Anti-Semitism in Europe

Why Marx was right

Angola’s new start

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7 The world this week 33 France’s students The shadow of ’68 34 Leaders The Danish yoke 11 Arms control 34 Georgian anti-fashion Disarmageddon Reaping what it sews 12 T-Mobile and Sprint 36 Charlemagne Block the call The EU’s budget 12 Britain’s Identity crisis Britain’s Windrush fiasco 13 French universities 37 Striking teachers The mistreatment of Non-selective nonsense Pedagogic protest Britons shows the 14 Governance in 38 Policing Serve and predict need for a better way of On the cover Augean Angola checking identity: leader, 38 Steve Komarow Even as America tries to page12. A mess over migrants A tribute strike a deal with North Letters might mean less fuss about ID Korea, arms control elsewhere 39 Child development cards, page 23. Promiscuous? 16 On Donald Trump, Poland, is unravelling: leader, page11. Mother’s money Divorced? Eccentric-looking? , funerals Old deals to limit nuclear 40 Trucking You may be denied a passport, weapons are fraying. Both Sikhs in semis page 24. Britain’s new home and technological Briefing 41 Lexington secretary confronts a change make their renewal or 19 Global security The sage grouse formidable list of challenges: replacement unlikely, page19. A farewell to arms control Bagehot, page 30 The Korean honeymoon is more likely to end in tears The Americas than in celebrations, page 49. Britain 42 Mexico A new history of a terrifyingly 23 Identity cards The politics of homicide close shave with nuclear Big bother 43 Mexico’s mayors Armageddon, page 81 24 Citizenship applications A dangerous job No sex, please, we’re the 44 Bello Home Office The Economist Argentine gradualism online 24 Sainsbury’s and Asda Daily analysis and opinion to In the money supplement the print edition, plus Special report: 26 The Bank of Financial inclusion audio and video, and a daily chart Wait and see, MPC Economist.com Exclusive access 26 NHS “frequent flyers” After page 44 Anti-Semitism in Europe E-mail: newsletters and Charting a new course Today’s prejudice is linked to mobile edition angry identity politics on the Economist.com/email 28 Robin Hood Energy Power to the people Middle East and Africa right and left, page 31 Print edition: available online by 28 The space industry 45 Angola 7pm London time each Thursday How far will Lourenço go? Economist.com/printedition ’s final frontier 29 Sharing data with the EU 46 Mozambique Audio edition: available online Still in a hole to download each Friday Does not compute Economist.com/audioedition 30 Bagehot 46 Eritrea and Ethiopia Sajid Javid’s in-tray Could they make peace? 47 Lebanon’s election A snap-happy campaign Europe 47 Palestinians in Syria 31 Anti-Semitism in Europe Refugees again Haters gonna hate Volume 427 Number 9090 48 Democracy in Tunisia 32 Armenia Uncertain promise Published since September1843 A velvet revolution so far Angola Sacking the old to take part in "a severe between president’s children was a intelligence, which presses , and 33 Romania an unworthy, timid ignorance obstructing Trying the president good start. But João Lourenço our progress." must do more to clean up Editorial offices in London and also: Angola: leader, page 14. Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, Hopes for a corruption-weary New York, , San Francisco, São Paulo, Seoul, country as a new president Shanghai, Singapore, Tokyo, Washington DC consolidates power, page 45

1 Contents continues overleaf 6 Contents The Economist May 5th 2018

Asia 70 Credit-default swaps Blackstone’s wizard wheeze 49 The Korean peninsula Give peace a chance, redux 70 Tax havens The Salisbury effect 50 Malaysia’s election The old man’s last test 71 Banks in Japan Overstaffed and 51 Indonesia overbranded The hard-hat president 72 Buttonwood 52 Indian politics The next crisis The battle in Karnataka 74 Free exchange 52 Masala for the media The worth of nations T-Mobile and Sprint Gaffe-prone leaders in India Financial inclusion Nearly Regulators should squash a quarter of the world’s plans for a big telecoms merger Science and technology population remains unbanked. China in America: leader, page12. 75 Genomes and privacy But thanks to mobile phones, The two firms will find it hard 53 Internal migrants No hiding place financial inclusion is making to persuade regulators that The bitter generation great strides. See our special 76 Language their merger will add jobs and report after page 44 56 Banyan Manners of speaking reduce prices, page 59. The Sino-American tech war government’s case against 76 But is it art? AT&T and Time Warner has Neanderthal creativity Subscription service gone badly, page 60 International 76 Chemistry For our full range of subscription offers, 57 Demography Desalination development including digital only or print and digital combined visit Small isn’t beautiful 77 Working mothers Economist.com/offers You can also subscribe by mail or telephone at Express delivery the details provided below: Business 78 Policing modern slavery Telephone: +44 (0) 845 120 0983 59 American telecoms Traffic jammers Web: Economist.com/offers The art of the deal Post: The Economist Subscription Centre, 60 AT&T and Time Warner Books and arts P.O. Box 471, Vintage legal drama Haywards Heath, 79 Karl Marx at 200 RH16 3GY 60 Glencore in the DRC Second time, farce UK Rumble in the jungle 81 A nuclear near-miss Subscription for 1 year (51 issues) 61 Startups in France Cockroaches and scorpions Print only UK – £145 The next crisis Corporate Seeking the big time 81 America and the 62 Trade and American Chinese civil war debt could be the culprit: Principal commercial offices: Buttonwood, page 72 business Feet of clay The Adelphi Building, 1-11John Adam Street, Chain reaction 82 The Rockefeller auction London WC2N 6HT 63 Sidewalk Labs Manet, Monet, money Tel: +44 (0) 20 7830 7000 Streets ahead Rue de l’Athénée 32 82 Maximalist fiction 1206 Geneva, Switzerland 64 Schumpeter Tick, tock Tel: +4122 566 2470 American sanctions 750 3rd Avenue, 5th Floor, New York, NY 10017 84 Economic and financial Tel: +1212 5410500 Finance and economics indicators 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 67 Bank of America Statistics on 42 economies, Tel: +852 2585 3888 plus a closer look at Greece Making dollars and sense Other commercial offices: 68 Reshaping Chicago, Dubai, Frankfurt, Los Angeles, Shrink to fit Obituary Paris, San Francisco and Singapore Marx at 200 Two centuries 68 Trade and innovation 86 Michael Martin after his birth Karl Marx remains Is there a China chill? Order and disorder surprisingly relevant, page 79 69 Returns to education Smart investment

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“balance” in the region, and with aides to Donald Trump, constitution and allow Presi- Politics said it was important to and said that the Department dent Pierre Nkurunziza to stay preserve “rule-based ofJustice “is not going to be in power foranother16 years. development” there. extorted” by threats from A formerrebel leader, Mr congressional Republicans. Nkurunziza has been in charge Let us in Agitated congressmen have since 2005 and believes that Around 150 people in a cara- drafted articles ofimpeach- God wants him to keep ruling. van ofmigrants from Central ment against Mr Rosenstein, America that has been mak- who a year ago appointed Mr Cleaning up a Ruddy mess ing its way through Mexico Mueller as the special counsel arrived at the border with the leading the inquiry. United States and attempted to claim asylum. Immigration Relations between the White agents initially claimed the House and the Mueller in- checkpoint was at full capacity vestigation could be about to but later started slowly get tetchier, with news that Ty South Korea said that Ameri- processing their applications. Cobb is to be replaced as the can troops would remain in Donald Trump accused the head ofMr Trump’s legal team the country even ifit does migrants of“openly defying by Emmet Flood, who repre- reach a deal with North Korea our border”. sented during his to end the Korean war formal- impeachment hearings. ly. The statement came a few Tens ofthousands ofpeople days after a much-trumpeted continued to throng Nicara- Bibi’s big show resigned as meeting between Moon Jae-in, gua’s streets in peaceful de- Binyamin Netanyahu, Israel’s Britain’s , as the South’s president, and Kim monstrations forand against prime minister, produced the Windrush scandal unfold- Jong Un, the North’s dictator, the authoritarian socialist documents suggesting that ed. Her position became in the demilitarised buffer government ofDaniel Ortega. Iran lied when it said it had untenable when targets for between the countries. Mr Kim The Catholic church and stu- never tried to develop a enforcing the return ofpeople made lots ofnon-specific dents groups tried to open nuclear bomb. The world’s to and other former pledges about working to- talks with the regime. Activists intelligence agencies had long Commonwealth countries wards a nuclear-free Korean demanded an investigation of assumed as much, and little of were leaked. Ms Rudd had peninsula. He is expected to the at least 63 deaths in recent the evidence was new. Mr denied that such targets exist- meet Donald Trump soon. riots, during which Mr Orte- Netanyahu did not offer ed when giving evidence to a ga’s men used live bullets. evidence that Iran continued parliamentary select commit- India’s prime minister, bomb-building after signing an tee. She was seen by many as a Narendra Modi, and China’s Prosecutors in Brazil filed new agreement with America in shield forTheresa May, the president, Xi Jinping, held an corruption charges against Luiz 2015 intended to stop it from prime minister, who ran the informal summit in the central Inácio Lula da Silva, a former doing so. A barrage ofmissiles, Home Office when the “hostile Chinese city ofWuhan. The president who was recently suspected to have been fired environment” policy for meeting was aimed at defusing jailed, and other leaders of the by Israel, struckIranian bases immigrants was introduced. tensions between the two Workers’ Party forallegedly in Syria. Sajid Javid, whose parents countries, which rose last year accepting bribes from Ode- were Pakistani immigrants, during a border dispute. After brecht, a construction firm. Mahmoud Abbas, the leader was appointed as the new the summit, Chinese media ofthe Palestinian Authority, home secretary. said the two countries’ armies said that Jews had suffered had agreed to set up a hotline persecution in Europe because Mr Javid, meanwhile, report- between their headquarters. oftheir involvement in edly threw his support behind money-lending and banking. the hard Brexiteers on a cabi- The Dominican cut A rash ofattacks on Jews in net committee that scuppered its long-standing ties with Germany has prompted the Mrs May’s plan to sign offon a Ta iwa n and established dip- country’s new commissioner “customs partnership” with lomatic relations with China. forfighting anti-Semitism to the EU when Britain leaves the The switch deepens Taiwan’s call forbetter information union. The Brexiteers backa diplomatic isolation: only19 about the perpetrators. “maximum facilitation” countries now recognise it. proposal on customs, based on Scores ofpeople were killed in futuristic and untested tech- In Afghanistan, at least 29 A tower blockcaught fire and suicide-bomb attacks on a nology. The cabinet is still people, including nine journal- collapsed in São Paulo. The mosque and market in north- discussing the options. ists, were killed and dozens abandoned building had been east Nigeria. The attacks were wounded in suicide-bombings illegally occupied by some 150 blamed on Boko Haram, a Armenia’s capital, Yerevan, in the capital, Kabul. Islamic families. Dozens ofresidents jihadist group, and came a day was largely shut down as State claimed responsibility. were missing. after Donald Trump promised hundreds ofthousands of more help forNigeria in its people poured onto the streets, The president ofFrance, A straight Rod fight against the terrorists. demanding that the liberal Emmanuel Macron, visited Rod Rosenstein, America’s opposition leader, Nikol Pashi- Australia, where he said the deputy attorney-general, The government ofBurundi nian, be made prime minister. rise ofChina was “good defended Robert Mueller’s campaigned to pass a referen- The ruling party has so far news”. But he also called for investigation into Russian links dum that would change the rejected this. 1 8 The world this week The Economist May 5th 2018

China, want permanent ex- Xiaomi, a Chinese smart- with a “good international Business emptions from the tariffs, phone-maker, filed foran IPO reputation” need apply. which Argentina, Australia in Hong Kong. The company is T-Mobile and Sprint decided and Brazil have attained. reportedly hoping to raise up The mouse that roared to have another go at merging, to $10bn, which would make it announcing a deal that values In a $36bn deal that creates one ofthe biggest tech Box office opening weekend the combined company at America’s biggest oil-refining flotations to date. Gross receipts, $m, 2018 prices $146bn, including debt. The company, Marathon Petro- United States Rest of world pair toyed with the idea of leum said it would buy Tesla Motors’ latest earnings 0 200 400 600 hooking up in 2014. Antitrust Andeavor. Andeavor operates report raised more questions Infinity War regulators were not keen, as a ten refineries in the western forinvestors about the rate at The Force Awakens merger would reduce the United States. Marathon owns which it is burning through its The Fate of the Furious six, but handles more oil. cash reserves. Plagued by number ofbig wireless carriers Jurassic World in America from fourto three. production problems forits That issue will come to the fore Higher oil prices helped lift Model 3 mass-market car, Tesla The Deathly Hallows (Part 2) again now. T-Mobile and BP’s headline profit in the first ended the first quarter with Spider-Man 3 Sprint argue that their new quarter by 71%, to $2.6bn. The $2.7bn in cash on hand, com- The Half-Blood Prince company would have the energy giant hinted that it pared with $3.4bn in Decem- The Last Jedi capacity to roll out a nation- would increase its dividend for ber. It also reported another Batman v Superman wide 5G networkquickly. the first time in fouryears ifoil headline loss, of$710m. prices remain buoyant; its The Avengers Competition concerns were stockhit an eight-year high. Cambridge Analytica folded. Sources: Box Office Mojo; BLS also raised in Britain after The data-mining firm hit the Marvel Entertainment, a sub- Sainsbury’s said that it had A working strategy headlines forobtaining infor- sidiary ofDisney, broke box- reached an agreement to buy Apple reported a net profit of mation on Facebookusers that office records with the release Asda, which is owned by $13.8bn forthe first three was then deployed to help of“Infinity War”, the latest of Walmart. The melding of months ofthe year. Although Donald Trump’spresidential its Avengers movies, beating Britain’s second- and third- the rate ofgrowth in iPhone campaign. The firm blamed a the global record foran open- biggest supermarket chains sales has slowed over the media “siege” forits decision ing weekend with a total of would create a colossus in the years, revenue from its signa- to shut up shop. $641m. “The Force Awakens”, industry, though both brands ture product rose by14% com- Disney’s first Star Wars outing would be retained—Asda pared with the same quarter Ahead ofa visit to Beijing by after acquiring the Lucasfilm pitches its appeal to more last year, thanks in part to the senior economic officials in the franchise, still boasts the best cost-conscious shoppers than more expensive iPhone X. Trump administration, China opening weekend in America Sainsbury’s. With 1.3bn Apple devices in relaxed the restrictions on after adjusting forinflation. It is use around the world, its foreign investors becoming possible that this Avengers Steady on income from associated ser- controlling shareholders in adventure may be the biggest At its latest meeting, the Feder- vices, such as music, soared by joint-venture securities com- yet and take $2bn worldwide. al Reserve left its benchmark a third. Swimming in cash, panies, raising the cap on interest rate unchanged at a Apple launched another share foreign ownership from 49% to For other economic data and range ofbetween 1.5% and buy-backplan, worth $100bn. 51%. Only financial institutions news see Indicators section 1.75%. The central bankis ex- pected to raise rates at its next meeting, in June. The Fed’s decision came after data indi- cated that the American econ- omy grew at an annualised rate of2.3% in the first quarter, the slowest pace in a year.

In an abrupt move, Argenti- na’s central bankraised its benchmarkinterest rate from 27.25% to 30.25% in an effortto shore up the peso, which has taken a battering in currency markets amid worries about stubbornly high inflation.

The Trump administration postponed implementing tariffs on steel and aluminium imports from countries in the by a month, saying it wanted more time for negotiations. The Europeans, annoyed that they should be bracketed with countries like Noisy attacks aren’t hard VQƓPFų

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SPAIN · CHINA · INDONESIA · ITALY · VENEZUELA Leaders The Economist May 5th 2018 11 Disarmageddon

Even as America tries to strike a deal with North Korea, arms control elsewhere is unravelling ARELY do optimism and A second problem is mistrust, heightened since the revival RNorth Korea belong in the ofgreat-powercompetition between America and Russia after same breath. However, the a post-Sovietlull. Thatoughtto give armscontrol new urgency; smiles and pageantry in April’s instead it is eroding it. Take New START, which caps the num- encounter between Kim Jong ber of strategic warheads deployed by Russia and America at Un and Moon Jae-in, leaders of 1,550 each. It will expire in 2021 unless Vladimir Putin and Mr the two Koreas, hinted at a deal Trump extend it, which looks unlikely. Instead Mr Trump in which the North would aban- boasts that America’s nuclear arsenal will return to the “top of don nuclear weapons in exchange for a security guarantee the pack”, bigger and more powerful than ever before. That re- from the world, and in particular America. Sadly, much as this pudiates the logic of successive strategic-arms-control agree- newspaper wishes for a nuclear-free North Korea, a lasting ments with Russia since 1972, which have sought to hold back a deal remains as remote as the summit of Mount Paektu. The nuclear arms race by seeking to define parity. Kims are serial cheats and nuclear weapons are central to their grip on power (see Asia section). Moreover, even as optimists Fix it, don’t nixit focus on Korea, nuclear restraints elsewhere are unravelling. Or take the insouciance with which the likes ofMr Bolton and By May 12th President Donald Trump must decide the fate his Russian counterparts condemn the Intermediate-Range of the deal struck in 2015 to curb Iran’s nuclear programme. Nuclear Forces (INF) Treaty. Struck in 1987 by Ronald Reagan This weekBinyamin Netanyahu, Israel’s prime minister, gave a and Mikhail Gorbachev, this deal dismantled 2,700 ground- presentation that seemed designed to get Mr Trump to pull launched nuclear missiles with a range of 500-5,500km that America out. He may well oblige. Worse, within three years putEuropean deterrence on a hair-trigger. Todayeach side says current agreed limits on the nuclear arsenals of Russia and the other is violating the INF. Mr Bolton et al argue that it is America are set to lapse, leaving them unconstrained for the worth keeping only if it includes countries such as China— first time in almost halfa century (see Briefing). which they know will not happen. In the cold war a generation of statesmen, chastened by Last comes the problem of technology. Better missile de- conflict and the near-catastrophe of the Cuban missile crisis, fence could undermine mutually assured destruction, which used arms control to lessen the riskofannihilation. Even then, creates deterrence by guaranteeing that a first strike triggers a nuclear war was a constant fear (see Books section). Their suc- devastating response. Speaking on March 1st, Mr Putin bran- cessors, susceptible to hubris and faced with new tensions and dished exotic new nuclear weapons he would soon deploy to new technology, are increasingthe chances that nuclear weap- counter future American missile defences. A new nuclear ons will spread and that someone, somewhere will miscalcu- arms race, with all its destabilisingconsequences, is thus likely. late. A complacent world is playing with Armageddon. A cyber-attack to cripple the other side’s nuclear command and control, which could be interpreted as the prelude to a nu- START worrying clearfirst strike, is anotherpotential cause ofinstability in a cri- One problem is that the critics of arms control overstate its sis. Verifying the capabilities of software is even harder than aims so as to denigrate its accomplishments. Opponents ofthe assessing physical entities such as launchers, warheads and Iran deal, such as , Mr Trump’snew national secu- missile interceptors. New approaches are urgently needed. rity adviser, complain that it has not stopped Iran from work- None is being contemplated. ing on ballistic missiles or from bullying its neighbours. But Extending New START, saving the INF, creating norms for that was never the intent of the Joint Comprehensive Plan of cyber-weapons and enhancing the Iran deal are eminently do- Action (JCPOA), as it is formally known. Instead, for at least ten able, but only if there is sufficient will. For that to gel, today’s years, the pact cuts offIran’s path to a bomb and makes any fu- statesmen need to overcome a fundamental misunderstand- ture attemptmore likelyto be detected early. Whatever MrNet- ing. They appear to have forgotten that you negotiate arms- anyahu implies, Iran has kept its side of the agreement despite control agreements with your enemies, not your allies. And not getting many ofthe economic benefits it was promised. that arms control brings not just constraints on weapons ofun- Wrecking the Iranian deal has costs. Iran would be freer to imaginable destructive force, but also verification that pro- ramp up uranium enrichment, putting it once more in sight of vides knowledge ofcapabilities and intentions. In a crisis, that a weapon. The nuclear Non-Proliferation Treaty (NPT), still the can reduce the riskofa fatal miscalculation. best bulwarkagainst the spread ofthe bomb, would be under- Cherish the scintilla ofhope in North Korea, and remember mined: other countries in the region, such as and how arms control needs shoring up. The alternative is a future Egypt, may well respond by dusting off their plans to become where countries arm themselves because they cannot be sure nuclear powers; and America would be abandoning a fix that their enemies will not get there first; where every action could shores up the NPT. Mr Trump would have to workeven harder escalate into nuclear war; where early warnings of a possible to convince Mr Kim that he can trust America—especially as attack give commanders minutes to decide whether to fire Mr Bolton compares North Korea to Libya, whose leader gave back. It would be a tragedy forthe world ifit tookan existential up a nuclear programme only to be toppled by the West and scare like the Cuban missile crisis, orworse, to jolt today’scom- butchered a few years later. placent, reckless leaders backto their senses. 7 12 Leaders The Economist May 5th 2018

T-Mobile and Sprint Block the call

Regulators should squash plans fora big telecoms mergerin America O MANY false starts would a different outcome. The combined firm projects relatively Mobile-phone connections Shave soured other romances. slow growth in revenue, a jump in profit margins and rapid de- United States, 2016, m Resistance from antitrust au- leveraging. That does not sound like the plan fora price war. 0 50 100 150 thorities halted a union be- If regulators have opposed such tie-ups before, why do T- Verizon tween T-Mobile and Sprint, Mobile and Sprint expect a different answer this time? One ex- AT&T America’sthird- and fourth-larg- planation is the risk that Sprint, which is heavily indebted and

T-Mobile Sprint est wireless carriers, in 2014. A has been struggling for a while, might go bust if it remains a row over merger terms scup- stand-alone entity.But that ought not to sway the trustbusters. pered talks last year. But the attraction never dimmed. Sprint could shed its debts in a Chapter 11 bankruptcy process This week the pair announced an all-stock deal that would and re-emerge in better shape, or it might get swallowed up by create a company with a heft similar to that of AT&T and Veri- a different firm entirely. zon. The happy couple promises lower prices for customers, higher profits for shareholders and a sharpening of America’s Trumpeteriandestruction technological edge (see Business section). Regulators should The second explanation is that the two firms think that they be sceptical. The tie-up is bad forconsumers; and there are bet- can win a public-interest argument about technological lead- ter ways to build whizzy new networks. ership. The bosses of T-Mobile and Sprint argue that by bring- Consumer welfare first. The international evidence sug- ing together their bands of spectrum, they would be able to geststhatcuttingthe numberofbigoperatorswould be bad for build America’s first national 5G network. Their merger pre- customers. Research by British regulators into 25 countries sentation, featuring slides with headlines such as “US must shows that average prices were up to one-fifth lower in mar- lead innovation again” and “Global economic leadership is at kets with four network operators than in those with three. (Ig- stake!”, was aimed as much at economic nationalists in the nore the claims ofT-Mobile and Sprint that the American mar- as analysts with spreadsheets. ket is contested by as many as eight firms: in its latest report on It is true that 5G networks are expensive to build: they re- the industry,the Federal CommunicationsCommission found quire more antennae, base stations and fibre-optic cables than that the fourcarriers accounted forover 98% ofconnections.) their predecessors. It is also true that 5G’s speed provides a T-Mobile itself is testament to the benefits of a more crowd- platform upon which all sorts of data-hungry new services, ed market. Trustbusters not only zapped its discussions in 2014 from self-driving cars to industrial robots, can develop. But with Sprint but also blocked an earlier attempt by AT&T to buy thatdoesnotmean operatorshave to build theirown, separate it in 2011. The firm has thrived on its own. It has added almost networks. Mobile providers in South Korea have agreed to 40m customers in the past five years by cutting prices and add- share the costs and use of5G infrastructure. Mexico is building ing features such as free video-streaming. Subscribers every- a wholesale mobile network; its capacity can be leased out to where have felt the benefits. Between 2013 and 2016 overall different firms. Better this approach than muted competition consumer prices in America rose by 4.5%; prices for wireless and price-gouged consumers. The union of T-Mobile and telephone services decreased by 8%. Consolidation threatens Sprint is one that regulators should not bless. 7

Britain’s Windrush scandal Identity crisis

The mistreatment ofCaribbean Britons shows the need fora betterwayofchecking identity HE harassment of the Wind- grants that she created as home secretary. Trush generation of Caribbe- Indeed, Mrs May’s rigid insistence on reducing net inflows an migrants is a shameful chap- to the arbitrary level of 100,000 a year created a hostile envi- ter in Britain’s history, and ronment for all migrants, not just the illegal ones (see Britain ministers are paying for it. One section). Landlords, employers and others were given new du- home secretary resigned on ties to checkpeople’s migration status. The result has been that April 29th; her predecessor, The- those with incomplete paperwork have been denied homes, resa May, now the prime minis- jobs and public services, and have even been locked up. Mrs ter, is weakened. It falls to Sajid Javid, who took charge of the May sent mobile billboards bearing the legend “GO HOME OR Home Office this week, to clear up the mess. FACE ARREST” to migrant-heavy districts. She ridiculed “citi- There is little to like about Mrs May’s migration policy. The zens of nowhere” and threatened to make companies publish state-led houndingofthousandsoflaw-abidingBritish citizens lists of their foreign workers (before backing down). Cowboy- was a side-effect ofthe “hostile environment” forillegal immi- ish Home Office officials desperate to reach their targets have 1 The Economist May 5th 2018 Leaders 13

2 used any excuse to notch up ejections. Claimingto crack down a simple, non-discriminatory way to check the identity of its on illegal migrants, they even broke the law themselves. population. Under Mr Javid it should get one. For all its shortcomings, Mrs May’s approach does contain Liberals, including this newspaper, have argued against na- one idea thatisworth preserving: enforcementshould happen tional identity registers on the basis that they invade privacy inland, not just at the border. Most of Britain’s half-million or and aid oppression by the state. But the balance of this trade- so illegal immigrantsdid notenterthe countryillicitly buthave offhaschanged. In a globalised world more people spend time overstayed their visas. Furthermore, from the camps of Calais travelling, studying or working abroad, and access to labour to the Mediterranean sea, there is plenty ofevidence that forti- markets and public services depends on their exact status. fying borders does not stop lots of people continuing to try to Proving identity thus matters more than ever. Countries like cross them. The result is migrants’ suffering, extra cost to tax- Britain that lack an ID register rely on other proofs—bank state- payers and a bonanza for people-smugglers. ments, tax records, phone bills—that are even more intrusive. The Windrush debacle highlighted that Britain has no easy As for the risk of oppression, the Windrush affairshows that it way of carrying out this inland enforcement. The govern- is not just all-knowing states that have the power to persecute ment’s guide for landlords who need to verify tenants’ migra- their citizens. It was precisely the opacity of information that tion status is 35 pages long. If landlords get it wrong they risk a the Home Office exploited in order to pursue many thousands fine or even imprisonment. Researchers have shown that, un- ofpeople who had a right to be in Britain. surprisingly, they tend to err on the side of caution, rejecting those without passports (and especially those who are not Papers please white). The result is pressure against all migrants, and also Setting up an identity register would not be cheap or easy. A against ethnic minorities, British or otherwise. After Brexit the previous, abortive effort to roll out ID cards a decade ago was problem will be worse, as 3m Europeans will be allowed to re- priced at about £5bn ($7bn). It would probably have to involve main permanently but without passports. an element of amnesty for those caught up in a Windrush- The scandal has rightly provoked calls for an overhaul of style trap of missing paperwork. But Brexit is forcing Britain to migration enforcement. Any rethinkmust get to the root of the think hard about matters of migration and citizenship. Taking problem. This is not that Britain checks the status of migrants, back control of who enters the country is one of the biggest as any country must if it values the rule of law. The real short- prizes advertised by Brexiteers. To do that, Britain must first coming is that Britain, rarely among advanced countries, lacks have a better idea ofwho is already there. 7

French universities Non-selective nonsense

Students with shaky maths should not have a right to take a taxpayer-funded degree in the subject IKE organising a shipwreck study the course of their choice. So youngsters with only rudi- “Lin order to find out who mentary maths may sign up fora maths degree and those who can swim,” is how Alain Peyre- have little acquaintance with the past can read history. fitte, then France’s education Since the costs of public university are paid almost entirely minister, described his coun- by the state and the fees are low—an average of €189 a year try’s non-selective system of re- ($227) in 2017—the results are predictable. Universities are over- cruiting university students half whelmed. In the first year, thousands jam into lecture halls de- a century ago. Peyrefitte hoped signed for hundreds. Professors cannot offer the support that to transform the system by introducing selective admissions. laggards need. Most students drown: many drop out after a He failed, and instead triggered the student uprising of May year, but some struggle on, retaking exams again and again. In 1968. Now President Emmanuel Macron, attempting a similar all, over 70% fail to complete a degree within three years. The reform, has also brought students out on the streets (see Eu- same system prevails in Italy and bits ofLatin America. rope section), and the French hear echoes of soixante-huit. But Odd as it may seem, this “republican” model ofhigher edu- he is right to try to reform a wasteful higher-education system, cation commands great support in France, so Mr Macron is just as Peyrefitte was. France’s model is inefficient, inequitable treading lightly in his attempts to reform it. He is not—heaven and allows too many young people to sinkwithout a chance. forbid—saying explicitly that universities should “select” stu- dents (the word is political dynamite). He is merely proposing Napoleon who? that they should be able to require those who wish to study a That model traces its roots to 1808, when Napoleon Bonaparte particulardegree to have some basicknowledge ofthe subject. introduced the baccalauréat and decreed that anybody who But opponents of reform suspect (probably rightly) that any passed it was entitled to a place at university. For many years, conditions for admission will lead to more stringent rules— keeping that promise was easy because so few held what was which is why the students and the left are marching. then an elite qualification. In 1950 only 5% ofpupils attempted The arguments for reform on efficiency grounds are obvi- the baccalauréat. That has changed dramatically: these days al- ous. Jamming up publicly financed universities with people most everyone takes the bac and, in 2016, nearly 80% of pupils who are never going to finish their degrees is not a good use of passed it. Yet the entitlement has not changed. The bac’s hold- taxpayers’ money. But the system is also unfair. It promises stu- ers still have the right to enter the university of their choice to dents a leg-up in life that most of them will not get, and it in-1 14 Leaders The Economist May 5th 2018

2 ducesthem to spend a year,and sometimesseveral, pursuing a satisfied with their time abroad than those of any other big dream that is likely to be dashed. European country; foreigners studying in France were less sat- Even in terms of égalité—the issue that matters most to its isfied than those in any other such country. supporters—the “republican” system fails. Measured by the Because the risk of a backlash is so high, Mr Macron is wise share of people who get degrees but whose parents didn’t, to move slowly. But if he is to make French higher education France does not do well by the disadvantaged, performing be- more efficient and more equitable, he needs to succeed in low average amongrich countries. But it provides plenty ofop- these first steps, and then build something better. America is portunities forthe rich and clever, through an elite system that not a great model. Its system is highly selective at the top, not at floats above the public one with which the masses must make all at the bottom, and has a huge drop-out rate, the conse- do. Around 8% of students go to the grandes écoles, the highly quences of which are borne by the students who emerge with selective elite universities with whose existence French egali- no qualifications but lots of debt. Britain’s and Australia’s sys- tarians seem strangely comfortable. Around18% attend private tem—selective universities paid for largely by graduates who universities. And many who can afford it go abroad. France are earning enough to afford the loan repayments, and a low has one of the highest rates in the rich world of study abroad. drop-out rate—is probably the best on offer. But it will be a long In a survey by Studyportals.com, French students were more time before France is ready forthat sort ofrevolution. 7

Governance in Africa Augean Angola

Sacking the old president’s children was a good start. But João Lourenço must do more to clean up Angola F ANY country ever needed a the capital, was recently ranked as the most expensive city in Cabinda CONGO Ifresh start, Angola does. It is the world forexpats. Genuine entrepreneurs are crushed. “It is Luanda more corrupt than Nigeria; its in- virtually impossible for meaningful economic activity to oc- ATLANTIC fant mortality is higher than Af- cur outside the charmed of the politically protected,” OCEAN ANGOLA ghanistan’s. Until September it ZAMBIA wrote Ricardo Soares de Oliveira in “Magnificent and Beggar had been ruled by the same Land: Angola since the Civil War”.When the oil price crashed ZIMBABWE man, President José Eduardo in 2014, Angola was left with stalled growth, vast debts to Chi- 500 km NAMIBIA BOTSWANA dos Santos, for 38 years—more na and no export industry of any consequence to replace hy- than twice as long as most Angolans have been alive. Even in drocarbons. This is the mess Mr Lourenço must clean up. retirement, many expected Mr dos Santos to continue pulling the strings; he remains head ofthe ruling party. Hardly anyone Lourenço’s toil expected his successor, João Lourenço, to break the chokehold Some early signs are encouraging. Besides sidelining the dos that the dos Santos family and their cronies have on the An- Santos clan, he has pushed through a law making foreign in- golan economy. So Mr Lourenço’s first few months in office vestment easier, by removing a requirement to have a local have pleasantly surprised (see Middle East & Africa section). partner, and asked the IMF how to stabilise the economy. But He has ousted Mr dos Santos’s daughter, reputed to be Afri- this is not nearly enough. Since Angola’s biggest problem is ca’s richest woman, from her perch at the top of the national corruption, the government’s most urgent tasks are to promote oil firm, and sacked the former president’s son from his job transparency and accountability. A good start would be to al- running the sovereign-wealth fund. He has even allowed the low an independent audit of the country’s public debt. How junior Mr dos Santos to be charged with fraud, which he de- was it created, and where did the money go? The opposition is nies, over the transferof$500m out ofthe country. That would calling for such an audit, and some members of the ruling never have happened under his father’s regime. The $640bn party would support it. Those who object are largely people question is whether Mr Lourenço’s anti-corruption drive is with something to hide. Unfortunately, they are a powerful real, or whether he plans to replace one set of snouts at the constituency in Angola. It remains to be seen whether Mr Lou- trough with another. renço has the will and the wherewithal to defeat them. $640bn is the amount of money that Angola is thought to The rulingparty is no longerMarxist, but it still seeks to con- have made from oil and gas exports since 2002. That was the trol too many aspects ofAngolan life. Agrowth-blocking forest year its ghastly, three-decade civil war ended, leaving its peo- of licences and regulations enriches those with the power to ple traumatised and its soil studded with landmines. Soon af- grantorwaive them. Itshould be slashed. Political meddling in terwards oil prices surged, giving Africa’s second-largest oil Angola’s courts grants impunity to the mighty. It should end. producer a chance to reap a huge peace dividend and rebuild And assaults on press freedom shield the elite from much- its bombed-out cities. This chance was not entirely squan- needed scrutiny. Rafael Marques de Morais and Mariano Bras, dered—Angola hasmore roadsand damsand skyscrapersthan two graft-illuminating journalists, are on trial—behind closed before, and its people are a bit less poor. But the main benefits doors—for insulting the former attorney-general. The cases ofthe oil boom flowed to a tiny elite. against them should be dropped, and the media unmuzzled. Tens of billions of petrodollars simply vanished. Many Mr Lourenço once promised to root out corruption even more were grabbed by bigwigs who won permits for projects among the most powerful, adding that “the law is for every- and let their foreign partners do the work. Practically every- one.” Angola can escape from his predecessor’s long, dark thing in Angola costs more because cronies take a cut: Luanda, shadow only if he means it. 7

16 Letters The Economist May 5th 2018

Reporting on Trump ment. I cannot associate my- contested by many parties. My wife, Mary, died in Febru- selfwith today’s Republican- The Public Order and Safe- ary. Herbody will train stu- Lexington’s column on the FBI ism. I am heartbroken. ty (Special Powers) Act and the dent doctors in anatomy raiding the office ofPresident FRANK ROBINSON Select Committee on Deliber- through a not-for-profit consor- Trump’slawyer did not men- Albany, New York ate Online Falsehoods have tium oflocal medical schools, tion some salient facts (April nothing to do with keeping the Humanity Gifts Registry. 14th), notably the issues associ- Poland’s government “unruly critics” in checkor the The removal ofmy wife’sbody ated with attorney-client government in power. The act was done caringly. There is a privilege. Iflawyers can have Yourleader on the Polish applies to serious incidents memorial service forfamilies their offices ransacked and government read in places like affecting public order, includ- and students and the ashes are then be subject to prosecutions an election pamphlet from the ing terrorist attacks. The Lon- returned. for what is discovered, what opposition Civic Platform don riots in 2011started out as a LEONARD FINEGOLD effect will this have on repre- party (“APolish pickle”, April peaceful demonstration that Media, Pennsylvania sentation fordifficult cases? 21st). The governing Law and degenerated into violence, Nor did the column mention Justice (PiS) party received an fuelled by social media. We When I was a criminal the asymmetry ofhow overwhelming mandate from drew lessons from this and investigator I participated in 20 attorney-client privilege was the Polish people in 2015, other incidents in formulating exhumations ofcoffins buried used in the FBI’s timid in- including a clear instruction to our act. The committee hear- in concrete vaults. Fancy and vestigation ofHillary Clinton’s rebalance a judiciary,which ings looked into serious issues expensive caskets. Without e-mail server, specifically in had been stacked with allies similar to those which The exception, after only a few the case ofthe testimony of by the formergovernment Economist has decried. years each casket had failed in her chiefofstaff. Finally, there without any complaint from As forpolitical succession, some way, most often because was no discussion ofhow far the European Union. the next generation ofleaders ofthe so-called hermetic seal. afield Robert Mueller, the Tocounter its weakness at is following the same process The end result were contents special counsel, has taken the home, Civic Platform is seek- as previous generations. They which in no way resembled a focus ofhis investigation ing to Europeanise what are are working as a team and sleeping loved one. From compared with the original essentially domestic issues taking the measure ofone soupy flotsam to giant mould remit ofRussian influence. and fight its battles in Brussels another. They will agree, in blooms, the interiors were Ifyou don’t like this presi- rather than Warsaw.By impos- good time, who among them- hideous. Bottom is, do not dent, fine. Lots ofus don’t and ing an agenda ofever increas- selves will be primus inter waste your money. there is plenty oflegitimate ing centralisation and trying to pares. Ultimately voters have MIKE POST ammunition to discuss. Now, force a mythical European the final say,because whoever Los Angeles however, you are feeding the identity on member states (the becomes prime minister must narrative that the mainstream same policies that contributed convince the electorate to give media is just hopelessly to Brexit), the EU is behaving, him and his party the mandate biased. This leads to a general in the eyes ofmany in Poland, to govern, as in the Westmin- discounting ofyour reporting. like the formerSoviet Union. ster model. Our variant may People just stop watching or ASHLEY FOX, MEP not be rambunctious enough reading what you write. There Leader of the Conservatives in for The Economist, but it has is also something worse. What the European Parliament worked well forSingapore. goes around eventually comes Brussels FOO CHI HSIA around. What will you say High commissioner for when the attorney’s office of a Poland’s Mazowsze region is as Singapore politician ofwhom you “gorgeousasaChopin London approve gets ransacked by his concerto” (“Change ofstate”, political opponents? April 21st)? The maestro’s two The grateful dead I am reminded of“The Big STEPHEN ARBOGAST piano concertos have been Lebowski”. Reacting to the Professor of the practice of called many things including, “Funerals ofthe future” (April expense ofa funeral urn, finance rather unkindly,bad pieces for 14th) looked at the increasingly Walter Sobchak(played by University of North Carolina at orchestra. But now we are expensive business ofdis- John Goodman) shouts at the Chapel Hill invited to thinkofthem as “an posing ofthe dead. One way to undertaker that “just because undulating quilt ofcereal reduce costs is to rehearse a we’re bereaved doesn’t make Yourlament forwhat the fields”. Corn? funeral. Death often comes us saps!” But as the urn is the Republican Party has become MICHAEL KNIGHT unexpectedly and inconve- funeral parlour’s “most mod- was, ifanything, too mild Geneva niently, causing friends and estly priced receptacle”, he (“How the elephant got its family to have to plan sudden- instead places his friend’s Trump”, April 21st). It has be- Singapore’s politics ly forthe funeral. A funeral ashes in an empty coffee tin. come the party oflies and rehearsal, flexibly scheduled, AUGUSTUS HANEY xenophobia, ofirresponsibil- The People’s Action Party has so that all can attend, including New York 7 ity and moral corruption, retained power in Singapore the soon-to-be-departed as a fetishising blind loyalty to a not because the electoral participant in the flesh, is more very bad man. Beseeching system is “manicured” (“Not satisfying. He or she could lie Letters are welcome and should be responsible Republicans to much leeway”, April 28th), but in comfortand listen to the addressed to the Editor at The Economist, The Adelphi Building, resist this misses the mark, because it knows and expects encomiums. Ifthey are not 1-11John Adam Street, when you indicate that the that ifit does not measure up it sufficiently positive, one could London WC2N 6HT party is irredeemable. What will be voted out. We have had rise up and glare. E-mail: [email protected] they should do is quit, as I did 14 general elections since 1959, CALHOUN More letters are available at: after 53 years ofactive commit- all free and fair and robustly Bethesda, Maryland Economist.com/letters Executive Focus 17

The Economist May 5th 2018 18 Executive Focus

The World Maritime University (WMU) is a postgraduate education, research and capacity building university established in 1983 by the International Maritime Organization (IMO), a specialized agency of the United Nations. Highly qualifi ed candidates are invited to apply for the following vacancies: Vice-President, Academic Affairs, grade D-1 Required qualifi cations: PhD in a relevant fi eld, including: maritime transportation, marine or ports fi elds, , natural or marine science or related fi eld. Minimum of 15 years experience in working in the higher education sector. A strong history of academic achievement, including postgraduate teaching, and supervision of research over at least 10 years Chief Operating Offi cer (COO), grade D-1 Required qualifi cations: Business or Accounting degree mandatory, a Master’s in Business Administration from a leading Business School is preferred or a Masters in quantitative fi nance or one of the following fi elds: Applied Mathematics, Applied Statistics, Actuarial Science, Physics or Engineering. A minimum of fi fteen years experience with senior-level expertise in fi nancial planning, asset management, fund design, investment vehicles and risk management with private corporations, international organisations or non- profi t Institutions. WMU offers an attractive salary (D-1 Grade of the ICSC salary scale), free of income tax in Sweden, a benefi ts package and relocation expenses. These positions are based in Malmö, Sweden. Application deadline: 31 May 2018 Full details of the position and how to apply: https://www.wmu.se/vacancies The Economist May 5th 2018 Briefing Global security The Economist May 5th 2018 19

improved confidence on both sides. A farewell to arms control Since then things have got steadily worse. To get New START ratified by the Senate, Mr Obama had to show that the limited number of nukes it allowed would be of tip-top quality. Thus he embraced a sweeping modernisation programme Old deals to limit nuclearweapons are fraying. Both politics and technological which calls for the refurbishment of war- change make theirrefurbishment orreplacement unlikely heads and new intercontinental ballistic INCE 1972, when the first Strategic Arms atically undermined by the Trump admin- missiles (ICBMs), submarines and bom- SLimitation Talks (SALT I) agreement was istration. Summitry with North Korea is bers; the Congressional Budget Office ex- signed, there have always been negotiated more likely to result in grudging recogni- pects it to cost about $1.2trn over the 30 constraints on the nuclear arsenals con- tion of it as a nuclear-weapon state than to years from 2016. The Russians began their trolled from Washington and Moscow. In lead to the dismantling of its arsenal of own ambitious nuclear upgrades, too. Bob three years, if nothing is done, that half- missiles. Ifthe talks breakdown the penin- Einhorn, a former arms-control negotiator century of strategic arms control will be sula could become even more unstable. now at the Brookings Institution, a think- over. In 2021 the curbs on warhead num- The main bulwark against the spread of tank, fears that “the dynamics of nuclear bers and the protocols for exchanging in- nuclear weapons, the Nuclear Non-Prolif- modernisation” could lead to new tech- formation provided by the New START eration Treaty, is holding up; but it is in nologies and therefore new strategic un- (Strategic Arms Reduction Treaty) of 2011 worse shape than at any time since it en- certainties which increase risks even if the will lapse unless it is extended. The conse- tered into force in 1970. limits ofNew START are adhered to. quence of the treaty’s demise could be a If all this were going on during a period dangerous and expensive new arms race. You can’t fight in here when relations between Russia and Amer- It farfrom the only reason for such nuc- It seems a long time since ’s ica allowed forthe conductofnormal busi- lear worries. Both President Donald Prague speech, in which he talked about ness, including follow-on arms-control Trump and Vladimir Putin, the president working towards a world free of nuclear agreements, there might not be too much ofRussia, revel in a form ofnuclear bragga- weapons. In 2010, a year after setting out to worry about, other than the expense. docio that would have been anathema to that goal, Mr Obama’s administration ne- They aren’t. In 2013 Mr Obama floated the their predecessors. Mr Trump boasts about gotiated the New START agreement with possibility of the two countries cutting the the size ofhis nuclear button and promises Dmitry Medvedev, Mr Putin’s more emol- number of their deployed nuclear war- to return America’s nuclear arsenal to “the lient sidekick and placeholder. The treaty headsbya furtherthird. ButMrPutin made top ofthe pack”. Mr Putin made the central obliged both sides to field no more than it clear, according to Mr Einhorn, that he set-piece speech of his recent re-election 1,550 strategic nuclear warheads with no had “zero interest” in the proposal. For Mr campaign an extended riff on Dr Strange- more than 800 missiles and bombers to Putin, nuclear weapons are not just the ul- love, gloating over a slew of novel, blood- carrythem. Like SALT I and mostarms-con- timate guarantor of Russia’s security but a curdling weapons, including one that ap- trol deals since, New START contained symbol of national pride that demands re- pears to boast the most powerful warhead detailed verification and monitoring ar- spect (and fear) from adversaries. ever created, the better to drench coastal rangements. These not only ensured that Just a few months after Mr Putin’s re- cities with irradiated tsunami. the two parties were doing what they had buff, in January 2014, Rose Gottemoeller, The deal that constrains Iran’s develop- said. They also provided insights into then under-secretary for arms control at ment of nuclear weapons is being system- how they ran their nuclear forces which the State Department and now deputy sec-1 20 Briefing Global security The Economist May 5th 2018

2 retary-general of NATO, informed Ameri- like to preserve the INF because the weap- Mr Bolton at least knows what New ca’s allies that Russia appeared to be in vio- ons it eliminated from Europe were inher- START is. Itislessclearthathisboss does. In lation of the Intermediate Range Nuclear ently destabilising. But it is not just the a call between them in early 2017, Mr Putin Forces (INF) Treaty of 1987, in which the Russians who are chafing under its restric- sounded Mr Trump out on extending the two superpowers agreed to give up tions. Jim Miller, a former under-secretary agreement. Pausing to ask aides what Mr ground-launched nuclear weapons with of defence, thinks the INF Treaty is worth Putin was talking about, Mr Trump came ranges between 500 and 5,500 kilometres saving. But he concedes that, having seen back on the phone to declare that it was (310 to 3,400 miles). The INF Treaty marked China and North Korea build large ground- just one ofseveral terrible deals negotiated a thaw in the cold war and led to the de- launched intermediate-range nuclear mis- by his predecessor, so probably not. struction of2,700 missiles. sile forces, some will argue for deploying His administration is not dead against Russia’s alleged breach lies in testing similar systems from bases in the Pacific, extension. The Nuclear Posture Review is and possibly deploying a ground- such as Guam. guardedly non-committal about it. Losing launched cruise missile, known as the One such is John Bolton, Mr Trump’s the insights into its opponent’s strategic 9M729, with a range ofmore than 500 kilo- new national security adviser. In 2011 Mr forces provided by the treaty’s verification metres. The Russians, characteristically, Bolton wrote a Wall Street Journal op-ed regime would be a serious setback for the deny that it can fly farther than allowed. which called for either “multilateralising” Pentagon—as it would for its Russian coun- Fortheirpart they have accused the Ameri- the INF—that is, getting other countries to terparts. But the odds on extension are cans ofbeing in breach; they say launchers abide by its strictures—or abandoning it. lengthening. Sir Lawrence Freedman, a for American SM-3 “Aegis Ashore” anti- The Russians have suggested something British nuclear strategist, argues that arms missile interceptors in Romania can be very similar. Like Mr Bolton they are being control tends to follow rather than lead used to fire prohibited cruise missiles. disingenuous: multilateralising the agree- politics. “Adegree oftrustisneeded. Unfor- The dispute could easily be settled, says ment is an impossible goal. tunately, the Russians don’t seem able to James Acton, a nuclear-policy expert at the Nor is Mr Bolton much of a fan of New tell the truth any more.” Carnegie Endowment for International START. He fought hard to prevent its ratifi- Ifarms control does indeed follow poli- Peace. If inspectors were allowed to, they cation, describing it as a form of“unilateral tics, could better relations between the big could verify the 9M729’s range by measur- disarmament”. His main concern was the nuclear powers, at some later date, re-ener- ing its fuel tank. They could also say limitation on delivery systems, such as gise arms control? Alas, probably not. The whether the SM-3 launchers are or are not submarine-launched ballistic missiles. He problem is potentially destabilising tech- capable of launching banned weapons, believed this would “cripple” a concept nologies, notably those of missile defence too. But the verification agreements that known as “prompt global strike”, in which and cyberwarfare. were part of the INF have lapsed. If Ameri- such missiles were to be used for very pre- ca has suggested joint inspections, Russia cise non-nuclear bombardments of any Condemning a whole programme has shown no willingness to comply. point on Earth, however distant and how- In 1972 America and the ever well defended. signed the Anti Ballistic Missile Treaty. It Invalidating the policy Mr Bolton compared New START unfa- limited the defences both sides could em- The Nuclear Posture Review published by vourably with the 2002 Treaty of Moscow ploy so that they would remain vulnerable the Trump administration in February rec- (also known as SORT—the Strategic Offen- to a counter-attack, thus assuring contin- ommends trying to strong-arm Russia into sive Reductions Treaty), the treaty’s super- ued deterrence. In 2002, when Mr Bolton compliance with workon a new American seded predecessor, which he had helped to was, improbably, under-secretary for arms ground-launched cruise missile that negotiate. Seen without the benefit of pro- control at the State Department, America would only be put into production if the genitive pride, though, SORT is not much withdrew from the treaty so that it could Russians continued flouting the INF Treaty. cop. It had no monitoringorverification re- deploy defences designed to protect the Another option would be to deploy gime. It did nothing about launchers, and homeland from limited attacks, a project JASSM-ER, a new air-launched cruise mis- the warheads it eliminated needed only to on which it has spent $40bn so far, to un- sile, in Europe. Mr Einhorn is sceptical. He be mothballed, not destroyed. It would be certain effect. Work on the exotic weapons believes that Russian violation was not harsh to say that SORT was hardly worth Mr Putin bragged about in his recent “Dr “casual”: “The Russians feel constrained by the paper it was written on. But it is telling Strangelove” speech started shortly there- INF. They won’t walkthat backnow.” Gary that not much of that paper was required. after. The “boost-glide” system which Samore, a former arms-control adviser to The detailed provisions of START I, signed would allow an incoming weapon to fly Mr Obama, agrees that “The INF is dead.” in 1991, and New START both made good- and manoeuvre, rather than just fall; the Many arms-control professionals would sized books: SORT barely filled two pages. cruise missile with an intercontinental range; and the nuclear-armed long-range underwater vehicle are all designed to de- It was a START 1987 Intermediate-Range feat future American missile defences. Nuclear warhead inventories, ’000 Nuclear Forces Treaty Russia has never believed America’s as- 1972 1979 1991 1993 2002 2010 1968 Non-Proliferation Treaty SALT I SALT II START I START II SORT New START surances that its national anti-missile sys- 40 tem is intended solely to guard against a limited attack from the likes of Iran and 30 North Korea. It also claims to believe that United Soviet more modest “theatre” systems, like the States Union/ SM-3 Russia s in Romania, could be used to lessen 20 the deterrent power of its own missiles—a stance that China echoes. Both countries 10 fear further advances in American missile defence, brought about either by more ca- pable interceptors or, just conceivably, di- 0 rected-energy weapons that zap their tar- 1945 50 55 60 65 70 75 80 85 90 95 2000 05 10 17 gets from a distance using microwaves or Source: Federation of American Scientists laser beams—a feature of the “Star Wars” 1 The Economist May 5th 2018 Briefing Global security 21

2 anti-missile shield that Ronald Reagan pro- posed in the 1980s, which the Soviets took And then there were 9,345 more seriously than they needed to. Such Estimated global nuclear warheads*, 2018 Deployed Stockpiled = 20 warheads

defencescould be verydestabilisingif they Russia total 4,350 United States 3,800 France 300 130-140 were able to deal with the diminished forces with which an attacked adversary China 270 India 120-130 might fight back. It is on that second-strike North Korea capability that deterrence rests. Britain 215 Israel 80 20-60 Theoretically, saysMichael O’Hanlon, a

strategist at Brookings, arms-control agree- Source: Federation of American Scientists *Not including retired warheads ments could cope with some of these wor- ries. A New START follow-on could, for ex- ample, allow each side to field an extra weapons states (America, Russia, China, complain that it is time-limited and that it offensive weapon for every ten intercep- France and Britain) and the four that are fails to stop Iran’s regional meddling or its tors deployed by the other. He concedes not members of the nuclear Non-Prolifera- ballistic missile programme, and that these that energy weapons, if eventually shown tion Treaty (NPT)—the three mentioned are fatal flaws. Israel’s prime minister, Bin- to be effective formore than point defence, above and Israel. Pakistan, though, has yamin Netanyahu, eggs on such criticism. would be much more complicated to ac- been blocking negotiations on the basis On April 30th he made much play of evi- count for. Mr Samore, however, reckons that the treaty does not deal with the large dence that Iran had lied about the military thatanymissile-defence limitationswould stockpiles of uranium and plutonium that part ofits nuclear programme. be “politically toxic” in America. And ifen- other countries have. This line of attack does not hold water. ergy weapons were to work, he says, en- The NPT itself remains, 50 years after it Iran’s near-nuclear capability was not a se- tirely new ways of delivering nuclear war- was first signed, the bedrock multilateral cret: it was the reason foracting. The world heads will be needed, such as the ones Mr nuclear-arms control agreement. It is seen had to choose whetherto accept it as a nuc- Putin is so excited about. Mr Miller worries by nearly all parties as worth preserving. lear-weapon state, or one perched on the that some in the Trump administration, for But the last review conference in 2015 was a threshold; to go to war; or to negotiate an which read Mr Bolton, may want to push fractious affair; the next one, in 2020, is arms-control agreement. That agreement missile-defence technologies further; if shaping up to be even worse. The gulf be- is meticulously crafted for very specific they do, the certain response from Russia tween the nuclear-weapon states (and purposes: backing Iran away from the nuc- and China would be to make their war- their close allies) and the rest has widened. lear threshold; blocking all its pathways to heads more numerous and more nimble. The nuclear-weapon states pay lip service building a nuclear device for at least ten Another big concern is cyber-weapons. to the incremental years; and hinderingit from doingso there- Daryl Kimball of the Arms Control Associ- the treaty asks of them while at the same after without being caught. ation, a think-tank, says that cyber-attacks time modernising their forces to face the If Mr Trump pulls America out of the on nuclear command-and-control systems next 50 years; this makes the nuke-nots deal the other parties will try to save it. But could “vastly increase crisis instability”. ever angrier. the blow, not just to the Iran deal but to any Yet nobody has any good ideas about how A consequence of their frustration is future attempts at multilateral arms con- an arms-control agreement can cope with that some 130 states—about two-thirds of trol, could be fatal. As well as enlightened such a possibility. Mr Einhorn says any the NPT’s membership—last year com- self-interest and rigorous verification, weapon that is defined by software is al- bined to create, under UN auspices, a new arms-control agreements depend on a de- most impossible to verify. Mr Miller sug- treaty on the Prohibition of Nuclear Weap- gree of trust that the parties to them will gests that when it comes to cyber, deter- ons (known also as the Nuclear Ban honour their commitments even when rence may be the only option: “It is a Treaty). The nuclear-weapon states boy- governments change. Persuading North regime ofself-help,” he says. cotted the discussions leading up to the Korea to give up its nuclear weapons in re- Most arms-control experts think that treaty’s adoption in July, arguing that it is a turn for sanctions relief and security guar- the bestthatcan be hoped forare new talks distraction from other disarmament and antees was neververy likely. Pulling Amer- with the Russians, possibly drawingin oth- non-proliferation initiatives, such as the ica out of the Iran deal, when there is no er nuclear-weapons states, on enhancing Comprehensive Test Ban Treaty and the evidence that Iran has broken its undertak- crisis stability, and the establishment of in- Fissile Material Cut-off Treaty. They also ings, just a few weeks before a summit ternational norms banning the use of have a reasonable concern that countries with North Korea’s leader, Kim Jong Un, cyber in specific circumstances, such as might choose to move from the NPT to the seems certain to make it less likely still. As disabling an adversary’s strategic com- new treaty and thus avoid the NPT’s rigor- Sir Lawrence says of Russia, “A degree of mand-and-control systems. ous safeguards against illicit fissile-materi- trust is needed.” al production. Arms control, MrO’Hanlon says, “often A little funny in the head A more immediate threat to the NPT is gets a bad rap, but it is an extraordinarily Unfortunately, ifbilateral armscontrol isin the high probability that Mr Trump, valuable tool.” And it is one that the nuc- bad shape, so too is its multilateral equiva- goaded by MrBolton and his hawkish new lear powers risk losing through a mix of lent. The Comprehensive Test Ban Treaty, secretary of state, Mike Pompeo, will on complacency, neglect, ignorance and mal- adopted in 1996, has yet to come into force. May 12th refuse to renew the presidential ice. It is within Mr Trump’s power to do Three of the 44 designated “nuclear-capa- waiver needed to prevent nuclear-related something about it. He could make a start ble states” which have to ratify it, India, sanctions on Iran from snapping back. by holding his fire on the Iran deal while Pakistan and North Korea, have yet even to Should he do so, America will be in viola- his European allies work to meet some of sign it. Eight of the signatories, including tion of the 2015 deal that curbs Iran’s nuc- his concerns, and by indicating a willing- America, have not ratified it. lear programme, the Joint Comprehensive ness to extend New START—something The Fissile Material Cut-off Treaty, also Plan of Action (JCPOA). The deal is be- which would require little more than the first discussed in the 1990s, is in a similar tween Iran and the five permanent mem- stroke ofa pen. “Presidentscan and do turn state oflimbo. Itwould seekto stop the pro- bers of the UN Security Council—America, on a dime,” Ms Gottemoeller says, more in duction of weapons-grade uranium and Britain, China, France and Russia—plus hope than expectation. There is no sign yet plutonium by the five recognised nuclear Germany. Detractors such as the president that this one will. 7 WBS London, The Shard

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For the Change Makers Britain The Economist May 5th 2018 23

Also in this section 24 Sex and citizenship 24 Sainsbury’s and Asda merge 26 Don’t raise interest rates 26 NHS “frequent flyers” 28 Robin Hood Energy 28 Space, Brexit’s final frontier 29 Sharing data with Europe 30 Bagehot: Sajid Javid’s in-tray

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

Identity cards cards voluntary fora decade. By then, most people would have applied for one any- Big bother way, reckons , the home sec- retary at the time. What sort ofdata should be linked to it? Health, tax and biometric data can all be joined. Estonians use their cards to access more than 3,000 e-services. Belgian coun- cils keep more than 90 types of informa- A mess overmigrants might mean less fuss about ID cards tion about each cardholder, including N THE end, Big Brother was brought ment” in which landlords carry out immi- whether they want to be buried or cremat- Idown by a Yorkshireman and a house- gration checks but citizens who lack ed. Ken Clarke, a former Tory home secre- wives’ league. When Clarence Willcock, a paperwork struggle to prove their rights. tary, argues that a scheme might satisfy civ- former Liberal Party parliamentary candi- Or they can plump for identity cards, il-libertarians if it did not become an date, was pulled over for speeding in De- which require a register of all citizens and “all-singing, all-dancing collection of cember 1950, he refused to produce his would enable Britons to prove their identi- data”. Safeguards would also help. In Esto- identity card, which had been introduced ty and status. “Of the three, I think it wins nia, powerful digital encryption guards during each world war and kept after the by a mile,” he concludes. against data breaches. In Belgium, civil ser- second. “I am a Liberal,” he told the cops, How might a scheme work? There is no vants who access data on the registry have “and I am against this sort of thing.” The shortage of models for ministers to pinch. their own ID numbers recorded. High Court ruled against him, but com- Every countryin the European Union has a Some argue that dishing out cards mended his stand. Housewives burned card, save for Britain, and Ire- might in fact create more Windrush-style their cards outside Parliament, and by 1952 land. So do manyothers, though notAmer- cases. Would the Home Office have given they were scrapped. ica. Greece and Italy are swapping paper cards to the people caught up in the scan- But the “Englishman’s badge of servi- cards forplastic ones. Cards in a handful of dal? Mr Johnson says the scheme would tude”, in the words of one late libertarian, other EU countries have no electronic need a lengthy roll-out period and for is back. Tory and Labour politicians have chips. One former home secretary argues mandarins to take a generous, rather than been trying to reintroduce the cards for that technology has made physical cards hostile, attitude towards applicants with- two decades. About 12,000 Britons were obsolete. Instead, Britons could be given a out paperwork. says a one- handed them under a phased roll-out in unique number with which officials could offamnesty could follow the launch. 2009, but the coalition government accesstheirdata, asin Denmark. Some sug- Any attempt to introduce ID cards scrapped them a year later. The hounding gest adapting National Health Service would be opposed by peculiarbedfellows. of the Windrush generation of migrants numbers, which are already assigned to Liberty, a pressure group, is as implacably who came to Britain legally but could not most people in the country. opposed as Jacob Rees-Mogg, an old-fash- prove it felled the home secretary this European countries that deem plastic ioned Tory who insists Britain is not “the week (see Bagehot). It has also rejuvenated fantastic differ over who should carry it sort of country that demands to see your the ID-card debate. and when they should be required to flash papers”. Labour, like the Liberal Demo- A clutch of ex-home secretaries claim it. Most insist every citizen has a card but crats, is now against the idea. Satbir Singh such cards might have prevented the affair. nine, including France, do not. Belgians of the Joint Council for the Welfare of Im- One of them, Charles Clarke, says govern- must carry theirs at all times, says Michel migrants, a charity, isambivalent. His view ments have three options to tackle illegal Poulain, a demographer. “When you go partly rests on whether such a scheme immigration. They can do little and hope out you take your key, your money and would be administered by the Home Of- for the best. Like the most recent govern- your ID card. You don’t forget.” Labour’s fice. And he does not think a card alone ments, they can create a “hostile environ- scheme in 2009 would have made the would deal with the “culture of suspicion” 1 24 Britain The Economist May 5th 2018

2 that led to Britons being shabbily treated. Citizenship applications Still, the retired home secretaries’ chorus has won some converts. , a former Tory leader, agrees that No sex, please, we’re the Home Office the case for cards is now stronger. “We Conservatives were against this a decade Promiscuous? Divorced? Eccentric-looking? You may be denied a passport ago, but times have moved on,” he wrote this week. Britain already issues migrants N ITS drive to get net migration below and “eccentricity,including beliefs, ap- from outside Europe with ID cards in all I100,000 per year, the government has pearance and lifestyle”. But, they go on, but name, and might do the same for Euro- made it drastically harder to gain British somewhat ambiguously, applicants may peans who stay after Brexit. Some say it citizenship. The number offoreigners be rejected if“the scale and persistence would be fairer foreveryone to get them. getting British passports plummeted oftheir behaviour” has made them Charles Clarke and Mr Johnson were from194,370 in 2012 to just123,229 last “notorious in their local or the wider among those given the cards in 2009. Mr year, following a tightening ofthe rules community”. The Home Office was Johnson still carries his in his wallet. Mr forbringing over family members and a unable to say how many ofthe 5,525 Clarke used to produce it at airports “just to steep increase in the cost ofapplying. people rejected fortheir character in 2016 prove that I could”. When the scheme was The most common reason that sub- were turned down forbeing persistently ditched, “they refused to refund me my missions are rejected, however, is a rather and notoriously promiscuous. Lawyers £30, which I thought was tyrannical.” It vague one. Since 2012 the number of say notoriety is very seldom invoked. could yet prove a long-term investment. 7 applications thrown out under a “good Still, fora department under intense character” clause has doubled (see chart). pressure to get migration numbers down, In 2016, the most recent year forwhich the vague character clause offers a simple Sainsbury’s and Asda merge data are available, this was the cause of way to increase rejections. Officials can 44% ofall refusals. turn down a candidate ifthey have any In the money What constitutes bad character, in the unspecified “doubts about their charac- eyes ofthe Home Office? Committing ter”. For applicants, it can make the pro- terrorism will do the trick, official guide- cess an expensive lottery.And after the lines explain. But so might receiving a events ofrecent weeks, many might police caution, skipping a tax bill or wonder whether the Home Office, ofall “recklessly” accruing debt. Immigration departments, is well placed to judge A big shake-up in the grocery market lawyers believe most ofthe increase in others on their good character. could be blocked by regulators rejections is down to stricter consider- AITING in a studio for a TV inter- ation ofminor offences. In one case, a Wview on April 30th, Mike Coupe, the Botswanan who had served in the British Out of character boss of Sainsbury’s supermarket, was army failedthe character test because he Britain, citizenship rejections under caught on camera quietly singing “We’re in had broken the speed limit on a motor- the “good character” clause, ’000 the money” to himself. Having just an- way (the decision was later reversed in 6 nounced the biggest deal in the grocery court). Solange Valdez-Symonds, head of business for over a decade, it is easy to see the Project forthe Registration of Chil- 5 why the tune might have come to mind. dren as British Citizens, an advice service, 4 Nonetheless, he had to apologise quick- reports an increase in youngsters being ly, for fear of appearing rather smug—and turned down because ofminor offences 3 for getting ahead of himself. Sainsbury’s committed by their parents. 2 proposed merger with Asda might boost Yet the definition ofbad character is 1 the two supermarkets, but the competition extraordinarily broad. The guidelines list authorities could well rule against it. The characteristics that “should not normally, 0 proposed deal is another example of the ofthemselves, be relevant”, including 2002 04 06 08 10 12 14 16 unwelcome and increasing concentration drinking, gambling, divorce, promiscuity Source: ofcapitalism in Britain. Some consolidation in the cut-throat supermarket business had been expected. remains to be tested. ing concentration in many industries. In A tie-up between the second-largest store, Synergies between the two companies the past decade Britain has witnessed Sainsbury’s, and third-largest, Asda, could save £500m ($680m). Sainsbury’s about $2trn-worth of mergers and acquisi- owned by America’s Walmart, makes a lot bought Argos, a home retailer, in 2016 and tions of domestic firms. Our analysis sug- of sense for both parties. Combining mar- would roll out Argos stores in Asda as well. gests that, relative to the size of the econ- ket shares of 15.9% and 15.5% respectively, Sainsbury’s could exploit Asda’s advanced omy, that is over a fifth more than in according to Kantar Worldpanel, the new logistics systems, while Asda would bene- America over the same period. American entity would leapfrog the current market fit from Sainsbury’s much stronger pres- economists and politicians are increasing- leader, Tesco, which has 27.6%. ence online. In that market they face a new ly concerned that their economy has be- Scale is vital to grocers, giving them competitor in Amazon, which started sell- come too concentrated, limiting competi- more muscle to negotiate with suppliers. ing groceries in Britain in 2016. tion and eroding consumer welfare. Sainsbury’s and especially Asda have The two firms have got a lot of what it Perhaps Britain should worry more, been hitbythe successofAldi and Lidl. Ten takes to get along. But competition regula- too. Over the past two decades corporate years ago the German discounters had tors may feel differently. There are many profits as a share ofGDP have been roughly about 4% of the market. Now they have places where Sainsbury’s and Asda stores 50% higherthan theirlong-term rate. Profit- nearly 13%. Mr Coupe says the proposed are close by. Regulators may thus insist on ability, as measured by return on capital, is merger could cut prices across the new the sale of one or other. They could even also near a historical high. Regulators must group by 10%. Whether this would be blockthe deal altogether. askwhethercompanies are in the money a enough to compete with the discounters The deal comes in a context of increas- little more than is healthy. 7

26 Britain The Economist May 5th 2018

The Bank of England lion, an outsourcing firm, in January, and emergency (A&E) unit 28 times. bad weather in March. The underlying Mr Harper is not alone. Many people Wait and see, MPC growth rate may be stronger. who feel overwhelmed by their personal But the MPC’s view of the economy’s problems come to use the emergency ser- potential may be too gloomy.In the second vices as a crutch. Data from NHS England halfof2017productivity grew at an annual show that around 5,000 people attend ma- rate of 3.4%, the fastest since 2005. And jor A&E units more than 20 times each there is little evidence ofdomestically gen- year. In 2016 they accounted for 0.05% of The case forhigherinterest rates is erated inflation. Nominal wage growth re- A&E visitors, but about 3% of spending, or weakerthan it looks mains below 3% a year, which is measly by £53m ($72m). They probably account for a N RECENT years Britain has experiment- historical standards. Inflation in the ser- similarly outsized share ofambulance call- Ied with extraordinary monetary stimu- vice sector, largely generated by domestic outs and hospital-admissions costs. Some lus. With the onset of the financial crisis in activity because fewer services than goods doctors nickname them “frequent flyers” 2008-09, the monetary-policy committee are traded, is low and has been falling. (one manager suggests that “power users” (MPC) of the Bank of England slashed the The economy will need tighter mone- might be less insensitive). base rate of interest to 0.5%. After the Brexit tary policy at some point. If unemploy- Most regions have no strategy for deal- vote of June 2016 it cut again, to 0.25%, the ment continues to fall, wage growth may ing with these patients. Some have cut lowest in the Old Lady’s 324-year history. strengthen. A clear post-Brexit settlement them off from the ambulance service, or Lately, however, the bank has taken a could gee up economic activity. For now, sent letters reprimanding them forwasting hawkish turn. In November the MPC re- though, the MPC should bide its time. 7 NHS money. Patients have even been given versed the post-Brexit cut. At the beginning anti-social behaviour orders, which result of this year it allowed a scheme which in jail time ifbroken. The NHS is not geared channelled cheap funding to banks to NHS “frequent flyers” up to treat non-medical problems, says lapse. On May10th the MPC could raise in- Mark Sage, a doctor who plays a role in terest rates above 0.5% forthe first time in a Charting a new commissioning health services in west decade. If not, it is expected to act soon. Kent. If stress triggers abdominal pain fora Members of the MPC are making hawkish course patient, say, an A&E doctor may prescribe noises; traders believe that a rate rise be- pills to relieve the symptom. But he is un- fore the end ofthe year is highly likely. likely to try to fix the cause ofthe problem. A few factors explain the change in the Now a promising scheme aims to offer A scheme targets the patients who place MPC’s outlook. The bank’s mandate is to more effective help to the most frequent the biggest burden on the health service hita2%inflationtarget.Consumer-pricein- users, reducing their reliance on emergen- flation has exceeded that rate since Febru- ITTING in the darkin his Blackpool bed- cy services. It was started in 2013 by Rhian ary 2017. By increasing the bank rate, the Ssit,HarryHarperdialled 999. He told the Monteith, then a paramedic in Blackpool, MPC would make it costlier to borrow and operator that he had a bread knife at his where health outcomes are among the more rewarding to save, reducing demand throat and wanted to kill himself. Within worst in Britain. She asked local NHS man- and bringing inflation backdown. minutes, blue flashing lights cut through agers for the names of the area’s most fre- Yet on closer inspection, the case for the darkness and armed police broke quently seen patients, and was handed a tighter monetary policy looks thin. Above- down the door. Afewyearsearlier,Mr Har- list of 23 people, including Mr Harper. target inflation was caused by the Brexit-re- per had been happily married and run- Many, like him, were middle-aged folk lated depreciation ofsterling, which raised ning a successful business. But after his with mental-health problems. Between the cost of imports. The impact of that de- wife committed suicide and his firm went them they had visited A&E 703 times in the preciation is fast falling out ofthe figures. If bust, his life spiralled out of control. He past three months, mostly by ambulance. the recent relationship between move- started drinking and was admitted to a Ms Monteith tried to give them a sense ments in sterling and changes in consumer number ofpsychiatric hospitals. With little of “social inclusion and purpose”, mentor- pricescontinuesto hold, then bythe end of support, calling 999 became routine. Over ing them on the phone or over coffee. Of- the year inflation will be backon target. six weeks he visited his local accident and ten they talked of their social needs, rather 1 The hawks counter that they are less concerned about sterling-related inflation than they are about the domestically gen- erated sort. Lately economists have low- ered their estimates of the economy’s trend rate of productivity growth. Increas- ingly the MPC shares the pessimists’ view. It believes that Britain’s productive capaci- ty can grow at only around1.5% a year. This ultra-low “speed limit”, as , the bank’s governor, calls it, has big impli- cations formonetary policy.IfGDP growth exceeds 1.5%, it suggests that the economy is overheating. The remedy would be tighter monetary policy. Some evidence suggests that the econ- omy has been running hot. From the Brexit referendum to the end of2017, GDP grew at an annual rate of about 1.8%. In the first quarter of 2018 it slowed almost to a stand- still. That in part reflects one-off factors such as fallout from the collapse of Caril- Casualty of austerity ADVERTISEMENT

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2 than medical symptoms. So she arranged points out Peter Atherton of Cornwall In- community activities, like volunteer work, sight, an energy consultancy. These com- and help with practical matters such as ap- panies sell energy at close to cost price, in plying for benefits. Those who often got hope of rapidly gaining customers before worked up to crisis point were taught cop- hawking themselves to a bigger player. ing mechanisms. All were given Ms Mon- Several therefore offer cheaper tariffs than teith’s phone number and encouraged to Robin Hood Energy, though it compares fa- call her instead ofthe emergency services. vourably with most firms. For those cus- The effect was quick and dramatic. tomers willing to change suppliers, the Within months, A&E attendances, 999 calls market already works well. and hospital admissions all dropped by In the long term, Labour’s plans go be- about 90% among the group. And over yond introducing municipal rivals to priv- time, they came to call Ms Monteith less of- ate suppliers. Eventually, the party would ten. Many began to put their lives back to- allow municipal companies to control gether. Mr Harper attended therapy. He their local power grid. The doyen of La- says he is much happier now and plans to bour’s energy policy is not Clement Attlee, become a motorbike instructor. the prime minister who nationalised Brit- The model was extended to about 300 ain’s fractured array of public and private patients in Blackpool over the following energy suppliers. Its origins owe more to three years, saving the NHS over £2m. In Joseph Chamberlain, the 19th-century Lib- 2017 it was rolled out by 36 of England’s195 eral politician and forefather ofmunicipal- regional NHS commissioning groups. The ism, says Laurie Laybourn-Langton of NHS is evaluating the scheme; if it consid- IPPR, a think-tank. ers it a success, it may be extended nation- Short-term factors may intrude before wide in the autumn. 180 staff at Robin Hood Energy have unin- then. Energy markets have been benign Implementing the programme can be tentionally provided a Petri dish for La- since Robin Hood Energy’s launch, points tricky. Many of the most prolific users of bour’s energy policy. The idea for the com- out Mr Laybourn-Langton. If wholesale A&E have no fixed address or are home- pany dates back to 2011, when Mr Corbyn energy prices go up, so will household less. And they must agree to their data be- was still a happily obscure backbencher. bills. Robin Hood Energy’s halo may be ing shared across government agencies, Councillors in Nottingham were trying to dimmed. Yet some customers may prove which is sometimes a hard sell. NHS man- tackle fuel poverty in the city. Bureaucrats less price-sensitive than others. And what- agers fear that those who run the initiative, came back with plans for a price-compari- everhappens, one Robin Hood Energy cus- like Ms Monteith, may burn out orbe bom- son website. Instead, the Labour council tomer may prove reluctant to move. His barded with calls. “It’s important to set demanded the full-fat option: its own gas name? . 7 boundaries,” says Jill Whibley, a nurse and electricity company. After four years who leads the programme in west Kent. of planning and an £11m ($15m) loan from But the evidence so far is encouraging. the council, it launched in 2015. The space industry The winter crisis revealed how stretched Now the company has over 100,000 A&E departments are. Rerouting frequent customers. Only one in ten is in Notting- Brexit’s final flyers to the appropriate services would ham. The rest live in areas where other help besieged doctors and paramedics, as councils offer their own locally branded frontier well as the patients themselves. 7 version of Robin Hood Energy’s services, in exchange forcommission. (Local brands include Liverpool Leccy and Angelic Ener- Britain struggles to stay in Europe’s Energy supply gy in Islington.) At the last election, Labour most important space project pledged to have at least one such company Power to the competing in every region. OR a country that has not launched a Such municipal entrepreneurialism is Frocket into space for nearly 50 years, people not risk-free. Robin Hood Energy’s initial Britain has a booming space industry. Ac- losses were steep, with the company los- cording to a government-commissioned NOTTINGHAM ing £8m in 2016-17 (it expects to break even report in 2016, it makes up 6.5% of the glo- this year). Granting big loans to council- bal space economy. The industry is worth A municipal energy company offers a owned companies while public services £13.7bn, or$18.7bn (more than halfofwhich snapshot ofLabour’s Britain sufferswingeingcuts is politically treacher- is accounted for by satellite broadcasting EREMY CORBYN usually grants selfies ous. Such a scheme would struggle to be companies), and employs 39,000 people Jrather than asking for them. But the La- justified now, says Steve Battlemuch, the directly.In some niches, Britain’s contribu- bour leader reversed normal roles when councillor who chairs the company’s tion is even greater; it makes 40% of the he saw a stand for Robin Hood Energy, a board. Other councils may find it harder world’s small satellites. not-for-profit energy company run by Not- than Nottingham, which has a history of Now the British space industry, which tingham’s city council, at a Labour Party municipalism. Unlike most councils, Not- has been closely tied to Europe for de- conference. “He made a straight for tingham still owns its bus services. And cades, risks being knocked out of orbit by us and said, ‘Can I get a photograph?’” re- with 52 of 55 seats on the council held by Brexit. Already Airbus, a French-headquar- calls Simon Rhodes, head of marketing at Labour, there was little prospect of the tered multinational that is the biggest satel- the municipal utility. Mr Corbyn’s fanboy party being turfed out and the company lite-maker in Britain, has announced that it moment is easy to explain: under a Labour shut down by a new administration. will move some ofits operations from Brit- government, companies like Robin Hood To its critics, Robin Hood Energy solves ain to France before Brexit next March. Energy would be rolled out across Britain. a problem that does not exist. In 2011 Brit- More mayfollow.The industrywill have to In a sweltering office block off Maid ain had 14 energy suppliers. Now it has use itsconsiderable commercial nousto hit Marian Way in central Nottingham, about nearly 70. Many are de facto non-profits, its growth targets if Brexit provokes a deep1 The Economist May 5th 2018 Britain 29

2 rupture with the EU. Brexit and data Matters have come to a head over Brit- ain’s participation in the Galileo naviga- tion project. The €10bn ($12bn) initiative Does not compute provides the signals for Europe’s equiva- lent of America’s GPS. The EU argues that How data privacy may upset securityrelations with the European Union post-Brexit Britain should be excluded from any EU project that involves sensitive T LEAST one aspect ofBrexit should Britain is seen as keener to share data information, which includes Galileo’s en- Abe simple. Everybody agrees that with America than others. The EU frets crypted military-grade service. Britain sees maintaining co-operation on defence and that post-Brexit Britain is ditching the this as a protectionist gambit to win con- security is desirable. As Rob Wainwright, charter offundamental rights, including tracts from British firms (see box). the outgoing (British) director ofEuropol, its data provisions. It has also com- The British government is reportedly the EU’s police agency,puts it, politics plained about lax British protection of threatening to disrupt the transfer of sensi- should not be an obstacle, as it may be for crime data in the Schengen information tive encryption technology to Galileo un- trade. Yet fiendish institutional and legal system, to which Britain has access. And less the EU drops its bid to freeze the coun- problems over security abound, and in 2016 the ECJ ruled against a British try out of the project. People in the there is little time left to surmount them. investigatory-powers law,forcing the industry reckon that a withdrawal of Brit- wants a new treaty on government to amend it. The House of ish co-operation could at least slow down security,to remain in Europol, the Euro- Commons Home Affairs Committee the project. Brussels seems unmoved. pean Arrest Warrant and other agencies, duly accuses the government ofwor- The implications are serious. Already, and to co-operate in defence and foreign rying complacency about securing a data says Graham Peters, chairman of UKspace, policy.She is keen to retain full access to adequacy decision. the industry’s trade association, “work is the EU’s extensive databases forsecurity This is where politics may intrude, leaking away from Britain” due to the un- and intelligence. Indeed, she hopes to after all. Several EU countries and the certainty. Airbus, which has been closely stay closer to these than Denmark, which European Parliament believe that when involved with Galileo since its inception in is in the EU and the Schengen frontier- sharing data Britain (like America) gives the early 2000s, is moving the ground-con- free zone but has opted out ofmany security and intelligence higher priority trol system forGalileo that it operates from justice and home-affairs policies. than privacy.But some will exploit this Portsmouth to France. Achieving this will be hard. Several forcommercial advantage. A good ex- Other important bits that Britain con- agencies have no legal basis to admit ample is the Galileo satellite project. tributes to Galileo include the navigation non-EU members. Some countries will After Brexit, Britain faces exclusion from payloads, which provide the system’s sig- extradite nationals only to other EU the most militarily sensitive encrypted nals and services, made by Surrey Satellite countries. All agencies come under the part ofGalileo. That reflects high-minded Technology (SST), Britain’s largest manu- European Court ofJustice (ECJ), whose worries over data security,but also low- facturer of small satellites (and part of Air- jurisdiction Mrs May insists on escaping. minded hopes ofhoovering up lost bus). Work for Galileo accounts for half its The biggest issue is data protection. To British contracts. As Sophia Besch of the business. If the company is not allowed to gain access to EU databases Britain needs Centre forEuropean Reform, a think- bid for the next generation ofGalileo satel- a “data adequacy decision” on privacy tank, notes, this shows how petty ri- lites, says Gary Lay,head ofnavigation sys- from the European Commission. Non- valries riskdamaging broader co-oper- tems at SST, “we would be locked out of a members can secure this, but America ation in defence and security.The stakes decade’s worth of production. The com- was denied a full one in 2015. could hardly be higher. pany would lookvery different.” As well as the possible loss of jobs and revenue, Britain could also lose its leading the worst Britain could build its own Gali- national prestige, since the 1980s Britain’s role in areas such as navigation services. leo system. The country has the capacity to industry has had to live on its wits, with lit- This is one of the most lucrative in terms of do so, but it would be very expensive; bet- tle government support. It is thus very commercial applications, in everything ter, most reckon, to use Galileo for civil commercially minded; Britain has the sec- from drones to autonomous vehicles. Such navigation and rely on America for the se- ond-biggest number of space startups in technical leadership iscalled “noble work” cure stuff. the world, after America. If Britain does in the industry. Once gone, it will be very Amid the gloom, however, there are lose business in the EU, it would be better hard to win back, says Mr Peters. some reasons for hope. Unlike countries placed than most to explore new frontiers, Some think that if the worst comes to that have used space projects mainly for in places like the Middle East. 7

In Brussels, no one can hear you scream 30 Britain The Economist May 5th 2018 Bagehot “That could be me”

Britain’s new home secretary confronts a formidable listofchallenges to hold one of Britain’s great offices of state. His father arrived in Britain from Pakistan in 1961with £1in hispocketand made his liv- ing as a bus driver while his mother ran a shop. Mr Javid demon- strated that Labour doesn’t have a monopoly on anger over Windrush by telling on April 29th (before getting his new job) that “that could be my mum…my dad…my uncle…it could be me.” His other advantage is his distance from the prime minister. Ms Rudd never really freed herself from her predecessor’s shad- ow because she tookoverat the Home Office when Mrs May was in her pomp as prime minister. Mr Javid is taking over at a time when Mrs May is weak—and weak precisely because of policies that she pioneered as home secretary. MrJavid also has a history of poor relations with his boss. He was one of the most briefed- against ministers when Mrs May was riding high, and one of the most brutal critics ofher Downing Street operation after the elec- tion debacle. He belongs to a very different Conservative tradi- tion. Mrs May is a 1950s Torywho hankers after a more homoge- nous Britain. Mr Javid is a 1980s Tory who has a portrait of hanging in his office. This could be a recipe for a fractious relationship at the heart AJID JAVID belongs to a tribe that is millions-strong in Ameri- of government. Mrs May is as proud as she is rigid, and still likes Sca but vanishingly small in Britain: devotees of the libertarian to start her sentences with the phrase: “When I was home secre- philosopher-cum-novelist . Twice a year Mr Javid tary”. But it could be a chance to forge a more realistic immigra- makes a point of reading the courtroom scene in “The Fountain- tion policy. MrJavid needsto startbypersuadinghisboss to aban- head”, in which the hero proclaims that he would rathergo to pri- don her fixation with including students in migration figures. He son than bowdown before the will ofthe crowd. The great theme then needs to go on to change the logic of immigration thinking: of Rand’s writings is the ability of heroic individuals to bend the forget about the arbitrary targets, like reducing net inflows to the arc of history to their will. Mr Javid will need plenty of the Ran- tens of thousands, and focus instead on the country’s long-term dian spirit ifhe is to make a success ofhis new portfolio. needs, particularly when it comes to recruiting highly skilled The home secretary’s immediate task is to contain the panic workers, who can boost productivity, and willinghands who can over the Windrush scandal, in which thousands of Caribbean make up labour shortages in the health service, care homes and Britons were misidentified as illegal immigrants. His long-term the building trade. That is what voters tell pollsters they want. Mr job is to tackle two festering problems. The first of those is the Javid’s job is to bring policy in line. chronic lack of order in the Home Office. Mr Javid has to “get a grip”, as Tories love to put it. His new department has a justified Sajid shrugged reputation as the graveyard of government ministers and their Hispromotion bringssignificantproblemswith it. In his previous agendas. It is a sprawling empire in which thousands of officials job as secretary forlocal government he spent two years tackling administer often contradictory policies that can deprive people the severe shortage of housing that is putting home ownership of their liberty or their right to stay in the country. The Home Of- beyond the reach of a generation of Britons. His successor, James fice is currently grappling with the trickiest problem in its recent Brokenshire, will take time to master his brief and get the mea- history: designing a new immigration system for a Brexited Brit- sure of the vested interests that have run riot in this area. Mean- ain, while atthe same time dealingwith the consequences ofBrit- while, Mr Javid will significantly shiftthe balance of power at the ain’s biggest-ever wave ofimmigration. top ofthe government in a Eurosceptic direction, as Ms Rudd’s re- The second festering problem is the public’s lack of faith in placement in the Brexit inner cabinet. Though he supported Re- Britain’s immigration system. Restoring it will involve striking a main in the referendum, he did so more to suckup to David Cam- delicate balance between compassion and control. Mr Javid eron than out ofany conviction. He likes the idea ofa small-state, needs to reassure those who have been disconcerted by the gov- light-regulation Britain forging its own Randian future. Brexiteers ernment’s “hostile environment” policy—not just members of are crowing about his intervention on May 2nd against Mrs the Windrush generation but also EU nationals and other legal May’s proposed “customs partnership” with the EU. residents—that they have nothing to worry about. But he also The Javid package might not sound like an overwhelmingly needsto reassure the majorityofBritonswho thinkthat immigra- attractive one. MrsMayisexchangingthe likelihood of regression tion is too high and that illegal migrants represent a serious pro- in housing and EU dealmaking for the mere possibility of pro- blem. He gotoffto a good start, with two feistyappearances in the gress at the Home Office. But she has probably chosen the right House of Commons, disowning the noxious phrase “hostile en- man for the urgent job of preventing the Windrush scandal from vironment”, outliningmeasuresto safeguard Windrush migrants consuming her government. In fairy tales told by libertarian phi- from further injustice and promising them compensation. losophers, fire-breathing heroes come along and solve human- These tasks would probably overwhelm even Rand’s hero, ity’s problems. In Mrs May’s all-too-real world, flawed individ- Howard Roark. But Mr Javid nevertheless enjoys a couple of im- uals stagger from crisis to crisis in a desperate attempt to stave off portant advantages. One is his background. He is the first Muslim complete disaster. 7 Europe The Economist May 5th 2018 31

Also in this section 32 People power in Armenia 33 Trying Romania’s ex-president 33 France’s striking students 34 Greenland’s independence dreams 34 Georgian anti-fashion 36 Charlemagne: The EU budget

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

Anti-Semitism in Europe incidents, from punching Jewish school- children to egging pedestrians, were re- Haters gonna hate corded last year, a 34% increase over 2016. In France there were 92, a rise of26%. Yet other countries experienced no such increase. And until last year attacks in France had been declining; in most coun- tries the figures tend to bounce around. AMSTERDAM, KIEV AND WARSAW Statistics can sometimes be misleading. In Today’s anti-Semitism is linked to angry identitypolitics on the right and left the Netherlands a startling 41% of all crimi- N GANGSTArap, cartoonish threats of vi- forthe Holocaust. The followingSunday in nal incidents ofdiscrimination last year in- Iolence are routine. So fansofthe German France, Le Parisien, a newspaper, published volved anti-Semitism, but of those three- rappers Kollegah and Farid Bang were an open letter from 250 bigwigs denounc- quarters were related to football. The Am- hardly shocked that, on their latest , ing a “new anti-Semitism” among Mus- sterdam team, Ajax, is nicknamed “the they bragged that their torsos were “better lims. Noting the murder in March of an el- Jews”, so the chants of opposing fans are defined than an Auschwitz inmate’s” and derly Holocaust survivor, the letter sometimes hateful, which can be a crime vowed to “make another Holocaust” demanded that religious authorities re- in the Netherlands. (against whom was unclear—possibly rival nounce anti-Jewish verses in the Koran. Measures of underlying anti-Semitic hip-hop artists). But when, on April 12th, Meanwhile in Britain, the Labour Party prejudice are also equivocal. Surveys by the duo won German music’s highest hon- continued a long-running row over anti- the Pew Global Attitudes project and by our, the ECHO prize, other musicians and Semitism in its ranks. the Anti-Defamation League, an American critics were outraged. German music pub- Many people worry that anti-Semitism Jewish watchdog, find that in Europe nega- lishers decided to stop awarding the prize is growing in Europe. Since the early tive feelings towards Jews have mostly de- in order to prevent future controversies. 2000s, murders motivated by hatred of clined over the past 15 years. Lars Rens- It was part of a busy month for Euro- Jews have occurred with dismal regularity; mann, who studies anti-Semitism and pean anti-Semitism. On April 8th Viktor the terrorist attacks on the Jewish museum populism at the University of Groningen, Orban, prime minister ofHungary, won re- in Brussels in 2014 and a kosher supermar- thinks anti-Jewish hatred has not prolifer- election after a campaign in which he de- ket in Paris in 2015 were only the most ated so much as grown more visible with monised George Soros, a Jewish financier deadly. In Britain 145 violent anti-Semitic the rise of social media. He adds that the and philanthropist, as a shadowy billion- rise of fake news and conspiracy theories aire secretly controlling the opposition for about globalisation feed anti-Semitism, nefarious purposes. In Berlin on April 17th, Contrary to reports “the quintessential conspiracy myth”. a young Israeli was assaulted while wear- Unfavourable opinions of Jews, % polled Antagonism towards Israel often spills ing a kippah, or Jewish skullcap; the al- over into anti-Semitism, particularly on leged attacker was a Syrian refugee. (Ironi- 25 the political left. And European Muslims cally, the victim was an Israeli Arab who ar 20 e much more likely to have anti-Semitic wastryingto prove to a friend thatwearing Germany beliefs than non-Muslims. But it is debata- a kippah was not dangerous.) The assault 15 ble whether this “new anti-Semitism” has underscored fears of anti-Semitism within France supplanted the traditional variety. A study the 1.2m Muslim refugees who have ar- 10 by London’s Pears Institute forthe Study of rived in Germany since 2015. Anti-Semitism found that because Eu- Britain In Poland on April 17th Ruch Narodowy, 5 rope’s Muslim minorities remain small, a far-right party, filed a complaint against most anti-Jewish prejudice is still of the Reuven Rivlin, the president of Israel, for 0 old-fashioned nationalist kind. 2004 06 08 10 12 14 16 allegedly violating a new law against say- To judge by the ceremonies on April Source: Pew Global Attitudes Project ing that the Polish nation bears any guilt 19th commemorating the 75th anniversary1 32 Europe The Economist May 5th 2018

2 of the Warsaw ghetto uprising, one might Armenia That evening Mr Pashinian addressed have thought that tension between Jews tens of thousands of people who filled in and European nationalists had been put to Velvet revolution, the main Republic square. “Beloved na- rest. Andrzej Duda, Poland’s president, tion, proud citizens of Armenia. People in who hails from the nationalist Law and so far parliament have lost the sense of reality. Justice (PiS) party,lauded the suicidal hero- They don’t understand that 250,000 peo- ism ofthe Jewish fighters who battled Nazi ple who came onto the streets in Armenia troops for nearly a month. Israeli-Polish re- YEREVAN have already won. Power in Armenia be- lations have been in crisis since the PiS gov- longs to you—and not to them.” His words Russia wisely stays out ofthe revolution ernment passed the Holocaust law, which sparked jubilation. To prove his point and many Jews consider an attempt to white- TLOOKSmore like a carnival than a revo- his strength, Mr Pashinian called a general wash history, and the ceremony gave Mr Ilution. Instead of burning tyres and strike paralysing the city and the country. Duda a chance to mend fences. mounting barricades, young people wrap A few hours later, on May 2nd, the rul- But Mr Duda also claimed the Jewish themselvesin Armenian flags, dance in the ing party appeared to cave in, implying it fighters’ sacrifice as part of Poland’s own streets and block the roads by playing vol- would backhim in next week’s parliamen- story. “They died fighting for dignity, for leyball or simply sitting on carpets. On the tary session. It may still spring a nasty sur- freedom, but also for Poland, because they morning of a general strike, a five-year-old prise, but is unlikely to regain control over were Polish citizens,” he proclaimed. This boy drove a toy car with an Armenian flag the country—at least not fornow. MrPashi- touched a sore spot: many Jews feel that through an empty street. In the evening, nian has led a textbook velvet revolution, Poland historically did not consider its vast construction trucks loaded with stu- made possible by textbookmistakes by the Jews to be fully Polish. dents drove and hooted through Yerevan. government, which tried to hang onto Across much of eastern Europe, por- But behind the street theatre lies a vel- power after losing its legitimacy. tions of the population still entertain vetrevolution led bya younggeneration of Mr Pashinian managed to personify Ar- doubts on that score, according to Pew fig- Armenians against an old guard who have menians’ resentment against a corrupt ures. In Lithuania 23% say they would not controlled the country since its indepen- elite. Donning Che Guevara-style fatigues, be willing to accept Jews as citizens; in Ro- dence in 1991. Their victory is not yet com- he went around the country on foot, mania it is 22%, in Poland 18%. This is not plete, but their anticipation of success preaching non-violent protest. By doing so, surprising. Historically,eastern Europe has seems likely to be self-fulfilling. On May he decentralised the revolution, making it been the main staging ground of modern 1st, in an attempt to hold out, the ruling virtually impossible for the authorities to anti-Semitism and genocide, not just dur- party blocked the election as prime minis- quash. In the capital he appealed to stu- ing the Holocaust but in events such as the ter by parliament of Nikol Pashinian, the dents and young people with no memo- revolt of Bogdan Khmelnitsky, a Cossack leader of a three-week-old protest that has ries ofthe Soviet past, but a strong sense of hetman (military commander) in the 17th galvanised the entire former Soviet repub- dignity and justice. Mr Pashinian’s brief century,andthepogromsoftheBlackHun- licofsome 3m people.Adozenpro-govern- detention doubled the size ofthe crowds in dreds, a Tsarist militia in the19th century. ment MPs desperately tried to discredit the streets, leadingthe prime minister to re- Yet curiously,in Ukraine, where the his- him as a dangerous anti-Russia candidate, sign last week and perhaps making Mr tory of anti-Semitism is as bloody as any- unacceptable to the Kremlin, which has a Pashinian unstoppable. where, just 5% are unwilling to see Jews as tight economic and military grip over Ar- Crucially, the challenger avoided any citizens. Unlike CatholicPoland, Ukraine is menia. But Moscow was silent, confident subject such as ideology or geopolitics that multi-religious (though mainly Orthodox of its strategic hold on Armenia and un- could divide the country and antagonise Christian) and has a substantial Jewish willing to backthe losing side. Russia. Unlike the revolutions in population, of around 300,000. Vyaches- in 2003 and in Ukraine in 2004 and again lav Likhachev, a sociologist who monitors in 2014, which were fought under the slo- anti-Semitism, says that apart from a fad gans ofjoining Europe and NATO, Mr Pash- for neo-Nazi youth subculture a decade inian talked strictly about internal matters ago, it has not really caught on. Radical- like corruption and justice, which every- right parties with anti-Semitic ideologies one can agree on. He made populist prom- have rarely won more than 1% of the vote. ises and pledged that Armenia will remain More recently, he points out, “because of with Russia’s security arrangements. Not a Russian aggression they have a real enemy. single European flagwas waved in Yerevan They don’t need conspiracy theories about and no slogan pronounced Armenia’s the Zionist Occupation Government.” European destiny. But the fear of mention- Indeed, in most countries, anti-Semi- ing Russia-related subjects only highlight- tism rises or falls in concert with national- ed Russia’s importance. ism and identity politics. David Feldman While Moscow clearly distrusts revolu- of the Pears Institute notes the importance tionaries, it has so far decided not to inter- of “competitive victimhood”, in which fere in Armenia, hoping that inflated ex- claimsofoppression byJews, Muslims and pectations and lack of money will do their other groups step on each others’ toes. Da- own damage. “It has been the smartest riusz Stola, head of the Polin Museum of Kremlin policy I’ve seen for years,” says Polish Jewish History,says the same is true Alexander Iskandaryan, the head of the in Poland, where the national story is one Caucasus Institute, a think-tank. Armen ofvictimisation by Germany and Russia. It Grigoryan, one of the revolution’s leaders ismoreaccurate,hethinks,tosee anti-Sem- says, “All the stars were aligned, and even itism as part of a general wave of chauvin- Saturn moved into the same position it ist sentiment since the migrant crisis of was in 1988.” That was when protests in Ar- 2015; levels of hostility to Muslims, gays menia provided the first rumblings of the and Roma have risen too. Says Mr Stola: storm that was to bring down the Soviet “Xenophobia is not selective.” 7 Pashinian for PM? empire three years later. 7 The Economist May 5th 2018 Europe 33

Romania Cohn-Bendit, or Dany the Red, led a stu- dent occupation, partly in protest at dormi- Trying the tory rules outlawing male visitors to fe- male dormitories. But it was the prospect president of selection at entry for undergraduates that set offthe wider rebellion. This reform never took place. Half a century on, stu- dents are resisting a new challenge to their Romanians hope to learn what right to sign up forany degree they like. happened during the revolution “Equality of access to university is a O THIS day,Romanians remain baffled right,” declares a student at Nanterre, on Tby what actually happened during the her way to the amphitheatre to vote. Ever violent spasm which rid the country of its since Napoleon devised the school-leav- communist dictator in December 1989. ing baccalauréat as an entrance ticket to Seeking to give them a definitive answer, university, all those who pass it can apply on April 17th prosecutors indicted Ion Ili- for any undergraduate course, regardless escu, the first post-communist president of of their suitability. So a student who has the country, for crimes against humanity not studied the maths-heavy bac ‘S’ (for allegedly committed during the revolution “scientific”) can nonetheless enroll for a he was instrumental in leading. maths degree. The result is overcrowded If the trial of the 88-year-old two-time amphitheatres, and a high drop-out rate. president succeeds in settling the record Jean-Michel Blanquer, the education min- that would be a fine thing. It probably will ister, points out that a staggering 70% ofun- not happen, though. In the rest of eastern Untold stories dergraduates fail to complete their degree Europe, the end of communism was a within three years. mostly peaceful affair, but in Romania and that he is being made a scapegoat. A new application process, put in place things were different. The revolution start- Many victims’ families will be relieved this year under President Emmanuel Mac- ed in the western city of Timisoara, where when he goes on trial, as they have never ron, makes a small but important change. dozens were shot. Nicolae Ceausescu, the had clear answers as to why their loved For the first time, universities have access communist dictator, then called a rally in ones died. Valentina Radu, aged 85, a re- to a pupil’s school reference, and will be Bucharest. But when, on television, people tired teacher, said: “He may not go to jail, able both to assess their suitability and could be heard shouting, “Down with the but history has to know the truth about Ili- make offers conditional on ill-prepared ap- dictator,” the game was up. He fled in a he- escu and the revolution.” After so many plicants’ agreeing to take catch-up courses. licopter but was arrested, and executed years, however, it probably won’t be the As far as selection goes, it is minimal. But alongside his wife on Christmas Day. whole truth, or even wholly true. 7 many students suspect it is the start of an The drama of those days was, literally, insidious slide towards Anglo-American- indescribable. No one appeared to know style selection. “The governmentrefusesto what was happening. A few Ceausescu France’s students use the word selection because it knows loyalists held out, and arms were distri- it’s illegal,” claims one at Nanterre. buted to civilians to resist mysterious “ter- The shadow of ’68 Similar sit-ins have taken place at over a rorists” who turned out not to exist. Much dozen campuses. Riot police have been ofthe shootingwas done by units ofthe se- sent in to evacuate some. Resistance has curity forces and military firingat each oth- spread to unlikely corners. Students at Sci- er. Mr Iliescu, who has been indicted along ences Po last month staged a sit-in against with three others, has always maintained NANTERRE selection out of “solidarity”. Sciences Po is that there was no secret plan. He and oth- a highly selective grande école—a universi- A (less violent) protest against selection ers simply stepped in to fill the power vac- ty for the elite, to which the rules for the uum, he says. The indictment, however, ac- GIANT banner at the entrance to the masses do not apply. “Here are trained cuses them ofcreating “diversions”: that is, AUniversity of Nanterre advertises offi- those who select” read a banner. Some crit- giving contradictory orders to different un- cial events to commemorate the May ’68 ics of the new procedure point less to the its which inevitably led to people being student uprising. There are seminars on principle than to the stealth. Mr Macron is killed. “counterculture” and “revolutions”, and a usually upfront about his reforms. Yet the Mr Iliescu is a divisive figure. Detractors conference on the intersection between art government has not explicitly used the in- despise him for his communist past and and politics. Around the corner, past par- cendiary word “selection”. “The process for, as they believe, hijacking the revolu- tially obscured graffiti reading “Macron will de facto involve selection,” argues tion. Former communists did prosper after we’re going to hang you”, today’s genera- Marc Ivaldi of the Toulouse School of Eco- the revolution; but that was true from tion is staging its own historical tribute to nomics, but “it is hidden selection, and this Prague to Vladivostok. The former presi- the soixante-huitards. Inside an amphi- is why it’s a bad law.” dent is already on trial for his alleged role theatre blockaded by a pile of chairs and Back at Nanterre, surrounded by so in orchestrating violence committed by upturned tables, over a thousand students many historical echoes of 1968, the talk is miners he called to come and crush anti- are voting to continue a sit-in. Fifty years all about continuing the struggle. Mr Mac- government protests in Bucharest in June on, as the country looks back at one of its ron, who himself studied philosophy at 1990, a farless murky case. most iconic post-war moments, the lines Nanterre, is not popular here, at least Since the indictment MrIliescu has said between history, drama, politics and art among those protesting. But he does not nothing. But on April 13th he wrote on his feel strangely blurred. look ready to cede ground. And it will not blog that he was proud ofwhat he did, that The 1968 events first broke out on the have passed students by that one of those it was ridiculous to pretend that democra- Nanterre campus, in an unfashionable who backed him for president last year cy and its institutions should have been es- suburb west of Paris, before spreading to was none other than a fellow Nanterre tablished the second the Ceausescus fled, the Sorbonne in the Latin Quarter. Daniel alumnus, Mr Cohn-Bendit. 7 34 Europe The Economist May 5th 2018

Georgian chic Reaping what it sews

The Caucasian nation that spawned “anti-fashion” ELIVERYguy or trendsetter? These sixfold since 2008. Ddays, it’s hard to tell. , a Financial aid from the European Zurich-based fashion house, showed off Union has helped local businesses up- a T-shirt inspired by DHL, a courier firm, date their equipment and meet the quali- in 2015.For a mere $200 a shirt, the young ty standards needed to sell kit in Europe. and ironically chic can lookalmost but In 2017exports to the EU totalled $646m, not exactly like the chap who brings 13% higher than the previous year. Some boxes to their parents’ doors. The T-shirts 70% ofGeorgians want to integrate more sold out in an instant. with the EU, and the country has had an This is called “anti-fashion”: tweaking association agreement to do just that mundane items and sending them down since 2016. Flashy frocks will not make the catwalkwith eye-watering price tags. Georgia rich, let alone defend it against Vetements makes a packet out ofit. The Russian aggression. But being on the label’s founder, a native ofGeorgia minds ofthe global jet-set surely can’t Greenland named Demna Gvasalia, is also the hurt. The BlackSea is the new black. creative director ofSpain’s , a Throwing off the fashion house which sells something like an IKEA blue carrier bag for$2,145. Youth- Danish yoke ful hypebeasts can’t get enough ofthem. Mr Gvasalia fled the as a child and studied design in Antwerp. Now his homeland is latching The independence cause gets a helping onto his success. Georgia once made drab hand from China clothes forthe victims ofcommunism; its HORTLY before the start of UN climate garment industry collapsed with the Stalks in Paris, in December 2015, giant Soviet Union. Now it serves fashion blocks of ice were shipped in from Green- victims everywhere. Western stylists, land and left to melt outside the Panthéon, buyers and journalists flockto the Cau- reminding conference-goers to get serious casus to spot the next big thing. Georgian about global warming. Ironically, a mere designers sell their wares in London, 48 hours after the talks concluded, Green- Paris and New York. Clients include land, a self-governing part of Denmark, Rihanna and Lady Gaga. Tbilisi hosts not said it wanted to opt out of the climate one but two fashion weeks. agreement that had just been reached. The Fashion is hardly a mainstay ofthe melting of Greenland’s ice sheet, which Georgian economy.Duller exports such covers 80% of the island, has turned out to as nuts and copper ore are far bigger. But be an economic blessing for most of its the beauty buzz puts Georgia on the map, 56,000 residents, 90% of whom are Inuit. where tourists and investors can find it. The territory boasts a tenth of the world’s Last year 7.5m people visited—twice known deposits of rare-earth metals, and Georgia’s population, and up almost Georgia on her mind the receding ice is making more minerals accessible forthe first time. More bits ofthe island are also being opened to tourists. ger would undoubtedly boil over were Tai- were not consulted.) Greenland is over-reliant on fishing; wan ever to declare independence, most In recent years Chinese state-backed some 90% of its exports taste good with Daneswould be “fine, maybe a little sad” if firms have been pouring money into butter and lemon juice. Danish subsidies Greenland left, says Jon Rahbek-Clem- Greenland’s rare-earth mines. One Chi- keep its economy afloat. Last year the an- mensen of the Royal Danish Defence Col- nese-financed mine in Greenland’s south nual block grant from Denmark was 3.8bn lege. Denmark’s government, however, is is reckoned to contain the world’s second- kroner ($610m), more than a third of less sanguine about a potential separation, largest deposits ofrare earths. Greenland’s budget. Many Greenlandic even though it accepts that Greenland has Greenland is open to investments re- politicians reckon that new revenue the right to secede if it wants to. That is be- gardless of where they come from, ex- streams from mining and tourism can help cause Denmark uses Greenland to punch plains Mr Kielsen. Chinese money is help- to wean the territory off Danish handouts. above its weight, notes Mr Rahbek-Clem- ing Greenland to reduce its reliance on “We want to rid ourselves of the block mensen. In 2014 Denmark laid claim to Danish subsidies, thus boosting the pro-in- grant because we want independence,” some 900,000 square kilometres in the dependence cause. That is also why Mr says Kim Kielsen, the prime minister, Arctic, including the North Pole, citing its Kielsen is keen to attract Chinese tourists. whose ruling centre-left party won association with Greenland. And Den- In October he led a delegation to China the most votes in an election on April 24th. mark has been able to get away with and gave an impassioned pitch about More radical pro-independence parties did skimping on NATO’s defence-spending tar- Greenland’s natural wonders. As Green- well. One such party, , wants to see get of 2% of GDP, many suspect, because it land drifts away from its old colonial mas- Greenland become independent by 2021. has long allowed America to operate a mil- ter, it might need to worry about becoming Unlike mainland Chinese, whose an- itary base in Greenland. (Greenlanders a vassal state ofanother. 7

36 Europe The Economist May 5th 2018 Charlemagne Seven-year itch

The EU’s budget is being dragged, kicking and screaming, into the 21st century to fund jollyrail holidays foryoungsters, even ifthey can afford to pay. And cross-border infrastructure and energy schemes, which ought to be central to an EU budget, still looklike afterthoughts. If you were building the budget from scratch, you would not de- vote 60% ofspending to farming and cash transfers. Yet there are tentative signs that the budget is growing up. The commission urges big increases (albeit from a low base) to re- search and education, and a small fund to protect investment in the euro zone during downturns. Much more is earmarked for ar- eas that demand European co-operation, like migration and de- fence. Such schemes will be funded in part by modest cuts to co- hesion funding and the CAP. To the delight of countries like Germany, aid to poorer countries will be linked to economic-re- form efforts. Even the cherished rebates are on the chopping block, although they will have to be prised from the cold, dead hands ofcountries like the Netherlands. During the last septennial negotiations, in 2012-13, a backdrop ofausteritydrove the firsteverreal-termscutto the EU’sbudget. A different cluster of problems will shape the next round of talks. Brexit will mean a shortfall ofaround €10bn-12bn a year. The ref- ugee crisis demands spending on border protection, integration PAIN’S recession ended in 2013, but in Extremadura, a scenic, programmes and development aid, especially in Africa—and a Ssparsely populated region in the country’s south-west, you more nimble budget capable ofresponding to emergencies. Most would be forgiven for not noticing. Last year unemployment controversially, the commission wants the right to suspend pay- stood at26.3%, amongthe highestratesforanyregion in the EU. At ments to countries with compromised judiciaries. This is one an- the People’s University, a municipal college in Cáceres, the re- swer to the rise of soft authoritarianism in Hungary and Poland, gion’s second town, a dozen youngsters studyingtourism declare but it will make for bruising talks. “The atmosphere is more emo- the local situation hopeless; most are resigned to seeking jobs tional this time,” says one veteran ofEU budget negotiations. elsewhere once they get their diplomas. A nearby fast-food joint What does this mean for Extremadura? Cuts to the CAP and offers a lunchtime “Menu Anticrisis” (roast chicken, baguette, cohesion will hurt, but the region has other uses for European packet ofcrisps and a soft drink). Extremadura’swoes renderit, in money. At an agricultural-research facility near the Portuguese the bloodless jargon of the European Union, Spain’s only “less border, scientists use EU funds for clever schemes that exploit lo- developed region”. cal crops, such as a biodegradable lacquer for tin cans created Youmight thinkthis is a tag politicians would be keen to shed. from tomato skins. Santiago Ortega, the centre’sEuropean project Butlosingitwould be a “disappointment”, saysRosa Balas, the re- manager, says EU programmes have opened the door to collabo- gional government’s head of external action. Why? Because that rative opportunities with partners across Europe. One took him classification helped put Extremadura in line for EU subsidies to Anfield stadium in Liverpool, where, he says with delight, he worth €3bn ($3.6bn) between 2014 and 2020. Such “cohesion” got to pose fora photo with the Champion’s League trophy. funding, stumped up by other governments, has revolutionised infrastructure across the poorer parts of the EU. (It also helps pay I’m alright Günther, keep your hands off my stack for those tourism classes in Cáceres.) In some eastern European Mr Oettinger spoke warmly of the EU’s “added value” this week. countries it makes up the vast bulkofpublic-investment budgets. Not everyone agrees that Brussels manages subsidies more effi- The EU’s budget has often been a byword for mindless subsi- ciently than national capitals, but its budget is tiny. The commis- dy and unnecessary centralisation. To examine its make-up is to sion’s proposal amounts to 1.11% of EU gross national income, delve into the grand bargains of European negotiations past. The around a fiftieth ofmost average governments’ spending. But this Common Agricultural Policy’s subsidies were granted to France will be forgotten in the fierce debate to come. Governments in exchange for opening its markets to West German goods; Mar- quickly lined up to take potshots at the commission’s proposal. garet Thatcher, swinging her handbag against the CAP, secured a Most will take the Micawberian approach: the greater their re- juicy rebate forBritain, which in turn spawned “rebates on the re- ceipts and the smaller their contributions, the happier they will bate” forotherrich countries. All thisled to waste, rigidity and un- be. And although Britain’sdeparture thinsthe ranksofthe budget bearable complexity. But powerful lobbies and stubborn govern- hawks, those that remain, including the Austrians, Dutch and ments make reform difficult. Nordics, will fight that much harder to rein in spending. As countries grow richer and the EU confronts new issues, like And that is the rub. Every government must consent to the migration and global warming, the shape of its budget is at last budget, a rule that creates incentives for deals that may sand changing. On May 2nd the European Commission proposed a away the proposal’s harder edges. Past experience proves the €1.28trn budget for the seven years from 2021 to 2027. That fired budget’s inertia; change creates losers, and losers mobilise to re- the starting-gun on painful negotiations between governments sist. The European Parliament, a reliable champion for more that could last two years or more. Günther Oettinger, the budget spending in good times and bad, must also have its say. So drag- commissioner, acknowledges that his proposal is not revolution- ging the EU’s budget into the 21st century will not be easy. But ary. It contains the usual bungs and barnacles—including €700m there are quiet signs that change is afoot. 7 United States The Economist May 5th 2018 37

Also in this section 38 Predictive policing 38 Steve Komarow 39 Children’s brains 40 Sikhs and trucking 41 Lexington: The sage grouse

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

Striking teachers increase until 2024 has left teachers non- plussed. Joe Thomas, who heads the Arizo- Pedagogic protest na Education Association, the state’s main teachers’ association, wants not just more money but a new dedicated revenue stream. That is a hard sell in Arizona, home to waves of tax refugees from PHOENIX and pensioners reluctant to spend their fixed incomes on other people’s children. Behind the teacherstrikes that have roiled five states, and looklikely to continue North Carolina may be the next do- ROM a block away, the striking teachers ry to just under $48,000. Kentucky’s legis- mino; teachers there plan to demonstrate Fcamped out around Arizona’s capitol at lature approved a sizeable increase after in the capital on May16th, when the state’s first looked like a solid sea of red, the col- teachers there walked out. A threatened legislature convenes. As in most ofthe oth- our oftheir T-shirts and tents. On closer in- strike in Oklahoma prompted legislators er strike states, unions in North Carolina spection, they distinguished themselves to boost education funding and teacher have weak collective bargaining powers. the way the teachers have always distin- salaries (the teachers struck for nine days Some suggest that this explains low levels guished their classrooms—with hand- anyway). Last week teachers in Colorado ofpay; ifstates were forced to bargain with made signs. Leah Falcon (“Arizona exports: and Arizona walked out to protest against teachers’ unions, they would pay them Cotton, copper, teachers”), who teaches low salaries and stagnant funding. more. But a new paper from Agustina Pa- middle-school maths, said she was “fight- Those conditions are widespread. The glayan, a political scientist at the Universi- ing because my kids deserve better than 34 average American teacher earns less than ty of San Diego, suggests that this formula- students in a class.” Megan Marohn (“Ari- 60% of what a similarly educated profes- tion is the wrong way round. Teachers zona Spending per Student: $9,000. Per In- sional makes. In inflation-adjusted terms, gained good collective-bargaining rights in mate: $24,000”) is a classroom aide and teachers’ salaries have fallen by 1.6% over states that already paid them relatively lifelong Republican who frets that Arizo- the past two decades. But the acute crisis in well. Collective bargaining did not lead to na’s Republican legislature and governor public education dates back to the reces- increased salaries or funding. “put the value of corporations above stu- sion of 2008, which hit many states’ prop- The result, paradoxically, is that states dents”. Jay Bertelsen (“Christian Non-Un- erty-dependent tax receipts. where teaching unions are weaker now ion Conservative Teacher Fighting for Most states cut school funding; in some, have more politically active teachers. Ms Funding”) has taught computer science it has yet to return to its level before 2008. Marohn, one of the demonstrators in outside Tucson for 25 years; his children In inflation-adjusted terms, teacher sala- Phoenix, says that when parents ask her qualify for Arizona’s state-subsidised ries are almost 5% lower than they were a mother, also a teacher, what they can do to health care forpoor families. decade ago, even as teachers’ retirement help, she tells them to vote. That should Grievances such as these have motivat- contributions and health-insurance premi- worry Republicans. There are 3.2m public- ed teacher strikes in five states. They look ums have gone up. Some teachers even school teachers in America. Giving them a likely to continue—galvanising public-sec- pay from their own pockets for classroom financial reason to head to the polls could tor workers in states where supplies that state funding fails to cover. spell trouble for some Republicans run- hope to make gains in this autumn’s mid- And some states have continued to cut ning in states with teacher unrest. Arizona, term elections. taxes and education spending. According North Carolina and Colorado are all battle- The strikes began on February 22nd, to Michael Hansen of the Brookings Insti- ground states. Republicans had also fan- when teachers in West Virginia walked tution, school funding in Arizona remains cied that they could flip the West Virginia out. Two weeks later the state’s Republican 35% below pre-recession levels. So the offer Senate seat held by Joe Manchin, a conser- governor gave them a 5% pay rise—bring- from Doug Ducey, Arizona’s governor, of a vative Democrat. For want of more chalk ing the average high-school teacher’s sala- 20% salary increase by 2020 and a funding could the Senate be lost. 7 38 United States The Economist May 5th 2018

Policing Steve Komarow Serve and predict Chateau marmot

WASHINGTON, DC The editorofa Washington institution died on April 29th CHICAGO OURNALISTS who become prominent when he was a cub reporter forthe Asso- Data analytics are showing promise as a covering wars or politics are generally ciated Press. On the morning ofDecem- tool to prevent violent crime J eulogised forscoops scored or prizes ber 8th1982, an anti-nuclear protester AHM EMANUEL is an expensive date secured. Steve Komarow’s four-decade called Norman Mayer drove a lorry, Rfor Ken Griffin. Encouraged by Chica- career was most accomplished, but his which he claimed was rigged with go’s forceful mayor, after he complained main achievement was something even 1,000lb ofdynamite, to the base ofthe about the overcrowded lakefront trail, the rarer in the often cut-throat worlds of , demanding to billionaire hedge-fund manager donated Washington bureaus and foreign corre- negotiate with an unmarried and child- $12m fora separate bicycle path in 2016. He sponding. His calmly intense confidence less reporter. Mr Komarow volunteered, gave $3m for soccer fields in poor neigh- as a reporter, and clear-eyed equanimity and by nightfallsecured the release of bourhoods in December. Mr Emanuel, a as an editor, produced widespread re- nine hostages inside the obelisk. Democrat, even persuaded Mr Griffin, a spect with no lasting enmity. Covering a Congress just starting its Republican, to pony up $1m for his re-elec- After Mr Komarow died at 61from descent into partisan gridlock, Mr Koma- tion campaign. And at a recent tête-à-tête, brain cancer, tributes focused on the row’s countervailing courtesy led the he persuaded Mr Griffin to part with $10m preternatural calm, intellectual range, press corps to choose him as their negoti- to bankroll the joint effort by the Chicago high standards, low volume and cock- ator over access. Hired by USA Today,he Police Department (CPD) and the Universi- eyed grin that secured his stature in all went to Bosnia, Kosovo and Haiti, and ty of Chicago’s Crime Lab, a research cen- fournewsrooms where he played a was the first to cover a cruise-missile tre, to use data-analytics programs to pivotal role. The last was CQ, part ofThe launch from inside a B-52. After Septem- predict and prevent violence in the crime- Economist Group, where he was exec- ber11th 2001he decamped to Afghani- plagued city. utive editor from 2015. stan, where his best work, he thought, Mr Griffin’s latest gift to his hometown His approach earned wide notice was smuggling a rescue dog out ofthe will mostly go to the CPD’s Strategic Deci- country over the Khyber Pass. Then sion Support Centres (SDSC), where civil- posted to Iraq, he was among the first to ian analysts and cops crunch data from report from the hole where Saddam gunshot detection-systems, surveillance Hussein was captured. cameras and computer programs with the He returned to AP forfouryears as aim of identifying the places where vio- deputy Washington bureau chief, help- lence is likely to breakout. Starting with six ing to manage election coverage in 2008. last year, the city has set up such centres in Then came five years at Bloomberg, 13 ofits 22 police districts. Some of Mr Grif- directing its reporting on BarackObama’s fin’s money will also finance mental- White House, followed, forthe final 29 health care for officers; some will go to- months ofhis life, by nurturing a staff of wardsevaluatingcomplaintsagainstthem. mostly younger journalists covering Policing software such as Predpol or Capitol Hill for CQ Roll Call. HunchLab, their makers claim, is able to “He was adventurous—who else forecastwhere crime islikelyto be commit- would want to try the marmot forlunch ted. Certainly the numbers are intriguing. in Macedonia?—and he was wise,” said After 2016 turned out to be the deadliest Dan Rubin, a fellow foreign correspon- year for two decades, with 762 murders dent. “He always wore a sports coat and 3,550 shootings, the following year, when flying in case the airlines were which coincided with the establishment overbooked and needed to upgrade of the first SDSC, was less bloody, with 650 someone for business class. He coun- murders and 2,785 shootings. The decline selled: ‘Always looklike you belong in crime in police districts with the new Steve Komarow there.’ And ofcourse he always did.” data centres was steeper than in those without. This could just have been rever- sion to the mean. But the Chicago police cers at all times, spends her days sur- with boxes colour-coded according to the departmentthinksthatHunchLab, the par- rounded by screens. One shows a program type of crime. Patrol officers are encour- ticular program it bought, has something called ShotSpotter, which uses the sound aged to checkthem frequently. to do with it. of gunfire to pinpoint shootings; another The key to Englewood’s improvement To see why this might be the case, con- showswhere surveillance camerasare (the has not been more aggressive policing, siderEnglewood. Ahard-up, predominant- city has more than 40,000); and a third dis- says Kenneth Johnson, the district com- ly blackneighbourhood on the South Side, plays HunchLab software. This blends mander. “We cannot arrest our way out of Englewood saw a decline in murders of data on crime statistics, population densi- our problems,” he says. Instead, as he tells 44% in 2017 compared with 2016. Shootings ty and weather patterns with fixed points it, the change is the result of targeted inter- fell by43%. Abyword forconcentrated pov- such as liquor stores and highway exit- ventions, combined with improved rela- erty, rampantcrime, drugs, gunsand gangs, ramps, to identify patterns of crime that tions with the local community. The CPD’s Englewood seems to have taken everyone may repeat themselves. (Predictive polic- relationship with black Chicagoans in par- by surprise with its progress. ing software also takes into account the ticular has long been fraught. Its recent na- Laura West, an officer working at the phases of the moon and the schedules of dir was a white officer’s seemingly wanton district’s SDSC, which is staffed by two offi- sports games.) At-risk sites are marked firing of 16 bullets into Laquan McDonald, 1 The Economist May 5th 2018 United States 39

2 a black teenager, as he was walking away. pretty much the same rates, but far more 1,000 low-income mothers next week. The officer, Jason Van Dyke, who is about blacks are arrested fordrugs than whites. They will be invited to join the study, to be tried for first-degree murder, had Used carefully, though, more data are which is called Baby’s First Years, shortly been the subject of numerous complaints. better than fewer, says Andrew Papachris- after giving birth at one of ten hospitals in Changing such a culture will take time. In tos of Northwestern University, and any- fourcitiesacrossthe United States(to avoid Englewood, Mr Johnson tells his 350 offi- way HunchLab does not use arrest records. influencing the experiment, the research- cers to attend community meetings, to It is too early to say whether the new tools ers asked The Economist not to publish de- build relationships and to avoid behaving caused the decline in crime in Englewood tails about the cities). Of that 1,000, like an occupying force. and other districts, though the evidence roughly half will be randomly selected to The risk with policing software is that it suggests a correlation. This is good news receive an unconditional $333 a month, amplifies existing racial bias. “Technology for Mr Emanuel who is running for re-elec- while the others will form a control group is farfrom neutral,” says Kade Crockford of tion next year and is already facing a that will receive $20. The money, which is the American Civil Liberties Union. when crowded field of opponents. One of the completely unconditional, will be loaded police officers feed predictive policing al- contenders for the city’s top job is Garry onto a pre-paid debit card every month for gorithms with their data on past stops and McCarthy, whom Mr Emanuel sacked as 40 months, on the date of the child’s birth- arrests, so they can reinforce the bias that boss of the CPD in the wake of the Laquan day. The hypothesis is that this steady police across the country stand accused of, McDonald scandal. Mr McCarthy is likely stream of payments will make a positive says Ms Crockford. For example, whites to run mainly on crime—until now, one of difference in the cognitive and emotional and blacks consume and sell drugs at Mr Emanuel’s biggest weakspots. 7 development of the children whose moth- ers receive it. The first data gathered will be baseline Child development interviews with the mothers just after re- cruitment. This will reveal the various Mother’s money backgrounds from which the mothers come (all will have incomes below the poverty line, roughly $23,000 for a family of three). The researchers will conduct phone interviews with all 1,000 mothers around theirchild’sfirstbirthday, then visit PROVIDENCE, RHODE ISLAND them in their homes when their children Researchers lookforcausal links between income and child development turn two. When they turn three, they will EDERAL Hill House is a squat building skills than those from poor families. More be invited with their mothers to a research Fin central Providence, within earshot of affluent children usually perform better in lab in their city, where their child’s cogni- the city’s main highway. On a recent rainy school, and are less likely to end up in jail. tive skills will be tested and the electrical Monday, a school holiday, the building Growing up poor risks the development of activity oftheir brains studied. was full. Older children lounged in front of a smaller cerebral cortex. But these are as- a film, while toddlers roamed around the sociations between poverty and develop- Living experiment soft play area. Some regularly spend more ment, not evidence that poverty causes The interviews will also measure mothers’ than ten hours a day here, on top of school these bad outcomes, says Kimberly Noble, stress, mental health and employment pat- hours, while their parents work. The chari- a neuroscientist at Columbia University in terns. They will ask how the amount of ty provides essential support for low-in- New York. She is part ofa team ofresearch- time mothers spend with their child is come families: it picks up children from ers runninga three-yearexperiment which changing, and gather data on the quality home before school starts, and looks after will, for the first time, search for causal and cost of child care and other child-relat- them long after it ends. It accomplishes a links between parental income level and a ed expenses. The researchers will also lot on a tight budget. In several places, the child’s early development. have a record of transactions made with ceiling lets through water from the grey The team will start recruiting the first of the debit card. The unconditional nature of Rhode Island sky. the cash transfer is inviolable: even if The youngest group of children at Fed- mothers choose not to take part in the fol- eral Hill House are between18 months and low-up studies, for which they are paid ex- five years old. There are 12 of them, with a tra, they will still get the income for 40 waiting list to join. The executive director, months. The 1,000 mothers, minus poten- Kimberly Fernandez, says some cannot tial dropouts, will provide enough statisti- name any colours when they first arrive. cal power to detect effects equivalent to Some come to the centre hungry (it pro- two months’ worth ofdevelopment in ear- vides meals) or speaking no English. Oth- ly childhood, says Greg Duncan, an econo- ers arrive with behaviour problems. Par- mist on the team from the University of ents’ workschedules are often so inflexible California, Irvine. that Federal Hill must cover basic logistics A real-world experiment of this magni- beyond school pick-up and drop-off. Ms tude comes with challenges. It has been six Fernandez says she had to use her own car years in the making, and the team has after some children took the wrong bus spent years raising some $15m for it. About home from school and wound up strand- $5.8m will be given away over the next ed at the depot. Their mother was unable fouryears, to which mustbe added the cost to leave workto fetch them. of recruiting and monitoring 1,000 people Plenty of evidence suggests that grow- over that time. The researchers worked to ing up poor, living through these kinds of get new legislation passed in two states in scrapes, has a detrimental impact on child which the experiment will be carried out, development. Children from rich families in order to make sure that those taking part tend to have better language and memory Are we in the control group? remain eligible for public benefits while 1 40 United States The Economist May 5th 2018

2 they receive the extra income. The entire Trucking experiment has been assessed by the Insti- tutional Review Board (IRB) at Columbia Sikhs in semis University’s Teachers’ College, with sepa- rate IRB boards at all nine hospitals either EUGENE, OREGON verifying those terms, or drawing up their An all-American industrychanges the all-American way own, before the experiment starts. Ethical approval has been particularly complex, URJIT KHAN’S “TruckUnion” is part of that Sikhs control about 40% oftrucking since mothers will be both research sub- Sa new crop oftrucker songs hitting in California (Sikhism is closely associat- jects and medical patients recovering from America’s highways. Like the1970s clas- ed with Punjab, a region that straddles childbirth when they sign up. sics, Mr Khan’s ditty is all blue jeans, India and Pakistan). The experiment is unique in two as- workboots and American-dream fulfil- This is an extension ofa trend that pects. One is its exclusive focus on the im- ment. Unlike those classics, though, the began farthernorth; Sikhs already play pacts of income, unrelated to employ- music video features turbaned dancers in an outsize part in Canadian trucking. ment. The otherisitsfocuson the first three flashy kurtas belting out Punjabi lyrics NAPTA, which is based in California but years of a child’s life. “We know virtually while gyrating to bhangra beats, before a seeks to represent Sikh truckers in both nothing about the causal effects of income stage-set oflorries. America and Canada, was formed this in years zero to three,” says Lisa Gennetian, Mr Khan’s is one ofa growing chorus year. Last October, Sikhs PAC joined who studies the psychology of poverty at ofIndian trucking songs, the soundtrack other organisations to protest against New York University. to a shift in the freight industry.Gurinder new trucking regulations. This is not the MsGennetian, one ofseveral collabora- Singh Khalsa, the chairman ofSikhs PAC, only way Sikh truckers are making their tors on Baby’s First Years, says its closest a Sikh political organisation, says there presence felt. A networkofIndian truck analogues were carried out in Minnesota are approximately150,000 Sikhs in truck- stops is spreading along the main routes, in the 1990s. There parents were randomly ing, 90% ofwhom are drivers. Those serving some fine daal and naan bread. assigned to a different mix of welfare poli- numbers are growing rapidly,with Before deregulation in the 1980s, cies which altered their incomes, and their 18,000 Sikhs entering the industry in 2017 trucking was a blue-collar route to the children’s development was monitored. alone. The North American Punjabi middle class. Since then, pay has stagnat- The Minnesota studies suggested that Trucking Association (NAPTA) estimates ed, and the job has lost much ofits ap- about $4,000 a yearis enough to see signif- peal. The Bureau ofLabour Statistics icant effects on a child’s development, but reports median earnings of$42,000, or because the extra money was connected to about $20 an hour, a sum that may dwin- parents’ work, they did not control for oth- dle after expenses. Annual turnover rates er factors that might also have influenced within firms hover around 90%. The the children’s development. In contrast, American Trucking Associations warned mothers in the new experiment are free to ofa shortage of50,000 drivers by the end leave their jobs to look after their new of2017, rising to 174,000 by 2026. The child, ifthey want to. median age ofthe private-fleet driver is 52; many younger would-be drivers How to spend it refuse to take on a job with a gruelling, Dr Noble, Ms Gennetian and their col- erratic schedule and long stretches away leagues are not alone in their ambition to from home. study the impact of cash on well-being. Y Yet, though most Americans may not Combinator, a startup accelerator in Sili- thinkhighly oftrucking, Sikhs regard it as con Valley,has formeda research arm to in- a prestigious career. Many Sikh drivers vestigate the more general impacts of di- come from trucking familiesin India, rectcash giftsofthiskind. Thatexperiment, where Sikhs are also prominent in the which has not yet started, plans to give industry. In February, for the first time, $1,000 a month to a randomly selected Overdrive magazine, the self-described third of 3,000 people from two American “Voice ofThe American Trucker”, fea- states, monitoring any changes in health, Singher-songwriter tured a Sikh driver on its cover. time-use and crime induced by the cash. Part of the Baby’s First Years study will be about seeing how the extra cash is know what you do when you can’t afford even a lease on a cheap car, might save spent, but signs already suggest where it to buy diapers? Youchange your baby less new parents tens of hours every week. might go. In a pilot study of just 30 moth- often. You let them walk around in a dirty That extra time might be spent with their ers, run in New Yorkin 2014 to workout the diaper,” says Katherine Magnuson, the children, earning extra money, or just im- logistics of handing out cash, the money team’s poverty expert at the University of proving an otherwise stressful life. was usually spent within three days of re- Wisconsin-Madison. The results of the experiment will take ceipt, mostly at supermarkets and depart- Ms Fernandez suggests that the experi- years to arrive. If the researchers’ hypothe- ment stores. Ms Fernandez says nappies mental money will not so much transform sis, that the unconditional handout will are a particular problem for new mothers new mothers’ lives, as make it possible for have a positive impact on early child devel- on low incomes, as they often cannot af- them to take advantage of what they al- opment, is confirmed, then old arguments ford the upfront membership feesrequired ready have. For example, many young par- about welfare will get a new evidentiary to shop at large discount supermarkets in ents would like to rely on their own par- kick. It would mean that no amount of re- the suburbs, or the costs of travelling to get ents for child care, but cannot afford the flexive bootstrap-tugging could make up there, and so have no way around paying a travel costs to drop their children off. In for the disadvantages that poverty casts premium at nearby corner shops. “Food, American cities, where public transport is over a child’s developing brain. In the diapers and travel,” says Ms Fernandez, is often scarce and connectionsare slow, hav- meantime, families like those at Federal what this money will go towards. “You ing the money for an extra tank of fuel, or Hill will keep struggling to get by. 7 The Economist May 5th 2018 United States 41 Lexington The parable of the sage grouse

A row overan avian exhibitionist suggests how badly Ryan Zinke is serving America of the House of Representatives declared himself an “unapolo- getic admirer” of Teddy Roosevelt’s conservation legacy. He also claimed to be a devotee of the “John Muir model of wilderness” and “Pinchot model of multiple use, using best practices”. His subsequent record suggests that was not true. A former navy SEAL with an excessive fondness for saying so, Mr Zinke has seemed mainly devoted to lekking and grousing. He has aggran- dised himself embarrassingly, with secretarial flags, man-of-ac- tion publicity shots and a helicoptertourpaid forfrom his depart- ment’s firefighting budget. He has denigrated Interior’s 70,000 employees: in a speech to energy executives he said 30% were “not loyal to the flag”. His able deputy, David Bernhardt, a former energy lobbyist, has meanwhile attacked the large areas of con- servation and environmental policy Interior controls. Last month it announced plans to nobble a century-old law protecting wild birds; it was passed a few months before the death of Roosevelt, a keen ornithologist. Last year it eliminated 2m acres of protected area: Muir would have turned in his grave. So would Gifford Pinchot, because by slashing restrictions on oil- and-gasprospectingon publiclandsMrZinke’sdepartmentistry- ing to trade multiple use—a public-land management principle NYBODY worried about America’s ability to settle political enshrined in law as well as tradition—for the “energy domi- Aarguments should consider the greater sage grouse. Better nance” demanded by President Trump. still, as the May sun warms the western plains where it lives, go Like the Environmental Protection Agency, Interior has also and watch it dance, as Lexington recently did in Wyoming. There deleted references to climate change from its literature. Given the are few stranger sights in nature. lead role it plays in climate science, through the US Geological After spending the winter huddled in sage brush, a twiggy Survey and other research divisions, some suspect it could even shrub that carpets the plains and is the backdrop to a thousand end up doing more damage to environmental policy than the Westerns, male grouse gather on patches of open ground known EPA. That agency’s administrator, Scott Pruitt, seems as distracted as leks. There, for several hours a day, starting at sunrise, they fan by personal ambition as Mr Zinke, and until recently had no dep- their tail-feathers into a speckled halo and emit a peculiar war- uty (he has filled the vacancy with a formercoal lobbyist). bling sound by dilating air-sacks in their feathery breasts. The un- In this context, the review of the sage-grouse plans Mr Zinke earthly chorus this makes—think of a mobile orchestra of chick- launched last year, which produced a list of draft revisions on en-sized didgeridoos—rises up from the vast and glorious May 2nd, might seem like a minor issue. But there is more at stake Wyoming steppe. In the lee of the snow-covered Wind River in it than the bird. Mountains, it is a New World Eden, an expanse of yellow and The draftrevisions suggest MrZinke wants to promote drilling green dotted with distant herds ofpronghorn and wild horses. on grouse habitat and give the states more say in managing it. The It is exceptional, however. Over half the sage brush on which second aim, at least, sounds reasonable; one ortwo ofthe federal- the grouse feeds has been lost and much of what remains has ly imposed measures seem ill-advised and western states are been degraded by agriculture, industry and invasive grasses forti- fiercely independent. But there are two problems with this. fied by global warming. From an estimated 16m birds, the grouse First, putting the onus on state action risks losing sight of the has been reduced to fewerthan 500,000 across11states. Adecade original point ofthe conservation effort, which was to persuade a ago this almost led to it being listed under the Endangered Spe- federal agency, the Fish and Wildlife Service, not to list the grouse cies Act, with potentially disastrous consequences. It would have as threatened. Left to themselves, the evidence suggests, states restricted development on grouse habitat, potentially beggaring would adopt weaker measures, risking the feared listing. states such as Wyoming which collects three-fifths ofits revenues from energy companies. To prevent that, the state forged a re- More grouse than sage markable coalition of ranchers, hunters, conservationists, politi- Second, the upheaval Mr Zinke has caused is already a setback to cians, scientists, miners and oilmen to devise measures to stop the collaborative, locally grounded approach to land manage- the listing. Other western states followed suit, and in 2015 the De- ment that the plans, despite their federal imprimatur, represent. partment of the Interior, which controls the public lands that Such collaborations, a quiet success ofthree previous administra- dominate the West, included these and some additional mea- tions, Republican and Democratic, have proliferated in the west- sures in a sweeping new management regime for the western ern states, especially in forests and watersheds threatened by plains, including98 revised land-use plans, covering67m acres of wildfire and drought. They are one ofthe most positive recent de- grouse habitat. It was one of the most complicated land-manage- velopments in American politics, a riposte to the dysfunction ment exercises in American history, one of the biggest achieve- partisanship has caused. But they do not happen by accident. ments of the Obama Interior Department. President Donald They require regulatory certainty—in this case, a clear sense that Trump’sInterior Department may be jeopardising it. the grouse will be listed failing adequate conservation mea- That is not the sort of thing Secretary Ryan Zinke promised sures—and a degree of mutual trust. Mr Zinke’s cynical steward- during his confirmation grilling last year. The one-term member ship ofAmerica’s public lands is eroding those conditions. 7 42 The Americas The Economist May 5th 2018

Also in this section 43 Mexico’s murdered mayors 44 Bello: The crisis of Argentine gradualism

Mexico double the national rate. The rise in violence is among the main A tropical crime wave issues in the general election scheduled for July 1st. Nearly half of Mexicans say crime is the main problem in their area. The dis- appearance of three film students in Gua- APASEO EL GRANDE dalajara in March, and the discovery that their bodies had been dissolved in acid, The murderrate broke a record last yearand is still rising. The solutions proposed sparked large protests last month. The first by the main candidates forpresident are unconvincing of three debates among five presidential N APASEO EL GRANDE, a town in the to fight drug gangs. His tactic of capturing candidates, held on April 22nd, began on Icentral Mexican state of Guanajuato, the or killing kingpins caused the gangs to split the theme of security. Their proposals bodies are stacking up. In February gang- into warring factions and to enter new were not encouraging. Andrés Manuel Ló- sters killed a local politician. The remains lines of business. The current president, pez Obrador, the leftist front-runner, misdi- of another victim were found in four bags Enrique Peña Nieto, who took office in agnosed the problem. His proposed sol- scattered across town. Police made a simi- 2012, promised to halve the murderrate. In- utions are radical but, at best, part of the lar discovery in April. In the first three stead, after an initial decline it rose sharply answer. His two main rivals were vague. months of this year the municipality of (see chart). By March this year the number Guanajuato’s prosperity, once thought 85,000 people had 43 murders, up from 20 of murders during Mr Peña’s presidency to deter crime, now seems to be attracting in all of2016. Thatisaboutthe same as Lon- had exceeded the death toll under Mr Cal- it. The state’s south is part of an industrial don, a city 100 times larger and currently derón. The murder rate so far in 2018 is corridor that stretches from Aguascalien- panicking about its high murder rate. around 25% higher than it was in 2011. tes to Querétaro. Factories in the region A visitor might not notice anything Guanajuato’s second problem is that it produce cars and other goods for tariff-free amiss. Shiny cars made in nearby factories is new to such violence and thus less pre- export to the United States and Canada un- cruise the streets and children play in the pared for it. In 2011its murder rate was half der the North American Free-Trade Agree- main square. But residents are frightened. the national average. Now it has soared to ment. A quarter of Guanajuato’s work- Bouncing a child on his knee in his living force is employed in manufacturing. room, Efraín Rico Rubio, a former city Gangs from nearby Jalisco and Michoa- councillor, now an administrative worker NAFTA’s no help cán moved into the state from 2015. They at a university, describes the violence. Mexico, homicides per 100,000 population are not led by El Chapo-style narcos. They “Three blocks down they killed someone,” make most of their money from theft and he says, “and three blocks in the other di- 50 extortion. Some of the loot, including rection.” He sees little prospect ofimprove- Guanajuato state grain, car parts and furniture, is hijacked ment. Schoolchildren “all want to be El 40 from trains bound for the United States. Chapo”, a drug baron who became a folk The biggest money-maker is fuel theft. 30 hero by escaping twice from prison. (He Nearly a fifth of recorded cases occur in National average was caught again in 2016 and extradited to 20 Guanajuato. The country-wide cost of this the United States.) to Pemex, the state-controlled oil firm, is The town and the state it belongs to are 10 more than 30bn pesos ($1.6bn) a year. suffering from a double blow. One is a na- Huachicoleros, as the thieves are called, tional crime wave, during which the mur- 0 fight each other and oil-industry workers der rate broke through its previous record 2011 12 13 14 15 16 17 18* for control of pipelines, just as drug gangs of2011. That peakcame afterthe then presi- Sources: INEGI; Secretariat *January-March 2018, war over highways, border crossings and dent, Felipe Calderón, deployed the army of Public Security annualised street corners. A politician in Guanajuato 1 The Economist May 5th 2018 The Americas 43

2 claims that 80% of murders in the state are by the 32 state forces. But congress blocked dence. But politicians complain that the related to fuel theft. In January the head of Mr Peña’s plan to make this compulsory. new procedure, plus a new law that pre- securityatan oil refineryin the city ofSala- States have adopted it in piecemeal fash- vents police from lockingup people caught manca was killed. Car theft can also be le- ion, with mixed results. In Apaseo El Gran- with illegal weapons, is allowing more thal. In 2011less than 2% of the state’s vehi- de, where 30 state and 33 military police criminals onto the streets. cle thefts involved violence, according to showed up at the turn of the year to cope The presidential candidates have pre- government data; last year 26% did. with the surge in murders, patrols stopped sented plans that are old, vague or inade- Mexico’s location, between South briefly because ofa mix-up over the force’s quate. The two main moderate candidates, America’s coca fields and the United fuel budget. More worryingly, frets the Ricardo Anaya of the conservative Nation- States’ drugs market, makes it vulnerable. mayor, Gonzalo González, the state and al Action Party and José Antonio Meade, But the persistence of violence is the fault federal police don’t know the region. the nominee of Mr Peña’s Institutional of a weak state, and especially of inade- A more promising initiative is a reform Revolutionary Party, see the need to im- quate policing, prosecution and courts. ofthe criminal-justice system, which istak- prove law enforcement but say little about Widespread corruption greatly worsens ingplace graduallyacrossthe country. This how they would do it. In the debate Mr the problem (see next story). Rather than shifts courtroom procedures away from Anaya criticised the priority that Mr Peña correcting those defects, recent govern- document-based decision-making by a and Mr Calderón (a member of his party) ments have cracked down ineptly. judge to argumentative methods used in gave to capturing kingpins. He promised to Police investigate just a quarter of mur- the United States. This makes it harder for “dismantle and not just decapitate” crimi- ders. In part that is because there are too prosecutors to obtain a conviction (in the nal organisations. Mr Meade would “qua- few police. The interior ministry has set a few cases that go to trial). In the long run it druple the state’s investigative capacity”. target of 1.8 police for every 1,000 people. should improve law enforcement by oblig- Mr López Obrador, the strong favourite, Only Mexico City and the state of Tabasco ing police to work harder to obtain evi- regards criminal justice as a branch of eco-1 have met it. Police and officials are under- paid, and thus tempted to work for crimi- Mexico’s murdered mayors nals rather than against them. They are also poorly trained. In many states, more than 90% of arrests are of suspects caught Open season red-handed, which shows that police have OAXACA little capacity to investigate crimes more It is 11times riskierto be a Mexican mayorthan an ordinarycitizen than an hour or two after they happen. Another problem is co-ordination. N A sunny day in Oaxaca, the capital Mexico has municipal, state and federal Oofa southern Mexican state with the Municipal mayhem police forces, plus the army, which Presi- same name, the mayor ofa nearby vil- Mexico, assassinations dents Calderón and Peña pressed into ser- lage was due to meet The Economist to Mayors Vice-mayors & mayors-elect vice against criminals. In many states mu- talkabout doing the job after his prede- Former mayors Mayoral candidates nicipal and state-level police do not use the cessor was murdered. He did not show 20 same radio frequencies and therefore can- up. The night before a bullet had not communicate. The army resents being smashed a window ofhis house. “I’m 15 asked to chase domestic criminals, a job it scared,” he said in a message. thinks the police should do. Municipal po- Between 2010 and 2017, 42 mayors 10 lice, used to issuing traffic tickets and pur- were murdered in Mexico (see chart), 12 suing burglars, find themselves investigat- ofthem in the state ofOaxaca. A further 5

ing fuel theft, which is a federal crime. ten mayors or ex-mayors have been nil Areas where violence has surged re- killed this year. A mayor is11times more 0 cently are especially unprepared to deal likely than an ordinary citizen to be a 2002 05 10 15 17 with it. Guanajuato has one forensics spe- murder victim, says David Shirkofthe Source: Justice in Mexico Project cialist per10,000 crimes; the national aver- University ofSan Diego in California. age is18. Police numbers there are less than Some perish because they fight cor- er autonomy after Mexico became a a quarter of the interior ministry’s stan- ruption and organised crime. Others die democracy in 2000. Old-style gangs dard. While the number of murders in because they side with a gang, becoming worry about shipping drugs along mo- Apaseo El Grande has risen tenfold since targets ofits rivals. In 2008 an ex-mayor torways and across borders, both areas of 2015, the number of municipal police has ofHidalgo, north ofMonterrey, was federal responsibility. Asthey branch out increased by just ten, to 100. Ricardo Ortiz, killed by his son, who discovered they into extortion and local drug-dealing, the mayor of nearby Irapuato, says that were sleeping with the same woman. In they come up against mayors. These are many policemen are threatening to quit to Oaxaca, a rural state where drug gangs more vulnerable than federal and state earn more than their miserable average are weak, many mayors have been killed officials, who have better protection. wage of14,000 pesos a month. in disputes over land between villages. Enrique Vargas, head ofthe country’s Mr Peña’s efforts to improve policing The murdered predecessor ofthe association ofmayors, wants to change have largely failed. He proposed creating a no-show mayor had been making im- that. He has asked the federal govern- 40,000-strong force that would establish provements such as providing drinking ment to provide armed bodyguards for control over areas infested by crime. But water. This angered a cacique (local boss), mayors who have been threatened, and the government cut back its funding and who thought the mayor was muscling in to set up an emergency telephone line to the army refused to let civilians command on his turf. His successor dropped some the secretary ofthe interior. That might it. The force now has fewer than 5,000 ofthe projects. help. About1,600 towns will choose troops. Both Mr Calderón and Mr Peña Mayors’ growing power, and gangs’ mayors in a general election scheduled tried to raise standards and solve the co-or- new business activities, have increased forJuly1st. These mayors will do a better dination problem by introducing “mando the risk. Mayors gained control over local job ifthey don’t have to worry that a único” (single command), the takeover of finances in the 1980s and 1990sand great- contentious decision will get them killed. the country’s1,600 municipal police forces 44 The Americas The Economist May 5th 2018

2 nomic justice. The root cause of violence, part of a well-designed law-enforcement ideas are met with scepticism. “We cannot he argues, is a lack of opportunity. But that strategy. Benjamin Lessing, a political sci- solve this in a nice way,” says Mr Ortiz, explains neither its nationwide rise nor its entist at the University of Chicago, argues Irapuato’s mayor. Three-quarters of voters surge in prosperous Guanajuato. that gangs have no incentive to behave bet- oppose the idea of amnesty. But in areas The candidate’s new idea for reducing ter ifthe state subjects them to “full, uncon- with bloodier histories they may be more crime, apart from fighting poverty, is to of- ditional pressure”. The state should crack receptive. “It is very different if you live in fer an amnesty to low-level drug traffick- down hard when gangs overstep defined Tamaulipas, Guerrero, Michoacán or some ers. In the debate he spoke ofinviting Pope boundaries, he says. Using data to focus state that is very affected by drug-traffick- Francis to mediate between gangs and the policing on the most violent areas, as Co- ing,” said Francisco Abundis, a pollster, in a state. “We cannot put out a fire with fire,” lombia has done, would also help. But recent television interview. Mr López said Mr López Obrador. His rivals accused such tactics require sophistication as well Obrador thinks he can persuade gangsters him of blessing the impunity that plagues as toughness. It is not clear that Mr López to lay down their arms, and voters to for- criminal justice. “You want to forgive the Obrador has either quality. give them. After the bungled crackdowns unforgivable,” Mr Meade said. In Guanajuato, still shocked by the re- by previous governments, Mexicans may Conciliation of some sort could help as cent spike in murders, his velvet-glove give him a chance. 7 Bello The crisis of Argentine gradualism

The world economy makes Mauricio Macri’s job harder HEN he was unexpectedly elected inflation targets until the economy was ing the country’s exports. It doesn’t help WArgentina’s president in 2015 Mauri- closer to being stable. But that is academic. that a severe drought this year has cut ex- cio Macri faced a task that was about as Fairly or not, the change in the targets ports of soyabeans and maize. A weaker simple as walking a tightrope across the hurt the credibility of the central bank. It peso will curb the current-account deficit, Iguazú falls while grilling a steak. His pre- came as the rise in interest rates in the Un- which has expanded to 5% of GDP. But it decessor, Cristina Fernández de Kirchner, ited States is prompting investors to pull will add to the cost of servicing the gov- had bequeathed a make-believe econ- money out of riskier assets. The spread on ernment’s foreign debt, and in the short omy. Inflation of 30-40% a year was offi- Argentine bonds (the premium over the term will boost inflation. cially covered up. The peso was wildly yield on United States Treasury bills) has The government is trying to control in- overvalued, exports were taxed and risen from 3.4% to 4.2% this year, and the flation while also trimming the fiscal def- many imports were banned. The govern- peso has depreciated steadily. The govern- icit and keeping the economy growing. ment provided energy and transport al- ment responded by saying that it will raise Doing all three things at once is hard. For most free. The resulting fiscal deficit was domestically the $8bn it still needs to cover example, eliminating energy and trans- financed by the central bank, which this year’s deficit. port subsidies is essential for reducing the printed money to the tune of 5% of GDP. Nevertheless, in the last week of April fiscal deficit. But hikes in regulated prices In a country traumatised by past eco- money flooded out of Argentina. After the added eight points to inflation last year. nomic shocks, Mr Macri promised to central bank spent $4.3bn in five days to And the interest-rate rise may dampen straighten all this out gradually. prop up the peso, on April 26th it unexpect- growth as well as inflation. He has done a pretty good job. The edlyjacked up itsminimum interestrate by The rise in energy and transport prices economy has grown at an annual rate of three percentage points, to 30.25%. This has hit the middle class hard (the poor are around 3% for the past 18 months, even week the peso kept falling; further interest- largely protected). That has taken a toll on while the government has ended most of rate rises may be needed. Mr Macri’s approval rating, which stands Ms Fernández’s distortions. It has gradu- It was responding to a fact of political at around 40%, the lowest since he was ally trimmed the fiscal deficit, partly by life: Argentines worry even more about elected. The rumblings of discontent are raising energy and transport prices. The the price of the dollar than about inflation. starting to alarm his coalition partners. central banknow only hands overmoney That is why in recent decades the peso has The biggest worry is that stubbornly high worth 1% of GDP. The government has so often been overvalued, killing the com- inflation expectations will keep inflation bought itselftime by issuing debt. petitivenessofmanybusinessesand stunt- from falling, and that only a recession can The problem is that stabilising the bring it down to the target level. economyistakinglongerthan the govern- April’s rise in regulated prices is ex- ment had hoped and investors have be- pected to be one of the last. Officials are come more reluctant to lend to Argentina. confident that inflation will now start to This first became apparent in December, recede. They are also likely to try to pla- when the government changed its infla- cate investors by slashing non-essential tion target for this year from 12% to 15%. It spending in order to lower the primary put off from 2019 to 2020 its goal of reduc- fiscal deficit (ie, before interest payments) ing inflation to 5%. The original targets to below this year’s target of3.2% ofGDP. were fixed in 2016 amid much uncertain- Even ifthe economyslows, theircalcu- ty. The new ones are supposed to be more lation is that economic growth and the realistic. Even so, this year’s target is un- real value ofwageswill pickup again next likely to be met. Inflation has run at a rate year ahead of a presidential election in of 25% over the past 12 months, and the October. They are probably right, and Mr market consensus is that it will end the Macri still has a good chance ofwinning a year at 20%. In hindsight, it might have second term. But it is a closer-run thing been wiser to have delayed introducing than it looked a few months ago. SPECIAL REPORT FINANCIAL INCLUSION May 5th 2018

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Nearly a quarter of the world’s population remains unbanked. But thanks to mobile phones, financial inclusion is making great strides, writes Simon Long

AS THE EBOLA virus was devastating parts of west Africa in 2014, Sierra Leone’s difficulties were compounded by its emergency-response work- ers going on strike. They were risking their lives, but were often paid er- raticallyand notin full.Sometimestheytravelled longdistances to collect the money, in cash, to find that it had been disbursed to an impostor, or that the official paying it out would take a cut. So the government switched to makingthe paymentsdigitally,to the workers’ mobile-phone accounts. That way they were paid in a week in full, rather than after a month with deductions. Thanks to lower costs and reduced fraud, the new system was millions of dollars cheaper. The strikes end- ed; lives were saved. According to a report by the Better than Cash Alliance, a part- nership based at the UN of gov- ernments, companiesand organi- sations promoting digital CONTENTS payment, Sierra Leone was well placed to make thischange in two 5 Mobile money respects: about 95% of the coun- Paying respects try was covered by a mobile- phone signal; and 90% of the 6 India emergency workers had mobile Stack’em high phones. Even so, the obstacles 7 Blockchain and were formidable. Only 15% of the remittances workers had mobile-money ac- Not to the swift counts. Opening one could be hampered by a lack of documen- 8 Mobile financial services tation, made worse by the coun- Pocket banking try’s severe shortage ofsurnames 10 Rich countries (most people share just ten of The bottom rung them). Biometric identification, such as fingerprints, raised fears 11 Winners and losers of infection from the Ebola virus The best of times (a problem that was solved by fa- ACKNOWLEDGMENTS cial-recognition technology). But they got there in the end. The episode offers a graphic example of how technology can deal Besides the people and companies named in the report, the author with “financial exclusion” by greatly reducing the number ofthose with- would like to thank the following for out access to financial services. Almost inadvertently, the spread of mo- their time and help: Tughral Ali, bile telephony and mobile-internet services has brought hundreds of Christine Allison, Mudassar Aqil, millions of people into the formal financial system. Take bKash, of Ban- Simon Banks, Adrian Black, Simon Black, Paresh Davdra, Allison Davies, gladesh, one of the world’s biggest mobile-money services. Started in Jonathan Dharma, Margaret Doyle, 2011, it now reaches 30m registered customers. Kamal Quadir, a founder, Hisham Ezz Al-Arab, Xavier Faz, June says people used to keep their money under the mattress; now they can Felix, Jacob Haar, Ahsan Iqbal, store it on their phones. The service “has become the collective mattress Ismail Khan, Leora Klapper, Brian Ledbetter, Werner Liepach, David for all the common people of Bangladesh. Now the money is in digital Medine, Ghalib Nishtar, Tunde form and they are in the banking system regulated by the central bank.” Olanrewaju, Matthew Saal, Alan Since its inception in the Philippines in 2000 and its take-offin Sub- Safahi, Ali Sarfraz, Rupert Scofield, Saharan Africa more than a decade ago, “mobile money”—the transferof Andree Simon, Chris Skinner, Joe Valenti and Anna Wong. cash by phone—has become a global phenomenon, welcomed and en- couraged by governments and international organisations. In 2010 the G20 group of countries came up with a set of “Principles for Innovative Financial Inclusion”. In 2012 the World Bank, with funding from the Bill and Melinda Gates Foundation, produced the first “Findex”, or financial- 1

The Economist May 5th 2018 3 SPECIAL REPORT FINANCIAL INCLUSION

2 inclusion index, an ambitious attempt to measure the scale of the problem and Redrawing the map trackefforts to tackle it. Adults with no bank account TURKMENISTAN 2014 or latest, as % of population* RUSSIA This special report will look at some BRITAIN ofthe fruits ofthose efforts. It appears at a 100 UKRAINE SK relatively optimistic time, when the ranks FRANCE of the financially excluded are thinning CHINA JAPAN fast and there are strong hopes that the 80 US AF. process will accelerate further. One rea- PAK. NIGER EGYPT son isthe growth in mobile-phone and in- 60 MEXICO MYANMAR BANGL. ternet penetration, making finance acces- GUINEA YEMEN NIGERIA sible even to those living a long way from VIETNAM ATM 40 INDIA physical bank branches or s. Accord- DRC KENYA CAM. ing to the Findex, 78% of the world’s un- INDONESIA BRAZIL banked adults receiving wages in cash 20 BURUNDI PH. have a mobile phone. Moreover, the “un- MALAWI banked” are seen as an increasingly at- tractive commercial market. Firms as di- 0 SA MADAGASCAR AUS. verse as Ant Financial, an affiliate of Source: World Bank *Countries scaled to population Alibaba, China’s e-commerce behemoth, and PayPal, a Silicon Valley payments firm, make much of their role in expanding financial inclusion. worldwide are inactive, with no deposits or withdrawals in the Daniel Schulman, PayPal’s chief executive, says his company’s past 12 months. India’s numbers are especially misleading. Fol- mission is “to democratise financial services”. lowing the launch of a bold financial-inclusion plan in 2014, The report will consider whether non-profit organisations which promised that every Indian would have access to a basic and businesses are right to be so upbeat about the prospects for bank account, some 240m accounts were opened over the next more financial inclusion. On the commercial side, tensions have two years. But it soon became clear that up to a quarter of them arisen between the different sorts of businesses engaged in this were “zero-balance accounts”, a euphemism for “unused”. So market: commercial banks jealous of their traditional quasi-mo- banks made sure most had at least some money in them, per- nopoly on formal finance and yet wary of further risky adven- haps by depositing tiny sums, often out of the bank staff’s own tures in “subprime” markets; mobile-network operators that pockets. “Zero-balance” made way for “one-rupee” (1.5 cents) ac- now provide the infrastructure for payment, the most basic of fi- counts, but financial inclusion improved only on paper. nancially inclusive services; the “fintechs”, aggressive financial- Even if the accounts are in use, some in the field argue that technologystartups fizzingwith bright ideas, idealism and some- in itselfthis does little to enhance inclusion. It does not allow greed; and, increasingly, the “platforms”, big internet firms holder to borrow, save or buy insurance. If financial exclusion is that have a lock on how people spend their time online. The re- defined more broadly, it also covers many unbanked or under- port will ask whether the winners from all this competition will banked people in the rich world, where the issue is attracting at- be consumers, and “especially the relatively excluded”, as Olivia tention from policymakers. White ofMcKinsey, a consultancy, believes. In both rich and poorcountries, financial technology, orfin- tech, is already seen as the dominant force behind the big ad- Making poverty profitable vances of recent years recorded in the Findex. Leaving aside the Although it will look at rich countries, it will focus mainly relentless advance ofthe mobile phone, the optimism is inspired on the developing world, where the problem is most acute. One by progress in two areas. One is the development of cheap bio- example of a country where financial exclusion is extreme but metric systems allowing even the illiterate with no papers to es- prospectsforgreatlyreducingitseem brightisPakistan. Only24% tablish a unique digital identity that a financial institution can of the adult population there have bank accounts, a further 7% use. In India, forexample, 99% ofthe adult population now have use other formal financial services and 24% are served informal- a 12-digit universal identity number, known as Aadhaar. Such ly. But the country has a huge population (about 210m), much of systems are not foolproof. A surprising number of people lack a it young; a high level of mobile-phone penetration (146m ac- distinct fingerprint, and iris recognition needs high-quality cam- counts) and mobile-signal coverage; a decent regulatory frame- eras. Biometric-based algorithms always involve a trade-off be- work; and a vibrantecosystem ofnon-profitsand foreign and do- tween precision and ease of use. But when other means of iden- mestic businesses committed to the market. Kosta Peric of the tification are added, security can be fartighter than it ever was in Gates Foundation believes that Pakistan is on its way to becom- a paper-based regime. ing “the first fully connected and inclusive economy”. Second, cloud computingallows evergreaternumbers offi- The latest “Findex”, its third iteration, based on 150,000 in- nancial transactions to be automated and unimaginable quanti- terviews and covering data for 2017, was published last month. ties of data to be analysed by artificial intelligence (AI). Ant Fi- The headline findings are striking: although the problem re- nancial boasts a 3-1-0 model: three seconds to reach a credit mains vast, progress has been spectacular. At 1.7bn worldwide, decision; one second to transferthe money; no human interven- the number of the “unbanked” in 2017 was down from 2bn in tion. Automation also reduces the cost of providing finance and 2014 and 2.5bn in 2011(see map). The proportion of adults with a makes it profitable to deal in smaller amounts of money. Instead bankormobile-moneyaccountwasup to 69% lastyear, from 62% of being a bad banking risk, the poor have become the business in 2014 and 51% in 2011. In the three years since the previous Fin- opportunity at the bottom of the pyramid. And new sorts of dex, 515m people had acquired an account. data, along with more sophisticated ways of using them, may Notional access to an account is not the same as “inclu- compensate forthe lackofa credithistoryand give the unbanked sion”. The Findex report finds that a quarter of all accounts access to finance forthe first time. 7

4 The Economist May 5th 2018 SPECIAL REPORT FINANCIAL INCLUSION

Mobile money 30m) pay money in by handing cash to one of Safaricom’s 148,000-plus agents, typically corner shops that were already selling scratch cards to top up mobile phones. The cash can then Paying respects be withdrawn at another agent or transferred to another M-PESA account-holder. That allows people working in the cities to send money back to their home villages faster, more cheaply and more securely. Other services have been added over the years. M-PESA has expanded abroad and spawned dozens ofimitators. The payment industry is undergoing a revolution Almost all of them are tiny compared with , which has 520m active users, almost as many as all the mobile-money IT IS A measure of how fast and unpredictably technology accounts held in the rest of the world put together. It hopes to in- and finance have developed that the two most influential crease its customerbase to 2bn worldwide by 2025. Ant, founded new payment systems ofthe 21st century so farboth came about only in 2014, is expected to list on a stock exchange next year. It is more or less by accident. M-PESA, Kenya’s mobile-payment sys- reported to be seeking an earlier round of funding which would tem, evolved out of a pilot scheme in 2005 by Safaricom, the value the company at $150bn (forcomparison, Goldman Sachs is country’s biggest mobile operator, financed by DFID, the British valued at about $100bn). government’s aid agency. Its researchers had noticed that Ken- The volumes its systems handle are staggering. On Singles’ yans were transferring mobile-phone airtime between each oth- Day(November11th) lastyear, a dayoffreneticonline commerce, eras ifit were money.They thought this might offera way to han- Alipay processed $25bn in transactions, 90% of them via mobile dle microcredit repayments, reducing costs. phones. The only mobile-payment service that comes close to Alipay, a smartphone-based payment system now ubiqui- Alipay’s scale is WeChat Pay, offered by its Chinese rival Tencent, tous in China and spreading fast abroad, has its origins in a ser- a social-media giant. It has reduced Alipay’s share ofthe Chinese vice devised for Taobao, an online platform run by Alibaba mobile-payment market from above 80% to just over half. Most where small businesses sell direct to Chinese consumers. Cus- Chinese use both systems. tomers were reluctant to pay for goods before they had received M-PESA and Alipay follow very different models. M-PESA them. So buyers would send their orders by faxto Alipay to hold was designed for a simple feature phone, working from a text their money in escrow and release it when delivery was con- menu of options (though it is now also available as an app). Ali- firmed. In 2008 this system was transformed into mobile “wal- pay is available only as a smartphone app, linked to a bank ac- lets” in which the money is held. count, reflecting the rapid uptake of internet-enabled phones in Safaricom turned M-PESA into a general money-transfer China. Payments are made by Quick Response (QR) codes, the system which became the most popular way of moving money square black-and-white dot matrices that have become ubiqui- around in Kenya. Account-holders (who now number nearly tous in China. Even some beggars accept them. Both systems have made big inroads into financial exclusion. A study in Kenya On Singles’ quoted in the Findex by two economists, Tavneet Suri of MIT and William Jack of Day last Georgetown University, found that access year, a day to M-PESA increased consumption levels and lifted 194,000 Kenyan households(2% of frenetic of the total) out of poverty. In China the online absolute number of adults without an ac- count, at 225m, is still larger than any- commerce, where else in the world. But 82% ofthe un- Alipay banked have mobile phones, compared with about two-thirds globally. Already processed 40% of adults in China make mobile pay- $25bn in ments, and 85% of those who make pur- chaseson the internetpayforthem online trans- (globally, more than half of online buyers actions, pay cash on delivery). In a recent paper the Consultative Group to Assist the Poor, 90% of a partnership of development groups them via based at the World Bank in Washington, DC, pointed out that 44% of China’s peo- mobile ple live in rural areas, where connectivity phones can be a barrier. In the countryside 71% of residents still do not use the internet, com- pared with 33% in urban areas. Both the “Chinese” and the “Ken- yan” models have crossed borders. Most developing countries have a mobile-pay- ment service, but Sub-Saharan Africa is the only region where the share of adults with a mobile account exceeds 10%. Ten- cent has an e-payment licence in Malaysia 1

The Economist May 5th 2018 5 SPECIAL REPORT FINANCIAL INCLUSION

2 where it plans to launch WeChat Pay—its first foray outside China acute as American and Chinese tech giants slug it out for market and Hong Kong. Alipay has taken a higher-profile approach, en- share in poorcountries (see box). As a still largely nascent market listing merchants in Europe and America to accept it as a means of enormous potential, Pakistan also illustrates many of the oth- ofpayment forthe benefit ofChinese residents and tourists. And er tensions affecting the payment business. in Asia itself, Ant Financial has been investing in local mobile- One is between the desire of both governments and busi- payment services in India, Indonesia, Malaysia, the Philippines, nesses to digitise payments swiftly and the capacity of the pop- Singapore, South Korea and, most recently, Pakistan. ulation to go along with that. Moving away from cash payments reduces costs, cuts leakages through corruption, discourages the The Chinese are coming informal economy and increases the tax base. The poor may be This last investment, of$184.5m, is to buy 45% ofTelenorMi- equally quick to realise that mobile money is more secure from crofinance Bank (TMB), which manages Pakistan’s biggest mo- robbers, can save them hours oftravelling and queuing and may bile-money service, . Owned by , a Norwegian open up a range offinancial services. But they may struggle to af- multinational mobile-network operator, TMB launched Easy- ford even a simple feature phone, and the illiterate and innumer- paisa in 2009. Competitors in Pakistan view Ant’s arrival with ate especially may find using it daunting at first. some foreboding. “They are here not to save the poor Pakistani In Pakistan that covers a big chunk of the population. The butto promote e-commerce,” saysone local microfinance lender. overall adult-literacy rate of 58% hides lower shares in the coun- It is hardly surprising that many in this industry, rooted in tryside (49%) and amongwomen (45%). The drive forfinancial in- charitable development work, feel ambivalent about vast com- clusion may not narrow the gender gap. Pakistan’s Benazir In- mercial enterprises entering the payment business. The suspi- come Support Programme (BISP), which offers cash transfers to cions are not confined to Pakistan, and are likely to become more the neediest women, seemed a good way to do that, but making 1

Stack’em high

India is becoming an important battlefield for financial inclusion DRUMBEATERS FOR FINANCIAL inclusion are messaging system, it also offers “proximity excited about India. With 190m adults with- The India Stack payments”—two nearby phones can be out bank or mobile-money accounts, of Unified Payments Interface, transactions, m paired through an ultrasound signal (“au- whom an estimated 100m have mobile 175 dioQR”) and money sent between them phones, it is second only to China in its without the phone number or any other 150 potential. It has also become, in the words of personal details being shared (a relief, in Greta Bull, the chief executive of the Consul- 125 particular, to many women). WhatsApp, a tative Group to Assist the Poor, where “Sil- 100 messaging service owned by , has icon Valley battles China”. 75 also been experimenting with a UPI-based Successive Indian governments have payments system. 50 actively promoted both the opening of bank But the biggest rival is a domestic accounts and the expansion of digital money. 25 online retailer and mobile-payment firm, To nurture Aadhaar, the national-identity 0 (for “pay through mobile”), which in digital database, the previous Indian govern- D JFMAMJ J ASOND JFM February handled 40% of India’s UPI pay- 2016 17 18 ment in 2009 recruited Nandan Nilekani, a ments. Claiming over 300m accounts, it Sources: Reserve Bank of India; NPCI former boss of Infosys, a big Indian software provides the country’s most popular mobile and outsourcing firm. Now back at Infosys, he wallet. Alibaba and Ant Financial are minor- says that the current Indian government is start. By this March it was handling around ity shareholders. Around 150 Ant engineers even more enthusiastic about the project. 178m transactions, worth about $3.6bn, have worked in India on Paytm’s systems at Both administrations recognised, he says, reaching a larger number in 18 months than one time or another. Tencent, meanwhile, that it is “the only way to achieve financial credit cards have managed in India in 18 has invested in PhonePe, a mobile-payments inclusion at scale”. In some ways, he adds, years. Dilip Asbe, chief executive of the competitor offered by , another “we have leapfrogged the rich world.” National Payments Corporation of India, the Indian online retailer. Indians now have about 800m bank bank-owned non-profit organisation respon- Mobile payments got a big boost in accounts linked to Aadhaar. Account-holders sible for the UPI, says that it will be small November 2016 when India’s prime minister, do not even need a phone to get at their merchants who ultimately determine suc- Narendra Modi, abruptly announced the money. Some merchants have thumbprint cess. As the system beds in, he believes that withdrawal of high-value banknotes, which readers. Aadhaar forms part of what is called, more and more of them will start accepting made up 86% of the rupees in circulation. The in techie jargon, the “India Stack”, a set of QR-code-based payments. number of Paytm accounts increased from interlinked digital platforms that allow Global giants are now competing to 115m at the time of the announcement to smooth transfers to and from bank accounts develop applications for this interface. 160m in just 60 days. In retrospect, this can via a “Universal Payments Interface” (UPI). Google launched an app called (Hindi for be seen as one of the stages in a payment Bank accounts can be linked to a UPI address, “fast”) last September. By this March it revolution in India. The final destination allowing immediate payment to be made already had 14m active users a month and seems an unlikely one for such a poor coun- from one account to another. was accepted as a form of payment by over try, but according to Mr Asbe, “the ultimate Launched in 2016, it has had a decent 500,000 merchants. Designed to resemble a aim is to replace cash.”

6 The Economist May 5th 2018 SPECIAL REPORT FINANCIAL INCLUSION

systems forthem that rely on feature phones is “a ploy forpeople CICOnomics to continue to belong to the have-nots”. Mobile-money economics in emerging markets A final tension is between competition and the concentra- 2017, % of total baseline revenue tion implied by network effects. Rich countries have burgeoning Costs* Revenues† Profits choices. Sit in a taxi in Singapore and the window is obscured by 0255075 0 25 50 75 10025 – 0 + 25 stickers advertising different ways to pay for the ride—credit cards, debit cards, stored-value cards and any number of smart- Accounts nil phone apps. Shop countersgroan underthe weightofall the EFT- Cash-in- POS machines. But in frontier markets the brave pioneers of mo- cash-out bile money tend to become near-monopolies. M-PESA has 80% Transactions of the market in Kenya. In Bangladesh the central bank has li- censed 27 services, and Kamal Quadir claims a market share of Other only 60% for bKash. But his network of176,000 agents is hard to Total match. As he says, “you need network effects and scale to be ef- fective.” In Pakistan, Easypaisa and JazzCash, its biggest rival, Source: McKinsey global banking *Includes deposit insurance practice, March 2018 †Includes net interest margin have a market share ofabout 85% between them. One way of both fostering greater take-up of digital finance in the short term and mitigating the long-term risks of monopo- 2 it work has not been straightforward. Agents delivering the cash lies is to embrace “interoperability”, allowing payments across would take a cut. Almost all Pakistanis have a digital identity different systems. To this end the Gates Foundation has collabo- stored in a national database that helps them open a bank ormo- rated with a number of fintechs, including Ripple, a highly val- bile-money account. But giving BISP recipients debit cards linked ued distributed-ledger developer, to create free open-source soft- to this so they could get the money from an ATM also sometimes ware. The result, a system called Mojaloop (moja means “one” in meant that middlemen tookthe cards, withdrew the money and Swahili), makes it easier to deploy interoperable payment plat- skimmed a commission. Mobile money works better, but it still forms. The idea is to ensure that the very poor will have access usually involves a visit to an agent. The number of mobile ac- whatever happens to the rest ofthe market. counts held by women in Pakistan rose by an impressive 4m in For now, intense competition in most countries means that the 12 months to September last year, to 7.3m, but those held by disadvantaged consumers should indeed benefit from the rise in men increased by an even more remarkable 12m, to 25.6m. mobile money. But competition is fierce in part because network Similar obstacles slow down the move from “cash-in-cash- effects imply that the winner takes all. And as transferring mon- out” (CICO) systems to those in which mobile money is accepted ey gets ever closer to the goal of free, frictionless, real-time pay- for day-to-day purchases. (Easypaisa is largely an “over-the- ments, what will matter is not so much the process itself as the counter” system in which both sender and recipient use cash additional services the provider is offering. 7 and the digital money moves from one agent to another.) The aim is to increase the numberofindividual mobile accounts, and then ofmobile payments. But so long as other shops accept cash, Blockchain and remittances an individual shopkeeper has little incentive to accept electronic payments. And a new study by McKinsey finds that CICO is still Not to the swift crucial to current business models formobile money, accounting forabout 60% ofprofits (see chart). Cash is here to stay. “It works quite well,” notes McKinsey’s Ms White drily. Even in Norway, where digital payments have a bigger share than anywhere else, 17% of all payments are still in cash. But digital payments will become easier and more com- Cheaper cross-border transfers are coming mon. “Tap-to-pay” methods using near-field communication technology that have taken off in Europe, and the EFTPOS (elec- BLOCKCHAIN HOLDS GREAT potential for improving tronic funds transferat point ofsale) machines ubiquitous in rich payment systems, but for the moment that potential re- countries, may be supplanted in many developing ones by an mains largely unrealised. In March Swift, a Brussels-based ser- app on a small retailer’s smartphone. In Pakistan, as in much of vice owned by 11,000 banks that handles more than half of all the world, this is likely to be one that can read a QR code. M-PESA cross-border interbank payments, said further progress was in Kenya, for example, is rolling out “scan-to-pay” as well as “tap- needed before distributed-ledger technology “will be ready to to-pay” services among its merchants. support production-grade applications in large-scale, mission- Although cumbersome, electronic payments are possible critical global infrastructures”. But it is coming, and cross-border on a feature phone, and some such phones have cameras that payments are in its sights. Also in March, at Money 20/20, a pay- can read QR codes. But a smartphone makes them much easier, ment-industry gathering in Singapore, Ravi Menon, managing raising another tension: between feature-phone-based services directorofSingapore’s central bank, argued that one ofthe stron- and internet-enabled phones. In Pakistan the local subsidiary of gest possible uses for blockchain technology is to “facilitate FINCA, a global non-profit microfinance network, has a joint cross-border settlements”. Many think that Swift’s current pay- venture with FINJA, a local fintech, marketinga mobile wallet for ment system will move to the blockchain in the long run. In 2016 smartphones called SimSim. That seems perverse in a country ICICI, an Indian bank, and Emirates NBD of the United Arab where smartphones account for only about a quarter of mobile Emirates successfully tried out a networkbuilt by Infosys to han- connections. As elsewhere, however, that proportion is rising dle remittances from the Gulf to India. Ant Financial has pub- rapidlythanksto cheap Chinese handsets. QasifShahid of FINJA lished 49 blockchain patents, more than anyothercompany any- argues that in the modern world those without a smartphone where. Stefan Thomas of Ripple says that 100 banks worldwide lack a digital identity and are not really “included”. Designing are committed to deploying his firm’s “interledger protocol” 1

The Economist May 5th 2018 7 SPECIAL REPORT FINANCIAL INCLUSION

Mobile financial services Plenty more where that came from Global stock of migrants Global remittances Pocket banking From developing countries, m To developing countries, $bn 200 500

400 150 300 Mobile money means more nimble financial services 100 200 KAUSARPARVEEN, ofChakwal districtin the north of Paki- stan’s Punjab province, is a star beneficiary of the work of 50 100 Karandaaz, a Pakistani financial-inclusion charity. The owner of justone buffalo, she borrowed 75,000 rupees(about$650) to buy 0 0 another one and started selling milk. The business has done so 2000 05 10 15 17 2000 05 10 15 17 well she now has four buffaloes and an assistant, and has taken Sources: UN; World Bank out anotherloan to install a biogas plant, savingon firewood and sparing her family the woodsmoke. Thiswashowmicrocredit, aspromoted byMuhammad Yu- 2 technology. Western Union, the giant incumbent ofthe global re- nus, a Nobel-prizewinning entrepreneur from Bangladesh who mittances industry, is also experimenting with it. launched his Grameen bankin 1983, was supposed to work: cred- This business, a lifeline for tens of millions of the world’s it would allow the poor to establish microbusinesses and im- poor, has long seemed ripe for digital disruption. As migration prove their lives. The idea has spread across the developing continued to climb, global remittance flows to developing coun- world. Sadly, in manyplacesithasnotworked outthat way. Abig tries in 2017 reached about $466bn (see chart), around three expansion of microcredit in India’s Andhra Pradesh province times as much as flows of development aid. In Pakistan, for ex- caused a crisis in 2010 when the lenders were blamed for an in- ample, remittances last year were worth about $20bn, not much crease in suicides by farmers. A World Bank paper last Novem- lessthan all the country’smerchandise exports. In Decemberthe ber, written by Robert Cull ofthe bankand Jonathan Morduch of central bank launched an initiative to promote the use of e-wal- New York University, considered evidence showing that micro- lets forcheaper remittances. For now, they are expensive. The fee credit has had “only modest average impacts on customers”. It forsending $200 is about 7.2%, or as much as 9.1% if the money is has often been used to cover the normal ups and downs of going to Sub-Saharan Africa (and that ignores the exchange rate). household spending, which is helpful but not transformative. 1 The UN’s Sustainable Development Goals include a target of cut- tingsuch feesto 3%. AWorld Bankreport blames high costs on ex- clusive arrangementsbetween money-transferfirmsand nation- al post offices, and on “derisking” by banks scared of infringing anti-money-laundering and know-your-customer regulations. Money-transfer operators point out that they also incur heavy costs. They have to “pre-fund” transfers, leaving money sitting in destination countries to enable prompt settlement. Rip- ple cites an estimate of$27trn for the size ofthis global float. And operators need a physical presence at both ends. Western Union has more than 550,000 outlets, covering every country in the world bar Iran and North Korea. Taking a shot at Goliath But this business, too, is going digital. The fintechs have tak- en aim at Western Union’s market, not least to exploit cost sav- ings from the growth of mobile money. One, London-based TransferWise, boasts that its charges are just one-eighth of the banks’ because it offers a “true” exchange rate. Another firm, MoneyGram ofAmerica, accepted an offerof$1.2bn from Ant Fi- nancial, butin Januarythe sale wasblocked on national-security grounds by America’s watchdog, the Committee on Foreign In- vestment in the US. Another firm, WorldRemit, also offers lower fees than Western Union, partly because its model is “100% digi- tal in”, which means it will not accept any cash. More than one- third ofits global transfers are to mobile-money services. Meanwhile Western Union is rebranding itself as a digital company, says Stanley Yung, its chief customer officer. Its rev- enue from digital money transfers increased by 23% in 2017, to over $400m. As its competitors sourly point out, finance is a no- toriously sticky business. Just as few people move their bank ac- counts, so customers are reluctant to forsake a money-transfer system that has worked forthem, even ifit charges steep fees. 7

8 The Economist May 5th 2018 SPECIAL REPORT FINANCIAL INCLUSION

2 Part of the problem is that microfinance is very hard to pro- bile-network operator, offers a life-insurance product called Mi- vide on a large scale. Reaching, assessing and helping borrowers Life linked to its mobile-money accounts. For about $0.23 a like Ms Parveen is time-consuming and labour-intensive, which month users get cover ofaround $100. This is catching on across makes it hard to keep interest rates at a reasonable level. Typical the developing world. In March Telefónica, a Spanish multina- annualised percentage interest rates are in the region of 20-40%, tional network operator, announced a tie-up with Bima, a pro- cheaper than the traditional local moneylender or pawnbroker vider of mobile micro-insurance, to offer life insurance across buthardlya snip. Digital moneyholdsoutthe hope ofimproving , starting in Nicaragua. Crop and livestock insur- things in two ways: by making it cheaper and fasterto grant, dis- ance is also becoming available on mobile phones. A number of burse and repay loans and to provide other financial services, firms, such as Econet in Zimbabwe and Acre Africa in east Africa, notably savings and insurance; and by harvesting data that offer farmers “index insurance” for their crops that will pay out should widen access to financial services for those with little or automatically to a mobile-phone account, without the need to no history in the formal financial sector. put in a claim, if, say,a rainfallindex drops below a certain level. In Kenya, for example, Safaricom in 2012 launched M-Shwari, a paperless bank account offered by the Commercial Digital money should make it cheaper and faster to Bank of Africa (CBA)viaM-PESA. CBA grant and repay loans, and widen access to financial takes the risk but can use the know-your- customerchecks already done digitally by services for those without a formal credit history M-PESA to open the account, and the M- PESA payment history to gauge creditworthiness. Like M-PESA it- Ingenious pay-as-you-go schemes offer credit for pur- self, it has grown like Topsy (CBA’s customerbase increased from chases. The most famous is M-Kopa’s solar-panel technology, 50,000 in 2010 to 22m today) and has been much imitated across which has brought electricity to hundreds of thousands of Africa and beyond. In Pakistan, FINCA, the global microfinance homes in Kenya, and Uganda. Buyers put down a small network, wants to use SimSim, its new mobile-money account, deposit and then make a daily payment from their mobile-mon- to offer“nano loans” (the equivalent of$5 or $10, say), thereby es- ey account until, after a year, they own the panel. If they miss a tablishing a data trail for assessing bigger loans later. payment the panel is automatically locked, so if they urgently M-Shwari and a few of its peers also offer services that pay need money forsomething else, they have the choice offorgoing interest on mobile-money accounts in credit. Indeed, the num- a day’s electricity to give them extra cash in hand. In February M- ber of financial services available to poor people with a mobile- Kopa announced a partnership with MasterCard to help it ex- money account is exploding. Michael Schlein of Accion, a Mas- pand through Africa, using the card firm’s QR technology. Again, sachusetts-based financial-inclusion non-profit, speaks of “a good east African ideas travel: Easypaisa in Pakistan, for exam- golden age of fintech”. Take life insurance. In Ghana, MTN, a mo- ple, now has a similar offering. SimSim would like to use the model to finance smartphone purchases, but the technology to lock the devices remotely is not yet robust enough to rebuff at- tempts to outwit it. The data generated by such accounts provide the nearest thing many of the holders have to a credit score. They are an in- valuable aid to lenders trying to decide ifa borrower can afford a loan. But a phone—and especially a smartphone—also provides all sorts of other information that some lenders may find useful for marketing or credit-assessment services. Positional data, for example, can show if someone has a steady job and a perma- nent address. Social-media activity can be highly informative. And shopping data can let on, say, ifthe user is pregnant. Some firms specifically try to generate credit judgments in the absence of a conventional financial history. Lenddo EFL, a merger of two fintech startups, claims to have facilitated more than 7m assessments, allowing 50 financial institutions of all sizes to lend more than $2bn to people with limited borrowing histories. Lenddo relies on advanced AI-driven analytics. EFL provides “psychometric testing”—online quizzes that have a sur- prisingly good record in predicting a prospective borrower’s pro- pensity to repay. Questions might be about how you are feeling; your view ofthe time value ofmoney (“Would you take $10,000 now, or$20,000 in sixmonths’ time? How about $17,000 now?”); how you spend your money; what you would do with a - fall; and how you view your community. Ifthe questions seem easy to game, that is part of the point: the way that defaulters game it goes into the data. The algorithm will always be one step ahead. Lara Zibarras, a seniorpsychologylectureratCity, Univer- sityofLondon, isworkingon anothersetofpsychometric tests to be introduced by Oakam, a British subprime lender. They ask people to choose between photos to reveal personality traits. Early tests suggest they are as accurate in predicting missed first payments as an experienced human loan-underwriter. 1

The Economist May 5th 2018 9 SPECIAL REPORT FINANCIAL INCLUSION

2 The most extensive use of “alternative” data (which, unlike “alternative” facts, do have a basis in reality) is made in China. In 2015 the government awarded eight firms licences to develop consumer-credit ratings. Alipay’s is the most advanced. A good score from the firm’s Zhima (Sesame) credit agency may allow its holder to hire a car, use a bike-sharing service or book a hotel room without paying a deposit, and let him see a doctor without havingto queue to pay. At one time, it is reported, it even allowed people to jump security queues at Beijing airport. Lonelyhearts flaunt their credit ratings in online-dating profiles. For those with a lower score, however, a Zhima ratingmaybe risky. According to Xinhua, China’sstate newsagency, the database includesa listof more than 6m people who have defaulted on court fines, which has helped the courts catch up with more than 1.2m defaulters who found that their credit score had plummeted. Open Sesame Ant says that Zhima improves financial inclusion. As of 2015, the People’s Bank of China (the central bank) maintained Rich countries credit histories for around 380m citizens. That is less than one- third of the adult population, compared with nine-tenths of Americans who have credit records. Zhima’s system, claims an The bottom rung Ant spokeswoman, is transparent. The five metrics on which it is based are indeed public: personal information, ability to pay, credit history, stability of social networks and “behaviour”. The meaning ofthis last one is not entirely clear. In 2015 Li Yingyun, a Tech and data offer hope of more financial inclusion in Zhima director, told Caixin, a magazine, that someone playing video games for ten hours a day might be rated a bad risk; a fre- the rich world, too quent buyer ofnappies would be thought more responsible. HACKNEY IN NORTH-EAST London prides itself on being As concern about the misuse of online data mounts in Chi- one of the capital’s most ethnically diverse boroughs. The na, too, Antnowtendsto playdown such behavioural data. Dou- council identifies only 36% of the population as “white British”. glas Feagin, its head of international operations (and a former Dalston Junction, a now-trendy part ofthe borough, buzzes with Goldman Sachs banker), says its algorithms rely heavily on the a down-at-heel sort of cosmopolitanism: a Caribbean bakery; debt-service and paymenthistory: “Pastrepaymenthistoryis the the Halal Dixy Chicken shop; the Afro World wig-and-exten- best predictor of future credit performance.” In Lahore, Mr Sha- sions parlour; dozens of outlets for Lycamobile (“call the world hid of FINJA is also sceptical of claims made for non-traditional forless”) and formoney-transferfirms. data: “Everything is overrated except the payment history.” It is also diverse in wealth. Nearby gentrification is sprout- For Ant, the credit score forms part ofan “ecosystem” ofon- ing in a few trendy coffee bars and a sleek creperie. But Hackney line services that support each other. It also offers loans, and is also, on a measure of “multiple deprivation”, the 11th most de- since 2013 has had a fund where Alipay users can earn interest on prived ofmore than 400 local-authority areas in Britain. Dalston theirsurpluscash. The fund, known asYu’e Bao (or“leftovertrea- has more than the usual number of charity-run second-hand sure”), offers much higher returns than bankdeposits. By the end shops and at least fourpawnbrokers. of last year it had become the world’s biggest investment fund, Competingwith this last group is a branch ofOakam, a Brit- with 1.58trn yuan ($243bn) in assets under management and ish lender set up in 2006. It advertises itself as an “alternative to 325m accounts, equivalent to nearly a quarter ofChina’s popula- doorstep lenders”, the traditional financiers for those beneath tion. It has an estimated market share of25%. Tencent has its own the bar set by mainstream banks. Originally aimed at recent im- online fund, Licaitong, linked to WeChat, with 300bn yuan un- migrants, it extended its reach to the rest of those “lacking access der management by the end of to basic financial services”—a group it puts at 12m across Britain. January this year. Lufax, a sub- A report published in March 2017 by a House ofLords committee sidiary of Ping An, an insur- estimated that1.7m adult British residents have no bankaccount; Everybody’s choice ance giant, started as a market- 40% of the working-age population have less than £100 ($140) in Mobile-phone penetration place for peer-to-peer lending cash savings; and 31% show signs offinancial distress. Per 100 people, worldwide but has turned itself into a fi- Britain is not the only rich country where big chunks of the 100 nancial “supermarket”, offer- population live largely outside the mainstream financial system. ing loans, securities, mutual In America the Centre for the New Middle Class, the think-tank 80 funds, insurance and more. arm of Elevate, a -based online lender specialising in the These Chinese giants “nonprime” market (not immediately creditworthy), estimates 60 have shown that serving peo- that109m Americans are nonprime and a further53m are “credit ple who until recently were re- invisibles”, without enough of a financial history to be assigned 40 garded as unbankable can be a credit score. A survey by the Federal Reserve last year found 20 profitable. Greater financial in- that 44% ofAmericans would struggle to meet an unexpected ex- clusion, in effect, is a business pense of$400 without selling something or borrowing. 0 opportunity. Institutions in Banks make good money out ofthe way many people with 1995 2000 05 10 16 richer countries are trying to bank accounts and a decent credit standing raise funds at short Source: ITU heed that lesson. 7 notice: using a credit card or dipping into the red on a current 1

10 The Economist May 5th 2018 SPECIAL REPORT FINANCIAL INCLUSION

2 (checking) account with a bank. That is one reason why they do ments to utilities, and have nothing to say about those with little not bother much with lending to those without good credit or no borrowing history (“a thin file”). This often excludes poten- scores. Another is that, since the financial crisis—the origins of tially valuable clients: immigrants anxious to build a good repu- which, after all, lay in the subprime market—banks have been tation in their new homeland; students with bright career pros- anxious to clean up the quality oftheir loan assets. pects; hardworking, trustworthy individuals needing cash to The underbanked do notlackfinancial options, butare gen- tide them over a difficult patch. These should not be hard to lend erally charged exorbitant prices for them, especially when mea- to. Ken Rees, the boss of Elevate, says he is constantly meeting sured by the annualised percentage interest rate (APR). In Britain people from fintechs advertising their data-processing prowess, such lenders include pawnbrokers, offering an APR of between yet on examination they mostly just extend the realms of the 25% and 101% for a secured loan; doorstep lenders such as Provi- banked to bring in those who, even on a cursory check, would dent, the biggest, which will charge an APR of1,558% fora 13-week have been included anyway. loan; “payday lenders” such as Wonga, which offer similar rates But lenders now have wads ofother data, too. Oportun, for fora loan to be repaid after1-35 days in one lump sum; and “rent- example, is an American firm with 270 physical outlets, with its to-own” lenders, such as BrightHouse, which offer finance for roots in the Latino immigrant community. It offers instalment purchases to be repaid in instalments. In America the industry loans at a typical interest rate of around 32%. One morning in also includes “check-cashers” that pay immediate cash (at a dis- March at its branch in Redwood City, California, three tellers—all count) for cheques that would take days to clear in a bank, and Spanish-speaking locals who had first come into contact with “title-lenders” that lend against the borrower’s car. In both coun- Oportun because they or their families had been borrowers— tries these fringes of legal finance are the last defences against a have just one client between them. His documents—some utility scary, unregulated world ofillegal loan-sharking. bills and a bankstatement—are scanned and transmitted to head office. Within minutes, the automated loan approval comes Prey for them through. Oportun reportsitslendingto creditbureaus, helpingits In both countries, too, this end of the credit market has clients build up their histories. Success, says Raul Vazquez, the caused regulatory concern. Some of the lending is clearly preda- chief executive, can be seen as getting them into the formal sys- tory. According to America’s Consumer Financial Protection Bu- tem. So the business model is to get rid of the best customers, reau, a controversial watchdog set up after the financial crisis, in which seems almost perverse. 2016 more than four-fifths of those who borrowed against their In rich countries such as Britain and America, where most cars had to renew their loans; a large proportion of these end up people have current accounts, their bank statements offer lend- losing their vehicles. And some payday loans seem designed not ers plenty ofdata that algorithms can feast on. The ability to ana- to be repaid but to go into default, laying the foundations of a lyse them better than banks and other rivals may provide a com- long-term debt relationship. In Britain the regulator, the Finan- petitive edge. But digital technology also provides data through cial Conduct Authority, in 2015 imposed interest caps on payday the apps that users download on their phones. Lenders say they lenders, some ofwhich were charging APRs in excess of5,000%. can learn a lot from how, and how often, their customers use But as Lisa Servon, an American academic, finds in her their app. Oakam, for example, offers an in-app game in which book “The Unbanking of America”, lenders to the less well-off customers climb a “ladder” of client categories to earn a higher are not all purely exploitative, nor are they feared and resented status and discounts. Forpeople at the bottom ofthe credit pile, it by all their users. Rather, they are meeting a need unfulfilled by is an apt metaphor. 7 banks and welfare systems. However, the high cost of their pro- ducts makes them vulnerable to new entrants to the market. Fired by a mixture of technological zeal, idealism and the profit Winners and losers motive, such firms are competing forthe unbanked dollar. As in the developing world, technology can help in three The best of times main ways: by making identity checks easier; by lowering costs; and by enabling new forms of credit assessment. Auxmoney, a German online-credit marketplace, allows loan applications to be submitted entirely digitally and remotely, including an identi- ty check and digital signature by video link. By automating pro- cesses and dealing with customers mainly online (usually via a Despite some risks, consumers are in clover mobile phone), such operators keep down staff numbers and costs. Oakam’s boss, Frederic Nze, says that its cost-income ratio NO ONE GETS up in the morning thinking they want to do is 50%, and trending downwards to below 40%, compared with some banking, notes Piyush Gupta, boss ofDBS, South-East 57% fora typical doorstep lender. Asia’s biggest bank. Speaking in March at the Money 20/20 con- Oakam’s rates, which by statute have to be prominently ference in Singapore, Mr Gupta meant that banking is just a displayed on its website, are high (“1,421% APR representative” in means to an end—buying a house, paying school fees and so on. March). But a group of borrowers at their Dalston branch seem And in a digital world, banks risk becoming invisible—“dumb unbothered bythis. Whatseemsto matterto them isthatthey are pipes” designed and managed by others. They seem unlikely to treated decently. One, a rehabilitated drug user and single moth- be big winners in the new financial world. er, was so angered by her experience at another lender that she Their main competitors, however, are not the fintechs. Dur- went out and spent her £100 loan on crack. Another says that no ing the dotcom boom of the late 1990s, ambitious internet start- bankwill touch her because she once splurged on her credit card ups saw themselves as revolutionaries. The big financial institu- when she was18. All are glad to have access to credit at all. tions, so set in theirways, would surely be swept away by a wave What Oakam shares with other nonprime lenders, and of internet-based disintermediation. Sure enough, the incum- those in poor countries, is a willingness to look beyond the bents nearly went under—but because ofthe global financial cri- scores handed out by credit bureaus. Those data are backward- sis,notcompetition from nimblerrivals. Fintechstoday are most- looking, ignore much non-credit history, such as regular pay- ly reformists rather than revolutionaries. Thanks to open 1

The Economist May 5th 2018 11 SPECIAL REPORT FINANCIAL INCLUSION

2 application programme interfaces (APIs), they can offertheir ser- oly rents. For the next few years, vices on banks’ platforms. So if they are going to be winners, it is however, consumers will bene- Offer to readers only by having curtailed their ambitions. fit from prices driven down by Reprints of this special report are available. MNO A minimum order of five copies is required. Mobile-network operators ( s) provide the infrastruc- competition. Please contact: Jill Kaletha at Foster ture where more and more of the financial system is based. Back Digital security is already a Printing Tel: +1 866 879 9144 Ext: 168 in the mid-1990s, John Reed, then the chiefexecutive ofCitibank, big concern. Even the Swift sys- e-mail: [email protected] soughta mergerwith AT&T, realising, as he laterput it, that “a net- tem found itself vulnerable to Corporate offer worksupplier and a content provider would be a good combina- cyber crime when over $100m MNO Corporate orders of 100 copies or more are tion.” But most s are content to make money as dumb was stolen from Bangladesh’s available. We also offer a customisation pipes. And that revenue—essentially, fees per transaction for central bank in 2016. India’s service. Please contact us to discuss your transferring funds—will come under threat as competitors offer Aadhaar has repeatedly been requirements. free transfers, hoping to make profits from ancillary services. charged with being susceptible Tel: +44 (0)20 7576 8148 e-mail: [email protected] So what banks, fintechs and MNOs fear most are the digital to data leakage through bribery, M For more information on how to order special “platforms”—the colossi bestriding the internet and controlling which it has mostly denied. - reports, reprints or any copyright queries the apps and sites where most people spend most of their time Shwari in Kenya recently suf- you may have, please contact: online. In a world where data rule, Google might be expected to fered an interruption of service The Rights and Syndication Department be king, but it insists it has “no aspiration to be a bank”. Facebook because of “technical issues”. 20 Cabot Square in some countries offers payments on its Messenger service and But by and large, digital pay- London E14 4QW via its subsidiary,WhatsApp. It dabbled in using data to generate ment is safer than cash for the Tel: +44 (0)20 7576 8148 Fax: +44 (0)20 7576 8492 credit ratings, but users found that creepy,so it stopped. Amazon low-income consumers who are e-mail: [email protected] already has a substantial business lendingto small firms usingits the main users of mobile mon- www.economist.com/rights platform. A report in March that Amazon was in talks with ey, according to Ruth Goodwin- JPMorgan Chase to offer its customers bank accounts sent a fris- Groen, managing director of the Future special reports son through the banking world. Amazon has data to drool over. Better Than Cash Alliance. China in the world May 19th Chinese firms start with a huge advantage: the country’s Technology and justice June 2nd Brave new world The Gulf June 16th sheer size. They also benefit from a protected domestic market. Fixing the internet June 30th UnionPay, for example, became the world’s biggest bank-card Privacy may be an even company, based almost entirely on the Chinese market, from bigger issue. As it becomes more Previous special reports and a list of forthcoming ones can be found online: which Visa and MasterCard have been largely excluded. Alibaba obvious that people are trading economist.com/specialreports and Tencent, as well as UnionPay,are expandingoverseas. As yet their personal data for better ac- their ambitions are directed mainly at the Asian near-abroad, as cess to financial services, they well as at Chinese tourists and the diaspora. But they have big will worry about losing control. ideas, deep pockets and a business model that seems to work. The problem is most acute in China, where the government’s ef- The biggest winners all round are likely to be consumers, fortsto build a “social-credit” ratingsystem, rewardingpeople for though with a numberofcaveats. Fourstand out: market concen- being good citizens, seem the stuff of dystopian fantasy. They tration, security,privacy and inequality. also feeluncomfortablyclose to creditscoresderived from “alter- Concentration is a worry for the future. The fear is that net- native” data, with which China’s central bank and firms such as work effects will drive smaller payment providers out of the Ant have been experimenting. In January Ant had to apologise market as platforms offering free transfer services undermine for having made opting in to a Zhima credit score the default set- their business models and the winners start demanding monop- ting for users who opened a report on their Alipay activity over the past year. The greatest problem for financial inclusion, though, may be the persistent The biggest disparities revealed by the new Findex. It winners all shows that, for all the advances, the gap between the number of male and female round are account-holders has not narrowed over likely to be the six-year period covered by its three editions, remaining at nine percentage consumers, points. Likewise, a big gap remains be- though with tween richer and poorer households. Among the richest 60%, 74% of adults a number of have an account; among the poorest 40% caveats the share is only 61%. The Findex survey asked a question designed to find out why those 1.7bn peo- ple remain unbanked. The explanations included cost and distance, the fact that a family member had an account, lack of documentation, distrust in the financial system and religious concerns. But by far the biggest reason, cited by two-thirds of respondents, was having too little money. To solve that problem, technology is es- sential. But it is not enough. 7

12 The Economist May 5th 2018 Middle East and Africa The Economist May 5th 2018 45

Also in this section 46 Mozambique, still in a hole 46 Can Eritrea and Ethiopia make peace? 47 Lebanon’s snap-happy campaign 47 The end of Yarmouk 48 Local elections in Tunisia

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

Angola currency, the kwanza, from the dollar, prompting it to fall by 27% since January. How far will João Lourenço go? And he has made the country more entic- ing to foreign investors by lifting a law that had required them to have local partners who owned abouta third oftheirbusiness. He is also trying to breakup state monopo- LUANDA lies, which exist mostly to waste petrodol- lars, and has asked the IMF foradvice. Hopes grow fora corruption-weary country as a new leaderconsolidates power He certainly needs it. Angola’s govern- EW presidents have entered office amid foreign intelligence. The ruling party is ex- ment is drowning in debt, which is about Fsuch low public expectations as did pected to ditch the senior Mr dos Santos at 65% of GDP (see chart) and rising. Manuel João Lourenço, who in September became a congress in September. Newspapers Alves da Rocha, an economist at the Cath- Angola’sfirstnewpresidentin 38 years. His have swung from sycophantic coverage of olic University of Angola, reckons the cost assumption of power did not involve a the formerfirst family to decrying them. of servicing public borrowing has in- change ofruling parties. Rather, he was the Yet the question many are asking is creased five-and-a-half times since 2014. handpicked successor of José Eduardo dos whether Mr Lourenço, a former defence Opposition parties are calling for an inde- Santos, who had run the country since minister, is sincerely trying to clean up the pendent audit ofthe country’s public debt. 1979, and whose cronies controlled much country or just showing who is in charge. They want to know how the government of the economy. His daughter, Isabel, ran “We don’t know whether he is a real re- squandered so much of the hundreds of the national oil company, Sonangol, by far formist,” says Carlos Rosado de Carvalho billions ofdollars it earned from oil and di- the country’sbiggestsource ofhard curren- of Expansão, a business newspaper. “We amonds over the past few decades. cy. His son, José Filomeno, ran the $5bn don’t know him well enough.” Angolans are used to the powerful sovereign wealth fund. Even in retirement, There are some hopeful signs. Mr Lou- growing unfathomably wealthy while the Mr dos Santos kept his role as leader of the renço vows to make Angola less nightmar- masses forage for scraps. Although the ruling party. Everyone assumed that he ish forinvestors. Currently the World Bank mean income per person is $3,110, twice would wield power behind the scenes. rates it a harder place to do business than the sub-Saharan average, about two-thirds Yet since being sworn in, the soft-spo- Syria. Mr Lourenço has unpegged Angola’s of Angolans subsist on less than $2 a day. ken Mr Lourenço has unleashed change Child and maternal mortality rates are that seemed unthinkable a year ago. As amongthe world’shighest, with about one well as trying to revive an economy bat- Into thin air child in five dying before the age of five. tered by low oil prices (which have re- Angola, gross national debt as % of GDP In Cazenga, a shantytown in the capi- bounded), he has mounted a spirited anti- tal, residents recently marched down fetid, corruption campaign. He is also steadily 80 flooded streets in protest against their liv- prising the fingers of the dos Santos clan ing conditions. On Independence Square, from the levers ofpower. 60 demonstrators demanded that public Both Isabel and José Filomeno have money held abroad be returned to state been sacked. José junior faces fraud char- 40 coffers, decrying Mr Lourenço’s offer of ges (which he denies) over an alleged at- amnesty to those who tookit. Such dissent tempt to transfer $500m from the fund would have been crushed by Mr dos San- 20 through an account in London. The former tos. Still, his apparatus of oppression lin- president’s allies are in the cross-hairs, too. gers. Rafael Marquesde Morais, who inves- Mr Lourenço has fired the chief of staff of 0 tigates graft, is one oftwo journalists facing the armed forces (who is also under inves- 200809 10 11 12 13 14 15 16 17 18* jail fortheir reporting. tigation for fraud), as well as the head of Source: IMF *Forecast Public anger may affect voting in Ango-1 46 Middle East and Africa The Economist May 5th 2018

2 la’s first-ever local elections in 2020. Sup- Eritrea and Ethiopia port for the ruling party, known by its Por- tuguese acronym MPLA, hasslumped from 82% in 2008 to 61% in parliamentary elec- Could they make peace? UN- tions last year. (The main alternative is ADDIS ABABA ITA, formerly a homicidal rebel army.) Twenty years aftera pointless war, a new premierponders rapprochement At Luanda’s glitzy hotels the talk is of Brazil, wherea formerpresidentnowsitsin IKE Sarajevo, 1914,” said the late predecessors. In the years after the Ethio- a cell. “Weneed a kind of lava jato—several “LEthiopian prime minister, Meles pian People’s Revolutionary Democratic ones,” says Francisco Viana, an MPLA Zenawi, ofthe first gunshots fired on May Front (EPRDF) seized power in 1991, its member and head ofthe Confederation of 6th1998. “Anaccident waiting to hap- policy towards Eritrea was dominated by Angolan Business Associations, referring pen.” Neither he nor his counterpart in the Tigrayan faction ofthe ruling co- to a huge investigation into corruption at neighbouring Eritrea, Isaias Afwerki, alition. Tigray shares a border with Eri- Brazil’s state-owned oil company that net- imagined that a light skirmish at Badme, trea and its people suffered heavily dur- ted numerous politicians. However, Mr a border village ofwhich few had heard, ing the war. Abiy’s Oromo faction comes dos Santos granted himself immunity could spiral into full-scale war. But two with less baggage. from prosecution before stepping down. years later about 80,000 lives had been But any rapprochement would almost And after decades of horrific civil war, few lost and more than halfa million people certainly require withdrawal from want to riskinflaming tensions. Yet Angola forced from their homes. Badme. This would be hard to sell in is a young country, and memories of the No land changed hands. Two decades parts ofEthiopia. And Abiy would need war—as well as patience—are fading fast. 7 on, Ethiopia still occupies the disputed something in return, such as access to territories, including Badme, having Eritrea’s ports, which Isaias has never refused to accept the findings ofa UN shown much interest in offering. More- Mozambique boundary commission. But the conflict’s over, the threat from Ethiopia allows him miserable legacy persists. Thousands of to keep smothering democracy at home Still in a hole troops still patrol the frontier. Centuries and maintaining a huge army. “Making oftrade and intermarriage abruptly peace would be the end ofhim,” says an ceased. Ethiopia lost access to Eritrea’s Eritrean refugee who recently arrived in ports. Eritrea lost its biggest trading Addis Ababa. “Why would he?” partner and retreated into isolationism. It has been on a war footing ever since. The president’s claim that his country But it is not so lonely these days. On hasrecoveredispremature April 22nd Donald Yamamoto, America’s OZAMBIQUE is back,” says Presi- most senior diplomat in Africa, visited “M dent Filipe Nyusi, hoping to per- Asmara, the capital—the first such visit in suade a recent gathering of fellow Com- over a decade. Eritrea has been sanc- monwealth leaders that the buffeting his tioned by the UN since 2009, in part for country has faced in the past few years is allegedly arming jihadists in neighbour- over. But his compatriots need convincing, ing Somalia. But a panel ofexperts ap- too. Some point to dramatic changes in pointed by the UN Security Council South Africa, Zimbabwe and Angola. Each found no evidence ofarms transfers and has a new leader who vows to correct the advocates lifting the embargo. America bad habits of a recently ejected predeces- sounds open to the idea. Some reckon sor. Why, they ask, can’t Mr Nyusi, who sanctions could be removed this year. succeeded Armando Guebuza in 2015, do Many in Addis Ababa, the Ethiopian the same? capital, are also mulling a change of Mr Nyusi has three hard tasks. First, he course. With the appointment last month must accommodate Renamo, an opposi- ofa new prime minister, Abiy Ahmed, tion party that fought a guerrilla war from there is an opportunity forfresh thinking. 1977 to1992 and rebelled again more recent- Abiy,who was an intelligence officer ly against Mr Nyusi’s Frelimo party, which during the war, promised in his inaugural has run the show since independence speech to make peace with Eritrea. from Portugal in1975. He may have more luckthan his Cold peace, hot border Second, he must revive the economy by coming to terms with the IMF and foreign donors who suspended aid soon after a be settled before national elections next And he has not done enough to dis- scandal involving $2bn of secret loans was year, though some in Frelimo still hanker lodge his party’s corrupt old guard, as his exposed in 2016. Third, Mr Nyusi must after a “Savimbi solution”: that Mr Dhla- counterpart in Angola seems to be doing. chuck out and in some cases bring to book kama should justbe killed, aswasAngola’s He has brought a few allies into the ruling the old guard around MrGuebuza, reputed rebel leader, Jonas Savimbi, in 2002. politburo and sacked the head of the army to be one ofMozambique’s richest men. On the economic front, Mr Nyusi is and the intelligence service. Buthe issome- Mr Nyusi has done best with Renamo. shakier. The high hopes that followed the what hamstrung by his lack of pedigree He has courageously met its long-serving discovery ofvast reserves ofgas in 2010 are amongthe generals; he is the first president leader, Afonso Dhlakama, in his hideout. far from fulfilment; large-scale production of an independent Mozambique not to Indeed, he isclose to clinchinga deal on de- is not expected before the mid-2020s. The have fought in the liberation war. “Mr volution that would let Renamo share or IMF has yet to be reassured that its request- Dhlakama is not our enemy, he is my win power in some provinces. But the two ed funds will not be squandered. Mr Nyusi brother,” he says. “Our enemy is corrup- still need to agree on how to demobilise wafflesaboutsortingoutthe messwith the tion.” If that is indeed the case, victory is their armed men. Mr Nyusi hopes all will banks involved in the loan scandal. still a long way off. 7 The Economist May 5th 2018 Middle East and Africa 47

Palestinians in Syria Refugees again

DAMASCUS Syria is erasing the Palestinians’ largest refugee camp HEN the bombing finally stops, little Wwill remain of Palestine’s capital-in- exile. Yarmouk, on the southern edge of Damascus, Syria’s capital, was once the Palestinians’ largest and liveliest refugee camp, sheltering displaced Iraqis and Syri- ans too. But two weeks ofrelentless bomb- ing by the regime of Bashar al-Assad and his Russian backers has reduced it to rub- ble. Of the 350,000 people who once lived Lebanon’s election in Yarmouk, only a few hundred remain. Syria used to treat the Palestinians well. Selfie-perpetuating They were provided with health care and education and allowed to own homes. Many worked for the government. Mr As- sad gave Palestinian security forces arms BEIRUT AND TRIPOLI and training to police their camps. Khaled Meshal, the leader of Hamas, the Palestin- The prime ministervows to pose for6,000 selfies ifhe wins. But will the electricity ian Islamist movement, had more access to work, orthe rubbish get collected? the president than most ofthe cabinet. EW politicians enjoy a selfie as much as from their own sect, seem unlikely to gam- But when MrMeshal sided with his Qa- FLebanon’s prime minister, Saad Hariri ble on relatively unknown outsiders. tari financiers, who backed Syria’s Islamist (pictured). On the campaign trail before a So Mr Hariri, a Sunni, is expected to re- rebels after the uprising in 2011, Mr Assad general election on May 6th, Mr Hariri has main prime minister. His personal popu- and his men fumed at the treachery. They clambered atop cars, posed with fans and larity grew in November, when he was blasted Hamas for using its tunnelling cuddled up to children in search ofthe best seemingly held against his will in Riyadh skills to dig escape routes for the rebels. snap of himself. At a rally last month he and forced to resign by his Saudi patrons. Some of its members fought with more promised some 6,000 women that he Weeks later he triumphantly returned to radical groups. In 2015 the jihadists of Is- would pose with each of them should he Beirut and rescinded his resignation. But lamic State (IS) took control of most of Yar- win. A recently released mobile-phone his Future Movement may lose seats. The mouk. Jabhat al-Nusra, an erstwhile al- app allows supporters to upload their sel- Saudis have pulled their financial support Qaeda affiliate, grabbed the rest. When the fies with the prime minister, though most for Mr Hariri, who heads a government regime was not fighting them, they battled ofthe shots posted so far appear to be ones that includes Hizbullah, the Shia militia- each other. Mr Hariri has taken. cum-party that is backed by the Saudis’ The latest combat is on a different level. It is no wonder he is excited. Lebanon arch-rival, Iran. That arrangement has also More has been damaged in a fortnight, say has gone nine years without a general elec- upset some Sunnis at home. residents, than in the previous four years. tion. One was due in 2013 but postponed Analysts expect Hizbullah to remain Al-Nusra’s fighters surrendered to the gov- three times as MPs failedto agree on a new one of the country’s most powerful politi- ernment on April 30th and boarded buses electoral law, squabbled over the election cal forces. Its forceful intervention in Syria bound for Idlib, a rebel redoubt in the ofa presidentand debated which side they on the side of President Bashar al-Assad north. Its arsenal all but spent, IS is negoti- should back in Syria’s civil war. The politi- has dented its pan-Arab appeal and left it ating a similar deal, though it does not cal deadlockparalysed decision-making as with less money to spend at home. But the want to go to Idlib. the economy stagnated. Meanwhile popu- party’s political alliances are stronger than Many Palestinians believe the regime lar anger over a lack of basic services has those of its rivals. And the debate over wants to redevelop Yarmouk—for use by grown. whether Hizbullah should be allowed to Syrians. In March the government un- Some hope that the new electoral law keep its weapons has died down, even veiled the second stage of a plan to rebuild (agreed to last year), which institutes a par- though many Lebanese are uncomfortable southern Damascus, including areas that tial system of proportional representation, with its growing clout. run along the camp’s edge. Businessmen will make it easier for reformers to win Even voters in Lebanon’s poorest areas eye opportunities. Some suggest relocating seats. A number of candidates want to get seem inclined to re-elect the politicians the Palestinians to distant scrubland. rid of the system whereby political power who have overseen the country’s decline. Mahmoud Abbas, the Palestinian presi- is divided among Lebanon’s religious Few have suffered more than the residents dent, has remained neutral during Syria’s sects,with the presidentalwaysa Maronite of Tripoli, in the north, but they do not see war and some Palestinian groups even Christian, the prime minister a Sunni and the election as an opportunity to change fought with the regime on the camp’s the speaker of parliament a Shia. The re- the government. Rather, it is a way to boost frontlines. But there is little hope that formers’ message of secular change and a their meagre incomes. “I will wait to see things will return to the way they were. return to the rule of law goes down well which politician pays me the most,” says “We’ll increasingly face a climate in which with middle-class families. But the poor, Ahmed Haidar,who losthisjob atthe local we cannot continue to live,” says a refugee who rely on the patronage of politicians steel factory when it closed decades ago. 7 from Yarmouk, now in London. 7 48 Middle East and Africa The Economist May 5th 2018

Local democracy in Tunisia struggled to kickstart the economy. The un- employment rate is over 15% nationally A road to nowhere? and higher in the countryside, leading to despair. At least 33 people have tried to kill themselves this year in Sidi Bouzid, an im- poverished region of around 430,000 peo- ple where the Arab spring began. BEJA AND KAIROUAN The politicians in Tunis appear out of touch. They have granted amnesty to cor- The uncertain promise ofmunicipal elections in Tunisia rupt officials and refused to extend the OCAL lore holds that seven visits to Kair- Unemployment rate term of a commission investigating abuses ouan’s imposing grand mosque are By governorate, 2016, % by the old regime. But the municipal elec- L Tunis equal to the haj, the pilgrimage to Mecca Beja 5 10 15 20 25 >25 tions have brought a surge ofpolitical new- that is one ofthe “pillars ofIslam”. The city a comers. Thousands of young people are djerd Source: National Institute has been a centre of Sunni scholarship for Me TUNISIA of Statistics running, many as independents. centuries. Lately, though, it has acquired Kairouan In Beja, a town of whitewashed houses another landmark: the “road of death”, a in the western hills, the candidates talk rutted highway that slices south-west into Sidi Bouzid about water. The region is Tunisia’s bread- basket. It has the country’s largest dam, the desert. The transport ministry prom- Mediterranean Sea ised to fix it in 2016 after 27 people died in Gabes which tames the Medjerda river. For the wrecks the previous year. Yet the moniker past three years, though, water has been still fits. On April 18th a pregnant woman scarce. Shortages last summer left some was seriously hurt in a crash. She might Tataouine villages dry for days at a time. Just 72% of have lived if the local hospital used para- homes in the surrounding province are medics qualified to operate the ambu- connected to the national water grid, com- lance. Instead, she died hours later. pared with 90% in the capital, according to Since their revolution in 2011, Tunisians ALGERIA LIBYA the 2014 census. Candidates promise to up- have been stuck with unelected local gov- grade the infrastructure and improve wa- ernments that do little to fix up highways ter distribution when droughts hit. 200 km and hospitals. That is meant to change on Campaigning is also in full swing in Ga- May 6th, when voters choose municipal bes, a city best known for two things. One councils for the first time. The elections, al resources and some of its best tourist is the world’s only seaside oasis. The other originally scheduled for 2016, have been attractions, it reaps few benefits. Ta- is a phosphate plant that belches pollution postponed fourtimes. They come as many taouine, in the south, is the hub ofTunisia’s into the sky. The fumeshave contributed to Tunisians are growing frustrated with de- oil industry. But profits are whisked up the deaths of hundreds of trees—and hun- mocracy, which has not yet brought pros- north. The governorate has the country’s dreds of people. Candidates from all par- perity. Candidates have focused on local highest unemployment rate. “The revolu- ties say they will enforce environmental grievances. But the campaign has led to a tion was supposed to address this imbal- laws and stop the urban sprawl that threat- wider debate about the imbalance ofpow- ance,” says Rachid Ghannouchi, the leader ens to overrun the oasis. er and resources in Tunisia. ofEnnahda, an Islamistpartythatis partof This all looks promising: diverse cam- Zine el-Abidine Ben Ali, the deposed the governing coalition. paigns focused on local issues. The fear is dictator, steered most of Tunisia’s riches to Ennahda is the front-runner in the local that these promises will go unfulfilled. For the northern coast. It got 82% of develop- elections. It has deep roots in rural areas decades local officials were unable to do ment funds in his final budget. The south and was the only party to field lists in all anything without approval from the capi- and west lag on almost every socioeco- 350 districts. But both it and Nidaa Tounes, tal. Days before the election, parliament nomic indicator. Though the interior con- a secular party that leads the government, passed a long-debated law that grants tainsmuchofTunisia’sfarmland,itsminer- have lost some of their shine. They have them greater autonomy. But implementing it will require a major change from Tuni- sia’s notoriously centralised bureaucracy. Even with a wider mandate, the councils will have limited resources. Tunisia allo- cates just 4% ofits budget to municipalities, compared with 10% in nearby Morocco, a richer country. There are also signs the election will be a damp squib. Polls suggest that barely one in five Tunisians plans to vote (compared with nearly 70% in the most recent parlia- mentary election). This is the first election in which soldiers and police officers may cast ballots. They did so on April 29th, since they will be deployed on election day. Turnout was just 12%. In the capital, some politicians fear the vote will only cause more anger—directed at them. “We should postpone local governance,” says Mohsen Marzouk, the leader of Machrouu Tounes, a secular party. “With what we At least we have a choice now have now, we can only share misery.” 7 Asia The Economist May 5th 2018 49

Also in this section 50 The old man of Malaysian politics 51 Indonesia’s infrastructure splurge 52 A close call in Karnataka 52 Stuff and nonsense in India

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

The Korean peninsula only concrete, verifiable actions by that country’s regime, and never its words. Vet- Give peace a chance, redux erans of talks with the North winced, therefore, when Donald Trump, America’s president, used a Rose Garden press con- ference on April 30th to ponder aloud where to fete his historic achievement, should his planned summit lead to peace. SEOUL AND WASHINGTON, DC Some aides had suggested neutral ven- The Korean honeymoon is more likely to end in tears than in celebrations ues forthe summit like Singapore, the pres- OON JAE-IN is an optimist with an since the end of the hot phase of the Kore- ident noted. But Mr Trump likes the DMZ Meye for symbolism. When the South an war in 1953. The summit—only the third because “if things work out, there’s a great Korean president travelled to Berlin in July of its kind and the first in a decade—al- celebration to be had, on the site.” To ex- 2017 to outline his strategy for easing ten- lowed many in the South to engage in a plain his showman’s sense that a “big sions on the Korean peninsula, he insisted willing suspension of disbelief and see Mr event” could be in the offing, Mr Trump on speaking in a place that was associated Kim as an ebullient charmer, rather than a pointed to Mr Kim’s words, and specifical- with German unity. Only two days earlier, despot who runs the world’s most reclu- ly to the young dictator’s recent talkofend- Kim Jong Un, the North’s leader, had tested sive and repressive regime. The encounter, ing nuclear testing, ballistic-missile his first intercontinental ballistic missile. broadcast live, drew applause and tears of launches and related research. He said Mr But Mr Moon made an impassioned case joy from South Koreans. Kim had “lived up to that for a longer per- for peace, hoping the room where officials And there was more than just theatrics, iod oftime than anybody has seen”. from Eastand WestGermanyhad negotiat- or so it seemed. Days before the meeting ed the unification oftheir countries in 1990 Mr Kim had declared an end to his testing Never mind the trivia would convey his dream ofa united Korea. of long-range missiles and the closure of Actually, during previous cycles of pro- The plan that Mr Moon outlined in Ger- his nuclear test site at Punggye-ri in the mise-making and -breaking North Korea many was easy to dismiss as rosy-specta- north ofthe country. At the summit he told has sometimes gone two-and-a-half years cled. It included inviting a North Korean MrMoon that South Korean and American between nuclear tests. Its most recent blast delegation to the Winter Olympics in experts—journalists even—would be invit- was less than six months ago. But details South Korea, reviving reunions of separat- ed to check that the Punggye-ri facility had cannot slow Mr Trump when he senses a ed families and possibly arranging a meet- indeed been closed. And North Korea win in the offing for which he can take ing between himself and Mr Kim. If that would move to the same time-zone as the credit. And there yawns a great analytical did not sound wishful enough, he also South. A peninsula that recently had divide between aides who serve Mr called on North Korea to give up its nuclear seemed perilouslyclose to a resumption of Trump today and veterans of previous and missile programmes. In the ten warwasbeginning, in the eyesofmany ob- talkswith North Korea. When Team Trump months since then, however, much of servers in the South, to move closer to last- contemplates the upcoming Trump-Kim what Mr Moon envisaged has become re- ing peace. A poll conducted after the sum- summit, they see a historic event that will ality. Well, sort of. mit suggested that 65% of South Koreans begin as a win fortheirboss—a vindication On April 27th Mr Kim and Mr Moon trusted the North, up from just 15% before ofhis unprecedented toughness. met in the demilitarised zone (DMZ) be- the meeting. A different poll found that Mr Asked on Fox News TV whether Ameri- tween the two Koreas. Threats by North Moon’s approval rating had hit 86%, up ca can possibly trust Mr Kim, Mike Pom- Korea to turn Seoul into a “sea offire” were from 73%. On social media, people began peo, the newly confirmed secretary of all but forgotten as Mr Kim made history— referringto Mr Kim as “cute”. state, preferred to discuss a happier and melted South Korean hearts—by step- But experience has taught American of- thought: that the young North Korean pingoverthe dividingline, makinghim the ficials harsh lessons about North Korean leader only “wants this meeting” because first North Korean leader to enter the South promises. The first and most basic: to cheer of Mr Trump and the international co-1 50 Asia The Economist May 5th 2018

2 alition he hasassembled to putpressure on such steps as Mr Kim listing all of his nuc- Freebies and quotas may matter more him. The same thought was echoed by Mr lear and ballistic missile sites and agreeing to Malays than anything else. Since the last Trump’s hawkish new national security a timetable for their inspection and even- election journalists have revealed that a adviser, John Bolton. Reminded that he tual destruction. stunning $4.5bn disappeared from a state used to scorn the idea ofdeal-making with Trump-sceptics worry that his hunger development fund, while almost $700m North Korea, Mr Bolton listed world lead- to strike a deal could lead him to accept far entered Mr Najib’s personal bank account. ers who have credited Mr Trump’s maxi- flimsier terms. Mr Trump insists that he He denies any wrongdoing, saying the mum-pressure campaign with bringing will walk from the table if unsatisfied, and money was a gift, eventually returned, about the summit. continue his policy of maximum pressure. from an unnamed Saudi prince. The scan- Other Americans who have lived But the coalition that created that pressure dal seems scarcely to bother voters. Dr Ma- through previous rounds of talks fear that is crumbling. China rolled out the red car- hathir blasts corruption, though he did not the summit begins as a win forMrKim, not pet forMr Kim in March, thawing relations exactly stamp it out while in power. Mr Trump. Daniel Russel, a former senior after a deep chill. It fears being left out by Voters worry more about the cost of liv- diplomat and veteran of talks with the Trumpian deal-making. As for last year’s ing, even though the economy has grown North, believes that the Kim regime’s goal, American vows not to tolerate the devel- robustly in recent years. Housing and fuel as so often before, is to seek acceptance opment of North Korean nukes that could costs, creeping inflation through much of from the world that North Korea is now a hit American cities, it is hard to imagine last year and an unpopular goods-and-ser- nuclear state. “For Kim Jong Un, summit South Korea co-operating with pre-emp- vices tax of 6% introduced since the last day is his payday. He has landed a seat at tive American military strikes against the election all irk them. The price of kem- the table as a peer,” says Mr Russel, now at North, should the Kim-Trump summit end bong—Indian mackerel, a staple—is more the Asia Society.There are ways for a sum- badly. Mr Trump is wondering where to than twice what it was three years ago. Mr mitto lead to somethingworth celebrating, celebrate a triumph. He will need luck and Najib says the country must stick with the but they are slow and arduous, involving skill to avoid a debacle. 7 GST since it brought in 45bn ringgit ($10.5bn) last year; the opposition says it would replace it with an alternative. Mr Malaysia’s election Najib hasoffered bigvotinggroups, such as civil servants, billions ofringgit in bonuses The old man’s last challenge and other goodies to soothe them. Mr Najib has been crafty, too. His gov- ernment has gerrymandered electoral boundaries to enhance the BN’s chances. Opposition voters in the Malayan penin- PASIR GUDANG sula can find themselves packed into con- stituencies of more than 100,000 people. The ruling coalition is bent on fending offMahathirMohamad Government loyalists are typically in far T POLITICAL rallies the hungry have are ethnic Chinese and 7% Indian. The bu- smaller ones of fewer than 30,000. And Abeen enjoying exotic fare—guavas, miputra favourUMNO because a system of just before parliament was dissolved, it macaroons, avocado juice—as they gather racial rules it created in the 1970s gives passed a bill against “fake news” that could on a sticky night in Johor, a southern state them handouts and preferential access to criminalise criticism of the government that is a battleground between the ruling universities and government jobs. These during the campaign if a court finds it con- BarisanNasional(BN)coalition andtheop- preferences were initially described as tains errors. position Pakatan Harapan (PH). They all temporary but have become impossible to Shenanigans over the registration of want to hear Mahathir Mohamad. “I fol- abolish. They win votes: at the last election parties have affected both sides. Dr Ma- low him everywhere!” chirps a local clean- 64% ofMalays voted forUMNO, while 80% hathir founded his own party, Bersatu, in er. “Whatever he does, whatever he says, ofethnic Chinese backed the opposition. 2016. Last month the Registrar of Societies, we support him,” gushes a group of stu- a government agency, temporarily halted dents. Dr Mahathir, a former prime minis- its activities, saying it had not provided the ter who is 92, now leads PH, although he proper paperwork. Bersatu sued the agen- once ran Malaysia on behalf of the United cy and persuaded the court to block the Malays National Organisation (UMNO), suspension on April 23rd. Meanwhile 16 which has been in power formore than six members of UMNO sought to declare their decades and is the BN coalition’s main own party illegal because it had failed in party. Whether he can persuade voters to recent years to hold internal elections for switch allegiance on polling day, May 9th, the leadership; a similar case saw an earli- hangs in the balance. er incarnation of UMNO dissolved in The election is for the 222-seat parlia- 1987—on Dr Mahathir’s watch. ment and for12 of the 13 states’ assemblies. The government must reverse a trend Two-thirds of seats are reckoned to be tight ofdippingsupportifitisto win again. Ade- contests, up from about half in the previ- cade ago BN lost its two-thirds majority in ous election in 2013. The current prime parliament; at the election in 2013 it lost the minister, Najib Razak, says it will be “the popularvote too. Thistime around, the rul- motherofallelections”.Heisprobablyless ing coalition has cosied up to an erstwhile popular than any other Malaysian leader foe, the Pan-Malaysian Islamic Party (PAS), has been just before an election. Dr Ma- which has long denounced UMNO. PAS hathir expects it to be the “dirtiest” ever. governs the poor rural state of Kelantan Racial politics will prevail. About 69% and wants to impose more caning and oth- of the population of 32m are Malay or be- er traditional Islamic punishments. It says long to other indigenous groups known as it will run candidates in 158 seats; the ensu- bumiputra (“sons of the soil”). About 24% Nonagenarian, and fighting ing three-way fights could split the opposi-1 The Economist May 5th 2018 Asia 51

2 tion vote in BN’s favour. The government still terrible, havingbeen all butignored for may also be boosted by wrangling within decades under the highly centralised gov- PH. AnwarIbrahim, a PH leadernow in pri- ernment of Suharto, Indonesia’s president son on flimsy evidence for sodomy, once for three decades until 1998. In parts of ru- led the opposition to Dr Mahathir, who ral South Sulawesi, for example, endless had him jailed. Disagreements between potholes make for bone-rattling bus rides. such new allies may hamstring PH. The capital desperately needs work on its The tricks and traps of the electoral sys- sewer system. In 2016 the city’s head of tem disgust many Malaysians. Youngsters planning estimated that only 4% of Jakar- are particularly appalled by the dirty ta’s 10m residents had access to it. The rest horse-trading. Both sides are trying hard to flush into drains through which the waste woo them, for the simple reason that Ma- flows untreated. laysians aged between 21 and 40 make up But even if Jokowi wins a second term more than two in five ofthe almost15meli- as president in 2019, which looks likely, it gible to vote. “Rebranding is a must for may be hard for him to ensure that these UMNO,” admits Azril Sarit, a youth chief ambitious projects get finished. Complex for the party in the state of Pahang. A PH regulations do not help. Each sector— counterpart in Johor says he arranges talks roads, energy and so on—has its own laws in 24-houreateriesand on FacebookLive to and regulatory bodies related to procure- bring young people over to Dr Mahathir’s ment and drawing up contracts, says Jef- side. “Only we can provide a new alterna- frey Delmon, an infrastructure specialist at tive to the Malays,” he reckons. the World Bank. So each has a different Turnout may be crucial. Dr Mahathir way ofdoing things. reckons that if 80% vote, that could tip the Indonesia also suffers from a shortage contestin favourofhisPH coalition. Butthe of skilled labour and poor safety on con- short campaign and a mid-week election Jokowi’s projects are no bore struction sites. On April 17th two people may discourage a surge to the polls. Last- were killed by the collapse of a bridge in minute legal, bureaucratic or logistical ob- ways, energy plants and the like has East Java and of an overpass being built in stacles may yet hurt his lot. So could irregu- surged. Jokowi’s predecessors promised North Sulawesi. Earlier this year an inter- larities at polling stations. Salleh Said Ke- much but delivered little. But after he took nal footbridge in the Jakarta Stock Ex- ruak, the government minister for office in 2014, Jokowi took advantage of a change caved in, injuring over 70 people. communications, says Dr Mahathir is fall in the oil price to put a cap on an expen- In Jakarta alone there were 10% more con- warning of foul play only because he sive fuel subsidy provided by the govern- struction accidents last year than in 2016. knows he will lose. But the government’s ment. This gave him more fiscal leeway to Acquiringland istricky, too. Plansfor a Chi- devious election ploys suggest failure may splurge on infrastructure projects. In that na-backed high-speed railway between Ja- have crossed Mr Najib’s mind too. 7 year178trn Indonesian rupiah ($15bn) were karta and Bandung, a city in West Java, allocated to infrastructure in the state bud- have been held up fortwo years, partly be- get. By 2017 the amount earmarked was cause it is costly and complicated to move Infrastructure in Indonesia more than double that. Jokowi’s govern- so many people on one of the most dense- ment has plans for 222 “national strategic ly populated islands in the world. The hard-hat projects” involving roads, railways, bridges, power stations and much else. Of The government’s big hand president these, 127 are under construction and over Jokowi’s eagerness to get projects off the 20 have been completed. This year’s bud- ground has also introduced another pro- MAKASSAR AND MEDAN get calls for 856km of new roads to be built blem: an over-reliance on state firms. Al- across the archipelago. though China and India in particular ap- Joko Widodo’s most lasting legacy may The spending, sorely needed, has pear eager to invest in the archipelago, be in roads, railways and airports boosted Jokowi’s popularity. According to many private investors only want to back IKE many politicians, President Joko Wi- a survey in 2017 by the ISEAS Institute in projects in Java, the most populous island, Ldodo of Indonesia (known as Jokowi) Singapore, nearly three-quarters of Indo- rather than in rural parts. Despite Jokowi’s enjoys being seen in a hard hat. On April nesians approved of his efforts, with rural pledge to ensure that only a third of infra- 23rd he tweeted a photo ofhimselfresplen- dwellers particularly keen on them. Some- structure is publicly funded, government dentin a gleamingwhite one to his10m fol- times he gets credit where it is not due. In money is still being used extensively. By lowers while visitingthe site ofa future air- Medan, the capital of North Sumatra, a one estimate, state enterprises are cur- port in Central Java. The previous week he new railway line between the city’s main rently involved in 80% of the projects in posted several photos ofhis trip to another station and the airport has turned a jour- some shape or form. According to data airport being built, this time in West Java, ney that can take several hours by car to from the World Bank, private investment complete with a hat and an orange con- one of only 55 minutes. The railway only made up 9% of total investment in in- struction vest. (Pictured is Jokowi on yet opened in 2013 under the previous presi- frastructure in 2011-15, down from 19% in another such outing, to a mass-transit rail- dent, but a banner in the station shows a 2006-10. way project in Jakarta last year.) More sur- white-shirted Jokowi going through the At the mayor’s office in Medan, Ridho prisingly for a head ofstate, many respons- ticket gates. On the train, a video shows Siregar, an employee there, praises Jo- es to these tweets have been broadly him shaking commuters’ hands. People kowi’s infrastructure binge. In the past few positive. The overwhelming impression waiting at the station express approval of years new highways, bridges and dams among Indonesians is that their president Jokowi and say the railway is an example have helped to transform the city, the gets shovels into the ground, as well as in- ofwhat he has done. fourth-biggest in the Indonesian archipela- specting their use before cameras. It is easy to see why Jokowi’s projects go. But the official admits there is an awful After years of relative neglect, the are so popular. Many of the roads on and lot to do. “Especially forthe highways, it’s a amount Indonesia spends on roads, rail- between Indonesia’s 13,000 islands are bit late,” he says. 7 52 Asia The Economist May 5th 2018

Indian politics Indian politicians Southern booty Giggles and gaffes

Some tribunes ofthe people love to talktosh BANGALORE OR a novice politician from one of the progress ofthe battle ofKurukshetra Elections in a big southern state will be India’s smallest and most remote to his master, the blind King Dhritarash- closely watched in Delhi F states, Biblap Deb has made a big name tra, without internet and satellite links N THE first half of next year India will for himself.Since assuming the leader- (the scene is pictured). Inotch up the usual array of superlatives ship ofTripura (population 4m) in March, Scarcely had a storm ofsocial-media when the world’s biggest democracy Mr Deb—who belongs to India’s ruling ridicule died down before Mr Deb stirred stages the largest voting event on the plan- Bharatiya Janata Party—has so often hit it again with some impromptu remarks et. The parliamentary polls will also be national headlines that journalists now on beauty pageants. He lamented the among the most expensive staged any- hang on his every word. Alas this is not victory ofan Indian woman in the Miss where. The Centre for Media Studies in because ofbold new policies, but rather World contest of1997 who, he suggested, Delhi estimated that campaign spending the silly things he says. failedto match classical ideals of femi- in the elections that brought Narendra Earlier this month Mr Deb told some nine beauty as represented by Laxmi and Modi and his Bharatiya Janata Party (BJP) computer trainees they should be proud Saraswati—the goddesses ofwealth and to power in 2014 was nearly $5bn, more that Indians invented high-tech commu- wisdom. (Womenshould eschew than twice as much as in the previous gen- nications “lakhs ofyears ago“ (a lakh is make-up and bathe in mud, he said.) eral election and eclipsed only by the 100,000). Drawing on a passage in the Soon after apologising for that, Mr Deb amounts involved in America. Mahabharata, an ancient Hindu epic, he was backto gaffe-making. Most recently In Karnataka, a southern state of 64m asked how Sanjaya the charioteer could he has threatened that his critics should people (about as many as in France), par- have relayed a blow-by-blow account of have their nails cut off, because they are ties have been loosening their purse like people who spoil vegetables in the strings for a crucial limbering-up. On May market by poking at them. 12th voters there will vote in elections for Numerous higher-ranking members the state legislature, which iscurrently con- ofhis party have had similar lapses. trolled byCongress, the country’smain op- Earlier this year Satyapal Singh, India’s position party. If Congress wins in Karna- minister ofstate for human resources, taka, many analysts will conclude that it declared that the theory ofevolution was might have a chance of performing at least “scientifically wrong” because no one respectably in next year’s national polls, had ever witnessed an ape turning into a even if the odds remain in Mr Modi’s fa- man. Mr Singh has also said that students vour. Victory for the BJP in Karnataka should be taught that a Vedicscholar would make Mr Modi a surer bet. called Shivkar Babuji Talpade invented a A study by the Association for Demo- flying machine eight years before the cratic Reforms, a non-partisan group advo- Wright Brothers. Narendra Modi, the cating transparency in campaign finance, prime minister, says his party’s poli- has found that in the yearto March 2017 the ticians should cease to “give masala to BJP has raised almost five times as much as the media” with such utterances. But Mr Congress for the national campaign. And Modi himselfhas form. Before he be- that is only the amount declared. Candi- came prime minister, he suggested that dates commonly exceed official spending the elephant-headed Hindu god Ganesha limits by ten to 100 times. Congress will furnished proofthat ancient Indians had find it all the more difficult to fill its cam- Next time just ask Alexa, your majesty invented plastic surgery. paign war-chest if it loses in Karnataka— the only big Congress-held state with a humming economy. But the BJP has nominated a controver- The BJP, however, believes Mr Yeddy- The BJP has a chance in Karnataka. It is sial figure for the post of chief minister in urappa can win votes forthe party. He is of the only one of the five southern states Karnataka (the winner will be chosen by the Lingayat faith, which accounts for where the party has ever succeeded in cap- the new legislature). He is B.S. Yeddy- about one-sixth of Karnataka’s electorate. turing power (it did so in 2008, before los- urappa, who held the post during the last But Mr Siddaramaiah, a non-Lingayat, has ing again to Congress in 2013). The state’s period ofBJP control ofthe state. MrYeddy- skilfully sided with a Lingayat faction that unique mix ofreligions, castes and linguis- urappa’s government was accused of in- wants the tradition to be treated as sepa- tic groups has proven surprisingly amena- volvement in illegal mining operations rate from Hinduism. In recent polls Linga- ble to the appeal of the BJP, a Hindu- that led to his criminal indictment and res- yats have mostly voted for the BJP. Some nationalist party which normally enjoys ignation in 2011. (He was acquitted in 2016.) may now turn to Congress. strongest support in the Hindu “cow belt” Amit Shah, the party’s national head who Whichever side emerges victorious of western and northern India. In rural is Mr Modi’s right-hand man, inadvertent- when counting is finished on May15th will and coastal regions of Karnataka that have ly reminded his audience of this at a rally. claim thatthe outcome isa harbinger ofthe sizeable Muslim populations, the BJP’s lo- “If there were a competition of the most national fight to come. The barely con- cal bosses have tried to rouse Hindus’ re- corrupt government then the Yeddy- cealed anti-Muslim rhetoric of some BJP sentment against their “jihadi” neigh- urappa government is number one,” he candidates, and the hypocrisy of the bours. Mr Modi has asked them to desist said. He had meant to say the government party’s efforts to wage an anti-corruption and focus on his preferred themes: fighting of Siddaramaiah, the current chief minis- campaign, may prove to be leading indica- corruption and boosting the economy. ter (who has only one name). tors ofuglier battles ahead. 7 China The Economist May 5th 2018 53

Internal migrants Also in this section The bitter generation 56 Banyan: The Sino-US tech tussle

BEIJING AND GUANGZHOU Angry young cityfolkwith rural backgrounds threaten social stability ANG FENG is a 28-year-old cook in of people from the countryside who have intensive jobs, first in towns and later in cit- WBeijing. But he was not born in the moved to work in cities. Over the past 40 ies. Their cumulative numbers reached capital so, under China’s household-regis- years, hundredsofmillionshave done this, 280m in 2017 (the rate ofgrowth is now tail- tration (hukou) rules, he is not treated as an providing the blood, sweat and tears of ing off). In 2010 party documents began re- official resident, even though he and his China’s economic miracle. The Commu- ferring to a “new generation of migrants”: wife work there and have a four-year-old nist Party has often congratulated itself those born since 1980. Some are offspring daughter. One freezing night last Novem- that such a vast movement of people has of earlier migrants and have lived in cities ber, he returned home to discover that the happened without mass unrest. But those all their lives. Others have left the country- city government had declared many of such as Mr Wang who have left rural areas side in the past decade. This group has their area’s tenement blocks unfit for resi- more recently challenge the party’s sense more than 90m members. dential use and had given the inhabitants of security. They face a wider range of pro- The two generations are very different. 24 hours to get out. blems than earlier participants in the rural Many of the early migrants were born at a The event quickly became notorious. exodus. They are dissatisfied with their lot time of mass starvation and were raised The overnight eviction of Beijing’s “low- and have little to lose. They may prove less during the chaos of the Cultural Revolu- end population” (a term used in official quiescent than their predecessors. tion (1966-76). Theirdetermination to make planningdocuments issued by some ofthe When observers of China think of good in the cities was intensified by child- city’s districts) attracted worldwide con- threats to the party, they often focus on the hood memories of poverty and suffering. demnation. Queues of young families rapid growth of the country’s new middle And if they did not succeed, at least they snaked away from the condemned blocks, class. At some point, surely, China’s still had land in the countryside and expe- heading back to the towns and villages wealthier millions will demand a more rience of farming so they could return to where they were born. But Mr Wang (a open, accountable and even democratic scratch a living in the fields. pseudonym) and his wife balked at return- government, just as middle classes in other ing without jobs to a village where they countries have done. But many Chinese Aiming high had neither the experience nor the desire analysts worry less about the kind of insta- Members of the younger generation are to farm. Instead they headed to another bility that occurred during the student-led children ofDeng’s reforms. They have nev- part of Beijing to start over again. He says protests of1989. Rather, they fret about tur- er worked the land. A study published in his monthly rent is now far higher: “I can’t moil created bymembersofa social under- 2009 in the Beijing-based Economic Re- save anything. But at least I have a job and class: poor workers in the cities whose search Journal said the younger migrants will stay as long as I can.” If he leaves, he family ties are rural. wanted “personal development”, unlike says, it will be because he wants to, not be- After1978, when Deng Xiaoping started their parents who were focused on more cause the government has told him to go. to open up the economy, huge numbers of basic needs. The new generation, it con- Mr Wang belongs to a new generation farmers began flocking to fill new labour- cluded rather snobbishly, “is no longer1 54 China The Economist May 5th 2018

2 willing to stay in the dirtiest jobs, is not fru- schools, so they send them to ramshackle gal enough to save money to send home private ones that are often forced to close. Labour pains and notable to earn enough to build a mar- A study from 2010 found that only 17% of China, % increase on a year earlier ried life.” Its members are less stoical and migrants with children in such schools in 18 unwilling to sufferin silence. Beijing thought their offspring were getting Migrant workers Monthly income Young migrants share four characteris- a good education. Matters have not im- 15 tics that worry the party. Like their parents, proved. A cleaner in Beijing who sends her they are not well educated. The men face son to a private kindergarten told The Econ- 12 more ofa “marriage squeeze” than their fa- omist that “the quality of education is 9 Urban residents thers did, ie, a shortage of women of mar- nothing like as good as in state schools.” Disposable income riageable age from similar backgrounds. Many members of the new generation per person 6 They similarly earn low wages and face of- were educated in villages, separate from 3 ficial discrimination as a result of the hu- their migrant parents who worked in the kou system that shuts many of them out of cities. A study by the Second Military Med- 0 subsidised urban services such as educa- ical University of Shanghai found that 2012 13 14 15 16 17 18 tion and health care. But they are more dis- such children did worse than average aca- Source: Wind Info satisfied and pessimistic than their parents demically and were more likely to be de- were. Theirhopes ofcarvingout a future in pressed. Despite such problems, many par- of university-educated women do the big cities are being wrecked by high living ents feel they have no choice but to leave same. Hypergamy happens at every level costs, demographic change and the hostil- their children in the care of relatives in the of society. As a result, two groups find it ity oflocal governments. countryside. “I haven’t thought about hard to get spouses: women with a lot of In September 2017 a study in another bringing my kid here,” says a cook in Bei- education (known derisively as sheng nu, Chinese journal, Sociological Studies,by jing, “because I can’t afford to.” orleft-behind women), and men with only Tian Feng of the Chinese Academy of So- The younger generation are products of a little schooling. Young male migrants cial Sciences (CASS), tooka detailed look at China’s one-child policy, which went into usually belong in the second category. the newmigrants. Toflesh itout, The Econo- force nationwide in 1980 (although in the mist conducted its own (admittedly unsci- countryside, families were sometimes al- No wheels, no deal entific) poll of 90 migrants between the lowed two). Theyare amongthe firstto suf- Among Chinese men generally, a common ages of18 and 33 in six areas of Beijing and fer its unintended consequences. The one- response to the shortage of women is for Guangzhou, a large southern city. Com- child policycontributed to a drastic change prospective grooms to buy an apartment bined with earlier studies, these surveys in the sex ratio because female fetuses and car before marriage—a sort of reverse build up a detailed portrait ofa slice ofChi- were aborted by parents who wanted their dowry. One survey found that three-quar- nese society roiled by change. only child to be a boy. The ratio of boys to ters of young women in big cities took this Mr Tian’s study is based on five surveys girls at birth soared in the1980s, peaking in into accountbefore acceptinga man’soffer. of social conditions, conducted by CASS 2005, when there were 122 baby boys for Alasformigrantswains, theycannotafford between 2006 and 2015. It shows that mi- every 100 baby girls, one of the most dis- such a bride price, especially in expensive grants born in the 1960s and 1970s had ten torted ratios ever seen. cities such as Beijing and Guangzhou. It is or fewer years of formal education, but The average age of first marriage in Chi- usually difficult for people without a city’s those born after1980 had 12 or more years. na is 26. The first ofthe new-generation mi- hukou to buy government-subsidised While the quantity of education received grants are reaching that age. Already, the housing there. Young migrants are there- bythenewgenerationishigher,thequality marriage chances of migrant men are fall- fore at a threefold disadvantage. There are is not. The hukou system makes it difficult ing. Wang Chunguang, another scholar at fewer women of marriageable age. Those for many migrants in the biggest cities to CASS, found that three-quarters of the who come from their own background secure places for their children in state-run new-generation migrants he studied were tend to marry richer rivals. And the men unmarried. The group he looked at includ- cannot compete in the marriage market by ed some 18- to 25-year-olds, who may have buying property. been single because they were too young Another problem is income. Rural peo- (in China, women must be at least 20 to get ple migrate to cities for money, and usually married and men at least 22). But that does get far more of it than they would if they not fully explain the low overall rate. In had not moved. Migrants’ wages rose from The Economist’s sample, two-thirds of mi- around 1,700 yuan ($205) a month in 2000 grants were unmarried. Only two said to over 3,000 yuan in 2016. But the rate of they had any wedding plans. A 25-year-old increase fell from almost 17% a year at the manager of a food company in Beijing ad- start of2012 to about 7% at the beginningof mitted, “I would need to have a much bet- this year. Since 2015, their incomes have ter-paid job or promotion before thinking been rising more slowly than those of ur- about getting a girlfriend.” ban residents generally (see chart). The marriage squeeze is about to tight- The earnings ofthe youngest ones have en. By 2020, the government says, there deteriorated the most. Mr Tian looked at will be 30m more men ofmarriageable age earnings by age. He found that the highest than women: six brides forseven brothers, earners are those in their mid-30s (be- in effect. Young migrant men will suffer all tween 32 and 36). That remained constant the more because of a preference among in all his surveys. But there was a signifi- Chinese women for marrying men with cant change among workers in their more money or education (a practice mid-20s (22 to 26). In 2008 these younger known as hypergamy). According to Yue migrants were earning almost as much as Qian of Ohio State University, 55% of col- the best-paid. By 2015, they were earning lege-educated Chinese men marry some- much less. Not much to smile about one with less education, whereas only 32% This may be connected with changes in 1 The Economist May 5th 2018 China 55

2 the nature of migrants’ work, caused by an are they? They seem unlikely to challenge roots among young migrants, who were economic transformation that is making the party itself (a surprising one in eight of also the main users of Neihan Duanzi, a China’s growth more reliant on services those surveyed by The Economist said they popular app specialising in bawdy jokes and less on manufacturing. The earlier mi- were members of it). It is true that some of that state censors closed down in April. grants typically found jobs in construction those evicted last winter in Beijing prot- There are signs that some young migrants or on production lines. According to Mr ested loudly.One group (pictured) chanted are starting to organise themselves. Strikes Tian, 60% of migrants in 2008 worked in about human rights outside a local-gov- over pay and conditions have become such “secondary industry” sectors. That ernment building. By and large, though, more common. In April a court in Tong- share fell to 52% by 2015. Meanwhile, de- these are exceptions. Mostmigrantsare not zhou, a district of Beijing (next to the area mand for migrants’ labour in the “tertiary politically active. Few of those who spoke where the forced evictionstookplace), said sector”, ie, in services, has taken off.For the to The Economist were willing to talkabout 32% of the labour disputes referred to it in- less well-educated this often involves inse- politics. Those who did mostly said they volved collective agreements, almost dou- cure work in areas such as food delivery supported the president, Xi Jinping, be- ble the proportion in 2016. This suggested and cleaning. cause ofhis anti-corruption campaign. there was a link between the number of The party, however, cannot take their disputes and the expulsion ofmigrants. The best-laid plans of migrants... passivity for granted. Throughout Chinese The biggest uncertainty is what will One result of this shift into shorter-term or history, opposition has seemed muted happen if the economy falters. The party part-time workhasbeen a fallin savings. In right up to the point when it has exploded. does not seem ready for this. The social- the past almost all migrants used to save a Yu Jianrong of CASS wrote in 2014 that the safety net is threadbare. The hukou regime third or more of their income to send back social exclusion felt by new-generation mi- means migrants cannot get full access to it to their villages. But in The Economist’s grants could forge a sense of common po- anyway. Modernisers want to reform the sample a third of respondents saved noth- litical cause among them that could even system and allow migrants to live more se- ing. Most younger migrants “will not make lead to revolution. Mr Yu called this a “co- curely in cities. But change has been slow the sacrifices of frugality in order to save lossal hidden threat to China’s future so- and patchy. (In Guangzhou only two ofthe money”, harrumphsCASS’sMrWang. “Itis cial stability”. There is little sign of that yet, 40 respondents to The Economist’s survey a farcry from their parents’ generation.” but there are several reasons for thinking had a local hukou.) The government is try- The upshot is that the new generation migrants might become more restless. ing to cap the size ofgiant cities by pushing appears to be one of the most dissatisfied As the marriage squeeze tightens, it will migrants out. Charles Parton of the Royal segments of Chinese society. Because the produce a generation of unmarried mi- United Services Institute, a think-tank in country has no reliable opinion polls, this grant men with low incomes, poor educa- London, says young migrants will not judgment must be tentative. But a proxy tion and no tie to the social order that mar- overthrow the party, but if the economy measure, the way people view their own riage provides in China. It is a recipe for stagnates “they will cause a lot more trou- achievements, suggests it is accurate. discontent. Mr Tian worries about a vi- ble than they do now.” Mr Tian’s survey includes a question cious cycle developing, with poor educa- The new generation is entering a diffi- about where respondents place them- tion leading to low income that results in cult period. Its men will remain unmarried selves in society on a scale from top to bot- anti-social attitudes and disruption to chil- and its children will often be educated tom. Between 2006 and 2015 the migrants dren’s schooling. away from home. Many will be on low, in- he questioned gave, on average, ever lower Migrants form a huge group, roughly as secure wages. If the evictions in Beijing are assessments oftheirsocial position.Initial- numerous as the middle class. But com- any guide, the party’s reaction to any dis- ly,the younger ones (aged between 22 and pared with the middle class, they have lit- content is likely to be greater repression. 26) were the most likely to describe them- tle to lose and less to keep them loyal to the That would make solving migrants’ deep- selves as beingin the top halfofsociety. By party. They revel in subcultures that the seated problems harder, and an explosion 2015 they were more inclined than older party dislikes. Chinese rap music has its ofrage more likely. 7 migrants to put themselves in the bottom half. Mr Tian concludes that those born in the 1990s are the most disappointed of the migrants he has studied. The Economist’s survey bears him out. Most migrants want to stay in the big city but few feel welcome there. “There is no sense of belonging,” complains a 24-year- old coffee-shop waiter in Beijing. “For the moment I will stay,” says a 28-year-old hairstylist who also lives in the capital, “but there’s no sense ofhappiness.”

...gang aftagley In some ways, little has changed. Most of the early migrants, concluded the Journal ofEconomic Research nine yearsago “knew they were just passers-by in cities. They came from rural areas and were fated to re- turn there.” But the new generation feels alienated from the countryside even as high living costs, the hukou system and so- cial discrimination in the cities“crush their urban dreams” as well. “They are truly marginalised people,” it said. How serious a threat to social stability “Low-end people” object to being evicted 56 China The Economist May 5th 2018 Banyan Casting illusions aside

A Sino-American tech warlooms. It is about more than technology over possible sanctions-busting in Iran. Back in China, a report by the regulator of state-owned assets castigated ZTE after the American ban for its “short-sightedness and dishonesty” and for harming the country’s image. Yet the re- action wasverydifferentin otherquarters. Netizensleapt to ZTE’s defence. The editor of the Global Times, a jingoistic state tabloid, tweeted that Chinese were “all ZTE people”. More pertinently, Xi Jinping has redoubled calls for greater self-reliance in the quest forChina’s “great rejuvenation”. On a re- cent visit to the Yangzi river town of Yichang, site of the giant Three Gorges dam, China’s autocrat declared that “in the past we tightened our belts, gritted our teeth, and built the two bombs and a satellite.” (Every Chinese patriot knows that the two bombs referto China’s first atomic and hydrogen ones.) Pursuing advanced technologies, Chinese must “cast aside illusions and rely on ourselves,” MrXi said. In official pictures, it looked almost as ifhe were about to dive into the river and swim across, as Mao Zedong had done during a period ofautarky 52 years earlier. Given the way Mr Xi has been ratcheting up his tech- nationalist rhetoric, it is hardly likely that he will back away from “Made in China 2025”, as Mr Trump’snegotiators want him to. At HEN President Donald Trump threatened punitive tariffs in a seminar in Beijing over the weekend, reported by the New York Wthe spring on $150bn of Chinese goods, some Chinese ob- Times and attended by senior Chinese economic policymakers, servers thought this was a trade war that could be finished before officials insisted that “Made in China 2025” was not up fornegoti- it really began. To weaken America’s resolve, robust retaliation ation. (They also stressed that a one-party state can take more was threatened against American goods, from soyabeans to pain from a prolonged trade war than can a democracy.) bourbon. To overcome it entirely, barriers to certain Chinese mar- When Chinese policymakers argue that the policy is misun- kets, such as for cars and credit cards, could be dismantled. China derstood, as they did at the seminar, they have a point. During could even offer to cut America’s $375bn bilateral trade deficit, their industrialisation, Japan, South Korea and Germany all had over which Mr Trump obsesses, without too much loss offace. industrial policies to protect domestic sectors—and arguably still Oh halcyon days! As The Economist went to press, Mr Trump’s do. “Made in China 2025” is as much aspiration as fixed pro- senior economic officials, including , the trea- gramme. But, crucially, every advanced technology these days sury secretary, Wilbur Ross, the commerce secretary, and Robert has a military dimension. Because China and America see each Lighthizer, the United States Trade Representative, were about to otherasmilitaryaswell aseconomicthreats, an “undeclared cold sit down in Beijing with their Chinese counterparts. The aim was war” over technology is under way, says Kevin Rudd, an Austra- to avert a trade war that now seems increasingly likely. The no- lian formerprime minister. tion that Mr Trump will declare victory after a few polite Chinese concessions appears less plausible. His beef with China, shared Cold, getting hotter by many American policymakers and business folk, goes deeper. The worry is that the tech war will only get hotter. Tech-national- At issue, in American eyes, is a system of economic gover- ists on both sides argue that China and America, their economies nance at odds with the West’s. It shuts off whole sectors to for- intertwined for so long, must now cleave and go their own ways. eigners—or allows them in only after they hand over their propri- In China the propaganda doesn’t favour common sense. “Amaz- etary know-how. It pumps money into favoured domestic firms ing China”, currently smashing box-office records fora documen- to turn them into global champions. And, when it comes to ac- tary, extols Chinese technological prowess. And the press likes to quiring Western technology, it encourages Chinese companies to talk of high-speed rail, e-commerce, mobile payments and bike beg, borrow—or steal. “Made in China 2025”, a state plan to up- sharing as China’s “new four great inventions” (to rival the past grade industry in sectors from robotics to electric vehicles, seems accomplishments of papermaking, printing, gunpowder and the to others like an underhand play forworld domination. compass). They are not China’s at all. American tech-nationalists The risks involved for China were driven home on April 16th also harbour delusions. The Trump administration has flirted when the Commerce Department punished ZTE, a Chinese tele- with the idea of huge government support for the development coms giant, for shipping equipment to Iran and North Korea in ofa 5G network. That would never fly politically. breach of sanctions, and lying about the remedies it had prom- Mr Trump insists that America and China will “always be ised when it pleaded guilty to this in 2017 (see Schumpeter). The friends, no matter what happens with our dispute on trade”. penalty is a seven-year ban from buying American components. There is an echo in that of old-think—of a time when American For ZTE this is a body blow. It relies upon American parts: four- and Chinese officials believed that no matterhow much they dis- fifths of its products contain them, including its smartphones, agreed, they would always find a way of getting on because the which use Qualcomm chips. AsforChina’s biggesttelecomsfirm, consequencesoffallingoutwould be so devastatingfor both. The Huawei, it has longcome underattackin America overhow it has two sides’ techno-sparringis evidence ofhow hard it is becoming acquired know-how, and whetherit helps China spy. Now comes to separate their economic and strategic rivalries. Safe spaces in the news that the Department of Justice is investigating it, also the relationship are getting worryingly hard to find. 7 International The Economist May 5th 2018 57

Working-age population*, % change, 2015-20 forecast 0 to -0.9 -1.0 to -1.9 -2.0 to -2.9 -3.0 to -3.9 -4.0 to -4.9 -5.0 to -5.9 -6.0 to -7.9 Growing Source: United Nations Population Division *Aged 15-64

Demography and its consequences 2020. In 1990 there were just17. Some countries face gentle downward Small isn’t beautiful slopes; others are on cliff-edges. Both Chi- na and France are gradually losing work- ing-age people. But, whereas numbers in France are expected to fall slowly over the VILNIUS next few decades, China’s will soon plunge—a consequence, in part, of its one- The working-age population is already shrinking in many countries, and the child policy. The number of Chinese 15- to decline will accelerate. But demography is not quite destiny 64-year-olds, which peaked at just over 1bn ANY developed countries have anti- age—backto where it was in 1950. in 2014, is expected to fall by 19m between Mimmigration political parties, which Lithuania was an early member of a 2015 and 2025, by another 68m in the fol- terrify the incumbents and sometimes growing club. Forty countries now have lowing decade, and by 76m in the one after break into government. Lithuania is un- shrinking working-age populations, de- that (see chart1on next page). usual in having an anti-emigration party. fined as 15- to 64-year-olds, up from nine in Jörg Peschner, an economist at the Euro- The small Baltic country, with a popula- the late 1980s. China, Russia and Spain pean Commission, says that many coun- tion of 2.8m (and falling), voted heavily in joined recently; Thailand and Sri Lanka tries face demographic constraints that 2016 forthe Lithuanian Farmerand Greens’ soon will. Youcan now drive from Vilnius they either cannot or will not see. He hears Union, which pledged to do something to to Lisbon (or eastward to Beijing, border much debate about how to divide the eco- stem the outward tide. As with some guards permitting) across only countries nomic cake—should pensions be made promises made elsewhere to cut immigra- with falling working-age populations. more or less generous?—and little about tion, not much has happened as a result. It need not always be disastrous for a how to prevent the cake from shrinking. “Lithuanians are gypsies, like the country to lose people in their most pro- Yetcountriesare hardlypowerless. Even ig- Dutch,” says Andrius Francas of the Alli- ductive years. But it is a problem. A place noring the mysterious business of raising ance for Recruitment, a jobs agency in Vil- with fewer workers must raise productivi- existing workers’ productivity, three poli- nius, the capital. Workers began to drift ty even more to keep growing economical- cies can greatly alleviate the effects of a away almost as soon as Lithuania declared ly. It will struggle to sustain spending on shrinking working-age population. independence from the Soviet Union in public goods such as defence. The national 1990. The exodus picked up in the new cen- debt will be borne on fewer shoulders. Never done tury, when Lithuanians became eligible to Fewer people will be around to come up The first is to encourage more women to do work normally in the EU. For many, Britain with the sort of brilliant ideas that can en- paid work. University-educated women is the promised land. In the Pegasas book- rich a nation. Businesses might be loth to of working age outnumber men in all but shop just north ofthe Neris riverin Vilnius, invest. In fast-shrinking Japan, even do- three EU countries, as well as America and four shelves are devoted to English-lan- mestic firms focus on foreign markets. (amongthe young) South Korea. Yetfemale guage tuition. No otherlanguage—noteven The old will weigh more heavily on participation in the labour market lags be- German or Russian—gets more than one. society, too. The balance between people hind men’sin all butthree countriesworld- Mostly because of emigration, the over 65 and those of working age, known wide. Among rich countries, the gap is es- number of Lithuanians aged between 15 as the old-age dependency ratio, can tip pecially wide in Greece, Italy, Japan—and and 64 fell from 2.5m in 1990 to 2m in 2015. even in countries where the working-age South Korea, where 59% of working-age The country is now being pinched in an- population is growing: just look at Austra- women workcompared with 79% ofmen. other way. Because its birth rate crashed in lia or Britain. But it is likely to deteriorate Governments can help by mandating the early 1990s, few are entering the work- faster if the ranks of the employable are generous parental leave—with a portion force. The number of 18-year-olds has thinning. In Japan, where young people fenced off for fathers—to ensure that wom- dropped by 33% since 2011. In 2030, if Un- are few and lives are long, demographers en do not drop out after the birth of a child. ited Nationsprojectionsare correct, Lithua- expect there to be 48 people over the age of And state elderly care helps keep women nia will have just 1.6m people of working 65 for every 100 people of working age in working in their 50s, when parents often 1 58 International The Economist May 5th 2018

2 become more needy. But a recent IMF re- 2 port argues the greatest boost to recruiting The Italian jobs Working-age population (aged 20-64) and keeping women in paid jobs comes Working-age population, m Active population Low scenario* High scenario† from public spending on early-years edu- Italy Germany Lithuania cation and child care. Employers can do more too, most obvi- 50 50 2.5 ously by providing flexible working condi- 40 40 2.0 tions, such as the ability to work remotely or at unconventional hours, and to take ca- 30 30 1.5 reer breaks. Fathers need to be able to en- 20 20 1.0 joy the same flexible working options as mothers. Some women are kept out of the 10 10 0.5 FORECAST FORECAST FORECAST workforce by discrimination. This can be 0 0 0 overt. According to the World Bank, 104 2000 10 20 30 40 2000 10 20 30 40 2000 10 20 30 40 countries still ban women from some pro- Source: T. Van Rie, *Assumes activity rates by sex, age and education remain constant †Assumes female activity rate fessions. Russian women, for example, J. Peschner, B. Kromen reaches male rate by 2030; strong rise in age 55-64 activity rate; rapid educational progress cannot be ship’s helmsmen (in order, ap- parently, to protect their reproductive Employers, too, will have to change Countries that lacka recent history of mass health). More often discrimination is co- their attitudes to older workers. Especially immigration may have few supporters for vert or the unintended consequence of un- in Japan and Korea, where they are most opening the doors wider. Even if they conscious biases. needed, workers are typically pushed out wanted new settlers, they might have to Countries can also tap older workers. when they hit 60 (life expectancy is 84 and look for them far afield. Countries with Ben Franklin, of ILC UK, a think-tank, ar- 82 respectively). Extending working lives shrinking working-age populations are of- gues that 65, a common retirement age, is will require investment in continued train- ten surrounded by others that face the an arbitrary point at which to cut off a ing, flexible working arrangements, such same problem. working life. And in many countries even as phased retirement, and improved work- “China has never been a country of im- gettingworkersto stickaround until then is ing conditions, particularly for physically migrants,” explains Fei Wang of Renmin proving difficult. Today Chinese workers tough jobs. In 2007 BMW, a German car- University in Beijing. It is unlikely to be- typically retire between 50 and 60; but by maker, facing an imminent outflow of ex- come one, but is trying to lure back emi- 2050 about 35% of the population are ex- perienced workers, set up an experimental grants and to attract members of the eth- pected to be over 60. Thanks to generous older-workers’ assembly line. Ergonomic nic-Chinese diaspora. In February the early-retirement policies, only 41% of Euro- tweaks, such as lining floors with wood, government relaxed visa laws for“foreign- peans aged between 60 and 64 are in paid better footwear and rotating workers be- ers of Chinese origin”. In Shanghai, and work. Among 65- to 74-year-olds the pro- tween jobs, boosted productivity by 7%, perhaps soon in other cities, foreign-pass- portion is lower than 10%. In Croatia, Hun- equalling that of younger workers. Absen- port holders are allowed to import maids gary and Slovakia it is below one in 20. teeism fell below the factory’s average. from countries such as the Philippines. The levers for governments to pull are Several of these adjustments turned out to That is a small step in the right direction. well known: they can remove financial in- benefit all employees and are now applied Just as countries’ demographic chal- centives (tax or benefits) to retire early and throughout the company. lenges vary in scale, so the remedies will increase those to keep working. Raising the A final option is to lure more migrants help more in some countries than in oth- state retirement age is a prerequisite almost in their prime years. Working-age popula- ers. Take Italy and Germany. Both have everywhere; if the average retirement age tions are expected to keep growing for de- shrinking working-age populations that were increased by 2-2.5 years per decade cades in countries such as Australia, Cana- are likely to go on shrinking roughly in par- between 2010 and 2050, this would be da and New Zealand, which openly court allel. But Italy could do far more to help it- enough to offset demographic changes qualified migrants. Others can try to entice self. Because the women’s employment faced by “old” countries such as Germany foreign students and hope they stick rate in Italy lags so far behind the men’s and Japan, found Andrew Mason of the around. Arturas Zukauskas, the rector of rate, its active population would jump if University of Hawaii and Ronald Lee of Vilnius University, thinks that he could im- that gap closed quickly—and if everybody the University ofCalifornia, Berkeley. prove greatly on the current tally of foreign worked longerand became more educated students—just 700 out of19,200. In particu- (see chart2). Germanycould do lessto help lar, he looks to Israel, which has the highest itself, and Lithuania less still. Sloping off 1 birth rate in the rich world. Lithuania had a In theory, every rich country can prise Working-age population*, (peak year=100) large Jewish population before the second open the demographic trap. Governments France Germany China Russia world war, and many prominent Israelis could begin by lowering barriers to immi- (2010) (1995) (2015) (2010) have roots in the country. Partly to signal grants and raising the retirement age. They Japan Thailand Lithuania the academy’s openness, Vilnius Universi- could entice more women into the work- (1995) (2020) (1990) ty has started awarding “memory diplo- force. They could raise the birth rate by pro- 100 mas”, mostly posthumously, to some Jew- viding subsidised child care, which would ish students evicted on Nazi orders. create a wave of new workers in a couple 95 The trouble is that the countries with ofdecades, justwhen the otherreforms are 90 the biggest demographic shortfalls are of- peteringout. But, when a countryisshrink- ten the most opposed to immigration. For ing, many things come to seem more diffi- 85 example, the inhabitants of the Czech Re- cult. Earlier this year, Poland built up a 80 public and Hungary view immigrants large backlog of immigration applications, more negatively than any other Europeans many of them from Ukrainians. It turned 75 do, according to the European Social Sur- out that the employment offices were bad- 10 5 Peak 510152025 vey. Those countries’ working-age popula- ly understaffed, and could not process the Years before/after peak tions are expected to shrink by 4% and 5% paperwork in time. They had tried to take Source: United Nations Population Division *Aged 15-64 respectively between 2015 and 2020. on workers, but failed. 7 Business The Economist May 5th 2018 59

Also in this section 60 AT&T and Time Warner 60 Glencore in the DRC 61 in France 62 Trade and American business 63 Alphabet’s designs for Toronto 64 Schumpeter: Attack of the drones

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

American telecoms bile and putSprintin charge. Instead Sprint gave up its third-place position in the wire- The art of the deal less market while consistently losing mon- ey, raising the spectre ofbankruptcy. Calling the deal a merger seems a face- saving gesture for Mr Son. The new com- T NEW YORK pany will be called -Mobile, Mr Legere will run it and Deutsche Telekom, its par- T-Mobile and Sprint will find it hard to persuade regulators that theirmerger will ent firm, will own a plurality ofshares. But add jobs and reduce prices SoftBank won better terms than analysts OHN LEGERE, the lion-maned boss of T- tion of their spectrum assets. Mr Trump’s expected, getting 27% of the new company JMobile, made his wireless firm the fast- administration hasmade itclearthat itcov- and four board seats, including one for Mr est-growing carrier in America by cutting ets early development of a 5G network, to Son. He will be able to switch attention prices and giving customers better deals stop China winning the battle over the from Sprint to his new $100bn Vision than AT&T and Verizon, which he relent- technology. In addition, “Trump-led tax re- Fund, a giant technology fund. lessly mocked on Twitter as retrograde be- form” was “particularly helpful” to the The two companies argue, with some hemoths. His personal brand as an indus- deal’s economics, cooed Mr Legere. Inves- support from analysts, that telecommuni- try maverick may have helped too. On tors, worried that Mr Trump’sDepartment cations companies increasingly need mas- April 29th he put that image to the test, of Justice will not be so easily charmed, sive scale to succeed. AT&T and Verizon agreeing to a combination with Sprint, the sold shares in both companies. have more combined market share now next largest carrier after T-Mobile, and cre- The deal represents a big retreat for Ma- than they did five years ago, at about 70%. ating a behemoth under his leadership. sayoshi Son, boss of SoftBank, which (T-Mobile, with 16%, has gained market The deal, all in shares, values the com- owns 85% of Sprint. Mr Son engineered a share mostly from Sprint, which has 12%.) bined entity at $146bn including debt. If $20bn takeover of Sprint in 2013, with the AT&T is trying to buy Time Warner, pend- approved by regulators, it would squeeze aim of merging it with T-Mobile, but badly inga regulatorychallenge (see nextarticle), the number of providers in the wireless misjudged the regulatory mood. Twice he in part to better lock in customers. Both market in America from four to three. That tried and failed to merge Sprint with T-Mo- AT&T and Verizon are investing in 5G. Mr is a big “if”—twice earlier this decade, anti- Legere and Marcelo Claure, the boss of trust authorities have either stepped in to Sprint (pictured above), say that only by prevent such an outcome or indicated that Downwardly T-Mobile joining up can T-Mobile and Sprint com- they would do so, for fear of higher prices United States, price indices pete against the larger firms. forconsumers. December 2011=100 Their claims about 5G do contain some Mr Legere presumably knows the chal- truth. Combined, the two companies own 120 lenge, so he appealed to the political priori- enough spectrum to cover much of the Consumer prices ties of President Donald Trump. First came 110 country with a farzippier network than ei- a promise that the union with Sprint ther has now, though not at the fastest would add thousands of jobs in America 100 speeds promised with 5G. “Sprint is bring- (despite also promising shareholders $6bn ing some serious spectrum assets that T- 90 of annual savings, mostly cost cuts). Sec- Wireless telephone services Mobile doesn’t have and really needs bad- ond, he pledged that the two firms would 80 ly for 5G,” says Stéphane Téral of IHS Mar- spend $40bn within three years to build a kit, a providerofmarket and financial data. national 5G mobile broadband network 70 The new T-Mobile would be better and much more quickly than either Verizon or 2011 13 14 15 16 17 18 stronger, analysts say, but its prices would AT&T, by taking advantage of a combina- Source: Bureau of Labour Statistics probably not be lower. Projections from T-1 60 Business The Economist May 5th 2018

2 Mobile and Sprint of sharply higher profit adjourned on April 30th with closing argu- the real long-term goal for AT&T, which is margins forthe merged firm suggest anoth- ments, is whether AT&T, which owns Di- to use entertainmentcontentto improve its er priority. recTV, a satellite provider, would extract position (it is currently in second place) in In 2011 regulators blocked an acquisi- higher prices from other pay-TV distribu- wireless, and to take away broadband cus- tion of T-Mobile by AT&T, and in 2014 they tors and thus from their customers, by tomers as wireless data speeds become indicated to T-Mobile and Sprint that they threatening to withhold Time Warner’s TV more competitive with fixed-line broad- believed the market still needed four carri- networks from them. The government ar- band. If the Time Warner merger goes ers. Customers have benefited: monthly gued thatAT&T could do so, at a cost to con- through, Verizon, the largest wireless pro- wireless bills for urban consumers have sumers of more than $400m a year, be- vider, may likewise feel compelled to ac- fallenby 20% since 2011(see chart on previ- cause networks such as TNT and CNN quire an entertainment firm (concentra- ous page). Mr Legere’s success at T-Mobile, represent “must-have” content. tion in the wirelesssectorispartly whatled in fact, could be the merger’s undoing. T- Daniel Petrocelli, AT&T’s lead lawyer, this newspaper to recommend blocking Mobile appeared on the verge of collapse and defence witnesses, punched several the deal when it was announced, in 2016). in late 2011 when regulators blocked the holes in this argument. They argued it It is hard to predict how the market will AT&T acquisition. Since 2013 it has thrived, would be “absurd” for AT&T to withhold look in seven years. But this is unlikely to adding 40m customers by getting rid of content from anybody because it would be the last time that antitrust regulators long-termcontracts,reducingpricesandof- cost them dearly to do so. They said the and industry lawyers clash in court. 7 fering unlimited data usage. Craig Moffett government’s expert witness, Carl Sha- of MoffettNathanson writes that the jus- piro, had used an economic model based tice department “undoubtedly feels vindi- on unreasonable assumptions, overesti- Glencore in the DRC cated by its 2011 decision”. He gives the mating how many consumers would merger a 50-50 chance ofapproval. 7 switch pay-TV providers if Turner net- Rumble in the works were temporarily blacked out. And they said that Mr Shapiro and the govern- jungle Media consolidation ment had not sufficiently reckoned with the pay-TV industry’s rapidly declining hold over customers. Several million cus- Vintage legal A hard-slugging mining giant meets its tomers each year are dropping expensive match in Congo drama pay-TV packages, including from DirectTV, as consumers flee for cheaper options like N THE mining world the bout has the NEW YORK Netflix. In other words, ever-fewer people Idrama ofa heavyweight title fight. In one must have Time Warner’s so-called “must- corner is Ivan Glasenberg, billionaire boss The government’s case against AT&T have” TV networks. of Glencore, the world’s biggest commod- and Time Warnerhas gone badly In his testimony Mr Stephenson played ities-trading firm. In the other is Dan Ger- EAR the end of the antitrust trial over up such struggles. He said he wants to use tler, an Israeli billionaire accused by Amer- NAT&T’s $109bn acquisition of Time the billions AT&T is still earning from the ica of corruption related to his dealings Warner, Richard Leon, the presiding judge, declining satellite business to invest in with Joseph Kabila’s government in the asked Randall Stephenson, chief executive cheaper video options for mobile-phone Democratic Republic ofCongo (DRC). of AT&T, what the pay-television market customers, something he is already doing The prize is a battery mineral, cobalt, would look like in seven years’ time. Mr without Time Warner. He argues that the which Glencore produces in the DRC and Stephenson mused in his folksy Oklaho- battleground has moved to mobile in the whose value has almost tripled since the ma drawl that seven years ago his predic- fightwith Netflix, Google and Facebook for electric-vehicle revolution accelerated at tions for today would have missed “so subscriptions and advertising. the start of 2017. It will be a tough fight. In hard” when it came to the decline of That reasoning suggests what may be the DRC Glencore is currently facing the pay-TV and the rise of competition from potential loss of one of its biggest mines Silicon Valley. and sharply higher mining levies, as well The exchange sounds self-deprecating as a costly lawsuit. “It’s a shakedown of but it highlighted what AT&T argued was a Glencore,” says an analyst in London. crucial weakness in the government’s The clash between Messrs Glasenberg case. The Department of Justice, which is and Gertler, two former business partners, seeking to block the deal, has chiefly dates back to December, when the Ameri- looked back to the past, not forward to a can government slapped sanctions on Mr video and advertising market increasingly Gertler, accusing him of amassing hun- shaped by Netflix, Google and Facebook. dreds of millions of dollars through Many analysts agree, and are cautiously “opaque and corrupt” mining deals in the optimistic about AT&T’s chances of a fa- DRC, which he denies. Glencore’s two vourable settlement or ruling in time for mining companies in the country, Kamoto the deal’s closing deadline ofJune 21st. Copper Company (KCC) and Mutanda Further media consolidation would Mining, had been paying royalties to firms then unfold as big competitors pursue sim- owned by Mr Gertler in recent years, as re- ilar vertical mergers of content and distri- quired by Gécamines, the country’s state bution businesses. Comcast might imme- mining company. In order to avoid violat- diately launch a hostile bid formuch of21st ing the sanctions, Glencore says it has Century Fox, for example, potentially up- stopped those payments. ending Disney’s planned acquisition of On April 27th a company affiliated to much of Rupert Murdoch’s entertainment Mr Gertler filed a suit in the DRC to freeze business. Itwould take onlymonths forthe some assets of KCC and Mutanda, and to marketplace to transform again. seekdamages ofalmost $3bn forfuture un- The central question of the trial, which So last season paid royalties. The sum is staggering. Glen-1 The Economist May 5th 2018 Business 61

2 core says it “entirely rejects” the calcula- Entrepreneurship in France tion. According to audited accounts, KCC’s Kiboshed by Kabila last payments to a Gertler-related com- Prices, January 1st 2016=100, $ terms Seeking the big pany were $54.7min 2015.On May1st Glen- core won a temporary injunction in a Lon- 2,000 time don court against Mr Gertler taking further Katanga Mining shares legal action against KCC. But the court did 1,500 not rule on the legality of the Congo pro- PARIS ceedings, and Glencore’s assets there re- 1,000 A site-search startup swiftly scales main frozen—at least until another hearing on May11th. T WAS not the sort ofdo-it-yourself activ- 500 Mr Gertler’s move puts serious strain Iity that Castorama, a French home-im- on Glencore’s operations in Congo, where Cobalt provement chain, usually promoted. The it is the biggest producer of both copper 0 search engine on the firm’s website started 2016 17 18 and cobalt. It is under attack there on other offering customers puerile responses to Source: Thomson Reuters fronts, too. Last month Gécamines started their inquiries. Its auto-complete text func- legal proceedings in the DRC to dissolve tion suggested such intriguing products as KCC, in which it is a joint-venture partner ofthe code, though negotiations are said to a “bollock hammer” or “cock sander”. It with Glencore’s Toronto-listed subsidiary, be continuing. also returned offensive anti-Semitic Katanga Mining, arguing that KCC’s $9bn MrGlasenbergmaybe partiallyreaping phrases. The firm blamed manipulation by debt is draining the firm for Glencore’s what he sowed, analysts say.His firm long unnamed actorsand had to brieflyscrap its benefit. Katanga’s shares, which soared did business with Mr Gertler, despite re- search function. last year on the strength of rising cobalt ports about the latter’s relationship with That incident, two years ago, was a re- prices (see chart), have plunged on fears MrKabila. OtherWestern miningfirms say minder that much online search occurs that Gécamines may nationalise the mine they steer clear of the DRC because of rep- within websites. Internet giants such as and sell it to a Chinese rival. utational and legal risks. Glencore’s tra- Google excel at bringing users to sites but Glencore says it hopes to recapitalise vails may be the result of Mr Kabila—who once there customers often rely on web- KCC to save it from the possibility of na- has overstayed his second, and supposed- sites’ own search functions to find pro- tionalisation. NGOs pressing for greater ly final, term in office—squeezing mining ducts or services. Some firms build their transparency in Congo, such as Belgium- firms forcash to stay in power. own engines; others use open-source soft- based Resource Matters, say that would be Glencore may survive the slugfest. ware, such as Elasticsearch, to supply long overdue. They say the debts (mostly Some analysts say it may be encouraged to them. The results can sometimes be pain- borrowed from Glencore-related compa- make a big tax prepayment to Gécamines fully slow and undiscerning. nies) have helped KCC cut its tax bill in a to preserve its assets (it would probably As e-commerce grows, so does demand poverty-stricken country in dire need of have to verify where that money goes). for search systems that are fast, accurate roads, schools and hospitals. Others say it may attempt to convince and resilient to typos or tampering. A firm Yet even if that matter is settled, Glen- America’s Treasury to relax sanctions that saw an opportunity in this is Algolia, a core faces another round of pain—a new against Mr Gertler (companies may have French startup founded in 2012. It has a mining code that could sharply raise royal- similarly intervened in the case of Rusal, a search application that hunts the client’s ty rates on mineral production. Glencore Russian aluminium producer that has website and swiftly offers consumers rele- and other global mining firms in the DRC been sanctioned by America—see vant results. have so far failed to persuade the authori- Schumpeter). But that is unlikely. Mean- Algolia is growing unusually fast for a ties in Kinshasa to relax some of the terms while, the gloves are off. 7 European startup. It has some 200 engi- neers and other staff, up from 60 in 2016, most of them based in penthouse floors at its new headquarters behind Paris-Saint- Lazare station (its legal headquarters and a marketing office are still in San Francisco). The firm saysithasover4,500 clients, more than double the tally of two years ago, mostly in America. Its platform is process- ing 41bn search requests a month, as of March, again more than double the equiv- alent figure two years ago. One client, Twitch, a live-streaming vid- eo platform owned by Amazon, sees near- ly 1bn visits to its site each month, leading to lots of searches. Other customers in- clude Stripe, a cloud-based payments firm; Medium, a publisher; Crunchbase, a data- base for techies; and various Fortune 500 and CAC 40 firms. Its figures sound impressive, but there is no ad spending attached to its searches since users are already on company web- sites. Algolia’s model is to charge clients for its bespoke service, rather than selling ads and scooping up data about users. Its rev- Will it end with a knockout? enues reached $1m in 2014, two years after 1 62 Business The Economist May 5th 2018

2 founding, rose to $10m in 2016 and dou- fore they think of going elsewhere,” he too. Some are obvious. America’s trading bled to $20m last year. says. Algolia, in contrast, uses English in all partners could lash out. This week the Julien Lemoine, Algolia’s co-founder, its offices and sought clients in America European Commission declared, after sees opportunity among midsized Euro- from the start. The founders’ experience at news of the extensions, that “we will not pean firms, which are belatedly aware that Y Combinator, a revered school for start- negotiate under threat.” China has already they must expand their digital offerings. ups in California, helped them become imposed tariffson dozens ofAmerican im- He has plans for operations in Germany unusually comfortable, for a French outfit, ports, ranging from wine to pork, in re- and Japan, after opening in Australia this about taking risks. sponse to the tariffs on steel and alumi- year. Engineers are focused on “natural- Raisingseriousamountsofcapital early nium, and proposed $50bn in tariffs language processing” to improve search in also helped. France may have plenty of targeting soyabeans, chemicals, cars and tricky tongues like Arabic and Japanese. seed funds for the smallest startups, but other products. If these were to come in, A perennial complaint about young ambitious firms usually have to relocate the impact on American firms would vary tech firms in France is that—despite their across the Atlantic in search of big invest- (see chart). The industries that will suffer gifted engineers and smart ideas—few ments. But Algolia drew in $74m from in- most are ones, like aerospace and agricul- know how to scale up fast enough to inter- vestors led by Accel, a venture-capital firm ture, that both sell a lot in China and that est big investors. Cedric Sellin, a Paris- in London, that were attracted by the firm’s do not have many alternative markets. based business angel, reckons that locals global ambitions. Turning l’Hexagone into Even iftensions de-escalate, some dam- are too scared of venturing abroad early. a “startup nation” means looking beyond age will already have been done. Devry “Too many startups try to nail it here, be- France’s borders. 7 BoughnerVorwerkofCargill, an American grain-trading titan, points out that merely threatening to impose tariffs on China has Trade and American business harmed America’s reputation as a reliable supplier: “It’s not a good idea to insult your Chain reaction best customers.” Businesses that consume steel and alu- minium will pay higher prices for their in- puts. Areportreleased on May1stbyAmer- ica’s Institute of Supply Management, an independent research outfit, confirms that COLUMBUS, OHIO price increases and shortages are already Trade wars threaten to disrupt American firms’ global supply chains squeezing local firms. Among other exam- ON’T panic yet,” advises the sand- unveilinga25%tariffonimported steel and ples, it cites a fabricator of metal products “Dwich king of Ohio. Robert Grote is a 10% tariff on imported aluminium, but thathasbeen forced to eliminate some pro- chief executive of JE Grote Company, a quickly granted temporary exemptions to ducts because of the difficulty and cost of family-run firm in Columbus that is a glo- countries responsible for most of Ameri- acquiring raw materials. American steel bal manufacturer ofpizza-preparation ma- ca’s imports ofthose metals. These exemp- and aluminium producers are certainly chines, bacon-slicers and automated sand- tions were due to expire on May 1st, but at gearing up for greater demand. Jesse Gary wich-makers. Since about half of its $60m the last minute America offered the Euro- of Century Aluminium says his firm is or so of annual sales comes from outside pean Union, Mexico and Canada exten- planning to invest over $100m to expand America and his firm buys speciality steel sions for another month. The Trump ad- and modernise its production facilities in from Europe, he is closely following Presi- ministration says it will use the additional Kentucky. dent Donald Trump’s recent efforts to up- time to conclude a renegotiation of the end the global trading order. Though Euro- North American Free-Trade Agreement LinkedOut pean executives he knows are alarmed, he (NAFTA), and to push the EU into agreeing So much is relatively clear. Much harder to says his American peers believe Mr to “voluntary” quotas on exports. As for calculate is the exposure of American Trump’s threats are probably negotiating the threat of a trade war with China, Mr firms to supply-chain risk as a result of dis- tactics and are willing to “let it play out”. Trump’sdispatch this weekofhis top trade ruptions to international trade. Resilinc, a Mr Grote’s relaxed stance might seem officials to Beijing fuelled hopes of a nego- supply-chain analytics and management reasonable. The Trump administration tiated settlement. firm, has gathered data on the global pur- first caused shock waves on March 8th by Yet there are plenty ofreasons to worry, chasing and inventory transactions of nearly 30,000 manufacturers and suppli- ers worldwide. Bindiya Vakil, its boss, says Collateral damage that “most companies are unable to quan- United States, impact of $50bn of proposed Chinese tariffs, by product tify the risk of a serious trade war,” in part High because the relevant information is “si- Pork Soyabeans, loed” in firmsand notproperlyanalysed. A Aerospace sorghum Organic Consumer Ethanol senior executive at an American Fortune chemicals Military electrical hardware goods Railway 100 firm admits that the firm has spent a carriages Cars month intensely studying the likely im- IMPACT Sub- Pharmaceuticals pacts of Mr Trump’s policies and still does assemblies on Chemicals Medical Surgical not know how its suppliers and sub-sup- revenue devices instruments or costs Appliances pliers will be affected. Spare parts But there is little doubt that supply Scrap metal chains and the geography of production Diodes, LEDs Hardware and plastics will shift. Some firmshave alreadybeen re- Low jigging output to cope with the possible de- More alternatives DEPENDENCE Fewer alternatives mise of NAFTA. Fiat Chrysler Automobile Ability to source from or sell to another country (whose chairman sits on the board of The Source: Resilinc Economist’s parent company) said in Janu-1 The Economist May 5th 2018 Business 63

2 ary that in 2020 it will move assembly of In many cases, then, American fac- itoring and capturing everything from its Ram pickup trucks from Mexico back to tories will not benefit. Eric Hillenbrand of how park benches are used to levels of Michigan. That would sidestep the imposi- Alix Partners, a corporate-restructuring noise to water use by lavatories. Sidewalk tion oftariffs of25% ifAmerica were to exit firm, confirms reports that firms of various Labs says that collecting, aggregating and NAFTA. Its plant in Mexico, which has free- nationalities which used to import raw analysing such volumes of data will make trade agreements with a host of countries, metals and process them in America (for Quayside efficient, liveable and sustain- will be used to make vehicles for export to example, bending or forging steel or alumi- able. Data would also be fed into a public othermarkets around the world. An execu- nium into complex shapes) are preparing platform through which residents could, tive at a giant American industrial firm to shift that value-added work out of the for example, allow maintenance staff into saysthatiftariffsincrease the cost ofmanu- country owing to the metals tariffs. Work- their homes while they are at work. facturing substantially at its American ing out what the Trump administration in- Similar “smart city” projects, such as plants, it will shift some production to its tendson trade ishard enough. Working out Masdar in the United Arab Emirates or plants in Europe or Asia. what effects it will have is even tougher. 7 South Korea’s Songdo, have spawned lots of hype but are not seen as big successes. Many experience delays because of shift- ing political and financial winds, or be- cause those overseeing their construction fail to engage locals in the design of com- munities, says Deland Chan, an expert on smart cities at Stanford University. Dan Doctoroff, the head of Sidewalk Labs, who was deputy to Michael Bloomberg when the latter was mayor ofNew YorkCity, says that most projects flop because they fail to cross what he terms “the urbanist-tech- nologist divide”. That divide, between tech types and city-planning specialists, will also need to be bridged before SidewalkLabscan stick a shovel in the soggy ground at Quayside. Critics of the project worry that in a quest to become a global tech hub, Toronto’s pol- iticians may give it too much freedom. Sidewalk Labs’s proposal notes that the project needs “substantial forbearances from existing [city] laws and regulations”. Sidewalk Labs It is not yet known what business mod- el Sidewalk Labs plans for Quayside. Rohit Streets ahead Aggarwala, its head of urban systems, said at a public meeting in March that it is “frankly a little unclear” what it will be. Mr Doctoroffsays the firm might make money bylicensingthe productsand services itde- TORONTO velops in Toronto and sellingthem to other cities. It is uncertain whether Torontonians An Alphabet subsidiary designs a wired, robot-served neighbourhood who contributed data to hone the services UAYSIDE, an area of flood-prone land the waterfront—an area as large as Venice. would share the revenue. Qstretching for12 acres (4.8 hectares) on First, however, Sidewalk Labs is plan- Privacy concerns will doubtless arise— Toronto’s eastern waterfront, is home ning pilot projects across Toronto this sum- over what data the sensors at Quayside to a vast, pothole-filled parking lot, low- mer to test some of the technologies it will hooverup, who will own them, where slung buildings and huge soyabean si- hopes to employ at Quayside; this is partly they will be housed and so on. For now, los—a crumbling vestige of the area’s by- to reassure residents. If its detailed plan is SidewalkLabshassaid itwill notuse orsell gone days as an industrial port. Many con- approved later this year (by Waterfront To- personal information for advertising pur- sider it an eyesore but for Sidewalk Labs, ronto and also by various city authorities), poses and that the data will be subject to an “urban innovation” subsidiary of Goo- it could start workat Quayside in 2020. “open standards”, allowing other firms gle’s parent company, Alphabet, it is an ide- That proposal contains ideas ranging and agencies to make use of it. Sidewalk al location for the world’s “first neighbour- from the familiar to the revolutionary. Labs and Waterfront Toronto have brought hood built from the internet up”. There will be robots delivering packages in a former federal privacy commissioner Sidewalk Labs is working in partner- and hauling away rubbish via under- and a formerprivacy commissioner ofOn- ship with Waterfront Toronto, an agency ground tunnels; a thermal energy grid that tario as advisers. representing the federal, provincial and does not rely on fossil fuels; modular But privacy experts call such assur- municipal governments that is responsible buildings that can shift from residential to ances insufficient, because Canada’s legal for developing the area, on a $50m project retail use; adaptive traffic lights; and snow- frameworks for data privacy and security to overhaul Quayside. It aims to make it a meltingsidewalks. Private carsare banned; lag behind the latest innovations from tech “platform” for testing how emerging tech- a fleet of self-driving shuttles and robo- firms. “You can always choose whether or nologiesmightameliorate urban problems taxis would roam freely. Google’s Canadi- not to download an app on your phone,” such as pollution, traffic jams and a lack of an headquarters would relocate there. says Kelsey Finch at the Future of Privacy affordable housing. Its innovations could Undergirding Quayside would be a Forum, a think-tank. “You can’t easily opt be rolled outacrossan 800-acre expanse of “digital layer” with sensors tracking, mon- out ofthe community that you live in.” 7 64 Business The Economist May 5th 2018 Schumpeter Attack of the drones

Zap! American officials can now destroy foreign firms like gremlins in a computergame have been fined for breaking rules in the past, but not banned from dollarclearing. More recently Iran and Syria have faced new sanctions but they have few links with the global economy. Last month, the stakes were raised. At the end of 2017 Rusal was one of the world’s largest aluminium producers, with an en- terprise value of$18bn, controlled by Oleg Deripaska, an oligarch close to Vladimir Putin. Kapow! In April it was sanctioned as part of a package of measures against Russia. Rusal’s links to America are slight. It makes 14% of its sales there, does not typically use American banks and is listed in Hong Kong and Moscow (a relat- ed company, EN+, is listed in London). The consequenceshave still been devastating. Manyinvestors must sell theirsecurities. Rusal may be unable to refinance its dol- lar debts. Global trading houses that buy its product have cur- tailed activities, as has Maersk, a shippingline. The London Metal Exchange has limited trading with Rusal. Credit-ratings agencies have withdrawn ratings. European clearinghouses will not settle its securities. Its shares have dropped by 56% and its 2023 bonds trade at 45 cents on the dollar. Mr Deripaska is scrambling to sell down his indirect interest in Rusal to try and save it. What about ZTE? At the end of last year it was the world’s ARFARE has been transformed by drones. Using pilotless fourth-biggest telecoms-equipment firm, with an enterprise val- Waircraft armed with precision weapons America can kill its ue of $17bn, boasting a Chinese state firm as its anchor share- enemies—in, say, the Hindu Kush or Syria—with a click of a holder. It only makes around 15% ofits sales in America. Bang! On mouse. There is a similarshiftin economic diplomacy, where Un- April 16th the Commerce Department banned American firms cle Sam has perfected new weapons that exploit its power over from supplying it with components for seven years. ZTE had ad- the world’s financial plumbing and over the brainiest parts ofthe mitted trading with Iran and North Korea and then, in 2016 and tech industry. In April these weapons were used in anger on big, 2017, it lied about the remedies it had put in place. ZTE’s shares important firms for the first time. The targets were Rusal, a Rus- have been suspended. The fallout will be severe. UBS, a bank, sian metals firm, and ZTE, a Chinese electronics company. The re- reckons that 80% of ZTE’s products rely on components from sults have been devastating—and alarming. America, mainly cutting-edge semiconductors. Western banks In 1919 Woodrow Wilson called international sanctions a “si- and firms will be worried about coming into contact with it. lent, deadly remedy” and over the next 70 years America de- Companies that breakthe law oract in concert with autocratic ployed them about 70 times, reckons Gary Hufbauer ofthe Peter- governmentsdo notdeserve sympathy. Butthere are three, unset- son Institute. America achieved its geopolitical objectives only a tling conclusions to draw from America’s first use ofsmart weap- third of the time, he says. But there was little doubt that it could ons against big foreign firms. First, any large company can be meet its narrowergoal ofinflictingpain by haltingtrade with oth- reached. No fewer than 2,000 big companies outside America is- er countries and by freezing foreigners’ assets in America. sue dollar bonds, for example. Total dollar debt owed by firms But by the 1990s globalisation had weakened America’s clout. outside America is over $5trn. Cross-border supply chains mean Foreign firms had more countries to trade with. Multinationals most firms rely on American tech components in some way. saw fines from the authorities as a tolerable cost of doing busi- Second, these powers could be misused, either for overtly po- ness. The nadir was the Iraq oil-for-food programme in the 1990s, litical ends or because they are badly calibrated. The aluminium administered by the UN. Over 2,000 firms were suspected of market is in turmoil—so much so that the Treasury, surprised by making illegal payments to Saddam Hussein’s regime. its own potency, may do a U-turn over Rusal. After ZTE, investors Everything changed after September11th 2001. American offi- worrythatHuawei, a Chinese rival, could be next. Itsinternation- cials realised they could use data and financial flows as a weap- al sales are two-thirds as bigas General Electric’s. Ortake Chinese on, according to Juan Zarate, a former official, in his memoir banks, which have built up huge dollar debts and deposits as “Treasury’s War”. The Patriot Act in 2001 allowed the Treasury to they globalised. Last year the Treasury considered sanctioning label foreign banks as threats to financial integrity and to ban CCB and Agricultural Bank, according to Bloomberg. In total they them from the system for clearing dollar payments. In 2001-03 have $344bn ofdollar liabilities; sanctions could start a run. America won the right to peer into SWIFT, a formerly confiden- tial global bankmessagingsystem. SuddenlyAmerica could track Killing me softly its enemies. And it could make them radioactive to most counter- The third conclusion is that other countries will develop ways to parties, because any bankthat touched them, even indirectly and escape America’s reach. ZTE and Rusal offer a step-by-step guide with multiple degrees ofseparation, could be banned from clear- to what you need to survive without American permission: ing in dollars—which, ifyou run a cross-border bank, is fatal. semiconductors, a global currency and clearing system, credit- Between 2002 and 2008 the Treasury experimented with ratings agencies, commodity exchanges, a pool of domestic in- small fry. It brought to heel Victor Bout, an arms dealer; BDA, a vestors and shipping firms. These are all things that China is bankin Macau that traded with North Korea; and Nauru, a Pacific working on. America’s use of its new weapons simultaneously island with a sideline in exoticfinance. Since 2008 Western banks demonstrates its power and will hasten its relative decline. 7 Property 65

The Economist May 5th 2018

Finance and economics The Economist May 5th 2018 67

Also in this section 68 Reshaping Deutsche Bank 68 China’s effect on innovation 69 The pay premium for education 70 Blackstone’s credit-default swaps 70 Cleaning up tax havens 71 Japan’s overstaffed banks 72 Buttonwood: The next crisis 74 Free exchange: The worth of nations

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Bank of America liever. The bank’s shares now trade at130% of accounting value. The threat of regula- Dollars and sense tory sanctions continues to hangover all fi- nancial institutions, but Bank of America has been replaced by Wells Fargo as a fa- voured target. And it has benefited from government policies in other ways. The re- NEW YORK cent cut in corporate taxes lowered its ef- fective tax rate from 27% to 18%, accounting A sprawling financial empire has found a winning strategy fora third of its increased profits. The wide N THE skyscraper that is Bank of Ameri- Over the next five years Bank of Ameri- variety of capital standards to which big Ica’s New Yorkheadquarters, the chief ex- ca lost $134bn on loans that were repaid banks must adhere gives a relative advan- ecutive, Brian Moynihan, looks relaxed. late or not at all and related expenses, and tage to those that have lots of businesses, The bank has just announced record first- spent a further $64bn on litigation. Head- and can thus arrange their affairs most effi- quarter earnings. Its return on equity is count had peaked at 302,000 in 2009 after ciently. The crisis-era bail-outs sent the comfortablyin double digits. Itsshare price the Merrill purchase; it fell by 100,000 in a message that the government regarded the has been on a roll. The revival ofAmerica’s brutal series ofredundancies. The number largest banks as too big to fail. Deposits second-largest bank, he avers, was inevita- of branches was slashed from 6,100 in late have since flooded in (see chart), even ble. Any dark moments? None, except per- 2008 to 4,500. For years, the pain seemed though interest rates have been nugatory, haps when America’s sovereign debt was fruitless. As recently as February 2016, its keeping funding costs down. And the rules downgraded in 2011 and all the country’s shares traded at half their accounting val- intended to avert future bank failures have banks suffered. Early hints at the current ue. Regulations that in effect outlawed ac- helped big banks see off competition from prosperity? On his first day in the job, in quisitions constrained its opportunities for smaller ones, since they can spread com- 2010, he says. Vast losses from bad debt growth. Investors had little faith in the pliance costs over a larger base. and litigation merely obscured billions of worth ofits assets, or indeed in its strategy. Mr Moynihan is now hacking away at dollars in operating profits. “We just had to The stockmarkethassince become a be- anything not directly related to servicing get rid ofwhat was dragging us down.” Bank of America clients. He has got rid of In fact, this renaissance was anything stakes in Santander, BlackRock, China butpredictable. Overlittle more than halfa Banking on scale Construction Bank and Banco Itaú; credit- century Mr Moynihan’s two predecessors, United States, bank domestic deposits card businesses in Britain, Canada, Ireland Hugh McColl and Ken Lewis, had trans- By asset-size group, Q4 2007=100 and Spain; and a slew of private-equity in- formed the tiny North Carolina National vestments. He has kept hubs in London 250 Bank into an institution that could claim a Greater than and Hong Kong fortrading and investment $250bn business relationship with half of all banking, which act as a conduit between 200 American households. Any disruption foreign clientsand America, and American along the way was dwarfed by the conse- $10bn-250bn clients and the world. But wealth manage- 150 quences of the final two acquisitions, $1bn-10bn ment, once offered in 35 countries, is now Countrywide Financial, a subprime lend- offered in just one—America. 100 er, and Merrill Lynch, an investment bank $100m-1bn Internal restructuring has been un- with underwriting, brokerage and trading relenting. The bank claims to have moved 50 arms. Both imploded during the financial Less than away from lucrative but risky activities crisis. Asked what made Mr Moynihan the $100m such as subprime lending for cars, cards right person to take over in the midst ofthe 0 and homes. When MrMoynihan tookover chaos, the acerbic Mr Lewis was reputed to 2008 10 12 1416 17 the top job, 23 kinds of current accounts have quipped: “He wanted the job.” Source: FDIC were offered. That has been cut to three. 1 68 Finance and economics The Economist May 5th 2018

2 The number of people visiting Bank of sixth in Europe and Deutsche second, with America branches has declined from a Modesty pays Americans taking the other top slots. peak of1m weekly a couple of years ago to Ratio of share price to net book value per share Come what may, Europeans’ glory days 850,000, even as the volume of transac- are gone. Tighter capital rules since the fi- 0 0.5 1.0 1.5 2.0 tions has increased. A quarter of all depos- nancial crisis, notes Alastair Ryan of Bank its are now done using a cheque-photo- JPMorgan Chase of America Merrill Lynch, have hit them graphing feature on smartphones. Morgan Stanley harder than American banks. The Ameri- Finally, however, Mr Moynihan can re- Goldman Sachs cans’ vast balance-sheets and huge domes- turn to thoughts of expansion. The bank Bank of America tic market give them scale that Europeans, has announced that it will start to open with smaller markets and minuscule rates UBS new branches once more. There will be and margins, cannot match. fewer teller windows and more side-of- Credit Suisse The Americans were also quicker than fices where staff can sell investments and Citigroup Europeans to shape up after the crisis. loans. It is also trying to create a bridge be- BNP Paribas Europeans have had to choose new mod- tween its retail branches and its wealth- Barclays els. Switzerland’s UBS tacked from invest- ment banking towards wealth manage- management and investment-banking ac- Société Générale tivities. It wants to drum up business from ment; Credit Suisse may have pivoted to midsized companies that would prefer to Deutsche Bank Asia just in time; Barclays styles itself as a issue securities through the investment Source: Bloomberg transatlantic bank; BNP Paribas was never bank, rather than take a loan, and from in- a true swashbuckler anyway. dividuals who would like investment op- fundsand otherinvestorson the most prof- Even by European standards, Deutsche tions alongside their bank accounts. It has itable clients. By 2021corporate and invest- was slow. As late as 2015 it believed that as built a new electronic platform, Merrill ment banking’s share of total revenues others retrenched it would be the “last Edge. That should help it compete with Fi- will be trimmed to 50%, from 54% last year. man standing” and make a killing when delity and Charles Schwab, and provide As a result, Mr Sewing said, earnings businesspicked up. Did itwake up too late? new clients for Merrill’s brokers, now re- should become more stable. Over to you, Mr Sewing. 7 branded financial advisers. So far, says Andrew Coombs of Citi- None ofthisisall thatdramatic. Butthat group, Mr Sewing has supplied “more is intentional. After the trauma of the fi- questions than answers”. He thundered Trade and innovation nancial crisis, any abrupt or daring change about cost-cutting. Yet he still aims only to ofdirection by a bigAmerican bankwould keep operating costs below €23bn this China chill probably be blocked by regulators. For year—a target raised by €1bn in February. nowand some time to come, the twin aims Longer-term guidance for costs, revenue, will be to keep improving operational effi- assets and leverage is still to come. Mr ciency and avoid disaster. Mr Moynihan Coombs worries that restructuring may SHANGHAI has done well enough at both that, when cost farmore than Deutsche is allowingfor. Reports ofthe death ofAmerican the time comes to replace him, there So the leverage ratio (a gauge of capital innovation are exaggerated should be plenty ofwilling candidates. 7 strength), which at 3.7% is well below the figures for its peers, may fall in the short OPULAR concern about free trade with run. Withdrawal from those trading busi- PChina has focused on the loss of manu- Reshaping Deutsche Bank nesses should lift it, but because contracts facturing jobs in America and Europe. can last a long time, this may take a while. Policymakers have an additional worry: Shrink to fit As well as its corporate and investment that China’s rise is hurting innovation in bank, Deutsche has Germany’s biggest re- the West. Thisfearisamongthe small setof tail bank (plus banks in Italy and Spain) issues that unites American Democrats and an asset manager, DWS. It thus seems and Republicans. In 2016 Barack Obama’s to be settling for being a universal bank commerce secretary said that China’s with its centre of gravity in Europe. This is state-driven economy would weaken the European universal banks can succeed. farfrom the course ofthe 1990s and 2000s, world’s innovation ecosystem. Donald But can Deutsche Bank? when Deutsche and other European ad- Trump’s advisers allege that China makes FTER just 18 days as Deutsche Bank’s venturers tookon Wall Street. it harder for foreign firms to invest in inno- Achief executive, Christian Sewing had Such a model can be made to pay. vation by squeezing their returns. Mr1 two tasks to perform on April 26th. The France’s BNP Paribas also combines retail easy one, inherited from his ousted prede- banking, in Belgium, Italy and Luxem- cessor, John Cryan, was to report predict- bourg as well as at home, with a division Patently obvious ably glum first-quarter results. Net profit serving corporations and institutional in- United States, patent US goods-trade deficit dropped by 79%, year on year, to only vestors that has a strong European flavour. families*, ’000 with China, $bn €120m ($147m). Harder was indicating Granted, the French bank, which is due to 80 400 where he might lead Germany’s troubled report first-quarter results on May 4th, re- leading lender. The rough answer is: back turned an unspectacular 8.9% on equity 60 300 towards Europe, and away from any aspi- last year (it hopes for10%-plus by 2020). Its ration to be a global investment bank. stockmarket worth is 15% below the book 40 200 Mr Sewing intends to concentrate more value of its assets. But for Deutsche, that’s on raising finance and managing pay- dreamland (see chart). 20 100 ments and currencies for big European There are important differences. France companies, and less on America and Asia. has a few big banks; Germany lots ofsmall 0 0 He plans to cut the small swaps-repurchas- ones. Though bigger by assets than Deut- 1990 95 2000 05 10 14 ing business in America and to focus the sche, BNP Paribas is a smaller investment *Set of patents covering a single buying and selling of shares for hedge bank. Coalition, a research firm, ranks it Sources: IMF; CEIC invention in more than one country The Economist May 5th 2018 Finance and economics 69

Returns to education Smart investment

Even though more people are doing it, studying still pays off HICH has provided a better return down, but rising demand forhigher-level Win recent decades: America’s stock- skills, driven by the speed oftechnologi- market or education? The latter, accord- cal change, has worked in the opposite ing to a research review by George Psa- direction. Technology seems to have charopoulos and Harry Patrinos forthe been winning. World Bank. The two economists looked Rising returns increase the incentive at1,120 studies, across139 countries, and to invest in education. Governments and came up with an annual average “rate of individuals seem to be responding. Pub- return”—actually a pay premium, the lic spending on education as a share of increase in hourly earnings from an extra GDP is growing; private education, both year ofschooling—of8.8%. The analogy is at school and tertiary level, is booming. inexact, but forcomparison America’s The beneficiaries are people who have stockmarket returned an annual 5.6% access to education, either because they over the past 50 years. live in rich, well-governed countries or 2 Trump’s trade team was expected to raise Their figure excludes social gains, such because they can afford to pay privately this complaint, among others, with Chi- as lower mortality rates associated with forit. Rising returns, says Mr Patrinos, nese officialsduringtalksin Beijing on May greater education. The premium is higher signal to individuals to invest more. But 3rd and 4th, asThe Economist wentto press. forgirls and forprimary education. It is they also mean that anyone who does There is one problem. Data suggest that also higher in poor countries, presum- not will fall furtherbehind. “Either way, competition with China has coincided ably because the smaller the share of the conclusion is the same: invest now.” with more innovation in America, not less. educated people, the higher the pay they The relationship between competition can command. The same reasoning and innovation is complex, even before suggests that the return should have Honour roll considering trade with China. Economists dwindled as educational attainment Global higher education agree that the right competitive landscape rose. Instead, it has stayed strong, espe- Rate of return Enrolment fosters innovation. But they disagree about cially forhigher education (see chart). Annualised, % As % of population what exactly that landscape looks like. Some researchers have posited that 30 30 More competition might prod companies technological advances have displaced to try harder to develop new products in some skilled workers, who have then in the hope of gaining market share. Alterna- turn displaced less-skilled ones, leaving 20 20 tively, if competition is cut-throat, profits their relative positions in the pecking might evaporate to the point that compa- order—and thus the return to their extra nies have little incentive to take risks. education—little changed. Mr Psacharo- 10 10 The fear is that China generates the poulos and Mr Patrinos are more san- wrong kind of competition and stunts the guine. They thinkthe world is witnessing 0 0 good kind. Businesspeople elsewhere a “race between education and tech- 1970 90 2010 1970 90 2010 worry that when the Chinese government nology”. A rising number ofdegree- Source: George Psacharopoulos and decides to fund this orthat industry, invest- holders has tended to push returns Harry Patrinos, World Bank ment soars and margins collapse. Over- capacity in steel was caused in part by Chi- nese investment in steel processing; America argued that, on the contrary, Chi- ents and research spending soared in semiconductor firms think their industry nese competition had led companies to South Korea, the country most directly ex- might be next. At the same time, argues spend less on research as profits fell. They posed to manufacturing competition from Robert Lighthizer, the US Trade Representa- calculated that imports from China ex- China. tive, foreign companies that beat their Chi- plained 40% of a slowdown in American A separate IMF working paper late last nese competitors are not adequately re- patenting between 1999 and 2007, com- year unpicked some of what is happening warded because China presses them to pared with the preceding decade. in America. Competition from Chinese im- transfertheir intellectual property. The IMF has now weighed in with ports has caused research spending to be The two main academic papers on this more recent figures. Its conclusion is rather reallocated within certain industries, away question looked at the years around Chi- more cheerful, at least for those who think from also-rans and towards the most pro- na’s accession to the World Trade Organi- a trade war with China is a rotten idea. In a ductive and profitable firms. At the same sation in 2001. Far from settling the matter, report published in April the fund showed time, many researchers left manufacturing they were contradictory. Economists that, following an extended period of de- industries and moved into service sectors studying European companies found that cline, high-quality patents granted to such as data-processing and finance. Both competition from Chinese imports both American companies had risen sharply results are consistent with an American caused firms to improve their technology between 2010 and 2014. It also pointed to a economy that is playing to its strengths. and led to a shift in jobs to the most ad- big increase in American spending on re- The IMF’s analysts concluded that Chinese vanced firms. They concluded that 15% of search and development during the same imports were not a threat to innovation in the upgrading of technology in Europe be- years—even as America’s trade deficit with America, after all, and that policymakers tween 2000 and 2007 could be attributed China rocketed (see chart on previous could take a deep breath. No loud inhaling to the increase in imports from China. But page). The growth in patents was more sounds have yet been reported from the economists examining the impact on sluggish in Europe and Japan. But both pat- White House. 7 70 Finance and economics The Economist May 5th 2018

Credit-default swaps proach. Bonds are usually issued “at par”, tion. But company CDSs fall under the Se- meaning investors get back the face value curities and Exchange Commission, which Where it’s due at the end of the term. In the meantime, has said nothing. Courts, so far, have up- they receive interest (the coupon). The cou- held the actions of Hovnanian and Black- pon depends partly on how confident in- stone. One of the CDS sellers, Solus Asset vestors are that the loan will eventually be Management, a hedge fund, wasdenied an repaid in full. injunction to stop the technical default. Ifall Hovnanian’sbondshad been trad- Blackstone says it remains “highly confi- A bondholderfinds a sneaky way to ing close to par, then a technical default dent” that its arrangement with Hovna- triggerinsurance against default would have resulted in a tiny payout. And nian is “fully compliant with the long- N 2013 Codere, a Spanish gaming firm, indeed, most were. But Blackstone’s cheap standing rules ofthis market”. Iowed money it could not repay.Its bonds financingtookthe formofbuyinga 22-year CDSs were intended as a hedge against were trading at just over half face value. bond Hovnanian had recently issued with losses from defaults, not a bet on a firm de- Blackstone, a private-equity firm, offered it a 5% coupon—a combination of interest ciding to trigger them. But Blackstone’s a cheap $100m loan. But there was a catch. and term that even the bluest ofblue-chips machinations seem to have broken the Blackstone had bought credit derivatives could not issue at par. Trading at less than spirit, rather than the letter, of the rules. on Codere’s debt that would pay out about half face value, it is the reference against Even Bennett Goodman, the boss of its €14m ($19m) if Codere missed a bond pay- which Blackstone’s CDS will be valued. credit-investment arm, has expressed his ment. So Codere delayed a payment by a Those who must pay out are, unsurpris- support for a rewrite. “If people want to couple of days to prompt a “technical de- ingly,irked. One regulator thinks they have change the rules…because they think it fault”. Blackstone got its payout; Codere a point. America’s Commodity Futures makes for a more effective market struc- got its loan and stayed afloat. Trading Commission suggests technical ture, we are all for it,” he said in March. Onthesatirical“DailyShow”,JonStew- default may count as market manipula- That would indeed be good, fellas. 7 art, the then host, likened the scheme to the insurance fraud in “Goodfellas”, in which mobsters insure a restaurant before Cracking down on tax havens blowing it up. But that missed an impor- tant point. Blackstone did not blow Codere The Salisbury effect up—quite the opposite. As it said at the time, it “provided capital when no one else would, which allowed the companyto live and fight another day”. The investors who sold Blackstone credit-derivative contracts had in effect bet that Codere would not go Transparency is being forced on Britain’s overseas territories bankrupt. Without the loan, it probably would have. Those investors would still S BRITAIN’S prime minister between led in Parliament by Labour’s Margaret have paid fortheir error. A2010 and 2016, cham- Hodge, vowed to keep going. This week Those machinations pale in compari- pioned financial transparency, targeting their persistence paid off. son with Blackstone’s latest financial wiz- anonymous shell companies as the get- Ms Hodge and , a Con- ardry. In 2017 Blackstone bought $333m- away cars of tax-evaders and money-laun- servative MP, had tabled an amendment to worth of credit derivatives on Hovnanian, derers. On his watch Britain became the an anti-money-laundering bill, which was an American construction firm. It offered first G20 country to commit to a publicly designed to force “overseas territories” in Hovnanian cheap financing on condition accessible register of company owners. Mr the Caribbean and Atlantic, among them that it trigger those derivatives to pay out. Cameron tried to make British territories the British Virgin Islands (BVI), Bermuda But Hovnanian is in better shape than with big offshore financial centres do like- and the , to set up public Codere. Though its bonds are junk-rated, it wise. The arm-twisting stopped when he registers, if they had not already done so, is hardly flirting with bankruptcy. stepped down in 2016. But campaigners, bythe end of2020. Faced with defeatin the That posed two problems. The first is House of Commons, the government that missing a payment would harm Hov- dropped its opposition to the amendment, nanian’s image. But Blackstone found an clearing the way for it to be shoehorned ingenious workaround. A condition of the into the legislation. The House of Lords, financing was that a subsidiary of Hovna- which rejected itin January, isnotexpected nian bought $26m of its bonds. On May1st to do so again. Hovnanian paid other bondholders but The measure looked a longshotuntil re- defaultedon those held by the subsidiary. cently. But that changed with the poison- The second problem is trickier. The de- ing in Salisbury, a southern English city, of rivatives, called credit-default swaps Sergei Skripal, a Russian ex-spy. The nerve- (CDSs), pay the difference between the no- agent attack sparked intense scrutiny of tional value ofa bond and the lowest price Russian malfeasance, including oligarchs’ at which any of the company’s bonds is use of Britain and its offshore satellites to trading when the CDS is triggered. This is wash their dirty money. “It’s all down to usually a good proxy for the haircut inves- the Salisbury effect,” says a lobbyist. tors would have to take after a firm’s bank- Global Witness, a campaign group, ruptcy. If it can pay back only half its debt, hailed the breakthrough as the “biggest its bonds should be trading at around half move against corruption in years”. The af- face value, and the CDS will cover the rest. fected territories—under British sovereign- That makes sense when a company actual- ty but not actually part of the United King- ly defaults,and all bond claims falldue. dom—are livid. They say it breaks a Hovnanian required a different ap- Blue-skies regulation long-standing constitutional arrangement, 1 The Economist May 5th 2018 Finance and economics 71

2 under which they have been left to shape their own policies on finance and much else. Orlando Smith, the BVI’s premier, called it a “ breach of trust” that “calls into question our very relationship with the UK”. His wife, who runs the agency that promotes the islands’ financial sector, de- scribed it as “smacking ofcolonialism”. In fact, such intervention is not unpre- cedented. Britain’s government has laid down the law in its territories on capital punishment and the criminalisation of ho- mosexuality. In 2009 it imposed direct rule on the Turks & Caicos Islands after an in- quiry uncovered government corruption. In February, however, it declined to block legislation in Bermuda that revoked a law allowing same-sex marriage. A minister said that such powers “can only be used where there is a legal or constitutional ba- sis for doing so, and even then, only in ex- Banks in Japan ceptional circumstances”. Do the activities of tax havens amount Silver service to such circumstances? The territories point out that they have improved their tax-transparency and anti-money-laun- dering regimes to the point where they are judged as good as or better than those of TOKYO several OECD countries, including Ameri- A painful but essential streamlining has barely begun ca. They have central ownership registers that can be accessed quickly by British and WEEP past the cash machines at the sure ofhundreds ofbranches and the elim- other law-enforcement agencies. SSumitomo Mitsui bank in Tokyo’s San- ination of32,000 jobsbetween them in the They also argue that public registers are genjaya shopping district and instead en- coming decade. Mizuho will shed a quar- no panacea. Britain’s is in effect an honour joy the personal service. Uniformed con- ter ofits workforce. MUFG says it expects to system. The only person prosecuted for cierges welcome every customer with a replace thousands of employees by auto- providingfalse information so farhas been bow. Adozen tellers are watched over by a mating up to 100 of its branches. All that a campaigner who sought to highlight the manager who leaps up to meet elderly pa- sends a signal to the rest of the industry, lack of checks on submissions by register- trons. Transactions are concluded with says Shinobu Nakagawa ofthe BoJ. inga firm called afterVince Cable, a former carved signature seals stamped on paper The megabanks are well-placed to find British minister, and naming him as a di- contracts, and another round ofbows. alternative sources of growth by expand- rector. The anti-money-laundering stan- Japan’s high-street banks are not just ing abroad, says Masamichi Adachi of J. P. dards set by the Financial Action Task overstaffed. They are also overbranched. Morgan Securities. Reckless lending in Ja- Force, an intergovernmental body, do not According to the World Bank, high-income pan in the 1980sand 1990swasfollowed by require registers to be public. countries have on average 17.3 commercial- a round of mergers. Recapitalisation was Anti-corruption activists insist that the bank branches per 100,000 adults. Japan complete by the mid-2000s. The result was rampant use of havens by financial ne’er- has 34.1. Ifyou include branches ofthe post that big Japanese banks were in a position do-wells warrants extraordinary action. office, a popular place for people to save, to snap up some of the business left be- BVI-registered shell companies, in particu- the Bank of Japan (BoJ) reckons the coun- hind as American and British banks re- lar, crop up frequently in tax-evasion and try is the world’s most overbanked. trenched in Asia after the financial crisis. A corruption cases. Mr Mitchell argues that Retail banks across most rich countries spending spree began in 2012. MUFG public access to registers is important be- struggled to make money after the finan- bought stakes in banks in Vietnam, the cause resource-constrained law enforce- cial crisis. But Japan has been close to or in Philippines and Thailand. Since 2012 the mentneedshelp from NGOs and investiga- deflation for most of the past two decades. share of foreign loans by the big three has tive journalists to “join up the dots”. The result, accordingto a report last yearby risen from 19% to 33%. As they retrench at With the bit now firmly between their the BoJ, is “strikingly” low profitability. Re- home, this share will probably rise further. teeth, anti-corruption types will want turn on assets for the 12 months ending in The country’s 105 regional banks are more. Pressure could grow forsimilar treat- March 2017 was0.3%, compared with 1% for worse-placed, says Mr Yoshino. Some are ment ofBritain’s closer-to-home crown de- those in America. “The entire banking sys- barely profitable and more than half are pendencies of Jersey, Guernsey and the tem has to drastically shrink,” says - losing money on lending and fees. As the Isle of Man, though their relationship with yuki Yoshino of the Asian Development population has shrunk and aged, these Britain is different. They are not former col- BankInstitute, a think-tank. banks’ problems have been exacerbated onies, which makes it harder for Parlia- A lingering culture of jobs for life is one by young people moving to the big cities. ment to legislate for them. Geoff Cook of reason it hasn’t done so yet. The nation’s Not only is their customerbase being whit- JerseyFinance, which ispart-funded by the biggest banks are, however, finally starting tled away, but the customers they are left island’s government and promotes its fi- to act. The IMF warned last autumn that Ja- with are older people who are most likely nancial centre, says Jersey will fight to keep pan’s big three, MUFG, Sumitomo Mitsui to want personal service. The Fair Trade its system of “compliant confidentiality”, and Mizuho, are among nine global banks Commission, which regulates competi- until global standards dictate otherwise. that suffer from persistently low profitabil- tion, has approved 15 regional bank merg- Another battle looms. 7 ity. Last year all three announced the clo- ers in the past decade and the pace is accel-1 72 Finance and economics The Economist May 5th 2018

2 erating. But the Financial Services Agency ise thatprofitabilityislowso their business mortgage lender, which Noriaki Maru- (FSA), their regulator, is reluctant to put is not sustainable,” says an FSA official. yama, its president, attributes mainly to them under too much pressure. Many pro- “Mergers are one option but there is still costs that are a fifth ofits lumbering rivals’. vide a lifeline to ageing communities and plenty ofroom forincreased productivity.” It has shaved interest rates on home loans help prop up struggling companies. As if all this was not hard enough, Japa- to 1.17% a year, compared with an average The government thinks banks should nese banks, like those elsewhere, must also for major banks of 1.28%, by streamlining start offering more funding to startups and cope with new, low-cost competition. Chi- operations (using artificial intelligence to smaller firms. It hopes that would stimu- na’s largest fintech company, Ant Finan- process loan applications, forinstance). late economic growth more broadly, but cial, has recently set up an office in Tokyo. Mr Maruyama says the front-office clut- also thinks it would help the banks them- Line, a messagingservice with 75m month- ter of high-street banks can be stripped selves by creating new, profitable clients. ly users in Japan, wants to expand into fi- away, leaving only cash machines. Most Nudging risk-averse banks away from cal- nancial services. SBI Sumishin, an online transactions can be done on mobile cified business practices while trying to bank set up by SoftBank Group and Sumi- phones, he says. It is not an uncommon vi- avoid a major shock to the system is a tomo Mitsui Trust Bank a decade ago, has sion for a banker. But other countries do tricky line to tread. “We want them to real- quickly become Japan’s most popular not have such cosseted customers. 7 Buttonwood Where will the next crisis occur?

Corporate debt could be the culprit NTEREST rates are heading higher and the London Business School, Alex Brazier, Ithat is likely to put financial markets un- The A to B of decline the director for financial stability at the derstrain. Investors and regulators would S&P Global median corporate-credit rating Bank of England, compared the yield on both dearly love to know where the next AA+ corporate bonds with the risk-free rate crisis will come from. What is the most (the market’s forecast for the path of offi- likely culprit? AA– cial short-term rates). In Britain investors Financial crises tend to involve one or A are demanding virtually no excess return more of these three ingredients: excessive on corporate bonds to reflect the issuer’s borrowing, concentrated bets and a mis- BBB+ credit risk. In America the spread is at its match between assets and liabilities. The BBB– lowest in 20 years. Just as low rates have crisis of2008 was so serious because it in- encouraged companies to issue more BB volved all three—big bets on structured debt, investors have been tempted to buy products linked to the housing market, B+ the bonds because of the poor returns and bank-balance sheets that were both available on cash. overstretched and dependent on short- 1980 85 90 95 2000 05 10 15 18 Mr Brazier also found that the cost of term funding. The Asian crisis of the late Source: S&P Global insuringagainst a bond issuerfailingto re- 1990s was the result of companies bor- pay, as measured by the credit-default- rowing too much in dollars when their global companies were highly indebted. swap market, fell by 40% over the past revenues were in local currency. The dot- That is five percentage points higher than two years. That makes it seem as if inves- com bubble had less serious conse- the share in 2007, just before the financial tors are less worried about corporate de- quences than either of these because the crisis hit. By the same token, more private- fault. But a model looking at the way that concentrated bets were in equities; debt equity deals are loading up on lots of debt banks assess the probability of default, did not play a significant part. than at any time since the crisis. compiled by Credit Benchmark, a data- It may seem surprising to assert that One sign that the credit quality of the analytics company,suggests that the risks the genesis of the next crisis is probably market has been deteriorating is that, glob- have barely changed over that period. lurking in corporate debt. Profits have ally,the median bond’s rating has dropped So investors are getting less reward for been growing strongly. Companies in the steadily since 1980, from A to BBB- (see the same amount of risk. Combine this S&P 500 index are on target for a 25% an- chart). The market is divided into invest- with the declining liquidity of the bond nual gain once all the results for the first ment grade (debt with a high credit rating) market (because banks have withdrawn quarter are published. Some companies, and speculative, or “junk”, bonds below from the market-making business) and like Apple, are rolling in cash. that level. The dividing line is at the border you have the recipe for the next crisis. It But plenty are not. In recent decades between BBB-andBB+. So the median may not happen this year, or even next. companies have sought to make their bal- bond is now one notch above junk. But there are already ominous signs. ance-sheets more “efficient” by raising Even within investment-grade debt, Matt King, a strategist at Citigroup, debt and taking advantage of the tax- quality has gone down. According to says that foreign purchases of American deductibility of interest payments. Busi- PIMCO, a fund-management group, in corporate debt have dried up in recent nesses with spare cash have tended to use America 48% of such bonds are now rated months, and the return on investment- it to buy back shares, either under pres- BBB, up from 25% in the 1990s. Issuers are grade debt so far this year has been -3.5%. sure from activist investors orbecause do- also more heavily indebted than before. In He compares the markets with a game of ing so will boost the share price (and thus 2000 the net leverage ratio for BBB issuers musical chairs. As central banks with- the value ofexecutives’ options). was 1.7. It is now 2.9. draw monetary stimulus, they are taking At the same time, a prolonged period Investors are not demanding higher seats away.Eventually someone will miss of low rates has made it very tempting to yields to compensate for the deteriorating a seat and come down with a bump. take on more debt. S&P Global, a credit- qualityofcorporate debt; quite the reverse. rating agency,says that as of 2017, 37% of In a recent speech during a conference at Economist.com/blogs/buttonwood

74 Finance and economics The Economist May 5th 2018 Free exchange The worth of nations

Economists sometimes failto measure what matters most. The fourth in ourseries on the profession’s shortcomings economic statistics such as GDP are flawed is not news. In a speech in1968Robert Kennedy complained that measures ofout- put include spending on cigarette advertisements, napalm and the like, while omitting the quality of children’s health and edu- cation. Despite efforts to improve such statistics, these problems remain. A dollar spent on financial services or a pricey medical test counts towards GDP whether or not it contributes to human welfare. Social costs such as pollution are omitted. Economists try to take account of such costs in other contexts, for example when assessing the harms caused by climate change. Yet even then they often focus on how environmental change will affect measurable production and neglect outcomes that cannot easily be set against the measuring rod. Economists also generally ignore the value of non-market ac- tivity,like unpaid work. By one estimate, including unpaid work in American GDP in 2010 would have raised its value by 26% (and drawn a verydifferentpicture ofthe contributionsofdifferent de- mographic groups). As Diane Coyle ofCambridge University has argued, the decision to exclude unpaid work may reflect the val- ue judgments of the (mostly male) officials who first ran statisti- cal agencies. But it seems likely that economists today still treat CYNIC, says one of Oscar Wilde’s characters, is a man who things which cannot easily be measured as ifthey matter less. Aknows the price of everything and the value of nothing. But, Economists are at their least useful when a measuring stick as philosophers have long known, assigning values to things or should not be used at all. They have been known to calculate, for situations is fraught. Like the cynic, economists oftenassume that example, the financial gains from achieving gender equality. But prices are all anyone needs to know. This biases many of their gender equality has an intrinsic value, regardless of its impact on conclusions, and limits their relevance to some of the most seri- GDP. Similarly, species loss and forced mass migration impose ous issues facing humanity. psychic costs that resist dollar valuation but are nonetheless im- The problem ofvalue has lurked in the background ever since portant aspects ofthe threat from climate change. the dismal science’s origins. Around the time Adam Smith pub- Such quandaries might suggest that ethical issues should be lished his “Wealth ofNations”, Jeremy Bentham laid out the basis left to other social scientists. But that division oflabour would be of a utilitarian approach, in which “it is the greatest happiness of untenable. Indeed, economists often workon the basis that tangi- the greatest number that is the measure of right and wrong”. In ble costs and benefits outweigh subjective values. Alvin Roth, for the late19th century Alfred Marshall declared the correct focus of example, suggests that moral qualms about “repugnant transac- economics to be the “attainment and…use of material requisites tions” (such astradingin human organs) should be swept aside in ofwell-being”. Or,ashisstudent, ArthurPigou, putit, “thatpartof order to realise the welfare gains that a market in organs would social welfare that can be brought directly or indirectly into rela- generate. Perhaps so, but to draw that conclusion while dismiss- tion with the measuring rod ofmoney”. ing such concerns, rather than treating them as principles which Equating money with value is in many cases a necessary ex- might also contribute to human well-being, is inappropriate. Fur- pedient. People make transactions with money, of one form or ther,the very act ofpullingout the measuringrod alters oursense another, rather than “utility” or happiness. But even if econo- of value. Though the size of the effect is disputed, psychological mists oftenhave no choice but to judge outcomes in terms ofwho research suggests that nudging people to thinkin terms ofmoney ends up with how many dollars, they can pay more attention to when they make a choice encourages a “businesslike mindset” the way focusing on “material well-being”, as determined by the that is less trusting and generous. Expanding the reach ofmarkets “measuring rod ofmoney”, influences and constrains their work. is not just a way to satisfy preferences more efficiently. Rather, it The measuring rod itself often causes trouble. Not every dol- favours market-oriented values over others. larisofequal value, forinstance. Youmightthinkthat iftwo econ- omists were forced to bid on an apple, the winner would desire The Pharrell Williams school the apple more and the auction would thereby have found the Some economists advocate the creation and use of broader mea- best, welfare-maximising use forthe apple. But the evidence sug- sures of well-being. Several organisations, including the Euro- gests that money has diminishing marginal value: the more you pean Commission and the World Bank, now publish data series have, the less you value an extra dollar. The winner might there- presentinga more comprehensive picture ofsocial health. Butthe fore end up with the apple not because it will bring him more joy, costs of the standard approach are growing. Price is a poor mea- but because his greater wealth means that his bid is less ofa sacri- sure of the value of digital goods and services, which are often fice. Economists are aware of this problem. It features, for exam- paid forby givingaccess to data. Technological progress promises ple, in debates about the link between income and happiness to create ever more situations in which ethical considerations across countries. But the profession is surprisingly casual about conflict with narrowly material ones. The question of how to in- its potential implications: for example, that as inequality rises, crease well-being in such a world deserves greater attention. 7 the price mechanism may do a worse job ofallocating resources. Equating dollar costs with value misleads in other ways. That Economist.com/blogs/freeexchange Science and technology The Economist May 5th 2018 75

Also in this section 76 Nouns, verbs and anger 76 Neanderthal art 76 Improving desalination 77 Breastfeeding and working mothers 78 Policing modern slavery

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

Genomes and privacy certain diseases, for example, or informa- tion about paternity, that the relative in No hiding place question might or might not want to know, and might or might not want to become public. Who should be allowed to see such information, and who mighthave a right to see it, are questions that need asking. They are beginning to be asked. In 2017 the Court of Appeal in England ruled that American police have used genealogyto make an arrest in a murdercase doctors treating people with Huntington’s N APRIL 24th police in California an- in time, they moved forward again, look- chorea, an inherited fatal disease of the Onounced the arrest of Joseph De- ing for as many as possible of this ances- central nervous system the definitive diag- Angelo. Mr DeAngelo stands accused of tor’s descendants. Using newspaper clip- nosis of which is a particular abnormal eight counts ofmurder. On April 27th some pings, census records and genealogy DNA sequence, have a duty to disclose that intriguing details emerged of what had websites, they discovered some 25 family diagnosis to the patient’s children. The prompted the arrest. The starting-point trees stretching down from the common children of a parent who has Huntington’s was genetic material recovered from the ancestor. On its own, the tree on which Mr have a 50% chance ofinheriting the illness. crime scenes. Though this directly DeAngelo appears has1,000 members. In this case, a father had declined to dis- matched no DNA held in a police database, After that, old-fashioned sleuthing took close his newly diagnosed disease to his analysis of it led investigators all the way over. From these thousands of descen- pregnant daughter. She was, herself, subse- back to the 1800s, to Mr DeAngelo’s great- dants, the detectives found two who had quently diagnosed with Huntington’s. She great-great grandparents. The trail they fol- had connections with Sacramento at the then sued the hospital, on the basis that it lowed allegedly links Mr DeAngelo to time the Golden State Killings were taking was her right to know of her risk. Had she crimes committed around Sacramento in place. One was eliminated from the inves- known, she told the court, she would have the 1970s and 1980s by an unknown man tigation by further DNA tests of a family terminated her pregnancy. who acquired the nickname ofthe Golden member. The other, Mr DeAngelo, was ar- That is an extreme case. But intermedi- State Killer, and who murdered at least 12 rested after police had tested the DNA on ate ones exist. For example, certain vari- people and raped more than 50. an item he had discarded. ants of a gene called BRCA are associated That a link to distant ancestors could with breast cancer. None, though, is 100% lead to an arrest is testament to the power Serial privacy predictive. If someone discovers that he or of modern genomics. Investigators first If a serial killer really has been caught us- she is carrying such a variant, should that uploaded Mr DeAngelo’s genetic profile to ing these methods, everyone will rightly bring an obligation to inform relatives, so a website called GEDmatch. This allows applaud. But the power of forensic geno- that they, too, may be tested? Or does that anyone to use his or her own genetic pro- mics that this case displays poses concerns riskspreading panic to no good end? file to search for family connections. GED- forthose goingabouttheirlawful business, It may turn out that such worries are match’s database turned out to hold pro- too. It bears on the question of genetic pri- transient. As the cost ofgenetic sequencing files, returned as weak matches, which vacy—namely, how much right people falls, the tendency of people to discover looked as if they had come from distant have to keep their genes to themselves—by their own genetic information, rather than cousins of the Golden State Killer. GED- showing that no man or woman is a genet- learning about it second-hand, will in- match encourages uploaders to include ic island. Information about one individ- crease. That, though, may bringabout a dif- their real name with their genomes, and ual can reveal information about others— ferent problem, of genetic snooping, in the investigators were able to trace back and not just who is related to whom. which people obtain the sequences ofoth- through the matches’ parents and grand- With decreasing degrees of certainty, ers without their consent, from things like parents to find their most recent common according to the degree ofconsanguinity, it discarded coffee cups. At that point genetic ancestor. Then, having moved backward can divulge a relative’s susceptibilities to privacy really will be a thing ofthe past. 7 76 Science and technology The Economist May 5th 2018

Language duced feelings of anger. Participants so Chemistry treated had an average anger score of 3.21, Manners of in contrast to the 3.67 averaged by those How desalination presented with verb-form statements. This speaking is a statistically significant difference. The got its stripes noun forms of the statements also in- creased support for the concessions, with these scores averaging 2.02, in contrast to Science looks at the subtleties A membrane that can remove salts from the average of 1.72 scored by participants ofsemiotics watermore efficiently presented with verb-form statements. IPLOMATSthe world overknowthat a Given these results, Dr Reifen-Tagar and LAN TURING was no slouch. He laid Dwell-chosen turn of phrase can make Dr Idan wondered whether the reduced Athe mathematical groundwork for or break a negotiation. But the psycholog- anger induced by the noun form would modern computing. He led the successful ical effects of different grammatical struc- translate into reduced support for hostile effort to crack Germany’s Enigma code tures have not been investigated as thor- action toward Palestinians. They therefore during the second world war. And he also, oughly as they might have been. A study ran the experiment again, having recruited though it is less well known, made an im- just published in Psychological Science,by 270 new participants, with additional portant contribution to chemistry with a Michal Reifen-Tagar and Orly Idan, two re- statements like “I am in favour of demol- paper winningly entitled “The chemical searchers at the Interdisciplinary Centre ishing/the demolition ofhomes belonging basis ofmorphogenesis”. In it he described Herzliya, in Israel, has thrown some light to familymembersofthose involved in ter- how the diffusion oftwo chemicals that re- on the matter. Dr Reifen-Tagar and Dr Idan rorist activities” and “ofcutting off/the cut- act with each other can, in certain circum- have confirmed that a good way to use lan- ting offofsupply ofelectricity to Gaza dur- stances, produce complex patterns of guage to reduce tension is to rely, whenev- ing wartime”. blobs and striations. These patterns, now er possible, on nouns rather than verbs. The results were much the same as called “Turing structures”, bear an uncan- Dr Idan, a psycholinguist, knew from those in the earlier experiment. Partici- ny resemblance to many that are found in previous work that the use of an adjective pants given the noun-structure statements nature: a zebra’s stripes, for example, or a instead of a noun in a sentence (“Jewish” again showed notably more support for ladybird’s spots. rather than “Jew”, for example) can shape concessions. But they also showed much The extent to which such processes are both judgment and behaviour. Likewise, less enthusiasm for retaliatory policies, involved in the embryonic development Dr Reifen-Tagar, a social psychologist, with an average score of 2.92 compared of animals is debated. But, on a more prac- knew from her own earlier research that with the 3.91averaged by those given verb- tical note, ZhangLin ofZhejiangUniversity successful diplomacy often hinges on structure statements. In matters of conflict, in Hangzhou, China, and his colleagues managingangerin negotiatingparties. Put- as in so many otherareas oflife, it turns out now hope to turn Turing’s chemical in- ting their heads together, they suspected that presentation is everything. 7 sights to the task of improving desalina-1 that employing nouns (“I am in favour of the removal of settlers”), rather than verbs (“I am in favour of removing settlers”), to convey support for policy positions would have a calming effect. The one is more like a statement of an abstract belief. The other is more like a prescription ofa course ofac- tion and is thus, they hypothesised, more likely to arouse emotions. To test this idea they recruited 129 Jew- ish-Israeli college students and presented them with statements about policies asso- ciated with the Israeli-Palestinian conflict. Specifically, these statementsconcerned Is- raeli concessions on matters like the re- lease of Palestinian prisoners, the borders of Israel, the return to Israel of Palestinian refugees and the division ofJerusalem. Half of the statements were given in noun form (“I support the division of Jeru- salem”). The other half were given in verb But is it art? form (“I support dividing Jerusalem”). Par- The scratches on this flake of flint may not look much but they were made with ticipants responded to each on a six-point deliberation by a Neanderthal man or woman. That is the conclusion of Ana Majkic of the scale, where a value of one indicated “I to- University of Bordeaux and her colleagues, in a paper just published in PLOS ONE. Dr tally disagree” and a value of six indicated Majkic’s analysis bears on the question of whether Neanderthals had anything that might “I totally agree.” All of the statements were remotely be described as an artistic impulse—a phenomenon many anthropologists in Hebrew, in which such sentence struc- suspect is unique to Homo sapiens. The stone in question, about 4cm long, was found in turesare natural and acceptable. After each 1925 (though no description of it was published until 2006) in a cave in the Crimea that statement was given, participants were also played host to Neanderthal bones. Patterns of scratches on stones used by asked to indicate, also on a six-point scale, Neanderthals are not unusual. They have been found at more than two dozen sites. But the extent to which they would feel anger whether those patterns are deliberate or accidental is much debated. Dr Majkic argues for towards the state ofIsrael ifthe concession deliberation in this case because microscopic examination suggests the scratches were in question were actually granted. made by two different engraving tools, and also because, despite the flint being small, As the researchers had hypothesised, the pattern on it is framed by an unscratched area. If the scratches were accidental, some presenting the statements in noun form re- of them would probably reach the edge. The Economist May 5th 2018 Science and technology 77

2 tion, a process that provides drinking wa- were able to handle a fourfold increase in Genin and Jayesh Srivastava, are engi- ter for around 300m people. To do so, they flow rate with no loss ofperformance. neers. The third, Micaela Langille-Collins, have made a membrane laced with micro- Flushed with success, Dr Zhang is now is a trainee doctor. The upshot of the en- scopic Turing patterns that can remove turning his attention to the reverse-osmo- counter was that Dr Rasheed gave the stu- salts from water up to four times faster sis membranes. Though these are already dents the job of designing a low-cost, low- than commercial alternatives. Their re- rough, he thinks he can make them tech way of keeping mothers’ milk healthy search is published this weekin Science. rougher. They, too, are made by interfacial in Bangladesh’s tropical climate, without During desalination, seawater is often polymerisation, so he may well be able to resorting to refrigeration. pumped first through a porous “nanofiltra- do so. And if both sorts of membrane can The device the trio came up with, tion” membrane made of a substance be improved, the process of desalination, shown in the picture, is a cheap pasteurisa- called polyamide. This removes bulky which is likely to become more important tion machine based on a food warmer of ions, such as magnesium and sulphate, as as demand for water increases, will be the sort used in canteens. Instead of food, well as bacteria and other large particles. made cheaper and more effective. 7 the warmer’s vessels are filled with paraf- Afterthat, it passes through a second mem- fin wax, which is liquefied by the heat. Bot- brane which has even tinier pores. This tles containing expressed milk, held in step, called reverse osmosis, removes ions bags made of silicon-coated nylon, are smaller than magnesium and sulphate, hung from a plate and bathed in the wax, particularly the sodium and chloride ions which is then heated further. A thermom- that make up common salt and that give eter in the wax registers the temperature, seawater its characteristic taste. and once that reaches 72.5°C—the level re- The membranes employed for reverse quired for pasteurisation—a timer is start- osmosis are rough, and so have a large sur- ed. After15 seconds this sets offan alarm to face area through which water can pass. indicate that the milk has been cooked Nanofiltration membranes, by contrast, enough to kill hostile bacteria, and the bot- are smooth. That, Dr Zhang reasoned, tles are removed and allowed to cool. meant that they might be improved. To in- Thus pasteurised, microbiological tests troduce the necessary roughness he need- show, the milk’s shelf life at local room ed some way to modify the chemical reac- temperatures increases from two hours to tion by which the membranes are made. somewhere between six and eight. This This process, known as interfacial poly- meansno refrigeration isrequired and rela- merisation, involves two chemicals. One, tives looking after babies need collect ex- piperazine, is soluble in water. The other, pressed milk from the factory, where the trimesoyl chloride (TMC), can be dissolved machine is located, only once a day. The only in an organic solvent such as decane, pasteurised milkalso retainsmostof itsnu- an oily hydrocarbon. tritional value. When piperazine and TMC meet, they With the aid of ten donated breast react to form polyamide. But if the one is pumps, Ms Langille-Collins and her col- dissolved in water and the other in oil, Working mothers leagues tested their invention at the Inter- which famously do not mix, then the reac- fab Shirt Manufacturing workshop, north tion can happen only at the surface where Express delivery ofDhaka. To start with, mothers employed the oil is floating on the water. The result is there were suspicious, says Aliya Ma- a polyamide sheet. In practice, in industrial drasha, head of human resources at the conditions, this reaction is usually per- factory. That changed, though, when they formed on a porous support that is first Dhaka came to understand both the convenience soaked in piperazine before one side is ex- of the system, and the economy of no lon- A pasteurisation machine forhuman posed to TMC. The polyamide sheet then ger having to buy formula milk. breast milk forms on that side of the support. Dr The new machine is also a hit with the Zhang’sinsightwasto see thatthis arrange- OR the feeding of babies, everyone factory’s management. Expressing their ment might be modified to be the type of Fagreesthat“breastisbest”. Itisnot, how- milk at the beginning of a shift means two-chemical system that Turing de- ever, always convenient. Textile workers in women with babies suffer less discomfort scribed in his paper—and that ifit could be, Bangladesh, who are mostly women, are duringthe day, and so are more productive. the resulting patterns would act as surface- entitled to four months’ maternity leave. Absenteeism among mothers has also area-increasing bumps. Once thisisover, theyoften end up parking dropped, from five days a month to one. For a system to form Turing patterns, their children with relatives when they are The biggest benefit, though, according to two chemicals must diffuse at different at work. Those with refrigerators at home Ahasan Kabir Khan, the factory’s owner, is rates through the medium in which the re- can use breast pumps to express milk be- the retention of skilled staff who might action is taking place. The rates cannot, fore they go on shift, and leave it behind to otherwise leave to nurse their children. however, be too different. The ideal dis- chill. But fridges are expensive, and many Mr Khan is so impressed that he now crepancyisabouta factoroften. To achieve do not own one. Unchilled milk goes off wantsto putpasteurisation machinesin all this, Dr Zhang added polyvinyl alcohol to within a couple of hours so the inevitable his factories. Otherfactory owners, too, are the piperazine solution, to make it more outcome for fridgeless mothers and their asking for the machines. Dr Rasheed and viscous and slow piperazine’s diffusion. babies is the use ofinfant formula. Ms Langille-Collins are therefore develop- The upshot was the creation of polya- A chance meeting in a coffee shop in ing a commercial version of the machine, mide sheets full of either tiny, hollow bub- Dhaka may, though, have helped with this in collaboration with 10xBeta, a firm in bles or interconnecting tubes, depending problem. It was between Sabrina Rasheed New York. If their patent application is ap- on the concentration of polyvinyl alcohol (pictured above, right), a child-nutrition ex- proved, they plan to lease the devices to used. These are just the sorts of surface- pert at the International Centre for Diar- firms all over Bangladesh and then, subse- area-increasing features that Dr Zhang had rhoeal Disease Research in Bangladesh, quently, to people in other poor countries hoped for. And they did the job. The best and three Canadian students. Two, Scott all around the world. 7 78 Science and technology The Economist May 5th 2018

Policing modern slavery complaining ofbackpain, forexample. But Dr Hovy cautions against deducing from Traffic jammers software alone who is a victim of traffick- ing. He has accompanied police on opera- tions to rescue people his program has flagged up, but who have convincingly ar- gued that they are working voluntarily in conditions which may be tough but are still better than those backhome. Software is able to detect signs ofhuman trafficking In the end, like any other branch of ODERN slavery comes in many rings in California and Texas. His program commerce, legal or illegal, modern slavery Mforms. The outright sale of human hunts for signs, such as word choice, punc- is about making profits. And those profits beings as possessions is rare. But forced tuation and emoji, that suggest a single have to be deposited somewhere. This manual labour and sexual exploitation, of- hand is behind apparently unrelated on- gives investigators another way in. Banks ten in a foreign country,by means of fraud, line sexads—and thus that organised crime in some countries face steep fines if they coercion or the threat of violence, are not. is at work. And it can linkbitcoin payments do not screen transactions for signs of hu- Such cases are often, however, hard to de- made for such ads to the ads themselves. man trafficking. For this purpose, some tect. Victims are understandably reluctant His plan is to release the program as a free banks use software originally developed to talk. And the labour market also in- download later this year. A subsequent to detect money-laundering. Algorithms cludes people willingly and legally per- version will detect tiny variations in the flag up dodgy-looking transactions. These forming workthat is not always clearly dif- pixel-quality of pictures, to identify those are used by human analysts to generate ferent from that ofthe enslaved. taken with the same camera. “suspicious-activity reports”. The number The murky world of modern slaves is, of such reports sent by banks to America’s though, beginning to yield to high-tech Joining the dots Treasury is growing, says Hector Colón, a policing methods. In South-East Asia, for Nor is Dr McCoy’s program the only soft- trafficking investigator at Homeland Secu- instance, a particular scourge is fishing ware being employed to counter sex-traf- rity Investigations, a branch of the coun- boatscrewed byforced labour. Crewmem- ficking operations in America. Since June try’s Department ofHomeland Security. bers are unable to escape because these 2017 an unnamed federal agency has used The fingerprints of possible trafficking vessels never dock. Instead, they offload something similar, developed at Carnegie activity are many and various. Payments their catches and take on supplies at sea. Mellon University in Pittsburgh by a re- for repeatedly refuelling a vehicle at night Dornnapha Sukkree, co-founderofa chari- searcher called Eduard Hovy. Like Dr Mc- might mean forced labour is being trans- ty in Bangkok, called MAST, hopes to stop Coy’s, this program looks for connections ported under the cover of darkness. En- this by developing software that analyses between the words and images used in dif- slaved prostitutes are typically fed fast data from transponders fitted to fishing ferent sex ads. But it can, Dr Hovy says, also food, not“a $30 curry”, says Peter Warrack, boats. These would track vessels’ move- draw in data from other sources. It might, a Canadian expert on the screening soft- ments via satellite. Boats that failedto dock for example, link a tweet about loud ware. Weekly condom purchases add to from time to time would thus be obvious. screams at night in a particular building the suspicion. Charges for exorbitant cock- Ten fishing boats are assisting Ms Suk- with banter on an online “John board” dis- tails may be disguised payments for sex, kree in her study. If it is successful, she cussing the sudden unavailability of a for- especially if the bar also buys advertising hopes to persuade Thailand’s fishery au- eign woman last seen badly bruised. on escort websites. Roughly one in 20 re- thorities to require all vessels above a cer- Future versions of such software could ports of suspicious transactions sent by tain size to be fitted with transponders. seek to pull together disparate types of in- banks to Canada’s finance department Many countries do this already, though formation in other areas of modern slav- mention human trafficking, and half of with the intention of regulating fishing ery—the frequency of visits to health clin- those correctly identify the crime, Mr War- rather than protecting crews. Illegal fishers ics for the poor by strawberry pickers racksays. do sometimes switch their transponders Traffickers are aware ofwhat is going on off, of course, in order to “disappear”. But and do their best to outsmart the algo- that very act raises suspicions. rithms; one tell that is easily avoided is the Much human trafficking, as the trans- payment into a single account of receipts porting of modern slaves is known, relies from many different places. But the au- on trickeryknown ascontractsubstitution. thorities are also looking for new things to Recruiters lure people abroad with a lucra- try. According to Daniel Thelesklaf, the tive contract that is later reworded, some- head of Liechtenstein’s Financial Intelli- times in a language the individual does not gence Unit, government organisations are understand. Luis CdeBaca, who once ran already considering the screening of com- the American State Department’s anti-hu- munications sent through messaging apps man-trafficking operation and is now a fel- for hints of human trafficking. These can low at the Open Society Foundations, a sometimes be intercepted if sent via a pro-democracy organisation, hopes to pre- Wi-Fi network. Mr Thelesklaf reckons this vent this bait-and-switching using a type has “huge potential”. of distributed database called a block- That step, though, has huge potential chain. A government might issue work forcontroversy, too. It is one thing to scruti- visas only when signed contracts are con- nise sexads. Itisquite anotherto start traw- firmed by the blockchain to match those ling on spec through messages sent mostly originally given to potential migrants. by innocent parties. That sounds Orwell- Software can also identify pimps. Da- ian. Which is ironic, for the message of mon McCoy of New York University has “1984” was that in a society where surveil- developed a program that has helped po- lance is ubiquitous, everybody who is not lice unearth five big suspected prostitution Victim of a modern press gang one ofthe surveyors is, in fact, a slave. 7 Books and arts The Economist May 5th 2018 79

Also in this section 81 A nuclear near-miss 81 America and the Chinese civil war 82 A mega-auction in New York 82 Sergio de la Pava’s new novel

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Reconsidering Marx A second reason is the power ofhis per- sonality. Marx was in many ways an awful Second time, farce human being. He spent his life sponging off Friedrich Engels. He was such an invet- erate racist, includingabout his own group, the Jews, that even in the 1910s, when toler- ance for such prejudices was higher, the editors of his letters felt obliged to censor them. He got his maid pregnant and dis- Two hundred years afterhis birth Karl Marxremains surprisingly relevant patched the child to fosterparents. Mikhail GOOD subtitle for a biography of Karl World to Win: The Life and Works of Karl Bakunin described him as “ambitious and AMarx would be “a study in failure”. Marx”), to Communist Manifesto-slim vain, quarrelsome, intolerant and absolu- Marx claimed that the point ofphilosophy pamphlets (a second edition of Peter Sing- te…vengeful to the point ofmadness”. was not just to understand the world but to er’s “Marx: A VeryShort Introduction”). But combine egomania with genius improve it. Yet his philosophy changed it None of these bicentennial books is and you have a formidable force. He be- largely for the worst: the 40% of humanity outstanding. The best short introduction is lieved absolutely that he was right; that he who lived underMarxist regimes formuch still Isaiah Berlin’s “Karl Marx”, which was had discovered a key to history that had of the 20th century endured famines, gu- published in 1939. But the sheer volume of eluded earlierphilosophers. He insisted on lags and party dictatorships. Marx thought commentary is evidence of something im- promoting his beliefs whatever obstacles his new dialectical science would allow portant. Why does the world remain fixat- fate (or the authorities) put in his way. His him to predict the future as well as under- ed on the ideas of a man who helped to notion ofhappiness was “to fight”; his con- stand the present. Yet he failed to antici- produce so much suffering? cept of misery was “to submit”, a trait he pate two of the biggest developments of shared with Friedrich Nietzsche. the 20th century—the rise of fascism and The point of madness The third reason is a paradox: the very the welfare state—and wrongly believed The obvious reason is the sheer power of failure of his ideas to change the world for communism would take root in the most those ideas. Marx may not have been the the better is ensuring them a new lease of advanced economies. Today’s only suc- scientist that he thought he was. But he life. After Marx’s death in 1883 his follow- cessful self-styled Marxist regime is an en- was a brilliant thinker: he developed a the- ers—particularly Engels—worked hard to thusiastic practitionerofcapitalism (or“so- ory ofsociety driven forward by economic turn his theories into a closed system. The cialism with Chinese characteristics”). forces—not just by the means of produc- pursuitofpurityinvolved viciousfactional Yet for all his oversights, Marx remains tion but by the relationship between own- fights as “real” Marxists drove out rene- a monumental figure. At the 200th anni- ers and workers—and destined to pass gades, revisionists and heretics. It eventu- versaryofhisbirth, which fallson May 5th, through certain developmental stages. He ally led to the monstrosity of Marxism-Le- interest in him is as lively as ever. Jean- was also a brilliant writer. Who can forget ninism, with its pretensions to infallibility Claude Juncker, the president of the Euro- his observation that history repeats itself, (“scientific ”), its delight in obfus- pean Commission, is visiting Trier, Marx’s “the first time as tragedy, the second as cation (“dialectical materialism”) and its birthplace, where a statue of Marx do- farce”? His ideas were as much religious as cult of personality (those giant statues of nated by the Chinese government will be scientific—you might even call them reli- Marx and Lenin). unveiled. The British Library, where he did gion repackaged fora secular age. He was a The collapse ofthis petrified orthodoxy the research for“Das Kapital”, is putting on latter-day prophet describing the march of has revealed that Marx was a much more a series of exhibitions and talks. And pub- God on Earth. The fall from grace isembod- interesting man than his interpreters have lishers are producing a cascade of books ied in ; man is redeemed as the implied. His grand certainties were a re- on his life and thought, from “Das Kapital”- proletariat rises up against its exploiters sponse to grand doubts. His sweeping the- sized doorstops (Sven-Eric Liedman’s “A and creates a communist utopia. ories were the result of endless reversals. 1 80 Books and arts The Economist May 5th 2018

2 Toward the end of his life he questioned ness in a prelude to extracting monopoly too far. Marx’s errors far outnumbered his many of his central convictions. He wor- rents. Again this seems to be a reasonable insights. His insistence that capitalism ried that he might have been wrong about description of the commercial world that drives workers’ living standards to subsis- the tendency of the rate of profit to fall. He is being shaped by globalisation and the tence level is absurd. The genius of capital- puzzled over the fact that, far from immis- internet. The world’s biggest companies ism is that it relentlessly reduces the price erating the poor, Victorian England was are not only getting bigger in absolute of regular consumer items: today’s work- providing them with growing prosperity. terms but are also turning huge numbers ers have easy access to goods once consid- The chief reason for the continuing in- of smaller companies into mere appen- ered the luxuries of monarchs. The World terest in Marx, however, is that his ideas are dages. New-economy behemoths are exer- Bank calculates that the number of people more relevant than they have been for de- cising a market dominance not seen since in “extreme poverty” has declined from cades. The post-war consensus that shifted America’s robber barons. Facebook and 1.85bn in 1990 to 767m in 2013, a figure that power from capital to labour and pro- Google suck up two-thirds of America’s puts the regrettable stagnation of living duced a “great compression” in living stan- online ad revenues. Amazon controls standards for Western workers in perspec- dards is fading. Globalisation and the rise more than 40% of the country’s booming tive. Marx’s vision of a post-capitalist fu- of a virtual economy are producing a ver- online-shopping market. In some coun- ture is both banal and dangerous: banal sion of capitalism that once more seems to tries Google processes over 90% of web because it presents a picture of people es- be out of control. The backwards flow of searches. Not only is the medium the mes- sentially loafing about (hunting in the power from labour to capital is finally be- sage but the platform is also the market. morning, fishing in the afternoon, raising ginning to produce a popular—and often In Marx’s view capitalism yielded an cattle in the evening and criticising after populist—reaction. No wonder the most army ofcasual labourers who existed from dinner); dangerous because it provides a li- successful economics bookofrecent years, cence forthe self-anointed vanguard to im- Thomas Piketty’s “Capital in the Twenty- pose its vision on the masses. First Century”, echoes the title of Marx’s Marx’s greatest failure, however, was most important work and his preoccupa- that he underestimated the power of re- tion with inequality. form—the ability ofpeople to solve the evi- dent problems of capitalism through ratio- The prophet of Davos nal discussion and compromise. He Marx argued that capitalism is in essence a believed history was a chariot thundering system of rent-seeking: rather than creat- to a predetermined end and that the best ing wealth from nothing, as they like to that the charioteers can do is hang on. Lib- imagine, capitalists are in the business of eral reformers, including his near contem- expropriating the wealth of others. Marx porary William , have repeat- was wrong about capitalism in the raw: edly proved him wrong. They have not great entrepreneurs do amass fortunes by only saved capitalism from itself by intro- dreamingup new products ornew ways of ducing far-reaching reforms but have done organising production. But he had a point so through the power of persuasion. The aboutcapitalism in itsbureaucraticform. A “superstructure” has triumphed over the depressing number of today’s bosses are “base”, “parliamentary cretinism” over the corporate bureaucrats rather than wealth- “dictatorship ofthe proletariat”. creators, who use convenient formulae to make sure their salaries go ever upwards. Nothing but their chains They work hand in glove with a growing The great theme ofhistory in the advanced crowd of other rent-seekers, such as man- world since Marx’s death has been reform agement consultants (who dream up new rather than revolution. Enlightened politi- excuses for rent-seeking), professional cians extended the franchise so working- board members (who get where they are class people had a stake in the political sys- by not rocking the boat) and retired politi- tem. They renewed the regulatory system cians (who spend their twilight years one job to the other. During the long post- so that great economic concentrations sponging offfirms they once regulated). war boom this seemed like a nonsense. Far were broken up or regulated. They re- Capitalism, Marx maintained, is by its from having nothing to lose but their formed economic management so eco- nature a global system: “It must nestle chains, the workers of the world—at least nomic cycles could be smoothed and pan- everywhere, settle everywhere, establish the rich world—had secure jobs, houses in ics contained. The only countries where connections everywhere.” That is as true the suburbs and a cornucopia of posses- Marx’s ideas took hold were backward au- todayasitwasin the Victorian era. The two sions. Marxists such as Herbert Marcuse tocracies such as Russia and China. most striking developments of the past 30 were forced to denounce capitalism on the Today’s great question is whether those years are the progressive dismantling of grounds that it produced too much wealth achievements can be repeated. The back- barriers to the free movement of the fac- forthe workers rather than too little. lash against capitalism is mounting—if tors of production—goods, capital and to Yet once again Marx’s argument is gain- more often in the form of populist anger some extent people—and the rise of the ing urgency. The gig economy is assem- than of proletarian solidarity. So far liberal emerging world. Global firms plant their bling a reserve force of atomised labourers reformers are proving sadly inferior to flags wherever it is most convenient. Bor- who wait to be summoned, via electronic their predecessors in terms of both their derless CEOs shuttle from one country to foremen, to deliver people’s food, clean grasp ofthe crisis and their ability to gener- another in pursuit of efficiencies. The their houses or act as their chauffeurs. In ate solutions. They should use the 200th World Economic Forum’s annual jambo- Britain house prices are so high that people anniversary of Marx’s birth to reacquaint ree in Davos, Switzerland, might well be re- under 45 have little hope of buying them. themselves with the great man—not only titled “Marx was right”. Most American workers say they have just to understand the serious faults that he He thought capitalism had a tendency a few hundred dollars in the bank. Marx’s brilliantly identified in the system, but to towards monopoly, as successful capital- proletariat is being reborn as the precariat. remind themselves of the disaster that ists drive their weaker rivals out of busi- Still, the rehabilitation ought not to go awaits ifthey fail to confront them. 7 The Economist May 5th 2018 Books and arts 81

Mutually assured destruction lomat, is both a compelling portrait of a re- markable soldier and statesman, and an Cockroaches and instructive lesson in the limitsofAmerican power, even at its zenith. scorpions As Allied victory curdled into cold war, this was a pivotal if little-known episode. The question of“Who lost China?” fed Mc- Carthyite conspiracy theories, which 1983: Reagan, Andropov and a World on smeared even towering war heroes like the Brink. By Taylor Downing. Da Capo Press; Marshall. Yet, as Mr Kurtz-Phelan makes 400 pages; $28. Little, Brown; £20 clear, his embassy started in late 1945 in a HE Cuban Missile Crisisof1962 waster- mood of great optimism, founded largely Trifying, but at least both sides knew the on veneration of the man himself. It is 200 world was on the brink of catastrophe. As pages into the story before any of its char- Taylor Downing’s snappily told account acters voice anythingotherthan awe for its lays bare, what arguably made the near- hero. Harry Truman called him the “great- miss of November 9th 1983 worse was that est military man” ever. the West had almost no idea the Soviet Even his main Chinese interlocutors re- leadership believed war was imminent. spected him. They were Chiang Kai-shek, East-West relations had been in dire China’s prickly and reserved leader (that straits for years. Ronald Reagan’s soaring page-200 critic) and ZhouEnlai, the urbane anti-communist rhetoric, terming the Sovi- but two-faced Communist representative. et bloc an “evil empire”, inspired freedom- The Communists and Chiang’s National- lovers on both sides of the Iron Curtain, The end of the world as they knew it ists had formed a fractious front against the but panicked the Politburo gerontocracy. Japanese occupation. At first, Marshall’s ef- So too did his idealistic belief that missile- eral secretary, Yuri Andropov, realised forts to maintain that unity and prepare for defence (“Star Wars”) might keep the peace nothing was going to happen. elections and multiparty democracy went better than MAD (mutually assured de- Mr Downing’s book gives abundant well. He even secured Zhou’s agreement to struction). A hi-tech arms race spelled historical background, perhaps too much aborted plans for an “elementary school” doom forthe Soviet Union. for readers familiar with the period. A use- for Communist soldiers, to train them As communication had shrivelled, mis- ful later chapter depicts how realisation of for a merger with American-supplied understandings mushroomed. When the the Soviet panic unfolded in the West, first Nationalist forces. As much as losing the Soviets shot down a Korean airliner that in classified assessments and eventually, country to the Communists, America may had veered drastically off course into their long after the event, in the public domain— have wasted the chance offered by this in- airspace, nobody in the American admin- not least thanks to Mr Downing’s televi- cipient detente for a different relationship istration could countenance the idea that sion documentary, screened in 2008. He with “Red China”. the tragedy might be (as it was) a blunder, wisely avoids questions of the morality of The book hints at reasons for the grim not an atrocity. The Soviets were certain nukes. Instead he focuseson the shortcom- outcome. One is that, for once, Marshall the plane was on a spying mission. ings that made accidental nuclear war far was not up to the job. He made blunders. NATO’s “Able Archer” exercise was also too plausible. 7 In May1946 he lent Chiang his own aircraft wildly misinterpreted. The Kremlin was to fly from Nanjing to north-eastern China convinced it masked war preparations. A for four days, to stop Nationalist troops routine change of NATO codes made the America and the Chinese civil war fighting the Communists. Chiang stayed 11 Soviets assume a nuclear first strike was days, leading the offensive himself. Com- imminent. In fact the KGB had an agent in Feet of clay munist propaganda saw proof of Ameri- the heart of NATO, Rainer Rupp. In re- ca’s duplicity and imperialism. sponse to an emergency request, he as- But Marshall’s mission, probably im- sured Moscow, with some bemusement, possible anyway, also exhibited three ha- that everything in the alliance’s civilian bitual flaws of American foreign policy. bureaucracy was ticking along as normal. First, he was not immune to “the great The China Mission: George Marshall’s But the spymasters discounted the infor- American faith in the curative powerof his Unfinished War, 1945-1947. By Daniel mation, while “toadying KGB officers on country’s form ofgovernment and persua- Kurtz-Phelan. W.W. Norton & Company; 496 the ground…sent backalarmist reports.” If sive power of his country’s example”. In pages; $28.95 the Soviet misreading of NATO intentions China, this meant an inability to grasp its was a colossal intelligence failure, so was EORGE MARSHALL’S name is immor- sheer complexity and the aims of the two the inabilityofWestern intelligence to real- Gtal, for ever attached to the visionary big parties. Second—and as later wars in ise just how jittery and ill-informed the plan forrebuilding Europe that he oversaw Korea, Vietnam, Afghanistan and Iraq have Communist leadership had become. as America’s secretary of state in 1947-49. attested—America has been slow to accept As the Soviet Union put its nuclear By then, as chiefofstaffofthe army, he had “the near-impossibility of resolving some- forces on high alert, Lieutenant-General already been, in ’s esti- body else’s civil war”. Leonard Perroots, the American air-force mation, the true “organiser of victory” in The third lesson concerns the difficulty intelligence chief in Europe, reacted with the second world war. A new book re- of achieving consensus in America itself. puzzlement. A quid pro quo might have counts what he did between winning the Marshall had to contend with a “very large triggered an all-out nuclear war, which warand securingthe peace: he spenta year group…opposed to practically anything would, as Mr Downing puts it, leave only in China, trying to save it. outside ofthe United States”. The idealistic “cockroachesand scorpions” alive. Luckily, He failed, leaving behind a bloody civil ambition behind his mission had tri- Perroots did nothing. After a sleepless war followed by communist dictatorship. umphed over the isolationists. Today the night, the Kremlin leadership, huddled in a “The China Mission”, an account ofthe de- loss of that idealism seems as poignant as clinic outside Moscow with the ailing gen- bacle by Daniel Kurtz-Phelan, a former dip- Marshall’s failure. 7 82 Books and arts The Economist May 5th 2018

The Rockefeller sale French Impressionist paintings, Meissen Maximalist fiction porcelain from Germany and beautiful Manet, Monet, American landscapes by Edward Hopper, Charles Sheeler, Thomas Hart Benton and Tick, tock money Georgia O’Keeffe. There are Monets and Manets, a large collection of antique wooden decoybirdsand 67 painted dinner services, none of which goes in the dish- Lost Empress. By Sergio de la Pava. The Rockefellers’ treasures are set to be washer. Now it will all be dispersed. Pantheon; 640 pages; $29.95. To be published dispersed around the world To land the sale, Christie’s fended off in Britain in August by MacLehose Press; £20 FTER the death in1967 ofAlice B. Toklas, competition from Sotheby’s and provided Alongtime partner of Picasso’s patron the Rockefellers with a huge guarantee, en- N A one-way bus ride to Rikers Gertrude Stein, David Rockefeller made suring the estate is paid promptly. The auc- OIsland, New YorkCity’s infamous one of the wisest moves of his art-collect- tion house spent six months marketing the prison, Nuno DeAngeles’s thoughts turn ing career. The art that Stein had amassed collection abroad, launching a roadshow to René Descartes, whose “mind-body in Paris before the second world war— in Hong Kong in November, then taking dualism” is “the only out he sees right some ofthe best paintings Cézanne and Pi- the Matisse to Beijing along with a Monet now…There’s two ofhim and only one’s casso ever produced—has long been con- landscape and a rare blue-and-white Chi- going in.” Descartes and Rikers are sidered one of the finest collections of the nese porcelain “dragon” bowl. among the unlikely conjunctions in 20th century. Stein’sheirswanted itto go to Estimated at $100,000 to $150,000, that Sergio de la Pava’s expansive new novel, a museum, but Rockefeller, who by then is bound to fetch much more. Chinese col- “Lost Empress”, a 600-page melting pot had been a trustee ofthe Museum ofMod- lectors are keen on buying back their own ofcriminal-justice policy, American ern Art (MoMA) for two decades, knew it art as well as on acquiring Western trophy football and metaphysics. was beyond any institution’s means. works (three years ago a Shanghai taxi When her ailing father divides up his He put together a syndicate, which driver turned billionaire paid $170m for a football empire, Nina Gill inherits the bought the collection for $6.8m (around Modigliani nude). In accordance with the underdog team, Paterson Pork, while the $50m today). The group included his terms of Rockefeller’s will, all the proceeds Dallas Cowboys are left to her brother. brother Nelson, governor of New York; will be given to charity. 7 Nina vows to usurp the NFL with a rival William Paley, chairman of Columbia football league. She also has her eye on a Broadcasting System; and John Hay “Jock” different prize: a long-lost painting by Whitney, publisher ofthe New York Herald Salvador Dalí, hidden somewhere be- Tribune. Each was to choose one painting hind the barbed wire ofRikers. Nuno, a forhis personal collection, the rest going to brainy criminal, aims to retrieve it forher museums. They met on a December after- before time runs out. noon in MoMA’s old Whitney wing, draw- Literally. As well as a searing critique inglots from a felt hat to decide the orderin ofAmerican society, “LostEmpress” is a which the selections would be made. countdown to the apocalypse, an im- Rockefellerdrew last, but the slip he picked pending doom that rests on parallel was marked “1”. worlds, a football pass and a biblical Going first, he chose the picture that flood. The bookoscillates between everyone but Nelson coveted, a rare early hilarious surrealism and shocking reali- Picasso portrait painted in 1905 when the ty. As in his first novel, “ANaked Singu- artist was 24. Rockefeller and his wife, Peg- larity”, Mr de la Pava (a public defender) gy, hung “Young Girl with a Flower Basket” deploys his expertise in a maximalist (pictured) in the library oftheir Manhattan form reminiscent ofThomas Pynchon home, where it joined Matisse’s “Reclining and David Foster Wallace. Legal tran- Nude with Magnolias”. The library was re- scripts jostle with diagrams of“Time” decorated to match. and the prison’s “Inmate Rule Book”. Both paintings are among 893 lots from Besides Nina’s and Nuno’s, other the Rockefeller collection to be auctioned stories unfold. A 911-call operator reaches by Christie’s in New York over three days, breaking point. An Italian pastor at- starting on May 8th (671 extra lots will be tempts to bring God to the incarcerated. sold online). The sale is expected to be the Cancerous cells multiply in a young biggest ever by a single owner, set to sur- man’s brain. Occasionally the tone of pass the $484m raised by the Yves Saint the hyperintelligent narrator blurs the Laurent auction in Paris in 2009. The Picas- distinctions between the characters. But so, from the cheery rose period of 1904-06 Mr de la Pava’s psychological insights that followed his more sombre blue per- compensate for that glitch. iod, is estimated to fetch $100m. No rose- With messianic fervour, he conjures period Picasso has come to market since up marginalised voices and the horrors “Boy with a Pipe” went for $104m in 2004. ofmass incarceration, against a backbeat The Matisse should raise $70m. ofsporting thrills and that apocalyptic The auction also includes art from Afri- crescendo. Describing a court motion of ca, India and China, a legacy of Rockefel- Nuno’s, the narrator enjoins readers to ler’s travels as head of Chase Manhattan “thinkabout a literary workundertaken Bank and friend to successive CIA bosses in the literal pursuit offreedom, which is and Henry Kissinger. But the bulk of it rep- to say life”. They will not have to think resents the taste of a rich, cultured Ameri- forlong: they are reading one. can of his generation: fine English silver, Luck of the draw Courses 83

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http://www.lemesnildo.fr/ Contact: Guillaume +447532003972 [email protected] The Economist May 5th 2018 84 Economic and financial indicators The Economist May 5th 2018

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2018† latest latest 2018† rate, % months, $bn 2018† 2018† bonds, latest May 2nd year ago United States +2.9 Q1 +2.3 +2.8 +4.3 Mar +2.4 Mar +2.4 4.1 Mar -466.2 Q4 -2.7 -4.6 2.94 - - China +6.8 Q1 +5.7 +6.6 +6.0 Mar +2.1 Mar +2.3 3.9 Q1§ +164.9 Q4 +1.3 -3.5 3.13§§ 6.36 6.90 Japan +2.0 Q4 +1.6 +1.5 +2.2 Mar +1.1 Mar +1.0 2.5 Mar +194.1 Feb +3.7 -4.9 0.03 110 112 Britain +1.2 Q1 +0.4 +1.5 +2.2 Feb +2.5 Mar +2.5 4.2 Jan†† -106.7 Q4 -3.9 -2.7 1.49 0.74 0.77 Canada +2.9 Q4 +1.7 +2.2 +4.5 Feb +2.3 Mar +2.0 5.8 Mar -49.4 Q4 -2.6 -2.0 2.36 1.29 1.37 Euro area +2.5 Q1 +1.7 +2.4 +2.9 Feb +1.3 Mar +1.5 8.5 Mar +469.5 Feb +3.1 -0.9 0.58 0.84 0.92 Austria +2.9 Q4 +1.6 +2.7 +5.1 Feb +1.9 Mar +2.0 5.0 Mar +7.7 Q4 +2.4 -0.6 0.60 0.84 0.92 Belgium +1.6 Q1 +1.6 +1.9 +0.1 Feb +1.5 Apr +1.8 6.4 Mar -0.8 Dec -0.2 -1.1 0.82 0.84 0.92 France +2.1 Q1 +1.0 +2.2 +4.0 Feb +1.6 Apr +1.5 8.8 Mar -14.4 Feb -1.0 -2.4 0.79 0.84 0.92 Germany +2.9 Q4 +2.4 +2.5 +2.4 Feb +1.6 Apr +1.6 3.4 Mar‡ +310.4 Feb +7.8 +1.0 0.58 0.84 0.92 Greece +1.8 Q4 +0.4 +1.6 -1.9 Feb -0.2 Mar +0.7 20.6 Jan -2.2 Feb -1.2 +0.2 3.92 0.84 0.92 Italy +1.4 Q1 +1.2 +1.5 +2.5 Feb +0.5 Apr +1.2 11.0 Mar +53.2 Feb +2.7 -2.0 1.79 0.84 0.92 Netherlands +2.9 Q4 +3.1 +2.8 +4.1 Feb +1.0 Mar +1.5 4.9 Mar +84.9 Q4 +9.5 +0.7 0.71 0.84 0.92 Spain +2.9 Q1 +2.8 +2.8 +3.1 Feb +1.1 Apr +1.4 16.1 Mar +25.9 Feb +1.7 -2.6 1.21 0.84 0.92 Czech Republic +5.5 Q4 +3.2 +3.3 +2.7 Feb +1.7 Mar +2.2 2.2 Mar‡ +1.9 Q4 +0.7 +0.8 1.75 21.4 24.7 Denmark +1.3 Q4 +3.7 +1.9 +0.5 Feb +0.5 Mar +1.3 4.1 Mar +24.3 Feb +7.7 -0.7 0.60 6.23 6.82 Norway +1.4 Q4 -1.1 +1.9 -1.3 Feb +2.2 Mar +2.1 3.9 Feb‡‡ +20.2 Q4 +6.3 +4.9 1.94 8.11 8.60 Poland +4.4 Q4 +3.6 +4.2 +1.9 Mar +1.6 Apr +1.9 6.6 Mar§ +0.3 Feb -0.2 -2.2 3.17 3.58 3.86 Russia +0.9 Q4 na +1.9 +0.9 Mar +2.4 Mar +3.1 5.0 Mar§ +41.7 Q1 +2.9 -0.9 8.13 64.0 57.0 Sweden +3.3 Q4 +3.5 +2.7 +6.7 Feb +1.9 Mar +1.8 6.5 Mar§ +17.1 Q4 +4.2 +0.6 0.72 8.93 8.83 Switzerland +1.9 Q4 +2.4 +2.1 +8.7 Q4 +0.8 Mar +0.6 2.9 Mar +66.6 Q4 +8.6 +0.8 0.10 1.00 0.99 Turkey +7.3 Q4 na +4.2 +9.9 Feb +10.2 Mar +9.9 10.8 Jan§ -53.3 Feb -5.5 -2.8 12.91 4.18 3.53 Australia +2.4 Q4 +1.5 +2.8 +1.6 Q4 +1.9 Q1 +2.1 5.5 Mar -32.3 Q4 -2.2 -1.2 2.76 1.33 1.33 Hong Kong +3.4 Q4 +3.3 +2.9 +0.7 Q4 +2.6 Mar +2.5 2.9 Mar‡‡ +14.3 Q4 +4.0 +0.8 2.20 7.85 7.78 India +7.2 Q4 +6.6 +7.2 +7.1 Feb +4.3 Mar +4.8 5.9 Apr -39.1 Q4 -2.1 -3.5 7.73 66.7 64.2 Indonesia +5.2 Q4 na +5.4 -3.5 Feb +3.4 Apr +3.7 5.5 Q3§ -17.3 Q4 -2.0 -2.5 6.80 13,948 13,312 Malaysia +5.9 Q4 na +5.5 +3.0 Feb +1.3 Mar +2.9 3.3 Feb§ +9.4 Q4 +2.8 -2.8 4.16 3.93 4.33 Pakistan +5.4 2018** na +5.4 +5.5 Feb +3.7 Apr +5.7 5.9 2015 -16.6 Q1 -5.0 -5.5 8.50††† 116 105 Philippines +6.5 Q4 +6.1 +6.1 +24.8 Feb +4.3 Mar +4.5 5.3 Q1§ -2.5 Dec -0.2 -1.9 6.18 51.9 50.0 Singapore +4.3 Q1 +1.4 +3.0 +5.9 Mar +0.2 Mar +0.9 2.0 Q1 +61.0 Q4 +21.2 -0.7 2.63 1.34 1.40 South Korea +2.9 Q1 +4.4 +2.9 -4.3 Mar +1.6 Apr +1.8 4.5 Mar§ +71.7 Feb +5.0 +0.7 2.75 1,076 1,131 Taiwan +3.0 Q1 +1.3 +2.5 +3.1 Mar +1.6 Mar +1.3 3.7 Mar +84.1 Q4 +14.2 -0.8 1.03 29.8 30.0 Thailand +4.0 Q4 +1.8 +4.0 +2.6 Mar +1.1 Apr +1.1 1.2 Mar§ +50.2 Q1 +10.4 -2.3 2.55 31.7 34.5 Argentina +3.9 Q4 +3.9 +2.9 +6.1 Mar +25.6 Mar +21.1 7.2 Q4§ -30.8 Q4 -5.0 -5.5 4.19 20.9 15.3 Brazil +2.1 Q4 +0.2 +2.7 +2.8 Feb +2.7 Mar +3.4 13.1 Mar§ -8.3 Mar -1.2 -7.0 7.89 3.55 3.16 Chile +3.3 Q4 +2.6 +3.2 +8.7 Mar +1.8 Mar +2.3 6.9 Mar§‡‡ -4.1 Q4 -0.6 -2.1 4.45 619 667 Colombia +1.6 Q4 +1.1 +2.5 +1.5 Feb +3.1 Mar +3.3 9.4 Mar§ -10.4 Q4 -2.9 -2.0 6.47 2,833 2,946 Mexico +1.2 Q1 +4.5 +2.1 +0.7 Feb +5.0 Mar +4.3 3.2 Mar -18.8 Q4 -1.8 -2.3 7.54 19.1 18.8 Peru +2.2 Q4 -1.3 +3.7 +0.3 Feb +0.5 Apr +1.5 7.0 Mar§ -2.7 Q4 -1.8 -3.5 na 3.26 3.25 Egypt nil Q4 na +5.1 +4.6 Feb +13.3 Mar +16.9 11.3 Q4§ -9.3 Q4 -4.0 -9.8 na 17.6 18.1 Israel +3.0 Q4 +4.1 +3.9 +6.5 Feb +0.2 Mar +0.9 3.6 Mar +10.5 Q4 +3.5 -2.4 1.85 3.63 3.61 Saudi Arabia -0.7 2017 na +1.0 na +2.8 Mar +4.4 6.0 Q4 +15.2 Q4 +3.7 -7.3 na 3.75 3.75 South Africa +1.5 Q4 +3.1 +1.9 +0.8 Feb +3.8 Mar +5.0 26.7 Q4§ -8.6 Q4 -2.7 -3.6 8.32 12.7 13.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist May 5th 2018 Economic and financial indicators 85

Markets % change on Greece Dec 29th 2017 GDP, % change on a year earlier Primary budget balance, % of GDP Index one in local in $ week 4 4 May 2nd currency terms + + United States (DJIA) 23,925.0 -0.7 -3.2 -3.2 0 0 China (SSEA) 3,226.9 -1.2 -6.8 -4.6 – – 4 4 Japan (Nikkei 225) 22,472.8 +1.2 -1.3 +1.1 FORECAST Britain (FTSE 100) 7,543.2 +2.2 -1.9 -1.4 8 8 Canada (S&P TSX) 15,627.9 +0.8 -3.6 -6.0 Euro area (FTSE Euro 100) 1,236.1 +2.0 +2.2 +1.7 12 12 2008 09 10 11 12 13 14 15 16 17 18 19 2008 09 10 11 12 13 14 15 16 17 Euro area (EURO STOXX 50) 3,553.8 +1.9 +1.4 +1.0 Austria (ATX) 3,475.8 +0.9 +1.6 +1.2 Unemployment rate, % Productivity*, 2010=100 Belgium (Bel 20) 3,920.9 +0.7 -1.4 -1.9 30 110 France (CAC 40) 5,529.2 +2.1 +4.1 +3.6 Greece 25 Greece Spain Germany (DAX)* 12,802.3 +3.1 -0.9 -1.3 Spain 105 20 Italy Portugal Greece (Athex Comp) 858.1 +3.9 +6.9 +6.5 Portugal 15 100 Italy (FTSE/MIB) 24,265.6 +2.0 +11.0 +10.6 10 Netherlands (AEX) 555.9 +0.7 +2.1 +1.6 Italy 95 5 Spain (IBEX 35) 10,088.9 +2.3 +0.4 nil 0 90 1,116.9 -0.4 +3.6 +3.0 Czech Republic (PX) 2008 09 10 11 12 13 14 15 16 17 2008 09 10 11 12 13 14 15 16 17 Denmark (OMXCB) 909.9 +4.0 -1.9 -2.3 Source: OECD *Real GDP per hour worked Hungary (BUX) 37,969.8 -0.2 -3.6 -5.2 Norway (OSEAX) 985.1 +3.5 +8.6 +9.5 Poland (WIG) 60,066.5 +1.4 -5.8 -8.5 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,136.6 -0.1 -1.5 -1.5 2005=100 % change on % change on Sweden (OMXS30) 1,591.0 +2.2 +0.9 -7.5 Dec 29th 2017 one one Switzerland (SMI) 8,896.3 +1.8 -5.2 -7.5 Index one in local in $ Apr 24th May 1st* month year Turkey (BIST) 104,725.7 -2.5 -9.2 -17.6 May 2nd week currency terms Dollar Index Australia (All Ord.) 6,136.7 +2.1 -0.5 -4.4 United States (S&P 500) 2,635.7 -0.1 -1.4 -1.4 All Items 154.9 157.1 +3.2 +10.1 Hong Kong (Hang Seng) 30,723.9 +1.3 +2.7 +2.3 United States (NAScomp) 7,100.9 +1.4 +2.9 +2.9 Food 157.4 163.3 +3.2 +7.3 India (BSE) 35,176.4 +2.0 +3.3 -1.1 China (SSEB, $ terms) 316.0 -1.3 -7.5 -7.5 Indonesia (JSX) 6,012.2 -1.1 -5.4 -8.0 Japan (Topix) 1,771.5 +0.2 -2.5 -0.2 Industrials Malaysia (KLSE) 1,852.0 nil +3.1 +6.0 Europe (FTSEurofirst 300) 1,519.4 +1.9 -0.7 -1.1 All 152.2 150.8 +3.1 +13.5 Pakistan (KSE) 45,196.4 -1.1 +11.7 +6.6 World, dev'd (MSCI) 2,076.7 nil -1.3 -1.3 Nfa† 142.7 143.1 +3.1 +3.5 Singapore (STI) 3,615.3 +1.3 +6.2 +6.2 Emerging markets (MSCI) 1,151.4 +1.0 -0.6 -0.6 Metals 156.3 154.1 +3.2 +18.0 South Korea (KOSPI) 2,505.6 +2.3 +1.5 +1.0 World, all (MSCI) 506.9 +0.1 -1.2 -1.2 Sterling Index Taiwan (TWI) 10,618.8 +0.6 -0.2 -0.2 World bonds (Citigroup) 949.0 -0.6 -0.1 -0.1 All items 201.7 210.2 +6.6 +4.7 Thailand (SET) 1,791.1 +0.7 +2.1 +4.9 EMBI+ (JPMorgan) 799.1 -1.0 -4.4 -4.4 Argentina (MERV) 29,614.0 -1.1 -1.5 -11.3 Hedge funds (HFRX) 1,263.5§ -0.2 -1.0 -1.0 Euro Index Brazil (BVSP) 84,547.1 -0.6 +10.7 +3.4 Volatility, US (VIX) 16.0 +17.8 +11.0 (levels) All items 157.7 163.0 +5.6 +0.1 Chile (IGPA) 28,648.7 +0.5 +2.4 +1.8 CDSs, Eur (iTRAXX)† 54.9 -2.6 +21.7 +21.2 Gold Colombia (IGBC) 12,427.2 +0.9 +8.3 +14.1 CDSs, N Am (CDX)† 61.3 -1.0 +24.9 +24.9 $ per oz 1,328.4 1,304.5 -1.9 +4.0 Mexico (IPC) 47,810.0 -0.5 -3.1 -0.9 Carbon trading (EU ETS) € 13.1 -3.2 +60.6 +60.0 West Texas Intermediate Peru (S&P/BVL)* 21,328.9 -0.1 +6.8 +6.0 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 67.7 67.3 +5.9 +41.1 Egypt (EGX 30) 18,173.2 +0.3 +21.0 +21.6 †Credit-default-swap spreads, basis points. §May 1st. Israel (TA-125) 1,333.7 +0.6 -2.2 -6.4 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 8,158.1 -0.9 +12.9 +12.9 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 58,450.4 +2.6 -1.8 -4.3 series, go to: Economist.com/indicators †Non-food agriculturals. 86 Obituary Michael Martin The Economist May 5th 2018

Too mindful, maybe. As Speaker, he went on being chummy with Labour MPs in the members’ tearoom. Some said he also indulged them in the House. He even intervened from the Chair himself in fa- vour of Labour government policy. This was not Speakerly behaviour. But on the other hand the MP he once rebuked forher “pearls ofwisdom” (more unSpeakerly be- haviour) was from the Labour side. And he insisted in 2003 that the House should de- bate an amendment critical of Tony Blair’s decision to go to war in Iraq. He had long known he would not make a minister. But he always felt, as he worked his way slow- ly upwards through various committees, that he could hold things fairly together. What faced him on the other side was snobbery and disrespect. That rolling Glas- wegian accent reminded southerners of pub brawls on Saturday nights. His posh diary secretary called him “Mr Martin”, not “Mr Speaker”. His private secretary, public school and Oxbridge, struck him as pompous. Both left. Because he was not too proud to askhisclerksforadvice during debates, critics said he was floundering in his job. The parliamentary sketchwriters, Order and disorder the worst of the mockers, called him “Gor- bals Mick”. That was brainless—he was from north of the Clyde, the Gorbals lay south. It also proved they were not fit to wipe the boots ofGorbals people. He defended Parliament just as robust- Lord Martin ofSpringburn, 156th Speakerofthe House ofCommons, died on ly. That was his job as Speaker, but it was April 29th, aged 72 also his undoing. In 2008 journalists dis- HE hardest times came well into the He soon dispensed with some of the covered that MPs had claimed from the Tnight. At late sittings in the House, MPs flummery. The stockings, buckled shoes Fees Office, which he controlled, large tended to get rowdy. That was when Mi- and knee breeches were swapped for dark sums for second homes, moat-cleaning, chael Martin felt most on his own. He got flannel trousers and Oxford shoes. His duck houses and the like. They demanded nervous about his job, which was to keep white hair framed his broad red face well full public disclosure of expenses, and re- them all in order, give them permission to enough without a wig. He originally reject- forms. He refused, wanting only to know speak, stop them from being long-winded, ed a coat-of-arms as a silly distraction, but who had leaked the data to the press. Un- and make them behave. Ithelped him then then enjoyed putting his own symbols on fortunately he had stretched the rules him- to think of the Commons as a great big it: a chanter forthe bagpipes he loved play- self, spending £1.7m on doing up Speaker’s machine that had to be maintained. As a ing, a 12-inch rule from his metal-cutting House and letting family members use his sheet-metal worker and an engineer, first days, and a fish to represent Glasgow and official air miles. All this, added to the rest for the North British Locomotive Com- one ofthe miraclesofStMungo. Forhe was ofit, led MPsto urge him to go. In May 2009 pany and then for Rolls-Royce, that was a also the first Catholic to be Speaker since he acceded. He was the first Speaker to be job he knew he was good at. Reformation times, when Thomas More, forced from office in 300 years. There had been Speakers from humble another saint, had done the job. His motto, backgrounds before. But he was the first to in Gaelic, was “I strive to be fair”. Not beaten yet have grown up in slums, the backcourts of That was the essence of his job, and it In leaving, he was as defiant as ever. His Anderston in north Glasgow, with a father was tricky. The Speaker could favour no speech lasted 34 seconds. He would have either raising hell from drinkor not there at party. But, like all Speakers, he was still a stayed, he said later, ifthe press had not at- all. He was the first to have worked in a fac- constituency MP. Since 1979 he had held a tacked his wife (who had run up £4,000 for tory, cutting metal with shears in the days solid Labour majority in Glasgow Spring- taxis) as a steel-smelter’s daughter. He left before lasers. And then, in 2000, the Com- burn. This was where he had first gone to to keep unity in the House, not because mons chose him to be one of the principal work at “the Loco” at 15, with very little “they” had beaten him. They had not. officers of the land. Neither the govern- schooling. As a long-time shop steward He picked up a peerage as he left, as ment nor the monarch could dismiss him. and organiser for the engineering union, Speakers do. He became Lord Martin of He had his own apartment and public re- he had won the seat with heftyunion help. Springburn. His old constituency, now ception rooms in the Palace of Westmin- His constituency was infested with heroin Glasgow North East, had prospered on his ster. And every morning when Parliament addiction, alcoholism, decrepit housing watch. The shuttered Wills cigarette fac- sat he would process to the chamber with (his chief concern) and, as the old plants tory in Dennistoun was now a high-tech his private chaplain, his secretary and the closed down, joblessness. He was mindful hub, and on the site of his sooty tenement Sergeant at Arms, while a trainbearer held that he had joined the Labour Party and in Anderston stood a five-star hotel. He re- up his blacksilkrobe. gone into politics to help working people. turned home as lord indeed. 7 The path to advocacy 2F^YM -TSL0TSLa1TSITSa3J\>TWP

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