State-sponsored quackery in China

Guatemala’s unfunny president

America’s biggest private firm opens up

When Ponzi schemes make sense SEPTEMBER 2ND–8TH 2017

How to deal with them

PURE AGRIBUSINESS

When it comes to growing food and businesses, there’s one state that’s got the perfect climate for both. Michigan. Our weather patterns and soil variety help us grow everything from cherries to Christmas trees. Our food and agriculture industries contribute over $101 billion to the state’s economy. Which makes Michigan a top pick for your agribusiness.

michiganbusiness.org/pure-agribusiness Contents The Economist September 2nd 2017 5

7 The world this week The Americas 29 Corruption in Guatemala Leaders If you elect a clown, expect a circus 9 Natural disasters How to cope with floods 30 Bello The skills crisis 10 Corruption in Latin America More tragedy than comedy Asia 10 North Korea 31 Japan and North Korea Stand by Japan A missile scare East-Asian security A missile 11 Protein-rich diets 32 Myanmar’s Rohingyas flying over Japan shows why Feed as well as food Gory days America must stand by its 12 Traditional Chinese 32 Law in India allies: leader, page10. Japan On the cover medicine Courage in their examines how prepared it is to The to-do list for dealing State-sponsored quackery convictions face North Korean aggression, with floods goes far beyond 33 Thai politics page 31. Donald Trump is getting to grips with climate Letters A coup for the generals undermining Asia’s change: leader, page 9. The American-led order. But it may 14 On electric cars, the 34 Banyan unprecedented flooding outlast him: Banyan, page 34 Confederacy, puns An American Hurricane Harvey brought to wrecking-ball? Houston is part of a worldwide trend, page17.A below- Briefing China average monsoon can still 17 Flooding prove deadly, page18. Submerged 37 Traditional medicine Calculating the chances of Health care with Chinese 18 India and Bangladesh disaster, page19 characteristics Hard hit 19 The chances of disaster Middle East and Africa The Economist online Frequency modulation 39 Islamic State Daily analysis and opinion to A state no more supplement the print edition, plus United States 40 After the caliphate audio and video, and a daily chart 21 Politics The next scramble Premier League The English Economist.com Back to school 40 Oman and the Qatar crisis are bad at playing football but E-mail: newsletters and 22 Lobbyists A port in the storm brilliant at selling it. What is mobile edition Washington wizards the secret of their success? Economist.com/email 41 Angola and Congo 22 The states and Obamacare Page 47 A tale of two kleptocracies Print edition: available online by Over to you 41 Public housing in 7pm London time each Thursday 23 Health-care costs Economist.com/print Ethiopia How to twist an arm Audio edition: available online Not for the poor anymore 24 Arizona Republicans to download each Friday 42 Grasscutters Beg your pardon Economist.com/audioedition The challenge of raising 24 Police militarisation rats in Ghana The arms race 26 The 2020 census Europe Count down 43 Turks in Europe 28 Lexington Home and away Volume 424 Number 9056 Mr Trump’s history lessons 45 Germany’s Free Published since September1843 Democrats Guatemala The president is to take part in "a severe contest between intelligence, which presses forward, and Return of the yuppies trying to thwart a UN-backed an unworthy, timid ignorance obstructing anti-corruption agency. It our progress." 45 Complex Dutch families Three’s company deserves a stout defence: Editorial offices in London and also: leader, page 10. As the Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, 46 Rural France country’s scandals multiply, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, Into the trees New York, Paris, San Francisco, São Paulo, Seoul, opposition hardens to the Shanghai, Singapore, Tokyo, Washington DC investigators who are uncovering them, page 29

1 Contents continues overleaf 6 Contents The Economist September 2nd 2017

Britain Science and technology 47 Football 67 Quantum cryptography A league of their own The early bird 48 Higher education 68 Cancer A costly mistake Zapping tumours 49 Bagehot 70 Medicine May v the managers Heart of the matter 70 How plesiosaurs swam International In a flap 51 Indentured labour Feed and food As demand for Economics brief The last brief Servitude’s centenary Books and arts protein grows, what people in our series on big economic eat matters. So does what gets 71 Mikhail Gorbachev ideas looks at the costs (and fed to animals: leader, page11. Business A good Soviet man benefits) of passing on the bill Can the privately held epitome 53 Cargill 72 Paul Samuelson to the next generation, of Big Agriculture satisfy a Middleman to the world Practical theorist page 59 public that is more questioning 54 Uber’s new CEO 73 Samuel Pepys and John about its food? Page 53 Evelyn Self-driving no longer Subscription service Men, pen and ink 55 Naspers For our latest subscription offers, visit Ten cents’ worth 74 Karl Ove Knausgaard Economist.com/offers Leaves turning For subscription service, please contact by 56 Co-living models telephone, fax, web or mail at the details Rent collective 74 British television provided below: Let them bake cakes North America 58 Schumpeter The Economist Subscription Center Unilever’s experiment P.O. Box 46978, St. Louis, MO 63146-6978 Telephone: +1 800 456 6086 76 Economic and financial Facsimile: +1 866 856 8075 indicators E-mail: [email protected] Economics brief Statistics on 42 economies, Latin America & Mexico 59 Overlapping generations The Economist Subscription Center plus a closer look at P.O. Box 46979, St. Louis, MO 63146-6979 Kicking the can trade-weighted exchange Telephone: +1 636 449 5702 rates Facsimile: +1 636 449 5703 Traditional Chinese medicine E-mail: [email protected] China is ramping up the Finance and economics Subscription for 1 year (51 issues) promotion of its ancient 61 India’s economy Obituary United States US $158.25 (plus tax) medical practices. That is Drifting apart 78 Wayne Lotter Canada CA $158.25 (plus tax) dangerous for people and 62 Buttonwood The ivory game Latin America US $289 (plus tax) rhinos: leader, page12. Why Long-term forecasts traditional medicine is 63 Indian demonetisation Principal commercial offices: booming in China, page 37. Paint it white The Adelphi Building, 1-11John Adam Street, Wayne Lotter, fighter for London WC2N 6HT Tanzania’s elephants: 63 NAFTA Tel: +44 (0) 20 7830 7000 Obituary, page 78 Having a domestic Rue de l’Athénée 32 63 International litigation 1206 Geneva, Switzerland Courtly competition Tel: +4122 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 64 Russian banking Tel: +1212 5410500 Too close to the sun 1301Cityplaza Four, 66 Free exchange 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Market concentration Tel: +852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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their forces, avoiding what banning oil imports from jihadists’ last redoubt is likely Politics could have been their most Venezuela. President Nicolás to be the city ofDeir ez-Zor, in serious clash in decades. Maduro directed the constitu- eastern Syria. ent assembly, which has taken A court in India convicted over the powers ofthe legisla- In order to reduce tension Gurmeet Ram Rahim Singh, ture, to prosecute “traitors” between the country’s the country’s most influential who support the sanctions. Anglophone population and guru, ofrape. As news ofthe its Francophone majority, verdict got out his devotees Assessing the migrant crisis Cameroon’s president or- went on the rampage; at least Emmanuel Macron, the French dered that charges be dropped 38 people died. president, hosted a European- against three English-speaking African summit in Paris. The activists over protests last year. YingluckShinawatra, a former leaders ofChad, Libya and But at the same time the gov- prime minister ofThailand, Niger met their counterparts ernment banned a popular fled the country before a from France, Germany, Italy English-language TV channel, verdict could be announced in and Spain and agreed to fight based in South Africa, which Hurricane Harvey battered her trial fornegligence in smuggling networks across has highlighted human-rights the coasts ofTexas and Louisi- administering a rice-subsidy borders and in the Mediterra- abuses in Cameroon, claiming ana. Downgraded to a tropical scheme. Ms Yingluck, who nean. The plan is an effort to it airs seditious programmes. storm, the incessant deluge was toppled by a coup in 2014, co-ordinate policy following broke records, with some says the charges are politically separate initiatives on Libya. places measuring over1.3 motivated. metres ofrainfall. Houston Mr Macron also presented a set suffered severe flooding; the ofcontentious reforms to mayor imposed a curfew to France’s labour markets that deter looters. At least 38 people the unions have vowed to died in Texas; that figure is fight. And he outlined his expected to rise when the proposals for euro-zone waters recede. By one estimate reforms, including the cre- the damage from the storm ation ofa budget and a finance could cost as much as $100bn. minister forthe currency bloc.

The death toll from monsoon The Polish government Nigeria’s president, Muham- floods that have swept Bangla- dismissed the European madu Buhari, chaired his first desh, India and Nepal rose Commission’s ultimatum to cabinet meeting since return- above 1,200. Millions have After attacks on police stations address its concerns over ing from Britain, where he was been left homeless. Most ofthe that killed 12 officers, the secu- reforms to the country’s judi- treated foran undisclosed destruction is in rural areas, rity forces in Myanmar ciary. Angela Merkel, Ger- illness. He recently cancelled a though the rains caused launched a crackdown on many’s chancellor, said she similar meeting, magnifying Mumbai’s transport network alleged Rohingya militants had serious worries about the concerns that the 74-year-old is to come to a standstill. that left at least110 people rule oflaw in Poland. not well enough to lead Afri- dead. More than 18,000 ca’s most populous country. Acting with abandon Rohingyas, a Muslim ethnic Michel Barnier, the European North Korea launched an group persecuted by the Union’s chiefBrexit negotia- Not any time soon audacious missile test, firing Buddhist majority, fled across tor, told Britain to get serious James Mattis, America’s de- an intermediate-range one the border to Bangladesh. and offer concrete proposals fence secretary, established a over Japan and farinto the fora divorce bill. The third process to worktowards en- Pacific. The Japanese Morales hazard round oftalks began without forcing Donald Trump’sorder government said the test was Guatemala’s president, any noticeable progress. to ban transgender people an “unprecedented, serious Jimmy Morales, attempted to Theresa May visited Japan, to from serving in the armed and grave threat” to the expel the head ofa UN-backed discuss post-Brexit relations. forces. Mr Trump announced country’s security. North anti-corruption body, after it The British prime minister the idea in July and recently Korea’s state media described announced plans to investi- confounded expectations— made it an official directive. it as the “first step” ofoper- gate whether he accepted given her party’s dismal result ations in the Pacific and a illegal campaign donations. in this year’s election—by Mr Trump pardoned Joe “prelude to containing Guam”, International organisations saying she intends to stay in Arpaio, “America’s toughest which houses American naval denounced Mr Morales and office to fight the next one. sheriff”, who, from his former and air-force bases. the constitutional court ruled perch in Arizona, led a crusade against him. Ever decreasing circles against illegal immigrants, China and India ended a The jihadists ofIslamic State among other controversies. Mr stand-offon their shared Donald Trump signed an were squeezed on all sides. In Arpaio had been convicted of border with Bhutan in the executive order prohibiting Iraq, they lost their former contempt forfailing to comply Himalayas. The dispute began Americans from dealing in stronghold ofTal Afar. In a deal with a court order to halt racial in June when China built a new debt and some existing with Hizbullah, IS fighters on profiling. A president has the road in the Doklam area, bonds issued by Venezuela’s the Syria-Lebanon border power to pardon whomever which is claimed by China and authoritarian government and agreed to retreat east, though he wants, but Mr Trump’s Bhutan, India’s close ally. Both by the state oil company. The they were blocked along the critics said this pardon would sides have now disengaged sanctions stopped short of way by American forces. The spur others to ignore the law. 1 8 The world this week The Economist September 2nd 2017

conviction is upheld, Mr Lee is India’s central bankreported country for many years. Aston Business unlikely to be given a presi- that 99% ofthe banknotes that Martin, meanwhile, promised dential pardon. Public anger were suddenly taken out of that all its vehicles would be In its search fora new chief with the chaebol, South Korea’s circulation last year under a able to run on batteries or executive Uber at last settled conglomerates, makes such demonetisation programme would be “mild” hybrids on Dara Khosrowshahi, who special treatment improbable. had been cashed in at banks (which use an engine but can ran Expedia for12 years. He fornew tender. That some- also travel on battery power) takes up the reins at the ride- Gilead Sciences strucka deal what undermined the govern- by the mid-2020s. hailing firm after a run of bad to buy Kite Pharma for $11.9bn. ment’s claim that the scheme publicity that led to the ousting Kite is one ofseveral compa- would leave forgers and tax Less dosh for posh nosh ofTravis Kalanick, Uber’s nies developing a pioneering dodgers holding piles of co-founder. Mr Khosrow- treatment forfighting cancer useless rupees. shahi’s in-tray gets only fuller. known as CAR-T, which re- It was reported this weekthat engineers a patient’s white CBS agreed to buy Ten Net- Uber is under investigation for blood cells. The Food and Drug work, one ofAustralia’s three allegedly contravening the Administration this weekgave main commercial stations (and Foreign Corrupt Practices Act. its approval to a similar thera- broadcaster of“Neighbours”, a And in an address to staff, Mr py from Novartis that will cost long-running soap opera). The Khosrowshahi said that an $475,000 (cheaper than had American media giant is Ten’s initial public offering could been thought) fora course of biggest creditor through a come in the next18-36 months. treatment, marking the first licensing deal for its blockbust- time the FDA has made a gene er TV dramas. Using a new fund that allows therapy available in America. the state to intervene in failing Toshiba missed a deadline to Amazon struckfear into estab- banks, Russia’s central bank Fleece me in St Louis seal a deal to sell its chip busi- lished supermarket retailers stepped in to rescue Otkritie, Workers in St Louis saw the ness to Western Digital, its when it launched a price war the country’s largest private $10-an-hour minimum wage American partner in the unit. on the day it tookofficial own- lender, after a run on its depos- they secured in May cut back The troubled Japanese con- ership ofWhole Foods Mar- its. It is the first time that one of to $7.70, as a state law came glomerate is continuing talks ket. Prices fordelicacies such the country’s financial in- into effect barring local govern- with other parties, including as “responsibly farmed” salm- stitutions deemed “too big to ments from paying more than Bain Capital, a private-equity on were cut by a third, and fail” has needed a bail-out. Missouri’s minimum rate. firm, which has reportedly “animal-welfare-related” Other states have laws that added Apple to the consor- ground beefby 29%. Share A dubious distinction prevent their cities from pay- tium it is heading. prices in some ofthe biggest The first fine was imposed on a ing above an official bench- grocery chains swooned in bankin the euro zone under mark, but St Louis is the biggest In the latest push by carmakers response, but many thinkthe the European Central Bank’s place where the minimum has into electric vehicles, Renault- industry is ripe for a round of Single Supervisory Mecha- been rolled back. Business Nissan announced that it price slashing. nism. Permanent TSB, an Irish groups lobbied for the cut, would build a battery-pow- lender, is to pay €2.5m ($3m) arguing that large wage rises ered car in China with Dong- Other economic data and news forbreaching liquidity rules in hurt jobs. feng Motor, its partner in the can be found on pages 76-77 2015 and 2016. Created in 2014, the SSM is the “first pillar” of the euro zone’s nascent bank- ing union, overseeing the stability ofits biggest banks.

America’s economic growth rate in the second quarter was revised to 3% on an annualised basis, up from the 2.6% that was reported in an initial estimate. The more vigorous figure was explained by stronger investment and con- sumer spending.

In South Korea, Lee Jae-yong, the de facto head ofSamsung, lodged an appeal against his conviction and five-year pri- son sentence forbribery. The verdict in the case, which is related to a scandal that brought down the country’s previous president, did not have a big impact on the com- pany’s share price. But ifhis Leaders The Economist September 2nd 2017 9 Howtocopewithfloods

The to-do list goes farbeyond getting to grips with climate change HE extent of the devastation Again, that is consistent with models ofa warmer world. Twill become clear only Poor planning bears even more blame. Houston, which has when the floodwater recedes, almost no restrictions on land-use, is an extreme example of leaving ruined cars, filthy mud- what can go wrong. Although a light touch has enabled devel- choked houses and the bloated opers to cater to the city’s rapid growth—1.8m extra inhabitants corpses of the drowned. But as since 2000—ithasalso led to concrete beinglaid overvast areas we went to press, with the rain of coastal prairie that used to absorb the rain. According to the pounding South Texas for the Texas Tribune and ProPublica, a charity that finances investiga- sixth day, Hurricane Harvey had already set records as Ameri- tive journalism, since 2010 Harris County has allowed more ca’s most severe deluge (see briefing). In Houston it drenched than 8,600 buildings to be put up inside 100-year floodplains, Harris County in over 4.5trn litres of water in just 100 hours— where floods have a 1% chance ofoccurring in any year. Devel- enough rainfall to cover an eight-year-old child. opers are supposed to build ponds to hold run-off water that The fate of America’s fourth-largest city holds the world’s would have soaked into undeveloped land, but the rules are attention, but it is hardly alone. In India, Bangladesh and Ne- poorly enforced. Because the maps are not kept up to date, pal, at least1,200 people have died and millions have been left properties supposedly outside the 100-year floodplain are be- homeless by this year’s monsoon floods. Last month torrential ing flooded repeatedly. rains caused a mudslide in Sierra Leone that killed over 1,000— Government failure adds to the harm. Developing coun- though the exact toll will never be known. Around the world, tries are underinsured against natural disasters. Swiss Re, a re- governments are grappling with the threat from floods. This insurer, saysthatofthe $50bn orso oflossesto floods, cyclones will ultimately be about dealing with climate change. Just as and other disasters in Asia in 2014, only 8% were covered. The important, is correcting short-sighted government policy and Bank of International Settlements calculates that the worst the perverse incentives that make flooding worse. natural catastrophes typically permanently lower the afflicted country’s GDP by almost 2%. America has the opposite pro- Judgment day blem—the federal government subsidises the insurance premi- The overwhelming good news is that storms and flooding ums of vulnerable houses. The National Flood Insurance Pro- have caused far fewer deaths in recent decades, thanks to bet- gramme (NFIP) has been forced to borrow because it fails to ter warning systems and the construction of levees, ditches charge enough to cover its risk of losses. Underpricing encour- and shelters. The cyclone that struck Bangladesh in 1970 killed ages the building of new houses and discourages existing 300,000-500,000 people; the most recent severe one, in 2007, owners from renovating or moving out. According to the Fed- killed 4,234. The bad news is that storms and floods still ac- eral Emergency Management Agency, houses that repeatedly count for almost three-quarters of weather-related disasters, flood account for 1% of NFIP’s properties but 25-30% of its and they are becoming more common. According to the Mu- claims. Five states, Texas among them, have more than 10,000 nich Re, a reinsurer, their number around the world has in- such households and, nationwide, their number has been go- creased from about 200 in 1980 to over 600 last year. Harvey ing up by around 5,000 each year. Insurance is meant to pro- was the third “500-year” storm to strike Houston since 1979. vide a signal about risk; in this case, it stifles it. At the same time, floods and storms are also becoming more costly. By one estimate, three times as many people were Mend the roof while the sun shines living in houses threatened by hurricanes in 2010 as in 1970, What to do? Flooding strengthens the case for minimising cli- and the number is expected to grow as still more people move mate change, which threatens to make wet places wetter and to coastal cities. The UN reckons that, in the 20 years to 2015, storms stormier. Even those who doubt the science would do storms and floods caused $1.7trn of destruction; the World well to see action as an insurance policy that pays out if the Health Organisation estimates that, in real terms, the global case is proven. However, that will not happen fast, even if all cost of hurricane damage is rising by 6% a year. Flood losses in countries, including America, sign up to international agree- Europe are predicted to increase fivefold by 2050. ments. More immediately, therefore, politicianscan learn from One cause is global warming. The frequency and severity Houston. Cities need to protect flood defences and catchment ofhurricanesvarynaturally—America hasseen unusually few areas, such as the wetlands around Kolkata and the lakes in in the past decade. Yet the underlying global trend is what you and around Pokhara in Nepal, whose value is becoming clear. would expect from climate change. Warmer seas evaporate Flood maps need to be up to date. Civil engineers, often faster and warmer air can hold more water vapour, which re- starved of funds and strangled by bureaucracy, should be leases energy when it condenses inside a weather system, building and reinforcing levees and reservoirs now, before it is feeding the violence of storms and the intensity of deluges. too late. The NFIP should start to charge market premiums and Rising sea levels, predicted to be especially marked in the Gulf developing countries should sell catastrophe bonds. All this is of Mexico, exacerbate storm surges, adding to the flooding. a test of government, of foresight and the ability to withstand Harvey was unusually devastating because it suddenly gained the lobbying of homeowners and developers. But politicians strength before it made landfall on Friday; it then stayed put, and officials who fail the testneed to realise that, sooner or lat- dumping its rain on Houston before returning to the Gulf. er, they will wake up to a Hurricane Harvey oftheir own. 7 10 Leaders The Economist September 2nd 2017

Corruption in Latin America More tragedy than comedy

Guatemala’s president is trying to thwart a UN-backed anti-corruption agency. It deserves a stout defence EITHER corrupt nor a CICIG has brought to Guatemala. If Mr Morales can shut it “Nthief.” With that slogan down, that will encourage other presidents tempted to stymie Jimmy Morales, a comedian the graft-busters. Mr Temer charges his accusers with “sowing with almost no record in poli- disorder”. In Mexico pro-government parties have blocked the tics, won Guatemala’s presiden- appointment ofa new anti-corruption prosecutor. tial election in October 2015. It is Mr Morales’s defenders argue that the commission is over- easy to see why that line, and stepping its mandate and hurting investment by going after that biography, persuaded vot- businessmen. A foreign agency, they say, has no business en- ers. The election came just after the country’s president and forcing Guatemala’s laws. None of these objections has merit. vice-president had been jailed on charges that they master- Under the UN’s agreement with the government, CICIG can minded a scheme to bilkthe customs authority ofits revenues. help prosecute crimes by “illegal security groups”, which in That turned out to be one ofseveral scams in which they alleg- Guatemala means cabals of politicians, firms and organised- edly took part. The detective work that led to their downfall crime outfits. An economy purged of corruption will get more was carried out by a UN-backed “commission against impuni- investment, not less. Mr Morales renewed CICIG’s mandate ty” (CICIG) and Guatemala’s chief prosecutor. It came after and endorsed the organisation’s work, until it threatened him. months of protests by tens of thousands of Guatemalans. Mr Morales has let them down. CICIG is investigating Sense on CICIG claims that his party took illegal donations, including from Critics say that it would be better for Guatemala’s own courts drug-traffickers. It has asked congress to strip him ofimmunity and police to enforce the law. Theyare right, butpart ofCICIG’s from prosecution. In response he has declared the chief of the mandate is to strengthen those institutions. It has helped train commission, Iván Velásquez, persona non grata and attempt- police and create specialised courts for organised crime. Until ed to throwhim outofthe country(see page 29). The constitu- such institutions mature, Guatemala’s second-best solution is tional court blocked that order, but damage has been done. Mr still needed. Neighbouring Honduras has adopted a version of Morales has made himself the enemy of the institution that it, backed by the Organisation ofAmerican States. Guatemalans trust most and has harmed his presidency. CICIG now needs stout support, both within and outside Outsiders should worry, too. Guatemala is one of two Guatemala. Mr Morales should withdraw the expulsion order countries in Latin America where corruption-fighters are hav- and co-operate fully with the commission. The private sector ingconspicuous success. The otheris Brazil, where prosecutors should defend Mr Velásquez, rather than merely issue bland have brought charges against scores of politicians, including endorsements of the fight against corruption. The American the president, Michel Temer,in the vastLava Jato (CarWash)in- government has been robust, but it could do more. It provides vestigations. Across the region, judicial systems are being test- nearly$150ma yearin aid to Guatemala, some ofitconditional ed by revelations that Odebrecht, a Brazilian construction on progress in fightingcorruption. It should make clear that Mr company at the centre of Lava Jato, bribed officials in a dozen Morales’swarwith CICIG isputtingthatmoneyatrisk. His Lat- countries. Their citizens want the sort of accountability that in American peers will be watching. 7

North Korea’s nuclear provocations Stand by Japan

A missile flying overJapan shows why America must stand up forits allies

RUSSIA IM JONG UN has shown of Hokkaido. Japanese under the missile’s path awoke to the CHINA Kwhat he thinks of President sound of sirens, while the authorities urged them to seek shel- NORTH Donald Trump’s promise in ear- ter(see page 31). The missile crashed harmlessly into the Pacific KOREA Beijing Sea of Japan ly August to respond with “fire 745 miles (1,200km) to the east, but Japan’s prime minister, Pyongyang (East Sea) JAPAN and fury” to North Korea’sgrow- Shinzo Abe, was right to call it an “unprecedented, serious and Seoul Tokyo ing nuclear threat. After pausing grave threat”. SOUTH PACIFIC KOREA OCEAN his missile tests just long enough Only twice before, in 1998 and 2009, have North Korean 750 km for America’s secretary of state, missiles overflown Japan, when the regime used satellite Rex Tillerson, to say that Mr Kim was showing “restraint”, and launches to develop its missile technology. With this attack, for Mr Trump himself to claim to have Mr Kim’s “respect”, the Japanese were reminded more than ever of their vulnera- North Korea’s dictator unleashed three short-range missiles bility. The rocket is likely to have been a Hwasong-12, a design into the Sea of Japan. Most provocatively, on August 29th, an with which, along with its intercontinental counterpart, Mr intermediate-range missile flew over Japan’s northern island Kim’s scientists are making unexpectedly rapid progress. Pre-1 The Economist September 2nd 2017 Leaders 11

2 vious launches of these missiles have sent them high into whose slogan is “America First”, choose to sacrifice Seoul in space and back into the sea. This test, for the first time, sent a the hope of saving San Francisco? Any hint of such thinking missile on the kind of trajectory it would follow if used in an- would undermine America’s alliances. If Japan and South Ko- ger. With each test, the scientists glean valuable data. They rea were to stop trusting American security guarantees, they may already have learned to shrinka nuclear weapon enough might feel compelled to develop nuclear weapons of their to fit it on a missile, though a warhead may not survive re-en- own, alarming China and hugely complicating an already try. At this rate, North Korea could soon threaten to nuke any- fraught situation. where from Seoul to San Francisco. So America must reaffirm and strengthen its commitment to defend its allies. Mr Trump could start by helping both Mr Calibrated unpredictability Abe and President Moon Jae-in of South Korea with extra mis- It appeared to be a calibrated provocation—one intended not sile defences, such as the new Aegis Ashore system. Mr Abe to invite a military response. That is a relief. MrKim has repeat- has been right to interpret Japan’s pacifist constitution more edly threatened to launch tests in the direction of Guam, an flexibly to enable him to help America. It would be better still American territory and military base, most recently after this forthe alliance ifJapan used its army like any other mature de- week’s test. Mr Trump, who responded to the latest threat by mocracy, contributing fully to peacekeeping and joint-security appearing to rule out talks (and was immediately contradicted operations. For now, public opposition to Japanese soldiers by his secretary of defence), remains open to military action. ever being shot at makes this hard. With luck, a future prime He should not be. A pre-emptive attack on the North’s nuclear minister without the baggage of Mr Abe (whose grandfather, a sites would risk a cataclysmic response. Mr Kim might see it as hero ofhis, was accused ofwar crimes) could make it happen. an attempt to overthrow his regime, and react by raining de- China and Russia, meanwhile, are not helping. Both coun- struction on Seoul, only 50km away from his massed artillery tries have condemned Japan’s plans to upgrade its missile de- batteries. It is strikingthat in Japan and South Korea, many fear fences. That is callous and misguided; Japan has every right to Mr Trump’sunpredictability even more than Mr Kim’s. defend itself against Mr Kim. China must stop encouraging So how should America do right by its two East Asian al- North Korea by failing to apply UN sanctions strictly. And lies? First, Mr Trump needs to understand the North’s plan, America should make clear that any threat to Seoul or Tokyo which is to drive a wedge between America and its friends in will be treated as if it is a threat to American territory. The the region. MrKim’s calculation is that ifhe can threaten main- chance of Mr Kim using his nuclear weapons is much smaller land America, he would make America think twice about in- if he understands that to do so would spell the end of his re- tervening to protect South Korea or Japan. Would Mr Trump, gime, and his life. 7

Protein-rich diets Feed as well as food

As demand forprotein grows, what people eat matters. So does what gets fed to animals ETWEEN now and 2050 the should stick to cassava. Encouraging people to eat more fish Global livestock B planet’s population is ex- rather than more meat is a better answer. Human consump- 1970-2014 % increase pected to rise by a third, from tion of fish has now overtaken that of beef, and aquaculture 311 7.6bn to 9.8bn. Those extra accounts for half of all the fish people eat. But almost 90% of

84 mouths will need feeding, and wild stocks are fished eitherat orbeyond theirsustainable lim- not just with staples. As people its. And farmed fish, particularly salmon, are often fed on 31 grow richer, their demand for smaller fish that themselves are caught at sea. A fashionable protein rises, particularly for idea is for Westerners to eat more insects, which contain up to meat and fish. Beef consumption in Asia, for example, is ex- three times as much protein as beef and already form an inte- pected to jump by 44% over the next decade alone. gral or supplementary part of up to 2bn people’s diets, accord- Raising animals to be eaten already has huge effects on the ing to the FAO. But for that to happen, many will have to get world’s environment. The number of farm animals soared over the “yuck” factor. during the 20th century. More than 20bn chickens, 1.5bn cattle Another set of answers involves using technology to create and 1bn sheep are alive today. Aquarter of the world’s land is artificial protein. Investors such as Bill Gates and Richard Bran- used forgrazingthem. They consume 30% ofthe world’s crops. son have backed artificial-meat startups that grow beef and They guzzle water—you need about 15,000 litres of the stuff to poultry from animal cells. Tyson Foods, a meat processor, is an produce a kilo of beef, compared with only 1,500 litres for a unlikely fan ofplant-based proteins. Scientists are also looking kilo of maize or wheat. And their eructations do nothing for at genetic modifications to animals—to increase the muscle of the climate. Livestockare responsible for14.5% ofall anthropo- cattle or to reduce infections among farmed fish. genic greenhouse gases, accordingto the UN Food and Agricul- Innovations such as these have enormous potential, if they ture Organisation (FAO). can be industrialised and win over wary consumers. But How then may the planet be fed sustainably? One set ofan- changing what humans eat is not the only route to feeding a swers revolves around convincing people to put different growing population more sustainably. Another, less obvious, things on their plates. Vegetarians have the simplest solution approach is to alter what animals themselves eat. It is here that of all, but try telling people in sub-Saharan Africa that they technology may have the biggest impact soonest. 1 12 Leaders The Economist September 2nd 2017

2 One source ofimprovement lies in the more efficient use of the rest is turned into waste products. Cargill, an agricultural crops to feed animals. The proliferation of mills that process giant, broke ground thisyearon the world’slargestgas-fermen- grain into feed is helping in places such as sub-Saharan Africa, tation facility, in partnership with Calysta, a Californian firm for example. Data-intensive farming is helping improve agri- that makes feed out of natural gas (see page 53). After feeding cultural yields of feed crops like soyabeans by carefully mon- bacteria called methanotrophs with methane, they can be itoring the use ofwater and fertiliser. turned into protein pellets for fish and livestock. Insects are also an option. Flies and maggots can be raised on manure and Eat shit and diet organic waste, instead of grains, and then fed to cattle, chicken A more radical approach is to change animals’ diets. Efforts to and fish. reduce the amount of fish meal used in aquaculture have al- The FAO has warned that by 2050 the planet will need to ready paid dividends. In 1990 90% ofsalmon feed used in Nor- produce 70% more food than itdid in 2009. The idea ofchomp- way was fish meal, but by 2013 greater use of plant matter had ing on more bugs and eating lab-grown meat may capture the reduced that figure to 30%. More can be done. At most 20% of imagination. But the path to food sustainability also runs protein in grains fed to animals is converted to edible protein; through animals’ stomachs. 7

Traditional Chinese medicine State-sponsored quackery

China is ramping up promotion ofits ancient medical practices. That is dangerous NCE eyed with suspi- China’s leader today, Xi Jinping, is even more of a champi- “Ocion for not being scien- on of TCM. Last year his government issued a “white paper”, tific enough, traditional Chinese setting out plans to promote it and noting its “positive impact medicine might just be about to on the progress ofhuman civilisation”. The document said the take over the world.” So opined TCM industrywasbecominga “newsource ofgrowth” forChi- China’s state-run news agency, na’s economy. In July a law came into effect that requires local Xinhua, in an article last year. It governments to open TCM departments in all general hospi- was, of course, indulging in tals, and to give “equal emphasis” to TCM and what China playful hyperbole—even the Chinese CommunistPartyhas no calls “Western medicine”. plans to supplant modern medical science with ancient and Mr Xi’s efforts may bring some benefits. To the extent that unproven forms of treatment. But the party is serious in its ef- TCM promotes a healthy diet and way of life, it is to be lauded. forts to promote the use of such remedies (commonly known TCM practitioners who also have skills in conventional medi- as TCM) globally, and to reinforce China’s own extensive net- cine may be able to fill gaps in China’s woefully inadequate work of TCM hospitals and clinics. primary health-care system. But there are dangers, too. Devot- In recentyears, TCM hasbeen enjoyingrapid growth in Chi- ing more resources to TCM could mean less money for health na. The number of Chinese hospitals offering it rose from care that is based on science. Here TCM falls down. Most of its about 2,500 in 2003 to about 4,000 by the end of 2015. In the treatments are at best a placebo and at worst a harmful distrac- past six years, the number of licensed practitioners in China tion from the taskofcuringpeople, ordownrightdangerous. In has increased by nearly 50%, to more than 450,000. Using its 2015 a Chinese pharmacologist, Tu Youyou, became the first network of “Confucius Institutes”, the Chinese government scientist to win a Nobel prize for work carried out in China. has been subsidising the teaching of TCM in America, Britain She had isolated a chemical in TCM that could treat malaria. and other countries (see page 37). “Is the world entering a TCM The Chinese government claimed this as evidence that TCM as era?” asks China Daily, another propaganda outfit, on its web- a whole was effective. In fact, as the Nobel committee empha- site. The government would be delighted if the answer were sised TCM provided only the inspiration for the research that yes. Humankind, and the natural world that supplies TCM led to her award. When a traditional medicine is proved to with its ingredients, would have less cause to rejoice. work, there is always an underlying medical mechanism. Promoting TCM will only exacerbate the damage it is caus- Eating bitterness ing the environment and endangered species. On the Tibetan TCM has not always enjoyed the status it has in China today. plateau, fortune-hunters destroy grassland searching for dead After the collapse ofthe country’s last imperial dynasty in 1911, caterpillars; the fungus growing out ofthem is a TCM favourite China’s new leaders spurned it as superstition. TCM, after all, (though not an officially approved one) that is worth much is about more than just acupuncture and concoctions of herbs more than its weight in gold. There is no evidence of its libido- and animal parts. There is often an element of mysticism, boostingproperties. On the South African savannah, rhinos lie too—a belief in a force called qi that can affect the body’s dead with their horns cut off; ground into a supposed arthritis- health. But Mao was an avowed fan of TCM. He knew it was curing powder, the appendages fetch thousands of dollars per popular among the peasants who had provided crucial sup- kilo in TCM’s blackmarket in China. The list goes grimly on. port for his guerrilla movement. And if that’s what they want- Mr Xi’s efforts are motivated in part by politics. He wants to ed, it had the advantage of being cheap. (In private, Mao con- be seen as an ardent patriot and champion ofChinese culture. fided to one of his doctors: “Even though I believe we should Rather than subsidising quackery, he would do China more promote Chinese medicine, I personally do not believe in it.”) good by championing science. 7 THE MOST IMPORTANT CLASS OF THE DAY COULD BE LUNCH.

Kids do better in school with proper nourishment. That simple truth compelled two moms, Kristin Groos Richmond and Kirsten Saenz Tobey, to start Revolution Foods. Their mission? To make healthy, delicious food more accessible to everyone, especially low-income kids. Citi provided financing to the company from the start and then helped them grow to 2,000 employees, serving over 2.5 million meals a week in 30 urban areas. That’s progress for Revolution Foods and for kids in school, now fueled to learn. For over 200 years, Citi’s job has been to believe in people and help make their ideas a reality.

citi.com/progressmakers

© 2017 Citigroup Inc. All rights reserved. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world. 14 Letters The Economist September 2nd 2017

Road bumps forelectric cars Wecould not disagree more 20% each year from now until tional amendment that would with your assessment ofthe 2025, almost twice as fast as have, in effect, made the Un- death ofthe internal combus- over the past decade. Although ited States a Christian republic tion engine (ICE). Electric there is abundant supply,54% and spoke out against the vehicles that run on batteries ofthe lithium is extracted from persecution ofJews abroad. are part ofthe future. However Argentina, Bolivia and Chile, ELLIOT WEISENBERG credible studies suggest that where the governments are Chicago 90% ofground-transportation notorious forprotecting their energy will continue to come lithium reserves. The extrac- Perhaps William Faulkner said from hydrocarbon-based fuels tion process is slow and labori- it best when he wrote in his (both renewable and tradition- ous, which affects supply. novel, “Intruder in the Dust”: al sources) in 2040. Moreover, The actual scenario will be “…no man can cause more the electrical generation one where lithium is scarce, griefthan that one clinging capacities we have at present which will put the spread of blindly to the vices ofhis MarkTwain once observed do not come close to meeting electric cars at riskunless ancestors.” that the report ofhis death was the needs ofan all-electric manufacturers develop more KEVIN DORAN an exaggeration. The same fleet. Nor is battery production efficient electric batteries. Galena, Illinois holds foryour prediction of emission free. ALVARO GARCIA-MARIN PETER HOEGLER the demise ofthe internal As well as road freight, We’re feeling a bitsheepish combustion engine (“Road- vehicles used in agriculture Universidad de Chile kill”, August12th). We agree and construction and for Santiago I was surprised that your that over the next few decades long-distance travel will review ofa bookon puns battery power will make deep continue to be powered by the Youmention that the energy characterised ovine puns as inroads, replacing internal ICE. There is little other choice. density ofpetrol is 50 times “egg-specially eggs-cruciating” combustion engines in light Youalso referto a ban on new greater than that ofbatteries (“The quip and the dread”, vehicles. However, 40% ofthe cars “reliant on ICEs”, yet (“Electrifying everything”, August12th). I rather think of greenhouse-gas emissions many such vehicles will still August12th). But batteries them as ewe-niquely from global road traffic in 2015 contain an ICE as a hybrid. don’t get lighter as they lose lamb-entable. came from freight, much ofit Today’s ICE is a modern their charge. On the other GIACOMO PONZETTO from long-haul operations. machine; there have been hand, a petrol-powered vehi- Barcelona Successfully electrifying huge leaps in technological cle that starts with a full tank heavy trucks remains unlikely. innovation to increase its and ends with an (almost) China’s media regulators in In America, the average Class 8 efficiency and decrease emis- empty one must carry on 2014 brought in a no-pun trucktravels between 300 to sions. Further advances will average only halfthe weight of policy, discouraging the alter- 600 miles a day. Shashank enable near pollutant-free a full tank. Thus, for a proper ations ofidioms and the mean- Sripad and Venkat Viswa- mobility; future fuels offer comparison the energy densi- ing ofcharacters used in any nathan have estimated that for sustainable decarbonisation ty ofpetrol should be doubled. form. Apparently, this was a truckwith a driving range of strategies. Ifwe cease to invest MATTHIAS KISTLER because puns cause “cultural 300 miles, the lithium-ion in the ICE there is a danger that London and linguistic chaos”. battery system would cost we will lose the opportunity to ADITYA IYER roughly $200,000. In addition, improve its technology, espe- Jews in the Confederacy Chester, Cheshire fora truckwith a range of 600 cially ifelectric cars do not miles, the battery packwould meet expectations. There is a historical incongru- The protagonist in “Jokester”, a weigh over16 tonnes and The demonisation ofthe ity that illuminates the igno- short story by Isaac Asimov, would cut the truck’s internal combustion engine rance ofwhite supremacists posited that jokes are not maximum permitted freight makes good politics, but poor chanting anti-Semitic slogans original (“Multivac, the most capacity almost in half. engineering. while protesting against the complex computer ever built”, This casts doubt on the FELIX LEACH removal ofa statue ofRobert E. comes up with the finding that feasibility ofTesla’s electric Research fellow Lee (“White fight”, August aliens plant jokes in humans long-haul truck, which is to be Keble College 19th). Thousands ofJews as a psychological experi- unveiled shortly. The bottom University of Oxford fought forthe Confederacy ment), but puns are the excep- line is that it is hard to beat the and they were treated with tion. Though you’re not sup- very high energy density of Note: A full list ofsignatories kindness and respect by Gen- posed to laugh at puns. “You liquid fuels. In the future, fuels to the letter is available online eral Lee. In contrast, Ulysses S. groan. The better the pun, the may be made in ways that Grant, the commanding gen- louder the groan.” Asimov release no net carbon dioxide China, India, the United States eral on the Union side, issued considered puns to be unique- into the atmosphere. Internal and the European Union have an order in 1862 that expelled ly down-to-earth humour. combustion engines will be put forward ambitious goals Jews from parts ofKentucky, JOHN CLARK HELZER with us in trucks fordecades to forincreasing the number of Mississippi, and Tennessee in Longmont, Colorado 7 come, unless batteries are electric cars on the roads by military districts under his radically improved or massive 2025. Our research suggests command, an order that was investments are made to create that ifthese objectives are revoked by Abraham Lincoln. Letters are welcome and should be a zero-carbon hydrogen fuel- fulfilled, lithium demand for In fairness to Grant he addressed to the Editor at ling infrastructure. The Economist, The Adelphi Building, electric cars will absorb about subsequently apologised and 1-11John Adam Street, LYNN KAACK 400,000 tonnes oflithium his presidency was note- London WC2N 6HT M. GRANGER MORGAN carbonate equivalent by 2025. worthy forappointing Jews to E-mail: [email protected] Carnegie Mellon University However, this would require official positions. He also More letters are available at: Pittsburgh lithium production to grow by opposed a proposed constitu- Economist.com/letters Executive Focus 15

The Economist September 2nd 2017 16 Executive Focus

The Economist September 2nd 2017 Briefing Flooding The Economist September 2nd 2017 17

Submerged Also in this section 18 A deadly monsoon 19 Ever more frequent

AUSTIN, TEXAS The unprecedented floods that Hurricane Harvey visited on Houston reflect a worldwide trend HE images were disorienting, the re- most damaging weather event America “Even ifan evacuation orderhasn’tbeen is- Tports were surreal. Vast swathes of has experienced since Hurricane Sandy, sued by your local official, if you’re in an Houston were underwater. The highways which walloped New Yorkand New Jersey area between CorpusChristi and Houston, that encircle the city had become canals. in 2012. As The Economist went to press the you need to strongly consider evacuating,” Colonies of fire ants, having swarmed to- number confirmed to have died due to he said at a news conference. “What you gether, were floating around like rafts of Harvey was just 31, though it is sure to rise. don’t know, and what nobody else knows live embers. Alligators appeared, seeking Hurricane Ike, which hit Galveston in rightnow, isthe magnitude offlooding that higher ground. At a nursing home south- 2008, claimed 113. In terms of property will be coming.” east of the city, halfa dozen women sat in damage Harvey could well exceed Ike’s But that uncertainty was one of the rea- several feet of water. A man caught a fish, $30 billion. sons that local officials of both parties by hand, inside his home. agreed with Mr Turner. For most of the cit- Harvey was the first hurricane of cate- Six crooked highways ies in the path of the storm, including gory 3 or above (that is to say, one with A week before Harvey arrived on Texas’s Houston, a sedentary stoicism seemed the wind speeds over 95 knots, or 176km per Gulf Coast, it was a mere tropical wave— most reasonable response. Two million hour) to hit the United States since 2005, the spectral remains ofa storm that had fiz- people live within Houston’s city limits. the year Katrina devastated New Or- zled outin the Caribbean, en route to Mexi- More than 6m live in Harris County and leans—a 12-yearhiatus longerthan any oth- co’s Yucatan Peninsula. But then it reorgan- the rest of the greater Houston metropoli- er in the historical record. It wrought most ised itself abruptly and turned north. tan area. And by Friday afternoon, the of its havoc, though, not through the Sucking energy from the warm waters of storm was already bearing down on them. strength of its winds but through the vol- the Gulf, it became a fully fledged hurri- In 2005, when Hurricane Rita was hurtling ume ofitsrains. “The breadth and intensity cane on August 24th. towards Houston less than a month after ofthis rainfall are beyond anything experi- The next day the NWS was warning, ac- Katrina had hit New Orleans, city leaders enced before,” the National Weather Ser- curately, that “Harvey’s forecast path is had ordered an evacuation on similarly vice (NWS) reported. Some weather slow and meandering, meaning a long du- short notice, with awful results. More than gauges measured more than 50 inches ration flood threat with catastrophic re- 100 people died in the attempted exodus (127cm) of rainfall between the evening of sults.” In Corpus Christi, the city closest to and then the hurricane bypassed the city. Thursday August 24th and the afternoon the hurricane’s projected point of landfall, That experience weighed heavily on the of Tuesday August 29th. If Harvey’s rain the mayor, Joe McComb, encouraged resi- minds of Houston’s leaders, as did the fact had been spread over the entire country it dents to evacuate voluntarily. The mayor that Harvey presented a different kind of would have stood the best part of a centi- of Houston, Sylvester Turner, did not. That risk. “We’ll have a lot ofwater,” said Ed Em- metre deep. afternoon the governor of Texas, Greg Ab- mett, the HarrisCountyJudge, on Friday af- The Houston floods make Harvey the bott, questioned the mayor’s decision. ternoon. “But it’s not the kind ofwater that1 18 Briefing Flooding The Economist September 2nd 2017

2 we would askpeople to evacuate from.” cies into the Buffalo Bayou that runs vey. The city’s approach to disaster relief Hours later Harvey made landfall just through the centre ofthe city. One of them, was, in some respects, alarmingly ad hoc. north-eastofCorpusChristi asa category 4 Addicks Reservoir, overflowed for the first But thousands of people were rescued as a hurricane, with winds of over 110 knots. time in its history. result. It looks a farcry from Katrina, which On Sunday morning Houston—the fourth- On Tuesday, the sun emerged over led, directly or indirectly, to the deaths of largest city in America, 300km away— Houston, as Harvey continued to meander more than 1,800 people, mostly in Louisi- woke up to catastrophe. The drama of the up the Gulf Coast. City officials warned ana. Roughly a million were displaced; the day was heightened by the fact that so that the crisis was not yet over; the recov- damage was estimated at $108bn. And many of the people affected turned to so- ery, certainly, has not yet begun. Tens of some of its consequences were incalcula- cial media to send an SOS. Local officials thousands had been displaced, all along ble. No one was prepared for the levees and law-enforcement officers, similarly, the Texas coast, to inland cities like Austin surrounding New Orleans to break. For used social media to co-ordinate their re- and San Antonio; thousands more were days, Americans watched helplessly as sponse. The tweets and Facebook posts still sheltering in Houston, waiting for the people drowned. that surfaced throughout the day asking waters to recede from their homes. The deadliest hurricane in American for help were dispatches from a disaster The damages will be immense, with history, though, was the one that hit Gal- that most Americans had not been expect- implicationsfarbeyond the GulfCoast: the veston in 1900, in effectwipingitout. Many ing and struggled to imagine. ports of Houston, Corpus Christi and ofitssurvivorsresettled in Houston, which The city of Houston tweeted that emer- Beaumont are among the largest in the was, at the time, more ofa one-horse town. gency operators were overloaded: “Ifu can country and the region is the heart of the Their descendants, damp as they are, have shelter in place do so, a few inches in your nation’s oil and gas industry. By Wednes- fared much better. 7 home is not imminent danger. Only call if day morning, more than 3m barrels a day in imminent danger.” The chief of police, of refining capacity—roughly half of Tex- Art Acevedo, warned people not to get as’s total—was offline, including America’s India and Bangladesh trapped. “Have reports of people getting biggest refinery, in Port Arthur. American into attic to escape floodwater,” he noted. petrol prices jumped. Antoine Halff of Co- Hard hit “Do not do so unless you have an ax or lumbia University’s Centre on Global En- means to breakthrough onto your roof.” ergy Policy notes that when Katrina hit The sheriffofHarrisCounty, Ed Gonzal- New Orleans it was flooding that did most SOS ez, relayed messages between rescue of the lasting damage to refineries. Since DELHI attempts. “Gotto use the kayakto pull out a then flood readiness has improved, but A below-average monsoon can still family of 3 and their 4 cats,” he reported at Harvey’s extraordinary rainfall might prove deadly one point on Sunday afternoon. Mr Em- overwhelm all such preparations. mett, the judge, called on locals with boats As state and national officials have al- ITH the giant Himalayas caging its to step up. With the roadways flooded, he ready recognised, the recovery from Har- Wtowering clouds, the great basin explained, “We can’t wait for assets to vey will take years rather than months. where the Brahmaputra merges with the come from outside.” Hundreds answered And while rebuilding, Texas will have to Ganges and Meghna rivers is prone not the call. confront questions that its leaders have only to heavy rainfall but also to sudden Their efforts proved crucial over the long preferred to avoid. The aftermath of deluges. Bits of the Indian state of Megha- next few days, as Harvey, having arrived, the disaster will reveal whether the state’s laya receive over11metres (36 feet) ofrain a stayed put. Houston is flat and low-lying; investments in infrastructure have been year, making them the wettest places on its long-standing opposition to zoning has commensurate with its pell-mell growth, the planet. Where there is so much water encouraged development that sprawls and whether it has taken appropriate pre- plus so many people—the basin, which over an area larger than several states and cautions in response to the projected im- covers just 1% of the world’s land area, is pays little heed to the need fordrainage. As pacts of climate change. home to one in ten of its people—flooding the rain came down the streets filled up. In the meantime, there may be some- is a perpetual hazard. In the thickening Water had to be released from the two res- thing to say for Houston’s spontaneous heat of every summer the locals greet the ervoirs built to cope with such contingen- and largely self-organised response to Har- monsoon with both reliefand trepidation. This year’s monsoon has seen as many as 1,000 Indians killed in floods, half of LAMAMAMA them in the country’s poorest state, Bihar, aacckson where 12m people may have abandoned OUOUISISINAA A their homes. On August 29th 33cm of rain practically shut down Mumbai; on the 31st MISSISSIISSSISSISSSISIPI PI a building there collapsed. TEXAS In neighbouring Bangladesh, flooding killed more than 144 in August, with some Austin 11m people affected. As much as a third of Houston New Orleans FLORIDA Reservoirs the country was briefly submerged when Port waters peaked late in the month. A similar San Antonio Arthur Beaumont number lost their lives in Nepal. Galveston The region has seen worse. In 2007 Gulf of Mexico floods killed 3,300 people in India and Bangladesh. In 2010 flooding killed 2,100 Corpus people in Pakistan, and in 2013 some 6,500 Christi Observed precipitation Last seven days, August 30th, 16:00 UTC More than 40 inches people died due to floods in India. Bangla- 0.1 inches 1 5102040desh saw catastrophic floods in 1974, 1987, 1988 and 1998, when the capital city, Dhaka, 0.25 centimetres 2.5 13 25 51 102 100km Source: NOAA was inundated. In July 2005 Mumbai re- MEXICO ceived almost a metre of rainfall in a single 1

20 Briefing Flooding The Economist September 2nd 2017

2 held between two high-pressure systems ing ofthe Geological Society ofAmerica. as though in a vice. Wet, wet, wet 2 A greater respect for the past will help But the fact that severe storms, like Tol- Number of global record-breaking precipitation people modelling hazards. So will better stoy’s unhappy families, all differ in their events, compared to 15-year moving average statistics. Advances in so-called “extreme- details does not mean that there are no Trend 100 value analysis” have helped statisticians generalisations to be made about the Expected without 80 improve their projections of the under- chances that something will make a family warming sampled tails in their data. And modellers unhappy, ora storm severe. By running cli- 60 can augment the real world with thou- mate models again and again under differ- 40 sands ofcomputer-simulated scenarios. ent conditions it is possible to get a sense of 20 Besides supplementing real-world data how much more likely a given event is un- + for statistical purposes, generating virtual 0 der today’s conditions versus yesterday’s. – weather this way is handy for risk assess- “If climate change doubles the probability 20 ment. As Mr Allen remarks, “We are, al- of an event, there is a sense in which half 1950 60 70 80 90 2000 10 most by definition, harmed by events that Source: “Increased record-breaking precipitation events the blame is attributable to humans,” ar- under global warming” by J. Lehmann et al., October 2015 haven’t happened before.” Lea Müller, a gues Myles Allen ofOxford University. natural-hazards expert at Swiss Re, a rein- Since 2012 the American Meteorologi- surance company, recalls how one north- cal Society has published an annual bulle- rents in the distant past of Mars). The scars Atlantic storm simulation had charted the tin entitled “Explaining Extreme Events left by the biggest past events provide curious path that Hurricane Sandy subse- from a Climate Perspective”. Sometimes benchmarks forwhat might happen again: quently took when it buffeted New York in no link is found between specific meteoro- as Mr Baker puts it, “What has happened, 2012. It was just one ofmany generated sce- logical anomalies and man-made climate can happen.” In 2013 he and his colleagues narios and came too late for the city to im- change: that was the case with Britain’s analysed 44 ancient inundations of the pose stricter building standards, say. But it winter storms at the start of 2014 and the Upper Colorado River, estimating the shows that scrutiny of possible worlds water shortages in south-east Brazil later floods’ intensity from the volume of sedi- may alert people to potential perils in thatyear. In othercases—droughtsin Kenya ment and establishing their age using a much the same way Mr Baker’s excava- in 2012, a Japanese heatwave in 2013, tor- technique which reveals when quartz in tions can. rential downpours in south-west China those sediments was last exposed to day- In 2015 the Federal Highway Adminis- two years later—signs of human exacerba- light. Their analysis showed that the river’s tration asked the National Oceanic and At- tion can be discerned. “500-year floods” were twice as severe as mospheric Administration (NOAA) to as- estimates based on modern records alone sess how much the assumption of an Coming forsome time implied: what had been considered a once- unchanging climate affects “Atlas 14”, All this matters because the models engi- a-millennium flood turns out to occur NOAA’s repository of flood-risk estimates. neers rely on to build resilience into roads, more than once a century. Sanja Perica, who led the project, says the buildings, bridges, dams and levees have Chinese hydrologists, prevented from idea was to see how greater weight could tended to presuppose that the climate of setting up modern rain-gauge infrastruc- be given to more recent data, which are the recent past represents the climate ofthe ture in the 20th century by invasion, civil more indicative of what a hotter future foreseeable future. This opens them up to warand the Cultural Revolution, have long may look like. “The project ended with two sorts of surprise: that tomorrow’s cli- relied on ancient records, both geological more questions than answers,” he admits. mate may be different; and that the day-be- and human, to inform the design of dams But his team soldiers on (though some fear fore-yesterday’s climate may have been and canals. Although in the 1990s Ameri- that the flow of federal cash for such pro- more variable than their records suggest. ca’sBureauofReclamation developed sim- jects may dry up under President Donald The likelihood of calamities that fall be- ilar techniques to study the potential risks Trump, whose budget has cut funding for yond the range seen in the recorded data is to large dams from very rare, extreme various climate-change initiatives). determined by extrapolating what the flooding, most Western hydrologists have Understanding the risk of flooding in “tails” of the sample distribution might tended to regard such things with scepti- the future will demand pursuing many look like. Those extrapolations, it now ap- cism, highlighting the difficulty of reliably courses: statistics, simulations and sedi- pears, have sometimes been conservative. interpreting the geological record. But in- ment studies all have a role to play, says Pe- Victor Baker, a palaeohydrologist at the terest in the field has grown. In September ter Thorne of Maynooth University in Ire- University of Arizona, studies floods far Mr Baker will give the keynote address at a land, who contributed to the latest report away in time and space (he is particularly big geologists’ shindig in London and, a ofthe Intergovernmental Panel on Climate renowned forhis workon catastrophic tor- month later, another to the annual meet- Change and the currentUS Climate Assess- ment. The good news is that scientists are on the case. Sadly, engineers and their po- A rising tide 1 litical taskmasters have been reluctant to Natural-disaster loss events by cause embrace the advancestheyfeel theycan of- fer. They cling to “old data, poor data or no Meteorological: Storms 700 data at all,” gripes Mr Thorne. Hydrological: Floods, landslides and avalanches 600 Perhaps, Mr Knutti ventures, they Climatological: Extreme temperatures, droughts, forest fires 500 prefer what they know and understand. Swiss building standards have not been 400 updated in 40 years. Updating NOAA’s At- 300 las 14 may require a political decision, and 200 given the lamentable stance of the admin- istration support is far from assured, Har- 100 veynotwithstanding. Whatlookscertain is 0 that Houston, Mumbai and a host of other 1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 14 16 cities can expect more “hundred-year” Source: Munich Re floods before the century ends. 7 United States The Economist September 2nd 2017 21

Also in this section 22 Lobbyists’ disappearing act 22 The states and Obamacare 23 Politicians boost health-care costs 24 Arizona and the Arpaio pardon 24 Police militarisation 26 The census is in trouble 28 Lexington: Mr Trump’s history lessons

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The new political term legislators and Democratic presidents could not agree on spending priorities, so Back to school the federal government briefly shut down. America came close to breaching the debt ceiling in 2011 and 2013, when congressio- nal Republicans demanded spending cuts from BarackObama. WASHINGTON, DC Today Republicans control both Con- gress and the White House. But, as their ef- Congress reconvenes fora brutal, fractious September fortsto reform health care have shown, leg- URRICANE HARVEY was a test for Trump proposed privatising air-traffic con- islators who once battled Mr Obama have HPresident Donald Trump. Another trol, currently an FAA responsibility, but taken to tussling among themselves and hurricane, Katrina, had battered the presi- that appears unlikely. His proposed budget with the president. The White House dency of George W. Bush in 2005, when cut NFIP funding to help pay for a border would like Congress to simply and cleanly the combination of an inept response on wall; Harvey might save the programme raise the debt ceiling. Fiscal conservatives the ground and tone-deaf comments by for now, rickety as it is. Disaster relief for in the House of Representatives may re- the president created an impression of in- Texas and Louisiana may also prove con- fuse. Jim Jordan, a congressman from Ohio competent and unfeeling government. As tentious, as it did for New York and New who founded and led the right-wing Free- The Economist went to press, though, Mr Jersey after Hurricane Sandy in 2012. dom Caucus, suggests attaching manda- Trump seemed to be weathering the Before Congress proceeds to ordinary tory spending or regulatory cuts. Paul storm. Harvey remains dangerous for the squabbling, however, it must work out Ryan, the House Speaker, could probably people of Texas and Louisiana. But it now how to finance the government and pay its pass a clean debt-ceiling lift with moderate seems less politically menacing for Mr bills. The current round of federal funding Republican and Democratic votes. But that Trump than what awaits in Washington. runs out on September 30th. Congress and would imperil him (the Freedom Caucus On September 5th Congress will return the White House will almost certainly fail pushed Mr Ryan’s predecessor, John from a month-long break to face a devilish to agree on a long-term budget by then; to Boehner, into retirement) and leave law- cavalcade of necessary legislation and a avoid a shutdown, Congress will therefore makers wounded and vindictive. White House pushing for the big policy have to pass another continuing resolu- Worse, Mr Trump has threatened to victory that has eluded it for eight bum- tion, a short-term measure that maintains shut down the government unless the con- bling months. What happens this autumn current spending levels. tinuing resolution includes funding for a will lay the ground on which next year’s Unless Congress raises the debt ceiling, border wall—the same wall that he once mid-term elections will be fought, and allowing the government to raise the mon- promised Mexico would pay for. That those, in turn, will determine whether Mr ey it needs to pay its bills, America will lack could get through the House, which last Trump has a Republican or Democratic funds to service its existing debt by early July approved a spending bill allocating Congress forhis term’s last two years. October. The consequences of a default $1.6bn for the wall (a fraction ofits ultimate By the end of September, without con- would be grave. Financial markets would cost). But Democrats in the Senate would gressional action, funding will expire for be roiled, America’s borrowing costs filibuster to blockit. Mr Trump would have the Federal Aviation Administration (FAA), would rise and the world might start to to decide whether to sign a funding bill which oversees civil aviation; the Chil- move away from the dollar as a reserve withoutmoneyforhiswall to keep govern- dren’s Health Insurance Programme currency and American Treasury bonds as ment functioning, or veto it and risk being (CHIP); and the National Flood Insurance a haven. blamed forthe resulting havoc. Programme (NFIP), which subsidises and These usually pro-forma measures can Finally, Mr Trump is pushing Congress underwrites flood insurance. CHIP has turn contentious when Congress and the to take up taxreform. On August30th, atan broad but shallow bipartisan support, but White House are controlled by different industrial-fan factory in south-western the other programmes are contentious. Mr parties. In 1995, 1996 and 2013 Republican Missouri, Mr Trump argued that cutting 1 22 United States The Economist September 2nd 2017

2 corporate taxes, simplifying the tax code the number of individual brackets from claims to have 100 staffers working on tax and making repatriation of overseas pro- seven to three; doubling the standard de- reform. Quite what they are doing remains fits easier was key to “unleashing Ameri- duction to $12,700 for individuals and a mystery. Mr Trump’s administration ca’s full potential.” America’s Byzantine $25,400 for married couples; repealing the seems content to rely on congressional tax system last saw a major reform in 1986. alternative-minimum and estate (inheri- committees to translate its wish-list into Many believe it needs another. tance) taxes; and the vague but laudable policy—a taskeasier ordered than done. But getting from that belief to a bill that goals of providing “tax relief for families Some are optimistic. Grover Norquist, a addsup and can passisa mightychallenge. with child- and dependent-care expenses” veteran anti-tax crusader, says that con- In April Mr Trump’s administration pro- and getting rid of “targeted tax breaks that gressional Republicans “are determined to posed a “business tax rate” of15% (the cur- mainly benefit the wealthiest taxpayers”. get this done, and to make it as pro-growth rent corporate rate is 35%); consolidating Steven Mnuchin, the treasury secretary, as possible”, to carry them towards the mid-term elections. But not everyone is so sanguine. Mr Jordan says that Freedom Lobbyists Caucus members want to see specifics be- fore committing their support. Washington wizards The White House says it wants to get tax WASHINGTON, DC reform passed by the end of the year. That makes Mr Trump’s habit of publicly feud- Theirdisappearance is more apparent than real ingwith congressional Republican leaders, N A rainy afternoon, two sharply CRP. Many still seemed to be working to whose support he will need to advance his Odressed men talkbusiness and clink influence federal policy. priorities and keep their caucuses in line, $40 glasses ofwine at the TrumpInterna- Purging lobbyists may be as hard as all the more baffling. Perhaps, as his ap- tional Hotel, a few blocks from the White eradicating illegal drugs, and for the same proval ratings remain dismal, he has decid- House. The recently opened hotel, which reason: strong demand. So argue Lee ed to pander exclusively to his base, which offers $65 steaks and a $100 cocktail made Drutman and Steven Teles, two academ- seems to prize his antic belligerence above with raw oysters and caviar, has become ics, who reason that Congress is increas- legislative achievement. 7 popular among cabinet members, lob- ingly incapable ofcreating policies. The byists and curious journalists. It would number ofworkers in the Congressional seem the swamp monsters, whom Presi- Research Service, Congressional Budget The states and Obamacare dent Donald Trumponce pledged to Office and Government Accountability purge, are not doing too badly. Office, the internal information services Over to you Lobbying expenses for the first six that provide unbiased reports to mem- months ofthe year amounted to bers, has dropped by 40% since1979 even $1.67bn—the most since 2012—according as legislation has grown more complex. Paid influencers, including those without to the Centre forResponsive Politics WASHINGTON, DC (CRP), a watchdog. The figure might have the word “lobbyist” on their business Several states are trying to fixfailing been even higher ifRepublicans had cards, fill the gap. insurance markets managed to convert their undivided Since Congress is unlikely to hire control ofCongress and the White House many more wonks, the TrumpInterna- OT long ago, America’s health-insur- into legislative accomplishments. In- tional Hotel will continue to sell fishy Nance markets seemed to be drying up. stead, repeated attempts to reform Oba- cocktails and pricey rooms. Mr Trump’s In June 49 counties lacked any willing pro- macare ran into the sand and the pros- company had expected to sustain $2m in viders for the “individual market”, which pects fortax reform are uncertain. losses after opening the posh project in serves 18m Americans who are not cov- Yet, strangely, the number ofregis- the first fourmonths of2017. Instead, it ered by an employer or the government. tered lobbyists has fallen sharply. In the turned a $2m profit. The Affordable Care Act, Barack Obama’s second quarter of2017 there were just health-care law, seemed to have failed 9,791—a third fewer than the 15,000 mill- these places. Frantic efforts by state offi- ing about K Street and other lobbyist cials have filled the gaps: Nevada’s gover- haunts ten years ago. The number of norclaims to have interrupted a hiking trip dollars spent per registered lobbyist with his daughter to broker a deal covering increases every year. Either the price of most of his state. The last empty market, in persuasion has shot up, or people are not Ohio, gained an insurer on August 24th. being counted properly. But failure has not yet been averted. With The answer is almost certainly the health reform stalled in Congress, several latter, and the man to blame is Barack states are rushing to patch things up them- Obama. The last president, who had selves before insurance for 2018 goes on promised to “take the blinders offthe sale in November. White House”, instituted strict rules Obamacare’s markets were always like- limiting lobbyists from serving in his ly to limp on rather than collapse utterly, administration. Some influencers went because theyhave a blankcheque from the underground, dodging registration re- federal government. The law caps premi- quirements by not spending more than ums for buyers who earn less than four 20% oftheir time working forany single times the poverty line (this year the cut-off client. By one estimate, the official rolls is $48,240 for an individual). No matter capture only one in two lobbyists. Of the how high premiums rise and how many 2,100 lobbyists in 2016 who did not regis- healthy people leave the market, some ter in the first quarter of2017, 58% stayed subsidised enrollees, who have already at the same company, according to the Nothing to see here reached their premium caps, will keep buying. The only surprise is that it has tak-1 The Economist September 2nd 2017 United States 23

Health-care costs How to twist an arm

Politicians are largely to blame forraising the cost ofhealth care N AMERICA nearly one in every five voted against. Those hospitals spent 25% Idollars spent is on health care, a larger more than they otherwise would have in share than in any other country. Many of the seven years after the law, according to the culprits are well-known. Americans the researchers. Between 2005 and 2010 have more procedures, pay more for the 29 hospitals that received the most them, and face exorbitant administrative lucrative waivers spent an average of costs. One driver ofrising costs has often $1.25bn more than ifthey had not been overlooked, however: politicians. received one. So ZackCooper ofYale University and Some ofthe windfall went on equip- three other researchers argue in a paper ment and staff. The average hospital to to be published on September 4th. They benefit from a waiver increased its num- studied reforms passed in 2003 that ber ofnurses by16% peryear from 2006 allowed over-65s to obtain prescription to 2010. But the splurge seems not to have drugs through Medicare forthe first improved care. No changes were regis- time—the biggest expansion in the tered as a result in the mortality rate for scheme’s history, costing some $400bn patients admitted to hospitals with a It’s happening, sort of over the next decade. The legislation had heart attack, or in the time taken to dis- a rough ride. President George W. Bush charge those who survive one—two 2 en so much cajoling to get insurers to run wanted to sign a law before running for standard measures ofquality. monopolies in markets buttressed by such re-election in 2004, but many Republican Chiefexecutives fared well, though. generous government support. congressmen opposed it. In the end The average bump in bosses’ pay in the Yet rising premiums are a big problem enough self-styled fiscal conservatives sample ofhospitals benefiting most from formanyofthe 9m Americanswho buyin- changed their minds, and the House of the waiver was 81% over the same period, surance for themselves without any gov- Representatives approved the bill by 220 equating to a pay rise ofabout $428,000 ernment help. In Iowa about 28,000 peo- votes to 215. per year above that received by bosses of ple are on the hook, according to Doug Mr Cooper and his colleagues studied similar hospitals with no waiver. Poli- Ommen, the state’s insurance commis- the necessary arm-twisting and its ef- ticians benefited indirectly. Legislators sioner. As things stand, only one firm, fects. To do so, they looked at the use of with hospitals granted waivers in their Medica, will sell policies there next year. an obscure rule. Section 508 allows the district saw a 22% overall increase in Already-high premiums will rise by 44%— federal government to waive the stan- campaign contributions after the act. more, if President Donald Trump cuts off dard amount hospitals are paid by Medi- Donations from individuals in the health some subsidies for insurers, as he has care, which normally follows a tariff industry in their state increased by 65%. threatened to do. A hypothetical couple of designed by technocrats. Typically, the Section 508 is just one example of 55-year-olds together earning just under waiver is used to pay hospitals more in how deals to pass legislation raise costs. $67,000 would face an annual bill of near- places where labour is expensive. It By some measures, no industry spends ly $33,000 for coverage. Faced with such seems to be handy forpersuading waver- more on lobbying Congress than health- prices, Mr Ommen reckons that between ing politicians, too. care providers. The Affordable Care Act, 18,000 and 22,000 Iowans will drop their Hospitals in districts where a Repub- better known as Obamacare, was replete coverage in 2018. So on August 22nd Iowa lican congressman supported the Medi- with sweetheart deals. For that reason, it formally asked the Trump administration care Modernisation Act were five times is perhaps fortunate that Republican forpermission to overhaul Obamacare at a more likely to receive a waiver than those lawmakers were too divided to write and local level. in ones where a Republican lawmaker pass a health-care law oftheir own. It is not alone. Minnesota and Oklaho- ma have also submitted reform proposals, and others may follow. Each state wants to and funds their care through inflated pre- Ommen proposes to repurpose some of provide “reinsurance”—jargon for assum- miums only in the individual market. The the federal money forpoorer buyers. Fixed ing some of insurers’ risks themselves. For 155m Americans who get coverage from dollar subsidies would replace premium instance, Minnesota proposes to foot the their employers escape the costs. Spread- caps. Those who currently get help with bill for 80% of enrollees’ medical costs be- ingthe bill acrossall taxpayersmakes more their out-of-pocket costs would instead tween $50,000 and $250,000. The model sense. The thinking is similar to that be- face a $7,350 deductible. is tried and tested: the federal government hind “high-risk pools”, an idea small-gov- The plan risks running foul of the law, provided reinsurance for the first three ernment conservatives like. which forbids states from experimenting years of Obamacare. This year Alaskan Yet the states have differing ideas about in ways that make coverage less affordable. taxpayers began footing the bill for people precisely which taxpayers should pay. All But the Trump administration has some suffering from 33 costly medical condi- want the federal government to hand over leeway to interpret the rules so that Iowa’s tions, including HIV. This kept premium the cash it will save on subsidies for the plan becomes permissible, says Jennifer rises down to 7%—low by national stan- poor when premiums fall. (Alaska, which Tolbert of the Kaiser Family Foundation, a dards—and in 2018 they are set to fall by fully funded its programme this year, has think-tank. The state says it consulted the over a fifth. had a similar request approved.) Minneso- administration while writing its proposal. Reinsurance is bad for taxpayers. But it ta and Oklahoma would make up the re- If, as seems likely, the plan is approved, isfairerthan the currentset-up. As itstands, mainder themselves. But Iowa does not otherstatesmayputforward still more rad- Obamacare guarantees coverage for the ill want to stump up any cash. Instead, Mr ical ideas. Oklahoma is contemplating ask-1 24 United States The Economist September 2nd 2017

2 ing permission to rewrite the rules govern- tents even as temperatures inside soared to ing what insurers must cover, an idea 54 degrees Celsius, serving them meals of popular with Republicans. Elsewhere, green-tinged bologna and vegetarian slop. Democrats seek to make government-pro- He directed his deputies to stop anyone vided insurance—a “public option”—avail- they thought might be in the country ille- able to all. (In June, Nevada’s governor ve- gally, even if they were not suspected of a toed such a proposal.) For now, simply crime. MrArpaio said he was enforcing the avertingdisastershouldbethegoal.Thein- law; the courts called it racial profiling, and dividual health-insurance market is vital convicted the former sheriff of flouting an for states’ economies; without it, entrepre- order to stop. neurs would have to risk their health as Until recently Republicans scrambled well as their capital. Self-employed busi- forMr Arpaio’s endorsement. According to ness owners may flee states where premi- the Arizona Republic, a newspaper, one ums are exorbitant. candidate for governor in 2014 sent him a There is still time for Congress to pass a rum cake. Another, Doug Ducey, who for- bipartisan fix. On August 28th Governors merly ran Cold Stone Creamery, sent ice John Kasich of Ohio and John Hicken- cream. Mr Ducey won Mr Arpaio’s sup- looper of Colorado said they were on the port, and eventually the top job. brink of releasing such a plan. It might in- In November 2016, though, Mr Arpaio clude federal reinsurance. But if lawmak- lost the sheriff’s job to a Democrat, Paul ers in Washington cannot agree, states will Penzone, who defeated him by a margin of have to fill the void. 7 13%. “His problem was not so much with Hispanics, who were always against him,” says David Berman, a professor ofpolitical Arizona politics science at Arizona State University. “It was Police militarisation with business-minded Republicans who Beg your pardon decided that his radical approach to immi- Arms race gration was not good for Arizona’s reputa- tion.” A sense that he squandered taxpay- ers’ money did not help. At the most recent PHOENIX count, Mr Arpaio’s legal bills to fight the ra- cial-profiling case amounted to $70m. Donald Trump embarrasses Arizona Military kit helps cops—especially the An opinion poll by OH Predictive In- Republicans non-injurious kind sights finds that just 21% of Arizonans sup- O THE people in this room like port the pardon, while 50% oppose it. This T SOUNDS like an inventory for war: 126 “DSheriff Joe?” asked President Do- puts JeffFlake, a Republican senator in Ari- Itracked armoured vehicles, 138 grenade- nald Trump during a raucous rally in Phoe- zona who faces re-election next year, in a launchers, some 1,600 bayonets. That is a nix on August 22nd. The people did. Three particular quandary. MrFlake has enraged sample of items given to police depart- days later Mr Trump pardoned 85-year-old the president by publishing a book critical ments by the military as part of America’s Joe Arpaio, who was convicted ofcriminal of Trumpism. As payback, Mr Trump is “1033” military equipment programme. contempt just a month ago. But if the presi- campaigning against him. At the rally in Since 2001 fully $5bn of surplus army gear dent had asked Arizona’s Republican poli- Phoenix, Mr Trump slammed Mr Flake. He has been transferred to cops fornothing. ticians fortheir views, he would have got a has praised Kelli Ward, an extremely con- Military-style kit has long been associ- less straightforward answer. servative doctorwho will challenge him in ated with excessive police force. After riots Mr Arpaio ran the Maricopa County the Republican primary. in Ferguson in 2014, Barack Obama wor- Sheriff’s Department (which polices Phoe- To triumph overMsWard, MrFlake can- ried that the police resembled an occupy- nix and nearby suburban cities) from 1993 not alienate the small core of Arizonans ing force rather than a crime-fighting one. to 2016. He earned local popularity and na- who still adore Mr Arpaio. But to succeed The president signed an executive order tional notoriety for his harsh treatment of in the general election he must not drive that, by April 2016, requisitioned police prisoners and zealous pursuit of illegal im- away those voters who revile the sheriff stocks of tanks, grenade-launchers and migrants. Mr Arpaio housed inmates in and oppose hispardoning. MrFlake’stepid bayonets and provided for closer scrutiny statement, which he released on Twitter, offederal procurement programmes. 1 reflects this tension: “Regarding the Arpaio Agequake pardon, I would have preferred that the United States, Arizona, race/ethnicity president honour the judicial process and Copping a deal by age group, mid-2016 estimates, % let it take its course.” US military equipment transferred to America’s police departments under 1033 programme White Hispanic Other The pardon infuriates many Latinos in Original military acquisition value, $bn 0 20406080100 Arizona, which could spell trouble for the Republican Party eventually (see chart). A 1.0 0-9 report by Arizona State University’s Morri- Restricted items 10-19 0.8 son Institute for Public Policy suggests that currently in use 20-29 the Hispanic share of the electorate will All other equipment 0.6 30-39 grow from 15% in 2010 to 25% by 2030—a 0.4 40-49 hefty block despite their low turnout. Re- 0.2 50-59 publicans in California tried whipping up 60-69 0 fears of illegal immigrants in the 1990s. It 200002 04 06 08 10 12 14 17* 70-79 worked, but Hispanics and many whites Fiscal years ending September 30th 80+ did not forgive the party, and it is now a sad Sources: Department of Source: Census Bureau remnant in the Golden State. 7 Defence; The Economist *To June 30th Your trust, your future, our commitment

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2 On August 28th the White House re- Government statistics pensive event. In 2010 the Census Bureau scinded that order, giving officers renewed amassed 550,000 temporary employees access to the most controversial equip- Count down and spent $12.3bn trying to count every ment. Jeff Sessions, the attorney-general, American resident. The GAO notes that announced the change at a gathering of costs have increased from $16 per house- the Fraternal Order of Police, who had lob- hold in 1970 to $92 in 2010. If an accurate bied hard to overturn the restrictions. Is tally is costly, though, an inaccurate one is this wise? Two new papers published in probably more so. With three years to go, America’s next the American Economic Journal provide Census counts determine the number census is faroff-track some useful clues. ofcongressional representatives, as well as The first one, by Vincenzo Bove of the O MATTER how divided, America the boundaries of districts. Nearly $600bn University of Warwick and Evelina Gavri- Ncomes together every ten years for the of federal funding is allocated on the basis lova of the Norwegian School of Econom- census. Itisthe single eventin which every- of census data each year, according to re- ics in Bergen, finds that a 10% increase in one, regardless ofcreed, colour or even citi- cent estimates by Andrew Reamer of the value of military equipment trans- zenship, is supposed to take part. Few gov- George Washington University. Businesses ferred to police in one year reduces offend- ernment agencies could boast that their rely on the numbers to identify stocks of ing by 5.9 crimes per 100,000 people the mandate was enshrined in the constitu- skilled labour and latent demand for new next year. A second paper, by Matthew tion, as the Census Bureau can, thanks to branches. Target, a big retailer, uses the Harris of the University of Tennessee and the impassioned arguments of James data to decide which items to stock on its others, corroborates those results. It also Madison, who thought that future legisla- shelves. finds that militarisation reduces assaults tors should “rest their arguments on facts, Because Congress has directed the bu- on officers and complaints against them. instead of assertions and conjectures”. But reaunotto spend more than itdid in 2010, it The overall impact on crime seems that noble mission may be jeopardised by isplanningto run the firsthigh-tech census. slight given that there are, on average, inadequate preparations for the next cen- The bureau wants to blend administrative 2,500 crimes per 100,000 people. But the sus, due in 2020. data held by state agencies, use online effect on property crimes, especially rob- Spending usually rises greatly in the maps and push internet response at an un- beries and car theft, seems more dramatic. years before a census, to pay for testing and precedented rate. Those changes would The first study estimates that these fall by technology.But pending legislation would save $5bn compared with the old meth- about 1% for every 10% increase in army appropriate only $1.5bn for the 2018 fiscal ods, but must be rigorously tested in ad- gear that is deployed. A back-of-the-enve- year, nearly $300m less than needed, ac- vance to ensure that the data are of high lope calculation shows that for every cording to Terri Ann Lowenthal, a census quality and secure. If that is not done, the $5,800 ofarmy capital employed by police expert. The Government Accountability bureau will be forced to default to older, forces, society saves $112,000 in reduced Office (GAO) has placed the 2020 census more expensive methods. property crime. on its list ofhigh-riskprojects. Lack offund- If this conjures up images of tooled-up inghasalreadycaused the bureauto cancel Missing persons cops intimidating muggers, however, it two of its three “end-to-end” tests, as dress Mr Thompson is more sanguine about the should not. Mr Bove and Mrs Gavrilova rehearsals are called. John Thompson, the bureau’s challenges than others. What find that back-office equipment, including agency’s director, unexpectedly left in does worry him, though, is funding for the such things as air-conditioners, which ac- June; President Donald Trump has yet to bureau’s outreach efforts. “Youcan’t get an counts for about two-fifths of the total val- nominate his replacement. accurate census without advertising,” he ue ofthe1033 programme, is much more ef- America’s census is an astounding, ex- says. The bureau’s partnerships with com- fectivethanvehiclesandtacticalgear.They munity leaders, such as Baptist ministers find no evidence thatmilitaryweapons cut in the rural South and Indian chiefs, help crime. Perhaps office equipment makes shore up response rates among groups cops more efficient, or frees up money for sceptical of government. Civil-rights hiring new ones. groups worry that many Latinos and Mus- Mr Sessions also contends that military lims will sit out the census, and lose politi- equipment keeps officers safe. A Kevlar cal clout and public services as a result. helmet saved the life of one officer during America’s other statistical agencies are the Pulse nightclub shootings in Florida also under strain. Stagnant funding for the last year. But this equipment was not pro- Bureau of Labour Statistics (BLS), which hibited underMrObama’s rules, norwas it produces market-moving numbers such as procured through the 1033 programme. the unemployment and inflation rates, is And despite Mr Sessions’s depiction of po- makingmistakesmuch more likely, says Er- lice under siege, serving officers have sel- ica Groshen, the BLS commissioner until dom been safer. On average, between 1987 January 2017. One error, caught at the last and 1991, 16 out of every 100 officers were minute after a large retailer changed its re- assaulted and 18 in every 100,000 died on porting software, would have moved the active duty. Over the past five years those consumer price index estimate by 0.2 per- figures have fallen to ten assaults per 100 centage points. At that level, Social Securi- officers and nine deaths per100,000. ty payments would have been wrong by Other evidence suggests that the 1033 $1.9bn per year. Because offlat funding, the programme could benefit from more over- BLS has suspended programmes tracking sight. In July the Government Accountabil- masslay-offsand green jobs. Smaller statis- ity Office reported that investigators were tical agencies like the Bureau of Economic able to acquire restricted military equip- Analysis, which produces GDP estimates, ment by masquerading as a police agency are also at risk. As Robert Groves, who led using a faked website and dodgy creden- the Census Bureau in the last count, puts it, tials. Hopefully no villains noticed. 7 Happy beneficiary of the old system “They’re cutting into bone now.” 7 TO GET TO A HEALTHIER WORLD FIRST REMOVE ALL THE OBSTACLES.

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Data and Analytics | Pharmacy Care Services | Population Health Management | Health Care Delivery | Health Care Operations 28 United States The Economist September 2nd 2017 Lexington Mr Trump’s history lessons

The president is stirring up divisions with deep roots. His opponents should not copy him Arizona, on August 22nd, denouncing “weak” political leaders for trying “to take away our culture…our history” when they bow to campaigners calling for Confederate memorials to be re- moved from display. In fact, the vast majority ofConfederate me- morialswere builtbetween the 1890sand 1950s, longafterthe civ- il war. The aim was less to mourn the dead than to intimidate, as states enforced racial segregation with laws and violence. Trump critics hear more than historical befuddlement. They believe that the president panders to white racial resentment, and think they heard a similar appeal when, shortly after his trip to Arizona, Mr Trump pardoned Joe Arpaio, the 85-year-old for- mer sheriff of the county around Phoenix. Mr Arpaio was con- victed for defying court orders to halt police raids and immigra- tion sweeps which, judges found, relied on unconstitutional racial profiling. Mr Trump did not just show clemency to “Sheriff Joe”, an authoritarian showman. He called him a “patriot” who kept Arizona safe, signalling that checks and balances against race-based policing are so much politically correct nonsense. Those same critics fear that, especially when race is involved, it is bad politics to cleave to more accurate versions of history, or to conventional views of the law. Steve Bannon, the populist AD history is potent stuff, as Lexington saw when he recently nationalist who ran Mr Trump’s campaign and then became his B took a teenage son to Gettysburg. When war memories were chief strategist in the White House, loves to stoke such fears. Mr still fresh, that Pennsylvania town was a shrine to Union suffer- Bannon tauntingly urges Trump opponents to keep accusing the ing. Confederate troops under Robert E. Lee invaded Pennsylva- president ofracism, and to continue topplingstatues. “Ifthe left is nia to bringterrorto Union territory. Theyseized farmers’ proper- focused on race and identity, and we go with economic national- ty and—in a monstrous touch—kidnapped free blacks and ism, we can crush the Democrats,” Mr Bannon told the American escaped slaves, sending scores southward into captivity. The war Prospect, a leftist journal, shortly before he left the White House. was still raging when Abraham Lincoln gave his Gettysburg ad- That prediction is echoed by some on the left, including Mark dress to dedicate a Union cemetery there, months after the pivot- Lilla, a professor at Columbia University and self-styled “blue- al battle outside town. So eager were locals for martyrs that Vir- collar Democrat” brought up in a gritty corner of Michigan. In a ginia “Jennie” Wade, a young seamstress shot by a stray bullet much-discussed new book, “The Once and Future Liberal: After while baking for Union soldiers and the only civilian casualty of Identity Politics”, Mr Lilla implores Democrats to talk less about the battle, was pressed into service. The Senate granted hermoth- racial, gender or sexual differences, and more about class and er a war pension, and in 1900 an elaborate monument to her was economics. Rustbelt Democrats with national ambitions, such as erected, largely funded by the Women’s Relief Corps of Iowa, a Representative Tim Ryan of Ohio, say that an excess of identity Union state not represented at the battle. politics can make their party “toxic” to working-class voters. Yet today, gazing at tourist shops full of Confederate battle flags, replica guns and souvenir T-shirts with slogans like “If At The president of Rebel America First You Don’t Secede, Try, Try, Again”, visitors to Gettysburg Yet the past offers a further lesson, one worrying for those on the might suppose that the Confederates won. The same shops are left who are sure that the way back to power is to compete with piled high with Donald Trump hats and shirts, while Trump- Mr Trump’s fiery economic populism, while shunning his taste stickered pick-up trucks and Harley-Davidsons rumble along the for racial controversies. For American history teaches that, once town’s narrow streets. The Jennie Wade House and gift shop flog stoked, racial, ethnic and economic grievances are perilously Confederate knick-knacks, and—in an attempt at neutrality—tour hard to keep apart. In his fine history of the civil war, “Battle Cry guides stress the young woman’s friendship with Wesley Culp, a of Freedom”, James McPherson records that many whites in Un- local youth who moved to Virginia and fought forthe South. Mer- ion stateslike Ohio, IllinoisorIndiana were hostile to elites, bank- chants are following the market: in Trump-voting bits of white ers and blacks in roughly equal measure. Lots of unskilled work- America, such as rural Pennsylvania, affection forthe Confedera- ers, notably Irish and German Catholics, resented New England cy has floated free of ancestral loyalties. Today the rebel cause grandees for asking them to fight to free the slaves, and suspected stands for a chin-jutting, screw-you sort of conservatism. This ex- that wealthy Yankees saw emancipation as a source of cheap tends to modern-day Iowa, home to a Republican congressman black labour. Populists hated highfalutin newspapers as much as and anti-immigrant zealot, Steve King, who for a while kept a Mr Trump claims to today. In 1863 the New York Times borrowed Confederate flag on his desk (later removed after a Confederate three Gatlinggunsfrom the armyto guard itshead office asrioters flag-waver shot two Iowa cops). The rebel flag means different protested against a military draft, yelling “Down with the rich!” things to different people, says a historian with the National Park and looking to lynch blacks. Service in Gettysburg, tactfully. For all that, he understands, and Mr Trump, a man with a hazy, self-regarding sense of history, quietly worries, ifit makes blackvisitors uncomfortable. grasps that Them-against-Us rage has deep American roots. Op- President Donald Trump seems bent on testing whether bad ponents are free to hope that his ploys backfire. But for non-big- history makes for good politics. Consider his speech in Phoenix, ots, meeting him in any sort ofpopulist anger contest is a trap. 7 The Americas The Economist September 2nd 2017 29

Corruption in Guatemala Also in this section If you elect a clown, expect a circus 30 Bello: The little-noticed skills crisis

GUATEMALA CITY As the country’s scandals multiply, opposition hardens to the investigators who are uncovering them EFORE he ran to be president of Guate- close $900,000 in contributions to his fifth of congressmen are under investiga- B mala two years ago, Jimmy Morales presidential campaign. tion. Many ofthese have links to Guatema- pretended to be a presidential candidate in Foreign groups, including the UN and la’svastunderworld: more than two-thirds a television sitcom called “Moralejas” the United States, condemned Mr Mo- of the cocaine that enters the United States (“Cautionary Tales”). Neto, the bumbling rales’s order. The constitutional court has passes through the country. It is these net- office-seeker, clad in a white suit, red ban- now blocked it, so Mr Velásquez can con- works, which have their origins in the danna and cowboy hat, decides that after tinue his work. But the confrontation has country’s 36-year civil war, that CICIG was telling “a boatload of lies” he will with- shown that the accused can strike back at set up to investigate. Areport byCICIG esti- draw from the race. He offers the remain- their accusers. And it leaves the country in mates that a quarter of campaign money ing (fictional) candidates some parting a political limbo; the president has lost his comes from organised-crime groups. wisdom: “Haven’t you realised that people moral authority, but no alternative leader Now it is going after Mr Morales’s Na- aren’t dumb? That people see how you go commands widespread respect. The next tional Convergence Front (FCN), which to sleep poor and wake up rich?” national elections, due in 2019, are unlikely was founded in 2008 by former army offi- In the real-life election of 2015 Mr Mo- to provide one. cers and became a political home for legis- rales levelled the same sort of accusations Things have got worse since the heady lators from Mr Pérez’s defunct Patriotic at his rivals. It came soon after the coun- days of 2015, when perhaps 100,000 Gua- Party. Keeping such company has dam- try’s president, Otto Pérez Molina, and temalans filled the streets to demand the aged Mr Morales’s reputation. Some of his vice-president, Roxana Baldetti, were ar- removal of Mr Pérez and Ms Baldetti from advisers have been accused of committing rested on corruption charges. Running as office. Then, ordinary citizens and much of atrocities during the war. A recent cartoon an outsider with no connection to the dis- the country’s elite were united in disgust at in a local newspaper portrayed Mr Mo- credited political class, Mr Morales won the alleged wrongdoing that CICIG, work- rales as a puppet whose strings are pulled 67% ofthe vote in a run-offthat October. ing with the country’s attorney-general, by generals. Although no one accuses Mr Now Guatemalans are feeling duped. Thelma Aldana, had uncovered. The two Morales of enriching himself, this year his Mr Morales soon showed Neto-like inepti- politicians were implicated in a scandal son and brother were charged with issuing tude in exercising the powers of his office. called La Línea, which involved taking false invoices to the state property agency. Worse, many voters now see him as be- bribes from businesses to let them avoid As CICIG’s investigations have expand- holden to the system he ran against. On paying customs duties. Few Guatemalans ed, opposition to it, and supportfor MrMo- August 27th he ordered the expulsion from were sorry to see them go. rales, have hardened. “There’s a climate of the country of Iván Velásquez, the Colom- fear,” admits Fernando Linares Beltranena, bian head of the International Commis- Nasty networks an ultra-conservative congressman. He sion against Impunity in Guatemala Since then, the scope of CICIG’s investiga- disparages Mr Velásquez, Ms Aldana and (CICIG), a UN-backed body that has been tions has widened. One probe revealed Todd Robinson, the American ambassa- investigating corruption for more than a that Mr Pérez’s Patriotic Party had set up dor, as la trinca (“the trio”), a left-wing tri- decade and helped bring down Mr Pérez shell companies forthe sole purpose of so- umvirate that is plotting against the gov- and Ms Baldetti. Mr Morales’s order came licitingdonationsfrom banks, oil firms and ernment. Why isn’t CICIG targeting street less than two days after Mr Velásquez other companies in exchange for favours gangs?, the right wonders. The association sought to strip him ofimmunity from pros- after they were elected. Such scandals ofmayors has endorsed Mr Morales. ecution, alleging that he had failed to dis- have implicated dozens ofbusinessmen. A Businesspeople claim that CICIG’s in-1 30 The Americas The Economist September 2nd 2017

2 vestigations are driving away investment. theyencountered biggergroupsofMorales bility for administering the judicial system That is hurting GDP growth, which is backers, who blocked diplomaticcarsfrom from the constitutional court to an inde- around 3% a year but is expected to slow. leaving. “I signed the peace accords but I pendent council. “Jimmy had the right to do what he did,” can also make war,” said Álvaro Arzú, a for- The next election may not bring much says one businesswoman. “The feeling mer Guatemalan president who is now change. All the three main political blocs [among Guatemala’s elites] now is, ‘Let’s mayor of Guatemala City. To some, that have been implicated in one scandal or an- protect ourselves, we’re all in the same sounded like a call fora crackdown on anti- other. Starting new parties is not easy: boat’,” says Juan Alberto Fuentes Knight, a Morales protesters. The national police proto-parties have to collect 23,000 signa- reformist former finance minister. cancelled leave forits officers. tures, and a government commission Just who will win the tussle between The commission has few friends in con- wants to raise that number. A group of the frightened establishment and the 80% gress, where a two-thirds majority is need- youngactivists called Movimiento Semilla of Guatemalans who back CICIG is not ed to remove MrMorales’s immunity. Con- (“Seed Movement”) hopesto putforward a clear. “Ifyou elect a clown, expect a circus,” gress has so far thwarted reforms backed presidential candidate in 2019 but has yet read banners carried by CICIG supporters by CICIG, such as extending judges’ terms to choose one. The seed ofrenewal in Gua- at its headquarters in Guatemala City. But from five years to 12 and shifting responsi- temala may take years to flower. 7 Bello A human scrapheap

Latin America’s little-noticed skills crisis N1961a16-year-old youngster, with only little chance to acquire the skills they lack. nities for training interact to reinforce in- Iprimary schooling and experience as a Latin America’s labour markets are equality and low productivity. Yet gov- shoe-shiner and warehouse assistant, en- characterised by high job turnover, low ernments are doing little to prevent many rolled to train as a lathe operator on a pay and meagre investment in skills both oftheircitizensfrom beingthrown on this course at Brazil’s National Industrial by firms and workers, according to the IDB. human scrapheap. Training Service (known as SENAI). For Manufacturing firms in the region are as Skills training in the region is an ill- Luiz Inácio Lula da Silva, it proved to be a likely to train their workers as those in East thought-out patchwork. National training life-changing step: subsequent jobs at Asia. Yet overall, only around 10% of Latin institutes, such as SENAI, continue to exist metal-bashing companies led to him be- American workers receive some training in many countries. They are financed by coming a trade-union leader and eventu- each year, compared with around half in payroll taxes (to the tune of0.3% ofGDP in ally his country’s president. developed countries, according to a study Colombia, Jamaica and Panama, for ex- Halfa century ago, SENAI and its coun- last year by the Inter-American Dialogue, a ample). Theymostlytrain workersat large terparts across Latin America offered the think-tank, and Laureate International firms. Many private training centres do a poorer and less educated a route to up- Universities. Most workers are in small ser- similar job. ward social mobility, while providing the vice businesses, such as restaurants, that Several countries have youth-training skills that new industries demanded. have little incentive to train them. programmes involving subsidised intern- Now the region faces a little-noticed skills All this means that a young adult’s fu- shipsatfirms. These seem to work, butare crisis. New technology is changing work ture can be determined shortly after leav- limited in scope. Less common are ap- everywhere. In Latin America a lack of ing school: a study in Chile found that prenticeship schemes. A shining excep- people who know how to harness that workers with secondary education saw tion is Weg, a Brazilian company that is technology is slowing its diffusion, says a their wages rise by almost 20% over seven one of the world’s biggest makers of elec- new report by the Inter-American Devel- years if they were employed in a large tric motors. Its training school at its big- opment Bank (IDB). In surveys, a growing manufacturing firm, while in a small ser- gest factory, at Jaraguá do Sul, takes on number of employers complain that they vice firm they rose by only 6%. some 200 youngpeople fora course of up can’t find qualified workers. Already Not surprisingly, those with less educa- to two yearsthatcombinesdaytime shop- hampered by slower productivity growth tion tend to be in worse jobs, often in the floor exposure to mechanics and elec- than in East Asia, the region risks falling informal economy. So the deficiencies of tronics with night school. They are paid a furtherbehind. the education system and lack of opportu- wage and are guaranteed a job. The It has made big strides in expanding payoff for Weg is that its workers stay an education. Today, primary schooling is al- average ofseven to eight years. most universal, and three out of four Apprenticeships apart, when it comes children are enrolled in both pre- and sec- to training, policymakers have much less ondary school. Over 40% of the relevant evidence than in education as to what age group get some higher education. Un- works and what doesn’t, says Julián Mes- fortunately, Latin American students sina of the IDB. Few training programmes don’t learn enough: international tests have been evaluated. Rectifying that is a show that many can’t perform basic first step. The second is to draw up a com- maths and language tasks. prehensive skills-development system, in These shortcomings—and the need to close collaboration with employers, per- fix them with better teachers and a longer haps borrowing some ideas from Ger- school day—have become a staple of the many. For those who need to, such a policy debate in the region. Yet focusing scheme should include more incentives just on education leaves out most Latin to return to school. It should never be too Americans who are adults and are al- late for Latin Americans to acquire the ready in the workforce. Sadly, most have skills they lack. Asia The Economist September 2nd 2017 31

Also in this section 32 Violence flares in western Myanmar 32 Progress for Indian law 33 The flight of a former Thai leader 34 Banyan: An American wrecking-ball?

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

Japan and North Korea Chains of command were inadequate in 2011 when an earthquake and tsunami Shooting over Japan’s head caused a meltdown at the Fukushima Dai- ichi nuclear power plant. Japan has a double-layer of missile de- fences: destroyers with Aegis missile-de- SENDAI AND TOKYO fence systems cover the whole country; land-based Patriot batteries (pictured on A provocative missile test raises questions about Japan’s civil-defence readiness exercise, after the latest North Korean mis- and its pacifist constitution sile flew over) provide “point defence” for HEN the alarm sounded from loud- Un. Japan has longlived underthe shadow smaller areas. “But just as the threat grows, Wspeakers in the streets and his mobile ofhis rockets. What is more alarming is the our defence capabilities must grow,” says telephone around 6am on August 29th, Sa- consensus among analysts that his engi- Narushige Michishita, an analyst. buro Ito thought it was a warning about an neers have probably mastered the technol- earthquake. But when he read that a North ogy of making a nuclear warhead small Raising the shield Korean missile was passing overhead the enough to fit on a missile. Yet there are growing doubts about wheth- 72-year-old taxi driver panicked and ran The latest test is raising questions about er this is enough. The defence ministry out into the garden. The instruction to the preparedness of Japan’s civil defences wants to upgrade the Aegis systems on the “evacuate to a sturdy building or base- and the ability ofits anti-missile systems to destroyers and to acquire a land-based ver- ment” was all but forgotten. “I had no idea keep the country safe. It is also heightening sion, Aegis Ashore. Some members of the what to do or where to go,” he says. the debate over whether Japan should ruling Liberal Democratic Party are urging Japanese have been oddly sanguine amend its pacifist constitution. the government to use its budget reserves about military threats, even as China has Over the past year the government has to speed up the acquisition, rather than grown more powerful and North Korea tried to reassure citizens ofits ability to pro- wait for an increased defence budget next has tested ever more capable missiles and tect them. It has published guidelines for year. The government is unlikely to add a atom bombs. Japanese refer to this state of how to respond to a missile strike: in short, third layer of missile protection, the Termi- mind as heiwaboke, meaning roughly to take cover; and, in the event ofa nuclear at- nal High Altitude Area Defence missile take peace and security forgranted. tack, pull a jacket over your head. Twelve shield that America operates in South Ko- Such complacency may have been towns have held drills for a North Korean rea, on the grounds that it is too costly. No- shaken by the North Korean missile that missile attack. They have involved chil- boru Yamaguchi, a former lieutenant-gen- passed over Hokkaido before crashing into dren having to curl up under their desks. eral in the Self-Defence Forces (SDF), the sea about 1,200km to the east. “North For some Japanese such measures are not Japan’s army, says Japan should also raise Korea’s reckless action is an unprecedent- enough. A very small but increasing num- the number ofcrews to man Aegis destroy- ed, serious and grave threat to our nation,” ber have been building nuclear bunkers ers to relieve overstretched personnel. said the prime minister, Shinzo Abe. and buying air purifiers to protect against Japan is trying to improve other capa- It was not the first time that North Korea radiation in case ofnuclear attack. bilities too, for instance by buying F-35 jets. had fired over Japan; it had conducted sim- Japan enacted civil-defence legislation But it lacks the wherewithal to strike at ilar tests four times previously (under the only in 2004, almost three decades after North Korean launch sites if it detects signs guise of satellite launches). But the latest South Korea. J-Alert, the emergency public- of imminent attack—something some offi- shot was a surprise, not least because re- information system, failed to workin some cials, including the defence minister, Itsu- cent tensions over North Korea’s testing of places. Suguru Arai of the disaster-preven- nori Onodera, would like to have. Japan’s long-range missiles had appeared to ease tion bureau in the town of Erimo, which military strength will remain limited foras of late. America has grown increasingly wasunderthe missile’strajectory, points to long as it spends less than 1% ofGDP on de- alarmed that its bases in Guam, or perhaps a flaw in the advice for citizens to take cov- fence (South Korea and America spend America’s western seaboard, could soon er: “There are no basementsand onlya few 2.6% and 3.3% ofGDP respectively). be threatened by the regime of Kim Jong strong concrete buildings in the town.” Mr Abe has long thought that Japan 1 32 Asia The Economist September 2nd 2017

2 should become a normal military power. nary provocation. But smouldering griev- animosity.When Aung San Suu Kyi, Myan- In 2015 he pushed through legislation rein- ances have encouraged the emergence of mar’s de facto leader, took office in 2016, terpretingthe constitution to allow the SDF small, mostly home-grown, militant she vowed to end the country’s many civil to play a more forceful role in missions groups. One ofthese, the Arakan Rohingya wars. But she has consistently failed to ac- such as peacekeeping. This year he an- Salvation Army (ARSA), led the attacks on knowledge the plight ofthe Rohingyas, ap- nounced plansto rewrite the constitution’s August 25th. According to the International parentlyforfearofalienatingBuddhist vot- pacifist clause by 2020. That will require Crisis Group, a charity, ARSA was formed ers and the army, which still holds approval in both houses of parliament, after savage violence in 2012. It staged its enormous sway.Forthe same reason, new- and a referendum. Mr Abe no doubt hopes first known co-ordinated assault last Octo- ly published proposals for calming Rak- the outcry over the latest missile shot will ber, on border-guard posts in Rakhine. hine, the product of a year-long study led make his task easier. Even so, he would The recent incident, involving multiple by Kofi Annan, a former head of the UN, have to overcome great public resistance. assailants wielding hand-held explosives are unlikely to be fully implemented. And his popularity has been slumping of and machetes in synchronised attacks, These include revising a citizenship law late amid reported scandals. was larger. The organisation has gathered which is used to justify the denial of birth Over the years some in Japan have strength fast. Its leadership includes a com- certificatesto Rohingyasborn in Myanmar. asked whether the country needs its own mittee of Rohingya émigrés in Saudi Ara- International agencies find it hard to in- nuclear deterrent. Such talk may begin bia. Some ofARSA’s members have report- fluence the government. The authorities anew, amid growing doubts about Ameri- edlybeen livingalongside theirbrethren in claim that a photograph circulating online, ca’s commitment to its allies. Mr Michi- Rakhine for months, trying to drum up in which a carton of biscuits from the shita, no hawk, says Japan must have a support. ARSA’s foreign connection may World Food Programme, a UN body,is vis- proper debate about the defence capabili- help it raise funds abroad. ible inside a militants’ trainingcamp, is evi- ties it needs: “Currently we are like a boxer The group is successfully tapping into dence that insurgents are in cahoots with that does not punch.” 7 local desperation. “‘We are dying, let’s put aid workers. The government says it is in- up a fight!’ is the way some Rohingyas vestigating claims that landmines laid by feel,” says one Muslim leader who works militants were made from materials im- Myanmar’s Rohingyas to achieve reconciliation among religious ported by humanitarian groups, such as groups in Rakhine. But ARSA’s strategy is steel pipes and ammonia. It denounces Gory days reckless. The attack last October triggered what it describes as foreign meddling in months of brutal military reprisals against the conflict (there is indeed a risk that it civilians and the flight of some 87,000 Ro- could attract foreign fighters). In June the hingyas. Security analysts speculate that government indicated that it would refuse ARSA deliberately provoked the army, visas to a UN human-rights team. Allow- YANGON knowing its tendency towards indiscrimi- ing such delegates to visit would suggest nate retaliation and hopingthat this would Myanmar has nothing to hide. Sadly, it is Militancy is on the rise in Rakhine state attract international attention. The govern- keeping much under wraps. 7 LONG the grassy banks of the Naf river, ment of Myanmar recently designated Atearful families wait with bags and ARSA a terrorist organisation. bundles as they attempt to flee Myanmar In the information war that is being Law in India into neighbouring Bangladesh. They are waged in parallel with the battle on the scared to return to their homes in the west- ground, each side is trying to present the Courage in their ern state ofRakhine after Muslim militants other in the worst possible light. Vivid im- attacked 30 police posts and a military ages on social media show mutilated and convictions base on August 25th. They fear the army charred bodies; comments heap abuse on will butcher Muslim Rohingyas in return. the supposed perpetrators. Verifying DELHI Hostility to Rohingyas, a minority in when and where atrocities took place, and Indian justice is improving, though largely Buddhist Myanmar, has repeatedly who committed them, is tricky.Usingsatel- many still complain led to bloodshed in recent years. People of lite photographs to spot the smoke from several faiths have died in the turmoil. The burning buildings, a method previously HE wheel of Indian justice is famously emergence of a new, sophisticated group used to monitor the extent of violence in Tslow and wobbly. It also rolls in odd di- of Rohingya militants is likely to exacer- Rakhine, is difficult when, as now, the area rections. In the 1970s the Supreme Court, bate the violence. More than 100 people is covered by clouds. which is meant to uphold India’s constitu- have been killed in just a few grisly days as The government’s response has fuelled tion, endorsed emergency laws that de- troops have hunted forthe insurgents. nied citizens any recourse against unlaw- The 1m Rohingyas who live in Rakhine ful arrest. Last year it anachronistically have long suffered persecution. Most are BANGLADESH ordered cinemas to play the national an- denied citizenship and therefore have little them before every screening, and movie- access to education orhealth care. They are Naf river MYANMAR goers to stand to attention each time. Yet in Maungdaw the world’s largest community of stateless R recent weeks Indian courts have delivered people. Strict laws govern their movement A a series ofimportant judgments that, taken Sittwe K Naypyidaw and where they can live: some 120,000 live H together, push the country firmly in a more I in squalid camps as a result of past con- Kyaukphyu N liberal direction. flicts. The government points to 19th-cen- E Most dramatically, on August 28th a tury records drawn up by Britain, the for- judge in the northern state ofHaryana sen- mer colonial power, as evidence that the 150 km tenced Gurmeet Ram Rahim Singh, a flam- Rohingyas were immigrant labourers, not boyant guru-cum-action-star, to 20 years in indigenous. In reality they arrived centu- Yangon prison for the rape of two female acolytes. ries earlier. Such “godmen” often seem to be beyond Most Rohingyas have remained re- the reach of the law, with their wealth, de- markably pacific in the face of extraordi- voted followings and close ties to politi-1 The Economist September 2nd 2017 Asia 33

2 cians. Mr Singh had been openly wooed Thai politics by senior figures in the ruling Bharatiya Ja- nata Party. They donated money to his or- ganisation and were photographed kissing Another coup for the generals his feet. Tens of thousands of his followers SINGAPORE besieged the town where his trial was A formerprime minister’s flight bolsters the junta held: despite a massive police presence, 38 died in riots after his conviction. But in a HEN YingluckShinawatra, a for- who was prime minister between 2001 country where the powerful often find Wmer prime minister ofThailand, and 2006, himselffled11years ago before ways to “turn” witnesses and influence fled the country a few days ago, she left the conclusion ofa graft case. The fam- judges, hispunishmentwaswidelyseen as more than an empty chair in the Su- ily’s influence reflects the narrowness of a victory forjustice. preme Court behind. On August 25th she the country’s political class. Since 2001 Another ruling also cheered Indian lib- had been due to hear the verdict in a case the Shinawatra clan has won every elec- erals. On August 22nd the Supreme Court against her for negligence in a rice-subsi- tion held in the country that the generals banned “triple talaq”, a practice whereby dy scheme she ran while in office that have permitted to take place. Critics of Muslim men could annul their marriage cost the government around $16bn. Ms Yingluckclaim that her brother con- simply by pronouncing the Arabic word Though she was ousted in a coup in 2014, tinued to pull the strings from his self- for divorce three times. Nearly all Muslim- Ms Yingluckhad remained a symbolic imposed exile during his sister’s rule. Like majority countries longago outlawed such figure foropponents ofthe junta. The him, she pursued populist policies, such instant divorce (Pakistan did so in 1961), but generals will not be sorry she has gone. as the rice scheme, which pleased their politicians in Hindu-majority India had The scene at the courthouse—and Ms largely rural supporters, known as “red used the issue as a vote-getting induce- Yingluck’s absence from it—epitomised shirts”, and angered royalist rivals, or ment to Muslim ultra-conservatives. The the shambles that Thai politics has de- “yellow shirts”. ban is good news for Muslim women, for scended into. When she failedto turn up, A thrice-delayed general election is those who want secular laws to supersede the judge said he did not believe her due to be held next year. But Ms Ying- religious ones, and forcritics ofsuch “vote- lawyer’s claim that she was ill and de- luck’s departure bodes ill forany hope of bank” politics. manded her arrest. Despite Ms Yingluck’s renewing Thailand’s democracy.With- Setting a precedent of arguably greater poor record in office, and a very heavy out her, the red shirts have no political long-term significance, nine Supreme police presence, many thousands ofher figurehead, says Michael Montesano of Court judges unanimously ruled on Au- fans turned up at the courthouse hoping the Institute ofSouth-East Asian Studies, gust 24th that privacy is an intrinsic part of to catch a glimpse ofher (one ofthem is a think-tankin Singapore. Her flight will the right to life and liberty as guaranteed pictured, after hearing news ofthe escape furtherdemoralise the already weak by India’s constitution. The brief ruling ofher hero whose face is on her shirt). Pheu Thai party she heads. came in response to a case challenging the Ms Yingluckfled to Dubai, where her Without Ms Yingluck, the ruling junta government’s right to oblige all citizens to billionaire brother Thaksin Shinawatra, may find it easier to maintain a tight grip. have their biometric data stored in a na- It has dodged the dilemma ofimpris- tional database. More importanteven than oning a much-loved politician, or freeing the decision itselfwere the sweeping argu- her and undermining its own authority. ments used to justify it. The judges re- Corruption, such as that which plagued soundingly rejected the state’s contention the rice scheme on Ms Yingluck’s watch, that privacy is not a fundamental right. was cited by the junta as one justification They also extended the meaning and im- for its coup. (On the day ofMs Yingluck’s plications of privacy to include such mat- no-show,Thailand’s generals had the ters as personal choice in questions of reli- satisfaction ofseeing a 42-year sentence gion, diet or sexual preference. D.Y imposed by the Supreme Court on her Chandrachud, one of the judges, said that formercommerce minister for offences privacy was “a constitutional value which related to those that she was alleged to straddles across the spectrum of funda- have committed.) mental rights”. But there are potential troubles ahead Madhav Khosla, an expert on the Indi- for the junta. In just two months the an constitution at Harvard University, de- cremation will take place ofthe country’s scribes the ruling as a heartening step in much loved king, Bhumibol Adulyadej, the country’s legal evolution. He says it who died in 2016. He was succeeded by should create “an inviolable distinction his less popular son, Maha Vajiralong- between the private and the public”. Mr korn. More drama from the Shinawatra Khosla points out, however, that it remains clan could disrupt the careful choreogra- to be seen how lower courts will imple- Cheers for a distant idol phy ofthe event. ment the Supreme Court’s ruling on pri- vacy. They have a patchy record when it comes to upholding lofty principles in bution. And in contrast to its thunderous why triple talaq is no longer law,” wrote their own judgments. ruling on privacy, the Supreme Court’s de- Prashant Iyengar, a lawyer, in the Hindu, a There are other reasons to worry. Satis- cision on triple talaq was, more typically, daily newspaper. fyingthough the jailingofMrSingh was for obscure and timid. Only three in a panel of Encouraging though such rulings may many Indians, his trial had dragged on for five judges ruled in favourofa ban: one did be, dealings with India’s lower courts are well over a decade: the rapes for which he so by arguing that instant divorce contra- likely to remain as frustrating as ever. With was convicted occurred between 1999 and vened not India’s constitution but Islamic a backlog of some 25m cases and fewer 2001. Police say several other victims had law. “Despite a 397-page judgment from than 20,000 judges to handle them, it will initially come forward, but later retracted the highest court in the land, ‘somehow’ is still take years for most complainants to their accusations, apparently fearing retri- the best answer we have to the question of have a chance ofobtaining justice. 7 34 Asia The Economist September 2nd 2017 Banyan An American wrecking-ball?

Donald Trump is undermining Asia’s American-led order. But it may outlast him in Asia is also creaking. Mr Trump hasyet to fill swathes ofsenior positions in the State Department, including the key position of assistant secretary ofstate forEastAsia. The accomplished official keeping the seat warm, Susan Thornton, cannot hope to have the clout ofa political appointee. The morale ofAmerican diplomats slumps as their advice is dismissed and steep budget cuts loom. With the grown-ups’ attention distracted by old quagmires such as those in the Middle East and Afghanistan (areas they are far better acquainted with than East Asia), it all adds up to a rele- gation of East Asia in American priorities, say the severest critics of the Trump administration in the region. The North Korean threat and trade frictions with China, they say, are the only pro- blems in this part of the world that Mr Trump has time for. Mr Trump’s approach indeed contrasts with the “pivot” to Asia es- poused by his predecessor, Barack Obama: the reassurance of al- lies through trade, diplomacy, defence ties and the encourage- ment of representative politics. It involved a policy towards China that both hedged against and engaged with America’s big- gest trade partner and strategic rival. The strategy did not make a huge difference, butwhatlittle substance ithad, except perhapsin the military domain, is now gone (and thuggish leadership from F AMERICA is the biggest loser from the election of Donald Thailand to the Philippines goes uncriticised). Mr Trump’sprinci- ITrump, can Asia not claim at least second place? Many policy- ple is to despise anything that Mr Obama held dear. makers and Asia hands argue so. In just seven months Mr Trump American prestige in Asia is suffering. A recent poll conducted has swung “a wrecking-ball into the complex and long-standing by the Pew Research Centre in Washington found that, among machinery” of America’s relations with the Asia-Pacific region, Japanese, confidence in America to do the right thing in world af- writes T.J. Pempel ofthe University ofCalifornia, Berkeley. Such a fairs was 54 percentage points lowerthan it was when MrObama view is widely shared across Asia: that American leadership, was president. Among Australians it had fallen by 55 points and which has underpinned the regional order since the second among South Koreans by 71points. In no Asian country surveyed world war, is in peril under Mr Trump. did America’s image come close to improving. The list ofconcerns is long. Not only is the American president unpredictable. He lacks intellectual engagement in foreign policy The China factor and disdains diplomacy itself, except when it is conducted via But this does not amount to the end of the American-centred or- bombastic tweets. He has ended America’s commitment to mul- der in Asia. For a start, who would take America’s place? Certain- tilateral trade in Asia, pulling it out of negotiations for a 12-coun- ly not members of the BRICS, a club comprising Brazil, Russia, In- try Trans-Pacific Partnership, a free-trade grouping encompassing dia, China and South Africa. Its leaders meet next week in the two-fifths of world trade. Economists say this deal would have Chinese city of Xiamen with a sense, among some of them, that made all parties richer; Mr Trump dismissed it as “an attack on the strategic advantage is now theirs. Yet its two most populous American business”. He was also quick to accuse old allies such members, China and India, defused a months-long stand-off be- as Japan and South Korea of unfair trade practices as well as of tween their soldiers along their high Himalayan frontier only freeriding on American security guarantees. days before it would have spoiled the love-in. The fact that both Admittedly, Mr Trump has changed his tune as the nuclear sides claimed victory suggests the matteris farfrom over. Bilahari threat from North Korea has become ever scarier. But his promise Kausikan, a Singaporean diplomat, dismisses BRICS as “more a in early August to unleash “fire and fury” ifKim Jong Un’s regime slogan than a geopolitical concept”. continued itsthreatsseemsneitherto have reassured South Korea China would disagree. Itlikesto thinkofforumssuch asBRICS and Japan, nor deterred the North from its frantic pace of missile and the Shanghai Co-operation Organisation—a grouping main- development. On August 29th it launched an intermediate-range ly of Central Asian countries as well as China, Russia and In- missile, thought capable of carrying a nuclear warhead, that dia—as the building blocks of a new China-led order in Asia. But streaked over northern Japan before crashing into the Pacific, China is reluctant to push this idea too hard. It has been the most causing jitters under its flight path. striking beneficiary to date of Pax Americana, which has provid- After this latest provocation, the Trump administration ed a stable environment forspectaculargrowth across the region. avowed that it stood firmly behind both Japan’s prime minister, Even China’s chief geostrategic initiative, its “belt-and-road” ef- Shinzo Abe, and President Moon Jae-in of South Korea. Many of fort to foster infrastructure links in Asia and beyond, is no rival to America’s friends in the region give a prayer of thanks for the the current order but is expressly built atop it. Meanwhile, its bul- “grown-ups” in his government: the supposedly steady hands of lying behaviour in the region simply reinforces the desire of Rex Tillerson, the secretary ofstate; James Mattis, the defence sec- many Asian countries forgreater American protection. retary; and H.R. McMaster, the president’s national security ad- Despite MrTrump’swrecking-ball, America’spresence in Asia viser. Yet others are nervous. There are growing signs of mutual has foundations that are too deep to be destroyed in a single pres- disgruntlement between Mr Trump and these lieutenants. The idential term. Mr Kausikan says the edifice is stronger than it ap- diplomatic machinery that drives America’s day-to-day relations pears. China knows it, or at least so its neighbours hope. 7 JOE NAVARRO EX-FBI AGENT

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TRY IT FREE gre.economist.com/freetrial China The Economist September 2nd 2017 37

Traditional Chinese medicine Ithasdeveloped partlybecause ofhuge de- mand for preventive medicines that peo- Health care with Chinese ple believe will help avoid the need for more expensive treatment in hospital. And characteristics for some, acquiring the costliest TCM pro- ducts such as caterpillar fungus has be- come a status symbol. “In the past few BOZHOU, ANHUI PROVINCE years,” says Li Ning of Kang Mei Medicine, a large health-care company, “there has Traditional medicine is booming in China. But is it good forpublic health? been wider recognition [of TCM] because ANG YUAN gazes around his crowded supposedly aids recovery from athletic in- people have more money in their pocket Fshop and says happily that business is juries. And there are boxes of Tibetan cat- and care more about their well-being.” booming. He has a reliable supplier in Rus- erpillar fungus or “the Viagra of the Hima- TCM has also benefited from the atten- sia and hospitals and pharmaceutical com- layas”, a gram of which can sell for more tion paid to it by Xi Jinping, China’s presi- panies are queuingup to buy what he sells: than the same weight of gold. This is the dent. Mr Xi calls it “the gem of Chinese tra- antlers. Tangles ofthem lie in huge meshes market that sets prices for Chinese herbal ditional science” and says he uses it. “TCM on the floor. Thousands more, sliced into medicine throughout the country. Before is in its golden age,” he claims. He urges discs, fill glass boxes. They are used to treat 9am itssamplingroom isoverflowingwith practitioners to “push for TCM to step onto breast disease in traditional Chinese medi- wholesale buyers. the world stage”. Since 2012, the year Mr Xi cine (TCM). The shop looks a bit like a Scot- The market in Bozhou is both a symbol came to power, the Communist Party has tish baronial hall. Deer-head trophies gaze of an extraordinary boom in TCM, and a been insisting that traditional medicine be down from the walls, as does a red-fronted consequence ofit. The numberofhospitals made equal in status to what China calls gazelle with black horns like scimitars. “I offering TCM in the country of its birth (ei- “Western medicine” (ie, the modern form). don’t sell those,” he says hastily. “Endan- ther by itself or in combination with regu- Since then, the government has issued a gered list.” lar medicine) grew from roughly 2,500 in stream of plans, policies and instructions Mr Fang is a trader at the world’s largest 2003 to 4,000 at the end of 2015. Since 2011 aiming to make it readily available to market for TCM, a system of diagnosis and the number of licensed practitioners has everyone in China by 2020. treatment that goes back 2,500 years. The increased almost 50% to 452,000. Around scale of the business is staggering. The 60,000 TCM medicines have been ap- More doses of one’s own medicine small town where the market is located, proved by the government’s food and drug Early in 2016 the government published a Bozhou, is three hours drive from the near- regulator. These account for almost a third blueprint for developing TCM over the est railway station. Yet the main market of China’s pharmaceutical market, the next 15 years. Traditional medicine, it said, (pictured) is the size of a football stadium. world’s second largest. In 2015 patients should have equal status in law with mod- Mr Fang is one of almost 10,000 traders— made 910m visits to TCM hospitals and ern medicine; it should also be regulated four times as many as there are shops in doctors, which, the government said, ac- like other types. A “white paper” issued at the colossal Mall of America in Blooming- counted for 16% of total medical care, up the end of last year said TCM would play a ton, Minnesota. from 14% in 2011. big role in reforming the health-care sys- They sell every medicinal ingredient It has been a stunning resurgence for a tem because ofits relatively low cost. imaginable. There are chips of agarwood, practice that was rejected as superstitious Then, in July, came China’s first TCM smoke from which is said to clean the after the fall of the Qing dynasty in 1911. law, which lays down safety standards for lungs. There are dried frogs, gekkos and TCM is still regarded with deep suspicion TCM drugs and the ingredients that go into deer penis which, dissolved in alcohol, by Western-trained doctors and scientists. them. It imposes controls on farms which 1 38 China The Economist September 2nd 2017

2 grow medicinal herbs (banning certain fer- could make a big difference. future of traditional medicine itself. Wen tilisers, forinstance) and on medical manu- A government document called Jianmin of the Wangjiang TCM hospital in facturers which produce TCM pills. It also Healthy China 2030 says that without bet- Beijingsaysthe ban on the use ofsome ani- loosens some professional requirements. ter primary services, the health-care sys- mals has already led to the extinction of In the past, TCM doctors had to qualify as tem will not be able to keep up with the de- some famous traditional remedies. “If we conventional doctors first and then be li- mands of the ageing population. But an don’t protect TCM better, Chinese medi- censed for traditional medicine. The new acute shortage of general practitioners is a cine will exist only in name,” he says. law makes it possible to become a licensed huge impediment. Even a patient with a The government also needs to improve TCM doctor by passing local exams in prac- minor ailment usually goes to see a spe- safety standards. One example: a genus of tical skills and getting recommendations cialist. This adds both to costs, since con- plants called aristolochia, used against ar- from two others with licences. Some sultationswith such doctorsare expensive, thritis, turns out to be carcinogenic. But the health professionals worry that this opens and to horrible overcrowding in hospitals. government’s desire to improve safety im- the door to more quackery. The government would like more people plies more standardisation, and that con- Its proponents respond that TCM can to visit local clinics instead. But many peo- tradicts the TCM belief that each treatment improve both public health and the ple are reluctant to see GPs, regarding them should be custom made. In 2016 the food health-care system. Traditional medicine as inferior to specialists. They might, how- and drug regulator revoked 81 licences of relies on herbal and other natural reme- ever, be willingto go to a TCM clinic. Open- TCM makers. Yan Xijun, of Tasly group, a dies, not expensive diagnostic machines. ing more ofthem could offersome relief to medical firm, saysthatofTCM pharmaceu- According to the white paper, average in- the hospital system. tical companies that do have licences, “it’s patient expenses per visit at public TCM When administered with caution, TCM fair to say 50-60% of them more or less hospitals were 24% lower than at general can sometimes help people, at least as a have problems that need solving.” public hospitals; outpatient expenses were placebo. But China’s efforts to promote it Training TCM doctors in modern medi- 12% lower. If TCM is as effective as Western as an equal of conventional medicine are cine would also be a huge help. The gov- medicine—a bigif—then it would appear to fraught with danger. They could result in ernment says that traditional medicine be an efficient means ofimproving health. even more patients with serious illnesses should complement the normal kind. That shunning regular treatments in favour of will require doctorswho are skilled in both If only there were proof traditional ones. They could also pose an types and who can advise patients when But evidence that TCM works is scanty. even greater threat to rare species that are they should be using modern methods of Clinical trials in scientific journals have re- often—despite bans on their use—turned treatment. However, few TCM doctors in ported some examples of effective TCM into TCM drugs. Toreduce such risks, big re- China can straddle the two disciplines. treatments, for example against migraines forms are needed in the way China man- The new law, which relaxes requirements and obesity. They have found some cases ages TCM. that they understand medical science, is a where TCM works well in combination Far tighter controls on the use of ani- step in the wrong direction. with Western medicine, for example, in mals and plants are needed. According to The long-term goal should be to estab- treating schizophrenia. However, the over- Meng Zhibin of the Institute of Zoology in lish a health-care system that relies on all record is poor. Beijing, 22% of the 112 most commonly modern medicine and that provides the America’s National Institutes of Health used natural ingredientsforTCM are on va- kind of preventive treatment that TCM looked at 70 systematic reviews of TCM rious endangered-species lists. Some are claims to offer. The government is exagger- treatments. In 41 of them, the trials were from herbsthatcan be grown on farms, but ating TCM’s effectiveness. Use of it is so too small or badly designed to be ofuse. In some are from rare animals that are usual- widespread in China partly because few 29, the studies showed possible benefits ly captured and smuggled into the country. are willing to challenge the science behind but problems with sample sizes and other Trade in pangolin, an anteater, is banned it. TCM is distinctly Chinese—to question it flaws meant the results were inconclusive. worldwide. But Wang Weiquan of the Chi- is often construed as unpatriotic. Striving Shu-chuen Li of Newcastle University in nese Medicine Association says smuggling formodernity while clinging to tradition is Australia found that only a quarter of the continues because domestic pangolin a familiar struggle in China. As the pro- studies he looked at showed some bene- farms are not big enough. TCM proponents blems of TCM show, achieving the right fits, but most ofthese were marginal. do not seem to care. They worry about the balance is harder than it looks. 7 One aspect ofTCM that may be ofsome help is its focus on prevention rather than cure, says Martin Taylor of the World Health Organisation’s mission in Beijing. TCM doctors aim to see their patients of- ten, partly because the remedies they offer are supposed to be tailored to the individ- ual and need fine-tuning. An axiom of TCM is that good doctors cure diseases be- fore they appear. Asa result, more attention to traditional medicine implies more attention to prim- ary health care, which is best able to mon- itor the progress of patients with lifestyle- related ailments (such as obesity) and the diseases of ageing. Though a middle-in- come country, China has the disease bur- den of a rich one: non-communicable dis- eases such as heart disease and diabetes cause 85% of all deaths. If TCM doctors can suggest better diets or persuade the half of adultmen who smoke to give up, then they Keeping up tradition on a street in Shanghai Middle East and Africa The Economist September 2nd 2017 39

Also in this section 40 After the caliphate 40 Oman and the Qatar crisis 41 A tale of two kleptocracies 41 Costly public homes in Ethiopia 42 Raising rats in Ghana

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

Islamic State fered the jihadistsescape routes. Hundreds of fighters are said to have passed through Lowering the black flag the lines of the Iraqi army and Kurdish forces, known as the Peshmerga. “The bor- ders are simply too porous,” said an Iraqi official. In Lebanon, IS fighters negotiated with Hizbullah, a Shia militia, to arrange a BEIRUT safe passage eastward out of their moun- tain redoubt, in exchange for returning the The jihadists ofIslamic State are fighting fortheirsurvival corpses of Lebanese soldiers. American T IS less a chaotic rout than a tactical re- nearby mountain of Sinjar and helped run forces have blocked them from joining up Itreat, but suddenly Islamic State (IS) is IS’s ghastly trade in sex slaves. with their comrades in Deir ez-Zor. losing ground quite fast. At both ends of its Iraq’s army, therefore, expected to face But even where there are no such exit self-proclaimed caliphate, the jihadist fierce resistance from 2,000 or so jihadists routes, IS is giving up ground. The Syrian group is ceding territory. It quietly with- in Tal Afar. Instead it met farfewer. The con- Democratic Forces, a joint Kurdish and drewfrom Tal Afar, the largestIraqi citystill trast with Mosul, where nine months of Arab force trained and armed by America, under its control, on August 27th. street-by-street combat leftthe city in ruins, have taken two-thirds of Raqqa since Simultaneously, hundreds of IS fighters is stark. Observers who entered Tal Afar launching an assault on the city in June. IS and their families emerged from their after the battle found few dead bodies. The affiliates are in retreat in southern Syria, caves in the Qalamoun mountains, astride city centre was largely unscathed. Fewer around Deraa, too. Lebanon’s border with Syria, and boarded than 100 Iraqi soldiers died in the fighting, The jihadists can still tap into seething buses heading east. Trapped between Syri- says an official, compared with many sectarian resentment. Displaced Sunnis la- an and Lebanese forces on the ground, and thousands in Mosul. mentthe levellingofthe old citiesof Mosul Russian bombardment from the air, they This is partly because of topography. In and Raqqa, and say Tal Afar was spared gave up after a weeklong battle. Tal Afar, Iraq’s soldiers did not have to only because it has many Shias. Over 700 Increasingly, the jihadists are being squeeze through tight alleyways, as they civilians have been killed by American air squeezed into a ribbon along the Euphra- did in the old city of Mosul. They also of- strikes and artillery shells in Raqqa, ac- tes valley. Having lost the Iraqi city of Mo- cording to Airwars, a monitoring group sul, and on the retreat in the Syrian city of 200 km based in London. Some 20,000 civilians Raqqa, their last redoubt is likely to be the TURKEY are said to be holed up with as many as city of Deir ez-Zor, in eastern Syria. But 2,500 jihadists in the old city. Aleppo Sinjar Mts. Mosul IS here, too, they are vulnerable: the Syrian Raqqa Tal Afar still has some strength to counter-at- armyretainscontrol oftwo enclaveson the Med. Kirkuk tack. On August 29th it captured a tank and Sea SYRIA Deir ez-Zor western edge ofthe city. Dura Europos heavy artillery in Raqqa. It appears to be al-Mayadin T i making a stand in the town of al-Ayadiya, The acceleration of the jihadists’ retreat g Palmyra Abu Kamal r i LEBANON s has taken everyone by surprise. Tal Afar Qalamoun Mts. E outside Tal Afar. And it can always resort to uph ra had served as the garrison linking Raqqa, Beirut al-Tanf te Baghdad terrorism: Karrada Dakhil, a favourite IRAQ s the caliphate’s putative capital, with Iraq. Damascus shoppingstreetin Baghdad, hasagain been Deraa Trebil Several of its leaders were Sunni Turkmen ANBAR closed to cars forfear ofbombs. from the city—two were deputies of Abu JORDAN But as a territorial state IS appears Amman Bakr al-Baghdadi, the self-declared caliph. SAUDI ARABIA spent. The administration and provision Many of its feared religious police, the his- ISRAEL of services, of which it once boasted, have bah, were also from Tal Afar. They led a Area controlled by Islamic State, August 2017 all but collapsed in much of the territory Source: Institute for the Study of War massacre of the Yazidi minority below the still under its control. Electricity and run-1 40 Middle East and Africa The Economist September 2nd 2017

2 ning water have vanished. Food stocks are ebbing, too. Local IS fighters are complain- Oman and the Qatar crisis thin. Medical care in Raqqa is reserved for ing more loudly that foreigners still enjoy fighters. “IS does not treat civilians,” says free food and health care, whereas they A port in the storm an anti-IS activist in the city. “They die of face wage cuts. “On the front line fighters their injuries.” Families flee, defying the don’t obey the rules any more,” says a for- group’s orders. They must dodge jihadist mer militant, who notes that many smoke. snipers and avoid landmines laid to keep Religious zeal is no longer enough to spur MUSCAT them hostage. Still, Iraqi soldiers pushing the jihadists into action. In the caves IS The tiny sultanate is making the best of into Tal Afarfound most homes empty. abandoned in Qalamoun, Lebanese sol- a bad situation Fighting on many fronts, IS finds itself diers found Captagon pills, a stimulant of- stretched. In one district of Deir ez-Zor the ten taken before battle. HE Omani port of Sohar usually slows group has cut the number of religious po- Months of fighting may yet lie ahead, Tdown during the summer. But this year licemen as it diverts men to the battlefront. but the trajectory is clear. As its forces ad- it is buzzing. According to a government of- It has also sharply reduced its suicide- vance, Iraq recently reopened its border ficial, cargo volumes are up by 30% in the bombings in and around Raqqa. For the with Jordan at Trebil. Syrian government past few months, as more ships arrive car- first time it is enforcing military conscrip- forces are pushing east from Palmyra to- rying goods bound for Qatar. Such is the tion on men between 20 and 30 in Deir ez- wards Deir ez-Zor. IS’s leaders are probably level of traffic that the Qatari ambassador Zor. The pullout from Lebanon and Tal hiding in riverine towns such as Abu Ka- to Oman hails the sultanate’s ports as the Afar should bring reinforcements to IS in mal and al-Mayadin, as they prepare for new gateway to his country, supplanting Syria, but internal discipline seems to be their last stand. 7 the port of Jebel Ali in Dubai, which is part ofthe United Arab Emirates (UAE). Oman sits at the entrance to the Persian After the caliphate Gulf, but beyond the Strait of Hormuz there is discord. On the western and south- The next scramble ern shores lie Bahrain, Saudi Arabia and UAE BEIRUT the , which have cut diplomatic and commercial ties to Qatar, their neighbour, As Islamic State withers, the alliance against it is fraying over its alleged support for extremists and OWN the Euphrates river, halfway Rubaie, an Iraqi formersecurity adviser. ties to Iran. Oman has stayed out ofthe dis- Dbetween Deir ez-Zor and Syria’s Ifso, they will help Iran increase its influ- pute. It is helping Qatar to bypass the siege border with Iraq, lies Dura Europos, an ence by forminga quasi-border guard and quietly benefiting from the crisis. ancient metropolis where the Parthians and creating a bufferagainst the Kurds. Oman has often acted as a mediator of ofPersia sparred with the Roman Empire Farthersouth, America’s hopes of squabbles in the region. But early in the for control ofthe Middle East. History, it stemming Iran’s advances through Anbar current crisis, the sultanate showed where seems, is repeating itself. AsIslamic State province have been frustrated, too. A its sympathies lie. When Qatar Airways, (IS) withers, America’s coalition is racing contract won by Olive Group, a subsid- the national airline, was barred from Saudi to secure the same stretch ofriver, before iary ofConstellis, an American security airspace in June, Omani aeroplanes (rent- Iran and its allies. company, to patrol the Baghdad-to-Am- ed by Qatar) ferried stranded passengers Never have America and its allies had man highway is “not proceeding”, says from Jeddah to Doha. Since then, ties be- such a hold on Syrian territory. In the an adviser to Iraq’s prime minister. In- tween the sheikhdoms have strengthened. north, America has worked with the stead, he says, the PMU and Iraq’s army Nearly 150 Qatari investors showed up for Kurds to carve out a self-governing re- will take the lead. a recent event in Muscat to promote invest- gion. From there it provides support for America and Iran are not about to ment in Oman. Only 20 were expected. “A Kurdish and Arab forces pushing down start fighting each other directly. After lot of deals were inked,” says an Omani the northern bankofthe river. Its Syrian years ofrivalry over Syria, the Americans businessman. proxies have fanned out in pockets have agreed to “zones ofde-confliction” “We benefit [from the standoff], but we around the border with Jordan, from with the Russians. And in Iraq, America don’t want to be seen to benefit,” says an Deraa to north ofal-Tanf, a coalition base. and Iran have largely co-ordinated their Omani official, wary of irritating Saudi But like their Parthian forebears, Iran anti-IS campaigns. Brett McGurk, an Arabia. Oman has a well-earned reputa- and its allies have the upper hand. The American official, has often met Hadi tion for pushing back against Saudi domi- Syrian army, backed by Iran’s Quds Force, al-Amari, perhaps the most powerful and nance in the Gulf. Its ageing ruler, Sultan and Shia and tribal militias are pressing pro-Iranian PMU leader. Defying predic- Qaboos, has stymied big regional initia-1 on Deir ez-Zor, with the help ofRussian tions, flare-ups between the parties air cover. In the north, they have reached fighting IS have been rare. the southern bankofthe Euphrates. That could change once they lose their IRAN Soldiers coming from Palmyra have common enemy. “As long as we’re at war IRAQ crossed over100 miles ofdesert. In the with IS, it doesn’t matter whether the Iraqi army, the Peshmerga or the Hashad The south, they have reached Iraq’s border. Gulf Iran’s gains are even more striking holds territory, as long as it isn’t IS,” says KUWAIT elsewhere. Hizbullah, its Lebanese Shia an Iraqi official. “But once we declare BAHRAIN Doha Dubai militia, is basking in plaudits for expelling mission accomplished, that will change.” Riyadh QATAR Strait of Hormuz UAE IS from Lebanon (though some have Kurdish leaders in Iraq are planning a Sohar Muscat criticised the deal it cut with the jihadists, referendum on independence in Septem- SAUDI ARABIA OMAN which allowed them to retreat). In north- ber, to be held not just in the three prov- Duqm west Iraq, the Iranian-backed Hashad inces that form theirautonomous region, Red al-Shabi, or Popular Mobilisation Units but in disputed territories taken in the Sea PMU PMU INDIAN ( s), are ascendant. They have retaken war, such as the city ofKirkuk. YEMEN OCEAN Tal Afarand will keep it, says Mowaffaq leaders say that won’t happen. Gulf of Aden 500km The Economist September 2nd 2017 Middle East and Africa 41

2 tives,includingeffortstocreateasinglecur- sible. In the past year, a dispute over the rency.Like Qatar, Oman also has good ties succession of a traditional chief in Kasai, a with Iran. So it sees a cautionary tale in the region on the Angolan border, has turned crisis. If Qatar can be punished for its inde- into a bloody insurgency against the gov- pendent outlook, who is to say Oman ernment. Over 1m people have been dis- won’t be next? placed, tens of thousands of whom have Oman’s response has been quietly to flooded into Angola. A series of prison reduce its reliance on its closest neigh- breaks, including one involving 4,000 de- bours. As well as enhancing its ties with tainees in Kinshasa, has put even peaceful Qatar, it has forged new trade links with parts ofthe country on edge. Iran. A $3.6bn loan from China, signed in The Southern African Development early August, helped Oman to fund gov- Community, of which Congo and Angola ernment spending for the year. In the past, are members, has accepted Mr Kabila’s de- the sultanate turned to Saudi Arabia or the lays in organising elections. But that will UAE forcash. China is also investing heavi- not last. On August19th Sindika Dokolo, an ly in the port and industrial zone of Duqm, art-collecting Congolese businessman which an analyst describes as “like a Chi- who is the son-in-law of Mr Dos Santos, nese economic city”. and other Congolese activists published a The bullying of Qatar has set the whole “manifesto” telling Mr Kabila to step down region on edge. Mediation effortsbyAmer- and callingforcivil disobedience if he does ica, Germany and Kuwait have failed to re- not by the end ofthe year. Mr Dokolo, who solve the dispute. Qatar’s decision on Au- Dokolo, a man with a manifesto surely has the backing of his father-in-law, gust 23rd to re-establish full diplomatic ties has also met Moïse Katumbi, another with Iran seems to indicate a hardening of pends in part on Angolan support. But as wealthy Congolese exile, who aspires to its position. For now Oman benefits. But if Angola inaugurates a new president, to re- replace Mr Kabila. Mr Dokolo’s activism the feuding continues to undermine the place José Eduardo Dos Santos, its egre- has clearly unnerved the Congolese. In stability of the one part of the Middle East gious dictator for the past 38 years, rela- July,a court sentenced him in absentia to a that has been largely free of turmoil, that tions between the two countries may be year in prison forreal-estate fraud. will not be good foranyone. 7 tested. Mr Dos Santos, who retains vast influ- Angola and Congo are intimately ence in Angola, fears chaos in Congo. He linked by geography. First, there is oil—the alsowantstobeontherightsideofwhoev- Angola and Congo mainstay of Angola’s economy. Cabinda, er succeeds Mr Kabila. (He has painful the exclave where much of Angola’s oil is memories of a predecessor, Mobutu Sese Ataleoftwo produced, is separated from the mainland Seko, who was openly hostile.) Mr Kabila by a strip of Congo. Much of Angola’s off- is clinging tightly to his throne, but if he kleptocracies shore oil production happens in Congo- starts to lose control, his southern neigh- lese waters. Second is the 2,600km border bours may well give him an extra shove. 7 between the two countries. During the KINSHASA long civil war in Angola, enemies of the MPLA, its ruling party, found in Congo a Public housing in Ethiopia Why Angola meddles so much in Congo useful hiding place. That has put the coun- N THE nightclubs of Kinshasa, the rau- try “at the top of Angola’s foreign-policy Not for the poor Icous capital of the Democratic Republic priorities” forthe past 20 years, says Steph- of Congo, adverts are everywhere forCon- anie Wolters of the Institute for Security anymore golese beer. From Primus, one of the big- Studies, a think-tankin South Africa. gest brands, with its label in the colours of Of the many countries that have med- ADDIS ABABA the national flag, to Mützig, a German- dled in Congo since the end of the cold Ethiopia is struggling to make housing themed lager, there is a choice that would war, Angola has arguably wielded the affordable be enviable in other African countries. The strongest influence. During the second brews are typically served in intimidating Congo war in 1998, when Rwanda and LEVEN years ago Elsa, a middle-aged 750ml bottles. Yet these days, askfor a beer Uganda attempted to depose Laurent Ka- Ewidow, won the lottery. The prize was and you are as likely to be given a can of bila, Joseph’s father and president at the not cash, but the deed to a spacious, three- Cuca, a less appealingAngolan fizz. It is not time, it was Angolan (and Zimbabwean) bedroom flat in Addis Ababa, the capital of just beer: walk through a Kinois supermar- troops who stopped the advance. In 2001, Ethiopia. Today she lives there with her ket and every other product seems to be as the war raged on, Laurent Kabila was as- four adult children. The deed, now lami- from Angola. sassinated. Angola was one of several sus- nated, hangs proudly on her wall. For over a year Angolan goods have pects, and helped engineer the succession Elsa is a beneficiary of Ethiopia’s pub- flooded into Congo—so much so that on ofhis son. lic-housing scheme, one of the most ambi- August 28th the government announced Angola has backed Mr Kabila, but its tiousin Africa. Since itbegan in 2006, some that it would try to ban the imports. Con- support is limited. When he refused to give 250,000 flats have been built and trans- golese businessmen complain that they up power at the end ofhis second term last ferred to people in Addis Ababa and other cannot compete with Angolan traders, be- year, as mandated by the constitution, An- towns. Like Elsa, they are nearly all win- cause their aim is not to make a profit, but gola pressed him to negotiate with the op- ners of a computerised lottery, which allo- to acquire dollars (access to which is re- position. He did, leading to a power-shar- cates flats as they become available. The stricted in Angola). Yetit is not just Angolan ing deal that allows him to stay in office for government aims to build 50,000 a year in economic policy that affects Congo; so too one more year while elections are organ- the capital over the next decade. do its politics. Of the country’s nine neigh- ised. But that deal is in tatters. The opposi- In theory, the programme should just bours, none matters more. The presidency tion has split and MrKabila still claims that about pay for itself. All land in Ethiopia is of Joseph Kabila, in power since 2001, de- insecurity makes holding elections impos- state-owned, which reduces upfront costs. 1 42 Middle East and Africa The Economist September 2nd 2017

2 Beneficiaries make a down payment to the Grasscutters government ranging from 10% to 40% of the price ofthe flat, which issetby the state. They then pay off the rest over a ten- to 20- The challenge of raising rats year period. A state-owned bank holds the KUMASI mortgage, providing generous terms. A large rodent shows why it is hard to stop bushmeat hunting in Africa But the prices charged by the govern- ment were too low to sustain the pro- HE cane rat, a large, blunt-nosed but nearly halfofthem have died. Some gramme. So it has had to hike them. Now Tversion ofits urban cousin, looks could not tolerate the cold harmattan poor Ethiopians cannot afford the down docile enough. But it has a taste for fin- winds that blow down from the Sahara. payments foreven the most subsidised un- gers. “Youneed skill to be able to handle Others got stressed and rammed their its. Those who can often struggle to pay them,” says Francis Ababio, who teaches heads into cage walls. their mortgages. Many opt to rent out the students how to rear the rodents, also The academics are now trying to flats and move elsewhere. known as grasscutters, at Kwadaso Agri- sequence the grasscutter’s genome, in the In the face of this fiscal reality, the gov- cultural College in Kumasi, Ghana’s hope ofbreeding more docile animals. ernment has changed its focus. In 2013 it in- second city.Grasscutter meat is a delicacy But farmers already consider the rodent troduced a scheme explicitly aimed at the in the country’s cities and a part ofrural an expensive investment. Rabbits are middle class—those who could afford diets. Digested grass found in its stomach pregnant for just one month and can be down payments of 40%—and announced is also said to make delicious soups. sold formeat when they are two to six that people who had saved the whole Most grasscutter meat still comes from months old. Grasscutters, by contrast, price of the property would skip the lot- the wild. But conservationists and offi- take up to 13 months to mature and five tery and head to the front of the queue. cials are trying to curtail bushmeat hunt- months before they give birth. Farmers While waiting, applicants have to keep ing because ofconcerns that it is wreck- are also undercut at the market. In the putting money into a savings account. If ing the environment and upending food crowded centre ofKumasi women selling they stop, they are tossed off the list, fur- chains. The Ebola outbreakin 2014 dent- the hairless carcasses ofwild grasscutters ther weeding out the poor. ed demand, but some 579m forest mam- quote prices between 30 and 55 cedis Ethiopia is not alone in its struggles. mals, from monkeys to porcupines, are ($7-12). Mr Ababio says the cage-raised Public-housing programmes have a long eaten every year in central Africa, accord- sort are sold for80-120 cedis. history offailure in Africa. They have often ing to the UN. A study by Goethe Univer- Grasscutter connoisseurs also claim focused on large-scale developments on sity Frankfurt found that 39% offorests in that the wild animals, because they eat a the edges of cities—and proven unafford- the Congo Basin are under severe pres- wider variety ofgrasses, are both tastier able. Arecent project on the outskirts ofLu- sure from hunting. and better foryou. “Why would some- anda, the capital of Angola, offers flats So governments are trying to domes- one pickan animal God has created to be starting at $84,000 in a country where the ticate wild animals. Take the grasscutter. wild…and feel that they can cater for per capita income is just over $6,000 and Since at least the mid-1980s, officials them?” asks Afia Ajyeman, who has been the median is far lower. In Cameroon the across Africa have urged people to farm selling grasscutters in Kumasi for 60 government’s flagship housing pro- it. A decade ago a study by Germany’s years. She refuses to buy from farmers. gramme is out of reach for 80% of the pop- development agency counted more than So it is no wonder that efforts to push ulation, says the World Bank. South Africa 1,500 such farmers in Ghana. But the bushmeat hunters into other livelihoods has built some 3m houses since 1994, rodents are difficult to raise. A project by seem to be making little headway. A which are doled out free of charge, but the University ofGhana and Kyoto Uni- review ofsuch projects by the Interna- most are in poor shape. versity has handed out183 grasscutters to tional Union forConservation ofNature Officials in Ethiopia talk of moving 49 farmers in Ghana since 2014. Those concluded bluntly: “In short, we do not away from public provision and of allow- have produced more than 200 babies, know how effective they are.” ing foreign firms to participate in the hous- ing scheme. To aid the poor, analysts rec- ommend that the government give them land and help them to build their own homes. Boosting the amount of land avail- able to private developers might also help. Because the government keeps a tight grip on supply, the price of land is steep. In the commercial centre of Addis Ababa a lease can now cost as much as $15,000 per square metre. Despite the high prices, demand for public housing continues to rise. When a second round ofregistration forthe homes opened in 2013 over 1m people, including Elsa’s 25-year-old daughter, Miqnay, signed up. But many have given up hope. Elsa doesn’t expect Miqnay to receive a flat within the next decade. Thousands who registered back in 2005 are still waiting. “Twelve yearsreallyisa joke,” saysan exas- perated employee at the official centre for commerce in Addis Ababa. “Everybody hasconcluded thatthe governmentcannot The irresistible allure of rat on a platter do it anymore.” 7 Europe The Economist September 2nd 2017 43

Also in this section 45 Germany’s Free Democrats 45 Multi-parent Dutch families 46 Reforesting France Charlemagne is away

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Turks in Europe Relations between Turkey and the EU democracies have degenerated further in Home and away the run-up to Germany’s election on Sep- tember 24th. Mr Erdogan has called on Turkish Germans to shun both parties in the ruling coalition, as well as the Greens, for showing “enmity” to Turkey. German COLOGNE politicians these days seem to be compet- ing to criticise Mr Erdogan’s government. How a large diaspora complicates Europe’s relations with Turkey Germany now wants the EU to consider UROPE’S relations with Turkey have powers, compared with just over half at cutting budgetary support to Turkey worth Elong been coloured by mutual fascina- home. Mr Erdogan has three aims in at- billions of euros, and to suspend customs tion, dependence and mistrust. Spell- tending to the diaspora, says Sinan Ulgen, talks. bound after visiting Constantinople in an analyst in Istanbul: to advance Turkish The modern era of German-Turkish re- 1898, Kaiser Wilhelm II of Germany wrote interests abroad, to seduce nationalists at lations began with a guest-worker treaty to his friend Tsar Nicholas II, “IfI had come home, and to stack up votes in his deeply signed in 1961, one of several agreed upon there without any religion at all, I certainly polarised country. by West Germany after the Berlin Wall would have turned Mahommetan!” But if Some European politicians have long starved its booming economy of eastern today’s Europeans rely on this awkward bristled at Mr Erdogan’s electioneering in European labour. The Turkish workers partner to keep refugees away and share their cities. But their number has increased were meant to leave after two years, but intelligence on terrorists, Turkey’s slide as Turkey’s relations with European gov- this rotation clause was removed at the re- into paranoid authoritarianism under ernments, especially Germany’s, have quest of employers who liked the hard- President Recep Tayyip Erdogan makes it a crumbled amid Mr Erdogan’s obsession working immigrants. Yet for decades West far less enticing partner. Jean-Claude with rooting out supporters of Fethullah German governments maintained the fic- Juncker, president of the European Com- Gulen, an exiled cleric, following last tion that the workers would one day go mission, said this week that Turkey is leav- year’s failed coup. In July Turkish police ar- home, even as they imported theirfamilies ing Europe with “giant steps”. rested six human-rights activists, including and sent their children to local schools. The relationship is complicated by the a German citizen. A furious Sigmar Gabri- economic and military ties that bind Tur- el, Germany’s foreign minister, issued a tra- A troubled history key and Europe, but above all by the large vel warning and threatened to cut off cred- The debate eventually moved on; in 2000 number of Turks, and their descendants, it guarantees to firms investing in Turkey. legal changesmade itmuch easierfor Turks living in Europe. The Turkish diaspora Mr Erdogan has also sharpened his rheto- to acquire German nationality. But dis- numbers over 6m, most of them in west- ric. Before his referendum he accused the crimination persists. “I can understand ern Europe. ForyearsMrErdogan hasdeliv- Dutch and German governments of“Nazi” people supporting Erdogan,” says Kemal ered rousing speeches to vast rallies in cit- tactics after they barred his ministers from Dikec, a Turkish-German from Cologne ies like Cologne, urging European Turks to campaigning. He has urged European who distrusts the president. “They think, make their way in their adopted homes Turks to have at least five children in order ‘I’m not on my own any more.’” but to reject attempts at assimilation—and to counter the EU’s “vulgarism”. His gov- Plenty of Turks in Europe take little in- hinting that the triumphs he has brought ernment and its proxies have stepped up terest in their motherland. In Germany Turkeyare theirsto share. MrErdogan isthe complaints about Islamophobia in Europe, turnout for the referendum was only 49%, first Turkish leader to take the diaspora se- and delight in highlighting instances of hy- and the 800,000 who are citizens only of riously, and it shows. In a referendum in pocrisy among Europe’s governments, Germany were not eligible to vote. Yet pol- April 59% ofdiaspora Turks backed his con- such as allowing Kurdish terrorist groups iticians remain disturbed by Mr Erdogan’s troversial proposals to extend presidential to demonstrate. success in harvesting diaspora votes. “It’s a 1 44 Europe The Economist September 2nd 2017

2 disaster that people who grew up in a free governments in the 1980s as a counter to democratic land voted for Erdogan’s con- Erdogan’s overseas assets 1 more conservative outfits. Observers ac- stitutional changes,” says Serap Güler, Turkish voters abroad, total votes cast in cuse DITIB of replicating Diyanet’s politici- state secretary for integration in North April 2017 constitutional referendum, ’000 sation of religion; some imams have been Rhine-Westphalia, Germany’s most popu- % voting yes recalled from Germany by Diyanet after al- lous state and home to a third ofits Turks. 0 200 400 600 800 legations that they had spied on their own Ms Güler, herself of Turkish extraction, congregations. German ministers have considers this the “bill” for Germany’s Germany 63 suggested that the Cologne-based DITIB years of failed integration policies, but for France 65 should sever its ties with the Turkish state. others the referendum revived old con- (Ayse Aydin, a spokeswoman, says it is un- Netherlands 71 cerns about split loyalties. Turkey’s shoddy fair to treat a handful of the 800 imams it treatment of some dual citizens, such as Austria 73 employs as representative.) Other coun- Deniz Yücel, Die Welt’s Turkey correspon- Britain 20 tries have had difficulties: in Belgium, dent, detained in Istanbul since February, Flemish authorities withdrew official rec- Source: Turkish Supreme Election Council has given German sceptics of liberal citi- ognition from one of the country’s biggest zenship rules a fresh argument. In the mosques over spying allegations. Netherlands, which started thinking about background of the guest workers. Over DITIB is no stranger to controversy. It integration many years before Germany, two-thirds of adult Turks who arrived in has built a striking mosque, Germany’s Turkey’s behaviour nonetheless feeds a the 1960s and 1970s, many originally from largest, in Cologne, spooking locals who touchy debate about the role of Muslim poor and conservative parts of eastern An- disliked the visible intrusion of Islam into minorities. Nearly three-quarters of Dutch atolia, had no qualifications. Their chil- this traditionally Catholic city. The prayer Turks backed Mr Erdogan’s referendum dren often floundered in German schools, room, flooded with light from huge win- (see chart1). which sort by ability early and struggle to dowsdesigned to foster“transparency”, re- German anxieties are fuelled by long- provide opportunities to pupils from poor cently opened to worshippers; a mini-mall standingconcernsover“parallel societies”. backgrounds. Studies from the OECD put downstairs aims, as Ms Aydin puts it, to The phrase can feel relevant in neighbour- Germany near the bottom of the table in “lower fear and contact barriers” for non- hoods like Mülheim in Cologne, where getting migrant-origin children into decent Muslims, who will be invited to patronise televisions blare with Turkish news and schools, although its apprenticeship sys- the (halal) outlets when they open later cafés hum with gossip from Istanbul and tem is good at finding them work. Ger- this year. It speaks of a newly confident Ankara. But the data tell a more complex many’s migrant communities by and large German Islam even as it serves the needs story. Three-quarters of second- and third- lackthe aura ofhelplessness that can afflict of a less assured generation. “I can’t think generation Turkish-Germans have regular parts ofFrench or Belgian cities. of Germany as home,” says Recep, a mid- contact with other Germans, compared dle-aged mechanicbroughtto Cologne as a with less than half of the first generation DITIB of the spear child by his Anatolian parents, as head- (who still account for around 50% of Ger- European countries fear not just support scarved teenagers cheerfully pose for sel- many’s Turkish population). Surveys find for Mr Erdogan among their Turkish popu- fies before the mosque’s soaring minarets. German Turks growing less attached to lations, but the import ofTurkey’s patholo- DITIB’s efforts in Cologne are impres- conservative ideas like confining women gies. Since the attempted coup in July 2016, sive, butface stiffhurdles. Fully60% ofGer- to the home. Some are forging identities Turkish-German businesses suspected of mans believe that Islam does not belong in apparently grounded in beliefs they asso- Gulenist sympathies have been boycotted their country. A virulent anti-Muslim ciate with Turkey, even as their behaviour and their owners harassed. Turks in Ger- group, PEGIDA, was at one point in 2015 at- points elsewhere: they are less likely than many lower their voices when asked tracting thousands of people to rallies, their forefathers to attend mosque, but about politics, and political scientists re- though it has since faded. Rows between more likely to say they are religious. port difficulties in finding Turkish inter- governments affect everyday interactions, Detlef Pollack, a sociologist who stud- viewees. “People are increasingly unable too. Many Turkish-Germans say they feel ies Germany’s Turkish population, inter- to look into each other’s eyes,” says Cahit that they must demonstrate opposition to prets support forMr Erdogan not as a rejec- Basar, a Kurdish activist from Cologne. Mr Erdogan to earn the trust of their com- tion of democracy but as an expression of Such clefts have been aggravated, Ger- patriots; last year Mrs Merkel urged them defiance, identity and perhaps resent- man officials charge, by organisations such to “develop a high degree ofloyalty to Ger- ment. “The message [of the vote] is: please as DITIB—the German branch of Diyanet, many”. Non-partisan organisations strug- take us seriously,” he says. “We are demo- the religious arm of the Turkish state— gle to position themselves between their crats, but not on your terms.” which was established by secular Turkish commitments to human rights and what Yet problems are legion. Surveys by the they see as exploitation of the referendum Essen-based Foundation for Turkish Stud- by German politicians. ies find that Turkish-Germans in North Less at home 2 But Angela Merkel’s government also Rhine-Westphalia are increasingly likely to Country that Turks in North Rhine-Westphalia, faces a difficult balancing act: it must stand consider Turkey “home” (see chart 2); ever Germany, consider home, % polled up to Turkey’s current excesses without fewer say the same for Germany. Socio- 50 alienating Germany’s considerable pro-Er- economic indicators are especially bleak. Turkey Both dogan element. Mr Gabriel recently pub- Reiner Klingholz at the Berlin Institute for 40 lished an open letter assuring Germany’s Population and Development, a research 3m-plus Turks that they belonged in the 30 outfit, lists a few: among migrant groups in country. But for many of them it came too Germany Turks have the highest share of 20 late. Mr Erdogan’s supporters in Germany people without schooling, the lowest rate Germany are more interested in his successes than 10 of university attendance and, at 50%, the the endless Turkey-bashing they hear at highest rate of women staying at home. 0 home. “Europe wants to keep Turkey The gap is closing, especially for girls, but 1999 2001 03 05 07 09 11 13 15 small,” says Ari Ihsan, a fan of the presi- fartoo slowly. Source: Foundation for Turkish Studies and dent encountered in Mülheim. “Why Integration Research, University of Duisburg-Essen Analysts tend to pin much ofthis on the shouldn’t we live like Europeans?” 7 The Economist September 2nd 2017 Europe 45

ample. In the federal election it is lambast- that the FDP is these days a one-man show: ing the government over Germany’s poor its years in the wilderness at state and fed- digital infrastructure. eral level have left it with few experienced This quest for distinctiveness revived figures who could run ministries. But to Mr the FDP while balancing its two wings: the Lindner this has advantages: “Now we can party now does well in the conservative also bring new personalities from the busi- suburbs of prosperous cities and among ness, science, culture and media worlds younger, city-centre voters. At the Goethe into politics.” Moreover, the FDP would University in Frankfurt students recently bring a much-needed restless attitude into packed a lecture hall to hearMrLindner ac- government: “Germany takes its current cuse Brexiteers and Donald Trump of strength for granted,” he rightly observes. “hate, exclusion and resentment”. Free- This trait would contrast more than any dom, he insisted, is threatened both by the policy with Mrs Merkel’s unambitious, left’s obsession with economic equality sleepy administration. And that would be and the right’s obsession with cultural ho- no bad thing. 7 mogeneity. At the Berlin state election a year ago the FDP went from no seats to 12. In North Rhine-Westphalia, Germany’s Dutch families most populous state, it hit a record vote- share in Mayand joined the government. It Three’s company is on around 9% nationally, up from 6% in January. It might well form a new federal coalition with Mrs Merkel, either alone or Germany’s Free Democrats in a three-party alliance with the Greens. AMSTERDAM To many fans and critics an FDP return The Netherlands may let children have to government would rein in the CDU’s Return of the more than two legal parents most pro-European instincts. It criticises yuppies Emmanuel Macron’s proposals to inte- OUR years ago Pepijn Zwanenberg, a grate the euro zone, acknowledges Russia’s Fclub DJ and a city-council member for FRANKFURT annexation of the Crimea as a fact and the GreenLeft party in Utrecht, sat down wants a pragmatic deal with Britain in with his boyfriend Ivo and their friend Ja- Germany’s pro-business party may be Brexit talks. Mr Lindner’s view that Greece nette to plan having a child together. They heading backinto government should leave the euro would be especially wrote a letter agreeing to make medical de- EW posters across Germany seem to relevant next summer, when the current cisions by consensus, to live within cycling Nbe promoting a men’s perfume. Clos- bail-out expires. At home, meanwhile, the distance of each other and to enter media- er inspection reveals that they are advertis- FDP demands hefty tax cuts, education re- tion in case ofquarrels. “Straight people of- ing the Free Democrats (FDP), a pro-busi- forms and fast progress on digitisation. ten have kids by accident, or take it for ness political party. Slogans such as Yet the party’s radicalism can be over- granted. We thought about it much more “impatience is a virtue too” bespangle stated. Mr Lindner specifies that Russia’s seriously,” says MrZwanenberg. Two years black-and-white photos of a bestubbled intervention “violates international law later Janette gave birth to their daughter man in an open-necked shirt. Corny they and is unacceptable”, that his party “em- Keet. All three consider themselves Keet’s may be, but these images of Christian phatically supports” a number of Mr Mac- parents. But Ivo, who is not her biological Lindner tell ofa political renewal. ron’s ideas; and that his demand for more father, has no legal connection to her. In For decades the third force of German pragmatism on Brexit is directed at Lon- the Netherlands, as almost everywhere politics, the party won a record 14.6% ofthe don, not Berlin and Brussels. In any case, else in the world, a child can have only two national vote in 2009. But over four years he might opt to lead his party in the Bun- parents in the eyes ofthe law. in coalition with Angela Merkel’sChristian destag, to keep it distinctive, leaving the Dutch gay-rights groups and advocates Democrats (CDU) it achieved little. Its post of foreign minister (traditionally held for non-traditional families say this “rule 1 promised tax cuts went missing. At the by the junior coalition partner) to a more election in 2013 its support fell to 4.8%, keenly Europhile FDP figure such as Alex- meaning that it was ejected from the Bun- ander Graf Lambsdorff, currently an MEP. destag (parliament) for failing to reach the Meanwhile the party’s proposals for required 5% threshold. MrLindner, then 34, domestic reform are often merely bolder inherited a party on the verge of dissolu- versions of CDU ones. Whereas Mrs Mer- tion. Today it is preparing for power once kel wants to use some of Germany’s bud- more. How did he do it? get surplus for tax cuts, Mr Lindner would He started by sharpening the party’s use more of it that way. The FDP wants a identity with the slogan “German cour- digitisation ministry; the CDU wants to age”, a hideous pink-blue-yellow colour bundle digitisation responsibilities in one scheme and a tilt away from the CDU, the existing ministry. Other Free Democratic FDP’s traditional coalition partner. Then policies such as raising education stan- the youthful Mr Lindner made himself the dards and liberalisingplanningare already party’sface: givingenergetic, sharp appear- priorities in the chancellery too. ances on television and fillingadverts with More significant than the policies is the moody shots from his daily life. Finally he temperament that the FDP would bring to embraced a series of eye-catching and of- government. Some around Mrs Merkel fret ten polarising policies. At the Berlin state ...... FDP election in 2016 the campaigned Footnote: Our full interview with Christian Lindner is against the closure of Tegel airport, for ex- here: www.economist.com/lindner 46 Europe The Economist September 2nd 2017

2 of two” does not match the realities of Rural France modern-day parenting, and that the coun- try should allow meervoudig ouderschap, or “multiple parentage”. Until recently, Into the trees they seemed to be making progress. In De- LOZÈRE cember a government commission recom- Despite fires, and fears ofwolves, forests are spreading fast in France mended that children be allowed up to four legal parents, in up to two house- HE wolfmust be taken in hand,” make great use ofwoodland. Many large holds. Most of the major parties, including “Tsaid a retired shoemaker to nods forests have enjoyed state protection, the governing Liberals, quickly signed on. from farmers and officials gathered in a notably after an ordinance in1669 created But multiple parentage has since fallen village hall. Francis Palombi, an aspiring a forest code. After the revolution, hunt- victim to the country’s four-party coalition parliamentarian, turned often to fears of ing previously restricted to nobles was negotiations, which have been dragging the old predator while campaigning in permitted for all. By the mid-to-late 20th on since an election in March. The centre- Lozère, a densely forested department in century over 2m hunters spent winter right Liberals and the left-liberal D66 party southern France, early this summer. weekends plodding after boars and birds. support the reform, but the Christian Wolves were eradicated from France But fewer do so now,a consequence of Democrats are wary. More important, the before the second world war, but have rural depopulation and the lure ofvideo Christian Union, an economically leftish appeared in growing numbers since the games. The Fédération Nationale des and culturallyconservative party, is strong- early1990sin the south and east, after a Chasseurs, the national body,claims1.1m ly opposed. The negotiations are secret, few sneaked in from Italy.Between 300 still hold hunting licences; animal-rights but leaks suggest the parties intend to put and 400 are thought to wander forests activists say the real figure is lower. offa decision by calling formore research. and mountainsides. For city folk, their Yet recent decades have brought That has frustrated those who hoped return sounds charming. Mr Palombi about a striking trend. Forest cover grew that the Netherlands, the first country to le- twigs that those who care forgrazing rapidly in France in the quarter of a cen- galise gay marriage in 2001, could become animals thinkotherwise. tury to 2015,going up by an average of the first to pass a national multiple-parent- Drive the winding roads that cross 102,000 hectares a year, as fields were age law. The issue is a global one, affecting Lozère and complaints about wolves and given backto trees. Almost a third of not just gay parents but those in fused other rural problems are legion. Phone France is now covered by woodland of households following remarriage, or rais- connections are poor in the tiny,hillside some sort. Even so, the area damaged by ing children from other relationships. Par- communes. Youngsters leave for jobs forest fires has fallenby two-thirds since ents who lacklegal status may be unable to elsewhere. “Lozère is one ofthe most the1980s. That does not stop the grum- check their children into a hospital, enroll forested departments in France; we bles, however. Lozère’s farmers also them in school, take them abroad or speak should use the biomass,” says the poli- dismiss statistics that indicate that only a forthem with the police. They can general- tician. “Wehave enormous potential in few wolves prowl their forests. But its ly get court orders or permission letters to our forests forenergy.Why don’t we use voters rejected Mr Palombi in the elec- do so; but it is a hassle. Worse, if their rela- them?” grumbles one voter. tion. Perhaps they doubted he had what tions with the legal parents sour, they have Historically,the French did indeed it takes to tackle the wolf. no automatic right to a share of custody or even to visit their children. The lack of legislation governing com- plex familiesoften obliges courts to step in. In some American states, judges have granted legal status to a third parent when they deemed it to be in the child’s best in- terest. Although multiple parentage is of- ten seen asa gay-rightsissue, manycases in America are unrelated to same-sex mar- riage: the first, in Louisiana in 1985, in- volved an out-of-wedlock conception, and a recent New York case involved a ménage à trois. California passed a law in 2013 al- lowingjudges to designate third parents; in Canada the provinces of British Columbia and Ontario allow more than two people to register as parents. But no country has adopted the practice nationwide. Multiple parentage has its critics. Some Where the old enemy lurks worry that groups ofthree or more parents are more likely to break up, leading to un- pleasant custody battles. “The more adults parents is contrary to “biological reality”. nute deal met a Labour demand to raise have legal rights, the more complicated the Yet in the Netherlands, the main obsta- teachers’ salaries.) A more stable govern- primary parent’s and the child’s lives are,” cle to reform is not ideology but political ment would probably move quickly to let cautions Joanna Grossman, a family-law fragmentation. The probable coalition will Mr Zwanenberg’s boyfriend, and other de professor at Southern Methodist Universi- have a bare one-vote majority in parlia- facto parents, make their status official. As ty. Similar concerns lie behind the Chris- ment, and will be split between two liberal Ard van der Steur, then the Liberals’ justice tian Democrats’ hesitation. The Christian and two Christian parties. They are unlike- minister, said after the government report Union’s arguments are more old-fash- ly to reach an accord before the end of Sep- came out in December: “There is nothing ioned: the party’s leader, Gert-Jan Segers, tember. (The caretaker government nearly wrong with making regulations for the has said that recognising more than two collapsed in the interim, before a last-mi- way the Netherlands actually is.” 7 Britain The Economist September 2nd 2017 47

Also in this section 48 International students 49 Bagehot: May v the managers

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

Football noon kickoffs, which are handier for Asian fans than Spain’s evening fixtures. A league of their own The Hillsborough tragedy of 1989, in which a crush killed 96 Liverpool suppor- ters, led to the removal ofstandingsections in stadiums around the country. Over the next decade clubs spent £500m on renova- tions, which meant higherticket prices and The English are bad at playing football but brilliant at selling it. What is the secret of richer fans—the “prawn sandwich” bri- theirsuccess? gade, in the words of Roy Keane, a Man- OPEDS emblazoned with Manches- tragedy laid the groundwork. The English chester United captain. At the same time, Mter United’s crest drone through the language isno guarantee ofsuccess(France money flooded into the league from a tele- streets of Bangkok. Fans in Okene, Nigeria, has the wealthiest rugby competition, for vision deal with BSkyB, a satellite broad- dance in red and white kits on the town’s instance) but it makes the chatter between caster, which more than trebled the fee that annual Arsenal Day. Official supporters’ managers, pundits and players more acces- the previous broadcaster, ITV, had paid. groups exist in Macedonia, Mongolia and sible than in Germany or Italy, say. And be- The biggest change, however, has been Mexico, some of the 180-plus countries to ing in a European time-zone means that in the Premier League’s openness to for- which matches are broadcast. In the 25 early risers in the Americas and night owls eign managers, players and owners. When years since it was first contested, the Eng- in Asia can tune in to matches—something Arsène Wenger became Arsenal’s manag- lish Premier League, which kicked off a that England makes easier with its after- erin 1996 he was only the fourth appointee new season last month, has become the from outside Britain and Ireland in English most lucrative product in the world’s most history. Today he is one of 13, making the popular sport. Its clubs earned £4.5bn Against the run of play Premier League the only big-five division ($5.8bn) in the 2015-16 season, almost twice Number of English teams at each stage in the with a majorityofforeignersin the dugout. as much as any other football league, ac- European Champions League And whereas on its first weekend in 1992 cording to Deloitte, a consultancy. Winner only 13 of those players who appeared The puzzle is that the game’s most re- were foreign, last season 69% of squad nowned domestic competition is not very members were, 12 percentage points more good. ClubElo.com, which rates teams ac- Final than any other European league. cording to the opponents they beat, calcu- The expanding circus of international Semi-final latesthat eight years ago fourofthe world’s stars has broadened the league’s appeal. five top sides were English. Today none is. South Koreans tune in to watch Tottenham An English club last reached the final ofthe Quarter-final Hotspur’s Heung-Min Son; Senegalese to Champions League, Europe’s most presti- follow Liverpool’s Sadio Mané. Such play- gious knockout competition, in 2012. A Pre- 1997 2000 05 10 15 17 ers have been acquired partly thanks to in- mier League star last made the top five in Revenues by top-tier national league, €bn jections of foreign capital. Led by Roman the Ballon d’Or, an award for the world’s England 5 Abramovich, a Russian magnate who Germany best player, in 2011. Spain, Germany, Italy 4 bought Chelsea in 2003, the Premier and France, the other members ofEurope’s Spain League has become a playground for for- “big five”, now dominate. England’s lower- Italy 3 eign tycoons. They now have controlling France ranked teams are worse than their equiva- 2 stakes in 12 clubs, including smaller ones lents in Spain and Germany, too. Yet as the 1 such as West Bromwich Albion and Swan- standard of English football has dived, it sea City. has only become richer (see chart). Why 0 English teams have also been quicker 1997 2000 05 10 15 17* are such a mediocre bunch so popular? than others to market themselves abroad. Sources: UEFA; Deloitte *Forecast Two bits of good luck and one dreadful Manchester United began making regular 1 48 Britain The Economist September 2nd 2017

2 pre-season trips to Asia in 1995, whereas they sign for Bayern Munich. A move to long for the information to come out. One Real Madrid did so only in 2003. This sum- Manchester is less likely to lead to glory, former Downing Street official admits to mer English teams entertained crowds even if the wages are as good. This calcula- having been briefed on an earlier version everywhere from Houston to Hong Kong. tion has already lost the Premier League of the data in autumn 2015. Universities And they are expanding with business some ofits best players, such as Luis Suárez have nevertheless welcomed the release, ventures in new corners ofthe globe. Man- and Gareth Bale. grateful fora new way to make the case for chester City owns clubs in New York, Mel- If it cannot attract football’s megastars, international students. They have not had bourne, Yokohama and Montevideo. With that will limit the Premier League’s appeal much luck in recent years. During Mrs its three African sponsors, Arsenal has as to fans. For the time being, clever market- May’s time at the Home Office she intro- many as continental Europe’s five richest ing and a competitive, dramatic league duced a range of policies to deter foreign teams put together. have been enough to keep the world glued students, often justified by the number The Premier League has some features to England’s competition. But if they want overstaying their visas. which have the effect of lowering its stan- to keep selling football, English clubs will Perhaps most damagingly, in 2012 the dard but making it more exciting to watch. have to get better at playing it, too. 7 government scrapped a visa that allowed Its teams bargain collectively for television graduates to remain in the country for two deals and share the booty more equally yearswithouta job offer. Otherchanges in- than other leagues, which has made for a Higher education clude stricterlimitson bringingover family more competitive division. Real Madrid, members, making it harder to move from Juventus and Bayern Munich take a greater A costly mistake one type of study to another, tougher lan- share oftheirleagues’ profits—indeed, each guage requirements and uncompromising Spanish team negotiated its own televi- “credibility interviews”. sion deal until 2015—allowing them to While Britain was making life harder maintain their boringly dominant posi- for foreign students, other countries tions. In 2016, while the German, French wooed them. As a result, British institu- A wild overestimate ofillegal migration and Italian leagues endured a fourth con- tions now have a smaller share of a larger led to a needless crackdown secutive year with the same champion, market. International student numbers lowly Leicester lifted the title in England— N 2015 Sir James Dyson, an inventor and have continued to rise at Britain’s top uni- the fourth club in as many years to do so. Ibusinessman, attacked Theresa May, versities, but the rest have found recruit- And whereas continental teams sensi- then home secretary, over her plans to ment difficult. The number coming from bly pour resources into developing talent- make it harder for foreign students to stay India and Pakistan has more than halved ed youngsters, English teams splurge on in Britain after finishing their studies. since 2011, and although a big rise in Chi- ageing stars, who draw in crowds but do “Train ’em up. Kick ’em out. It’s a bit short- nese students has made up the difference, less to win matches, according to the 21st sighted, isn’t it?” he wrote. Not so, replied growth has been slower than in America. Club, a football consultancy. Sixofthe Real Mrs May. After all, the “latest surveys” The economy has suffered as a result. Madrid side that won this year’s Champi- showed that tens of thousands more stu- The Department for Education found that ons League final joined as teenagers. By dents arrived than left each year. The im- higher-education exports were worth contrast in recent years a number of Eng- plication: Britain already had more than £12.4bn ($20.6bn) in 2014. In 2000-10 the lish sides have spent club-record sums on enough foreign graduates hanging around. number of foreign students at British uni- older players who are at the peak of their It is now clear that Mrs May’s argument versities almost doubled, helping to fi- fame but have ended up spending half was nonsense. Her numbers came from nance a big expansion in education for their time on the bench. Manchester Un- the International Passenger Survey, a poll home students. Whereas students from ited’s signing of Ángel Di María, a £59.7m introduced half a century ago to measure Britain and other EU countries have their flop, is one recent example. The constant tourism. On August 24th it emerged that feeslimited to £9,250 a year, no such cap ex- hiring and firing oftitle-winning managers the number of students illegally overstay- ists for the rest. in England similarly makes for great ingtheirvisas was a small fraction of previ- Other benefits are harder to measure. drama, though bad results. ous estimates. Figures from the Office for According to the Higher Education Policy Can this export success story survive National Statistics had suggested there Institute, more heads of state and govern- Brexit? The pound’s slide has made it more could have been more than 90,000 over- ment have been educated in Britain than expensive for English clubs to sign and pay stayers per year. New data showed that anywhere else. Benazir Bhutto, a future foreign players. But given that much of there were at most 4,617 in 2016-17. prime ministerofPakistan, introduced Mrs clubs’ earnings are denominated in foreign Some have questioned why it took so May to her husband at Oxford. currencies, sterling’s weakness is manage- Liberals in the cabinet may now be able. The biggerworryconcernsmigration. gaining the upper hand. The government After Brexit, Europeans may face the same Coming over here, paying our fees has dropped plans to link visa conditions immigration rules as everyone else. Star Foreign students in Britain, ’000 to the quality of education provided by players will have no trouble clearing these Academic years ending July 31st universities. Amber Rudd, the home secre- hurdles, but lesser-known talent may be Indian Nigerian Pakistani tary, has commissioned the official Migra- excluded. N’Golo Kanté, a young French- 450 tion Advisory Committee to analyse the man who helped Leicester win their 400 economicimpactofforeign studentsand is league title, had never played for his coun- Other 350 expected to push for softer rules. try and thus would have struggled to get 300 One change would be to remove stu- permission to work in Britain had it not 250 dents from the government’s target to limit EU 200 been forthe ’s free-movement rules. Chinese net migration to under100,000 a year. An- There is another problem. Although 150 other would be to extend the time gradu- English clubs have the money to acquire 100 ates are allowed to spend hunting for a job foreign stars, the inabilityto win big titles is EU national 50 in Britain. Either would be welcome. But a off-putting. Stars such as Robert Lewan- 0 more sensible government would look at 2008 09 10 11 12 13 14 15 16 dowski know that they are more or less how to recruit more foreign students, not Source: HESA guaranteed to win some silverware when just refrain from turning them away. 7 The Economist September 2nd 2017 Britain 49 Bagehot May v the managers

Britain’s problem is not that it has too many fat cats but that it has too few good bosses though eye-catching, mighteasilyhave proved damaging, such as mandating workers’ representatives on boards (which could be hijacked by trade unions) or providing shareholders with an automatic veto over executive pay (which again could be taken over by a minority ofnoisy activists). There is no solid evidence that Britain’s bosses are “overpaid” as a class. Heads of FTSE 100 companies earn more on average than their continental counterparts but they also earn between a third and a half less than their American equivalents. Inequality has been declining in Britain since 2007. Nor is there firm evi- dence that bosses are freeloading. The government has tightened up the rules governing corporate behaviour in the light of two pieces of American legislation: the Sarbanes-Oxley reforms which followed the Enron scandal and the Dodd-Frank reforms which followed the global financial crisis. Boards are more likely to sackunderperforming bosses than they have ever been. The real problem with Britain is not an excess of fat cats but a shortage ofcream. And the real problem with Mrs May’s reforms is that she is focusing on bosses’ pay rather than the performance of the economy. Britain no longer punches above its weight in producing world-class companies. Though Rolls-Royce and N HER barnstorming speech to announce her candidacy for the HSBC still play in the global premier league, BP and AstraZeneca Ileadership of the Conservative Party, delivered in Birmingham have fallen into the second division. Britain also continues to on July 11th 2016, Theresa May promised nothing less than to fix struggle to produce successful middle-sized companies. Whereas capitalism. The gap between workers’ and bosses’ pay was “irra- Germany has a “fat middle”, with thousands of smallish global tional, unhealthy and growing”, she said. Managers were rigging champions, Britain has a bimodal economy with a handful ofga- the system so that they were unaccountable to all but themselves zelles at the top and a mass of zombies at the bottom. McKinsey and their doppelgängers. British productivity was dismal. Mrs calculates that 66% of British workers work for “low-productivi- May said she had heard, in the Brexit vote, a cry forreform. She in- ty” companies, compared with 55% ofGermans. voked a long line of Tory leaders, from Robert Peel to Margaret The result is an underperforming economy. In 2015 Britain Thatcher, who had taken on the powerful in the name ofthe peo- ranked third from the bottom in the G7 for productivity, above ple, and suggested that she was considering radical measures, Canada and Japan. French workers, whom the British like to dis- from putting workers on boards to tightening takeover rules. miss as holiday-hogging sluggards, are more productive than the Thirteen tumultuous months later Mrs May has finally got British. Moreover, Britain is falling fartherbehind. As long as this around to addressing Britain’s “irrational” and “unhealthy” pay continues, its economy will remain stagnant and its polity will gap. Listed companies will publish the ratio of bosses’ pay to av- continue to be convulsed by anger and resentment. erage workers’ pay, the governmentdeclares. Remuneration com- mittees will consider the wages of ordinary workers when they Fixing Wernham Hogg setexecutives’ salaries. Companieswill have to nominate a direc- There is a great deal of painstaking academic work exploring the tor for the workforce or create an employees’ advisory council. reasons for Brito-sclerosis. The OECD says that management in- Firms that suffera shareholder rebellion of more than 20% when novations are increasingly being stuck in a handful of global su- setting executives’ pay will have their names entered in a sham- per-companies, rather than diffusing through the economy. Stick- ing public register. iness is worse in Britain than other advanced countries. The These proposals were immediately rubbished, not just by the London School of Economics has documented that good man- left but also by Torieswho had been persuaded by Mrs May’s ar- agement is the key to productivity growth and that Britain has a gument that if capitalism’s friends do not reform the system, its long tail of poorly managed firms. A third of British companies enemies will do it for them. The government’s proposals repeat- have seen no rise in productivity since the turn ofthe century. edly invoked the two greatest weasel words in the modern lexi- These all point to the same conclusion: the real enemy is Da- con: “transparency” and “accountability”. They suggested risible vid Brent. Britain has far too many second-rate, sloppy, oafish penalties such as having your company’s name inscribed in a managers ofthe sort caricatured by Ricky Gervais in “The Office”. book. Frances O’Grady, the head of the Trades Union Congress, There are some good ideas foraddressing Brentism. Charlie May- accused Mrs May of backing down from her promise to tackle field, the chairman of John Lewis and head of a government-ap- corporate excess and put workers on boards. Robert Colvile, the pointed Productivity Commission, has suggested creating a men- editorofa right-leaningwebsite, CapX, said that bydefining exec- toring system which would allow successful companies to teach utive payasa problem then producingsuch a feeble solution, Mrs smallerones (particularly theirsuppliers) the art ofmanagement. May had simply whetted the appetite forCorbynism. The government is thinking of freeing up funding for manage- This is unfair. In a world where people habitually call for“rad- ment training, rather than just technical training. But improving ical” overhauls, the green paper should be praised for its moder- British management will require a lot ofhard slogand unspectac- ation. Mrs May’s proposals comply with the most important rule ularwork. Bashingthe fatcatsisfarmore satisfyingthan engaging of policymaking: first do no harm. She has dropped ideas that, in serious reform. 7 %quote code ECONMAG 15 Prices increase discount September 15th 2017

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Indentured labour also able to buy broke colonists out. By1933 Indo-Mauritians owned almost two-fifths 100 years since servitude ofall land planted with sugar cane. Land also gave indentured labourers a start in South Africa, where many were granted plots after their servitude. Koshir PORT LOUIS, MAURITIUS Kassie’s great-grandfather arrived in the province of Natal and worked on a planta- A century afterIndia stopped sending migrants to workin European colonies, how tion and then in a gold mine. He saved have theirdescendants fared? enough to pay his employer to end his con- OOKHEE GUNGAH, born of Indian post-colonial identity is now emerging, tract early, and bought land. But under Dmigrants, began life in 1867 in a shed in combining pride in India’s economic rise, apartheid many Indian South Africans, in- Mauritius and worked as a child cutting religious and cultural traditions—and, in- cluding Mr Kassie’s family, were forced off sugarcane. By his death in 1944, he was one creasingly, commemoration of their ances- their land and into Indian townships. of the island’s richest businessmen. He is a tors’ struggles to establish themselves. “After indenture, Indians built themselves notable example of how some indentured Indo-Mauritians are among the richest up,” says Mr Kassie. “Then came apartheid labourers prospered against the odds. and most politically powerful of those de- and they had to start again.” Between the 1830s and 1917 around 2m scendants. As a British colony, Mauritius Many managed to rebuild. Today, Indi- migrants signed up forten-yearterms (later took the greatest share of indentured mi- an South Africans’ average income is three cut to five) in European colonies (see chart grants: some 450,000. Their descendants times higher than that of black South Afri- on next page). Most were from India, with are now two-thirds ofthe island’s1.26m in- cans, and they are nearly twice as likely to smaller shares from China, South-East habitants. Many of the largest businesses have finished high school. But these days Asia and elsewhere. Some “coolies” were are owned by Franco-Mauritians whose they are politically marginalised. In the fleeing poverty and hunger; others were ancestors dated from the earlier French co- first democratic elections, in 1994, two- coerced or deceived. In British colonies lonisation, though they make up just 2% of thirds voted for the National Party, which from 1834, and in French and Dutch ones the population. But Indo-Mauritians dom- had previously defended apartheid. Those from later, they replaced freed African inate the public sector. with less education particularly resent slaves on sugar and coffee plantations. Local legend has it that Dookhee (pic- South Africa’s new system of racial prefer- “Slavery under a different name” is tured with family, third man from left, ences in jobs and education forblacks. how The British and Foreign Anti-Slavery around 1912) owed his meteoric rise to find- Society described the indenture system in ing buried treasure. The true story, says his Seeds in fertile ground 1839. It had a point. Many migrants died en great-grandson, Swetam Gungah, is that Indentured labourers in Trinidad and Guy- route, and at first plantation owners, used “whatever little he had, he would put it ana (formerly British Guiana) were also to slaves, treated their new workers hardly aside.” Unlike slaves, indentured labour- granted land. That was less generous than any better. But conditions gradually im- ers were paid, and since most were unable it seems: much of it was ill-suited to grow- proved. When the Indian Legislative to leave their plantations, they spent little. ing sugar cane. The Indians, however, dis- Council finally ended indenture, a century Aged 21 Dookhee bought land and started covered it was perfect for rice. Many pros- ago, it did so because ofpressure from Indi- growing sugar cane. “He was savvy pered. But in both places, though people of an nationalists and declining profitability, enough to diversify. He planted an or- Indian origin are the largest ethnic group rather than from humanitarian concerns. chard, started a bakery and much more,” (35% and 40% respectively), they have The indentured labourers’ fortunes va- says Mr Gungah. When the price of sugar struggled to gain the level of influence that ried from place to place, according to their plummeted in the 1880s most plantation- Indo-Mauritians have. numbers, who else lived there, and laws owners went broke. Dookhee got richer. In Mauritius the departing British colo- about land tenure and race. But a shared Other former indentured labourers were nists regarded Indians as the heirs to pow-1 52 International The Economist September 2nd 2017

2 er. In Trinidad, however, the mantle was jians left the island as a result. Two further says “the way Mauritians were discussing passed to Afro-Trinidadians, who were set- coups centred on their rights. Finally, in Indian politics: it was like I was back home tled decades before the indentured labour- 2013 Indo-Fijians were given equal status in India.” In Trinidad, which got its first ers arrived. Politics and the public sector in the constitution. And, in 2014, in free Indo-Trinidadian prime minister in 1995, operated through a patronage system, elections, FrankBainimarama (who led the there is “a new sense of Indian cultural which kept Afro-Trinidadians in charge. most recent coup, in 2006) won with an pride”, says Andil Gosine, an Indo-Trinida- Even afterindependence in 1962, Indo-Trin- anti-racist message. His task is consider- dian academic in Canada. “When I go back idadians were largely excluded from gov- able: though land has been made easier to now I see loads of people wearing saris, ernment and public-sector jobs. lease, holdings by ethnic Fijians still can- which they wouldn’t have done before.” Today, politics is still divided on ethnic not be sold. Indo-Fijians are still excluded— This cultural revivalism is, to some ex- lines, with the People’s National Move- and ethnic Fijians are newly aggrieved. tent, the workofHindu nationalists, partic- ment supported by Afro-Trinidadians and Anti-Indian sentiment is rampant. ularly the Vishwa Hindu Parishad (World the People’s Partnership coalition sup- Hindu Council). It has recently devoted ported by Indo-Trinidadians. But socially, Pride and prejudice more attention to the diaspora—and stirred the groups are mingling more—and in- In most places that took indentured la- up tensions between Hindus and Mus- creasingly intermarrying. Nearly a quarter bourers, racial animus persists. Their arriv- lims. More is due to India’s rise as an eco- ofthe population identifies as mixed-race. al was “a real trauma” for indigenous and nomic power. Diaspora Indians are seek- In Guyana ethnic divisions cut much former-slave populations, says Mr Bates. ing to “bask in the reflected glory of their deeper. Compared with Trinidad, its sheer In Trinidad and Guyana “coolie” is used as motherland”, says Mr Kumar. size meant ethnic groups formed more seg- a slur (and the Indo-Guyanese and Indo- Khal Torabully, a Mauritian poet of regated communities. A fragile inter-ethnic Trinidadians have plenty ofracist terms for mixed Indian descent, hascoined the word harmony, nonetheless, prevailed for the their compatriots of African origin). In Fiji “coolitude” for a new identity, which first half of the 20th century. That ended in and the French Caribbean “z’Indiens” are mixes heritage from India and the other 1964, when a pre-election conflict broke stereotyped as money-grubbing, and sending countries with a century of his- out between the largely Afro-Guyanese mocked in expressionssuch as“faib con an tory in racially diverse formercolonies. Ac- People’s National Congress and the largely coolie” (“weak as a coolie” in Guadelou- knowledging their ancestors’ servitude as Indo-Guyanese People’s Progressive Party. pian creole). In the 1970s a Fijian politician, part of that can be uncomfortable. Indian “I had Hindu friends, African, Portuguese, Sakesai Butadroka, said in parliament that South Africans are “proud to be Indian”, Chinese friends,” says Khalil Ali, a Muslim “people of Indian origin” should be “repa- says Mr Kassie, but “don’t like to talk about Indo-Guyanese novelist, of growing up in triated back to India”. As recently as 2014 a indenture much”. Mr Gosine recalls his the 1950s and 1960s. “Then suddenly my popular song by the Zulu band, AmaCde, grandfather describing his own grand- black friends stopped speaking to me and I called on black South Africans to confront father: “ABrahmin, riding around the plan- stopped speaking to them.” The resulting Indians and “send them home”. tation on a horse, dressed all in white. But violence led to hundreds of deaths and Strangers in strange lands, indentured then my grandmother chipped in: ‘What thousands fleeing abroad. labourersand theirdescendantspreserved on earth are you talking about?’” Ethnic divisions persisted after inde- some traditions, from caste practices to rec- Making sense of displacement and dif- pendence in 1966, and were worsened by ipes. From the 1880s the Arya Samaj, a reli- ference, struggle and success, is also a work economic hardship. Even as Trinidad gious group, attempted to reinstate Hindu in progress for host countries. But some boomed because of oil, disastrous left- culture in the diaspora—which rallied, in have started to weave the history ofinden- wing policies reduced resource-rich Guy- turn, behind Gandhi’s Indian nationalist tured labourers into their national narra- ana to one of South America’s poorest movement in the 1920s and 1930s. During tives. In 2006 Aapravasi Ghat, where they countries. But in 2015 a multi-racial co- periods of ethnic strife in the 20th century first arrived in Mauritius, was recognised alition came to power, promising unity. Al- hyphenated-Indian communities turned as a UNESCO world heritage site. In the though change is slow—the government is inwards forself-protection. same year the Indian Caribbean Museum still mostly Afro-Guyanese and Mr Ali says In recent years, though, a new kind of opened in Waterloo, Trinidad. Last year the Indo-Guyanese who joined the coalition “Indian pride” has begun to take form. 1860 Indian Museum, dedicated to inden- have been called traitors—elections in Mauritius has had strong links with India ture, opened in Durban. “We still have a lot 2020 offeranother glimmer ofhope. Youn- since post-independence tax and trade ofproblems to thinkofourselves as Mauri- ger Guyanese are further distanced from deals. But of a recent visit to Mauritius, tians,” says Mr Torabully. “But remember- the events of the 1960s. The mixed-race Ashutosh Kumar, the authorofa newbook ing indenture, just as we remember slav- population, now around 20%, is growing. about indenture, “Coolies of the Empire”, ery, is at the heart ofthat identity.” 7 Indentured workers’ descendants have done least well where their ancestors could not own land, as in Fiji. Its indige- Migration and memory 100,000 Destination country nous population resented the new arriv- Indentured labourers from India India Number of labourers Total 1830s-1917 Colony British als, and the British made promises about 1,432,600 land ownership to their tribal chiefs. Many French Dutch Indo-Fijians became tenant farmers, and Other British Jamaica West Indies for part of the 20th century did quite well, 36,400 10,400 Malaya says Crispin Bates, who leads a project 130,000 Guadeloupe funded by the British Arts and Humanities 42,400 Research Council entitled “Becoming Coo- Martinique lies”. But when theirleases came to an end, 25,700 East Africa 39,400 starting in the 1980s, their status declined. Mauritius Trinidad British French Natal Fiji Sporadic attempts to improve their po- Suriname Guiana South Africa Réunion 451,800 143,900 Guyana 56,000 sition after independence in 1970 ended 238,700 34,000 8,200 152,200 63,500

with a coup in 1987. A new constitution re- Sources: “Indentured Labour in the Age of Imperialism” and “Indentured Indians in the French Antilles” by D. Northrup; served majorities for ethnic Fijians in both “Les travailleurs indiens sous contrat à La Réunion” by J.R. Ramsamy-Nadarassin; “Frontier Society: A Social Analysis of housesofparliament. Over10,000 Indo-Fi- the History of Surinam” by R.A.J. van Lier Business The Economist September 2nd 2017 53

Cargill Also in this section Middleman to the world 54 Uber’s new chief executive 55 Naspers: Made in China 56 Communes for hipsters DIRDAL 58 Schumpeter: The parable of St Paul Can the privately held epitome ofBig Agriculture satisfya publichungry for more information about food? NGLERS love a record catch. Fish farm- The firm’s foray into the salmon busi- it came from, but where what it is fed on Aers, too. So when a salmon bred and ness should help in two ways. First, it is comes from. Fishermen of wild salmon, a raised nearthis village at the head of a Nor- part of Cargill’s attempt to expand into well-connected bunch, are keen to turn wegian fjord was pulled out of captivity higher-value markets. One ofitstraditional public opinion against the farmed kind. earlier this year weighing a sumo-sized mainstays, the trading of bulk agricultural That battle could make Cargill better at 17kg, it was cause for jubilation. “It was fan- commodities, has struggled since the end, handling traceability in more established tastic,” says Einar Wathne, head of aqua- in around 2013, of a China-led commod- parts ofits food business, such as meats. culture at Cargill, the world’s biggest food- ities supercycle. The firm has also suffered Cargill faces a particularly hard task trading firm. Not only was it produced in 15 from a recent slump in demand for grains building trust with increasingly informa- months, one-fifth faster than usual, it also for biofuels. Consumption of farmed fish tion-hungry consumers. To its critics the looked and tasted good. Mr Wathne’s Nor- across the world has boomed, meanwhile, company epitomises the faceless character wegian colleagues celebrated by eating it partly at the expense ofbeef, porkand oth- of “Big Agriculture”, with boots that tram- sashimi-style shortly after its slaughter. er meats. Fish feed is its highest-cost com- ple on the environment, animal welfare, Cargill is a company usually associated ponent, and more efficient ways offeeding and on small farmers. “I recognise that we with big boots rather than waders. Ameri- are key to the salmon industry’s growth. are big, and because we are privately ca’s largest private company has built a Second, Cargill can learn via the salm- owned and because we are primarily busi- reputation after 152 years of existence as on-feeding business how to deal with in- ness-to-business...it is harder to have that middleman to the world, connecting farm- creasingly picky consumers. Mr Wathne transparency,” says Mr MacLennan. “We ers with buyers ofhuman and animal food notes that salmon is a “premium” product, want to be more well known.” everywhere. Through a trading network so consumers want to know not just where Some of his eight predecessors would that spans 70 countries (and that includes have spluttered over his idea of more dis- scores of ports, terminals, grain and meat- closure, which involves wider use ofsocial processing plants and cargo ships), it sup- Back in season media, more interviews and more engage- plies information and finance to farmers, Return on assets*, % mentwith NGOs. Since generationsof Car- influenceswhattheyproduce based on the gill and MacMillan families built the com- needs of its food-industry customers, and 8 pany up from a regional grain trader, born Archer Daniels connects the two. Midland in Iowa in 1865, into a global giant, it has Its purchase of EWOS, a Norwegian 6 kept out ofthe limelight, preferring to leave fish-food company, in 2015 for $1.5bn was that to the customers whose branded pro- its first bigforay into aquaculture. It was the 4 ducts it provides ingredients for, such as second-biggest acquisition in Cargill’s his- McDonald’s Chicken McNuggets and Da- tory. That made it quite a splash for David Cargill† 2 none’s baby formula. Its taste for privacy MacLennan, Cargill’s chief executive since Bunge has not always served it well; the title of a 2013, who took over the company just as a 0 book published in 1995, “Invisible Giant”, dozen fat years in the agriculture industry 2007 08 09 10 11 12 13 14 15 16 sums up Cargill’s sinister reputation in the had drawn to a close. He is now fishing for *Excluding one-time charges eyes of anti-globalists. “In the absence of † future sources ofgrowth. Source: Bloomberg Financial years beginning June information people will make up their 1 54 Business The Economist September 2nd 2017

2 own story,”Mr MacLennan says. (GMOs). Though Cargill handles huge car- bacteria fed on methane. It is a novel ap- Private ownership has given Cargill goes of GM corn and soyabeans, it has re- proach to reducing the amount of freshly room to take a long-term view,but had also cently had some of its non-GM ingredients caught seafood, such as anchovies, in fish enabled management to get away with certified by an NGO which verifies that food, but is untested at scale. subpar performance in a business with food is not bioengineered. This has an- Like counterparts facing upheaval in 150,000 employees and revenues of gered the pro-GMO farmers that it serves. other industries, Cargill worries that the $110bn. Before Mr MacLennan and his fi- Cargill is also making bets on early- supply of food from farm to table is being nance chief, Marcel Smits, launched a stage technology. In August it took a share disrupted. As Richard Payne of Accenture, management reshuffle and streamlined in a “meatless-meat” company, Memphis a consultancy, puts it, the threat for traders the company in 2015, its weak returns Meats, that produces beef, chicken and is that farmers at one end of the supply would have been a red rag to an activist in- duckout ofthe cells ofliving animals, rath- chain use more technology to handle their vestor had it been a public company, says er than from carcasses. This represents a own pricing, financing and logistics, and Bill Densmore ofFitch, a ratings agency. potential insurgency against the conven- retailers at the other end of the chain, un- The cost-cutting that has ensued, and a tional meat industry. Cargill is also co-in- der pressure from tech-led firms such as recent upswing in demand for American vesting with Calysta, a Silicon Valley star- Amazon, squeeze food manufacturers and meat that particularly favoured Cargill, has tup, in a factory costing up to $500m that their suppliers. Still, one-and-a-half centu- pushed returns higher than those of its will produce up to 200,000 tonnes of fish ries ofbusiness has taught Cargill not to get main listed rivals, Archer Daniels Midland food, known as FeedKind, made out of caught in the middle. 7 and Bunge (see chart on previous page). Yet Craig Pirrong, an expert on trading compa- nies at the University of Houston, says Uber’s next chapter private ownership constrains Cargill’s ability to raise capital to invest in fixed as- Self-driving no longer sets as it expands and moves upmarket. Mr MacLennan says he has sought since 2013 to introduce “a bit ofmore ofa public-com- pany culture”. He stresses, though, that there is “no intention ofgoing public”. SAN FRANCISCO The big traders largely squandered the Dara Khosrowshahi must tackle losses, lawsuits and preparations foran IPO commodities boom of the past decade. Re- turns languished despite an unprecedent- LEADERisa dealerin hope,” said Na- ed them. That is proof he can build a ed surge in demand for agricultural pro- “A poleon. For much of this year Uber, healthy corporate culture, says Erik Blach- ducts, such as cereals, chicken and fish. In a ride-hailing firm, has lacked both leader- ford, who used to be the CEO of Expedia that time, Mr MacLennan says, farmers in- ship and optimism. But on August 27th and is now at TCV, a venture-capital firm. vested in new soil-mapping technologies news leaked that Uber had poached as its Mr Khosrowshahi’s finance skills will to improve yields, better seeds and more new chief executive Dara Khosrowshahi, be just as valuable. He served as a chief fi- storage facilities. An ability to hold on to the boss of Expedia, an online travel com- nancial officer at IAC, an internet conglom- grain until market conditions are favour- pany. Mr Khosrowshahi is seen as an as- erate owned by Barry Diller, and as a for- able has given farmers clout in their rela- tute dealmaker and a canny manager. In mer dealmaker at Allen & Co, an tionship with the traders. New entrants, his 12 years at the helm of Expedia, the investment bank. “More New York than such as China’s own trading powerhouse, gross value of its hotel and other travel Silicon Valley” is how one entrepreneur COFCO, and Glencore, an Anglo-Swiss bookings more than quadrupled and its describes him (although for more than a firm, are also making the competition pre-tax earnings more than doubled. decade he has lived in the Seattle area, more cut-throat. Meanwhile, a series of Can he rally the troops? Uber is fast- where Expedia is headquartered). Finan-1 bountiful harvests in North and South growing and was last year valued privately America in recent years has produced re- by investors at around $68bn, but has suf- cord stocks ofgrain, reducing prices. fered a host of setbacks, which led to the To diversify Cargill’s sources of rev- ousting of Travis Kalanick, its co-founder enue, Mr MacLennan has sold $2bn-worth and boss, in June. The firm faces a criminal of assets since 2015, such as a second-tier probe by America’s Department of Justice American pork business, and invested into a covert software feature that showed $3.5bn in more value-added products, such regulators different versions of its app, as as cooked meats, branded chicken, animal well as a new investigation into whether it nutrition and food ingredients. Some cur- may have violated America’s Foreign Cor- rent and former Cargill employees think rupt Practices Act by bribing officials such investments may be opportunistic, abroad. It must also contend with multiple rather than enduring. If supply disrup- lawsuits and allegations that it encouraged tions—bad weather, say, or a trade war be- a sexist culture. tween America and China—raised the vo- Mr Khosrowshahi is less well-known latility of food prices again, they expect than two otherfinalists for the job—Jeff Im- Cargill to pour its capital back into bulk melt, who until recently was CEO of Gen- commodities. Though remaining commit- eral Electric, and Meg Whitman, who runs ted to agriculture, Mr MacLennan rejects Hewlett Packard Enterprise. But he is wide- that idea. “If we were to do that, it would ly admired. He moved to America from beafailure,”hesays. Iran as a child (and has been an outspoken Moving closer to the consumer brings critic of President Donald Trump’s restric- new sources of complexity. These include tive policy on immigration). On his watch understanding widespread public rejec- Expedia acquired Orbitz and Travelocity, tion of genetically modified organisms two competitors, and successfully integrat- Into the hot seat The Economist September 2nd 2017 Business 55

2 cial acumen will be helpful when Uber cast in favour of the pay policy, most are embarks on an initial public offering. In his thought to have come from unlisted shares first meeting with employees on August with special voting rights. Some of those 30th he suggested that the firm will go pub- shares are indirectly linked to company di- lic as soon as 18 months from now, which rectors. Allan Gray, an influential asset should boost morale. manager, warned before the AGM that the His priority before then will be to fill pay policy was not aligned with share- outUber’sexecutive ranks. Techieslike tell- holders’ interests. The majority of ordin- ing the joke that Uber is the first fully au- ary investors may have voted against. Mr tonomous company, because almost all its Bekker, now the group’s chairman, swat- key positions, including a chief financial ted away any concerns. He compared cor- officer and chief operating officer, have porate governance to star footballers been vacant. An upcomingIPOwill also af- washing their hands after going to the toi- fect how much to favour international ex- let: a nice idea, but less important than re- pansion in the face of huge losses. Uber is cruiting the best players forthe team. growing quickly but bleeding money: in Shareholders have grumbled about the first half of 2017 it lost around $1.4bn. It pay at Naspers before, to no avail. The lat- has retrenched in China and Russia, but est spat is more vocal and reflects deeper hasto choose between spendingheavily to concern about its progress after two de- attract customers and drivers or steering cades of reinvention. In the 1990s its pros- towards profitability more quickly. pects were uncertain. Founded in 1915 as Two lawsuits will also demand his at- Nasionale Pers (“National Press”), an Afri- tention. One was filed earlier this year by kaner nationalist publishing house, it was Waymo, a self-driving car company Naspers initially slow to acknowledge its long-time owned by Google’s parent firm, Alphabet. support of apartheid. With its roots in It accuses Uber ofknowingly buying a self- A dime’s worth newspapers, it then had to adapt to the dig- driving-car startup called Ottomotto ital age. Mr Bekker refashioned it around which had stolen Waymo’s intellectual new media, expanding its pay-TV business property. The affair is scheduled to go to acrossAfrica and investingin budding tech trial in October, but Mr Khosrowshahi KAMPALA firms around the world. might decide that a better course would be Many of those investments have been Africa’s most valuable company is to settle the lawsuit. slow to pay off. It was not long ago—the worth less than its stake in Tencent The other suit involves Benchmark startof2016—thatNasperswasworth more Capital, an early investor in Uber and a for- OUTH AFRICA’S stockmarket has than its Tencent stake but it is now worth mer ally of Mr Kalanick, who remains on SNaspers largely to thank for its recent re- less. The gap is widening. That may be be- the company’s board and, along with his cord highs. Shares in the media and inter- cause investors think Tencent’s shares, up co-founder and another early executive, net group have soared by 45% this year; by 70% since the start of the year, are over- controls the majority of super-voting even before then it was Africa’s most valu- valued, or because foreign capital is fleeing shares. Benchmark has accused Mr Kalan- able firm. So recent unrest among share- South Africa’s turbulent politics. But some ick of fraud and sued to try to stop him holders in Naspers might seem unwarrant- see it as a sign that investors are losing pa- from intervening in Uber’s affairs and ap- ed. Butin the daysbefore itsannual general tience with Naspers. Its e-commerce divi- pointing additional board members. meeting in Cape Town on August 25th, sion posted trading losses of $731m last Benchmark claims that Mr Kalanick hid noisy debate erupted, chiefly about execu- year. “The market has become increasingly critical details about the state of the firm tive pay. Many investors reckon that Bob disillusioned with the ability of manage- when he asked in 2016 for the support of van Dijk, its boss, is beingrewarded forsuc- ment to pull rabbits out of the hat,” says Benchmark and other board members to cess that he did little to create. MarkIngham, an independent analyst. add three more board seats. A hearing took The source of good fortune for Naspers Even the firm’s popular pay-television place on August 30th in which a judge sid- lies about 7,000 miles (11,265km) away. In service, which has 12m subscribers across ed with Mr Kalanick, ordering that the dis- 2001 Koos Bekker, Mr van Dijk’s predeces- Africa, is struggling, because of tumbling pute be resolved by an arbitrator, out of sor, made a brilliant investment of$32m in local currencies that make buying Ameri- court, at least fornow. a little-known Chinese technology firm can content more expensive, and fiercer All the legal wrangling makes things called Tencent. Today its 33% stake is worth competition from firms such as Netflix and 1 awkward. Mr Khosrowshahi will need to $130bn, as measured by Tencent’s value on deal tactfully with Benchmark, which still the Hong Kong stockexchange; that dwarfs has a representative on Uber’s board, and the $100bn valuation of Naspers itself on Nice little earner with Mr Kalanick, who feels unjustly the Johannesburg stock exchange. Shares Naspers, operating profit/loss, $bn pushed out, although he has publicly in the latter rise and fall on news from 4 backed the choice of Mr Khosrowshahi. Hong Kong. In its last financial year, the Media & other TV & video Other senior people at Uber also need to firm’s share of profits from its Tencent 3 shape up. News of the hiring is believed to holding in effect represented all of the Total have been leaked by an anonymous board group’s trading profits; the “rump” of the 2 member before anything was announced business, which Mr van Dijk has control Tencent 1 to staff or even to the executive team that over, lost money (see chart). + has led Uber in recent months. That left So shareholders are dismayed that last 0 many at Uber annoyed; no one likes learn- year Mr van Dijk got a raise of 32%, to Other – internet ing vital news about their firm from press $2.2m. They say it is hard to see how much 1 2013 14 15 16 17 reports. To succeed, Uber’swhole board, as he is being rewarded for his own perfor- Financial years ending March well as Mr Khosrowshahi, will have to mance, and how much for that of Tencent. Source: Bloomberg show leadership. 7 Although 79% of votes at the AGM were 56 Business The Economist September 2nd 2017

2 StarTimes, a Chinese rival. ies face a difficult choice between spend- Seattle called Martin Selig to construct a And yet the group may still defy the ing a big share of their income on renting new 36-storey building, 23 floors of which doubters over time. Its online classified- their own place, or moving in with strang- will be dedicated to co-living. ads businesses, under brands such as OLX ers in a shared house to save money. The The model will get tweaked as develop- and letgo, together have 330m monthly us- Collective offers something different. ers see what works and what doesn’t. Mr ers in 40 countries. Sean Ashton ofAnchor Old Oak, the firm’s first building in Merchant is using data gathered from Old Capital, which owns Naspers shares, opti- north-west London, has been 97% occu- Oak to refine The Collective’s new build- mistically reckons that total profits in the pied for most of this year. The Collective is ings. Rooms will be slightly larger, because “rump” could soon grow faster than Ten- putting up two more co-living buildings in the tiny square footage is one of the main cent’s profits (which rose by 42% in 2016). London, one in Stratford and one in Ca- reasons residents give for moving on. Sen- Although the Tencent effect draws criti- nary Wharf. The notion of tiny rooms and sors monitor use of the common spaces, cism, it also means that Naspers has more shared luxury services is fairly new and lit- and in the new complexes the kitchens money to experiment. At the AGM,Mr tle tested, but the property industry is pay- will all be on one floor, rather than scat- Bekker rejected the idea that Naspers ing attention. Jack Sibley of TH Real Estate, tered around the building. Most of Old should sell its Tencent stake and give a a property investment manager, calls it Oak’s shared spaces are in fact fairly emp- short-term boost to shareholders. It could “one ofthe most promisingideas forthe fu- ty; the liveliest area is the launderette, be hard to find a buyer, and the Chinese ture ofliving to emerge forsome time”. where residents mingle and watch TV as government would probably want a say. The next step for Reza Merchant, The they wait forwashing cycles. For at least a while longer, the firm’s profits Collective’s founder, is expansion abroad. Maria Carvalho, a social-sciences aca- looksure to be made in China. 7 He is close to striking deals on buildings in demic at the London School ofEconomics, Boston and New York, and is talking to de- moved into the buildingbecause she want- velopers in Berlin, where historically low ed to live with other people, but did not Co-living models rents have been rising fast for the city’s want to have to find roommates. “I would young, creative types. The Collective has call it a hipstercommune, not a hippy com- Rent collective no real competitors in Britain but its move mune,” she says. She particularly likes to America will see it run into Ollie, a co- meeting friends walking home from the living firm in New York. train station but says kitchen utensils often Both of Ollie’s existing co-living build- go missing. (With too many co-livers to be ings are smaller than Old Oak (the largest able to know everyone personally, CCTV is of its kind in the world). But the American used in these areas as a guarantor of good Pricey housing markets in big cities firm will soon run a co-living space over 13 conduct and cleanliness.) have inspired a new kind ofhome floors of a building in Long Island City in The Collective and other companies ONDAY is “Game of Thrones” night the borough of Queens. It is being devel- like it have a choice to make, says Roger Mat The Collective’s Old Oak building. oped by Quadrum Global, a property in- Southam of Savills, a property firm. They Millennials congregate in TV rooms vestment company, whose financial mod- could continue focusing on incoming around the 11-storey, 550-person block. els predict that co-living will substantially workers to big cities, providing minimal Some gather at the cinema, lounging on outperformconventional rented flats in fu- private living space alongside attractive bean bags decorated with old graphics ture because the return per square foot is shared areas. But Mr Southam sees much from Life magazine. Nothing gets residents so high. more potential if co-living spaces can give out oftheirrooms like the hit TV show.This WeWork, a private firm that is the residents slightly more private space, al- is not a student dorm, however. It is home. world’s largest provider of shared work- lowing them to attract people already liv- The Collective is a pioneer of a new spaces and is valued at an estimated ing in cities. Starting from the smallest of property format known as “co-living”. In- $20bn, has a residential arm, WeLive, that rooms and working up may let co-living stead of self-contained flats, residents live is running co-living units out of a leased firms hit upon the perfect balance of in tinyroomswith12 square metresoffloor building on Wall Street in Manhattan. It shared and private space. Who, after all, space. Most contain just a bed and a bath- has joined forces with a property firm in doesn’t want a cinema in the basement? 7 room. During a two-night stay your corre- spondent could barely fit his shoulders into the shower cubicle. It is outside these rooms that the build- ing makes its pitch. It comes with a gym, spa, libraries, a good restaurant and a cine- ma. Residentsgetaccessto all ofthese ame- nities, as well as their room, for a rental payment of £800-£1,000 ($1,033-$1,292) a month. That includes all bills and high- speed Wi-Fi; they pay extra formeals in the restaurant. Residents have come up with their own services, too. The Collective houses a “library of things”, or a shared re- pository of useful objects—hammers, tape measures and even tents. Risingrentshave opened up a gap in the market. The ratio of average rents to in- comes in London rose from a quarter to a third between 2004 and 2014. In New York, averagerentshavegrownfrom29%ofaver- age income in 2002 to 34% in 2014. Most youngprofessionalsmovingtothrivingcit- The Young Ones, sans lentils -PYZ[ IHUR PU ,N`W[ [OL 4PKKSL ,HZ[ HUK (MYPJH *0) ¸>VYSKZ )LZ[ )HUR PU [OL ,TLYNPUN 4HYRL[Z¹ I` ,\YVTVUL` 58 Business The Economist September 2nd 2017 Schumpeter The parable of St Paul

Unileveris the world’s biggest experiment in corporate do-gooding payments have risen from 25% to 30% ofunderlying profits. So far so good. But Mr Polman has not been as nice to staff as you might expect. Their numbers have stayed at 170,000 (Kraft meanwhile has cut its workforce by 20% since 2013) but pay as a share of the firm’s output, or its “gross-value-added”, has fallen from 46% to 39%. Unilever’s pay per employee has been flat in dollar terms even as its top few managers have got 24% more on average. Mr Polman received $9m last year, a third more than his predecessor got (though less than his American peers). He argues that sustainability is good for shareholders because investment creates growth. Consumers, staff and regulators are attracted to firms that exhibit good conduct. For shareholders the clearest sign of success is Unilever’s global market share, which has risen from 16% to 18% since 2008, according to Alliance Bern- stein, a brokerage. That is impressive given that local firms are gaining ground from multinationals in the emerging economies where Unilever makes almost two-thirds ofits sales. But currency weakness has been a drag. Free cashflow per share has risen by 65% in dollar terms—a fairly average perfor- mance compared with a basketoften Unileverrivals. Total return (share price appreciation plus dividends) was 138% in 2008-16 in AUL POLMAN runs Europe’s seventh-most valuable com- dollars, behind the average for the peer group, although not by Ppany, Unilever, worth $176bn, but he is not a typical big cheese. much. MrPolman’sboldestclaimsabouthisfirm are over the top, ADutchman who once considered becominga priest, he believes but broadly speaking Unilever has been run in a fairly sustain- that selling shampoo around the world can be a higher calling able way and delivered reasonable results forits owners. and detests the Anglo-Saxon doctrine of shareholder primacy, What about the second question—whether such a firm can which holds that a firm’s chiefpurpose is to enrich its owners. In- survive with a fragmented base of shareholders, some of whom stead Mr Polman preaches that companies should be run “sus- may be out for a fast buck? Takeovers should happen only when tainably”—byinvesting, payingstafffairly, and bymaking healthy the target is badly run or if combining two firms will yield syner- products with as little damage as possible to the environment. gies. ButUnileveriswell managed and Kraft’sprobable changes— This is actually better forprofits in the long run, he argues: society more debt, and cost-cutting—it can do itself. and shareholders need not be in conflict. Kraft is a “roll-up”, a firm that relies on acquisitions and cost Mr Polman’s beliefs were tested in February when Unilever cuts to mask low growth. Its sales have declined for the past nine received a bid from Kraft-Heinz, a ketchup-to-hot dog gorilla con- quarters. Roll-up strategies usually end badly for investors. Still, trolled by Warren Buffett and 3G Capital, a fund known for rip- cheap debt means that, while such firms remain on a winning ping costs out of multinationals. If, in its own mind, Unilever is a streak, they can operate on a vastly greater scale than before (a good corporate citizen, then it sees Kraft as an angry American combined Kraft-Unilever might have had as much as $120bn of with no interest in the planet, heavy debts, no growth, very little debt). Many bosses, including, probably, Mr Polman, think nor- foreign presence, and an obsession with self-harming cost cuts. mal firms need protectingfrom them. Britain could adjust its take- Kraft’sbid fizzled when MrBuffettgotcold feet, butthe clash of over rules in favour oftarget companies. More countries could al- ideologies is not over. For one thing, Unilever seems to have been ter their fiscal codes to stop tax breaks for leveraged buyers or pressured into adopting some 3G-style tactics. In April it prom- they could copy France’s “Florange” law, which limits the voting ised to lift operating margins by 3.6 percentage points by 2020, to rights ofshort-term shareholders. carry out a share buy-back and to exit its poorly performing mar- garine business. Its investment in brands and plant and equip- Society v shareholder value ment is expected to be flat in 2017, having risen in formeryears. In fact, Unilever’s close encounter with Kraft suggests the jury is After a “cooling off” spell required by British takeover rules, still out on whether capitalism is too myopic to allow firms to op- Kraft can now bid again. Inspired by 3G, activist hedge funds are erate virtuously. The outcome so far broadly shows that markets stalking two rivals, Nestlé and Danone, and otherpeers are slash- work. Unilever’s shares were undervalued. Some of the changes ing costs. Mr Polman will probably stand down within two that it has made were actually in the pipeline anyway (for exam- years—he wantshissuccessorto be a Unileverinsider—raising the ple, in 2016 Mr Polman said margins would rise by up to 3.2 per- question ofwhether his vision is coherent and will endure. centage points by 2020). Kraft’s bid forced the company to fine- There are two key tests. Has Unilever really been socially vir- tune its strategy and articulate it better. As a result Unilever’s total tuous while creating lots of value for its owners? And does the return is now almost at the top ofits peer group. market for corporate control function as it should, so that such a But much depends on the next 24 months. Kraft could bid firm can survive? Start with the question of virtue. Since early again. An activist may attack Unilever. Mr Polman’s successor 2009, when Mr Polman took over, emissions, water usage and could repudiate his approach. Mr Polman is no saint, but his lega- waste have fallen by 43%, 38% and 96% respectively, per unit of cy is to have made one of Europe’s biggest companies a test case production. Investment (including capital spending, research, of how farshareholder primacy should go. If Unilever can’t keep branding and marketing) has risen to 20% of sales, from 18%. Tax halfan eye on the greater good, no firm can. Watch it closely. 7 Economics brief Six big ideas The Economist September 2nd 2017 59

America’s Social Security, for example, is largely pay-as-you-go. For this reason, its critics often compare it to a Ponzi scheme in order to discredit it. But the comparison can also workthe other way. IfSocial Secu- rity—a venerable entitlement that has spared millions from penury—bears some resemblance to a Ponzi scheme, then per- hapsPonzi principlesare notalwaysas dia- bolical as the name suggests. In some cases, those principles might indeed redound to everyone’s benefit. One such scenario was sketched by Paul Samuelson of the Massachusetts Institute of Technology in 1958. His thought experi- ment is easiest to understand when recast as an island parable (along lines suggested by Laurence Kotlikoff of Boston Universi- ty). The island in this parable is home to unusually tall cacao trees, hungry people, and little else. Only the young can climb the trees and pick the fruit, which must be eaten quicklybefore itspoilsin the hotsun. And only two generations (young and old) are alive at the same time. On such an island, the elderly have no way to provide for themselves. They are physically incapable of picking fruit. They cannot buy fruit from the young, because Overlapping generations they have nothingto offerin exchange. Nor can they live off any cacao pods saved Kicking the can down an endless road from their youth, because their stockpile will have rotted by the time they are old. There are no durable, imperishable assets that might serve as a vehicle fortheir thrift. The solution, ofcourse, is an intergener- ational Ponzi scheme. The young give fruit The final briefin ourseries on big economic ideas looks at the costs (and benefits) to the old on the understanding that the ofpassing on the bill to the next generation next generation will do the same for them N THE spring of 1899 William Miller per- when they grow frail. In effect, the young Isuaded three members of his Brooklyn In this series lend to theirparents and collect repayment prayer group to invest their money with from their children. In so doing, they serve him, promising them unearthly returns. 1 Coase and the firm as a link between two generations that He would pay a dividend of10% per week, never otherwise coexist. 2 Becker and human capital plus a commission for each new investor they could recruit. Soon, William “520%” 3 Say’s law Great minds overlap Miller was drawing throngs of depositors The scheme works, Samuelson pointed 4 Pigouvian taxes to hisdoor. So “greatwasthe crush”, byone out, only because “new generations are al- account, his staircase eventually gave way. 5 The natural rate of unemployment ways coming along”. If reproduction were Miller attributed his success to “inside in- ever to cease, the last generation would get 6 Overlapping generations formation”. But his real method was made nothing out of the scheme. Knowing this, famous20 years later by the man who per- they would not put anything in. But their fected it, Charles Ponzi. generation is never likely to be the last, the failure to contribute would also deprive Ponzi schemes like Miller’s pay a return chain could, in principle, continue indefi- the penultimate generation of a payout, to early investors with money raised from nitely. Barring a catastrophe, new marks leaving them no reason to take part either. later ones. When they run short of new will be born every day. Any anticipated future break in the chain contributions, they collapse. A scheme as This intergenerational logic lies behind causes the whole thing to uncouple. If the generous as Miller’s cannot last long. But the “pay-as-you-go” (PAYG) pensions com- scheme must ever end, it cannot even start. what if the promises were less extravagant mon in many countries. People contribute Samuelson’s paper was seminal but and the repayment intervals less tight? to the scheme during their working lives, not wholly original. A similar model was What if, for example, a scheme asked in- and receive a payout in retirement. Many described in 1947 by Maurice Allais, then vestors formoney in theiryoungeryears in people fondly imagine that their contribu- working in a bureau of mining statistics in return for a payout in their dotage? Over tions are saved or invested on their behalf, Paris, but his contribution had the “misfor- that time scale, a Ponzi scheme need not until they reach pensionable age. But that tune to be written in French”, as one schol- limit its recruitment efforts to the people isnotthe case. The contributionsof today’s ar has noted. The neverendingness of alive when it begins. It can repay today’s workers pay the pensions of today’s retir- these models plays havoc with a lot of eco- contributors with money from future par- ees. The money is transferred between nomic common sense. Economists know ticipants not yet born. And since the next generations, not across time. in their bones that budget constraints 1 60 Economics brief The Economist September 2nd 2017

2 eventually bind and that accounts must be ous example of such a scheme. Govern- principles are efficient not maleficent. But settled at the end ofthe day. But what ifthe ment debt can play a similar role (a pos- are those conditions ever found in the real end never quite arrives? sibility entertained by Peter Diamond of world? One way to lookforthem is to com- Such parables may seem too contrived MIT in a 1965 paper building on Samuel- pare interest rates (which represent the re- to be illuminating. Surely the islanders son’s insights). If the government does not turn on capital) and GDP growth rates benefit from a Ponzi scheme only because want to extract social-security contribu- (which reflect both population growth and the story arbitrarily denies them any way tions from the young, it can sell them long- increases in income per person). An alter- to save for their future. If the young could term bonds instead. When these bonds native, stiffer test (which works well under instead acquire a durable asset, they could mature, the government can repay them certain assumptions) is to compare invest- take care of themselves in their old age by by selling a fresh round of bonds to the ment and profits. If national investment is selling it for the things they need. Instead next, richer generation. greater than profits, a country is ploughing of eating a cacao fruit, islanders could A third, more anarchic way to transfer more into its stock of capital than it earns plant it to grow a new tree, which they resources from young to old is a specula- from it. It is as ifthe islanders are replanting could later rent or sell to young climbers tive bubble. In a bubble, people pay over all of the fruit they collect from the addi- when they retire. the odds for an asset, such as a house, in tional trees they have cultivated (minus In mostcases, thiskind ofsaving and in- the belief that subsequent investors will whatever fruit they need to compensate vesting does indeed serve people far bet- pay a higher price still. The overpayment themselves for their labour) plus a few ter. Capital accumulation enlarges the amounts to a contribution to a Ponzi more. The economy’seffortsto save and in- economy’s productive capacity, thereby scheme, redeemed not by the earnings of vest for the future are overloading the creating wealth, unlike Ponzi schemes, the underlying asset, but by overpayments available vehicles forthrift. which merely spread it around. Saving and from later investors. If each generation is Economists used to be confident that investing both store value and add to it, collectivelyricherthan the last, then the as- most economies were on the right side of turning one cacao fruit into a whole tree. set’s price can keep rising even if each buy- this test, earning far more in profit than Retirees can therefore expect to get more er sinks only the same percentage of their they invested. Recent research is less defin- out oftheir investment than they put in. (rising) income into it. itive. François Geerolf of the University of In some unusual cases, however, other California, Los Angeles believes that Japan factors may weigh in the Ponzi scheme’s fa- The younger-fool theory suffers from dynamic inefficiency. And he vour. First, saving and investing may run All these mechanisms have side-effects. cannot rule out the possibility that all the into sharply diminishing returns. If a soci- Government debt can crowd out produc- G7 countries (and nine others) suffer simi- ety is eager to transfer resources into the fu- tive investment. Bubbles can do the same. larly. If so, the implications are provoca- ture, it will accumulate a large stock ofcap- But in an economy sufferingfrom dynamic tive. TheyimplythatG7publicdebtissoak- ital, which may depress the return on inefficiency, this crowding out is a good ing up money that would otherwise be further investment. Think of an orchard thing. Such an economy has accumulated spent on further augmenting an overbuilt too densely packed with trees, each getting too much capital. It requires heavy invest- capital stock. Insofaras the proceeds ofthis in the others’ light and denuding their soil. ment to keep this large stock of machinery, government borrowing are spent on A second consideration is demography. equipment, buildings and infrastructure health care and pensions, the elderly bene- A growing population creates a natural growing in line with the economy. The fit disproportionately. Perhaps, then, G7 pyramid scheme. Each cohort of partici- young are tempted to add yet more capital public debt is diverting unfruitful efforts to pants will receive the money contributed in an effort to transfer resources to their fu- provide forthe future into providing forthe by a later, larger generation. Therefore they ture, older selves. Yet because the returns elderly instead. too can get more out of it than they put in. are so low, it is more efficient for them to Several scholars, including Qian Liang- Future generations may also be better off transfer resources directly to today’s elder- xin ofAnhui University, also point out that than their predecessors. They may benefit ly (by contributing to social security, buy- China often ploughs more into its capital from sources of economic advance (such ing government bonds or overpaying for stock than it earns from it. At China’s stage as improved technology) over and above the old people’sassets), on the understand- of development, this may not be a bad simple capital accumulation. This march ing that tomorrow’s young will do the thing, because the economy’s capital-in- ofprogress should allow a Ponzi scheme to same forthem. tensity is still in flux. But the combination pay a positive return to investors even if Under certain conditions, then, Ponzi of fast growth and repressed returns on the scheme only takes a constant percent- saving may help explain why China is so age from each generation’s income. prone to speculative bubbles, especially in Thanks to economic growth, 10% collected property. Working-age Chinese overpay from the incomes of today’s young will be forhouses, manyofwhich stand empty, on worth more than the 10% collected in the the assumption that they will sell them at past from their parents’ poorer generation. higher prices—not to a greater fool neces- To make things concrete, suppose a sarily, but to a younger, richer one. country’s population grows by 1% a year William Miller’s proto-Ponzi scheme and incomes per person grow by 4%. In lasted less than a year. His banks (includ- thiscase, a Ponzi scheme can offeran annu- ing the Hide and Leather National Bank Of al return of about 5% indefinitely, simply New York) closed his accounts and news- by taking a steady share of each genera- papers hounded him. He fled to Canada tion’s income. If the economy already has (eludingone pursuerbyduckinginto a Chi- a large stockofcapital, the return on saving nese laundry, according to Mark Gribben and investing might be less than that, espe- of the Malefactor’s Register, a blog) before cially given the risk involved. Such an the police eventually caught up with him. economy would suffer from what econo- But he never actually ran out of investors. mists call “dynamic inefficiency”. In these Even as he was escaping the country, enve- circumstances, an intergenerational Ponzi lopes addressed to his syndicate piled up scheme can be sustainable and desirable. at the post office, filled with contributions A PAYG pension is only the most obvi- from the next generation ofbelievers. 7 Finance and economics The Economist September 2nd 2017 61

Also in this section 62 Buttonwood: Long-term valuations 63 Indian demonetisation 63 Renegotiating NAFTA 63 International litigation 64 Russia’s largest private bank rescued 66 Free exchange: Market concentration and mark-ups

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

India’s economy the market, as factories move production inland where wages are cheaper, and Drifting apart partly to government attempts to lift poorerregions by investingheavily in their infrastructure. Arvind Subramanian, chief economic adviser to India’s government, earlier this Mumbai year wrote that its states’ divergence is “a deep puzzle”. The brief bout of liberalisa- India’s poorerstates ought to be closing in on richerones. Why are they not? tion in 1991 probably played a part initially, OUNTRIES find it easier to get rich est—roughly the same divergence as in by unevenly distributing the spoils of C once their neighbours already are. America or the EU today, and more equal more rapid overall economic growth. But East Asia’s growth pattern has for decades than in China. Now the trio is three times that burst of inequality should have self- been likened to a skein of geese, from Ja- richer (see chart). corrected by now. pan at the vanguard to laggards such as In some rich parts of the world, income One theory blames the states’ di- Myanmar at the rear. The same pattern can gaps between regions have in recent de- vergence on their isolation even in the In- often be seen within big countries. Over cades been widening. But India’s experi- dian domestic market, as a result of lousy the past decade, for example, China’s ence still puzzles economists. Poor regions infrastructure, red tape and cultural barri- poorer provinces have grown faster than benefitfrom technologydeveloped in rich- ers. Moving stuff from state to state can be their wealthier peers. India is different. Far er ones—from trains to mobile phones. as tiresome as exporting. Internal migra- from converging, its states are getting ever Workers in poorer places accept lower tion that would generate catch-up growth more unequal. Arecent shake-up in the tax wages, so firms build new factories there. is stymied by cultural and linguistic barri- system might even make matters worse. The catch-up process ought to be all the ers: poor northern states are Hindi-speak- Bar a few Mumbai penthouses and fasterif barriers to the movement of goods ing, unlike the richer south. Cuisines differ Bangalore startup offices, all parts of India or people are lower. Regions within China enough forinternal migrants to grumble. It are relatively poor by global standards. have converged rapidly, partly owing to is harder to have access to benefits and Taken together, its 1.3bn people make up state subsidies outside your home state. roughly the third and fourth decile of the Mr Subramanian thinks such argu- world’s population, with an income per Pulling away ments are overdone. India may not have person (adjusted for purchasing power) of India, biggest three states by net domestic mass migration on the scale that trans- $6,600 dollars. But that average conceals a product per person as % of smallest three* formed China, but it is still sizeable, he ar- vast gap. In Kerala, a southern state, the av- 350 gues, and has been rising as a share of the erage resident has an annual income per population even as convergence has gone person of$9,300, higher than Ukraine, and 300 into reverse. Inter-state trade is healthy, near the global median. With just $2,000 250 suggesting suitably porous borders. or so, an Indian in Bihar, a landlocked state 200 Another theory looks at India’s devel- of120m people, is closer to a citizen of Mali 150 opment model. Growth has relied more on IT or Chad, in the bottom decile globally. 100 skill-intensive sectors such as than on la- The gap has been widening. In 1990, bour-intensive manufacturing. This may point out Praveen Chakravarty and Vivek 50 have stymied the forces of convergence Dehejia of the IDFC Institute, a think-tank, 0 seen elsewhere, Mr Subramanian posits. 1960 70 80 90 2000 10 14 India’s three richest large states had in- Perhaps, however low their labour costs, comes just 50% higher than the three poor- Source: IDFC Institute *Out of 12 largest states the poorer places lack the skills base to 1 62 Finance and economics The Economist September 2nd 2017

2 poach jobs from richer rivals. but states have forgone some fiscal autono- can create enough jobs to grasp it. A more likely explanation is that the my,such as offering tax breaks to lure in in- Convergence is obviously desirable in a reasons some states lagged behind in the vestors. That may make it harder for poor country where the straggling states are first place—mainly to do with poor gover- states to catch up, says Mr Chakravarty. home to some of the world’s poorest peo- nance—are still largely in place. Bihar’s low Mr Subramanian notes, however, that ple. But it might also help avert a political wage costs make it lookattractive on paper the forces of convergence are gaining peril: that rich states start wondering if be- as a place to set up a factory. But many strength. Despite falling behind on in- ing lumped with farpoorer peers is in their firms seem to conclude they do not com- come, poorer states have been catching up interests, and start thinking the unthink- pensate for its difficulties. on human-development measures such as able: secession. In many states regional po- If that idea is correct, the introduction infant mortality and life expectancy.Fertil- litical parties compete with the national of a new goods-and-services tax (GST)on ity rates in the northern Hindi belt are fast ones that have mostly dominated the fed- July 1st might have worsened the trend. falling to levels already reached by, for ex- eral government and quashed any such Lots of state-level levies have been re- ample, Tamil Nadu, a rich southern state. talk. The questions over the divergent for- placed with a single tax. Barriers to inter- India’s “demographic dividend” is largely tunes of Indian’s states are puzzling. They state trade have become markedly lower, an opportunity forits poorer states—if they may yet become more serious. 7 Buttonwood Getting the long term right

The trickiest part offorecasting the distant future concerns valuation HATisthe rightwayto investforthe roneous estimation of valuation account- Wlong term? Toomany people rely on Slim pickings ed forall the forecast error. past performance, picking fund managers Asset classes, median real annual return, % There are two possible conclusions. with a “hot” reputation or backing those Over seven years, June 1994-March 2017 One is that GMO is simply wrong about asset classes that have recently done well. By forecasted return, % mean reversion. Equities have moved to a 5051015+– Just as fund managers cannot be relied on new, higher valuation level. This sounds to be consistent, returns from asset classes 12 to 14 uncomfortably like the famous quote are highly variable. The higher the initial 10 to 12 from Irving Fisher, an economist, before valuationoftheasset,thelowerthefuture 8to10 the 1929 crash, that stocks had reached a returns are likely to be. 6to8 “permanently high plateau”. But there is That is pretty clear with government 4to6 some justification for a valuation shift: bonds. Anyone buying a bond with a 2to4 American profits have been high, relative yield of 2% and holding it until maturity 0to2 to GDP, fora longperiod oftime. This may can expect, at best, that level ofreturn (be- -2 to 0 be a result of monopoly power in some fore inflation) and no more. (There is a -4 to -2 industries (see Free exchange), or perhaps small chance the government might de- -6 to -4 ofthe reduced bargaining power ofwork- fault.) With equities, the calculations are -8 to -6 ers in an age ofglobalisation. not quite so hard-and-fast. Nevertheless, -10to-8 A more obvious argument is that, with it is a good rule-of-thumb that buying Seven-year annual real returns forecast yields on cash and government bonds so shares with a low dividend yield, or on a June 30th 2017, % low, investors are willing to pay a high high multiple of profits, is likely to lead to 42024+– price for equities because they represent lower-than-normal returns. Emerging theironlyhope fordecentreturns. Butgiv- equities So a sensible approach to long-term in- Emerging-market en the low level of dividend yields and vesting would assess the potential re- bonds the sluggish rate ofeconomicgrowth, pro- International turns from asset classes, given their valua- large equities fitswill have to keep risingasa proportion tions and the fundamentals, and allocate of GDP to allow high equity returns to US bonds assets accordingly. That is what GMO,a continue. That seems unlikely. Either International fund-management company, has been bonds hedged there will be a political reaction—govern- tryingto do fordecades. It has made some US large ments will clamp down on firms in re- common-sense assumptions about the equities sponse to public unrest—or, more prosai- fundamental drivers of returns and then Source: GMO cally, tighter labour markets mean that assumed that valuations would return to wage growth will start to erode profits. average levels over a seven-year period. curate for asset classes such as emerging- Either way, it is understandable that In one sense, this process has been a market bonds and international (non- GMO does not want to give up on the idea success. The assets that GMO thought American) shares; annual returns have of mean reversion just yet. Its latest fore- would performwell have offered relative- been within 1.5 percentage points of its casts are pretty downbeat (see bottom ly high returns; the assets it thought forecasts. But for American equities, GMO chart). The real returns from most asset would perform badly have offered low was too gloomy, underestimating returns classes are expected to be negative; only ones (see top chart). But if the ranking has by around fourpercentage points a year. emerging-market equities offer a decent been correct, the level of return has not The reason for this error is pretty clear. return. Investors who disbelieve those been. Assets that GMO thought would Equity valuations have not returned to the forecasts are in essence betting that things yield a negative return of -10% to -8%, for mean, as GMO thought they would, but will be “different this time”. That is cer- instance, have in fact suffered average have stayed consistently above their his- tainly possible but it requires a lot offaith. losses ofonly -2.8%. torical levels. GMO was fairly accurate in GMO’s forecasts have been pretty ac- its forecast for dividend growth, but its er- Economist.com/blogs/buttonwood The Economist September 2nd 2017 Finance and economics 63

The North American Free-Trade Agreement Indian demonetisation Paint it white Having a domestic

MUMBAI No windfallfrom stashed cash N NOVEMBER 8th 2016, Narendra Americans, as well as Mexico and Modi, India’s prime minister, O Canada, are being “very difficult” stunned its1.3bn people by announcing that most banknotes would soon be- VER game for a fight, President Donald come worthless. Indians then queued ETrump is picking one again with Cana- for weeks on end to exchange or deposit da and Mexico, America’s partners in the their banned money at banks. The com- North American Free-Trade Agreement fortforthe poor was that the greedy, (NAFTA). On August 27th he tweeted that tax-dodging rich would suffermore, as both were being “very difficult”, adding: they struggled to launder their suitcases “May have to terminate?” His strategy, of full ofcash by year-end. getting a better deal by threatening to pull Not so. A report from the central out altogether, is odd. It worsens relations bank, the Reserve BankofIndia (RBI), on with America’s negotiating partners, at a August 30th suggests that ofthe15.4trn time when Mr Trump’s plans face just as rupees ($241bn) withdrawn—roughly much opposition at home. mining American sovereignty. 86% ofall banknotes by value—15.3trn Before April American business was Mr Lighthizer has not yet settled on a rupees, or 99% ofthem, have been ac- quietly hoping that a Trump presidency proposal for a new ISDS system. One op- counted for. Either the “blackmoney” would lead to more tax cuts than trade ten- tion floated would allow countries to opt never existed or, more likely,the hoard- sions. That changed when news leaked in. In theory, this could give American in- ers found a way ofmaking it legitimate. that Mr Trump was poised to withdraw vestors protection in Mexican markets yet Defenders ofthe scheme say it is from NAFTA. Suddenlythe deal had louder retain the supremacy of American courts merely one plankofa wider fight against champions in American business, includ- at home. It seems inconceivable the Mexi- informal economic activity and corrup- ing the energy and technology industries. cans could accept such asymmetry. tion. Banks have enjoyed an influx of Knowing this, Canada and Mexico But if that led to the removal of ISDS cash. Digital payments are up (from a seem unruffled by Mr Trump’s latest provisions, the American business lobbies low base), as issuance ofreplacement threats as they go into the second round of are saying it would jeopardise their sup- notes has not caught up with the pre- NAFTA renegotiations on September 1st. port for any renegotiation. That might withdrawal peak(see chart). Earlieronesprompted panickyphone calls sound extreme—presumably they would Officials once privately salivated in from the Mexican president and the Cana- prefera deal without ISDS provisions to no hope that maybe a quarter ofthe money, dian prime minister. After the latest blast, deal at all. Their letters suggest that they ifnot more, would remain in the shad- Mexico’s foreign ministry merely released too are calling Mr Trump’sbluff. Mr Trump ows. An edict to the central-bankgo- a sniffystatement that “Mexico will not ne- can picka fight. But not his opponents. 7 vernor to renege on his promise to “pay gotiate NAFTA…through social media.” the bearer” ofunreturned, demonetised Any move to withdraw from the deal notes fuelled social-media rumours that would be challenged legally: by affected International litigation this could finance a one-offdividend to businesses, states and perhaps even mem- be dished out to all Indians. bers of Congress. Some legal scholars Courtly In fact, not much more than100 question the consensus view that Mr rupees a person is available. The RBI has Trump has the authority to trigger with- competition released the figure only now,claiming, drawal on his own. Joel Trachtman, a pro- improbably,that it needed to count the fessor of international law at Tufts Univer- cash in its tills. Its reputation for indepen- sity,argues that, since commerce and trade Othercountries want a slice of dence and competence has been dented. fall under the remit of Congress, with- London’s financial-litigation business So has national pride: demonetisation drawal withouttheirapproval “would be a has pared growth and handed backto usurpation of Congress’s powers under OFTILY as they may disdain the profit China India’s coveted crown ofbeing the constitution”. The president has an in- Lmotive, Britain’s judges are, on a nation- world’s fastest-growing large economy. terest in avoiding big battles with Con- al level, money-spinners. English law is of- gress, with which he needs to work to pass ten specified as the one under which com- his planned tax reforms. mercial contracts are to be interpreted and Re-monetisation The details of the deal are of concern to enforced. And disputes often end up being India, currency held by the public Americans outside government, too. On heard in British courts. But, like any busi- Rupees, trn August 23rd the chief executives of the ness, the law is competitive, and other ju- 20 three largest American business associa- risdictions want to snatch a share of this tions wrote a public letter to Robert Light- market. London is mounting its defences. 15 hizer, the United States Trade Representa- It has several hard-to-beat advantages: 10 tive, warning him against attempts to the use ofEnglish; a reputation forfairness; eliminate or weaken NAFTA’s investor- the centuries of precedent that lend pre- 5 state dispute settlement (ISDS) provisions. dictability. Richard Caird, a partner at Den- 0 These allow investors to sue foreign gov- tons, a global law firm, notes that a foreign 2016 2017 ernments, and have been invoked 59 times company can expect an impartial decision Source: Thomson Reuters under NAFTA. They offend those who see in an English court, even if it is pitted international arbitration panels as under- against a British firm. Over 70% of cases in 1 64 Finance and economics The Economist September 2nd 2017

duced for Financial List cases. In ordinary Russia descended into recession in 2014, it commercial courts, for example, different thrived. It more than doubled its assets partsofa trial are heard bydifferent judges. through deals to help Rosneft, a state-run On the Financial List, one judge hears the oil giant hit by sanctions, refinance dollar entire case. The jury is out on whether the loans, and to buy 74% of a Russian sover- new system improves justice. Litigants had eign Eurobond issue for 831bn roubles hoped Financial List cases would be faster. ($14bn). Last year the CBR named Otkritie But Vaninna Ettori, an adviser to the Chan- one often “systemicallyimportant” banks. cellor of the High Court, notes that the sort Its troubles began soon after. Rumours of cases that appear on the Financial List about its stability led twitchy depositors to would typically be expedited anyway. Ul- begin withdrawing funds. The process timately, as Mr Rubens points out, its suc- speeded up in July when Russia’s new gov- cess will depend on how many Financial ernment-backed ratings agency, Analytical List cases are overturned on appeal. Credit Rating Agency (ACRA), rated Otkri- Dubai and Singapore are unlikely to tie BBB-, barring it from holding deposits make much of a dent in London’s domi- from state companies or pension funds. nance. Its courts’ reputation has been built The collapse in mid-July of Yugra, Russia’s over many years, and the forces of inertia 34th-largest bank, fuelled fears that the stop people from changing contract terms. CBR’s clean-up campaign would eventual- Mr Caird notes that the true threat to Brit- ly reach Otkritie. In June and July, deposi- National treasures ain’s courts will be its departure from the tors withdrew some 435bn roubles EU. He questionswhetherfinancial institu- ($7.4bn), or 18% of Otkritie’s liabilities. The 2 the English commercial courts involve a tions that move operations to the conti- bank took a 330bn rouble loan from the foreign party. In 2015, Britain had a £3.4bn nent as a result ofBrexit will still use British CBR and opened an emergency credit line. ($5.2bn) positive balance of payments on courts. Brexiteers worry about the influ- Withdrawals continued and on August legal services. ence of European judges on British affairs 29th the CBR stepped in. It will take at least One way for other financial centres, after Brexit. Maybe they should worry a 75% stake in the bank and keep it func- such asDubai and Singapore, to compete is about continental European judges snap- tioning. It chose not to use a recently estab- by becoming hubs for arbitration—by ping up the valuable cases. 7 lished mechanism to “bail in” other credi- agreeing to abide by the decision ofa tribu- tors, nor to revoke the bank’s licence. It nal, disputants can bypass courts entirely. reckoned such measures could trigger sys- ButasPhilip RubensofTeacherStern, a law Russian banking temic turmoil. The size ofthe hole in Otkri- firm in London, points out, such tribunals tie’s balance-sheet is unknown. Some an- create no binding precedent. Financial Tooclosetothe alysts suggest that the failure of Otkritie’s firms often want their day in court. big shareholders—an eclectic and well con- So Singapore and Dubai, in the UAE, sun nected group of oligarchs and state-run have also setup special commercial courts. companies—to recapitalise the bank at its The Netherlands, France and Kazakhstan time ofcrisis betrays the depth ofits woes. CBR have similar plans. Mostly, these courts MOSCOW For now, the ’s move has halted the will conduct cases in English and apply in- panic. “It’s a good precedent that banks A central-bankrescue forOtkritie Bank ternationally accepted laws. Singapore don’t have to be closed,” says Oleg Kouz- and Dubai have even hired judges retired ADIM BELYAEV’S start in business in min ofRenaissance Capital, an investment from London and other jurisdictions. Vthe mid-1980s was to sell foreign watch- bank. But the rescue will also accelerate So far, however, they have attracted lit- es on the blackmarket in the Soviet Union. the consolidation of assets in the hands of tle international business. Since its estab- He became a financier, and by 2015 had leading, mostly state-owned, banks. Rus- lishment in 2015, no case has been heard in transformed his bank, Otkritie, into post- sia’s ten biggest account forsome 70% ofall the Singapore International Commercial Soviet Russia’s largest private lender. banking assets; large state banks make up Court based on a contractual agreement Named “Businessman of the Year” by a some 60% (see chart). Otkritie’s troubles between the parties to hear a case there, Russian magazine, he used an English term may stimulate a further “flight to quality”, though proceedings have been transferred to describe himself: “Risk-taker”. The risks says Alexander Danilov of Fitch Ratings. from other Singapore courts. Most cases have caught up with Otkritie. A run on its The big will get bigger. 7 heard in the Dubai International Financial deposits led this weekto its takeover by the Centre Courts after they opened to foreign central bank (CBR). The rescue is likely to litigants in 2011have had UAE links. be the largest in modern Russian history. Understated Nor is London complacent. Judges con- Russian banking has been plagued by Russian banks by assets ducted a survey of big users of the com- lenders with bad loans and inadequate Q2 2017 or latest available, $bn mercial courts, such as lawyers and bosses capital, and “pocket” banks that function 0 100 200 300 400 at financial institutions. One consequence as money-laundering hubs for influential Sberbank* was the creation in 2015 of the “Financial businessmen. The CBR has embarked on a VTB Bank* List”. Litigants in financial disputes, gener- campaign to clean up the sector, taking on Gazprombank* allywith over£50m ($65m)atissue, can ap- formerly untouchable banks with power- Otkritie Bank ply to have their cases heard on the list, by ful shareholders and clients. Since 2013 it Agricultural Bank* judges with expertise in financial law. has shut down more than 300 banks. Alfa Bank Some new procedures have been intro- Otkritie rose rapidly, out of a small pre- Credit Bank of Moscow decessor bank acquired in 2006. It has ex- Promsvyazbank panded aggressively, taking over several UniCredit Bank Russia Correction: Our economics brief on August 19th other lenders, a pension fund and a dia- asserted that estimates of the social cost of carbon Rosbank mond mine; it has been moving to acquire range from around $30 to $400 a megatonne. We meant Source: Bloomberg *State-owned “tonne”. Sorry. Russia’s largest insurer, Rosgosstrakh. As HIGH SCHOOL WILL NEVER BE THE SAME

Join the biggest stars in entertainment for an unforgettable, live SEPT 8 special, as we come together to rethink American high schools. Visit XQSuperSchool.org/live to get a sneak peek at the future of education. 87C 66 Finance and economics The Economist September 2nd 2017 Free exchange An offer we can’t refuse

Powerfulcompanies can be a boon to customers, but they still deserve scrutiny ting a raw deal. Consolidation has been accompanied by high profits and shoddy service. Elsewhere, however, margins are probably rising as a result of product differentiation and perso- nalisation. A name-brand designer, forinstance, can charge a pre- mium because the fashions sold by competitors, whatever their beauty,cannot(legally) carrythatname. Afirm selling bespoke IT services is in an analogous position. In tailoring its services to a customer’s unique circumstances, it provides somethingof value and raises the cost of switching, earning itself room to charge a premium. Niche products seem to be on the rise in some profes- sional services, in corners of the retail industry and on the high street—where quirky cocktail bars can charge far more than less funky mass-market watering holes. Such markets fall short ofthe ideal of perfect competition, but nor are they examples of lazy monopolies ripping offhapless consumers. Amazon and otherbiginternet firms belongto a different cate- gory from both the lumbering bullies of the airline industry and wallet-draining boutiques. High rates ofprofit combined with in- dustry consolidation suggest there is no shortage of market pow- er in the tech world. But it is tricky to work out what that means for consumers. In some cases, market power (and associated pro- HEN Amazon announced in June that it would buy Whole fits) can be seen as the prize for costly innovation. That, afterall, is WFoods, an upmarket grocer, for $13.7bn, other firms shud- the logic behind patents, which reward inventors for making dered. The spread of Amazonian tentacles is worrying to those knowledge public by granting them a temporary monopoly. In- wary of concentrated corporate power. But shoppers entering deed, market power can be a lure to innovation. Constructing a their local Whole Foods these days find oddly low prices along- new telecoms network is good for consumers but expensive; the side the new stacks of Echoes, Amazon’s voice-activated digital reason to do it is the knowledge that it will not be viable for late- helpmate. This raises a question. Is Amazon hellbent on building comers to compete away the first mover’s profits. a world-straddlingmonopoly,ormerelyinjectinginnovation and When there are benefits to scale, dominant firms can cut costs competition into yet another new market? For antitrust regula- and fatten margins without raising prices. The pile of data tors, the welfare of the consumer is the priority. Yet working out amassed byGoogle, forexample, givesitan extraordinary edge in how to protect it is harder than ever. sellingpersonalised advertisements, but also allows it to serve all Competitiveness in most industries is a matter of degree. In its customers more effectively. And in the tech world, market the idealised marketplace of economics textbooks, the price peo- power can be tenuous. New platforms displace old ones, and ple pay forgoods equals the cost ofproducing an additional unit. fresh technologies can undercut the value even of sprawling Any higher, the theory goes, a competitor could cut the price a physical networks. Yet innovation-derived market power should smidgen, sell another unit and profit. Yet outside commodity not give firms a free pass—even ifprices fall as a result. markets, most firms can charge more than marginal cost. Com- peting products are not perfect substitutes (no two brands ofpas- Kale joys ta sauce are exactly the same) and rivals cannot swoop in at once. Tech giants like Apple and Facebook work to enmesh their cus- The more distinctive a product, and the higher the barriers to en- tomers in ecosystems that are difficult to escape from. Big firms try,the more its sellerresembles the nasty monopolies ofthe text- can use the hordes of customers acquired in one business to put books: raising prices and gouging profits. Breaking up such mo- pressure on suppliers or squeeze customers in another. Microsoft nopolies—as America’s regulators once carved up Standard Oil once argued that bundling its browser with its Windows operat- and AT&T—is good forconsumers and the economy as a whole. ing system gave consumers an extra boon at no cost; rivals If the competitiveness of markets is a spectrum, research sug- thought consumers would lose out by becoming more captive to gests that American business has been moving along it, and not Microsoft’s systems. The question hanging over today’s antitrust in the right direction. Anew workingpaperfrom the National Bu- debates is whether startling deals for consumers—from Gmail to reau of Economic Research, by Jan De Loecker of Princeton Uni- cut-price organicalmond butter—are the happyby-products ofin- versityand Jan EeckhoutofUniversityCollege, London, provides novation or the foundations of formidable barriers to competi- some starkevidence. The authors analyse data on publicly traded tion, which will ultimately harm consumers. American firms from 1950 to 2014. From 1950 to 1980, average Fornow,the grocery market seems healthy enough. Amazon’s mark-ups—that is, what firms charge customers above their cost annual sales are less than a third those of Walmart and its share of production—were relatively low (and flat), at about 18% over of the grocery market is an unimpressive 2%, even after its recent cost. Since1980, however, mark-ups have risen steadily, to 67% on acquisition. Both Amazon loyalists and Whole Foods shoppers average. That translates into growth in the consumer-price level, are likely to enjoy the perks ofthe combination, and cheaper avo- relative to firms’ costs, of about1% per year. cados will come as a reliefto hungry hipsters. But regulators must But this rise in market power comes in several guises, with va- be vigilant, lest the time come to say: Stop! Good buy to all that. 7 rying implications for consumers. In some industries—such as airlines, telecoms and retail banking—the public seems to be get- Economist.com/blogs/freeexchange Science and technology The Economist September 2nd 2017 67

Also in this section 68 Combating secondary cancers 70 Heart disease and inflammation 70 How plesiosaurs swam

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

Quantum cryptography in space so called because it happens without any- thing physical passing from one place to The early bird another, involves the sender changing a quantum aspect of one photon of an en- tangled pair that he has control over, and the receiver observing the same change in the other member of the pair, over which Beijing he has control. A series of such changes on successively transmitted photons can car- The world’s first quantum-cryptographic satellite networkis likely to be Chinese ry information, provided a code has been N THE never-ending arms race between tum information securely. Such repeaters agreed on in advance. Iencryptors and eavesdroppers, many of are theoretically possible, but so techno- To minimise the amountofatmosphere those on the side that is trying to keep mes- logically complex that they remain impos- in the way, and thus the risk of signal dis- sages secret are betting on quantum me- sible in practice. ruption, Dr Pan and his team put their chanics, a description of how subatomic An alternative is to beam entangled ground station for this experiment in particles behave, to come to their aid. In photons through the vacuum of space, Ngari, a region of south-western Tibet that particular, they think a phenomenon where there is nothing to absorb them. has an altitude of 5,100 metres. They called quantum entanglement may pro- This would mean transmitting them via beamed one of an entangled pair of pho- vide an unsubvertable wayofdetermining satellite. Whether that can be done while tons to Micius and kept the other on the whether or not a message has been inter- preserving entanglement was, for a long ground. They then entangled the ground- cepted by a third party. Such interception, time, unclear. But it is clear now. Experi- ed photon with a third photon, and mea- quantum theory suggests, will necessarily ments conducted recently, by Pan Jianwei, sured how this altered its polarisation and alter the intercepted message in a recognis- a physicist at the University ofScience and the polarisation ofthe photon on the satel- able way, meaning that the receiver will Technology of China, in Hefei, have lite. The result, reported in July, was that know it is insecure. This phenomenon de- shown that it can. the two do, indeed, change in lockstep. The pends on the fact, surprising but true, that team had thus succeeded in teleporting in- particles with identical properties which The keys to the high castle formation from the ground to the satellite. are created simultaneously are entangled Such tests have been made possible by the In a third study, also published in July, in a way that means one cannot have its launch, in August 2016, of Micius, the Dr Pan showed that Micius is able to trans- propertiesaltered withoutalso altering the world’s first quantum-communication sat- mit useful information, in the form of other, no matter how farapart they are. ellite. Micius (named after a Chinese phi- quantum-encryption keys, to a ground sta- Researchers in several countries have losopher of the 5th century BC, who stud- tion in Xinglong, near Beijing. The trans- experimented with the idea of quantum ied optics) now orbits Earth at an altitude mission of such keys is crucial to quantum encryption, with some success. They of 500km. Using it, Dr Pan and his col- cryptography. Quantum-encryption keys have sent quantum-entangled messages leagues have been testing the protocols are the quantum states of long strings of through optical fibres, and also through the that a global quantum-communications photons. Using one, a receiver can decrypt air, as packets of light. This approach, networkwill need to work. a message which has been encrypted with though, suffers from the fact that the signal Their first study, published in June, the key in question. is absorbed by the medium through which showed that entangled photons sent by The security of quantum cryptography it is passing. The farthest that a quantum the satellite to pairs of ground stations re- relieson the factthateavesdropping breaks signal can be sent through an optical fibre, main entangled, even when those stations the entanglement by observing what is go- for example, is about 100km. Sending one are as much as 1,200km apart. Following ing on. It is a real-life example of the farther than that would require the inven- that success, they attempted to use entan- thought experiment known as Schrödin- tion of quantum repeaters, devices that glementto “teleport” information from the ger’s cat, in which a cat in a box remains could receive, store and re-transmit quan- ground to orbit. Information teleporting, both dead and alive until someone opens 1 68 Science and technology The Economist September 2nd 2017

2 the box to look—at which point it becomes munications payload on board China’s a diameter of about 7,000nm (nano- one or the other. Though entanglement- space station, which is scheduled for com- metres, or billionths of a metre). The spas- breakingwill notbe noticed bythe receiver pletion by 2022. Having this device on ers created by the two researchers, by con- of a single photon, doing it to a series of board the station will mean it can be main- trast, are a mere 22nm across. They consist photons will be statistically detectable, tained and upgraded by human opera- of a gold core with a diameter of10nm sur- alerting him that the line is insecure. tors—a rare example of space-station crew rounded by a silica shell doped with fluo- This third demonstration ofMicius’s ca- doing something that could not easily be rescent dyes. The outer surface of this shell pabilities paved the way for a subsequent, accomplished by robots. If all this goes is coated with folicacid. successful, attempt to share a secure key well, the ultimate goal is a world-spanning A conventional laser consists of a reso- between Xinglong and a station 2,500km ring ofsatellites in geostationary orbits. nator (usually a chamber with mirrors at away in Nanshan, a town in Xinjiang, Chi- One question DrPanand his colleagues either end, between which the light being na’s westernmost province. To do so, Mi- particularly want to answer with their amplified bounces), and a gain medium, cius sent one half of a stream of entangled next experiments is whether entangle- which sits between the mirrors and takes photon pairs to Xinglong when it passed ment is affected by a changing gravitation- external energy (also often in the form of over the place, and held the other half on al field. They could do this by comparing light) and employs it to amplify the bounc- board for two hours until it passed over photons that stay in the weaker gravita- ing light. In the spasers Dr Zharov and Dr Nanshan on its succeeding orbit. tional environment of orbit with their en- Stockman are using, the gold actsasthe res- The next stage, scheduled to happen in tangled partners sent to Earth. He also has onator and the doped silica as the gain me- about five years’ time, will be to launch a other questions about the basic physics dium. Instead of amplifying light, the sys- quantum-communications satellite in a underlying entanglement—in particular, tem amplifies plasmons oscillating across higher orbit than Micius’s. The altitude Dr how it is that an entangled particle the surface ofthe gold sphere. Pan has in mind is 20,000km, which will “knows” the result of changes made to its The device’s other ingredient, the folic permit the satellite to communicate simul- far-distant partner? That would be Nobel- acid, is its guidance system. Unlike most taneously with a much bigger part of prizeworthy stuff. Albert Einstein, famous- healthy cells, cancer cells are usually cov- Earth’s surface and allow him to test the ly,called the phenomenon ofquantum en- ered with folate-receptor molecules. If a feasibility ofbuilding a practical quantum- tanglement “spooky actions at a distance”. spaser comes into contact with such a cell, communications network. He is also hop- Dr Pan’s work is helping to exorcise those it therefore tends to stick. So, if a horde of ing to put an experimental quantum-com- particular ghosts. 7 spasers is injected into someone with me- tastasising cancer, those spasers should quickly track down CTCs in the blood- Cancer stream or lymphatic system and bond to them. Laboratory studies show that, often, Pop! dozens ofspasers will attach themselves to a single cell. Once attached, they are quick- ly absorbed into that cell. Spasers so absorbed can be employed for two purposes: diagnosis and destruc- tion. Shining low-level laser light into a pa- tient, either through his skin or (to reach Microscopic lasers may stop tumours spreading around the body deeper inside) through a fibre-optic probe, T IS more than 50 years since “Fantastic Dr Stockman, are called “spasers”. This is causes cancerous cells containing spasers IVoyage” hit the silver screen. The film’s shortforsurface-plasmonamplification by to shine brightly. That reveals their loca- premise, shrinking a submarine and her stimulated emission of radiation. Surface tions. Applying more powerful laser crew of doctors to the point where they plasmons are clouds ofelectrons that oscil- pulses (though still at a level harmless to can travel through a patient’s bloodstream late over a conductive surface. Spasers gen- humans) transforms the spasers into kill- to repair damage in situ, though entertain- erate them in response to stimulation by ers. The idea behind this was Dr Zharov’s. ing, remains as absurd as it was in1966. Not an external light source. In a piece ofpast research he turned a laser so the idea that therapeutic machines Ared blood corpuscle has, forreference, onto some cells from a melanoma, an ag- small enough to circulate in this way might gressive form of skin cancer. One charac- be built. Indeed, perhaps inspired by the teristic of melanomas is the presence in film, several such efforts have been made. them of particles of melanin, a dark pig- Some are drug-delivery devices. Some are ment. These particles absorbed the laser ways of concentrating externally applied light, heated up, and, he discovered, thus energy into tissue that needs to be killed. created bubbles of steam around them- And they are starting to be approved for selves that could kill the cells they were in. clinical use. The researchers’ plan was to use their The latest attempt, by Vladimir Zharov spasers to do something similar to CTCs, of the University of Arkansas and Mark with the spasers substituting for melanin Stockman of Georgia State University, in particles. And it worked. The external laser Atlanta, involves injecting cancer patients pulses stimulated the spasers to produce with hordes oftiny lasers that will seek out plasmons that heated the water surround- and destroy so-called circulating tumour ing them in a cell to well over 100°C. That cells (CTCs). These are cells that have bro- created steam bubbles, the sudden forma- ken offa primary tumour and which, if left tion of which generated shock waves unchecked, might lodge in various parts of which blew the affected cells to bits. the body and turn into secondary cancers, To exploit this effect therapeutically, Dr a process called metastasis. Zharov and Dr Stockman plan to fit pa- The minuscule lasers which the pair tients with special wrist sensors. Such a use, ofa type developed a few years ago by Set spasers to “kill” sensor will use low-level laser light to de-1 THE FUTURE OF MATERIALS SUMMIT

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ANATOLY CHUBAIS NICK EARLE EGIL HOGNA CHRISTINA LOMASNEY Chairman 8;5LQTGFQèJQITUJWFYNTSX (MNJKJ]JHZYN[J (MNJKJ]JHZYN[J RUSNANO Hyperloop One SAPA Modumetal

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2 tect spaser-carrying CTCs passing through ing to tweak their spasers to respond to in- of treating coronary-artery disease, by de- blood vessels beneath. It will then swiftly fra-red, rather than visible light. Infra-red veloping ways to inhibit inflammation. activate a high-powered laser to destroy penetrates tissue more deeply than visible Canakinumab itself is a type of medicine those cells. With luck, this arrangement light can manage, so an infra-red-sensitive called a monoclonal antibody. Many such will keep secondary cancers at bay while a spaser should be more effective. drugs are expensive. They cost tens—some- patient’s primary tumour is dealt with. Exactlyhowgood an executionerof hu- times hundreds—of thousands of dollars a Spaser treatment would then continue for man CTCs the spaser system will be re- year. Though appropriate for treating peo- a while longer, to deal with leftover CTCs. mains to be seen. But even a partial slaugh- ple with actual illnesses, ora serious riskof Animal trials having been promising; ter would inhibit metastasis. And that developing one, they are not suitable for the two researchers are now planning to would have a potent effect on treatments use as general prophylaxes in the way that test the system in people. They are also try- forall sorts ofcancers. 7 statins are. But other prophylactic ways of reducing inflammation might be. Nor need such approaches be pharma- Medicine ceutical. For many years, epidemiology has shown an association between con- Heart of the matter sumption of oily fish and a lower risk of coronary-artery disease and strokes. A probable cause isthe anti-inflammatory ef- fect of fish oil, which is predominantly a type known as omega-3, because of a fea- ture of its molecular structure. Indeed, an Italian study published in 2002 showed A wonderdrug forheart disease isn’t that wonderful that one gram a day of supplementary N AUGUST 27th the results ofa trial of suffera furtherheart attackor a stroke than omega-3 oil reduced death from cardiovas- Oan anti-inflammatory medicine did those not so treated. cular disease by 30% in those who had re- called canakinumab were released at a Patients on canakinumab also showed cently survived a heart attack. meeting, in Barcelona, of the European a drop in ratesofdeath from cancers ofsev- The best advice of all, though, is “eat Society of Cardiology. Press reports were eral sorts, and in the actual incidence of less and exercise more”. Being overweight gushing, telling of a fabulous new drug lung cancer. As with heart disease, inflam- is, itself, a way ofprovoking inflammation. that would cut the risk of heart attacks and mation exacerbates the effect of cancer. And exercising, independently of its effect cancer at the same time. The coverage was The flip side of the study, though, is that on body weight, is also anti-inflammatory. so positive thatpeople readingorhearing it there were significantly more deaths from Numerous studies show this, and that ex- might have been forgiven for wondering infection among those who received cana- ercise protects directly against heart dis- when this treatment would be available to kinumab—an effect large enough to cancel ease. Diet and exercise rarely make the everyone. The answer is probably “never”, out the drug’s positive effects on mortality, front pages in the way that drug trials do— for canakinumab’s benefits have been including its anti-cancer effects. and should, of course, be supervised by a greatly oversold. This trial was, neverthe- The excitement surrounding this trial is doctor if the individual concerned has a less, important. Though it offered no im- therefore scientific rather than clinical. It dodgy heart. But for most people they re- mediate treatment, it confirmed what has provides evidence for a possible new way main the best medicine ofall. 7 long been suspected—that inflammation is an important factor in heart disease. It has been common knowledge for de- cades that one way to reduce someone’s risk of having a heart attack is to keep his cholesterol levels low. But that is only part of the story. About half of heart attacks happen to those who have what are con- sidered normal levels of cholesterol. Trials show that even people who do not have high cholesterol levels benefit from being prescribed cheap, cholesterol-lowering statin drugs. Since another effect of these drugs is to reduce inflammation, the suspi- cion has been that this is where the protec- tion is coming from. But the cholesterol- lowering properties ofstatins have made it impossible to isolate this effect. The new study, co-ordinated by Paul Ridker of the Brigham and Women’s Hos- pital in Boston, could lookat inflammation How plesiosaurs swam by itself because canakinumab reduces only that, and not cholesterol levels. Dr Plesiosaurs roamed Earth’s oceans for nearly 150m years, until their extinction 66m Ridker and his colleagues took 10,000 pa- years ago. They were propelled by four equal-sized flippers, unlike any animal alive tients who had had heart attacks and who today. A question that has long bothered palaeontologists is, did all four flap up and were receiving high doses of statins. They down, or were they rowing rather than flapping, or did the back ones steer rather than gave some of them quarterly injections of flap or row? As he reports in the Proceedings of the Royal Society, Luke Muscutt of canakinumab in addition. Participants tak- Southampton University, in England, has now answered this definitively. By testing inga150mgdose ofthe stuffproved15%less robotic replicas of plesiosaur flippers in a water tank he has shown that all four flapping likely,over the four years the trial lasted, to up and down is by far the most efficient and powerful arrangement. Books and arts The Economist September 2nd 2017 71

Also in this section 72 Becoming Paul Samuelson 73 Samuel Pepys and John Evelyn 74 Karl Ove Knausgaard’s new essays 74 How “Bake Off” went global

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Mikhail Gorbachev “Childhood, Boyhood, and Youth” (from the title ofTolstoy’s semi-autobiographical The story of a good Soviet man trilogy), and glimpses some answers there. Mr Gorbachev was born in the village of Privolnoye, in Russia’s southern steppe, in 1931, a breaking-point in Russian history with more drastic consequences, in many ways, than those of the revolution of 1917. How a peasant boy turned Communist Partyboss ended the cold warand buried Stalin consolidated absolute power in his the Soviet Union hands, and unleashed brutal collectivisa- N DECEMBER 23rd 1991Mikhail Gorb- tion and a famine which claimed the lives Gorbachev: His Life and Times. Oachev, the last leader ofthe Soviet Un- By of two of Mr Gorbachev’s uncles and an ion, and Russia’s first president, Boris Yelt- William Taubman. W.W. Norton; 880 aunt and destroyed the Russian peasantry. sin, met for eight hours to discuss the pages; $39.95. Simon & Schuster; £25 One of his grandfathers rejected collec- transferofpower. At the end, they downed tivisation, kept an Orthodox icon in his a couple of vodka shots and Mr Gorbach- 70 years of lies and fear, end the cold war house and was arrested in 1934 for not car- ev, feeling unwell, disappeared into his and bury the Soviet Union? Was he a pro- rying out orders to sow; he had no seeds. back-office while Yeltsin strode off“as ifhe duct ofthe Soviet system, as he claimed, or The other was a communist who wel- were marching along a parade ground”, its “genetic error”, as Andrei Grachev, an comed and assisted collectivisation, hung recalled Alexander Yakovlev, a close Gorb- earlier biographer described him? What portraits of Stalin and Lenin on his wall achev ally who had brokered the meeting. made Gorbachev Gorbachev? and yet was arrested in 1937—to make up When Yakovlev went to see his old These are the questions William Taub- the quota for Stalin’s great purges. Miracu- comrade, he found him lying on a sofa, man, an American political scientist, sets lously, both grandparentssurvived. But the tears welling. “You see, Sash, this is how it out to answer in his comprehensive and brutality of collectivisation and the story goes,” said Mr Gorbachev, who had just immensely readable account of Mr Gorb- of how the communist grandfather was lost his job as the president of the Soviet achev’s life. “Gorbachev is hard to under- tortured left an enduring sense ofinjustice. Union and the country with it. Yakovlev stand,” the former Soviet leader told Mr Anotherformative memorywasthat of tried to console him, but he too was chok- Taubman, speaking of himself in the third war. Mr Gorbachev was ten when his ing. “A feeling that something unfair had person. The author applies a Tolstoyan father, a gentle and lovingman, went to the happened was suffocatingme. Aman who lens to Russia’s recent history and displays front and his village was overrun by the had brought drastic change to the world particularsensitivity in his assessment ofa Nazis. Mr Gorbachev’s father, mistakenly …was a helpless victim of the cruelty and life that would prove richer than politics. It reported killed, eventually returned home capriciousness ofhistory.” is the logical continuation of Mr Taub- in 1945. As Mr Taubman notes, the close Itwasa historythatMrGorbachev him- man’s biography of Nikita Khrushchev, escape of his grandparents and his father selfhad set in motion. Eversince the end of which won a Pulitzer prize in 2004. from tragedy-in-the-making instilled in the the Soviet Union, the question of “why” Mr Gorbachev’s use of unnatural and boy a sense of optimism and confidence has lingered in Western, Russian and Chi- hackneyed Soviet “newspeak” made him that sometimes went too far. For all its nese minds. Why did a man at the head of seem like an apparatchik. But beneath it hardship, he had a happy childhood. a superpower undermine his own author- was a bedrock of moral instinct and com- He was proud that he could work with ity? Did he simply fail to understand the mon sense that informed his choices far his father in the fields for 20 hours a day, consequences of his actions, or did he act more than Marxist dogma and Soviet ide- caked in dirt and fuel, operating a huge out of courage and vision? How did Mr ology. How did these normal human re- combine harvester onto which he could Gorbachev, the peasant boy turned Com- flexes survive in a not entirely normal clamber from any direction—“even where munist Party boss in a fedora, become the country? the reel was revolving and the cutters were statesman who liberated his people from Mr Taubman calls his first chapter gnashing their teeth.” Mr Gorbachev’s1 72 Books and arts The Economist September 2nd 2017

2 hard workwas rewarded with the Order of Germany and ultimately its membership the Red Banner of Labour, which helped of NATO, Mr Bush would play to Mr Gorb- him get into Moscow State University, achev’s weakness for wanting to be lion- where he met his wife, Raisa. ised, but felt no obligation to help Russia fi- Mr Gorbachev began his professional nancially or accommodate him politically. life with a set ofvalues that would later de- “To hell with that! We prevailed. They fine his policies. He rejected physical vio- didn’t. We can’t let the Soviets clutch vic- lence asa wayofruling, believed in dignity tory from the jaws of defeat,” he said to and hard work, and respected private life. Helmut Kohl, Germany’s chancellor. This He was no dissident. Indeed, in many triumphalism was misplaced and would ways he was an exemplary Soviet man— later backfire on America. hardworking, of peasant pedigree and Mr Taubman argues that those in pow- lackingbourgeoisinstincts, such asa desire er in the West lacked the vision and will to for private ownership. He believed (and extend a Marshall-type plan to Mr Gorb- still does) in the high principles of social- achev’s Soviet Union (and later to Yeltsin’s ism, as preached and yet never practised Russia). Those who had it were no longer by the Soviet regime. The paradoxwas that in power. In 1991 Mrs Thatcher appealed to only a Soviet man who was determined to Mr Bush: “We’ve got to help Mikhail…Just implement those principles without re- a few years back, Ron and I would have sorting to lies and violence could disman- given the world to get what has already tle the Soviet regime. happened here.” If the West did not come The first attempt to give socialism a to Mr Gorbachev’s aid, she argued, human face was made in Czechoslovakia “history will not forgive us.” in1968by MrGorbachev’s closest universi- Mr Gorbachev’s life—almost uniquely ty friend, Zdenek Mlynar, and others. That among Soviet leaders—did not end in of- Looking back with smiles it was crushed by Soviet tanks did not turn fice, and neither does Mr Taubman’s bio- Mr Gorbachev from the idea of socialism, graphy. Incomprehensibly, for modern partment’s purpose was to offer engineer- but made him all the more determined to Russian politicians, Mr Gorbachev ing students a little background in eco- try it again when he came to power nearly emerged from his presidency almost emp- nomics. The faculty published few articles, two decades later. Dismantling the Soviet ty-handed; he would earn moneyadvertis- and the department did not even have a Union was the last thing Mr Gorbachev ing Pizza Hut and Louis Vuitton handbags. PhD programme. wanted; he came to save it, not to bury it. But his biggest loss was that of his beloved While there, Samuelson revolutionised Ironically, it was the power of the gen- wifeand helpmate, Raisa, who died of leu- economics, bringing mathematical meth- eral secretary and the party apparatchiks’ kaemia in 1999. In their last days together ods from the fringe to the centre of eco- continued fear of offending him that al- Mr Gorbachev, wearing a sterilised mask, nomic theory. He changed how econom- lowed Mr Gorbachev to achieve what he held herin hisgiantcombine driver’sarms, ics was taught with a textbook that would did. He did not take over as party leader reminding her of their life together. Mr be used by generations ofstudents. And he armed with a grand strategic plan (he Gorbachev’s dignified retirement—far attracted talented academics and students would not have lasted long if he had). He more than his politics—helps explain what to the MIT economics department, helping simply wanted to improve the dismal liv- made Gorbachev Gorbachev: a good man to turn it into the powerhouse it is today. ing conditions of his countrymen, which from the Soviet Union. 7 The first volume of Roger Backhouse’s mattered more to him than the Soviet Un- biography describes Samuelson’s life up to ion’s geopolitical status as a superpower, 1948, the year he published “Economics: which he took for granted. His instincts Paul Samuelson An Introductory Analysis”. Mr Backhouse told him that if the country were relieved describes Samuelson’s undergraduate of excessive internal control and its long Practical theorist education at Chicago, his time as a gradu- confrontation with the West, it would right ate student and junior fellow, his wartime itself under the continuing leadership of work for the government and his early the party. His foreign policy flowed from years at MIT. Samuelson’s later life, includ- that. It was his humanity rather than his of- ing his receipt of the Nobel prize in 1970, ten woollystatementsthatpersuaded Mar- will be covered in a second volume. Founder of Modern Economics: Paul A. garet Thatcher that he was a man she could When Samuelson started out, debates Samuelson, Volume 1—Becoming Samuelson, “do business” with. over economic theory were predominant- 1915-1948. By Roger Backhouse. Oxford Yet, revealing as the book is about Mr ly verbal rather than mathematical; in 1940 University Press; 760 pages; $34.95 and £22.99 Gorbachev’s ability to overcome ideologi- 70% of articles on economic theory in the cal dogmas that required squaring up to N 1940, Paul Samuelson needed an aca- American Economic Review did not include the West, it is equally revealing about how Idemic position. As a graduate student any maths. Consequently, different Western leaders were unable or unwilling and then a juniorfellowatHarvard, he had schools of economic thought flourished, to believe him. This became evident dur- achieved a strong publication record and each with its own complex ideas. ing the presidency of the elder George impressed his professors. Joseph Samuelson realised thatthe use of com- Bush, some of whose advisers, labelling Schumpeter described him as “the most plicated mathematics could clarify ideas themselves “realists”, argued that Mr gifted graduate we have had these many and unify different fields under a common Gorbachev’s reforms made him poten- years”. Nonetheless, eminent economists framework. His approach culminated in tially more dangerous than his predeces- doubted he would be able to find a presti- the idea that people try to optimise their sors. He was, said Brent Scowcroft, Mr gious position because his work was too well-being, which he then used to think Bush’s national security adviser, “trying to mathematical. about overall welfare. This insight allowed smother us with kindness”. Samuelson joined the economics him to describe theories mathematically Even when Mr Gorbachev accepted the department at the Massachusetts Institute and to work out their implications by solv- fall of the Berlin Wall, the unification of of Technology (MIT). At the time, the de- ing equations. Samuelson was able to 1 The Economist September 2nd 2017 Books and arts 73

2 apply this method of analysis to several Diary-writers a principal officer of the navy, could be different fields, including consumer prefer- radical in religion and politics, exuberant ence theory, the economics of trade and Men, pen and ink in friendship, restlessly bibulous, guiltily labour economics. devoted to music and theatre, congenitally The Great Depression was in full swing lascivious, prone to bouts of violent when Samuelson began hisstudies. He un- jealousy, and often generous to friends and derstood the challenge that high unem- family. ployment presented to the free-market the- Evelyn, unfairly dismissed by Virginia The Curious World of Samuel Pepys and ories he had learned at Chicago. He Woolf as “something of a bore”, was born John Evelyn. By Margaret Willes. Yale adopted Keynesian ideas, arguing that to into minor aristocracy, conservative in University Press; 282 pages; $27.50 and £20 ensure full employment governments matters of church and state, controlling should spend to make up for shortfalls in AMUEL PEPYS and John Evelyn were and misogynistic, and obsessed with gar- private demand and investment. And he Samong the most determinedly inquisi- den design and horticulture. Yet he would came to believe that governments have a tive chroniclers of 17th-century England. sometimes, like Pepys, take women as role to play in improving social welfare. Of all the period’s diarists and emergent friends and treat them as equals. He was His textbook for undergraduate eco- memoirists, it was Pepys and Evelyn who also civic-minded; in the 1660s he wanted nomics students included Keynesian offered the most complete vision ofwhat it London planted with an array of vegeta- ideas. As a result, he attracted criticism meant to embrace the great experiment tion to counteract the city’s pollution. from industrialist donors to MIT. That did that was the English Renaissance. Ms Willes establishes and expands on not prevent his book from succeeding, and Both men were inveterate collectors of these qualities by attending to both men’s it remained the standard economics text- curiosities and books. Both were marked diaries (Pepys kept his from 1660 to 1669, book for undergraduates until the 1990s. by civil war, regicide, the advent of a Evelyn from 1640 to 1706), by examining Ironically, even though it was written by a republic and the restoration of monarchy. their correspondence, and by placing strong proponent of mathematics in eco- Both endured the threat of plague, the those writings alongside the papers of nomics, it is not maths-heavy. Perhaps closing and the reopening of the theatres, their contemporaries. Still, her book is not drawing on his experience of explaining the outbreak of the Great Fire of 1666 and strictly a biography. Rather, it is an attempt economicconceptsto governmentofficials the political turmoil of the Glorious Revo- to use the strange and inquiring lives of during the war, Samuelson made the book lution in 1688. And both were involved Evelyn and Pepys to illuminate the pecu- accessible. It was written in a colloquial with the Royal Society in London, in the liarity oftheir age. style, with practical examples and even fic- flourishing of empiricism and natural The result is a finely balanced work. It tional stories that demonstrated the im- philosophy that took place across the succeeds in offering a strong impression of pact that economic policy has on people’s country and in the trying of exotic and the period’s two great diarists: the reader lives. Samuelson intended the book to be newly available food and drink—tea, cof- learns a great deal about their reading hab- read by students who were not specialis- fee, chocolate, pineapples. On occasion, its, their domestic and romantic difficul- ing in economics. their feelings about these innovations con- ties, their love of animals (Evelyn kept a Mr Backhouse looks at Samuelson’s flicted. Yet they were united by a commit- tortoise, Pepys a monkey and a tame lion). personality as well as his ideas. He reveals ment to the importance of finding things It also captures the bizarre world they in- a man who was publicly modest but pri- out, and over the course of their lives they habited. Robert Hooke, a philosopher, tries vately boastful. Samuelson played down became dear friends. cannabis; a man is encased in a diving bell the originality of some of his work (he re- Margaret Willes’s new book shows and submerged in the Thames; men of sci- ferred to the Stolper-Samuelson theorem more clearly and more engagingly than ence assemble in private to administer opi- as just an extension of the work of Eli most previous works how this friendship um to dogs—and then dissect them. Hecksher and Bertil Ohlin) as well as his developed, and offers a vivid and subtle Such occurrences are entertaining and contributions to collaborations with other depiction of her subjects’ sensibilities. instructive. But Ms Willes’s book is not economists. In his undergraduate diary, Pepys, who was born to quarrelsome and without its shortcomings. Herprose can be however, he compared his independent barely literate parents and rose to become inattentive (“take the bull by the horns”;1 confirmation of old theorems to the dis- covery ofcalculus . As well as Schumpeter at Harvard, Samuelson’s teachers included Frank Knight at Chicago. Mr Backhouse provides an overview ofthe lives and ideas of these men and other distinguished people who influenced Samuelson. The obsessive speculation on which classes Samuelson may have attended as a student and which papers he may have read do not add to the book, however. A common thread throughout Samuel- son’s life was the desire to bring clarity to economics. He understood that mathe- matics could help resolve debates that had been obscured bytoo much jargon. He also knew that plain, interesting writing was necessary to explain economics to the public. Today, when difficult maths can obscure economics for the uninitiated, economists would do well to keep the latter point in mind. 7 A time to be inquisitive 74 Books and arts The Economist September 2nd 2017

2 “putting on a brave face”); her account of “Bake Off” the period’s social and political unrest is laboured and lacking in fresh insights; and her consideration of the writing of Evelyn Let them bake cakes and Pepys suffers from a lack of compari- son with that of the century’s other great The most popularprogramme on British television goes global life-writers—one thinks of George Fox, a Quaker, or John Rogers, a member of the LUSH, country-house setting. Bunting judge what emerges from them. Fifth Monarchy, an extreme Puritan sect. Aand twee decor. Naffjokes about Some productions depart from their However, when weighed against the “soggy bottoms”. Many have argued that British parent in more remarkable ways. abundance of insight, enthusiasm and the ingredients of“The Great British Bake Turkey’s “VerFirina” (“Give It Up To The wonder in the work, these are minor com- Off” (GBBO), which returned forseason Oven”), which is no longer on air, encour- plaints. Ms Willes brings Evelyn and Pepys eight on August 29th, are eminently aged contestants to dance as well as bake; fully and vibrantly to life. She makes the home-grown, and that the competitive those on Italy’s “Dolce In Forno” (“Sweet reader feel their foibles, their virtues, their cooking show evokes a simpler time in in the Oven”) still do, sometimes using pleasure and their pain; and on almost ev- the country’s past. That nostalgia has kitchen implements as props. In Ger- ery page there is a detail to be thought doubtless contributed to the show’s many,a country that is more open than about, recorded, relayed. It is a fitting impressive viewing figures: around15m many about discussing adult relation- tribute to two figures who so cherished people devoured the season finale in ships, participants had to make a cake curiosity—and who did so much to 2016, more than halfthe viewing public. that would offera “sexy seduction ofthe contribute to the curiosity oftheir age. 7 Yet this does not explain why GBBO is jury” in taste and in theme. Danish chal- one ofBritain’s most successful cultural lengers, asked to make a dessert fit fora exports. More than 20 countries across bachelor party,offered buttercream Essays Europe, the Americas, the Middle East, buttocks and fondant figures copulating Asia and Africa have taken up the format. under the covers. Leaves turning Producers rarely tinker with its winning The different national flavours are recipe. The challenges—a tried-and-tested fun, but it is the simple base that makes “signature” bake, a technically demand- the contest so appetising: the drama ofa ing dish and a decorative “showstop- talent show without the garishness, with per”—are often the same. Many have kept tasty confectioneryinstead oftawdry the jaunty theme tune and picked an cover songs, and performances that you Autumn. By Karl Ove Knausgaard. Translated elderly,matriarchal judge similar to Mary could (with great effort) repeat in your by Ingvild Burkey. Penguin Press; 224 pages; Berry,a previous judge ofGBBO.With own kitchen. When it comes to the global $27. Harvill Secker; £16.99 few exceptions, the competition is hosted appeal ofa simple British idea, the proof OR all his rapturous passages of ecstasy in a pristine white tent on a countryside has been in the puddings. Fand agony, Karl Ove Knausgaard can estate (Australia’s is in a shed and South also make you laugh. In “Autumn”, the first Africa’s looks out onto dry bushland). in a “Seasons Quartet” of journal-essays But each country adds its own gar- addressed to an unborn daughter, he visits nish. On “Bake OffBrasil”, contestants a German editor who owns a spotless have been tasked with making Pão de summer house with “not a single object queijo (cheese bread rolls), empadão (a awry”. Here, Norway’ssuperstarofconfes- savoury pie) and quindim (a baked cus- sional writing lets slip one ofthe artful rev- tard dessert thought to have been created elations that helped his “My Struggle” cy- by African slaves in the country’s north- cle of autobiographical novels spread like east in the17thcentury). It is unsurprising literary wildfire. Karl Ove chews gum. His that the kanelbulla (cinnamon bun) has desk contains old grey wads of the stuff, made an appearance on “Hela Sverige which resemble “shrunken brains”. Now Bakar” (“AllofSweden Bakes”): the coun- he needs to expel a masticated remnant. try celebrates its favourite pastry every How to inform this sophisticated friend? It year on October 4th. It is even less sur- would be smarter, cooler, to “shoot up prising that France, the home ofthe some heroin in his bathroom”. When he croissant and the crusty baguette, takes does admit his childish problem, the edi- the competition most seriously ofall. “Le tor’s face expresses “partly surprise, partly Meilleur Pâtissier” (“The Best Pastry reproof, maybe also contempt”. Chef”) lasts two hours; there are cameras Like the sticky gum in the bright pavil- in the ovens and extra taste experts to Piping bag of tricks ion, Mr Knausgaard contaminates litera- ture. He spikes it with the gross material of shame, failure, embarrassment; with bo- all, it transmits his rhapsodic delight in nat- into excruciating episodes of humiliation dily functions and emotional malfunc- ural beauty, as when an electric storm and abjection. Even vomit, “firm and por- tions. In “Autumn”, a lyrical cabaret beside “heightens the sense ofbeing alive”. ridge-like” or “runny, like soup”, counts the grand opera of the “My Struggle” From the wasp armoured “like a knight among life’s miracles. Mr Knausgaard books, taboo memories and forbidden dressed forbattle” to the dawn that affirms knowingly breaks the frames of taste and feelings disrupt the grown-up project of a “light and life”, “Autumn” glows with a ra- tact. His art of transgression satisfies the compendium offatherly wisdom. Divided diant attachment to “the world, as it is”. “longing for authenticity”; the urge “to go into three months, with each section com- Both Vanessa Baird’s artwork and Ingvild beyond the boundaries”. So “Autumn” posed of 20 short essays, “Autumn” does Burkey’s translation capture the harvest- leads into the bathroom as well as the for- offer paternal advice to the gestating in- time wonder prompted by bare willows or est. From sunshine to head-lice, it cele- fant—Mr Knausgaard’s fourth child. Above burned stubble. At the same time, it dives brates the “dizzying intensity ofbeing”. 7 Courses 75

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Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest Aug 30th year ago United States +2.2 Q2 +3.0 +2.2 +2.2 Jul +1.7 Jul +1.9 4.3 Jul -449.3 Q1 -2.5 -3.4 2.13 - - China +6.9 Q2 +7.0 +6.7 +6.4 Jul +1.4 Jul +1.9 4.0 Q2§ +157.3 Q2 +1.6 -3.9 3.64§§ 6.59 6.68 Japan +2.0 Q2 +4.0 +1.4 +4.7 Jul +0.5 Jul +0.6 2.8 Jul +187.8 Jun +3.6 -4.5 nil 110 103 Britain +1.7 Q2 +1.2 +1.5 +0.3 Jun +2.6 Jul +2.7 4.4 May†† -99.8 Q1 -3.4 -3.6 1.08 0.77 0.76 Canada +2.3 Q1 +3.7 +2.4 +12.6 May +1.2 Jul +1.8 6.3 Jul -45.0 Q2 -2.6 -2.1 1.84 1.26 1.31 Euro area +2.2 Q2 +2.5 +2.0 +2.6 Jun +1.3 Jul +1.5 9.1 Jun +372.7 Jun +3.2 -1.3 0.36 0.84 0.90 Austria +2.3 Q1 +5.7 +1.9 +4.5 Jun +2.0 Jul +1.9 5.2 Jun +6.4 Q1 +2.2 -1.2 0.54 0.84 0.90 Belgium +1.5 Q2 +1.6 +1.6 +4.0 Jun +1.9 Aug +2.1 7.6 Mar -4.2 Mar +0.1 -2.1 0.69 0.84 0.90 France +1.7 Q2 +1.9 +1.5 +2.6 Jun +0.7 Jul +1.2 9.6 Jun -25.3 Jun -1.3 -3.1 0.66 0.84 0.90 Germany +2.1 Q2 +2.5 +1.9 +2.5 Jun +1.8 Aug +1.6 3.8 Jun‡ +270.6 Jun +8.0 +0.7 0.36 0.84 0.90 Greece +0.8 Q1 +1.8 +1.0 +1.6 Jun +1.0 Jul +1.3 21.7 May -1.0 Jun -1.3 -1.4 5.55 0.84 0.90 Italy +1.5 Q2 +1.6 +1.2 +5.3 Jun +1.1 Jul +1.3 11.1 Jun +50.3 Jun +2.1 -2.3 2.08 0.84 0.90 Netherlands +3.3 Q2 +6.2 +2.2 +3.3 Jun +1.3 Jul +1.1 6.0 Jul +68.4 Q1 +10.0 +0.6 0.48 0.84 0.90 Spain +3.1 Q2 +3.5 +3.0 +3.4 Jun +1.6 Aug +1.9 17.1 Jun +21.5 May +1.7 -3.3 1.57 0.84 0.90 Czech Republic +4.0 Q1 +9.5 +3.2 +2.2 Jun +2.5 Jul +2.3 2.9 Jun‡ +1.4 Q1 +0.9 -0.2 0.88 21.9 24.2 Denmark +3.6 Q1 +2.0 +1.8 +2.3 Jun +1.5 Jul +1.0 4.3 Jun +26.4 Jun +8.0 -0.6 0.50 6.24 6.68 Norway +0.2 Q2 +4.7 +1.9 +2.8 Jun +1.5 Jul +2.1 4.3 Jun‡‡ +22.4 Q1 +7.0 +4.2 1.57 7.79 8.35 Poland +4.4 Q1 +4.5 +3.7 +6.3 Jul +1.7 Jul +1.8 7.1 Jul§ -2.5 Jun -0.4 -2.2 3.31 3.57 3.91 Russia +2.5 Q2 na +1.5 +1.0 Jul +3.9 Jul +4.1 5.1 Jul§ +33.6 Q2 +2.5 -2.2 8.13 58.4 65.2 Sweden +3.9 Q2 +7.1 +2.7 +8.5 Jun +2.2 Jul +1.7 6.6 Jul§ +22.0 Q1 +4.8 +0.3 0.57 7.98 8.55 Switzerland +1.1 Q1 +1.1 +1.3 +2.9 Q2 +0.3 Jul +0.5 3.2 Jul +73.6 Q1 +9.6 +0.2 -0.12 0.96 0.98 Turkey +5.0 Q1 na +3.7 -3.6 Jun +9.8 Jul +10.3 10.2 May§ -34.3 Jun -4.3 -2.0 10.59 3.45 2.96 Australia +1.7 Q1 +1.1 +2.3 -0.8 Q1 +1.9 Q2 +2.2 5.6 Jul -25.0 Q1 -1.5 -1.8 2.63 1.27 1.33 Hong Kong +3.8 Q2 +4.1 +3.1 +0.2 Q1 +1.9 Jul +1.6 3.1 Jul‡‡ +14.9 Q1 +4.1 +1.0 1.46 7.83 7.76 India +6.1 Q1 +7.2 +7.1 -0.1 Jun +2.4 Jul +3.9 5.0 2015 -15.2 Q1 -1.1 -3.2 6.54 64.0 67.1 Indonesia +5.0 Q2 na +5.2 -1.4 Jun +3.9 Jul +4.3 5.3 Q1§ -14.2 Q2 -1.7 -2.4 6.68 13,343 13,278 Malaysia +5.8 Q2 na +5.2 +4.0 Jun +3.2 Jul +3.9 3.4 Jun§ +8.1 Q2 +2.2 -3.0 3.92 4.27 4.06 Pakistan +5.7 2017** na +5.7 +3.4 Jun +2.9 Jul +4.2 5.9 2015 -12.1 Q2 -3.8 -4.5 8.10††† 105 105 Philippines +6.5 Q2 +7.0 +6.5 +8.1 Jun +2.8 Jul +3.0 5.7 Q2§ -0.4 Mar +0.3 -2.8 4.69 51.1 46.5 Singapore +2.9 Q2 +2.2 +2.9 +21.0 Jul +0.6 Jul +0.9 2.2 Q2 +59.0 Q2 +18.4 -1.0 2.10 1.36 1.36 South Korea +2.7 Q2 +2.4 +2.8 +0.1 Jul +2.2 Jul +1.9 3.5 Jul§ +83.3 Jun +5.9 +0.9 2.24 1,124 1,120 Taiwan +2.1 Q2 +0.5 +2.3 +2.4 Jul +0.8 Jul +0.5 3.8 Jul +70.7 Q2 +12.6 +0.2 1.02 30.1 31.7 Thailand +3.7 Q2 +5.4 +3.3 -0.2 Jun +0.2 Jul +0.8 1.1 Jun§ +44.9 Q2 +11.9 -2.5 2.24 33.2 34.6 Argentina +0.3 Q1 +4.3 +2.5 -2.5 Oct +21.5 Jul‡ +24.2 9.2 Q1§ -16.8 Q1 -2.9 -6.1 na 17.5 15.1 Brazil -0.4 Q1 +4.3 +0.5 +0.5 Jun +2.7 Jul +3.8 13.0 Jun§ -13.8 Jul -1.0 -8.1 9.13 3.17 3.26 Chile +0.9 Q2 +3.0 +1.4 +3.3 Jul +1.7 Jul +2.4 7.0 Jun§‡‡ -5.6 Q2 -1.3 -3.1 4.35 629 675 Colombia +1.3 Q2 +3.0 +1.7 -1.9 Jun +3.4 Jul +4.0 8.7 Jun§ -11.9 Q1 -3.7 -3.3 6.78 2,938 2,934 Mexico +1.8 Q2 +2.3 +2.0 -0.3 Jun +6.4 Jul +5.7 3.2 Jul -17.6 Q2 -2.0 -1.9 6.79 17.8 18.8 Venezuela -8.8 Q4~ -6.2 -9.0 +0.8 Sep na +667 7.3 Apr§ -17.8 Q3~ -1.1 -19.5 11.02 10.1 9.99 Egypt +4.3 Q1 na +3.7 +33.0 Jun +33.0 Jul +22.8 12.0 Q2§ -18.0 Q1 -5.9 -10.8 na 17.6 8.89 Israel +4.0 Q2 +2.7 +3.5 +0.9 Jun -0.7 Jul +0.4 4.1 Jul +11.7 Q1 +4.1 -2.6 1.67 3.59 3.79 Saudi Arabia +1.7 2016 na -0.5 na -0.3 Jul +1.1 5.6 2016 -1.0 Q1 +0.5 -8.2 3.68 3.75 3.75 South Africa +1.0 Q1 -0.7 +0.6 -2.7 Jun +4.6 Jul +5.4 27.7 Q2§ -7.9 Q1 -3.3 -3.2 8.60 13.0 14.5 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 September 2nd 2017 Economic and financial indicators 77

Markets % change on Trade-weighted exchange rates January 1st 2016=100 Dec 30th 2016 A country’s trade-weighted exchange 120 Index one in local in $ rate is an average of its bilateral ex- Aug 30th week currency terms change rates, weighted by the amount of United States (DJIA) 21,892.4 +0.4 +10.8 +10.8 trade with each country. In trade-weight- Yen China (SSEA) 3,522.7 +2.3 +8.4 +14.2 Japan (Nikkei 225) 19,506.5 +0.4 +2.1 +9.5 ed terms the yen soared in 2016, acting as 110 Britain (FTSE 100) 7,365.3 -0.2 +3.1 +8.1 a haven during a year of geopolitical Canada (S&P TSX) 15,133.1 +0.5 -1.0 +6.2 turmoil. Sterling is currently at a ten- Euro Euro area (FTSE Euro 100) 1,167.8 -1.0 +5.0 +19.7 month low, partly because of the euro’s Euro area (EURO STOXX 50) 3,403.7 -1.0 +3.4 +17.9 strength: the euro area accounts for 100 Austria (ATX) 3,201.4 +0.5 +22.3 +39.4 45.4% of Britain’s trade-weighted ex- Belgium (Bel 20) 3,873.6 -0.9 +7.4 +22.5 US change rate. The dollar has plunged as Dollar France (CAC 40) 5,056.3 -1.2 +4.0 +18.6 uncertainty has grown over whether Germany (DAX)* 12,002.5 -1.4 +4.5 +19.2 President Donald Trump will deliver on 90 Greece (Athex Comp) 823.7 -0.7 +28.0 +45.9 Italy (FTSE/MIB) 21,503.5 -0.5 +11.8 +27.5 tax reform and infrastructure spending. The euro is a bright spot: it has been Netherlands (AEX) 513.0 -1.2 +6.2 +21.1 Sterling Spain (Madrid SE) 1,031.1 -0.9 +9.3 +24.6 boosted by improving economic growth and the defeat of populists in elections 80 Czech Republic (PX) 1,028.9 -0.2 +11.6 +31.8 2016 2017 Denmark (OMXCB) 912.7 +0.4 +14.3 +30.2 this year in the Netherlands and France. Source: Thomson Reuters Hungary (BUX) 37,903.9 +0.4 +18.4 +36.5 Norway (OSEAX) 804.2 nil +5.2 +17.2 Poland (WIG) 64,957.9 +3.6 +25.5 +47.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,084.4 +3.8 -5.9 -5.9 2005=100 % change on % change on Sweden (OMXS30) 1,536.0 -0.4 +1.2 +16.1 Dec 30th 2016 one one Switzerland (SMI) 8,851.3 -1.2 +7.7 +15.5 Index one in local in $ Aug 22nd Aug 29th* month year Turkey (BIST) 110,423.1 +1.3 +41.3 +44.4 Aug 30th week currency terms Dollar Index Australia (All Ord.) 5,733.8 -1.0 +0.3 +10.4 United States (S&P 500) 2,457.6 +0.6 +9.8 +9.8 All Items 144.1 144.9 +0.5 +8.5 Hong Kong (Hang Seng) 28,094.6 +2.5 +27.7 +26.5 United States (NAScomp) 6,368.3 +1.4 +18.3 +18.3 Food 146.1 145.9 -5.0 -4.1 India (BSE) 31,646.5 +0.2 +18.9 +26.0 China (SSEB, $ terms) 343.6 +1.9 +0.5 +0.5 Indonesia (JSX) 5,872.5 -0.7 +10.9 +12.0 Japan (Topix) 1,607.7 +0.5 +5.9 +13.5 Industrials Malaysia (KLSE) 1,773.2 nil +8.0 +13.6 Europe (FTSEurofirst 300) 1,458.5 -0.7 +2.1 +16.4 All 142.1 143.9 +7.0 +25.9 Pakistan (KSE) 41,323.7 -3.7 -13.6 -14.3 World, dev'd (MSCI) 1,945.1 +0.1 +11.1 +11.1 Nfa† 130.3 132.7 +2.7 +8.3 Singapore (STI) 3,265.3 +0.2 +13.3 +21.2 Emerging markets (MSCI) 1,081.2 +0.5 +25.4 +25.4 Metals 147.1 148.6 +8.7 +34.2 South Korea (KOSPI) 2,372.3 +0.2 +17.1 +25.5 World, all (MSCI) 474.9 +0.2 +12.6 +12.6 Sterling Index Taiwan (TWI) 10,569.4 +1.6 +14.2 +22.0 World bonds (Citigroup) 958.3 +1.0 +8.4 +8.4 All items 204.2 203.5 +2.7 +9.7 Thailand (SET) 1,613.3 +2.5 +4.6 +12.9 EMBI+ (JPMorgan) 835.5 +0.5 +8.2 +8.2 Argentina (MERV) 23,510.5 +1.1 +39.0 +26.8 Hedge funds (HFRX) 1,244.4§ +0.2 +3.4 +3.4 Euro Index Brazil (BVSP) 70,886.3 +0.6 +17.7 +21.0 Volatility, US (VIX) 11.3 +12.3 +14.0 (levels) All items 152.3 149.8 -1.3 +0.6 Chile (IGPA) 25,731.1 +0.5 +24.1 +32.6 CDSs, Eur (iTRAXX)† 56.4 -2.6 -21.8 -10.8 Gold Colombia (IGBC) 10,880.4 -0.9 +7.7 +10.1 CDSs, N Am (CDX)† 59.3 -2.9 -12.5 -12.5 $ per oz 1,287.3 1,270.2 -0.2 -3.6 Mexico (IPC) 51,193.5 -0.2 +12.2 +29.1 Carbon trading (EU ETS) € 6.0 +1.3 -8.4 +4.5 West Texas Intermediate Venezuela (IBC) 225,468.1 +13.8 +611 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 47.6 46.4 -5.5 +0.2 Egypt (EGX 30) 13,415.8 +3.2 +8.7 +11.4 †Credit-default-swap spreads, basis points. §Aug 25th. Israel (TA-125) 1,262.5 nil -1.1 +6.5 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 7,258.6 -0.1 +0.3 +0.3 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 56,168.0 nil +10.9 +16.8 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Wayne Lotter The Economist September 2nd 2017

topus, he would find several legs still hard at work. To fightthis, he proposed an idea he had first heard from a detective in South Africa: when investigating a crime, create a net- work of informants. His were local people, incentivised with uniforms, cash and GPS devices to patrol in a buffer zone round their villages, recording the movements of elephants and also of their would-be kill- ers, intercepting them and their rifles be- fore they even reached the park. He want- ed scouts to mingle, too, with the poachers living in their villages, finding out so much about them that, when arrested, they would instantly spill the beans on their paymasters. After all, the ivory they were paid five euros a kilo for was going for 2,000 euros in China. This intelligence-led policing was so successful that in five years more than 2,000 poachers were arrested; the rate of poaching, he reckoned, was reduced by more than half, and the elephant popula- tion began to stabilise. Yet rangers, as he saw them, were like goalkeepers in a foot- ball team: the last line of defence. He also had to persuade farmers not to attack the The ivory game elephants who trampled their crops, but to keep them away with barriers of chilli plants or beehives. He taught schoolchil- dren to value nature, and to put them- selves in the paws, feet and hooves of the wild creatures that lived alongside them. (In fact, he wanted everyone in the world Wayne Lotter, fighterforTanzania’s elephants, was killed on August16th, aged 51 to try that exercise.) And he fortified Tanza- O LANDSCAPE was dearer to Wayne nia lost 60% ofits elephants. Astounded by nia’s own serious-crime investigation NLotter than the savannah of southern the slaughter, he and two colleagues, Kris- agency with money for sniffer dogs and Africa, and in particular one corner of it, sie Clark and Ally Namangaya, founded handlersand strongbackingfortimid pros- the Selous-Niassa Wildlife Corridor round the Protected Area Management Solutions ecutors. As a result he helped get several the Ruvuma river in Tanzania. He cher- (PAMS) Foundation in 2009 to do what kingpins arrested and tried, including Yang ished it from the air, circling in a microlight they could to slow it down. Fenglan, “The Queen of Ivory”, and Boni- over the dry rolling plains, the miombo He had spent long enough in conserva- face MethewMalyango, known asShetani, woodlands, the white river bed and the tion—25 years, much of it in Kruger Nation- “The Devil has no Mercy”. bright-green hippo marshes; he surveyed it al Park, hisfirstlove from childhood, and in from lurching Land Rovers and on foot, Kwa-Zulu Natal—to know that simply No place for a tie brushing his way through the tall elephant throwing money at policing was woefully He made little of his role, though. When grass. Sometimes he was the only human, ineffective. It was stupid to address just the Leonardo DiCaprio asked him to appear in and even he was in his khaki ranger’s cam- symptom, the poaching, rather than the his documentary “The Ivory Game” in ouflage. Almost invisible, he would listen causes. He was fighting networks that 2016, he told him to film his village rangers to the voices of the elephants and lions stretched from poor villages in the wildlife instead. They did it all; he was just the one that really ruled this place. areas to fancy shops in Beijing and ivory- who went round, joking despite his anger, Too often on his sorties, though, his carving factories in Vietnam, involving not to ginger people up. He was fighting a war stomach would start to knot. An elephant only the poachers and the henchmen who and, as in a war, he wanted his NGO to be would scream out, alerting the herd. Or, on controlled them but corrupt individuals in nimble and unpredictable—no place for a a breeze, he would catch thatsmell. It wasa government, the judiciary, the police and, collar and tie, which he barely knew the stench that hit you from 100 metres away: he insisted, even NGOs and conservation use of. The more ponderous and narrowly rotting elephant. And there, soon enough, departments. His biggest problem was that focused a conservation outfit was, the would be the carcass, swollen in the sun, almost no group or institution was clean. more easily poachers could corrupt it. too much meat even for the scavengers to At the village end, poachers flashed their The gunman who forced his taxi door keep up with. The face would be hacked money and lured in other young men; at and shot him on the outskirts of Dar es Sa- off with an axe or machete and the tusks, the Far Eastern end, demand was insatia- laam probably killed him for his work. He ofcourse, would be gone. ble. As fast as the rangers armed them- knew it could happen; he had death Over his time in Tanzania he found selves, the poacherswentone better, toting threats all the time. With typical bravado hundreds of such carcasses, sometimes 14 Kalashnikovs against single-shot rifles. he ignored them, and justwentoutagain to in a day. He never got used to it. But he had Penalties for their crimes were laughably watch with a cherubic smile a herd of ele- landed in the world’s hotspot for ivory light; ivory left the Selous in an unending phant making their way across the Tanza- poaching: between 2009 and 2014, Tanza- stream. Even ifhe lopped a head offthis oc- nian savannah, saferthan they were. 7 Kindling for bright sparks.

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