The Manchester bombing

Another Brazilian president in trouble

India’s deepening Kashmir problem

Rethinking prison MAY 27TH–JUNE 2ND 2017 Ocean warning Contents The Economist May 27th 2017 5

7 The world this week The Americas 33 Brazil’s president Leaders Dangling man 9 The marine world 34 Temer’s accusers Deep trouble The fabulous Batista boys 10 The Manchester bombing 34 A Canadian culture war Almost is never enough Cross-fertilisation or theft? 10 Brazil The Temer tape 35 Bello Argentina’s honest data 12 Tech unicorns Manchester bombing The best Not the enemy answer to a suicide-bomber is Middle East and Africa 14 Reforming prisons the scrupulous, iron-willed Jail break 36 Donald Trump’s visit application of the law: leader, On the cover Mission not accomplished page 10. Security services are Humans are wrecking the Letters 37 Iran’s election hunting for Salman Abedi’s ocean. Technology shows the Triumph of the liberals accomplices before they strike 16 On data, France, Poland, scale of the problem—and again, page 45. Two prime Theresa May, Silicon 38 Islamic State in Libya offers some solutions: ministers were on display this Valley, Donald Trump Down but not out leader, page 9. A swell of week: Bagehot, page 47. In 38 Building in Kenya support for better fishing Libya, the jihadists have The last dance practices could yet save Briefing retreated to the desert, where blighted stocks. But 39 Eritrea and migration they are a threat, page 38 18 Ocean fishing The road less taken managers must balance All the fish in the sea commercial concerns with changing environmental Europe conditions, page 18 Asia 40 Ukraine’s stalemate 21 India’s Kashmir problem Theatre of war Talking to the enemy The Economist online 41 Fighting corruption in 22 The South China Sea Ukraine Daily analysis and opinion to Shoals apart Harsh medicine supplement the print edition, plus 22 Martial law in the 42 Greece’s debt odyssey audio and video, and a daily chart Philippines No relief Economist.com Marauding in Marawi 43 Czech politics E-mail: newsletters and 23 After Japan’s tsunami Paper tiger mobile edition Repopulating Fukushima Trump and health care 43 Optimism in France Economist.com/email Before Republicans replace 24 Banyan Yes, oui can Print edition: available online by Japan’s shrinking monarchy Obamacare, the White House 7pm London time each Thursday 44 Charlemagne is killing it, page 27. Donald Economist.com/print The EU’s terrible trio Trump’s budget goes from China Audio edition: available online unrealistic to innumerate, to download each Friday 25 Provincial politics Britain page 28 Economist.com/audioedition A hand up for Xi’s people 45 Terror in Manchester 26 Espionage After the bomb, the hunt Spy kids 46 Social care 26 Dolphins in Hong Kong U-turn if you want to Pink and imperilled 47 Bagehot Volume 423 Number 9042 The two Theresa Mays United States Published since September 1843 27 Reforming health care to take part in "a severe contest between International intelligence, which presses forward, and First, do some harm an unworthy, timid ignorance obstructing 48 Prisons our progress." 28 Investigating Russia Turning villains into Each to his own Editorial offices in London and also: neighbours Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, 28 The budget Lima, Mexico City, Moscow, Mumbai, Nairobi, 49 Women in prison Brazil’s political crisis Who is New Delhi, New York, Paris, San Francisco, Zero sums Girls, incarcerated president matters less than São Paulo, Seoul, Shanghai, Singapore, Tokyo, 29 Italians in the South the continuation of economic Washington DC Moses in the Ozarks and political reforms: leader, 32 Lexington page 10. Michel Temer is in The impeachment delusion serious trouble. But he has reserves of strength, page 33

1 Contents continues overleaf 6 Contents The Economist May 27th 2017

Business Science and technology 51 Airbnb 65 Aviation A rare breed of unicorn The towers vanish 52 Ford 66 Sexual competition Can he Hackett? Beetle genitals 53 SoftBank’s tech fund 67 Fingerprints for paper A vision of $93bn Shining a light 54 Netflix 67 Synthetic biology Curtain call Lights, bacteria, action 54 Trainer markets 68 High-tech weaponry Reforming prisons America’s Sole trading Follow the leader Virtual control towers approach to incarceration is 55 The chemicals industry Remote centres using video an expensive failure. It does Chain reaction are replacing airfield control not have to be this way: Books and arts towers, page 65 leader, page 14. Too many 56 Schumpeter 69 Big data, new data prisons are “an expensive way General Eclectic Remodelling social science of making bad people worse”. 70 Grave New World Subscription service But some work well, page 48 For our full range of subscription offers, Finance and economics The future of globalisation including digital only or print and digital 57 Stockpicking 70 Spanish flu combined visit Economist.com/offers Quants and the quirks The 100m dead You can subscribe or renew your subscription 58 Buttonwood 71 Johnson by mail, telephone or fax at the details below: Telephone: +65 6534 5166 Bumper buy-backs Translator blues Facsimile: +65 6534 5066 59 Africa-EU trade 72 Rachel Seiffert’s fiction Web: Economist.com/offers E-mail: [email protected] Blown off course A gleam in the darkness Post: The Economist 59 Noble Group 72 Television Subscription Centre, Damsel in distress ”Twin Peaks” is back Tanjong Pagar Post Office PO Box 671 60 Foreign-exchange trading Singapore 910817 Be good, or else Subscription for 1 year (51 issues)Print only 76 Economic and financial Australia A$465 61 Tax evasion indicators China CNY 2,300 A Hong Kong loophole Hong Kong & Macau HK$2,300 Airbnb A cohesive culture and Statistics on 42 economies, India 10,000 61 The bitcoin bubble plus a closer look at Japan Yen 44,300 unusual financial discipline Korea KRW 375,000 mark the firm out, page 51. Good as gold external financial flows Malaysia RM 780 into Africa New Zealand NZ$530 Startups can stay private for 62 Machine-learning Singapore & Brunei S$425 longer. That doesn’t mean Unshackled algorithms Taiwan NT$9,000 Thailand US$300 they should: leader, page 12 64 Free exchange Obituary Other countries Contact us as above Lessons for Macron 78 Roger Ailes The man for the message Principal commercial offices: 25 St James’s Street, London sw1a 1hg Tel: +44 20 7830 7000 Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: +4122 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 Other commercial offices: General Electric The record of Chicago, Dubai, Frankfurt, Los Angeles, Jeff Immelt, GE’s boss, shows Paris, San Francisco and Singapore that capital allocation is hellishly difficult: Schumpeter, page 56

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ment. The event now faces Trump, seeing his visit as a tal, after protesters demanding Politics cancellation forthe first time reset in relations following a Mr Temer’sresignation set fire since 1982, when the country tetchy eight years during Ba- to a government building. languished under communist- rackObama’s tenure. Mr imposed martial law. Trump’swhirlwind tour took Lenín Moreno was sworn in as him to the Vatican to meet the Ecuador’s president. He prom- The people have spoken! pope and to Brussels fortalks ised to follow the socialist path Iran’s moderate reformist with the EU and NATO. ofhis predecessor, Rafael president, Hassan Rouhani, Correa, but also to engage was re-elected with a solid 57% James Comey, whose sacking more with the private sector. ofthe vote. Only candidates by Mr Trump as director ofthe vetted by a committee of12 FBI has sparked a political Quelling an insurrection Islamic clerics were permitted storm, agreed to testify to The president ofthe to run. Congress. He will give his Philippines, Rodrigo Duterte, testimony after meeting Robert declared martial law in the The authorities in Bahrain Mueller, the special counsel southern island ofMindanao An Islamist suicide-bomber violently broke up a sit-in by investigating alleged links following clashes between killed 22 people and left more supporters ofa prominent between the Trump campaign Islamist separatists and the than 60 injured in Manches- Shia cleric. Five people were and Russia. But Michael Flynn, army. The militants tookover ter, Britain’s third-largest city. It reported by the government to Mr Trump’sfirst national- schools and burned a church was the country’s bloodiest have been killed, and 286 were security adviser, invoked the in the city ofMarawi. Mr terror attacksince 2005. The arrested. Fifth Amendment when he Duterte said they had also bomb was detonated in the declined to appear before a beheaded a local police chief. foyer ofa venue staging a pop Eight security officers in Kenya Senate committee. concert; children were among were killed near the border North Korea conducted its the victims. Police thinkthe with Somalia when the vehi- A close election for Montana’s second missile test within a bomber was part ofa jihadist cles they were travelling in sole seat in the House ofRepre- week. The Pukguksong-2 networkand arrested several detonated explosive devices. sentatives tookan unexpected missile flew 500km before people. The threat level from Al Shabab, a Somali jihadist last-minute twist when Greg falling into the Pacific. terrorism was raised to “criti- group, claimed responsibility. Gianforte, the Republican cal”, the first time it has candidate, allegedly “body- Two gay men each received 83 reached this highest category Tedros Adhanom, a former slammed” a journalist who lashes ofthe cane in Aceh, a since 2007. health minister from Ethiopia, asked him a question about semi-autonomous province in was elected as the new head of health care. Mr Gianforte has Indonesia that enforces The Conservative Party the World Health Organisa- been charged with a Islamic law. It was the first time reversed a headline policy less tion. He is the first African to misdemeanour assault. the punishment had been than a weekafter publishing hold the post. levelled against homosexuals the proposal in its election A landslide buried a swathe of in the province; people have manifesto. A shake-up in social The Democratic Republic of California’s scenic Pacific been caned previously for care had quickly been dubbed Congo is to test a vaccine in its Coast Highway along Big Sur. drinking alcohol and gam- the “dementia tax”. Fearing a efforts to contain an outbreak A12-mile section ofthe road bling. A cheering crowd backlash from older voters, ofEbola that has so farkilled will be closed formonths. watched the beatings. Theresa May, the prime min- fourpeople. Around 40 people ister, sought to “clarify” the are suspected to have been An unhappy record policy, but the U-turn was infected by the virus. Venezuela’s chiefprosecutor clear. The situation rekindled said that 55 people had died in memories ofthe “bedroom American gothic the latest series ofprotests tax”, another policy felled by a against the government. About catchy nickname. halfwere killed by govern- ment forces. That exceeds the Seven months after he was 43 who died in a wave ofprot- ousted by his own members, ests in 2014. One man was set Pedro Sánchez was unexpect- on fire. edly re-elected leader of Spain’s main opposition Brazil’s president, Michel Socialist Party. He must now Temer, dropped his request for reinvigorate a party that has the supreme court to suspend Supporters ofgay rights in lost almost halfits support to an investigation into allega- Ta iwa n hailed a decision by the far-left Podemos. tions that he obstructed justice. the constitutional court in The inquiry is based in part on favour ofsame-sex marriage, More than 20 artists decided to Donald Trump made his first a tape recording in which the ruling there was “no rational boycott the National Festival trip abroad as president. He president appears to endorse basis” forit to be banned. The ofPolish Song in Opole, one of received a warm welcome in the payment ofhush money to legislature has two years to Poland’s top music festivals, Saudi Arabia, where he strong- a politician serving jail time. either legalise gay marriage or following reports that a singer ly condemned Iran, the Saudis’ His lawyers want the investiga- introduce civil partnerships. If had been barred from appear- arch-rival in the region, and tion to continue to clear his it does neither, gay couples ing because she had taken part signed a $110bn arms deal. name. Federal troops were will be able to wed under the in protests against the govern- Israel also embraced Mr deployed to Brasília, the capi- court’s ruling. 1 8 The world this week The Economist May 27th 2017

“engaged in a deliberate holding company forthe Moody’s has underestimated Business scheme” to install the devices. government ofAbu Dhabi put its commitment to reform. in $15bn. Apple, Qualcomm Following several profit warn- The Trump administration and other tech giants have also Looking for a white knight ings and a 10% slide in its share admitted that it could not made commitments. Once Asia’s biggest trader of price this year, Ford appointed legally stop the new “fiducia- commodities, Noble Group a new chiefexecutive. Jim ry rule” from coming into A trial to hear claims that endured another rocky week, Hackett, who ran the carmak- force next month. The rule was shareholders at Royal Bank of after S&P Global cut its credit er’s unit for autonomous vehi- passed by BarackObama and Scotland were misled about rating, which already carried cles and ride-sharing, replaces requires anyone giving pen- the state ofthe bank’s finances “junk” status, and warned that MarkFields, who was CEO for sions advice to act in the “best before a £12bn ($24bn in 2008) the company might default on three years. The speed ofMr interest” ofa client. The rights issue during the finan- its debt. Its shares plunged by Fields’s departure surprised investment industry believes cial crisis was adjourned until 28% on the Singapore ex- those who thought he was this will lead to more lawsuits. next month. The judge delayed change before they were sus- doing a reasonable job in a In February Donald Trump the trial because the parties are pended. Noble hopes to find a fast-changing market. Bill Ford, ordered a review. close to a settlement. “strategic partner”, which may the chairman, described Mr be its only means ofsurvival. Hackett as a “visionary” who Euro vision IKEA named a new chief will steer Ford towards a future The European Commission executive. Jesper Brodin is a Glencore, a commodities and ofself-driving and electric cars. said that Portugal was no former assistant to the furni- mining giant, made an unsolic- longer subject to its measures ture retailer’s founder, Ingvar ited offerfor Bunge, which A budding flower for managing excessive debt, Kamprad. He will take over a traces its history backto 1818 because the country’s budget restructured IKEA focusing on and is one ofthe world’s big- deficit fell to 2% ofGDP last sales; the firm’s design, supply gest agribusiness concerns. year, well below the ceiling of and production activities were 3% set in the EU’s stability and transferred to Inter IKEA In the latest move towards growth pact. Portugal exited its Group last August. consolidation in the chemical bail-out programme in 2014. industry, Huntsman, which is Taking markets by surprise, based in Texas, agreed to a SoftBankannounced that it Moody’s downgraded China’s $20bn merger with Clariant, a had raised a whopping $93bn sovereign credit-rating by a Swiss rival. Huntsman is con- so farforits new technology- notch, contending that the trolled by a prominent Mor- investment fund. The Japa- government was proceeding mon family (Jon Huntsman nese conglomerate will base too slowly to rebalance the junior, a formerpresidential the fund’s operations in Lon- economy and reduce the candidate, is a son ofthe foun- Geely, a Chinese carmaker don, from where it will invest build-up ofdebt. Any far- der). In 1974 it invented the and owner ofthe Volvo car in artificial intelligence, robot- reaching financial measures in “clamshell” container for brand, said it was buying a 51% ics and the “internet ofthings”. China are unlikely to be an- McDonald’s Big Macs. stake in Lotus, a British sports- One ofSaudi Arabia’s sover- nounced before a Communist car manufacturer, as part of a eign-wealth funds pledged up Party Congress later this year. Other economic data and news deal through which it will to $45bn to the venture and a The government says that can be found on pages 76-77 obtain a minority stake in Proton ofMalaysia. Geely hopes to harness Lotus’s tech- nology. Its Eco Elise project, for example, develops materials that help to lower emissions in its cars.

America’s Justice Department stepped up the pressure on Fiat Chrysler Automobiles (whose chairman sits on the board ofThe Economist’s par- ent company). The department filed a civil lawsuit accusing the carmaker ofnot telling regulators that104,000 diesel cars had been equipped with software which helped vehi- cles to violate emissions stan- dards. Fiat Chrysler denied any wrongdoing and said it had been working with the Environmental Protection Agency formonths to resolve the issue and would defend itselfagainst any claims that it Leaders The Economist May 27th 2017 9 Deep trouble

Humans are wrecking the ocean. Technology shows the scale ofthe problem—and offers some solutions ARTH is poorly named. The carbonate shells sufferas marine chemistry alters. Eocean covers almost three- Some ofthese problems are easier to deal with than others. quarters ofthe planet. It is divid- “Ocean blindness” can be cured by access to information. And ed into five basins: the Pacific, indeed, improvements in computing power, satellite imaging the Atlantic, the Indian, the Arc- and drones are bringing the ocean into better view than ever tic and the Southern oceans. before. Work is under way to map the sea floor in detail using Were all the planet’s water sonar technology. On the surface, aquatic drones can get to re- placed over the United States, it mote, stormy places at a farsmaller cost than manned vessels. would form a column of liquid 132km tall. The ocean provides From above, ocean-colour radiometry is improving under- 3bn people with almost a fifth of their protein (making fish a standing of how phytoplankton, simple organisms that sup- bigger source of the stuff than beef). Fishing and aquaculture port marine food chains, move and thrive. Tiny satellites, assure the livelihoods of one in ten of the world’s people. Cli- weighing1-10kg, are enhancing scrutiny offishing vessels. mate and weather systems depend on the temperature pat- Transparency can also mitigate the second difficulty, of terns of the ocean and its interactions with the atmosphere. If ocean governance. More scientific data ought to improve the anything ought to be too big to fail, it is the ocean. oversight of nascent industries. As sea-floor soundings prolif- Humans have long assumed that the ocean’s size allowed erate, the supervision of deep-sea mining, which is overseen them to put anything they wanted into it and to take anything by the International Seabed Authority in areas beyond nation- they wanted out. Changing temperatures and chemistry, over- al jurisdiction, should get better. More data and analysis also fishing and pollution have stressed its ecosystems for decades. make it easier to police existing agreements. Satellite monitor- The ocean stores more than nine-tenths ofthe heat trapped on ing can provide clues to illegal fishing activity: craft that switch Earth by greenhouse-gas emissions. Coral reefsare suffering as off their tracking devices when they approach a marine pro- a result; scientists expect almost all corals to be gone by 2050. tected area excite suspicion, for example. Such data make it By the middle of the century the ocean could contain more easierto enforce codes like the Port State Measures Agreement, plastic than fish by weight. Ground down into tiny pieces, it is which requires foreign vessels to submit to inspections at any eaten by fish and then by people, with uncertain effects on hu- port of call and requires port states to share information on man health. Appetite for fish grows nevertheless: almost 90% any suspected wrongdoing they find. of stocks are fished either at or beyond their sustainable limits Clearer information may also help align incentives and al- (see pages 18-20). The ocean nurtures humanity. Humanity low private capital to reward good behaviour. Insurance firms, treats it with contempt. for instance, have an incentive to ask for more data on fishing vessels; if ships switch off their tracking systems, the chances Depths plumbed of collisions rise, and so do premiums. Greater traceability Such self-destructive behaviour demands explanation. Three gives consumers who are concerned about fish a way to press reasons for it stand out. One is geography. The bulk of the seafood firms into behaving responsibly. ocean is beyond the horizon and below the waterline. The damage being done to its health is visible in a few liminal Sunk costs places—the Great Barrier Reef, say, orthe oyster farms ofWash- Thanksto technology, the ocean’sexpanse and remotenessare ington state. But forthe most part, the sea is out of sight and out becoming less formidable—and less of an excuse for inaction. of mind. It is telling that there is only a single fleeting reference A UN meeting on the ocean next month in New York is a sign to the ocean in the Paris agreement on climate change. that policymakers are paying more attention to the state ofthe A second problem is governance. The ocean is subject to a marine realm. But superior information does not solve the patchwork of laws and agreements. Enforcement is hard and fundamental problem of allocating and enforcing property incentives are often misaligned. Waters outside national juris- rights and responsibilities for the high seas. And the effective- dictions—the high seas—are a global commons. Without de- ness ofincentives to take care ofthe ocean varies. Commercial fined property rights ora community invested in their upkeep, pay-offs from giving fish stocks time to recover, for example, the interests of individual actors in exploiting such areas win are large and well-documented; but the rewards that accrue out over the collective interest in husbanding them. Fish are from removing plastic from the high seas are unclear. particularly tricky because they move. Why observe quotas if Above all, better measurement of global warming’s effect you thinkyour neighbour can haul in catches with impunity? on the ocean does not make a solution any easier. The Paris Third, the ocean is a victim of other, bigger processes. The agreement is the single best hope for protecting the ocean and emission ofgreenhouse gases into the atmosphere is changing its resources. But America is not strongly committed to the the marine environment along with the rest of the planet. The deal; it may even pull out. And the limits agreed on in Paris will ocean has warmed by 0.7°C since the 19th century, damaging not prevent sea levels from rising and corals from bleaching. corals and encouraging organisms to migrate towards the Indeed, unless they are drastically strengthened, both pro- poles in search ofcooler waters. Greater concentrations ofcar- blemsriskgettingmuch worse. Mankind isincreasingly able to bon dioxide in the water are making it more acidic. That tends see the damage it is doing to the ocean. Whether it can stop it is to harm creatures such as crabs and oysters, whose calcium another question. 7 10 Leaders The Economist May 27th 2017

The Manchester bombing Almost is never enough

The best answerto a suicide-bomberis the scrupulous, iron-willed application ofthe law ERRORISTS often set out to attacks in France over the past two years and horrific cruelty Tslaughter the innocent. But this week, IS may be trying to trigger an anti-Muslim backlash none could be more innocent that it can exploit to drive sympathisers into its arms. than eight-year-old Saffie Rous- The reaction in Britain to the Manchesterbombingis a good sos, left. She was one of the chil- wayto thwartIS’splans. Aritual hasgrown up afterterrorist at- dren, most of them teenagers, tacks that includes vigils, memorials and testimonials. It lets who flocked to see Ariana Gran- people express their collective grief in a secular society. It also de give a concert in Manchester gives Muslim groups a chance to distance themselves in public on May 22nd. After the show, a suicide-bomber detonated a from jihadists and for other civic leaders to say that the threat device packed with metal nuts and bolts, injuring over 60 and from IS does not come from Islam in general. That sends a sig- killing 22, including Saffie. As with the school massacres in nal to Muslims and non-Muslims that now, of all times, they Beslan in Russia in 2004 and Peshawar in Pakistan in 2014, the must be tolerant. It is precisely what IS does not want to hear. aim was to strike people where they are most vulnerable—as Ye t i f IS succeeds in staging repeated attacks in Britain, this parents and grandparents and uncles and aunts. It succeeded. consensus will be at risk—as in France, which is under a state of For Britain, which had been spared deadly bomb blasts emergency. Even now, some commentators are calling for ter- since the attacksin London in 2005, thiswasproofofhowhard rorist suspects to be locked up or electronically tagged. That it is to foil every plot every time (see page 45). For the world, would be a mistake. To punish suspects who face no criminal which suffers attacks continually, it raises once again the ques- charges would illegally single out Muslims from any other tion ofhow to stop people who are determined to kill. group. IS would have precisely the recruitingmessage it wants. In the past 20 months the intelligence services have busted You’ll never know at least 12 plots. They are not asking for new powers. The gov- The motives of the bomber, a 22-year-old Libyan Briton called ernment has put aside money for more staff. With this attack, Salman Abedi, may never be clear. Some have suggested that as any other, there have been mistakes and missed leads. The Ms Grande, a confident, sexually liberated woman who in- security services must learn from them. spires teenage girls, stood for everything jihadists despise. But the focus should also be on stopping sympathisers be- When Islamic State (IS) is in retreat in its base in Syria and Iraq, ing drawn into IS’s orbit. In Britain that is the job of Prevent, a and is struggling in Libya amid civil war and oppression (see government scheme to counter radicalisation ofall kinds. Pro- page 38), perhaps the attackwas a show ofstrength. paganda is scrubbed from social media and counter-propa- But there is a third possibility. IS has said that it wants to ganda put in its place. Teachers are trained to spot would-be ji- force sympathetic Muslims out of a “greyzone” in which they hadists. Prevent is not perfect. It has been criticised as do not fully embrace the jihadists’ “caliphate” because they heavy-handed and vague. Butthe scheme hascutthe numbers still feel loyalty to the country where they live. If so, IS can use of young people going to the Middle East to fight. Now more extreme violence to provoke an official clampdown and to than ever, when another British-born Muslim has struck his feed the indiscriminate suspicion of Muslims. With repeated homeland, it needs refining and strengthening. 7

Brazil The Temer tape

Who is president matters less than the continuation ofeconomic and political reforms HEN Michel Temer took to advance. That is why new accusationsofwrongdoing bythe Wover as Brazil’s president president are unsurprising but bad forBrazil. from Dilma Rousseff, who was It is unclear whether Mr Temerhas committed any crimes. impeached last August, no one The new allegations come from Joesley Batista, a meat mogul, saw him as a clean break from who was being pursued by prosecutors in several corruption the grubby past. Members of cases (see page 33). Angling fora plea bargain, Mr Batista wired both his Party of the Brazilian himself up for a late-night meeting with the president. He has Democratic Movement and Ms produced a tape in which Mr Temer appears to endorse the Rousseff’s Workers’ Party are being investigated or have been payment of hush money to a convicted politician and to hear convicted in the Lava Jato (Car Wash) probes into scandals cen- without objection Mr Batista’s tales of obstructing justice. In tred on Petrobras, the state-run energy company. The differ- separate testimony a subordinate claimed that Mr Temer had ence is that Mr Temer, a more adept politician than Ms Rous- received bribes; a confidant ofMrTemerwas filmed with a bag seff, is pushing through vital economic reforms that she failed stuffed with 500,000 reais ($153,000). 1 12 Leaders The Economist May 27th 2017

2 It is too soon to demand Mr Temer’s resignation. He insists electoral tribunal to annul the latestelection forhaving been fi- thatthe tape wasdoctored. In return forincriminatingthe pres- nanced with illicit money—might not solve the problem. Bar- ident, MrBatista was let offwith a fine of110m reais, which still ring a new poll, which can happen only through a constitu- leaves him a billionaire. Mr Temer proclaims his innocence tional amendment, his successor would be appointed by and demands that the supreme court, which oversees investi- congress. Many ofits prominent members are underinvestiga- gations ofpoliticians, should complete its inquiries rapidly. tion. Itwill notbe easyto fill the presidencywith a top-tierpoli- But the allegations have already wounded his presidency tician who is untainted and commands public support. and the country. Since word of Mr Batista’s tape came out the stockmarket has fallen by 7%. For all his flaws, Mr Temer was Augean, but not stable making progress on reforms that Brazil desperately needs. The Whether Mr Temerstays or goes, the best that Brazil can hope economyisbeginningto recover from its worst recession on re- for now is a weak president who can finish what he started in cord; inflation and interestratesare falling. MrTemer isencour- the remainder of the current mandate, which runs to the end aging recovery by reforming the pension system, which will of next year. In addition to the pension and labour measures, otherwise crush the economy with debt. He is trying to liber- this would include a start on political reform, which could re- alise labour laws modelled on those ofBenito Mussolini. Lava sultin the election oflesscorruptpoliticiansin 2018. Anational Jato’s latest blast will delay the reforms, ifnot wreck them. vote threshold, for example, would stop rent-a-parties from If he stays, Mr Temer will have a much harder time getting enteringcongress. Brazil is goingthrough a wrenchingpolitical them through congress. But his departure—which could hap- and economic renewal. Its leaders, however enfeebled by pen through resignation, impeachment or a decision by the scandal, must persevere with that vital work. 7

Tech unicorns Not the enemy

Startups can stay private forlonger. That doesn’t mean they should HE public markets in Ameri- from regular audits to respected CFOs. Number of IPOs Tca are much less crowded As for the costs saved by staying private, some are being United States than they once were. Twenty transferred from firms to investors. Public companies bear the 600 years ago America was home to expense of the detailed reporting and formal governance pro- 400 8,000 listed domestic firms; cesses needed to keep outside investors in touch. Unicorns 200 nowthe total isclose to 4,000. In may be under a weaker spotlight, but their investors still carry 0 2016, 74 firms made their stock- out due diligence and market valuations, which they pay for 1995 2000 05 10 16 market debut, compared with themselves. The savings ofprivate ownership can be illusory. 600 two decades ago. This winnowing is unwelcome. Merger Even if the public and private markets are converging, clear activity, which reduces the number oflisted firms, is damaging differences remain. Private markets are developing new ways competition. Overregulation, which deters younger firms for startups’ employees, the most valuable resource in tech- from floating, deprives ordinary investors of opportunities to land, to cash in theirshares. Butpublicmarketsare farmore liq- benefit from America’s corporate successes. uid: thatisone reason whySpotify, a music-streaming unicorn, Lessobviousiswhythe firmsthemselves, ortheirinvestors, is flirting with the idea of a direct listing, whereby a firm gets a should care. Companiesthat once had to go public to raise cap- ticker without raising any new capital. ital can happily fund themselves in private markets with mon- Private markets have slowly opened up to a wider pool of ey from sovereign-wealth funds and institutional investors. investors, mutual funds among them. But the inclusive nature Unicorns, privately held tech startups with valuations exceed- of public markets offers better protection against reputational ing $1bn, are common. Cash keeps pouring into the industry. damage. That is because technology firms are changing the This week Saudi Arabia promised up to $45bn to a $93bn tech- way societies and economies work. For firms that are at the nologyfund run bySoftBank, a Japanese technologyconglom- centre of public-policy debates, a broad base of shareholders, erate (see page 53). Given a choice between red tape and free- able both to benefit from firms’ success and to question their dom of manoeuvre, between quarterly earnings calls and activities, looks better than one dominated by plutocrats. long-term strategy, wouldn’t anyone in their right mind steer clear ofthe public markets? Actually, no. Stock answers Take the argumentthatstayingprivate letsunicorns operate Public markets are also behavingmore like private ones, by en- more freely. The transparency that accompanies a public list- abling founders to retain an iron grip even when they list. ing has its own benefits. Closer oversight might have more Snap, the parent company of Snapchat, sold shares in March quickly rooted out problems at Theranos, a blood-testing start- but gave up no voting rights. That bothers advocates of share- up whose $9bn valuation crumbled because of defects in its holder democracy. But it weakens an argument entrepreneurs products. The rigmarole of public filings and quarterly calls often make against floating (even as investors acquire a useful might inject more sobriety into the brash culture of Uber, a ability to divest positions easily or to sell shares short). ride-hailing firm. Astute startups like Slack, an online messag- Public markets are not perfect. But for unicorns to think of ingfirm, and Airbnb, a home-sharingsite (see page 51), have de- them as somewhere to steer clear of for as long as possible is liberately taken on some of the accoutrements of listed firms, wrong-headed. That is even truer oftheir investors. 7 14 Leaders The Economist May 27th 2017

Reforming prisons Jail break

America’s approach to incarceration is an expensive failure. It does not have to be this way HIRLEY SCHMITT is no one’s takingly harsh penalties for minor offences. Under “three Sidea of a dangerous criminal. strikes” rules, petty thieves have been jailed forlife. She lived quietly on a farm in A ten-year sentence costs ten times as much as a one-year Iowa, raising horses and a sentence, butisnowhere nearten timesaseffective a deterrent. daughter, until her husband Criminals do not think ten years into the future. If they did, died in 2006. Depressed and suf- they would take up some other line of work. One study found fering from chronic pain, she that each extra year in prison raises the risk of reoffending by started using methamphet- six percentage points. Also, because mass incarceration breaks amine. Unable to afford her habit, she and a group of friends up families and renders many ex-convicts unemployable, it started to make the drug, for their own personal use. She was has raised the American poverty rate by an estimated 20%. arrested in 2012, underwent drug treatment, and has been so- Manystates, includingMrSessions’shome, Alabama, have de- ber ever since. She has never sold drugs for profit, but federal cided that enough is enough. Between 2010 and 2015 Ameri- mandatory minimum rules, along with previous convictions ca’s incarceration rate fell by 8%. Far from leading to a surge in for drug possession and livestock neglect, forced the judge to crime, this was accompanied by a 15% drop. sentence her to ten years in prison. Each year she serves will America is an outlier, but plenty of countries fail to use pri- cost taxpayers roughly $30,000—enough to pay the fees for son intelligently. There is ample evidence of what works. Re- three struggling students at the University of Iowa. When she serve prison forthe worst offenders. Divert the less scary ones gets out she could be old enough to draw a pension. to drugtreatment, community service and otherpenalties that Barack Obama tried to reduce the number of absurdly long do not mean severing ties with work, family and normality. A prison sentencesin America. Hisattorney-general, Eric Holder, good place to startwould be with mostofthe 2.6m prisonersin told federal prosecutors to avoid seeking the maximum penal- the world—a quarter of the total—who are still awaiting trial. ties for non-violent drug offenders. This reform caused a mod- For a fraction of the cost of locking them up, they could be fit- est reduction in the number of federal prisoners (who are ted with GPS-enabled ankle bracelets that monitor where they about 10% of the total). Donald Trump’s attorney-general, Jeff are and whether they are taking drugs. Sessions, hasjusttorn itup. Thismonth he ordered prosecutors Taggingcan also be used as an alternative to locking up con- to aim forthe harshest punishments the law allows, calling his victs—a “prison without walls”, to quote Mark Kleiman of newcrusade againstdrugdealers“moral and just”. Itisneither. New York University, who estimates that as many as half of America’s prisoners could usefully be released and tagged. A More is not always better studyin Argentina findsthatlow-riskprisonerswho are tagged Prisons are an essential tool to keep society safe. A burglar instead of being incarcerated are less likely to reoffend, proba- who is locked up cannot breakinto your home. A mugger may bly because they remain among normal folk instead of sitting leave you alone ifhe thinks that robbing you means jail. With- idly in a cage with sociopaths. out the threat of a cell to keep them in check, the strong and Justice systems could do far more to rehabilitate prisoners, selfish would prey on the weak, as they do in countries where too. Cognitive behavioural therapy—counselling prisoners on the state is too feeble to run a proper justice system. how to avoid the places, people and situations that prompt But as with many good things, more is not always better them to commit crimes—can reduce recidivism by10-30%, and (see page 48). The first people any rational society locks up are is especially useful in dealing with young offenders. It is also the most dangerous criminals, such as murderers and rapists. cheap—a rounding error in the $80 billion a year that America The more people a country imprisons, the less dangerous each spends on incarceration and probation. Yet, by one estimate, additional prisonerislikelyto be. Atsome point, the costsofin- only 5% ofAmerican prisoners have access to it. carceration start to outweigh the benefits. Prisons are expen- sive—cells must be built, guards hired, prisoners fed. The in- The road to rehabilitation mate, while confined, is unlikely to work, support his family or Ex-convicts who find a job and a place to stay are less likely to pay tax. Money spent on prisons cannot be spent on other return to crime. In Norwayprisonerscan starttheirnew jobs18 things that might reduce crime more, such as hiring extra po- months before they are released. In America there are 27,000 lice or improving pre-school in rough neighbourhoods. And— state licensing rules keeping felons out of jobs such as barber crucially—locking up minor offenders can make them more and roofer. Norway has a lower recidivism rate than America, dangerous, since they learn felonious habits from the hard despite locking up only its worst criminals, who are more like- cases they meet inside. ly to reoffend. Some American states, meanwhile, do much America passed the point of negative returns long ago. Its better than others. Oregon, which insists that programmes to incarceration rate rose fivefold between 1970 and 2008. Rela- reform felons are measured for effectiveness, has a recidivism tive to itspopulation, itnowlocksup seven timesas manypeo- rate less than half as high as California’s. Appeals to make pri- ple as France, 11times as many as the Netherlands and 15 times sons more humane often fall on deaf ears; voters detest crimi- as many as Japan. It imprisons people for things that should nals. But they detest crime more, so politicians should not be not be crimes (drug possession, prostitution, unintentionally afraid to embrace proven ways to make prison less of a school violating incomprehensible regulations) and imposes breath- ofcrime and more ofa path backto productive citizenship. 7 16 Letters The Economist May 27th 2017

Data driven to ensure that these ideas offer mainly to keep the other candi- negotiations I would prefer consumers real choice. date out. Based on his support flexibility, insight, intelligence Youare right to focus on the AMANDA LONG from total registered voters, Mr and knowledge. role ofdata as the central Director-general Macron has been “better” CHRIS PEARCE reason forthe growing power Consumers International elected than ValéryGiscard Bristol ofthe internet giants (“The London d’Estaing in 1974 and François world’s most valuable re- Mitterrand in 1988. A small pool source”, May 6th). Part ofthe We will maximise economic Mr Macron’s true vulnera- reason forthis is the lax atti- gain ifwe move towards more bility does not come from the “Silicon pally” (April 15th) tude in America on data pro- openly shared data under number ofpeople who voted made a strong point about the tection. This has allowed not appropriate ethical frame- forhim but from the fact that pervasiveness ofsexism in the only huge concentrations of works, rather than competing within a context ofpolitical tech industry. But if, as your economic power (now trans- data silos. Thinkofdata as an polarisation (around immigra- article states, only18% ofbach- formed into political power) open public good rather than a tion and globalisation) his elor degrees in computer but also rocketing levels of private asset. This increases majority is heterogeneous. sciences are awarded to wom- data breaches, financial fraud innovation and reduces the And as you pointed out, he en, then it hardly seems just to and identity theft. transaction costs associated lacks the support ofan estab- condemn the industry on the Giant companies capture with trading data. It encour- lished party machine. ground that it is mostly male. markets in the internet econ- ages competition in algorithms PHILIPPE ALTUZARRA PIETRO VALENTINO CALCAGNI omy through non-price mech- and services rather than silos Paris Zurich anisms. Value is found not in and hoarding. the sale ofa product to a cus- Data is not the new oil. It is Populist but capable I’m Henry the Eighth I am tomer, but the extraction of the new light. It is most valu- personal data from the individ- able when open and shared. I read with interest Charle- ual and its repurposing for MARK PARSONS magne’s take on populist advertising. There is little Secretary-general nationalism in Poland (April internet users can do to make Research Data Alliance 29th). Black-and-white snap- meaningful choices. They are Boulder, Colorado shots can make a pretty pic- the commodity. Markets, in the ture, but they also distort traditional sense, do not exist. Property rights are funda- reality. For example, Poland’s But your proposal to share mental to the exchange of economy will grow at close to data more widely seems value through trade. In the 4% this year. The budget deficit flawed. Startups would be physical world we have long- is under control, monetary handicapped by the advan- established means ofdeter- policy is made responsibly and tages ofscale held by the mining ownership ofassets. unemployment, at around 5%, internet incumbents. And During the first 20 years ofthe is the lowest on record. The more data means more data digital economy it has been government has improved tax I thinkDonald Trump might breaches and more financial difficult to assign and protect compliance, lifted the mini- summon your comparison of fraud. A better way would be ownership ofdigital assets to mum wage and introduced a him to Henry VIII as evidence to minimise data collection people. A commonly recog- new child cash transfer, which ofa witch-hunt (“Courting and diminish the advantages nised digital identity infra- has reduced inequality and trouble”, May13th). There are ofthe data giants. Meaningful structure is required iffair almost eliminated extreme differences. King Donald has a data protection in the United value distribution is to be poverty. Congress to oversee his deci- States should be a top priority achieved. In its recent report, Jaroslaw Kaczynski, the de sions, whereas Henry Tudor forthose concerned not only “Principles on Identification”, facto head ofstate, may have ruled by divine right. Mr about privacy, but also the World Bankproposed a contempt for institutions, is Trump’ssecond wife did not economic competition. frameworkthat would be a anti-European and disregards give him cause to behead her. MARC ROTENBERG good starting point. the two-thirds ofPoles who do Nor is it conceivable that the President DAVID RENNIE not support him. But his “pop- irreligious Donald I will expel Electronic Privacy Information Windsor, Berkshire ulist” economic policies are the pope’s Catholic church. Centre the ones that the global liberal Perhaps a better compari- Washington, DC A macrocosm of Macron elites talka lot about, but do son, and ofgreater concern in little to implement. these centenary years remem- Global surveys tell us that Yousaid ofEmmanuel Mac- MARCIN PIATKOWSKI bering the first world war, consumers do not understand ron’s victory in France, that if Cambridge, Massachusetts would be a reincarnation of how their data is collected and you count abstentions, blank Kaiser Wilhelm Trump, blun- used, so the idea that they can ballots and votes cast to keep In her wobbly week… dering us all into another war drive competition in the digital Marine Le Pen out, “only a fifth “to end all wars”. world doesn’t really add up. ofthe electorate positively Theresa May’s endlessly COLIN LENDON Consumers are hampered by a embraced his brand ofnew repeated mantra is that she Canberra, Australia 7 lackofunderstandable, com- politics” (“Macron’s mission, provides Britain with “strong parable information and by May13th). But as this was an and stable” leadership (Bage- difficulties transferring their election with two rounds, your hot, May 6th). Strong and Letters are welcome and should be addressed to the Editor at data or content. There is clearly comment could be true of stable are characteristics I The Economist, 25 St James’s Street, a need forbetter data portabil- every presidential ballot in the would welcome in a chair or a London sw1A 1hg ity, meaningful transparency Fifth Republic. In the past there bookcase. E-mail: [email protected] and new intermediary ser- have always been people For someone leading this More letters are available at: vices, but we need more work voting forthe elected president country into complex Brexit Economist.com/letters 18 Briefing Ocean fishing The Economist May 27th 2017

able. But as with the atmosphere and the All the fish in the sea surface of the continents—where humans now move more sediments than the natu- ral processes of erosion—the fact that something is vast does not mean humans PLYMOUTH cannot have profound impacts on it. For the sake ofthe hundreds ofmillions Betterfishing practices could yet save blighted stocks. But managers must balance of people who depend on the ocean for commercial concerns with changing environmental conditions livelihoodsorsustenance, as well as forthe VENthe namesatSutton Harbourgive it ages a lot of marine ecosystems. There are sake of the ocean itself, these human im- Eaway. While the pleasure boats, includ- estimated to be 5trn bits of plastic in the pacts need to be reined in. There are signs ing Windfall and Felicity, gleam in the sun- ocean, with over 8m tonnes of the stuff that, where fishing is concerned, this may shine, the light warms rust on the decks of added every year. By the middle ofthe cen- be coming about, not least because moni- craft such as Pisces. The fishing industry is tury the sea could contain more plastic toring what goes on over the horizon is be- struggling to stay afloat in Plymouth, a port than fish by weight, according to research coming ever easier. But there is a great deal in Devon. Locals grumble about regula- done for the Ellen MacArthur Foundation. left to do. tion, fuel costs and the dearth of crew. Rev- Not all the harm comes directly from enuesare stagnantand the facilities ageing. the land; some comes via the sky. Carbon Losing Nemo But if times are tough for the fishers, they dioxide accumulating in the atmosphere Overfishing is bad for fish; it is also, in the may be tougher forthe fish. has so far raised the world’s average sea- long run, bad for those seeking to catch The world currently consumes more surface temperature by about 0.7oC. This them. The goal of sound management is to fish per person than ever before—about 20 has effects at depth; when seas warm up have a stock that is harvested at the same kilos a year. But almost all the recent gains they become more stratified, making it rate that it replenishes itself—which might in production have been down to farmed harder for nutrients in the waters below to typically be a stock about half the size of fish. Aquaculture has grown remarkably in rise to where they are most needed by fish what would be there if there were no fish- the past decades, especially in China; in and plankton. Given this, itmightseem for- ing at all. If fishers take more than this 2014 it accounted forhalfofall the fish peo- tunate that the ocean absorbs a fair bit of “maximum sustainable yield”—as they do ple ate. But that does not mean that the that carbon dioxide, thus reducing the in many fisheries today—then in the long pressure on the open seas has eased. warming. But doing so changes the ocean’s run they will get less out of the resource In 2013, the most recent year for which chemistry, making it more acidic. This is a than they could, quite possibly imperilling full data are available, 32% of the world’s particular problem forcreatures with calci- its future. If stocks were allowed to rise fish stocks were being exploited beyond um-carbonate shells—which includes not backup farenough forthe world’sfisheries their sustainable limit, up from 10% in the just crabs and oysters but quite a lot of lar- to reach their maximum sustainable yield, 1970s, according to the UN’s Food and Agri- vae, too. Acidification makes carbonates the industry would increase production by culture Organisation. The amount of fish more likely to dissolve. 16.5m tonnes—about a fifth of the current caught at sea has been pretty much flat for It is hard to grasp the scale of such plan- total—and bring in an extra $32bn a year. the past three decades, but the share of the etary changes, and impossible to say how Good management could in principle world’s fish stocks that are being plun- much damage they will do. That is the way get the stocks back up through the use of dered unsustainably has continued to in- of things with the ocean; it is vast and hu- quotas, property rights and other con- crease (see chart1on next page). man horizons are close. That something so straints on untrammelled exploitation. Overfishing is not the only problem. immense could be put at riskjust by people Quotas and similar controls have worked Pollution, notably fertiliser run-off, dam- leading their daily lives seems inconceiv- well in some cases. In American waters1 The Economist May 27th 2017 Briefing Ocean fishing 19

2 16% of stocks were overfished in 2015, ing and tourism for their livelihoods. As down from 25% in 2000. But they have More and less 1 oceans warm, corals risk “bleaching”—los- drawbacks. Because they want to land the Global fish production, tonnes m ing their colourful algal symbionts—be- largest fish they can find, fishers throw cause the algae involved can only survive back undersized specimens, which often 160 in a slim range of temperatures. Without die as a result. And because fish mix, spe- their algae, which photosynthesise, the ciescaughtbyaccidentare thrown back ifa Farmed 120 corals lose their source ofenergy. fisher has no quota forthem. There have been three global bleaching Quotas are also often badly set. Regula- 80 episodes since 1998, worsened by El Niño tors and politicians pander too much to Caught* events that heat up the tropical Pacific. The powerful fishing interests, according to 40 one that started in 2014, and is still going Rainer Froese of the Helmholtz Centre for on, has been the longest and most damag- Ocean Research in Kiel, Germany. Lobbies, 0 ing; more than 70% of the world’s coral 1974 80 90 2000 10 14 which often benefit from the importance reefs have been harmed by it. Australia’s of fishing to specific places, push for short- Global marine fish stocks, % Great Barrier Reef, worth $4.6bn each year term profit over long-term sustainability. 100 to nearbyQueensland alone, hasbeen par- “They harvest the apples by cutting the Overfished ticularly badly affected. “Five or ten years tree branches,” says Mr Froese. 80 ago, most of the discussion about coral The problem is exacerbated by a lack of reefswas over how they would lookby the 60 evidence, which makes overly permissive Fully fished end of century,” says Rusty Brainard, a cor- quota-setting easier. More investment in 40 al expert at America’s National Oceanic research and monitoring could help. But in and Atmospheric Administration. “Now 20 developingcountries, where the need is of- Underfished the talk is of whether coral reefs will sur- ten dire, there are frequently no resources 0 vive as we know them to 2050 or even to meet that need, and in many rich coun- 1974 80 90 2000 10 13 2030.” tries fishing is not a big enough industry to Source: FAO *Includes fish not for human consumption Acidification makes the picture worse. make such research a national priority. Though it is hard to distinguish the effects “We are not good value for the taxpayer, of chemistry from the other problems that but how can you have an island nation particular types of food at particular times beset reefs, it seems a fair bet that an envi- without a fishing fleet?” asks Pete Bromley, in their life cycles, such as when their lar- ronment where calcium carbonate is more a former fisherman who is now master of vae hatch. Ifpredators and prey respond to likely to dissolve will not be good for them. Sutton Harbour. warming by heading to different places, or A study published last year by researchers Aquaculture boosters might answer by speeding up or slowing down their at the Carnegie Institution for Science that fleets are simply no longerneeded. But breedingat different paces, such needs will made the point clearly by running de- farmed fish, particularly salmon and their go unmet. But how much, and where, food acidified water over a reef; the corals ilk, are fed on smaller fish that themselves webs will be thus disrupted is hard to say. perked up nicely. Doingthe same forall the are caught at sea. Insects or algae might Few of the models seeking to predict how world’s reefs, though, is hardly an option. provide alternative fodder, but the compa- climate change will affect fish consider Faced with chronic problems and hard- nies involved are slow to embrace such ecological interactions between species. to-quantify future crises, the sea’s re- novelties, accordingto Ari Jadwin of Aqua- sourcesneed to be looked afterbetter byall Select, which provides advice to Chinese Fixed assets those—countries, consumers, companies fish farms. One issue, he says, is that Chi- Not everything in the sea can move to wa- and fishers—with a stake in their survival. nese consumers are not moved by sustain- ters new with the flick of a fin. Coral reefs, Much of that needs to be done in na- ability arguments. But he thinks that con- for example, are rather stuck. Although tional jurisdictions. Though overfishing cerns over food safety will lead to better they cover less than a thousandth of the means that many fleets now head farther practices in the long run. world’s sea floors, they support a quarter from home than before, about 90% of the Those struggling to make money from of known marine species—and through catch is from the “exclusive economic early mornings in stormy seas worry more them millions of people who rely on fish- zones” (EEZs) that countries are entitled to 1 about business in the next year than in the next fifty. “Climate change isn’t happening next month. At the moment we’ve got to Waterworld Major fishing areas, tonnes m hang on to what we’ve got,” says Mr Brom- Global fish takes, 2014 024814241 ley. Butworryingtrendsare alreadyvisible. Ten largest As equatorial seas warm up, many plank- countries ARCTIC Tonnes m Norway ton species are extending their range to- Russia 2.3 MEDITERRANEAN wards the poles by hundreds ofkilometres 4.0 & BLACK SEA a decade; where they lead, fish will follow. China United 14.8 States Japan 5.0 Moving somewhere cooler might seem 3.6 ATLANTIC India a simple thing; but temperature is not all 3.4 OCEAN that matters to fish, and so there can be 2.7 2.7 Vietnam PACIFIC trade-offs involved. The flounders off the Myanmar OCEAN coast of Britain like water that is both rela- Indonesia Peru INDIAN 6.0 3.5 tively shallow and fairly cool, says Martin OCEAN Genner from the University of Bristol. With watertemperaturesaround the south of the country 1.5oC higher than they used to be, the flounders have headed north— ANTARCTIC but there the waters are deeper, which suits them less well. Fish may also need Source: FAO 20 Briefing Ocean fishing The Economist May 27th 2017

2 claim out to as far as 200 nautical miles Costco, Sodexo and Walmart are trying to (370km) from their shores. What counts as Making sail 2 combat poor fishing practices through a a shore, and a claim, though, can be disput- Top high-seas fishing countries body called the Seafood Task Force. The ed: China’s assertion offishingrights in the By landed value of catch, 2000-10 annual average, $bn idea is to ensure that supply chains are South China Sea, which contains a tenth of 0123 what they purport to be and that labour the global fish catch, sets its neighbours on conditions in the industry are up to snuff Japan 27 edge (though it is hardly the only thing that with an eye to fixing problems before they does). Russia, America and other Arctic South Korea 41 become scandals. And insurers are inter- states argue over new access to fish stocks Taiwan 60 ested in the sort ofmonitoring Global Fish- in the melting north. Spain 30 eries Watch does: ships that turn their AIS Though whatgoeson in EEZsislargely a United States 8 off increase the risk of collisions; they may sovereign matter, there are some levers attract bigger premiums or have their poli- Chile 19 available to outsiders. The World Trade Or- cies revoked. ganisation (WTO) hopes to introduce new China 6 Investors currently have little informa- rules on fishing subsidies at its next minis- Indonesia 9 tion on how their choice of investment af- Philippines High-seas catch 16 terial jamboree in December. These come as % of total fects marine life. Fish Tracker, a not-for-pro- to $30bn a year, with seven in every ten France marine catch 20 fit firm, aims to put that right. It is lookingat dollars handed out by comfortably-off the risks posed by unsustainable fishing in countries. The WTO first started discus- Global landed value of high-seas catch the same way that climate activists have 2000-10 annual average, $bn sions on fishing subsidies backin 2001; Pas- Top ten countries: 8.45 Others: 3.62 studied the risks of fossil-fuel investments cal Lamy, formerlyitsdirector-general, says in order to warn off investors. Mark Cam- Source: Global Ocean Commission a great deal of effort has gone into working panale, the initiative’s founder, says that at out which subsidies are contributing to the most basic level investors need to un- harmful fishing practices. The reckoning tion (IMO) requires ships over 300 tonnes derstand that if one boat catches one fish, now is about 60% ofthem do so. to have an Automatic Identification Sys- ten boats will not catch ten. To that end the China, which gets farmore fish from its tem (AIS), a radio transmitter which tells outfit is analysing information covering EEZ than any other country does from anyone in the vicinity the boat’s position, 300 fishing companies with a market capi- theirs (as well as fishing, by agreement, the speed and identityso asto avoid collisions. talisation of $530bn to calculate the unac- EEZs of other countries), seems open to ac- “In the vicinity”, though, now includes knowledged downsides imposed by envi- tion on subsidies if some unrelated anti- “up above”; various satellites can use AIS ronmental limits. dumping measures are loosened. But how transmissions to track ships. Spire, an None of this can drive change effective- to bring poor countries on board remains a American startup, is building up a constel- ly, though, without the support of fishers. thorny issue. Although coastal African lation of tiny spacecraft with which it Including them in the design of regulatory states want change, many inland ones fret hopes to log 10m AIS transmissions every regimes can bolster scientific analysis and over the higher cost of fish. “The whole day by the end ofthis year. reduce political tensions; by bringing them point is to make fish more expensive,” ex- Global Fishing Watch, an online plat- into the process it also deepens their un- plains Mr Lamy, “so as to internalise the form created by Google, Oceana, a marine derstanding of sustainable practice. “It cost ofenvironmental depletion.” Sensible charity, and Sky Truth, which uses satellite would be unacceptable for farmers to go stewardship, but not necessarily an easy data to further environmental causes, is a through an educational system without sell in countries where fish from elsewhere keen user of AIS transmissions. They do understanding crop yields and the need to are a cheap source ofprotein forthe poor. not just let it locate fishing vessels; they let manage the land for future generations,” Establishing more protected areas both it take a good guess as to what they are do- says Jim Masters of Fishing into the Future, within EEZs and on the high seas beyond ing(boatslong-liningfortuna, forexample, a charity. “But there are no equivalent op- would be anotherwayto help, particularly zigzag distinctively). The platform cur- portunities for fishermen.” For the sake of if they were to contain “no-take” zones rently follows 60,000 vessels responsible the fish, there should be. 7 where fishing is completely barred. Such for 50-60% of the world’s catch, according zones provide breathing spaces, or breed- to Brian Sullivan from Google. Indonesia is ing spaces, in which stocks can recover. planning to use the platform to make pub- Crow White from California Polytechnic licdata thatitgathersthrough “vessel mon- State University and Christopher Costello itoring systems”—information which can from the University of California, Santa reveal more about what is actually hap- Barbara have calculated that if such an ap- peningon-board than AIS location data do, proach was taken to its extreme and the and as a result is often jealously guarded. high seas were closed to fishing, then The more other countries follow suit, the yields elsewhere could rise by 30%, with better the picture will be. fisheries’ profits doubling because fish The Port State Measures Agreement, closer to shore become cheaper to catch. which came into force in 2016, means that The countries that dominate fishing in if such monitoring leads a country to sus- international waters (see chart 2) would pect that a foreign vessel is doing some- never stomach such a ban; they prefer the thing dodgy, it does not have to go out and often inadequate regulation offered by re- inspect it in order to take action. The agree- gional fisheries-management organisa- ment’s clever construction means that tions. But even in these regimes, tempo- poor countries without much by way of rary and rolling closures have been tested. navy or coastguard can deny a suspicious In the Antarctic permanent ones have foreign vessel entry to their ports and pass proved successful. its details on to other countries that might Spotting boats that misbehave on the have the wherewithal to checkit out. high seas (or indeed in EEZs) is getting easi- Companies can act, as well as coun- er. The International Maritime Organisa- tries. Food suppliers and retailers such as Big ocean, big impact Asia The Economist May 27th 2017 21

Also in this section 22 New rules in the South China Sea 22 Martial law in the Philippines 23 Repopulating Fukushima 24 Banyan: Japan’s shrinking monarchy

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

India’s Kashmir problem paign to pacify its only Muslim-majority state. Fighting left some 40,000 dead, by Talking to the enemy conservative estimates. Skirmishing across the line continues to this day, but in the valley guerrilla warfare has abated. Since last July the unrest has involved hun- dreds of protests, triggered by the killing of SRINAGAR a guerrilla leader by security forces. In April, after a clash between soldiers and Kashmiris may hate India. Indians must refrain from responding in kind students, the unrest spread to campuses. AVING suffered a severe beating, Fa- plicitly for that act, but for “sustained ef- Now many of the protesters are middle- Hrooq Dar was tied up on a spare tyre forts in counter-insurgency operations”. class, with uniformsand satchels. attached to the front bumper of an ar- Kashmiris saw this as another insult by a The central government has com- moured jeep. Indian soldiers claimed he Hindu-led government in Delhi, which pounded the problem by refusing to differ- had been throwing stones. Mr Dar was dri- most of them regard as hostile to their reli- entiate between the new type of demon- ven in agony through villages south of Sri- gion and from which many would like in- strator and the guerrillas. It has responded nagar, the largest city in the Indian state of dependence. As ifto confirm theirview, In- to protests with extreme violence: last Jammu & Kashmir. The soldiers reckoned dian television called the officer a hero for summer and autumn security forces dis- the sight of him would deter others from using Mr Dar as a “human shield”. persed unruly crowds by firing shotguns at throwing stones at their patrol. The recentunresthasbeen ofa different them, blinding or killing dozens of people. Footage of Mr Dar’s ordeal on April 9th kind from the insurgency that previously More recently they have refrained from us- circulated widely online, fuelling anger plagued the state. In the 1990s and 2000s ing such weapons, but they have revived among inhabitants of the Kashmir valley, Pakistan, which like India claims all of aggressive searchesofa kind notseen since the Muslim-dominated part of the state to Kashmir north and south of the “line of the height ofthe insurgency. which Srinagar belongs (see map). The sol- control” between the two countries, sent There are still guerrillas in the valley, diers had been deployed to prevent unrest in armed jihadists to aid their fellow Mus- but a few hundred compared with several during a by-election that was held around lims. India responded with a brutal cam- thousand before. Most are young men the city for the national parliament. So bit- who have stolen rifles and gone to hide in ter is the enmity felt by many Kashmiris in TAJIKISTAN the forested hillsides, where they broad- the valley towards the Indian government CHINA cast their defiance on social media and oc- that only 7% of eligible voters cast ballots. AFGHAN- Area ceded by casionally die in firefights with soldiers. ISTAN Pakistan to China, Mr Dar, a weaver, says he was one of the KASHMIR claimed by India They enjoy sympathy in parts ofthe valley, Kabul (administered few who did and that he did not throw by Pakistan) especially in the south, where an estimat- Peshawar anything at soldiers. Kashmir Valley ed 20,000 turned outto march atthe funer- Islamabad The Indian government is fumbling in Srinagar JAMMU & al forthe slain insurgent. so far as it is trying to tame a rebellious KASHMIR The central government is right to wor- (administered by India) Area held mood that has swept the valley in recent by China, ry about such shows of support. But it is months. In late April it tried to win respite PAKISTAN Ladakh claimed wrong to regard calls for azaadi (indepen- Jammu by India by imposing a month-long block on social PUNJAB dence) as tantamount to violence. Those Disputed media and mobile-phone data services Lahore border who throw stones at soldiers (often in re- (useful for uploading videos). On May 250 km sponse to aggression by the army) are rou- 22nd, as the month reached its end, the tinely described as “militants”. Indian me- army fanned the flames by announcing an INDIA NEPAL dia report, with flimsy evidence, that award for the officer who had tied Mr Dar Delhi Line of control Pakistan pays protesters 500 rupees ($8) to the jeep. The commendation was not ex- per projectile hurled. By conflating the two 1 22 Asia The Economist May 27th 2017

2 kinds of unrest, the government limits its The South China Sea options for dealing with the less deadly kind. On May 21st Jitendra Singh, a central- Shoals apart government minister, said his colleagues would like to meet “stakeholders” in the state. But the government will not talk to any group that supports independence for SINGAPORE Kashmir. That rules out the only one that A new agreement between China and enjoys broad support in the valley: the South-East Asia is less than it seems Hurriyat conference, a coalition of about 30 parties that want separation from India O CALL negotiations between China by peaceful means. Tand the ten-country Association of Support for the separatist cause has South-East Asian Nations (ASEAN) over ri- grown since 2014, when Narendra Modi val claims in the South China Sea “drawn took over as prime minister after a sweep- out” would be a gross understatement. At ing victory by his Hindu-nationalist Bhara- the centre ofthe matter is an unsquareable tiya Janata Party(BJP) in national elections. circle: the competing claims of China and A reef with Chinese characteristics In those polls, many Kashmiris voted for several South-East Asian countries. No- the Peoples Democratic Party (PDP), an in- body wants to go to war; nobody wants to ippines has turned from China’s chief re- dependence-leaning group which the cen- be accused ofbacking down. gional rival into an ally. The two countries tral government could just about bring it- Still, at a meeting ofsenior Chinese and recently reiterated their desire in principle selfto talkto because itsdemandswere not ASEAN officials on May 18th, something for joint exploration for resources, some- too explicit. The PDP won a majority in the happened: the two sides agreed on a thing Manila had resisted for fear it would Kashmirvalley, butto the dismay ofits sup- “framework” fora code ofconduct. An offi- validate China’s expansionary claims. porters it formed a coalition with the BJP, cial from Singapore (which currently co-or- Other countries seem resigned, in fact if which had won handsomely in Hindu- dinates ASEAN-China relations) called the not in principle, to its island-building. dominated Jammu. As a result, many of agreement a sign of“steady progress”. On May 24th America carried out its the PDP’s voters turned their back to the ASEAN members called for a legally first freedom-of-navigation operation parties recognised by India. binding code ofconduct as farbackas 1996. (sending warships through international Haseeb Drabu, a founder of the PDP In 2002, ASEAN and China signed a “decla- waters) since the election of Donald who is the finance minister in Srinagar, de- ration ofconduct”, which recognised that a Trump. But he seems less willing than his fends his party’s decision to join forces fully fledged code would be nice to have; it predecessor to enforce a rules-based order; with the BJP. He says no one was in a better also committed both sides to peaceful dis- his transactional mercantilism will reas- position than Mr Modi to bring peace to pute resolution and “self-restraint” in do- sure China. Extended talks on a code of Kashmir. But the assurances given to Mr ing anything that could “escalate disputes conduct probably mean that China will be Drabu by the BJP, including that the gov- [or] affect peace and stability”. free to consolidate its gains with minimal ernment would talk to the Hurriyat and Since then, code-of-conduct negotia- interference from rivals near or far. 7 other pro-independence parties, have tions have proceeded glacially. And in 2013 been cast aside amid the growing unrest. China embarked on a vast effort to build The government in Delhi should enter up seven reefsand rocks into islands suited Insurgency in the Philippines talks with separatist groups before their formilitary use (see picture). Last July, after supporters become too enraged to counte- China received an unfavourable ruling on Marauding in nance any discussions. Angerin Srinagar is its maritime claims in a case brought by the already all-pervasive. On May 15th a dele- Philippinesto a tribunal in The Hague, Chi- Marawi gation from India’s college-accrediting na agreed to expedite the talks. body paid a visit to Sri Pratap College, the The draft framework will be presented MANILA most prestigious centre of higher educa- to ASEAN and Chinese foreign ministers at Rodrigo Duterte’s imposition ofmartial tion in Srinagar. Minutes before, students a conference in August. This will then form law opens up chilling prospects had clashed with the army; they were still the basis for the thorny negotiations to fol- scrambling to escape when the delegates low. The text has not (yet) been leaked. But ODRIGO DUTERTE, the Philippine arrived. The visitors had to pick their way its most salient feature may be what it ap- Rpresident, declared martial law in Min- through broken bricks and twisted bars of pears to lack: any hint of enforcement danao, the southern homeland of his steel, with tear gas wafting around them. mechanisms or consequences for viola- country’s Muslim minority, after fighting The protesterswere notfrom Sri Pratap, the tions. China has long rejected a legally broke out in the streets of the largely Mus- principal insisted, but from a scruffier binding agreement—or indeed any ar- lim cityofMarawi. Gunmen from one jiha- place. Still, in a graduate lounge, post-doc- rangement that could limit its actions in dist group fought back when the security toral students from Sri Pratap were only the South China Sea. forces attempted to capture the leader of too eager to express admiration for the The result, explains Ian Storey, of the another such group. Whatever the conse- protesters, and contempt forIndia. 7 ISEAS-Yusof Ishak Institute, a think-tank in quences in lawless Mindanao, for many Singapore, is a framework“that makes Chi- Filipinos the imposition of martial law Missing map? Sadly, India censors maps that show the na look co-operative…without having to was an eerie reminder of a similar declara- current effective border, insisting instead that only its do anything that might constrain its free- tion in 1972 bythe country’sthen president, full territorial claims be shown. It is more intolerant on dom of action”. ASEAN, meanwhile, gets Ferdinand Marcos, that began a decade of this issue than either China or Pakistan. Indian readers the appearance of progress. “The ASEAN ruinous dictatorship. will therefore probably be deprived of the map in the first story of this section. Unlike their government, we secretariat is a bureaucracy, and bureau- The defence minister, Delfin Lorenzana, think our Indian readers can face political reality. Those crats like process,” explains Mr Storey. said troops and police had raided a hide- who want to see an accurate depiction of the various But a toothless agreement need not au- out in Marawi to arrest Isnilon Hapilon, territorial claims can do so using our interactive map gur further Chinese aggression. And why the leader of a branch of the Abu Sayyaf, at Economist.com/asianborders should it? Under Rodrigo Duterte the Phil- an armed group that pledges allegiance to 1 The Economist May 27th 2017 Asia 23

2 IS. To theirsurprise, security forces met re- Post-tsunami reconstruction in Japan sistance from about 100 armed members ofanothergroup, called Maute, which also Repopulating Fukushima claims IS links. In the ensuing battle, thou- sands of civilians fled Marawi. Maute seized a jail, freeing more than 100 in- mates, as well as a hospital, the city hall and parts ofa university campus—many of IITATE which were burned. As The Economist went to press, at least 21 people were re- The government pushes villagers backto the homes they left ported killed. Mr Hapilon remains at large. ROM his desk, the mayorofIitate, Norio Last month this dilemma was ex- Mr Duterte declared martial law while FKanno, can see the beloved patchwork pressed with unusual clarity by Masahiro on a state visit to Moscow, which he cut of forests, hills and rice paddies that he has Imamura, the minister in charge of recon- short to restore order at home. His spokes- governed for over two decades. A book in struction from the disaster. Pressed by a re- man said martial law would remain in ef- the lobby ofhis office calls it one of Japan’s porter, Mr Imamura said it was the evacu- fect across Mindanao for 60 days. Mr Du- most beautiful places, a centre of organic ees’ “own responsibility, their own choice” terte himself said later that it might last for farming. The reality outside mocks that de- whether or not to return. The comment a year, and he mused about expanding it scription. The fields are mostly bald, shorn touched a nerve. “It’s economic black- across the country. Ifhe wants to extend it of vegetation in a Herculean attempt to re- mail,” says Nobuyoshi Ito, a local farmer. he will face little opposition in Congress, move the radioactive fallout that settled Mr Imamura has since resigned. where he has a majority. Mr Lorenzana six years ago. There is not a cow or farmer Nobody wants Fukushima mentioned said that martial law would give security in sight. Tractors sit idle in the fields. The lo- in the same breath as Chernobyl. Almost forces the power to restrict people’s move- cal schools are empty. three decades after the world’s worst nuc- ment and conduct searches without a Iitate, a cluster of hamlets spread over learaccident, life there isstill frozen in time, court order. Mr Duterte also suspended ha- 230 square kilometres, washitbya quirk of a snapshot of the mid-1980s Soviet Union, beas corpus. the weather. After the accident at the Fuku- complete with posters of Lenin on school The harm inflicted by the security shima Dai-ichi nuclear power plant, 45km walls. By contrast, about ¥200m ($1.8m) forces after Marcos declared martial law (28 miles) away, which suffered melt- per household has been spent decontami- countrywide is scorched into the memo- downs after a tsunami in 2011, wind car- nating Iitate, helping to reduce radiation in ries of many Filipinos. Mr Duterte has of- ried radioactive particles that fell in rain many areas to well under 20 millisievert ten seemed to crave similar power: he has and snow on a single night. Belatedly, the per year (the typical limit for nuclear-in- mused about declaring martial law as part government ordered the evacuation of the dustry workers). But the clean-up extends of his murderous anti-drug campaign, and 6,000 villagers. Now it says it is safe to re- to only 20 metres around each house, and to deal with long-running insurgencies in turn. With great fanfare, all but the still most of the village is forested mountains. other parts of Mindanao. He deepened heavily contaminated south of Iitate—the In windy weather, radioactive caesium is public concerns when he said, on his way hamlet of Nagadoro—was reopened on blown backonto the fields and homes. home from Moscow: “To my countrymen March 31st (see map). Nevertheless, Mr Kanno says it is time who have experienced martial law, it The only part of the village that looks to cut monthly compensation payments would not be any different from what Pres- busy, however, is the home for the elderly. which, in his view, encourage dependence. ident Marcos did. I’d be harsh.” Locals say a few hundred people, at most, In 2012 Iitate’s became the first local au- Marcos’s brutality failed to pacify the have returned, predominantly the retired. thority in Fukushima prefecture to set a south. And the complicated situation in Mr Kanno will not reveal how many “be- date for ending evacuation. The mayor Mindanao, MrDuterte’s home region, may cause it gives the impression that we are pledged that year to revive the village in yet stay his hand. The Abu Sayyaf and the forcing people to live here, which we don’t five years, a promise he has kept. A new Maute groups are just two of many armed intend to do.” Yet many evacuees now face sports ground, convenience store and noo- factions in the region. There are Islamists, a starkchoice: return to Iitate, orlose partof dle restaurant have opened. A clinic oper- Muslim separatists, communists, private the compensation that has helped sustain ates twice a week. posses belonging to local politicians, feud- them elsewhere. All that is missing is people. Less than ing tribes and gangs of common criminals. 30% of Iitate’s former residents want to re- The categories are not mutually exclusive. turn. (In Nagadoro, over half said they The principal groups are the Moro Is- PACIFIC OCEAN would never go back.) Many have used lamic Liberation Front (MILF) and the com- Iitate earlier lump-sum payments to build lives munists. The once-separatist MILF has ac- Nagadoro 20km radius elsewhere. Before the disaster struck, the cepted autonomy instead of inde- from plant village had already lost a third of its popu- pendence for mainly Muslim areas. It is lation since 1970 as young folk moved to holding fire while it waits for its peace the cities—a process that has hollowed out agreement with the government to take ef- many a furusato, or home town. Fukushima Fukushima fect. The communists and the government Dai-ichi Families left behind quarrel about are talking peace but still fighting, if only whether to leave or stay, says Yoshitomo half-heartedly. Shigihara, a villager. “Some try to feel out The danger is that heavy-handedness whether others are receiving benefits,

by soldiers and police under martial law 20 km what they are getting or how much they may upset this quasi-peace in Mindanao. have received in compensation. It’s very Fukushima evacuation zones And, like a similar raid in 2015 that left 44 April 1st 2017 stressful to talk to anyone in Iitate.” Some Sea of Philippine police dead, the fighting in Ma- Evacuation order lifted ORTH Japan wanted to move the entire village to one of OREA (East Sea) rawi seems to stem from security forces’ Preparing to lift evacuation order the country’s many depopulated areas but failure to assess intelligence they have re- Full-time residence prohibited Tokyo Mr Kanno would not hear of it. In trying to ceived. Martial law will do nothing to Residence prohibited JAPAN save the village, says Mr Ito, the mayor may Source: Fukushima Prefectural Government solve such problems. 7 aku/Diaoyu be destroying it forgood. 7 24 Asia The Economist May 27th 2017 Banyan The shrinking monarchy

Ifa woman cannot inherit the Japanese throne, perhaps no one will American occupiers and political elite rebranded Hirohito, who was complicit in Japanese militarism, as a paragon ofpacifism. Akihito’s immense popularity shows that the hardline na- tionalists, though influential, are in a minority. Amore open, ac- cessible imperial family has transformed the monarchy’s appeal after the aloofness of Hirohito—even if it will be a while yet be- fore the royalsbicycle to the supermarketlike Scandinavian ones. And so a groundswell of sympathy greeted Akihito’s request to be allowed to retire (he suggested he could also spare the country onerous official mourning duties when he eventually did pop off). Mr Abe, an arch-conservative himself on matters of the im- perial family, could hardly object. Aftercabinet approval, the Diet is likely to pass an abdication law next month. Akihito is thought likely to pass the Chrysanthemum Throne to his son, the 57-year- old crown prince, Naruhito, in late 2018. Naruhito would become, supposedly, the throne’s126th occu- pant—though if you believe that an unbroken imperial line goes back to the birth of Emperor Jimmu (descended from the Sun Goddess) on February11th 660BC, there is also a strong case to be made for pixies. But immediately another problem looms: a dearth offuture candidates in a male-only imperial succession. EATH through overworkis considered to be such a feature of As if to underline how the imperial family is shrinking, just Dthe workplace in Japan that there is a word forit: karoshi. For like the population as a whole, last week Naruhito’s eldest niece, the Japanese emperor, karoshi, or at least death in service, has to 25-year-old Princess Mako, announced that she wanted to marry date been mandatory, since no provision exists in the Imperial a non-royal. The Imperial House Law rules that a woman who House Law, which governs the monarchy, for voluntary retire- marries a commonermust leave the royal family. Still, she will get ment. That might seem a bit unfair on Emperor Akihito, an 83- abonuspaymentthoughtto be more than $1m. Thiswill leave the year-old who has had prostate cancer and heart-bypass surgery. imperial family with just 18 members, 13 of whom are women. Yetwhen the cabinetofShinzo Abe, the prime minister, approved Akihito has fourmale heirs: Naruhito; Naruhito’s younger broth- a bill last week to allow for the emperor’s abdication—just this er, Prince Akishino; Akishino’s ten-year-old son, Prince Hisahito; once, mind you—Japanese ultranationalists were incandescent. and Akihito’s surviving brother, 81-year-old Prince Masahito. A They aggressively revere the emperor, regardless of his wishes. lot, in otherwords, is ridingon little Hisahito to replenish the stud And Mr Abe, they said, was playing with sacred tradition. book. What ifit turns out that girls are not his thing? Ten months ago, in a televised statement, Akihito hinted at his wish to step down. Age and declininghealth, he said, were taking It’s no man’s world any more their toll and making it hard to perform his official duties to the In terms of solutions to the shrinking pool, the traditionalists are full. Those duties, he made it clear, were not only ceremonial but ofno use. They insist on no deviation from the tradition ofan un- involved connecting deeply with ordinary Japanese. broken male bloodline—in their view, as Kenneth Ruoff, head of The country’s post-war constitution stipulates that the emper- Japan studies at Portland State University, puts it, if the male oris no god-kingabove the law, as he was before the country’s de- bloodline ceases then Japan ceases. Their occasional suggestion featin 1945. Rather, he is“the symbol ofthe state…derivinghispo- ofa return to concubines (Akihito’s grandfatherwas born to one) sition from the will of the people” in whom, explicitly, is intended seriously but is a joke. sovereignty now lies. Since even before accedingto the throne on Something will have to give. It nearly did a dozen years ago. At the death ofhis father, Hirohito, in 1989, Akihito and his common- that time, no potential heir to Naruhito seemed likely, and the born wife, Michiko, have shown a desire to bring the monarchy then prime minister, Junichiro Koizumi, was getting ready to down to the level of ordinary folk, sometimes literally—for in- introduce legislation to allow women to reign, as well as succes- stance, kneeling on the ground as they console victims of Japan’s sion down the female line. Though four-fifths of Japanese polled frequent natural disasters. In last year’s statement, the emperor were fine with the idea, an opposing minority was vocal. But on said that understandingwhat was expected from him as the sym- the unexpected news that Akishino’s wife, Kiko, was pregnant bol of the state involved nurturing “an awareness of being with more than a decade since last giving birth, the legislation was the people”. Hence his criss-crossings ofJapan, even to the remot- hurriedly shelved. A few months later Hisahito saved the day. est places, were “important acts” forhim. The opposition Democratic Party wants to revive the idea of Ultranationalists are disdainful of such abasements. (Akihito allowing female royals to establish collateral branches of the im- is said to have been offended when conservative scholars last perial family after they marry. To fend that off, Mr Abe’s Liberal year said he should just stick to praying and carrying out Shinto Democratic Party looks ready to propose a sop—allowing mar- rituals.) Worse, in their eyes, is how Akihito has sought forgive- ried women to carry out some official imperial duties. That is no ness from neighbours and former enemies for Japan’s wartime solution, however, to the problem of the incredible shrinking actions. The nationalists deny that Japan was an aggressor or monarchy. MrAbe has shown himselfall in favourofwomen, ex- committed atrocities; they say Japanese were the victims, includ- cept on the throne. But at some point the royalists will have to ing of nuclear bombing. They cheer that, after the war, Japan’s concede—or be responsible for a republic. 7 China The Economist May 27th 2017 25

Also in this section 26 Espionage 26 Dolphins in Hong Kong

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

Provincial politics tional government. The congress will ap- point a new Central Committee of around A hand up for Xi’s people 370 people including provincial and na- tional leaders. Like an American election, it will involve infighting and score-settling. Mr Xi’s appointments in the provinces help him directly and indirectly. Almost all BEIJING the party chiefs and governors will be- come members of the Central Committee, Sweeping changes ofprovincial leaders demonstrate Xi Jinping’s power if they are not already. The more who owe MAGINE an American election in which convention and steps down as general sec- theirpowerto MrXi, the betterforhim. Un- Itwo-thirds of the senators and three- retary in 2022). But the scale of his recent like his predecessor, Mr Xi was not the quarters of the state governors up for re- shake-up hasbeen unusual. Between Janu- head of an established political faction election are defeated. It would be a land- ary 2006 and May 2007—the comparable when he took over as general secretary in side to end all landslides. (When Ronald midway period in the rule of his predeces- 2012, so he had to create his own. The new Reagan won 98% of the electoral-college sor, Hu Jintao—12 party secretaries and 11 provincial leaders help him do that. votes in the presidential election of 1984, governors were replaced, only half the They also play an important role in only four Senate seats changed hands out number shifted during the past16 months. preparations for the congress, including of 33 races). Yet this is the level of turnover Some recent changes have been related the choosing of more than 2,000 delegates happening now at the provincial level in to the incumbents’ age: 12 of those re- and setting the agenda—the meeting will China, without the democracy: ballot pa- placed, including the party secretaries of discuss a state-of-the-nation report by Mr pers dropped ceremoniously into large red nine provinces, were about 65 years old, Xi and adopt revisions to the party’s char- boxes create a mere semblance ofit. when senior officials normally retire. Two ter. With his provincial appointments, Mr Since the startof2016 China’spresident, of the leaders were dismissed for alleged Xi is putting in place those who can ensure Xi Jinping, has replaced 20 of the Commu- corruption: the governor of Sichuan in the that the right people attend the congress, nist Party’s 31 provincial secretaries, as the south-west, and the party boss in Tianjin, a say the right things and vote the right way. most powerful leaders at that level are city near Beijing with provincial status. As Just because Mr Xi has promoted some- known. He has also shuffled 27 of the pro- often happens, seven governors replaced one does not necessarily mean he or she is vincial governorships (governors are sec- their departing party chiefs. a close ally. Chinese politics is riven by fac- ond-in-command). For local leaders, April tions, and Mr Xi sometimes has to make was the cruellest month: ten jobs changed Total control appointments to appease rivals or for oth- hands. By the autumn, almost every prov- So 21ofthe changeswere to some extent re- er reasons. The choice ofthe new governor ince will have felt the effects—including quired by age, criminality or term limit of Inner Mongolia, for example, looks like Hong Kong, where a new leader was (though Mr Xi presumably had some influ- a case ofbutteringup a powerful local fam- named in March. (That process, too, was ence both over the anti-corruption charges ily. Bu Xiaolin, the person in question, is hardly democratic.) and the promotion of governors). That the daughter and grand-daughter of previ- Party secretaries and governors nor- leaves 25 changes which seem to have ous heads ofthe provincial government. mally serve for five years, so in any one been made at Mr Xi’s discretion. Why With the retirement of the party chief year you would expect a dozen or so to re- would he want to move so many people? of the coastal province of Zhejiang, Xia tire or change jobs. The number tends to The answer relates to a national party Baolong, MrXi hasalso losta powerful ally rise towards the middle of a national congress, which is due to be held in the sec- in the regions. Mr Xia stepped down in leader’s ten-year term of office—a point at ond halfof2017. Such meetings happen ev- April after a career that included a spell as which wide-ranging shuffles normally ery five years. They are a little like an deputy to Mr Xi when he was the prov- take place at every level. Mr Xi is at that American presidential election, in that ince’s party chief between 2002 and 2007. stage of his tenure (assuming he follows they change the elite that makes up the na- Overall, though, Mr Xi has gained a lot.1 26 China The Economist May 27th 2017

2 Two of the new party secretaries held high Dolphins office in Shanghai when he led the party there in 2007-08. Three of them, as well as two ofthe new mayors ofprovincial cities, Pink and imperilled worked with him in Zhejiang. Others with HONG KONG ties to him from the same period have dif- Megaprojects are forcing out some ofHong Kong’s most precious residents ferent senior posts, such as the president of Baosteel, a large state-owned firm. They HE dolphin is clever, cute, kind, Kong Dolphinwatch, which runs dol- are likely to get promotions at the congress “Tactive and inoffensive. Exactly the phin-spotting tours, complains that other or soon after. character ofHong Kong.” So said a local boats sometimes ignore a code ofcon- Analysts are divided in their assess- member ofa committee appointed by duct requiring them to keep away from ment ofwhat Mr Xi hopes to achieve at the China to oversee the end ofBritish rule the animals. The government, she says, meetingand the extent to which he will get over Hong Kong in 1997. The body had are not keen on stricter enforcement. his way (some believe he would like to lay decided that the pinkdolphin, a rare type Officials have pledged to open more the groundwork for extending his rule be- sometimes seen cavorting in the territo- “marine parks” where dolphin-threat- yond 2022). But the churn of provincial ry’s harbour, would be a mascot ofthe ening activities will be banned. But one bosses has shown that Mr Xi enjoys grow- handover festivities. Since then, how- that is planned around the airport will ing influence within a powerful tier of the ever, the animal’s fate has not been an not open until 2023, when the new run- leadership. This must make it more likely encouraging portent ofthe territory’s way is due to open. Samuel Hung, who that he will emerge even stronger. 7 post-colonial progress. Hong Kong’s runs a government-funded study ofthe dolphins are in perilous decline. dolphins, says there is “no way” the They belong to a type ofdolphin that animals will tolerate the disruption Espionage lives offChina’s shores called sousa caused by the runway’s construction. chinensis, or the Chinese White (though On July1st Hong Kong will mark20 Spy kids they are grey when born and pinkish as years ofChinese rule. On the harbour- adults). They preferthe brackish water of front, a sign promoting a celebratory estuaries, where they are threatened by event features a bright pink, winking fishing and water-polluting factories. In dolphin and a blue-coloured friend. Ifthe BEIJING Hong Kong there is a different danger: the government wants to make use ofdel- relentless building ofmegastructures, phinoid imagery in another 20 years, it In battles with foreign spies, even including one ofthe world’s longest will be embarrassing ifnone is left. schoolchildren have a role to play bridges. Before the British left they built HINA’s government regards spy-catch- an airport on 938 hectares (2,300 acres) of C ingasa game foreveryone. In April the reclaimed land: a new runway is planned municipal government of Beijing started that will require 650 more. offering rewards of up to 500,000 yuan Such workappears to be driving the ($70,000) for finding one. It called on citi- dolphins fartheraway. In a survey con- zens to be on their guard against agents at- ducted in 2003, scientists spotted 188 tempting to “infiltrate, subvert, split or sab- dolphins around Lantau island, the otage China”. Also last month, an official animal’s main habitat in Hong Kong and publishing house produced new books for the site ofthe airport. In 2015 they saw primary-school children to mark the coun- just 65. Experts are not convinced that the try’s second “National Security Education animals are saferwhen they move else- Day”. They included fun games such as where along China’s coast. In 2010 there “Find the spy”. State media said this was were thought to be 2,500 dolphins in the part of an effort to mobilise students of all Pearl river delta (which includes Hong ages as “a huge counter-spy force”. Kong)—the largest known group. But their It is not known whether this approach numbers there are falling by around 2.5% has secured important leads. But in recent annually, say scientists at the University days official newspapers have been crow- ofHong Kong. ing about a reported victory for China’s The government ofHong Kong ap- counter-intelligence efforts. On May 20th pears half-hearted about protecting the New York Times said that between 2010 them. An official website promoting and 2012 China had uncovered a network Lantau’s attractions uses pictures of the of some 20 agents, planted deep within wrong species. Janet Walker ofHong Not entirely in the pink China’s bureaucracy, who had been feed- inginformation to the CIA. Thiswassaid to have been one ofthe biggest such breaches A fear of losing secrets may in part ex- Last month China said Interpol, an in- in recent decades. The newspaper said plain MrXi’s eagerness to secure the return ternational police co-operation body, had some ofthe agents had been killed, includ- of thousands of officials and politically issued a notice to its members that Guo ing one who was shot in front of his col- connected businesspeople who have Wengui, a Chinese businessman in self- leagues as a warning. moved abroad, many of them to avoid imposed exile, was wanted in China for Xi Jinping, who took over as China’s charges of graft. Some such as Ling Wan- corruption. Mr Guo has been broadcasting leader in 2012, appears even more ob- cheng, the brotherofa formerchief-of-staff almost daily reports on YouTube of high- sessed than his recent predecessors with to Hu Jintao, an ex-president, are familiar level intrigue in China (information that catching spies, stemming leaks and crush- with the party’s inner workings. Mr Ling the party considers top secret). Many Chi- ing subversives. He has introduced tough hasdenied reportsthathe hasdivulged nu- nese netizens, farfrom abhorring his leaks, new laws on national security and made clear secrets and information about Chi- appear to relish them—if, that is, they are himselfoverlord ofthe security agencies. na’s leaders to America’s spies. able to dodge the hyperactive censors. 7 United States The Economist May 27th 2017 27

Also in this section 28 A conspiracy and a conspiracy theory 28 A zero sums budget 29 Italians in the Deep South 32 Lexington: The impeachment delusion

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

Reforming health care brake against any death spiral. Above a cap, the government picks up the tab for First, do some harm the 9m buyers who receive subsidies, shielding them from higher premiums. But subsidies are no use if there is nobody sell- ing insurance to begin with. Insurer exits have already left about a third of counties WASHINGTON, DC with only one seller. In April it briefly looked as if 16 counties around Knoxville, Before Republicans replace Obamacare, the White House is killing it Tennessee, would have no insurers in 2018, HETHER or not their bid to reform one buys insurance if they can afford it, or until BlueCross BlueShield of Tennessee Whealth care succeeds, Republicans pays a fine, has been easy to dodge. agreed to step in. Many states will face sim- think Barack Obama’s Affordable Care Act Things were meant to improve in 2018. ilarly precarious situations, especially in will founder. For years, critics of the law The Congressional Budget Office (CBO) rural areas. On May 24th Blue KC an- have said that its health-insurance markets said in March that the market was stable. nounced that it was leavingthe Kansas and will enter a “death spiral” in which rising Standard & Poor’s, a credit-rating agency, Missouri exchanges, potentially leaving 25 premiums drive out healthy buyers, forc- expects insurers to come close to breaking counties with no insurer. ing premiums higher still. “Obamacare is even this year. Yet in the first places to dis- Who is to blame? The Trump adminis- absolutely dead” President Donald Trump close insurers’ plans for 2018, which must tration’s approach to the markets has vacil- told The Economist on May 4th. be approved by regulators, premiums are lated. On his first day in office, Mr Trump If he is right, calamity looms. Eighteen shooting up again (see chart). In four ofsix ordered agencies to use what legal power million Americans buy insurance for cases, the rise is greater than in 2017. In they have to dismantle Obamacare. In re- themselves, rather than through an em- Maryland, insurers want to raise premi- sponse, the tax authorities weakened the ployer; it is this part of the insurance mar- ums by almost 45%. individual mandate. But in April the health ket that looks wobbly. Mr Trump thinks its Obamacare benefits from an automatic department penned rules designed to collapse would force Democrats to join his shore up the market. For example, it short- reform effort. And he is putting his money ened the annual period during which the where his mouth is. Indeed, his adminis- The price of uncertainty exchanges are open for business, thereby tration is part ofthe problem. United States, health-insurance premiums making it harder for people to wait until Insurers raised premiums in the indi- % increase on a year earlier they fall ill before signing up. vidual market by an average of 22% in 2017. 2017 (implemented) 2018 (requested) Now the sabotage seems to be back on. They had been caught out by the poor 01020304050 At issue are subsidies for so-called “cost- health of enrollees on Obamacare’s “ex- sharing”. Obamacare requires insurers to changes”, websites that serve a little over Oregon lower out-of-pocket costs, like deductibles half of the market, and that offer subsidies Maryland and co-payments, for the poorest buyers. to low- and middle-income buyers. No- The Treasury is supposed to foot the bill body was sure who would sign up to the Connecticut (which will total $7bn this year). Yet Mr exchanges. So the law was supposed to Trump has for months threatened to with- confiscate profits if insurers priced too Virginia hold the cash, even describing it as “ran- high, and pay compensation if they priced som money”. Politico reports that he told Washington, DC too low. But when insurers made losses, advisers that he wants to cut offthe cash. Republicans in Congress blocked the “bail- Vermont The risk of this happening is destabilis- out”. Adding to firms’ woes, the “individ- ing the market. The Kaiser Family Founda- ual mandate”, a requirement that every- Source: acasignups.net tion, a think-tank, estimates that without 1 28 United States The Economist May 27th 2017

2 the payments, premiums would need to The budget rise by19% (before accountingforanyother factors). Because insurers have to set their Zero sums pricesfor2018 now, before theyknowifthe payments will be made, they are either raising premiums to avoid being caught out later, or giving up and quitting the trou- WASHINGTON, DC bled markets altogether. The White House’s budget goes from It does not help that cost sharing subsi- unrealistic to innumerate dies are also the subject of a legal battle. In 2016 a federal court ruled them unconstitu- HE Budget Act of1921requires the presi- tional, after the House of Representatives Tdent to propose a budget, but Congress sued to stop them. The judgment was holds the power of the purse. Since Mick stayed, pending an appeal that the Trump Mulvaney, the budget director, sketched administration has now inherited. On out the Trump administration’s proposal May 22nd both sides were, for the second in February, it has been clear that lawmak- time, granted a three-month pause in pro- ers would end up rewriting it. Mr Mulva- ceedings. That is of little help to insurers, ney wants immediate deep cuts across many of whom must decide on premiums government that are unpalatable even to for 2018 by June 21st. If the uncertainty per- many Republicans. The fleshed-out ver- sists until then, it is likely that many more sion of the budget, released on May 23rd, counties will be left without any insurers. John Brennan, optimist features a new promise: to eliminate the However much damage is done, it is un- budget deficit within ten years. likely to force Democrats to negotiate over ficiently cynical about the world, but Mr The president wants to leave Medicare, a new bill. On May 24th the CBO projected Brennan managed it. Both his premises health insurance for the old, and Social Se- that the health bill approved by the House turn out to be wrong. To hear a shifting cast curity (public pensions) untouched. As a of Representatives, and soon to be consid- of Republicans in Congress, conservative result, achieving budget balance requires ered by the Senate, would result in 23m media stars and Trump alliestell it, it is not an unimaginably deep cut to so-called fewer Americans having health insurance remotely clear that Russia interfered in the “non-defence discretionary” spending, in 2026, mainly because of cuts to Medic- election. Polling shows most Republicans which includes things like education, sci- aid, health insurance forthe poor. That will and Democrats hold irreconcilable views entificresearch and diplomacy. Thispart of be difficult for many Senate Republicans, on something that the former head of the the budget would shrink by 41%, after ad- let alone Democrats, to stomach. Before CIA asserts is a settled fact. justing for inflation, according to the Cen- the “something terrific” that the president Some ofthe loudest voices in conserva- tre for Budget and Policy Priorities, a left- promised as a replacement forObamacare tive media, including Sean Hannity of Fox leaning think-tank. That greatly exceeds arrives, he may kill a market where 18m News and Newt Gingrich, the former the deepest cut the administration had al- Americans buy health insurance. 7 speaker of the House, have peddled a con- ready proposed for 2018, of about one- spiracy theory that the hacking of Demo- third, to the State Department. cratic Party e-mails during the election Entitlement programmes for working- The Russia investigation might have been the workofa young staff- age people would be slashed. Federal er at the Democratic National Committee, funding for Medicaid, health insurance for Each to his own Seth Rich, who was latermurdered in what the poor, would eventually fall by nearly the police suspect was a botched robbery. half(a greatercut than in the House Repub- Mr Hannity and Mr Gingrich speculat- licans’ health-care bill). The budgetfor Sup- ed that MrRich might have been the victim plemental Nutrition Assistance, which WASHINGTON, DC of a political assassination, citing, among helps the destitute buy food, shrinks by a other things, a report by Fox News, which quarter, aspartofthe burden ofsupporting What betterto counteraccusations of a was later retracted. Mr Rich’s parents pub- the poor is shifted to the states. conspiracy than a conspiracy theory? lished an appeal in the Washington Post for Yet even all this would be insufficient to T SHOULD be clear to everyone that people to stop spreading inventions about eliminate the budget deficit, which is fore- “IRussia brazenly interfered in our 2016 their son, calling this “unspeakably cruel”. cast to swell to 5% of GDP by 2027 under presidential election process.” So declared That is a fact on which all should be able to current law (because of increasing spend- John Brennan, former director of the CIA, agree. Yet once circulated, conspiracy theo- ing on the aged). To get the budget to bal- ata hearingofthe House Intelligence Com- riesare notoriouslyhard to knockdown. In ance, Mr Mulvaney also assumes the econ- mittee on May 23rd, adding that he had that sense, Mr Hannity and Mr Gingrich omy will grow by 3%, a target that will be seen intelligence of “contacts and interac- have already done their work. difficult to reach in the demographic head- tions between Russian officials and US per- Some solid points may be grasped winds. Fast growth fills the government’s sons involved in the Trump campaign,” amid the murk. There is a bipartisan desire coffers by about $2trn over a decade. leaving him with “unresolved questions” to hear more from Michael Flynn, the for- The problem is that Steve Mnuchin, the about whether Russian spooks successful- mer general who briefly served as Mr treasury secretary, has already banked that ly recruited American helpers. He remem- Trump’s first national security adviser, no- $2trn to pay for the tax cuts that are sup- bered a warning telephone call he made in tably about his contacts with Russian offi- posed to spark the 3% growth in the first August 2016 to the head of Russia’s spy ser- cials. MrFlynn refused one subpoena from place. Another contradiction is that the vice, the FSB, urging his opposite number the Senate intelligence committee, plead- budget predicts growing revenue from the to remember that, regardless oftheir politi- ing his right to avoid self-incrimination. estate (inheritance) tax, which it promises cal affiliation, “American voters would be That prompted fresh Senate subpoenas to abolish. It is one thing for the executive outraged by any Russian attempt to inter- aimed at consultancy businesses that he and legislature to disagree. But the Trump fere in the election.” founded. House subpoenasmaybe next. If administration has produced a blueprint It is rare to hear a spy chief sound insuf- nothing else, lawyers will be busy. 7 that contradicts itself. 7 The Economist May 27th 2017 United States 29

Immigration’s forgotten history er and glacial tugboats on one side, cotton on the other, red-winged blackbirds dart- Moses in the Ozarks ing between them. When the Italians ar- rived, the barrier was lower, and floods were common. The drinking water was filthy; yellow fever and malaria were rife. Climbing into his hunting truck, Tom Fava, LAKE VILLAGE AND TONTITOWN, ARKANSAS another local Italian-American, helps to find the disused cemetery where the vic- The ordeal ofItalian labourers is a parable ofrace and migration in the Deep South tims lie. It is hard by Whiskey Chute, a HE cellar is flooded and Chris Ranalli dant of the southern ideologue, and then stream named after a cargo of whiskey Tworries about snakes. From the safety to Austin Corbin: a robber-baron financier scuttled by brigands during a fire-fight. of the back door, he points out the sturdy and railroad speculator, who, as a found- Many of the millions of Italians who walls—two feet thick, as if to withstand ing member of the American Society for moved to America in thatperiod, mostly to Mediterranean earthquakes—and the ele- the Suppression of the Jews, barred them industrial cities in the north, suffered. But gantly vaulted ceilings. “They lived in the from the hotel he built on Coney Island. rarely like this. Heat and disease were the top two storeys and made wine in the Corbin installed a steamboat and a small worst of it, but Corbin’s terms were oner- basement,” explains Mr Ranalli, who now railway, but, like many southern landown- ous too. The Italians spoke little English; tends the 100-year-old vineyard adjacent ers, struggled to find labour. He experi- many were illiterate. But they could see to the house. The view from the road is mented with convicts, then hit on an alter- that the land had been wildly overpriced. anomalous: framed by Catawba trees, the native: Italians. And while many were farmers, Mrs Bor- façade combines northern Italian architec- gognoni admits “they knew zip about cot- ture and Ozarkstone, seeming to belong as The levee wasn’t dry ton”. Anti-Italian and anti-Catholic preju- much to the Apennines as Arkansas. Like many people-traffickers, then and dice swirled: 11 Italians had been lynched This house tells a story that is both fa- now, Corbin had a man on the inside. His in New Orleans in 1891. Mrs Borgognoni re- miliar and extraordinary, as the exploits of was Don Emanuele Ruspoli, the mayor of calls that, well into the 1930s, locals would immigrants to America tend to be. It is a Rome, who recruited workers from Le roll the car windows down and holler tale of struggle and success, of awful but Marche, Emilia-Romagna and the Veneto. “Dago!” at Italian children. commonplace suffering, villainy and he- The first batch—98 families—sailed from In 1896, sixmonths afterthe first Italians roes, including a dauntless priest who, like Genoa on the Chateau Yquem, a reputedly landed, Corbin died in a buggy accident a latter-day Moses, led his flock to a new rancid steamship that arrived in New Or- near his exotic hunting lodge in New life in the mountains. It epitomises the leans in November 1895. The families Hampshire (he was said to have startled variety behind the strip-mall, fast-food clutched contracts showing that each had the horses by opening a parasol). Still, a sameness ofsmall-town America, but also boughta tractofland, on creditto be repaid second boatload left Genoa for Ellis Island the loss that can be a bittersweet corollary in cotton crops. After a four-day journey in December. Another Italian also made of progress. And, like the house itself— up the river to Sunnyside, they quickly re- the trip from New York that year. Pietro standing but decrepit—it is only half-re- alised that they had been misled. Bandini grew up in Forli, joined the Jesuits membered, the sort of amnesia that helps “The first year, 125 people died,” says and was sent as a missionary to Montana’s to explain attitudes to immigration today. Libby Borgognoni, a magnetic 81-year-old Native Americans. Later he moved to New The house was built a century ago by whose in-laws came over on the Chateau York to minister to put-upon Italians. For Adriano Morsani, a stonemason from cen- Yquem (her grandfather arrived later, after those at Sunnyside, he was a redeemer. tral Italy. He is captured in old photos as a drawing the shortest straw of his family’s Bandini protested against the condi- moustachioed patriarch, beside a wife in a six sons). Hot, humid and swarming with tions. Legend tells that, when he was re- smart hat and children squinting into the mosquitoes, Sunnyside was fecund but buffed, he told hisacolytesto waitwhile he sun. Butthe storyisquintessentially Amer- deadly. Today you can drive on a gravel scouted a better environment. During his ican. It begins on the floodplain ofthe Mis- road on top of the levee between the fields absence he arranged to buy land in the sissippi, close to Arkansas’s border with and the Mississippi, the wide, eddying riv- prairies west of Springdale, near what was1 Louisiana, in the turmoil afterthe civil war. Today the fields enclosed by the Missis- sippi and the horseshoe of Lake Chicot are punctuated by grain bins, plus a few la- bourers’ dwellings guarded by bored dogs. The lakeshore is lined with idyllic homes with pretty jetties and private boats. A hundred years ago, when this was still the Sunnyside plantation, the villas had not been built; nor had the suspension bridge that, near one of the narrow openings be- tween lake and river, now links Arkansas with Mississippi. The waterthat almost en- circles the fantastically fertile, sandy-loam soil made it a natural prison camp. In 1861 Sunnyside was among the larg- est, richest plantations in Arkansas. It was owned by Elisha Worthington, who scan- dalised white society by recognising two children he fathered by a slave. After the war, as cotton prices plunged, it belonged to John Calhoun, namesake and descen- A house with a story 30 United States The Economist May 27th 2017

2 then Indian Territory and is now Oklaho- Mountains, the most rugged section of the ma. In early 1898, 40 families junked their Ozarks, with sheer cliffs and elevated tres- contracts and followed him northwards. tles, must have seemed a dizzying lunge Precisely how they got from the Delta to into another unknown future. At the same the Ozarks, then a more arduous journey time, says Mr Ranalli, the winemaker, the than it is today, is a matter ofdispute. “They cooler, higher landscape and temperate walked,” insists Charlotte Piazza, whose plateaus “felt like coming home”. Italian-born father-in-law was in the origi- A list of the pioneers is etched on a nal caravan. Some brought livestock, pay- monument outside the town hall of Tonti- ing their way by doing odd jobs at Catholic town, the name they chose in honour of churches along the route and hunting for Henri de Tonti, a 17th-century Italian ex- food. Rebecca Howard, a historian at Lone plorer. There were fewer mosquitoes but, StarCollege in Texas, thinks some travelled to begin with, life remained hard. They part of the way by train. Ms Howard’s lived in abandoned log cabins while they great-great grandmother, Rosa Pianalto, cleared the land, stuffing the cracks with buried a child at sea during the crossing on linen to keep outdrafts; Morsani, the stone- the Chateau Yquem and herhusband short- mason, his brother and their five children ly afterwards. She was remarried and preg- shared a barn with several other families. nant forthe Sunnyside exodus. They survived on pasta, polenta and wild rabbits. The men went to workon railways Towards the promised land or in mines until the crops came in. Wom- They would have set out, initially, across en took jobs as housekeepers in Eureka the big-skied plain of southern Arkansas. Springs. The locals were hostile: the Ital- The road that crosses it today runs through ians’ first church was set alight, reportedly A lost civilisation Dermott, a hamlet with giant pecan and with Bandini inside. He survived to warn fireworks stores and an outsize “Gospel the barrackers that his compatriots were Ambassador des Planches also visited Singing Shed”, then skirts the site of an in- handy with firearms. (The second church Sunnyside on his southern jaunt. The ternment camp for Japanese-Americans was lost to a tornado.) scene was much less salubrious. Three cot- and the state’s death-row prison. They Tontitown prospered, largely through ton factors from Mississippi leased the would have crossed the brown Arkansas his ingenuity. “It was almost like he was a plantation from Corbin’s heirs, using ille- river at still-skyscraperless Little Rock, be- saint,” says Mr Ranalli of Bandini’s reputa- gal methods to import more Italians. These fore turning west into its valley, where the tion. He was the new town’s teacher, band- transplants found themselves trapped by land begins to undulate. Some Cherokee, leader and first mayor, as well as its priest. debts: for the cost of travel (their own to Chickasaw and Choctaw Indians had fol- He negotiated to bringin a railwayspur. He America and their cotton’s to market); for lowed that route on the “Trail of Tears”; it imported vines: the soil is poorer than in ginning fees and doctor’s fees; for the ne- passes through forests and pastures and the Delta, Mr Ranalli says, but the drainage cessities they were obliged to buy at exor- beside timberyards, lakesand creeks. They better suited to grapes. He was honoured bitant prices from the company store, all might have gulped as they approached by the pope and Italy’s queen mother. accruing interest at 10%. Some fled; some Fort Smith, now a picturesque tourist When Edmondo Mayor des Planches, who were caught, says Mrs Borgognoni, town, then a frontier outpost renowned the Italian ambassador, visited in 1905, “were taken backby the sheriffin chains”. for a subterranean prison known as “hell Tontitown was thriving. Its residents were on the border”. “happy, contented, prosperous”, des Over the river, across the lake The railway from Van Buren to Spring- Planches wrote. “Italy, the place of their The ambassador complained, and in 1907 dale, which some probablyrode on, is now birth, was their mother, while America the Department of Justice dispatched used for tourist excursions, plunging into was their wife. They have reverence for the Mary Grace Quackenbos, an intrepid in- the Ozarks through mountain villages that former, but love for the latter.” Photos in vestigator. Leroy Percy, one of the propri- grew up around what was formerly a com- Tontitown’shistorical museum capture his etors, tried to subdue her with both south- mercial line. The chug across the Boston welcome, Stars-and-Stripes and Italian tri- ern gallantry and bullying. Her papers colours waving as he is escorted along dirt were stolen from her hotel room. An assis- Eureka Springs 100 km roads by locals dressed to the nines. tant was given three months on a chain Springdale Bandini died in 1917, but Tontitown’s gang for trespassing. Nevertheless Quack- Tontitown Van Buren TENNESSEE success outlived him. During prohibition, enbos recommended charges of peonage, ARKANSAS saysMrsPiazza, one ofthe museum’sfoun- or illegal debt servitude. They were never Arka Fort ns Smith as ders, people hid wine barrelsin basements pursued: it helped that Percy had joined

Little New ALABAMA and vineyards. The bars on the windows Theodore Roosevelt for the famous hunt OKLAHOMA Friars Point Rock Gascony Clarksdale of the Morsanis’ cellar were added to com- on which the president inspired the Teddy Dermott ply with post-repeal rules, Mr Ranalli says. Bear by declining to kill one. (Percy wound Sunnyside Boyle Indianola When he was a child, in the 1960s, there up in the Senate, where he served on an TEXAS Lake Village Greenville Lake Chicot were still a few old-timers who spoke only immigration commission.) MISSISSIPPI Italian. They had realised the American Italian migration to the region dried up, i dream, and their own: from poverty in Ita- and many of the Sunnyside families dis- LOUISIANA p p i s ly, via devastation in the Delta, to a life in persed across the Delta, joining small Ital- s i s s which many families lived on streets that ian communities that had sprung up on ei- i M bore theirnames—Morsani and Ranalli Av- ther side of the river, along the Gulf coast, enues, Piazza and Pianalto Roads. down in Louisiana’s sugar-cane territory That, for its citizens, is the moral of Ton- and up to Tennessee. Clarksdale, Friars Gulf of titown’s story. Their pride is justified. But Point, Indianola: theirdestinations evoke a New Mexico Orleans the travails ofthe Italians in Arkansas reso- better-known Delta culture, the blues lore nate in darker ways, too. of Muddy Waters, Robert Johnson and B.B. 1 The Economist May 27th 2017 United States 31

2 King. Across the river from the plantation, a modern-day kind—based on debt and in- vineyard left. “There’s very few full-blood- in the part of Greenville known as Little It- timidation—is far from new. And it dis- ed Italians that still live in this town,” he aly, there is still an Italian club, where closesthe mechanism bywhich some such says. Not many people care about their members gather to play bocce in pits over- ordeals come, selectively and misleading- heritage any more, agrees his daughter looked by miniature bleachers. On the Ar- ly, to be redescribed as triumphs. Heather, who runs a winery that sells his kansas side, at what was once New Gasco- Consider that church-burning in Tonti- fine wine. “It’s dying out, and that’s the ny, an overgrown Catholic cemetery lies at town. In early accounts it seems that bigot- truth,” says Mrs Piazza, glumly. the end of a dusty track, surrounded by ed white locals were responsible. Later, Down in Lake Village, says Mr Fava, the soyabean and cornfields (see picture on after the Italians were embraced, the cul- good Samaritan with the hunting truck, previous page). All that is left of the flood- prits changed; now they were Native “the guys who were slaves are now the ravaged settlement, says a farmer, are a few Americans, who had ridden over from In- farmers.” Much of what was once Sunny- houses beyond the bayou. The fading Fra- dian Territory. Through such collective ed- side is now owned by Italian-Americans, tesi and Mancini headstones stand like hi- iting, a small part of America’s jagged pre- as are many ofthe posh homes on the lake, eroglyphs ofa lost civilisation. history is sealed and separated from the with their fleet of ride-on lawnmowers, as Some Sunnysiders, however, simply trials of immigrants today. Always known families return to the land from which hopped across the water to Lake Village— to be patriotic and thrifty, the Italians, in their forebears fled. As often happened in today a seemingly typical Delta town, this retelling, were different. It isn’t only distant enclaves in pre-internet days, the wedged between the nondescript high- them. Along with corn bins, cotton gins Italianness ossified—the dialect baffling ac- way and Lake Chicot and bisected by a rail- and Baptist churches, the Arkansas plains, tual Italians when they interacted with way track, beside which squats a cotton like much of rural America, are littered Lake Villagers—then withered, like Tonti- gin. Our Lady of the Lake church, and the with places that hint at a hazy cosmopoli- town’s. The brick ovens and wine cellars museum Mrs Borgognoni oversees in its tan past: Moscow, Dumas, Hamburg. are gone. Much of the old cemetery was old rectory, reveal its nuances. All the Ital- ploughed over, the gravestones and cross- ian locals once made prosciutto, lonza and Forgive and forget es allegedly tossed into Whiskey Chute salsiccia, she remembers; “church was the “Have they forgotten how we got here?” among the half-submerged cypress trees biggest thing in the world.” As a child she asks Paul Colvin, Tontitown’s mayor, ofto- and nesting egrets. The priest at Our Lady picked possum grapes in the sloughs and day’s xenophobes. Some people have. Mr of the Lake is a genial Nigerian missionary, levees to make wine in the cellar of her Colvin, the first mayor with no Italian con- Theo Okpara. Does he speakthe language? double-shotgun house. Squirrels were nection, himself personifies a wider “Nada,” replies Father Okpara, who minis- cooked in fornos, or brickovens. There was change, at once routine in immigrant com- ters to more Hispanics than Italians. a hog roast on the fourth ofJuly and a cele- munities and poignant. Even as they Like the shell of the Morsani house, bratory spaghetti dinner in March. People cooked the old recipes, the settlers hurried though, some traces remain. Regina’s lake- played accordions and mandolins, which to assimilate, learning English and signing side pasta shop continues to sell old-style some thinkcontributed to the blues. up for military duty. Their descendants muffalettas, cannelloni and parmigiana, as If the cultures of Italians and blacks in married americanos and moved away. well as homemade pasta—“real thin, the the Delta overlap, so did their experiences. Each generation remembers less. Mean- way you like ’em”, says a non-Italian cus- “We ate together, we played together, we while, says Mr Colvin, “small towns are tomer. And Mrs Borgognoni still recalls the worked in the field together, we sang to- getting swallowed by the big towns”, as songs she learned, aged six, picking cotton gether,” says Mrs Borgognoni. “It was a dif- Walmart and other large employers turn beside her grandmother. Her life had been ferent world.” Paul Canonici, a former places like Tontitown into dormitory sub- hard, but, says her granddaughter, “when priest and author of “Delta Italians”, a urbs. Land prices are rising; people are sell- she was happy she would lift her skirt and charming collage of family histories, re- ing up, outsiders replacing them. dance the saltarello.” members, as a child, peering through the Tontitown still holds an annual grape One of the songs, Mrs Borgognoni says, windows of a black church at ecstatic wor- festival, which once marked the grape har- is about a youngItalian soldierwhose wife shippers, and watching black baptisms in vest and by tradition includes a feast ofthe dieswhen he isawayon duty; he returns to the bayou. (In the mid-1920s Klansmen be- signature dish, spaghetti and fried chicken. kiss her for a final time. The tune is sad but sieged his family home in Boyle, Mississip- But Mr Ranalli’s is the only commercial beautiful. She closes her eyes and sings. 7 pi, shooting the dog.) Italians, after all, were a marginal solution to the problem of labour in the inhumane conditions of the Deep South. Not just during slavery, but in the brutal ruses deployed after emancipa- tion, from convict-leasing to the debt-trap ofsharecropping, most victims were black. The Italians’ story, in fact, is a sort of shadow version of African-Americans’, the hardship milder and the ending sweet- er. That they escaped the prejudice they first aroused was in part because their skin was acceptably white. As Ms Howard, the historian with Tontitown roots, notes, they could enlist external allies—the Catholic church, even the Italian government—that their blackneighbours lacked. The Italians, in truth, are a blip in the grim saga of plan- tation agriculture, ifan enlightening one. Ifthe story ofthe Morsani house shows that aspects ofslavery lingered on, it is also a reminder that what is often thought of as Cannelloni on the shore of Lake Chicot 32 United States The Economist May 27th 2017 Lexington The impeachment delusion

Schemes to topple the president quickly would hurt the country side to distrust anything the press says. Still some Trump opponents would not wait. They say the president is a menace now, and see no merit in delaying the mo- ment when his voters finally grasp that they are a demagogue’s dupes. Here isan alternative suggestion: take a deep breath, avoid hinting that Trump supporters are stupid, and let them work out forthemselves that he is not very good at his job. Happily, there are recent, real-world examples of patience working, and snarling populists losing office by outstaying their welcome. One of the most instructive involves Joe Arpaio, a law- and-order showman defeated last year as he sought his seventh term as elected sheriff of Maricopa County—a sprawling, sun- baked tract of Arizona that includes the city of Phoenix and is home to nearly 4m people. A concise explanation of Mr Arpaio’s defeat is that locals grew weary of his distracting antics, even if the sheriffwas a star ofconservative talkradio and TV. Mr Arpaio, who styled himself “Sheriff Joe” and “America’s Toughest Sheriff”, was an authoritarian impresario. He housed countyprisonersoutdoorsin tents, even astemperatures reached 145°F (63°C), made them wear pink underwear and put them in chain gangs. He recruited a posse of volunteer sheriff’s deputies, MERICA has elected a man offrightening impatience as presi- who sport police uniforms and roar about in patrol cars. When Adent. That is no reason for Donald Trump’s opponents to that felt old, in 2011Mr Arpaio assigned a five-member “cold-case copy him. Four months into the Trump presidency his sternest posse”, financed by conservatives across the country, to investi- critics seem ready to tear the country apart, just to see him gone. gate whether Barack Obama had faked evidence of his birth in Democrats and activists on the left, including members of Con- America. While lesserrivals acquired military hardware from the gress, are already calling forhis impeachment. They revel in leaks Pentagon, Mr Arpaio secured a tank (actually a self-propelled that batter the White House almost nightly and yearn for the howitzer). He made the action film star Steven Seagal a posse wheels of justice to spin as fast. Their goal is a speeded-up Water- member and let him drive that tankthrough a local man’s garden gate, fitforan on-demand age. On the Trump-scepticright pundits wall in search of illegal cockfighting. Sheriff Joe’s fans cheered call the president a tyrannical “child upon the throne”. Some see when he ordered immigration sweeps that targeted people who the 25th Amendment to the constitution as a shortcut to adult su- appeared to be non-white or Hispanic. He was an early Trump pervision—just as soon as the vice-president, cabinet and a two- backer, declaring: “Everything that I believe in, he believes in.” thirds majority in Congress agree that MrTrump is“unable to dis- charge the powers and duties ofhis office”. Hey Joe Leave aside, for one moment, the legal and political hurdles By 2016 many conservatives had stopped chortling. County tax- that could delay the impeachment or dismissal of Mr Trump for payers had by then paid tens of millions of dollars in legal fees years, if not for ever. If opponents did somehow succeed in top- and settlements for lawsuits against the sheriff’s department, in- pling him before most Americans are ready to endorse such a cluding forprisoner deaths. Mr Arpaio faced charges for criminal step, they risk splintering the same democratic order that they contempt, after allegedly defying court rulings to stop racial pro- want to save. It is not enough to point to opinion polls that show filing. The Pentagon asked for its hardware back after several public approval ofthe president slipping each week. Though pro- weapons were lost. Amid this dysfunction a veteran Phoenix po- Trump sentiment is softening, the proportion of the country that lice sergeant, Paul Penzone, ran for sheriff as a Democrat and is implacably opposed to him still falls some way short of a ma- won. He did not call Arpaio supporters bigots. He told them that jority. A revealing poll taken in mid-May by YouGov—the CBS theirmoneyhad been squandered and thatlawenforcement had News 2017 Nation Tracker—found that 40% ofAmericans are con- suffered. That back-to-work message won Mr Penzone 158,000 vinced opponents ofMr Trump, while 19% ofrespondents are un- more votes than Hillary Clinton received in Maricopa County, as wavering supporters and 22% will continue to back him if he de- he picked up support from Republicans who were either embar- livers what they want. The final 19% would reconsider their rassed by Mr Arpaio, or decided that he was a blowhard who dislike of Mr Trump if he “does a good job”. The poll contains a bored them. Sheriff Joe’s gimmicks “weren’t doing it for him any further ominous note: when the president is criticised, 79% of his more”, summarises David Berman, a political scientist at Arizona supporters also hear an attackon “people like me”. State University. At some point, “people say, can you do the job?” This is not to argue against investigating whether Mr Trump or As forMr Trump, some will stickby him regardless. But others his aides colluded with Russia, a hostile foreign power. If the may conclude that the president is a do-nothing blowhard in his president is guilty ofhigh crimes, he must face the consequences. turn. That might open a path for a problem-solving Democrat to But impatient foeswant him gone now, before millions of Ameri- defeat the president in 2020. If Mr Trump’spoll numbers are bad cans have even started paying attention to Russian headlines. enough Republican grandees might offer to carve his face on Mt Rush this, and half the country may think their president has Rushmore, if he retires without seeking a second term. Making been stolen from them. America is not just more tribal than it was Mr Trump a martyr could tear the country in two. Letting voters during Watergate: conservatives have spent years training their tire ofhim might be the least-bad outcome. 7 The Americas The Economist May 27th 2017 33

Also in this section 34 The fabulous Batista boys 34 A row over “cultural appropriation” 35 Bello: Argentina’s newly honest data

Brazil’s political crisis (1) parently spattered on himself. When Joes- leyBatista boasts on the tape ofhaving two Dangling man judges and a prosecutor in his pocket, Mr Temermerely murmurs, “great, great”. The political calculus of his allies in congress could be as important as the weight of the evidence, and will partly de- BOA VISTA pend on it. His most important friend is Ro- drigo Maia, the speakerofthe lowerhouse, Michel Temeris in serious trouble. But he has reserves ofstrength who has signalled that he will shelve the F THEY want, let them bring me in speeches and interviews. He portrays dozen impeachment motions that have “Idown!” So declared Brazil’s president, himself as the victim of a “perfect crime” been filed so far. Two medium-sized par- Michel Temer, in a newspaper interview committed by Mr Batista, who framed him ties have quit the PMDB-led coalition, but on May 22nd. He is the second president in in exchange for near-total immunity from their ministers have clung on to their cabi- the space ofa year who is fighting to stay in prosecution (see box, next page). Mr net posts. The PSDB, the biggest coalition office in the face of allegations of wrong- Temer’s fate is in the hands of the courts, partner, seems unsure what to do. doing and dismal poll ratings. His prede- his allies in congress and public opinion, They are hesitant in part because Mr cessor, Dilma Rousseff, was impeached in any one of which could bring him down. Temer has no clear successor (he was Ms 2016 on a technical violation of public-ac- The evidence against him is shocking but Rousseff’s vice-president, but does not counting law. The allegations against Mr inconclusive. Mr Temer has strengths that himself have a deputy). Mr Maia will take Temer are far graver, but his chances of re- his hapless predecessor did not. overtemporarily ifMrTemeris impeached maining president may be brighter. or indicted. If he leaves office definitively, Whether he stays or goes, the accusations Trashing the tape congress will have 30 days to choose a suc- against him are momentous. The blow to Edson Fachin, a judge on the supreme cessor to serve the rest of his term, which his prestige and influence will delay, and court, which tries sitting politicians, has ends at the end ofnext year. might destroy, vital reforms to Brazil’s authorised the attorney-general to open a That person would carry the stigma of economy, which is only beginning to criminal investigation into Mr Temer, Mr election by a congress mired in corruption. emerge from its worst-ever recession. Loures and Aécio Neves, a senator from Any politician with the skill to pilot re- Mr Temer’s woes began on May 17th the centre-right Party of Brazilian Social forms through the legislature is, like Mr when O Globo, a newspaper, reported Democracy (PSDB), who was caught in an- Maia, already under investigation, or soon that, on a tape recorded by Joesley Batista, other Batista-related sting. Formal charges could be. Other potential successors are a billionaire businessman, he is heard en- maybe filed soon. MrTemer’slawyerscon- Cármen Lúcia, the respected chief justice dorsing payment of hush money to a poli- tend that the tape is “worthless”. Their of the supreme court, and Henrique Mei- tician jailed for his role in the Petrobras study of it turned up 70 “discontinuities”, relles, the finance minister, who has the scandal. This originally centred on the which may suggest tampering. Mr Fachin nous to serve as president. But Ms Lúcia is state-run oil company but has expanded has ordered a forensic examination. not a politician and Mr Meirelles was beyond it. In a related sting, police filmed Lawyers will poke holes in other evi- chairman ofJ&F, the Batistas’ holdingcom- Rodrigo Loures, a congressman from Mr dence, including the plea-bargain testimo- pany. Nelson Jobim, a former minister, Temer’s Party of the Brazilian Democratic ny by Mr Batista and his brother, Wesley, worked for BTG, a bank whose founder Movement (PMDB) and formerly his right- co-owners of JBS, a giant meat exporter. was arrested in the Petrobras affair. hand man, accepting a bag with 500,000 Some of the Batistas’ allegations refer to Unlike Ms Rousseff, Mr Temer is not reais ($153,000) in cash. Mr Temersolicited wrongdoing that took place before Mr loathed by the elite. Bosses know they millionsin irregularpayments, claimed Mr Temerbecame president. In such cases, he have a big stake in the continuation of his Batista and a subordinate. has immunity. But legal niceties will not policies, especially an overhaul of pen- Mr Temer has protested his innocence help if he cannot scrub off the mud he ap- sions and a reform of rigid labour laws. 1 34 The Americas The Economist May 27th 2017

2 These should encourage interest rates, al- may turn out to be the electoral tribunal. A Canadian culture war ready falling, to come down further, and Much of the money sloshing around from lift employment. Mr Meirelles now con- Petrobras, JBS and others may have fi- Cross-fertilisation cedes that the reforms will be delayed. The nanced the election ofMs Rousseffand Mr stockmarket plunged and trading was sus- Temer in 2014. On June 6th the tribunal or theft? pended after the disclosure of the Batista will begin deliberations on whether to an- S&P tape. On May 22nd warned that it nul the results. Until last week, analysts OTTAWA might downgrade Brazil’s credit rating. doubted that it would risk instability by Writers on the wrong side ofa debate Mr Temer also arouses less passion doing that. But its politically savvy judges lose theirjobs than Ms Rousseff did among middle-class may now believe that Mr Temer’scontinu- voters. Protestsin 2015 and 2016 byprosper- ation in office is the greater threat. The NYONE, anywhere “should be encour- ous urbanites, galvanised by anger over PSDB is reportedly trying to make its deci- Aaged to imagine other peoples, other the Petrobras scandal, helped drive her out sion easier by brokering an agreement on a cultures, other identities”, wrote Hal of office. Those people are reluctant to join successor to Mr Temer. Speculation focus- Niedzviecki in the spring issue of Write, an left-wingers in lambasting Mr Temer and es on Mr Jobim and Tasso Jereissati, a sen- obscure Canadian literary magazine. For his pro-market reforms. Turnout at anti- sible PSDB senator from the state ofCeará. thatapparentlyinnocuousobservation, he Temerprotestson May21stwaslow. Partici- Mr Temer could slow things down by lost his job as the publication’s editor. Mr pation maywane afterprotestersseta min- appealing against the tribunal’s ruling. But Niedzviecki was defending “cultural ap- istry ablaze in Brasília on May 24th. if his allies turn against him, his defiance propriation”, the use by artists and writers The final arbiter of Mr Temer’s future could crumble. 7 ofmotifsand ideas from other cultures. He suggested an “appropriation prize” for cre- ators who carry out such cross-cultural Brazil’s political crisis (2) raids. In a special issue of the magazine dedicated to indigenous writers, that was The fabulous Batista boys offensive, his critics said. BOA VISTA Mr Niedzviecki’s supporters were also made to suffer. A journalist at the Canadi- The meat-mongers whose testimony could end Michel Temer’s presidency an Broadcasting Corporation was demot- OSÉ BATISTASOBRINHO helped build have faced five criminal investigations. ed after he offered on Twitter to help fi- JBrasília. In 1957 his meat business sup- The latest probes J&F’s dealings with nance the prize. The editor of Walrus, a plied canteens that fed workers con- BNDES, which provided finance at the better-known magazine, decried “political structing Brazil’s modernist capital. Now behest ofpaid-offpoliticians. correctness, tokenism and hypersensitivi- his two youngest sons, Wesley and Joes- To save their enterprises, and them- ty” in cultural and academic bodies. After ley, are bringing the place down. As the selves, the brothers approached prosecu- a social-media backlash he, too, resigned. bosses ofthe company their father tors investigating the metastasising brib- In April a gallery shut an exhibit of the founded, renamed JBS in his honour, ery scandal centred on Petrobras, the work of Amanda PL, a painter inspired by they are at the centre ofa scandal that state-run energy company. The bargain the style of Norval Morriseau, an indige- may force a president out ofoffice forthe they struckwas their niftiest deal yet. In nous artist. second time in a year (see main story). exchange forproviding evidence of MrNiedzviecki has reopened an old de- JBS is the world’s biggest beefexport- wrongdoing by major political figures— bate. Cross-fertilisation is fundamental to er. Its revenues rose from 3.9bn reais including, possibly, President Michel the creative process. This article, for exam- ($1.8bn) in 2006 to 170bn reais last year, Temer—they secured near-total immuni- ple, iswritten in Roman lettersand uses Ar- helped by China’s appetite and Brazil’s ty. Unlike Marcelo Odebrecht, boss of a abic numerals. However, many indige- enthusiasm for national champions. construction firm at the heart ofthe nous Canadian intellectuals demand extra From 2007 to 2015 the development bank, Petrobras allegations, neither Batista will sensitivity. Some particularly object to 1 BNDES, injected into Batista enterprises spend a day in jail or under house arrest. more than 8bn reais in capital and loans. Free to leave Brazil, Joesley has already Most ofit was to help JBS buy rivals, moved to his posh New Yorkflat with his including American brands like Swift wife, a formertelevision presenter, and and Pilgrim’s Pride. J&F, the family’s their child. He and Wesley each agreed to holding company, has diversified into pay fines of110m reais, which leaves non-meat businesses, including Havaia- them both billionaires. nas, which makes fashionable flip-flops. The meat-mongers are not completely As JBS was buying up rivals, the Batis- offthe hook. JBS may face bribery probes tas were buying politicians. The com- and lawsuits from holders ofthe com- pany’s declared campaign donations pany’s securities in the United States. swelled from 20m reais in 2006 to nearly Brazil’s markets watchdog is looking into 400m reais in the election in 2014; in that possible insider trading. In the weeks contest it gave more than any other firm. before May17th, when details oftheir In the past decade the brothers have explosive testimonies leaked to the press, bankrolled 1,829 candidates; their lar- the Batistas sold more than 300m reais’ gesse helped elect a third ofthe current worth ofJBS shares and bought dollars. congress. Little ofit was legal. The Batis- The shares have lost a third oftheir value tas have confessed that almost all the since then; the dollar jumped by 7% on declared cash, plus millions paid under the next day. The brothers and their firms the table, was bribes to politicians specifi- deny allegations ofinsider trading. Ap- cally to further J&F’s interests. parently, they are blessed with their In the past year the Batistas’ firms father’s foresight. Appropriately dressed The Economist May 27th 2017 The Americas 35

2 white people borrowing (or “stealing”) ele- ken Indian and the “football-mascot-in- an Ojibwe from the Serpent River First Na- ments oftheir culture. spired stereotype ofthe violent warrior”. tion, borrowing words from Latin, Greek For some, such borrowing evokes The argument is now raging on talk and English. “We don’t have to occupy memories of centuries of domination by shows, in newspapers and especially on chairs in mainstream news media to have the British and “white settlers”, who took social media. Some think it has been in- our voices heard.” the land of indigenous peoples, tried to flamed by Donald Trump, who encourages That is welcome, but the silencing of force them to assimilate through residen- Americans who object to political correct- other voices is not. The hounding of jour- tial schools and excluded them from main- ness to say so. “This is the first and proba- nalists from their jobs chills free speech. stream cultural life. Members of indige- bly not the last intrusion” ofTrumpian atti- Politely, MrNiedzviecki admits that his de- nous “First Nations” were not allowed to tudes into Canada’s cultural debate, says fence of cultural appropriation was “a bit vote until 1960 unlesstheyrenounced their Conrad Brunk, co-author of a book on cul- tone deaf”. But he should not apologise Indian status. Robert Jago, an indigenous tural appropriation. Canada’s indigenous too much. He provoked a debate on an im- writer, says that cultural appropriation peoples, for their part, have also become portant and many-sided issue. Canada leads to “the hypersexualised view” of in- more assertive. “We’re in a new paradigm” prides itself on its diversity of peoples. A digenous women, the myth of the drun- because of social media, says Jesse Wente, diversity of ideas matters, too. 7 Bello Welcome back, Argentina

The return ofhonest inflation numbers is more than a mere statistic OME readers of The Economist may be tics than he has had in correcting the oth- Snumbed by statistics. To many others, er economic distortions that Ms they are the water of cognitive life. Each Fernándezbequeathed him. The newoffi- week at the back of this newspaper we cial index broadly agrees with the many publish official data on 42 of the largest private ones that have sprung up. INDEC economies in the world—with one excep- will launch a national index in July. tion. Five years ago we stopped publish- No longer concealed, inflation is prov- ing the inflation figure for Argentina pro- ing stubborn. The central bank, whose in- duced by the government of President dependence has also been restored under Cristina Fernández de Kirchner because Federico Sturzenegger, its new governor, we, and many others, thought it was bo- seta targetof12-17% thisyear. Itisnot going gus. We substituted an inflation number to meet it. After tumbling in the second drawn up by PriceStats, an international half of last year, inflation has crept up this data service. Ayearlaterthe IMF followed year. That is partly because the govern- our lead, formally censuring Argentina ment has raised electricity and gas tariffs, for“inaccuracy” in its data. and partly because wage settlements by This week we are delighted to resume the powerful trade unions are averaging publication of the official inflation num- lied on “money illusion”: that wage earn- around 20%. ber for Argentina. One of the first things ers would notice their rising nominal sala- The bank is doing its best to hit the tar- thatMauricio Macri did afterhe was elect- ries rather than the erosion of their get: it raised its benchmark interest rate ed as the country’s president in Novem- purchasing power. High inflation discour- last month (from 24.75% to 26.25%) even ber 2015, defeating Ms Fernández’s candi- aged saving and contributed to inequali- though economic growth is still slow. Mr date, was to restore the professional ty—the rich could more easily hedge Macri is engaged in a juggling act. He independence ofINDEC, the statistical of- against it than the poor. wants to reduce the fiscal deficit (which fice. He charged it with drawing up a new, Taming inflation by cutting fiscal defi- he is financing with foreign loans), but accurate inflation index. This month cits and opening economies to trade and withdrawing Ms Fernández’s subsidies marks a year since this index was competition was an important achieve- means price rises in the short term. He launched. It shows that inflation in great- ment of the much-derided Washington wants to get inflation down but needs the er Buenos Aires in the 12 months to April Consensus in Latin America. A simple economy to be growing faster before an was 27.5%. That figure is uncomfortably cross-country average ofinflation in the re- important mid-term election in October, high, but refreshingly honest. Under Ms gion fell from 1,206% in 1989 to 4.8% in which his government cannot afford to Fernández, INDEC found that inflation in 2006. But as left-wing and populist govern- lose. Havinginitially opted fora swift eco- 2008-13 averaged about 10% a year, be- ments returned in the 2000s, inflation rose nomic adjustment, this yearhe has adopt- tween a third and half of private esti- again in Venezuela, Argentina and even in ed a more gradual approach. mates. Under pressure from the IMF, Brazil. What was notable about Ms Fernán- Argentines can reasonably disagree INDEC raised its estimate to 24% in 2014, dez was her apparent attempt to deny it by over whether Mr Macri is making the but private calculations were higher still. publishing hogwash statistics. At the same right choices. But at least they are not be- High inflation was part of the scenery time, she threw up protective trade barri- ing kept in the dark about the real state of in Latin America until the 1990s. That was ers, ran large unfinanced fiscal deficits (de- the economy. Many appear to appreciate in large part a consequence of inequality spite enacting big tax increases) in the being treated as adults: tens of thousands and populist politics. Small but powerful midst of a commodity windfall and subsi- of people took part last month in a semi- economic elites resisted tax increases, so dised energy and transport tariffs to the spontaneous demonstration to support governments resorted to printing money tune of4% ofGDP. the government. Low inflation is good to fulfil their campaign promises to the Mr Macri has had swifter success in re- policy. An honest inflation index is a workingand middle classes. The rulers re- storing the integrity of Argentina’s statis- democratic right. 36 Middle East and Africa The Economist May 27th 2017

Also in this section 37 Iran’s upbeat election 38 Islamic State’s haven in Libya 38 Kenya’s building boom 39 Escaping from Eritrea

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

Donald Trump visits the Middle East real elections—attacked by [Mr Trump] in that bastion of democracy & moderation,” Mission not accomplished wrote Iran’s foreign minister on Twitter, re- ferringto Saudi Arabia. In many ways, Mr Trump’s trip to Ri- yadh reflected an attemptto breakwith the JERUSALEM AND RIYADH foreign policy of Barack Obama, who in 2015 struck a deal with Mr Rouhani’s Iran The president’s first foreign outing has achieved little so far, though at least it to curb Iran’s nuclear programme in ex- avoided blow-ups change for the lifting of sanctions. The re- S DONALD TRUMP set off on his first made clear that, unlike his predecessor, he alignment upset the Saudis, who gave Mr Aforeign trip since taking office, to the would not press Arab leaders on such mat- Obama a cool welcome on his last trip to world’s most unstable and dangerous re- tersashuman rights, so longasthey see eye the kingdom. By contrast, Mr Trump was gion, some observers were worried. As it to eye with him on security and com- greeted by King Salman with lavish pag- turned out, though, the Middle Eastern leg merce. “We are not here to lecture,” he said. eantry involving dancing, swords and a of Mr Trump’s nine-day maiden voyage Mr Trump announced the sale of mili- mysterious glowing globe (pictured). was one of the less tumultuous periods of tary equipment worth $110bn to Saudi Ara- In practice, though, less has so far his presidency so far. Nonetheless, with a bia, the opening of a new centre in Riyadh changed that it might seem. Mr Trump has further tilt towards Saudi Arabia and the to combat extremist ideology and another not yet ripped up the nuclear deal, which Sunnis, and against Iran and the Shias, the that will target terrorist financing. Yet be- he once called the “worst deal in history”, presidenthasincreased, notsmoothed, the hind the smiles, there is tension. The king- but which his administration says Iran is tensions that so bedevil the area. dom, which Mr Trump once called “the honouring. Just before he arrived, he ex- In Riyadh, where he arrived on May world’s biggest funder of terrorism”, has tended a waiver on (separate) sanctions on 20th, Mr Trump attempted to reset his rela- spent billions of dollars spreading its ultra- Iran. And, like Mr Obama, he said he tionship with the Muslim world, strained conservative brand ofIslam. Some say that would avoid “sudden interventions” in by his own Islamophobic rhetoric. “I think Mr Trump’s strategy is short-sighted. Arab the region. Manyofthe armssalescelebrat- Islam hates us,” he said last year, after call- autocrats offer stability, “but only by brutal ed by Mr Trump had actually been negoti- ing for a blanket ban on Muslims entering suppression of dissidents, whose resent- ated under his predecessor. Mr Obama, America. But in a speech on May 21st he de- ment ultimately helps breed more terro- though, had put much of the package on clared that the fight against extremism is “a rists”, saysMustafa Akyol ofWellesley Col- hold, fearing that American arms would battle between good and evil”, not “be- lege in America. be used to kill civilians in Yemen and tween different faiths”. Blaming most of Though he pleased his hosts, Mr Trump might accelerate the arms race with Iran. the region’s problems on terrorism, he also inflamed sectarian tensions by blam- urged his audience of Sunni Muslim lead- ing their rival, Iran, for most of the Middle Is that all there is? ers to “drive out” extremists. “Drive them East’s problems. “From Lebanon to Iraq to Mr Trump then moved on, arriving in Isra- out,” he repeated, five times. Yemen, Iran funds, arms and trains terro- el on May 22nd. Even before his inaugura- The message went down well. The au- rists, militias and other extremist groups tion, he had spoken of his desire, as a mas- dience, consisting mostly of autocrats and that spread destruction and chaos across ter negotiator, to deliver what he calls the dictators, spouted gushers of flattery. “You the region,” said the president. Much of “ultimate deal”—peace between Israel and 1 are a unique personality that is capable of that criticism is warranted, but the fact re- doing the impossible,” said Abdel-Fattah mains that most ofthe jihadists in the Mid- Writer wanted: The Economist is looking for a writer to al-Sisi, Egypt’s president. “I agree,” said Mr dle East are Sunni, not Shia. Moreover, as cover the Arab world, based in Cairo. Candidates should Trump, whose mood may have been lifted Mr Trump arrived in Riyadh, Iranians re- send a CV, a cover letter and a 600-word original article that could run in our Middle East and Africa section to by the gigantic portraits of himself that his elected Hassan Rouhani, a relative moder- [email protected]. Deadline for hosts had put up all around Riyadh. He ate, as their president. “Iran—fresh from entries is 23rd June. The Economist May 27th 2017 Middle East and Africa 37

2 the Palestinians. However, he supplied no detail as to how this might be achieved. Not once during his trip did he mention in public the “two-state solution”, under which Israel and Palestine would recog- nise each other as sovereign entities. He said nothing about Israel’s settle- ment-building in the occupied West Bank, nor about its iron control over the lives of Palestinians there and in the beleaguered Gaza Strip. In Bethlehem Mr Trump lec- tured Mahmoud Abbas, the president of the Palestinian Authority, that “peace can never take root in an environment where violence is tolerated, funded and even re- warded.” In his speeches in Jerusalem he made do with vague platitudes about how “both Israelis and Palestinians seeklives of hope fortheir children.” Israeli and American officials insisted that in closed talks the president had insist- ed that he is serious about making peace. But for now at least, he seems to be content with letting the two sides work out the de- tails for themselves. Many observers, per- Iran’s election haps naively, had expected some sign of increased pressure on Israel to make com- Triumph of the liberals promises. Mr Trump gave no hint ofthat. The president did make one concession to the Palestinians, which will have come as a disappointment to the more hawkish elements in the ruling coalition. He point- Iranians voted forrapprochement with the Westand more civil liberties. But the edly ignored requests to recognise implicit- clerics and Donald Trump may have otherplans ly Israeli sovereignty over the eastern part of Jerusalem, captured 50 years ago next HILE the leader of the free world er to pull offfollowing his drubbing. month. Israeli officials were not invited to Wbopped with sword-waving Arab Overcoming past divisions, the hard- join him on a visit to the Church of the princes and denounced the ancient Per- liners united behind a single candidate. Holy Sepulchre and the Western Wall in Je- sian enemy, Iranian voters on the other They packed rallies with the basij, their rusalem’s Old City. Neither did he show side of the Gulf danced for detente. Men youth militia, and brandished Hizbullah any indication of being ready to fulfil a and women packed the streets country- flags aloft. Mr Rouhani got out the vote by campaign promise to move America’s em- wide, revelling most of the night. They sounding more liberal. In the last days of bassy from Tel Aviv to Jerusalem. were celebrating the re-election of Presi- the campaign he tongue-lashed the reli- Still, there was plenty in Mr Trump’s dent Hassan Rouhani. They cheered his vi- gious zealots. He needed a hefty majority, statements, during a visit that lasted little sion of opening Iran to the West and his he told voters, to promote civil liberties more than 24 hours, that was music to Mr success in trouncing Iran’s isolationists and to hold to account the Revolutionary Netanyahu’s ears. He extolled “the un- and hardliners, championed by Ebrahim Guard, the judiciary, the state media, pow- breakable spirit” and “the accomplish- Raisi, who mustered only 38% of the vote erful clerical charities and all who “shame ments of the Jewish people”; and spoke of on May 19th against Mr Rouhani’s 57%. In freedom”. Iran’s pious conservatives, he Israel and America’s “shared values”. He local elections on the same day, the hard- said, have “only executed and jailed, cut promised that while “Iran’s leaders rou- liners were beaten in all Tehran’s 21seats. out tongues and sewed mouths shut.” This tinely call forIsrael’s destruction—not with Defeat is growing familiar to the hard- message won people over. He captured Donald J. Trump. Believe me.” liners. The last time they won was in the more votes than any previous president (if Going off-script in one of his speeches, parliamentary election of 2012, and that you ignore the rigged contest in 2009), al- Mr Trump contrasted his support for Israel they owed to a mass boycott by reformists. most 5m more than he won in 2013. with the previous administration’s cool- This time the hardliners campaigned par- Can Mr Rouhani now fulfil his prom- ness, saying it was a “big, big, beautiful dif- ticularly hard because they sensed they ises? Within hoursofhisvictory, reformists ference”. During Mr Obama’s presidency, were not only picking a president, but also, whom the authorities had detained in the despite his rocky personal relationship perhaps, the next supreme leader (a more run-up to the election were released. His with Mr Netanyahu and their deep dis- powerful post). The incumbent, Ayatollah advisers also predict that he will appoint agreement over the Iran deal, Israel en- Ali Khamenei, is 77. This presidential elec- his first female minister, and perhaps even joyed unprecedented levels of American tion may be his last. Formally, the Assem- the Islamic Republic’s first-ever Sunni one. military aid and intelligence-sharing. But bly of Experts selects a successor from More radical change as well, they say, the Obama administration also worked among its 88 Muslim scholars. But the last could be coming. Certainly, Mr Khamenei tirelessly to push forward the diplomatic time it did so, in 1989, it picked the then might have been happier had Mr Rouhani process with the Palestinians, without re- president. “The vote isn’t just about four won by a less convincing margin. sult. The lavish praise and unspecific years of presidency,” says a confidant of But if Mr Rouhani seeks to rise beyond promises ofMr Trump probably mean that Mr Khamenei. “It’s about Iran’s future for the presidency, he will also need the deep MrNetanyahucan nowgive hisheelsa rest 40 years.” Mr Khamenei is said to favour state’s support. Having renewed his popu- from digging in. 7 Mr Raisi as his successor; this will be hard- larmandate byplayingthe radical, Mr Rou-1 38 Middle East and Africa The Economist May 27th 2017

2 hani is too wily a politician not to revert to aligned with rival governments in the east Europe, only some 400km away, is eye- acting the clerical stalwart. Advisers are al- and west, vie for power. A UN-backed ing the situation with concern. The chaos ready citing his credentials: deputy com- peace deal, signed by some of the adver- has made Libya the main point of entry to mander of the army in the Iran-Iraq war, saries in 2015, has failed to unite the coun- Europe for African migrants. Despite more secretary of the national security council try or create an effective state under the patrols, some 50,000 migrants are thought for 16 years and, as president, its chief for “government ofnational accord” (GNA). IS to have reached Italy by boat so far this four. In one of his first post-election ad- has fed on the chaos—and added to it, late- year, over 40% more than in the same per- dresses, he called for Iran to test-launch ly by attacking water pipelines and pump- iod last year. Some believe the smuggling more missiles. Perhaps the hardliners’ best ing stations. business helps to finance terrorism—and hope is Donald Trump. Nothing helps There are thought to be around 500 IS that jihadists may be among those making them like a real enemy. They remember fighters operating in Libya, not the thou- the trip. how, six months after the re-election ofan- sands estimated before their recent set- For now IS and its allies are keeping a other reformist, Muhammad Khatami, backs. But there are perhaps 3,000 jiha- low profile in Libya, if not elsewhere, as America’s then president, George W. Bush, dists of all types. In a sign of how fluid they try to rebuild their strength. Mean- pronounced Iran a member of the “axis of things are, IS is now said to be receiving while, hopes of a settlement to the conflict evil”. That triggered a confrontation which support from local al-Qaeda fighters, de- look dim. The chaos is likely to continue, helped lead, in 2005, to the election of spite feuding between the groups’ leaders giving the jihadists an opportunity to reas- Mahmoud Ahmadinejad, an undoubted abroad. In Libya they operate in the same sert themselves at home. 7 hardliner. Mr Trump, visiting Saudi Arabia areas. Fighters move back and forth be- and Israel, has promised confrontation tween them. “I can well imagine that they and “beautiful military equipment” for are co-operating on logistics and sharing Kenya Iran’s regional rivals. American financial information,” says Wolfgang Pusztai, a for- sanctions on global investment, too, keep mer Austrian defence attaché to Libya. The last dance the hardliners from fretting too much The terrain in the south makes it diffi- about an imminent influx ofWestern com- cult to attack IS from the ground, say GNA petition and soft power. God willing, they officials, who oversawthe retakingof Sirte. say, the economy might flop; battles might But there are problems with air strikes NAIROBI resurrect the Great Satan; and four years too—the jihadists stopped travelling in Does the start ofAfrica’s tallest building hence they will recover power. 7 large numbers after American bombers signal the end ofKenya’s boom? killed more than 80 of them in one set of strikes in January. Now they move in small OULD Nairobi, Kenya’s traffic-clogged Islamic State in Libya groups along unpatrolled roads. The GNA C capital, be the next Dubai? Two large says it is keeping tabs on them from a base Dubai-based investors, Hass Petroleum Down but not out near Bani Walid, while America is watch- and White Lotus, seem to thinkso. On May ing from the air. It has been flying surveil- 23rd they formally started construction of lance dronesoverLibya from basesin Tuni- what they claim will be Africa’s tallest sia since last summer, and it is building a building. Out of a vast hole in the ground RIYADH new drone base in Niger. in Upper Hill, a neighbourhood full of gov- Neighbours worry that their own mili- ernment offices, will rise two towers, the The jihadists have retreated to the tants will find inspiration and training in taller some 300 metres high and named desert, where they are a potent threat Libya—and then return home. Chad closed “The Pinnacle”. (For comparison, the Burj IKE their comrades in Iraq and Syria, the its border with Libya in January, fearing an Khalifa in Dubai, the world’s tallest build- Ljihadists of Islamic State (IS) in Libya influx of jihadists. (It has since reopened ing, is 828 metres high). One will contain a were in retreat earlier this year. Their one crossing.) Algeria has opened a new hotel; the other, some 150 swanky apart- branch, considered the most lethal outside air base to guard its frontiers. Tunisia, ments (or “residences”). A helipad will jut the Levant, was pushed out of Sirte, its which has suffered several attacks by out of the roof of the taller tower, allowing coastal stronghold, in December and hit jihadists, has built a 200km (125-mile) earth the truly plutocratic to be whisked in over hard by American bombers in January. wall along its border with Libya. But even the traffic jams from the airport. The blows seemed to dispel the idea that, so, IS maintains cells near Sabratha, in the The investment is a fillip for Kenya. as the core of its “caliphate” crumbled, Lib- west, to help its fighters get in and out. Much of Africa is in economic trouble. In ya might serve as a fallbackbase for IS. 2016, according to the IMF, annual GDP But although the jihadists are down in Sabratha Mediterranean Sea growth across the continent sank to just Libya, they are not out. And they may have Tripoli Derna 1.4%, the lowest rate in 20 years. Yet Kenya, TUNISIA Misrata Tobruk international reach. Many of the fighters Benghazi which dependslesson oil and miningthan Bani Sirte have regrouped in a swathe of desert val- Walid Sidra most African countries, has kept growing. leys and rocky hills south-east of Tripoli. Ras Its economy probably expanded by 6% in British police are probing links between Lanuf 2016. Much ofthat came from projects such Salman Abedi, the suicide-bomber who as the Pinnacle, a $220m investment. Nai- EGYPT murdered 22 people at a concert in Man- robi’s skyline is dotted with cranes; new IS ALGERIA chester on May 22nd, and , which LIBYA suburban housing estates are flourishing claimed responsibility for the attack. Mr at the edge of the city. However, not every- Abedi was in Libya recently; his brother one is confident that it can last. and father were arrested in Tripoli on May Formostofthe pastdecade, investing in 24th. The militia holding them says the NIGER CHAD 250 km property in Nairobi has been extraordi- brother is a member of IS and was plan- 200 km narily lucrative. “Ten years ago, anything, Areas of control/presence (May 2017) ning an attackon Tripoli. honestly anything, would sell out,” says Government of Libyan National Chaos has been the norm in Libya since National Accord Army and local Sakina Hassanali of Hass Consult, a prop- the uprising that toppled Muammar Qad- Islamic State presence allies erty agency unconnected to Hass Petro- dafi in 2011. Myriad armed groups, loosely Source: American Enterprise Institute leum. House prices have more than dou-1 The Economist May 27th 2017 Middle East and Africa 39

2 bled since then, despite a flood of new Still, trafficking in the border region has apartment blocks and housing estates. As not stopped. Digin, a soft-spoken 18-year- well as foreign investors, the boom has old, says he was chained up for 42 days by been underpinned by investment from his kidnappers, after escaping from an Eri- wealthy Kenyans. Faced with an illiquid trean military training camp. After his fam- stockexchange and precarious banks, they ily paid a ransom he was driven to Shaga- have preferred to put their money into rab, a refugee camp close to the border. property. Scammers have got in on the Only a third of the Eritreans whom the frenzy, selling land they do not own, or off- UNHCR records crossing into Sudan will plan apartments which are then built register as refugees. And within a few shoddily or not at all. months, four-fifths of those will have Yet the property boom is now slowing. sneaked out of Shagarab to meet a car that “Prime” residential rents fell by 6% in 2016, will take them to Khartoum. There they according to Knight Frank, another proper- will meet a samsara (smuggler) who ar- ty firm. In some corners of Nairobi half- ranges the onward journey, once the mi- built houses have sat for months with no grants have the money. progress. It is not clear that there are The Libyan border with Sudan, in turn, enough Kenyans who can afford to rent is not as porous as it was. In the past year them. Most forecasters expect economic hundreds of Eritreans and Ethiopians have growth to slow, because of uncertainty been caught by Sudan’s Rapid Support about the Kenyan general election in Au- Forces (RSF), a group made up ofthe militia gust. Investment in infrastructure has The pinnacle of optimism formerly known as the janjaweed that in- helped to fuel the economy, but this could flicted genocide on black Africans in Dar- tail offafter the election. points to “the large number ofexpatriates” fur in the mid-2000s. The captured Eritre- Could the construction of Africa’s tal- working for NGOs in Nairobi. He also ans were deported. “The road to Libya is lest buildingturn out to be the last dance of thinks that Nairobi will become a new fi- still working,” says a smuggler. “But it’s the party? When asked who will live in his nancial hub for Africa. Yet few NGO work- very dangerous.” firm’s new “residences”, Abdinasir Has- ers are lavishly paid—and none is likely to Eritreans are increasingly avoiding Lib- san, the chairman of Hass Petroleum, need a helipad. 7 ya, which is racked by civil war. Going via Egypt, usually by car and then train, does not guarantee success either. Meron Estefa- Eritrea and migration nos, a Swedish-Eritrean activist who tries to help captured Eritreans, saysshe now re- The road less taken ceives more calls from relatives of people imprisoned in Egypt, than from those kid- napped by gangs in Libya. Others are heading north from Sudan, KHARTOUM among them Sudanese themselves, espe- cially Darfuris; the children of Eritreans Young people fleeing indefinite military service are encountering more obstacles who fled the war with Ethiopia in the on the route through Sudan 1990s; and Ethiopians. The EU is spending N JERIF, a district ofKhartoum, young Eri- European governments have realised at least €115m in Sudan, mainly on things Itreans listen to Tigrinya pop music in that voters are fed up with people fleeing like education and nutrition, to try to give dimly lit restaurants, or watch football at war and poverty across the Mediterra- would-be migrants reasons to stay. EU offi- an oppressively hot community centre nean. European Union money has per- cials say the funds, which started being ap- supported by their government. They are suaded transit countries from Turkey to Ni- proved in April 2016, will be handled by in- mostly male, and almost all have fled com- ger to curb the flow. Eritreans are also ternational agencies. One says they are pulsory, indefinite military service on be- deterred by the risk of being kidnapped “discussing” not “negotiating” with a gov- half of their despotic government. Most near the dangerous Eritrea-Sudan border. ernment whose president of 28 years, are working, orwaitingforrelatives to send Omar al-Bashir, is wanted by the Interna- money, so they can leave forEurope. TURKEY 750 km tional Criminal Court for allegedly order- But the lads in Jerif will find their jour- ITALY ing the slaughter in Darfur. But the arrests GREECE ney harder than their predecessors did. CYPRUS SYRIA by the RSF, and recent round-ups of long- Tripoli Mediterranean Sea LEBANON The number of Eritreans successfully com- IRAQ term Eritrean residents in Khartoum, sug- pleting each stage of the trip across the Sa- ISRAEL gest that the regime wants to show that it JORDAN hara and the Mediterranean via Sudan ap- Cairo can curtail migration. pears to have declined in recent years. S A H A SAUDI As long as the repressive Eritrean and R A Border crossings fell by almost two-thirds ARABIA Sudanese governments remain in power, LIBYA EGYPT to 9,000 between 2010 and 2016, according Aswan people will try to get to Europe, however to the UNHCR, the UN’s refugee agency perilous the odyssey. Some women report- (the real figureswill be farhigher, however: edly take contraception, expecting to be plenty of Eritreans get into Sudan unde- SUDAN raped. Others learn parts of the Koran in Asmara tected). A smuggler says he sent 150 mi- NIGER CHAD Khartoum case they are kidnapped by Islamic State in Shagarab grants from Khartoum to Libya and Egypt DARFUR refugee camp ERITREA Libya. But many have stayed in Sudan long last year, down from 300-400 in 2014 and enough to see loved ones disappear in the 2015. And 21,000 Eritreans made it to Eu- Addis desert or drown in the Mediterranean, and Migration routes SOUTH Ababa rope in 2016, down from more than 39,000 SUDAN are loth to leave. If they were allowed to Major Minor ETHIOPIA the previous year when they were the larg- Source: International Centre for study and work, rather than being arrest- est group ofmigrants arriving in Italy. Migration Policy Development ed, fewer would riskthe onward trek. 7 40 Europe The Economist May 27th 2017

Also in this section 41 Fighting corruption in Ukraine 42 Greece’s debt odyssey 43 Czech Republic’s money man 43 Optimism in France 44 Charlemagne: The EU’s terrible trio

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

Ukraine’s stalemate crossing is open, things are relatively quiet. When it closes and darkness falls, the two Theatre of war sides start firing mortars at each other, while people living in no-man’s land take shelterin theirhouses. In the morning they come out to inspect their vegetable plots, dotted with craters, and collect their har- SLOVIANSK vest ofpotatoes and shrapnel. In nearby Avdiivka, one of the flash- Three years afterthe conflict started, Ukraine and Russia are both trapped points a few months ago, the firing is more N APRIL 12TH 2014 Igor Girkin, a for- 10,000 lives and displaced more than 1.7m intense. Four civilians were recently killed. Omer Russian military officer also people. Yet officially, Russia and Ukraine Alexander Samarsky, a commander of the known as “Strelkov” (“Shooter”), sneaked are not at war. They maintain diplomatic Ukrainian army’s 72nd Brigade, says the across the border into Ukraine’s Donbas relations and trade with each other. Uk- main purpose of this seemingly pointless region with a fewdozen men and tookcon- raine has euphemistically designated the pounding is the need for the separatists to trol ofthe small town ofSloviansk, igniting conflict zone an area of“anti-terrorist oper- boost morale and keep soldiers active and Europe’s bloodiest war since the 1990s. To ations” (ATO). Most of the people caught disciplined. The same applies to his troops, create the impression of strength, Mr Gir- up in the war do not care who started it, or who have been stationed here without ro- kin, an aficionado of historical battlefield what they call it. tation for over seven months. The army is re-enactments, masqueraded as a member “I am against everyone,” says Lyudmila in much better shape than it was three of Russia’s special forces, and had his men Prikhodko, who livesin a restored building years ago, but drinking and drugs have be- drive two armoured personnel carriers among the hospital’s ruins. (The names of come enough ofa problem forKiev to send around every night to simulate a large civilians in the conflict zone have been in the national guard, a militarised police build-up. In fact, his army never exceeded changed.) An engineer, Ms Prikhodko was force. Without being asked, two national 600 men, mainly Cossacks and war-hun- forced to flee Donetsk after refusing to sup- guardsmen take out a smartphone and dis- gry opportunists like himself. port the self-proclaimed Donetsk People’s play a video of drunken army officers hav- Having just lost Crimea and lacking a Republic (DNR). She feels equally alienat- ing their bootleg liquor and bags of white functioning government or military com- ed from Russia and Ukraine. “DNR treats powder confiscated. mand after the Maidan revolution, Uk- people like me as enemies. Ukraine sees us The two guardsmen’sown storyiscom- raine was stunned. As Russia massed its as potential separatists.” pelling. Three years ago, at the Maidan de- forces on the border with Ukraine, most monstration, they were on opposite sides observers (and participants such as Mr Gir- A nation divided of the barricade: one, a militarised police kin) expected a swift invasion followed by On paper, there is no border between the officer from Kharkiv, was called in to de- annexation. Instead, the Kremlin created two parts of Ukraine. In practice, there are fend the presidential administration; the an ersatz civil war, absurdly portraying the several frontier control points, manned by other, from Kiev, was a student protester. Kiev government as a “fascist” regime and border guards and customs officials and Today they man one post. Yet such solidar- the separatists as freedom fighters. As the crossed by those who live in the separatist ity is uncommon among civilians. Most of Ukrainian army moved in to try to retake territories but must work, receive pensions the local population in Avdiivka, accord- Donbas, Mr Girkin and his fighters took up or handle bureaucratic problems on the ingto MrSamarsky, are noton hisside. Rus- positions in a psychiatric hospital on the Ukrainian side. Andrei Borisov, a smuggler sian television continues to broadcast outskirts of Sloviansk, using its patients as who carries food, cigarettes and pesticides there, and absurdly, despite the daily shell- human shields. from Ukrainian territory across the line of ing, most of the locals blame Ukraine rath- Today, the ruined psychiatric hospital, control, says everyone is in on the busi- er than Russia for their misery. resembling a scene out of the battle of Sta- ness: customs officers, local officials and Petro Poroshenko, Ukraine’s president, lingrad, is a symbol of the madness of an separatists on the other side. seems more worried about losing the loy- essentially theatrical conflict that has cost During the day, while the Mayorsk alty of pro-Ukrainian fighters than he is1 The Economist May 27th 2017 Europe 41

2 about winning hearts and minds in the control, halting freight between the sepa- separatists responded by seizing control of east. Instead of campaigning for the sup- ratist territories and the rest of Ukraine. Mr all of the coal mines and steel and chemi- port of local Russian-speakers, the govern- Poroshenko opposed the blockade, but its cal plants owned by Rinat Akhmetov, Uk- ment is imposing quotas on the use of Rus- slogan, “No trade in blood”, caught on. raine’s richest oligarch. Mr Akhmetov was sian on Ukrainian channels and banning Support forthe blockade soared from 7% to not only the biggest employer in the occu- the import of Russian-language books. Mr over 50%, according to polls. pied territories but also theirgreatest bene- Poroshenko’s position may be weaker Unable to beat them, the government factor, providing up to 400,000 humani- than it seems. In February, a small group of joined them, imposing a trade and energy tarian food parcels per month to the Ukrainian irregulars and volunteers blockade on the occupied territories. This elderly and those in need. The parcels have blocked railway traffic across the line of disturbed the situation in Donetsk. The now been stopped by the separatists, and Mr Akhmetov’s 56,000 well-paid miners and workers have lost their income. Fighting corruption in Ukraine When Mr Akhmetov’s workers at- tempted to protest, they were met with a Harsh medicine mixture of threats and bribes by the sepa- KIEV ratists and their Russian backers. The min- ers’ protests would have destroyed the illu- Battling graftis hard, but there have been successes sion the Russians have tried to create of a KRAINE is fighting two wars. One is UNDP, which saved $4m out of$39m model Soviet-era proletarian city. The half- Unear its eastern border, where it faces assigned to buy medicines for HIV, tu- empty city has been kept spotless, the Russian aggression. The other is at its berculosis and other infectious diseases. lawns mowed and pavements swept core, where it is wrestling with some of The auditor ofCrown Agents’ figures, clean. Oksana Mironova, who lives in Do- the worst corruption ofany post-Soviet Prashant Yadav of the University of netsk and manages a medium-sized busi- state. The war against corruption is only Michigan, said it was hard to say how ness on the Ukrainian side, says the sepa- starting, and the fighting is carried out much ofthe savings were from curbing ratists are trying to introduce the symbols office by office, ministry by ministry. corruption, and how much from being and attributes of a state and create an im- Naftogaz, a state oil and gas firm more competent than the bureaucrats pression of permanence. Yet it remains a which once epitomised the country’s who used to be in charge. But they were gangster-run territory: “They put on lip- misgovernment, has been cleaned up. high. “We would expect to see savings stickbut forgot to wash their necks.” Some ofthe most powerful oligarchs like this in very small markets, in Africa,” Unable to offer much of a future, the have been squeezed. One ofthe main he said. “A decade ago.” separatists are cultivating the symbols of sources ofcorruption that feeds the This may be a small victory, but the the Soviet past. On May 11th, they marked system, state procurement, has been fight against corruption is rarely won by the third anniversary of their “republic” slowly overhauled, producing some tanks. As the fighting intensifies, the with a Soviet-style march. Avoice boomed positive results. corrupt system is starting to push back. from loudspeakers: “We greet this day with In 2016 the health ministry launched a Some politicians are even attempting to joyand pride fora gloriouspastand in con- four-year programme to outsource pro- tarnish the name ofone ofthe country’s fidence for a peaceful and happy future.” curement ofmedicines to international most respected anti-corruption organisa- Workers with balloons and Soviet flags agencies. In the past, bureaucrats allied tions, the Anti-corruption Action Centre marched in columns along Lenin Prospect. with suppliers to inflate prices. With one (AntAC). The group has received grants Yet keeping up a Soviet veneer may not be ofEurope’s fastest-growing HIV epidem- from Western donors, and pushed to easy without jobs, particularly as industri- ics and many other health emergencies, create an anti-corruption prosecutor’s al production plummets. this was a burden Ukraine could not office, making itselfplenty ofenemies in However disillusioned most people in afford. Patients ofUkraine, an NGO, has the process. Alexander Martynenko, the Donetsk feel with the “Russian spring”, estimated that1,600 Ukrainians die daily head ofInterfaxUkraine, a news agency, few believe that the territory could ever be from the resulting lackofmedicine. says AntAC’s foes, unable to ban it, are reincorporated into Ukraine. But it is not The health ministry contracted trying to discredit it in the eyes of its just Ukraine and Russia that have been en- Crown Agents, a British-based devel- sponsors and cut it offfrom funding gaged in a game of make-believe. So has opment agency, and two United Nations sources. In such a campaign, disinfor- the West, whose leaders continue to en- bodies to buy medicines on its behalf. mation is the ammunition ofchoice. dorse the Minsk-2 ceasefire agreement, Their year has not been easy, with red while privately admitting that it is dead. tape causing delays. But when the first From the time Minsk-2 was signed two year’s results came backin December, years ago, it was designed to maskan effec- they showed a 38% saving compared tive defeat of the Ukrainian army by Rus- with 2015, without compromising on the sian forces. The agreement calls for Russia quality ofthe drugs. Whereas before two to return control over its border and over or three suppliers dominated supply, the separatist territories to Ukraine, some- Crown Agents have brought in almost 30, thing it will never do. Ukraine, meanwhile, thus defeating the tricks previously used lacks the military power or Western sup- to corner the market. port to take it by force. America has refused Alexandra Ustinova ofPatients of to arm Ukraine with lethal weapons, let Ukraine mischievously suggested that alone fight on its side. Some Western poli- Crown Agents had been “lucky” to win ticians argue that it would be more honest the oncology contract, since it included and productive to pronounce Minsk-2 the drugs whose prices had previously dead and enforce the current line of divi- been most inflated by corruption. But she sion between the separatistsand the rest of acknowledged the agency’s success in Ukraine with an armed peacekeeping cutting costs, along with that ofthe force. Ukraine, the argument goes, would lose only a swatch of land which it does 1 42 Europe The Economist May 27th 2017

2 not control anyway. And it would prevent 2019. The Kremlin does not want either to curingthe debtreliefpromised bycreditors the rest ofthe country from being frozen in pay for Donbas or to limit its options in in return. Worse, he is accused ofbetraying a permanent state ofwar. meddling in the rest ofUkraine. his own voters. Whereas last year’s round The problem is that too many parties in Yet leaving things as they are does not of tax increases hit the middle class hard- this conflict have an interest in keeping up mean they will stay this way. As Mr Girkin est, the new measures will shrink the in- the charade. This includes both Mr Porosh- said recently: “sooner or later [Russia] will comes of poor Greeks. Pensions have been enko and Vladimir Putin, Russia’s presi- have to face either a victory or a defeat. A cut a dozen times since 2010; another 18% dent. Both have rejected any talk of chang- military confrontation is inevitable.” His will be lopped off in 2019. The tax-free al- ing the Minsk-2 agreement, as this would ideal outcome would be a resurrection of lowance on incomes will be slashed in undermine their credibility. Yet neither is Novorossiya, the historic Russian term for 2020 to bring Greece in line with its euro- interested in taking formal responsibility the eastern parts of Ukraine, as part of a zone partners. (More than half of Greeks for Donbas. Mr Poroshenko’s legitimacy new state comprising Russia, Ukraine and pay no income tax at all, compared with rests almost entirely on the fight against Belarus. This may seem like a delusion. But 8% forthe euro zone as a whole.) Russia, and he has no interest in letting then so did his first raid on the hospital in When Syriza swept to powerin 2015, Mr Donbas vote in the presidental elections in Sloviansk three years ago. 7 Tsipras promised to end austerity and re- store social benefits cut by previous gov- ernments. Yet his failure to do so has Greece’s debt odyssey prompted few strikes and street protests, compared with reforms by earlier govern- No relief ments. One reason is that trade unions, which include many Syriza supporters, have been reluctant to defy their fellow leftists. But after seven years of recession ordinary Greeks seem resigned to getting ATHENS AND BRUSSELS by on less. “It’s hard to face the fact that your pension’s getting smaller, but what to The government meets creditors’ demands, but there’s a catch do?” shrugs Constantina, a retired teacher. AKIS, a gym instructor, counted him- Syriza officials accept that voters will Mself lucky three years ago to land a Fitful progress punish Mr Tsipras at the next election, due job in the public sector. The 28-year-old Greece, GDP, % change on a year earlier in 2019. The conservative New Democracy works as a groundsman at a sports com- party, led byKyriakosMitsotakis, a staunch plex in Glyfada, a seaside suburb of Ath- 2 reformist, holds a double-digit lead over ens. Hired on a temporary contract, he ex- + Syriza in opinion polls. Some Syriza mem- pected to make a smooth transition to a 0 bers have even suggested that the prime permanent post in local government. But – minister should call an early election and times are changing. Greece’s state audit 2 enjoya spell in opposition, stirring up trou- council, which normally rubber-stamps ble for the conservatives while they strug- official decisions, unexpectedly ruled this 4 gle to implement tough policies already month that municipal employees should agreed upon with the EU and IMF. be dismissed when their contracts expire. Mr Tsipras’s strategy is not as Machia- “That’s it for me, I’ll have to leave and 6 vellian, say party insiders. With the econ- 2013 14 15 16 17* find a job abroad like everyone else,” Ma- omy forecast to grow by 1.8% this year and Source: Economist Intelligence Unit *Forecast kissays, gesturingtowardshiscolleagues: a 2.4% in 2018, he is betting that Greece can phalanx of state employees, from rubbish attract enough investment to make a dent collectors to computer technicians. They Wolfgang Schäuble, Germany’s finance in unemployment, still the highest in the are outside Athens’s city hall, protesting minister, says Germany will not agree to EU at around 23%. If Syriza can win back against the audit council’s decision. disburse any more bail-out money with- enough votes to prevent a conservative More upheaval is on the way. On May out the IMF’s participation in the pro- landslide at the 2019 election, its 42-year- 18th parliament approved a new package gramme—which is needed, he thinks, to old leader’s future still looks bright. 7 ofreformsdemanded bythe European Un- counter the softies in the European Com- ion and the IMF, Greece’s bail-out credi- mission. Mr Schäuble has the backing of tors. Sunday shopping will be extended some other euro-zone governments. outside tourist areas, despite objections by But the IMF believes that the Euro- small retailers claiming they will be driven peans’ projections for the Greek economy out of business by large stores that can af- are too rosy, and that Greece’s debt will be ford to hire the extra staff required. “We unsustainable unless it gets further defer- lobbied the politicians successfully for ments on paying it back. Mr Schäuble is years to stop this happening, but the game wary of granting such debt relief just is over,” said Panos, who owns a hardware months before Germany’s election in Sep- shop in central Athens. tember. So despite having met its creditors’ Passing the measures was supposed to conditions, Greece is stuckin the middle of unlock bail-out funds from Greece’s credi- their row. A meeting in Brussels on May tors, which the government needs to avoid 22nd failed to resolve the dispute. Officials defaulting on bond payments of around on all sides are confident a deal will be €7bn ($7.9bn) in July. But a long-running struckin June. squabble between Germany and the IMF Critics of Alexis Tsipras, Greece’s prime has complicated matters. The fund de- minister and leader of the left-wing Syriza clined to join Greece’s current bail-out, its party, say his government has signed up to third, when it was signed in 2015. Now another five years of austerity without se- Not a fan of austerity The Economist May 27th 2017 Europe 43

Czech politics Optimism in France Paper tiger Yes, oui can

PARIS The land ofPresident Macron tries to turn its frown à l’envers PRAGUE HE French like to thinkofthemselves researcher. Favourite words he used in Andrej Babis, a media magnate, looks as a miserable lot. Voltaire taught his campaign speeches included hope, set to win the election in October T them that optimism is forthe naive. future, dream and youth. Even the name ACK when newspapers were king, Jean-Paul Sartre made ennui chic. Best- Mr Macron gave his political movement, B Charles Brownson, an American con- selling French psychology books include En Marche! (“On the Move!”), conjures gressman, used to say that one should nev- such titles as “Too Intelligent to be Hap- up motion and can-do enthusiasm; its er quarrel with anyone who buys ink by py”. Polls consistently rankthe French jaunty exclamation markjars with the the barrel. The principle still stands, and it among the world’s most despondent. traditional Gallic pout. is making life difficult foropponents ofAn- Fully 85% earlier this year said that their “What is very new is a different state drej Babis, a billionaire media magnate country was heading in the wrong direc- ofmind at national level, and this can be who until this week served as Czech fi- tion, compared with 61% ofBritons and felt at an individual level too,” says Phil- nance minister. With a general election set 51% ofAmericans. The Anglo-Saxon ippe Moret, a coach and founder ofAtti- for October, Mr Babis’s ANO party seems world hosts a blossoming trade oflife tudes Positives, a consultancy. The idea is unassailable, polling at 33.5% against 16% coaches, self-help writers, motivational that a more optimistic approach at the forthe second-place Social Democrats. speakers and happiness researchers— top could help coax France more broadly On May 2nd Bohuslav Sobotka, the what might be called the “optimism out ofits morosité. Even before Mr Mac- prime minister, threatened to resign unless industry”. In France, it has had trouble ron’s election, some sensed the changing the country’s president fired Mr Babis over gaining a foothold. mood. “What is positive psychology?” a questionable tax break he received in Now, it seems, upbeat thinking is à la asked Cosmopolitan, a women’s maga- 2013. Mr Sobotka, a Social Democrat, mode. During his election campaign, zine, last month. It went on to tell readers hoped the attention to Mr Babis’s finances Emmanuel Macron, the new president, ofthe “science ofhappiness” and its would stop hisown party’sheadlongslide. was the candidate of“la positive atti- “revolutionary” potential. The finance minister eventually agreed to tude”, said Damon Mayaffre, a linguistics Optimism in France could be good for step down. But more Czechs blamed Mr growth. Business confidence in May Sobotka for the clash than Mr Babis, and it already showed signs ofrecovery. The seems ever more likely that he will win. Upbeat, or beat-up composite IHS Markit index indicated the That election is one of two in the next As far as you are concerned, do you think that next strongest monthly growth in France for eight months that are pivotal to the Czech year will be better, worse or the same as this one? six years. Rising confidence might also Republic’s direction. The second is in Janu- % replying help those who have toiled foryears in ary, when Milos Zeman, the pro-Russian Better Same Worse Don’t know the optimism industry, against the odds. president, is up forre-election. As the west- 0 20406080100 One such initiative is Sparknews, which 2013 ernmost former Soviet-bloc state, the Sweden 2016 promotes positive reporting. Another is Czech Republic straddles Europe’s grow- the Positive Economy Forum, a yearly 2013 ing divide over liberal, pluralistic values, Spain 2016 meeting designed to promote a “positive which Poland and Hungary are challeng- society”. It is the brainchild ofJacques United 2013 ing. Mr Babis, a pro-business centrist with States 2016 Attali, a one-time mentor to Mr Macron no affection for Russia, has little in com- who also advised François Mitterrand, a 2013 mon ideologically with Mr Zeman, an eco- Britain 2016 formerpresident. The forum happens to nomicleftist. Butboth men have expressed take place in Le Havre, a town in Nor- 2013 disdain for political dialogue and demo- Germany 2016 mandy whose outgoing mayor, Edouard cratic checks and balances. Mr Sobotka Philippe, is Mr Macron’s new prime 2013 calls them the “power tandem”, and France 2016 minister. Perhaps the French will take the pledges to resist their populist wave. power ofpositive thinking seriously, now Source: WIN/Gallup Mr Babis is a centrist who contends he that positive thinking is in power. can manage the country as he did his busi- ness empire. He is popular with many Czechs, but others treat him with suspi- bonds in his former company worth 1.5bn mer head of the Social Democrats, once cion. He accumulated vast wealth from his koruna ($63.5m), sneaking through a loop- had many allies in the party, but Mr So- agrochemical conglomerate, Agrofert, hole just as it was about to close. The deal botka now says it may run its own candi- which produces more than a third of the would bring him $2.2m in tax savings this date for president against him. country’s bread. His political rise coincid- year. MrBabis says he will donate his gains On May 24th Mr Babis stepped down, ed with his purchase ofthe newspapers. In to charity, and claims the prime minister’s and was replaced by Ivan Pilny, an ANO February, a newlawforced him to place his aspersions about the deal are lies. deputy and the former head of Microsoft’s business holdings in a trust. Mr Babis in- In any case, the bickering has mainly Czech division. But Mr Sobotka’s haphaz- sists he does not abuse his business or me- weakened Mr Sobotka and Mr Zeman. The ard politicking has mostly damaged him- dia ties for political gain. But he has been prime minister backed down from his self. Increasingly, Czechs are talking more damaged by audio recordings, leaked earli- threat to resign, and Mr Zeman at first de- aboutgovernmentdysfunction than about er this month, in which he and a journalist clined his request to fire Mr Babis. He then Mr Babis’s business dealings. He calls him- discuss how to leakdocuments to discredit subjected Mr Sobotka to a humiliating self an outsider; being pushed out of gov- his political opponents. dressing-down on national television. Sur- ernment will only help him to sell that More damaging has been the news of veys show that Czechs find MrZeman’s be- story. Owninga couple ofnewspapers will his tax break. In 2013 Mr Babis purchased haviour unpresidential. Mr Zeman, a for- not hurt, either. 7 44 Europe The Economist May 27th 2017 Charlemagne The terrible trio

Three populist presidents have leftEurope with an acute case ofgeopolitical loneliness guage, in the G7 communiqué, on the importance ofglobal trade. IfMr Trump provokes questions forEuropeans, Mr Putin chal- lenges their assumptions. His Crimean land grab upset the post- cold war order, and his troops wreak havoc in Ukraine’s east. Weakness may limit the scale of what Mr Putin can accomplish. But Russia’s ongoing decline gives him a reason to act now rather than wait to disrupt pro-European reforms in countries that he sees as within his sphere of influence (although, happily, the EU has at last granted Ukrainians the right to visa-free travel). Inside the EU Mr Putin and his proxies meddle in elections and sponsor rabble-rousing parties and fake NGOs. Some governments have set up disinformation units to counter Russian propaganda. Mr Erdogan is an even trickier customer. Turkey is a NATO ally and a candidate for accession to the EU. Its intelligence can help Europeans fight terrorism; it hosts millions ofrefugees who might otherwise seeksanctuary in Europe. But the president is impossi- ble for Europeans to deal with. He compares European govern- ments who bar him from campaigning on their territory to Nazis, and threatens to dump migrants on Bulgaria and Greece if he does not get his way. His domestic purges have nearly destroyed Turkish democracy. Some Europeans, including the Austrian gov- HE mood is brighter in Europe these days. It has not, admit- ernment, want to end Turkey’s accession talks. (Others quietly Ttedly, taken much to lift the spirits: reckless extremists came hope Mr Erdogan will end them himself.) second, not first, in elections in Austria, the Netherlands and Dealingwith any one ofthis trio would be hard. Together they France; economic growth has accelerated beyond a snail’s pace; make for a tetchy neighbourhood. Uncertainty over America’s and Brexit, though probably disastrous forBritain, may notbe cat- approach to Russia, for example, magnifies the threat from MrPu- astrophic for Europe. Still, even the return of normality is a relief tin. Fears that Mr Trump might seek a grand bargain with the fora continent that has spent the past few years battling crises. Kremlin have faded, but German officials cannot count on the co- But if Europeans have at last started to feel better about them- operation overUkraine that they enjoyed in BarackObama’s day. selves, the world outside looks ever-more menacing. The cher- Relations among the three are unpredictable, too. In the past 18 ished European values ofliberalism and respect forhuman rights months Turkey has shot down a Russian plane, a Russian ambas- are being challenged by a cohort of unpredictable leaders who sador has been murdered in Ankara, Russia has slapped sanc- seem not to prize or understand them. This is unsettling for the tions on Turkey and the two countries have made friends again. European Union, a slow-moving club founded on reverence for Combine the difficulties with Russia and Turkey with ques- the rule oflaw. For Europeans the shift is embodied in three presi- tion-marks over America’s commitment to their security, and dents whose capricious impulses are shaping and constraining Europeans are left with an acute sense of “geopolitical loneli- their foreign policy: Donald Trump, Vladimir Putin and Recep ness”, in the words of Jan Techau of the American Academy in Tayyip Erdogan. Berlin, a think-tank. This also unsettles neighbouring regions in Take Mr Trump first. Europeans’ fears about the American which the EU is used to exerting influence. The vacuum is felt in president have partly eased since he took office. Mr Trump used the ex-Soviet states, where American support was once a given, to enjoy egging on anti-EU politicians like Nigel Farage and Ma- but also in the Western Balkans, a dangerously unstable zone in rine Le Pen. However, after meeting various European leaders, he the heart of Europe where America, Russia and Turkey all vie for has largely stopped doing so. In February Mike Pence, the vice- influence. president, reassured Eurocrats that America was not bent on de- stroying the EU. European officials, after visits to Washington, ex- Alone in a world so cold press optimism that some of Mr Trump’smore outlandish court- Some take a rosier view. European diplomats like to say that Mr iers, such as Peter Navarro, a trade adviser who thinks America’s Trump’s election and Brexit have fostered a newfound sense of deficits threaten its security, have lost the president’s ear. cohesion in Europe. Surveys indeed find support for EU member- But Europeans are far from comfortable. “We have no idea ship growing in most countries, and this week the Pew Research where [the Americans] are on so many issues,” says a diplomat in Centre issued similar findings for NATO. Brussels, where Mr Trump was arriving for an EU meeting and But it is a fragile sort of unity, grounded not in confidence but NATO summit as The Economist went to press. That meeting was in fear of the outside world. At a recent meeting EU trade council to be followed by a two-day summit of the G7 in Sicily. In the meeting, one diplomat notes with glee, the old splits between run-up to these encounters the Europeans hunted for clarity on free-traders and protectionists had gone; all were united behind America’s intentions, especially on climate and trade. During the protective anti-dumping measures. The waves of migrants that campaign, Mr Trump vowed to withdraw from the Paris climate poured into Europe from Turkey in 2015-16 saw a scramble to close accord; he has neither reaffirmed nor revoked that pledge. (Alert borders. And it is the threat from Mr Putin, more than any scold- to his “America first” approach to diplomacy, the Europeans have ing tweets from Mr Trump, that have spooked European govern- drawn up lists of American jobs that depend on clean energy.) ments into raising defence spending. The terrible trio are casting The Americans have been reluctant to sign up to boilerplate lan- long shadows. 7 Britain The Economist May 27th 2017 45

Also in this section 46 U-turn on social care 47 Bagehot: The two Theresas

Our election blog can be found at: Economist.com/blogs/speakerscorner

Terrorism ly in Germany days before the attack. Police in Manchester have concluded After the bomb, the hunt that the explosive device he used was the design of a skilled bomb-maker, too valu- able to expend on a suicide mission. It had a back-up means of detonation and seems to have been similar in design to those IS MANCHESTER used by two -inspired suicide-bombers in Brussels last year. Security services race to find the killer’s accomplices before they strike again That much is known because photo- E WON’T take defeat and we view”. Britain does not want to go down graphs of the bomb’s bloodied fragments “Wdon’t want yourpity,” roared Tony the same road as France, which imposed a were leaked to the New York Times, pre- Walsh, a local poet, at a vigil in Manchester state of emergency after terrorist attacks in sumably by American intelligence ser- on May 23rd for the 22 people, some of Paris in November 2015 and has been stuck vices. They were published hours after Ms them children, who were murdered in a with it ever since. This weekthe new presi- Rudd had criticised the “irritating” leak of suicide-bomb attack in the city the previ- dent, Emmanuel Macron, called for it to be Mr Abedi’s identity by American officials. ous evening. Muslim charities were pre- extended fora furthersix months. Manchester police have reportedly sus- sent as Sikhs gave out free drinks to the Mrs May cited “a possibility we cannot pended their sharing of information with crowd, whose members held placards ignore that there is a wider group of indi- American counterparts. Mrs May was due with slogans such as “Hate does not re- viduals linked to this attack.” By May 25th to confront Donald Trump about the mat- solve Hate”. It was a conscious display of eight men had been arrested in Britain, in- terat a NATO meetingon May25th. He may unity in the face ofBritain’s deadliest terro- cluding Mr Abedi’s elder brother, Ismael. use the affair to bolster his own critique of rist attacksince July 7th 2005. His younger brother, Hashem, and father, his intelligence service’s leakiness. As Mancunians took to the streets, Ramadan, were detained in Libya by a lo- Mr Abedi may also have received in- counter-terrorism officers were unpicking cal militia on May 24th. Mr Abedi himself structionsaboutwhich eventto attack. The the origins of the plot. Lately they have had recently returned from Libya, where selection ofa pop concerthasechoes ofthe worried about self-radicalised “lone wolf” he may have been trained by jihadist Bataclan massacre in Paris. It has become attackers. In March Khalid Masood, a Brit- groups linked to Islamic State (IS) or al- standard for IS to target large venues host- ish convert to Islam, murdered five people Qaeda (see page 38). He was also reported- ingeventsthatsymbolise whatitregards as1 in Westminster using only a rental car and a kitchen knife. But it seems that Salman Abedi, a British-born 22-year-old of Libyan Context to the killing stockwho detonated the bomb atthe Man- Britain, terrorist attacks, deaths excluding perpetrators Single attacks with over ten killed chester Arena, was not acting alone. 350 That prompted Theresa Mayto raise the Birmingham Manchester terrorist threat assessment to its highest, 300 Lockerbie 250 “critical” level forthe first time in ten years, Omagh London Jo Cox murder indicating that an attack may be “immi- 200 nent”. The prime minister’s announce- Lee Rigby 150 murder ment triggered the deployment of nearly 100 1,000 troops, whose job is to secure sites 50 such as the Houses of Parliament and thus 0 free up police. Amber Rudd, the home sec- 1970 75 80 85 90 95 2000 05 10 15 17 retary, said the measure was temporary Sources: Global Terrorism Database, University of Maryland; press reports and would be kept under “constant re- 46 Britain The Economist May 27th 2017

2 Western decadence. In a statement claim- Social care with complex, expensive needs could lose ing responsibility, itreferred to “the shame- everything except £100,000. For a govern- less concert arena” and described the teen- The four-day ment that has resisted raising inheritance age fans ofAriana Grande as “Crusaders”. tax, this was a strange inconsistency. Ms Rudd has said that Mr Abedi was manifesto Mrs May’s emergency “clarification” known “up to a point” by MI5, the domes- helps fend off criticism of a health lottery. tic security service. His friends reportedly The new plan adopts the recommendation warned the authorities about him five of a review in 2011by Sir Andrew Dilnot to A magnificent U-turn raises questions years ago; a relative is said to have repeated introduce a cap on how much a person about the Tories’ competence the concerns. But like Masood, the West- pays for care. (The manifesto had dis- minster killer, he had been regarded as a OTHING has changed. Nothing has missed his proposals as “mostly benefit- low-risk, peripheral figure. “Nchanged!” insisted Theresa May. [ing] a small numberofwealthierpeople”.) Some will question why he was al- But it had. Four days after the launch ofthe Sir Andrew suggested a cap of around lowed to travel to Libya. Under rules intro- Conservatives’ manifesto on May18th, the £40,000 in today’s prices. Mrs May has not duced in 2013, a person’s passport can be prime minister reversed its signature poli- specified a level. confiscated on the basis of their “past, pre- cy, a proposed reform of the funding sys- The higherthe cap, the lessthe state will sent or proposed activities, actual or sus- tem for social care for the elderly, which have to fork out. Sir Andrew’s proposal pected”. It is a power that Mrs May, home had come to be known as the “dementia might have cost about £2bn a year. George secretary at the time, said should be used tax”. Mrs May insisted that the change was Osborne, the previous chancellor, had sparingly. The reason itwasnotused in this merely a clarification. But Sir David Butler, promised to implement a £72,000 cap instance owes more to the difficulty MI5 a nonagenarian psephologist at Oxford from 2020, at a cost of around half that. In has in keeping tabs on up to 3,000 people University, noted on Twitter that in the 20 an era of squeezed public spending the whom it regards as religious extremists. general-election campaigns he has fol- temptation will be to raise the cap to an The security services are well funded lowed, “I can’t remember a U-turn on this even higher level. (18 months ago they received the money to scale.” The about-face is welcome, but The introduction of a cap not only pro- take on 1,900 employees, a 15% increase in leaves the social-care system underfunded tects the unlucky few from exorbitant care staffing). But 24-hour surveillance is so la- and has fed a growing perception that the costs. It also limits the liabilities of private bour-intensive that only about 10% of the manifesto was not thought through. insurers, making it more attractive for 500 suspects of real concern can be con- The Tories’ original plan was to intro- them to cover social care. At present, the stantly monitored. Even then, there are duce a newfundingformula forsocial care, market for social-care insurance is tiny. Ifit strict rules about how long such an opera- whereby an elderly person would on their were to develop, elderly folkwould worry tion can be conducted ifit yields nothing. death be liable forall oftheircare costs, un- less about funding their care costs out of Terrorism in Britain is less deadly than til only £100,000 ($130,000) of their estate their estate. in the decades when the Irish Republican remained. (The state would cover any fur- Yet there is reason to be sceptical that Army (IRA) was active (see chart on previ- ther costs.) That is higher than the existing such a market will bloom. British insur- ous page). Still, in the 18 months to March threshold, but includes the value of the ance companies have watched American this year at least 12 terrorist plots were dis- person’s home, which the existing means- firms get their fingers burnt as conditions rupted, according to Dominic Grieve, who test does not for most people. like dementia have become more com- chairs the parliamentary Intelligence and The policy was not expected to raise mon. Despite the ageing population, by Security Committee. More have followed. much money, but it was progressive: 2014 sales of long-term care insurance in Counter-terrorism officers have long wealthy oldies would end up contributing America were two-thirds lower than they worried aboutthe dangerposed byBritons most. It earned its unfortunate nickname had been in the early 2000s. It is also an returning from Syria, where about 800 because it introduced a big dollop of blind open question whether, under the new went to wage jihad. Manyhave been killed, luck. A sprightly person who died sudden- rules, elderly Britons would be all that in- but about half are estimated to have re- ly might be able to pass on millions, since terested in private insurance. With the cost turned. If the quickening tempo of plots is their care costs would be zero. Someone ofcare to be capped and no one needing to any indication, some are trained and hard- unlucky enough to endure a long illness pay anything until they die, would many ened fighters with the skills and motiva- bother taking out a policy? tion to carry out attacks at home. Following the tweak, the Conserva- There is no evidence yet that the Man- tives’ plan for social care looks similar to chester attack was timed to disrupt the what was already legislated for before the election on June 8th. Britain has no big far- manifesto waslaunched, pointsoutSir An- right party that might benefit from a back- drew: a cap on costs, plus a means test. This lash against Muslims. The clownish Eng- does little to address the funding shortfall lish Defence League staged a small demon- faced by social care. Between 2009 and stration near the Manchester Arena, but its 2019, funding per person is expected to members were shouted down by an angry shrinkby around 5% in real terms. shopper and moved on by police. The social-care proposal is not the only That is not to say there will be no im- part of the manifesto which looks a bit pact on the election. Mrs May’s response half-baked. There is no detail on the extent was noticeably more sure-footed than her of proposed cuts to winter-fuel allowance, recent manifesto launch (see Bagehot). By which are supposed to fund social care. contrast Labour’s leader, Jeremy Corbyn, The manifesto is silent on plans forincome has attended events in support of the IRA tax (most people suspect that increases are and described members of Hamas and on the way). And there is no acknowledg- Hizbullah as “friends”. Polls had shown ment that the pledge to cut net migration the Tories’ lead narrowing. It is not cynical by nearly two-thirds would have big fiscal to suggest that the return of terrorism will costs. Itisa blankcheque from a party in lit- remind voters why they like Mrs May. 7 Unswerving tle doubt that the public will sign it. 7 The Economist May 27th 2017 Britain 47 Bagehot The two Theresas

Two prime ministers were on display this week—one thoroughly competent, the otherless so small talk. She relied on two ferociously loyal special advisers, Nick Timothy and Fiona Hill. She fought her corner against cabi- net colleagues who either dismissed her as a dullard or, as she stuckaround foryears, feared her as a rival. Thisapproach broughtsignificantsuccesses. MrsMayshowed civil servants who was boss—no mean achievement in a huge and lethargic bureaucracy—and took on vested interests such as the police. But it also produced significant failures. She ignored appeals by her cabinet colleagues to relax a clampdown on for- eign students, despite the damage that her policy was doing to higher education, an area where Britain excels. It is hardly surprising that Mrs May applied the formula that had kept her on top of the Home Office for so long when she be- came prime minister. She installed MrTimothyand MsHill asher co-chiefs of staff and centralised control of all decision-making. Buton hernewterritory, much largerand lessfamiliar, the ratio of failures to successes has worsened. The best leaders bring togeth- er people with different strengths. Mrs May’s team brings togeth- er people with exactly the same weaknesses. Two vulnerabilities are particularly worrying: a profound ignorance of economics (Mrs May hasn’t had to soil her hands with any business-related HERESA MAY struck the right tone in the aftermath of the subjects since she briefly worked at the Bank of England in 1977- Tbombing in Manchester. She delivered two businesslike ad- 83) and a preoccupation with internal party politics. Mr Timothy dresses to the nation, the first expressing an appropriate mixture in particular is obsessed with refashioning the Tories as a more ofoutrage atthe atrocityand pride in the response, the second an- blue-collar party. Issues with far-reaching economic conse- nouncing the decision to raise the threat level to “critical” and de- quences, such as migration, are too often treated as problems of ploy troops on the streets. She chaired two emergency meetings law and order or opportunities to reposition the party. of ministers and officials and then travelled north. The prime The dangers of this approach were apparent in Mrs May’s U- minister was the personification ofkeep-calm-and-carry-on. turn over social care. The Tory party’s manifesto tried to tackle Yet just the day before the bombing a very different Theresa two of Britain’s biggest problems—the rising cost of looking after May had been on display. She performed an embarrassingU-turn elderly people and the concentration of wealth in the hands of on her party’s policy on social care for the elderly and then tried the old—with an audacious suggestion: why not get oldsters to to pretend that the U was a straight line. This is perhaps the first fund more of the costs of care themselves? But it ignored crucial time that a party leader has dumped a central manifesto promise detailssuch asputtinga cap on costs. Lookingaftersomeone with before a general election. She then gave a disastrous interview to dementia can wipe out even a prosperous family. SirAndrew Dil- Andrew Neil on the BBC which revealed holes in herunderstand- not has discussed this subject in an exhaustive government re- ing not just of basic economics but also of her own manifesto’s port on social care. Cabinet ministers such as Jeremy Hunt, the commitments. Far from “strong and stable”, the phrase repeated health secretary, have grappled with the problem for years. But endlessly in her campaign, the prime minister looked “weak and apparently Mr Timothy added the half-baked proposal without wobbly”, as one journalist put it. running it past the cabinet or digesting Sir Andrew’s findings. Anybody can have a bad week. Mr Neil is a tenacious attack dog: few continental leaders are subjected to this level of public May the best May win interrogation. It is better for politicians to withdraw flawed poli- This is part ofa worrying pattern: consulting too narrowly, riding cies than to keep defending them. But there is a limit to the num- roughshod over opposition and then backtracking ignominious- ber of excuses that one can make for someone who is not only ly or carrying on regardless. Two months ago Mrs May aban- seekingthe highestoffice in the countrybutisalso presenting her- doned a budget proposal to raise national insurance contribu- self as uniquely qualified to negotiate a divorce settlement with tions for self-employed workers because she and her team had Europe that could shape the country fora generation. failed to spot that it clashed with one of David Cameron’s mani- The manifesto meltdown and the Neil kebabbing revealed festo commitments. She remains obsessed by reducing annual three worryingthingsaboutMrsMay. The firstconcerns herman- net migration to “tens of thousands” (from a current level of agementstyle, which isto relyon a small group ofadvisers, refuse about 250,000) despite the fact that none of her cabinet col- to consult and make big decisions on the fly. The second concerns leagues, let alone independent experts, thinkit achievable. herknowledge. MrNeil’sinterviewreinforcesthe established im- The difference between a successful politician and an also-ran pression that she knows precious little about business and eco- is not how they respond to success but how they respond to fail- nomics. The third is that these two reinforce each other: the fur- ure. Successful onestreatitasa chance to up theirgame. Also-rans ther she moves into unfamiliar territory, the more dysfunctional alternate between stubbornness and retreat without bothering her approach becomes. to pause for reflection. Mrs May should treat the manifesto melt- Mrs May perfected her style during six grinding years at the down as a warning and an opportunity: a warning of what will Home Office. She became the empress of her brief. Both friends happen if she continues with business as usual, and an opportu- and enemies describe her as a dogged worker with almost no nity to shake up her inner circle and broaden her thinking. 7 48 International The Economist May 27th 2017

Prisons Also in this section Turning villains into neighbours 49 Women in prison

BASTOY, NORWAY AND INDIAN SPRINGS, NEVADA Too many prisons are “an expensive way ofmaking bad people worse”. But some workwell O YOU want a coffee?” It is a chilly In short, the prisoners are expected to dent was advised not to wearblue because “Dmorning on the ferry to Bastoy, an look after themselves. If they do not tend that was the colour of the prison uniform. island prison in Norway. Two burly ferry- the forest, it will cover the island, notes It was unlikely that there would be trouble, men greet a visiting journalist with a hot Tom Eberhardt, the governor. Ifthey do not the press officer explained, but if there was drink. Asked if they work for a local ferry tend the fields, the crops will die. you would not want an armed guard to company, they reply: “No, we are prison- Inmates do not start their sentences at mistake you for a rioting inmate. ers.” One is serving 14 years for attempted Bastoy. They must do time in a conven- Nelson Mandela once observed that: murder. The other, nine years for “drugs tional lockup and apply to be transferred, “No one trulyknowsa nation until one has and violence”. The ferry is moored and having convinced the authorities that they been inside its jails.” This article makes a there is no one around. Either man could wish to reform. In a normal prison, in- different argument: that although they easily make a run for it. But neither does. mates are spoon-fed, notes Mr Eberhardt. have improved in recent decades, the Hardly anyone tries to escape from Bastoy. “They take only three or four decisions a world’s prisons are nowhere near as effec- It has been called the “world’s nicest day, such as when to go to the toilet.” At tive as they should be at curbing crime or prison”, but this misses the point. The Bastoy they make nearly as many deci- reducing harm to society. Far too many fit rooms are pleasant enough. The inmates sions as they would if they were free. By the description of Douglas Hurd, a former can wander where they like on the island, teaching the inmates responsibility, Bastoy British home secretary, who said that: “Pri- go cross-country skiing in the winter and aims to “create good neighbours”. son is an expensive way of making bad fish in the summer. So long as they keep it Norway has the lowest reoffending rate people worse.” tidy they can enjoy the beach (see picture). in Scandinavia: two years after release, Yet what is most unusual about Bastoy is only 20% ofprisoners have been reconvict- What ails the jails not that it treats prisoners like human be- ed. By contrast, a study of 29 American There are at least10.3m people behind bars ings, but that it treats them like adults. states found a recidivism rate nearly twice worldwide, according to Roy Walmsley of Prisons in otherparts ofthe world try to as high. This is despite the fact that Norway the Institute forCriminal PolicyResearch, a stop inmates from laying hands on any reserves prison for hard cases, who would think-tank. This is a snapshot—many more piece of metal that could be shaped into a normally be more likely to reoffend. Its in- pass through each year and yet more are weapon. Bastoy prisoners walk around carceration rate, at74 per100,000 people, is on parole or probation. The global total ex- with hammers, axes and chainsaws. They about a tenth ofAmerica’s. cludes countries such as North Korea and chop down trees for furniture, grow vege- Visiting Americans find the atmo- Eritrea, which have big gulags but publish tables and raise livestock. They used to sphere at Bastoy shocking. Why is security no data. It also undercounts the number in slaughter cows but Norwegian health and so lax? Where are the lethal electric fences China, which has not recently revealed safety laws make this uneconomical un- and the guards with shotguns? At a prison how many of its people are locked up less done on an industrial scale. in Indian Springs, Nevada, yourcorrespon- awaiting trial. 1 The Economist May 27th 2017 International 49

2 Since 2000 the number of prisoners in there are not many middle-aged muggers. the world has risen by 20%, a little above Uncle Slammer 1 On the second count, deterrence, pri- population growth of18%. The trend masks Prisoners per 100,000 people sonsare necessaryunlesswe wantto bring a frenzy of regional change. South Ameri- backflogging. But sentences need not be as 0 100 200 300 400 500 600 700 ca, South-East Asia and the Middle East long as they are in many countries, espe- have seen sharp increases in prisoner United States cially America. Criminals have short time numbers (145%, 75% and 75%). In Europe Latin America horizons—a ten-year sentence only deters numbershave fallen by21%. Overthe same Europe them slightly more than a one-year sen- period, crime has fallen worldwide. Middle East & tence, though it costs ten times as much. To Many jails are hellish; sometimes delib- north Africa deter would-be criminals, what matters 2015 or erately so. In Syrian prisons, dissidents are Asia latest most is not the severity of the penalty but beaten, given electric shocks, crushed in a Sub-Saharan 2000 the certainty and swiftness with which it is foldingboard called the “flyingcarpet” and Africa imposed. Criminals restrain themselves Sources: World Prison Brief; World Bank; The Economist hanged in their thousands after two-mi- only if they think they will be caught and nute “trials”. More commonly, prisons are punished. Steven Levitt, an economist, es- vile because they are overcrowded and ill- But for many people the aim of incar- timates that in America $1 spent on police managed, so the nastier inmates (and ceration is to reduce the harm caused by is at least 20% more effective in preventing guards) can do what they please. criminals. Prisons can do this in three crime than $1spent on prisons. At some Brazilian lockups, for example, ways. First, they restrain: a thug behind Even when the police are effective, heavilyoutnumbered guardspatrol the pe- barscannotbreakinto yourhouse. Second, criminals are often undeterred. They are rimeter and allow gang bosses to impose they deter: the prospect of being locked up typically impulsive and opportunistic, order within. Convicts are free to run their makes potential wrongdoers think twice. picking fights because they are angry and drug empires by mobile phone. In the first Third, they reform: under state supervi- grabbing loot because it is visible. Which is two weeks of 2017, as rival gangs fought for sion, a criminal can be taught better habits. why rehabilitation is so important: nearly supremacy, at least 125 inmates were killed On the first count, most prisons suc- all inmates will eventually be released, in riots in Brazil. At one prison in Manaus, ceed, but at a cost. The mass incarceration and it is far better for everyone if they do severed heads and limbs were stacked on of certain groups of men, such as black not go backto their old ways. the floor. Americans, can tear apart families and The countries that lock up the fewest Worldwide, overcrowding is the norm. communities. And many criminals are people tend to be either liberal (Sweden, Prisons cost money to build, after all, and kept locked up long past the age at which Finland) or too poor to build many prisons there are few votes to be won by making they cease to pose much of a risk to the (see chart on next page). In the Central Afri- life easier for criminals. In 58% of the 198 public. Violence is a young man’s vice; can Republic, the incarceration rate is only1 countries for which there are data, prisons are more than 100% full, says the latest an- Women in prison nual Global Prison Trends report from Pe- nal Reform International, a think-tank. Some 40% of countries were above 120% Girls, incarcerated capacity; 26% were above 150%. COATLÁN DEL RÍO America locks up far more people than More women are being put behind bars. Fewershould be any other rich country (see chart 1). Yet the recent trend has been towards leniency. NE ofMexico’s newest prisons pines, more than 90% offemale prisoners The proportion ofAmerican adults behind Oallows inmates to receive a conjugal have been charged with drug offences. In bars fell from a peak of1 in 100 in 2008 to 1 visit every week. The rooms set aside for Ireland, 80% are jailed fornon-payment in 115 in 2015. Several states have tried to these visits at Coatlán del Río have clean offines. Most Kenyans prosecuted for find alternatives to incarceration for non- beds, showers and toilets. Any married brewing illicit alcohol are women, per- violent criminals, partly to save money inmate can use them, as can same-sex haps because it is a crime that can be and partly because they have concluded couples, ifthey tied the knot in a Mexican committed without leaving the children that locking up too many people for too state where gay marriage is allowed. home alone. In Afghanistan, halfthe long does little for public safety. “Kentucky Alas, the conjugal rooms are barely women in prison are there for“moral” prisons were full of people we’re mad at, used. This is a women’s prison and their crimes such as eloping. not people we’re afraid of,” says John Til- menfolkare a bit unreliable. “Women in Locking up parents harms children; ley, the secretary ofjustice in Kentucky. prison are often abandoned,” says an and female prisoners are much more experienced guard at the prison. Of the likely to be custodial parents. Coatlán del On the straight and narrow 1,400 inmates, how many receive regular Río tries to keep mothers and small chil- Donald Trump’s attorney-general, Jeff Ses- conjugal visits? “Only one,” she sighs. dren together. It has a playground and a sions, wants to make America more puni- Another inmate was sentenced for smug- children’s library. Costa Rica recently tive again. This month he ordered federal gling drugs to her husband in a different tweaked its laws to make it harder to lock prosecutors to seek maximum sentences jail. He was released and promptly found up women who smuggle drugs to jailed for drug offenders. Although federal in- another woman, says the guard. lovers or steal to support their hungry mates are less than a tenth of the total in Serious criminals are nearly all male, children. Punishments such as home America, Mr Sessions shows that advo- which is why less than 10% ofthe world’s arrest and electronic tagging hurt their cates of old-fashioned “tough-on-crime” prisoners are women. But the number of children less. policies are still powerful. female prisoners has soared by 50% since The guard at Coatlán del Río, who has One reason for locking people up is to 2000. This is worrying. Women in prison worked in male and female prisons, punish them. Victims of crime, especially, are farless likely than men to have com- describes the difference. Male prisoners may be comforted by the knowledge that mitted violent crimes, and more likely to lookfor bits ofwire to make weapons their tormentors are suffering. In a poll in have broken the law to support their and stab each other, she says. “Women crime-racked Brazil, 57% of people agreed families. In Indonesia and the Philip- lookfor wire to curl their eyelashes.” that “a good criminal is a dead criminal.” 50 International The Economist May 27th 2017

2 16 per100,000. (By one estimate halfthe in- mons. It is about helping people to mates are serving time for witchcraft.) The jail curve 2 understand the “triggers”—people, places Reserving prison for the worst offend- Countries with a population of more than 5m and things—that prompt them to offend. ers has hefty benefits. First, it saves money. 2015 or latest The counsellor nudges the offender to- In America, for example, incarcerating a Asia Europe Latin America wards minimising negative influences and Middle East & North Sub-Saharan federal convict costs eight times as much as north Africa America Africa maximising positive ones. For example, “If putting the same convict on probation. 700 you get together with your friend Tom on Second, it avoids mixing minor offenders Country3 United States payday and go crazy, maybe you should with more hardened criminals, who will 600 avoid Tom on payday,” says Mr Gelb. teach them bad habits. “The low-level guys 500 Country6 Country5 Counsellors should not argue or hector, don’t tend to rub off on the higher-level 400 but show that they are listening and praise prisoners. It goes the other way,” says Ron Country4 Norway offenders for acting responsibly. 300 Gordon of the Utah Commission on Crim- Central Norway uses CBT a lot—Tore benefited African inal and Juvenile Justice, a state body. 200 Republic from it. America uses it spottily. Astudy of

Modern electronic tags are cheap and people Prisoners per 100,000 100 over 500 programmes in American pri- effective. In a recent study Rafael Di Tella of Japan sons, jails and probation agencies by Faye 0 Harvard University and Ernesto Schar- 110100Taxman of George Mason University grodsky of Torcuato Di Tella University GDP per person at PPP*, $’000, log scale found that only 20% involved CBT and compared the effects of electronic tagging Sources: World Prison only about 5% of individuals were likely to Brief; World Bank *Purchasing-power parity versus prison for alleged offenders in Bue- have access to it. Done well, it can reduce nos Aires. Earlier research had failed to recidivism by 10-30%. A meta-analysis of deal with the fact that criminals who are long sentences with little more than 50 CBT programmes in America by Thom- tagged are less likely to reoffend than the clothes and a bus fare.) Eventually Tore as Feucht and Tammy Holt forthe National more dangerous ones who are locked up. plans to set up hisown carpentry business. Institute of Justice, a government body, The authors found a way round this. Al- Prisons around the world use a variety found that74% were effective orpromising. leged criminals in Argentina are assigned oftools to prevent recidivism. It is fiendish- They worked best with juvenile offenders randomly to judges for pre-trial hearings. ly hard to disentangle what influences a and worst with wife-beaters. There was Liberal judges are reluctant to hold them in convict’s future behaviour, but Adam Gelb mixed evidence for the effect on sex of- the country’s awful jails, so they often or- of the Pew Charitable Trusts, a think-tank, fenders, who are hard to reform. der them to be tagged. So-called mano dura lays out some principles which have been (tough hand) judges preferto lockthem up. shown to work. The great escape The researchers observed what happened First, identifythe inmates who are most Mr Bueno, the former drug-dealer, says he to similar offenders under different re- likely to reoffend. Some good predictors of was reformed not by anything he learned gimes. Only 13% of those who were tagged this cannot be changed, such as a troubled in prison, butbyHope forPrisoners, a char- were later rearrested; for those sent to pri- family background and previous criminal ity—and God. When he left his cell for the son the figure was 22%. history. Age is also crucial—some 68% of final time, he went back to his old friends federal prisoners in America who are re- and was “walkingbackdown the same old Prison break leased before the age of 21 are rearrested paths”. Then his girlfriend (now wife) sug- Some criminals are so dangerous that they within 8 years; for the over-60s, it is only gested he go and listen to Jon Ponder, an need to be locked up. But nearly all will 16%. Other risk factors are more malleable. armed robber-turned-preacher, who one day be released. Consider Tore (not his Poor impulse control, substance abuse and teaches ex-convicts to take responsibility real name), an inmate at Bastoy. He spent the habit of picking anti-social friends can for their lives. Mr Bueno exults that he has his 20s selling drugs, drinking and party- all respond to treatment. joined “the most powerful gang in the ing. One day, when he was high on meth- Rehabilitation programmes that focus world—God’s gang”. Tore, in Norway, has a amphetamine and had not slept for three on factors other than crime, such as cre- more secular view of reform: “I just want days, he attacked two friends with a knife, ative abilities, physical conditioning and to be a normal person and pay tax.” 7 over nothing—some expensive clothes. He self-esteem do not reduce criminal behav- was arrested, charged and got into another iour, argues Edward Latessa of the Univer- fight while awaiting trial. He was eventual- sity ofCincinnati. Boot camps are especial- ly given a 14-year sentence for three at- ly ineffective: they foster aggression and tempted murders and intending to sell sev- bond criminals together. eral kilos ofhash. Oliver Bueno, a former drug-dealer, For the first couple of years inside a agrees. “I came out worse,” he recalls of his closed prison, he was furious and blamed time in a juvenile boot camp in Nevada. “everyone else” for his plight, he says. But “You got beat up all the time by staff,” he then he took a course with a counsellor says, adding that the guards were “ex-mili- who had lived “the same life”. She talked tary, hillbillies and real racists”. He de- to him about his regret for what he had scribes having his head shaved and being done, and persuaded him that he could constantly shouted at. “The abuse got me never touch alcohol again. It took many more and more angry, hating authority,” months. “It was like freedom,” he recalls. he says. After his release, he went straight At Bastoy he took a carpentry exam. He backto gangbanging, selling drugs and get- will probably be released in three years. ting into fights over trivial slights. Shortly On that day, he expects to have a job. Bas- before his next arrest, he says, “I had a gun toy inmates can start working outside 18 in [another man’s] face and I don’t even re- months before they are released—the aim member what it was about.” is to ensure that every ex-prisoner has a Perhapsthe besttool iscognitive behav- roof, an income and something to do. (In ioural therapy (CBT). This is not about sit- America some prisoners are released after ting in a circle and sharing one’s inner de- Inmate, you’ll have to wait Business The Economist May 27th 2017 51

Also in this section 52 Ford switches gear 53 SoftBank’s titanic tech fund 54 Netflix goes to Cannes 54 Collecting trainers 55 The chemicals industry compounds 56 Schumpeter: General Eclectic

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

Airbnb tomers and drivers, and has chosen to sub- sidise journeys to avoid losing market A different breed of unicorn share, Airbnb has no need to pay up to keep hosts and users. An attention to costs that is uncommon in the startup world is also paying off handsomely. In 2015 Airbnb hired as its SAN FRANCISCO chief financial officer Laurence Tosi, who had previously done the same job at Black- Airbnb’s cohesive culture and unusual financial discipline markit out stone, a private-equity firm. He is regarded NTIL recently “Uber envy” afflicted guests’ safety and, increasingly, the need to as the adult supervision. Airbnb reported- Umany top executives at Airbnb, a plat- fend off rivals such as Priceline, a fear- ly achieved profitability forthe first time in form for booking overnight stays in other somely efficient online travel-booking the second half of 2016 and will make people’s homes. So admits a biginvestor in company. money in 2017. It has raised $3bn and spent the firm. The two companies often raised Airbnb’s founders started as complete only around $300m of it (Uber is said to money at the same time, and the ride-hail- outsiders to the hospitality business and have lost $2.8bn in 2016 alone). ing giant reliably received more cash and indeed, to commerce. Brian Chesky, its 35- closer attention. Uber is America’s most year-old chief executive, had no previous Rental health valuable private technology firm, with a business experience or technical expertise. Airbnb’s founders were early to recognise valuation of close to $70bn at last count; Instead, he and one of his co-founders, Joe the importance of a strong, benign culture. Airbnb is still in second place with a value Gebbia, had studied design at Rhode Is- (Uber, meanwhile, is under fire forits hard- ofaround $30bn. Butwith Uberfacinga se- land School of Design before teaming up charging practices.) Until 2013 the founders ries ofsetbacks, including allegations ofin- with a software engineer, Nathan Ble- interviewed every job applicant, and to- tellectual-property theft, departures by se- charczyk, to launch what was then called day anyone who is hired still has to pass a nior executives and a consumer boycott, AirBed and Breakfast, with the aim of rent- “core values” interview, where they are jealousy in Airbnb’s hallways has largely ing out air mattresses in apartments. They judged not on their CV but on how they fit evaporated. were so untutored in investing that when into the firm’s sensibility. This ensures that It helps that the firm is on a tear. Last an early adviser suggested raising money people have a sense of mission, even if year 80m people booked stays on Airbnb, from small investors known as “angels”, some of the firm’s peppy idealism sounds double the number in 2015 (see chart on Mr Chesky thought people in Silicon Val- naive to jaded journalists. Asked whether next page). It now plans to expand into oth- ley believed in celestial beings. Airbnb is a technology or a travel com- er bits of the market for accommodation, Both Airbnb and Uber—America’s two pany, Vlad Loktev, its director of product, including luxury trips and business travel. most valuable “unicorns”, private startups looks cautious. “We’re more of a commu- New products, such as bespoke city tours, worth over $1bn—operate platforms with- nity company,” he says. are in the works. out owning the underlying rooms and cars What of the future? Given its financial The firm’s ultimate aim is to evolve that are beingused; both take a cut from ev- results, Mr Chesky maintains that “we from being a platform for overnight stays ery transaction. Airbnb charges both don’t need to raise any more money ever into a comprehensive travel company, cap- guests (6-12% of total rental fees) and hosts again.” But the hiring of Mr Tosi and the turing an ever-greater share of tourists’ (around 3% of their total earnings from the push for financial discipline suggests the spending. In 2017 it may notch up as much site). A particular feature of Airbnb’s mod- firm does want to go public, perhaps as as $2.8bn in sales, up by around 65% from a el is that its rental listings are usually not soon as 2018. Ifso, Airbnb would come un- year earlier; forecasts suggest it could reach available on the websites ofany ofits com- der scrutiny as never before. $8.5bn in revenuesby2020. An IPO may be petitors, because hosts tend to be loyal. So Investors note that, although at first the in the offing, yet pitfalls also lie in wait. while Uber is locked in a fierce competi- website attracted cost-conscious millenni- Chief among these is regulation, ensuring tion with rivals in most markets for cus- als looking for a more authentic travel ex-1 52 Business The Economist May 27th 2017

2 perience, growth now depends on broad- ing. Lastautumn Airbnb started selling “ex- ening its base. Business travellers are one Keyed up periences”, which are customised target. Airbnb has made it easier for firms Airbnb activities that travellers can book, includ- to place roving employees in hosts’ rooms Guest arrivals, m Valuation, $bn ing special meals, tours and exercise pro- instead of in hotels. It has set up partner- 80 40 grammes, typically arranged by Airbnb ships with companies, such as Hyundai, a hosts. Your correspondent booked a bicy- carmaker, and Domino’s Pizza, a food 60 30 cle tour of San Francisco’s Mission neigh- chain, to make it easier to find rooms that bourhood. The tour was enjoyable and in- are suitable for their employees, whose cluded a visit to a secret bookstore, 40 20 chief needs are wireless internet, a desk Bolerium Books, where works are ar- and 24-hour check-in. Employees from ranged not by author but by social move- 250,000 companies now regularly book 20 10 ment. But for $100, excluding lunch, the travel on Airbnb. price seems even steeper than San Francis- The firm also wants to appeal to 0 0 co’s hills. There are plenty ofotherfirms of- 2009 10 11 12 13 14 15 16 17* wealthy globe-trotters. In February Airbnb fering tours and things to do. Sources: Company reports; CB Insights *January-May 1st bought a holiday rental site, Luxury Re- There have also been murmurs that treats, for around $300m. This brings it a Airbnb will move into flights. Finding on- portfolio ofexpensive properties, many of platform functions because people trust line flight options fortravellers is a painful- which are rented forthousands ofdollars a that user photos and blind reviews will ly low-margin business. Companies like night. Bringing in more of the mass market help root out bad actors. It faced a crisis in Priceline and Expedia make the bulk of will meanwhile require regular additions 2011 when Airbnb guests trashed a host’s their revenue from hotels. But that is not of new, mid-range inventory. Airbnb must apartment and she blogged about the ex- the model Airbnb wants to embrace any- decide how much to favour quantity of perience. Airbnb responded by offering in- way, says Mr Blecharczyk, who declines to listings, which will help it become an auto- surance to all hosts of up to $1m in dam- share more details on what Airbnb’s ap- matic place for people to look for accom- ages. There remains the possibility of a proach to air travel might look like. “If modation, over quality. dramatic breach in personal security, we’re going to do something, we should Either way, the rivalry between Airbnb which could spookhosts and users. try to do it differently,” he says. and hotels will surely intensify. An analy- The third threat is growingcompetition. It is possible that Airbnb’s best idea will sis by Morgan Stanley, a bank, suggests that Airbnb was not the first firm to pursue the be its first one. It will be up to the firm and the number of overnight stays in Airbnb concept of alternatives to hotels, but it was one day, perhaps, to itspublicshareholders accommodation will reach 6% of all hotel the first to become a global success. That to decide whether it is worth pursuing nights in America and Europe by 2018, up has drawn the attention ofothers. In many new, ancillary opportunities, when there from 4% in 2016. The chiefimpact upon ho- markets, including China and Europe, is still so much to win in the market for tra- tels so far has been to stop them raising Airbnb faces competition from local firms, vel accommodation. In chasingaftera new rates. Airbnb brings a supply of available as well as from established global players. dream before the first one is realised, rooms to market whenever there is de- In 2015 Expedia, an online-travel website, Airbnb does bear one resemblance to its mand, a blow to hotels that used to be able bought HomeAway, an Airbnb rival, for a Silicon Valley peers. 7 to charge dizzying prices at peaktimes. hefty $3.9bn. But Airbnb’s most fearsome competitor You can’t handle the roof is Priceline, which owns Booking.com and Ford Lobbying by the hotel industry has con- is considered one of the best-managed in- tributed to Airbnb’s most obvious chal- ternet companies in the world. Priceline Can he Hackett? lenge, which is regulation. Opposition to has been speedily adding alternative ac- the firm is fierce in many big cities, espe- commodation. Mr Chesky insists that cially those with limited affordable hous- “there isfundamentally nota lotofoverlap ing, where residents blame Airbnb for tak- between what they’re offering and what ing apartments off the market. Several we’re offering”, because Priceline is work- A sudden change at the top is a sign of cities that could supply large profits, in- ing mostly with property-management an uncertain future cluding Berlin, Barcelona and New York, companies that “look more like hotels”. have imposed rules that make offering But this will be less true over time. Price- HE abrupt departure of Ford’s boss, short-term rentals difficult. New York, line is too astute to let Airbnb win a catego- TMarkFields, which the firm announced which is Airbnb’s third-largest market, has ry worth owning without a challenge. on May 22nd, has two explanations. Inves- banned short-term rentals in apartment The travel industry is a large prize to tors had become restive at its performance, buildings for less than 30 days, unless a share. Globally, people spend around particularly in the past year. But Mr Fields host is present. Berlin has passed a de facto $700bn a year on travel accommodation, wasalso perceived to lackthe drive of Alan ban, by requiring a permit if someone according to Euromonitor International, a Mulally, the man he succeeded. In replac- wants to rent more than halfoftheir apart- research firm. With rising incomes and ing him with Jim Hackett (pictured on next ment on a short-term basis and levying smaller families globally, travel is ever page), who ran an office-furniture com- hefty fines forviolations. more popular. Many more people than pany before joining Ford’s board in 2013 Airbnb has now opted for a new, more first thought have been willing to forgo ho- and more recently led the firm’s mobility conciliatory approach, notes Leigh Gal- tel luxuries such as gyms and concierges to unit, Ford hopes to conquer current pro- lagher, author of a book, “The Airbnb get the proper feel of a place. That suggests blems and shore up its future strategy. Story”. In Amsterdam and London it has that alternative accommodation will not Ford’s shares have declined by nearly agreed to police its listings to ensure they be a fringe activity for the young, but a 40% since Mr Fields took over (see chart). comply with local laws on the number of mainstream part ofthe travel business. Though it made record profits in 2015 and days a year each unit can be rented. Yet In any case, Airbnb’s aspirations do not had strong results in 2016, investors reck- manyinvestorsworrythatmore restrictive end there. It has created an innovation and oned a booming North American market, laws will dampen its prospects. design lab, called Samara, with the ambi- on which it relies for nearly two-thirds of Asecond, ever-present riskis safety. The tion of creating a new kind of travel offer- revenues, would slow. They also disliked 1 The Economist May 27th 2017 Business 53

such as Google, Apple and Tesla has in- Less than electrifying stilled a sense of panic among all carmak- Share prices, July 1st 2014=100 ers as they grapple with new technology. 110 Nonetheless, Ford is under pressure to Ford General Motors catch up with its rivals and to communi- 100 cate better. GM recently launched the Bolt, 90 a cheapish electric car, and has been com- 80 mended forfar-sighted investments in Lyft, a ride-hailing service, and Cruise Automa- 70 tion, a self-driving startup. Ford’s plans for 60 electrification are far less advanced, and a 2014 15 16 17 recent investment of $1bn in Argo, another Net profits, $bn Ford General Motors self-driving startup, was criticised as too 0246810 pricey. Mr Hackett will leave the job of managing external relations to the 2014 smooth-talking Bill Ford, the company’s 2015 chairman and a member of the family that still controls the carmaker. 2016 As well as casting an eye to the future, Mr Hackett will have to face Ford’s present Sources: Thomson Reuters; company reports ills. There is not much he can do about its lack of scale compared with the industry’s 2 the fact that Mr Fields had to invest heavily big hitters. Few carmakers are ready to risk in new technologies. Ford suffered the ig- the big mergers that would address the in- SoftBank nominy of its market capitalisation being dustry’s overcapacity. Nor can he do much surpassed by Tesla, a maker of electric cars to improve a brand that lacks cachet. Ford’s A vision of $93bn which turns out a fraction ofthe 6.6m vehi- foreign operations have weak returns. GM cles that roll off Ford production lines each has been more aggressive: selling its Euro- year. Being slammed for running a declin- pean operations and shutting down in In- ingfirm and forhurtingprofits by investing dia and South Africa. To tackle overcapac- in the future was a no-win situation. ity Ford recently said it would cut its global The size ofthe Japanese firm’s new fund Despite his relative lack of experience salaried workforce by a tenth, but that may won’t guarantee success in the carmaking business, Ford presented not be enough to stem losses in India and Mr Hackett as the “transformational other emerging markets. A dependence on HAVEN’T accomplished anything I leader” to “re-energise” the firm. After run- America will prove troublesome, as the “Ican be proud of in my 60 years on ningFord SmartMobility, a unitoverseeing market seems to have peaked. Earth,” Masayoshi Son, the boss of Soft- driverless cars and other new technol- Another task will be to set up a succes- Bank, a Japanese telecoms group, recently ogies, Mr Hackett may combine an insid- sor to steer the company in a few years’ confided. Now he has enough money to er’s feel and, like Mr Mulally, an outsider’s time, when newtechnologieswill have be- make a dent in the universe: on May 20th ability to challenge the status quo. He come an even more important part of SoftBank and Saudi Arabia’s Public Invest- promises to speed decision-making, cut Ford’s business. Jim Farley, Ford’s Euro- ment Fund (PIF), along with smaller inves- bureaucracy and, less convincingly, to add pean boss, and Joe Hinrichs, in charge of tors including Apple and Sharp, launched a dose of“fun” at Ford. the Americas, will take more senior roles, the world’s largest technology-investment Adjustment is required across the in- both in Detroit, to be groomed. If Mr Hack- fund, worth nearly $100bn. How will Mr dustry. Selling services will present a huge ett can ensure that the next change at the Son and his team deploy these riches? challenge to firmshitherto geared to selling top occurs at a more measured pace, that He has a vision to match his vehicle. cars. New competition from tech firms will be something. 7 Within 30 years, he predicts, the world will be populated by billions of robots, many of them more intelligent than humans. Several of SoftBank’s recent acquisitions, most of which are expected to be part of the fund’s portfolio, should be seen in this light. ARM, a British chip firm acquired for a whopping $32bn last year, will design the brains for the robots. OneWeb, a satellite startup in which SoftBank acquired a 40% stake for $1bn in December, will connect them. Nvidia, another chip-design firm, in which SoftBank has bought a big stake, re- portedly of $4bn, is meant to provide pro- cessors forartificial-intelligence services. The fund’sinvestmentteam, which will eventually number100, has another dozen deals in the pipeline. These will be fol- lowed by a further 40 or so, although not all of them will fit neatly into Mr Son’s vi- sion (biotech investments will be consid- ered, for instance). Deal sizes will range be- Fun comes to the Blue Oval tween $500m and $3bn, although another 1 54 Business The Economist May 27th 2017

2 ARM-sized acquisition is a possibility, too. Collectables The fund has five years to invest its money and will run for a maximum of14 years. Making so many investments in the Sole trading fast-movingtech world would be challeng- NEW YORK ing in any circumstances. Another com- The market forrare trainers is booming plexity is the influence likely to be exerted by the PIF, which has promised up to HEN Marty McFly donned his nant, partly due to an epidemic ofcoun- $45bn for the fund; Saudi Arabia seems to Wself-lacing Nike trainers in the terfeiting. Twitter and Instagram, where see it as a means to further its plans to div- distant future of2015, he really should consumers scroll through feeds and ersify the economy (though insiders deny have kept them in the box. Almost 30 interact directly with sellers, are the latest reports that the PIF has a veto right). Then years on from “Backto the Future II”, boosts to the secondary market. Annual there is MrSon’s promise to Donald Trump Nike’s real-life version, released in 2016, is sales directly through Instagram have to invest $50bn in America and create the most expensive training shoe on the been estimated at $200m in America. 50,000 jobs. Potential conflicts of interest planet, with an average resale price of “Stockmarkets” forbox-fresh shoes have to be managed, too: SoftBank itself $32,275. These rarest ofshoes (only 89 have also sprung up, offering anti-coun- will invest$28bn in the fund, $8.2bn ofthat pairs were made) are at the apex of a terfeiting services from professional in the form ofa stake in ARM, with the rest resale market that has been carefully sneakerheads. These function like tradi- ofARM remaining in SoftBank’s hands. nurtured by Nike and other trainer titans tional exchanges, with sellers setting a Other tech investors look at the fund since the late 1980s. price and bidders making offers, except with a mix of scepticism and greed. Many Every Saturday morning across Amer- that when a sale takes place the trainers think SoftBank lacks a successful record in ica, queues of“sneakerheads” form are shipped via companies forverifica- tech investing, excluding an early stake in outside trainer shops. Many are adding to tion. StockX, founded in February 2016, Alibaba, a Chinese internet giant. “You their hundred-pair collections, but the hosts more than 100,000 trainer portfoli- don’t get into investing with no real experi- rest are seeking shoes to sell in the sec- os and expects sales volume to pass ence and wantto deploy$100bn,” scoffsan ondary market. As brands try to strike a $100m this year. GOAT, a marketplace executive at one of Silicon Valley’s most il- balance between generating instant app started in 2015, claims1.5m members. lustrious venture-capital firms. But Mr revenue and restricting supply (which There are big sums to be made. Josh Son’s fund, which is bigger than all invest- creates demand, and more revenue later), Luber, co-founder ofStockX, says that ments of American venture-capital firms the secondary trade thrives. In America it each trainer’s appearance on the markets in 2016 combined, could help solve their is worth an estimated $1.5bn a year, a is akin to an initial purchase offering: “unicorn” problem: how to unload profit- tenth ofthe trainer industry’s value. “The sneakers’ value is immediately ably the many private tech startups worth By announcing small runs, without realised and people make a lot ofmoney more than $1bn. 7 restocks, brands build huge excitement from that initial pop.” A portfolio often around specific lines. One man epito- popular pairs on StockX, all released in mises the importance oflimited releases the past six months, would have yielded Netflix forthe big firms. Since Kanye West a return on investment ofalmost $7,500, switched allegiance from Nike to Adidas or 280%. Time to go short? Curtain call in 2013, Adidas’s share ofthe resale mar- ket has risen from less than 1% to 33%, and its share price has doubled. His latest shoe, around 100,000 pairs ofwhich CANNES were released in April, is selling for more than double the retail price. The hype has A bête noire ofcinema operators gets a not been without its problems. Black- betterreception at the film festival Friday-style chaos in the shops has be- HE rise of Netflix has been greeted come so common that brands have taken Tfrostily by some of the old guard at the steps to calm shoppers, instructing retail- Cannes film festival, where the American ers to move trainer releases from mid- streaming giant’s disregard for releasing night to early morning. films in cinemas wins it few friends. It A combination ofeBay, social media looked a bit more at home on May 21st, as and online markets has helped move the the lights went up at the Louis Lumière the- secondary market offthe street. EBay atre. The stars ofits own film, “The Meyero- pioneered collectible-trainer resales witz Stories (New and Selected)”, a com- online in the late 1990s and accounts for a edy drama, accepted a standing ovation third ofthe market, but is now less domi- All star investments from the audience. Ted Sarandos, Netflix’s head of content, stood alongside Dustin Hoffman, Ben Stiller and other cast mem- teed a theatrical release in France can qual- mas, is it still a film? Netflix’s run at Cannes bers. Festival-goers jostled for a word with ify for the top Palme d’Or prize. Pedro Al- this year suggests that the majority of film him at a swanky after-party. modóvar, a film director and president of types, at least, answer with a resounding This is the first year that Netflix has the jury, groused that he could not imagine “yes”. Independent film financiers, pro- been admitted into the festival’s competi- a winner that could be seen only on small ducers, directors and actors, including lo- tion, with two films, “The Meyerowitz Sto- screens. During a press screening of cal ones, regard Mr Sarandos as, in effect, a ries” and “Okja”, directed by Bong Joon-ho “Okja”, Netflix’slogo wasmetbya smatter- Hollywood studio chief—but one who of South Korea. Still, cries of protest from ing ofboos. stakes big money on independent film. French film-industry executives prompted The controversy turns, appropriately Therein lies the rub. In this age of Mar- Thierry Frémaux, the festival director, to enough for the French, on an existential vel superhero sequels and Harry Potter declare that, in future, only films guaran- question: if a film is never shown in cine- spin-offs, indie films struggle for custom-1 The Economist May 27th 2017 Business 55

2 ers. The median return on a low-budget film at the American box office is 45 cents on the dollar. With 100m subscribers glob- ally, Netflix uses different maths to justify investments, including whether a film works for a specific segment of customers. And it has a lot of cash. Netflix will spend more than $7bn on content this year. Critics lament that no one will see Net- flix’s films in a cinema. (Amazon, its big ri- val in streaming video, has decided to sup- port cinema-first distribution; and Netflix itself does occasionally put films in cine- mas in a few countries.) The criticism is es- pecially political in France, the birthplace of film. Whereas Netflix has a business model that can finance less commercial, arty films, France’s government heavily subsidises such production. It imposes a “culture tax” on cinemas and broadcasters worries. If all three proceed, as now seems take as long as a decade. To account for lon- and also obliges TV networks to invest in likely, four companies will produce 70% of ger and more costly development cycles, film-making. Another part of the system is the world’s pesticides instead ofsix today. firms need enough financial heft to be able a three-year delay between a film’s release The first mega-merger, announced in to have more projects on the go. in theatres and its availability over internet December2015, was between Dow Chemi- More stringent regulation throughout services, which protects cinemas and cal and DuPont, the world’s fourth and the EU has reduced the number of pesti- physical-media formats. fifth most valuable chemicals firms, in a cides farmers are permitted to use, from That delay was the sticking-point be- $130bn deal. Itwasthe largest-evertie-up in nearly 1,000 in the early 1990s to around tween Netflix and Cannes. Mr Sarandos the industry, and triggered other liaisons. 400 today, notes Robert de Graeff of the says Netflix tried and failed to obtain a Within a year Bayer, a German agrichemi- European Landowners’ Organisation, a waiver so that its festival entries could ap- cals giant, agreed to merge with Monsanto, trade group. If greater scale means that pear in cinemas briefly. No matter. Despite an American seedmaker, in a deal worth firms feel able to invest the larger sums of Mr Frémaux’s ruling, Mr Sarandos expects $66bn; and ChemChina, a Chinese giant, money needed to develop new products, to be back competing at Cannes. It will be offered $43bn in cash forSyngenta, a Swiss his members would approve. hard for the festival’s film buffs to keep re- biotech firm. ChemChina plans to merge But farmers are also fearful. They don’t sisting Mr Stiller’s argument: that while he with a local rival, Sinochem, to create a want to become overdependent on a set of wants to see movies in cinemas, “studios firm with revenues of$100bn or so. seeds and chemicals made by a single firm. aren’t makingthe movies Ted’smaking.” 7 Dealmaking has now spread from agri- All three of the mega-mergers are between chemicals to the rest ofthe industry, partic- one firm focused on seeds and another on ularly to “specialty” firms that make chem- agrichemicals. Many farmers are worried The chemicals industry icals for niche uses. On May 22nd Clariant this will mean they will be forced to use and Huntsman, whose products include pesticides made by the same firm that pro- Chain reaction additives for pesticides, agreed a $14bn duces the seeds they buy. Roger Johnson, mergerofequals. Biggerstill isthe latest bid president of America’s National Farmers by PPG of America, a specialty maker of Union, says that his members don’t like paints and coatings, for AkzoNobel of the any of the mergers. More consolidation Netherlands, a rival which owns Dulux may also mean that chemical firms can paint. On May 24th, Praxairand Linde, two charge higher prices, he fears, and face less To farmers’ chagrin, deal mania has industrial-gas firms, agreed the terms of a pressure to develop new products. seized the chemicals business merger ofequals worth $70bn. But all the deals should pass regulators. S SPRING arrives, the hills of Langue- The main impetus has been a dramatic The EU has signed off on the Dow-DuPont Adoc in southern France turn green slowdown in the growth ofdemand across and ChemChina-Syngenta deals; it is now with the leaves of grapevines. This is all types of chemicals, says P.J. Juvekar of almost certain that the deals will go helped along by chemicals—lots of them, Citigroup, a bank. In the 2000s sales ex- through, says Mr Juvekar. Bayer is in talks confides a winemaker based near the panded at a rate of6-7% a year, but last year with regulators about Monsanto; analysts town of Thuir in the Pyrenees. In their ab- the industry grew by just 2%, with demand again reckon that a deal will proceed. sence, vineyards would need natural fertil- from China very weak. Executives are hop- Regulators’ relaxed stance is likely to isers and to be weeded by hand, both cost- ing to use scale to cut costs. stimulate still more activity. The ease with ly. French farmersuse more chemicals than The soaring cost ofdeveloping and test- which ChemChina’s purchase ofSyngenta anyone else in Europe: 65,000 tonnes of ing new chemicals is another factor, says was approved may embolden more Chi- pesticides alone each year. Kurt Bock, CEO of BASF, a German chemi- nese firms to go forWestern chemical com- Even the smallest of vine-growers has cals giant. The average cost ofdeveloping a panies in the future. The current series of an interest in a series of takeovers pro- new active substance has shot up from deals—though huge—looks like the start of posed between their chemicals suppliers. $150m in 1995 to over $500m in Europe to- a bigger wave, says Florian Budde of After a decade without any big deals, since day; most of that goes on testing for safety. McKinsey, a consultancy. Farmers are like- 2015 three mega-mergers, collectively Over the same period, the number of po- ly to have more to worry about. 7 worth around $240bn, have been pro- tential compounds that have to be synthe- posed. When they were first announced, sised and tested for each new substance, in Clarification: In the issue of May 20th Schumpeter referred to staff turnover at Dow Chemical. The fact that many doubted that regulators would al- case they are harmful, has risen from a third of staff joined in the past five years was largely low the mergers because of competition 50,000 to over 140,000, a process that can due to the buying and selling of businesses. 56 Business The Economist May 27th 2017 Schumpeter General Eclectic

The reign ofJeffImmelt, GE’s boss, shows that capital allocation is hellishly difficult OSSES come in all shapes and sizes. One way to categorise stories where tech is becoming more important, such as aviation, B them is to split them into two types: polishers and pickers. power systems and medical devices. The scale of change has Polishers put their energy into products, improving and reima- been huge. Outside the financial arm, looking just at industrial gining their design and production in a quest forperfection. Long operations, since 2001GE has traded businesses worth $126bn, or after Apple had become one of the planet’s most valuable firms, 167% of the capital employed in its industrial divisions. Counting its boss, Steve Jobs (who died in 2011), obsessed over “the finish capital expenditures, too, Mr Immelt has redirected resources on a piece of metal, the curve of the head of a screw, the shade of worth a colossal 227% ofGE’s capital base. blue on a box”, writes his biographer, Walter Isaacson. The results are less impressive than you might expect. Annual Pickers, by contrast, are capital allocators, who stand backand free cashflow from GE’s industrial business was around $10bn in decide unsentimentally how the firm should deploy resources. 2001and the figure has not risen even as its capital employed has An example of this approach is Jeff Immelt, who runs General increased from below $30bn to $75bn (see chart). Cash returns on Electric (GE), the world’s most valuable industrial firm. Mr Im- capital have fallen to about 12%. Partly reflecting this, GE’s shares melt’s record since taking over in 2001 shows that capital alloca- have lagged behind the S&P 500 index over most periods. tion is farharder than you might think. Why does a logical strategy, methodically implemented by Most chief executives would say they are more pickers than competent people, not succeed better? Active capital allocation polishers. The task of creating the iPhone, devising a new drug or carries a danger: it can be procyclical, magnifying the swings in honinga manufacturingprocessisbestleftto geniuses such asMr sentiment that most industries face. Businesses that are perform- Jobs or to internal experts. By contrast capital allocation happens ing well often have profits that are at cyclical highs and that are to a CEO, like it or not. Consider a firm that reinvests10% of its net valued at inflated levels. As Warren Buffett puts it, “What is smart worth every year. By their tenth year in charge the CEO’s choices at one price is dumb at another.” about deploying cash—including a decision to just sleepwalk— In “The Outsiders”, a cult business book, William Thorndike will explain 60% ofthe firm’s bookvalue. studies eight bosses whose firms on average have outpaced the Taking firm control ofthe process makes obvious sense. In the S&P 500 by a factor of 20. They may have been obsessed with 1970s the logic of starving lousy businesses and feeding good capital allocation, but they bought into deeply unfashionable ones was spread by management-consulting firms. BCG told things, from decrepit cable-TV networks in rural America (John firms to split portfolios into four buckets: cash cows worth milk- Malone at TCI), to the makers of Twinkies (Bill Stiritz at Ralston ing, stars, dogs that should be shot and question-marks. Today Purina). Bucking accepted wisdom is, however, extraordinarily the consultancy reckons that businesses shift between the buck- hard for CEOs of big, iconic firms, who must built a consensus ets twice as fast as they did in the 1990s. among executives, directors and shareholders. Mr Immelt has remade GE partly because he had a tricky in- heritance. GE’sshareswere overvalued, itsearnings were inflated Spit and polish by gains from its pension scheme, and it had overexpanded its fi- The cost of churning capital in predictable ways can be signifi- nancial arm, which later blew up during the banking crisis. He cant. Schumpeterestimates that GE haspaid a multiple of13 times has globalised GE: 57% of sales now come from abroad, up from gross operating profits for the businesses it has bought and got 9 29% in 2001. And he hasloosened up itsculture. Itsold head office, times for those it sold. Some nine-tenths ofits industrial capital is in Connecticut, sat amid suburbs and golfcourses. Its new digs in now comprised of goodwill, or the premium that a firm paid Boston are next to an art institute. above bookvalue for its acquisitions. A company’s capital expen- But the main legacy ofMrImmelt will be as a capital allocator. diture can also be procyclical. For example, in 2010-14 GE ramped He has shrunk or sold businesses that are mature or under mar- up investment in its oil and gas business, at a point when energy gin pressure, such as plastics and kitchen appliances, or where GE prices were high, then cut backafter they slumped in 2015. has no advantage, such as media. He has killed off most of its fi- Forbusinessesin aggregate, and theirinvestors, churning port- nancial arm. And he has bought in areas with promising growth folios brings some benefits. Firms must respond to changes in customer tastes and technology. They may be able to boost their market shares for some products, allowing them to raise prices. Running to stand still But it seems unlikely that hyperactive capital allocation greatly GE’s transformation since 2001*, $bn enhances wealth overall. Deals are often a zero-sum game. It is impossible foreveryfirm to own onlyoutperformingbusinesses. 100 20 And the fees lawyers and bankers charge are a tax on corporate Capital employed activity that corrodes value. at year end Free cash flow† 15 ForMrImmeltthe juryisstill out. GE’s profits are risingeven as 50 its cash flows stall, as it books the gains it expects to make on long- Cumulative + term infrastructure projects and servicing contracts. It has acquisitions 10 Profits† launched a newjetengine, called Leap, and isinvesting heavilyin 0 Cumulative Predix, an open data platform that it hopes will become an oper- disposals 5 ating base for a host of industrial digital applications. And it is – buying new assets at the bottom of the cycle, with a planned 50 0 merger of its energy business with Baker Hughes, an oil-services 2001 05 10 16 2001 05 10 16 firm. Mr Immelt will probably retire soon. His successor will *All figures exclude GE’s financial arm surelycome underpressure to undertake anothermassive reshuf- Sources: Company reports; The Economist †After tax, before interest costs fle ofwhat GE owns. Far better now to polish what it has. 7 Finance and economics The Economist May 27th 2017 57

Also in this section 58 Buttonwood: Bumper buy-backs 59 Africa-EU trade 59 Noble Group wobbles 60 A new foreign-exchange trading code 61 Tax evasion, Hong Kong edition 61 Bitcoin booms 62 Machine-learning in finance 64 Free exchange: France and the German model

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Stockpicking est-rate differential between two countries reflects the expected change in exchange Quants and the quirks rates. In effect, this meant that the forward rate in the currency market was the best predictor of exchange-rate movements. MrWadhwani wassurprised bythis ap- proach, since he knew many people who used the “carry trade”, ie, borrowing mon- ey in a low-yielding currency and invest- Markets and academic theories are changing in tandem ing in a higher-yielding one. If the bank UILD a better mousetrap, the saying changed their assumptions so rapidly and was right, such a trade should be unprofit- B goes, and the world will beat a path to substantially about the fair value of equi- able. After some debate, the bank agreed your door. Find a way to beat the stock- ties. Robert Shiller of Yale won a Nobel on a classic British compromise: it forecast market and they will construct a high- prize in economics for work showing that the currencywould move halfthe distance speed railway. As investors try to achieve the overall stockmarket was farmore vola- implied by forward rates. this goal, they draw on the work of aca- tile than it should be if traders were ade- Many who work in finance still believe demics. But in doing so, they are both quately forecasting the fundamental data: they can beat the market. After all, there changing the markets and the way aca- the cashflows received by investors. was a potential flaw at the heart of the effi- demics understand them. Another example of theory and prac- cient-market theory. For information to be The idea that financial markets are “effi- tice parting company is in the foreign-ex- reflected in prices, there had to be trading. cient” became widespread among aca- change market. When Sushil Wadhwani But why would people trade if their efforts demics in the 1960sand 1970s. The hypoth- left a hedge fund to join the Bank of Eng- were doomed to be unprofitable? esis stated that all information relevant to land’s monetary policy committee (MPC) One notion, says Antti Ilmanen, a for- an asset’s value would instantly be reflect- in 1999, he was taken aback by the way the mer academic who now works for AQR, a ed in the price; little point, therefore, in bank forecast currency movements. The fund-management company, is that mar- trading on the basis of such data. What bankrelied on a theory called “uncovered- kets are “efficiently inefficient”. In other would move the price would be future in- interest parity”, which states that the inter- words, the average Joe hasno hope of beat- formation (news) which, by definition, ing the market. But if you devote enough could not be known in advance. Share capital and computer power to the effort, prices would follow a “random walk”. In- Growth spurt you can succeed. deed, a book called “A Random Walk Stockmarket indices That helps explain the rise of the quan- Down Wall Street” became a bestseller. Ratio of MSCI US growth to MSCI world value titative investors, or “quants”, who at- The idea helped inspire the creation of 2.0 tempt to exploit anomalies—quirks that index-trackers—funds that simply buy all cannot be explained by the efficient-mar-1 S&P the sharesin a benchmarklike the 500. 1.5 From small beginnings in the 1970s, track- Internship: The Economist invites applications for the 2017 Marjorie Deane internship. Paid for by the Marjorie ers have been steadily gaining market 1.0 Deane Financial Journalism Foundation, the award is share. They command around 20% of all designed to provide work experience for a promising assets under management today. journalist or would-be journalist, who will spend three 0.5 months at The Economist writing about economics and But the efficient-market hypothesis has finance. To apply, write a covering letter and an original repeatedly been challenged. When the article of no more than 500 words suitable for American stockmarket fell by 23% in a sin- 0 publication in the Finance and economics section. Applications should be sent by June 2nd to gle day in October1987, it was hard to find a 1997 2000 05 10 15 17 Source: Thomson Reuters [email protected]. For more information, reason why investors should have please visit www.marjoriedeane.com. 58 Finance and economics The Economist May 27th 2017

2 ket hypothesis. One example is the mo- Whether these funds will prosper de- have argued that most anomalies can be mentum effect: shares that have outper- pends on why the anomalies have been explained by three factors: a company’s formed the market in the recent past profitable in the past. There are three pos- size; its price relative to its assets (the value continue to do so. Another is the “low-vo- sibilities. The first is that the anomalies are effect); and its volatility. latility” effect: shares that move less viol- statistical quirks; interrogate the data for The third possibility is that the returns ently than the market produce better risk- long enough and you may find that stocks reflect some quirk of behaviour. The out- adjusted returns than theory predicts. outperform on wet Mondays in April. That size returns of momentum stocks may A new breed offunds, known in the jar- does not mean they will continue to do so. have been because investors were slow to gon as “smart beta”, have emerged to ex- The second possibility is that the excess realise that a company’s fortunes had im- ploit these anomalies. In a sense these returns are compensation for risk. Smaller proved. But behaviour can change; Mr funds are simply trying to mimic, in a sys- companies can deliver outsize returns but Wadhwani says share prices are moving tematic way, the methods used by tradi- their shares are less liquid, and thus more more on the day of earnings announce- tional fund managers who interview exec- difficult to sell when you need to; the firms ments, relative to subsequent days, than utives and pore over balance-sheets in an are also more likely to go bust. Two aca- they were 20 years ago. In other words, in- attempt to pickoutperforming stocks. demics, Eugene Fama and Kenneth French, vestors are reacting faster. The carry trade 1 Buttonwood Bumper buy-backs

A new paperargues that, to forecast share returns, buy-backs as well as dividends must be counted HAT is the point of buying shares? payouts have grown faster than before. (CATY) and compare it with the cyclically- WUltimately investors must hope that The growth rate since 1871 has been 2.05%; adjusted price-earnings ratio (CAPE), the cash they receive from the company since 1970, it has been 3.44%. That is proba- which averages corporate profits. They will offeran attractive long-term return. bly because of strong corporate profits, find that CATY is at least as good as CAPE Over the long run, reinvested divi- which recently hit a post-1945 high as a pro- in predicting market movements. dends rather than capital gains have com- portion ofAmerica’s GDP. As for the link with economic growth, prised the vast bulk of returns. But since An obvious apparent difference be- it is often hard to find a short-term correla- the 1980s American firms have increas- tween dividends and buy-backs is that ev- tion between this and stockmarket per- ingly used share buy-backs, which have ery shareholder gets the dividend but not formance, which tends to be much more tax advantages for some investors. Buy- all of them tend to take part in a buy-back. volatile. But the authors found that, over backs have been higher than dividend But theory suggests investors should gain the very long run, growth in the aggregate payments in eight ofthe past ten years. from a share buy-back even if they do not payout from American equities has In a buy-back, investors receive cash take part. The buy-back will reduce the matched that of the country’s GDP (see for a proportion of their holdings. A new number of shares in issue, giving existing chart), and payout-per-share growth has paper* in the Financial Analysts Journal investors a proportionately larger claim on matched that ofGDP per head. argues that adding this to dividend re- the profits and assets ofthe company. There is no guarantee that this rela- ceipts to calculate a total payout yield Over time, buy-backs are offset by the tionship will continue. Payouts lagged a gives a better estimate of future returns shares companies issue to make acquisi- long way behind GDP in the second half than the dividend yield alone. It also re- tions and honour executive share-option of the 20th century, and have only caught veals a much bettermatch between stock- schemes. In the half century since 1970 up because ofthe surge in buy-backs. And market performance and overall eco- new share issuance has exceeded buy- the stockmarket is much more interna- nomic growth. backs. But in the ten years to 2014, on aver- tional than it used to be; almost half the Using data going back to 1871, the au- age, buy-backs have predominated. revenues of S&P 500 companies come thors find that the average dividend yield The authors also experiment with us- from outside America. has been 4.5% and the total payout yield ing the total payout yield as a yardstick of Focusing on total payouts allows the 4.89%. Since 1970 the dividend yield has whether stocks are dear or cheap. By aver- authors to be a bit more optimistic in their dropped to 3.03%, but the total payout aging the yield over ten years, they work forecasts of future returns than the tradi- yield has averaged 4.26%. Looked at on out the cyclically-adjusted total yield tional dividend-based approach would that basis, the overall income return from suggest. Historically, total payouts have shares has been not that far below histori- grown by around 1.67% per year, com- cal levels. Keeping track pared with 1.46% for dividends alone. The return from shares can be broken United States, 1900=1 Combine that with the current payout down into three components: the initial yield and you get an expected future real 40 income yield; growth in the income S&P 500 companies* return of 5.1%, compared with just 3.6% if stream; and any change in valuation. (If Real aggregate total payout† dividends alone are used. Whether even shares become more expensive, the yield 30 that return, however, would be enough to will fall. Say the dividend is $6 and the meet defined-benefit pension promises, share price is $100, the initial yield will be 20 particularly those made to their workers 6%. If the shares rise to $120, the yield will GDP by state and local governments in Ameri- fall to 5% but the investors will have made 10 ca, is another question. a capital gain.) ...... Over the long run, changes in valua- 0 * “The Long-Run Drivers of Stock Returns: Total tion levels do not make much difference 1900 20 40 60 80 2000 14 Payouts and the Real Economy” by Philip Straehl and to the return. What has driven stockmark- Source: CFA Institute *Pre-1957, S&P 90 †Amount spent Roger Ibbotson Financial Analysts Journal on dividends and buybacks et returns in recent decades is that total Economist.com/blogs/buttonwood The Economist May 27th 2017 Finance and economics 59

2 is also less profitable than it used to be. Mr Noble Group Ilmanen says it is likely that returns from smart-beta factors will be lower, now that the strategies are more popular. Damsel in distress If markets are changing, so too are the SINGAPORE academics who study them. Many mod- A big commodities firm is teetering ern research papers focus on anomalies or on behavioural quirks that might cause in- HE difficulties facing Noble Group, a already classed as junk. vestors to make apparently irrational deci- Tbeleaguered Hong Kong commodities Noble’s share price tumbled further sions. The adaptive-markets hypothesis, trader, are multiplying. On May 23rd the when trading ofits stockrestarted on devised by Andrew Lo of the Massachu- firm was forced to suspend trading of its May 24th before recovering to finish the setts Institute of Technology, suggests that shares in Singapore after their value day down by 8%. But the drama has the market develops in a manner akin to slumped by more than 28% in halfan drawn more attention to negotiations evolution. Traders and fund managers pur- hour. The panicked selling came after over a $2bn credit facility which the sue strategies they believe will be profit- S&P Global, a ratings agency, warned that group needs to finance its operations, able; those that are successful keep going; Noble was at riskofdefaulting on large and which has to be renewed or replaced those that lose money, drop out. debt repayments that are due within the at the end ofJune. The speculation is that The results can be dramatic. In August next12 months. Investors were also Noble’s first-quarter losses have been 2007 there wasa “quantquake” ascomput- rattled by reports from Reuters and the scaring banks away. erised strategies briefly stopped working; Financial Times suggesting that Sino- Mervin Song, an analyst at DBS Vick- the suspicion was that one manager was chem, a Chinese conglomerate at one ers, guesses that Noble’s lenders will offloading his positions after taking losses time tipped to take a stake in Noble, had choose to “kickthe can down the road”. in the mortgage market. The episode hint- lost interest in a deal. But, says Margaret Yang ofCMC Markets, ed at a danger of the quant approach: if Founded in 1986 by Richard Elman, a a brokerage, in the longer term the group computers are all churning over the same formerscrap-metal merchant from Lon- needs to find a “white knight” investor to data, they may be buying the same shares. don, Noble grew from an initial invest- take a stake. Noble has been looking fora At the moment American growth stocks, ment of$100,000 to be worth more than saviour, and in a statement to the market such as technology companies, are as ex- $10bn at its peakin 2010. But investors on May 24th said that discussions with pensive, relative to global value stocks, as tookfright in 2015 when a previously “various potential strategic parties” were they were during the dotcom bubble (see unknown group called Iceberg Research in progress. It did not identify any of chart on previous page). What if the trend began publishing reports questioning them; nor has it ever commented directly changes? No mathematical formula, how- Noble’s accounting practices (Noble has on talkofa tie-up with Sinochem. Sealing ever clever, can find a buyer for a trader’s vigorously defended its book-keeping, a deal is presumably the highest priority positions when everyone is panicking. 7 and said a disgruntled formeremployee forthe group’s new chairman, Paul was behind the criticism). This controver- Brough, a well-regarded troubleshooter sy only made it tougher forthe group to who replaced Mr Elman on May11th and Africa-EU trade weather a global slump in commodity is reviewing the company’s options. He prices: over a calamitous two-year period may not have long to find an answer. Blown off course the company has shed more than 90% of its value (see chart). Oflate, however, Noble had appeared After the iceberg hit… to be making some progress towards Noble Group, share price, S$ recovery. It has been narrowing its focus 12 KAMPALA to oil and coal, and selling offinterests in agricultural trading and in power, among Anothertrade deal adrift 10 other sectors. After losing $1.7bn in 2015, HE winds that waft along the Swahili the company swung to a small profit last 8 Tcoast change direction with the sea- year. But this optimism faded rapidly in 6 sons, a boon to traders in times past. Shifts early May, when Noble forecast a first- in the political winds are harder to predict. quarter loss of$130m—blamed largely on 4 Last July a proposed trade deal between ill-judged coal trades—and warned that it 2 five countries of the East African Commu- might not return to profitability until nity (EAC) and the EU was thrown into dis- 2019. Since then, ratings agencies— 0 array when Tanzania backed out at the last Moody’s and Fitch, as well as S&P Glo- 2012 13 14 15 16 17 minute. An EAC summit, scheduled for bal—have all cut Noble’s credit rating, Source: Thomson Reuters months ago, was meant to find a way for- ward. Held at last on May 20th in Dares Sa- laam, after many postponements, only deal, and were supposed to bring develop- First, EPAs overlap with existing trade ar- two presidents showed up. The deal is in ment and regional co-operation. So far rangements. The poorest countries, like the doldrums. they have brought neither. Tanzania, alreadyenjoyduty-free and quo- The pact is one of seven “Economic Negotiations on EPAs began in 2002. ta-free access to the EU under an initiative Partnership Agreements” (EPAs) the EU Under previous conventions, the EU gave called “Everything But Arms”. That could wants to sign with regional groups in Afri- favourable market access to African, Carib- one day be withdrawn, but at present they ca, the Caribbean and the Pacific. The first bean and Pacific countries, most of them see little to gain by opening their markets. was agreed with the Caribbean in 2008; former colonies. That fell foul of World Second, countries within the same re- southern Africa followed suit last year. But Trade Organisation rules. Hence the idea gion face different incentives. Take Kenya, progress in west Africa has also stalled, of EPAs: reciprocal deals, requiring both richer than Tanzania and not eligible for with Nigeria raising objections. The EPAs parties to open their markets. Everything But Arms. It ratified the EPA last were promoted as a new breed of trade Two obstacles have to be surmounted. year and needs others to do so for the deal 1 60 Finance and economics The Economist May 27th 2017

to currency fluctuations. Yet in the past traders colluded with one another in inter- net chat rooms, secretly swapping client data in order to rig the widely used WM/ Reuters benchmark exchange rates. Some were caught and fired. Banks such as Citi- group, HSBC, JPMorgan Chase, Royal Bank of Scotland and UBS paid billions of dol- lars in fines. The FX market has always been lightly regulated, but many countries do have codes of conduct, usually drafted by the central bank in consultation with market participants. Often, however, the codes were defective: they missed areas vulner- able to malpractice; and were rarely updat- ed, scantily enforced and widely flouted. The new code starts with some advan- tages. It will supersede the national codes, and provide a single global set of princi- ples, with adherence closely monitored by Magufuli advises Museveni on how to tilt at colonialism a newly formed committee of central bankers and trading institutions. It is also 2 to come into force. It recalls the pain of San Bilal ofthe European Centre forDevel- designed to reflect current market practice, 2014, when the EU brieflyslapped tariffs on opment Policy Management, a think-tank. with clear guidelines on communication its exports, such as cut flowers, and is frus- The EPAs are mired in regional rivalries, he between participants and on trade-execu- trated by Tanzanian foot-dragging. notes, against a backdrop of global trade tion practices—two areas of weakness A more profound question is whether uncertainty after the Brexit vote and Do- highlighted by the scandal. EPAs really are good fordevelopment. Afri- nald Trump’selection. The nextstep for the Managers of FX traders will now be en- can manufacturers worry about European east African deal is a quixotic mission to joined to limit access to confidential infor- competition: nascent industries are “prone Brussels with Yoweri Museveni, the Ugan- mation, and to ensure that clear guidance to beingoverrun” byimports, warnsSegun dan president, at the helm. Don’t expect has been given on approved channels of Ajayi-Kadir of the Manufacturers Associa- the trade winds to start blowing. 7 communication. Greater disclosure is also tion of Nigeria, which lobbies against the demanded on how orders are processed, west African deal. EU officials point out so that clients will neverlose oversight and that slashing tariffs will help manufactur- Foreign-exchange trading control oftheir trades. ingby makingimported machinery cheap- The code will, however, be voluntary. er. African markets would open gradually, Be good, or else Guy Debelle ofthe Reserve BankofAustra- and some sectors are excluded. Details lia, who led the drafting, reckons that to vary, but EPAs typically liberalise about write binding rules for a global market 80% of imports over 20 years. Many of would have been more convoluted and those goods already enter duty-free. less effective. Principles, he argues, are The EPAs would make it harder (though harder to exploit or ignore than rules. A new code ofconduct aims to clean up not impossible) for countries to use certain Alongside the code itself, the FXWG has a tarnished market kinds of industrial policy, such as export developed a blueprint foradoption, which taxes. The EU does not think such policies INANCIAL-MARKET traders have makes those active in the market responsi- do much good anyway. But some govern- Fearned a pretty shocking reputation in ble forembedding the code in their day-to- ments do, and do not want their hands recent years. From manipulating LIBOR, a day operations. Central banks have com- tied. They fear that promised safeguards, benchmark interest rate, to rigging the mitted themselves to leading by example, such as an “infant industry” clause, to pro- daily fix of foreign-exchange (FX) rates, by implementingthe code fortheirown FX tect some domestic businesses, would be traders have shown themselves ready not activities. Consideration is being given to hard to invoke. They will also lose tariff just to stretch the rules, but to collude in maintaining public registers of those who 1 revenues, an important source of income outright illegality. in countries where other taxes are tricky to Aglobal code ofconduct forthe FX mar- raise. It all adds up to a “form of colonial- ket, unveiled on May 25th, aims to put Unregulated, unstoppable? ism”, fumes John Magufuli, Tanzania’s in- things on a sounder footing. Drawn up Foreign exchange terventionist president. over the past two years by a coalition of Average daily settled value, $trn FX Economic evidence is mixed. Although central bankers, known as the Working 6 models typically find trade gains on both Group (FXWG), and supported by a panel sides, it is European exporters that would of industry participants, the code’s 55 prin- 5 be the biggest winners. Within Africa, cipleslaydown international standards on 4 gains would mostly accrue to better-off a range of practices, from the handling of 3 countries in sectors such as sugar, meat confidential information to the pricing and and dairy (rather than to manufacturing settlement ofdeals. 2 EU industry). Theirextra sales to the would Such standards seem long overdue in 1 come partly at the expense of trade with the massive FX market. Roughly $5trn is African partners, says David Luke of the traded every day (see chart). Many compa- 0 2003 05 07 09 11 13 15 17 UN Economic Commission for Africa. nies, pension funds and money managers Source: CLS Group Ultimately “it’s about politics”, argues depend on banks to hedge their exposure The Economist May 27th 2017 Finance and economics 61

2 have signed up. “I wouldn’t underestimate thorities classify ORS as “low risk” from a the impact of peer pressure in improving tax-evasion standpoint, meaning those behaviour,” says Mr Debelle. running them are “non-reporting financial Given the painfully low level of trust in institutions” under both standards. Not foreign-exchange and other financial mar- surprisingly, some financial firms are kets, central bankers are adamant that hawking them enthusiastically to foreign- codes like these must not be ignored or al- ers. A brochure from Legacy Trust, a Hong lowed to become outdated. The new glo- Kong-based firm, presents the ORS as “ar- bal FX committee will monitor the success guably the most tax-efficient pension of the project and consider the case for fur- structure available to high net-worth indi- ther updates. viduals”. It also suggests that Hong Kong’s But the incentives for adherence do not status as a respectable financial centre, not seem compelling. Whether the code actu- on any international tax blacklist, confers ally prevents market malfeasance will be “legitimacy” on ORS. Legacy Trust did not determined by the many institutions, large respond to a request forcomment. and small, that trade FX each day. And, as Tax experts say private-banking circles the market has proved in the past, it is im- are abuzz with talk of ORS, with hundreds portant not to underestimate the power of of rich clients looking to move money into peer pressure to worsen behaviour as well them as the date approaches for CRS com- as improve it. 7 pliance. “I’ve met people with $50m, $100m even, including from the Chinese mainland, looking to do this,” says one. Tax evasion “No one knowshowmuch they’re shifting. It has to be a lot.” Asked whether Hong An ORSome Kong’s tax authority is aware of this, he Not dodging but shuffling says: “It’s either acquiescence or ignorance wheeze on their part. Either way, notgood.” ments, such as marketing materials. The The Financial Servicesand Treasury Bu- OECD says products in its sights include reau, the Hong Kong government depart- pensions, insurance and citizenship-for- ment responsible for international tax Rich and tax-shy? Trya Hong Kong sale schemes, known euphemistically in matters, saysithasweighed the risks posed pension the trade as “investment migration” pro- by the schemes and considers it “justifi- ducts. Tips are already flowing in, it says. HE global war on tax evasion rumbles able” to include their managers as non-re- But the biggest hole in the CRS is not a Ton. What began as an American on- porting institutions. As of March 31st, there product, nor Hong Kong. It is America. It slaught, with the Foreign Account Tax were 4,522 ORS registered. The pensions gets all the information it needs from other Compliance Act (FATCA) of 2010, has been regulator declines to say whether the num- countries through its heavy-handed appli- joined by more than 100 countries through ber has been growing. cation of FATCA, and therefore sees no an initiative called the Common Reporting The OECD, which administers the CRS, need to sign up to the CRS. So it is in the un- Standard (CRS). Under this, governments says it is aware of several supposedly ko- ique position of being able to take a lot, will exchange tax information on their fi- sher investment schemes that may be any- give little, and continue getting away with nancial firms’ clients on a regular, “auto- thing but, including ORS. It says it is in dis- it. Not surprisingly, lots of tainted foreign matic” basis, without having to be asked cussions with Hong Kong, though it will cash is believed to have flowed into Ameri- for it, starting this year. Holdouts such as not be drawn on when the loophole might can banks, trusts and shell companies in Panama, the Bahamas and Lebanon have, be closed. Earlier this month, the OECD recent years. Schemes such as ORS may one by one, been frogmarched into line. launched a portal where whistle-blowers provide tax-dodging opportunities for a But tax-dodgers and their advisers are can anonymously report schemes de- while yet, but American non-participation enterprising sorts, eager to clamber signed to circumvent its tax-transparency is, as one OECD official puts it, “the ele- through the smallest loophole—and gaps standard; they can even upload docu- phant in the room”. 7 in the CRS there are. One involves becom- ing a pensioner in Hong Kong. The territory, home to a big financial centre, has a type of pension known as an The bitcoin bubble ORS (for Occupational Retirement Fans of bitcoin, a crypto-currency, have 2,500 ORS Scheme). The beauty of from a tax long called it digital gold. Now this $ per bitcoin evader’s point of view is that anyone can sounds like an insult: continuing its get one and they are not caught in the CRS stellar rise, and adding more than 30% to 2,000 net. A German or Australian with money its value in just a week, one bitcoin is Gold, $ per troy ounce to hide can set up a Hong Kong shell com- worth more than $2,600, over twice as 1,500 pany, appoint himselfas its director, with a much as an ounce of gold. As The Econo- local employment contract, and sign up mist went to press all bitcoins in circula- with a trust company that provides an tion were worth over $43bn. A sum of 1,000 ORS. He can throwin cash, propertyor oth- $1,000 invested in bitcoins in 2010 would er assets, oversee the account himself, re- now be worth nearly $36m. Other crypto- tire assoon orasfarin the future as he likes, currencies are also marching upward: 500 and then take out as much or as little as he together this week they were worth chooses, whenever he wants. An ORS, in $87bn. But if the history of gold is any short, is like a flexible bankaccount. guide, what goes up will come down—and 0 The arrangement falls outside the CRS then go up again. 2013 14 15 16 17 and FATCA because the Hong Kong au- Sources: Bitcoincharts; Thomson Reuters 62 Finance and economics The Economist May 27th 2017

Machine-learning in finance Perhaps the newest frontier for mach- ine-learning is in trading, where it is used Unshackled algorithms both to crunch market data and to select and trade portfolios of securities. The quantitative-investment strategies divi- sion at Goldman Sachs uses language pro- cessing driven by machine-learning to go through thousands of analysts’ reports on companies. Itcompilesan aggregate “senti- More firms are experimenting with artificial intelligence ment score” based on the balance of posi- ACHINE-LEARNING is beginning to Machine-learning excels in spotting un- tive to negative words. This score is then Mshake up finance. A subset of artifi- usual patterns of transactions, which can used to help pickstocks. Goldman has also cial intelligence (AI) that excels at finding indicate fraud. Firms ranging from startups invested in Kensho, a startup that uses patterns and making predictions, it used to such as Feedzai (for payments) or Shift machine-learning to predict how events be the preserve oftechnology firms. The fi- Technology (for insurance) to behemoths like natural disasters will affect market nancial industry has jumped on the band- such as IBM are offering such services. prices, based on data on similar events. wagon. To cite just a few examples, “heads Some are developing the skills in-house. of machine-learning” can be found at Monzo, a British banking startup, built a Quantifiable progress PwC, a consultancy and auditingfirm, at JP model quick enough to stop would-be Quant hedge funds, both new and old, are Morgan Chase, a large bank, and at Man fraudsters from completing a transaction, piling in. Castle Ridge Asset Management, GLG, a hedge-fund manager. From 2019, bringing the fraud rate on its pre-paid cards a Toronto-based upstart, has achieved an- anyone seeking to become a “chartered fi- down from 0.85% in June 2016 to less than nual average returns of32% since its found- nancial analyst”, a sought-after distinction 0.1% by January 2017. ingin 2013. It uses a sophisticated machine- in the industry, will need AI expertise to Natural-language processing, where AI- learning system, like those used to model pass his exams. based systems are unleashed on text, is evolutionary biology, to make investment Despite the scepticism of many, includ- starting to have a big impact in document- decisions. It is so sensitive, claims the ing, surprisingly, some “quant” hedge heavy parts of finance. In June 2016 JPMor- firm’s chief executive, Adrian de Valois- funds that specialise in algorithm-based gan Chase deployed software that can sift Franklin, that it picked up 24 acquisitions trading, machine-learning is poised to through 12,000 commercial-loan contracts before they were even announced (be- have a big impact. Innovative fintech firms in seconds, compared with the 360,000 cause of telltale signals suggesting a small and a few nimble incumbents have started hours it used to take lawyers and loan offi- amount of insider trading). Man AHL, applying the technique to everything from cers to review the contracts. meanwhile, a well-established $18.8bn fraud protection to finding new trading Machine-learning is also good at auto- quant fund provider, has been conducting strategies—promising to up-end not just mating financial decisions, whether as- research into machine-learning for trading the humdrum drudgery of the back-office, sessing creditworthiness or eligibility for purposes since 2009, and using it as one of but the more glamorous stuffup-front. an insurance policy. Zest Finance has been the techniques to manage client money Machine-learningis already much used in the business of automated credit-scor- since 2014. for tasks such as compliance, risk manage- ing since its founding in 2009. Earlier this So it seems odd that some prominent ment and fraud prevention. Intelligent year it rolled out a machine-learning un- quant funds are machine-learning scep- Voice, a British firm, sells its machine- derwriting tool to help lenders make credit tics. Martin Lueck of Aspect Capital finds learning-driven speech-transcription tool decisions, even for people with little con- the technique overrated, saying his firm to large banks to monitor traders’ phone ventional credit-scoring information. It has found only limited useful applications calls forsigns ofwrongdoing, such as insid- sifts through vast amounts of data, such as for it. David Siegel, co-founder of Two Sig- er trading. Other specialists, like Xcelerit or people’s payment history or how they in- ma, a quantbehemoth, and David Harding Kinetica, offer banks and investment firms teract with a lender’s website. Lemonade, of Winton Capital, have also argued that near-real-time tracking of their risk expo- a tech-savvy insurance startup, is using the techniques are overhyped. sures, allowing them to monitor their capi- machine-learning both to sell insurance In other fields, however, machine- tal requirements at all times. policies and to manage claims. learning has game-changing potential. There is no reason to expect finance to be different. According to Jonathan Masci of Quantenstein, a machine-learning fund manager, years of work on rules-based ap- proaches in computer vision—telling a computer how to recognise a nose, say— were swiftly eclipsed in 2012 by machine- learningprocessesthatallowed computers to “learn” what a nose looked like from pe- rusing millions of nasal pin-ups. Similarly, says Mr Masci, a machine-learning algo- rithm ought to beat conventional trading strategies based on rules set by humans. The real vulnerability may in any case lie outside trading. Many quant funds de- pend on human researchers to sift through data and build algorithms. These posts could be replaced by better-performing machines. For all their professed scepti- cism, Two Sigma and its peers are busy re- cruiting machine-learning specialists. 7 64 Finance and economics The Economist May 27th 2017 Free exchange Looking east

France can learn from the success ofGerman reforms, but not duplicate them TIShearteningthatthe euro area hasa knackforsurviving near- acle was laid well before the Hartz reforms, in response to unique Ifatal crises. Yet confidence in the durability ofthe single curren- circumstances. German reunification in 1990 placed great fiscal cy might be stronger if it suffered fewer of them. Europe dodged strain on the economy. And the collapse of Soviet power gave its latest bullet on May 7th in France, when Emmanuel Macron, a Germany’s eastern neighbours—economies with skilled but low- liberal-minded (by local standards) upstart centrist, defeated Ma- cost workforces and close historical relationships with Ger- rine Le Pen forthe presidency. Even so, an avowed nationalist and many—better access to Western markets. Conditions seemed ide- Eurosceptic captured 34% of the vote, leaving Mr Macron with al for a swift industrial decline. That prospect spooked German five years to assuage widespread frustration with the economic workers into docility. Wage contracts became increasingly local- status quo. An obvious model lies just across the Rhine, where ised (helped by the absence of the national wage floors imposed the unemployment rate—below 4%, down from over 11% in in France) and strike action was rarer than in France or Italy. Un- 2005—is testimony to the potential forswift, dramatic change. Yet ion membership dropped; the share of workers covered by in- Germany’s performance will not be easy to duplicate. dustry-level wage agreementsfell from 75% in 1995 to 56% in 2008. It would be unfair to call France the sick man of Europe; half As a result, from the early1990s labour costs for German firms the continent is wheezing or limping. Yet there is certainly room fell sharply relative to those in other economies (see left-hand forFrench improvement. Real output per person has barely risen chart). Low labour costs reduced the incentive for firms to shift in the past decade. Government spending stands at 57% of GDP, production abroad and boosted the competitiveness of German outstrippingthe taxtake; France’s budget deficit, at 3.4% ofGDP, is exports. (Flexibility also shielded the German labourmarket dur- among the largest in the euro area’s core. The biggest worry, how- ing the Great Recession, when a sharp fall in GDP barely affected ever, is the labour market. The unemployment rate, now 10.1%, is the unemployment rate.) The same political economy that al- stubbornly high. Nearly a quarter of French young adults are un- lowed lower German labour costs probably enabled the passage employed. Worklessness, especially among young people, is a of the Hartz reforms. Yet it made its own, independent contribu- source ofrisingsocial tension and a corrosive force in French poli- tion to rising German employment. tics. Mr Macron must perform the German trick—from labour- market morass to miracle—in halfthe time it tookGermany. The Macron environment Howdid the Germansmanage it? The popularnarrative of the Nor can the global context be ignored. In the 2000s the world German turnaround begins with the “Hartz reforms”—named economy grew at an average annual pace of around 4%, despite after Peter Hartz, who ran the commission that formulated the Great Recession. China, which bought much of the industrial them—enacted from 2003 to 2005. Germany’s structural unem- equipment manufactured in Germany, grew especially rapidly. ployment rate had risen steadily from the early1970s. Each reces- Boomingglobal trade amplified the benefitsto Germanyof rising sion added workers to the jobless rolls who subsequently never competitiveness. And German labour costs were falling while left. The Hartz reforms overhauled job training and placement those ofits European neighbours were flat or rising. Now, the glo- programmes and reduced barriers to part-time work. Most im- bal outlook for output and trade is far murkier. And much of the portant, they transformed a wildly generous system of unem- euro-area periphery is also trying to lower labour costs and boost ployment and welfare payments, which allowed some workers competitiveness. The Hartz reforms certainly succeeded in push- to collect indefinite benefits equivalent to about half their previ- ing some workers back into the labour force and into work; one ous salary, into one which paid fixed amounts for a limited time. analysis suggests they reduced Germany’s structural unemploy- The reforms inspired intense opposition and, in 2005, cost Ger- ment rate by1.4 percentage points, for instance. But other shifts in hard Schröder the chancellorship (it passed to one Angela Mer- the economy were just as critical to the German turnaround. kel). Yet the pain appears to have been worth it. German leaders Moreover, change in Germany’s labour market was not a are certainly not slow to evangelise about the benefits ofreform. story of improvement across the board. Growth in employment Mr Macron, however, should be careful aboutmimicking Ger- soared, but growth in total hours worked did not. To a great ex- man reforms too slavishly. The groundwork for Germany’s mir- tent, Germany redistributed working hours rather than created new ones. Though wages for the better-paid climbed rapidly, es- pecially in manufacturing, they fell for the lowest-paid. So in- Core differences come inequality in Germany, on some measures, has followed a remarkably American trajectory (see right-hand chart). Increased Unit labour costs Income share of upper decile of 1995=100 earners, % employmentin France isa worthygoal; butto make itthe sole pri- 140 60 ority may have unpleasant consequences forsome. The new president seems to understand that danger. Though United States United States 50 the details of his programme have yet to be unveiled, they are 120 likely to include reforms to French labourlaw and efforts to deep- 40 Germany en French trade relations with Europe, in addition to more Hartz- 100 30 like measures. But a successful French turnaround will necessar- France France ily lookdifferent from Germany’s. IfMr Macron hews too closely 20 80 to what the Germans believe to have been the secret of their suc- Germany 10 cess, France’s disenfranchised may end up feeling even more alienated. If so, the euro zone may suffer another existential cri- 60 0 sis, this time possibly terminal. 7 1995 2000 05 10 15 1995 2000 05 11 Sources: OECD; World Wealth & Income Database Economist.com/blogs/freeexchange Science and technology The Economist May 27th 2017 65

Also in this section 66 Battle of the beetle sexes 67 Fingerprints for paper 67 Bacteria that see in colour 68 Cheaper smart weapons

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Aviation controllers in Adelaide, 1,500km away on the south coast. The towers vanish Nor will remote towers be restricted to small airports. Searidge Technologies, a Canadian company, has done trials at far larger ones in Budapest and Milan. Some big airports are expected to experiment with remote towers as back-ups to their ex- isting towers before making the switch. In- Remote centres using video are replacing airfield control towers dra recently tested a virtual “contingency” HE 67-metre-tall control tower that to a remote tower at Sundsvall, some control tower for use in emergencies at Gi- Topened at San Francisco International 130km to the south, that had been built by rona Airport, which serves Costa Brava, Airport in October is a stylish structure LFV, Sweden’s air-navigation agency, and one ofSpain’s top holiday destinations. that cost $120m. It is supposed to resemble Saab, a Swedish technology firm. Last year, Sometimes, remote towers will not a beacon of the sort used in ancient times this tower also began monitoring flights at serve as replacements for ones on site. to guide ships safely to harbour. Those in itslocal airport, Sundsvall-Timra. Next year Rather, theywill be the first“tower” the air- the know might be forgiven forwondering it will start looking after those at Linkoping port in question has ever seen. Such is the if the new control tower is less a beacon City Airport, in southern Sweden, too. case for Leesburg airport in Virginia, just than a white elephant. Elsewhere, airport outside Washington, DC, which looks like- managers are starting to abandon the pan- Cleared forlanding ly to be the first airport in America to get a opticons that have dominated airfields for On the other side of the Scandinavian remote control tower. At non-controlled decades in favour of remote-controlled Mountains, Norway has even more ambi- airports like Leesburg (which is used main- versions that promise to be cheaper and tious plans than Sweden. Kongsberg, a lo- ly by executive jets), pilots are responsible safer. Instead, they are housed in ordinary cal firm, and Indra, a Spanish one, are con- for take-offs and landings. They do this by low-rise buildings, in some caseshundreds solidating control of15 small airports in the flying established patterns on approach, of kilometres away from the facility they country’s north into a remote tower at communicating their intentions on a com- are monitoring. Bodo, just above the Arctic Circle. Many of mon radio frequency—and keeping their These remote control towers receive a Norway’s airports serve isolated settle- eyes peeled. A remote control tower of the live video feed from cameras positioned ments and operate a handful of flights a sort Leesburg is testing should relieve pi- around an airfield. The images are stitched day—hardly enough to justify a full-time lots ofthose burdens. together by computer and displayed on tower service. The new centre is expected, screens (as pictured above) to create a vir- eventually, to handle aircraft movements Chocks away! tual view of the runways and taxiways be- at 32 of the 45 airfields run by Avinor, Nor- Efficiency and safety are the driving forces ing monitored. In some cases the screens way’s state-owned airport operator. behind the use of remote towers. They of- surround the air-trafficcontrollers, creating Remote towers are planned in a num- fer the prospect of substantial savings as a 360° image. Separate screens can be used ber of other countries. In 2019 NATS, Brit- airports no longer need to build and main- to display different airfields, because some ain’s air-traffic management company, will tain expensive tall structures. Operating remote towers will control flights in and replace the control tower at London City costs should also fall, if air-traffic control- out ofa number ofairports. Airport with a remote service operating at lers are shared between a number of air- The first airport to deploy a virtual con- NATS’s air-traffic control centre 145km ports. Such savings should particularly trol tower was the one that serves Orn- away. Saab, meanwhile, has been testing help little-used airfields, which would pay skoldsvik, in northern Sweden, which is the idea in several places outside Sweden. for control-tower services only when used by about 80,000 passengers a year. In One is Australia, where video from the air- needed. In Norway’s case, the overall cost April 2015 the conventional tower at this port at Alice Springs, in the middle of the of air-traffic services at the airports in- airport was closed. The controllers moved country, has been transmitted to air-traffic volved is expected fall by 30-40%. That1 66 Science and technology The Economist May 27th 2017

2 ought, in turn, to mean lower fees for air- Sexual competition that underlie these phenomena), are an ex- lines and—less certain, this—cheaper fares cellent example of what Richard Dawkins, for passengers. Careful where you an evolutionary biologist, called “selfish Safety should improve, as well. At night genes”. For while such traits are good for or in bad weather, on-the-spot controllers put that thing the individual beetles that carry them, they may not be able to see much ofthe airport, appear to be bad for the health of the spe- even from their lofty vantage point. Re- cies as a whole. mote towers can provide a greatly en- Cowpea seed beetles are widely stud- Forbeetles, the battle between the sexes hanced view, says Gonzalo Gavín, Indra’s ied animals because they are important drags down the entire species European programme director, because pests of stored pulses. They are found on they rely on a variety ofcameras. NTAGONISM is built into the nature of every continent except Antarctica (Dr Some of these cameras capture a pan- Asexual reproduction itself. Members Dougherty’s experimental subjects were oramic scene. Others are distributed on of each sex try to maximise their own re- derived from Africa, Asia and North and poles around the airfield (and are thus able productive fitness, which is a combination South America), and are believed to have to look into what would otherwise be ofthe quality and the quantity ofoffspring been spread around the world from their blind spots). Some can be panned and they are able to raise to the point where west African home by human travellers zoomed—the digital equivalent of a con- those offspring can themselves reproduce. and traders. Hence, any differences be- troller reaching for a pair of binoculars. If conflict between males and females is tween local populations must be the result And exotica such as infrared cameras can part and parcel of reproduction, some still ofrecent evolution. capture images created by temperature dif- have it much tougher than others. Spare a Dr Dougherty and his colleagues first ferences, so could detect, for instance, an thought, in particular, for the females of used a technique called micro-CT X-ray animal straying onto a runway at night. the cowpea seed beetle. scanning, a miniaturised version of medi- Other sensors can be used, too, includ- Males of this species have penises cal body-scanning, to measure the thick- ing laser rangefinders that measure accu- armed with sharp spikes. These can do se- ness of the reproductive tracts of females rately how far an approaching aircraft is rious damage to a female’s reproductive from each of the populations under study. from the runway. Images and additional tract. And all in the name of male procrea- They also measured the levels in a beetle’s information can be superimposed on the tive success, for previous research has haemolymph (a fluid that performs in in- screens, and sound can be piped in as well. shown (though the precise mechanism re- sects a similar function to that performed As in physical towers, controllers will con- mains obscure) that male cowpea seed in mammalsbyblood) ofan enzyme called tinue to have radar screens and radios to beetles with longer penile spines have phenoloxidase, which helps repair communicate with pilots. greater mating success than those with wounds. And, as a third measure of self- Nervous flyers will, no doubt, worry short ones. protection, they measured female haemo- about a systems failure. To guard against Evolutionary theory predicts that it lymph’s microbicidal potency by watching this, remote towers have high levels of re- would be in the interests offemales to fight its effect on bacteria in a Petri dish. dundancy, with backup equipment such back, by evolving countermeasures. And For the males, the team measured the as dual power supplies and additional they seem to have done so, by evolving length of both the ventral and the dorsal pathways fordata networks. In case of a ra- thicker tract sheaths. But the details have spikes of the penis, and also the amount of dio breakdown, controllers in a physical not been studied until now. That has just damage, measured as scar tissue a day after tower communicate with pilots using red, been corrected by Liam Dougherty of the intercourse, that males of a particular pop- green and white flashes from a signal gun. University of Western Australia and his ulation inflicted on the reproductive tracts The digital equivalent duplicates this by re- colleagues. Their paper, published in the of females. (They used this as a proxy for motely controlling signal guns placed on Proceedings of the Royal Society, looked at the forcefulness of a male’s advances.) the airfield’s camera poles. 13 populations of cowpea seed beetles They then looked for correlations between No system, however robustly designed, from around the world and showed how male offensive measures and female de- is completely secure. Physical control tow- reproductive-tract-thickness and two oth- fensive ones. ers can suffer failures, too. With a network er defensive measures varied with the size They attacked the data with two differ- of remote towers, it might be possible for of the local males’ armaments. It also ent statistical techniques, looking for corre- another to take over. But if the lights really showed that the cowpea seed beetle’s lations between the males’ characteristics did go out, a number of fall-back measures spiked penises, and the females’ responses and the female ones. Both types of statis- would be implemented: take-offs would to them (or, rather, the stretches of DNA tics indicated that the correlations were1 be halted, controllers would divert flights to other airports and call for a greater sep- aration between aircraft, a number of which mightstill land usingthe procedures forairports without control towers. Some air-traffic controllers are more concerned that having to look after several airports from a single remote tower could prove difficult in “human performance terms” (ie, trying to concentrate on what is happening at more than one location). At first, the extra airports added to a remote tower are likely to be lightly used ones, so that experience can be gained. But the flight path seems set. Along with the engi- neer in the cockpit, smoking in the cabin, courteous attendants and plenty of leg- room, the control tower looks like becom- ing a relic ofaviation’s past. 7 Evolution in action The Economist May 27th 2017 Science and technology 67

2 strong. Only in the case of ventral penile Synthetic biology spinesdid theyfail to suggestthatit wasthe size of the male traits which was responsi- ble for driving the evolution of the size of Lights, bacteria, action the female ones. On top ofall this, Dr Dougherty and his A new way to control genetically engineered cells team also found that the populations with the most highly developed female de- HE central idea ofsynthetic biology is fences were those that had shown the low- Tthat living cells can be programmed in est population-growth rates in a previous the same way that computers can, in experiment. Since the beetles had been order to make them do things and pro- supplied with abundant food, the pre- duce compounds that their natural coun- sumption had been that the growth rates terparts do not. As with computers, then observed were governed by female though, scientists need a way to control fecundity. In light of the latest results, that their creations. To date, that has been suggests females in those populations done with chemical signals. In a paper were diverting scarce physiological re- published in Nature Chemical Biology, sources from producing eggs to defending Christopher Voigt, a biologist at the Mas- themselves against male sexual aggres- sachusetts Institute ofTechnology, de- sion—and thus slowing the growth of the scribes an alternative. Instead ofchemi- population as a whole. 7 cals, he and his colleagues demonstrate how to control customised cells with coloured light. Fingerprints for paper Engineering cells to respond to light is not a new idea. The general approach is Shining a light called optogenetics, and it has become a M.C. Escherichia popular technique forcontrolling nerve cells in neuroscience. But Dr Voigt is not Those photoreceptors, in turn, control interested in nerve cells. In 2005 he al- the expression ofcertain bacterial genes. tered fourgenes in a strain ofEscherichia For demonstration purposes, Dr Voigt’s coli bacteria, which gave the creatures the prototype E. coli have been designed to Every sheet ofpaperhas its own unique ability to respond to light and darkness produce enzymes that cause the bacteria fingerprint by becoming lighter or darker in colour to become the same colour as the light PIECE of paper is a complicated pro- themselves. The state ofthe art has ad- being shone upon them. So, ifa plate of Aduct. Trees are felled, stripped of their vanced since then. This time Dr Voigt the bacteria is struckby a beam of green bark, chipped, mashed, and then mixed wanted to see ifhe could give his bacteri- light, the plate becomes green. Ifa plate with water and churned into pulp. That al charges—which normally live in the has an image composed ofred, green and pulp is washed and refined, before being human gut, and therefore rarely see light blue projected upon it, the plate will beaten to a finer slush. Laid out flat, ofany sort—the ability to sense colour. reproduce the projection (see picture). drained of water, then squeezed between That meant tinkering with 18 different Such artistry is the tip ofthe iceberg: large rollers, the slush at last becomes one genes containing more than 46,000 base the light sensors could be used to control large, long sheet ofpaper. pairs ofDNA. These changes persuaded genes that make all sorts ofdifferent All those machinations introduce a the cells to build three different kinds of chemicals. Scientists have toyed with the great deal of randomness to the arrange- light sensors that are similar in structure idea ofusing vats ofgenetically altered ment of fibres within an individual piece to the photoreceptors found in plants and bacteria to produce things like artificial of paper. In an article due to be published algae. These sensors allow their owners sweeteners or drugs. But getting the in Transactions on Privacy and Security, Eh- to trackthings like the time ofday and the chemistry right requires that the bugs san Toreini, a security expert at the Univer- seasons, and to plan their reproduction execute several chemical reactions in sity of Newcastle, and his colleagues, de- accordingly. One sensor, forinstance, exactly the right sequence. Doing that scribe a wayto turn thatrandomnessinto a harvested from a type ofalgae, switches with chemicals is expensive, and fiddly, “fingerprint” that is unique to any given on when struckby light with a wave- since the chemicals take time to circulate sheet of paper. (In security jargon a finger- length of535 nanometres (which humans around the vat. Dr Voigt imagines instead print is any unique, identifying pattern, would perceive as green) and then off vats fitted with coloured lights that wink not just one from a finger). That could, they again when exposed to light ofa longer, on and offin sequence. It would look, he hope, help to cut down on fraud. redder wavelength. Other sensors re- jokes, a bit like a bacterial disco. Such The researchers are not the first to real- sponded to light at the blue and red ends single-celled revellers could yet be the ise that paper might be fingerprintable. In ofthe visible spectrum. future ofchemical manufacturing. 2005 a team from Imperial College Lon- don used a laser to scan the surface of a sheet of paper from four different angles, aligned properly. Instead of lasers or scan- Using an ordinary digital camera keeps using the intensity of the reflected light as ners, a picture is taken with an ordinary things simple, and therefore quick and proxy for surface structure. In 2009 scien- digital camera. The next step is to apply a cheap. Both the Princeton and Imperial tists at Princeton University used an off- processing tool called a Gabor filter to the methods require scanning a sheet of paper the-shelf scanner to construct a unique, resulting image, which analyses how fre- several times; the new technique requires three-dimensional model ofthe surface. quently certain patterns appear and only a single image and can be done in just Dr Toreini’s technique starts by shining where, spitting out two long numbers that over a second. a light through a piece of paper from the are a mathematical description of the pa- At the same time, by backlighting the back. A carefully-measured box is printed per’s texture. It is these numbers that serve paper, the researchers can take their pic- on the backlit paper, to ensure it can be as the fingerprint. ture through the entire depth of the paper, 1 68 Science and technology The Economist May 27th 2017

2 rather than just relying on the patterns on world’s most technologically advanced launched”—dropped from a helicopter or a its surface. Capturing that extra informa- and generously funded force, it still em- drone, in other words—but also when it tion gives a more detailed description of ploys a great deal of cheap, dumb, unguid- has been fired out ofa cannon or launched the paper’s structure, and makes the tech- ed weapons. by a rocket. That will subject the electron- nique much harder to fool. A determined The idea is to link an individual smart ics to extremely high g-forces, as they are fraudster might be able to rearrange the munition with a flock of dumber, cheaper accelerated to several times the speed of pattern of fibres on a piece of paper’s sur- companions. The smart round uses its so- sound in milliseconds, or spun at thou- face. Doing it through the whole sheet is phisticated sensors to find targets, and sands of revolutions per second when much trickier. For the same reason, the passes data to its less able comrades. The fired from rifled artillery barrels. technique is much more resistant to the smart weapon handles all of the tricky In recent tests a flockofmultiple projec- sort of day-to-day wear and tear that could navigation and target identification; its tiles successfully navigated together. How- alter the paper’s surface. companions just have to work out where ever, full realisation of the technology will Fingerprinting paper is just one exam- they are in relation to their master, and take at least a decade to mature. The plan is ple ofa more general trend ofusingthe ran- then go where they are told. Data are to start big and scale down. CCOE will roll domness inherent in manufacturing to passed between them in briefradio chirps. out gradually, says Dr Fresconi, with suc- generate unique identifiers for individual DrFresconi is not makinga specific mis- cessive generations getting smarter and fit- objects. Intrinsic ID, a Dutch firm, uses an sile. Rather, he and histeam are developing ting into ever-smaller weapons. analogous process for silicon memory the electronic building blocks needed to As those weapons reach the battlefield, chips. Slight and unavoidable variations in assemble a wide range of different weap- they will enable the use ofnew tactics. The the tiny circuits inside such chips means ons. The results might be fired from a mor- manoeuvring munitions can carry out that running electricity through one can tar, from a cannon, from a rocket launcher what the Army calls counter-defilade fire— generate a unique fingerprintin essentially mounted on a lorry, or from the sort of hittinga sniperhidingbehind a wall, forex- the same way that light does forpaper. The weapon an individual solider might carry. ample, or troops concealed in trenches. Dr firm’s technology is already used in Ameri- In each case, a shell orrocket would release Fresconi also talks about “hyper precision” can bankcards. a swarm ofsubmunitions. Under the guid- and being able to home in on a target’s The biggest advantage of such tech- ance of the master weapon, these might weakest spot, or striking simultaneously at niques is there is no need to bolt complicat- disperse to attack individual enemy fox- a precise point for maximum effect. And ed security features on top of existing pro- holes, or worktogether to hit a single target the munitions will afford a new capability ducts. More than 100 countries issue like a tankor a bunker simultaneously. forengagingdispersed targets. These might passports containing radio-frequency Precision guidance brings advantages be enemy foot soldiers scattered over a identification chips, for instance. Dr To- besides a higher hit rate. There is less riskof wide area—or, in future, a swarm of hostile reini’s technique could keep passports se- accidentally killing innocent bystanders. incoming drones. One missile full of Col- cure with a lot less fuss. 7 No ammunition is wasted blowing up laborative Cooperative munitions might things that are not the target. By eliminat- hit the lot. ing waste, Dr Fresconi reckons that a smart Finally, the new development could sig- High-tech weaponry artilleryround mightgetawaywith using a nal the end of indiscriminate artillery fire. warhead one tenth the size ofan unguided By replacing dumb shells with smart ones, Follow the leader one forthe same destructive effect. a barrage landing on a town would be The biggest challenge is navigation. more likely to hit only military targets, Many existing smart weapons use GPS, while—so the researchers hope—leaving ci- which relies on signals from satellites that vilians unharmed. 7 may be jammed by a sophisticated oppo- nent. Others use laser guidance, which de- In future, flocks ofdumb weapons mands a soldier be close enough to the tar- could take orders from a smart one get that he can highlight it with a laser NAPRIL7th a salvo ofmissilesfired by designator. The new architecture will OAmerican warships in the Mediterra- avoid both those drawbacks by using opti- nean scored direct hits on several Syrian cal techniques: guiding itself by spotting aircraft shelters from hundreds of miles landmarks, and recognising targets visual- away, demonstrating once more the effec- ly. Dr Fresconi says the inspiration for the tiveness ofprecision, or “smart”, weapons. optical sensors came from the commercial At $1.3m apiece such missiles are usually world, where facial-recognition systems reserved for important targets like parked are used by everyone from Facebook to aircraft. Theyare too priceyto be expended shops, policemen and airports. on lightly armed insurgents. (As George The trick is to pack the necessary hard- Bush junior once memorably put it, he was ware into a few cubic centimetres, and to not prepared to “fire a $2m missile at a $10 deal with the high speeds at which shells empty tent and hit a camel in the butt”.) and missilestravel. Ratherthan having sev- Frank Fresconi, who works at the Army eral seconds to scan their targets at leisure, Research Laboratory’s Aeromechanics as airport systems do, missiles will need to and Flight Control Group, in Maryland, scan, recognise and act in milliseconds. hopes to change that. He is working on And once the targets have been found, the something called the Collaborative Coop- weapons will need to be able to turn erative Engagement (CCOE) programme, sharply at high speed. To do that, the team which hopes to provide the advantages of is fitting them with fins that deploy after smart weapons at a fraction of the cost. A launch, and ponderingusingsideways-fac- new generation of cut-price precision mu- ing rockets to give them even more agility. nitions could change the way America’s All this wizardry must work not only army wages war, for despite being the when a munition has been “soft A million dollars up in smoke Books and arts The Economist May 27th 2017 69

Also in this section 70 The future of globalisation 70 Spanish flu 71 Johnson: Translators’ blues 72 Rachel Seiffert’s fiction 72 “Twin Peaks” is back

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Information technology ment: the web will revolutionise social science just as the microscope and tele- Truth, all the truth—and statistics scope transformed the natural sciences. Modern microeconomics, sociology, political science and quantitative psy- chology all depend to a large extent on surveys of at most a few thousand respon- dents. In contrast, he says, there are “four unique powers of Big Data”: it provides Big Data is remodelling social science just as the microscope transformed medicine new sources of information, such as por- O MANY people Big Data is less shiny nographic searches; it captures what peo- Everybody Lies: Big Data, New Data, and than it was a year ago. After Hillary ple actually do or think, rather than what T What the Internet Can Tell Us About Clinton’s defeat at the hands of Donald they choose to tell pollsters; it enables re- Who We Really Are. By Seth Stephens- Trump, her vaunted analytics team took searchers to home in on and compare de- Davidowitz. Dey Street; 288 pages; $27.99. much ofthe blame forfailing to spot warn- mographic or geographic subsets; and it al- To be published in Britain by Bloomsbury ings in the midwestern states that cost her lows for speedy randomised controlled in July; £20 the presidency. But according to research trials that demonstrate not just correlation by Seth Stephens-Davidowitz, a former but causality. As a result, he predicts, “the data scientist at Google, Mrs Clinton’s real as its guide. Some ofthe book’s discoveries days of academics devoting months to re- mistake was not to rely too much on new- reaffirm conventional wisdom, like the cruitinga small numberofundergraduates fangled statistics, but rather too little. concentration of queries about do-it-your- to perform a single test will come to an Mrs Clinton used the finest number- selfabortionsand aboutmen who are con- end.” In their place, “the social and behav- crunchers. But their calculations still relied fused about their sexual orientation in ioural sciences are most definitely going to largelyon traditional sources, such as voter America’s socially conservative South. scale,” and the conclusions researchers files and polls. In contrast, Mr Stephens- Some turn it on its head: although rags-to- will be able to reach are “the stuff of sci- Davidowitz turned to a novel form ofdata: riches narratives are widespread in basket- ence, not pseudoscience”. Google searches. In particular, he counted ball, the data show that growing up in pov- Mr Stephens-Davidowitz is not just any the frequency of queries forthe word “nig- erty actually reduces a boy’s chances of knee-jerkcheerleaderforthe BigData revo- ger”, America’s most toxic racial slur. Con- making the National Basketball Associa- lution. He devotes ample space both to the trary to the popular perception that overt tion—perhaps because poor children are ways that quantitative findings can lead racism is limited to the South, the numbers less likely to grow tall enough to play in it. decision-makers astray, and to the risk that showed comparatively high interest in the Some results are both disturbing and per- the nearly omniscient owners of such term across the Midwest and the rustbelt plexing, such as the prevalence ofsearches data sets may find ways to abuse them. If relative to the rest of the country. In the Re- on pornographic sites for videos depicting liking motorcycles turns out to predict a publican primaries in 2016 that variable sexual violence against women, and the lower IQ, he asks, should employers be outperformed all others in predicting fact that women themselves seekout these allowed to reject job applicants who admit which geographic areas would support Mr scenes at least twice as often as men do. to liking motorcycles? As a result, he calls Trump over his intraparty rivals. Had Mrs Other results are just weird: why are adult forextreme caution in extending the use of Clinton’s team made better use of such in- men in India so eager to have their wives Big Data from large groups of people to formation, they might have concluded, be- breastfeed them? making decisions about individuals. On fore it was too late, that the foundations of The empirical findings in “Everybody the whole, however, the author is an her “blue firewall” were cracking. Lies” are so intriguing that the book would optimist. As a result of improvements in This is just one ofthe strikingfindings in be a page-turner even if it were structured information technology, he writes, hu- “Everybody Lies”, a whirlwind tour of the as a mere laundry list. But Mr Stephens- mans will “be able to learn a lot more” modern human psyche using search data Davidowitz also puts forward a deft argu- about themselves “in a lot less time”. 7 70 Books and arts The Economist May 27th 2017

The future of globalisation ca’s population grows and its citizens seek to escape from failed states, or the conse- Negative reaction quences ofclimate change, and to enhance their economic opportunities. The devel- oped world mayplace more restrictions on inflows, as America did in the early 20th century, barring both Asians and those who could not pass a literacy test. Grave New World: The End of Globalisation, Geopolitical shifts will also make a the Return of History. By Stephen King. Yale difference. After 1945, America was global- University Press; 290 pages; $30 and £20 isation’s leading architect and its main LOBALISATION is not new. In the late sponsor. But its authority is now being G19th century capital moved freely challenged on a number of fronts. China is acrossthe world and goodscrossed nation- assertingitselfin the Pacific; Russia is doing al borders (despite tariffs) with the help of so in eastern Europe and the Middle East. cheap transport. People, too, migrated Western Europe no longer backs America across the oceans on a proportionately far on all issues and takes a sharply different bigger scale than they do today. All that view from Donald Trump on climate came to a dramatic end with the outbreak change. The election of Mr Trump proves ofthe first world war. that domestic voters have wearied of the Trade did not recover its share of world country’s global responsibilities and want GDP until the 1960s. But after the Berlin to put “America first”. Wall fell in 1989, it became tempting to be- The result, says Mr King, is that “co-op- lieve in a kind of “Whig theory of globali- erative arrangements between nation sation” with economies growing ever states will be increasingly hard to come by. Disease in history more linked thanks to the internet and the Conflict—at least in the economic sphere— spread of liberal capitalism. Perhaps the will become ever more frequent.” The can- One hundred world is due for another change of trend. cellation by Mr Trump of the Trans-Pacific That is the view ofStephen King, an econo- Partnership (a trade agreement with Asia) million dead mist at HSBC, which, as it happens, is one and the failure to agree on the Doha round ofthe most global ofbanks. of global tariff reductions are cases in In “Grave New World” Mr King argues point. National governments are turning Pale Rider: The Spanish Flu of 1918 and that economic progress that reaches be- their backs on global institutions and fo- How it Changed the World. By Laura yond borders is not “an inescapable truth”. cusing on their domestic interests. Spinney. Jonathan Cape; 282 pages; £20. To Technology may have boosted globalisa- So what is the answer? The irony is that be published in America by PublicAffairs in tion until now, but it may not do so in fu- likely solutions require international co- September; $28 ture. Companies may decide to replace operation, the very thing that populism cheap labourin the developingworld with makes more difficult. Mr King looks at YEARLY1920, nearly two years after the robots at home, causing global supply ideas such as breakingup the euro, a global B end of the first world war and the first chains to collapse. The internet has also in- organisation to reconcile capital flows be- outbreak of Spanish flu, the disease had creased inequality within economies, as tween countries or even a borderless killed asmanyas100m people— more than skilled workers have reaped the most world and concludes they either will be in- both world wars combined. Yet few would benefits, creating a division between the sufficient or are unlikely to happen. name it as the biggest disaster of the 20th “haves” and the “have nots”. The authorends with a mockcampaign century. Some call it the “forgotten flu”. A resurgence in migration has also speech from a Ms Trump in 2044, which Almost a century on, “Pale Rider”, a scien- caused a political backlash, on both eco- looks back at the collapse of the EU and tific and historic account ofSpanish flu, ad- nomic and cultural grounds. Populist poli- America’s withdrawal from NATO. For an dresses this collective amnesia. ticians have gained voters, and even pow- optimistic economist, it is a surprisingly Influenza, like all viruses, is a parasite. er in some countries. And there may be bleak way to end a well-written and Laura Spinney traces its long shadow over even greatermigrantflowsto come, as Afri- thought-provoking book. 7 human history; records are patchy and un- certain, but Hippocrates’s “Cough ofPerin- thus” in 412BC may be its first written de- scription. Influenza-shaped footprints can be traced down the centuries: the epidem- ic that struck during Rome’s siege of Syra- cuse in 212BC; the febris italica that plagued Charlemagne’s troops in the ninth century. The word “influenza” started being used towards the end of the Middle Ages from the Italian for“influence”—the influence of the stars. That was the state of knowledge then; in some ways at the start of the 20th century it was little better. Ms Spinney, an occasional contributor to The Economist, recreates the world that Spanish flu came into. At the beginning of the 20th century science was on the rise. Scientists had switched miasma theory of America’s helping hands disease for germ theory: they understood The Economist May 27th 2017 Books and arts 71

2 that many diseases were caused not by vered. People reverted to superstition: sug- the ingredients for another catastrophic “bad airs”, but by microscopic organisms ar lumps soaked in kerosene, and aromatic pandemic and scientists, using caution, like bacteria. This led to improvements in fires to clear “miasmas”. should probably do all they can to learn hygiene and sanitation, as well as the de- Even so, Spanish flu was exceptionally more about it. velopment of vaccines. But viruses were deadly—about 25 times more so than sea- Perhaps the most valuable aspect of almost unknown. The magnification of sonal flu. No one fully understands why. this book, though, is its global perspective, optical microscopes was too weakto show Ms Spinney ties the virulence of Spanish tracing the course of the disease in Brazil, them up. People could spot bacteria, but flu to its genetic irregularities and does a India, South Africa and Australia, among not viruses, which are smaller than the good job of explaining containment strat- otherplaces. In Europe and North America wavelength of visible light. Until the elec- egies through epidemiology. She draws on the first world war killed more than Span- tron microscope was invented in the 1930s, contemporary research, too, including the ish flu; everywhere else the reverse is true. influenza was, like the Higgs boson before recent controversy about recreating the Yet most narratives focus on the West, and 2012, a theoretical entity: its existence was strain responsible for the pandemic. Ms only partly because that is where the best deduced from its effects. In the face of such Spinneyissanguine aboutthe risksof such records are. Ms Spinney’s book goes some uncertainty, public faith in medicine wa- experiments: influenza appears to have all way to redress the balance. 7 Johnson Translators’ blues

A pleasingly intellectual profession is underenormous pressure RANSLATION can be lonely work, scale it offers them. What worries the Booker International Prize (MBIP), the Twhich may well be why most transla- translators themselves, though, is that the original dialectal island Norwegian has tors choose the career out of interest, not future maylie in nothingmore intellectual- been deftly rendered by Don Bartlett and because they crave attention. Until ly pleasing than this kind ofclean-up. Don Shaw into a kind of English that car- recently, a decent translatorcould expect a Like all incumbents, those affected are ries the same flavour: “Hvur bitty it is!” steady, tidy living, too. But the industry is not happy. To avoid being “the coffee-bean (“How small it is!”). The MBIP recognises undergoing a wrenching change that will pickersofthe future”, one veteran counsels that translation is, in effect, a kind of writ- make life hard forthe timid. improving specialist knowledge and writ- ing by sharing the prize money equally Most translators are freelancers, and ing skills to get high-end work. But not all between author and translators. with the rise of the internet a good trans- can do that. Translators in the bulk and Most work is in commercial transla- lator could live in Kentucky and work for middle markets will inevitably be doing tion, but that is a kind ofwriting too. Exec- Swiss banks. But going online has result- more editing, or will be squeezed out, utives sometimes reject a translation of a ed in fierce global competition that has What will the rest be doing? For one, lit- speech or a letter because it doesn’t look put enormous downward pressure on erary translation is under no threat. Sales enough like their original. But a good prices. Translators can either hustle hard of translated fiction rose by more than translator needs to rethink a text, reword- for more or better-paid work—which 600% in Britain between 2001 and 2015, ing important pieces, breaking up or means spending less time translating—or and have been growing strongly in Ameri- merging sentences, and so on. Translation choose an agency that fights for the work ca too, with big authors like Elena Ferrante software can be accurate, but it translates forthem, but which also takes a cut. conditioning readers in those countries to sentence-by-sentence. Since languages The alternative to schmoozing oneself look beyond their borders for good books. have different rhythms and different ex- or working with an agency is to market Nobody thinks a novel can be translated pectations for what counts as a good sen- one’s skills in online marketplaces. But by a machine. In Roy Jacobsen’s “Unseen”, tence, that approach can result in a mess. these display the most relentless price which is on the shortlist for the 2017 Man So it is often best simply to rewrite after pressure of all: fees as low as $13-15 per thinking about the intended meaning. 1,000 words translated are not unknown. Another market is “transcreation”, in Traditionally, something more like $50 which a translator—often in advertis- has been the low end, with literary trans- ing—is expected to rethink a message, lation at around $120, and high-end work making sure that the version in the new at $250. Buyers who know little about for- language has the right cultural references, eign languages and quality will, in online jokes and suchlike to recreate the impact, markets, shop almost purely on price. without the wording, of the original. In To these pressures comes another: the this case, the “transcreator” is even more rise in higher-quality machine transla- of a writer than most translators. tion. Just a year ago, machine translation Translation is hardly alone in being still produced reliably rocky results: both shaken up by technology. The legal indus- inaccurate as to content, and often un- try, accountingand many othervenerable readable too. Both have improved dra- professions are seeing repeatable knowl- matically with translation engines based edge work done passably by machines. on so-called deep neural networks. Those The translators of the future need not who offer rock-bottom prices for transla- only language and writing skills. They tion are almost certainly using translation must, like the partnersata lawor account- software, and then giving it a quick edit ing firm, gain clients’ trust and learn their for accuracy and readability. By and large, minds in order to do truly good work. The the big translation agencies are excited loners of the field, in other words, may about technology and the possibilities of find it hard going. 72 Books and arts The Economist May 27th 2017

Fiction A gleam in the darkness

A Boy in Winter. By Rachel Seiffert. Virago; 237 pages; £14.99. To be published in America by Pantheon in August; $25.95 ALFWAY through Rachel Seiffert’s Hnew novel, when the SS death squad starts shooting, most readers will shudder. They all know, they think, what is coming: not just a gruesome depiction of the Nazis’ murderous campaign against European Jews, but the Holocaust narrative itself, by now a well-stocked shelf. It is a mark ofMs Seiffert’s gifts that her slender tale, “A Boy in Winter”, upends these expectations. Television Here, Ms Seiffert, a British writer ofGer- man-Australian origins, returns to the sub- The next chapter on the screen ject of “The Dark Room”, her bestselling first book. As before, she focuses on the small and particular to evoke this largest of historical crimes. In November 1941 a Ukranian town is the site of both a brutal roundup of the After26 years, “Twin Peaks” is back Jewish population and the building of a highway for the 1,000-year Reich. The at- T HAS been over a quarter of a century dered in South Dakota, police find her dis- tack and its aftermath are described by a Isince the twisted world of “Twin Peaks” membered head has been placed onto a tight cast: the Jewish parents whose sons was first seen. Part surrealist murder mys- man’s marbled and bloated corpse. Mean- escape; Yasia, the Ukranian farmgirl who tery, part small-town soap opera, there had while, in Twin Peaks, the Log Lady calls hides them; her boyfriend Mykola, a Red never been anything like it on network Deputy Chief Hawk with an urgent mes- Army deserter pressed into German ser- television. With a languid pace and mean- sage: he must find something that is miss- vice; and Pohl, a conscience-stricken Ger- dering plotline, it was challenging viewing ing. In the netherworld that is the Red man engineer overseeing construction of that was thought not to appeal to audi- Room Cooper has an encounter with a the road. ences back then. Yet it was one of the most talking tree. It is not at all clear how these From the first scene the story is a close popular series of1990. unconnected scenes fit together. study of moral choice, immersed in its In the years since, shows from “The X- With a roster of more than 200 charac- equally intense setting: wet, cold, early Files” and “True Detective” to “Stranger ters, audiences are likely to find “Twin winter in the inhospitable eastern swam- Things” have tipped a cap to “Twin Peaks” Peaks” bewildering at first. Familiar pland. When Yasia runs into the two both fordaringand vision. So expectations themes soon surface, however. Mr Lynch is young escapees, Yankel and Momik, she forthe third season of“Twin Peaks”, which fascinated by the duality ofhuman nature. faces the most fundamental of human di- began on Showtime on May 21st, have People, he thinks, have a light and a dark lemmas: whether to risk herself to protect been high. The show’s creators, David side, a calm exterior masking a murky in- the young and vulnerable. Pohl, an engi- Lynch and Mark Frost, are back, and so is ner world. Agent Cooper, a coffee-loving neer, too must choose. But the author wise- much of the original cast. The second sea- Eagle Scout, has been replaced by a mur- ly avoids the cliché of the “good German” son ended with a cliffhanger, as Laura derous doppelganger in a leather jacket in this novel ofsubtle surprises. Palmer, the murdered prom queen played with long, lank hair reminiscent of Bob, Ms Seiffert’s prose is not showy, but by Sheryl Lee, told Dale Cooper, an FBI Laura’s killer. Twin Peaks is a town imbued graceful and precise. The misery of the agent, (Kyle MacLachlan, pictured): “I’ll see with a neighbourly American whole- dank streets is relieved by flashes of light you again in 25 years.” That same scene someness, yet teenagers go missing and and humanity: a bunch of sweet apples, opens the new drama, but otherwise the evil spirits lurkin the woods close by. Pohl’s letters to his wife, the hand-carved world of “Twin Peaks” has moved on. The When itfirstaired, in 1990, “Twin Peaks” figures Momik plays with. Pohl’s highway, first iteration revolved around the mystery gained a whopping “33 share”, meaning completed, “stretches ever onwards, as of who killed Laura. Now the drama rests that a third of American televisions then though unending, meeting the rise of the on whether Cooper, trapped in the Red on were tuned in to the show. When it was land—perhaps even the curve of the Room, can breakfree. cancelled a yearlater, its share had fallen to Earth”. The structure and range of the new 9%—viewers dropped off when executives Most literature ofthe “third generation” “Twin Peaks” is more ambitious. Set in at ABC, the network, insisted that the iden- after the war explores the impact on its de- various American cities and in the town of tity ofthe killer should be revealed. For the scendants. Ms Seiffert’s fictions are differ- Twin Peaks on the Pacific north-west coast, revival, Mr Lynch hopes to avoid such con- ent: theyinhabit the events themselves. Yet the action unspools across multiple narra- cessions. He directs all 18 episodes, which from all too familiar horror they swerve tives. In New York a young man has been bodes well for those who enjoy his dark, into the unexpected, into a new story—a hired by an anonymous billionaire to idiosyncratic ideas. It may not be easy gleam in the darkness that readers haven’t watch a spooky glass box, to “see if any- viewing, but “Twin Peaks” remains one of seen before. 7 thing appears”. When a librarian is mur- boldest experiments on television. 7 76 Economic and financial indicators The Economist May 27th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicGross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest May 24th year ago United StatesStatistics +1.9 Q1 on 42+0.7 economies,+2.2 +2.2 Apr +2.2 Apr +2.3 4.4 Apr -481.2 Q4 -2.7 -3.5 2.27 - - China plus a+6.9 closer Q1 look+5.3 at+6.6 external +6.5 Apr +1.2 Apr +2.3 4.0 Q1§ +170.1 Q1 +1.7 -4.0 3.72§§ 6.89 6.56 Japan financial+1.6 Q1flows +2.2 into +1.3 Africa +3.5 Mar +0.2 Mar +0.7 2.8 Mar +187.3 Mar +3.5 -5.3 0.05 112 110 Britain +2.1 Q1 +1.2 +1.6 +1.4 Mar +2.7 Apr +2.7 4.6 Feb†† -115.7 Q4 -3.3 -3.6 1.11 0.77 0.68 Canada +1.9 Q4 +2.6 +2.1 +3.9 Feb +1.6 Apr +1.9 6.5 Apr -51.2 Q4 -2.9 -2.7 1.48 1.34 1.31 Euro area +1.7 Q1 +2.0 +1.7 +1.9 Mar +1.9 Apr +1.6 9.5 Mar +403.9 Mar +3.1 -1.4 0.40 0.89 0.90 Austria +1.7 Q4 +2.0 +1.6 +3.3 Mar +2.1 Apr +1.8 5.9 Mar +6.6 Q4 +2.4 -1.2 0.68 0.89 0.90 Belgium +1.5 Q1 +2.1 +1.4 +2.6 Mar +2.3 Apr +2.1 6.9 Mar -2.0 Dec +1.0 -2.7 0.74 0.89 0.90 France +0.8 Q1 +1.0 +1.3 +2.0 Mar +1.2 Apr +1.3 10.1 Mar -27.4 Mar -1.1 -3.1 0.84 0.89 0.90 Germany +1.7 Q1 +2.4 +1.6 +1.8 Mar +2.0 Apr +1.8 3.9 Mar‡ +287.5 Mar +8.1 +0.5 0.40 0.89 0.90 Greece -0.3 Q1 -0.5 +1.2 +8.7 Mar +1.6 Apr +1.0 23.2 Feb -1.2 Mar -0.9 -1.0 6.06 0.89 0.90 Italy +0.8 Q1 +1.0 +0.8 +2.8 Mar +1.9 Apr +1.4 11.7 Mar +46.9 Mar +2.4 -2.3 2.13 0.89 0.90 Netherlands +3.4 Q1 +1.8 +2.2 +4.0 Mar +1.6 Apr +1.2 6.0 Apr +64.8 Q4 +8.7 +0.7 0.61 0.89 0.90 Spain +3.0 Q1 +3.2 +2.6 +8.9 Mar +2.6 Apr +2.1 18.2 Mar +25.9 Feb +1.6 -3.3 1.60 0.89 0.90 Czech Republic +2.0 Q4 +5.3 +2.5 +10.9 Mar +2.0 Apr +2.4 3.4 Mar‡ +2.3 Q4 +0.9 -0.5 0.85 23.6 24.2 Denmark +2.3 Q4 +1.2 +1.4 +10.7 Mar +1.1 Apr +1.4 4.3 Mar +26.5 Mar +7.1 -1.2 0.69 6.65 6.66 Norway +2.6 Q1 +0.9 +1.7 +3.3 Mar +2.2 Apr +2.4 4.5 Mar‡‡ +18.1 Q4 +5.0 +2.9 1.55 8.38 8.34 Poland +3.3 Q4 +4.1 +3.2 -0.6 Apr +2.0 Apr +2.0 7.7 Apr§ -0.1 Mar -1.0 -2.8 3.36 3.74 3.97 Russia +0.5 Q1 na +1.4 +2.4 Apr +4.1 Apr +4.3 5.3 Apr§ +34.9 Q1 +2.8 -2.2 8.13 56.4 66.6 Sweden +2.3 Q4 +4.2 +2.6 +3.8 Mar +1.9 Apr +1.7 7.2 Apr§ +23.7 Q4 +4.8 +0.3 0.53 8.71 8.31 Switzerland +0.6 Q4 +0.3 +1.3 -1.3 Q1 +0.4 Apr +0.5 3.3 Apr +70.6 Q4 +9.9 +0.2 -0.09 0.98 0.99 Turkey +3.5 Q4 na +2.8 +2.8 Mar +11.9 Apr +10.0 12.6 Feb§ -33.0 Mar -4.4 -2.1 10.62 3.57 2.94 Australia +2.4 Q4 +4.4 +2.7 +1.0 Q4 +2.1 Q1 +2.2 5.7 Apr -33.1 Q4 -1.3 -1.8 2.49 1.34 1.39 Hong Kong +4.3 Q1 +2.9 +2.8 -0.9 Q4 +2.1 Apr +1.6 3.2 Apr‡‡ +14.9 Q4 +6.5 +1.5 1.37 7.79 7.77 India +7.0 Q4 +5.1 +7.1 +2.7 Mar +3.0 Apr +4.6 5.0 2015 -11.9 Q4 -1.1 -3.2 6.80 64.8 67.7 Indonesia +5.0 Q1 na +5.2 +5.5 Mar +4.2 Apr +4.2 5.3 Q1§ -14.6 Q1 -1.9 -2.2 6.93 13,308 13,690 Malaysia +5.6 Q1 na +4.3 +4.5 Mar +4.4 Apr +4.0 3.4 Mar§ +6.6 Q1 +3.0 -3.0 3.88 4.29 4.12 Pakistan +5.7 2017** na +5.5 +10.5 Mar +4.8 Apr +4.6 5.9 2015 -7.2 Q1 -2.6 -4.8 8.98††† 105 105 Philippines +6.4 Q1 +4.5 +6.5 +11.1 Mar +3.4 Apr +3.3 6.6 Q1§ +0.6 Dec +0.4 -2.8 4.99 50.0 46.9 Singapore +2.7 Q1 -1.3 +2.3 +10.2 Mar +0.4 Apr +1.3 2.3 Q1 +59.0 Q1 +19.8 -1.0 2.10 1.39 1.38 South Korea +2.8 Q1 +3.6 +2.6 +3.0 Mar +1.9 Apr +1.8 4.2 Apr§ +92.9 Mar +6.3 -0.5 2.27 1,126 1,193 Taiwan +2.6 Q1 +2.9 +2.3 -0.6 Apr +0.1 Apr +0.5 3.8 Apr +69.1 Q1 +12.3 -0.8 1.07 30.2 32.7 Thailand +3.3 Q1 +5.2 +3.8 -0.5 Mar +0.4 Apr +0.8 1.3 Mar§ +42.3 Q1 +11.0 -2.3 2.51 34.4 35.7 Argentina -2.1 Q4 +1.9 +2.7 -2.5 Oct +27.5 Apr‡ +26.0 7.6 Q4§ -15.0 Q4 -2.6 -5.7 na 16.1 14.0 Brazil -2.5 Q4 -3.4 +0.7 +1.1 Mar +4.1 Apr +4.3 13.7 Mar§ -19.8 Apr -1.4 -7.7 10.68 3.26 3.55 Chile +0.1 Q1 +0.7 +1.7 -8.3 Mar +2.7 Apr +3.0 6.6 Mar§‡‡ -5.0 Q1 -1.4 -2.1 4.05 676 691 Colombia +1.1 Q1 -0.9 +2.2 +4.8 Mar +4.7 Apr +4.1 9.7 Mar§ -12.5 Q4 -3.5 -3.1 6.37 2,904 3,055 Mexico +2.8 Q1 +2.7 +1.7 +3.4 Mar +5.8 Apr +5.2 3.5 Mar -27.9 Q4 -2.5 -2.4 7.33 18.6 18.4 Venezuela -8.8 Q4~ -6.2 -6.4 na na +562 7.3 Apr§ -17.8 Q3~ -1.5 -19.6 10.43 10.1 9.99 Egypt +3.8 Q4 na +3.5 +13.7 Mar +31.5 Apr +22.5 12.0 Q1§ -20.1 Q4 -5.6 -10.8 na 18.1 8.88 Israel +4.0 Q1 +1.4 +3.4 +0.3 Feb +0.7 Apr +1.0 4.4 Apr +12.4 Q4 +4.4 -2.6 2.11 3.59 3.85 Saudi Arabia +1.7 2016 na +0.4 na -0.6 Apr +2.2 5.6 2015 -24.9 Q4 -2.6 -9.4 3.68 3.75 3.75 South Africa +0.7 Q4 -0.3 +1.1 -2.4 Mar +5.3 Apr +5.8 26.5 Q4§ -9.5 Q4 -3.4 -3.1 8.51 12.9 15.7 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist May 27th 2017 Economic and financial indicators 77

Markets % change on Africa Global external financial Dec 30th 2016 External financial flows into Africa came inflows into Africa, $bn Remittances Index one in local in $ to a total of $178bn in 2016, according to Foreign direct investment Markets May 24th week currency terms the OECD, down from $183bn the year Official development assistance United States (DJIA) 21,012.4 +2.0 +6.3 +6.3 before. This was largely driven by a 60% As % GDP Portfolio investments China (SSEA) 3,208.9 -1.3 -1.3 -0.4 Japan (Nikkei 225) 19,743.0 -0.4 +3.3 +7.5 fall in the value of inflows of portfolio 10.0 200 Britain (FTSE 100) 7,514.9 +0.2 +5.2 +10.3 investments. In 2015 these made up 9% Canada (S&P TSX) 15,419.5 +1.0 +0.9 +0.6 of external inflows; in 2016 they account- Euro area (FTSE Euro 100) 1,222.2 +0.2 +9.9 +16.5 ed for only 4%. Global shocks mean 7.5 150 Euro area (EURO STOXX 50) 3,586.6 nil +9.0 +15.6 investors have been buying fewer devel- Austria (ATX) 3,204.3 +2.7 +22.4 +29.8 oping-country assets. Inflows of official Belgium (Bel 20) 3,902.7 -1.3 +8.2 +14.7 development assistance and remittances 5.0 100 France (CAC 40) 5,341.3 +0.4 +9.9 +16.5 also fell. But foreign direct investment in Germany (DAX)* 12,642.9 +0.1 +10.1 +16.8 Africa increased by 10%. Countries in the Greece (Athex Comp) 766.0 -2.9 +19.0 +26.2 2.5 50 Italy (FTSE/MIB) 21,369.7 +0.4 +11.1 +17.8 Middle East and Asia are becoming a Netherlands (AEX) 527.9 -0.2 +9.3 +15.8 source of cash for greenfield projects. Spain (Madrid SE) 1,095.6 +1.1 +16.1 +23.1 Total external inflows are expected to 0 0 Czech Republic (PX) 1,010.7 -1.0 +9.7 +18.8 increase slightly this year, partly due to a 2010 11 12 13 14 15 16 17* Denmark (OMXCB) 892.1 +1.9 +11.7 +18.3 projected rise in remittances. Source: OECD *Forecast Hungary (BUX) 34,251.2 +0.3 +7.0 +13.8 Norway (OSEAX) 798.7 -0.4 +4.4 +7.2 Poland (WIG) 60,812.5 +1.1 +17.5 +31.1 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,087.6 -1.5 -5.6 -5.6 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,638.9 +0.6 +8.0 +12.7 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 9,035.1 +0.4 +9.9 +14.4 Index one in local in $ May 16th May 23rd* month year Turkey (BIST) 98,313.8 +2.7 +25.8 +24.0 May 24th week currency terms Dollar Index Australia (All Ord.) 5,811.5 -0.2 +1.6 +5.3 United States (S&P 500) 2,404.4 +2.0 +7.4 +7.4 All Items 143.1 143.2 +1.7 +5.7 Hong Kong (Hang Seng) 25,428.5 +0.5 +15.6 +15.1 United States (NAScomp) 6,163.0 +2.5 +14.5 +14.5 Food 154.4 154.3 +3.3 -5.0 India (BSE) 30,301.6 -1.2 +13.8 +19.2 China (SSEB, $ terms) 316.4 -3.1 -7.4 -7.4 Indonesia (JSX) 5,703.4 +1.6 +7.7 +9.0 Japan (Topix) 1,575.1 nil +3.7 +8.0 Industrials Malaysia (KLSE) 1,771.0 -0.3 +7.9 +12.7 Europe (FTSEurofirst 300) 1,541.4 +0.2 +7.9 +14.4 All 131.3 131.7 -0.1 +22.5 Pakistan (KSE) 52,876.5 +2.6 +10.6 +10.1 World, dev'd (MSCI) 1,906.7 +1.3 +8.9 +8.9 Nfa† 139.7 136.0 -0.7 +17.5 Singapore (STI) 3,231.2 +0.2 +12.2 +16.7 Emerging markets (MSCI) 1,004.5 -0.4 +16.5 +16.5 Metals 127.7 129.9 +0.3 +24.8 South Korea (KOSPI) 2,317.3 +1.1 +14.4 +22.6 World, all (MSCI) 462.7 +1.1 +9.7 +9.7 Sterling Index Taiwan (TWI) 10,044.4 +0.3 +8.5 +16.0 World bonds (Citigroup) 920.7 +0.3 +4.2 +4.2 All items 201.4 200.7 +0.5 +19.0 Thailand (SET) 1,566.2 +1.2 +1.5 +5.7 EMBI+ (JPMorgan) 820.1 -0.1 +6.2 +6.2 Argentina (MERV) 21,684.6 nil +28.2 +26.0 Hedge funds (HFRX) 1,230.3§ +0.2 +2.2 +2.2 Euro Index Brazil (BVSP) 63,257.4 -6.3 +5.0 +4.8 Volatility, US (VIX) 10.6 +15.6 +14.0 (levels) All items 160.5 158.6 -1.0 +5.0 Chile (IGPA) 24,440.8 +0.3 +17.9 +16.8 CDSs, Eur (iTRAXX)† 62.0 +0.3 -14.0 -8.8 Gold Colombia (IGBC) 10,757.9 +0.3 +6.4 +10.0 CDSs, N Am (CDX)† 61.9 +0.3 -8.7 -8.7 $ per oz 1,237.4 1,260.3 -0.6 +2.1 Mexico (IPC) 49,494.4 +1.5 +8.4 +20.3 Carbon trading (EU ETS) € 4.9 +7.2 -25.4 -20.9 West Texas Intermediate Venezuela (IBC) 72,689.7 +11.2 +129 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 48.7 51.5 +4.6 +6.5 Egypt (EGX 30) 12,884.4 -1.4 +4.4 +4.5 †Credit-default-swap spreads, basis points. §May 22nd. Israel (TA-100) 1,299.1 +0.6 +1.7 +9.1 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 6,901.4 -0.7 -4.6 -4.6 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 54,308.7 +0.6 +7.2 +13.2 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Roger Ailes The Economist May 27th 2017

the power of the small screen. To Nixon he explained in 1967 that TV was no gimmick, but could make or break politicians. He also told this uneasy, “somewhat weird” man how the medium could flatter him. Mr Ailes’s rules forselling a TV message were simple. His book, “You are the Mes- sage”, spelled it out. Play to your strengths. Don’t pick defence. Say what you want to say. Be emotional, not intellectual; keep to themes, avoid details. These lessons he taught Ronald Reagan in 1984 forhis second debate with Walter Mondale; Reagan won the election. So did several others whom Mr Ailes advised to parade their dear old mothers, ortheirdancingskills, rather than prove their fitness forthe Senate. This was the attitude he brought to Fox. Its personalities were striking, because viewers would decide in seven seconds whether or not to watch. The debates were punchy and graphic, because viewers tired of arguments in a minute. Fox stressed themes, not facts, tugged heartstrings and banged drums for America’s wars. It pushed conspiracies, from Benghazi to Obama-is-a-Muslim, which the New York Times, that “cesspool of bias”, barely men- The man for the message tioned. And, like him, it was often angry. Some called him the most dangerous man in the country, filling2m heads a night with flaming garbage. (These were mostly elderly, male, white heads; 40% of Trump voters relied on him for their news.) “Here comes the most powerful man in Ameri- RogerAiles, founderofFoxNews, died on May18th, aged 77 ca,” said Barack Obama once, as he lum- TROLLING down a corridor in a high- but he intended to walk right up to the line bered up. He liked that, and relished how Ssecurity jail in 1981, where he was direct- and plant his footon it. other channels copied him; cable, he said ing an interview, Roger Ailes suddenly “Fair and balanced” was his motto. To presciently in 2003, was “beginning to bumped chests with Charles Manson. those who thought Fox lacked either vir- change the agenda ofwhatisnews”. Buthe America’s most notorious killer looked tue, he replied that his single channel was still believed he was balancing that news, mean and wiry, like a dangerous ferret. Mr giving America’s legions of conservatives not skewing it. He recruited Democrats for Ailes, in his own telling, met his gaze calm- what CNN, NBC, CBS, ABC and MSNBC al- Fox, too. He gave Obama grief, but also ly. “Mr Manson,” he said, “I’m in charge of ready offered liberals. “Balance” was how gave Bush grief. In the past he had inter- this interview. I’d like you to come with he persuaded Rupert Murdoch, CEO of viewed Malcolm X several times, and a me.” And Manson did so, head lowered. News Corporation, to launch the network portrait ofFDR hung in his library. The founder of Fox News seldom had a in 1996 with $1bn and a free hand. His confrontation he wasn’t ready for, and his viewers were not moron rednecks, as the Under siege life was full of them. Everyone was out to liberal media thought. They were ordinary Not many (save Zev Chafets, his biogra- get him, but they wouldn’t win. He would. Joes who worked hard, loved America, pher) knew that. Mr Ailes liked both pri- Liberal elitists, jargon-spouting intellectu- supported the armed forces, didn’t care vacy and secrecy. In his New York office, als and anyone who got up in the morning about feminism orpolluted rivers, thought behind a stout wooden door with the blamingAmerica forthe world’sillswould depending on federal handouts was a sin, blinds drawn, he obsessively checked soon hear from him, and how. If some- and didn’t live in New York. Good people, Fox’s standings against CNN, his “holy body got in his face, he’d get in their face. like those he had known growing up in a war”. On the wall was a picture of Wash- Fox did not come to be the number-one blue-collar family in Ohio, a weakly, hae- ington’s camp at Valley Forge; like his hero, cable-news network in America for fully 15 mophiliac boy who nonetheless wanted he too was under siege. Enemies were all years, squashing Ted Turner’s CNN like a to be a combat pilot, and liked a fight. around. By 2016 they were also emerging bug, by parading grey talking heads offer- He was proud of those credentials. from within Fox, in the shape of women ing serious analysis. On Fox News the Proud, too, that he had come up the hard employees suing him for groping and screen flashed up constant alerts, loud way, getting into student radio to pay for propositioning. “If you want to play with whooshing heralded big stories, hot college and then slaving at a TV station in the big boys, you have to lay with the big blonde anchors beamed through layers of Cleveland, fetchingsandwichesforthe star boys,” one claimed he told her. lip glossand commentatorsbawled ateach guests on “The Mike Douglas Show”. It He said it was all made up, but it other. It was a show; his show. He picked was through this show (which he eventu- marked the end of his time at Fox and the men to be pugnacious and women fornice ally ran, getting it syndicated in 180 cities) end, too, of his power. Suddenly, he was breasts and sexy stockings. News and en- that he met Richard Nixon and found fame the one backing down and unprepared. tertainment might be separate domains, as someone who knew, as few did then, This reversal ofroles was death in itself. 7