The battle for Mosul

Private equity’s barbarian establishment

Why is Hillary hated?

Ground control to Elon Musk OCTOBER 22ND–28TH 2016 Putinism

A SPECIAL REPORT ON RUSSIA

Contents The Economist October 22nd 2016 3

5 The world this week 31 Election brief: Infrastructure A view from the bridge Leaders 32 Lexington 7 Russia How to shoot a man in Putinism Reno 8 The battle for Mosul Crushing the caliphate The Americas 8 Business in America 33 Canada’s climate policy Float like a butterfly Let the haggling begin 9 Thailand’s succession 34 Bello Establishment barbarians A royal mess A model artist Public companies are out of 10 Trade agreements 36 Clowns in Cuba fashion. They need to be Asterix in Belgium The red-nosed gold rush revived: leader, page 8. On the cover 36 Informality Private equity has prospered How to contain Vladimir Letters Workers in the shadows while other approaches to Putin’s deadly, dysfunctional business have stumbled, 12 On Brexit, Bob Dylan, empire: leader, page 7. pages 15-18 bonds, Donald Trump When the Soviet Union Middle East and Africa collapsed 25 years ago, 37 Iraq Russia looked set to become Briefing Marching on Mosul a free-market democracy. 15 Private Equity 38 Jordan What went wrong and how The barbarian The uneasy crown much is Mr Putin to blame? establishment See our special report after 39 Saudi Arabia’s religious page 40. Russia and the police European Union haggle over Asia Advice for the vice squad Ukraine, page 41 19 Thailand’s monarchy 39 South Africa An empty throne A plan for a white enclave 20 Bhutan 40 Justice in Africa The Economist online Happy-grow-lucky Cheaper law Daily analysis and opinion to 20 South Asian media Why Hillary is hated America’s supplement the print edition, plus All hail Special report: Russia most likely next president is deeply reviled. What did she audio and video, and a daily chart 21 Assisted suicide in Inside the bear Economist.com do wrong? Page 27. Economic Australia After page 40 hardship and racial divisions E-mail: newsletters and On the brink both fuel support for Mr Trump: mobile edition 21 Japan’s maternity culture Free exchange, page 64. In the Economist.com/email Europe No pain, no gain third debate, he played up 41 The future of Ukraine Print edition: available online by fears of a rigged election, 22 Preservation in India Bone of contention 7pm London time each Thursday Brick by brick page 30 Economist.com/print 42 Ukraine’s rock-star 24 Banyan Audio edition: available online politician Duterte’s pivot to China to download each Friday Front man Economist.com/audioedition 43 Russia’s Bashneft deal China Not exactly privatisation 25 The power of Xi Jinping 43 Italy’s Five Star Movement Master of nothing Requiem for a dreamer 44 The Canada-EU trade deal Hot-air Walloons Volume 421Number 9012 United States 27 Election 2016 46 Charlemagne Published since September 1843 Hating Hillary Primaries in France to take part in "a severe contest between intelligence, which presses forward, and 30 The third debate an unworthy, timid ignorance obstructing The battle for Mosul The right our progress." Final insult 30 The campaigns way to capture the jihadists’ Editorial offices in London and also: most important stronghold: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Heard on the trail Lima, Mexico City, Moscow, Mumbai, Nairobi, leader, page 8. Iraq’s New Delhi, New York, Paris, San Francisco, second-largest city will be São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC liberated from Islamic State. But at what cost? Page 37. What jihadists believe and why it matters, page 69

1 Contents continues overleaf 4 Contents The Economist October 22nd 2016

Britain Science and technology 47 Social mobility 65 Making sex cells from A class apart body cells 48 Inflation The ancestor’s tail Only the beginning 66 Urban planning 48 Politics The music of the city Theresa’s way 67 Anti-malaria drugs 49 Bagehot Do you yield? The spectre of Scoxit 67 Exploring Mars Triumph or disaster? Chairman of everything Sexual cannibalism After sex, International 68 Sexual cannibalism Xi Jinping is China’s most Nature’s cruellest male spiders try to escape 50 Migration to Europe powerful leader in decades. one-night stand from females, who eat them. Even so, local officials don’t Across desert and sea The male dark fishing spider listen to his orders, doesn’t even bother, page 68 Books and arts page 25 Business 69 Jihad 53 Elon Musk’s empire History of an idea Countdown Subscription service 70 The migrant business For our full range of subscription offers, 54 Media models including digital only or print and digital Profits out of hope Trump TV combined visit 70 Ngugi wa Thiong’o Economist.com/offers 55 Biotech You can subscribe or renew your subscription A writer’s awakening The trials of Juno by mail, telephone or fax at the details below: 71 Latin American art Telephone: +65 6534 5166 56 Retailing Facsimile: +65 6534 5066 A time of gifts Push my buttons Web: Economist.com/offers 71 Fiction from Israel E-mail: [email protected] 56 Ethiopian airlines Post: The Economist Good people Well-connected Subscription Centre, 72 Steven Isserlis Tanjong Pagar Post Office 57 Manufacturing in India PO Box 671 Music from heaven All at sea Europe’s worst Turning the tables Singapore 910817 Subscription for 1 year (51 issues)Print only migrant crisis no longer comes 58 Schumpeter Australia A$425 from Syria, but from the Techno wars 76 Economic and financial China CNY 2,300 indicators Hong Kong & Macau HK$2,300 countries of Africa, across the India INR 7,500 Mediterranean, page 50 Statistics on 42 economies, Japan Yen 41,000 Finance and economics plus a closer look at Korea KRW 344,000 Malaysia RM 780 60 Bond markets commodity prices New Zealand NZ$460 Singapore & Brunei S$425 Who’s scary now? Taiwan NT$8,625 61 Venezuelan debt Thailand US$288 Obituary Other countries Contact us as above Running out of time 78 Dario Fo 61 Italian banks Italy’s jester Spectral forms Principal commercial offices: 62 Buttonwood 25 St James’s Street, London sw1a 1hg Tel: +44 20 7830 7000 Mutual incomprehension Rue de l’Athénée 32 63 AI and financial 1206 Geneva, Switzerland regulation Tel: +4122 566 2470 It knows their methods 750 3rd Avenue, 5th Floor, New York, NY 10017 Ground control to Elon Musk 64 Free exchange Tel: +1212 5410500 The entrepreneur’s finances American electoral 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong are as jaw-dropping, inventive economics Tel: +852 2585 3888 and combustible as his space Other commercial offices: rockets, page 53 Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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ruckus came after the farce of centred on Petrobras, the state- mourn the death ofhis father, Politics its previous leader resigning controlled oil company. He King Bhumibol Adulyadej. after just18 days in the job. denies wrongdoing. The Maldives withdrew from Fright night A text of wills the Commonwealth, after the At the final presidential Hong Kong’s Legislative organisation had warned the debate Donald Trump said Council again witnessed government ofthe archipelago that he might not accept the stormy scenes over the swear- that it might be suspended for result ofthe election, which ing-in oftwo lawmakers who subverting democracy. Hillary Clinton described as support self-determination for “horrifying”. Mr Trump has the territory. In theirfirst at- The long haul asked his supporters to watch tempt they had changed the The long-expected operation over polling places forfraud, wording to disparage China. to recapture Mosul from Islam- leading to fears that voters will As they prepared fora second ic State began. Iraqi govern- feel intimidated on the day. attempt, dozens oflegislators ment troops and Kurdish BarackObama told him to sympathetic with the Chinese Peshmerga converged on Iraq’s Vladimir Putin attended a “stop whining”. Communist Party walked out. second city, taken by the jiha- summit with Angela Merkel in dists in June 2014. At least a Berlin that also included the Underlining the ugly mood of A Chinese spacecraft docked million civilians are thought to leaders ofFrance and Ukraine. the election, local Republican successfully with a new space- be still inside, though thou- Russia’s involvement in the offices in North Carolina were lab. Two astronauts entered sands have fled. Earlier, IS lost war in Syria has put a further firebombed and graffitied. the orbiting module fora the town ofDabiq, in Syria, to strain on its relations with month-long stay—the longest Turkish-backed rebels. Dabiq is Europe and Mrs Merkel is The government ofEcuador in space by Chinese citizens. held by Muslim tradition to be threatening sanctions. Mr cut offJulian Assange’s in- the future site ofa battle that Putin had not visited Germany ternet access at its embassy in will markthe end ofthe world. since Russia attacked Ukraine London, where the WikiLeaks in 2014. He recently pulled out founder has sought refuge RaifBadawi, a Saudi Arabian ofa trip to France after Fran- since 2012. WikiLeaks has blogger, faced a new round of çois Hollande suggested that published hacked e-mails from lashes, part ofa sentence of he wanted to discuss Syria. the Clinton campaign in an 1,000 lashes and ten years in attempt to embarrass the prison for“insulting Islam”. After seven years ofnegotia- candidate, prompting Ecuador Meanwhile, a Saudi prince tions, a trade deal between to act forfear ofbeing seen to was executed formurder. It is the European Union and interfere in a foreign election. rare fora Saudi royal, who Canada faced a big hurdle number the thousands, to be when the parliament ofthe Harder to recall put to death. Belgian region ofWallonia Venezuela’s supreme court The president ofthe Philip- rejected it, saying it fell short ruled that, in order to launch a pines, Rodrigo Duterte, arrived Meeting in Rwanda, nearly on social and environmental referendum to recall President in China for a state visit and 200 countries agreed to phase standards. Negotiators in Nicolás Maduro from office, said he would not raise his out the use and production of Brussels scrambled to overturn the opposition must gain the country’s dispute with China hydrofluorocarbons, which the decision. support of20% ofthe elector- over maritime territory. Mr are used in fridges and air- ate in each ofthe country’s 24 Duterte has been trying to conditioning units and contrib- BarackObama praised Matteo states. The opposition main- strengthen ties with China, ute to global warming. Big Renzi, the beleaguered prime tains that under the constitu- while distancing himselffrom concessions were granted to minister ofItaly, at a state tion the 20% threshold is a America. China and India. dinner in Washington. Mr national one. Renzi is staking his political Leaders ofthe five BRICS reputation on a referendum in A Mexican judge who had countries—Brazil, Russia, India, December to reform the politi- ruled on requests forthe extra- China and South Africa—met cal system. Leaders ofthe dition ofdrug lords was mur- in the Indian state ofGoa. opposition, most ofwhom do dered by two men while jog- Apart from India, the BRICS not support the reform, were ging. The judge had suspended economies have suffered from unimpressed by the endorse- the extradition to America of the fall in commodity prices. ment from the American Joaquín Guzmán (“El Chapo”), India’s prime minister, Na- president. who has twice escaped from rendra Modi, and Russia’s Mexican jails. president, Vladimir Putin, The front-runner to be the next reached deals in energy and leader ofthe UK Indepen- Police in Brazil arrested defence worth billions of dence Party, Steven Woolfe, Eduardo Cunha, a former dollars. Nigeria’s president, Muham- withdrew from any potential speaker ofcongress’s lower madu Buhari, attracted world- contest and the party itself, house, on charges ofcorrup- Officials in Thailand said the wide criticism forsaying that claiming it was “rotten”. His tion. Mr Cunha, who helped country’s crown prince, Maha his wife belonged in the kitch- decision to quit followed a initiate the impeachment of Vajiralongkorn, would delay en. She had earlier warned “scuffle” with a fellow mem- the formerpresident, Dilma assuming the throne foran that she might not backhim for ber, Mike Hookem, which had Rousseff, is the subject of other unspecified period. The prince re-election unless he got a grip left Mr Woolfe in hospital. That investigations into a scandal reportedly wants more time to on his government. 1 6 The world this week The Economist October 22nd 2016

because markets welcomed Bank of America’s rose to $5 Netflix gained 3.2m new inter- Business the news that core inflation, billion (its best quarterly profit national subscribers in the which excludes food and since the financial crisis). But latest quarter, offsettinga China’s GDP grew by 6.7% in energy, was down slightly. all three saw revenues soar slowdown in its domestic the third quarter, exactly the from bond trading, as investors American market, where it same pace that was recorded in Gulf economics repositioned themselves in added 370,000 customers. It the first and second quarters Saudi Arabia raised $17.5 anticipation ofhigher interest has expanded its video- and raising more questions billion in its first-ever interna- rates and uncertainty over streaming to a further130 about how the country’s na- tional bond sale, a record Brexit. Morgan Stanley’s countries. The glaring excep- tional accounts are tallied. The amount foran emerging mar- profit surged by 57%, to $1.6 tion is China, where Netflix government cited the figure as ket. It issued the bonds in five-, billion and Goldman Sachs’s has dropped plans to push into evidence that the economy is ten- and 30-year tranches amid net income climbed to $2.1 the market in the short-term. It stabilising, but it has hit its heavy demand. The country billion buoyed by a similar rise also announced an increase in growth target by expanding has turned to global markets to in income from trading. spending on original program- credit, which is up by16% this finance a budget deficit that ming, which could dent profits. year. Corporate debt has swol- has been fuelled by the de- The former poster boy Still, investors were happy len, to $18 trillion, which offi- pressed price ofoil, the coun- Wells Fargo, another Ameri- with its overall performance; cials are trying to rein in by try’s main source ofincome. can bank, set aside more mon- its share price leapt by 20%. allowing firms to swap debt ey to pay forpotential legal they owe to banks forshares. The weaker pound was the costs that may arise from a Having a flutter main factor behind a profit scandal wherein branch em- Australia’s two biggest non- warning from Ryanair, its first ployees created fake accounts casino betting companies, British consumer prices in three years. Around a quar- to meet sales goals. The divi- Tabcorp and Tatts, discussed January 2016=100 ter ofrevenue at Europe’s sion at the centre ofthat scan- merging in an A$9 billion ($6.9 Food Housing/domestic fuel Leisure Restaurants/hotels biggest budget airline is ac- dal saw a 9% fall in profit, billion) transaction. But shares Transport counted forin sterling. Like its though the bank’s overall net in an Australian gaming com- 110 rivals, Ryanair is having to income fell by just 3%, to $5.6 pany, Crown Resorts, fell after 105 reduce the price offares more billion. Worryingly forWells 18 ofits employees were de- than it had anticipated in Fargo, new customer accounts tained in China. A proposed 100 response to a drop in demand plunged by 30% in September deal between William Hill in following the past year’s from August. Britain and the owner ofthe 95 JFMAMJJAS terrorist attacks in Europe. PokerStars website was called 2016 A surprise drop in America’s off, in part because the British Source: ONS America’s big banks reported a store ofoil pushed the price of firm’s biggest shareholders Inflation in Britain rose to 1% solid set ofearnings forthe West Texas Intermediate, the were nervous about taking a in September, the highest since third quarter. Net profits at benchmarkforAmerican oil, gamble on a business that is November 2014. The Office for JPMorgan Chase and to $51.60 a barrel, its highest expanding in America’s heavi- National Statistics urged cau- Citigroup were lower com- level in 15 months. Oil markets ly regulated market. tion in making too strong a link pared with the same period have rallied in the past few between the increase and the last year, at $6.3 billion and $3.8 weeks on hopes the OPEC oil Other economic data and news plunge in sterling since Brit- billion respectively, whereas cartel will cut production. can be found on pages 76-77 ain’s vote in June to leave the European Union. Earlier, Mark Carney, the governor ofthe BankofEngland, said that familieswho were just manag- ing to get by would be hit disproportionally hard by price rises. A household- finance index published by IHS Markit reported a 22- month high in future inflation expectations, and a three- month low in the financial outlookforthe year ahead.

The sell-offin British ten-year government bonds contin- ued, pushing the yield up to its highest level since the vote for Brexit on June 23rd. The bond yields forother countries also climbed, as investors mulled over forecasts ofrising in- flation. America’s annual consumer-price index jumped 1.5% last month, but the yield on ten-year Treasury bonds fell Leaders The Economist October 22nd 2016 7 Putinism

How to contain VladimirPutin’s deadly, dysfunctional empire OUR years ago Mitt Romney, though adept at repression, is brittle. Institutions that would Fthen a Republican candidate, underpin a prosperous Russia, such as the rule of law, free me- said that Russia was America’s dia, democracy and open competition, pose an existential “number-one geopolitical foe”. threat to Mr Putin’s rotten state. Barack Obama, among others, For much of his time in office Mr Obama has assumed that, mocked this hilarious gaffe: because Russia is a declining power, he need not pay it much “The 1980sare nowcallingto ask heed. Yet a weak, insecure, unpredictable country with nuc- for their foreign policy back, be- lear weapons is dangerous—more so, in some ways, even than cause the cold war’s been over for 20 years,” scoffed the presi- the Soviet Union was. Unlike Soviet leaders afterStalin, MrPu- dent. How times change. With Russia hacking the American tin rules alone, unchecked by a Politburo or by having wit- election, presiding over mass slaughter in Syria, annexing Cri- nessed the second world war’s devastation. He could remain mea and talking casually about using nuclear weapons, Mr in charge foryears to come. Age is unlikely to mellow him. Romney’s view has become conventional wisdom. Almost Mr Obama increasingly says the right things about Putin- the only American to dissent from it is today’s Republican ism—he sounded reasonably tough during a press conference nominee, Donald Trump. this week—but Mr Putin has learned that he can defy America Every week Vladimir Putin, Russia’s president, finds new and come out on top. Mild Western sanctions make ordinary ways to scare the world. Recently he moved nuclear-capable Russians worse off, but they also give the people an enemy to missiles close to Poland and Lithuania. This week he sent an unite against, and Mr Putin something to blame for the eco- aircraft-carrier group down the North Sea and the English nomic damage caused by his own policies. Channel. He has threatened to shoot down any American plane that attacks the forces of Syria’s despot, Bashar al-Assad. Ivan the bearable Russia’s UN envoy has said that relations with America are at What should the West do? Time is on its side. A declining pow- their tensest in 40 years. Russian television news is full of bal- er needs containing until it is eventually overrun by its own listic missiles and bomb shelters. “Impudent behaviour” contradictions—even as the urge to lash out remains. mighthave “nuclearconsequences”, warnsDmitryKiselev, Mr Because the danger is of miscalculation and unchecked es- Putin’s propagandist-in-chief—who goes on to cite Mr Putin’s calation, America must continue to engage in direct talks with words that “Ifa fight is inevitable, you have to strike first.” Mr Putin even, as today, when the experience is dispiriting. In fact, Russia is not about to go to war with America. Much Success is not measured by breakthroughs and ceasefires— ofits language is no more than bluster. But it does pose a threat welcome as those would be in a country as benighted as Syr- to stability and order. And the first step to answering that ia—but by lowering the chances ofa Russian blunder. threat is to understand that Russian belligerence is not a sign of Nuclear miscalculation would be the worst kind of all. resurgence, but ofa chronic, debilitating weakness. Hence the talksneed to include nuclear-armscontrol as well as improved military-to-military relations, in the hope that nuc- Vlad the invader lear weapons can be kept separate from other issues, as they As our special report this week sets out, Russia confronts grave were in Soviet times. That will be hard because, as Russia de- problems in its economy, politics and society. Its population is clines, it will see its nuclear arsenal as an enduring advantage. ageing and is expected to shrinkby10% by 2050. An attempt to Another area of dispute will be Russia’s near abroad. Uk- use the windfall from the commodity boom to modernise the raine shows how Mr Putin seeks to destabilise countries as a state and its economy fell flat. Instead Mr Putin has presided way to stop them drifting out of Russia’s orbit (see page 41). over a huge increase in government: between 2005 and 2015, America’s next president must declare that, contrary to what the share ofRussian GDP that comes from publicspending and Mr Trump has said, if Russia uses such tactics against a NATO state-controlled firms rose from 35% to 70%. Having grown by member, such as Latvia or Estonia, the alliance will treat it as 7% a year at the start of Mr Putin’s reign, the economy is now an attack on them all. Separately the West needs to make it shrinking. Sanctions are partly to blame, but corruption and a clear that, if Russia engages in large-scale aggression against fall in the price of oil matter more. The Kremlin decides who non-NATO allies, such as Georgia and Ukraine, it reserves the gets rich and stays that way. Vladimir Yevtushenkov, a Russian right to arm them. tycoon, was detained for three months in 2014. When he Above all the West needs to keep its head. Russian interfer- emerged, he had surrendered his oil company. ence in America’s presidential election merits measured retali- MrPutin has sought to offset vulnerability at home with ag- ation. But the West can withstand such “active measures”. Rus- gression abroad. With theirmass protests afterelection-rigging sia doesnotpretend to offerthe world an attractive ideologyor in 2011-12, Russia’s sophisticated urban middle classes showed vision. Instead its propaganda aims to discredit and erode uni- that they yearn for a modern state. When the oil price was versal liberal values by nurturing the idea that the West is just high, Mr Putin could resist them by buying support. Now he as corrupt as Russia, and that its political system is just as shores up his power by waging foreign wars and using his pro- rigged. It wants to create a divided West that has lost faith in its paganda tools to whip up nationalism. He is wary of giving ability to shape the world. In response, the West should be un- any ground to Western ideasbecause Russia’s political system, ited and firm. 7 8 Leaders The Economist October 22nd 2016

The battle for Mosul Crushing the caliphate

The right way to capture the jihadists’ most important stronghold WO years after he vowed to No one knows how the battle for Mosul will unfold. Perhaps, T“degrade and ultimately de- as in Ramadi late last year, IS will stand and fight. That led to stroy” Islamic State (IS), Barack the destruction of much of the city and the flight of most of its Obama is at last close to honour- population. Or perhaps, as in Fallujah in June, IS will simply ing his commitment. In the early run away. Most of its best fighters in Mosul, and almost all its hours of October 17th a long- leaders including Mr Baghdadi, have probably already gone. planned military operation was The liberators must act with extreme care. Mosul must not launched to retake Mosul, Iraq’s become another Aleppo, which is being reduced to rubble by second city. The battle will involve the Iraqi army, Kurdish sol- Syrian and Russian forces. Instead all action must be targeted, diers, Shia militias, American special forces and the air power avoiding harm to civilians whenever possible and properly of a Western-led coalition. Mosul matters: it is the place from policingareasastheyare taken from IS. More humanitarian as- which the IS leader, Abu Bakr al-Baghdadi, declared his “ca- sistance is needed if the world is to cater both for those who liphate”. The jihadists’ motto is“remain and expand”, but their have started to flee and those who hunker down in the city. state is fast retreating and shrinking. Thereafter, it is important to avoid anythingthat looks like a There is little doubt that Mosul will fall (see page 37). But Shia takeover ofMosul and the surrounding province of Nine- how it is taken will determine whether the battle marks a last- veh. This is a majority Sunni Arab area, which should enjoy a ing victory against jihadism or another chapter in the unend- large degree of autonomy. In turn, the rights of the many mi- ing agony ofthe Arab world. IfIraq is ever to attain stability, its nority groups, among them Kurds, Christians, Yazidis and leadersmustfind waysofassuagingthe resentmentof itsonce- Turkomans, must also be protected. Above all, the many out- dominant Sunni Arab minority, and giving it a political voice. siders who would like a piece of Mosul for themselves—Kurd- ish forces, Shia militias, perhaps Turkey—must be kept out of The meaning of Mosul the city. They would bring about only a violent free-for-all. Done properly, the recapture of Mosul would not just liberate Though it might seem perverse, the wisest thing the the million or more people living under the brutal rule ofIS; in would-be liberators could do would be to leave IS a safe way a sense, it would relieve the world. Unlike otherjihadist move- out of the city, eastward to Syria, to avoid a long fight to the ments, IS set itself up as a standing challenge to existing struc- death. The prize of taking Mosul as quickly and bloodlessly as tures, an alternative theocratic polity that expunged borders, possible is worth the cost ofallowing an isolated Islamic State- plumbed new depths of televised barbarity and acted as a let to survive in eastern Syria a bit longer. Raqqa is a more vul- magnet for its death-cult. Smashing IS will give the lie to its nerable target. And it will be easier to induce IS recruits to give founding myth, that a new God-ordained world order is at up the fight ifIraq shows it can woo backits Sunni population. hand. With Mosul lost, its fantasy will lie in ruins. No territory Having endured two insurgencies and 13 years of war, Iraq ofany significance will remain to IS in Iraq; in Syria it will hold has a chance to rebuild itself. If it is not to be squandered, Mr only the remote city ofRaqqa and a few dusty towns. Obama and his successor must not declare victory for a sec- Thatisnotto saythatthe nextweeksormonthswill be easy. ond time, rush forthe exit—and leave Iraq to tear itself apart. 7

Business in America Float like a butterfly

Public companies are out offashion. They need to be revived OST people know Elon Governance at Mr Musk’s firms is patchy and they may well Private-equity-backed companies MMusk for his electric vehi- fail (see page 53), but they are exactly the kind of exhilarating As % of US companies* by enterprise cles and desire to colonise Mars. gamble that stockmarkets are meant to be good at funding. value, 2013 0 5 10 15 20 25 He inspired the portrayal of the However, such octane-rich affairs have become rare. Listed <$100m playboy and engineering genius giantssuch asMicrosoftand Johnson & Johnson are more prof- $100m- 500m who is the hero of the Holly- itable than ever. Beneath these plump incumbents, though, >$500m wood blockbuster, “Iron Man”. public firms are fading. Their number has fallen from over *With revenue of more than $10m Mr Musk is also one of the 7,000 in 1996 to 4,000. Startups such as Uber and Airbnb have last entrepreneurs in America who seems to think that the avoided floating their shares and instead raised money publicly listed company can be useful. Two of his companies through private markets and venture-capital funds. The cash are listed: Tesla, a carmaker, and SolarCity, an energy firm. raised by initial public offerings (IPOs) in America in 2016 is They have towering ambitions and valuations, and burn up likely to be 50-75% less than it was a decade ago. cash as fast as his third company, SpaceX, burns up rocket fuel. For mature companies, meanwhile, the private-equity in-1 The Economist October 22nd 2016 Leaders 9

2 dustry has become the owner of choice, as our briefing ex- funds (often government-run) that invest through fiddly priv- plains (see page 15). Businesses owned by Carlyle, a buy-out ate structures are more prone to get bamboozled by fees. There firm, are together America’s second-biggest employer after are broader costs to society, too. Chunks of the economy be- Walmart, with 725,000 staff. A quarter of midsized firms are come off-limits forretail investors, giving people less ofa stake under private-equity ownership, as are a tenth of large ones. in capitalism. Already investing in technology startups has be- The share of corporate America that is unlisted is likely gradu- come as democratic as owning a ski chalet in Aspen. ally to rise further, as buy-out funds invest some of their $1.3 trillion ofspare cash. Public, for the public Public firms are in decline for several reasons. Technologi- How can the public firm be saved? It is not up to governments cal change may mean that startups are less capital-intensive, to dictate how firms are owned. But they should not penalise and so are less hungry for money. More worrying, managers companies for being public. That means abolishing the car- grumble that being in the public eye has become a gigantic ried-interest perk, as Hillary Clinton and Mr Trump propose. headache. Listed firms face ever more red tape. Then there is One of the benefits of phasing out the tax advantages debt en- the treadmill of quarterly results—with the ever-present risk joys over equity would be to discourage leveraged buy-outs. that Wall Street will punish even short-term slip-ups. The extra revenue could be used to slash the corporate-tax rate. Politicians see public firms as easy targets. Bernie Sanders America’s regulators could simplify the rules public firms has laid into General Electric and Donald Trump has slammed face, and end the bankcartel that means the feesfor an IPO are Ford for being too ruthless. Staying in the shadows can lower typically 7%, double the level in otherrich countries. Big unlist- tax bills. Without the need to report steady quarterly results, ed firms should publish a basic annual report, as they are al- firms pile on debt to cut their taxable profits. Private-equity ready required to in Britain and elsewhere. The cost would be and venture-capital managers use a perk called “carried inter- low, and creditors, customers, staffand competitors could get a est” that lets them pay a low rate oftax on some income. sense of firms’ financial condition. A competitive, open econ- Although the corporate quest for privacy is understand- omy cannot workwell iflarge chunks ofit are secret. able, it is regrettable. At their best, stockmarkets are liquid, Public firms also have work to do. By beefing up their transparent, cheap for investors to use—so you do not have to boards, companies can make sure that operational managers be wealthy to own shares. At their worst, the forms of private are insulated from the short-term demands that some stock- ownership that are replacingthem are illiquid, opaque, expen- market investors make, as even autocrats such as Jamie Dimon sive and exclusively forthe very rich. at JPMorgan Chase, and Warren Buffett have recognised by Investors in private firms cannot easily sell or value their backing a new code forhow American boards should be run. holdings. That is their choice, but it can be a problem when the The public company is a vital cog ofcapitalism. Ringing the economyturnssourand theyneed to realise cash. Companies’ bell at the New York Stock Exchange must become something books are not subject to outside scrutiny. And the pension that entrepreneurs aspire to, not fear and dread. 7

Thailand’s succession A royal mess

The ruling junta is missing an opportunity to change Thailand forthe better T IS hard not to be moved by devilled by popular protests and upended by two coups. Even Ithe sight of Thailand in before the instability there were worries about whether the mourningforBhumibol Adulya- succession would be smooth, given the often indecorous be- dej, its late king. A week after his haviour of the crown prince. The last thing Thailand needs is death, huge crowds continue to any hint that things are not going according to plan. gather outside the royal palace in Bangkok and across the coun- Long live, er... try. Some hold pictures of him; And yet that is exactly what it is getting. On the day the king others light candles; others simply stand and weep. The de- died, parliament convened. But it did not acclaim his succes- mand for black clothes is so great that impromptu dyeing sor, as had been expected. Instead, Crown Prince Maha Vajira- shops have sprung up, offering to turn brighter garments into longkorn, in an apparentgesture ofrespectand humility, asked something suitably sombre. that the question of the succession be set aside for an indeter- Respect for the Thai monarchy may be reinforced through minate period, to give him and the rest of the country time to the education system and bolstered by strict laws against in- mourn (see page 19). The military junta that runs Thailand sulting the king, but it is genuine nonetheless. King Bhumibol keeps insisting that the crown prince will eventually become reigned for over 70 years with diligence and dignity. Many king, although it also keeps changingits mind about when that Thais are distraught at his death. will happen: perhaps this week, perhaps next year. The gener- Yet it is hard not to feel that an opportunity is being missed, als’ confusion may be just a sign of ill-preparedness. But the both to reassure ordinary Thais at an unsettling juncture and more they have to repeat themselves, the harder it is to sup- to set a new tone for the next reign. The emotion around the press the impression that the succession is not quite a done king’s death is heightened by anxiety over the upheaval it may deal. The generals also say airily that King Bhumibol’s death bring. Thai politics has been unstable for the past decade, be- will not delay the restoration of democracy, but they remain 1 10 Leaders The Economist October 22nd 2016

2 studiously vague about when elections will be held. gations into supposed incidents oflèse-majesté. In the meantime the role of regent falls to Prem Tinsula- As it was, the army had been using lèse-majesté and other nonda, the head of the privy council. That is unfortunate in laws to suppress all manner of inconvenient debate, over the several respects. For one thing, Mr Prem is 96, and does not ex- incompetence ofthe rulingjunta, say, orshortcomings ofthe il- actly seem on top of things. For another, he is a former general liberal constitution it foisted on the country earlier this year. and prime minister who is strongly associated with the idea The accession of a new king gives the junta an opportunity to that the monarchy and the army should play a bigpart in Thai- ease up, especially as there is little sign that advocates of de- land’s political life. mocracy are seeking to exploit the moment. Instead it seems In addition, the troubling vacuum at the top of Thai society inclined to restrict freedom of speech even further. It has been means that no one is setting the tone for the period of mourn- encouraging Thailand’s main cable provider to censor foreign ing now under way. That has allowed a sort of hysteria to de- television channels, forexample, and says it will seek to prose- velop, in which people seen as insufficiently respectful are ac- cute people outside the country who criticise the king. costed by angry mobs. The police, instead of protecting the The foreign ministry, meanwhile, has issued a huffy state- victims of such attacks, tend to arrest them, and in at least one ment complaining that foreign media are wilfully underesti- case forced a suspect to prostrate herselfbefore a picture ofthe mating the crowds mourning the king. Such petty defensive- late king. The minister ofjustice has condoned royalist vigilan- ness is neither a fitting tribute to King Bhumibol nor a good tism, and the authorities have opened a series of new investi- way forward forThailand. 7

Trade agreements Asterix in Belgium

In the face offeisty opposition, politicians must do more to champion free-trade deals LUCKY little Wallonia! On If only. Trade pacts are the walking dead of diplomacy, re- POctober 14th the parliament peatedlyrisingfrom the grave and lurchingghoulishly through of this rust-belt region of Bel- yet more rounds of “last ditch” talks. So CETA is not buried gium voted against the Compre- yet—though, as we went to press, the prospect that it might be hensive Economic and Trade signed as planned on October 27th looked remote. TTIP, Agreement (CETA), a proposed whose condition seems terminal, also limps on. The Trans- trade deal between the EU and PacificPartnership (TPP), covering America, Japan and ten oth- Canada. To its admirers, this er Pacific-rim countries, has yet to be ratified by Congress. Hil- French-speaking corner of ancient Gaul, with a population of lary Clinton and Donald Trump both say they oppose it. just 3.6m out of the EU’s 508m, has taken an Asterix-like stand Part of the problem is that even supporters of these agree- against the implacable forces of globalisation. Free-traders ments fail to defend them. In CETA negotiators have made may seethe that such a tiny minority can threaten a proposed striking improvements in contentious provisions, such as treaty seven years in the making. But they cannot disregard it. those for settling disputes between investors and govern- Failure to secure a deal with Canada would undermine much ments—a bugbear of its opponents (see page 44). They have of the EU’s trade-negotiating policy, and raise troubling ques- protected national laws on health and the environment and tions forBritain about trade with the union after Brexit. provided for transparent arbitration proceedings. They have guarded against a foreign-trade invasion to a fault: hundreds of Politix v economix its 1,598 pages cover national “reservations”, protecting every- Wallonia, once Belgium’s steel-and-coal heartland, is the sort thing from the livelihoods ofveterinary surgeons in Alberta to of place where a bleakview ofglobalisation flourishes. Indus- executive-search services in Slovenia. trial plants are shutting down. Unemployment is high. In such All the carve-outs, side-letters and “interpretative declara- povertytrapsitiseasyto misconstrue free-trade deals asgiving tions” point to how trade policy skirts around the benefits of supranational capital the right to trample over local legal sys- more openness, more trade and more globalisation. Most lead- tems, aswell asenvironmental and labourstandards. Yet polit- ers understand that, as Barack Obama wrote in these pages ical leaders, instead of facing up to this plight and presenting two weeks ago: “Trade has helped our economy much more free trade as a way out of a dying past, make a case for it that is than it has hurt.” Yet in America many still dream that the best ever more convoluted. At best, they focus on technical fixes to way to pacify Congress is through procedural gestures, and finagle agreements such as CETA through. At worst they pan- that the lame-duck session after the presidential election will der to rising protectionism with xenophobic rhetoric. at last ratify the TPP. (Perhaps they hope the electorate will not CETA has raised hackles across Europe. It had already been notice.) As for Europe, its stuttering recovery can ill afford to dealt a blow by Germany’s constitutional court, which, in a forgo the fillip from CETA and TTIP. Britain would be foolish to suit with 190,000 plaintiffs, this month ruled that it must not rejoice in the idea that, if those deals fall through, the Conser- cut across areas under national (as opposed to EU-level) “com- vative government might easily strike some post-Brexit bilat- petences”. Protesters against CETA have taken to the streets of eral replacements. Britain’s future arrangements with the EU many European countries. Anti-globalisers fear that it would will be far more important. And if the union cannot reach a pave the wayfora proposed EU-America agreement, the Trans- trade agreement with cuddly Canada, what hope is there for atlantic Trade and Investment Partnership (TTIP). renegade Britain? 7 I am your employee. Protect me.

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Trading positions visa forfree movement be- in partnership with arrogant industry-speak. This skews the tween Britain and the EU. This self-serving politicians. numbers you quoted on As someone who is familiar would disentangle science MIKE WESTMORE downgrades. In addition, the with trade policy ofthe past 40 from the wider immigration Stroud, Gloucestershire emerging-market corporate years, I endorse what you say debate and allow researchers universe consists ofaround about how a good Brexit deal to focus on what they do best. Long time gone 40% in bankissuers, another should be shaped (“The road ALICE GAST third in commodity-related to Brexit”, October 8th). You President companies and nearly a tenth focus on the crucial impor- Imperial College London in utilities. These are hardly tance offree trade and access sectors sensitive to a drop in to the European single market Just over a third ofthe total world trade, which you listed fortrade in services, and the registered UK electorate voted as the greatest threat. potential difficulty in achiev- to Leave. Ifa 40% threshold Consider that companies in ing that. had been applied (as in the first emerging markets just went But I do have some reserva- Scottish referendum in 1979), through a crushing period of tions. The problem of“rejoin- we would not now be about to declining oil prices and limited ing” the World Trade Organisa- waste years ofparliamentary appetite from international tion does not have to be as time debating, and years of investors to pump finance into difficult as you make out, and government time negotiating, their countries. Challenges an interim trade deal would our exit from the EU. Three cheers forthe Swedish remain—bond liquidity is the not be necessary iftrade KEITH RAFFAN Academy’s courageous deci- most pressing—but the sector arrangements with the Euro- Liberal Democrat Member of the sion to award this year’s Nobel just survived a hurricane and pean Union are discussed in Scottish Parliament, 1999-2005 prize in literature to Bob Dylan can handle a lesser storm. parallel with the Article 50 London (The world this week, October YACOV ARNOPOLIN process. A temporary deal 15th). It is a timely reminder Newport Beach, California styled on the European Stressing the economic bene- that the lyrics ofpopular music Economic Area is, I believe, fits ofmigration misses the can be poetry, too. But are Trumpety Trump unlikely to be offered, and point. There is clearly an in- writings on philosophy and might well be vetoed both in creasing number ofpeople history no longer considered Notwithstanding Donald Brussels and by the Brexiteers. who see controlling immigra- to be also literature? The Nobel Trump’slewd behaviour “In” is in and “Out” is out. tion as a way ofregaining laureates Octavio Paz (1990), (“With these hands”, October RODERICK ABBOTT control over their communities Elias Canetti (1981), Jean-Paul 15th), The Economist consistent- Brussels in a rapidly changing world. Sartre (1964), AlbertCamus ly ignores the basis ofhis The success ofthe campaign to (1957), Winston Churchill support. This election is not Trying to achieve trade deals leave the EU suggests that (1953), Bertrand Russell (1950), about race or women, though outside the EU is critical for national cultures and identi- Henri Bergson (1927) and Theo- I’m sure you wished it was. It is Britain as it enters the Brexit ties matter more to large sec- dor Mommsen (1902) have had about the decades-long slide negotiations. Yourbargaining tions ofthe electorate than the no peers in over a quarter of a into economic oblivion experi- power depends on what al- health ofthe economy, and century. Why should only enced by many Americans, ternatives you bring to a settle- that voters may be prepared to fiction count? which undermines your argu- ment. Negotiating with the EU take a riskwith the latter if PROFESSOR MIGUEL ORELLANA ments on the benefits ofglo- without any credible alterna- they believe it is necessary to BENADO balisation and free trade. tives is foolish forBritain, defend the former. Liberal Universidad de Chile TERRY MCGRAW hence the ministerial air miles commentators such as your- Santiago Phoenix trying to create them. Explor- selves can keep telling these ing trade deals with Asia and people that they are wrong, Bond issues I must protest against your others is one way forBritain to but it clearly isn’t working. cover of October15th equating get the best deal it can. DANIELE ALBERTAZZI A lot ofthe concerns that the sayings ofMr Trump with JOHN CLARK Senior lecturer in European Buttonwood raised about elephant dung. Elephants are Oxford politics emerging-market corporate intelligent, sensitive, beautiful University of Birmingham bonds are misguided (October and endangered beings and IfBritain is heading fora hard 8th). Although inflows surged their droppings are excellent Brexit, the prime minister I am the director ofa small over the summer, this followed natural fertiliser. The emana- should push her “global firm employing 50 people, a several years ofinvestors tions from the mouth ofMr Britain” agenda equally hard. father offourand grandfather bailing out ofemerging mar- Trump are worthless, toxic In fields like science Britain is a ofnine. I am writing on behalf kets. The $11.5 billion in inflows bilge, harmful to any and all. world leader dependent on ofthe many people like myself is chump change fora sector Yourequation ofthe two was global connections. In a Eu- who voted forBrexit and are closing in on $1.5 trillion worth egregiously unfair. rope where movement is less fed up with being branded, ofbonds outstanding. Inflows MAC BRACHMAN free there is an urgent need to xenophobic, racist, nationalist, were significantly higher into Evanston, Illinois 7 develop policies that will populist and against free trade, sovereign debt. protect this precious status. immigration and globalisa- Furthermore, the down- One solution would be tion. I am none ofthose things. grades ofRussia and Brazil last Letters are welcome and should be addressed to the Editor at explicitly to linkscientific I resent the implication that I year prompted a wave of The Economist, 25 St James’s Street, mobility with research fund- am somehow morally inferior knock-on rating actions in the London sw1A 1hg ing. Any participant in EU- to those who want to remain corporate sector, as companies E-mail: [email protected] funded research projects in the EU, a bankrupt organisa- can rarely “pierce the sover- More letters are available at: would automatically receive a tion run by unelected officials eign-rating ceiling”, in Economist.com/letters Executive Focus 13

Executive Director, Kampala, Uganda BACKGROUND: The African Field Epidemiology Network (AFENET) is a not for profi t, networking alliance and service organization that brings together fi eld epidemiology training programs (FETPs) across Africa working side by side with Ministries of Health, regional and international partners. AFENET works to strengthen epidemiologic and disease surveillance capabilities of Africa countries that are critical to meeting the requirements of the Integrated Disease Surveillance and Response (IDSR) strategy, and the International Health Regulations (IHR).

AREAS OF SUPPORT INCLUDE: • Training of the public health workforce in fi eld epidemiology. More than 600 have graduated from 2-year FETP programs, and over 300 are in training across 16 programs. • Public health laboratory practice and vaccinology. • Development of laboratory quality management systems. • Review, strengthening and maintenance of disease surveillance systems. • Epidemic investigation and response among others. With support from multiple donors, AFENET’s annual revenues are in excess of USD 15 million. AFENET is seeking to hire a new Executive Director to consolidate and build on this momentum. QUALIFICATIONS REQUIRED: A Medical Offi cer (MD), a Veterinary Doctor (DVM) or a Laboratory Scientist (PhD) with at least an MPH in Field Epidemiology or an equivalent degree; must be fl uent in English. A good knowledge of French, and or Portuguese will be a strong positive. EXPERIENCE: The candidate should have excellent leadership skills, with strong interpersonal and communication abilities, leading teams from different cultural backgrounds and a track record of strengthening health systems in developing countries. He/she should have at least 8 years of experience in a public health setting, 5 of which at middle or executive level; work experience in Africa; a strong track record in winning grants from multiple donors; experience in coordinating and managing multi-country projects; a good track record in delivering on objectives, strategic leadership, effective operational and fi nancial management skills. BENEFITS: Salary and benefi ts are very competitive and commensurate with experience. Submit your resume, application letter, and relevant documentation to: Chair, Human Resource Committee on e-mail: [email protected]; copied to Chair, Board of Directors on e-mail: [email protected] Please note: * Applicants should clearly state any restrictions they have from previous employments to take up the advertised position. * ONLY successful candidates shall be contacted for an interview. The detailed position description can be found at http://www.afenet.net Application deadline: 10 Nov 2016 The Economist October 22nd 2016 14 Executive Focus

Head, Evaluation Service UNHCR Geneva, Switzerland Closing date for applications: 15th November 2016 The United Nations High Commissioner for Refugees (UNHCR) is one of the world’s leading humanitarian organisations addressing the global challenges of refugees, internally displaced persons, and stateless persons. It is seeking suitable candidates to fi ll the position of Head of the Evaluation Service based in UNHCR headquarters in Geneva, Switzerland. The Head of the Evaluation Service will provide overall leadership, set strategic direction and exercise effective management and quality control over the evaluation function across UNHCR. UNHCR’s new Evaluation Policy establishes the overarching framework for a strengthened and professionalized evaluation function, introduces a system of both centralised and decentralised evaluations and strengthened quality assurance. The Head of the Evaluation Service will oversee the implementation of this policy across headquarters and fi eld operations and represent UNHCR in professional evaluation networks. The post requires strong evaluation expertise, leadership and management skills. The Head of the Evaluation Service reports to the High Commissioner, supervises the staff in the Evaluation Service (currently 5 professional positions and 1 general staff position) and interacts regularly with the Senior Executive Team and senior management in the organization (both at Headquarters and in the fi eld) as well as inter-agency related evaluation fora and networks such as the United Nations Evaluation Group (UNEG). The Head of the Evaluation Service requires a minimum of an advanced university degree (Master’s degree or equivalent) in Social Sciences, Economics, or Law with formal qualifi cation or certifi cation in evaluation work or equivalent experience and 20 years professional experience, of which at least 10 years directly related to evaluations in humanitarian and/or development operations, programmes and projects. Fluency in written and oral English with working knowledge of French desirable. Further details on the Job Description and application process, please go to http://www.unhcr.org/careers.html by Tuesday, 15th November 2016. The UNHCR workforce consists of many diverse nationalities, cultures, languages and opinions. UNHCR seeks to sustain and strengthen this diversity and to ensure equal opportunities as well as an inclusive working environment for its entire workforce. Applications are encouraged from all qualifi ed candidates without distinction on grounds of race, colour, sex, national origin, age, religion, disability, sexual orientation and gender identity.

The Food and Agriculture Organization of the United Nations Invites applications for the position of Assistant Director-General, Economic Development Department (ES) Deadline for Applications: 14 November 2016 Responsibilities: Assists and advises the Director-General on all matters of policy or other subjects related to the Department’s mandate (food and agriculture trade and markets, food systems, agricultural and rural development policies, food security, nutrition, social protection, gender issues and women’s empowerment, equity, rural employment, rural organizations, statistics, governance and policy support); provides advice to the Organization and its governing bodies, ensuring that the Organization’s major undertakings are sound from an economic and social perspective; ensures timely and adequate collection, analysis and dissemination of information, and the development of policies, strategies and guidelines in the Department’s areas of competence and responsibility; exercises overall management responsibility for all Department activities, programmes and sources of funds; provides quality assurance, ensures delivery of results and is responsible for the formulation of the Department’s programme of work and budget proposals for the Director-General’s consideration; coordinates planning and implementation of the Department’s budget and human resources in line with the Organization’s Strategic Framework, results framework and programme of work; participates in and supports implementation of the corporate resource mobilization strategy; coordinates Departmental inputs to FAO’s Governing Bodies’ sessions, and monitors the responses by the Department to decisions and recommendations in its areas of competence and responsibility; serves as spokesperson for the Organization, as appropriate, at policy, technical and inter-agency meetings in the Department’s and Organization’s fi elds of activity. General Requirements: Advanced university degree in economics or related social sciences (PhD or equivalent preferred); extensive professional experience in the economic and social analysis of development issues, including experience in supporting fi eld programmes and policies on issues relevant to the post; demonstrated intellectual and strategic leadership of relevant subject areas, and a proven publication record, including in peer-reviewed outlets; demonstrated mastery of results-based management approaches and of managing programmes and budgets to achieve and track progress towards high impact results that respond to clients; strong track record in managing, motivating, mentoring and communicating with staff through large, complex, cross-disciplinary, multicultural teams and stakeholders in an international setting; excellent communication and representational skills; working knowledge of English, French or Spanish, and at least limited knowledge (level B) of one of the other official languages of the Organization. More complete information on the responsibilities and requirements of this position, remuneration and details on how to apply remuneration are available at: http://www.fao.org/employment/vacancies/senior-level/en/ Please note that all candidates should adhere to FAO values of Commitment to the Organization, Respect for all and Integrity and Transparency. The Economist October 22nd 2016 Briefing Private Equity The Economist October 22nd 2016 15

chart1 on next page). First-quarter earnings The barbarian establishment were bleak, though thingshave picked up a little since. A chief executive in any other industry with challenging public relations, poor NEW YORK profits and a depressed share price would have a list ofworries. There would be a res- Private equity has prospered while almost everyotherapproach to business has tive board, a corporate raider, and possi- stumbled. That is both good and disturbing bly—ironically enough—a polite inquiry HISyearHenryKravisand George Rob- cial crisis (guests were entertained by his from a private-equity firm. Perhaps in the Terts, the second “K” and the “R” of KKR, contemporary, Rod Stewart), such celebra- deep corporate waters such concerns are celebrated their 72nd and 73rd birthdays, tions have become strictly private affairs. percolating; there may even have been a respectively. Steve Schwarzman, their At KKR there has been little fuss over the redundancy or two. But on the surface, equivalent at Blackstone, turned 69; his company’s 40th anniversary—a striking things seem placid. There has been noth- number two, Hamilton James, 65. In the milestone, given the fate ofthe institutions inglike the rendingofgarmentsthat would past few months David Rubenstein, Wil- that previously employed the big four’s be seen if an investment bank were going liam Conway and Daniel D’Aniello, the founders: Bear Stearns (gone), Lehman through a similarly rough patch. The un- trio behind and atop Carlyle, turned 67, 67 Brothers (gone), First National Bankof Chi- usual design of private equity makes it re- and 70. Leon Black, founder and head of cago (gone) and Drexel Burnham Lambert sistant to all but the most protracted turbu- Apollo, is just 65. (gone). The company has announced a lence; its record redefines resilience. These men run the world’s four largest programme encouraging civic-minded It is not just that old private-equity firms private-equity firms. Billionaires all, they employees to volunteer for40 hours. persist; new ones continue to springup at a are at or well past the age when chief exec- remarkable rate. According to Preqin, a utives of public companies move on, ei- Out of the private eye London-based research house, there were ther by choice or force. Apple, founded the There are good reasons for this low profile. 24 private-equity firms in 1980. In 2015 same year as KKR (1976), has had seven The standard operating procedures ofpriv- there were 6,628, ofwhich 620 were found- bosses; Microsoft, founded the yearbefore, ate equity—purchasing businesses, adding ed that year (see chart 2 on next page). Such has had three. On average, public compa- debt, minimising taxes, cutting costs (and expansion looks all the more striking nies replace their leaders once or twice a facilities and employment), extracting when you consider what has been hap- decade. In finance executives begin bow- large fees—are just the sort of things to ag- pening elsewhere in business and finance. ing out in their 40s, flush with wealth and gravate popular anger about finance. In- In America, for which there are good data, drained by stress. vestors in private-equity firms (as opposed the number of banks peaked in 1984; of The professional longevity of the priv- to investors in the funds run by those mutual funds in 2001; companies in 2008; ate equiteers—whose trade is the use of firms) have their own reasons to withhold and hedge funds, probably, in 2015. Ven- pooled money to buy operating compa- applause. All ofthe bigfourhave seen their ture-capital companies are still multiply- nies in whole or in part for later resale—is share prices fall over the past year; Black- ing; but they are effectively just private thus rather remarkable. But do not expect stone, Carlyle and KKR are all down more equity forfledglings. to see a lot of fuss made about it. Since the than 20%. Apollo, Blackstone and Carlyle Private equity’s vitality has seen it re- uproar over a lavish 60th birthday party trade for less than the prices at which their place investment banking as the most forMrSchwarzman on the eve ofthe finan- shares initially went public years ago (see sought-after job in finance. This is as true 1 16 Briefing Private Equity The Economist October 22nd 2016

2 for former secretaries of the treasury (Rob- There are funds in Barbados, Botswana, ert Rubin departed the Clinton Adminis- Not so hot 1 Namibia, Peru, Sierra Leone and Tunisia. tration forCitigroup; TimothyGeithner the Performance against S&P 500* since IPO The rise of private equity has always Obama Administration for Warburg Pin- Average annual % change been subject to scepticism. When KKR cus) as it is for business-school students. 10 5– 0+ 5 10 15 launched the first big private-equity take- Some investment banks now pitch them- Blackstone (June 2007) over, of RJR Nabisco in 1988, it and its co- selves to prospective hires as gateways to Share price S&P 500 horts were described in a bestselling book an eventual private-equity job. If banks re- Total returns as the “Barbarians at the Gate”. Success, sent their lessened status, they respond adroitpublicrelationsand strategic philan- (July 2010) only with the kind of grovelling deference KKR thropy have tempered these concerns, and reserved for the most important clients. Share price political donations probably haven’t hurt, The funds made deals worth $400 billion Total returns either. But the industry’s limitations are in 2015 (see chart 3 on next page). The fees Apollo (March 2011) still apparent, and current conditions are they pay each time they buy or sell a com- exacerbating them. Share price pany provide a fifth of the global banking Private equity is structured around a system’s revenues from mergers and ac- Total returns small group of selective investors and quisitions. Carlyle (May 2012) managers whose efforts are magnified by The growth of private equity has been Share price the heavy use ofleverage in the businesses so strong it has a bubblish feel. “The exist- that the funds control. This is an inherently ing number of private-equity funds won’t Total returns pricey set-up. Investors need higher re- be topped for 20 years, if at all,” predicts Source: Thomson Reuters *Calculated October 17th 2016 turns to offset illiquidity; interest costs are Paul Schulte, head of a research firm in high to offsetthe riskthatcomeswith lever- Hong Kong that carries his name. His senti- funds (which are owned by the limited age; managerswho have demonstrated the ments are shared, ifquietly, by many in the partners, rather than being company as- skillsneeded to design these arrangements industry as well as outside it, and there is sets) are far greater. The 275 companies in and to maintain strong relationships with good reason for them. But there is also Carlyle’s portfolios employ 725,000 peo- providers ofcapital demand high fees. good reason to believe that the expansion ple; KKR’s 115 companies employ 720,000. During the industry’s growth some of will continue, at least for a while, if only That makes both ofthem bigger employers these costs were ameliorated by a long- because it is very hard for the money al- than any listed American company other term decline in interest rates, which en- ready in the funds to get out. than Walmart. abled dealsto be periodicallyrefinanced at Private-equity investments are some- The big fourhave by farthe largest port- lower rates. Today rates can hardly go any times liquidated and investors repaid. folios, but others such as TPG, General At- lower, and should eventually rise. This is Firmscan even be wound down. Butinves- lantic and Mr Geithner’s Warburg Pincus one of the reasons Mr Schulte and others tors in private-equity funds are called “lim- have a long list of familiar businesses that see little growth to come. ited partners” for good reason, and a key they either used to own or still do. Accord- limitation is on access to their money. The ing to Bain, a management consultancy, in Political positions standard commitment is for a decade. Get- 2013 private-equity-backed companies ac- Another change is that banks which are ting out in the interim means finding an- counted for 23% of America’s midsized under orders to curtail the risks that they other investor who wants to get in, so that companies and 11% ofits large companies. face are reducingthe amounts available for no capital is extracted from the fund. That Not long ago most of those companies highly leveraged deals. That means bor- usually comes with off-puttingly large were owned by armies ofindividual stock- rowing will cost more. To see how that transaction costs. market investors—a system seen as both could throw a wrench into the system, beneficial to business and befitting a capi- look at the brief stretch between Septem- Billion-dollar roach motels talist democracy, and as such one that oth- ber 2015 and this February. The average The contrast with the alternatives is stark. er countries sought to replicate. Private yield on sub-investment grade, or “junk”, Clients who want to withdraw money equity’s deployment of chunks of capital bonds jumped from 7% to 10%. Transac- from a bank can do it on demand, from a from holders of large pools of money has tions all but ceased. The value of assets mutual fund overnight, from a hedge fund severely dented that model. And this, too, held by private-equity firms with any pub- monthly, quarterly, annually, or in very is being replicated abroad. Only half ofthe lic stub had to be written down, resulting rare cases, bi-annually. It is because of the world’s private-equity firms, and 56% of in those poor first-quarter results. Money speed with which money can flee them theirfunds’ assets, are American. Aquarter was suddenly unavailable for new deals. that banks receive government deposit in- of private-equity assets are in Europe. Carlyle’s purchase of Veritas Technologies, surance; it shields them from market mad- announced just before the crunch, almost ness. It is because investors can get out that failed to close and was saved only after a hedge funds suffering a spell of poor per- All around the world 2 renegotiation that led to a lower price and formance can find themselves collapsing Private-equity firms by region*, ’000 lower leverage. even though they have investments that The political environment, too, may be might, given time, pay offhandsomely. 7 changing. The industry benefits from two The stability that their never-check-out North America 6 perverse aspects of the tax code—the in- Europe structure provides has enabled private- 5 centive it provides for loading up compa- equity firms to assemble enterprises of Asia nies with debt, and the reduced rate of tax 4 enormous scale. Look at the companies Rest of world the general partners benefit from owing to themselves and this is not immediately ap- 3 most of their personal income being taxed parent. The market capitalisation ofthe big 2 at the rate applied to capital gains. There four is about $50 billion, which would 1 are strong arguments for reform under barely breakthe top 100 ofthe Fortune 500; both heads. In the second of the two cases between them they employ only about 0 a change looks quite likely. 1980 90 2000 10 15 6,000 people. But the value and economic There is also a broader political risk, Source: Preqin *Managers’ location importance of the businesses held by their identified in a paper published in January 1 The Economist October 22nd 2016 Briefing Private Equity 17

2 by professors at New York University and too. A decade ago the standard formula the Research Institute of Industrial Eco- was a 2% annual management fee and 20% nomics, a Swedish think-tank, called “Priv- of profits. These are still the terms quoted. ate Equity’s Unintended Dark Side: on the In reality, though, management fees have Economic Consequences of Excessive De- fallen to about 1.2%, according to one large listings”. As companies shift from being firm—similar to what a plebeian mutual owned by public shareholders to private- fund charges. The 20% slice of profits re- equity funds, direct individual exposure to mains; but some clients are now allowed corporate profits is lost. The public will be- to “co-invest”, matching the stake in a com- come disengaged from the capital compo- pany they buy through a fund with a stake nent of capitalism, and as a consequence bought directly. That reduces the fees on will be ever less likely to support business- the deal. friendly government policies. All good reasons for doubt. But al- Another far-reaching question to con- though that mountain of dry powder may sideristhatsometimesthe onlytruly “priv- betoken a lack of opportunities, it also ate” thing about private equity seems to be shows that there is a lot of money still ea- the compensation structure. The money ger to get in. Whether that is wise is not within the funds is to a large extent either clear. The lack of daily pricing, used to as- directly tied to public institutions (sover- sess mutual funds and, often, hedge funds, eign-wealth funds and municipal pen- introduces doubt into the discussion of sions), or, as a matter of public policy, tax- private-equity results. The “internal rate of exempt (private foundations and school return” measure that private-equity com- endowments). This irks both those who panies tout can be fudged. This makes aca- yearn for truly private markets and those and that sum by itself would account for demic assessments ofperformance hard. dismayed at seeing public policy arranged roughly 70% of the value of acquisitions This July, in an update of a previous so as to enrich particular groups of private carried out in 2015. If fertile fields beck- study*, business-school professors at the citizens. The implicit tie between the allo- oned, the amount of available cash would Universities of Chicago, Oxford and Vir- cation of funds, investments and the state be shrinking, not rising. A confirmation of ginia found that, although in recent years creates a breeding ground for corruption tight conditions comes from the willing- buy-out funds had not done much better and crony capitalism. ness of the largest private-equity firms to than stockmarket averages, those raised look further afield for new opportunities. between 1984 and 2005 had outperformed The madding crowd Blackstone now has larger investments in the S&P 500, or its equivalent benchmarks The largest threat to the industry, though, property, $103 billion, than private equity, in Europe, by three to four percentage comes not from its critics but its success, $100 billion (plus an additional $112 billion points annually after fees. That is a lot. Lu- and those who seek to emulate it. Accord- in hedge funds and credit). Less than half dovic Phalippou, also of Oxford, is more ing to Bain, the share of America’s mid- of Carlyle and KKR’s invested assets are sceptical; he argues that when you control sized companies controlled by private equ- now in corporate equity, and just one- for the size and type of asset the funds in- itytripled between 2000 and 2013; forlarge quarter ofApollo’s. vest in, their long-term results have never companies it increased more than fivefold Competition hashad an impacton fees, looked betterthan market-trackingindices. (see chart 4 on next page). That doesn’t That said, getting the same size and type of mean private equity is running out of road assets by other means is not easy. quite yet; but it does suggest that opportu- On the up 3 The average return, disputed as it may nities will get more scarce. Private-equity assets under management be, does not tell the whole story. Studies At the same time other kinds of entities Worldwide, $trn find some evidence that private-equity with access to cheap and often state-relat- Invested assets “Dry powder”* managerswho do well with one fund have ed capital have entered the buy-out mar- 5 been able to replicate their success (though ket, including Chinese multinationals (fi- 4 again the effect seems to have decreased in nanced by state banks), sovereign-wealth the past decade). The biggest inducement funds and pension funds that want to in- 3 to invest may simply be a lack of alterna- vest directly, such as the Ontario Teachers’ tives. Private equity’s current appeal rests Pension Plan. That means more competi- 2 not on whether it can repeat the absolute tion for new deals. In 2007 private-equity 1 returns achieved in the past (which for the firms were responsible for 28% of the pur- big firms were often said to be in excess of chases ofmidsized health-care companies, 0 20% annually) buton whetherithasa plau- according to Bain. In 2015 their share was 2007 08 09 10 11 12 13 14 15 sible chance of doing better than today’s only 8%. The trend has been similar, if not Private-equity-backed deals lacklustre alternatives. This is a particular so pronounced, in the acquisition of retail- Worldwide issue for pension funds, which often need ers and companies involved in technology Value of deals, $bn No. of deals, ’000 to earn 7% or 8% to meet their obligations. and consumer products. It is “the roughest 800 4 The standard explanation for why priv- environment for private equity I’ve ever ate equity might be expected to outper- lived in,” Joshua Harris, a co-founder of 600 3 form the market is that it can ignore the dic- Apollo, told attendees at a Milken confer- tates of “quarterly capitalism”—meaning ence in early May. 400 2 impatient investors. This is not particularly This may go some way to explaining convincing. The people who workforpriv-1 the amount of money private-equity firms 200 1 have on hand—their so-called “dry pow- ...... der”. Preqin puts the current pile at over 0 0 * “How do Private Equity Investments Perform 2007 08 09 10 11 12 13 14 15 Compared to Public Equity?”, Robert Harris, Tim $1.3 trillion. Adjust for the leverage applied Jenkinson and Steven Kaplan, Journal of Investment Source: Preqin *Cash in hand in private-equity deals (say two-to-one) Management, 2016. 18 Briefing Private Equity The Economist October 22nd 2016

provide huge incentives to management There were only three public offerings.As A greater share 4 for increasing benefits; the addition ofnew well as being speedy, private equity is in- Private-equity-backed companies expertise; and transactional dexterity. Per- novative. When Walgreens Boots, a health- As % of all US companies* by enterprise value haps the most compelling point is speed. care company, sold a business providing Up to $100m $100m-500m The upper managements and boards of intravenous fluid treatments to Madison Over $500m 25 firms the funds acquire are typically re- Dearborn, a private-equityfirm, itwas able placed within months. Purchases are done to retain a significant (ifundisclosed) stake. 20 at what are perceived to be opportune mo- This sort of transaction, which lessens the ments. So too are sales and refinancings. embarrassment of selling too cheap some- 15 When the public markets are cool, as has thing which goes on to be a success, is re- 10 recently been the case, private-equity ferred to on Wall Street with a pejorative funds resist relisting holdings or taking on term that can be roughly translated as 5 new credit, and may choose to repay some “sucker insurance”. loans. When markets become accommo- 0 dating, the flows reverse. They were a kind of solution 2000 2013 Public companies could do much of Given the flexibility private equity dis- Source: Bain & Company *With revenue of more than $10m this, too. They tend not to, perhaps because plays, the time may come when there are their inner workings are more open to in- fewer questions about why a company is 2 ate-equity firms are a caffeinated bunch. spection and criticism. Sometimes they held in a private-equity structure rather During volatile times they often require bring in private equity to do what they than a public one. Less taxation, fewer op- constant updates on theirportfolio compa- would not. After acquiring Kraft and Heinz erating constraints and less legal vulnera- nies’ results, and can intervene to quash in dealsthata Brazilian private-equity firm, bility are all attractive. There are political even the most trivial use ofcash. 3G Capital, also tookpartin, Warren Buffett risks: structures which skew their benefits What does differ, though, is focus. Priv- of publicly traded Berkshire Hathaway ex- to the privileged are always subject to pop- ate-equity funds, the boards they put in plained things like this in his annual re- ularbacklashes. Butthatpotential vulnera- place and the top managers who work for port: “We share with [3G] a passion to buy, bility is also a source of strength. Raise them all tend to concentrate on underlying build and hold large businessesthatsatisfy your money from the very wealthy and as- performance to the exclusion of almost basic needs and desires. We follow differ- set-rich, and from institutions such as the everything else. Public companies face a ent paths, however, in pursuing this goal. pension funds of state governments and mountain of often incomprehensible or Their method, at which they have been ex- municipal workers, sovereign-wealth conflicting regulatory demands that are traordinarily successful, is to buy compa- funds and universities with large endow- not relevant to performance; that delisting nies that offer an opportunity for eliminat- ments, and you get a certain clout. hasrisen in step with such demandsseems ing many unnecessary costs and In theory, there should be a cost to such unlikely to be a coincidence. then—very promptly—to make the moves privilege. Public markets are inclusive and Disclosure requirements, in many ways that will get the job done.” Berkshire, it ap- deep; they should provide capital efficient- the most appealing characteristic of the pears, with its annual meetings featuring ly (meaning inexpensively and intelligent- public company for investors, have come happy shareholders applauding a jovial ly) and should, as a result, be the best sol- to constitute a legal vulnerability. A sharp peanut-brittle-munching chief executive, ution for both companies and investors. drop in a company’s share price can outsourced the hard decisions to a less ex- They should thus outperform the competi- prompt litigation based on the idea that in- posed firm happier to take them. tion. Alas, at the moment it seems that in- vestors caught in the downdraft were un- There are other reasons for public com- ternal and external constraints on public aware of a possible risk. So too could any panies and private equity to co-operate. In companies are holding that performance internal discussion of a potentially contro- 2015, when GE undertook a massive reduc- in check. The result is that the old lions of versial issue, as reflected by the New York tion in its finance arm, a quarter of the private equity, and their many cubs, could attorney general’s investigation into more than 100 transactions that quickly be making themselves ever more comfort- ExxonMobil’s lack of disclosure on the unfolded involved private-equity firms. able fordecades to come. 7 risks associated with climate change. Law is not quite the same sport outside America. But the ways that capital markets operate (or fail to) elsewhere provide other opportunities for private equity to outper- form. In China, forexample, the term struc- ture for bank loans is only one year, and seeking the longer-term funding offered by a public offering means joining a govern- ment-controlled queue. Private-equity fi- nancing can be arranged in short order, with money coming in, and out, depend- ing on the needs ofthe business. A recent working paper published by Harvard Business School** summarises the possible benefits of private-equity ownership: the substitution of debt for equity, thereby reducing taxes and magni- fying profits; compensation structures that ...... ** “What Do Private Equity Firms Say They Do?”, Paul Gompers, Steven Kaplan and Vladimir Mukharlyamov, Working paper, Harvard Business School, 2015. Asia The Economist October 22nd 2016 19

Also in this section 20 Booming Bhutan 20 India v Pakistan: press freedom 21 Assisted suicide in Australia 21 Maternity culture in Japan 22 India’s crumbling old buildings 24 Banyan: Duterte’s pivot to China

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

Thailand’s monarchy will eventually suffice. Little flexibility is evident, however, in An empty throne the enforcement of Thailand’s strict lèse- majesté law, which in practice criminalises all but the most banal analysis of the pal- ace’s influence, and which can make it risky to intimate that esteem for royalty is uneven and nuanced. The government was quick to “deplore” foreign coverage of As Thais mourn theirking, confusion swirls overthe succession the occasion. It accused journalists of play- HITE tents encircle Sanam Luang, a poned. Authorities have declared an end ing down the size ofmourning crowds, but Wvast grassy parade ground in the to the professional football season, aban- probably only because it did not dare men- heart of Bangkok. From their shade volun- doning several rounds ofmatches. tion even more vexing content, including teers distribute simple meals, cold water Yet while grief is deep and genuine, in analysis of the king’s questionable demo- and ice creams to crowds dressed in black most practical ways Bangkokchugs on. Au- cratic credentials and the crown prince’s or white. Off-duty rescue workers stir deep thorities declared a public holiday on the louche personal life. Cable providers have basinsofdiced chicken, turningthe sizzling day after King Bhumibol’s death, but only temporarily interrupted local transmis- mixture with scoops the size of spades. A after some commuters had already left for sion of the BBC’s international news chan- soldier in camouflage hands out sweets. work. Bangkok’s stockexchange opened as nel when it has covered the mourning. The refreshments have been laid on for usual, earning back some of the losses it The government has asked local inter- mourners waiting to pay their respects to had incurred earlier in the week. Public net providers to monitor their networks Bhumibol Adulyadej, Thailand’s king, services and almost all businesses are op- around the clock, warning that it would who died in hospital on October 13th. His erating normally, though some bars re- pursue those found to be carrying content body rests in the Grand Palace, an enor- main subdued. Everyday life has returned which might offend the grieving. It adver- mous white-walled complex just across quickest outside the cities and in less royal- tised e-mail addresses and phone num- the road, where it will stay for the next ist provinces, far from the capital, where bers allowing Thai web-users to report year. Visitors to the palace kneel before a black-clad mourners are rarer. worrisome content directly to the ministry picture of the king; soon they will be al- of communications. Prompted by royalist lowed into a throne room containing his There are limits groups, it says it will renew vain efforts to coffin. Next year Sanam Luang will be the Sensingthe mood—and probably eager not persuade foreign governments to extradite site of the royal cremation pyre—an ornate to harm the economy—the military junta Thais whom royalists accuse of insulting wooden pavilion which will probablytake which has ruled Thailand since 2014 has the royal family from abroad. weeks to build. toned down some of its early edicts. After Of most concern are a handful of cases Immediately after the king’s death was negotiations with TV bosses the junta de- in which mobs ofmourners have gathered announced all television stationssuspend- cided thatstationswould be entitled to run outside the homes of Thais accused of ed their normal programming in favour of their own programming from the evening making comments they consider insensi- documentaries about him, streamed in of October 14th, rather than waiting 30 tive. One man was beaten, his assault monochrome from a government pool. days as planned (they have promised not streamed on social media by a bystander; Newspapers and magazines started pub- to air anything too frivolous). The govern- police forced a woman to prostrate herself lishing in black and white; many websites ment wants public servants to wear in apology before a picture of the king, did too. Funereal bunting now hangs from mourning garb for a year; it says it will watched by a jeering crowd. The junta has government buildings, as well as some hand out blackshirts to the poor, as well as condemned such incidents, but on Octo- banks and bigdepartment stores. Ads have teach them how to dye clothes they al- ber 18th the justice minister appeared to stopped gushing from video billboards; ready own. But it is possible that simpler agree that “social sanctions” were a good noisy concerts and some festivals are post- gestures, such as sporting a black ribbon, wayofdealingwith Thaiswho refuse to re-1 20 Asia The Economist October 22nd 2016

2 spect the monarchy. of the former king’s privy council, will mation ofthe new monarch by parliament Thailand will find it easier to get backto serve as regent in the interim. is a strange decision indeed. business once the next king’s reign begins. This turn of events has surprised every- The wildest speculation is that the For the moment the succession is strangely one, apparently including the junta. It is crown prince is still deciding whether or stalled. Prayuth Chan-ocha, the coup not unusual fora new king to postpone his not he wants the job—or that aristocrats in- leader turned prime minister, says Crown coronation until mourning for his prede- side the court are trying to persuade him to Prince Maha Vajiralongkorn has asked not cessor is over, noreven unheard ofto leave decline it. Prince Vajiralongkorn is not to be proclaimed king until after the coun- affairs in the hands of a regent (in the early much loved by the masses and widely try has had more time to grieve. By law yearsofhisreign the youngKingBhumibol loathed among Bangkok’s elite, who fear Prem Tinsulanonda, the 96-year-old chief did both). But delaying the formal accla- his reign will dent the monarchy’s prestige. For years there have been rumours of ef- forts to elevate a better-loved royal. Bhutan The longer Thailand’s odd interregnum persists, the more credible these theories Happy-grow-lucky will become. For the time being the pre- THIMPHU vailing view in Bangkok is that the succes- sion will eventually proceed. The prime The stars align fora reclusive kingdom minister has assured Thais that the crown HE national sales pitch ofBhutan phone networkbefore 1999, the progress prince will accept the throne. Mr Prayuth Tsounds oddly boastful for a shy is striking. Infant mortality has halved says he may be acclaimed within days; mountain kingdom. “Happiness is a since 2000 and poverty fallen by 90%. other officials suggest the wait will be lon- place,” it declares. But forthe numerolog- Incomes have tripled and the spotless ger. Some commend the prince’s decision ically obsessed citizens ofthis Swit- capital, where one in five Bhutanese now to forgo the crown briefly, seeing it as a sign zerland-sized country squashed between lives, buzzes with new cars and new of humility and respect. But for many India and China, happiness may also be buildings that are, without exception, Thais the gesture appears not to be dispel- a time. This year happens to be not only painstakingly adorned with mythical ling misgivings but sowing confusion. 7 the 400th anniversary ofBhutan’s cre- symbols to ward offevil. To know wheth- ation as an independent state, but also er a day is auspicious, Bhutanese now the most auspicious point in the 60-year consult not monks but smartphone apps South Asian media cycle ofBhutanese astrology: the Year of or the state broadcaster’s website. the Fire Male Monkey marks the birth Whatever the stars say, Bhutan’s All hail anniversary ofthe country’s patron saint, fortune also hinges on the whims of its Guru Rinpoche, a powerful 8th-century twin neighbours and their 2.5 billion mystic who conquered demons and people. Fearful ofChina, India has long spread Buddhism across the Himalayas. subsidised Bhutan’s budget. The coun- DELHI This year also began with the best of try’s biggest export, hydroelectric power, India’s press is more craven than news for the 750,000 Bhutanese: the relies on Indian capital and demand. The Pakistan’s birth ofa male heir to Jigme Khesar Indian army builds Bhutan’s roads; its Wangchuck, the fifth in the line of Druk “training camps” blockpossible Chinese HERE is no question that India’s de- Gyalpos or Dragon Kings. Loyal subjects, invasion routes. But a more likely in- Tmocracy is stronger than Pakistan’s. It is which is to say just about everyone, now vasion is oftourists. Chinese already lessprone to coupsand violence. Its minor- beam that they have not one but three make up 20% ofBhutan’s visitors; from itiesare more secure. And, mostIndians as- kings: the reigning monarch, who is 36, their smoky cities its green hills look sume, their media are freer. When Cyril Al- his baby son Jigme Namgyel, and also the tempting indeed. meida, a Pakistani journalist, revealed fourth king, Jigme Singye. The king- earlier this month that he had been father, as he is known, ruled the country banned from travelling abroad after writ- for 34 years, gently steering Bhutan out of ing a story that embarrassed Pakistan’s se- isolation and towards democracy before curity forces, India’s tabloid press gloated. his abdication in 2006. Still hugely pop- The Schadenfreude proved short-lived. ular, the 60-year-old ex-king lives in a To general surprise, Mr Almeida’s col- modest house outside the capital, Thim- leagues rallied in noisy support. Pakistani phu, visits his children and grandchildren newspapers, rights groups, journalists’ by fourwives (who happen to be sisters) clubs and social media chorused outrage and is occasionally spotted cycling along at his persecution. The pressure worked; country roads. the ban got lifted. Outside Bhutan the fourth kingis best Mr Almeida had been reporting on ten- known forhis institution, in the 1970s, of sions between the Pakistani army and ci- Gross National Happiness as a measure vilian leaders over the border crisis with for national achievement. Despite the India, which began last month when infil- government’s best intentions, improving trators from Pakistan killed 19 Indian sol- GNH remains a vague goal. Yet by more diers. On the Indian side of the border, pedestrian measures Bhutan is doing however, there has not been much critical very well. The Asian Development Bank examination of the government’s actions. expects GDP to grow by 6.4% this year. Instead, Indian media have vied to beat For a country that had no secular schools war drums the loudest. before the 1950s, no paved roads before When an army spokesman, providing 1961, no commercial airport before 1983 very few details, announced on Septem- and no television, internet or mobile- A Bhutanese GDP chart ber29th thatIndia had carried outa retalia- tory “surgical strike” against alleged terro-1 The Economist October 22nd 2016 Asia 21

2 rist bases along the border, popular news Assisted suicide in Australia two doctors, to prevent abuse. In Victoria channels declared it a spectacular triumph the parliamentary inquiry heard testimo- and an act of subtle statecraft. Some an- On the brink ny from the state’s coroner, John Olle, chors took to describing India’s neighbour about elderly people driven to lonely sui- as “terror state Pakistan”. One station re- cides. He mentioned the case of a 90-year- configured its newsroom around a sand- old who killed himselfwith a nail gun. box-style military diorama, complete with SYDNEY But opponents say it would be better to flashing lights and toy fighter planes. A pa- improve end-of-life care. Richard Chye, di- South Australia contemplates legalising rade of mustachioed experts explained rectorofpalliative care at a bigSydney hos- assisted dying how “our boys” would teach Pakistan a pital, says 5% of patients ask for their lives lesson it would never forget. HE state of South Australia is often in to be ended, but most change their minds Such jingoism was predictable, given Tthe vanguard ofsocial change. In 1894 it after receiving effective pain relief. Paul the fierce competition for ratings among became the first place in the world to let Russell of Hope, an anti-euthanasia group, India’s news groups. Disturbingly, how- women stand for parliament; in 1976, the says: “Whicheverway you lookat it, eutha- ever, the diehard nationalists have gone on first English-speaking jurisdiction to ban nasia is an act of killing. Do we really want the offensive against fellow Indians, too. rape within marriage. It was the first place to cross that Rubicon?” The answer is un- This month NDTV, a news channel in Australia to decriminalise gay sex and certain. The vote on the South Australian with a reputation for sobriety, advertised outlaw racial discrimination. Now its par- bill, both its supporters and opponents an interview with Palaniappan Chidam- liament may make it the first Australian agree, will be close. 7 baram, a former finance minister from the state to legalise assisted dying. opposition Congress party. MrChidamba- This week two members of the state ram was expected to say that previous gov- parliament introduced a bill that would al- ernments had also hit back at Pakistan, but low terminally ill patients to end their lives with less fanfare than the present one. with medical assistance, provided that Abruptly, however, NDTV cancelled the doctors thought they had six months or show. An executive sniffed that it was “not less to live, that theirsufferingwas “intoler- obliged to carry every shred of drivel” and able” and that it could not be relieved by would not “provide a platform for outra- any “reasonably available medical treat- geous and wild accusations”. ment”. Assisted dying is legal only in Co- Arnab Goswami, the anchorofa partic- lombia, Canada, a few European countries ularly raucous talk show, has declared that and a handful of American states. But the critics of the government should be jailed. practice has a long history in Australia. In Extreme nationalists in Mumbai, India’s 1996 the Northern Territory became the commercial capital, have urged filmmak- first place in the world to legalise it. Four ers to ban Pakistani actors. One party has people made use of the law in the nine threatened to vandalise cinemas that dare months before Australia’s federal govern- show a Bollywood romance, “Ae Dil Hai mentoverturned itand passed a lawto pre- Mushkil”, due for release later this month, vent Australia’s three self-governing terri- which features Fawad Khan, a Pakistani tories from legislating on the matter. heartthrob. The film’sdirector, Karan Johar, But the federal government cannot has aired a statement declaring his patrio- overturn laws in Australia’s six states. As- tism, explaining that the film was shot be- sisted-dying bills have been introduced in fore the currenttrouble and promising nev- South Australia’s parliament14 times since Maternity culture in Japan er again to work with talent from “the 1995. Marshall Perron, the chief minister of neighbouring country”. One commenta- the Northern Territory when it permitted No pain, no gain tor described his performance as akin to a assisted dying, sees a growing national hostage pleading formercy. momentum behind the idea. Bills intro- Why, asks Mr Chidambaram, are the duced in South Australia in 2012 and Tas- media toeing the government line so slav- mania in 2013 were both defeated by just TOKYO ishly? Some answerthattheyhave become two votes. In Victoria, a cross-party parlia- Why expectant mothers in Japan don’t ever more concentrated in the hands of big mentary inquiry has endorsed legalisa- get pain relief corporations, many of which carry heavy tion. Polls suggest 70-75% of Australians debts and so are wary of offending the support it. “The politicians lag the commu- HE Mejiro Birth House in a northern party in power. Others ascribe the shrink- nity’sexpectationsbya verysignificant de- Tdistrict of Tokyo is eerily quiet: no ba- ing space for dissent to the unchecked rise gree,” says Mr Perron. bies crying, no wails of women in labour. of chauvinist Hindu-nationalist groups. The Labor majority in South Australia’s That, explains Yuko Hoshino, the chief Repressive colonial-era laws on sedition parliament includes several devout Catho- midwife, is because it is empty. Only four and libel also play a part. lics such as Tom Kenyon, the chief whip. to six babies are born there each month, Happily, India’s press still brims with He has urged Christians to “pray for defeat compared with 14 to 16 a few years ago. The multiple voices. Critics of Mr Modi may of this bill”. But the state premier, Jay problem is not just Japan’s low birth rate. worry about internet trolls, but they do not Weatherill, backs it; the opposition leader, “Fewer women want a natural birth to- fear assassination by terrorists or shadowy Steven Marshall, has been evasive. Both day,” she says ruefully. “They go with doc- government agencies, as those in some parties intend to allow members to vote tors in hospitals rather than with mid- neighbouring states do. The Indian public according to their conscience. wives in birth houses.” is, in fact, tired of endless brinkmanship Nat Cook is a Labor MP and former The culture of maternity in Japan is with Pakistan and yearns for stronger, nurse who has “seen the terrible suffering slowly becoming more like the rest of the more effective government. Of course, to people go through” and is satisfied that the rich world, but several practices differ. be truly strong and effective, governments bill contains enough safeguards, such as a Women are generally treated as fragile dur- need to tolerate and even heed critics. 7 requirement for patients to be assessed by ing their pregnancy. But during labour it-1 22 Asia The Economist October 22nd 2016

2 self they are expected to suffer. Painkillers Preservation in India are doled outsparingly, ifatall. Doctors say growing numbers of women are keen to have an epidural (an anaesthetic injected Brick by brick into the spine), but few obstetric centres, LUCKNOW hospitals included, offer them, and almost Battling to save old buildings in a city with an embarrassment ofthem never outside normal working hours. The payment of ¥420,000 ($4,053) that the na- IDDEN behind the fashion bou- station and a rubbish dump. tional health-insurance scheme makes to- Htiques ofMahatma Gandhi Marg in Even an ASI listing is no guarantee wards the cost of having a baby would not Lucknow is an architectural gem. The that a building will be preserved. One of typically cover one, anyway. mausoleum ofAmjad Ali Shah, a king of Lucknow’s finest buildings, the Chhota For most women, however, the issue is Oudh, was built in the 1840s in Indo- Imambara (pictured), was recently “re- neither the cost nor the longer time it takes Islamic style. Though large, it is delicate, paired” with modern cement, wrecking to recover after an epidural. Local Buddhist with fine flowers in red plaster over the its subtle plasterwork. Mongooses scurry tradition holds that women should em- archways. But Mohammad Haider, a in and out ofprotected buildings; crows brace the pain ofnatural childbirth. The ex- trustee ofthe mausoleum, mostly spies nest in rotting cupolas. It can be hard to perience is said to prepare them for the threats to the monument. He stalks the find artisans who know how to handle challenges of being a mother and to en- courtyard, snapping pictures ofparked traditional plaster and other authentic courage bonding with the baby. Yoshimi cars and ticking offa building labourer materials, says N. K. Pathak, the ASI’s Katsube, who is 35, says her parents criti- for dumping a large pile ofrubble. “Ille- superintending archaeologist in Luck- cised her when she told them she would gal,” he says. “All illegal.” now. Some conservation architects say be having an epidural at the birth of her India has an enormous number of the ASI simply isn’t up to the job. first child. Nonetheless, she plans to have beautiful old buildings and an instinct for Yet there are signs ofa turnaround. one again when the baby she is now ex- preserving them, which it inherited The national government has increased pecting is born. partly from its colonial rulers. Unfortu- the penalties fordamaging protected More fathers attend births than used to nately, the country also has a corrosive buildings and stiffened a 100-metre be the case, but many still don’t come into climate, a growing crush ofpeople and exclusion zone around monuments, the delivery room. “My husband will cars in its cities and a bureaucracy that is where (in theory) nothing can be built. come to the hospital, but we have yet to de- sadly not up to the taskofpreservation. Some ofLucknow’s monuments are now cide whether he will come into the room,” Its heritage is crumbling. But in Lucknow, being sensitively repaired. There is even says Mayuka Yamazaki, who is expecting a northern city blessed with many histor- slight evidence to suggest that antiquity is her first child this month. “I am not sure if I ic buildings, that is starting to change. becoming a selling point, rather than an want him to see me like that.” In the early 20th century India’s Brit- irksome obstacle to development. Per- In most countries, the received wisdom ish rulers drew up a list ofmonuments haps the best-preserved colonial build- about what women should do in pregnan- worth protecting, which has hardly ing in Lucknow is Constantia, owned by cy relies as much on the local culture as on changed over the years. Today the Archi- an elite private school. science. Expectant mothers in France drink tectural Survey ofIndia (ASI) oversees Above all, Lucknow has Mr Haider. A wine and eat pâté, forinstance; their Amer- some 3,600 sites, with a heavy emphasis one-man preservation movement, he ican counterparts see this as one step short on colonial cemeteries. The Amjad Ali drives out encroachers, harries the ASI of infanticide. In most places pregnant Shah mausoleum made the cut, along and files endless petitions to the courts women would be steered away from raw with 60 other monuments in and around (when not defendingbuildings, he works fish, but not in Japan. The main obsession, Lucknow. Many others did not. Not sur- as a corporate lawyer). In the past few however, is with body temperature. While prisingly, the British did not list the Rifa-e- years he has driven fourcar-repair shops Western mothers-to-be are advised not to Aam Club, an important nationalist from the courtyard ofthe Amjad Ali Shah get too hot, those in Japan are told to keep hangout. Once glorious, it is now in an mausoleum. But the battle never stops. warm. They happily bathe in hot springs awful state. One wing has become a As your correspondent leaves the court- but avoid ice cream and chilled water. Res- hospital, while squatters inhabit other yard, two labourers with baskets of taurants offer blankets to pregnant wom- rooms. The courtyard doubles as a bus rubble on their heads turn to go inside. en, even in the height ofsummer. One element of the standard advice for pregnant women in Japan is worrying, however. The country has a high and rising proportion of underweight babies, de- fined as 2.5kg or less at birth. In 2015 9% of babies were underweight. One reason, says Zentaro Yamagata of the medical de- partment of University of Yamanashi, is that women do not put on enough weight during pregnancy. Doctors advise their pa- tients to put on no more than 6-10kg, com- pared with 11-16kg in Britain. The government, which is keen to push up the fertility rate from the current 1.5 chil- dren per woman to 1.8 to slow the shrink- ing ofJapan’s population, might ponder all this. The causes of Japan’s demographic decline are many and to some degree in- tractable. But making childbearing a less A mongoose-magnet forbidding experience could not hurt. 7

24 Asia The Economist October 22nd 2016 Banyan Duterte’s pivot

Is the Philippines, until now a staunch American ally, falling into the Chinese camp? Philippines has been excluded from recent Chinese largesse showered around the rest ofthe region. Relations suffered in 2012 after China dislodged the Philippine navy from the Scarborough Shoal, which is just over 200km from the Philippines proper, within its exclusive economic zone, and almost 900km from Chi- na. Filipino businesses have struggled in China, while little Chi- nese investment has come to the Philippines. The tribunal’s rul- ing only made matters worse: afterwards, China told even its tourists to stay away. The Philippines had been plucky in standing up to China. But it has paid a price. Now, the goodies that China is dangling lookir- resistible. Mr Duterte wants lots of infrastructure, particularly railways. China is offering cheap loans. He wants the country to export more. China is offering to reopen its markets to Philippine fruit. He wants help with the war on drugs. A Chinese business- man is building a big rehab centre. And he wants Filipino fisher- men to be able to return to their traditional fishing grounds around the Scarborough Shoal. China has told Philippine offi- cials that it is open to an accommodation. Perhaps America, in banking so much on its plucky ally, should have been more clear-eyed about the cost to the Philip- VEN in a year of extraordinary reversals, few would have ex- pines of standing up to Chinese aggression in the South China Epected it. In JulyChina reacted with furywhen an internation- Sea. Perhaps, too, it should not have assumed that all Filipino pol- al tribunal upheld a complaint from the Philippines and rub- iticians have an instinctive allegiance to America. bished China’s territorial claims in the South China Sea. This Although Filipinos are overwhelmingly pro-American, they week it is rolling out the red carpet for the mercurial Philippine are also patriotic. The American colonial period saw its share of president, Rodrigo Duterte. He is being feted in a four-day state atrocities, especially in Mindanao. One colonial general mused visit, with 400-odd businessmen in tow. Rub your eyes: Ameri- that it might be necessary “to kill half the Filipinos in order that ca’s strongest ally in South-East Asia appears to be plopping like a the remaining half of the population may be advanced to a high- ripe mango into China’s hands. er plane of life”. Mr Duterte himself says he was molested by an Consider what Mr Duterte, in power since June, has said in re- American priest as a child. The landed elite that he claims to be centweeks. He hasbranded BarackObama a “son ofa whore” for displacing achieved its ascendancy under American rule. And criticising his “kill them all” war on drug dealers and addicts, standing up for the little guy is part ofhis shtick. The insistence of which has claimed thousands of lives, many of them innocent. his foreign secretary, Perfecto Yasay, that Filipinos will not be He has demanded an end to joint naval patrols and to America’s America’s “little brown brothers” does not go down too badly. assistance in the southern junglesofMindanao, where American Yet it is not only Americans who lament the impetuousness of special forcesadvise Filipino troopsfightingagainstAbu Sayyaf, a Mr Duterte’s tilt to China: many Filipinos, including senior offi- violent group linked to al-Qaeda. And he has questioned wheth- cials, are worried sick. Jay Batongbacal of the University of the erAmerica would honouritstreatyobligation to come to the Phil- Philippines fears Mr Duterte “is squandering all the practical le- ippines’ aid ifthe archipelago were attacked. verage thatcomesfrom beingin alliance with the United States”— What that means for the American “pivot” to Asia scarcely without knowing what assurances, in terms ofsovereignty in the bears thinking about. But do the eyes deceive? American offi- contested South China Sea, the Philippines will get in return. cials—from Admiral Harry Harris, commander in the Pacific, down—insist that all is dandy. Joint naval patrols continue, as Bide your time does co-operation in Mindanao; and America still has five bases It is a reckless approach, but not necessarily a lasting one. For the on Philippine soil. The close working relationship with Filipino time being, China wishes to draw the Philippines into its camp. counterparts, the Americans insist, is as strong as ever. The Filipi- That is why it has not yet attempted to build the kind of military nos, fortheir part, report no change oforders from the new chief. facilities on Scarborough Shoal that it has constructed on other Yet Mr Duterte talks of China like a moonstruck lover. On the reefsin the South China Sea and that many Western analysts had eve ofhis visit he told Xinhua, the Chinese news agency, that Chi- assumed were imminent. na’s generosity to poor countries was without reproach. China But China will have to offer more than fishing rights to make “deserves the kind ofrespect that [it] now enjoys...It’s only China any deal acceptable to Filipinos. Even the China-loving Mr Du- that can help us.” He has been at pains to point out that one ofhis terte has talked about leaping onto a jet ski to defend the Philip- own grandfathers was Chinese. Thrilled, the Chinese ambassa- pines’ interests in person if need be. So the Chinese idea of a dor in Manila talks of “clouds fading away” and the sun rising to “package deal” in which Chinese sovereignty over the Scarbor- “shine beautifully on the new chapter ofbilateral relations”. ough Shoal is acknowledged in return forfishing rights which Fil- What is Mr Duterte up to? Bear in mind that development and ipinos had anyway long enjoyed will be greeted as an insult back growth are his priority—one reason for his sky-high popularity in in the Philippines. a country with an entrenched plutocracy lording it over legions America, in short, can be patient. The Philippines may yet re- of urban and rural poor. But development needs capital, and the turn to its camp. Ifso, both sides will claim it never left. 7 China The Economist October 22nd 2016 25

Politics be a theme at an annual four-day meeting of 350 or so of the party’s most senior Master of nothing members that is due to begin on October 24th. In July Mr Xi warned starkly what a slackening of discipline could mean: “Our party will sooner or later lose its qualifica- tions to govern and will unavoidably be TANGSHAN consigned to history.” China is eminently capable of getting One ofXi Jinping’s biggest challenges is age-old: local officials don’t listen things done, even in the face of consider- Y NIGHT the fires of Tangshan burn suggest how hard the president often finds able NIMBYist resistance. Its thousands of B and the air stinks. In this city in the it to persuade local officials to carry out his miles ofhigh-speed rail and its mushroom- northern province of Hebei, more than wishes. Mr Xi may be chairman of every- ing cities testify to that. But because its 100,000 people work in factories making thing, and he may well be stronger than leaders are afraid to delegate power, they steel and many more in firms serving the any leader since Deng Xiaoping. But in a can give their attention only to a limited industry. “Save energy and cut emissions,” country so vast, diverse and with so many range of priorities. Many government reads a red slogan outside one plant, heavy entrenched interests, he often seems to be schemes, particularly ones that are tricky, machinery roaring within. Earlier this year master ofnothing. pricey or unpalatable to local politicians, China’s president, Xi Jinping, ordered the Mr Xi spars with crusty generals, pow- go largely unheeded. steel business to cut production. Small and erful bureaucracies and large state-owned Strikingly, Mr Xi even sometimes fails inefficient mills like this one were sup- enterprises controlled by the central gov- to implement policies that he has declared posed to close and larger ones to shut ernment. But an even greater impediment to be a priority. He reportedly said that he down some furnaces. Yet many still oper- to hispowerisan age-old one: local author- had the capacity to tackle only one big eco- ate around the clock. Their city is close to ity. This is reflected in a popular saying that nomic issue this year, and that was to trim Beijing, virtually on Mr Xi’s doorstep, but refers to the compound in Beijing where the bloated steel and coal industries. As a the steel bosses openly flout his orders. China’s leaders live and work: “Policies do result, in February, the government re- Nearly four years into his rule, Mr Xi is not go beyond Zhongnanhai.” vealed plans to cut steel capacity by commonly described as the most power- 100m-150m tonnes in the next five years ful Chinese leaderin decades. He has taken Xi’s out of control and surplus capacity in coal production by charge ofall the most important portfolios, As the Communist Partyprepares to hold a 500m tonnes. To give his edict extra promi- cultivated a huge personal following and five-yearly congress late next year at which nence, officials took the rare step of invit- purged his opponents. Bypassing minis- sweeping leadership changes will be an- ing foreign journalists to Zhongnanhai to tries, he rules through informal “leading nounced, Mr Xi is fighting on two broad quiz a deputy finance minister on it. small groups”, heading so many of them fronts. One is with rivals in Beijing who Yet, as the smoky streets of Tangshan that foreign commentators have labelled want the reshuffle to favour their own cro- show, the president’s stentorian words do him “chairman of everything”. Rumours nies. The other is with footdraggers in the not always translate into local deeds. Since fly (without evidence) that Mr Xi may even provinces who want to do their own thing, February, steel output has risen nation- try to extend his powers beyond the nor- regardless of who wins in the capital. It is wide every month year-on-year (see chart mallyallotted ten years. Given hisseeming with the wider country in mind that Mr Xi on next page). By the end of July producers strength, it would be logical to suppose is now focusing on what he calls “party had cut less than half of the capacity they that he could do almost anything he pleas- building”, ie, instilling loyalty and disci- were supposed to. Custeel, an industry es. The toiling mills of Tangshan, however, pline into the party’smyriad cells. Thiswill body, says this includes many facilities that1 26 China The Economist October 22nd 2016

2 had already been mothballed. The central observe party policies. government admits that only four prov- Steeled against Xi But it is hard to legislate for loyalty. The inces have made substantial progress out Crude steel output, % change on a year earlier party’s discipline-enforcement agency of the 22 for which it has published results. 20 said this month that party leadership had Only one of the four, Jiangsu, is among the “weakened” in four provincial-level areas, big steel-producers. 15 implying that this had continued even Hebei Local businesses often pay more heed 10 after the agency had read them the riot act. to the market than to mandates. Some larg- The errant regions include the municipal- er mills relit their burners as global steel 5 ity of Tianjin near the capital. Jin Canrong prices rose. Local governments have their + ofRenmin Universityin Beijingsaid in a re- 0 eye on their revenues, too. Hebei produces – cent lecture that Mr Xi was facing wide- nearly a quarter of China’s steel. In places 5 spread “soft resistance” among local elites. like Tangshan the steel industry contrib- China Instead of openly opposing him they were utes substantially to tax revenues. Local 10 practising “inaction” instead. Mr Jin con- 2014 15 16 banks risk writing off large loans if mills cluded that all policies were “empty”. Source: Wind Info have to shut. At one, Tangshan Baotai, The fight against corruption may have workers live on-site in low, grey housing. scared officials, but even fear is no match Those who lose their job lose their home that localities cannot afford to carry for bureaucratic inertia. Next week’s gath- as well. Local governments fear that lay- through a nationwide plan for reducing ering of party leaders is unlikely to help offscould fuel unrest. soil pollution that was announced in May. much. Xinhua, a state news agency, says People desperate to get on China’s The problem is partly one ofthe party’s they will adopt measures to improve the property ladder may wish that their pleni- own making. Since the late 1970s the cen- party’s ability at “self-cleansing, self-con- potentiary president could do better. Mr Xi tral governmenthasdeliberatelydelegated summating, self-innovating and self-en- was clearly behind measures announced much decision-making to lower levels of hancing”. That does not sound like much thismonth aimed atholdingdown soaring government, encouraging local officials to ofa game-changer. house pricesin the biggestcities. But thisef- launch pilotprojectsand spread good prac- At least the meeting may help Mr Xi fort seems as doomed as previous ones, tice. This has helped the economy become strengthen his position in Zhongnanhai. It partly because local governments delight agile and adaptable. But it has also made will launch preparations for next year’s in the market’s surge. Selling land is a big top-down government more difficult, congress, after which five of the seven source of their income; big cities control a sometimes to the detriment ofreform. Chi- members of the Politburo’s Standing Com- very limited supply of it, because of tight na’s political system displays “fragmented mittee are due to retire, along with one- restrictions on their expansion. authoritarianism”, as Kenneth Lieberthal third of the Politburo’s other 18 members. The weakness of Mr Xi in the face of lo- ofthe Brookings Institution calls it. The Politburo’s current make-up was large- cal power has been evident even in his ef- ly decided by Mr Xi’s predecessors. This forts to curb tobacco use (his wife, Peng Li- Raising the red lanterns will be his chance to stackit with his allies. yuan, is an “anti-smoking ambassador”). Market forces, rather than political ones, There will be much speculation about In 2015 he backed a stringent ban on smok- increasingly dominate government deci- which one of them, if any, will succeed ing in indoor public places in Beijing. Yet a sion-makingbeyond the capital—aslong as him. Some analysts believe he has no suc- recent draft of a law to enforce this nation- social stability is not compromised. And cessor in mind, and interpret his willing- wide offers a big loophole: smokers would with the flourishing of private enterprise, ness to flout party convention as a sign of still be able to use designated indoor areas. and the collapse of many state-owned Mr Xi’s self-confidence. Yet it may be that The interests of tobacco-producing areas firms, the party’s once omnipresent and he does not want to start grooming an heir may explain why. In Yunnan province in all-powerful cells have atrophied and (in China, this tends to begin very early). If the south-west, tobacco accounts for over weakened. So Mr Xi wants to put politics so, that could suggest something else: that half the tax take, compared with 7.5% of back in command. In a private speech he neither at the centre nor in the provinces government revenue in China overall. gave only a month after taking power in does Mr Xi feel strong enough. Therefore Policies that lack the president’s perso- 2012, he railed that the Soviet Union had he cannot trust anyone else with what he nal endorsement are all the more likely to collapsed because nobody in the party calls his “Chinese dream” of the country’s stall. For example, there has been little pro- had been “man enough to stand up and re- “great revival”. 7 gress in reforming hospitals, despite wide- sist”; he noted that Russia’s corrupt securi- spread anger at doctors who boost their in- ty services had “left the party disarmed”. comes by prescribing expensive drugs that He evidently saw signs of similar laxness patients have to pay for. Local officials reck- taking hold in China. on this gouging is preferable to paying doc- Mr Xi’s fierce campaign against corrup- tors better wages from government funds. tion has been aimed at tightening his grip Despite outcries, too, over appalling and strengthening the party’s discipline lapses in food safety, and high-level prom- (as well as settling scores with enemies). ises to improve it, enforcement has not Hundreds of thousands of officials have been markedly strengthened. Provincial been punished for graft. At the same time, agencies do not have the will, capacity or Mr Xi has tried to instil a sense of account- financial incentive to regulate the food ability among local officials. The country’s chain. Officials in Beijing privately admit latest five-year plan (a quaint reminder of the days when the central leadership pulled more levers) forthe first time makes Correction: Last week we reported that during a swearing-in ceremony at Hong Kong’s Legislative local officials personally liable for causing Council, one member had draped himself in a banner environmental damage, even if it is discov- saying “Hong Kong is not China” and two others had ered only after they have left office. The pronounced “China” in a derogatory way (“No swearing”, October 15th). In fact, two legislators displayed such a government now threatens to punish civil banner. The same ones mispronounced China. servants who ignore court rulings or fail to United States The Economist October 22nd 2016 27

Also in this section 30 The third debate 30 On the trail 31 Election brief: Infrastructure 32 Lexington: Nevada’s Senate race

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

Election 2016 arching desire to improve America. More surprising, given the many scandals she Hating Hillary hasbeen involved in, includingan ongoing furore over her use ofa private e-mail serv- er as secretary of state, not many of those who have dealt with her seem to think her particularly shifty. Even some of her foes NEW YORK AND WASHINGTON, DC say the concern about her probity is over- blown. “People can go back decades and America’s probable next president is deeply reviled. Why? perhaps criticise some of the judgments O UNDERSTAND how well-regarded by the standards of most politicians she that were made,” Michael Chertoff, who THillary Clinton was as a senator and considers Mrs Clinton a decent boss—one was the Republican lead counsel in one of then as secretary of state, forsake those who calls her staffers on their birthdays the firstprobesinto MrsClinton, the Senate closest to her. A coterie of longtime retain- and when they are bereaved: “Not many Whitewater Committee, but has endorsed ers, such as her factotum Huma Abedin senators do that.” her, told Bloomberg. “That is very, very in- and Maura Pally of the Clinton Founda- Mrs Clinton’s formercongressional col- significant compared to the fundamental tion, appear to worship her with a protec- leagues—including the Republicans she issue ofhow to protect the country.” tive fury that admits no fault. But then also wooed assiduously on Capitol Hill, What then explains the depths of Mrs discount the views of those sometime though they had sought to destroy her hus- Clinton’s unpopularity, which on Novem- Clinton associates who earn their bread by band’s presidency, and her, in the 1990s— ber 8th will drive millions of Americans to trashing the Democratic nominee—such as speak even more admiringly of her. “I got justify voting for a man whom they have Dick Morris, inventor of the phrase “trian- on very well with her, she’s a likeable per- heard boast of groping women? Having gulation” to describe Bill Clinton’s political son. When it comes to dealing with Con- opened up a six-point lead in recent weeks, method. When notwritinganti-Hillary po- gress, she’d be a big improvement on Ba- she is nonetheless likely to prevail. Yet she lemics, he is chiefpolitical columnist ofthe rack Obama,” says Don Nickles, a former would return to the White House as its National Enquirer, a tabloid which de- Republican senator from Oklahoma who most-reviled new occupant of modern scribes the 68-year-old candidate as a pred- helped wreck the health-care reform Mrs times. Mr Trump has suggested she could atory lesbian on the edge ofdeath. Clinton tried to launch in 1993, and with even be assassinated—and the experience For a more dispassionate critique of whom she then worked to extend unem- of his rallies suggests he might be right. Mrs Clinton, who is reckoned to be the sec- ployment benefits. “She’s hard-working, Neck veins thrumming, his supporters call ond-most-unpopular presidential nomi- true to her word and very professional,” Mrs Clinton “evil”, and a “killer”. nee ever, after her Republican opponent, says Tom Reynolds, a former Republican Yet the antipathy to Mrs Clinton is not Donald Trump, listen to some of the less congressman who collaborated with her merely a right-winghate fantasy: she is also partial operatives and politicians who in upstate New York. “That’s not just in the mistrusted within herparty. Almost a third have worked with her over the past 25 Senate. She’s been like that all her life.” of Democrats said they disagreed with the years. Less favoured Clinton retainers offer This, to put it mildly, is not a characteri- FBI’s recent decision not to prosecute her— more nuanced praise oftheir boss than the sation supported by Mrs Clinton’s ratings. their presidential candidate—over her e- gilded coterie. A workaholic, she is relent- Around 55% of Americans have an unfa- mail arrangements. It is hard to think ofan- lessly demanding of her employees’ time vourable view of her; about the same other politician whose public image is so and loyalty and can be icily critical, some- number do not trust her (see chart). Yet, at odds with the judgment ofher peers. times unfairly, says an aide who has been amongthose who know Mrs Clinton, even For Mrs Clinton’s cheerleaders, the dis- drawn into playing a much bigger role in critics praise her integrity. She is a politi- parity is enough to prove she has been tra- Mrs Clinton’s campaign than she wanted: cian, therefore self-interested and cynical duced. Yet politics is about winning over “Hillary’s not always warm and fuzzy.” But at times—yet driven, they say, by an over- the public, as well as colleagues, and the 1 28 United States The Economist October 22nd 2016

2 fact that Mrs Clinton is much less good at primaries by big margins, are often en- this is partly her fault. For such a practised raged by this. Madeleine Albright, a previ- Berned politician—she delivered herfirstmajor ad- ous secretary of state, warned of a “special Mistrust of Hillary Clinton among likely Clinton dress, on graduating from Wellesley Col- place in hell” for women who do not sup- voters*, by primary vote and sex, % of total lege, almost half a century ago—she is a port other women. Yet it seems younger Men Women dreadful public speaker. Her speeches are women do not see the logic of this, per- 0102030 mostly wonkish and dull, workaday con- hapsbecause theyare lesslikelyto have ex- Bernie Sanders structions of a politician who appears to perienced maternity leave and gender-re- view human progress as a series of nudg- lated pay disparities, two areas where Did not vote in ing policy improvements. Mr Obama’s vi- women are most likely to report sexism. Democratic primary sion is not dissimilar; but where the presi- In short, it is also hard to think of a poli- Hillary Clinton dent elevates it with magical rhetoric, Mrs tician less suited than Mrs Clinton to com- Clinton’s performance is so hammy as to bating America’s rock-throwing mood. But Sources: YouGov; *Registered US voters polled The Economist October 1st and 8th, 2016 annoy. “She sucks the life out of a room,” as an explanation forthe strength of Amer- groans a member of her husband’s sepa- ica’s antipathy to her, this is inadequate— rate (and in fact rival) adoring coterie. not least because she was until recently success underrated her accomplishments; This hurt her during her first presiden- one of America’s most popular figures. byhermid-20s, she wasa Yale legal scholar tial run, in 2008, when the public mood When she left the State Department, in and social activist of national repute; her was less radically against the establish- 2013, 65% of Americans had a favourable speech at Wellesley had been widely cov- ment politics that Mrs Clinton encapsu- view of her. Why do almost as many now ered in the press. Moreover, the Clintons lates almost to the point of parody. With feel the reverse? were always upfront about their collabora- trust in the federal government now at the tion; Mr Clinton promised a “two for the lowest sustained level ever recorded, the Hill-Billy elegy price of one” presidency. And if that could damage was bound to be worse this time. Two bits of context are important. First, help explain why Mrs Clinton never for- Indeed, on the left, Mrs Clinton is especial- Mrs Clinton has been here before. Almost sook her adulterous husband, something ly unpopular among younger voters, who from the moment she came to national at- her critics also object to, there have been are most mistrustful of the government tention, in 1991 during her husband’s first stranger marriages. and most liable to demand radical change. presidential campaign, people took Even now—though it is reported Mr Hence their voluble support for Bernie against her. “Like horse-racing, Hillary-hat- Clinton’s philandering never ended— Sanders, whose outsiderish credentials ing has become one of those national pas- friends of the couple convincingly de- were confirmed by the fact that he had times which unite the elite and lumpen,” scribe their mutual affection. “They’re of- only recently joined the party whose read a profile of the by-then beleaguered ten holding hands,” says an aide to Mrs nomination he sought. By pillorying Mrs First Lady in the New Yorker in 1996. The Clinton. Yet iftheirpartnership was deeply Clinton as an apologist for a predatory second bit of background is that no one rooted , that didn’t mean America had to elite—to which effort her lucrative past quite knew why. like it. Indeed, there were reasons not to. speechmaking on Wall Street provided That Mrs Clinton kept getting mired in During her husband’s first presidential ammunition—the Vermont senator assist- scandals—including, by 1996, an alleged run, Mrs Clinton was allegedly involved in ed in hervilification. Overthe course ofthe conflict of interest over a rotten property trashing the reputations of women who primaries, her favourability ratings wors- investment the Clintons had made in Ar- had claimed to have had affairs with him. ened especially among millennials; 60% kansas—plainly didn’t help. They left an It was the sort of allegation that might be voted for Mr Obama in 2012, but by the impression of her that was often unflatter- forgiven in a jealous wife, or in a profes- time Mr Sanders threw in the towel, only ing. She came across as secretive and per- sional campaign manager. But in a woman 31% had a positive view of Mrs Clinton. haps not quite punctilious in her obser- who claimed to believe her husband’s pro- This was not only true of millennial vance of the law. There were suggestions testations of innocence, and an avowed men but also of women; the latter have she had overcharged clients of her legal feminist, it seemed obnoxious. proved largely unmoved by the prospect practice (though she broke no law). But the As the most powerful First Lady there of America’s first woman president. Older most serious allegations, including several had ever been—with an office in the West women, who backed Mrs Clinton in the pursued by Kenneth Starr, the indepen- Wing and responsibility for reforming a dent counsel who uncovered Mr Clinton’s health-care system that represented 15% of dallying with Monica Lewinsky, were dis- the economy—she faced stiffer attacks. Trust busting missed as unproven or baseless. Again, these were often exaggerated re- Respondents replying ‘no’ to the question A better characterisation of the antipa- sponses to errors for which she was only Do you think Hillary Clinton is honest ? * thy to Mrs Clinton, which doubts about partly to blame. “Hillarycare” was too By race, sex and education, % her probity reflected, was a vaguer sense complicated and pursued too secretively. 020406080 that there was something inappropriate But though the unelected Mrs Clinton was Men, no college about her. This dogged her in Arkansas, partly to blame, so was her husband. Yet it Women, no college where she was considered too indepen- was she who got it in the neck. At a speech dent-minded to be the First Lady of a she gave for the reform in Seattle, protes- Men, college educated WHITE southern state. It was unfair; even her re- ters waved “Heil Hillary” placards and in- Women, college educated luctance to take her husband’s name was vited her to “Fly yo’ broom”. All voters controversial. Yet sympathisers struggled Both Clintons were flawed. Yet the fe- with the way the personal and profession- rocityofsuch barragesreflected something Men, no college al seemed to overlap with Mrs Clinton. more: the deep fault-lines the couple were Women, no college The wellspring of that concern was the straddling. The first baby-boomer presi- Clintons’ marriage. To their detractors, it dent and his pushy wife represented a cul- Men, college educated has always seemed a cold-hearted profes- tural shift that much of America feared. NON-WHITE Women, college educated sional agreement, mainly to the advantage “She was not only a baby-boomer but a Sources: YouGov; *Registered US voters polled of Mrs Clinton. Yet those who saw her as strong woman, which was felt by some to The Economist October 1st-3rd and 7th-8th, 2016 cynically piggybacking on her husband’s be a threat,” says Robert Reich, labour sec-1 The Economist October 22nd 2016 United States 29

2 retary in Mr Clinton’s administration. The candidate, puts it: “The Clintons have been tended to give her maximum privacy. Ei- obvious inference, that Mrs Clinton’s un- through a lot, they’ve had a lot of people ther way, it was permitted. popularity was fuelled by sexism, has al- searching through their garbage, but even The problem was that 193 e-mails con- ways annoyed her critics almost as much so…” All the same, the weakness of her taining classified information were ex- as she has. But it is otherwise hard to ex- candidacy and the seriousness of her al- posed to Mrs Clinton’s private server, plain the gap between the measured criti- leged offences have been exaggerated. which was not permitted. Yet the FBI, pre- cism Mrs Clinton’s behaviour has some- The predominant journalistic take on dictably, concluded Mrs Clinton’s offence times invited and the unbridled loathing Mrs Clinton’s primary campaign was that was not premeditated, a usual condition that has shown up in its place. she risked losing to a wacky socialist no- for a prosecution in such cases. In the an- It was also apparent in the fact that Mrs hoper. In fact, she crushed Mr Sanders so nals of political misdeeds, future histori- Clinton’s standingimproved afterthe reve- utterly—by almost 4m votes, in the end—he answill notpause on MrsClinton’se-mails lation of her husband’s canoodling with clearly never stood a chance. Coverage of long. But they will marvel at how an exag- MsLewinsky. Recastasa wronged woman, the scandals has been even more mislead- gerated belief in her malfeasance almost a less threatening female archetype, she ing. On Benghazi, which bothers Mr created the conditions for Mr Trump to seemed more likeable. Moreover, the criti- Trump’s supporters especially (at his ral- seize the White House. cisms most often levelled at Mrs Clinton lies, people reel off lists of witnesses they What, in the end, is fuelling that belief? are plainly sexist. She is said to be “shrill”, say Mrs Clinton has had killed) seven offi- Mrs Clinton’s political failings and the in- “ambitious” and, in the gutter where Mr cial investigations have shown she has no surgent mood are plainly contributing. Yet, Trump fillshis opposition files, deviant. case to answer. Her speeches and activities even if you are inclined to judge Mrs Clin- Whenever she has sought power, in- at the foundation have also been exagger- ton harshly, it is hard not to conclude that cluding in her two Senate and first presi- ated; both were politically fatheaded but, latent sexism is a bigger reason for her dential campaigns, such criticisms have struggles. With his feel forAmerica’s worst been aired, and in the lattercase her ratings instincts, Mr Trump sought to arouse a mi- plunged. That she was in for another sogynist repulse to Mrs Clinton from the pounding this time was predictable—yet start. When she left a debate stage during the pitch ofloathing is unprecedented. the primaries to use the lavatory, he called The press had a hand in that. An analy- it “disgusting”. A tweet reading “If Hillary sis by researchers at Harvard’s Kennedy can’t satisfy her husband what makes her School ofeight mainstream outlets, includ- think she can satisfy America?” was ret- ing CBS, the New York Times and the Wall weeted from his Twitteraccount (naturally, Street Journal, found they were more criti- he said he knew nothing about it). cal of Mrs Clinton than any other Republi- He now suggests his opponent and for- can orDemocraticcandidate. In the first six mer wedding-guest (“a terrific woman,” he months of last year, she was the subject of used to call her,) is guilty of murder and three negative statements for every posi- adultery. His supporters wear T-shirts tive one; MrTrump received two accolades reading “Trump that bitch” and “Hillary for every carp. “Whereas media coverage sucks, but not like Monica”. More than half helped build up Trump,” the researchers of white men, the engine-room of Hillary concluded, “It helped tear down Clinton.” hatred, say they have a “very unfavour- An obvious explanation is that Mrs able” view of her—20 percentage points Clinton’s strengths, including the most de- more than said the same of Mr Obama, tailed platform of any candidate, do not whom they did not care for, in 2012. make interesting news. Compared with Theyare responsible forthe pitch ofHil- the surprising enthusiasm for Mr Sanders, lary-hatred in this election. It always they were therefore hardly covered. (May- seemed likely that women would, in the be that was a good thing; the Harvard re- end, rally against that assault. And so, be- searchers found Mrs Clinton was the only Then do it again 20 years later latedly, they have, with a wave of women candidate whose platform received net voters now breaking for Mrs Clinton. She negative coverage.) on the evidence available, not corrupt. leads among women by 20 points, while And, as so often, she was also quickly Because she was culpable over her Mr Trump leads with men by seven. If that enshrouded by scandals. These concern “damn e-mails”, in Mr Sanders’s phrase, it gender gap holds, it would be the biggest her alleged culpability for the deaths of is a more complicated case. Yet the prevail- ever. According to simulations by Nate Sil- four Americans in Benghazi in 2012; her lu- ing view of the scandal, promulgated by ver, a data guru, if only women voted, Mrs crative speechmaking; the governance ar- the media and Mr Trump, that her mis- Clinton would win with 458 electoral col- rangements at the Clintons’ foundation; deeds were serious enough to warrant an lege votes to Mr Trump’s 80. If only men and her private e-mail server, which was FBI indictment, always looked fallacious, voted, he would win. revealed in March 2015, shortly before she and so it proved. A 250-page FBI report into This indicates the vast and countervail- announced her run. Within weeks, Mrs its investigation into the affair, describes ing social pressures, towards and against Clinton the super-qualified front-runner Mrs Clinton inheriting an institution with change, colliding in this election. Mrs Clin- had been recast as a scandal-dogged fading shambolic communication procedures, ton, who has never felt able to protest star. In the first year of her campaign, her which she and her too-pliant aides perpet- against the chauvinism she has encoun- net favourability fell by 20 points. uated. It suggests her e-mail arrangement tered, must feel vindicated, in a sense. But Also characteristically, Mrs Clinton was was motivated chiefly, as she maintained, she is lucky, too. In Mr Sanders and Mr partly to blame. However reasonably she by her desire to send private and personal Trump, she has faced two opponents who must fear harassment, her e-mail arrange- e-mails from a single device, her BlackBer- could scarcely have been better designed ments and protracted efforts to deny there ry. That was partly because Mrs Clinton is to exaggerate her weaknesses and deni- was anything wrong with them warrant so technophobic she does not know how grate her strengths. Yet they were also, per- criticism. Or as Joe Lieberman, a former to use a desktop computer. It is also reason- haps, the only plausible opponents that Democratic senator and vice-presidential able to assume the arrangement was in- Mrs Clinton could actually beat. 7 30 United States The Economist October 22nd 2016

The campaigns Heard on the trail

Protocols of the Elders of Palm Beach A complex Napoleon “Hillary Clinton meets in secret with “There’s a big Trump and a little Trump. international banks to plot the destruc- The little Trump is frankly pathetic.” tion ofUS sovereignty in order to enrich Newt Gingrich, stalwart Trump supporter. these global financial powers.” Fox Business The Republican nominee borrows from history. Warm bodies “Dead people generally vote forDemo- American Beauty (1) crats rather than Republicans.” “Lookat her. Lookat her words. You tell Rudy Giuliani, former mayor of New York me what you think. I don’t thinkso.” City, talks alleged voter fraud. CNN Donald Trump suggests that a reporter for People magazine was not attractive enough Cold comfort forhim to pursue. “I would like to reassure everyone, in- The third debate cluding our US partners and friends—we American Beauty (2) do not intend to influence the US election Final insult “Yeah, I’m gonna go after her. Believe me, campaign.” she would not be my first choice.” Vladimir Putin reassures Americans. Another woman who claimed Mr Trump Reuters interfered with her on a plane also isn’t up WASHINGTON, DC to his standards. Liberty and death “We’re going to have a revolution and Donald Trump suggests the election American Beauty (3) take them out ofoffice ifthat’s what it will be rigged “[Hillary Clinton] walks in front of takes. There’s going to be a lot ofblood- OWARDSthe end ofthe third and final me...and when she walked in front of me, shed. But that’s what it’s going to take…” Tpresidential debate, in Las Vegas on Oc- believe me, I wasn’t impressed.” A Trump fan in Ohio is ready to rebel. tober 19th, Donald Trump was asked to The Democratic nominee is safe from Mr Boston Globe confirm that he would accept the verdict of Trump’s attentions. American voterson November8th. “I’ll tell Couch warrior you at the time, I’ll keep you in suspense,” Vive la revolution “The average American is very lazy. A he replied. Mr Trump had in fact been re- “It is pitchforkand torches time in rally is a very easy task, a revolution is hearsing this line over the previous week. America!” not.” Trailing his Democratic rival, Hillary Clin- Milwaukee County sheriff and Trump A Trump supporter in Green Bay, Wiscon- ton, by six percentage points (on average), supporter, David Clarke, talks bold at a sin dismisses fears of post-election violence. he has repeatedly suggested the election Trump rally. NPR will be rigged. A startlingly large portion of his supporters appear to agree; in a recent poll, 73% of Republicans say the election plugged his hotel once. restraint is for Mr Trump. Because the lon- could be “stolen”. But it was still amazing Ablymoderated byChrisWallace, a Fox ger he debates issues with Mrs Clinton, the to hear Mr Trump stoke that baseless fear— News anchor, this debate was the most se- more embarrassingly apparent it becomes and whatever small but not insignificant rious examination of the stark choice the that she knows what she is talking about risk of post-election violence is attached to nominees are offering Americans. Plump and he mostly does not—and the more un- it—at the final set-piece occasion of this forMrs Clinton on November 8th and they comfortable that makes him. He does not wretched campaign. will have a continuation of Barack wear his inexperience lightly, as George W. He had perhaps not even planned to air Obama’s presidency; albeit, she stressed, Bush did in his sparring with the profes- this latest conspiracy theory, which his with a couple of differences. She will not sorial Al Gore in 2000. And Mrs Clinton, running-mate, Governor Mike Pence of In- rethink her rejection of the Trans-Pacific who put in her best debate performance, is diana, has been quick to disavow. Because Partnership deal and she would try to pass expert at needling him. for most of the debate Mr Trump was re- immigration reform, including a path to In the end, sure enough, he fell apart. strained. He did not repeat his promise, citizenship for the undocumented, within Castigated by Mrs Clinton, in response to made in the second debate, to imprison 100 days of taking office. Or they can his querying of the election’s legitimacy Mrs Clinton; he did not appear to boast of plump forMr Trump and have a more con- and for his lifelong habit of crying foul payingno income tax, as he had in the first. servative Supreme Court bench, more bor- when he loses, he made himselflookridic- He spoke softly and, despite a few tics (his der security and an aggressively transac- ulous. Mrs Clinton gave as an example Mr immigration policy, Mr Trump explained, tional trade and foreign policy that would Trump’s past suggestion that the Emmy was aimed at ridding America of “some transform American power. awards were rigged because a television bad hombres”) he appeared to be trying to Mr Trump’s Republican advisers al- show of his had not won; “Should have articulate his positions: forexample, on the ways wanted him to debate in this way, to gotten it,” he growled. She later mused on sanctity ofthe Second Amendment, the di- woo the many conservatives who want re- her plans for welfare reform. “Such a nasty sasters of recent American policy in the assurance of his seriousness. Had he done woman”, Mr Trump blurted into his micro- Middle East and the hurt inflicted on some so earlier, he would be doing better. But phone. He did not sound threatening so communities by globalisation. He only this debate also underlined how difficult much as absurd. 7 The Economist October 22nd 2016 United States 31

Election brief: Infrastructure West Virginia has almost the opposite pro- blem. It has been building a highway A view from the bridge through the Appalachian mountains for over a decade. But the absence of a con- necting road in neighbouring Virginia means the project lacks a clear purpose. Any new infrastructure programme WASHINGTON, DC must seek to avoid such profligacy. The pri- ority should be unglamorous mainte- It will take more than just money to get America moving nance work, which has been neglected IN SEPTEMBER the authori- infrastructure bank, capitalised with $25 even as wasteful new projects have gone ties in St Petersburg, on the billion from the Treasury. The bank would ahead. The Federal Highway Administra- west coast of Florida, re- borrow a further $225 billion, either from tion says that from 2011 until 2030 annual leased about 150m gallons of investors, or from Uncle Sam (which might investment in roads must average $73 bil- raw and partially treated be cheaper). In any case, the bank would lion-78 billion, in 2010 dollars, just to re- sewage into Tampa Bay, the natural har- funnel its cash to infrastructure projects in store existing roads to good condition (for bour on which the city sits. Flooding relat- the form of loans and loan guarantees (it comparison, such “rehabilitation” spend- ed to Hurricane Hermine had over- would support only projects which can ing totalled only $60 billion in 2010). Main- whelmed the city’s ageing wastewater make a return, like toll bridges). tenance could consume a big chunkofMrs system—the third such incident in 13 Donald Trump—as usual—has less of Clinton’s promised direct spending. months. According to a whistle-blower, substance to say. He laments the state of An infrastructure bank could screen consultants warned the city in 2014 that the nation’s bridges and airports and new projects for value-for-money. Mrs closing one of its sewage plants could lead promises to repair them. He also says he Clinton promises hers would be indepen- to such a catastrophe. But it did it anyway. will deliver“gleamingnewinfrastructure”. dent of government and would choose Both candidates forpresident agree that Asked in August how much this would whatto fund “based on merit, notpolitics”. America must spend more on its infra- cost, he replied, ostentatiously, that he The requirement that projects produce rev- structure which, though good, is deterio- would “at least double” Mrs Clinton’s enue to repay the bank would introduce rating. It attracts a score of 5.9, on a scale of market discipline to the process, especially 1-7, from the World EconomicForum, down if private money were involved (though from 6.1 in 2007. (Over the same period, No stimulus here some wonderjust how many profitable in- other rich countries saw their scores grow United States, net public investment, $bn frastructure opportunities exist). by an average of 0.3.) Government data (2009 dollars annualised) Regulation might slow the diggers. A show that in 2014 some 32% of America’s 200 plethora of environmental, historical and roads were rated “poor” or worse for other rules often restrict building. Many bumpiness, up from 16% in 2005. The aver- stimulus projects, far from being “shovel- 150 age annual delay faced by commuters has ready”, took more than a year to get going increased by 62% since 1990. Non-defence because of local red tape. In May Larry intellectual 100 The decline is the inevitable result of property Non-defence Summers, a former treasury secretary and falling infrastructure investment (see structures a vocal cheerleader formore infrastructure chart). It tumbled after the recession as 50 investment, complained in an article in the states and local governments, who pro- Boston Globe that regulation had delayed a vide nearly two-thirds of the money, 0 project to repair a bridge near his office at 2000 02 04 06 08 10 12 14 16 scrambled to balance their budgets. The Harvard University. The bridge tookonly 11 Source: Bureau of Economic Analysis federal government’s recession-fighting months to build in 1912, but the refurbish- stimuluspackage mitigated thisonlyslight- ment, which began in 2012, is yet to be ly. Between 2009 and 2014 just $55 billion numbers. To achieve this, he would start “a completed. When a contractor discovered of $828 billion in stimulus spending fund” and—wait for it—make a “phenome- it had to move a water pipe, the associated flowed to water and transport projects. nal” deal with investors to raise capital. paperworkdelayed workby a year. Anoth- From 2013 fiscal austerity made infrastruc- Loose talk about loose purse-strings er hold-up was a requirement, imposed by ture funds still scarcer. In 2015 Congress will make sceptics shiver. In the past, feder- the Massachusetts Historical Commission, scrimped togetherenough cash to keep the al funds have flowed easily to boondog- that the bridge had to have special bricks. highway trust fund, which provides most gles because politics, rather than thought- Other barmy rules abound. The Davis- of the federal funding for transport, in the ful analysis, has directed the flow of Bacon Act of 1931 requires workers on fed- black until 2020. But more money is need- money. Forexample, stimulus spending on eral projects to be paid the “prevailing ed to stop the decay. transport was twice as generous, on a per- wage”—calculated by bureaucrats—in the Hillary Clinton promises an extra $275 person basis, to sparsely populated areas local area. Law prevents the federal gov- billion over five years, which should re- than to densely populated ones, according ernment from charging tolls on existing in- turn infrastructure investment to close to to Edward GlaeserofHarvard University. It terstate highways, limiting a potential its pre-recession level. Her shopping list is costs more to build in crowded cities than source of new funds (Mr Obama has tried, lengthy. It includes both sober promises, on empty fields, but low-density areas are, unsuccessfully, to change this). like fixing potholes, and fanciful ideas, he notes, “remarkably well-endowed with In recent years it has often taken disas- such as creating a “world-leading” railway senators per capita”. ter to spur investment. St Petersburg, Flori- network (taken at its word, this would re- Useless projects excel at soaking up fed- da is now rushing to repair its leaky pipes; quire sending Japanese style bullet-trains eral cash. Alaska recently abandoned a New Jersey at last raised its petrol tax to across the country). This first $275 billion plan to build an infamous bridge connect- fund new transport spending after a fatal would come from mostly unspecified ing an island with just 50 residents to the train crash in September. It is good that changes to the corporate tax. mainland. But it did use federal cash to both candidates recognise the need for im- Mrs Clinton would also continue Ba- build a road leading up to where the provement. Butthatwill require more than rack Obama’s quest to establish a national “bridge to nowhere” would have stood. simply opening the chequebook. 7 32 United States The Economist October 22nd 2016 Lexington How to shoot a man in Reno

Nevada’s Senate race features two decent candidates whose reputations are being trashed the state’s vast hinterland is known, and in such swingdistricts as Washoe County around the northern city of Reno, swamps the Reid machine that mobilises casino workers and union members in Las Vegas. In 2016, there are other reasons why Mr Trump’stox- icity is not causing a landslide for Democrats in Nevada. Compared with battleground states such as Colorado, Penn- sylvania or Virginia, Nevada has fewer of the suburban college graduates who have abandoned Mr Trump in such numbers, notes David Damore of the University of Nevada, Las Vegas. As foryouth turnout, a Democratic event this weekat the University of Nevada, Reno, watched by Lexington drew just six students, though it featured free pizza and a pep-talk by a visiting senator, JeffMerkleyofOregon. Manyclassmatesare uninspired by either Mrs Clinton or Mr Trump, sighed Oscar Carballo, an undergradu- ate who did show up: “Honestly, I thinkturnout will be low.” Republicans have their own woes. Dr Heck broke with Mr Trump earlier this month, after recordings emerged of the nomi- nee boasting about groping women. Citing his “military code of honour” and his experiences treating women victims of sexual assault, the doctor has called for Mr Trump to quitthe race. At the Washoe County Republican Party in Reno, the chairman, Roger SSUMING that her opponent fails to recover, Hillary Clinton Edwards, stopped assembling Trump lawn signs to report that Acan reach the White House even without Nevada, which members are “pissed off” at Dr Heck, who is “kind of a RINO”— polls suggest is in her grasp. Yet Nevada could hardly matter more using the acronym for Republicans In Name Only, a jibe hurled at to her. To achieve much as president Mrs Clinton will need a politicians who occasionally compromise to secure larger goals. Democratic majority in the Senate, and her party’s path to retak- Mr Edwards hopes Republicans will think of the Senate majority ing the Senate runs through Nevada, one of a few states that will and back Dr Heck anyway: “We have to hold our nose and pull decide the majority. And asin otherswingstates, its Senate race is the handle.” Yet at a Democratic office a few miles away, Dr on a knife-edge, thanks to a Republican candidate running ahead Heck’sconversion earned him no creditwith MrReid. Leaning on ofDonald Trump. a silver-topped cane, the leader of the Senate’s Democratic mi- Nevada’s contest carries a special charge because Democrats nority murmured that Dr Heck is “a Trumpite who has been vot- are defending the seat of their Senate leader, Harry Reid, a whis- ing with Tea Party folks to close the government”. per-voiced partisan who isretiring, and who hand-picked hissuc- cessor, Catherine Cortez Masto. The two main candidates are not Don’t ever play with guns obviously nasty people. The granddaughter of a Mexican immi- Both parties should ponder the effects of an estimated $80m grant, Ms Cortez Masto is a cautious, hardworkingformer state at- spent by groups from out ofstate on Nevada’s Senate race, dwarf- torney-general, who was known for crossing party lines and ing spending by the candidates. Mr Damore argues that, with so would be the first Latina in the Senate. HerRepublican opponent, many negative TV ads aired by outside groups, “the candidates Joe Heck, is a cautious, hardworking congressman, doctor and don’t have control ofthe message”—leaving Ms Cortez Masto and brigadier-general in the Army Reserve: “When America is Fight- Dr Heck to emphasise their life stories, hoping some light pierces ing for Its Future…Send a Soldier” proclaims the Heck campaign, the murk. Spending by outside groups tends to nationalise races, touting images of their man wielding a stethoscope and looking too, forcingeverycandidate into familiarpartisan templates. Tom masterful in camouflage fatigues. Mannigel, a Republican volunteer in Reno, notes with approval On paper, demographic changes favour the Democrat (Mr how TV ads have portrayed Ms Cortez Masto as corrupt and Obama won Nevada twice). The state hasbeen transformed from greedy, “very similar to the way they’re painting Hillary”. a cows-cactus-and-casinos backwater into the third-most-urban- Much outside spending comes from a network of donors led ised state in the country. More than 28% of its residents are now by two conservative industrialists and brothers, Charles and Da- Hispanic, and theyare strikinglyyoung. Add a fast-growing Asian vid Koch. On a crisp afternoon 22 days before the election, paid community and sizeable black population, and whites of Euro- canvassers from the Libre Initiative, a Koch-supported group that pean descent will lose majority status by the decade’s end, a seis- promotes free markets and limited government to Hispanics, mic event that will occur in America as a whole by mid-century. knocked on doors in a Reno suburb. Ostensibly conducting a sur- For a Democratic Party increasingly reliant on urban, non-white vey, the canvassers read questions from digital tablets such as: and young voters, Nevada looks a cheering vision ofthe future. “Democrat Catherine Cortez Masto has proven to put special in- Strength on papercan be deceiving, though. Strip out non-citi- terests ahead of job growth and our children’s future. This No- zens and minors, and fewer than half of Nevada’s Hispanics are vember 8th, will you be sending a message by voting against eligible to vote. Moreover, Nevada’s non-whites are on average Catherine Cortez Masto for US Senate?” After several such lead- younger than their white neighbours, and less educated—both of ing questions, a sleepy Latino shift-worker in pyjamas agreed he which predict low turnout. And when the electorate is much was less likely to backher. On the left, union-funded ads have dis- smaller than usual, as happened in the mid-terms of2014, Demo- torted Dr Heck’s views on pensions and other issues. In 2016 the crats get thumped: high conservative turnout in “the rurals”, as poison starts at the national level and trickles down. 7 The Americas The Economist October 22nd 2016 33

Also in this section 34 Bello: A model artist 36 Clowns in Cuba 36 Informality in Latin America

Canada’s climate policy reaching C$50 by 2022. Then the system will be reviewed. Mr Trudeau’s plan is not Let the haggling begin ambitious enough to meet Canada’s emis- sions-reduction target; some analysts think the price should be C$200. But it is a start. Provinces will be free to choose the system OTTAWA that best suits local industry. Those that opt for cap-and-trade schemes will have to With the announcement ofa national carbon price, Justin Trudeau opens a new meet or exceed Canada’s target of cutting phase ofhis government emissions by 30%. Provinces will be al- HIS is betrayal,” thundered Sas- some provinces came up with their own lowed to keep the money they raise. “Tkatchewan’s long-serving premier, schemes. British Columbia introduced a That will not mollify them. Energy-pro- Brad Wall. His grievance: the decision this revenue-neutral carbon tax in 2008; it is ducing provinces, such as Alberta, Sas- month by Canada’s prime minister, Justin now C$30 ($23) a tonne. Quebec linked its katchewan and Newfoundland & Labra- Trudeau, to set a minimum price for car- cap-and-trade system, which issues trad- dor, worryaboutthe effectofcarbon prices bon emissions that all provinces would able permits to emit greenhouse gases up on the oil industry and on export-depen- have to adhere to. Since takingoffice nearly to a certain level, to that of California. On- dent livelihoods, such as lentil farming. a year ago, Mr Trudeau and his ministers tario plans to join. Energy-producing Al- They are in the second year of a recession have spent much of their time consulting berta levied a small tax on large emitters. It caused by a slump in oil prices. Citizens in the provinces (and ordinary Canadians) plans a C$20-a-tonne tax on emissions those provinces are hostile, although 63% on such issues as judicial reform and de- from fuel. Some 80% of Canada’s popula- of Canadians support Mr Trudeau’s cli- fence. His carbon-price announcement tion is covered by a carbon-pricing scheme mate policy, according to a new poll. On marks a transition from talking to acting, ofsome kind. October 3rd, the day he announced it, the and a new contentious phase in relations Now MrTrudeau wants a national stan- environment ministers of Saskatchewan, between the federal government and the dard, in part to discourage firms from mi- Nova Scotia and Newfoundland & Labra- ten provinces. Canada’s grand political ba- grating to provinces, like Saskatchewan, dorwalked outofa meetingwith the feder- zaar, in which the prime minister and the with no carbon price, or with very low al minister, Catherine McKenna. “Now is premiers strike the bargains that deter- ones. The national price will start at C$10 a not the time forthat levy,” MrWall says. mine how the country will be governed, is tonne in 2018 and will rise by C$10 a year, Most premiers sense more opportunity again open for business. than threat in Mr Trudeau’s plan, seeing it Despite Mr Wall’s profession of shock, as a chance to extract goodies from the fed- the carbon-price policy is no surprise. Mr We see thee rise eral government. Friendly collaboration is Trudeau has made it plain that, unlike his Canada, greenhouse gas emissions finished, says Tracy Snoddon of the C.D. Megatonnes of CO equivalent Conservative predecessor, Stephen Har- 2 Howe Institute, a think-tank. Now “a per- per, he takes the threat of climate change 900 iod of hard bargaining, posturing and de- FORECAST† seriously. One of his first acts in office was mands for compensation and concessions to agree last December to sign the Paris cli- 800 begins.” Rachel Notley, Alberta’s premier, mate accord, under which Canada is to re- gave Mr Trudeau a taste of what is in store duce its emissions of greenhouse gases by 700 when she huffed that she would not sup- 2020 target 30% below the levels of 2005 (see chart). 600 port a national carbon price until she saw The deadline is 2030. Although Canada progresson plansfora pipeline to carry her 2030 target emits just 2% of the world’s greenhouse 500 province’s crude oil to one of Canada’s gases, it is one of the world’s biggest emit- ** coasts. Quebec wants the federal govern- ters per person. Without carbon pricing, it 1990 2000 10 20 30 ment to give $1 billion to Bombardier, a will not keep its climate promises. Source: Environment and *Estimate †Based on polices struggling aircraft-maker. Other provinces Climate Change Canada announced before Sept 2016 During Mr Harper’s laissez-faire reign, have their own wish-lists. 1 34 The Americas The Economist October 22nd 2016

2 The biggest prize, universally coveted, population will add to the pressure. A years forhome care by Mr Trudeau’s Liber- is more federal money for health care, the spate of elections will sharpen some pre- al Party during the election campaign. largest item in provinces’ budgets. To help miers’ hunger for popularity-boosting During his decade-long tenure, Mr Har- pay for it, the federal government will this cash. British Columbia votes next May; per avoided meeting premiers as a group, year give them C$36 billion, its biggest fourother provinces will do so in 2018. knowing they would press him for money. transfer. This has been growing by 6% a The federal government is cautious. Mr Trudeau is a more collegial sort. He will year since 2004. Mr Harper’s government Jane Philpott, the health minister, notes parley with the provincial chiefs on De- decided that from 2017 the rate of growth that overall spending on health care has re- cember 8th and 9th, knowing what to ex- would fall to thatofnominal GDP, which is cently risen at less than half the rate of fed- pect. His agenda will be to push forward projected to average 3.8% over the next few eral transfers. That suggests that provinces his plan to make Canada a more responsi- years. (There is a floor of3%.) have been taking advantage offederal gen- ble consumer of energy. The premiers will That is what really worries the prov- erosity to spend money on other things. try to change the subject. In the end, some inces. Seven will have budget deficits this She says that the only extra money avail- sort of bargain will be struck. It’s the Cana- year. The rising cost of caring for an ageing able is C$3 billion promised over four dian way. 7 Bello A model Latin American

The concrete message ofan abstract artist HIS has been a good year for Joaquín vative, Catholic artistic circle, linked to Cat- port. Hisconstructivistpanelswere some- TTorres-García, a Uruguayan artist who alan nationalism. He worked with Antoni times painted in blackand white, or in the died in 1949 but whose reputation contin- Gaudí, the architect, on stained-glass win- gently glowing primary colours of ues to wax. Last winter the Museum of dows for the cathedral at Palma de Mallor- stained glass; sometimes they were Modern Art(MoMA) in NewYorkstaged a ca. Such was his success as a painter that he scored onto wood. panoramic exhibition of his work; after was awarded a commission to decorate a In Paris Torres-García became friends summering in Madrid, the exhibition chapel at the Palace of the Generalitat, to- with Piet Mondrian and Theo van Does- opened this month at the Picasso Muse- day the seat of the Catalan government. burg, two Dutch abstract painters. But he um in Malaga. Last November one of his But his bold symbolist frescoes offended rejected their dogmatic divide between large “constructivist” panels, as he called traditionalists and were later covered up. abstraction and figuration; his stance is them, sold for $2.1m at auction, a record That rebuff and two years in New York taken by many artists today. Rather, he price for his work. A more intimate exhi- propelled Torres-García to an art ofthe pre- counterposed abstraction to what he bition at the Guillermo de Osma gallery sent. After dabbling in futurism and Cu- called “the concrete”, while marrying the in Madrid showcases both his sketches bism in vibrant street scenes, and moving modern to the primitive. He sought a uni- and his craftsmanship as a maker of to Paris, he arrived in the late 1920s athisar- versal language, deep in the unconscious, wooden sculpture and toys. tistic destination: what he called “architec- of visual symbols. While indigenism im- This interest in Torres-García shows tural art” or “constructive universalism”. prisoned Latin American art in folklore, that an artist who sometimes seemed be- On a geometric grid he assembled pared- Torres-García incorporated pre-Columbi- hind his times was, in many ways, ahead down symbolic pictograms. There is an es- an imagery, from Inca walls and Nazca ce- of them. He was a bridge between Latin oteric quality to these recurring stylised ramics, into that universal language. America and the diverse vanguardsof the objects: man, woman, fish, anchor, clock, In Paris he was at last able to make a School of Paris. More important, he gave bottle and so on. They drew on the orderly living from painting. Then the Great De- birth to a radical tradition of abstract and shelves of his father’s shop in Montevideo pression struck. In 1934, aged 60, Torres- geometric art in South America. To out- and his childhood memories of its great García set out for Uruguay, more than 40 siders, Latin American artmeansthe Mex- years after he had left it. There, in a tall ican muralists, Frida Kahlo and “indige- house just offthe main square in the colo- nism” (the highlighting of pre-Columbian nial centre ofMontevideo thatistoday his roots). But the abstract tradition is coming museum, he founded the School of the into its own. This week Patricia Phelps de South to teach constructive universalism Cisneros, a collector, donated to MoMA to a younger generation of artists. It was 102 works of geometric abstraction from perhaps the most successful venture of the region (see page 71). his chequered life. Large posthumous ex- Torres-García was an unlikely artistic hibitions of his late work in Brazil in the revolutionary, an “Arcadian Modern” as 1950stestified to that. the MoMA exhibition puts it. Yet he spent Torres-García was the most original his long life in an ultimately successful and thoughtful artist Latin America has search foran artistic language that offered produced. His claiming of its indigenous answers to the fundamental question heritage as part of a universal human ex- that faces all Latin American artists—who perience is a welcome antidote to those in are we? Europeans or Americans, colonis- the region who would turn their backs on ers, indigenous or mestizos? the world. In a continent given to frag- The child of a Catalan émigré mer- mentation, so is his insistence on synthe- chant and a Uruguayan mother, Torres- sis and unity. In these senses, Torres-Gar- García moved with his family to Barcelo- cía, who became a cantankerous old man na in 1892, when he was 18. There he was in a straggling white beard and a long drawn to classical Greek art and a conser- overcoat, was a model Latin American. Tough times 8&9 NOV 2016 don·WODVW KUALA LUMPUR (But great leaders do)

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36 The Americas The Economist October 22nd 2016

Informality in Latin America Casual Mondays to Fridays

The high cost ofjoining the formal sector ORE than halfofall workers in Latin the 18 countries covered by the report, MAmerica are employed offthe that share would be more than 100%. books in the informal economy. That Latin American tax burdens are not share has barely fallen since 2003. Infor- excessive by rich-world standards. For mal workers are excluded from safety-net workers earning average wages in the programmes such as pension plans, formal sector, the tax take is less than 22%. unemployment insurance and some Income taxes begin to bite only at the public-health services. highest salaries. But forlow-paid work- Clowns in Cuba A report by the OECD, a club ofmostly ers, especially those earning less than rich countries, shows one reason why unrealistically high minimum wages, the The red-nosed workers remain in the shadows: the cost cost ofbecoming formal is prohibitive. offormality is too high (see chart). A large Even workers who could afford to gold rush share ofemployees—from at least 20% in make social-security contributions are Bolivia to at least 80% in Honduras—earn often reluctant to do so. Some doubt that HAVANA wages that are below their country’s state pension schemes will be solvent by statutory minimum. Social-security the time they retire. Others are deterred There’s money to be made wearing contributions, iflow-wage workers paid by the poor quality ofpublic health-care floppy shoes them, would consume much oftheir programmes. The OECD would like the NE recent Saturday afternoon three incomes. For the poorest tenth, contribu- state to subsidise social-security pay- Operformers, dressed in clownish fin- tions owed by both employers and em- ments by people who earn the minimum ery, clambered out of a rusty 1950s pickup ployees would average three-quarters of wage or less. That might induce some to truck in a suburb of Havana and spent the their wages (ifthose workers paid the join the formal economy. But formality is next hour cavorting, breakdancing and sa- amount levied on formal employees unlikely to become the norm ifthe bene- shayingforthe amusement ofa dozen chil- earning the minimum wage). In five of fits that go with it continue to be so poor. dren. One of the troupe, Ángel Kike Díaz, a cartoon-voice star and stage puppeteer, is a Cuban celebrity. As a clown employed by Priced out the state, he makes a salary worth $30 a month. A single children’s birthday party Latin American informal labour market and taxes Average labour cost in formal sector † will pay him nearly that much. 2013 $’000 , 2013 With inducements like that, clowning is 160 01020304050 a growth industry in Cuba. A timid eco- Mexico Latin America nomic liberalisation has created a small 140 100 Employees who 10 OECD After-tax wage entrepreneurial class and attracted for- are informal, % 120 Minimum wage level Social security tax eigners with money to spend on private Personal income tax displays of pranks and pratfalls. It has also 100 opened up the clowning profession. Colombia “Clowns”, “party entertainers”, and 80 “party-service providers” are among the Brazil 181 jobs that may now be done by self-em- 60 ployed workers. At least 200 clowns romp 40 around Havana at such events as quinceañ- Arg. Mexico Argentina Brazil Colombia eras (15th-birthday celebrations for girls), 20 Social-security as % of wages* owed taxes Mexico weddings and feasts honouring the saints Bolivia ofSantería, an Afro-Cuban religion. 0 Honduras 12345678910 Clowning is a Cuban vocation, brought POOREST RICHEST by French and Spanish settlers in the 18th Income decile Sources: OECD; The Economist *If the taxman assumes workers make at least the minimum wage †Adjusted for purchasing-power parity century and Americanised in the 20th (the Ringling Brothers and Barnum & Bailey cir- cus visited in 1949). Fidel Castro shookup a Around half the moonlighting payasos packed with entertainment downloaded largely hereditary profession by founding are graduates of the national school. illegally and passed from house to house. the National School of Circus in the 1970s, Among the self-taught are a doctor, a for- Stingy with freedom and consumer staffed largely by clowns trained in the So- mer priest and a postal worker. Clowns goods, the communist system provides viet Union. Its alumni are mostly on the with proper credentials do not appreciate plenty of subjects for comedy, though payroll of the ministry of culture. Hard the competition. “The amateurs are like clowns must be cautious in exploiting times came with the fall of the Soviet Un- bad weeds,” says one. Cuba does not make them. One skirtsthe bordersofwhatis per- ion. Teachers went home; circuses closed. it easy foreithersort to freelance. With rub- missible by satirising Cuba’s police. “We The school stopped training clowns in ber noses and floppy shoes in short supply are natural clowns,” says a payaso who 2010. When the circuses eventually re- at home, clowns buy them when they or combs his hairinto a spiky ponytail that re- opened, it was with fewer animals but a friends go abroad. The regime restricts ac- sembles a Wi-Fi antenna. “When we open full complement of clowns. “It’s easier to cess to the internet, so clowns advertise our fridges in the morning and see that feed a clown than an animal,” jokes one. their services on the paquete, a hard drive they’re empty, we laugh.” 7 Middle East and Africa The Economist October 22nd 2016 37

Also in this section 38 Discontent in Jordan 39 Saudi Arabia’s religious police 39 Apartheid returns, as farce 40 Improving African justice

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

Iraq tarian units. Another 6,000 or so mainly Sunni tribal forces have been recruited Marching on Mosul from the surrounding area. As well as the Kurdish Peshmerga, Shia popular-mobilisation forces, most of them backed by Iran, are keen to join the action. However, the aim is for them to secure ar- eas to the west of Mosul. They will do this Iraq’s second-largest city will be liberated from Islamic State. But at what cost, and by stopping IS fighters from fleeing into with what result? Syria, by helping take back the town of Tal HE time of victory has come...today returned as night fell to attack the Iraqi Afarand by stoppingTurkish-backed Kurds “TI declare the start of these victorious forces with suicide bombs, mortars and from entering Mosul. They seem to have operations to free you from the violence heavy machine guns. “No reinforcements accepted that they will not join in the fight- and terrorism of Daesh [Islamic State].” showed up so when they attacked we had ing for the city. Their entry there certainly With these words, broadcast at 2am on Oc- to retreatfrom the five villageswe captured would not be welcomed by the city’s tober 17th, Iraq’s prime minister, Haider al- on Tuesday. We ended up right backwhere mainly Sunni-Arab inhabitants, who Abadi, announced the start of the long- we started,” said Lieutenant-Colonel Mo- know the militias’ reputation for killing awaited offensive to liberate Mosul, the hammed Hadi. “We took back three today suspected “collaborators”. country’s second city. First captured by the but we can’t advance further towards Mo- The plan for retaking Mosul has been jihadists in June 2014, itisthe only big town sul until the others arrive.” . adapted from a well-thumbed manual. in Iraq that they still hold. It is too early to say how stiff a fight IS The liberation of Fallujah, which took less This will be the most complex military will put up. It has had many months to pre- than four weeks in June, provides a tem- operation in the country since the Ameri- pare its positions—tunnels have even been plate. The opening phase ofthe battle is es- can invasion in 2003. The opening phase dug in some ofthe outlying villages. It may sentially an ever-tightening encirclement alone may take several weeks. It began take another week for Iraqi forces to reach operation intended to cut off the IS fighters 1 with some 4,000 Kurdish Peshmerga the outskirts of the city, and another forces advancing on three fronts from the month to achieve a degree of control with- Dahuk east to within about eight miles (13km) of in it. Some commanders are even more DOHUK NINEVEH the city. With support from attack helicop- cautious about the timetable. IRAQ ters and air strikes by the American-led co- Michael Knights of the Washington In- N i Mosul dam n KURDISH alition, their initial aim was to take control stitute, an American think-tank, describes e Tigris v FORCES of a number of IS-held villages covering a a multi-phased operation, which began e h 45-square-mile (115-square-km) area across with the refurbishment of the Qayyarah I Mosul p SL l AM a the Nineveh plain. Iraqi forces pushing up air base, some 40 miles south of Mosul, Tal Afar IC S i Direction TA n ISF TE of attack from the south were joiningthem as the of- after it was recaptured by the in early C ON October 17th fensive met its first objective, but briefly July. Qayyarah, which can now handle co- TR O SPARSELY L stalled because of bad weather, pockets of alition cargo aircraft, is both the logistical POPULATED IS resistance (including suicide-bombers) base and the collecting point for Iraqi Ibrahim Khalil MIXED IRAQI Direction of attack AND KURDISH and the need to clear large numbers of pre- forces gathering for the attack. About 600 October 17th FORCES viously buried roadside bombs. American military advisers (and special Qayyarah ERBIL Overall, the advance is still on track. But forces) arrived there a couple of weeks ago airbase SYRIASYRIASYRIA it took the Iraqi army six hours of fierce to train and prepare the Iraqis. In all, there IRAQ IRAQI combat on October17th to chase IS fighters appear to be some 25,000 Iraqi army and FallujahIRAQ SECURITY FORCES from Ibrahim Khalil, a village 20 miles special-forces troops in place. These, says Baghdad south of Mosul. Overpowered, the mili- Mr Knights, have been drawn from across 25 km tants fled into the parched plains. But they the countryto form multi-ethnic, cross-sec- Source: Institute for the Study of War 38 Middle East and Africa The Economist October 22nd 2016

2 inside the city from reinforcements or sup- Jordan plies and to seal off their escape routes west into Syria. The uneasy crown The second phase will see Iraqi forces meeting the enemy at an increasing num- berofpointsaround the edgesofthe city. IS positions in Mosul are already being pounded by French and American artil- AMMAN lery. Micro drones capable of transmitting Discontent is growing at King Abdullah’s increasingly autocratic rule imagesfrom inside buildingsare telling the gunners exactly where to aim. Once the TRUE triumph of progress over re- in all directions. position ofIS fighters is known, say Ameri- “A gression,” claimed King Abdullah, In the absence of a credible opposition, can military advisers, they can be quickly boasting about Jordan’s elections from the Jordanians are starting to look for less es- picked off by artillery or by coalition air- UN podium in New York on September tablished ways to make their voices count. craft stacked in the skies above Mosul. 20th, the day his kingdom went to the Across the kingdom, protesters have taken The third phase ofthe operation will be polls. ManyJordaniansthoughtotherwise. to the streets to denounce the gas deal and led by Iraq’s elite counter-terrorism units, Despite a relentless public-information education reform, despite a heavy police who will enterthe cityatdifferentpoints to campaign and the participation of the pro- presence. On October 9th riots erupted in kill those IS fighters remaining. The final Islamist Muslim Brotherhood for the first Quwaismeh, a suburb of Amman, after a phase will see the introduction of other time in nine years, turnout slumped to a series of police raids there. And with the Iraqi forces, including police, to help in dismal 37%, down from 56% at the election Brotherhood, Jordan’s historically pro-roy- mopping-up operations, defuse booby before. In parts of Amman, the capital, al Islamistmovement, widelyseen ascom- traps and begin the task of restoring gover- barely one in five of those eligible to vote pliant and divided, there are signs that the nance to the traumatised inhabitants. bothered to cast a ballot. aggrieved are finding more extreme out- Howsmoothlythingsgo will depend in The low turnout is a sign that many lets. Islamic State flags have been spotted large part on whetherIS sees the need to go people saw the elections as a waste of flying in Salt, an old trading town west of down fighting for propaganda purposes or time. The king swiftly reappointed the Amman. whether it makes a tactical retreat to Syria, same unelected cabinet with only a few The kingdom’s tranquillity is threat- perhaps to conserve its strength for a last minor alterations, and since then has pro- ened in other ways, too. Crime is climbing. stand there. It may well decide to fight be- ceeded to push through a host of decrees. At the end of September a well-known cause retreat may not be possible. When Wise but unpopular decisions to buy gas journalist, Nahid Hattar, was shot dead on fleeing IS convoys left Fallujah, they were from Israel and to revise the school curricu- the steps of Amman’s courthouse before a an easy target for prowling coalition air- lum by removing troublesome Koranic hearing on blasphemy charges; the killer craft. Some strategists have argued for an verses were issued as decrees. was an education-ministry official. In rural escape corridor to be left open. Ever since it was fashioned by Britain areas, where elections are fiercely con- Given the impossibility of defending after the first world war, Jordan has served tested as tribal shows of strength, the los- an area as big as Mosul, Mr Knights expects asa pro-Western outpostand a buffer keep- ers have blocked roads and clashed with IS fighters to fall back to a couple of places ing its petulant neighbours at bay. But as it police. “The ballotboxeswere stolen,” says where they can sell their lives most dearly. transforms from empty deserts roamed by Hind al-Fayez, a candidate who accused One is likely to be the government centre Bedouin into a populous Arab state, the the interior minister of corruption and in the west of Mosul; the other is almost kingdom shows signs of strain. Economi- then lost her bid for re-election. “They certain to be the narrow streets of the old cally and politically it is struggling to make were carried awaybythugswearingmasks city, where superiorfirepowerisleast effec- the transition, say critics; “plucky little Jor- before the eyes ofthe security forces.” tive and the danger to civilians is highest. dan” is acquiring some of the attributes of Ms Fayez has gone to court alleging that That the Iraqi government will retake the authoritarian regimes that surround it the vote was rigged, but even ifthe result is Mosul is not in doubt. But much else re- reversed she says she will not take her seat. mains uncertain. The battle could be over “Street movements have more power than in a few weeks, or it could drag on for parliament,” she says. Other disillusioned months. As IS control begins to slip, many politicians are also challenging the system. of the 1m or more civilians thought to be in A former parliamentarian from Tafila, in the city may try to escape. Preparations for southern Jordan, is trying once again to a big exodus have been made, but confi- register a new party calling for a true con- dence in them is not high. stitutional monarchy. Marwan Muasher, a In the slightly longer term, once the re- once loyal foreign minister, has launched a liefhas worn off, much will depend on the campaign forcitizens’ rights. confidence that Mosul’s citizens have in Jordan’s Western benefactors play Baghdad’s willingness and ability to se- down the unrest. “Little flashpoints,” says cure and rebuild their city. Strapped for a diplomat. But others wonder whether, cash by low oil prices and riven by sectari- after four years of successfully managing an divisions, the Iraqi government will the turbulence of the Arab spring, the need help from the international coalition. country is wobbling. Sunni Arabs will want more of a voice Economic hardship has accompanied within Iraq, and more power devolved the political. Growth has fallen to less than from Baghdad. Lastly, even when IS has 2%. Public debt has leapt to 93% of GDP lost its territory in Iraq, it may still be able since the Arab spring. A fresh bout of tax to wage guerrilla war. Unless the politics and price increases on essentials like water can be got right, the liberation of Mosul and bread is in the offing, as part of a loan could mark the end of one horror and the deal with the IMF. A huge refugee influx beginning ofsomething almost as bad. 7 Still plucky, but more nasty from Syria increases the battle for jobs and 1 The Economist October 22nd 2016 Middle East and Africa 39

2 resources. Economic trouble in the rich South Africa Gulf states, particularly in Saudi Arabia, suggests worse could be coming. Aid, tou- rism, investment and remittances (the last This other Eden Project GDP alone worth 14% of ), are all sharply JOHANNESBURG down. “The economy is based on foreign A plan fora whites-only town attracts minimal support aid,” says Samer Tawil, a former economy minister. “We cannot prosper without it.” AQUI GARYGRADWELL sports a actually pretty committed to making it Years of price rises and subsidy cuts Jbushy beard in the style ofhis voor- workwith each other,” he says. A survey have eroded the kingdom’s once-comfort- trekker ancestors—the pioneers who from the IRR found that 76% ofSouth able middle class. Amman, where almost fled British rule in ox-drawn wagons. Africans thought race relations had im- half of the country’s 9m people live, is the Also in the spirit ofthe voortrekkers, he proved or stayed the same since 1994, Arab world’s most expensive capital, but vows to lead his people away from op- when apartheid ended. In another poll, salaries are among the lowest. Cuts to edu- pression. Afrikaner culture is under 68% ofrespondents said that they expect- cation and health services feed discontent. threat in the new South Africa, he reck- ed a happy future forSouth Africans of The spectre of a friendly monarch un- ons. White people face “genocide”. So Mr all races. Nonetheless, according to the der pressure has long induced external pa- Gradwell (pictured) wants to lead like- Institute forJustice and Reconciliation, trons to stump up cash for Jordan. But for minded whites—40,000 ofthem, he another think-tank, more than halfof all its Western orientation, the kingdom re- predicts—to a farm in a remote part ofthe South Africans barely interact with peo- mains deeply conservative. Fewer women Eastern Cape to live together in an agrari- ple ofother races except when at work or go to work than in Saudi Arabia. Mr Hat- an idyll. while shopping. tar’s killermight have been a lone wolf, but A promotional video for Die Eden Still, some South Africans worry that social media was full of support for him. Projek (The Eden Project) contrasts images tough times may aggravate racial tension. Thousands of Jordanians are waging jihad ofblackrioters, blackcriminals and Youth unemployment is around 50%. abroad and might one day come back and President Jacob Zuma with soft-focus The economy is dicing with recession. Mr wage it at home. Jordanians felt the region- photos ofhappy white familieswith Zuma’s approval rating is a miserable 21%. al storm had passed them. Now they are tractors and chickens. It does not, how- A skilful demagogue could whip up fretting again about how strong their bor- ever, mention Mr Gradwell’s somewhat something nasty from these ingredients. ders are, and what depth of support the ji- chequered past, which includes being hadists could expect should they come. 7 convicted offirearms offences while living in America. Mr Gradwell’s plan has generated Saudi Arabia’s religious police many headlines but little support. Dis- gruntled whites already have an enclave, Advice for the vice but hardly anyone wants to live there. Orania, an Afrikaner-only town in the squad Karoo desert, has been around since 1991. Despite impressive organisation and RIYADH towering ambitions (it has its own cur- rency, the Ora, and a flag, which features The government wants the piety police a white boy rolling up his sleeves), it is to be less thuggish home to just1,100 people. Orania’s isola- OT long ago even members of the roy- tion has left it economically unattractive Nal family were cowed by Saudi Ara- and politically irrelevant. bia’s religious police, formally known as Frans Cronje ofthe Institute ofRace the Commission for the Promotion of Vir- Relations, a liberal think-tank, says that tue and the Prevention of Vice. The muta- news stories about white separatists can ween, as they are called in Arabic, roamed reinforce the gloomiest perceptions the malls and streets, enforcing the king- about South Africa: “that we’re only one dom’s strict interpretation of Islamic law. step away from a race war”. But they are Their zeal was matched only by their cruel- piffle. “Rankand file South Africans are A racially pure enclave of one ty. Most notoriously, in 2002 15 schoolgirls died in Mecca after members of the muta- ween allegedly prevented them from flee- the religious establishment. So many peo- minds.” ing a burning building because they were ple feared that the curbing of the piety po- Founded in 1940, the religious police not covered up. lice would turn out to be merely symbolic. were popular at first. (Many Saudis, after Today the mutaween are a weakened But six months on, the change is striking. all, favour virtue and deplore vice.) In 1979, force, partly thanks to social media. Saudis The mutaween, thought to number several after Islamic extremists seized the Grand have taken to filming their excesses and thousand, have disappeared from public Mosque in Mecca and denounced the roy- posting the footage online. Anyone with a spaces. In Riyadh, the capital, men express al family, the state doubled down, handing smartphone can watch these courageous relief at not being hounded to attend more power to conservative clerics and al- guardians of virtue harassing women for mosquesduringprayertime. Women wear lowing the mutaween to grow more asser- wearing nail polish. This has provoked a more colourful (and sometimes open) tive. There were few repercussions when, backlash. In April the government de- abayas, a mandatory robe-like overgar- for example, they reportedly chased two clared that the mutaween could no longer ment. “Nowwhen I leave myhouse, I don’t brothers off a bridge in 2013 for playing stop, pursue or arrest people and ought to expect someone chasing me in his car. loud (though patriotic) music in their car be “gentle and kind” in their conduct. When I go to the shopping centre, they are on Saudi Arabia’s national day. Still, as the government enacts painful not following me,” says Fawzia al-Bakr, an Now, instead of dishing out punish- economic reforms, it needs the support of activist and writer. “They were out of their ments on the spot, the mutaween must re-1 40 Middle East and Africa The Economist October 22nd 2016

2 port violators of Islamic law to the police. prison. A stricter chain of command now creasingly guide people through complex The government is also trying to suppress has them answering directly to the king. bureaucracies or demand that promises vice among the vice-suppressors. Many Liberals applaud the changes, but few are kept. In Kenya, theyhelp stateless Nubi- mutaween were ex-convicts whose only Saudis believe the mutaween should be ans acquire citizenship. In Mozambique qualification for the job was that they had completely disbanded. Conservatives fear they secure access to anti-retroviral drugs memorised the Koran in order to reduce that morals will decline if less vigorously forpeople with HIV. The Community Law their sentences, wrote Lawrence Wright in policed. In April a prominent cleric, Nasser and Rural Development Centre, which his book, “The Looming Tower”. Now they al-Omar, said the mutaween should be giv- runs paralegal offices in KwaZulu-Natal, must be “of good character and behaviour, en more power, “otherwise, this portends South Africa, recovered 4.3m rand known for their good reputation” and great danger.” Such as women flagrantly ($300,000) last year from unpaid state must not have served more than a year in wearing nail polish, presumably. 7 benefits and the like. Paying for all this is hard. Most parale- gals are funded by foreign donors; this can Justice in Africa mean that programmes are cut back when fashions change. One South African ad- Poor law vice centre finances itself through a recy- cling business. Barefoot Law, a Ugandan non-profit run by volunteer lawyers, uses phones and social media to reach people cheaply. In Sierra Leone, a new land policy GULU requires investors to pay into a fund sup- porting local paralegals (who help resolve The rise ofparalegals land disputes, among other things). Lotta ODFREY EBREYU has a captive audi- disputes, such as arguments over land, re- Teale ofOpen Society Foundations, a char- Gence, in every sense. A throng of in- ducing pressure on formal courts. That can itythatpromotesbettergovernance, wants mates has gathered in the prison yard in create tensions with traditional leaders, donors to set up endowments to pay for Gulu, northern Uganda, as he explains the who play a similar role (and often charge paralegals overthe longterm, though obvi- intricacies of plea-bargaining. Like 55% of for it). Mechanisms such as community- ously this would be expensive. prisoners in Uganda, these men are await- oversight boards can reassure local big Only a few countries recognise parale- ing trial; some have been here for years. shots. Keepingthe chiefs onside gives para- gals in law. Bar associations can be sniffy, They are still asking questions when, at legals space to nudge customary law in pointingoutthatsome paralegalstake only four o’clock, they are ushered back into more progressive directions, giving a big- a two-week crash course before being their crowded cells forthe night. ger voice to women and the young. thrust into the field (though others train for MrEbreyu is a paralegal workingfor the Paralegals are particularly important in two years). Organisations that employ Foundation for Human Rights Initiative, a societies under stress. “Most prisoners are paralegals could do more to monitor stan- Ugandan NGO. Paralegals have some legal here as a result of land wrangles,” says dards and maintain databases ofcases. training, but they are not lawyers. Across AcengJolly, a paralegal in Gulu, where land The challenge is to become more pro- Africa they are helping to unclog courts, re- disputes have intensified as people return fessional while retaining the grassroots solve disputes and bring justice to the most to villages abandoned in war: it only takes ethos. The best paralegals teach people to vulnerable, from suspects deprived of a flying fist or a false accusation to turn a solve problems themselves, says Vivek their liberty to farmers robbed of their civil issue into a criminal one. South Afri- Maru ofNamati, an international legal net- lands. Some are paid, others are volun- can paralegals trace their origins to the work. Take Boxton Kudziwe, a mobile- teers; they typically work for civil-society anti-apartheid struggle. Sierra Leone’s phone salesman in Malawi. He was groups and tend to be locals. landmark legal-aid law, which promises charged in 2006 with murder and spent Their work is desperately needed. Afri- paralegals in every chiefdom, was in part a seven years in prison awaiting trial, only to ca’s people are mostly rural and poor; its response to the injustices which stoked a be found not guilty. Today he works as a fully qualified lawyers are mostly urban brutal civil war. paralegal, using his experience to help oth- and expensive. In Uganda just one in a Even where states function well, they ers get bail. “Then I was ignorant,” he says, hundred disputes ever reaches a lawyer. need to be held accountable. Paralegals in- recalling his arrest. No longer. 7 When the civil war ended in Sierra Leone, the country’s legal fraternity could have fit- ted in a couple ofbuses. In Malawi, murder trials were suspended in April this year be- cause the legal-aid board couldn’t afford defence lawyers; it has just nine of its own, and fourofthose are studying abroad. Paralegals cannot take the place of law- yers in court. But legal representation is “the tip of the iceberg”, says Clifford Msiska, who runs the Paralegal Advisory Service in Malawi. His workers teach those on remand how to ask for bail. They sift cases, alerting the courts when someone has been held beyond the legal limit. They track down relatives to stand surety, and push for children to be diverted into reha- bilitation programmes instead ofprison. Criminal justice is just the start. In many places paralegals mediate in civil SPECIAL REPORT RUSSIA October 22nd 2016

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Inside the bear

When the Soviet Union collapsed 25 years ago, Russia looked set to become a free-market democracy. Arkady Ostrovsky explains why that did not happen, and how much of it is Mr Putin’s fault ON AUGUST 20th Guzel Semenova, a 25-year-old Muscovite, was stroll- CONTENTS ing through the grounds of Muzeon, one of the city’s parks, and stopped by a burnt-out, rusty trolleybus. Inside its shattered interior a small video 5 The economy screen was playing black-and-white footage of events that unfolded in Milk without the cow the year she was born. A volunteer explained that the trolleybus had 9 Power structures been part of an anti-tank barricade during a coup 25 years ago and sym- Wheels within wheels bolised the people’svictory. MsSemenova looked confused. The 22-year- old volunteer, herself unsure what exactly had happened during those 10 Foreign policy three days in August 1991, said it was when “Russia became free.” Ms Se- The fog of wars menova listened politely, then 13 Modern life walked on. Tell me about Joan of Arc A patchy knowledge of those events is nothing unusual 15 Past and future in Russia. A survey by the Levada Take care of Russia Centre, the country’s leading in- dependent pollster, shows that half the overall population and as many as 90% of young Rus- sians know nothing about the drama that began in the small hours ofAugust19th 1991. That morning the world woke up to news ofa coup. Mikh- ail Gorbachev, the last Soviet leader, was detained in Crimea, “unable, for health reasons, to perform his duties”. Power had been seized by a group of hard- line Communists, the chief of the KGB and senior army generals, who declared a state of emergen- cy. Tanks were rumbling through the centre of Moscow. The televi- sion, overrun bythe KGB’sspecial forces, was playing Tchaikovsky’s “Swan Lake” on a loop. It was a last, desperate attempt to save the disintegrating empire. But on the day of the coup ACKNOWLEDGMENTS not a soul came out to support the Soviet regime. Instead, tens of thou- In addition to those mentioned and sands of Muscovites took to the streets to build barricades and defend quoted in the text, the author would their new freedoms. Boris Yeltsin, the first democratically elected presi- like to thank: Evgenia Albats, Erik dent of Russia, then a subordinate part of the Soviet Union, called for re- Berglof, Carl Bildt, Baiba Braze, KGB Anton Drel, Natalia Fishman, Mikhail sistance. The ’s special forces were told to attack the Russian parlia- Fridman, Alexander Gabuev, Sergei ment, the epicentre ofthe opposition, but nobody was prepared to give a Guriev, Andrew Higgins, James Hill, written order. Two days later three young men died under a tank. A few Eduard Khayrullin, Andrei Kurilkin, hours after that the troops were withdrawn and Gorbachev returned to Maria Lipman, John Lloyd, Igor KGB Malashenko, Rustam Minnikhanov, Moscow. Jubilant crowds marched to the ’s headquarters and top- René Nyberg, Risto Penttilä, Peter pled the statue ofits founder, Felix Dzerzhinsky. Pomerantsev, Irina Prokhorova, Those three days marked the end of the Soviet Union, but they did Eugene Rumer, Inna Solovyova, not become a foundation myth for a new Russia. The country was tired Constanze Stelzenmüller, Angela Stent, John Thornhill, Alex Wilbra- of myths. Modern school textbooks barely mention them. Russian offi- ham, Martin Wolf and Andrei Zorin. cials used to lay flowers at a small monument to the three young men killed by the tanks, but even this modest gesture stopped in 2004. This A list of sources is at year liberals were banned from marching to the place of their victory 25 1 Economist.com/specialreports

The Economist October 22nd 2016 3 SPECIAL REPORT RUSSIA

2 years ago. The small festival at the Muzeon attracted a few hun- has been emasculated, turning Russia into a unitary state. dred people who watched a stylised performance of “Swan Reactionary restoration at home has led to aggression Lake” and a documentary from those days. Shot in St Petersburg, abroad. Russia has invaded Georgia and Ukraine, two of the the cradle of the Bolshevik revolution, it showed a vast, peaceful most democratic formerSoviet republics. Ithas intervened in the crowd in the main square watchingthe death throesofthe Soviet conflict in Syria, propping up the regime of President Bashar al- empire. The camera also captured a young Vladimir Putin by the Assad. It has attempted to undermine Euro-Atlantic institutions, side of his boss, Anatoly Sobchak, then the mayor of St Peters- backed right-wingpartiesin Europe and tried to meddle in Amer- burg, who had defied the coup. A demonstrator was heard to ica’s presidential election. And it is once again using the threat of shout: “When we get rid of the communist plague, we will again nuclear arms to blackmail the West. become free and we won’t have to fight [a war] again.” After the defeat of the 1991 coup, Russia was widely expect- The revolution of1991overturned the Soviet Union’s politi- ed to become a Westernised, democratic, free-market country. cal, economic and social order and put 15 countries on the map This special report will explain why that did not happen, and ask where there had previously been only one. But like many revolu- whether the West has a Putin problem or a much deeper and tions in history, itwas followed by a restoration. more enduring Russia problem. The tsar the Kremlin most admires is Alexander III, who on Mr Putin was originally chosen for the top job by Yeltsin, taking office in 1881reversed the liberalisation overseen by his fa- Russia’s first president, not least for being on the “democratic” ther, who was assassinated, to impose an official ideology ofOr- side in 1991. When he came to power in 2000, he was expected to thodoxy, nationalism and autocracy. His portrait and his famous consolidate the country. Instead, he has reinstated an archaic saying, “Russia has only two allies: its army and its navy,” greet model ofthe state. visitors to a revamped museum of Russian history at VDNKH, a It was naive to expect that after 74 years of Soviet rule, and prime example of Stalinist architecture in Moscow. Stalin him- several centuries ofpaternalism before that, Russia would rapid- self has had a makeover too. Gigantic portraits of him line the ly emerge as a functioning Western-style democracy. But this re- roads in Crimea, proclaiming: “It is our victory!” port will show that Russia’s relapse into an authoritarian cor- The two main pillars of the Soviet state, propaganda and porate state was not inevitable. It was the result of the choices the threat ofrepression, have been restored. The KGB, which was made by the country’s elite at each new fork in the road. And al- humiliated and broken up in the aftermath ofthe coup, has been though those choices cannot be unmade, they do not predeter- rebuiltasthe main vehicle forpolitical and economicpower. The mine the future. secret police is once again jailing protesters and harassing civil activists. In September the Kremlin designated the Levada Cen- Not the Soviet Union tre a “foreign agent”, which could be the end of it. Television has The collapse ofthe Soviet Union brought a massive change been made into a venomous propaganda machine that encour- to Russia. The creation ofprivate ownership launched industries agespeople to fight“national traitors” and “fifth-columnists”. Bo- that did not exist before, such as private banks, restaurants and ris Nemtsov, a liberal politician who once represented Russia’s mobile-phone networks. People are free to make money, con- hopes of becoming a “normal” country, was murdered outside sume and travel on a scale never seen before in Russia’s history. the Kremlin last year. Theyconsume notjustmore goodsand servicesbutmore culture After nearly a decade of economic growth spurred by the and information. The state no longer dominates people’s lives. market reforms of the 1990s and by rising oil prices, the Russian Although it controls television, the internet remains largely un- economy has descended into Soviet-era stagnation. Competi- constrained everywhere, and radio and print still have some tion has been stifled and the state’s share in the economy has freedom. Even Alexei Navalny, an opposition politician, admits doubled. The military-industrial complex—the core of the Soviet that “despite the curtailing of political and civil freedoms, the economy—is once again seen as the engine of growth. Alterna- past 25 years have been the freest in Russian history.” tive power centres have been eliminated. Post-Soviet federalism People are becoming increasingly alienated from politics, as demonstrated by the low turnout in the parliamentary elections in September, buttheyare findingotherwaysofexpress- Russia redux ing their views. Although few Russians re- Brent crude oil price, $ per barrel memberquite howthe Sovietregime end- Russia ramps up propaganda offensive against the West Failed coup by the KGB and Communist hardliners 140 ed, many enjoy the results. Russia has a against Mikhail Gorbachev’s government Putin launches air strikes on Syria vibrant urban middle class which, until Gorbachev resigns as the last president 120 recently, was richer than its equivalents in of the Soviet Union. Boris Yeltsin Mikhail Khodorkovsky, owner becomes president of Russia of the Yukos oil company, jailed eastern Europe. Russia’s cities, with their and launches market reforms and his firm dismembered 100 cafés, cycle lanes and shopping streets, Armed revolt by Communist hardliners and nationalists fails. Russia passes Orange don’t look very different from their Euro- its first constitution revolution 80 pean counterparts. Yeltsin re-elected in Ukraine Russia hosts A new generation of Westernised Financial crisis winter Olympics and rouble in Sochi, then 60 Russians born since the end of the Soviet devaluations annexes Crimea Union has come of age. The children of Vladimir Putin and starts war in eastern Ukraine the Soviet intelligentsia—a vast educated succeeds Yeltsin 40 as president Start of Euromaidan revolution in Kiev professional class that supported Gorb- achev—dress, eat and behave differently Street protests in 20 Moscow against rigged from their parents’ generation. They have First War with parliamentary elections Chechen war Second Chechen war Georgia and third term for Putin a spring in their step. 0 1991 95 2000 05 10 15 16 Many of these young, educated Rus- sians owe their comfortable lives to a dec- Sources: Haver Analytics; The Economist ade of economic growth that began in 1

4 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

winter Olympics ever staged, in Sochi on the Black Sea. The host Mr Putin’s country’s athletes got the largest number of gold medals, not Russia is a least thanks to a massive doping operation in which the Federal Security Service (FSB), the KGB’s successor and Russia’s main se- slippery curity organisation, swapped urine samples through a hole in construct the wall between an official laboratory and a secret one next door. (That caused many Russian athletes to be banned from this in which year’s Rio Olympics.) In the same way that Russia has been dop- simulation ing its athletes, its state media have been doping the population with military triumphs and anti-American propaganda, convey- and bluff ingan artificial sense ofstrength. Butunlike those sport victories, play a big Russian violence in Ukraine and Syria is real enough. Mr Putin’s restoration project is working because the disin- part tegration of the Soviet Union was not complete. The remains of the Soviet and even pre-Soviet system, its institutions, economic structure and social practices, which lay dormant during the first post-Soviet decade, have been revived and strengthened by the current regime. But just as the Soviet and pre-Soviet legacies cannot be erased, nor can the quarter-century since the USSR ceased to ex- 2 1998 and ended with the economic crisis in 2008-09. The impact ist. The fundamental conflict between a modern lifestyle and the of that crisis exposed the limits of Mr Putin’s model of gover- political restoration under Mr Putin, exposed by the protests of nance. And although economic growth recovered fairly quickly, 2011-12, has been suppressed, not resolved. No restoration has trust in Mr Putin’s model of governance declined sharply, from everended in a return to the past, and none has been permanent. 35% at the end of 2008 to 20% in early 2012, whereas support for Russia, perhaps more than other countries, advances Western-style democracy shot up from 15% to 30%. through generational shifts. The current reactionary phase may Those who felt that Russia needed both economic and po- turn out to be no more than a detour on the path towards a mod- litical modernisation pinned their hopes on Dmitry Medvedev, ern, federalist nation state. Or it could lead to further decline, in- who served as president from 2008 to 2012. The Russian elite terspersed with outbursts ofaggression. Which is it to be? 7 wanted him to stay for a second term, but in September 2011 he announced that Mr Putin, who was then prime minister, would resume the presidency, while Mr Medvedev would become The economy prime minister. He indicated that this job swap had been planned right from the start of his presidency. Many people felt they had been duped. When three months later the Kremlin bla- Milk without the cow tantly rigged the parliamentary elections, they tookto the streets, demanding the same sort of respect from the state as citizens as they were enjoying as private customers at home and abroad. They wanted Russia to become a European-style nation state, an Political reform is an essential prerequisite to a idea formulated by Alexey Navalny, an anti-corruption blogger who had galvanised the protests through social media. His defi- flourishing economy nition of the governing United Russia as a party of “crooks and JUST ACROSS THE mighty Volga river from Sviyazhsk, an thieves”, and the mood ofprotest, spread across the country. island fortress built by Ivan the Terrible in 1552 to help him Mr Putin was rattled and angry, but having witnessed the conquer the Khanate of Kazan, stands a brand new city. It is the failure of the 1991 coup he knew that tanks were not the answer. first to appear on Russia’s map since the fall ofthe Soviet Union. Instead he trumped civic nationalism with the centuries-old Innopolis, 820km (510 miles) due east of Moscow, was founded idea of imperial or state nationalism, offering the idea of Russia in 2012 as an IT park and a model for the sort of modernisation as a besieged fortress. In 2014 he annexed Crimea. The tactic that Dmitry Medvedev, Russia’s prime minister and before that worked. The protests stopped and Mr Putin’s personal approval itspresident, had proclaimed a main priority. Nowtwo years old, ratings shot up from 60% to 80%. By attacking Ukraine after its it is the smallest town in Russia, with the large ambition to own revolution in 2014, Mr Putin persuaded his country and its launch the countryinto a high-tech era. Designed byLiu Thai Ker, neighbours that any revolt against the regime would be followed the chiefarchitect ofSingapore, it has a university where 350 stu- by bloodshed and chaos. dents are taught in English. Just half an hour’s drive away is Ka- zan, the capital of Tatarstan, an oil-rich republic that has recently Smoke and mirrors adopted a new15-year strategy to turn itselfinto a hub of creativ- The Soviet Union had many faults, but postmodernism ity and growth. “We are competing not with Russian regions but was not one of them. Mr Putin’s Russia is a more slippery con- with the world. Our new oil is human capital,” says Vladimir struct in which simulation and bluff play a big part. Nothing is Gritskikh, a formerphysicist who co-ordinates the programme. what it seems. Elections are held not to change power but to re- Innopolis has comfortable town houses, playgrounds with tain it; licensed “opposition” parties are manufactured by the Wi-Fi and a large swimming pool. Igor Nosov, its manager, holds Kremlin; Mr Medvedev’s modernisation was an illusion; doctor- an American MBA. The city’s free economic zone is dominated ates awarded to scoresofRussian officials, governors and even to by a circular office building for high-tech firms. There is just one Mr Putin himself were based on plagiarism or cheating, accord- thing in short supply: the firms themselves. So far the building ing to Dissernet, a grassroots organisation. has only about a dozen occupants. “Well, we’ve built a collective In 2014 Russia put on a remarkable show with the costliest farm. Now we need the farmers,” quips one ofthe Tatar officials. 1

The Economist October 22nd 2016 5 SPECIAL REPORT RUSSIA

2 Whether those farmers will come depends on a range of factors 2005 and 2015 the share of the state in the economy doubled, mostly outside Tatarstan’s control. from 35% to 70%. Technical modernisation has been one of Russia’s obses- Now the economy is in recession. Last year GDP shrank by sions for centuries. At this year’s St Petersburg Economic Forum, 3.7% and real disposable income fell by 10%. Investment in fixed Herman Gref, the chairman of Sberbank, Russia’s largest state assets declined by 37% over the past fouryears, with the steepest bank, asked a short and simple question: “Can Russia compete?” fall coming after Russia’s attackon Ukraine in 2014. The answer supplied by an American participant, Loren Gra- The people running the economy are competent, well-edu- ham, a historian of science at the Massachusetts Institute of cated technocrats(such asthe head ofthe central bank, Elvira Na- Technology, was somewhat longer. biulina). But there are limits to what they can achieve. A depre- There was a difference between invention and innovation, ciation of the rouble against the dollar of almost 50% since the he said. Russian scientists and engineers invented the laser, elec- start of 2014 has failed to rekindle economic growth, partly be- tric light and hydraulic fracking, yet time and again the country cause Russian producersin the past preferred to import partsand failed to reap any economic benefit from its scientific brilliance. materialsratherthan investin domesticcapacity. Those interme- The reason, MrGraham explained, was not a lackofbusiness tal- diate imports have now become unaffordable. ent but the adverse social, political and economic environment. The slump in the oil price and Western sanctionshave exac- Russia’s authorities build expensive innovation cities, “but at the erbated the problems, but they did not cause them. Growth start- same time they prohibit demonstrations, suppress political op- ed to slow down in 2012 and 2013 when the oil price was still high ponents and independent businessmen, twist the legal system and before the invasion of Ukraine. The root causes are that Rus- and create a regressive, authoritarian regime…They want the sia’s market is not free, and the rules are opaque and enforced in- milkwithout the cow.” consistently. As an upper-middle-income country, itcan develop None of this was particularly new to Mr Gref. In 2000 the only if its economy is integrated with the rest of the world. Its liberal economist, then aged 36, was picked by Mr Putin to draft a confrontations with the West and the activities ofits security ser- ten-year economic programme and lead reforms. “The centre- vices make it an unenticing target for investment. “The invest- piece ofthe new social contract is the primacy ofthe citizen over ment climate matters in an open market economy. Astate econ- the state,” Mr Gref wrote at the time. “The country has a unique omy does not need an investment climate; it needs security chance provided by political stability, appetite forreform and ris- services,” jokes Sergei Belyakov, a former deputy economics ing oil prices to renew itself. Unless that chance is used, eco- minister. Russian businessmen have stopped investing in their nomic regression is inevitable, threatening not only social stabil- own country mainly because they see no future. ity but the existence of Russia as a state.” Mr Putin signed off on MrGref’s plan and hired Andrei Illarionov, a determinedly liber- Property and power tarian economist, as his adviser. When the Soviet Union collapsed, many people hoped During the first eight years of Mr Putin’s reign the economy that once liberated from communist ideology and enjoying a grew by an impressive average of7%, kickstarted by a 70% rouble free market, Russia would be able to make good use of its im- devaluation in 1998. As state finances and economic rules be- mense natural and intellectual resources. Yegor Gaidar, the ar- came more stable, the market reforms ofthe 1990s began to have chitect of the Russian reforms, was among the few who realised an impact. From the mid-2000s soaring oil prices stimulated fur- that the market alone could not solve Russia’s fundamental pro- ther growth, mainly in the services and construction sectors, but blem: the close nexus between political power and property. In also fuelled imports, and the economy started to overheat. an article published two years before he tookcharge of the econ- When the financial crisis hit in 2008, the Russian economy omy, he wrote: “A market [by itself] does not answer the key crashed, contracting by 10% from the peak of 2008 to the trough question of who is supposed to benefit from the results of eco- of2009. nomic production; it can serve different social structures. Every- The subsequent recovery was driven by higher govern- thing depends on the distribution ofproperty and political pow- ment spending that propped up consumption. Between 2010 er.” Yet although the 1991revolution overturned the political and and 2014 the economy grew by only 3% a year, even though rev- economic system and led to the sale of state assets, it did not suf- enuesfrom oil exportswere 70% higherthan duringthe oil boom ficiently separate political power and property. of 2004-08. Russia used its abundance of natural resources to Part of the problem was the type of economy modern Rus- create a corporatist state that suppressed competition. Between sia had inherited from the Soviet days. Stalin’s crash industrial- 1

In need of reform Russia GDP, % change on a year earlier Investment, % of GDP Average real wages Private consumption per person 10 40 % change on a year earlier % change on a year earlier 20 75 5 30 + 10 50 0 + 0 25 – 20 – + 5 10 0 10 – 10 20 25

15 0 30 50 1991 95 2000 05 10 16* 1991 95 2000 05 10 16* 1991 95 2000 05 10 16* 1991 95 2000 05 10 16* Sources: IMF; Economist Intelligence Unit *Forecast

6 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

No oil, no spoils

2 isation and urbanisation was designed to create a militarised au- “limited-access order”, relies on the ability of the elites to control tarky with a total disregard forcost, financial orhuman. Factories rents, be it from land, raw materials or jobs for cronies. Its main were built in cold and inaccessible places, using forced labour. objective is to preserve stability and prevent uncontrolled vio- The output ofthose factories was often worth less than the input lence by giving those elites access to streams ofrent. But that state in energyand materials. AfterStalin’sdeath theywere keptgoing monopoly on rent and violence collapsed with the Soviet Union. by oil and gas money. The factory managers, known as “red di- rectors”, travelled to Moscow to haggle with the relevant minis- Oligarchs and beyond tries for resources. They employed millions of people and had In the mid-1990s control over natural-resource firms passed enormous lobbying power. When the Soviet Union collapsed, to the oligarchs, a powerful group of business tycoons who the only way to keep them quiet was to sell them their factories, emerged from the rubble ofthe Soviet Union. Their power rested which meantthatmuch ofindustry remained in the hands ofthe not so much on violence but on entrepreneurship, which al- old elite. Mr Gaidar reckoned that this was a price worth paying lowed them to accumulate capital. But they also cultivated perso- to prevent civil conflict. nal connections with the liberals in the government to gain privi- Yet many ofthese companies could survive only iftheir en- leged access to the most valuable assets. ergy and transport costs were subsidised. For example, Yukos, In 1995 they struck an audacious deal, offering to lend mon- once Russia’s largest oil firm, was forced to sell 70% ofits oil in the ey to the cash-strapped government and put their resources, in- domestic market, yet since its buyers could not afford to pay an cluding the media they controlled, behind an ailing Yeltsin. In re- open-market price, they accumulated huge debts that in the end turn, they asked to manage the government’s shares in had to be written off, saysMikhail Khodorkovsky, the company’s natural-resource firms. When Yeltsin was re-elected in 1996, they formerowner. were allowed to auction off those shares to themselves. This But whereas Gaidar’s government in 1992 had to act ur- “loans for shares” privatisation undermined the legitimacy of gently to stop the country from falling apart, Mr Putin had no Russian capitalism and compromised the idea ofproperty rights. such excuse. When he first took over, oil prices were rising and To protect their assets, the oligarchs had to ensure the con- there was broad political support for reforms. However, accord- tinuityofthe regime. In 1999, asYeltsin prepared to step down, Bo- ingto Clifford Gaddyand BarryIckes, two American economists, ris Berezovsky, the ultimate oligarch, who had worked himself Mr Putin did not merely fail to dismantle the Soviet structure; he into the president’s family, proposed Mr Putin as Yeltsin’s succes- used Russia’s windfalls to reinforce it in order to preserve social sor. According to Berezovsky, Mr Putin had originally wanted to stability and votes. be chairman of Gazprom, Russia’s natural-gas behemoth, but in- It was always unrealistic to thinkthat after the fall ofthe So- stead he was offered the job ofrunning Russia Inc. viet Union Russia would be able to build institutions overnight. Mr Putin was shaped mainly by two experiences. One was Russia had been subjected to totalitarian rule for so long that it his service in the KGB, which made him a statist. The other was had no memory of life before it. Douglass North, a Nobel prize- his time in St Petersburg, where he served as deputy mayor in the winning economist, and co-authors have written that in Russia, early 1990s, dabbling in business. That turned him into a capital- as in many other countries, access to valuable rights, economic ist, but ofa particularkind. Capitalism to him meant not free com- activities and resources is determined by privilege enforced by petition but connections, special access and, above all, deals. As the political and military elites. This system, which he calls a Fiona Hill and Clifford Gaddy wrote in their book, “Mr Putin: Op-1

The Economist October 22nd 2016 7 SPECIAL REPORT RUSSIA

2 erative in the Kremlin”, “Capitalism, in Putin’s understanding, is of a large cement firm in Rus- not production, management and marketing. It is wheeling and A grubby image sia’s far east that got a lot of or- dealing. It is not about workers and customers. It is about perso- Corruption perceptions index, 2015 ders from the government, nal connections with regulators. It is findingand using loopholes (Ranking out of 168, 1=least corrupt) joined Mr Putin’s United Rus- 1168100 in the law, or creating loopholes.” Mr Putin did not destroy the Denmark (1) sia party, and in 2008 he was oligarchy but merely changed the oligarchs, creatingmuch closer Britain (=10) elected mayor of the city. Earli- links between property and political power. He wanted to con- United States erthis yearhe challenged Vlad- trol the market, transferringits benefits to the people he trusted— (=16) imir Miklushevsky, the region- friends from St Petersburg and former KGB colleagues. al governor, in the party But whereas the oligarchs in the 1990s were ruthless self- Georgia (=48) primaries. Mr Miklushevsky made businessmen driven byprofit, the men MrPutin brought to went to see Mr Putin, and the power were specialists in suppression, violence and control, dri- next day Mr Pushkarev was ar- ven by revenge. The siloviki, people with roots in the KGB and China (=83) rested for“abuse of office”. The other powerful ministries, had no special business skills, but FSB started to expropriate his quickly tookoverthe commandingheights ofthe economy, capi- assets straight away. talising on popular discontent with the oligarchs and using their Azerbaijan (=119) Such lack of clear proper- Russia (=119) licence to exertviolence to amass property. In 2003 theyjailed Mr Kazakhstan (=123) ty rights creates distrust at all Khodorkovsky, the most independent and politically ambitious Ukraine (=130) levels of Russian society, of the oligarchs. A year later Yukos, his oil company, was dis- heightens the role ofthe securi- membered and its assets taken over by Rosneft, a state oil firm ty services and raises transac- chaired by Igor Sechin, one of Mr Putin’s most trusted lieuten- Somalia (=167) tion costs. Every other Russian ants and an informal leader ofthe siloviki. Source: Transparency International shop or restaurant employs se- Duringthe years when the oil-price boom fuelled domestic curity guards. While the econ- consumption, the newelite notonlycame to control the distribu- omy was growing, there were tion of rent, it also limited access to the market in order to reduce plenty ofprofits to spread around and keep everyone happy, but competition, developing a system which Kirill Rogov, a Russian now that it is shrinking, the rules have become even less clear political economist, describes as “soft legal constraints”. It in- and the fight for resources has turned more brutal. Property can volves writing the rules in such a way that to observe them is ei- be taken away regardless ofpolitical loyalty, turning owners into ther prohibitively expensive or downright impossible, then temporary holders. handing out informal licences to breakthose rules. Take Vladimir Yevtushenkov, the owner ofSistema, a hold- ing company, who is perfectly loyal to the Kremlin. In 2009 Sis- Licence to offend tema bought a controlling stake in Bashneft, a medium-sized oil Just as in the Soviet era red directors haggled for resources, firm, from a local authority for $2.5 billion. It had been given ex- market participants now haggle forthe right to breakthe rules, so plicit approval by Dmitry Medvedev, who was president at the the system gives the security servicesultimate economic and po- time. But in September 2014 Mr Yevtushenkov was arrested and litical control. The licence can be withdrawn at any time if its charged with buying stolen goods. His real crime was reportedly holder steps out of line or gets too greedy, orif his assets start to to refuse to sell Bashneft, which had become one of the world’s looktoo attractive. fastest-growing oil firms, to Rosneft, at a price below its market The story ofIgorPushkarev, a formermayorofVladivostok, value. After three months under house arrest, Mr Yevtushenkov illustrates the point. In the early 2000s Mr Pushkarev, the owner was released and cleared ofall charges—but not before giving up Bashneft, a contolling stake in which has now been sold to Rosneft for $5.2 billion. UNITED The day after he was released, Mr Yevtu- STATES shenkov (who still owns MTS, Russia’s ARCTIC OCEAN largest mobile-phone company) went to a drinks party at the Kremlin and spoke to N O R W A Y PACIFIC OCEAN MrPutin. “I thanked him forhiswise deci- D E W E N sion…to release me,” Mr Yevtushenkov S D N Kaliningrad L A recently told Dozhd, an independent in- F I N EST. ternet television channel. He continued: POL. LAT. St Petersburg LITH. “If[you] like any ofmy othercompanies— NORTH-WEST U FAR EAST BELA- S [you are] welcome.” K RUS 13.8 L 6.2 R Moscow SIBERIA Faced with prolonged economic A A I Kiev R URAL 19.3 N CENTRAL stagnation, the Kremlin is now trying to E U 12.3 39.0 Crimea Kazan stimulate growth by pouring money into E RUSSIA VOLGA the military-industrial sector and into in- SOUTH H 29.7 Yekaterinburg Sochi 16.3 T frastructure projects. Given the level of Krasnoyarsk Khabarovsk Novosibirsk Tbilisi corruption, though (see chart), the cost of NORTH CAUCASUS Irkutsk these projects could outweigh their bene- 9.7 Vladivostok fits. And in the absence of a thriving priv- KAZAKHSTAN JAPAN U CHINA Z ate sector, those new roads and bridges T B U E MONGOLIA Population density PopulationNORTH 0.0 RK K may not do much good. GEORGIA M I KOREA E S 2015, per sq km: 2015, est, m N T KYRGYZSTAN A Total pop: The main problem with Russian IS 146.3m T N <10 10-30 >30 A CHINA Source:SOUTH Federal State IRAN N modernisation, says Mr Rogov, is that the Overall density: 8.54 StatisticsKOREA Service TAJIKISTAN new, competitive urban middle class that 1

8 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

2 has emerged as the economy has developed has no place in the Behind the scenes, the FSB controls the Investigative Committee, current authoritarian model, which is designed for those who the Russian equivalent of America’s FBI. The prosecutor’s office, depend on the state but cannot compete. in effect, has no independent oversight of the FSB and the courts The prospects forchange are not encouraging. As North ob- take their cue from it. served, limited-access orders have been in operation for thou- On September18th, the day ofthe parliamentary elections, sands of years: “No forces inherent in the logic, social structure Kommersant, an authoritative daily newspaper, reported the or historical dynamics of limited-access orders inevitably lead Kremlin’s plan to fold other parts of the former KGB, including them to become open-access orders. Because natural states have the foreign intelligence services (SVR) and the Federal Protection internal forces built on exclusion and rent-creation, they are sta- Service, which is responsible for guarding top Russian officials, ble orders…extremely difficult to transform.” Technology does into a new megastructure: the Ministry for State Security, or not help because the elites can adopt it selectively, without hav- MGB, which is what the KGB was called under Stalin. The date of ing to face competition. the report is telling. The parliament has become an appendix of Natalia Zubarevich, a Russian economist and geographer, the FSB. As Tatyana Stanovaya of the Carnegie Moscow Centre argues that one of the biggest risks for Russia is not an implosion notes, the FSB drafts most of the repressive laws that are rubber- but a slow economic and intellectual degradation. As long a Rus- stamped by the parliament. sia’s elite sees modernisation as a matter of technology rather The FSB is a notoriously opaque organisation, but one ofits than ofopen accessbased on the rule oflaw, Innopolis islikely to most powerful figures appears to be Sergei Korolev, who used to remain the smallest town in Russia. 7 head the internal-security department that can investigate the staff of all security services, including its own. He has recently been promoted to the job of overseeing all financial and busi- Power structures ness activity in Russia. His team was behind most of the high- profile arrests of governors, mayors and policemen in recent years. These started with two young generals from the interior Wheels within wheels ministry, Denis Sugrobov, the head of the ministry’s economic- crime and anti-corruption department, and his deputy, Boris Ko- lesnikov. Both in their mid-30s, they had been installed in their jobs by Dmitry Medvedev, Russia’s current prime minister and former president, and given carte blanche to go after corrupt se- How Mr Putin keeps the country under control nior officials. Yet soon afterwards they became victims of a sting opera- MYSTERY, MIRACLE AND authority are three powers tion set up by the FSB. In his prison cell Mr Kolesnikov suffered a alone able to hold the conscience of people captive, ex- head injury and sixweeks later, duringa formal interrogation, he plains Fyodor Dostoyevsky’s Grand Inquisitor in “The Brothers apparently killed himself by jumping out of a sixth-floor win- Karamazov”. MrPutin has mastered all three. Yet none of these is dow. MrSugrobov remains in jail. asimportantassecrecy, the main tool ofa good spy. Nobody real- The public is regularly treated to footage of governors, po- ly knows what goes on behind the Kremlin’s thick walls, or in- licemen and officials being led away in handcuffs, their homes side Mr Putin’s head. But several things are becoming clearer. Mr being searched and enormous piles of cash being confiscated. Putin’s rule is turning increasingly personal; a generational shift The most spectacular arrest so far has been that of Dmitry Zak- is taking place within his entourage; and the FSB, the successor harchenko, a police colonel who had hidden $120m in cash in his organisation to the KGB, is emerging as the main mechanism for sister’s flat. A few weeks earlier the FSB had raided a vast man- exercising power, often at the expense of all other security ser- sion belonging to Andrei Belyaninov, the head of the customs vices, including the police. service and a former KGB officer, and found $670,000 in cash, a 1 Mr Putin had always relied heavily on his former KGB colleagues, but after the annexation of Crimea the expansion The FSB is of the FSB gained new momentum and greater public legitimacy. It now openly emerging as wields political and economic power. Mr the main Putin has recently appointed three mem- bers of his security detail and one former mechanism KGB officer as regional governors. for exercising After Stalin’s death in 1953, the KGB was a “combat division” of the Commu- power in nist Party, tightly controlled by its central Russia committee, which did notwantto see a re- peat of Stalin’s purges. When the party collapsed in 1991the KGB lost its lustre, but the new rulers never dismantled it. Though the party could not survive with- out ideology, the KGB could. Today the FSB is personally over- seen by Mr Putin. “There is no political control over the FSB. It is a self-contained and closed system,” says Andrei Soldatov, an expert on Russia’s security services.

The Economist October 22nd 2016 9 SPECIAL REPORT RUSSIA

2 one-kilo gold ingot and assorted old-master paintings. Mr Belya- ninov was fired from his job but not charged. Hardly anyone believes that such raids help the fight against corruption, which remains an organising principle of Russia’s political system, but they go down well with the public. It is said that Mr Putin is using men like Mr Korolev to purge the ranks ofthe FSB itselfand keep its members on their toes and the elites in check. The practice harks backto Stalin, who wielded his poweralmostexclusivelythrough the NKVD, the KGB’spredeces- sor, regularly purging the party. Mr Putin’s rotation of cadres so far has been much softer. None of the senior people in his entourage has yet lost his free- dom or his fortune. Mr Belyaninov has said he is hoping to find anothergovernmentpost. MrKorolev’srival hasbeen “exiled” to Rosneft, the mammoth oil company. Every important Russian firm and institution has an FSB officer seconded to it, a practice preserved from Soviet days. But as Mr Putin’s personality cult grows, he is severing his connections with the old comrades who remember him as a lowly young KGB officer and bringing in new people who have known him only as president. Many of those who had started with him have already stepped down, including Sergei Ivanov, a long-servingchiefofstaffand formerKGB general, ViktorIvanov, the former head of an anti-drugs agency, and Evgeny Murov, the trusted (but ageing) head of the Federal Protection Service. Mr Putin has also got rid of some of the old KGB guard who had headed Russia’s largest state-owned corporations. Pass it on They have been replaced by youngish men who owe their careers entirely to Mr Putin. Mr Putin’s new chief of staff, Anton Vaino, aged 44, is the grandson ofa Soviet-era Estonian Commu- nist Party leader and a third-generation bureaucrat. But while ci- vilians have been installed to run the Kremlin apparatus, the Foreign policy children of the old siloviki are moving into key positions in state banks and natural-resource companies. The son of Mr Murov is chairman of the management board of the state-owned Federal The fog of wars Grid Company, Russia’s main electricity supplier. Dmitry Pa- trushev, the son ofthe Security Council chief, Nikolai Patrushev, heads the Russian Agricultural Bank, a large state-owned bank. One of the communist regime’s key weaknesses was the impossibility of passing on wealth. When old party bosses died, Adventures abroad boost public support at home their families were mostly left with nothing. It was also one of the main reasons why many members of the Soviet nomenklat- RUSSIA HAS NO intention ofgoing to war with America or ura supported the revolution in 1991. These days Russia’s elite can its allies. Instead it will act through non-military means “to passon itspossessionsto itschildren, butitswealth and itsphysi- undermine the general political and strategic potential of major cal safety depend on Mr Putin. Western powers, to disrupt national self-confidence, to increase Perhaps in an effort at diversification, Mr Putin recently an- social and industrial unrest, to stimulate all forms of disuni- nounced the creation of a new security structure, the National ty…Anti-British talk will be plugged among Americans, anti- Guard. Headed by Viktor Zolotov, who used to be one of Mr Pu- American talk among British. Germans will be taught to abhor tin’s bodyguards, it has 25,000-40,000 special commandos at its both Anglo-Saxon powers. Where suspicions exist, they will be disposal, along with 400,000 troops. These are not part of the fanned; where not, ignited.” So wrote George Kennan, the “wise regular army ofabout 930,000 and report directly to Mr Putin. man” of American diplomacy, in a famous telegram from Mos- The creation of the National Guard is meant to head off the cow in 1946. Seventy years laterthe telegram seems as relevant as threat of another colour revolution (as the series of peaceful ever, because the system that Kennan described is being rebuilt. uprisings in former Soviet republics became known), explains Russia has launched cyber-attacks, spread disinformation Alexander Golts, a Russian military analyst. The scenarios used and interfered in the domestic affairs of both neighbouring and in its training are based on the protests in Ukraine and involve faraway countries. Its military jets are buzzing NATO’s ships and the use of tear gas and water cannon as well as conventional flying close to American reconnaissance aircraft in Europe. The weapons. One ofthe lessons the Kremlin learned from the failed American government has formally accused Russia ofmeddling coup of August 1991 was that in a political crisis a regular army in the presidential election by means of extensive hacking. In may be reluctant to use force against protesters. Syria it has subverted America’s effortsto defeat Bashar al-Assad As a former bodyguard, Mr Zolotov is responsible for Mr and threatened to shoot down American warplanes if they at- Putin’s personal safety, but also for providing some balance to tackhis army. the powers ofthe FSB. In a closed political system, trust is low. 7 The BND, Germany’s foreign-intelligence agency, is investi- 1

10 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

NATO’sdeputysecretary-general and a formerAmerican ambas- sador to Moscow, itis “an endlessly changing storyline designed to obfuscate and confuse to create the impression that there are no reliable facts, and therefore no truth.” ThisechoesKennan’sobservation in 1946 that“the verydis- respect of Russians for objective truth—indeed, their disbelief in its existence—leads them to view all stated facts as instruments for furtherance of one ulterior purpose or another.” Unlike Sov- iet propaganda, which aimed to promote communist ideology, modern Russian propaganda aims to show that Western policies are as rigged and hypocritical as Russian ones. Assessing the effectiveness of these Russian attempts to in- fluence opinion abroad is hard because they often tap into exist- ing sentiments, from disenchantment with elites to resentment ofimmigrants. But research by Finland’s Institute ofInternation- al Affairs has found that Russian propaganda has had very little impact on mainstream Western media and has never resulted in any change in policy. Astrong and confident West should find it easy to brush off Russian media assaults. But sober political thinkers have noted some signs of a “Putin panic” in the West, and MrPutin himselfhas said that America’s attempts to present Russia as an “evil empire” indicates “Russia’s growing influence and significance”. In the eyes of his own people, Mr Putin has restored his country’s status to that ofthe Soviet Union. According to a recent report by the Aleksanteri Institute in Finland, a think-tank, “the West’s response to the Crimea annexation partially did exactly what Putin had demanded: putting forward the notion of West- ern weakness in the face of Russia’s superior ‘hybrid warfare’ ca- pabilities implies respect and even fear of Russia as a powerful global actor.” The country’s intervention in Syria in the autumn of last year was designed to reinforce the image of Russia as a global 2 gating Russian activity in Germany after Russia’s state television power. It did change the course ofevents, saving Bashar al-Assad ran a fake story about a 13-year-old Russian-German girl being from a seemingly inevitable fall, and made the humanitarian sit- raped by Arab immigrants in Berlin. Spread through social me- uation in Syria far worse. But Russia cares little about the future dia, the story sparked protests against Angela Merkel, the Ger- ofSyria. Itseesthe warthere asa wayofforcingAmerica to recog- man chancellor. nise a Russian sphere ofinfluence in the formerSoviet Union. Russia has provided funds for the French right-wing party ofMarine Le Pen. RT, the Kremlin’sforeign-language propaganda Weakness in strength TV channel, has offered a regular spot to Nigel Farage, the former The wars in Ukraine, Georgia and Syria have demonstrated leader of Britain’s far-right UKIP party. Russia’s support for Do- Russia’s willingness and ability to use its military power to nald Trump, the Republican presidential candidate, who has achieve political goals. But they are not a sign of Russia’s also appeared on RT, has become a talking-point in America’s strength; instead, they indicate deep insecurity. As Kennan forthcoming election. wrote: “At [the] bottom of[the] Kremlin’s neurotic view ofworld None of this is particularly new. Subversion, disinforma- affairs is [the] traditional and instinctive Russian sense ofinsecu- tion and forgery, combined with the use ofspecial forces, were at rity…This thesis provides justification for that increase of the the heartofthe SovietUnion’sintelligence services. The KGB had military and police power of the Russian state…Basically this is a special department responsible for “active measures”, de- only the steady advance ofuneasy Russian nationalism, a centu- signed to weaken and undermine the West. It stirred racial ten- ries-old movement in which conceptions ofoffence and defence sion by posting bogus letters from the Ku Klux Klan, planted sto- are inextricably confused.” This nationalism continues to shape ries about AIDS having been invented in America as a biological Russia’s behaviour today. weapon and putitaboutthatJohn F. Kennedy’smurderwasplot- MrPutin sees Russia’s wars as a form ofself-defence, driven ted by the CIA. by the need to deter the West. That is what he meant when he Yuri Andropov, the head of the KGB in the 1970s and one of gathered the country’s elite in the Kremlin’s gilded hall to an- MrPutin’s heroes, set up special courses to train operatives in the nounce Russia’s “reunification” with Crimea on March 18th 2014. use of active measures. At the height of the cold war 15,000 offi- “Like a mirror, the situation in Ukraine reflects what has been cers were working on psychological and disinformation war- happening in the world over the past several decades. Our West- fare. When the Soviet Union collapsed, the department was re- ern partners, led by the United States ofAmerica, prefer notto be named but never dismantled. guided by international law but by the rule of the gun.” In Uk- Modern technology has helped it widen its scope; the raine, he said, the West had crossed a red line. Western actions Kremlin now uses large numbers of “trolls” that spread disinfor- left Russia with no choice but to send its troops into Crimea. mation and propaganda through online communities and social Yet only a few days earlier Mr Putin had told the German media. It also helps Russia to sow confusion by putting out mul- chancellor, Angela Merkel, that there were no Russian troops in tiple versions of events. According to Alexander Vershbow, Crimea. “He lives in another world,” she was reported to have 1

The Economist October 22nd 2016 11 SPECIAL REPORT RUSSIA

2 said to BarackObama. In his world the West was tryingto under- mine Russia. The colourrevolutions across the former Soviet Un- Economic plight, military might ion and the protests in Russia in the winter of 2011-12 were West- Russia China US Japan France Germany Britain ern plots. GDP, % of global Defence spending, % of GDP Yet his view of the West as a threat was not, as many have argued, his starting position; it developed in response to changes 25 6 inside Russia and the former Soviet republics. When Mr Putin ESTIMATE 5 became president in 2000, he showed no overt hostility towards 20 America orthe West, despite a recent NATO bombingraid on Bel- grade without a UN resolution that had triggered a shrill anti- 4 American response. In his first interview with Britain’s BBC, Mr 15 Putin said: “I cannot imagine my own country in isolation from 3 Europe, so it is hard for me to visualise NATO as an enemy.” Rus- 10 sia, he said, mightbecome a memberofNATO ifitwere treated as 2 NATO an equal partner. Even when the three Baltic states joined 5 in spring 2004, Mr Putin insisted that relations with the defence 1 organisation were “developing positively” and he had “no con- cerns about the expansion ofNATO”. 0 0 199195 2000 05 10 16 1991 95 2000 05 10 15 The breaking-pointin MrPutin’srelationship with the West Sources: IMF; SIPRI came towards the end ofthat year when several seemingly unre- lated events coincided. The first was a terrorist attack on a school in Beslan, in the north Causasus, in which 1,200 people, mostly children, were taken hostage. After Russia’s special forces sia’s new military doctrine, signed by MrPutin at the end of2014, stormed the school, leaving 333 people dead, Mr Putin accused popular uprisings against an oppressive regime were classified the West of trying to undermine Russia. He cancelled regional as a military aggression which warrants a military response. elections and handed more powers to the security services. In January2013 ValeryGerasimov, then newlyappointed as The next key event was the dismemberment and expropri- chiefofstaff, had spoken abouta newtype ofwarfare that Russia ation of the Yukos oil firm, which further emboldened and en- had to face. “The emphasis in methods of struggle is shifting to- riched the siloviki with roots in the Soviet KGB. They thrived on wards widespread use ofpolitical, economic, informational, hu- the idea ofa Western conspiracy and an exaggerated sense ofthe manitarian and other non-military measures…Overt use of West as an enemy. force, often under the guise of peacekeeping and crisis manage- ment, occurs only at a certain stage, primarily to achieve defini- The call of liberty tive success in the conflict.” The revolution in Kiev in the winter Just such an enemy was provided by the Orange revolution of2013-14 which overthrewViktorYanukovych wasperceived by in Ukraine in 2004-05, a popular uprising against rigged presi- the Kremlin as an escalation ofhostilities by “hybrid means”. dential elections in which Mr Putin had backed Viktor Yanuko- Russia’s heavy propaganda campaign which portrayed Uk- vych, a corrupt thug. His defeat at that time (he was elected later) raine’s post-revolutionary government as fascists paved the way was seen as a humiliation for the Kremlin and an ominous sign for its own special forces in Crimea, allowing them to stage a of American meddling, underlined by George W. Bush’s praise coup, overthrow the legitimate government and appoint its for democracy in Georgia and Ukraine and his comment that placemen who quickly called an unconstitutional referendum “eventually the call of liberty comes to every mind and every on joining Russia. In Mr Putin’s mind, Russia’s actions in Crimea soul.” MrPutin saw Georgia’s successful reforms and its determi- and eastern Ukraine merely mirrored Western “hybrid” tactics, nation to break out of the post-Soviet system and move towards including special forces, disinformation and mobilisation of the the West as a threat, in the same way as the Soviet Union had felt protest potential of the local people. The annexation of Crimea threatened by liberal reformsin Czechoslovakia in 1968. And just was bloodless. as the Kremlin had responded by ordering tanks into Prague to In eastern Ukraine the task was different. It was not to an- stop the reforms spreading to the Soviet Union, so Russia sent its nex territory but to spark a conflict that would undermine Uk- tanks and planes into Georgia in August 2008. Immediately after raine’s territorial integrity and its chances ofmovingtowards the that war Mr Putin ordered a thorough modernisation of the Rus- West. Whereas in Crimea Russia relied on a disenchanted popu- sian armed forces. lation nostalgic forthe Soviet era, in Donbas it was supported by America chose to follow the war in Georgia with a “reset” the core of Mr Yanukovych’s voters who considered the govern- initiated by the new Democratic president, Mr Obama, and his ment in Kiev illegal. But Russia’s operations in both Crimea and secretary ofstate, Hillary Clinton. But when protests broke out in eastern Ukraine were limited in scale and depended on a power 2011-12 Mr Putin accused Mrs Clinton of spurring protesters on: vacuum in Kiev. As Alexander Nevzorov, a Russian journalist, “She set the tone forsome actors in our country and gave them a wrote, “Crimea wastaken notfrom a strong, rich and brave coun- signal…They heard the signal and with the support of the US try but from a wounded, bleeding and motionless one.” State Department began active work.” As Ms Hill and Mr Gaddy Samuel Charap of the International Institute for Strategic wrote, “America and Europe encourage political and economic Studies notes that if Russia had attempted to deploy its “little change as a matterofcourse in theirforeign policies. The essence green men” (soldiers in unmarked green uniforms) in Western of Western political systems extends to promoting democracy Ukraine, for example, “they would have likely been hanging and liberal markets abroad.” But whereas Western governments from the lamp-posts, not leading an armed insurgency.” Even in see such efforts as benign, Mr Putin considers them a danger, Donbas, Russia had to use its conventional military force to stop they continue: “Western-style democracy and open markets are the Ukrainian army from defeating the Russian-armed rebels. a clear threat to a Russian political system that thrives as a closed Russia’s Ukraine operation, therefore, should not be seen as a one-body network and an economic protection racket.” In Rus- template for a potential conflict with NATO, Mr Charap argues. 1

12 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

2 Belarus, another Slavic, Russian-speaking country that was Modern life one of the founding members of the Soviet Union, could also be a target. It is ruled by Alexander Lukashenko, often called the last dictator in Europe, and so far Russia has kept him going with its Tell me about Joan gas subsidies. But should the Kremlin sense that Mr Lukash- enko’s grip is weakening or that he is turning towards the West, it of Arc could easily stage a coup and take the place over. The perception of Russia’s military advantage rests on two Young people are finding new ways of signalling main elements, argues Alexander Golts, a Russian military ana- lyst. One isunpredictabilityand surprise, because MrPutin isnot dissent constrained by any formal institutions or by his own team. The “THE TEN BEST Patisseries in St Petersburg”, “12 Crazy Pho- other is Russia’s ability quickly to deploy well-trained, disci- tographs ofFamous Sites”, “ASouth Korean Erotic Thriller”. plined and equipped troops, thanks to the modernisation of its These are just some of the main headlines colourfully displayed forces enabled by a 30% increase in spending in real terms since on the Russian newssite Bumaga (Paper). “We modelled iton Vox 2008. Russia has about 80,000 elite troops that can be sent into and the Boston Globe,” says Anna Kosinskaya, its co-founder and battle within hours. editor. Bumaga is totally independent. When it started four years Russia’s conventional military expansion is limited by its ago, it had no funding. Now it makes money from advertising. demography. According to its own estimates, this year it will be Ms Kosinskaya, red-haired and open-faced, is 26, just one able to increase its forces by only10,000 men, barely enough for year older than post-Soviet Russia. She spends her time in a part one division. It also needs to be careful to minimise casualties, ofSt Petersburgwell supplied with cool lofts, funky bars and gas- which go down badly with a population that sees waras a televi- tropubs. Though not rich, she has travelled the world. Her gener- sion show. The number of people who supported Russia’s mili- ation of educated, urban young Russians has very little in com- tary invasion in Ukraine declined from 47% in June 2014 to 25% a mon with the cowed Homo sovieticus who still abounds. In 2011 year later, according to the Levada Centre. they took to the streets to protest against rigged parliamentary elections. For Ms Kosinskaya this was the first election in which The nuclear option she was able to vote. She would not accept the standard practice Russia’s military-industrial complex is unable to produce of rigging, not because she had a particular preference for any anything close to Soviet volumes of hardware. But the country’s party, but because she thought it was disrespectful and wrong. relative economic and military weakness compared with NATO Ms Kosinskaya was ten when Vladimir Putin became Rus- does not make the country any safer; on the contrary, it poses a sia’s president. “I liked him. He was young and energetic,” she big risk. The only way Russia can compensate for the gaps in its says. Her lifestyle owed much to the economic growth over conventional forces is to invoke the threat of a nuclear strike. which Mr Putin presided. But gradually she became disillu- After the annexation of Crimea Mr Putin said he had been ready sioned both by the president and by Russia’s general political di- to use nuclear arms to defend his country’s “historic territory”. rection, and in the winter of2011she had to watch her friends be- And after Russia showed off its long-range cruise missiles in Syr- ing bundled into police vans for trying to uphold the law. The ia, MrPutin said thatitwasprepared to use itspowerful weapons demands ofMs Kosinskaya and her friends echoed the slogan of if its national interests were infringed upon, implying that those the Soviethuman-rightsactivists: “State, respectyourown laws.” missiles might one day carry nuclear warheads. America’s “im- pudent behaviour” would have “nuclear consequences”, said Watch the graffiti one ofMr Putin’s chiefpropagandists. Five years on, last month’s parliamentary elections passed After Stalin’s death the Soviet Union was ruled by a gener- without incident. Alexei Navalny, one ofthe leaders of the 2011 ation ofleaders who, having emerged as victors from the second protests, sayspeople have lostinterestin politics. Many ofhisfor- world war, were naturally averse to another big war and genu- mer supporters switched sides following Russia’s annexation of inely fearful of the use of nuclear arms. They were also re- Crimea. Street artists who were drawinganti-Kremlin graffiti five strained by the collective power of the Politburo, which had years ago have switched to anti-American themes. One drawing ousted Nikita Khrushchev soon after he dragged the Soviet Un- shows a fish with blue stripes and red stars inside a blender in ion into the Cuban missile crisis. the colours ofthe Russian flag. 1 Mr Putin, on the other hand, is bound by few constraints and has no particular aversion to war. His initial popularity as president rested on the war he had waged against Chechnya in 1999, and his sagging ratings were restored by the war in Ukraine. The devil you know Yet Mr Putin would not unleash a war for ideological rea- Which political system do you believe is best, Soviet (pre-1990s), sons. He will continue to present his actions as defensive. What current, or Western-style democracy?, % of Russians responding he is ultimately after is a new pact along the lines of the Yalta 50 agreement after the second world war which would create a Soviet system (pre-1990s) buffer zone between Russia and the West. In the absence ofsuch 40 a deal, Mr Putin will continue to confront his perceived enemies 30 by both non-military and military means. Western sanctions Western-style democracy only reinforce his determination. 20 Mr Putin has no plans to conquer the world. He may be im- pervious to logic or reason, but he is highly sensitive to force. He 10 knows he cannot afford a conventional war with the West, but Current system he could quickly raise the stakes to the verge ofa nuclear war, be- 0 lieving that the other side would always blinkfirst. Over the past 1996 98 2000 02 04 06 08 10 12 14 15 16 years the West has done little to persuade him otherwise. 7 Source: Levada Centre

The Economist October 22nd 2016 13 SPECIAL REPORT RUSSIA

2 But many young, liberal Russians feel frustrated. “We live thology of South Africa. A few months ago Arzamas organised with the feeling that something really important did not happen an evening lecture about Joan of Arc, including a recital of medi- in our lives,” says Phillip Dziadko, a former editor of Bolshoi Go- eval music, at Moscow’s main library. “We thought it would be rod, a Moscowmagazine which five yearsago wasthe flag-carrier attended by a few intellectuals. But when we turned up 15 min- of the protest movement. Its owners have since closed it down. utesbefore the lecture, we sawa longqueue ofyoungpeople and “Many of my friends feel as though we have gone into internal hipsters trying to get in,” says Mr Dziadko. exile,” says Ms Kosinskaya. The boom in “enlightenment” projects is not so much a re- Until recently young Russians did not see themselves as versal of the rise of consumerism in the previous decade but a part of the intelligentsia. “This was something rather archaic for complement to it. Just as Russian people were suddenly present- us; people who talked a lot and did very little,” says Ms Kosin- ed with a vast choice of consumer goods, they now have a large skaya. But now the survival strategies developed by their par- array of intellectual pursuits to choose from. And whereas Rus- ents’ generation, particularly their ability to carve out niches sia’s government can impose a ban on imports of Western food, where theycould applytheirskillsand knowledge, have become barring the spread ofknowledge is much harder. relevant to younger people too. The main producers and consumers of these enlighten- One of the most popular authors among the new genera- ment projects are young Westernised Russians who are part of a tion isSergei Dovlatov, a Sovietwriterfrom the 1970s. He emigrat- global culture. Their pursuit of a wide range of knowledge is a ed to America where he died in 1990. In his prose he cultivated way of fighting the isolationism and aggressive obscurantism self-irony and sought privacy and autonomy from the Soviet imposed by both state and church. This takes many forms, from state. In the words of a friend, Joseph Brodsky, Dovlatov “be- banning modern-art shows to organising anti-gay campaigns, longed to that generation which took the idea of individualism promoting anti-Darwinism and attempting to stop abortions. and the principle of autonomy of human existence more seri- Popularbooks about biology and physics currently sell bet- ously than anyone, anywhere.” On September 3rd this year ter than detective stories. Yulia Shakhnovskaya, the director of thousands of people in St Petersburg celebrated what would the Moscow Polytechnic Museum, where Evgeny Yevtushenko have been Dovlatov’s 75th birthday and unveiled a privately fi- read hispoetryin the 1960s, saysthateducation and science have nanced statue ofhim. become a form of resistance to politics. “We can’t win but that does not mean we should stop resisting, so we try to grow a gar- Say it with culture den in the middle of hell.” She says her main target audience is Although the state today suppresses independent civil and teenage schoolchildren, who are desperate for knowledge: political activity, itallowsa lotmore personal freedom than itdid “Good marks are no longer the main prerequisite for getting a in 1979 when Dovlatov left. Since the mainstream media are good job in Russia…but the demand for knowledge is still there, mostly pumping out government propaganda, Russia’s modern so we try to satisfy it by other means.” intellectuals have got involved in cultural projects. Public lec- Ms Shakhnovskaya’s patrons include Igor Shuvalov, the tures by notable scholars, both Russian and foreign, on subjects first deputy prime minister in charge of the economy, and Ana- from urbanism to artificial intelligence gather mass audiences. toly Chubais, the father of Russia’s privatisation programme. Tickets to such talks sell out within hours. Every night dozens of They are helping to promote an educated and emancipated elite events take place in Moscow and other cities. Book fairs attract that could gradually begin to change the system, which is what queues to rival those for pop concerts. A new shopping centre in happened in the 1980s. Yekaterinburg, in the Urals, has organised a book round-table as For now at least, the educated urban class does not pose a 1 one ofits opening events. Public lectures, intellectual discus- sions and excursions have evolved into a business. “Ten years ago, to raise money from investors, you needed to say only one word: ‘media’. Today all you have to say is ‘education’,” says Yuri Saprykin, a former editor of Afisha, a listings maga- zine that helped shape the tastes of the ur- ban middle class. The trend started a few years ago when a site called “Theory and practice” began to provide a wide variety of courses and lectures. The young are wild about classical music and art muse- ums. “If you are not learning something outside your work, you are a loser,” says Ms Kosinskaya. Mr Dziadko, the grandson of Soviet dissidents and human-rights activists, and a group of friends have launched a popularmultimedia education and enter- tainment project called Arzamas, a name borrowed from a 19th-century literary society of which Pushkin was a member. The subjects range from Elizabethan the- atre and medieval French history to the anthropology ofcommunism and the my- A thirst for knowledge

14 The Economist October 22nd 2016 SPECIAL REPORT RUSSIA

2 serious political threat to Mr Putin. But it represents a different coffee shops and the first IKEA superstore. and more fundamental challenge that has to do with values and Mr Putin was neither a liberal nor a Stalinist. His manifesto, ideas. Some ofthe most striking independent public-lecture pro- published on the eve of the new millennium, was all about the jects recently launched had titles such as “The return of ethics” value to the Russian people of a strong, centralised state. An and “Public lies”, involving both Western and Russian philoso- opinion poll in January 2000 found that 55% of the population phers, economists, sociologists and writers. expected Mr Putin to return Russia to the status of a great and re- This new generation ofeducated young urbanites has criti- spected derzhava, which most Russians equate with “fearoftheir cised Russian politicians and opinion-formers of the 1990s and country”. Only 8% thought he would bring Russia closer to the 2000s forviewinghuman-rights abuses and the lackofindepen- West. Today half the population reckons that Mr Putin has in- dent courts as unfortunate impediments to business and foreign deed restored Russia’s position as a great power. investment, rather than bad things in themselves. Yet “despite Mr Putin took the next logical step: he incorporated the So- the total amorality of politicians and bureaucrats, or maybe be- viet period into the historical continuum of Russian statehood. cause ofit, the demand for ethics in the public sphere is growing, Soon after coming to power he ordered the restoration of the So- not falling,” says Andrei Babitsky, a formereditor ofthe Inliberty viet anthem, which had been abolished when the Soviet Union website that organised the lectures on ethics and lies. The power collapsed. New lyrics were set to the music originally composed ofideas should never be underestimated, especially in Russia. 7 in 1938, at the height of Stalin’s terror. While Russian liberals cringed, most people saw it as a fairly harmless symbolic gesture to placate ageing Communist Partyvoters. After a decade offree- Past and future dom under Yeltsin it seemed impossible that Russia would lapse backinto Stalinism. In a press conference in 2004 Mr Putin said: “Despite all the Take care of Russia difficulties, we managed to preserve the nucleusofthat giant, the SovietUnion. And we called thisnewcountrythe Russian Feder- ation.” He was not interested in its communist ideology or its hopelesscentral planningsystem. Whatmattered to him was the state, which had served the Russian empire and the SovietUnion But Mr Putin is not setting about it in the best way equally well. Alexander Yakovlev, the author of Gorbachev’s reforms, WHEN BORIS YELTSIN walked out of his office for the last understood the challenge better than anyone else. In 1985 he had time, atthe end of1999, he famouslytold MrPutin: “Beregite written to Gorbachev: “Fora thousand yearswe have been ruled Rossiyu!”, which translates as “take care of Russia” or “preserve by people and not by laws…What we are talking about is not the Russia”. But what did he mean by “Russia”? Wasit a new country dismantling of Stalinism but a replacement of a 1,000-year old born from the 1991 revolution, or was it an old Russia restored model of statehood.” That model was never properly disman- after the Soviet regime? Unlike other Soviet republics, it could tled, and Mr Putin set about restoring it. According to Andrei Illa- not celebrate its independence from the Soviet Union because it rionov, his adviser until 2005, Mr Putin was haunted by fears of had been its core. Nor could it hitch its wagon to the European disintegration and saw the 1990s as a period not of freedom and Union and NATO—it was simply too big. stabilisation but ofchaos. Russia’s freedom in the 1990shad been sustained notby the In trying to preserve the nucleus ofan old empire, Mr Putin institutions of an enlightened state but by a plurality of eco- eliminated all alternative power centres. He stopped direct re- nomic and political actors, the weakness ofthe security services gional elections, standardised legislation across the whole of and Yeltsin’s determination to defend it. His legitimacy and sup- Russia and appointed his own representatives to the regions. He port rested largely on the Russian people’s rejection of the com- thus destroyed the principle of federalism, which had kept Rus- munist system that produced plenty ofmissiles and tanks but lit- sia together and politically stable throughout the economic up- tle that anyone wanted to consume. heavals of the 1990s. Like many of his predecessors, including When they rejected communism in the 1990s, Yeltsin and Stalin, MrPutin believed, and still believes, that a country ofRus- his colleagues portrayed Russia not as a new nation state but as sia’s size and ethnic complexity can be kept together only by cen- an heir to its pre-Bolshevikself, borrowing many of its symbols, including its flag. They depicted the Soviet period as an An opinion poll in 2000 found that 55% of the anomaly that had interrupted the course population expected Mr Putin to return Russia to the of Russian history. But they could not come up with a clear identity and a desti- status of a great and respected country nation for the new post-Soviet Russia. The 1991revolution had been largely bloodless because the tralisingeconomicresourcesand political power, and that the se- old nomenklatura retained its economic and often its political curity services are the best tool forachieving that. power. (Yeltsin himself was a former Communist Party boss.) It Yet Moscow, St Petersburg and even Kazan are modern did not and could not bring in a new elite because after 74 years European cities. They have little in common with Chechnya, a ofSovietrule there wasnone. And although the oligarchs who in tyrannical state where elements ofsharia law have been reintro- the 1990stookoverthe commandingheightsofthe Russian econ- duced. They also have little in common with Russia’s grim, small omy and the media had all the appearance of an elite, they towns in the hinterland which form the core of Mr Putin’s elec- lacked any sense ofresponsibility for their country. torate. The onlywayin which these differencescan be peacefully It was partly the failures and in-fighting ofthat Westernised reconciled is through decentralisation and political competition. ruling class that prompted Yeltsin to pick Mr Putin as his succes- Rather than being run as a centralised state, Russia would work sor in 2000. By that time the Russian economy was starting to much better as a federation in which each region can develop in benefit from the transition to a market economy, complete with its own way. This idea of Russia as a “united states” was first 1

The Economist October 22nd 2016 15 SPECIAL REPORT RUSSIA

anti-Americanism is based not on any real interaction between Offer to readers the two countries but on Rus- Reprints of this special report are available. A minimum order of five copies is required. sia’s domestic failures. Ameri- Please contact: Jill Kaletha at Foster ca’s perceived aggression allows Printing Tel: +1 866 879 9144 Ext: 168 Mr Putin to present himself as e-mail: [email protected] the leader ofa country at war. Corporate offer The extraordinary support Corporate orders of 100 copies or more are for Mr Putin (82%) as a head of available. We also offer a customisation state who stands up to this service. Please contact us to discuss your American aggression contrasts requirements. starkly with the deep contempt Tel: +44 (0)20 7576 8148 e-mail: [email protected] people feel for the power elite For more information on how to order special generally, whom they see as cor- reports, reprints or any copyright queries rupt, amoral and callous. They you may have, please contact: applaud the annexation of Cri- The Rights and Syndication Department mea but do not want to accept 20 Cabot Square any responsibility for it. Like London E14 4QW most other people, Russians on Tel: +44 (0)20 7576 8148 Fax: +44 (0)20 7576 8492 the whole have little interest in e-mail: [email protected] the outside world. They care far www.economist.com/rights more about their families and their jobs than they do about Future special reports Stalin regilded foreign adventures. They have Espionage November 12th 2016 no wish to go to war. Fossil fuels November 26th 2016 Lifelong education January 14th 2017 Russia’s perceived resur- 2 voiced by the Decembrists, a group of aristocratic revolutionar- gence is not a sign of strength ies who led an unsuccessful uprising in 1825. but of deep weakness and inse- Previous special reports and a list of forthcoming ones can be found online: To head offsuch notions, MrPutin needed a unifying narra- curity. Its anachronistic state economist.com/specialreports tive about the past. The onlyone available was the Soviet victory cannot deal with modern chal- in the second world war, which he presented as an exemplar of lenges, resolve contradictions state power rather than a triumph of human values achieved by and injustices orofferany vision all allies. The sanctification of that victory, and Stalin’s role in it, of a common future. Russia’s regional diversity, its growing in- has become the main ideological foundation ofMrPutin’svelvet equality and the contrast between the urban middle classes and Stalinism, disguised as patriotism—an old mix of Russian Ortho- the paternalistic periphery will remain causes oftension. doxy, state nationalism and autocracy. As Dominic Lieven, a British historian of the Russian em- As a victor in the second world war, Russia was never pire, has observed: “For most of Russian history…aggression forced to reject Stalinism in the way that Germany was forced to was the same thing as survival. In the 20th century Tsarist and reject Nazism, even though the two regimes had much in com- Soviet Russia smashed itself to pieces by competition first with mon. In an insult to the millions of Stalin’s victims, the Kremlin the Germanic bloc in central Europe and then with Anglo-Amer- has recently called Memorial, a long-established human-rights icans. The limited recovery of Russian power under Mr Putin organisation set up to draw attention to the crimes of Stalin’s re- cannot hide the fact that Russia is weaker than it has been in the gime, a “foreign agent”—a synonym for“traitor”. last 300 years.” “Putinism”, writes Mr Gudkov of the Levada Centre, “is a MrPutin knows he has a problem and is lookingforways to modified version of a repressive and centralised state system change the system while retaining personal power and dealing which imitates the Soviet style of a totalitarian regime.” But for with the problems of elections and legitimacy. He may promote all his faults, Mr Putin is not a bloodthirsty tyrant. Although he himself as a new national leader, a Russian late-period Deng has resorted to coercion and selective violence, both at home Xiaoping. That would allow him to combine confrontation with and abroad, he is neither willing nor able to reproduce the eco- the West with some degree ofeconomic liberalisation (he has re- nomic foundation of Stalin’s regime or impose a reign of terror. cently appointed Sergei Kiriyenko, a liberal of the late 1990s, as His system uses more subtle methods of control and manipula- his deputy chief of staff). But Russia is not China. And Mr Putin tion such asriggingelections, demoralisingorco-opting the liber- will be aware that, as de Tocqueville said, the most dangerous al opposition and, most important, deployingtelevision as a pro- moment fora bad government is when it begins to reform. paganda tool. The Russian empire had been overdue for transformation back in 1914, but Tsar Nicholas II’s insistence on ruling like a 17th- Old injuries century absolute monarch made it impossible. In the 1930s Stalin The reason Russia’s current nationalistic, anti-American managed to hold the empire together by extreme violence. After propaganda is so much more effective than the Soviet version is the Soviet Union finally expired in 1991, the new regime gave fed- that people choose to believe it. It plays to theirfeelings ofjealou- eralism a chance for a decade. But since Mr Putin has been in sy, resentment and victimisation. As Mr Gudkov notes, televi- charge, he has been trying to hold Russia together with the same sion propaganda exploits the syndrome of “learned helpless- anachronistic methods that had pushed his country into decline ness”—a psychological condition where people who have been and political upheaval at earlier points in its history. UnlessRus- repeatedly abused give up control and start believing that “noth- sia can complete the transformation into a modern nation state ing depends on us”. Having a mighty enemy, such as America, that began in 1991, what Mr Putin tries to present as his country’s helps alleviate their feelings of failure and weakness. Russia’s resurgence may in fact be one ofthe last phases ofits decline. 7

16 The Economist October 22nd 2016

Europe The Economist October 22nd 2016 41

Also in this section 42 Ukraine’s rock-star poet 43 The Bashneft deal in Russia 43 Italy’s Five Star Movement 44 The Canada-EU trade deal 46 Charlemagne: Primary colours in France

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

Ukraine’s future Butwhile Russia and the Westfight over Ukraine, it is events inside the country that Bone of contention will determine its destiny. Two years after the Maidan revolution, Ukraine is stuck in a grey zone of half-reforms and half-war. While the country has held together better than many had expected, it has not trans- formed itself into a modern nation-state. Foreign powers are negotiating overtheircountry, but it is Ukrainians who will After the revolution, power was seized not have the final say by a new political generation but by “those N THE morning of October 19th thou- the way for elections. That could create a who were the closest to the government Osands of people in Donetsk, the main Moscow-controlled region within Ukraine chairswhen the musicstopped,” saysYulia city occupied by the Russian-backed sepa- that could be used to block government re- Mostovaya, editor of Zerkalo Nedeli, a Uk- ratists of eastern Ukraine’s Donbas region, forms and international agreements by the rainian weekly. Young Ukrainians are frus- attended the funeral (pictured above) of a Kiev government and undermine Uk- trated by their inability to keep the revolu- notorious warlord assassinated two days raine’s integrity without direct military in- tion’s promises, but unable to form a earlier. Arsen Pavlov, better known as Mo- volvement. political force strong enough to challenge torola, was a Russian irregular who boast- Ukraine is at the centre of Russia’s con- the government. ed of killing Ukrainian prisoners-of-war flictwith the West, playinga vital role in Mr One reason is the war, which has given and had started to act independently of Putin’s ambition to restore Russia’s great- the government a cause around which to Moscow. He was the latest of a half-dozen powerstatus. The Kremlin hasused the up- unite the country without having to re- unruly separatist commanders to be elimi- heaval since Ukraine’s revolution of 2014 form itself. Television channels are filled nated in recent months, according to Niko- to cow its own dissidents by demonstrat- with imagesofthe brutal fighting, in which lay Mitrokhin, a Ukraine expert at the Uni- ing that rising up against corrupt, authori- 10,000 people died, and of volunteers car- versity of Bremen. That evening, the tarian regimes lead to chaos. The West, rying food and clothing to Ukrainian sol- leaders ofRussia, Ukraine, France and Ger- meanwhile, wants to show that liberal de- diers. Yet, as one Ukrainian observer said, many met in Berlin to discuss the region’s mocracy can succeed in a state that was at the worst thing that could happen to the stalled peace process, known as Minsk-2. the core ofthe formerSoviet empire. country now would be for the devastated The two events were both signs that Donbas region to return to Kiev’s control. Russia is trying to establish firmer control Ukraine has neither the money nor the over the lawless Donbas. Though it has Not the dirtiest shirt 2005 state institutions to re-integrate it. But Rus- stopped trying to spread the conflict to oth- Corruption-perceptions index 2010 sia, which started the war, does not want er parts of Ukraine for now, it still wants to 0=most corrupt, 100=least corrupt 2015 Donbas either. cement Donbas’s special status inside Uk- 0 20406080100 Western countries discouraged Uk- raine. As part of Minsk-2, Moscow de- Congo raine from fighting when Russia invaded mandsthatUkraine hold a local election in Crimea, and Mr Poroshenko resists calling the rebel-held territories. Kiev has refused Ukraine the conflict a war. But the war has become to do so until shooting stops and interna- big business on both sides of the border. tional monitors from the Organisation for Russia Corruption, in both Ukraine and Russia, is Security and Co-operation in Europe so ubiquitous that it is better described as Poland (OSCE) are given access. the capture of the state by oligarchs and In Berlin, Vladimir Putin suggested he Britain vested interests. According to Zerkalo Ne- would let the OSCE in. Petro Poroshenko, deli some 30 defence manufacturers have Ukraine’s president, said this would pave Source: Transparency International been transferring state money into fake 1 42 Europe The Economist October 22nd 2016

KHARKIV LUHANSK Ukraine’s rock-star politician Rebel-held UKRAINE Oct 2016 Front man DNIPROPETROVSK Sloviansk Debaltseve Luhansk MARIUPOL Dnipropetrovsk D O N B A S A pop startries to help a country at warreinvent itself Donetsk DONETSK HE crowds in Mariupol, a factory have hamstrung the country’s devel- RUSSIA Ttown on the front line in eastern opment. “The problem is that both those Ukraine, began lining up at six in the who speakUkrainian and those who ZAPORIZHIA Mariupol morning. It was late spring, and the rock speakRussian are stealing,” says Mr group Okean Elzy were playing. “You Vakarchuk. “We should be joined by the might only see them once in your life,” desire to build a just society.” Yet the 100 km Sea of said a young boy in line. Some 30,000 more Ukraine’s reforms falter, the more Azov Kiev people turned out to see the band and its politicians exploit divisions over history UKRAINE front man, Svyatoslav Vakarchuk(pic- and language. “The worse things get for CRIMEA tured). “He’s now the voice ofthe youn- the living, the more we talkabout the ger generation, the voice ofthe agents of memory ofthe dead,” says Mykhailo change,” says Yaroslav Hrytsak, a Ukrai- Minakov, a political philosopher. 2 firms as “payment” for non-existent equip- nian historian. Many ofMr Vakarchuk’s fans, longing ment. Some pro-Ukrainian militias, who Mr Vakarchukis the son ofa physicist foran inspiring leader, hope that he will answer to no one but their own field com- from Lviv in western Ukraine, and his return to politics. President Petro Po- manders, are growing impatient with cor- most significant recent performance was roshenko’s administration has already ruption and the lackofreform. not a concert but a speech marking his commissioned polls on him, preparing Yet instead of concentrating on fighting return to the political arena. (He served a forhis appearance as a potential rival, large-scale corruption, Ukrainian prosecu- one-year stint in parliament between reports Ukrainskaya Pravda, a news site. tors are targeting journalists, activists and 2007 and 2008.) But Mr Vakarchukinsists he can accom- pro-European membersofparliament. Ser- Taking a stand against the identity plish more with his music. As he sings in gii Leshchenko, an anti-corruption jour- politics that Ukrainian leaders have long “Not YourWar”, a new hit released last nalist and MP, has been attacked by the used to distract from failed reforms, Mr year: “Abattle at dawn, sun and smoke / prosecutor’s office for acquiring a 7.5m Vakarchukarticulated a vision ofUkrai- Few know what will become ofit / What hryvnia ($292,000) flat in Kiev, bought nian identity forthe 21st century. “We will fill tomorrow’s young minds / For with a loan from a friend. “The purpose of need to stop building a state based on some there is hope, forothers fear.” this campaign is to discredit us, to show blood patriotism, and begin building a that everyone in Ukraine is the same and state based on constitutional patriotism,” anyone who fights against corruption is he declared. “We shouldn’t be united by a himself corrupt,” says Mustafa Nayem, an- common past, heritage, blood or appear- other pro-European MP. ance, but by a common set ofvalues, Some new, clean institutions have been lifestyles, rules and a constitution.” set up with the help of Western donors, Throughout Ukrainian history, “the such as the National Anti-corruption Bu- main articulators ofidentity have been reau of Ukraine (NABU). But they are writers and poets,” Mr Hrytsakexplains. locked in a struggle with the old guard. The “Most have been very strongly ethnically General Prosecutor, Yuri Lutsenko, is trying inclined.” Taras Shevchenko, whose to limit the powers ofNABU and hand over poetry helped codify the modern Ukrai- serious corruption cases to other agencies. nian language in the mid-1800s, pro- FrancisMalige ofthe European Bank for pounded an ethnic nationalism that Reconstruction and Development says divided Ukraine from its imperial Rus- there has been much progress in the bank- sian masters. “Fall in love, you dark- ing and energy sectors. But the key tests, in- browed girls, but not with Moskali,” he cludingprivatisation ofstate assets, are still warns in “Kateryna”, using a Ukrainian to come. The central bank has yet to deal slur forRussians. “For Moskali are strang- with the country’s largest bank, Privat- ers / They will do you wrong.” Bank, which belongs to Ihor Kolomoisky, For post-Maidan Ukraine, Mr Va- one ofits richest oligarchs. karchukwants to replace this ethnic As for energy, the intermediaries be- nationalism with a more civic sort, to tween Gazprom, Russia’s state natural gas overcome the regional divisions that Unacknowledged legislator giant, and Naftogaz, its Ukrainian counter- part—a vastsource ofcorruption—are gone. But Rinat Akhmetov, a formersupporter of “Ukraine has to build up a critical mass of nail that holds things in place”. Pulling him the deposed president, Viktor Yanuko- reformers,” he says. The EBRD and the EU out now would be dangerous, but he is vych, is still making a killing on govern- have launched a programme to reform hardly the man with whom to build the fu- ment-regulated schemes in the coal and public administration, hiring dozens of ture. Mr Putin may hope that the combina- electricity sector. young Ukrainians to create new layers of tion of keeping Donbas inside Ukraine, As Mikheil Saakashvili, a former presi- civil servants in fourkey ministries. growing disillusionment with the Maidan dent of Georgia and the governor of Odes- But this will take years. What Ukraine revolution and the radicalisation of some sa region, says, for all the differences be- needs most is a leader with vision and po- Ukrainian militias will be enough to cause tween Russia and Ukraine, the elites in the litical will. In the words of Ms Mostovaya, the country to explode. It is up to Ukraine two countries have much in common. Mr Poroshenko is like a “rusty and infected to prove that he is wrong. 7 The Economist October 22nd 2016 Europe 43

Russia’s Bashneft deal politics as with budget maths. “It’s a story of the relations between clans around Pu- Easy sale tin,” says Konstantin Simonov, director of the National EnergySecurityFund, a think- tank. From 2009-2014, Bashneft belonged to Vladimir Yevtushenkov, a Kremlin- MOSCOW friendly oligarch. After Mr Yevtushenkov rejected MrSechin’s overtures to buy Bash- One state-owned company buys neft, he found himself under house arrest another, and the state books a profit and his company seized by the state. Many HEN Russia’s government floated in Moscow believe this was orchestrated Wthe idea that its supposedly ambi- by Mr Sechin, a security-services veteran tious privatisation plans should include and close ally of Mr Putin. He has denied selling Bashneft, a state-controlled oil firm, any involvement. to Rosneft, another state-controlled oil Mr Yevtushenkov was later released, firm, many officials were opposed. One but the jockeying for Bashneft continued presidential advisercalled it “idiocy”. Even after it appeared on a list of assets up for President Vladimir Putin said it was “not privatisation earlier this year. Allowing the best option”. But Igor Sechin, the head Rosneft to buy Bashneft, Mr Simonov says, of Rosneft, is a persuasive man. On Octo- is an “open slap in the face” to the govern- ber 9th the government announced that ment’s more liberal economic advisers, Rosneft’s 330 billion rouble ($5.3 billion) who sought to prevent the sale. bid had been accepted. Next on the “privatisation” chopping The main imperative was the govern- blockisa 19.5% stake in Rosneftworth some ment’s urgent need for money. The quasi- $11 billion. The state owns nearly 70% of Italy’s Five Star Movement privatisation “helps them to resolve the Rosneft’s shares; the rest are held privately, budget problem, but doesn’t reduce the including a 20% stake belonging to British Requiem for a role ofthe state in the economy,” says Oleg Petroleum. While Western investors have Kouzmin ofRenaissance Capital, an invest- stayed away because of sanctions, the dreamer ment bank. Rosneft’s offer was above the company has attracted interest from Asian CEO value an independent analyst had put on and Arab investors. Wang Yilin, ofthe ROME the company. Leonid Fedun, vice-presi- China National Petroleum Corporation, The late Dario Fo’s political darlings are dent of Lukoil, Russia’s largest remaining said in an interview with a Russian televi- closerthan everto power privately held oil firm, said his company sion network that his company would be could not have matched such a high bid, interested—but only if it meant influence HE funeral in Milan on October15th of but for a state-owned company like Ros- over Rosneft’s management, something TDario Fo, Italy’s irrepressibly subver- neft that is too big to fail, “it doesn’t matter Russia is loth to allow. In lieu of other sui- sive Nobel laureate for literature (see page how much they pay.” tors, the government may turn again to a 78), may have seemed like a commemora- Rosneft falls under Western sanctions familiar customer: Rosneft itself. Mr Putin tion of the old, Marxist left. On the rain- on Russia, which restrict its access to fi- says that the government has already ap- sodden Piazza del Duomo, clenched fists nancing. But it has $22 billion on hand and proved the unorthodox plan, calling it an were raised, a Che Guevara banner un- says it will not have to borrow for the deal. intermediate step before real privatisation. furled and the great jester dispatched to his (Much ofthe cash comesfrom Chinese pre- “We’re not planning to build state capital- grave with a rendering of “Bella Ciao”, the payments on a 25-year oil deal signed in ism,” he insists. One might be forgiven for anthem of Italy’s partisans in the second 2013.) Rosneft was already Russia’s largest thinking otherwise. 7 world war. oil company, having absorbed assets from Yet the best-known mourners were not two former competitors, Yukos in 2004 Marxists at all. They included the founder and TNK-BP in 2013. of the Five Star Movement (M5S), Beppe Critics contend that the move simply Grillo (pictured); the mayor of Rome, Vir- shifts money from one state pocket to an- ginia Raggi; and other leading figures in other. While the proceeds from the sale what has become Italy’s main opposition will allow the government to claim a group. Late in life, Mr Fo transferred his en- smaller budget deficit, they ultimately thusiasm from the radical left to the M5S. come out of the assets of Rosneft, a mostly He even wrote a book with Mr Grillo and state-owned company. Some analysts the party’s co-founder, the late Gian- think the merger involves synergies that roberto Casaleggio, explaining its ideas. will increase Rosneft’s value, though by These include attacking corruption in Ita- how much is unclear. In any case, such ac- ly’s mainstream parties, transcending the counting tricks will not improve the long- conventional distinction between right term health of Russia’s economy, still sput- and left, and replacing representative de- tering under the pressure of Western sanc- mocracy with a system ofdirect, Athenian- tions and depressed oil prices. Nor will the style rule by the people. decision help attract investment into a Unabashedly populist and Utopian, country where, by the measure of Russia’s the M5S can also be sternly pragmatic. For own Federal Anti-Monopoly Service, the example, Ms Raggi has abandoned cash- share of GDP controlled by the govern- strapped Rome’s bid for the 2024 Olym- mentand state-owned firmshasrisen from pics. But M5S is often disconcertingly ec- 35% in 2005 to 70% in 2015. centric. Mr Casaleggio’s bequest to his fol- Bashneft’s fate had as much to do with Pumping up the price lowers was a video predicting that robots 1 44 Europe The Economist October 22nd 2016

2 with artificial intelligence would soon ex- The Canada-EU trade deal terminate the human race. True to its beliefs, the M5S chooses its electoral candidates in online ballots. Save Hot-air Walloons in municipal elections, it does not accept anyone who has served more than a term A tiny region ofBelgium is blocking an EU-wide trade deal asa political representative ofanysort. The intention is to guarantee that its lawmak- EY Canada, fuckyou.” Within detractors who hate the fact that it also ers and office-holders are free of the com- “Hhours this tweet (the result of a hacks away at 99% ofcustoms duties promising links that are rife in Italian poli- hack) from the Belgian foreign minister’s between Canada and the EU. Wallonia tics. But one effect is to ensure they are account was replaced with a friendlier boasts one cow for every three humans equally untainted by experience and, message: “keep calm and love Canada”. and its lavishly subsidised farmers are sometimes, ability. Yet his country’s actions are closer to the wary ofcheap Canadian competition. As Italy prepares for a referendum on original. On October14th the regional Erwin Schöpges, a Walloon dairy farmer December 4th that could open the door to parliament ofWallonia voted to block who joined the protests outside parlia- an eventual M5S government, the issue of the Comprehensive Economic and Trade ment, says he already faces milkprices the party’s competence is becoming press- Agreement (CETA), a trade deal between below his production costs. “We want to ing. Polls show voters evenly split between the European Union and Canada. trade with Canada, but we would rather supporters and opponents of a govern- Twentieth-century trade deals slashed not abolish tariffs,” he says. ment-sponsored constitutional reform. tariffs. Newer ones between rich coun- In any trade deal there are winners The prime minister, Matteo Renzi, has tries, such as CETA, focus on cutting other and losers: the former, more numerous; vowed to resign if the reform is rejected. barriers to trade. After seven years of the latter, more passionate. The Belgian That would not automatically lead to the haggling, European negotiators dream of government may buy offits farmers, but M5S taking power, but Mr Grillo’s move- European toys and electrical products even so more hurdles await. CETA must ment is the obvious beneficiary of the in- being sold straight to Canadians, without be ratified by 38 regional and national EU stability that would follow. having to go through a second round of parliaments before it can be implement- Its record in office is not reassuring. health and safety checks. ed fully. MrSchöpges says the protest in Since her election in June, the M5S mayor Coordinating standards with another Wallonia was less lively than the one he of Turin, Chiara Appendino, has made a country inevitably means surrendering a attended in Hamburg a few weeks earli- solid enough start. But her counterpart in little sovereignty. This riles many Euro- er; opposition in Germany and France Rome, Ms Raggi, has lurched from one cri- peans, who worry that CETA will dilute could just as easily derail proceedings. sis or controversy to another. It took her environmental standards and labour CETA would make Europe €5.8 billion three months to form an administration, laws; they suspect that new courts estab- a year richer, by one estimate. But the real and the all-important job ofoverseeing the lished by the treaty to settle investor danger ofletting Wallonia derail it is the budget eventually went to her fourth disputes with governments will favour precedent it would set. With so many choice, after her first three picks either re- corporations over regulators. potential vetoes, says Chad Bown of the fused or resigned. But plans forsuch courts have already Peterson Institute forInternational Eco- It is probably too early to pass judgment been reformed, notes Marietje Schaake, a nomics, it is hard to imagine the Trans- on either woman. Ms Appendino inherit- liberal Dutch MEP. The latest proposals atlantic Trade and Investment Partner- ed a city competently administered by the make them more independent and trans- ship (a much bigger deal between outgoing mayor; Ms Raggi took over one parent. On October18th Cecilia Malm- America and the EU) being passed. And deep in debt, racked by scandal and notori- strom, the EU’s trade commissioner, as forBritain’s prospects after Brexit, Ms ous forcronyism. wearily offered to add a “plain language” Malmstrom says: “ifwe can’t make (a More conclusive is the movement’s ex- declaration to clarify the deal. deal) with Canada, I’m not sure we can perience in the northern city of Parma. In CETA has other more traditional make (one) with the UK.” 2012 Federico Pizzarotti was elected mayor there, giving the M5S its first big electoral success. Earlier this month, he resigned from the movement, endinga turbulent as- sociation with its leaders. Relations began to fray after he rowed back on a campaign pledge to close the city’s waste incinerator, saying it was too expensive to do so. “Once inside the institutions, [M5S of- fice-holders] realise how they work and then have the difficult job oftelling the rest of the party that what they promised can’t be done,” says Maria Elisabetta Lanzone, a political scientist at the University of Gen- oa and author ofa bookon the party. The movement’s recent setbacks have eroded its popularity. Yet on average, the polls still put it within four percentage points of the governing Democratic Party. For many voters, experience and compe- tence are less important at the moment than honestyand idealism. AsMrFo knew, Utopian dreams go down very well with Bravely resisting the Canadian menace audiences. 7

46 Europe The Economist October 22nd 2016 Charlemagne Couleurs primaires

France’s hopes that primaries would produce a BarackObama are not panning out tuned in—as many as watch the trashy French reality-TV shows that usually air in that time-slot. The party may well match the Socialists’ turn-out. It will be difficult for losers to cry foul. Yet the original purpose was not only to model the American system’s virtues of transparency and openness: it was also to en- courage fresh political talent. French parties used to stitch up can- didates behind closed doors, or restrict voting to card-carrying members. It was time, argued a report in 2008 by Terra Nova, a think-tank close to the Socialist Party, for a system that could en- able a “Barack Obama français” to emerge. On this count, the re- cord is rather less compelling. In 2011 the primary winner was François Hollande, a hack who had formerly led the party for 11 years. The Republicans are now busy doing their own recycling. Only one candidate, Nathalie Kosciusko-Morizet, is a woman. Another, Bruno Le Maire, tried to look hip by not wearing a tie. Among the rest are a former president, Nicolas Sarkozy, and two former prime ministers, Alain Juppé and François Fillon. When the front-runner, Mr Juppé, and Mr Sarkozy first went into poli- tics, in the mid-1970s, Mr Obama was still in high school. If there is a novelty, it lies partly in the crushing of old hierar- chies. The sight ofMr Sarkozy stripped ofthe pomp ofhigh office, EEK after week, Europeans turn their gaze to the American just one TV-debate contestant among many, was a tribute to the Wpresidential election with consternation and bewilder- democratic process. Should the unpopular Mr Hollande seek re- ment. How is it that the world’s second-biggest democracy, with election, he will have to venture outside the ornate Elysée Palace its orderly primary system, comes up with a candidate like Do- to campaign against his (many) Socialist critics in a primary in nald Trump? The sense of stupeur is perhaps most acute for the January. Perhaps the most unforeseen change, though, is the way French, whose presidential system resembles America’s more the primaries are polarising debate within parties. The tensions than it does Europe’s parliamentary democracies. For the first are not new, but a primary makes them cruelly visible. time ever, both of the two main French political parties—the So- The first Republican debate was mostly measured and won- cialists and the centre-right Republicans—are about to stage kish. Mr Sarkozy controlled his finger-jabbing. Mr Juppé acted American-style primaries to select candidates for next spring’s ponderous and professorial. A full hour was devoted to fiscal presidential election. French parties used to pick candidates policy, welfare rules and public finances. Yet the campaign has based on a mysterious alchemy of deal-making, seniority and also been viciousattimes. MrJuppé, who wasconvicted ofpoliti- clout. The advent of primaries is altering campaign politics, but cal corruption in 2004 and struck off the electoral register for a not in the way that was expected. year, snapped that it was “better to have been in the dock in the past than in the future”. That was a jab at Mr Sarkozy, who is un- Donald se Trompe der investigation for alleged breaches of campaign-finance rules. The immediate concern in France is not that the primaries will Mr Sarkozy called Mr Juppé “odourless, colourless and flavour- yield a Trump à la française. The country already has one ofthose less”. MrSarkozy, chasingthe FN vote, would ban the Muslim veil in Marine Le Pen, leaderofthe National Front(FN), who firmly oc- from universities and the burkini from beaches. Mr Juppé, who cupies the role of the populist, nativist outsider. Though she has seeks a “happy identity” for France and urges the left to vote in yet to stage a campaign rally, she is on top ofthe polls forthe elec- the primary, warns against stoking a “war ofreligion”. tion’s first round. HerFrance-first, close-the-borders politics are in France’s encounter with primary politics is still in its early tune with the continent-wide nationalist trend. Unless opinion days. In some ways the idea runs counter to the spirit of the Fifth shifts radically, Ms Le Pen is set to repeat in April 2017 the shock Republic. Charles de Gaulle introduced the directly elected presi- her father, Jean-Marie Le Pen, caused in April 2002, by securing dency in 1962 in order to take power away from political parties, one of the two places in the presidential run-off. With Ms Le Pen which he blamed for the “disastrous” manoeuvrings of the lookinga sure betin the firstround, France’sprimariesare becom- Fourth Republic. A president elected directly by the people ing a contest over who can beat her in the second. This makes the would—like le général—embody the nation, and rise above the experimental process hugely important. grubby business of party politics. Primaries, by contrast, seem to As an exercise in popular participation, the French experience strengthen the party filter. so far has been positive. When the Socialist Party first introduced Yet in another sense, they may weaken it. The parties’ internal a primary open to all supporters in 2011, nearly 3m tookpart—sev- divisions on some issues—counter-terrorism, religious expres- en times the number of voters in Britain’s Labour Party leader- sion—are as great as those between them. Primaries lay this bare, ship election in 2015. For their primary on November 20th and and could in time reorder the political map. That is what Emman- 27th, France’s Republicans have followed suit. Any voter who uel Macron, MrHollande’sformereconomyminister, isgambling turns up, pays €2 ($2.20), and endorses the “values of the right on. Rather than running in the Socialist primary, he is contem- and the centre” and a “change of power” can take part. When the plating an independent candidacy, hoping to draw support from seven Republican candidates lined up in a brightly lit studio for left and right. If it works, it may be because the primaries intend- the first televised debate last week, a stunning 5.6m viewers ed to revitalise France’s parties have instead split them apart. 7 Britain The Economist October 22nd 2016 47

Also in this section 48 Inflation rises 48 The leaky, fractious cabinet 49 Bagehot: The spectre of Scoxit

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

Social mobility children is falling, notes Jo Blanden of Sur- rey University. In 2005 30% ofchildren eli- A class apart gible for free school meals got five good grades at GCSE, the exams taken at16, com- pared with 59% of others. By 2013 that 29 percentage-point gap had shrunk to 16 points. There has been a similarnarrowing of the difference in university participa- Improving social mobility will mean allowing rich children to move down as well tion rates and performance in SATs, the ex- as helping poorones to move up. Does the government have the stomach forit? ams taken at 11. Since studies suggest that HERE is little doubt about which sub- relative terms, meaning how well they do more than half of the link between paren- Tject will define Theresa May’s govern- compared with their peers. By this defini- tal and child income develops as a result of ment. But the prime minister has made tion, the change has been somewhat less what happens in the classroom, the con- clear that during whatever time is not gob- dramatic. Among men born in the poorest vergence of rich and poor pupils’ exam re- bled up by Brexit negotiations she wants to income quartile in 1958, 31% remained sults bodes well forsocial mobility. turn Britain into “a country that works for there as adults. Among the generation everyone”. Such talk is hardly new. In 1990 born in 1970, the figure creptup to 38%. Aca- What goes up... John Major spoke of his desire to forge “a demics who study mobility based not on Yetthe slowingdown ofthe economyfrom genuinely classless society”. Every prime income but on social class—normally de- its post-war clip means that the increase in minister since has made similar noises. Yet fined by occupation type—detect even less well qualified youngsters has no corre- few have placed as much emphasis on so- change. By their reckoning, mobility has sponding increase in good jobs. In the past, cial mobility as Mrs May. changed little during the past century (al- there was plenty ofroom at the top. Now, it This focus is inspired by the fact that, by though women became a bit more mobile, is painfully clear that social mobility must many measures, Britain is not a socially probably reflecting better access to educa- mean people going down as well as up. mobile place (see chart). Many also sense tion and work). Most see little prospect of Well-off parents have many weapons that things have taken a turn forthe worse. an increase in mobility in years to come. with which to defend their children from Like most rich countries, after the second But not all are so gloomy. The gap in this fate. The bluntest is by passing on world war Britain saw a big increase in the exam performance between rich and poor wealth. Last year the government an- number of well paid, white-collar jobs. nounced plans to shield inheritances of up The proportion of people born to parents to £1m ($1.2m) from tax. And money helps in professional or managerial jobs tripled Family silver youngsters to maintain an educational between the generation of 1946 and the Wage premium of those with well educated parents edge. In 1996 just 4% of Britain’s workforce one born in 1980-84. Poor children won compared with poorly educated parents, 2012-13 had postgraduate qualifications; today 11% % placesin the civil service orthe City ofLon- 0 20406080 do. The relative scarcityoffundingfor post- don, earning far more than their parents. graduate study means postgrad qualifica- United States But as the creation of professional jobs tions are more open to wealthy students. slowed, the scope forchildren to make dra- Britain Moreover, the graduate wage premium is matic leaps up the social pecking-order Japan highest for those at the most prestigious narrowed. In thissense the Britain of today universities, where the gap between rich France is a less upwardly-mobile place than that and poor pupils has remained wide. ofMrs May’s youth. Germany Access to good jobs is increasingly The overall picture is more complicat- Canada gained through internships, often unpaid ed. Mobility is measured not only in abso- Norway and given out informally. The government lute terms—that is, how well people fare has shown limited interest in enforcing the Source: UCL Institute of Education compared with their parents—but also in minimum wage in this area (indeed, two1 48 Britain The Economist October 22nd 2016

2 years ago Mrs May’s Conservative Party Politics wrote to its MPs with advice on diplomatic ways to advertise unpaid internships). Thus, even among children with identical Theresa’s way educational qualifications, the privately schooled are more likely to get the best The new government’s fault-lines point to two big shifts on Whitehall jobs and to take home fatter pay-cheques, according to a study in 2014 by academics HEN Theresa May arrived in 10 to her left and a troubled UK Indepen- at the UCL Institute ofEducation and Cam- WDowning Street in July, after six dence Party to her right, she wants to bridge University. years as home secretary, herwatchword colonise new ground on both sides. The Chipping away at these privileges will was competence. She would bring Home advantage ofthis strategy is its electoral not be easy. But in an era oflimited growth, Office control and discipline to the post- virility: an Ipsos MORI poll published on improving social mobility is as much Brexit chaos. Yet three months on her October19th put her party on 47%, higher about dismantling the barriers that keep government seems remarkably leaky than the Toryvote share in any election wealthy children at the top as it is about and fractious. On October16th she ruled since 1959. The disadvantage is that this pulling poor children up from the bottom. that collective cabinet responsibility broad coalition contains multitudes— Promising to increase social mobility has would be suspended in a delayed vote from rich to poor, cosmopolitan to nativ- longbeen a popularpledge. It may become on the expansion ofHeathrow airport, to ist, libertarian to paternalist—and Mrs a more controversial one when voters real- allow dissenters like Boris Johnson, the May lacks the parliamentary strength to ise that mobility goes in two directions. 7 foreign secretary, to demur. ride out the contradictions (she inherited Heathrow is just one case. Even Jus- a majority ofjust16 seats). tine Greening, the education secretary, is For this reason it is hard to believe her Inflation uncomfortable about the prime min- aides when they insist she has not con- ister’s enthusiasm for selective state templated calling an early election. On Only the schools. And Downing Street has repeat- the current polls, the Conservatives edly backed away from Mr Johnson’s would increase their majority to over beginning statements: from the case fora new royal 100. That would create space forall the yacht to that forexpanding military cabinet and parliamentary battles Mrs intervention in Syria. Then there is Brexit. May’s sprawling and often contradictory Philip Hammond, the chancellor, is politics demands. Britain’s other parties The fall in the pound begins to eat into emerging as the loudest voice fora pro- should assume an election footing. living standards market, liberal sort ofdeal. Related bat- OR the 354 years for which there are tles over immigration rend the cabinet. Fdata, Britain’s average annual inflation Where has Mrs May’s iron fist gone? rate hasbeen about2%. So the newsthat in- The first explanation is her governing flation rose to 1% in September, up from style. Concentric circles radiated out from 0.6% in August, may not seem significant. David Cameron when he was prime But it is bad news: there is a lot more infla- minister: first the “sofa” government, tion to come, and the big losers from rising then the most loyal ministers, then the prices will be the poor. cabinet outsiders. Under Mrs May things The obvious culprit for rising prices is are different. She has allies (like Mr Ham- the 15% drop in sterling since June. Britain mond) but no diehard gang. Instead of imports nearly all of its clothes, and rule by clique, she prefers the cabinet and month-on-month inflation in clothing its subcommittees. These now meet now exceeds 5%. However, elsewhere ster- without the prime minister having fixed ling’s decline has not yet been felt. Curren- the outcome with a few pals beforehand. cy-hedging by wholesalers stops prices Insiders claim this makes formore sin- from rising immediately. Retailers pressur- cere discussions. But it also means more ise suppliers not to raise prices, as demon- splits and leaks. strated by a recent spat over the price of The second factor is Mrs May’s broad- Marmite, a yeasty spread. The overall price er project: noting a troubled Labour Party Cabinet of curiosities offood did notbudge in September(the av- erage price of a jar of Marmite actually fell, as shops cut prices to lure customers). ter, has expressed reservations about loose maging to the poor. They devote a large Despite pricier clothes, inflation’s rise monetary policy. And MPs are more will- proportion of their income to food and en- was caused largely by factors unrelated to ing than in the past to challenge the Bank ergy, which are greatly affected by the val- sterling. It was already trending upwards of England’s independence. Addressing ue ofsterling, whereas the rich spend more from a low of -0.1% last October. In 2014-15 Mark Carney, the bank’s governor, David on services, which are not. there were sharp drops in energy prices, Davies, a Tory backbencher, tweeted that Welfare recipients will also suffer from which have fallen out of the year-on-year Mrs May “has got every right to tell you high inflation, according to the Institute for comparison used to calculate the rate. how to do your job!” Fiscal Studies, a think-tank. Usually, bene- Sterling’s slide will eventually make it- Politicians should know better than to fits rise in line with prices. No longer: last self felt, however. Consumer-price infla- interfere with the bank’s decision-making. year, most working-age benefits were fro- tion is likely to hit 3% in 2017. Though that is Nonetheless, rising inflation does have its zen in cash terms until 2020. Relative to higher than the Bank of England’s 2% tar- costs. Real weekly pay is already about 4% previous plans, about 12m families are ex- get, the bank is loth to raise interest rates lower than in 2007. Nominal wage growth pected to lose an average of £360 ($442) a lest it tip the economy into recession. Hold- is just 2%. Once inflation goes above this year in real terms thanks to the jump in in- ing off is the right move, though a contro- rate, real wages will fall. flation. The relatively poor folk who tend- versial one. Theresa May, the prime minis- Rising inflation may be particularly da- ed to vote Leave will suffermost. 7 The Economist October 22nd 2016 Britain 49 Bagehot The spectre of Scoxit

Do not rule out Scotland’s departure from the United Kingdom geon’s only proximate chance oflosing power is ifher own party turns against her. Apart from the punchy Ruth Davidson, leader ofthe risingbut still marginal Scottish Tories, she faces little exter- nal opposition. The SNP holds 54 of Scotland’s 59 seats in West- minster and over half the seats in the Scottish Parliament, the next election to which is not until 2021. The first minister is not without her critics inside the party, hyper-centralised and stage- managed though it is. So if the yellow-lanyarded troops really want a new vote, she will eventually have to produce it. Publish- ing the draft referendum bill will only stoke their appetite. Moreover, Ms Sturgeon does not just ride her party’s frustra- tion at the Scottish referendum result in 2014 and the English vote forBrexit this year: she shares it. According to David Torrance, her biographer, the old SNP slogan “Independence in Europe” is something like her “personal manifesto”. And although White- hall technically has the final say on whether a new referendum goes ahead, the Scottish government can point to the commit- ment in its May electoral programme, endorsed by an unprece- dented 47% ofScots, asa mandate to hold one now. So it isentirely possible that Ms Sturgeon will make good on her threat in the probable event of a hard Brexit. S INVITATIONS for haughty English scoffing go, Nicola Stur- And what if she does? Once Yes2 is triggered, anything could Ageon’s opening speech at the Scottish National Party confer- happen. As Mr Salmond likes to brag, he pushed the referendum ence was irresistible. In the SNP manifesto for the Scottish Parlia- button when just 27% of Scots supported quitting the United ment elections in May, she had committed to a new Kingdom, but on the day almost half of them backed it. Brexit independence referendum in the event of a Brexit without Scot- could yet transform the independence debates of2014 into some- tish consent. Assembling in the lee ofScotland’s 62% vote against thing new, different and dangerous forthe union. leaving the EU (outweighed by England’s 53% vote in favour), her members in Glasgow knew the score, studding themselves with Newly sprung in June stickers and badges reading “Yes2” (nationalist-speak for a new Consider the basic dynamic of the referendum in 2014: the na- plebiscite), cheering a French delegate who praised the party’s tionalists had emotion and the thrill of the gamble on their side, Europeanism and experiencing paroxysms of delight when Ms while the unionists had reason and numbers. Reason won. But Sturgeon announced that she would consult on a new referen- now that picture is blurred. Is it riskier to stay in a Britain without dum bill. But was that a note of hesitancy in her voice? A hint of the EU, or an EU without Britain? With the pound sinking, is join- trepidation on those thin lipsand arched brows, asshe tookin the ing the euro as horrifying a prospect as it was two years back? applause? Why, yes it was. And with wide-eyed Brexiteers in Whitehall making all sorts of Ms Sturgeon is in a bind. Many in her party, including Alex dubious claims about the benefits and ease ofleaving the EU, the Salmond, her predecessor, are demanding a new referendum gap between unionist sense and nationalist emotion is closing. now, and no messing about. But, despite Scotland’s resounding This could tilt the allegiances of the sort of middle-class voters vote against Brexit, and an initial post-referendum bounce in sup- who stronglyopposed both independence and Brexit: say, the Ed- port for independence, opinion polls now put support for a inburgh professional working in finance and now worried about “Scoxit” from the United Kingdom at or below the 45% achieved the effects ofleaving the single market. when the question was formally put in 2014. That is hardly sur- The heart of the SNP argument in 2014 was the claim that a prising. An un-Brexited, independent Scotland would probably Tory-led government in Westminster with little support north of have a hard, costly border with England; the sort which threatens Hadrian’s Wall was fundamentally at odds with a more left-lean- to complicate relations between Northern Ireland and the Re- ing, liberal Scotland. This was a gross exaggeration, but Ms Stur- public. Then there is the 97% fall in North Sea oil incomes in the geon could not have scripted a better illustration than the Brexit past year, which would force a huge rise in tax after indepen- vote and its aftermath: a mean, isolationist England (where the dence. Were it held today, a referendum would probably be lost. political mood is increasingly nasty) dragging out a Scotland So the first minister hedged, backing a new Scoxit vote before where every single local authority area voted to stay. Brexiteer ex- 2019 in a tortuous sentence that ended with the rider: “…if that is uberance south of the border could make the SNP’s own necessary to protect ourcountry’s interests.” One forthe lawyers, nationalist excesses look more reasonable. A Britain flouncing that. Then, to more muted cheers, came a weird formulation blithely out ofthe EU with little regard for jobs, investment or lib- about being urged both to hurry up with, and hold off, the refer- eral values is a workable case forScoxit. endum by different people. What a huckster, Bagehot thought. It remains in Scotland’s interests to stay in the United King- She doesn’t want a doomed vote but is stringing the members dom. Yet it is also true that the two largest parts of Britain’s union along. She is merely after a new dose of devolution within the are growing apart. Brexit is both a symptom and a catalyst ofthat United Kingdom. She is bluffing. The union is safe. process, lendingnationalism momentum and allowingunionists But this sort of thinking grows cracks when one starts to inter- no room for complacency. They underestimate Ms Sturgeon at rogate the steps needed for Scoxit. Take the referendum. Ms Stur- their peril. 7 50 International The Economist October 22nd 2016

Migration to Europe through tears, and declares she will take any job to support her child. The medics Travelling in hope flag her up for referral to a psychologist once she lands in Italy. Smart, a 27-year-old Nigerian, fell out with his half-brother, who wanted to kill him. He told a man whose carhe washed, who in turn put him AGADEZ AND ON A BOAT IN THE MEDITERRANEAN in touch with people-smugglers. Soon Smart was travelling to Libya in a series of The flow ofAfricans from Libya to Italy is now Europe’s worst migration crisis cars. Bashir, a 17-year-old from Somalia, is EFORE dawn the Dignity 1 has complet- Kaifa, a 20-year-old from Liberia, travelled one of the few with any idea of where he B ed her first rescue, scooping 114 mi- through Guinea, Mali, Burkina Faso, Niger would like to end up: Geneva, because he grants without lifejackets from a rubber and Libya; he says he was arrested for tak- has heard that many NGOs are based dinghy adrift in the Mediterranean. The ing part in a peaceful protest in his home there. “Maybe they can assist me,” he says. crew, who include a doctor and two nurses country. Many have suffered terribly en from Médecins Sans Frontières (MSF), the route. Aruna, a 21-year-old from Sierra Le- Daring to dream charity that operates the boat, check the ar- one, has a broken hand from the smug- Migrants have been making their way on rivals to see who needs immediate care. glers’ beatings, and marks on his back from boats to Europe for more than a decade. No soonerhave theyfinished than the ship their whips. A Nigerian woman is keening: But in the past few years their numbers is called to assist the Samuel Beckett, an her two children were lost overboard be- have soared. Last year over a million Irish military vessel also engaged in fore rescue arrived. crossed the Mediterranean. By far the larg- search-and-rescue. Several migrants she Butmostare seekinga job ofsome kind, est share—around 850,000—travelled from has picked up need urgent medical help: often to support families back home. Al- Turkey to Greece, most of them Syrians they have chemical burns from fuel leak- though they speak of escaping poverty, fleeing their country’s bloody war. The ing in their sinking boat. In the evening the most will have had to scrape together large sudden influx brought Europe’s asylum Italian coastguard brings 196 more people sums to pay fortheirjourneys, often by get- system to the brinkofcollapse. on board. By midnight the Dignity 1 is car- ting relatives to chip in. Others will pay A lasting solution will require peace in rying 417 migrants. Cordoned off at her after arriving in Europe, perhaps by work- Syria, which seemsasdistantasever. Butin prow is the body of Joy, a 23-year-old Nige- ing as prostitutes, though they may not re- the meantime it has proved possible to re- rian who had been six months pregnant. alise that that is what is in store for them. duce the flow. In March the EU strucka deal She died of a heart attack after getting pet- The journey has often been embarked on with Recep Tayyip Erdogan, Turkey’s presi- rol in her lungs. without much planning, and with little dent, to take back any Syrians who made it Some people the boat picks up have idea ofwhat lies at its end. as far as Greece. Although very few have fled persecution. Hassan, a 14-year-old So- Mette, a pregnant 20-year-old from the yet been returned, arrivals fell from 55,000 mali picked up the previous day (see pic- Ivory Coast, ran away from her violent in February to 3,000 in August, as fewer 1 ture above), is escaping civil war. It has tak- husband on impulse when he left the door en him five months to get this far, three of on the latch. She has seen and suffered Our correspondent’s diary of her five days on board them in Libya, sleeping in animal coops. “many things in the world”, she says Dignity 1 is at http://www.economist.com/rescuediary The Economist October 22nd 2016 International 51

2 Syrians attempted the journey. a search-and-rescue effort that plucked Now the longer and more perilous cen- 150,000 people from the seas in a single tral Mediterranean crossing, from Libya to year. After other European countries, nota- Italy, has once again become the main mi- bly Britain, argued that saving migrants in- grant route to Europe. The influx has spired more of them to attempt the trip, it grown markedly in recent years—150,000 was replaced with a scaled-down version, last year, up from 64,000 in 2011. This is still closer to the Italian coast. But the number smaller than the peak flow on the Turkey- attempting the crossing fell only slightly, Greece route, but it poses an even more and the number ofdeaths increased. troubling conundrum. The influx is almost Next, the EU took aim at the smugglers. impossible to stem. It originates in dozens In May 2015 it launched Operation Sophia, of countries, and moves via shifting net- with patrolling warships seeking to de- works of people-smugglers. Most of those stroy suspected smuggling vessels close to who make it to Europe will eventually be the Libyan coast. Though they often get in- judged economic migrants, not refugees. volved in rescues, the effect has been to But Libya, without a government since make the route riskier without much re- 2011, is so lawless that they cannot be sent ducing the number trying it. This year 3,173 backthere. Nor is it always possible to send migrants are known to have died or gone them home, as their governments often re- missing in the central Mediterranean, up fuse to accept them. Most end up staying in from 2,794 in 2015 (the real numbers will be Europe despite being denied asylum. higher). Italy’s sluggish legal system drags out Once one group of people-smugglers the time spent in limbo. In a state-funded has been identified and arrested another A rare moment of calm house for migrants in Catania, Sicily, Josef, will pop up, says Calogera Ferrara, an Ital- a young Gambian who arrived in Italy in ian prosecutor in Palermo. And their meth- Many pass through Agadez in northern Ni- 2014, says he has been denied asylum but ods also shift in response to changing poli- ger, the last settlement before the Sahara has appealed. Many in his situation enter cies. As their wooden boats have been desert. A dusty city of120,000 souls, it was the shadow economy. In Palermo, Sicily’s destroyed, they have switched to flimsy founded a millennium ago for caravans of capital, many migrants live in Ballarò, a rubber dinghies, which are hard to spot on camels carrying salt and gold to west Afri- shady part of town where drug-dealing is the horizon and carry barely enough fuel ca. Now its trade is in people. rife. Some end up working as prostitutes. to reach international waters, where the According to the International Organi- When Muammar Qaddafi ruled Libya, migrants on board have a chance of being sation for Migration (IOM), which moni- Italy struck deals with him so that its navy picked up. One of the men rescued by Dig- tors checkpoints, some 270,000 people could return migrants who had attempted nity 1 says that the smugglers gave him a passed through Agadez on their way to- the trip. But after his death in 2011 the bar- satellite phone with which to call the Ital- wards Libya between February and the gain broke down, and in 2012 the European ian coastguard, and told him to throw it end of September this year. Some were lo- Court ofHuman Rights declared that these overboard afterwards so it could not be cals, crossing for short spells of work, de- “push-backs” to Libya breached human- traced backto them. spite Libya’s civil war. But most were rights law. The routes African migrants take to young men originating from the west Afri- Since then the EU has responded to one reach the Libyan coast form a web across can coast who do not plan to return home. crisis after another, rather than settling on the continent (see map) along which are These migrants will often spend time in a consistent plan. In 2013 the Italian gov- strung safe houses, brokers and drivers, safe houses, which the residents ofAgadez ernment started Operation Mare Nostrum, loosely linked by personal connections. call “ghettos”. The English words “You are all welcome” are scrawled on the red steel SPAIN Rome Sofia door ofone, a small house on a backstreet, Mediterranean Istanbul Madrid but the scene behind it is uninviting. In a migration routes ITALY to Europe, 2016 GREECE TURKEY Palermo space roughly the size of a hotel room, a West terranean Sea Medi Catania couple of dozen young men, mostly Gam- Central Algiers Athens SYRIA bian and Senegalese, lie in the stupefying East Melilla Malta Hatay heat. Sachets of detergent and cigarette M e d Crete Ceuta Tripoli i t e r r a n e a n S e a Beirut ATLANTIC Baghdad boxes litter the dirt floor; backpacks and Alexandria OCEAN Benghazi IRAQ clothes are piled in corners. From here, MOROCCO JORDAN Cairo they plan to take pickup trucks across the ALGERIA desert to Libya, to cross the Mediterranean Sebha LIBYA SAUDI and, eventually, to reach Europe. ARABIA A A H R A EGYPT Shani, who runs a ghetto, explains how S Tamanrasset it works. Migrants come to him through a broker, who is connected to marketeers in MAURITANIA MALI their countries of origin. They pay the bro- Jazan Agadez ker for their passage; Shani puts them up Asmara Gao NIGER Khartoum and arranges transport. For each he is paid SENEGAL ERITREA BURKINA CHAD a fixed fee. The money is released by the GAMBIA FASO SUDAN Bamako broker when the migrant has crossed the GUINEA NIGERIA Addis desert and arrived in Sebha, in Libya. Ababa SIERRA IVORY Migrants are encouraged by family, LEONE COAST Other routes By migration levels ETHIOPIA friends who have already made it—and ra- LIBERIA Lagos Accra Major Minor SOMALIA pacious recruiters, who promise a cheap Source: International Centre for and easy trip. Some think it is “only 15km Migration Policy Development Mogadishu 750 km KENYA over the sea to Italy”, says Maurice Miango 1 52 International The Economist October 22nd 2016

2 of the IOM’s Agadez office. Others do not big effect, too, says Mr Miango. Vehicles IOM, have climbed. Mr Kalla is one of know that Libya is at war, or that they will have been seized and 22 traffickers jailed. them. The idea of Europe was too good to have to travel across desert. And many do Nevertheless, people-smuggling has turn down, he says. “You think there is not understand that in Europe they may been driven underground, rather than money on the streets. How can you not be not have the right to workor attend school. dealt a lasting blow. Instead of departing excited? The smugglers told me it would be Typical is Aliher Silah, a 21-year-old direct from Agadez, Shani now pays driv- like a dream, almost as easy as flying.” But Gambian who was persuaded to set out by ers from the Tuareg desert tribe to drive his he would not try to go through Libya again, a relative in Oslo. He borrowed money charges, hidden in lorries, to an oasis 80km “not even formillions”. from his family and paid 19,000 Gambian from Agadez. There they are transferred to Perhaps, if that message gets out, it will Dalasi (about $450) to a trafficker to get as pickup trucks which go the rest of the way prove a deterrent. It would be reinforced if far as Libya. Now he is waiting in a ghetto across the desert. And instead ofleaving in more of the migrants who make it to Eu- formore money: extortion atofficial check- convoys, the lorries now depart separately rope, but are refused asylum, were re- points has made the journey much pricier late at night, and take back streets. To cover turned home. The EU also needs to do than he expected. He does not seem to the extra cost, Shani has raised the price he what it can to undermine the smugglers’ know that Oslo is in Norway, or have any charges brokers from 90,000 CFA francs business model, though this is hard with- idea how he could get there from Italy. His per migrant (about $150) to 105,000. The out a functioning Libyan state to deal with. aim is “to get money to help my family”, he bribes to police at checkpoints (which mi- An important step, says Federico Soda, the says. But he does not know that he will (in grants must pay) have also risen sharply. IOM’s director in Rome, would be for Eu- theory, atleast) need papers to get a job. And it is debatable whether the crack- rope to allow some legal immigration for down will last. The new law was passed unskilled Africans. That would redirect at Anywhere but here after intense European pressure; Niger’s least some migrants away from irregular, According to Peter Tinti and Tuesday Rei- government was rewarded with €596m dangerous channels towards managed tano, the authors of “Migrant, Refugee, ($656m) in budget support, to be paid over ones, and enable Europe to reap the eco- Smuggler, Saviour”, the route to Europe six years. But in May, after the EU’s deal nomic benefits of immigration, such as through Libya became popular with sub- with Turkey, Niger claimed it needed a fur- easing seasonal labour shortages. Saharan Africans in 2012 thanks to Syrian ther €1billion to combat trafficking. Migra- The hardening ofanti-immigration atti- refugees who travelled to Libya through tion isa useful wayto squeeze money from tudes across the continent probably makes Egypt. They were much richer than the lo- Europe—but arguably little more than that. such a policy politically impossible. With- cals, and it was their demand that created Indeed, officials have plenty of reason out it, though, the flow of Africans daring the trafficking networks. When their num- to let the trade continue. “Migration is a everything for a better life in Europe will bers fell, smugglers turned to Libya’s resi- network of powerful people, people who continue. As poor countries develop, emi- dent population of sub-Saharan Africans have got money,” says Rhissa Feltou, Aga- gration rates tend to rise until annual GDP to maintain demand, and then to recruiters dez’s Tuareg mayor. The region around per person reaches $7,000-8,000, says Mi- in west Africa to bring more. Agadez was hit hard by the fall ofQaddafi. chael Clemens ofthe Centre forGlobal De- Yet unlike Syrians, sub-Saharan Afri- Tuaregs had benefited from his largesse: velopment, a think-tank in Washington, cans cannot pay much. As the people-traf- his portrait still hangs in houses across DC. Most African countries are far poorer fickers’ margins have been squeezed, the Agadez. They are no fans ofNiger’s govern- than this; income per head in Gambia is extortion of migrants has grown. At the ment. Though Mr Feltou denies that migra- only about $500 a year. IOM’s transit centre, men relay horrifying tion helps the town much, he admits that “We are here because we fill a void,” stories of being robbed or imprisoned for ending it could hurt. “The guides and driv- says Nicholas Papachrysostomou, the MSF ransoms. “In Libya, everyone has a gun,” ers, they have no other opportunities,” he leaderon board the Dignity1(pictured with says Marcel Kalla, a 34-year-old Cameroo- says. Without work they could be easy re- a child migrant on previous page). The nian. “Even the children have guns.” When cruits for Islamist insurgents—like many charity was not set up to carry out rescue he ran out ofmoney, he was locked up and Tuaregs in neighbouring Mali. missions, he laments. The ship will sail the half-starved for two months. The women During recent months the number of Mediterranean waters for a few weeks held with him were raped, he says. He was migrants who have abandoned the at- more, until the weather worsens and leav- freed only when a Nigerian took pity on tempt to make it to Europe, and the num- ing Libya becomes nearly impossible. But him and helped him get backto Agadez. ber being helped to return home by the she will be backearly next year. 7 Until recently, people-smuggling went on quite openly in Agadez, says Mr Miango. Most of the migrants could come to Niger legally, as citizens of the Economic Community of West African States. They would arrive at the bus station, collect money at the bank and hire smugglers. After a few days in a ghetto they would leave. On Mondays convoys of white Toyota pickup trucks, each holding around 25 people, would roar offinto the desert. Since August Niger’s government has been enforcing a law passed last year that criminalisespeople-smuggling, and depar- tures for Libya recorded by the IOM have dropped off. In September it registered around 27,000 desert crossings, down from a peak of 72,000 in May. The fall is partlybecause ofthe weather: asEuropean winter approaches, the sea is harder to cross. But the new restrictions have had a En route to Italy, at the end of a long journey Business The Economist October 22nd 2016 53

Also in this section 54 The prospects for Trump TV 55 Risky biotechnology 56 Automating shopping 56 Airlines in Africa 57 Indian furniture-makers 58 Schumpeter: Techno wars

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

Elon Musk’s empire and of hyperloops that transport people in pods between Los Angeles and San Fran- Countdown cisco in 35 minutes. But his financial objec- tives are probably identical to those of car- pet or chewing-gum tycoons: to raise cash, to get a high valuation and to keep control. NEW YORK Consider the ways in which Mr Musk drums up cash, first of all. He has raised an The entrepreneur’s finances are as jaw-dropping, inventive and combustible as his epic $6 billion of equity from investors, space rockets staffand even from Tesla’s competitors (for IKE most technology tycoons, Elon Musk ness history, but whether as a cautionary a while, Toyota and Daimler owned stakes Lexudes disdain for finance. Convertible or inspiring tale will soon become clear. in the carmaker). Musk Inc also owes bonds and lease accounting are problems As a child growing up in South Africa, about $6 billion of debt to bond investors forWall Street, while the visionaries in Cal- Mr Musk would enter trances in which he and banks. But what sets it apart is the $7 ifornia focus on driverless cars and space could imagine complexcomputer systems. billion of cash and revenue that it has travel. Yet while he might be loth to admit His business can be visualised as having squeezed from unconventional sources. it, Mr Musk has become America’s most four parts (see diagram on next page). The That includes deposits from customers be- audacious corporate financieras well as its biggest one is Tesla, which is publicly list- fore their cars are delivered; asset-backed best-known entrepreneur. In justover a de- ed. SpaceX launches rockets for govern- securities and special-purpose funding ve- cade he has created an empire valued at a ment and commercial clients and is fi- hicles that raise funds against assets with- cool $44 billion despite its heavy losses nanced by private investors. SolarCity is out guarantees from Mr Musk’s firms; (see chart on next page). A blend of finan- listed and struggling, so Tesla is trying to emissions credits, loans from the govern- cial laboratory, corporate labyrinth and buy it in a backdoor bail-out. Lastly there is ment and deals under which leasing firms buttock-clenching thrill ride, Musk Inc has MrMusk’spersonal balance-sheet. Itis rich purchase cars in return fora guarantee that pushed the boundaryofwhatwasthought in assets—his stakes in the firms are worth Tesla will buy them back. (Mr Musk’s firms possible. $13 billion—but he has little cash on hand. dispute our total figure on their unconven- As has been the case for a decade, Mr In total Musk Inc has perhaps $8 billion tional sources offunds). Musk’s businesses face a difficult struggle of sales, and is set to burn $2.3 billion of to sustain their market valuations over the cash during2016. Its structure developed in It’s lonely out in space next 18 months, and to bolster confidence a haphazard fashion. It includes both pub- The second goal, a high valuation, is vital to he isexpected to unveil newfinancial mea- lic and private firms, reflecting the fact that command confidence and for raising cash. sures and also new products over the next Tesla and SolarCityfloated before the craze The business itself is volatile—in April, few weeks. Mr Musk has repeatedly defied for so-called unicorns, or technology firms 400,000 people pre-ordered Tesla’s the odds. But the stakes have got bigger such as Uber that rely on private investors. $35,000 new car, the Model-3, a welcome nowthatshareholders, creditorsand coun- Musk Inc also carries echoes of Asian and surprise. In September one of SpaceX’s terparties have tens of billions of dollars at Italian businessfederations, which pool re- rockets exploded. So the key is to control risk. Tesla, an electric-car manufacturer, sources and people: SolarCity uses batter- perceptions of the distant future, in order must ramp up production quickly and also iesmade byTesla, forexample, and SpaceX to influence financial forecasts from banks meet the threat from new electric models has made loans to SolarCity. Mr Musk is and investors. Here Mr Musk is dazzlingly designed by traditional car firms. Mr Musk the chairman of all three firms, which skilful. He publishes plausible “master wants to merge two of his firms, Tesla and share some directors. His cousins manage plans” and uses shifting targets to anchor SolarCity, a company which installs roof- SolarCity. Fidelity, a big asset manager, expectations. For example, in May he said top solar panels. Both firms burn up cash. owns large stakes in each ofthe trio. Tesla would make 500,000 cars a year by He already has a place in American busi- Mr Musk dreams of populating Mars 2018, ahead ofhisprevioustargetof 2020. It1 54 Business The Economist October 22nd 2016

struggling SolarCity, Mr Musk can keep it Rechargeable alive and maintain control. But it could Elon Musk’s finances, 2016, $bn hurt the valuation of Tesla, which will be Value of Mr Musk’s stake in the company Value of other investors’ stakes lumbered with its sister firm’s debt and Tesla (Electric cars) SpaceX (Rockets) losses. To his credit, Mr Musk has said that the independent shareholders of both firms must approve the deal. 23.1 Similarly, ifTesla were to try to ease the financial pressure by raising lots of equity, 6.0 Mr Musk’s stake could drop below 20%, threatening his control. He could issue non-voting shares—as Facebook has—or in- 6.7 6.0 voke the poison-pill provisionsTesla hasin its statutes. But that might hurt the group’s valuation. He could try to sell Tesla to a car Sales 6.8 0.9 or technology firm (Google almost bought 1.8 Cash burn* -0.2 it in 2013), or SpaceX, through gritted teeth, POSSIBLE to a defence firm. But their punchy valua- MERGER Elon Musk tions mean that they would be a mouthful for even giants such as General Motors or Stakes: $13bn SolarCity (Solar panels) Lockheed Martin, a defence group. $165m loan Cash: close to zero Debt: roughly Given all this, it is likely that in the com- 1.5 $500m ing weeks Mr Musk will adopt a more fa- 0.7 miliar approach: squeezing costs in the $65m loan 0.4 0.7 short term, dreamingup new products and *Sales and cash-burn figures are estimates for 2016. explaining how lean manufacturing tech- Sources: Bloomberg; company reports; The Economist Cash burn is cashflow from operations less capital investment niques will allow his companies to revolu- tionise their industries. But with expecta- 2 will make only about 85,000 this year. la. But the Musk empire also has plenty of tions already sky-high, it is hard to see how The result is spectacular: the average of fans in Silicon Valley and on Wall Street. much more euphoria he can inspire. Mr investment-bank analysts’ projections The last objective, control, is key to Mr Musk’s most extraordinary creation may says that Tesla’s revenues will soar from $7 Musk, who in 2000 was ousted as the boss not be cars or spacecraft, but a business billion to about $30 billion by 2020, fol- ofPayPal, an internet-payments firm he co- empire with a financial structure that lowing a path like those of three of his- founded. He owns about 50% of SpaceX, works only if risky companies perform tory’s most successful firms, Google, Apple buthisshareholdingsin Tesla (23%) and So- perfectly on ambitious plans. Mr Musk is and Amazon, at their raciest point, in the larCity (22%) are near the threshold where like an astronaut orbiting the earth with no mid-2000s. Only about a fifth of these control is no longer guaranteed. easy way down. 7 cumulative sales are from existing custom- To keep all these balls in the air, the er orders, yet these medium-term bank firms must meet their targets. SpaceX gen- forecasts, upon which the edifice partly erates cash and has an impressive order Media models rests, are stable despite operational wob- book, but must recover from the explosion bles. Incredulous short-sellers have in September. SolarCity needs to cut costs. Channelling queued up to betagainstSolarCityand Tes- Tesla must ramp up production of its Mod- el Xand Model 3 cars, and compete with ri- Trump val electric cars to be launched by General Lift-off Motors, Daimler and Audi, among others. NEW YORK Financials of Elon Musk’s empire*, $bn If the firms fall behind, a cash crunch The candidate’s fan base has what it becomes likely. Mr Musk’s companies in- Market cap Capital invested takes to support a new TV service sist they will not burn up much more mon- 50 10 ey. But they could easily eat up $4.5 billion, S HIS chances of making it to the White 40 starting from the second half of 2016 to the AHouse have narrowed in recentweeks, 5 end of 2018. They will also need to refi- another avenue has opened for Donald 30 + nance $2 billion of maturing debt. Against Trump. The notion that he might start his 20 this, the Muskgroup has about $5 billion of own media network has been the subject 0 cash and liquidity lines from banks. Mr of speculation for months. Now industry 10 – Musk’s own finances look stretched. He executives are discussing the possibility in 0 5 has spent most of the $180m in cash from some detail. 2007 10 12 14 16 2007 10 12 14 16 selling his stake in PayPal to eBay in 2002. In September the Republican candi- He has personally borrowed $490m, se- date’s son-in-law, Jared Kushner, owner of Free cashflow Revenues cured against his Tesla shares, and most of the New York Observer, asked his friend 5 10 that comes from Morgan Stanley, a Tesla Aryeh Bourkoff, a banker who has been a

+ underwriter. The car firm’s shares would dealmaker in the media industry, for ad- have to fall by more than half before the vice. (A spokeswoman for Mr Bourkoff 0 5 loans went underwater. said he personally had no interest in such a – In the event of a squeeze, the triple ob- project). Mr Trump himselfhas denied any 5 0 jectives of raising cash, boosting the valua- intention to start a network. But a look at 2007 10 12 14 16 2007 10 12 14 16 tion and keeping control will start to con- the numbers suggests that Trump TV could Sources: Bloomberg; company *Tesla, SpaceX flict. The proposed SolarCity acquisition be a success, media folksay—farfrom a jug- The Economist reports; and SolarCity illustrates this: by getting Tesla to buy the gernaut like FoxNews, which has revenues1 The Economist October 22nd 2016 Business 55

2 ofmore than $2 billion a year, but lucrative Small, innovative biotech firms such as nonetheless. Juno are intriguing because nowadays Such a product would have a good shot they are the main engine of global drug in- at going mainstream because Mr Trump novation. Alexis Borisy, a partner in Third could sell it directly to consumers over the Rock Ventures, a venture-capital firm in internet, as a subscription streaming ser- Boston, notes that pharma companies vice. The Trump brand may now be too now buy in three-quarters of their pipe- toxic for a publicly-owned media com- lines, and develop only a quarter internal- pany to go into business with him. “I ly. Big companies eye the little ones hungri- would suspect there would be internal ly as their main source offuture growth. protests from women, Muslims and His- Juno is not the only biotech firm pursu- panics and probably many others as well,” ing its particular technology. Kite Pharma- says Jeff Gaspin, former chairman of NBC ceuticals, based in California, is one rival. Universal Television Entertainment (the The giant Novartis is also investing. But company that made Mr Trump a reality-TV Juno has stood out. Mark Simon, a partner star with “The Apprentice”). An internet- at Torreya Partners, a consultancy, says that only service would solve that problem. is because it is well run and has, so far, And industry analysts argue that his recent “some very positive, provocative data steppingup ofattacks on the media and on from the treatment of a number of tu- Hillary Clinton for allegedly “rigging” the mours”. If CAR-T can move beyond its cur- election have stoked the passions of his rent niche into cancer more broadly the strong supporters—which could help turn firm could help revolutionise its treatment. more into Trump TV subscribers. It has a full line-up of experienced re- The business model could well look searchers, including from the nearby Fred like former Fox News personality Glenn Hot property Hutchinson Cancer Research Center, Beck’s subscription streaming network, which helped Juno become one ofthe best which shortly after its launch in 2011 petitor, buthasbeen advisingMrTrump on funded biotech startups ever. There is an- claimed 300,000 subscribers, each paying his candidacy (though the two men are re- othermore subtle distinction aboutJuno. It $9.95 a month (though it has since sput- portedly not speaking at the moment). Ste- is developing “next generation” versions tered). Mr Gaspin, who has helped launch phen Bannon, boss of Breitbart News, a re- of CAR-T. Although it is not yet clear how similar subscription services in the past, actionary news website, is the billionaire’s useful or profitable these will be, the ex- reckons that Mr Trump, with his commit- campaign chief executive. This week, pectation is that fine tuning such therapies ted fan base, a social-media following of ahead of the third presidential debate, Mr will lead to even better medicines. 24m on Twitter and Facebook, and his tal- Bannon fanned expectations when he an- Despite its progress, investors balked ent and energy for self-promotion, could swered pointed questionsaboutTrump TV when Celgene, a big pharma firm, paid it $1 quickly attract 250,000 to 500,000 sub- by saying, simply, that “Trump is an entre- billion in 2015 for a ten-year collaboration. scribers. At $100 a year each that would preneur.” 7 It is not hard to see why they hesitated. Bio- equate to $25m to $50m in revenue, on per- tech is always inherently risky. There are haps $7m to $8m in production costs. big questions about whether CAR-T thera- The programming could be bare-bones Biotechnology pies can be extended to treat solid tu- —a few hours a day, with cheaply paid on- mours. It is also unknown if the therapy air talking heads spewing rage on Trum- The trials of Juno will be durable enough to justify the side pian themes like trade and immigration—- effects that can result from the treatment, as long as it includes a good dose of Mr as well as the high cost of such a personal- Trump. “You only need a half-hour of him ised approach. a day,” says Mr Gaspin. “It really doesn’t The riskiness of the biotech business take thatmuch to keep a fan base satisfied.” was underscored this summer when a trial A young biotech firm focused on cancer An online-only Trump TV could start of Juno’s lead drug candidate, JCAR015, promises both riskand reward very soon afterNovember8th ifhe were to was put on hold after three of the patients buy and rebrand an existing streaming ser- N THE pharma business, Juno Therapeu- on a trial died. Juno’s stock swooned. But vice (startinga newone could take months, Itics, a small firm based in Seattle, is just a the firm convinced the drug regulator that losing him valuable time). Building a full- stripling. It is three years old, has not a sin- the problem came from the addition of a fledged cable channel, by contrast, would gle drug approval to its name but is none- chemotherapy drug to the treatment, and be farharder. The conservative media stan- theless valued at $2.8 billion. That value is that removing it would rule out further dard-bearer, Fox News, is the highest-rated derived from the fact that it is on the fore- deaths. Six days later the trial restarted and cable news channel, and the most profit- front of the most promising area of cancer the company’s share price revived. able. But forsignificant revenues a channel treatments in decades: immuno-oncology. The setback will nonetheless delay the has to get ratings. Mr Trump can obviously Juno’s edge comes from its attempts to approval of Juno’s first product, a treat- help with that—the Trump effect has boost- master one of the most important parts of ment for acute lymphoblastic leukaemia, ed viewers for all news channels. But a ca- the immune system: the T-cell. It is devel- until 2018. It will also cost the company the ble network still would cost tens of mil- oping a so-called CAR-T therapy, in which bragging rights to being the very first firm lions ofdollars upfront. MrTrump may not its scientists extract T-cells from a cancer to commercialise CAR-T. That now looks be willing to riskso much ofhis own cash. patient, modifythem with gene therapy so likely to be won by Kite Pharmaceuticals, For any TV venture Mr Trump will be that they can recognise cancer cells, and which is aiming forthe end ofthe year. But able to look to friends who know how to then put them back in the patient’s body being first doesn’t matter, argues Hans profit from conservative outrage. Roger ready to attack. The process has a reputa- Bishop, Juno’s boss. A few years is a “blink Ailes, who builtup FoxNews, leftthe chan- tion for inducing rapid remissions in can- of an eye” in this industry, he says. That nel in July after sexual harassment allega- cers of the blood for patients who have ex- may be true, but Juno in its own first three tions. He is barred from working at a com- hausted all other options. years has made a big impact. 7 56 Business The Economist October 22nd 2016

own boxes. The scope for such services, African airlines however, may be limited. One third of those surveyed by MySubscriptionAddic- Well-connected tion.com said they cancelled at least as many subscriptions as they added this year. Consumers, naturally, will delegate purchases to a third party only when they ADDIS ABABA receive products they like. In future, firms Why one national airline is bucking a that comb purchase histories and search continent-wide trend data may be able to send more reliably pleasing product assortments. For now, a NSIDE the atrium of a gleaming new consumer who becomes an unwitting Ibuilding on the outskirts ofAddis Ababa, owneroftoeless socks, which were includ- trainee air stewards flit between the class- ed recently in a box called FabFitFun, may rooms and aeroplane simulators that sur- decline furtheroffers. round a large indoor swimming pool. The The second category of automated con- expensive aviation academy belongs to sumption is more functional. A service Ethiopian Airlines, and seems a world automates the purchase of an item that is away from the unrest that on October 9th bought frequently. Nine years ago Amazon prompted the government to declare a na- introduced a “Subscribe & Save” feature, of- tional state of emergency. The firm’s CEO, feringconsumers a discount foragreeing to Tewolde Gebremariam, brushes off the buy certain goods regularly, such as Pam- idea that the airline will be affected. “We pers nappies. Dollar Shave Club, a male- are not concerned,” he shrugs. grooming-products firm, sells razors to He has reason to be confident about the Retailing subscribers directly, and P&G now has its business. Ethiopian is Africa’s largest and own, similar service. It is also testing one most profitable airline, earning more than Push my buttons forlaundry detergent. its rivals on the continent combined. Its ex- Amazon is going further. Last year it be- pansion hasbeen rapid: by2015 itserved 82 gan selling so-called Dash buttons, de- international destinations, with 13 more signed to be placed around the house to or- added this year. According to unaudited NEW YORK der everyday products—one for figures, it nearly doubled its profits in the Campbell’ssoup, forinstance, and another last financial year (see chart). And that is Experiments in automated for Whiskas cat food (pictured). Investors amid national turmoil. consumption see this as the first step in its bid fully to It helps that its regional rivals are com- RILLIONS of dollars of consumer automate buying of daily necessities. Al- peting only feebly on routes in Africa. Ac- Tspending have, historically, depended ready, some manufacturers have integrat- cording to the International Air Transport on a few steps. A shopper learns about a ed Amazon into their devices; General Association, African carriers are likely col- product, considers whether to buy it, de- Electric, for example, offers washing ma- lectively to record a net loss of $500m this cides to do so, goes to a shop. If he likes it, chines that shop fortheir own detergent. year. Kenya Airways, which has been in he may buy it again. Marketers have long Such services have obvious appeal for the red forfouryears on the trot, is flogging obsessed over each step, and consultants Amazon and for big consumer brands. If a some of its aircraft and last month an- have written treatises on how to nudge shopperautomatesthe deliveryofa partic- nounced it would raise more equity. South people along. E-commerce is already ularitem, the theory is that he is likely to be Africa’s national carrier, which Ethiopian changing the process, but now retailing gu- more loyal. For some brands, the buttons overtook in size last year, has been unprof- rus are imagining a future in which shop- are working especially well: more than itable since 2011, and could be insolvent ping becomes fully automatic. half of all the many Amazon orders for without government guarantees. The idea is that a combination of smart Maxwell House coffee in America, for ex- Ethiopian’s lead also comes from its gadgetsand predictive data analytics could ample, are made through the Dash own strengths. It took advantage of its decide exactly what goods are delivered button. Amazon says that across America, plum location in the Horn ofAfrica. Mr Ge- when, to which household. The most ad- an order from a Dash button is being bremariam circles Addis Ababa on a line vanced version might resemble Spotify, a placed more than twice each minute. connecting China with Brazil via India and1 music-streaming service, but for stuff. This But neitherAmazon northe big product future isinchingcloser, thanksto initiatives brands should celebrate a new era ofshop- from Amazon, lots of startup firms and ping just yet. Amazon does not release Routes to success also from big consumer companies such as comprehensive data on its automated ser- Ethiopian Airlines Procter & Gamble (P&G). vices, but Slice Intelligence, a data firm in Passengers, m Net profit, $m Buying experiments so far fall into two California, reported in March that fewer 9.0 300 categories. The first is exploratory. A ser- than half of those with Dash buttons had vice helps a shoppertrynewthings, choos- ever pressed them. One problem may be 7.5 250 ing products on his or her behalf. Birchbox, the e-commerce giant’s prices, which fluc- 6.0 200 founded in 2010, sends beauty samples to tuate often. Another report, by Salmon, a subscribers for $10 each month. Imitators digital agency inside WPP, an advertising 4.5 150 have proliferated, offeringeverything from group, found that farmore British consum- 3.0 100 dogtoysto trainers. MySubscriptionAddic- ers would prefer a smart device that or- tion.com, which reviews these services in dered the cheapest item in a category to 1.5 50 English-speaking countries, counts 998 one that summoned up the same brand 0 0 new subscription boxes so far this year, up each time. That suggests that automated 2010 11 12 13 14 15 16 Years ending June from 284 new ones in 2013. Retailers such shopping, as it expands, might make life Sources: Company reports; Bloomberg as Walmart have followed suit with their harder for big brands, not prop them up. 7 The Economist October 22nd 2016 Business 57

2 the Gulf. It beat rivals who were still fixat- woodworking hub. But when tourists ed on the former colonial routes to and came to survey the arid landscape and the from Europe, and captured Asian traffic. In 15th-century fort that overlooks the city, particular it took an early punt on Chinese many also admired the hardwood carv- demand. In 1973 it was the first African car- ings by skilled artisans (pictured). When rier to fly to China. Today a bustling Chi- India liberalised its economy in the early nese transit counter at Addis Ababa’s Bole 1990s, a small group ofEuropean exporting airport testifies to the importance the com- agents encouraged independent furniture- pany attaches to the market. And Ethiopi- makers. Then volumes grew, cheap power an has reduced flights to small African cap- tools came from China, furniture fashions itals like Brazzaville, in the Republic of changed, and latticework made way for Congo, which offer little business, in fa- those Scandinavian, minimalist designs. vourofmore flights to the country’s boom- Globalisation continued to spur ing oil port ofPoint Noire. growth. Like labour-intensive footwear The factthatitisstate owned helps keep and textiles, furniture-makinghasin recent costs low, but it behaves like an interna- decades shifted relentlessly from rich to tional firm, not a national flag carrier, says poor countries. A skilled carpenter in India Rob Prophet, an aviation consultant. It makes around 500 rupees ($7.50) a day. takes no state subsidies. And although few Large ordersfrom companiessuch asLaura doubt the closeness of senior executives to Ashley, a Malaysian-owned firm, or Crate the ruling Ethiopian People’s Revolution- & Barrel, an American interior-furnishings ary Democratic Front, analysts say its man- chain, poured in to Jodhpur’s craftsmen. agement is independent-minded. But what the global market gave, it grad- Now it wants to be the continent’s first ually took away. Foreign shipments have pan-African airline. It is opening hubs in see-sawed since 2008, but are now flat or Togo and Malawi, and teaming up with falling. Western economies are growing smaller rivals. But it is unlikely to be all slowly and there is competition from other smooth cruising. Middle Eastern rivals, in- Asian manufacturers. Globalisation has cluding Qatar Airways, are expanding brought rival opportunities, too. What the across the continent. Poor infrastructure is world wanted from Rajasthan a few years problematic. A new four-runway airport ago wasn’ttablesand stoolsbutan obscure outside Addis Ababa may improve mat- crop called guar. Once a niche bean, pro- ters, but few expect it to open on time. And ducing gum used to thicken sauces and ice regional instability may hurt sales. Ethiopi- cream, it somehow became a key ingredi- an was founded in 1945, but it was not until ent forfracking (hydraulic fracturing) shale All wood, few trees the country’s long peace from 1991 that it oil in America. Around two-thirds of the took off. If the country now nosedives, its world’s guar gum comes from Rajasthan, spurring rapid growth in property and fur- national airline will take a hit too. 7 and the boom in production created a new niture sales. class of farmer-millionaires. The riches to The new e-commerce players may dis- be made from farming drained furniture place local mom-and-pop manufacturers, Indian furniture makers workshops oflabour fora while. and the rise in domestic demand will ben- Luckily for Rajasthani workers, by the efit other woodworking clusters as well, Turning the tables time the guar boom ended, global trends such as Biharand Kerala. But Rajasthan has had inflated a new bubble. Firms such as geographical advantages: it is arid in an Goldman Sachs, an investment bank, Se- otherwise humid country, so furniture quoia, an American venture-capital com- made there doesn’t warp so much. It also JODHPUR pany, and Rocket Internet, a German star- takes just a day in a lorry to get to Delhi and tup factory, were throwing money at two to reach Mumbai, India’s biggest cities. Rajasthan’s furniture-makers ride the Indian e-commerce sites dedicated to fur- Sukesh Bhandari, one Jodhpur entre- unpredictable waves ofglobalisation niture. Three such young firms, Pepperfry, preneur, thinks of the domestic furniture ALK through the workshop of Vi- Urban Ladder and FabFurnish, have raised market as a continuation of the export WnayakHome, a furniture-makingout- over $250m in funding in the past five trade. “We are globalising and Indianising fit based in the outskirts of Jodhpur in the years. Along with mainstream e-com- simultaneously,” he says. There are con- state of Rajasthan in north-west India, and merce sites, they now ship goods from Ra- cerns that the venture-capital money sus- the results of globalisation are evident. jasthan and elsewhere within India worth tainingthe furniture websites may run out, Sleek hardwood furniture that would suit over$200m each year, orroughly the same even before all ofthem turn a profit, but for Scandinavian interiors is being readied for as Jodhpur’s furniture-makers are believed now the funds are flowing. shipment; carpenters distress the paint on to export. The home market is booming. As for globalisation, it will soon bring a a newly-made chest of drawers to make it Just over half of Jodhpur’s furniture new rival for Jodhpur’s vibrant domestic look as if it has come straight from a flea production still ends up overseas, notes market. Next year a certain Swedish pur- market in Brooklyn. But the company’s or- Devashish Banerjee, a veteran of the ex- veyor of mainly softwood and laminate der book suggests that globalisation is fad- port trade who now works at Pepperfry. furniture, IKEA, will open the first of 25 ing. VinayakHome is one ofa cluster ofRa- But it was only five years ago that the pro- stores it plans for India. That will be com- jasthan furniture-makers that used to do portion going abroad was 90%, and in an- petition, but potentially an opportunity, nothing except export to Europe and other five years the domestic market will too: Indian rules stipulate it must source America, but nearly all of what they make claim four-fifths of the desert city’s output, 30% of its inventory locally, and that could today they ship into Indian living rooms. he says. Many middle-class Indians are well include furniture. Jodhpur’s manu- Jodhpur, on the edge of a desert with moving out of homes that they used to facturers may soon be carving a new, but few trees to feed sawmills, is an unlikely share with their parents or other relatives, strangely familiar, product range. 7 58 Business The Economist October 22nd 2016 Schumpeter Techno wars

An earliersunny mood about technology and innovation has given way to pessimism It is not all MarkZuckerbergs at the top, the authors posit. Most big firms are answering the call for predictability by hiring cor- porate bureaucrats. These people shy away from risky invest- ments in new technology. After rising relentlessly as a share of GDP in 1950-2000, investment in IT began declining in the early 2000s. Instead of shaking up markets, bureaucratic CEOs focus on squeezing the most out of their sunk costs and fight to defend niches. They hoard cash, buy back their firms’ shares and rein- force their positions by merging with formerrivals. The gloomsters’ case is true to some extent but it is overstated. Mr Gordon is right that the second industrial revolution involved never-to-be-repeated changes. But that does not mean that driv- erless cars count for nothing. Messrs Erixon and Weigel are also right to worry about the West’s dismal recent record in producing new companies. But many old firms are not run by bureaucrats and have reinvented themselves many times over: General Elec- tric must be on at least its ninth life. And the impact of giant new firms born in the past 20 years such as Uber, Google and Face- book should not be underestimated: they have all the Schumpe- terian characteristics the authors admire. On the pessimists’ side the strongest argument relies not on HE most striking battle in modern business pits the techno- closely watching corporate and investor behaviour but rather on Toptimistsagainst the techno-pessimists. The firstgroup argues macro-level statistics on productivity. The figures from recent that the world is in the middle of a technology-driven renais- years are truly dismal. Karim Foda, of the Brookings Institution, sance. Tech CEOs compete with each other for superlatives. Busi- calculates that labour productivity in the rich world is growing at ness professors say that ouronly problem will be what to do with its slowest rate since 1950. Total factor productivity (which tries to the people when the machines become super-intelligent. The measure innovation) has grown at just 0.1% in advanced econo- pessimists retort that this is froth: a few firms may be doing won- mies since 2004, well below its historical average. derfully but the economy is stuck. Larry Summers of Harvard Optimists have two retorts. The first is that there must be University talks about secular stagnation. Tyler Cowen, of somethingwrongwith the figures. One possibility is that theyfail George Mason University, says that the American economy has to count the huge consumer surplus given away free ofcharge on eaten all the low-hanging fruits ofmodern history and got sick. the internet. But this is unconvincing. The official figures may Until recently the prize for the most gloom-laden book on the well be understating the impact of the internet revolution, just as modern economy has gone to Robert Gordon of Northwestern they downplayed the impact of electricity and cars in the past, University. In “The Rise and Fall ofAmerican Growth”, published but they are not understating it enough to explain the recent de- in January, Mr Gordon argues that the IT revolution is a minor cline in productivity growth. diversion compared with the inventions that accompanied the second industrial one—electricity, motor cars and aeroplanes— Back-seat producers which changed lives profoundly. The current information up- Another, second line of argument—that the productivity revolu- heaval, by contrast, is merely altering a narrow range of activities. tion has only just begun—is more persuasive. Over the past de- Now a new book, “The Innovation Illusion” by FredrikErixon cade many IT companies may have focused on things that were and Bjorn Weigel, presents a still more pessimistic vision. Messrs more “fun than fundamental” in Paul Krugman’s phrase. But Sil- Erixon and Weigel write that the very engine ofcapitalist growth, icon Valley’s best companies are certainly focusing on things that the creative destruction described by Joseph Schumpeter, is ka- change the material world. Uberand Airbnb are bringingdramat- put. Aside from a handful of stars such as Google and Amazon, ic improvements to two large industries that have been more or they point out, capitalism is ageing fast. Europe’s 100 most valu- less stuck for decades. Morgan Stanley estimates that driverless able firms were founded more than 40 years ago. Even America, cars could result in $507 billion a year of productivity gains in which is more entrepreneurial, is succumbing to middle-aged America, mainly from people being able to stare at their laptops spread. The proportion of mature firms, or those 11 years old or instead ofat the road. more, rose from a third of all firms in 1987 to almost half in 2012, The real question is not whether the IT revolution has run out and the number ofstartups fell between 2001and 2011. of steam or whether creative destruction is grinding to a halt. In People who extol free markets often blame such stagnation on fact, the IT revolution is probably gathering pace and Google and excessive regulation. That has certainly played its part. But the au- Amazon are two of the most innovative firms to emerge in the thors argue that stagnation has most to do with the structure of past 50 years. Rather it is whether the new economy can counter- capitalism itself. Companies are no longer actually owned by ad- act the forces ranged against it: ageing populations; a political venturous capitalists but by giant institutions such as the Van- class responding to populism by restrictingtrade and by over-reg- guard Group (with more than $3 trillion under management) ulating business; and education systems that in many places are which constantly buy and sell slivers of ownership for anony- failing. The big danger is that, while optimists and pessimists bat- mous investors. These institutions are more interested in predict- tle it out, the world becomes ever more divided between islands able returns than in enterprise. ofhigh productivity surrounded by a vast ocean ofstagnation. 7 Property 59

The Economist October 22nd 2016 60 Finance and economics The Economist October 22nd 2016

Also in this section 61 Venezuelan government debt 61 Italy’s banking mess 62 Buttonwood: Mutual funds 63 From fintech to regtech 64 Free exchange: The economics of Trumpism

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

Government bonds of acting as vigilantes patrolling profligate politicians, central banks have become Who’s scary now? their accomplices. Then there are pension fundsand insur- ance companies, which buy government bonds to match their long-term liabilities. Neither group has an incentive to sell bonds if yields fall; indeed, they may need to buy more because, when interest rates The bond market is transformed: fewervigilantes; more forced buyers are low, the present value oftheirdiscount- AMES CARVILLE, political adviser to Bill os. Central bankshave been the biggest fac- ed future liabilities rises. Banks, too, play JClinton, the former president, famously tor in the market’s transformation. After an important role. They have been encour- said that he wanted to be reincarnated as the crisis, they turned to quantitative eas- aged to buy government bonds as a “li- the bond market so he could “intimidate ing(QE), ie, expandingtheirbalance-sheets quidity reserve” to avoid the kind of fund- everybody”. He was frustrated by the ad- by creating new money in order to buy as- ing problems they had in the 2008 crisis. ministration’s inability to push through an sets. The collective balance-sheets of the They also use them as the collateral for economic stimulus for fear of spooking in- six most active (the Federal Reserve, Bank short-term borrowing. vestors and pushing bond yields higher. of Japan, European Central Bank, Swiss More than 20 years later, the world National Bank, Bank of England and Peo- Yielding to none looks very different. Many developed ple’s Bank of China) have grown from With so many forced buyers, trillions of countries have been running budget defi- around $3 trillion in 2002 to more than $18 dollars-worth of government bonds are cits ever since the global financial crisis of trillion today, according to Pimco, a fund- trading on negative yields. “When you 2008; their government debt-to-GDP ratios management group. These central banks have so many price-insensitive buyers, the are far higher than they were in the early want to lower bond yields—indeed, the price-discovery role of the market doesn’t 1990s. Yet the bond market looks about as Bank of Japan intends to keep the ten-year workanymore,” saysKitJuckes, a strategist intimidating as a chihuahua in a handbag; Japanese bond yield at around 0%. Instead at Société Générale, a French bank. in general, yields are close to historic lows. For much of the 20th century, bonds In the 1990s “bond-market vigilantes” were the assets of choice for investors sold their holdings when they feared that Vanishing inventories wanting a decent income. No longer. Gov- countries were pursuing irresponsible fis- US primary dealers’ corporate-bond holdings ernmentbondsnowseem to be a home for cal or monetary policies. In Britain even As % of amount outstanding the rainy-day money ofinstitutional inves- fear ofa “hard Brexit” is only now being re- 12 tors. The rules say government bonds are flected in rising gilt yields—and they are safe, making it virtually compulsory to still belowthe (verylow) levelsseen before 10 own them. “It’s about the return of capital, the vote to leave the EU in June. Even devel- 8 not the return on capital,” says Joachim oping countries with big budget deficits Fels, Pimco’s chiefeconomist. 6 can borrow easily. This week, for example, Ifcentral banks are willing buyers ofan Saudi Arabia tapped the markets for the 4 asset, that asset is as good as cash for most first time, raising $17.5 billion—the largest- 2 investors. So like cash, government bonds ever emerging-market bond issue. generate a very low return. Always true of Vigilantes have become vastly outnum- 0 the shortest-dated bonds, to be repaid in a 2005 07 09 11 13 15 16 bered by bondholders with no real interest fewweeksormonths, thisnowapplies to a Sources: FINRA; Federal Reserve Bank of New York in maximising the return on their portfoli- much broader range; two-year debt yields 1 The Economist October 22nd 2016 Finance and economics 61

2 are negative in Germany and Japan and earn back their money. In Europe the aver- are only a tenth ofthe size, in relative terms below 1% in America. Open-market opera- age duration of government debt has in- (see chart on previous page). tions, in which central banks buy and sell creased from six to seven years since 2008, So should a large number of bond in- securities, used to focus on debt maturing according to Salman Ahmed of Lombard vestors decide to sell their positions in in less than three months; now they cover Odier, a fund-management group. That risky debt, buyers will be scarce; prices bond yields at much longer maturities. doesn’t sound much. But the longerthe du- maymove veryquickly. Yetitisnotdifficult This new-style bond market has created ration of a portfolio, the more exposed it is to imagine reasons for a sell-off. If the Fed a problem forthose who run mutual funds to a rise in bond yields. Mr Ahmed reckons decides to push up interest rates more or who manage private wealth—and who thata half-a-percentage- pointrise in yields quickly than the markets expect, bond do care about the return. Large parts of the “would create significant and damaging yields could rise across the globe. The bond market no longer offer the rewards mark-to-market losses”. same could happen if central banks in Eu- they used to. As each year begins, polls Anotherchange in the bond markets ex- rope and Japan decided they no longer show that fund managers think bond acerbatesthe problem: liquidityhasdeteri- wanted to buy government debt: such yields are bound to rise (and prices to fall); orated. There have been some sudden fears this month nudged up yields in Eu- each year they are surprised as yields stay jumps in yields in recent years—the “taper rope. Or investors might start to fret about low. “When your old-fashioned pricing tantrum” in 2013, when the Fed started to the amount of credit risk they have taken. model doesn’t work, how do you decide reduce its QE programme; and a surge in In the emerging markets, for example, when the asset is cheap?” asks Mr Juckes. German bond yields in 2015, forexample. more than half of corporate bonds are In practice, such investors have been Banks may hold bonds for liquidity ranked as “speculative” or “junk”, and the forced to take more risk in search of a high- purposes. But because they are required to default rate has been steadily rising. er return. They have bought corporate put capital aside to reflect the risk of hold- In short, as Mr Juckes puts it, the bond bonds and emerging-market debt. And in ing corporate debt, they have become less market is “brittle”. It is priced fora world of the government-bond markets they have keen to own them for market-making, or slow growth and low inflation, leaving no bought higher-yielding longer-term debt. trading. Before 2008, bond dealers had in- margin for error if things change. The most A key measure of risk is duration; the ventories worth more than 2% of the cor- intimidating thing about the modern bond number of years investors would take to porate-bond market; nowtheirinventories market now is the riskthat they do. 7

Venezuelan government debt Italian banks Running out of time Spectral forms

A devastating spiral continues

O MOST investors, Venezuela looks the hope that oil prices rise. MILAN less like a market than a mess. The Not so fast. Even sweetened terms for T Two lenders seal a merger, while IMF expects output to shrinkby10% this the swap have failed to lure investors. anotherponders its options year and inflation to exceed 700%. As the PDVSA has fourtimes delayed the dead- bolívar’s value has plunged, multina- line forthe exchange, most recently to ROM the mists of Italian banking, new tional firms have announced billions of October 21st. PDVSA warned in a press Fshapes are emerging. One is at last be- dollars ofwrite-downs. For much of this release on October17th that ifits offer is coming flesh: on October 15th the share- year, however, some strong-stomached not accepted, “it could be difficult” to holders of two lenders, Banco Popolare investors have scented an opportunity. make its scheduled payments. and Banca Popolare di Milano, approved a They rushed to buy bonds issued by the Francisco Velasco ofExotix, a bro- merger that has been months in the mak- government and by the state-owned oil kerage specialising in frontier markets, ing. The substance of another—Banca company, PDVSA. says investors face a prisoner’s dilemma. Monte dei Paschi di Siena, the world’s old- They have been rewarded handsome- They could agree to a swap, with terms est bank as well as Italy’s most troubled—is ly. Venezuelan government bonds have that are less than ideal, in the hope that still shrouded, but it is likely to become outperformed otheremerging-market others investors will do the same. Or clearer at a meeting of Monte dei Paschi’s sovereign bonds tracked by JPMorgan they could decline PDVSA’s offer. But that board on October 24th. (see chart). The government, led by Nico- would make default ever more likely. The merged bank, to be called Banco lás Maduro, boasts it has never missed a BPM, will surpass Monte dei Paschi to be- debt payment. Indeed he has given prior- come Italy’s third-largest lender. Its cre- ity to debt service over other urgent The Maduro market ation is a small triumph for Matteo Renzi, needs, such as importing food. MrMadu- Bond total returns, $ terms, January 1st 2016=100 the centre-left prime minister. Last year Mr ro is keen not to scare offthe foreign 180 Renzi introduced a reform obliging Italy’s PDVSA* creditors sorely needed by PDVSA. (Maturing Nov 2017) ten biggest popolari, or co-operative banks, 160 However, Venezuela looks increasing- PDVSA* to become joint-stock companies by the (Maturing Apr 2017) ly stretched. Two big PDVSA payments, of 140 end of 2016. The hope was that this would $1billion and $2 billion, are due on Octo- spur takeovers, yielding fewer, stronger, 120 ber 28th and November 2nd. Last month more efficient banks. Emerging- 100 The Banco BPM deal, which promises the company proposed a bond swap to markets index† ease a looming payments crunch: in- Venezuela annual savings of €290m ($318m), or 10% index† 80 vestors holding PDVSA bonds maturing of the combined cost base, is Mr Renzi’s 60 in 2017 (which are not backed by a full JFMAMJJASO first result. Two awkward obstacles stood sovereign guarantee), would exchange 2016 in its way. Voting rules at the popolari give them forbonds maturing in 2020. This Sources: JPMorgan; *Petróleos de Venezuela all shareholders an equal say, regardless of Thomson Reuters †JPMorgan EMBI Global Diversified would buy Venezuela time, perhaps in their stake: some retired Banca Popolare di Milano staff were against the merger, but1 62 Finance and economics The Economist October 22nd 2016

2 failed to blockit. And the European Central overpaid for Antonveneta, a bank it envisages stripping bad loans with a gross Bank imposed demanding conditions, in- bought for €9 billion from Spain’s Santan- value of €27.7 billion out of the bank. At cluding a €1 billion capital increase for der. Afterthe financial crisis it was laid low their net value, estimated at €9.2 billion, Banco Popolare, thatthreatened to scupper by losses on derivatives trades. It has since these would become the assets of a sepa- the deal, the first since it started supervis- been crushed by bad loans, which make rate entity. This entity would be funded by: ing the euro zone’s most important banks up about one-third ofits book, the worst in €6 billion-worth of investment-grade in 2014. The delay, Italian bankers grumble, Italy. Monte dei Paschi has had two bail- notes, which would be eligible for a state has discouraged other possible mergers. outs from the state. It raised €8 billion from guarantee; a mezzanine tranche of €1.6 bil- That said, further consolidation could be share issues in 2014 and 2015, partly to re- lion, to be taken up by Atlante, a fund on the way: UBI Banca, Italy’s fifth-biggest pay the government. To little avail: its mar- backed by several financial institutions, set bank, is said to be eyeing three of four ket capitalisation is a mere €600m. up to invest in bad loans and ailing banks; small lenders rescued by the state last year. In July, anticipating dismal results in and €1.6 billion of junior bonds, to go to Compared with rebuilding Monte dei stress tests by European regulators, Monte Monte dei Paschi’s shareholders. Paschi, such takeovers are child’s play. The dei Paschi presented a rescue plan. The The spruced-up Monte dei Paschi lender’s woes stretch back years. In 2007 it brainchild of advisers led by JPMorgan, it would be recapitalised with a €5 billion 1 Buttonwood Mutual incomprehension

A bookinvestors will read with disquiet MERICANS who want a comfortable ing hotel and mobile-phone bills. Al- Aretirement, and who workin the priv- though these arrangements are legal, they ate sector, have to look after their own in- represent a potential conflict of interest— tereststhese days. No longercan most rely and theircost is not disclosed to investors. on their employer to pay a pension linked Mr Birdthistle also outlines serious to their final salary; such defined-benefit abuses that have occurred in the mutual- promises are too expensive. fund industry—particularly over late trad- Instead, workers are promised some- ing and market timing, where privileged thing called a defined-contribution (DC) clients were able to make profits at the ex- pension which, truth be told, isn’t a pen- pense of ordinary investors. These cost sion at all. It is a savings pot to which em- the fund-management firms concerned ployers and employees contribute, with billions ofdollars in fines. some tax advantages. How big that pot With luck, the industry has reformed will be, and what kind of income it will and such scandals are things of the past. provide, is unknown. Mr Birdthistle accepts that mutual funds Most ofthose savings will probably be play a useful role in giving small investors invested in mutual funds. Yet as William access to diversified portfolios, some- Birdthistle, an academic lawyer, writes in to new investors. But why should existing times at very low cost. Yet the structure of an entertaining new book*, small inves- investors pay for this process, which will the industry needs further reform; only tors need to become better informed benefit the fund manager? Studies suggest 40% of the trustees (the people responsi- about the way mutual funds work. that existing investors get no benefit at all ble for looking after investors’ interests) One might think, for example, that all from an increase in fund size. Butthe indus- are required to be independent of the investors in a fund are treated equally. But try mopped up more than $12 billion from fund manager. It would be better if inde- Mr Birdthistle cites a set of JPMorgan equ- 12b-1funds in 2014. pendents were in the majority. ity funds which have seven different Remarkably, the fees listed in a mutual- The rise of passive index-tracking types of shares, with opaque names such fund prospectus are not the only charges funds with ultra-low fees will surely put as Class R5. The main difference tends to investors face. Funds also incur expenses, downward pressure on the fees com- be the fees that funds charge. Small inves- such as brokers’ commissions, when they manded by the rest of their industry. tors usually pay most, even those in some buy and sell securities. These fees are de- Some high-charging managers can out- DC schemes. These feesoften seem exces- ducted from investors’ returns. perform their index, but there is no reli- sive. The author reproduces a table from a Fair enough, one might argue. Such able way of picking them in advance. As- single fund managed by Oppenheimer, charges are an inevitable cost of running a suming a 6% gross return, an extra which has six classes of shares, with the fund, and a mutual-fund manager can deal percentage point in annual fees over the cost determined by nine sets of separate much more cheaply than retail investors course of a career can reduce your pen- figures for each class. Total annual fees would be able to do on their own. But sion by about 30%. Investors who bear range from 1.01% to 2.2%. sometimes the fund manager receives ser- the responsibility of building their own Fees are normally charged as a propor- vices from the broker in exchange for trad- pension pot need to understand the huge tion of the fund’s assets, and so rise and ing—a system know as “soft dollar”. Some impact that charges can have. Reading Mr fall with the overall market. But does it of these services may look benign, such as Birdthistle’s book would be a very good reallycostmore to run a fund ifthe market investment research to help a manager place to start. rises by 20%? Not all fund managers share pick the best shares (though isn’t this sup- ...... economies ofscale with their investors. posed to be hisorherexpertise?). But inves- * Empire of the Fund: The Way We Save Now by William One particular fee sticks in the craw. tigations by the Securities Exchange Com- A. Birdthistle, published by Oxford University Press That is the distribution-and-service, or mission, a regulator, have found more 12b-1, fee, which is used to market the fund dubious uses for soft dollars, such as pay- Economist.com/blogs/buttonwood The Economist October 22nd 2016 Finance and economics 63

2 share issue. The details have mutated over Watson and financial regulation time, but the rough plan is to raise maybe €1.5 billion from a voluntary swap of sub- It knows their ordinated debt for equity, perhaps a little more from an “anchor” investor and the methods rest from a rights issue. The original idea was that the bank’s board should approve NEW YORK the plan in late September. That was New banking rules baffle humans; can pushed back after a change of chief execu- machines do better? tive in the middle oflast month. Finding investors to put up money for a OINING “Hamilton”, a Broadway show, third capital increase in as many years, Jand concertsbyAdele, a British soul diva, even in a bank cleansed of duff loans, was on the list of tickets-to-kill-for in New always going to be hard. Worse, investors York is a screening in an ugly new office are unsettled by a constitutional referen- building that recently popped-up in the dum on December 4th. If the reform fails, East Village, a place best known for offbeat Mr Renzi may be unhorsed. If it passes, culture. There is a ten-week-long queue to markets may become more benevolent. see simulations by Watson, IBM’s cogni- In a further twist, Corrado Passera, a tive artificial-intelligence platform. former government minister and ex-bank- Initially known for stunts such as beat- er, has pitched an alternative. This would ing the world’s best chess player, Watson tap investors for only €3.5 billion, and has been seeking a wider audience. It has somehow squeeze €1.5 billion from earn- found a vast potential one in the world of ings, and bring in a private-equity investor. financial regulation. Rules have become so The bank’s board said on October 18th it sprawling and mysterious that even regu- When you’ve eliminated the impossible… would press on with the July scheme, but lators have begun asking for a map. In re- “continue to analyse in depth” Mr Pass- sponse, a market is springing up: for “reg- is fed into Watson, which can then evalu- era’s idea. It is due to approve its new busi- tech”, fintech’s nerdy new offspring. ate trading patterns and communications ness plan on October 24th. The search for On September 29th, IBM announced ranging from overt messages to social me- investors will then begin in earnest. the purchase of Promontory, a 600-strong dia (voice analysis will be added in No- The mist is lifting elsewhere, too. Uni- consultancywhose seniorstaffinclude for- vember). Scrutiny can extend to the net- Credit, Italy’s biggest lender, is also prepar- mer officials from the Federal Reserve, the work of people on the other end of trades ing to ask investors for money. On October World Bank, the Securities and Exchange in orderto untangle complexrelationships. 13th it sold 20% ofFineco, a digital bank, for Commission and other regulators. The The next area is to provide clarity about €552m. Two days later it confirmed that it hope is that person and machine will com- rules. They are sorted by jurisdictions, in- was in talks with PZU, a Polish insurer, bine into a vast business. Promontory was stitutional divisions, productsand so forth, about BankPekao, Poland’s second-biggest founded in 2001 by Eugene Ludwig, who and then further broken down between bank, of which UniCredit owns 40.1%. had headed one of America’s primary rules and guidance. Watson is getting bet- Jean-Pierre Mustier, who became chief ex- bank-supervisory agencies. It grew first be- ter at categorising the various regulations ecutive in July, is due to present a strategic cause ofthe slathering ofnew rules during and matching them with the appropriate review on December 13th. By then, one the previous, Bush administration and enforcement mechanisms. Its conclusions way oranother, much more may be clearer then prospered, says Mr Ludwig, as this are vetted, giving it an education that about Italy’s beleaguered banks. 7 process expanded under BarackObama. should improve its effectiveness in the fu- Promontory has recently dabbled in ture. Promontory’s experts are expected to software, but is best known for its employ- help Watson learn. A dozen rules are now ees’ background and their capacity to pro- being assimilated weekly. Thousands are vide expertise (its contention), contacts (its still to go but it is hoped the process will critics’) or both. Either way, it is a pro- speed up asthe system evolves. Ultimately, foundly human business. Watson, for all IBM hopes speeches by influential figures, its charms, is not. Automation of financial court verdicts and other such sources will institutions has long been a core business be automatically uploaded into Watson’s for IBM. It played a central role in the devel- cloud-based brain. They can play a role in opment ofthe ATM; its systems keep many determining what regulations matter, and banks and insurance companies around how they will be enforced. the world humming along. Aware that an- Global financial institutions provide an nual expenditure on regulation and com- obvious market for these services, but so pliance is vast—it reckons in excess of $270 too do small, local ones that lack the scale billion, of which $20 billion is spent sim- to justify the cost ofa team oflegal experts. ply on understanding the requirements—it A third group is the regulators themselves, began work on adding this business to who often privatelygrouse aboutbeing be- Watson in early 2015. Chief compliance of- wildered by their own remit and distrust ficers and lawyers were interviewed to other regulators with overlapping briefs. breakdown their tasks and needs. To some extent Watson’s success de- The first area of focus was trading, pends on whether the rules are consistent, which has the virtue ofbeing both discrete make sense and are fairly applied. At the and wildly complex. A pilot programme very least, it will be able to highlight anom- with half a dozen banks and three ex- alies. Ifsuccessful, Watson could shift legal changes began in July, providing surveil- authority from individuals to laws. That, Will they Passera? lance. A library of possible illicit schemes ofcourse, may be its greatest virtue. 7 64 Finance and economics The Economist October 22nd 2016 Free exchange Subtract and divide

Both economic hardship and racial divisions fuel support forDonald Trump MERICA’S presidential contest offers voters a starkchoice. Hil- comparatively little contact with other races, is strongly predic- Alary Clinton represents continuity with the Obama adminis- tive of support for the Republican nominee. Places with high lev- tration—not a bad pitch to voters, given low unemployment, els of exposure to trade and immigration, in contrast, are not ar- steady job growth and a recent upturn in the rate of increase of eas oftraditional Republican support. real incomes. In the opposite corner is Donald Trump, standing It would be wrong, however, to dismiss the role of economic on a radical platform of protectionism, draconian immigration anxiety. Mr Rothwell notes that Trump-backers, including the restrictions, massive defence spending and construction of a big, better-off ones, are far more likely to report worries about finan- beautiful wall along the Mexican border. Mr Trump’s dangerous cial insecuritythan those who do notfavourMrTrump (see chart, economic nationalism demands an explanation. Is he the pre- left panel). Though his followers tend to enjoy higher rates ofem- dictable consequence ofyears ofhardship formany Americans? ployment and higher incomes than people of similar education Two broad theories vie to explain Mr Trump’s ascent. One levels who do not support Mr Trump, they look economically camp sees him as an inevitable backlash against economic-poli- vulnerable in other important ways. Mr Rothwell finds that they cy priorities that have left many Americans behind. As America disproportionately live in areas where white mortality rates and and the world have grown more economically integrated, dependence on government support seem higherthan the norm, growth in household incomes has stagnated and inequality and where rates of social mobility are lower. It is not surprising, soared. The costs offreer trade were borne most acutely in South- then, that whereas Mrs Clinton’s supporters reckon future gener- ern and Mid-Western manufacturing towns exposed to competi- ations of Americans will be better off than those living today, Mr tion from cheap Chinese imports. Aseriesofrecentpapers shows Trump’sbackers are farmore gloomy (see chart, right panel). that the most affected labour markets have experienced a long Considering recent polling out ofcontext can also be mislead- period of depressed wage growth, low rates of labour-force par- ing. James Kwak, ofthe University ofConnecticut, argues that Mr ticipation and high unemployment. These trends carved out a Trump’s supporters have relatively high incomes on average be- political niche ready to be filled by someone like Mr Trump. cause such people tend to vote Republican. Yet among those vot- There is another camp, however, which suggests that worker ers earning less than $50,000 a year, Mr Trump is polling 17 per- anxieties, though real, have little to do with Trumpism. Instead, centage points above the level achieved by Mitt Romney, the his rise is the product of a Republican electoral strategy of maxi- Republican candidate for president in 2012. mising turnout among older white voters. An effective way to achieve this goal, goes the argument, is to stoke their racial fears; Global fundamentals the white, non-Hispanic share of the population has fallen from Economic and racial explanations of political shifts need not be nearly 90% in the 1940s to about 60% now and will continue to mutually exclusive. In a paper in 2014 analysing political polar- drop, fuelling unease among older whites. Mr Trump’s winning isation in America, David Schleicher of Yale University points message is about ethnic demagoguery and little else. out that shifts toward “radical and fundamentalist opinion” are Some evidence supports a race-based interpretation of the by no means confined to America. The phenomenon is also seen election. Mr Trump has often been openly hostile to racial and re- across Europe and elsewhere, suggesting global trends are at ligious minority groups. Race and religion strongly predict work, not just a Republican electoral strategy. Moreover, eco- whether someone supports or opposes Mr Trump; a vast major- nomic trends seem to make issues of race or nationality more sa- ity of Americans who are black, Hispanic, Jewish, Muslim or lient. Apaperpublished in April found evidence forthis dynamic atheist favour Mrs Clinton. Income, on the other hand, is less pre- in American cities exposed to import competition. It found that dictive. A recent analysis ofpolling data by Jonathan Rothwell, of voters in trade-exposed labour markets tended to replace their Gallup, finds that Mr Trump’s supporters tend to come from the moderate representativeswith left-wingDemocratsorright-wing middle of American economic distribution rather than the very Republicans, depending on whether whites were a minority or a bottom (or top). “Racial isolation”, or living in communities with majority ofthe local population, respectively. Economic hardship appears to strengthen the ideological fringes. Yet why should it also widen racial divisions? Perhaps Fretful and gloomy economic insecurity simply generates a need forscapegoats, and Average economic anxiety*, % The future of the next generation of minorities are easy targets—especially if they rely on taxpayer-fi- By household income and Americans will be “…” compared nanced benefits. That chimes with the experience of places opinion of Donald Trump with life today % responding† heavilyexposed to imports, where labour-force participation has Favourable fallen and reliance on government disability insurance has risen. Unfavourable (Republican) Worse Better Same Unfavourable And at the same time as more people are relying on handouts, 0 204060 0 204060 America has become less white. Studies show that support forre- Less than distribution is weakerwhere racial and ethnic diversity is greater. $50,000 All voters Mr Trump tends to draw support from places with high levels of $50,000- government dependency. Given a pool of racial unease, eco- 100,000 Clinton nomic woes that increase reliance on the social safety-net may $100,000- supporters also enhance the attraction of the politics of racial resentment, 200,000 and hence ofTrumpism. 7 Over Trump $200,000 supporters ...... Sources: Gallup; *Based on ten questions, survey July 8th 2015-August 31st 2016 *Studies cited in this article can be found at www.economist.com/FE42 Pew Research Centre †Survey August 9th-16th 2016 Economist.com/blogs/freeexchange Science and technology The Economist October 22nd 2016 65

Also in this section 66 Big data and urban planning 67 Growing anti-malaria drugs 67 The latest Mars mission 68 Sexual cannibalism in spiders

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Making sex cells from body cells created ethical dilemmaswhen the embry- os involved were human. Such harvesting The ancestor’s tail is no longer necessary. Instead, for mice, men and many other species, pluripotent cells can be made to order by taking an or- dinary body cell and adding to it active copies of the four genes which encode the genetic switches that cause pluripotency. It was such “induced” pluripotent cells An experiment on mice offers hope to infertile people that formed DrHayashi’s starting-point. As SSUES of safety aside, the very idea of has not yet done so in practice—he could he had discovered in his experiments cre- Icloning people—of taking, say, a cell from fertilise his somatic-cell-derived eggs with ating sperm, judicious application of a the skin ofa man ora woman and growing his somatic-cell-derived sperm to create an molecule called bone morphogenetic pro- it into a new human being with exactly the entirely somatic-cell-derived adult animal. tein 4 turns pluripotent cells into primor- same genes as its progenitor—is anathema He might even, ifhe so chose, be able to de- dial germ cells—the type ofstem cell ances- to many. But what about taking such a cell rive sperm and eggs from the same animal, tral to both sperm and eggs. Which of and creating from it an egg or a sperm that for the processes do not require that the these a primordial germ cell goes on to be- can be used for in vitro fertilisation? That eggs be made from female cells and the come depends on the sex of the tissue it would enable infertile men and women, sperm from those of males. That would finds itself in. In those earlier experiments and gay couples, who wanted to raise chil- create a mouse which had only one parent, Dr Hayashi injected them into the testes of dren genetically related to both parents to yet was not a true clone of that parent be- newly born mice, thus persuading them to do so, rather than relying on the assistance cause the sex cells which united to form it become sperm when theyunderwentmei- of an unrelated egg or sperm donor to start would both have undergone the internal osis. This time he used ovarian tissue ex- a family. genetic mixing that biologists call meiosis. tracted from mouse fetuses to induce egg- In people, this is not yet possible. But forming meiosis. Katsuhiko Hayashi and his colleagues at One step back, two steps forward To keep track of this process, and to Kyushu University, in Fukuoka, Japan, Dr Hayashi and his colleagues do not avoid confusion, Dr Hayashi took the cells have done the equivalent in mice. As they create their eggs and sperm directly from used to make the eggs from a dark-eyed report this week in Nature, there are ani- somatic cells. First, those cells have to un- mouse. He then fertilised the eggs he had mals now scampering around cages in dergo an alchemical transformation to re- created in vitro with sperm from a pink- their laboratory whose maternal anteced- juvenate them into an ancestral form eyed male, and also implanted the result- ents are egg cells derived not from the ova- known as a pluripotent stem cell. Mature ing embryos into pink-eyed females. To ries of their mothers, but from body cells body cells (eggs and sperm included) de- everyone’s delight the pups born ofthis ar- (known as somatic cells), in this case from rive from progenitors, known as stem cells, rangement had dark eyes (see picture those mothers’ tails. Nor does it stop there. that have the power to divide, proliferate above)—caused by a gene that could have In the past, using a slightly different tech- and eventuallyto turn into particular cellu- come only from the tail-derived eggs. Fur- nique from the one that he describes this larcomponents ofa particulartissue. Pluri- thermore, as had happened before with week, Dr Hayashi has bred mice using so- potent stem cells are, in turn, the ancestors the somatic-cell-derived sperm, these matic-cell-derived sperm. ofthese tissue-forming stem cells. pups developed normally into adults and Both of these sorts of animals have In nature, pluripotent cells are restrict- were themselves able to reproduce. gone on to breed successfully. So, not only ed to embryos. The first students ofcloning All this is a long way from enabling sci- are Dr Hayashi’s creations viable, they are and its related arts had therefore to “har- entists to perform the same trick with peo- fertile. Moreover, in principle—though he vest” them for their experiments—which ple. First and foremost, using human em-1 66 Science and technology The Economist October 22nd 2016

2 bryonic tissue in any part of the process is eggs. Third, though mice have proved use- his work from these and other studies is out of the question for ethical reasons. ful models for examining many questions the speed with which he and his team can Thatmeanssomeone needsto workoutex- of human medicine, mere models is all analyse large data sets such as those from actly which of the chemicals in testes and they are. A lot more research will be need- Flickr. The conventional approach is to ovaries tell primordial germ cells whether ed before anyone (or, at least, anyone with break such data into chunks for analysis— to become eggs or sperm. Second, at the any ethical sensibility) tries something dividing them up geographically on a grid, moment the process is extremely ineffi- similar on a human being. If and when for example, or temporally, into days. Re- cient. Only 3.5% of Dr Hayashi’s tail-de- that day comes, though, the unwillingly searchers then search for patterns by com- rived embryos grew into pups, compared childless around the world will be watch- paring these chunks with each other. The with about 60% of embryos from normal ing with great interest. 7 problem is that more detailed analysis re- quires more such chunks, and the comput- ing time needed to calculate the relation- Urban planning ships between them thus spirals. To avoid this, Dr Silva turned to compu- Listen to the music of the traffic tational topology—a field that finds algo- rithmsto describe complicated shapes and in the city surfaces as simply as possible. (In this con- text, “shapes” and “surfaces” are wider ranging than a layman might think, be- cause they can have more than three di- mensions.) These algorithms let comput- Places, like people, have pulses—ifonly you know how to measure them ers create, analyse and manipulate such HE Rockefeller Centre sprawls across multidimensional shapes quickly. T89,000 square metres of midtown Computational topology is already em- Manhattan. Curiously, Alcatraz, in San ployed in tasks as diverse as loading goods Francisco Bay, the island home of Ameri- at dockyards and studying the way protein ca’s most famous former prison (see pic- molecules fold, so many topological algo- ture), has exactly the same area. That coin- rithms already exist. To take advantage of cidence aside, few might imagine the this trove, Dr Silva’s team had to represent manicured roofgardens and art deco office their Flickr data as a topological shape. buildings of the one have much in com- They did so by calculating, from the num- mon with the brutal crags and block- ber of photos taken there, the level of “ac- houses of the other. But they do. For re- tivity” at each point in an area of interest. search by Claudio Silva of New York They plotted the results on a grid, to create University and his colleagues suggests that a three-dimensional representation of tou- the two have a striking resemblance when rist activity across a city at a given mo- it comes to the daily ebb and flow of tour- ment—then added a fourth dimension by ists, as judged from the level of activity on repeating the process for every hour of Flickr, a photo-hosting site. Dr Silva thinks data available. The result was a topological the peaksand troughsofFlickractivity that surface whose peaks, troughs, furrows and his research has discovered in this and oth- holes—which could be identified by their er cases are a measure of an area’s “urban algorithms—corresponded to changes in pulse”. If so, the Rockefeller Centre and Al- activity over time and space. catraz share a pulse. This approach means not only that Dr On October 25th, at a meeting of the In- Like the Rockefeller Centre, but different Silva’s programs whizz along much faster stitute of Electrical and Electronics Engi- than conventional software, but also, be- neers in Baltimore, Dr Silva plans to pre- through a district, and may also highlight cause they do not have to filter the data or sent the idea that, like real pulses, urban areas of activity that conventional meth- use a small subset of it, they see patterns pulseshave useful diagnosticand prognos- ods have missed. that might otherwise slip through the net. tic properties. He thinks his system to ana- Dr Silva’s work is part of a broader Users can compare years’ of Flickr data lyse them might help urban planners and trend, dubbed “smart cities” by some, to- from whole cities in minutes, thus taking architects identify footfall and other pat- wards using the vast amounts of data gen- their urban pulses. Indeed, Dr Silva hopes terns that emerge from past developments, erated by the inhabitants of urban areas to to make these pulses still more accurate, and make better choices in future. make them better places to live. Carlo Ratti and also extend their analysis beyond tou- Atthe moment, when such planners try and his colleagues in the Senseable City rism, by tapping other sources of informa- to understand patterns of activity in a dis- laboratory at the Massachusetts Institute tion, such as Twitter and Instagram. trict, they do so by conducting surveys, of Technology (MIT), for example, used Social pulse-taking is not mere theory. countingthe numberofpeople passing im- mobile-phone records, and also traffic data Kohn Pedersen Fox Associates (KPF), a firm portant road junctions and measuring traf- from 500 pressure sensors on roads, to of architects based in New York, is collabo- fic volumes. This, though, takes years. One help guide construction of the new metro rating with Dr Silva on several as-yet-un- way to speed up the process is to use the system in Saudi Arabia’s capital, Riyadh. disclosed projects. KPF’s past work in- reams of data now available from social- And César Hidalgo and Elisa Castañer, cludes the Shanghai World Financial media platforms. Flickr, for example, re- who work at MIT’s Media Lab, last year Centre, the World Bank’s headquarters in cordsthe location and time ofeveryphoto- published an algorithm to recommend Washington, DC, and a recent revamping graph uploaded to the site. It is especially which types ofnew business were needed of Covent Garden, an old fruit and vegeta- popular with holidaymakers. Thus, by us- in particular districts, based on the loca- ble market, in London. Whether the algo- ing the Flickr data as a surrogate measure tions of over1m cafés, bars, shops, schools rithms of computational topology would of their activity, Dr Silva’s program can and so on in 47 American cities. show any similarities between those lo- show in minutes how tourists are moving Dr Silva says that what distinguishes cales is an intriguing question. 7 The Economist October 22nd 2016 Science and technology 67

Anti-malaria drugs that putting genes for the whole artemisi- extracted from wormwood or an equiva- nin pathway into the chloroplasts had di- lent dose in the form of leaf tissue from his Do you yield? verted too many of the precursor mole- engineered tobacco plants. He found that, cules away from photosynthesis, thus after 15 days, parasite loads in animals fed stunting the leaves. He therefore decided the leaves were two-thirds of those in ani- to spread the burden by inserting six ofthe mals dosed with pure artemisinin. genes into the cell nucleus instead. That Confirming that result, then testing hu- worked. All of the tobacco plants with the man volunteers to see if the same is true in How to increase the supply of new genetic layout grew normally. More- people, will take time, and is likely to be artemisinin over, they produced 0.8 milligrams of arte- controversial. Dr Kumar plans to try— NE of the most valuable weapons in misinin in each gram of dried leaves after though he will use genetically engineered Othe war on malaria is artemisinin, a being raised fora mere 60 days. lettuce rather than tobacco, or even worm- drug derived from the leaves of sweet Dr Kumar also questions whether ex- wood, both of which are too toxic. But wormwood. Its discovery, inspired by tracting the drug from the leaves is really many, probably most, doctors are suspi- wormwood’s use as a herbal remedy for necessary. Past research of his has suggest- cious of herbal remedies in principle, be- the disease, brought Tu Youyou, the scien- ed some plant cells protect pharmaceutical cause it is hard to control their quality in tist responsible for making it, the first No- chemicals from acids and enzymes in the the same way as a factory-made chemical. bel prize for medicine awarded to a re- stomach. That makes it easier for such Dr Kumar’s findings are, nevertheless, in- searcher working in China. Artemisinin chemicals to reach the intestine—the part teresting. And regardless ofwhetherhis ex- has, though, proved stubbornly difficult to ofthe gut where they are absorbed. perimentsin herbalism lead anywhere, his synthesise chemically, meaning that ex- To test this herbal approach, he infected genetic engineering of artemisinin-pro- tract-of-wormwood is still the main source some mice with malarial parasites and ducing tobacco plants is a result that de- of supply. That is a problem, for worm- then dosed them with either artemisinin serves close scrutiny and follow-up. 7 wood plants take between 190 and 240 days to mature. Moreover, yields are not huge—a mere half a milligram per gram of Exploring Mars dried wormwood leaves. Alternative sources would thus be welcome. Triumph or disaster? One is to engineer relevant genes into yeast cells. That works, but only up to a point. The commercial process based on this method turns out artemisinic acid, not artemisinin. Further chemical treatment is needed to produce the drug, and the end Well, neitheractually product has had difficulty competing with artemisinin derived from plants. However, HAT space flight is as much show busi- placed to do its job of mapping concentra- Shashi Kumar of the International Centre Tness as science was confirmed on the tions of the minor chemical components for Genetic Engineering and Biotechnolo- evening of October 19th, when members of the Martian atmosphere, which is com- gy, in New Delhi, is proposing a different of the ExoMars team put on the bravest of posed mostly of carbon dioxide. This is an approach, usinga plantinstead ofa fungus. faces for a broadcast from their mission important task, for one such component is As he reports in Molecular Plant, he has control in Darmstadt, Germany, about the methane—and that may be a sign the plan- engineered tobacco to make artemisinin arrival of the project’s craft at Mars. Exo- et harbours life. fasterand better than wormwood can. Mars is a joint endeavour by Europe’s and Instead, there were the flat, controlled Tobacco is a well-understood plant, of- Russia’s space agencies. If science were its voices of those trying to come to terms ten used in genetic-engineering experi- only criterion, team members would have with disappointment, while hoping ments. Indeed, DrKumarhimselfhad tried been cock-a-hoop. Their main research ve- against hope that their worst fears are once before to persuade it to synthesise ar- hicle, the Trace Gas Orbiter (TGO), had suc- wrong. The reason was that the other part temisinin. He did this by adding to its chlo- cessfully entered almost precisely its desig- ofthe mission, a cone-shaped landing craft roplasts 12 genes for enzymes that govern nated orbit around Mars, and looked well called Schiaparelli, had abruptly gone si-1 the biochemical pathway which produces the drug. That he was able to do so is be- cause chloroplasts, the sub-cellular struc- tures which carry out photosynthesis in plants, are the descendants of once-free- living photosynthetic bacteria that teamed up with an ancestral plantcell around a bil- lion years ago. They thus have their own genomes. That he wanted to do so is be- cause the precursor molecules for part of the photosynthetic apparatus (which are abundant in chloroplasts) are also precur- sors ofartemisinin. Unfortunately, this early attempt, writ- ten up and published in 2014, did notwork. It produced plants with stunted leaves and artemisinin yields of only 0.1 milligrams per gram of dried tissue—a fifth of that from wormwood leaves. Dr Kumar suspected the problem was Canali grandi 68 Science and technology The Economist October 22nd 2016

2 lent on its way to the surface. Schiaparelli’s Sexual cannibalism only scientific payload was a small weath- er station that would have run out of bat- tery in four days. The craft’s real purpose Nature’s cruellest one-night stand was to test descent and landing technol- ogies. And test them it did, apparently to Male darkfishing spiders sacrifice themselves forthe good oftheiroffspring destruction. But a brave little lander is al- ways going to trump a clunky workhorse NIMAL mating can be a cruel and state ofWashington, and Eileen Hebets satellite in the public imagination—so, un- Aunusual process. Male bedbugs ofthe University ofNebraska-Lincoln. Dr less Schiaparelli does start talking again inseminate females by piercing their Schwartz and Dr Hebets note that, after (which, at the time The Economist went to bellies and depositing sperm inside their mating, the males ofone species of press, it had not), what is actually a pretty paramours’ body cavities. Male chim- arachnid, the darkfishing spider, sponta- good success will seem a disappointment. panzees and lions kill the suckling infants neously die and thus ensure that they get The search the TGO will engage in is offemales before mating with them, as eaten. This is in contradistinction to the also, in its way, based on a lingering hope— this brings those females more rapidly behaviour ofmost male spiders, who one which started, albeitaccidentally, with into oestrus. Male dolphins routinely usually attempt at least some sort of a the man the landing craft was named after. engage in rape. Nor are aggressive mating getaway, even ifit is futile. And, as the This hope is that Mars is inhabited. When practices perpetrated solely by males two researchers report in a forthcoming Giovanni Schiaparelli, a 19th-century Ital- against females. In many species of paper in Current Biology, there is, indeed, ian astronomer, drew the first maps of insects and spiders, females eat their method in the male fishing spider’s sui- Mars (pictured on previous page), he de- partners after sex. cidal madness. scribed some linear features on them as ca- Such cannibalism clearly brings ad- Dr Schwartz and Dr Hebets came to nali. This word can translate into English vantage to the female, who gets an easy this conclusion by collecting male and eitheras channels (natural) oras canals (ar- snack. But the benefits (ifany) for the female darkfishing spiders and sub- tificial). Schiaparelli had intended the for- male are less obvious. That there might jecting them to an experiment. In one mer, but the ambiguity spawned the ro- sometimes be such benefits, though, is an group ofthe animals, females were al- mantic idea that Mars was home to a dying idea that intrigues zoologists—and so, lowed, as per normal, to eat their de- civilisation desperately piping water from from time to time, some ofthem look into ceased partners after mating. In a second, the planet’s polar ice caps. the matter. the males’ bodies were removed and the There are no canals on Mars, and cer- The latest to do so are Steven Schwartz females ate nothing. And, in a third, the tainly no dying civilisation. But the hope- ofGonzaga University, in the American males’ bodies were substituted by a ful suggest that there may be life there of cricket ofabout the same weight as a the microbial sort—and that if there is, it male spider. may explain the traces of methane in the Not surprisingly, the offspring of planet’s atmosphere. That gas’s source is females in the first group—those allowed certainly a mystery, for methane is broken to cannibalise their partners—were big- down rapidly by ultraviolet light, and this ger, more numerous and longer-lived reaches Mars from the sun in abundance than those offemales in the second. But because the planet’s atmosphere is too they were also bigger, more numerous scanty to block it. That means any meth- and longer-lived than those offemales in ane in the Martian air should quickly dis- the third, cricket-fed group. In fact, the appear. But it does not. This suggests some- offspring ofthe third group did no better thing is replenishing the gas. The process than those whose mothers had received involved may be geological. But maybe, as no extra nutrients at all. Evidently, some- is the case for most of the methane in thing in male fishing-spider flesh is partic- Earth’sratherthickeratmosphere, it is actu- ularly advantageous forthe production ally biological. and development ofyoung. One of the TGO’s jobs is therefore to Exactly what this something is, Dr map methane concentrations in the Mar- Schwartz and Dr Hebets cannot yet say. tian atmosphere. That may point to pro- But they do have a theory about what is mising, methane-generating landing spots going on. The fact that the male spider for a follow-up probe—for ExoMars is a dies after mating, and thus makes sure his mission in two parts. The second act will body is available as a feast for his mate, be a Russian-built lander and a European suggests the mysterious extra nutritional rover. These are planned to arrive in 2021. value ofthat body has evolved specifical- The rover will be equipped to analyse the ly forthe purpose ofnurturing the eggs Martian regolith (the layer of rock frag- that will turn into his offspring. Possibly, ments on the planet’s surface that passes in the past, females have been so good at forsoil) forsigns ofbiological activity. catching males that few survived to To do that, though, it will have to land father a second brood anyway. In that successfully. And, as Schiaparelli’s appar- case, any adaptation which enhanced ent fate shows, landing on Mars is hard. the number and fitness ofa male’s first- With luck, data the probe broadcast on its born clutch, even at the expense of his way down, before silence enveloped it, life, would be favoured by natural selec- will tell engineers what went wrong, and tion. Whatever the truth, though, the fate help them stop the same thing happening ofthe poor male darkfishing spider is to the next lander. In the meantime, TGO surely the cruellest and most unusual will continue to orbit, and the methane Gone fishin’ one-night stand ofall. data will flow in. 7 Books and arts The Economist October 22nd 2016 69

Also in this section 70 The migrant business 70 The early life of Ngugi wa Thiong’o 71 Serving Hitler, a novel 71 Latin American Modernism at MoMA 72 Steven Isserlis, musical educator

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The meaning of jihad spread byboth the word and the sword. Mr Maher divides Salafists into three broad Men of war categories, based on their attitude to tem- poral authority: “quietists”, for example Wahhabi clerics who give discreet advice to Saudi rulers; “activist-challengers”, who agitate publicly (and sometimes violently) for governments to reform; and “violent- rejectionists” who regard the very notion What jihadists believe, and why it matters ofmodern states as a heresy. HAT IS jihad? It defines this age of The rejectionists are the focus here. Mr Salafi-Jihadism: The History of an Idea. violent Islamist radicalism, yet the Maher sets out five “essential and irreduc- W By Shiraz Maher. Oxford University Press; meaning of the word and its relevance for ible features” that define Salafi-Jihadism. 292 pages; $29.95. Hurst; £25 modern-day Muslims are both contested. Tawhid (the oneness of God) and hakimi- The term derives from jahada, an Arabic yya (securing God’s sovereignty in the po- word meaning to labour, struggle or exert stands out as an excellent and original ac- litical system) seek to promote their form effort. Many Muslims emphasise “the count of what jihadists actually think. Mr of Islam. The others seek to defend Islam, greater jihad” of personal moral struggle Maher goes well beyond previous works, or so jihadists claim: jihad, takfir (a form of over the “lesser jihad” of military combat; such as “Jihad” by Gilles Kepel or “The ISIS excommunication) and al-wala wal-bara most authorities say that military jihad can Apocalypse” by William McCants, in set- (to love and to hate for the sake ofGod). be declared only by a rightful ruler—the ting out a taxonomy of jihadists’ system of These concepts, particularly the laws of caliph (a role abolished since 1924), or at beliefs. It will be a must-read work in the jihad and takfir, have evolved with succes- least the leader ofa Muslim country. study of radicalism. sive conflicts. The jihad in Afghanistan in For the likes of al-Qaeda and Islamic The violence ofjihadists “is neitherirra- the 1980s was regarded, uncontroversially, State (IS) real jihad is fighting forthe sake of tional nor whimsical”, argues Mr Maher. as a defensive war to protect a Muslim Allah. It is not only equal to the five tradi- The tenets of their ideology can be traced country against the atheist Soviet commu- tional pillars of Islam—the testimony of to mainstream Islamic thinking, although nist invader. But when al-Qaeda turned to faith, regular prayer, giving alms, fasting “the contemporary Salafi-Jihadi move- attack America, on the grounds that it was during Ramadan and the pilgrimage to ment has interpreted and shaped them in responsible, directly or indirectly, for Mecca; itis, in fact, the mostimportant after unique and original ways”. This gives jiha- countless assaults upon Islam, al-Qaeda the declaration of faith. It is the ultimate dism unique power. Every act, no matter had to overcome objections to the killing means of defending and exalting Islam; an how vile, finds some kind of justification of civilians. Jihadists developed a dubious obligation upon the individual, with no in tradition; any denunciation by Muslim doctrine of vicarious liability: democracy, need forhigher authority. Ayman al-Zawa- moderates is dismissed as, in effect, re- which they declare is an abomination for hiri, the co-founder and current leader of nouncing a part oftrue Islam. Muslims, taints all citizens of Western al-Qaeda, cites Ibn Taymiyyah, a medieval Jihadists are a subset of the puritanical countries with the sins of their rulers be- scholar, as saying that jihad “takes prece- Salafist movement that seeks “progress cause they vote them into office. Almost dence over feeding the hungry, even if the through regression”, as Mr Maher puts it. anything, including the use of weapons of hungry would starve as a result”. The movement aims for perfection by fol- mass destruction, is justified as retribution Most books on jihadism focus on what lowing the example ofthe first three gener- against their enemies—except, perhaps, for militant groups do, as well as the history of ations ofMuslims known as al-salaf al-sali- acts expressly forbidden by Islam, such as jihadism and the political context in which hin, starting with the companions of the causing death through sodomy. itevolved. Bycontrast“Salafi-Jihadism”, by Prophet Muhammad. These are deemed to When it comes to attacking the govern- Shiraz Maher of King’s College London, embody the golden age, when Islam was ments of Muslim-majority states, or rival 1 70 Books and arts The Economist October 22nd 2016

2 groups, jihadists have stretched the rules better life. And policies, particularly in oftakfir (declaringa Muslim to be a kafir, or Europe, that are intended to stop migration non-believer) almost beyond all recogni- often have the effect only of rendering it tion. In the name of defending Islam, jiha- more exploitative and dangerous. dists have killed more Muslims than even To make this argument, the authors the hated “Crusaders and Jews”. IS’s ca- leap around, with vivid reporting from Ni- liphate is odd, too: an act of modern state- ger, Libya, the Balkans, Turkey and Egypt, buildingthat also servesthe eschatological among other places. Their primary focus is purpose ofhastening the End ofDays. not the migrants, but the smugglers—the Mr Maher packs a lot of valuable but people who make it possible to get to coun- complex information into his book. Here tries without a visa or a passport. Crack- and there, itcould have explained concepts downs and demand stimulate supply. more fully. The section on Ibn Taymiyyah Both in Turkey and Libya, it was Syrian ref- is too skimpy, given his importance. Some ugees—and theirabilityto paytensof thou- might level a second criticism: given that sands of dollars—that drove smugglers to IS, in particular, seems more concerned develop sophisticated systems. Some refu- with the theatre of gore than with Islamic gees are even given barcodes to scan when jurisprudence, does jihadist ideology mat- they arrive in Europe, which help release ter? The jihadists’ ability to survive de- their payments from escrow. These were cades of onslaught, by the West and local built on existing systems, particularly the regimes, suggests their thinking is resilient hawala networksofinformal moneytrans- and appeals to at least a significant minor- fer used by merchants across the develop- ity of Muslims. Mr Maher recently an- ing world. swered the question thus: “Did every Nazi The book’s key contention—that tighter camp guard read ‘Mein Kampf’? No. Did rules inspire entrepreneurs to create new, Ngugi wa Thiong’o Hitler’s ideas in the bookmatter? Ofcourse more dangerous and criminal smuggling they did.” 7 routes—is persuasive. But it could be more A song of Africa so. Although the blistering criticism of European policy seems right, a section at Migrants the end which brings in American policy is weaker. The authors are certainly right that crackdowns on the border with Mexico Making profits out Birth of a Dream Weaver: A Writer’s have created business for criminal cartels. Awakening. By Ngugi wa Thiong’o. New But they are on weaker ground when they of hope Press; 238 pages; $25.95. Harvill Secker; suggest it has not deterred migrants. Partly £14.99 for economic reasons, more Mexicans re- turn from America than go the other way. N THE latest volume of his memoirs, Migrant, Refugee, Smuggler, Saviour. By Thatsortofoutcome mayeventually be Ngugi wa Thiong’o advocates a certain Peter Tinti and Tuesday Reitano. Hurst; 331 I the result ofEurope’s shift against migrants revisionism about his native Kenya. In a pages; £20 too. People-smugglers may well be sav- brief preface titled “Note on Nomencla- DEFINING image of the new wave of iours to some of their clients. But they are ture” he asserts that the British-termed Aglobalisation—and the attempts to exploiters of plenty of others. In the long “Mau Mau” rebellion will instead be re- hold it back—is a newly arrived migrant on run death and dangerdoes deter. The more ferred to as the “Land and Freedom Army”, a European beach, clutching a mobile criminal the networks are, the more they the two main goals for those who rose up phone and hoping fora new life. Never be- will be shunned. 7 against the British colonial presence in fore have rich countries raised their walls Kenya. According to Mr Ngugi, the term so high to keep out refugees and the poor. “MauMau” comesfrom a corruption ofthe Yet never have people tried so hard to leap movement’s motto: “Oath of unity for (de- over them anyway. manding) Land and Freedom”. It was the The most important causes of this colonial state that opted instead, he says, to migration are wars in places like Syria and refer to the soldiers with the “meaningless Somalia, and demography and poor pros- mumbo-jumbo” of “Mau Mau” in order to pects across Africa and the Middle East. obscure both theirgoals and theirpurpose. New enablers are vital too: mobile phones, The uprising began in the early 1950s, the internet, WhatsApp and Facebook. when Mr Ngugi was still a teenager. It grew What is less understood is how business from the armed struggle for liberation by has changed this world. In “Migrant, Refu- the Kikuyu and other tribes, but was char- gee, Smuggler, Saviour”, Peter Tinti and acterised by the colonial power as “mass Tuesday Reitano, both researchers, explain mania manifesting itself in violence and how the numbers of people arriving in witchcraft”, what Elspeth Huxley, the Europe have been made possible because white settlers’ literary spokesman, called ofthe emergence ofinnovative and oppor- the “yell from the swamp”. The rebellion tunistic entrepreneurs. would have a momentous impact on the People-smuggling is just another part of novelist’s future work. the vast decentralised organised-crime Mr Ngugi’s unstated goal throughout economy. Those in the trade are not neces- this book is reclamation, not just of the sarily evil or part of a grand conspiracy: Land and Freedom Army, but of much of they are ordinary folk drawn into organ- the colonial endeavour in east Africa. Over ised crime by profits and the prospect of a On our way and over again he condemns the denigra-1 The Economist October 22nd 2016 Books and arts 71

2 tion of Kenyans as “primitive” and “zoo- Latin American Modernism bringing together 300 works grouped logical” and goes on to present a clearer ra- around three themes: abstraction, Neo- tionale for the Kikuyu people’s desire for A time of gifts Concretism and what was termed the freedom. Mr Ngugi’s own wish to wrest “abandonment” of art. Now the museum the narrative away from the colonial can do even more, thanks to a donation thread comes at a cost, though; at times the from an important private collector. story of his development as a thinker and The gift of 102 works comes from Patri- writer is muddled and seems secondary to cia Phelps de Cisneros, a MoMA trustee A donation to MoMA will transform the the broad political and social upheavals who has been buying art for more than study ofLatin American Modernism happening across the region. half a century. The family has already giv- Mr Ngugi attended the missionary-run ATIN AMERICAN art has long been a en the museum 40 works. This most recent Alliance High School near Nairobi and, lat- Lfeature of the collection of the Museum donation will increase MoMA’s holdings er, Makerere University in Kampala, Ugan- of Modern Art (MoMA) in New York. Ever of Latin American paintings and sculpture da. It was here that he began writing plays since 1931, when Alfred Barr, the then- by half as much again. It also includes and novels against colonial oppression in director, followed an exhibition of Henri plans for a Cisneros Institute to be opened east Africa. The motto ofMakerere Univer- Matisse with a one-man show of the Mex- in MoMA’s midtown Manhattan campus, sity was “to seek the truth”, Mr Ngugi ican modernist, Diego Rivera, the museum which will focus on research, conferences points out, but his accounts of the censor- has collected design, photography, film, and publications on art from Latin Ameri- ship and bigotry ofthat time are shocking. architectural drawings, paintings and ca. ““It’s the most important giftwe’ve ever He describes attending the Conference sculpture from the region. In 2014 it put on had,” says MoMA’s director, Glenn Lowry, of African Writers of English Expression, the first American retrospective of Lygia “And in terms ofsize it’s the biggest.” which was held at Makerere in 1962, near Clark, a radical Brazilian who died in 1988, The seed of the idea was sown in the 1 the end of his time as a student. Mr Ngugi was selected to participate alongside such Fiction from Israel writers as Kofi Awoonor, Christopher Okigbo, Chinua Achebe, Wole Soyinka— Africa’s first Nobel laureate in literature— Delusion chronicle and Langston Hughes, an American poet. The conference opened with a discus- sion on the nature and meaning of “Afri- can literature”, and its thematic debates Good People. By Nir Baram. Translated by have gone on to shape writing across the Jeffrey Green. Text Publishing; 421 pages; continent forthe past 50 years. One heated $15.95 and £10.99 point throughout was language itself, with Mr Ngugi arguing that African novels UR job is to write a story,” a Soviet should be written in African languages, an “Oagent tells a Nazi collaborator idea he would promote two decades later early in 1941, shortly before Hitler’s op- in a collection of essays entitled “Decolo- portunistic pact with Stalin ended in the nising the Mind.” He published several German invasion ofRussia. “Ifwe be- novels in English and then brought out one lieve in it, maybe others will too.” The ofthe first novels ever written in his native two years ofNazi-Soviet co-operation language of Gikuyu, which he later trans- after1939 prove that the bloodiest re- lated into English. gimes ofmodern history could spin any During the Makerere conference, Mr yarn and forge any myth. In “Good Peo- Ngugi offered Hughes a tour ofthe city and ple” an Israeli novelist, Nir Baram, asks was given editorial advice by Achebe on what kind ofpeople would choose to the manuscriptthatwould become hisfirst serve these empires offalsehood with novel, “Weep Not, Child”. The Heinemann their eyes open and their minds sharp. Sasha Weissberg, with a keen-edged African Writers series, for which Achebe Not monsters or even cynics, he an- surgeon’s knife. Yet, the reader is made to was an editorial adviser, published the swers in a pacey, plot-heavy novel of feel pity fortheir all-too-human fate. novel in due course. Later it would be re- dramatic events and big ideas, but gifted The “perfectimpostor”, Thomas vealed that, unbeknown to many of the storytellers fuelled by ordinary motives switches from PR wizardry foran Ameri- participants, the CIA had been the original oflove, loyalty or ambition. Blessed or can firm in 1930s Berlin to ideological funderofthe Makerere conference in an ef- cursed by the “elasticity ofthe human mumbo-jumbo on behalfofthe German fort to influence the eventual decolonisa- soul”, they wield this suppleness of spirit occupiers in Poland. Sasha’s mildly dis- tion ofeast Africa. as “the hidden hand that smoothed out sident parents are seized by Stalin’s secret Mr Ngugi refers to Makerere as “hell in every wrinkle in the flag oftruth”. police and sent to the gulag. To save her paradise”. Idi Amin, who seized power in Born in 1976 into a family long estab- twin brothers, she agrees to edit the Uganda in 1971, would send a generation of lished in Jerusalem, the son and grand- confessions tortured out ofprisoners into writers and thinkers into exile abroad. Yet son ofLabour Party ministers in Israeli “a complete, coherent and convincing the violence and depravity of Amin’s re- governments, Mr Baram seems an un- story”. With cunning and verve, Mr gime—including the decapitation of his likely apologist forthe compromises that Baram brings these virtuosi ofthe lie captives and the subsequent feeding of might lead bright young folkto work for together in Brest-Litovskas the sham their bodies to crocodiles—should have the architects ofterror and genocide. alliance between their tyrants collapses. come as little surprise. Amin once served “Good People” traces the parallel tracks Jeffrey Green’s translation does page- the British in Kenya as a member of the ofits fictional protagonists, a German turning justice to the progress of“a pair of King’s African Rifles. He worked as a head- advertising guru called Thomas Heisel- talented forgers” whose artistry abets the hunter, in the literal sense, fighting a rebel- berg, and a Russian-Jewish aspiring poet, worst crimes ofthe century. lion once called the “Mau Mau”. 7 72 Books and arts The Economist October 22nd 2016

2 first week of Mr Lowry’s directorship in was taken out of school and spent three 1995, but it was not until nine years ago that yearssequestered in Scotland with a teach- the two began discussing specifics. Mrs er who inculcated the basics of his immac- Cisneros offered the museum anything it ulately expressive style; he then studied at wanted from her collection. The curators the Oberlin conservatory. Mr Isserlis has focused on geometric abstraction, a move- always wanted to emulate the example of ment that spread in the 1940s, and evolved Daniil Shafran, a Russian cellist whose in- in four countries—Brazil, Venezuela, and strumental sound, he says, was like the the Río de la Plata region of Argentina and voice “ofa great Russian folksinger”. Uruguay—into an aesthetic all of its own. As a cellist, Mr Isserlis was a slow start- Artists such as Clark, Hélio Oiticica, Lygia er: the emptiness of his engagement diary Pape, Jesús Rafael Soto, Alejandro Otero in his 20s made him wonder if he would and Tomás Maldonado have long been re- ever have a career. But when John Tavener garded as modernists, but it is only in the wrote a concerto entitled “The Protecting past decade or so that their work has been Veil” forhim in 1987, its unexpected success studied seriously alongside that of Euro- catapulted him to fame. It came at a time pean and American artists. “Awhole chap- when audienceshad tired ofatonal experi- ter of international modernism is revealed mentalism, and Mr Isserlis’s glowingly me- in these works,” Mr Lowry says. lodious account of Tavener’s meditation The Cisneros gift includes work by 37 on GreekOrthodox themes chimed happi- artists, of which 21 are entering MoMA’s ly with the popular mood. collection for the first time, many of them Since then he has taken an unusually little-studied. “What is truly important,” eclectic path, recording the concertos and Mrs Cisneros says, “is that it allows us now sonatas of Mendelssohn, Grieg, Fauré and to tell the story of geometric abstraction as Music from heaven Walton on the one hand, while premiering a whole. It brings the movement together.” works by cutting-edge contemporary com- The museum will arrange an exhibition ody revealed to him by Schubert in a posers on the other. The craggy Hungarian of the Cisneros gift after its new extension dream. Knowing these things changes the miniaturist, Gyorgy Kurtag, composed a is opened in 2019. It will also allow the mu- way people listen. solo elegy for Mr Isserlis to play after the seum to reassess its own modernist collec- But Mr Isserlis, who has just repub- cellist’s wife, Pauline, a flautist, died from tion. “Our interest from the outset is about lished Schumann’s “Advice to YoungMusi- cancer. Thomas Adès chose Mr Isserlis to the ongoing dialogue between different cians” (including some new advice of his premiere “Lieux retrouvés”, his most lyri- artists who were grappling with similar own) is much more than a musicological cal work to date. Yet Mr Isserlis is refresh- sets of problems all over the world,” says sleuth: he is an acclaimed and a much- ingly ready to slaughter the avant-garde’s Mr Lowry. The museum has important sought-after soloist. He also runs festivals, sacred cows, dismissingthe late Pierre Bou- holdings of works by Jackson Pollock, is artistic director of the International lez—the biggestsuch beast—ashavinghad a Francis Bacon and Willem de Kooning. Musicians’ Seminar in Cornwall and deleterious effect on musical life. “Now “Now we can do a room devoted to Lygia champions music he regards as under- there’s room for everybody, every style,” Clark, Alejandro Otero or Willys de Castro. rated. His children’s books about compos- he proclaims cheerfully. “There’s never In fact, we can show de Castro’s ‘Modulat- ers reflect a passionate commitment to been such a great age for new music.” ed Composition, 1954’ alongside the Piet music education. Few classical musicians MrIsserlis is really a chambermusician, Mondrian that inspired it. Because we can match his influence. whether in period-instrument perfor- own that Mondrian.” 7 Now 57, and perennially sporting a mance with Robert Levin and Andras wild mop of hair suggestive of a surprised Schiff, both pianists, in Romantic music hedgehog, he has a Puckish air. What with Mr Bell, or in new music (including Steven Isserlis makes him tick? The key lies in his child- that of an American composer, Lowell Lie- hood, and a family tree he is proud to share bermann) with his north London neigh- String fellow with Felix Mendelssohn and Karl Marx bour Stephen Hough, also a pianist. As a stretching backto a 16th-century Polish Tal- soloist, meanwhile, he acknowledges mudic scholar, Moses Isserles. His grand- Bach’s six Cello Suites as his cornerstone: father, Julius Isserlis, was a Russian-Jewish sublime works which fill him with a mix- pianist-composer who studied with Tchai- ture offascination, awe and fear. kovsky’s pupil, Sergei Taneyev. In the 1920s After making his award-laden record- The rich musical history ofa master he was one of the first Soviet musicians al- ing of them for Hyperion, he initially British cellist lowed by Lenin to tour abroad (he never vowed he would never play them again: “I HOULD people know the story behind went back). Julius had a direct bearing on love them so much, and they make me so Sthe creation of a piece of music, or his grandson’s development. The cellist nervous, forfearoflettingthem down.” He should they let it speak for itself? Steven has recorded some of Julius’s charming, would never emulate Yo-Yo Ma by per- Isserlis, a British cellist, poses this question late-Romantic music, and the certificate of forming them at one sitting—“the concen- in a note to a CD he has just recorded with his gold-medal award from the Moscow tration would be too much, for both me an American violinist, Joshua Bell. The Conservatoire now hangs on the wall of and the audience”. But he recently inter- question is pertinent because the works Mr Isserlis’s drawing room. spersed them with Kurtag’s miniatures. If they play, by Schumann and Brahms, are Music-making was central to Isserlis Bach’s suites fascinate him, it is partly be- full of implicit messages from (or about) family life. Steven’s mother was a piano cause they exploit the cello’s capacities the composers. Brahms’s first Piano Trio teacher, his father played the violin, and more satisfyingly than any other music reflected his admiration for Robert Schu- his elder sisters are professionals on the vi- has. And partly because, with his musicol- mann and his adoration of Clara Schu- ola and violin respectively; taking up the ogist’s eye, he reads into them a mystical mann. The theme of the slow movement cello, he completed a family ensemble Christian programme, from the nativity to in Schumann’s Violin Concerto was a mel- which gave public performances. At 14 he the crucifixion to the resurrection. 7 Courses 73

The Economist October 22nd 2016 74 Courses

The Economist October 22nd 2016 Courses 75

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The Economist October 22nd 2016 76 Economic and financial indicators The Economist October 22nd 2016

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* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Oct 19th year ago United States +1.3 Q2 +1.4 +1.5 -1.0 Sep +1.5 Sep +1.3 5.0 Sep -488.2 Q2 -2.6 -3.2 1.75 - - China +6.7 Q3 +7.4 +6.6 +6.1 Sep +1.9 Sep +2.0 4.1 Q2§ +260.9 Q2 +2.6 -3.8 2.47§§ 6.74 6.36 Japan +0.8 Q2 +0.7 +0.6 +4.5 Aug -0.5 Aug -0.2 3.1 Aug +173.6 Aug +3.6 -5.1 -0.05 103 119 Britain +2.1 Q2 +2.7 +1.8 +0.8 Aug +1.0 Sep +0.7 4.9 Jul†† -161.2 Q2 -5.6 -3.9 1.15 0.81 0.65 Canada Statistics+0.9 Q2 on 42-1.6 economies, +1.3 plus -0.7 Jul a closer+1.1 Aug +1.6 7.0 Sep -51.1 Q2 -3.3 -2.6 1.19 1.30 1.30 Euro arealook at+1.6 commodity Q2 +1.2 +1.5prices +1.8 Aug +0.4 Sep +0.2 10.1 Aug +378.0 Jul +3.2 -1.9 0.04 0.91 0.88 Austria +1.2 Q2 -0.9 +1.3 -0.3 Jul +0.9 Sep +1.0 6.2 Aug +8.2 Q2 +2.4 -1.3 0.23 0.91 0.88 Belgium +1.4 Q2 +2.2 +1.3 +5.3 Jul +1.9 Sep +1.8 8.2 Aug +4.8 Jun +1.2 -2.8 0.31 0.91 0.88 France +1.3 Q2 -0.4 +1.3 +0.5 Aug +0.4 Sep +0.3 10.5 Aug -27.3 Aug‡ -0.4 -3.3 0.32 0.91 0.88 Germany +1.7 Q2 +1.7 +1.7 +2.0 Aug +0.7 Sep +0.4 6.1 Sep +305.6 Aug +8.4 +0.9 0.04 0.91 0.88 Greece -0.4 Q2 +0.7 -0.6 -0.3 Aug -1.0 Sep nil 23.2 Jul +0.1 Jul -1.1 -4.5 8.44 0.91 0.88 Italy +0.7 Q2 +0.1 +0.8 +4.1 Aug +0.1 Sep nil 11.4 Aug +43.9 Jul +2.5 -2.6 1.45 0.91 0.88 Netherlands +2.3 Q2 +2.6 +1.6 +2.2 Aug +0.1 Sep +0.3 7.0 Sep +59.7 Q2 +9.2 -1.2 0.15 0.91 0.88 Spain +3.2 Q2 +3.4 +3.0 +6.8 Aug +0.2 Sep -0.4 19.5 Aug +22.0 Jul +1.4 -4.3 1.10 0.91 0.88 Czech Republic +3.6 Q2 +3.7 +2.4 +13.1 Aug +0.5 Sep +0.6 5.2 Sep§ +3.7 Q2 +1.5 nil 0.39 24.6 23.9 Denmark +0.8 Q2 +1.5 +1.0 +2.1 Aug nil Sep +0.4 4.3 Aug +25.8 Aug +6.4 -1.0 0.16 6.79 6.60 Norway +2.5 Q2 +0.1 +1.0 -5.6 Aug +3.6 Sep +3.5 5.0 Jul‡‡ +23.6 Q2 +5.3 +3.0 1.39 8.14 8.13 Poland +3.0 Q2 +3.6 +3.1 +3.2 Sep -0.5 Sep -0.8 8.4 Sep§ -2.7 Aug -1.0 -2.9 2.98 3.93 3.75 Russia -0.6 Q2 na -0.7 -0.8 Sep +6.4 Sep +7.3 5.2 Sep§ +30.2 Q3 +3.1 -3.7 8.37 62.2 62.3 Sweden +3.4 Q2 +2.0 +3.1 -4.8 Aug +0.9 Sep +1.0 6.6 Aug§ +25.4 Q2 +5.1 -0.3 0.28 8.85 8.32 Switzerland +2.0 Q2 +2.5 +1.4 -1.2 Q2 -0.2 Sep -0.5 3.3 Sep +66.1 Q2 +9.3 +0.2 -0.44 0.99 0.96 Turkey +3.1 Q2 na +3.2 +2.8 Aug +7.3 Sep +7.8 10.7 Jul§ -31.0 Aug -4.7 -2.0 9.91 3.07 2.90 Australia +3.3 Q2 +2.1 +2.8 +3.7 Q2 +1.0 Q2 +1.2 5.6 Sep -52.8 Q2 -4.2 -2.1 2.26 1.30 1.38 Hong Kong +1.7 Q2 +6.5 +1.6 -0.6 Q2 +4.3 Aug +2.7 3.4 Sep‡‡ +13.6 Q2 +3.0 +0.1 1.05 7.76 7.75 India +7.1 Q2 +5.5 +7.6 -0.7 Aug +4.3 Sep +5.2 5.0 2015 -16.2 Q2 -1.0 -3.8 6.82 66.7 64.8 Indonesia +5.2 Q2 na +5.0 +4.8 Aug +3.1 Sep +3.6 5.5 Q1§ -18.7 Q2 -2.2 -2.6 7.08 13,008 13,532 Malaysia +4.0 Q2 na +4.3 +4.9 Aug +1.5 Aug +1.9 3.5 Jul§ +5.3 Q2 +1.0 -3.4 3.63 4.19 4.21 Pakistan +5.7 2016** na +5.7 +2.9 Jul +3.9 Sep +3.9 5.9 2015 -3.3 Q2 -0.8 -4.6 8.03††† 105 104 Philippines +7.0 Q2 +7.4 +6.4 +13.6 Aug +2.3 Sep +1.7 5.4 Q3§ +3.2 Jun +1.1 -1.0 3.94 48.2 46.1 Singapore +2.0 Q2 -4.1 +1.0 +0.1 Aug -0.3 Aug -0.7 2.1 Q2 +58.4 Q2 +19.4 +0.7 1.87 1.39 1.39 South Korea +3.2 Q2 +3.2 +2.6 +2.3 Aug +1.2 Sep +0.9 3.6 Sep§ +101.3 Aug +7.2 -1.3 1.61 1,123 1,121 Taiwan +0.7 Q2 +0.2 +0.6 +7.7 Aug +0.3 Sep +1.3 4.0 Aug +75.7 Q2 +13.5 -0.6 0.89 31.5 32.3 Thailand +3.5 Q2 +3.2 +3.1 +3.1 Aug +0.4 Sep +0.2 0.9 Aug§ +42.4 Q2 +5.3 -2.5 2.12 34.9 35.3 Argentina -3.4 Q2 -8.0 -1.5 -2.5 Oct — *** — 9.3 Q2§ -15.4 Q2 -2.4 -5.0 na 15.2 9.49 Brazil -3.8 Q2 -2.3 -3.2 -5.2 Aug +8.5 Sep +8.3 11.8 Aug§ -25.8 Aug -1.1 -6.4 11.07 3.17 3.90 Chile +1.5 Q2 -1.4 +1.7 +2.8 Aug +3.1 Sep +3.9 6.9 Aug§‡‡ -5.1 Q2 -1.9 -2.5 4.22 667 679 Colombia +2.0 Q2 +0.8 +2.0 +9.4 Aug +7.3 Sep +7.7 9.0 Aug§ -15.7 Q2 -5.4 -3.7 7.19 2,909 2,907 Mexico +2.5 Q2 -0.7 +2.1 +0.3 Aug +3.0 Sep +2.9 3.7 Aug -30.9 Q2 -2.9 -3.0 6.05 18.6 16.5 Venezuela -8.8 Q4~ -6.2 -14.2 na na +485 7.3 Apr§ -17.8 Q3~ -3.0 -24.3 10.57 9.99 6.31 Egypt +6.7 Q1 na +4.4 -13.1 Aug +14.1 Sep +12.8 12.5 Q2§ -18.7 Q2 -6.8 -11.5 na 8.88 8.03 Israel +2.8 Q2 +4.3 +3.0 +1.7 Jul -0.4 Sep -0.4 4.6 Aug +12.1 Q2 +3.3 -2.4 1.81 3.83 3.86 Saudi Arabia +3.5 2015 na +1.1 na +3.3 Aug +4.2 5.6 2015 -61.5 Q2 -6.5 -12.0 na 3.75 3.75 South Africa +0.6 Q2 +3.3 +0.4 +0.1 Aug +6.1 Sep +6.4 26.6 Q2§ -12.9 Q2 -4.1 -3.4 8.78 13.9 13.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Sept 35.92%; year ago 26.47% †††Dollar-denominated bonds. The Economist October 22nd 2016 Economic and financial indicators 77

Markets % change on Commodities Selected prices, % change Dec 31st 2015 The Economist’s commodity-price index January 5th-October 18th 2016, $ terms Index one in local in $ has climbed 10% this year, although it is Markets Oct 19th week currency terms still 40% below its peak in 2011. Over- 3015015304560– + United States (DJIA) 18,202.6 +0.3 +4.5 +4.5 supply and falling Chinese demand SugarSugar China (SSEA) 3,229.7 +0.9 -12.8 -16.0 ZincZinc Japan (Nikkei 225) 16,998.9 +0.9 -10.7 +4.0 pushed down the value of raw materials Britain (FTSE 100) 7,021.9 nil +12.5 -6.2 in 2015, but government stimulus in BrentBrent ccrude*rude* Canada (S&P TSX) 14,840.5 +1.5 +14.1 +21.8 China has boosted building activity and CoffeeCoffee Euro area (FTSE Euro 100) 1,042.4 +1.6 -4.7 -3.8 metal prices this year. Oil has also CottonCotton Euro area (EURO STOXX 50) 3,055.9 +1.6 -6.5 -5.6 reached $50 a barrel again, partly be- Austria (ATX) 2,446.5 +1.5 +2.1 +3.1 OPEC AluminiumAluminium cause of expectations that , an oil TheThe EEconomistconomist Belgium (Bel 20) 3,599.4 +2.1 -2.7 -1.8 ccommodity-ommodity- cartel, may agree to curb production. priceprice iindexndex France (CAC 40) 4,520.3 +1.5 -2.5 -1.6 Sugar is the best-performing commodity MaizeMaize Germany (DAX)* 10,645.7 +1.2 -0.9 nil in our index: unfavourable weather in Greece (Athex Comp) 593.0 +1.2 -6.1 -5.2 WheatWheat Italy (FTSE/MIB) 17,044.3 +3.5 -20.4 -19.7 Brazil has pushed up the price by 56%. CocoaCocoa Grain prices have fallen after bumper Netherlands (AEX) 454.7 +0.9 +2.9 +3.9 TeaTea Spain (Madrid SE) 902.6 +3.0 -6.5 -5.6 harvests in the United States, while AmericanAmerican bbeefeef Czech Republic (PX) 922.5 +3.6 -3.5 -2.6 oversupply of cattle has pulled the price Denmark (OMXCB) 826.1 +3.0 -8.9 -7.8 of beef down by 24%. Sources: Thomson *Not in The Economist Reuters; The Economist commodity-price index Hungary (BUX) 29,168.0 +2.7 +21.9 +26.7 Norway (OSEAX) 701.9 +0.6 +8.2 +17.6 Poland (WIG) 47,876.1 -0.1 +3.0 +3.4 Other markets The Economist commodity-price index Russia (RTS, $ terms) 995.2 -0.1 +12.0 +31.5 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,455.3 +0.9 +0.6 -4.1 Dec 31st 2015 The Economist commodity-priceone index one Switzerland (SMI) 8,093.8 +0.3 -8.2 -7.1 Index one in local in $ Oct 11th Oct 18th* month year Turkey (BIST) 79,209.8 +2.3 +10.4 +5.0 Oct 19th week currency terms Dollar Index Australia (All Ord.) 5,518.4 -0.7 +3.3 +9.5 United States (S&P 500) 2,144.3 +0.2 +4.9 +4.9 All Items 136.2 137.3 -0.1 +4.2 Hong Kong (Hang Seng) 23,305.0 -0.4 +6.3 +6.2 United States (NAScomp) 5,246.4 +0.1 +4.8 +4.8 Food 153.4 156.1 -1.5 +2.3 India (BSE) 27,984.4 -0.3 +7.1 +6.3 China (SSEB, $ terms) 342.5 -4.1 -16.6 -19.7 Indonesia (JSX) 5,409.3 +0.8 +17.8 +24.8 Japan (Topix) 1,357.2 +1.1 -12.3 +2.1 Industrials Malaysia (KLSE) 1,668.3 +0.1 -1.4 +0.9 Europe (FTSEurofirst 300) 1,355.3 +1.4 -5.7 -4.8 All 118.3 117.9 +1.8 +7.0 Pakistan (KSE) 40,924.1 -1.2 +24.7 +24.7 World, dev'd (MSCI) 1,706.7 +0.7 +2.6 +2.6 Nfa† 126.5 128.9 +1.7 +15.7 Singapore (STI) 2,844.6 +1.1 -1.3 +0.9 Emerging markets (MSCI) 913.3 +1.2 +15.0 +15.0 Metals 114.8 113.2 +1.9 +3.2 South Korea (KOSPI) 2,040.9 +0.4 +4.1 +8.6 World, all (MSCI) 414.9 +0.7 +3.9 +3.9 Sterling Index Taiwan (TWI) 9,284.0 +0.3 +11.3 +16.1 World bonds (Citigroup) 943.1 +0.3 +8.4 +8.4 All items 202.6 203.0 +5.1 +31.0 Thailand (SET) 1,486.3 +5.7 +15.4 +19.0 EMBI+ (JPMorgan) 805.0 -0.3 +14.3 +14.3 Argentina (MERV) 18,125.4 +5.3 +55.2 +32.2 Hedge funds (HFRX) 1,185.9§ -0.1 +1.0 +1.0 Euro Index Brazil (BVSP) 63,505.6 +4.1 +46.5 +82.9 Volatility, US (VIX) 14.4 +15.9 +18.2 (levels) All items 153.2 155.6 +1.6 +7.8 Chile (IGPA) 21,241.0 +3.1 +17.0 +24.3 CDSs, Eur (iTRAXX)† 70.9 -4.8 -8.0 -7.1 Gold Colombia (IGBC) 10,101.1 +0.9 +18.2 +29.0 CDSs, N Am (CDX)† 73.7 -2.8 -16.6 -16.6 $ per oz 1,256.7 1,261.7 -4.1 +7.1 Mexico (IPC) 48,492.6 +1.2 +12.8 +4.9 Carbon trading (EU ETS) € 5.7 +0.2 -31.6 -30.9 West Texas Intermediate Venezuela (IBC) 13,627.1 +1.0 -6.6 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 50.8 50.3 +15.8 +9.8 Egypt (Case 30) 8,160.4 -0.3 +16.5 +2.7 †Credit-default-swap spreads, basis points. §Oct 18th. Israel (TA-100) 1,250.6 -1.2 -4.9 -3.3 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) 5,522.6 -3.0 -20.1 -20.0 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 51,504.9 -0.1 +1.6 +13.5 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Dario Fo The Economist October 22nd 2016

glass factory nearLake Maggiore, where he grew up as a stationmaster’s son. His fa- vourite local story mocked docile villagers on the Rock of Caldé who, even as the vil- lage and its church bells were sinking un- derwater (“Dong…ding…dop…plock…”), insisted they weren’t drowning.

Riots and risotto Havingwritten “lines to chew on” (in a few days, usually), and made the sets, cos- tumes and masks, all in devoted partner- ship with his actress wife, Franca Rame, he would take his shows direct to the people. Early on he played regular theatres, but these were too cosily bourgeois. He sought “solidarity with the humble” in union halls, prisons, factories or park pavilions, places with bad acoustics but great for de- bate. La Comune, his theatre group, threw out the “fourth wall”, letting the audience mill onstage with their own interventi about rotten mayors, magistrates, bosses and the criminal state. They had plenty. The authorities raved at him. His plays were cut, thrown out, closed down; he was briefly arrested and frequently put on trial, though always rising up victorious. The Italy’s jester Vatican declared “Mistero Buffo” to be the greatest blasphemy in the history oftelevi- sion. He was banned for14 years from RAI, the state broadcaster, for proposing in 1962 a play in which factory bosses refused to shut down production after a visitor had Dario Fo, playwright, actor, artist and all-round provocateur, died on October 13th, fallen into the meat-grinder, preferring to aged 90 turn out instead another150 tinsofmince. HE stone lions that guard the Roman- the crowd. The line to the medieval mys- Like any jester, though, he couldn’t be Tesque cathedral at Modena, in north- tery plays was direct. When Mr Fo won the kept down—not with Silvio Berlusconi’s ern Italy, were doublydearto Dario Fo. Asa Nobel prize in 1997 he received it on behalf bunga bunga around, or global financial lover of medieval architecture, he studied ofall mummers, tumblers and clowns. collapse. (He dreamed that, after a double and revered the old beasts as art. But after Ordinary people were the heroes of all assassination attempt on Mr Berlusconi roughly 2,000 years of roaring their noses his plays, or rather farces, and authorities and Vladimir Putin, Italy’s then-prime were worn away, their teeth gappy and of every sort his villains. This touched a minister was saved with a transplant of their expressions dimly surprised. These raw nerve in the chaotic, kidnap-and-infla- part of Mr Putin’s brain.) He was not a for- symbols of the combined might of church tion-ridden Italy of the mid-20th century, mal communist and, when he ran for and state had been taken over by the peo- but also far outside it. His most famous mayor of Milan in 2005, seemed unsure ple—usually small people, who rode on play, “The Accidental Death of an Anar- which party he was in. But apparent chaos them laughing and kicked their curled ma- chist” (1970), concerned the true, mysteri- almost always masked careful prepara- nes with vicious little feet. ous defenestration of an activist while in tion. “Accidental Death” took months of All Mr Fo’s life in theatre and politics the hands of the police. His second-most- rigorous legal research. On a typically mad (the one infusingthe otherall the time) was famous, “Can’t Pay? Won’t Pay!” (1974), day in his flat, with the phone ringing off dedicated to the idea of il popolo contro i starred two housewives driven to shoplift- the hook and people rushing in and out, potenti, the people against the powerful. ingbyextortionate food prices. Both manic farce-like, he (and she) could still perfect He put himself squarely in the tradition of comedies were built up from outrage that the moves for his latest piece over Franca’s the giullari, the mocking, singing jesters of made the laughter stick in your throat. sublime risotto milanese. medieval Italy, who kept on the move be- Which was more dangerous, an innocent As ifall that were not enough, he direct- cause they were liable to be hanged if they anarchist or a corrupt judicial system? ed operas too; and painted. He had loved stayed still. The work that made his name Which was the greater crime, stuffing a jar painting all his life, and thought it the high- and notoriety, “Mistero Buffo” (“Comedy- ofolives under your coat, or charging more est form ofart he attempted. It wasn’t pure, Mystery”), was a one-man show in which, than workers could possibly afford? of course. Politics polluted that, too. And his long limbs feline in a black jumper and He wrote as people spoke, with plenty indeed it had to, if art was to have any use grey trousers, he told, mimed, sang and of swearing, obscenity, Lombardy dialect, in its own time. His beloved cathedral of shouted New Testament stories like an id- tall tales from smugglers and fishermen Modena had been built by simple, exploit- iot. His Jesus got drunk at the marriage at and the invented language, “grammelot”, ed workers like those who came to his Cana, climbed on a table and exhorted he picked up from foreign workers in a shows. But if he himself had carved those everyone to forget the afterlife for the here ...... guardian lions, they would have held in and now; his raising of Lazarus was re- Our obituary of King Bhumibol of Thailand appeared their teeth the greasy remains ofa howling counted by a furious pickpocket victim in online last week. politician ora squealing, mangled judge. 7