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Kenya’s sham election

iRisk: Apple’s monster investment arm

Should you know what everyone earns? OCTOBER 28TH–NOVEMBER 3RD 2017 A tsar is born

100 years after the Russian revolution //*sharathcharged*// //*sharathcharged*// //*sharathcharged*//

ZENITH, THE FUTURE OF SWISS WATCHMAKING

DEFY I El Primero 21 1/100th of a second chronograph

www.zenith-watches.com //*sharathcharged*// Contents The Economist October 28th 2017 5

7 The world this week 32 Forecasting opioids Treatment effects 33 Licensing laws Leaders Locking up firefighters 9 Russia under Putin 34 Lexington A tsar is born Semper fidelis 10 Kenya’s flawed elections Democracy deferred The Americas 10 Japan’s constitution Abe’s next act 35 Mexico and the United States 12 E-commerce New fences, bad neighbours General Kelly His ill-judged There be giants 36 Bello tirade reflected America’s 14 The Bank of England Latin America’s deadly problematic love affair with its Grant me tighter policemen uniformed men: Lexington, policy...but not yet On the cover 37 Cable cars page 34 As the world marks the Subways in the sky centenary of the October Letters revolution, Russia is once 16 On offshore wealth, again under the rule of the Europe regulation, Scotland, tsar: leader, page 9. language, free speech, 38 Turkey’s latest purges Ignoring the lessons of the London Too many kooks revolution is dangerous, 39 Catalan independence page 19 Countdown to confrontation Briefing 39 Russia’s presidency 19 Vladimir Putin Send in Sobchak The Economist online Enter the tsar 40 The Czech election Daily analysis and opinion to A billionaire rebel supplement the print edition, plus Asia 41 Italy’s referendums E-commerce Amazon and audio and video, and a daily chart Economist.com 23 Japanese politics Autonomous movement Alibaba represent a new type Abe wins again 41 Malaria in Switzerland of conglomerate. How rivals E-mail: newsletters and A recurring ague and governments should mobile edition 24 Mourning in Thailand A king’s cremation adapt: leader, page 12. Economist.com/email 42 Charlemagne E-commerce is transforming Print edition: available online by 25 Energy in South Korea The mogul of Prague business and daily life, mostly 7pm London time each Thursday The other nuclear question for the better, says Charlotte Economist.com/print 25 New Zealand’s government Special report: Howard. See our special report Audio edition: available online A leader, at last E-commerce after page 42 to download each Friday 26 Banyan The new bazaar Economist.com/audioedition Getting Myanmar wrong After page 42

China Middle East and Africa 27 A leadership reshuffle 43 Kenya’s flawed election Xi Jinping’s apotheosis Strong man redux Volume 425 Number 9064 44 Secessionism in Nigeria United States The ghosts of Biafra Published since September 1843 to take part in "a severe contest between 29 Big tech and Washington 44 Beauty and the police intelligence, which presses forward, and an unworthy, timid ignorance obstructing Capitol punishment Arresting development our progress." 30 Retiring senators 45 Rebranding the Left Editorial offices in London and also: Flake news Israel’s “New Labour” Kenya A bad election is even Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, 31 Mueller’s investigation 45 Saudi Arabia’s reforms worse than a delayed one: New York, Paris, San Francisco, São Paulo, Seoul, How it could end There’s no place like NEOM leader, page 10. Although he is Shanghai, Singapore, Tokyo, Washington DC almost sure to win, Kenya’s 32 Congress 46 A century after Balfour president will find that he has Muddying the waters People of the declaration done little to increase his legitimacy, page 43

1 Contents continues overleaf //*sharathcharged*// 6 Contents The Economist October 28th 2017

Britain 66 Age and inequality The generation gain 47 Interest rates What goes down… 67 Tax cuts and wages Companies are people, too 48 Brexit and transition Imperfect panacea 68 Free exchange Be more open about pay 49 Anxious elites Prêt à partir 49 Donald Trump on crime Science and technology Not good! 69 Electric cars 50 Bagehot Proof by induction China A Communist Party Corbyn’s comrades 70 Fishing and sperm whales Journalism The first in a gathering has consolidated Getting their own back series of articles on the future the power of China’s leader— of journalism examines how International 71 The history of navigation for life, page 27. Fears that Xi Computing disc big American newspapers got Jinping is bad for private 51 The UN in conflict zones readers to pay for news in the 71 Biotechnology enterprise are overblown, Looking the other way internet era, page 59 page 55. How China’s artists Covering the bases have made sense of their 72 Palaeontology Business country, page 75 A black-and-white answer Subscription service 55 Chinese business For our full range of subscription offers, New era, old contradiction including digital only or print and digital Books and arts combined visit 56 Cambodia’s trade unions Economist.com/offers Stitched up 73 The Balfour declaration You can subscribe or renew your subscription 1917 and all that by mail, telephone or fax at the details below: 56 Discount grocers Telephone: +65 6534 5166 The broccoli heresy 74 Halloween hauntings Facsimile: +65 6534 5066 A history of ghosts Web: Economist.com/offers 57 Airlines E-mail: [email protected] Dogfight 74 Muhammad Ali Post: The Economist Rebel with a cause Subscription Centre, 58 MBA programmes Tanjong Pagar Post Office 75 Guggenheim Museum, NY Degrees of concern PO Box 671 Art and China, 1989-2008 Singapore 910817 58 The best MBA courses Subscription for 1 year (51 issues)Print only Make America great again Australia A$465 Apple capital Hey Siri. Should 80 Economic and financial China CNY 2,300 59 The future of journalism Hong Kong & Macau HK$2,300 the world’s biggest firm shrink Funnel vision indicators India 10,000 its finance arm before it goes Statistics on 42 economies, Japan Yen 44,300 62 Schumpeter Korea KRW 375,000 bananas? Schumpeter, page 62 plus a closer look at Malaysia RM 780 Apple Capital LLC maritime trade New Zealand NZ$530 Singapore & Brunei S$425 Taiwan NT$9,000 Thailand US$300 Finance and economics Obituary Other countries Contact us as above 63 American Express 82 Cornelia Bailey Shuffle and deal Salt marsh and sweet Principal commercial offices: 64 Buttonwood potatoes The Adelphi Building, 1-11John Adam Street, Sauce for a Brussels goose London WC2N 6HT 65 Indian banks Tel: +44 (0) 20 7830 7000 The round-trip rupee trick Rue de l’Athénée 32 1206 Geneva, Switzerland 65 Monte dei Paschi di Siena Tel: +4122 566 2470 Getting up again 750 3rd Avenue, 5th Floor, New York, NY 10017 66 Robo-advisers Tel: +1212 5410500 Pay transparency Firms Silicon speculators 1301Cityplaza Four, should make more information 12 Taikoo Wan Road, Taikoo Shing, Hong Kong public about the salaries they Tel: +852 2585 3888 pay: Free exchange, page 68 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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© 2017 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Publisher: The Economist. Printed by Times Printers (in Singapore). M.C.I. (P) No.057/09/2017 PPS 677/11/2012(022861) //*sharathcharged*// The world this week The Economist October 28th 2017 7

Re-running scared A120-day ban on refugees Cristina Fernández de Kirch- Politics Kenya reran its disputed presi- from entering the United States ner, a formerpresident, won a dential election, despite the expired. The ban came into Senate seat, but her party opposition calling fora boy- effect in June following a pro- performed poorly overall. cott. An appeal before the fusion oflegal wrangling. Supreme Court to postpone Applications can now resume, Yes, and no the ballot was not heard be- though citizens from 11coun- Andrej Babis, a billionaire and cause five ofthe seven judges tries will face extra scrutiny. formerfinance minister, won a were absent amid claims of general election in the Czech intimidation. Last month the The Senate passed a $36.5bn Republic. Mr Babis’s ANO court threw out the result of package ofemergency assis- (“Yes”) party took30% ofthe August’s poll because the tance for places hit by recent vote. His victory was viewed count had been mishandled. hurricanes, including Puerto as the latest triumph ofa char- Rico. More than a month after ismatic populist in central A British electrician was al- Hurricane Maria hit the island, Europe, but with a splintered lowed to leave Dubai after the only a fifth ofits power system parliament, Mr Babis will have Shinzo Abe’s gamble in calling emirate’s ruler, Sheikh Mo- has been restored. trouble forming a coalition. an early general election in hammed bin Rashid al-Mak- Japan paid off, as his ruling toum, stepped in to overturn A disunited opposition Spain’s prime minister, Mari- Liberal Democratic Party won his three-month jail sentence Four ofthe five opposition ano Rajoy, asked the Senate to 281ofthe 465 contested seats in forbrushing against a man’s candidates who won elections give him the power to disband the lower house ofparliament. hip in a crowded bar. The case forgovernor in Venezuela Catalonia’s regional govern- Along with seats won by the highlighted the friction be- tooktheir oaths before the ment and implement direct LDP’s coalition partner, Mr tween Dubai’s desire to attract constituent assembly, a sham rule. The region’s president, Abe has control oftwo-thirds tourists and the arbitrary parliament controlled by Carles Puigdemont, compared ofthe house, meaning he can enforcement ofits strict laws President Nicolás Maduro’s Mr Rajoy’s action to that of pass legislation without ap- against sexual impropriety. United Socialist Party. They Francisco Franco, Spain’s proval from the upper house. were criticised by the rest of formerfascist dictator. The prime minister will press The World Health Organisa- the opposition. to change Japan’s pacifist tion swiftly withdrew its ap- EU ministers voted to approve constitution, a huge step that pointment ofRobert Mugabe Brazil’s congress voted not to curbs on “posted workers”, EU will allow it to take part more as a goodwill ambassador, send Michel Temer, the coun- citizens who workin EU coun- easily in peacekeeping oper- which had elicited howls of try’s president, to trial for tries where they do not reside, ations, but will also rattle derision. Zimbabwe’s autocrat- charges related to a corruption that were proposed by Em- China and South Korea. ic president has destroyed the scandal. Mr Temersurvived a manuel Macron, the French economy and wrecked the similar move to remove him in president. Four east European China’s ruling Communist health service. His spokesman August and he cannot be countries voted against the Party revised its constitution to said Mr Mugabe wouldn’t investigated again until his measure, saying it undercuts include the thinking ofXi have taken the job anyway. term ends in late 2018. He has their workers’ ability to com- Jinping. Mr Xi is the first ruler the worst approval ratings of pete forjobs in the EU. to be named in the document Not so flaky any Brazilian president. since Deng Xiaoping, and the Solving a stinking problem first since Mao Zedong to be so Nicaragua announced that it honoured while alive. The would join the Paris accord prime minister, Li Keqiang, on climate change, leaving keeps his job, but the party Syria and the United States as announced a sweeping reshuf- the only two countries that fle ofthe rest ofits leadership. have either not joined or plan There is no one who is clearly to abandon the deal. being groomed as a successor to Mr Xi, fuelling speculation The Mexican government that he may try to stay on as sacked the country’s top elec- party chiefforlonger than the toral-crimes prosecutor for normal ten-year period. Jeff Flake, a senator from divulging bits ofan investiga- Arizona and one ofthe more tion into corrupt financing. To the reliefofexpatriates in An elaborate five-day cere- cerebral Republicans, de- Critics ofthe ruling Institution- the country, China lifted a ban mony got under way in nounced Donald Trump’s al Revolutionary Party say the on imports ofmould-ripened Thailand to cremate the presidency and the general firing was intended to close a cheese, which had been im- remains ofKing Bhumibol state ofhis party from the probe into claims that a Brazil- posed because the bacteria Adulyadej, who died a year Senate floor. Without naming ian construction firm may used in making them had not ago. In a country that reveres Mr Trump, Mr Flake criticised have donated to President been approved. Soft cheeses the monarchy, and imposes the “coarseness ofour leader- Enrique Peña Nieto’s cam- such as Brie, Gorgonzola and strict lèse-majesté laws against ship” and its “reckless, outra- paign in 2012. Stilton are much sought after those who do not, 13m Thais geous and undignified behav- by Westerners in China. Chi- paid their respects to the late iour”. He challenged his The centre-right party of nese officials allowed the king as he lay in state, many colleagues to speakup. Mr Argentina’s president, Maur- cheeses backin after receiving prostrating themselves before Flake has decided not to run icio Macri, exceeded expecta- assurances from European his body. forre-election next year. tions in mid-term elections. counterparts that they are safe. 1 //*sharathcharged*// 8 The world this week The Economist October 28th 2017

year’s election, Twitter an- weaker economic growth of technologies. Ford has lagged Business nounced changes to make 0.7% forthe year and a higher its rivals in the electric-vehicle such ads more transparent, deficit of4.3% ofGDP. revolution, something which Wall Street scored a big victory and to allow users to see Mr Hackett vows to change. when the Senate scotched a which ones are targeting them. All eyes on the bank proposed law that would have A bill in Congress, the Honest The welcome news ofbetter- The decision by Oleg allowed customers ofbanks Ads Act, would tighten the than-expected growth figures Deripaska to float his alumi- and credit-card companies to regulations foronline political in Britain was tempered by the nium and renewable energy sue formalpractice through ads, subjecting them to the increased likelihood ofa rise in business, EN+, in a listing in class-action lawsuits. The same rules as those for TV. interest rates. GDP expanded London was taken as a sign of measure was put forward by by 0.4% in the third quarter renewed investor interest in the Consumer Financial Pro- compared with the previous Russia. It will be the first tection Bureau, an agency Share prices three months. With inflation at Russian IPO on the London created under the Dodd-Frank January 1st 2017=100 3%, the BankofEngland has StockExchange since Russia’s

reforms which has a rocky Dow Jones 120 hinted that it will raise rates for annexation ofCrimea in 2014, relationship with the banking Industrial Average the first time since 2007, which prompted a wave of industry. Its rule would have 100 possibly at its meeting on financial sanctions against the rewritten the requirement in GE November 2nd. That would country. 80 retail-finance contracts that leave many households strug- customers seekredress for 60 gling; mortgage debt and con- Withered on the vine grievances through arbitration, JFMAMJJASO sumer credit is running close to The world’s production of 2017 rather than the courts. But the 140% ofincome. wine will fall this year to its Treasury had criticised the Source: Thomson Reuters lowest level since 1961, accord- proposal, forcurtailing the General Electric’s share price General Motors reported a ing to the International Organi- “freedom ofcontract”. sankto a near five-year low $3bn loss forthe third quarter, sation ofVine and Wine, be- amid speculation that it might mostly because ofa $5.4bn cause ofbad weather that has A helping hand cut its dividend, after reporting charge it booked related to the damaged the grape crop in The Indian government poor quarterly earnings and sale ofits Opel and Vauxhall Italy, France and Spain. Global announced a $32bn plan to reducing its outlookforthe brands in Europe. It also output will drop by 8% com- recapitalise state-controlled year. The blue-chip conglomer- recorded lower revenues in pared with 2016, which leaves banks. The banks, which hold ate’s share price is the worst North America after it cut some 3bn fewer bottles of two-thirds ofIndia’s banking performerthis year on the production to reduce its stock wine to sip. The recent wild- assets, have been blamed for Dow Jones Industrial Average. ofcars, which reached a ten- fires in northern California dragging down economic It hopes to turn that around year high over the summer. will probably not have had too growth after a decade ofunre- when it unveils a plan in mid- much ofan effect on American strained lending to industry, November to reduce its costs. Jim Hackett shookup the production (most ofthe state’s which has put a dent in their senior ranks at Ford, five wine grape is grown in the balance-sheets and con- The rand fell sharply against months after taking over as Central Valley). strained consumer lending. the dollar after South Africa’s chiefexecutive. Among those new finance minister deliv- leaving is John Casesa, who Other economic data and news David Rubinstein and William ered a budget that forecast oversaw the adoption ofnew can be found on pages 80-81 Conway stepped backfrom their roles as co-chiefexec- utives at Carlyle Group, a global investment firm that they helped to found in 1987. It is the second departure ofthe original management at a big private-equity firm this year following KKR’s reshuffling of its senior ranks during the summer.

A formersenior banker at HSBC was found guilty by a jury in New Yorkofdefrauding a client in a $3.5bn currency trade. MarkJohnson is the first banker to be convicted in the American Department of Justice’s lengthy transatlantic investigations into the forex market.

Following revelations that Russian provocateurs had placed divisive ads on Ameri- can social media during last //*sharathcharged*// Leaders The Economist October 28th 2017 9 A tsar is born

As the world marks the centenary ofthe Octoberrevolution, Russia is once again underthe rule ofa tsar EVENTEEN years after Vladi- Mr Putin’s answer has been to entrust the economy to liberal- Smir Putin first became presi- minded technocrats and politics to former KGB officers. Inev- dent, his grip on Russia is stron- itably, politics has dominated economics and Russia is paying ger than ever. The West, which the price. However well administered during sanctions and a still sees Russia in post-Soviet rouble devaluation, the economy still depends too heavily on terms, sometimes ranks him as natural resources. It can manage annual GDP growth of only his country’s most powerful around 2%, a farcry from 2000-08, which achieved an oil-fired leader since Stalin. Russians are 5-10%. In the long run, this will cramp Russia’s ambitions. increasingly lookingto an earlierperiod ofhistory. Both liberal And like a tsar, Mr Putin has buttressed his power through reformers and conservative traditionalists in Moscow are talk- repression and military conflict. At home, in the name of sta- ing about Mr Putin as a 21st-century tsar. bility, tradition and the Orthodox religion, he has suppressed Mr Putin has earned that title by lifting his country out of political opposition and social liberals, including feminists, what many Russians see as the chaos in the 1990s and by mak- NGOs and gays. Abroad, his annexation of Crimea and the ingit count again in the world. Yet as the centenary ofthe Octo- campaigns in Syria and Ukraine have been burnished for the ber revolution draws near, the uncomfortable thought has sur- eveningnews by a captive, triumphalist media. However justi- faced that Mr Putin shares the tsars’ weaknesses, too. fied, the West’s outrage at his actions underlined to Russians Although Mr Putin worries about the “colour” revolutions how Mr Putin was once again asserting their country’s that swept through the former Soviet Union, the greater threat strength after the humiliations ofthe 1990s. is not of a mass uprising, still less of a Bolshevik revival. It is What does this post-modern tsar mean for the world? One that, from spring 2018 when Mr Putin starts what is constitu- lesson is about the Russian threat. Since the interference in tionally his last six-year term in office after an election that he Ukraine, the West has worried about Russian revanchism else- will surely win, speculation will begin about what comes where, especially in the Baltic states. But Mr Putin cannot af- next. And the fear will grow that, as with other Russian rulers, ford large numbers of casualties without also losing legitima- Tsar Vladimir will leave turbulence and upheaval in his wake. cy, as happened to Nicholas II in the Russo-Japanese war of 1904-05 and in the first world war. Because today’s tsar knows Firm rule history, he is likely to be opportunistic abroad, shadowboxing Mr Putin is hardly the world’s only autocrat. Personalised au- rather than risking a genuine confrontation. The situation at thoritarian rule has spread across the world over the past 15 home is different. In his time in power Mr Putin has shown lit- years—often, as with MrPutin, built on the fragile base ofa ma- tle appetite for harsh repression. But Russia’s record of terrible nipulated, winner-takes-all democracy. It is a rebuke to the lib- suffering suggests that, whereas dithering undermines the rul- eral triumphalism which followed the collapse of the Soviet er’s legitimacy, mass repression can strengthen it—at least for a Union. Leaders such as Recep Tayyip Erdogan of Turkey (see time. The Russian people still have something to fear. page 38), the late Hugo Chávez of Venezuela and even Naren- dra Modi, India’s prime minister, have behaved as if they en- Mother Russia’s offspring joy a special authority derived directly from the popular will. The other lesson is about succession. The October revolution In China Xi Jinping this week formalised his absolute com- is just the most extreme recent case of power in Russia passing mand ofthe Communist Party (see page 27). from ruler to ruler through a time of troubles. Mr Putin cannot Mr Putin’s brand of authoritarianism blazed the trail. It arrange his succession using his bloodline or the Communist evokes Russia’s imperial history (see page 19), offering a vivid Party apparatus. Perhaps he will anoint a successor. But he picture ofhow power works and how it might go wrong. would need someone weak enough for him to control and Like a tsar, Mr Putin surmounts a pyramid of patronage. strong enough to see off rivals—an unlikely combination. Per- Since he moved against the oligarchs in 2001, taking control haps he will try to clingto power, as DengXiaopingdid behind first ofthe media and then ofthe oil and gas giants, all access to the scenes as head of the China Bridge Association, and Mr Xi power and money has been through him. These days the may intend to overtly, having conspicuously avoided naming boyars serve at his pleasure, just as those beneath them serve a successor after this week’s party congress. Yet, even if Mr Pu- at their pleasure and so on all the way down. He wraps his tin became the éminence grise of the Russian Judo Federation, power in legal procedure, but everyone knows that the prose- itwould onlydelaythe fatal moment. Withoutthe mechanism cutors and courts answer to him. He enjoys an approval rating of a real democracy to legitimise someone new, the next ruler of over 80% partly because he has persuaded Russians that, as is likely to emerge from a power struggle that could start to tear an aide says, “Ifthere is no Putin, there is no Russia.” Russia apart. In a state with nuclear weapons, that is alarming. Like a tsar, too, he has faced the question that has plagued The stronger Mr Putin is today, the harder he will find it to Russia’s rulers since Peter the Great—and which acutely con- manage his succession. As the world tries to live with that par- fronted Alexander III and Nicholas II in the run-up to the revo- adox, it should remember that nothing is set in stone. A cen- lution. Should Russia modernise by following the Western turyago the Bolshevikrevolution wasseen asan endorsement path towards civil rights and representative government, or of Marx’s determinism. In the event, it proved that nothing is should it try to lock in stability by holding fast against them? certain and that history has its own tragic irony. 7 //*sharathcharged*// 10 Leaders The Economist October 28th 2017

Kenya’s flawed elections Democracy deferred

A bad election is even worse than a delayed one EMOCRATS across Africa but nor has he dispelled the view that the only way to prevent Dcheered on September 1st it would be to offer him unreasonable concessions. He has re- when Kenya’s Supreme Court jected seekingfurtherredress in the courts, arguing that the cri- annulled the presidential elec- sis is a political one and requires a political solution. tion that had taken place a few Mr Kenyatta has been more irresponsible still. Parliament weeks earlier. The court held has passed laws to restrict the powers ofthe Independent Elec- that the electoral commission toral and Boundaries Commission (IEBC) and the courts. Be- had botched the count and that fore the election on August 8th, it deported foreign experts the poll should be held again. No rigginghad been proved after hired by the opposition to monitor the electronic-vote count. the incumbent, Uhuru Kenyatta, won by a handy margin over The government argues that it is constitutionally bound to the main opposition leader, Raila Odinga. But the court argued press ahead with the vote; postponing it would be illegal and rightly that elections are not just about numbers. “Youonly get reward the menacing actions ofMr Odinga’s supporters. points for the answers if you show your working,” said Philo- But in pushing for the re-run, Mr Kenyatta’s supporters ap- mena Mwilu, the deputy chief justice. It was a landmark in a pear to be doing some menacing of their own. Barely a week region where judges are often cowed. before the vote, Roselyn Akombe, an IEBC commissioner, fled Ratherthan usingthe judgmentto strengthen democracy in to America sayingherlife wasin danger. Herboss, Wafula Che- a country that descended into ethnic bloodshed after a disput- bukati, said that the commission had degenerated into war- ed election in 2007, the government and electoral commission ring factions and that candidates were intimidating his staff. pressed ahead with a vote due on October 26th (after we went “Under such conditions, it is difficult to guarantee free, fairand to press) that will be even less credible than that of August 8th. credible elections,” he said. The main opposition leaderhas withdrawn, the electoral com- Given the chaos, the courts would surely order a postpone- mission has said it cannot guarantee a proper ballot and ment. But when the petition to do just that was put before the judges were too intimidated to hear a plea to postpone the Supreme Court, only two of the seven judges turned up. One election. Whatever the outcome of this week’s vote (and the had an excuse: the night before the hearing Ms Mwilu’s body- hope is that it does not turn violent), it is clear who the losers guard was shot. Another justice said she had missed her flight will be: Kenya, and democracy in Africa. to Nairobi. Denied a quorum, the courtcould nothear the case. The worst part is that the crisis is self-defeating. MrKenyatta Kenya’s unfulfilled promise would probablywin a properelection. Instead thisweek’spyr- As the most dynamic economy in east Africa, Kenya should be rhicvictorywill come atthe price ofhislegitimacy. Forthe sake a model for the continent. International monitoring groups of his country, and to assuage his seething opponents, he worked hard to ensure a credible election. The blame for the re- should promise to run a credible election, perhaps early next versal ofKenya’s democracy falls on many sides (see page 43). year. Ifhe wins fairly, MrKenyatta could yet become the proud Start with the bad loser. Mr Odinga withdrew from the race president of an improving democracy. Right now, he is fast on October 10th. He has been careful not to call for violence, leading the country backto autocracy. 7

Japan’s constitution Abe’s next act

A big election victory gives Shinzo Abe a chance to change Japan’s pacifist constitution. He should take it ARELY has such an unpopu- new force, the PartyofHope, led by Tokyo’s charismatic gover- Rlar leader won a free and fair nor, botched its campaign and ended up with barely enough election so lopsidedly. Only seats to fill a ramen restaurant. A left-wing splinter group, the about one-third of Japanese Constitutional Democratic Party, emerged as the main opposi- people approve of Shinzo Abe, tion force with only 55 out of 465 seats. Mr Abe is lucky in his their prime minister; a whop- choice ofchallengers. ping 51% disapprove. Yet on Oc- tober 22nd his Liberal Demo- Playing it safe cratic Party and its coalition partner kept its two-thirds But the other reason for his triumph is that nervous voters majority in the lower house (see page 23). Mr Abe’s decision to sought reassurance. As MrAbe pointed outbefore the election, call a snap election, unlike that of Theresa May, his British Japan faces two crises: an ageing population and a hostile counterpart, paid offhandsomely. neighbour, North Korea, that is lobbing missiles in Japan’s di- One reason isthatthe opposition imploded. Amuch-hyped rection and rushing to fit nuclear warheads to them. Both cri-1 //*sharathcharged*// //*sharathcharged*// 12 Leaders The Economist October 28th 2017

2 ses are grave and pressing, but the first is chronic—slowing or its allies, orto contribute more to UN peacekeepingoperations, reversing Japan’s demographic decline will take decades—and pacifists cry “unconstitutional”. Most ofthe time theyare right, the second acute. Many voters decided that, even if they did and even ifthey are overruled, they usually delay things. Until not warm to him personally, MrAbe was more likely than any last year Japan’s military forces were barred from helping al- of the alternatives to keep them safe. President Donald Trump lies who came under attack in its backyard. Japan’s UN peace- probably helped him, too, by giving Japanese voters the im- keeping forays are a joke. Its troops in Iraq had to be protected pression (strongly denied) that America cannot always be re- by Australian forces, because they were not allowed to shoot lied upon to defend Japan. back at militants who attacked their base. This year Japanese Mr Abe has taken his win as a mandate to press ahead with UN peacekeepers pulled out of South Sudan after it was re- his long-standing plan to revise Japan’s pacifist constitution. vealed that the war-ravaged African country was, yes, a bit This is a sensible goal. As it stands, the document is impossible dangerous. In July Mr Abe’s defence minister had to resign for to take literally. Imposed on Japan bythe victorious Americans allegedly covering up this well-known fact. after the second world war, it says, in Article 9, that “the Japa- ChangingArticle 9 will notbe easy. First, MrAbe must come nese people forever renounce...the threat or use of force as a up with wording that can gain a two-thirds majority in both means of settling international disputes.” For this reason, houses of the Diet, which means winning over several of his “land, sea and air forces, as well as other war potential, will more doveish colleagues. The revision must then win a simple never be maintained.” majority in a referendum, which may be a struggle. For more than seven decades Japan has flagrantly violated China and North and South Korea will protest loudly if Ja- its own constitution by maintaining land, sea and air forces. Its pan revises Article 9, claiming that this is a step back towards military budget is the eighth-largest in the world. Its 300,000 the Japanese militarism that devastated East Asia in the 1930s troops are superbly equipped. Successive governments have and 1940s. This is bunk. Like any state, Japan has a right to de- clung to the fiction that this is somehow constitutional by us- fend itself. As a rich, mature democracy, it should also be doing ing the label of“self-defence forces”. As legal camouflage goes, its bit to keep the world safer. With its elderly, shrinking popu- this is like trying to hide a tankby sticking a Post-it note on it. lation and ingrained pacifism, Japan is no threat to anyone. MrAbe is right to want to make clearin the constitution that Alas, MrAbe himselfoften creates the opposite impression. Japan may, in fact, maintain armed forces. The rule of law mat- If he wants constitutional change and to reduce opposition ters, and is undermined when the government nakedly dis- abroad, he should stop visiting the Yasukuni shrine, where obeys its principles. What is more, decades ofdouble-talk over war criminals are worshipped; denounce the atrocities of the Article 9 have muddled the debate that Japan ought to be hav- past; and distance himself from his grandfather, a post-war ing over what role it should play in maintaining regional and prime minister and colonial administrator who forced thou- global security. sands ofChinese to workas slaves. ForJapan truly to become a Every time a Japanese government tries to do more to help normal power, it needs to come to terms with its history. 7

E-commerce There be giants

Amazon and Alibaba represent a new type ofconglomerate. How should rivals and governments adapt? HOPPERS will spend record ever more services, from cloud computing to video. The firms’ E-commerce sales Ssums online in the next few businesses will reinforce each otheras consumers and compa- As % of total weeks—in China for Singles Day nies become more likely to use their platforms, and diverse FORECAST 30 on November 11th, in America sources ofrevenue and data power furthergrowth. As a result, China 20 on Black Friday and around the the two giants sit at the centre ofall sorts ofactivity. In America 10 United States world in the run-up to Christ- Amazon is showing, week by week, the havoc that an innova- 0 mas. E-commerce has been tive e-commerce firm can wreak in a giant, mature market. In 2016 17 18 19 20 21 growing by 20% a year for a de- China Alibaba isshowinghowdramaticallyone company can cade, shaking up industries from logistics to consumer goods. reshape business in a fast-growing economy. They will not Nowhere does debate rage more fiercely about what this conquer every industry they touch but, as they expand, few means than in America, where thousands of stores have shut firms will change as many sectors in as many places. this year and where retailing accounts forone in nine jobs. Through one lens, thisisa boon forcompetition. The e-com- Astonishingly, online shopping has only just got started. merce sites of Amazon and Alibaba lower barriers to entry by Last year it amounted to a mere 8.5% of the world’s retail providing a simpler, cheaper way for small manufacturers to spending. In America the share was about 10%. Its effects on distribute goods and find potential buyers. Local manufactur- business and society will be huge. Not just because retailing is ers are challenging multinational giants. Consumers benefit, a big employer that touches many industries, but also because as they can choose from more and better products than ever. itstwo greatestexponents, JackMa and JeffBezos, the founders Yet as the giant e-commerce platforms grow, so does unease of Alibaba and Amazon, have used it to amass a new sort of about their might. With access to cheap, patient capital, Ama- conglomerate (see ourspecial report). The question is whether zon can make big investments, including in warehouses, artifi- its creation will foster competition or demand restraint. cial intelligence and other firms such as Whole Foods, a grocer In the past two decades Alibaba and Amazon have added it bought for $13.7bn this year. Those investments, combined 1 //*sharathcharged*//

Peter Paul Rubens, detail from ”Portrait of Albert and Nikolaus Rubens“, c. 1626/27. © LIECHTENSTEIN. The Princely Collections, Vaduz–Vienna

VALUES WORTH SHARING “Driven by legacy… not by the next quarter’s results.” Dinasa Yeung, LGT Relationship Manager since 2001

lgt.com/values //*sharathcharged*// 14 Leaders The Economist October 28th 2017

2 with the vast amounts ofdata on the consumers and business- can firms may yet catch up with their Chinese counterparts. es on its platform, mean that competitors struggle to keep up. Will that be enough to guarantee competition? Regulators Amazon’s challengers should learn from China, where Ali- must be vigilant. More mergers are now likely among both baba’s rivals are teaming up. Tencent began as a gaming and makers of consumer goods and retailers, as they seek the heft messaging company. It now has a thriving digital-payments to battle Amazon. Deals between retailers and tech firms will business and is the biggest shareholder in JD.com, Alibaba’s complicate matters further. closest e-commerce competitor. JD is working with other re- tailers and tech firms, too. In August it announced that shop- Watch the giants pers could buy through Baidu, China’s leading search engine. In antitrust cases America’s courts have tended to assume that Amazon’s would-be competitors might follow a similar new entrepreneurs would challenge profitable incumbents. path, by forging partnerships. Walmart (another investor in But in America venture-capital funding for e-commerce firms JD), for example, seems to be adopting JD’s tactics, making its is dropping, in part because investors think Amazon will be products available through Google’s voice assistant to counter dominant. This newspaper has argued that regulators should Amazon’s Alexa. Facebook wants to make it easier for custom- weigh the effect of mergers on the control of data as well as ers to buy goods featured in its ads. And Google, to the horror market share—especially for Amazon, given its existing power of some privacy advocates, is tracking consumers to help and range. Antitrust rules, as with so much else in the Amazon bricks-and-mortar shops see which online ads work. Ameri- era, lookas ifthey will need updating. 7

The Bank of England Grant me tighter policy...but not yet

Britain’s central bankhas already waited a decade before raising rates. It should wait a few months longer HESE are extraordinary quence of sterling’s depreciation following last year’s referen- Britain Ttimes for the Bank of Eng- dum. Even if the bank did nothing, inflation would be down Market-implied probability of an interest-rate rise in November, % land. Never before in the Old again before long, as exchange-rate effects faded. 100 Lady’s 323-year history has Inflation hawks point out that the rate of GDP growth is monetary policy been so loose above the economy’s potential and that, at 4.3%, unemploy- 50 for so long. During the financial ment is low by historical standards even as the employment 0 crisis in 2008-09 Britain’s base rate is near a historical high. However, though wage growth is 2017 rate of interest was cut to 0.5%. edging up, it remains about 2% a year, suggesting that either a After the Brexit referendum of 2016 the bank cut by a further surprising amount of slack remains in the labour market or 0.25 percentage points, in anticipation of the slowdown that low unemployment does not produce as much inflationary most economists believed was to follow. The bank has bought pressure as it used to. more than £400bn ($525bn) of government bonds under its Some hawks also argue that higher interest rates will bene- programme of quantitative easing. At various points in recent fit households by dissuading them from borrowing impru- years members of the bank’s monetary-policy committee dently. Although households’ balance-sheets look fairly (MPC) have hinted that rate rises were on the cards. But never healthy on aggregate, a large number of Britons, especially have they followed through. poorer ones, do indeed have high levels of debt. However, the Until now. Inflation recently hit 3%, above the bank’s 2% tar- bank can deal with that more effectively using macropruden- get. In the third quarterof2017 GDP grewby0.4%. That suggests tial tools, rules to reduce financial instability by ensuring that to some that the bank’s post-referendum cut was unnecessary. lending is judicious. So on November 2nd, a majority of the MPC’s nine members And the British economy is highly sensitive to increases in are expected to vote to reverse it. A rise to 0.5% would markthe interest rates (see page 47). Roughly 40% of mortgages have a beginning of Britain’s first tightening cycle since 2003. There variable interest rate, so they are heavily influenced by the are good arguments in favour of acting. But if The Economist base rate. Even fixed-rate mortgages typicallyneed frequent re- had a seat at the table, it would vote to hold off. financing. Compare thatwith America, where overeight in ten mortgages are fixed-rate, generally fora lot longer. What’s the rush? Many households’ finances may be able to afford higher One reason is that the Brexit threat is not yet over. Theresa May, rates. But there is uncertainty about how they would react to the prime minister, wants a transitional arrangement which the firstinterest-rate rise in a decade. Even ifthe MPC tried to re- seeksto preserve the statusquo while a formal deal is thrashed assure Britons that monetary policy would remain loose, out. But getting one may be harder than she thinks (see page many might behave as ifrates were likely to rise further. Ifthey 48). Crunch time isthe European Union’sDecembersummit. It cut spending sharply, the economy would suffer. would be needlessly risky for the bank to shake up monetary The problem facing the MPC is that, having talked up the policy beforehand. Better to wait until January, when it will be possibilityofrate rises, itsmembershave boxed themselves in. clearer whether Mrs May’s hopes are well-founded. Ifthe bankdoes keep rates on hold on November 2nd, it is sure Another reason is that the British economy is not exactly to face criticism for having given out mixed messages. So be it. overheating. True, consumer-price inflation has exceeded the Waiting a bit too long before tightening will do little damage; bank’s target formonths. Yet higher inflation is largely a conse- tightening too early could do a lot. 7 //*sharathcharged*//

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DIGITAL DYNAMISM HOW MALAYSIA IS DRIVING THE GLOBAL ELECTRONICS SECTOR

In the 21st century, mobile devices, computers and electronics “Providing talent with a highly technological play an increasingly crucial role in the daily lives of individuals mindset is one of the most important elements and the operations of businesses worldwide. And Malaysia, that Malaysia has invested in, through local with its rich electronics manufacturing ecosystem, is a key universities and talent providers like the Penang player in their production. Skills Development Centre,” says K.C. Lau, Inari Amertron’s group CEO. Major tech manufacturers from the United States to Korea and Japan are investing billions into the South-East Asian country, which has built one of the world’s top environments for making for businesses to fl ourish,” says Robin Martin, the managing cutting-edge products. Last year, the electronic components director of Intel Malaysia. “The availability of a large, skills-based sector saw investments of $873.4m. talent pool and well-established utilities, infrastructure and public services is essential to the continuous growth of companies in The semiconductor sector has benefi ted greatly from global the computing industry, like Intel.” demand for mobile devices, cloud computing and data centres, as well as photonics, fi bre optics and LEDs. Local players such Alongside such global innovators, local manufacturers are as Silterra, Globetronics, Unisem and Inari have contributed to also making their mark on the world’s electronics industries. the steady growth of these industries in Malaysia. Among them is Inari Amertron, an integrated circuit packager and provider of electronics manufacturing services. Operating American chipmaker Intel is one tech powerhouse that has not only in Malaysia but also in the Philippines and China, its established an extensive base in the country, with more than facilities cover more than a million square feet and employ more $5 billion invested over the past four decades. Operating in than 6,000 people across the region. “Inari has achieved higher confi dence from multinational corporations by providing higher- “Malaysia’s robust intellectual property quality products, with fl exibility and agility, at very competitive protection and transparent investment policies prices. This would not have been possible without the conducive have created a conducive environment for technological environment supported by Malaysian government businesses to fl ourish,” says Robin Martin, agencies,” says K.C. Lau, the company’s group CEO. “Providing the managing director of Intel Malaysia. talent with a highly technological mindset is one of the most important elements that Malaysia has invested in, through Malaysia since 1972, the company’s fi rst overseas site is now local universities and talent providers like the Penang Skills Intel’s largest assembly and test manufacturing facility. Its all- Development Centre.” Malaysian manufacturing workforce produces Intel’s latest products using smart manufacturing techniques. The plant is also home to The world’s new and emerging leaders in the electronics Malaysia’s largest design and development centre and one of two industry are already making Malaysia their hub from shared services hubs that support Intel operations globally. which to embrace the abundant business opportunities in Asia today. To fi nd out more about how you can join them, “Malaysia’s robust intellectual property protection and transparent contact MIDA, the Malaysian Investment Development Authority: www.mida.gov.my investment policies have created a conducive environment //*sharathcharged*// 16 Letters The Economist October 28th 2017

Estimating offshore wealth in other countries. By creating separation, and we wish the on Vietnam in front ofthe a clear and safe environment media would stop falling for it. class. At the time, he supported “Buried treasure” (October 7th) for investors, we contribute to MARTIN REDFERN the war. I was against it. His reports on the latest workby a more promising future where Edinburgh invitation was courageous. Gabriel Zucman and col- everyone benefits, including Had he abused his authority, leagues on wealth held in those who need it most. Learning a language or equally, had I made a fool of offshore financial centres. But I lookforward to reading a him in that venue, it would Mr Zucman’s figure forthe report which considers all the Johnson wrote about Daniel have looked bad. What did amount ofwealth held off- facts. Only then can a construc- Everett’s workon the evolution happen was that we each shore, while lower than some tive discussion be had. oflanguage (October 7th). In presented our views, and ofthe more exaggerated esti- GEOFF COOK “Don’t Sleep, There Are reasons forthem, capably and mates, does not hold water. In Chief executive Snakes”, published in 2008, respectfully. Neither ofus my opinion, looking at both Jersey Finance Mr Everett describes the break- changed the other’s mind that his latest workand his 2015 St Helier, Jersey through that enabled him to day. But my appreciation of book, “The Hidden Wealth of translate the language ofthe free speech, and ofthe teacher Nations”, Mr Zucman’s analy- Not an easy fix Pirahã people. He realised that who provided that opportuni- sis is misleading and flawed. they did not use the complex ty, was greatly enhanced. For example, he claims that the The recommendation that phonemes ofmodern lan- Would that more people could difference between IMF data regulators should identify and guages but relied on simple have such an experience. on total global assets held correct obvious market failures tones ofvarious kinds. The STEPHEN KAUFMAN across borders and data on and promote competition complex humming which he Pie Town, New Mexico cross-border liabilities would not be at all helpful in had heard mothers use with accounts forthe amount held practice (“Trump vthe rule children was not music as he One of those Islington types in secretive tax havens. In fact, book”, October14th). The had thought, but was instead a any such discrepancy is the meaning ofthe term “market language, allowing communi- result ofa systematic under- failure” has come to lie in the cation in thickjungle and reporting offoreign assets eye ofthe beholder and it is across rivers where complex because ofa lackofinfor- now widely used to referto phonemes do not workwell. mation from big, asset-rich more or less anything that the NEVILLE HOLMES countries, such as China and relevant politician or regulator Creswick, Australia many in the Middle East. wants to change, very fre- These places do not report in quently at the behest ofpartic- Free-speech movement detail to the international ular interest groups. The mar- statistics-collecting agencies. ket “corrections” that are made I read your article about free Furthermore, the bold are empirically a big, ifnot the speech, or lackthereof, on assumption in his bookthat biggest, source ofimpedi- college campuses (“The 80% ofall wealth offshore is ments to the functioning of intolerant fifth”, October14th). undeclared to the relevant tax competitive transactional We had a scandal last year Youcited a scientific finding authorities is based on one processes. Unfortunate it may involving our campus statue of that in London people with piece ofevidence: the declara- be, but “fixing broken markets” Thomas Jefferson. Someone similar personality types tend tions ofEU residents with has become a useful slogan for vandalised it by painting to cluster in the same neigh- Swiss bankaccounts seeking those who would wish pretty Jefferson’s hands red and bourhoods (“J’y suis. J’y reste”, amnesty for historical deposits much the opposite ofwhat writing “Slave Owner” at its October 7th). The study men- made while Switzerland up- you seek. base. This does nothing to tioned that those “who were held its secrecy laws. This is GEORGE YARROW sparkproductive dialogue. most open to experience clus- hardly a sound basis for Regulatory Policy Institute There is a discussion to be tered in Hackney and Isling- calculating offshore wealth Oxford had about Jefferson’s flaws, as ton.” This is not news to fans of and is certainly not repre- he had many. But I would Douglas Adams. In “The Hitch- sentative ofother internation- Scotland in the EU, and UK hardly say that his contribu- hiker’s Guide to the Galaxy”, al finance centres, most of tions to American society and Adams launches his protago- which have never had banking Is it misleading to suggest that liberalism should be nists into their adventure-filled secrecy and have adopted the Scottish Nationalist Party’s overlooked, either. I would lives from a cocktail party in transparency and anti-money desire forScotland to remain in have loved to attend a lecture Islington, at which Zaphod laundering rules faster and the EU is “in line with the vote about the shortcomings ofour Beeblebrox makes his more deeply than the G7. of62% ofScots” who voted most famous alumnus or listen entrance. The study you Mr Zucman makes no that way (“Lord, make me to a respectful debate between quoted verifies Adams’s keen mention ofthe many benefits free—but not yet”, October campus members ofBlack sense ofobservation. that international finance 14th). Scotland was not on the Lives Matter and the ACLU. But JOHN DRING centres bring to the devel- ballot paper in the referendum the chances ofeither ofthose Alexandria, Virginia 7 opment ofglobal wealth. on the EU. In Scotland 62% of now happening are, These centres boost cross- people voted forthe UK to regrettably, slim. border trade and financial remain in the EU, which is not HENRY BLACKBURN Letters are welcome and should be intermediation and play a the same as voting forScotland Williamsburg, Virginia addressed to the Editor at The Economist, The Adelphi Building, critical part in facilitating to remain. I voted Remain, as 1-11John Adam Street, growth around the world. did many others who want the When I was at high school in London WC2N 6HT Investment through Jersey, for UK to stay whole. The SNP Massachusetts in 1965 my E-mail: [email protected] instance, can have a positive wants to hijackour Remain English teacher, Mr Warshaw, More letters are available at: effect forvital public services votes to further its push for invited me to debate with him Economist.com/letters //*sharathcharged*//

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* AddWash door opens only when the drum temperature is below 50℃. Items limited to fabric, clothing, detergent, softener. //*sharathcharged*// 18 Executive Focus

Head of Supervisory Processes Department m/f (grade AD10)

European Insurance and Occupational Pensions Authority, Frankfurt/Main, Germany Ref. 1717TAAD10 The European Insurance and Occupational Pensions Authority (EIOPA) is at the heart of insurance and occupational pension supervision for the European Union. EIOPA’s core responsibilities include supporting the stability of the fi nancial system, transparency of markets and fi nancial products and ensuring the protection of insurance policyholders, pension scheme members and their benefi ciaries. EIOPA is currently recruiting a Head of Supervisory Processes Department, whose main tasks are to lead the work in the Department and to steer its development as a centre of expertise for supervisory processes. Your responsibilities: Your skills: • Providing leadership and direction to the • Excellent knowledge of, and proven Department in fulfi lling the objectives experience in the fi elds of insurance or set out in the EIOPA Regulation, the banking supervision, Solvency II, or other Single Programming Document and fi elds relevant for this position; Annual Work Programmes, as provided • Understanding of the sectors and activities by the appropriate governing bodies relevant for EIOPA and a good knowledge and supporting the Heads of Units and of the policies, practices and trends that Team leaders in the prioritisation of key affect the Department; objectives and work plans; • Proven managerial skills and ability to • Managing and administrating the coordinate and coach a multinational team Department, including the management of of highly skilled professionals. personnel and budgets, in compliance with the related HR, fi nancial and procurement Please consult the Careers section on rules and fostering a positive working EIOPA’s website for the detailed vacancy climate; notice as well as the eligibility and selection criteria. • Representing the Department at relevant meetings with public and private Applications should be submitted by stakeholders, EU Institutions and National email to: [email protected] Supervisory Authorities. The closing date for registration is 12 November 2017, 23:59 CET.

SECRETARY GENERAL

The International Chamber of Commerce (ICC) is recruiting a Secretary General to lead the work of the World Business Organization based in Paris.

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The role Reporting to ICC’s Executive Board, the Secretary General is responsible for the strategic leadership of this unique global organization—from day-to- day governance through to external representation with the highest-levels of government and business.

ICC seeks a dynamic chief executive who has successfully led a major international business, organization or initiative—ideally with extensive experience working with multilateral organizations on economic policy issues.

Applicants are invited to visit our web page for more information on the role requirements: https://iccwbo.org/secretarygeneral.

Deadline: 24 November 2017. The Economist October 28th 2017 //*sharathcharged*// Briefing Vladimir Putin The Economist October 28th 2017 19

Yet the outward calm is deceptive. The Enter Tsar Vladimir kind of rule Mr Putin has gradually fash- ioned over his years in power has more in common with a tsar than with a Soviet po- litburo chief, let alone a democratically elected leader. The elites lack a legitimacy oftheir own and make no long-term plans. Everyone knows how easily tensions can Ignoring the lessons ofthe revolution is dangerous forRussia flare up. Pollsters are registeringa rise in so- N 1912 a group of Russian avant-garde po- In fact, over the past few years, they cial tension. Iets, calling themselves futurists, pub- have taken on a new urgency. The Krem- In the minds of Russia’s elites, revolu- lished an almanac entitled “A Slap in the lin’s habitual use of history as a resource tion is mainly associated with the recent Face of Public Taste”. On its last page Veli- for shaping the present makes its reticence uprising in Ukraine. But perhaps another mir Khlebnikov, one of the authors, listed about the 1917 revolution all the more con- reason Mr Putin is so reluctant to recall the dates for the collapse of the great empires. spicuous. Its wariness is not a sign of his- overthrow of the ancien régime is because The last line read: “Nekto [someone or torical distance, but of the potency of the he has modelled himself on its rulers. In- somewhere], 1917”. “Do you believe that revolution. It is today’s predicaments that stead the Kremlin is said to be preparing a our empire will be destroyed in 1917?” make history relevant. Official silence display of mourning for the execution of asked Viktor Shklovsky, a literary critic, about the revolution speaks volumes the last tsar. when he met Khlebnikov at a reading. about the fears and discomforts of Russia’s Mr Putin’s emergence as a 21st-century Khlebnikov replied: “Youare the first to un- elite today and about the hold on power of tsar is not as odd as it seems. Andrei Zorin, derstand me.” their president, Vladimir Putin. a historian at Oxford University, points out “Nekto 1917” is the title of the main dis- that the legitimacy ofthe tsar lies not (or, at play at the State Tretyakov Gallery in Mos- Remember the revolution least, not entirely) in the bloodline or the cow, dedicated to the 100th anniversary of That is why, despite beingbanished almost throne itself, but in the person who occu- the Bolshevik revolution. It is one of the entirely from public spaces and official pies the role and his ability to turn defeat few public exhibitions in Russia about the narratives, the centenary of the revolution into victory. two revolutionsin 1917: the firstin February, nonetheless makes itself present in other The event that gave Mr Putin’s legitima- which overthrew the imperial govern- ways throughout political life. On October cy was the war in Chechnya in 1999. After ment, and the second in October, which 7th, Mr Putin’s 65th birthday, supporters of the bombing of apartment blocks in Mos- swept the Bolsheviks to power. Alexei Navalny, the country’s leading op- cow and other cities, blamed on Chechen Central Moscow’s prosperity bears few position figure, marched in Mr Putin’s rebels, people latched onto him, then traces of those violent events. An exit from home city ofSt Petersburg, the cradle ofthe prime minister and Boris Yeltsin’s anoint- the metro station in Revolutionary Square revolution. Invoking their president, the ed successor, as their saviour. The day he leads to a street lined with designer shops protesters chanted: “Down with the tsar!” appeared atthe site ofthe bombingin Mos- such as Tom Ford and Giorgio Armani. In Russia today is hardly on the verge of a cow, the public first registered and recog- nearby Red Square tourists and rich Rus- revolution. It is not involved in a ruinous nised him as their leader. sians sip $10 cappuccinos and gaze at the war, as it was in 1917, and lacks the pent-up Like any tsar, Mr Putin has presented mausoleum shrouding the embalmed energy of that time. Its elites are more con- himself as a gatherer of Russian lands and body of Lenin. It is almost as though the solidated around Mr Putin than they were the man who came to consolidate and events of100 years ago no longer matter. around Nicholas II—at least fornow. save Russia from disintegration after a per-1 //*sharathcharged*// 20 Briefing Vladimir Putin The Economist October 28th 2017

2 iod ofchaos and disorder. To create this im- All the while, however, real power re- age, he portrayed the 1990s not as a period Journey to the tsar 1 mained in the hands of Mr Putin, who as- of transition towards Western-style de- Vladimir Putin, approval rating, % polled sumed the job of prime minister. In 2012 Chechnya Orange War with Annexation mocracy and free markets, but as a modern war starts revolution Georgia of Crimea Mr Putin came backto his throne. instance ofthe Times ofTroubles—a period in Ukraine starts That year sliding ratings, and protests in of uprisings, invasions and famine in the 90 Moscow and several other large cities, late 16th and early 17th centuries, between 80 forced him to reaffirm his status by tradi- the death of the last Rurikid tsar and the 70 tional means—and he saw his chance by consolidation ofthe Romanovs. 60 expanding Russia’s territory during the In a manifesto entitled “Russia on the protests in Ukraine in 2013 (see chart1). Just 50 Threshold of the New Millennium”, pub- as war in Chechnya helped create him, so lished on December 29th 1999, two days 40 conquest in Crimea pushed his ratings up before Mr Yeltsin handed him the reins of 30 to 86%, givinghim an almostmystical aura. power, Mr Putin proclaimed the suprema- Understandably, revolutions make cy of gosudarstvo. Formally translated as 1999 05 10 15 17 PM PRESIDENT PM PRESIDENT tsars uncomfortable. At the end of 2004, “state”, the word derives from gosudar, an just as Ukraine’s Orange revolution began, Source: Levada Centre old word which signifies a monarch or Mr Putin expunged the celebration of the master. A modern state is a set of laws and Bolshevik revolution from the Russian cal- formal rules. Gosudarstvo is an extension only source of legitimacy for regional endar, replacing it with a somewhat spuri- of the tsar as the ultimate source of order bosses is not the electoral will of the peo- ous anniversary: the chasing of the Poles and authority. ple but his appointment or approval. out of Moscow during the Times of Trou- Mr Putin’s former KGB colleagues MrPutin justified the Kremlin’smonop- bles. While Yeltsin rejected the revolution swore their allegiance to him as though he oly over politics and the commanding because it was the foundation myth of the were the tsar. In 2001 Nikolai Patrushev, heights of the economy by evoking the Communist regime which he had defeat- then head of the FSB, the KGB’s successor, symbols of tsarist rule and appealing to ed, Mr Putin turned against it because it described his servicemen as a new aristoc- cultural stereotypes says Lev Gudkov, a separated two periods of what he saw as a racy and men of the gosudar. In the years Russian sociologist. The beginning of his continuous Russian empire. He wanted to that followed, they promoted a class sys- second term in 2004 was marked by an in- paperovera dramaticbreakingpointin the tem bound by intermarriages, god-parent- auguration which closely resembled a cor- long line of Russian rulers that led ulti- age and family ties. Many top managers in onation. Konstantin Ernst, head of Chan- mately to his own reign. Russia’s state-owned firms in the oil and nel One, the main state television station, gas and banking industries are the children created a royal setting. All Mr Putin had to Empire building of Mr Putin’s close friends and former KGB do was to walk into it. Yet the past is not so easy to tame. The cen- colleagues. They perceived their sudden “It was like stickinga head into a cut-out tenary of the October revolution drama- enrichment not as corruption but as an en- of a tsar,” says Mr Gudkov. The Kremlin tises today’s challenges. Dominic Lieven, a titlement and a reward forloyal service. guards were dressed in tsarist-era uni- British historian, writes that Russia faced a forms. Their horses were borrowed from a crisisasitentered the 20th century. Itsmain Tsar quality film studio, having appeared in a scene element was the alienation of the urban But the most important source of legitima- about the coronation of Alexander III. Mr educated class from a state which refused cy for this neo-tsar was the display of “un- Putin walked down to the Kremlin cathe- to grant it political representation. Con- ity with his people”. Every year since 2001 drals to the sound of Mikhail Glinka’s vinced that only an autocracy could hold Mr Putin has appeared before the nation, “Glory to the Tsar” and was blessed by the the empire together, Nicholas II tried to miraculously restoring people’s fortunes patriarch ofthe Russian Orthodox church. rule a growing and increasingly sophisti- and disbursing favours over the heads of The legitimacy of a tsar, however, re- cated society as though he were an 18th- his bureaucrats. He established a direct quires continual reaffirmation. Russian century absolute monarch. line to the Russian people, using state tele- rulers, including Ivan the Terrible, have Economically, the country prospered. vision stations to project his message. In sometimes tested their authenticity by By1914 it was one of the largest and fastest- keeping with the tradition ofRussian mon- temporarily placing a fake tsar on the growing economies in the world, account- archs, he presented himself not as a politi- throne. Mr Putin repeated the experiment ing for 5.3% of global industrial produc- cian driven by ambition but as a “galley in 2008 when he withdrew from the presi- tion—more than Germany. It ranked be- slave” to his people. He rarely appeared dency, puttinga youngerand doggedly loy- tween Spain and Italy in GDP per person. It with or talked about his wife. A tsar, says al lawyer, Dmitry Medvedev, in his place. produced Malevich and Kandinsky, Proko- Mr Zorin, is wedded to the Russian people fiev and Rachmaninov. Politically, how- and nobody can stand between them. ever, it remained backward. This direct mandate allowed him to Restructuring costs 2 Even after Nicholas II was forced to consolidate power, emasculating alterna- Russia, GDP per person grant a constitution in 1905, right up until tive political and economic forces, includ- International dollars, 1990 prices the first world war, Mr Lieven writes, Rus- ing oligarchs, the media, regional gover- Bolshevik Collapse of 10,000 sian politics boiled down to the question nors and political parties. Those who revolution Soviet Union of whether to move down what was seen 8,000 refused to submit to his authority were as the Western path of political develop- banished or jailed. Whatever the formal 6,000 ment towards civil rights and representa- reasons for sending Mikhail Khodorkov- tive government. Liberal advisers told sky to a Siberian jail, most Russians be- 4,000 Nicholas II that unless Russia’s political lieved that he fell foul of Mr Putin and de- 2,000 system were reformed, the regime would served his personal wrath. Few not be able to ensure the allegiance of questioned the prerogative of the tsar to 0 modern educated Russians, and would banish a rebellious underling. 1900 20 40 60 80 2000 17 therefore be doomed. His reactionary min- In Mr Putin’s system the oligarchs Sources: Andrei Markevich and Mark Harrison; Journal of isters retorted that any version of a liberal Economic History; Angus Maddison; IMF; The Economist prosper at the ruler’s pleasure. Equally, the democratic order would inevitably bring 1 //*sharathcharged*// The Economist October 28th 2017 Briefing Vladimir Putin 21

2 on social revolution. There is little doubt that Mr Putin will thing you have been fed all your life is tur- Russia’s elite is immersed in discus- be reaffirmed as Russia’s president after nip, you are likely to rate it as highly edible. sions about the lessons of the Bolshevik the election next spring. But his victory We come to this vacuum with an obvious revolution. Nationalists and some of the will only intensify the talk of what comes [message]: There are better things than tur- clergy, including Mr Putin’s confessor, Fa- afterwards. The point of the election is not nips.” Laughter and mockery can erode le- ther Tikhon Shevkunov, claim that the Bol- to provide an alternative to MrPutin, but to gitimacy farmore than any revelations. shevik revolution was brought about by a prove that there is none. And yet it is not What Mr Navalny offers is not just a Western-sponsored intelligentsia, who be- just a formality. Although the tsar is not ac- change of personality at the top of the trayed their tsar. The opposite camp countable to any institution, he is sensitive Kremlin, but a fundamentally different po- blames the stupidity of Nicholas II and the to public opinion and ratings. These are litical order—a modern state. His Ameri- corruption of his court, which fed the closely watched by opportunistic elites. can-style campaign, which includes fre- sense of popular injustice. It is this weakness that Mr Navalny, Mr quent mentions of his family, breaks the The debate isasmuch aboutthe present Putin’s main challenger, is tryingto exploit. cultural code which Mr Putin has evoked. as it is about the past. The economic He brought young people onto the streets His purpose, he says, is to alleviate the syn- growth of the 2000s (see chart 2 on previ- this summer and has been campaigning drome of “learned helplessness” and an ous page) has also produced a thriving ur- ever since despite the Kremlin barring him entrenched beliefthat nothing can change. ban middle class that is alienated from the from standing in elections on the grounds Kremlin. The challenge of transforming ofa criminal conviction it had engineered. Reordering Russia Russia into a modern state is as acute today Mr Navalny is not seeking to beat Mr The longer Mr Putin stays in power, the as it was 100 years ago. The issues of legiti- Putin—for that he would need a fair elec- more likely his rule is to be followed by macy and succession of power are once tion. He wants to deprive him of “miracle, chaos, weakness and conflict. Even his again central to Russian politics. mysteryand authority”. The Grand Inquis- supporters expect as much. Alexander Du- itor in “The Brothers Karamazov”, Fyodor gin, a nationalist ideologist, says Russia is Might, not right Dostoevsky’s masterpiece, identified these entering a time of troubles. “Putin works Mr Putin’s rule is an example of what as “the three powers, three unique forces for the present. He has no key to the fu- Douglass North, an economist, called “a upon earth, capable of conquering forever ture,” he says. While nobody knows what limited-access order”. This is a state where by charming the conscience of these weak will follow, few people in Russia’s elite ex- economic and political resources are made rebels—men—fortheir own good.” pect the succession to happen constitu- available not by the rule oflaw but by priv- MrNavalny first pierced MrPutin’s aura tionally or peacefully. ileges granted from above. Politically, it in 2012 by branding his ruling United Rus- Writing in 1912, Russian artists could not rests on a system that predates and sur- sia party a collection of “crooks and imagine that Nekto 1917 would turn into a vives the Soviet period. As Henry Hale, an thieves”. That description spread through Bolshevikrevolution. The Bolsheviks were American political scientist, explains in a the country, causing more damage to the a mere 10,000 people, and even in 1917 no- recentarticle, these informal networks and Kremlin than actual revelations of corrup- body could believe they would seize pow- personal connections take precedence tion. Although Mr Navalny faces real phys- er, let alone hold on to it. Yet everyone over formal rules and institutions. In the ical threats, he shuns the image ofa revolu- sensed a crisis and corrosion at the heart of 1990s these networks jostled for influence; tionary, a crusader or a martyr, which only the Russian court. In February 1917, five in the 2000s they were integrated into a elevates the tsar; instead, he seeks to bring daysbefore the abdication ofthe tsar, Alex- single pyramid with Mr Putin at the top as Mr Putin down to his level by portraying ander Benois, a noted artist, wrote: “It the chiefpatron. himself as a professional politician doing seems everything may still blow over. On The weakness of property rights and his job. the other hand, it is obvious that the ab- the rule of law are not accidental short- Recently he described Mr Putin not as a scess has ripened and must burst…What comings, but necessary elements of this despot or tyrant, but as a turnip. “Putin’s bastards, or to be more precise, what idiots personalised system. The legitimacy of notorious rating of 86% exists in a political are those who brought the country and the ownership or office can be provided only vacuum,” he wrote in a blog. “If the only monarchy to this crisis.” 7 by the patron. The patron-client relation- ship cannot be imposed on a society, but requiresitsconsent, which in turn depends on the popularity of the chief patron. Kirill Rogov, a political analyst, argues that Mr Putin appears both as a defender of his people against a greedy and predatory elite, and the defender of the elite against a possible popular uprising. Mr Putin’s legitimacy does not extend to his government, which is seen by 80% of the population as corrupt and self-serving. Legitimacy cannot be passed from the tsar to the next generation. That makes the question of succession the most crucial one for Russia’s future, and the one that weighs most heavily on the minds of the elite. As Fiona Hill, senior director at the National Security Council, said in a recent essay written before she joined the NSC, “The increased preponderance ofpowerin the Kremlin has created greater risk for the Russian political system now than at any other juncture in recent history.” When will Russia see the back of Mr Putin? //*sharathcharged*//

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Also in this section 24 The cremation of King Bhumibol 25 Nuclear controversy in South Korea 25 The world’s youngest female leader 26 Banyan: Getting Myanmar wrong

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

Japanese politics before the polls by left-leaning orphans of the DP’s merger, the Constitutional Demo- Abe’s winning streak cratic Party (CDP), did better. The CDP only fielded 78 candidates, compared with over 200 who ran for the Party of Hope. But it took 55 seats to win the second-largest share in the house. The fact that it gained TOKYO more than three times as many seats as it had going into the elections is a sign ofvot- The ruling coalition keeps its supermajority in a snap poll. What’s next? ers’ disgruntlement with Mr Abe. The PEAKING the day after Japan’s general rain. Many of those who voted for the LDP party says it wants to preserve Japan’s con- Selection, Shinzo Abe boasted that he did so only because of fear of change and stitutional pacifism and shrink the wealth had made historyforhisLiberal Democrat- rising tensions on the Korean peninsula. gap that has grown under Mr Abe’s co- ic Party (LDP). A big win on October 22nd The LDP also benefited from a divided op- alition government. was the third landslide he had helped it position. The leader of the Democratic But the CDP is unlikely to deter Mr Abe. achieve in coalition with Komeito, a Bud- Party (DP), hitherto the LDP’s main chal- A day after his victory the prime minister dhist-linked party, in the vote forthe lower lenger, decided to field candidates under described revising the constitution, which house ofthe Diet, orparliament. Itwas also the bannerofthe PartyofHope, a new out- bars Japan from acting like a normal mili- Mr Abe’s fifth successive electoral victory. fit set up by Yuriko Koike, the governor of tarypower, asa “main policy”. He wantsto If he remains four more years at the coun- Tokyo. After looking like it might pose a se- change Article 9 of the document to recog- try’shelm, asislikely, halfwayinto histerm riousthreat, the newpartylostseven ofthe nise the Self-Defence Forces (SDF), as Ja- he will become Japan’s longest-serving 57 seats once occupied by the legislators pan’s armed services are coyly called, as a prime minister since the second world who campaigned in its name. Its causes, proper army. He would also like to revise war. That is pretty good going for a politi- such as greater transparency in politics, the constitution’s ban on the use of mili- cian who has often (not least at the start of were popular. But Ms Koike’s decision to tary force to resolve international dis- this election campaign) looked in peril and admit only members ofthe DP who agreed putes—though he may press less hard on is deeply unpopular with many voters. Mr with her conservative views repelled this point for fear of antagonising Japan’s Abe now has a chance to achieve a long- many voters. many pacifists. cherished goal: changing the pacifist lan- A party formed less than three weeks MrAbe’saim, in part, isto bring the con-1 guage ofJapan’s constitution. The LDP took 281 of the 465 seats con- tested, farbeyond the simple majority that Abe’s control Mr Abe had set as his victory line (see Japan, lower-house seats, by party chart). That means his party has a bigger Liberal Democratic Komeito Party of Hope Constitutional Independent Others share of the total, since the lower house Party Democratic Party has been slimmed by ten seats. Komeito 2017 general-election result did not do so well. But its 29 seats, plus the Total seats: 465 support of three independent legislators, give Mr Abe control of two-thirds of the 281 29 50 55 22 28 house, and therefore the ability to pass most legislation without approval from the upper chamber. 2017, prior to election Coalitions Total seats: 475 Even so, itwashardlya ringingendorse- ment. Turnout was the second lowest since 284 35 57 15 44 40 the war, partly because of an approaching Source: Press reports typhoon that lashed most of Japan with //*sharathcharged*// 24 Asia The Economist October 28th 2017

2 stitution more in line with the way things Mourning in Thailand reaching 53 metres (174 feet) into the air. are: the SDF is an army in all but name, and Then, as dignitaries from dozens of coun- a very well-equipped one. In 2014 he se- A royal farewell tries and hundreds of thousands of Thai cured a reinterpretation of the constitu- mourners look on, the current king, Vajira- tion, allowing Japan to come to the aid of longkorn, will consign the encoffined its allies if they are attacked. Legislation body ofhis father, Bhumibol, to the flames. SDF passed in 2015 permitted the to be de- BANGKOK As The Economist went to press, the ployed in foreign conflicts for the “collec- elaborate, five-day schedule of funerary Thailand prepares to cremate a tive self-defence” ofallies. But the constitu- rites was just getting under way. The event much-loved king tion’s wording gives ammunition to caps a long period of mourning for the politicians who object to putting Japanese IRST a symbolic empty urn is placed on king, who reigned for more than 70 years soldiers in harm’s way. Some countries, in- Fa gilded palanquin, and carried from and who died just over a year ago. Many cluding America, agree with Mr Abe that it the throne hall to a nearby monastery. Thais have dressed in blacksince his death. ishigh time thatJapan be freed ofsuch con- There it is transferred to the “Royal Chariot Black and white bunting adorns govern- straints. Apart from China and South Ko- of Great Victory” (pictured), which has ment buildings, office blocks and shopping rea, which are still haunted by memories been used for cremations of Thai kings malls. The authorities have urged humbler of Japan’s brutal occupations of their terri- since 1796. That carries the urn to the pa- Thais to grow marigolds in the king’s hon- tory before and during the war, few coun- rade ground next to the royal palace and our, since he was associated with the col- tries fear a revival ofJapanese militarism. the temple of the Emerald Buddha, where our yellow. Street vendors decorate their But changing the constitution may not it is shifted to an antique gun carriage. The carts with them, taxi drivers spread them be easy. Mr Abe’s coalition controls two- carriage, in turn, parades in three counter- across their dashboards and those who thirds of both houses of the Diet, which is clockwise circles around the royal crema- queued forseveral days to be the first to en- necessary for any constitutional change. torium, a temporary structure built solely ter the public viewing areas for the crema- The Party ofHope is in favour, as is Nippon forthe occasion. tion hung them over the barriers in which Ishin, a party that wields power in Osaka, Finally, the urn is raised to the cremato- they were corralled. Japan’s second-largest city. But tinkering rium’s central pavilion, which is topped by Copies of the royal crematorium have with Article 9 remains a political hot pota- a gilded spire and a nine-tiered umbrella been built in all ofThailand’s 76 provinces, to. Any change must be endorsed by a sim- so that people around the country can pay ple majority in a national referendum. The their respects. As it is, almost 13m of the outcome would not be certain. country’s 69m people have prostrated themselves before the king’s body, which Picking the moment lay in state at the royal palace in Bangkok It is unclearhow quickly MrAbe will move for the past year. Television channels can- on this. He says that he wants the assent of celled frivolous programmes in the run-up all parties—which may be impossible for to the funeral, and broadcast in black and the CDP to give. Some think he may try to white at the government’s request. Those cementhisposition firstbywinninganoth- attending the cremation were instructed er term as the LDP’s leader in elections for not to wear hats or raise umbrellas as the the post that are due to be held next Sep- cortege passed, and certainly not to lower tember. There will be local and upper- the tone by taking selfies. house elections in 2019 and in the follow- King Chulalongkorn, the grandfather of ing year Tokyo will host the Olympic King Bhumibol, declared over-the-top fu- games. So Mr Abe may well want to put a nerals to be “a waste of human labour and constitutional-revision bill to the Diet by money” before hisown death, in 1910. And, the end ofnext year. to be fair, King Bhumibol’s crematorium is In other areas, policy will remain much a farcryfrom the 80-metre structuresofthe the same. Beyond a pledge to use some of 18th century. After the death of King Mong- the revenue from a planned increase in kut, in 1868, the entire population was or- consumption tax in October 2019 to pro- dered to shave their heads in mourning. vide free kindergartens, Mr Abe has not But the generals who have run Thai- said much about how he will tackle what land since a military coup in 2014 are he describes as the otherbigissue facing Ja- pumping up the pomp in order to bolster pan: an ageing population. An early priori- their legitimacy. The government has set ty will be to push through bills that were aside 3bn baht ($90m) forthe funeral. They held up by the election, most notably one are locking up those who make even the to change the country’s stressful working mildest criticisms ofthe monarchy, such as style, not least by restricting overtime. jokingaboutthe late king’sdog(a sculpture Despite the win, Mr Abe will still be ofwhich adorns the crematorium). vulnerable. Those thinking of challenging The junta has accused opponents of him in next year’s leadership contest are plotting to disrupt the funeral, but has pro- quiet for now. But they, and voters, have vided no evidence. It has also complained, not forgotten a plummet in Mr Abe’s rat- inconsistently and hypocritically, that op- ings earlier this year after he was reported- position politicians are seeking to exploit ly linked to two scandals—in which he de- the king’s memory for their own benefit. nies involvement. Even editorials in For good or for ill, most Thais do seem to conservative media warn MrAbe not to fo- believe that politics should be suspended cus on constitutional change at the ex- for the occasion. But when it is over, the pense of the economy. He has proved his generals will have one less reason to delay political savvy. But his mandate is weak. 7 Keeping it frugal the promised return ofcivilian rule. 7 //*sharathcharged*// The Economist October 28th 2017 Asia 25

Energy in South Korea fourth largest importer of coal. Hydroelec- alition), Ms Ardern has created the first tric and renewable energy provides only government of losing parties in New Zea- People power 6% of its electricity. So nuclear, which ac- land’s proportionally representative par- counts for 27% of its electricity supply, liament. On October 26th she was sworn helps to guard against volatile import in as the world’s youngest female leader. prices, says Kerry-Anne Shanks of Wood Ms Ardern’s promises of change reso- ULSAN Mackenzie, a consultancy. “Nuclear plants nated with many young New Zealanders. are expensive to build but they’re cheap to They were tired of the National Party, A citizen-jury saves two nuclear-power run,” she says. The industry also argued which had led the country for nearly a de- plants from the axe that axing the reactors would threaten cade. But some commentators fret that N A vast building site on the southern deals to export nuclear technology. change may involve a shift towards greater Ocoast of South Korea near its industri- MrMoon’s U-turn will frustrate his sup- protectionism and an end to three decades al heartland, the foundations of the coun- porters in cities close to the site. But Hahn of liberal economic reform. The populists try’s newest nuclear-power project are Kyu-sup ofSeoul National University reck- and Labour have agreed to cut annual net swaddled in protective tarpaulins. Ten ons the jury gave Mr Moon an “excuse” to migration by up to 30,000 people; to cranes tower overhead but nobody sits in ditch a thorny pledge that could have trig- strengthen controls on the foreign pur- their cabins. The only movement is the gered lawsuits, while enabling him to stick chase of farmland; and to renegotiate the whirl of a few fans. Work on the two reac- to his overall plan to phase out nuclear en- Trans-PacificPartnership, a now-sputtering tors stopped suddenly in July, after Moon ergy. The government has already dropped regional plan for free trade, to curb house- Jae-in, the country’s left-leaning anti-nuc- plans to build six more reactors. Mr Ahn’s buying by foreigners. The New Zealand lear president, ordered a pause to the pro- celebrations could be premature. 7 dollar took a hit when Winston Peters, the ject to give a citizen-jury time to consider populists’ leader, said he had chosen to its merits. “I was a little worried,” admits side with Labour because “too many New Ahn Seong-Shik, the civil engineer in Zealanders have come to view today’s cap- charge of building the reactor shells. “But I italism not as their friend, but as their foe.” trusted the Korean people.” It is true that some locals have felt left Mr Ahn’s faith paid off on October behind duringa period ofstrongeconomic 20th, after the jury endorsed the construc- growth but near-stagnant wages. And al- tion of the two reactors, Shin Kori 5 and 6. though most New Zealanders say they are “It was a very smart decision,” he says. Mr proud of their country’s multicultural mix, Moon, who has promised to phase out nu- a few take umbrage at an upsurge of immi- clear power, accepted the verdict. It is an gration: annual net migration (new arriv- unexpected reprieve for a project that Mr als minus departing locals) has risen to Moon had pledged to scrap before he was over 70,000 in the country of fewer than elected in May. In June, however, he said he 5m people, 16 times as many as in 2008. wanted to “generate a social consensus” by Many fret about the impact of this on delegating the final decision to a 471-strong house prices. They also complain that trea- jury picked by a polling company. Its mem- sured national parks are increasingly berswere given a month to studymaterials jammed by overseas visitors. prepared by scientists and activists before Ms Ardern strongly rejects allegations debatingthe projectforthree days. In the fi- of stoking anti-immigration sentiment. nal vote, 60% backed the new reactors, al- Her party says it only aims to curb an in- though more than half of them said South flux of low-skilled migrants. Her populist Korea should reduce its overall reliance on partners will support her efforts to do so. nuclear energy. Only 10% said the nuclear Politics in New Zealand For backing Labour, they have been re- industry should grow. warded with four seats in the cabinet. Mr Nuclear energy is a divisive issue in A leader, at last Peters has accepted jobs as deputy prime South Korea, with voters largely split along minister and foreign minister. He has held party lines. A poll by Gallup Korea in Sep- both roles before, in coalitions both with temberfound that 41% ofKoreans favoured Labour and with the National Party. scrapping Shin Kori 5 and 6, while 40% The previous prime minister, Bill Eng- backed their construction. Anti-nuclear lish, is now the leader of the opposition. A youthful prime ministercomes to campaigners have voiced louder concerns Having secured 44% of the vote, his Na- powerwith promises ofchange since the Fukushima disaster in neigh- tional Party will be a powerful challenger bouring Japan in 2011and a 5.8 magnitude ACINDAARDERN looked a touch less as- to a government whose ministers have lit- earthquake last year in the southern city of Jsured than usual when she took to the tle experience: few members of Ms Ar- Gyeongju, close to some of South Korea’s stage on October 19th after becoming dern’s cabinet have previously held such 24 reactors. A corruption scandal in the in- New Zealand’s prime-minister designate. rank (one is Mr Peters). Moreover, the co- dustry and the revelation in 2012 that some The 37-year-old had raised Labourfrom the alition is weak: the Greens and New Zea- safety certificates for reactor parts were dead after assuming leadership of it in Au- land First could not bring themselves to forged amplified their doubts. gust, but the centre-left party had still fin- speak to each other during talks to estab- But the jury was probably swayed by ished second in last month’s general elec- lish the alliance. Ms Ardern has made lofty economic arguments. Korea Hydro and tion with just under 37% of the vote. She promises to build 100,000 houses, reduce Nuclear Power, the state-run company in had managed to secure leadership of the child poverty and clean up polluted rivers. charge of the Shin Kori project, claimed it country by turninghercharm on the popu- That will be tough while trying to prevent had already spent 1.6trn won ($1.4bn) on listsofNewZealand First, convincing them feuding between her partners. She has the reactors, which were 30% complete. to side with herinstead ofthe winning cen- shown her powers of persuasion by woo- South Korea is the world’s second biggest tre-right National Party. With support from ing voters and cobbling together a major- importer of liquefied natural gas and its the Greens (who are not part of the co- ity. Afargreater challenge lies ahead. 7 //*sharathcharged*// 26 Asia The Economist October 28th 2017 Banyan Getting Myanmar wrong

A future not long ago deemed bright now feels bleak recruits radicalised by years-long persecution of the stateless Ro- hingyas. Other Yangon folk veer alarmingly into the kind of lan- guage of conspiracy that enables genocide. The “Bengalis”, they say (not even gracing the Rohingyas with their own name), are breeding so fast that they are overrunning the country; besides, they don’t belong in Myanmar. Worst of all, of course, is that Ms Suu Kyi, the erstwhile cham- pion ofthe oppressed, refuses to condemn the soldiers, the police and the Buddhist chauvinists in Rakhine who have been respon- sible forthe rapes, killings and evictions. On security matters, Ms Suu Kyi has chosen hawkish advisers—ex-army types with a sus- picious view of the world. She, too, is prickly when criticised by foreigners who once supported her. The West is struggling fora response. Some have called forMs Suu Kyi to be stripped ofher Nobel peace prize, though what that would accomplish is unclear. Equally doubtful is how America’s secretary of state, Rex Tillerson, intends to follow through on his promise to hold those responsible for the pogroms accountable. There is talk of reimposing sanctions. That would hardly help those near the bottom of a dirt-poor country. As it is, economic transformation under Ms Suu Kyi is a second, huge disappoint- N THE bonfire of liberal certainties, Myanmar makes for an es- ment. Those in charge of the economy are themselves incompe- Ipecially painful case. Only two years ago the world celebrated tents. The minister for planning and finance admits he has a fake as a land long covered by darkness emerged from brutal army degree. Non-NLD technocrats are not welcome. Ms Suu Kyi has rule. In a jubilant election the National League for Democracy failed to articulate a programme, and her minions do nothing (NLD) swept nearly all before it. The party’s revered leader, Aung without her say-so. Vital matters pile up on her desk while she San Suu Kyi, took over from the same generals who had impris- micromanages trivia. A lackofreliable power supplies and trans- oned her or kept her under house arrest fornearly two decades. port has scared away foreign investors. And the banking system, Hers had been painted as a contest between good and evil, in as one observer puts it, is only a rumour away from collapse. which notjust the people ofMyanmarbut much ofthe democrat- Then there is a further challenge in the dozens of simmering ic world felt they had a stake. Ms Suu Kyi’smoral authority on the or frozen conflicts between other ethnic groups and the army, global stage was matched only by the Dalai Lama’s. Yet unlike Ti- some datingbackseven decades. MsSuuKyi’simperiousnesshas bet, Myanmar enjoyed a fairy-tale ending with its first proper only harmed a “peace process” with armed groups that she once election—one in which, moreover, it was possible for outsiders to promised to bring to fruition. Her comportment seems all of a feel they had played a part. They included Western governments piece. Cocooned inside Naypyidaw, the weird, empty capital, the that had kept up the pressure on the generals, campaigning dons 72-year-old is distracted and out oftouch. from the Oxford high tables at which Ms Suu Kyi in happier days Yet to obsess over Ms Suu Kyi is to repeat a mistake. For all her had supped, and foreign journalists who had smuggled liberal moral force before, and disappointment now, she is not Myan- reading matter to Ms Suu Kyi during her bleakest years. mar’s key. It was always wrong, says Thant Myint U, a well-con- nected historian, to believe in a golden age that the generals put In search of lost times an end to and that democracy would restore. Myanmar, he ar- Whatto make ofthe countrytoday? In the pasttwo months alone gues, isa countrybroken by20 yearsofsanctions, 30 yearsofself- 600,000 Muslim Rohingyas have fled their homes in Rakhine isolation and 50 years of authoritarianism, not to mention more state, carrying tales of barbarity into squalid camps across the than a century of British rule in which the monarchy was ripped border in Bangladesh; plumes of smoke mark the villages from from the heart of society. Descendants of the last, exiled king are which they were chased. Detail is hard to come by, since the secu- garage mechanics and rickshaw-drivers in southern India. rity forces prevent all but a few outsiders from visiting the rav- A broken state, then, with the army still entrenched in vital aged areas. But this is certainly one of the biggest refugee crises parts of it. Though Ms Suu Kyi is sincere in wanting a just and and cases ofethnic cleansing since the second world war. peaceful outcome to the Rohingya tragedy, her failure to con- That is grim enough, and the complicity of the army and po- demn the armed forces is deplorable. Yet for her to blame the lice is appalling. But for the many diplomats, aid workers and, army over the Rohingyas would be to admit to two parallel gov- yes, foreign journalists forwhom contactwith the country and its ernments. Certainly, huge changesin a fewshortyearsinclude far people has been a long and beguiling love affair, there comes a freer speech. But the widespread adoption of cheap Chinese further shock. In Yangon, the commercial capital, old Burmese smartphones is not entirely a boon. Hatred ofRohingyas is gener- friends who long shared an open, decent outlook on almost ev- ated by sulphuric propaganda spread through Facebook. ery topic, have closed their minds to the Rohingyas. And then, even with all the political will in the world, plan- Some pin all the blame for events on a nasty group, the Ara- ning good stuff and getting it done, in a country starved for so kan Rohingya Salvation Army, whose attack on police posts in long of health care, education, infrastructure and administrative late August was the pretext for this latest and biggest anti-Rohin- competence, wasalwaysgoingto be a tall order. Itisthe end ofthe gya pogrom. But the group consists of just a few dozen ill-trained fairytale, as Mr Thant puts it. Now forthe long, hard slog. 7 //*sharathcharged*// China The Economist October 28th 2017 27

A leadership reshuffle capital T should make it easier to override resistance because to go against Mr Xi The apotheosis of Xi Jinping would be to go against the party’s charter. But it raises the riskthat underlings will tell Mr Xi only what they think he wants to hear. That could lead to bad decisions. Some will argue thatrevisingthe consti- BEIJING tution this way does not add much to Mr Xi’s power. Communists are supposed to A Communist Party gathering has consolidated the powerofChina’s leader, forlife toe the party line anyway. Deng had no N OCTOBER 25th, one day after the out his name attached) on the opening day need of a Thought or, as he posthumously Oclose of a five-yearly congress of the of the week-long congress. Li Keqiang (top, ended up with, a Theory, in order to rule. Chinese Communist Party, the president, left), the prime minister, called it “the latest Having a Thought named after him may the prime minister and five lesser-known achievement in adapting Marxism to the perhaps help Mr Xi in his battles to come, apparatchiks stepped onto a red carpet in Chinese context”. Xinhua, a state news- rather than signal that he has won a war. Beijing’s Great Hall of the People and onto agency, called it China’s “signature ideolo- At first glance, the composition of the the world’s stage. They form the reshuffled gy”. The education minister promised it new Standing Committee looks consistent inner sanctum of Chinese politics, the Po- would be taught next year in schools. with that interpretation. Only one of the litburo Standing Committee. For at least Talkof theory and -isms sounds recon- five new members is a close ally of Mr Xi. the next five years, they will be the most dite. But this change could have big impli- Four ofthem are linked with organisations powerful decision-makers in China. Nor- cations because it invests Mr Xi with more or factions usually regarded as his rivals. mally, the president’s successor would authority than any Chinese ruler since And Mr Xi’s closest political friend, Wang come from within their ranks. Mao Zedong. Mr Xi is the first living leader Qishan, who served as his chief graft-bust- But the most important fact about the to be named as a guide for the party since er, has retired (he is 69). new line-up was who was not there: there Mao died in 1976. Deng Xiaoping is also in Two members, Mr Li and Wang Yang wasno obvioussuccessorto Xi Jinping (top the constitution but this was an honour ac- (bottom row, left), a vice-premier, began row, centre), the president and party corded him after his death in 1997. Mr Xi’s their careers in the Communist Youth leader. Moreover, the new line-up was two predecessors are not named in the League. The league was once a route to overshadowed by an event on the previ- charter. On this reading, no one has more higher things for many officials, including ous day, when the 2,300 delegates to the ideological clout than Mr Xi. The person Mr Xi’s immediate predecessor, Hu Jintao. congress approved a revised version of the has become the party. But Mr Xi has called it arrogant and out of party’s constitution. Article 2 of the docu- touch and closed down its school. So the ment lists the party’s guiding principles. More yes-men inclusion of two former officials of the The congress approved a new one: “Xi If so, this would make a big difference to league is surprising. Wang Yang’s back- Jinping Thought on Socialism with Chi- policy. MrXi has made influential enemies ground is especially intriguing. As party nese Characteristics for a New Era”. This since his first term in office began in 2012, chief in Guangdong from 2007 to 2012, he will guide the country until the middle of notably the allies and clients of the hun- was part of the great “cake debate”. He ar- the century. Its adoption is, in effect, the dreds of thousands of influential officials gued that market reforms should be used apotheosis ofMr Xi. he has punished or had arrested for cor- to make the economic cake bigger for Party leaders have heaped extravagant ruption. He has complained repeatedly everyone, a poke at statists who empha- praise on the ill-defined Xi JinpingThought that lower-level officials are not following sised dividing the cake more fairly. since he introduced the idea (albeit with- orders. Having one’s own Thought with a Two other new members began their 1 //*sharathcharged*// 28 China The Economist October 28th 2017

2 careers in Shanghai and are usually At the highest level, therefore, Mr Xi would have been expected to signal a thought ofas allies ofMr Hu’s predecessor, seems to have given sops to other groups. choice of someone to take over from him. Jiang Zemin, who was party leader be- But that is not the whole story. Over the Such a person would have had to be young tween 1989 and 2002, and before that the past few years, the president has built up a enough to hold the party chiefdom until party’s boss in Shanghai. They are Han system of “leading small groups”—infor- 2032, ie, by convention, someone born no Zheng (bottom row, right, on previous mal committees that link together the earlier than 1960. But there is no one who page), recently the city’s party chief, and party and government bureaucracies. In qualifies in the new line-up. The youngest Wang Huning (bottom, second from left), practice Mr Xi exercises much power is Mr Zhao, the new anti-corruption chief, Mr Xi’s speechwriter who is largely re- through these groups, which limit the au- who was born in 1957. sponsible not only for Xi Thought, but also thority of the Politburo Standing Commit- Thatdoesnotpreclude MrXi from nam- for Mr Jiang’s and Mr Hu’s ideological con- tee. Four new members of the inner sanc- ing a younger successor later in his term. tributions (the “Three Represents” of Mr tum are members of such groups. That But for now, there is no leader-in-waiting. Jiang and Mr Hu’s “Scientific Develop- suggests they owe more to Mr Xi than The conclusion must be that even ifMr Xi’s ment”). WangHuningwill become the pro- might appear. rivals remain influential in the Standing paganda chief—the first person to do that Committee, the president feels empow- job who hasstudied in America (Berkeley). Here they all are ered to ignore precedent with impunity. The factional background of one new One level down, among the 18 other mem- The succession system had constrained his member, Zhao Leji (bottom, third from bers of the Politburo, Mr Xi’s allies and in- predecessors by forcing them to stick with left), who will take over as head of the fluence are clearly in evidence. Over half choices made long before they stepped party’s anti-corruption agency, is un- of them now have ties to the party leader, down. Mr Hu and Mr Jiang had to work known. That leaves only one new man including two new members: Cai Qi, the with successors who had been foisted on who is known to be closely linked to Mr Xi. capital’s party boss, and Chen Min’er, the them by party elders. By insisting on keep- He is Li Zhanshu (top, right) the president’s party leader of Chongqing, both of whom ing the job open, Mr Xi has shown that he chief of staff. Mr Li and Mr Xi met in the have enjoyed stellar careers under Mr Xi. alone calls the shots. He may decide not to 1980s when they were both county-level The absence from the Standing Com- retire at all in 2022. partychiefsin Hebei province nearBeijing. mittee of any obvious successor to Mr Xi is With his name in the constitution, Mr In 2011, just before he became party leader, striking. As president he is limited to two Xi will be the final arbiter whetherhe has a Mr Xi visited Guizhou, a south-western terms, ending in 2023. His job as party formal position or not, since he—along province which was then run by Mr Li. The leader has no fixed duration, but according with Marx, Lenin, Mao and Deng—nowde- two men are thought to have grown close to precedent it should also end after two fineswhatitisto be a Communist. The con- during that trip. terms, in 2022. At this congress, Mr Xi gress has consolidated his authority not just for five years but, in effect, for life. Xi Thought updates the Theory invent- Xi and friends ed by Deng, namely “Socialism with Chi- nese Characteristics”. But it is clear that Mr Politburo Standing Committee of the Communist Party of China (Expected role) New Politburo Xi is no Dengist. In 1980 Deng argued that Name Age Job members China should have a collective leadership, Xi Jinping 64 General secretary, state president and military chief that too much power held by one person Li Keqiang 62 Prime minister was bad for the country and that the party Li Zhanshu 67 Director of General Office (Head of National People’s Congress, or NPC) needed predictability in choosing its lead- Wang Yang 62 Vice-premier (Head of NPC’s consultative body) ers. Deng was also the source of other Wang Huning 62 Head of policy research (Head of ideology, propaganda and personnel) party norms that have been followed for Zhao Leji 60 Anti-corruption chief, head of personnel many years, such as those relating to retire- Han Zheng 63 Party chief of Shanghai (Vice-premier) ment (Politburo members cannot have their five-year terms renewed ifthey are 68 Other Politburo members or older) and a foreign-policy dictum that Name Age Job saysChina should “hide itscapacities, bide Ding Xuexiang 55 Deputy director of party’s General Office (Director) its time and never take the lead.” All but one of these precepts have been Wang Chen 66 Vice-chairman of NPC thrown out. The exception is that Mr Xi re- Liu He 65 Vice-minister, planning commission (Head of policy research) spected the rule on retirement ages in the Xu Qiliang 67 Vice-chairman of Central Military Commission Standing Committee. But ideas about col- Sun Chunlan 67 Head of United Front Work Department (Vice-premier) lective leadership and predictability in suc- Li Xi 61 Party chief of Liaoning province (Party chief of Guangdong province) cession are toast. The notion of hiding Li Qiang 58 Party chief of Jiangsu province (Party chief of Shanghai) one’s capacities has taken another knock. Li Hongzhong 61 Party chief of Tianjin A commentary published online by Peo- Yang Jiechi 67 State councillor (Vice premier) ple’s Daily, the party’s flagship newspaper, Yang Xiaodu ~64 Minister of Supervision said Mr Xi’s thinking merited “the atten- Zhang Youxia 67 Vice-chairman of Central Military Commission tion of the entire world”. Xinhua contrast- ed the vigour of Mr Xi’s ideas with the pro- Chen Xi 64 Deputy chief of Organisation Department (Chief) blems of“doddering democracies”. Chen Quanguo 61 Party chief of Xinjiang So far, however, Mr Xi has offered few Chen Min’er 57 Party chief of Chongqing clues as to how his next five years (or more) Hu Chunhua 54 Party chief of Guangdong province (Vice-premier) in power will differ, if at all, from his first Guo Shengkun ~63 Minister of Public Security (Head of politics and legal affairs, NPC) term. “Government, military, society and Huang Kunming 60 Deputy head of propaganda (Head) schools, north, south, east and west—the Cai Qi 61 Party chief of Beijing party is the leader of all,” Mr Xi told the congress. Ensuring it remains so is certain Sources: China Vitae; Xinhua News Agency; Sinocism (Bill Bishop) to remain an overwhelming priority. 7 //*sharathcharged*// United States The Economist October 28th 2017 29

Also in this section 30 Jeff Flake breaks free 31 Robert Mueller’s investigation 32 Congressional whataboutism 32 Forecasting the opioid epidemic 33 Locking up firefighters 34 Lexington: Semper fidelis

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

Big tech and Washington Giant firms tend to attract scrutiny. However, unlike other huge companies, Capitol punishment which create jobs in many states, internet firms employ fewer people per dollar of market value and concentrate those jobs mainly in thriving tech hubs. Techies’ tre- SAN FRANCISCO and WASHINGTON, DC mendous wealth has made it easy to draw comparisons to last century’s robber bar- America’s tech giants could eventually receive the kind ofscrutiny that banks faced ons. Consumers may benefit from their afterthe financial crisis free products and from low prices, but HE tech giants have suddenly found presidential election as they were to en- small businesses have been hurt by the Tthemselves without a political party to counter something that passed for news. tech giants’ incursions into a wide array of protect them, just when they most need Liberal anti-tech sentiment in Washington industries, which can influence politi- one. On November 1st executives from was stoked in August, when a criticof Goo- cians. According to one estimate, Amazon Facebook, Google and Twitter will testify gle’s dominance, Barry Lynn, was fired captures half of all dollars spent online. before the House Intelligence Committee from the New America Foundation, a Google and Facebook have captured virtu- about how their platforms were used by think-tank, supposedlybecause executives ally all the growth in digital advertising. Russia’s government during last year’s at Google, a donor, wanted him gone (New election. Politicians on both sides of the America denies this). Anti-social networks aisle, though they see eye-to-eye on very Several Democratic senators are rally- So far America’s techlash has consisted of little, seem to agree that giant internet com- ing supporters by taking sharp public jabs more rhetoric than regulation. One excep- panies such as Amazon, Facebook and against tech firms’ dominance. The odds tion concerns a proposal to regulate online Google may pose a threat to society. “If are “very high” that the Democratic nomi- political advertising. Two Democratic sen- data is the new oil, is [Amazon’s Jeff] Bezos nee for president in 2020 will run on an ators, Amy Klobuchar and Mark Warner, the new Rockefeller?” asks Bruce Mehl- anti-tech platform, promising to break up and one Republican, John McCain, recent- man, a Republican lobbyist, in a report the big companies, predicts Rob Atkinson ly introduced the Honest Ads Act, which called “Navigating the New Gilded Age”, of the Information Technology and Inno- aims to require online political ads to in- which is circulating in Washington. vation Foundation, a think-tank. clude information about who paid for Democrats, long backers ofthe tech sec- Meanwhile, Republicans have also them. Political ads on television, in print tor’s innovative products, are no longer the turned more hostile. In the past they could and on the radio must already do this, but allies they used to be. When Barack be counted on to approach regulation with Google and Facebookhad successfullylob- Obama was president techies got plum a light touch, but today’s populist Republi- bied to be exempted from the requirement. jobs in his administration, and the party’s cans are not so hands-off. President Do- Bringing transparency to online politi- supposedly superior data analytics nald Trump has sent tweets beating up cal advertising is sensible, because more seemed destined to help lock in an emerg- Amazon and other tech firms; his former money will be spent on internet ads in fu- ing Democratic majority. That warmth dis- chief strategist, Stephen Bannon, has sug- ture elections. This year digital advertising appeared last November. Most Democrats gested regulating Google and Facebook as accounts for around 35% of total advertis- believe Twitter, Google and Facebook utilities. Fox News and other right-leaning ing spending in America. This will not rec- helped put a Republican in the White outlets have begun to criticise tech with tifythe largerproblem, which concerns the House by boosting disinformation cam- the venom they once reserved for Hillary ease with which Facebook, Twitter and paigns. A recent paper by the Computa- Clinton. Tech bosses have also clashed Google spread fiction masquerading as tional Propaganda Project at Oxford Uni- with Republicans over immigration poli- news. After the recent shooting in Las Ve- versity found that Twitter-users in swing cy. “Can tech just find one issue that’s sup- gas, users who typed “Las Vegas shooting” states were just as likely to come across portive of Republicans?” laments a discon- into YouTube, which is owned by Google, conspiratorial fictions in the run-up to the solate Republican lobbyist. were prompted to click on videos claiming 1 //*sharathcharged*// 30 United States The Economist October 28th 2017

2 that the shooter was secretly working for these jobs will probably be automated needed to work at the data centre once it is the government. eventually. The e-commerce firm, which is built. Denso, a Japanese car-parts maker, Compared with regulation aimed at based in Seattle, has also announced that it recently announced that it would spend holding companies responsible for spread- will open a second headquarters in North $1bn to build a manufacturing plant in Ten- ing false information, the advertising bill America, which would be a boon to any nessee, creating ten times as many jobs as ought to be fairly painless for tech compa- city it chooses. Around 240 cities and re- Facebook’s data centre will. nies to accept. That does not mean they gions have submitted proposals. While While heavy regulation of tech does will. Big tech companies have so far resist- Amazon contemplates its choice, it is en- not seem likely in the near term, political ed any legislation that treats them like me- joying a temporary boost in popularity winds can change quickly and unpredict- dia companies, and have taken the mini- among members ofCongress. ably. If a national data breach occurred at mum action necessary to appear Other firms are also proposing local Facebook, Google or Amazon, exposing co-operative. Facebookhas found that Rus- projects as a way to curry favour with poli- people’s personal information, as recently sian entities spent around $100,000 on ads ticians. Microsoft is helping bring high- occurred with the credit-reporting firm in the election of 2016. But there is still speed internet to rural areas. Google has Equifax, there could be a strong public out- more digging to do. Congressional leaders run a programme called Google Fiber to cry and greater urgency to impose regula- would be wise to demand an exhaustive roll out high-speed internet locally, al- tions to ensure privacy. What helps protect audit of all political ads on the social net- though the project is on hold while it internet firms today is that they have re- work in order to see the extent of Russia’s searches fora new boss. Facebookrecently mained generallypopularamongconsum- purchases, says a top executive of a large said it would spend $1bn to build a data ers by offering cheap services and widely advertising agency, who believes Face- centre in Virginia. But the new digital econ- used products. But if a crunch comes, the book’s initial review and report to Con- omy does not create many human jobs di- big tech companies may find themselves gress were cursory. rectly. Only around 100 Virginians will be haunted by their behaviour now. 7 In Europe America’s tech giants have faced regulation and antitrust action. The European Commission levied a €2.4bn Retiring senators ($2.7bn) fine on Google for abusing its mo- nopoly position in online search. Is Wash- Flake news ington likely to follow Europe’s path? In spite ofthe heated rhetoric similar enforce- ment measures, or sweeping new regula- tions, are several years away at least. Apart from the Honest Ads Act, the only other WASHINGTON, DC legislation that seems likely in the near Anotheranti-Trump conservative heads forthe exit term is a tax cut, which would benefit tech firms by making it easier to repatriate pro- EFF FLAKE, Arizona’s junior senator, is indifferent to policy and demanding of fits, says Blair Levin, a former official at the Jamong the upper chamber’s more reli- personal loyalty as Mr Trump, that proved Federal Communications Commission. ablyconservative members, asconserva- unacceptable. The president repeatedly Although there may be more calls to tism was once defined. FreedomWorks, an lambasted Mr Flake and praised Kelli break up tech monopolies, there is not any organisation that scores members on their Ward, hishighest-profile primarychalleng- real political appetite to do so. Nor isitclear votes for low taxes and less regulation, er, whom Stephen Bannon, Mr Trump’s that, under current law, trustbusters would gives him a 95% lifetime rating, higher than former chief strategist, has endorsed. That succeed even if they tried. The likeliest im- all butfourothersenators. The National Ri- augured a bruisingcampaign that MrFlake pact will eventually be on the ability of fle Association endorsed him, as did the decided was best avoided. tech firmsto pursue acquisitionsand merg- Club for Growth, a low-tax advocacy In an emotional speech on October ers, although this has not happened yet. group. But he not only declined to endorse 24th, he announced his retirement at the Amazon’s $13.7bn bid for Whole Foods, a President Donald Trump last year, he end of his term. “We must never regard as grocer, was approved by regulators with- wrote a book condemning Mr Trump’s in- normal the regular and casual undermin- out much protest. Facebook recently an- fluence on conservatism. For someone as ing of our democratic norms and ideals,” nounced that it was buying TBH, a nascent he said, or “accept the daily sundering of social-polling firm, for an undisclosed our country”. He admitted that a pro-trade, sum. Some pundits, such as Ben Thomp- pro-immigration conservative like him son ofStratechery, a technology blog, have had “a narrower and narrower path to called for the deal to be blocked, arguing nomination”. He promised to spend his re- that social-media firms should not be al- maining 14 months in office “unafraid to lowed to buy one another. But it is unlikely stand up and speak out as if our country that regulators in the Trump administra- depends on it. Because it does.” tion will take such a view. Mr Flake is the second conservative Perceiving future risk, internet firms anti-Trump senator to announce his retire- want to do all they can to fight the souring ment. Bob Corker, who chairs the Senate mood and win political allies. They have Foreign Relations Committee, also de- spent around $50m on lobbying so far in clined to seek re-election. That brings the 2017. More than halfofthat comes from Al- number of potential Republican rank- phabet (Google’s parent company), Ama- breakers in the Senate to five, including Su- zon and Facebook combined. One of their san Collins, Lisa Murkowski and John tactics is to hire not just more lobbyists but McCain. This will not necessarily alter the also more employees. Amazon has started amount of legislation that gets through. A an advertising campaign to market its job tax-cutting bill is the only thing with an im- creation: it has plans to hire an additional minent chance of passage, and Rob Port- 100,000 people by mid-2018. But many of Jeff Flake breaks man, another Republican senator who has 1 //*sharathcharged*// The Economist October 28th 2017 United States 31

2 criticised Mr Trump’spolicies, says that de- She had been looking forward to facing ei- sey Graham of South Carolina, a Republi- spite their distaste for the president, Messrs ther Mr Flake or the hard-right Mrs Ward, can foreign-policy hawk, told NBC, the Corker and Flake still support his tax plan. and may now have a tougher opponent. Trump administration has “a blind spot on Perhaps the biggest loser from Mr And Arizona could soon have a second Russia I still can’t figure out”. Flake’s announcement is Mrs Ward, who Senate election: John McCain, the senior Congress is running three separate Rus- now looks likely to have more company in senator, is battling an aggressive brain can- sia-related investigations, all of which are the primary. Many expect at least one of cer. If he retires or dies in office, whoever supposed to answer Mr Graham’s ques- Arizona’s five Republican House members Arizona’s governor appoints to replace tion. None looks likely to do get to the bot- to run. The strongest may be Martha him will have to run in a special election to tom of it. Small wonder, then, that those McSally, who haswon twice in a swing dis- serve out the rest ofhis term. Americans anxious to know more about trict. Trent Franks is less erratic and more Mr Bannon, who has vowed to back who attacked their political system last experienced than Mrs Ward and likely to primary challengers to those Republican year, and what could be done to prevent a appeal to similar voters. Matt Salmon and senators he deems insufficiently loyal to repeat, pin such hopes on a probe led by John Shadegg, two formerRepublican con- Mr Trump, crowed that Mr Flake “went Robert Mueller, who was appointed spe- gressmen, could also jump in. down without a fight”. And indeed Mr cial counsel in May 2017 with a broad remit Whoever emerges will face a tough op- Flake’s dignified exit notches up another to investigate whether Russians tried to ponent in Kyrsten Sinema, the likely victory for the Bannonite nativism and swing the election, and whether anyone in Democratic candidate, who boasts a cen- Trumpian populism that now defines the America tried to help them. trist voting record and a $4m war-chest. Republican Party. 7 Ardentbelieversin MrMueller, a craggy faced former FBI boss under Republican and Democratic presidents, hope for a day when the super-prosecutor sweeps aside the tangles of partisan claims and counter- claims and lays criminal charges against those guilty of aiding and abetting Russia. Such folkimagine a momentwith the satis- fyingfinalityofa Hollywood G-man burst- inginto a mafia hideout. MrMueller, forhis part, has not said when his work will be wrapped up, nor whether he will press any criminal charges. That official silence has been filled with speculation about what he is up to, based on clues such as the prosecutors he has hired for his team, his empanelling of a grand jury and a raid that he had conduct- ed on the home ofPaul Manafort, a former Trump campaign chairman who spent lu- crative years as a political consultant, in- cluding to pro-Russian candidates in Uk- raine. The latest mini-leak cheered Republicans, when NBC News reported that a Democratic lobbying firm founded by Tony Podesta, the brother of Hillary Robert Mueller’s investigation Clinton’s campaign chief John Podesta, had been quizzed by Mr Mueller’s team How it could end about work for a Ukrainian client of Mr Manafort’s that was not at first declared under rules governing foreign lobbying. People with long experience of how special counsels operate—including for- WASHINGTON, DC mer federal prosecutors and government officials who have known Mr Mueller for Those hoping fora neat conclusion are likely to be disappointed years, who spoke to The Economist on con- EORGE W. BUSH, the formerpresident, said. He added that foreign aggressions— dition of anonymity—warn that Ameri- Gearned headlineswith a recentspeech including cyber-attacks, the spreading of cans may need to steel themselves for a that—while it did not name President Do- disinformation via social media or finan- more ambiguous, and unhappily political, nald Trump—unmistakably rebuked his cial influence—“should not be down- ending to his work. To start with their sim- Republican successorfordegradingAmeri- played or tolerated”. plest advice, it is a mistake to assume that ca’s national discourse with divisiveness Almost a year after his victory, and de- leaks or purported leaks are a good way to and even “casual cruelty”. Yet his weighti- spite numerous revelations of Russian- map the investigation. Because official est words came moments later, when Mr funded attempts to stoke racial, religious Washington is agog at the idea ofmembers Bush urged America to secure both its elec- and ethnic conflicts during the 2016 elec- of Mr Trump’s inner circle or family facing toral infrastructure and democratic system tion, downplaying the attacks remains Mr prosecution, most leaks involve what one against subversion by foreign powers. This Trump’s default response. In discussions expert calls “Trump people stuff”. Mr time he named names. “According to our of Russian misconduct, the president sees Mueller’s most significant work could in- intelligence services, the Russian govern- a bid by Democrats, the “fake media” and volve a counter-intelligence probe built ment has made a project of turning Ameri- other perceived enemies to undermine the around closely-held secret evidence of Na- cans against each other,” the 43rd president legitimacy of his victory. As Senator Lind- tional Security Agency intercepts of Rus-1 //*sharathcharged*// 32 United States The Economist October 28th 2017

2 sians talking to Russians, they say. trigger obstruction-of-justice charges. Mr against minor figures that do not provide Nor is it possible to deduce much from Comey has said since his firing that Mr accountability when great wrongs are al- the fact that a grand jury has been formed Trump asked him ifhe could see his way to leged. Mr Mueller is frequently described to help Mr Mueller. One formerprosecutor dropping a probe into Michael Flynn, a for- as a principled “Boy Scout”, whose mis- describes this as a “normal tool” of any se- mer three-star general sacked as national sion is not to collect political scalps but to rious investigation. Another person scoffs security adviser for keeping quiet about investigate somethingexceedingly serious, at reports that Mr Mueller has recruited a contacts with Russians. But obstruction of namely that Russia tried to sway an elec- dream team of lawyers skilled in scaring justice is hard to prosecute unless clearly tion. He has sweeping powers. It is quite suspects into turning on their colleagues. nefarious motives can be proven, says one plausible that he already has the tax re- Persuading witnesses to co-operate, at experienced federal prosecutor. If Mr turns that Mr Trump refused to make pub- times with threats of prison time, is the Trump were able to argue that he simply lic. Those may or may not show that Mr work of any decent prosecutor, he notes. wanted to let Mr Flynn go quietly into re- Trump’s business empire was at some There has been plenty of speculation tirement, any case might crumble. point propped up by funds or complex fi- about Mr Trump’s firing of James Comey, One rule to follow is that “good prose- nancial structures with links to Russian na- the FBI boss he inherited from Barack cutors don’t do bullshit cases”. That means tionals—though the president denies re- Obama, and whether that dismissal might avoiding weak cases, but also small ones ceiving Russian loans. But even the most dramatic revelations might not involve criminality, warns one person. One plausi- Congressional investigations ble scenario is that Mr Mueller finds that Russia’s government did indeed attack Muddying the waters America, and that Mr Trump is more be- WASHINGTON, DC holden to Russian interests than he admits, but does not find evidence of collusion Republican committees and the cynical art ofwhataboutism that justifies prosecutions. MERICAN politics has no superior gations into actions taken by the Justice If Democrats take control of one or Apractitioner ofthe old Soviet art of Department during the 2016 campaign, more chambers of Congress in the mid- “whataboutism”, which aims to deflect including James Comey’s decision to term elections of 2018, then they could at- criticism by pointing out that other peo- publicise its investigation ofHillary tempt to impeach Mr Trump, triggering yet ple elsewhere have done bad things, than Clinton’s e-mails (the Federal Bureau of another partisan fight. Alternatively, Mr President Donald Trump. At a now-infa- Investigation, which Mr Comey headed Trump could review Mr Mueller’s report, mous press conference, when asked until Mr Trump fired him in May, is part declare it “fake news” and recommend to about the murderous violence offar-right ofthe Justice Department). What they the DepartmentofJustice thatitshould not marauders in Charlottesville, Virginia he could gain from this, other than dis- be made public. These scenarios are just snapped, “What about the alt-left”? tracting the public from Robert Mueller’s guesses, our sources concede. But one When an interviewer noted that Vladi- ongoing investigation, is unclear. thing above all seems probable: for all that mir Putin, whom Mr Trump said he Also on October 24th Devin Nunes, many Americans long for clarity, this saga respected, killed political opponents, Mr who heads the House Intelligence Com- will have a political ending. 7 Trump responded, “We’ve got a lot of mittee, said his committee would open a killers. What, you thinkour country is so joint investigation with Mr Gowdy into innocent?” the 2010 sale ofan American uranium Forecasting the opioid epidemic Congressional Republicans are fol- firm to a Russian company. The deal gave lowing their leader. On October 24th Bob Russia control over 20% ofAmerican Treatment effects Goodlatte and Trey Gowdy, chairmen uranium-production capacity. Because respectively ofthe House Judiciary and America considers uranium a strategic House Oversight committees, an- asset, multiple federal agencies—in- nounced they would open joint investi- cluding the State Department, which Mrs NEW YORK Clinton then headed—had to approve the One opioid epidemic is levelling offjust deal. In 2015 the New York Times reported as a deadlierone is beginning that several men linked to the new firm made large donations to the Clinton PIOID abuse is a national emergency, Foundation. A formerspokesman forMrs Oand the president is expected to de- Clinton denied any quid pro quo, and clare it so officially. That will help free up multiple sources say she was not perso- funds for agencies to treat the problem. As nally involved in the approval. part ofthis effort, researchers will try to de- Mr Trump has repeatedly tweeted termine when the opioid epidemic will about both the uranium deal and Mr peak, and how many more people are like- Comey’s behaviour. Elijah Cummings ly to die before it fades. The answer to that and John Conyers, the top Democrats on second question can vary by halfa million the House Oversight and Judiciary com- deaths over the next decade. mittees, called the investigation “a mas- The epidemic appears to be gathering sive diversion to distract” from the Trump pace. Of the 65,000 drug-overdose victims campaign’s Russia ties. Mrs Clinton’s in the 12 months to March 2017, 80% died spokesman accused Republicans of from opioids(coroners’ reportsmayunder- “throw[ing] sand at the eyes ofthe pub- count that figure). The death toll now ex- lic.” House Republicans certainly seem ceeds the height of the AIDS epidemic in more eager to investigate Mrs Clinton 1995. Donald Burke, dean of public health and BarackObama than Mr Trump—or at the University of Pittsburgh, points out Meanwhile on Fox indeed to legislate. that the number of fatal drug overdoses has doubled every eight years for the past1 //*sharathcharged*// The Economist October 28th 2017 United States 33

2 37. Unabated, a continuation of that trend job with Cal Fire (the California Depart- would see annual opioid deaths rising to ... and the damage done 2 ment of Forestry and Fire Protection), ex- 90,000 by the middle ofthe next decade. United States, opioid-overdose deaths plains Katherine Katcher, founder of Root That analysis may be too simplistic. Mr By drug type, ’000 & Rebound, a California-based charity Burke’s forecast is “plausible if nothing 100 helping prisoners to re-enter society after FORECAST changes”, but it is “insane ifit actually hap- Prescription they complete their sentences. Around 80 pens”, according to Michael Barnett, a pro- Heroin and fentanyl 30% of all jobs in California require a li- fessor ofhealth policy and management at 60 cence, compared with a national average Harvard University. Amore nuanced mod- of one-quarter. The state’s 200-odd licens- el would try to capture the fact that the 40 ing boards have lots of discretion over opioid epidemic is not a singular event but whetherformerprisoners can obtain occu- a set of intertwined ones taking place in 20 pational licences. Many licences have a different places. Mr Barnett forecasts that “good moral character provision”, which 0 the epidemic will gather pace for some 2002 05 10 15 20 25 immediately disqualifies anyone with a time yet, before stabilising at about 45,000 Source: “A Dynamic Transmission Disease Model of the felony conviction. deaths per year by 2025. Opioid Epidemic”, by D. Sinclair, H. Jalal, M. Roberts & California’s rules are actually relatively D. Burke, University of Pittsburgh, 2017 There is good reason to be pessimistic benign compared with some states. The as the epidemic enters a new and deadlier National Employment Law Project graded phase. While deaths from prescription One such model, under development at the licensing laws of the 39 states and the opioids are reaching a plateau, deaths from the Public Health Dynamics Lab in Pitts- District of Columbia which restrict the fentanyl—an illegal drug with 50 times the burgh, matches data in the national drug- scope oflicensingboardsto consider crimi- potencyofheroin—have risen 92% overthe use survey to outcomes in mortality. It pre- nal records. It found that Minnesota’s laws past year to 22,000 in March (see chart 1). dicts that prescription opioid deaths will were the least punitive, California’s need- Brandon Marshall, a professor of epidemi- rise slowly to about 20,000 a year within ed improvement, and 28 states had mini- ology at Brown University, worries that the next five years, but reckons heroin and mal or unsatisfactory laws. In Oklahoma, this rise demonstrates the difficulty of pre- fentanyl deaths will increase markedly to which has the highest incarceration rate in venting addiction. Mr Marshall’s worst- 72,000 per year by 2025 (see chart 2). the country, state licensing boards com- case scenario forecasts that opioid deaths That is not inevitable. But working out pletely banned convicted felons from al- will rise to 100,000 a yearby 2025. His mid- how best to prevent it will be hard. State most 40 professions ranging from asbes- dling scenario is still dire: it expects deaths legislatures have enacted over 400 bills re- tos-abatement contractor to embalmer, to increase by half, to 52,000 by 2019, be- lated to the opioid crisis since 2010. Many and from landscape architect and podia- fore falling slowly. came into force concurrently, making it trist to wrecker, a job which usually entails Epidemiologists are frantically scram- ever more difficult to disentangle the effect removing debris from building sites. bling to go beyond simple best-guess esti- ofa good policy from a bad one. 7 Such requirements are correlated with mates to dynamic models that can forecast a higher rate of reoffending, says Jarrett addiction and overdoses more accurately. Skorup at the Mackinac Centre for Public The Centres for Disease Control and Pre- Licensing laws Policy in Michigan. Around 4m Michigan- vention (CDC) hopes that in time it can de- ders have a criminal record, which makes velop an early warning system, using nov- Locking up it difficult or impossible for them to find el data inputs, that will be able to identify work in the 150 professions that ban con- opioid outbreaks before they become firefighters victed felons. A recent study by Stephen deadly. The CDC disbursed some money Slivinski ofArizona State University found to 20 states last month to improve their CHICAGO that between 1997 and 2007, states with the data collection on overdoses. heaviestburdensofoccupational licensing Most restrictions ofoccupational A reliable early warning system is still saw an average increase in reoffending licences forex-prisoners make no sense some way off. Mr Burke bemoans the fact within three years of release of over 9%. that few people are modelling the opioid UT for the heroic work of state prison- The states with the lightest burdens saw a epidemic, whereas infectious diseases Bers, the wildfires that recently swept decrease of2.5% over the same period. such as Zika have a small army ofepidemi- through northern California would have A few states have woken up to the cost ologists working on them. University labs been even more destructive. Around of failure to reform their occupational li- are only now diverting brain power away 4,000 low-level felons made up 30% of the censing. A bill sponsored by Whitney from infectious diseases to tackle opioids. forestfirefightersbattlingthe raging flames, Westerfield, a Kentucky state senator, carrying chainsaws and other heavy would prevent licensing boards from de- equipment. Some risked their lives. Last nying applications if a criminal conviction The needle... 1 year Shawna Lynn Jones, a 22-year-old is not relevant to the licence being sought. United States, opioid-overdose deaths who had less than two months of her In Illinois a law was passed last year that By drug type, 12-month rolling total, ’000 three-year sentence left, died while fight- prevents licensing boards rejecting the ap- 25 ing a fire. By all accounts, Ms Jones took plications of aspiring barbers, cosmetolo- Prescription great pride in her work, for which she was gists and hair braiders because of a crimi- Heroin 20 paid less than $2 an hour, and would have nal conviction, unless it is directly related Fentanyl liked to continue firefightingonce released. to the job. And at the end of last month, 15 Yet California, like many other states, after some hesitation, Connecticut admit- 10 makes it virtually impossible for former ted to the bar Reginald Dwayne Betts, who prisoners to get a firefighter’s licence. The spent eight years in prison after being con- 5 state requires nearly all firefighters to be victed of carjacking when he was 16. A certified as an emergency medical techni- graduate ofYale Law School, fellow at Har- 0 cian (EMT), an approval usually denied to vard, accomplished poet, husband and fa- 2005 07 09 11 13 15 17 convicted felons. That is why only a hand- ther, Mr Betts has become the poster-child Source: Centres for Disease Control and Prevention ful of former prisoners managed to get a ofthe second chance. 7 //*sharathcharged*// 34 United States The Economist October 28th 2017 Lexington Semper fidelis

John Kelly’s ill-judged tirade reflects America’s problematic love affairwith uniformed men never been greater. In 1990, 40% of young Americans had a mili- tary veteran fora parent; in 2014 only16% did. But this dissonance hasnot, asthe general implied, caused Americansto underappre- ciate the forces. To the contrary, it has encouraged, as his remarks also indicated, a highly romanticised view of military service, which is inaccurate and counter-productive at best. Members ofthe armed forces are often patriotic. But many see their service primarily as a way to make a living, as the soaring cost of recruiting and retaining them indicates. Personnel costs have risen by over 50% in real terms since 2001. Acknowledging this truth takes nothing from their professionalism and valour, which your columnist has witnessed at close quarters. Nor is it disrespectful to fallen heroes such as Mr Johnson to dig a little deeper into their motivations. When the bullets fly, it is true, most soldiers really are motivated more by a great, self-denying sense of love than by money. Yet that momentous and inspiring emo- tion is primarily aimed at the comrades fighting either side of them, not the flag. Meanwhile there are costs to America’s uncritical soldierwor- ship. Most obviously, it gives the Department of Defence an out- size advantage in the battle for resources with civilian agencies. POIGNANT feature of American bases in Iraq were their Today’s cuts to the State Department, whose officers are not no- Awalls of Thank You cards sent by American schoolchildren. ticeably less patriotic or public-spirited than America’s soldiers, Often displayed outside the chow-hall, where the troops gath- are a dismal case in point. ered to eat, they typically thanked them for “being over there to The phenomenon also provides an easy opening for political keep us safe”. Hardly any of the soldiers Lexington spoke to, dur- opportunists, such as Mr Trump. His eagerness to hire former top ingseveral tripsto Iraq, believed thatto be the case. TheirIraqi en- brass—including James Mattis, H.R. McMaster and Mark Inch, a emies were fighting a defensive war, not trying to launch one retired army general who was recently appointed to run the Bu- against America. Yet the soldiers accepted the sentiment un- reauofPrisons, aswell asMrKelly—wason one level a cynical bid blushingly. No soldier expects the beloved chumps backhome to to appropriate their hallowed reputation. And it is working. understand what he gets up to. He just needs to feel appreciated. Where earlier soldier-politicians, including George Marshall and This paradoxical tendency among soldiers, to hunger for the Colin Powell, were viewed as political figures, Mr Trump’sgener- approval of civilians whose views they otherwise set little store als are widely considered to be above the political fray, including by, came to mind duringchiefofstaffJohn Kelly’srecentpresenta- by the president’s critics, who lookto them to moderate an errant tion in the White House briefing room. The retired marine gen- commander-in-chief. Perhaps they do. But it is unwise to subject eral’s boss, President Donald Trump, had got himselfinto hot wa- such powerful men to so little criticism, as MrKelly’sill-judged in- ter after it emerged that he had not written to the grieving tervention illustrates. On the one hand, the former marine im- relatives of four soldiers killed in Niger, an oversight he made plied that he, too, through the awfulness of his experience, as a worse, characteristically, by falsely suggesting his predecessors commander who had sent men to their deaths, and as the father hadn’t contacted Gold Star families much either. Worse still, in a of a soldier killed in Afghanistan, was unimpeachable by jour- call to the grieving widow of Sergeant La David Johnson, which nalists. On the other, hisremarks, includinga harsh, erroneous at- was overheard and described by a family friend, Frederica Wil- tackon Mrs Wilson, were highly partisan and contestable. son, who is a Democratic congresswoman, the president crudely suggested her dead husband “knew what he signed up for”. Those lovely men in uniform In response, Mr Kelly sought to delegitimise the president’s A less-noted problem is that America’s unthinking reverence for critics, by implyingthat, as they had little directexperience ofmil- its fighters is forestalling a badly needed reappraisal of how it or- itary affairs, including the “selfless devotion that brings a man or ganises its forces, and to what end. The fact is, America’s foreign- woman to die on the battlefield”, they should not pass comment policy doctrines envisage a degree of global dominance, based on them. Indeed, Mr Kelly went further, suggesting, to a group of on military might, which its volunteer force is now too small to awestruck journalists, that they were not merely incompetent to enforce. And to increase the force sufficiently, on current trends, pass judgment on military affairs, but unworthy ofdoing so. “We appears unaffordable or impossible. “This force cannot carry out don’t lookdown upon those ofyou who haven’t served,” he said that foreign policy,” concludes Andrew Bacevich, a historian and as he left the podium. “We’re a little bit sorry because you’ll have formerarmy officer, who happens also to be a Gold Star father. never experienced the wonderful joy you get in your heart when This constitutes a looming crisis, which could logically end in you do the kind ofthings ourservicemen and women do—not for one of two ways. Either America will have to reintroduce con- any other reason than they love this country.” scription. Or it must curtail its military ambitions. Neither out- Settingaside, forthe moment, that this was a spurious defence come is palatable to American policymakers, however, so the ofthe president’sslanderofhispredecessorsand hiscarelessness problem is seldom discussed. Maintaining the happy delusion towards Mrs Johnson, Mr Kelly pointed to an important truth. that America’sforcesare ideal and irreproachable makesthat eas- The gulf between America’s armed forces and its civilians has ier. But reality cannot be deferred indefinitely. 7 //*sharathcharged*// The Americas The Economist October 28th 2017 35

Also in this section 36 Bello: Murderous police 37 Cable cars in Latin America

Mexican-American relations Trump is not merely driving a hard bar- gain, but wants his voters to see his coun- New fences make bad neighbours try win and Mexico humiliated in a zero- sum contest. Robert Lighthizer, the United States Trade Representative, scolded Cana- da and Mexico for their “resistance” to MEXICO CITY American demands in the most recent round of NAFTA talks. When told that rad- Donald Trump’s antagonism could both harm Mexico’s economy and set offa ical changes might undermine confidence, backlash ofpopulist nationalism Mr Lighthizer answered coldly: “Why is it a MID the shiny skyscrapers and hipster mained prickly, and unequal. But since the good policy for the United States govern- Acafés of central Mexico City, the legis- days of John F. Kennedy, both countries ment to encourage investment in Mexico?” lative offices of Armando Ríos Piter, a cen- have believed that building an open, Shrewd Mexicans, seeing a crisis that tre-left senator from the poor, rural state of prosperous, democratic and stable Mexico their country cannot solve alone, are re- Guerrero, offer a salutary shock. The walls was in their mutual interest. NAFTA argu- cruiting allies north of the border to argue are crammed with jaguar masks, indige- ably hastened the end of one-party rule in that the United States benefits greatly from nous art and placards from anti-corruption Mexico, and has anchored everything co-operation with Mexico. Mr Ríos Piter, protests: reminders that this is a large, di- from electoral reforms to central-bank in- for one, thinks hard about public opinion verse country, in which reformers like the dependence. in American farm states like Iowa, North senator must battle income inequality, All thisnowseemsuncertain. Mexicans Dakota and Nebraska. Earlier this year he graft and violent crime. are confronted with an American presi- wrote a bill proposing a cap on purchases Despite pressingdomestic concerns, Mr dent who gave campaign speeches about of yellow corn from the United States, and Ríos Piter now also has a new worry Mexican migrants murdering “beautiful” urging the government to replace them abroad: President Donald Trump. Some 1m American girls, attacked NAFTA as a job- with imports from Brazil, Canada or Ar- Mexicans from Guerrero live in the United killing disaster and made fantastical prom- gentina. Though the bill was more a sym- States, he says; they tell him they “feel ises to build a border wall that Mexico bolic warning than the first shot in a trade frightened” by rumours of looming immi- would pay for. As damagingly, MrTrump’s war, it jangled nerves in Washington and gration raids and deportations. attacks on the media and praise for auto- in farm-state capitals. It was meant to. In a country whose leaders have inter- cratic leaders make it sound quaint for To Mr Ríos Piter, who supports free mittently resorted to anti-Americanism to democratic politicians in Mexico to defend trade, Mr Trump was exploiting “a gap prop up autocratic rule or justify protec- a free press and human rights, or to call for filled with ignorance”. American farmers tionist policies, modernisers have long la- the country to open to the world. export$2.6bn worth ofcorn a yearto Mexi- boured to overcome distrust of the United Team Trump has proposed revisions to co, mostly as cattle feed (Mexican cuisine States. The resentment was learned early, NAFTA that neither Mexico nor Canada relies on largely home-grown white corn). in childhood lessons about gringos con col- could accept, such as a call to review the But because farmers sell to intermediaries, millos, or fanged Americans, stealing terri- pact every five years, a move that would Mr Ríos Piter thinks that many Americans tory in the 19th century and, more recently, wreck investor confidence. These de- living in conservative states that voted for oppressing the 36m Mexicans who live mands challenge the very idea of North Mr Trump “did not have a clear idea” ofthe over the border, as many as 6m of them American value chains, in which jobs are importance ofthe Mexican market. without legal papers. kept in Mexico, Canada and the United In a speech this year in Washington, Thanks to such pacts as the North States by sourcing labour and materials in DC, Ricardo Anaya, the young, ambitious American Free-Trade Agreement (NAFTA), all three countries, allowing firms to com- leader of Mexico’s conservative National signed 25 years ago, Mexico and the United pete with rivals in Asia or other emerging Action Party (PAN), noted that the value of States have built powerful networks of in- markets. two-way trade has grown sixfold under terdependence. The relationship has re- Indeed, Mexican officialsworrythat Mr NAFTA. A wonkish sort, he spreads out 1 //*sharathcharged*// 36 The Americas The Economist October 28th 2017

2 charts at PAN headquarters showing how the New Yorker was still a candidate. Ms ries risks. Mexican security services have American manufacturing jobs were stable Zavala wants Mexico to think “creatively”, become “dependent” on American drones for years after NAFTA came into force in lobbying border-state governors to stand and signals intelligence in dealing with 1994, only to collapse after China joined up to Mr Trump and city mayors to shield drug gangs and terrorists. America’s Drug the World Trade Organisation in 2001. Mexicans from deportation. Enforcement Administration controls Margarita Zavala, the wife of Mexico’s For decades Mexico’s government has probably the country’s largest pool of formerpresident, Felipe Calderón, recently worked to prevent disputes in one field, criminal informants. One American veter- broke with the PAN to launch an indepen- such as trade, from contaminatingother ar- an ofthe drug wars recalls how a drug lord dent presidential bid ahead of elections in eas of co-operation, such as security and was taken down after hiring 50 prostitutes July 2018. She says bluntly that the bilateral intelligence-sharing. Now that strategy has for a Christmas party, not realising that relationship is “being poisoned”. Like oth- been turned on its head. All the talk is of some were in the pay ofAmerican spooks. eropposition leaders, she sharply criticises linkage and leverage, to give the transac- Some populist Mexican politicians talk the current president, Enrique Peña Nieto, tional Mr Trump a taste of his own medi- of opening the country’s southern border for welcoming Mr Trump to Mexico with cine. Alas, says Alejandro Hope, a former to migrants from Central America, giving the pomp of a government leader when intelligence officer, such an approach car- them train tickets northwards to Texas. Not 1 Bello Foxes in the henhouse

Murderous Latin American police need to start policing themselves EVEN rats eliminated,” began one duras), such policies have failed to stem “S voice message in a WhatsApp chat Copped out rising murder rates. They can be counter- in El Salvador. “What joy!” In a country Civilian and police homicide rates productive: as police brutality grows, ci- ravaged by gangs, such exchanges might Latest available vilians stop offering tips or seeking pro- be expected among hit men. Instead this Ratio of fatal shootings by police tection from the authorities. That makes discussion was among policemen. Ac- to overall firearm homicides, % the public more vulnerable. In a recent 20 cording to revelations in August by Re- El Salvador poll for the Atlantic Council, a think-tank, vista Factum, a website, they gloated over 77% of respondents in the northern trian- 15 killing gang members, shared tips on tam- United Jamaica gle said they did not trust the police. pering with crime scenes and posted vid- States Nonetheless, Latin Americansseem more 10 eos ofdetainees being tortured. eager to punish civilian wrongdoers than Chile Brazil South Africa El Salvador has the world’s highest 5 to limit police violence. A survey in 2015 murder rate, and its policemen kill with India found that half of Brazilians believe “a England and Wales worrying frequency. The fact that police 0 good criminal is a dead criminal.” kill people so often in countries wracked 01020304050 Reformers could start to reduce kill- by violence may stand to reason: the Intentional homicide rate per 100,000 people ings by police with technical fixes, such as more armed criminals that officers con- Source: “Police deadly use of firearms: an equipping officers with non-lethal weap- front, the more they will need to open fire. international comparison” by A. Osse and I. Cano ons like tasers. But the countries that have But something particularly alarming is drastically reduced police brutality have taking place. A study by Ignacio Cano, a bly assassinations by police. instituted broad reforms to rid the justice Brazilian criminologist, found that the Moreover, official statistics may under- system of organised crime. In the early highera country’s murderrate, the greater state the problem. Governments only tally 2000s Colombia purged 12,000 corrupt the overall share of killings committed by killings committed by police in the line of officers, while teaching clean ones to in- cops (see chart). It seems that police un- duty. These alone can add up. Venezuela vestigate crimes more effectively. able to quell violence may lose their inhi- acknowledges hundreds of deaths at the Some hopeful signs have emerged in bitions about taking part in it. hands of officers on “People’s Liberation Central America. In Guatemala, a UN- Latin American and Caribbean coun- and Protection Operations”. However, in backed team of independent prosecutors tries along drug-trafficking routes lead countries where organised-crime groups secured convictions in 2013 against four world rankings for both types of killing. have infiltrated state security forces, off- police officers responsible for systematic Mr Cano’s study found that 17% of El Sal- duty cops often do the dirty work for vigi- killings of prisoners. And last year Hon- vador’s fatal shootings in 2015 were com- lantes or gangs. Official ledgers do not re- duras appointed a civilian-led commis- mitted by police. Jamaica’s ratio in 2014 cord such murders as killings by police. sion to vet its police force. It has already was 13%. Those proportions are higher One explanation for the prevalence of purged 30% ofthe country’s officers. than the 10% rate in the United States, trigger-happy cops is the embrace of puni- Guatemalan and Honduran police are where police brutalityisa heated political tive policingas an antidote forweak justice still too violent. However, those countries issue, and dwarfGermany’s 4%. systems. Asrecentlyas2013, police in El Sal- have at least admitted that their problems In theory, these high ratios might stem vador killed just 39 people. But in 2015, the stem from a rotten system, not just bad from Latin American cops facing frequent government reinstated a mano dura (“iron- apples. In contrast, El Salvadorhas fired or dangerous encounters. But the data do fist”) approach, warning gang members charged onlya fewofthe 559 officersit has not support this explanation. In Mr that officers could shoot them “without arrested this year for allegedly belonging Cano’s view, a ratio of people killed by any fear ofsuffering consequences”. Police to death squads, participating in firefights police to police officers killed by suspects killed 591people the next year. or committing other crimes. Even the offi- higher than 10:1 implies a misuse of force. There is little evidence that mano dura cers in the WhatsApp chat were freed just In 2016 El Salvador’s figure was 59:1— works. In Central America’s “northern tri- three days after their arrest. They are back meaning some “shoot-outs” were proba- angle” (El Salvador, Guatemala and Hon- at work, and no one is protesting. //*sharathcharged*// The Economist October 28th 2017 The Americas 37

2 so fast, says Mr Hope. Mexico has faced its Public transport own influx of asylum-seekers from Haiti and Africa, and simply opening its fron- Subways in the sky tiers could create new headaches. Mexico might gain some leverage by denying the CIA access to southern border crossings in places like Tapachula, where American of- ficials currently get to question migrants ECATEPEC from Iraq, Afghanistan and othercountries Why politicians and commuters like cable cars in search of terrorists. A breakdown in se- curity ties would also endanger the dis- EXICABLE, a cable-car line 4.9km 2004, was the answer. Since then Cali, Ca- creetextradition ofhigh-rankingcrime and M(three miles) long, soars above Ecate- racas and Rio de Janeiro (as well as Mexico terrorism suspects to the United States. But pec, a poor suburb of Mexico City. Open City) have built similar systems. In Sep- Mexico could suffer too, for instance if for just over a year, its 185 gondolas carry tember Evo Morales, Bolivia’s president, American-funded training for prosecutors 18,000 people a day between San Andrés opened La Paz’s fifth teleférico, extending and judges were interrupted. de La Cañada, at the top of the hill, and the world’s longest and highest network Perhaps the most potent argument in Santa Clara Coatitla at the bottom. The trip with a linkto the clifftop city ofEl Alto. America is the warning that Mr Trump makes five stops en route and takes19 min- One reason cable cars are popular is risks turning Mexico’s election into a con- utes, compared with the 80-minute bus that governments usually subsidise them test of anti-Americanism—particularly if trip residents previously endured. The ca- in order to compete with private buses. he abandons NAFTA. He might empower ble caris“superquickand much lessstress- Mexicable charges seven pesos (37 cents), Andrés Manuel López Obrador, a strident ful,” says Nelly Hernández, a passenger ac- less than half of its break-even price. Politi- class warrior who will stage his third presi- companied byherawestruck four-year-old cians like them because they can be built dential bid in 2018, and who is compared daughter. without displacing large groups of people; by critics to Hugo Chávez, the late authori- In rich Western countries, cable cars are it often takes 18 months or less, in time for tarian leader of Venezuela. Strikingly, one mainly for tourists. Latin America, in con- re-election. “Mayors think, ‘I’m going to be of Mr López Obrador’s closest allies, Yeidc- trast, has adopted them as mass transit for cutting the ribbon’,” says Mr Dávila. kol Polevnsky, isat pains to reject compari- the poor. They suit the region’s mountain- The jury is out on whether cable cars sons with Chávez or Mr Trump, and even ous cities, many of which have expanded are worth the cost. In 2012 Mr Dávila and the label “populist”. Ms Polevnsky, the sec- chaotically, says Julio Dávila of University othersconducted a studyofMedellín’ssys- retary-general of the Movement for Na- College London. Ecatepec’s population tem, which found that crime fell and jobs tional Regeneration, insists that her boss, if jumped after an earthquake hit Mexico grew in areas the cars served. However, the elected, would be serious and responsible City in 1985. city also made investments in policing and and would not compete with “the Trump The pioneer was Medellín, Colombia’s economic development at the same time, show”. The electoral calculation is clear second city. Refugees from the country’s which may have been responsible for enough: it is popular to be against Mr long civil war had crowded into hillside these gains. The researchers did find that Trump, but less profitable to be like him. districts. Widening streets to create new the cable car made residents prouder of Enrique Krauze, a leading historian and bus lanes or extending the metro would their community. People in Ecatepec feel essayist, is sure that, if elected president, have been too costly. Acable car, opened in the same way. Bandits go after buses but Mr López Obrador would seek to accrue leave the cable cars alone, says David Ra- the powersofa strongman. Afurtherrisk is mírez, a passenger. The gondolas’ cosy in- that as a proudly parochial man who teriors include two facing metal benches, speaks no English, Mr López Obrador encouraging conversation. would lackthe savvy to navigate domestic Residents of Complexo de Alemão, a American politics, hobbling attempts to go shantytown in Rio de Janeiro, have no around Mr Trump and rally a cross-border such cause for cheer. Rio’s state govern- North American coalition. “He has this ment paid 253m reais ($135m) to a consor- mystical thing, that he will go to Trump tium led by Odebrecht, a construction and explain that he is not being reason- company, to build a cable car connecting able,” says a sorrowful Mr Krauze. the area to the city’s metro. That now looks Fornow, Mexican officials are taking so- ill-advised. In a plea bargain, the former lace in the more collaborative attitude of head of Odebrecht’s infrastructure arm several members of Team Trump, includ- said it had paid 94m reais in bribes and do- ing Rex Tillerson, the secretary ofstate, and nations to the state’s formergovernor, who Jared Kushner, the president’s son-in-law. was later convicted on corruption charges, Optimists say that Mexico’s democratic in- to win a development deal that included stitutions have grown strong enough to re- the federally-funded cable-car project. For sist backsliding. MrKrauze notes that Mexi- five years, residents rode the gondolas free co has seen protests against Mr Trump but of charge. But they have been grounded not broader demonstrations against the since September 2016, after the state United States: “Mexico is a good neigh- stopped paying the firm that ran them. bour, not out of love, but pragmatism, real- Despite the Rio fiasco, Latin American ism and, yes, an undercurrent ofrespect.” cities are still cabling up. Bogotá, Colom- Still, unease is spreading. Mexican lead- bia’s capital, will open its first commuter ers feel abandoned by American politi- cable car next year. The state of Mexico, cians who should know better, but are which borders Mexico City, intends to scared of Mr Trump and his voters. Mexi- build two new lines by 2023. In all, 20 pro- cans are not the only allies of the United jects are planned in the region. The sky, it States who feel that way. 7 Flyest ride in town seems, is the limit. 7 //*sharathcharged*// 38 Europe The Economist October 28th 2017

Also in this section 39 The battle for Catalonia 39 Russia’s presidential circus 40 Czechs elect a billionaire 41 Italians for autonomy 41 Malaria in Switzerland 42 Charlemagne: The mogul of Prague

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

Turkey’s latest purges across Turkey. Mr Erdogan’s government responded that it would no longer issue Too many kooks visas to Americans. The clash between the two NATO allies is not abating. “They are seething here,” says Henri Barkey, a former State Department official, referring to his old workplace. (Mr Barkey has been un- ISTANBUL able to set foot in Turkey for the past year. Turkish authorities are investigating him President Erdogan’s sacking ofan oddball mayorhints at trouble forhis party and several other Americans, including a ARLIER this year, Melih Gokcek, the vet- charges was not specified, but many read- former CIA chief and a New York senator, Eeran mayor ofAnkara and a member of ers got the hint. In 2015 a former deputy forsupposed links to the coup.) the ruling Justice and Development (AK) prime minister accused Mr Gokcek of The mood in the European Union is party, hosted a group of foreign journalists large-scale corruption. He never produced equally foul. At a summit this month, EU at an estate on the capital’s outskirts. Mr the evidence he claimed to have gathered, leaders discussed freezing the aid Turkey Gokcek began by clicking his way through and the mayor denied the allegations. gets as part of its bid to accede to the bloc. a gruesome PowerPoint presentation on Mr Gokcek’s is one of many heads to On October 25th the European Parliament the previous summer’s failed coup, mixing have rolled at municipalities across Turkey voted to cut it by up to €80m ($94m), citing images of bodies mangled by tanks with this autumn. Since September, six AK may- the human-rights situation. The member- the soundtrack from the film “Requiem for ors whose terms would have expired in ship talks have reached a dead end. a Dream”. He finished by claiming that 2019 have stepped down. Mr Erdogan is Western powers had been involved in the said to have ordered the resignations, The general in his labyrinth bloodbath, that the Obama administra- which began with the mayor ofIstanbul. Underemergencyrule, which wasrecently tion had created Islamic State, and that The fact that Mr Erdogan can casually prolonged for three months, Mr Erdogan American and Israeli seismic vessels were defenestrate elected officials is further evi- enjoys unchecked powers. But by turning deliberately setting off earthquakes near dence of how authoritarian his govern- the purge against his own party’s mayors Turkey’s Aegean coast. A bewildered re- ment has become. Over the past year he he may have revealed a sense of anxiety porter asked where Mr Gokcekwas getting has presided over the arrests of more than about his future. Earlier this year a referen- hisinformation. “I have the world’sbestin- 80 mayors in the Kurdish south-east. Many dum on giving him more power barely telligence service at my disposal,” the have been replaced by government-ap- passed despite the government’s efforts to mayor responded. “It’s called Google.” He pointed trustees. Inside AK itself, dissent stack the odds in his favour; in Ankara and did not seem to be joking. has ceased to exist. There is less and less Istanbul, the “no” vote prevailed. Mr Gokcek’s career as Turkey’s leading room for it elsewhere. The purges un- Senior AK officials defend the sackings conspiracy theorist, a title fought over by leashed byMrErdogan since the coup have by saying that the party must rejuvenate it- many members of President Recep Tayyip cost some 60,000 people their freedom self for the local, parliamentary and presi- Erdogan’s inner circle, came to an abrupt and 150,000 their jobs. In a sign that more dential elections in 2019. Polls show the end on October 23rd, when the mayor an- arrests may be coming, police detained Os- number of “undecided” voters rising. “We nounced he would resign after more than man Kavala, a respected philanthropist, on need some changes and new faces,” says two decadesin the job. (Manywere baffled October 18th, and Saban Kardas, a think- Yasin Aktay, a presidential adviser. But that he had held on to his office for so long.) tank scholar, a couple of days later. there is no guarantee that the mayoral His decision followed weeks ofrising pres- The repression at home is causing head- shake-up will play in Mr Erdogan’s favour. sure by Mr Erdogan and pro-government aches abroad. In early October, after police “He thinks AK voters are disappointed newspapers, some of which suggested Mr in Istanbul arrested a Turkish staffer at the with the local administrations,” says Atilla Gokcek would face criminal charges if he American consulate on terrorism charges, Yesilada, a political analyst. “They may be refused to step down. The nature of those the United States suspended visa services disappointed with him.” 7 //*sharathcharged*// The Economist October 28th 2017 Europe 39

The battle for Catalonia the Generalitat will not take orders from Madrid, Raul Romeva, a Catalan council- The countdown lor, told the BBC. Their trade unions say they will only obey the Generalitat. Weeks of civil disobedience in Catalo- nia probably lie ahead. Officials in Madrid are worried about whether they can make MADRID intervention stick. But if the Spanish state decidesto move, itcannotafford to lose the The government prepares to intervene, and the secessionists to resist subsequent trial of strength. Mr Puigde- ANY Spaniards have long hoped that laws Mr Puigdemont’s executive pushed mont has repeatedly called for “dia- Man all-out confrontation between the through the Catalan parliamentlastmonth logue”—but only about the “terms and government and the pro-independence allowing an independence referendum vi- timescale for independence”, as Mr Rajoy leaders of Catalonia could be avoided. But olated Catalonia’s statute of self-govern- complained this week. Polls show that this weektime all but ran out. ment, as well as Spain’s constitution. But if most Catalans want a better deal within On October 21st Mariano Rajoy, Spain’s Mr Puigdemont does call an election, the Spain, rather than to leave it. Mr Rajoy has prime minister, asked the Senate to grant opposition Socialists may wobble in their agreed to a Socialist proposal to set up a him the constitutional power to dismiss support for Article 155, which the Senate is congressional committee to discuss consti- the Catalan regional government, impose due to approve on October 27th. Mr Rajoy tutional reform. If there is a solution to direct rule and call a fresh regional election is unlikely to want to plough on alone. Spain’s ills, that is where it lies. 7 within six months. With Catalan leaders The Generalitat says 43% of the elector- pledging resistance, it is unclear whether ate voted in the unauthorised referendum this heralds the start of a solution or a on October 1st, 90% of them in support of Russia’s presidential race worsening ofSpain’s constitutional crisis. secession. It takes that as a mandate to de- As The Economist went to press, Carles clare independence. But it faces a number Centre ring Puigdemont, the president of the General- of unpleasant realities. Since October 1st itat, as Catalonia’s devolved government is more than 1,300 companies, including al- known, was due to address his parliament. most all the big ones, have moved their Many in his coalition, which holds a bare domiciles outside the region, and tourist MOSCOW majority of seats, want him to declare in- bookings have dipped. Ksenia Sobchakfills out the cast of dependence. Since no European govern- If it goes ahead, the government’s inter- Russia’s electoral circus mentwill recognise this, itwould be purely vention is likely to start with the dismissal symbolic. Over the past few days pressure ofMr Puigdemont’s cabinet, the naming of SENIA SOBCHAK first gained fame in has grown on Mr Puigdemont in Barcelo- new commanders for the Catalan police, KRussia as the host of Dom-2, a raunchy na, the Catalan capital, to stave off inter- and the takeover of the Generalitat’s fi- reality-television show where contestants vention by calling a regional election him- nances and IT centre. The next targets compete for love while building a house. self. Mr Puigdemont turned down an offer might be Catalan public television and ra- Since then, Ms Sobchak, whose father was to make his case before the Senate. dio, which the government sees as separat- Vladimir Putin’s political mentor, has cy- Havinginvoked Article 155 ofthe consti- ist mouthpieces. “They will try and do it cled through a variety of roles, including tution, which grants the Spanish govern- surgically,” says a former minister. talk-show host, opposition leader, journal- ment wide powers to compel a region to Mr Puigdemont promises resistance. ist, restaurateur, model and actress. Her lat- obey the law, many in the cabinet and the The government “has undertaken the est part may be her biggest yet: candidate ruling conservative People’s Party want to worst attackon the institutions and people for president of Russia. go ahead regardless. “No government of of Catalonia” since Francisco Franco, Ms Sobchak acknowledges that the any democratic country can tolerate the Spain’s dictator from 1939-75, he pro- election, due in March 2018, is not a real breaking of the law,” said Mr Rajoy. The claimed. The 200,000-odd employees of contest, but a “high-budget show”. She knows that she has no chance, but says she represents voters who are “against every- one”. Ms Sobchak insists her role has not been approved by the powers that be, but few in Moscow politics believe her. Many recall the bid in 2012 of Mikhail Prokhorov, the oligarch who owns the Brooklyn Nets basketball team, which was widely seen as a Kremlin ploy to absorb the protest vote. Ms Sobchak’s candidacy looks similar. In early September, Vedomosti, a respected business daily, reported that the Kremlin was seekinga woman to face offagainstMr Putin; one source called Ms Sobchak the “ideal candidate”. When she announced her candidacy in mid-October, she got an approving comment from Mr Putin’s spokesman and coverage on state televi- sion, which normally shuns the opposi- tion. She says her campaign is financed by unnamed “businessmen”, and avoids criti- cising Mr Putin. “He helped my father in a Independent thinkers very difficult situation, and basically saved1 //*sharathcharged*// 40 Europe The Economist October 28th 2017

2 his life,” she says. (Her father, Anatoly Sob- Elections in Czech Republic chak, was mayorofSt Petersburgin the ear- ly 1990s; Mr Putin helped him to flee a po- Czechs and litically-motivated investigation in 1997.) Forthe Kremlin, Ms Sobchak’s presence balances distracts attention from Alexei Navalny, the anti-corruption campaigner and oppo- PRAGUE sition leader. In recent months Mr Navalny Andrej Babis’s win shows voters are has criss-crossed the country, staging ral- frustrated with politics lies in hopes of forcing the Kremlin to al- low him on the ballot. (He is barred from HE ANO (“Yes”) party, led byAndrej Ba- running due to trumped-up embezzle- Tbis, an agro-industrialist billionaire, ment convictions.) The thousands of won a clear victory in the Czech general youngsters at Mr Navalny’s marches this election on October 21st. Like other popu- year have spooked the Kremlin. Aged 35, list politicians, Mr Babis attacked estab- Ms Sobchak, too, positions herself as the lished political parties as a cartel of insid- youth candidate. “I want the voice of my ers, despite himself serving as finance generation to be heard,” she says. minister from 2014-17. “Traditional parties With her social-media following and play this game ofleftand right, but they are celebrity glow, Ms Sobchak will also help not left and right,” Mr Babis says. “They inject drama into the tedious ritual of Mr have the same programme: power and Putin’s re-election. Despite much scepti- money.” The message worked. ANO took cism, talk of Ms Sobchak’s announcement 29.6% ofthe vote and 78 of200 seats. dominated social media and Russia’s re- But as in many European countries, mainingindependentnews outlets, reflect- Czech politics is fragmenting. Nine parties Tomio Okamura, Czech nationalist ing a hunger forpolitical movement of any will enter parliament, including every- kind. “Now we must write about Sobchak, thing from communists to far-right xeno- funds. Mr Okamura denies the allegations. the noise is constant, the hype incessant,” phobes, and there is no obvious coalition. But many observers doubt he can hold his riffed Dmitry Bykov, a prominent writer Czech unemployment is low, the economy new MPs together forlong, either. and poet. “We’ve run out ofrhymes forthe is growing and wages are rising. Yet voters The Pirates are a more credible lot. word ‘Putin.’” Ms Sobchak’s first press con- seem more focused on fears that the Euro- Founded in 2009, they advocate transpa- ference provided a preview of the theat- pean Union will force their country to ac- rencyand e-government, and stronglysup- rics. She announced as hercampaign man- ceptrefugees, and the sense thatcorrupt in- port the EU. The party’s chairman, Ivan ager Igor Malashenko, a former television siders have cornered the gains from the Bartos, is a former IT professional with im- boss who helped engineer Boris Yeltsin’s country’s decades-long transition to a mar- pressive dreadlocks. The Pirates’ main re-election in 1996. The event was inter- ket economy. Besides ANO, the two parties strength is in Prague, where they already rupted by a heckler in a unicorn mask. that gained the most were on the political hold seats in the city assembly. But they ap- Yet unlike the hermetically-sealed fringes: the Pirate Party, which came third peal broadly both to the young and to edu- world ofreality television, politics can take with 10.8%, followed by the far-right Free- cated elites worried by Mr Babis. With the on a life of its own. Ms Sobchak’s liberal dom and Direct Democracy (SPD) party, country’s other pro-EU parties discredited agenda, argues Kirill Rogov, a political ana- which won 10.6%. Like Mr Babis’s party, during previous terms in government, lyst, may prove more enduring than her they embody Czech voters’ disenchant- many liberals turned to the Pirates as a sort candidacy. By giving her a platform for her ment, but in different ways. ofblue-blooded protest vote. message, “The Kremlin seriously risks Even in the colourful field of European Mr Babis is a pragmatist who prides strengthening the influence of this agenda far-right populists, the SPD stands out. The himself on competence; the Czech govern- in public opinion, making it common- party is a personal vehicle for its founder, ment ran a budget surplus with him as fi- place, especially among the youth.” The Tomio Okamura, whose own background nance ministerlast year. But his ownership circus may yet surprise the ringmasters. 7 (he was born in Tokyo, and his father is of newspapers and other media leads to half Japanese, half Korean) sits oddly with fears of incipient oligarchy. Anew law has his racially provocative, anti-immigrant forced him to place his conglomerate, platform. Mr Okamura has played on anti- Agrofert (the country’s largest private em- Roma prejudice byfalselyclaimingthat the ployer), into a trust, but he remains the Nazis did not exterminate them based on beneficiary. In September, parliament race, but sent them to concentration camps stripped him of immunity so that he could because they refused to work. In a country be charged with fraud over an alleged with a negligible Muslim presence, he Agrofert scheme to tap EU funds. The elec- wants police to ferret out backers of sharia tion renewed his immunity; a new vote law. He also demands implausible EU re- would be needed to reinstate the charges. forms (such as ending freedom of move- Mr Babis rejects forming a coalition ment), or a referendum on a Czech exit. with the SPD or with the communists, and Before entering politics, Mr Okamura moderate parties (like the conservative launched a beer magazine and a travel Civic Democrats, who came second with agency for stuffed animals, which charged 11.3%) rule out co-operating with him. But clients€90 ($123) and up to ship theirteddy they do not necessarily reject his party, bears to their landmark of choice and take ANO. Mr Babis may be forced to appoint a photo. He founded his first party, the someone else as prime minister. Such an Dawn of Direct Democracy, in 2013, and arrangement would allow him to run the won 14 seats. That party forced him out country as he now runs his business—as a A model candidate two years later, accusing him of abusing behind-the-scenes power-broker. 7 //*sharathcharged*// The Economist October 28th 2017 Europe 41

Italy’s referendums cates of autonomy in Italy invoke cultural and while autonomy won a majority ofall and linguistic identity far less than seces- registered voters in Veneto, in Lombardy it Autonomous sionists in Spain (even though, for over a won only among those who voted. In Mi- thousand years, Venice was an indepen- lan, barely 30% of registered voters sup- movement dent republic, and its dialect is considered ported it. The governor of Lombardy, Ro- a separate language by many linguists). berto Maroni, said the central government ROME So what now? The most cynical view is had agreed to talks. But Rome is under no that the Northern League pushed the refer- obligation to reach an agreement. And any Northern Italy is not asking for endums merely to raise its profile ahead of deal would need to be approved by both independence, yet a general election due early next year, and chambers ofthe national legislature. ORE than 5m Italians tookpart on Oc- that the party leadership may drag its feet Nevertheless, the example ofCatalonia Mtober 22nd in two referendums on in its pursuit of autonomy. Matteo Salvini, suggests that calls for autonomy can grantingmore autonomyto the rich, north- who has led the party since 2013, has shift- change inexorably into demands for inde- ern regions of Lombardy and Veneto, ed his focus away from purely northern is- pendence. In an interview before the vote, which drew inevitable comparisons to the sues, trying to build a right-wing populist Mr Maroni scoffed at the comparison with independence ballot three weeks earlier in movement with national appeal. He has the Spanish region, which he said wanted Catalonia. Few in Italy travelled as far to even gone fishing forvotes in the south. to be the 29th state of the EU. “We, no,” he cast their votes as Maurizio Zordan. The 53- The referendums were non-binding, said. But he added: “Not fornow.” 7 year-old executive recently moved to Grand Rapids, Michigan, to run the Ameri- Malaria in Switzerland can subsidiary of his family firm, which sells shop fittings for luxury-brand stores. But he felt so passionately about the refer- A recurring ague endum that he flew back to vote in his home town ofValdagno. Europe should watch out foran old disease The governments of the two regions staged the ballots ostensibly to give them- E SHUL hav a fevere tertaine,” a cases ofP. vivax have recently jumped, selves a popular mandate to open negotia- “Yline from Chaucer’s Canterbury from under 200 in the mid-2000s to tions with Rome (even though they could Tales, is probably a reference to malaria, 250-400 forthe past fouryears. Similar have demanded talkswithouta vote). Both which was rife in swampy areas ofmedi- increases in malaria have been recorded administrations are dominated by the eval England. (“Tertaine” refers to the in Germany, France and Sweden, accord- Northern League, which once advocated fever’s tendency to recur every three ing to the European Centre forDisease secession forthe richer north. days, a hallmarkofthe variety known as Control (ECDC). Almost all ofthe Swiss Few people opposed to more autono- Plasmodium vivax.) The parasite was cases since the start ofthe migrant crisis mybothered to vote againstit, so the size of once endemic throughout Europe, not in 2014 have been refugees from Eritrea. the turnout was crucial. In Veneto, which just in southern countries like Greece but Researchers do not thinkany ofthe includes Venice and its flat, agro-industrial as far north as Finland. In Italy in the late victims were infected in Switzerland. A hinterland, the turnout was 57% (with 98% 19th century it used to kill 15,000 people 2016 report in the Malaria Journal found it of the votes in favour). But in Lombardy, each year. But by the end ofthe last cen- was unclear whether P. vivax infection is the region around Milan, it was a mere 38% tury public-health programmes had rid occurring before migrants embarkon (95% for autonomy). the continent ofthe disease. Today, even their journey to Europe or along the way. Currently, five of Italy’s 20 regions have in Africa and Asia, the war on malaria is But parasite stages can lie dormant in the more extensive powers than the others. If going well: between 2000 and 2015, the liver formonths or years, meaning pa- Lombardy and Veneto joined them, they World Health Organisation reported a tients can transmit the disease to others would hangon to a greatershare ofthe tax- 37% drop in the global incidence rate, and before symptoms arise. Switzerland is es collected there. And since the two re- a 60% fall in the death toll. free ofthe Anopheles species ofmosquito gions generate about 30% of Italy’s GDP, One might thus thinkthat in Swit- that transmits Plasmodium falciparum, that could mean much less money for dis- zerland, ofall places, doctors would have the more deadly variety ofmalaria tribution to the poorer south. little need foranti-malarial treatments. which is present in sub-Saharan Africa. Even though he is a member of the cen- Yet data from the Swiss public health But other mosquito species common in tre-left Democratic Party (PD), Mr Zordan department (BAG) show that annual temperate climates can transmit P. vivax. would welcome that. “The moment has It is extremely unlikely that malaria come for Italians to take responsibility for will again become endemic in Europe. themselves,” he says. The south, he argues, Fever rising That would require a large infected host is mafia-infested and backward, despite al- Switzerland, cases of malaria population and lots ofmosquitoes. But most 70 years of subsidies. The regional 500 short outbreaks are possible, especially in governments of Lombardy and Veneto southern countries. One in Greece in claim to have a combined annual fiscal def- 400 2011-12 infected 189 people, a warning that icit with the rest of Italy of more than countries like Switzerland should be €70bn ($82bn), equal to 8% of national 300 prepared to treat those who arrive car- government spending. rying the sickness. Yet primaquine, the As in Catalonia, the Italian votes reflect 200 only treatment for P. vivax, is not regis- the impatience of rich northerners with 100 tered in Switzerland. Doctors must order poor southerners, whom they consider the drug from abroad, says Adrien Kay of corrupt and spendthrift. But there the par- 0 the BAG, and they are reimbursed only at allels end. The referendums in Lombardy 2005 07 09 11 13 15 17* insurers’ discretion. That seems risky. The and Veneto were indisputably legal and Source: Swiss Federal best way to stop malaria from coming Office of Public Health *Year to August, annualised endorsed by the Constitutional Court. Nei- backis to swat it quickly. ther proposes independence. And advo- //*sharathcharged*// 42 Europe The Economist October 28th 2017 Charlemagne The mogul of Prague

The new starofCzech politics is not about to lead an anti-Europe uprising rupt insiders (despite serving as finance minister for the past four years). His great champion, President Milos Zeman, is a hard-liv- ing, Putin-loving boor who this week brandished a mock AK-47 bearing the inscription “For journalists”. The new parliament will be chock-full of anti-system parties (see page 40), including Mr Babis’s ANO. What makes the Czechs so cranky? One clue might lie in unreasonable expectations about what EU membership could bring the ex-communist countries of Eu- rope. Nearly 30 years after 1989, wages in the Czech Republic are 40% that ofneighbouring Germany. A related gripe is a perceived sniffiness from the West, expressed in exaggerated central Euro- pean fearsthatfood multinationalsare dumpingsecond-rate pro- ducts on to their markets. The European Commission’s response to eastern jitters has been to insist that all EU projects, such as the single currency, should be open to all EU countries, not just the usual suspects in the West. But in non-euro countries like the Czech Republic, even mentioning euro membership sounds like a haughty warning to join, or be left behind. Emmanuel Macron takes a different approach. Over the sum- mer France’s president toured central Europe, glad-handing friendly leaders while shunning Messrs Orban and Kaczynski. HY does it keep happening? Consider some events of the This divide-and-conquer stratagem paid off handsomely this Wpast week. Andrej Babis, a tycoon with a populist bent, week when the Czechs and Slovaks broke ranks with a group of sweeps aside the old guard in a Czech election. Fresh from his eastern European countries to back a tightening of cross-border own electoral success, Sebastian Kurz, the boy wonder of Austri- labour rules inside the EU, a totemic issue for Mr Macron. Today an conservatism, opens coalition talks with a far-right party that France’s relations with Poland are at rock-bottom. But things are harbours former neo-Nazis in its ranks. Dozens of deputies from going swimmingly with the Czechs. the anti-immigrant Alternative for Germany party take their seats in a Bundestag that was supposed never to find space for The morrow would obliterate the plans of today their kind, while Viktor Orban, the father of Hungary’s illiberal What does unite the populists of the east is the fragility of the in- democracy, declares central Europe a “migrant-free zone”. stitutions around them. Political parties come and go with alarm- It is tempting to seek a single explanation for these disparate ing speed, often, as with ANO, merely serving as vehicles for the phenomena. Perhaps Angela Merkel’s open-door refugee policy interests of an individual or small group. Bureaucracies may be of 2015 is to blame. Maybe this is the rage of those left behind by malleable to political caprice. Media and civil society may not the uneven distribution of globalisation’s booty. Or it could be have the strength or independence to checkleaders’ excesses. that the central Europeans have had enough of the overbearing Mr Orban has exploited these weaknesses to reshape Hunga- bully-boys of Brussels. Worse, if these outcomes stem from a ry’s institutions to serve his Fidesz party and its cronies, while common cause, some fear they might coalesce into a common railingagainst“globalists” like George Soros, a Hungarian-born fi- threat. Surveying the bleak landscape, one commentator dis- nancier, and the European officials who supposedly dance to his cerns “an insurrection by the Habsburg Empire against the EU.” drum. Mr Kaczynski, despite holding no government post, has That is a misunderstanding. True, the likes of Mr Orban or Ja- embarked on a messianic mission to reinvent the Polish state to roslaw Kaczynski, the de facto leader of Poland, pose a genuine correct what he considers the injustices of the post-1989 settle- threat to the EU by undermining its legal order. But most of the ment. Both men lead parties that dominate opinion polls, crowd neighbourhood’s leaders seek to harness the benefits of the club out opponents and foul the air. they belong to. Mr Kurz’s obsession with managing migration The Czech system has its own fissures, but Mr Babis poses a leads him to advocate collective European border controls rather different sort of threat. The risk is not of an ideological reshaping than bash Eurocrats. Mr Babis is a pragmatist who knows his of the state, but of weak institutions failing to restrain oligarchic country’s success rests on Europe’s integrated supply chains and rule. Mr Babis, the second-richest person in the Czech Republic, open internal borders. Indeed, Robert Fico, the prime minister of has vast agricultural and industrial holdings (though he has Slovakia, is currently enjoying a star turn as the region’s Euro- placed them in a trust) and two newspapers. In his modestly ti- phile-in-chief. All have been happy to use the EU as a punchbag tled bookWhat I Dream Of When I Happen To Be Sleeping, he pro- when expedient. None wants to blow it up. poses scrapping checks on power, like the Senate or town coun- Rather than an inveterate nationalist or Eurosceptic, Mr Babis cils. Lacking a majority in parliament, Mr Babis cannot inflict too is in fact a man of “no ideology whatsoever,” in the words of a much damage. But Milan Nic, an analyst at the German Council Czech official. Yet this makes his political success, posing as an on Foreign Relations, worries about who may follow in his wake. anti-elitist outsider, even harder to grasp. The Czech economy is Certainly, Mr Babis and his kind warrant a certain vigilance. one of Europe’s zippiest. Czechs suffer few of the historical griev- But Europe need not gird itself for Habsburg mutiny. There is no ances or cultural cleavages that beset their neighbours. And yet tidal wave ofrevolutionarypopulism washingoverthe east. That almost one-third of them plumped for an angry billionaire who is just as well, for managing the swirling eddies of central Eu- spends his time lambasting the political system as a cabal of cor- rope’s politics presents enough ofa challenge. 7 //*sharathcharged*//

SPECIAL REPORT October 28th 2017

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The new bazaar

E-commerce is transforming business and daily life, mostly for the better, says Charlotte Howard IN WAREHOUSES AROUND the globe, they wait: toys, phones, dresses, CONTENTS televisions, blankets, trainers, laptops and much more. In China, online retailers are gearing up for “Singles Day”, November 11th, the world’s 4 Amazon busiest shopping day. Last year Alibaba, much the biggest of the coun- Beyond shopping try’s e-commerce giants, rangup sales of$18bn on that occasion, the most ever spent in one day anywhere on Earth. Much ofthe rest ofthe world is 6 China preparing for the Christmas rush. Present-hunters used to wear them- The everywhere stores selves out tramping around crowded shops. Now, increasingly, they or- 7 Going global der from the comfortoftheir homes or offices. Home and away Over the past decade global e-commerce has been expanding at an average rate of 20% a year as bricks-and-mortar shops have languished. 10 Traditional retailing ACKNOWLEDGMENTS Yet its share oftotal retail trade last year, at8.5% worldwide, was still mod- Shop till you drop In addition to those quoted, the est. Even in South Korea, the country with the highest percentage ofretail 11 Manufacturing author is particularly grateful for the sales online, it amounted to only 18%, according to Euromonitor, a re- Burying the Hachette help of Chris Biggs, Catherine Chan, search firm. In America, the world’s biggest consumer market, it made up Sharon Chan, Joyce Chang, Chris 12 Logistics Donnelly, Matthew Fassler, Josh about 10% of the total. And in many middle-income countries its share Gartner, Simeon Gutman, Ludwig was much lower: less than 5% in India and Brazil, forinstance. Delivering the goods Hausmann, Eric Heller, Ralf Her- But there is every reason to think it will get much bigger. In rich 13 The future brich, Scott Hilton, Sidney Huang, Jet Jing, Ronald Keung, Don countries millennials who grew up buying goods online are moving into Part and parcel Kingsborough, Sebastian Klapdor, theirprime spendingyears. In poorerones, risingincomesand the spread Danit Marquardt, Hamid Moghadam, of mobile phones will bring more shoppers online. In China, although Florian Neuhaus, Erik Nordstrom, growth in e-commerce has slowed, Goldman Sachs, a bank, still expects Heidi O’Neill, Mark Read, Scott Stanzel, Adam Sussman, Heath Terry, online spendingto more than double between 2016 and 2020, to make up Chris Tung, Jeff Walters, Tom Ward, nearly one-third of total retail sales. In America, Euromonitor predicts A list of sources is at Ken Worzel and Daniel Zipser. that its share will rise from about one-tenth last yearto about one-sixth in 1 Economist.com/specialreports

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2021. In Britain the figure may facturers develop products and interact with shoppers, not just Whoosh! rise to one-fifth. online but increasingly in physical shops as well. Online sales, 2016 prices The relentlessgrowth in e- The implications are all the broader because Amazon and $bn commerce may eventually run Alibaba, the industry’s two most innovative companies, do not China up against natural limits. In define themselves as retailers at all. Amazon does not just sell 600 America, argues Frederick goods: it leases cargo planes, produces films and offers a voice as- Smith, the founder and chief sistant, Alexa. Its cloud-computing business, Amazon Web Ser- United States executive of FedEx, a logistics vices (AWS), powers its own operations along with those of firm, rising shipping expenses many otherfirms and is a vital source ofprofits, keeping its inves- will make e-commerce less at- tors patient. Alibaba’s business is even broader than Amazon’s, 500 tractive. And different parts of including not just shopping, entertainment and cloud comput- the world will progressatdiffer- ing but payments and social media as well. Both companies’ ac- ent speeds. In India, for in- tivities generate cash and rich streams ofdata which can be used stance, growth has faltered. Yet to improve their existing services and add more. Alibaba de- there is no doubt that e-com- scribes itself as providing the pipes and cables for all kinds of 400 merce has much further to go. business. “To some extent we are a utility company,” says Daniel What is less clear is how far and Zhang, itschiefexecutive. “We are tryingto provide an infrastruc- how fast it will rise, where it ture fordigital commerce.” will do best, and how great its Consumers have already gained much from all this, with impact will be. more in prospect. They are enjoying a broader choice of goods 300 America and China, the and more price transparency than ever before. Instead of spend- world’s two biggest economies, ing time travelling to shops, picking up goods and waiting in have produced the two titans of queues, theycan nowdo otherthings. Companiesno longer take the industry, Amazon and Ali- them for granted but compete to offer them better products, 200 baba. Both are relative young- greater convenience and improved service. sters. Amazon, started by Jeff For bricks-and-mortar shops these are difficult times. In Bezos as an online bookshop, some parts of the world shopping malls are being blighted as had its initial public offering in their customers move online and are served from vast ware- Japan 1997. Alibaba was founded by houses instead. Many traditional retail jobs will vanish as shops Britain 100 JackMa in 1999. Since then both close and the remaining ones use more automation. Some new South Korea have been growing at break- jobs will be created, but they may not make up for those that India Germany neck pace, bringing large-scale have gone. And electronic tracking of consumers in order to sell France disruption not only to retailing them more stuffwill become ever more intrusive. Brazil but to a range of industries This special report will examine the effect of these changes 0 spanning logistics, entertain- on the retail industry and those linked to it, such as logistics, mar- 2011 2016 2021 forecast ment, advertising and manu- keting and manufacturing, and assess their broader impact on Source: Euromonitor facturing in their home coun- society. It will begin by looking at the role played by America’s tries. Both have also been and China’s twin e-commerce giants, Amazon and Alibaba. 7 expanding their empires abroad. Amazon already has e-commerce sites in 14 markets and is planning further growth. Alibaba’s foreign ventures range Amazon from South-East Asia to Brazil and Russia. The two giants do not have the field all to themselves. In America, Walmart remains the biggest retailer and is spending Beyond shopping heavily on trying to fend off Amazon. It also has a stake in JD.com, an e-commerce firm based in Beijing that had 13% of the Chinese market last year. In China, Alibaba faces not just JD but also Tencent, a messaging and payment company that is now The one-time bookseller has become a conglomerate JD’s biggest shareholder. Smaller e-commerce firms around the world have the backing of giant investors such as SoftBank, Naspers and Tiger Global. In this business, size matters. Thanks FOR SHOPPERS IN 2017, it can be hard to remember what to the power of data, technological expertise and large distribu- life was like in the early1990s. There was mail order, but by tion networks, the biggest e-commerce firms will only get bigger. and large if you wanted to buy something you went to a shop. Jeff Bezos, Amazon’s founder, who was then working for a New Data day Yorkhedge fund, noticed the exponential growth ofthe internet. Since retailingtouchesthe economyand societyin so many His idea was to create an online company that would bring to- ways, e-commerce is already having broad effects well beyond gether shoppers and manufacturers around the world, starting the industry itself. In many countries retail is the biggest single with books. private employer. In America it accounts forone in nine jobs. It is Not everyone was convinced. A cover story in 1999 in Bar- also affecting the way that other kinds of firms do business. Lo- ron’s, a business weekly, entitled “Amazon.bomb”, argued that gistics companies are tryingout new ideas to meet ever-rising ex- the company would struggle to compete with mighty Walmart pectations of fast, free delivery. Small new manufacturers are and Barnes & Noble. But like many of Amazon’s competitors, it able to challenge big, established ones, thanks to the ease of sell- failed to predict the firm’s ever-expanding scope, the feverish ing goods online. Mountains of consumer data, the most trea- pace ofits spending and the enthusiastic support from investors. sured commodity of 21st-century commerce, are helping manu- For much of its life Amazon has bled red ink. As recently as 1

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costs. The result is that consumers buy more kinds ofgoods online. In America at least, an exception so far has been groceries, for which most people still trek to supermarkets. But that may change. When Amazon announced in June that it would buy Whole Foods, an upmarket grocer, for $13.7bn, super- markets’ share prices plunged. The company’s investments in its warehouses have persuaded ever more independent sellers to use them, too. Am- azon’s own inventory now accounts for less than halfthe saleson its site. Revenue from independent merchants around the world that list their products on Amazon reached $23bn in 2016, about twice as Amazon’s spheres of influence much as two years earlier. Customers en- joy a broader selection and Amazon reaps more profits to reinvest. 2 2014 it lost $241m on sales of $89bn. Its e-commerce side now It is a dizzying way to do business. Amazon’s many sources makes money, but its most profitable arm is its cloud-computing of revenue, as well as its masses of data and comprehensive dis- business, which last year earned 74% of its operating income. Mr tribution system, make itdifficultforcompetitorsto keep up. And Bezos continues to value long-term growth more highly than when newoneshave emerged, Amazon hasoften ended up buy- short-term profits. Morgan Stanley, a bank, expects Amazon to ing them, as it did with Quidsi, an online nappy business, and grow by an average ofnearly 20% a year between now and 2025. Zappos, a shoeseller. When the firm announced in September that it would build a The next thing it might do is to reinvent physical stores— second headquarters in North America in addition to its Seattle whether Whole Foods or others. In an experimental Amazon base (pictured), mayors queued up. In Seattle it now employs shop in Seattle, customers can choose items and pay automati- more than 40,000 workers, and globally a further340,000. cally, without stopping at a checkout, thanks to sensors and Amazon’s mission, to be “Earth’s most customer-centric machine learning. Ifit catches on, it could be widely deployed. company”, places few limits on what it might do next. “We want Among the company’s most interesting new tools is its to invent on behalf of customers,” says Jeff Wilke, who runs the voice assistant, Alexa, available through its Echo speaker. It offers company’s e-commerce business. “We’re going to experiment in a way for customers to order goods from Amazon. But the com- a host ofways and try things. Some ofthem will fail and many of pany has also opened the assistant to otherfirms so that they can them will succeed.” enable Alexa to operate their products. In this field, Amazon is The company has pursued a strategy of relentless invest- competing against Google, Microsoft and Apple. Techies reckon ment to win new customers and generate more cash so it can voice assistants could replace phones and tablets as the interface win yet more customers. What is remarkable about this effort is with the digital world. For now, Amazon is far ahead, holding the scale. In the year to June Amazon spent about $13bn on new 76% ofthe American market forsmart home speakers. technology products for its cloud and e-commerce businesses, Amazon is still seeking new ways to enmesh itself further nearly 20% more than Google and more than three times as in its customers’ lives. Consumers in rich countries, in particular, much as Facebook, according to Goldman Sachs. are spending more on services, health care and entertainment as Amazon aims not just to meet customers’ expectations but opposed to goods. Amazon intends to follow that business. In to set new ones. Its Prime annual subscription ($99 in America) America, customers can already use the company to deliver a initially just made it easierto buy things online and covered ship- Chinese meal to their home, hire someone to assemble a flat- ping, but now includes audio and video streaming. pack, manage their newspaper With its cloud business, launched in 2006, Amazon created subscriptions or search for a lo- a new way to serve its own computing needs and those of other cal dermatologist. companies. Instead of investing in their own facilities, firms can A new chapter In effect, Amazon has be- rent computing power from Amazon. AWS now provides the in- United States, book sales, $bn come a conglomerate—a model frastructure for startups and a growing number of big firms. Its 25 that has had its ups and downs. basic computing business is larger than that of its three closest Not everything it has touched competitors combined. 20 has turned to gold. Its Fire But Amazon’s biggest impact is still in e-commerce. In phone flamed out disastrously Online America it accounted for more than half the growth in online 15 soon after it was launched in spending last year. More searches forproducts begin on Amazon 2014. But the company is happy than on Google. The company has found that its entertainment 10 for some of its ventures to flop offerings complement its e-commerce business, keeping its In store as long as many thrive. So it Prime subscribers on board. That is important because those 5 will probably continue to ex- subscribers spend more than four times as much as other Ama- pand, reachingeverfarther into zon shoppers, estimates Brian Nowak of Morgan Stanley. He 0 people’s daily lives. That may reckons that in America more than a third ofall households have 2000 05 10 16 seem overambitious, but a pre- Prime. Its success depends in part on the speed ofdelivery, usual- Sources: Cowen and Company; cedent already exists: Alibaba ly within a day or two, and the absence of incremental shipping US Census Bureau in China. 7

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China Health sellsmedicinesonline. MrZhang, Alibaba’sCEO, recently announced a partnership with Marriott, the world’s biggest ho- tel chain. His company has also bought or taken stakes in other The everywhere stores firms to extend its reach. It owns Youku, a video-streaming site, and has invested in Weibo, a Twitter-like social-media company with 361m users, as well as Didi, a ride-sharing service. If a con- sumer likes the dress worn by an actress seen on Youku, she can instantly buy it through Tmall. Alibaba demonstrates the benefits of breadth But if China reveals how broad one company’s scope can be, it also shows how a rival might emerge. Alibaba has two ON AN AVERAGE morning a young urban professional main competitors, JD and Tencent, which have recently joined anywhere in the world mightwake up, checkhersocial-me- forces. Tencent began as a gaming and messaging business. Its dia feed and ordera cab on hermobile. While sittingin traffic, she “Honour of Kings” is estimated to be the world’s top-grossing might use her phone to purchase groceries and watch a video, video game; its popular messaging app, WeChat, has 963m and later to pay the driver and buy a coffee. Once at work, she monthly users. Whereas Alibaba began with e-commerce and might make an online payment to reimburse a friend for a con- payments and then expanded, Tencent began with gaming and cert ticket. So far, so normal. But if that young urbanite were liv- messaging and has moved furtherinto commerce. Tencent’s mo- ing in China, every one of these activities could have been pow- bile-payment app, WeChat Pay, had 40% ofthe market in the first ered either by Alibaba or a company in which it has a stake. quarter of the year, compared with Alipay’s 54%. Tencent started E-commerce in China is sweeping the board. Last year on- investing in JD three years ago; it now owns about one-fifth of it line sales in China hit $366bn, almost as much as in America and and is its biggest shareholder. Britain combined. Growth has slowed from its eye-popping pace of a few years ago, but Euromonitor predicts that online shop- We know what you want before you want it ping’s share of total retail will rise to 24% by 2020; Goldman Unlike Alibaba, JD sells its own inventory and that of third Sachs, whose forecast includes sales from one consumer to an- parties, and has its own distribution system. Shoppers can buy other, puts the figure at 31%. That will mean selling more to exist- goods from JD within WeChat’s app. In August JD announced a ing shoppers and gaining new ones in smaller cities and towns. partnership with Baidu, China’s biggest search engine. This blur- About 80% ofadults in China’s biggest cities already shop online. ring of boundaries between digital activities provides Alibaba, Alibaba, the company leading this transition, makes most JD and Tencent with a vast amount of information about its cus- of its money from advertising. But it has permeated consumers’ tomers’ lives. “We will know you as well as you know yourself,” lives in ways not yet seen in America or Europe. Westerners says Zhang Chen, JD’s chieftechnology officer. Tencent can gath- should picture a combination ofAmazon, Twitter, eBay and Pay- er data from social-media feeds and payments both online and Pal, but broader. Alibaba’s creation story is well polished. Jack in stores, and Alibaba recently introduced a “unified ID”, which Ma, its founderand chairman, wasborn in Hangzhou in 1964, the collects data on individuals across Alibaba’s many businesses. same yearasAmazon’sMrBezos, and perfected hisEnglish byof- These data give companies greater insight into what consumers fering free tours of his home town to foreigners. His first visit to want so they can adjust their marketing accordingly. Big Brother, America in 1995 inspired him to set up an internet business in it turns out, is a capitalist who wants to sell you blue jeans. China. After a few false starts he founded Alibaba in 1999 to help “The most important thing is not meeting the demand but Chinese manufacturers sell to foreign buyers. He also estab- creating the demand,” says Alibaba’s Mr Zhang. His company, JD lished Taobao, where independent sellers can list products, and and Tencent have ambitions beyond e-commerce. They are also Tmall, an e-commerce site for big brands. Much more followed. after the 85% of the retail trade that still takes place offline, either Alibaba’s vertiginous rise was powered by hundreds of by bringing more spending online or by serving customers in millions of increasingly well-off Chinese coming online, and stores. WeChatPayand Alipayare alreadywidelyused for physi- helped alongby a dearth ofwell-established incumbents. Forex- cal transactions. Pass a clothing store and you may receive a per- ample, its online marketplace required a reliable way to make sonalised coupon on your phone. JD and Alibaba cast them- 1 payments in a country where credit cards were still rare. So Alibaba created Alipay, a digital payments system that held a buy- er’s money until he received his order and Digital domination was happy with it. It was spun out into an Approximate share of Chinese online market, 2016, % Alibaba Tencent Baidu Other affiliate, Ant Financial, in 2014. Alipay is Social media Digital commerce Payments Video streaming Search (Monthly active users) now used by about 520m people, not just 100 T Baidu Similar to shop on Taobao or mall but to pay Third-party Youku, Tudou to Google. Most Taobao Alipay WeChat (963m) bills, buy lunch or send money to family. E-commerce payment system popular search Messaging app with platform with engine 80 shopping features Amazon has nothing of this kind. Most integrated iQiyi, PPS The (like an expanded entertainment and two leading video WhatsApp) American and European consumers have social features providers stuck with their tried-and-trusted credit 60 Tencent Video cards. Last year Alipay had 2.5 times as Tmall Largest third-party platform QQ (850m) many users as PayPal and more than 11 for brands and 40 Messaging app retailers WeChat Pay with games times as many as Apple Pay. And new ser- Payments integrated and blogging JD Direct-sales into messaging app vices are still being added. platform Shenma 20 Sogou Alibaba’s online marketplaces are Sina Weibo (361m) Baidu Wallet Micro-blogging site also expanding. The company not only similar to Twitter sells all manner of goods but has now 0 moved into health care and services. Ali Sources: Goldman Sachs; Boston Consulting Group; company reports

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2 selves as potential partners of bricks-and-mortar retailers, not panies sell in places such as Brazil and Russia, and assists foreign just helping with delivery but providing tools to transform the firms with marketing, logistics and customs in China. Eventually way stores operate. JD is using its logistics business to supply it hopes to use its technology to link logistics networks around goodsto small convenience stores, cuttingoutpartsof the supply the world so that any product can reach any buyer anywhere chain. Alibaba has invested in grocery and department stores. In within 72 hours. That is still a long way off, but it gives a glimpse Hema Xiansheng, its growing supermarket chain, prices on elec- ofthe company’s staggering ambition. tronic tags can be changed throughout the day. Amazon already earns more than one-third of its revenue Mr Ma says he wants to use technology to change Chinese from e-commerce outside North America. Germany is its sec- manufacturing. Alibaba alreadyprovidesservicessuch as adver- ond-biggest market, followed by Japan and Britain. This year it tising and cloud computing and hones those services contin- bought Souq, an e-commerce firm in the Middle East. Its criteria ually, based on the data it gathers. Mr Zhang wants to use such for expansion elsewhere include the size of the population and “data-driven infrastructure” to support other businesses. In Chi- the economy and the density of internet use, says Russ Grandi- na, Alibaba has achieved some of that. But as it invests abroad, it netti, head of Amazon’s international business. India has been is coming up against Amazon and others, who are eager to do so one ofits main testing grounds. with infrastructure oftheir own. 7 Amazon, like Alibaba, also wants to help suppliers in any country to sell their products abroad. An Amazon shopper in Mexico, for instance, can buy goods from America. Mr Grandi- Going global netti sees such cross-border sales as an increasingly important component ofAmazon’s value to consumers and sellers alike. Yet both companies run the risk that strategies which did Home and away well in their home countries may not succeed elsewhere. In Chi- na, for instance, the popularity of e-commerce relied on a num- ber of special factors. China’s manufacturers often found them- selves with excess supplies of clothes and shoes; Alibaba provided a place to sell them. Alipay thrived because few con- E-commerce giants are trying to export their success sumers had credit cards. China has also benefited from having cheap labour and lots of big cities—more than 100 of them with IN SEPTEMBER 2014 Jeff Bezos announced his first big in- over 1m people—creating a density of demand that made it vestment in India, hopping aboard a colourful bus in Ban- worthwhile for logistics firms to build distribution networks. galore. It was the start ofa rapid $5bn investment in India, part of As they expand, however, Amazon’s and Alibaba’s busi- Mr Bezos’s plans to take Amazon global. Two months later Ali- ness models may shiftand, in some markets, start to converge. So baba’sJackMa appeared in Delhi. “We will investmore in India,” far the companies have differed in important ways. Amazon he declared. The following year Alibaba put $500m into Paytm, owns inventory and warehouses; Alibaba does not. But Alibaba an Indian digital-payments company. This year it led a fundrais- has a broader reach than Amazon, particularly with Ant Finan- ing round for Paytm’s e-commerce arm. The two giants seem set cial’s giant payments business. As Amazon grows, it may be- for an epic clash in India. come more like Alibaba. In India, for instance, regulations pre- But in their home markets they have so far stayed out of vent it from owning inventory directly. And Amazon recently each other’s way. Amazon has only a tiny business in China. Ali- won a licence from the Reserve Bank of India for a digital wallet. baba’s strategy in the United States has been to help American Alibaba, for its part, may become more like Amazon. As the Chi- 1 businesses sell in China and vice versa. “People always ask me, when will you go to the US?” says Alibaba’s CEO, Mr Zhang. “And I say, why the US? Amazon did a fan- In tastic job.” The two firms have mostly in- September vested in different foreign markets: Ali- baba across South-East Asia and Amazon 2014 Jeff across Europe. But much of the rest of the Bezos world is still up forgrabs. The biggest tussles will probably be announced over growing economies and cross-border his first big commerce. Alibaba aspires to serve 2bn customers around the world within 20 investment years—a benevolent empire that supports in India, businesses. In some cases it has begun with digital payments, as in India with hopping Paytm. In others it has invested in e-com- aboard a merce sites, as with Lazada, in South-East Asia. But it intends to build a broad range colourful of services within each market, including bus in payments, e-commerce and travel ser- vices, and then link local platforms with Bangalore Alibaba’s in China. MrMa wants to enable small firms to operate just as nimbly as big ones on the global stage. Alibaba helps Chinese com-

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ADVERTISEMENT WE ARE ALL IN THIS TOGETHER By Tan Sri Dr Jeffrey Cheah AO

The 17 Sustainable Development Goals (SDGs) range from addressing climate change to making education more accessible, from ending poverty to enhancing gender equality, to overcoming socio-economic issues such as rising inequality and widening wealth disparity. In short, the 17 SDGs represent a holistic approach to creating a better tomorrow for our future generations.

My views on sustainability were shaped by my formative years growing up in a small town called Pusing in the northern state of Perak in peninsular Malaysia. I witnessed first-hand the impact of poverty on families and how it closed off avenues for advancement, particularly in education, for the children. And Pusing back then was largely a tin-mining town. You could not fail to notice the ugly scars on the landscape left by abandoned and disused mining pools.

Poverty and environmental degradation are, thus, not abstract concepts for me. They helped form my convictions that education provides the optimum route out of poverty, and that we needed to help heal a bleeding Mother Earth. These formative childhood memories guided me in my Tan Sri Dr Jeffrey Cheah AO is the Founder and subsequent entrepreneurial career and my philanthropic Chairman of Sunway Group, and Foundation Chancellor endeavours. of Sunway University, Malaysia. The very birth of the company I founded in 1974, Sunway Group, was grounded — if you will pardon the pun — in the On 25 September 2015, the 193 countries concept of sustainable development, with the development of Sunway City, located just 10 miles from the national of the UN General Assembly adopted the 2030 capital, Kuala Lumpur. Development Agenda titled “Transforming Four decades ago, the area was a barren land of disused Our World: The 2030 Agenda for Sustainable and abandoned mining pools. Today, Sunway City is home Development.” It was inspiring to see the to a thriving community of more than 200,000 people living, working and playing in Malaysia’s first integrated township. world come together as one, and decide that Apart from residential units, it houses 10 educational institutes and entities, including three universities, hotels, addressing the planet’s ills was no longer one of the country’s largest malls, a medical centre and an option, but an urgent imperative. Malaysia’s first-ever theme park.

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City. Through a public-private partnership with Prasarana Foundation (JCF) to which I gifted in perpetuity all of my Malaysia Berhad, we have built a public transport system, equity in Sunway’s educational institutions. The gift was with buses that run on electricity. Almost 50% of the city valued at around US$180 million then, and the value has is open space and 24% of the city is green space. since grown to around US$250 million. The Foundation is now Malaysia’s largest education-focused social enterprise We have built certified green buildings and constructed and is governed by an independent board of trustees. our own water treatment plant — the first of its kind in Malaysia — to purify water from a local urban lake to meet The foundation now owns and governs 16 educational potable water standards. We have initiated a whole range institutions. It operates as a not-for-profit trust. Operating of energy-saving and efficiency measures and have reduced surpluses are reinvested into the institutions and disbursed carbon dioxide equivalent emissions by 12% between 2015 as scholarships and research grants. The JCF has thus far and 2016. And we are not finished yet. We plan to integrate given more than US$65 million to students in the form of technology even more deeply to establish Sunway City as a scholarships. It is my personal goal to award more than model “Smart Sustainable City” of the 21st century. US$250 million in my lifetime.

But environmental concerns are not the only SDG we The foundation also gifted US$10 million to the UN address at Sunway Group. Sustainable Development Solutions Network, which was used to establish the Jeffrey Sachs Center on Sustainable As a “Master Community Developer,” we recognise Development at Sunway University in Malaysia. The Center, that no corporation can stand apart from the community it launched on 9 December 2016, will mobilise comprehensive serves. We invest in job creation, and fill those jobs with collaboration, particularly by Southeast Asian nations, to local people. We have created an inclusive workplace for all work coherently towards achieving the SDGs. Malaysians irrespective of race, religion, age and gender. Half of the group’s workforce is female and a little over one- Our efforts at Sunway are underpinned by our recognition third of all Sunway Group managers are women. Sunway that in this time of budget restraints and economic is also a signatory to the UN Global Compact, which unites uncertainty, realising the SDGs is not the sole responsibility businesses across the world under one large corporate of Governments alone. It requires the commitment of all sustainability initiative. sectors of society — the private sector, academia, civil society and, of course, every single individual. At Sunway, education is particularly close to my heart. As soon as I was able to, we established the Jeffrey Cheah We are all in this together.

2017

1980’s Sunway City, Kuala Lumpur, Malaysia

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Traditional retailing Room for growth Internet use, % of population, 2016 Shop till you drop Not online 100

Online but not shopping 80

60 The painful metamorphoses of physical shops 40 Shopping online WHEN AMERICA’S RETAIL bosses gathered in New York 20 earlierthisyearforthe annual shindigoftheirtrade associa- tion, the National Retail Federation, there was much talk about 0 new technology to improve the industry’s prospects, from sen- Japan United South China India States Korea sors that read consumers’ facial expressions to machine-learning Source: eMarketer software that can optimise prices. The ghost at the banquet was the company that gave no presentations but made its presence felt everywhere: Amazon. 2 nese firm set its sights on South-East Asia, it invested in SingPost, Traditional retailing has had a tough time lately. Traffic in Singapore’s state postal system. In September it became the ma- shopping centres in Europe’s biggest markets has been declining. jority owner in Cainiao, a Chinese logistics network, and said it In America, which has about five times as much space in shop- plans to spend $15bn on logistics in the next five years. ping centres per person as Britain, the pain is acute. Chains that Their advances may be slowed by other rivals. Smaller were faltering even before Amazon’s ascent are now in even firms can flourish in niches. Flipkart, whose backers include deeper trouble. Macy’s, a department store, last year said it Naspers and SoftBank, is competing fiercely with Amazon in In- would close 100 of its 728 shops. Fung Global Retail & Technol- dia; the two companies routinely bicker over which has the big- ogy, a consultancy, expects nearly 10,000 stores in America to ger market share. Yoox Net-a-Porter, an online luxury-goods sell- close this year, about 50% more than at the height ofthe financial er, is also expanding around the world. crisis in 2008. And there will be more to come. Among the questions facing the two giants are whether Shops used to compete by offering a combination of selec- other technology firms will pour more money into e-commerce, tion, price, service and convenience. E-commerce’s most obvi- and whatpartnershipsmightemerge. Tencent’sWeChatPayis al- ous edge is in selection and convenience. Even the biggest store ready challenging Alipay in China. About one-third of WeChat’s cannot hold as many items as Amazon can offer. Walmart con- users in China shop on that platform. Tencent is trying to recruit quered America by saving consumers money; Amazon is doing shops to accept its payment app in other countries, too, and re- the same by saving them time. Shops still provide immediacy cently took a stake in Flipkart. In deploying its services abroad, and a personal experience. But though getting attentive service Tencent might get a helping hand from Naspers. The South Afri- at Gucci may be fun, waiting to pay at the supermarket is not. can companyownsaboutone-third ofTencentand hasbacked e- E-commerce firms are also competing on new kinds of ser- commerce firms around the world. Facebookis now muscling in vice and pricing. A website knows more about you than any on this business by making it easier for its users to buy goods shop assistant can, enabling it to offer personalised recommen- through its messaging service as well as its other platforms, dations straight away. Online, a shopper can easily compare WhatsApp and Instagram. pricesbetween retailers. More intriguingly, merchantscan quick- ly move prices up or down, using bots to match competitors’ of- The A-list still stands ferings. Eventually this pricing may become more personalised. For now, however, Amazon and Alibaba remain each oth- Alibaba and JD already use their troves ofdata to offer discounts er’s most formidable international rivals. Success in e-commerce on particular products to some oftheir customers. requires scale, which needs lots of capital. Local e-commerce All this has meant that consumers are now buying a wider firms in India have come under pressure from investors to boost range ofgoodsonline. The shifthasbeen mostdramatic in Amer- 1 profitability. Amazon has no problems on that score. As Amit Agarwal, head of Amazon India, puts it: “We will invest whatev- er it takes to make sure we provide a great customer experience.” Big firms also have a natural advantage as they expand, be- Old money, new money cause technologies developed for one market can be introduced Market capitalisation, $bn Net revenue, $bn across many. “It’s like a Lego set,” says Lazada’s chief executive, 500 500 Maximilian Bittner. He can use pieces of Alibaba’s model, such Amazon Walmart as algorithms for product recommendations, to improve La- 400 400 zada’s operations. Amazon’s investments in machine learning have myriad applications anywhere in the world. 300 300 That does not mean that Amazon and Alibaba will domi- nate everycountryaround the world, northat they will crush ev- 200 200 ery competitor. Bob Van Dijk, chief executive of Naspers, main- Walmart tains there is room for many operators: “I don’t believe in 100 100 absolute hegemony.” But given the two giants’ ambitions and Amazon the benefits of scale, they are bound to become more powerful 0 0 and compete directlyin more places. Thathasimplications forall 1997 05 10 15 17 1997 05 10 16 sorts ofindustries, but particularly the retail sector. 7 Source: Thomson Reuters

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2 ica, home to both a relentlessly disruptive e-commerce giant and ment store is not an obvious choice. Traditional chains must rou- a herd of entrenched retailers (which China lacks). Consumers tinely pay a premium to lure skilled tech workers. Amazon has still buy certain types of goods in stores, such as food and build- no such difficulty. ingequipment. Butmanyshopshave had no choice butto follow Startups, tech firms and consultants are offering tools to consumers online, setting up their own e-commerce businesses help smaller retailers adjust. Some of the more interesting ones as they maintain their bricks-and-mortar ones. In the short term, promise to narrow the gap between what e-commerce sites and this only exacerbates their problems. Building an e-commerce physical stores know about theircustomers. Floormats can mea- business on top of a traditional one is costly; firms must create sure store traffic, video analytics will trackshoppers’ age, sex and websites and ship products to individual consumers, rather than mood, and beacons can gather data about what customers do in to stores in bulk. the shop once they have signed up for free Wi-Fi. For now, Itdoesnothelp thatAmazon has conditioned consumers to though, many American firms are reluctant to invest in such ex- thinkdeliveryshould be free. Moreover, online salesoften canni- pensive new technology for shops that may not be there for balise those from existing shops. Analysts at Morgan Stanley much longer. reckon that foreach additional percentage point ofshopping that In China, those offering to remedy retailers’ woes include moves online, a retailer’s margins shrink by about half a point. some ofthe big e-commerce firms, and retailers may be happy to Bricks-and-mortar shops also often have trouble recruiting tech- work with them because their platforms are so pervasive. In the nology staff. For a hotshot data scientist, working at a depart- West, small merchantsalreadypayAmazon to list products on its 1

Burying the Hachette

Makers of goods, from books to biscuits, are trying to adapt to e-commerce NO COMPANY WANTS to replicate what hap- rather than just to certain types of consum- pened to Hachette in 2014, when the publish- ers. “We are moving from marketing to the er balked at Amazon’s terms. Suddenly its unknown to marketing to the known,” he book shipments seemed to be delayed and explains. Chinese e-commerce firms, given Amazon was recommending titles from other the scope of their activities, have even more publishers. The dispute ended with Hachette useful data about consumers’ habits and getting more control over pricing. But the purchases, both online and in stores. deal showed the risks for producers of all Meanwhile all producers will continue kinds as online platforms gain strength. to worry about big online platforms amassing The old system suited many businesses. too much power. It is Amazon, not the compa- Clothing manufacturers followed a predict- nies that sell on it, that knows what custom- able calendar for when goods would be pro- ers buy, and when. It makes some of these duced and distributed. Giant makers of data available to others, for a fee, but Ali household products and food had to deal with Dibadj of Bernstein notes that the data are stingy retailers such as Walmart, but they limited and come at a high price. could also swat away smaller competitors Amazon now looks set to wield even with spending on expensive television ads. That’s going straight in my basket more power over manufacturers. Alexa can E-commerce is changing all this. Com- suggest that consumers buy certain items, for panies that sell dresses and shoes to conven- for big firms to reach China’s smaller cities, instance, and might eventually be pro- tional retailers like Macy’s find them in tur- which are expected to provide more than 70% grammed to shop automatically. “We’ll be moil, threatened both by online sellers and by of new online shoppers by 2020. New dis- having bots trying to influence your bots nimbler bricks-and-mortar ones such as Zara. tribution methods can also reap efficiencies about buying our products,” predicts Keith For larger producers of packaged consumer by cutting out the middleman. Other stages Weed, chief marketing officer for Unilever. To goods, the rise of e-commerce compounds of a product’s life such as design and produc- complicate matters, Amazon is steadily problems created by customers’ increased tion might be transformed, too. Mattel, an introducing its own private-label goods to interest in healthier, more “natural” pro- American toy company, is working with compete. Mr Bezos’s tolerance for low pro- ducts. E-commerce helps small rivals dis- Alibaba to mine the Chinese firm’s data to fits—“Your margin is my opportunity,” as he tribute their products. Thanks to online develop toys that appeal to Chinese mothers. once put it—provides little comfort. reviews and blogs, shoppers no longer have E-commerce is also changing how “We need Amazon, and Amazon needs to rely on big brands. manufacturers advertise their goods. Compa- us,” says Mr Szczepaniak. But another exec- Yet for those brands, all is not lost. nies have long used cookies to follow con- utive privately describes the company as a Evidence from Sanford C. Bernstein, a re- sumers around the web, bidding in automat- “freight train” heading for his business. In search firm, suggests that the strongest ones ed auctions to place ads before the right kind future, many makers the world over are likely will be fine, just as Adele and Taylor Swift of shoppers. Now those strategies are being to pursue a three-part strategy, distributing have thrived in the age of streaming music; it further refined. Sebastien Szczepaniak, an on sites such as Amazon, in stores and is the mediocre brands that will fade away as Amazon veteran, is head of e-commerce for through their own channels. Avoiding the both smaller competitors and giant ones Nestlé, the world’s biggest food company. He first option is getting increasingly hard. Nike, flourish. And e-commerce brings its own matches Amazon’s data with Nestlé’s own which had withheld its products for years, opportunities. Alibaba and JD make it easier sources to target messages to individuals recently agreed to sell on Amazon after all.

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2 site and store goods in its warehouses. The small sellers can reach more consumers more easily; Amazon earns fees and, thanks to sellers’ listings, can offera broader selection. Big retailers, on the other hand, seem much less likely to team up with Amazon. Target and Toys“R”Us chose Amazon to handle their e-commerce businesses in the early 2000s, but both ended the partnership, with Toys”R”Us doing so in court. Unlike Alibaba, Amazon owns much ofthe stuffit sells, so competes di- rectly with any seller that uses its services. Despite such troubles, there are examples of how bricks- and-mortar shops might thrive. One strategy is to offer distinc- tive products that are not available elsewhere (as does Zara, a clothingchain owned byInditex), orwhich are difficult to sell on- line. A second is to give shoppers a great deal. TJX, an American firm, offers manufacturers’ surplus goods at bargain prices. An- other option is a great experience: champagne at Louis Vuitton, perhaps, or personalised advice at Nike. The most difficult route is to try to match Amazon’s retail standards and offermore. Walmart, once the undisputed king of American retailing, ismountingthe boldestcounteroffensive. Itcan no longer simply open stores to boost growth; 90% of Americans already live Logistics within ten miles ofa Walmart. So the company is seeking to pro- tectitsmarginsbymakingstoreseven more efficient—saving $7m by printing shorter receipts, for instance—while investing online. Delivering the goods Last year it spent $3.3bn buying Jet.com, an e-commerce site founded by Marc Lore, who now oversees Walmart’s suite ofon- line businesses. He isnottryingto match Amazon’s breadth. “We are focused on being a retailer,” he declares. But Walmart is try- ing to catch up with Amazon in other ways. The company now Surging demand requires new distribution methods offersfree two-dayshipping. JustasJD’sintegration with Tencent ishelpingitchallenge Alibaba, Walmartmaysucceed by partner- YANG MING IS standing beside his red electric tricycle in a ing with tech giants. In August it said it would sell through Goo- courtyard in Beijing. A former factory worker from an in- gle’s voice assistant, in a bid to counter Amazon’s Alexa. dustrial town outside the capital, he and dozens ofother men are Walmart can also use its vast network of stores to do things awaiting the arrival of a lorry. As it pulls in from JD’s warehouse, Amazon cannot. In one experiment, Walmart staff drop off cus- the men form an assembly line to unload boxes. They reload the tomers’ orders on their way home. And as America’s biggest packages to their tricycles and are off, weaving through the traf- grocer, it has developed an easy way for customers to order food fic. JD has about 400 such delivery stations in Beijing alone. online, then drive to a Walmart where staffload it into their car. Across the country, 2.5m couriers are at the ready to shuttle pack- Even as Walmart adapts, however, Amazon continues to ages to their final destinations. When he first started several morph. It is using machine learning to measure the ripeness of a yearsago MrYangmade about80 deliveriesa day. Nowthe num- peach and to determine how many blue shirts to stock in which ber is closer to 130 and still rising. size. Constant innovation gives it a huge competitive advantage To a consumer, e-commerce’s rapid delivery seems like which many retailers will struggle to match. Too many physical magic: a fewclicks, and within an hourortwo a package can land stores lack the strategy or distinctive merchandise that might on your doorstep. Behind this, however, lies an enormous help them thrive in retail’snewera. And in the main theystill rely amount of investment, engineering and hard work as firms face on the customers coming to them to choose their purchases, ever-rising expectations of fast, cheap delivery. Delivery net- whereas their rivals deliver. 7 works are likely to be strained as the volume of parcels grows. That is spurring new experiments in logistics, some mundane (pickingup parcelsin stores) and some apparently mad (Amazon patents forunderwater warehouses). Online stars In emerging markets, e-commerce has relied on an army of United States, e-commerce penetration by sector, % delivery men with relatively low wages, such as Mr Yang. In FORECAST America, points out Christian Wetherbee of Citi, a bank, the Un- 80 Media ited States Postal Service has subsidised the rise of e-commerce by systematically underpricing the cost of parcel deliveries. Am- 60 Office equipment azon has been a main beneficiary, sorting goods by zip code in Toys big warehouses, then delivering them to post offices to handle Electronics 40 the last mile ofdelivery. Clothing Sporting goods Both these things look set to change. In America, the postal Home furnishings service owes $34bn in defaulted worker benefits. Mail volumes 20 Consumables are declining, which means fewer deliveries per stop, and thus Food and beverages even lowerefficiency and more financial duress. Ifthe post office 0 introduces reforms, as some politicians are now asking, parcel 2000 02 04 06 08 10 12 14 16 18 21 delivery will become more costly. Labour costs are rising, too. Sources: Cowen and Company; US Census Bureau That is no surprise in Japan, where the broader labour market is 1

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2 tight. But even in China, a shortage may loom: swelling parcel nese provinces, drones fly on fixed routes to predetermined volumes will require 4m express delivery staff by 2020, accord- landing spots. A worker then carries the parcels for the last ing to Goldman Sachs. In September, BEST Inc, a logistics firm stretch of the journey. JD plans to expand to more provinces and backed by Alibaba, had a disappointing initial public offering in offer more services. One of the drones being tested can carry up New York, in part because investors were anxious about labour to a tonne. costs. Pressures on e-commerce companies to deliver cheaply As this experimentation continues, once again the largest will only rise, yet customers are thinly spread, making it less effi- playersare the mostlikelyto win. Theyhave the cash to pourinto cient to deliver to them than to offices or shops. new technologies and the volume of sales to reap the benefits Another challenge is sorting out how to deliver packages from big investments. IfAmerica’s postal service were to raise its across international borders. DHL, which with FedEx and UPS charges, Mr Wetherbee reckons, Amazon might, perversely, be forms a triumvirate ofglobal parcel firms, estimates that 15% ofall the one to gain. Driven by higher charges, independent sellers e-commerce sales already move from one country to another. By thatonce used the postal service mightturn to Amazon to handle 2020 it expects that share to exceed 20% as customers seek lower their distribution. It has more bargaining power with logistics prices and a broader selection. The big carriers are keen to cap- firms like FedEx and UPS and has recently expanded its network ture thatbusiness. In 2014 FedExboughta companycalled Bongo of delivery partners, using both regional firms and crowd- that specialises in cross-border deliveries, to help customers sourced couriers. So Amazon would become even mightier. 7 with duties and protect them from fraud. E-commerce firms are testing innovations that might help. Cainiao, the logistics networkin which Alibaba now owns a ma- The future jority stake, has built bonded warehouses where foreign manu- facturers can store goods, duty-free, within China’s borders, ready to be shipped to consumers. Alibaba wants to build free- Part and parcel trade zones around the world to help small businesses with cus- toms clearance, warehousing and financing. Automation may lower costs. In one of JD’s huge ware- houses outside Shanghai, men still operate forklifts, but by the end of the year robots will take over. Amazon’s robots already How e-commerce will change cities and jobs bring packages to warehouse staff. The next frontier of ware- house automation is for robots to pick individual items and put A STRETCH OF Bleecker Street, in Manhattan’s West Vil- them in bags or boxes. More than 90% of such work is still done lage, is among the loveliest in New York, with quaint shop- byhand. Amazon holdsa regularroboticscontestforautomating fronts opening on to tree-lined pavements. Until recently a land- the process. Robotic pickers may be more broadly deployed as fill across the Hudson river, in New Jersey, was among the technology becomes cheaper and labour more expensive. region’s most repulsive. For years smouldering hazardous waste Lowering delivery costs is tricky. What has been achieved sparked fires among the rubbish. But Bleecker Street is now dot- so far does help, though it can seem unexciting. With the aid of ted with empty shops, theirlandlords unable to find tenants. The machine learning, demand is predicted on the basis ofpast shop- lot in New Jersey has been cleaned up and turned into a giant ping patterns, weather and other inputs; that information isthen warehouse by Prologis, the world’s biggest industrial-property used to decide which goods should be stored where. Amazon firm. The chemical fires are out. Delivery trucks are in. has opened small warehouses where it keeps popular products, E-commerce will not obliterate all retail trade. Stores that so they can be dispatched quickly to impatient shoppers. Com- are distinctive in one way or another—because they offer excel- panies are also trying to concentrate deliveries by sending goods lent service, for instance, or unique products—will remain. But to central pickup points rather than to customers’ homes. consider the change already wrought in America, where e-com- Retailers have long used “click and collect” models, though merce accounts for about one-tenth of retail spending. If that the ease of collecting online orders varies greatly from one shop share were to rise to one-fifth, let alone one-third, the effects to another. Now some stores are becoming hubs for online or- would be vast. In the longer run the impact of e-commerce will ders from third parties. From November FedEx will have notbe limited to the conventional retail industryitis increasingly package-pickup counters in about 8,000 Walgreens pharmacies replacing. It will also change how consumers spend their days, across America. In Japan, both Rakuten, Japan’s leading e-com- transform the landscape, disrupt workers’ lives and reshape gov- merce firm, and Amazon deliver packages to convenience stores. ernments’ view ofcorporate power. For consumers, e-commerce has ushered in a golden age. Look, no hands They can choose from more products of better quality than ever The most enticing ideas in logistics involve unmanned de- and spend far less time and effort to get what they want. Once- livery. Driverless delivery trucks may one day help, and Amazon complacent manufacturers must compete fiercely for their busi- has patents for flying warehouses and drone-charging stations ness. No wonderAmazon isthe mostpopularcompanyin Amer- atop church steeples. But all such new methods have drawn ica, according to a recent Harris poll. scepticism. Many drones carry only one parcel, then must re- But there are downsides, too. Debates over privacy will in- charge. Asked about technological changes that might bring tensify as consumer tracking online, at home and in shops be- down costs, FedEx’s Mr Smith says, “We don’t see them on the comes ever more pervasive. Companies say they anonymise horizon for the last-mile delivery at present.” and aggregate customer data collected by tracking, but their Once again, things are moving faster in China. Cainiao has methods are opaque, says Marc Rotenberg, head of the Electron- developed a waist-high robot called Little G to undertake the fi- ic Privacy Information Centre. In essence, firms just tell consum- nal leg of delivery. JD is testing something similar in universities. ers that “we will take care of it”, he says. “I don’t think that reas- Both companies expect to dispatch autonomous trucks within surance is adequate.” the next three years. Wan Lin, president of Cainiao, doubts the The effects of e-commerce on the physical landscape are economics ofdrone delivery, but JD is forging ahead. In four Chi- just beginning. So far, the most notable changeshave been in rich 1

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2 countries, and particularly in America. Recent announcements in e-commerce and warehous- of store closures by Macy’s, Gap and American Eagle will be fol- ing rose by about 400,000, ac- Offer to readers lowed by more. According to Green Street Advisors, a property cording to Michael Mandel of Reprints of this special report are available. A minimum order of five copies is required. firm, sales by department stores continue to shrink faster than the Progressive Policy Institute, Please contact: Jill Kaletha at Foster the selling space ofthe stores themselves. a think-tank. But the net gain in Printing Tel: +1 866 879 9144 Ext: 168 As demand for physical shops ebbs, that for warehouses jobs may be temporary. Stores e-mail: [email protected] will surge. Citi estimates that 2.3bn square feet (214m square me- are only now starting to close, Corporate offer tres) of new warehousing—equivalent to about 20,000 football and those that remain are just Corporate orders of 100 copies or more are pitches—will be needed worldwide over the next 20 years. But testing automation. More robots available. We also offer a customisation what will happen to the shops that no longer have enough cus- will be used in warehouses, too, service. Please contact us to discuss your tomers, and where will the new warehouses go? There is no easy as their costs come down and requirements. way of turning one into the other. Companies want to build their picking skills improve. Tel: +44 (0)20 7576 8148 e-mail: [email protected] warehouses close to consumer hubs, but the malls most likely to That need not be a bad For more information on how to order special shut down are fartherafield. thing. In America, real retail reports, reprints or any copyright queries So warehouses will probably be built close to residential wages have been flat for three you may have, please contact: developments, with which they are already competing for land. decades. Technological change The Rights and Syndication Department In Enfield, an area of north London, logistics centres and new will improve productivity and 20 Cabot Square homes are being built side by side. Since land is scarce and ex- create new types of work, and London E14 4QW pensive, warehouses will get taller, as many in Asia already are. the jobs that remain will proba- Tel: +44 (0)20 7576 8148 Fax: +44 (0)20 7576 8492 For same-day deliveries, smaller distribution centres will spring bly be better paid. But workers e-mail: [email protected] up near central business districts. Rents there are likely to rise. will need new skills as stores try www.economist.com/rights to create more footfall. How about a cycling studio? The question looming Future special reports Tech in Africa November 18th The future forailing stores is less certain. Many shops in big over all this is whether govern- Marriage November 25th cities will remain, less as sales hubs than as showrooms. Rents ments might step in. Chinese Technology Quarterly: for them will probably come down. Retail rents are already fall- leaders may want to exert more Brain and machine ing in America and in much ofAsia, according to CBRE, a proper- control overtheirpowerful tech- December 9th ty agency. One space in midtown Manhattan formerly occupied nology giants. According to one Previous special reports and a list of forthcoming ones can be found online: by clothes retailers now contains a coffee shop, a smoothie bar report, the state is mulling a di- economist.com/specialreports and a cyclingstudio. Butthere maynotbe enough ofthose to take rect investment in some of over all the retail space that will become vacant in the years them. In America, Donald ahead. In places where there is little demand from the private Trump periodically skewers sector, governments may have to step in. In Cleveland, Ohio, one Amazon: he has claimed that the Washington Post, which is large store has become a community centre, with a gym and of- owned by Mr Bezos and has criticised Mr Trump, intimidates fices forcity employees, financed by municipal bonds. politicians into granting Amazon favourable tax treatment. The An even hotter topic is the effect ofall this on employment. firm now pays sales tax in every American state that has one. So far the decline in traditional retail jobs in America seems to Antitrust enforcers judge firms based on market control, where have been offset by a rise in warehousing work. Between 2007 Amazon does not lookovermighty, and the effect on consumers, and 2017 the numberofretail jobs shrankby140,000 while those who so far seem to have only gained. But scrutiny in America is likely to intensify, though the most immi- nent regulatory risk for Amazon may be abroad. In October the European Com- Cainiao has mission ordered Amazon to pay back tax- developed a es. It recently slapped Google with a €2.4bn ($2.8bn) fine forusing its power as waist-high a search engine to boost its comparison- robot called shopping business; more action against e- commerce platforms may follow. Little G to Barring any dramatic intervention, undertake however, the biggest e-commerce sites look set to get bigger. Amazon and Ali- the final leg baba typify a new breed of conglomerate of delivery that benefits from network effects. The more shoppers firms can muster, the more sellers will flock to them, attracting yet more shoppers. These effects are tur- bocharged by the breadth of their busi- nesses and the vast amount of data they generate. This does not mean they will dominate every sector or market, but their mere presence in an industry will re- shape it. The question is not if they will keep upending retailing, manufacturing and logistics, but which industry and part ofsociety they will change next. 7

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The dangers of a flawed poll elections in an atmosphere of intimida- tion. Compoundingthe sense ofan organi- Strong man redux sation under siege, its chief executive offi- cer, Ezra Chiloba, left suddenly to take a three-weekholiday. On October 25th this supposed exercise in democracy became more farcical still KISUMU when only two of seven Supreme Court judges arrived at work to hear a last-ditch Kenya’s fresh election will do little to improve the president’s legitimacy plea to postpone the election yet again. LUTCHING a large rock on his shoul- 8th that would have returned to power the With the court deprived of a quorum, it C der, Sam Ogada is ready for battle. incumbent, Uhuru Kenyatta (the son of could not rule. One judge, Deputy Chief “This”, he says, gesturing with it, “is the Jomo and scion of the Kikuyu tribe). With- Justice Philomena Mwilu, stayed away only language our government under- out commenting on whether the result after her bodyguard was shot and injured stands”. A little way down the street, in Ki- would have been affected, the court said on a Nairobi street the night before the sumu, a large city in western Kenya, piles that the process of counting votes was too hearing. The other judges offered a variety ofburningtyres spew blacksmoke into the flawed to be credible. But instead of ar- of excuses. One was abroad; another said air. Policemen, dressed in full camouflage ranging a more transparent election, Ken- she had missed her flight to Nairobi. and clutching assault rifles, mill about. The ya’s Independent Electoral and Bound- Many Kenyans, even those who do not sting of tear gas hangs in the air. On the aries Commission (IEBC) is pressing ahead support Mr Odinga, worry that Mr Kenyat- streets men have fashioned bricks, stones with one that appears to be even more ta is determined to push ahead with an and tree branches into crude roadblocks, flawed than the original. election, no matter how preposterously where, when not fighting with the police, On October 10th Mr Odinga withdrew flawed. Kenya’s economy has slowed they ask somewhat menacingly for dona- from the race, claiming the new vote sharply this year as businesses have held tions from passing motorists. would not be fair. In Kisumu his suppor- back investment until after the election: a The people of Kisumu are used to this. ters echo his words, shouting “no election contested poll in 2007 led to violence that The city is the stronghold of Raila Odinga, in October” at protests. cost more than 1,000 lives and plunged the Kenya’s veteran opposition leader. It has When Mr Odinga withdrew, it seemed economy into crisis. Some argue that with been a centre for discontent with Kenya’s like a lastroll ofthe dice. Although the IEBC Kenya’s budget deficit forecast to reach 12% government for as long as most Kenyans made plenty of errors in the tallying and of GDP , funded almost entirely by inflows can remember. In 1969 the first president, transmission of votes, there is little proof of foreign investment, the country can ill Jomo Kenyatta, visited but had to be res- that the election in August was rigged, as afford another few months of uncertainty. cued from an angry crowd by policemen Mr Odinga claims. Short of the cash need- And Mr Kenyatta’s supporters feel, not un- firinga hail ofbullets. Yet people here, who ed to continue campaigning, Mr Odinga’s reasonably, that Mr Odinga is holding the are mostly of Mr Odinga’s Luo tribe, seem boycott seems to have been a desperate at- country hostage in an attempt to win con- angrier than ever. “We have been margin- tempt to avoid an election he would prob- cessions or a power-sharing agreement. alised for 50 years”, says Adam Mbatah, ably have lost anyway. Yet the election, even if it proceeds another protester. “It is as ifwe are not part Yet since he left the race, his stated rea- without violence, will not produce the le- ofthis country.” sonsfordoingso have been vindicated. On gitimacy that Mr Kenyatta needs. If the Su- The focus of their anger is the repeat of October 18th Roselyn Akombe, one of the preme Court were to apply the same stan- Kenya’s presidential election, due to be IEBC’s commissioners, fled to America dard that it did to the poll in August, it held on October 26th (as The Economist claimingto have been threatened foradvo- could hardly endorse this one. And even if went to press). The election was scheduled cating reforms. Later that day Wafula Che- the judges are cowed, Mr Kenyatta will after the Supreme Court spectacularly bukati, the chairman of the commission, have to contend with continuing protests. threw out the results of a vote on August said that he could not guarantee credible In Nairobi on October 25th Mr Odinga 1 //*sharathcharged*// 44 Middle East and Africa The Economist October 28th 2017

2 called for “national resistance”, including Beauty and the police boycotts, strikes and other economic dis- ruption. Some ofhis closest allies even talk aboutsecession. “Ifa governmentsubverts Arresting development the sovereignty of the people… people are MONROVIA entitled to rebel”, says Peter Anyang’ A pageant with a feminist cause Nyong’o, the governor ofKisumu county. In Nairobi’s slums, where people of HEY want to strike fear into the dozens of different tribes live side by side “Thearts oftheir opponents!” re- in crude tenements and tin shacks, anger marked an onlooker, tapping his chest. could overflow into ethnic violence. In Fighting words, perhaps, for a staff fund- Mathare, a particularly mixed slum near raiser—but hyperbole is the name of the the city centre, Kikuyu residents say that game at the Liberia National Police (LNP) they have sent their children to the coun- Queen Contest. Trading their uniforms tryside until they feel safe again. The Luo forballgowns and flanked by raucous residents of Kisumu do not feel safe either. entourages raining confetti and cash, a “He is killing our children”, shouts Yvonne half-dozen policewomen peacocked to Onyango, a housewife, of Mr Kenyatta. their seats under a balloon-lined mar- “Buthe doesnothave enough bulletsto kill quee. They vogued, cat-walked and all us Luos. We will keep fighting.” 7 delivered impassioned speeches. This was no normal beauty pageant. The contestants were chosen fortheir Nigeria’s old wounds professional ambitions, their appear- ances almost incidental. For all its pomp, The undead the contest is a practical affairto raise money to send policewomen to Australia python fortraining. Guests and officers of all ranks put banknotes into the basket of UMUAHIA the nominee they support. The winner is not the queen judged most beautiful, but wearing a diamanté-encrusted pink Biafran separatists are gaining support, the one who raises the most cash. gown and by impressing potential do- 50 years afterthe civil war The money is then pooled and is nors with her ambition to be promoted OORS hang off their hinges. Cup- meant to help send ten policewomen to senior office in the LNP. Dboards have been emptied onto abroad. The previous year, they sent two. Wielding a big bag with labels show- floors, walls and windows are pitted with Yet the need is as great as ever. The LNP ing it contained money, an officer from what appear to be bullet holes. A statue of force has a shortfall ofabout 3,000 police the Patrol Unit knelt before his depart- Nnamdi Kanu, the leader of the Indige- officers and it is particularly in need of ment’s nominee and unloaded stacks of nous People of Biafra (IPOB), a Nigerian trained policewomen. Last year the UN Liberian dollars into her basket. In a separatist group, is missing a hand and an Mission in Liberia sent most ofits sol- direct counter another threw down arm. Mr Kanu’s family compound in diers and policemen home, putting the several wads ofcash before his pick. One Umuahia, the sleepy capital of Abia state LNP in charge ofnational security. It left donor was lambasted for throwing mon- in south-eastern Nigeria, wasraided by sol- an unmet target ofhaving women make ey not at one queen, but at two. diers on September 14th. His brother, Em- up a quarter ofthe force: they now com- As night fell over Monrovia and the manuel, claims 28 people were killed and prise less than a fifth. That matters be- crowd thinned, officials counted the says he has not heard from Mr Kanu since. cause women avoid reporting crimes equivalent of$8,350 raised. It is not quite The army denies the raid even happened. such as rape to male officers when they enough forten tickets to Australia. Where Meanwhile Mr Kanu, who was charged might do so to policewomen. would the rest ofthe money come from? with conspiracy to commit treason two On this sweltering afternoon in May, a One officer pondered an inverse scenar- years ago, failed to attend a bail hearing on contestant hoped to win favour both by io. “AKing Contest? I don’t thinkso.” October17th. His disappearance illustrates how the unhealed wounds of Nigeria’s brutal civil the deadly response of the Nigerian army unity is settled and not negotiable.” In Sep- war have been reopened in recent years. to even the slightest hint of resurgent na- tember the government sent in the army That conflict, which was fought between tionalism amongthe Igbo, one ofthe coun- on “Operation Python Dance II”, which the breakaway Republic of Biafra and the try’s three main ethnic groups, who live sought to tackle “violent agitations by se- Nigerian state, resulted in the loss of al- predominantly in the south-east and cessionist groups, among other crimes”. most a million lives between 1966 and formed the core of Biafran separatism. The One ofits first acts was to attackan office in 1970. Separatist sentiment, which lay large- army has shot and killed protesting IPOB Abia belonging to the Nigerian Union of ly dormant since then, has started to sim- supporters on several occasions. It is not Journalists and to smash reporters’ equip- mer again, as people with no memory of clear how many supporters IPOB has, but ment. The government also declared IPOB the war have come of age and been se- Mr Kanu attracted huge crowds to his fam- a terrorist organisation. The group says it is duced by the idea that the region is not get- ily residence after his release on bail in not violent. ting its fairshare ofspending. April (despite the bail conditions stipulat- The government’s response may, how- Helpingto fuel thatangerisRadio Biafra ing he should not hold rallies or be seen in ever, be feeding the resentment that first (named after the original republic’s sta- a crowd ofover ten people). led to an upsurge of support for IPOB tion), which was relaunched by Mr Kanu The government has resorted to an among Nigeria’s Igbo. “It was as if the ap- and has pumped propaganda to Nigeria even firmer hand. In August Muhammadu proach of the government labelled every from its London base since 2012. Buhari, Nigeria’s president and a stern for- Igbo man a member of IPOB,” says Sam Yet separatism has also been fuelled by mer military dictator, said that “Nigeria’s Hart, an adviser to Abia’s governor (who is 1 //*sharathcharged*// The Economist October 28th 2017 Middle East and Africa 45

2 from the main opposition party). dernised the party and dropped its com- Saudi Arabia’s reforms The perception of the army as a north- mitment to nationalising industry. But Mr ern institution, and the fact Mr Buhari is Gabbay seems motivated by more than There’s no place from the north (there has not been an Igbo electoral mathematics. head of state since the military govern- He comes from a conservative family of like NEOM ment of Major-General Johnson Aguiyi- Moroccan origin, a group that usually sup- Ironsi in 1966), has compounded many Ig- ports Likud, as Mr Gabbay once did. And RIYADH bos’ feelings of alienation. Many also refer unlike many of Labour’s previous leaders, The crown prince’s plans get ever to comments made by Mr Buhari in 2015, who came from the army or out of the left- grander when he said that constituencies that gave leaning kibbutz movement, his back- him 5% of the vote (mainly those in the ground is in business. T WAS like Davos in the desert: some south-east) cannot expect the same treat- The Labour party last won an election I3,500 politicians, business bosses and ment as those that gave him 97%. in 1999 and has since changed leaders eight bankers from around the world crowded The army may have cut off the head of times. Party members who voted for a into a vastconference centre in Riyadh for a the Biafran separatist snake for now. But very different kind of leader this time are jamboree called the Future Investment Ini- until Nigeria cleans up its public finances willing to give him a chance. “People on tiative. This was a giant coming-out party so that its various ethnic groups can see the left still think what happened is just an for “Vision 2030”, the economic plan to how much money it raises, and where it is aberration and the reins of power will move Saudi Arabia away from depen- spent, resentments will simmer and the soon be handed back to us,” says Emilie dence on oil. It is the brainchild of the appeal ofBiafra will remain. 7 Moatti, a Labour member who is planning country’s crown prince, Muhammad bin to run for a seat in the Knesset at the next Salman, widely known as MBS. A corner- election. She laments that Mr Netanyahu stone of the plan is selling shares in Saudi Rebranding the Left has successfully “tainted us all as unpatri- Aramco in what is touted as the world’s otic haters ofIsrael.” biggest IPO ifit goes ahead next year. Israel’s “New Labour, which ruled Israel for its first The young prince proclaimed that he three decades after the state’s establish- wants the kingdom to be “a country of Labour” ment in 1948, is not the only opposition moderate Islam that is open to the world party undergoingan identity crisis. Meretz, and open to all religions.” As for extremist a fiercely secularist party that describes it- ideas, “we will destroy them today.” His JERUSALEM self as “Israel’s Left,” has suffered a series striking remarks came at the launch of an of electoral defeats that almost wiped the equally striking mega-scheme: a futuristic Trying to grab the centre party out. On October 18th the party’s city-cum-economic-zone called NEOM VI GABBAY has already overturned leader, Zehava Galon, said she was resign- (from the Greekneo, meaning new, and the Aconvention once—when on July 10th ing from the Knesset in the hope of spark- Arabic mostaqbal, meaning future). he won the primaries to become the leader ing “open primaries” for its next leaders. Spread over 26,500 square kilometres of Israel’s Labour party just six months “There is a deep frustration on the left over (10,200 square miles) and along 468km of afterjoiningit. Now he is causingmore ruc- having drifted away from positions of in- coast, NEOM will operate under its own tions in the main opposition, with a series fluence for so long,” says Nitzan Horowitz, rules rather than those of the rest of the of statements that are heretical to those on a former member of the Knesset for Me- kingdom. It could thus create an environ- the far left of Israeli politics. Although oth- retz. “Movingto the right orchangingselec- ment optimised for drone deliveries, say, er Labour leaders have, at times, espoused tion procedures won’t change that.” or driverless cars. Energy is to come entire- similar views, Mr Gabbay has done so ear- The anomaly of Israeli politics is that a ly from renewable sources, thanks to an lier and more emphatically. He says that, majority of voters supports the left’s two- abundance of sun and wind. Everything should he win the next election he would state solution but continues to vote for that can be automated will be. NEOM is en- not invite the country’s Arab parties to join right-wing leaders. Perhaps that will visaged asa hub between Europe, Asia and his coalition. And he has said that he does change ifLabour is led by a right-winger. 7 Africa, and a home drawingin people with not think that Jewish settlements built on the skills to create world-class businesses land in the West Bank, which Israel cap- in industries from biotechnology to food. tured in 1967, should necessarily be dis- The ambitions for NEOM are huge. It mantled as part of a peace agreement. Fur- will supposedly attract $500bn of invest- ther disconcerting some Labour ment, from the kingdom’s Public Invest- supporters is his view that “a Jew cannot ment Fund and international backers. It really not believe in God.” wants to lead the world in both efficiency Mr Gabbay’s intentions are clear. He is and income per head. It aspires to be “the determined to break the image of Labour safest, most efficient, most future-oriented, as a left-wing party that is detached from and best place to live and work.” the concerns and beliefsofmore conserva- Sceptics can point to plans elsewhere tive (and religious) voters. To win an elec- for “smart cities” (such as Masdar in the tion he needs to attract supporters away United Arab Emirates) that are launched from other centrist parties as well as some with much fanfare but fail to live up to the of those on the right that have propped up hype. In Saudi Arabia itself, the King Abd- the coalition government headed by Bin- ullah Financial District in Riyadh is a $10bn yamin Netanyahu, the prime minister, and white camel. Will NEOM be different? his Likud party. It starts, at least, with the credibility that Mr Gabbay is not the first leader ofa La- comes from its big-name supporters. At the bour party to tackto the right. One of those launch were an ebullient Masayoshi Son, he has sought advice from is Tony Blair, a the Japanese head of a $100bn “Vision former British prime minister and one of Fund”, and Stephen Schwarzman, head of the architects of“New Labour”, which mo- A third way in the Jewish state Blackstone, a private-equity giant. Klaus 1 //*sharathcharged*// 46 Middle East and Africa The Economist October 28th 2017

2 Kleinfeld, a former boss of Arconic, Alcoa sual next to Mr Kleinfeld at the launch: lomats made contradictory promises to and Siemens, is to be NEOM’s chief execu- Marc Raibert, the boss of Boston Dynam- the SherifofMecca and the French. tive. The prospect of creating a dynamic ics, a robotics company. Mr Weizmann believed that the sup- zone without the barriers to enterprise Whether Saudis are prepared to sit back port of world powers, particularly Britain, found elsewhere in the country has such and let such creative chaos happen will would be enough to create a Jewish home- people genuinely enthused. also help to answer the third, and perhaps land. At the time Jews made up less than Still, three big questions stand in the most important, question: will NEOM at- 10% of the population in Palestine. They way of the NEOM dream becoming a reali- tract the sort of international talent (in- lacked the resources or the strength to es- ty. The first is timing. Can the project come cluding women) it will need to achieve its tablish a state. With time, Britain would ob- together fast enough to maintain momen- ambitions? To do so, it will have to be a struct the Zionist project. To quell an Arab tum? So far, the details remain sketchy, and much more relaxed, open place than the revolt it published a white paper in 1939 the timingvague. The government says the kingdom is today. True, it is starting to that capped Jewish immigration to Pales- $500bn will arrive “over the coming change, as MBS’s comments this week tine and stated “unequivocally” that it years”. Yet a fall in oil prices since 2014 has made clear. Thanks to his influence, wom- should not become a Jewish state. already squeezed public finances: this year en will at last be allowed to drive next year. By then, however, the Jewish commu- Saudi Arabia’s government will probably Maybe NEOM can accelerate such pro- nity had organised itself, forming militias, run a fiscal deficit of 9% of GDP and the gress. But there is a long way to go. a parliament and a nascent government. economy has ground to a halt. Unless it becomes a truly desirable When the UN voted in 1947 to partition Pal- Second, can NEOM generate bottom-up place in which to live and work, NEOM estine, the Jews already had the trappings creativity to match the top-down vision will riskrealising one ofits goals, but not in oftheirstate. “Whatmattersisnotwhatthe and planning? A little “chaos” is needed, the way intended. It hopes to be the first goyim [gentiles] say, but what the Jews do,” said the man dressed in Silicon Valley ca- city where robots outnumber people. 7 said David Ben-Gurion, the first prime minister. That history is still relevant. An ascen- dant Israeli right wants more settlements in the lands that Israel occupied in 1967, more restrictions on left-wing NGOs, more efforts to limit “liberal” institutions like the courts and the media. It claims not to care about the world’s opinion—and to be fair, much of the world does not have one. Isra- el’s emerging allies in Africa and Latin America see a vibrant high-tech sector and useful military co-operation. In July Mr Netanyahu welcomed Narendra Modi to Jerusalem, the first-ever visit by an Indian prime minister. Though only Egypt and Jordan have recognised Israel, other Arab states, particularly in the Gulf, now have quiet alliances with their one-time foe. Despite Ben-Gurion’s maxim, the cele- A century after Balfour brationsin London and Jerusalem will be a reminder that Israel still craves moral affir- People of the declaration mation. The then Lord BalfoursawIsrael in emotional terms, a state owed to the Jews because of “age-old traditions and present needs.” That sentiment still looms large. Palestinians, for their part, call his letter CAIRO the first of many betrayals by the world. Last yearMahmoud Abbas, the Palestinian Israel’s founding document still has resonance president, threatened to sue Britain unless N OCTOBER1917, in the depths ofthe first such doubts. On November 2nd Binyamin it recognised Palestine and apologised for Iworld war, an expectant Chaim Weiz- Netanyahu, Israel’s prime minister, will at- the declaration. He has spent much of this mann was waiting in a London anteroom. tend a dinner in London to celebrate the decade tryingto win international recogni- Britain’s war cabinet was voting on a docu- document’s centenary. Theresa May, the tion; in a sense, he has become an unlikely ment, now known as the Balfour Declara- British prime minister, will join him. So heir to Mr Weizmann’s brand of Zionism. tion, that would pledge Britain’s support will Lord Balfour, a descendant of the man Palestine won observer status at the UN in for Zionists’ hopes of statehood in Otto- who lent his name to the letter. In Jerusa- 2012, and most countries in the world now man-ruled Palestine. Mark Sykes, a British lem, the Knesset will hold a special ses- recognise it as a state. Yetit is no closerto in- diplomat, rushed out to share the good sion. The British Museum may lend Israel dependence than it was in 1967. news: “Weizmann, it’s a boy!” But the 67- the original letter to put on display. Mr Abbas’s corrupt, sclerotic govern- word declaration was vague. It offered a Yet Weizmann was right to be sceptical. ment has spent much of the past decade Jewish “homeland”, not a state. Nor did Britain, mired in war, was unsure how to feuding not with Israel but with its own Britain explain how it would be created, handle Palestine. Some officials wanted to people. Perhaps the Balfour Declaration promisingonly“bestendeavours” to do so. offer a homeland to the Jews, in part be- has a lesson for the Palestinians as well: The Zionist leader’s first reaction was dis- cause they hewed to the anti-Semitic trope Britain did not create Israel—and nor will appointment. The boy “was not the one I that Jews were influential enough to bring another foreign power create Palestine. If had expected,” he later wrote. America into the war and flip the Otto- there isto be an end to a centuryof conflict, A century on, his successors have no mans to the Allied side. And British dip- it will have to come from within. 7 //*sharathcharged*// Britain The Economist October 28th 2017 47

Also in this section 48 Brexit transition plans 49 High-flying foreigners up sticks 49 Donald Trump on crime 50 Bagehot: Labour and Russia

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Interest rates household debt (mortgages plus consumer credit) is nearing 140% of income, which is What goes down… high by historical standards. Higher inter- est rates would result in higher payments forthose with debts. They would have less money left over foreveryday expenses. However, many Britons would also earn more interest on their savings, which are worth around 120% of income. That Rates are due to rise. The economy may be more vulnerable than it seems would give them more spending power. A N A meeting room on a cold autumn day, since then, and under a different boss, rise of 0.25 percentage points in the base Ithe governor of the Bank of England set- Mark Carney, the bank is expected to start rate, passed on fully to savers and borrow- tled into a witness chair to give evidence to raisinginterestratesonce again, after a long ers, would cost less than 0.1% of incomes. a group of MPs. Worries were mounting period of inactivity (see chart). Inflation is No big deal. aboutthe economy. GDP growth wasslow- 3%, well above the bank’s 2% target. GDP Yet such a calculation understates the ing and households were highly indebted. grew by 0.4% in the third quarter, above ex- probable impact of higher interest rates. Nonetheless the Bank of England began pectations. As in the early 2000s, members For one thing, the circumstances are un- raising interest rates. The governor told of the bank’s monetary-policy committee usual. The bank’s “inflation-attitudes sur- everyone to relax. Concerns about a (MPC) are coming round to the view that vey” suggests that when it has tightened “Christmas debt crisis” caused by higher tighter monetary policy will have a benign monetary policy in the past, the public has rates were overblown, he said: “People effect on the economy. Are they right? inferred that further rises are on the way. have exaggerated the vulnerability of the By raising or cutting the benchmark in- The bank has tried before, and failed, to economy to likely changes in policy.” terest rate, the MPC influences the rate at forestall such a reaction. The last time the That was in 2003, when Mervyn King which high-street banks can borrow—and, MPC raised rates, it stressed that “no imme- was the bank’s governor. For the first time in turn, the borrowing costs faced by diate judgment was being made about the households and firms. In the post-war per- future path of rates.” No matter: subse- iod it averaged around 6%. Yet during the quently, a big majority of the population Sep 14th crisis of 2008-09 the bank slashed it to thought that furtherrises were likely. Queues form outside Northern Rock as Britons worry about the lender’s stimulate the economy. It was cut again The public’s reaction is especially hard financial stability afterlastyear’sBrexitreferendum, to 0.25%, to predict this time around. Interest rates 5.75 5.50 5.50 Sep 15th the lowest on record. Most economists be- used to go up and down frequently. Today, 5.25 5.25 Lehman Brothers goes bust lieve that on November 2nd the MPC will after a decade with no rate rise, many 5.00 change direction and raise it to 0.5%. adults are familiar only with the Bank of 4.50 The reaction ofthe economy as a whole England cutting the cost of borrowing. If to tighter policy will be largely shaped by people start to worry that their incomes how households respond. Their spending will be squeezed more tightly still in the accounts for some 60% of GDP. At first coming months, then consumer confi- 3.00 glance, Britain’s households look prepared dence and spending could fall by more for what is to come. True, the stock of than the MPC expects. 1 2.00

1.50 Britain, official bank rate, % Jun 23rd 1.00 Britain votes to Source: Bank of England leave the EU 0.50 0.25

2007 08 09 10 11 12 13 14 15 16 17 //*sharathcharged*// 48 Britain The Economist October 28th 2017

2 The effects of higher interest rates will Brexit and transition tions. Jean-Claude Piris, a former EU legal also be unevenly felt across households. adviser, calls this a “full monty” transition, Some have plenty of savings, others have Imperfect panacea and suggests it will be the only version on big debts. Few have both. Data on the dis- offer. Yet it leaves questions. Will Britain be tribution of assets and liabilities are poor. subject to future laws that it has no say in What evidence there is, however, makes making? Could it temporarily retain a foruncomfortable reading. judge on the ECJ? What about annual EU One worry concerns those who would budget decisions (including on Britain’s Agreeing on a transition deal may be benefit from higher interest on their sav- budget rebate) that are taken without any harderthan the government thinks ings. Income-bearing financial assets are British vote? Or the controversial annual unequally distributed. Such inequality RITAIN is running out of time to finish carve-up offishing quotas? also runs along generational lines. What B negotiations before it is due to leave the More important may be legal issues. will the wealthy do with the extra income European Union on March 29th 2019. The- Some lawyers, including Mr Piris, reckon from their savings? People with large pots resa May insisted in Parliament this week that transition can be agreed under Article are bydefinition squirrellers, not splurgers. that the recent EU summit had made im- 50 of the EU treaty, which governs the Retirees have a recent additional incentive portant progress. Yet the start of talks on a Brexit divorce. Yet the EU guidelines refer to save any windfall. The inheritance-tax framework for future trade may not hap- only to what is legally possible. Must tran- regime is becoming increasingly generous: pen until after December. Hence a favour- sition be strictly time-limited to conform by 2020 a couple will be able to leave £1m ite idea for averting a “cliff-edge” Brexit: with withdrawal under Article 50—and ($1.3m) tax-free to their children, if it in- transition. This week Britain’s five biggest what happens if it becomes necessary to cludes their house, up from £650,000 last business lobbies demanded the govern- roll it forward? If there is no agreement on year. All this suggests that the boost to sav- ment seek early agreement on a transi- even the framework fora future trade deal, ings from higher interest rates is unlikely to tional deal to form a bridge between Brexit can transition be legally workable at all, on translate into much extra spending. and a new trading arrangement. the basis that under the article it needs to Mrs May has conceded this in principle, be a bridge to something? Owe dear although she still insists on calling it an There are also concerns about the EU’s On the other side of the equation, house- “implementation” period. This is not just treaties with third countries, including holds with heavy debts may struggle with semantic. She upset businesses this week free-trade deals. Simply rolling these over higher rates. Britain’s pile ofmortgage debt by suggesting that, unless a trade deal is when Britain is no longer formally a mem- is concentrated among far fewer house- done by next autumn, there may be noth- ber may not be easy. Already third coun- holds than it was a decade ago. Prospective ing to implement. In practice, the need for tries have objected to plans to divide up buyers have to stretch to get a foot on the transition is clear to all, which is why it is import quotas between Britain and the EU. housing ladder. Since 2012 the average covered in the EU’s own negotiating guide- And legal doubts exist also on the British mortgage for a first-time buyer has lines. Yet the work on it that has now start- side, since the withdrawal bill now going equalled 3.4 times their income, up from ed will quickly hit problems that may through Parliament will repeal the 1972 2.6 times at the turn ofthe millennium. cause delays. And timing matters. Philip European Communities Act. Catherine Many have locked in low rates on these Hammond, the chancellor, has noted that Barnard, a Cambridge law professor who mortgages with fixed-rate products. Such the value to business of a transition plan is a member of the UK in a Changing Eu- deals typically last for between two and will diminish the longer it takes to agree. rope academic network, points to uncer- five years, however, not the 30 years that is A first issue concerns what rules to fol- tainty over the supremacy of EU law, common in America. And of all outstand- low during transition. Mrs May has prom- created under section two ofthat act. ingmortgages, roughly 40% are on variable ised that businesses will not have to adjust Might there be another route to transi- rates. Our analysis suggests that, because twice to Brexit, which implies keeping cur- tion? One idea is temporary membership mortgages have become so hefty, a given rent arrangements for now. The EU will in- of the European Economic Area (EEA), interest-rate rise would ultimately result in sist that any transition prolong the acquis which includes Norway and Iceland. But a biggersqueeze on recent homebuyers’ in- (ie, all existing laws) and the jurisdiction of this may not be easy to negotiate, and it come than at any other time on record. the European Court of Justice (ECJ), but would strain Mrs May’s promise to avoid Poorer Britons could also suffer. Lately without British participation in EU institu- two adjustments. Paul Daly, anotherCam- the rate of personal insolvencies has risen, bridge legal academic, believes the only le- in part because of tough welfare policy gally watertight transition is to extend Arti- and falling real household incomes. Those cle 50’s two-year deadline for Brexit. This whose incomes have been squeezed often can be done by unanimous agreement. Yet rely on short-term loans to tide them over. extension of EU membership beyond If the cost of repayment rises, more might March 2019, which would preclude trade struggle. Indeed, a survey in the bank’s lat- talks with third countries, might not be po- estinflation reportfound that, after a hypo- litically sellable in Britain. thetical decline in real incomes, “house- ForBrexiteers have a legitimate concern holds who would reduce real spending the that transition could turn into a long-term most tended to have fewer savings and be prison which in effect keeps Britain in the more concerned about their debt.” club as a rule-taker, not a rule-maker. The Whatever happens next week, rates EEA was originally conceived as a transi- will remain low, meaning that monetary tional arrangement, after all. And many policy will continue to favour borrowers suspect that Brexit will be betrayed. This over savers. But in shifting the balance, the week it emerged that a Tory MP (and party bank must tread carefully. It has signalled whip) had written to universities asking that interest rates will rise only at a snail’s for details of how they taught students pace—perhaps 0.25 percentage points ev- about Brexit. The search forenemies of the ery year. A more rapid increase could people who might thwart the voters’ prove to be an unwelcome jolt. 7 At least it was made in Sunderland choice in June 2016 continues. 7 //*sharathcharged*// The Economist October 28th 2017 Britain 49

Anxious elites Donald Trump on crime Prêt à partir Not good!

The president misinterprets some worrying crime statistics RITONS are becoming wearily famil- better measure ofrare and violent The prospect ofBrexit is giving iar with President Donald Trump’s crimes. Yet almost none ofthe 13% in- high-flying foreigners itchy feet B commentary on their troubles with jihad. crease—which includes jumps in stalking, UST left Frankfurt. Great meetings, In June he mocked London’s mayor for robberies and sex offences—has anything “Jgreat weather, really enjoyed it. Good, telling citizens there was “no reason to be to do with terrorism. because I’ll be spending a lot more alarmed” by a greater police presence What is true is that jihadist attacks time there. #Brexit”. This tweet on October following an attackat London Bridge. In have made a difference to the most harm- 19th from Lloyd Blankfein, the chief execu- September he claimed, without evi- ful crimes. Homicides grew by14% in the tive of Goldman Sachs, prompted a flurry dence, that the plotters ofa failed bomb- 12-month period; the 35 victims ofa of speculation about the investment ing on the Tube had been “in the sights of bombing in Manchester and two terrorist bank’s plans. Industries that rely heavily Scotland Yard”. On October 20th he fired knife-attacks in London represented 5% on low-paid migrants have already voiced offhis latest tweet. “Just out report: ‘Un- ofthe total. Police recorded 294 attempt- their worries about the departure of Euro- ited Kingdom crime rises13% annually ed murders at those three events, a quar- peans, warning of strawberries rotting in amid spread ofRadical Islamic terror.’ ter ofthe total. The head ofMI5, Britain’s fields, unpicked. But concerns are growing Not good, we must keep America safe!” domestic security service, says that the about the flight ofhighly skilled workers in The official report in question in- terrorist threat has never been higher. well-paid jobs at firms like Mr Blankfein’s. cludes two measures ofcrime. One, a Among western European countries, According to a survey of European tally recorded by police, indeed shows a only France and Belgium arrested more workers in Britain published in August by jump of13% in the 12 months to June 2017. terrorists per head ofpopulation last KPMG, one of the “Big Four” accounting The other, a survey of35,000 adults, finds year. America has produced 129 Islamic firms, among those pulling in between a decrease of9%. The survey is the more State fighters to Britain’s 850, according to £100,001 ($130,000) and £200,000 a year, reliable indicator ofoverall crime rates, the Soufan Group, an intelligence outfit. 12% were planningto leave, compared with according to the report’s authors, because Mr Trump is right to want to “keep just 6% of those earning between £15,001 many victims fail to report minor of- America safe” from such influences, even and £20,000. Those with postgraduate de- fences to the police. Police records are the ifhe muddled his figures. Yet his ap- grees were twice as likely to be drawing up proach is hardly achieving that. “Do you exit plans as those with only a secondary- notice we are not having a gun debate school education. Panic on the streets of London right now? That’s because they used Fillingthe most seniorjobs in certain in- Average annual homicides per million people knives and a truck!” he tweeted after the 2012-16 dustries, notably financial services, com- 0153045 London Bridge attack. True enough. But puting and engineering, has become hard- Britain whereas in the past five years11jihadists United States er since the vote for Brexit, says Tom All* have launched fatal attacks in America, Hadley of the Recruitment & Employment Gun-related* killing 82 oftheir 86 victims with bullets, Confederation, a professional body for re- during the same period nine jihadists in Islamist cruiters. Skills shortages in Britain mean terrorism† Magnified Britain, without access to guns, killed that companies in these fields have always only 37, according to the Global Terrorism looked abroad. But talented foreigners are 00.150.05 0.10 Database at the University ofMaryland. increasingly unwilling to apply for such America’s overall homicide rate is five roles, he says. Some are turningdown posi- Sources: ONS; FBI; *Britain data for five years to times Britain’s. British crime statistics tions they had previously accepted. He World Bank; Global March 31st 2016 †For five years may well contain lessons forAmerica, reckons the problem is particularly acute Terrorism Database to June 30th 2017 but not the ones Mr Trump claims. in senior jobs because older, more experi- enced workers often have a family in tow. They are less willing to make an interna- that people are watching to see how Brexit maysee lesspotential forprogression in fu- tional move, with all the disruption that in- evolves. Knight Frank, an upmarket estate ture. Noemie Bouhana, a French senior re- volves, given the possibility that their job agent, says that rentals are outperforming searcher at University College London, might be moved out of London in the next sales in prime London properties. That is completed a €3m projectpaid forbythe EU couple ofyears. partly due to recent changes to stamp duty, earlier this year. She was encouraged to ap- Some such moves have already begun. a taxon buyingproperty, but it may also re- ply for further funding from Brussels but The Frankfurt International School, which flect a desire for flexibility. Renewed let- was later given to understand that British- charges fees of up to €22,120 ($26,120) a tings are up by 10% compared with this led projects would not be considered from year, is reaping the rewards. Among its time last year; rolling over a contract next spring. “Your career is based on you new pupils are the offspring of people means tenants can, if necessary, move out being the principal investigator,” she says. from countries such as Singapore whose more quickly than ifthey start a new one. That may persuade academics to up sticks. jobs were slated to go to Britain but have Inquiries for corporate relocation ser- London has long been seen as the best been moved since the Brexit vote, as well vices are down by 5-7% compared with last place for those pulsing with ambition to as those whose existing positions have al- year, says Matthew Salvidge of Savills, an- make a career. These people are no longer ready been shifted. Parents are discussing other estate agent. But the budget for indi- sure it is, says Marcin Czyza, the founder of admissions up to three years in advance, vidual moves has increased by about 12%. Expatexit, a database offoreign profession- anticipating that this trend will continue, He reckonsthisisbecause firmsare import- als who want to leave Britain. Whatever says Paul Fochtman, the head teacher. ing senior figures to plan forBrexit. the terms of Brexit, this impression may be There are hints in the property market Even those who can keep their jobs hard to dispel. 7 //*sharathcharged*// 50 Britain The Economist October 28th 2017 Bagehot Corbyn’s comrades

The centenary ofthe Russian revolution is a good time to reflect on Labour’s leadership in order to stir up more discontent with the system. One of Mr Corbyn’s key supporters in the trade-union move- ment, Andrew Murray, makes both Mr Milne and Mr McDonnell look like right-wing deviationists. He is chief of staff to Len McCluskey, the head ofUnite, Britain’smostpowerful union, and was seconded by the Labour Party headquarters during the re- cent election campaign. A long-standing member ofthe Commu- nist Party before joining Labour last year, Mr Murray had a repu- tation as not just a Tankie but a super-Tankie, because of his unswerving support forthe Soviet Union and Uncle Joe. He once wrote an article forthe Morning Star which, while lamenting Sta- lin’s “harsh measures”, quoted Nikita Khrushchev’s statement that “against imperialists, we are all Stalinists”. On November4th Mr Murray is due to join Tosh McDonald, the boss of the ASLEF trade union, at a celebration ofthe Russian centenary. Does any of this really matter? The Soviet Union died in the late 1980s. International communism has either mutated into au- tocratic capitalism, as in China, or retreated into a few dysfunc- tional enclaves, as in Venezuela, North Korea and Cuba. The his- tory of Labour is littered with people who flirted with hard-left ideas only to mellow on coming to power. Denis Healey, one of HE Labour Party has an admirable record of realism when it the Labour Party’s great chancellors, was a Tankie as an under- Tcomes to the Russian revolution and the regime that it graduate at Mr Milne’s old Oxford college, Balliol. spawned. From 1918 onwards Labour refused to work with the Alas, it does matter, and forthree reasons. The first is that it pro- Communist Party and banned its members from belonging to it. vides a measure of just how much conventional wisdom has ClementAttlee helped to constructNATO asa bulwarkagainstSo- changed in the past few years. Positions once regarded as cranky vietexpansion and described Russian communism asthe “illegit- or even forbidden are becoming mainstream. The financial crisis imate child of Karl Marx and Catherine the Great”. Nye Bevan, shattered people’s faith in the wealth-creating power of capital- one of Attlee’s ministers, accused the Russians of establishing “a ism and the crisis-fighting power of technocrats. A survey by Le- whole series of Trojan horses in every nation of the Western gatum, a think-tank, found that people feel far more positive economy”. Harold Wilson proclaimed that the Labour Party about socialism than about capitalism. The Iraq warand the elec- owed more to Methodism than to Marxism. tion ofDonald Trump have supercharged anti-Americanism. Just Yet today’s LabourPartyhigh-command contains several peo- as strikingas the rise ofthe comrades is the fall ofthe likes ofTony ple who are more starry-eyed than gimlet-eyed when it comes to Blair, who vigorously supported the Washington consensus in the Russian revolution. Jeremy Corbyn, Labour’s leader, has re- economics and American-led intervention in foreign policy. mained remarkably silent on revolutionary Russia given the amount of praise he has lathered on Venezuela and Cuba, much More powerful than guns of it in the pages of the Morning Star, a newspaper once partially The second reason why it matters is that ideas have conse- funded by the Soviet Union. The same cannot be said of Seumas quences, particularly ideas that you have spent your entire adult Milne, his head of strategy and a man who, according to a state- life repeating. Healey was in his 20s when he flirted with the far ment from Mr Corbyn’s people on his appointment, “shares Je- left. The comrades are now in their 60s. Mr McDonnell has care- remy’s worldview almost to the letter…they sing from the same fully worked-out plans for nationalising key industries and ex- hymn sheet.” MrMilne got his start in journalism atStraight Left, a tending trade-union powers. Mr Corbyn has spent his life cam- magazine that took the “Tankie” side in the argument between paigning against NATO and American foreign policy. Before Eurocommunists, who were critical ofthe Soviet regime, and tra- becoming leader of Labour he was chairman of Stop the War, a ditionalists, orTankies, who were critical ofthe criticism. He then group founded by Mr Murray and others, which has been less as- moved to the Guardian by way of The Economist and was a reli- siduous in opposing Vladimir Putin’s wars than wars in general. able warrior for the hard left. “For all its brutalities and failures,” The biggest reason why it matters is what it says about the La- he once wrote, “communism in the Soviet Union, eastern Europe bour leadership’s mindset. The gravest intellectual malady on and elsewhere delivered rapid industrialisation, mass education, the left is its habit of making judgments on the basis of people’s job security and huge advances in social and gender equality.” intentions rather than their results. This finds its purest form in John McDonnell, Labour’s shadow chancellor, has claimed the idea that the failures of the Russian revolution can be justi- that his worldview has been shaped by “the fundamental Marx- fied, or partially excused, by the nobleness of the intentions of ist writers ofMarx, Lenin and Trotsky”, according to an interview the people who launched it. This not only applies the wrong met- unearthed by the New Statesman. He has also doffed his cap to ric to judging progress (Adam Smith’s great insight was that eco- two troubling Marxist ideas. One is Antonio Gramsci’s notion of nomic progress usually proceeds regardless of the intentions of “the long march through the institutions”: you workwithin exist- businesspeople). It prepares the way for the pursuit of traitors ing institutions in order to convert them to the revolutionary when noble intentions fail to produce noble results. The Labour cause. The other is Leon Trotsky’s notion of a “transitional pro- Party was on safer ground when it spoke the language of priori- gramme”: you make demands that you know are unachievable, ties, rather than the language ofmillenarianism. 7 //*sharathcharged*// International The Economist October 28th 2017 51

The UN in conflict zones ment in Colombo, so that they could pro- mote their development work and receive Looking the other way international aid. Standing up for human rights was often deemed too difficult. In Myanmar, instead of confronting the governmenton behalfofthe Rohingya, the UN championed a policy of development Juba and Kinshasa for all in Rakhine state. That ignored how the delivery of services would inevitably The persecution ofthe Rohingya is the latest atrocity the UN has failed to stop be channelled through, and controlled by, INCE the end of August, more than half teur for human rights in Myanmar, Tomas those in power, namely Buddhist Rakhine Sof the 1m Rohingyas in the state of Rak- Quintana, says he was discouraged from politicians, the enemiesofRohingyas. Are- hine in Myanmar have fled across the bor- visiting Rakhine state by the head of the port commissioned by the mission in der to Bangladesh. The flight ofthe Muslim mission, Renata Lok-Dessallien. The Cana- Myanmar in 2015 pointed out that such an minority group is the quickest mass depar- dian denies this, but has been recalled to approach would be “more likely to rein- ture of people from any country since the the UN headquarters in New York. force discrimination than change it”. genocide in Rwanda in 1994. Rohingyas are A UN mission, whether a multi-agency The Petrie report chronicled how the Sri still pouring into makeshift camps, bring- presence as in Myanmar or one of its 15 Lankan mission recorded all the civilian ing with them stories of how villages were peacekeeping operations, can be a thank- deaths attributed to the Tamil Tigers, but incinerated, children shot dead, women less task. Those in charge are constrained understated the numbers of civilians raped and babies tossed into canals. If the by local and international politics. Yet they killed or wounded by the army—again, to exodus continues few of them will be left could do much better. Myanmar is farfrom keep the government sweet. This pattern in Myanmar. the first example of a dysfunctional mis- was also apparent in Rwanda in 1994 and The Tatmadaw, Myanmar’s army, is sion. The UN has repeatedly dawdled in re- in the United Nations-African Union Mis- chiefly responsible for the ethnic cleans- sponse to atrocities. António Guterres, sec- sion in Darfur (UNAMID), one of the UN’s ing. Itisaided and abetted bylocal Rakhine retary-general since January 2016, wants to largest-ever peacekeeping operations, es- politicians, while the government of Aung reform how operations are run. The plight tablished in 2007. In 2013 Aicha Elbasri, the San Suu Kyi has done little to stop the vio- ofthe Rohingya shows how much workhe spokeswoman for the mission, resigned, lence. But the UN is at fault, too. Despite has to do. handingin a listof16 caseswhere UNAMID having19 agencies in Myanmar, and sever- had “concealed” assaults on civilians and al offices and plenty of staff in Rakhine Cosying up to the bad guys even UN peacekeepers. state, it has failed to stop the catastrophe or The failingsin Myanmarare reminiscent of Ban Ki-moon, Mr Guterres’s predeces- warn ofits coming. those of the UN’s mission in Sri Lanka at sor, commissioned another UN review, Inside the UN, some officials argue that the end of the civil war in 2009 between which upheld five of the complaints. Ms those in charge of the mission down- the government and the Tamil Tigers, a ElBasri, Moroccan by birth, argues that the played the treatment of Rohingyas to win guerrilla group. An internal review led by deceptions were carried out to avoid of- the co-operation of Myanmar’s authorities Charles Petrie, a former UN official, con- fending the Sudanese government of in order to build schools, sanitise dirty wa- cluded there had been “systemic failure”. Omar al-Bashir, adding that Africans in the ter and develop a civil service—“capacity- Mr Petrie accused the members of the Sri mission were keen to defend one of their building” in UN-speak. The special rappor- Lankan mission of appeasing the govern- own. Mr Ban said that the “tendency to un-1 //*sharathcharged*// 52 International The Economist October 28th 2017

2 derreport” had left him “deeply troubled”. their clients and allies. But no one was held accountable, and no- Such was the case in Sudan. China has body had to resign. The whistleblower, considerable economic interests here, and however, forfeited her job. it struggled foryears to prevent any outside Missions need the consent of the host intervention in Darfur. Eventually, in 2007, governments to operate; the UN cannot in- it did concede to sending in UNAMID, but vade. But too often agencies and blue hel- only after ensuring that the mission could mets (as in the headgear worn by peace- cause Mr Bashir as little inconvenience as keepers) are lackeys of autocrats, forming possible. The offer of Western troops was “abusive” relationships with those in pow- kept to an absolute minimum, denying er, according to Richard Gowan of Colum- UNAMID the sort of kit and operational ef- bia University. This undermines the UN’s ficiency that might have made a difference. claim to moral authority. Another reason why, when the call The operation in the Democratic Re- goes out from New York, peacekeeping public of Congo (DRC) is a case in point. generally attracts troops from poor coun- The UN has deployed peacekeepers there tries (see chart), is because the pay is rela- since 1999, and MONUSCO, the French ac- tively high. But they are typically risk ronym by which the mission is known, averse. Some forces commit crimes. An- now has about 16,000 troops, and costs other whistleblower, Anders Kompass, ex- more than $1bn a year. posed allegationsofsexual abuse ofyoung Since 2016, the UN has failed to prevent Fired up, not ready to go children by troops in the Central African violence that has forced over 1m people to Republic in 2015. flee their homes. Troops get away with de- ians,” admits a UN official in South Sudan. Rather than take on the difficult task of fining their operating boundaries conser- “But they don’t. Something is upside improving peacekeeping operations, Mr vatively. Perversely, they are rewarded for down. It’s not working.” Ban tried to encourage reporting of abuses not using their kit, as they are reimbursed One reason for the failure is that the of human rights. That way, the theory for equipment returned in good condition. mission asks permission from the govern- went, countries could avoid the crimes Meanwhile MONUSCO cannot easily get ment before it sends out troops, fearing which would lead to the intervention of rid of underperforming civilian staff, that otherwise politicians will obstruct the troops in the first place. His main initiative, partly because of pressure from trade un- delivery offood and medicine to the starv- “Human Rights Up Front”, required all ions but also because of the complex way ing and the sick even more than they al- staff to take responsibility for reporting in which UN headquarters imposes its ready do. But since it is often the govern- abuses. But in Myanmar this policy has choice ofrecruits on the mission. ment carrying out the massacres, failed at first contact with the enemy. permission is often refused or delayed. Standing idle The UN argues that, despite the mani- Remaking the peace Another $1bn-per-year mission, UNMISS, fest failings of these missions, it is better to Mr Guterres has a chance to do much bet- has done almost nothing to prevent the de- have them than not. The mere presence of ter. For example, he could increase the an- scent into civil war and famine since South its troops can sometimes deter attacks, and nual budget for the human-rights office Sudan gained independence from Sudan even if blue helmets are reluctant to go out ($190m), which is dwarfed by the $12bn in 2011. The 12,500 peacekeepers have a and help civilians, at least the civilians can spent on the UN Development Programme mandate to protect civilians, but have huddle in and around its bases for protec- (UNDP). He could have heads of mission failed to do so. In August 2016 aid workers tion, as in South Sudan. report to him, not to UNDP, so as to reduce were raped, beaten and robbed by South The UN has no mandate to impose its the risk that human-rights abuses are ig- Sudanese government troops just minutes will independently on a country. All nored by officials who rely on local politi- away from the main UN compound in peacekeeping missions are authorised by cians’ support fortheir pet projects. Juba, the capital. Despite desperate phone the Security Council, and subject to ap- Mr Guterres has said he wants the UN and text messages from the victims, the proval by the General Assembly, giving to do more before the blue helmets have to 2,000 or so troops never stirred. “[The blue China and Russia ample room to minimise wade in. In recentyearsithastried to medi- helmets] are supposed to protect civil- the scope of missions in the interests of ate between factions in several countries. Sometimes it has staved off all-out war, thus avoiding the need for peacekeepers. Patchwork armies Kofi Annan, a former secretary-general, Military and police personnel in UN peacekeeping operations, September 2017, '000 rescued Kenya from a descent into further Top ten contributing countries violence after disputed elections in 2007, In DR Congo In Darfur In South Sudan for example; a team helped to stabilise From: 01234From: 01234From: 01234 Guinea after a coup in the west African state in 2008; and the UN also brokered a Pakistan Rwanda Rwanda deal in Madagascar in 2011. India Ethiopia India Building on these successes, Mr Gu- Bangladesh Pakistan Nepal terres has called for a “surge in diplomacy South Africa Egypt Bangladesh forpeace”, and hassetup a “High-Level Ad- Tanzania Nigeria Ethiopia visory Board on Mediation”, which in- Uruguay Indonesia China cludes such luminaries as Michelle Bache- Nepal Senegal Ghana let, the president of Chile, and Justin Malawi Tanzania Mongolia Welby, the Archbishop ofCanterbury. Morocco Bangladesh Britain Jaw-jaw is, of course, better than war- war. But as the failure in Myanmar shows, Egypt Nepal South Korea the UN still has a lot to learn about keeping Source: UN the peace. 7 //*sharathcharged*// //*sharathcharged*// //*sharathcharged*// Business The Economist October 28th 2017 55

Also in this section 56 Cambodian textile battles 56 Aldi and Lidl head offline 57 Avianca hits turbulence 58 The immortal MBA 58 Our Which MBA? ranking 59 The future of journalism 62 Schumpeter: Apple Capital LLC

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

Chinese business market—in tech, property or manufactur- ing—have soared. Wealth on the Hurun list New era, old contradiction has more than doubled under Mr Xi. Another concern is tightened control of the technology sector. The Wall Street Jour- nal reported this month that internet regu- lators might take 1% stakes in social-media HONG KONG AND SHANGHAI giants, including Youku, Alibaba’s You- Tube-like platform, and Weibo, China’s an- Fears that Xi Jinping is bad forprivate enterprise are overblown swer to Twitter. But the government al- OR a moment it seemed China was re- screws on private enterprise. But “social- ready has a good handle on its tech Fverting to Maoist economic manage- ism with Chinese characteristics” has long superstars. None can get far in China if it ment. On the sidelines of the Communist had a contradiction at its heart. Across angers the party or turns down data re- Party congress this month, an official told much of the economy, Communist offi- quests from state security. And they al- Xi Jinping that her village distillery sells cials preside over rumbustious capitalism. ready serve up party-pleasing products. baijiu, a potent spirit, for 99 yuan ($15) a Mr Xi’s pledge of a “new era” probably Some are lighthearted, like Tencent’s game bottle. Mr Xi, China’s most powerful means more of the same rather than a re- for WeChat, its ubiquitous mobile app, let- leader since Mao, remarked that this lapse into central planning. ting users compete in “applauding” Mr Xi’s seemed a bit dear. The chastened official Take the clampdown on moguls. Regu- speech by tapping their phone screens. thanked him and pledged to follow his lators have chosen fourofChina’s most ac- Others look more sinister, such as tech- guidance. But Mr Xi gestured her to stop. quisitive companies for extra scrutiny: niques to monitor users, which can help “This is a market decision,” he chuckled. Anbang, an insurance firm; HNA, an avia- authorities keep tabs on citizens. “Don’t cut the price to 30 yuan just because tion-to-tourism group; Wanda, a property The notion that Mr Xi is stifling innova- I said so.” The audience, perhaps relieved developer; and Fosun, an industrial con- tion is belied by a flourishing ofenterprise. that Mr Xi had no intention ofdictating the glomerate. As a result, their frenetic over- Only America has more, and more valu- price of booze, broke into laughter. seas investments have slowed sharply this able, startups. Media focused on the party Thisrare spotoflevityatthe dreary five- year. Wanda has sold many hotel assets. instruction for entrepreneurs to be patriot- yearly congress was telling. The occasion Anbang’s founder has been detained. ic, but the directive mostly spelled out how cemented Mr Xi’s unrivalled position at Yet this is not the assault on entrepre- the government can support them. Gary China’s apex. For companies, the question neurs that some make it out to be. Of the Liu, president of the China Financial Re- is what he will do with it. His vision can 2,130 people on the Hurun rich list, a guide form Institute, says the real message is that seem ominous. In a speech laying out his to China’s ultra-wealthy, just five fell foul entrepreneurs are vital to the economy. plans, he made it clear that the party is all- ofthe law last year(see chart on next page). A final concern is Mr Xi’s wish to powerful. By comparison, Mr Xi’s anti-corruption strengthen the party’s clout in the cor- On hiswatch the partyhasalready reas- campaign has ensnared nearly 10% of the porate world. Hundreds of listed SOEs serted control over state-owned enter- party’s 205-member central committee in have amended their articles of association prises (SOEs) and sought influence in priv- five years. since he took office, vowing to consult ate ones. It has called on entrepreneurs to Restrictions on the four high-flying party committees on big decisions. The be patriotic. And regulators have cowed companies are best seen as a by-product of regulator which oversees tech companies swashbuckling businessmen, from Wang stricter financial regulation, says Joe Ngai last year ordered them to improve their Jianlin, a property mogul formerly China’s of McKinsey, a consultancy. Belatedly, offi- “party building” activities. The party richest man, to Wu Xiaohui, an insurance cials have taken a hard line on risky fund- wants members to be placed in more im- magnate who fancied himself the next ing, especially foroverseas acquisitions. At portant jobs. Tencent now employs some Warren Buffett. the same time, the fortunes of tycoons 7,000 party members, or 23% of its staff; it It might seem as if Mr Xi is turning the with businesses geared to the domestic says that 60% ofthem are in key roles. 1 //*sharathcharged*// 56 Business The Economist October 28th 2017

fore nervously watchingCambodia’s auto- advice on how best to run a party (he No Commiserations cratic government squeeze workers ahead awaits trial on treason charges). Hurun rich list of China’s wealthiest ofa general election next year. Activists point out that, if the fashion ti- % on list who are Total assets of With annual revenues of $5bn, the tans wanted to help in a big way, they in legal trouble* the top 100, $bn Cambodian apparel industry is dwarfed should cut out the middlemen by acquir- 2.5 1,000 by those of Bangladesh or Vietnam. But it ing the sewing mills and turning them into 2.0 800 has been growing fast. In a country of 16m, subsidiaries. But such investments are un- it already employs around 700,000 people appealing to modern firms, which focus 1.5 600 and accounts for four-fifths of exports. It on design rather than production. In the 1.0 400 supplies international brands with every- meantime, no one will add capacity until thing from chic T-shirts to racy nightwear. after the election, reckons Ken Loo, head of 0.5 200 Between 2007 and 2014 the govern- the Garment Manufacturers Association 0 0 ment kept monthly wages at $45. It has in Cambodia, an industry body. Under- 2007 09 11 13 15 17 gradually let them rise to $153 since then, mining workers’ rights, Mr Hun Sen may Sources: Hurun Report; *In prison but only after angry textile workers took to find, is no longer the best way to woo for- The Economist or detained the streets. They will go up again in Janu- eign business. 7 ary, to $170. But with rising living costs, la- 2 But this is not entirely new. After mass bour groups reckon it ought to be $224. closures of SOEs in the 1990s, officials Such demands worry the government, Discount grocers pressed private firmsto setup party organi- fearful of losing fleet-footed apparel-mak- sations. As far back as 1999 nearly a fifth of ersto even cheaperdestinationslike Myan- The broccoli foreign-backed companies had one. There mar or Ethiopia. Adding to the tense atmo- is scant evidence that party cells have tried sphere is Cambodia’s looming election. heresy to sway firms’ big decisions. Companies The prime minister, Hun Sen, in power may not like them but the cells do not hurt since 1985, is all but guaranteed to win after HERTEN business. Industrial profits averaged near- another nasty campaign of repression. But Aldi and Lidl want to grow fast while ly 10% of GDP during Mr Xi’s first five-year many Cambodians—and foreign bosses— ignoring the internet almost entirely term, the highest since China’s economic fear a repeat of the protests seven years reforms began four decades ago. ago, which turned bloodyaftera sham poll HE aisles are wide, the lights bright and The party could yet use its cells as and a measly wage rise. Tshelves low. Most obviously, however, beachheads for more control. Regulation This time the government decided to the apples shine and the broccoli beckons. of tech firms may get more intrusive. Feel- quash dissent pre-emptively. In the past 18 For those used to the cramped, dimly lit ing vulnerable, many of China’s wealthi- months it has rammed through new laws Aldi stores of yore, all expense spared, the est entrepreneurs hold foreign passports. to stifle independent labour movements. It new supermarket in Herten, Germany, is But the party knows that a healthy econ- has become harder to register unions, and almost shocking. omy needs a vibrant private sector. Per- only those approved by the government Opened in April thisisthe prototype for haps the biggest risk is that, even if Mr Xi can represent their members in the most a vast new renovation and expansion pro- means well, the accumulation of so much important disputes. Another proposed gramme across Europe, Britain and Ameri- power in one leader can itself have a chill- law would see labour cases handled by ca. Itisthe discountgiant’sbigbeton the fu- ing effect. A few days after his baijiu re- newly created labour courts, rather than ture ofshopping, all the more daring as the mark, the distillerannounced thatit would special councils as happens now. The money is going almost entirely on bricks sell a new blend at 30 yuan a bottle. 7 councillors are government appointees, and mortar. Defying the conventional wis- but have earned respect for their efforts to dom that customers want both in-store ground rulings in law; unions and activists and online shopping (“omnichannel” in Cambodia’s trade unions prefer them to judges and prosecutors, the jargon) Aldi wants to conquer the retail who are regarded as less independent and world by ignoring the internet. As too, to a 1 Stitched up more arbitrary. All this hits garment workers hard; theirs is the country’s biggest industry, and Trolleyology heavily unionised. It also troubles interna- Market share Ireland tional apparel firms. “The government is Selected countries, % 12 PHNOM PENH Aldi Süd taking all the predictability out of the busi- Textile workers find an unlikely ally ness,” says Sarah Hopkins, a manager in Britain Lidl against government repression Cambodia for H&M. Rival brands such as 8 8 T THE Gladpeer Garments Factory out- Gap, H&M and Zara (owned by Spain’s In- Aldi Süd Aside Phnom Penh, Cambodia’s capital, ditex) have jointly lobbied the government seamstresses, dyers and embroiderers to relax its tightening grip of labour. Most 4 4 huddle over rows of work stations. It is a say they are trying to improve conditions Lidl hard slog. But at least they can count on la- at suppliers’ factories through strict stan- bour representatives to ensure they get a dards and unannounced inspections. 0 0 proper break. About four-fifths of the fac- Some employers provide workers with 2010 15 17* 2010 15 17† tory’s 4,800 employees belong to a union, health care, free eye checks, even libraries. France Spain reports Albert Tan, the general manager. Not everyone is as scrupulous. The 4 4 Many in his position distrust organised la- managerofa Cambodian knitwearfactory Lidl bour. MrTan sounds positively proud. So is Aldi Nord Lidl confesses that its Hong-Kongese owner Aldi Nord H&M, a giant Swedish fashion chain that is just wants business “to go smooth”. And 0 0 Gladpeer’s biggest customer. Like other Mr Hun Sen has turned more anti-Western 2010 15 17† 2010 15 17† Western brands that cater to increasingly after an old video emerged in which the Sources: Kantar Worldpanel; *To October 8th ethical consumers, the Swedes are there- opposition leader says he took American PlanetRetail RNG †Forecast //*sharathcharged*// The Economist October 28th 2017 Business 57

Airlines Dogfight

CHICAGO Avianca’s boss is up against striking pilots and warring shareholders ERNÁN RINCÓN has big plans for Avi- Hanca. He has run the Colombian air- line since leaving the top job at Microsoft’s Latin American business last year. Now he wants to turn the world’s second-oldest carrier into a “digital company that flies planes”—using technology to improve cus- tomer experience and operations—and ri- val Chile’s LATAM, the regional leader. And he hopes soon to seal a strategic part- 2 lesser extent, does its great German rival nal, tight-fisted formula. But the idea that nership with United Airlines, America’s Lidl. Plenty of other grocers reckon this openingrevamped stores as rapidly as pos- fourth-biggest by passenger numbers. may be the miscalculation that eventually sible isthe bestwayto win marketshare, as However, progress towards these goals brings them down. well as make money, remains. has stalled. A month-long strike by pilots Founded in 1945 and 1973 respectively, The discounters reason that whereas demanding better pay has disrupted jour- Aldi (split into two legally separate compa- their conventional rivals, such as Sains- neys of 375,000 passengers. Complicating nies, Aldi Nord and Aldi Süd) and Lidl have bury’s, might be able to win some custom- life further for Mr Rincón is a court battle been eating up the competition, especially ers online, they will not make much mon- between two shareholders: Germán Efro- since the financial crash of2008. In the cut- ey out of it. Take Britain, one of the most movich, a Bolivian businessman, and Ro- throat British market, Aldi (owned by Süd) advanced places in the world for e-com- berto Kriete, a tycoon from El Salvador. A increased its groceries share to 6.8%, from merce. Britons buy 7.3% of their groceries dispute over how to run the airline turned 6.2% just a year ago; Lidl’s jumped from online, up from 6.7% a year ago, second nasty after Mr Efromovich announced the 4.6% to 5.2% (see charton previouspage). At only to South Koreans. Tesco, Sainsbury’s United tie-up in January. Mr Kriete sued home in Germany, Aldi Nord’s market and others have spent hundreds of mil- both airlines, Mr Efromovich, his brother share has reached12.9%, and Lidl’s 8.9%. lions of pounds on sophisticated internet José and Synergy (the company through However, Aldi acknowledges that it operations. Yet, as Bryan Roberts, an ana- which they control Avianca) in New York. must change to keep growing at this pace. lyst at TCC Global, a consultancy, argues, He says the deal violates fiduciary duty Kay Rueschoff, Aldi Nord’s director ofmar- these stores are merely “cannibalising and shareholders’ agreement, and aims to keting, concedes that low prices, the dis- themselves”, driving most of their shop- prop up other Efromovich businesses. counters’ hallmark, are no longer enough. pers from their most profitable channel According to the lawsuit, Mr Efromov- To lure middle-class shoppers, Aldi has to (the store) to the least profitable (online). ich borrowed money from a hedge fund to focuson quality, too—hence the shiny store Operating margins in the supermarket aid concerns hit by recession in Brazil, in Herten. In all, Aldi Nord is spending business are notoriously low, but even pledging Avianca shares as collateral (he €5.2bn ($6.1bn) on revamping its 4,800 lower online, says Mr Roberts—about 3% owns 78% of voting shares). Mr Kriete says stores in Europe (excluding Britain and Ire- versus 0.5% or less. Fleets of vans and driv- this led to a series of excesses: an order of land) and opening hundreds of new ones. ers are expensive, but, argues Walter Black- 100 Airbus jets, double Avianca’s needs, to Besides ambient interiors, there is more wood, a consultant, supermarkets dare not relieve Mr Efromovich from other obliga- fruit, veg and wine. charge costprice (ormore) forthe service as tions to the planemaker; unlicensed use of In Britain, Aldi Süd is unveiling about customers expect it to be virtually free. He the Avianca brand byhistwo smallercarri- 70 new stores a year, often in impeccably attributes this in part to the baleful effectof ers; and approval by Avianca’s board of a middle-class areas that were once the pre- the online behemoth Amazon, which does loan to thrice-defaulting Synergy. serve ofposher British rivals such as Sains- not seek to profit from the actual delivery Avianca counter-sued in March accus- bury’s. Aldi plans to open 900 swanky of goods, thus creating the conviction that ing Mr Kriete of leaking company secrets new stores in America, putting it third in deliveries should be free. Customers ex- and trying to scupper the United deal—to the country by store count, behind Wal- pect the same from everybody else. force Avianca into a sale, or Synergy into mart and Kroger. (Lidl has just begun oper- For the moment, Aldi’s decision to divesting its holdings. (The shareholder ating in America, and aims to have 100 spend its money on physical stores is pactallowsMrKriete to sell hisholding ata stores within the year.) working. In less developed e-commerce premium but he refuses to at what he says Mr Rueschoff bristles at any suggestion markets, like America, they may have even is today’s depressed price.) that Aldi is changing too much. The new more of an advantage. But the proportion Mr Rincón sees “no merit whatsoever” stores still sell only about 1,400 items, as ofpeople shopping online can only go one in Mr Kriete’s case against Avianca. opposed to the 50,000 or so on many ri- way, so the strategy carries risks. Super- Months ofdue diligence confirmed United vals’ shelves, enabling big economies of markets are learning to make online sales as its ideal partner: their routes in the scale. At Lidl, a new generation of senior more profitable, through “clickand collect” Americas are complimentary and both be- managers last year began to upgrade their schemes, for example, or raising the mini- long to Star Alliance. But the deal can only stores in a similar way. They resigned in mum transaction value for deliveries. A happen if the shareholder brawl ends. Mr February after their effort to expand Lidl’s decisive clash of competing retail philoso- Rincón hopes for a favourable ruling at a small online offering was deemed too rad- phies looms. To the victor, arugula. To the hearing next month. He cannot count on ical a departure from the discounter’sorigi- loser, turnips. 7 the tussling tycoons to settle. 7 //*sharathcharged*// 58 Business The Economist October 28th 2017

MBA programmes they rose by 13%; 132,000 students now ap- ply to Asian schools, nearly as many as to Degrees of concern American ones. Applications in Europe in- creased by 3%. American courses that en- roll more than 200 MBA students—which dominate The Economist’s ranking of MBA programmes (see box)—report a 4% rise. Demand has, it is true, fallen at smaller American schools. Those with fewer than Reports ofthe MBA’s demise are exaggerated 200 students saw applications drop by 6% HE MBA is both revered and reviled. To straight from undergraduate degrees. They this year. These schools enroll around half Tboosters it has advanced the science of often cost half as much and do not make of all students in America. But they face management and helped firms, and coun- participants interrupt their careers to distinct pressures. One is Donald Trump. tries, to grow. Detractors say it offers little study. Such degrees have long been popu- In a survey by Carrington Crisp, a consul- of practical value and instils in students a lar at European business schools. Now tancy, around 40% of potential applicants sense of infallibility that can sink compa- Americans are following suit. said that the new president had discour- nies, and knock economies sideways. The Non-MBAs now attract 35% of people aged them from studying in the country critics are currently the louder of the two, who sit the GMAT, the de facto business- (just 3% said he made them more likely to claiming that particularly the full-time, school entrance exam, up from 30% five study there). His anti-immigrant adminis- campus-based MBAs have reached satura- years ago. MBAs’ share has dipped propor- tration’s plans to tighten the rules for grad- tion point, with too many mediocre tionately. When King’s College London uate work visas may have something to do courses chasing too few candidates. The Fi- launchesa businessschool in November, it with this. “International students are feel- nancial Times recentlylikened them to “the will offer specialised Masters courses but ingleftbehind,” explainsone who opted to Grand Tour of business education in an no MBAs. Stephen Bach, its dean, says that study in France over America. age ofAirbnb”. employers like to recruit younger students Dislike of Trumpism will not deter ap- There is a widespread feeling that full- because they are more flexible and “cultur- plicants from the finest American estab- time MBAs are on their last legs, concedes ally attuned”. lishments. Few institutions anywhere can Sangeet Chowfla, the president of the But lookacross the world and MBA pro- match the cachet of Harvard, Wharton or Graduate Management Admission Coun- grammes are thriving. The “popular myth” Kellogg, which charge a premium as a re- cil (GMAC), a business-school association. of their demise is just that, says Mr Chow- sult. Second-tier American programmes Decline is allegedly hastened by compet- fla. Rapid growth in the overall business- are nearly as expensive, but nothing like as ing qualifications, such as the Masters in education market has offset MBAs’ declin- prestigious. Foreign students may opt for Management. MiMs have much the same ing share. Global applications to MBA pro- cheaper courses in countries with brighter syllabus as MBAs, but unlike them, take grammes in the 2016/17 academic year job prospects. That bodes well for non- students without management experience grew by 6%, according to GMAC. In Asia, American MBAs. 1

Make America great again Which MBA? The Economist ranking of full-time MBA programmes American business schools dominate The Average Average Increase Graduates Average work Economist’s 2017 Which MBA? ranking, Rank salary on in jobs GMAT experience Total Programme taking 16 of the top 20 places. Northwest- 2017 Business of new pre-MBA within score of of students, tuition duration, ern University’s Kellogg School of Man- (2016) school Country graduates, $ salary, % 3 months, % students* years fee, $ months agement returns to the top spot for the 1 (2) Northwestern US 123,998 72 97 728 5 132,924 21 first time since 2004. Kellogg students (Kellogg) praise its facilities and collaborative 2 (1) Chicago (Booth) US 126,937 71 98 726 5 133,080 21 culture. Their career opportunities are 3 (4) Harvard US 134,071 64 94 729 4 144,000 21 among the best, thanks in part to one of 4 (12) Pennsylvania US 130,375 29 98 730 5 153,160 20 the largest alumni networks in the world; (Wharton) 97% of students find a job within three 5 (5) Stanford US 140,553 63 90 737 4 137,736 21 months of graduation, pocketing a 72% 6 (14) UCLA Anderson US 118,150 93 92 715 5 118,580 22 pay bump. All of the top ten slots in the 7 (7) California at US 122,488 81 91 717 5 119,478 21 ranking are now occupied by large, pres- Berkeley tigious American schools, for which 8 (6) Dartmouth (Tuck) US 123,934 84 98 717 5 137,820 21 students are happy to pay extra. Their 9 (11) Columbia US 129,379 72 97 718 5 137,584 20 average tuition fee is $134,600, and has 10 (3) Virginia (Darden) US 122,806 89 93 712 5 131,840 21 risen quickly in recent years. Employers, 11 (15) Yale US 119,146 102 93 725 5 133,300 21 too, are willing to shell out for the best 12 (21) Michigan (Ross) US 119,959 84 98 708 5 128,700 20 students. Their average basic salary was 13 (18) Duke (Fuqua) US 121,283 99 94 696 6 143,734 22 $127,300, a 70% increase on their pre- 14 (19) New York (Stern) US 120,924 108 94 710 5 133,176 21 MBA pay cheques. But life, like rankings, (9) HEC Paris isn’t just about money. So we weight data 15 France 120,425 147 91 691 6 67,400 16 according to what students tell us is 16 (10) Queensland Australia 111,044 17 93 na 9 50,548 24 important. The four categories covered 17 (8) IESE Spain 95,841 81 94 687 6 90,507 19 are: opening new career opportunities 18 (20) Warwick Britain 64,405 44 100 653 8 52,804 12 (35%), personal development and educa- 19 (17) MIT (Sloan) US 126,316 71 95 724 5 142,624 21 tional experience (35%), better salary 20 (40) Florida (Hough) US 95,539 78 93 685 5 60,260 20 (20%) and networking potential (10%). For full ranking and methodology go to Economist.com/whichmba *De facto MBA entrance exam, out of a possible 800 //*sharathcharged*// The Economist October 28th 2017 Business 59

2 One partial exception is Britain. British of attending London Business School by before Jeff Bezos, boss of Amazon, bought schools lure students from the European €14,000 ($16,000), for instance. That may it in 2013. The newspaper is now privately Union, in part because they enjoy an auto- help explain why three in four British held and does not disclose revenues and matic right to work at London’s big banks schools report a rise in applications this profits, but Fred Ryan, the publisher, says and professional-services firms. Brexit year, according to GMAC. If Britain crashes both are growing and the newspaper is on would change that. But British courses are out of the EU the pound could weaken track for its most profitable year in a de- at least getting cheaper for non-Brits. The again, making courses look cheaper still. cade. The Wall Street Journal added more collapse in the pound since the Brexit vote By then, however, the discount may not be than 300,000 digital subscriptions in the in June 2016 has cut the cost to Europeans sufficient to attract anyone. 7 year to June, but a sharp fall in advertising crimped revenues by 6% at Dow Jones, the division of News Corp, Rupert Murdoch’s The future of journalism media empire, that houses the newspaper. How have they done it? Early attempts Funnel vision bynewspapersto putup digital “paywalls” floundered, and met with derision from critics and competitors vaunting the inter- net’s ability to generate huge audiences for NEW YORK free content. Howcould anyone hope to at- tract paying digital customers when they The first in a three-part series on journalism’s future examines how leading could go elsewhere online forfree? American newspapers got readers to pay fornews in the internet era The Times hit upon the answer in 2011, OMETIMES it feels like the 1970s in the Inquirer or the Baltimore Sun, splurged on when it introduced a metered paywall, SNew York Times and Washington Post foreign bureaus and fluffy suburban sec- something the Financial Times was also newsrooms: reporters battling each other tions whether or not readers wanted them; trying. Visitors to the website could read a to breaknews about scandals that threaten classified ads alone covered these costs few free articles a month, after which they to envelop the White House and the presi- many times over. Now such newspapers would be asked to pay. This approach is dency of Donald Trump. Only now their are struggling to remain relevant to dimin- now standard across journalism (includ- scoops come not in the morning edition ished readerships. A tier below, hundreds ing at this newspaper), but it was contro- but in a tweet or iPhone alert near the end of local ones are dying or turning into ad- versial at the time. At News Corp Mr Mur- ofthe day. vertiser sheets; newspaper chains, some doch erected a hard paywall at all his It is like old times in another way: both managed by investment funds, have newspapers in the belief that giving away newspapers are getting readers to pay, off- snapped up many of them, maintaining his product online would cripple the more settingadvertisingrevenue relinquished to high profits by sacking journalists. profitable print editions. Those suffered the internet. After years of giving away anyway, and he later dropped the paywall scoopsfornothingonline, and cutting staff, From the ashes of newsprint at the Sun, a tabloid, and has allowed some the Times and Post are focusing on sub- The Times and Post have been buffeted by flexibility at the Journal. Softer paywalls scriptions—mostly digital ones—which the same forces. But now each is in turna- have created funnels to suckin customers. now rake in more money than ads do. round. The Times has doubled its digital- On a whiteboard in Mr Thompson’s of- Their experiences offer lessons for the only subscribers in less than two years; the fice at the Times is a diagram to illustrate industry in America, although only a Post has managed the feat in ten months, the approach. At the top, where the funnel handful of newspapers have a chance at and now has more than 1m. Both have is widest, are all those who visit its digital matching their success. A subscription-first staunched losses. Revenue at the Times site. (In September 104m people in Ameri- approach relies on tapping a national and had fallen by more than 20% in three years ca did so, according to comScore.) At the international market of hundreds of mil- to less than $1.6bn in 2009; this year they narrow end are its 2m paying digital-only lions ofeducated English-language readers are on pace to climb backabove $1.6bn, led subscribers (plus 1m print subscribers). Mr and convertinga fraction ofthose into pay- by digital subscriptions. (Return on equity Thompson’s main preoccupation is to ing customers. With enough digital sub- still fell, to 3% last year from 37% in 2001.) tweakthe “geometry ofthe funnel” to shift scribers—Mark Thompson, chief executive The Post had also been losing millions more people from free to paid. At the Post, 1 of the New York Times, believes his news- paper can get to 10m, from 2m today—the subscriptions-first model could (in theory) generate more profits than business mod- els dependent on print advertising used to. Such optimism is hard to summon after two decades ofacceleratingdecline. In that period American newspapers lost nearly 40% of their daily circulation, which fell to 35m last year, estimates the Pew Research Centre. Annual ad revenues have shrunk by 63%, or $30bn, just in the past ten years (see chart on next page). Newsrooms have shed 40% of reporters and editors since 2006. High returns on equity turned into single digits, losses or bankruptcy. Like Detroit carmakers before the arriv- al of the Japanese, in pre-internet days newspapers flush with profits from a cap- tive market grew lazy and complacent. Some big-city papers, like the Philadelphia Past ... //*sharathcharged*// ADVERTISEMENT THE PHILIPPINES: LEADING ASEAN’S 50TH ANNIVERSARY WORLD EYE REPORTS be expanded to nearly all countries. In the meantime, Ark Systems continues to develop the global infrastructure for NAC. 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2 Mr Ryan is also busy funnelling. them, addingseveral million dollars in rev- The job of funnel mathematician did enue: organising an advertiser fair to at- not exist at newspapers six years ago. Now tract new clients; putting on a consumer it is one of the most important functions a travel show; and starting a glossy quarterly digital site has. The Times and Post conduct print magazine. numerous tests of different ways to trigger The Star Tribune now sells digital sub- the paywall, for instance ifa visitor returns scriptions (nearly 50,000) and adverts; de- to the same columnist. It is A/B testing like livers a thick Sunday paper full of features ata technologycompany, MrRyan says, ex- (which accounts for 54% of print ad rev- cept it is more like “A to Z testing”. The Post enue); and is expanding the Saturday print has settled on three site visits a month be- edition. It conducts in-depth investigations fore hitting the paywall, which means 85% that wins awards, including the Pulitzer of visitors will not encounter it. The other Prize in 2013, and makespodcasts and daily 15% are asked to subscribe at the introduc- videos. Several reporters cover city hall. In tory rate of99 cents forthe first fourweeks. the past year an additional one was dis- Both newspapers sift through data patched to Washington. Mr Klingensmith about what visitors do just before stump- and Rene Sanchez, the editor, believe qual- ing up. The Post looks at the “month zero” ity is key; nearly 20% of the budget goes to of a reader’s pre-subscription activity on the newsroom, which has kept a head- the site. Mr Ryan credits the effort, which count of245 forseven years. began a year ago, with helping to convert ... is present That gives the Star Tribune’s funnel more visitors to subscribers this year. mathematician a product to sell. Patrick Another factor has helped the two pa- ditional sources of revenue: ads and sub- Johnston, a digital executive poached from pers: Mr Trump. Since his election they scriptions. At regional papers, unlike the Target, the retail store, and his boss Jim Ber- have revived an old rivalry, vying for sen- national ones, prospects for both are limit- nard, a formerexecutive at Marketwatch, a sational scoops, sometimes several in a ed by the size of the metropolitan market. business-news website, explain how a lo- day. Mr Trump’s attacks on both newspa- Savings from printing fewer copies are cal newspaper’s funnel vision is different. pers—“the failing New York Times”, “more small—printing and distribution costs are They are, like the big papers, interested in fake news from the Amazon Washington mostly fixed—so they must either cut staff the visitors who they call “intenders”, peo- Post”—have almost certainly helped their or find other ways to make money. This ple whose browsing behaviour suggests bottom lines. His presidency has created may include staging trade fairs, offering they may be ready to subscribe. But where- an urgency around news that has made memberships with perks, even e-com- as many visitors to the Times and Post are old-fashioned journalism more in vogue merce partnerships. Such sidelines help to potential intenders, the Star Tribune can than it has been probably since Watergate. ward off staff cuts; to be a community hub, dismiss about 50% of its online traffic—the Fake newsshared on social media hasrein- newspapers must also cover communities “grazers” from outside Minnesota who forced a feeling that real news costs money. effectively. They may forgo costly (and clicked a link—and focus on the other half. wasteful) foreign and national bureaus. Reducing friction is vital; they have got 25% Trump bump But to attract local readers, they must pro- more intenders to subscribe since install- The newspapers’ bosses agree Mr Trump vide relevant coverage of city halls, court- ing PayPal as a payment option. has been good for business, but add they houses, police precincts or schools. were ready for the moment. As Mr Bezos is Take the Star Tribune in Minneapolis, a Hold the presses fond of saying, “you can’t shrink your way privately owned newspaper which has The downside to the ease of online sub- to profitability”. He invested in the Post managed to keep the newsroom humming scriptions is the ease of cancelling them. after buying it, hiring technologists to im- along. Almost annually Mike Klingens- Newspapers guard their rates of digital prove its digital presence. He has also add- mith, the publisher, and a few of his senior churn closelybecause theyare so high—de- ed reporters (the Post now has 750 news- executives meet with their counterparts at spite an all-out effortthe Star Tribune keeps room employees and counting). Marty the Dallas Morning News, Boston Globe only one in two subscribers after 14 Baron, editor of the Post, added a rapid-re- and one or two other independently months (the Times and Post numbers are sponse investigative team of eight people owned newspapers. They sign non-disclo- better, executives there say, without giving this year. Dean Baquet, executive editor of sure agreements and then share ideas figures). A subscriber’s early days are es- the Times, has expanded the Washington about how to make money. In the past year sential. Keeping a visitor engaged with the bureau twice since the election. (The Times Mr Klingensmith has adopted three of site is similarto gettinga “guest” on Target’s paid for new reporters in part by cutting website to put another item in their basket, dozens ofother editorial jobs.) Mr Johnston says. It also means competing The subscription-first approach justi- Turning a line with ever more rivals for people’s atten- fies adding reporters. By increasing the United States, newspaper revenue, $bn tion: bigger fish like the Times and Post, but quality of the product, newspapers hope Advertising Circulation also Netflix, Spotify or Candy Crush. to lure subscribers. But it is not clear others Print and online The virtue of digital subscriptions is can replicate that virtuous circle so easily. 60 12 that they build a deeper relationship be- Many regional papers are nurturing digital 50 10 tween readers and newspapers than when subscribers—they all have their funnels distribution meant throwing broadsheets 40 8 now, too—but are doing so on a much onto doorsteps. Newspapers nowadays smaller scale. They will have to come up 30 6 know a lot more about their customers’ with other ways to make money to sur- 20 4 tastes. That lets them tailor the experience * vive. “They have to do everything,” says 10 2 to readers individually, with the aim of Jay Rosen, a professor of journalism at keeping them around longer. It can be, as New York University. 0 0 Mr Thompson says, an annuity for the 1956 2000 16* 1956 2000 16 By “everything” media experts like Mr newspaper. But the newspaper has to be Rosen mean ending a reliance on two tra- Source: Pew Research Centre *Estimate worth the cover price. 7 //*sharathcharged*// 62 Business The Economist October 28th 2017 Schumpeter Apple Capital LLC

Hey Siri. Should the world’s biggest firm shrinkits finance arm before it goes bananas? Nonetheless, it has become riskier, in three ways. First, Apple Capital is investingin racierassets, which involves taking credit risk. In 2011 a majority of its assets were “risk-free”: cash orgovernmentbonds. Today68% are invested in otherkinds of securities, mainly corporate bonds, which Apple says are gen- erally investment grade. The shift may explain why Apple’s an- nual interest rate earned on its portfolio (2%) is now higher than that ofthe fourotherSilicon Valley firms with money mountains, Microsoft, Alphabet, Cisco and Oracle. In total, theystill have 66% oftheir portfolios squirrelled away in risk-free assets. Second, Apple’s derivatives book has got much bigger. Since 2011 its notional size—the face value of its contracts—has risen by 425%, to $124bn. This is still much smaller than big banks’ posi- tions, but is the third-largest book of any non-financial firm in America, after GE and Ford. For every dollar of foreign sales, Ap- ple has89 centsofderivatives, compared with 57 centsforthe oth- er fourtech giants. At points these derivatives have yielded big re- wards. In 2015 they contributed $4bn, or 6% ofApple’s profits. But they have dangers, too. Apple says that its “value-at-risk” (VAR), a statistical measure of the maximum likely loss in an average day, is$434m. Thatishuge: similarto the combined VAR ofthe world’s T IS fashionable to say that tech firms will conquer the financial top ten investment banks. In theory losses on derivatives would Iservices industry. Yet in the case of Apple, it seems that the op- be offsetby gains in the value ofApple’s underlying business. But posite is happening and finance is taking over tech by stealth. the sheer size ofthese positions gives pause for thought. Since the death of Steve Jobs, its co-founder, in 2011, the world’s The last area ofhigherriskis Apple’sdivided geography. Its for- biggest firm by market value has sold hundreds of millions of eign operation swims in cash while its domestic one drowns in phones with bionic chips and know-it-all digital assistants. But it debt. Profits made abroad are kept in foreign subsidiaries. That has also grown a financial operation that is already, on some way Apple does not pay the 35% levy America charges when measures, roughly halfthe size ofGoldman Sachs. earnings are repatriated. Some 94% of Apple Capital’s assets are Apple doesnotorganise itsfinancial activitiesinto one subsid- “offshore” and cannot be tapped for ordinary purposes. The do- iary, butSchumpeterhaslumped them together. The result—call it mestic business must do the hard work of paying for dividends “Apple Capital”—has $262bn of assets, $108bn of debt, and has and buy-backs. Its profits are not big enough to cover these, so it traded $1.6trn of securities since 2011. It appears to be run fairly borrows. Domestic net debts have risen to $92bn, or five times cautiously and is part ofa thriving firm, but it still deserves scruti- domestic gross operating profits. Each year Apple must issue ny. Companies have a history of being hurt by their financial $30bn of bonds (including refinancing), similar to the average of arms; thinkGeneral Electric (GE) or General Motors (GM). Wall Street’s five largest firms. Apple Capital has lots ofresponsibilities but three stand out. It Apple’s core business is so profitable that it is—almost—incon- invests the firm’s mountain of surplus profits, mainly in “highly ceivable that a blow-up at Apple Capital could lead to it needing rated” instruments (this task seems to fall to Braeburn Capital, a taxpayer or central-bank support, as was the case for GM and GE. subsidiaryin Nevada, which usessome external fund managers). Still, it is easy to imagine how Apple Capital could hurt its parent. Apple Capital also uses derivatives in order to protect the firm A market shock could lead to losses on its portfolios. A two-per- against currency and interest-rate gyrations. And it manages centage-point rise in interest rates would result in a loss of $10bn. America’s fifth-biggest corporate-debt pile by issuing Apple If bond markets dried up, Apple might struggle to issue so much bonds as part ofan elaborate strategy to limit tax bills. debt and have to bring home funds, incurring a big tax bill. It Apple Capital has become important to its parent. Since Jobs might also become tricky to run such a big derivatives portfolio. died, its assets have risen by 221%, twice as fast as the company’s sales, reflecting Apple’s huge build-up of profits. Its investments Don’t upset the Apple cart are worth 32% ofApple’s market value, and its profits (investment Apple Capital has grown in a forgiving period for financial mar- income, plus gains on derivatives, less interest costs) have been kets. That won’t last. Over time, the riskofmission creep will rise, 7% ofApple’s pre-tax profits so far this year. It is also sizeable com- as will the temptation to invest in riskier assets. On the current pared with other financial firms. Consider four measures: assets, trajectory, by 2022 its assets will reach $400bn and debts $250bn. debt, credit exposure and profits. Dependingon the yardstick, Ap- By then financial regulators, who do not supervise Apple, will be ple Capital is 30-85% as big as Goldman Sachs. It is 22-42% as large grinding their teeth at night. as GE Capital was at its peak in 2007, just before things went According to a formermanagerwho leftin 2012, Apple’s finan- down the tubes during the subprime crisis. cial gurus were careful because “nobody wanted that 3am call Apple Capital is different from these firms in important ways. from Steve Jobs”. But Jobs isn’t there any more. In any case, a fear It does not take deposits and has much lower leverage. In their ofrebuke is not enough. Ifthe tax laws change Tim Cook, Apple’s prime Goldman and GE Capital were run by hard-chargingfinan- boss should wind down the structure that the firm has created. ciers, and made lots of loans. By contrast, Apple Capital does not But even if the rules don’t Apple Capital should be shrunk. Tech make loans, and is not meant to be a profit centre in its own right. firms should seekto disrupt finance, not be seduced by it. 7 //*sharathcharged*// Finance and economics The Economist October 28th 2017 63

Also in this section 64 Buttonwood: Brexit and pensions 65 India recapitalises its banks 65 Monte dei Paschi returns 66 Robo-advisers: be big or be bought 66 Millennials versus boomers 67 America’s corporate-tax quarrel 68 Free exchange: Openness and pay

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American Express born online. Rather than a card, PayPal provides a Shuffle and deal payments platform for individuals, on smartphones or computers, using ac- countsattheirbankortied to American Ex- press, Visa or MasterCard. In the process it collects a fee. It also offers systems such as NEW YORK Venmo (intended for payments between individuals but sometimes used by small Competition in the credit-card business will only intensify businesses, too), Braintree, a financial link E IS leaving with the share price rising how strong its numbers are, and sugges- used by Uber and Airbnb, and Xoom, a re- Hand the announcement, on October tions that its strategy—which increasingly mittance service. 18th, of earnings that were largely well re- relies on lending to replace diminishing Competition abroad is just as keen. ceived. Better still, Kenneth Chenault, transaction fees—may be heading into American Express entered Asia early and American Express’s chief executive for 16 more turbulent conditions. once had an enviable position there, but its years, accomplished a feat rare in the up- presence has faded. In 2007 it sold (to Stan- per reaches of American finance: to stand Cutting the cards dard Chartered) a private bank created al- down without an obvious helping shove. Competitive pressure looms on all sides. most a century ago that had languished No grandstanding senators hounded him MasterCard’s market capitalisation is from inattention. Japan’s JCB has issued al- out (see Wells Fargo). No boardroom coup twice that of American Express; Visa’s, most as many cards (but still accounts for hastened the end (Citigroup). The financial three times as big. PayPal, spun off from far less in transactions). China’s UnionPay crisis left him untouched (take your pick). eBay in 2015 and run by a formerAmerican boasts the world’s biggest transaction vol- His successor, Stephen Squeri, promoted Express executive, has a tiny fraction of ume, eight times that ofAmerican Express, from within and apparently groomed for Amex’s revenues and profits but on the eve and 55% ofcards issued globally. the job, takes over in February. ofthe earnings announcement passed it in These conventional competitors may For all that, Mr Chenault’s long tenure market value (see chart). Its sales and pro- matter less than electronic networks such has not been an unequivocal triumph. fits have grown much faster, and it was as Alibaba’s Alipay and Tencent’s Tenpay Though generatingstrongreturns on assets and a profusion of still little-known start- and equity, American Express has contin- ups. The entire mechanics ofpayments are ued its slide within the fast-changing and Card players being rethought, with cards being replaced competitive payments industry. According Market value, $bn by QR codes, biometrics and more. to Nilson, an industry bible, in 1974 the In this noisy hothouse, MrChenault de- amount of money for purchases chan- 250 serves respect for keeping American Ex- nelled through American Express was Visa press healthy. It has supported its market 200 equivalent to 50% of what went through share through deals with banks and other MasterCard and 70% of what went 150 financial institutions that can now issue through Visa. By 2016, those ratios had Mastercard American Express cards (and generate fees shrunkto 30% and 14%. 100 bytransactingthrough Amex’ssystems). In American Express has grown nonethe- American Express the past decade the number of businesses less, as credit-card usage has surged. But 50 accepting its cards has doubled. But these the best days may be over. Its share price, PayPal victories have come at a cost. Twenty-five revenues and profits all peaked in 2014. Bu- 0 years ago American Express collected a ried in the details of its latest earnings re- 2015 16 17 3.2% fee on every transaction, according to lease are hints that raise questions about Source: Thomson Reuters Sanford Bernstein, an investment research 1 //*sharathcharged*// 64 Finance and economics The Economist October 28th 2017

2 firm. Now, it makes less than 1.8%. Compet- lost one such deal with Costco, a large re- in 2015. Now quality may be worsening. In itive pressure will squeeze this further. tailer that accounted for 10% of its transac- the two most recent quarters, analysts In the past, merchants were willing to tion volume, to Citigroup. Another, with were surprised by the size ofAmerican Ex- pay for American Express transactions be- JetBlue, an airline, went to Barclays. press’s provisions for credit losses. Other cause its cardholders were well-off and To rely less on revenue from transaction banks also increased provisions. willing to spend. But now large banks are fees, American Express has become more Credit is cyclical and it would be a sur- going after these customers. JPMorgan banklike, lending more. Net interest in- prise ifthis time were different. A new con- Chase and Citigroup, both with card busi- come made up 18% ofrevenues in 2012 and cern is electronic fraud, notwithstanding nesses headed by ex-Amexers, have issued should bring in 28% in 2018, predicts No- companies’ efforts to thwart it. Still, the cards that provide benefits broadly regard- mura/Instinet, a brokerage. That has business that American Express joined 60 ed as better than those from American Ex- looked good lately, because funds have years ago will continue to grow, and Amer- press. Soon Bank of America will follow. been cheap and credit quality high, but the ican Express may well be a beneficiary. But Banks have also taken aim at lucrative co- environment may be changing. Citigroup othersmaybe betterplaced. MrChenault’s branding deals carrying exclusive rewards and JPMorgan Chase, amongothers, began tenure may thus be remembered merely as for customers. In 2015 American Express expanding their consumer-loan portfolios a pause before the end ofan era. 7 Buttonwood Sauce for a Brussels goose

Billions depend on the choice ofa discount rate IVORCES are rarely easy. In the 16 in significantcutsin take-home pay. So it is Dmonths since Britain voted to leave understandable that it has softened the the EU in a referendum, the negotiations blow. But Britain is surely at liberty to ar- have made little progress. One ofthe trick- gue that what is sauce for EU bureaucrats iest aspects is the amount that Britain ought to be sauce for British taxpayers as should pay to meet its existing spending well. Bruegel, a think-tank in Brussels, commitments for EU programmes. concluded that, if this more generous dis- This is not analogous to dividing up count rate were used, the British pensions the bill in a restaurant, and deciding who bill would fall by between a third and had the lobster and who stuck to the more than half. In cash, that could be mixed green salad. Take the cost of EU of- €2.5bn-4bn. ficials’ pensions. The tricky bit in calculat- All Britain has to do, then, is argue this ing it is that pensions are long-term com- case. But EU negotiators might ask how mitments; a bureaucrat who starts work Britain calculates the pension liability for in Brusselstodaymightstill be collecting a its own public servants. Unfortunately, pension 70 years from now. Working out the accounts of the England and Wales the cost is fiendishly complicated, requir- teachers’ pension scheme show a real dis- ing estimates of how much wages will up its share of€67.2bn. count rate of just 0.24%. That would un- rise (ifthe pension is linked to salary) and However, when it comes to calculating dermine the logic ofthe British argument. how long employees will live. Then the the contributions of employees, the EU Another approach might be forBritain sum of future benefits has to be discount- uses a completely different approach. As a simply to pay its share ofthe pensions bill ed at some rate to work out the current Eurostat document shows*, the discount every year; after all, that is what the EU cost; the higher the discount rate, the low- rate in these numbers is a 22-year average does at the moment. Then Britain would er the presumed expense. of real government-bond yields. This in- not be “punished” by the use of a histori- The EU doesn’t pre-fund pensions for cludes the period from 1995 to 2000, when cally low discount rate. But the snag its officials; it pays them as they fall due. real rates were often 4% or higher. The re- would be that Britain could still be paying So the calculations don’t need to involve sult is a nominal discount rate of 4.8% and out forsome bureaucrats in the 2070s, cre- any assumptions about investment re- a real rate of3.1%. ating the kind of festering sore that the turns. But the cost estimate needed for Up until 2012, the EU used a 12-yearaver- country’s tabloids will complain about Britain to pay its “fair share” will depend age ofbond yields. But it is steadily moving for decades (and demand that some fu- on what discount rate gets used. And that to a 30-year average by 2021, which means ture government repudiates). could be the subject ofa big dispute. that those high real yields from the late Perhaps some cunningBritish civil ser- In its annual accounts, the EU calcu- 1990s will stay in the numbers for longer. vant has found a way of escaping this di- lates a pension liability of €67.2bn The remarkable result is that while the dis- lemma. When Buttonwood contacted the ($79.3bn). This is based on a discount rate count rate in the balance-sheet calcula- Department for Exiting the EU (DEXEU), of 1.7% in nominal terms and 0.3% in real tions has been falling, the discount rate he was told it was a matter for the Trea- terms (after inflation). This cost has used forthe contribution ofofficials rose in sury; the Treasury said it was a matter for jumped from around €35bn in 2011 be- 2016. The good news for employees is that DEXEU. There was no news on whether cause the discount rate has fallen sharply. they were required to contribute 0.5% less either department planned to hold its This rate has not been plucked out of thin of their salaries than would otherwise Christmas party in a brewery. air; it is based on the interest rates paid on have been the case...... EU government debt. An agreement to Had the EU used the discount rate it ap- * “Pension Scheme of EU Officials (PSEO): Actuarial pay a pension is, after all, a debt like any plied to its balance-sheet to calculate the assumptions used in the 2017 assessment”. June 2017. other. So it may seem that there is little to size of contributions, its officials would argue about; Britain should simply cough have had to stump up a lot more—resulting Economist.com/blogs/buttonwood //*sharathcharged*// The Economist October 28th 2017 Finance and economics 65

Indian finance slumped, recently nearing record lows. Monte dei Paschi di Siena That is one reason why year-on-year GDP The round-trip growth slowed to 5.7% in the second quar- Getting up again ter, from well over 7% a year ago. rupee trick Despite the roundabout method of re- capitalisation, getting money into the MUMBAI banking system is good policy. Bankers are MILAN beingencouraged to use a newbankruptcy Banks in India will finance theirown Italy’s fourth-biggest bankreturns to the code to deal with bust borrowers; having bail-out, apparently stockmarket fresh equity makes it easier for them to ac- NE of the perks of owning a bank is knowledge past mistakes and move on. TELEVISION advertisement for Monte Othe ability to tap it when you need Details ofthe bail-out scheme are pend- Adei Paschi di Siena begins with a tod- money. The Indian government, which ing, but may resemble a rescue plan in the dler tumbling and a gymnast stumbling. has majority stakes in 21 lenders, is no ex- 1990s, whereby banks financed “recapital- “Falling is the first thing we learn,” declares ception. As it happens, it needs to finance a isation bonds” issued by the government. the voice-over. “The second is getting up bail-out of the banks it owns, most of The proceeds were used to subscribe to again.” Italy’s fourth-biggest bank and the which are in trouble. So under a cunning banks’ rights issues. (Banks will have to world’s oldest, which was bailed out by plan unveiled on October 24th, the ailing raise 580bn rupeesthemselves, perhapsby the Italian government in July, has had sev- banks will lend the government 1.35trn ru- selling non-core assets, and receive a fur- eral bruising falls over the years. On Octo- pees ($21bn), about a third of their com- ther 180bn rupees from government cof- ber25th it returned to the stockmarket after bined market value. The government will fers left over from a previous scheme.) One a ten-month hiatus—the latest stage of its reinvest this money in bank shares, thus attraction is that the money the govern- plan to get back on its feet. The shares ensuring they no longer need a bail-out. ment will have to borrow, roughly 1% of closed higher on the day, at €4.55 ($5.37), Steadying a tottering financial system is GDP, will not be reflected in its deficit, sav- but still far below the €6.49 the govern- never a graceful exercise, as American and ing the finance ministry’s blushes. ment paid. European authorities discovered after the The prospect of fresh funds sent most Trading was suspended last December, financial crisis. India’s lenders withstood state-owned banks’ share pricessoaring by after a failed private-sector attempt to save the meltdown of 2007-08 well, but then well over 25%. Unlike recent Indian bank- the bank through a share issue. The gov- embarked on an ill-advised lending spree, rescue schemes, the package is large ernment said it would get involved. In July backing lots of infrastructure projects that enough to make a difference. It should al- the European Commission approved a got snarled in bureaucracy. Bad loans piled low banks to lend again, if they can find €8.1bn “precautionary recapitalisation”. up. State-owned lenders, which account willing borrowers. Indian businesses have European rules say banks receiving such for around two-thirds of the sector, now plenty of spare capacity and many are still aid must be solvent, the capital injection have “stressed” loans of 10.5trn rupees, over-indebted. Some are still dealing with must not distort competition and the capi- about a fifth oftheir book. the effects of a sudden “demonetisation” tal shortfall must be identified by a stress Banks have been reluctant to acknowl- of the economy last November, which has test, such as the one Monte dei Paschi edge that money they have lent is unlikely dented output. The complex implementa- failed in July 2016. Shareholders and junior to be repaid, in part because that would tion of a new goods-and-services tax in bondholders must share the pain. trigger a loss, which in turn depletes the July has also frayed corporate confidence. Therefore, alongside the injection of bank’s equity (the money shareholders in- The government also says its banks will €3.9bn by the government, €4.3bn-worth vest). State-owned banks already have be run more efficiently, to prevent further of subordinated bonds are being con- equity levels close to regulatory mini- incontinent lending. There is reason to verted to equity. Much of this is held by re- mums, so they have preferred to pretend doubt that. Reform of their corporate go- tail investors, many of whom may have that even their ropiest borrowers will pay vernance is long overdue; and letting the thought they were buying a safe invest- them back in full. At the very least, they private sector take over the reins at public ment. Some of these can choose to swap don’t have the capacity to extend new banks remains taboo. Still, repair of the their new shares for senior bonds. The ex- loans. Predictably, bank-credit growth has balance-sheets is at last under way. 7 change will run from October 30th to No- vember 17th. If, as expected, they all make the swap, the government’s stake will rise from 52% to 68%, at an additional cost of €1.5bn. By 2021 Monte dei Paschi must re- turn to the private sector. The plan also disposes of €28.6bn- worth, at gross value, of non-performing loans, of which most are being offloaded into a separate vehicle and securitised. At- lante 2, a private bank-rescue fund, will buy most of the mezzanine and junior tranches for €1.6bn; the senior debt will be sold on the market, partly backed by a state-guarantee scheme. The scheme is rounded off by the bank’s restructuring. This includes simpli- fying and digitising retail banking, strengthening the wealth-management business and improving credit-risk man- agement. The number of branches will be cut from 2,000 to 1,400; 350 have already Pillars to be reinforced closed. Monte dei Paschi’s headcount of1 //*sharathcharged*// 66 Finance and economics The Economist October 28th 2017

2 25,500 will be reduced by 5,500; 1,800 staff Age and inequality have already departed. In August Marco Morelli, the bank’s boss, sent an e-mail to all staff asking for The generation gain ideas. He received 1,000 replies. He then Millennials are doing betterthan the baby-boomers did at theirage. But the spent two weeks touring the country, gap is closing meeting staff in several cities. At each en- counter Mr Morelli projected onto a screen LL men are created equal, but they do have a significantly higher disposable three ofthe most critical e-mailed respons- Anot stay that way forlong. That is one income than previous generations had at es. The message he sought to transmit: no message ofa report this month by the the same age. OECD citizens now in their more alibis. OECD, a club of35 mostly rich democ- early 30s have 7% more than members of Things may be looking up. Pavilion, an racies. Many studies show how income Generation X had at that age and over investment services firm, suggests that gaps have evolved over time or between 40% more than boomers enjoyed when new regulation and accounting rules will countries. The OECD’s report looks in- they were similarly short in the tooth (see make life harder for Italian banks dealing stead at how inequality evolves with age. chart). Youngsters may sigh with impa- with bad loans, but cyclical factors will off- As people build their careers, or don’t, tience when an old codger tells them set this. In August net non-performing their incomes tend to diverge. This in- how life was tougher “when I was your loans fell to €65.3bn, down from €86.8bn equality peaks when a generation age”. But it was. in December, according to Italy’s banking reaches its late 50s. But it tends to fall This millennial privilege is, however, association. UniCredit, the country’s big- thereafter, as people draw redistributive smaller in America, which tends to set gest lender, announced preliminary third- public pensions and quit the rat race, a the tone forthe generation wars. (Indeed quarter earnings on October 24th: pre-tax contest that tends to give more unto Americans in their early 30s are slightly profits rose by 45%, year on year, helped by every one that hath. Old age, the OECD worse offthan the preceding generation the sale ofPioneer, a fund manager. notes, is a “leveller”. was at a similar age.) The gap also ap- But the Sienese lender has a lot of work Will it remain so? Retirement, after all, pears to close as the later generations get to do. Its gross non-performing exposure flattens incomes not by redistributing older. Gen-Xers were farmore comfort- ratio is projected to fall from 34.5% in De- from rich seniors to poor, but by trans- able in their 30s than the people born a cember2016 to 12.9% within five years. That ferring money to old people from youn- decade or two before them. But now they is a little below last December’s Italian av- ger, working taxpayers. There will be are in their 40s, their incomes have erage, but still much higher than the Euro- fewer ofthem around in the future for stopped rising, whereas their seniors pean average of 5.1%. Meanwhile, new in- every retired person, reducing the role of enjoyed strong gains at the same age. quiries are under way into two of the redistributive public pensions. This may reflect the lingering influ- bank’s former managers for allegedly ob- One logical response to the diminish- ence ofthe global financial crisis. But if structing supervisors. Getting up again ing number ofworkers per pensioner is this trajectory persists, a time may soon may be a struggle. 7 to raise the retirement age. But that will come when old folksigh with impatience exacerbate old-age inequality, ifmildly. as youngsters tell them how much easier Longer careers will give richer workers life was “when you were my age”. Robo-advisers more time to compound their advan- tages. And when retirement eventually Silicon speculators arrives, the poor, who die earlier, will Generation gap have less time to enjoy their pensions. OECD average disposable income Today’s youngsters may resent having 2017 $’000 at PPP*, by birth decade to provide formore pensioners, not least 30 because they feel that older generations 1980s 1960s have it easier than them. The OECD pro- 1970s 1950s Automated investment companies are vides qualified support forthis com- 25 getting big orgetting bought plaint. Baby-boomers (mostly born in the XCHANGE-TRADED funds (ETFs) were 1950s) have accumulated far more wealth 20 Esupposed to make investing easy. In- (property, shares and other savings) than stead of spending hours researching indi- Generation X (mostly in the 1970s) and 15 vidual stocks and bonds or paying an ex- millennials (the 1980s and after). pert fund manager, investors could simply But that is partly because they have 20- 25- 30- 35- 40- 45- 50- 55- 60- buy a few ETFs. But now there are too had more time to do so. Comparing 24 29 34 39 44 49 54 59 64 Age, years many to choose from. BlackRockoffers 346 generations at a similar stage oflife paints The Economist in America alone. Some investors need a different picture. Today’s young adults Source: OECD; *Purchasing-power parity help allocating their money between dif- ferent funds. Many companies now offer “automated wealth managers” (AWMs) then suggests how parents can save in a centage point ofan investor’s total savings, that perform this service. tax-efficient way. Other AWMs are simpler. plus any fees levied by the ETFs. AWMs have been around for less than Wealthify, based in Cardiff, rejects the term AWMs target cash-conscious investors ten years, but they have proliferated, offer- “robo-adviser” because it does not provide who cannot afford or do not wish to pay a ing different services in different countries. advice. It merely allocates clients’ funds human adviser. Millennials are considered Often, they are called “robo-advisers”, but based on how much they wish to invest, good customers because they are used to this term can be misleading. Some offer cli- when they expect to need the money and doingthings online and are startingto earn ents detailed advice about how to save. For the degree ofriskthey will accept. money. But generally they do not have a lot example, Wealthfront, an American AWM, Nonetheless, AWMs have a few things of it. Individual savers tend to have small predicts the cost of sending a student to a in common. They typically invest in low- portfolios. At Betterment, the largest inde- given college, takinginto account increases cost ETFs and charge very low fees. Annual pendent American AWM measured by as- in tuition fees and likely financial aid. It charges are usually only a fraction of a per- sets under management, the average client 1 //*sharathcharged*// The Economist October 28th 2017 Finance and economics 67

Tax cuts and wages thatthe CEA’sprediction isatleastlogically possible. That does not mean it is reason- Corporations are able. There are three reasons to doubt it. First, to calculate its figures, the White people, too House relied on two studies, neitherfrom a peer-reviewed journal, ofhow wages have WASHINGTON, DC varied with corporate-tax rates interna- tionally and across American states. A re- Will cuts in American corporate tax cent review of such papers, by Jane Grav- boost Americans’ wages? elle ofthe Congressional Research Service, HE president’s tax promise has always found both to be statisticallyflawed. In any Tbeen clear: he will reduce the amount case, Mihir Desai of Harvard Business middle-earners, but not rich Americans, School, who co-wrote one of them, says must pay. Yet every time Donald Trump re- that the CEA misinterpreted his work. If leases a plan, analysts say it does almost you assumed the corporate tax creates a the opposite. The Tax Policy Centre, a deadweight loss worth ten times the rev- think-tank, recently filled in the blanks in enue it raises, you might justify the CEA’s the latest Republican tax proposals and numbers, he says. But that is implausible. concluded that more than half of its give- (As The Economist went to press, the CEA aways would go to the top 1% of earners. was preparing a second report using other Their incomes would rise by an average of methods to justify the figures.) $130,000; middle-earners would get just Second, the American economy is Nail-biting decisions $660. The White House maintains that tax plainly not small. This makes capital less reform will deliver a much heftier boost to flighty. And although it may have become 2 had $27,400 in June 2017. At Wealthfront, its workers’ pay packets. Who is right? more mobile because of globalisation, rival, the average client had $40,900. The disagreement boils down to who many investment opportunities in Ameri- Their business model leaves AWMs benefits when taxes on corporations fall. ca—in Silicon Valley, say—are hard to repli- with a problem. To make a profit despite The TaxPolicy Centre says it is mainly rich cate elsewhere. This also makes a high cor- low fees, they must attract lots of client investors. But in a report released on Octo- porate-tax rate less likely to send money. Michael Wong, an analyst at Mor- ber 16th, Mr Trump’s Council of Economic investment abroad. ningstar, an investment research firm, esti- Advisers (CEA) claimed that cutting the Third, the White House’s analysis ig- mates that, depending on its model, an corporate-tax rate from 35% to 20%, as Re- nores other features of the Republican tax AWM would need between $16bn and publicans propose, would eventually plan, like a proposal to switch to a “territo- $40bn to cover its costs. No independent boost annual wages by a staggering rial” corporate-tax system. Because this AWMs have reached profitability, though $4,000-9,000 forthe average household. would stop taxing the foreign profits of some are close. Bettermentsaysithas$11bn The claim has sparked a debate among American firms, it might actually encour- under management. economists that is as ill-tempered as it is age investment abroad. And if, as is likely, But for most AWMs, profitability re- geeky. Left-leaningeconomists are incredu- the tax cut is financed by borrowing, it is mains distant. Only a few manage over lous. Writing in the Wall Street Journal, Ja- likely to push up interest rates and the dol- $1bn or have more than 100,000 clients. To son Furman, who led the CEA under Ba- lar. That would create an economic drag. getmore clients, manyare tyingup with es- rack Obama, pointed out that if the report The White House has rushed to include tablished wealth managers. On October is right, wage increases would total about the CEA’spaperin itsargumentfortax cuts. 5th Aviva, a British insurer, said it would three to six times the cost of the tax cut. Yet the estimate is more than a little opti- buy a majority stake in Wealthify. Michelle Larry Summers, a former treasury secre- mistic. There is no clear relationship be- Pearce, Wealthify’s co-founder and chief tary, wrote that if a student submitted the tween recent corporate-tax cuts and wage investment officer, noted that Aviva has CEA paper, he “would be hard pressed to growth in rich countries (see chart). Even 15m customers in Britain, who can use her give it a passing grade”. the TaxFoundation, a think-tankthat looks firm’s services through Aviva’s portal. Conservative economists, such as Greg- favourably on corporate-tax cuts, predicts To stay independent, AWMs need to get ory Mankiw of Harvard University and a much smaller wage boost. Should Re- big quickly, in part by seeking customers Casey Mulligan of the University of Chica- publicans get their way, Americans can ex- established firms neglect. Similarly, ac- go, have responded with a barrage of alge- pect a pay rise—just not a bumper one. 7 quired AWMs often pitch their products to bra and diagrams. They note that taxes, be- people their parent firms would not other- cause they distort incentives, can cost the wise serve. These customers tend to have economy more than they raise in rev- Labour and capital little wealth and to be newinvestors. There enues. Economists call the extra cost OECD countries, 2011-16 are dangers in this: they may place too “deadweightloss”. Once itisreclaimed, tax Change in real wages*, % much faith in AWMs’ more optimistic pro- cuts could benefit workers and firms by 0.4 jections of future riches. Wealthfront even more than they cost the Treasury. For in- Latvia allows its customers to borrow against the stance, investment might rise after cor- 0.3 value of their savings, on the basis that its porate taxes fall, sparking competition for Estonia 0.2 funds will provide better returns than its workers and pushing wages up. What’s Iceland interest rates of 3.5-4.75%. Like their human more, standard theory says that, in a small PolandIsrael 0.1 GermanySlovak Republic counterparts, robos may have a tendency economy integrated with global markets, Sweden DenmarkCanadaUnitedNewCzech Zealand RepublicStatesChile + SloveniaNorwayFranceSwitzerlandHungaryLuxembourg UnitedFinland KingdomMexicoKoreaNetherlandsBelgiumIrelandAustria to oversell their investing prowess. workers will pay for taxes on capital, be- 0 ItalyAustralia Spain Portugal cause firms can up sticks when levies rise. – Japan Greece Correction: In “How green is my value?” (October 21st) Paul Krugman and Brad DeLong, two 0.1 we said that employees of the World Bank are “in open left-wing economists, have fired back their 10 5– 0+ 5 10 rebellion against their boss”. This is a misleading own Greek and graphs, laced with snark. Change in corporate-tax rates, percentage points statement based on a letter from the staff association Source: OECD *Based on 2016 $ at purchasing-power parity written in 2016. Sorry. But Messrs Mankiw and Mulligan showed //*sharathcharged*// 68 Finance and economics The Economist October 28th 2017 Free exchange Too tight to mention

Firms should make more information about salaries public parts of the business from the rest. Research published in 2016 concluded that diverging pay between firms (as opposed to with- in them) could account for most of the increase in American in- equality in recent decades. That divergence in turn resulted from increased segregation ofworkers into high- and low-wage firms. Yet transparency increases dissatisfaction not because it intro- duces information where there was none before, but because it corrects misperceptions. Surveys routinely find that workers overestimate their performance and pay relative to their peers’. This is true across economies as well as within firms. In 2001, tax records in Norway were put online, allowinganyone to see easily what other Norwegians had earned and paid in tax. Reported happiness among the rich rose significantly, while the well-being of poorer people fell as they learned their true position on the economic ladder. Better information changes behaviour. Low- paid workers at the University of California became more likely to seek new jobs after salary data became public. In Norway the poor became more likely to support redistribution. Transparency might threaten the function of capitalist econo- mies ifpeople were implacably opposed to pay gaps, but they are not. A study published in 2015 of factory workers in India, for in- WEDES discuss their incomes with a frankness that would stance, found that unequal pay worsened morale and led to re- ShorrifyBritons or Americans. They have little reason to be coy; duced effort when workers could not see others’ contributions, in Sweden you can learn a stranger’s salary simply by ringing the but not when productivity differences were easily observable. tax authorities and asking. Pay transparency can be a potent Yet in the modern economy, individual contributions are of- weapon against persistent inequities. When hackers published e- ten devilishly hard to assess. Simple theory suggests that workers mails from executives at Sony Pictures, a film studio, the world are paid according to their productivity. Were they to earn more, learned that some of Hollywood’s most bankable female stars their employers would lose money; were they to earn less, other earned less than their male co-stars. The revelation has since firms could profit by hiring away underpaid employees. But al- helped women in the industry drive harder bargains. Yet outside though it is easy enough to see how many shirts a textile worker Nordic countries transparency faces fierce resistance. Donald stitches in an hour, it is much harder to evaluate the contribution Trump recently cancelled a rule set by Barack Obama requiring of one member of a team that has spent years developing new large firms to provide more pay data to anti-discrimination regu- software. When it is difficult to observe important parts of a job, lators. Even those less temperamentally averse to sunlight than economists believe that trying to link pay closely to narrow mea- Mr Trump balk at what can seem an intrusion into a private mat- sures of performance can be misguided. Workers inevitably ne- ter. That is a shame. Despite the discomfort that transparency can glect murky but critical tasks in favourofthose the boss can easily cause, it would be better to publish more information. quantify. In the knowledge economy, therefore, the relationship There is a straightforward economic argument formaking pay between pay and productivity is often loose. public. A salary is a price—that ofan individual worker’s labour— Pay gaps are often nonetheless justified. Workers with scarce and markets work best when prices are known. Public pay data and valuable skills can easily threaten to leave, and can therefore should help people make better decisions about which skills to bargain for higher pay. Those fat pay-packets serve the economy acquire and where to work. Yet experiments with transparency by encouraging young workers to develop skills that are in short are motivated only rarely by a love ofmarket efficiency, and more supply—provided, of course, that they know how much they can often by worry about inequality. In the early1990s, it was outrage expect to earn. But the difficulty in observing productivity allows at soaring executive salaries which led American regulators to factors to influence pay, such as office politics, discrimination or a demand more disclosure of CEOs’ pay. Such transparency does simple tendency to silence the squeakiest wheels with grease. not always work as intended. Compensation exploded in the 1990s, as firms worried that markets would interpret skimpy pay- Open-plan offices packets as an indicator ofthe quality ofexecutive hires. Not every country will opt for radical transparency. Even Nordic Despite this, bosses tend to oppose transparency, for under- governments continue to tweak their policies: in 2014 Norway standable reasons. Firms have an easier time in pay negotiations banned anonymous searching of its tax database, so citizens when they know more about salaries than workers do. What is could see who had nosed around their finances. But increased more, shining a light on pay gaps can poison morale, as some openness about pay could improve both the fairness and the workers learn that they earn substantially less than their peers. A functioningofthe economy. When pay is public, it is not the justi- study of employees at the University of California, for instance, fiable inequities that create the most discomfort, but those firms found that when workers were given access to a database listing cannot defend. 7 the salary of every public employee, job satisfaction among ...... those on relativelylowwagesfell. In industriesin which competi- Studies cited in this article can be found at economist.com/transparency2017 tion for talented workers is intense, the pernicious effects on mo- rale of unequal pay create an incentive to split the high-wage Economist.com/blogs/freeexchange //*sharathcharged*// Science and technology The Economist October 28th 2017 69

Also in this section 70 Sperm whales raid fishermen 71 An ancient astrolabe 71 Precision gene-editing 72 A dinosaur with a bandit mask

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

Electric cars tion business. HEVO, a company based in New York, will install a pickup for $3,000. Proof by induction HEVO also wants to take charging out of the home garage, by building networks of pads in cities. These, it intends, will be re- served and rented by drivers using their mobile phones. If wireless charging is to become more than a bespoke curiosity, though, vehicle It is now practical to replenish electric vehicles’ batteries through thin air manufacturers will have to get involved as WISE driver keeps an eye on the fuel pose an engineer chooses. well. This is starting to happen. Evatran Agauge, to make timely stops at filling In the case of vehicle charging, the first says that, next year, at least two carmakers stations. Fordriversofelectriccars, though, conductoris a length ofcopperwire. This is will start fitting its pickups to their pro- those stations are few and far between. coiled around a piece offerrite (a substance ducts as they are being assembled. Wi- The infrastructure needed for refilling bat- made of oxides of iron and other metals) Tricity, a firm in Massachusetts that, like teries has yet to be developed, and the that amplifies the magnetic field generat- Evatran, designs both pickups and pads, technology which that infrastructure will ed. The whole thing is housed in a flat case has licensed its pickup design to Toyota, use is still up for grabs. Most electric cars to create a pad that is easily buried. When a and also to two car-components compa- are fitted with plugs. But plugs and their as- vehicle equipped with a suitable “pickup” nies, TDK of Japan and Delphi of Britain. sociated cables and charging points bring coil stops or parks above this device, and Other carmakers, including Audi, BMW, problems. The cables are trip hazards. The alternating current is fed into the pad, a Daimler, Ford, Jaguar, Mercedes-Benz and charging points add to street clutter. And similar current is induced in the pickup. Volvo, are likewise expected to launch the copperwire involved is an invitation to This is then converted into direct current remote-charging-ready vehicles soon. thieves. Many engineers would therefore by a rectifier, and is used to top up the vehi- Nor are cars the only vehicles for which like to develop a second way of charging cle’s battery. The principle is thus pretty wireless charging beckons. Also next year, electric vehicles—one that is wireless and simple. But only in recent years has it be- WAVE, a firm in Utah, plans to install a can thus be buried underground. come practical to use in vehicles. much more powerful version of the tech- Electrical induction, the underlying nology at the port of Los Angeles, for a principle behind wireless charging, was Leading the recharge monster vehicle (its tyres are higher than a discovered by Michael Faraday in 1831, and For wireless charging to work, a car must tall man) which grabs, moves and stacks is widely used in things such as electric necessarily be fitted with a pickup. At the loaded containers. This will bypass one of motors and generators. Faraday observed moment, this is a do-it-yourself business. the port’s more arcane practices since, at that moving a conductor through a mag- Evatran, a Virginian firm, forexample, sells the moment, the International Longshore netic field induced a current in that con- kits of pickup and pad for between $2,500 and Warehouse Union permits only elec- ductor. Subsequent investigations showed and $4,000, installation included. Accord- tricians to plug in the cords ofelectric vehi- that this also works if the conductor is sta- ing to Rebecca Hough, the firm’s boss, cles at the port, which makes operating tionary and the magnetic field is moving. about 11% of the input power is lost during such vehicles there remarkably expensive. Since electric currents generate magnetic wireless charging with Evatran’s equip- And wireless charging is especially pro- fields, and if the current alternates so does ment. But plugging in a cord charger, she mising for buses, says Andrew Daga, the the field, an alternating current creates a says, involves similar losses. The absence boss of Momentum Dynamics, a firm in field that is continuously moving. This in cord charging of the air gap involved in Pennsylvania thatsellsmore ofitscharging means that running such a current through wireless charging means cord charging re- units for buses than for cars. A big obstacle a conductorwill induce a similarcurrent in quires a special (and power-draining) to the uptake ofelectric buses is the need to another, nearby, conductor. That induced transformerto protect against surges. take them out of service for part of the day current can then be used for whatever pur- Evatran is not alone in the DIY induc- to recharge them. If, thanks to wireless1 //*sharathcharged*// 70 Science and technology The Economist October 28th 2017

2 charging, such a bus can sip enough power entist at the country’s transport ministry, organ that it uses forecholocation. en route to keep it chugging along until it has overseen the electrification of a short How badly sperm whales were hit by can be given a charge overnight, it can at stretch of road in Tel Aviv, where tests will whaling is hard to know, but their popula- last, he says, compete with the diesel sort. begin next year. He does not think electri- tion is certainly recovering. America’s Na- One place where this is already hap- fyingroadwayswill be unworkablyexpen- tional Oceanic and Atmospheric Agency pening is Milton Keynes, a town north- sive. Oren Ezer of ElectRoad, the firm that (NOAA) estimates that, since the morato- west of London. The Line 7 route in this converted the road in question, reckons a rium went into effect in 1986, their popula- town is serviced by electric buses that small crew, working three night shifts, tion has grown at about 4% a year. And pause for two to four minutes over charg- could convert a kilometre of tarmac in this Alaskan fishermen are sufferingas a result. ing pads at each end of the line. Both pads way. A lead vehicle would cut trenching Over the past 20 years, fishermen of the have four buried coils, which can transfer into the existing surface and sweep up de- GulfofAlaska fleet, sailingfrom ports such power at a rate of 120 kilowatts. (By com- bris. A second, piled with electrical kit, as Juneau, have reported sperm whales parison, Evatran’s latest single-coil charger would follow, with workers tucking the stripping their lines of black cod as they for cars provides 7.2 kilowatts.) That is equipment into place in the trench as it haul them in. What started as an occasion- enough for the buses to remain in service travelled. A third would then fill the trench al nuisance now has a serious effect on a for16 hours a day. with fresh asphalt. fishery that is worth $100m a year. The equipment used in Milton Keynes, Whether such on-the-fly charging actu- A recent study by researchers at NOAA which is made by IPT Technology, a Ger- ally will be practical is moot. But the sta- suggests a line attacked by a sperm whale man firm, costs about £100,000 ($130,000) tionary sort looks set for take-off. Though loses about a quarter of its catch. Another a pad. But the buses’ operator, eFIS, calcu- plugs in cars are unlikely to vanish, the investigation, by the Southeast Alaska lates that one of their vehicles costs 50 power ofinduction seems here to stay. 7 Sperm Whale Avoidance Project (SEAS- cents a kilometre less to run than a diesel WAP) estimates the loss at between five one, thanks to savings on fuel and engine and 16 kilograms forevery100 hooks a line repair. Collectively, Line 7’s eight electric Fishing and sperm whales is carrying. Boats bait thousands of hooks buses drive 700,000km a year. According perfishingsetand blackcod currently fetch to John Miles, eFIS’s boss, the firm expects Getting their own about$14 a kilogram, so whale predation is to start servicing a second route in Milton costing fishermen a lot ofmoney. Keynes soon, adding two more charging back Whale population growth is an obvi- pads and 11 electric buses to the town’s ous culprit, but some think the story may public-transport network. Wirelessly Juneau, Alaska be more complicated. In 1995, only nine charged buses also run in Mannheim, Ger- years after the moratorium came into Afteryears being hunted by fishermen, many, in Utrecht, in the Netherlands, and force, the management of the Alaskan whales have now become the hunters in the Italian cities of Genoa and Turin, as black-cod fishery was changed from a free- well as in Salt Lake City and the Califor- O GOOD deed, cynics say, goes un- for-all that lasted ten days a year to a quota nian cities of Lancaster, Long Beach, Mon- Npunished. That is certainly the view of system in which boats had an 8½ month terey, Palmdale and Walnut Creek. Los An- longline fishermen in southern Alaska. season to catch their allotment. Before the geles is expected to join the list next year. The good deed in question is the end of change, predation from lines was negligi- commercial whaling, courtesy of a mora- ble. The presumption is that the lines were A moving experience torium agreed, in 1982, by the countries in the water for such a short period that All of these efforts, though, still depend on once involved in that trade. Most of the whales did not have time to learn their val- a vehicle stopping when it needs to re- species that have benefited from the mora- ue as a food source. charge. In that sense, wireless charging is torium are baleen whales. These feed by What to do about all this is tricky. No no different from the plug-in variety. But filtering small organisms such as krill from one wants to return to the free-for-all, but things do not have to be that way. For in- the water, using hairy plates (made of tis- attempts to deter whales by playing noises duction to work, the vehicle does not need sue called baleen) as sieves. Some whales, at them have failed. The animals just treat to be stationary. The next step will be though, have teeth, and hunt larger prey, those noises as dinnergongs. And trying to charging vehicles on the move. Prelimi- such as fish and squid. The largest of these outrun a whale, once it has latched onto a nary trials have started. is the sperm whale, once a prize target for boat in the expectation of an easy meal, is One such is at a 100-metre electrified whalers because of the oil contained in an futile, forwhales are strong swimmers. 1 test track in Versailles, near Paris. This test, run by VEDECOM, a government tran- sport-research institute, should be finished next year, but initial results are promising. The batteries oftwo minivans travelling si- multaneously along the track at more than 100kph can successfully absorb 20 kilo- watts each. Qualcomm, the firm that makes the equipment being tested, known as Halo, says it has already licensed the technology involved to 13 car-parts firms. One market the firm thinks promising is electrifying taxi ranks. As Graeme Davi- son, who is in charge of marketing Halo, observes, “no taxi driver on God’s earth” will keep getting out of his cab to swap charging flexes as the queue at the rank creeps forward. Israel is also interested in charging vehi- cles on the move. Shay Soffer, the chief sci- The bad, old days //*sharathcharged*// The Economist October 28th 2017 Science and technology 71

2 ResearchersatSEASWAP are workingto to those employed to catch crabs and lob- Biotechnology find new ways to avoid the whales. They sters. These, experience suggests, greatly have successfully created monitoring sys- reduce whales’ depredations. But their use Covering the bases tems to pinpoint whale-free waters in is controversial. They require bigger boats which boats can safely deploy their lines. than hooked lines, and are costly. Convert- They are also experimenting with acoustic ing a vessel to pot-fishing costs between decoy buoys that broadcast recordings of $100,000 and $300,000. So far, less than boats, in order to lure whales away from 7% of the Gulf of Alaska fleet has adopted the real ones. Early results indicate that the new method, and owners of smaller Anotherstep forward forgene editing these buoys can summon whales from a vessels fear getting squeezed out. distance ofup to ten nautical miles. Those owners would retain title to their INCE its discovery in 2012 CRISPR-Cas9, Another approach is to change fishing quotas, though, so the upshot might be Sa gene-editing technique, has gone from methods. This year the North Pacific Fish- fewer, larger vessels fishing on behalf of strength to strength. This tool, developed ery Management Council, which regulates consortia, rather than the rugged individ- from a bacterial defence system that cuts Alaska’s fisherfolk, approved a novel way ualism of today. If that serves to keep the up the DNA of invading viruses, permits to fish forblackcod—the use ofpots similar whales at bay, it may be worth it. 7 genetic material to be edited easily and precisely. It has transformed research in bi- ology, and promises to have wide applica- tions in agriculture and medicine. But it is not ideal. One of its flaws is that its ability to replace genes works best in cells that are replicating, and thus have the correct molecular furniture in place to in- corporate the new DNA being delivered. A second is that it starts by breaking the DNA strands so that new material can be insert- ed into the gap. That can have undesirable effects. A third is that it is not particularly good at correcting point mutations. These are errors which affect only one or two of the bases, known informally as genetic “letters”, in a gene’s DNA sequence. This flawisespeciallyproblematicbecause tens ofthousands ofgenetic diseases are results ofsuch point mutations. There may, though, be a way around The history of navigation these problems, particularly the third one. This is to alter specific bases without cut- Computing disc ting the DNA strands they are in. A paper published this week describes means of doing so, namely programmable protein A study ofan ancient navigational instrument machines called base editors that rear- HESE pictures are ofthe plate of a returned the following year, minus Es- range the atoms of one base so that it be- Tmariner’s astrolabe, the earliest meralda, which had been left behind comes another. And another paper de- known, which was raised in 2014 from a with fourother vessels to help maintain scribes how to achieve a similar ultimate wreckoffthe coast ofOman. The com- Portuguese influence in the area. Esmer- outcome—a change in the protein encoded plete instrument would also have had a alda subsequently sankin a storm while by a gene—but in a way that does not in- rotating pointer, called an alidade, raiding Arab shipping. volve DNA directly at all. mounted on a pin running through the Successful navigation requires a way central hole. The plate itselfis17.5cm in offixing latitude and longitude. The Base camp diameter, but less than 2mm thick, and invention, in the 18th century, ofthe Base editing was invented last year, by Da- has recently been examined by scanning accurate, seaworthy timepieces needed vid Liu of Harvard University and his col- with a laser beam, by MarkWilliams of to determine longitude is a famous story. leagues. DNA is composed of four sorts of the University ofWarwick, in Britain. Dr (The race was won by John Harrison, a bases, each attached to one oftwo molecu- Williams used the laser to create a high- British carpenter.) Astrolabes, quadrants lar backbones that twist together to form resolution, three-dimensional “point and the sextants that succeeded them, are the molecule’s famous double helix. The cloud” ofindividual spots on the plate’s just as important, though. By measuring bases are often referred to as A, C, G and T, surface. This reveals detail invisible to the elevation above the horizon ofthe the initialsoftheirfull chemical names, ad- conventional photography. The blue sun at noon (which the user would do enine, cytosine, guanine and thymine. The picture, showing the reverse side of the with an astrolabe by suspending the shapes of these molecules mean that a C plate from the natural-light picture, is a instrument from a cord and pointing the on one strand ofthe double helix is always result ofsuch a scan. alidade at the solar disc), they permit a paired with a G on the opposite strand, and Esmeralda, the vessel the astrolabe ship’s latitude to be calculated. Dr Wil- an A with a T. Dr Liu’s base editor com- came from, was part ofVasco da Gama’s liams’s examination has revealed the bined CRISPR-Cas9 with an enzyme called second expedition to India. Between 1497 marks, etched around the astrolabe’s cytidine deaminase. It also employed a de- and 1499 da Gama had led the first fleet to circumference at 5° intervals and indicat- activated version ofCas9, meaningthaten- travel from Europe to India and back. He ed in the photograph, that allow solar zyme binds to, but no longer cuts, DNA. departed from Portugal again in 1502 and elevations to be gauged. The resulting molecular construction was able to find specific G-C base pairs in a cell1 //*sharathcharged*// 72 Science and technology The Economist October 28th 2017

2 and convert them to T-A. of Cas9 are being tested to see if the lar eye-disguising patterns. And badgers One ofthis week’s papers, published in CRISPR-Cas9 approach can be improved. and skunks also have dark eye-crossing Nature, describes how to extend the tech- And another enzyme, Cpf1, is growing rap- stripes, though in their cases these run nique to convert A-T pairs into G-C ones, idly in popularity as a substitute for Cas9 along the animals’ snouts, rather than extending the range of genetic errors that in conjunction with CRISPR. across their faces. can be corrected. Creating this second base The researchers who have developed Researchers argue about the function editor was harder than the first because an base editing even dream of reaching into of bandit masks, and they may, indeed, equivalent to the cytidine deaminase used the epigenome. This is the system by have more than one. Most animals have byDrLiu, which would be needed to pull it which some genes are switched off by a evolved an acute sensitivity to the eyes of off, does not exist in nature. Instead, one chemical process called methylation. It is others. Disguising eyes, as a real bandit member of the group, Nicole Gaudelli of part of the mechanism that determines mask does, would help stop prey spotting Harvard University, set about creating it. what type ofcell a given cell is. predatory peepers that were studying The enzyme needed is an adenine de- Until recently, epigenomic editing them just before theirownerlunged for the aminase that works on DNA. Versions of would have seemed a distant prospect. But kill. Conversely, a bandit mask might help thisenzyme do exist, but they act on RNA, a the speed with which new gene-editing potential prey avoid attracting the atten- similar but not identical molecule. Dr Gau- techniques are being invented suggests it tion ofwould-be predators. delli, though, thought she could tweak an would be risky to bet against it happening. Glare reduction is another hypothesis. RNA-specific version foruse on DNA. For genetic engineering at the moment, the Just as athletes sometimes paint dark col- To do so, she started with a bacterium possibilities seem limitless. 7 oursbeneath theireyesto reduce the reflec- called Escherichia coli, which is much be- tion oflight from sweaty skin into their pu- loved bybiologists. The E. coli she used had pils, so a band of darkness near the eyes defective antibiotic-resistance genes. Cru- Palaeontology might improve an animal’s vision. Forbad- cially, the mutations that had broken these gers and skunks, though, the stripes are genes could in principle be fixed with an A black-and-white probably there to provide the opposite of adenine deaminase that worked on DNA. inconspicuousness. They are actually She therefore created a vast range of vari- answer warnings to potential predators, saying ants ofthe RNA version ofthe gene, hoping “don’t mess with me or I will rip your leg that some might instead work on DNA— off/spray you with something so horrible and manifest that fact by saving bacteria that nothing will go near you forweeks.” that would otherwise die when they were Which of these jobs the mask did for Si- Some dinosaurs wore bandit masks exposed to antibiotics. nosauropteryx remains a matter of specu- By picking the most promising variants, N RECENT years it has become clear that lation—though its gracile body suggests mutating them again, and repeating the Imany, ifnot all, dinosaurs belonging to a dismembering things was not its strong process, she eventually arrived at an en- group called the theropods had feathers. suit. But, whatever the particulars, the dis- zyme that could be attached to CRISPR- One line of these creatures gave rise to covery Mr Smithwick and Dr Vinther have Cas9 in order to accomplish the conver- birds. But the rest, though they could not made is a nice example of convergent evo- sion of A-T base pairs into G-C. And it fly, nevertheless seem to have had patterns lution, showing that what works today works. The combined base-editing tools in their plumage, just as birds do. This can worked in the Cretaceous, too. 7 have the desired effect more than half the be seen from the distribution in their fos- time. Using CRISPR-Cas9 alone for such sils of pigment particles called melano- point-mutation work is only 4% effective. somes. And a study led by Fiann Smith- Moreover, CRISPR-Cas9 often creates un- wick and Jakob Vinther at the University wanted insertions or deletions of DNA. of Bristol, published this week in Current Base editing creates almost none. Biology, reports the discovery of remark- able markings on the face of one such the- Bases forprogress ropod. Sinosauropteryx, it seems, wore The second paper, published in Science, in- bandit masks. volves RNA more directly. One of RNA’s Sinosauropteryx (pictured alongside, most important jobs in a cell is carrying in- with feathers clearly visible) was a metre- formation from genes in the nucleus to the long animal that lived 126m years ago, dur- protein-making machinery in the cyto- ing the Cretaceous period, in what is now plasm, to tell that machinery what to China. To determine whether its plumage make. In the paper Feng Zhang, of the pattern might be deciphered, Dr Vinther Broad Institute, in Cambridge, Massachu- flew there to examine the three best-pre- setts, who was one of the pioneers of the served specimens, two of which are in CRISPR-Cas9 technique, describes a base Nanjing and one in Beijing. He teamed up editor made from Cas13, an enzyme that with some colleagues to use a special cam- cuts RNA in the way that Cas9 cuts DNA, era to take high-resolution pictures of the and a second enzyme that can reverse the plumage of these three specimens. When effect of G-to-A mutations. Though Dr he and Mr Smithwick analysed the results Zhang’s editor works on RNA rather than bycomputertheyfound, to theirsurprise, a DNA its effect, at least temporarily, is the distinct stripe of dark feathers that ran same. By substituting one base for another across the animals’ faces and around both it changes the composition—and therefore oftheir eyes. the activity—ofa protein. Bandit masks have never previously Though the papers are different, togeth- been seen in a dinosaur. They are, though, er they demonstrate a wider point, which found in many modern species. Raccoons is that the toolkit of genetic engineering is and ferrets have classic bandit masks. Bee- expanding quickly. In particular, variants eaters, ospreysand kookaburrashave simi- Beautiful plumage //*sharathcharged*// Books and arts The Economist October 28th 2017 73

Also in this section 74 A history of hauntings 74 Muhammad Ali, a life 75 Art and China after 1989

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Israel and Palestine The book excels when describing the moral price the Jews have paid to form, 1917 and all that protect and expand their new country. The fightingthaterupted afterthe creation ofIs- rael in 1947 caused 700,000 Arabs to flee or be driven from theirhomes. Most were not allowed to return. The Palestinians took to calling this the Nakba, or catastrophe. The stunning victory in the war of 1967, in The Israelis and Palestinians are still haunted by theirhistory which Israel launched a pre-emptive at- N THE roster of new states established in tack to prevent encirclement by advancing Enemies and Neighbours: Arabs and the past century, the creation ofIsrael has Arab armies, was bittersweet. It helped se- I Jews in Palestine and Israel, 1917-2017. been extraordinary. It is one of the Middle cure the permanence of Israel and the uni- By Ian Black. Atlantic Monthly Press; 608 East’s rare functioning democracies, with fication ofJerusalem under Israeli rule. But pages; $30. Allen Lane; £25 an intense publicdebate and a robust court by taking control of the biblical heartland system. It has absorbed destitute Jews and a large population of Palestinians liv- from around the world and builta flourish- lent years later, Palestinians regard it as a ing on it, it also established a permanent ing high-tech industry. All this in the face of great betrayal. Balfour wrote that nothing occupation that erodes Israeli democracy. wars and the intractable conflict with the should be done to prejudice the “civil and The patchwork of authorities in the occu- Palestinians in its midst. religious rights” of Palestine’s “existing pied lands (part autonomous under Pales- When, exactly, the Israeli-Palestinian non-Jewish communities”, which then tinian rule and part frontier for Jewish set- conflict began is hard to say. Devout Jews represented about 90% of the population. tlers), as well as the security barrier that have long lived in Palestine, and the first But he did not mention the Arabs by name, keeps Palestinians in the West Bank out of Zionists arrived in the late 19th century. But nor did he consult them. Israel, invites comparisons to apartheid. many historians point to November 2nd Their outrage has hardly diminished Even before the two Palestinian upris- 1917 as the starting point. On that day the with time. The declaration “is the root ings, of1987 and 2000, Israeli military rule British government vowed to use its “best cause of our destitution, dispossession was hardly gentle. By the mid-1980s, Mr endeavours” to create a “national home” and the ongoing occupation,” the Palestin- Black writes, about 250,000 Palestinians, for the Jewish people in Palestine, which it ian mission to Britain told a parliamentary or 10% of the population of the occupied would soon take from the Ottomans. committee in April. Mark Regev, the cur- territories, had experienced detention or That vague yet fateful promise, con- rent Israeli ambassador to Britain, recently interrogation. Some Israelis had qualms. tained in a letter from Arthur Balfour, Brit- pointed to the Palestinians’ rejection of “In order to enforce order in the kasbah we ain’sforeign secretary, to Lord Rothschild, a partition, in 1937 and again in 1947, as proof must be brutally violent against people leader of the British Jewish community, that “their statelessness was self-inflicted”. who are innocent of any crime…and this ran to just 67 words. But the Balfour decla- He contends that the Palestinians “chose weakens me and strengthens them,” one ration, as it became known, “combined intransigence over independence in 1967, Israeli soldier stationed in Nablus told the considerations of imperial planning, war- 2000, 2008 and 2014”. author during the first intifada. time propaganda, biblical resonances and So entrenched have the views of each Even the perpetrators of the most hei- a colonial mindset, as well as evident sym- side become that, as Mr Black puts it, “his- nous attacks seek legitimacy in history. pathy forthe Zionist idea,” writes Ian Black tory is an extension ofthe battleground on Take the abduction and murder of the Is- in “Enemiesand Neighbours”, hiswonder- which Israelis and Palestinians still fight.” raeli athletes at the Munich Olympics in ful new history ofPalestine and Israel from The former Middle East editor for the 1972. The Palestinian planners called it Op- 1917 to 2017. Guardian, a British newspaper, Mr Black, eration Ikrit and Biram, after two villages If Israelis see the Balfour declaration as for his part, plays it pretty straight, offering in Galilee that were taken by Israel in 1948. leadingto the birth ofIsrael some 30 turbu- a well-rounded tour ofthe past century. The attack was carried out by a group 1 //*sharathcharged*// 74 Books and arts The Economist October 28th 2017

2 called Black September, a reference to the one entered the frame briefly, it would re- period in 1970 when Jordan drove thou- sult in a phantom image. Photographic sandsofguerrillasfrom the Palestine Liber- plates, if not cleaned thoroughly, would ation Organisation out of the country. The bear a faint trace of the previous sitter. Jordanians were troubled by the Palestin- Some wily entrepreneurs turned this into ians’ violent ambition, as demonstrated by an industry—“spirit photography”—all the their attack on the American embassy in while experimenting with the look and Amman in 1968—on the 51st anniversary of feel oftheir ghosts. the Balfourdeclaration. It is a shame that Ms Owens does not Mr Black sprinkles his book with fasci- devote much space to the ghost in the pre- nating nuggets. Shimon Peres, then an MP, sent day. “Most Haunted”, a reality-televi- proposed tearing down the 16th-century sion series that aims to convince viewers Ottoman walls surrounding the Old City of the spirits walking among us, would of Jerusalem after Israel’s victory in 1967. have made for a fascinating chapter. A dis- (Wiserheadsprevailed.) Ariel Sharon, then cussion of the changing aesthetic of the a general, recounted how in the 1970s the ghost in the age of CGI would have been army infiltrated its own phoney terrorists worthwhile, too. And Ms Owens’s deter- into Gaza, then chased them with helicop- mined focus on Britain means that some of ters and search parties until real terrorists the best contemporary examples are made contactwith them. Butthe bookmay ignored. There is no mention of “The Sixth leave some readers wanting more—about Sense” (1999) by M. Night Shyamalan, an European diplomacy duringthe first world Indian-American, for example. The idea war; or about the Arab families who sold that the ghost is a uniquely British appari- their land to Zionists. tion does not quite ring true, either. They Plenty of other books fill the gaps. For tious piffle, ghosts have proved surprising- populated Mesopotamian religions and its clarity and balance, though, Mr Black’s ly durable. The living have long spied the native American belief systems; their geo- work stands tall in a field that is likely to dead—and sought new explanations for graphical spread is vast. continue growing. Ashe notes, by2017 “the doing so. In the 15th century people Nevertheless, Ms Owens’s book is a prospect ofan equitable two-state solution thoughttheywere the soulsofthose suffer- lively guide to that most persistent of beingagreed voluntarily by both sides was ing in purgatory, appearing to ask for inter- spooky figures—and to the obsession with extremely dim.” Mr Netanyahu’s govern- cession and a quick passage to heaven. mortality. Modern scientists continue to ment, perhaps the most right-wing in Isra- When the English Reformation did away pour scorn on the idea, attributing sight- el’s history, seems uninterested in real Pal- with purgatory, ghosts were still spotted, ings to carbon-monoxide poisoning and estinian statehood. The Palestinians, long “apparently unaware that they had been sleep paralysis. But the British are more divided, are unable to make tough deci- declared doctrinal impossibilities”. So confident about the existence of ghosts sions. As Israel celebrates the centenary of these visions became, instead, the work of than theyare ofa divine creator, or heaven. the Balfour declaration, Palestinians plan Satan: “diabolical illusions” designed to This book shows why ghosts have sur- to markit with protests—as they have done deceive those with melancholy disposi- vived amid scientific, political and reli- every year since 1918. 7 tions. Works like “Hamlet” were careful to gious revolutions. Best to keep a light on. 7 incorporate both interpretations. The ghost remained in rude health A history of hauntings through the Enlightenment. In the spirit of Muhammad Ali the Royal Society’smotto, Nulliusin verba— The ghosts of take nobody’s word for it—men such as A bruising account John Aubrey travelled around Britain com- centuries past piling and classifying accounts of super- natural phenomena under the discipline of “Hermetick Philosophy”. Materialist thinkers like Hobbes—who argued that The Ghost: A Cultural History. By Susan Ali: A life. By Jonathan Eig. Houghton Mifflin ghosts “are in no place; that is to say, that are Owens. Tate Publishing; 288 pages; £19.99 Harcourt; 630 pages; $30. Simon & Schuster; £25 no where; that is to say, that seeming to be and $29.95 somewhat, are nothing”—were met with E OFTEN claimed to be the greatest of INGS, queens, horses, dogs, crows. A fierce opposition. Joseph Glanvill, author Hall time, and he was right. Only a K“whirlingheap ofhay”. Awronged lov- of a hugely popular volume of ghost sto- handful of athletes reach the pinnacle of er, an old friend, a stillborn child, an atmo- ries, deployed the terminology of Francis their discipline. A couple of those have sphericlight. AsSusan Owenshighlights in Bacon to argue that ghosts can be observed done so with a swagger that made them her new cultural history of ghosts, phan- and perceived, thus must be real. their sport’s chief entertainer, too. Just one tasms and spirits have assumed many In the 18th and 19th centuries, Ms Ow- has thrown all ofthat away to do what was guises and taken up numerous causes over ens, an art historian, notes that “ghosts be- unpopular but principled. the millennia. In the medieval period rest- gan to exert an irresistible magnetism” for When Muhammad Ali died on June 3rd less souls inhabited whatever shape they poets, painters and novelists, resulting in last year he was remembered not only as thought might get them noticed. One fash- the birth of the “graveyard school” and a boxing’s most decorated and enthralling ion was for a shroud tied at the top of the proliferation of creepy gothic novels. She heavyweight, but also for his refusal to head in a topknot, and later a loose sheet describes the collision of the ephemeral serve in the Vietnam war as a rebellion (forease ofmobility). Some soughtrevenge with the technological in the Victorian era, against white supremacy. Today, black or intervened on the side ofthe oppressed. notingthat“earlyphotographywasalmost athletes protest against the government in Others offered moral lessons, or simply uncannily predisposed to the creation of unison. Ali was alone. After his death Ba- popped by fora friendly chat. ghostly images”: if the light was affected rack Obama, who kept a pair of his gloves Though often dismissed as supersti- during the long exposure period, or some- in the White House, compared him to 1 //*sharathcharged*// The Economist October 28th 2017 Books and arts 75

2 Martin Luther King and Nelson Mandela. his romps. He was often caught with pros- Defiance, in Mr Eig’s telling, was Ali’s Jonathan Eig’s book is the first major titutes on the day ofa fight. defining feature and his tragic flaw. The au- biography since Ali’s death, and it offers a Yethe had hismother’sgenerosity, turn- thorusespunchingstatistics, speech analy- bruising account of his life. It jabs at myths ing up at hospitals and schools and dis- sis and a bevy of interviews to illustrate throughout. As a 12-year-old, Cassius Clay pensing charity to whoever asked for it. Ali’s deterioration in his late 30s, and his did take up boxingto avenge a stolen bike— That largesse combined unfortunately stubborn denial of it. By the end, the float- but his parents also bought him a replace- with his sense of loyalty. Aposse of hang- ing butterfly was “a punching bag with ment scooter. As a youngcontenderhe had ers-on bled him dry, as did the Nation ofIs- legs”. He absorbed 200,000 hits across his been fond of his birth name, which lam. It was through the creed of Elijah Mu- career, taking eight times the hits that he sounded gladiatorial. As an Olympic hammad, the Nation’s leader, that Ali landed on his opponent in his last title champion he proudly displayed his medal fulfilled his most powerful desire: to rebel. fight. This otherwise masterful biography for years after winning it (and did not, as a His father raised him on tales of the white leaves barely 30 pages for the final three laterbookclaimed, hurl itinto the Ohio riv- man’s cruelty, and now he had a way to decades of its subject’s life, as he struggled er in anger about segregated restaurants). strike back. White people could keep their with Parkinson’s disease and mellowed in Forever boasting of his bravery, Ali was segregation, because Elijah advocated a old age, even representing Uncle Sam in scared of flying, shy around girls when he black land with black laws. That meant re- negotiations with Iran and Iraq. But Mr Eig was young—he fainted after trying to kiss fusingto fight the Viet Cong, a decision that gets inside the guard of an American hero one—and nervous before his fights. For all cost Ali a five-yearjail sentence (which was who believed in personal liberty more his wit and rhymes, his schoolmates overturned by the Supreme Court without than allegiance to a flag—who, in his own thought him as “dumb as a box of rocks”, being served) and three years ofhis career. words, “wanted to be free”. 7 and he was barely literate. Mr Eig’s portrait is of a man who pro- fessed to “do everything on instinct”, in- Contemporary art side the ring and out. His impulses grap- pled with each other throughout his life. China syndrome Ali was ravenous for fame, but he did not have to be liked. He whipped white Ameri- cans into a fury and called his black oppo- nents Uncle Toms. He had to be known, which is why he knocked on doors adver- NEW YORK tisinghis fights as a teenagerand trained by How China’s artists made sense oftheircountry sprinting beside the school bus. He lusted after money, too, and loved to run his ANGING from the ceiling of the mag- ists into contact with Japanese contempo- hands through piles of his cash. In 1974 he Hnificent rotunda that Frank Lloyd rary art, and also Western artists, such as happily accepted a $5m fee from Mobutu Wright created for the Guggenheim Muse- Robert Rauschenberg and Gilbert & Sese Seko, Zaire’s dictator, for the “Rumble um in 1959 is an undulating black dragon. George, who exhibited in Beijing. Chinese in the Jungle”, a televised fight held in the Twenty-six metres (85 feet) long, it is made artists began learning about the multiple Zairean capital, Kinshasa, with the unde- almost entirely of the inner tubes of bicy- art movements that had arisen after the feated world heavyweight champion, cles. Its head is a sculptural confection of second world war, particularly in America George Foreman. He also became a sex broken cycles, its rear a writhing excres- and Europe, which in turn inspired a wave addict. Ali was married four times and cence ofblackrubberloops. The visual ety- of new work culminating in a ground- liked to play his wives off against each mology is obviously and satisfyingly Chi- breaking show at the China Art Gallery other, asking them to book hotel rooms for nese. Then you notice hundreds of tiny (now the National Art Museum of China) black cars crawling all over its underbelly, near Tiananmen Square in Beijing in Feb- like head lice on a schoolchild—symbolic ruary1989. of the moment when the country, in the This exhibition, loosely known as “Chi- headlong pursuit of economic growth, na/Avant-Garde” (or, as others called it, swerved from pedal power to petroleum. “The Great Leap Somewhere”), was adver- This work, “Precipitous Parturition” by tised with crudely printed posters that Chen Zhen, a Chinese-French conceptual were tied to the museum railings and artist, is at once fiercely visual, emotional showed the global road symbol for “no U- and political. It is the most grandiose work turn”. At the same time, a vigorous reform in the Guggenheim’s magnificent new ex- movement, initiated by students in Beijing position of art, by 71 artists and artists’ col- and including many poets and artists, was lectives, that was made in or inspired by gathering momentum. It ended with the China between 1989 and 2008, when the military crackdown in June 1989, when the eyes of the world turned to Beijing as it Chinese army sent in tanks to clear the hosted the Olympic games. square and arrest the protesters. Hundreds The kick-offdate of“Art and China after were killed. After that many Chinese art- 1989: Theatre of the World” has global sig- ists went underground or left the country nificance. It was the moment the Berlin altogether. Wall fell, ending the cold war, when the Despite the political repression, life in South African government was consider- China in the years after Tiananmen was ing dismantling apartheid and the world chiefly characterised by the roiling eco- wide web was about to be made public. nomic activity that marked the country’s The world felt full of promise. But for art- scramble to turn itself into a global power. ists in China, 1989 meant something else. Traditional art forms, such as calligraphy The relative freedom of the late 1970s and ink-painting, were too staid and nar- He had roots and wings and early 1980s had brought Chinese art- rowto capture thistumultuousnewreality.1 //*sharathcharged*// 76 Books and arts The Economist October 28th 2017

2 So avant-garde artists turned to conceptual the depth of its curatorial research and the makes you think of Grayson Perry’s maps, art, experimenting with a range of tech- sweep ofideasthatunderpinsitsnarrative. Xu Tan’s kitschy interiors of Tracey Emin, niques and materials, such as video, per- The curators—Alexandra Munroe of the Huang Yong Ping’s broken aeroplane of formance and body art, to try and make Guggenheim, Philip Tinari, director of the the Algerian Adel Abdessemed and Cao sense of the world around them. It is no Ullens Centre for Contemporary Art in Fei’s sizzling coloured metropolises of the surprise that the focus of the Guggenheim Beijing, and Hou Hanru, who heads the work of Bodys Isek Kingelez from Congo, show, too, should be conceptual art. MAXXI Museum of Contemporary Art which was shown to such great effect in The exhibition proceeds broadly chro- and Architecture in Rome—are probably Paris earlier this year. nologically, from “China/Avant-Garde” the three most knowledgeable experts Exhibitions take a long time to bring to- onwards, with Zhang Peili, the granddad- workingin the field. Visitors would do well gether. One thing curators can never fore- dy of Chinese video art, obsessively soap- to read their exemplary essays in the exhi- see is the public mood when a show is fi- ing and rinsing a live chicken in a bowl in bition catalogue before seeing the show. nally unveiled. “Art and China after 1989” sly mockery of a government diktat on The ten-week accompanying documen- will go on next year to the Guggenheim in cleanliness; shows like “Post-Sense Sensi- tary film programme, by Mr Ai and Wang Bilbao and then to the San Francisco Muse- bility: Alien Bodies & Delusion”, which Fen, is also not to be missed. um of Modern Art. No one who studies Qiu Zhijie, one of the two artist- how the artists in “Art and China After curators, hoped would “strike the senses” Makers and magicians 1989” responded to openly joining the glo- and “harass the mind”; Lu Jie’s Long March In choosing 1989 as their starting date, the bal order, though, will miss the irony that Project, a vast curatorial experiment that curators make an important additional the NewYorkshowopened atthe verymo- tried to put on exhibitions and perfor- point about how art history has evolved ment when the Chinese Communist mances all along the route the Red Army across the globe in the past three decades. Party’s quinquennial congress in effect took through the country in 1934-35; and Ai This was the year when the Pompidou anointed Xi Jinping as China’s most pow- Weiwei’s “Fairytale” project, which Centre in Paris put on a show called “Magi- erful leader since Mao Zedong. Nor will brought 1,001 ordinary Chinese citizens to cians ofthe Earth”, which brought together they have ignored the fact that, just as Chi- Germany in 2007 and turned them loose 50 artists from the developed world with na itselfhasbecome more repressive, these on the quinquennial Documenta exhibi- 50 artists from countries as far afield as Chinese artists encountered a different tion in Kassel. Cuba, Togo and Tibet. repression—this time in the United States— “Art and China after 1989” is not for the It was the first serious attempt to ques- thanks to the combined ire of social faint-hearted, as evinced by “New Beijing”, tion the 20th-century canon which held media and the Kennel Club ofAmerica. a satirical painting by Wang Xingwei that that modernism began in Paris before the Three of the proposed art works—a tries to convey the horror of Tiananmen second world war, and continued after video oftwo raging dogs on treadmills and (pictured). The show depicts shootings, 1945 in New Yorkand nowhere else. “Magi- another oftwo pigs copulating, as well as a contaminated blood, incarceration, obses- cians of the Earth”, which is still discussed live piece with insects, amphibians and sive scratching, drug dealing, butchering, today, showed how artists from Japan, In- reptiles preying on one another—had to be two men burninga rat, infested jails, explo- dia and Brazil, among other places, looked, removed before the show opened after sions and environmental depredation. De- learned, exhibited, and in some cases even protests and threats from animal-rights spite that, what comes through is the art- lived alongside one another to create what activists. All thatremainsof“Theatre ofthe ists’ humour, irony, self-reliance and has become the global art world. World”, halfofMrHuang’s two-part instal- natural suspicion—and, most of all, the The view that there were many mod- lation which gave the exhibition its sub- moral and physical courage of those who ernisms is now commonplace. China is title, is the insects’ cage—and a statement would brave any hardship to pursue their part of this. It is impossible to look at the that the artist wrote by hand (on an Air vision and keep making art. works in the Guggenheim show and not France sickbag) in defence of the work. Some works are more visually arresting make the leap to other artists interested in Culture should bring people together, and than others. Mr Qiu’s massive imaginary the effects of globalisation. Mr Qiu’s map often it does. But not always. 7 map of recent history recalls Renaissance cartography as well as contemporary sur- veillance with its “No U-Turn Mountain”, its “Canyon of Globalisation” and its “Sea with Somali Pirates”. At the other end of the scale is “Sewing”, a delicate video on handiwork by Lin Tianmiao, one of the few women in the show. The Guggenheim’s rotunda, with its lack of large, unfettered spaces, means that not every artist is represented here by his or her best work. There is no space, for ex- ample, for Xu Bing’s magnificent “Book from the Sky”. Cai Guo-Qiang’s two fire- workpiecesare but a minute tasterof these magnificent displays, and Mr Ai’s moving epitaph forthe schoolchildren who died in the Sichuan earthquake in 2008 is here squeezed into a small corner rather than beinggiven the space itneeds(and which it had when it was shown at the Royal Acad- emy in London in 2015). Despite that, this is the most important exhibition of art about China to be put on in America in 20 years, not least because of The artistry of the ambulance //*sharathcharged*// Courses 77

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The Economist October 28th 2017 //*sharathcharged*// 80 Economic and financial indicators The Economist October 28th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Economic Gross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest Oct 25th year ago United States +2.2 Q2 +3.1 +2.2 +1.6 Sep +2.2 Sep +2.0 4.2 Sep -460.9 Q2 -2.5 -3.4 2.41 - - China +6.8 Q3 +7.0 +6.8 +6.6 Sep +1.6 Sep +1.7 4.0 Q2§ +155.3 Q2 +1.4 -3.9 3.78§§ 6.64 6.78 Japan +1.4Statistics Q2 +2.5 on+1.5 42 economies, +5.3 Aug plus+0.6 aAug clos- +0.5 2.8 Aug +192.2 Aug +3.6 -4.5 0.07 114 105 Britain +1.5er Q3 look+1.6 at maritime+1.5 trade +1.6 Aug +3.0 Sep +2.7 4.3 Jul†† -128.9 Q2 -3.6 -3.3 1.35 0.75 0.82 Canada +3.7 Q2 +4.5 +2.8 +7.4 Jul +1.6 Sep +1.7 6.2 Sep -45.0 Q2 -2.6 -2.0 2.07 1.28 1.34 Euro area +2.3 Q2 +2.6 +2.1 +3.8 Aug +1.5 Sep +1.5 9.1 Aug +376.4 Aug +3.1 -1.3 0.48 0.85 0.92 Austria +2.6 Q2 +0.4 +2.3 +4.0 Aug +2.4 Sep +2.1 5.6 Aug +6.1 Q2 +2.1 -1.2 0.63 0.85 0.92 Belgium +1.5 Q2 +1.7 +1.6 +5.0 Aug +2.0 Sep +2.1 7.3 Aug -5.3 Jun +0.6 -2.0 0.78 0.85 0.92 France +1.8 Q2 +2.2 +1.7 +1.1 Aug +1.0 Sep +1.1 9.8 Aug -26.0 Aug -1.3 -3.0 0.88 0.85 0.92 Germany +2.1 Q2 +2.5 +2.1 +4.5 Aug +1.8 Sep +1.7 3.6 Aug‡ +274.6 Aug +8.0 +0.7 0.48 0.85 0.92 Greece +0.7 Q2 +2.2 +1.0 +5.7 Aug +1.0 Sep +1.2 21.0 Jul -1.3 Aug -1.3 -1.4 5.58 0.85 0.92 Italy +1.5 Q2 +1.4 +1.4 +5.7 Aug +1.1 Sep +1.3 11.2 Aug +51.2 Aug +2.5 -2.3 2.04 0.85 0.92 Netherlands +3.3 Q2 +6.3 +2.7 +3.9 Aug +1.5 Sep +1.3 5.7 Sep +76.0 Q2 +10.0 +0.6 0.58 0.85 0.92 Spain +3.1 Q2 +3.5 +3.1 +2.2 Aug +1.8 Sep +2.0 17.1 Aug +23.1 Jul +1.4 -3.3 1.65 0.85 0.92 Czech Republic +3.4 Q2 +10.3 +4.5 +5.8 Aug +2.7 Sep +2.4 2.9 Aug‡ +1.7 Q2 +0.9 -0.1 1.69 21.7 24.9 Denmark +1.9 Q2 +2.8 +2.2 +2.1 Aug +1.6 Sep +1.0 4.4 Aug +25.8 Aug +8.2 -0.4 0.58 6.30 6.85 Norway +0.2 Q2 +4.7 +1.8 +5.7 Aug +1.6 Sep +2.0 4.2 Jul‡‡ +16.6 Q2 +5.4 +4.2 1.70 8.02 8.28 Poland +4.6 Q2 +4.5 +4.3 +4.3 Sep +2.2 Sep +1.9 6.8 Sep§ -1.3 Aug -0.4 -2.0 3.43 3.59 3.97 Russia +2.5 Q2 na +1.8 +0.8 Sep +3.0 Sep +4.0 5.0 Sep§ +36.9 Q3 +2.5 -2.1 8.13 57.7 62.2 Sweden +3.0 Q2 +5.2 +3.1 +7.3 Aug +2.1 Sep +1.9 6.2 Sep§ +22.5 Q2 +4.4 +0.9 0.88 8.22 8.95 Switzerland +0.3 Q2 +1.1 +0.9 +2.9 Q2 +0.7 Sep +0.5 3.1 Sep +68.9 Q2 +9.9 +0.7 0.02 0.99 1.00 Turkey +5.1 Q2 na +4.9 +3.8 Aug +11.2 Sep +10.7 10.7 Jul§ -37.0 Aug -4.5 -2.0 11.70 3.74 3.08 Australia +1.8 Q2 +3.3 +2.4 +0.8 Q2 +1.8 Q3 +2.1 5.5 Sep -21.8 Q2 -1.5 -1.7 2.76 1.30 1.31 Hong Kong +3.8 Q2 +4.1 +3.1 +0.4 Q2 +1.5 Sep +1.6 3.1 Sep‡‡ +15.0 Q2 +4.2 +0.9 1.88 7.80 7.76 India +5.7 Q2 +4.1 +6.7 +4.3 Aug +3.3 Sep +3.5 5.0 2015 -29.2 Q2 -1.4 -3.5 6.81 65.0 66.8 Indonesia +5.0 Q2 na +5.2 +2.3 Aug +3.7 Sep +3.9 5.3 Q1§ -14.2 Q2 -1.7 -2.6 6.73 13,573 13,006 Malaysia +5.8 Q2 na +5.5 +6.8 Aug +4.3 Sep +3.9 3.4 Aug§ +8.1 Q2 +2.7 -3.0 4.01 4.24 4.16 Pakistan +5.7 2017** na +5.7 +8.5 Aug +3.9 Sep +3.9 5.9 2015 -14.1 Q3 -4.5 -5.9 8.20††† 105 105 Philippines +6.5 Q2 +7.0 +6.6 +2.7 Aug +3.4 Sep +3.2 5.6 Q3§ -0.8 Jun +0.3 -2.7 4.75 51.7 48.3 Singapore +4.6 Q3 +6.3 +2.9 +19.1 Aug +0.4 Sep +0.7 2.2 Q2 +59.0 Q2 +19.8 -1.0 2.28 1.36 1.39 South Korea +3.6 Q3 +5.8 +2.8 +2.7 Aug +2.1 Sep +2.0 3.4 Sep§ +83.1 Aug +5.6 +0.9 2.50 1,128 1,134 Taiwan +2.1 Q2 +0.5 +2.2 +5.2 Sep +0.5 Sep +0.6 3.7 Sep +70.7 Q2 +13.2 -0.1 1.06 30.3 31.6 Thailand +3.7 Q2 +5.4 +3.5 +3.7 Aug +0.9 Sep +0.7 1.1 Aug§ +44.9 Q2 +11.6 -2.5 2.35 33.2 34.9 Argentina +2.7 Q2 +2.8 +2.7 -2.5 Oct +24.2 Sep +25.2 8.7 Q2§ -19.7 Q2 -3.4 -6.2 5.01 17.4 15.2 Brazil +0.3 Q2 +1.0 +0.7 +4.0 Aug +2.5 Sep +3.5 12.6 Aug§ -13.5 Aug -0.8 -8.0 8.76 3.24 3.12 Chile +0.9 Q2 +3.0 +1.3 +5.1 Aug +1.4 Sep +2.2 6.6 Aug§‡‡ -5.6 Q2 -1.7 -3.0 4.44 630 654 Colombia +1.3 Q2 +3.0 +1.7 -3.1 Aug +4.0 Sep +4.3 9.1 Aug§ -12.4 Q2 -3.7 -3.3 6.61 2,985 2,946 Mexico +1.8 Q2 +2.3 +2.2 -0.5 Aug +6.3 Sep +5.9 3.3 Sep -17.6 Q2 -1.8 -1.9 7.26 19.1 18.5 Venezuela -8.8 Q4~ -6.2 -9.3 +0.8 Sep na +720 7.3 Apr§ -17.8 Q3~ -1.2 -19.5 11.26 10.1 9.99 Egypt +4.9 Q2 na +4.1 +23.8 Aug +31.6 Sep +26.9 12.0 Q2§ -15.6 Q2 -6.6 -10.8 na 17.6 8.89 Israel +4.0 Q2 +2.4 +3.6 +2.6 Jul +0.1 Sep +0.4 4.1 Aug +10.7 Q2 +3.5 -2.5 1.82 3.51 3.85 Saudi Arabia +1.7 2016 na -0.5 na -0.1 Sep -0.3 5.6 2016 +7.6 Q2 +2.2 -7.5 3.68 3.75 3.75 South Africa +1.1 Q2 +2.5 +0.7 +1.4 Aug +5.1 Sep +5.3 27.7 Q2§ -7.9 Q2 -2.9 -3.3 9.20 14.0 13.8 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. //*sharathcharged*// The Economist October 28th 2017 Economic and financial indicators 81

Markets % change on Maritime transport Shipping costs, 2010=100 Dec 30th 2016 Seaborne trade rose by 2.6% in 2016, or 160 Index one in local in $ 260m tonnes, according to UNCTAD, and week Baltic clean Oct 25th currency terms tanker index Baltic dirty Markets volumes are forecast to grow by 3.2% a 140 United States (DJIA) 23,329.5 +0.7 +18.0 +18.0 year until 2022. The industry, which tanker index China (SSEA) 3,557.3 +0.4 +9.5 +14.6 Japan (Nikkei 225) 21,707.6 +1.6 +13.6 +16.5 handles 80% of global trade by volume, 120 Britain (FTSE 100) 7,447.2 -1.3 +4.3 +11.8 has struggled with overcapacity in recent Canada (S&P TSX) 15,854.8 +0.5 +3.7 +8.8 years, but improvement in the global 100 Euro area (FTSE Euro 100) 1,230.8 -0.6 +10.7 +23.9 economy has helped reverse the decline North-South Euro area (EURO STOXX 50) 3,591.5 -0.8 +9.1 +22.2 in freight rates. Despite five years of containers 80 Mainlane Austria (ATX) 3,363.4 -1.2 +28.5 +43.8 slowing capacity growth, supply still containers Belgium (Bel 20) 4,048.5 -0.7 +12.3 +25.7 60 outstrips demand. In 2016 the container- Baltic Dry France (CAC 40) 5,374.9 -0.2 +10.5 +23.8 shipping market’s operating losses were Index 40 Germany (DAX)* 12,953.4 -0.7 +12.8 +26.3 $3.5bn. A wave of “mega-alliances” Greece (Athex Comp) 737.3 -2.7 +14.5 +28.3 Italy (FTSE/MIB) 22,446.4 +0.4 +16.7 +30.7 (three groups now control 77% of global 20 Netherlands (AEX) 541.3 -1.2 +12.0 +25.4 capacity) may help cut the excess supply, Intra-Asia containers Spain (Madrid SE) 1,023.9 -1.1 +8.5 +21.5 but concerns of an oligopolistic market 0 Czech Republic (PX) 1,064.1 +1.0 +15.5 +36.3 are rising, placing greater pressure on 2010 11 12 13 14 15 16 17* Denmark (OMXCB) 938.4 -0.7 +17.5 +31.5 regulators to ensure competition. Sources: Clarksons Research; *January to Thomson Reuters September average Hungary (BUX) 39,840.9 +1.9 +24.5 +38.8 Norway (OSEAX) 879.8 +1.4 +15.1 +23.4 Poland (WIG) 63,158.2 -2.0 +22.0 +41.9 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,118.1 -2.6 -3.0 -3.0 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,649.7 +0.3 +8.7 +20.1 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 9,084.0 -2.4 +10.5 +13.4 Index one in local in $ Oct 17th Oct 24th* month year Turkey (BIST) 108,354.8 +1.3 +38.7 +30.5 Oct 25th week currency terms Dollar Index Australia (All Ord.) 5,972.7 +0.3 +4.4 +11.5 United States (S&P 500) 2,557.2 -0.2 +14.2 +14.2 All Items 147.9 148.7 +1.6 +7.8 Hong Kong (Hang Seng) 28,302.9 -1.4 +28.6 +27.8 United States (NAScomp) 6,563.9 -0.9 +21.9 +21.9 Food 150.5 150.5 -0.3 -4.3 India (BSE) 33,042.5 +1.4 +24.1 +29.7 China (SSEB, $ terms) 354.3 +1.5 +3.7 +3.7 Indonesia (JSX) 6,025.4 +1.6 +13.8 +12.9 Japan (Topix) 1,751.4 +1.6 +15.3 +18.3 Industrials Malaysia (KLSE) 1,739.1 -0.6 +5.9 +12.2 Europe (FTSEurofirst 300) 1,522.1 -1.2 +6.6 +19.3 All 145.2 146.8 +3.8 +24.5 Pakistan (KSE) 41,595.3 +2.1 -13.0 -13.8 World, dev'd (MSCI) 2,023.5 -0.3 +15.5 +15.5 Nfa† 129.1 131.1 -0.4 +3.4 Singapore (STI) 3,343.9 +0.4 +16.1 +23.2 Emerging markets (MSCI) 1,114.1 -1.1 +29.2 +29.2 Metals 152.1 153.6 +5.4 +34.6 South Korea (KOSPI) 2,492.5 +0.4 +23.0 +31.7 World, all (MSCI) 493.5 -0.4 +17.0 +17.0 Sterling Index Taiwan (TWI) 10,750.6 +0.3 +16.2 +23.7 World bonds (Citigroup) 934.9 -0.4 +5.8 +5.8 All items 204.3 206.2 +4.0 -0.3 Thailand (SET) 1,708.8 +0.1 +10.8 +19.4 EMBI+ (JPMorgan) 835.3 -0.8 +8.2 +8.2 Argentina (MERV) 27,878.2 +6.4 +64.8 +49.7 Hedge funds (HFRX) 1,262.1§ nil +4.9 +4.9 Euro Index Brazil (BVSP) 76,671.1 +0.1 +27.3 +27.8 Volatility, US (VIX) 11.2 +10.1 +14.0 (levels) All items 156.5 157.2 +1.7 -0.5 Chile (IGPA) 27,566.8 -0.3 +33.0 +41.4 CDSs, Eur (iTRAXX)† 54.6 -0.7 -24.3 -15.2 Gold Colombia (IGBC) 10,956.5 -0.5 +8.4 +9.0 CDSs, N Am (CDX)† 53.1 -1.2 -21.7 -21.7 $ per oz 1,282.6 1,275.0 -2.0 +0.2 Mexico (IPC) 48,876.5 -2.1 +7.1 +15.7 Carbon trading (EU ETS) € 7.4 -3.5 +12.3 +25.8 West Texas Intermediate Venezuela (IBC) 710.9 +26.9 -97.8 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 51.9 52.5 +1.1 +5.9 Egypt (EGX 30) 13,901.4 +2.3 +12.6 +15.7 †Credit-default-swap spreads, basis points. §Oct 24th. Israel (TA-125) 1,309.9 -0.9 +2.6 +12.5 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 6,905.8 -0.5 -4.6 -4.5 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 58,123.1 -0.1 +14.7 +12.3 series, go to: Economist.com/indicators †Non-food agriculturals. //*sharathcharged*// 82 Obituary Cornelia Bailey The Economist October 28th 2017

But buzzards were circling that place, too. In 1910 around 500 people lived there. By 2012 there were 50 or so. The two-room school she attended from 1951, in her best plaid dress, closed down. The Big Houses of white landowners went to the state and their land to a reserve, so jobs in “Massa fields” vanished. Meanwhile, those eager developers helped push property taxes sky-high. No wonder people left. When a baby was born on Sapelo, the afterbirth was always buried to tie it to the island. But MissKatie, the lastmidwife who knew that piece ofAfrican magic, retired after deliver- ing Greg Bailey, her fourth child, and no one followed. There was no more old-fash- ioned anything. Just a heavy loss. Tourists could help, and she welcomed them, up to a point. She took over the old store and stocked it with cloth dolls and scuppernong jelly; she helped run Sapelo Days, when everyone dressed up nicely forthe visitors, cooked theirbest foods and had theirbest manners. In the heart of Hog Hammock she and Frank built a six-bed inn “For Nature Lovers Only”. But she did not want outsiders to stay too long. Her eyeswatered to thinkofno more cotton, no Salt marsh and sweet potatoes more sawmills; her community just things in a museum, to be poked at and stared at. Avisit to west Africa reinforced herpur- pose. There, in thriving villages, she found the same okra and smoked fish in the mar- ket, the same ways of carrying bundles on Cornelia Bailey, matriarch and guardian ofSapelo Island, Georgia, died on October heads, even the buzzard dance, that she 15th, aged 72 knew from home. By a miracle, these HEY had always grown red peas, so she did with her pea-planting. So many of things had survived in her own tiny out- TCornelia Bailey thought nothing of it. the thingsshe watched herfatherdo—mak- post on the coast of the United States. In a She and her husband dropped the seed in ing long cast-nets, weaving baskets from village in Sierra Leone a woman dressed the spring, Frank hoeing and she follow- sweet-grass, dancing arms-out like a cir- her in gold fabric and made her a para- ing. They planted on a growing moon, not cling buzzard while his friends beat the mountchief. Itgave herthe deepestglow in a wastingone, and when the tide was com- ground with sticks—had come from Africa. her life, and made her even more ofa fight- ing in; if a pregnant woman could do the Much of the food she ate, the rice, okra, er. As long as Geechee ways were racing in sowing, so much the better. They waited, peanuts and vegetable stew, was African. her mind, she had to talkabout them. too, until the pecan trees put out their blos- And a whole African spirit-world sur- som. It was safe then to plant what you rounded her. “Hags” pinned her down in The funeral bell liked. Nothing could fool the pecans. bed at night, dead relations called her Hog Hammock also had to be a working Generally the peas were eaten up by name and tried to lure her into the woods, entity, justas it used to be. Areal “make-do” the family, which included a crowd of “root doctors” brewed up poisoned moon- society, where people’s wealth was not adopted and foster children as well as her shine and could puta hexon neighbours, if money in the bank but a piece of land to own. But one day a chef from Atlanta you asked. pass on to their children. She would rather asked for some and paid her a cheque for Her descent was from Bilali, a Muslim it was all-black, as it was back then; and if them. Sapelo red peas, it turned out, were slave so imposing that he was the manager anyone thought that was racist, she did not not only pretty to look at but a gourmet for a white plantation-owner. With her give a hoot. Everybody was still kin, right taste and rare. More customerscame along, straight look and straight talk, she had in- from those Africans in the beginning. so she expanded the plot. She then thought herited his forcefulness. The short form of Her hopes were set on the red-peas pro- she could make a business out of it, and Cornelia, “Nia”, meant“she who hasa pur- ject and a second one, to bring back Purple that this might save her island. pose”. Hers was to save Sapelo and, with it, Ribbon sugar cane. She imagined the wire- For Sapelo was dying. Hog Hammock, everythingthat made up herlife—the smell grass fields looking lush again, and jobs where she lived, was the last community of the salt marsh, the taste of sweet pota- and people returning. Why not? At the age of Saltwater Geechee on the island, and toes dug out of hot ashes, the night chorus ofthree she had died, and was laid in a cof- the island the last undeveloped place in of crickets and frogs. In the 1950s develop- fin, after getting a fever from eating unripe the chain of Sea Islands running down the ers “from off” began to descend on the pears. The funeral bell had tolled for her coast of South Carolina and Georgia. The island’s miles of white beaches and forests from the FirstAfrican Baptistchurch; Uncle Geechee-Gullah people were direct de- of live oaks and palmetto, as they had on Nero kept saying, “Bury the chile.” But an scendantsofAfrican slavesbroughtover to other islands. Any Geechee who farmed aunt had rubbed her hard with garlic all work rice plantations in the 18th century; plots were slowly pushed out until Hog over, and she came round. Despite every- they had a hundred west African ways, as Hammockbecame their only refuge. thing, surely Sapelo could, too. 7 //*sharathcharged*//

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