The Economist February 4Th 2017 3

From smartphones to smart glasses

Picking winners in emerging markets

The real African Queen

Why 16-year-olds should vote FEBRUARY 4TH–10TH 2017 Aninsurgentinthe White House Slack is where work happens, for millions of people around the world, every day. Contents The Economist February 4th 2017 3

5 The world this week Asia 32 Uttar Pradesh votes Leaders A state of shocks 7 American politics 33 Police corruption in the An insurgent in the White Philippines House The usual suspects 8 Universal basic incomes 34 Murder in Myanmar Bonfire of the subsidies Death of an advocate 8 Emerging markets 34 How North Korea sees Turkeys and blockbusters the South Blurred derision Supreme Court The 9 Augmented reality president’s nominee for the Say AR 35 Gambling in Japan In a spin vacant seat is well-qualified, 10 Youth and democracy but his confirmation will still Vote early, vote often 35 Citizenship in New Zealand On the cover An exceptional case be a bitter battle, page 23. A As Donald Trump rages against book on law professors 36 Banyan the world, America’s allies Letters illuminates the contested are worried—and rightly so: Okinawa, a fortified Eden ideas behind the fight for the 12 On lifetime learning, leader, page7.MrTrumpand Supreme Court and the France, failed states, his advisers seek a divided founding principles of Scotland, Donald Trump China nation and a divided world, America, page 73 37 Local government page16.The order withdrawing The role of hotlines visas from seven Muslim Briefing countries is not the only 38 Hong Kong 16 Trump’s foreign policy A tycoon vanishes concern other governments America first and last have about Trump’s America, page 20. NATO leaders fear 17 Will it work? The mote in a stranger’s eye Middle East and Africa that the president sees allies 39 Trade restrictions as a burden: Lexington, page 20 How America’s allies see it The African Queen 28. Refusing admission to The world, watching refugees is unlikely to make 40 Street vendors in Africa An unfree trade America safer, page17 United States 41 Currency in Nigeria 23 The Supreme Court No dollars today Gorsuch test The Economist online 41 Jordan Young voters Why the voting 24 Checks and balances Not much might in the age should be lowered to16: Daily analysis and opinion to A crumbling fortress leader, page10. Across the supplement the print edition, plus Hashemites 25 Trade with Mexico rich world, millennials are audio and video, and a daily chart 42 Iraq ever less likely to vote, page 51 Economist.com Playing chicken Mosul after Islamic State E-mail: newsletters and 25 Immigration Man and machine mobile edition Europe Economist.com/email 26 Working and race Colouring in 43 France’s race Print edition: available online by Fillon’s lead vanishes 7pm London time each Thursday 27 The murder rate Economist.com/print Spiking 44 Ukraine’s restarts Testing Trump Audio edition: available online 28 Lexington to download each Friday NATO and Trump 45 Migrant entrepreneurs Economist.com/audioedition Startup-Kultur 45 Russian history online The Americas Networking 1917 29 Argentina and Brazil 46 Business in Turkey Awkward amigos Tigers in the snow The African Queen What a 30 Technology in Cuba century-old German ship says 47 Charlemagne about trade in modern Africa, Volume 422 Number 9026 Bricks-and-mortar app Norway’s silent partner stores page 39 Published since September1843 to take part in "a severe contest between 30 Terrorism in Quebec City intelligence, which presses forward, and A not-so-lone wolf an unworthy, timid ignorance obstructing our progress." 31 Bello Editorial offices in London and also: Rage against Odebrecht’s Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, bribes department Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf 4 Contents The Economist February 4th 2017

Britain 64 An Ethiopian exchange High-tech, low impact 48 Export deals Trading places 65 Asset management Ctrl alt-beta 49 Britons and Trumpism Mr Brexit’s homecoming 65 Custodian services Quis custodiet? 50 Bagehot The Labour Party, RIP 66 Free exchange In defence of NAFTA

International Science and technology 51 Young people and Emerging markets Why and Augmented reality The democracy 67 Augmented reality how the paths of developing technology is coming, even if Not voting any more Better than real economies are set to diverge: consumers take time to embrace leader, page 8. Investors’ it: leader, page 9. Replacing worries have abated. Except in Business Books and arts the actual world with a virtual Turkey, page 61. Understanding 53 Snapchat’s future 71 Indian politics one is a neat trick. Combining NAFTA, a disappointing but Winning streak Money and muscle the two could be more useful, under-appreciated trade deal: page 67 54 ExxonMobil 72 Johnson Free exchange, page 66 Upstream with half a The giant shoulders of paddle English 73 Lies and statistics Subscription service 55 Animal health care For our latest subscription offers, visit Furry profitable A field guide Economist.com/offers 73 The law in America For subscription service, please contact by 56 Logistics firms telephone, fax, web or mail at the details Boxed in Whose rules, whose law provided below: North America 56 Consumer electronics The Economist Subscription Center Screen shocker 76 Economic and financial P.O. Box 46978, St. Louis, MO 63146-6978 indicators Telephone: +1 800 456 6086 57 Food technology Facsimile: +1 866 856 8075 Plant and two veg Statistics on 42 economies, E-mail: [email protected] plus a closer look at metal Latin America & Mexico 58 Smartphones in China prices The Economist Subscription Center OPPO on top P.O. Box 46979, St. Louis, MO 63146-6979 Telephone: +1 636 449 5702 Snapchat The messaging app 59 Schumpeter Facsimile: +1 636 449 5703 has quickly become a cultural Silicon Valley v Trump Obituary E-mail: [email protected] sensation. It will take Evan 78 J.S.G. Boggs Subscription for 1 year (51 issues) Spiegel longer to build it into His money or his art? United States US $158.25 (plus tax) a lasting business, page 53. Finance and economics Canada CA $158.25 (plus tax) Technology firms’ stand on 61 Emerging markets Latin America US $289 (plus tax) immigration will draw The Turkish exception attention to their hypocrisies: 62 The Indian economy Principal commercial offices: Schumpeter, page 59 Flirting with a UBI 25 St James’s Street, London sw1a 1hg 63 Buttonwood Tel: +44 20 7830 7000 A taxing problem Rue de l’Athénée 32 1206 Geneva, Switzerland 64 Trade deals Tel: +4122 566 2470 Trying For Anything 750 3rd Avenue, 5th Floor, New York, NY10017 Tel: +1212 5410500 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

Universal basic income India should replace its mess of welfare schemes with a single payment: leader, page 8. India PEFC certiﬁed is taking the idea of a universal This copy of The Economist is printed on paper sourced basic income seriously, if not from sustainably managed literally, page 62 forests certiﬁed to PEFC PEFC/29-31-58 www.pefc.org

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crats in the Senate are in no Evan Mawarire, a pastor from At least12 Ukrainian soldiers Politics mood to smooth the path of Zimbabwe who sparked a were killed in an upsurge of his confirmation. protest movement last year fighting against Russian- and then fled the country, was backed separatists. The clashes Murder at prayers arrested after flying home. followed a telephone con- A gunman killed six people at versation between Donald a mosque in Quebec City, the Israeli police began clearing Trump and Vladimir Putin. capital ofCanada’s French- Amona, a small unauthorised speaking province. Police later Jewish settlement built on People on the terror watch-list arrested a man who reportedly private land in the Palestin- in Germany will now be elec- has anti-immigrant and white- ians’ West Bank. Separately the tronically tagged, even ifthey supremacist views. Israeli government approved have not committed a crime. the construction of3,000 more Meanwhile, 1,000 police Mexico’s president, Enrique housing units in the West rounded up suspected jiha- Peña Nieto, cancelled a Bank. dists. One ofthose arrested is planned meeting with Donald wanted in connection with an America’s refugee policy was Trump. Mr Trump had earlier Iran test-fired a ballistic mis- attackin Tunisia in 2015. thrown into turmoil by tweeted that Mr Peña should sile. The UN sought to deter- Donald Trump’sexecutive cancel the visit ifMexico was mine whether the launch order to halt all refugee admis- not prepared to pay forthe violated the country’s counter- sions forfourmonths and ban border wall that America plans proliferation undertakings. Syrian refugees indefinitely. In to build. In a telephone call the addition, all citizens from Iran, two leaders “acknowledged Rich pickings Iraq, Libya, Somalia, Sudan, their clear and very public A billionaire Chinese busi- Syria and Yemen were stopped differences” on the wall. nessman, Xiao Jianhua, who from entering the United States was living in Hong Kong, dis- forthree months. The direc- appeared. Press reports said tive, issued without any input Mr Xiao was taken to main- from the federal agencies that land China by Chinese securi- have to implement it, caused ty agents. The case has attract- confusion in America and ed considerable attention in abroad, trapping people at Hong Kong, where many François Fillon, the Republican airports. An almighty constitu- people are still angry about the candidate in the French presi- tional battle looms. abduction ofa bookseller by dential elections, faced allega- mainland agents a year ago. tions ofmisusing public funds. JeffSessions was approved as A newspaper claims that he attorney-general by the rele- An assassin shot and killed an employed his wife as parlia- vant committee in the Senate. adviser to the National League mentary assistant for a total of Mr Trump had earlier sacked In Chile, 11people died in forDemocracy, Myanmar’s €831,000 going backto 1988, the interim attorney-general, wildfires, which consumed ruling party. Ko Ni, the victim, but cannot find evidence of who was appointed as a stop- over 350,000 hectares offorest was a prominent advocate for workshe had done. gap until Mr Sessions could and the town ofSanta Olga in religious tolerance. take office, after she told law- the central part ofthe country. A bill to allow the British gov- yers at the Justice Department The government declared a Pakistan placed Hafiz Saeed, ernment to trigger Article 50, not to defend the refugee ban. state ofemergency and arrest- whom America and India the means to start negotiations ed 43 people on suspicion of maintain is the leader ofa to leave the EU, passed the In another controversial move starting some ofthe fires. terrorist group called Lashkar- House ofCommons by 498 to Mr Trump gave Stephen Ban- e-Taiba, under house arrest. He 114 votes. Many MPs who want non, his senior political strat- Brazilian police arrested Eike denies any terror links. to remain in the EU nonethe- egist, a seat on the National Batista, who used to be the less supported the bill, express- Security Council. The director country’s richest man, on Rodrigo Duterte, the president ing the wish ofconstituents ofthe CIA is also to join, but charges that he paid bribes to ofthe Philippines, ordered the who have voted to leave. The the chairman ofthe joint chiefs win contracts with the state of dissolution ofthe police bill goes to the House ofLords. ofstaffand the director of Rio de Janeiro. Mr Batista flew squads that had been spear- national intelligence were to Rio from New Yorkto turn heading his war on drugs. The The British government post- demoted on the NSC. They himselfin. order followed the revelation humously pardoned thou- will now attend only when that some members had killed sands ofgay men who had “issues pertaining to their Back in the club a South Korean businessman. been convicted forhomosex- responsibilities” are discussed. Guinea’s president, Alpha ual acts before homosexuality Condé, was elected chairman Backsliding was decriminalised in England Neil Gorsuch was nominated ofthe African Union, a year- The Romanian government and Walesin 1967. The measure by Mr Trump to fill the vacancy long ceremonial post, while bypassed parliament to decri- is named the Turing law in on the Supreme Court left by Morocco was readmitted. It minalise some forms ofcor- honour ofAlan Turing, who the death ofAntonin Scalia a withdrew in a huff33 years ago ruption by officials, sparking cracked the German Enigma year ago. Mr Gorsuch is a after the admission ofWest- large protests in Bucharest. It is code during the second world federal appeals court judge ern Sahara, which it claims a furthersign that Romania’s war. He committed suicide in from Colorado with a solid and occupies. That dispute is anti-graft drive, a model for the 1954 after he was chemically conservative record. Demo- still unresolved. region, is slowing down. castrated forbeing gay. 1 6 The world this week The Economist February 4th 2017

1.6% growth in GDP, its weak- the quarter, up by 3% from the second- and third-biggest Business est pace in five years. Notwith- same period in 2015. Salesof carriers would number 390m, standing the Brexit vote, the the iPhone increased by 5%, a combining Idea’s strong pres- Though the idea has been best-performing economy in reliefforApple after months of ence in rural areas and Voda- mooted fordecades, India’s the G7 was probably Britain’s, shrinking demand forits signa- fone’surban base. Established government said the time was which grew by 2%. ture product. China was still a operators have been shaken by ripe fora serious discussion weakspot, though the 12% the launch ofthe Jio network about the merits ofa universal Toxic wasteland drop in revenue there was not last year. Part ofthe Reliance basic income. The finance The head ofthe European as bad as in some previous empire owned by Mukesh ministry’s annual economic Banking Authority proposed quarters. Ambani, it has offered its survey included a chapter on creating a publicly funded customers free calls and data. UBI as a potential and more “bad bank” that would buy Lyft was downloaded more efficient substitute for the up €1trn ($1.1trn) in toxic debt times over a day than Uber on You’d better shape up country’s myriad welfare that sits on the balance-sheets the Apple app store forthe first Facing a marked slowing of programmes, many ofwhich ofEuropean banks. Those time, after its rival became sales in America and fore- take the form ofsubsidies that non-performing loans, a quar- ensnared in more bad publici- casting a loss forthis year, fail to reach the intended bene- ter ofwhich are in Italy, are a ty. A campaign to persuade Fitbit decided to cut 6% ofits ficiaries. The report empha- drag on growth. The EBA has people to delete their Uber app workforce. The maker of smart sised that implementing a UBI no power to implement such a tookoffon social media when fitness-trackers was a hot bet would be fraught with difficul- plan. Germany, which has it was accused, wrongly as it with investors at the time of its ties, but its prominence in an very low levels ofbad debt, turned out, oftrying to take IPO in 2015, but they are now official government document would probably oppose it. advantage ofa taxi strike at sweating. Fitbit struggles to is noteworthy. New York’s JFK airport that compete in a saturated market was being held as a protest forwearable devices. Next on the agenda Apple’s revenues against Mr Trump’sban on Donald Trump held a meeting $bn refugees. Lyft is planning to Humanity tooka gamble on its with the bosses ofAmerica’s 80 expand to another100 Ameri- future by letting an artificial- biggest drug companies, an 60 can cities this year. intelligence machine take on industry that has found itself fourofthe world’s best poker in the president’s crosshairs for 40 Toyota sold 10.2m cars last players. After 20 days the “getting away with murder” by 20 year, meaning it can no longer machine, Libratus, won, col- charging sky-high prices for 0 claim to be the world’s big- lecting $1.7m in prize money. medicines in public health- 2015 16 17 gest carmaker. That crown Libratus’s achievement is Financial years care schemes. The discussion passes to Volkswagen, which, another big step forward for Source: Company reports was amiable. Mr Trump despite Dieselgate, parked AI: poker is a game ofimper- pledged to curb regulations, Apple cheered investors when sales of10.3m vehicles in 2016. fect information, and it had to notably on clinical trials, that it reported a rise in revenue for workout when its opponents can lengthen the time spent the last three months of2016, Vodafone confirmed that its were bluffing. developing new drugs, raising dispelling worries about a subsidiary in India is in merger costs. But he also urged Ameri- wobble in sales. The company talks with Idea Cellular. The Other economic data and news can drugmakers to make more sold $78.4bn-worth ofgoods in joint subscriber base ofIndia’s can be found on pages 76-77 oftheir products at home.

Mr Trump attacked alleged currency manipulators, taking aim at China, Germany and Japan forwhat he claimed were deliberate attempts to keep their currencies low in order to gain a trade advantage. Peter Navarro, his trade guru, described the euro as an “im- plicit Deutschmark” that is “grossly undervalued”. Shinzo Abe, the Japanese prime minister, pointed out that Japan’s stimulus programme is designed to reﬂate the economy. Expectations that the Trump administration wants a weaker dollar helped push it down by 3% against a basket ofcur- rencies in January.

The euro zone’s economy grew by1.7% in 2016, below the 2% it notched up in 2015. Still, that was more than America’s Leaders The Economist February 4th 2017 7 An insurgent in the White House

As Donald Trump rages against the world he inherited as president, America’s allies are worried—rightlyso ASHINGTON is in the haps, amid the trappings ofpower,he will tire ofguerrilla war- Wgrip of a revolution. The fare. Perhaps a stockmarket correction will so unsettle the na- bleakcadence oflastmonth’s in- tion’sCEO thathe will castMrBannon out. Perhapsa crisis will auguration was still in the air force him into the arms of his chief of staff and his secretaries when Donald Trump lobbed the ofdefence and state, none ofwhom is quite the insurgent type. first Molotov cocktail of policies But don’t count on it happening soon. And don’t underesti- and executive orders against the mate the harm that could be done first. capital’s brilliant-white porti- cos. He has not stopped. Quitting the Trans-Pacific Partnership, Talking Trumpish demanding a renegotiation of NAFTA and a wall with Mexico, Americans who reject Mr Trump will, naturally, fear most for overhauling immigration, warming to Brexit-bound Britain what he could do to their own country. They are right to worry and Russia, cooling to the European Union, defending torture, (see page 24), but they gain some protection from their institu- attacking the press: onward he and his people charged, leaving tions and the law. In the world at large, however, checks on Mr the wreckage ofreceived opinion smouldering in their wake. Trump are few. The consequences could be grave. To his critics, Mr Trump is reckless and chaotic. Nowhere Without active American support and participation, the more so than in lastweek’stemporaryban on entryforcitizens machinery of global co-operation could well fail. The World from seven Middle Eastern countries—drafted in secret, en- Trade Organisation would not be worthy ofthe name. The UN acted in haste and unlikely to fulfil its declared aim of sparing would fall into disuse. Countless treaties and conventions America from terrorism. Even his Republican allies lamented would be undermined. Although each one stands alone, to- that a fine, popular policy was marred by its execution. gether they form a system that binds America to its allies and In politics chaos normally leads to failure. With Mr Trump, projects its power across the world. Because habits of co-oper- chaos seems to be part of the plan. Promises that sounded like ation that were decades in the making cannot easily be put hyperbole in the campaign now amount to a deadly serious backtogether again, the harm would be lasting. In the spiral of revolt aimed at shaking up Washington and the world. distrust and recrimination, countries that are dissatisfied with the world will be tempted to change it—ifnecessary by force. The Cocktail Party What to do? The first task is to limit the damage. There is lit- To understand Mr Trump’s insurgency, start with the uses of tle point in cutting Mr Trump off. Moderate Republicans and outrage. In a divided America, where the other side is not just America’s allies need to tell him why Mr Bannon and his co- mistaken but malign, conflict is a political asset. The more Mr ideologues are wrong. Even in the narrowest sense of Ameri- Trump used his stump speeches to offend polite opinion, the can self-interest, their appetite for bilateralism is misguided, more his supporters were convinced that he really would evict not least because the economic harm from the complexity and the treacherous, greedy elite from their Washington salons. contradictions of a web of bilateral relations would outweigh His grenade-chuckers-in-chief, Stephen Bannon and Ste- any gains to be won from toughernegotiations. MrTrump also phen Miller, have now carried that logic into government (see needs to be persuaded that alliances are America’s greatest pages 16-20). Every time demonstrators and the media rail source of power. Its unique network plays as large a role as its against Mr Trump, it is proof that he must be doing something economy and its military might in making it the global super- right. If the outpourings of the West Wing are chaotic, it only power. Alliances help raise it above its regional rivals—China goes to show that Mr Trump isa man ofaction just as he prom- in East Asia, Russia in eastern Europe, Iran in the Middle East. If ised. The secrecy and confusion of the immigration ban are a Mr Trump truly wants to put America First, his priority should sign not of failure, but of how his people shun the self-serving be strengthening ties, not treating allies with contempt. experts who habitually subvert the popular will. And ifthis advice is ignored? America’s allies must strive to The politics of conflict are harnessed to a world view that preserve multilateral institutions for the day after Mr Trump, rejects decades of American foreign policy. Tactically, Mr bybolsteringtheirfinancesand limitingthe strife within them. Trump has little time for the multilateral bodies that govern And they must plan for a world without American leadership. everything from security to trade to the environment. He be- Ifanyone is tempted to lookto China to take on the mantle, it is lieves that lesser countries reap most of the rewards while not ready, even if that were desirable. Europe will no longer America foots the bill. It can exploit its bargaining power to get have the luxury of underfunding NATO and undercutting the a better deal by picking offcountries one by one. EU’s foreign service—the closest it has to a State Department. Mr Bannon and others reject American diplomacy strategi- Brazil, the regional power, must be prepared to help lead Latin cally, too. They believe multilateralism embodies an obsolete America. In the Middle East fractious Arab states will together liberal internationalism. Today’s ideological struggle is not have to find a formula forliving at peace with Iran. over universal human rights, but the defence of “Judeo-Chris- A web of bilateralism and a jerry-rigged regionalism are tian” culture from the onslaught of other civilisations, in par- palpably worse forAmerica than the world Mr Trump inherit- ticular, Islam. Seen through this prism, the UN and the EU are ed. It is not too late for him to conclude how much worse, to obstacles and Vladimir Putin, for the moment, a potential ally. ditch his bomb-throwers and switch course. The world should Nobody can say how firmly Mr Trump believes all this. Per- hope for that outcome. But it must prepare for trouble. 7 8 Leaders The Economist February 4th 2017

Universal basic incomes Bonﬁre of the subsidies

India should replace its mess ofwelfare schemes with a single payment NE of the many indignities mercy of venal officials who can lean on them to accept less Government revenue Oassociated with being poor than they are entitled to. Payments in kind rest on the paternal- As % of GDP, 2014 or latest in India is navigating the coun- 10 12 14 16 istic assumption that poor Indians are incapable ofmaking ra- High-income try’s thicket of welfare pro- tional spending decisions. A small trial in the state of Madhya countries UBI Middle-income grammes. The central govern- Pradesh debunked the notion that a would be frittered Low-income ment alone runs 950 of them; away on booze and gambling. India the states operate many more on The idea of including India’s plutocrats in the handout top. Some are big, like those dol- sticks in the craw. The government’s paper on UBI is itself un- ingout subsidised food and fertiliser. Manyare little more than sure about the “universal” bit of it, suggesting that a quarter of an excuse for government ministers to stage a photo-op. the population should somehow be excluded to make the The Indian governmentthisweekfloated the idea of replac- scheme more affordable. But gauging who is poor and who ing most of these schemes with a “universal basic income” isn’t has repeatedly proved beyond the capacity of the Indian (UBI), an unconditional cash payment that could be disbursed authorities. Over 35% of the richest 1% of Indians benefit from not just to the poor but to everyone (see page 62). In rich coun- subsidised food to which they are not entitled. Worse, 27% of tries, the UBI is raised as a possible response to a world where the poorest fifth ofthe population are denied their due. artificial intelligence and automation put large numbers of Questions ofaffordability would loom less large if the Indi- people out of a job. But unless technology destroys jobs on an an authorities collected more tax—central-government rev- unprecedented scale and creates none in their place, the case enues are a measly 11% or so of GDP. And a universal benefit for such a scheme is premature. Functional social-safety nets may operate better if the sharp-elbowed middle class had a and instruments such as tax credits make it possible to direct stake in making sure it runs well. money to the needy in these countries. In India, despite its practical difficulties, the idea has a different logic and deserves Miss the robot a more sympathetic hearing. Even fans of the idea accept that there are practical problems. Forone, a little money would go a longway forIndia’s poor. Crediting cash to the bankaccounts ofhundreds ofmillions of Over a fifth of its population lives below the poverty line. The Indians is technically feasible thanks to Aadhaar, a digital- scheme outlined this week by the chief economic adviser to identification scheme that covers 99% of adults. But in the ab- the Indian government, Arvind Subramanian, would cut that sence of a dense banking network, especially in rural areas, figure to less than 0.5% by transferring about $9 a month to all many poor Indians might struggle to gain access to the money. adultIndians. Ifdoled outto everyone, thatwould cost around The capacity of India’s state to manage the transition to a sin- 6-7% ofGDP; the 950 welfare schemes soakup 5% ofGDP. gle welfare paymentisalso questionable, to put it kindly. There Giving people cash would be farbetter than today’s system is a real risk that a UBI would supplement welfare proof handing out welfare in kind. The plethora of schemes in grammes, rather than replace them. These are all reasons not place for Indians to claim subsidised food, fuel, gas, electricity to leap blindly towards it. But as a way of helping the world’s and so on are inefficient and corrupt. Beneficiaries are at the poorest people, the case fora UBI is strong. 7

Emerging markets Turkeys and blockbusters

Whyand howthe paths ofdeveloping economies are set to diverge ISE investors know that disciplined. The peculiar traits of each emerging market, from MSCI emerging-market index Wwinning bets shine more macroeconomic management to productivity growth, will October 1st 2016=100 brightly if they are not over- have a greatersayin howitseconomyperformsaswell ashow 105 shadowed by big loss-making investors view it. The second shift is in America’s trade policy, 100 trades. The way in which capital which is taking a worrying turn towards economic national- 95 flowed to and from emerging ism—a course whose effects on emergingeconomies will differ 90 Oct Nov Dec Jan markets in recent years meant depending on their location and trade patterns. As a result, the 2016 2017 that such discrimination went reasons forsuccess or failure among emerging markets may be out of the window. Now, however, change is coming. quite different from the recent past. Two influences in particular are behind this. The first is the Begin with macroeconomic management, in which there is retreat by America’s Federal Reserve from ultra-loose mone- already a growing divergence. Turkey is at one end of the spec- tary policy. Cheap credit gave good and bad economies alike a trum. Despite its fiscal prudence, it has other ills that have long boost; as its effect fades, capital allocation will become more made the cautious wary of emerging markets, including a big 1 The Economist February 4th 2017 Leaders 9

2 trade deficit financed by hot money and lots offoreign-curren- With American economic nationalism, strengths will be cy debt. It also suffers high inflation. The central bank has been tested against a new criterion: exposure to established trade slow to tackle this and seems cowed by Recep Tayyip Erdogan, routes. Supplying the American consumer was once a ticket to the president, who insists that high interest rates cause infla- riches for emerging markets. It may now be a source of frailty: tion (see page 61). Mexico is now a target ofAmerican protectionism (see Free ex- Contrast this with progress elsewhere. Little more than a change). Other places may also suffer. Singapore, South Korea year ago, South Africa was bracketed with Turkey as an emerg- and Taiwan have enjoyed strong manufacturing output and ing market to avoid. Its president, Jacob Zuma, attempted to exports on the back of a reviving world economy. But it is hard subvert the Treasury, a bastion of orthodoxy. He failed. South to feelupbeataboutthe prospectsofsuch export-leaning econ- Africa’s central bank has also stuck to its inflation mandate in omies iftrade wars breakout. the face ofa slowingeconomy and weakerrand. Despite a bru- India, in contrast, missed out when a new breed of global tal recession, Brazil’s central bank has also concentrated on supply chains in manufacturing was forged between rich and pulling inflation back towards its goal of 4.5%; the country is developing countries. But with anti-trade sentiment a growing getting to grips with the fiscal laxity which is the source of threat, there is a lot to like about an economy of1.25bn people much ofits economic misery.With interest rates at13%, there is that is powered by domestic demand. Brazil, too, has a biggish ample room to ease monetary policy. Central banks in Russia domestic economy with fairly weak trade ties to America and and India have also run fairly tight monetary policies. As infla- the potential to strengthen its regional links. tion falls further, they will have scope to cut interest rates. Ultimately, sustained success depends on productivity Tothe discerning, the spoils growth. The sharp slowdown in rich countries has been mir- Even in this new era, the influence of rich-world monetary rored in emerging markets. It is marked in commodity-led policy will not disappear. The value ofthe dollarwill continue economies, where resource booms have deterred productive to matter, especially to those emerging markets that took on investments in other industries. Export-led growth has proved lots of foreign-currency debts in the go-go years. Equally, the a reliable spur to efficiency. It is harder to achieve consistent impact of economic policy and trade vulnerability will rarely gains in output per person in any economy that looks inwards. be neatly aligned. Turkey, for instance, counters its macroeco- Letting domestic spending rip often leads to wasteful building nomic weakness with underlying strengths in its patterns of booms. Still, there are biggish emerging markets that have commerce. It trades farmore with Europe than America, an ad- managed fairly steady productivity growth through the vantage it shares with economies in eastern Europe. This swings ofthe global credit cycle. India is one; Indonesia anoth- meansthe identitiesofthose emerging-marketeconomies that er. Of smaller countries, the recent records of Peru, the Philip- will thrive and those that will falter are not preordained. But pines and Uruguay stand out. the factors sorting blockbusters from turkeys will be new. 7

Augmented reality Say AR

The technologyis coming, even ifit takes time forconsumers to embrace AR HE history of computers is on smartphones. Pokémon Go, a smartphone game that brief- Tone of increasing intimacy. ly entranced people in 2016, used a primitive form ofthe tech- At first users rented time on nology. Anotherpopularapplication ison Snapchat, a messag- mainframe machines they did ing app whose parent firm is gearing up for an IPO (see page not own. Next came the “perso- 53): when teenagers overlay rabbit ears onto the faces of nal computer”. Although PCs friends and family, they are using AR. were confined to desks, ordinary people could afford to buy Bunny business them, and filled them with all manner of personal informa- But the technology is advancing rapidly. Several companies al- tion. These days smartphones go everywhere in their owners’ ready make fairly simple glasses that can project flat images for pockets, serving as everything from a diary to a camera to a their wearers. They are increasingly popular with ware- voice-activated personal assistant. housing and manufacturing firms, who can use them to issue The next step, according to many technologists, is to move instructions to employees while leaving their hands free. the computer from the pocket to the body itself. The idea is to Meanwhile, firms such as Magic Leap, Meta and Microsoft, are build a pair of “smart glasses” that do everything a smart- building much more capable headsets that can sense their sur- phone can, and more. A technology called “augmented reali- roundings and react to them, projecting convincing, three-di- ty” (AR) would paint computerised information directly on mensional illusions onto the world. Microsoft is already run- top of the wearers’ view of the world. Early versions of the ning trials of its HoloLens headset in medical schools (giving technologyalreadyexist(see page 67). Ifitcan be made to work studentsvirtual cadaversto dissect) and architectural practices as its advocates hope, AR could bring about a new and even (where several designers can work together on a digital repre- more intimate way to interact with machines. In effect, it sentation ofa building). would turn reality itselfinto a gigantic computer screen. Designing a nifty piece of technology, though, is not the For the time being, the most popular AR apps are still found same as ushering in a revolution. Social factors often govern 1 10 Leaders The Economist February 4th 2017

2 the path to mass adoption, and for AR, two problems stand Both of these problems are solvable. Computers only ever out. One is aesthetic. The HoloLens is an impressive machine, get smaller. Costs shrink relentlessly, too. It may well be possi- but few would mistake it for a fashion item. Its alien appear- ble one day to build a capable and affordable AR computer ance makes its wearers look more creepy than cool. One rea- that looks like a pair of fashionable glasses. Social etiquette son the iPhone was so successful was that it was a beautiful also evolves. The Snapchat generation may not be troubled by piece of design. Its metal finish and high-quality components, the idea ofbeing perpetually on camera. allied with a big advertising push from Apple, all helped estab- In the meantime, AR’s first inroads will probably come in lish it as a desirable consumer bauble. the world of work, where bosses can order their employees to The other big problem surrounds consent. The history of use headsets with little concern for the finer social niceties, or one much-hyped set of smart glasses should give the industry forhow much ofa berkthey make people look. AR seems like- pause. In 2013 Google launched its “Glass” headsets to a cho- ly, in other words, to follow the same path to popularity as sen segment of the public. As well as those who thought the smartphones. The firstmobile phoneswere clunky, brick-sized product looked silly, plenty found the glasses sinister, worry- devices, mostly used by self-important bankers and a frequent ing that their users were covertly filming everyone they came target of mockery. Youwould not wear a HoloLens on a night into contact with. “Glassholes” became social pariahs. Two out. Twenty years from now, though, your children may well years later, Google withdrew Glass from sale. be showing offa distant descendant. 7

Youth and democracy Vote early, vote often

Whythe voting age should be lowered to 16 OW young is too young? would be to lower the voting age to 16, ensuring that new vot- HRich democracies give dif- ers get offto the best possible start. ferent answers, depending on This would be no arbitrary change. The usual threshold of the context: in New Jersey you 18 means that young people’s first chance to vote often coin- can buy alcohol at 21 and ciga- cides with finishing compulsory education and leaving home. rettes at 19, join the army at 17, Away from their parents, they have no established voters to have sex at 16 and be tried in emulate and little connection to their new communities. As court as an adult at 14. Such they move around, they may remain off the electoral roll. Six- thresholds vary wildly from place to place. Belgian youngsters teen-year-olds, by contrast, can easily be added to it and intro- can get sozzled legally at 16. But on one thing most agree: only duced to civic life at home and school. They can pick up the when you have turned 18 can you vote. When campaigners votinghabit by accompanyingtheirparents to polling stations. suggest lowering the voting age, the riposte is that 16- and 17- In Scotland, where 16- and 17-year-olds were eligible to vote in year-olds are too immature. This misses the real danger: that the independence referendum in 2014, an impressive three- growing numbers ofyoung people may not vote at all. quarters of those who registered turned out on the day, com- The trend acrossthe Westisdisturbing(see page 51). Turnout pared with 54% of 18- to 24-year-olds. In 2007 Austria became of American voters under 25 at presidential elections fell from the only rich country where 16-year-olds could vote in all elec- 50% in 1972 to 38% in 2012; among over-65s it rose from 64% to tions. Encouragingly, turnout rates for under-18s are markedly 70% (data for the 2016 election are not yet available). For con- higher than for19- to 25-year-olds. gressional races, the under-25 vote was a dire 17% in 2014. A Merely lowering the voting age is not enough, however. similar pattern is repeated across the rich world. Youth participation in Scotland might have been still higher if Young people’s disenchantment with the ballot box mat- more schools had helped register pupils. Governments also ters because votingis a habit: those who do not take to it young need to work harder at keeping electoral rolls current. Some may never start. That could lead to ever-lower participation are experimentingwith automatic updates whenever a citizen rates in decades to come, draining the legitimacy of govern- notifies a public body of a change of address. Civics lessons ments in a vicious spiral in which poor turnout feeds scepti- can be improved. Courses that promote open debate and give cism towards democracy, and vice versa. pupils a vote in aspects of their school lives are more likely to The disillusionment has many causes. The young tend to boost political commitment laterin life than those that present see voting as a choice rather than a duty (or, indeed, a privi- dry facts about the mechanics ofgovernment. lege). The politically active tend to campaign on single issues rather than for a particular party. Politicians increasingly woo Standing up to gerontocracy older voters—not only because they are more likely to vote but A lower voting age would strengthen the voice of the young also because they make up a growing share of the electorate. and signal that their opinions matter. It is they, after all, who Many young people see elections stacked against them. It is no will bear the brunt of climate change and service the debt that surprise, then, that many ofthem turn away from voting. paid for benefits, such as pensions and health care, of today’s Some countries make voting compulsory, which increases elderly. Votingat16 would make iteasierto initiate newcitizens turnout rates. But that does not deal with the underlying disil- in civic life. Above all, it would help guarantee the supply of lusionment. Governments need to find ways to rekindle the young voters needed to preserve the vitality of democracy. passion, ratherthan continue to ignore itsabsence. A good step Catch them early, and they will grow into better citizens. 7

12 Letters The Economist February 4th 2017

Learning and earning We created Career Choice forhourly paid staffwho otherwise might not have opportunities open to them. We help them get onto the programme by prepaying tuition, bringing classes into the workplace where it is convenient and doing the research to determine which career path will lead to employment in their region. It is a young programme, but nearly 10,000 Amazonians in ten countries have participated in Yourspecial report on lifelong Career Choice and hundreds learning mentioned Singa- have gone on to become nur- pore’s “individual learning ses, IT technicians and trans- accounts” (January14th). portation logistics experts, Britain’s attempt to mimic this among other professions. policy proved disastrous, as BETH GALETTI fraud was widespread (see Vice-president, human resources Anthony King’s and Ivor Amazon Crewe’s “The Blunders ofour Seattle Governments”). Encouraging “new entrants” to this field As important as “equipping sounds innovative, but one people to stay ahead oftechno- should be careful what one logical change” is, we also wishes for. need an attitudinal change in Youalso gave examples of our schools. We tend to think universities innovating in ofschools as places where lifelong learning, including teachers impart knowledge to Oxford’s decision to start a students, whose capacity for massive open online course memorisation and repetition (MOOC). But we provide other is rigorously tested. Now that flexible learning models, too, we can search Google in a with face-to-face education moment, these skills are no through part-time provision longer necessary. Children and online courses with small need to retain a basic frame- classes to ensure interaction workofconceptual knowl- with a tutor, as well as be- edge, but the detail can be tween students. Thus, along recalled from computers. with the proposed MOOC, We need to rethinkour Oxford runs almost a hundred approach to schooling and ten-weekonline courses with understand that we are now participation capped at 32. educating forhumanity. Cre- Despite that small cap, several ativity, empathy and leader- thousand students from ship should be nurtured, around the world now study at equipping people with the Oxford online. skills set to start a business, PROFESSOR JONATHAN MICHIE lead a team and approach President problems creatively. Exams Kellogg College must adapt to a new reality by University of Oxford allowing the use ofthe internet in order to test think- It may seem counterintuitive, ing rather than recall. but at Amazon we offertrain- Before the workers ofthe ing to our workers that could future can take advantage of probably help them end up learning resources, schools leaving the company. Many should focus on what gives us will pursue a career with an advantage over robots; our Amazon. But forothers, we are ability to create, thinkstrategi- just one stop along their pro- cally, communicate with fessional journey. We think it is others and demand change. right that we can help make an LORD JIM KNIGHT employee’s time with us a Chief education adviser positive, upward step by learn- TES Global ing new skills. London 1 The Economist February 4th 2017 13

2 Currency payment could allocate some ofthis to beefing up the enforcement of Buttonwood wondered anti-corruption in places like whether Marine Le Pen’s plan London, New Yorkand Paris. to re-denominate French JOHN HEATHERSHAW government euro bonds into Associate professor of new francs might constitute a international relations sovereign default (January University of Exeter 14th). There is no ambiguity here: it would. Ifan issuer does Scotland is part of the UK not adhere to the contractual obligations to its creditors, Scotland’s first minister surely including payment in the does not have a “right to com- currency stipulated, S&P plain” about not being consult- Global Ratings would declare a ed about Brexit (“Supreme default. Our current AA rating judgment”, January 28th). on France suggests, however, Foreign policy has never been that such a turn ofevents is the responsibility ofthe de- highly unlikely. volved Scottish government. MORITZ KRAEMER The Scots had a vote in the Sovereign chief ratings officer referendum, as did every other S&P Global Ratings citizen ofthe United Kingdom, Frankfurt and they are represented in the Westminster Parliament. Why states fail Nicola Sturgeon is playing a transparent political game. Her By linking state failure to Scottish National Party now authoritarian institutions the plans to table at least 50 analysis you gave about how amendments to the “Brexit best to fix fragile nations was bill”, purely so it can claim that too general (“Conquering Westminister has ignored the chaos”, January 7th). Coun- Scottish people 50 times. The tries with authoritarian re- devolved assemblies should gimes are the norm in history, be consulted about legitimate but not all fail. Many, such as constitutional issues, such as China, Kazakhstan and Saudi the border between Northern Arabia, do rather well. Most Ireland and the Irish republic. importantly, there is a huge But this does not apply to the variety among them, both in rabble-rousing ofthe SNP. kind and in degree. Some TIMOTHY FOXLEY features ofauthoritarian gov- Stoke-on-Trent, Staffordshire ernment—official national narratives, heavy-handed but Paul Ryan’s game plan? controlled policing—are effective at preventing armed con- The early days ofthe Trump flict, whereas others are not. administration (“The 45th Measures such as the Failed president”, January 21st) bring States Index lookat the symp- to mind Robert Graves’s “I toms, not the causes, and tell Claudius”. The ageing Roman us little about the reasons for emperor longs forthe return of “failure”. the republic. To this end he Moreover, corruption, marries Agrippina, mother of rent-seeking and money laun- Nero, hoping that Nero will be dering are never merely the so cruel and despised that it fault oflocal institutions. In will lead to a rejection of fu- order to be worth anything, ture emperors. His strategy: ill-gotten gains must find a “Let all ofthe poisons that lurk haven beyond borders, in in the mud hatch out.” violation ofanti-money laun- PAUL FRIEDMAN dering laws. Failed states and Vancouver 7 ordinary kleptocracies tend to be regimes whose members have offshore bankaccounts Letters are welcome and should be addressed to the Editor at and property portfolios in the The Economist, 25 St James’s Street, markets ofthe West. London sw1A 1hg So rather than spending $1 E-mail: [email protected] trillion fuelling corruption in More letters are available at: Economist.com/letters Afghanistan, perhaps NATO 14 Executive Focus

This intergovernmental organization seeks to recruit an

EXECUTIVE DIRECTOR

The Executive Director is the chief administrative officer of the Organization appointed by the International Coffee Council.

Qualii cations: at least 15 years professional experience with a minimum of 5 years at a senior level in government, an international organization, or in a commercial enterprise. Experience within commodities, particularly coffee, essential. Experience of fundraising and the management of projects desirable. Excellent command of English essential; knowledge of one or more of French, Portuguese and Spanish desirable.

Salary: US$194,136 plus post adjustment (£ equivalent).

For further details, please visit our website www.ico.org.

Applications should be addressed to [email protected] or by post to the Office Manager, ICO, 22 Berners St., London W1T 3DD, by 23rd February 2017. Applicants must be nationals of ICO Member countries and shall be endorsed by their respective Governments. The Economist February 4th 2017 Executive Focus 15

Competition Economists

Lisbon, Portugal Full-Time, open ended contract

The Portuguese Competition Authority (Autoridade da Concorrência - AdC) is currently seeking four highly qualifi ed economists to join our team as competition experts. The AdC enforces and promotes compliance with competition rules across the Portuguese economy, raises awareness of the benefi ts of competition among key stakeholders and cooperates internationally with other competition authorities and international organisations. Its mission includes detecting, investigating and sanctioning competition infringements, namely anti-competitive agreements and abuses of dominance. The AdC also carries out merger control and promotes a pro- competitive regulatory environment in Portugal through market studies and other advocacy initiatives. Successful candidates will develop economic analyses on competition issues, namely in shaping potential theories of harm within antitrust and merger investigations, as well as other market inquiries. Candidates must demonstrate professional experience in the fi eld of competition, regulation or industrial economics. Educated to a Master’s degree or PhD level in economics or related areas, preferably in the area of competition, regulation, industrial economics or microeconomics, and with a Bachelor’s Degree in economics or related fi elds.

Deadline for applications: 28 February 2017

To apply, submit the application form, motivation letter and CV to [email protected] For more information, please visit www.concorrencia.pt/recruitment.

The Economist February 4th 2017 16 Brieﬁng Donald Trump’s foreign policy The Economist February 4th 2017

America ﬁrst and last Also in this section 17 Will it work? 20 How America’s allies see it

In honouring promises to his nationalist base, Donald Trump and his advisers seek a divided nation and a divided world HE cavalier view some members of York seemed to make no matter. Mr Dar- rying placards bearing such messages as TPresident Donald Trump’s inner circle weesh cried as he told reporters he had “We Are All Muslims Now” and “Let Them take of the chaos they have unleashed been handcuffed, asking: “You know how In” in airports across the country saw the since January 20th has startled both their many soldiers I touch by this hand?” Hard- executive order as a version of Mr Trump’s opponents and many of their Republican liners close to Mr Trump did not flinch campaign pledge to ban all Muslims wa- colleagues. It should not. The insiders are when their president was forced to fire his tered down with some dubious legal leger- doingthingsthatMrTrump promised to do acting attorney-general after she refused to demain (see page 24), and thus as bigotry. on the campaign trail, and that they have comply with the travel ban. And they MrTrump’ssupporters read those placards long wanted to see done. And if they are showed no sign of worrying that a policy and wondered why any patriot would doing it in a way that tramples other peo- nominally designed to reduce terrorism want to let in foreigners from dangerous ple’s sensibilities, then all the better; it is has little prospect of doing so (see box on lands, imperilling American families. what their supporters would want. next page). Mr Trump stokes up such polarisation Take the executive orderofJanuary 27th The reason for this bullish insouciance by defining his opponents as foolish, out- that barred citizens of seven mostly Mus- is both straightforward and alarming. The of-touch, disingenuous or actively vicious. lim nations from entering America for 90 president’s currently most influential ad- He could but fire his acting attorney gen- days, and halted all refugee arrivals for120 visers believe that he has a mandate to eral, Sally Yates, a career prosecutor who days. So what if it was put together amid blowup normsofgood governance. When served as deputy attorney general under such secrecythatMrTrump’snewsecretar- he fires bureaucrats who stand in his way, President Barack Obama, after she said ies for defence and homeland security bullies business bosses into keeping jobs that Justice Department lawyers would were reportedly taken by surprise? Who in America, browbeats members of Con- not defend the ban against legal chal- cares if it was shoddily drafted in a way gress and—most deliciously—provokes lenges, on the basis that its broad intent that saw travellers clutching visas and swooning dismay among journalists, was possibly unlawful and because her of- even green cards denoting legal perma- many of the voters who gave him that fice had a duty to “stand for what is right”. nent residency detained by customs offi- mandate applaud. With no interest in con- But it was startling to see the White House cers until federal judges ordered their re- verting those who oppose him, such sup- say that Ms Yates had “betrayed” the Jus- lease? Billionaires from Silicon Valley com- port is the best sort ofstrength. tice Department and add: “Ms Yates is an plaining that their innovation is built on The policy the executive order laid out Obama administration appointee who is immigration? Protesters at airports and is not, after all, an unpopular one. A Reu- weak on borders and very weak on illegal thronging the streets of foreign capitals? ters/IPSOS poll released on January 31st immigration.”After the Democratic leader Bring it on. Even cases like that of Hameed found 43% of those questioned supported in the Senate, Charles Schumer of New Khalid Darweesh, an interpreter for the banson people from Muslim countriesas a York, grew emotional while discussing ref- American government in Iraq, detained precaution against terror; among Republi- ugees, Mr Trump mocked him, saying: “I for nearly 19 hours at JFK airport in New cans support was 73%. Demonstrators car- noticed Chuck Schumer yesterday with 1 The Economist February 4th 2017 Briefing Donald Trump’s foreign policy 17

2 fake tears,” adding: “I’m going to ask him move that gives a political strategist privi- Trump’s daughter, Ivanka, and who is a re- who is his acting coach.” leges no longer enjoyed by the chairman cent but devout convert to America First Mr Trump’s most devoted tribune on ofthe joint chiefsofstaff, who only attends populism, Mr Bannon has pushed Mr television, the Fox News channel com- when the agenda toucheshismilitaryport- Trump to put into action the campaign mentator Sean Hannity, devoted a seg- folio directly, has been lambasted by for- promises that won him office. ment of a show to the question: “Who is eign-policy grandees as “stone-cold crazy” A key ally is Stephen Miller, a 31-year- bankrolling the protests taking place at air- and “entirely inappropriate”. old policy adviser. Like some other mem- ports across the country?” All the evidence Indeed, Mr Bannon seems to have bers of Team Trump he comes from the from social media points to the protests be- edged aside the national security adviser, Senate offices of Jeff Sessions, Mr Trump’s ing both low-budget and fairly spontane- Michael Flynn, in the battle for influence. pick as attorney general, one of Washing- ously organised. An overbearing former general, Mr Flynn ton’s most ferocious opponents of legal For Mr Trump, belittling critics and in- is suffering political death by a thousand and illegal immigration. MrMiller, who de- timidating business partners has been sec- briefings. Alongwith Jared Kushner, a New veloped a taste for political combat as a ond nature for decades. It is a tactical pro- York businessman who is married to Mr right-wing teenager at a liberal high school 1 clivity that aligns well with the strategic agenda of the most zealously anti-estab- Will it work? lishment figures in his team, led by Ste- phen Bannon, a rumpled nationalist fire- Beware the indirect effects brand (pictured, right, on previous page). After serving as CEO of Mr Trump’s campaign, Mr Bannon is now the president’s Closing its doors to refugees is unlikely to make America much safer chief strategist. Born into a Democrat-voting working class family in Virginia, Mr T’S big stuff,” boasted Donald Trump have involved nationals from the seven Bannon served in the navy and worked at “Ias he signed the executive order affected countries. Nor have any deaths Goldman Sachs before making his fortune entitled “Protecting the nation from in America been caused by terrorists as a Hollywood investor and dealmaker, foreign terrorist entry into the United with family ties to those countries (see thanksin partto a luckystake in “Seinfeld”, States”. The order suspends entry by chart). The 12 deadly acts ofterrorism a sitcom. He went on to run Breitbart, a re- citizens ofseven mostly Muslim-major- committed by Muslims on American soil actionary and often venomous website. ity countries (Iraq, Iran, Syria, Yemen, since September11th 2001have been by Since entering the White House Mr Sudan, Libya and Somalia) for 90 days; American citizens or legal residents, Bannon, 63, has revelled in his public im- halts all refugee admissions for120 days; according to New America, a think-tank. age as a Darth Vader-ish villain. He recent- and bans Syrian refugees indefinitely. It The September11th murderers were from ly told the New York Times that main- looks unlikely to make America marked- Saudi Arabia, the United Arab Emirates, stream news outlets had been ly safer, and by stoking resentment it Egypt and Lebanon, none ofwhich are “humiliated” by the election outcome and could indirectly do the reverse. subject to the ban. were considered the “opposition party” by Terrorism is a threat to America. Some Refugees are particularly unlikely to Team Trump. He advised that the media’s ofthe seven countries subject to Mr be a threat. Ofthe nearly 3.3m refugees best course would be to “keep its mouth Trump’sban are fighting against jihadists admitted to America between 1975 and shut and just listen for a while”, because ofIslamic State and al-Qaeda, which is 2015, only 20 have attempted a terrorist journalists do not understand America. why some visa restrictions were im- attack. In those attacks three Americans posed on them by the Obama adminis- were killed, according to the Cato In- Now I am the master tration. According to Charles Kurzman at stitute, a think-tank. In 2014 Mr Bannon gave a remarkable ad- the University ofNorth Carolina, 23% of Syrian refugees who gain admittance dress to a conservative conference at the Muslim-Americans associated with to America, most ofwhom are women Vatican. He described working-class com- violent extremism since 2001had family and children, have to have their status munities betrayed by “people in New York links to those countries. determined by the UNHCR, the UN’s that feel closer to people in London and in Yet in the past decade there have been refugee agency, and go through a lengthy Berlin than they do to people in Kansas few terrorist attacks committed by for- screening process, mostly in camps in and in Colorado”. The corruption and eigners in America, and none ofthem Turkey, Lebanon or Jordan. In 2011only 23 greed ofthat rootless elite had caused a cri- Syrian refugees managed to run this sis in capitalism, Mr Bannon argued, “and gauntlet; by 2014 the number had edged on top of that we’re now, I believe, at the The wrong guys up to 249. In 2015, as the war in Syria beginning stages of a global war against Is- United States, foreign-born terrorists raged on and as Europe admitted hun- lamic fascism.” His answer lay in the val- By country of origin, 1975-2015, % of total dreds ofthousands, the number rose to ues of the “Judeo-Christian West”, in From countries Nil 2,192, and last year15,479 ofthe 85,000 covered by 100 “strong countries and strong nationalist Donald Trump’s 11% refugees admitted to America came from movements” and possiblyin an accommo- travel ban Syria. (Ofthat total 46% were Muslim and dation with President Vladimir Putin of 80 44% were Christian.) The UNHCR esti- Russia. Though he called MrPutin a klepto- Others mates that some 20,000 refugees will crat, Mr Bannon suggested that this might 60 now be affected by Mr Trump’sactions. matter less than securing Russia as an ally Though its protective effects may be 40 against radical Islamists. UAE minimal, the executive order seems likely Mr Bannon has the trust of the presi- Egypt to stoke resentment among radicalised 20 dent on foreign affairs. Witness the deci- Pakistan young Muslims in America and countries sion to give him a guaranteed seat on the Saudi Arabia as yet unbanned. It may also put at risk NSC 0 National Security Council ( ), enjoying Perpetrators Murders American troops in the Middle East, the same access to that inner sanctum as committed including the thousands deployed in Iraq Source: Cato Institute James Mattis, the defence secretary, and and Syria to fight the Islamic State. Rex Tillerson, the secretary of state. A

20 Brieﬁng Donald Trump’s foreign policy The Economist February 4th 2017

2 in Santa Monica, California, has been dees tire of the conflicts and chaos model ban as re-establishing the isolation of its blamed by some Trump supporters for of some around Mr Trump, their depar- chief adversary, Iran, and other Shia causing unnecessary fights over immigra- tures would hurt him politically. dominated states. It will have been further tion policy.Mr Miller, Mr Bannon and oth- Two national-security hawks in the delighted when, on February 1st, Mr ers in the president’s inner circle reported- Senate, John McCain of Arizona and Lind- Trump’snational security adviser, Michael ly clashed with the Department of sey Graham of South Carolina, have said Flynn, said America was “putting Iran on Homeland Security(DHS) and itssecretary, they fearthe travel ban “will become a self- notice” for destabilising the Middle East John Kelly, a former Marine general, over inflicted wound in the fight against terro- aftera recent ballistic missile test and an at- the fate of citizens from countries on the rism.” Other Republicans in Congress who tackby its Houthi allies on a Saudi frigate. banned listwho hold green cards. The Ban- have pushed back against the policy, A veteran Saudi commentator, Abdul- non camp insisted that such residents be though, have griped about questions of rahman al-Rashed, notes that “Trump’sad- admitted only on a case-by-case basis—a process rather than substance, complain- ministration sees Iran as part of the pro- trampling ofimmigration procedures from ing for instance about lack of consultation. blem, unlike the Obama administration, which the administration later retreated. Mr Trump was hardly the first choice of which viewed it as part of the solution.” MrBannon talksofMrTrump’selection presidential candidate for many Republi- Rex Tillerson, the secretary of state, is well as part of a “global revolt” by nationalists can members of Congress, especially in known in Riyadh. As head of Exxon Mobil which will sweep away all governments the Senate. But they are in no mood to top- before taking office, he visited the Gulf as that do not adapt to it. This dramatic his- ple him: they yearn to cut taxes and slash recently as November. “He’s as friendly to torical narrative appealsto MrTrump, who business regulation, and think Mr Trump Saudi Arabia as it gets,” said a diplomat. lauded the British decision to leave the will sign the laws that do so. Iran’s reaction was as furious as Saudi European Union as a populist precursor to And they are also frightened. Chaos Arabia’s was smug, with hardliners and re- his own victory. But for all that the presi- alarms Republican grandees and their formers alike reviving old revolutionary dent enjoys humbling elites, he also craves business supporters. But if chaos is what slogans. “It’s increasing Iran’s isolation at a their respect and admiration. He appoint- Mr Trump’s most ferocious insurgents time when the country desperately wants ed high-flyingformergeneralsand titans of seek, and if it serves as a signifier of au- to be part of the global community,” said commerce to his cabinet because he thenticityto the base upon which the legis- Ali Alizadeh, an Iranian commentator. Va- wished to surround himself with “the lators’ electoral fortunes stand, then chaos liollah Seif, the central bank governor an- best” and impress the world. If such gran- is a price they will accept, fornow. 7 nounced that in March Iran would replace the dollar with other currencies in its accounting forforeign transactions. How America’s allies see it Saudi glee could, however, be short- lived: America’s intention to treat non- The world, watching Muslim refugeespreferentially, and its anti- Muslim rhetoric, could play into the hands ofglobal jihadists who, like MrTrump’sad- viser, Stephen Bannon, see a clash between Islamic and Christian civilisations. In such a division it might seem natural The executive orderon visas and refugees is not the only worry othercountries to find America and Europe on the same have about Trump’s America side, even if such talk gives many Euro- ITHIN hours ofsigninghis executive countries, it was not targeted by the freeze peans the heebie-jeebies. But Mr Trump’s Worder restricting travel from seven on visas (see map). Gulf leaders disliked policies also seem designed to split him off Muslim countries, President Donald Barack Obama. And Mr Trump seems bet- from many of Europe’s leaders—and to ex- Trump called King Salman of Saudi Arabia ter disposed to despots than his predeces- acerbate ructions within their countries. to discuss closer ties. “Trump reassures the sor; he has praised Egypt’s president, Abd- Angela Merkel, the German chancellor allies…and the travel restrictions befuddle el-Fattah al-Sisi, as “a fantastic guy”. And and an Atlanticist to her bones, declared the world”, read the front-page banner of many Arab states impose tight access re- the executive order’s “general suspicion” Asharq Al-Alawsat, a newspaperowned by strictions on fellow Muslims. of Muslims unjustified, a sentiment ech- the king’s son, on the following day. Above all, Saudi Arabia saw the travel oed in manyotherEuropean capitals. A lat-1 Some of America’s allies may be reas- sured; but many ofthem are aghast at a foreign policy that seems determined to de- Odd ones out Mediterranean SYRIA stroy many of the institutions and Sea Countries affected by US travel ban* IRAQ IRAN alliances created in the past half century. A US visas US refugee Merchandise telephone call between Mr Trump and issued arrivals from trade † † % of total 2015, $bn LIBYA EGYPT 2015 , ’000 2016 SAUDI Malcolm Turnbull, the prime minister of UAE Australia, is reported to have turned re- Iran 33.7 3,750 4.4 0.3 ARABIA markably sour over a previous American Iraq 47.9 9,880 11.6 6.3 SUDAN pledge to resettle refugees. Strikingly, Do- Libya 7.4 1 <0.1 0.4 YEMEN nald Tusk, president of the European Somalia 13.8 9,020 10.6 <0.1 Council, wrote to 27 European leaders list- SOMALIA Sudan 3.7 1,458 1.7 0.1 ing America alongside Russia, China and Syria 8.3 12,587 14.8 <0.1 INDIAN terrorism among the main external threats OCEAN to the European Union. Meanwhile En- Yemen 7.1 26 <0.1 0.2 rique Peña Nieto, Mexico’s president, can- Selected neighbours *90-day ban on entry and 120-day ban on refugee arrivals, from January 27th 2017; <0.1 celled a meeting with Mr Trump. Egypt 65.2 21 6.2 indefinite ban on Syrian refugees Some satisfaction on the part of Saudi † Saudi Arabia 127.6 2 <0.1 41.8 Year ending September 30th Arabia is not surprising; like Egypt and the Sources: Department of Homeland Security; <0.1 United Arab Emirates, two other Sunni UAE 20.1 1 25.5 State Department; US International Trade Commission The Economist February 4th 2017 Briefing Donald Trump’s foreign policy 21

2 er clarification that EU citizens would not Francisco “Pancho” Villa. (There are re- be affected so long as they were not travel- ports, which the Mexican government de- ling on a passport issued by one of the sev- nies, that in a telephone conversation with en countries brought some mollification. Mr Peña Mr Trump spoke of using Ameri- But European leaders have a deeper con- can troops to hunt down criminals south cern: that Mr Trump may halt or reverse ofthe border.) America’s support for European integra- Carlos Slim, a multibillionaire busi- tion, long a bipartisan staple of American nessman who is the only Mexican to have foreign policy. Ted Malloch, who has been met Mr Trump since election day, says he is canvassed as a possible ambassador to the “not a terminator but a negotiator”. Mr EU, has compared it to the Soviet Union Trump’s anti-Mexican rhetoric, in other and suggested he might like to help bring it words, could be an opening gambit. But down. Last year Mr Tusk and several other much as politicians hope this is true, they Europeanleaderswererattledbypost-elec- are preparing forthe worst. tion courtesy calls in which Mr Trumphad The Mexican people are unusually uni- gleefully solicited opinions on which fied in their opposition to Mr Trump’spoli- country might be first to follow Britain out ticking. Mr Peña, who has a popularity rat- ofthe EU. Maybe we won’t always have Paris ing of just 12%, was excoriated for inviting A further adversarial note was struck Mr Trump to Mexico City last year; his when, on January 31st, Peter Navarro, Mr Wilders of the anti-Islam Freedom Party, newly forthright stance has earned plau- Trump’s senior trade adviser, declared which is leading opinion polls in the Neth- dits. Butthe mostlikelybeneficiaryof Mex- TTIP, a half-negotiated trade pact between erlandssixweeksbefore ageneral election, ico’s dislike ofMr Trump is Andrés Manuel the EU and America, to be dead, and ac- said that similar bans in Europe would López Obrador, leader of the hard-left Mo- cused Germany of exploiting an underva- have thwarted terrorist attacks. “Racist? rena party. His strident nationalism ap- lued euro to help its exporters. In the wake No. Simply GREAT,” tweeted Matteo Salvi- peals to voters who want a leader to stand of Mr Trump’s withdrawal from the TTP,a ni of Italy’s far-right Northern League. Poli- up to Mr Trump. Since the American elec- trade agreement between 12 Pacific Rim ticians like these see in Mr Trump not only tion, Mr López Obrador has risen 7-8 per- countries, this will spur on European ef- vindication of their anti-elite, anti-immi- centage points in the polls; at the same fortsto conclude trade dealselsewhere, no- grant instincts, but a president who shares time the IMF’s projections for GDP growth tably with Japan and Mexico, which is also their bleak analysis of contemporary Eu- in 2017 have dropped from 2.3% to 1.7%. looking to deepen ties with big economies rope. On the campaign trail Mr Trump With the oil price down, NAFTA-depen- other than America. Although the EU re- painted apocalyptic pictures of the conti- dent trade is more or less the only motor cently slapped tariffs on Chinese steel, nent beset by terrorism and ethnic strife. the economy has. A floundering economy, some Europeans, like the Mexicans, see In the coming months Mr Trump will a fractured political landscape and an anti- possibilities there, too. President Xi Jinp- probably meet some ofhis European coun- Trump boost could give Mr López Obrador ing’s paean to globalisation at Davos last terparts in the flesh at a NATO summit in the top job after Mexico’s 2018 presidential month went down well. Brussels—a “hellhole”, as he once called it. election. That would put at risk the struc- He has already met his Mexican opposite tural reforms in energy, telecoms and edu- The British exception number, President Peña, having made a cation that represent some ofthe few gains Yet Europe’s unity is, as Mr Trumpreminds visit to Mexico City during his campaign. Mr Peña’s administration has made, and it, fragile. Take Russiapolicy.IfAmerica lifts But after furtherhumiliating demands that the stability that has been fundamental to the sanctions it imposed on Russia after its Mexico pay for the border wall Mr Trump the development of the Mexican-Ameri- annexation of Crimea and invasion of promised duringhiscampaign a return vis- can relationship fordecades. eastern Ukraine, Mrs Merkel will struggle itwasscotched. Relationsbetween the two A slowing Mexico led by an anti-Ameri- to maintain a consensus on Europe’s own countries may be at their lowest ebb since can president would deliver little benefit economic measures, which must be re- 1916, when Woodrow Wilson sent over on the other side of the Rio Grande. Con- newed in the summer. 6,000 soldiers into Mexico in pursuit of trary to Mr Trump’s rhetoric, firms that in- The British prime minister, Theresa crease the number of their employees May, became the first head of government south of the border also increase them to to visit the new president. She is betting the north—along with their R&D spending. that getting close to Mr Trump may help And Mexico could import food from Brazil smooth some of his rougher edges. During and Argentina at little extra cost. Those their meeting she worked hard to convince who facilitate illegal immigration from him that he will have more leverage with Central America will benefit from reduced Russia if NATO is strong; he has repeatedly co-ordination. So would drug smugglers, questioned the value ofthe “obsolete” alli- who are pretty well versed in tunnelling ance (see Lexington). under walls, whatever their beauty. Hence Embracing Mr Trump carries risks. The Mr Peña’s offerofa grand bargain in which president is unpopular in Britain. Nearly trade, migration and security issues would 2m people have signed an online petition be discussed together. urging Mrs May to cancel the state visit she Mexico might also give serious thought promised the Donald (see page 49). Her to delaying. Trade negotiations, in particu- counterparts in the Brexit negotiations lar, can take a very long time: why rush may be similarly unimpressed. Many of them? If there is a new administration in Britain’s Brexiteers, though, see them- 2021 America’s policies could be very dif- selves as part of the anti-elitist “global re- ferent. Others may seek similar solace. But volt” Mr Bannon embraces. Europe’s right- hoping fouryears could be a mere unpalat- wing populists fell over themselves to cele- able interlude sits poorly with the change brate America’s visa restrictions. Geert Well, that was fun two weeks have brought the world. 7 Supported by

GLOBAL COMPASS THE EARTH CIRCLE

A rubbish idea for saving the planet?

films.economist.com/globalcompass United States The Economist February 4th 2017 23

Also in this section 24 Checks and balances 25 Trade with Mexico by state 25 Kicking out immigrants 26 Working and race 27 An anatomy of murder 28 Lexington: Strength in numbers

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

The Supreme Court to look. As an advocate of Scalia’s judicial philosophy of originalism—whereby Gorsuch test judges interpret the constitution in the light of its meaning when it was adopted—Mr Gorsuch has developed a conservative paper trail as an appellate judge and won cheersfrom the FederalistSociety and NEW YORK the Heritage Foundation, two stalwart organisations ofAmerican conservatism. The president’s nominee is well-qualified. His confirmation will still be bitter He also shares Scalia’s literary talents. LEVEN years ago, Neil Gorsuch, Donald Gorsuch has never written a legal opinion In a speech in 2014, Mr Gorsuch framed an ETrump’s choice to replace Antonin Sca- addressing Roe v Wade, it seems clear he exploration of “law’s irony” in terms of a lia on the Supreme Court, sailed through is—personally, at least—pro-life. In his 2006 Dickens novel, weaving in references to the Senate by a voice vote when George W. book, “The Future of Assisted Suicide and Burke, Cicero, Demosthenes, Goethe, Kant Bush appointed him to the Tenth Circuit Euthanasia”, Mr Gorsuch wrote that, “all and Shakespeare. But he’s hardly stuffy. Mr Court of Appeals. This time, with the ideo- human beings are intrinsically valuable Gorsuch also peppered the talk with con- logical tilt ofAmerica’s highest court hang- and the intentional takingofhuman life by temporary culture, evoking David Foster ing in the balance and Democrats fuming private persons is always wrong”. Wallace and joking that the “modern” over their Republican colleagues’ stone- Like every justice on the bench today, rules ofcivil courts date backto 1938: “May- walling of Merrick Garland, Barack Mr Gorsuch is a product of the Ivy League, be the only thing that really sounds new or Obama’s choice to fill the seat, Mr Gorsuch with degrees from Columbia and Harvard. modern after 70 years,” he said, “is Keith will face a tougher crowd. In contrast to Before returning to Denver, his birthplace, Richards ofthe Rolling Stones. Some might William Pryor, another judge shortlisted to begin his stint at the Tenth Circuit, Mr say he looks like he’s done some experi- for the seat, who once called Roe v Wade Gorsuch served as a clerk to two Supreme menting too.” “the worst abomination” in the history of Court justices, including the key swing jus- Mr Gorsuch may have ample charm constitutional law, MrGorsuch is not given tice who has been on the bench since 1988: and talent, but Democrats have pledged to to incendiary remarks. Democrats may be 80-year-old Anthony Kennedy. He then fight any nominee Mr Trump putsforward. hard-pressed to vilify the scholarly jurist, went to Oxford on a Marshall Scholarship, With only a 52-to-48 edge, Republicans but their sense that he has been tapped for earning a doctorate in legal philosophy, cannotrelyon theirmajorityto getMr Gor- a stolen seat is certain to cloud his confir- and spent a decade at a Washington law such confirmed. Senate rules permit any mation hearings. firm. He also spent a year working in memberofthe minoritypartyto wage a fil- On many issues dear to conservatives George W. Bush’s Justice Department. ibuster that only a 60-vote supermajority Mr Gorsuch is a perfect match. He usually can quell. If Democrats do this, the only sides with companies, provides little relief Inkblots path to filling the seat may be the “nuclear for condemned prisoners appealing Two months after Scalia’s death, Mr Gor- option”—a simple majority vote to change against death sentences, goes out of his such praised him as a “lion of the law” Senate rules and abolish the filibuster for way to protect institutions claiming that whose “great project” was to denote “the Supreme Court nominations. Mr Trump laws like Obamacare burden their reli- differences between judges and legisla- has urged this, ifnecessary, but so far Mitch gious liberty and rejects objections to reli- tors”. Lawmakers properly consult their McConnell, the Senate majority leader, gious displays like the Ten Command- own moral convictions when crafting poli- has been non-committal. “We’re going to mentsin publicparks. MrGorsuch has also cy, he said, but judges must strive “to apply get this nominee confirmed,” Mr McCon- signalled deep scepticism of the so-called the law as it is”. They should examine only nell has said. The fate of the filibuster, he Chevron doctrine, which gives wide lati- “text, structure and history”, not personal told Mr Trump, is “not a presidential deci- tude to federal agencies. And although Mr visions of how they would like the world sion. It’s a Senate decision.” 1 24 United States The Economist February 4th 2017

2 He may have little choice. Although reason for Democrats to filibuster even if and Barack Obama claimed vast power. some think the filibuster would be better this prompts Republicans to go nuclear. A And neither the courts nor Congress, even saved for the next confirmation battle, strident stand, he says, would be well-de- when hostile to the president, seemed able most Democrats are showing few signs served “payback for the obstructionism” to stop them. If Mr Trump assumes the they will capitulate. The day after Mr Gor- on Mr Garland and would appease “the right to order the execution of American such was nominated, the Senate minority Democraticbase”, avertinga possible “Tea- citizens suspected of terrorism or to try leader, Chuck Schumer, reaffirmed that Mr Party rebellion on the left”. Would such a someone on the basis of evidence that the Gorsuch will need 60 votes. Bipartisan move exacerbate the politicisation of the state will not divulge, he will merely be fol- support “should be essential”, he said, for judiciary? The Supreme Court is already lowing the example ofhis predecessors. Supreme Court nominations. Richard Ha- an ideological institution suffused with It was largely on the basis of this power sen, a law professor at the University of partisanship, Mr Hasen observes. That grab that Bruce Ackerman, a legal scholar, California, Irvine, says there may be good ship, he says, “has sailed”. 7 predicted in 2010 that the president would be changed “from an 18th-century notable to a 19th-century party magnate to a 20th- Checks and balances century tribune to a 21st-century dema- gogue.” The current situation may be A crumbling fortress worse than he envisaged in “The Decline and Fall of the American Republic”, due to the eagerness ofthe Republican-controlled Congress to pander to Mr Trump, weakening the main checkon the presidency. Amonth before the election, after a vid- WASHINGTON, DC eo surfaced in which he boasted ofhis abil- America’s democratic system might struggle to contain a despot ity to maul women, 16 Republican senators HE most troubling interpretation of the year for the states’ challenge to reach the and 28 Republican members of the House Texecutive order that Donald Trump Supreme Court. By then Mr Trump could ofRepresentatives said they no longer sup- signed on January 27th, temporarily ban- have changed America’s immigration sys- ported him. Yet Mr Trump’s unruly first ning visitors from seven mainly Muslim tem so much thatthe judges’ verdictwould fortnight in power, including much evi- countries, is not that the president means be largely irrelevant. dence that the White House has become, to honour his campaign promises. It is that The legal firepower recently accrued by as Mr Ackerman foresaw, a “platform for he will find waysto do so even where what the presidency has also made the judges’ charismatic extremism and bureaucratic he promised—in this case, to keep Muslims task harder. The job of White House coun- lawlessness”, has drawn few whispers of out of America—is illegal. “When he first sel was created to provide the president dissent from Republican congressmen. A announced it, he said ‘Muslim ban’,” ex- with sound legal advice; it has ballooned fewsenators, led byBen Sasse ofNebraska, plained Rudy Giuliani, a former would-be into a battery of lawyers—almost 50 under John McCain of Arizona and Lindsey Gra- Trumpattorney-general. “He called me up, Barack Obama—whose task is to find legal ham ofSouth Carolina, have ventured crit- he said, ‘Put a commission together, show cover for whatever the president wants to icism, especially over warnings that Mr me the right way to do it legally’.” do. The evolution of the proposed Muslim Trump will lift sanctions on Russia. Yet at Even if Mr Trump can resist the urge to ban into a bar on visitors from some coun- the Republican retreat in Philadelphia on lock up Hillary Clinton and reinstitute tor- tries was consistent with such machina- January 26th, dominated by talk of health- ture, which he also promised to do on the tions.Andthisisindicativeofawiderpow- care reform, tax cuts and deregulation, the trail, he is already testingthe boundaries of er grab by the executive, gaining strength cheers forthe president were full-throated. presidential propriety and power. The po- for decades, which accelerated under Mr “I cheered him myself,” said Mr McCain. “I tential conflicts of interests in his adminis- Trump’simmediate predecessors. want him to succeed, I believe he is com- tration is riven is an obvious example: Mr In matters of war, foreign policy and mander-in-chief, so, where we disagree, I Trump is the first president since Richard civil liberties, for example, George W.Bush can’t just play whack-a-mole.” Nixon not to sell or place in blind trust his The reasons for the growth of tribalism business, including a hotel division that in American politics over the past half cen- hasannounced plansto triple itsAmerican tury—which include the culture wars, in- properties since his inauguration. troduction of primaries and success of All this is worrying in itself. Making Newt Gingrich, a former Speaker of the matters worse, however, is the sorry state House and now Trump henchman—in of America’s system of checks and bal- transforming what had been a consensus- ances, a web of mutually compromising prizing assembly into a parliamentary powers woven, in fear of tyrants, around bear-pit, are so familiarthat it is easy to lose the presidency, Congress and judiciary. sight of how dynamic a process this is. Par- “We’re not quite at code blue,” says Norm tisanship does not simply imply deadlock, Ornstein of the American Enterprise Insti- of the kind that bedevilled Mr Obama. It is tute. “But we are definitely in the emergen- steadily eroding the norms that enshrine cy room and heading towards the inten- the cautiously collaborative spirit of the sive-care unit.” American system, in which much ofits de- This might sound surprising. In his first fence against authoritarianism resides. 11days as president, 42 law suits were fired Thus, for example, the parcel of House at Mr Trump or his administration. Massa- rules and conventions known as the Regu- chusetts, New York, Virginia and Washing- lar Order which was designed to ensure all ton challenged the immigration order. But members, including those of the minority the courts alone will not constrain Mr party, got a fair crack at amending and de- Trump. Courts can issue stays to pause ex- bating bills; it was trashed by one of Mr ecutive actions. But it could take over a Dial 911to speak to your congressman Gingrich’s successors, Dennis Hastert, 1 The Economist February 4th 2017 United States 25

2 who is now in jail for molesting children. Similarly, the ﬁlibuster, which was con- The toll booth in the wall ceived as an emergency device to prevent United States, 2015 the minority having egregious legislation State exports to Mexico and potential tariffs Cost of potential tariffs given current trade flows and government appointments imposed 6 As % of state GDP on it. Once rarely used, it was employed by TX 0 0.05 0.10 0.15 0.20 5 Democrats to block ﬁve Bush appointees a States with higher Texas year; it was used by Republicans to block 16 dependence on Mexico Iowa 4 but facing low tariffs Obama appointees a year, driving the then AZ Nebraska Democratic leader in the Senate, Harry 3 LA MI States with low Mississippi Reid, to abolish its use in blocking cabinet dependence on Mexico 2 but facing high tariffs Alabama appointments. If the Democrats try to NM MS IA block Neil Gorsuch, whom Mr Trump 1 Michigan SD NE nominated for the vacant Supreme Court ID Arizona

Goods exports to Mexico as % of state GDP ND judgeship on January 31st, the Republicans 0 03691215South Dakota will probably abolish its use in that case Weighted-average Mexico WTO MFN* tariff, % Kansas also. And another important check on the Sources: BEA; Census Bureau; WTO; The Economist *Most favoured nation, 2016 tyranny ofthe majority party will be lost. It is striking that such great changes have not caused more disquiet. That prob- means neither side can offer a different percentage of their GDP, only four voted ably reflects the fact that while the parties deal from what it gives to any other WTO forHillary Clinton in November. drifted apart, America continued to elect member.) By matching these tariffsto trade Mr Trump may not feel any need to presidents who were more centrist than flowsforabout5,000 goods, The Economist obey WTO rules. The White House’s latest their parties. Mr Bush’s and Mr Obama’s has estimated which states’ exporters trade spat is with Germany, a country al- agendas were in some ways more similar would be worst-affected by the levies. ready paying WTO tariffs (because no to each other than Mr Trump’s is to either. Farm states face the highest charges. trade deal exists with the European Un- Moreover both former presidents hon- Whacking tariffs on malt, potatoes and ion). Peter Navarro, Mr Trump’schief trade oured the constitutional system; when dairy products would cause Idaho’s ex- adviser, told the Financial Times on Janu- their edicts were checked, they retreated. ports to Mexico to incur an average levy of ary 31st that the “grossly undervalued” That is not an attitude Mr Trump’srhetoric nearly 15%. Iowa and Nebraska would pay euro has allowed Germany to “exploit” suggests he shares. on average 12.5% for the privilege of send- America. The White House hasalso recent- “Can the system that has put a dema- ing goods over Mr Trump’swall. Some pro- ly hinted that it will adopt a congressional gogue in the White House nowhold him to ducts would be particularly badly hit. In plan to “border-adjust” the corporate tax, account?” asks Mr Ackerman. “We don’t 2015Iowa’s farmers shipped $132m ofhigh- which probably breaches WTO rules. If know. But I can say that over the past half fructose corn syrup to Mexico. Without Mexico retaliated with rule breaking of its century its capacity to restrain has been NAFTA, Mexico would slap a tooth-aching own, the costs to American producers dramatically reduced.” 7 100% tariffon the stuff. would be greater—and harder to predict. 7 Little wonder that the farm lobby tends vocally to support free trade. Yet farm Trade with Mexico states are lucky to have plenty of custom- The economics of immigration ers elsewhere. Idaho’s exports to Mexico Playing chicken are worth less than half a percent of its Man and machine GDP. Other state economies are more tan- gled up with Mexico’s. These places should worry about NAFTA’s fate despite facing low average tariffs(see chart). WASHINGTON, DC Among this group, Texas stands out. It Farmers and Texans would lose most Kicking out immigrants does not raise faces an average tariffofonly 3%, but its ex- from barriers to trade with Mexico Americans’ wages ports to Mexico are worth nearly 6% of its EXICO sells America more goods GDP (compared with 1.3% nationally). As in EXICAN immigrants were said to be Mthan America sells Mexico, and it en- Iowa, farmers would suffer. Texan cuts of Mholding down wages and taking jobs rages President Donald Trump. In 2015 the Gallus domesticus—otherwise known as that could go to honest Americans. The difference was $58 billion (0.3% of GDP). chicken—would incur the largest tariff bill, poorest natives were supposed to be suf- That is enough, thinks Mr Trump, to justify $174m, of any single product category in fering most grievously. “We cannot afford rewriting the North American Free-Trade the country. In total, as a percentage of to disregard it,” intoned the president. “We Agreement (NAFTA), which allows goods GDP, Texas would pay more than any oth- do not condone it.” The immigrants were to flow across the Rio Grande free of tariffs. er state. Michigan also fits this category. Its soon sent home and not allowed to return. Yet the trade deficit masks bigger figures: exports of cars and parts—many of which All that happened in the early 1960s. America sends almost $240bn in goods to end up back in America—would attract ta- The president was John F. Kennedy; the Mexico every year. Were NAFTA to disap- riffs averaging only about 5%. But with Mexicans were participating in the bracero pear in a renegotiation-gone-wrong, many such shipments totalling $4.1bn, the bill programme, which allowed almost half a Americans would pay a price—and not just would be painfully large. million people a year to take seasonal as consumers faced with dearer avocados. All this gives Mexico some leverage. But work on America’s farms. But the parallels Which American producers would suffer? Mr Trump has a stronger hand, because with the present are plain. Donald Trump Suppose, optimistically, that each side Mexican firms depend more on American has also complained that immigrants are followed World Trade Organisation (WTO) consumers than vice versa. Part of the pro- keeping Americans from good jobs and rules. Then, tariffs would revert to so- blem may be that rural America is already has promised to do something about it (an- called “most favoured nation” rates. (That in the bag for the Republicans. Of the 25 other parallel: not since Kennedy has might sound vaguely friendly, but it simply states which would pay most in tariffs, as a America seen such an astonishing presi-1 26 United States The Economist February 4th 2017

been few migrant workers and states Working and race Bucking braceros where there had been almost none (see US states, average hourly real farm wages chart). Ending the bracero scheme seems to Colouring in Grouped by number of bracero workers, 1965 constant $ have affected American workers not a bit. Braceros in 1955 as % of seasonal farm labour force This would seem, as a contemporary None Up to 20% Above 20% put it, to repeal the laws of supply and de- 1.2 BRACERO PROGRAMME mand. And the authors rule out two obvi- ABOLISHED ous explanations for why the change was A trio oflaboureconomists suggest that 1.1 so ineffective. Above-board Mexican mi- effortat workis correlated with race 1.0 grants were not replaced by illegal immigrants: the surge in illicit workers began IVEN the long history of making racial 0.9 only in the 1970s. Nor were they replaced Gslurs about the efforts of some work- by legal immigrants from elsewhere. The ers, any study casting black and Hispanic 0.8 explanation is, rather, that farmers men as lazier than whites and Asians is swapped Mexicans formachines. sure to court controversy. A provocative 0.7 Some farm jobs, like tomato picking, new working paper by economists Daniel 1955 57 59 61 6365 67 69 71 could be automated fairly easily in the Hamermesh, Katie Genadek and Michael bracero Source: “Immigration Restrictions as Active Labour Market 1960s. And ending the scheme Burda sticks a tentative toe into these Policy: Evidence from the Mexican Bracero Exclusion” by seems to have accelerated mechanisation murky waters. They suggest that America’s Clemens et al. NBER working paper in the tomato fieldsofCalifornia.Much the well-documented racial wage gap is over- same happened with cotton and sugar stated by10% because minorities, especial- 2 dential coiffure). So it is a good moment for beet. Other crops, like lettuces and aspara- ly men, spend larger portions of their a bracing new assessment of the bracero gus, still required human pickers. Produc- workdays not actually working. After re- scheme and its demise. tion ofsome such crops simply declined. jecting a number ofplausible explanations Michael Clemensand Hannah Postelof These days America has a more direct for why this might be, the authors finally the Centre for Global Development, and method of raising labourers’ wages: it attribute the discrepancy to unexplained Ethan Lewis of Dartmouth College, have forces farmers to pay them more. In Cali- “cultural differences”. used archived recordsofAmerican agricul- fornia, America’s most important farming Acutely aware of the sensitivity of tural jobs and wages to test whether Ken- state, politicians have ensured that work- these findings, the professors delayed pub- nedy was right. Did ending the bracero ers will receive at least $15 an hour by 2023. lication until after the presidential elec- scheme in1964 in fact lead to higher wages And Manuel Cunha, a citrus growerwho is tion. “I knew full well that Trump and his and more workforAmericans in the fields? president of the Nisei Farmers’ League, minions would use it as a propaganda Theanswerisafirmno.Instateswhere complains about other costly reforms, piece,” says Mr Hamermesh, a colourful farmers had relied heavily on foreign la- such as mandatory overtime pay for peo- and respected labour economist. The pa- bour—a group that includes California and ple who workmore than eight hours a day. per may yet be seized on by those who are Texas—American natives found a few In response, he says, farmers are mov- keen to root out “political correctness” and more farm jobs in the mid 1960s. But the ing from crops that require careful han- are perennially unhappy with current rise was small and temporary; within a dling, like apricots—“just look at an apricot anti-discrimination laws. few years the long decline in agricultural and it will turn brown”—to crops that can The study’s method is straightforward. jobs had resumed. And the trend was al- be harvested by machine. Almond trees The data come from nearly 36,000 “daily most identical in states where there had are spreading across California. In spring diaries”, self-reporting on how Americans been no braceros. Similarly, farm wages the fields are white with their blossom. In spent their working hours, collected from rose in states where there had been lots of September great machines shake the nuts 2003 to 2012. Relying on the assumption migrant workers, states where there had to the ground and sweep them up. 7 that workers are equally honest in admit- ting sloth, the authors calculate the frac- tion of time spent not working while on the job—spent relaxing or eating, say—and find that it varies by race to a small but statistically significant degree. The gap remains, albeit in weaker form, even with the addition of extensive controls for geography, industry and union status, among others. Non-white male workers spend an additional 1.1% of the day not working while on the job, or an extra five minutes per day. Assuming their controls are ade- quate, that would still leave 90% of the wage difference between white workers and ethnic minorities, which was recently estimated to be 14%, unexplained. This could conceivably be the product of discrimination, or ofsomething else. Digging out the cause of this curious gap remains hazardous. Worse treatment by managers of minority workers may it- selfencourage slacking, says Philip Cohen, asociologistatthe UniversityofMaryland. The authors argue that this point is moot, Muchachos de campo since self-employed minority workers1 The Economist February 4th 2017 United States 27

try’s population and around 36% of mur- years older than in the 1990s. Gang-related Idle hands der victims. Our numbers show that, in murderers are, on average, six years older United States, time spent not working while 2016, murders increased in 34 of the cities now than they were then. on the job, 2003-12, by race and sex, % we tracked. Three cities experienced a This is where variation in law enforce- Male Female spike in deaths sharper than the 58% suf- ment comes in. Gang murders involving 6789fered by Chicago. Since cities tend to reflect guns are particularly hard to solve. After 20 Hispanic the country as a whole, this suggests that years of stability, the murder-clearance the murder rate is rising at its fastest pace rate—where a murder is solved because an Black since the early1970s. arrest is made—fell suddenly in 2013 from Asian Today’s violence needs to be set in con- 60% to 55% in 2015. There are stark differ- text. Despite the recent uptick, the murder ences by race. In 1980, 56% of murder vic- White rate in our 50 cities was lower in 2016 than tims in our dataset were black. In 2015, 68% Source: “Racial/ethnic differences in non-work at work” it was in 2007, and for the 26 years before were. In the early 1980s, police solved by Daniel Hamermesh, Katie Genadek and Michael Burda, that. Criminologists disagree about why around 65% of murders regardless of the NBER, January 2017 murder became less common. What they race or sex of the victim. Among black do agree on is that the improvement has women and white men, that percentage 2 show similar behaviour, but the difference been uneven. Newark, just ten miles from has changed little. Among black men it fell is not statistically significant. A recent ex- New York city, has a murder rate that is to under 55% in 2012, and has since perimental approach, in which cashiers in nine times higher than its neighbour’s. dropped to just 47% in 2015. People are French grocers’ shops were randomly as- And unlike New York, where murder is at more likely to kill ifthey thinkthey will not signed to more- or less-biased managers, just 15% ofits 1990 peak, in Newark the rate get caught, and unsolved killings can set saw greater absences and more sluggish has barely budged. offa cycle ofrevenge. scanning when working under the unfair After the riots in Ferguson, Missouri, in Largely thanks to DNA evidence, police bosses. It found that eliminating manager 2014, Heather Mac Donald, author of “The are increasingly capable of solving mur- bias would increase time spent at work by War on Cops”, offered a simple explana- ders when the victim is attacked with minorities by an estimated 2.5%. tion for the rise in murder. The riots were a hands, bats or knives. In these cases, clear- Uncomfortable though the topic may response to the killing ofMichael Brown, a ance rates have increased from 70% to 78% be, the authors have attempted a rigorous black man, by a police officer. The “Fergu- in the past dozen years. Against this trend, analysis. Denunciations came quickly, son effect”, Mrs Mac Donald argued, oc- when the victim is killed by a gunshot, a however. Within hours of publication, Mr curred when police officers retreat from cit- suspect is arrested just half the time. In the Hamermesh received vitriolic messages ies when relations with the people they 1980s the arrest rate for gun-related mur- and was labelled a racist in an online fo- serve became bitter, causing crime to go up ders was higher, at 65%. rum popular among economists. Mr Ha- nationwide. Murders and shootings did in- Taken together our evidence suggests mermesh, an avowed progressive, who re- crease by 57% in St Louis, a city close to Fer- that police should focus their efforts on fers to Donald Trump only by amusing guson, in the two years after Brown’s tackling gang-related murders where a nicknames and resigned from a post at the death. Similarly, when Freddie Gray died black man is killed with a gun. Bill Bratton, University ofTexas overa state law permit- in the custody of Baltimore police in April who has led police forces in Boston, Los ting the open carrying of firearms, finds 2015, murders and shootings in the city in- Angeles and New York, likens the policing this unfair. He notes that Americans work creased 70% during the year that followed. ofcitiesto a doctortreatinga patient. While too much. His preferred solution would But we find little evidence for a broader some cities may only require a check-up not be for some groups to work more, but “Ferguson effect” in the rest of the country. and a few sessions of therapy once in a forothers to workless. 7 Among our 50 cities, data show that in the while, others need invasive surgery. four months immediately after Brown’s Among our 50 cities, gun use has increased death there wasno change in the arrest rate from 65% to 80% of all murders since 1980. The murder rate formurder, and justa five percentage-point But that number varies enormously by fall in the arrest rate for gun assaults. This city. Guns were responsible for 60% of Spiking does not look like a widespread retreat by murders in New York and 85% of those in the country’s police forces. Chicago between 2010 and 2015. Whereas A stronger message from the individual New York and Chicago have made similar murder records from the FBI for 50 cities is rates of progress in reducing murders in that the quality of police work, the avail- which a gun is not used, Chicago’s gun- ability of (usually illegal) guns and the murder rate is five times New York’s. 7 Ourcalculations suggest murderis chances of getting caught all matter a lot. rising at its fastest pace since the 1970s This is partly because the motivation for URDER, which grew rarer for 20 murder is changing. Gang-related killings Black lives shatter In 50 big cities years, is on the rise again. But by how have steadily increased over the past 35 United States, murder victims M Blacks Per 100,000 population much? In 2015, the number of murders in- years, from just one in 100 murders in 1980 Non-blacks creased by11% nationwide. During 2016, an to nearly one in ten in 2015. Drug-related National total Total escalation of gang violence in Chicago left murders—which are likely to have some 70 764 people dead in a city where 485 had gang-related element—have increased in 60 been killed a yearbefore. A dispute ensued the past two years, after falling for two de- 50 over whether the Windy City was simply cades. In 2015 they accounted for one in 25 40 an isolated example or a barometer of a murders in big cities. 30 wider problem. National statistics for 2016 When murder rose in the late 1980s, the 20 will not be released for eight months, but age of both victims and perpetrators 10 to get an early sense of the answer The dropped by some three years. Unlike then, 0 Economist has gathered murder statistics the recent spate of killings has seen the age 1980 85 90 95 2000 05 10 16* for2016 forthe 50 cities with the most mur- of both victims and offenders continue to Sources: FBI; Census Bureau via IPUMS; NACJD; The Economist ders. These places contain 15% ofthe coun- rise. The average killer in 2015 was four cities’ police departments; *Estimate 28 United States The Economist February 4th 2017 Lexington Strength in numbers

NATO leaders worry that Donald Trump seems to see allies as a burden Trumpto understand that, with Britain leaving the European Un- ion, the Atlantic alliance is now the last institutional framework for co-operation, and that, because members train and plan together, they end up buying lots of American kit. In a head-spin- ning reversal, the French president, François Hollande, lectured America’s president about NATO’s “indispensable” nature in his first phone call to Mr Trump—50 years after his predecessor, Charles de Gaulle, withdrew France from military co-operation with the alliance, a Gallic walk-out only reversed in 2009. At NATO headquarters in Brussels, bigwigs are working to craft arguments that might appeal to Mr Trump’s interest-based worldview. The alliance’s secretary-general, Jens Stoltenberg, is a former prime minister of Norway, so knows something about confronting wolves and bears. Interviewed at the alliance’s utili- tarian quarters—thinklinoleum floors and corridor signs reading: “No Classified Discussion In This Area”—Mr Stoltenberg notes that America is the only superpower with so many formal allies, calling that a source of strength which China and Russia lack. “America First does not mean America alone,” he says. MrTrump wants two things, above all, from NATO: more spending and more help with terrorism, and Mr Stoltenberg calls that reason- UROPEAN publishing saw a sensational hit in the 1840s with able. He stresses that defence cuts have mostly stopped, even if E“The Mysteries of Russia”, a Frenchman’s take on the sup- some big countries (eg, Germany) have a long way to go. He posed brutality of Slavic life. Its most lurid tale described a Rus- points to NATO missions to counter terrorism in Afghanistan and sian peasant fleeing wolves on a sled, who—unable to outpace offthe Horn ofAfrica, fly aerial surveillance planes over Iraq and the slavering pack—escaped by hurling her children, one by one, Syria and train the Iraqi and other Arab armies. A new intelli- to their deaths. Jump to 2017 and modern-day European leaders gence division will fly surveillance drones from Sicily. fear that President Donald Trump takes a rather similar view of The secretary-general believes that multinational alliances, allies, notably those in the 28-member NATO military alliance. far from entangling great powers in enraging, Lilliputian con- European politicians, generals and diplomats have scrutinised straints, offer a thrifty form of deterrence, precisely because a Mr Trump’s interviews and speeches and concluded that, by in- small international force serves as a tripwire for action by many stinct at least, should they ever hold America back, he sees allies countries. Asa youngconscripthe wasone ofonlya modest force as potential burdens fit to be thrown, wailing, into the void. patrolling Norway’s far northern border with the Soviet Union. As part ofan America First approach to geopolitics, Mr Trump But the point was that these were alliance forces: nobody has made clearthat he resents the unconditional nature ofArticle doubted “for a second” that if Soviet forces turned up in the bor- 5, the treaty clause that treats an attack on one NATO country as der county of Finnmark, all NATO would respond. Generally, an attackon all, committing members to a collective response. As grandees take comfort from James Mattis, the cerebral-but-fear- a candidate in 2016, he growled that only those allies keeping a some former marine general chosen by Mr Trump as his defence political pledge to spend at least 2% of GDP on defence—“paying secretary, who declared at his Senate confirmation hearing that their bills” as he put it—should count on America coming to their “Nations with strong allies thrive, and those without them with- aid. Both before and after his election he has called NATO “obso- er,” and averred that Mr Putin is trying to “break” NATO. lete” because itisnotfocused on fightingterrorism. Mr Trump has suggested that he might trade away sanctions on Russia, imposed More than one art of the deal in 2014 in response to the invasion of Ukraine and toughened as A second NATO bigwig longs to see Mr Trump convinced that it recently as December 2016, if“good deals” can be done with Pres- serves America’s interests to have its first lines of defence far ident Vladimir Putin—whether those involve agreeing to shrink across the Atlantic. The official is mystified that the president nuclear arsenals, or encouraging Russia’s unsqueamish armed might trust Russia to honour a deal that would exchange Crimea forces to smite the Islamic State (IS) terror network. forhelp with IS. The same official especiallyfearsa bad arms-con- Mr Trump’s crudely transactional instincts are having at least trol deal, noting the genius Russia has for drafting treaties that one salutaryeffect. He isforcingWestern alliesto make the case to curb the West’sweaponssystemswhile leavingitspreferred tech- him, from first principles, forthe international order that has pro- nologies untouched. Above all, this NATO bigwig is astonished tected them since the second world war. Ratherthan the usual At- that Mr Trump might think it shows ruthlessness to abandon al- lanticist pieties about solidarity and burden-sharing, and windy lies, sayingthat Russians “respect strength and ensuringthat your promises to spend more on defence one day, NATO members, es- friends are defended.” Amid cold-war nuclear tensions, America pecially Poland and the Baltic states near Russia, are beefing up never recognised the Soviet seizure of the Baltic republics, Esto- budgets. With Russian planes, ships and submarines testing nia, Latvia and Lithuania; to cede them now to some Putinesque NATO defences in the Baltic and North Seas, members have wel- sphere of influence would be “an expression of weakness”, at a comed tanksand troopsfrom America, Britain, Canada and other time when Russia is workinghard to denyNATO accessto the Bal- allies to their territory, with the latestarriving in January. tic Sea with anti-ship missiles and other weapons. Great powers Germany, long a laggard on NATO spending, wants Team do not throw friends to the wolves. 7 The Americas The Economist February 4th 2017 29

Also in this section 30 Cuba’s non-virtual app stores 30 Terrorism in Quebec City 31 Bello: Rage against Odebrecht’s bribes department

Argentina and Brazil industry minister, agrees. “We are finally on the same wavelength,” he says. Both The Mauricio and Michel show presidents, the officials say, want deeper co-operation on everything from nuclear energy to fighting organised crime. Most of all, they want to revive Mercosur, a mori- BUENOS AIRES AND SÃO PAULO bund regional trade block. Mercosur began promisingly in 1991, South America’s biggest economies want to workmore closely together. That will with Paraguay and Uruguay as the two not be easy other founding members. By 1998 trade RICKLY nationalism is trending in the Mr Temer’s Party of the Brazilian Demo- among the four countries doubled as a Prich world, but in South America’s two cratic Movement is friendly to business, share of the total to around 20%. Mercosur biggest countries the talk is of partnering which has traditionally resisted free trade. became a customs union, with a common up. On February 7th Mauricio Macri, Ar- But both leaders have strong reasons to tariff policy, in 1994. But trade within the gentina’s president (shown on the left), advocate openness. They inherited econo- group remains hampered by exceptions plans to visit his Brazilian counterpart, Mi- mies in trouble. GDP shrank in both coun- and non-tariff barriers. A series of crises, chel Temer. They will promise to encour- tries last year (by 3.3% in Brazil and by 1.8% including a Brazilian devaluation in 1999 age trade and to improve a relationship in Argentina). The recession in Brazil, and Argentina’s default, made govern- that is frostier than it should be. There are which buys a sixth of Argentina’s exports, ments reluctant to remove them. Left-wing grounds forhope, but also forscepticism. makes Argentina’s worse: a 1% drop in Bra- governments came to power, turning Mer- For most of the 20th century Brazil and zil’s growth is thought to reduce growth in cosur into a “rhetorical project”, says Ru- Argentina were more rivals than partners. Argentina by 0.7% after two years. bens Barbosa, a Brazilian ex-diplomat. In the 1970s they nearly embarked on a nu- To get out of their slumps, the presi- That became even truer in 2012, when the clear arms race; until the mid-1980s Brazil’s dentsare undoingthe mistakesofleft-wing group admitted Hugo Chávez’s Venezuela. military-strategy textbooks taught that the predecessors. After taking office in Decem- Trade within Mercosur has shrunk in rela- likeliest war was with its southern neigh- ber2015, MrMacri eased currency controls, tive terms, to 13% ofthe total. bour. Brazil’s population and economy ended the publication of fake economic MrTemerand MrMacri wantto remove dwarf those of Argentina, though Argen- data and reached a deal with creditors to barriers within the group and to strike tines are richer (see chart on next page). restore Argentina’s access to capital mar- trade deals beyond it. In December Merco- That makes it hard to reproduce anything kets, which it lost after a default in 2001. Mr sur suspended Venezuela for violating hu- like the Franco-German collaboration that Temer, who became presidentafterhis pre- man-rights and trade standards, another drew Europe together. When Brazil and Ar- decessor, Dilma Rousseff, was impeached sign of the two leaders’ like-mindedness. gentina agree, it is usually on nationalist last August, pushed through a 20-year That may help the group work better. Do- ideology rather than on openness. That freeze on government spending to shrink a nald Trump’s protectionism may offer an was the case in the 1950s under the auto- massive budget deficit. Congress, due to re- opportunity for deals with outsiders. Ja- crats Getúlio Vargas in Brazil and Juan Pe- turn from recess on February 2nd, is to con- pan, a signatory of the Trans-Pacific Part- rón in Argentina; and during the 2000s, sider his proposal to reform the unafford- nership, from which the United States has when both countries adopted variants of able pension system. Stockmarkets in now withdrawn, says it is interested in a left-wing populism. Buenos Aires and São Paulo have rallied deal with Mercosur. The European Union Next week’s summiteers do not look at since the two leaders tookoffice. has hinted that it would like to conclude a first glance like the sort to breakthe pattern This consensus on pro-market pragma- long-delayed agreement this year. of suspicion. Mr Macri was born into a tism is “unprecedented”, says Paulo Esti- But the prospects for such pairings are family that made its fortune in Argentina’s vallet de Mesquita, who is in charge of Lat- worse than they look. Europe is an espe- protected construction and car industries, in American affairs at Brazil’s foreign cially skittish partner. In October a trade though he espouses economic liberalism. ministry. Francisco Cabrera, Argentina’s deal between the EU and Canada nearly1 30 The Americas The Economist February 4th 2017

bans are quickly picking up on app cul- cautiously. It says the Malecón will be- Awkward amigos ture,” says Jorge-Luis Roque, a technician. come a 6km-long (four-mile) Wi-Fi hot- 2016 A bundle of 60-70 apps costs $5-10. Cus- spot. In December it reached a deal with Brazil Argentina tomers delete the ones they don’t want. Google to put servers in Cuba. That should 206.1 The bricks-and-mortar app store is an speed up connections to Google’s services, Population* m ingenious Cuban response to digital de- which account for roughly half of Cuba’s 43.6 privation. The island has some 300 public internet traffic. There is talk of introducing Wi-Fi hotspots, up from none two years mobile data. That would make download- 1.8 GDP* ago. But connections are slow and, espe- ing apps easier, though it would not solve $trn 0.5 cially by Cuban standards, expensive; they the problem ofthe embargo orthe absence normally cost $1.50 an hour. Adhering to of local credit cards. Neither Cuba’s gov- Exports 6.9 to Argentina the American embargo, app publishers ernment nor the Trump administration is As%oftotal 15.7 to Brazil like Apple and Google blockdownloads in in a hurry to free Cubans’ access to data. Cuba. Music lovers can browse the iTunes Until they do, Los Doctores del Celular will Sources: Central Bank store, but cannot buy songs or apps; Cu- remain a bricks-and-mortar app store. 7 of Brazil; IBGE; INDEC *Estimate bans can get the free apps on Google Play, but not the ones that cost money. 2 fell apart after seven years oftalks. Mr Roque and his colleagues compen- Terrorism in Quebec City Agreement within Mercosur may also sate for such faulty connections with hu- be elusive. Recession makes Argentina’s man ones. With relatives abroad and ac- A not-so-lone wolf manufacturers more wary of heightened cess to their credit cards, they can competition from Brazilian business. Bra- download apps using “virtual private net- zilian firms are almost as nervous. Merco- works”, which can foolapp publishersinto sur has made industries in both countries thinking that they are communicating QUEBEC CITY less competitive by shielding them from with, say, Miami. Los Doctores del Celular An attackon Muslims reveals Canada’s the rest of the world with high tariffs, says then sell these on to the shop’s customers. dangerous right-wing fringe Lucas Ferraz, an economist at FGV, a uni- The clients’ phones come from relatives versity in São Paulo. overseas, the black market or Revolico, a ERRORIST attacks in Canada are rare. Mr Macri is unlikely to make offers on website that lists services and second- TThe worst ofrecent times came from an trade before mid-term elections in Octo- hand goods forsale. unexpected quarter. On January29th Alex- ber, which he hopes will boost his co- Among the most popular apps are Face- andre Bissonnette, a 27-year-old student, alition’s position in congress. The political book Messenger and WhatsApp, cheaper allegedly burst into the Islamic Cultural calendar in Argentina is “inopportune”, ways of staying in touch with families liv- Centre in Quebec City and killed six Mus- admits a Brazilian diplomat. After the elec- ing abroad than texting or calling. “We lims at prayer. The victims included a uni- tions, he thinks, progress could speed up. have a very large population of app-liter- versity lecturer, a pharmacist and a halal Even with the best intentions, Mr ate grannies,” says Mr Roque. Cubans like butcher. More than a dozen other worship- Temerand Mr Macri cannot overcome the apps that require little memory or connec- pers were wounded. awkwardness created by their size gap. Ar- tivity. Imo, a video and messaging app that The attack came amid the hue and cry gentina will be forever wary of its giant can operate with low bandwidth, is a fa- provoked by Donald Trump’s order to ban neighbour; Brazil will never treat it as an vourite. Students are customers for offline citizens of some Muslim countries from equal. However gracefully the two presi- versions of Wikipedia and apps that spe- the United States. Some people, both there dents dance, they are likely to tread on cialise in biology, maths and other aca- and in Canada, thought that the perpetra- each other’s toes. 7 demic subjects. Taxi drivers rely on offline tor was a Muslim of some sort. In fact, ac- navigation apps like Maps.me. cording to his acquaintances, Mr Bisson- Cubans are creators as well as consum- nette is an anti-immigration “white Technology in Cuba ers of apps. Isladentro, a directory of ser- supremacist” who supportsMrTrump. Ap- vices offered by small businesses, is updat- pearing in court the day after the attack, he Real virtuality ed monthly and hand-delivered on USB wascharged with sixcountsofmurder and sticks to 100 mobile-phone repair shops. five of attempted murder. He has not so far The app’s digital listings, which incorpo- been charged with terrorism. rate photos, reviews and maps, are a big The murders have focused attention on HAVANA improvement over promotional flyers, Canada’s racist fringe, an uncomfortable says Indhira Sotillo, who manages the list- topic for a country that prides itself on its On the communist island, app stores ings. These were expensive and messy, and tolerance and diversity. Before the attack pay rent “we all ended up with little pieces of paper the prime minister, Justin Trudeau, was UBANS, like citizens of most countries everywhere”, she says. burnishing Canada’s image by reaffirming C in the digital age, are familiar with app Isladentro’s imagery is crude by Retina its promise to welcome people fleeing per- stores. But theirs have actual doors, win- Display standards: maps are low resolu- secution and war regardless of their faith. dows and counters. Los Doctores del Celu- tion and photos are compressed. That is The slaughter in Quebec City, the beautiful lar, a mobile-phone repair shop a few because the data has to be stored on the and normally tranquil provincial capital, is blocks from Havana’s Malecón seaside phone rather than in the hard-to-reach a reminderthatnotall Canadiansfeel ashe promenade, is one example. Inside, a Su- cloud. Cuban-made apps are thus as does. Although hate crimes fell overall per Mario effigy, kitted out with lab coat thrifty with bytes as the locals are with from 2012 to 2014, those against Muslims and stethoscope, keeps vigil while techni- cash. Isladentro’s developers reduced the more than doubled. cians transfer apps to customers’ smart- memory it occupies from 890 megabytes Extreme right-wing views seem to be phones via USB cables attached to the to 240, says Ms Sotillo. especially common in Quebec, Canada’s shop’s computers. Although the United Such expedients may be less necessary French-speaking province. Radio poubelle States’ embargo on Cuba makes it hard to if data start to flow faster. Cuba’s commu- (“rubbish-bin radio”), as Quebeckers call buy apps and other services online, “Cu- nist government is letting that happen, but shock radio, spreads the notion that the 1 The Economist February 4th 2017 The Americas 31

2 province is overrun with Muslims (they ac- attack, the host of a show on FM93, a con- new president in the States is helping any,” count for3% ofthe population). In 2007 the servative Quebec radio station, reported, said a woman at the vigil in Quebec City to small town of Hérouxville (Muslim popu- without conﬁrmation, that an attacker had mourn the victims. But the potential for lation zero) enacted an absurd and provo- shouted “Allahu akbar!” (“God is great!”) such an attack was there before he took of- cative “code ofconduct” thatexplicitly pro- The current Liberal premier, Philippe ﬁce. A paper by Richard Parent, a criminol- hibited burning women alive or beating Couillard, has striven to contain what he ogist, and James Ellis, a scholar of terro- them to death, as if that were something calls “the devils in our society”. But even rism, warned last year that Canada was Muslims in Canada commonly do. In 2013 he has had to bow to pressure to curb reli- ignoring “the domestic threat from lone- the provincial government, led by the sep- gious dress. He has presented a new bill to wolfright-wing terrorists”. aratist Parti Québécois, advocated a char- the provincial legislature that would ban The atrocity has led to soul-searching, terofvalues that would have, amongother anyone wearing a face veil from giving or even by people who helped stir animus things, forbidden public servants from receiving a public service. against Muslims. The FM93 host admitted wearing “conspicuous” religious symbols Some Canadians suggest that the anti- that he had focused too obsessively on the such as hijabs. The measure died when an Islamic feeling whipped up by Mr Trump threat from radical Islam. Canada, per- election was called. After the Quebec City inspired Mr Bissonnette. “I don’t feel the haps, has learnt a lesson. 7 Bello Rage against the bribes department

The Odebrecht scandal may marka turning-point in Latin America’s battle against corruption ERCHED on a sandy hill overlooking gurus in election campaigns and making PLima’s oceanfront is a 37-metre-high political donations as well as outright statue of Christ, a crude copy of the one bribes. Their main method was to win that looks majestically down on Rio de Ja- contracts by making low bids and then neiro. It was unveiled in 2011by Alan Gar- corruptly secure big increases in costs cía, then Peru’s president. Now Peruvians through addenda—in some cases when see it as a monument to corruption. It was the ink on the contract was barely dry. built with a donation of $800,000 from This applied especially to contracts in- Odebrecht, Brazil’s biggest construction volving public-private partnerships company, which has admitted that it paid (PPPs), which have become fashionable $29m in bribes to secure contracts in Peru in the region and are typically used for under the three governments that preced- big, complex projects, from highways to ed the current one. hydroelectric schemes. In the largest anti-corruption settle- José Luis Guasch, formerly at the ment in history, reached in December, World Bank, has found that 78% of all Odebrecht revealed to authorities in the transport PPPs in Latin America have United States, Brazil and Switzerland that been renegotiated, with an average of over 15 years it had paid nearly $800m in where its contracts included one fora $7bn four addenda per contract and a cost in- bribes related to contracts for more than gas pipeline. A former deputy minister in crease of $30m per addendum. Thus, the 100 construction and engineering pro- MrGarcía’sgovernmenthasbeen arrested. cost of a road linking Brazil and Peru rose jects in a dozen countries. In Brazil, Ode- A prosecutor is poised to issue an arrest from $800m to $2.3bn through 22 adden- brecht was at the centre of a cartel that warrant against Alejandro Toledo, an ex- da. Such contract changes can be “fertile gouged Petrobras, the state-controlled oil president who bought several expensive ground forcorruption”, Mr Guasch says. company; its former boss, Marcelo Ode- houses after leaving office (like Mr García, Governments have moved to tighten brecht, is serving a 19-year jail sentence. he denies wrongdoing). In Colombia a for- contracting rules. Chile, Colombia and The settlement showed that in nine other mer deputy transport minister has admit- Peru have all approved laws on PPPs that Latin American countries the company ted to taking a $6.5m bribe. In the Domini- make it harder for contractors to renegoti- paid a total of $388m in bribes to govern- can Republic (bribes of $92m), Ecuador ate. More is needed. All contracts and re- ment officials and their associates. ($33.5m) and Venezuela ($98m), authorities quests for changes should be published To do so it set up a Division of Struc- are moving slowly, ornot at all. In Panama online, urges Eduardo Engel, who headed tured Operations—a “bribes depart- ($59m) the supreme court is stalling a case an anti-corruption commission in Chile. ment”—which directed the payments against Ricardo Martinelli, a former presi- And tender committees should draw through a series of offshore shell compa- dent who lives in Miami and alleges perse- members from outside infrastructure nies. Reading between the lines ofthe set- cution by his successor. ministries. tlement it is easy to identify at least two Odebrecht was not alone. Other Brazil- There is a risk that the Odebrecht reve- formerpresidents, a vice-president, sever- ian construction companies employed lations will undermine faith in democra- al ministers and the bosses oftwo state oil similarmethods. Corruption in public con- cy and that long-overdue investments in companies as recipients. No wonder the tracting is common globally, says José transport infrastructure will sufferfurther region has been talking about little else Ugaz, a Peruvian lawyer who heads Trans- delays. Butnotall isgloom. In Latin Amer- (apart from Donald Trump and some ex- parency International, a Berlin-based ica, “we are in an era in which public treme weather) since Christmas. watchdog. But, he adds, there were some opinion is playing a fundamental role” in Governments and prosecutors have unique features in the Odebrecht scandal. fighting corruption, says Mr Ugaz. And been stung into action. Peru’s president, The Brazilian companies targeted the that means that, this time, there is a good Pedro Pablo Kuczynski, has asked Ode- decision-makers, preparing the ground by chance that other countries will follow brecht to withdraw from the country, payingforthe services ofBrazilian political Brazil in punishing it. 32 Asia The Economist February 4th 2017

Also in this section 33 Police corruption in the Philippines 34 An assassination rattles Myanmar 34 How North Korea depicts the South 35 Japan expands gambling 35 New Zealand rows about citizenship 36 Banyan: the Ryukyu Islands, a fortiﬁed Eden

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

Uttar Pradesh goes to the polls state’s chief minister, Akhilesh Yadav (pictured), has broadened this base by appeal- A state of shocks ing to upwardly mobile young people, using ambitious development plans and handouts of computers for students, as well as by reaching out to Muslims. Such newfangled ways rankle with the RAMPUR party’s old guard, which includes his father and uncle. A tussle over control of the Elections in India’s biggest state could hobble orexalt the national government party, includinga legal battle overthe own- F IT were a country, Uttar Pradesh (UP) next few weeks, in a staggered series of ership of its symbol—a bicycle—has given Iwould rank just ahead of Brazil in popu- elections whose final results will be an- the SP little time to prepare. A last-minute lation, right next to Britain in land area and nounced together on March 11th. If the BJP electoral alliance with Congress has close to Lesotho in poverty. Measured by can repeat its success of 2014, it bodes well prompted furtherdissent within the ranks. the complexity of its politics, though, In- for Mr Modi’s chances of securing another But the younger Mr Yadav is personally dia’s most populous state is second to five-year term at the next national election popular, and his newfound friendship none. With a plethora of faiths, castes and in 2019. His longer-range ambition of con- with Mr Gandhi, whose forebears are political allegiances, spiced up by garish trolling the Rajya Sabha would also draw somewhat more illustrious, gives their alli- nepotism, rank criminality and a first-past- closer, and with it the prospect of pursuing ance a respectable look. the-post voting system prone to wild the less constrained Hindu-nationalist swings, elections in UP are always raucous agenda that the BJP’s base craves. Three’s a crowd and notoriously tricky to predict. A poor showing for the BJP, in contrast, India’s notoriously unreliable opinion Yet they are important. The state’s140m could help liftits only nationwide rival, the polls put the SP/Congress and BJP in a voters directly elect a sixth of the Lok once-powerful Congress, out of a pro- rough tie at just over 30% each, with the Sabha, the lower house of India’s parlia- longed tailspin. It could also provide a plat- BSP trailing slightly behind. But because ment; those MPs include Narendra Modi, form for either of two parties that are the voting system can easily tilt on a few the prime minister, as well as Rahul strong in the state, the Samajwadi Party percentage points, few experts are willing Gandhi, a high-up in India’s main opposi- (SP) and the Bahujan Samaj Party (BSP), to to call a winner just yet. They are not even tion party, Congress. The legislature that gain influence in Delhi, India’s capital. sure how Mr Modi’s most controversial sits in the state capital, Lucknow, also ap- Both have won state elections in the past. policy, the sudden voiding, in November, points a substantial share of members in The BSP’s firebrand leader, Mayawati, of 86% of India’s paper currency, will play India’s upper house, the Rajya Sabha. pulled off a stunning triumph in 2007 by out. “Demonetisation” caused severe The landslide capture of 73 of UP’s 80 forging an alliance between her own, low- shock, with businessesunable to trade and Lok Sabha seats is what clinched a sweep- caste Dalits, who make up 21% of UP’s peo- workers unable to collect pay. Yet even ing majority forMr Modi and his Bharatiya ple, and the state’s Muslim minority, who among the poor and hardest hit, many still Janata Party (BJP) in the 2014 general elec- account for a further19%. But her frivolous believe that Mr Modi did the right thing by tion. But the opposition’s lingering hold on spending—on multiple statues of herself, hitting the rich. the state assembly, dating from local elec- among other things—paved the way for a The BJP, which has a base among up- tions in 2012, helps thwart the BJP from comebackin 2012 by the SP. per-caste Hindus, holds some useful cards. gaining enough seats in the Rajya Sabha to Dominated by the Yadav family, the SP Mr Modi is a strong national figure, and his pass laws as it likes. is a traditional patronage machine with a party is less tainted with corruption than Small wonder that most eyes are strong foothold among mid-ranked castes. its rivals. The just-revealed national bud- turned to UP, even though four smaller (Yadav is also a term for several caste- get, unsurprisingly, includes tax breaks for states (Goa, Manipur, Punjab and Uttara- groups that together make up 9% of UP’s the poor and for small businesses, as well khand) are also heading to the polls in the population.) Its current scion and the as boosts to spending on rural welfare. The 1 The Economist February 4th 2017 Asia 33

2 BJP can also rely on grassroots help from state, reveals that at a local level this con- He also instructed the entire force to ob- Hindu-nationalist groups. Its local candi- test is not even about parties so much as serve a day ofprayer (pictured). dates have not shied away from pressing personalities. Kazim Ali Khan, a candidate When running for election last year, Mr religious buttons, well-worn in a state that for the BSP, happens to be the titular na- Duterte promised to rid the Philippines of has witnessed periodic sectarian clashes. wab of Rampur, whose ancestors once drugs by whatever means necessary. Even The mostrecent, in 2013,leftatleast42 Mus- ruled the district as a princely state. Abdul- before he took office, the police showed lims and 20 Hindus dead. lah Azam Khan, the SP candidate, is from a unusual alacrityin anticipatinghis wishes, But such tactics were tried in state elec- rival clan whose forebears are said to have mounting operations in which officers of- tionsin 2015in the neighbouringstate ofBi- worked in the royal stables. The two clans ten killed suspects alleged to have resisted har, where the BJP had also done well in have been enemies forgenerations. arrest. In office, Mr Duterte has egged the national elections. They failedafter two lo- Mr Khan the nawab, who has switched police on, giving inflammatory speeches cal parties unexpectedly buried their dif- party allegiance several times over the calling for the slaughter of drug-dealers, ferences and merged, winning in a land- years, accuses the rival clan of exploiting and promising to protect officers who kill slide thanks in part to a solid Muslim vote. public office to enrich itself by grabbing suspects. He rebuffed, often rudely, expres- Few Muslims will vote for the BJP,leav- land from the rural poor. Speaking in a tent sions of concern that his campaign might ing the SP and BSP to compete for their fa- erected in a village, he urges voters to pun- be violating human rights. vour. But a visit to Rampur, a Muslim- ish the other side. “This is not an election,” The police’s own records indicate that dominated district in the north-west of the he says. “It’s a war.” 7 since Mr Duterte became president in June officers have killed 2,555 drug suspects alleged to have resisted arrest. The figures indicate that another 3,603 killings connected with the drug trade remain unsolved. The victims had often been abducted, bound and tortured. Officers usually ascribe such deaths to fighting between drug gangs or to mysterious vigilantes. But many Filipinos assume that the police and gangs or vigilantes are often one and the same. In the 24 hours after the purge of the police was announced, reports of unexplained killings abruptly ceased. Mr Duterte reacted to the scandal in typical fashion, holding a press conference in which he revealed a vague plan through a rambling monologue punctuated by coarse exclamations. “You son of a whore!” he said, addressing himself to the drug-squad officer suspected to be the mastermind of the kidnapping. The president offered a reward of 5m pesos ($100,000) for his capture. “Dead or alive,” Mr Duterte said. “If you bring him dead, the better.” Mr Dela Rosa leant in to whis- per to the president that the officer was already in custody. MrDuterte ploughed on, inveighing against the police force in gen- Police corruption in the Philippines eral, which he described as corrupt to the core. “Youuse the powerto enforce the law The usual suspects and arrest people for shenanigans,” he said. “Almost 40% or so of you guys are ha- bituated to corruption.” This assertion—in contrast to the standard mantra that only a small minority of MANILA officers are bad apples—drew attention. After all, Mr Duterte was a close ally of the The president admits his drug-squad officers are even worse than the drug-pushers police duringhiscareerasa prosecutor and VEN Rodrigo Duterte, who initiated a ily,pocketed the money and then strangled then mayor of the Philippines’ third-big- Ebloodthirsty campaign against drug- him, burning his body and flushing the gest city. Until now he has unstintingly dealers and drug-users on becoming presi- ashes down a lavatory. supported the tactics the police have used, dent of the Philippines last year, and who After the National Bureau of Investiga- and reserved expressions like “son of a brooks almost no criticism of his war on tion, a separate agency, revealed all this, Mr whore” for their critics. In the unlikely drugs, had to admit that the police had Duterte ordered a pause in the campaign to event of the purge of the force leading to gone too far. give the police time to purge theirranks. He prosecutions, the question of whether the Policemen from the national drug now wants the Philippine Drug Enforce- president turned a blind eye to murders of squad, including senior officers, falsely ac- ment Agency, another independent force, drug suspects—or even incited them—is cused a South Korean businessman of in- to lead the war, which he says will contin- bound to be asked. ButifMrDuterte is wor- volvement in narcotics. They hauled him ue until his term ends in 2022. Ronald Dela ried, he shows little sign ofit. “I don’t give a off to the national police headquarters in Rosa, the director-general of the police, shit,” he insists. “I have a duty to do, and I Manila, demanded ransom from his fam- said he was disbanding all its drug squads. will do it.” 7 34 Asia The Economist February 4th 2017

How North Korea depicts the South Blurred derision

SEOUL The North Korean media cheerthe political chaos across the border OTHING can stop the South But the government in the North no “NKorean people’s righteous fight to longer has a monopoly on information. drive out the darkness ofdictatorship More North Koreans are tuning in to and…usher in the dawn ofa new democ- foreign radio broadcasts, and South racy.” The phrase could almost be mistak- Korean dramas are smuggled into the en forthe rallying cry ofone ofthe mil- country on USB drives. The prominent lions ofSouth Koreans who have joined coverage of the South Korean protests in weekly protests to unseat their democrat- Rodong Sinmun, meanwhile, has inadver- ically elected president, ParkGeun-hye. tently made them a sanctioned topic of But it actually appeared last month in discussion in the North, says DailyNK, a North Korea’s Rodong Sinmun, the official news outlet with informants there. newspaper ofa darkdictatorship. The protests against Ms Parkhave also Since an influence-peddling scandal stirred debate among many defectors surrounding Ms Parkerupted in October, living in the South. Lee Jeong Hyeok, who the chance to jeer at her misfortune— escaped from North Korea in 2002 as a North Korea routinely insults her as a teenager, has taken to the streets. It was “miserable political prostitute”—has been his first real opportunity, he said, to act too good for its propagandists to pass up. out the democracy that he had been An assassination in Myanmar They have published news and pictures taught in the South’s textbooks. His North ofthe demonstrations with impressive Korean girlfriend tookphotographs to Death of an speed, and cheered Ms Park’s impeach- show her future children an event that ment in December by South Korea’s was “unimaginable” when they were advocate National Assembly. living in the North. Even those Northern- Public protests against the govern- ers who know Rodong Sinmun is dis- YANGON ment ofthe South are “pure gold” forthe torting the news, says Mr Lee, struggle to North’s regime, says Sokeel ParkofLiber- understand what is really happening. The killing ofa prominent Muslim ty in North Korea, a group that works Another North Korean defector who lawyerrattles the country with defectors. Yet denigrating the South demonstrated in Seoul says that, while in O NI was shot in the head at close range is not as easy as you might think. In its the North, he had read about mass prot- Kin broad daylight. He was waiting for a latest footage KCNA, the North’s official ests in South Korea out ofcuriosity, yet taxi outside Yangon’s bustling internation- news agency, gleefully showed the ser- had never seen them as relevant to his al airport, holding his three-year-old ried ranks ofprotesters in Seoul, but situation. He had voted in North Korea (it grandson in his arms. A prominent lawyer blurred the city’s skyscrapers, presum- holds sham elections) as well as in the and adviser to the ruling National League ably in an attempt to hide from the South. But the recent protests, he said, for Democracy (NLD) party, he had just re- North’s downtrodden subjects the pros- had brought home to him that democra- turned from Indonesia, where he had been perity over the border. cy must be fought for, too. part of a delegation studying democracy and conflict resolution. Mr Ko Ni was also a Muslim and a against the nationalists…people who ious. Some NLD members suspect Mr Ko prominent defender of religious minor- speak the truth about the situation in Rak- Ni was chosen for his religion—not out of ities in a country seething with anti-Mus- hine state…are not secure.” bigotry, but to undermine the government lim sentiment. The climate has worsened Whether Mr Ko Ni’s killer targeted him through religious discord. Nyan Win, an since attacks on Burmese border guards because of his religion and as a prominent NLD executive-committee member, said in last October that have been blamed on the advocate of tolerance remains unclear. Po- a televised interview that he feared further Rohingya, a persecuted Muslim minority lice arrested a 54-year-old named Kyi Lin assassinations. Some see a military link: group. Since then the Burmese army has shortlyafterthe killings. (Taxi drivers atthe Mr Ko Ni was a constitutional expert, and taken a scorched-earth approach in north- airport had chased the fleeing gunman; he had advised the government on reforms to ern Rakhine state, home to the largest con- shot one of them dead before being over- the charter, imposed on the country in centration of Rohingya. Human-rights powered by others.) Little is known about 2008 after a sham referendum, that gives groups and international monitors have him. Initially he claimed to come from vast and unaccountable power to the accused the army of torching villages and Mandalay, the country’s second city, but army. A press release from the president’s rapingand murderingmanyoftheirinhab- police later said that was untrue. office after the murder claimed its intent itants. Mr Ko Ni, who was not himself Roh- The Irrawaddy, an independent news was to “destabilise the state”. ingya, spoke against the law that long ago website, reported that Mr Kyi Lin told po- If so, it has failed—for now. After Mr Ko stripped them ofcitizenship. That was dar- lice he had been hired by a man named Ni’s murder, friends and relatives gathered ing: most people close to the government Myint Swe, who had promised to reward nearhis home in Yangon’s colonial district. see the Rohingya as interlopers from Ban- him with a car. Both men have reportedly “We are very angry”, said one Muslim NLD gladesh, with no right to stay in Myanmar. dabbled in illegal antiquities-dealing, but member, “but we will control our anger.” Unsurprisingly, Mr Ko Ni had received no clear motive has emerged for the mur- Ko Lay, a 43-year-old sailor who lives near- death threats from Buddhist extremists. der. Police later said they had arrested Mr by, said Mr Ko Ni “did so much good forthe One Muslim activist who preferred to re- Myint Swe near the border with Thailand. country, but we cannot always know if main anonymous said: “People who speak But that makes Myanmar no less anx- people love him or hate him.” 7 The Economist February 4th 2017 Asia 35

Gambling in Japan Bureaucrats are crafting more legislation to Citizenship in New Zealand decide how many resorts to permit and In a spin where to put them. This, say analysts, is where the road could get bumpy. Exceptional Some politicians want to deter locals Sydney from visiting casinos by imposing an entry A tech billionaire becomes a Kiwi TOKYO tax. Pachinko’s seedy reputation is one reason. Though the industry has shrunk by T WOULD give me great pride to let The government has legalised casinos, about 40% from its peak20 years ago, there it be known that I am a New Zea- but Japanese still do not like the idea “I are still about 11,000 pachinko parlours— land citizen,” Peter Thiel wrote in his OST forms ofgambling are banned in and thousands of addicts. Public hostility application to become one in 2011. “I MJapan, but many Japanese still like to recently forced the mayor of Yokohama, have found no other country that aligns have a flutter. Over ¥23trn ($203bn) is one of three proposed sites for the resorts, more with my view ofthe future”. Yet Mr waged annually on pachinko, a noisy var- to begin back-pedalling on her support. In- Thiel, a German-American billionaire, iant of pinball. Add in lottery tickets, plus vestors fear outbreaks of NIMBYism else- seems to have managed to contain his horse, boat and bicycle racing—the only where, too. In a recent survey 75% of Japa- pride in the five years since the applica- other types of betting allowed—and you nese said theywould notlike a casino to be tion was approved. His status only behave a vast industry. Pachinko players built near their homes. came public knowledge last month, after alone spend more than the combined bet- Officials in Osaka have come up with a documents detailing a property pur- ting revenue of all the casinos in the way around this problem: they want to chase were dug up by the New Zealand world’s top gambling resort, Macau. build a resort on an artificial island in Osa- Herald, a newspaper. Japan’s government has struggled to ka Bay. Well-heeled tourists, mainly from The news provoked outrage in certain convince citizens that the current strictures China, are expected to be the main punt- quarters. Would-be New Zealanders should be relaxed. When the Diet legalised ers, says Susumu Hamamura, a Komeito must normally spend the better part of casinos in Decemberafteryears ofpolitical politician. About 20m people visited Japan five years living in the country before wrangling, a poll by NHK, the country’s last year. The government wants to double becoming citizens. Mr Thiel had visited public broadcaster, put support for the this by 2020, along with the roughly the country only fourtimes when he move at just 12%. The leader of Komeito, a ¥3.5trn that tourists spend annually. lodged his application. The government party with Buddhist roots that is part ofthe Even ifthe casinosgetoffthe ground, Ja- ofthe day granted him citizenship none- governing coalition, voted against the bill. pan faces stiff regional competition from theless, under a rule that allows the Critics said it would exacerbate problem Macau, Malaysia and Singapore. Whatwill normal requirements to be waived gambling and attract “anti-social forces”, a give the country an edge, predicts Mr Yone- under “exceptional circumstances”. euphemism for yakuza gangs. kawa, is Japanese culture. The proposed Mr Thiel’s application, released by Shinzo Abe, the prime minister, insists sites for another mooted resort, in Hokkai- New Zealand’s government on February casinos will be only one part of family- do, Japan’s northernmost island, are onsen 1st, stressed his contribution to the econ- friendly resorts, with hotels, shops and (hot spring) retreats, he points out. “Japa- omy. MrThiel had set up a venture- conference facilities. In an anaemic econ- nese cuisine and hospitality will win capital fund in Auckland before applying omy, his enthusiasm is not hard to under- many customers.” forcitizenship, and had invested $7m in stand: the construction of these huge com- Mr Hamamura agrees. He voted for the two local ventures. As a Silicon Valley plexes could generate ¥5trn in economic casino bill despite opposition from his luminary (he co-founded PayPal, a pay- activity—with another ¥2trn a year once own party boss because he believes it will ments firm, and sits on the board of they have opened, largely from increased be good for Japan. “Over 140 countries Facebook) he was well placed to assist tourism, estimates Makoto Yonekawa of have legal casinos; why should we be left Kiwi startups. He would, he promised, the Daiwa Institute of Research, a think- out?” he asks. Even he accepts, however, devote “a significant amount ofmy time tank. that most Japanese are “emotionally” and resources to the people and busi- Foreign casino-operators have already against casinos and will need to be con- nesses ofNew Zealand”. His foundation begun lobbying for a slice of this pie. Las vinced. He plans to win them over, he says, had also donated $1m to an appeal for Vegas Sands, MGM Resorts and Hard Rock by explaining one of the overlooked bene- the victims ofa recent earthquake. Café International are among the compa- fits of the resorts: they will give foreigners Mr Thiel is not the first person to have nieslookingforlicencesand local partners. something to do at night. 7 the residency requirement waived: the government sometimes hurries through citizenship forsportsmen who might represent New Zealand internationally, forinstance. But his case, critics maintain, gives the impression that passports can be bought—something the government denies. Many Kiwis shrugged. The country already grants residency to investors, and seems to have done well out ofMr Thiel. Some ofthe consternation may stem from Mr Thiel’s politics: he was a big donor to Donald Trump’selection campaign. He has also voiced support, unlike most in Silicon Valley, forMr Trump’snew restrictions on immigration. Whether he would advocate exceptions to those rules is not clear. 4% of GDP 36 Asia The Economist February 4th 2017 Banyan Sun, sand, sentinels

As geopolitical tensions grow in East Asia, so does the discomfortofthe balmy Ryukyu Islands Taiwan,anditishard toimaginehowconflictbetween China and America over that country would not draw in Japan. Yonaguni is also the closest inhabited Japanese island to the Senkaku islets, which, with growing ferocity, China claims (and calls Diaoyu). On a hill behind Kubura a chain-linkfence and CCTV are goingup around a new base for 160 troops from Japan’s Self-Defence Forces. The base is to conduct surveillance of the surrounding seas and skies. Yonaguni has become the new tripwire. The base was controversial among the 1,500 islanders, over two-fifths of whom voted against it. Even those in favour blame Japanese right-wingers, especially a former Tokyo governor, Shintaro Ishihara, for inflaming the Senkaku dispute. In the end, strong-arming by the central government and a promise of economic benefits from the base won the day. More bases are planned for the southern Ryukyus. A heliport is mooted forthe more populous Ishigaki, from which the Senka- kus are administered. All the cement and barbed wire may even help to convince the sceptical Donald Trump that Japan is pulling its weight in its alliance with America. Shinzo Abe, the hawkish prime minister, needs little encouragement. Few people in Okinawa think open hostilities with China are T THIS time ofyear packice grinds the beaches ofnorthern Ja- imminent, or perhaps even likely. But many resent the way geo- Apan, but in the Ryukyu Islands in the south farmers are cut- political tensions and a hawkish government are spreading the ting sugar cane. The Japanese archipelago spans an immense dis- curse of military encampments: previously, the southern Ryu- tance: from Cape Soya in northern Hokkaido a smudge on the kyus had but one small radar base. horizon reveals Sakhalin in Russia’s Far East. From the tiny island That stands in contrast to the northern end of the chain. Oki- of Yonaguni, last in the Ryukyu chain, you can sometimes make nawa, with 0.6% of Japan’s land area, plays host to three-fifths of out the mountains ofeastern Taiwan. all America’s facilities in Japan and halfofthe 53,000-odd Ameri- Over lunar new year the Ryukyu Islands, which together can troops. Nearly a fifth ofthe main island is given over to Amer- make up Okinawa prefecture, were heavingwith holidaymakers. ican bases. For70 years, Okinawa hasbeen the fulcrum ofAmeri- Okinawa has a growing reputation as an island paradise for all ca’s military presence in Asia. tastes. Package tours poured families from mainland China into The Americans first came in the 1850s, with gunboats opening the airport at Naha, the capital, for winter sun, duty-free malls the Ryukyus as well as Japan to trade. They reappeared at the end and hearty stir fries—spam is a speciality. Some 400km farther ofthe second world war, fightingtheirway towards Japan proper. south, a cruise ship nosed between coral reefs into the main port The Japanese authorities, who before the war had tried to snuff of Ishigaki island and disgorged Taiwanese tourists in search of out the local culture and language, mounted a furious defence in the local black pearls. A few adventurers even made it to Yona- Okinawa to save the “home islands”. Roughly a quarterofOkina- guni, where they dived among the hammerhead sharks or stood wansdied, caughtin the brutal fighting. The survivors emerged to on the quay in Kubura to watch the fishermen bring in their daily find Americans their masters. America then fostered not just a haul of swordfish. The island lies in the middle of the life-giving taste forspam, but also a distinct local identity, hoping to dampen Kuroshio current, the western Pacific’s GulfStream. Okinawans’ desire to rejoin Japan. When Okinawa did revert in Among security types, Okinawa is known as a garrison is- 1972, the bases stayed. The resentment feeds an Okinawan sense land. The roar of F-15s is certainly a feature of life in Naha, but ofseparateness, and even a tiny independence movement. most visitors get little hint of the military presence. The sense of peace is not a figment oftourist brochures. Pacifism is hard-baked Spam today, spam tomorrow into Okinawans’ sense of themselves. Masahide Ota, a former In elections, Okinawans vote overwhelmingly forcandidates op- governor, once said the main features of the Ryukyu kingdom, posed to the American bases and to the noise, accidents and which was independent until Japan annexed it in 1879, were a crime associated with them. This weekthe governorofOkinawa, “devotion to peace and an absence of weapons”. Okinawans Takeshi Onaga, flew to Washington to convince the Trump ad- love to mention Basil Hall, a naval captain who visited in 1816 and ministration not to carry on with the construction ofa hugely un- marvelled at the kingdom’s mildness, decorum and seeminglack popular new base for American marines. Yet the American de- of weapons. Hall later called on Napoleon Bonaparte in St Hele- fence secretary, James Mattis, was also on his way to Japan, na and perplexed the exiled emperor with tales of the Ryukyus. reportedlyto emphasise the firmnessofthe alliance and the need “But without arms, how do they fight?” Napoleon exclaimed. forJapan and America to worktogether. In truth, there were arms. But squeezed between bigger neigh- In Tokyo Mr Abe’s allies speakwitheringly ofOkinawans, but bours, China and Japan, it suited the Ryukyuans to promote a shy away from suggestingbiggerbases in the heartland. Okinawa sense of Confucian virtue. And peace is a fragile thing, even to- considers itself doubly colonised, by both Japan and America. day. Just as Hokkaido once lived on a cold-wartripwire, facingthe Sadly, with regional tensions only likely to rise, its continued sub- Soviet Union, so the Ryukyu Islands are caught up in East Asia’s jugation seems assured. And the curious mix of tourist paradise 21st-century geopolitics. Yonaguni is little more than 100km from and bristling fortification will grow ever more jarring. 7 China The Economist February 4th 2017 37

Also in this section 38 A tycoon’s troubling disappearance

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

Local government and—perhaps—more popular. But do they? In recentmonthsstate media have been Call the mayor! promoting what they call a model example—the 12345 hotline in Jinan, capital of the coastal province of Shandong. It was launched in 2008, has about 60 operators on duty and gets nearly 5,000 calls a day, BEIJING rising to 20,000 on busy ones. In 2014 Wang Zongling of the Standardisation Ad- Forlocal officials, hotlines play an important political role ministration, which sets national stan- N 1375 a secretary in the justice depart- zhou, in the south, did so in 2015. The uni- dards, looked atthe hotline’simpacton the Iment wrote a long petition to the Ming fied ones all use the same number, 12345. government in Jinan. Before it was set up, emperor. Bored by the endless preamble, Such services may sound parochial, but the city had 38 hotline numbers for con- the Son of Heaven had the functionary they play an important role. Chinese offi- tacting different departments. That was dragged to the court and flogged. That cials find it hard to gauge what citizens are “chaos”, the administration said. night he read to the end of the petition and thinking. There is no free press and no elec- The single hotline brought some order. discovered four sensible proposals tions to give them clues. Internet chatter is The average time for handling a complaint crammed into its final page. He ordered censored automatically, often before criti- fell from 10-15 days before it was set up to them to be enacted the next day. cism reaches officials’ ears. So e-mails to five afterwards. The share of calls put Xi Jinping, China’s president, is less at- the “mayor” and hotline calls provide rare through to the right person rose from 80% tentive to petitions (called “memorials to and valuable guides to public concerns to 97%. Partly because it is now possible to the throne” in imperial times) than was his about a wide range of issues: local govern- call city hall without wasting your time, Ming predecessor. China still has bureaus ments handle everything from social enquiries rose from just over 4,000 a day where citizens can appeal against official housing to education and health care. The between 2008 and 2011 to almost 5,000. injustice, but the government discourages Communist Party hopes that the hotlines Since the 12345 operators were better people from using them. It often locks up and e-mails will make local administra- trained than before, they processed calls those who try, putting them in “blackjails” tions more accountable, more efficient more quickly and the cost per call fell. without trial. But ifappeals to the emperor But Jinan is a special case. A survey last now fall on deaf ears, humbler forums for yearby Dataway Horizon, a consultancy in complaint are encouraged. The two main Hotting up Beijing, found wide variations in the quali- ones are known as “mayor’s mailboxes” China, recorded public protests*, ’000 ty of service. In Beijing, Shanghai and and “12345 hotlines”. Chongqing, which are among the richest 12 There are mayor’s mailboxes on the XI JINPING BECOMES LEADER cities, all hotline calls were put through websites of every municipal government, 10 right away. In Yunnan, Tibet, Shaanxi and Total usually indicated by a button next to a bio- 8 Qinghai—less-developed provinces in the graphy of the official with an exhortation west—only a fifth of calls were even an- to “write me a letter” (or, in practice, send 6 swered on the first attempt. A meeting last an e-mail). The hotlines allow people to be Resulting in 4 July to introduce a hotline in Wuxi near put through to a local bureaucrat. The first detentions Shanghai reportedly degenerated into a one wassetup in 1983. Since then theyhave 2 squabble between a deputy mayor and proliferated, creating an unco-ordinated 0 district councillors who argued that it tangle. But the past few years have seen 2009 10 11 12 13 14 15 16† would waste money. In nearby Hangzhou *Involving ten or more people rounds of consolidation. Shanghai an- † the hotline crashed last month when par- nounced a single hotline in 2013. Guang- Source: Dui Hua Foundation To June 30th ents flooded it with calls complaining that1 38 China The Economist February 4th 2017

2 school exams were too difficult. their lives talking to one other about party say they were told on January 28th that the In an attempt to improve widely vary- business, not listening to the public. Over mainland-born businessman had van- ing levels of service, the central govern- the next few months, party committees ished. They say records show that Mr Xiao ment recently laid down rules for running across the country will hold tens of thou- (pictured) crossed the border the previous 12345 hotlines. Startingin July,calls must be sands of meetings to discuss preparations day. On a social-media account operated answered within 15 seconds, at least one for a five-yearly congress in Beijing later by his company, Tomorrow Group, Mr person on duty should be able to speak a this year. As some officials admit privately, Xiao said he was receiving medical treat- language other than Mandarin and the none of these gatherings will help them ment abroad and denied having been ab- line should be open 24 hours a day. understand any better what most of the ducted to the mainland. But the South Chi- Perhaps because they are often poorly country is thinking. Perhaps the hotlines na Morning Post, a newspaper in Hong run, hotlines do not seem to be making lo- and mailboxes may. 7 Kong, quoted a source close to him as say- cal governments any more popular. These ing the businessman was indeed in main- form the most despised tier of authority in land China. Another unnamed source, China: many ofthe most egregious face-to- Hong Kong quoted by the Financial Times, said Mr face abuses of power take place locally. In Xiao had called his family and told them Jinan, despite all those efficiency gains, the Trembling tycoons that he had been taken by mainland police survey found that “enquirer satisfaction” and that he was fine. was only 1.3% higher after the hotline was The case has drawn considerable atten- established than before it. The spread of tion in Hong Kong. Memories are fresh of hotlines has had no discernible impact on HONG KONG the abduction a year ago of a bookseller the rise of anti-government demonstra- from Hong Kong to the mainland by Chi- A billionaire’s disappearance sows tions, mostofwhich are aimed atlocal gov- nese agents. He, as well as three associates anxietyabout China’s secret agents ernments (see chart, previous page). who were detained while visiting the But it is possible that there would have IAO JIANHUA was not alone among mainland, were eventually allowed to re- been even more protests without the safe- X mainland China’s mega-rich in his turn to Hong Kong. But another colleague ty-valve ofhotlines. State media say one of fondness for the Four Seasons hotel in who was snatched from Thailand remains their roles is to help with “stability mainte- Hong Kong’s financial district. It describes in custody on the mainland. China’s treat- nance” by alerting officials to potential itself as “perfect for the business elite”, ment of the booksellers appeared to be re- flashpoints. Many public protests relate to amongwhom MrXiao certainly ranks. Hu- lated to their trade in gossipy works about bread-and-butter issues, such as the ones a run Report, a rich-listcompiler,named him China’s leaders. It was the most blatant local newspaper said were most frequent- last year as China’s 32nd wealthiest man, trampling on the autonomy of Hong ly raised by callers to the 12345 hotline in with a fortune of $6bn. He is reported to Kong’s police since the territory’s return to Nanjing, a southern city: the management have made the hotel his home, on and off, China in 1997—at least, until now. of apartment blocks, the water supply,ille- since 2014. Yet the “luxurious and stylish Mr Xiao is unlikely to draw as much gal construction, violations of consumer sanctuary” ofitssuites, and MrXiao’steam sympathy. But businesspeople in Hong rights and shoddily built housing. of female bodyguards, may not have Kong will be watching closely. Some of The same topics flood mayors’ mail- proved enough to protect him. He has now them are familiarwith the thuggishness of boxes (both virtual and real). Diana Fu of disappeared—snatched, very possibly, by China’s police through their dealings on the University of Toronto and Greg Distel- mainland China’s security agents. The the mainland. With its far fairer legal sys- horst of the Massachusetts Institute of mystery has compounded worries in tem, Hong Kong has long been viewed as a Technology have trawled through over Hong Kong about the reach of China’s haven—not least, by mainlanders like Mr 8,000lettersande-mailssenttomayors’of- heavy-handed police. Xiao (whose statement on social media fices in nearly 300 cities. They found that Hong Kong’s own police, who suppos- this weeksaid that he was also a Canadian environmental problems headed the list of edly enjoy independence from China’s, citizen and had a diplomatic passport from concerns. Four of the top 15 involved va- an unnamed country). rious kinds ofdispute over property. It is unclear why the mainland’s police Arguments over property are among would want to question him. But his con- the most frequent causes of unrest. Local nections with China’s political elite, as government is largely financed by selling well as his vast wealth—his company has land, which is often seized without fair business interests ranging from finance to compensation. Very few people dare to information technology, property and protest explicitly about political issues, but mining—have made him a topic of much all politics is local—and in China local poli- speculation. During the Tiananmen tics is all about land. Square protests of 1989 Mr Xiao led a pro- Calling for the resignation of a mayor government student union at Peking Uni- may be risky,but the correspondence read versity, the nerve centre of the unrest. That by Ms Fu and Mr Distelhorst shows that loyalty may have helped his rise to be- complainants are not shy about pointing come “somethingofa bankerforthe ruling fingers at lower-level officials. “Zhou’s be- class”, as the New York Times described haviour is despicable,” seethes one writer him in an investigative report in 2014. abouta civil-service examinercaught up in If, as local media suggest, President Xi a bribery case in Zhaotong city, Yunnan Jinping’s anti-corruption drive has spilled province. Another, from Shaanxi province, overinto HongKong, alongwith its settling asks: “Is it possible that the budget for road of political scores, then Hongkongers repairs has been swallowed up by corrup- would be rightto be nervous. Manypeople tion (just a suspicion)? I would not rule out on the mainland will be watching closely, reporting it to the media…” too. As Mr Xiao’s career appeared to show For bureaucrats, such accusations may at least until recently, it pays in China to be be a salutary surprise. Most officials spend Where now, Xiao? politically attuned. 7 Middle East and Africa The Economist February 4th 2017 39

Also in this section 40 Hassling street vendors in Africa 41 Dollar shortage in Nigeria 41 Jordan in retreat 42 Rebuilding Mosul

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

Trade restrictions Africans still live. Apart from a few tourists, most of the African Queen roughly 300 passengers on the Liemba are traders. “Almost every person travelling has their cargo,” says the captain, Titus Benjamin Mnyanyi. Middle-aged women buy third-class tickets for 34,000 Tanza- ON LAKE TANGANYIKA nian shillings (about $15), stow their merchandise whereverthey can and find spots What a century-old German ship says about trade in modern Africa to sleep on deck. On its way to Zambia, the T IS a little after 10pm when the world’s rican Queen”. ship stops at around a dozen places in Tan- Ioldest serving passenger ship makes her Overa centurylater, the Liemba still car- zania, where they sell their wares. On your first stop. Rolling on a gentle swell, small ries passengers from Kigoma to Mpulungu correspondent’s journey, the main cargo wooden boats pull up alongside its riveted in Zambia and back. She remains one of was tonnes of tiny dried fish and pineap- hull. Lights from the deck illuminate the the largest boats on any of Africa’s lakes, ples, which filled almost every space not packed vessels; ropes are flung up and tied just behind the MV Victoria further north. occupied by a human. to railings. Women in billowing wraps Operated by the Tanzanian government, Many of those on board want to make come on board with their suitcases, legs the ship has become a vital link for people their fortunes. Among them is Fidelis briefly flailing as they are pulled through around the Great Lakes region of Africa, Uzuka, a 38-year-old from a village near Ki- the hatch. Men load enormous bags into a one of the continent’s most densely popu- goma. Having farmed ginger most of his net hanging from a crane. In the other di- lated areas, with tens ofmillions of people. life, he recently switched to trading it. He rection, boxes of gin, batteries, bags of Yet her importance to the regional econ- paysaround 1,000 shillingsperkilogram in clothes and, at one point, a sewing mach- omy is also indicative of the failure to Kigoma; in Lusaka, Zambia’s capital, he ine, are passed down perilously by hand. spread investment in infrastructure away can sell it for four times that. On the way Miraculously, nothing and nobody falls from coastal citiesto the placeswhere most back, he brings second-hand clothes. In a into the blackwater. black notebook he diligently writes down So goes trade on Lake Tanganyika, the 500 km the prices of different commodities at dif- world’s longest lake. The ship is the MV UGANDA KENYA ferent places along the route. “I want to be Liemba, brought to central Africa as the Lake a big businessman, like Donald Trump or Graf Goetzen by German colonists in 1913. RWANDA Victoria Richard Branson,” he says, before asking Originally built in Lower Saxony, she was BURUNDI where he can buy books to help him learn Bujumbura transported in 5,000 boxes by rail to Ki- how to make money. goma on the north-eastern shore of the Kigoma Yetthe passengersare notonlyvendors; Lake TANZANIA Dar es lake and reconstructed there. During the Tanganyika Salaam they are also customers. As she moves first world war she served as a troop tran- through the darkness, the ship is a continu- Tazara INDIAN sporter and gunboat until 1916. After sever- CONGO Mpulungu railway OCEAN ous festival. Downstairs, men at trestle ta- al skirmishes, fearing capture by either the bles do a roaring trade in cheap cigarettes, British or the Belgians, her crew scuttled plastic packets of konyagi (a cheap Tanza- her. In 1924 she was fished up again and re- nian spirit) and biscuits throughout the named. Among other distinctions, she is ZAMBIA Mkushi night. According to one crew member, MALAWI thought to be the inspiration for the gun- Lusaka there are prostitutes and drugdealers on boat Luisa in C.S. Forester’s novel, “The Af- board (your correspondent failed to prove 1 40 Middle East and Africa The Economist February 4th 2017

2 this allegation, but the close attention of Street vendors in Africa Zambian customs officials suggests they believe it too). An unfree trade Normally the Liemba takes three days to reach Zambia. But like much trade in central Africa, there are often interrup- tions. Sometimes the ship is stranded by mechanical failures, forcing traders to take KAMPALA AND KIGALI their wares onwards in small wooden Cracking down on hardworking people boats instead. At other times, normal service has been disrupted by war. In 2015 UNNING away is part of life, explains thousands of Burundian refugees were RMeddy Sserwadda, eyeing the road. moved from beaches just across the border Each morning he buys belts from a market in Tanzania south to Kigoma—600 in central Kampala, the capital of Uganda, crammed on the decks at a time. “It was selling them on a downtown street for a easy to fit them,” says Mwendesha Loulo- small profit. He works without a licence— eka, one of the sailors. “They had almost the city government has stopped issuing nothing with them.” In 1997 the ship repa- them—and flees when enforcement offi- triated thousands of Congolese who had cers approach. “They don’t want us to fled the bloody war there. make the city dirty,” he says, crouched be- What is the future for this floating tem- side some fugitive mango-sellers. Officials ple of commerce? The vibrant Liemba is have twice confiscated his goods. His cous- proof of the abilities of entrepreneurs— in, who is also a street vendor, has spent they have made this ship their own. But it time in prison. is also testimony to the poverty of infra- For Mr Sserwadda, and many others in structure in the region. Kigoma was envis- Africa, street vending is a means of surviv- aged by the German colonists as a major al. But city authorities see it as an eyesore, a inland city; the province is indeed now nuisance and a threat. Those in Lagos, in home to over 2m people. Yet there has Nigeria, try to ban it entirely with a thug- been almost no new investment since the gish unit called “KickAgainst Indiscipline”, Germans left after their defeat in 1917. The which mostly seems to kick small traders. railway station is still among the grandest In Harare, the capital of Zimbabwe, they You can’t do that here in east Africa, but the tracks are poorly try to wash away vendors with water can- maintained. There are no unbroken tar- non. In Kampala, which launched a fresh into complex supply chains, often obtain- mac roads entering the city. Getting to Bu- crackdown in October, arrested traders are ing their wares from formal suppliers and jumbura in Burundi, the nearest big city, swiftly churned through a city court. Most paying tax on purchases of stock. Most only a little over 100 miles away, takes six cannot afford to hire a lawyer or pay fines would prefer a market stall to trading on hours by bus. of up to 600,000 shillings ($170). Prison the streets. But new markets are often built This region could be rich. The soil sentences are as long as three months. in unattractive places, with prohibitive around the lake is some of the most fertile In Kigali, Rwanda’s fastidious capital, a rents. One development in Kampala is in Africa; the lake is full of fish. From Mpu- street vendor died in May after being beat- half-empty, cut off from downtown shops lungu in Zambia a good road leads all the en up by security officers, who were later by a cacophonous road. In this respect, Ki- way to Lusaka, from where buses and lor- jailed. Hundreds of others are detained gali does better: it has recently built 12 new ries head to South Africa. Lake Tanganyika without trial in so-called “transit centres”, markets, including one by the bus station, could link the manufacturers of southern says Human Rights Watch, an American and waived rent and taxes fora year. Africa to the rapidly growing consumer NGO. One shoe-seller says she was held The best schemes involve vendors in markets of east Africa. Instead, in 2014 fora month, notknowingwhen she would their design. In the post-apartheid revamp Zambia accounted for just 0.6% of Tanza- be released, and given one cup of maize a of Warwick Junction, a transport node in nia’s imports. The Tazara railway line, built day. She rolls up her skirt to show where Durban, South Africa, traders were con- by Maoist China in the 1970s to connect the her leg was beaten with a stick. “They call sulted on projects like a traditional-medi- two countries, is another link that has fall- us thieves,” says another hawker, who re- cine market and purpose-built cubicles for en into disrepair. calls seeing street children as young as sev- cooking cows’ heads. Vendors’ groups also According to the African Development en in detention. Rwandan officials deny urge governments to recognise their rights Bank, inter-African trade made up just 16% abuse, insisting that the centres “rehabili- in law (as India did in 2014). Street trade, of the continent’s total trade in 2014. That tate” vendors and direct them to retraining. they note, is central to urban life: it ac- figure has increased from 10% in 2004, but Behind such repression lies a vision of counts for12-24% of employment in the in- it is still low compared with other regions the ideal cityasa showcase forinvestment. formal sector in a sample of African cities, of the world. Among the bits of the conti- Kigali aspires to be a manicured hub for fi- says WIEGO, a network of researchers and nent that lose out worst are landlocked nance and technology; itsmayorhascalled workers’ groups. countries and areas such as Lake Tanganyi- vendors “an impediment to cleanliness”. Arrests will not stop street vending, be- ka, which are farfrom both their capital cit- Many other governments see the urban cause there are not enough jobs: only a ies and the sea. Poor infrastructure is not poor as a threat to public order. There is sixth of Africans under the age of 35 are in the only problem—bureaucracy and other hostility, too, from shopkeepers, who say formal employment. Ask Agnes Nam- trade barriers matter, too—but it is a signif- that vendors dodge taxes and undercut bowa, who has sold books in Kampala for icant one. According to a World Bank re- their prices. “They’re just disorganised 20 years. After a prison spell last year she view, “landlocked developing countries, people and they steal our customers,” went straight back to the streets, hawking especially in Africa, bear exorbitant trans- grumbles Rogers Lutaaya, who runs a titles like “Trump: think like a billionaire” port costs”. Those aboard Liemba would clothes shop in Kampala. and “Nice girls don’t get rich”. She is poor, doubtless agree. 7 That is only partly true. Vendors slot she says, and has no choice. 7 The Economist February 4th 2017 Middle East and Africa 41

Foreign currency in Nigeria will improve. That has starved the money- the Ottoman and British empires, before changers of cash, and the weekly dollar going for British gold. Before the invasion No dollars today sales held by the central bank, says Mr of Iraq in 2003 King Abdullah received en- Ruma, are not enough to ease the crunch. voys from both Saddam Hussein and Pres- The raids by the SSS have not entirely ban- ident George W. Bush, auctioning his back- ished the higher rates. Some money- ing to the highest bidder. Now, as funding changers will still buy dollars for490 naira from Saudi Arabia dries up, the king (via LAGOS or above, from people they trust. the Russians) is in contact with the Saudis’ What to do? Higher interest rates would arch-rival, Iran, whose forces operate on Why it is still hard to change money help attract foreign investors. A negotiated his borders with Syria and Iraq. He once URING Muhammadu Buhari’s stint as settlement with the militant groups would sounded the alarm over a “Shia crescent” Dmilitary ruler of Nigeria in the 1980s, allow oil production to return to fullcapac- extending Iran’s influence to the Mediter- Fela Kuti, a well-known Afrobeat musi- ity, bringing Nigeria back to its position as ranean; now that it is materialising he is cian, was locked up for the offence of pos- Africa’s largest producer ofcrude. Most im- coming to terms with it. sessing foreign currency, to the tune of portant, the central bank could also help Such realism goes against advice from a £1,600. More than three decades later Mr by being more transparent about the think-tank in Washington, which last year Buhari is back in office, elected this time, naira’s value. It claims to have floated the called on him to create “Greater Jordan” by and the issue of who gets access to foreign currency back in June, but few believe its incorporating “elements of Iraq and Syria” currency, and what they can do with it, re- value is truly free of interference and the into hiskingdom. The region’sungoverned mains as contentious as ever in Nigeria. persistence of a black market suggests the spaces would have a pro-Western mon- Last November officers of the State Se- opposite. If investors could be sure of the arch, argued the Washington Institute of curity Service (SSS), the main domestic in- naira’sstability,theymightstartbringing in Near East Policy, thus stemming Iran’s telligence agency, arrested money-chang- the dollars the country so sorely needs. 7 westward advance. In return, Jordan ers in cities across the country, in what was would gain two major rivers, oilfields and seen as a response to the tanking value of large phosphates deposits. the naira on Nigeria’s foreign-exchange Jordan But King Abdullah knows the dangers markets. The central bank has for months of overreach. Over the past century, the tried to keep the naira stable at about 315 to Not much might in Hashemites called themselves Kings of the the dollar, after supposedly floating it last Arabs but lost two major capitals, Damas- June, but a shortage of foreign currency the Hashemites cus and Baghdad, and Islam’s three holiest combined with high demand for dollars places, Mecca, Medina and Jerusalem. The has caused the naira to lose as much as 38% AMMAN king’s grandfather, Abdullah I, raged ofits value on the blackmarket since then. against his confinement to a desert king- Despite allies’ hopes, the kingdom is The intervention of the secret police dom like “a falcon in a canary’s cage”. But curbing its regional ambitions has created in Africa’s second-largest econ- he lost half of Palestine, and his son, King omy “an even blacker [ie more secretive] F ONLYhe knew which way to turn. Last Hussein, lost what remained. By contrast, market,” says Pabina Yinkere, a director of Iweek King Abdullah of Jordan went to the current king is the first monarch “with Vetiva Capital Management in the com- Moscow to meet Vladimir Putin, the Rus- Jordanian, not regional ambitions”, says mercial capital, Lagos. The supply of dol- sian president, to discuss how to stabilise Oraib Rantawi, a political analyst. lars began drying up when the price of oil, Syria under the continued rule of Bashar Take Syria. King Abdullah was the first Nigeria’s main export, collapsed in 2014. al-Assad. This week he has been in Wash- Arab leader to urge Mr Assad to quit. With The problem worsened in 2016 after mili- ington, DC, anxious to explore how Jordan Saudi and Qatari largesse, he funnelled in- tants, unhappy with the grinding poverty might help President Donald Trump to im- telligence, weapons and cash to favoured of Nigeria’s main oil-producing region, plement his idea for carving up Syria into rebels in Syria’s south. But the fighting sent started blowing up pipelines. safe zones. around a million refugees into Jordan, so Nigeria ishighlydependenton imports, Playing great powers offagainst one an- priorities shifted from offensives against with everything from the petrol in pumps other has long been a Hashemite trade- the regime to defending the border from to the rice in supermarkets coming from mark. King Abdullah’s great-great-grandfa- global jihadists, many of Jordanian origin. abroad. Importers need foreign currency ther, the SharifofMecca, dallied with both With few exceptions, the rebels in Syria’s to pay their invoices, but dollars, pounds “Southern Front” have held their fire and euros are hard to find. Banks theoreti- TURKEY against the regime foralmost a year. IRAN cally sell dollars for around 315 naira each. Mosul Some Jordanians still toy with the idea But few branches have any to sell, or are CYPRUS IRAQ ofdeploying the Southern Front to create a SYRIA willing to part with what they have. sanitised belt10km wide on Syria’s side of Before the intervention of the SSS, dol- LEBANON Damascus the border, which might meet Mr Trump’s Tigris lars could be bought at money-changing Nassib ANBAR Baghdad demand forsafe havens. Itwould offer pro-

Med. Sea ISRAEL bureaus for around 465 naira each. But Jerusalem Amman Euphrates tection from refugees and Islamic State, with the SSS breathing down their necks, whose suicide-bombers have tried to ram JORDAN money-changers are now forced to accept BASRA Jordan’s border four times since the sum- no more than 400 naira foreach ofthe few Aqaba mer, most recently last week. dollars they have. Many traders have But senior Jordanian generals suggest SAUDI KUWAIT dropped out ofthe dollar business entirely, ARABIA co-operation with Mr Assad’s forces. Were says Abubakar Ruma, a leader of a group EGYPT the Southern Front to pull back from Nas- of currency-exchange operators in the cap- 400 km sib, a former border crossing that is now ital, Abuja. Changers cannot make money Nile Medina closed, Jordan could reopen its northern ifthey sell greenbacks at the enforced rate. crossing. With the highway from north to Red The public has reacted similarly. People Sea south back in Mr Assad’s hands, trade might again ﬂow from Turkey via Jordan to with foreign currency prefer to hold on to Mecca the bills they have in the hope that the rate SUDAN the Gulf. Jordan’seconomycould then pro-1 42 Middle East and Africa The Economist February 4th 2017

2 fit from Syria’s eventual reconstruction. with the potential of ties with Iraq as a been in IS-run madrassas where, besides In Iraq, too, Jordan is weighing the aspi- whole. A bilateral agreement to build a studying the Koran, boys trained with rations of émigrés against relations with pipeline from Basra’s oilfields to Jordan’s weapons and girls did little more than the existing regime. Rich Iraqis who de- port of Aqaba promises to turn the king- cookand clean. camped to Amman, the capital, after the dom into an energy hub. “The reopening of the schools has been American invasion of 2003 have helped OnPalestineKingAbdullahismostcau- by public demand,” said Peter Hawkins, turn it into one ofthe region’s fastest-grow- tious of all. Palestinian nationalists shot the senior official in Iraq for UNICEF, the ing cities. Living in mansions, Sunni tribal his grandfather dead after he split Jerusa- UN children’s fund. “For children it’s a sheikhs exiled from Anbar, Iraq’s western lem with the Zionists in 1948. His father, chance to have some structure backto their province, broadcast appeals on their satel- Hussein, only just survived a Palestinian lives. For teachers, it’s a chance to get back lite networks to establish an iqlim,orau- revolt in September1970. Abdullah prefers to workand earn salaries.” tonomous region for Sunni Arabs, as the to keep out of the fray. Jordan First, he tells As well as seeingchildren in school uni- Kurds have done. Connected to Jordan, to- the Palestinians who make up most of his form heading to class amid piles of rubble, gether they would build a Sunni bulwark population, rejecting a larger West Bank Mr Hawkins, who has toured eastern Mo- against Iran’s advance west. But Jordan’s role. Better a falcon in a cage than a bird sul, reports that shops and restaurants are trade with Anbar pales in comparison shot down in mid-flight. 7 open again. He has even seen a football match. At least 22,000 people have already returned to their homes, most bused in from the vast UN-run camps for displaced people that stretch across the surrounding hills. The traffic is not all one way. When The Economist visited eastern Mosul’s hinterland last week, new arrivals were still coming, including a bedraggled group of 30 men who had trekked for four days from IS-held territory. Overall, though, the exo- dus never reached the apocalyptic levels predicted. Before the offensive, which began itsmain phase in October, itwas feared that up to 250,000 ofeast Mosul’s 400,000 people would flee. The figure is nearer 180,000. The situation contrasts with last year’s operations to flush IS from Fallujah and Ra- madi, west of Baghdad, which suffered much greater damage, and where many civilians still languished in camps six monthsafterthe citieswere retaken.In Mo- sul, Mr Hawkins says, the Iraqi army has used gentler tactics, and encouraged civil- Iraq ians to stay in their homes rather than flee. The fact that so many houses remained oc- Mosul after Islamic State cupied also made it harder for IS to booby- trap them—unlike what happened in villages like Tullaban, which was emptied of civilians. Nobody, though, thinksthe end is in sight. For while eastern Mosul is now TULLABAN largely retaken, western Mosul, with around 750,000 civilians, remains largely The hard workofrestoration begins in the east ofthe city in IS hands. For those returning to their IBERATION has proved dangerous for while going inside their homes.” homes, many difficult questions remain. Lthe residents of Tullaban, a farming Tullaban, which used to be on IS’s front Why did my neighbour stay in Mosul hamlet on the outskirts of Mosul. Last au- line, is now being cleared of landmines while I fled? Was he an IS sympathiser, and tumn, as the push began to wrest the city and booby traps by the Mines Advisory ifso, should I let my children play with his? from Islamic State (IS), villagers returned Group, a British charity dedicated to mak- Mr Hawkins is promising counselling and home to find no sign of the jihadists who ing post-conflict zones safe again. Al- education to minimise the inevitable had seized it back in 2014. Nor, though, though it still resembles a battlefield, both sense of mistrust, hoping to ensure that could they spot the booby traps and mines the hinterland of Mosul and eastern parts children who were exposed to IS influence the IS fighters had laid as they fled, hidden ofthe city itselfare seeinglife return to nor- are not ostracised. in the doorways of houses and buried in mal in areasfreed from IS. Itisalso happen- Yet if Fallujah and Ramadi are anything nearby fields. ing faster than most dared hope. to go by, healing the wounds will be a job The villagers learned the hard way. On January15th 30 schools reopened in not just for aid agencies and politicians, “When the IS first came this way, we fled the east of the city after being cleared of but for more traditional actors like Iraq’s because we knew how they were behead- booby traps by Iraqi security forces, allow- tribes; in Ramadi and Fallujah tribal coun- ing people,” says Ali Jassem, 80, standing ing 16,000 children to start classes again. cils are still debating exactly what hap- among houses flattened by air strikes and Some ofthem have had no education at all pened. If similar gatherings get under way pockmarked with machinegun fire. “Then since IS took over Mosul, once Iraq’s sec- around Mosul, there will be just as much to we came back, and fourpeople were killed ond-largest city, in June 2014. Others have talkabout. 7 Europe The Economist February 4th 2017 43

Also in this section 44 Ukraine’s war ﬂares again 45 Migrant entrepreneurs in Germany 45 Russian history online 46 Business in authoritarian Turkey 47 Charlemagne: Norway, the EU’s silent partner

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

Scandal in France’s presidential race the candidate said he would stand down if he were put under formal investigation. A wide open contest “Penelopegate” has rudely shaken the Fillon camp. His lieutenants have been dis- patched to the airwaves and are preparing to counter fresh allegations if they arise. PARIS But in private those close to him recognise that Mr Fillon has a big problem. Polls are The furore overFrançois Fillon’s payments to his wife could cost him the beginning to show him neck-and-neck presidency with Emmanuel Macron, an independent E HAVE nothing to hide…I am relative. But the newspaper could find no centre-left candidate who is capturing “Wafraid ofnothing!” With indignant trace that Mrs Fillon had done any work. cross-party enthusiasm. Some are thinking words and a clenched fist, François Fillon And in an old video clip she said had never through what would happen if Mr Fillon put on a muscular display of defiance at a been her husband’s assistant. had to step down. Mr Juppé has ruled out campaign rally in Paris this week. Before a Declaring himself “scandalised” by the taking his place, but might be persuadable. crowd of 15,000 flag-waving, mostly grey- “misogyny” behind the allegations, and Nicolas Sarkozy, the former president, haired supporters, the centre-right presi- the victim of “slander”, Mr Fillon argued would lack credibility after being roundly dential candidate promised to make that his wife had done a real job—“correct- beaten in the primary. The party has no France the “greatest European power” ing speeches”, constituency work and so procedure for selecting a substitute. within ten years, to put “liberty” at the forth. Investigators are also looking into Fornow, MrFillon remainsdefiant. “His heart ofhis campaign, and to declare a war pay she received from a publication for image has been affected, but not yet his on both poverty and “radical Islam”. The which she appeared to write little. It was core support,” says Bruno Jeanbart of event pointed to unity as well as force. all highly suspicious, fumed MrFillon, that OpinionWay, a polling group. Out in the Alain Juppé, the Republican primary can- such slurs should emerge only months be- draughty exhibition hall by the Paris ring didate defeated by Mr Fillon, applauded fore an election. Investigators this week road which served as a venue for Mr Fil- his rival from the front row. But the chore- summoned the couple for questioning, lon’s rally, his supporters were divided. ography could not conceal an awkward and searched Mr Fillon’s parliamentary of- The faithful, including retired folk from fact: Mr Fillon’s candidacy is in trouble. fice. To show that he had nothing to hide, northern France who had travelled to Par- Just days previously, the former prime is, insisted it was all a political slur. Others minister had been the favourite to win the were disappointed. “I was taken aback, be- two-round presidential election in April Anybody’s race cause I didn’t expect it from him,” said Syl- and May. But the decision on January 25th France, voting intention in the first round of the vianne Bessière, a retired air hostess: “But byjudicial investigatorsto launch a prelim- presidential election he’s got the best programme, and is the February 1st 2017, % inary inquiry into misuse of public funds 0 5 10 15 20 25 30 only one who can sort the country out.” by Mr Fillon, after revelations in a newspa- Mr Fillon’s difficulties have turned an Marine Le Pen per, shocked his supporters. His, after all, already uncertain election into one of the was the candidacy of probity and honour. Emmanuel Macron most unpredictable in recent history. One cannot lead France, he declared dur- François Fillon French voters, it seems, are in no mood to ing the Republicans’ primary last year, un- Benoît Hamon settle into a stable pattern. Only seven less one is “beyond reproach”. It turned out Jean-Luc Mélenchon points now separate the leading three can- that Mr Fillon had employed his wife, Pe- Yannick Jadot didatesin first-round voting: Marine Le Pen nelope, possibly from as far back as 1988, Nicolas Dupont-Aignan of the populist Front National, Mr Macron for a total pre-tax sum of over €800,000 Philippe Poutou and MrFillon (see chart). Each hasa chance ($863,000), as well as two of his children Nathalie Arthaud of making it into the second round. This is when they were law students. This is not il- extraordinary: just six months ago, neither Source: ELABE legal; one French deputy in five employs a Mr Fillon nor Mr Macron was considered a 1 44 Europe The Economist February 4th 2017

2 credible contender by his own camp. Such fluidity suggests that caution is also in order when it comes to the left, which elected Benoît Hamon as the Social- ist Party’scandidate on January 29th. Afor- mer backbench rebel, he crushed Manuel Valls, his former boss and ex-prime minister, in the primary run-off, with 59% of the vote. Mr Hamon remains an outsider, drawing roughly 15% in national polls. His promises to shorten the working week to 32 hours, legalise cannabis and finance a universal monthly income of €750 through a tax on robots were dismissed by his detractors—including Mr Valls—as Uto- pian reverie. Despondent Socialists have begun to defect to Mr Macron. Yet Mr Ha- mon’s unexpected victory gives him that elusive political quality, momentum. And he appeals to metropolitan, white-collar Tanks for calling voterswho are worried aboutgreenissues, consumerism and the future ofwork. manders”. Since then other Ukrainian po- From Ukraine’s point of view, the vio- Internal divisions and doubts about sitions along the front line have been lence was a warning to its American and their candidates are now testing the unity attacked, and the death toll is rising. European allies, several of whom are con- of both the Socialists and the Republicans. Following the flare-up, international sidering lifting sanctions against Russia. These are the political familiesthat have al- ceasefire monitors blamed “combined “Who would dare talk about lifting the ternated in the presidency since the Fifth Russian-separatist forces” for starting the sanctions in such circumstances?” asked Republic was founded in 1958. French attacks. Ukrainian forces have been creep- Petro Poroshenko, Ukraine’s president, party politics has seldom appeared so un- ing forward into the “grey zone” in recent who cut short a visit to Germany to attend stable. And the chief beneficiaries right months, seizing positions in several small to the crisis. Mr Poroshenko later said he now are those who have identified them- towns. The rebels might have felt it was an would call a national referendum on join- selves as political insurgents against the es- opportune moment to hit back. ing NATO—which Russia considers a red tablished party system: Mr Macron, and Whoeverstarted the fighting, its victims line and NATO itselfdoes not want. the populist Ms Le Pen. 7 are the 16,000 civilians in Avdiivka, who for days were cut off from electricity in Doubting the Donald temperatures of -20°C, and those in the re- Many Russia-watchers think Mr Putin may Ukraine’s intermittent war bel-held territories, many of whom lack have stoked the conflict to test his new water. The violence underscores the diffi- American counterpart. Mr Trump has Probing attack culty of implementing the Minsk Two cea- promised better relations with Moscow. sefire agreement, signed in February 2015, Mr Putin may have decided to probe his which the two sides interpret differently. willingness to turn a blind eye to Russian For Kiev and its western backers, the agree- actions in Ukraine, the two countries’ ment is a path for Ukraine to reassert con- main point ofconflict. The Russian govern- trol over its east and close its border with ment says Ukraine was discussed in their As Russia and America talk, fighting Russia, followed by a decentralisation of telephone conversation. flares in Donbas power to its regions. Russia, however, sees In the past, significant escalations of HE timing was ominous. A day after the agreement as a way ofretainingcontrol fighting were quickly met by the White Tthe first, seemingly cordial telephone over eastern Ukraine, keeping the border House or the State Department with conversation between Donald Trump and open and demanding that Kiev recognise strongly worded statements condemning Vladimir Putin, the residents ofAvdiivka, a Donbas as an autonomous region within Russian aggression and supporting Uk- small town on the Ukrainian side of the Ukraine. This would give Russia perma- raine’s territorial integrity. This time it took conflict line with Russian-backed separat- nent influence over Ukraine’s future. the State Department two days to say it ists, heard the echoes of heavy artillery was “deeply concerned”; it did not men- fire. The conflict that Russia started in Uk- LUHANSK tion Russia. This response was duly noted KHARKIV raine in 2014 has been partly frozen over Rebel-held in Moscow. “Washington does put the UKRAINE the past two years. But on January 29th it Feb 2017 blame on the [separatist] republics, does flared up with renewed force. DNIPROPETROVSK not express support for Kiev and does not Debaltseve Luhansk Three days later, on February1st, the bo- Dnipropetrovsk say a word about Russia’s role,” Rossiiskaia D O N B A S dies of seven Ukrainian soldiers killed in Avdiivka Gazeta, the official government newspa- Donetsk the fighting were brought to Kiev. Maidan, DONETSK per, wrote jubilantly. the city square that was the site of the RUSSIA The Kremlin also noted the American country’s 2014 revolution, once again ZAPORIZHIA failure to react to the news that Alexei Na- swelled with people. Social media were Mariupol valny, an opposition leader and anti-cor- filled with messagesofsupportforsoldiers ruption campaigner, would be tried again and calls to collect supplies for victims, 100 km on trumped-up charges. Mr Navalny along with videos of shelling by Russian Sea of Kiev pledged to run against Mr Putin in next Grad rockets. Ukrainian soldiers received Azov UKRAINE year’s presidential elections, but is now text messages seemingly sent by the Rus- likely to observe Mr Putin’s re-election CRIMEA sian side: “You are just meat to your com- from a prison cell. 7 The Economist February 4th 2017 Europe 45

Migrant entrepreneurs Russian history online Startup-Kultur Networking revolution

MOSCOW A social-media project reanimates the world of1917 BERLIN N LATE January Tsar Nicholas II posted tions and performances by Kandinsky, Almost halfthe new businesses in a status update from his residence near Diaghilev,Mayakovsky and Stanislavsky. Germany are launched by immigrants I Petrograd: “The frost got stronger again. I “Tofeel the era, you have to forget about ERMANS are famous for hard work didn’t stroll forlong.” Vladimir Lenin, in how it ended,” says Kirill Solovyev,a Gand efficiency, but not necessarily for exile in Zurich, wrote on a friend’s wall, historian at the Russian Academy of entrepreneurialism. They are less likely to musing on war and pacifism. Anna Akh- Sciences, a consultant on the project. start a new business than Americans, matova posted her latest verses. Leon Towatch this all transpire in real time Swedes or even the French (see chart). But Trotsky checked in from New York, is to experience people’s inability to the country’s recent wave of immigration where, he writes, “the aesthetic theory of grasp the history they are living. The tsar appears to be giving its startup rate a boost. cubism rules on the streets, and the moral records banal details ofhis daily routine— In 2015, 44% ofnewly registered businesses philosophy ofthe dollar in the hearts”. breakfasts,meetings, walks—like a17th- in Germany were founded by people with As the centenary ofRussia’s revolu- century monarch trying to inhabit the foreign passports, up from just13% in 2003. tions approaches, tens ofthousands of modernist age. Lenin plots revolution In all, about one-fifth of those engaged in Russians have been consuming these bits from Zurich, while doubting he will live entrepreneurial activitywere born abroad. ofthe past through Project1917, an “edu- to see it. Many can sense that change is That is likely to grow with the arrival of tainment” initiative that recreates the coming, and want to hasten it along. But over a million refugees in the past two fateful year in the form ofa social net- none imagines the enormity ofwhat years. The number of self-employed peo- work. Posts draw from historical ar- actually unfolded. ple with a Middle Eastern background rose chives, letters and diaries. Users can In today’s Russia, perceptions of1917 by almost two-thirds between 2005 and access a stand-alone site or subscribe to are muddled. For 70 years the October 2014, according to René Leicht and Stefan updates on Facebookand VKontakte, the Revolution served as the founding Soviet Berwing, researchers at the University of Russian equivalent; an English-language myth. Then Boris Yeltsinrejected the Mannheim. “There has been a marked in- version will launch this month. The communist legacy.Vladimir Putin often crease in founding activity by people from project is the brainchild ofMikhail Zygar, refers favourably to the Soviet era—and to Syria, Iraq and Afghanistan,” says Maik Le- the formerhead ofDozhd (“Rain”), a that ofthe tsars. In general Mr Putin is onhardt of IHK Berlin, an association of liberal television network. allergic to revolutions, whether in Uk- small and medium enterprises. The networkimmerses its users in the raine, Syria or elsewhere. Some refugees come to Germany al- daily minutiae ofthe period. A table This has left the developers ofProject ready dreaming of running their own firm. displays “current” exchange rates and the 1917a bit ofideological space. Apart from Iyad Slik’s family has a confectionery com- prices ofmeat and grain. A widget notes some activity at the Russian Historical pany in Syria, and when he arrived in Ber- the weather in Petrograd, as St Petersburg Society,a body headed by the director of lin three years ago he set out to recreate it. was then called, and Moscow (-24oC and Russia’s foreign intelligence service, and “We broke even for the first time last year,” -21oC at midnight on February1). Clips at the Russian Orthodox Church, the says Mr Slik. His mission to convert Ger- from newsreels and excerpts from news- memory of1917has been left mostly free mans to eating candied fruit and nougat papers offera window onto a world at oftop-down interference. “There’s no squares stuffed with Syrian pistachios is war. Announcements advertise exhibi- official line,” says Mr Zygar. succeeding: he already counts KaDeWe, a high-end department store, and the glitzy Hotel Adlon among his clients. their qualification and discrimination is thusiastic about start-ups is that they are, Others become entrepreneurs by de- less of a problem.” Applicants with for- by nature or necessity, risk-takers. For the fault. Hussein Shaker, a computer pro- eign-sounding names find it harder to get many who have fled civil war, crossed the grammer, did not plan to set up a business job interviews with German firms. In a Mediterranean and walked across much when he came to Germany: “I just wanted survey ofmigrant entrepreneurs by KfW, a of Europe, dealing with German bureauc- a job in tech.” Stuck in a call centre, Mr German development bank, a third said racy and obtaining a line of credit hardly Shaker realised that he was not the only they saw no other way to make a living. seem daunting. 7 one among his Syrian friends working be- Entrepreneurship is certainly not easy neath their qualifications. Together with in Germany: the World Bank ranks it a dis- partners from Berlin’s startup scene, he set mal 114th in the world for ease of starting a Where to start up a website for refugees, MigrantHire, business. Integration programmes in job Total early-stage entrepreneurial activity rate* which currently matches 13,000 job-seek- centres mostly direct immigrants into lan- %, 2015 ers with about 2,000 open positions. guage classes and regular employment 024681012 Entrepreneurship among immigrants rather than encouraging them to do their United States stems partly from difficulty gaining access own thing. And navigating the bureauc- Sweden to the regular labour market. Many start- racy can be hard. “There are so many rules Britain ups in the past decade were launched by and legal issues that nobody tells you eastern Europeans whose countries had about,” says Mr Shaker. Indeed, Germans Spain been admitted to the European Union but themselveshave become more reluctant to France† who did not yet enjoy full working rights become entrepreneurs, especially with the Italy in other EU states. Self-employment offers unemployment rate low. The number of Germany better prospects for ambitious immigrants, self-employed natives fell by 3% from 2005 Source: Global *Share of population aged 18-64 says Mr Leicht: “Their incomes rise faster, to 2015. Entrepreneurship who are involved in a startup Monitor †2014 they tend to do things more in line with One reason immigrants are more en- 46 Europe The Economist February 4th 2017

Business in authoritarian Turkey rule of law, says Ozgur Altug, chief economist at BC Partners in Istanbul, a brokerage. Tigers in the snow Businesses are reluctant to work with new suppliers. “I might want to make a deal with you, but I don’t know if the government will seize your assets the next day,” says Mr Altug. KAYSERI All this puts additional pressure on an economyalreadyweakened byterrorist at- Anatolia’s commercial elite is feeling the chill ofthe purges tacks, the war in neighbouring Syria and HE snow on Mount Erciyes sparkles in that nearly everyone here was in business growing corporate debt (see page 61). GDP Tthe early afternoon sun. The skiing on with the [Gulenists] at one point or anoth- in the third quarter of 2016 was down 1.8% this volcano nearly 4,000 metres high is er.” The other open secret is that they were from a year earlier, though it is thought to among the best in Turkey.At the bottom of once encouraged to so by Mr Erdogan’s have rebounded modestly in the fourth. one slope, a group of secular Turks dance government. The ruling Justice and Devel- The lira has lost about a fifth of its value and drinkbeer outside a new hotel. On the opment (AK) party had been the Gulenist against the dollar since November. That other, alcohol-free, side of the mountain, movement’s biggest cheerleader for nearly makes it harder for Turkish companies to local families and Arab tourists drink tea. a decade. Their alliance collapsed in 2013 service the dollar-denominated debts The entrance to a nearby mosque is littered after AK accused Gulenists inside the bu- with which they are laden. The central with ski boots; young women in head- reaucracy of engineering a corruption bank could defend the lira by raising rates, scarves pelt each other with snowballs. scandal that involved some of Mr Erdo- but Mr Erdogan has pressured it to keep Down the mountain in Kayseri, the gan’s closest associates. them low, forcing it to resort to more com- view is considerably bleaker. Not long ago, At the sprawlingindustrial zone outside plex and less effective mechanisms. For- this industrial city was touted as the birth- Kayseri, business appears to go on as usu- eign investment has fallen by nearly half place of the Anatolian Tigers, a generation al. Employees at one Boydak factory say since 2015. of conservative businessmen who helped they have not been affected by the take- The political backdrop is not reassuring. create Turkey’s economic boom in the over. At a number of other companies On January 21st parliament adopted a 2000s. Today many of the Tigers are be- seized by the state, however, production block of constitutional amendments in- hind bars in the mass arrests that followed has stalled. “These seizures are catastroph- tended to cement Mr Erdogan’s grip over an attempted coup last July. The boom is ic,” says Seyfettin Gursel, the head of Be- the country. The changes would dismantle over. Exports from the region have fallen tam, an economic think-tank in Istanbul. Turkey’s parliamentary system by abolish- by at least 4% over the past year. Invest- “There’s no definitive court decision, and ing the office of prime minister, transform- ment has dried up. For the local economy no legal process.” Officials say that owners ing Mr Erdogan’s 1,100-room palace into to recover, says Mahmut Hicyilmaz, head will get their companies back if they are the centre of all executive power, and al- ofKayseri’schamberofcommerce, “ourin- cleared of terrorism charges, but analysts lowingthe president to handpickministers dustrialists and our investors need a sense fear most firms will be auctioned to Mr Er- and MPs. The entire package will be put to ofsecurity.” dogan’s loyalists. a referendum in April. They do not have it. Roughly 40,000 Though the purge has homed in on al- It is not clearwhen the government will people have been arrested across Turkey leged Gulenists, it has spread uncertainty begin auctioning off seized firms. The risk since the summer, and an increasing num- through the economy. Ulker, a food giant, is that the economy may gradually come to ber are businessmen, from construction saw its shares plummet after a pro-govern- resemble Russia’s, where political loyalty magnates to owners of chains of baklava ment columnist suggested it may have ties is the price for keeping a slice of the pie. “It stores. Their crime, say prosecutors, was to to the movement. One ofthe country’s big- islike watchinga piece ofsnowroll down a have bankrolled the Gulen movement, a gest conglomerates, the Dogan group, suf- mountain,” says a veteran civil servant religious sect accused of masterminding fered a similar fate after police detained ousted in one of the purges. “You think it the coup. Armed with emergency powers, several of its executives. Emergency rule is won’t hit you, until you realise it’s becom- the government of President Recep Tayyip eroding belief in property rights and the ing an avalanche.” 7 Erdogan says it has taken over more than 800 companies worth a combined $10bn since July.A court in Istanbul recently confiscated the assets of dozens of writers and journalists arrested because of suspected Gulenist sympathies. Officials say they are fighting the financing of terrorism. Critics call it state-sanctioned plunder.

A binge of purges In Kayseri, scores of entrepreneurs—including the heads of Boydak Holding, the region’s biggest employer—have been arrested for ﬁnancing Gulenist banks, schools and foundations. Boydak, which owns three of Turkey’s biggest furniture companies, has been seized by the state. More than 60 businessmen face terrorism- related charges. Some have ﬂed abroad. Mr Hicyilmaz himself was detained for over two weeks last August. The worst-kept secret in town, says a local shopkeeper, “is Fewer moguls on the slopes The Economist February 4th 2017 Europe 47 Charlemagne Silent partner

Norway’s deal with the EU still holds lessons forBritain the Stortinget (parliament) to rubber-stamping legislation handed down from the EU, and forces Norwegian diplomats to find back-channel waysto lobbyin Brussels, italso assures businesses that they will not find themselves out ofstep with the single market. It also reduces demands on Norwegian civil servants. Yet even the capacious EEA has proved inadequate. Norwe- gians have twice voted against EU membership, on sovereignty grounds. But since the last referendum, in 1994, the relationship has grown like a lappeteppet (patchwork quilt). Norway now has over75 agreements with the EU, most ofthem signed at Oslo’s be- hest. When the EU created the passport-free Schengen zone, for example, Norway had to join to avoid a 1,000-mile hard border with Sweden. It has signed up to agencies that foster co-operation in anti-terrorism, research and defence. Pressed by Brussels, it pays whopping grants to support research projects and civil society in eastern Europe; its per-head payments to the EU approach those of Britain. It joins EU-starred military missions abroad and accepts refugees according to formulae crunched in Brussels. And, notes Jarle Trondal at the University of Oslo, even parts of the economy excluded from the EEA, such as fisheries and farming, have been exposed to the chill winds ofEU competition law. ORWAY’Speculiarrelationship with the European Union—it Here is the second lesson for Britain. Mrs May, a former home Nabides by most EU rules but has little say in writing them— secretary, hassaid she will seekco-operation with the EU on secu- might be a democratic outrage, a diplomatic relic and an interna- rity and foreign-policy matters; some of her consiglieri think Brit- tional oddity, butit once worked outwell forTorild Skogsholm. In ain’s clout in these areas might even help the government secure 2003 Ms Skogsholm was invited to join herfellow European tran- a better trade deal. But winning approval even forthis may prove sport ministers aboard a cruise ship in the Aegean (Greece held tough. Mrs May still bears the scars of her battle, in 2014, with the rotating EU presidency at the time). Asked to leave the room hardliners in her Conservative Party over Britain staying in the when the ministers began to draw up legislative proposals, she European Arrest Warrant system. The Brexit negotiations will had little choice but to sun herself on the ship’s deck. The tan she throw up many more such instances. Will MPs be prepared to earned, she says, was the envy ofher friends in Oslo. swallow them? Britain’s ministers may be almost as sun-starved as their Nor- wegian cousins, but they will not be aping their approach to the You and whose EEArmy? EU. Through its membership of the European Economic Area Britain is not Norway, of course. It has 12 times the population, (EEA), which includes two tiddlers, Iceland and Liechtenstein, historic bonds with countries across the globe, strong armed Norway follows most single-market rules drawn up in Brussels forces, a more diversified economy and extensive trade links and must accept the free movement of EU workers. This was (44% ofBritish exports go to the EU, against more than three-quar- enough for Theresa May, Britain’s prime minister, to rule out the ters of Norway’s). It also hosts Europe’s largest financial centre; Norwegian model forher country’s post-Brexit relations with the ministers hope that the Brexit deal will allow City firms to main- EU. After all, Britain voted last June to take back control from un- tain friction-free operations inside the single market. Britain will accountable EU institutions. Whyleave, ifonlyto fall back in line? hardly go into the negotiating chamber naked. As powerful as this political logic seems now, it has not yet en- But the country is also plugged into cross-continental value countered economic reality. The British debate is taking place in a chains that would leave its firms exposed ifBritish and European “bubble”, says Ulf Sverdrup, who in 2012 oversaw “Outside and standards were to diverge. Some in Britain, says Mr Sverdrup, ap- Inside”, a comprehensive review of Norway’s relations with the pear locked into an archaic view of trade in which tariffs are the EU. The report implies that, once Britain begins negotiations with only measure of ability to export. But non-tariff barriers can the EU on a post-Brexit settlement, it will have to reckon with un- prove a lot more damaging. Ask the Norwegian businesses who comfortable trade-offsbetween sovereignty and prosperity. grouch at the six to nine months it can take to translate EU regu- First, to do business with the single market—by far Britain’s lations into Norwegian law. biggest trading partner—firms will need to abide by EU rules. A There is a final lesson for Britain. Norwegians like the EEA ar- promised “Great Repeal Bill” will, in fact, incorporate EU law into rangement, and few wish to reopen the membership debate. This British statutes to ensure regulatory continuity. But Mrs May has is partly because Norway has grown rich on its oil and gas; one vowed that Britain will not be subject to rulings from the Euro- study finds that a rise of one percentage-point in unemployment pean Court ofJustice once it leaves the EU. Without any suprana- triggers a seven-point spurt in support for full EU membership. tional overseer, how can investors or exporters be sure that Brit- But it also suggests that voters may prize formal sovereignty more ish standards will remain harmonised with those in Europe? than the actual sort. Britain was carried to the EU’s exit door on a Norway’s deal with the EU works in part because the EEA is a call to take back control, and its parliamentarians will balk at any “dynamic” agreement, meaning it accommodates changes in deal that seems to withhold it. But its leaders must weigh theirde- European law. (By contrast, Switzerland’s “static” arrangements mands against the need to ensure Britain continues to prosper. It are fiddly to maintain, and an irritant in Brussels.) If that reduces will not be an easy balance to strike. 7 48 Britain The Economist February 4th 2017

Also in this section 49 Euroscepticism and Trumpism 50 Bagehot: The Labour Party, RIP

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

Negotiating post-Brexit deals British officials that Indonesia’s eventual deal with the EU could simply be tailored a Trading places bit to suit Britain. But, he warns, “Ofcourse the UK would be in a much weaker bargaining position outside the EU, so we would expect much more favourable terms oftrade against the UK post-Brexit.” Othercountrieswill take a similar view. However, argues Jim Rollo, a former trade With a whole world to do deals with, where should Britain go first? adviser to the British government, Britain ANTED: chief trade-negotiator for omists agree, is with the countries that al- has some cards to play. One reason that Wmiddle-sized country soon to be cast ready have deals with the EU. Britain is a trade deals with the EU take so long to ne- adrift in the world economy. partyto all ofthese; when itleaves the EU it gotiate (18 years and counting in the case of This “exciting” new post has just been will at least have a template from which to Mercosur, a South American bloc) is that advertised by Britain’s Department for In- draw up its own fresh bilateral agree- European agriculture is strongly protected. ternational Trade (DIT), which is offering ments. Doing this with as little disruption Once outside the EU, Britain could abolish the successful candidate a salary greater as possible would be best for business, ar- the EU external tariff on many food im- than that of the prime minister. The size of gues Ben Digby of the Confederation of ports and gain concessions in return. For the pay packet suggests the magnitude of British Industry, a lobby group. example, the EU subjects oranges to a com- the task. The appointee will be expected to Not every country will roll over for Brit- plex formula of tariffs designed to protect help to secure dozensoffree-trade deals for ain, however. Take Indonesia, South-East Spanish growers, the world’s main export- Britain, with both its formerpartners in the Asia’s largest economy, which later this ers. Britain spends about £135m ($170m) a European Union and others around the month will receive Liam Fox, Britain’s year on oranges but grows none itself, so world, after the country leaves the EU in trade secretary. Indonesia is already draw- could eliminate all tariffs on citrus fruits 2019. Having started last July with just 50- ing up a trade agreement with the EU. without undermining its farmers. odd trade negotiators, the DIT is now up to Thomas Lembong, head of Indonesia’s in- Some ofthe countries that have already about 200. vestment board and a former trade minis- expressed interest in striking trade deals The government is investing a lot ofpo- ter, says that he has already agreed with with Britain, such as Australia and New litical capital in the DIT’s ability to strike Zealand, have their own agricultural ex- deals to compensate for the loss of EU ports in mind. But there will be some awk- membership, which gives Britain barrier- Not at your service ward trade-offs. Australia will want to ex- free access to the EU’s single market as well Services trade restrictiveness index port more beef to Britain, and New as trade agreements with 53 other coun- 100=most restrictive, selected countries, 2011 or latest Zealand more lamb. Britain’s own farmers tries and trading blocs around the world. BRITAIN could be squeezed by this: on February 1st Brexiteers argue that, unchained from the 0 10203040506070 the rural affairs secretary in the Welsh As- protectionist EU, Britain can become “one India sembly warned that a deal with New Zea- of the firmest advocates for free trade any- Indonesia land could “absolutely destroy” the Welsh where in the world”, as Theresa May puts China lamb industry. And loosening regulations it. This is the message the prime minister on genetically modified crops, something tookto Donald Trump on January 27th. Mexico American farmers would like to export to Reaching agreements with the EU, and France Britain, might provoke complaints at home then America, appears to be the govern- Brazil from farmers and consumers alike. ment’s priority. Where then should it look Germany The point of making such concessions to do deals in the post-Brexit world? would be for Britain to gain access to for- Source: World Bank The best place to start, most trade econ- eign markets in things that it excels at sell-1 The Economist February 4th 2017 Britain 49

2 ing. Services, particularly banking and related professions like accountancy, are Welcome to Britain amongthe exports that Britain is keenest to E-petitions against and for a state visit by Donald Trump* tout, says Shanker Singham, a trade econo- AGAINST FOR mist at the Legatum Institute, a think-tank. In 2015 Britain exported £225bn-worth of 16 1.6 services (constituting 44% ofall its exports) 14 1.4 and imported just £138bn, whereas in 12 1.2 goods it ran a sizeable deficit. Britain might therefore want to target countries with 10 1.0 growing middle classes and still-weak ser- 8 0.8 vices sectors, such as India and China, as 6 0.6 well as Indonesia. 4 0.4 Insurance, for instance, where Britain is strong, has enormous potential forgrowth. 2 0.2 India currently accounts for about 1.6% of Signatures as % of constituency electorate 0 Signatures as % of constituency electorate 0 all insurance premiums and 2.2% of life in- 20 30 40 50 60 70 80 90 20 30 40 50 60 70 80 90 surance premiums, despite being home to Constituencies’ “Remain” vote Constituencies’ “Remain” vote in the June 2016 EU referendum, % in the June 2016 EU referendum, % about18% ofthe world’s population. The Economist In many countries, however, services Sources: House of Commons; *To February 2nd 2017 are among the most protected industries. Often this is for political reasons as well as require MPs to debate the matter on Febru- that Britain would tumble down a rabbit regulatory ones. Analysis by the World ary 20th, though the government has al- hole and “emerge in a wonderland” where Bank showsthateven within the EU,many readysaid itwill take no notice. Arival peti- world leaders (“nice men like President countries are more closed than Britain. The tion, supporting the visit, had attracted Trump and President Erdogan”) were likes of India will be hard to crack (see about 250,000 names. queuing up to strike trade deals—but the chart on previous page), and offering ac- Comparisons between the forces that mood was one ofresignation. cess to Britain’s agricultural market may propelled Donald Trump into the White Despite the worst fears of Brexiteers, not help as it is relatively small. House and Britain out ofthe European Un- there is no plot to overturn the result ofthe The new chief negotiator will be busy. ion have been overdone. Although Mr referendum. Some two-thirds of MPS cam- The freedom to sign trade deals with any Trump, who has Scottish roots, has called paigned to stay in the EU. Yet on February country offers a world of potential. But himself “Mr Brexit”, most of the Britons 1st they voted by 498 to 114 to honour the even replacing the deals that Britain will who voted to Leave would not support referendum and invoke Article 50. The lose on dropping out of the EU will take him. The debates and issues involved were Scottish National Party and Liberal Demo- many years, and new opportunities may different; the racial dimension was less crats opposed the bill; a fifth of Labour be harder to realise than they look. Wel- pronounced in Britain. Yet there are affini- MPs, including several front-benchers, de- come to the in-tray. 7 ties, as the petitions show. fied party orders and voted against it. Signatories must supply a postcode. Some will try to add amendments in the This makes it possible to see where sup- committee stages before the bill is passed, Euroscepticism and Trumpism port for a cause is strongest. The overlap probably in early March, but no significant with Brexit is clear: places that didn’t like one is likely to pass. MPs such as Mr Clarke, Mr Brexit’s Brexit don’t like Mr Trump (see chart). The like those who signed the petition and most signatories are in Remain-voting cit- protested against MrTrump’svisit, put up a homecoming ies like Brighton, Bristol and Cambridge, all valiant last stand. But that is all it was. 7 with large populations of university-educated, white-collar residents. Meanwhile, signatories of the pro-Trump petition are The prospect ofa state visit exposes concentrated in Brexiteer bastions: Boston, Britain’s varied political geography Clacton and Grimsby,forexample. HERESA the appeaser,” read one Despite Mr Trump’s apparent unpopu- “Tplacard brandished outside Down- larity in Britain, many seem resigned to the ing Street in a demonstration on January need to embrace him. A YouGov poll pub- 30th. “Free Melania!” demanded another. lished on February 1st found that 49% of Theresa May’s decision to offer a state visit Britons support Mr Trump’s state visit, to Donald Trump this summer has upset compared with 36% who oppose it. That many in Britain. Such invitations are not suggests that a big chunk of the public may extended to all presidents and involve share the government’s belief that the staying with the monarch. A citizens’ peti- Brexit vote has changed things (in this case: tion posted on Parliament’s website on Britain needs a trade deal, so Mr Trump January 29th urges the government to can- must be courted). cel Mr Trump’s visit, since the “embarrass- It is a view that is present in Parliament, ment to Her Majesty the Queen” would be too, albeit in a different form. On January unacceptable. By February 2nd it had at- 31st MPs held their first debate on whether tracted 1.8m signatories—easily enough to to triggerArticle 50, the legal route to Brexit, after the Supreme Court ruled that the government needed Parliament’s permission Correction: A chart in last week’s story on to withdraw from the EU. Many spoke local-government finances (“Running on empty”) mislabelled total spending as decline in spending. against leaving the union—Ken Clarke, a Sorry. We have corrected the chart online. Tory grandee, wondered how likely it was Half Scottish, wholly unwelcome 50 Britain The Economist February 4th 2017 Bagehot A dispatch from 2030

How the slow death ofthe LabourPartymight happen sa May’s talks in Brussels came to little, the chorus of dissatisfac- tion in Labour mounted. The final straw came in early 2019 when expensive Labour billboards went up around the country bearing a message from “Jemery Cobryn”. This was one unforced error too many. Union leaders and shadow-cabinet die-hards filed in to tell Mr Corbyn that he no longer had their support. Demoralised and exhausted, Labour’s leader resigned, bequeathing a record-low 19% poll standing to Emily Thornberry, the former shadow foreign secretary who since early 2017 had trodden a subtly less pro-Brexit path than her boss. Thanks to the distorting effect of Britain’s first-past-the-post electoral system, Labour’s 20% vote share on May 7th 2020 gave it 155 seats of the 600 available. The Liberal Democrats, targeting Mrs Thornberry’s cosmopolitan base by calling fora referendum on rejoining the EU, took 23 seats on 15%. UKIP, eating into La- bour’s working-class strongholds, took 17% of votes and 18 seats. “This is a revolution!” Nigel Farage, Mr Nuttall’s predecessor, told reporters on a visit to London. (Privately the UKIP leader wished that Secretary ofState Farage had stayed in Washington.) Appalled bytheirparty’sdecline, the fewremainingmoderate AN anyone work this thing?” Paul Nuttall barks, jabbing LabourMPs quit and formed a new party based on “En Marche!”, “C the touch screen. He rues the day his aides talked him into the movementthathad propelled the centristEmmanuel Macron travelling by self-driving car. “It will make you look prime minis- to France’s presidency in May 2017. “On The Move!” (OTM!) was terial,” they said. Bollocks. It just makes him look like a hypocrite bolstered by a series of defections by liberal Tories fed up with after all those speeches about the evils of job-killing robots. This Mrs May’s hard Brexit. It went on to win a series of sensational robot just drove him from London to Stoke without crashing—is by-election victories in bigcities and well-offsuburbs. An elector- functioning air-conditioning too much to ask? It is an unusually al pact with the Liberal Democrats became a formal alliance, hot April day. MrNuttall grimaces as he spots his signature tweed then a merger. A seminal moment was the first of three live de- jacket and flat cap on the seat next to him; shortly he will have to bates hosted by Facebookin April 2025, when Mr Nuttall and Jess put them on fora photo with constituents. Phillips, the plain-spoken former Labour MP now leading OTM!, Or perhaps his perspiration is just nerves. For the leader ofthe together dismantled Mrs Thornberry and Mrs May. UK Independence Party (UKIP), and now leader of the opposi- The subsequent election would be the nail in Labour’s coffin. tion, has much to be nervous about. The 2030 election is weeks In 2025 the party ceded most of its metropolitan seats to OTM!, away. He could end up as prime minister, at the helm of a UKIP- now endorsed by several centrist unions and most Labour gran- Conservative coalition. How farhe has come since 2016, that fate- dees. With inequality rising and wages stagnant, the post-indus- ful year in which Britain voted to leave the EU and he was elected trial heartlands switched as one to UKIP, which campaigned for UKIP leader. Woozy with campaign tiredness and with a few “real” immigration cuts, the renegotiation of recent trade deals minutes to go before he arrives at Stoke’s marketplace, a dilapi- and a referendum on reinstating the death penalty. Mrs Thorn- dated Victorian pavilion now overshadowed by a colossal Inde- berry resigned and her party, now on 43 seats, became the fifth- pendence Day monument to Brexit, he closes his eyes and recalls largest in the Commons afterthe Tories, UKIP, OTM! and the Scot- the first time he stumped there. tish National Party. It fell to Mr Nuttall to interrogate Mrs May Thatwaswaybackin January2017. Tristram Hunt, the local La- across the dispatch box. bour MP, had just resigned to run the Victoria and Albert Muse- um. MrNuttall, a formeracademicborn into a working-class fam- Going gentle into that good night ily in Liverpool, seized the moment. His authoritarian social Five more years on, Labour’s death is moments away. Polls sug- views, anti-EU purism and attacks on Jeremy Corbyn’s far-left, gest UKIP will come first in the 2030 election, narrowly followed London-centric Labour Party charmed the pro-Brexit town offor- by the Toriesand, just behind them, OTM!. Mrs Phillips says Brit- mer pottery and steel workers. At the by-election on February ain must rejoin the European single market; she should be able to 23rd it made him its first non-Labour MP since 1950. form a government backed by the Tories and Scottish National- His campaign coincided with a development that would en- ists if she can persuade Labour to stand down its candidates. If able him to turn this one gain (UKIP’s first, defections excepted) she cannot then UKIP will probably come first and be invited by into the 131 seats his party now holds. Horrified by the polling in King William to form a government, supported by the Tories. placeslike Stoke, MrCorbyn obliged LabourMPsto vote forBrexit “How long should I wait before I invite President Trump to when it was put to Parliament in February 2017. The move ap- London?” Mr Nuttall ponders to himself. “Is seven days too soon? palled his left-wing backers: once-supportive journalists like And should I call her Mrs President or Ivanka?” As his car sweeps Owen Jones and George Monbiot slated him; loyal front-bench- onto Stoke’s marketplace, his phone begins to ring. He answers: ers resigned; some 2,000 members of the Grassroots Labour “Yes. Labour have done what? What did Phillips offer them? group signed an angry letter. Even the Canary, a slavishly Corby- Nothing? Jesus. OK.” He hangs up, swears under his breath, and nista website, attacked its man. In subsequent months, as There- opens the car door to a wall ofcheers. 7 International The Economist February 4th 2017 51

Young people and democracy make up just a tenth ofAmerican adults by mid-century. The young will have dwin- Not turning out dled from a pivotal voting bloc into a pe- ripheral one. That raises the worrying possibility that today’s record-low youth turnout pre- sages a permanent shift. Voting habits are TEL AVIV formed surprisingly early—in a person’s first two elections, says Michael Bruter of Across the rich world, millennials are everless likely to vote the London School of Economics. If future HE life story of Alex Orlyuk does not gressional election in 2014. Although turn- generations, discouraged by their fading Tseem destined to lead to political apa- out has been declining across the rich influence, never adopt the voting habit, thy. Born in the Soviet Union to a family world, it has fallen fastest among the turnout will fall further, weakening the le- scarred by the Holocaust, he moved at the young. According to Martin Wattenberg of gitimacy ofelected governments. age of six to Tel Aviv, where he finished the UniversityofCalifornia, Irvine, the gap Millennials are not the first young gen- school and military service. He follows in turnout between young and old in eration to be accused ofshirking their civic politics and prizes democracy. He thinks manyplacesresemblesthe racial gap in the duty. And they are more interested in ideas his government should do more to make American South in the early 1960s, when and causes than they are given credit for. peace with Palestinians, separate religion state governments routinely suppressed They are better educated than past genera- and state, and cut inequality. And yet, now the blackvote. tions, more likelyto go on a protest orto be- 28 and eligible to vote in the past four gen- Demographic trends further weaken come vegetarian, and less keen on drugs eral elections, he has never cast a ballot. the political voice of the young. In Ameri- and alcohol. Buttheyhave lostmanyof the His abstention, he says, is “a political ca’s election in 1972, the first in which 18- habits that inclined their parents to vote. statement” on the sorrystate ofIsrael’spol- year-olds could vote, around a fifth of In Britain only three in five ofunder-25s itics. He does not think any of its myriad adults were under 25. By 2010 that share watch the news on television, compared parties is likely to bring about the change was one in eight. Under-25s are on track to with nine in ten of over-55s. Young people he wants. Many other young Israelis share are also less likely to read newspapers, or his disaffection. Just 58% of under-35s, and listen to the news on the radio. Each year just 41% of under-25s, voted in the general Wasted on the young around a third of British 19-year-olds move election of 2013, compared with 88% of Ratio of turnout, old* registered voters over young† house; the average American moves four over-55s. No otherrich countryhasa bigger 1=equal turnout times between 18 and 30. People who have gap in turnout between under-25s and Latest election for legislature, 2011-13 children and own a home feel more at- over-55s (see chart). 1.0 1.2 1.4 1.6 1.8 2.0 2.2 tached to their communities and more Though Israeli politics is atypical— Denmark concerned about how they are run. But steeped in questions of war, peace, reli- Ireland youngsters are settling down later than gious identity and the relationship with OECD average their parents did. Palestinians—the voting behaviour of its Netherlands The biggest shift, however, is not in cir- young is nevertheless all of a pattern with Germany cumstancesbutin attitudes. Millennials do the rest ofthe rich world. In Britain and Po- France not see voting as a duty, and therefore do land less than half of under-25s voted in United States not feel morally obliged to do it, says Rob their country’s most recent general elec- Britain Ford of Manchester University. Rather, tion. Two-thirds of Swiss millennials Israel they regard it as the duty of politicians to stayed at home on election day in 2015, as woo them. They see parties not as move- Source: OECD *Aged 55 and over †18- to 24-year-olds did four-fifths ofAmerican ones in the con- ments deserving of loyalty, but as brands 1 52 International The Economist February 4th 2017

2 they can choose between or ignore. Mil- the Netherlands 50PLUS, which cam- school. Teenagers who experience democ- lennials are accustomed to tailoring their paigns almost exclusively on pensioners’ racy first-hand during their studies are world to their preferences, customising the issues, is polling in double figures. more likely to vote afterwards. Student music they listen to and the news they con- Even parties without any such overt fo- elections make young people feel they sume. Asystem thatdemandstheyvote for cuson old people increasinglyfavour them have the power to shape the institutions an all-or-nothing bundle of election prom- when setting policies. Young workers pay around them, says Jan Germen Janmaat of ises looks uninviting by comparison. Al- taxes toward health-care and pension University College London. Civic-educa- though the number of young Americans schemes that are unlikely to be equally tion curriculums which involve open dis- espousing classic liberal causes is growing, generous by the time they retire. Austra- cussions and debates are better at fostering only a quarter of 18- to 33-year-olds de- lians aged over 65 pay no tax on income political engagementin laterlife than class- scribe themselves as “Democrats”. Half under A$32,279 ($24,508); younger work- es dedicated to imparting facts about gov- say they are independent, compared with ers start paying tax at A$20,542. In Britain ernment institutions, he says. Yet schools just a third of those aged 69 and over, ac- free bus passes, television licences and en- and governments, wary of accusations of cording to the Pew Research Centre. ergy subsidies for pensioners have sur- politicising the classroom, may shy away And millennials are also the group least vived government cutbacks; housing assis- from such programmes. likely to be swayed by political promises. tance for the young has not. The young Another option would be to allow peo- They are farless likely than the baby-boom across western Europe are more likely to ple to vote even younger. In many coun- generation (born between 1946 and the hold a favourable opinion ofthe European tries, voting habits are formed during a mid-1960s) or Generation X (born in the Union, but it is their elders, who look upon particularly unsettled period of young mid-1960s to late 1970s) to trust others to it with greater scepticism, who hold sway people’s lives: the few years after leaving tell the truth, says Bobby Duffy of IPSOS with governments. Britain’s recent vote to school. Argentina, Austria and other coun- Mori, a pollster. They take “authenticity” leave the EU depended heavily on retired tries are trying to ingrain voting habits ear- as a sign of virtue and trustworthiness, as people’s votes; youngsters voted over- lier by lowering the minimum age to 16. illustrated by their enthusiasm for, say, Jus- whelmingly to stay. This lets young people cast their first votes tin Trudeau, Canada’s telegenic premier. while still in school and living with their But in the absence of personally appealing Lessons forlife parents. In Austria, the only European leaders, mistrust can shade into cynicism Those frettingaboutthe future ofdemocra- country to let 16- and 17-year-olds vote na- about democracy itself. Almost a quarter cy have been searching for ways to get tionwide, they have proved more likely ofyoungAustralians recently told pollsters more young people to vote. The most obvi- than 18- to 20-year-olds to turn out in the that“itdoesn’tmatterwhatkind ofgovern- ous would be to make voting compulsory, first election forwhich they qualify to vote. ment we have”. A report last year found as it is in Australia, Belgium, Brazil and Yet another approach is to remove ob- that 72% of Americans born before the sec- many other countries. Barack Obama has stacles to voting that are most likely to trip ond world warthought it “essential” to live said such a move would be “transforma- up the young. America has many laws in a country that was governed democrati- tive” for America, boosting the voices of banning registration in the month before cally. Less than a third of those born in the the young and the poor. But Mr Bruter an election; these disproportionately affect 1980s agreed. warns that such a move would artificially young people, who tend to tune in late to The lack of trust accompanies a break- boostturnoutwithoutdealingwith the un- campaigns, says Kei Kawashima-Ginsberg down in communication between politi- derlying causes. The priority, he says, of CIRCLE. A solution used in some other ciansand the young. In 1967 around a quar- should be to inspire a feelingamongyoung countries, including Sweden and Chile, is ter of both young and old voters in people “that the system listens to you and to put people on the electoral roll automat- America had previously made contact reacts to you”, which in turn would ically when they turn 18. Also important is with a political official. For the elderly, the strengthen political commitment. to make sure that those who have moved rate had almost doubled by 2004; for the One place to build such a belief is in and forgotten to update their details are young, it remained flat at 23%. Parties have not caught out on election day; since responded accordingly: in 2012 they con- young people move more, they are more tacted three-fifths of older voters, but only likely to be affected. Some American states 15% of younger ones. According to a poll are experimenting with “portable” voter weeks before last year’s presidential elec- registration, whereby a change of address tion by the Centre for Information & Re- with any government institution is trans- search on Civic Learning and Engagement ferred to the electoral register. at Tufts University (CIRCLE), despite the money sloshing around American politics Waiting fora hero only 30% of millennials reported having As millennials find fewer reasons to vote, been contacted by one of the campaigns. motivating them to do so is becoming dan- And when parties do contact youngsters, it gerously dependent on individual politi- is often with a message crafted forvoters in cians and single issues. In Canada just 37% general, not tailored to them. Such efforts, of 18- to 24-year-olds voted in the parlia- says Mr Bruter, can be counter-productive. mentary election in 2008, and 39% in 2011. Many disillusioned youngsters regard In 2015 the “Trudeau effect” saw the youth refusing to vote as a way to express dissat- vote rise sharply, to 57%. Mr Orlyuk fondly isfaction with the choices on offer. But ab- recalls Yitzhak Rabin, a former Israeli stention traps them in a cycle of neglect prime minister who was assassinated and alienation. Politicians know that the when Mr Orlyuk was seven—for “trying to elderly are more likely to vote, and tailor make a change” by making peace with Pal- their policies accordingly. Young people, estinians. “I’m still waiting for another Ra- seeing a system that offers them little, are bin to come along. Then I’ll vote,” he says. even more likely to tune out, which gives In the meantime politicians will find his parties more reason to ignore them. Some opinions and interests—and those of other parties disregard the young completely: in young people—all too easy to ignore. 7 Business The Economist February 4th 2017 53

Also in this section 54 ExxonMobil’s new boss 55 The riches in pet health care 56 Logistics ﬁrms and borders 56 Energy-guzzling TVs 57 Alternatives to animal products 58 Smartphones in China 59 Schumpeter: Silicon Valley v Donald Trump

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

Snapchat’s future send (sometimes risqué) messages. Mr Spiegel (snapped) has proven him- Snap to it self to be creative in devising new features forSnapchat’s app and in imagininghow it might evolve. At first it was a one-to-one messaging function for people to send dis- SAN FRANCISCO appearing “snaps” to one another. Three years ago Mr Spiegel launched a one-to- The messaging app has quickly become a cultural sensation. Building it into a many broadcast function, called “stories”, lasting business will take longer where people can string together images HEN Snapchat first became popular describe not an internet or communica- and videos and share them with all their Win 2013, many thought the messaging tions company but a “camera company”. friends at once. In 2015 it launched “Discov- app would disappear almost as quickly as Snapchat has prospered from access to the er”, where professional publishers offer a its vanishing messages. Instead, it has be- camera on every smartphone, and now it selection of disappearing articles and vid- come one of the most intriguing internet wants to sell hardware as well. Its new sun- eos tailored to millennials (The Economist firms to emerge in years. When Snap, glasses, called Spectacles, sell for $130 and publishes on Discover). These features of- Snapchat’s parent company, goes public at enable users to record video from their ex- fer elements of scarcity and urgency that an expected valuation of $20bn-25bn—the act line of sight. They have caught the at- bring people back repeatedly. IPO is expected in March—its market debut tention of analysts, who are impressed by Snapchat has innovated in other ways, will be the most closely watched since Ali- the glasses’ ambition, functionality and too. It shows users how many snaps they baba, a Chinese e-commerce giant, floated clean design. have sent and received since joining, and in 2014. Snap’s offering documents may be How well it fares as a public company they try to keep this score high. It invented filed publicly as soon as this week. will also serve as a litmus test ofwhether it “streaks” that keep trackofhow many con- Snapchat has captivated youngsters in ispossible to prosperin the shadowof digi- secutive days friends have sent messages the Westwith itsquicklydisappearing con- tal behemoths like Facebook and Google. back and forth. When Braden Allen, a 16- tent and playful features. It appears to have Snapchat has a different outlook. Face- year-old in Dallas whose tally of sent and connected with youth more successfully book creates permanent records of users’ received snaps stands at around 170,000, than older rivals such as Facebook (or its lives; Snapchat offers liberating imperma- needed a break from Snapchat to study, he messaging service, WhatsApp). Users nence. On most social-media sites, people gave his login information to a friend to share digitally enhanced photos and vid- post about their achievements to a huge keep sending on his behalf. eos of themselves vomiting rainbows and circle of acquaintances; Snapchat’s users Lenses are another distinctive feature. morphing their faces into animal masks. share images of themselves looking silly When people take selfies, they can choose Around 41% of Americans aged 18 to 34 use with smaller groups offriends. to alter their appearance, becoming an ani- the ephemeral messaging service every mal, switching faces with a friend or doing month, and 150m people globally spend Rainbows, streaks, and unicorn faces other fantastical things with the app’s fa- time on it every day. Snapchat started in 2011 as Picaboo. It was cial-recognition technology. Snapchat has Older grown-ups should pay attention created by three members of a fraternity at quietly become the most-used augmented too. Snapchat is experimenting with new Stanford University: Reggie Brown, Bobby reality product in the world, says Ben technologies, such as augmented reality Murphy and Evan Spiegel (now Snap’s Thompson ofStratechery, a research firm. (AR) and wearable devices. Alarge share of chief executive). The app, which they later Although Snap encourages users to be people who have used AR will have expe- renamed, was not an overnight sensation silly on its app, it hopes to be taken serious- rienced it on Snapchat, where users can that crashed the internet, as Thefacebook ly as a business. It will need to decide what overlay computer-generated images on did at Harvard. It lay virtually undiscov- approach it should take when using infor- photos and videos (see page 67). ered for some time, until high-school girls mation about users to target ads. Mr Spie- The firm’s IPO prospectus is expected to discovered it and started using the app to gel has called the practice “creepy” in the 1 54 Business The Economist February 4th 2017

doesn’t have to target more than a billion Facebookor Google could still buy it. “That Winning streak daily users to be a valuable company, but is why I would not short the stock,” says United States, Snapchat smartphone app Mr Spiegel will need to be careful not over- one hedge-funder, who is sceptical about penetration, by age group, % sell the app’s potential reach, as Twitter did the high valuation it is likely to receive. Mr 80 when itwentpublicin 2013 promisingto at- Spiegel must know that his firm, as one of 18 to 24 tract “the largest audience in the world”. the only real threats to the two giants, 60 He has so far focused on Western mar- would be a prize foreither ofthem. If Snap wants to survive as an indepen- 40 kets, whose users are most valuable to ad- 25 to 34 vertisers, in contrast to Facebook and Twit- dent firm, he may need to make some 35 and over 20 ter, which emphasise theirglobal reach. He smart acquisitions ofhis own, as Facebook is expected to point to high user engage- did by buying Instagram and WhatsApp. 0 2013 14 15 16 ment with Snapchat, rather than relentless One opportunity may be visual search. user growth, as the gauge investors should Snapchat’s users are using their cameras to Snapchat advertising revenues, $bn watch. This will require a shift in thinking capture the world around them. When United States Rest of the world for stockmarket investors, who have been they point their smartphones at objects, FORECAST 2.0 trained by Facebook, Twitter, LinkedIn and they could be served with advertising. several otherinternetfirmsto demand fast- Only Mr Spiegel knows the plan. But in the 1.5 growing audiences. highly concentrated internet ecosystem, 1.0 Snap’s profit margins in its various busi- companies increasingly must eat orrisk be- 0.5 ness lines may also disappoint: they are ing eaten. The coming years will show 0 unlikely to be as generous as those of Goo- whether Snap is predator or prey. 7 2015 16 17 18 gle and Facebook, which both fulfil a lot of Sources: comScore; eMarketer their ad orders using automated programmes. Because its ads tend more often ExxonMobil 2 past. YetSnap mayneed to share more data to be individually designed, it relies on a about its users; Mr Spiegel has indicated large, human salesforce. Selling also takes Upstream with that he may be willing to do this. more time, as it does in television. The company has started to allow ad- Mr Spiegel will also need to prove his half a paddle vertising in between users’ stories and in ability to lead. Many of his boosters com- the midst of publishers’ articles on Discov- pare him to the late Steve Jobs for his cre- er. Brands can also buy sponsored lenses. ative, perfectionist vision of products. He The world’s biggest private oil company For example, Taco Bell, a fast-food chain, may resemble Mr Jobs in more negative used to be peerless. That has changed paid fora lens that allowed users to change ways, too. He is secretive and controls in- their faces into tacos. These promotions formation tightly. No one but Mr Spiegel— ITH an institutional culture that lies can be expensive, at around $550,000- not even the board and other top execu- Wsomewhere between the marines 800,000 for a lens that is available across tives—knows all the important details of and the boy scouts, ExxonMobil tends to America for a day, and can take some the firm’s strategy and future plans. He is avoid personality cults. Even so, it is sur- months to prepare. Snap insists on keeping off-limits to most employees and travels prising how little is known about Darren some creative control, and can veto pro- between Snap’s buildings in a black Range Woods, the chief executive who last jects it thinks look too much like basic ad- Rover with a security detail. month succeeded Rex Tillerson, America’s vertising. That has irked some brands in Some early backers also privately ex- new secretary of state. Mr Woods’s Wiki- the past. press concern that the talent pool behind pedia biography is a few lines long. Rather Snapchat is nowhere near earning the him is not as experienced as they would than reveal the year ofhis birth, ExxonMo- sort of ad revenues that Google and Face- like. Adult supervision will come from Mi- bil just says he is 52. Never mind: the most bookbringin. Those two scoop 58% ofdigi- chael Lynton, a seasoned entertainment significant fact about him is that he comes tal advertising in America and last year executive, who is resigning from running from the refining and chemicals side of the claimed nearly all of the market’s growth. the film studio of Japan’s Sony to serve as business, which hums along so efficiently One of the world’s largest advertising Snap’s chairman. But there are few like that ExxonMobil is widely considered the agencies spent $60m on Snapchat in 2016, him at the company. world’s best “integrated” oil company. Yet compared with $1bn on Facebook. The The competition against Facebook and it is upstream—the exploration and pro- same agency expects to spend $170m on Google (which owns YouTube, an online- duction part—where his hardest tasks lie. Snapchat this year. Snap could have video site, against which Snapchat will di- On January 31st the company reported 1 around $1bn ofrevenue in 2017, three times rectly compete for ad dollars) is unlikely to its total sales in 2016. Advertisers certainly let up. Facebook tried to buy Snapchat for welcome the prospect of having an alter- $3bn in 2013, and has since then copied Rex Mundi no longer native to the Facebook-Google duopoly, many of its popular features. Last summer ExxonMobil P C says Chris Vollmerof w , a consultancy. Instagram, which is owned by Facebook, Net profit, $bn Share price, $ Yet there are questions over how large launched its own “stories” feature; its par- Snapchat’s user base can become, and ent company is now testingthe idea of roll- 50 100 whetheritcan supportthe high stockmark- ing out this feature on its own social net- 40 80 et valuation that is talked of. The app has work. Usage of Snapchat stories has yet to establish that it has strong appeal for declined significantly since Instagram sto- 30 60 older users, for example. In emerging marries began. That could shake the faith of 20 40 kets it costs more to use lots of data on some Snapolytes, who believed that Snap- * smartphones, and Snapchat’s data-inten- chat had sufficient allure to keep its young 10 20 sive app is less widely used. Brian Wieser, users away from Facebook’s properties an internet analyst, reckons that Snapchat and those ofother internet firms. 0 0 2011 12 13 14 15 16 17 is an “important niche player” but that it The public offering stands as evidence Sources: Bloomberg; Thomson Reuters *Forecast will never achieve the scale of Facebook. It that Snap wants to stay independent. But The Economist February 4th 2017 Business 55

2 another year of plunging profits, which bigger than ExxonMobil, into an even standing shoulder to shoulder with Do- have buffeted its share price since 2014 (see stronger competitor. nald Trump, the firm reverts to its habit of chart on previous page). It earned less in a Adding to the challenges, Mr Woods insisting that it knows best. Many will be year than it used to earn in a quarter, and takes over the company at a time when cli- disheartened that, under pressure from also lessthan Exxon made before its$80bn mate change is raising questions about fu- companies including ExxonMobil, Repub- merger with Mobil in 1999. Profits among ture demand for fossil fuels. Environmen- licans in Congress were this week plan- its “Big Oil” peers have likewise been clob- tal activists and increasing numbers of ning to scrap a rule, aimed at reducing cor- bered by falling oil prices over the past two investors are demanding more transpa- ruption in oil-rich countries, that forces and a half years. It is also not alone in hav- rency. On February 1st the firm appointed firms to publish all payments to foreign ing to borrow heavily to meet its dividend Susan Avery, an atmosphericscientist who governments. There is no reason to doubt and investment obligations; last year it lost formerly advised the UN, to its board. ExxonMobil’s adherence to what it terms its coveted AAA credit rating. Some dismissed this as a publicity stunt. its “culture ofintegrity”. But it is increasing- Even so, it was a surprise that it took a But it could be a bold move to shape its ly important for oil firms not just to behave $2bn hit on the value of some natural-gas thinking on climate change. like good global citizens, but to be seen to assetsin America; in the pastithas avoided One danger is that with its former boss do so, too. 7 such write-downs. In coming weeks, it is expected to remove up to 4.6bn barrels of North American crude from its 25bn barrels of proved reserves, because they are too costly to produce profitably. That will be yet another rare occurrence. It will add to a sense that ExxonMobil is struggling to find low-cost sources of oil production to prepare it for a world of potential oversupply. Thatimpression hasled its shares to lag behind those of Chevron, its biggest American rival, by 20% in the past year, as well as those of European peers, Royal Dutch Shell, BP and Total. Lysle Brinker, head of oil-company research at IHS Energy, a consultancy, says that, although historically ExxonMobil’s shares have traded at a higher premium to the value of its assets than its big rivals, in the past year “Chevron has overtaken it”. In an effort to redress the problem, the company’s first deal in the Woods era has been a $6.6bn stock-and-cash purchase aimed at more than doubling its output in the Permian basin in Texas and New Mexi- Pet health care co, to 350,000 barrels a day from 140,000. ExxonMobil hopes that acquiring more Furry profitable shale deposits will boost the proportion of oil and gas in its portfolio that is relatively quick and inexpensive to produce, compared with more costly and complex projects in places like the Russian Arctic. A potential boon is a bumper discovery in the Mars’s expansion in animal health is likely to bring rewards oceans offGuyana, in South America. Chevron has been far luckier. It clung T THE 42,000-square-foot clinic in The deal is not as out of character for onto legacy oilfields in the Permian that go AHollywood that is owned by VCA, an Mars as it may appear. Sales of chocolate back to the 1920s, and has 2m acres there, animal-hospital chain, you may find a are declining. The company is second only compared with the 250,000 recently Pomeranian on a course ofstem-cell thera- to Nestlé in the market for pet food in bought by ExxonMobil. It has fared better py or a Shih Tzu having a hip replacement. America, but competition from sellers on from shale oil, whereas ExxonMobil bet There is even an underwater treadmill for Amazon has sent the firm towards animal big on shale gas via a $31bn merger in 2010 cats. As pets are treated more and more like health. It was in 2007 that Mars bought with XTO Energy. Since then gas assets members of the family, so they are getting Banfield Pet Hospital, then VCA’s largest ri- have become even less valuable than oil more health care. That also means they are val. Since then it has steadily expanded in ones, leaving ExxonMobil struggling to racking up bigger vet bills for their owners. the field. With the VCA deal, it will own make amends. That is the backdrop to the purchase in 1,900 veterinary clinics in America and An alternative for Mr Woods would be January of VCA by Mars, a firm best Canada, more than four times as many as to do deals in the Persian Gulf, where oil is known for selling chocolate and sweets, National Veterinary Associates, the near- also cheap to produce but where there are for$9.1bn. Analysts whistled at the 31% pre- est competitor. rising competitive and geopolitical pres- mium Mars offered on VCA’s share price at The success of such groups is due to the sures. Mr Brinker notes that state-owned the time, but they also agreed that the deal fact that “anything you see in human oil companies are nowadays offering less reflects the industry’s vitality. Spending on medicine is likely to be applied to dogs and lucrative joint ventures to Western firms. A animal clinic visits in America has in- cats”, says John Mannhaupt of Brakke loomingprivatisation islikelyto make Sau- creased from a total of $13.7bn in 2012 to al- Consulting. The average vet used to be a di Aramco, the only oil company that is most $16bn last year. generalist, offering everything from a bot-1 56 Business The Economist February 4th 2017

2 tle of pills to a quick death. The modern drums as a result of slow overall growth in tingimports, he could get rid ofthis exemp- graduate is a specialist, whether in oncolo- trade in recent years. Yet the rise of cross- tion. It was only last March that Barack gy or any other ofthe 40 fields listed by the border e-commerce has still meant boom- Obama increased it to $800 from the previ- American VeterinaryMedical Association. ing business forexpress-delivery firms. On ous $200. If it were lowered or eliminated Diagnostic testing is a particularly prof- January 31st UPS revealed record revenues by executive order, logistics-industry peo- itable field. Veterinary clinics have invest- for the fourth quarter of 2016; FedEx and ple would really panic. ed in new equipment, from CT scanners to DHL are expected to report similarly They are putting a brave face on things. on-site MRI machines. A cat with tooth- buoyant results next month. Since 2008 DHL’s Mr Allen has emphasised that “glo- ache used to be anaesthetised before a vet halfofthe increase in express-delivery vol- balisation is here to stay”, whatever Mr could peer inside its mouth, but now a umes has come from shoppers buying Trump does. UPS’s boss, David Abney, scan costing anywhere between $40 and items online from another country. hopes the president is not really against $400 does the job instead. Mars, many be- Falling trade barriers have greatly trade agreements. Even more tellingare the lieve, was keen on VCA’s diagnostic lab- helped them. When DHL and FedEx were actions ofFred Smith, FedEx’s founder and oratories, which are superior to those of getting going, in the 1970s, there was little CEO. Last week, he quietly gave up run- Banfield and which run blood tests, and demand for international express deliv- ning the firm day-to-day to spend more othersorts, formore than halfofAmerica’s eries. Packages often got stuck in customs time campaigning forfree trade. 7 24,000 or so veterinary clinics. for weeks and were heavily taxed. The ex- Most owners will buy the diagnostic pansion of free-trade areas, lower tariffs tests. If it is bad news, many will go on and and the internet brought years of growth. Consumer electronics pay for the next stage of expensive treat- But after Mr Trump’s threats to raise tariffs ments. Yet for some in the field of animal on goods from China and Mexico, together Screen shocker health, itisall too much. Latelyaccusations with the indication last month from There- have mounted that VCA and Banfield are sa May, Britain’s prime minister, that the foisting unnecessary treatments on ani- country will leave the EU’s customs union, mals. Over-vaccination seems to be a par- there are widespread fears that the favour- SAN FRANCISCO ticular bugbear. Banfield says it has re- able tailwinds enjoyed by the industry for Television manufacturers may have duced the frequency with which it decadesare gone. “It’sall a real nightmare,” been cheating on energy-efficiency tests administers core vaccines, and that it fol- groans David Jinks of ParcelHero, a British lows industry guidelines. parcel broker which works with DHL, Fed- OLKSWAGEN, a German carmaker, Technically, it remains illegal in many Ex and UPS. Vhas been disgraced for designing clever states for corporations to own veterinary Start with Brexit. More physical border software that allowed it to cheat on emis- practices, to prevent pets being over- checks between Britain and Europe would sions tests for diesel cars. A different scan- treated for the sake of profits. But there is a do little direct damage. Most packages ar- dal, with shades of the VW affair, has been way to structure ownership to deal with riving in Britain have already been building up in America’s television mar- that. And although treatment options for checked for drugs and dangerous items. ket. South Korea’s Samsung and LG, along pets now mirror those in human hospitals, Goods from outside the EU go through cus- with Vizio, a Californian firm, stand ac- the risks of getting things wrong do not. In toms 95% of the time without any inspec- cused of misrepresenting the energy effi- law pets count as property, and usually tion or delay. ciency of large-screen sets. Together, they have a small market value. Medical mal- Instead, post-Brexit costs will probably sell over halfofall TVs in America. practice suits are hardly worth the bother, come from long wrangles over which of In September 2016 the Natural Re- and are rare—another reason why Mars’s 19,000 customs codes should be applied to sources Defence Council (NRDC), an envi- strategy promises healthy returns. 7 a consignment. As an example of what ronmental group, published research on could happen, Halloween costumes from the energy consumption of TVs, showing China often get stuck at Britain’s border that those made by Samsung, LG and Vizio Logistics firms while customs officials work out whether performed far better during short govern-1 they are toys or children’s clothes, which Boxed in attract different duties. Such complexity would force delivery firms to put up their prices to customers, Mr Jinks says. Sending an item from Britain to Switzerland (out- EU LEIPZIG side the ) costs150% more than it does to Italy (inside the EU). The return ofborders poses a challenge The most severe impact on business to the soaring parcel-delivery business would come from higher tariffs, which URING the day,Leipzig’s airport is qui- would hurt demand for cross-border im- Det. It is at night that the airfield comes ports and deliveries in favour of local to life. Next to the runway a yellow ware- goods. This is where Mr Trump’s threats house serves as the global sorting hub for come into focus. A trade war would hit the DHL, a delivery firm owned by Deutsche massive volume of consignments that Post of Germany. Ahuge extension, which DHL’s, FedEx’s and UPS’s planes carry ev- opened in October, means it can sort ery day in and out ofAmerica. 150,000 parcels each hour, says Ken Allen, For the moment, a customs exemption DHL’s CEO. It was built as business soared. exists for packages worth under $800. This But the express-delivery industry faces a means that higher tariffs on a Chinese new challenge: the return of trade barriers watch imported in bulk into the United due to the protectionist bent of Donald States, forinstance, could be avoided by an Trump and because ofBrexit. American ordering direct from Alibaba, a The slower-moving shipping and air- Chinese retailer, for delivery direct to their cargo business has long been in the dol- home. ButifMrTrump isseriousabout cut- Plug and pay The Economist February 4th 2017 Business 57

2 ment tests than they did the rest of the sidering whether it needs to modernise its vegetarian approach to diet, they are keen time. Some TVs consumed double the test so that it becomes harder to game. The on food that looks and tastes as if it has amount of energy suggested by manufac- European Commission, which uses the come from farm animals, but hasn’t. turers’ marketing bumpf. America’s De- same test as the DoE, is looking into the The simplest way to satisfy this department of Energy (DoE) has also con- three manufacturers’ products as well. mand is to concentrate on substitutes for ducted tests of its own that have turned up How much regulatory attention the familiar products. “Meat” made directly big inconsistencies. case gets may depend on how the political from plants, rather than indirectly, via an Notall TV-makersare atfault: the NRDC mood evolves. A Republican-controlled animal’s metabolism, is already on sale for found no difference in energy-consump- Congress could even try to unwind the en- the table and barbecue. Impossible Foods, tion levels for TVs made by Sony and Phil- ergy requirements for all consumer appli- a Californian firm, has deconstructed ips. But class-action lawsuits have already ances. One bill, introduced in January by hamburgers, to work out what gives them been filed against the three companies Michael Burgess, a congressman from Tex- their texture and flavour—and then either highlighted by the tests—the latest was as, would prohibit the DoE from enforcing found or grown botanical equivalents to lodged against Samsung in New York on existing energy-efficiency standards or set- these. It launched its plant-based burger in January 30th. The industry is now waiting ting new ones. For consumers that would a number of upmarket restaurants in to see whether regulators will take action. be an unwelcome channel change. 7 America last year. Beyond Meat, another There seem to be two main reasons for plant-based hopeful, has compounded the sharp contrast between what TVsdo from legumes something that tastes like during the government’s tests and during chicken. This has been on sale since 2012. normal viewing. Televisions made by Last year, its “beef” patty (pictured) Samsung and LG (but not Vizio) appear to reached the shelves of several stores be- recognise the test clip that the American longing to the Whole Foods Market chain. government uses to rate energy consump- For those who really want to eat steak tion and to advise consumers on how while saving the planet, a second ap- much it will cost to operate the set over a proach may be more promising. This is whole year. The DoE’s ten-minute test clip “clean”, or cultured, meat—made by taking has a lot of motion and scene changes in animal cells and growing them in a factory short succession, with each clip lasting to form strips of muscle. Steak is not yet on only 2.3 seconds before flashing to a new the menu, but burgers and meatballs may one (most TV content is made up of scenes soon be. The field leader is Mosa Meat, a that last more than double that length). Dutch firm staffed by scientists. The first During these tests the TVs’ backlight dims, burger it made, in 2013, cost around resulting in substantial energy savings. For $300,000. By 2020, it hopes, the price of the rest of the time, during typical viewing making them will have come down to conditions, the backlight stays bright. about $11. Close behind Mosa, Memphis A kind explanation is that the manufac- Meats, an American startup, is looking at turers have been “teaching to the test” and the meatball ratherthan the burgermarket. simplydid notunderstand the inconsisten- Between 2013 and 2015 it managed to bring cy in energy consumption during the test its costs down a hundredfold—though compared with normal use, says Noah Ho- even then a single meatball would have set rowitz of the NRDC. Another explanation you back$1,200. is that the TV manufacturers may have Milk, too, is in the sights of the new no- been trying to outwit regulators to make Food technology animal farmers. Perfect Day, a startup their products’ energy consumption ap- based in Berkeley, California, makes pear low to consumers. Plant and two veg “milk” that has the same nutritional value A second reason for the discrepancy is and taste as traditional, dairy-based that Samsung, LG and Vizio TVs all dis- sources. It does so by engineering the rele- abled energy-saving features without vant cattle genes into yeast cells, and grow- warning whenever a user changed the pic- ing those in fermentation tanks. ture setting. On certain TVsmade byLG, for And there is one more novel source of Alternatives to animal products are example, the only setting in which energy- meaty protein that does not involve farm slowly moving towards the table saving features functioned was in “Auto animals—at least, farm animals of the con- Power Save” mode. Selecting another set- OST people like to eat meat. As they ventional sort. This is insects. Grasshop- ting, including “standard”, disabled the en- Mgrow richer they eat more ofit. For in- pers, for example, are around 70% protein. ergy-saving feature without notification. dividuals, that is good. Meat is nutritious. Insects do have to be fed. But, being cold- LG has updated its software so that In particular, it packs much more protein blooded, they convert more food into changing display settings will not disable per kilogram than plants do. But animals body mass than warm-blooded mammals energy-saving features without warning. have to eat plants to put on weight—so do and, being boneless, more ofthat body- The firm disputes any suggestion that it much so that feedinglivestockaccounts for mass is edible. Per edible gram, they need and others were “bending the rules”, says about a third of harvested grain. Farm ani- only a twelfth of the food that cattle re- John Taylor, a spokesman for LG. Vizio also malsconsume 8% ofthe world’swatersup- quire—and even only halfas much as pigs. denied wrongdoing. Samsung has not ply, too. And they produce around 15% of Here, the problem is marketing. Around commented on the NRDC’s findings. unnatural greenhouse-gas emissions. 2bn people eat insects already, but few of America’s Federal Trade Commission More farm animals, then, could mean them are Westerners. Changing that could (FTC), which protects consumers, has the more environmental trouble. be a hard sell. Grind the bugs up and use powerto require repayment ofprofits from Some consumers, particularly in the them as ingredients, though, and your cus- the sale of any TVs that misled customers. rich West, get this. And that has created a tomers might find them more palatable. At least one former FTC official reckons the business opportunity. Though unwilling Hargol FoodTech, an Israeli startup, plans case deservesaction. The DoE saysitiscon- to go the whole hog, as it were, and adopt a to do just that. Locustburgers, anybody? 7 58 Business The Economist February 4th 2017

Smartphones in China play on Warren Buffett, because of his financial acumen and also his admiration Upstarts on top forMr Buffett (he paid over $600,000 at an auction to have lunch with him in 2007). Mr Duan has since retired, but still influences the firms’ cultures. It took discipline not to be waylaid by DONGGUAN the striking (though short-lived) success of Xiaomi’s hype-fuelled internet strategy. How OPPO and Vivo are beating Apple, Xiaomi and the gang Many other companies tried to copy it. ONGGUAN, a southerly Chinese city From 2011 to 2013, insiders say, OPPO Dnear Hong Kong, is better known for Opportunity rings looked hard at expanding its online sales cranking out cheap trinkets than for pro- China, biggest smartphone vendors by shipments channels, but decided against it. Sky Li, ducing high-end equipment of any kind. Units m managing director ofOPPO’s international OPPO And yet, amid the gritand grime isa gleam- 20 mobile business, says the reason lies in her ing low-rise factory producing some 50m Huawei firm’s long-held adherence to the philoso- OPPO smartphones a year for , a firm start- 15 phy of ben fen—loosely translated, sticking ed by China’s BBK Electronics but which is Vivo to one’s knitting. now run independently. 10 Instead, OPPO became still more expert Inside, as well as the usual assembly Xiaomi at incentivising its physical retailers. It has Apple lines and serried workers, the factory has 5 shown itself willing to share some of its dozens of staff in quality engineering and profits with local stores. It uses a sophisti- testing, conducting 130 different tests on 0 cated system of subsidies that vary by OPPO’s phones before they are released to Q3 Q4 Q1 Q2 Q3 model and season. One retailer in a small 2015 2016 the market. Such zealous pursuit ofquality town in Sichuan saysthatalthough he sells Source: IDC would be expected of factories that pro- many brands ofsmartphones, OPPO’s gen- duce phones for Apple—the world-class fa- erous subsidies make him extra-eager to cilities run by Taiwan’s Foxconn in nearby That is chiefly due to the fact that peddle its wares. Shenzhen house similar teams. But it is un- growth has shifted sharply to the rising That has its costs, of course: OPPO does usual at a firm that makes relatively inex- middle classes in smaller cities. Consum- not disclose the size of its total subsidies pensive handsets forthe local market. ers there are less experienced with smart- nor its profit margin, which may be low OPPO, and its sister firm, Vivo, also a phones than their fancier cousins in Bei- compared with other smartphone makers. child of BBK, started out in 2004 and 2009 jing and Shanghai, and are wary of buying Fat profits are hard to come by in China’s respectively, making cheap and cheerful them online. They want to touch and com- giant smartphone market. Because it is phones like plenty of other obscure Chi- pare handsets. OPPO and Vivo spotted this simple for firms to outsource almost every nese manufacturers. They probably didn’t difference early. OPPO in particular shot to aspect of phonemaking, from designing even register on Apple’s radar. Xiaomi was the top because it invested heavily in components and chipsets to contract the Chinese handset-maker to watch; ur- bricks-and-mortar retail distribution in manufacturing, the barrier to entry is low ban sophisticates, enticed by viral market- lower-tier cities. Today the firm’s phones (the physical networksthatOPPO and Vivo ing, flocked to its slick devices. But in June are sold at some 200,000 retail outlets have built will be far harder to replicate 2016 OPPO’s R9, which costs around $400, across the mainland, which gives its sales- than an online presence). Teeming firms overtook the iPhone, which is priced at men the chance to coddle customers and means vicious price competition, especial- twice that, as China’s best-selling handset. nudge them to buy pricier phones. ly for cheaper phones. The price of a Chi- Vivo, which targets younger consumers At first, OPPO’s strategy was master- nese smartphone may drop to as little as with lower prices, is also surging. minded by Duan Yongping, founder of $50, analysts reckon. The two brands’ achievements are re- BBK, who began by selling basic electron- Pressures at home explain why Chi- markable. Two years ago they were strug- ics. He is known in China as “Duanfett”, a nese firms are also looking abroad. In the gling to join China’s top five smartphone- fourth quarter of 2016, Xiaomi and Vivo makers; now they are among the biggest were vying with each other behind Sam- five globally. One out of every three smart- sung in the race for second place in India’s phones sold in China in the third quarter smartphone market. Huawei, a local tele- of 2016 carried one of their brands; in 2012 coms-equipment giant that ranks third in their combined share was below 3%. the domestic market, already makes two- That should give Apple pause. Tim fifths of its sales outside China; Shao Yang Cook, its boss, predicted in 2013 that China of its consumer-business group says this would become his firm’s biggest market. share will rise to three-fifths within five But iPhone sales there have stagnated (see years. OPPO is already a force in India, and chart). In the third quarter its market share is in second place in South-East Asia be- fell to 7.1%, down from 11.4% a year earlier. hind Samsung. It has opened a new mar- Xiaomi has even more reason to fret. keting centre in Cairo to spearhead expan- About six years ago it bet on an “asset- sion in Africa and the Middle East. light” strategy, meaning it relied almost en- Kevin Wang of IHS Markit, a research tirely on selling its phones online. This firm, nonetheless reckons that a round of worked brilliantly when the overall mar- consolidation must be on its way. Within ket for smartphones was growing, and the five years, he reckons, most of the 50 or so richest cities, with the largest number of local Chinese phone manufacturers will tech-aware consumers, were booming. be gone. If OPPO and Vivo can stay at the Xiaomi was once valued at some $46bn, summit, that would be nearly as surprising but its fortunesin China have plunged. as the dizzying speed oftheir ascent. 7 The Economist February 4th 2017 Business 59 Schumpeter Silicon Valiant

Technologyfirms’ stand on immigration will draw attention to theirhypocrisies creations of their leaders. The resulting fortunes are these vision- aries’ just reward. But the economic and social consequences of the industry’s output, not all ofthem good, are no one’s responsibility. Instead, the industry argues, they are the result ofunavoid- able shiftsin technology, in turn respondingto society’sbroad demands. This logic has allowed tech firms to avoid responsibility for the stolen or bilious content that they publish and for the jobs that their algorithms help eliminate—to say nothing of their own oligopolistic market shares. Silicon Valley boasts ofits own might and shrugs at its own impotence both at once. The election campaign underlined that this trickis by now exhausted. It is obvious to all that technology firms are political beasts. Politicians rely on Twitter and Facebook messages, social- media advertising and data mining. Tech platforms are used to disseminate fake news. And tech firms are prominent actors in the economic debate that drives populism. The job losses in manufacturing that infuriate Americans have resulted far more from decades of technological advance than from globalisation. The piles of uninvested cash stashed unpatriotically abroad, which Mr Trump now wants to bring home, belong chiefly to technology firms. The low share of American profits that is rein- ARLYin 2016 Schumpeter went to a dinner with one of Silicon vested partly reflects the heft of Silicon Valley. For every dollar of EValley’s luminaries, a man of towering intelligence and negli- cash the tech industry makes, it reinvests 24 cents; that compares gible humility. Asked about the upcoming election, he scoffed: it with 50 cents forothernon-financial firms. Growinginequality is didn’t matter who America’s president was. Politics had become partly the result of its concentrated ownership, with a small irrelevant, he said. Technology firms, and their leaders, would group ofindividuals taking a big share ofa giant stream ofprofits. carry on fashioning brilliant products and generally carrying out In the weeks since November 8th, the technology industry God’s work on Earth, regardless of who occupied the White has started to come clean. Google and Facebookhave announced House. Cue smirks and more Hawaiian Kampachi all round. measures to try to tackle fake news. In January Mr Zuckerberg Now Silicon Valley has thrust itself into a presidential stink. said he would travel to 30 American states this year to meet or- Technology groups were the first amongbigfirms to slam Donald dinary Americans and hear how globalisation and technology Trump’sexecutive orderofJanuary 27th, which temporarily bans have affected them. Mr Nadella is talking publicly about the ef- people from seven mainly-Muslim countries in the Middle East fects of artificial intelligence on employment. Others have cho- from entering America. Tim Cook, Apple’s boss, criticised it to sen to make their mark by helping the new government. Elon employees. Mark Zuckerberg at Facebook said he was “con- Musk, the head of Tesla, an electric-car firm, and Travis Kalanick, cerned”. Sundar Pichai, CEO of Google, told staff he was “upset” of Uber, have both become advisers to the president (this week on the day of the order, and a day later the firm’s co-founder, Ser- they promised to confront him about his stance on immigration). gey Brin, was spotted among hundreds of protesters at San Fran- cisco airport. Swipe forthe next ethical dilemma Just a month earlier all these technology firms and more had Coming out of the closet as among the most important actors in paid tribute at Trump Tower, their leaders laughing for the cam- American society boosts technology bosses. So does standing up eras while Mr Trump promised: “I’m here to help you folks.” The fortheirbeliefsin things like immigration. It is more intellectually honeymoon has now abruptly ended because immigrants are so honest. It goes down well with employees. And it is probably important to the technology industry. Butthe sector’s liberal ten- popular with customers, too. Most consumer-facing technology dencies—it has few of the instinctive Republicans who populate firms have user bases that are skewed towards the young and most boardrooms—also play a part. non-Americans, both groups that dislike Mr Trump. After taxis Attracting hyper-brainy people from around the world is at went on strike at JFK airport in New Yorkin protest against the tra- the heart of the tech business model. Mr Brin was born in Mos- vel ban, Uber came under fire for not boycotting the airport, too, cow, MrPichai in Tamil Nadu and Satya Nadella, the head of Mi- and the hashtag “#DeleteUber” went viral. crosoft, in Hyderabad. The biological father of the late Steve Jobs Yet tech firms still have an awfully long way to go. Often they was a Syrian who moved to America, a journey that as of this define virtue as what they judge to be in their business interests. weekwould be impossible. Halfofall the American startups that Last year, Mr Cook dismissed a demand by the European Union are worth more than $1bn were founded by migrants. Many of to pay more taxas “political crap”. In DecemberApple agreed to a the engineers at tech firms were born abroad, too. In Cupertino, a state requestto ban the New York Times’sapp in China, where the posh suburb in Silicon Valley, halfthe population is foreign-born. firm makesjustovera fifth ofitssales. MrZuckerberg fitsthe same The industry has long supported immigration, therefore. But pattern: he says he wants to give away 99% ofhis fortune and that taking a vocal stand on political subjects has not been its habit, he believes in the ideal of free expression, but his firm paid a tax and byenteringthe frayitwill drawattention to itsown hypocris- rate ofjust 6% over the past half-decade, and he has toadied up to ies. For decades tech bosses have pushed a convenient double- China’s censors, too. Oligopolistic, hubristic and ruthless to its speak to explain their firms’ rise. Their dazzling products are the core, Silicon Valley is no beacon ofmoral leadership. 7 GMAT prep on your terms

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Also in this section 62 India ﬂirts with a UBI 63 Buttonwood: Interest costs and tax 64 Spotted! A global trade deal 64 Ethiopia’s commodity exchange 65 “Alt-beta” funds 65 Custodian-bank services 66 Free exchange: In defence of NAFTA

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Emerging markets finances, reformed the banking system, tamed inflation and floated the lira. Pop-up markets But although Turkey has learnt a lot from its past, it has learnt rather less from its peers. The experience ofotheremerging economies over the past 20 years shows that current-account deficits can be as ISTANBUL treacherous as fiscal deficits. It also shows that financing such a gap with long-term Emerging-market worries have abated. Except in Turkey foreign direct investment is better than re- HE Syrian consulate in Istanbul’s ele- zil’s real, which weakened by 8% against lying on “hot money”. The record also sug- Tgant Nisantasi quarter is a busy spot. the greenback in the first few days after the gests that if the money has to be hot, it is Men huddle outside in the cold, waiting for election, is now stronger than it was before better that it take the form of equity, rather their turn to slip through the building’s or- it. Only Mexico’s peso, still down by about than debt. And if it has to be debt, better nate doors. The rest of the neighbourhood 10%, has rivalled the lira’s decline. thatitisdenominated in the country’sown is, however, unusually subdued. A string The markets may have concluded that currency, notsomeone else’s. of terrorist attacks in the city and an at- Mr Trump’s policies, intended to put For all its strengths, Turkey has not abid- tempted coup in July, followed by a purge America first, will setsome emerging econ- ed by these rules of thumb. Its persistent ofsuspected sympathisers, has dampened omies further back than others. Consider current-account deficit (estimated to ex- spirits. “After a bomb goes off, no one goes four potential dangers: a stronger dollar; ceed 4% of GDP in 2016) has left it with out. A weekis lost,” says one shopkeeper. trade wars; immigration curbs; and a tax short-term external debt amounting to Besides war next door and terror at holiday that prompts American firms to re- over $100bn at the end of November (84% home, Turkey’s economy has been rocked patriate foreign profits. Russia is greatly ofwhich is denominated in foreign curren- by political upheaval fartherafield: the lira vulnerable to none of these risks, accord- cies). That is roughly equal to its entire hasplummeted byover15% againstthe dol- ing to Nomura, a bank. Mexico is highly ex- stock of foreign-currency reserves (worth lar since America’s election on November posed to all of them. Other economies fall less than $98bn at the end of November). 8th. Many tenants cannot now afford Ni- somewhere between the two (see table). Mexico’s reserves, in contrast, are roughly santasi’s rents, often priced in foreign cur- What about Turkey? At first glance, it twice its short-term external debt, accord- rency. Even the childhood home of Orhan would seem to have little to fear. It is not ing to the IMF. Pamuk, Turkey’s best-known novelist (pic- highly vulnerable to a trade war, the repa- These external debts and deficits leave tured), has a “forrent” sign on the door. triation of profits or curbs on migrant Turkey vulnerable to the withdrawal of Back in November, Turkey had a lot of workers. After a fiscal and financial crisis foreign capital. To prevent it may require company in its economic misery. Other in 2001, Turkey has also repaired its public higher interest rates, but the central bank1 emerging markets also reacted badly to America’s election result, prompting talk of a “Trump tantrum” to match the “taper Trump trauma tantrum” after May 2013, when America’s Vulnerabilities to Trump-administration policies, selected countries Federal Reserve began musing about re- South ducing its pace ofasset purchases. Risk Brazil China India Mexico Russia Africa Turkey In recent weeks, however, the fortunes Stronger dollar – – of emerging markets have parted ways. Trade war –– – – – South Africa’s rand has recouped most of Immigration curbs – – – – – its post-election losses against the dollar. Profit repatriation – – – – India’sand Indonesia’scurrenciesare both within 2% of their pre-Trump parities. Bra- Source: Nomura 62 Finance and economics The Economist February 4th 2017

2 has so far tightened only tentatively. In- The Indian economy stead of simply raising its “benchmark” rate—the one-week repo rate—it has Rupees for nothing stopped offering repo auctions altogether. That has forced banks to borrow at its higher overnight lending rate (which it raised by 0.75 percentage points on January 24th) or the even higher rates offered at its “late” MUMBAI liquidity window. India is taking the idea ofa universal basic income seriously, ifnot literally To some economists, the lack of sim- plicity in the central bank’s policy suggests OVEMBER 8th was not just the day of abstract terms. There is now a proposed a lack of conviction. They worry that, de- NDonald Trump’s election. It was also amount: 7,620 rupees ($113) a year. Equiva- spite its statutory independence, it is reluc- when Indians found out most banknotes lent to less than a month’s pay at the mini- tant to antagonise Turkey’s increasingly would lose all value unless promptly ex- mum wage in a city, it is well short of what powerfulpresident, Recep Tayyip Erdogan, changed. Ever since, many have expected anyone might need to lead a life of leisure. who has fulminated against the “interest- their patience in enduring the ensuing cha- But it would cut absolute poverty from 22% rate lobby” and demanded lower borrow- os to be rewarded in some way. Might to less than 0.5%. ing costs. Mr Erdogan would rather defend scrapped cash unredeemed by presumed Mr Subramanian also provides an out- the currency by drawing on Turkey’s deep tax-dodgers be recycled into a lump-sum line of how it would be paid for. Crucially, reserves of patriotism, urging Turks to con- payment to each and every citizen? Or the money would largely come from recy- vert their dollars into lira “if you love this would the annual budget, presented on cling funds from around 950 existing wel- country”. One barber told a local televi- February 1st, be full of giveaways ahead of fare schemes, including those that offer sion station he would offer a free cut to a string of state elections? In the event, the subsidised food, water, fertiliser and much anyone who converted $300. budget was restrained to the point of dull- else besides. Altogether these add up to If neither central bankers nor barbers ness. But the government’s closely- roughly the 5% of GDP he thinks his ver- stop the lira’s fall, it may be Turkey’s credi- watched “economic survey”, released the sion ofUBI would cost. Starting such a pro- tors in line for a haircut. On January 27th previous day,hinted at a much bigger give- gramme from scratch would take up Fitch, a ratings agency,cut Turkey’s foreign- away in the works: a universal basic in- around half the central government’s an- currency credit rating to junk, citing the come (UBI) payable to every single Indian. nual budget, such is the pitiful state of di- country’s exposure to foreign debt and the The idea ofa cash paymentmade to citi- rect-tax collection in India. erosion ofchecks and balances on its presi- zens irrespective of their wealth is centu- The pros of UBI are clear: India is keen dent. The agency thinks more loans (espe- ries old. It has become newly fashionable in theoryto help itspoor, butnotvery good cially to tourism and energy companies) in some rich countries, among both left- at it in practice. Much of its welfare subsi- may require restructuring, but it believes wing thinkers (who like its redistributive dies ends up in the hands of the relatively Turkey’s banks have enough capital to aspects) and their right-wing foes (who rich, who are more likely to make use of withstand “moderate shocks”. think it results in a less meddlesome state). air-conditioned trains or cooking gas—or The other riskposed by a falling curren- The idea has had its fans in India: a small able to bribe the bureaucrats in charge of cy is rising prices. Turkey has a long history UBI scheme was launched as a pilot in the deciding who deserves subsidies. In-kind of high inflation, forcing Mr Erdogan to re- state ofMadhya Pradesh in 2010. benefits are pilfered by middlemen who move six zeroes from the currency in 2005. Its inclusion in the annual survey, a would find it harder to get at payments (Some Turks still say “billion” when they breeding ground for policies that was made to beneficiaries’ bankaccounts. mean “thousand”.) Historically, a 10% fall drafted by the government’s chief eco- Mr Subramanian acknowledges that in the lira translates into a 1.5% rise in nomic adviser, Arvind Subramanian, gives managing the transition to a new system prices, which would furtherjeopardise the a new focus for fans ofthe measure (and its would be difficult. In much of India, citi- central bank’s efforts to bring inflation opponents). A UBI is usually discussed in zens have to travel at least 3km (2 miles) to 1 down from 8.5% to its target of 5%. Its own economists argue that the inflationary impact of a weak currency may be offset by the weakeconomy. They could be right. Next to the Syrian consulate is a brightly painted store (the “Pop-Up Shop”), offering nothing but consumer imports, from cereals to cosmetics, so the neighbourhood’s well-heeled residents may satisfy esoteric tastes acquired abroad. Its eclectic range includes Brut af- tershave, Jack Daniel’s barbecue sauce, Tide detergent and peach-flavoured amino acids. The fallinglira has pushed their costs up, but they have still been forced to cut their prices for the benefit of their finan- cially straitened customers. The shop manager has written off 2017 as a lost year. “We’ve had enough,” his father complains, tugging the collar of his coat, a Turkish gesture roughly akin to throwing up your hands in exasperation. But at least their rent, which the fatherquotesin billions not thousands, is priced in lira. 7 Basic needs The Economist February 4th 2017 Finance and economics 63

2 get to a bank. Digital payments are still a 75% of Indians. That means either a return It will take time before 1.3bn Indians re- minority pursuit. One advantage of the to flawed means-testing, or a hope that the ceive such a transfer. Keen as Mr Subrama- proliferation of welfare schemes is that if better-offwill voluntarily opt out. nian is, he concludes that UBI is “a power- one ofthem fails to pay out, others might. Implementing a UBI would be easier in ful idea whose time even if not ripe for Another obstacle is that a fair few bil- India in one important way: getting the implementation is ripe for serious discus- lionaires would also benefit from a truly money to recipients. Well over1bn Indians sion.” For now the government is focused universal UBI. Telling an illiterate farmer now have biometric identification cards, on meeting its long-held 3% deficit target, that a food-in-kind scheme he has used for known asAadhaar. The system can handle which it expects to miss by just 0.2 percent- decades is being scrapped to finance a pro- money, usually by diverting incoming pay- age points next year, and on the aftermath gramme that will put him on par with Mu- ments to a bank account linked to an Aad- of “demonetisation”. But the idea will not kesh Ambani, a tycoon who lives in a 27- har number. A blast of cash to all citizens go away. It may seem folly in a country storey house, will not be a vote-winner. In enrolled in the scheme would be a feasible home to over a quarter of the world’s truly truth, Mr Subramanian’s proposal stops a way to distribute the money—though that poorto give people money fornothing. But little short oftrue universality: for his sums would mean everyone got money, includ- it would be a swift, efficient way to make it to add up, take-up must be limited to just ing the conspicuously rich. home to farfewer ofthem. 7 Buttonwood A taxing problem

A proposed reformcould be bad news forjunkbonds NE reason why the American equity Stanley, a bank. “Even if the tax shield Omarket has rallied since the election Take cover goesaway,the costofdebtisstill relatively ofDonald Trumpis the hope that taxes on US non-financial interest-rate cover ratio* low versus historical levels.” corporate profits will be cut. But that mea- Another issue is that America would 14 sure has to be paid for, and analysts are Investment-grade sector be the only country eliminating the inter- only just starting to figure out where the 12 est subsidy. Companies would still have burden might fall. 10 the incentive to borrow in other countries The initial focus has been on the idea that allowed them to deduct interest pay- 8 of border-adjustment taxes. But another ments against tax. So companies could is- way of raising revenue is to remove com- 6 sue bonds in locations with high cor- panies’ right to deduct their interest ex- 4 porate-tax rates, and then use the High-yield sector penses from their taxable income. That 2 proceeds to buy back bonds issued in proviso has been in place since1918, when America. This could result in even lower it was introduced to help firms struggling 0 bond yields on investment-grade bonds 2000 02 04 06 08 10 12 14 16 with the impactofthe firstworld war—ev- in the American markets as investors Source: Citigroup *Pre-tax profits divided by interest idence that tax breaks, once granted, are chase a dwindling supply ofthem. hard to remove. The upshot could be a sharp divide in Allowing interest payments, but not would not be uniform. Some companies the bond market, with investment-grade dividends, to be deducted from corporate have a lot more debt, and thus a lot more to yields falling and junk-bond yields rising, profits before tax is paid is a huge distor- lose, than others. Matt King at Citigroup as investors worry about the ability ofthe tion to the system. It is a perk worth has done some calculations on the win- latter to service their debts without the around 11% of the value of corporate as- ners and losers, on the assumption that the tax benefit. The gap, or spread, between sets. It has tended to encourage compa- corporate-tax rate is cut to 20%. On that ba- the two would rise as a result (at the mo- nies to take on more debt. By doing so, it sis, companies with an interest coverage ment, spreads are four percentage points, may make the economy more risky at the ratio (pre-tax profits divided by interest) of quite low by historical standards). If this margin: in a recession, highly-indebted more than 2.4 would be better off. took place in an atmosphere of generally companies are likely to go bust more But few companies actually pay the full rising bond yields, because inflation and quickly, whereas companies with lots of 35% tax rate; the average effective tax rate is economic growth are picking up, then it equity capital can ride out the storm. As a around 27%, Citigroup says. On this basis, would be hard forriskiercompanies to re- result, this newspaper has favoured the Mr King reckons that only companies with finance their debts. abolition ofthe deductibility rule. interest cover of more than four times The number of defaults has already The revenue gains to the American would gain. The effect would be good been rising, largely because of the impact government would be large—around 1.6% news for the strongest firms (those judged of lower oil prices on the energy industry. of GDP as of 2013 (in 2007, when interest investment-grade by the rating agencies) The default rate on junk bonds was 5% in rates were higher, it would have been and bad news for companies in the high- the 12 months to January 2017, having 4.3%). Robert Pozen of Harvard Business yield, or “junk”, sector (see chart). This been under 2% at the start of 2015. In 2016, School has calculated that removing in- would include many companies financed 2.6 times as many bonds were downgrad- terest deductibility would allow the cor- or owned by private-equity firms. ed by S&P Global Ratings as were upgrad- porate-taxrate to be cut to15%, from 35%. A Whether this shift would make the sys- ed. Besides pointing to the high credit val- cut that large seems unlikely, however, tem saferin the shortterm also depends on uations, Morgan Stanley also notes that given another proposal that companies the broader aims of the Trump agenda. “If “uncertaintyhasrarelybeen higherin this should be immediately allowed to write we are in factheadinginto an environment cycle”. It could be a dangerous time to fid- off their capital investment against tax, a of better growth and less regulation, this dle with the tax code. measure that would reduce tax revenue. should drive more debt issuance in the The effect on the corporate world nearterm, not less,” say analysts at Morgan Economist.com/blogs/buttonwood 64 Finance and economics The Economist February 4th 2017

Trade deals staple foods such as haricot beans today Paper trail account forless than 10% ofits trade. Its an- Trying For Average time to process exports, 2016, hours nual turnover—worth about $1bn—is Border compliance Documentation dominated instead by two export crops, Anything 0 50 100 150 200 coffee and sesame seeds. In 2015, despite a dire drought, Ethiopia did avoid famine, Sub-Saharan Africa but the ECX played little role: its maize and Middle East & wheat contracts had lapsed by then be- The biggest global trade deal in decades North Africa cause ofconcerns that exports would jeop- shows why getting agreement is so hard South Asia ardise domestic food supplies. Cutting out N THE wee hours of December 7th 2013, East Asia & Pacific middlemen seems not to have done much Iafter weeks of haggling, exhausted trade Latin America & for smallholders: studies suggest that the representatives stood to applaud. Agree- Caribbean share of international prices received by Europe & ment had been reached on the first trade Central Asia coffee farmers has barely budged over the deal in the historyofthe World Trade Orga- past decade. Exporters complain about OECD high income nisation (WTO). No longer could it be ac- government price-meddling. Source: World Bank cused of being a talking shop, crimped by The ECX’s founder, Eleni Gabre-Mad- consensus. “Forthe first time in ourhistory, hin, who left the exchange in 2012, worries the WTO has truly delivered,” said Roberto the agreementare exhortationsrather than that momentum has been lost. The ex- Azevêdo, the body’s chief. The deal is tan- rules. Implementation may be slow. A change remains restricted to simple spot- talisingly close to coming into force, need- study published in December 2016 noted trading. Futures contracts, which help trading just two more national ratifications. that even when regional trade agreements ers manage price fluctuations, were sup- Chad, Jordan, Kuwait and Rwanda are include trade-facilitation provisions, they posed to be introduced within five years, competing to take it over the line. are not always put into effect. A committee but are still some way off. In theory, the Trade Facilitation Agree- will oversee implementation, but insiders In July 2015 the ECX did, however, intro- ment (TFA) is a beacon ofhope on the trade doubt how much pressure non-compliant duce electronic transactions, now used for landscape. It was unanimously agreed to governments will really face. almost all trades. Bespoke software is built by rich and poor countries. If fully imple- Eight months after Mr Azevêdo trium- in-house by Ethiopian engineers. Pay- mented, it could have an even bigger im- phantly hailed the WTO’s success in bro- ments the day after purchase are guaran- pact than slashing all tariffs. It is an exam- kering its first deal, India very nearly scup- teed. The ECX can also boast never to have ple of a win-win deal, in which peer pered it, holding it hostage over an seen a default, in a country known for sui- pressure pokes governments into making unrelated argument about agricultural cides by indebted farmers whose buyers life easier and more prosperous. subsidies. (WTO wonks still smart at the have welshed. Ethiopia has shown that it is The agreement shies away from slash- memory.) Eventually, America thrashed possible for an exchange to prompt the ing subsidies or toppling tariffs, and in- out a compromise in a side-agreement. So physical infrastructure of commodities stead hacks at the thicket of regulatory the TFA’s history highlights the belliger- markets: the ECX oversaw a burst in ware- trade barriers. The red tape is stickiest in ence ofsome governments; and, alarming- house construction. poorercountries; in sub-Saharan Africa ex- lyforthose followingthe pronouncements Fledgling exchanges dotted around Af- porters must endure nearly 200 hours of on trade ofthe new Trumpadministration, rica often visit Addis Ababa to study the inspections, regulations and paperwork. the importance ofAmerican leadership. 7 ECX. But experts doubt it is a helpful mod- Richer countries face only15(see chart). el. The government made it viable by man- The TFA is supposed to surmount these dating that almost all trade in coffee and hurdles by, for example, setting standards, The Ethiopia Commodity Exchange some other commodities go through the streamlining processes and squeezing fees. exchange. This might not be possible else- This would cut trade costs by as much as High-tech, low where. Amonopolyimposed byfiatmakes 15% in poorer countries. It also enforces it more like a state marketingboard than an greater transparency. Export-led growth is impact exchange, says Thomas Jayne, an econo- tricky if people do not know how to ex- mist at Michigan State University. port. A study by Evdokia Moïsé and Silvia ADDIS ABABA Anothermodel mightbe the Agricultur- Sorescu of the OECD found that better inal Commodity Exchange for Africa in Ma- A state-of-the-art exchange struggles formation could cut trade costs by 1.7% in lawi, which was set up privately in 2006 at with the basics low-income countries. the request ofan association ofsmallhold- Step back a bit, however, and the TFA NTHE wallsofthe Ethiopia Commod- er farmers. But its volumes remain low. looks rather bedraggled. It rose out of the Oity Exchange (ECX) in Addis Ababa, And its concentration on staple foods such ashes of the Doha round, the last big at- the capital, hang glossy black-and-white as maize and soya leaves it vulnerable to tempt at a global trade deal, as the least photographs of provincial market towns the sort of government interventions that controversial item. Grand trade deals, nev- and rustic life. For the merchants and bro- can sink exchanges. Trading in staples er very high on governments’ agendas, kers striding across its high-tech trading tends to be politically sensitive in times of have in recent decades aimed more at lock- floor they serve as a reminder that the ECX, food scarcity. ing in existing practice than at winning im- sub-Saharan Africa’s most modern com- Setting up national exchanges may be portant new concessions. The TFA reflects modity exchange outside Johannesburg, the wrong approach. The Johannesburg curtailed ambition, after plans for agree- exists for a simple, practical purpose: to Stock Exchange plans to introduce a re- ments in areas such as intellectual proper- transform Ethiopian agriculture. gional contract for Zambian white maize ty and trade in services were abandoned, It has some way to go. By connecting later this year. For lucrative export crops Its cuddly inclusivity comes at a cost. smallholder farmers to global markets, the like coffee, well-established offshore ex- Poorer countries have flexibility over exchange, launched with a fanfare in 2008, changes may make more sense than start- which standards they will put in place im- was supposed to help reduce hunger. The ing from scratch at home. Better a function- mediately, which they need time for—and hope was it would reduce price volatility ing exchange somewhere else than a which they need money for. Some bits of and incentivise farmers to plant crops. But disappointing one on the doorstep. 7 The Economist February 4th 2017 Finance and economics 65

Asset management Custodian services Ctrl alt-beta Quis custodiet?

NEW YORK A trillion-dollarswitch highlights the ignored core ofthe banking system O ACTOR has ever sat nude in a asset manager, announced that it was Funds mimicking simple hedge-fund bathtub to explain the intricacies of moving custody assets worth $1trn from strategies gain in popularity N the bank-custody business, as Margot State Street to JPMorgan Chase. State NVESTORS love to complain about Robbie did for mortgage-backed securi- Street’s shares dropped by 7%, or roughly Ihedge funds, which have delivered mea- ties in “The Big Short”, a successful film. double the percentage ofassets lost. In a sly returns for the past several years and The blame lies with the custody busi- business that relies on economies of are notorious for their high fees. Yet so far, ness’s virtues, not its flaws. scale, marginal assets have dispropor- most have stuck with them. One reason is Instead ofthe 2% fees Ms Robbie tionate value since they provide revenue that the hedge funds’ mission—to provide mentions for offloading rubbishy securi- without much extra cost. returns uncorrelated with overall market ties onto suckers, bank-custody fees are Custodians are like utilities, providing performance—has been hard to replicate. tallied in hundredths ofa percentage critical infrastructure. The three biggest But a fast-growing hedge-fund-like pro- point. Custody bankers are generally are State Street, BNY Mellon, and JPMor- duct, known as the “alternative beta” fund, neither glamorous nor crooked. They are gan Chase, each overseeing more than allows investors much cheaper access to a accountants and software engineers $20trn in assets. Next is Citigroup with similar style ofinvestment. catering to well-informed clients: the $15trn. When many custodian-bank “Alt-beta”, as it is usually called, is a bit owners and managers ofhuge amounts executives started work, their jobs en- of a misnomer. The word “beta” is typical- offinancial assets. The services they offer tailed the meticulous counting ofmoun- ly used to mean broad market returns, include: holding, valuing and transferring tains ofpaper securities. Now these which can be bought into through index- securities; receiving interest and divi- banks have to invest fortunesin comput- tracking funds. “Alpha” is the term used to dends; and providing notice ofcorporate ing power. State Street spent over $1.1bn describe the premium added by a skilled actions. The business grows with the on hardware in 2016, and was probably fund manager. The idea driving both “alt- financial markets, but more slowly.Years matched by the two other giants, says beta” funds and longer-established “smart- ofalmost seamless and scandal-free Brian Kleinhanzl ofKBW, a research firm. beta” ones, is that, just as “beta” can be dis- performance have made the business These investments matter. State Street tinguished from “alpha”, so returns can be well-nigh invisible. But not quite. and BNY Mellon do not have the same ascribed to identifiable, predictable fac- Custody has habitually been “sticky”: breadth ofbusinesses as JPMorgan Chase tors. One example is the “value” effect: ie, the loss ofa large account is unusual. But and Citigroup, but they are designated that undervalued companies tend to out- on January 25th BlackRock, a gargantuan “systemically important institutions” perform the market. because it is absolutely essential that Smart-beta and alt-beta funds are close their systems work. They hold and price cousins, but differ in their methods and in trillions in assets; a glitch could create their outcomes. Both aim to automate as- havoc. Some temporary outages have set selection, for example by using rules- happened, but nothing persistent. The based algorithms rather than human man- occasional scandal has also emerged. agers. But whereas smart-beta funds sim- Several custodians have settled charges ply pick and buy assets, and hence ride the ofpocketing excessive amounts from market along with other asset managers, foreign-exchange dealings. But this has, alt-beta funds use hedge-fund tactics in so far, caused minimal disruption. search of uncorrelated returns. These in- By dint oftheir position, the custody clude betting against (ie, “shorting”) assets banks also have extraordinary access to and using derivatives. information. They know which markets Compared with hedge funds, alt-beta are efficient, how money is flowing, the funds are dirt cheap. They typically charge value oftheir customers’ holdings and as little as 0.75-1% a year, compared with 2% what form they take. That information is, annually and 20% of profits for a typical slowly,becoming a valuable product in hedge fund. Perhaps unsurprisingly, they itself.Their workmay never be explained have grown fast: according to estimates by a woman in a tub, but when the fi- from JPMorgan Chase, assets managed by nancial world is on fire, they may be able alt-beta funds have increased from $2bn in to tell her how hot the water is. 2010 to around $70bn at the end of 2016 (still nugatory compared with the $3trn in hedge funds). er source ofbusiness. funds”, without as much emphasis on A range of firms are getting into the alt- Indeed, hedge funds may not feel too mitigating risks. beta business: big asset managers, invest- threatened by the alt-beta trend. The cost Such funds may offer cheaper access ment banks and funds of hedge funds. So, and complexity of setting up the infra- than hedge funds do to certain commodi- indeed, are hedge funds themselves. structure to short assets or trade in deriva- tised risks. But they may also end up pro- Hedge funds tend to like esoteric, niche in- tives are high barriers to entry. Moreover, ducing lower risk-adjusted returns, mak- vestments which are by definition in short alt-beta funds can be volatile. Simon Sav- ing them unappealing on their own. Most supply. But they also invest in mainstream, age, director of alternative beta at Man investors seem, for now, to use alt-beta liquid assets. Taking those positions, re- Group, a listed provider of hedge funds, funds as a complement to hedge funds, packaging them as alt-beta funds, and sell- says this is to be expected: alt-beta funds rather than as an alternative. Hedgies are ingthem on to investorsoffersthem anoth- are essentially “very simplified hedge not out ofa job yet. 7 66 Finance and economics The Economist February 4th 2017 Free exchange Better than a wall

Understanding NAFTA, a disappointing but under-appreciated trade deal HE North American Free Trade Agreement (NAFTA) has long of those in America, than they were in 1994. (Chinese incomes Tbeen a populist punchbag. In the American presidential cam- rose from about 6% of those in America to 27% during that time.) paign of 1992, Ross Perot—an oddball Texas billionaire and inde- Estimatessuggestthat the deal leftAmericansasa whole a bitbet- pendent candidate—claimed to hear a “giant sucking sound” as ter off.But the gains have proved too small, and too unevenly dis- Mexico prepared to hoover up American jobs. Since its enact- tributed, to spare it continued criticism. ment, right-wing conspiracy theorists have speculated that The sniping is unfair. Unexpected shocks prevented the deal NAFTA is merely a first step towards “North American Union”, from reaching its full potential. Both the peso crisis of 1994-95 and and the swapping ofthe almighty dollar forthe “amero”. Donald the global financial crisis dealt blows to trade between the two Trump, who plans to renegotiate (or scrap) the deal, mined a rich countries. So did the American border controls introduced after vein ofanti-NAFTA sentiment during his campaign, calling it “the the attacks of September11th 2001, which raised the cost of mov- single worst trade deal ever approved in this country”. Even ing goods and people. The rapid, disruptive growth ofChina also NAFTA’s cheerleaders (a more reticent bunch) might concede that interfered with North American integration. The Chinese econ- the deal has fallen short of their expectations. But it is in none of omy,accounting for more than 13% of global exports and around the signatories’ interests to rip it up or roll it back. 25% of global manufacturing value-added, exerts an irresistible America and Canada opened talks on a free-trade area with pull on global supply chains. Mexico in 1990, shortly after securing their own bilateral deal, Nor is NAFTA chiefly responsible for the woes of the Ameri- and it was bringing in Mexico that proved so contentious in can worker. In a recentessayBrad DeLong, an economichistorian America. When NAFTA took effect in1994, it eliminated tariffs on at the University of California, Berkeley, reckoned NAFTA might more than halfofits members’ industrial products. Over the next be blamed for net job losses of the order of 0.1% of the American 15years the deal eliminated tariffson all industrial and agricultur- labour force—fewer jobs than the American economy adds in a al goods. (The three economies would have further liberalised typical month. Even without NAFTA, manufacturing jobs would trade within the Trans-Pacific Partnership, which Mr Trump have dwindled. The strong dollar and better transport and com- scotched in one ofhis first acts as president.) munications technology made it more attractive to produce Americans hoped lower trade barriers would fostergrowth in abroad. Automation hastened the persistent long-term decline in cross-border supply chains—a “Factory North America”—to rival industrial employment that is familiar in all rich economies— those in Europe and Asia. By moving parts of their supply chains even in export powerhouses such as Germany. to Mexico, where labour costs were low, American firms reckoned they could cut costs and improve their global competitive- Beggar my neighbour ness. American consumers might also benefit from cheaper Most important, the failure to agree a trade deal with Mexico goods. For its part, Mexico sought improved access to America’s would not have altered North American geography. Mexico massive market, and sturdier positions for its firms within those shares a 3,200km-long border with the world’s largest economy. North American supply chains. Both countries hoped the deal It is almost inevitable that America will be Mexico’s largest trad- would boost Mexico’s economy, raising living standards and ing partner (America currently accounts for more than 70% of stanching the flow ofmigrants northward. Mexican exports and more than 50% of its imports). Deep famil- NAFTA was no disaster. Two decades on, North America is ial and cultural tiesacrossthe bordershrinkthe distance between more economicallyintegrated. Trade between America and Mex- them even more. Mexico cannot help but be critically dependent icohasrisenfrom1.3%ofcombinedGDP in1994to2.5%in2015(see on its neighbour’s economy. And America unquestionably bene- chart). Mexico’s real income per person, on a purchasing-power- fits when Mexico, which has the world’s tenth-largest population parity basis, has risen from about $10,000 in 1994 to $19,000. The and15th-biggest economy,is more prosperous. number of Mexicans migrating to America has fallen from about A richer Mexico would buy more American goods and ser- half a million a year to almost none. And yet the deal has disap- vices and provide more ideas, talent and innovation. It would pointed in many ways. Mexican incomes are no higher,as a share also be better placed to manage migration, and a stronger diplomatic partner. Eliminating tariffs on Mexico would not instantly transform it into Canada, but the notion that higher trade costs A great purring sound between the two economieswould serve American interests bet- United States-Mexico merchandise trade, as % of combined GDP ter is, at best, short-sighted. No wall can insulate America against events to its south, and Americans’ own well-being is intimately 3.0 NAFTA COMES INTO EFFECT GREAT RECESSION linked to the welfare oftheir around 125m Mexican neighbours. 2.5 It is hard to blame Americans for seeing globalisation as a zero-sum affair. Stagnant pay, rising inequality and government 2.0 complacency as industrial regions suffered long-term decline have obscured the benefits oftrade and created fertile ground for 1.5 populists. As a result Americans feel let down by NAFTA. Yet NAFTA 1.0 has itself been let down by American leaders, who nei- thermade the case that higherlivingstandards are a positive-sum 0.5 game, nor allowed the benefits ofgrowth to be broadly shared. If the upshot is the disintegration of the North American economy, 0 those on both sides ofthe Rio Grande will be worse off. 7 1990 95 2000 05 10 16 Sources: US International Trade Commission; Haver Analytics Economist.com/blogs/freeexchange Science and technology The Economist February 4th 2017 67

Augmented reality sters that were, thanks to their phones’ cameras, drawn over a phone’s-eye view Better than real of a building’s lobby or a stand of trees. Apps such as Snapchat, which features image filters that permit users to take pictures ofthemselves and others wearingcomput- er-generated rabbit ears or elaborate virtual make-up, are another example. Replacing the actual world with a virtual one is a neat trick. Combining the two There are less frivolous uses, too. Goo- could be more useful gle’s Translate app employs computer vi- CIENCE fiction both predicts the future meeting, or even a virtual alien with a ray sion, automatic translation and a smart- Sand influences the scientists and tech- gun, ripe for blasting. Despite the hype and phone’s camera to show an image of the nologists who work to bring that future prominence given recently to VR, people world that has text, such as items on about. Mobile phones, to take a famous ex- tend to spend more time in real realities menus and street signs, interpreted into ample, are essentially real-life versions of than computer-generated ones. AR thus any ofseveral dozen languages. the hand-held communicators wielded by has techies licking their lips in anticipation Apps like Snapchat and Translate rely Captain Kirkand his crewmates in the orig- of a giant new market. Digi-Capital, a firm on machine-vision algorithms to work inal series of “Star Trek”. The clamshell of analysts in California, reckons that of their magic. Snapchat is designed to detect models of the mid-2000s even take design the $108 billion a yearwhich itpredicts will faces. This works well enough, but means cues directly from those fictional devices. be spent by 2021 on VR and AR combined, that the bunny ears can be applied only to If companies ranging from giants like AR will take three-quarters. heads. Translate, similarly, looks for text in Microsoft and Google to newcomers like the world upon which to work its magic. Magic Leap and Meta have their way, the Improving on the world But smartphone-makers have biggerplans. nextthingto leap from fiction to fact will be Like many science-fictional technologies, At the end of last year Google and Le- augmented reality (AR). AR is a sci-fi staple, AR is in fact already here—just unevenly novo, a Chinese hardware manufacturer, from Arnold Schwarzenegger’s heads-up distributed. An early version was the unveiled the Phab 2 Pro, the first phone to display in the “Terminator” filmsto the ho- heads-up displays that began to be fitted to implement a piece of Google technology lographic computer screens that Tom jet fighters in the 1950s. These projected in- called Tango. The idea is that, by giving the Cruise slings around as a futuristic police- formation such as compass headings, alti- phone an extra set of sensors, it can detect man in “Minority Report”. tude and banking angles onto the cockpit the shape of the world around it. Using in- AR is a close cousin to virtual reality canopy. Such displays occasionally turn up formation from infra-red detectors, a wide- (VR). There is, though, a crucial difference in cars, too. But only now, as computers angle lens and a “time-of-flight” camera between them: the near-opposite mean- have shrunk enough and become suffi- (which measures how long pulses of light ings they ascribe to the term “reality”. VR ciently powerful, has it become possible to take to reflect off the phone’s surround- aims to drop users into a convincing, but give people a similar sort of experience as ings) Tango is able to build up a three-di- artificial, world. AR, by contrast, supple- they go about their daily lives. mensional image of those surroundings. mentsthe real world bylayinguseful oren- Last year, for instance, the world was Armed with all this, a Tango-enabled tertainingcomputer-generated data over it. briefly entranced by an AR smartphone phone can model a house, an office or any Such an overlay might be a map annotated game called Pokémon Go. Players had to other space, and then use that model as a with directions, or a reminder about a wander the world collecting virtual mon- canvas upon which to draw things. 1 68 Science and technology The Economist February 4th 2017

2 To give an idea ofwhat is possible, Goo- for Microsoft’s Xbox 360 games console), gle has written apps that would be impos- scan the world around it. Those cameras sible on Tango-less phones. “Measure”, for generate such a flood of information that instance, overlays a virtual tape measure Microsoft has had to design a special chip on the phone’s screen. Point it at a door, to process all the incoming data. Armed and it will tell you how wide and high that with that understanding, and with the portal is. Point it at a bed, and you get the ability to track the position of its user’s bed’s dimensions—letting you work out head, the machine can tailor its graphics whether it will fit through the door. Anoth- accordingly: making a virtual motorbike er Tango app is the oddly spelled appear to be standing on a real floor, forin- “Woorld”, which lets users fill their living stance. The same camerasletthe wearer in- rooms with virtual flowers, houses and teract with the machine via voice com- rocket ships, all of which will interact ap- mands, by making gestures in mid-air, or propriately with the scenery. Place the by tracking precisely where he is looking. rocket behind a television, for instance, Unlike VR headsets, which must be and the set will blockyour view ofit. connected to either a PC or a smartphone to work, the HoloLens is a self-contained Through a pair of glasses, virtually computer that needs no accessories. Users The effectTango givesisimpressive, butthe view the world through a pair of thick, technology is still in its early stages. Build- transparent lenses. A pair of projectors ing3D modelsofthe world iscomputation- feed light into the top ofthese lenses. Three ally demanding, and quickly drains even optical waveguides (one each for red, the Phab 2 Pro’s beefy battery. The models green and blue light—the primary colours themselves quickly use up the phone’s from which others can be created) funnel data-storage capacity. And the touchscreen Glass’s built-in GPS to navigate, all the that light down the lenses before bending of a phone is a clumsy way of communi- while leavinghishandsfree forother tasks. it through 90° and into the user’s eyes. catingwith the software. Some enthusiasts The problem was not with the users. By overlaying its images onto the real of augmented reality therefore think that Google’s “Glass Explorers”—those willing world, the HoloLens headset turns reality the technology will not take off properly to pay $1,500 for early access to the hard- into a computer monitor. A window con- until smartphonescan be abandoned in fa- ware—seemed happy enough. But, often, taining a Skype call can be placed onto an vour of smart spectacles that can superim- those they interacted with were not. Glass office wall, disappearing when the user pose images on whatever their wearers Explorers quickly attracted the nickname looks away and returning when he looks happen to be looking at. “Glassholes” from those annoyed by their back at it. A computerised calendar can be Such glasses do exist. So far, though, proclivityto glance ate-mailsin the middle placed on the desk (or the ceiling, if you they have made a bigger impact on the of a conversation, or worried that the de- prefer). All this information can be seen workplace than in the home. Companies vice let wearers record everythinggoing on without having to cut yourself off com- such as Ubimax, in Germany, or Vuzix, in around them. (Some restaurants banned pletely from the outside world, as a VR New York, make AR spectacles that include Glass users on privacy grounds.) Google headset would require. cameras and sensors, and which use a pro- stopped making Glass early in 2015, al- Some of the first demonstrations of the jector mounted on the frame to place what though it is working on a new version HoloLens involved games. In one, users looks like a small, two-dimensional screen aimed atbusinessesinstead ofindividuals. blasted aliens that took cover behind their into one corner ofthe wearer’s vision. Other firms have more limited ambi- living-room sofas. In a second, they played Used in warehouses, for instance, that tions, but may do better for that. RideOn, with blocks from Minecraft, a sort of virtu- screen—in combination with technology for instance, is an Israeli outfit founded by al Lego, on their living-room tables. More which tracks workers and parcels—can three engineers with experience in design- recent apps have focused on business and give an employee instructions on where to ing heads-up displays for aircraft. It will training. One such, developed in collabo- go, the fastestroute to get there and what to soon start selling augmented-reality ski ration with Case Western Reserve Univer- pickup when he arrives, all the while leav- goggles. The idea isto turn skiinginto a vid- sity, in Cleveland, projects a human body ing both of his hands free to move boxes eo game, by showing users routes, letting into the room to help with the teaching of around. Ubimaxreckons that could bring a them time runs, compete with their anatomy. A wave of the hands can add 25% improvement in efficiency. At a confer- friends, shoot footage and the like. muscles to the skeleton, or bring the heart ence in London in October, Boeing, a big Some companies are building much out ofthe chest to examine it more closely. American aeroplane-maker, described more capable displays. Instead of 2D im- how it was using AR glasses to give work- ages, they propose to create augmented re- Augmenting the enterprise ers in its factories step-by-step instructions ality in three dimensions. In March 2016 The HoloLens can be used collaboratively, on how to assemble components, as well Microsoftbegan makingearlyversions ofa as well. Another demo has someone being as to check that the job had been done headset called the HoloLens available to instructed how to repair a light-switch by properly. The result, said Paul Davies of software developers around the world. someone else, who is employing video- Boeing’s research division, is faster work Unlike the AR glasses produced by Vuzix conferencing software in another room to with fewer mistakes. and Ubimax, or Google’s Glass, the Holo- do so. The guide can see what the Holo- The one serious attempt to offer indi- Lens can draw 3D images that appear to ex- Lens user sees, and can draw on top of his vidual consumers such technology did istin the real world. Userscan walk around field of view—putting circles around ob- not, though, go well. Like Vuzix’s and Ubi- a virtual motorbike, forinstance, to inspect jects of interest or highlighting the correct max’s products, Google’s “Glass”, unit from behind, or place virtual ornaments tool in a box. ThyssenKrupp, a German en- veiled in 2013, was a pair ofspectacles with on real tables or shelves. gineering firm, is experimenting with giv- a small projector mounted on one arm. It is, in other words, like a Tango-en- ing the devices to its lift repairmen. Should The idea was, in effect, to create a wearable abled smartphone—only much more capa- anyone encounter a particularly difficult smartphone that would let its user make ble. The device’scameras, derived from the job, he can call head office forspecialist ad- calls, read e-mails, see maps and use the Kinect (an accessory originally developed vice. Users can also connect to each other 1 The Economist February 4th 2017 Science and technology 69

2 and see the same augmented reality (in zy promotional videos. It has kept its tech- Their existing app stores offer developers true science-fiction style, other users ap- nological cards close to its chest—to the an easy way to sell software, and their pear as golden, androgynous, vaguely Art point where some sceptics think that its business model—in which the cost of the Deco-looking figures). technology has been oversold. But the de- hardware is often subsidised by network Aecom, an international firm of archi- mos it has released show images much operators, who recoup this investment tects and engineers, is already using the clearer and crisper than those Microsoft with fees and rental charges as they go HoloLens to help design buildings. Mod- can manage with the HoloLens. along—could help draw some of the finan- ern building projects can be very compli- cial sting of the initial outlay a customer cated, says John Endicott, one of Aecom’s Curb your enthusiasm must make. On the other hand, a phone’s executive directors—to the point where For all the hype, AR is still at an early stage, screen is small and fiddly, and holding it up even experienced designers have trouble especially as a consumer technology. Fore- every time you want to use an AR app keeping everything in their heads. casts of markets worth squillions by the could become tedious. In 2016 the firm designed buildings end of the decade should be taken with a Headsets such as the HoloLens offer a around the Serpentine art gallery, in Lon- good deal of salt, especially since virtual way around this problem. Those currently don. Mr Endicott observes that, “the roofs reality, AR’s close and even-more-hyped in development will cost thousands of dol- of these things had very complex geome- cousin, has so far proved a bit of a damp lars and look more than a little silly. For try. We simply couldn’t check it on a 2D squib. No VR headset-maker has yet re- now, that will limit their uptake to compa- screen, but the HoloLens let us all review it leased official sales figures, but the num- nies, which can afford the hardware and together.” Trimble, an American engineer- bers that have trickled out lookmodest. are less worried about the aesthetics. But ing firm, helped Aecom develop the sys- In October 2016 Cher Wang, chairwom- the hope is that the mix of sensors and tem. “We’re also finding it has applications an of HTC, a Taiwanese consumer-elec- computingpowerneeded to run AR can be in everything from mining to agriculture to tronics company, told 87870 News, a Chi- shrunkto the point where, as MarkZucker- facilities management,” says Aviad Alma- nese website, that her firm had sold berg, Facebook’s boss, put it at a show for gor, the director of Trimble’s “mixed reali- 140,000 of its Vive headsets since their developers last April: “we’re going to have ty” programme. “You can do things like launch the previous April. (By way of com- what look like normal-looking glasses that track assets [such as miners, lorries or parison, Apple sells more than 870,000 can do both virtual and augmented reali- equipment] as they move round a 3D mod- iPhones a day.) In November SuperData, a ty.” Others want to go further still. Sam- el ofa mine, in real time.” market-research firm in New York, de- sung and Apple, for instance, are exploring The HoloLens is far from perfect, how- scribed VR as “the biggest loser” in the the idea ofAR-enabled contact lenses. ever. The AR magichappensin onlya small American shopping season around For now, such devices remain far away. slice of a user’s view (some have likened it Thanksgiving, and cut its sales forecasts for Those in the computing industry like to to looking in on the computer-generated Sony’s PlayStation VR headset in 2016 from talk of an “iPhone moment”, when a well- world through a letterbox). Though the 2.6m to 750,000. Even among keen techies, crafted product launches, almost single- headset is light (weighing around 600g) enthusiasm for VR seems limited. Asurvey handedly, a new phase of the computing and comfortable, itisbulkyand notexactly by Steam, an online shop that dominates revolution. But such moments are the cul- fashionable. And using the gesture-track- the market for PC gaming, found that just mination of years of research into, and de- ing system to interact with the illusions the 0.38% ofits customers owned a VR headset velopment of, many different technol- headsetgeneratescan feel clunkyand awk- in December, a number unchanged from ogies. The iPhone was not the first ward. It is not yet on general sale, but when the previous month. smartphone. No self-respectingsalaryman it is (Microsoft has given no firm date) its If AR is not to go the same way, it will of the mid-2000s was without a BlackBer- price tag—also unknown, though the ver- have to be made easier to use. That proba- ry, and the basic idea can trace its ancestry sions sold to software developers go for at bly means consumer versions will be back at least as far as the hand-held perso- least $3,000—is likely to make it a business- adapted for peoples’ phones. As Tim Me- nal digital assistants of the 1990s. None of only proposition. rel, Digi-Capital’s boss, points out, phones the present approaches to AR seems likely Microsoft is not the only firm working are a known quantity that people are com- to change the world as the iPhone did. But on advanced AR headsets. One rival is fortable with. They have become, for those behind them hope that, one day, a Meta, in San Mateo, California. Compared many, their default computing device. combination ofthem will. 7 with Microsoft this firm is a tiddler, having raised only $73m in funding so far. But its engineers promise a much wider field of view than the HoloLens’s. Microsoft’s product can track a few hand gestures. Meta’s is designed to keep a constant eye on exactly what a user’s hands are up to, letting him “handle” virtual objects simply by picking them up and rotating them. Another potential rival, Osterhout De- sign Group, in San Francisco, which makes AR glasses for industrial and medical companies, has announced two products aimed at individuals. Though less technically capable than the HoloLens, both are sleeker than their rival. Microsoft’s best- known competitor in this area, though, is Magic Leap, a firm founded in Florida in 2010, which has attracted $1.4 billion in investment from companies such as Google and Ali Baba, China’s biggest online retailer, aswell as plenty ofattention for itssnaz- curent rate with code ECONMAG15 Once a niche activity exclusive to the wealthy and 15% OFF philanthropic-minded, impact investing is now championed by a growing number of institutions in the capital markets. impactinvesting.economist.com Join editors from The EconomistDQGOHDGLQJÀQDQFLHUV institutional investors, policymakers, academics, impact [email protected] investors and philanthropists to analyse the opportunities and 212.641.9865 REVWDFOHV WR WKH PDLQVWUHDPLQJ RI SXUSRVHGULYHQ ÀQDQFH

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India sure to win a seat and then stay there. From the 1980s, as Congress started to fade as a Conviction politicians political force, bribing its local representa- tive became less of a sure thing for local crooks. So in the same way that a carmaker mightstartmanufacturingitsown tyres ifit finds that outside suppliers are unreliable, Mr Vaishnav argues that the dons promot- ed themselves into holding office, thus A penchant forcriminalityis an electoral asset in the world’s biggest democracy providing their own political cover. LL politicians are crooks. At least, that is What is more surprising is that the sup- what a lot of people think in a lot of When Crime Pays: Money and Muscle in ply of willing criminals-cum-politicians A By Milan Vaishnav. Yale countries. One assumesitis a reproach. But Indian Politics. was met with eager demand from voters. University Press; 410 pages; $40. To be not in India. Indian politicians who have Overthe pastthree general elections, a can- published in Britain in March; £25 been charged with or convicted of serious didate with a rap sheet of serious charges misdeeds are three times as likely to win has had an 18% chance of winning his or parliamentary elections as those who stituency whose MP isn’t facing a charge. her race, compared with 6% for a “clean” have not. In “When Crime Pays: Money Mr Vaishnav dissects both the reasons rival. Mr Vaishnav dispels the conven- and Muscle in Indian Politics” Milan Vaish- whythe goonswantto getelected and why tional wisdom that crooks win because nav of the Carnegie Endowment for Inter- the electorate seems to be so fond of them. they can get voters to focus on caste or national Peace meticulously tracks the Their desire for office is relatively new. some other sectarian allegiance, thus over- remarkable political success of India’s ac- After independence in 1947 thugs used to looking their criminality. If anything, the cused murderers, blackmailers, thieves bribe politicians to stay out of trouble and more serious the charge, the bigger the and kidnappers. Having been a symptom to secure lucrative state concessions such electoral boost, as politicians well know. of India’s dysfunctional politics, the felons as mining rights. It helped that candidates As so often happens in India, poverty are metastasising into its cause. from the dominant Congress party were plays a part. India is almost unique in hav- Sadly, this is not a book about some ing adopted universal suffrage while it was small, shady corner of Indian politics: 34% still very poor. The upshot has been that of the members of parliament (MPs) in the Charging on underdeveloped institutions fail to deliver Lok Sabha (lower house) have criminal India, share of Lok Sabha MPs with pending what citizens vote for. Getting the state to charges filed against them; and the figure is criminal cases, by election year, % perform its most basic functions—building rising (see chart). Some of the raps are pec- MPs with criminal cases a school, disbursing a subsidy, repaving a of which: serious cases cadillos, such asriotingorunlawful assem- 40 road—is a job that can require banging a bly—par for the course in India’s raucous few heads together. Sometimes literally. local politics. But over a fifth of MPsare in Who better to represent needy constitu- 30 the dock for serious crimes, often facing ents in these tricky situations than some- reams of charges for anything from theft to one who “knows how to get things done”? intimidation and worse. (Because the Indi- 20 If the system doesn’t work for you, a thug- an judicial system has a backlog of 31m gish MP can be a powerful ally. cases, even serious crimes can take a 10 Political parties, along with woefully decade or more to try, so few politicians inadequate campaign-finance rules, have have been convicted.) One can walk just 0 helped the rise of the thug-candidate. 2004 09 14 about the whole way from Mumbai to Kol- Campaigns are hugely expensive. Voters Source: Association for Democratic Reforms kata without stepping foot outside a con- need to be wooed with goodies—anything 1 72 Books and arts The Economist February 4th 2017

2 from hooch to jewels, bikes, bricks and merely manages murder.” Spare a thought But Mr Vaishnav does spell out the per- straight-up cash will do. Criminals fill for the libel lawyers at Yale University ils of India’s elevation of lawbreakers to party coffers rather than drain them, and Press, Mr Vaishnav’s brave publisher. lawmakers. Constituencies represented by so are tolerated. If his book has a defect, it is that the crooks suffer economically. A bigger cost is “When Crime Pays” can be grimly author seeks only to answer the questions in the legitimacy of the public sphere as a amusing. In 2008 government whips des- for which he has data. This academic dili- whole when even MPs can flout the rule of perate to avoid parliamentary defeat gence is laudable, but it narrows the scope law so brazenly. The prime minister, Na- sprung six MPs out of prison for a few days of his survey to just one corner of India’s rendra Modi, has pledged to clean up the to get them to cast their votes, never mind political moral depths: there is precious system, for example by recently scrapping the 100-odd cases of kidnapping, arson, little about corruption in office, for exam- large-denomination bank notes, which he murder and so on that the MPs faced be- ple, beyond pointing out that MPsleave thinks contribute to corruption. One pre- tween them. Some of the gangster-states- office vastly richer than when they came sumes that the 13 alleged lawbreaking MPs men are straight out of Bollywood films. A in. Perhaps inevitably in a case where the he appointed to his first cabinet (eight of fan of a local politician at one point ex- problems are so deeply entrenched, the them facing serious criminal charges) all plains that his man “is not a murderer. He bookoffers few solutions. supported the move. 7 Johnson The giant shoulders of English

The advantages ofa scholarly lingua franca should not mean abandoning all otherlanguages VERYONE who matters speaks Eng- person can have the best ofboth. “Elish.” So say many in Britain and Multilingualism is needed in other America. In fact, a lotofpeople do not. But ways. In disciplines including psycholo- in some domains, this crude approxima- gy, biology and medicine, university- tion is true: in globalised enterprises the based researchers will workwith subjects world’s single scholarly language is in- (patients, for example) and data-gatherers creasingly indispensable. Among those (say, remote experts in local flora and fau- global enterprises is science, in which na) in other languages. The bilingual sci- more and more workisbeingdone in Eng- entist who can later write all this up in lish. This is not always good. English has a competitive advantage. A scientific lingua franca has advan- More and more young scientists will tages. A few moments imagining scien- speak English as a matter of course. They tists toilingawayin differentcountries un- should ensure that clear English abstracts aware of each other’s successes and and keywords from their papers are avail- failures is enough to show that. For centu- able; thismaybe more importantthan the ries, Latin allowed the Copernicuses, Kep- original abstract itself. But Anglophone lers and Newtons of Europe to stand, in scholars and institutions can also play a Newton’s words, “on the shoulders of role. Where work is of particular impor- giants” who had preceded them. With the tance to a particular country or region, rise of European vernaculars as “serious” they too should make sure that abstracts languages, an educated person was ex- and keywords are available in relevant pected to read several; German was a languages. Groups of scholars can share leading language ofscience. Spanish, was farbehind, with 12.6%. the cost offull high-quality translations. Now, non-Anglophone scientists learn Monolingual ghettos are bad for sci- Changing practices takes time. Until English; English-speaking scientists hard- ence. In 2004, workon the transferofH5N1 then, some technological tools can help. ly bother with other languages at all. The flu from birds to pigs languished unread in Machine translation (MT) has improved rise in perceived need formore STEM sub- Chinese while critical time was lost. In the in recent years. And specialised MT sys- jects (science, technology, engineering study’s sample, only half of Spanish-lan- tems—say, those designed specifically to and maths) has made schools squeeze guage papers and a third of those in Japa- handle texts in a field like ecology—are far anything that looks dispensable, and in nese even had abstracts in English. Those more accurate than general systems that the English-speaking world that includes that did, unsurprisingly, were more likely are designed for all kinds of text (like foreign languages. Legislators in Florida to be published in prestigious, peer- those that are free online). Building such have even proposed letting schoolchil- reviewed journals. But the bird-flu case systems is getting cheaper and easier. If dren learn a computer language to satisfy shows that that hardly includes all the sci- scientists could support the development schools’ foreign-language requirements. ence that matters. Some good scientists of such MT systems for their fields, they Three scientists have raised an alarm still can’t write in English. could increasingly get usable gists of ab- about English-only science in a paper in The solution is not to replace English, stracts instantly, and find out which work PLOS Biology, a journal. Tatsuya Amano, but to encourage multilingualism wherev- might be worth full translation. Juan González-Varo and William Suther- er practical, and require it when needed. The alternative is a future in which all land looked at fields where local knowl- This can be an advantage for non-native work is done in English. In such a world, edge matters, such as ecology and conser- English-speakers. Studies have shown that other languages would fail to develop the vation. They found that 64.4% of papers writing and thinking in a second language kindsoftechnical vocabularyand expres- on Google Scholar mentioning “conser- can encourage a deliberate mode of think- sions needed for science. They would be vation” or “biodiversity” were in English. ing. Working in your native language used socially and at home, but not for The second most common language, encourages the fluid kind. A bilingual serious work. That would be a shame. The Economist February 4th 2017 Books and arts 73

Statistics one smoker to begin with, after doubling onslaught of information. Mr Levitin pa- every year for 35 years there would be tiently explains the difference between a Nullius in verba more than17bn of them. Mr Levitin repeat- percentage change and a percentage-point edly throws these statistical curveballs at change, a common source of confusion. his readers, training them to adopt a take- When a journalist describes a statistical re- nobody’s-word-for-it attitude. It is an effec- sult as “significant”, this rarely carries the tive pedagogical technique. same meaning as when a statistician says Some statistics turn out to be plain it. The journalist may mean that the fact is A Field Guide to Lies and Statistics. By wrong, but more commonly they mislead. interesting. The statistician usually means Daniel Levitin. Dutton; 292 pages; $28. Yet this is hard to spot: numbers appear ob- that there is a 95% probability that the re- Viking; £14.99 jective and apolitical. A favourite of aca- sult has not occurred by chance. (Whether EOPLE take in five times as much infor- demics and journalists, when analysing it is interesting or not is another matter.) Pmation each day as they did in the trends, is to “rebase” their figures to 100 so Some readers may find Mr Levitin’s mid-1980s. With all these data sloshing as to back up the argument that they wish book worthy but naive. The problem with around it is easy to feel lost. One politician to make. For instance, starting a chart of certain populist politicians is not that they uses a statistic to back up her argument; a American GDP growth in 2009, when the mislabel an x-axis here or fail to specify a newspaper uses another fact to refute it; an country was in recession, tricks the reader control group there. Rathertheydeliberate- economist uses a third to prove them both into thinking that over the long term the ly promulgate blatant lies which play to wrong. In “A Field Guide to Lies and Statis- economy is stronger than it really is. voters’ irrationalities and insecurities. Yet tics” Daniel Levitin, an American neuro- “[K]eep in mind that experts can be biased if everyone could adopt the level of scientist, shows the reader how to find a without even realising it,” Mr Levitin healthy statistical scepticism that Mr Levi- way through all this numerical confusion. reminds people. tin would like, political debate would be in A book about statistics can easily be A basic understanding of statistical much better shape. This book is an indis- boring. Fortunately, Mr Levitin is the per- theory helps the reader cope with the pensable trainer. 7 fect guide. Before becoming an academic he used to work as a stand-up comedian. Drawingon those skills MrLevitin peppers The law in America his book with wisecracks. He uses the phrase “on average, humans have one tes- Whose rules, whose law ticle” to make the point that the mean can be a misleading description of a population. He goes off on interesting tangents, granting the reader some light relief from detailed analysis of sampling and proba- A bookon law professors illuminates the bitterly contested ideas behind the fight bilities. Only occasionally is his hokey forthe Supreme Court and the founding principles ofAmerica style annoying. Using plenty of examples, Mr Levitin ONTROVERSY is raging over Donald Law Professors: Three Centuries of showshoweasilystatisticscan lead people Trump’s decision to appoint Neil Gor- C Shaping American Law. By Stephen B. astray.Take the following assertion, which such to the Supreme Court. Within hours, Presser. West Academic Publishing; 486 on a quick skim might seem perfectly rea- accusations were being made about the pages; $48 sonable: “In the 35 years since marijuana candidate’s political affiliations, about laws stopped being enforced in California, whether he is in the legal mainstream and the number of marijuana smokers has whether he could protect the “enshrined cluding one Barack Obama, who spent 12 doubled every year.” One will soon realise rights ofall Americans”. years as a senior lecturer at the University that this must be nonsense; even with only The idea of “rights”, “mainstream” and of Chicago before taking an eight-year tour even the role of the Supreme Court in de- as America’s president. “There is no coun- termining these are not as enshrined as ad- try on Earth in which law professors have vocates ofvarious positions contend. They played a more prominent role,” writes Mr never have been. Many ideas abound Presser, a statement that neither lawyers about the role of the court within Ameri- norpoliticians in anycamp would dispute. ca’s political system, the principles it The natural audience forthis book is ac- should uphold and even the definition ofa ademics, members of the bar and law stu- ubiquitous term, “rule of law”. Some of dents. Forthese last in particular, it may be- these debates trace their roots back to the come essential reading. Law professors early 18th century, before America was like putting their students through the even established. hoops by asking them bewildering ques- If the fight has become more heated, tions; Mr Presser’s book does a good job of it is because the authority of the judiciary distillingwhatisactuallybeingtaught. Giv- in America, notably its ability “to legis- en the timing ofthe book, though, its great- late”—to expand the reach of law and find estvalue maylie in the wayitexplains why new, unstated (and possibly unintended) potential candidates are so often de- rights—has been a pivotal feature of poli- scribed, by different interested parties, as tics since the 1950s. “Law Professors: Three being ignorant, bigots or temperamentally Centuries of Shaping American Law”, a unsuited to the taskat hand. well-timed book by Stephen Presser, a pro- “Our two major political parties now fessor at Northwestern University, traces understand the rule of law very different- how this emerged. ly,” Mr Presser writes. Should it be based The book is organised around the intel- on precedent and written statutes (basical- Smoking out the potheads lectual biographies of 29 individuals, in- ly the Republican approach) orshould it be1 74 Books and arts The Economist February 4th 2017

2 discretionary and allowed to incorporate values and external information (the Democrats’ view). Within this schism is a struggle over whether the judiciary’s role is to enforce laws as they were written orto see law as a flexible instrument to achieve objectives, many of which are passionately supported—and passionately opposed. That law professors became pivotal players in this drama was never inevitable. As in Britain, in America’s earliest days legal training came through apprentice- ships. This was augmented by a few intellectually ambitious outside authorities who found their way to universities. One of the earliest law professors, Joseph Story, simultaneously taught at Harvard, served as a justice on the Supreme Court, wrote treatises instructing judges and lawyers on the law and ran a bank (which may have been perceived at the time as an added benefit rather than a conflict ofinterest). In his spare time, Story hosted Alexis de Mot juste Tocqueville during his trip to America, and is thought to have been a key influence in different purposes, in Holmes’s view. cago, but Mr Presser writes that his views de Tocqueville’s assertion that lawyers It is this premise of a flexible law that were established while he was a student at served as America’s aristocracy, and “con- became the animating force in law schools Harvard when another movement, “criti- stitute a sort ofprivileged body in the scale and ultimately in American courts and cal legal studies”, was popular. It argued of intellect”, who serve as “the most pow- policy, largely through a series of move- that the law was malleable—a political in- erful existing security against the excesses ments that Mr Presser describes with as strument that had been misused by the of democracy”. These lines are often much precision as this somewhat murky powerful in the past and should be reinter- repeated—less so a subsequent passage, procession allows. Among the most im- preted to empower the disenfranchised. noting that beyond their virtues, they, “like portant was “legal realism”, which, as The great figure who opposed this ap- most other men, are governed by their Holmes’s statement suggests, examined proach was Antonin Scalia, who left the private interests, and especially by the what judges actually did, rather than the Chicago faculty to be a federal appeals interests ofthe moment”. rules of law¸ and encouraged them to court judge then a Supreme Court justice, These three sentiments: that the study incorporate research from social sciences and whose death almost exactly a year ago of the law is the preserve of lawyers, who in making their decisions. This was adopt- created the current opening. are the intellectual elite; thatthey serve asa ed by the Supreme Court under Earl War- As Mr Presser writes, Scalia believed deterrent against the failures of demo- ren after the second world war and played the law and constitution should be fol- cracy; and that they may be compromised, a huge factor in many of its most notable lowed by interpreting both as they were if not flawed, in their approach, are domi- decisions, including Brown v Board of understood at the time they were enacted nant themes throughout Mr Presser’s Education in 1954, which concluded that rather than stretched by unelected judges, book. In practice, Story was one of many segregation was unconstitutional, not since original intent was the best means of prominent Americans who tried to distil because of segregation itself but rather implementing the will of the people. law from cases that were largely but not ex- because oftestimony drawn from research Change should come through popular clusively British, reflectingdifferences such about the psychological harm that segre- votes and the laws enacted by elected leg- as lack of a monarchy. Although this was a gation imposed. islators. This approach, more than any par- formidable task, itwaslimited to determin- The notion ofthe court as a mechanism ticular issue, is a fundamental challenge to ing what were, in fact, the rules oflaw. for going beyond statutes and past deci- an expansive court, presidency and even, The pedagogical approach was formal- sions to define justice opened up a wide perhaps, to the aristocratic position that de ised in the late 19th century by Christopher field of study in the latter half of the 20th Tocqueville discerned in the law. As Mr Columbus Langdell, a dean of Harvard century. Among the many professors to Pressershows, itisa challenge that resonat- Law School, who developed what became shape the judicial system during that time ed in unlikely candidates in the past, nota- the practice of deciphering a vast number were Ronald Dworkin, a professor at New bly Felix Frankfurter, a Harvard professor, of appellate decisions to understand what York University and Oxford, who argued architect of Franklin Roosevelt’s New Deal were perceived to be scientific principles that law must be debated on the basis of and a Supreme Courtjustice, who revealed and logic. Buteven asthisapproach to legal moral concepts rather than rules; Richard in his opinions concerns about pushing training became common, intellectually Posner, a senior lecturer at the University the boundaries oflaw too far. the fact that the law could be discerned of Chicago and a federal judge, who has Mr Presser’s book does not always through its history was never entirely been called the single most cited legal au- make foreasy reading, but the ideas that he satisfactory to its most ambitious practi- thority largely because ofhis development has gathered together, all of them put for- tioners. In response to a casebook on of cost-benefit analysis; and, conversely, ward by intelligent people, are complex. contracts compiled by Langdell, Oliver Cass Sunstein, also of Chicago, then Har- America is consumed by serious legal Wendell Holmes, yet another professor at vard, then the Obama administration, debates about issues, what the law says, Harvard Law School and a Supreme Court who concluded thatthe failure ofpeople to what people think the law should say— justice, wrote, “The Life of the Law is not act rationally justifies judicial and govern- and whether that is law. This may be the logic, but experience.” Even if the same mental intervention. book that comes closest to spelling out rules were invoked, over time they served MrObama too spentmanyyearsatChi- what is really being argued. 7 Business & Personal 75

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The Economist February 4th 2017 76 Economic and ﬁnancial indicators The Economist February 4th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Feb 1st year ago United States +1.9 Q4 +1.9 +1.6 +0.5 Dec +2.1 Dec +1.4 4.7 Dec -476.5 Q3 -2.6 -3.2 2.50 - - China +6.8 Q4 +7.0 +6.7 +6.0 Dec +2.1 Dec +2.0 4.0 Q4§ +264.6 Q3 +2.3 -3.8 3.04§§ 6.88 6.58 Japan +1.1 Q3 +1.3 +0.9 +3.0 Dec +0.3 Dec -0.2 3.1 Dec +189.1 Nov +3.7 -5.5 0.08 113 121 Britain +2.2 Q4 +2.4 +2.0 +1.9 Nov +1.6 Dec +0.7 4.8 Oct†† -138.1 Q3 -5.6 -3.7 1.48 0.79 0.70 Canada +1.3 Q3 +3.5 +1.2 +1.5 Nov +1.5 Dec +1.5 6.9 Dec -53.6 Q3 -3.5 -2.4 1.76 1.31 1.40 Euro area +1.8 Q4 +2.0 +1.6 +3.2 Nov +1.8 Jan +0.3 9.6 Dec +394.6 Nov +3.3 -1.8 0.47 0.93 0.92 Austria +1.2 Q3 +2.4 +1.5 +2.3 Nov +1.4 Dec +1.0 5.7 Dec +8.0 Q3 +2.2 -0.9 0.70 0.93 0.92 Belgium +1.1 Q4 +1.6 +1.2 +0.4 Nov +2.6 Jan +1.9 7.6 Dec +3.4 Sep +0.9 -3.0 0.88 0.93 0.92 France +1.1 Q4 +1.7 +1.2 +1.8 Nov +1.4 Jan +0.3 9.6 Dec -28.6 Nov‡ -1.2 -3.3 1.04 0.93 0.92 Germany +1.7 Q3 +0.8 +1.8 +2.1 Nov +1.9 Jan +0.4 5.9 Jan +296.9 Nov +8.8 +1.0 0.47 0.93 0.92 Greece +1.6 Q3 +3.1 +0.4 +2.3 Nov nil Dec nil 23.0 Oct -1.0 Nov -0.3 -7.7 7.64 0.93 0.92 Italy +1.0 Q3 +1.0 +0.9 +3.2 Nov +0.5 Dec -0.1 12.0 Dec +50.9 Nov +2.4 -2.6 2.32 0.93 0.92 Netherlands +2.4 Q3 +3.1 +2.1 +2.9 Nov +1.0 Dec +0.2 6.4 Dec +57.1 Q3 +8.6 -1.1 0.58 0.93 0.92 Spain +3.0 Q4 +2.8 +3.2 +4.6 Nov +3.0 Jan -0.3 18.4 Dec +24.3 Nov +1.7 -4.6 1.67 0.93 0.92 Czech Republic +1.6 Q3 +0.9 +2.4 +7.1 Nov +2.0 Dec +0.7 5.2 Dec§ +3.7 Q3 +1.7 nil 0.49 25.1 24.8 Denmark +1.1 Q3 +1.5 +1.0 +13.3 Nov +0.5 Dec +0.6 4.3 Dec +23.9 Nov +7.5 -1.4 0.51 6.91 6.85 Norway -0.9 Q3 -1.9 +0.6 +2.6 Nov +3.5 Dec +3.5 4.7 Nov‡‡ +18.0 Q3 +4.4 +3.5 1.81 8.25 8.70 Poland +2.0 Q3 +0.8 +2.6 +2.4 Dec +0.8 Dec -0.7 8.3 Dec§ -3.1 Nov -0.5 -2.4 3.87 4.01 4.03 Russia -0.4 Q3 na -0.5 +3.0 Dec +5.4 Dec +7.0 5.3 Dec§ +22.2 Q4 +2.3 -3.6 8.32 60.2 76.6 Sweden +2.8 Q3 +2.0 +3.1 +0.1 Nov +1.7 Dec +1.0 6.5 Dec§ +22.2 Q3 +4.9 -0.3 0.74 8.76 8.53 Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 nil Dec -0.5 3.3 Dec +68.2 Q3 +9.4 +0.2 -0.05 0.99 1.02 Turkey -1.8 Q3 na +2.7 +4.6 Nov +8.5 Dec +7.8 11.8 Oct§ -33.7 Nov -4.7 -1.1 10.93 3.78 2.95 Australia +1.8 Q3 -1.9 +2.4 -0.2 Q3 +1.5 Q4 +1.3 5.8 Dec -47.9 Q3 -3.2 -2.3 2.74 1.32 1.41 Hong Kong +1.9 Q3 +2.5 +1.2 -0.1 Q3 +1.2 Dec +2.4 3.3 Dec‡‡ +13.3 Q3 +2.8 +1.3 1.94 7.76 7.78 India +7.3 Q3 +8.3 +7.0 +5.7 Nov +3.4 Dec +4.9 5.0 2015 -11.1 Q3 -0.6 -3.8 6.43 67.5 67.8 Indonesia +5.0 Q3 na +5.0 -2.3 Nov +3.5 Jan +3.5 5.6 Q3§ -19.2 Q3 -2.1 -2.3 7.54 13,373 13,638 Malaysia +4.3 Q3 na +4.3 +6.2 Nov +1.8 Dec +2.1 3.4 Nov§ +5.6 Q3 +1.7 -3.4 4.16 4.43 4.16 Pakistan +5.7 2016** na +5.7 +7.8 Nov +3.7 Jan +3.8 5.9 2015 -5.0 Q4 -1.4 -4.6 7.59††† 105 105 Philippines +6.6 Q4 +7.0 +6.9 +14.6 Nov +2.6 Dec +1.8 4.7 Q4§ +3.1 Sep +0.9 -2.3 4.30 49.8 47.7 Singapore +1.1 Q3 +9.1 +1.8 +21.3 Dec +0.2 Dec -0.5 2.2 Q4 +63.0 Q3 +22.5 +0.7 2.30 1.42 1.42 South Korea +2.3 Q4 +1.6 +2.7 +4.3 Dec +2.0 Jan +1.0 3.2 Dec§ +99.0 Nov +7.2 -1.6 2.17 1,158 1,201 Taiwan +2.6 Q4 +1.9 +1.1 +6.2 Dec +1.7 Dec +1.4 3.8 Dec +74.7 Q3 +13.0 -0.4 1.20 31.4 33.4 Thailand +3.2 Q3 +2.2 +3.2 +0.5 Dec +1.6 Jan +0.2 0.8 Dec§ +46.4 Q4 +11.8 -2.3 2.68 35.1 35.6 Argentina -3.8 Q3 -0.9 -2.1 -2.5 Oct — *** — 8.5 Q3§ -15.7 Q3 -2.6 -4.7 na 15.8 14.1 Brazil -2.9 Q3 -3.3 -3.4 nil Dec +6.3 Dec +8.4 12.0 Dec§ -23.5 Dec -1.2 -6.3 10.62 3.15 3.98 Chile +1.6 Q3 +2.5 +1.7 +0.3 Dec +2.7 Dec +3.8 6.1 Dec§‡‡ -4.8 Q3 -1.6 -2.8 4.19 646 712 Colombia +1.2 Q3 +1.3 +1.6 +1.6 Nov +5.7 Dec +7.5 8.7 Dec§ -13.7 Q3 -4.8 -3.7 6.89 2,908 3,331 Mexico +2.0 Q3 +4.0 +2.1 +1.3 Nov +3.4 Dec +2.9 3.7 Dec -30.6 Q3 -2.8 -3.0 7.44 20.8 18.3 Venezuela -8.8 Q4~ -6.2 -13.7 na na +424 7.3 Apr§ -17.8 Q3~ -2.9 -24.3 10.43 10.0 6.31 Egypt +4.5 Q2 na +4.3 -1.2 Nov +23.3 Dec +13.8 12.6 Q3§ -20.8 Q3 -6.9 -12.2 na 18.8 7.83 Israel +5.2 Q3 +3.6 +3.5 -4.5 Nov -0.2 Dec -0.5 4.3 Dec +13.3 Q3 +3.3 -2.2 2.40 3.78 3.96 Saudi Arabia +1.4 2016 na +1.4 na +1.7 Dec +3.5 5.6 2015 -46.8 Q3 -5.7 -11.4 na 3.75 3.75 South Africa +0.7 Q3 +0.2 +0.5 +0.5 Nov +6.8 Dec +6.3 27.1 Q3§ -12.3 Q3 -3.9 -3.4 8.87 13.4 16.0 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% †††Dollar-denominated bonds. The Economist February 4th 2017 Economic and ﬁnancial indicators 77

Markets % change on Metal prices January 12th 2016=100 Dec 31st 2015 The Economist’s metal-price index has 200 Index one in local in $ risen by 37% over the past 12 months. Feb 1st week currency terms China, which accounts for over half of United States (DJIA) 19,890.9 -0.9 +14.2 +14.2 global metal consumption, increased 180 China (SSEA) 3,308.1 +0.3 -10.7 -15.7 infrastructure spending to ensure it Japan (Nikkei 225) 19,148.1 +0.5 +0.6 +6.6 GDP Zinc Britain (FTSE 100) 7,107.7 -0.8 +13.9 -2.3 reached its target growth rate; that 160 Lead Canada (S&P TSX) 15,402.4 -1.5 +18.4 +25.7 pushed up industrial-metal prices. Chi- Iron nese production cuts designed to reduce ore* Euro area (FTSE Euro 100) 1,103.5 -2.0 +0.8 -0.1 140 Euro area (EURO STOXX 50) 3,258.9 -2.0 -0.3 -1.2 excess capacity also buoyed the prices of Austria (ATX) 2,727.7 -0.4 +13.8 +12.7 iron ore and of aluminium, which makes Belgium (Bel 20) 3,575.2 -0.8 -3.4 -4.3 up 42% of our index. Zinc and lead prices 120 4,794.6 -1.7 +3.4 +2.4 France (CAC 40) have risen partly because of the closure Aluminium Germany (DAX)* 11,659.5 -1.2 +8.5 +7.5 of large mines in Australia, Canada and 100 Greece (Athex Comp) 619.1 -6.1 -1.9 -2.9 Ireland. Anticipation of a construction The Economist metal-price index Italy (FTSE/MIB) 18,740.7 -4.3 -12.5 -13.3 Netherlands (AEX) 479.7 -1.7 +8.6 +7.5 boom in America has also provided a 80 Spain (Madrid SE) 944.1 -2.2 -2.2 -3.1 boost. Prices may not have reached their JF M A M J J A SO N D J Czech Republic (PX) 938.2 nil -1.9 -2.8 peak. The World Bank predicts they will 2016 2017 Denmark (OMXCB) 823.8 +2.2 -9.1 -9.7 rise by 11% this year. Sources: The Economist; *Not in The Economist Bloomberg commodity-price index Hungary (BUX) 32,584.2 -0.7 +36.2 +37.4 Norway (OSEAX) 779.0 -1.3 +20.0 +28.7 Poland (WIG) 55,651.8 +0.3 +19.8 +17.8 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,167.5 +0.7 +54.2 +54.2 2005=100 % change on % change on Sweden (OMXS30) 1,547.3 +0.1 +6.9 +2.9 Dec 31st 2015 one one Switzerland (SMI) 8,329.2 -0.7 -5.5 -4.7 Index one in local in $ Jan 24th Jan 31st* month year Turkey (BIST) 86,847.9 +4.5 +21.1 -6.6 Feb 1st week currency terms Dollar Index Australia (All Ord.) 5,704.0 -0.4 +6.7 +11.2 United States (S&P 500) 2,279.6 -0.8 +11.5 +11.5 All Items 149.8 148.8 +4.9 +18.8 Hong Kong (Hang Seng) 23,318.4 +1.2 +6.4 +6.3 United States (NAScomp) 5,642.7 -0.2 +12.7 +12.7 Food 162.9 160.2 +3.5 +9.7 India (BSE) 28,141.6 +1.6 +7.7 +5.5 China (SSEB, $ terms) 338.5 nil -20.6 -20.6 Indonesia (JSX) 5,327.2 +0.6 +16.0 +19.6 Japan (Topix) 1,527.8 +0.4 -1.3 +4.7 Industrials Malaysia (KLSE) 1,671.5 -0.7 -1.2 -4.3 Europe (FTSEurofirst 300) 1,433.1 -1.0 -0.3 -1.3 All 136.2 136.9 +6.6 +32.0 Pakistan (KSE) 49,455.9 -0.6 +50.7 +50.6 World, dev'd (MSCI) 1,793.4 -0.7 +7.9 +7.9 Nfa† 145.5 149.0 +7.9 +39.4 Singapore (STI) 3,067.5 +0.9 +6.4 +6.6 Emerging markets (MSCI) 913.0 +0.1 +15.0 +15.0 Metals 132.3 131.8 +6.0 +28.6 South Korea (KOSPI) 2,080.5 +0.7 +6.1 +7.4 World, all (MSCI) 433.5 -0.6 +8.6 +8.6 Sterling Index Taiwan (TWI) 9,448.0 nil +13.3 +18.7 World bonds (Citigroup) 888.3 -0.1 +2.1 +2.1 All items 218.2 215.1 +2.0 +35.7 Thailand (SET) 1,576.3 -0.5 +22.4 +25.4 EMBI+ (JPMorgan) 784.1 +0.3 +11.3 +11.3 Argentina (MERV) 19,200.8 -1.1 +64.5 +34.7 Hedge funds (HFRX) 1,209.5§ -0.3 +3.0 +3.0 Euro Index Brazil (BVSP) 64,836.1 -1.5 +49.6 +87.6 Volatility, US (VIX) 11.8 +10.8 +18.2 (levels) All items 173.4 171.2 +0.8 +19.8 Chile (IGPA) 21,007.6 -2.0 +15.7 +26.9 CDSs, Eur (iTRAXX)† 73.6 +7.7 -4.6 -5.5 Gold Colombia (IGBC) 10,142.8 -0.6 +18.7 +29.5 CDSs, N Am (CDX)† 65.8 +3.2 -25.5 -25.5 $ per oz 1,213.2 1,211.5 +4.8 +7.5 Mexico (IPC) 47,009.5 -2.6 +9.4 -9.1 Carbon trading (EU ETS) € 5.3 +1.7 -36.9 -37.5 West Texas Intermediate Venezuela (IBC) 28,109.7 -0.8 +92.7 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 52.6 52.8 +0.9 +76.2 Egypt (EGX 30) 12,584.3 -2.3 +79.6 -25.8 †Credit-default-swap spreads, basis points. §Jan 31st. Israel (TA-100) 1,254.1 +0.5 -4.6 -1.8 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 7,100.9 -0.4 +2.7 +2.8 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 53,104.1 -0.3 +4.8 +20.8 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary J.S.G. Boggs The Economist February 4th 2017

He thanked the Swiss, who discovered him in 1986 and were often delighted to accept original art rather than “real” money. He was cautious, however, about dealing with anyone he already knew. He preferred to offer his exchange to people who had never heard of him, even though they might just scrumple his precious note into apocket. And hismain aim wasto raise dis- quieting questions about the notion of exchange itself. What was money really worth? What supported a dollar bill, other than faith? Was the value of anything just subjective? When salesmen told him they didn’t accept art, he would point out the beauty of official notes, with their scrolls and arrow-clutching eagles. When shopkeepers demanded only “real” money, he might launch into the non-reality of time and space, too. To his long-time tracker and biographer, Lawrence Weschler, he was “just short of being a con man—but no more so than anyone else in the art world, or for that matter in the world of finance— which, ofcourse, is the whole point.”

Feat counterfeit A simpler view was taken by the authori- His money or his art? ties. This looked like counterfeiting to them. In Britain, where he lived for several years, he was arrested and put on trial at the Old Bailey for “reproducing” the currency. He argued back that it was the “real” notes that were reproductions: his draw- James Stephen George Boggs, artist and trickster, was found dead on January 23rd, ings were originals, never meant to be the aged 62 real thing. He was acquitted, as he was HAMBURGER and Coke with Steve fused. If it was accepted, Mr Boggs would when he faced similar charges in Australia. ABoggs was a disconcerting event. To note down time and place on the blank America, though, hardly knew how to begin with he preferred to be called back of the drawing, ask for a receipt and deal with him. In 1992 he had a madcap “Boggs”, just straight. He also had a way of take any change he was “owed”. After a idea to flood Pittsburgh, where he lived opening his eyes a little wider than nor- day, he would call one ofmany avid collec- then, with $1m in Boggs Bills, and see if mal, giving his thin face an unnerving, tors of his works; he would sell the collec- they could get through five transactions even devilish look. And then, when the tor, at a roughly fivefold mark-up, the re- (handlers would put thumbprints on the eating was done and the bill came, he ceipt and change; and from those clues the back). The Secret Service warned the city would take outhiswallet, unfold the notes, collector, if he wished to buy the drawing, and raided his studio, seizing more than and put one on the table in a way that por- would have to track down the new owner. 1,000 pieces of work. They never returned tended something profound and strange. Receipt, change and drawn note, when re- them. The courts solemnly debated At first glance, the note would look nor- united, became joint proof of the draw- whether the drawings were closer to por- mal. It was not. The portrait on it might be ing’s value, confirmed by the transaction; nography—which might be censored, but of Mr Boggs himself, or Martha Washing- and would then change hands, typically, also allowed as free speech—or evil non-re- ton instead of George. The bank name fortens ofthousands ofdollars. turnable contraband, like drugs. might be “Federal Reserve Not”, or “Bank This elaborate charade ensured that Mr Mr Boggs’s career was blighted by fruit- of Bohemia”. The plate serial number Boggs never sold his drawings. He “spent” less appeals to try and get them back. His might be “EMC2” or “LSD”. All this delicate them at “face value” in exchange for goods legal costs mounted. At his Old Bailey trial copying and subverting had taken up to and services, cheekily challenging the val- he had paid his lawyer with drawings for ten hours of Mr Boggs’s time, working on ue ascribed to money. The inspiration dat- his services. He now started on a series of special paper with the finest-tip green and ed from 1984, when a waitress in Chicago $1,000 Boggs Bills sporting a portrait of black pens. (He later shifted to limited-edi- accepted hissketch ofa dollarbill on a nap- him by Thomas Hipschen, America’s chief tion prints, a little speedier.) The result was kin for a doughnut and a coffee. She even engraver of banknotes (itself happily ex- now proffered to pay forhis food. gave him a dime in change, which he kept changed fora Boggs Bill), to cover a hearing To the bemused waitress, he would as a lucky charm. After that, wherever he in the Supreme Court, if he could get one. politely explain that he was an artist. He was in the world, he drew the local curren- But he was also venturing closer to the could pay her with official money if she cy and threw down his challenge. edge, toting guns and using methamphet- wanted. But he believed in producing Early on he struggled, unwashed, hun- amines, and died before he had got that far. something beautiful; and having spent so gry and heavily in debt. But by 1999 his His art remained on the walls ofAmeri- much time on this drawing of money, drawings had paid for more than $1m- ca’s finest museums and of galleries all wasn’t it worth the value it declared? worth ofgoods, including rent, clothes, hoover Europe. His questions remained, too, Nine out of ten times, the offer was re- tels and a brand-new Yamaha motorbike. evading easy answers. 7 a different kind of hero

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