Democrats’ strongest opposition to the ery ofthe people”. Meanwhile, green agenda, which hurts mandatory vote came from Mercosur, a South American local coalmining jobs. Joe supporters ofsame-sex mar- trade bloc, suspended Venezu- Manchin, a conservative riage, who worried that it ela as a member. Armed men Democratic senator, is already would be divisive. under the command ofa dis- feeling the pressure in his bid sident captain attacked an forre-election next year. An earthquake in the Chinese army base, urging soldiers to province ofSichuan killed at rebel against the government. An attacker threw a small least19 people and injured 250. bomb at a mosque in America imposed sanctions Bloomington, Minnesota. No Clinging on on eight more Venezuelan one was injured. The governor Jacob Zuma, the president of officials, including the brother described it as a “dastardly” act South Africa, kept his job after ofthe late Hugo Chávez, the ofterrorism. Tensions rose between North a motion ofno confidence leader ofthe country’s “Boli- Korea and America. The sponsored by the opposition varian revolution”. In all, A leaked draft report by scien- regime ofKim Jong Un threat- failed to gather the 201votes America has levied sanctions tists working in 13 federal ened to strike at American needed to remove him from on nearly 40 Venezuelans. agencies concluded that armed forces in Guam, a office. Yet his victory was a climate change is real and response to a warning from slender one: perhaps a sixth of Joaquín “El Chapo” Guzmán, already affecting America. The Donald Trump to unleash “fire the MPs from the ruling the formerleader ofMexico’s report was leaked by the and fury like the world has African National Congress Sinaloa drug gang awaiting scientists apparently because never seen” ifthe regime con- abstained or voted with the trial in New York, announced they feared that the Trump tinued to threaten America opposition. his legal team. They include administration would try to with its nuclear weapons. The two lawyers who successfully suppress it. heated rhetoric worried many Supporters ofRaila Odinga, defended John Gotti junior, and eclipsed an earlier deci- the main leader ofthe opposi- the son ofa mafia boss, who In a lower key sion by the UN Security Coun- tion in Kenya, tookto the had been put on trial forracke- cil to impose stringent new streets as a preliminary count teering and kidnapping. sanctions on North Korea. ofvotes cast in a presidential election suggested that he had Watching Mueller’s back Myanmar’s official investiga- lost to the incumbent, Uhuru Rod Rosenstein, the official at tion into the human-rights Kenyatta. Mr Odinga said the the Justice Department who abuses committed by the army early results were “fake” and appointed Robert Mueller as in a crackdown against the claimed that computers tabu- special counsel to investigate Rohingya minority last Octo- lating them had been hacked. Russian meddling in last year’s ber concluded that no such election, publicly defended the crimes had occurred. Earlier probe, which Donald Trump this year the UN reported mass has criticised forgiving cre- killings, rapes and beatings dence to a “phoney story”. Mr committed against the Muslim Rosenstein reiterated that the A car ploughed into a group of Rohingya and called on the investigation was subject to soldiers who were patrolling a government to hold those due legal process and was not suburb ofParis, injuring six. responsible to account. Myan- a “fishing expedition”. Two The driver deliberately drove mar’s response was to bar the senators recently unveiled a into the men, who had been UN from conducting its own bipartisan measure that would deployed as part ofOpération investigation. protect Mr Mueller from being Sentinelle under France’s state sacked on Mr Trump’swhim. ofemergency. The police The Maldives looked set to arrested a suspect in the north execute murderers forthe first Paul Kagame, the president of Chicago filed a lawsuit against ofthe country. It is the latest of time since the mid-1950s, when Rwanda, won a third seven- the Justice Department for several attacks on the security Britain was the colonial power. year term in office with nearly threatening to blockfederal forces in France. Amnesty International 99% ofthe vote in an election. funds that the city puts decried the island chain’s Mr Kagame has in effect ruled towards policing, because it The UN special envoy to Libya restoration ofthe death penal- Rwanda since 1994 when he won’t help the feds identify endorsed Italy’s naval mission ty as a “transparent ploy” by led a rebel force that ended a illegal immigrants. Chicago is to support the Libyan coast- the government to distract genocide against Tutsis. the first “sanctuary city” to guard in trying to curb the flow attention away from the coun- take such legal action. Rahm ofmigrants in the Mediterra- try’s political troubles. Government by decree Emanuel, the mayor, described nean. Launched earlier this Venezuela’s newly elected the federal threat to withhold month, the controversial mis- Australia’s debate on whether constituent assembly declared the funds as blackmail. sion has sparked criticism from to legalise gay marriage got itselfthe most powerful body human-rights groups foren- even more complicated. The in the country and sacked the The governor ofWest Virgin- dangering migrants’ lives as government decided to hold attorney-general, Luisa Ortega ia, Jim Justice, switched par- well as from Libyan factions an advisory voluntary postal Díaz. The assembly was elect- ties, abandoning the Demo- opposed to the UN-backed vote on the issue afterthe ed in a vote boycotted by the crats to become a Republican. government. 1 6 The world this week The Economist August 12th 2017

into an annual loss. The British move yet by a Hollywood some medicines by up to Business government still retains a studio to take backcontrol of 5,000%. His nonchalant majority stake in RBS, nine the distribution ofits content response to that furore made An internal memo written by a years after its bail-out. online. From 2019 fans will him the bête noire ofWall male engineer at Google that have to sign up for Disney’s Street. He was similarly laid claimed biological factors The national statistics agency online services ifthey want to backat his fraud trial, receiving accounted forthe gender gap in Greece suspended public watch the latest releases featur- a rebuke from the judge to stop in Silicon Valley sparked an publication of“flash” esti- ing Disney characters, in- talking. He will be sentenced uproar. James Damore said he mates ofGDP. Officials from cluding those from its Pixar within the next few months. had wanted to start an “honest the IMF and euro zone have studio subsidiary. discussion” about the lackof raised concerns that these At the conclusion ofhis trial on women in senior jobs, a dis- initial calculations ofGreek Meanwhile, Netflix made its bribery charges, Lee Jae-yong, cussion he argued was impos- economic growth vary greatly first-ever acquisition by agree- the de facto head ofthe sible in the tech industry be- from the “provisional” esti- ing to buy Millarworld, a Samsung conglomerate, fought cause ofan intolerance of mates that follow. Flash esti- publisher ofcomic books. backtears as he denied any views from outside the liberal mates will be provided again Netflix will produce its own wrongdoing. Prosecutors are mainstream. Google subse- once the number-crunchers programming based on Millar- seeking a 12-year prison quently sacked Mr Damore for improve their data-gathering. world’s stable ofcharacters, sentence. The case is connect- violating its code ofconduct. though the deal does not ed to the scandal that led to the Altice, a French telecoms include the successful Kings- downfall ofParkGeun-hye as After weeks ofnegotiations, company that has splurged on man and Kick-Ass series. South Korea’s president. The Va nt iv strucka deal to buy debt-laden acquisitions, was court will pronounce its ver- Worldpay, which the compa- reported to be interested in dict on Mr Lee on August 25th. nies valued at £9.3bn ($12bn). buying Charter Communica- Based in Cincinnati, Vantiv is tions, America’s second- Out of the shadows one ofAmerica’s biggest pro- biggest provider ofcable-TV. India’s government said the cessors ofcredit-card pay- Other companies are circling number oftax returns filed by ments and electronic money- Charter, notably SoftBankof this stage ofthe year had risen transfers. Worldpay is Britain’s Japan, lured by its 26m sub- by 25% compared with the biggest payment-processor. scribers. A deal could be worth same period in 2016. It attribut- Vantiv’s shareholders will upwards of$180bn. ed this to its crackdown on tax own 57% ofthe combined evasion through measures group, to be called Worldpay. Brave such as demonetisation, Disney said it planned to which tooklarge-denom- Not so intelligent launch two online streaming A jury in Manhattan convicted ination notes out ofcircula- Commonwealth Bank of networks—one forits films and Martin Shkreli ofthree counts tion. Still, the 28m tax returns Australia scrapped bonuses the other forits ESPN sports ofsecurities fraud related to filed so faris about the same forits chiefexecutive and channel—and that in two hedge funds he once ran. Mr number as in 2013. senior management, after years’ time its new movies Shkreli hit the headlines in Australia’s financial-intelli- would no longer be available 2015 when a drugs company he Other economic data and news gence agency charged it with on Netflix. It is the biggest founded increased the price of can be found on pages 72-73 breaching money-laundering and anti-terror laws. The lawsuit alleges that the bank lapsed in checking 53,500 transactions over a three-year period at its “intelligent” cash machines, where money can be deposited anonymously. The bankhas blamed a software error, since rectified, for not alerting the authorities to suspicious activity.

Royal Bank of Scotland reported a net profit of£939m ($1.2bn) forthe first halfof the year, its best six-month performance in three years. The bank booked some ofthe costs it incurred from a recent settle- ment with America’s housing finance agency formis-selling risky mortgage-backed securities. The Department ofJustice is expected to levy a separate fine in the case by the end of the year, which may push RBS Leaders The Economist August 12th 2017 7 Roadkill

The internal combustion engine had a good run. But the end is in sight forthe machine that changed the world UMAN inventiveness… cars are worried that they could be forthe chop. With less to go “Hhas still not found a wrong, the market for maintenance and spare parts will mechanical process to replace shrink. While today’s carmakers grapple with theircostly lega- horses as the propulsion for ve- cy of old factories and swollen workforces, new entrants will hicles,” lamented Le Petit Jour- be unencumbered. Premium brands may be able to stand out nal, a French newspaper, in De- through styling and handling, but low-margin, mass-market cember 1893. Its answer was to carmakers will have to compete chiefly on cost. organise the Paris-Rouen race Assuming, of course, that people want to own cars at all. for horseless carriages, held the following July. The 102 en- Electric propulsion, along with ride-hailing and self-driving trants included vehicles powered by steam, petrol, electricity, technology, could mean that ownership is largely replaced by compressed airand hydraulics. Only 21qualified forthe 126km “transportasa service”, in which fleetsofcarsofferrides on de- (78-mile) race, which attracted huge crowds. The clear winner mand. On the mostextreme estimates, thatcould shrink the in- was the internal combustion engine. Over the next century it dustry by as much as 90%. Lots of shared, self-driving electric would go on to power industry and change the world. cars would let cities replace car parks (up to 24% of the area in some places) with new housing, and let people commute from The big end far away as they sleep—suburbanisation in reverse. But its days are numbered. Rapid gains in battery technology Even without a shift to safe, self-driving vehicles, electric favour electric motors instead (see page 16). In Paris in 1894 not propulsion will offer enormous environmental and health a single electric car made it to the starting line, partly because benefits. Charging car batteries from central power stations is they needed battery-replacement stations every 30km or so. more efficient than burning fuel in separate engines. Existing Today’s electric cars, powered by lithium-ion batteries, can do electric cars reduce carbon emissions by 54% compared with much better. The Chevy Bolt has a range of 383km; Tesla fans petrol-powered ones, according to America’s National Re- recently drove a Model S more than 1,000km on a single sources Defence Council. That figure will rise as electric cars charge. UBS, a bank, reckonsthe “total costofownership” ofan become more efficient and grid-generation becomes greener. electric car will reach parity with a petrol one next year—albeit Local air pollution will fall, too. The World Health Organisa- at a loss to its manufacturer. It optimistically predicts electric tion says that it is the single largest environmental health risk, vehicles will make up 14% of global car sales by 2025, up from with outdoor air pollution contributing to 3.7m deaths a year. 1% today. Others have more modest forecasts, but are hurriedly One study found that car emissions kill 53,000 Americans revising them upwards as batteries get cheaper and better—the each year, against 34,000 who die in traffic accidents. cost per kilowatt-hour has fallen from $1,000 in 2010 to $130- 200 today. Regulations are tightening, too. Last month Britain Autos and autocracies joined a lengthening list of electric-only countries, saying that And then there is oil. Roughly two-thirds ofoil consumption in all new cars must be zero-emission by 2050. America is on the roads, and a fair amount of the rest uses up The shift from fuel and pistons to batteries and electric mo- the by-products ofrefining crude oil to make petrol and diesel. tors is unlikely to take that long. The first death rattles ofthe in- The oil industry is divided about when to expect peak de- ternal combustion engine are already reverberating around mand; Royal Dutch Shell says that it could be little more than a the world—and many ofthe consequences will be welcome. decade away. The prospect will weigh on prices long before To gauge what lies ahead, think how the internal combus- then. Because nobody wants to be left with useless oil in the tion engine hasshaped modern life. The rich world was rebuilt ground, there will be a dearth ofnew investment, especially in for motor vehicles, with huge investments in road networks new, high-cost areas such as the Arctic. By contrast, producers and the invention ofsuburbia, along with shopping malls and such as Saudi Arabia, with vast reserves that can be tapped drive-through restaurants. Roughly 85% of American workers cheaply, will be under pressure to get pumping before it is too commute by car. Carmaking was also a generator ofeconomic late: the Middle East will still matter, but a lot less than it did. development and the expansion of the middle class, in post- Although there will still be a market fornatural gas, which will war America and elsewhere. There are now about1bn cars on help generate power for all those electric cars, volatile oil the road, almost all powered by fossil fuels. Though most of prices will strain countries that depend on hydrocarbon rev- them sit idle, America’s car and lorry engines can produce ten enuesto fill the national coffers. When volumesfall, the adjust- times as much energy as its power stations. The internal com- ment will be fraught, particularly where the struggle forpower bustion engine is the mightiest motor in history. has long been about controlling oil wealth. In countries such But electrification has thrown the car industry into turmoil. as Angola and Nigeria where oil has often been a curse, the dif- Its best brands are founded on their engineering heritage—es- fusion ofeconomic clout may bring immense benefits. peciallyin Germany. Compared with existingvehicles, electric Meanwhile, a scramble for lithium is under way. The price cars are much simpler and have fewer parts; they are more like of lithium carbonate has risen from $4,000 a tonne in 2011 to computers on wheels. That means they need fewer people to more than $14,000. Demand for cobalt and rare-earth ele- assemble them and fewer subsidiary systems from specialist ments for electric motors is also soaring. Lithium is used not suppliers. Carworkers at factories that do not make electric just to power cars: utilities want giant batteries to store energy 1 8 Leaders The Economist August 12th 2017

2 when demand is slack and release it as it peaks. Will all this ensuring that there is enough generating capacity—in spite of make lithium-rich Chile the new Saudi Arabia? Not exactly,be- many countries’ broken system of regulation. They may need cause electric cars do not consume it; old lithium-ion batteries to be the midwives to new rules and standards for public re- from cars can be reused in power grids, and then recycled. charging stations, and the recycling ofbatteries, rare-earth mo- The internal combustion engine has had a good run—and tors and other components in “urban mines”. And they will could still dominate shipping and aviation for decades to have to cope with the turmoil as old factory jobs disappear. come. But on land electric motors will soon oﬀer freedom and Driverless electric cars in the 21st century are likely to im- convenience more cheaply and cleanly. As the switch to elec- prove the world in profound and unexpected ways, just as ve- tric cars reverses the trend in the rich world towards falling hicles powered by internal combustion engines did in the electricity consumption, policymakers will need to help, by 20th. But it will be a bumpy road. Buckle up. 7

South Africa Long walk to cronyism

The ANC’s failure to dump Jacob Zuma reveals its lamentable moral decline HE most striking thing about either abstained or voted against their president. Tthe vote over whether to It is not hard to see why. MrZuma faces 783 charges of cor- sack Jacob Zuma was the claims ruption, which he denies; his next court hearingis next month. his supporters did not make. A report from the public protector, an ombudsman, has ac- Duringthe debate, in South Afri- cused Mr Zuma and the Guptas, a family of Indian business- ca’s parliament on August 8th, people, of orchestrating “state capture”. And the president’s no one said: “Let’s keep Mr son, Duduzane, may be called to answer questions before a Zuma as our president because parliamentary committee that is investigating allegations of he has done such a splendid job ofrunningthe country.” Some graft at state-owned companies involving some of Mr Zuma’s MPs from the ruling African National Congress (ANC) did not key allies. Before the vote Mr Zuma’s former minister of tou- mention him byname atall, so embarrassinghas his record be- rism, DerekHanekom, spoke for many disgruntled ANC mem- come. Instead, they accused the opposition of all manner of bers, not to mention the country as a whole, when he com- skulduggery and, of course, racism. The defence minister lik- plained of “massive looting and corruption”. Such is the ened the motion of no confidence in Mr Zuma to a coup. The cronyism and mismanagement of the Zuma administration arts minister called the opposition parties that supported the that South Africa has dipped into recession, its debt has been motion “Mickey Mouse organisations”. Shortly after Mr Zuma downgraded to junk and unemployment is a whopping 28% narrowly survived the vote, his police minister described (or 36% if one includes those who have given up looking for those who failed to backhis boss as “suicide-bombers”. work). The economy contracted at an annualised rate of 0.7% Mmusi Maimane, leader of the Democratic Alliance, the in the firstquarter, even asthe population swellsby 1.6% a year. largest (and most liberal) opposition group, spoke with more Meanwhile, Mr Zuma’s cronies have grown staggeringly and conviction. He called Mr Zuma a “corrupt and broken presi- ostentatiously rich. dent” and quoted ANC grandees, including two former presidents of South Africa, who had called either explicitly or im- A better life forsome plicitly for parliament to throw him out. He even suggested Although they lost, the opposition parties hope that the vote that Nelson Mandela, were he still alive, would have voted to will bind the ANC ever more closely in the eyes of voters to an ditch the president. Julius Malema, the leader of the other big unpopular president. This, they predict, will give them a better opposition party, the far-left Economic Freedom Fighters, was chance in national elections in 2019, especially if Mr Zuma even more forthright in his contempt forMr Zuma. manages to anoint his ex-wife, Nkosazana Dlamini-Zuma, as Yet when the votes were tallied, the great survivor clung to the next leader of the ANC (and thus in all likelihood its presi- power: the opposition fell 24 votes short of the 201 needed to dential candidate). That decision will be made at an ANC con- remove him. Hissupporterscelebrated bydancingand singing ference in December. Mr Zuma is thought to favour his former songs from the struggle against apartheid, South Africa’s old spouse in the hope that she will shield him from prosecution. racist regime, which ended in 1994. There have been several The Democratic Alliance, which did well in local elections last previous attempts in parliament to oust Mr Zuma, but this was year, thinks she would be easier to beat than someone with a the most significant yet because it was the first in which MPs different surname. were allowed to vote in secret. The Constitutional Court had If the opposition feels any private glee that the ANC is de- argued, in effect, that this was the only way ANC MPs could op- stroying itself, it is surely tempered by sadness. Few can be pose the president without fear of reprisals. But in the end, happy that Africa’s oldest liberation movement and a once- party loyalty and Mr Zuma’s considerable powers of patron- proud torchbearer of democracy has fallen so low. Even fewer age kept him in the job. relish the prospect ofSouth Africa enduringanothertwo years Nonetheless, the vote was a stark warning for the ANC. Mr under Mr Zuma. The president has ignored court orders, fired Zuma mustered only198 MPs in his defence, a woeful result for his most competent ministers, mismanaged public funds and the head of a party with 249 out of 400 seats in parliament. somehow got away with it. As forthe people who believed the Afteraccountingforabsentees, it seems that a fifth ofANC MPs ANC’s promise of“a betterlife forall”, they will have to wait. 7 ‘ We believe cycling fans deserve a revolutionary viewing experience’ Yann Le Moenner - Managing Director of A.S.O., organisers of the Tour de France

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Gender diversity and free speech Not evil, just wrong

Google had betterways ofdealing with an outspoken engineerthan immediately sacking him HE talk in Silicon Valley just puter engineers are women. Mr Damore claims women are Google employees Tnow is as likely to be about “more interested in people than things” but, if this were true, By sex, January 2017, % sex as software. Women in tech they would in fact be better than men at the senior software- 0150 00 ﬁrms feel badly treated. And engineering jobs that involve managing teams. As for blind Non- Men Women technology they are right: they rarely get the spots, although he repeatedly uses the words “discriminate” Leadership top jobs, they are sometimes and “discrimination”, Mr Damore does so only to describe the

Technology paid less than men and many unfairness to men oftrying to hire more women. suffer unwanted sexual ad- Mr Pichai also has legal arguments on his side. The Ameri- vances. Most of their male colleagues sympathise; at the same can constitution protects free speech in public, but within a time some feel they cannot express unorthodox opinions on company’s walls that right is limited by what bosses deem ac- gender. And they are right, too: they can easily fall foul ofwrit- ceptable. After Mr Damore had suggested they are less quali- ten and unwritten rules, and face drastic consequences. fied because oftheir sex, women at Google could have refused The charged atmosphere helps explain why “Google’s to work with him and taken legal action. Moreover, he may Ideological Echo Chamber”, a memo by a young software en- have known thathismemo would be seized on in Alt-Right cir- gineer, James Damore, has caused such a stir (see page 48). It cles (it got top billing on Breitbart and far-right websites). says that the firm’s efforts to hire more women are biased. Still, there was a better response to Mr Damore than imme- After circulating internally, it went viral. On August 7th Mr Da- diately giving him the sack. Other firms may limit their work- more was fired. To quote Sundar Pichai, Google’s boss, he ad- ers’ speech, but the largest search engine, with a mission to “or- vanced “harmful gender stereotypes in our workplace”. ganise the world’s information and make it universally Mr Pichai had good reasons to sack Mr Damore. One is the accessible”, should hold itself to a higher standard. It should content of the memo. It says many reasonable-sounding not be suspected oflimiting the debate ofthorny subjects. things: that “we all have biases” and that “honest discussion with those who disagree can highlight our blind spots”. But Speak up these are just camouflage before a stonking rhetorical “but”: It would have been better for Larry Page, Google’s co-founder the argument that innate differences, rather than sexism and and the boss of Alphabet, its holding company, to write a ring- discrimination, explain why women fare worse in the tech- ing, detailed rebuttal of Mr Damore’s argument. Google could nology industry than men. “Neuroticism (higher anxiety, low- have stood up for its female employees while demonstrating er stress tolerance)”, Mr Damore writes, “may contribute…to the value offree speech. Thatmighthave led to the “honestdis- the lower number ofwomen in high-stress jobs.” cussion” Mr Damore claimed to want—and avoided the ersatz Research has indeed shown some smallish group-level dif- one about his firing. It would have shown that his arguments ferences in personality and interests between the sexes. But are not taboo, but mostly foolish and ill-informed. And it drawing a line from this to women’s suitability for tech jobs is would have countered his more defensible claim: that Google, puerile. An unbiased eye would light on social factors rather and the Valley, so welcomingofgenderdiversity, are narrower- than innate differences as the reason why only a fifth of com- minded about unorthodox opinions. 7

Russia and NATO Dangerous games

By refusing to allow observers at its Zapad 2017 military exercise, Russia is stoking fearand suspicion EXT month Russia will hold tional focus ofZapad 2017, are especially worried. Nwhat is expected to be the The climax of Zapad 2009 was a dummy nuclear strike on biggest military exercise in Eu- Warsaw, which rather stretches the meaning of “defensive”. rope since the end of the cold Zapad 2013 was less overtly aggressive, but much of the new war. According to NATO esti- equipment Russia tested and the tactical techniques it prac- mates, it will involve at least tised were put to use barely six months later when it annexed 100,000 troops (see page 39). Re- Crimea and launched a covert invasion of eastern Ukraine. vived from SoviettimesbyVlad- The attack on Ukraine itself started out as a “snap” military imir Putin, Russia’s president, the Zapad (West) drills, as they drill which gave cover for Russia’sreal intentions. MrPutin had are known, take place every four years. Although the Kremlin used the same ruse in the invasion ofGeorgia in 2008. insists that the scenarios it is playing out are purely defensive, The secrecy that cloaks Russian military exercises only that is not always how they have looked to its neighbours. makes them more threatening. Mr Putin is ignoring calls for Countries that have borders with Russia or Belarus, the opera- greater transparency from the Organisation for Security and 1 ON A CLEAR DAY, YOU CAN SEE THE FUTURE.

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2 Co-operation in Europe (OSCE), a body with 57 member coun- be higher still. Far too often, Russian pilots fly without their tries whose functions include trying to reduce the risk of acci- transponders on, meaning that they cannot easily be identi- dental conflict. Under the terms of its Vienna Document, to fied. They also buzz NATO aircraft and ships, risking collisions. which Russia is a signatory, countries carrying out drills with Russia’s behaviour has consequences. Since Mr Putin’s ag- more than 9,000 troops must provide advance notice. If they gression against Ukraine, NATO has felt the need to protect it- hold an exercise deployingmore than13,000troops, they must self by sending multinational battalions to defend the Baltic also invite other OSCE countries to send observers. States and Poland; creating a “spearhead” force that is kept The reason for these rules is simple. Observers from the ready for battle; and resuming large-scale exercises of its own, otherside make it harderforcountries to use military exercises though they are much smaller than the Russian ones and con- as the springboard for a surprise attack. They also lower the ducted under OSCE guidelines. chances that anyone will mistake a harmless exercise for the real thing. Russia flouts the rules by pretending that its exer- Behaving badly cisesare much smallerthan theyare, while insistingonitsright Russia says that it does not deserve to be treated with such sus- to observe NATO war games. picion. Yet it is largely to blame. It could invite Western observ- This behaviour is part of a pattern. There has been a recent ers to Zapad 2017. It could also seek better military-to-military increase in the activityofRussian aircraftalongNATO’sborder. contacts with NATO. These relationships, which NATO is eager In both 2014 and 2015, NATO fighters were scrambled more to forge, can lower the risk of miscalculation when normal di- than 400 times to meet Russian aircraft—70% more than in plomacy is strained. If, on the other hand, Russia’s intention is 2013. Last year the figure jumped to 800 (although part of the indeed to intimidate and bully, NATO will have no choice but increase was on Turkey’s border with Syria). This year it could to prepare forthe worst. 7

University ﬁnances An English solution

The best way to pay forhighereducation is to charge fees financed by loans on easy terms NIVERSITY used to be for a That is because loans for tuition are combined with gentle Uprivileged few. In some repayment terms. Graduates only pay back based on their in- countries it is now almost a rite come above £21,000 a year, meaning that their debts never be- of passage. Although that is ex- come unmanageable. Outstanding loans are written off after cellentnews, fewcountries have 30 years. So those who do not do well financially from their worked out how to pay for it. In education do not have to pay. Critics argue that tuition fees ex- some of continental Europe, acerbate inequality between generations (rich oldsters attend- where the state often foots the ed university free, after all), but the alternative would be great- bill, the result has usually been underinvestment. In America, er inequality within generations—as poorer students were where students themselves pay, many have little choice but to once again frozen out when capacity fell, and relatively take on huge debts. wealthy graduates were subsidised from general taxation. English policymakers thought they had struckthe right balance, with a mix of student fees and generous state loans that Competition cure has found admirers abroad. But, nearly two decades after The real problem with the English system is not fairness, but youngsters were first required to contribute to tuition costs, the that fees have not driven up standards, as many officials had system has dwindling support at home. Jeremy Corbyn, La- hoped. Almost all universities charge the maximum, whatev- bour’s leader and many students’ favourite political philoso- er the course—not because they are a “cartel”, as some say, but pher, speaks as though it were designed to keep the poor from because no university wants to suggest that it offers a cut-price, tainting the ivory towers. He has called for an end to the “debt second-rate degree. Nevertheless, surveys indicate that stu- burden” on students, and has claimed that “fewer working- dents have seen little improvement in teaching. Many univer- class youngpeople are applyingto university.” Labour’sshow- sities spend the extra money on fancy buildings and big sala- ing at the recent election suggests many young voters agree. ries for senior managers instead. Mr Corbyn’s argument betrays a disregard for the facts, a One answer would be to promote competition by giving poor understanding of student finance, or both. Twenty years students better information—such as which universities bene- ago English students could go to university free, with the state fit their students most (see our calculations, page 43). The gov- covering the cost. The result was many struggling institutions ernment has relaxed the rules for new institutions in the hope and strict limits on the numbers of students universities were that they will develop new teaching methods and drive down allowed to take. Annual tuition fees allowed an expansion of prices. It could also encourage students to hold universities to higher education, from around 30% of 18-year-olds to more account, with devices such as learning contracts specifying than 40%—and the proportion ofyoungsters going to universi- what undergraduates should expect, and by helping them ty from poorparts ofthe country has grown from one-in-ten to switch coursesiftheyare dissatisfied. Ifstudentsthink theyare three-in-ten. Even after the most that universities were al- not getting value for money, support for a scheme that is fair lowed to charge wasnearlytrebled in 2012, to £9,000 ($14,000), and progressive will dwindle. And that could lead to the most the number ofpoor students has continued to grow. regressive step ofall: scrapping tuition fees. 7 Executive Focus 13

Controller and Director, Division of Financial and Administrative Management Geneva, Switzerland Closing date for applications: August 15th 2017 The United Nations High Commissioner for Refugees (UNHCR) is one of the world’s leading humanitarian organisations addressing the global challenges of refugees, internally displaced persons, and stateless persons. It is seeking suitable candidates to fi ll the position of Controller and Director of the Division of Financial and Administrative Management (DFAM) based in UNHCR headquarters in Geneva, Switzerland. The Controller will be the key official responsible for fi nancial and budgetary strategy and policy formulation, the production of the statutory accounts, cash management, as well as fi nancial change management and related project implementation including the development and maintenance of supporting corporate IT systems. The Controller is also the Director of the Division of Financial and Administrative Management and, as such, is responsible for overseeing and supervising the Division which comprises approximately 120 staff, located both in Geneva and Budapest. The Controller directs, administers and controls the Organization’s overall fi nancial management systems and participates in the management, decision-making and evaluation of programme activities and related budgetary requirements. The Controller is also responsible for the application of the United Nations Financial Rules and Regulations as well as the application and maintenance of Financial Rules for Voluntary Funds administered by the High Commissioner for Refugees. The Controller and Director of the DFAM reports to the Deputy High Commissioner, supervises and coordinates the work of the Division, in particular the Office of the Controller (including fi nancial policy and audit coordination), the Programme Budget Service, headed by a Deputy Director (Budget), the Treasury, headed by a Deputy Director (Finance), and the Implementing Partnership Management Service. The Controller and Director of the DFAM requires a minimum of an advanced university degree (Master’s degree or equivalent) in fi nance, business administration, accounting or a closely related fi eld and minimum 20 years professional experience in an international, decentralized and/or multinational environment, of which at least 10 years serving in an international capacity, preferably the United Nations and in the functional area that is directly relevant to the current position - at Headquarters level. Fluency in written and oral English is essential and working knowledge of French is desirable. For further details on the Job Description and application process, please go to http://www.unhcr.org/careers.html by Tuesday, 15th August 2017. The Economist August 12th 2017 14 Letters The Economist August 12th 2017

Brexit’s new frontier ments equivalent to the Nordic power” (“He loves it”, July We must remove carbon Passport Union or local border 15th). So basically, it is perfectly Youdescribed vividly the traffic zones, similar to the fine fora campaign to Renewable energy is a crucial hurdles that the traffic of Poland-Russia border. Both are co-ordinate on defeating its step towards fighting climate people and goods would face excellent proposals which opponents with a foreign change (“Agreen red herring”, ifa hard border were to be could easily be approved if country as long as the country July15th). However, as you established between the Irish governments so wish. is an ally ofAmerica and does point out, it must not distract Republic and Northern Ireland COLM CAVANAGH not repress its people. from balancing the world’s as a consequence ofthe United Derry I can’t wait to be bombard- carbon budget. Renewable Kingdom leaving the European ed by fake news and hacked energy is growing rapidly, but Union (“The border that isn’t— Youranalysis ofthe EU’s e-mails from the French and eliminating the first 20% of yet”, July15th). Yet this does not Common Fisheries Policy was German governments in 2020. fossil fuels will be a lot easier need to be so. surprisingly superficial (“Have COLTON WALWORTH than the last. Nearly all the Article 24 ofthe General your fishcake and eat it”, July Madison, Wisconsin scenarios provided by the Agreement on Tariffsand 8th). Britain’s issue is not a Intergovernmental Panel on Trade, which lays down the “silly spat about seafood”. The Speaking in edtech Climate Change that would rules to be respected by central problem with the CFP stop climate change are based member countries when they is that 60% ofthe seafood on removing carbon from the establish customs unions or resource in our waters, some atmosphere, which cannot free-trade areas in order that ofthe best fishing grounds in come from renewable energy other countries are not the world, is permanently alone. Focusing too much on discriminated against, allocated to others. renewables prevents the devel- contains a little-used provision Almost laughably,we are opment ofenvironmentally on “frontier traffic”. It allows competing in the single market acceptable and affordable members ofthe World Trade with what should be our own negative emissions. Organisation to deviate from fish. We actually have a dan- KLAUS LACKNER these constraints in respect of gerous over-dependence on Director “advantages accorded to the European market. In the Centre for Negative Carbon adjacent countries in order to globalised world ofseafood Emissions facilitate frontier traffic”. There there is a potential market of Arizona State University is no definition offrontier 7.5bn people and more than The most important factor to Tempe, Arizona traffic, so an exemption from 160 other countries. Moreover, bear in mind about the new EU customs regulations and du- the countries will still want stream ofeducation A virtual success ties forthe intra-Ireland move- to export to us, making puni- technology (“Brain gains”, July ment ofgoods could be tive tariffsapplied by Europe 22nd) is to provide it in “Get real” (July 8th) discussed covered. This would be a good self-defeating. languages that pupils the lethargic uptake ofvirtual- basis for avoiding a hard The lights have gone out in understand. For example, reality headsets, but over- border, although checks would so many coastal communities. Vanuatu and the Solomon looked the one area ofthe be necessary at the harbours in At last, on Brexit we can recov- Islands have 200 languages entertainment industry that order to stop goods from the er what the world regards as between them, many ofthem has employed it with effect so other part ofthe island being normal beneficial manage- fragmented furtherinto far: pornography. In fact, the furtherexported to the rest of ment ofour renewable natural dialects. The native language pornographic industry has the UK or the EU respectively. resource. Norway does it, ofchildren can differfrom often been a technological One can lookto a broader Iceland does it, so does New school to school. For everyday harbinger. It was one ofthe precedent. Goods originating Zealand, and so on. Why communication, countries like first to put more advanced from northern Cyprus can would we opt to continue this use a lingua franca, often features on a DVD and is a enter and freely circulate in the giving away this resource derived from pidgin English, pioneer in streaming videos entire EU as Cypriot goods. rather than try to expand and but prejudice against non- online. Perhaps there is staying PROFESSOR GIORGIO SACERDOTI develop the industry and bring traditional languages, and the power in VR technology yet. Former member of the appellate in jobs and income? fear that they will undermine JACK HODGE body of the WTO BERTIE ARMSTRONG traditional ones, inhibits their Henley-on-Thames, Oxfordshire Milan Chief executive use in the classroom. Scottish Fishermen’s Federation Education systems Side order When I gaze out from the steps Aberdeen therefore fall backupon the ofDerry’s Guildhall, the euro rote-learning offoreign I enjoyed the “meaty logic” to zone is not more than five What’s sauce forthe goose… languages such as English. your Big Mac index (“Meat miles away (Belfast is 60 miles Teachers themselves are often reversion”, July15th). I read it away, London almost 400). In Let me see ifI understand your only barely proficient in these, with relish. the aftermath ofthe Brexit position correctly. Yousay that so it is hardly surprising that H. DEAN BROWN shockthe Derry and Strabane an attempt by a junior Demo- pupils emerge from primary West Lebanon, New Hampshire 7 Council and Donegal County cratic worker to get dirt on Paul school unable to read in them. Council commissioned a Manafort, a Republican oper- Education technologies with study that produced two main ative, from the Ukrainians multilingual capabilities could Letters are welcome and should be addressed to the Editor at proposals: a cross-border “does not compare” with provide the resources needed The Economist, 25 St James’s Street, free-trade zone joining Derry Donald Trump junior trying to to get away from this miserable London sw1A 1hg in Northern Ireland with get the dirt on Hillary Clinton method ofschooling. E-mail: [email protected] Letterkenny in the Irish Repub- from the Russians, because ANDREW GRAY More letters are available at: lic and bespoke travel arrange- “Ukraine is not a hostile Pentecost Island, Vanuatu Economist.com/letters Your Business Becomes Our Business.TM

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16 Brieﬁng Batteries The Economist August 12th 2017

(BNEF), a consultancy, notes that forecasts Electrifying everything from oil companieshave a lotmore electric vehicles in them than they did a few years ago; OPEC now expects 266m such vehicles to be on the street by 2040 (see chart 1 on next page). Britain and France have both said that, bythattime, newcarscompletely SAN DIEGO AND SUNDERLAND reliant on internal combustion engines The battery industry has world-changing ambitions. Can it achieve them? will be illegal. BOUT three-quarters of the way along boss of the Renault-Nissan alliance, sug- That this is even conceivable is a tribute Aone of the snaking production lines in gested that his two companies alone to the remarkable expansion of the lithi- Nissan’s Sunderland plant, a worker bolts would be selling twice that number by um-ion battery business—and to the belief fuel tanks into the chassis of countless 2016, one of many boosterish predictions that it is set to get much bigger. The first Qashqais—the “urban crossover” SUVs that have proved well wide of the mark. such batteries went on sale just 26 years which are the bulk of the factory’s output. But if the timing of their take-off has ago, in Sony’s CCD-TR1 camcorder. The But every so often something else passes proved uncertain, the belief that electric product was a hit: the batteries even more along the line: an electric vehicle called a vehicles are going to be a big business very so, spreading to computers, phones, cord- Leaf. The fuel-tank bolter changes his soon is ever more widely held. Mass-mar- less power tools, e-cigarettes and beyond. rhythm to add a set of lithium-ion battery ket vehicles with driving ranges close to The more gadgets the world has become packs to the floor of the Leaf. His move- that offered by a full tank of petrol, such as hooked on, the more lithium-ion batteries ments are so well choreographed with the Tesla’s Model 3 and GM’s Chevrolet Bolt, ithasneeded. Lastyearconsumerproducts swishing robotic arms around him that he have recently hit the market; a revamped accounted for the production of lithium- makes the shift from the internal combus- Leaf will be unveiled in September. The ion batteries with a total storage capacity tion engine to the battery-charged electric ability to make such cars on the same proof about 45 gigawatt-hours (GWh). To put vehicle lookalmost seamless. duction lines as fossil-fuel burners, as in that in context, if all those batteries were Until recently, it was a transition that Sunderland, means that they can spread charged up they could provide Britain, many found unthinkable. The internal more easily through the industry as pro- which uses on average about 34GW of combustion engine has been the main duction ramps up. electricity, with about an hour and 20 min- way of powering vehicles on land and at utes of juice. sea for most of the past century. That is All we need to live today In the same year production oflithium- quite the head start. Though Leafs are the Many forecasters reckon that the lifetime ion batteries for electric vehicles reached world’s biggest-selling electric vehicle, the costs of owning and driving an electric car just over half that capacity: 25GWh. But Sunderland plant, Britain’s biggest car fac- will be comparable to those fora fuel burn- Sam Jaffe of Cairn ERA, a battery consul- tory, only made 17,500 of them last year. It er within a few years, leading sales of the tancy, expectsdemand forvehicle batteries made 310,000 Qashqais. And the Qash- electric cars to soar in the 2020s and to to overtake that from consumerelectronics qais, unlike the Leafs, were profitable. Nis- claim the majority sometime during the as early as next year, marking a pivotal mo- san has so far lost money on every Leaf it 2030s. China, which accounted forroughly ment for the industry. Huge expansion is has made. half the electric vehicles sold last year, under way. The top five manufacturers—Ja- There were 750,000 electric vehicles wants to see 2m electric and plug-in hybrid pan’s Panasonic, South Korea’s LG Chem sold worldwide last year, less than 1% of cars on its roads by 2020, and 7m within a and Samsung SDI, and China’s BYD and the new-car market. In 2011 Carlos Ghosn, decade. Bloomberg New Energy Finance CATL—are ramping up capital expenditure 1 The Economist August 12th 2017 Briefing Batteries 17

2 with a view to almost tripling capacity by the cathodes. These make up about 60% of 2020 (see chart 2). The vast $5bn gigafac- Electric dreams 2 the cost of a cell. Being assured of a con- tory Tesla is buildingwith Panasonic in Ne- Manufacturing capacity, gigawatt-hours per year stant supply of them is as much a strategic vada is thought to already be producing 2017 2020 consideration for battery-makers as mas- about 4GWh a year. Tesla says it will pro- 10 403020 50 tering electrochemistry. Since 2015 lithium duce 35GWh in 2018. Just four years ago, Panasonic* prices have quadrupled, says Simon that would have been enough forall appli- (Japan) Moores of Benchmark Mineral Intelli- cations across the whole world. CATL gence, a consultancy. Cobalt’s price has The gigafactory is not just for cars. Hear- (China) more than doubled over the same period; ingofelectricity blackouts in South Austra- BYD prices of chemicals containing nickel, also lia, Elon Musk, Tesla’s founder, tweeted to (China) used in cathodes, are rising too. the state’s premierin March that by the end LG Chem New supplies of lithium should not be ofthe yearTesla could provide enough bat- (South Korea) too hard to find; there are thought to be at tery storage to make sure that the grid nev- Samsung SDI least 210m tonnes of the stuff, says Mr er fell over again. At the gigafactory they (South Korea) Moores, compared with current annual Source: Cairn ERA *Includes Tesla gigafactory are now hard at work cramming129 mega- production of 180,000 tonnes. New fields watt-hours (MWh) of capacity into a facili- are being opened up. In July SQM of Chile, ty designed to keep their boss’s word. the other hand, are considerably more the world’sbiggestlithium producer, said it When installed on the other side of the Pa- opaque, thanksto an almostparanoid taste would invest $110m in a lithium joint ven- cific, it will be the biggest such grid-based for secrecy among suppliers and the baf- ture in Western Australia. Cobalt is more system in the world; but many more are on fling economics of the Asian conglomer- tricky. Not only are supplies scarcer, but a the way. Industrial-scale lithium-ion bat- ates that lead the market. lot comes from the Democratic Republic of tery packs—essentially lots of the battery All the big producers are adding capaci- Congo. This raises both ethical problems packs used in cars wired together, their ty in part because it drives down unit costs, (production can rely on child labour) and chemistry and electronics tweaked to sup- as the past few years have shown (see business ones (no one wants to depend on port quicker charging and discharging—are chart 3 on next page). Lithium-ion cells (the warlords fora vital resource). LG Chem has increasingly popular with grid operators basic components of batteries) cost over said it is trying to reduce the cobalt compo- looking for ways to smooth out the effects $1,000 a kilowatt-hour (kWh) in 2010; last nentofitsbatterycells, while continuing to of intermittent power supplies such as so- year they were in the $130-200 range. GM improve their performance. Further down lar and wind. Smaller battery packs are be- says it is paying $145 per kWh to LG Chem the road, recycling the metals from old bat- ing bought by consumers who want inde- for the cells that make up the 60kWh batteries could make the industry much more pendence from the grid—or, indeed, to tery forthe Bolt (the pack, thanks to labour, sustainable. store the electricity they produce for them- materials and electronics, costs more than One of the reasons manufacturers are selves so that it can be sold into the grid at the sum of its cells). Tesla says that cells for confidently piling on capacity despite cost- the most lucrative time ofday or night. Bat- the Model 3 are cheaper. Lower costs are lierraw materials is that, at the moment, lit- teries are becoming an integral part of the not the only improvements; large amounts tle else can compete with their wares. Oth- low-emissions future. of R&D investment have led to better power battery technologies that sound as if, in er density (more storage per kilogram) and principle, they might have advantages are The chance to change better durability (more discharge-then-re- often touted—but none of them enjoys the The fundamental operating principles of charge cycles). The Bolt comes with a bat- decades of development that have turned the lithium-ion battery are easily under- tery warranty ofeight years. lithium-ion devices from an intriguing stood. When the battery is charging an But getting prices down this way has idea into a dominant technology. This electric potential pulls lithium ions into not just produced cheaper, better batteries. work has generated a huge amount of the recesses of a graphite-based electrode; It has also resulted in significant overca- knowledge about the fine details of manu- when it is in use these ions migrate back pacity. Cairn ERA estimates that last year facturability, the choice of electrolytes and through a liquid electrolyte to a much the manufacturing capacity for lithium- the ever more sophisticated nanotechnol- more complex electrode made of com- ion batteries exceeded demand by about a ogy ofthe metallic cathodes. pounds containing lithium and other met- third. Both it and BNEF say that the battery Kenan Sahin, who heads CAMX Power, als—the cathode. The fundamental operat- manufacturers are either losing money or an American company that supplies mate- ing principles of the battery business, on making only wafer-thin profits on every rials for cathodes, says the lithium-ion bat- electric-vehicle battery they produce. De- tery’s cost and weight, its ability to charge spite the seeming glut, though, they all and discharge repeatedly, itsdurability and The coming oil crisis 1 have plans to expand, in part to drive its safety have all been achieved through Electric-vehicle sales forecasts, m prices even lower. Mr Jaffe explains their an endless process of fine-tuning, rather thinking as that of the “traditional Asian than eureka moments. He likens battery 2016 2017 600 conglomerate model”: sacrificing margins chemistry to drug discovery in the phar- Bloomberg formarketshare. Thismaybe a sound strat- maceutical industry. “It’s really difficult. 500 OPEC egy given the ever-greater hopes for elec- Whatever you have needs to work at large ExxonMobil 400 tric vehicles in the near future. But at the scale and the side-effects have to be accept- moment it is also one that looks rather unable,” he says. This is all hard for a 300 nerving. Although MrJaffe believesthat in- would-be usurper to emulate. For the fore- creased demand for both electric vehicles seeable future, ever-improvinglithium-ion 200 and stationary storage will justify the rush technology—perhaps with new solid elec- to expand, he accepts that, for now, “It feels trolytes—will make the running, benefiting 100 like a gold rush—but there’s no gold.” from yet more refinements the more appli- There are, though, other valuable met- cations it supports. 0 als in the picture. Making more batteries Until now, the mainstay has been a cy- 2020 25 30 35 40 means acquiring more lithium, as well as lindrical cell called the 18650, which looks Source: Bloomberg New Energy Finance various other metals, including cobalt, for like a rifle shell. It is 65 millimetres long, 1 18 Briefing Batteries The Economist August 12th 2017

can expand fastenough to allow the indus- management company, to put “second- Watt next? 3 try’s expansive ambitions to be fulfilled re- life”, or partially used, Leaf batteries into Battery cost Battery energy density mains an open question. packs that can provide businesses and fac- Worldwide, $/kWh Watt-hours per litre This uncertainty about the speed at tories with back-up power, thus replacing 1,000 500 which electric-vehicle usage will grow is polluting diesel generators. The first big FORECAST one of the things that makes stationary customer is the Amsterdam Arena, home 800 400 storage an attractive alternative market for to AFC Ajax, a football club. the battery-makers. Installations such as Such systems do not necessarily com- 600 300 the one recently built in a nondescript lot pete on price; but governments are provid- on the outskirts of San Diego, California, ing various incentives forthem. In May the 400 200 by San Diego Gas & Electric (SDGE) have New York State regulator gave Con Edison, none of the glamour of glistening new a utility, the right to allow business cus- 200 100 models hitting showrooms. It is a 384,000- tomers to install batteries in Brooklyn and cell car battery impersonating a trailer Queens to export electricity to the grid. 0 0 park: the dullest Transformer ever. But its New York, with a rickety grid that dates 2008 10 12 1415 20 2022 target ordinarinessispartofitsbeauty, says Caro- back over a century to the days of George Source: US Department of Energy line Winn, chief operating officer of SDGE; Westinghouse and Nikola Tesla, is strug- the utility uses it to offer power at times of gling to integrate more renewable energy 2 18mm in diameter and has an energy den- peak demand. Modular construction into its supplies, and storage offers it a new sity of perhaps 250 watt-hours per kilo- meant the 120MWh facility—just a touch wayto manage peakpowerdemand. Jason gram. (The energy density of petrol, for smaller than the one Tesla has promised Doling, a state energy official, says the pro- comparison, is about 50 times greater; but South Australia—wasreadyto go onlyeight gramme should be ideal for high-rise the cell can store that much energy hun- months after the start of the project. It runs blocks; powering lifts from the battery in dreds or thousands of times.) Tesla and Pa- so quietly it is hardly audible. Building a mornings and evenings when electricity nasonichave nowdeveloped the 2170, a bit gas turbine to do the same job would have prices are highest would be a boon. longer and wider; Mr Musk says it will be been cheaper but would have taken years, The New York fire department remains the most energy-dense battery on the mar- in the unlikely event that local residents concerned that lithium-ion batteries in ket. The company says that the cost of driv- had given it the go-ahead in the first place. buildings pose a fire hazard, however. ing a Model 3, released in late July to rave The battery facility “is a lot prettier than a When they are being installed, it keeps its reviews, will be halfthat ofany ofits previ- gas turbine,” Ms Winn says. engines on standby. As the externally com- ous vehicles. At the car’s launch Mr Musk busting fiasco of Samsung’s Galaxy Note 7 seemed a bit overawed at the prospect of The final source of energy smartphones reminded the world last producing 500,000 such vehicles next For Tesla and other big battery-makers year, lithium-ion batteries can, if badly or year: “Welcome to production hell,” he grid-storage projects are the most attractive over-ambitiously designed, short circuit in told the assembled workers. part of the electricity market; they offer incendiaryways. In general, however, new On August 7th Tesla announced plans contracts that use up otherwise surplus ca- materials and ceramic coatings for elec- to sell bonds worth $1.5bn to support its ex- pacity in satisfyingly large job lots. But trodes have made the batteries for cars pansion, giving a badly needed breather to there is also demand forbatteries to go “be- very safe. the equity market, where it usually raises hind the meter”. Tesla serves this market Setting aside concerns about combus- cash (and where its value has risen by two- with its Powerwall domestic battery pack, tion, companies that install batteries for thirds over the past year). The company designed to complement the solar panels behind-the-meter storage, and indeed for has said that it has 455,000 pre-orders for and solar tiles it offers. Nissan, too, is look- grid storage, say they are hampered by out- the Model 3, which, iftaken up, would gen- ing at behind-the-meter applications. It is dated regulation and by insurance pro- erate enough cashflow by year-end to start working with Eaton, an American power- blems. This limits the funding available to shoring up the company’s finances. If it all them, according to Anil Srivastava, who goes to plan, Mr Musk hopes to see the gi- runs Leclanché, a Swiss battery-producer. gafactory become the largest building in They also need to find ways to make sta- the world, cranking out 100GWh a year— tionary storage pay. Sometimes, as in San and to be joined by further gigafactories Diego, it is pretty much the only solution to elsewhere; the next would probably be in the demands of a regulator: the California China. Public Utilities Commission was worried All this presupposes that electric vehi- about blackouts in Los Angeles in the wake cles really are poised for take-off. There is ofa leakat the Aliso Canyon gas-storage fa- no doubt that they are getting better and cility in 2015. When price is more of an ob- cheaper. But there are other constraints on ject, the batteries need to find more than their use, most notably charging. In Britain one service to provide, a procedure known 43% ofcarowners do not have access to off- as “revenue stacking”. For example, a sys- street parking and thus would not be able tem might be designed to offer power to to charge cars at home. Nor are domestic the grid for short-term frequency regula- supplies always up to the strains of, say, an tion as well as providing a way of dealing 11kW charger; using the kettle or immer- with peakdemand. sion heater during the six hours it would It sounds complicated. But finding take to charge up a 90kWh battery could more than one way to sell the same thing is blow the fuses. The answer will be fast- second nature in the battery business, as it charging stations, possibly like petrol sta- fine-tunes its wares for every market and tions; some car companies are beginning every scale. And though today’s exuber- to build them as a way to assuage the ance may look a little scary, in the long run “range anxiety” that turns some drivers off that ability looks likely to see the industry electric vehicles. Whether such facilities do very nicely indeed. 7 United States The Economist August 12th 2017 19

Also in this section 20 After aﬃrmative action 21 Nevada’s unusual labour unions 22 Colorado’s prison town 22 European lessons on health 24 Lexington: The Democrats

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

Attitudes to immigration ten made by the system’s critics. In fact, nearly half of immigrants who arrived be- Still yearning tween 2011 and 2015 had college degrees. How educated immigrants are matters because, although the economic gains for low-skilled migrantsofmovingto America NEW YORK are great, the benefits to the American economy are not clear (see chart). Highly Donald Trump is pushing the Republican Party away from its long-standing skilled immigrants, by contrast, offer a lot enthusiasm forlegal migration to their adopted country. Education seems HOSE keen to avoid hearing any more mocracies, including Britain, Australia and to matter much more than where people Tabout the 45th president can download Canada, have already moved away from a come from. Two-thirds of Nigerian immi- a filter that, for a fee, will scrub any men- system granting family members preferen- grants have college degrees, for example, tion ofhim from electronic devices. But for tial treatment. Then there are the 140,000 and Nigerian-Americans consequently anyone interested in the long-term effects green cards issued each year to people have household incomes that are well this president will have on America, the sponsored by their employers. Add in the above the average. problem is the opposite. Donald Trump is 50,000 green cards issued by lottery to Under the Cotton-Perdue bill the green so ubiquitous that it is hard to distinguish people from countries under-represented card lotterywould end and the family pref- what really matters from what merely in- in the immigration numbers for the five erence system would be limited to spouses furiates, and quieter changes can go unno- previous years, sprinkle on refugee admis- or dependent children. This makes sense. ticed. One such was the unveiling on Au- sions, which fluctuate according to how But the bill also aims to cut by half the gust 2nd of an immigration bill proposed much tumult there is abroad in any given number of green cards issued each year, in by two Republican senators, Tom Cotton year, and you reach the annual total. an effortto restore immigration to “historic of Arkansas and David Perdue of Georgia, This might sound like a recipe for re- norms”, which does not. and praised by the president. Even if the cruiting low-skilled immigrants, a point of- What counts as a historic norm de- bill never becomes law, it could achieve pends on the figures you choose. Adjusted something profound. Republicans have for population, current levels of immigra- long denounced illegal immigration while Give me your poor…oh, maybe not tion are abnormally low. In the 196 years soundingmore upbeat about the legal sort. United States, estimated 75-year fiscal impact* for which data exist, America has issued Under Mr Trump, the party is on the point By education level of first-generation immigrants green cards at an average rate of 4,500 per 2012 $’000 of abandoning its optimism about legal 1m Americans. Over the past 50 years the 600 migration, too. First-generation immigrants rate has been 2,900 per 1m. The proposed America’s system for allowing people Descendants bill would reduce immigration asa propor- 400 into the country to live and workfunctions tion of the population to levels last seen in fairly well despite, rather than because of, 200 1964, the year before a new federal law led its messy design. About 1m people were + to a rapid, largely unforeseen, increase in granted green cards, which confer perma- 0 the absolute number ofimmigrants. nent residency, last year. Although a de- – Some conservatives see liberal soft- tailed breakdown for 2016 is not yet avail- 200 headedness in today’s policy, with its bias able, in 2015 two-thirds ofgreen cards were Less than High Some BA More towards admitting family groups. But at high school college than BA handed out to family members of mi- school the time, the law of1965 was defended as a grants, a share that is unlikely to have Source: National *Net present value at all levels way to let in more migrants from places changed much. This makes America un- Academies of Sciences, of government combined. like Italy or Greece (who had been kept out Engineering and Medicine Excludes public goods usual. Other wealthy English-speaking de- by discriminatory national quotas im-1 20 United States The Economist August 12th 2017

2 posed in 1924), without risking an influx to breathe free...”), which is perhaps the an- from much poorer nations. As a co-spon- Miller’s crossing tithesis of the White House’s approach to sor of the bill, the New York congressman United States immigration. A case can be made that the Emanuel Celler, told colleagues: “Since the Do you think the federal government should poem unhelpfully conflates immigration people of Africa and Asia have very few change the level of legal immigration into the with asylum, and casts the admission of relatives here, comparatively few could United States? hard-workingnewcomersasanactofchar- % replying* immigrate from those countries.” 0210 030 ther than a source of growth over the Leave Jump forward 52 years, and in addition unchanged centuries. Still, itresonates. The vast major- to reducing the number of green cards, the Decrease ity (72%) thought the poem’s sentiment ap- new bill seeks to reduce the number of ref- Increase plied in the past, a plurality (43%) thought it ugees America admits each year. The in- applied now and a majority (55%) thought Not sure tention is to cut admissions to 50,000 a it should apply in the future. year, “in line with a13-year average”. Ifthat Do you support or oppose reducing legal When he was elected, there was a faint sounds like a period cherry-picked to give immigration by 50%? hope that Mr Trumpmight be the one poli- a number that is politically desirable, then % replying* 010203040 tician with both a sufficient command of that is because it is. Refugee admissions Oppose his base to fix America’s broken immigra- have been below 50,000 in only four of Support tion system. A popular touch would help because the hardest puzzle in immigration the past 30 years. If the bill’s authors had Not sure taken a 30-year average, the annual level policy is not, in fact, picking new arrivals would have come out at 75,000. Source: The Economist/YouGov poll *August 6th-8th 2017 but deciding what to do about the 11m ille- Toreplace this system, the bill proposes gal immigrants already in the country, that green cards should be awarded on a A plurality ofrespondents liked the idea of many ofwhom have children who are citi- points-based system, like those in Austra- giving higher priority to potential migrants zens. That is fartoo large a group to deport, lia and Canada, with extra credit according who already speak English. But they pre- even if it were sensible to do so. Perhaps a to youth, wealth, ability to speak English, ferred the idea of giving priority to those candidate who promised to build a wall educational attainment, possession of an with a close family member living in the along the Mexican border could be the one extraordinary talent and whether the ap- country, suggesting continued support for to regularise some of the 11m, many of plicant has a high-paying job offer. Evi- family preference. Giving shelter to those whom have been in America for decades? dence from Australia and Canada suggests trying to escape from war was more popu- There is no sign of this Nixon-to-China that government-run points systems do lar still. For good measure, we also poll- turn on Mr Trump’s part and, given his in- not necessarily do a better job of connect- tested the inscription at the base of the clination to conflate illegal immigration ing immigrants with jobs (the optimal sys- Statue of Liberty (“Give me your tired, and violent crime, it seems highly unlikely. tem for that is one that gives employers your poor, your huddled masses yearning But so did a Trumppresidency,once. 7 more say). But they are popular with voters, who seem to like the flattering notion that their countries resemble a country College admissions club with stringent admission criteria. When presenting the White House’s After affirmative action case, Stephen Miller, an adviser to the president, challenged news outlets to do polling on the proposals, implying that they reflect the public’s wishes. Ever keen to help, The Economist asked YouGov to do so. The WASHINGTON, DC results were not what Mr Miller may have What happened when eight states outlawed race-conscious admissions expected. Only 27% of respondents favoured decreasing the level of legal immi- T IS no mystery why university entrance showsthatthe end offormal race-based af- gration. When asked the question in a less Ipolicies generate so much angst in Amer- firmative action might not be as apocalyp- stark way, a slightly higher share either ica. Space at elite colleges is limited, and tic as its defenders fear. strongly or somewhat supported halving the degrees they confer can transform Little changed for the typical student. legal immigration, but the combined total lives. Well-meaning people are divided on Research conducted by Peter Hinrichs, an ofsupport was still only 37%. whether universities should simply teach economist at the Federal Reserve Bank of Otherdetailsin the proposed bill jarred. the best-performingstudents, or try to craft Cleveland, shows that overall enrolment a more diverse ruling class. It is also no se- of black and Hispanic students appeared cret that JeffSessions, the attorney-general, to hold steady, despite the affirmative-ac- Huddled and muddled is more sceptical of race-based affirmative- tion bans. But those bans did make a strik- Should the US government give a higher priority action policies than some predecessors. ing difference for highly selective universi- to accepting immigrants who: A fuss was thus inevitable when news ties. The average effect on such institutions % replying* 0 20406080100 broke of an internal memo at the Depart- was to decrease black enrolment by1.7 per- are trying to escape areas ment of Justice (DoJ) seeking staff lawyers centage points and Hispanic enrolment by Yes No Not devastated by war? sure to examine a lawsuit filed by Asian-Ameri- 2 points. One of the most extreme exam- have a close family member can groups for racial discrimination ples came after a ban on affirmative action living in the country? against Harvard University. To date, the approved by California’s voters came into DoJ already speak English? probe seems modest in scope. But the effect in 1998. Black and Hispanic enrol- scare has led defenders of affirmative ac- ment at the University ofCalifornia, Berke- have enough money to start a new business when tion to wonder what would happen if the ley—one of the nation’s best schools— they arrive? current orderfell. Affirmative action has al- plunged from 22% to 13%. That should be are trying to escape areas ready been banned in eight states, repre- not surprising, given the vast gulf in mea- ? with poor economies senting more than a quarter of America’s surable academic achievement along ra- Source: /YouGov poll *August 6th-8th 2017 The Economist high-school students. Their example cial lines for students admitted to Ameri-1 The Economist August 12th 2017 United States 21

Labour unions meaning unions cannot compel workers in unionised sectors to pay dues—last year One and done around 12% of its workers belonged to unions, down from 14% in 2015. Among similar states only Michigan, which did not go right-to-work until 2012, has a more union- LAS VEGAS ised workforce. Union statesin Appalachia and the Upper Midwest are white, old and The unreplicable powerofNevada’s shrinking, while Nevada and the CWU are unions young, multi-ethnic and growing. Maids HE busiest pharmacy in Nevada sits in and cleaners in Las Vegas average $15.26 an Tan unremarkable strip mall in the shad- hour, nearly $4 more than they make else- ows of Las Vegas’s glitzy casinos. Pharma- where in America. cists accept prescriptions, dispense medi- But anyone thinking that Nevada pro- cine and take no cash. Across town is the vides a blueprint for organised labour’s re- Culinary Academy of Las Vegas, which surgence will probably be disappointed. trains people to be chefs, bakers, somme- Nevada dependsheavilyon a single sector: liersand otherfood-service workers. There leisure and hospitality, which employs too, most students pay nothing for their over a quarter of its workforce. That sector, classes. The roughly 57,000 members of in turn, is dominated by a finite number of the Culinary Workers Union Local 226 huge properties in a single city, Las Vegas, (CWU)—the state’s biggest union, repre- which itself is a virtual island surrounded senting employees at most of the casinos by inhospitable desert. Casinos in Atlantic An affirmative reaction in California on the Vegas Strip and downtown—receive City can bus workers in from Philadelphia, retraining and prescription drugs as bene- an hour away. Travel an hour outside Las 2 ca’s most selective colleges. fits, alongwith comprehensive health care, Vegas and you will find yourself parched To have an equal chance of admission pensions and supplemental insurance. in an oven-baked moonscape. This isola- as a black applicant, an Asian applicant to In addition to representing its mem- tion gives management and labour a a top college needs as much as 450 addi- bers, the 82-year-old CWU has grown into strong incentive to work together. Union tional points out of 1600 on the SAT (a a potent political force in Nevada. In the members have gone on strike, of course, whoppingamountto those unaccustomed weeks leading up to last year’s election, but both sides seem to understand that a to American psychometrics). Encouraging- 300 CWU workers took temporary leaves poisonous relationship risks wrecking the ly, research by David Card and Alan of absence—also a contractual benefit—to state’s main industry. Krueger, two economists, shows that tal- persuade and register potential voters. Ac- For now,Nevada’s casinos and conven- ented minority students apply at the same cording to Bethany Khan, the CWU’s com- tion centres in Las Vegas generate enough rate to leading universities with or without munications director, union members cash to leave everyone reasonably happy. affirmative action. knocked on more than 350,000 doors and Not all casinos are unionised, but even Admissions offices determined to craft talked to over 75,000 voters. those that are not must pay prevailing un- diverse campuses would still have re- Formuch ofthe 20th century,such cam- ion-negotiated wages ifthey want to retain course to artifice. After California’s ban paigns were a staple of Democratic poli- skilled workers. The lack of direct foreign went into effect, one study found that 20% tics. Candidates stumped in union halls competition helps, too. A carmaker can of the losses to minority enrolment at the and relied on union donations. That shut down a plant and open another in University of California, Berkeley were helped keep culturally conservative but Mexico or another state ifan industrial dis- counteracted by such admissions tweaks. heavily unionised states such as Kentucky, pute goes badly. The owner of a casino on Three of the states with affirmative-action Ohio and West Virginia reliably Democrat- the Las Vegas Strip cannot: what’s built in bans—Texas, California and Florida—try to ic long after Richard Nixon and Ronald Vegas stays in Vegas. 7 mitigate their effects by using top-percent Reagan turned the South red. programmes. These award places at lead- But that connection has frayed. Donald ing public colleges to the best-performing Trump muses about turning the Republi- students in every high school (in Texas, to cans into “the party ofthe American work- the top10%, and in Florida, to the top 20%), er”. Last year, his hostility to free trade and in effect usingexistingracial segregation by the general perception that Hillary Clinton geographyto produce more racial diversity and her party cared more about immi- once students graduate. grants and upwardly mobile professionals Perhaps most promising is the idea— than native workers gave Democrats their most forcefully advanced by Richard Kah- worst showing among union households lenberg of the Century Foundation—that since WalterMondale’s49-state lossto Rea- colleges should move towards considering gan in 1984. In Ohio, for instance, Barack socioeconomic diversity, which would Obama beat Mitt Romney in union house- sweep in large numbers of black and His- holds by 23 percentage points. Four years panic students while also avoiding the later, Mrs Clinton lost to Mr Trump by 13 fraught and possibly unsustainable poli- points while losing the state. tics of overt racial preferences. Compared Nevada bucked this trend. Union ef- with class, affirmative action based solely forts helped Hillary Clinton win Nevada on race seems awfully blunt in today’s on an otherwise disastrous day for Demo- America: it would be hard to claim that the crats, and also kept the state’s Senate seat son ofblackmillionaires was more deserv- Democratic when Catherine Cortez Masto ing of special consideration than the succeeded the retiring Harry Reid. Al- daughter ofhard-up white coalminers. 7 though Nevada is a right-to-work state— Activists at work 22 United States The Economist August 12th 2017

Prisons area’s reliance on prisons, but equally eager to dispel the notion that they root for The corrections full cells. “We have empty beds and I’m glad that we do,” says Frank Jaquez, a Cañon City councilman. The state-prison population in Colorado declined by 7.2% CAÑON CITY, COLORADO between 2010 and 2015. In 2012, the state closed a prison it had opened in Cañon America’s cheeriest prison town lacks City only two years before, due to a dearth enthusiasm forlocking more people up of inmates. Since its peak in 2013, the feder- T FIRST glance there is nothing unusual al-prison population has also fallen. Aabout the Cellhouse, a boutique in The federal attorney-general, Jeff Ses- Cañon City, Colorado, except perhaps the sions, may slow the downward trend—at diversity of its wares. A western saddle least when it comes to federal prisons, of with ornate flower designs chiselled into which there are fourin Fremont County. In the leather sits on a saddle rack by the 2013 BarackObama’sattorney-general, Eric shop’s entrance. At the back, by a pair of Holder, issued a memo urgingfederal pros- fishing rods and wooden Adirondack ecutors to avoid mandatory minimum chairs, a freezer holds packs of trout, goat, sentences for non-violent drug offenders buffalo and tilapia. T-shirts displayed in without gang ties. In May Mr Sessions re- the middle of the boutique read “Alcohol, versed Mr Holder’s policy, asking prosecu- Tobacco, and Firearms should be a conve- tors to pursue the toughest sentences even nience store, not a government agency.” forlower-level drug crimes. But a few details suggest this is no ordinary 54-46 was my number Such a move might increase the num- western general store. A sign on the wall ber of federal prisoners flowing into Fre- warns, “If you take it, you’ll be making it,” Jim Beicker, the affable sheriff of Fremont mont County. But local officials doubt it and tucked in the store’s front corner is an County, whose wife recently retired from a will have too big an impact on the area, imitation jail cell, complete with a plaster prison job. Mr Beicker recalls that when he mainly because state prisons are a more prisoner sleeping on his bunk. wasin high school in the 1980s, countyresi- important source of employment—and, Opened in October on Cañon City’s dents were instructed to leave their car even then, the jobs are not directly tied to main street, which features a jumble of an- keys in their vehicles so that if a prisoner prisoner numbers. Cañon City also shows tique shops, an old-fashioned diner, an e- escaped, they would take the car and stage how even if federal policies on crime are cigarette store and a trendy café that sells a peaceful escape instead of harming any- going backwards, the politics has not nec- expensive mountain bikes as well as cold one. Such practices are no longer so com- essarily followed. None ofthe members of brew, the Cellhouse sells products made mon, as jailbreaks are rare. Anyway, quips the city council or Fremont County com- by the area’s many prisoners. Fremont Preston Troutman, Cañon City’s mayor: “If missioners interviewed would concede County, which has its seat in Cañon City you escape, you probably want to get as far that a federal government set on putting and lies in a scenic valley a few hours away from Fremont County as possible.” more people in prison is good news for a south of Denver, has an incarceration rate Residents are quick to acknowledge the town built around them. 7 much higher than the average in America, which in turn has the second highest im- prisonment rate in the world (after the Sey- Health care chelles). Though the county is relatively small, with a population ofaround 40,000 The expanding universal unconfined residents, it ishome to 11opera- tional federal and state prisons that house some 7,600 inmates. By comparison, the whole state of Colorado houses around 24,000 prisoners. Fremont County’s residents have had a The fixforAmerican health care has already been tried somewhere in Europe long time to embrace their area’s reputation as “Prison Valley”. The area’s oldest ITCH MCCONNELL was visibly dis- single-payer health insurance systems prison, Colorado Territorial Correctional Mtraught after the Republicans’ “skin- with socialism, government and Europe, Facility, a fortified complex on the western ny repeal” of Obamacare was defeated in rests on a set of deep archetypes. It can edge of Cañon City, opened in 1871, five the Senate, but he was not too out of sorts trace its roots back more than a century, to years before Colorado became a state. One to get in a dig at Europe. The majority the days when Gilded Age railroad barons ofterritory’s legislators had lobbied for the leader wondered acidly what ideas Demo- fulminated against the leftist European im- penitentiary in hopes that it would boost crats might have for fixing American migrants who, they believed, were infect- the area’s economy and provide employ- health insurance, and noted that most ing America with communism. But it ment for new settlers. Other prisons fol- Democratic senators had voted “present” makes no sense in the context of the lowed, building on ranchland already on a bill proposing that America should health-insurance debate. In the first place, owned by the territorial correctional de- embrace a single-payer system. “Apparent- it gets its terms all wrong. A single-payer partment, explains Stacey Cline, who di- ly they didn’t want to make a decision system is socialised health insurance, not rects Cañon City’s Museum of Colorado about whether they were for or against so- “socialised medicine”: in many countries Prisons. Today the prison industry ac- cialised medicine. A government takeover with single-payer systems, such as Cana- counts formore than halfofall jobs there. of everything. European health care,” Mr da, most medical providers are private, for- The result is a population that largely McConnell said. These things, he implied, profit businesses. It does not imply a “gov- views the corrections industry with toler- were all connected, and very bad. ernment takeover of everything”, or even ance and humour. “It’s just accepted,” says Mr McConnell’s syllogism, equating of all health insurance. In France, Spain,1 The Economist August 12th 2017 United States 23

2 Britain and elsewhere, single-payer gov- private. Coverage is universal because citi- Medicaid but whose employers do not ernment-provided insurance co-exists zens are legally obliged to buy it, which en- provide insurance, America has Obama- with private health-insurance industries sures that healthy people stay in the sys- care: a heavily regulated, government-sub- supplying supplemental policies for those tem, holding insurers’ costs down. The sidised system of private insurance ex- who want extra coverage. government keeps premiums affordable changes with an individual mandate, like Nor is single-payer health insurance by pumping in generous subsidies, and the Netherlands and Switzerland. synonymous with “European health care”: bars insurers from rejectingthose with pre- That complexity contributes to costs. not just because insurance is not care, but existing conditions. It also regulates pro- America spends vastly more on adminis- because much of Europe does not have a viders in order to control expenses. tration: 8% of health spending, versus 2.5% single-payer system. European countries in Britain. As of 2013, Duke University hos- that do not have single-payer health insur- Socialism in one country pital had 400 more billing clerks (1,300) ance include Switzerland, the Netherlands Ifthis last variant sounds familiarto Amer- than hospital beds (900). Americans also and an obscure republic called Germany. icans, that is because it is essentially the consume more health care. The result is These countries achieve universal cover- same as Obamacare. One salient differ- that health care manages to chew up about age through a mix of private, for-profit and ence is that because the Netherlands and 17% of GDP without even covering every- not-for-profit insurers. This private-public Switzerland provide more subsidies, pre- one. (No European system costs more than combination may sound like the sort of miums are much lower. They also enforce 12% ofGDP.) Americans would be getting a ideological breakthrough that could serve the mandate more strictly. As a result, they terrible bargain even if their resulting as a compromise between Democrats and manage to insure over99% oftheircitizens, health was as good as that ofEuropeans. In Republicans. But it isn’t new. Germany has whereas America insures only about 90%. fact, it is worse. Europeans have longer life been usingsome variety ofthis model ever All this may seem terribly complex. In expectancy than Americans. Fully 28% of since it invented public health insurance, fact, European countries’ health-insurance Americans have multiple chronic health 134 years ago, during the administration of systems are, without exception, simpler problems (such as diabetes or arthritis), Otto von Bismarck. than America’s, which is a bewildering more than in any European country. Amer- In fact, what is interesting about Euro- hodgepodge ofprivate and publicsystems. ica does manage to outperform most Euro- pean schemes for universal health insur- For those over 65, America has a single- pean countries on cancer mortality, ance is precisely their variety. The systems payer system, Medicare, that dishes out though even there, Sweden does better. fall into three paradigms. In the first, the taxpayer money to for-profit private Even on that hoary measure of public government takes over both health insur- health-care providers with virtually no health, adult height, America fails. A surance and the provision of care, employing cost controls. For those earning below a vey of the youngest mature adults (born in doctors and running hospitals. In the sec- certain threshold (which varies by state), 1996) showsthatthe latest cohortof Ameri- ond, the government provides universal there is another single-payer system, Med- cans are shorter than the French. health insurance, but leaves much of the icaid, that does have cost controls. For But the main reason why Mr McCon- provision ofcare to the private sector. (This those who have served in the armed nell should hesitate before dismissing is the “single-payer” model to which Mr forces, America has a single-payer system, “European health care” is not so much its McConnell refers.) In the third, the govern- the Veterans’ Administration; some veter- effectiveness as its variety. There are not ment leaves both insurance and care to the ans are treated at government-run hospi- that many ways to achieve universal private sector, but uses regulation, govern- tals, as with Britain’s National Health Ser- health insurance coverage in a country. ment subsidies and an individual man- vice. For those who are employed by Fundamentally, the government must ei- date to guarantee that everyone is covered. businesses above a certain size, America ther provide it directly, orregulate and sub- Most countries fall somewhere be- requires employers to provide private in- sidise the insurance industry to do it. For tween these three. Britain, Italy, Spain and surance subsidised by a regressive tax any variant one can imagine, some Euro- Sweden essentially use the first system. break. For those who earn too much for pean country has probably tried it out. 7 Everyone is enrolled in a national government-run health system, most health care is paid for by the government, usually free of charge, and most doctors work for the public health service. But there are also some private doctors and hospitals, and private insurers offering supplemental plans forthose who can afford them. France’s health-insurance system, like Canada’s, is mostly based on the second paradigm, the “single-payer” concept. Doc- tors are mostly private, but the basic insurance schemes that provide universal coverage are government-funded. Most people in France top up their coverage with supplemental private insurance plans. Germany, meanwhile, falls somewhere between paradigms two and three: most citizens are covered by government- administered schemes, but those earning above a certain threshold can choose to buy private health insurance. Finally, in the Netherlands and Switzer- land, health insurance is handled almost entirely by private insurance companies, and doctors and hospitals are generally 24 United States The Economist August 12th 2017 Lexington Centre of attention

Moderate Democrats ponderhow to beat Donald Trump without resorting to angry populism crats are seen as the party ofgovernment, and voters are farmore likely to condemn big government than big business. Mr Trump’s approval numbers may be sliding, but Republicans are more trusted than Democrats to bringgood jobs. That thought haunted the Third Way gathering Lexington attended as an observer. The left longs to see Democrats use government’s powers to tackle income inequality, perhaps by backing higher minimum wages, a universal basic income, or by promising to make college tuition free, as Senator Bernie Sanders of Vermontdid during the presidential primary. Some seem to think the trick is to explain Democratic ideas more slowly and loudly. Ahigh-profile darling ofthe grassroots, invited to Aspen, fretted that Democrats are los- inga “messagingwar” against such conservative donors as David and Charles Koch. Because of right-wing attacks, she lamented, “People thinkthatwhatisgood forthem isactuallybad forthem.” Others, notably politicians from swing states and regions where Democratsneed moderate Republicansto win, retorted, in effect, that their party needs to stop telling voters “what is good for them”. One centrist told the gathering to ponder a shocking development: that their “party of the working class” is seen as “against jobs”. Several elected Democrats urged their party to SORT of fever grips the American left. With each grim head- step back, raise its sights and consider voters’ highest aspirations Aline for Donald Trump, or show of division among Republi- and greatest fears. It is right to campaign for a minimum wage, a cans in Congress, excitement builds among those sworn to resist politician said, “but I don’t know a single person that wants to the president and his works. Democrats outnumbered Republi- earn a minimum wage.” Free college is a crowd-pleaser, but cans in the popularvote in 2016, it is recalled—and that was before Democrats also need to win back factory towns where a skilled Mr Trump broke his promises. If the Democratic Party just picks trade, not a university degree, is a cherished path to success. fierier policies and more inspiring candidates, that anti-Trump majority will surely boil over, sweeping the right from power. No short cuts Moderate Democrats find this confidence alarming. A high- Third Way’sown pitch involvestacklingincome inequality notas octane group of elected officials—including governors, members the final goal of policymaking, but as a symptom of a larger proof Congress and city mayors—were joined by donors, the heads blem: the difficulty ofbuildinga good life filled with meaning, es- of progressive campaign groups and veterans of presidential peciallyin left-behind bitsofthe countrywhere too few jobsoffer campaigns at a retreat in the cool, mist-shrouded mountain resort chances fortraining and self-improvement, or even simple digni- of Aspen, Colorado on August 4th-5th. Hosted by Third Way, a ty. The campaigningthink-tankwould like to see the left, rightand centrist think-tank, the gathering pondered politics as it is, and centre wooed with an overarching message. Rather than stress notasideologueswish itto be. The countryishome to lotsofpeo- ways to redistribute wealth, Third Way wants Democrats to offer ple who dislike Mr Trump. But many are clustered in big cities, an “opportunity to earn a good life”—a phrase intended to cap- coastal states or college towns, blunting their electoral impact. In ture the central promise ofAmerican capitalism, in which a good the election of 2016 Hillary Clinton outperformed her predeces- life is made open to all, but must be earned. sor, Barack Obama, by 1.2m votes in California, Massachusetts This was a gathering of realists. Governor John Hickenlooper and New York. Those three states, indeed, elected a third ofall the of Colorado talked of working with business and non-profits on Democrats in the House of Representatives. But in the other 47 “trans-partisan” tasks like creatingapprenticeships. Others called states, Mrs Clinton underperformed MrObama by a total of 3.3m for Democrats not to be anti-business, but to return to their votes—and did especially badly in swing states that gave Mr mid-20th-century identity as a party that stands with small busi- Trump his improbable win. nessagainstovermightycorporate behemoths. Several suggested As the Third Way retreat heard, the only quick route to Demo- casting priorities such as climate change in concrete terms, for in- cratic dominance would involve the forced movingofmillions of stance by stressing that jobs installing solar panels cannot be sent Americans. In the real world, political geography condemns abroad. Strikingly, given the eagerness of some “Resistance” ac- Democrats to slog their way back to power in a daunting array of tivists to stage purity contests at election-time, the heads of two places: struggling rustbelt towns, thriving suburbs near such cit- prominentprogressive groupssaid theysawno meritin demand- ies as Minneapolis or Philadelphia, fast-growing communities in ing that all candidates, everywhere run on such issues as abor- the south-west. These regions have turned away from Democrats tion rights. Governor John Bel Edwards of Louisiana bluntly told since Mr Obama won the presidency in 2008. The party has ced- colleagues that ifthe national Democratic Partyhad not tolerated ed dozens ofseats in Congress and almost1,000 seats in state leg- his views on abortion (anti) and gun rights (pro), he would not islatures. Republicans control 34 of50 governors’ mansions. have won his conservative state and “would not be here today”. A Democratic push for power will expose weaknesses within Democrats are bracing for a circus-like presidential primary in the anti-Trump majority. Lots of voters express doubts that the 2020. Centrists will be attacked as sell-outs. Their urgent taskis to president shares their concerns. But even more say they think avoid left-wing populism becoming the default option. For their Democrats are out of touch with regular folk. In surveys, Demo- party is in a deep hole, and no narrow path will lead them out. 7 The Americas The Economist August 12th 2017 25

Also in this section 27 Lifting Chile’s abortion ban 27 Lenín Moreno asserts himself Bello is away

Charter cities in Honduras Paul Romer, now the World Bank’s chief economist, popularised the idea after no- A shadowy experiment ticing that autonomous cities like Hong Kong and Dubai became magnets for investment. In 2010 MrSánchez, chiefofstaff for Porfirio Lobo, Honduras’s president at AMAPALA the time, asked MrRomerto help set up the first “model cities” after seeing a TED talk The Central American country has a bold plan to overcome its weaknesses and that he gave. attract investment. It is not going well Like Dubai’s free-trade zones, ZEDEsare NE sunnyWednesdayin Amapala, off tal they attract would create jobs and re- to be “seamlessly integrated into the city”, Othe coast ofHonduras, 33 working-age lieve poverty. Rather than fleeing to the says MrSánchez. But they also harkback to men settled themselves on rows of chairs United States, Hondurans threatened by an older model from Honduras’s banana- on the main street under a tarpaulin to the country’s ubiquitous gangs could find republic days, when the country in effect watch a football game. There was not security and livelihoods in ZEDEs. turned over swathes of territory to giant much traffic to disrupt. The dilapidated The government has such faith in this firms like the United Fruit Company. “Ba- town on the island of El Tigre had once idea that in 2013 it passed a law that adds nana enclaves are an example of the suc- been a bustling port, dispatching coffee ZEDEs to municipalities and departments cessful functioning of models from other and other commodities to Europe. Herbert as units of the republic. It is considering states,” says Ebal Díaz, the secretary of Hoover and Albert Einstein thought the proposals for 20 ZEDEs across the country Honduras’s council ofministers. place worth visiting. But the German mer- and has signed more than ten memoran- But the plan to correct the country’s chants and shipowners who had managed dums of understanding (MoUs) with in- faults one ZEDE at a time is causing alarm. Amapala’s commerce left after the second vestors, says Octavio Sánchez, one of the The zones can be created in thinly populat- world war; in 1979 the port moved to the project’s leaders. Some are “ready to go— ed areas without the consent of the locals. mainland. The football fans now work inland bought, maps drawn and capital Hondurans inside them will lose some termittently as fishermen, farmers and raised”, he says. The government may an- rights. Under the law creating ZEDEs, just drivers of three-wheeled mototaxis, most nounce the first few projects at the end of six of the constitution’s 379 articles must earning less than $2 a day. Some of the August. They might be as small as a call apply within them, points out Fernando peeling pastel-coloured buildings bear centre or cover an entire city. García, a lawyerin Tegucigalpa, the capital. signs in English, put up in expectation of a These do not include those underwriting tourism revival that never happened. Sweet dreams are made ofZEDEs such rights as habeas corpus and press Honduras’s government is promising a It is easy to see why Honduras might want freedom. return to the glory days. In 2013 it an- to create enclaves of safety and efficiency The project is beset by conflict between nounced plans to build a “megaport” in on its territory. It is one of the world’s most foreigners brought in to help monitor it Amapala, along with a customs office and violent countries; laws and contracts are and Honduran officials responsible for processing plants for exports such as spottily enforced; its bureaucracy is a hin- putting it into practice, and by strife among shrimp, textiles and bananas. The money drance rather than a help to its citizens; in- the Hondurans themselves. What deci- would come from private investors, who frastructure is rudimentary and in poor re- sions have been made and who has made would be enticed by the establishment of pair (see chart on next page). them are a mystery to people outside the three “employment and economic The government’s proposal for over- process, and even to some who are sup- development zones” (ZEDEs). More ambi- coming these defects draws inspiration posedly part of it. Outsiders assume the tious than typical free-trade zones, these from the idea of “charter cities”, new juris- worst. A recent report by the Carnegie En- would be independent jurisdictions with dictions on empty land that bypass weak dowment, a think-tank, calls Honduras theirown laws, courtsand police. The capi- institutions to attract investment and jobs. “emblematic” of countries in which “cor-1 26 The Americas The Economist August 12th 2017

2 ruption is the operating system” of net- McKinsey, a consultancy. It suggests creat- 150 km works formed by government, business ing 600,000 jobs by attracting vehicle-as- ZEDE Roatán Caribbean and “out-and-out criminals”. The sembly operations, call centres and other BELIZE Sea saga suggests that such a system will have industries from Asia. great diﬃculty in creating one that is free of Even now, just how ZEDEs will workis a

its own shortcomings. matter of argument among their suppor- GUATEMALA HONDURAS The ZEDE plan has its origins in a coup ters. The law places effective control in the OLANCHO and the complicated politics that ensued. hands of investors and a “technical secre- Tegucigalpa The government of Mr Lobo, who won tary” who will administer each zone (and hastily arranged elections after the army must be a Honduran citizen). They are an- EL SALVADOR ousted a predecessor in 2009, passed a law swerable to an independent “commission NICARAGUA creating a forerunner to ZEDEs. After the forbest practices” (CAMP). Civil and crimi- Amapala constitutional court struck down the law, nal cases will be adjudicated by special PACIFIC saying it violated Honduran sovereignty, ZEDE courts, though it is not clear whether OCEAN congress dismissed the four justices who each zone will have its own or whether had voted against it and amended the con- theywill join a single parallel system. They stitution to allow passage of the current could employ foreign judges to hear civil principle. Mr Klugmann thinks good go- “model-cities” statute in 2013. and criminal cases, just as Honduran foot- vernance matters more to investors than By then Mr Romer had broken with the ball teams hire foreign players, suggests Mr cheap labour and light regulation. He project (after he realised that the “transpa- Díaz. A “tribunal of individual rights”, wants ZEDEs to perfect their institutional rency commission” he was supposed to guided by international conventions, will set-up before they start operations. Mr chair would never in fact exist). But it still protect residents. Its decisions can be ap- Rahn seems to be losing heart. He was has plenty ofpolitical support. The current pealed to international courts. “asked to try to bring in best practices of president, Juan Orlando Hernández, who But this governance structure is not set- corporate governance”, he says. But it has is running for re-election, sees ZEDEsasa tled; participants do not agree on what has been an “uphill struggle”. Although the vote-winner. He recently posted on Face- been decided or even on who is part of it. CAMP is supposed to be independent, Mr book a (perhaps fanciful) map showing The original CAMP, appointed by MrLobo, Rahn has “the strong impression that there how they would transform Honduras into had 21 members, including Grover Nor- is government interference”. the Americas’ “logistics centre”. A motley quist, an American anti-tax campaigner, Mr Sánchez’s Honduran faction seems group of foreign libertarians, who like the Richard Rahn, then of the libertarian Cato more eager to sign deals, and more willing idea of lightly regulated mini-Utopias for Institute in Washington, DC, and Mark to cut corners. One proposal is for a public- enterprise, are still involved. The Inter- Klugmann, a former speechwriter for Ron- private partnership with Conatel, the American Development Bank has said it ald Reagan. This body met just once, in state-owned telecoms company. Its boss is may lend $20m to backtheirdevelopment. March 2015, on the resort island ofRoatán. Mr Díaz, who is also the member of the Even after seven years of work, the According to Mr Sánchez and MrDíaz, it CAMP authorised to sign MoUs and the scheme is as vague as it is ambitious. No has been pared down to 12 members. Sev- head ofthe agency that registers land titles. one outside a small group knows what the en are Hondurans from the rulingNational Mr Sánchez sees no conflict of interest in first project will be. Agile Solutions, a Bra- Party; the five foreigners include Mr Rahn this accumulation of roles. “It’s the same zilian software firm, talks of investing and Barbara Kolm, an economist with government,” he says. $200m to open a “startup village” in Tegu- links to Austria’s far-right Freedom Party, The fuzziness about governance will in- cigalpa, creating 6,000 jobs. Its Honduran but not Mr Klugmann. This group has been crease suspicion that ZEDEs are a further boss, Carlos Cruz, sees the zone as a “blank meeting secretly in Miami. But power is way to enrich an entrenched elite and slate”, which the company could use as a now exercised by a five-person standing erode the rights of ordinary Hondurans. laboratory for new approaches to health committee led byMsKolm, who isthe only The National Lawyers Guild, a left-leaning care, education and tax. foreign member. American NGO, fears that the CAMP and Anothercandidate to be the first ZEDE is Mr Klugmann denounces the sidelin- the technical secretaries will wield unchal- a public-private partnership with Canadi- ing of the original CAMP as “illegitimate” lengeable power over ZEDEs and the peo- an investors to create an “energy district” and illegal. Arnaldo Castillo, Honduras’s ple who live and workwithin their bound- in Olancho department, where wood minister of economic development, de- aries. Once established, ZEDEs can seize would be harvested for fuel. The ZEDE it- nies that it has occurred. The argument land to expand the zones. That may pro- self would be confined at first to a 1.6 over which CAMP is in charge is also about voke conflict: 90% of Hondurans do not square km (0.6 square mile) patch, which have titles to their homes and scores have will be occupied by a power station. But it died in land disputes in recent years. Hon- could eventually expand to an area cover- Tropical troubles durans living in areas marked out for ing 8% of Honduras’s territory and includ- 2016 or latest ZEDEs have little idea what is in store. “We ing 380,000 people. HOI, a Christian NGO have never been in the loop,” says Julio Ra- Latin America: Best Honduras Worst based in the United States, is to provide mírez, Amapala’s bespectacled town clerk. health care and education from the outset 99 It is possible that nothing will change in Infrastructure in this “area ofinfluence”. Out of 138 countries Panama Paraguay sleepy Amapala. Salvador Nasralla, the After spending millions of dollars on 105 leading candidate to unseat Mr Hernández feasibility studies for Amapala, South Ko- Ease of doing business in elections on November 26th, says he Out of 190 countries Mexico Venezuela rea’s development agency concluded that would repeal the ZEDE law (though that 123 the area is not ready for a megaport. So the Corruption would require a two-thirds majority in Honduran government decided to start Out of 176 countries Uruguay Venezuela congress). The CAMP chaos may drive with a tourism project that scoops into sev- away investors. But if they come, the foot- Murders per 59 81 ball aficionados of Amapala may learn eral fishing villages on the bay, plus fac- 100,000 people 4 tories and a customs centre nearby. Some Chile El Salvador what it is like to be guinea pigs in a daring proposed ZEDEs are based on “Plan 2020”, Sources: World Bank; World Economic Forum; economic experiment. Their little island a master plan for the country drawn up by Transparency International; InSight Crime will be in Honduras, but no longer of it. 7 The Economist August 12th 2017 The Americas 27

Chile their boards, which they have met. (Only Ecuador 6% of directors of publicly traded compa- Term endings nies are women.) Breaking Glas The partial lifting of the abortion ban would be a final flourish to her presidential push to empower women. Perhaps SANTIAGO 60,000-200,000 illegal abortions a year QUITO occur in Chile. These kill fewer mothers A feminist president seeks to relaxa The new president emerges from the than they once did, partly because preg- strict anti-abortion law shadow ofthe old nancy-ending drugs can be acquired on ICHELLE BACHELET’s second term the internet. Chile’s maternal-mortality ILL Lenín Moreno be his own man? Mas Chile’s president, which will end rate is among the lowest in Latin America. WOr will he be the puppet of his force- next March, has been frustrating. Eco- The government hopes that the new ful predecessor, Rafael Correa? Ecuado- nomic growth has been slow, her reforms law will make it still lower by lifting the reans have been wondering that since Mr ofeducation, tax and labour laws have not threat of prosecution of doctors who end a Moreno became president on May 24th. worked as planned and her son has been pregnancy to save a woman’s life. From An answer came on August 3rd, when Mr implicated in an influence-peddling scan- 2004 to 2012, 21 women died from ectopic Moreno removed the vice-president, Jorge dal. Her approval rating is only 32%. pregnancies, according to Paz Robledo of Glas, from any active role in government. But Ms Bachelet is bowingout with a re- the health ministry. Others die needlessly Mr Glas has been friends with Mr Correa form that she no doubt hopes will secure a from hypertension and other maladies. since theywere boyscoutsand wasseen as more popular legacy: an end to the coun- The main opposition to lifting the ban the former president’s agent. Mr Moreno try’s ban on abortion. On August 3rd con- comes from Chile Vamos (Let’s Go Chile), a has stripped Mr Glas of his powers and gress passed a law to decriminalise abor- coalition ofright-leaning parties, including perks, includingthe use oftwo presidential tion in three types of case: when the National Renewal, the party of Sebastián jets. He may now undo much of the work mother’s lifeis at risk, when the pregnancy Piñera, the front-runner in presidential ofhisleft-wingpredecessor, who spent lav- is the result of rape and when the fetus has elections due in November. Senators from ishly and squelched dissent. a fatal defect. The right-leaning opposition the coalition brought the suit now being Even before the break with Mr Glas, the and the Catholic church strongly oppose it. considered by the constitutional tribunal. new president showed an independent The constitutional court will now decide Opponents worry that the new law streak. He appointed a journalist from the whether it can take effect, even though the will open the way for abortion on de- private-sector media to run El Telégrafo, a constitution “protects the life of the un- mand, though it has safeguards to prevent state-owned newspaper. That is a sign, per- born”. Ifit upholds the new law,Ms Bache- this. Two doctors must agree that a fetus is haps, that Mr Moreno will bully the press let will be able to claim a robust record of not viable or that a mother’s life is in dan- less. Mr Correa’s overspending had left the promoting women’s rights in defiance of ger to justify an abortion. If a woman says economy “at the brink of sustainability”, deep-rooted social conservatism. More a pregnancy is the result of rape, the hospi- leaving a debt well above the legal limit of than 70% of Chileans want the court to en- tal must notify a prosecutor. That is sup- 40% ofGDP, Mr Moreno declared. dorse the reform. posed to deter women from ending preg- His heresies provoked Mr Glas to write Abortion to protect the health of the nancies that come from consensual sex. an open letter on August 2nd accusing him mother was legal from 1931 until 1989. Au- That will not persuade people with of betraying their political movement, gusto Pinochet, Chile’s dictator until 1990, deeper objections. “We are discriminating Alianza PAIS, of “manipulating economic ended that exception. His social conserva- against human beings by saying they don’t data” and of handing over public media to tism has shaped present-day Chile as have the right to be born because they are the private sector. Mr Glas may have been much as his economic liberalism, which sick or because they’ve been conceived by trying to shift attention away from corrup- has helped the country thrive. “There has rape,” says Jacqueline van Rysselberghe, tion allegations levelled against him. Aday been very slow change on cultural and the leader of the Independent Democratic before he published his letter, a Peruvian moral issues,” says Carlos Peña, the rector Union, part of Chile Vamos. Ms Bachelet’s news website released a recordingofa con- ofDiego Portales University. legacy will depend in part on whether the versation in 2016 between Ecuador’s then- That has not meant stasis. In the 1990s constitutional court agrees. 7 comptroller-general and an executive at children born out ofwedlockgained equal Odebrecht, a Brazilian infrastructure firm rights and sodomy was decriminalised; di- that has bribed officials in a dozen Latin vorce and same-sex civil unions became American countries. The executive can be legal in this century. Ms Bachelet, who be- heard saying that Mr Glas received cash came head of the UN’s women’s-equality from Odebrecht and from “the Chinese”. arm after her first term, sought to advance Mr Glas insists that Odebrecht is smear- women’s rights in both her administra- ing him because, as head of the state asset- tions. Under a law passed in 2010 women holding fund, he criticised it for shoddy aged 14 and older won the right to receive workon a powerplantin 2008. (Odebrecht the contraception oftheirchoice, including paid $20m, then won numerous contracts the morning-after pill. Ms Bachelet also in- for other projects in Ecuador.) Mr Moreno troduced a basic pension for old people hasnottried to obstructinvestigations. The who had not built up a right to a benefit prosecutor-general, Carlos Baca, has con- through work. It goes mostly to women. firmed that the vice-president is a target of In her second term, congress passed a a probe into embezzlement in an oil deal in law compelling political parties to select 2012; Mr Glas called the decision “infamy”. women as at least 40% of their candidates The president cannot get rid of Mr Glas in parliamentary elections (just 16% of to- entirely: unless congress impeaches him day’s legislators are women). Ms Bachelet by a two-thirds vote, he will take over ifMr set state-owned enterprises a goal of ap- Moreno is incapacitated. Ecuadoreans are pointing women to fill 40% of the seats on Bachelet, feeling empowered praying forthe president’s health. 7 28 Asia The Economist August 12th 2017

America and North Korea Also in this section Tone Defcon 29 Tokyo’s vanishing bath-houses 29 The feud in Singapore’s first family 30 Persecuted Muslim minorities (1) SEOUL 31 Persecuted Muslim minorities (2) Donald Trump’s blustermay be thwarting efforts to persuade the nuclear 32 Banyan: North Korea’s police state dictatorship to negotiate HE Korean Central News Agency The sanctions that sparked this ex- have reported on their implementation of T(KCNA), the mouthpiece of Kim Jong change of rhetorical fire were a rare exam- the previous round of sanctions, adopted Un’s bloodthirsty regime in North Korea, is ple of co-operation between China, Amer- in November. not known for nuance. Its propagandists ica and Russia. The UN Security Council China, which accounts for more than were kept busier than usual last week, unanimously endorsed the crackdown a 90% of North Korea’s trade, has promised hammering out tirades against economic week after North Korea’s second test of an to apply the new restrictions “fully and sanctions imposed by the UN in response intercontinental ballistic missile (ICBM), strictly”. But they do not include the one to Mr Kim’s unrelenting missile tests. Re- which could soon enable Mr Kim to order measure thought likely to cause Mr Kim ports threatened America with “nuclear a nuclear strike on an American city. real difficulty: a curb on the North’s im- weapons of justice”. A typical article The new restrictions ban purchases of ports of oil. They are unlikely, therefore, to warned that: “It is a daydream for the US to North Korean coal, iron, lead and seafood convince Mr Kim to give up his weapons, think that its mainland is an invulnerable (the country’s main exports). According to but some Korea-watchers hope they may Heavenly kingdom.” some estimates, this will deprive the re- inflict enough pain to bring him to the ne- American presidents used to brush off gime of $1bn a year—a third of its foreign gotiating table at least. such bombast. Not so Donald Trump. earnings. The sanctions also prohibit gov- Sanctions will only work if they are Speaking off-the-cuff at one of his golf ernments around the world from admit- part of a “cohesive, clearer strategy”, ar- clubs, he chided North Korea for its threats, ting any more North Korean workers, as gues a report by the Brookings Institution, pledging to meet further provocations the regime pockets most oftheir wages. an American think-tank. But analysts ac- “with fire and furylike the world has never cuse the Trump administration of sending seen”. Even the hyperbole-prone hacks of Seventh time lucky mixed messages. Only a week before Mr the KCNA seemed to think this was a little Yet sanctions have not brought the Kim Trump’sinflammatory remarks, Rex Tiller- strong. They accused America of “war hys- family to heel in the past. This is the sixth son, his secretary of state, had reassured teria” and ticked offthe president for being tightening of them since the UN first im- North Korea, calling for talks and insisting, “reckless”. Just hours later, the Korean Peo- posed them in 2006, after Mr Kim’s father, “We are not your enemy, we are not your ple’s Army claimed to be “carefully exam- Kim JongIl, conducted a nucleartest. North threat.” MarkFitzpatrickofthe Internation- ining” a strike on Guam, a Pacific island Korea has since carried out fourmore tests. al Institute for Strategic Studies, another that hosts a large American military base. The regime has grown adept at dodging think-tank, says a response to the nuclear North Korea’s neighbours are jittery. the restrictions, using illicit slush funds in threat requires “carefulness and co-ordina- Moon Jae-in, South Korea’s president, China to finance business partnerships, tion”, which are “not Trump hallmarks”. called for a “complete” overhaul of his says John Park of Harvard’s Kennedy Far from talking the regime down, Mr country’s armed forces. Japan’s defence School of Government. The higher com- Trump’sbombastic (indeed, Kim-like) rhet- ministrypublished a 563-page reportchart- missions on offer for such risky transac- oric risks making allies nervous while doing how the threat from the North reached tions simply attract more capable middle- ing nothing to persuade the North Korean a “new stage”. A day after Mr Trump’s out- men, he adds. Enforcement has been leaderto take hisfootoffthe missile-testing burst, China appealed forcalm. patchy: of the UN’s 193 members, only 77 accelerator. His statement appears to sug-1 The Economist August 12th 2017 Asia 29

2 gest that America is prepared to retaliate centuries they were places where neigh- to have survived the advent of domestic against North Korean threats, not just hos- bours—men and women—stripped and baths, but changing social attitudes are a tile actions, such as an attack on Seoul, bathed together. The custom was intensely graver threat. His daughter wants nothing points out Evans Revere, a former Ameri- practical. Until the frenetic modernisation to do with the trade, with its long hours can diplomat who tookpart in the most rein the run-up to the Olympics in 1964, 40% and uncertain rewards, laments Mr Shi- cent negotiations with North Korea. “If of homes in Tokyo lacked baths, so mil- mada. Once, he could have arranged her we’re going to respond with nuclear weap- lions of people depended on sentos for marriage and nudged his son-in-law into ons every time the North Koreans say their nightly soak. taking over, but that’s all in the past. After something outrageous, there are going to Those days are long gone. Across the 19 generations in the family, he fears that be a lot of nuclear weapons flying through city’s skyline, the bath-houses’ distinctive Akebono-Yumay die with him. 7 the air,” he says. chimney stacks are disappearing. From a Mr Trump should follow up the sanc- peak of perhaps 2,700 sentos, fewer than Singapore’s first family tions with an offer of talks, even though 600 remain, according to the National the formergoal of denuclearisation is now Sento Association. Most are run by elderly vanishingly remote. On the campaign trail couples. Luring customers is a struggle. Bad blood Many have posted signs in English explain- last year, he said he would be willing to Singapore chat with Mr Kim over a hamburger. Now ing bathing etiquette to the growing num- The courts step in that blood-curdling barbs are flying across ber of foreign tourists (eg, shower before the Pacific, Mr Fitzpatrick believes, “It’s you get in the tub). Plush new spas have N NORMAL circumstances…I time to have that hamburger.” 7 opened, with beauty salons and massage “Iwould have sued,” said Lee Hsien parlours. A few have become more inven- Loong, the prime minister ofSingapore, tive, laying on concerts and performances. in July. He was responding to claims by Tokyo’s vanishing bath-houses One even offers naked classes in comedy his siblings that he was secretly manoeu- and Go, a Japanese board game, in the vring to prevent the demolition ofthe Troubled waters hope ofluring younger customers. house ofhis father, Lee Kuan Yew, Singa- Teruo Shimada, the owner of Ake- pore’s foundingprime minister, in vio- bono-Yu, says customers will no longer lation ofthe terms ofthe older Mr Lee’s come just to get clean: “You have to give will. In the end, the younger Mr Lee said Tokyo them something extra.” His premises have in a public statement, he concluded that become something ofa social club for pen- such action would “furtherbesmirch my Once-ubiquitous public baths are sioners. Some sip beer and sake in the res- parents’ names”. fighting to survive taurant while watching sumo on a large- Singapore’s attorney-general, how- TEP from the fraying lobby into the tiled screen television. Among the 12 baths in- ever, takes a different view. On July 21st Sinterior of Akebono-Yu, Tokyo’s oldest side are a jacuzzi and one that delivers a his office wrote to Li Shengwu, the son of sento, or public bath-house, and there is an mild electric shock, said to stimulate sag- one ofthe critical siblings and thus the almost churchlike silence, interrupted ging muscles and (say men) libido. prime minister’s nephew, to denounce a only by the tinkle of spring water and the Mr Shimada’s ancestors started the private post on his Facebookpage as “an odd groan of pleasure from one of the el- business in 1773. A volcanic stream over egregious and baseless attackon the derly customers sinkinginto its tubs. Amu- 1,000m underground, discovered while Singapore judiciary” and one which ral depicts the iconic, snow-capped Mount digging a well, feeds the baths. They have “constitutes an offence ofcontempt of Fuji, 100km and a world away from the survived fires, war and disaster, including court”. It demanded that he should grime and din ofthe city outside. the earthquake that levelled much of the delete the post and apologise by July Once attached to Buddhist shrines, sen- city in 1923, and the firebombing of Tokyo 28th. Mr Li, an economist at Harvard tos still have a whiff of the spiritual. For by American planes in 1945. They seemed University (and a formerintern at The Economist), had described the Singapor- ean government as “very litigious” and the country’s court system as “pliant” by way ofexplaining the cautious international coverage of his father’s allegations. “This constrains what the international media can usually report,” he said. Screenshots from his page began to be shared publicly. Mr Li asked to be allowed to consider the request until August 4th; on that day he tweaked his message, but neither removed it nor said sorry. The attorney- general’s office duly filed an application in the High Court to start proceedings against him. The case has drawn national and international attention to Mr Li’s views— fargreater publicity than he could have expected otherwise. He says he has no political aspirations, believing instead that Singapore “must be bigger than one family”. But the family feud is now all that Singaporeans can talkabout. Not to be confused with Soapland 30 Asia The Economist August 12th 2017

junta’s new constitution in a referendum last year—probably because of its directive that the government protect and nurture Buddhism but not other religions. But the main grievance of southerners is the government’s extraordinarily heavy- handed response to what began, at any rate, as sporadic assassinations by gunmen riding pillion on motorbikes. In a grue- some incident in 2004 the army detained hundreds of young men for protesting against other arrests; they were packed so tightly into trucks to be carted off to an army base that 78 of them suffocated. Ex- tra-judicial killings by the security forces are commonplace, and the Thai government has yet to successfully prosecute anyone for them. Gauging the scale of abuse is difficult, in part because the authorities often pay off families of victims to pre-empt lawsuits. Torture is not a criminal offence, despite politicians’ promises to make it one, and martial law in the region, first imposed more than a decade ago, makes it Muslim minorities (1) easy foryoungmen suspected ofmilitancy to be held for weeks arbitrarily. Many are Trampled by elephants beaten, suffocated with plastic bags, kicked, strangled and electrocuted, according to Human Rights Watch, a charity. Over steamed cupcakes at the Pattani Pattani office of the Muslim Attorney Centre, Ab- duqahar Awaeputeh, a lawyer, explains The first oftwo articles on the mistreatment ofMuslim minorities looks at the that his organisation handles roughly 100 grievances ofMalays in southern Thailand security-related cases every year. The secu- T FIRST all seems well in the old centre monks—anyone, in short, seen as an agent rity services have got better at disguising Aof Pattani, a city surrounded by lush of Thai imperialism. Locals had long bri- their handiwork, he says. One man de- vegetation near the southern edge of Thai- dled at the government’s assimilation poli- tained bythe armywho soughtthe centre’s land. Shop buildings painted with bright cies. Particular sore points included its re- help had to be carried into the office by rel- purple, orange and blue rhombuses offer fusal to recognise the Malay language atives, although he appeared unharmed. clove cigarettes, mobile phones, abayas (although localsspeaklittle else) and itsim- “They made him stand up for two days and much more. But there is one jarring de- position on the region of bureaucrats from straight,” explains Mr Awaeputeh; “when tail: vehicles park next to a low green wall elsewhere in the country. One local busi- he ate, when he slept, the whole time.” down the middle of the street, not by the nessman says government money for de- Feeble peace talks between the junta kerb. Car bombs are sufficiently common velopment goes missing too, harmful in an and a panel representing several militant for parking to be shifted away from the area which otherwise depends on the movements have been under way since multicoloured emporia to limit injuries skinny white trunks of rubber trees to sus- 2015. But little changes. Other attempts at and damage from the explosions. tain its economy. The three provinces were dialogue, both public and private, have Pattani used to be the capital of a Mus- the only southern ones to reject the ruling failed over the years as different Thai gov- lim sultanate that traded with China, Ja- ernments have approached different mili- pan and Europe in its glory days. The cur- BANGLADESH tant factions. In April the Barisan Revolusi rent insurgency has its roots in the Mandalay Nasional (BRN), the most powerful insur- engulfing ofthe sultanate by Siam, as Thai- gent group, released a rare statement criti- MYANMAR land was then known, in the late 18th cen- R cising the current approach. It called for A Sittwe K tury. Resistance by the local, ethnically Ma- H fresh talksin which itcan have a direct role. I Naypyidaw N Two months later the deputy minister of lay population met cruelty: Thai generals E ordered groups of men, women and child- defence, Udomdej Sitabutr, admitted that ren to be tied together and trampled to Yangon the government may not have been work- death by elephants, according to historical THAILAND ing with “the right dialogue partners”. accounts. To this day the 3m or so inhabit- Even if the process changes, however, ants of the provinces of Pattani, Yala and Bangkok many wonder how interested in peace the Narathiwat, as well as nearby parts of CAMBODIA generals really are. Songkhla (see map) remain predominant- Phnom Granting a degree of political autono- ly Muslim and Malay, an anomaly in a Penh my to the region could prove part of a sol- country that is mainly Buddhist and Thai. ution, reckons Sidney Jones ofthe Institute Nonetheless, southern Thailand had for Policy Analysis of Conflict, a think- been largely peaceful until 2001, when a SONGKHLA tank. Aceh, a province atthe tip ofthe Indo- Pattani PATTANI series of mysterious attacks began, not NARATHIWAT nesian island of Sumatra, provides an en- onlyon police and soldiers, butalso on civ- ACEH YALA couraging precedent. Years of violence il servants, school teachers and Buddhist INDONESIA MALAYSIA 250 km ended after talks in 2005 gave it a special 1 The Economist August 12th 2017 Asia 31

2 status within Indonesia and allowed the ing. This local focus also means that the leader, is a practising Buddhist. armed resistance movement to contest lo- plight ofother Muslim minorities rarely in- Nonetheless, Ma Ba Tha’s fear-monger- cal elections as a political party. spiresmilitantsfrom one countryto fight in ing finds many receptive ears. More than By the same token, in the Philippines, internal conflicts elsewhere in the region. 2m people signed one of its petitions. “the vast majority” of those joining insur- Rather, Muslims in troubled communities “Muslims are cunning,” says a young Bur- gencies for autonomy or independence view others like them in South-East Asia mese in a tea shop. “They will outbreed oppose jihadism, explains Ms Jones. The rather as they do, say, Palestinians. “We us,” laments another. A taxi driver insists parochial nature of the conflict in places have feelings forthe global brotherhood of that Muslims never use his services: “Mus- such as Pattani means that militants have Islam,” says a member of the Pattani Pro- lim money goes to Muslim businesses; little truck with international movements vincial Islamic Committee. “But we don’t that’s the way they think.” Such prejudices inspired by foreign strains ofIslamic teach- want violence, just quiet.” 7 are common: a survey conducted in 2015 by the Myanmar Centre for Responsible Business, a non-profit, found that almost Muslim minorities (2) 90% of the hateful online posts they reviewed were directed at Muslims. Mantras of hate Wirathu’s ideas have also percolated through Myanmar’s government. The previous army-dominated parliament passed four laws in keeping with Ma Ba Tha’s agenda. Two are a sop to those who fear an Mandalay army of Muslim babies: one allows local officials to order Muslim parents to wait up Militant Buddhist monks are stoking sectarian tensions in Myanmar to three years before having another baby, NSIDE a Buddhist monastery in Manda- majority of them Muslims. Last year, after while the other outlaws polygamy. The Ilay five teenagers are looking at a poster, Muslim militants attacked several police other two laws aim to reduce conversions, bemused. A graphic collage of photos de- posts in Rakhine, killing nine officers and even though they are vanishingly rare: one picts children’s corpses, monks covered in stealing numerous weapons, the army requires people wanting to change religion blood and enraged jihadists brandishing went on a rampage. The UN and various to register with the authorities and submit weapons. A monk in a maroon robe ap- human-rights groups say soldiers em- to an interview; the other allows con- proaches. “This is a reminder ofwhat Mus- barked on a campaign ofrape, murder and cerned third parties to prevent Buddhist lims are like,” he says. other horrors, including the burning of women from marrying outside the faith. Ashin Wirathu, the most famous resi- Rohingya villages. Some 75,000 people The new, civilian government has not dent of the Masoeyein monastery, ex- have fled across the border into Bangla- been much better. It has allowed bureau- pands on the theme during a break be- desh. Yet the authorities deny that the vio- crats to close mosques and Islamic schools tween meditation sessions. Buddhism, he lence is widespread or systematic: this in Yangon at the behest of angry mobs. explains, is in danger. Centuries ago, he week they produced a report exonerating When members of the evicted congrega- points out, Indonesia was principally a the security services. tions prayed in the street in protest, several Hindu and Buddhist country, but it has Buddhists account for almost 90% of of them were charged with “threatening since “fallen” to Islam. The Philippines, Myanmar’s population. There is no evi- stability and the rule oflaw”. meanwhile, is struggling with “hordes” of dence that their share of the population is “We feel like second-rate citizens,” says jihadists. Myanmar, he warns, is next. As declining. The monkhood, or sangha,isas a veiled Muslim woman living in Yangon. the leaderofthe most extreme fringe ofthe popular as ever with an estimated “We have to be very careful: a simple inci- Organisation forthe Protection ofRace and 500,000 members—almost1% ofthe popu- dent can turn into a riot.” On July 4th in Religion, a Buddhist charity best known by lation. Aung San Suu Kyi, the country’s Rakhine, forinstance, a Rohingya man was its Burmese acronym, Ma Ba Tha, he is killed by a group of Buddhists amid an ar- mounting a fierce campaign to rouse Bur- gument over the purchase ofa boat. mese Buddhists to confront this danger. In recent months the authorities have Muslims make up about 4% of Myan- tried to curb the extremists. The State mar’s 54m people. Some claim to be Ba- Sangha, a government-appointed body of mar, the country’s main ethnic group. Oth- monks, banned the use ofthe acronym Ma ers are the descendants of immigrants Ba Tha in May, saying the group had not from India during the British colonial per- been set up in accordance with the proper iod. Perhaps 1m are Rohingyas, a commu- procedures. Wirathu has responded by nity of Bengali origin living in Rakhine saying that it is the government, not Ma Ba state near the border with Bangladesh (see Tha, that must go. Sympathisers have al- map on previous page). They are stateless, ready set up a new charity and a separate and have been excluded from Myanmar’s political party. The leader of the party, official list of135 indigenous ethnic groups. Maung Thway Chon, says its mission is to The authorities consider them illegal im- “make Myanmar great again”. migrants, even though they have lived in Miss Suu Kyi has little to say about all Myanmar forgenerations. this. Some argue that speaking out would Indeed, by most accounts it is Muslims, be counterproductive: as it is, angry monks and especially Rohingyas, who are under began protesting earlier this month out- threat in Myanmar. In recent years there side Myanmar’s most famous temple, the have been sporadic attacks on mosques Shwedagon, accusing the government of and on Muslim homes and businesses. failing to protect Buddhism. But in elec- Sectarian clashes descended into a po- tionsin 2015, herparty, the National League grom against Rohingyas in Rakhine state in forDemocracy, did notputforward a single 2012 that claimed some 200 lives, the vast Alerting the world to Muslim misdeeds Muslim candidate for parliament. 7 32 Asia The Economist August 12th 2017 Banyan Phoney war

Smartphones help North Koreans keep trackofwhat’s going on; and the regime, ofits people state is arming itself with censorship methods that “go beyond what is observed even in other authoritarian states”. The toolkit he describes is sobering. The new 3G network allows the regime to automate surveillance through a home-grown operating system called Red Star. One update, rolled out in late 2013, made un- sanctioned media files unreadable. TraceViewer, installed by default on North Korean phones, takes random screenshots of users’ devices. Yet another bit of software scans files for suspicious phrases and deletes them. Red Star also allows authorities to trace forbidden content from device to device, as it is copied from one friend to the next. New rules require North Koreans to register their notels, allowing the authorities to monitor them, too. Mr Kretchun thinks that, as it brings more North Koreans on to its own “clean” network of devices, the state may eventually ban notels altogether. Manywatchersbelieve that, ifNorth Koreanshad enough mobile phones, received enough outside news and saw enough soaps depicting the South’s freedoms and riches, the regime would founder. The example ofEastGermanyistantalising. Thae Yong Ho, a North Korean diplomat who defected to South Korea last year, says that the regime will “collapse on its own when HE world may think of North Korea as a “hermit kingdom”, enough external information introduced through drones or USBs Tbut its 25m citizens are surprisingly wired. Perhaps half of all reveals the truth of the Kim regime”. In a recent poll of defectors, urban households now own a Chinese-made “notel”, a portable 98% said they had used USBs to store illegal content. media player. Over 3m have mobile-phone subscriptions, with Yet the jump from watching smuggled soaps to rising up Northern-branded smartphones like the Pyongyang and the Ari- against the government is a long one. Entertainment brings col- rang. South Korean NGOs that smuggle foreign films and TV our to dreary North Korean lives; rebellion brings death. And the shows into the North on USBs receive text messages from their work of activists ferreting content into North Korea is devilishly contacts there with requests for specific titles (South Korean hard. Their methods are low-tech: floating sealed bags of USBs soaps and Hollywood dramas are popular). across the Yalu riveron the Chinese border; sendingballoons car- The North Korean government, which haslongrelied on isola- rying DVDs over the heavily militarised border with the South. tion to keep its wretched people in servitude, has nonetheless Some radio stations play content to recently arrived defectors to abetted this revolution. In 2008 it invited Orascom, an Egyptian check that it is relevant. But few know what gets picked up. Some telecoms firm, to develop a 3G network in a joint venture with a groups continue to promote ideological or incendiary content— state-owned enterprise. There are now many more sanctioned such as clips of “The Interview”, a boorish comedy about an as- North Korean mobile phones than illegal Chinese ones (which sassination attempton MrKim—which maybe more ofa turn-off. can pick up a signal near the border); many use them to conduct All the same, even sanctioned devices are allowing North Ko- business on the blackmarket, to which the state turns a blind eye, reans to experiment with what they watch and say. As they con- by checkingprices elsewhere in the country. Notels, which can be tinue to communicate about shared economic interests, they bought for around $50 on the black market, are also sold in state- could one day form fledglinglobbies, perhaps first oftraders, says run shops and appear to have been legalised in 2014. Mr Kretchun. If the currency revaluation of 2009, which wiped If North Koreans are more easily able to trade information out people’s savings, were to happen today, these new networks within their country, attempts to expunge information from else- would be abuzz in an instant. where have neverbeen so fierce. Since Kim JongUn came to power in 2011, signal jammers for mobile phones have been set up Soap operation along the border with China. These are so powerful that they The state’s calculation is that technology will allow it to gain have affected Chinese livingon the otherside. (North Koreans are more control than it gives up. It can still dictate which kinds of banned from calling abroad.) CCTV cameras have also been in- handsets North Koreans use; it can terrorise its people with the stalled to catch illicit callers. threatofexecution orthe gulag; itcan shutoffthe mobile network Group 109, a new squad created by Mr Kim, frequently raids altogether. In 2004 it banned all mobiles after it concluded that homes to crack down on foreign content, Chinese mobiles and one had been used to ignite a bomb ata railwaystation soon after short-wave radios. Ofsome 300 North Korean refugees surveyed a train carrying Kim Jong Il, Mr Kim’s father, had left. But part of in 2015 by America’s Broadcasting Board of Governors, almost the appeal of this new network to the regime is that it knows it two-thirds said that it had become more dangerous to watch for- can no longer keep all the information out, or its people from ex- eign dramas under the young, Swiss-educated Mr Kim; none said changing ideas. Better to monitor them. it had become less so. Most North Koreans do not have access to In the meantime, foreign media will continue to fuel what the internet, and the fewwho are allowed to go online are limited young North Koreans have begun to call their “awakening”. to a state-run intranet with 28 tedious websites. There is a quiet defiance in enjoying foreign media and sharing it Nat Kretchun, one of the authors of “Compromising Connec- with a small group of friends, or complaining about the govern- tivity”, a recent report on North Korea’s digitisation, says that the ment’s attempts to blockit. And defiance is rare in North Korea. 7 China The Economist August 12th 2017 33

Also in this section 34 Glamping

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

Rural Hong Kong ders on Guangdong province. Britain acquired this area on lease from China in Ding-dong 1898, 56 years after it had seized the island of Hong Kong and nearly 40 years after it had expanded its control into Kowloon. Villagers in the rest ofHong Kong (there are very few ofthem) do not get the same deal. HONG KONG By Hong Kong’s standards, the “small houses” are palatial. They typically have a A row overrural land rights pits democrats against backers ofthe Communist Party floor area of 2,100 square feet (195 square ONG KONG’S serried ranks of high- member committee that elects Hong metres). The most common type of apart- Hrises, stuffed with small flats, are the Kong’s leader. In a territory bitterly divided ment built by developers in recent years, in epitome of modern city living. Yet more between democrats and the party’s back- contrast, is the “micro-home”, of215 square than halfofthe 1,100-square-km territoryis ers, the party needs any friends it can get. feet or less. To many urban Hong Kongers, green: outside the dense urban centres lie In recent months pro-democracy politi- who struggle to buy even such minuscule countryside and mountainous jungle dot- cians have been mounting a vocal cam- dwellings in what is one of the most unaf- ted with ancient villages. Many are still in- paign against the rural landowners, whose fordable cities in the world, the small- habited by the clans who founded them privileges they consider deeply unfair. At house policy seems grossly unjust. Worse, hundreds of years ago. Families gather in issue is what is known, ironically enough, it is often abused by villagers who make ancestral halls bearing the names of their as the “small-house policy”. This was in- fortunesby illegally sellingtheirding rights forefathers, who are buried in traditional troduced in 1972, a quarter-century before to developers or by selling their houses, horseshoe-shaped graves nearby, nestled Britain handed HongKongbackto China. It which can go formillions ofdollars. at the spots on the hillsides with the most grants male villagers the right to build a It is not clear how many people have auspicious feng shui. By dint of this histori- house of up to three storeys on a plot of unexercised ding rights. One recent study cal connection, some villagers receive a land in their ancestral village. If they have put the number at 90,000; an earlier one at valuable and controversial privilege: the no land themselves, they can buy it from 240,000. Recipients argue that the scheme rightto buyland ata discountfrom the gov- the government at a discount. is less generous than most Hong Kongers ernmentand to build a house on it, of a size suppose. As homes can only be built in ar- most Hong Kongers would envy. The sys- The lucky few eas designated by the government, many tem has become a topic of fierce debate in It is a policy wrapped in layers of unfair- villagers own land they are not allowed to the territory—a proxy war, in effect, be- ness. First, there is the obvious discrimina- build on. Some villages are running out of tween pro-democracy activists and the tion between men and women: the policy land for construction. It is not clear if the most powerful defender of the privileges: is exempt from Hong Kong’s sex-discrimi- governmentwill expand the amountavail- China’s ruling Communist Party. nation laws. Then there is a further refine- able. What is more, most villages are not The party seized power in China 68 ment: it applies only to “indigenous” men connected to the sewage system; some years ago on the back of a rural rebellion who can trace their ancestry through the have no water or roads. Applications to fuelled by hatred of landlords. In Hong male line to occupants of their village at build a small house can take years to be ap- Kong, however, the twists and turns of his- the time when Britain took control (Hong proved, and if their owners want to sell tory have left it on the other side; the terri- Kongers often refer to these privileges as within five years they must pay a penalty tory’s rural landowners are a pillar of the “ding rights”; ding means an adult male). to the government. party’s support. They have a seat reserved Therein lies a third layer of inequity: the Few outside the villages are sympathet- for them in Hong Kong’s quasi-parliament, policy applies only to inhabitants of vil- ic. The New Territories are now home to the Legislative Council (or Legco). They lages in the New Territories, a largely rural halfofHongKong’s 7m people. Most live in also have 26 guaranteed seats in the 1,200- district of Hong Kong, much of which bor- small apartments in new towns; many live 1 34 China The Economist August 12th 2017

2 in illegally subdivided flats or wait years Tourism parks are appearing all over the country. for public housing. One of the leaders of The government hopes a further 2,000 the campaign against the villagers’ eco- Love yurts will open by 2020. nomic and political privileges is Eddie Most of China’s glampers are not seek- Chu, a pro-democracy legislator and foun- ing glorious solitude. They seem unper- der of a group called the Land Justice turbed by experiencing the wilderness in League. Mr Chu accuses rural landowners crowds. The southern shore of Qinghai of hiring thugs to intimidate unfriendly XILURAMEN, INNER MONGOLIA Lake in the eastern part of the Tibetan pla- politicians and adversaries in land dis- teau is lined with a range ofyurts, sleeping Rich Chinese go glamping putes. Last year he received death threats pods and other structures. A single camp- afterexposing hitherto unpublicised meet- TOUR party of 30 people in red base- site in Hubei can accommodate 8,000 peo- ings between officials and landowners Aball caps piles off a coach at “Swan ple. Many offer entertainment too. The that had apparently resulted in a public- Lake”, a yurt park in Inner Mongolia in the Swan Lake tourists enjoy Mongolian ban- housing development being scaled back to north of China. “I wanted to see the grass- quets and dancing in a giant concrete yurt. avoid encroaching on villagers’ land. lands,” says a woman from Kunming, While glamping has gained ground, But Mr Chu is up against a powerful 2,000km to the south, who is posing for China’sgenuine campers—nomadicherds- force: the Heung Yee Kuk, an advisory photos beside a giant bronze statue of a men—have been settled, often forcibly, un- body to the government that holds consid- pointy-helmeted Mongolian warrior on der successive policies that have divided erable sway in rural politics. It is this body, horseback. The “authentic Mongolian ex- common land, banned free grazing and usually known as the Kuk(meaning“coun- perience” costs 380 yuan ($55) a night. Yet compelled households to move. Nearly cil”), that represents the landowners in unlike traditional yurts with portable met- half of China’s 2m registered nomads had Legco and the election committee. The al or wood frames overlaid with thick become sedentaryby2010 (the mostrecent Kuk’s leader, Kenneth Lau, inherited the wool covers, these structures are made of date forwhich data exist). Most were mem- position from his father in 2015. Lau Wong- sheet plastic and have beds, windows, bersofone ofChina’sethnicminorities, in- fat, known to all as “Uncle Fat”, was a rural Wi-Fi and en suite bathrooms. And instead cluding Tibetans, Mongolians and Ka- patriarch who ran the Kuk for 35 years; he of being dotted across the steppe, they are zakhs. The sightseers and campsite died in July.Mr Lau speaks proudly of how arranged in tightly packed clumps. Glamp- owners, by contrast, are usually ethnic his ancestors resisted the British in 1898. ing, or glamorous camping, meaning Han, who make up some 92% of China’s But he has a lot to thank them for. Fifty campingminusthehassle and grunge, usu- population. years ago Hong Kong was shaken by viol- ally in pre-erected and well-appointed The Chinese governmentboaststhat re- ent pro-Communist protests against British tents, is becoming a popular pursuit for linquishing the nomadic lifestyle repre- rule. The colonial authorities created ding city folkat beauty spots all over China. sents “enormous strides towards moderni- rights to reward the Kuk for its support and The proliferation of glampsites partly ty” and refers to the annual migration of to win backing from villagers for plans to reflects an overall rise in domestic tourism pastoralists’ herds as a dangerous “ordeal”. build new towns in rural areas. by 10-15% a year for much of the past de- Yet in recent years herders have staged re- To ensure the Kuk’s loyalty to the post- cade. Rural tourism has been an important peated protests at forced relocation, appro- colonial government, China all but en- strand in this. The government has encour- priation or pollution of their grazing lands dorsed ding rights when it drew up a mini- aged it, in the hope that it will help its cam- and poor compensation. Many lack the constitution for the territory,known as the paign to cut poverty. Across the country- skillsto find workin cities; those remaining BasicLaw.Article 40 callsforthe protection side nongjiale, or rural guesthouses, on the grasslands often struggle to make a of “the lawful traditional rights and inter- promote themselves as relaxing retreats living now that grazing has been curtailed. ests of the indigenous inhabitants” of the from urban life. In Hunan in central China Some also see resettlement as part of a New Territories. Loyal the Kuk certainly is. pods with transparent roofs offer campers broader erosion of their ethnic identity. During a recent visit by China’s president, a chance to enjoy “a special view of the The happy glampers at Swan Lake and Xi Jinping, the Kuk flew 100,000 Chinese sky”. Other glampsites house customers in elsewhere, it seems safe to assume, are un- and Hong Kong flags in his honour in vil- geodesic domes. New camp and caravan aware ofall that. 7 lages across the New Territories—even as supporters of greater democracy took to the streets in protest. Mr Chu, the campaigner, says the government is unwilling to do battle with the rural landowners. Carrie Lam, who was sworn in by Mr Xi as Hong Kong’s leader on July 1st, has experience of the risks of fighting them. In 2011, when Mrs Lam was head of the civil service, rural groups burned effigies of her after she suggested cracking down on illegal extensions that villagers had been adding to their houses. The Kukseems determined to fight for ding rights too. Junius Ho, a legislator and member of the Kuk, can trace his family back 32 generations. He agrees that the small- house policy is contentious, but only because “people have sourgrapes”. MrHo accuses other politicians of “stirring up conflict” over the issue. His advice to the government is to process villagers’ applications for ding-rights land more quickly. 7 Beats the air in Beijing Middle East and Africa The Economist August 12th 2017 35

Also in this section 36 Despots’ brats on Instagram 36 Kurds inch towards Kexit 37 Hizbullah’s growing might 38 Netanyahu’s legal troubles

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

Kenya’s disputed election fusal to discourage his supporters from protesting violently ifhe does not win. The tinderbox and the ballot Tension mounted a weekbefore polling day, when Chris Msando, an official in charge ofthe electronic voting system, was found murdered—and apparently tor- tured. The Kenya Human Rights Commis- NGO NAIROBI sion, a local , said that“manyKenyans believe elements within or close to the A peaceful vote may be marred by violence as the opposition disputes the count state to be responsible for this murder.” N KIBERA, a slum in the south ofNairobi, democracy in 1992, most of Kenya’s elec- The government strongly denies the accu- IKenya’s capital, the tyres were burning tions have been fraught. Its citizens still sation. The killing raised fears that a voting by mid-afternoon. Across the country five tend to vote along tribal lines, hoping that system designed to make fraud difficult (by people had been killed in protests and oth- candidates of their kin or region will be insisting, for example, that individual vot- er violence. Several of them were shot by more likely to direct state spending to- ers be identified by their fingerprints) may the police. A day after Kenyans voted for wards them. Incumbents, meanwhile, use have been compromised. president, this was a hint of the menace patronage and control of the machinery of On polling day the system worked that often lurks beneath the country’s elec- government to help their campaigns. Los- smoothly enough, with 15m people casting tions. “It seems clear that somebody ers seldom concede gracefully. Couple that their ballots. Unlike in previous Kenyan hacked this election,” said Kennedy with a deep distrust of state institutions, elections, the voteswere counted and local Mhando, a 34-year-old clothes seller. “We and political anger all too often turns into results were released fairly quickly. want the actual results...If they are credi- violence. After elections in 2007 a dispute ble, we will accept them.” If not, “we will over the result led to mass inter-ethnic Good on paper get the directives from our leaders.” bloodletting. Perhaps 1,400 people were Yet disputes have arisen over the national On August 8th some 15m Kenyans vot- killed and hundreds of thousands fled tabulation ofvotes. As The Economist went ed in an election to fill 1,882 positions. A from their homes. to press, Kenya was gripped by an obses- few hours after polls had closed, provi- Manyin Kenya fearthatsomething sim- sion over the fate of forms labelled 34A. sional results released by the election com- ilar could happen again. Mr Odinga is a These paper documents, signed by elec- mission showed that Uhuru Kenyatta, the stalwart of the opposition and the son of tion officials and party agents at each of incumbent president, had amassed a com- Oginga Odinga, Kenya’s first vice-presi- Kenya’s voting stations, represent the final manding lead over his main rival, Raila dent after independence in 1963. Father and legally binding outcome of the vote. Odinga: 54% of the vote to 45%. What was and son were detained in the 1980s after Mr Odinga’s NASA coalition argues that not clear, however, was whether Mr Od- they were accused of organising a failed the provisional electronic results, which inga would accept defeat. At a press confer- coup against Kenya’s then dictator, Daniel showed a lead for Mr Kenyatta, are incor- ence in an upmarket restaurant in Nairobi, arap Moi. At 72, this is probably his last rect because the computers that collated the veteran opposition leader claimed that chance to become president. In the run-up them had been hacked. Mr Odinga’s allies the preliminary results were a “complete to the vote he repeatedly told his suppor- say that a manual tally of the paper forms fraud”. The electronic voting system, he ters that the only way he could lose would would show a different result. Yet a small claimed, had been hacked to distort the tal- be if the election were rigged. His coalition sample ofthese forms viewed by The Econ- lies and to give Mr Kenyatta “votes that of opposition parties, the National Super omist on August 9th tallied with the an- were not cast”. Alliance (NASA), has repeatedly claimed to nounced provisional results. It is only once That statement left Kenya on tenter- have uncovered plots to steal the vote. more paper forms have come in that it will hooks. Since the restoration of multi-party More worrying has been Mr Odinga’s re- be possible to tell whether Mr Odinga’s1 36 Middle East and Africa The Economist August 12th 2017

Iraqi Kurdistan Scions behaving badly Lots not to like Inching towards

JOHANNESBURG Kexit Watching the offspring ofAfrican strongmen on social media ERBIL AND KIRKUK HE Mugabe brothers are having a cake. He appears undeterred by his trial A referendum on Kurdish night out again. Here they are show- in France, where he is accused ofembez- T independence carries great risks ing offtheir outfits: distressed white zling more than $100m from public funds denim, high-top sneakers, statement and spending it on his high-flying life- HE enormous new statue of a pesh- sunglasses. Now they’re in a VIP booth at style. Mr Obiang claimed that he has Tmerga soldier, overlooking the Baba a club, swaying and swigging from bot- immunity from prosecution. A verdict is Gurgur oilfield, just outside Kirkuk, is a tles ofMoët & Chandon while the music expected in October. stark indication of the Iraqi Kurds’ aspira- pumps. At some point they will post a The active social lives ofthe two tions to establish an independent state flame emoji, indicating that the evening youngest Mugabe brothers have not gone with borders that stretch beyond their his- is “lit”. unnoticed backhome. The People’s toric homeland to encompass some of Like many millennials, Robert Mu- Democratic Party,which is led by a for- Iraq’s richest oilfields. A referendum on in- gabe junior and Bellarmine, his younger mer finance minister, TendaiBiti, has dependence scheduled forSeptember 25th brother, shamelessly chronicle their days accused them of“spending taxpayers’ will probably move the Kurdish Regional (and late nights) on Instagram, a social- money like confetti”. Government (KRG) further down that media site for sharing pictures. Uniquely, Despots’ brats do not only use social path. But the timing of the poll has been however, their 93-year-old father is the media forboasting. Robert Mugabe ju- questioned, not least because it is unclear president ofZimbabwe. The steady nior’s Instagram account has, at times, what will come after. Some fear that a vote stream ofphotos and videos they post provided helpful updates on the health for independence will elicit violent re- offers an unusual and oddly intimate ofhis father, a matter ofnational impor- sponses from the government in Baghdad window into their privileged personal tance given the president’s faltering grip and from neighbouring countries. lives. Lately the two brothers appear to on power. On one occasion the younger Iraqi Kurdistan, which has enjoyed rela- be spending much oftheir time in Johan- Mr Mugabe kindly informed the world tive autonomy since 1991, already has nesburg. Life is more “lit” there than back that the nonagenarian was “healthy and many ofthe trappings ofa sovereign coun- home in Zimbabwe, where their father alive...so all the haters can RIP.” try, including an army, a parliament and its has ruined the economy. own domain on the internet. After Bagh- The Mugabe brothers are not the only dad withheld budget payments to the re- scions ofAfrican strongmen who are gion in 2014, the KRG began selling its tactless about what they share on social crude independentlyofthe federal govern- media. Lawrence Lual Malong Yorjunior, ment. Its resources were further boosted the stepson ofa South Sudanese general, months later after Iraq’s federal army fled documents his love ofluxury on Face- the oil region in and around Kirkukwhen it bookwith photos ofhimselfflying first- was threatened by the jihadists of Islamic class and getting hot-stone massages. State (IS). The job of repelling IS then fell to One video shows him lying in a pile of Kurdish militias, known as the peshmerga, $100 bills (which he claims make up $1m who did it bravely and well. that he will donate to charity). Even so, some Kurds argue that a bid for Teodoro Nguema Obiang Mangue, independence is premature. “Beforehand the son ofthe president ofEquatorial we need to have Kurdish unity and some Guinea (and coincidently also the vice- sort of an understanding with Baghdad,” president) posts photos ofhimselfluxuri- says Mahmoud Othman, a veteran politi- ating in private jets, posing behind the cian. “We do not have either.” The pesh- wheels offancy cars, at parties and on merga is a unified force only on paper. Its exotic foreign trips. A photo from his fighters’ loyalties are divided between the recent1920s-themed birthday bash ruling Kurdistan Democratic Party (KDP) shows a woman jumping out ofa giant and the opposition Patriotic Union of Kur- distan. Parliament has not convened since 2015, when Masoud Barzani, the president, 2 claims are credible. But that could take un- be difficult to show that he stole the elec- had his term extended for a second time, til August 15th, the legal deadline for the tion, even if minor discrepancies emerge prompting violent protests and political election commission to announce the final between the paper forms and the electron- deadlock. Some see the referendum as an results and declare the winners. ic tally. Assuming there is not a big gap be- attempt by the KDP to shore up nationalist Michael Chege, a political scientist at tween the two, foreign governments will support ahead ofelections in November. the University of Nairobi, says that Mr Od- press Mr Odinga to concede. The economyisalso in a shambles. Rev- inga may use allegations that the vote was Whether that will convince his suppor- enue from oil is much less than the 17% rigged to incite his supporters to take to the ters to stand down is hard to predict. Ifthey share of Iraq’s budget to which the KRG streets as a way of forcing the government do not, the police and army—some180,000 was entitled before its relationship with to make concessions. “This is the guy who of whom stand ready—will have a tough the federal government broke down. So organised a failed coup d’état in1982,” says job keeping the peace. And the underlying the Kurdish government is short of cash. Mr Chege. “It’s not beyond him to test this lack of trust in democratic institutions that Firms that poured into the region in the situation to the limit.” makes every election a tinderbox will 2000s have been pouring out. The KRG Though Kenya is no stranger to vote rig- need to be addressed. If it is not, the next blames the crisis on cheap oil and the high ging, such is Mr Kenyatta’s lead that it will election in 2022 will be just as fraught. 7 cost of fighting IS and hosting some 1.8m 1 The Economist August 12th 2017 Middle East and Africa 37

2 refugees. Critics also blame official incom- petence and corruption. Another question revolves around Kir- kuk, which has a Kurdish majority but is also home to Arabs and Turkmen and is prized by all because ofits oil. The KRG has long accused Baghdad of flouting a constitutional provision that calls fora local vote on the province’s status. By including Kir- kuk in the referendum next month, it hopes to legitimise its claim over the territory. “If the people say yes, it means they are deciding to be part of Kurdistan,” says Rebwar Talabani, the head of Kirkuk’s pro- vincial council. But many non-Kurdish residents are planning to boycott the vote. “We will not recognise any result,” says Hassan Toran, an Iraqi Turkmen MP. “Our future is in Iraq.” Winning over regional powers will be even harder. Turkey has cracked down on home-grown Kurdish militants and has carried out air strikes on Kurdish forces in Syria. It opposes the formation of an inde- Hizbullah pendent Kurdish state in Iraq lest it encourage separatists at home. Iran appears even When the guns come home more hostile to such a move, largely for similar reasons. Even the Kurds’ closest allies are urging them to postpone the vote. America worries it will lead to turmoil in the rest of Iraq, weakening the country’s ARSAL prime minister, Haider al-Abadi, and com- Hizbullah’s arsenal is growing. So are Israeli fears promising the war against IS. KRG leaders say they are in no hurry to ROM a rocky outcrop overlooking a TURKEY 100 km declare independence, but they do plan to Flimestone quarry in the desolate valley head to Baghdad after the vote to hammer below, a fighter from Hizbullah surveys Raqqa out the terms of the divorce. It will not be what just days before had been territory Mediterranean Eup hrat amicable. Mr Abadi’s government will not controlled by militants linked to al-Qaeda. Sea Aleppo es sanction what it sees as a grab for oil and “There were snipers behind every rock,” CYPRUS SYRIA Deir land, particularly Kirkuk. “There is a risk recalls the young man with a wispy mous- ez-Zor that the Arabs, the Turkmen and the Shia tache. The operation to drive the jihadists Homs will protest and that Baghdad, backed by from their mountain lair on Lebanon’s Ras Baalbek Palmyra Arsal Iran, will send in militias or security north-east border with Syria began on July Beirut forces,” says Joost Hiltermann of the Inter- 21st. It tookonly a weekforHizbullah to de- LEBANON Damascus national Crisis Group, a think-tank. feat its militant rivals, adding yet another IRAQ Some analysts think Mr Barzani will victory to its growing list of military Golan Heights postpone the referendum at the last mi- achievements since war broke out in Syria Chemical plant JORDAN nute. But Kurdish politicians are growing six years ago. ISRAEL Areas of control, July 2017 impatient. “We cannot wait for the right Along with Russian air power and Ira- Jerusalem Syrian government Kurds time [for independence], we have to create nian military aid, Hizbullah’s ground units Rebels Islamic State the right time,” says Safeen Dizayee, the have kept the regime of Bashar al-Assad, Rebels/Turkish troops Contested Nuclear KRG’s spokesperson. 7 Syria’s blood-soaked president, in power. reactor Hizbullah presence in Syria The cost has been high. About 2,000 of the EGYPT Source: Institute for the Study of War TURKEY group’s fighters, out of a total of perhaps 15,000 (excluding reservists), have died on torywhen Israeli forceswithdrewfrom the Syria’s front lines. But the conflict has also south in 2000 and fought them to a bloody SYRIA IRAQI transformed Hizbullah, a Lebanese militia- stalemate again six years later. But during 100 km Mosul KURDISTAN cum-political party. Hardened by the fight- its campaign in Syria Hizbullah has adopt- Erbil ing and flush with arms from Iran, it now ed more conventional tactics, and gained a KURDISH AREA more closely resembles a regular—and bigger arsenal. It has used tanks, guided OF CONTROL Baba Gurgur quite effective—army. That worries Israel, missiles and a fleet of drones and fought Kirkuk field its traditional adversary. across deserts, mountains and cities. IRAQ Hizbullah’s roots date back to the early Israeli officialsreport, with some alarm, 1980s, when Iran’s Revolutionary Guard that Hizbullah has 17 times more rockets T i g r trained Shia militants to harass the Israeli than it did a decade ago. The weapons are i s IRAN soldiers then occupying southern Leba- also more sophisticated, and are said to in- Eu ph ra non. The group honed its guerrilla tactics, clude anti-aircraft missiles. Hassan Nasral- te s including car bombs and assassinations, lah, Hizbullah’s leader, says his rockets can Oil field Baghdad during Lebanon’s civil war. It claimed vic- nowreach anywhere in Israel, including its1 38 Middle East and Africa The Economist August 12th 2017

2 nuclearreactorin the south and a chemical Israeli politics bribes in return for facilitating the sale of plant in the north. Israeli war planners are German submarines and warships to the taking the boast seriously. Prime suspect Israeli navy. Another former chief of staff, So farIsrael has confined its response to Shlomo Filber, was suspended from his actions inside Syria, where it has occasion- job at the communications ministry over ally bombed weapons caches and Iranian accusations that he provided Israel’s larg- arms convoys bound for Hizbullah. But Is- JERUSALEM est telecom company with confidential raeli officials say Iran is now building mis- documents from which it stood to gain. Binyamin Netanyahu’s growing legal sile factories inside Lebanon. That could The prime minister, so far, is not a suspect troubles provoke Israeli strikes within the country. in either case. Iranian efforts to build up Hizbullah and HERE seems to be no end to the legal Weekly protests aim to keep the pres- other proxy forces on the Syrian side ofthe Ttroubles pilingup around Israel’s prime sure on Avichai Mandelblit, the attorney- Golan Heights—thus opening up a second minister, Binyamin Netanyahu, his family general. Nevertheless, the investigations front against Israel—may also trigger a and close circle. In the space of a week his involving Mr Netanyahu have dragged on tougher Israeli response that could spark former chief of staff, Ari Harow, signed a forover a year. Meanwhile, the prime min- another conflict. witness deal with the prosecutor’s office ister and his supporters have adopted Both sides have reason to fear that the and police confirmed that they are investi- Trumpian tactics. On his social media ac- next war may be even worse than the last. gating a case of bribery, fraud and breach counts Mr Netanyahu has branded the Is- Israel argues that the line between the Leb- of trust in which Mr Netanyahu is a sus- raeli press as “fake news”; loyalists accuse anese state and Hizbullah hasblurred in re- pect. His wife Sara has been questioned by it of trying to bring down the elected gov- cent years. So ifthe group launches attacks, police over allegations of misuse of public ernment. Even right-wingers who have Israel should send the entire country “back funds and his son Yairhas been sued for li- been critical of Mr Netanyahu in the past to the Middle Ages”, says Naftali Bennett, bel over a post on Facebook. have fallen dutifully into line. “Neither the the education minister. Factories, power MrHarow,who worked with MrNetan- media, nor the protests against the attor- plants and other major infrastructure are yahu formore than a decade, agreed to tes- ney-general should decide, only facts legitimate targets, he says. Mr Nasrallah tify in return for a reduced sentence in his [should]”, said Naftali Bennett, the educa- says he will muster “hundreds of thou- own trial on charges of defrauding the tax tion minister, who is seen as a political ri- sands” of volunteers from across the Arab authorities. His testimony is expected to val of the prime minister. “We’re support- world to fightIsrael. Amiscalculation byei- serve as evidence against Mr Netanyahu, ing the Netanyahu government and my ther side could prove devastating. who is suspected of receiving illicit gifts assessment is that elections will take place from businessmen. The prime minister is on time in 2019.” New friends, with benefits also suspected of a backroom deal in Despite the intensifying investigations, Hizbullah’s pan-Arab appeal has been which he offered to limit the distribution Mr Netanyahu may well hold on that long. damaged by its role in Syria’s sectarian- of Israel Hayom (a free sheet financed by Once the police wrap up their probes, it hued conflict. But it is growing stronger in Sheldon Adelson, an American billionaire will be up to the attorney-general to make Lebanon, where it has built new alliances. and supporter) in exchange for favourable the call on indictments after holding hear- The group, which is Shia, has stoked Chris- coverage in a newspaper owned by Arnon ings with the suspects. The process can tian fears of Sunni refugees from Syria, Mozes. On August 7th Israel’s high court take months. And even if indicted, Mr Net- who now make up around a quarter of ruled that Mr Netanyahu must make pub- anyahu says he plans to remain in office Lebanon’s population. Michel Aoun, the lic records ofphone calls with Mr Adelson. and fight the charges. Under Israeli law the Christian president, has allied himself Mr Harow may also shed light on two prime minister is not required to resign un- with Hizbullah’s political wing. Mr Aoun other, potentially more serious, investiga- less convicted. As long as his coalition of says Hizbullah has a right to keep its weap- tions that involve close associates of Mr right-wing and religious parties sticks to- ons to protect Lebanon from Israel, infuri- Netanyahu. His personal attorney of near- gether, he isunlikelyto be forced out before ating politicians who want to disarm it. ly four decades is suspected of taking the next election. 7 The cabinetisstacked with Hizbullah allies who support the regime in Syria and want it to take backthe refugees. This new political landscape is nowhere more apparentthan in the Lebanese border village of Ras Baalbek. Jihadists from Syria infiltrated the Christian enclave in 2014. The local economy suffered as the limestone quarries and hunting lodges closed and the orchards withered. Hizbul- lah seized the opportunity, sending weapons, night-vision goggles and advisers to help the Christians form a militia to keep the jihadists at bay. “Israel caricatures Hizbullah as a terrorist organisation,” says Rifaat Nasrallah, the Christian militia’s leader (and no rela- tion of Hassan). “But the resistance is not some external force that comes to terrorise us. They are part of our society. They attend our weddings and funerals. They take care of me and I take care of them.” Alli- ances forged in the furnace of Syria’s war may be hard to break. 7 Don’t bother me, I’m reading the fake news Europe The Economist August 12th 2017 39

Also in this section 40 A Croatian ﬁrm’s collapse 40 Mediterranean drought 41 Freedom for the Faroes 42 Charlemagne: France v Italy

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

War games in Europe There is little doubt that Mr Putin sees these not just as a means of honing effi- Mr Putin flexes his muscles ciency, but as a way to intimidate smaller neighbours and eventually draw them into a sphere ofRussian influence. Four such drills took place in 2013. A fifth, which began in late February 2014 and deployed large numbers of airborne troops, armoured vehicles and attack heli- Why Russia’s forthcoming military exercise rings alarm bells in NATO copters, became the springboard forthe oc- EPTEMBER will be an edgy time for FINLAND cupation ofCrimea. Even before he turned SNATO’s front-line member states. For a to snap drills, MrPutin used an earlier exer- week in the middle of the month, Russia SWEDEN Tallinn cise, Kavkaz 2008, to launch his invasion of

a will be running what is being described as e ESTONIA Georgia. Military deception, or maski- S 200 km c the biggest military exercise in Europe i rovka, is an art at which he excels. t l a Riga LATVIA since the end of the cold war. The build-up B Moscow General Ben Hodges, the commander is already under way. KALININGRAD LITHUANIA of American forces in Europe, frets that (to RUSSIA) Zapad (“West”) exercises take place ev- Vilnius Minsk Russia may be planning to use Zapad 2017 ery four years and date from Soviet times, to bring soldiers and kit into Belarus and POLAND RUSSIA when they were used to test new weapons BELARUS leave them there. Last month he said: “Peo- Berlin and tactics. Zapad 2017 is expected to in- Warsaw ple are worried this is a Trojan horse. They Kiev volve at least 100,000 Russian troops. It [the Russians] say, ‘We’re justdoingan exer- CZECH REP. will extend across the country’s Western SLOVAKIA UKRAINE cise,’ and then all of a sudden they’ve Military District and Belarus, which has a moved all these people and capabilities HUNGARY border with three NATO members. By next ROMANIA somewhere.” In particular, NATO is wor- week, most ofthe advance elements of the NATO: Members Non-members New NATO battalions ried about the movement of longer-range forces taking part in the exercise will have missiles, surveillance drones and special arrived. The rest, expected a fortnight later, Essentially a tripwire consisting of only forces into threatening positions under the will include the First Guards TankArmy, a about 4,000 troops, these multinational pretext ofthe exercise. famous unit from the second world war units are meant to send a message to Mos- There are even fears, based on intelli- thatwasreformed in 2015. Itpacksa mighty cow that if it tries anything against a NATO gence sources, that Zapad 2017 could be offensive punch. member in the east, it will quickly face the used to insert forces into Belarus that Previous Zapads alarmed NATO be- whole alliance. Last month an American- would shore up Russian influence in the cause of their size and because of the kind led NATO exercise called Sabre Guardian event that its dictator, Alexander Lukash- of war game they have played out—one in saw 25,000 troops from more than 20 enko, either moves closer to the West or is 2009 included a simulated nuclear attack countries carrying out drills across Hunga- deposed by someone careless of Mos- on Warsaw. But this year’s is the first to be ry, Romania and Bulgaria. The idea was to cow’s interests. Russia’s deputy foreign held since Russia’s aggression against Uk- practise territorial defence against a tech- minister, Grigory Karasin, responded to raine. It unfolds against the backdrop of a nologically sophisticated aggressor. General Hodge’s remarks as might have relationship with the West more tense and Yet there are big differences between been expected. “This artificial buffoonery adversarial than at any time in 30 years. the way NATO conducts military exercises over the routine Zapad 2017 exercises”, he Earlier this year, as part of its response and the way Russia does. Zapad apart, said, “isaimed atjustifyingthe sharp inten- to Russia’s annexation of Crimea and co- since 2013 Russia’s president, Vladimir Pu- sification of the NATO bloc [activities] vert invasion ofeastern Ukraine, NATO de- tin, has ordered a series of no-notice along the perimeter ofRussian territory.” ployed four battalion-sized battle-groups “snap” exercises, often involving up to Russia has brought suspicion on itself. It to Poland, Estonia, Latvia and Lithuania. 50,000 troops and anti-Western scenarios. routinely flouts the Vienna Document, an 1 40 Europe The Economist August 12th 2017

2 accord designed to avert misunderstand- still waiting to see the scope ofthe disaster. is the biggest single creditor, is owed €1.1bn ings during war games. Brokered through Agrokor was the biggest private con- ($1.3bn) and has initiated a case against Mr the Organisation for Security and Co-oper- cern in Croatia and the western Balkans. It Todoric for fraud. Sberbank has criticised ation in Europe, it fosters transparency. epitomised a cosy relationship between Mr Ramljak for entering “roll-up” deals Any drill involving more than 9,000 state and business that goes back to com- with some creditors to get fresh finance. troops requires advance notification of at munist Yugoslavia and its aftermath. Its Agrokor’s known debts of at least least 42 days; any exercise involving more founder, Ivica Todoric, lives in a castle; he €6.74bn ($7.9bn) are eye-watering enough, than13,000 troops must be preceded by an was a friend of Franjo Tudjman, the but until audits for suspected irregularities invitation to the other 56 participating nationalist president who led the Croats are completed, people will worry that the states to send two observers. through independence and war. With 700 total could be larger, and nobody is really Russia breaks both rules with its snap Konzum supermarkets across Croatia, sure how much its assets are worth. exercises, and the second with Zapad. As a Agrokor is omnipresent in its homeland On July 27th Mr Ramljak began paying cynical wayofdodgingitsobligations, itof- and active throughout the region. off debts to small suppliers, a drop in the ten claimsto be holdinga seriesofdifferent In April, faced with huge debts, irate ocean of what is owed. Agrokor sourced a drills at slightly different times. At the last lenders and sceptical suppliers, MrTodoric high share of its food from local growers meeting, in July,of the NATO-Russia Coun- said he was “putting everything he had who resented the group’s power but need- cil, a bodysetup15yearsago to improve co- built” into the hands of the government. ed itscustom, saysTihomirJaic, head ofthe operation and understanding between the He is still technically the owner, but under Croatian Farmers’ Association. Next year alliance and Moscow, both sides did at a specially-passed law, the state is the ad- many will offer their produce to other re- least give briefings on planned exercises. ministrator. This marks “the end of an era tailers, but their prevailing mood is fear. However, NATO’s secretary-general, which began 25 years ago”, says Ante The biggest fear is that the accounts will Jens Stoltenberg, a former prime minister Ramljak, who is winding up the group. turn out to be such a mess that Mr Ram- of Norway,was doubtful about the report- The figures are extraordinary, given that ljak’s efforts to cushion the blow will have ed numbers for Zapad and urged Russia to the population of Croatia is barely 4m and little chance ofsucceeding. Ifthat happens, obey the Vienna rules. His scepticism is that of the whole post-Yugoslav region the region could slide backinto the long re- well-founded.TheRussianssaid before the about 20m. The Agrokor holding company cession from which it was just emerging. 7 last Zapad that it would involve just12,000 comprises 143 firms, which employ nearly troops. In fact, more than sixtimesas many 57,000 people directly. If you include sup- took part. Estonia’s defence minister, Mar- pliers and everyone whose job would be Drought in the Mediterranean gus Tsahkna, recently revealed that Russia affected by a chaotic collapse, says Mr has requisitioned 4,000 railway carriages Ramljak, up to 500,000 mightbe caughtup Nor any drop to to take troops and equipment to Belarus. in the mayhem. If everything the group Especially galling for NATO is the way owned were to close, he adds, Croatia’s drink Russia uses the Vienna Document to en- economy might shrink by10% or more. Ac- sure it has its full complement ofobservers cording to the European Bank for Recon- ROME at its perceived enemy’s big exercises. All struction and Development, the conglom- Across Europe’s south, arid spells are NATO can do is remain vigilant and hope erate’s outstanding obligations are the here to stay Mr Putin sends his troops back to barracks equivalent ofalmost15% ofCroatia’s GDP. when Zapad is over. General Hodges says: Only a few years ago, Agrokor was a HE Gonella Hut, more than 3,000 me- “Look, we’ll be ready; we’ll be prepared. flagship of Croatian business. In the 1990s, Ttres up on the Italian side of Monte But we’re not going to be up on the para- when the country was embattled and iso- Bianco, should be bustling with climbers pets waiting forsomething to happen.” 7 lated, outsiders shied away from investing in August. Instead, it is empty. Davide Go- but Mr Todoric scooped up parts of the old nella, the manager, closed it at the end of communist economy. Compared with the last month for lack of water. A Croatian firm’s collapse asset-strippers who swept through Croatia “The snowfield we use for our supply at that time, he was seen as a positive force, had gone,” he says. The high summer tem- Chain reaction bent on modernising the retail business. peratures that have seared southern Eu- As Agrokorexpanded across the region, rope this year were only partly to blame. 1 says Dejan Jovic, a political scientist, it was hailed as a symbol of Croatian prowess. SLOVENIA SERBIA CROATIA ZAGREB Politicians ofall stripes backed Mr Todoric.

Zdravko Maric, Croatia’s ﬁnance minister, FRANCE ITALY A A supermarket’s demise could make a d BOSNIA worked for Agrokor until last year. The r i a whole region sag t press gave the magnate an easy ride; it i c S NCROATIAidyllicscenescanalterquick- feared a loss of advertising, or being e Corsica a MONTE- I ly. On good days, its holiday resorts are a dropped by kiosks he controlled. NEGRO haven for swimmers and sailors. But only In 2014, Agrokor bought Mercator, a fal- Rome a few miles inland, there are barren moun- tering Slovenian retail giant with outlets tains where tempests can blow up fast and across the region. Croatians bristled with Sardinia then whistle along the coast. This year (see pride, but this sentiment was misplaced.

next story) ﬁres were an added hazard. By that time, Konzum faced keen competi- Sicily A particularly dark storm-cloud is now tion from foreign rivals as Croatia’s market Mediterranean Sea hanging over the country’s business opened up after joining the EU in 2013. 250 km world, with the potential to depress the en- The Mercatordeal, ﬁnanced by borrow- Summer drought effects, July 21st-31st 2017 tire region, spoiling the optimism spurred ing, proved far too big for Agrokor to swal- Watch: rainfall deficit Warning: soil-moisture deficit bygood touristnumbersand signsofaccel- low. While domestic and foreign banks be- Alert: vegetation stress following rainfall/soil-moisture deficit erating growth. This follows the collapse gan to shy away from it, Russian ones Partial recovery Full recovery of vegetation to into state hands of a food-and-retail chain stepped in. That turned out to be a mistake. of vegetation normal conditions whose myriad customers and creditors are Sberbank, the Russian savings bank which Source: European Commission The Economist August 12th 2017 Europe 41

2 When he reopened his refuge in early June, reason to change, they are inclined to fol- ment. They have been smarting since 1946, Mr Gonella could already see the snow- low the same methods as their fathers and when islanders narrowly voted for inde- field was much smaller than usual, be- grandfathers did. pendence from Denmark, which has ruled cause so little snow had fallen last winter. They are not the only ones who must the Faroes (at first in a union with Norway) It is a story repeated with variations adapt to new realities. Mediterranean for six centuries. The Danish government from the north-western edge of Spain to droughts have been seen hitherto as freak rejected the referendum and dissolved the the south-eastern tip of Italy. At Bracciano events, but that no longer holds good, says islands’ parliament. The Faroes won home outside Rome, rainfall in the firsthalf ofthe the EDO’sMrVogt. The challenge isnot one rule two yearslater, yetCopenhagen, locat- year was more than 80% below its ten-year of coping with emergencies, but of risk ed 800 miles away, still controls the curren- average. This has shrunk the lake of the management forthe indefinite future. 7 cy, foreign affairs and some ofthe courts. same name, which is the capital’s main Republicans want the islanders to water source. By late July Lake Bracciano adopt their own constitution. Four tries to was only 10cm above the level at which introduce one failed, but they persist. Last government scientists see a real risk of an month, the government—a coalition of tra- ecological collapse, makingwaterundrink- ditionally unionist Social Democrats and able withoutcostlypurification. Aregional pro-independence Republican and Pro- government ban on drawing further sup- gressive parties—issued a new draft. It plies from the lake was partially suspend- wants parliament to back a referendum on ed on July 28th, averting the threat ofeight- the text, pencilled in fornext April. hour-a-day stoppages in the capital. But the The nine-page charter is not exactly a di- ban will resume on September 1st, just as vorce letter. It echoes the entitlements al- consumption revives with the return of ready conferred by the Danish version, as Romans from their summer holidays. well as enshrining the Faroese language Agriculture has been badly hit. Farmers and outlawing sex discrimination. Den- in Castilla y León, Spain’s largest cereal- markaccepts the Faroes’ right to a constitu- growing region, expect to lose 60-70% of tion, so long as it does not clash with its their crops. The drought has also encour- own. Yet the draft has no clear mention of aged forest fires. More than 10,000 people Denmark and offers paths to more autono- were evacuated from homes and camp- my. Social Democrats see it as desirable in sites in July because of a huge blaze in its own right; both secessionists and south-eastern France. Fires have raged this unionists regard it as a possible step to- summer in Corsica, along the Adriatic wards independence. coast and on the Greekisland ofKythera. Republicans say there has never been a Even so, says Jürgen Vogt of the Com- better time to dump Denmark. The econ- mission’s European Drought Observatory, omy is surging, thanks to rising fish prices. the current emergency is not more serious Fishermen have found new markets in than others in recent years. Nor, surprising- Freedom for the Faroes America, China and Russia. Faroese GDP ly, have scientists agreed on whether the per head equals that of Iceland, a former intensity and frequency of droughts is in- Fishing for liberty Danish possession, and trumps Britain’s. creasing in Europe. Against a background Unemployment is negligible. The govern- of global warming, that might seem inev- ment relies less than ever on subsidies itable. But since evaporation (from sea, from Denmark, which last year totalled lakes and rivers) and evapotranspiration 642m Danish kroner ($102m). The block GDP (from the land) lead to increased rainfall, TORSHAVN grant has shrunkfrom 11.2% of in 2000 higher temperatures do not necessarily to 3.3% in 2017. Kristina Hafoss, the finance Ifat first you don’t secede cause more droughts. Problems do arise if minister and a Republican, complains that the offsetting rainfall is unevenly distri- VERY summer, Majbritt Jakobsen Danish ministers do not root for the Faroes buted—as seems to be the case in Europe. Espends more time at her sewing mach- in global negotiations; they won’t defend Evidence has mounted over the past 30- ine. She makes the woollen breeches, whale-hunting, for example. Unionists say odd years ofa shift towards wetter winters skirts and embroidered waistcoats the the economy is too small to flourish alone: in northern Europe and, says Mr Vogt, of Faroese wear for Olavsoka, a midsummer at some point, low fish prices or overfish- “drier conditions in the Mediterranean, es- holiday of parades, dancing and ballad re- ing could cause a slump. When catches pecially in spring and summer, the critical citals. Demand is booming, even from sagged in the 1990s, government debt times ofyear fordrought”. fashion-conscious youngsters. A few years soared and GDP shrank by 40%. A survey Gregor Gregoric, who co-ordinates the ago, she would stop taking orders in May. last year, by Gallup Foroyar, a pollster, Drought Management Centre for South- This year, it was February. She worked 16- showed a slim pro-union majority, even eastern Europe, says that since the 1980s hour days to get the outfits ready. when respondents were asked to ignore that region has suffered a significant The Faroes, a remoteclusterofrocks, are the Danish subsidy. Yet in anotherpoll, this drought on average every five years. Even now cool. Politicians fretted for years year, most islanders favoured indepen- his lush Slovenian homeland has been hit. about a shrinking population; these days dence by 2035. “The problem is that agriculture is not more people are settling than leaving. Aconstitutional referendum would test adjusting,” he says. Traditionally, Slove- There are 50,000 islanders, a record high, support for independence, but the ballot nian farmers have eschewed irrigation. It though they are still outnumbered by may be shelved. Unionists dislike the draft was difficult to convince them they might 80,000 sheep. Tourism is up, as brave foo- and want big changes. The ruling coalition need it now, if only to fall back on. Nor dies sample fermented lamb and puffin has the slimmest possible majority and is were they keen to diversify crops to in- stuffed with cake. National pride is surg- mired in controversial fishing reforms. It clude strains less sensitive to drought. ing, claims Mrs Jakobsen. “We will put the will be hard to get enough lawmakers to “Farmers are quite conservative people,” Faroe Islands on the map,” she says. endorse the poll. Yet again, the prize catch sighs Mr Gregoric. Unless there is a strong Secessionists want to seize the mo- could slip through the net. 7 42 Europe The Economist August 12th 2017 Charlemagne France v Italy

A Latin love-hate story cultural treasures ofthe vanquished. The first military unit tasked with seizing and exporting works of art was set up during Napo- leon’sItalian campaign. Venice, Parma, Mantua, Modena and Mi- lan were all looted by the French. The treaty in which the Papal State sued for peace stipulated that it was to hand over “A hundred pictures, busts, vases, or stat- ues to be selected by [French experts]…also, five hundred manu- scripts”. Though most of what was stolen was later repatriated, the biggest work in the Louvre, Veronese’s “The Wedding at Cana”, is the fruit ofNapoleon’s depredation. But the interaction between France and Italy has not always been hostile. Napoleon III was the main external sponsor of Ita- ly’s unification. Its leading internal protagonist was a kingdom that had straddled the Alps for centuries, taking in Savoy to the west and Piedmont to the east. The Italians had to pay a price to France for its intervention; that’s why Nizza is today the French city ofNice, and Savoy is split between two French departments. But ifItaly leaks into France, the reverse is also true. More than three-quarters of people in an autonomous pocket of Italy called Valle d’Aosta speakeither French or a Franco-Provençal patois. What unites the two countries often seems far more substan- AST your mind back to July 9th, 2006. Italy had just won the tial than what divides them—an innate sense of elegance, a pas- C World Cup. Charlemagne was in Rome and joined the rum- sion for gastronomy and proud histories ofartistic and intellectu- bustious football fans marching through the centre. A great vic- al attainment. Butall that, saysFranco Venturini, isprecisely what tory, he said to the young woman next to him. “Yes,” she shot bedevils their relations. France and Italy both consider them- back. “And all the betterforhavingbeen won against the French.” selvesthe cultural superpowerofEurope and the result isrecipro- France and Italyare no exception to the rule thata country’sre- cal jealousy. For Mr Venturini, who is a columnist on an Italian lations are often trickiest with its immediate neighbour. The final daily, Corriere della Sera, but French-educated and an officer of had seen an Italian flattened in a style that would have made As- the Légion d’Honneur, the links between the two countries are terix and Obelix proud. In extra time, with the French unable to “veryclose, yetnotcharacterised byanygreatlove. We’re like two penetrate Italy’s tight defence, their star player, Zinedine Zidane, cousins, each ofwhom thinks she is the prettier.” turned on the man marking him, Marco Materazzi, and head- butted him. MrZidane had been provoked: MrMaterazzi later ad- A superpower standoff mitted that he “spoke about his [opponent’s] sister”. But it was The breadth and multi-faceted nature of the latest rift has taken still a brutal piece ofretaliation, and Mr Zidane was sent off. people in both countries by surprise. In all three of the areas in Italians–or at least Italy’s chattering classes—feel as if they are which Mr Macron has clashed with Italy, the common factor has getting similar treatment from France’s new president, Emman- appeared to be a France-first approach and an apparent disdain uel Macron. At a meetingwith Italy’s prime minister, Paolo Genti- for the communautaire values that he espoused so fervently, and loni, on July 12th, he refused to help his neighbour cope with the successfully, as a candidate. That has left Dominique Moïsi of the growing problem of up to 200,000 migrants blocked in Italy by Institut Montaigne, a liberal think-tank, dismayed and bewil- the effects of EU policy, and by the French decision in late 2015 to dered. “Have we been collectively deceived?” he asks. close its border to migrants from the south. Then, apparently Perhaps not. Mr Macron is haunted by the threat that political without consulting Rome, Mr Macron arranged a meeting on July extremism poses to Europe; ifhe let thousands ofmigrants across 25th between the two main rivals forpower in Libya, the country the frontier, his nationalist rival, Marine Le Pen, would have a from which most of the migrants depart, and one that Rome has field day. As for the French president’s blocking of the shipyard always seen as crucial to its interests. Two days later the new man takeover, that could be seen as a canny exercise in domestic poli- in the Élysée blocked an Italian shipbuilding firm, Fincantieri, tics. It has won Mr Macron much-needed popularity at home, in- from taking control of a French shipyard at Saint Nazaire, citing cluding among trade unionists whose support he will require for dubious national-security concerns. labour reforms that he plans. His failure to co-ordinate his Libyan To see why such injuries hurt, remember that all Italy’s rela- initiative with Rome might be justified by the need to exploit a tions with other big, continental states are coloured by history. momentary window of opportunity. And even in Italy it is ac- Fractured into mini-states except in the south, the territory ofpre- knowledged that, if the deal the president brokered helps stabil- sent-day Italy was once easy prey for the centralised powers, in- ise Libya, he will have done his EU partners a big favour. cluding France, which began to flex their muscles in the late 15th Nevertheless, the dangers of Mr Macron’s apparent fondness century. It was a French invasion that began the so-called Italian for go-it-alone diplomacy are considerable. Many in continental Wars in which the peninsula was mortifyingly reduced to a Europe consoled themselves over the Brexit vote with the hope battlefield on which Europe’s rival powers slugged it out. that it might now be easier to pursue a common security policy. Another French invasion, in 1796, put Italy at the mercy of Na- But if France intervenes unilaterally and without consultation in poleon Bonaparte and gave rise to the practice, which has since areas as sensitive and vital to the EU’s interests as Libya, well, so become widespread, of well-organised looting by victors of the much fora pan-European diplomatic front. 7

Britain The Economist August 12th 2017 43

Also in this section 45 Bagehot: Peak Corbyn

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

Higher education Once these are accounted for, graduates’ wages are remarkably predictable. Differ- University challenge ences in entry tariffs, as defined by UCAS points mostly earned in exams taken at 18, account for nearly 70% of the variation in median earnings. Swots from Cambridge, the most selective university in Britain, earn almost £40,000 a year on average five years after graduating. Their peers at Bed- Which universities do most to boost graduate salaries? fordshire, the country’s least-selective in- HE Conservative-Lib Dem coalition analysed the data and created a ranking stitution, make only halfas much. Tformed in 2010 wanted universities to that compares graduates’ wages with how Subjects which include some element expand. Much to the chagrin of thousands much they would have been expected to of maths are well-rewarded. Our analysis of youngsters, it got its way in 2012 by near- earn regardless oftheir university. finds that the five fields with the highest ly trebling the tuition-fee ceiling to £9,000 Our estimate of expected earnings is salaries are medicine, veterinary science, ($14,000) a year. With students shoulder- built from a statistical model that predicts economics, engineering and mathematics. ing the bulk of the cost of teaching at uni- wages based on the subjects people study, By contrast, creative arts, agriculture and versities, the government was able to re- their exam results at school, age, family in- communications graduates earn the least. move the cap on the numbers that come, whether they went to private or There is a big difference between top earn- universities were allowed to accept. An ad- state school and where the university was ers and poorer ones. After half a decade, ditional benefit ofthe shift, hoped officials, located. The difference between the pre- medicine and dentistry graduates earn was that increased competition for stu- dicted and actual amounts that students £47,000 a year on average; creative-arts dents should drive up standards. earn ought to reflect a university’s impact graduates just £20,000. So far competition has not had that de- on graduate wages. Our analysis measures Encouraging more students to sign up sired effect. Most universities charge the how well universities perform compared for maths-related degrees may be hard. maximum, and there has been little with the average institution, and is blind to One problem is that schools in Britain pro- change in the quality of teaching. In a bid their prestige. duce few maths whizzes compared with to ensure that students and taxpayers get those in other countries, says Anna Vig- better value for money, the government Wait, what about Oxbridge? noles, an economist at Cambridge. Ports- has created a ranking, the “Teaching Excel- The rankings have their flaws. They are mouth, which tops our rankings, provides lence Framework” (TEF), which tries to ca- based on a single cohort ofgraduates, who remedial maths and literacy catch-ups for tegorise universitiesbytheirteaching qual- left university in 2009 in the middle of a fi- those needing them. Another difficulty is ity, nottheir reputation. It hopes to be able nancial crisis. Using median earnings as a that universities are not allowed to vary to linkthe feesthat universities may charge measure understates how much variabil- their prices by subject, which means they to instruction. ity there is in graduates’ incomes, especial- have little incentive to nudge students to- One way to measure a university’s im- ly at the top. Nevertheless, the data offer a wards courses like engineering or science, pact is to look at earnings data, which the glimpse of which universities do most to since it is cheaper to teach the humanities. governmentalso hopesto include in future boost earnings. Those at the top are a mix Alison Wolf, an economist at King’s versions of the TEF. On June 13th the De- ofthe illustrious (Nottingham and Oxford) College London, worries that today’s fi- partment for Education released the latest and the unfamiliar (Brunel and Robert nancing system means the number oflow- wave of its “longitudinal education out- Gordon)—see table on next page. quality courses will grow. A recent study comes” data, which analyse tax returns to Most of the differences in median earn- by the Institute for Fiscal Studies, a think- show how much people earn five years ings can be explained by just two factors: tank, found that funding per student for after they graduate. To find out which fac- how selective a university is and what sub- humanities and business courses has in- tors are most relevant, The Economist has jects their students choose to study there. creased by 47% since the reforms of 2012,1 44 Britain The Economist August 12th 2017

to earn £4,200 a year less than graduates of Hire education a university in London. Our model at- Business Economics Social studies† Britain, median salary five years after tempts to account for geographical differ- graduation*,by programme of study 60 ences by being more generous to universi- 2014, £’000 ties in poor parts of the country. That 40 All subjects graduates from Durham and St Andrews, By university 20 two highly selective universities far from 60 London, fare so poorly is surprising given Cambridge these adjustments. Oxford Creative arts Biology Education LSE Aston Imperial 40 60 First-class universities Portsmouth UCL Newman The reforms of 2012 increased funding for St Andrews 40 Durham all universities, but may also have encour- 20 20 aged wasteful spending. Universities now have an incentive to invest in things that 200 300 400 500 600 300200400 500 600 300200400 500 600 300200400 500 600 will lure more students. There has been a UCAS entry standards † big rise in new buildings. In 2013 universi- Sources: Department for Education; UCAS; The Economist *From 124 institutions Excluding economics ties spent £2.4bn on construction, 43% more than a year earlier, and they have 2 whereasforlaboratorysciencesithas risen in our rankings, has one of only five ship- continued to spend at that level since. by just 19%. Yet although some business handling lakes in the world, where stu- Spending on marketing has grown (Hull graduates earn a fortune, there is a large dentscan be trained usinglarge-scale mod- University has the naming rights to the lo- gap between those from higher- and low- els of ships and yachts in a variety of con- cal football team’s training ground, for in- er-ranked universities. For instance, gradu- ditions. Similarly, Bournemouth, which stance). Surveys suggest that students are ates who study economics and manage- comes fourth, has strong links to the film more satisfied with the state of their cam- ment at Oxford, the most lucrative course industry and a global reputation for visual puses, and some were shabby before the according to our data, can expect to be effects. John Fletcher, a senior administra- investment. But critics question whether earning three times as much as their con- tor at the university, boasts: “We’ve won this was the best use ofextra cash. temporaries at the least-selective universi- many Oscars.” Many universities at the top of our ties five years after they leave. Some things are beyond a university’s rankings are struggling to recruit enough Although graduates from research-in- control. Graduates from universities in students. This is partly because of the tensive universities tend to earn more, re- richer areas will tend to earn more—we es- tough climate: there is a demographic dip search quality is no guarantee of a good timate that, all else being equal, those from in the number of 18-year-olds, Brexit is re- performance in our rankings. Some ofBrit- a typical university in Glasgow can expect ducing the numbers of European Union ain’s grandest institutions do well. Oxford, students and the abolition of nursing bur- which comes tenth, adds £1,900 to gradu- saries has had predictable consequences. ate earnings compared with the average Great expectations Yet it also reflects the fact that many stu- university. But the top three universities— Britain, median salary five years after graduation dents choose their university on the basis 2014, £’000 Portsmouth, Aston and Newman—are not Graduate Performance ofprestige, not teachingquality. Much may often found leading the rankings. Highest-ranked earnings over depend on whether the government can Less reputable universities may strug- universities actual expected* under begin to shift that calculation. gle to attract the brightest students, but Portsmouth 26.2 23.1 3.1 Even if it does, the importance of selec- they can do plenty to ensure that their Aston 29.1 26.1 3.0 tivity in determining graduate outcomes graduates do well in the labour market. Newman† 24.4 21.6 2.8 suggests that much of a university educa- Many of the universities at the top of our Bournemouth 26.7 23.9 2.7 tion is about “signalling”, rather than rankings convert bad grades into good Robert Gordon 28.9 26.2 2.7 learninguseful skills. This is no bad thingif it makes it easier for employers to spot the jobs. At Newman, a former teacher-train- Nottingham 33.0 30.7 2.3 ingcollege on the outskirts ofBirmingham, best employees, making the labour market City University 31.1 28.9 2.2 classes are small (the staff:student ratio is more efficient. But, since there has been lit- † 16:1), students are few (around 3,000) and Harper Adams 28.4 26.2 2.1 tle improvement in teaching quality, it is all have to do a work placement as part of Brunel 28.6 26.5 2.0 not clear how much students have benefit- their degree. (Newman became a universi- Oxford 42.8 40.9 1.9 ed from the increased fees. ty only in 2013, though it previously had Lowest Two years ago we built an American the power to award degrees.) Uni. Campus Suffolk† 20.9 23.3 2.4 ranking using a similar methodology. In Part of Newman’s excellent perfor- Lincoln 21.0 23.5 2.4 comparing the two countries, we find that mance can be explained because more Norwich Uni. of the Arts† 17.3 19.9 2.6 the school grades of18-year-olds are a clos- than half its students take education-relat- Buckingham 23.0 25.7 2.7 er predictor of future earnings in Britain ed degrees, meaningmanywill workin the than in America. This helps students, be- Bradford 20.9 23.6 2.7 public sector. That is a good place for those cause earnings data can provide guidance with bad school grades. Indeed, in courses University of S. Wales 20.8 23.9 3.0 about what to study, and where. It also like education or nursing there is no corre- Cumbria 21.7 25.1 3.3 helps policymakers, because the analysis lation between earnings and the school SOAS 27.4 30.9 3.5 shows that it is not always the famous uni- grades a university expects (see chart). Royal Agricultural 27.6 32.2 4.6 versities that make the biggest difference. Other universities punch above their St Andrews 31.7 36.6 4.9 Focusing too much attention on elite uni- weight by establishing links with success- Sources: Department for *Based on calculations by versities may be ill-advised if much of ful industries. At Southampton Solent, on Education; UCAS; ONS; The Economist †Recently their success is attributable to the calibre of England’s south coast, many students take Google Maps; The Economist granted university status students they attract. It can be better to degrees in courses related to the maritime Interactive: See the full rankings and methodology at study what goes on in Portsmouth and As- industry. The university, which comes 12th Economist.com/UniRankings17 ton than in Oxford and Cambridge. 7 The Economist August 12th 2017 Britain 45 Bagehot Peak Corbyn

Is the Corbyn bubble about to burst? life forgiving people their nastiness so long as they are hostile to the Great Satan ofthe United States. And there are more potential fissures in his coalition. The sort of people who ooh over him at Glastonbury will start aahing if their taxes rocket. But anyone inclined to think that Britain is approaching peak Corbyn or even that, as Country Squire Magazine, a website, argues, “peak Cor- byn has passed”, should consider three things. The first is that peak Corbyn will be determined by the Con- servative Partyratherthan the LabourPartyorVenezuela’s ruling elite. The Conservatives have been in power since 2010 either as the dominantpartyin a coalition orin theirown right. Even in the best of times, voters tire of long-serving ruling parties, blaming them foreverythingfrom bad weatherto noisyroadworks. These have not been the best of times. The Tories are far more divided than Labour over Brexit—in particular, their “ultras” are more extreme—and, as the party of government, their divisions will be more damaging both to themselves and to the country. Second, a few fiff-faffs over communist tyrants aside, Mr Cor- byn is acquitting himself quite well as party leader. He is forcing Blairites and Brownites to bend the knee with a judicious mixture of promises of promotion and threats of a beating by his EREMY CORBYN may have lost the general election but his cult praetorian guard, Momentum. In June Labour humiliated Mrs Jgrows, regardless. There are Corbyn T-shirts all over the place, May despite the fact that most of its MPs thought Mr Corbyn was as well as more exotic items of clothing: David Cameron, Brit- leadingthem to disaster. Next time theywill be more behind him. ain’s former prime minister, was photographed at a pop festival, Hisrefusal to operate a pairingsystem (wherebyMPs from oppos- drink in one hand, cigarette in the other, half-embracing a female ing parties agree to cancel each other out by abstaining from vot- reveller who was wearing a cape with Corbyn’s name on the ing) shows a good understanding of guerrilla tactics. Tory MPs back, encircled by a heart. A mural of his face can be found in Is- will have to turn up for every vote to save the government from lington. Siobhan Freegard, the founder of channelmum.com, re- defeat, becoming increasingly exhausted, tired and fractious, ports that “Corbyn is the stand-out naming trend this year”, with whereas opposition MPs will be able to picktheir moments. 50% of parents saying they would be willing to consider naming The third reason is that a combination of economic forces, their child after the MP forIslington North. both long-term and short-term, favour Mr Corbyn. Brexit and its The great question of British politics is whether this is too attendant uncertainties will further weaken Britain’s already much of a good thing. Is this adulation a bubble that will burst, weakeningeconomy. That will give voters more incentive to pun- leaving trustafarians with embarrassing bits of clothing and chil- ish the party that has “banged on” about Europe for decades and dren with awkward names? Or is it the British equivalent of the seems to be doing a dismal job of handling the divorce settle- posters and T-shirts that proliferated before Barack Obama’s first ment. The hollowing out of the middle classes, as salaried work- victory? There are good psephological reasons for thinking that ers see their jobs threatened by artificial intelligence and global- Labour’s 40% score in June might be a high-water mark. The Con- isation and their dreams of home ownership destroyed by rising servative campaign was about as bad as you can get, a presiden- property prices, is increasing the number ofpeople who are sym- tial effort with a nothing at its heart. Lots of people voted for Mr pathetic to Corbyn-style socialism. Corbyn precisely because they did not think he could win. They wanted to curtail Theresa May’s “Brexit means Brexit” triumphal- London pride ism, not install a far-leftist in Downing Street. The clearest signs ofthis can be seen in the country’s most global- There are also signsthatMrCorbyn’sTeflon coatingiswearing ised city, London, where Labour has gained 11 seats since 2010. thin. On August 7th he returned from a cycling holiday in Croatia Having lost such previously deep-blue seats as Kensington and to face a barrage of questions about Venezuela. Why is a country Battersea in the latest election, the Toriescould easily lose Ching- that he once praised as a land of milk and honey turning into a ford & Woodford Green, where Iain Duncan Smith’s majority fell giant gulag? Why had he said nothing while the regime beat and from 8,386 to 2,438, and Uxbridge & South Ruislip, where Boris killed dissenters? Mr Corbyn eventually broke his silence only to Johnson’s majority fell from 10,695 to 5,034, in the next one. say he condemned violence on “all sides”, seemingly oblivious Mr Corbyn also has perhaps the most important thing in poli- to his own recent tweet that “Ifyou are neutral in situations ofin- ticson hisside: the idea of“change” and “hope”. People are fed up justice you have chosen the side of the oppressor.” This came on with stagnant living standards. They are fed up with squabbling the heels of two other embarrassments. He back-pedalled on his politicians. And they are fed up with the rich seeming to be held promise to forgive all past student loans on the ground that, even to different standards from the poor. The Toriesare right to argue in Labour’s free-spending Britain, writing off £100bn might be a that this “changey-hopey” stuff is nonsense. Corbynism will bit irresponsible. And he clashed with the pro-European wing of make the country poorer, the infrastructure shoddier and politi- his party when he insisted that Britain would leave the single cal life more rancorous. But if they cannot go beyond criticising market when it left the European Union. Mr Corbyn’s policies to offering a vision of a better future them- Further skeletons lurk in Mr Corbyn’s closet. He has spent his selves, they might just as well whistle in the wind. 7 46 International The Economist August 12th 2017

The global techlash bents from publishers to carmakers are coming to see the tech titans as a threat to Chaining giants their survival. Indeed, tech firms are easy targets for anyone worried about change. They employ relatively few people, and pay little tax. President Donald Trump does not see them as natural allies, as Ba- SAN FRANCISCO rack Obama did. (Mr Obama’s administration was packed with former Google em- Though big tech firms are thriving, they are facing more scrutiny than ever ployees.) Some governments are unsettled OWmuch bigger can they get? The five apparatus—from its local app store. In June by the growing role in their national lives Hbiggest technology firms—Alphabet Canada’s Supreme Court ordered Google of firms whose values are distinctively (Google’s parent), Amazon, Apple, Face- to stop its search engine returning a result American, in particular in their commit- book and Microsoft—have published fi- advertising a product that infringed on a ment to free speech ahead ofprivacy. nancial results in recent weeks that put firm’s intellectual property. And on August One consequence of governments’ fad- their combined quarterly revenues at 9th it emerged that the Internet Archive’s ing deference towards tech firms is a more $143bn. Yet this rude financial health con- Wayback Machine, which preserves old muscular approach towards taxation. Ap- ceals a more troubling long-term trend: versions of edited web pages, has been ple is expected soon to put €13bn ($15.3bn) governments, long willing to let internet blocked in India, apparently by order of into an escrow account while courts con- firms act as they wish, are increasingly try- the department oftelecommunications. sider its appeal against last year’s ruling by ing to tie them down. The examples vary, but they amount to the European Commission that the firm This goes far beyond the latest row over a significant change in the regulatory envi- owed back taxes in Ireland, home to its sexism and tolerance of diverse political ronment. When the internet went main- European headquarters. Another conse- viewpoints in Silicon Valley, sparked by a stream in the late 1990s, tech firms and quence is public policies that pay little memo written by a Google employee (see most democratic governments embraced heed to their needs, for example on immi- next article). Scarcely a week passes with- its global nature. Firms operated largely gration. Mr Trump has complained that out a sign of the shift in attitudes. On Au- free from onerous rules (blocking pornog- tech firms import foreign workers rather gust 1st Amber Rudd, Britain’s home secre- raphy featuring children has been the than hiring Americans, and has ordered a tary, warned that unless the firms did more main exception). review ofthe rules governing workvisas. to block extremist content from their plat- One reason is technological. It has be- forms, they would be forced to do so by come easier to enforce borders in cyber- Shooting the messenger new laws. Stephen Bannon, the chief strat- space. Tools that use “IP addresses”, the For more than two decades internet plat- egist at the White House, reportedly wants numbers that identify internet connec- forms have largely been treated as inter- to regulate Facebook and Google as utili- tions, have become much better at en- mediaries. They have been seen as more ties. Steven Mnuchin, the treasury secre- abling online firms and regulators to work like telecom companies, which may trans- tary, has talked of taking action against out where users are. The shift to smart- mit criminal material for which they are Amazon because it allegedly does not pay phones has increased governments’ pow- not liable, than media firms, which can be its fair share of tax. er. App stores have local links, for example prosecuted or sued for what they publish. Under pressure from the Chinese gov- to payment services, which make it easier Now, governments in America and Europe ernment, Apple removed several “virtual to monitor and control users’ activity. are starting to hold them responsible for private networks” (VPNs)—services that Meanwhile, as the internet has pene- what their users do and say. Germany is enable users to bypass China’s censorship trated every aspect of life offline, incum- the most striking example. From October 1 The Economist August 12th 2017 International 47

2 1st it will require social-media platforms to The biggest long-term threat to tech world. Google is experimenting with self- take down hate speech, such as Holocaust firms is probably antitrust law. Regulators, driving cars and Facebook with drones, denial, within 24 hours or face fines of up particularly in America, have long held which will bring new headaches and in- to €50m. that online, competition is only a click creased oversight. Under Germany’s law, the clock starts away. But they are increasingly concluding The tech giants are not all equally vul- when firms are alerted by users or the au- that even in cyberspace competition can nerable. As a legacy ofthe antitrust investi- thorities. But some governments are think- be restricted by dominant firms, for in- gations it faced in the 2000s, Microsoft still ing of requiring firms to block some objec- stance when the tech giantsbuyup smaller has plenty of lawyers and lobbyists. It also tionable content as soon as it appears (as rivals before they mature into a threat, or comes under less scrutiny than Facebook they already do with child porn). Britain’s discriminate against their offerings (for ex- and Google, which play a bigger role in government, for example, wants them to ample, in search rankings). Governments consumers’ daily lives. Both firms are now block Islamist propaganda, such as videos have also started to fret about foreign data rampingup theirlobbyingoperations, hav- of beheadings. It has ignored tech firms’ monopolies, which they think hoover up ing seen how Microsoft only belatedly re- complaints that this will be difficult and local information and turn it into valuable cognised the risks that accompany com- costly. Distinguishing such content from artificial-intelligence services. mercial dominance. Google, for example, mainstream reporting on the war in Syria Perhaps unsurprisingly, given that Eu- has around 500 people in its public-affairs is harder than sifting out child porn. Auto- rope has produced no big digital platform and regulatory team, only a handful of mated techniques will block some legiti- of its own, such thinking is common in the whom work from its headquarters in Cali- mate content. Humans will often have to EU. In June the European Commission hit fornia. Many are based in Europe. “Each make the final decision. Google with a €2.4bn fine for abusing its companylearnsfrom the mistakesofthose “monopoly” in online search. But else- that went before,” says Mr Davidson. Border control where, too, regulators are becoming more Complying with a proliferation of new Tech firms have been building barriers in active. In Japan the head of the Fair Trade laws means expanding local teams: Face- cyberspace for some time. Their aim has Commission has warned that exclusive ac- bookis planningto have 650 “moderators” been commercial: to keep users within cess to data could be used to restrict com- in Germany to enable it to respond to take- “walled gardens” where it is easier to sell petition. Even in America, such thinking is down requests within the stipulated 24 them services. But governments are also gaining ground. hours. Services and technical infrastruc- erecting borders—and theirs are more con- As tech giants build up their offline ture are also becoming more fragmented. straining. Like China, Russia plans to presence, they can expect regulatory scru- On August 4th it emerged that Google had clamp down on VPNs. Both countries now tiny to increase still further. Though Ama- agreed to tighten monitoring of terrorist require data on domestic users to be stored zon has so far got off lightly, its recent pur- and other offensive material on its You- within their borders. Such data-localisa- chase of Whole Foods, an American Tube video-sharing service in Indonesia. tion rules are a growing problem in demo- grocer, is likely to change that. Amazon’s Amazon and Microsoft, fortheir part, have cratic countries, too. In January the Euro- fulfilment centres (warehouses from built data centres in certain jurisdictions, pean Commission complained about which products are shipped) have created such as Germany, to be able to comply “unjustified restrictions on the free move- hundreds of thousands of jobs; earlier this with data-protection rules. ment ofdata” within the EU. month it sought to hire 50,000 people The firms hope that funding local initia- Even as the internet starts to fragment acrossAmerica in one day. Thathasgiven it tives will help curb resentment. Google’s into local versions, some countries are try- brownie points with governments. But as “Growth Engine for Europe” aims, among ing to extend their legal reach beyond their more retail jobs are lost to e-commerce, other things, to help small businesses borders. In the pastinternetfirmswould ig- and positions at Amazon become auto- hone their digital skills. Facebook’s “Jour- nore requests from governments that mated, the mood could shift. Amazon is nalism Project” will seek to fight fake news sought to censor what people elsewhere not alone in venturing into the physical and to develop new subscription services saw online, for example requests originat- with publishers, including Axel Springer, ingin Thailand, with itsstiflinglèse-majesté which played a big part in the campaign laws that ban all criticism of its king. But against Google in Europe. In October Mi- now some democracies are passing extra- crosoft published a book that could easily territorial laws that seek to regulate online be mistaken for a political party’s manifes- content wherever it appears. “We risk a to. It lists dozens of detailed public-policy heckler’s veto, where any single country recommendations, ranging from protect- can get a piece ofinformation removed not ing privacy to fighting cybercrime. Ama- just within that country but anywhere zon, which faced criticism a few years ago around the world,” says Alan Davidson, for its working conditions, has started of- who served in MrObama’sadministration fering public tours of its fulfilment centres and is now a fellow at the New America in Europe. Foundation, a think-tank. The Canadian ruling against Google, Things fall apart which applies worldwide, could be just Governments sometimes have good rea- the start. Later this year the European son to claim sovereignty over the digital Court of Justice will decide whether the realm. Theyare responsible fornational se- EU’s much-contested “right to be forgot- curity and elected to uphold national laws. ten” applies not just to Google’s European But their regulatory push threatens to sites, but to all of them. This would mean create a “splinternet”, with national bor- that links to information about people that ders reproduced in cyberspace. That is deemed “inadequate, irrelevant or no would harm the internet’s function as an longer relevant” in the EU will no longer be open forum where people can communi- returned in response to any Google search cate freely and come up with new global anywhere. If the firm does not comply, it products and services—which is precisely may face stifffines. what made it great in the first place. 7 48 Business The Economist August 12th 2017

Also in this section 49 An Israeli pharma champion sickens 50 Rupert Murdoch’s troubled Sky bid 50 Helen Alexander, best of bosses 52 Airports lose altitude 53 Schumpeter: Suspicious minds

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

Work culture in Silicon Valley ranks, including its boss, Travis Kalanick. Even had Google preferred to dress You’re fired down rather than dismiss Mr Damore, in practice it would have been difficult to keep him. Women and others could have complained of discomfort working along- side him or reporting to him, and could SAN FRANCISCO have made claims against Google for employing someone disrespectful of col- A Google employee inflames a debate about sexism and free speech at work leagues and ofthe firm’s values. ILICON VALLEY’S leading firms cele- has been under investigation by the De- Yet to dismiss Mr Damore’s memo en- Sbrate disruption, but not disruptive em- partment ofLaboursince April fordiscrim- tirely is to overlook Silicon Valley’s charac- ployees. Google has found itselfat the cen- inatingagainst women by allegedly under- ter and, perhaps, ways in which it might be tre of controversy after an anonymous paying them by comparison with men. changed. Most techies there considerhim a software engineer, later revealed to be a Men still occupy four-fifths of Google’s black sheep, but he expressed ideas that young Harvard graduate called James Da- technology-related roles, and 91% ofits em- some male computer-programmers think more, published a ten-page memo on two ployees are either white or Asian. The firm even if they never utter them aloud. “I internal company networks explaining probably felt a need to reassure its female would be hard-pressed to name a person why there are so few women in the upper employees and workers from ethnic and at Google who would disagree with 100% echelons ofthe technology industry. sexual-minority groups that it takes diver- of what he wrote,” says one female Goo- Instead of sexism, he pointed to “bio- sity seriously. In recent months Silicon Val- gler. For the boss of a prominent tech start- logical” factors, such as women’s suppos- ley has been beset with proven cases of up, Google’s sacking ofhim was chiefly for edly greater interest in people and their sexism against women at work and sexual public consumption. “This isn’t a question predisposition to anxiety and stress at harassment of female employees. So far it of legality or policy. This is a question of work. In promoting gender diversity, he has been Uber, a ride-hailing firm with a virtue-signalling,” he says, reflecting the charged, Google silences those people particularly toxic culture of sexual harass- view ofmany in the Valley. whose political views differ from Califor- ment, that has come off worst: in recent And although many of the memo’s as- nia’s liberal mainstream. months it has lost most of its executive sertions were risible, such as the idea that Mr Damore’s insinuation that the small women are not coders because they are portion of Google’s workforce that is both less intrigued by “things” than men are, female and works in technology-related Band of brothers others made more sense. One is that diver- roles (see chart) may be unsuited for the Male roles as % of total number of jobs sity initiatives could be more transparent. worksparked an uproar inside and outside June 2017 or latest, selected companies Today firms publish annual numbers the company. Google was in a bind. It Overall Technology-related about the composition of their workforce, champions free expression and access to 0 20406080100 but reveal little else. Companies across all information, so many wondered how it industries could try harder to quantify would handle an employee who had com- Uber how their initiatives are faring. plained that Silicon Valley was intolerant Microsoft Mr Damore’s broad argument, that the ofdifferent political viewpoints. Valley is fairly tolerant ofracial and gender The answer came on August 7th, when Facebook diversity but intolerant of diversity of Google sacked him. Sundar Pichai, its boss, opinion, was his most powerful. In the lib- said that parts of Mr Damore’s memo vio- Google eral tech industry, vocal conservatives are lated itscode ofconductand made its work asscarce and unpopularasfeature phones. Apple environment hostile for women. Acting When Peter Thiel, a prominent venture swiftly was important for the firm, which Source: Company reports capitalist, backed Donald Trump during 1 The Economist August 12th 2017 Business 49

2 the 2016 presidential campaign, he was published in the dog-days of summer the national success story are speaking ofa condemned by many of his peers. Some when it was likely to get most attention— need to look into the firm’s business and say Mr Thiel’s politics will affect his firm, was carefully chosen. Before Mr Damore perhaps even intervene. Eli Cohen, the because some entrepreneurs do not want was fired he filed a complaint with Ameri- economics minister, this week called for to be associated with his views and are un- ca’s National Labour Relations Board, Teva to take care of employees and to relo- willing to accept investment from his fund. which few employees would think to do cate its foreign activities in Israel. A similar wind of intolerance is sweeping without early legal advice, says Pamela Such heavy-handedness is hardly justi- America’s liberal universities, where con- Sayad, an employment lawyer. fied. Unemploymentin Israel isnearan all- servative speakers are facing protests and The sacking of Mr Damore may fade time low, at 4.5%, and Teva’s highly quali- seeing their speeches cancelled. from the news, but the debate about gen- fied employees would find new jobs if the MrDamore has said he may sue Google der in technology is likely only to intensify. firm sinks further. Most of the pension for infringing his right to free speech, al- Those under fire for their treatment of funds have diversified in recent years and though this may not go far. Americans’ women include not only Uber but several can absorb the losses from its tumbling right to free speech is protected by the con- venture-capital firms, accused of inculcat- shares. Although Israelis are sentimental stitution but does not exist legally at work, ing the male-dominated cultures of the about Teva because of its past success, says though many do not understand the dis- young companies they finance. The other Guy Rolnik, editor of the Marker, a busi- tinction. In California, like most states in effect will be to deepen debate about free- ness newspaper, they need to “wake up” to America, people are employees “at will”, dom of expression at work. Google may the fact that it is a multinational. so they can be rapidly dismissed if their have acted wisely forits female employees Yet Teva’s plight has revived a debate conduct breaches company policies. and for its public image. But it has not satis- about whether Israel is benefiting enough He will certainly be lionised by suppor- factorily answered the question of how from its high level of investment in re- ters. The Alt-Right movement in America is those who express controversial opinions search and development. Hundreds of celebrating his frankness. Some members at work should be handled. Many people technology startups have been snapped have started a crowdfunded campaign to will note that a company that is known for up by global firms in recent decades, and support him, should he sue Google and its bold, out-of-the-box thinking chose to many of them have moved abroad. Israel fail. Some wonder if the memo’s timing— live and die by its employee manual. 7 now has two economies, notes Eugene Kandel, the former chairman of the government’s National Economic Council Israeli business and the chief executive of Start-Up Nation Central, a non-profit organisation. There is Startup and leave nation the lucrative, high-tech economy for a small share of the workforce and a second economy where most Israelis work and earn much less, he says. To sustain the first, Israel needs to keep JERUSALEM companies such as Teva. But it may now be taken overand lose itsIsraeli identity. Israel Israel frets about what Teva’s crisis means forthe economy will try to persuade firms such as Mobil- HE headlongplunge ofsharesin Teva, a out of 45 countries by the end of 2017. eye, a developer of driverless car systems Tpharmaceutical giant—down by over Seemingly overnight, it has gone from be- that was bought earlier this year by Intel, 40% since August 2nd—is causing conster- ingthe darlingofthe Israeli economy into a an American chip giant, for$15.3bn, to base nation beyond the firm’s shareholders and byword for mismanagement. Having been not only their research centres in Israel, but employees. The company was founded in run for 26 years by one CEO, Eli Hurvitz, their manufacturing. Yet the economy as a Jerusalem in1901, is the largest in Israel and who had married into the founder’s family whole is still suffering from low labour is the country’s only multinational with its and who led itsinternational expansion, in productivity and over-regulation. A new headquarters still at home. Since begin- the past decade the firm has gone through wave of state intervention in cases such as ning its rapid expansion abroad in the ear- a further five. Israeli politicians who in the Teva’s is unlikely to be the right way to ly 1980s it has been called “the nation’s past approved big tax write-offs to boost build and attract big firms in future. 7 share” by Israelis, whose pension funds have invested heavily in its success. That prosperity came chiefly thanks to the firm’s most popular proprietary drug, a bestselling medication for multiple sclero- sis called Copaxone. Over the past two decades its sales paid for a global spree of buying generic-drugs competitors. Last year Teva completed its most ambitious purchase, of Actavis Generics, an Ameri- can generics manufacturer, for $40.5bn; financing the deal took its debt to $35bn. But Teva’s transformation into the world’s largest supplier of generic medicines turned out to be ill-fated. The mood has turned in recent months as American pharmacies and wholesalers have squeezed the prices ofgeneric drugs. Last week Teva said its second-quarter earnings had fallen by a tenth and announced plans to cut 7,000 jobs and pull National pride and joy 50 Business The Economist August 12th 2017

Helen Alexander The best of bosses

Dame Helen Alexanderdied on August 5th, aged 60 OLE models for women in business return inspired confidence. “Youcan trust Rare still too rare, not least in Britain. Helen completely,”was the word from Last November an independent review one Economist editor to his successor. backed by the government urged FTSE Although she could seem quintessen- 100 companies to raise the share ofwom- tially British (St Paul’s Girls’ School, Ox- en on their boards from 27% to 33% by ford University), she was also thoroughly 2020. Sadly,that push this weeklost one global. She loved travelling to the Olym- ofits leading champions, Helen Alex- pic games, where the world came togeth- ander, the deputy chair ofthe review. er in good-spirited competition. Her Business had no better ambassador. mother was Russian (with roots in Esto- She was self-effacingbut a world-class nia), her grandmother had been Maxim networker—a winning combination that Gorky’s lover; Helen’s MBA was from helps explain, along with her intelligence INSEAD in France and she was a stalwart Fox’s bid for Sky and charm, why all sorts offirms wanted ofan annual Franco-British gathering her on their board (from Northern Foods called the Colloque. France awarded her What the Fox said to Centrica, Rolls-Royce and the British the Légion d’Honneur in November 2015. arm ofHuawei), to advise them (Bain At her acceptance speech at the French Capital) or to chair them (the Port of embassy in London, delivered in flawless London Authority and, more recently, French, her one pause to collect herself UBM NEW YORK , an events business). In 2009 she came when thanking her husband and became the first woman to be president three children fortheir support in her An attempted takeoverhits more ofthe Confederation ofBritish Industry, battle against cancer, which had been obstacles the country’s main employers’ group. diagnosed about a year earlier. Helen UPERT MURDOCH’S penchant for But Helen had built her reputation in approached that struggle as she did all Rmass-market media has made him bil- the media industry.From1997 to 2008 else: head on, admirably,a class act. lions of dollars. It also gets in the way of she was chiefexecutive ofThe Economist empire-building. In 2011 News Corp’s bid Group (the publisher ofthis newspaper), to take full ownership of Sky, a European the company she joined as a marketing pay-TV giant, fell apart amid public ran- executive in1985. During her tenure, cour over phone hacking by journalists at profits soared and The Economist’s circu- the News of the World, one of his tabloids lation more than doubled, to1.3m. (since closed). Now a renewed Murdoch Her success owed much to a leader- family takeover attempt for Sky, a bid of ship style that lacked fireworks and did £11.7bn ($15.2bn) by 21st Century Fox, faces not seekfame, but deserved more recog- yet more scrutiny over concerns about al- nition, forboth its humanity and effec- leged scurrilous reporting at Fox News, Mr tiveness. Helen relied on a quiet wisdom: Murdoch’s American cable-news channel. listening, not lecturing. No name was On August 8th Karen Bradley, Britain’s ever forgotten, no thoughtful personal culture secretary, asked Ofcom, the media gesture was too small. For all the fashion- regulator which had already reviewed the able fascination with big strategy,she bid, to take another look to determine was unerringly sensible and, where need whether 21st Century Fox meets Britain’s be, decisive: nothing foolish would hap- broadcasting standards. Ms Bradley’s re- pen on her watch. She treated her col- quest followed fresh complaints about Fox leagues with respect, set an example of News from members of parliament, in- discipline and solid values (the diary cluding Ed Miliband, the former leader of always cleared time forfamily), and in Circulation wizard the opposition Labour Party, and from activists who have lobbied against the deal. Sky’ssharesfell slightlyon fearsthat the ac- News. Britain’s tight regulation of broad- ing the other 61%, the Murdochs would quisition might not happen, even though casting should prevent that, but it is un- take full control of a pay-TV firm with a other European regulators have signed off. clear what the Murdochs are willing to do growing customer base of 22.5m in Europe The latest objections concerned a law- to assuage such worries. Mr Murdoch re- (in contrast to the shrinking numbers suit filed in America on August 1st alleging turned to oversee Fox News after the de- watching pay-TV in America). By marrying that Fox News had aired a false story about parture ofits long-time boss, Roger Ailes in content and distribution, the combined the 2016 murder of a Democratic Party July 2016, following multiple allegations of company could better compete with firms staffer, Seth Rich, with the knowledge of sexual harassment (Mr Ailes died this such as Netflix and Amazon, two online the White House. The alleged aim was to year). Since then it has continued to carry giants, with a direct-to-consumer stream- divert attention from the investigation of notably favourable coverage of Mr Trump. ing-video service in future. As ifto rub it in, Donald Trump’s possible links to Russia’s Losing the Sky deal would be a huge Disney, a competitor unencumbered by government. Fox denies the allegations. blow. Fox, a leading supplier of TV content tabloids or politicised news channels, this British critics of the takeover fear Sky’s internationally, already owns 39% of Sky, a week said it would launch two such news channel could come to resemble Fox leadingdistributorofTV in Europe. Bybuy- streaming services by 2019. 7 .pwc.com digital

Create

85% of digital an experience transformations fail. worth Let’s talk about why. talking about. 52 Business The Economist August 12th 2017

The business of airports Under even greater threat, especially in North America, is income from car parks, Losing altitude which makes up two-fifths of non-aeronautical revenues across the continent, and car-rental concessions, which brings in a further one-fifth. At European airports the shares are 20% and 3% respectively (see chart). These businesses are being disrupt- ed by ride-hailing apps, mainly Uber and Boring shops, tightersecurity and ride-hailing are hurting airports’ profits Lyft, which make travel by taxi more af- HEN Heathrow airport opened, in fordable compared with renting or parking W1946, the only retail facilities were a Frequent buyer a car at the airport. In the past year, rev- bar with chintz armchairs and a small Airports*, non-aeronautical revenue, 2015 enues from parking have fallen short of newsagent’s. The first terminal was a tent, As % of total forecast budgets by up to a tenth, airport a far cry from the four halls, resembling 100 managers say, and next year they expect vast shopping malls, at the London airport Other worse results. Many airports at first tried to today. Retail spending per passenger is the 80 ban Uber’s and Lyft’s cars from their taxi highest of any airport. This summer’s con- Property ranks, but drivers found a way round it, in Advertising sumer crazes include Harry Potter wands 60 some cases picking up rides from nearby and cactus-shaped lilos. Retail, food houses. Now more are allowing Uber and Heathrow’s journey from waitingroom and beverage Lyft to use their facilities. 40 to retail paradise is the story of many air- The likely direction of new technology ports. Before the 1980s, most income came Car rental and environmental regulation will contin- from airlines’ landing and passenger-han- 20 ue to sap revenue from parking and car dling charges. Then “non-aeronautical” Car parking hire, reckons Francois-Xavier Delenclos of revenue—from shops, airport parking, car 0 BCG, a consultancy. Because airports must Europe North World rental and so on—rose to around two-fifths America meet local air-pollution targets, they will of their revenues, of $152bn worldwide in Source: Airports *Survey of 827 airports covering 73% discourage passengers from using cars 2015. But amid signs that non-aeronautical Council International of worldwide passenger traffic with internal combustion engines. Heath- income is peaking, especially in mature row, for instance, wants the share of pas- aviation markets such as North America dent, which has crimped sales of luxury sengers using public transport to reach the and Europe, the industry fears for its busi- items to high-spending Chinese. Extra se- airportto increase from 41% to 55% by2040; ness model. curity checks introduced after a run of ter- many American airports have similar tar- When airports were state-owned, and ror attacks have cut passengers’ shopping gets. Even the adoption ofelectric self-driv- run not for profit but for the benefit of the time, and that may change in future. ing cars will offer little respite. After drop- local flag-carrier, such ancillary income Yet there are structural causes too. Tyler ping off passengers, they will be able to was less important. Airports in Asia, Africa Brûlé, an airport-design guru and editor- take themselves home. and the Middle East still operate like this. in-chief of Monocle, a British magazine, Revenues are stagnating just when air- Globally, two-thirds lose money; the share notes that the duplication of nearly identi- ports in America and Europe need more is 75% in China and 90% in India. But most cal duty-free and luxury-goods outlets at cash to expand, to cope with demand for airports in Europe and the Americas have airports across the world has left many flights. Without expansion beyond current to pay their own way. passengers unexcited by the range ofitems plans, by 2035, 19 of Europe’s biggest air- Britain led the waywith privatisation in on offer. The demographics of regular fly- ports will be as congested as Heathrow to- the 1980s. Canada leased its major airports ers, which have shifted towards people day, which operates at full capacity, accord- to private-sector entities in 1994, and is with less money to spare, have not helped. ing to Olivier Jankovec, director-general of now considering whether to sell them At the start of the year, Aéroports de Paris, ACI Europe, a trade group in Brussels. In completely. Squeezed state budgets in Frankfurt airport and Schiphol airport, in America the Federal Aviation Administra- America mean that most publicly owned Amsterdam, announced drops in spend- tion, a regulator, estimates that congestion airports are managed by arms-length orga- ing per passenger in 2016 ofaround 4-8%. and delays at the country’s airports cost nisations that must break even. And a the economy$22bn in 2012. Thiswill rise to wave of privatisation is sweeping Europe, $34bn in 2020 and $63bn by 2040 ifcapaci- where nearly half of terminal capacity is ty is not increased. Meanwhile, the cost of now owned by the private sector. France’s airport construction is rising more than main airportsin Parisare still partly in state twice as fast as general inflation, mainly hands, but Emmanuel Macron, the presi- due to rising costs ofspecialised labour. dent, aims to sell the rest. Latin American For those tramping through airports, countries are following closely behind. this is bad news. Without space for extra Their timing may be off. Although pas- airlines, established carriers can raise their senger numbers are still booming—grow- fares without fear of new competitors ing worldwide by 6.3% last year, according moving in. Neither are incumbent airlines to IATA, an airline-industry group—non- keen to foot the bill for expansion. IAG, an aeronautical revenues per person are fall- Anglo-Spanish group, is fighting plans to ing across North America and Europe, a levy higher landing fees on its airlines, in- trend that is offsetting some of the rise in cluding British Airways, to pay for new aeronautical revenues from higher passen- runways at Heathrow and in Dublin. Ex- ger numbers. pect to see more battles like this, for lilos On the retail side, some temporary fac- and duty-free Smirnoff vodka cannot pay tors are at work, such as a crackdown on for all the terminals and runways that corruption by Xi Jinping, China’s presi- America and Europe need. 7 The Economist August 12th 2017 Business 53 Schumpeter Suspicious minds

The economic consequences ofAmericans’ distrust economy illustrate the point. Wells Fargo, a bank, created millions of fake accounts, yet in the three months to June its year-on- year profits rose by 5%. In April a United Airlines passenger was assaulted, causing an outcry. Its underlying profits later rose by 5%, too. In such industries Americans are inured to mistreatment. Trustbetween firms, and between firmsand investors, ismore resilient, but there is evidence of greater wariness. Banks charge corporate borrowers a spread of 2.6 percentage points above the federal-funds rate, compared with 2.0 points in the 20 years before the crisis. The equity-risk premium, or the annual excess return that investors demand to hold shares rather than bonds, is 5.03 points, against a pre-crisis average of 3.45 points, notes As- wath Damodaran ofthe Stern School ofBusiness at NYU. The median firm in the S&P 500 holds 62 cents of cash on its balance-sheet per dollar of gross operating profit, up from 45 cents in 2006 (this yardstickexcludes America’s giant technology companies, which hoard money). In a sign that more corporate deals end in tears, litigation costs are rising. The revenues of legal firms rose by 103% in 1997-2012, according to the Census Bureau, more quickly than nominal GDP growth, of 85%. And spending on corporate lobbying, a signal that firms think politicians are MERICA is a grumpy and confused place. For an overarching corruptible, has risen fasterthan GDP, too. Aexplanation of what has gone wrong, a decline in trust is a In the long term it is possible that firms could become as mis- good place to start. Trust can be defined as the expectation that trustful as consumers. Though individual companies can gain otherpeople, ororganisations, will actin waysthatare fairto you. from cronyism, overall confidence will fall if there is sustained In the White House and beyond there is precious little of it about. political meddling in the courts and regulatory system. And com- People increasingly view institutions as corrupt, strangers as sus- panies as well as people can be trapped into doing business with picious, rivals as illegitimate and facts as negotiable. monopolies that are inept or shifty. In 2016 Facebooksaid that for The share ofAmericanswho say“mostpeople can be trusted” the past two years it had overstated how long its users watched fell from 44% in 1976 to 32% in 2016, according to a survey from the videos for, but advertisers have little choice but to stick with the University of Chicago. In a new book, “The Retreat of Western social-media firm. Its profits rose by 71% in the latest quarter. Liberalism”, Edward Luce, a commentator forthe Financial Times If the bleak predictions of observers such as Mr Luce come in Washington, argues that distrust will contribute to America’s true, how might America Inc adjust? One guide is the work of decline and eventually, even, to autocracy. Lackoffaith ischewed Ronald Coase, an economist who theorised that the boundary of over in boardrooms, too. In his latest letter to shareholders, Jamie a firm issetaccordingto whetheran activityisbestdone in-house Dimon, JPMorgan Chase’s boss, describes trust as America’s “se- or can be outsourced to the market. If counterparties are less reli- cret sauce” and worries that the bottle is running dry. able, and contracts expensive to enforce, firms will become “ver- The tricky bit is reconciling this distrust with the rosy business tically integrated”, bringing their supply chain in-house. outlook. The S&P 500 index is near an all-time high, even though If there is deeper decay of America’s legal system and greater many economists say that distrust is toxic for prosperity because political corruption, then firms would go further and spread transactions become dearer and riskier. An OECD study of 30 “horizontally” too, expanding into new industries where their economies shows that those with low levels of trust, such as Tur- political contacts, and access to favours and capital can be used. key and Mexico, are farpoorer. Three scholars, Luigi Guiso, Paola This is how business works in much ofthe emerging world. Sapienza and Luigi Zingales, have shown that pairs of countries (such as Britain and France) whose populations say they distrust Gotta have faith each other, have less bilateral trade and investment. America is nowhere near such an outcome, at least not yet. Still, a America’s mistrust outbreak can be split into two parts: what concerted effort to shore up trust between consumers and firms, consumers think, and what firms think. The share of folk who and between firms, would be healthy. If you subscribe to Silicon have “little or no confidence” in big business has risen from 26% Valley’s Utopianism, technology can fill the gap, manufacturing in 1976 to 39% in June, according to Gallup. For banks it has risen mutual faith where none existed before. Uber’s system ofscoring from 10% in 1979 to 28% today. Overdecadesbigfirmshave broken drivers and passengers allows strangers to have confidence in implicit promises to their employees, such as providing a job for each other. E-commerce sites such as eBay and Alibaba work by life and paying generous pensions. That has probably soured the creating networks oftrust between merchants and customers. public’s view. And the financial crisis of 2007-08 blew a giant In the end, however, government has a vital role. By enforcing hole in the reputation ofbig business and finance. competition rules, it can ensure that poor conduct is punished. Yet despite their customers’ distaste, big firms mint huge pro- And by observing the independence of courts and regulators, it fits. One explanation is declining competition over the past 20 can demonstrate that contracts are sacred and that firms operate years. If markets are working, firms that are perceived to behave on a level playing-field. Suspicion is not about to bring American badly lose market share. In concentrated industries this disci- capitalism to its knees. But the country’s vast stock of trust, built pline is lacking. Two recent scandals in oligopolistic bits of the up over a century or more, is being depleted quickly. 7 54 Economics brief Six big ideas The Economist August 12th 2017

discharged soldiers and sailors were forced to seekalternative employment. The result was a tide of overcapacity, what Say’s contemporaries called a “general glut”. Britain was accused of inundat- ing foreign markets, from Italy to Brazil, much as China is blamed fordumping products today. In 1818 a visitor to America found “not a city, nora town, in which the quantity of goods offered for sale is not in- finitely greater than the means of the buyers”. It was this “general overstockofall the markets of the universe” that came to pre- occupy Say and his critics. In trying to explain it, Say at first denied that a “general” glut could exist. Some goods can be oversupplied, he conceded. But goods in general cannot. His reasoning became known as Say’s law: “it is production which opens a demand for products”, or, in a later, snappier formulation: supply creates its own demand. This proposition, he admitted, has a “paradoxical complexion, which creates a prejudice against it”. To the modern ear, it sounds like the foolhardy belief that “if you build it, they will come”. Rick Perry, America’s energy secretary, was ridiculed after a recent visit to a West Virginia coal Overcapacity and undercapacity plant for saying, “You put the supply out there and the demand will follow.” Glutology To grasp Say’s point requires two intellectual jumps. The first is to see past money, which can obscure what is really going on in an economy. The second is to jump from micro to macro, from a worm’s eye view of individual plants and specific customers to a panoramic view of the econ- The third briefin ourseries on big economic ideas looks at Say’s law omy as a whole. N 1804 Jean-Baptiste Say enrolled in the Firms, like coal plants and cotton mills, INational Conservatory of Arts and In this series sell their products for money. But in order Crafts in Paris to learn the principles of to obtain that money, their customers must spinning cotton. The new student was 37 1 Coase and the firm themselves have previously sold some- years old, points out his biographer, Evert thing of value. Thus, before they can be- 2 Becker and human capital Schoorl, with a pregnant wife, four chil- come a source ofdemand, customers must dren and a successful career in politics and 3 Say’s law themselves have been a source ofsupply. letters trailing behind him. To resume his What most people sell is their labour, 4 Pigouvian taxes studies, he had turned down two lucrative one of several “productive services” on of- offers from France’s most powerful man, 5 The natural rate of unemployment fer to entrepreneurs. By marshalling these Napoleon Bonaparte. The ruler would productive forces, entrepreneurs can 6 Overlapping generations have paid him handsomelyto write in sup- create a new item ofvalue, forwhich other port ofhis policies. But ratherthan “deliver equally valuable items can then be ex- orations in favour of the usurper”, Say de- litical Economy”, a graceful exposition changed. It is in this sense that production cided instead to build a cotton mill, spin- (and extension) ofSmith’s economic ideas. creates a market forother products. ning yarn not policy. In Say’s time, as nowadays, the world In the course of making his merchan- Napoleon was right to value (and fear) economy combined strong technological dise, a producerwill paywagesto his work- Say’s pen. As a pamphleteer, editor, schol- progress with fitful demand, spurts of in- ers, rentto hislandlord, interestto hiscredi- ar and adviser, he was a passionate advo- novation with bouts of austerity. In France tors, the bills of his suppliers and any cate for free speech, trade and markets. He output of yarn grew by 125% from 1806 to residual profits to himself. These payments had imbibed liberal principles from his 1808, when Say was starting his factory. In will at least equal the amount the entrepre- heavily annotated copy of Adam Smith’s Britain the Luddites broke stocking frames neur can get for selling his product. The “The Wealth OfNations” and bolstered his to stop machines taking their jobs. payments will therefore add as much to patriotic credentials in battle against Prus- On the other hand, global demand was spendable income as the recipients’ joint sian invaders. (During breaks in the fight- damaged by failed ventures in South enterprise has added to supply. ing, he discussed literature and political America and debilitated by the eventual That supply creates demand in this way economy with other learned volunteers downfall of Napoleon. In Britain govern- may be easy enough to grasp. But in what “almost within cannonballs’ reach”.) ment spending was cut by 40% after the sense does supply create its “own” de- His greatest work was “A Treatise on Po- Battle of Waterloo in 1815. Some 300,000 mand? The epigram seems to suggest that a1 The Economist August 12th 2017 Economics brief 55

2 coal plant could buy its own coal—like a possible. In a free market, he thought, shoe vides no stimulus to production (except subsistence farmer eating the food he prices would quickly fall and hat prices perhaps the mining of precious metals un- grows. In fact, of course, most producers rise. This would encourage shoe consump- der a gold or silver standard). And if, as he sell to, and buy from, someone else. tion and hat production, even as it discour- had argued, an oversupply of some com- But what is true at the micro level is not aged the consumption of hats and produc- modities is offset by an undersupply of true at the macro level. At the macro level, tion ofshoes. Asa result, both cobblers and others, then by the same logic, an under- there is no someone else. The economy is hatters might sell $90 of their good, allow- supply of money might indeed entail an an integrated whole. What it purchases ing the economy to reach its $180 potential. oversupply ofeverything else. and distributes among its members are the In short: what the economy required was a Say recognised this as a theoretical dan- self-same goods and services those mem- change in the mix of GDP, not a reduction ger, but not a practical one. He did not be- bers have jointly produced. At this level of in its level. Or as one intellectual ally put it, lieve that anyone would hold money for aggregation, the economy is in fact not that “production is not excessive, but merely ill- long. Say’s own father had been bankrupt- different from the subsistence farmer. assorted”. ed by the collapse of assignats, paper mon- What it produces, what it earns, and what Supply gives people the ability to buy ey issued after the French Revolution. Far it buys is all the same, a “harvest” of goods the economy’s output. But what ensures from hoarding this depreciating asset, peo- and services, better known as gross do- their willingness to do so? According to the ple were in such a rush to spend it, that mestic product. logic of Say and his allies, people would “one might have supposed it burnt the fin- not bother to produce anything unless gers it passed through.” From head to foot they intended to do something with the In principle, if people want to hold How then did Say explain the woes of his proceeds. Why sufferthe inconvenience of more money, a simple solution suggests it- age, the stuffed warehouses, clogged ports providing $100-worth of labour, unless self: print more. In today’s world, unlike and choked markets? He understood that something ofequal value was sought in re- Say’s, central banks can create more mon- an economy might oversupply some com- turn? Even if people chose to save not con- ey (or ease the terms on which it is obtain- modities, if not all. That could cause se- sume the proceeds, Say was sure this sav- able) at their own discretion. This should vere, if temporary, distress to anyone ining would translate faithfully into allow them to accommodate the desire to volved in the hypertrophied industries. investmentin newcapital, like hisown cot- hoard money, while leaving enough left But he argued that for every good that is ton factory. And that kind of investment, over to buy whatever goods and services too abundant, there must be another that Say knew all too well, was a voracious the economy is capable of producing. But is too scarce. The labour, capital and other source ofdemand formen and materials. in practice, even this solution appears to resources devoted to oversupplying one But what if the sought-after thing was have limits, judging by the disappointing market must have been denied to another $100 itself? Whatifpeople produced goods results of monetary expansions since the more valuable channel ofindustry, leaving to obtain money, not merely as a transac- financial crisis of2007-08. it under-resourced. tional device to be swiftly exchanged for Subsequent economists have tried to other things, but as a store of value, to be Say it ain’t so make sense of Say’s law in the following held indefinitely? A widespread propensi- Today, many people scoffat Say’s law even way. Imagine an economy that consists ty to hoard money posed a problem for before they have fully appreciated it. That only of shoes and hats. The cobblers in- Say’s vision. It interrupted the exchange of is a pity. He was wrong to say that econ- tend to sell $100-worth of shoes in order to goodsforgoodson which histheoryrelied. omy-wide shortfalls of demand do not buy the equivalent amount of hats. The Unlike the purchase of newly created pro- happen. But he was right to suggest that hatters intend to sell wares worth $80 so as ducts, the accumulation of money pro- they should not happen. Contrary to pop- to spend the same sum at the cobbler’s. ular belief, they serve no salutary eco- Each plan is internally consistent (planned nomic purpose. There is instead some- spendingmatches revenue). Added togeth- thing perverse about an economy er, they imply $180 of sales and an equal impoverished by lack of spending. It is like amount ofpurchases. a subsistence farmer leaving his field un- Sadly, the two plans are mutually in- tilled and his belly unfilled, farming less consistent. In the shoe market the produc- than he’d like even as he eats less than he’d ers plan to sell more than the consumers choose. When Say’slawfailsto hold, work- will buy. In the hat market the opposite is ers lack jobs because firms lack customers, the case. A journalist, attentive to the woes and firms lack customers because workers of the shoe industry, might bemoan the lack jobs. economy’s egregious overcapacity and Say himself faced both a ruinous short- look askance at its $180 GDP target. Cob- age ofdemand forhiscotton and excess de- blers, he would conclude, must grasp the mand for his treatise. The first edition sold nettle and cut production to $80. out quickly; Napoleon blocked the publi- The journalist might not notice that the cation of a second. Eventually, Say was hat market is also out ofwhack, in an equal able to adapt, remixing his activities as his and opposite way. Hat-buyers plan to pur- own theory would prescribe. He quit his chase $100 from producerswho plan to sell cotton mill in 1812, notes Mr Schoorl. And only $80. Unfortunately, this excess de- within weeks of Napoleon’s exile in 1814, mand for hats cannot easily express itself. he printed a second edition of his treatise If cobblers can only sell $80 of shoes, they (there would be six in all). In 1820 he began will only be able to buy the equivalent work once again at the Conservatory in amountofhats. No one will see howmany Paris—not this time as a student of spin- hats they would have bought had their ning, but as France’s first professor of eco- more ambitious sales plans been fulfilled. nomics, instructingstudents in the produc- The economy will settle at a GDP of $160, tion, distribution and consumption of $20 below its potential. wealth. He considered it a “new and beau- Say believed a happier outcome was tiful science”. And, in his hands, it was. 7 56 Finance and economics The Economist August 12th 2017

Also in this section 57 Buttonwood: Markets and politics 58 Money-laundering in Australia 58 Resource-rich economies 59 American infrastructure investment 59 Risky sovereign bonds 60 Football ﬁnance Free exchange is away

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

The Fed’s next chair praise for her record can be overdone. She has not been tested by many economic Rate race shocks. And the inflation shortfall—underlying inflation, currently 1.5%, has not hit the Fed’s 2% target during her tenure—was not entirely unforeseen. Larry Summers, the former treasury secretary whom she WASHINGTON, DC beat to the job, has been relentlessly advo- cating looser monetary policy to stoke Who will be the next head ofthe Federal Reserve? more inflation. Ironically, Ms Yellen’smain OOK only at unemployment and infla- ous chief to have been similarly unquali- charm forMr Trump seems to be that she is Ltion, says Peter Conti-Brown, a histori- fied was William Miller, who spent an un- “a low-interest-rate person”. In truth, she an of the Federal Reserve, and Janet Yellen happy year and a half in 1978 and 1979 relies on the unemployment rate to guide is the Fed’s most successful boss ofall time. presiding over low growth and soaring in- her. While it was too high, she was do- The second indicator may be below target, flation. A happier comparison is to Mar- veish. Now it is just 4.3%, she seems com- but that is a blip compared with the reces- riner Eccles, chairman from 1934 to 1948. paratively hawkish. sions most Fed chairmen have endured. So Like Mr Cohn—and unlike Miller—Eccles it is perhaps not surprising that President had been a successful financier. Also like The Cohn unknowns Donald Trump is openly considering re- Mr Cohn, he was close to the president The interest-rate opinions of the favourite taining Ms Yellen, a Democrat installed by who appointed him, Franklin Roosevelt. to succeed her are less clear. Mr Cohn Barack Obama, after her term ends in Feb- And his lack of economics training did not thinks that monetary policy is a global en- ruary 2018. Nor by historical standards is it stop him from backing Keynesian stimulus deavour, and that central banks may have odd: the Fed’s past three leaders were all re- after the Depression, even before Keynes been playing beggar-thy-neighbour. In appointed by presidents from the other himself had published “The General The- March 2016 he told a conference that if ev- party. Yet Ms Yellen, whom Mr Trump criti- ory”. Eccles made such a mark that the ery central bank suddenly raised interest cised on the campaign trail, is not the lead- Fed’s headquarters are named afterhim. rates by three percentage points, “the ing candidate. PredictIt, a betting site, gives Mr Cohn might find the Eccles building world would be a better place”. Yet he also her a 28% chance of staying put. In front of staid. It lacks the day-to-day energy of the said he was not sure Ms Yellen had been her, with a 36% chance of appointment, is White House orTreasury, letalone the buzz right to raise rates three months earlier. someone else Mr Trump ispublicly weigh- of the trading floor. Inside, staff quietly di- And he criticised the Fed’s recent forward ing up: Gary Cohn (on the left above). gest vast quantities of economic research guidance as confusing for the markets. He Mr Cohn was until January the chief to prepare for less-than-monthly monet- said it should worry more about what it operating officer and president of Gold- ary-policy decisions. Some wonder if Mr does than what it says. man Sachs. He left that role to become the Cohn has an appetite for the minute analy- The Fed is not only responsible for president’s senior economic adviser. A sis which, unlike the practice in most orga- monetary policy. It is also the biggest regu- domineering personality, he has amassed nisations, is carried out even by the Fed’s lator of banks. Here Mr Cohn is more in influence in the administration, outshin- leaders. The chairman can, of course, lean sync with Mr Trump’s deregulatory agen- ing Peter Navarro, Mr Trump’strade econo- on his staff. But one of Miller’s problems, da. However, that may not matter much. mist. Mr Cohn is often said to lead a “glo- says Mr Conti-Brown, was that he lost the The president recently nominated Randal balist” faction within the White House, respect ofhis better-trained colleagues. Quarles, anothercriticofrecentregulation, against protectionists like Mr Navarro and The Fed’schairman hasto be confirmed to be vice-chairman forsupervision, a post Steve Bannon, another adviser. by the Senate, and some doubt whether it left empty since it was created in 2010 He would, however, make an unusual would accept MrCohn. Despite the Repub- (though in practice the job was done by Fed chairman. He has no background in licans’ control of the chamber, Ms Yellen, Daniel Tarullo, who left the Fed in April). economics, even as a student. The previ- given herrecord, may be a surerbet. Yet the Whoever heads the Fed, Mr Quarles will 1 The Economist August 12th 2017 Finance and economics 57

2 probably take the lead on regulation. doubt Mr Taylor’s braininess. But he did omist who is a Republican and yet tends to- Other candidates are in the frame. Ke- not leave much of a mark on Washington wards Ms Yellen’s views on interest rates. vin Warsh (pictured on the right), a former during previous stints there, most recently Even such a conservative dove might banker who was a Fed policymaker from at the Treasury during George W. Bush’s shake up the Fed. Republicans have long 2006 to 2011, appears to be manoeuvring first presidential term. So he may lack the complained about its $1.8trn portfolio of for the job. Republicans in Congress may political nous the job demands. In any mortgage-backed securities, a result of QE. favour John Taylor (in glasses), a Stanford case, Mr Warsh and Mr Taylor may well The central bank hopes to start unwinding academic who devised a mathematical both be too hawkish for Mr Trump. After QE soon, but its current plans would leave rule that describes central banks’ actions the financial crisis, both opposed the Fed’s some mortgage-backed securities on its and, like many Republicans, wants the Fed quantitative easing (QE)—ie, purchases of balance-sheet for more than a decade. A to follow such an algorithm. securities using newly created money— Republican chairman might make his The two outsiders have contrasting warning of a surge in inflation. In fact, in- mark by offloading these securities faster. skills. Mr Warsh is a smooth-talking politi- flation has mostly been too low since then. But given the stability of Ms Yellen’s ten- cian who may lack the intellectual fire- No names spring to mind, but Mr ure, markets could be forgiven for wanting power of past Fed chairs. Nobody can Trump still has time to find a trained econ- as few changes as possible. 7 Buttonwood Not as smart as they think

Investors rarely make the best political analysts INANCIAL markets are supposed to be 0.3% in the first quarter and just over 0.6% nology, which tends to benefit from glo- Fthe font of all wisdom, weighing up in the second; the more recent figure is not bal, rather than purely domestic, growth. the information available and condens- bad, but only in line with the euro zone’s The yield on the ten-yearTreasurybond is ing it into a set of prices. Investors are pre- growth in the same period. In June the IMF lowerthan it was at the start ofthe year—a sumed to have an insight into the future— trimmed its forecast for American growth sign that hopes of faster growth have falling bond yields are seen as a sign that in 2017 to 2.1%, and predicted the same fig- cooled. In short, the stockmarket may be the economy is slowing, forexample. ure for2018. up, but not for the reasons that investors But are investors that clever when it The result is that the dollarhas been los- had expected. comes to politics? Gambling markets ingground againstthe euro formuch of the Furthermore, it seemed even at the show how they assess political risk. They year, and is now lower than before Mr start ofthe year that investors were naive- expected the Remain campaign to win Trump took office. That is not just because ly optimistic about the administration’s the Brexitreferendum and HillaryClinton of events in America, of course: the euro agenda. As a candidate, Mr Trump did not to become America’s president, and were zone has seen growth pick up and political have a very detailed economic plan, nor proved wrong. Indeed, on Brexit, the risk decline since Emmanuel Macron was the range of high-powered advisers that mass of gamblers (the general public, in elected president ofFrance. most nominees tend to accumulate. As other words) backed Leave, but the odds This currency shift puts the stockmark- well as promising to cut taxes, he also were skewed by some wealthy punters et rally in context. In dollar terms, euro- threatened to introduce protectionist who favoured Remain. Those rich gam- zone equities have easily outperformed policies directed against Mexico, China blers were probably people who trade in Wall Street this year. Or, to put it another and other countries. If those policies had financial markets; the plunge in the way,in euro terms American equities have been pushed through (and they may still pound after the result suggests that most fallen(see chart). be), the stockmarket would have taken a investors were caught on the hop. American investors won’t mind about severe hit. Before the presidential election, most that; they are still enjoying strong gains. It may be that, when it comes to poli- people on Wall Street to whom Button- But some ofthose returns are the result ofa tics, wishful thinking plays a large part for wood spoke thoughtthata victoryforDo- weakercurrency,whichmeansthatthefor- investors. Brexit creates risks for financial naldTrumpwouldbebadforthemarkets. eign earnings of multinationals are worth companies that are based in London, so it But as the results came in, there was a sud- more in dollars. And the strongest-per- was tempting for those involved to think den change of tone and both the dollar forming sector of the year has been tech- that it would not happen. The Republican and equities rallied. agenda promised tax cuts for the better- With the American stockmarket re- off in America, as well as financial dereg- peatedly reaching new highs (as Mr Devaluation blues ulation. Both would be good news for the Trumpisfondofpointingout),itmay look January 1st 2017=100 denizens ofWallStreet, so it is not surpris- as if this post-election mood change was ing that they hoped their dreams would 115 come true. prescient. But not really. The rationale for S&P 500 the “Trump bump” was that the adminis- 110 But it is a mistake to think that investors know something about politics that tration would quickly pass a stimulus 105 package in the form of tax cuts and infra- everyone else does not. Before elections, structure spending. Thiswould cause eco- 100 they must simply rely on the opinion S&P 500, € terms nomic growth to accelerate (good for eq- 95 polls. And analysing corporate balance- uities); in turn, this would prompt the € per $ sheets is a lot easier than making sense of Federal Reserve to push up interest rates 90 the policy pronouncements of elected of- (good forthe dollar). 85 ficials—especially when a leader is as un- But the stimulus plan has yet to be put Jan Feb Mar Apr May Jun Jul Aug predictable as Mr Trump. in place, and is nowhere near passing 2017 Source: Thomson Reuters Congress. American GDP grew by around Economist.com/blogs/buttonwood 58 Finance and economics The Economist August 12th 2017

Dutch disease The Nigerian complaint

Resource riches stunt banks as well as pushing up exchange rates N1959 geologists discovered 2.8trn Investing in and lending to the commod- Icubic metres ofnatural gas—the largest ity sector became so seductive that loans field in Europe—under the city ofGro- to the private sector as a share of GDP, ningen in the Netherlands. Cheap gas bankdeposits and liquidity ratios all fell. and free-spending energy firms were This story,ofbanks starving other thought to be good news forthe entire industries ofcredit during commodity Dutch economy.But higher gas-export booms, as well as in downturns, is sur- prices in the1970s raised the value ofthe prisingly common, says MontfortMla- guilder by a sixth, hitting the competitive- chila, one ofthe papers’ authors. Nigeria ness ofDutch manufacturing and ser- is an example. An oil-price dip in1998 vices. In1977 The Economist dubbed this forced 28 banks to close. Another in 2009 economic curse “Dutch disease”. caused a furtherten to collapse. Low Other resource-rich countries have prices since 2014 mean Nigeria today tried to avoid this trap. Some have adopt- again risks a banking crisis. ed fixed exchange rates to prevent their This discovery may also help explain currencies appreciating. Others save economic underdevelopment. History capital inflows in sovereign-wealth funds shows that banking crises—which starve Banking in Australia to avoid distorting their economies. Yet firms ofcredit in their aftermath—result many still have underdeveloped non- in deeper recessions, with much slower Cuckoo in the nest commodity sectors. And despite having growth after they end, than other types plenty ofcash to invest, banks are partic- ofslump. So strengthening financial ularly affected. stability should aid economic growth. Two recent IMF papers point to a new The second paper finds that democ- SYDNEY explanation ofwhy commodity export- racies receive a smaller hit from com- ers have such stunted banks. The pro- modity shocks than other regimes. May- A big lenderis accused ofletting its blem, they find, is less the commodity be they are better at curbing corruption, deposit machines serve as laundromats income itselfthan the sudden changes in which can skew lending even more HEN the Commonwealth Bank of it. The first paper* looks at data on trade towards the commodity sector. But build- WAustralia on August 9th reported its and financial stability for71commodity ing democracy takes time. It may be profit for the year to June—above forecasts exporters between1997 and 2013. It finds easier to use macroprudential policies to and just shy of A$10bn ($7.9bn)—it faced a very strong relationship between nega- rein in overlending to the commodities questions about cashflows ofanother sort. tive commodity-price shocks and signs of sector during the boom years. That les- Six days earlier the Australian Transaction financial fragility that increase the likeli- son applies to developing economies as Reports and Analysis Centre (AUSTRAC), a hood ofsevere banking crises. well as advanced ones. regulator charged with gathering financial A new paper** extends this idea. It ...... intelligence to combat money-laundering takes data for68 developing countries * T. Kinda, M. Mlachila and R. Ouedraogo, “Commodity and terrorism, had launched proceedings between1980 and 2014 and finds, strik- Price Shocks and Financial Sector Fragility”, IMF against it for “serious and systemic non- ingly,that banklending was crimped not Working Paper No. 16/12 (February 2016). ** M. Mlachila and R. Ouedraogo, “Financial compliance”. Citing “collective responsi- only during sudden fallsin commodity Development Resource Curse in Resource-Rich bility” forthe bank’s reputation, Catherine prices, but also during sudden rises. Countries”, IMF Working Paper No. 17/163 (July 2017). Livingstone, its chairwoman, has announced cuts to bonuses for Ian Narev,the chiefexecutive, and others. ceived A$1bn in cash deposits. The regula- ulator says some CommBank accounts Founded 106 years ago, CommBank, as tor says the bank took no steps to assess were used for“cuckoo smurfing”, a form of it is known, is one of Australia’s biggest money-laundering and terrorism-financ- launderingmoney from one country to an- banks. AUSTRAC traces its case to 2012, ing risks from this deposit system until other without sending it across a border. It when the bank started installing “intelli- mid-2015, three years after it started. said the bank’s conduct exposed Australia gent deposit machines”. They accept cash, The Anti-Money Laundering and to “serious and ongoing financial crime”. let depositors stay anonymous and allow Counter-Terrorism Financing Act obliges Mr Narev admits CommBank made money to be switched to other accounts in banks to report cash transactions above “mistakes”. The bank blames these on a Australia and overseas straight away. A$10,000 made through their machines software “coding error” linked to its ma- CommBank sets a ceiling of A$20,000 per within ten days. AUSTRAC claims Comm- chines and says it has complied with its re- transaction through the machines, but no Bank failed to do so for about 53,500 suspi- porting obligations since late 2015. Each of limit on the number of daily transactions. cious transactions valued in total at the 53,500 alleged contraventions could at- Australia’s otherthree bigbanks—Westpac, A$625m. Some were linked to money- tract a fine of A$18m, leading to a theoreti- Australia and New Zealand Bank and Na- laundering groups under investigation by cal total of nearly A$1trn. But the bank sug- tional Australia Bank—limit single transac- the police; a few even involved customers gests they could all stem from the same tions through their machines to about a CommBankitselfsaw as potential risks for cause, the one coding error, so the fine quarter of that value. terrorism financing. might not be catastrophic. It is preparing a Shiftingmoneyaround thiswayhas be- Deposits of A$27m into one account defence statement forthe Federal Court. come increasingly popular—in some came from a drug syndicate, three mem- Many Australians resent bigger banks, months CommBank’s machines have re- bers of which have been charged. The reg- believing that they put profits before cus-1 The Economist August 12th 2017 Finance and economics 59

2 tomer service. Three years ago, a parlia- Risky sovereign bonds mentary committee criticised CommBank Tourist trap after revelations that some of its advisers Still crazy after Ten-year government-bond yields, % had steered people into investments that 10 soured. Malcolm Turnbull’s conservative falling yields Frontier sovereigns* government has resisted calls from the La- 8 bor opposition for a royal-commission in- 6 quiry into banks. Instead, in its latest bud- The reach foryield becomes quite a Emerging market† get it imposed a levy on Australia’s five 4 stretch biggest, to raise about A$1.5bn a year. 2 The CommBankdrama will only aggra- HERE can you find a 7% interest rate vate public exasperation with banks. Scott Won a sovereign dollar-bond? You 0 Morrison, the treasurer, has warned Ms would have to take a time-machine to the 2012 13 14 15 16 17 Livingstone that the governmentwill “con- mid-1990sto find such a yield on a ten-year Source: Exotix *Unweighted basket of B-rated sovereigns Capital †EMBI spread plus US ten-year bond yield sider all options”, without naming them. American Treasury. Alternatively, you Anna Bligh of the Australian Bankers’ As- could slip back a few days to August 2nd sociation, a trade body, hopes that the and bid forthe $1bn offive-year bonds sold from a country still reeling from a civil war CommBank affair will be a lesson “for the by the government of Iraq. The yield was shows just how far bond investors will entire financial industry”. Even Mr Narev expected to be 7%, but it was trimmed to now go to get a decent yield. Oversub- concedes banks are “not exactly drawing 6.75% once orders rose above $6bn. scribed issues for risky sovereign bonds on a deep reservoir ofpublic goodwill”. 7 Such eagerness for hard-currency debt have become almostnormal. The Iraqi sale came just a week after Greece (whose pri- vately held debt was partly written off in American infrastructure investment 2012) raised €3bn ($3.5bn) in its first bond sale for three years. In June Argentina was Idle shovels inundated with bids for its 100-year euro- NEW YORK bond, as dollar-denominated bonds are known. Sceptics noted that Argentina had Plans fora spending surge get offto a slow start defaulted on itsdebts sixtimes in the previ- T IS not a number to tweet about. Presi- Blackstone, a private-equity firm, an- ous century, with the most recent such up- Ident Donald Trump plans to plough nounced with much fanfare a new $40bn set in 2014. Egypt, Ivory Coast, Nigeria and $1trn ofspending into America’s crum- fund forAmerican infrastructure, with a Senegal have also placed big eurobond is- bling infrastructure. And a dearth of $20bn investment from one ofSaudi sues this year. None enjoys a credit-rating capital is not a problem: investors are Arabia’s sovereign-wealth funds. that approaches investment grade, though keen on such assets. But investment Yet the obstacles to investment in the eurobond market is familiar with seems to be falling. American infrastructure, particularly for many of them. Ivory Coast, for instance, is- Government infrastructure spending private capital, remain daunting. Plan- sued a bond in 2010 in lieuofunpaid debts. in the second quarter fell to 1.4% ofGDP, ning procedures are arduous. Many It proceeded to miss an interest payment the lowest share on record (see chart). decisions are taken at state or local level the following year. According to Thomson Reuters, invest- by transport agencies that remain, in one Bond investors are ready to forgive such ment by American municipalities in the investor’s words, “great bastions ofpoliti- slip-ups. They do not have much choice. first seven months ofthis year, at $50.7bn, cal patronage”. Private ownership of The yield on ten-year Treasuries is 2.26%, was nearly 20% below the same period in certain types ofinfrastructure still en- not much more than inflation in America. 2016. Private-sector infrastructure funds counters resistance. Many European Abasket ofhigh-yield corporate (or“junk”) show a similar trend, according to Preqin, airports are now private, forexample, bonds pays less than 6%. Yet despite a long another data provider: deal volume in whereas American ones are public. So period of low short-term interest rates in the first halfof2017 fell by 7.5%, year on American private-sector investment America, inflation is still quiescent. So the year, to $36.6bn; the number ofdeals fell hoversatameagre$100bnorsoayear, Federal Reserve seems unlikely to raise in- by a quarter. around four-fifths ofit in energy. terest rates much further. “Investors have Not long ago optimists were expecting The recent downward trend in both concluded that we’re not going to get an infrastructure-spending boom. In May public and private investment suggests meaningfully higher yields on safe assets,” the administration’s lackofaction has saysDavid Riley, ofBlueBayAssetManage- had an additional cooling effect. Anton ment. In this context, lowly-rated sover- Unreconstructed Pil ofJ.P.Morgan points out that most eign eurobonds can look appealing. In- United States, public-construction spending large infrastructure projects in America deed the weight of money has driven the As % of GDP need at least some federal funding to average yield on such “frontier-market” 2.5 succeed. Unless the federal government bonds below 7%, according to Stuart Cul- leads the way,there is unlikely to be verhouse, ofExotix, a broker (see chart). 2.0 much new activity. The appetite for ever-riskier bets recalls Even ifthe administration does set an the recklessness that led up to the financial 1.5 example, a furtherdifficulty is the short- crisis, which began a decade ago this week. 1.0 age ofinvestable projects, particularly What is different, though, is the absence of big-ticket ones. Mr Pil’s team has been euphoria. Few seem to want to cheer the 0.5 making deals as small as $100m, for rally in risky eurobonds. But nor do they instance in small solar farms; large-deal want to bet against it. 0 opportunities remain rare, he says. It is A common complaint is that rich-world 1993 2000 05 10 15 17 easier, it seems, to raise money to invest central banks are to blame—for keeping Source: US Census Bureau in infrastructure than to spend it. rates too low and for studiously avoiding any action orstatement that might unsettle1 60 Finance and economics The Economist August 12th 2017

2 the markets (and make investors more est in their bailiwick from crossover (non- signing of Neymar is a message that the jumpy). Other culprits include low-cost specialist) investors, also known as “tour- otherwise embattled country remains “passive” fund managers and exchange- ists”, who are likelier to misjudge the odds strong and rich. The danger is to PSG, since traded funds, which track a basket of gov- of a default. And the reach for yield could under “financial fair play” rules, teams are ernment bonds, such as J.P. Morgan’s always be stretched even further to local- punished if they fail to limit their losses. In emerging-market bond index, known as currency bond markets, which are less liq- 2014 the club was fined for violating these. the EMBI. Such indices are also a yardstick uid and a lot more volatile. Another failure to balance the books could for the performance of many “active” Take Ghana, once a darling of frontier mean a ban from the Champions League. funds, ie, those with discretion over what investors, as an example. It is back in fa- Such spending caps irkbillionaire own- sort of bonds to buy and how much of vour, as its newish government gets to ers, but they have helped prevent the infla- them to hold. The growing influence of grips with public finances. Yvette Babb, of tion of a transfer-fee bubble. The rapid rise passive funds makes active investors less J.P.Morgan, calculates that 37% of the stock isa resultofEuropean football’sexpanding willing to eschew a eurobond issue that of Ghana’s public debt is already held by fan base. In the English Premier League, qualifies for the indices, however un- foreigners. The effective interest rate it pays football’s richest, average net spending on sound, forfear ofunderperforming. on domestic debt is around 16%. The players per club has stayed roughly con- It is easy to suspect that this episode, weight of long-term investors is “substan- stant, hovering at around 15% of revenue like so many before it, will end badly, but tial”, she says, so the risks of a knee-jerk since the1990s, accordingto the 21st Club, a hard to know exactly when or how. Fron- sell-off are low. But how long before such football consultancy. tier-market specialists sense a greater inter- high yields lure in the tourists? 7 As long as clubs’ revenues keep growing, the transfer boom is likely to persist. Broadcasting revenue, the game’s first big Football finance injection of cash in the 1990s, has become, in the internet era, the weakest link. British Shooting stars television audiences for live games have dipped as some fans opt for illegal streaming sites or free highlights. Zach Fuller, a media analyst, reckons that signing a sponsorship magnet like Neymar is a hedge against volatility in that market. Audiences are more robust elsewhere: Why the world’s best footballers are cheaperthan they seem around 100m Chinese viewers tune into OR football clubs, August is often the fenders outstrips 47 countries’ defence the biggest games. Manchester United are Fcostliest month, when they make vast budgets. Arsène Wenger, a veteran manag- the most popular team on Chinese social bids for each other’s players. This year has er of Arsenal, a London team, and an eco- media, despite qualifying for the Champi- been particularly lavish. On August 3rd nomics graduate, describes the modern ons League only twice in the past four sea- Paris Saint-Germain (PSG), a French team, transfer market as “beyond calculation sons. They have overtaken Real Madrid, signed Neymar da Silva Santos Júnior, a and beyond rationality”. who have won the trophy three times in Brazilian forward, from Barcelona for Neymar, as he is known, will cost PSG’s the same period, as the world’s most €222m ($264m), more than double the pre- owners, a branch of Qatar’s sovereign- prosperous club. If Neymar unlocks new vious record price fora footballer. wealth fund, about €500m over five years. markets as well as defences, then PSG may With three weeks of the transfer “win- In the betting markets, his arrival has have backed a winner. 7 dow” left, teams in Europe’s “big five” boosted PSG’s implied chances ofwinning leagues—the top divisions in England, the Champions League, Europe’s most cov- Spain, Germany, Italy and France—have eted club competition—but only from paid €3.2bn, just short of the record of around 5.5% to about 9%. And prize money €3.4bn set last year. The €179msplurged by and ticket sales alone struggle to generate Manchester City, an English club, on de- enough revenue to recoup such an outlay. That does not make Neymar a bad investment. The goals he scores may matter Transfer pricing less than the gloss he lends to the club’s European football, % of buying club’s revenue brand and the sponsors he will lure. He from following season spent earns more from endorsements than any Transfer fee, €m on transfer fee* footballer except Cristiano Ronaldo and 0 1020304050 Lionel Messi. Some 59% of PSG’s revenue Zinedine Zidane Real Madrid 78 of €520m last year was commercial (ie, Luís Figo Real Madrid 62 other than ticket sales and broadcasting fees), more than any other club in the big Neymar † 222 Paris Saint-Germain five leagues. Neymar has more followers Radamel Falcao AS Monaco 60 on Instagram, a social network, than does Gonzalo Higuaín Juventus† 90 Nike, his main sponsor and the provider of PSG’s kit, for which privilege it pays €24m Cristiano Ronaldo Real Madrid 94 a year. Neymar’s popularity will help PSG Paul Pogba Man. Utd† 105 when this deal is renegotiated. Nike has al- Álvaro Morata Chelsea† 65 ready agreed to pay Barcelona €155m a sea- Ángel Di María Man. Utd 76 son from 2018. PSG’s owners are confident of breaking 74 Kevin De Bruyne Man. City even, though they could afford a loss. Qa- *Transfers over €60m at Aug 9th 2017, excluding add-ons † tar has been spending €420m a week pre- Source: Company reports Latest revenue (2016) paring for the 2022 World Cup, and the A head for figures Property 61

The Economist August 12th 2017 PURE BRAINPOWER

Home to the largest concentration of engineering and industrial design talent in the nation, PlanetM conductsmorethan75%ofallU.S.automotiveR&D.Andthoseeffortshaveresultedinthreetimesthe numberofautomotivepatentsandmorenavigationandsmartmobilitypatentsthananyotherstate. When it comes to leading the way in innovation, only one state is perfectly positioned in mobility. Michigan. To learn more, go to michiganbusiness.org/planetm Science and technology The Economist August 12th 2017 63

Also in this section 64 Gene editing and transplants 65 New materials for hypersonic travel

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

Nuclear energy its ballast tanks. And, when a station came to the end of its useful life, it could be Putting to sea towed to a specialist facility to be disman- tled safely, rather than requiring yet another lot ofcivil engineers to demolish it. Naval Group has not, as yet, attracted any customers for its designs. But a slightly less ambitious approach to marine reac- Atomic powerstations that float on the ocean orare anchored beneath it may have tors—anchoring them on the surface rather advantages overthose built on land than below it—is about to come to fruition FTER the events of March 11th 2011, would be tsunami-proof, too. Though tsu- in Russia. The first such, Akademik Lomo- Awhen an earthquake and tsunami led namis become great and destructive nosov, is under construction at the Baltic to a meltdown of three nuclear reactors at waves when they arrive in shallow water, Shipyard, in St Petersburg (see picture). Ac- the Fukushima Dai-ichi power plant in Ja- in the open ocean they are mere ripples. In- cordingto AndreyBukhovtsev ofRosatom, pan, you might be forgiven for concluding deed, were it deep enough (100 metres or the agency that runs Russia’s civil nuclear that atomic powerand seawaterdon’t mix. so), such a submarine reactor would not programme, it is 96% complete. It will be Many engineers, though, do not agree. even be affected by passing storms. launched later this year, towed to Mur- They would like to see more seawater in- mansk, and thence transported to Pevek, a volved, not less. In fact, they have plans to Waterpower port in Russia’s Far East, where it will begin site nuclear power plants in the ocean rath- All these reasons, observes Jacques Ché- generating power in 2019. er than on land—either floating on the sur- nais, an engineer at France’s atomic-ener- Akademik Lomonosov consists of two face or moored beneath it. gy commission, CEA, make underwater 35MW reactors mounted on a barge. The At first, this sounds a mad idea. It is not. nuclear power stations an idea worth in- reactors are modified versions of those Land-based power stations are bespoke vestigating. Dr Chénais is head of small reused to power Taymyr-class icebreakers. structures, built by the techniques of civil actors at CEA, and hashad experience with As such, they are designed to be able to engineering, in which each is slightly dif- one well-established type of underwater take quite a battering, so the storms of the ferent and teams of specialists come and reactor—that which powers submarines. Arctic Ocean should not trouble them. To go according to the phase of the project. He and his team are now assisting Naval add to their safety, the barge bearing them Marine stations, by contrast, could be Group, a French military contractor, to de- will be moored, about 200 metres from mass-produced in factories using, ifnot the sign reactors that will stay put instead of shore, behind a storm-and-tsunami-resis- techniques of the assembly line, then at movingaround on a boat. The plan isto en- tant breakwater. least those ofthe shipyard, with crews con- case a reactor and an electricity-generating Altogether, Akademik Lomonosov will stantly employed. steam turbine in a steel cylinder the length cost $480m to build and install—far less That would make power stations at sea of a football pitch and with a weight of than would have to be spent constructing cheaper than those on land. Jacopo Buon- around 12,000 tonnes. an equivalent power station on land in giorno, a nuclear engineer at the Massa- The whole system, dubbed Flexblue, such a remote and hostile environment. chusetts Institute of Technology, reckons would be anchored to the seabed between And, on the presumption that the whole that, when all is done and dusted, electric- five and 15km from the coast—far enough thing will work, plans fora second, similar ity from a marine station would cost at forsafety in case ofan emergency, but near plant are being laid. least a third less than that from a terrestrial enough to be serviced easily. The electric- Nor is Russia alone in planning floating equivalent. It would also make them safer. ity generated (up to 250 megawatts, reactors. China has similar ambitions— A reactor anchored on the seabed would enough for1m people) would be transmit- though the destinations ofthe devices con- neverlackemergencycooling, the problem ted ashore by an undersea cable. For refu- cerned are more controversial than those thatcaused the Fukushima meltdown. Nor elling and maintenance unmanageable of Russia’s. Specifically, the Chinese gov- would it need to be protected against the from a submarine, the cylinder would be ernment intends, during the 2020s, to risk of terrorists flying an aircraft into it. It floated to the surface with air injected into build up to 20 floating nuclear plants, with 1 64 Science and technology The Economist August 12th 2017

2 reactors as powerful as 200MW, to supply Genetic engineering and transplantation rated into an animal’s genome and is then artificial islands it is building as part of its passed down the generations along with plan to enforce the country’s claim to Cracking down on the rest of its DNA. Crucially, such viruses much of the South China Sea—a claim dis- retain the power to break out and become puted by every other country in the area. PERVs independent, infective agents once again. The firms involved in this project in- Moreover, experiments using cell cultures tend to tsunami-proof some of their reac- show endogenous retroviruses can spread tors in the same way as the French, by sta- in this way from the cells of one species to CRISPR-Cas9 gene editing may make tioning them in water too deep for massive those of another, infecting them with dis- pigs into organ donors forpeople tsunami wavesto form.Because theyare at ease. In particular, those experiments sug- the surface, though, thatwill notsave them EEPdeath offthe road”, a Ministryof gest that porcine endogenous retroviruses from storms—and locating them far from “KTransport slogan once enjoined the (abbreviated, perhaps unfortunately, to shore means the Russian approach of people ofBritain. And itworked. Both driv- “PERVs”) can spread to human cells. building sheltering breakwaters will not ing and being a pedestrian have become Whether PERVs can leap from a trans- work either. That matters. Typhoons in the far safer over the past few decades in Brit- planted organ to the cells of that organ’s South China Sea can whip up waves with ain and many other countries. One conse- host, rather than just making the journey an amplitude exceeding 20 metres. quence, though, is a shortage of human orin a Petri dish, hasnotyetbeen established. To withstand such storms, the barges gans available for transplant. Waiting lists But even a minute risk of this happening is will have anchors that are attached to for such transplants have thus grown. In something no medical-licensing authority swivelling “mooring turrets” under their July,more than 117,000 people were await- is likely to overlook. bows. These will cause a barge to behave ing suitable donors in the United States To eliminate the possibility of such a like a weather vane, always pointing into alone. An alternative source of supply is leap taking place, Dr Yang and her team the wind. Since that is the direction waves needed. And a paper published in Science turned to CRISPR-Cas9, a gene-editing come from, it will remain bow-on to those this week, by Luhan Yang and her col- technique currently in the news for its po- waves, giving it the best chance of riding leagues at eGenesis, an American biotech- tential use in modifying the DNA of hu- out any storm that nature cares to throw at nology company, may help pave the way man embryos to replace faulty genes. Dr it. The barges’ bows will also be built high, to providing it. Yang sought to use it to remove PERVs, and in order to cut through waves. This way, Dr Yang and her team are working on thus to clean up pigs’ DNA to make it safe claims Mark Tipping of Lloyd’s Register, a pigs. The idea of using pig organs as substi- forxenotransplantation. British firm that is advising on the plants’ tutes for human ones has been around for First, the team had to seek out every design, they will be able to survive a a while. Pigs are well studied and easy to PERV hiding in the 2.7bn base pairs of the “10,000-year storm”. breed. They are also about the same size as genomes of their pigs. That meant se- The South China Sea is also a busy area people, meaning that their internal bits quencing those genomes accurately and forshipping, so anyfloatingpowerstations and pieces are, too. Though there is an ob- then searching them for places that looked there will need to be able to withstand a di- vious “yuck” factor to the idea of trans- like viral genes. Theyfound 25 PERVsin this rect hit by a heavy-laden cargo vessel trav- planting, say, pigs’ kidneys into people way. They then used CRISPR-Cas9, the nuts elling at a speed of, say,20 knots—whether now hooked up to dialysis machines, and bolts of which are a complex of mole- that collision be accidental or the result of those facing death from kidney failure cules able to track down a particular ar- hostile action. One way to do this, says might not be so squeamish. rangementofbase pairsand cutthe DNA in Chen Haibo, a naval architect working on Beyond the yuck factor, however, there that place, to try to inactivate all the PERVs the problem at Lloyd’s Register’s Beijing of- are real, physiological objections to such in some cultured pig-body cells—specific- fice, is to fit the barges with crumple zones “xenotransplantation”. One is that a hu- ally, cells ofa type called fibroblasts. packed with materials such as corrugated man immune system will rapidlyreject the Their first attempts to do this failed. steel and wood. xenograft. Another is that the graft may They found they were able to disable a Not everyone is delighted with the idea bring with it novel infections, caused by maximum of90% ofthe PERVsin a given fi- of marine nuclear power. Rashid Alimov, what are known as endogenous retrovi- broblast. After a while, they realised that head ofenergy projects at Greenpeace Rus- ruses. It is this second problem that Dr the damage inflicted by more edits than sia, an environmental charity, argues that Yang’s work may be able to deal with. this was triggering a cellular self-destruct offshore plants could be boarded by pi- An endogenous retrovirus is a se- mechanism called apoptosis. By applying rates orterrorists, be struckby an iceberg or quence ofviral DNA thathasbeen incorpo- a mixture of chemicals known to stop 1 might evade safety rules that are hard to enforce at sea. On July 21st Greenpeace scored a victory when Rosatom said that Akademik Lomonosov’snuclearfuelwould be loaded in an unpopulated area away from St Petersburg. That, though, is a pinprick. The future of marine nuclear power stations is more likely to depend on the future of nuclear poweritselfthan on the actionsofpressure groups such as Greenpeace. If, as many who worry about the climate-changing potential of fossil-fuel power stations think, uranium has an important part to play in generating electricity over coming decades, then many new nuclear plants will be needed. And ifthat does turn out to be the case, siting such plants out at sea may well prove a good idea. 7 Fresh and CRISPRy The Economist August 12th 2017 Science and technology 65

2 apoptosis along with the molecular edi- will be used as the foundation of a new and bolted on. Moreover, many needed re- tors, they overcame the problem and were strain of pigs, PERV-free, on which further placing after each mission. This arrange- able to inactivate every PERV in the nuclei research can be done. Having used gene ment proved so fragile that, when some of of some of the fibroblasts. Then, by trans- editing to eliminate PERVs, the next phase the tiles on a shuttle called Columbia were planting these purged nuclei into egg cells is to apply it to the question of organ rejec- damaged by a piece offoam that broke free extracted from sows’ ovaries, and implant- tion. If porcine genes for the proteins that during an ascent into space in 2003, the ing the results into other sows’ uteruses, most provoke the human immune system heat shield failed on re-entry, and the vehi- they created eight litters of PERV-free pig- could be eliminated in the way that PERVs cle and its crew were lost. lets—30 animals in all. have just been, then an important further Dr Xiao’s aim, therefore, has been to Half of those piglets are still alive, four step towards xenotransplantation would add flexibility to ceramic materials with- and a half months after their birth—which have been taken. It might even be possible out lowering their melting points, and also would be the ideal age to harvest their or- to add genes that made pig organs seem, to without reducing their resistance to abla- gans for transplantation. That will not be human immune systems, more human- tion—the wearing away ofmaterial caused the fate of these particular pigs, though. like. At that point, the possibility of grow- by the extreme scouring that takes place at They will be studied carefully over the ing acceptable substitutes for human or- hypersonic speeds and their associated whole of their lives for any signs of abnor- gans in specialised pig farms would be just temperatures. His starting point is what is mality.Moreover they,or others like them, around the corner. 7 known as a carbon-carbon composite. This is a matrix of carbon reinforced with carbon fibres. Such composites are widely used in the aerospace industry because they are strong, light and flexible. They would not, however, survive 3,000°C. To protect them from this level of heating Dr Xiao and his team used a process called re- active melt infiltration to infuse the composite with a liquid mixture of zirconium, titanium, carbon and boron. When this happens, the composite acts as a sponge. It draws in the liquid, which then reacts to form a carbide. Carbides are tough ceramic com- pounds formed when carbon combines with other elements. The trick Dr Xiao’s process pulls off is to coat the carbon fibres in the original material with the complex carbide created during the infusion. That retains those fibres’ mechanical strength and flexibility while protecting them from extreme temperatures. In tests they reported earlier this year, the researchers found Hypersonic travel that their carbide coating not only survived but displayed a lower rate of abla- Hot stuff tion than existing ultra-high temperature ceramics between 2,000°C and 3,000°C. At2,500°C, forexample, the rate ofloss was less than a twelfth that of zirconium carbide, a ceramic widely used to provide MANCHESTER heat protection in things ranging from drill bits to rockets. A new ceramic material could withstand the heat ofMach 5 and above Another advantage of infusing ceramic RICTION burns. And the friction of the University in Changsha, China. And they materials into carbon-carbon composites Fair on something travelling at five times thinkthey have come up with a new mate- in this way is that it permits more complex the speed of sound burns hot. The leading rial that might provide the answer. heat-resistant shapes to be produced than edge of such an object can easily reach a Their novel substance is a ceramic. That is possible with conventional methods of temperature of 3,000°C. Inconveniently, is no surprise. Ceramics have strong bonds moulding under heat and pressure. And that is above the melting point ofmost ma- between their atoms—unlike metals, in the new materials should also be more re- terials used by engineers, which makes it which the electrons in those bonds have sistant than conventional ones to thermal hard to design things like wings and nose more freedom to move around. This gives shock—when a sudden temperature cones for aircraft intended to achieve hy- ceramics high melting points, permitting change causes a material to break apart in personic velocities. The lure of hypersonic them to be deployed in hot circumstances. an instant. flight is such, though, that many are trying But it also makes them brittle. That fragility Beside its use in hypersonic aircraft, the to do so. The world’s air forces would love became notorious when ceramic tiles new carbon-carbide composite may also, such planes. And for civilians (at least, for were chosen asthe re-entryheatshields for with appropriate adjustments to its recipe, those with deep pockets), the idea of being America’s space shuttles. Each of those be used to extend the livesofreusable rock- able to jet in a couple of hours from Britain craftwas fitted with more than 24,000 tiles ets and gas turbines. But it is the thought to Australia sounds extremely attractive. made from high-grade silica sand. The tiles that the plane you board at Heathrow at Among those lured are Ping Xiao and were indeed heat-resistant. They were 7am will deliver you to Sydney two hours his colleagues at the University of Man- also, however, so brittle that they had to be later, just in time for dinner, that will excite chester, in England, and in Central South glued to the spacecraft, rather than drilled most people. 7 66 Books and arts The Economist August 12th 2017

Also in this section 67 Henry David Thoreau, a life 67 The secret history of “Jane Eyre” 68 Bernardo Atxaga’s ﬁction 68 Learning about autism 69 Beirut’s museum of memory

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Prizes for puns “people feel like they’re not supposed to like and ought not to do”. The quip and the dread Puns are widely held in low esteem, a justifiable consideration. They are one of the first forms of humour that children understand and deploy, before they move on to more sophisticated jokes that use language semantically, Vinod Goel, a neuro- scientist, tells Mr Berkowitz . That may ac- Why English is the language ofchampuns count both for the reaction that puns get AST week’s issue ofthis paper contained from listeners—the groan suggesting that Away With Words: An Irreverent Tour the followingheadlines: “Roomsforim- the punster ought to know better—but also L Through the World of Pun Competitions. provement” (in a story about British hous- for their popularity. Many puns are indeed ing); “Though Mooch is taken, Mooch By Joe Berkowitz. Harper Perennial; 273 juvenile. They are also easy to understand. abides” (on the firing of Anthony Scara- pages; $15.99 and £8.99 Yet puns demand intelligence, creativ- mucci); and “LIBOR pains” (on interbank ity and general knowledge: the best draw loan rates). The Economist is not alone in its ly jokes for an audience. But over the past on cultural references, allude to several taste for wordplay. Our colleagues at the few years a growing band of amateurs has things at the same time and are intricately Financial Times routinely sneak subtle taken up the sport. In New York a monthly constructed (such as the one about Mahat- jokes into their headlines (July 17th: “Why event called Punderdome features jokes- ma Gandhi, who walked barefoota lotand China’s global shipping ambitions will not ters with pseudonyms such as “Punder En- often fasted, leading to bad breath, thus easily be contained”) while those at the lightening”, “Jargon Slayer” and “Words making him a “super calloused fragile tabloids indulge themselves more obvi- Nightmare” who compete over the course mystic hexed by halitosis”). The Harry Pot- ously. On the arrest of a famous golfer for offourincreasingly absurd rounds. Similar ter series would be less magical without drink-driving: “DUI ofthe Tiger”. competitions exist in Washington, DC, Knockturn Alleyand Diagon Alley. Salman These authors are fortunate to work at (Beltway Pundits), Milwaukee (Pundamo- Rushdie uses puns without shame. English-language publications. For English nium), San Francisco (Bay Area Pun-Off) It is not just the quality of puns that is is unusually good for puns. It has a large and elsewhere. The annual O. Henry Pun- divisive but also the definition. At Punder- vocabulary and a rich stock of homo- Off in Austin, Texas, which started in 1978, dome a pun is simply “a play on words”. phones from which puns can be made. It is bills itself as the genre’s World Champion- The winners are picked by volume of ap- constantly evolving, with new words ship. (Word Champunship, surely?) plause. At the O. Henry Pun-Off onstage being invented and old ones given fresh But who would pay to watch people referees disqualify what they consider meanings. And it is mostly uninflected, make puns? That was how Joe Berkowitz, subpar wordplay, and a panel of judges allowing for verbs and nouns to switch an editor at Fast Company, an American hold up scores at the end of each round. places. Moreover, other than the occasion- business magazine, reacted when he first Every potential topic is heavily pun-tested al customary feminine pronoun, for ships, discovered Punderdome. He went on to by organisers before being deemed fit for say, or nation-states, it has no gendered spend a year travelling round America, play. “I sometimes get embarrassed by nouns, which makes it easier to play with attending pun-parties and interviewing how seriously I take this,” says one veteran innuendo and double entendres. (Chinese humour experts and comedy writers. The contestant ofboth competitions. is another good language for punsters, outcome? “Away With Words”, a faintly He is not alone. This reviewer disre- which is a boon forthose keen to avoid the anthropological examination of puns and gards any pun that requires a hyphen country’s censors. Puns are especially pop- the people who make them. The chief at- (ovine puns are egg-specially eggs-cruciat- ular around Chinese new year.) traction of these competitions, he reports, ing) and believes that puns must have a Newspaper editors get paid to write sil- is that they create a space for something set-up (the more elaborate the better). 1 The Economist August 12th 2017 Books and arts 67

2 Throughout “Away With Words” punsters, focus on the duality ofThoreau’s personal- “Jane Eyre” comedy writers and academics offer their ity: introspective and intensely private, yet own standards for how to tell a good pun self-certain and boastful. The facts of fiction from a bad one. Mr Berkowitz himself can- While living by Walden Pond, Thoreau not resist the temptation to set a few rules. harboured a slave who had escaped from The four types of bad pun, according to the South as part of the “Underground him, are those that suffer from bad timing, Railroad”. This act of private rebellion led are too obvious, have no second meaning to a very public one a decade later. On No- The Secret History of Jane Eyre: How or are too earnest. vember1st1859 the professed hermit stood Charlotte Brontë Wrote Her Masterpiece. A pun, like porn, is defined less by up in front of a crowd in the Tremont Tem- By John Pfordresher. W.W. Norton; 254 intention than by reception. One contes- ple in Boston to deliver a lecture in support pages; $26.95; £20 tant at the O. Henry, on the topic of birds, of Captain John Brown, an abolitionist told the audience, “Beak kind to me, don’t who was to be hanged for leading an RITICS relish a bit of detective work. thrush to judgment, I’m not robin anyone, armed attackin what is now West Virginia. C Four hundred years after William hawking anything, talon tails out of Thoreau, thoughtofasa quietphilosopher, Shakespeare died, people still offer new school, ducking responsibilities or emulat- held his audience enthralled and parts of theories about the true identity of the ing anyone.” Only the reader should his lecture were reprinted in newspapers “Dark Lady” and the “Fair Youth” of his decide whether that deserves a prize or around the country. sonnets. Journalists have been dogged in social ostrichism. 7 One of the pleasures of reading Ms their attempts to discover the writer be- Walls’s book is learning of Thoreau’s hind the pseudonym “Elena Ferrante”. many-sided and relentlessly curious na- Charlotte Brontë has been the subject Writer, hero, crank ture. As well as his writingand activism, he of many such investigations. During her was an engineer, a surveyor, a lecturer and lifetime, the pen name “Currer Bell” pro- Wild American a meticulous naturalist. Only five weeks voked wild speculations; reviewers vari- after the publication of Charles Darwin’s ously concluded that the author was a “On the Origin of Species”, Thoreau was man, a woman, or a mixed-sex writing applying evolutionary principles to his duo. Readers past and present have won- own study. The irony of his work as a sur- dered how a shy curate’s daughter from veyor was not lost on him. By the time he Yorkshire came to write “Jane Eyre”, a fine- Henry David Thoreau: A Life. By Laura died, at 44, much ofConcord had changed, ly wrought tale of passion and darkness, Dassow Walls. University of Chicago Press; 613 and the cabin at Walden Pond no longer when her life contained seemingly little of pages; $35 and £26.50 existed. Thoreau was wary of the unhin- either. With “The Secret History of Jane N AN April night in 1844, a distraught dered industrialism espoused by his friend Eyre”, John Pfordresher, a professor at OHenry David Thoreau walked and mentor Ralph Waldo Emerson and Georgetown University, seeks to provide through the blackened waste ofa forest fire asked why not “run the Earth off its track some answers. His aim is to unearth the he had accidentally caused only hours into a new orbit, some summer, and so real-life people and events that inspired before. The fire, near Concord, Massachu- change the tedious vicissitude of the sea- Brontë’s much-loved classic novel. setts, surrounded Walden Pond, about sons?” As the effectsofclimate change take Unfortunately, Mr Pfordresher cannot which he would write so eloquently a hold, Thoreau’s warning feels prescient. illuminate the writing process itself, save decade later. The woods soon recovered, Ms Walls’s book is a timely and reveal- for noting the date that Brontë first put pen but Thoreau’s reputation did not. After he ing study of an eminent American writer to paper. She left “no outlines, notes about died, the Atlantic published a confession and environmentalist. Thoreau’s thinking characters, drafts scribbled over with revi- from his journal and mocked him: “The bound science, politics and nature togeth- sions and additions” or any other such tan- icon of woodcraft, so careless he burned erin the hope that both the human and the talisingclues. So MrPfordresherchooses to down the woods!…The town ne’er-do- non-human could flourish. This was a follow the chronology of the novel and well, offfishingwhen he should have been novel idea at the time, and should still be weave in the biographical detail. earning a living!” heeded today. 7 John Reed, Jane Eyre’s youngadversary, Two centuries later Thoreau’s reputa- is based on Charlotte’s experience of the tion continues to be questioned. He is of- boys she met during her time in Belgium, ten derided asan asceticcrank, pond scum, as well as the unpleasant sons of the Sidg- or inversely, revered as a back-to-nature wickfamily (forwhom she served as a gov- saint. Laura Dassow Walls’s new biogra- erness) and a character in “Agnes Grey”, phy is a compelling study that dispels both her sister Anne’s novel. Jane’s time at the these notions, revealing an enigmatic dreadful Lowood Institution isreconstruct- American writer worthy ofreappraisal. ed from Charlotte’s grim memories of Co- Much of the animosity towards Tho- wan Bridge school, only made less “exqui- reau centres on the two years he spent by sitely painful” (tracts were published Walden Pond and the book they inspired. defending the school and its proprietors). “Walden” is seen by some as a retreat to a The virtuous and stoical Helen Burns is a false wilderness, interspersed with trips to reincarnation ofMaria, the sister who died his family home forhot meals and to do his at11; Emily and Anne are also present as Di- laundry. MsWallsarguesthatThoreau’sse- ana and Mary Rivers. So extensive is the clusion at Walden Pond should instead be biographical framework on which Char- viewed as an inadvertent piece of perfor- lotte built, Mr Pfordresher argues, that mance art. “Walden” includes some of the readers should view “Jane Eyre” as auto- most influential and lyrical nature writing biography rather than a workoffiction. in America and became the foundation for Yet when it comes to the inspiration for a new generation of environmental think- Mr Rochester and Bertha Mason, two of ing. MsWallsquoteslittle ofit, preferring to In step with nature the mostcompellingfiguresin English liter-1 68 Books and arts The Economist August 12th 2017

2 ature, Mr Pfordresher stumbles. His argu- lover and is rumoured to have set his own Autism ment that Charlotte drew on her father bed on fire. Patrick’s demanding presence, fiery tem- The verisimilitude ofBrontë’snovel has Rise of the perand “sexual energy” forMrRochester is long been one of its greatest strengths (The unconvincing: Patrick’s attempts to remar- Economist, reviewing it in 1847, argued that autie-biography ry after his wife’s death seem more to do it was “perfectly fresh and lifelike” and, as with caring for his six children than with such, “far removed from the namby lust. The claim that Bertha’s lunacy was pamby stuff of which fashionable novels Fall Down 7 Times Get Up 8. By Naoki based on Charlotte’s trip to North Lees are made”). Though this “secret history” Higashida. Random House; 206 pages; $27. Hall—where the mistress of the house “re- illuminates much of the real-life mould Sceptre; 288 pages; £14.99 putedly went mad, was confined in a pad- that shaped the novel, it at times confuses ded room, and died in a fire”—is a fair one. autobiographical elements with autobiog- N 1995 Temple Grandin, a well-known ButBranwell, the author’smiscreantbroth- raphy. In its determination that Charlotte Ianimal scientist who designs livestock- er, is an equally good candidate that Mr Brontë is Jane Eyre, many of the compari- holding equipment in America, brought Pfordresher ignores. In her biography of sons between true incidents and those of out a memoirabout just how bafflingit can Charlotte, Claire Harman points out that the fiction feel forced. Literary sleuthing is be to live with autism; she has Asperger’s, he kept the household awake at night often illuminating—but it can also see clues but was not formally diagnosed until she “with his noisy despairing” over a past where none really exist. 7 was in her 40s. For autistic people, she once said, decodingsocial nuancescan feel like being “an anthropologist on Mars”. New fiction Parents can feel just as ill-equipped when interpreting the symptoms of an au- In a foreign land tistic child. These range from social awk- wardness to repetitive acts like banging one’s head. At least a quarter of these children cannot speak. Inevitably, their fam- Nevada Days. By Bernardo Atxaga. ilies can find them hard to understand. Ms Translated by Margaret Jull Costa. Grandin’s “Thinking in Pictures” was part MacLehose Press; 352 pages; £14.99 of a new genre of “autie-biographies”. The latest is from Japan. N THE gambling city ofReno, where A few years ago, in search ofinsight into Ired, green and fuchsia neon signs shine theirnon-verbal son’s own “chaotic swirl”, like “boiled sweets”, the University of David Mitchell, a gifted British novelist, Nevada has a Centre forBasque Studies. and his wife, Keiko Yoshida, unearthed a Bizarre at first glance, this odd match of little-known book by a Japanese boy place and subject makes sound historical called Naoki Higashida. They translated sense. Emigrants from the Basque coun- the text for their son’s carers, and later try left19th-century Spain to settle in the showed it to Mr Mitchell’s publisher. “The American West, first as miners, then as Reason I Jump”, which came out in 2007, shepherds. In 2007 Bernardo Atxaga, the was eventually translated into over 30 lan- foremost Basque author ofhis gener- guages. Mr Higashida, then 13, became ination, followed in their wake as a writer- ternationally famous and is now probably in-residence. From that year-long experi- the mostwidelyread Japanese authorafter ence he has fashioned a subtle and touch- Haruki Murakami. ing book, offered as fiction but rich in Using an alphabet grid and a transcrib- topical allusions. It stands a canyon’s- er, Mr Higashida explained the hidden length away from the stereotypical trav- frustrations of his condition. Command- elogue ofthe snobby European scoffing ing his body to move is like “remote-con- at transatlantic vulgarity and ignorance. Nevada nights trolling a faulty robot”. He also exposed Over139 short sections, “Nevada the depths of his emotions, admitting that Days” spans journal entries, news items, legend punctuate these eerie Western a large statue of Buddha once moved him family memories and yarns imported scenes. Margaret Jull Costa translates to tears. To many, these glimpses were a from the Basque homeland. Without any them with all her customary grace. The revelation; lack of speech clearly does not surplus exoticism, Mr Atxaga records the final illnesses ofMr Atxaga’s parents put amount to mental incapacity. strangeness, physical and social, of his mourning, and memory, at the centre of Mr Higashida’s latest book, “Fall Down desert berth: this primeval landscape his desert stage. In a dream he regrets that 7 Times Get Up 8”, provides a similar guide where bare trapezoid mountains have “metaphors can do little in the face of to the “immutable beauties” of the autistic “nothing to do with us”. Pitiless nature death”. Yetflashing gems ofinsight illu- mind. Now in his 20s, the author offers a feels “remote and alien”. Poisonous minate mortality amid the hostile scrub wider perspective on life with a disorder. spiders and rattlesnakes abound. On and rocks. Closely observed, never pa- The title alludes to a Japanese proverb campus suspense builds as a spate of tronised, Nevada becomes the “dream about persistence. The book is a gospel in sexual assaults nearby ends with the place” that helps the author settle with praise ofgrit, not just forautistic people but abduction and murder ofa student (a real his past before a “return to our everyday for wider society. Do not give up on us, he case). Near and far, the prickle of threat life”. Still, loss and griefpersist. On war urges parents and helpers. “The person and dread sharpens. BarackObama, memorials, the roll-call ofthe fallen with special needs will sense that resigna- during his first candidacy, comes to town grows. As forthe Reno campus killer: a tion, lose their motivation and stop trying to denounce the war in Iraq. man was convicted, and remains on to speak.” He even goes as faras to say that Snapshots ofBasque history and death row. a carer’s lack of grit can erode an autistic person’s “will to live”. 1 The Economist August 12th 2017 Books and arts 69

2 “Fall Down 7 Times Get up 8” also re- will open to the public for the first time in She hopes to hand them out to visitors and veals the inherent sadness ofa life without its new incarnation as Beit Beirut (The ask each one to research the photo and words. Mr Higashida is unable even to say House of Beirut), a memory museum, cul- come backwith a story. “thank you” to his own mother. Non-ver- tural centre and urban observatory dedi- Youssef Haidar, the architect responsi- bal people with autism “are probably the cated to commemorating the everyday life ble for the renovation, disputes the need loneliest souls of all,” he says. That lone- of the city over the past century. But the for a permanent collection. For him “the liness could be eased if the rest of the building, which was expropriated by the collection is the building” and artefacts are world had more patience. “The failure of Beirut municipality in 2003 and renovated unnecessary: “Look at the monstrousness people with autism to communicate with over $18m of public funds, is opening of what we did. Look at the war. [Its] traces doesn’t stem from inner self-imprison- on a temporarybasis, with no board, no di- are there. The museum is finished.” ment: itstemsfrom a failure ofothers to see rector, no cultural policy, no permanent Matilda El-Khoury, who isalso an archi- that we are open and receptive.” A lack of collection and no staff—not even a mainte- tect and the city-council member responsi- imagination for what autistic people can nance team. ble formanaging the municipality’s cultur- achieve ultimately holds them back. Beit Beirut was designed to have an au- al portfolio, holds yet another view. She The book rightfully challenges the ditorium and library on the ground floor, sees the war years as “a small bracket” in methods and attitudes that prevail in sup- space for temporary exhibitions exploring the history ofLebanon, and wants Beit Bei- porting people with autism. It is rich in urban issues and peace and reconciliation rut also to explore the city’s urban fabric all metaphor, something Mr Mitchell was on the second and third floors, and a roof- the way to the Ottomans. once told was beyond autistic people. As top restaurant and café. The first floor, with None ofthis will be easy. In the absence Mr Higashida himself writes: “Weeds like the worst of the damage and the snipers’ ofa director, there is no cohesive vision for dandelions which you can find all over the barricades, is dedicated to the memory of the building; it will open until the end of world and which nobody really gives a the war years. Without a permanent col- the year as a gallery space, rather than as a second glance to...are the happiest.” “Fall lection, though, it is not really a museum, museum. Without employees, the restau- Down 7 Times Get Up 8” should be read by yet agreeing on which objects should be in rant, library and other amenities will re- many beyond the circle of parents seeking that collection is easier said than done. main closed. The municipality has asked to understand their child. It places Mr Hi- The civil war officially ended in 1991 exhibitors to supply their own manpower gashida among the first rank of gifted writ- with a fragile amnesty. In the absence of and to choose their own opening hours. ers, not just writers with autism. 7 any official history of the period, the con- On paper, Beit Beirut should provide a flict is not taught in most schools. Beit Bei- much-needed public space for reflection, rut has been plagued by disagreement. reconciliation and the celebration of ordin- History in Lebanon Mona El-Hallak, an architect and heritage- ary lives. Ms El-Hallak hoped it would of- preservation activist who began a cam- fer people a chance to share their stories. Empty halls and paign to save the building in 1997, believes But since construction was finished last the museum should avoid names and year, only private events have taken place empty spaces dates completely, focusing instead on per- there. In April a local NGO threw a lavish sonal stories—both positive and negative— invitation-only party attended by politi- BEIRUT that explore “how war changes a human cians, diplomats and celebrities. Its osten- being and a city”. sible purpose was to mark the opening of The new museum ofmemory in The letters and documents that she sal- the library; months later, it is still closed. Lebanon gets offto a troubled start vaged from the building (stored, for the After much delay, Ms El-Khoury insists EARLY three decades after the end of moment, in her attic) provide some insight that, once the legalities are established, Nthe civil war in Lebanon, the façade of into the lives of its pre-war tenants. Ms El- Beit Beirut will become the museum the the Barakat building in central Beirut is still Hallak has also discovered 11,000 photo- public were promised. But Mr Haidar fears pitted with bullet holes. Craters in its lime- graphic negatives—most of them portraits the building is being hijacked as a party- stone walls have been patched with con- dating from the 1950s to the 1970s—in a place forthe politically connected. “It is not crete and its elegant colonnade is held up photography studio on the ground floor. being used forits original intentions.” 7 by ugly metal struts. Inside, the upper flights of two stone staircases hang above rubble-strewn voids. The lower sections were blown apart by snipers to prevent anyone getting upstairs. The ceilings are scorched black and barricades of concrete- reinforced sandbags still divide some rooms in two. The Arabic graffiti scrawled by Christian militiamen have never been erased. One signed himselfBegin, after the former Israeli prime minister. Another says simply: “Hell”. Built in the 1920s, the building started off as the home of the wealthy Barakat family.But after the civil war began in1975, it became a notorious snipers’ nest on the front line between east and west Beirut. Its site, coupled with its unique open architec- ture, made it the perfect redoubt. The cross- roads on which it stood became known as takaata al-mawt—“the intersection of death”. Later this month the Barakat building Hidden beauty 70 Appointments

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The Economist August 12th 2017 Appointments 71

The Economist August 12th 2017 72 Economic and ﬁnancial indicators The Economist August 12th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest Aug 9th year ago United States +2.1 Q2 +2.6 +2.2 +2.0 Jun +1.6 Jun +1.9 4.3 Jul -449.3 Q1 -2.5 -3.4 2.28 - - China +6.9 Q2 +7.0 +6.7 +7.6 Jun +1.4 Jul +1.9 4.0 Q2§ +157.3 Q2 +1.6 -3.9 3.64§§ 6.68 6.66 Japan +1.3 Q1 +1.0 +1.4 +4.9 Jun +0.3 Jun +0.6 2.8 Jun +187.8 Jun +3.6 -5.1 0.07 110 102 Britain +1.7 Q2 +1.2 +1.5 -0.3 May +2.6 Jun +2.7 4.5 Apr†† -99.8 Q1 -3.4 -3.6 1.16 0.77 0.77 Canada +2.3 Q1 +3.7 +2.4 +12.6 May +1.0 Jun +1.8 6.3 Jul -48.4 Q1 -2.6 -2.4 1.91 1.27 1.31 Euro area +2.1 Q2 +2.3 +2.0 +4.0 May +1.3 Jul +1.5 9.1 Jun +388.6 May +3.2 -1.4 0.43 0.85 0.90 Austria +2.3 Q1 +5.7 +1.9 +3.6 May +1.9 Jun +1.9 5.2 Jun +6.4 Q1 +2.2 -1.2 0.62 0.85 0.90 Belgium +1.5 Q2 +1.6 +1.6 +2.0 May +1.8 Jul +2.1 7.6 Mar -4.2 Mar +0.1 -2.1 0.75 0.85 0.90 France +1.8 Q2 +2.2 +1.5 +3.2 May +0.7 Jul +1.2 9.6 Jun -25.3 Jun -1.3 -3.1 0.76 0.85 0.90 Germany +1.7 Q1 +2.4 +1.9 +2.5 Jun +1.7 Jul +1.6 3.8 Jun‡ +270.5 Jun +8.0 +0.5 0.43 0.85 0.90 Greece +0.8 Q1 +1.8 +1.0 +1.6 Jun +1.0 Jul +1.3 21.7 Apr -0.9 May -1.2 -1.3 5.49 0.85 0.90 Italy +1.2 Q1 +1.8 +1.2 +5.3 Jun +1.1 Jul +1.3 11.1 Jun +48.6 May +2.1 -2.3 2.02 0.85 0.90 Netherlands +3.2 Q1 +1.7 +2.2 +3.3 Jun +1.3 Jul +1.1 6.0 Jun +68.4 Q1 +10.0 +0.6 0.60 0.85 0.90 Spain +3.1 Q2 +3.6 +3.0 +3.4 Jun +1.5 Jul +1.9 17.1 Jun +21.5 May +1.7 -3.3 1.54 0.85 0.90 Czech Republic +4.0 Q1 +6.3 +3.2 +2.2 Jun +2.5 Jul +2.3 2.9 Jun‡ +1.4 Q1 +0.9 -0.2 0.94 22.3 24.3 Denmark +3.6 Q1 +2.5 +1.8 +2.3 Jun +0.6 Jun +1.0 4.3 May +26.4 Jun +8.0 -0.6 0.57 6.34 6.69 Norway +2.6 Q1 +0.9 +1.8 +2.8 Jun +1.9 Jun +2.4 4.3 May‡‡ +22.4 Q1 +7.6 +4.2 1.65 7.97 8.41 Poland +4.4 Q1 +4.5 +3.6 +4.5 Jun +1.7 Jul +1.8 7.1 Jul§ -2.2 May -0.5 -2.2 3.36 3.63 3.83 Russia +0.5 Q1 na +1.5 +3.6 Jun +3.9 Jul +4.1 5.1 Jun§ +33.6 Q2 +2.5 -2.2 8.13 60.1 64.7 Sweden +3.9 Q2 +7.1 +2.7 +8.0 May +1.7 Jun +1.7 7.4 Jun§ +22.0 Q1 +4.8 +0.3 0.64 8.20 8.52 Switzerland +1.1 Q1 +1.1 +1.3 -1.3 Q1 +0.3 Jul +0.5 3.2 Jul +73.6 Q1 +9.6 +0.2 -0.09 0.97 0.98 Turkey +5.0 Q1 na +3.7 -3.6 Jun +9.8 Jul +10.3 10.5 Apr§ -35.3 May -4.3 -2.3 10.77 3.54 2.97 Australia +1.7 Q1 +1.1 +2.3 -0.8 Q1 +1.9 Q2 +2.2 5.6 Jun -25.0 Q1 -1.5 -1.8 2.59 1.27 1.30 Hong Kong +4.3 Q1 +2.9 +3.0 +0.2 Q1 +2.0 Jun +1.6 3.1 Jun‡‡ +14.8 Q1 +5.8 +1.7 1.55 7.82 7.76 India +6.1 Q1 +7.2 +7.1 +1.7 May +1.5 Jun +3.9 5.0 2015 -15.2 Q1 -1.1 -3.2 6.47 63.8 66.9 Indonesia +5.0 Q2 na +5.2 +4.0 May +3.9 Jul +4.3 5.3 Q1§ -14.6 Q1 -1.7 -2.2 6.82 13,343 13,133 Malaysia +5.6 Q1 na +5.2 +4.6 May +3.6 Jun +3.9 3.4 May§ +6.6 Q1 +2.2 -3.0 4.00 4.29 4.03 Pakistan +5.7 2017** na +5.7 +6.3 May +2.9 Jul +4.2 5.9 2015 -12.1 Q2 -3.8 -4.5 8.10††† 105 105 Philippines +6.4 Q1 +4.5 +6.5 +8.1 Jun +2.8 Jul +3.0 5.7 Q2§ -0.4 Mar +0.3 -2.8 5.04 50.6 46.9 Singapore +2.5 Q2 +0.4 +2.9 +13.1 Jun +0.5 Jun +1.3 2.2 Q2 +59.0 Q1 +19.1 -1.0 2.11 1.36 1.35 South Korea +2.7 Q2 +2.4 +2.8 -0.3 Jun +2.2 Jul +1.9 3.5 Jul§ +83.3 Jun +5.9 +0.9 2.34 1,135 1,106 Taiwan +2.1 Q2 +0.6 +2.4 +3.1 Jun +0.8 Jul +0.5 3.8 Jun +69.1 Q1 +12.8 -0.9 1.05 30.2 31.4 Thailand +3.3 Q1 +5.2 +3.3 -0.2 Jun +0.1 Jul +0.8 1.1 Jun§ +44.9 Q2 +11.9 -2.5 2.16 33.3 35.0 Argentina +0.3 Q1 +4.3 +2.5 -2.5 Oct +21.9 Jun‡ +24.2 9.2 Q1§ -16.8 Q1 -2.9 -6.1 na 17.8 14.8 Brazil -0.4 Q1 +4.3 +0.5 +0.5 Jun +2.7 Jul +3.8 13.0 Jun§ -14.3 Jun -1.0 -7.9 9.21 3.14 3.14 Chile +0.1 Q1 +0.7 +1.4 -2.2 Jun +1.7 Jul +2.4 7.0 Jun§‡‡ -5.0 Q1 -1.3 -3.1 4.36 650 653 Colombia +1.1 Q1 -0.9 +2.0 -0.6 May +3.4 Jul +4.1 8.7 Jun§ -11.9 Q1 -3.6 -3.2 6.83 3,013 2,970 Mexico +1.8 Q2 +2.4 +2.0 +1.0 May +6.4 Jul +5.7 3.3 Jun -22.0 Q1 -2.0 -1.9 6.86 18.0 18.4 Venezuela -8.8 Q4~ -6.2 -7.0 +0.8 Sep na +569 7.3 Apr§ -17.8 Q3~ -1.1 -19.5 11.02 10.1 9.99 Egypt +4.3 Q1 na +3.7 +25.1 May +29.8 Jun +22.8 12.0 Q1§ -18.0 Q1 -5.9 -10.8 na 17.8 8.88 Israel +4.0 Q1 +1.4 +4.1 -1.5 May -0.2 Jun +0.5 4.5 Jun +11.7 Q1 +4.1 -2.6 1.82 3.60 3.82 Saudi Arabia +1.7 2016 na -0.5 na -0.4 Jun +1.1 5.6 2016 -1.0 Q1 +0.5 -8.2 3.68 3.75 3.75 South Africa +1.0 Q1 -0.7 +0.6 -1.9 May +5.1 Jun +5.4 27.7 Q2§ -7.9 Q1 -3.3 -3.2 8.57 13.5 13.4 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. †††Dollar-denominated bonds. The Economist August 12th 2017 Economic and ﬁnancial indicators 73

Markets % change on The Economist poll of forecasters, August averages (previous month’s, if changed)

Dec 30th 2016 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP Aug 9th week currency terms 2017 2018 2017 2018 2017 2018 2017 2018 United States (DJIA) 22,048.7 +0.1 +11.6 +11.6 Australia 2.0 / 2.9 2.4 / 3.4 2.3 (2.4) 2.8 (2.9) 2.2 2.3 -1.5 (-1.6) -2.1 (-2.2) China (SSEA) 3,430.5 -0.3 +5.6 +9.8 Brazil nil / 1.2 1.4 / 3.1 0.5 (0.6) 2.1 (1.9) 3.8 4.3 (4.4) -1.0 -1.4 (-1.5) Japan (Nikkei 225) 19,738.7 -1.7 +3.3 +9.5 Britain 1.3 / 1.7 0.7 / 1.7 1.5 (1.6) 1.2 2.7 2.7 -3.4 (-3.1) -2.9 (-2.7) Britain (FTSE 100) 7,498.1 +1.2 +5.0 +10.4 Canada 1.7 / 3.0 1.5 / 2.3 2.4 (2.3) 2.0 1.8 1.9 -2.6 -2.3 Canada (S&P TSX) 15,217.3 -0.3 -0.5 +5.0 China 6.6 / 6.9 4.6 / 7.0 6.7 6.3 1.9 (2.0) 2.3 1.6 1.6 (1.7) Euro area (FTSE Euro 100) 1,189.6 +0.3 +7.0 +19.1 France 1.2 / 1.8 1.4 / 1.9 1.5 1.7 (1.6) 1.2 1.2 -1.3 (-1.2) -1.1 Euro area (EURO STOXX 50) 3,468.4 +0.3 +5.4 +17.3 Germany 1.3 / 2.2 1.5 / 2.4 1.9 (1.8) 1.8 (1.7) 1.6 (1.7) 1.5 8.0 7.6 Austria (ATX) 3,238.6 +0.3 +23.7 +37.7 India 6.2 / 7.5 7.0 / 8.0 7.1 7.6 3.9 (4.2) 4.6 (4.7) -1.1 (-1.2) -1.5 (-1.6) Belgium (Bel 20) 3,926.6 -0.3 +8.9 +21.2 Italy 0.9 / 1.5 0.7 / 1.2 1.2 (1.1) 1.0 1.3 (1.4) 1.1 (1.2) 2.1 1.8 France (CAC 40) 5,145.7 +0.8 +5.8 +17.8 Japan 0.8 / 1.7 0.5 / 2.0 1.4 (1.3) 1.1 0.6 0.9 3.6 3.6 Germany (DAX)* 12,154.0 -0.2 +5.9 +17.9 Russia Greece (Athex Comp) 833.6 +0.9 +29.5 +44.2 0.8 / 2.0 0.9 / 2.3 1.5 (1.4) 1.7 4.1 (4.2) 4.1 2.5 (2.2) 2.2 (2.0) Spain Italy (FTSE/MIB) 21,848.4 +1.3 +13.6 +26.5 2.7 / 3.2 1.9 / 2.8 3.0 (2.9) 2.5 (2.4) 1.9 (2.0) 1.4 1.7 (1.8) 1.6 (1.7) United States Netherlands (AEX) 528.2 +0.6 +9.3 +21.7 1.9 / 2.4 1.8 / 2.9 2.2 2.3 1.9 (2.0) 2.0 (1.9) -2.5 (-2.6) -2.6 (-2.7) Euro area Spain (Madrid SE) 1,067.1 +0.6 +13.1 +25.9 1.7 / 2.2 1.4 / 2.2 2.0 (1.9) 1.8 (1.7) 1.5 (1.6) 1.3 (1.4) 3.2 (3.1) 3.0 Czech Republic (PX) 1,029.9 +1.9 +11.7 +28.5 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 912.6 +1.4 +14.3 +27.2 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 36,578.5 +1.5 +14.3 +28.8 Norway (OSEAX) 816.1 +0.7 +6.7 +15.3 Poland (WIG) 62,932.3 +0.8 +21.6 +39.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,035.0 +1.3 -10.2 -10.2 % change on 2005=100 % change on Sweden (OMXS30) 1,571.2 +0.5 +3.6 +14.8 Dec 30th 2016 one one Switzerland (SMI) 9,027.2 -1.0 +9.8 +15.6 Aug 1st Aug 8th* Index one in local in $ month year Turkey (BIST) 108,714.6 +2.1 +39.1 +38.3 Aug 9th week currency terms Dollar Index Australia (All Ord.) 5,816.4 +0.4 +1.7 +11.2 United States (S&P 500) 2,474.0 -0.1 +10.5 +10.5 All Items 144.2 145.3 +0.1 +5.3 Hong Kong (Hang Seng) 27,757.1 +0.5 +26.2 +25.1 United States (NAScomp) 6,352.3 -0.2 +18.0 +18.0 Food 153.6 153.2 -3.7 -3.1 India (BSE) 31,797.8 -2.1 +19.4 +27.0 China (SSEB, $ terms) 336.2 +0.7 -1.6 -1.6 Indonesia (JSX) 5,824.0 nil +10.0 +11.0 Japan (Topix) 1,617.9 -1.0 +6.5 +12.9 Industrials Malaysia (KLSE) 1,777.9 +0.4 +8.3 +13.3 Europe (FTSEurofirst 300) 1,493.9 +0.4 +4.6 +16.4 All 134.5 137.1 +4.9 +17.0 Pakistan (KSE) 45,998.8 -2.0 -3.8 -4.7 World, dev'd (MSCI) 1,961.9 -0.4 +12.0 +12.0 Nfa† 129.2 130.0 -0.5 +1.3 Singapore (STI) 3,318.1 -0.9 +15.2 +22.0 Emerging markets (MSCI) 1,068.9 -0.1 +24.0 +24.0 Metals 136.8 140.1 +7.3 +24.7 South Korea (KOSPI) 2,368.4 -2.4 +16.9 +24.4 World, all (MSCI) 477.9 -0.4 +13.3 +13.3 Sterling Index Taiwan (TWI) 10,470.4 -0.5 +13.2 +20.7 World bonds (Citigroup) 943.6 -0.1 +6.8 +6.8 All items 198.2 203.9 -0.8 +5.5 Thailand (SET) 1,571.5 -0.6 +1.9 +9.6 EMBI+ (JPMorgan) 827.1 +0.1 +7.1 +7.1 Euro Index Argentina (MERV) 20,925.0 -4.0 +23.7 +9.9 Hedge funds (HFRX) 1,244.3§ -0.2 +3.4 +3.4 Brazil (BVSP) 67,671.1 +0.8 +12.4 +16.4 Volatility, US (VIX) 11.1 +10.3 +14.0 (levels) All items 151.8 153.9 -2.6 -0.3 Chile (IGPA) 25,361.9 -0.3 +22.3 +26.1 CDSs, Eur (iTRAXX)† 54.4 +5.5 -24.5 -16.0 Gold Colombia (IGBC) † 10,852.9 -1.0 +7.4 +7.0 CDSs, N Am (CDX) 58.9 +4.5 -13.1 -13.1 $ per oz 1,272.5 1,254.4 +3.6 -6.4 Mexico (IPC) 51,237.5 +0.1 +12.3 +28.8 Carbon trading (EU ETS) € 5.4 -0.9 -18.4 -9.1 West Texas Intermediate Venezuela (IBC) 184,187.9 +25.4 +481 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 49.2 49.2 +9.2 +15.0 Egypt (EGX 30) 13,580.8 +1.3 +10.0 +12.2 †Credit-default-swap spreads, basis points. §Aug 8th. Israel (TA-125) 1,248.1 -3.2 -2.3 +4.6 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Saudi Arabia (Tadawul) Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & 7,153.2 +1.0 -1.2 -1.1 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 55,980.1 +1.4 +10.5 +12.1 series, go to: Economist.com/indicators †Non-food agriculturals. 74 Obituary Jeanne Moreau The Economist August 12th 2017

ject, a piece of meat. Sensuality meant power, as in her eating of a strawberry in “Les Amants” in 1958, very slowly, savour- ing it so her potential lover saw. That was the film in which she showed the world, for the first time on celluloid, how a woman reallyfeltatthe heightofpleasure. Audi- ences gasped, and the censors cut away, but who cared? She had broken the taboo. In “Lumière”, the first film she directed herself, women just sat around looking any old how, talking about their affairs. Again, she showed women as they were, in liber- ated mode. Not how men portrayed them, though it was still a man’s world. Well, perhaps it was. Yet she cut a cool swathe through it: Malle and Truffaut, Mar- cello Mastroianni and Miles Davis, Peter Handke and Tony Richardson, Pierre Car- din. (All Paris thought he was gay, but she saw to that.) She loved easily, deeply; then, when the fragrance wore off, moved elsewhere. Her two marriages were brief, because she would not be controlled. She wasthe one in charge: the one who hid any mismatching cups and put towels in ratio- nal piles, who stopped drinking in a day when it began to take her over, who gave Life as defiance up owning houses because they tied her down. Discipline in every part ofher life. As forthat life, it was like a piece ofland she had been given as a gift, and was meant to cultivate with concentration and dedication. The best thing she could do, was act. And acting meant she had to ex- Jeanne Moreau, actress, died on July 31st, aged 89 pose herself down to the bare nerves; or HE moment Jeanne Moreau fell in love light, unmasked skin, rain: total freedom. rather, lay bare the character imagined by Twith acting was when, at 16, she saw She could now play complex, thinking somebodyelse. Underthe simplestsurface Jean Anouilh’s “Antigone”. She was not al- women. And she would not let herself be she built up elaborate back-stories, espe- lowed to go to the theatre, so she lied to her typecast. True, at first she had a run of cially for the bit-parts she took as she grew fatherand wentanyway. To herdelight, the bored, bourgeois wives longing for love, older. Nothing would be said on screen ex- play was also about a girl who said no. roamingthe nightstreetsand parkswith al- plicitly; but when she played, for example, She said it again when her father, a few most too much emotional turmoil brim- the lonely grandmother in François Ozon’s yearslater, tried to stop herbeingan actress ming in her world-weary eyes. But she “Time to Leave” (2005), she could still glow by calling her a putain and slapping her could also do tomboy light-heartedness, as with a secret history ofpassion gratified. across the face. Offshe went to the Conser- the enchanting, cruelly teasing Catherine vatoire, then to the Comédie Française, in “Jules et Jim”, or jumped-up insolence, Her favourite lover then to the Théâtre National Populaire, as Célestine in “The Diary of a Chamber- That glow remained in her, too, and much where her tottering, gauzy Maggie in “Cat maid”, or full-feathered, gun-toting bur- hidden history. She resisted talking about on a Hot Tin Roof” was soon the toast of lesque, with Brigitte Bardot in “Viva it. Mystery added to her allure. Who were Paris. Yousee?, she silently told him. Maria!”. Any outrageousness she blamed her influences? A widower who had told When she became, in the 1960s, the on her English blood, from her Tiller Girl her the names of flowers, a grandfather mostfamousactressin France and an inter- mother. It let her flout convention in ways who had shown her the stars. Her favour- national star of film, people called her a which, ifpurelyFrench, she mightnot have ite director? Youmightaswell askwho was Grande Dame. She wouldn’t have it. She dared. her favourite lover. It was Buñuel who no- was a woman, which was title enough for These roles were still mostly femmes fa- ticed that in heels she walked a little un- her: the sometime muse and sometimes tales. But they were weaponised with steadily, as if not so sure of herself. She ad- lover of her dear friends Louis (Malle), brains and spirit, as well as sex. (Spiritless mitted that the only thing she was certain François (Truffaut), Luis (Buñuel), Joseph ones, like Lidia in “La Notte”, drove her to ofwas what she did not want to do. (Losey) and Orson (Welles). She was sim- pills with theiremptiness.) In almost every She knew that her films added up to a ply herself. The New Wave that swept character spirit showed in the lift of her revolution in cinema, especially its por- French cinema in the late 1950s, into which jaw, sometimes emphasised by the way trayal of women. And yes, much of her life Malle induced her after some fruitless for- the lines deepened round herdownturned was in them, in one way or another. But ays into film, allowed her to slip the thrall mouth as she let a cigarette dangle, then why gape at the past? When anyone asked of costume designers complaining about flicked the ash away. Perhaps only she if she watched them, whether she gave a the bags under her eyes and her lack of could make defiance so desirable. damn…the answer again, with a smoky fashionable beauty. Instead she was in a “Sensuality” was the word she wanted. laugh, and a toss of the perfect hair, and real world of hand-held cameras, natural “Sexuality” just meant a woman as an ob- that tilt ofthe jaw, was no, and no. 7 for readers of % The Economist 15 VZTYJHTIJ discount ECONMAG15 Offer expires August 18th 2017 THE BUSINESS OF LONGEVITY

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The trend towards greater longevity has been clear for decades, but the èSFSHNFQFSIUTQNH^FIOZXYRJSYXSJJIJIYTIJFQ\NYMYMJHTSXJVZJSHJX Register to attend: FSIXJN_JYMJTUUTWYZSNYNJXFWJXYNQQSTYèWRQ^NSUQFHJ Chaired by editors from The Economist, this event will bring together 212. 554. 0604 QJFIJWXKWTRèSFSHNFQXJW[NHJXNSXZWFSHJWNXPRFSFLJRJSYFSIUTQNYNHXYT [email protected] INXHZXXMT\GJXYYTFIFUYèSFSHNFQUWTIZHYXHWJFYJSJ\GZXNSJXXXYWFYJLNJX FSIWJFQNLSUZGQNHUTQNHNJXYTHFUNYFQNXJTSYMJQTSLJ[NY^JHTSTR^

@EconomistEvents longevity.economist.com #EconLongevity © 2017 salesforce.com, inc. All rights reserved. Salesforce.com is a registered trademark of salesforce.com, inc., as are other names and marks. isenatfca nelgne oncsaet,csoes n nomto nawoenwwy What way. new whole a in going? you’re where get you help could information by that amap had you if and powered customers, Platform, agents, Success connects Customer intelligence, The artificial Salesforce. Einstein of help the with customers for experience ofexperienceplanforsuccessinthedigitalage?FarmersInsurance®iscreatingatrulydifferentiatedYoucan’talwaysplanfortheunexpected.Butyouhavetotry.So,howdoesanorganizationwith89years Visit salesforce.com/blazeyourtrail. Visit