Brexit and the €60bn question

Dismantling Dodd-Frank

China’s transgender Oprah

A special report on mass entertainment FEBRUARY 11TH–17TH 2017 Courting Russia Can it end well?

Contents The Economist February 11th 2017 3

5 The world this week Middle East and Africa 30 Israelis and Palestinians Leaders The ultimate fantasy 7 The Donald and the don 33 Trump and Iran Courting Putin Making Iran’s revolution great again 8 Israel and Donald Trump Build it and they will fight 33 Reality TV in Nigeria Big bother 8 Brexit’s cost Time to pick up the tab 34 Drugs and ivory Jumbo cartels 10 Dodd-Frank Brexit Britain is about to be The litter of the law hit with an eye-watering bill United States 11 Entertainment for leaving the European The paradox of choice 35 Presidential authority Union. It could blow up the On the cover Washington v Trump negotiations: leader, page 8. Donald Trump seeks a grand Letters 36 Satire Get ready for a bitter argument bargain with Vladimir Putin. Super soaking over money, page19.What 12 On shareholders, Australia, That is a terrible idea: leader, Britain’s negotiators could schools, California, data, 36 Legal migration page 7. Mr Trump’s idea of a learn from the plight of New pop, police, Latin Code red deal with Russia is Zealand, page 61 37 Political history delusional—but Mr Putin The little man’s big friends will welcome it all the same, Briefing pages16-18. Japan’s prime 40 Lexington 16 Russia and America French lessons minister cosies up to the Champions of the world new man in the White House, page 46. Ahead of Special report: elections, Iran’s radicals are Britain Mass entertainment enjoying a bust-up with 19 The Brexit bill Winner takes it all America, page 33. In Alabama From Brussels with love After page 40 support for Mr Trump 20 The British Empire followed a pattern that The art of leaving stretches back more than a The Americas century, page 37 21 Student loans A quick buck 41 NAFTA Reshape or shatter? Entertainment Consumers 21 The housing white paper have never had it so good. But The Economist Hardly groundbreaking 42 Green activism forget talk of democratising online Dying to defend the planet 22 Trade and health care entertainment: leader, page Daily analysis and opinion to NH$? 43 Political correctness 11. Technology has given supplement the print edition, plus Cleaning up Carnival billions of people access to a audio and video, and a daily chart 22 The war on seagulls Economist.com Fight them on the beaches vast range of content, yet they Asia still go mostly for the big hits. E-mail: newsletters and 23 Air pollution See our special report after mobile edition All choked up 44 Labour mobility in Asia page 40 Economist.com/email 24 Bagehot Waiting to make their Print edition: available online by The green-belt delusion move 7pm London time each Thursday 45 Guerrillas in the Economist.com/print Philippines Europe Audio edition: available online An extra mile 25 The Netherlands’ election to download each Friday 46 America and Japan Economist.com/audioedition Act “normal” or get out Fairway friends 26 Ukraine’s divided east 47 America and Australia Will it ever heal? Two short fuses 28 Corruption in Romania 47 Politics in Tamil Nadu People v pilferers Rank and bile 29 Charlemagne 48 Banyan Volume 422 Number 9027 Germany’s problematic India: country or continent? surplus Israel When Donald Trump Published since September1843 meets Binyamin Netanyahu to take part in "a severe contest between intelligence, which presses forward, and next week, he should say that an unworthy, timid ignorance obstructing land grabs make peace harder: our progress." leader, page 8. The chances for Editorial offices in London and also: peace were thin before Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, America’s election; they look New Delhi, New York, Paris, San Francisco, even thinner today, page 30 São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC 1 Contents continues overleaf 4 Contents The Economist February 11th 2017

China Science and technology 49 Reality television 66 Molecular biology China’s transgender Oprah Folding stuff 50 Unpopular Chinese films 67 Hans Rosling Blame the reviewers The joy of stats 50 Safety statistics 68 Materials science Accidental death of A film worth watching accuracy 68 Pollination Where the bee sucks International 69 Female genital China’s Oprah A transgender Proteins Shape determines a 51 Refugees and technology mutilation star of reality TV reveals a lot protein’s function. Determining Migrants with mobiles Culture wars about the country’s changing that shape, though, is tricky, social attitudes, page 49 page 66 Business Books and arts 53 Internet regulation 70 The edge of Europe Eroding exceptionalism Mapping history Subscription service 71 Subterranean animals For our full range of subscription offers, 54 American fashion retailing including digital only or print and digital Run ragged Undercover life combined visit 71 Why time flies Economist.com/offers 55 Snowmaking You can also subscribe by mail or telephone at White out Clock-watching the details provided below: 56 Grab v Uber 72 Civil wars Telephone: +44 (0) 845 120 0983 Road warriors Brother against brother Web: Economist.com/offers Post: The Economist 56 Tata Group 72 French fiction Subscription Centre, Board stiff The end of Eddy P.O. Box 471, Haywards Heath, 58 Schumpeter 73 Wolfgang Tillmans RH16 3GY Asian demography The world’s Shareholder democracy Fiery angel UK most populous continent struggles to match the supply Subscription for 1 year (51 issues) Print only UK – £145 of and demand for workers, Finance and economics 76 Economic and financial indicators page 44 59 Dodd-Frank Statistics on 42 economies, Shearing and shaving plus our monthly poll of Principal commercial offices: 60 Buttonwood 25 St James’s Street, London sw1a 1hg forecasters Tel: +44 (0) 20 7830 7000 Bubble troubles Rue de l’Athénée 32 61 Banking and the elderly Obituary 1206 Geneva, Switzerland Not losing it Tel: +4122 566 2470 78 Ken Morrison 61 Brexit 750 3rd Avenue, 5th Floor, New York, NY 10017 Grocer and proud of it Tel: +1212 5410500 The Kiwi precedent 1301Cityplaza Four, 62 North Korean data 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Best guesses Tel: +852 2585 3888 63 China’s central bank Other commercial offices: Technically independent Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore Financial regulation Make the 63 Euro-zone bond markets rules simpler, by all means. But Unhappy birthday not at the expense of safety: 64 Data, financial services leader, page 10. The start of a and privacy long struggle to overhaul the Like? Dodd-Frank act, page 59. As 65 Free exchange America grows weary of dollar Donald Trump and the dominance, the world grows dollar standard nervous: Free exchange, page 65

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intact. MPs from the opposi- almost 3,500 civilians were Amnesty International Politics tion Labour Party were or- killed and 7,900 injured in accused the Syrian govern- dered by its leader to support conflict-related violence in the ment ofhaving executed as it, deepening its internal rifts. country last year, the most many as13,000 people at a The bill now goes to the un- casualties since it began docu- prison north ofDamascus, elected House ofLords, which menting them in 2009. some aftertwo-minute trials. faced veiled threats about its abolition ifit amends or delays Members ofparliament in the legislation. Theresa May, Somalia cast ballots in a presi- the prime minister, has taken dential election held in an Britain a big step closer airport under the protection of towards the Brexit door. troops from the African Union. The poll followed another Man with a ban unorthodox one last year The Trump administration when 14,000 delegates who went to the federal appeals had been chosen by clan A Russian court reaffirmed the court to get its ban on refugees elders voted formembers of conviction for embezzlement and citizens from seven coun- the lower house. ofAlexei Navalny, the coun- tries reinstated, after a lower try’s most popular opposition court stayed it. The lower Scores ofpeople were killed by The president ofNigeria, politician. The conviction court’s decision allowed peo- avalanches in northern Muhammadu Buhari, extend- relates to business Mr Navalny ple who had been denied Afghanistan, but many remain ed what his office had said was conducted with a state timber entry to travel to the United trapped under the snow and a holiday in Britain formedical company, and is widely seen States. In a furious tweeting the toll is expected to rise. tests amid mounting concern as a pretext to disqualify him storm, Donald Trump ques- at home over his health. from running in the country’s tioned the judges’ impartiality. China’s participation in a presidential elections in 2018. conference at the Vatican on My way or the highway His initial conviction in 2013, Betsy DeVos was confirmed organ trafficking raised eye- Peru’s attorney-general or- just before his campaign in the by the Senate as Mr Trump’s brows. Its representative heads dered the arrest ofthe coun- Moscow mayoral race, was education secretary, but only the country’s organ-transplant try’s formerpresident, Ale- declared invalid by the Euro- after Mike Pence cast a vote to programme and his atten- jandro Toledo, saying that he pean Court ofHuman Rights. breaka 50-50 tie. It was the first dance was a sign ofwarming received $20m in bribes from time an American vice-presi- relations between the Vatican Odebrecht, Brazil’s biggest François Fillon affirmed he dent has had to use his tie- and China. But some delegates construction company. The will not drop out ofthe presi- breaking vote as the Senate’s resented China’s presence—its money was allegedly paid to dential election in France presiding officer to ensure the hospitals have used organs secure a contract to build a despite a scandal over employ- confirmation ofa president’s harvested from executed road from Peru to Brazil. Mr ing his wife and children at cabinet appointment. Jeff prisoners fortransplants. Toledo denies wrongdoing. taxpayers’ expense. Mr Fillon, Sessions was confirmed as the Republican candidate, has attorney-general. Land grab Colombia’s government been unable to prove that his Israel’s parliament passed a began peace negotiations with wife performed any work. The Not part of the new democracy law that will allow forthe the ELN, the country’s second- affairhas hurt him in the polls A UN report accused the police retroactive legalisation of largest guerrilla army. In and could pave the way for and army in Myanmar of unauthorised building on November the government Emmanuel Macron, an in- systematic and widespread some privately owned Pales- ratified an agreement that dependent, to reach the elec- abuse ofthe Rohingya minor- tinian land in the West Bank. ended its 52-year war with the tion’s second round. ity, including looting, arson, Governments around the FARC, the largest rebel group. rape and murder. The pope world condemned the move Romania scrapped a decree also condemned the treatment as an obstacle to peace; Israel’s that would have decriminal- ofthe Rohingya. courts could yet strike it down. ised official corruption if the damages amounted to less An Australian senator The Trump administration than $47,600. The decree defected from the ruling announced new sanctions sparked protests that brought Liberal National coalition to against Iran, after it conducted hundreds ofthousands of set up a rival party. Cory a missile test. Although this people onto the streets. It could Bernardi says Australia needs a marked a more aggressive have exempted the head ofthe more conservative force. stance, the administration said ruling party from facing char- the deal brokered with Iran to ges ofpaying people forwork The Philippine government monitor its nuclear pro- they may not have performed. called offpeace talks with gramme remains intact. communist rebels and ended a Jovenel Moïse, who has never A bill to allow the British ceasefire after insurgents killed The UN launched a $2.1bn held public office, was sworn government to trigger Article three soldiers. appeal foraid to Yemen, in as Haiti’s president. The 50, the legal means ofleaving where the humanitarian situa- country has been governed by the EU, completed its swift A suicide-bomber attacked tion is catastrophic and rapidly an interim president since passage through the House of Afghanistan’s supreme court deteriorating. Saudi Arabia has Michel Martelly left office last Commons. After three days of in Kabul, killing at least 20 been fighting Yemen forthe February. Both are members of heated debate the bill survived people. The UN reported that past two years. the Haitian Bald Head Party. 1 6 The world this week The Economist February 11th 2017

Meanwhile, Mario Draghi said which happened in 2010, leave the EU had cost it $300m, Business now was not the time to start bringing its total pre-tax bill for mostly because ofthe curren- tapering the European the catastrophe to $62.6bn. cy turmoil that followed the Donald Trumptookaim at the Central Bank’s stimulus vote; without Brexit it would Dodd-Frankreforms of programme. The ECB’s presi- Rio Tinto’s underlying profit have broken even in Europe. financial services, which were dent was responding to criti- rose by12% to $5.1bn last year. drawn up in response to the cism about the policy in Ger- The mining group was boosted Blue-sky thinking 2008 crisis. He told the Trea- many, where his critics link a by a rebound in commodity sury to review the extent to recent rise in inflation to the prices: the price ofiron ore, its which financial regulations bank’s ultra-low interest rates. biggest business, rallied by contradict the “core principles” 80% in 2016. Recovering some ofthe new administration, a The Turkish lira had another ofits previous swankafter broad edict that will revisit a wobbly week, fallingby1.6% years ofcost-cutting, Rio host ofmeasures disliked by against the dollar in a day, after increased the size ofits divi- the banking industry. He also the Turkish president criticised dend and announced a $500m ordered a review ofthe “fidu- the central bankfornot low- share buy-back. ciary rule”, which is due to ering interest rates, which he come into effect this spring and described as a “means of A federal court blocked the requires anyone giving in- exploitation”. The feud be- $48bn merger ofAnthem and vestment advice to act in the tween Recep Tayyip Erdogan Cigna, two giant health insur- “best interest” oftheir client. and the central bankhas ers, on antitrust grounds. It is Uber hired a formerengineer knocked confidence in the the second big merger in the at NASA, MarkMoore, to help The blame game bank’s independence, though industry to fall foul ofthe develop its flying-taxi divi- America’s trade deficit, anoth- the president had seemed to be courts recently (Aetna’s acqui- sion, aptly named Elevate. Mr er ofMr Trump’sbugbears, warming to the idea ofraising sition ofHumana has also Moore had previously spent 30 rose to $502bn last year, the rates to help the struggling lira. been rejected), rolling back the years at the space agency highest since 2012. A strong wave ofconsolidation working on advanced aircraft dollar hampered American Legacy effects prompted by Obamacare. design. His decision to fly the exports. Mr Trump has blamed Having embarked on a round NASA nest is not that surpris- the deficit on currency ma- ofnew investments to aug- General Motors reported ing given that he contributed to nipulation by other countries, ment its assets, BP said it need- solid earnings for2016. The Uber’s policy paper on auto- although the shortfall from ed the price ofa barrel of oil to world’s third-largest carmaker mated flying vehicles, pub- trading goods with China and rise to $60 by the end ofthe profited from surging revenue lished last October. It won’t be Germany fell to $347bn and year in order forit to break in its North American market, easy forthe ride-hailing firm to $65bn respectively, and stayed even (Brent crude has not boosted by cheaper petrol put taxis in the sky. The biggest steady with Japan at $69bn. traded at $60 since mid-2015). prices that made pickup trucks current challenge is sufficient The trade deficit with Mexico The oil company reported a and SUVs more economical for battery power before it can was slightly higher at $63bn. headline loss ofalmost $1bn consumers. But it recorded really take off. for last year. It booked a further another loss in Europe, which China’s reserves offoreign $7.1bn in charges related to the it blamed on Brexit. GM said Other economic data and news exchange dropped to under Deepwater Horizon disaster, the referendum in Britain to can be found on pages 76-77 $3trn in January, the lowest level in nearly six years. The People’s BankofChina has been selling dollars to prop up a weakening yuan, which fell by 6.6% against the greenback last year, the most in decades.

Market jitters about the future ofthe euro zone helped push the spread on yields ofFrench, Greekand Italian bonds over that ofGerman bunds to re- cent highs. The politics of the currency bloc have started to preoccupy investors again, given concerns about the ability ofGreece to pay its debt and the possibility ofsnap elections in Italy. In France the rise ofMarine Le Pen, a right- winger who has threatened to pull the country out ofthe euro ifshe wins the presidential election, has coincided with the implosion ofthe centre- right’s campaign. Leaders The Economist February 11th 2017 7 Courting Russia

Donald Trump seeks a grand bargain with VladimirPutin. This is a terrible idea EORGE W. BUSH looked in Russian atrocities (they should), American and Russian Ginto Vladimir Putin’s eyes forces cannot easily fight side by side. Their systems do not and thought he saw his soul. He worktogether. To make them do so would require sharing mil- was wrong. Barack Obama at- itary secrets that the Pentagon spends a fortune protecting. Be- tempted to “reset” relations sides, Russian aircraft do not add much to the coalition air with Russia, but by the end of power already attacking IS. Ground troops would, but Mr Pu- his term in office Russia had an- tin is highly unlikely to deploy them. nexed Crimea, stirred up con- Likewise, Russia is not about to confront Iran. The country’s flictelsewhere in Ukraine and filled the powervacuum thatMr troops are a complement to Russian airpower. Iran is a promis- Obama had left in Syria. Donald Trump appears to want to go ing market for Russian exports. And, most of all, the two coun- much further and forge an entirely new strategic alignment tries are neighbours who show every sign ofworking together with Russia. Can he succeed, or will he be the third American to manage the Middle East, not ofwanting to fight over it. president in a row to be outfoxed by Mr Putin? The notion that Russia would be a good ally against China The details of Mr Trump’s realignment are still vague and is even less realistic. Russia is far weaker than China, with a de- changeable. That is partly because of disagreements in his in- clining economy and population and a smaller army. Mr Putin ner circle. Even as his ambassador to the UN offered “clear and hasneitherthe powernorthe inclination to picka quarrel with strong condemnation” of “Russia’s aggressive actions” in Uk- Beijing. On the contrary, he values trade with China, fears its raine, the president’s bromance with Mr Putin was still smoul- military might and has much in common with its leaders, at dering. When an interviewer on Fox News put it to Mr Trump least in his tendency to bully his neighbours and reject West- this weekthat Mr Putin is “a killer”, he retorted: “There are a lot ern lecturing about democracy and human rights. Even if it ofkillers. What, you thinkour country’s so innocent?” were wise for America to escalate confrontation with China— For an American president to suggest that his own country which it is not—Mr Putin would be no help at all. is as murderous as Russia is unprecedented, wrongand a giftto The gravest risk of Mr Trump miscalculating, however, is in Moscow’s propagandists. And for Mr Trump to think that Mr Europe. Here Mr Putin’s wishlist falls into three classes: things Putin has much to offer America is a miscalculation not just of he should not get until he behaves better, such as the lifting of Russian power and interests, but also of the value of what Western sanctions; things he should not get in any circum- America might have to give up in return. stances, such as the recognition of his seizure of Ukrainian ter- ritory; and things that would undermine the rules-based glo- The art of the deal meets the tsar of the steal bal order, such as American connivance in weakening NATO. Going by the chatter around Mr Trump (see page 16), the script Mr Putin would love it ifMr Trump gave him a freer hand in for Russia looks something like this: America would team up Russia’s “near abroad”, for example by scrapping America’s with MrPutin to destroy“radical Islamicterror”—and in partic- anti-missile defences in Europe and halting NATO enlarge- ular, Islamic State (IS). At the same time Russia might agree to ment with the membership of Montenegro, which is due this abandon its collaboration with Iran, an old enemy for Ameri- year. Mr Trump appears not to realise what gigantic conces- ca in the Middle East and a threat to itsallies, including Bahrain sions these would be. He gives mixed signals about the value and Saudi Arabia. In Europe Russia would stop fomenting con- of NATO, calling it “obsolete” last month but vowing to sup- flict in Ukraine, agree not to harass NATO members on its door- portitthisweek. Some ofhisadvisersseem notto care ifthe EU step and, possibly, enter nuclear-arms-control talks. In the lon- falls apart; like Mr Putin, they embrace leaders such as Marine ger term, closer ties with Russia could also help curb Chinese Le Pen who would like nothing more. Mr Bannon, while ad- expansion. Stephen Bannon, Mr Trump’s most alarming ad- mitting that Russia is a kleptocracy, sees Mr Putin as part of a viser, said last year that he had “no doubt” that “we’re going to global revolt by nationalists and traditionalists against the lib- war in the South China Sea in five to ten years.” If so, America eral elite—and therefore a natural ally forMr Trump. will need allies, and Russia is a nuclear power with a 4,200km (2,600-mile) border with China. What’s not to like? Played fora sucker by a silovik Pretty much everything. Russian hacking may have helped The quest for a grand bargain with Mr Putin is delusional. No Mr Trump at the polls, but that does not mean he can trust Mr matter how great a negotiator Mr Trump is, no good deal is to Putin. The Kremlin’s interests and America’s are worlds apart. be had. Indeed, an overlooked risk is that Mr Trump, double- In Syria, for example, Mr Putin makes a big noise about crossed and thin-skinned, will end up presiding over a danger- fighting IS terrorists, but he has made no real effort to do so. His ous and destabilising falling-out with Mr Putin. price for working with America could be to secure a perma- Better than either a bargain or a falling-out would be to nent Russian military presence in the Middle East by propping work at the small things to improve America’s relations with up Bashar al-Assad, whose regime was revealed this week to Russia. This might include arms control and stopping Russian have hanged thousands of Syrians after two- or three-minute and American forces accidentally coming to blows. Congres- trials. None ofthisisgood forSyria, regional stability orAmeri- sional Republicans and his more sensible advisers, such as his ca. Even if Mr Putin and Mr Trump shared a common goal secretaries of state and defence, should strive to convince Mr (they don’t) and Americans did not mind becoming complicit Trump ofthis. The alternative would be very bad indeed. 7 8 Leaders The Economist February 11th 2017

Israel and Donald Trump If you build it, they will fight

Land grabs make peace harder,as Donald Trump should tell Binyamin Netanyahu next week N FEBRUARY 6th Israel harder. Many of the outposts the new law will affect are deep Oaimed a nasty blow at in the West Bank, and add to the number ofcommitted settlers what remains of its peace pro- who would have to be moved after any deal. Freed from the cess with the nearly 5m Palestin- threatofdemolition bythe authorities, those outposts are only ians who live in the territories it likely to expand. seized 50 years ago. Its coalition Second, the law’s passage through parliament is a sign that government, led by Binyamin the political position of Mr Netanyahu is weakening, while Netanyahu, voted a bill through those to his right are gaining ground. Although he has admit- the Knesset which allows, in certain circumstances, forthe leg- ted that the law is unhelpful, dangerous even, since it exposes alisation of Jewish construction on privately owned Palestin- Israel to possible prosecution by the International Criminal ian land. One effect could be that around 50 “outposts”, scat- Court, he felt obliged to push it through. That was the demand tered around the West Bank and illegal under Israeli law, will of the main settler-supporting party, Jewish Home, on which now be safe from the threat ofdemolition. Mr Netanyahu depends to keep his coalition in power. Mr Net- Condemnation quickly flowed in from around the world— anyahu, who is fighting off corruption allegations, dared not not just from among the 138 countries that recognise Palestine risk a showdown with the party’s leader, Naftali Bennett. The as a state, but from many that do not, including Britain, France danger is that an emboldened Mr Bennett will now proceed to and Germany, Israel’s most reliable friends outside America his planned next step, the progressive annexation ofbits ofthe (which stayed silent). Germany’s government said that the West Bank(he wants 61% ofit). He and his settlers hope that the move “disappointed many in Germany who have deep ties to election of Donald Trump means America will no longer Israel and who have stood by it”. stand in theirway.Lastmonth a group ofsettlerleaders gleeful- The new law may yet be struck down as unconstitutional ly flew to Washington to see Mr Trump sworn in. by Israel’s fiercely independent courts. Even if it is not, the number ofhousing units likely to be affected is relatively small Down to Mr Trump (around 4,000). Proper compensation must be paid to the Pal- They may have cheered too soon. Plans to move the American estinian landowners. And the bar that has to be met for what embassy to Jerusalem are being reviewed; last week Mr the bill euphemistically calls “regularisation” is fairly high: set- Trump’s spokesman said that creating and expanding settle- tlers will have to convince the courts that they did not know ments “may not be helpful”. Mr Trump has said he wants to the land was privately owned. Nonetheless, the law creates a make peace in the Middle East. If he is serious, he needs to tell new pothole in the road to peace, fortwo reasons. Mr Netanyahu when he visits next week that America still First, all settlements and outposts are obstacles that must be stands behind the “two-state solution”: the creation and recog- dealt with if there is to be a peace deal (see page 30). In partic- nition of a workable Palestinian state alongside a secure Jew- ular, those outside the “separation barrier” that Israel has been ish one. And he must stress that both building outside the bar- buildingsince2002andwhichwouldbroadlyserveasthebor- rier and unilateral annexation are dangerous impediments to der if there were an agreement, make things considerably what he calls the “ultimate deal”. 7

The European Union’s exit charge Time to pick up the tab

Britain is about to be hit with a colossal bill that could blow up the Brexit negotiations HESE are exhilarating times month, beginning a two-year countdown to freedom. Tfor the 52% of British voters But the triumphant mood is about to sour, for a reason few who last summer opted to leave people have grasped. The first item on the agenda in Brussels, the European Union. After where divorce terms are to be thrashed out, will be a large de- months of rumours that an anti- mand for cash. To Britons who voted to leave the EU because Brexit counter-revolution was they were told it would save them £350m ($440m) a week, this being plotted by the Europhile will come as a shock. The mooted bill is huge—some in Brus- establishment (who even won a sels talk of €60bn ($64bn), enough to host the London Olym- Supreme Court case forbidding the government from trigger- pics five times over—and its calculations open to endless argu- ing Brexit without Parliament’s permission), it at last looks as if ment. Until now the Brexit debate has focused on grander independence beckons. This week the House of Commons matters, such as the future of the €600bn-a-year trading rela- voted to approve the process of withdrawal. The prime minis- tionship between Britain and the EU. Yet a row over the exit ter, Theresa May, will invoke Article 50 of the EU treaty next payment could derail the talks in their earliest stages. 1 THE NEW FORD

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2 The tab is eye-watering. Britain’s liabilities include contri- national Court of Justice. Such an outcome would be bad for butions to the EU’s pension scheme, which is generous and en- the EU but it would be even worse forBritain. tirely unfunded. The biggest item, which Britain will surely That imbalance will become a theme ofthe Article 50 nego- challenge, is the country’s share of responsibility for a multi- tiations. It suggests that the British will have to do most of the billion-euro collection of future projects to which the EU has compromising. Mrs May must not waste the two-year time- committed itself but not yet allocated a budget. These liabil- table haggling over a few billion, when trade worth vastly ities, and sundry smallerones, may be offset a little by Britain’s more hangs in the balance. The EU can help by agreeing to dis- share of the EU’s assets, mostly property in Brussels and else- cuss the post-Brexit settlement in parallel with the debate where around the world. By one analysis (see page 19), the bill about money. Rolling the lot into one would increase the op- could be as little as €25bn or as much as €73bn. portunities fortrade-offsthat benefit both sides. So there is plenty to haggle over. But the very idea that the But there is a danger of hardliners in London and Brussels charge is something to be negotiated irritates many Eurocrats, making compromise impossible. Some in the European Com- who see it as a straightforward account to be settled. The Euro- mission are too eager to make a cautionarytale ofBritain’sexit. pean Commission’s negotiators insist that the divorce agree- And they overestimate Mrs May’s ability to sell a hard deal at ment must be signed off before the wrangling can begin on home. The British public is unprepared for the exit charge, anything else, such as future trading relations. Britain would which is not mentioned in the government’s white paper on preferto tally up the bill in parallel with talks on other matters, the talks. The pro-Brexit press, still giddy from its unexpected in order to trade more cash forbetter access. victorylastsummer, will focusboth on the shockingly large to- tal and also on the details (here’s one: the average Eurocrat’s Garçon! This isn’t what I ordered pension is double Britain’s average household income). It has It is in everyone’s interests to reach an agreement. If talks fail flattered Mrs May with comparisons to Margaret Thatcher, and Britain walks out without paying, the EU will be leftwith a who wrung a celebrated rebate out of the EU in 1984. A small big hole in its spending plans. Net contributors, chiefly Ger- band of Brexiteer MPs have a Trumpian desire to carry out not many and France, would face higher payments and net recipi- just a hard Brexit but an invigoratingly disruptive one. Mrs ents would see their benefits cut. For Britain the satisfaction at May’s working majority in Parliament is only16. having fled without paying would evaporate amid rancid rela- Everyone would be worse off if the Article 50 talks foun- tions with the continent, wrecking prospects of a trade deal; a dered. Yet the breadth of the gap in expectations between the rupture in everything from intelligence-sharing to joint scien- EU and Britain, and the lackoftime in which to bridge it, mean tific research; and, perhaps, a visit from the bailiffs ofthe Inter- that such an act ofmutual self-harm is dangerously possible. 7

Financial regulation in America The litter of the law

Simplerrules must not come at the expense ofsafety HE prospect of deregulation in clients’ best interests. A demand that America stop co-oper- Dodd-Frank act Thelps explain why, since Do- ating with international regulators, issued to the Federal Re- Regulatory restrictions, ’000 nald Trump’s election, no bit of serve by PatrickMcHenry, a Republican congressman, is a sign 30 the American stockmarket has ofthe growing pressure forthe wrong sort ofderegulation. 20 done better than financial firms. It would be hard for the Trump administration to get a full 10 On February 3rd their shares repeal of Dodd-Frank through Congress (see page 59). But his 0 climbed again as Mr Trump team could still change an awful lot—for good or ill. Their goal 2009 10 11 12 13 14 signed an executive orderasking should be to simplify America’s financial rule book, without the Treasury to conduct a 120-day review of America’s finan- softening its force. cial regulations, includingthe Dodd-Frankactputin place after the financial crisis of 2007-08, to assess whether these rules Dodd and buried meet a set of“core principles”. When it was passed in 2010 Dodd-Frank was a monster of a To critics of Dodd-Frank, this is thrilling stuff. They see the law and was programmed to spawn more regulations. It im- law as a piece of statist overreach that throttles the American posed more than five times as many restrictions as any other economy. Plenty in the Trump administration would love to law passed by the Obama administration. More constraints gut it. The president himself has called it a “disaster”. Gary were added to the federal banking code between 2010 and Cohn, until recentlyone ofthe leadersofGoldman Sachs, a big 2014 than existed in 1980. bank, and now Mr Trump’s chief economic adviser, promises As the clauses multiplied, so did the compliance burden on to “attackall aspects ofDodd-Frank”. banks. Between 2010 and 2016, Dodd-Franksoaked up 73m pa- Opponents of moves to unwind regulation are as apoca- perwork hours and $36bn in costs. The big banks complain, lyptic. Wall Street caused the crisis, they observe; undoing but they have the heft to cope. The financial implications are Dodd-Frank would lead to the next disaster by letting bankers worse for small lenders. A study by the Minneapolis Federal run riot again. That would harm customers and taxpayers, as Reserve found that adding two extra members to their compli- would suspending the introduction of the fiduciary rule, an- ance departments tips a third ofsmall banks into the red. other Obama-era regulation requiring financial advisers to act Onerous though it is, however, the act also achieved a lot. 1 The Economist February 11th 2017 Leaders 11

2 Measures to beef up banks’ equity funding have made Ameri- for everyone except their staff. So too would adopting princi- ca’s financial system more secure. The sixlargest bank-holding ples-based regulation to replace detailed prescriptions that companies in America had equity funding of less than 8% in add to compliance costs but not to stability or efficiency. The 2007; since 2010 that figure has stood at 12-14%. Rules to in- Volcker rule, forexample, could have been distilled to a simple crease the transparency and safety of derivatives markets principle of “not conducting proprietary trading”; instead it were welcome; so, too, were rules to make it easier to wind ended up taking up almost 300 pages to define. It is a similar down a failing bank. And despite concerns that the country’s story with the fiduciary rule—a fine principle bogged down in big banks are disadvantaged internationally, they rule the overprescription. roost of global finance: the top five banks in the investment- Third, require greater accountability offinancial regulators. banking league tables in 2016 were all American. Indeed, few When theylevyfinesorlabel an institution assystemically im- things would more quickly undermine these institutions portant or fail institutions on stress tests, regulators should abroad than a decision to stop playing by international rules. have to explain their reasoning, so that everybody is clear How, then, to keep the good and get rid ofthe bad? First and about what counts as acceptable behaviour. The Consumer Fi- foremost, avoid backsliding on capital requirements. The sur- nancial Protection Bureau is one agency that deserves to sur- est way to cope with a financial crisis is for banks to have lots vive, butthe unusually mighty powers ofitsdirector should be ofequity funding. Separate proposals from Jeb Hensarling, an- pared back and its funding should come from Congress rather other Republican congressman, and Tom Hoenig, the vice- than the Federal Reserve. chairman of the Federal Deposit Insurance Corporation, offer As ever with Mr Trump’s nascent administration, it is hard regulatory relief only to lenders that meet a very high capital to know what lies ahead—and easy to be fearful. But a sensible bar. That is the direction to take. approach to reform would look something like this: keep cap- Next, unravel the sprawl. Consolidating America’s overlap- ital high and rules simple. Judge what comes from Mr Cohn’s ping financial agencies into fewer regulators would be a boon assault on regulation by that standard. 7

Entertainment The paradox of choice

Consumers have neverhad it so good. But forget talkofdemocratising entertainment ORcouchpotatoesandbook- music-streaming services, is free. And fevered competition for US box-office revenue Fworms, filmgoers and music- consumers’ attention, the scarcest resource in the entertain- %oftotal 100 lovers, this is a golden age. The ment industry, has raised the quality of paid-for services. No- Top 1% of films 75 internet provides an almost where is this more visible than in television. In 2016 more than Top 5% 50 endlessly long menu of options 450 scripted original shows were available on American TV, Top 10% 25 to meet the almost infinitely more than twice as many as aired in 2010. Amazon and Netflix Bottom 90% 0 quirky tastes of humanity. are investing billions of dollars. In response, cable networks 19972000 05 10 16 Smartphones have put all kinds that once grew fat on subscription fees are having to invest. ofentertainment—from classic rockto prestige television to sil- On the production side, the winners are companies that ly YouTube clips—at the fingertips ofbillions across the planet. can sustain this spending on premium fare—Disney’s box-of- Yet, as our special report this week describes, these same fice dominance, for instance, rests on its purchases of Marvel, technologies have a paradoxical effect. Although they expand Lucasfilm and Pixar—or that have built platforms with large choice, they concentrate attention on the most popular hits numbers ofusers, like Facebookand YouTube, orthat can mas- and the biggest platforms. Perhaps because entertainment is a ter both distribution and content, as Amazon and Netflix aim social activity, perhaps because consumers are baffled by the to. Thisisthe logicbehind AT&T’sproposed $109bn deal to buy range ofchoices, they depend on the rankings and recommen- Time Warner, marrying America’s biggest distributor of pay dation algorithms ofplatforms like Netflix, YouTube and Spot- TV to one ofthe biggest producers oftelevision and film. ify to guide them to their next dose of content. And they are drawn to familiar titles that stand out from the clutter. The remote principle So big brands continue to thrive. Of the thousands of films One big loser stands out. Cable TV in America has been per- released worldwide last year, the top five box-office earners haps the most lucrative business model in entertainment his- were all made by Disney. At the other end ofthe spectrum, the tory. But its formula of adding channels and charging more no “long tail” of niche offerings is proving to be extremely skinny. longer appeals. Seduced by cheaper, more flexible internet of- Listenersspentmoneyon digital copiesofa total of 8.7m differ- ferings, Americans have begun dropping pay TV at the rate of ent songs in America last year, almost 5m more than in 2007, more than 1m households a year (live sports is one of the last according to Nielsen, a research firm. But the number of songs pillars supporting the system). The decline of pay TV exempli- that sold more than 100 copies remained at 350,000. And the fies the paradox of choice. There may be more things to watch number of songs that sold just one copy increased from under and listen to than ever before, but there is only so much con- 1m to 3.5m. It is as hard as ever fortalent to breakthrough. tent that people can take. And the choices they make will con- Who wins and loses from this? Consumers are the biggest centrate power in the hands of giants like Disney, Netflix and beneficiaries. The long tail is always there for people with Facebook. Far from democratising entertainment, the internet eclectic tastes. Lots of content, from YouTube videos to some will entrench an oligarchy. 7 12 Letters The Economist February 11th 2017

Investing in social goods Evaluating aboriginal policy quality education. But for clearly followed “agendum” those partnerships to work, into complete disuse, a single Schumpeter perpetuated the “Ministering to his own” (Janu- both sides need to build a lot piece ofdata now being a “bit”. myth that there is an inherent ary 28th) looked at attempts to oftrust. Whatever the rights DAVID CHAPLIN conflict forinvestors between evaluate the more than1,000 and wrongs ofthe recent Cape Town doing well and doing good policy programmes in Austra- headwinds facing Bridge, it is (January 21st). Asking whether lia that are geared towards only one part ofa complex and Charting Congolese pop it is shareholders or “the peo- aboriginals. But the statement rapidly developing story. ple” who matter most is a false by the Centre forIndependent JOHN RENDEL Youdid not do justice to the dichotomy. Anotherview sees Studies that only 88, or less Founder roots ofCongolese pop music financial returns to share- than10%, have been evaluated PEAS (“The sound ofpolitics”, Janu- holders deriving from broader is outlandish. In 2012 I helped London ary14th). The first Congolese contributions to society. In to analyse 98 government- music hit was “Marie-Louise” Canada consumers trust and funded evaluations in relation How leftis California? by Wendo Kolosoy in 1948. support brands that are consis- to the “national emergency” in Before “Independence Cha tent with their broader values the Northern Territory alone. Cha” in 1960, there was a de- around society’s well-being, The real issue is not the cade ofhit songs, including environmental responsibility number ofevaluations, but the “On entre OK, on sort KO”. and community contribution. willingness ofgovernment to STEVEN SHARP Such behaviour encourages react to their findings. No- Williamsburg, Virginia greater loyalty and lowers where is this clearer than with price sensitivity, both factors the welfare-income manage- Crime doesn’t pay that affect the bottom line. ment measure. One compre- There are also tangible benefits hensive evaluation demon- The timing ofthe campaign by to a firm from engaging with strated no discernible benefit. West Yorkshire’s police com- employees and from lower The government’s response missioner calling forthe police staffturnover. We need in- was first to demean and then to be able to sell assets seized vestment models where the ignore the evaluation’s find- from criminals was particular- interests ofsociety add to ings. The Productivity Com- I disagree with your descrip- ly unfortunate (“Scrounging shareholder returns, not ones mission, the Australian gov- tion ofCalifornia as the “most forcoppers”, January 21st). His that consider them a cost. ernment’s key policy-advisory progressive state” in America call coincided with the trial of SAUL KLEIN body,recently called fora (“California steaming”, Janu- a senior West Yorkshire officer Dean fundamental change in ap- ary 21st). In 2008 we voted forallegedly selling industrial Gustavson School of Business proach: knowing more about against gay marriage. Wehave quantities ofseized class-A Victoria, Canada what works and why and only just legalised marijuana, drugs. The residents ofWest using such evidence to design fouryears after Colorado and Yorkshire would rather the Not all investors demand high policies that achieve positive Washingtonstate. Hillary police waited until the law was and fast returns. Pension funds outcomes, with positive being Clinton won the Democratic changed by Parliament before benefit from longer-term strat- defined by the aboriginal and primary here, not the progres- availing themselves ofsuch egies and investment in R&D, Torres Strait islander peoples, sive Bernie Sanders. Instead of profitable fundraising activ- which will pay out in the not just by government. considering free college tu- ities. It would be better if the decades to come. There is PROFESSOR JON ALTMAN ition, as New Yorkhas recently force concentrated on its day widespread evidence that a Deakin University proposed, California’spublic job, namely catching a few balance between profit, people Melbourne colleges are increasing their more criminals on the loose. and planet is the pragmatic fees. Ifanything, California is PETER BRYSON plan forcompanies that wish Bridge building one ofthe most institution- Addingham, West Yorkshire to be successful now, and in 30 alised states, favouring Demo- years’ time. Yourarticle on the challenges cratic policies and politicians A world of deception PAIGE MORROW that Bridge International Acad- over progressive ones. It is a Head of Brussels operations at emies face in Uganda and different shade ofblue. I enjoyed Lexington’s observa- Frank Bold Kenya gave the sense that the KYLE UKES tion that “populist insurgen- Brussels governments there were not Anaheim, California cies are rarely defeated with prepared to workconstructive- slogans in Latin” (January “The contest between share- ly with private firms (“Assem- Modern data 28th). In recent days, however, holders and the people” is a bly line”, January 28th). My I’m reminded that they phrase best saved fora popu- experience running a network While you are considering the sometimes can be explained list rally. Shareholder value of30 low-cost secondary advice ofGeoffrey Pullum to by slogans in Latin: mundus does not come in “shades of schools in Uganda and Zambia allow split infinitives (Letters, vult decipi. grey”, it comes in numbers, has been different. Through January 21st), may I suggest DONALD JACKSON such as return on equity or on close collaboration with gov- you also have another lookat Tulsa, Oklahoma 7 invested capital. And as long as ernment, PEAS now educates your dogged insistence on the use ofcreative accounting 1% ofUgandan secondary- treating “data” as a plural? It is limited, it is very unlike The school pupils under a public- hasn’t been a proper plural for Letters are welcome and should be addressed to the Editor at Economist to propose that such private partnership. at least the past two decades. The Economist, 25 St James’s Street, a hard-data approach should Productive partnerships Throughout the English-speak- London sw1A 1hg be disdained. between governments and ing world it has become a mass E-mail: [email protected] NINA WIERETILO non-state organisations can noun, like “water” or “sand”. More letters are available at: Economist.com/letters Oxford help get every child a high- The singular “datum” has

14 Executive Focus

The Economist February 11th 2017 Executive Focus 15

The Economist February 11th 2017 16 Briefing Russia and America The Economist February 11th 2017

face opposition in Congress and quite pos- Champions of the world sibly even in MrTrump’scabinet. Still, pub- lic opinion provides an opening: polls sug- gest Mr Putin is viewed more favourably, and his country less warily, than before Mr Trump embraced him. In Russia state pro- ATLANTA, KIEV AND MOSCOW paganda has burnished Mr Trump’simage Donald Trump’s idea ofa grand bargain with Russia is delusional. But Vladimir and soothed anti-Americanism. Putin will welcome it In terms of style, the putative tag team OR decades, Russian leaders insisted Kompromat or collusion have been sug- looks rather well matched. Neither is fond Fthat America had no claim to moral su- gested as possible explanations for this un- of the liberal, rules-based global order. periority. For every Soviet and post-Soviet shakable warmth. Official inquiries—if Both can lie without blushing. It is easy to misdeed, from labour camps to invasions, they are allowed to proceed—may shed imagine Mr Trump sharing Mr Putin’s ap- they adduced an American counterpart. light on claims that Mr Trump’s campaign proach to diplomacy, too. Like the Russian, Such equivalence wasanathema to Ameri- team collaborated with Moscow. he seems sure to prefer bilateral deals to can statesmen, who claimed to abide by Scattered comments by the president messy supranational bodies and is likely higher standards. and his aides imply an alternative explana- to define America’s national interest in Until now. In an interview with Presi- tion: the administration envisages a grand narrowly military and commercial terms. dent Donald Trump broadcast on Febru- diplomatic bargain with Russia that en- Both men seem willing to link disparate is- ary 5th, Bill O’Reilly ofFoxNews described compasses arms control, counter-terro- sues and regions in a general barter. Nei- Vladimir Putin as a “killer”. A nod from Mr rism, the status of Crimea, economic sanc- ther is much exercised by human rights. Trump seemed to allow that this might be tions and relations with China, an Both regard the humiliation of adversaries the case, which would in itself have been arrangement in which the two leaders in- as a salutary exercise ofpower. an arresting evaluation of another head of domitably face down all comers like some state. The president then went on to say maverickgeopolitical wrestling team. Buttering up the butcher that there were “a lot of killers” and to This stance does not just go against the Yet as a means to further Mr Trump’s question whether his own country was views of those Republicans who, along avowed goals in the Middle East and else- “so innocent”. His tough-talk tarnishing of with much of America’s foreign-policy es- where the idea hasthree deep flaws. One is America’s reputation was unprecedented. tablishment, regard Mr Putin as a gangster. the damage it would do to America’s exist- But the equivalence it posits sits easily with It also contradicts Mr Trump’s two prede- ing alliances and international reputation. the way Mr Trump seems to see Mr Putin’s cessors. Mr Obama blithely wrote Russia The second lies in the immutable realities Russia: as a potential partner. off as an irksome regional power, nuclear- of great-power relations, underpinned by In 2016 MrTrump was consistently effu- armed and prone to harassing its neigh- history and geography that no deal-mak- sive about Mr Putin—“very smart!”—con- bours but doomed to decline into irrele- ing can wholly negate. The last is that Mr trasting his popularity among Russians fa- vance. George W. Bush, who on meeting Trump seems to be making a classic presi- vourably with BarackObama’s standingin Mr Putin professed to have looked into his dential beginner’s mistake in dealing with American polls. He poured scorn on evi- soul and to have liked what he saw, later the Kremlin, one that Mr Bush committed dence that the Kremlin was behind the oscillated between symbolic protests when looking for a soul and that Mr hacking of Democratic bigwigs’ e-mails against the Kremlin’s depredations and fit- Obama made when he attempted a “reset” duringthe election campaign, preferring to ful efforts to ignore them. in relations with Russia in 2009: wishful denigrate America’s intelligence agencies. This all means that any bargain will thinking. 1 The Economist February 11th 2017 Briefing Russia and America 17

2 The first thing Mr Trump seems to want On a bigger scale, the same factors—ge- armscontrol. Here, again, the scope for pro- is an ally against the so-called Islamic State ography, security and commerce—would gress is narrow. A deal on long-range nuc- (IS). His notion that Russian forces have nobble any bid by Mr Trump to conscript lear weapons which limits both countries been battling IS in Syria is mistaken: they Russia as a bulwark against China. The ci- to 1,550 deployed warheads is set to expire have mostly bombed other opponents of vilityhe hasconspicuouslyextended to Mr in 2021. Mr Trump could extend it, or try to Bashar al-Assad, Mr Putin’s client. But that Putin has not applied to Xi Jinping, whom reduce that cap; he might also want to do could change—especially, observes An- Mr Trump angered over Taiwan even be- something about Russia’s huge numerical drewTablerofthe Washington Institute for fore he took office. As Dimitri Simes of the advantage in tactical nuclear weapons. But Near East Policy, now that Mr Assad’s own Centre for the National Interest, a think- America’s missile-defence capabilities— position in Damascus looks more secure. tank, notes, American diplomats have which Russia sees as a threat to its deter- What, though, could Russia offer? Mr worried about Sino-Russian cosiness for rence—would be dragged into any such ne- Putin’s way of war, in Aleppo as in Grozny, decades. Stephen Bannon, Mr Trump’s in- gotiations, and the missile-defence facili- makes use of indiscriminate bombard- fluential strategist, undoubtedly sees Chi- ties in Europe are there to deal with Iran. A ment and deliberate targeting of civilians; na as a major adversary. A bid to realign deal which reduced their capability Russian air power might thus be used the three powers lies at the heart of Mr should—at least in a normal world, and as- against Raqqa and other IS strongholds in Trump’sgrand bargain. suming Congress is not wholly supine—be ways that American aircraft cannot. But This may be even less realistic than the hard forMr Trump to swallow, orsell. even ifthat were acceptable, it would hard- hope of turning Russia against Iran. China ly be a solution. It is only by occupying ter- and Russia are hardly close allies. Among The bear’s necessities ritory that IS can be beaten; and Russia of- other reasons for mistrust, the old Russian In much ofthis, MrTrump seems to overes- fers little by way ofboots on the ground. anxietyoverChinese expansion in Siberia, timate Russia’s clout as well as its align- Russia has no need for ground troops in a fear stoked by the lopsided populations ment with his goals. He mistakes the strut Syria because its forces are in de facto alli- on either side of the Amur river, has never of a bully forthe swagger of a superpower. ance with those ofHizbullah and Iran. This gone away. But Mr Putin began a pivot to- The “strength” he admires relies on strate- throws into sharp relief differences be- wards Asia in the mid-2000s, well before gic assets handed down from the Soviet tween America and Russia on who counts Mr Obama undertook his own version of past—its Security Council seat and nuclear as a terrorist. Mindful ofRussia’s 20m Mus- such a manoeuvre. Initially a feint as much weapons—and its hydrocarbon reserves, lims, MrPutin hasbeen astactful as wasMr as a strategy, one conceived as a response bolstered by Mr Putin’s knack for asym- Obama in separating the concepts ofIslam to what Mr Putin saw as Western hostility, metric thuggery. Unrestrained by allies, and terrorism. He has said the Orthodox it has since acquired substance. Alexander scruple or domestic opposition, he is a dab church can be seen as having more in com- Lukin, of the Higher School of Economics hand at disinformation and discrediting mon with Islam than with Catholicism, in Moscow, sees it as “largely irreversible”. critics whom he does not dispose ofin oth- and that “Islam is an outstanding element When Western sanctions over Russia’s in- er ways. But his Russia is more of a prickly, of Russia’s cultural make-up, an organic cursions into Ukraine in 2014 began to bite, meddling power than a global, transfor- part ofour history.” His grotesque satrap in China became a valuable source of credit. mative one. Diplomatic isolation and an Chechnya, Ramzan Kadyrov, enforces sha- It has invested in Russian oil-and-gas firms; economy throttled by corruption frustrate ria (Islamic law) there. Russia sells it high-tech weapons. any grander ambitions. Beyond Mr Putin’s awkward mix of Other benefits America might seek in a Russia can, however, seize an opportu- brutality, cynicism and cultural pragma- grand bargain include a reduction of Rus- nity; and Mr Trump presents it with one, tism, there is the problem that a Syrian set- sia’s campaign of bullying and destabilisa- whatever role Mr Putin had in his rise to tlement palatable to the White House, let tion in the Baltic states and movement on power. (While Mr Trump did not take the 1 alone America’s Sunni Arab partners— whose support would be crucial for any IS forces actually taking territory from — Russia and the United States End 2016: US intelligence agencies suggest would have to see Iran’s influence min- Russia’s view of America America’s view of Russia Putin deployed hackers to influence the US presidential election imised. But Russia would be very hard put % replying “favourable” 2003: Russia strongly 2007: American 2008: Military to acquiesce in such a plan. Its relationship opposes the American- conflict between 2013: Putin grants 1991: End of the Soviet Union led invasion of Iraq plan to build a asylum to NSA 75 with Iran, while testy, is more nuanced missile-defence Russia and Georgia leaker, Edward than the White House seems to realise. Terrorist attacks of September 11th 2001: system in Poland Snowden Putin pledges to help America respond draws strong Iran is Russia’s neighbour across the Russian protests 2009: Obama 1999: Putin becomes prime minister calls for a “reset” 2014: The Caspian Sea and the Caucasus. The two and later inherits the presidency in relations annexation of Crimea by vie for influence there and in Central Asia. Russia brings Because an Iranian nuclear bomb would sanctions imposed by 50 threaten Russia’s primacy in the region, America Russia was happy to take a role in the deal 1998: NATO military action in Kosovo begins. that constrained Iran’s nuclear pro- Financial crisis hits 2010: Obama Russian economy 2007: Russia says and Medvedev gramme. But proximity also makes Mr Pu- it will veto an EU- sign treaty to and US-backed tin wary about antagonising the Iranians. 1992: Yeltsin reduce nuclear plan for Kosovo’s weapons As Nikolay Kozhanov ofthe European Uni- visits the US independence 25 versity at St Petersburg says, the Russians have interests at stake that the Americans do not, including energy projects and pipe- lines in and around the Caspian. They wantto sell Iran arms, includingsurface-to- air-missiles and civilian nuclear power plants; they need to co-operate with Iran to 1991 9293 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Gorbachev Boris Yeltsin * Vladimir Putin Dmitry Medvedev Vladimir Putin keep Mr Assad in power. They are very un- G.H.W. Bush Bill Clinton George W. Bush Barack Obama likely to want to tear up the nuclear deal, Russian and American presidents Donald Trump something Mr Trump has threatened. Sources: Gallup; Pew Research Centre; The Economist *Yeltsin resigns from office and Putin becomes acting president 18 Briefing Russia and America The Economist February 11th 2017

Russia is already enormous. It removes one of the biggest threats to Mr Putin’s power: the attraction of America as an al- ternative system of governance to the au- thoritarian model he has constructed. His is not a new worry. Soviet and Rus- sian leaders have in the past venerated America as well as demonising it. (Stalin advocated a “combination ofRussian revo- lutionary élan with American efficiency”.) They knew its example encouraged rebels and idealists. The Decembrist revolt of 1825, in which army officers rose against Tsar Nicholas I, took inspiration from the Declaration of Independence. In 1917 some pro-revolution Russians saw America as a guidingstar: Russia was to be a newAmeri- ca, a better and fairer one. The Soviet au- thorities tried, largely in vain, to root out American books, music and clothes. They were right to be concerned: Amer- 2 intelligence regarding Russian hacking se- itored by international observers. ica’s successes undermined Soviet rule. riously, MrPutin evidentlydid. Several offi- Here, on the face of it, the signs are not After communism collapsed, America be- cers of Russia’s federal security service encouraging for Mr Putin. Mr Tillerson af- came an ideal. That started to change after have been arrested for treason in what firmed in his confirmation hearing that the Russia’s financial meltdown in 1998 and may be a hunt for a cyber-mole. A senior annexation of Crimea, and Russia’s push the American-led intervention in Kosovo. Kremlin insider was found dead, suppos- into eastern Ukraine, were illegal. But Mr With Russia unable to compete economi- edly ofa heart attack.) Trump could resolve this contradiction by cally or support its clients, its public fell Relief on sanctions is the most obvious arguingthat acceptingRussia’s hold on Cri- back on a simple conviction: we are stron- item on the Kremlin’s agenda for Mr mea would only be to acknowledge reali- ger because we are morally superior. Trump’s presidency, one that would have ty. Using the same rationale, he may urge Coming to power at the turn of the mil- the double effect of helping Russia’s econ- Petro Poroshenko, Ukraine’s president, to lennium, MrPutin co-operated with Amer- omyand dividingAmerica’sallies. Butoth- tolerate Russia’s sway in the east. That, in ica until 2003, the year that saw Mr Bush’s er things may matter to Mr Putin more. turn, could trigger a collapse ofthe govern- invasion ofIraq and Georgia’s Rose revolu- Obligingly, Channel One, Russia’s main ment in Kiev, which would suit Mr Putin. tion. The next year Ukraine’s Orange revo- state television channel, provided a list of Because Mr Poroshenko’s government lution got under way. Mr Putin believed them a few days after Mr Trump’s inaugu- played a role in the ousting of Paul Mana- that America had toppled the leaders of ration—a list which sounded rather more fort, at one time a senior figure in Mr the two former Soviet republics; he had a achievable than Mr Trump’s objectives. Trump’scampaign, it might be welcome in strong aversion to seeing anything similar First was that anti-terror alliance, for Washington, too. in Moscow. In 2011he blamed Hillary Clin- “nothing brings [countries] together as ton, then America’s secretary of state, for much as a fight against a common enemy.” Remember the Decembrists demonstrations against him, pushing rela- Second, Russia wants to stop any further Fourth on Channel One’slistwasan end to tions to a new low. expansion of NATO after the accession of “global policing” by America, and a clear For Mr Putin, the downside of Mr Montenegro. Countries barred might well recognition of the two countries’ spheres Trump’swin is that it prevents him from in- include Sweden or Finland, and would de- of influence. That sounds extravagant. But voking America as an enemy. This could finitely include Ukraine. Mr Trump’s de- it may be plausible. Apart from the odd ho- be only a temporary setback: despite his scription of NATO as “obsolete” has been tel deal, Mr Trump has evinced little inter- disdain for NATO and liberal intervention- welcome. If Russia were to meddle in its est in the parts of the world—eastern Eu- ism, Mr Trump may well lash out militarily Baltic neighbours, cabinet members who rope, the Balkans and the former Soviet somewhere, at which point anti-American profess devotion to the alliance, such as Union—that Mr Putin would like to sub- propaganda can, if necessary, be cranked Rex Tillerson, the secretary of state, and orn. Mr Trump “has no intention of carry- back up. For now, MrPutin will be content James Mattis, the secretary of defence, ing the torch of democracy into every cor- that an American leader is at last paying might struggle to persuade Mr Trump to ner of the world”, observed ValeryFadeev, him the respect he feels he deserves. honour the commitment to mutual de- Channel One’s anchor. Not on the list, but The irony is that any Russian who grew fence at its core. If he did not, NATO would worth bearing in mind, is that Mr Trump’s up before 1989 can see in MrTrump the per- in effect be dead: the ultimate prize for Mr opposition to global action on climate may fectSovietcaricature ofa hateful American Putin. look helpful to a country that depends on imperialist. Now, though, this same image Third on Channel One’s list was the rec- oil and gas exports. lets the Kremlin’s propagandists present ognition of Crimea as Russian territory, The Kremlin does not expect immedi- him as an ally in the global fight between along with a de-facto veto over Ukraine’s ate concessions. According to Nikki Haley, right-minded nationalists and decadent future. The Kremlin wants to retain its grip America’s new ambassador to the UN, Western liberals, a battle that will continue on the country’s wretched east—where sanctions relief is not imminent. Contra- in the upcomingelections in Germany and fighting has flared up again—and so secure dictory reports about what Mr Trump has France. Russian television particularly rel- a stranglehold on its policies (see page 26). said to Mr Poroshenko and Yulia Tymosh- ishes footage of demonstrations in Ameri- Conversely, America and its partners have enko, one of his political opponents, sug- ca and Europe. They represent a thrilling insisted on a withdrawal ofRussian troops, gestthathe iseitherundecided orconfused new front in a civilisational struggle led by the re-establishment of Ukraine’s control about the next steps in Ukraine. Yet the MrPutin—and nowjoined bythe president of its borders, and regional elections mon- ideological value ofMrTrump’svictory for ofthe United States. 7 Britain The Economist February 11th 2017 19

Also in this section 20 Brexit and the British Empire 21 Selling the student loan book 21 The housing white paper 22 Trade and the NHS 22 The war on seagulls 23 Filthy air 24 Bagehot: The green-belt delusion

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

The Brexit bill European officials insist that all liabilities are a joint responsibility, asEurocrats work From Brussels with love forthe EU, not their national governments. This may be the fiercest row ofall. Brussels’s demand will combine these three elements with a few miscellaneous BRUSSELS items, and may adjust for Britain’s share of EU assets, its budget rebate and payments The European Union is preparing to hit Britain with a heftyexit charge. A bitter it is due from the EU (see chart). argument overmoney could derail the talks Michel Barnier, who will lead negotia- HE mother of parliaments has spoken. ain’s share ofwhat Eurocrats call the reste à tions on behalf of the commission, is said TOn February 8th a large majority of liquider (or amount yet to be paid) would to consider that the bill stands between MPs backed a bill authorising the govern- be around €29.2bn, Mr Barker estimates. €40bn and €60bn. The upper figure has ment to begin Britain’s withdrawal from The second element covers investment anchored debate in Brussels, but attracts the European Union by triggering Article commitments to be executed after Britain few takers in London. Some Brexiteers be- 50 of the EU treaty. (Afew dissenters were leaves the EU in 2019. Most of this is “cohe- lieve Britain has no obligation to pay any- told off for singing “Ode to Joy”, the EU’s sion” funding for poorer countries (think thing at all once it leaves. If a compromise anthem, in the chamber.) After approval motorways in Poland). Mr Barker reckons cannot be reached, Britain might find itself from the Lords, it should become law in Britain’s share could amount to €17.4bn. hauled before the International Court of March. But a different sort of Brexit bill is The government will struggle to explain Justice. The talks may be over almost be- approaching, and will be harder to man- why voters should be on the hook for pay- fore they have begun. age. It could yet scupperthe whole process. ments made after Brexit. But the European Sequencingpresents a second problem. Before Britain’s referendum last June, Commission will argue that Britain’s ap- Mr Barnier insists on settling the bill and Leave campaigners promised voters that proval of the current budget, which runs other divorce terms before substantial Brexit would save the taxpayer £350m until 2020, obliges it to cough up. talks on the much bigger matter of a post- ($440m) a week. That pledge was always Pensions make up the third compo- Brexit settlement, including a trade deal, tendentious. But officials in Brussels are nent. The liabilities for the EU’s unfunded can begin. But British officials want to ne- drawing up a bill for departure that could scheme stand at over €60bn. Britain may gotiate in parallel, and perhaps to link the mean Britain’s contributions remain close be prepared to cover its own nationals. But departure sum to the degree of access Brit-1 to its membership dues for several years after it leaves. In a new report for the Cen- tre forEuropean Reform, a think-tank, Alex Cheque, please Barker, a Financial Times correspondent, Britain’s potential bill for leaving the European Union, €bn puts the figure at anything between Liabilities: Pensions “Reste à liquider”* ESIF† cohesion projects ESIF† rural/fish policies Other €24.5bn ($26.1bn) and €72.8bn. Contingent liabilities: Guarantees/provisions EU loans The bill comprises three main ele- Net bill, €bn ments. All, in Brussels’s view, derive from Receipts: British projects Rebate Assets the legal obligations implied by Britain’s 2002– + 0406080100 EU membership. The first, and largest, cov- Upper 72.8 ers the gap between payments made in the estimate EU’s annual budget and the larger “com- mitments” made under its seven-year bud- Lower 24.5 getary framework, approved by Britain estimate and the 27 other EU governments. This † overhang has been steadily growing. Brit- Source: Centre for European Reform *Commitments yet to be paid European Structural and Investment Funds 20 Britain The Economist February 11th 2017

2 ain will enjoy to the EU’s single market Brexit and the lessons of empire with economisingand the National Health after it leaves. The law lends Britain half a Service. Rusk said that he “could not be- hand: Article 50 saysthata departingcoun- The art of leaving lieve that free aspirin and false teeth were try’s withdrawal agreement shall take ac- more important than Britain’s role in the count of “the framework for its future rela- world.” He might have said something tionship” with the EU. But hardliners like similar about the Leave campaign’s pro- France insist on keeping the two issues mise to divert EU dues to the NHS. apart. And with only two years to con- Partly to satisfy its obligations to the At- clude an Article 50 deal, Britain cannot lantic alliance, therefore, Britain went to How to breakup and stay friends waste time talking about talks. considerable lengths to cultivate post-im- Some British officials note that the oth- F THE current crop of Whitehall manda- perial friendships, especially when with- er EU governments can tweakMr Barnier’s Irins think they have their hands full ne- drawal threatened economic stability in a negotiating guidelines if they find his line gotiating an exit from the European Union, former colony. Take Singapore, which was too tough. Britain might seekto exploit this they should spare a thought for their pre- highly dependent on the income from Brit- by offering sweeteners: defence co-opera- decessors. Britain’s withdrawal from its ain’s huge naval bases. The bases em- tionwiththeBaltics,perhaps,orinfrastruc- empire in the 1940s-60s required its civil ployed a sixth of the island’s workforce ture grants to Poland. The trouble is that re- service to negotiate exits from dozens of and accounted for a fifth of its GDP. Ac- ducing Britain’s bill means cuts to the different territories, often in months. The knowledging that Britain’s sudden with- overall budget, which would irk countries arch-imperialist Winston Churchill called drawal in the late 1960s could imperil the that do well from it, or extra payments it a “scuttle”. very survival of the new republic, Britain from the wealthier governments to make Yet the winding up of empire for the thus agreed to give £50m (about £850m, or up the shortfall. That creates an unusual most part achieved what many considered $1.1bn, in today’s money) in aid to Singa- alignment of interests among the 27. “If impossible: breaking up and staying pore over five years. there’s one thing net payers and net recipi- friends. Manypeopleslabouringunder the Arthur de la Mare, the departing high entsagree on, it’sto make the bill forBritain yoke of British imperialism hated the colo- commissioner, fulminated that this was “a as high as possible,” says an EU official. nialists, yet few of the former colonies re- bribe to keep the Singaporeans sweet”. But Most governments do not rule out a fused to join the Commonwealth as newly it worked. Singapore remains a staunch compromise. German officials, for exam- independent countries. What might Brit- ally, as does Malaysia, which got £25m in ple, will consider opening trade talks be- ain’sBrexitnegotiatorslearn from thatrela- similar circumstances. Malta, the chair of fore the divorce is settled, so long as Britain tively painless transition? the EU presidency as Brexit gets under way, accepts the principle that it has obligations The aims in most imperial exit negotia- got £51m over ten years. thatextend beyond itsdeparture. Asforthe tions were threefold, as summarised by The origins of Britain’s huge aid budget figure itself, like all EU budgetary negotia- one official: to ensure an orderly with- can be traced to the same era. In 1946-70 tions it will be resolved via late-night Brus- drawal, to maintain political stability and about £350m was spent developing colo- sels summitry. “It’s like buying a carpet in to “safeguard our own trading and invest- nial economies. Sarah Stockwell of King’s Morocco,” says Jean-Claude Piris, a former ment interests”. The second point was im- College London says that the resulting head ofthe EU Council’slegal service. “The portant as the backdrop to the end of em- goodwill helped British firms and institu- figures are always negotiable.” pire was, as it is now, a revanchist Russia tions to win business. The Royal Mint, for But there are reasons to fear a break- (then the Soviet Union), threatening east- example, won contractsto produce the cur- down. Theresa May, the prime minister, ern Europe and thus Britain’s strategic in- rencies ofcountries like Ghana. (Its first im- has done little to prepare voters for this de- terest of maintaining the balance of power age of Malawi’s tyrannical president, Has- bate. Neither her speeches nor the govern- on the continent. tings Banda, was a bit too insightful. Giving ment’s white paper on Brexit have said America, Britain’s main partner in an “impression ofharshness”, the drawing anything about an exit payment. A whop- NATO, was just as alarmed by Britain giv- was revised.) ping financial demand will therefore in- ing up its worldwide military and political “If you scratch an American,” lectured flame Britain’s tabloids, limiting her room role as the Obama administration was by Rusk, “you find an isolationist.” That, too, for manoeuvre. More worryingly, both Brexit. Dean Rusk, the secretary of state at has a certain echo in today’s White House. sides believe they hold the whip hand. the time, harangued his hapless British As for Brexit, the lesson of empire is that a British officials think the hole Brexit blows counterpart about the dangers of with- generous payment here and there can go a in the EU’s budget will force the Europeans drawing into a “little England” obsessed long way. 7 into compromise forfearofgettingnothing ifthe talks derail. EU officials, fortheir part, are convinced that the prospect ofno with- drawal agreement, and therefore no trade deal, will terrify Britain into submission. “They’ll be begging on their knees at the WTO,” says one. The EU is skilled at brokering compro- mise on budgets. Perhaps that will prove true for the Article 50 talks, too. But two things set the upcoming negotiation aside. First, there is no precedent. Second, good- will towards Britain has largely evaporat- ed; it will be negotiating with the EU as a third country,nota partner. Informal meet- ings between British and European offi- cials have already witnessed blazing rows. About the only thing the sides agree on is that they may be heading fordeadlock. 7 India had Gandhi, Britain has Farage The Economist February 11th 2017 Britain 21

Student loans government to relax the conditions, per- market is one of undersupply of new haps as part ofa pre-election giveaway. houses. Successive governments have A quick buck A bigger worry is that the taxpayer will tried to ensure that at least 250,000 new get a bad deal. When a previous govern- dwellings are put up each year, a level that ment sold a more straightforward form of would be expected to keep price rises in student debt from the 1990s, the hope was check. But 1979-80 was the last year in that the buyer would be more tenacious which that many houses were completed. when chasing delinquent graduates. Since The white paper contains measures to The government plans to sell offpart of repayment is now deducted straight from force councils to allow more construction. the student loan book pay-packets, there is no obvious way forin- Higher charges levied on developers ISPOSING of government assets is a vestors to whip the regime into better should provide extra funding to councils’ Drisky business. Despite his claim to shape. And buyers are likely to be leery of planning departments, making them—it is have “saved the world” in 2008 by avert- income-contingent loans because of the hoped—more efficient. In addition, the ing the collapse of the British banking in- difficulty in assessing their value and be- method by which councils calculate how dustry, many voters instead remember cause they are an unfamiliar form of debt, many extra houses they need looks set for Gordon Brown as the dupe who flogged says Mr Barr. The government is simply reform. As it stands, councils can placate Britain’s gold when prices were at a histori- swapping a future flow of income for cash NIMBYish residents by deliberately under- cal low. Now Jo Johnson, the universities today,and will probably pay to do so. 7 estimating future housing needs. No lon- minister, must hope forbetterluck. On Feb- ger: the government wants a standardised ruary 6th he set out a plan to sell a slice of framework for calculating what needs to the studentdebtheld bythe government. It be built. Councils that miss their targets is a pioneering move: Britain is the first may have to surrender control over plan- country to hawk income-contingent stu- ning to central government. dent loans to private investors. Councils are not the only ones in the fir- The proposed sale has been a decade in ing line. The government appears to accept the making. In 2008 the Labour govern- that some housebuilders engage in “land ment passed the Sale ofStudent Loans Act, banking”—sitting on plots with planning which laid the legal groundwork. The consent as prices rise. (Builders deny the deal’s complexity is the main reason for accusation, though there is some evidence the delay. It would involve around £4bn for it.) The white paper in effect proposes a ($5bn) of loans made to nearly half a mil- “use it or lose it” rule: councils will be able lion students, who began making repay- to compulsorily purchase land if develop- ments between 2002 and 2006. There is lit- ers are failing to build. Extra support will tle certainty about the repayment go to help smallerhousebuilderschallenge schedule: graduates pay money back only the local monopolies sometimes held by when they cross an earnings threshold, big firms. currently£17,495. Theypay9% oftheirearn- All thisislikelyto improve housing con- ings above the level; interest is the lower of struction, but by only a little. More radical inflation or the base rate plus one percent- policies have fallen by the wayside. It is ru- age point. All thismakesithard to work out moured that earlier drafts of the much-de- what the loans are worth. layed white paper contained plans to The deal would involve slightly less boost development on the green belt. That than 10% of the student debt the govern- would have been sensible: much of the ment holds from before the tuition-fee sys- The housing white paper green belt is not very green (see Bagehot). tem was changed in 2012. If all goes well it Yet, following angry noises from back- is expected to sell further tranches of the Hardly benchers, the plan was dropped. A previ- debt. Selling it gradually is sensible, says ously trailed plan to encourage oldies to Nicholas Barr ofthe London School of Eco- groundbreaking downsize, freeing up stock for young fam- nomics, since nobody has much idea how ilies, also seemed not to materialise. it will workout. With fundamental problems left unad- Opposition to the sale has been build- dressed, the government has little choice Anothertalked-up policy turns out ing forsome time. In 2014 the National Un- but to water down its long-held commit- rathertimid ion of Students warned the government ment to boost home-ownership. Instead, against flogging the debt to “some unscru- N2015the median house price in England the flavour of the month is improving con- pulous, bowler hatted, fat-cat profiteers.” Iand Waleswas roughly nine times medi- ditions for renters. In a policy similar to More recently, critics have worried that an earnings, probably the highest level one floated by Ed Miliband when he was graduates may lose out if the purchaser of ever. Young people are bearing much of Labour leader, the government wants the debtdecided to tinkerwith the terms of the burden: in the past 25 years the rate of three-year tenancies forsome renters. Neal their loans. home-ownership has fallen by 30 percent- Hudson, a property consultant, adds that The government has promised that age points among 25- to 34-year-olds. Small planning regulations are being tweaked to there will be no such changes. That means wonder that Sajid Javid, the communities encourage the construction of affordable graduates may in fact benefit from the sale. secretary, on February 7th boldly declared homes to rent, over those to buy. If the terms of the loans are fixed, the gov- that the housing market was “broken”. Pre- Christine Whitehead of the London ernment would no longer be able to fiddle senting a long-awaited white paper, Mr Ja- School of Economics reckons that, count- with them, as George Osborne, then chan- vid presented a few sensible policies to ing this white paper, there have been cellor, did with a different generation of boost housing supply. Yet the plans fall around 200 housing initiatives since 2010. student loans in 2015. But, notes Nick Hill- well short ofwhat is needed. Part of the trouble with Britain’s housing man of the Higher Education Policy Insti- Economists generally agree that the market is that politicians like to tinker, rath- tute, it would also be harder for a future fundamental problem facing the housing er than reform. 7 22 Britain The Economist February 11th 2017

Trading with America NH$?

The prospect ofa deal raises fears of privatisation by the backdoor S BRITAIN considers its future outside Athe European Union, its main target for a post-Brexit trade deal is the United States. The prospect of opening up the American market is an enticing one. Yet some in Brit- ain worry about what might be demanded in return. Perhaps most emotive is the sug- gestion that America could negotiate great- er access for its companies to the National Health Service. Jonathan Ashworth, the shadow health secretary, has warned that The war on seagulls a trade deal could lead to “stealth privatisa- tion” of the NHS. “It is beyond belief that our prime minister is bartering away our Fighting them on the beaches health service in her desperation for post- ST IVES Brexit trade deals,” he recently said. Seaside towns are in a flap about the belligerent birds Private involvement in public health care has been growing in Britain for some AVOURING the moment before the Those in the know see little point in a time. After1997 TonyBlairencouraged priv- Sfirst bite ofa pasty on a beautiful cull, however. Among them is Ron Tulley, ate providers to take on more NHS work, to sunny day, Pamela, a holidaymaker, a local councillor in St Ives, where giant, help the service cope with increasing de- gazed across Porthgwidden beach in St beady-eyed gulls saunter down the main mand. That trend has continued. Govern- Ives, on the Cornish coast. She didn’t see drag. In July a girl was airlifted to hospital ment funding to the private sector reached the seagull until it was too late. The bird after plunging offa harbour wall when a £8.7bn ($11bn) in 2016, or 7.6% of the NHS’s missed the pasty but tooka chunkout of seagull swooped forher ice-cream. Mr total revenue budget. her hand. Blood poured down her arm Tulley nonetheless argues that localised Almostall American investmentin Brit- and the seagull squawked away. culls would not solve the problem. Sea- ish health care so far has been in the priv- Seagull attacks are a big problem in gulls would continue to be attracted by ate sector, through acquisitions. Acadia, a coastal settlements, where about a tenth the throngs ofpeople eating pasties and Tennessee-based health-care giant, now ofBritons live. Politicians want change. chips. At this time ofyear up to 750,000 owns the Priory Group, a chain of posh On February 7th Oliver Colvile, MP for herring gulls (the archetypal seagull) drying-out clinics and mental-health cen- Plymouth, Sutton and Devonport, led a circle over Britain, so a nationwide cull tres. Hospital Corporation of America debate in Parliament about the menace. would be costly. owns several private hospitals in Britain, MPs shared their horror stories. John Seaside towns can wage war in sub- including the Portland, a favourite place Woodcock, who represents Barrow and tler ways. Rubbish in the streets is sure to forcelebrities to give birth. Furness on the north-west coast, spoke of attract the birds. Putting coloured bunting The involvement of foreign companies the “blighted and besieged people” ofhis up, or fitting spikes to buildings, deters in providing services to the NHS, mean- embattled constituency. them. But council budgets are tight. Per- while, is marginal. Some believe that after It is difficult to fight backagainst the person spending by Cornwall’s local Brexitthe governmentmightbe tempted to feathered fiends. All species ofgull are government has fallen by about a fifth open things up if it thought such a move protected, making a widespread cull since 2009, squeezing spending on the could buy Britain better access to foreign impossible. Yet polls suggest that most environment and refuse. markets. It would have leeway to do so, Britons—normally a sentimental bunch More money looks unlikely to arrive, since it alone would be responsible for when it comes to animals—would like so tourists will have to stay alert. Seagulls conducting the trade talks. “There is no in- the legislation changed. Brexiteers point like to approach from behind, which volvement of civil society, trade unions or out that, after leaving the EU, Britain will means no more fish and chips with your parliamentary oversight at all,” complains be able to set more bloodthirsty conser- feet dangling over the harbourside—but Mark Dearn of War on Want, a campaign- vation policies. at least no nasty surprises. ing charity. Others point to a precedent in the form of concessions that Australia made regarding its scheme for public allow foreign firms to run large parts ofthe American companies actually want to in- drugs-purchasing, as part of a free-trade NHS such as hospital trusts, he believes. In vest in the NHS? Public health-care sys- agreement with America in 2004. the only example of its kind so far, Circle tems in western Europe are among the It is conceivable that American firms Health, a British company, took over man- only ones in the world where the money might be allowed to tender for, say, a re- agement of Hinchingbrooke hospital near involved is enough to make investment gional ambulance contract or community Cambridge in 2012. The experiment was worthwhile for American firms, if they health services, just as European compa- not considered much ofa success and end- could gain access. An American company nies can, says Nick Fahy of Oxford Univer- ed after three years. It is not likely to be re- that could demonstrate the ability to run a sity. British firms such as Virgin Care al- peated soon. British hospital might persuade countries ready do. But the government is unlikely to And there is a prior question: would like Germany and France to open up to 1 The Economist February 11th 2017 Britain 23

2 more outside investment. That is some- London will struggle to copy them. Less thing European governments would not Hazed and confused than a year ago British ministers rejected a budge on during talks over the Transatlan- Average concentration of nitrogen dioxide diesel scrappage scheme, in which drivers tic Trade and Investment Partnership, a and fine particulates*, μg/m3,2016 would have been paid for trading in dirty now-doomed trade deal that America and Fine Nitrogen WHO old vehicles for cleaner ones. The political the EU had explored in the pre-Trumpera. particulates* dioxide limits cost of angering diesel drivers, previously At the moment, however, there is little 0 1020304050 encouraged to buy the vehicles because of enthusiasm “in America or anywhere” to their lower carbon-dioxide emissions, invest in British health care, says Richard Paris made such a move impossible. But reports Murray of the King’s Fund, a think-tank. London now suggest an updated scheme is under Governmentspendingon health asa share discussion. Mike Hawes of the Society of of GDP is lower in Britain than in most of Berlin† Motor Manufacturers and Traders, a lobby western Europe and the gap is forecast to Madrid group, supports such a plan in principle, increase. Many NHS trusts are in deficit. but frets that even with incentives, the And dealing with the NHS canbeamessy Moscow poorest drivers may balkat shelling out for and frustrating business, farremoved from new,cleaner models. Brussels the cash-rich American health-care mach- Other schemes are needed. Company ine. “Britain is just not a very attractive Prague cars, which comprise about half of the market,” says Mr Murray. new ones sold in Britain, are a taxable ben- Vienna His main concerns about a trade deal efit. The levies paid on them are based Sources: Plume Labs; *<2.5 microns are that it could give new powers to Ameri- † largely on the amount of carbon dioxide can firms to make legal challenges against Berlin Senate Administration 2015 they produce, making diesel cars the best the NHS’s monopoly,and that it could give to buy. Tweaking fiscal rules could change new rights to foreign investors to seek com- about it. Twice in the past two years its that. Investing in electric and other low- pensation for lost profits if government plans to weaken pollution’s chokehold emission vehicles also helps: the govern- policy changed. Neither seems likely, he have been deemed illegal by courts for ment plans to spend £600m on them and says, because the government knows how their inadequacy.The EU is preparing legal the infrastructure they need, such as charg- unpopular such moves would be. action against Britain for breaching air- ingstations, by 2020. Even London’s buses, America will negotiate hard. But given quality laws. Plans to build a third runway police cars and blackcabs are cleaning up. the complexity, unprofitability and politi- at Heathrow airport, near London, will More people could stay away from the cal sensitivity of dealing with the NHS,it hardly help, greens complain. steering wheel altogether. Lesley Hinds, seems unlikely that the feared “stealth pri- Three pollutants cause most worry: ni- who has responsibility for transport and vatisation” will take place. American com- trogen dioxide (a gas emitted in vehicle ex- the environment on Edinburgh council, panies will continue to invest in private hausts), ozone (a triatomic form of oxygen says a pilot scheme there to encourage chil- health care in Britain—and leave the NHS to which harms the lungs) and tiny particu- dren to walk to school, by closing roads stagger on. 7 lates, the smallest of which are the most outside nine primaries, has been so suc- damaging as they get deep into the lungs. cessful that it may become permanent. A Chronic exposure means Londoners’ trade-off exists, however. More space on The environment livesare between nine and16monthsshor- the streets for pedestrians and cyclists ter than they would otherwise be, accord- means less for cars, leading to congestion. All choked up ing to a study by King’s College London. And the exhaust systems of snarled-up ve- And sudden spikes leave inhabitants gasp- hicles work less efficiently than those of ing. Acute episodes occur in three main ones on the move. So the fog of politics ways, says Gary Fuller, who helps run makes deciding on what mix of policies to King’s College’s air-quality monitoring use even harder. 7 network. First, pollution lingers ifa layerof Politicians are hazy about how best to cold air forms close to the ground without deal with Britain’s airpollution wind, as happens during chilly months. AZING out over London’s chimneys, Second, the circulation of dirty air around GLiverpool’s docks or Edinburgh’s Europe’s large cities, as often happens in spires can cloud a tourist’s judgment. Air spring, causes southern England to suffer. pollution “plagues” Britain, says one UN And third, in summer, heat and the sun’s official. The capital is particularly nasty, ultraviolet rays help to create smog. and compares poorly with other European British courts have given the govern- cities (see chart). On some days last month ment until the end of July to come up with particulate levels in London were higher a new plan to cut air pollution. It is likely to even than in Beijing. On February 17th the focus on cars. Poor air quality is a localised mayor, Sadiq Khan, will launch a £10 ($12) problem that can be caused by nearby air- “toxic charge” on the most polluting vehi- ports, factories or power plants. But curb- cles—broadly speaking those registered be- ing vehicle-use helps in all cities—and traf- fore 2005—to come into force in October. fic is one area in which Britain’s generally Across the country,up to 40,000 excess feeble city mayors have some power. deaths each year are associated with toxic Because about half of certain particu- air. Pollution taxes those with cardiovascu- late-matter that vehicles release comes lar and respiratory diseases and affects from sources other than the exhaust pipe, neurodevelopment and fetal growth. Ill- such as brakes and tyres, stricter standards health caused by foulair costs Britain more on emissions alone do not solve the pro- than £15bn a year, the government esti- blem. Paris, Madrid and Athens want to mates. But it seems unwilling to do much ban diesel cars and vans by 2025. Wheezy rider 24 Britain The Economist February 11th 2017 Bagehot The green-belt delusion

Britain’s fantasies about the countryside cause untold misery houses here and there. Merely loosening the corsets would mean millions, the order of magnitude at which any solution lies. Bar- ney Stringer, a regeneration expert, reckons liberalising 60% of the green belt within 2km (1.2 miles) of a railway station would create room for 2m homes. Alan Mace of the London School of Economics suggests such numbers could be reached by opening up corridors along big transport routes, such as the London-Cam- bridge road on which Harlow lies. New “garden cities” on these arteries, like Ebbsfleet in Kent, are part ofthe answer. Just one thing stands between a housing-starved Britain and these wise proposals: politics. Mostvoterswould benefit, directly or indirectly, from the construction of millions of new houses on unremarkable but conveniently located parts of the green belts. Yet elections do not work like that. The liminal zones tend to con- tain lots of NIMBYish, not-quite-rural and not-quite-urban bell- wethers, which matterdisproportionately. And the pathology ex- tends far beyond their borders. A survey by the Campaign to Protect Rural England in 2015 found that 62% of urban dwellers want to protect the green belt. Reason barely comes into it. Which is no coincidence, because Britain’s relationship with the countryside is emotional. Blame the Victorian bourgeoisie, F ANYTHING deserves the label “wasteland”, this place does. who built vast, hellish metropolises where they lived in increas- IPylons and tangles of bramble high as houses tower over a ing material comfort, wistfully recalling rural life. They read pas- lonely oil drum and a collapsed metal fence. In the distance toral novelsand pasted vegetal designson the wallsof brickvillas planes approachingStansted airport whine; refrigerator units at a modelled afterremote castles and sylvan cottages. They built rail- nearby food-processing factory hum. Set in the frozen mud is a way lines that took them just far enough out of the cities to feel mosaic ofindustrial detritus, bits ofbrickand pipe, beer cans and they were experiencing rustic life. In this spirit their children and a discarded condom wrapper. A jaunty yellow arrow informs grandchildren would create the green belt. passers-by that this scraggy parcel of Harlow, in Essex, is a public Their instincts live on. Britain has plenty of countryside for right-of-way. those who want to live there, as anyone who has flown over it Notwithstanding the condom wrapper, there are few signs will attest. But over 90% ofits citizens (more than in any other big that locals get any enjoyment from it. Given its good road connec- Western country) opt to dwell in towns and cities. They seem to tions and the chronic shortage of local housing, a sensible juris- be in denial. Much of the country’s aesthetic and entertainment diction would make it available fora couple ofblocks of flats, or a culture offers them seductive morsels of rural life. Hit television few dozen homes with gardens. A study by the local council last programmes like “The Great British Bake Off” and “Springwatch” year found that protecting it serves no discernible purpose. De- constitute one example. New housing estates are pastiches ofvil- veloping it would cause Harlow neither to sprawl, nor to annex lage architecture, all small windows, frilly gables and pitched another town, nor to lose its character. Yet protected this waste- roofs. The National Trust, a charity dedicated to preserving old land shall remain; a useless eyesore trapped in the insensitive, houses and attractive landscapes, has more members than all the crushing grip ofLondon’s green belt. political parties put together. Such doughnuts encircle most of Britain’s big cities. Some of The political deadlock behind the housing crisis will only be the land theyimprison, especiallyaround Manchester, Leeds and broken when Britain comes to terms with its urban character. south London, is beautiful. But often this is protected by designa- That might mean better valuing city gardens and parks, which tions of “area of outstanding natural beauty” or “ancient wood- supportmore biodiversitythan heavilyagricultural land. Itmight land”. And much of the rest is unlovely, inaccessible or both: in- also mean a more unapologetically urban architecture. Modern- tensive agricultural land, horse paddocks, endless golf courses ist developments like Abode in Cambridgeshire and New Isling- and pointlessly empty parcels like this one in Harlow. For anoth- ton in Manchester—bold shapes, big windows, buildings at ease erexample, take the chunkofthe green beltthatliesdirectly to the with themselves—show the way. north of the town’s main station. A few flat fields bordered by a thundering road and a supermarket, this too serves no aesthetic Ill fares the land or environmental purpose and, a mere 30-minute train ride from Such notions may sound frivolously middle-class. But if they central London, would be ideal forhouses. help budge the politics ofthe crisis, they are anything but. For the Such development is desperately needed. Britain’s broken pain it causes is no less acute forbeinglived out quietly, in private. and cruel housing market may be the country’s most grotesque Think of those left homeless, those who cannot afford an annual inequity. In 1997 ittooka middle-income household three years to holiday, those condemned to horrible commutes; of those cou- save up a deposit to buy a house; today it takes 20 years. Ever ples without the money to move in together (or to separate); of more Britons are consigned to properties that cramp, impoverish the young adults unable to live near the apprenticeships or jobs or otherwise limit them. Measures to solve the crisis without they want. Perhaps such victims are too diverse to organise, openingthe green belts, includingthose in the government’snew march and make their voices heard. But their misery is real and white paperon housing, deregulate land good fora fewthousand visceral. And all forso much golfcourse, sod and bramble. 7 Europe The Economist February 11th 2017 25

Also in this section 26 Giving up on Donbas 28 Romania keeps corruption illegal 29 Charlemagne: Germany’s problematic surplus

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

The Dutch election some of the same voters. Mr Rutte’s letter was an attempt to woo the working-class Act “normal” or get out white constituents whom the PVV calls “Henk and Ingrid”. The letter’s underlying theme of moral panic over immigration aped Mr Wilders’s speeches. The previous election in 2012 turned on AMSTERDAM austerity policies and a deep recession. Mr Rutte’s government, a grand coalition with Geert Wilders, an anti-Muslim populist, is dragging Dutch politics in his direction the centre-leftLabourparty, hascarried out HERE’S something wrong with our elected in 1994, propagated Third Way cen- some important reforms, and the econ- “Tcountry,” began an open letter to the tre-left policies before Tony Blair and Ger- omy is on the upswing. The central bank Dutch people published last month. It hard Schröder did. Anti-Muslim populism recently raised its growth forecast for 2017 went on to moan about those who “abuse took off earlier than elsewhere in Europe, to 2.3%. Still, the mood is sour. The Dutch our country’s freedom to cause havoc, and the country elected a centre-right gov- enjoy good health care and generous pen- when they came to our country precisely ernment in 2002, again foreshadowing sions, yet these and immigration are the forthat freedom”, and warned them to “act Britain and Germany. subjects they most want politicians to ad- normal or leave”. The author was not In those years the competition for the dress, according to Ipsos, a pollster. The Geert Wilders, leader of the anti-Muslim top spot in Dutch elections was generally VVD’splan, saysone campaigner, isto reas- Freedom Party (PVV), but Mark Rutte, between the largest right- and left-wing sure people that the party will protect both leader of the free-thinking Liberals (VVD) parties. But today it is Mr Rutte’s centre- social benefits and modern Dutch values. and prime minister of a country that pre- right Liberals and Mr Wilders’s nationalist The biggest loser from the country’s sents itself as one of the most tolerant in PVV who are vying for the lead—and for grumpy mood will probably be Labour the world. “Act normal” (doe normaal) is a (PvdA), which (like Germany’s Social common injunction in Dutch; it can mean Democrats and France’s Socialists) has lost “Don’t be obnoxious” or “Don’t be silly.” Geert on top support on the left by governing in the cen- But here it had a dark, exclusionary ring. Netherlands, voting intention in March tre. Polls show it shrinking from 38 seats to Mr Rutte’s letter marked how much general election, February 4th 2017, % 12 in the 150-seat parliament (see chart). A Dutch politics has changed as the country 05101520few of its voters have drifted to the PVV, prepares for a national election on March PVV which favours more state benefits as well 15th. The vote will test the strength of Euro- VVD as fewer immigrants. More have embraced pean populism in the era of Brexit and Do- CDA the Greens, the far-left Socialists, or 50 Plus, nald Trump, and will be seen as a portent D66 a pensioners’ party. All of these are politi- of the French and German elections later GL cal outsiders. Established parties, such as this year. If Mr Wilders comes first, says SP the Christian Democrats and the left-liber- Cas Mudde, an expert on populism at the PvdA als ofD66, could steal votes from the Liber- University of Georgia, “The media will 50PLUS als’ left flank. With more than a dozen par- represent him and his European collabora- CU ties likely to make it into parliament, such tors as ‘the choice of the people’.” That PvdD mid-sized actors will be crucial. would boost France’s Marine Le Pen, Ger- SGP The polls put Mr Wilders in the lead by a few percentage points (though the PVV many’s Frauke Petry and others oftheir ilk. Denk The Netherlands has often been a bit of usually underperforms on election day). FvD a bellwether for northern Europe. Its left- Yeteven ifhispartybecomesthe largest, he VNL wing student rebellion arrived early, in has almost no chance of leading the coun- 1966. Wim Kok, a Labour prime minister Sources: Peilingwijzer; Tom Louwerse try. Most parties have ruled out joining a 1 26 Europe The Economist February 11th 2017

2 coalition with him. Meindert Fennema, a cial Research found that four out of ten Avdiivka’s civil-military administration. political analyst, notes another obstacle: Dutch citizens of Turkish, Moroccan, Suri- From the point of view of Ukraine and “Wilders, of course, doesn’t want to be namese or Antillean descent do not feel at its backers, the Minskagreements were im- prime minister.” It would damage his out- home in the country. Floris Vermeulen, a posed at gunpoint. Russian regular forces, sider brand. His only other brush with political scientist at the University of Am- equipped with artillery, armour and anti- power, when he backed Mr Rutte’s minor- sterdam, thinks gestures such as Mr Rutte’s aircraft support, intervened to rescue the ity government from 2010 to 2012, ended letter will either discourage minorities separatist militias in mid-2014 and soon when he pulled out rather than share from votingordrive them towardsthe new outmatched the Ukrainian Army. “[At one blame for unpopular austerity measures. DENK (Think) party, which targets disillu- point] I was down to one battalion,” says Yet keeping the election’s winner out of sioned Muslims and ethnic minorities. Mr Poroshenko. In 2015, “90% ofall negoti- government would bode ill fordemocracy, With so many parties, and 70% of ations in Minsk were simply about halting and substantiate Mr Wilders’s accusations Dutch voters yet to make up their minds, fire.” Russia got almost everything it want- that elites are ignoring the will of the peo- predicting the election’s outcome is fool- ed: a Russian-controlled autonomous terri- ple. And the “Wilders effect” on other par- ish. Easier to forecast is the direction of the tory with its own militia and administra- ties is immense. Few dare mutter a positive country. Mr Rutte’s letter praised such tion. Given Ukraine’s economic problems, word about Europe or refugees. Parties Dutch values as gay rights and the freedom Mr Putin expected it to collapse quickly. across the spectrum talk about national to wear short skirts, and did not explicitly identity or “progressive patriotism” (a criticise Muslims. But its condemnations Shotgun divorce catchphrase that is as empty as it sounds). of people who decline to shake women’s Instead it survived. While still weakened This is only exacerbating the Nether- hands, or who “accuse regular Dutch peo- by corruption, Ukraine has stabilised its lands’ problems with integration. A recent ple of being racist”, made it clear who was economy, pushed through some reforms report by the Netherlands Institute for So- allegedly failing to “act normal”. 7 and rebuilt its military. “When I came to power we had no army, a massive budget deficit, a 50% inflation rate and no money,” Ukraine’s divided east says Mr Poroshenko. “Today I have one of the strongest armies in Europe, with un- Put asunder ique experience of fighting a hybrid war against Russia.” Ukraine’s combat-ready forces total 250,000 men, ofwhom 60,000 are deployed in the east. In Donbas they have been creeping forward, seizing posi- KIEV AND AVDIIVKA tions in the “grey zone” occupied by sepa- ratists in violation ofthe agreements. Reuniting the country may no longerbe desirable orpossible Yet Russia, too, has been building. It has ROM her roadside stall in eastern Uk- cials say that doing so could be disastrous. created a force estimated at 40,000 men in Fraine, Svetlana Tsymbal watches the Compromise is politically fraught. Nadia the separatist territories, including, covert- cars creep past the Mayorsk checkpoint. Savchenko, the Ukrainian fighter pilot ly, about 5,000 Russian soldiers. It has re- This used to be a peaceful provincial high- who returned from Russian captivity to a built the local administration, repaired way.Now it is a border crossing at the front hero’s welcome last year, had her alle- road infrastructure and eliminated some line of a conflict that has left some 10,000 giance questioned after meeting with sep- of the unrulier rebel commanders. (One people dead. Parents return home “to the aratist leaders. Some of President Petro Po- such commander, Mikhail Tolstykh, better other side” after visiting children. Pension- roshenko’s rivals have called for known as “Givi”, was blown up with a gre- ers cross to receive payments on Ukrai- blockading the territories. “This is our Sep- nade launcher on February 8th.) Mr Putin nian-held territory. Traders lug supplies tember 11th, just stretched out over three now hopes to use the Minsk process to in- and sometimes contraband back and years,” says Pavlo Malykhin, the head of corporate this separatist administration 1 forth. The road is lined with mines. It has been nearly three years since Rus- sian-backed separatists seized chunks of eastern Ukraine’s Donetskand Luhanskre- gions. The Minsk agreements, signed in February 2015, envision Russia returning control over the border and withdrawing its troops, and Ukraine holding local elec- tions and granting the occupied territories “special status”. A stretch of relative quiet in 2016 raised hopes of progress. But in late January, combat erupted around the in- dustrial hub of Avdiivka. The fighting has slowed, but the outbreak showed how in- tractable the conflict has become. “How can we go back to the way things were?” asksMsTsymbal. “Blood hasbeen spilled.” Most Ukrainians say the war in Don- bas, as the region is known, is the country’s most important issue. Yet they dislike the proposed solutions: fewer than 10% view the Minskagreements positively.Although the Ukrainian government publicly sup- ports implementing them, in private offi- Square peace agreement, round war Mitigate your standalone risk

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2 into Ukraine. Yulia Mostovaya, the editor sure the government did not backslide. of Zerkalo Nedeli, an independent weekly, The issue of corruption has dominated says this would be like implanting a can- Romanian politics for years. The previous cerous cell into Ukraine’s body. It would elected government was brought down by give Russia control over a portion of the protests in November 2015, after graft electorate and could lead to furtherdisinte- among fire-safety inspectors led to a Bu- gration ofthe country. Many in Kiev would charest nightclub blaze that killed 64 peo- preferto preserve the status quo. ple. The country sits 57th on the corrup- In Avdiivka that status quo has its costs. tion-perceptions index of Transparency “Before, we could duck into Donetsk for International, a watchdog. Despite years pizza, we were the centre of the region,” of anti-corruption efforts, many analysts says Galina, a shopkeeperat the town mar- believe little haschanged. “I don’tthinkRo- ket. “Now we’re the edge of Ukraine.” The mania has made significant progress city depends on a Soviet-era cokingfactory against corruption,” says Alina Mungiu- (one of the largest in Europe) near the front Pippidi, a Romanian corruption expert. lines. The factory, part ofthe oligarch Rinat Good-government advocates have Akhmetov’s sprawling empire, once sat at found a champion in Laura Codruta Ko- the heart of a regional supply chain, turn- vesi, the combative chief prosecutor of the ing Donbas coal into coke for steel mills. National Anti-Corruption Directorate Now dozens of employees live with one (DNA). The DNA has convicted thousands footon either side ofthe line. Corruption in Romania of people of graft, including many high- Politically, the town is divided. Many ranking officials. In 2015 it indicted Roma- support Russia and its separatist proxies— People v pilferers nia’s then-sitting prime minister, Victor partly because they watch Russian state Ponta; the case against him continues. It TV. In Ukraine’s western regions, 79% fa- hasbecome one ofthe mosttrusted institu- vour membership of the European Union, tions in the country, behind only the while only 3% prefer the Russian-led Cus- BUCHAREST church, the army and the gendarmerie. toms Union; in eastern regions under Uk- Among the placards at the protests were Romania decides that, on reflection, rainian control, just 24% prefer the EU and many that read “Hands offDNA”. corruption should still be illegal 40% the Customs Union. “We have differ- Romanians had braced themselves for ent values,” says Galina. FTER just three weeks in power, Roma- opposition to the anti-corruption cam- On the plus side, eastern Ukraine is not Ania’s new prime minister, Sorin Grin- paign after the PSD resoundingly won last split along ethnic, religious or linguistic deanu, could look out of his window and December’s elections. It took 45% of the lines, argues Alex Ryabchyn, a Donetsk na- see a huge crowd carrying banners read- vote; its closest rival, the National Liberal tive and MP. Relationships remain strong ing: “You have succeeded in uniting us.” Party, won just 20%. The party’s leader, Mr despite the fighting. “The first thing we do Unfortunately for Mr Grindeanu, they did Dragnea, was blocked from becoming when the shelling ends and we come out not mean it in a good way.For over a week, prime minister because of an earlier con- ofthe sheltersisto call friendsand relatives throngs estimated in the hundreds ofthou- viction forelection fraud, forwhich he car- on the other side,” says Musa Magomedov, sands have turned out to protest against ries a suspended sentence. If convicted of director of the Avdiivka coking factory. An the passage of an emergency ordinance abuse ofpower, he would face jail. officer in a Ukrainian unit who goes by the that could sabotage the country’s much- The government has blamed the prot- nickname “Granite” tells of meeting in the praised anti-corruption campaign. Even ests on poor communications, scheming grey zone an old comrade from his days in after the government cancelled the ordi- by the country’s president, Klaus Iohannis the Soviet army who is now on the oppo- nance, the protests have continued. (who is a Liberal), and even professional site side of the line. “We threw back 100 The emergency decree, which the gov- agitators. A month after Mr Grindeanu’s grams [ofliquor] and talked,” he says. ernment passed on January 31st, in effect swearing-in, there is already speculation Yet in many ways, Donetsk and Lu- decriminalised official misconduct result- that he may resign. Florin Iordache, the jus- hansk are now more integrated into Russia ing in financial damage of less than tice minister, is unlikely to survive for long. than Ukraine. Commerce is carried out in 200,000 lei ($47,600). The new limit The long-term impact of the protests is roubles. Schools have moved to Russian would have spared the leader of the ruling uncertain. Many of those who marched educational standards. According to RBC, a Social Democratic Party (PSD), Liviu Drag- last week had helped bring down the gov- Russian business newspaper, Russia has nea, who has been charged with abuse of ernment in 2015, only to watch some of the begun accepting passports from the unre- power for granting contracts worth same faces return to power. Other propos- cognised republics when people buy train $26,000 to associates who allegedly per- als to lighten or shorten sentences remain and plane tickets. “Donetsk is not coming formed no work. under discussion. The government insists back,” says Sergei Chumak, a technician at Within an hour of the measure’s adop- they are aimed at relieving overcrowded the coking factory. tion, more than 10,000 protesters were on prisons, but many Romanians think they The new American administration has the streets. The next night an estimated are excuses to let corrupt officials go free. notdecided whatitwantsin Ukraine. Yulia 250,000 gathered in more than 50 cities One of the protesters in Bucharest, Paul Tymoshenko, a former prime minister and towns across the country. The presi- Morosanu, a psychologist, carried a plac- who wants to supplant Mr Poroshenko, dent and vice-president of the European ard thatread “89 Reloaded”, referringto the flew to Washington last week to ingratiate Commission, Jean-Claude Juncker and protests that brought down Romania’s herselfwith Donald Trump. Some think he Frans Timmermans, released a statement communist regime. He was on the streets may strike a bargain with Mr Putin (see saying the fight against corruption “needs not to roll backone new law, he said, but to page 16) to push Ukraine to implement the to be advanced, not undone”. The demon- overthrow an entire political constellation Minsk agreements on Moscow’s terms. strations peaked at over 500,000 people that has been developing for 27 years. “Be- That, says Ms Mostovaya, “would raise the last Sunday, even though the government fore, we didn’t have a face for what we question ofwhatoursoldierswere fighting had rescinded the emergency ordinance were fighting,” Mr Morosanu said. “This and dying forall these years.” 7 earlier that day. Protesters wanted to en- law gave it a face.” 7 The Economist February 11th 2017 Europe 29 Charlemagne Surplus war

Germany’s current-account surplus is a problem, but not forthe reasons Donald Trump thinks cise this course publicly.But I do not then want to be criticised for the consequences ofthis policy.” By choosing the wrong line of reasoning, Mr Trump has un- wittingly let the Germans offthe hookin a more fundamental de- bate. After all, Germany’s trade surpluses have been controver- sial for years. Long before Mr Trump ran for office, the European Commission in Brussels, the International Monetary Fund in Washington, America’s treasury department and the OECD, a club ofmostly rich countries, were already berating Germany for causing imbalances in the European and global economies.

The real German problem Their analysis starts more than a decade ago, when German em- ployers and unions agreed to restrain wage growth. Workers we- ren’t thrilled, but everyone agreed that Germany was not com- petitive enough. This amounted to a devaluation of Germany within the euro zone. The best way out of today’s imbalances, economists say, is not to keep cutting wages in down-and-out countrieslike Greece, butto letthem rise in Germany. Wageshave been going up—by 2.3% last year—but should grow faster. The other factor is that Germans, in an ageing society, have for HATawkward timing. On February 9th Germany reported years been saving much more than they invest. Individuals are Wthe world’s largest current-account surplus, of about filling piggy banks for their retirement. And firms, expecting low- €270bn (almost $300bn), beating even China’s. Meanwhile, the er returns from older, smaller populations in the future, are in- country with the world’s biggest deficit remains America, which vesting abroad instead of at home. At the same time, the govern- under its new president, Donald Trump, is browbeating friend ment, also citing demography, in 2011 adopted a “debt brake”, and foe alike in the name of putting “America first”. Mr Trump’s limitingits new borrowingat just the moment when ultra-low in- economic adviser, Peter Navarro, has even accused Germany of terest rates would make debt service almost free. The resulting ex- currency manipulation. By his logic, Germany “exploits” Ameri- cess savings are capital that Germany sends abroad. They are the ca and others because it uses the euro, which is weaker today corollary ofGermany’s current-account surpluses. than the old Deutschmark would be, making German cars, ma- There is a case that Germany invests too little. Marcel chines and other exports more competitive. Fratzscher, an economist, estimates this “investment gap” at Comingjust weeks afterMrTrump casually threatened to slap €100bn annually. Manyin the centre-leftSocial Democratic party a 35% tariffon imported BMWs, such talkhas Germans’ full atten- (SPD) agree with him. They include Martin Schulz, the SPD’s tion. His verbal assaults on the rules-based trading order, along freshly chosen candidate for chancellor in the election scheduled with his disdain for NATO and the European Union, strike at the forSeptember24th. He has jolted his party in the polls. The SPD is heart of post-war Germany’s identity and national interest, now roughly even with the centre-right bloc of Angela Merkel. which is to be embedded in Europe and the West as a peaceful Should Mr Schulz win, government spending could rise. mercantile nation. But if Mr Trump thinks the angst he is causing OtherGerman economists, such as Clemens Fuest, doubt that gives him bargaining power over Germany, he is naive. the gap is big. In the 1990s, after reunification, investment soared His administration’s mistake is to attack Germany with as eastern Germany got new roads, buildings and plants. Eventu- flawed logic. Yes, the euro is weakrelative to the dollar. But so are ally that exceptional spending had to end, says Mr Fuest, and re- other currencies. Germans think Mr Trump has only himself to cently Germany’s investment ratio has been stable. In 2015 it was blame. He has promised huge taxcuts and increases in infrastruc- 19.9%, a bit higher than the EU average. Boosting investment is a ture spending, which will drive up interest rates in America, good idea, he thinks, but no realistic increase could reverse a cur- boosting the dollar. Mr Navarro’s suggestion that Germany delib- rent-account surplus that amounts to 9% ofGDP. erately attempts to weaken the euro makes no sense. The Euro- IfGermanyreallywanted to attackitssurpluses, itwould have pean Central Bank (ECB) may be based in Frankfurt. But its presi- to do something drastic, he thinks, such as lowering value-added dent, Mario Draghi, is keeping interest rates near zero and buying tax (making goods cheaper, domestic or foreign) while raising bonds (in the European version of“quantitative easing”) primari- payroll taxes (making only German labour dearer). But that is a ly to stimulate economies outside Germany. non-starter politically. Another option is for the government to Indeed, German economists and pundits are Mr Draghi’s stop saving and start deficit-spending. But that too is anathema in most vocal critics. They have complained foryears that low inter- the Berlin consensus. As the German campaign heats up, all sides est rates rob German savers and ruin German life insurers. If the are instead likely to praise the surplus as a sign ofexport prowess. government shows restraint in criticising Mr Draghi, that is Sigmar Gabriel, the foreign minister and a leading Social Demo- thanks to another German tradition: respect for the indepen- crat, gave a taste of this defiance when he responded to Mr dence ofcentral bankers. When MrDraghi began loosening mon- Trump’s tariff threat by taunting America to “make better cars”. etary policy, “I told him he would drive up Germany’s export sur- One day, when enough elderly Germans actually cash in their plus,” Wolfgang Schäuble, Germany’s finance minister, told savings, German surpluses will turn to deficits. Until then, Ger- Tagesspiegel, a German newspaper. “I promised then not to criti- many’s policy stand-offwith the world will continue. 7 30 Middle East and Africa The Economist February 11th 2017

Israel and the Palestinians Also in this section The ultimate fantasy 33 How Trump helps Iranian hardliners 33 Nigeria’s “Big Brother” row 34 Drugs and ivory JERUSALEM The chances forpeace were thin even before Donald Trump’s election; they now lookeven thinner HE settlement of Beit El (pictured) sits inauguration, Mr Netanyahu’s govern- united opposition. The latest wave of vio- Ton a lonely hilltop deep inside the West ment has approved 6,000 new homes in lence, what some call the “knife intifada”, Bank, between the river Jordan and the existing settlements in the West Bank and started in October 2015. By the time it fiz- Green Line thatdivided Israel from its Arab East Jerusalem. On February 6th, the Knes- zled out last summer, 38 Israelis and 235 foesaftera ceasefire in 1949. Builton private set passed a law legalising in some cases Palestinians had died. And the murders land seized by the Israeli army in the name settlers’ homes illegally built on private have not entirely stopped. Last month a ofsecurity in 1970 but soon made available Palestinian property. suicidal assailant drove a lorry into a for settlement by Israeli civilians, it has Mr Trump, so the builders reckon, looks group of Israeli soldiers in Jerusalem, kill- grown into a community of 6,500 people, unlikely to put much pressure on Israel to ing fourofthem. including 350 students at its yeshiva (Jew- hold back. Indeed, he gave $10,000 to Beit The Palestinians’ government has an ish religious academy). What is left of an El in 2003. His proposed new ambassador awful record of glorifying terrorism. Its old perimeter fence stands rusting; a new to Israel, David Friedman, is president of president said of the knife intifada that ev- one, drawn much wider, surrounds a larg- the American Friends of Beit El Yeshiva as- ery drop of blood spilled in Jerusalem was er and still growing Beit El. sociation. Israel’s settlers could not wish “pure”. One of his possible successors Under any plausible peace deal be- for a more sympathetic envoy, or a more called the attackers heroes. In the previous tween Israel and the Palestinians, Beit El sympathetic president. The occupation of intifada of 2000-05, more than 1,000 Israe- would have to be cleared. It lies outside not the West Bank is 50 years old in June, and lis (and 3,000 Palestinians) died. just the Green Line but well beyond the shows no sign ofending. The disasters that have followed the separation barrier, part towering wall and Arab spring of 2011 have reminded Israelis part fence, that Israel has been building The Great Cunctator that Arab regimes are fragile and unpre- since 2002. Most observers reckon that the That suits the cautious Mr Netanyahu well. dictable. Libya, Syria and Yemen are col- barrier will become the border if peace is His strategy for the past eight years has lapsed states; Jordan and Egypt are stable, ever agreed. It runs mostly along the Green been to do nothing: to go on paying a de- but not reliably so. However, it is Gaza’s re- Line, but in several places makes deep sa- gree of lip-service to the idea of the “two- cent history that worries them most. lients into the West Bank. state solution” agreed in outline by Israelis In 2005 Israel withdrew from Gaza, a Donald Trump has called peace be- and Palestinians at Oslo in 1993 (with the strip of land twice the size of Washington, tween Israel and Palestine the “ultimate difficult details left for later), but not to DC, with three times the population and deal”. He has asked his son-in-law, Jared make any actual progress towards it. not many jobs. Hamas, a radical Islamist Kushner, to work on it. But as Binyamin The appetite for peace in Israel is con- group, took over. It supports attacks on Is- Netanyahu, Israel’s prime minister, pre- strained by fear, which Mr Netanyahu ex- raelis, doesnotrecognise Israel’srightto ex- pares to fly to Washington to meet the pres- ploited to help win his fourth election in ist and has never signed up to the Oslo ident on February 15th, peace seems far- 2015. Recent opinion polls still put his cen- agreements. This stance, and a reputation ther off than ever. Since Mr Trump’s tre-right coalition well ahead of the dis- for being less corrupt than the more mod-1 The Economist February 11th 2017 Middle East and Africa 31

2 erate Fatah faction, helped it to win a Pales- on, without a democratic mandate, presid- fined “Area A”, comprising the main West tinian election the following year. It then ing over only the West Bank. Should an Bank cities, Israeli forces routinely enter chased Fatah MPs out ofGaza. election be held, polls predict that Hamas’s them to grab suspected terrorists, includ- Since then Gaza, impoverished by a probable candidate, Ismail Haniyeh, a dy- ing Hamas operatives. This protects the tight Israeli blockade and frequent incur- namic 54, would beat him. lives of Mr Abbas and his officials, as well sions (not to mention Hamas’s misman- The corrupt and poorly managed Au- as those of Israelis. A return to full-scale in- agement), has continued to pepper Israel thority is wholly dependent on Israel. tifada looks unlikely for these reasons, and with home-made rockets, most recently Most of its revenues come from customs also because the Israelis have got much this week. A network of tunnels has been duties, collected by Israel since it controls better at detecting enemies. Social media used not just to smuggle but to infiltrate Is- the seaports, airports and land crossings and electronic snooping make it easier to rael and kidnap Jews. through which goodsdestined forthe West keep track of jihadists. “We go after the in- To Naftali Bennett, who leads the pro- Bank must travel. Israel can cut those off at frastructure: those who supply the weap- settler Jewish Home party in Mr Netanya- any time, and in the past has done so. ons, the cars, the inciters,” explains an hu’s coalition government, the lesson of At least 100,000 Palestinians commute army major at Judea and Samaria Divi- Gaza is that the two-state solution cannot daily from the West Bank to work in Israel, sional headquarters, in the West Bank. work. “There is no way that I am evergoing halfwith permits, the rest smuggled in. An- So Mr Abbas has nothing to gain by to allowa Muslim state to be created on my other 50,000 or so work in Israel’s 130 set- ending co-operation with Israel. But nei- mountains, looking down at my airport tlements, many of them building new ther can he make the concessions that and my capital,” he says. The secular face houses for the next wave of settlers. With might lead to peace. These would be horri- of his party, the justice minister Ayalet 26% unemployment and an employed bly painful: accepting the barrier as a new Shaked, agrees. “More peace talks meet workforce that numbers not much above border (with some compensating Israeli Einstein’s definition of insanity,” she says. 1m, these are big numbers, and Mr Abbas land returned); allowing a permanent Is- “Doingthe same thingoverand overagain, knows that a break with Israel would raeli military presence in the West Bank; and expecting a different outcome.” Mr wreckhis economy. giving up the “right of return” for refugees Netanyahu has derided a future West Bank Crucial to him, too, is security co-opera- who fled in 1948 and 1967. Palestinian pub- state as “Hamastan B”. During the cam- tion with Israel. Although the PA is sup- lic opinion is passionately against such paign in 2015 he said that Palestinian state- posed to run security inside the Oslo-de- concessions to an Israel they mistrust. Ha-1 hood would not happen on his watch. One reason so little has changed is that TURKEY WEST BANK population, 2015 Palestinians* no one has pushed Mr Netanyahu very Excluding East Jerusalem hard to make peace. Even Barack Obama, CYPRUS SYRIA Jews: IRAN whose distaste for him was obvious, never LEBANON outside barrier inside 2.6m ISRAEL IRAQ 89,059 296,205 put Israel under great pressure. Last year America concluded a new ten-year de- JORDAN PRE-1967 fence deal atthe record level of$38bn. Even EGYPT SAUDI ARABIA BORDER December’s critical UN Security Council “Green Line” Jenin resolution merely restated past policy. 5km Sticks that might have hurt Israel, such as Beit El the recognition of Palestine as a full mem- WEST BANK

ber of the UN, or a UN demand for a two- Ramallah WEST BANK JORDAN state solution within a mandated time- Ma’ale Nablus limit, have not been wielded, and seem Adumim most unlikely to be under Mr Trump. PRE-1967 Mr Netanyahu has improved Israel’s re- BORDER lations with Russia and China. Egypt and Old City

ISRAEL East J the Gulf states are also quietly friendly: JERUSALEM Jerusalem o Tel Aviv r population d they share his hostility towards Iran, and Rawabi a 2014 n

are more interested in thwarting it than in 201,170 r

i v

helping the Palestinians. He has restored Bethlehem Jews e diplomatic ties with Turkey, in the past a 313,150 ISRAEL Ramallah r Palestinians Jericho firm supporter of Hamas. The BDS move- Population Jerusalem East Jerusalem ment (Boycott, Divestment, Sanctions) municipal boundary 2016 Jerusalem generates noise but no pain; foreign invest- Palestinian built-up areas Jewish settlements ment in Israel is three times higher than in Jews 2005, when the campaign began. 6.4m Mediterranean Bethlehem West Bank paralysis Sea Mr Netanyahu has an accomplice in pre- Arabs serving this state of affairs: Mahmoud Ab- Gaza Dead Sea bas, the president of the Palestinian Au- City 1.8m Hebron Palestinians thority, who rules the West Bank from his GAZA fortress-like compound, the Muqata, in Ra- 1.9m STRIP mallah. The 81-year-old Mr Abbas is in a spectacularly weak position. He has just 20 km started the 13th year of his four-year term. West Bank Areas of control: Jewish: Separation barrier: He was elected in January 2005; since then A Palestinians run B security run by C Israelis run built-up settler-run built or under the breakwith Hamashasmade itimpossi- security and Israel; Palestinians security and settlements municipalities construction ble to conduct either presidential or parlia- civil affairs run civil affairs civil affairs outposts planned mentary elections in Gaza. So he lingers Sources: Peace Now; B’Tselem; JIIS; Israel Central Bureau of Statistics; Palestinian Central Bureau of Statistics; The Economist *2016 Estimate 32 Middle East and Africa The Economist February 11th 2017

2 mas would probably resist them violently. that territory into Israel. They would then A deal on such terms would not be con- aim to negotiate security arrangements for sidered fair by many people or govern- the West Bank with regional Arab powers mentsoutsideIsrael either. Yetthe harsh re- and with the Palestinians themselves. ality is that it is the only one Israel is likely Where all such plans falter is over secu- to offer,since itisso much stronger than the rity. To the Palestinians, any deal that does Palestinians and feels so little need to com- not nail down a final departure date for Is- promise. Even talking about such a deal raeli troops is not compatible with sover- hurts Mr Abbas and boosts Hamas. It is eignty. Butuntil there is a new Middle East, much easier forhim to stall. it is hard to see any Israeli prime minister providing such a pledge. Trusting the UN, At a crossroads or the Americans after their experience Politicians as far apart as Mr Bennett and with Mr Obama, let alone a pan-Arab Tzipi Livni, a former foreign minister and a force, would looktoo risky. leader of the Zionist Union, a left-of-centre The left is not in any position to put its parliamentary group, do not agree on plan into action. But politicsin Israel is sub- much. But both argue that the stasis that ject to sudden realignments: when he was has marked Mr Netanyahu’s reign could prime minister in 2005 Ariel Sharon now change. With Mr Trump in the White abruptly left Likud to set up a new party, House, a big constraint on Israeli action— Kadima, which led a new ruling coalition. the fear of American condemnation and How long will it last? Likud might fracture in the months ahead. UN action—seemsto have gone. “Thisisthe Mr Netanyahu would like to bring Labour first time in 50 years that Israel has to de- option would be something like the old into his coalition, and its struggling leader, cide what it wants to do,” says Mr Bennett. South African apartheid. No mainstream Isaac Herzog, might even agree. He could Ms Livni echoes him: “We are at a cross- Israeli politician supports this, though then be shot of Mr Bennett, and might ex- roads; there are two visions for our future; plenty ofzealots do. plore a separation deal. a two-state solution, or a Greater Israel.” Mr Bennett is still part ofa small minor- Or, if Mr Netanyahu were forced to re- By withdrawing his eight Jewish Home ity. And even he aims to achieve his goal sign following an indictment arising from MPs from the ruling coalition, which has a only in steps. His first aim is to take in his corruption probes, Mr Lapid or Mr Her- majority of only six, Mr Bennett could Ma’ale Adumin, a large settlement of some zog might piece together a centre-left gov- bring it down at any time. That could trig- 40,000 people five miles east ofJerusalem. ernment. This might come after a snap ger an election, which the polls say would Mr Bennett picked it to be provocative, election and include disenchanted parts of see him take several seats from Mr Netan- since it is both big and well into the West Likud, such as a faction led by a former de- yahu’s Likud. Eager to avoid this fate, and Bank, though within a still-uncompleted fence minister, Moshe Yaalon. The new weakened by a police investigation for cor- salient ofthe separation barrier. prime ministercould then start peace talks, ruption, MrNetanyahu risks beingdragged However, it is not clear that he has if he dared. A generous package of eco- ever further to the right by Mr Bennett. As enough support to get the ruling coalition nomic incentives, including rights for Pal- well as authorising the building of 6,000 to approve his proposed annexation bill. estinians to build into Area C from the new homes in the settlements so far this Norisitclearthathe would bringdown the edgesofcrowded AreasA and B, plus an of- year, lastweekhe promised settlersevicted government ifhe fails. Mr Netanyahu, ever fer of land swaps, might bring Mr Abbas to from an unauthorised settlement that he cautious, has so far managed to persuade the table. But the security issue would re- would provide a new, recognised one. the coalition to avoid taking a decision un- main. Without a solution to it, the Palestin- Mr Bennett makes no secret of what he til after he has seen the American presi- ians are unlikely to agree—though some on wants: the annexation of all of Area C, dent, and will probably urge Mr Trump to the Israeli right think they might be per- comprising 61% of the entire West Bank. As oppose it. But if Mr Trump were to signal suaded by large dollops ofinvestment. well as the roughly 200,000 Israelis who approval, the annexation of Ma’ale Adu- Might Israel instead impose separation live in East Jerusalem (annexed in 1967 by min could swiftly pass. Other settlements unilaterally, pulling back to the barrier, but Israel, though no other country accepts within the barrier might follow. continuing to keep its army in the West this), Area C is home to almost 380,000 Is- Annexation beyond the barrier would Bank, and perhaps recognising Palestine? raelis, but only around 150,000 Palestin- be a much more dangerous move, creating That too seems tricky: there are close to ians. They are hampered by the Israeli oc- the GreaterIsrael that Ms Livni has warned 90,000 Jews living in settlements beyond cupation when they try to build, or run against and making any future peace deal the barrier. Perhaps half of these might businesses, or move about; 3G telephony much harder, if not impossible. It also risks agree to move, if offered homes inside the on Palestinian networks, despite Israeli triggering a violent reaction. Yet that does wall (cheap accommodation is one of the promises, has not materialised. Their slen- not mean it will not happen. This week’s things that makes the settlements attrac- der numbers, though, mean that Israel decision bythe Knessetto, in effect, legalise tive). But 40,000-50,000 of the settlers are could in theory annex Area C without certain land seizures in the West Bank, reckoned to be there for ideological rea- threatening Israel’s Jewish majority, even some of them well beyond the barrier, is a sons. Moving so many against their will in the long term. Currently, there are about step in that direction. would be very hard; leaving them behind 6.4m Jews in Israel (the official number in- might endanger their lives. cludes those in East Jerusalem and the You go your way and I’ll go mine A unilateral move like this, however, West Bank) and 1.8m Arabs. There is another way that the future could would at least end the 50-year-old occupa- Annexing all of the West Bank would unfold. The two largest parties on the cen- tion before yet another generation of be another matter. There are about 2.6m tre-leftare Labourand Yesh Atid, the perso- young Israelis and Palestinians is brutal- Palestinians there, besides the 313,000 in nal vehicle of a former TV chat-show host, ised by it. And it could lead to a Palestinian East Jerusalem. Israel would have to de- YairLapid. Both favour a complete separa- state that the world might then recognise. cide whether to grant them political rights, tion between Israel and the Palestinians: a That would indeed be a two-state solution; which would alter the composition of the detailed Labour plan suggests falling back but not a stable or a secure one. No one country completely and forever. The other to the separation barrier and bringing all would win Nobel prizes forthat. 7 The Economist February 11th 2017 Middle East and Africa 33

Iran and America Nigeria Remaking Iran’s Big bother revolution LAGOS A telling row overa Nigerian reality show HE Nigerian edition of“Big Brother” subsequent devaluation ofits currency, Ahead ofelections, Donald Trump is has the same mix ofnarcissism, ba- the naira. In 2015 Nigeria slapped MTN, a helping Iran’s radicals T nality and back-stabbing found in every South African mobile-phone company, HE ritual chants of “Death to America” other version ofthe show. But an extra with a billion-dollar fine forfailing to Thad grown fainter in recent years. The controversy was added to the fallouts disconnect unregistered SIM cards, feverish crowds had thinned. Some de- and flirtations when Nigerians learned which it claimed could have been used monstrators seemed to wave Uncle Sam that their programme, in which contes- by the jihadist fighters ofBoko Haram. banners less to jeer America than to cheer tants are locked in a house and filmed On the cultural front “District 9”, a South it. Yet thanks to Donald Trump this year’s 24/7, was being made in South Africa. On African-directed film released in 2009, annual rally to commemorate Islamic Rev- January 24th the country’s information depicted Nigerians eating the flesh of, olution Day on February 10th in Tehran minister, Lai Mohammed, opened an and prostituting themselves to, aliens. looks set to be one of Iran’s biggest. Mr investigation into “the issue ofpossible Dystopian sci-fi movies aside, Nigeria Trump’s tweets have upset even the secu- deceit”, urging those who had “bombard- dominates entertainment. Africans lar middle class (for example: “Iran is play- ed” him with complaints to stay calm. devour Nollywood films and Nigerian ing with fire—they don’t appreciate how MultiChoice, the production com- pop music fills dance floors across the ‘kind’ President Obama was to them. Not pany behind “Big Brother Naija”, was continent. Farfrom being offended, many me!”). The newpresidenthasalso imposed unapologetic, pointing out that it was Nigerians simply see the bother over “Big fresh sanctions and an executive order easier and more cost-effective to stage the Brother” as a wake-up call to their gov- (currently suspended by the courts) block- show in its existing house in Johan- ernment—and furtherproof, ifany were ing Iranians from travelling to America. nesburg. During the only previous Nigeri- needed, that their country is a tough Hardliners who had warned that an edition a sponsor had removed the place to do business. America was targeting Iran’s people, not fuses from the house’s generators in a just its regime, say they are vindicated, and dispute over advertising, taking the pro- that theirgovernment will not trust Ameri- gramme off-air foreight hours, says Remi ca again. “Thank you, Mr Trump, forshow- Ogunpitan, a producer at the time. Eleven ing the true face of America,” mocked Aya- years later Nigeria’s power supply is still tollah Ali Khamenei, the Supreme Leader, erratic, and the price ofdiesel for gener- in an anniversary address. Even reform- ators has more than doubled in the past ists, who had dismantled Iran’s nuclear six months because ofshort supplies. programme and handed over enough fis- This is just the latest spat between sile material to build ten nuclear bombs as Nigeria and South Africa as they spar for part of the deal, feel betrayed. Javad Zarif, economic supremacy in the continent. In Iran’s foreign minister, who negotiated the 2014 Nigeria leapfrogged its rival to the deal with six world powers, has lost his position ofAfrica’s largest economy, smile. Iran has difficult days ahead, he when its GDP was recalculated by the growled. Even Muhammad Khatami, a for- government and found to be almost mer president who had tried to mend double the previous estimate. (Its pop- fences with the West, called on reformists ulation is more than three times South to join hardliners in decrying America. Africa’s.) But it was overtaken again last This angerseems likely to spill over into year because offalling oil prices and the presidential polls in May. Hassan Rouhani, the president, had hoped that his chances would be bolstered by the nucleardeal. Re- head of the Quds Force, the foreign legion but as projections of regional reach. They lief from sanctions helped Iran’s economy of Iran’s Revolutionary Guards, which is want to help Israel and Sunni Arab states grow by 4% in 2016, and the IMF had ex- fighting across the Middle East. put Iran back in its box. James Mattis, Mr pected growth to reach 6% this year. But Mr Even without a conservative president, Trump’s defence secretary and a former Trump’s rhetoric has scared off potential the hardliners are flexing their muscles. commander of American forces in the investors, especially large corporations Fajr, Iran’s annual film festival and cultural Middle East, will not have forgotten that that had been enthusiastic about the op- showcase, banned ten local films this year, Shia militias backed by Iran killed many of portunities. “The gold rush is over,” says including one that had replaced women’s his soldiers in Iraq. Iran’s Sunni rivals also one British official-turned-businessman. headscarves with wigs. They were too see an opportunity. “We agree with Trump Mr Rouhani, his opponents say, has failed feminist, said an organiser. In the past, Mr that the nucleardeal has given a green light to deliver. Rouhani has overruled the censors. This to Iran to do whatever it likes in the re- The hardliners have yet to select a presi- time around, he has yet to secure the ap- gion,” says Khamis al-Khanjar, a Sunni dential candidate. Marzieh Vahid-Dast- proval of the Guardian Council, a conser- leader in Iraq. jerdi, the Islamic Republic’s first female vative-dominated body that vets parlia- But others, including Britain, argue that minister, had been mooted in the hope she mentary candidates and laws, and is a tougher line on Iran will embolden its might garner the women’s vote. Now the staying his hand. hardliners. They might yet be heard. Mr conservatives seem to be leaning towards Isa furtherdeterioration in relations be- Trump’slatest sanctions seem largely sym- running a military man. “If Qassim Sule- tween Iran and America inevitable? Many bolic, affecting just 25 people and compa- mani stands, he will win,” says a confi- in Mr Trump’s entourage see Iran’s missile nies. The nuclear deal survives. For now, dante of Mr Khamenei’s, referring to the tests not just as domestic acts of defiance the war is only one ofwords. 7 34 Middle East and Africa The Economist February 11th 2017

Drugs and ivory portofMombasa isthe exitpointofchoice. It coincides with one ofthe main routes for Jumbo cartels heroin from Afghanistan to Europe where shipments are unloaded from dhows and cargo ships in Kenya and Tanzania and then broken into smaller packages that are carried by air to Europe. “Transnational organised crime is a business, and the ultimate goal is money— The emerging links between drug smuggling and ivory poaching not ideology or anything else. It doesn’t HEN a middle-aged Kenyan called and ivory traffickers. And the smuggling matterifitisdrugs, weapons, ivory, people; WFeisal Mohamed Ali was found routes for ivory are the same as the smug- it’s just about moving illicit goods for pro- guilty in July 2016 of possessing more than gling routes fordrugs.” fit,” says Javier Montano, a wildlife-crime two tonnes of ivory and sentenced to 20 The allegation is supported by a tran- expert at the United Nations Office on years in jail, conservationists welcomed script, seen byThe Economist, thatpurports Drugs and Crime in Nairobi. the verdict as a victory forelephant protec- to be of a recorded conversation between DNA tracking of ivory seizures shows tion. An “ivory kingpin” had received his Ibrahim and a DEA source that took place that Mombasa, in parallel with its emer- comeuppance, dealing a powerful blow to in April 2014. “I have ivory here from Bo- gence as a heroin-smuggling hub, is also those behind a scourge that threatens the tswana, from Mozambique, from all over. I home to one of just three trafficking net- survival ofAfrica’s elephants. have a lot here and it sells,” Ibrahim alleg- works moving elephant tusks out of Africa Yet wildlife and drugs investigators in edly said in April 2014. “I have ivory,rhino (the others are located in Entebbe in Ugan- Kenya and America believe that Ali may horn.” Mr Cindric confirms the authentic- da, and Lomé in Togo). Prosecutions are not be the kingpin of an ivory smuggling ity ofthe recording. commonly for a single seizure but Samuel gang but merely a lieutenant in a larger, The charges are denied by the brothers’ Wasser, a biologist at University of Wash- well-established criminal organisation Kenyan lawyer, Cliff Ombeta, who told ington in Seattle, said this understates the thatissmugglingdrugsaswell asivory and The Economist his clients “have never been scale and complexity of the illegal trade. A rhino horn. That these two sorts of crimi- involved in any kind of dealings in ivory. DNA map he devised in the 1990s has nality may be run by the same organisa- They have never been arrested or been in- linked numerous seizures of more than 1.5 tions is significant. It not only suggests that vestigated in any offence relating to ivory. tonnes to the Mombasa network. an illicit trade in heroin from South Asia They have never stocked any ivory for Mr Wasser’s work shows that individ- thatgoesthrough eastAfrica and then onto themselves or anyone else for any reason ual ivory shipments are not one-off deals the rich world is contributing to environ- whatsoever.” He also denies any business and that the ivory is rarely shipped out of mental harm alongthe way.It also suggests connection between MrAli and his clients. the country from which it is sourced. Apar- that rich-country police forces, which half- Poaching is a menace not just to Kenya’s allel investigation by the Satao Project, a heartedly investigate the illegal trade in an- elephants, but to all Africa’s. A recently company that investigates wildlife crime, imal products because it they see it as a re- concluded aerial survey found the conti- has also connected a numberoflarge ivory mote problem, might become more inter- nental population to have dropped by seizures to organised crime. As evidence ested in tackling it as part of their war nearly a third between 2007 and 2014, to emerges that the same organisations use againstthedrugstrade,aproblemtheirtax- around 415,000. For traffickers smuggling common logistics networks to move both payers do care about. multi-tonne shipments of elephant tusks poached products and drugs, investigators The allegations linking these two sorts from Africa’s parks and wildernesses to are hoping new avenues for prosecuting of smuggling networks have emerged Asian markets, where today they fetch both crimes may open up. It is “like getting through a long-runningeffortby American around $1,100 per kilogram, the Kenyan Al Capone fortax evasion”, says one. 7 prosecutors to extradite two brothers from Kenya, Baktash and Ibrahim Akasha. They were arrested by Kenyan police more than two years ago after allegedly handing over 99kg of heroin and 1kg of methamphet- amine to people who were in fact working for America’s Drug Enforcement Adminis- tration (DEA). Last month the prosecutors finally got their way, and the brothers and two alleged accomplices arrived in New Yorkon January 31st. Although the brothers are charged with alleged drugsmuggling, sources within the investigation claim that it has also connect- ed them to the smuggling of ivory and rhi- no horn, and believe that Mr Ali was a link in their bigger network. DEA Special Agent Thomas Cindric, of the Special Operations Division in Wash- ington, says: “We know the Akasha family is involved with the ivory trade, we have recorded conversations where they talk about ivory. We had undercover meetings where they talked about being involved in ivory. They’re like the mafia in the US, they’re multifaceted. These guys are drug Powerful enemies United States The Economist February 11th 2017 35

Also in this section 36 Satire and civics lessons 36 Visas for highly skilled migrants 37 Political history 40 Lexington: French lessons

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

Presidential authority proved a liability forthe government. August Flentje, the lawyer for the presi- Washington v Trump dent, argued that Mr Robart’s ruling had upset the balance the Trump administra- tion had struck between “welcoming peo- ple into our country” and “making sure our country is secure”. That balancing is NEW YORK the task of the political branches, he said, not the courts. But when repeatedly An aptly named case provides the first test ofinstitutions underthe new president pressed to cite evidence showing that visi- MERICA, along with its new president, stopped the 45th president’s executive or- tors from the seven countries covered by Ais getting a crash course in the role of der in its tracks, Mr Trump tweeted: “When the ban—Iran, Iraq, Libya, Somalia, Sudan, the federal judiciary. On February 3rd, one a country is no longer able to say who can, Syria and Yemen—posed an actual risk of week after Donald Trump issued an execu- and who cannot, come in & out, especially terrorism to America, Mr Flentje had little tive order banning travel from seven Mus- for reasons of safety & security—big trou- to offer. Merely mentioning that the lim-majority countries and suspending ble!” In a follow-up missive, he went one Obama administration considered the America’s refugee programme, a federal step further: “The opinion of this so-called countries to be terror-prone, one judge district court in Seattle temporarily halted judge…is ridiculous and will be over- complained, is “pretty abstract” and justi- Mr Trump’s plan. Judge James Robart said turned!” Some conservatives who oppose fies a visa requirement, not an all-out ban. there is “no support” for the government’s Mr Trump worry about the damage he Facingsteady resistance from the panel, argument that the ban made America saf- could do to the country’sgoverninginstitu- and remarking, “I’m not sure I’m convinc- er. Four days later, at least two members of tions and customs. This is an early test. ing the court”, Mr Flentje punted. He asked a three-judge panel on the 9th Circuit So far, the courts have performed their the judges to at least consider lifting Mr Ro- Court of Appeals seemed unimpressed usual role. The judiciary has often checked bart’s restraining order with regard to peo- when the government challenged Mr Ro- presidential authority in foreign affairs, se- ple who have never been to America. bart’s ruling. For now, America remains curity and immigration, notes Mark Peter- There is no good reason, Mr Flentje im- open to permanent residents, visa-holders son of UCLA. Immigration is the area plied, to give every foreign national from and refugees seeking its shores—and Mr “most prone to such a judicial role”, he those seven countries free rein to visit. This Trump must grapple with the unfamiliar says. While the White House is correct to last-ditch argument—that Mr Robart’s feeling ofnot getting his way. note that Article II of the constitution and move went too far and covered too much— The battle over the stymied plan— the Immigration and Nationality Act of was Mr Flentje’s best. In response, Noah which the White House insists is wholly 1952 grants the president wide discretion in Purcell, the lawyer for Washington state, different from the “total and complete immigration enforcement, amendments noted two reasons why the travel ban shutdown of Muslims entering the United to the law in 1965 preclude restrictions on should remain suspended in its entirety. States” that Mr Trump first announced on the basis ofan individual’s national origin, Targeting Muslims violates the First the campaign trail in December 2015—pro- race and other such broad categories. The Amendment rule against religious estab- ceeds on two parallel tracks. In the courts, text ofMrTrump’sexecutive ordermay not lishments, he said. And the interests of judges and lawyers wrangle over an array be cast in explicitly religious terms, but America’s legal residents are harmed of legal questions involving constitutional public statements by both him and his al- when their relatives in the Middle East and provisions, congressional statutes and the lies leave little doubt that it is rooted in a Africa are banned from visiting them. doctrine of legal standing. Meanwhile on suspicion of Muslims. In the hearing be- This is how the boundaries ofpresiden- Twitter, the president is undermining sup- fore the 9th Circuit on February 7th in tial authority are gradually discovered. If port for the process. After Mr Robart Washington v Trump, these comments Mr Trump loses his appeal in the 9th Cir-1 36 United States The Economist February 11th 2017

2 cuit, the government will ask the Supreme of the president as an irascible halfwit. But Legal migration Court to weigh in. Given the four-four the chaos in the month-old administration ideological split there, the on-again, off- has provided additional targets. On Febru- again travel rules may remain in limbo for ary 4th SNL unveiled a hilarious parody of Code red a while. The next test will come ifthis ends Sean Spicer, the White House press secre- with a ruling against the administration. tary,as a gum-chewing maniac. The bellig- Keeping out software engineers All presidents encounter resistance from erent Mr Spicer has since appeared cowed. judges, but only Andrew Jackson chal- There are a couple of lessons here for OST ofthe debate about immigra- lenged the authority of the courts, says Mr more sober political commentators. One is Mtion in America concerns the illegal Peterson (MrTrumphasreturned Jackson’s to abandon the complacency about Mr sort. But legal immigration can be contro- portrait to the Oval Office). That confronta- Trump that, until Mr Baldwin took over in versial too, even when the migrants in tion changed America: Jackson’s presiden- October, had rendered SNL’s portrayal of question have either an unusual talent cy saw the spread of judicial elections, to him toothless and pointless. Another is to for writing computer code or improb- bring the judges into line with the wishes let the weirdness of this presidency speak ably long legs. The H-1B visa programme of voters. Whatever the outcome of Wash- for itself. “America first, Australia sucks. is aimed at skilled workers in “speciality ington v Trump, the president will leave his Your reef is failing. Prepare to go to war,” occupations”, mostly medicine and stamp on the courts. As well as picking a the SNL Trump blustered down the phone information technology (though fashion new Supreme Court justice, he will soon to Australia’s president, Malcolm Turnbull, models can also qualify). Currently the set about filling over 100 vacancies in the on February 4th. That, minus the threat of programme is limited to 85,000 visas a nation’s district and appellate courts. 7 war, is pretty much what Mr Trump said to year, with 20,000 carved out forthose Mr Turnbull in a recent phone call. who earn postgraduate degrees from Other satirists are finding Mr Trump’s American universities. Most workers tendency to defy parody harder to handle. must make a minimum of$60,000 a “It’s really tricky now as satire has become year to qualify. Critics argue that the reality,” Trey Parker, co-creator of “South programme has strayed from its original Park”, a satirical cartoon which presented purpose and is now being abused by the Trump-Clinton contest as the “giant firms to replace Americans with cheaper douche or the turd sandwich”, has said. labour. Three bills to curtail H-1Bshave The Onion has the same problem. One of already been introduced to the new the satirical online paper’s recent head- Congress. Reports suggest that an exec- lines, “Eric Trump Scolds Father That He utive order may also be in the works. Mustn’t Inquire About The Businesses, For Demand for the visas far exceeds the He’s Sworn Not To Tell,” is a pretty faithful 85,000 cap, meaning that the govern- description of the firewall between the ment has to ration them to firms by 45th president and his family firm. lottery. Indian outsourcing firms like Tata Indeed, many of the headlines generat- Consultancy Services (TCS), which ed by Mr Trump’sadministration are deep- provides low-cost back-office services, ly Onion-esque. Kellyanne Conway, a are now the biggest employers ofH-1B Trump spokeswoman, was briefly barred workers. Analysing data compiled by by CNN for using alternative facts—her ref- Théo Négri ofjobsintech.io, The Econo- erences to a fictitious jihadist atrocity, mist found that between 2012 and 2015 Donald Trump and satire which Ms Conway called the “Bowling the three biggest Indian outsourcing Green Massacre”, were the last straw. Mr firms—TCS, Wipro and Infosys—sub- Super soaking Trump’swife, Melania, hassued a newspa- mitted over150,000 visa applications for per for reporting lurid untruths about her positions that paid a median salary of on the basis that this cost her the “once-in- $69,500. In contrast, America’s five a-lifetime opportunity” of making mil- biggest tech firms—Apple, Amazon, lions as “one of the most photographed Facebook, Google and Microsoft—sub- WASHINGTON, DC women in the world”. No satirist could do mitted just 31,000 applications, and better. SNL’s response, in sending up Mr proposed to pay their workers a median Lessons in civics from comedians Spicer, is to shift the focus onto one of the salary of$117,000. ARACK OBAMA was bad for satirists, relatively normal players in Trump world, Although it is true that foreign work- B even if few seemed to mind. Moderate, to show how pervasively strange it is. ers at the Indian consultancies receive upstanding and cool, the first black presi- At first glance, none of this should more visas than higher-skilled workers dent gave close observers ofhuman ridicu- bother Mr Trump. SNL’s weekly audience at better-known firms, a simple solution lousness little to work with. Most gave up of10m represents less than half his Twitter exists. Congress could raise the number and welcomed him admiringly onto their following and is dominated by left-leaning ofvisas issued. Given that the unem- shows. “I can’t believe you’re leaving be- millennials who would sooner work in an ployment rate for college graduates sits fore me,” Mr Obama, appearing on “The abattoir than vote Trump. Yet Mr Trump, at 2.5%, it is fairto say that most native Daily Show” for the seventh time, told its who unlike his core voters devours the workers displaced by H-1Bs land on their outgoing host, Jon Stewart. It was not the mainstream media and loves to hobnob feet. Reducing the number ofvisas for relationship to power the acerbic Mr Stew- with the celebrities who appear on shows TCS and its brethren would probably art would have liked. Thankfully, Donald like SNL, minds the lampooning a lot. “Not result in them shifting workto India. A Trump is making satire great again. funny, castisterrible, alwaysa complete hit better change would be to end the rule The most conspicuous beneficiary, job. Really bad television!” he tweeted last whereby H-1B recipients must stay with “Saturday Night Live” (SNL), a hitherto jad- month. SNL’s response was to start plan- the company that sponsored them. For ed platform for comedy skits on NBC, is ning ways to take Mr Baldwin’s impres- within their ranks may lurkthe next Elon seeing its best ratings in over 20 years. This sion, which the actor has described as a Muskor Sergey Brin. is partly thanks to Alec Baldwin’s parody civic duty, to a wider audience. 7 The Economist February 11th 2017 United States 37

Baptist church. Turnings from its forest- lined roads feature multiple signs to back- woods chapels. The county is still “dry”; Double Springs itself narrowly voted to permit sales of alcohol four years ago. (Ar- rests for drunk-driving have since de- clined, says Elmo Robinson, the mayor, as people no longer get their whiskey in Jas- per, in neighbouring Walker County, and guzzle it on the way back.) On the eve of the inauguration, at karaoke night in the only restaurant that serves booze, men in cowboy hats crooned country songs about God and adultery. But Winston and the counties around it are more politically complex than they might seem, and have always been. In- stead of using the federal road, early Euro- pean settlers there largely came down through the Appalachians from other Political history mountainous areas, taking land that could be bought cheaply and in small plots or The little man’s big friends squatting on it for nothing. They practised subsistence farming, hunting and fishing for extras. Like Mr Trump, these yeoman farmers venerated Andrew Jackson, the DOUBLE SPRINGS AND MACON COUNTY brutal, populist president from 1829 to 1837. Life was insular: Skip Tucker, former In Alabama, support forDonald Trump followed a pattern that stretches back more editor of a newspaper in Jasper, says it was than a century called the Daily Mountain Eagle because MAGINE,” says Glenn Drummond, political one that, in essence, has endured the mule-driver who delivered its first “Igesturing at the farmland beyond the across two centuries—even as the elector- press joked that only an eagle could gather window of his pick-up truck, “this was all ate has evolved and the road that helped to the news. Still, tension soon flared with pine forest.” Early 19th-century travellers delineate it was reclaimed by the wilder- land speculators, bankers and domineer- on this part of the old federal road in Ma- ness. In that pattern, Alabama’s yeomen ing plantation-owners. After all, says Ed con County, Alabama, “didn’t know what farmers, and their descendants, have spo- Bridges, retired director of the state’s De- was behind the next tree.” There were radically risen up against the plantation partment of Archives and History, the hill- bears, rattlesnakes and defiant Native class and its modern equivalents, typically country yeomanry were the “descendants Americans, on whose trading path the when hardship rallied them to a charis- of the serfs and peasants of Europe” and road was built. Today there is an archaeo- matic leader’s standard. “feared the rise ofa new aristocracy”. logical dig at WarriorStand, where a Creek The cycle has been consistent, but the When the civil war came, tension esca- Indian chieftain ran a hostelry, which has storyisnuanced. Populism in Alabama—as lated into conflict. Winston County was unearthed English pipes and French gun- in other places that helped to elect Donald the poorest in the state. Like other Appala- flints; at CreekStand, a few miles along, is a Trump—has not always been driven by chian parts of the South, it contained few quaint Methodist church. Then the mod- prejudice, as might be supposed; on the slave-owners—just 14. Some such commu- ern road turns away from the old route, contrary. It was powered as much by a nities were recruited to the Confederate which is traced by a dirt track before disap- sense that government was a racket and cause through appeals to regional loyalty pearing into fields and copses. politicians tools of the plutocracy, a deep or white supremacy. Not Winston: as Don Running from Washington to New Or- and often reasonable conviction. Dodd, a local historian, records in his leans, briefly known as the “Appian way of chronicle of the county, a resolution the South”, the federal road was soon Birth of a free state passed by a meeting at Looney’s Tavern made redundant by steamboats, railways MrTrump’sinauguration speech was well- reasoned that if a state could secede from and the telegraph. But during its brief hey- received at Jack’s, a fast-food outlet in Dou- the Union, a county could secede from a day it sparked a war with the Creek, then ble Springs, in northern Alabama, where state. (“The Free State ofWinston!”, scoffed helped to vanquish them. After conquest the television was tuned to Fox News. a dissenter.) The citizens asked to be left to came migration: “Once the Indians were “One ofthe best speeches I’ve ever heard,” pursue their destiny “here in the hills and whipped,” says Mr Drummond, an expert said a customer who, like many, was mountains of north-west Alabama”. They on the road, “a flood ofsettlers came down dressed in work boots and camouflage weren’t left alone. Instead they waged a it.” Some ofthe earliest tookthe fertile land gear. “He’ll be tough.” The enthusiasm was miniature guerrilla war against conscrip- of central Alabama—known as the Black unsurprising. Alabama gave Mr Trump tion officers and pillagers. Deserters shel- Belt forits rich soil—and established cotton one of his widest winning margins in No- tered in the secluded crags and coves; Bill plantations, importing slaves to work on vember, and Winston County, of which Looney, the tavern-owner, was known as them. Others did the same on the flood- Double Springs is the seat, supplied the the “Black Fox” for his prodigious feats pi- plain of the Tennessee river. Later, poorer biggest in the state: 90% ofits voters backed loting them to Union lines. migrants settled the sandy Wiregrass re- the new president. Today a statue outside the court house gion in the south-east, and in the beautiful Outwardly Winston County conforms in Double Springs depicts a hybrid Yankee but less fecund northern hills, where there to outsiders’ expectations of the rural and rebel soldier (most such monuments were few slaves and fewer roads. South. It has two main religions: the Uni- in the South mourn only Johnny Reb). Mr This economic pattern soon became a versity ofAlabama’s football team and the Dodd’s inscription notes that more than 1 38 United States The Economist February 11th 2017

2 twice as many locals fought for the Union had sunk from the freedom of the frontier slungas much mud at Kolb as the pre-inter- as for the Confederacy, about which to dependency. “We in Alabama have had net age could muster. As William Rogers re- townsfolk still talk bitterly. Something of more ofthat than most ofthe rest of the na- counts in “The One-Gallused Rebellion”, the old intransigence survives, along with tion,” says Mr Bridges of that downward he was accused of padding his expenses resentment of bullying elites. Drive from mobility. Ithasn’tabated. These daysmany during his time as commissioner of agri- Double Springs to Haleyville, the county’s of the modest homes scattered amid Win- culture, and of diddling a counterpart in a biggest town, and you pass a barn proudly ston County’s deep forests and unexpect- cotton sale. The slurs backfired, as they of- proclaiming “The Free State of Winston”. ed lakes are for sale. In what is still among ten do: Kolb, noted a contemporary, “is in- “We’re still independent-minded people,” the poorest parts ofone ofAmerica’s poor- debted to his enemies forhis prominence.” says Mayor Robinson. That spirit soon est states, shops, warehouses and even In the end they resorted to fraud—real erupted again. some of those superabundant churches fraud: violence, bribery, ballot-stuffing, in- are shuttered. Junkyards abound. Around flated returns. Officially defeated, Kolb The people want relief Double Springs, says Mr Robinson, the big- claimed victory and took a symbolic oath Reuben Kolb was rich, but, like Mr gest employers are sawmills and mobile- of office. But a rumoured insurrection did Trump’s, his disgruntled supporters didn’t home manufacturers; he hopes more tour- not materialise. “He was swindled,” says mind. He commanded a Confederate artil- ists will come. The skyscrapers of Birming- Mr Flynt. lery unit during the war, briefly managed ham seem remote, just as the industrial Look at the results, and it is obvious an opera house and then, as a farmer in prosperity of the vaunted post-war “New where the fraud was perpetrated. Kolb southern Alabama, developed an unusu- South” did to Kolb’s followers. swept the Wiregrass and the highland ally hardy watermelon seed, which he “The people want relief,” he exclaimed, counties. He lost because oflopsided Bour- called Kolb’s Gem. The seeds were distri- “and God knows they have a right to de- bon wins in the Black Belt—where thou- buted in self-promoting packets that bore mand it.” His campaigns were part of a sands of African-Americans, not yet disen- his name and moustachioed features. Kolb broader farmers’ movement that in the ag- franchised, supposedly voted against their became the figurehead of another great ricultural depression of the 1890s was own interests, which Kolb pledged to pro- surge ofanti-elitism. channelled into the Populist Party. In 1892 tect. Tactical it may have been, but his sup- In the decades after the civil war, the Kolb ran for governor as a Jeffersonian port for black rights, including the vote, yeoman farmers of Alabamian hill coun- Democrat—ditching the Democratic label was progressive for its time. True, many ties like Winston, and in the Wiregrass, be- altogether was too risky—but then, and whites were sceptical. (Racial attitudes in lieved they were beingexploited. And they again in 1894, his platforms were Populist. the hills are still not perfect, says Mr Dodd, were. Land values plummeted even as He advocated graduated taxes, better pub- despite—or because of—the paucity of property taxes rose. Needing cash, many lic schools, banking and currency reform black people.) Yet the most striking aspect began growing cotton, the price of which and fairerrailroad prices. In a coalition that of this populist upsurge is that racism was promptly collapsed. Some were ruined by took in Alabama’s new industrial workers, not a motive for it but a barrier against its the interest charged by supply merchants he vowed to keep convict labourers out of success. White supremacy, and the need to or—after they sold up and were forced into mines, where they were used to break defend it, were invoked by the wealthy to tenant farming—by rapacious landlords. In strikes. He attributed the farmers’ griev- thwart a movement that, as Martin Luther “PoorBut Proud”, Wayne Flynt, a historian, ances, even those caused by ineluctable King later said, was “uniting the negro and charts the trajectory of David Manasco, a market forces, to machinatingcliques, rath- white masses into a voting bloc that threat- farmer in Winston County. In 1860 he er as Mr Trump claimed globalisation ened to drive the Bourbon interests from owned land and property worth $1,400, could be reversed by squeezing bosses. the command posts ofpolitical power.” no mean sum. By1880 he was a sharecrop- Children from Kolb-supporting fam- The same goes for another tub-thump- per, the lowest form oftenancy. ilies sported corn-cob necklaces. But the er who tookon the Big Mules—and, in 1946, As well as the hardship, there was a loss contest was brutal. The so-called Bour- won. Jim Folsom grew up in south-east Al- of honour. The soil may have been thin, bons—oligarchic Democrats who repre- abama and as a teenager worked in a cot- but at least it had been theirs, and there sented tax-averse industrial barons, ton gin during harvest seasons. Later he was the hope of acquiring more of it. They known as “Big Mules”, and the planters— was a merchant mariner, a barker at a the-1

Rebellion in the hills Alabama counties voting for: ALABAMA Counties where slaves were less Reuben Kolb Jim Folsom* Donald Trump than 50% of the population, 1860 Alabama’s governor’s race, 1892 Democratic primary run-off, 1946 Presidential election, 2016

e TENNESSEE e TENNESSEE TENNESSEE TENNESSEE ss ne Ten

Haleyville Winston Winston County Winston County Cullman Double County GEORGIA Double GEORGIA Double GEORGIA Double Winston County GEORGIA Springs Springs Springs Springs Jasper Walker Birmingham County Macon ALABAMA County MISSISSIPPI MISSISSIPPI MISSISSIPPI MISSISSIPPI

Montgomery

W I R E G R A S S Counties with over FLORIDA 50% black population FLORIDA FLORIDA

Sources: University of Alabama; “The One-Gallused Rebellion”, by William Warren Rogers; “Southern Politics in State and Nation”, by V.O. Key; Dave Leip’s Atlas of U.S. Presidential Elections *More than 55% The Economist February 11th 2017 United States 39

didn’t care forthem either). Nevertheless, after an obligatory hia- tus, Folsom strolled to re-election in 1954. His popularity was straightforward: the legislature stymied his constitutional changes, but his road-building programme got through. “They always promise the world,” Mr Jackson says of politicians, but Folsom “did what he said he’d do.” This is anotheringrained characteristic. For all the hyperbole of elections, expectations are modest in hard-bitten places like Double Springs and—helpfully for Mr Trump—the bar for political honour is low. Mr Jackson voted for him because “he might halfway manage the government without bank- rupting it or giving it away.” Folsom’s second term was marred by scandals over cronyism, slush funds and Big Jim Folsom puts his enormous feet up his boozing, for which “gone fishing” was the preferred euphemism. But, in the end, 2 atre in New York and a work-relief director grants for local upgrades. “Hopefully [Mr his relatively liberal stance on race was under the New Deal. He moved north to Trump] will come and do something with also turned against him. There were parts Cullman, now a lively town distinguished the infrastructure,” he says, referringto one of Alabama, he complained, “where a ne- by a pretty covered bridge and an eccentric ofthe president’s main themes. gro doesn’t stand a Chinaman’s chance of monastic grotto, from where he sold insur- The ongoingneed points up two consis- getting fair and impartial justice.” He tried ance, a helpfully itinerant profession foran tent features of life and politics in the hill to boost the pitiful number of registered aspiring politician. His first wife served as country. The first is its isolation, cultural as blackvoters. He compared effortsto nullify a social worker in neighbouring Winston well as geographical, which endures de- the Supreme Court’s desegregation orders County. He was sixfeet eight inches tall. Mr spite the patina of sameness conferred by to “a hound dog baying at the moon and Dodd recalls that when Folsom stayed fast-food chains and motels. The other is a claiming it’s got the moon treed”. When with his family in Double Springs, his conflicted attitude to government among politicians stirred up racial resentment, he mother put a chair at the end of the bed to its warily hospitable residents. They still said, “Youknow damn well they are trying accommodate his gargantuan frame. thinkit’s a racket, and, as ever, take pride in to cover up dirty tracks.” self-sufficiency. Here, says Ronald Jackson, In the election of 1962 he faced George Covering up dirty tracks whose familyhaslived in Winston County Wallace—whose exhortation of “law and In some ways, the situation of what had since before the civil war, “you don’t de- order” anticipated Mr Trump’s, and who once been Alabama’s robust yeomanry pend on the government, you take care of may be closer to most Americans’ notion was even more parlous in 1946 than in your own.” At the same time, unblinkingly of an Alabama demagogue. Wallace had Kolb’s era. After his barely suppressed in- and understandably, they want a bigger denounced Folsom as “soft on the nigger surgency the Bourbons passed a new con- chunkofits largesse. question”; Folsom trimmed, but lost any- stitution, again ramming it through with “I don’t answer to no professional poli- way. Still, if Mr Trump’s campaign echoed fraud in the BlackBelt. Itsblackvoters alleg- ticians,” Folsom said in 1944. “I answer Wallace’s, it also recapitulated Folsom’s. edly backed a plan that disenfranchised al- only to the people.” He had never held of- The electoral maps hint as much: the old most all of them through poll taxes, litera- fice before, and like Mr Trump’s his shoe- pattern held up, as not just Winston Coun- cy tests and other ruses. Quite string campaign was staffed by inexperi- ty but other strongholds of the yeomanry intentionally, the same measures stripped enced relatives and friends. Hardly any embraced him. (These days, of course, the the vote from large numbers of poor newspapersendorsed him; asGeorge Sims electors in the Black Belt are mostly black, whites as well. Meanwhile debt made ten- notes in “The Little Man’s Big Friend”, he and overwhelmingly vote Democratic like ancy inescapable for many formerly land- was written offas a lightweight showman. their Bourbon predecessors.) owning families, driving them down its Demotic, entertaining, tirelessly peripatet- It isn’t only Alabama. The political his- Dantean rungs and towards destitution. ic, the show worked. Rather like Mr tories of Georgia and North Carolina, The boll weevil, another implacable force, Trump’s baseball cap, the army boots he through which the federal road also ran, swarmed up from Mexico and ravaged cot- wore on the stump marked him as a regu- can be charted on similar maps, with the ton crops as destructively as any army. lar guy. He toured with the Strawberry same ancient cultural divisions between Then came the Depression. Pickers, a hillbilly band, plus a corn-husk uplands and lowlands, and between re- Folsom’s policies resonated, and still mop and suds bucket (for contributions), gions where slaves were numerous and do. He pledged to spend more on schools with which he promised to clean up Mont- where there were few. The roots of these and pensions and to end, at last, the unfair gomery, the state capital, just as Mr Trump entrenched habits of mind and voting competition of convict labour. He was not said he would “drain the swamp”. show that, as MrBridges, the archivist, puts a fan of “dumping American money over- The Huntsville Times called his victory it, Alabamians won over to populism were seas”. He wanted to do away with voting in 1946, secured in much the same counties “not simply emotional victims of dema- restrictions. Perhaps above all, though, he that had backed Kolb, “a blind, unreason- gogues”. Often they have had a clearer said he would improve the state’s infra- ing revolt.” From the start, scandal threat- grasp of interests and injustices than that structure, in particular by paving farm-to- ened to capsize his governorship. As well presumption allows. Above all, says Mr market roads. In an area still bypassed by as “Big Jim” he was known as “Kissin’ Jim” Dodd, the historian of Winston County, interstates, as it was by the old federal road, for his habit of kissing long lines of girls at the descendants of Alabama’s yeoman that basic shortage persists. Mayor Robin- his rallies. He alienated the “lying newspa- farmers are, like their forebears, “tired of son says his biggest challenge is securing pers” as thoroughly as has Mr Trump (Kolb people looking down on them”. 7 40 United States The Economist February 11th 2017 Lexington French lessons

Trumpism may puzzle Americans, but Europeans have seen its like before would spend more on crime-fighting and defence, and back something like “extreme vetting” forMuslims and refugees. They suggest that workers need protecting from legal as well as illegal immigrants. Most question whether climate change is as danger- ous as experts say. Mr Farage and Ms Le Pen scold the European Union for provoking President Vladimir Putin, and cheer Mr Trump’stalk of closer Russian ties (indeed Russian bankers have, in the past, loaned the National Front large sums). Mr Wilders is warier ofMr Putin, though just as hostile to the EU.

Trump’s America: the old in the new world Point out parallels between Trumpism and the European hard- right, and some Republican grandees shrug. Over breakfast in Washington clubs, or in Capitol Hill chats, bigwigs say that Euro- pean socialism is very bad, ofcourse, and that neo-Nazis are to be shunned. But calling someone a European conservative is not so alarming—at this point some may mention Margaret Thatcher, reverentially. In fact terms like “left” and “right” are misleading in Europe. French conservatives may be warier of free markets and keener on state intervention than Swedish social democrats. Amore relevant divide involves attitudes to competition. One T WAS a moment to make French nationalists spill their pastis. European ideological bloc (which might be called Anglo-Saxon) IMarine Le Pen, a populist seeking the presidency of France, sees competition as, on balance, a useful discipline, making com- launched her campaign this month by praising American voters, panies and countries stronger and more attuned to the needs of saying they had “shown the way” by electing Donald Trump. consumers and citizens. Asked for the opposite of competition, After all, Mr Trump is a star of American reality television who that first camp might answer: a monopoly. Arival bloc sees com- subsists on Diet Coke, Big Macs and exceedingly well-done petition as a threat to be managed or resisted. Asked for competi- steaks. France uses legal quotas to keep Hollywood films and tion’s opposite, that second camp might answer: solidarity. American TV hits at bay, and made a national hero of a sheep The divide is partly cultural, and America has broadly stood farmer(now an elected member of the European Parliament) for on the Anglo-Saxon side ofit, even when puttingup protectionist attacking a McDonald’s restaurant with a tractor. barriers to imports. The Founding Fathers wanted to build a Ms Le Pen has tactical reasons to embrace Mr Trump. As her country in which a stranger with a good idea would have the National Front rises in the polls, she calls his election part ofa glo- chance to make a fortune. It is telling that in the English language bal “awakening” that will next carry herto victory. But to a degree competition can be “fair” or “unfair”. Fairness is an abstract idea often missed in America, she is an ideological soulmate, too. subject to objective tests—ie, are firms colluding or foreign coun- By American lights, Mr Trump is a puzzle. On the one hand he tries dumpinggoods into markets at a loss? But in French, Spanish favours proposals loved by the right, pledging to lower taxes and or Italian, competition is “loyal” or “disloyal”. That’s a more emo- deregulate business. On the other he backs ideas cherished on tive concept. It conjures up images of an artisan in a hilltop town, the left, as when he says government should offer health insur- betraying fellow-members of his guild or clan by producing ance “for everybody”, regardless of ability to pay. Pundits debate cheaper bread or shoes. That has consequences: lots of Euro- whether he is a “New Deal Republican” inspired by Ronald Rea- peansexpectpoliticiansto shield firmsdeemed national champi- gan, a Nixonian centrist or more of a fist-shaking nativist in the ons from competition or to subsidise jobs in favoured industries. mould ofAndrew Jackson. Actually, though Mr Trump reflects all Mr Trump is uncomfortably close to that second camp. His those influences and more, there is an easier way to understand chief ideological adviser, Stephen Bannon, openly yearns for a him. Quite a lot ofthe time, he sounds European. more closed, clannish America. In a 2015 radio interview Mr Ban- The parallels extend to his rhetoric. Take promises to detect non grumbled about the number of Silicon Valley CEOsfrom and expel Muslim extremists. Mr Trump told an audience of sol- Asia, saying: “A country is more than an economy. We’re a civic diers on February 6th that America should admit only “people society.” Candidate Trump promised to be “very loyal to the that love us and want to love our country”. Europeans hear ech- country” and that “American hands will rebuild this nation”. In a oes of a National Front slogan dating back to the 1980s: “Love post-election speech he laid out his credo: “The relationships that France orleave it”. Compare MrTrump to MsLe Pen, orother pop- people value in this country are local: family, state, country,” he ulist-nationalist leaders such as Geert Wilders in the Netherlands thundered. Similar language thrills many in ageing, anxious Eu- and Nigel Farage, the former head of the United Kingdom Inde- rope. It resonates in Trump’s America—a world of rural counties pendence Party who helped lead his country to Brexit, and areas and small, bleak towns that, on many measures, is more like Eu- ofagreement abound. rope. Pollingdata showthatTrump supportershave a median age Like America’s president, Europe’s demagogues describe a of 57, almost nine in ten of them are white, and most do not have world in which strong nations must rise up against rootless, self- college degrees. Overall, Americans have a median age of 38 and dealing transnational elites. They promise to lower taxes but also attend college at steadily rising rates; about a third of them are assure their (often snowy-haired) voters that they will preserve non-white. Trumpian nationalism is potent stuff. It is also back- old-age benefits from cuts. They are typically authoritarians who ward-looking and tribal. That’s not the American way. 7 SPECIAL REPORT MASS ENTERTAINMENT February 11th 2017 Winner takes all with code The Economist Events launched Pride and Prejudice in 2015 ECONMAG15 to make the case for fully including LGBT people in every SAVE 15% aspect of economic and social life throughout the world, in the belief that it will help drive progress more broadly. Rates increase after February 24th 2017 Join editors from The Economist for our global 24-hour event, spanning three cities – Hong Kong, London and New York – as Host your clients, VIP tables available we explore the role of business in leading the way. 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Winner takes all

Technology has given billions of people access to a vast range of entertainment. Gady Epstein explains why they still go mostly for the big hits ONE OF THE axioms oftechnological progress is that it democratises en- CONTENTS tertainment, distributing delights to the masses that were once reserved for the elites. More high-quality entertainment is available to more peo- 5 Recommendation ple on the planet than ever before. At the same time individuals across algorithms the globe can find an audience much more easily than was previously If you liked that, you will possible. The ability to access whatever entertainment people want digi- love this tally and on demand has transformed diversions in societies both rich 6 TV and video and poor, changing the lives ofbillions. A slow-motion revolution Even more remarkably, mass entertainment today can be tailor- made, not one-size-fits-all. There is something for everyone and at any 8 Alternative realities time that suits. At the beginning of the day in New York the dreary sub- Up close and personal wayride to workisfilled with music. In Tokyo the journeyhome from the 9 China office is a time to devour manga on a mobile phone. In the evening in a Life is but a stream rustbelt city outside Beijing, workers who cannot afford a night out may ACKNOWLEDGMENTS tune into broadcasts live-streamed by their fellow citizens. Billions of 10 Live events people can choose from a large range ofmobile games at any time. The roar of the crowd Apart from those mentioned in the In his book “The Long Tail”, published in 2006, Chris Anderson, a text, the author wishes to offer 11 Smartphones technology writer who used to work for this newspaper, observed that particular thanks to: Karen Auby, Driven to distraction Matthew Ball, Lorraine Bardeen, the internet has opened up potential markets for any niche product, no Azar Boehm, Brandon Boone, Dawn matter how quirky. Adecade on, any star on YouTube can attest to that. 11 Monetising eyeballs Bridges, Ali Colangelo, Al DeLeon, From a child unboxing toys to the delight oftoddlers around the world to The attention economy Malik Ducard, Justin Dini, Niko Felix, Jonathan Friedland, Marina Gorbis, a puckish Swedish gamer with millions of teenage fans, running one’s Blaine Graboyes, James Gwertzman, own virtual TV channel online can be worth tens ofmillions ofdollars to Lynn Hale, Kyoko Higo, Katherina aluckyfew. Jawaharlal, Murray King, George And yet as a business, entertainment has in some ways become less Kliavkoff , Eric Lempel, Leo Lewis, Fiona Micallef-Eynaud, Chris Moore, democratic, not more. Technology is makingthe rich richer, skewing peo- Zenia Mucha, Mark Mulligan, Mat ple’s consumption of entertainment towards the biggest hits and the Newman, Matthew Ogle, Tim O’Reilly, most powerful platforms. This world is dominated by an oligarchy of Tim Richards, Paul Roeder, Eric giants, including Facebook, Google, Amazon, Netflix and Disney (as well Schumacher, Michelle Slavich, Brian Smith, Reuben Steiger, Nina Tyler, as Alibaba and Tencent within China’s walled ecosystem). Those lacking A list of sources is at Lawrence Wilkinson and Hao Wu. sufficient scale barely get noticed. Paradoxically, enabling every individ- 1 Economist.com/specialreports

The Economist February 11th 2017 3 SPECIAL REPORT MASS ENTERTAINMENT

2 ual and product on the planet to find a market has made it next to ofthe longtail. On iTunesorAmazon, the marginal costof“stock- impossible for the market to find them. Consumers generally fa- ing” anotheritem isessentiallyzero, so supplyhasgrown. Butthe vour whatever they find on their mobile screens or at the top of rewards of this model have become increasingly skewed to- their search results. The tail is indeed long, but it is very skinny. wards the hits. Anita Elberse, of the Harvard Business School, Being able to produce a blockbuster hit has become even working with data from Nielsen, notes that in 2007, 91% of the more valuable than it used to be. It turns out that everyone wants 3.9m different music tracks sold in America notched up fewer hits—the more familiar the better, says Derek Thompson, author than 100 sales, and 24% only one each. Just 36 best-selling tracks ofa bookentitled “Hit Makers”. Despite the availability of enter- accounted for 7% of all sales. By last year the tail had become yet tainment specially tailored for each individual, people still crave longer but even thinner: of 8.7m different tracks that sold at least experiences they can share with others. What they want most is one copy,96% sold fewer than 100 copies and 40%—3.5m songs— what everyone else wants. were purchased just once. And that does not include the many The same technological tools that have atomised entertain- songs on offer that have never sold a single copy. Spotify said in ment have also made it easier to aggregate audiences. Rankings 2013 that of its 20m-strong song catalogue at the time, 80% had of the most popular downloads or streams are self-reinforcing. been played—in otherwords, the remaining4m songs had gener- Recommendation algorithms steer people to what others like ated no interest at all. them have also watchedorlistenedto.The social-media impact of the biggest hit in any genre is dramatically greater than that There is almost no limit on the supply of entertainment ofany lesserhit, thanks to network effects. choices, but people’s awareness of them is constrained It seems clear now that the future of mass entertainment is not “sellingless ofmore”, by the time and attention they can spare as Mr Anderson put it, but selling a lot more ofless. The film business illustrates the point. Of the thousands of Music-streaming services have not been around for long films released worldwide in 2016 (including well over 700 in enough to allow a definitive assessment of their market impact, America alone), the top five performers at the box office were all but as they attract more casual music fans (as opposed to deeply made by Disney. The 13 films the company released last year, plus knowledgeable nerds), the hitscan be expected to benefit. In 2015 remaining business from “Star Wars: The Force Awakens”, ac- the top 1,000 songs were streamed 57bn times in America, ac- counted for one-fifth of total film revenue worldwide. Disney counting for 18.8% of the total volume of streams, according to has focused on big-event films with iconic characters and story- BuzzAngle Music; last year the top 1,000 songs accounted for lines that have global appeal (and that fuel its unparalleled busi- 92bn streams, or 23% ofthe total. nesses in consumer-product licensing and theme parks). Only a The economics of blockbuster films, which are shown in few years ago the big studios would typically aim for 20-25 films cinemas, might seem different from those of blockbuster music apiece to provide a margin for error. Some still do, but Disney’s and TV streaming, but in the digital age they and other entertain- more focused approach, investing almost exclusively in block- ment products have much in common. There is almost no limit busters, is paying offwith a much higher rate ofreturn. to the supply of entertainment choices in every category, but When Bob Igertookoveras CEO in 2005, he felt sure that, in people’s awareness of these products and their ability to find an era of proliferating content, big brands would become more them is constrained by the time and attention they can spare. valuable—the bigger the better. The company went on to spend Overwhelmed by the abundance of choice, they will generally $15.5bn to amass an arsenal of content brands that became the buy what they are most aware of. The algorithms used to make envy of the media world: Pixar Animation Studios, Marvel En- recommendations, offered by many sites, reinforce this trend: tertainment and, in 2012, Lucasfilm, maker of “Star Wars”. “We they push consumers to what is popular rather than send them saw in each one of those a brand that would matter in a new off to explore obscure parts of the tail. This helps explain why world order,” says Mr Iger. Netflix, which specialises in supplying film and video on de- The blockbuster effect has been even more striking on the mand, has repeatedly bet big on event television, from its hit digital platformsthat were supposed to demonstrate the benefits “The House of Cards” to the lavish production of “The Crown”, about Britain’s royal family. It has also spent hundreds of millions of dollars to secure the rights to Disney films. It still The blockbuster effect views itself as a long-tail company, but al- Digital music Film though it spends billions of dollars to Copies sold, as % of total Box-office revenue, as % of total serve lots ofdifferent market niches, espe- Over 100 100 100 cially geographical ones, subscribers gen- Top 1% of films erally make a beeline forthe top 50 or so. At the same time a lot of entertain- 75 Top 2% 75 ment has been commoditised as the bar- 2-100 riers to production and distribution have Top 5% 50 50 come down. An item further down the long tail may rarely be chosen, but is not Top 10% “scarce” in the sense that it can command 25 25 a premium; on the contrary, a relatively 1 copy Bottom 90% obscure item is worth very little. One rea- 0 0 son is that the internet leads consumers to 2007 08 09 10 11 12 13 14 15 16 1997 2000 05 10 16 expect most things to be free, especially Sources: Nielsen; Box Office Mojo content without a brand name. Second, 1

4 The Economist February 11th 2017 SPECIAL REPORT MASS ENTERTAINMENT

2 consumers believe (rightly) that there is not much difference be- dom. It is still a very long shot, but in theory the opportunity is tween most of the obscure items on offer. And third, they reckon now available to everyone. (also usually correctly) that those items have cost hardly any- That translates into more entertainment of all kinds being thing to produce, so they are almost worthless. Conversely, con- produced and consumed than ever before. On the whole, sumers will pay a premium forfamous brand names. though, the rewards of the digital economy accrue mostly to the This is partly to do with the way search engines and social big platforms and media companies. Eric Schmidt, the executive platforms work. Facebook, YouTube and Snapchat readily deliv- chairman of Alphabet, Google’s parent, has said that his com- er huge amounts ofentertainment free. At the same time they of- pany’s thinking has been greatly influenced by the long tail; but fer individual performers, artists and writers a greatly increased he has also acknowledged that most of the money is to be made chance of finding some sort of audience, be it next door or half- in the head. way across the world. On average, 60% ofthe viewers ofan indi- The enduring dominance of the blockbuster has implica- vidual creator’s YouTube channel live outside the country where tions for the way consumers will be entertained for decades to the artist is based. This may be a fairer way ofachieving stardom come. Global competition for their attention, and their wallets, than in the pre-internet era, when traditional media companies will bring about more mega-mergers like the one proposed be- picked winners and pushed them to the public via narrow distri- tween AT&T, a telecoms and pay-TVfirm, and Time Warner, one bution channels. Likewise, the 710m people online in China of Hollywood’s greatest content creators. The $109bn offer indi- have discovered another independent path to fame, which is cated that AT&T felt the need to own great content to differentiate likely to spread to other parts of the world. Live-streaming has itself in the market. Likewise, it hinted at an uncertain future for helped millions ofChinese internet users, many ofthem in rural content companies that cannot make sure they have an audi- villages or dreary industrial towns, personalise mass entertain- ence. For now, the competition among studios and video pro- ment for each other. In such ways, with lower barriers to finding grammers is delivering more high-quality television for every- an audience (whether of one or many), millions of people one than ever before, but it is also stoking fears of a collapse to around the world are using the internet as a lottery ticket to star- come. This report will examine the proposition that the world 1

If you liked that, you will love this

Recommendation algorithms should balance the familiar with the new

AT LAST YEAR’S consumer-electronics show use similar recommendations over and over in Las Vegas, Reed Hastings, the CEO of to get the engagement,” says Robert Kyncl, Netflix, set out an ambitious goal for serving chief business officer of YouTube. “But the his customers: “One day we hope to get so pay-off is much greater when you introduce good at suggestions that we’re able to show something that is a bit of an odd choice and you exactly the right film or TV show for your it works.” mood when you turn on Netflix.” Spotify, a music-streaming service, But what is exactly the right show? Mr offers a different model with its Discover Hastings’s company has been a pioneer in Weekly playlist, which it produces for more the science of recommendation algorithms, than100m customers. It analyses billions of dating back to its days as a humble DVD-by- users’ playlists to find songs that others with mail company. Netflix’s thinly sliced classifi- similar interests have liked. These tracks are cations of films and TV shows, and its equally combined into a playlist of 30 songs (per- finely graded assessments of customers’ haps including some familiar as well as new viewing preferences, established the stan- ones) delivered each Monday. dard for product suggestions. The company says the service is used Still, algorithms take some of the by tens of millions of listeners and gives a adventure and serendipity out of hunting for significant boost to thousands of performers new entertainment, and rarely nudge a each week. By limiting the list to a couple of customer towards anything way off his radar. hours-worth of listening, and by setting an This is a challenge for independent produc- expiration date each week, Spotify creates a ers of music, literature or film, who already on similar subjects that previous shoppers sense of scarcity to keep listeners engaged. find it extremely difficult to get noticed have also bought. Netflix will suggest a show Music lends itself well to this treat- amidst so much choice. Recommendation based on the choices of other people with ment. Streaming services have catalogues of software can make the problem worse. similar viewing histories. around 30m songs each, compared with Suggestion algorithms can exploit Some recommendations are fairly mere thousands of film and TV titles. And what customers are known to like by pushing crude, as when an online store repeatedly songs, unlike films, are short enough for a similar fare, or they can encourage them to offers more of something the consumer has poor recommendation not to matter much. explore things they might be less familiar already bought and is unlikely to want more Spotify’s experience shows that algorithms with. Typical algorithms tend to exploit of, like an umbrella. Others are more adven- can occasionally nudge people away from known preferences more than encourage turous, encouraging the customer to try hits and expand their horizons. exploration. When a customer buys a book, something new. But if they go too far, they Stay tuned. If you liked this article, for instance, Amazon will recommend books risk putting him off. “It’s more predictable to read the next one.

The Economist February 11th 2017 5 SPECIAL REPORT MASS ENTERTAINMENT

2 may be getting close to peakTV. The best time to gain (or lose) audience—and to challenge Look at it another way the dominance of an established platform—is when technology United States, time spent Change in hours Time spent watching makesa leap. Thatiswhymedia, gamingand tech companies are watching traditional TV* per month, 2010-16 video, global average By age group, years, % change 2015, % investing billions in virtual reality and augmented reality. Such 10 16 Over 65 technologies can change the way that people experience story- + 32 3 50 - 64 telling and persuade them to suspend disbelief. James Cameron 0 Live TV showed with his superb 3D imagery in “Avatar” how a leap in vi- – 10 15 Total sual technology can create an outsized blockbuster. Now Disney 16 35 - 49 22 Smartphone is racing with other studios and tech giants to come up with the 20 next leap, alternative realities. This report will argue that the 27 2-11 On-demand TV 18 most promising of these technologies are still far from ready, 30 39 25-34 though many people will take to lesser, cheaper forms of them, 18 40 46 12 - 17 Computer such as those they can experience on their smartphones. 46 18-24 Tablet 10 50 I was there 2010 11 12 13 14 15 16 *Cable and broadcast channels Between the avalanche of digital entertainment and the Sources: Nielsen; REDEF; MillwardBrown (including time-shifted) still-distant promise of alternative realities, there is still a huge market for experiencing something real in person. The few hits that have captured the public imagination command a hefty pre- what viewers watch, what kind of video programming is pro- mium. From “Hamilton” on Broadway to the mixed-martial arts duced forthem and how they watch it, and it is beginning to dis- combatants in the Ultimate Fighting Championship, people will rupt the television schedules of hundreds of channels, too. But pay thousands of dollars for the privilege of being there, even all this is happening in slow motion, because over the past few though they can experience the same thing or at least hear the decades television has developed one ofthe most lucrative busi- same songs in digital form fora small fraction ofthe price. ness models in entertainment history, and both distributors and For the majority who must consume entertainment re- networks have a deeply vested interest in retaining it. motely,most ofthe battles are still about screens, be they the size of a smartphone or half a wall, and about minutes of attention Existential threats within particular apps. But although consumers seem to have a Pay and broadcast television, still the foundation of video dizzyingarrayofchoices, mostofthem do nottake fulladvantage entertainment at home in much of the world, is being eroded of them. What they pick is increasingly determined by the algo- from two sides. At one end, people are watching videos free on rithms driving this competition (see box, previous page), and large social platforms like Facebook, Instagram (which is owned those algorithms mostly send them straight to what everyone by Facebook), YouTube and Snapchat. Each of these platforms else is consuming. Blockbusters are the safe bet. 7 now claims billions ofviews a day.Free videos are supported by advertising, which will begin to eat into the TV advertising mar- ket, currently worth $185bn. Many of these videos may be dis- TV and video posable (literally so in the case of Snapchat, where stories usual- ly disappear after 24 hours), but social platforms like Facebook A slow-motion have excellent information on who is watching and for how long, enablingthem to sell highlytargeted advertising. Facebook, YouTube and Snapchat also have the scale needed to keep users revolution on their platforms for long periods at a time. On average, Face- book users spend nearly an hour a day using Facebook itself, In- stagram and Messenger, in addition to the time they spend on Traditional TV is too lucrative to ditch just yet WhatsApp. At the other end, people are consuming premium-quality WHEN CHARLIE BROOKER, the creator of “Black Mirror”, video on subscription services such as Netflix, Amazon and a television series about the social impact of new technol- Hulu in America and on many other streaming services around ogy,goesawayfortheweekendwithhisfamily,hisyoungsonoc- the world. Netflix’s 94m subscribers watch the service fornearly casionally encounters something perhaps too barbaric even for two hours a day, and rising. Netflix and Amazon are amassing his father’s dystopian show: an old-fashioned TV set with chan- big user bases by charging a low subscription—$8 to $12 a nels and a fixed schedule of programmes. Instead of being able month—and investing heavily in ad-free content. That spending to watch whatever he wants at any time, he has to wait until a spree is driving up the cost of producing quality television for certain hour on a certain day on a certain channel. “It just strikes everyone else. Thus internet economics is gradually strangling a him as terrifyingly antiquated,” says Mr Brooker. well-established business model: cable TV. That kind of television will eventually be consigned to The shift from broadcast to cable television in the late 20th oblivion. People will be able to pick any show at any time from century was something of a long-tail event. Media companies just a few favourite platforms, like Netflix (where “Black Mirror” delivered a large package of channels that contained something resides) orAmazon, as well as Facebookand Snapchat forvideos for everyone, initially at a reasonable price. The total audience shared by friends and celebrities. Everything from Fox, say, will for television kept growing as customers were offered more be on one channel instead of many.And Mr Brooker junior will channels to choose from, and the distributors and makers of vi- easily be able to search an army ofbrands: a Lego channel, a Har- deo content reaped rewards from subscriptions and advertising. ry Potter channel, a “Star Wars” channel. The number of channels proliferated as media companies dis- That moment may be drawing nearer, but there are still covered that serving niche audiences could generate big rev- plenty of obstacles in the way.The internet has already changed enues: Fox News, created in 1996, contributes more profit than 1

6 The Economist February 11th 2017 SPECIAL REPORT MASS ENTERTAINMENT

2 any other asset in Rupert Murdoch’s empire, much as ESPN,an more scripted shows than they used to. all-sports network, remains the most lucrative part of Disney Traditional media companies are trying to defend the (and the most profitable channel ofthem all). pay-TV system that made them rich. Hulu—co-owned by Disney, Yet as media companies kept adding channels, pay TV Fox, Comcast and Time Warner—and AT&T, a pay-TV and tele- stopped being a good deal for viewers. Back in 1995 Americans communications giant, are among those offering a cheaper ver- had an average of only 41channels to choose from, and watched sion of pay-TV—a “skinny bundle”—streamed over the internet. ten of them a week. By 2008 cable subscribers had an average of AT&T made an even bolder, if riskier, move last autumn by bid- 129 channels to choose from and watched 17.3 ofthem a week, ac- ding for Time Warner. If approved by regulators, the $109bn ac- cording to Nielsen, a market-research company. Five years later quisition would give AT&T vertical integration to protect it ifand they had access to 189 channels but were still watching only 17.5 when the current pay-TV system crumbles. of them each week, almost the same as before. There is a limit to But that day of reckoning is still some way off. The last re- how much ofthe tail consumers can eat. mainingstronghold ofthe pay-TV oligopolyislive programming, At the same time they are paying much more for having so especially sports, which traditional networks do very well. many options, and schedules are inflexible. In America the typ- Sports events are among the few remaining true “mass” experi- ical pay-TV bill has nearly doubled in a decade, to more than ences; the entire audience watches the same thing at the same $100 a month, according to Leichtman Research Group, whereas time, which big advertisers find irresistible. At a “sports summit” disposable incomes have mostly remained flat. That created an in December hosted by MoffettNathanson, a research firm, Niel- opportunity for internet video providers. Netflix could give sen produced a chart showing just how much sport has come to viewers a lot of programmes in one place, to watch whenever dominate traditional TV. Sports programmes accounted for93 of they wanted, for less than $10 a month. And social networks the 100 most viewed broadcasts in 2015, compared with only 14 were offering video on demand free. ten years earlier. So regular TV watching is in decline. In America, the most Advertising rates in general have been flat or declining in developed market, viewing of broadcast and cable TV by all age most ofthe industry, butspendingon adsforsports has risen rap- groups fell by11% in the sixyears to the autumn of2016, to slightly idly, by 50% in the decade to 2015, according to Nielsen and Mof- more than four hours per day, according to Nielsen data com- fettNathanson. This remains true even as the number ofviewers piled by Redef, a media newsletter. Over the same period view- has begun to decline because programmes that can attract large ingby those aged 12-24 dropped by a staggering40%. Market pen- audiences are so scarce. Live sports are also an important selling etration of pay TV in America has slipped from nearly 90% in point for pay-TV customers, allowing sports channels to charge 2010 to just over 80% as people abandon cable altogether (cord- cable and satellite distributors more for carrying their networks. 1 cutters), switch to less expensive packages (cord-shavers) or nev- er sign up forpay-TV bundles in the first place (cord-nevers). Cord-cutting is only beginning in America, and as yet plays no part in less developed markets, where both penetration and prices are much lower. But if it goes on, it will be devastating to the content companies, which have been enjoying gross profit margins on cable of30-60%. Somewhat ironically, these trends help explain why TV is now the best it has ever been. In the new age of premium televi- sion, networks and streaming services are competing for sub- scribers. Television used to rely on broad formulaic program- ming in its quest foradvertising dollars, but that began to change in the 1990s when HBO, a premium cable channel without ad- vertising, began offering high-quality programmes in order to win subscribers. Cable channels like FX (owned by Fox) fol- lowed, building passionate fan bases for great shows to justify higher cable feesand to keep subscribers on board. You’ve never had it so good Streaming services have now sharpened the competition for viewers’ attention. Netflix, Amazon and Hulu between them will spend well over $10bn on television content this year. HBO has responded by raising its budget to over $2bn a year. This con- test has given viewers “Game of Thrones” and “Westworld” on HBO and “The Crown” on Netflix—shows that cost $10m or more an episode to make, three or fourtimes as much as the television dramas ofold. It has also caused Netflix to pay tens of millions of dollars for a third season of Mr Brooker’s show, “Black Mirror”, prising it away from Britain’s Channel 4. Not everyone will be a winner. Last year more than 450 scripted original shows were available on American television, more than twice as many as six years earlier. This year there may be 500, signallingthe approach ofwhat John LandgrafofFX calls “Peak TV”, the point at which there is more television than the media economy can sustain. In its study of the future of video, Redef noted that programming executives are cancelling far

The Economist February 11th 2017 7 SPECIAL REPORT MASS ENTERTAINMENT

2 ESPN, owned by Disney, has about 90m subscribers and enjoys fee revenues of nearly $8bn a year, making it by far the highest- grossing cable channel anywhere. The cost of sports rights too has been rising dramatically around the world as sports leagues exploit the traditional TV sys- tem’s desperate need for them. In America the annual fees that ESPN and three ofthe fourbig broadcast networks are paying for the rights to broadcast the National Football League to early next decade have nearly doubled in ten years, to an average of about $5.5bn a year. ESPN and TNT, owned by Time Warner, are paying a combined $24bn for the rights to broadcast National Basketball Association (NBA) games over nine years, almost three times as much as they were paying under their previous deal. Investors are asking how long this can go on. ESPN has lost millions of subscribers in recent years, but says that the net- work’s value will continue to grow (Disney does not report ESPN’s profits separately). The escalating fees charged for sports channels will put more pay-TV customers off. Viewers will also turn to other options, especially on mo- bile phones and tablets, for which the streaming rights are sold separately. Telecommunications companies around the world are likely to offer increasingly large fees to stream sports over their data networks. Streaming of live sports will become more In the physical world, alternative realities will one day al- common, though initially on a limited scale; the technology for low humans to live out their hopes, dreams and fears from their concurrent streaming of a big sporting event to tens of millions living room. That is why billions of dollars are being invested in offans is still some way off. such technologies. But what is currently available is much clun- More importantly,the existing business model remains too kier, ifplenty offun. Virtual reality (VR) is still experienced in rel- lucrative to abandon so soon. Buteventuallyfansmayfind them- ative physical isolation. People can explore the depths of the selves watching sports on screens in a completely different way: ocean, as with Sony’s PlayStation VR. They can play virtual table in alternative realities. 7 tennis with someone not physically present, as with Oculus Rift’s “Toybox”. They can immerse themselves in a first-person shooter game on almost any VR platform. They can watch televi- Alternative realities sion dramas play out in their 360-degree world, with the cast moving behind and around them, as filmed by Jaunt Studios in Up close and personal California. They may even feel singed by the spray of molten lava as they duel Darth Vader with a light sabre. But to do these things they have to put on a headset and dis- connect from each other in the physical world. That limitation will inevitably slow the pace of adoption. Samsung, makers of a headset called Gear VR, designed for mass-market use, tried to But you still have to wear the headgear deal with this head-on in a recent advertising campaign. It de- picted a family taking turns trying on a Gear headset, with the APARISCAFE basement,1896. The Lumière brothersscreen grandfather telling the grandmother: “You’ve got to try this!” their 50-second film, known as “Train Pulling into a Sta- Many in the alternative-realities business are more excited tion”, to an audience said to have been taken abackat the sight of about augmented reality. With this technology, people put on a train moving towards them as if it might jump off the screen. glasses tolookat images projected into the real world which they That was the beginning of movie magic. But what if the train can still see around them. Microsofthas a version ofthis in Holo- could jump offthe screen? Lens. Magic Leap, a secretive company in Florida that has raised San Francisco, the Presidio, 2016. Vicki Dobbs Beck, who more than $1bn from investors including Google, has dropped runs Lucasfilm’s ILMxLAB, and John Gaeta, who was responsi- tantalising hints about the realities it can create. It is co-operating ble for the stunning slow-motion visual effects of “The Matrix”, withDisney—viaILMxLAB—to create “StarWars” experiencesfor are showing off the future of “mixed reality” in the cinema. The fans, but that workis still strictly under wraps. most exciting possibilities are still on the whiteboards of the mind. Imagine a horror film in which, at a crucial moment, a Keep it simple creature leaps from the screen into the audience. This is not yet To be widely accepted, technologies will have to fit into possible, and even once it is, spectators will still have to wear people’s lives without much friction. Consumers latch onto special glasses to experience the effect. things because they are affordable and easy to adopt, and be- The problem with the technology of alternative realities— cause everyone else hasgotinto them too. Theydo nothave to be virtual and augmented—is that their science-fiction versions particularly high-tech. Google Glass was a high-end augmented- have been too impressive. Popular culture has fostered fantasies reality product but proved a bit too nerdy for the masses. Snap’s of being able to move through, see, touch and interact with a much cheaper Spectacles, which like Glass can record video manufactured world that seems real: a theme park populated from the wearer’s vantage point, will probably prove more pop- with artificially intelligent physical beings in “Westworld”; the ular with Snapchat’s young users. Pokémon Go, the mobile holodeck in “Star Trek”; a seductive consciousness with the sul- game that became an immediate hit last year, simply puts Poké- try voice ofScarlett Johansson in “Her”. mon characters in the field of vision of players’ smartphones. 1

8 The Economist February 11th 2017 SPECIAL REPORT MASS ENTERTAINMENT

2 Any VR kit that sells well in the next year or two is likely to be a low-end version that pairs with a smartphone. Alive and well The more advanced alternative realities of the gaming China, livestreaming world will come next. Your correspondent recently donned a Market value, $bn Users By age group, years, % “Synesthesia Suit”, developed in Japan, that stimulates the wear- 6 er with physical sensations, like little buzzes and vibrations as he 60 plays a VR game. “Haptic technology” is another coming thing, 40 though still more exciting in concept than in practice. The most 20 obvious customers and evangelists for such advances in VR are 4 0 25 and 26-35 36-45 46-55 over 55 serious gamers, partly because they are geeks and want to be in under on the latest cool thing, and partly because they have an appetite PC By monthly household income, Rmb ’000 for the pricey hardware— s and gaming consoles—needed for 30 VR 2 superior experiences. The most popular gaming format, first- 20 person shooter games, lends itself naturally to VR;itisfuntobe able to duckincoming fire, swivel and blast away at a baddie. 10 0 Most important, though, gamers in a way already inhabit 0 under 1-3 5-83-5 8-15 15- 20- over alternative realities, playing in vividly imagined worlds with al- 2013 14 15 16* 17† 18† 1 20 30 30 most cinematic graphics. VR is a natural step towards making Sources: Credit Suisse; Euromonitor; TalkingData *Estimate †Forecast those games feel even more real. Getting there will not be alto- gether straightforward even for serious gamers: first-rate VR can give users motion sickness. And the cost is still offputting; the him online and sometimes give him digital stickers representing Sony PlayStation VR will set you back $399 for the headset and things like a beer that fans buy online and can be converted into anotherfew hundred dollars fora console. Yourreward may be a cash. The individual amounts are usually small, but they add up. terrific fright. “Resident Evil 7: Biohazard”, released for Sony Live-streaming his life earns Mr Zhao about $850 a month, twice PlayStation VR in January, is full of monsters coming at you—far as much as his day job. scarier than a train jumping offthe screen. 7 Twinkle, twinkle, little stars The internet has amplified people’s interest in the world’s China biggest stars, helping their fans feel a little closer to them, thanks to social media. But it has also made it possible for anybody to Life is but a stream become a little star in their own corner of the universe, connect- ing intimately with subsets of fans. In much of the rest of the world the mostpopularofthese are teen idolson YouTube, Insta- gram and Snapchat. Most people over 25 would struggle to name a YouTubestar other than possibly PewDiePie, a Swedish gamer with a global following ofmore than 50m. A new way of bringing colour to dreary lives China’s craze for personal live-streaming runs far deeper, into third-tier cities and remote rural areas where the internet is LAST YEAR ZHAO XINLONG, aged 25, and his wife and the one and only fun and cheap place to hang out. These perso- baby boy moved from his parents’ farm into a mid-rise nal broadcasts are not simply videos that fans watch, but more apartmentin town. Ithasbeen a tough adjustment. Luan County interactive experiences. The fans make requests, chat with their is a rustbelt community on the polluted outskirts ofthe steel city idols and give them virtual gifts. Many of those watching are of Tangshan in north-east China. Mr Zhao’s monthly income small-time live-streamersthemselves. Theyare turningeach oth- from driving a taxi has plummeted by more than half in the past er into mass entertainment. couple of years, and he has not found it easy to make friends in It is a big and growing business. China’s live-streaming in- his new abode. dustry more than doubled in size last But when he gets online in the eve- year, with revenues of around $3bn, ac- ning, he becomes a different person: Zhao cording to Credit Suisse, a bank. More Long’er, an entertainer. Using Kuaishou, a than 100 companies now offer the ser- Chinese video-sharing and live-stream- vice, providing the platform for perform- ing app, he broadcasts to a live audience ers in exchange for a hefty cut of their of hundreds, sometimes thousands, of earnings (one, YY, is publicly listed on fellow Chinese every night. Taken to- NASDAQ, with $269m in gross revenues gether, they add up to more than100,000. from live-streamingin the third quarter of Many of them are diaosi, people who last year, a year-on-year rise of more than mockingly identify themselves as losers 50%). That compares with box-office re- in dead-end jobs. Online he can relate to ceipts for the Chinese film business, the them, telling them stories, dirty jokes, world’s second-largest, of $7bn last year. whatever is on his mind. Ofthe 710m people with internet connec- Occasionally advertisers pay him tions in China, nearly halfhave used live- small sums to put commercials out over streaming apps. his stream, including things like weight- Many in the audience are diaosi loss products and “gold” jewellery from looking for free entertainment and some- Vietnam. Most of his followers are also times a substitute for romance. Women from north-east China. They chat with outnumber men as live-streamers, but 1

The Economist February 11th 2017 9 SPECIAL REPORT MASS ENTERTAINMENT

2 most of the audiences are male. The government has imposed guidelines aimed mostly at the seamier side of the business, like the erotic eating of bananas (now banned). The most successful live-streamers tend to be attractive young singers of either sex, who can sometimes muster millions of fans. The most popular of them earn more than $1m a year, almost all of it from virtual gifts, but most of them are lucky to see a few hundred dollars a month, broadcasting anything from eating meals to visual pranks to warbling tunes requested by fans. Mr Zhao laments that to boost his earnings, he has to tell more dirty jokes. Live-streamingemerged in China afterthe financial crisisof 2007-08, as internet companies with questionable business models looked fora way to survive. SixRooms, or6.cn, may have been the first to offer live-streaming as a service for a mass audi- ence. It was one of numerous YouTube-like video-sharing busi- nesses (YouTube itself is blocked in China) burning money in 2008 and failed to secure a new round offunding. In desperation its CEO and co-founder, Liu Yan, turned to live-streaming. In 2007 Mercedes-Benz, a carmaker, had paid 300,000 yuan ($39,000) to his site to live-stream an event, and his com- pany had developed an inexpensive way to provide such a ser- vice on a wider scale to allow people to chat with each other and belt, held by Eddie Alvarez, to become the holder of title belts in exchange virtual gifts. That helped make personal broadcasting two different weight classes at the same time. Mr Alvarez enters a social game which could be monetised in a way not replicated to the sound of boos. In the second round Mr McGregor wallops on major social platforms of the West. In China, as well as in Mr Alvarez to win by a technical knockout. South Korea and Japan, where live-streaming has also caught on, Now that is mass entertainment. The night of fights had a virtual items have long had an underlying monetary value. great many more viewers than any contest in ancient Rome’s Now that the business model has been proven, all the Chi- Colosseum. More than 1.3m people had paid to watch the nese internet giants have entered the live-streaming business. McGregorfighton television, at$49.99 ormore a pop. Butthe best Pioneers like YY and Six Rooms must compete with bigger social time of all was had in the arena itself, where little had changed platforms like Tencent. Six Rooms was acquired by a Chinese en- since the daysofthe gladiators. Humanslove to watch a fightand tertainment conglomerate forclose to $400m in 2015, but Mr Liu, get the biggest rush out ofseeing it in person. 44, remains the CEO. He has been using machine learning to work out what kinds of live-streamers inspire the most devotion Make it special from fans and get the most virtual gifts, down to preferences for There is a future in it, as long as you are putting on a good facial features, tone of voice and regional provenance. He plans show. The business managers of the contest, rescued from the to unveil an even more ambitious effort soon: hired performers scrapheap of fringe sports in 2001 for a mere $2m, skilfully used whose traits are determined, and perhaps enhanced, by mach- social media and imposed a few safety rules (like prohibiting the ine learning. At this rate, life on the long tail of entertainment use of shoes) to build an avid fan base and ensure a modicum of may start getting more difficult forrustbelt dreamers. 7 respectability for the sport. Last year they sold the company to WME-IMG, a talent agency, for$4bn. The availability of high-definition video on people’s Live events screens or music in their earphones anywhere at any time does not seem to have sapped their enthusiasm for the din and dis- The roar of the crowd comfort of a standing-room-only crowd. If anything, they may be placing even more ofa premium on live, shared experiences. Among other things, that may help explain the rising popu- larity of music festivals around the world. Live Nation, a concert promoter that works with many of the world’s leading perform- ers, reported revenues of $7.2bn in 2015, its fifth straight year of Being there in person is still the best entertainment growth, and expects 2016 to show another increase. Michael Ra- pino, the company’sCEO, told investorsthattechnologyactually LATE ON A Saturday night at New York’s Madison Square helps drive interest in music around the world, creating more de- Garden in November, a crowd ofmore than 20,000 people, mand for concerts. That has helped many musicians willing to including many who have flown in from far-flung places, is buzz- tour earn a lot more than they could from digital sales and ing with anticipation. This is the first mixed-martial-arts (MMA) streaming, and not just the big names. According to Nielsen, event held in New York state, where the combat sport was out- Americans spend more to listen to music live than in any other lawed until recently. Fans have paid a total of$17.7m, a record gate form. Revenue from live concert tickets in America more than forany event at this historic arena. doubled in the decade to 2015, to $6.9bn. This evening they have already sat through many lesser Theme parks, an industry that in the early 2000s was bouts. Now Conor McGregor from Ireland, one of the most pop- thought to be languishing, are also doing well, with global rev- ular fighters in the Ultimate Fighting Championship, the leading enues exceeding $40bn in 2015. Attendance and spending have MMA promotion company, walks towards the ring to the cheers grown every yearsince the financial crisis, according to the Inter- of thousands bedecked in Irish green. He is seeking to take the national Association ofAmusementParksand Attractions, an in- mixed-martial-arts organisation’s lightweight championship dustry trade group. The past few years have seen a large boost 1

10 The Economist February 11th 2017 SPECIAL REPORT MASS ENTERTAINMENT

Driven to distraction

The dark side of smartphones

TECHNOLOGY HAS ENABLED people to fill Pew, a research outfit, nearly half of Ameri- every moment of their lives with a stimulus of Addicted can adults say they could not live without one sort or another. It has eliminated the Howmanytimes would you estimate you look their smartphones. In two recent studies boredom of solitude, replacing it with a at your phone in a day? young adults were found to use their smart- continuous need for instant gratification. Or United States, by age group, years phones more than 80 times a day (see chart). rather, as Tristan Harris, a former product 2014 2015 2016 Sherry Turkle of MIT, who has been manager at Google, puts it, it is technology 80 studying the effects of technology on users’ companies that have made this trade for psyches for decades, believes that smart- humans, designing platforms, games and 60 phones have made it harder for people to apps to keep them hooked. form connections with each other, or even to Worries about the warping effect of be at ease on their own. Some participants in technology are nothing new. Every tremor of 40 one study, which required them to sit alone progress in history has been accompanied by without a smartphone for15 minutes, chose a moral panic. The printing press allowed 20 to give themselves a painful electric shock to “evil men” to “flood the market with any- escape the boredom. thing that hints of lasciviousness”, warned a 0 Such findings might trigger yet more monk in Venice in the1470s. Any form of 18-24 25-34 35-44US 45-54 55-64 65-74 alarmist technophobia. Young people’s average entertainment is especially suspicious. Source: Deloitte constant interactions on Snapchat and Reading books, going to the theatre or Instagram, and their Pavlovian responses to cinema, listening to new music, playing video voice-activated artificial intelligence. It is a social-media notifications, may be the new games—all have been presented as threat- personalised delivery vehicle for every tech- normal. Mr Harris suggests that their devices ening to undermine authority, degrade nological breakthrough that has ever caused were specially designed to encourage this human relationships and lure people into sin. concern. And consumers have taken it up change in behaviour. Tech companies have a But the smartphone is different from all with tremendous relish. Edison Research, in a responsibility, he concludes, to give users of them. Never before has one device com- survey last year of about 2,000 Americans more power to turn off their screens. The bined every element of modern mass media: over the age of12, found that three-quarters availability of software that allows users to telephony, texting, music, video, the in- owned smartphones, just nine years after the lock themselves out of the web shows that at ternet, social media, video games, even first iPhone was introduced. According to least some people feel in need of such help.

2 from less developed markets, especially China. Monetising eyeballs This is another area where it pays to be in the blockbuster business. The theme parks ofentertainment conglomerates with The attention economy attractive, globally recognised characters, from Disney’s Pixar and Marvel heroes to NBCUniversal’s licensing of Harry Potter, have thrived, whereasthose withoutsuch attractionshave strug- gled. NickVarney, CEO ofMerlin Entertainments,which operates multiple Legoland and other theme parks, says there is a “grow- ing disparity between haves and have-nots”. Legoland is one of Forget the long tail the haves. Merlin is expanding rapidly in Asia, including plans for a Legoland in Shanghai, to go up on the opposite side of the TWO ENTERTAINMENT TITANS dominated the charts for city from the much larger $5.5bn Shanghai Disney Resort. the last few months of 2016: the mighty Walt Disney and Disney clearly wanted to make a showcase out of the Ryan, a five-year-old boy. Disney’s blockbuster films topped Mouse’s first parkon the Chinese mainland, and believes that its America’s box office in nine of the last ten weeks of the year. fans’ experiences there are building its name in China. On a mild Ryan’s YouTube channel, featuring his parents’ daily videos of Mondayin Decembersome ofthe youngervisitors tookmultiple him at his home in California, was the site’s most watched in turns on a sleek rollercoaster ride based on the film “Tron”, and America forthe last 20 weeks of the year. Most of his audience is familieswith small children watched highly choreographed live made up of children in his own age group, gleefully looking at shows with mostly Chinese casts and some eye-catching stunts. him unboxingand playingwith toys, some ofthem from the Dis- One ofthe world’s more expensive live entertainments just ney empire. now is “Hamilton: An American Musical”. A ticket can cost well The internet has made the lottery of stardom available to over$1,000 on the secondarymarketon Broadwayorin Chicago, anyone with a smartphone. This allows for a few random indi- and will command much the same price when it arrives in San vidual winners like Ryan, whose parents have earned millions Francisco soon and in London later this year. Why pay so much? ofdollarsfrom advertisingon the channel in a couple of years; or On streamingservicesthemusical’ssongsare available fora frac- for an everyman in China’s rustbelt to become a live-streaming tion ofa penny.But the12-year-olds everywhere who have mem- celebrity.But the real business ofentertainment is about owning orised the lyrics clearly think the live show is worth it, even if one of the handful of digital platforms that can command con- their parents blanch at the cost. 7 sumers’ attention, including the one that made Ryan a star. 1

The Economist February 11th 2017 11 SPECIAL REPORT MASS ENTERTAINMENT

2 That is why Google’s purchase of YouTube in 2006, for scrolling feeds, technology has $1.65bn, and Facebook’s acquisition of Instagram five years ago, turned human distraction into Offer to readers for $1bn, now look inspired. The idea behind Facebook’s $22bn its metric ofprofit. Reprints of this special report are available. A minimum order of five copies is required. bid for WhatsApp three years ago was also to increase the com- As this report has shown, Please contact: Jill Kaletha at Foster pany’s hold on users’ increasingly fragmented attention: most the good part of this is that al- Printing Tel: +1 866 879 9144 Ext: 168 people lookattheirphonesdozensoftimesa day,and messaging most every imaginable bit of en- e-mail: [email protected] is often the first thingthey do. As video becomes more integrated tertainment is now at the finger- Corporate offer into messaging apps, that purchase will lookeven smarter. tips of billions—around the Corporate orders of 100 copies or more are The industry is now trying to guess whether the global world, across social and ethnic available. We also offer a customisation leader in blockbuster content, Disney,will also buy a distributor. groups and appealing to all service. Please contact us to discuss your Under Bob Iger as CEO, the company’s strategy has been to buy tastes, including some that peo- requirements. up the bestintellectual propertyin entertainment: Lucasfilm and ple did not previously realise Tel: +44 (0)20 7576 8148 e-mail: [email protected] Star Wars; Marvel Entertainment; and Pixar Animation Studios. they had, like watching others For more information on how to order special Under Disney’s control, each of these brands has become even play games or unbox toys. This reports, reprints or any copyright queries more valuable and even better-known globally. Disney gets a seems intuitively democratic you may have, please contact: huge amount ofattention. But since people are watching less tra- and welcome. But despite all The Rights and Syndication Department ditional TV and consuming more video in other forms, even these available choices, technol- 20 Cabot Square makers of great content are at risk of losing audience, so it may ogy increasingly shapes what London E14 4QW make sense to own a platform on which it can be served up. humans select, steering them to- Tel: +44 (0)20 7576 8148 Fax: +44 (0)20 7576 8492 Hollywood has recently been pushing the idea that Disney wards what is most popular and e-mail: [email protected] might buy Netflix, the global leader in streaming premium enter- most distracting. In this way the www.economist.com/rights tainment (including Disney films). In an interview with The digital age has concentrated the Economist, Mr Iger was careful not to comment on Netflix, since power to entertain on a fortu- Future special reports even a denial that the idea was under consideration might have nate few, rather than distribut- The future of the EU March 25th moved markets. He envisages a future where each of his com- ing it along the long tail. The Pearl River delta April 8th Asian geopolitics April 22nd pany’s famous brands can be its own entertainment service, so A battle for dominance is there would be an internet-only “Star Wars” channel, a Marvel taking shape in two different channel, an animation channel and so on. ESPN, he says, can be- arenas, of free (ad-supported) Previous special reports and a list of forthcoming ones can be found online: come the “Netflix ofsports”. and premium content. The first economist.com/specialreports is beingwaged by the social plat- A bit much forms that trade in users’ eye- The entertainment business is a never-ending and ever-in- balls rather than subscriptions. tensifying war for consumers’ limited time and attention. The ability to amass great scale, thanks to network effects, will Around the clock, each minute is contested by companies like make them difficult to dislodge as providers of free entertain- Facebook, Instagram, Google, YouTube, Snap, Amazon, Disney, ment—especially so in the case ofFacebook. Comcast, AT&T, Sky,Foxand Netflix. Consumerscan take in only In the second arena, providersofpremium contentlike Net- so much ofwhat is on offer. As this report has shown, faced with flix and Amazon are competing against the traditional media an overwhelming array of choices and guided by menus, digital powerhouses to see who can persuade the most people to pay rankings and suggestions calculated by algorithms, they increas- for their products. This is an expensive battle in which the ulti- ingly pick from just a few of the most popular items. Technology mate winners are still far from clear. Netflix will spend at least and media companies are doing their utmost to induce users to $7bn this year on content, including on new programming in spend even more time on eachoftheirplatformseveryday.From countries around the world, in a bid to become a global TV net- tweaking algorithms to stepping up notifications to endlessly work. Its rivals are also spending billions in an arms race that, for now,is producing the best (and the most) television in history. Yet there is a limit to how much people can consume, and There is a how many services they will subscribe to, so some contestants are bound to fall by the wayside. In the attention economy it limit to pays to have the biggest platforms and the flashiest brands. Tech- how much nological progress might yet tilt the playing field to a newcomer, especially if some visionary of virtual or augmented reality people can comes up with anything close to the fantasies of science fiction. consume, In parallel to such efforts, there will always be a market for un- ique live experiences that yank people away from their screens, and how be it a giant rock concert or an intimate sleight-of-hand perfor- many mance by a master magician. But whatever the arena, the biggest crowds will increasing- services ly gravitate towards just a small numberofthe most popular hits. they will Until recently that was seen as a natural consequence of the physical limits on production and distribution. It now turns out subscribe to that, even in a potentially unlimited digital marketplace, social networks, rankings, recommendation algorithms and the like fo- cus people attentions on just a few items in the same way. The story of mass entertainment in the internet age is a paradox. Technology has given people too many choices, and then in- stantly relieved them ofthe need to make them. 7

12 The Economist February 11th 2017 The Americas The Economist February 11th 2017 41

Also in this section 42 Dying to defend the planet 43 Politically correct carnival Bello is away

NAFTA trade deficit with Mexico. Mr Ross’s language is less alarming Reshape or shatter? than that ofhis soon-to-be boss. Yet he may do no more than put a friendlierface on Mr Trump’sprotectionism. Abillionaire inves- tor in old-technology companies that ben- OTTAWA AND MEXICO CITY efit from protection, Mr Ross is no free trader. According to a report by the Globe A renegotiation ofthe North American trade deal will not give Donald Trump what and Mail, a Canadian newspaper, he has he wants identified two priorities for NAFTA renego- ONALD TRUMP called the North United States, the day after Mr Trump won tiation: the dispute-settlement process and DAmerican Free-Trade Agreement the election. The 23-year-old agreement “rules of origin”. These rules put a ceiling (NAFTA) with Mexico and Canada the could be modernised in ways that benefit on the value of inputs that an exporter to “worst trade deal ever approved in this the United States. another NAFTA country can buy from out- country”. Soon it will become clearer what But a normal renegotiation may not be side the area. Both ideas are contentious. he intends to do about it. He has three possible under Mr Trump. He has battered The United States has long grumbled choices: tear it up, bully the United States’ the United States’ relationship with Mexi- about the independent NAFTA panel that partners into making concessions that co by insulting migrants and demanding rules on anti-dumping duties, which a merely damage the agreement or go for a that Mexico pay for a border wall. He has country imposes when it thinks that its renegotiation that benefits all three. threatened to impose tariffs as high as 35% trading partner is competing unfairly. It has The process for making big changes to on Mexican cars, which would violate ruled, for example, that duties on soft- NAFTA has started. On February 3rd the NAFTA (and breach the rules of the World wood lumber from Canada are a violation Mexican government began a 90-day con- Trade Organisation). No conceivable rene- of American law. Mr Ross is likely to de- sultation with businesses on what its ne- gotiation of NAFTA will bring what Mr mand changes that weaken the panel. gotiating position should be. Wilbur Ross, Trump wants most from it: lots more fac- Tightening rules of origin, which deter- who will lead the American negotiators toryjobsin the United Statesand a dramat- mine how porous the walls are around a afterthe Senate confirmshim ascommerce ic reduction of its $63bn merchandise- free-trade area, is another goal. In the case secretary, says NAFTA is “logically the first oftransport equipment, the biggest catego- thing for us to deal with”. Notification to ry of goods traded within NAFTA except Congress, which must happen 90 days be- The idle rich for oil and gas, as much as 62.5% of the val- fore talks can start, could come soon. Hourly compensation costs* in manufacturing, $ ue of components must be made in North NAFTA is not the failure Mr Trump 40 America if they are to be exported freely. claims it is. Trade in goods among its three United States Mr Ross probably wants to raise that re- quirement and close loopholes within it, partners has more than trebled since it 30 took effect in 1994; 14% of world trade in Canada which could encourage carmakers to goods takes place under its rules. Cross- source more parts from suppliers in the 20 border supply chains have made Ameri- three countries. can firms more competitive. The manufac- Mexico and Canada might not object to 10 turing jobs it has created in Mexico have Mexico that. In negotiating the Trans-Pacific Part- slowed migration to the United States. nership (TPP), a 12-country agreement from 0 All three governments agree that it 1996 2000 05 10 15 which Mr Trump has now withdrawn, could be made to work better. “Any agree- *Includes direct pay, social both countries pushed for tougher rules of ment can be improved,” said David Mac- Source: The insurance spending and origin than did the United States. “We’re Naughton, Canada’s ambassador to the Conference Board labour-related taxes trying to see if there is a creative way of1 42 The Americas The Economist February 11th 2017

2 raising the regional value added in North but would not ensure that the investment opposite effect. After recovering from the America,” says Jaime Zabludovsky, head goes into American factories rather than initial shock of Mr Trump’s onslaught, of the Mexican Council on Foreign Rela- Mexican or Canadian ones. No revised Mexico is beginning to fight back. Its gov- tions, who is helping the Mexican govern- trade deal can reverse the decline in manu- ernment now says it would rather walk ment in its consultations with business. facturing employment over the past few away from NAFTA than accept a new deal But the idea poses dangers. If North decades. Norwill it erase the United States’ that is worse than the current one. Enrique American firms had to buy more inputs trade deficit with Mexico, says Jeff Schott Peña Nieto, Mexico’s deeply unpopular within NAFTA they might become less of the Peterson Institute for International president, received rare acclaim after he competitive against the likes of China and Economics in Washington. cancelled a meeting with Mr Trump Japan, both at home and abroad. Tighter So the chances are that the confronta- planned for January 31st. He knows that rules in industries with low tariffs, like tion with which Mr Trumpbegan his presi- the shatteringofNAFTA would cause hard- cars, could become self-defeating; if they dency will continue. His attempts to brow- ship. But Mexican voters will rightly blame are too tight, companies could simply de- beat Mexico into submission may have the Mr Trump. 7 cide to pay tariffs, rendering NAFTA irrele- vant. Another idea that might tempt Mr Ross—allowing individual NAFTA partners Green activism to set their own rules of origin—could dis- rupt supply chains as much as imposing ta- Dying to defend the planet riffs within the group. It is a non-starter as faras the Mexicans are concerned. Making NAFTA more like the TPP might help placate Mr Trump, even though he re- jected the bigger deal. The TPP strengthens workers’ rights, for example to strike and Why Latin America is the deadliest place forenvironmentalists bargain collectively. That is a good thing from Mr Trump’s point of view because it SIDRO BALDENEGRO LÓPEZ, a farmer highest number of any country relative to should help Americans compete with Iand a leader of the indigenous Tarahum- its population. Berta Cáceres, an indige- Mexican workers on a more equal footing. ara people, had spent much ofhis life cam- nous leader who was a prominent cam- NAFTA also has a workers’-rights compo- paigning against illegal logging in the paigner against dams and plantations, was nent, but it is in a side agreement and may- Sierra Madre region of northern Mexico. murdered there last March. be less enforceable. The TPP has America- On January 15th he was shot dead. His fa- Why is Latin America so deadly? One friendly rules for technology trade, which ther died in the same way, for defending reason is its abundant natural resources, NAFTA lacks. It punishes online piracy and the same cause, 30 years before. which attract enterprises of all sorts, from bars governments from imposing customs Defending nature is a dangerous occu- multinationals to mafias. When prices are duties on digital devices, forexample. pation, especially in Latin America. Ac- low, astheyare now, the mostrapacious do MrRossmayalso tryto knockdown the cording to a recent report by Global Wit- not go away; to maintain their profits they remaining barriers to American exports ness, an NGO, 185 environmental activists become more aggressive, says David Kai- and investment put up by its NAFTA part- were murdered worldwide in 2015, an in- mowitz of the Ford Foundation, which ners. Mexico, for example, imposes cum- crease of 59% from the year before. More gives money to good causes. New technol- bersome testing procedures on imports of than half the killings were in Latin Ameri- ogiesopen up newbattlefronts. Soyabeans electrical equipment and limits purchases ca. In Brazil 50 green campaigners died in bred to grow in tropical conditions have of residential property by foreigners near 2015. Honduras is especially perilous: 123 encouraged farmers to displace cattle its coasts. The list ofcomplaints about Can- activists have died there since 2010, the ranchers, who in turn have advanced into ada is at least as long. It includes protection the rainforest. Small prospectors can now fordairyand poultryfarmers, limits on for- extract gold from soil rather than just hunt- eign ownership of telecoms firms and pro- ing around for nuggets. That opens up new vincial monopolies on the sale ofalcohol. areas for exploitation, such as San Rafael If that is Mr Ross’s agenda, negotiations de Flores in south-eastern Guatemala, will be difficult enough. Mexico, the where activists have been murdered. world’s fourth-largest car exporter, will be Often, as with Mr Baldenegro and Ms reluctant to agree to tighter rules of origin Cáceres, the resisters are from indigenous that would make its manufacturers less groups; a third of the environmentalists competitive. Canada will resist any water- murdered in 2015 belonged to such groups. ing down of its ability to appeal against Their defence of traditional livelihoods American anti-dumping duties. Making like fishingoften complementsglobal cam- NAFTA more like the TPP is harder than it paigns on issues like climate change. Indig- sounds. Mexico accepted stronger protec- enous peoples and other small communi- tion for labour only because the TPP of- ties manage territories that contain nearly fered access to the enormous Japanese a quarterofthe carbon sequestered in trop- market. The United States, which already ical forests, estimates Rights and Resources gives Mexico entry to its market, is offering International, an advocacy group. Their no extra inducement. alliances with international pressure Even if Mr Ross prevails on such ques- groups have brought more attention but tions, his new boss is not likely to be satis- have not reduced the violence. fied. Enforceable labour standards cannot Confrontation often happens along eliminate the cost advantage of Mexican frontiers that are either lawless or poorly manufacturing workers (see chart on pre- policed. After Ms Cáceres was murdered, vious page). Tougher rules of origin might police told journalists she had been killed shiftsome production from Asia to NAFTA, Fallen friend of the forest in an attempted robbery. They have since 1 The Economist February 11th 2017 The Americas 43

2 arrested eight suspects, including serving quires them to consult groups affected by goes the latter. Even politer songs are fail- and former military officers and two em- development projects. In December last ing to pass politically-correct muster. Mul- ployeesofthe firm developingthe dam she year Ecuador’s environment ministry said heres Rodadas (roughly, “well-worn wom- opposed. But the Honduran government it would shut down Acción Ecológica, a en”), a feminist bloco in Rio de Janeiro, has yet to order an investigation into the group that backed the Shuar people in a wanted to remove from its repertoire people who ordered the killing, says her fight over the opening of a copper mine. “Tropicália”, a much-loved song by Cae- family. The company denies any involve- The government says the group encour- tano Veloso, one of Brazil’s most popular ment in the crime. In Mexico, the governor aged violence. Brazilian lawmakers are singer-songwriters. Unlike many marchin- of Chihuahua state, where Mr Baldenegro considering a change to legislation that ac- has, it contains no obviously offensive lan- was killed, says he wants an investigation, tivists fear could prevent the creation of guage. But some Brazilians think its glow- but little progress has been reported. new indigenous reserves. ing tribute to mulatas objectifies mixed- The odds of finding the culprits are In Honduras, politicians have been race women. greater if the victim is foreign. Dorothy linked to attacks on opponents of a hydro- Mr Veloso does not share that view. Strang, an American nun who fought to power project at Los Encinos in the west, “My father was mulato. I think of myself as protect the Amazon rainforest, was killed according to Global Witness. It cites Ro- mulato. I love the word,” he protests. That in Brazil12 years ago. Both the gunman and berto Gómez, an indigenous activist, as easygoing attitude is probably more com- a rancher who had hired him eventually saying that his group was “evicted by a mon than censoriousness. The ditties sung went to jail. But that is an exception. squadron ofaround15police”, joined by ci- in street parties, many of which date back Indeed, governments often take sides vilians. They “destroyed our crops, they to the 1930s, are an integral part of Brazil’s against the activists, even though many burnt our food”, he says. Until govern- cultural canon. Marchinhas should not be have signed a convention drawn up by the ments fight such violence instead of abet- judged outside their historical context, International Labour Organisation that re- ting it, the ranks ofmartyrs will grow. 7 says Rosa Maria Araújo, who heads Rio’s Museum of Image and Sound. Many com- posers were themselves black or gay, she observes, and used subversive lyrics to fightprejudice, notto entrench it. Fernando Holiday, a centre-right councillor in São Paulo, is more forthright. “It’s ridiculous,” he fumes. Mr Holiday, who is black, attributes the anti-marchinha upsurge to the implosion of Brazil’s left following the impeachment last August ofDilma Rousseff, the left-wing president. That ended her Workers’ Party’s 13-year reign and ushered in a conservative government led by her erstwhile deputy, Michel Temer, and stuffed with old white men like himself. Diversity-loving progres- sives, including many artists and bloco or- ganisers, were appalled. (Mr Temer’s ap- pointment earlier this month of Luislinda Valois, a black woman, as human-rights minister will do little to placate them.) Shut out of formal channels of political expression, grassroots campaigners must look elsewhere to champion imperilled progressive causes, explains EstherSolano, a sociologist at São Paulo’s Federal Univer- sity. Imperatriz Leopoldinense, a Rio sam- Brazilian manners ba school, enraged conservative farmers with its plan to depict them as enemies of A more correct Carnival Indians and forests in its Carnival specta- cle. At the same time, Ms Solano adds, right-wingers emboldened by their politi- cal success feel freer to rail against those whom they see as whingeing liberals. SÃO PAULO Débora Thomé, one of the Mulheres Rodadas, thinks the whole palaver “silly”. More people are complaining about rude songs But if it draws attention to Brazilians’ all- ROSS-DRESSING, undressing, bad lished on February 4th, O Globo, a liberal too-common mistreatment of women, C taste and ribaldry are features of every newspaper, lamented that “to police this gays and blacks, then it is worth it, she says. Brazilian Carnival (this year’s begins on Rio patrimony is to leave samba behind”. A political scientist in her day job, Ms February 24th). Transgression has always The fuss is mainly about marchinhas, Thomé also points to a more encouraging been partofthe point. Butthisyear the bac- singalongs performed in Carnival street trend. Despite apparent setbacks in Brazil chanal’s political incorrectness is provok- parades known as blocos. Often, the lyrics and in Donald Trump’s United States, ing a backlash, especially in Rio de Janeiro, are unashamedly rude. Classics such as young people around the world are be- where the festival is at its glitziest. And the “Mary the Dyke” and “Zezé’s Head ofHair” coming more tolerant. That includes Mul- demand forsensitivityhascreated another do not evince respect for homosexuals. heres Rodadas, who chose to tolerate backlash of its own. In an editorial pub- Zezé “looks like a perv/don’tknowifhe is”, “Tropicália” after all. 7 44 Asia The Economist February 11th 2017

Also in this section 45 Filipino communists go back to war 46 Shinzo Abe woos Donald Trump... 47 ...and Malcolm Turnbull annoys him 47 Political upheaval in Tamil Nadu 48 Banyan: India, country or continent?

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

Labour mobility in Asia a rumoured crackdown on illegal labour sent around 200,000 Cambodians fleeing Waiting to make their move for the border. The resulting paralysis of the construction industry, among others, prompted Thailand to reverse course quickly and implement a brief amnesty duringwhich workers could apply fortem- SHANGHAI porary documents. Some workers do not bother with those, complaining that the Asia struggles to match supply and demand forworkers process of getting them is too time-con- HE agenciesare anonymousand unob- and east. Receiving countries would bene- suming and expensive. Still, millions re- Ttrusive amid the glamorous hustle of fit from their labour, while their home main willing to take the risk of working il- Shanghai, the betterto stayin the shadows. countries would benefit from their remit- legally or semi-legally in Thailand because They deal in an illegal but highly desirable tances and eventually from the transfer of wages backhome are so low. product: people, specifically Filipina do- skills when the workers return, as many China has long been able to satisfy its mestic workers to serve China’s growing migrant labourers do. demand for labour by moving rural citi- middle class. Filipina helpers, says one Practice, however, is less accommodat- zens to cities. Over the past 30 years agent, will follow your exact instructions, ing than theory. The Asian “model” of mi- around 150m Chinese have left the coun- whereas locals are choosy and tend to han- gration tends to be highly restrictive, dedi- tryside to stafffactories, cookin restaurants dle onlyone task: iftheyclean, for instance, cated to stemming immigration, rather and clean homes. But with China’s popu- they will not look after children. Filipinas’ than managing it. Entry is often severely lation ageing, foreign workers have begun diligence makes them popular. The Philip- curtailed, permanent settlement strongly filling the gap: as many as 50,000 Vietnam- pine consulate in Hong Kong estimates discouraged and citizenship kept out of ese illegallycrossthe borderinto the south- thatmore than 200,000 undocumented Fi- reach. ern province of Guangxi each spring to lipinas work as domestic helpers in China, help harvest sugar cane. In 2015 the provin- earning 5,000 yuan ($728) per month, far Rich in people, poor in migrants cial government started a programme to more than they could make backhome. As Asia is home to about half of the world’s bring Vietnamese workers into local fac- for legal troubles, the agents are reassuring. people, but is the source of only 34% of its tories in one city. Offto a good start, it is be- Fines can be hefty but are rarely imposed. emigrants and host to only17% ofits immi- ing introduced in other parts ofGuangxi. One agent admitted that a client was grants. About a third of Asians who have China remains a net exporter of labour, caught employing an illegal worker; the lefttheir country have laid their hats some- but the balance is shiftingquickly. Over the worker was sent home, but the client was where else in Asia. But despite wide in- next 30 years its working-age population not fined. come and age gaps between one end of will shrink by 180m. How China handles Another Filipina no doubt took her Asia and the other, two-thirds of intra- this fall will play a large role in shaping place. The Philippines abounds with la- Asian migrants remain in their own part of Asian migration patterns. Manufacturers bour, and China needs domestic workers. the region. South Asians migrate else- can move factories to labour-rich coun- This exemplifies two demographic trends where in South Asia, East Asians stick to tries, or invest in automation. Other indus- in Asia. Poor, young South and South-East East Asia, and so on. tries lackthat option. The ILO forecasts that Asian countries suffer low wages and un- Much of this labour is irregular. Thai- China will need 20m more domesticwork- deremployment, while richer, ageing land, for instance, may have as many as 5m ers as it ages. countries in the north need more people to migrant workers, mainly from neighbour- The impending collapse of the work- bolster their workforces. Theoretically, this ing Myanmar, Cambodia and Laos. Many force is not an exclusively Chinese pro- problem contains its own solution: mil- of them lack visas—particularly those in blem. To keep the share ofits population at lions of young workers should go north construction and services. Three years ago, working age steady, East Asia would have 1 The Economist February 11th 2017 Asia 45

2 to import275m people between the agesof about a quarter of the 962,000 foreigners ployment, rather than a complement to it. 15 and 64 by 2030. South-East Asia would (3.5% of the labour force) now working in Hong Kong’s foreign maids were both. have to attract 6m, though that number South Korea. They “displaced” local women from un- masks wide gaps: Singapore, Malaysia, Japan has long preferred exporting cap- paid employment in the home. But in so Vietnam and especially Thailand need ital to importing labour. Its multinationals doing, they provided a powerful comple- workers, while Myanmar, Indonesia and have set up plants across South-East Asia to ment to their paid employment outside it. the Philippines have too many.South Asia, make Japanese goods, bringing factories to Foreign domestic workers may have meanwhile, could afford to lose 134m foreign workforces, not the other way other beneficial side-effects. A study of the workers—India alone could send more around. But this approach has its limits. For United States showed that immigrant in- than 80m abroad—without worsening its the sort ofnon-tradable services especially flows lower the cost ofchild care and mod- dependency ratio. China’s projected short- in demand in ageing countries, such as do- estly increase fertility rates among native fall in 2030 is equivalent to 24% of its cur- mestic care and nursing, it is useless. Japa- women with college degrees. Immigration rent working-age population; in Bangla- nesecompaniescanbuildtheircarsinViet- may therefore have a triple benefit for desh the likely surplus is18% (see map). nam,buttheirexecutivescannot(oratleast Asia’s ageing societies. Foreign workers Some countries have become more oughtnotto) send theirmothersto Danang add to the labour force themselves, they flexible. Foreign workers are around 40% when they start to get frail. help native women take fuller part in it, ofSingapore’s workforce, with slightly less Hong Kong has opened its borders to and they help them bear the workers of to- than half of those on restrictive domestic- foreign nurses, nannies and maids. It intro- morrow. What a pity Asia does not make work and construction visas. To prevent duced a scheme to import domestic work- more use ofthem. 7 foreigners from undercutting domestic ers in 1974: the same year, coincidentally, wages, employers must pay levies for each that the Philippines adopted its policy of foreign worker they hire. encouraging people to find jobs overseas. Communist insurgency in the Philippines By the end of 2015 Hong Kong had over Paid leave 340,000 foreign domestic “helpers”—one An extra mile Such financial incentives can help regulate for every 7.3 households. Over half still inflows of foreign workers. They can also come from the Philippines, with another help encourage outflows, ensuring that 44% from Indonesia.Theiremployers must temporary migration does not become provide food, board, travel to Hong Kong permanent. In 2003 South Korea intro- and wages of at least HK$4,310 ($556) a MANILA duced a quota scheme allowing small month. Includingthose costs, as well as the A 50-year-old conflict resumes firms, mostly in labour-intensive manufac- implicit cost of their rent, they earn a little turing, to employ foreigners from poor less than a Hong Konger working 60 hours T HAD already been looking grim: com- countries for limited periods—“sojourns”, a week at the minimum wage—but much Imunist insurgents were saying they as the authorities put it, of up to four years more than they would at home. would abandon a six-month-old ceasefire and ten months. To make sure that the so- By the mid-2000s, over half of married on February 10th because the government journers do not overstay their welcome, mothers with a college degree in Hong was refusing to free some 400 captured they are charged in advance for the cost of Kong employed foreign domestic help. By comrades. Then, on February 1st, commu- returning home. Their employers also de- taking on duties traditionally shouldered nist guerrillas waylaid and murdered three duct a percentage of their salary, which is by wives and mothers, these foreigners unarmed soldiers in civilian clothes, said given back to them only as they leave the have made it easier for many local women the army. The police found 76 bullet country. (It can be paid to them in person to pursue careers outside the home. wounds in the corpses. The killings en- after they pass the immigration desk.) Governments often worry that immi- raged Rodrigo Duterte, the Philippines’ These temporary workers account for grants will be a substitute for native em- president, who vented: “What, is a soldier a dog?” In the end it was Mr Duterte who Working-age people needed to called off the government’s ceasefire and immigrate/emigrate by 2030 to the peace talks it had fostered. keep dependency ratio at 2016 level MONGOLIA Mr Duterte had said before that he was As % of current working-age population willing to “walk the extra mile” to end the Need NORTH immigrants KOREA 50-year-old insurgency. But this week Mr 30+ 20-3010-20 0-10 JAPAN Have excess Duterte not only suspended peace talks workers SOUTH with the communist National Democratic Sources: United Nations; Taiwan National Development Council KOREA Front (NDF), but also called forthe re-arrest PAKISTAN CHINA of members who had been released from NEPAL detention so that they could take part in BHUTAN PACIFIC the talks. He says he now regards the NDF INDIA OCEAN and its guerrilla wing, the New People’s TAIWAN Army (NPA), as terrorists. “I’m asking the Hong MYANMAR Kong soldiers, go backto your camps, clean your BANGLADESH LAOS Macau rifles and be ready to fight,” he said. In the THAI- following days the security forces reported LAND PHILIPPINES a growing number of encounters with the CAM- VIETNAM NPA. The defence minister, Delfin Loren- SRI BODIA LANKA zana, declared: “It is an all-out war.” The government and the NDF had initi- BRUNEI ated separate ceasefires in August, paving L A Y S the wayforpeace talksin Oslo, brokered by INDIAN M A I A the Norwegian government. But in the ab- OCEAN SINGAPORE sence of agreed terms or a monitoring INDONESIA mechanism, the truce was always going to 1 46 Asia The Economist February 11th 2017

2 be shaky.The guerrillas persisted in extort- America and its Asian allies (1) Mr Abe wants to try to bag a bilateral deal ing money from businesses, while the se- with the new occupant of the White curity forces kept encroaching on NPA ter- Fairway friends House, says Jesper Koll, a fund manager ritory. The chief negotiator for the NDF, and informal adviser to Japan’s govern- Fidel Agcaoili, accused the government of ment. Mr Trump, after all, has made posi- using the truce “as a cover for state security tive noises about such pacts, which could TPP forcesto engage in hostile actions, provoca- TOKYO salvage some ofthe substance of . tions or movements, surveillance and oth- The explicit quid pro quo for a shower Japan’s prime ministercosies up to er offensive operations”. of Japanese investment, says Takao Toshi- America’s new president The defence ministry retorted, before kawa, a veteran political journalist, will be the governmentcancelled itsceasefire: “Se- MONG the books said to be by the bed- an assurance from Mr Trump that he will curity forces will continue to maintain Aside ofShinzo Abe, Japan’s prime min- not downgrade the two countries’ defen- peace and order and run after lawless ele- ister, is “The Art of the Deal”, Donald sive alliance. The president has threatened ments whoever and wherever they are.” It Trump’s autobiographical ode to sharp-el- to reduce America’s military presence added: “We do not recognise the NPA’s bowed capitalism. Mr Abe appeared to around the world unless its allies bear claims to areas which they believe are un- borrow from the book’s brash credo last more ofthe cost. But during a recent visit to der their control.” November: while the rest ofthe world was Tokyo James Mattis, America’s defence The fighting, when it resumed, was nei- still gaspingatMrTrump’selection, MrAbe secretary, labelled Japan “a model of cost- ther much heavier nor much lighter than it jumped on a plane and went to meet the sharing” and gave America’s clearest had been in the three decades since the president-elect. It was Mr Trump’s first pledge yet that its commitment to defend first efforts were made to bring about meetingwith a foreign leaderafterhis elec- Japan includes the disputed Senkaku is- peace. The communist revolution, al- tion. As a gift, Mr Abe brought a gold-plat- lands in the East China Sea (known as though occasionally still deadly, is feeble. ed golfclub. Diaoyu in China), which Japan adminis- The collapse of communism elsewhere in On February 9th Mr Abe will fly to ters but China claims. the world hasleftthe NDF isolated. Itslead- America again, for a proper summit with Mr Abe is hoping to bond with Mr ers, the most prominent of whom live in the new president. This time he is bringing Trump overa round ofa golfatMar-a-Lago, exile, are elderly. an even more lavish gift: a plan to create the president’s private resort in Florida. In The armed forces estimate that the NPA 700,000 jobs. The aim, the prime minister this, as in so much else, the Japanese leader has roughly 5,000 guerrillas scattered told parliament, is to help upgrade Ameri- seeks inspiration from his grandfather, No- around the country, chiefly on the south- ca’s infrastructure. His plan involves Japa- busuke Kishi. As prime minister in 1957 Mr ern island of Mindanao, where Mr Duterte nese investment to build high-speed rail Kishi played golfwith Dwight Eisenhower, is from. Those 5,000 are theoretically fight- linksin Texasand California, to decommis- the president of the day. Three years later ingto overturn the constitutional order in a sion America’s fleet ofageingnuclear pow- theysigned the securitytreatythatMr Mat- country of 102m people. In practice they er plants and to collaborate in the develop- tis has just reaffirmed. cling on mainly by threatening violent re- ment of robots and high-tech weaponry. Still, Mr Abe is taking a political risk by prisals against businesses that fail to pay Some of the money could come from Ja- cosying up to a leader many Japanese dis- what they call “revolutionary taxes”. pan’s ¥135-trillion ($1.2 trillion) public-pen- trust. A recent poll in the Yomiuri Shimbun, The sticking point in the talks before sion fund, the world’s largest. Japan’s most popular newspaper, found they foundered had been the detainees. Mr Abe has been jolted into action by only 8% of respondents expected relations The communists regard them as political the stench of protectionism wafting across with America to improve under its new prisoners. The government considers the Pacific. Instead of lamenting the de- president. Working closely with Mr Trump them common criminals, whatever the mise of the Trans-Pacific Partnership (TPP), will also further alienate China. The big- motivation fortheir crimes. The minimum a giant multilateral trade agreement that gest worry of all, says Mr Koll, is having to the NDF seems likely to accept in return for Mr Trump killed as soon as he took office, trust Mr Trump. 7 ending its rebellion is amnesty for its forces, whether detained or at large. It must press its demand before its revolution fiz- zles out completely and its leaders die of old age. The government, however, is dis- inclined to grant an amnesty. It not only wants the communists to agree to aban- don the armed struggle permanently; it also wants convincing evidence that they will stickto such a pledge. The Philippine state, unlike the revolu- tion and its leaders, is not on its last legs, so has time on its side. And Mr Duterte is pop- ular, thanks partly to his tough-guy perso- na. (This week he told cops accused of cor- ruption that they could resign or be sent to a region racked by conflict with Islamists.) He says he might resume peace talks with the NDF if there were a compelling reason to do so. The communists, he remarked this week, have been fighting for 50 years. “If you want to extend it for another 50 years—so be it,” he said. “We’dbe happy to accommodate you. After all, I said, ‘I walk the extra mile.’” 7 Side by side, again The Economist February 11th 2017 Asia 47

America and its Asian allies (2) Politics in Tamil Nadu Two short fuses Rank and bile

DELHI A vicious inheritance battle engulfsthe state government CANBERRA N THE various occasions that O. ever, OPS embraced the sort ofmelodra- Donald Trump is testing Australia’s Panneerselvam, or “OPS”, served as ma he has so long eschewed. Sitting alliance with America O the chiefminister ofthe southern Indian cross-legged before a flower-strewn FTER Donald Trump’s victory in No- state ofTamilNadu, he made a point of memorial to Jayalalithaa, he spent 40 Avember, Malcolm Turnbull quickly being invisible. He knew that Jayaram minutes in silent meditation, as televi- congratulated him, having obtained Mr Jayalalithaa, the head ofhis party,the All sion crews assembled and news alerts set Trump’s telephone number from Greg India Anna Dravida Munnetra Kazhagam smartphones bleeping. At last he Norman, the new president’s golfing (AIADMK) and chiefminister formost of spoke—or rather, he declared, the spirit of buddy. Australia’s prime minister claimed the past15years, had chosen him as a Amma spoke through him. She had a similar background to Mr Trump’s, as stand-in whenever she was battling instructed OPS to tell the truth: that he “businessmen who found our way into corruption charges or illness precisely had been unfairly forced from office by politics somewhat later in life”, and a because he was so self-effacing. Even Ms Sasikala, who has already become shared “pragmatic approach” to solving after “Amma”—“Mother”—a formeridol secretary-general ofthe AIADMK. Others problems. Another call, just two months ofthe Tamil film industry,died in Decem- soon joined in. One ofthe party’s foun- later, has shattered this supposed solidar- ber, Mr Panneerselvam meekly agreed to ders claimed that Jayalalithaa had been ity. It has also prompted many Australians step aside as chiefminister in favour of poisoned and pushed down the stairs. to question their country’s closest alliance. V.K.Sasikala (pictured), a woman who Ms Sasikala called OPS the real traitor, On February 2nd the Washington Post has no political experience beyond hav- and fired him as the party’s treasurer. published an account of the second call. ing lived with Ms Jayalalithaa forthe past TamilNadu’s governor is supposed to be Mr Turnbull raised a deal his government 30 years, but is claiming her mantle. swearing in the new chiefminister this had struck with the administration of Ba- On the night ofFebruary 7th, how- week, but the outgoing one seems to rack Obama, in which America agreed to want to rescind his resignation. resettle refugees trying to reach Australia Ms Sasikala was Jayalalithaa’s live-in who had been diverted to Nauru and Pa- assistant and gatekeeper. In1992 they pua New Guinea. Mr Turnbull later as- were photographed at a temple taking sured Australians that Mr Trump would turns to pour holy water on one another “honour” the deal. But the leaked account from silver urns, a ceremony typically differed. Mr Trump reportedly called it the performed by husbands and wives. But “worst deal ever”, accused Australia of they were a tempestuous pair: Jayala- seeking to export the “next Boston bom- lithaa twice booted Ms Sasikala from her ber” and told Mr Turnbull that his was the house before relenting. They were both “worst call by far” among his conversa- charged foramassing “disproportionate tions with world leaders that day. assets”; Jayalalithaa was briefly forced to Mr Turnbull is renowned for his own step down—one ofthe occasions when short fuse. Indeed, some colleagues see OPS tookher place. The charges may yet him as a “sophisticated” version of Mr snare Ms Sasikala. Trump. Clashing with Mr Trump seems to The AIADMK has always relied on have done him little political damage at larger-than-life personalities to win home. But if Mr Trump says he will not ac- votes. By the time Jayalalithaa died her cept the 1,250 refugees, many of whom are face and name decorated countless can- from Muslim countries, that could change. teens, hospitals and government hand- The camps where the refugees are being outs. In such a personalised system, OPS held are a constant source of diplomatic ir- Usurper or heir? has no incentive to go quietly. ritation and embarrassment; the govern- ment would dearly like to close them. One fear is that Mr Trump might ask for some- president like Donald Trump”. James Cur- riers against China. She is “disappointed” thing in return, such as sending more ran, a historian, argues in “Fighting with that Mr Trump pulled out of the TPP, a troops to the Middle East, that would go America”, a new book, that Australia planned free-trade pact of 12 Pacific coun- down badly with many Australians. should ditch “worn rhetoric” and “alarm- tries. Ms Bishop does not rule out pushing The alliance with America is the centre- ing complacency” about relying on Ameri- on with the pact among the remaining 11 piece of Australia’s foreign policy. Indeed, ca for its security, and look at the relation- members, and says she would “welcome” it has strengthened in recent years, with ship afresh. Penny Wong, the shadow interest from China in joining it. America stationing troops in Darwin, in foreign minister, reckons uncertainties Australia’s options are limited. Michael the far north. But China’s emergence as around the Trump administration’s Asia- Wesley of the Australian National Univer- Australia’s biggest trading partner has Pacificpolicy mean the alliance could be at sity argues that, without its alliance with prompted a debate about how to strike a a “change point”. America, Australia would be a “totally dif- balance in relations with the two coun- Julie Bishop, the foreign minister, does ferent country”, having to spend far more tries, and Mr Trump’s election has intensi- not go so far. But the fact that China under- on its own defence and even acquiring nu- fied it. A poll last year by the Lowy Insti- pins Australia’s prosperity, through its de- clear weapons. Policymakers seem intent tute, a think-tank, found almost half of mand for minerals, food and other goods, instead on trying to keep America en- Australians thought their country should makes her question some of Mr Trump’s gaged—or that was the plan, at any rate, un- distance itself from America “if it elects a policies, especially the threat of trade bar- til Mr Turnbull’s ill-fated phone call. 7 48 Asia The Economist February 11th 2017 Banyan Country or continent?

In its integration, India is somewhere between the United States and the European Union any two Indians at random, and the chance that they share the same mother tongue is less than 20%, according to data compiled by Romain Wacziarg ofthe University of California, Los Angeles, and his colleagues. But for the EU as a whole, according to Ban- yan’s calculations, the odds are less than 10%. Linguistically, then, India is neither as unified as the United States nor as divided as the EU.

National welding The author ofIndia’s anthem, Rabindranath Tagore, also saw val- ue in comparinghis country to both Europe and America. Like In- dia, the United States faced the problem of“weldingtogetherinto one body various races”. This challenge set both countries apart from Europe, which, Tagore felt, could take its racial unity for granted. Indeed, he saw Europe as one people divided into many states, unlike India’s many peoples “packed into one geographi- cal receptacle”. The gap between India’s many peoples remains large. The GDP perperson ofBihar, India’s poorest state, is only a fifth ofHa- ryana’s and little more than a tenth of Goa’s. That is a much big- gerincome gap than between Mississippi and Massachusetts, but N A speech to London’s Constitutional Club in 1931, Winston comparable to the gulfbetween Bulgaria and Belgium. IChurchill poured scorn on the idea of India. “India is a geo- These gaps have motivated increasing numbers of Indians to graphical term. It is no more a united nation than the equator,” he move from one part of their geographical receptacle to another. spat, a slur that invites such uniform disagreement from Indians The government’s latest economic survey, written by Arvind as to disprove itself. Lesswell known, but more worthy ofdebate, Subramanian, its chief economic adviser, calculates that inter- is the previous line of Churchill’s speech: “India is no more a po- state migration nearly doubled between the 1990sand the 2000s, litical personality than Europe,” he contended. yieldinga migrant population ofover55m in 2011(roughly 4.5% of The personalities of both India and Europe have changed a India’s population). That may fall well short of American mobil- great deal since 1931. But in explaining India to outsiders, Banyan ity, but compares favourably with the EU, where 13.6m citizens often finds it helpful to compare it to the European Union (EU) (2.7% ofthe total population) live in another member state. rather than to the United States. Neither parallel does India jus- The movement of goods tells a similar tale. In India, unlike tice, of course. The frequent comparisons to America can imbue America, state prerogatives often trump the imperatives of inter- India with a false cohesion. The less common comparison to the state commerce. Trade is distorted by a patchwork of local levies, EU suggestsa false disunity. Butifthe two parallelsare judiciously which the central government is keen to replace with a new combined, the falsities may help to cancel each other out. goods and services tax. The familiar sight of lorries queuing at One obvious example is Indian politics. This month voters state borders suggests an economy that is hopelessly fragmented. took part in elections forthe state legislatures of Punjab and Goa. But again, the benchmarkmatters. Drawingon new data, MrSub- As is often the case, turnout was higher than in India’s national ramanian shows that trade among India’s states is now equiva- election in 2014. In comparison with the United States, where lent to about 54% of GDP, rather higher than many suspected. races for national office, especially the presidency, overshadow That is low compared with America (78%), but impressive com- state-level contests, that is a puzzle. In comparison with the EU, pared with the EU (20%). where elections in member states command far more attention Nettrade iseven more dramatic. India’ssingle marketand cur- than races forthe European Parliament, it seems less strange. rency allow some states to run enormous trade deficits with oth- The composition of India’s legislature also looks more like ers. Four run deficits in excess of 20% of local output. That is far Strasbourg’s multicoloured mosaic than Washington’s two-tone greater than the euro area has been able to sustain. Congress. The LokSabha, India’slowerhouse, seatsasmanyas 35 India’s divisions hamper it in its dealings with other nations. parties. With the exception ofthe Bharatiya Janata Party and Con- Its diplomacy has a reputation for parochialism and mal-coordi- gress, few of them have influence beyond one or two states. If nation—an elephantine inability to “dance”. But perhaps it is not America is the benchmark, the obvious question is why India’s given enough slack. Compared with the EU, India’sforeign policy voters have failed to coalesce around rival nationwide philoso- is positively twinkle-toed. India, lest it be forgotten, is as popu- phiesofgovernment. Butifthe template is Europe, the fragmenta- lous as 150 other countries combined. By encompassing all of tion is easier to grasp. Few ofEurope’s parties could appeal across these people in a single political entity, itdramatically reducesthe national lines, however compelling their policies. complexity of global governance—even if it does not always feel Another example is language. India’s constitution lists 22 like that. Had the republic not succeeded in refuting Churchill, “scheduled” languages. An American might wonder how it had it disintegrated into multiple sovereign states, the world’s ne- copes. But the EU, with 24 official languages, is even more poly- gotiating tables might have needed to accommodate dozens of glot. India’s national anthem had to be translated into Hindi from additional quarrelling players. When the Americans want to talk the original Bengali. But the EU’s anthem has no official lyrics, so to India, they know whom to call—however frustrating the con- as to leave open the question ofwhat tongue to sing them in. Pick versation sometimes proves to be. 7 China The Economist February 11th 2017 49

Also in this section 50 The party v film critics 50 Suspicious safety statistics

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

Reality television hai Tango”, she saysthatin the gaycommu- nitiesofNewYork, she feelsherself to be “a China’s transgender Oprah traveller in a foreign land twice over”—as a woman in a man’s body and as a Chinese person abroad (who happens to be, she might have added, ethnic Korean). In Belgium she feels haunted by the BEIJING Chinese words she sees on signs in the streets; their calls, she writes, “get louder A television starreveals a lot about changing social attitudes and louder”. She looks at a Ming vase at a HINA’S favourite chat-show host has the West. During her surgery, an oxygen market in Brussels and feels “ashamed” of C had an extraordinary career. Jin Xing shortage damaged her left leg so badly that Chinese who live abroad and have “only was the country’s most successful dancer doctors thought she would be lucky to contempt” fortheir ancestral heritage. before becoming a colonel in an army en- walk again. Gruelling retraining enabled China has several cultural figures who tertainmenttroupe. He won fame in Amer- her to resume dancing within a year. are betterknown in the Westthan athome. ica, where the New York Times called him Those struggles with adversity have Ms Jin could have been another. But she “a Chinese genius”. He trained dancers in helped Ms Jin win favour among older chose to return home for her sex-change Brussels and Rome, before returning to Chinese, a more conservative cohortthat is surgery, at some personal risk since the China for a sex-change operation. As a also, surprisingly, her biggest fan base. procedure was almost unknown there. “I woman, she resumed her career as a balle- Many of them, too, have suffered enor- wasborn in China,” she says. “Itisin China rina, set up the country’s first private ballet mous hardship—during the Cultural Revo- I must be reborn as a woman.” company, ran a bar in Beijing and married lution of the 1960s and 1970s, and the fam- Xi Jinping, China’s president, presents a German businessman. ine that followed the Great Leap Forward himself as a staunch defender of “tradi- In a conservative society where even of the late 1950s, in which tens of millions tional” Chinese culture, and warns of the homosexuality is frowned upon, let alone died. Even those born after 1980—roughly dangerofWestern “infiltration”. Hisprefer- sex-reassignment, her life would seem to halfthe population—know well what their ences were clear in a recent official direc- place Ms Jin well outside the stodgy main- elders endured. tive, which calls for the protection of Chi- stream of Chinese broadcasting (she is pic- na’s“cultural security”. Butlike mostof her tured at her home in Shanghai). Yet Ms Jin, Identity crises compatriots, Ms Jin is happy to take what who is 49, is the country’s most popular The tension between Ms Jin’s persona as a she wants from both China and the West. television judge. She began with a local patriotic Chinese, and the one she displays On the face of it, she embodies every- version of “So You Think You Can Dance” as a globetrotterwith a foreign husband (in thing that is untraditional. Her rejection of and hit the jackpot with “The Jin Xing January she joined the global elite at the being a man flies in the face of Confucian Show”, a variety and chat programme World Economic Forum in Davos), is one culture. The television manner for which with an audience ofaround 100m. She has that is widely understood among her com- she is famous—a blunt, cut-the-crap sassi- appeared with her husband on the Chi- patriots. They have become the world’s ness—is the opposite of stereotypical femi- nese version of “The Amazing Race”, in great travellers. Over 100m got visas for nine deference. Yet her life as a woman has which couples race each other around the holidays abroad last year, more than the not been a simple rebellion against con- world. Her latest venture, “Chinese Dat- citizens of any other country. Ms Jin de- vention. By adopting three children and ing”, is in its first season. scribes herself as having been “a little Chi- marrying (albeit a foreigner), she created Ms Jin’s story reflects remarkable nese boy thirsting forthe West”. She writes around herself what she calls “a real Chi- changes in Chinese society since her child- of dreaming about Coca-Cola and free- nese family”. The values she espouses are hood. She joined the army at the age of dom in Paris, or surreptitiously reading old-fashioned even in China. In her new nine and endured a training regime that, as porn magazines and cruising gay bars in dating game, the contestants may not she puts it, would count as child abuse in Greenwich Village. In her memoir, “Shang- choose a match without theirfamilies’ per-1 50 China The Economist February 11th 2017

2 mission; indeed, it is the families who in- herforherpains.) MsJin notesapprovingly Chinese statistics terview the contestants’ prospective part- how Sai “rebelled” against what had ap- ners—resulting in rampant sexism, with peared to be her destiny as a pauper. women being asked about children and The other model, more surprisingly, is Getting safer? men about money.This has been too much Jiang Qing (Madame Mao), one of the Cul- for some viewers; online commentators tural Revolution’s most reviled figures, Lookcloserat the data have slammed the format as chauvinist who cheered on the Red Guards as they and “retro”. But Ms Jin’s popularity sug- tortured and killed her enemies. Ms Jin OING by the numbers, China’s gests many young people believe that tra- calls her “full of charm and intelligence” Gnotoriously hazardous coal mines dition should not be discarded. and the creator of “major masterpieces” have become distinctly less perilous in In her memoir, Ms Jin talks about two during that period (Jiang Qing oversaw the recent years. In January the government historical figures whom she calls role mod- production of operas about the Commu- said that 538 people had died in mining els. One is Sai Jinhua, a prostitute who be- nist Party’s early days). It is a sign of how accidents in 2016, a mere 11% ofthe death came the mistress of the imperial envoy to much China is changing that its cast of toll a decade earlier. The number of Germany and used her knowledge of the heroines encompasses not only the heroic deaths per million tonnes ofcoal extract- language to save the Qing emperor from harlots and villainous empresses of the ed was the lowest ever. For Chinese German troops sent to crush the Boxer past, but also a transsexual conservative industry generally, safety data are im- Uprising in 1900. (Jealous officials jailed talk-show host. 7 proving. In 2002 140,000 people died in work-related accidents. Last year the toll was less than one-third ofthat. On roads Unpopular films there has been similar progress: 58,000 deaths in 2015, down from 107,000 in Blame the critics 2004. Officials admit the statistics re- main “grim”, but their efforts to improve safety would seem to be paying off. Perhaps, but the numbers should be treated with caution. A forthcoming BEIJING paper by Raymond Fisman ofBoston University and Yongxiang Wang ofthe A new film starring Matt Damon sparks debate about the role ofreviewers University ofSouthern California ana- HINESE cinema-goers are used to the cial news agency,praised the film as “inno- lyses a government campaign launched C government’s tight grip on the film in- vative” and accused its many online in 2004 to reduce accidental deaths at dustry. In deference to the Communist detractors in China of“giving it a hard time workand on roads. It imposed annual Party’s qualms, filmmakers eschew happy just for the sake of it” (critics had panned ceilings on such fatalities, nationally and endings for teenage lovers or homosex- the film for being heavy on special effects locally. Officials would be punished if uals, let alone anything critical ofthe party and light on plot). The bad reviews, it said, targets were exceeded. itself. To boost audiences for home-grown would make it harder for Chinese films to To see how this has worked, Mr Fis- productions, the authorities have recently go global. A few days later People’s Daily, man and Mr Wang calculated the deaths- tried a new form of control: clamping the party’s main mouthpiece, weighed in. to-ceiling ratio (reported deaths divided down on unflatteringreviews. Long-suffer- It said low ratings on Chinese websites for by the mandated ceiling) for each prov- ing film fans see this as a step too far. “The Great Wall”(which opens in America ince. It might be expected that most Their anger erupted in December after on February 17th), and for two other Chi- provinces would be close to the target— the release of “The Great Wall”,a Chinese- nese films, had been the result of “mali- whether slightly above or slightly below. made fantasy starring an American actor, cious” reviews and the manipulation of But almost all the ratios the scholars Matt Damon (pictured, trying to save Chi- data. One of the websites it named, calculated were shy of1(see chart). This na from an alien invasion). Xinhua, an offi- Maoyan, promptly removed its Rotten To- suggested fiddling—it was very unlikely matoes-style display of critics’ aggregated that the government had set the ceilings scores, citing the need foran “upgrade”. too high. Safety standards, the authors Netizenswere incensed. Theyrushed to conclude, have not improved as much as another chastised website, Douban, to the numbers appear to show. give the three films in question the lowest rating. One online comment that got 24,000 “likes” read: “That’s right! We don’t Yeah, right have bad films in China, just bad audi- Chinese provinces, ratio of reported accidental ences!” Surprisingly,both Xinhua and Peo- deaths* to death ceilings set by government ple’s Daily appeared to back down. They Distribution, 2005-12, % BELOW THRESHOLD ABOVE THRESHOLD published commentaries saying that un- 8 flattering reviews were not enough to ruin good films and that criticism should be tol- 6 erated. The Xinhua article that had caused the furore was deleted from their websites. 4 Many filmgoers suspect the two organi- sations had been miffed by the poor per- 2 formance of Chinese films relative to for- 0 eign ones. To the official media, it had 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 seemed easierto shoot the messengerthan Deaths-to-ceiling ratio examine why state-supervised studios are Source: “The Distortionary Effects churning out so many films that audiences of Incentives in Government”, *Traffic and Assailed by aliens, and reviewers do not want to see. 7 by R. Fisman and Y. Wang, 2017 workplace deaths International The Economist February 11th 2017 51

Refugees and technology Now his goal is Germany. In Britain Najeeb, a 30-year-old Syrian Migrants with mobiles engineering student, illustrates how a sin- gle piece of information can make all the difference. Unlike most of the more than 1m refugees who arrived in Europe in 2015, ATHENS, DUNKIRK, MALMO AND ROME he came neither by boat nor by foot, but flew from Greece to London. His smuggler, Technology has made migrating to Europe easier. Overtime, it will also make to whom he paid €10,000 ($11,000) for as migration easierto manage many fake passports as he would need, OMETIMES Hekmatullah, a 32-year-old man’s-land”. Where should they go, and had advised him to use a small airport on SAfghan, has to choose between food whom should they trust? Phones become one of the Greek islands, where security and connectivity. “I need to stay in touch a lifeline. Their importance goes well be- can be lax. To know when it was best to try with my wife back home,” he says, sitting yond staying in touch with people back to get on a plane, he had to stay in constant in a grubby tent in the Oinofyta migrant home. They bring news and pictures of contact with his smuggler. On his third at- camp, near Athens. Because Wi-Fi rarely friends and family who have reached their tempt, he got through. works there, he has to buy mobile-phone destination, thereby motivating more mi- credit. And that means he and his fellow grants to set out. They are used for re- Digital duelling travellers—his sister, her friend and five searching journeys and contacting people- Information and communications tech- children—sometimes go hungry. smugglers. Any rumour of a new, or easier, nology show up right through what re- Such stories are common in migrant route spreads like wildfire. “It’s like the un- searchers call the “refugee life-cycle”. Peo- camps: according to UNHCR, the UN’s derground railroad, only that it’s digital,” ple in northern Iraq use WhatsApp and agency for refugees, refugees can easily says Maurice Stierl of Watch The Med, an Viber to talkto friends who have made it to spend a third of their disposable income NGO that tracks the deaths and hardships Germany; UNHCR uses iris scans for iden- on staying connected. In a camp near the of migrants who cross the Mediterranean, tification in camps in Jordan and Lebanon; French city of Dunkirk, where mostly Iraqi referring to the secret routes and safe migrants on flimsy rubber boats in the refugees live until they manage to get on a houses used to free American slaves in the Mediterranean use satellite phones pro- truckto Britain, manywalkformiles to find 19th century. vided by people-smugglers to call the Ital- free Wi-Fi: according to NGOs working Outside Moria, a camp on the Greek is- ian coastguard; and geeks in Europe teach there, the French authorities, reluctant to land of Lesbos, food shacks run by locals refugees how to code so that they can try to make the camp seem permanent, have have sprung up. All provide phone-charg- get jobs. Aid groups must work out who stopped them providing internet connec- ing points; groups of migrants huddle needs their help. Governments must mon- tions. Some ofthe residentsbuypricey SIM around them. Minutes can be bought with itortheirborders and keep trackofarrivals. cards brought over from Britain, where cash from charities such as Mercy Corps, As African migrants continue to travel buyers need not show an ID, as they must which operates in Lesbos and Athens. Yah- by boat to Italy, and the 60,000 refugees, in France. A lucky few get airtime dona- ye, a 26-year-old from Somalia, uses his to including many Syrians, who are stuck in tions from charities such as “Phone Credit check the news from across Europe each camps in Greece try to find ways to get out, for Refugees and Displaced People”. day, trying to gauge where he might be ac- Europe is experiencing what Alexander When refugees leave their homes they cepted. He had planned to go to Norway, Betts of Oxford University calls a “techno- enter what Carleen Maitland of Penn State until his research put him off. “Norway logical arms race”. It starts before a migrant University calls an “informational no- does not want a lot of refugees,” he says. arrives in Europe. The situation room of1 52 International The Economist February 11th 2017

2 the Maritime Rescue Co-ordination Centre Germany have had to link their databases atingwhat some call a system of“automat- (MRCC) in Rome is dominated by two large (the new law has a quintessentially Ger- ed immigrant policing”. Since his inaugu- screens, one showing boats run by NGOs man name: “Datenaustauschverbesser- ration last month Donald Trump has said and EU militaryvesselsin the central Medi- ungsgesetz”). Asyl Online, a new system he wants his administration to publish terranean, and the other conditions at sea. built by Germany’s federal office formigra- weekly lists of crimes committed by immi- Employees of the Italian navy take calls on tion and refugees, enables a refugee to be grants. Details are unclear, but presumably an array of red telephones from migrants registered in just a few minutes, including these databases would make this easier. with satellite handsets whose boats are in checks to see whether an asylum claim has UNHCR has tightened its privacy poli- distress and inform any rescue boats in the already been made elsewhere in the EU. cies in recent years. But some question vicinity. It is essential that the location is The process used to take two days. whether building ever-more-powerful pinpointed: the central Mediterranean, Sweden, which for its size accepted identity-management systems is in any which 180,000 migrants crossed last year more refugees than any other European case the best approach. iRespond.org, an alone, is the deadliest migration route. country in 2015, has spruced up its registra- NGO, for instance, has developed a more Once a migranthasmade itacross a bor- tion systems, too. In the city of Malmo a focused service that allows medical chari- der, by whatever means, governments and former television studio now houses one ties in poor countries to keep track of pa- aid agencies will attempt to monitor his of the country’s largest migration centres. tients without having to operate their own movements by adding him to one of a Behind a clean, spacious waiting room are databases: rather than maintaining a long number ofincreasingly sophisticated data- a series ofinterview rooms equipped with list of names and other data, it stores only bases. The oldest and biggest is UNHCR’s fingerprint-scanners and cameras. A mi- unique biometric identifiers. ProGres, which grew out of the Kosovo cri- gration officercan continue processing asy- The most immediate risk posed to mi- sis in the late 1990s. When the agency real- lum-seekers even if they have moved grants by communications technology is ised that it was ill-equipped to track those away from Malmo: some rooms in the cen- perhaps the spread of misinformation. Ac- fleeing from the fighting, it began standar- tre are set up forvideo-conferencing. cording to Petra Matic, a volunteer at the dising its procedures and technology. To- As more information about migrants is camp in Dunkirk, when the nearby Calais day ProGres contains data—name and age, collected and stored, some risks are be- camp started to be cleared in October a as well as facts about relatives, health is- coming clear. Sensitive data could fall into false rumour spread that residents would sues and applications for refugee status— the wrong hands, for example those of the be deported to Iraq. Karim, one of the refu- for more than 7m refugees, about 11% of all government a refugee is fleeing from. gees in the camp, arrived from Germany, displaced persons globally. UNHCR’s policy is that refugees’ data can where he had been recognised as an asy- ProGresisalso used to verifyidentity. In only be collected with their consent, but lum-seeker and was attending school. He some camps UNHCR now uses biometric that is a slippery concept in the context of had heard that Britain, where his brother data, such as fingerprints and iris scans, to an asylum claim. “Will a refugee, who does lives, would now accept all refugees aged make sure aid goes to the intended recipi- not enjoy the protections of citizenship, be under17. He is wrong, and is risking his life ents. In Jordan and elsewhere in the Mid- granted privacy rights to data stored in a every night trying to get onto a truck cross- dle East many ofthe 2m refugees reliant on cloud service?” asks Ms Maitland of Penn ing the Channel. the UN’s World Food Programme identify State University in a forthcoming book themselves at eye scanners when buying about migration and technology. Dial M forMigrant groceries or withdrawing money at an Another risk, says Ms Maitland, is mis- Some organisations are trying to use mi- ATM. After biometrics were introduced in sion creep. Germanywantsto speed up the grants’ reliance on online information in the Kenyan refugee camps of Kakuma and integration of asylum-seekers by adding ways that benefit both migrants and their Dadaab in 2013, theirrecorded populations information about schooling and qualifi- host countries. The European Asylum Sup- fell steeply, saving $1.4m a month that the cations to Asyl Online. But not all exten- port Office, which runs the EU’s relocation programme had previously paid out to sions to databases will be so obviously in scheme, has created a Facebook page, an fraudsters to support imaginary refugees. migrants’ interests. Pressure is mounting to app and videos about life in various coun- Europe has had a similar database, Eu- give law-enforcement bodies more access tries other than Germany and Sweden, in rodac, since 2003. It stores fingerprints to Eurodac. In America the databases of an effort to persuade some of the migrants from asylum-seekers and notes where the Department of Homeland Security clustered in those two countries to consid- theywere firstfingerprinted. (Under an EU- and other agencies are already linked, cre- er moving on. In Berlin the ReDI School of wide agreement, the country they arrive in Digital Integration is teaching migrants first is supposed to be responsible for pro- how to code. Last year the philanthropic cessing asylum claims.) The strain Eurodac Losing sight of shore arm ofGoogle donated $1m to the Clooney was put under when Syrians started arriv- Migrants crossing the Mediterranean, ’000 Foundation for Justice, a charity, to create ing by the hundreds of thousands in 2015 Arrivals Jan 2014-Jan 2017 total pop-up schools in Lebanese camps with was visible in places like the Moria camp 250 laptops pre-loaded with teaching materi- in Lesbos. During a visit last year migrants 1.6m 200 als. Betteraccess to Wi-Fi would make such could be seen being interviewed and fin- 150 efforts easier and cheaper. gerprinted in shacks. Rumoursswirled that 100 In Europe, even in camps where chari- patchy internet connections sometimes 50 tieshave been able to setup Wi-Fi, refugees left the registration computers unable to 0 are mostly left to while away their time on check the Eurodac database. Border offi- 2014 15 16 17 social media, rather than encouraged into cials said that some migrants had been digital classrooms. One reason is that host Dead and missing Jan 2014-Jan 2017 total able to registerseveral times without being 12,335 1.5 governments are wary that camps will be- found out, meaning they could sell fake 1.2 come permanent—and reluctant to accept registrations to others whose origins were 0.9 that many migrants will never return to less likely to lead to asylum. 0.6 their own countries. But as the Syrian war The European countries that have re- 0.3 drags on, this is becoming untenable. En- ceived the most refugees have worked 0 couraging migrants to study online would 2014 15 16 17 hard to upgrade their systems. Since last help them integrate and, eventually, be- year all agencies dealing with refugees in Sources: UNHCR; International Organisation for Migration come productive in their new homes. 7 Business The Economist February 11th 2017 53

Also in this section 54 Ailing icons of American retail 55 Snowmaking companies 56 Grab v Uber in South-East Asia 56 Tata Group’s governance mess 58 Schumpeter: Shareholder democracy

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

Internet regulation regulations that apply to conventional transport businesses (which must, for in- Eroding exceptionalism stance, conduct more thorough security checks on drivers than Uber carries out). Accordingly, the terms of service for such platforms usually disclaim any liability. If the tide is turning, it is the result of a combination of causes. One reason to ex- Regulators and courts in America and Europe are chipping away at the legal pand liability for online platforms is their immunity ofinternet firms size: they are no longer fragile startups. OOGLE, Facebook and other online headline-grabbing topic of obscene mate- Airbnb’s inventory of 2.3m rooms makes it Ggiants like to see their rapid rise as the rial online: the Communications Decency bigger than the three largest hotel chains— product of their founders’ brilliance. Oth- Act (CDA). This section, now known by its Hilton, Marriott and InterContinental— ers argue that their success is more a result number, 230, immunised online firms for combined. Incumbents are demanding of lucky timing and network effects—the torts committed through their services. that online rivals obey rules that constrain economic forces that tend to make bigger Soon afterwards the European Union everyone else. “The internet is no longer a firms even bigger. Often forgotten is a third created a similar safe-harbour rule in its discrete side activity,” says Jonathan Zit- reason for their triumph: in America and, own e-commerce directive of2000. train ofHarvard Law School. to some extent, in Europe, online platforms All this can be seen as an implicit subsi- Airbnb stands accused of reducing the have been inhabiting a parallel legal uni- dy fora nascent industry, accordingto Anu- supply of affordable housing in big cities. verse. Broadly speaking, they are not legal- pam Chander of the University of Califor- Uberis said to worsen traffic problems and ly responsible, either for what their users nia, Davis. Online firms have been exempt to weaken public-transport systems by lur- do or for the harm that their services can from regulations that apply to offline firms, ing away passengers. Facebook and Twit- cause in the real world. he argued in a paper in 2013. That is similar ter are accused of enabling the spread of It is becoming ever clearer, however, to the wayin which American courtsin the fake and biased news during America’s that this era of digital exceptionalism can- 19th century gave railroads and other firms election. Such services have also become not last for ever. Governments and courts a leg-up by limiting liability for harm favourite hangouts forbullies and trolls. are chipping away at the sovereignty of in- caused by defective machinery. As these “negative externalities” be- ternet firms, and public opinion is pushing Only a few exceptions to immunity come more obvious, public calls forregula- them to police themselves better. Given were allowed. One was obviously illegal tors and the platforms themselves to take their growing heft, this shift is likely not content, such as child porn. As a result of action is mounting. Facebook is a case in just to continue but to accelerate. lobbying by film studios and record labels, point. After Donald Trump’s victory, it When the internet went mainstream in the exceptions also included copyrighted came in for much criticism for not having the mid-1990s, online firms feared being material. In 1998 Congress also passed the done enough to limit the spread of fake held liable if their services were used in il- Digital Millennium Copyright Act, which news. In Germany, many worry that false legal ways—for instance, when subscribers requires online firms to take down infring- news, particularly Russian misinforma- posted copyrighted content or defamatory ing content as soon as they have been put tion campaigns, could influence federal information. The danger was underlined on notice. In Europe similar rules apply. elections in September. in 1995, when an investment firm sued Pro- Although limiting liability online was It is also becoming exceedingly hard to digy, an early online service, alleging that it intended to protect sites hosting digital maintain that platforms are—like telecoms had been defamed in one of its discussion content, it carried over to service plat- networks—“neutral”. The argument that forums. Plaintiffs later dropped the suit, forms. Airbnb, which lets people rent out they do not interfere in the kind of content but they had claimed $200m in damages. their homes, has long held that it is not re- that is shown was a key rationale for ex- To shield firms against potentially ruin- sponsible for the actions of hosts and empting them from liability. But they are ous suits, as well as to protect free speech guests. Uber, a ride-hailing service, has ar- starting to resemble regulators themselves, online, Congress in 1996 added a section to gued that it is just a technology firm and which makes it odder still that they act out- a law that otherwise focused on the more needn’t comply with many of the detailed side legal limits. Facebook’s algorithms de-1 54 Business The Economist February 11th 2017

2 termine what members see in their news things to an accountability-based ap- feeds. Uber’s software decides what driv- proach he calls “Regulation 2.0”. In the ers get paid. It is gettingeasierto police plat- past, he argues, regulators were “data- forms, too, thanks to artificial-intelligence poor”: to do their job, local agencies, forin- techniques which can recognise and pred- stance, had to actively select who was al- ict patterns ofbad user behaviour. lowed to do what by handing out li- Unsurprisingly, given Europe’s pen- cences—to drive a cab, say. Now that data chant for regulation, and the fact that most are plentiful and available in real time, reg- big platforms are based in America, Euro- ulators could instead check regularly on pean bodies have been first to take steps to whether service providers are following rein them in. An important change was a certain policy goals. decision in 2014 by the European Court of Internet activists and the firms them- Justice, the European Union’s highest selves may deplore the fact that the early court, to establish a “right to be forgotten”. heyday of digital exceptionalism is draw- Search engines must stop linking to infor- ing to a close. Michael Masnick, the editor mation about a person if it is found to be ofTechdirt, a site covering tech policy,wor- “inadequate, irrelevant or excessive” and if ries about limits on free speech, and also the person has asked the firms to do so. Lat- warns that regulation can stymie innova- er this year, the same court will be asked to He’s worried tion. Rules are disproportionately costly decide whether Uber is just a digital ser- for small firms. Google has the money to vice or a transport company; if it is judged over whether its drivers should be treated hire enough lawyers to handle requests to be the latter, it will need to comply with as full-time employees (in October a Lon- based on the right to be forgotten. For a web of rules written in the analogue age, don court said they are, entitling them to smaller search engines, it is a big burden. which would lift its costs significantly. the minimum wage and holiday pay). But giving platforms a free pass is in- The European Commission, the EU’sex- Many cities are creating new rules, or en- creasingly difficult for regulators and ecutive body, last year proposed plans to forcing old ones, on who can rent out their courts: they simply have become too im- regulate platforms. It will not change its e- homes and for how long. One example is portant for the economy and society more commerce directive, but it has pushed plat- New York’s move in October to pass a law generally. Successful online platforms, in formsinto signingup to a “voluntary” code imposing fines of up to $7,500 on hosts other words, carry the seeds of their own of conduct which commits them to active- who advertise stays of 30 days and less on regulation. 7 ly and swiftly remove illegal hate speech Airbnb and similar sites. such as racial abuse (instead of reacting to Tech firms fear what regulators might complaints). Some EU member states are do. Content platforms say that in the short American retailing considering going further: the German term they fret most about being required government may bring in a law to impose energetically to police their platforms, Run ragged fines of up to €500,000 ($534,000) on a which would be difficult and costly and platform like Facebook if it fails to take could turn them into censors. All share a down illegal content within 24 hours. longer-term concern that they could end CDA Section 230 of the is under pres- up beingregulated in exactlythe same way NEW YORK sure, too. True, the Supreme Court recently as pre-internet incumbents, which would Attempts to turn around two ailing refused to revive an unsuccessful lawsuit make them less profitable and perhaps icons ofAmerican retailing against Backpage, an American site for even destroy their business models. classified ads with a popular adult section, The industry would naturally prefer EW YORK’s fashion week, which will which had been accused of facilitating self-regulation. Platforms not only have Nstart on February 9th, promises the forced prostitution. But last year saw a strong incentives to spot bad actors, but usual show of glamour, but a more fasci- “swarm” of adverse Section 230 rulings, good information to identify them and the nating industry display came a week earli- says Eric Goldman of the Santa Clara Uni- means to sanction in response, notes Urs er. On February 2nd Ralph Lauren, a well- versity School ofLaw. Gasser of the Berkman Klein Centre for In- known brand, said thatthe executive it had ternet & Society at Harvard University. Yet hired in 2015 to overhaul its business Too much mayhem self-regulation goes only so far: platforms would leave. On February 3rd the Wall In May a court allowed a lawsuit to pro- may have not much incentive, forinstance, Street Journal reported that Macy’s, Ameri- ceed against Model Mayhem, a network to do something about noisy short-term ca’s biggest department store, might be that connects models and photographers, tenants or to limit drivers’ working hours. bought by Hudson’s Bay, a smaller Canad- for having failed to warn users that rapists They are working hard, nonetheless, to ian rival. Each isan institution ofAmerican have used the site to target victims. In June show willing. Only a few weeks afterMark retailing. Each is a reminder of how hard it a judge decided that Yelp, a site for crowd- Zuckerberg, Facebook’s boss (pictured), is to keep pace. sourced reviews, cannot challenge a court batted away criticism of the company’s Consumer habits have changed espe- order to remove a defamatory review of a election coverage, he announced that the cially rapidly in their world. Frocks, bags lawyer by a client. Courts and lawmakers firm would work with fact-checking sites and shoes are now disproportionately are not about to abolish section 230, says to verify news and allow users to flag fake bought online compared with other Daphne Keller of the Centre for Internet stories. Uber, forits part, recently launched goods. Lastyearclothesand accessories ac- and Society at Stanford Law School, but it Movement, a website sharing its aggregate counted for a fifth of e-commerce, esti- is unlikely to survive fordecades. ride data with urban-planning agencies, so mates Cowen, a financial-services firm; far Service platforms are also facing new that they can see, forinstance, what effect a higher than their 8% share of total retail operational restrictions. Late last year baseball game has on traffic patterns. spending. Cowen expects Amazon to sur- Uber ended an experiment with self-driv- Ifthere has to be regulation, Nick Gross- pass Macy’s as America’s top clothing sell- ing cars in San Francisco after resistance man of Union Square Ventures, a technol- er this year. from the authorities. Uber is also em- ogy investor, wants regulators to shift from For manufacturers, such as Ralph Lau- broiled in lawsuits in several countries the idea of handing out permission to do ren, the picture is more mixed. For some 1 The Economist February 11th 2017 Business 55

2 clothing firms, particularly small ones, properties. The company is also investing firm’s portfolio ofprime property. Amazon offers a new way to reach con- in e-commerce and its own answer to TJ Amid the uncertainty around both sumers, free from the archaic commercial Maxx, which is called Backstage. Progress firms, one direction looks set: each is delib- terms that department stores often foist on is slow. “They’re all the right strategies but erately shrinking. Ralph Lauren’s sales are suppliers. Many big manufacturers, how- unfortunately it may be too little, too late,” falling as the company sends less inven- ever, are wary. They face new competitors says Kimberly Greenberger of Morgan tory to wholesalers. Macy’s, which will online and they fret that selling on Ama- Stanley, a bank. Now Hudson’s Bay, the soon have 18% fewer stores than it did in zon will weaken control of their brands ownerofSaksFifthAvenue, maytryto buy January 2016, will probably need to cut and their positioning. Ralph Lauren has Macy’s—together, the two might be able to even further. “This is just the start,” says Ms not sold clothes directly to Amazon so far, limit discounting, or Hudson’s Bay might Greenberger. In a new era, survival re- despite the platform’s explosive growth. wring more value from the American quires being cut down to size. 7 Consumers have altered how they shop offline, too. Those who prefer brand Winter sports names can find them in “off-price” stores such as TJ Maxx, which buys extra inven- tory from shops and manufacturers and re- White out sells it at a deep discount. Nor have depart- MORZINE ment stores found a riposte to the A warming world is both a boon and a headache forsnowmaking companies inexpensive and on-trend offerings of H&M, a Swedish firm, or ofZara, owned by HE creamy glide offresh powder Spain’s Inditex. Tsends skiing enthusiasts into ecsta- Department stores and their suppliers sies. Scraping over brown patches and still work on a slow schedule. Clothes of- dodging lumpen rocks inspires far less ten languish on racks until retailers, des- enthusiasm. Thousands offamilieswill perate to purge inventory,slash prices. This hit Europe’s slopes this month, hoping pattern has helped crunch margins at both that snow conditions will be more fa- Macy’s and at Ralph Lauren, which counts vourable than at the start ofthe season in Macy’s as its biggest customer. Both are try- December. A warming world is changing ing to adapt. StefanLarsson, the chief exec- precisely how,when and where snow utive Ralph Lauren brought in to replace falls.For the winter-sports industry,such the firm’s eponymous founder, is a veteran shifts could hit profits harder than a of H&M. He set about slashing production springtime avalanche. times and trying to make fewer, more pop- The snowfallseason has become ular styles that can sell without discounts. shorter in places such as the Alps, says But Mr Larsson’s ideas for the “creative David Robinson ofRutgers University in and consumer-facing” parts of the busi- New Jersey,as snow arrives later and ness, he told analysts, diverged from those melts earlier than it once did. Resorts at of Mr Lauren, who remains chairman and lower altitudes are among the most Better than mud chief creative officer. The company says it vulnerable. Since the1970s the duration is still committed to Mr Larsson’s strategy, ofthe snow season, averaged over the has grown from €90m in 2011to €170m but investors are not so sure. After the northern hemisphere, has declined by last year as more and more resorts try to news of his departure, Ralph Lauren’s five days a decade, according to the Euro- satisfy snow-seekers. share price dropped by more than a tenth. pean Environment Agency. Huge region- The cost ofcovering pistes with manu- Macy’s is in the midst of its own transi- al variation exists, however, both in factured snow depends on many factors, tion. This year Terry Lundgren, the com- Europe and elsewhere. Californian including the type ofterrain (rocky out- pany’s long-serving boss, will hand con- slopes that were unable to open in recent crops make matters harder). But as a trol to Jeff Gennette, currently a senior years because ofsnow shortages had to rough rule, it costs about €1m for every manager, who must attempt an even more close at the start of2017 because too square kilometre whited. Executives in dramatic recovery. Macy’s is due to close much ofthe stuffhad fallen. northern Italy have invested heavily 100 stores and sack about 10,000 of its em- For resorts worried about weird already: some resorts, such as Val Gar- ployees. Together with a real-estate inves- weather, there are plenty offirms to help dena, are able to produce complete cov- tor, it is mulling the fate of about 50 other with piste-covering. Fan guns, snow erage from snow guns. Austrian ones lances and other devices use water and want to catch up, and have shelled out compressed air to allow tiny snow crys- about €1bn on snowmaking over the past Hard-to-wear trend tals to form ifit is cold enough. A tiny decade. Customers also abound in Chi- Revenue, % change on a year earlier number ofEuropean companies dom- na, Australia, Argentina and America. 40 inate the international market—worth But no snowmaker can stand still FORECAST €275m ($290m)—forsuch gadgets: when global temperatures are changing. 30 SUFAG Ralph Lauren TechnoAlpin, Demaclenko and . So firms plough backaround 5% ofrev- 20 TechnoAlpin only deals in selling, in- enues into researching how to make stalling and maintaining snowmaking snow even when temperatures are 10 o + systems; the others are part oflarger around 0 C. Humidity affects the pro- 0 groups which make equipment such as cess: the damper the air the less moisture Macy’s – 10 ski lifts. TechnoAlpin accounts formore it can absorb and the colder it must be- than halfofglobal market share in snow- come forsnow crystals to form from 20 making, according to Max Rougeaux, a water droplets. Snowmakers have en- 2011 12 13 14 15 16 17 18 Financial years manager at the firm, and it produces joyed much success recently—but profits about 4,500 machines a year. Turnover will be limited iftheir flakes turn to slush. Source: Bloomberg 56 Business The Economist February 11th 2017

Grab v Uber cash payments at banks and some conve- on the backoftheir scooter, paying a nomi- nience stores. At present people mainly nal sum to cover petrol and bike-mainte- Road warriors use GrabPay to pay for Grab rides, but the nance costs. Uber doesn’t offeranything as aim is that customers will eventually use it informal or low-priced. to buy all manner ofdaily items. Indonesia is a key battleground: its pop- But such dreams depend on Grab see- ulation of 257m accounts for more than SINGAPORE ing off local rivals and defending its busi- one-third of the region’s people. Since ness from Uber, which is roughly 20 times launching its motorbike taxis in Jakarta in A South-East Asian startup must as valuable. Grab’s investors include Tema- May 2015, Grab has gradually overhauled contend with Uberon home soil sek, Singapore’s state investment firm, and the lead formerly enjoyed by Go-Jek, a lo- COOTER-DRIVERS in bright green hel- China Investment Corporation, a Chinese cal ride-hailing business, and seems to be Smets enliven the dusk of rush hour in one. In September,SoftBank, a Japanese te- drawing ahead. Uber, which came late to Ho Chi Minh City, Vietnam’s commercial lecoms and technology firm that is owned the market, is now in third place. On Febru- centre. This conspicuous fleet is carrying by Masayoshi Son (who last year an- ary 2nd Grab said it will invest $700m into round clients of Grab, a South-East Asian nounced a $100bn tech-investmentfund in Indonesia over the next four years. For ride-hailing firm. Its operations, connect- partnership with Saudi Arabia and other Grab, South-East Asia’s traffic-clogged ing travellers with taxis, private cars and investors), led a group that put $750m into mega-cities are not “just another” market, motorbike taxis in six countries, straddle a Grab, valuing it at more than $3bn. says Mr Tan. “This is our home.” 7 region that is twice as populous as Ameri- Uber operates in all the same coun- ca and swiftly urbanising. Its future seems tries—Indonesia, Vietnam, the Philippines, assured, if it can compete with Uber, a Thailand, Malaysia and Singapore—but in Tata Group deep-pocketed American competitor. 20 cities compared with Grab’s 34. The Grab started life at Harvard Business American firm last year suffered a setback Board stiff School, where its 34-year-old boss, Antho- which, paradoxically,makesita stronger ri- ny Tan, met his co-founder, Hooi Ling Tan val: in August it abandoned its costly ef- (the pair are unrelated). Its headquarters forts to crack China, and sold its business are in Singapore. Anthony’s father runs there to Didi Chuxing, a local competitor MUMBAI Tan Chong Motors, a car assembler and whichisalsoaninvestorinGrab.Thedeal Tata has now got rid ofCyrus Mistry. distributor which is among Malaysia’s freed up resources which Uber is now us- But its governance problems continue largest companies, but he does not have ing to push deeper into Grab’s territories. funding from the family outfit. Fierce discounting of rides has been ROFIT is to good corporate governance Mr Tandenies that he is building South- one result. Uber’schancesofdominance in Pwhat tides are to swimming trunks: East Asia’s answer to Uber, and says he is South-East Asia have increased in the past when the formeris high, absence ofthe lat- more inspired by Chinese technology 12 months or so, says Florian Hoppe of ter tends to go unnoticed. The ebbing of firms such as Tencent, an online-gaming Bain, a consulting firm, because it has been profits at Tata, India’s largest conglomerate, and social-media firm that owns WeChat, improving its local strategy—from having in recent years has prompted a power a fantastically popular mobile-messaging relatively few people on the ground and a struggle that in turn has exposed the often service, and Alibaba Group, an e-com- narrow range of services to selling the dysfunctional relationship between sever- merce giant. In particular,Grab aims to em- same broad products as Grab: taxis, private al dozen businesses, holding companies, ulate WeChat’s success in popularising cars and two-wheeler ride-hailing. people and charities that use the Tata mobile payments through smartphones. Grab still claims to have services that name. The struggle is now over: on Febru- A big chunk of the $1bn of cash that are better suited to South-East Asians. Mr ary 6th, Cyrus Mistry, Tata’s boss until last Grab holds for investing purposes will be Tan points to its GrabHitch offering, for ex- October (pictured on next page, on the ploughed into its digital-payments system, ample. Many people in Jakarta, Indone- right) was finally booted out of the com- “GrabPay”, which started operating in Jan- sia’s capital, live in suburban develop- pany. Natarajan Chandrasekaran (on the uary 2016. In November 2016 Grab updat- ments many miles from the central left), the boss of one of the group’s key op- ed GrabPay, turning it from a digital-pay- business district, and make long journeys erating firms, Tata Consultancy Services, ments processor which was mostly of use on their scooters into work every day. takes over as chairman on February 21st. to people who already had credit and debit GrabHitch allows them to advertise the Executives at the 149-year-old group cards, to a digital wallet which South-East route and time of their trip in the hope of hope that will close a grim chapter in its Asians can top up with credit by making finding someone who wants to hitch a lift history. Mr Mistry, whose family owns an 18% stake in Tata Sons, the main holding company, which is unlisted, reacted badly to being evicted as its chairman last year. The move to oust him was set in motion by Ratan Tata, the group’s 79-year old patri- arch (and Mr Mistry’s interim successor). During Mr Mistry’s reign, Mr Tata had re- mained at the helm ofthe Tata Trusts, char- ities that control 66% ofTata Sons. For months, Mr Mistry refused to step down from chairing the boards of listed Tata firms, such as Tata Steel or Tata Motors (owner of Jaguar Land Rover), which the group effectivelycontrolsbutin which Tata Sons typically owns a 30% stake (see chart on next page). The very last board he clung on to, that ofTata Sons itself,is rid ofhim as Overtaking manoeuvres ofthis week. 1 The Economist February 11th 2017 Business 57

panies on important matters in a personal capacity. On behalf of the Trusts, they merely sought better visibility into what money the charities might receive as divi- dends from Tata Sons. Yet at least one internal letter from Mr Tata suggests that he clearly expected the directors nominated by the Trusts to con- veythe Trusts’ viewsto the Tata Sonsboard rather than exercise their own judgment. In one instance, in June 2016, two directors nominated by the Trusts left a Tata Sons board meeting for nearly an hour to confer with Mr Tata. Mr Mistry says this proves Mr Tata controlled the board; both direc- tors have said that the matter discussed Chandra in, Cyrus out was trivial. In India, “good corporate governance” 2 Before leaving he made all manner of HBS, who has served on the Tata Sons is often used as a euphemism for “not be- claims of financial and corporate-gover- board as a Tata Trusts appointee since Sep- ing crooked”. By that standard, Tata still nance impropriety at Tata. Regulators are tember 2013. Some governance experts does well. Yet the manner in which Mr said to be looking into some of them; Tata have criticised his position there, because Mistry was defenestrated has raised eye- denies them all. But in the hundreds of the Trusts and some group firms made a brows in Mumbai’s business community. pages ofaffidavits filed in varioustribunals $50m gift to HBS to fund a building that On Mr Tata’s recommendation, the Tata by both sides, and seen by The Economist,a wasnamed in MrTata’shonour. MrNohria Sons board was suddenly increased in size recurring theme emerges, that the relation- wrote in court documents that neither the from six to nine directors just weeks before ships between the Trusts, Tata Sons and donation, arranged shortly before he be- it voted to oust the chairman, which Tata companies are governed primarily by came dean in 2010, nor the fact that he was helped secure Mr Mistry’s dismissal. personal relationships and deference to appointed by the Trusts, should mean that Tata insiders who reckon the crisis that tradition. There is little sense that things he is not acting in the interest ofTata Sons. befell them was purely driven by lacklus- are going to change. The hope seems to be The main corporate-governance pro- tre profitability are misguided. The poor that Mr Chandrasekaran can grow profits blem is that the interests ofminority share- governance that goes with the group’s Byz- again and put such problems out ofmind. holders, whether they are invested in Tata antine, multi-layered structure contributed Mr Mistry’s most striking claim is about Sons or in the various operating compa- to those low profits as well as to the bruis- the current board of directors of Tata Sons. nies,riskbeingtrampledoverifunaccount- ing power struggle of recent months. Will It is arguably India’s most august corporate able trustees are ruling the roost. But at the Mr Chandrasekaran have the skill or the body—directors include the dean of Har- level of the businesses, improvised gover- mandate to simplify the group’s structure vard Business School (HBS), a former Indi- nance processes also slowed down deci- and rein in the influence of Tata Trusts? Al- an defence secretary and several respected sion-making to a crawl. Turfbattles created though Mr Tata will leave the board of Tata industrialists. Mr Mistry contends that it is confusion among executives as to who Sons later this month, he shows little sign little more than a rubber stamp for deci- was in charge. of retiring from his job as the chairman of sions made by the Trusts, ie, by Mr Tata. A Mr Tata, in the legal filings, says it is un- the Trusts. But Mr Chandrasekaran’s allies change to the articles ofassociation ofTata true that the Trusts call the shots: he merely say in private that he has one huge advan- Sons in 2014 gave the Trusts more access to gave his advice when asked to, and infre- tage: having fired one successor, Mr Tata information across the entire group. The quently at that. Other trustees say they knows he cannot sack another without Trusts already had the ability to influence chipped in recommendations to Tata com- furtherdamaging his legacy. 7 decisions by nominating a third ofthe Tata Sons board. Acting together, those direc- tors can veto the entire board’s decisions. Ta ta for now The ousted man says Mr Tata ramped Structure of Tata Group, various operating companies and holding stakes* up meddlinginto the activities ofboth Tata Sons and some operating firms, aided by a TATA TRUSTS (Chairman: Ratan Tata) OTHERS (Incl. Mistry family) roster of long-retired executives who serve as Tata trustees. This view is backed by the 66% 34% Tata Group’s top lawyer, who in January TATA SONS (Chairman: Ratan Tata†) 2016 wrote that ifinternal documents were somehow leaked to the media, they would “project to the external world that the 100% 22% 23% Trusts are controlling our empire, and Tata Other wholly owned Tata Motors Tata Global Beverages Sons board is more a dummy.” subsidiaries Alackofclarity overwhat authority the Trusts have in relation to Tata Sons, and 74% 30% 19% vice versa, was also acknowledged in in- Tata Consultancy Services Tata Steel Tata Chemicals ternal e-mails by Nitin Nohria, the dean of

Nine other major listed Correction: Our article on Snapchat in the issue dated entities 20-68% February 4th stated that around 41% of Americans aged Other operating entities in turn have a stake in Tata Sons 18 to 34 use the messaging service every month. In fact, Source: Company reports *At end-March 2016 †Interim position until February 21st, then N. Chandrasekaran they do so every day. Sorry. 58 Business The Economist February 11th 2017 Schumpeter Snaptrap

Snap’s IPO is part ofa widertrend towards corporate autocracy of dispersed ownership in emerging economies, with 60% of the typical bourse being closely held by familiesor governments, up from 50% before the global financial crisis, according to the IMF. One reason has been lots of IPOs of state-backed firms in which the relevant government retains a controlling stake. Hank Paul- son, a former boss of Goldman Sachs, helped design many of China’s privatisations in the early 2000s. “The Chinese could not surrendercontrol,” hismemoirsrecall. MrPaulson hoped that the government would eventually take a back seat, but that has not happened. Other emerging economies, including Brazil and Rus- sia, copied the Chinese strategy of partial privatisation. And across the emerging world, tightly held family firms, such as Tata in India and Samsung in South Korea, are bigger than ever. Voterapathy is the third trend, owingto the rise of low-cost in- dexfundsthattrackthe market. Passive fundsoffera good deal for savers, but their lean overheads mean that they don’t have the skills or resources to involve themselves in lots of firms’ affairs. Such funds now own 13% of America’s stockmarket, up from 9% in 2013, and are growing fast. Aslug of the shareholder register of most listed firms is now comprised ofprofessional snoozers. For many in business the decay of shareholder democracy is EMOCRACY is in decline around the world, according to irrelevant. Afterall, they argue, investors own lots of othersecuri- DFreedom House, a think-tank. Only 45% ofcountries are con- ties—bonds, options, swaps and warrants—that don’t have any sidered free today, and their number is slipping. Liberty is in re- voting rights and it doesn’t seem to matter. At well-run firms such treat in the world of business, too. The idea that firms should be as Berkshire, shares with different voting rights trade at similar controlled by diverse shareholders who exercise one vote per prices, suggesting those rights are not worth much. Some manag- share is increasingly viewed as redundant or even dangerous. ers go furtherand argue that less shareholder democracy is good, Consider the initial public offering(IPO) ofSilicon Valley’s lat- because voters are myopic. Last year Mark Zuckerberg, Face- est social-media star, Snap. It plans to raise $3-4bn and secure a book’s boss, pointed out that with a normal structure the firm valuation of $20bn-25bn. The securities being sold have no vot- would have been forced to sell out to Yahoo in 2006. ing rights, so all the power will stay with Evan Spiegel and Bobby It doesn’t take a billionaire to poke holes in this logic. Forecon- Murphy, itsco-founders. Snap’sIPO hasechoesofthatofAlibaba, omies, toothless shareholders are damaging. In China and Japan a Chinese internet giant. It listed itself in New York in 2014, in the firms allocate capital badly because they are not answerable to world’s largest-ever IPO, raising $25bn. It is worth $252bn today outside owners, and earn returns on equity of 8-9%. A study in and iscontrolled byan opaque partnership usinglegal vehicles in 2016 by Sanford C. Bernstein, a research firm, got Wall Street’s at- the Cayman Islands. Its ordinary shareholders are supine. tention by calling passive investing “the silent road to serfdom”. Optimists may dismiss the two IPOs as isolated events, but Without active ownership, it said, capitalism would break down. there is a deeper trend towards autocracy. Eight of the world’s 20 most valuable firms are not controlled by outside shareholders. Democratic deficit They include Samsung, Berkshire Hathaway, ICBC (a Chinese At the firm level, voting rights are critical during takeovers, or if bank) and Google. Available figures show that about 30% of the performance slips. At Viacom, a media firm with dual-class aggregate value of the world’s stockmarkets is governed undem- shares, which ran MTV in its heyday but which has stagnated for ocratically, because voting rights are curtailed, because core the past decade, outside investors are helpless. Control sits with shareholders have de facto control, or because the shares belong the patriarch, SumnerRedstone, aged 93, who has 80% ofits votes to passively managed funds that have little incentive to vote. but only10% ofits shares. Yahoo (once as sexy as Snap) has lost its Cheerleaders forcorporate governance, particularly in Ameri- way, too. But because it has only one class of shares, outsider in- ca, often paint a rosy picture. They point out that fewer bosses are vestors have been able to step in and, using their voting power, keeping control through legal skulduggery, such as poison pills force the firm to breakitselfup and return cash to its owners. that prevent takeovers. Unfortunately, these gains have been The system may be partially self-correcting. Some passive overwhelmed by three bigger trends. The first is that technology managers, such as BlackRock, are stepping up their engagement firms can dictate terms to infatuated investors. Young and with a with companies. If index funds get too big, shares will be mis- limited need for outside capital, many have come of age when priced, creatingopportunities foractive managers. Ifshares with- growth is scarce. Google floated in 2004 with a dual voting struc- out votes are sold forinflated prices, their owners will eventually ture expressly designed to ensure that outside investors would be burned, and won’t buy them again. And if fashionable young have “little ability to influence its strategic decisions”. Facebook firms miss targets, they will need more cash and will get it on listed in 2012 with a similar structure and in 2016 said that it worse terms. But in the end shareholder democracy depends on would issue new non-voting shares. Alibaba listed in New York investors asserting their right to vote in return for providing capi- after Hong Kong’s stock exchange refused to countenance its pe- tal to risky firms. If they don’t bother, shareholder democracy culiar arrangements. Undaunted, American investors piled in. will continue to decline. That is something to thinkabout as fund At the same time there has been a drift away from the model managers queue up forSnap’s IPO. 7 Finance and economics The Economist February 11th 2017 59

Also in this section 60 Buttonwood: Bubble troubles 61 Cognitive decline and banking 61 Brexit: The Kiwi precedent 62 North Korean data-mining 63 China’s central bank tightens 63 Euro-zone bond jitters 64 Data, financial services and privacy 65 Free exchange: Donald Trump and the dollar standard

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

American financial regulation in turn exposes banks to another com- plaint from supervisors: that their lending Shearing and shaving is too concentrated. In softening Dodd-Frank’s impact, ad- ministration looks easier than legislation. Dodd-Frank gives regulators power to in- tervene, but it also gives them discretion to desist, as Mr Trump may tell them to do. Rules not yet completed may be allowed to Donald Trump starts a long struggle to overhaul the Dodd-Frankact die; othersenforced lessvigorously; consis- TFIRSTblush, there is little to be excited ratio of the six largest banks’ tier-1 capital tency among regulators can be encour- Aabout. The eighth executive order of (chiefly equity) to risk-weighted assets, the aged. This may take time. Steven Mnuchin, Donald Trump’s infant presidency, signed main gauge of their strength, was a thread- Mr Trump’schoice fortreasury secretary, is on February 3rd, lists seven “core princi- bare 8-9% before the crisis; since 2010 it has likely to be confirmed soon, but important ples” for regulating America’s financial been 12-14%. Among much else, the act also lower-ranking jobs in the department, also system. These include the prevention of introduced stiff stress tests of the most im- needing senators’ approval, must be filled. bail-outs by taxpayers; advancing the portant banks’ ability to withstand further Mr Trump also must find a vice-chairman American interestin international negotia- storms; obliged them to draw up “living of the Federal Reserve with responsibility tions; and tidying the unruly thatch of fed- wills” to prepare for bankruptcy, should for financial supervision. Once he does, eral regulation. The treasury secretary and calamity strike; and banned them from Daniel Tarullo, the Fed governor who has regulators must report by early June on trading in securities for their own profit, a been standing in, is expected by many to how well existing laws fit the bill. “There is restriction known as the Volcker rule. resign. Slots at other regulators are either little in the actual executive order that the Enough, say bankers. Mr Trump, vacant or soon will be. Obama administration would have dis- though he bashed Wall Street on the cam- agreed with,” says Doug Elliott of Oliver paign trail, now seems to agree. Gary Barriers to exit Wyman, a consulting firm. Cohn, hischiefeconomicadviserand pres- The obstacles to changing laws are higher. And yet. Although the edict does not ident of Goldman Sachs until December, Although the Republicans hold both mention the Dodd-Frank act of 2010, told the Wall Street Journal that because houses of Congress, they have only a 52-48 which redefined financial regulation after banks must “hold more and more and lead in the Senate, shy of the 60 votes the crisis of 2008, it is chiefly aimed at that more capital...that capital is never getting needed to break a filibuster. Persuading law. (Another presidential memorandum out to Main Street America.” Dealing with eight Democrats to support legislation paves the way to aborting a rule tightening multiple regulators, he said, was holding making life easier forbanks is a tall order. financial advisers’ obligations to Ameri- lending back. He also cast doubt on other Still, Mr Elliott notes, some bipartisan cans saving for retirement.) Many banks, bits of Dodd-Frank, notably its procedures agreement in Congress is possible—nota- especially smaller ones, loathe the 848- for liquidating big banks when the bank- blyon raisingthe threshold fora bank to be page act and its reams of ensuing rules. Ac- ruptcy code cannot be applied. a “systemically important financial institu- cording to Davis Polk, a law firm, 111 of its That echoes complaints voiced many tion”, or SIFI, from $50bn of assets, to per- 390 “rule-making requirements” have not miles from Wall Street. Wayne Abernathy haps $250bn: the 34 SIFIs undergo annual yet even been finalised. Mr Trump has of the American Bankers Association, a stress tests and capital reviews conducted called Dodd-Frank a “disaster” and vowed trade body, argues that community banks by the Fed. That would suit, among others, to “do a big number” on it. How big a num- are shunningloansto newormarginal cus- Zions Bancorp, a Utah-based lender with berhisteam hasin mind—and howmuch it tomers, rather than having to justify them- assets of $63bn—an improbable systemic can manage—is still not entirely clear. selves to several regulators. “Lending is be- threat. It has taken on nearly 500 staff to Thanks in part to Dodd-Frank, Ameri- ing narrowed down to mortgages, familiar deal with compliance, internal auditing ca’s banks are far safer than they were: the customers and agriculture,” he says. This and so forth and spent many millions on 1 60 Finance and economics The Economist February 11th 2017

2 quantitative models. These now underpin ages a temporary fund of public cash—to bank supervisor, disagrees. “We need to its decision-making about capital and purists, an unacceptable taxpayer bail-out. have a simple way of measuring capital— lending, and Zions is not inclined to cut Jeb Hensarling, a Republican congress- the leverage ratio—and that ratio needs to back on their use. But Harris Simmons, its man from Texas, is likely to reintroduce leg- be around 10%,” he says. In June the aver- boss, would like “relief from being subject islation he proposed last year, offering big age for America’s eight globally significant to the Fed’s blackbox”. banks less onerous regulation, including banks was just 5.75%. With much stronger Proposals that may affect the spending relieffrom the Volcker rule, in exchange for banks, other bits of regulation could fall ofpublic money, which require only a sim- higher capital: a minimum leverage ra- away. Stress tests could be run by lenders ple majority, could also be forced through. tio—of equity to unweighted assets—of themselves, rather than the government, This could allow Republicans to rein in the 10%. But this attempt may fail in the Senate. and there would be no need for Dodd- Consumer Financial Protection Bureau, a Few big banks are eager to return to propri- Frank’s contentious liquidation procedure. body created by Dodd-Frank and financed etary trading in any case; and they think Nothing so radical looks likely. But by the Federal Reserve, rather than directly they have plenty ofcapital, thankyou. lighter regulation makes sense, especially by Congress. It may also allow them to gut Thomas Hoenig, vice-chairman of the for smaller banks. Less capital, especially the liquidation procedure, which envis- Federal Deposit Insurance Corporation, a for big ones, assuredly does not. 7 Buttonwood Time and tide

It is not easy forinvestors to recognise a bubble UBBLES put the fun into financial his- averages profits over ten years. Highs in B tory. Who can resist stories about Buy cheaply the ratio coincided with market peaks like Dutch tulips that were worth more than Real annual returns over the next ten years when 1929 and 2000. country estates or the floating of an “un- purchasing US equities at varying market levels* In another chapter of the book, Antti dertakingofgreatadvantage butno one to By quintile, 1900-2014, % Ilmanen of AQR Capital Management know what it is”? 14 looks at the CAPE ratio as a market-timing Economists have long debated wheth- 12 measure (see chart). At first sight, this er bubbles can be identified, or indeed 10 seems very promising. Buying the Ameri- stopped, before they can cause wide- 8 can equity market when it was cheapest spread damage, as the crisis of 2007-08 6 brought an annual real return of13% over did. But spotting them is easier said than 4 the ensuing decade; buying it when it was done: even tulipmania may have been 2 dearest earned a return ofjust 3.5%. (He in- caused by a quirk in the wording of con- 0 verted the ratio to get an earnings yield, tracts that meant speculators would, at 1 2345 but that does not affect the results.) worst, walkaway with only a tiny loss. Most expensive Least expensive The problem, however, is that the full For many investors, the more impor- Source: *Determined by earnings yield calculated historical range of valuations is available tant question is whether it is possible to AQR using cyclically adjusted price-earnings ratio only with hindsight. Investors in the1930s avoid being sucked into a bubble at the did not know that they would be buying top, and suffering declines like the 80% ing year on fewer than one in 20 occasions. at the cheapest level the 20th century drop experienced by the NASDAQ 100 in- The markets lost half their value over the would see. And the ratio is of little use in dex of technology stocks between March next five years around one tenth of the the short term: the market looked over- 2000 and August 2002. Two essays in a time. But in a fifth of such episodes, the valued on the CAPE measure for much of new book*, from the CFA Institute Re- market doubled again. On this basis, a the1990s, not just at the peak. search Foundation and the Cambridge sharp rise in a market is more of a buy sig- So Mr Ilmanen devises a simple ap- Judge Business School, indicate just how nal than a sell indicator. That helps explain proach to show whether investors using difficult market timing can be. whyinvestorsfind itso difficultto getout at the range of CAPEs that would have been The first, from William Goetzmann of the peak. known at that point could have been Yale School of Management, looks at the You can argue whether Mr Goetz- used to time the markets since 1900. Over history of 21 stockmarkets since 1900. Mr mann’s definition of a bubble is the right the full period this tactic mildly outper- Goetzmann defines a bubble as a dou- one. He looks at overall markets, rather formed a “buy-and-hold” strategy, but all bling in a market’s value, followed by a than individual industries such as technol- the outperformance occurred in the first 50% fall.He found that a doublingin a sin- ogy. GMO, a fund-management group, half of the sample. It would have under- gle year occurred just 2% of the time (in 72 uses a different concept—namely, that a performed forthe past 50 years. cases). On six occasions, the market also bubble occurs when the price of an asset This is not very encouraging. Neither a doubled over the next year, whereas a rises by more than two standard devi- doubling of the market nor a historically 50% fall in the subsequent year occurred ations above its previous long-term trend. high valuation are reliable sell signals. Of on just three occasions; Argentina in Another approach is to look at funda- course, that shouldn’t be too surprising. If 1976-77, Austria in 1923-24 and Poland in mentals. Asset prices are supposed to re- timingthe marketwere easy,bigswings in 1993-94. Even after a further five years, flect the current value of future cash flows. prices would not happen in the first place. markets were more likely to double again In theory, a doubling in a market could re- than to fallby half. flect a sudden improvement in the outlook ...... *“Financial Market History: Reflectionson thePastfor There were many more occasions for that asset class, and thus be entirely ra- InvestorsToday”, editedbyDavid Chambersand Elroy when markets doubled over three years; tional. One valuation approach, often re- Dimson. around 14% of the total. After such rises, ferred to in this column, is the cyclically ad- themarketsdroppedbyhalfinthefollow- justed price-earnings ratio, or CAPE, which Economist.com/blogs/buttonwood The Economist February 11th 2017 Finance and economics 61

Banking and the elderly nancial exploitation and abuse of the el- ey.The last-resort measure, most common- derly at between $3bn and $37bn. In ly used for the incapacitated, is a power of Not losing it Britain the Financial Conduct Authority attorney,usually given to a family member has issued warnings about investment- chosen in advance. But this can put people fraud schemes, coaxing the elderly into at risk of opportunistic relatives. It may trading their savings for shares, wine or di- also curtail autonomy too severely. Banks amonds (which never arrive). are experimenting in this grey area, for ex- The olderbrain seems more susceptible ample by giving relations “read-only” ac- Banks need strategies to help customers to “too good to be true” scams, from lotter- cess to accounts, so they can monitor pay- suffering cognitive decline ies to dating schemes. According to the ments, or by allowing the bank to delay a HE older the wiser” may ring true “Scams Team” at Britain’s National Trading payment and contact advisers if it is wor- “Tfor much of life, but not for our abili- Standards, a consumer-protection body, ried. A limited form of power of attorney, ty to handle money. Studies suggest finan- the average age of victims of mass-market- with authorisation for only certain pay- cial decision-making ability tends to reach ing scams is 75. Louise Baxter, the team’s ments, is also emerging. its peak in a person’s mid-50s, after when manager, says cognitive decline in older Much of the financial damage done by deterioration sets in. “Age-friendly” banks people isa riskfactorthatcriminals exploit, cognitive decline results from late detec- are beginning to learn how to protect vul- and the dangers are likely to rise in tandem tion of problems. A decline in someone’s nerable older customers. with the incidence of dementia. Phil Ma- financial skills can be an early warning of The most dramatic forms of age-related whinney,from Age UK, a charity,says peo- dementiaorotherproblems.JasonKarlaw- mental deterioration are neurodegenera- ple living alone, as half of Britons over 75 ish, an experton Alzheimer’satthe Univer- tive diseases, like Alzheimer’s. But even do, are more likely to be befriended by a sity of Pennsylvania, thinks banks—and “normal” ageing can cause cognitive fraudster. So-called “sucker lists” of easy their technology—are uniquely placed to change. Financial-management skills are targets circulate among criminals. identify older people who are at risk and often early casualties, because they de- Banks have been slow to respond, at refer them to doctors or social workers. He mand both knowledge and judgment. firstseeingthese risksaspurelya matter for coined the phrase “Whealthcare” to de- Older people are more likely to struggle customers. (As one manager puts it, they scribe how looking after people’s money with day-to-day bankingand are more sus- “have the liberty to make dumb financial can give insights into their health. “If you ceptible to poor investment decisions. decisions.”) Most “age-friendly” measures do it right, I think customers will like it,” he They are also more vulnerable to fraud or have focused on physical limitations (such adds. “Nobody wants to lose their money to financial exploitation, often by relatives. as talking ATMs for the blind) or helping and certainly not their brain.” 7 In 2010 the over-65s in America made up people get online. However, many banks 13% of the population but had over a third are recognising cognitive decline as their of the wealth. British pensioners became problem, too. Barclays, a British bank, uses Brexit especially vulnerable when reforms in voice recognition to help customers who April 2015 allowed them to withdraw sav- have trouble with passwords. Banks are Not all black ings previously locked up. Newspapers training staff in how to spot dementia and fretted that people would splurge their signs of financial abuse. First Financial pensions on Lamborghinis. A greater con- Bank, in America, gives staff who uncover cern should have been that they became a scam a “Fraud Busters” pin. And better easy prey for scammers. By March 2016 ways to identify fraud are popping up: al- What Britain’s negotiators could learn cold-callers had approached more than gorithms can help staff detect changes in from New Zealand’s experience 10m people about their pensions, accord- spendingpatterns. Barclaysused data from ing to Citizens’ Advice, a charity. old cases to pinpoint 20,000 high-risk cus- HE future of British trade after Brexit is It is difficult to monitor financial abuse, tomers, whom it monitors and advises. Tshrouded in uncertainty. It is an unprec- because victims rarely report it. True Link The trickiest issue for banks, ethically edented process, so it is hard to know Financial, a financial-services firm, esti- and legally, is how and when to act on con- where to look for clues as to how it may mates annual losses in America from fi- cernsovera client’sabilityto manage mon- work out. One possibility is a country whose trading patterns were perhaps more disrupted than any other’s by Brit- ain’s accession to the European Economic Community (EEC) in 1973: New Zealand. Just as Brexit is likely to mean the end of British access to the single market, so “Brentry” ended New Zealand’s preferen- tial access to the “mother country”. In 1961, when Britain first announced its intention to join the EEC, it took about half of New Zealand’s exports—a similar proportion to the EU’s share ofBritish exports today. New Zealand’s prime minister at the time, Keith Holyoake, warned his British counterpart, Harold Macmillan, that, with- out safeguards forits exports, New Zealand would be “ruined”. After years of negotia- tions, a transitional deal in 1971agreed quo- tas for New Zealand butter, cheese and lamb overa five-yearperiod, which helped to ease the shift away from Britain. Similar- No cheques and balances ly—if in a much shorter time-span—Brit-1 62 Finance and economics The Economist February 11th 2017

Keeping it local North Korean data New Zealand, goods exports by destination % of total export value Best guesses

80 Asia-Pacific Economic Co-operation members Creative ways ofmeasuring the North Korean economy 60 ACTS about the North Korean econ- The advent ofsatellite imaging has Fomy are not so much alternative as helped, providing researchers with better 40 non-existent. The country has never estimates ofmanufacturing output, coal published a statistical yearbook. If it did, production and urbanisation. Yet anoth- 20 no one would believe it. Nicholas Eber- er strategy is to workout national income Britain stadt ofthe American Enterprise In- from non-economic data. The Hyundai 0 stitute, a think-tank, calls analysis ofits Research Institute, a consultancy, pub- 1960 70 80 90 2000 10 15 economy “essentially pre-quantitative”. lishes another widely cited estimate of Source: IMF The most-cited estimate ofthe size of the North Korean economy based on a the economy comes from South Korea’s model that incorporates both infant- 2 ain’s prime minister, Theresa May, now central bank. Its methodology is opaque mortality rates and crop yields, two hopes to negotiate a transitional deal to but is based, at least in part, on the South variables forwhich the numbers are at smooth its departure from the EU. Korean intelligence agency’s estimates of least plausible. New trading relationships can mitigate the North’s physical output, which is A recent paper by SukLee ofthe Korea the loss of preferential access. New Zea- then translated to South Korean prices. Development Institute, a South Korean land signed a free-trade deal with Australia But it is hard to estimate market valua- government think-tank, puts a new spin in 1965, which boosted exports of manu- tions forgoods that are not traded on the on this approach. It estimates North factured goods. The share of trade with market, and physical goods make up only Korea’s national income by comparing America and Japan also rose, once access a fraction ofoverall economic output. the share ofits households that use solid to their beef markets had been negotiated. Another technique is to “mirror” statis- fuels forcooking with that in other lower- By the time Britain eventually joined the tics from the country’s trading partners. income countries. The data, as reported EEC in 1973, it took only 25% of New Zea- But most North Korean trade is with by the North Korean census of2008, land’sgoodsexports(and a paltry3% now). China, where statistics are unreliable. show that nearly 93% ofhouseholds lack More trade deals followed, including with access to gas or electricity and rely on China and South Korea. Mrs May’s govern- firewood or coal. Assuming the numbers ment makes much of the prospects of con- bear some relation to reality,they put cluding trade deals with non-EU coun- North Korea in line with countries such tries—including, in fact, New Zealand. Uganda and Haiti, and suggest that North Trade agreements, of course, entail Korea’s purchasing-power-adjusted compromises. In the 1960s, almost all of income per person was somewhere New Zealand’s exports of butter went to between $948 and $1,361in 2008. Britain. High levels ofprotectionism in rich North Korea’s economy has made countries meant no market could replace great strides since the country’s faminein it. As a result, points out Brian Easton, of the1990s. The government has tacitly the Auckland University of Technology, allowed the market economy to grow. New Zealand’s trade negotiators chose to Although the rest ofthe country is still maximise their EEC butter quota at the ex- indisputably poor, visitors to Pyongyang, pense of access for other goods. British ne- at least, cannot help but note the rise of gotiators too will face plenty of tricky shops and taxis. The paradox is that as choices. A free-trade deal with New Zea- the North Korean economy modernises, land itself, for example, would enable ac- the data may actually be deteriorating. cess for British exports, but competition The size ofthe country’s apparently from New Zealand would squeeze British burgeoning service sector is a complete lamb producers. Similarly, countries such mystery.Many scholars believe that the as India and Australia might seek a relax- South Korean numbers are too low.Wel- ation in immigration rules in return for the come though it is forpoor North Koreans, free movement of goods and services. An area of darkness growth may be bad forstatisticians. Since it is believed concerns about immi- gration weighed heavily with Brexit vot- ers, that is unlikely to prove popular. links with neighbours. China, Australia markets nearer by. The British and New Zealand cases dif- and other members ofthe Asia-Pacific Eco- Less tangible factors may also make ferin some important ways. Britain’s econ- nomic Co-operation group, founded in Britain’s negotiating position more awk- omy in recent years has been one of Eu- 1992, now account for 72% of its exports ward. New Zealand was able to play on rope’s fastest-growing. But the 1970s were (see chart). But ties with the neighbours are British guilt over its abandonment of the tough forthe New Zealand economy. Bren- the very ones Britain wants to loosen. It Commonwealth. Memories of the second try was just one of many blows to buffet it. will need relationships with countries that world war were still fresh: New Zealand’s The oil shock, turbulence in commodity are farther away. And history shows that soldiers had fought alongside the British; prices and a rise in protectionism in rich the greaterthe distance between two coun- its farmers had nourished the home front. countries led to bouts of recession. A spate tries, the less they trade with each other. In contrast, few in the EU have much sym- ofradical liberalisation in the 1980s put the Technology may be weakening the linkbe- pathy for the renegade British. And when economy on a sounder footing. tween trade and geography, but it is unlike- Mrs May’s ministers do talk about the war, Also, New Zealand built closer trading lyto make up forBritain’sreduced accessto they usually make matters worse. 7 The Economist February 11th 2017 Finance and economics 63

China’s central bank nancingrate in Europe, but it has a few can- cy, is embroiled in a scandal and losing didates forits new benchmarkinterest rate. ground. A fear is that his fall from grace Technically The seven-day bond-repurchase rate, might boost support for Marine Le Pen, which influencesbanks’ fundingcosts,is in leader of the National Front, who wants independent pole position. France to leave the euro and the EU. There is also an element of political in- Shorter odds on a Le Pen victory would trigue in this transition to a more mature certainly justify a higher risk premium on monetary framework. The Chinese central French bonds. Yet there is more to the latest bank sits under the State Council, or cabi- bout ofeuro-area bond jitters than a sharp- The big implications ofa small rate rise net, which has the final say over lending er focus on politics. After all, bond markets F ASKED before the start of 2017 to bet on anddepositratesaswell asotherbig policy shrugged off the resignation of Matteo Iwhich important central bank would be decisions. Repo rates, by contrast, are seen Renzi, Italy’s prime minister, in December. the first to raise interest rates this year, the as sufficiently abstruse for the central bank “I don’tbelieve there isgreaterpolitical risk safe choice would have been the Federal to decide on its own when it wants to in Europe than there wasone month ago or Reserve. Some gamblers, relishing the long change them. three months ago,” says a senior analyst at odds, might have gone for the Bank of Eng- In other words, the more technical a a big bond fund. A big influence, rather, is land or even taken a flutter on the Euro- policy is, the more technocrats can carve the growing conviction that the European pean Central Bank. All these guesses out space forthemselves. Yet this also gives Central Bank (ECB) will soon decide to would have been wrong. The first to budge the Chinese central bank one more reason wind down its programme of quantitative this year? The People’s BankofChina. to raise rates cautiously.Were its actions to easing, or QE. On February 3rd the Chinese central have a bigger impact on the economy, its The ECB announced in Decemberthatit bankraised a seriesofshort-term rates. The newfound, if limited, independence would reduce from April the amount of decision received scant attention. The in- would not last long. 7 bonds it buys each month, from €80bn creases were, after all, small: one-tenth ofa ($85bn) to €60bn. Mario Draghi, the bank’s percentage point for the main rates. It also boss, insisted this was nota “taper”, a word seemed quite technical, primarilyaffecting Euro-zone bond markets that implied a gradual reduction in pur- liquidity tools that lenders can tap if short chases to zero. But the published minutes of cash. And there was no fanfare: the cen- Unhappy birthday of the ECB’s December meeting suggested tral bankdid not publish an explanation. that QE was nevertheless running out of But China’s move is important for two road. It was acknowledged, for instance, reasons. First, it highlights the govern- that there were legal risks in ditching a self- ment’s dilemma in managing the econ- imposed rule that the ECB should not buy omy. Growth is expected to slow from last more than a third of any country’s govern- There is more to the latest euro-area year’s pace of 6.7%, and recent surveys sug- ment debt. This rule puts a cap on the bond-market jitters than political risk gest that momentum is already ebbing. Bunds the ECB can buy, since Germany has Sentiment is fragile: investment by private T was not an ideal way to marka silver ju- a shrinking debt pile. That matters because companies last year increased at its slow- Ibilee. The 25th anniversary ofthe signing Germany also has the euro zone’s largest est pace in more than a decade. This would of the Maastricht treaty, which gave life to economy and bond purchases are propor- normally not be the time to launch a mon- the idea of a single European currency, fell tionate to economic heft. It would cause a etary-tightening cycle. However, other on February 7th, the same day that the IMF stink if the ECB decided to buy proportion- dangers loom. The housing market is published its annual health-check on the ately more bonds of high-debt countries frothy. Credit growth has been excessive. Greek economy. It said most (but not all) of such as Italy—or indeed France. And financial institutions have used in- its board favoured more debt relief to get There are other reasons to believe the creasing amounts ofdebt to buy bonds. Greece’s public finances in order—an idea ECB is heading for the QE off-ramp. The The central bank hopes to strike a bal- quickly trashed by euro-zone officials. euro-zone economy is puttering along ance. Bynudgingup money-marketrates, it A day earlier the spread between ten- nicely. Although the core rate of inflation, wants to push lenders and investors to yeargovernment bonds in France and Ger- which excludes volatile food and energy pare back their borrowing. But it also many had reached its widest level in four prices, is stuckbelow1%, headline inflation wants to avoid harming growth. years. The proximate cause seemed to be a has picked up sharply and will rise further It is a fine line. Chinese policymakers at growing concern about political risks to in the spring, as last year’s big fall in oil least have one advantage over peers in de- the euro. François Fillon, once the front- prices drops out of the annual rate. The QE veloped economies: they can count on the runner in the race for the French presiden- programme was conceived when defla- press to amplifytheir message. State televi- tion was greatly feared. Now that the risk sion said the rate rise would affect finan- ofit is diminished, it is harderfor the ECB to cial institutions, but not the public—as if it Edging upwards justify further hefty asset purchases—even were somehow possible to segregate one Ten-year government-bond spreads over ifthere were enough eligible bonds to buy. from the other. German bonds, percentage points “The direction of travel is clear,” says This points to the second ramification: 2.0 David Riley, of BlueBay Asset Manage- the way in which the People’s Bank of Chi- Italy ment, and that raises a question. In the ab- ECB na conducts monetary policy is changing. 1.5 sence of purchases, what is the right It is beginning to look a little more like cen- Spain spread and yield for the government tral banks in developed economies as it 1.0 bonds ofFrance, Italy, Spain and the rest? It shifts towards liberalised interest rates. is a reappraisal ofthis kind that lies behind France Rather than simply ordering banks to set 0.5 a general upward drift in euro-zone bond specific lending or deposit rates—the focus spreads in recent weeks (see chart). For for many years in China—it is altering the 0 now, they do not look excessive. But if monetary environment around them. Chi- January February there are further signs that QE is winding na does not yet have an equivalent of the 2017 down, expect them to widen further, irre- federal-funds rate in America or the refi- Source: Thomson Reuters spective ofthe politics. 7 64 Finance and economics The Economist February 11th 2017

etary—algorithms, feeding machines that keep learning, the harder it will be for cus- tomers, and regulators, to untangle why they were rejected. And algorithms can be wrong. A bilingual speaker’s search-en- gine entries could look erratic; a social- worker’s location-tracker could imply a risky lifestyle. And since it is unclear how judgments are made, says Frederike Kalth- euner, from Privacy International, “you could get stuck in a Kafkaesque situation where you’re put in a certain box and can’t find out why, and can’t get out.” Yet privacy is a fluid concept. A survey last year by EY, a consultancy, found that around half of digitally savvy customers were happy to share more data with their bank, ifthey got something back. It also de- pends on context. When Tesco, a British re- tailer, uses data from loyalty cards to offer Data, financial services and privacy shoppers discounts on their favourite treats, few are bothered. But use the same Like? data to help calculate an insurance pre- mium (as it does), and many find it creepy. Keeping customers happy is not about what is legal, but about what they think is off-limits. People give uninformed consent to all sorts of things online. But users can feel tricked and spied on if they learn their Should ourbankers be ourFacebookfriends? data have been sold or used in unexpected ONALD TRUMP’s health-insurance pean Commission’s statistics agency, Eu- ways. Retailers struggle with this too, but Dpremiums could soon go up, and not rostat, 81% of Europeans feel they don’t customers expect their bank to respect just because of his love of burritos. Data- wholly control their online data; 69% wor- their privacy more, says Torsten Eistert crunchers have found a link between the ry that firms may use their data for pur- from A.T. Kearney, a strategy firm. negativityofsomeone’stweetsand hisrisk poses other than those advertised. of dying of heart disease. The education Regulators are takingan interest. In Sep- Trading data levels of your Facebook friends or the ac- tember Britain’s Financial Conduct Au- Regulators have a role to play, particularly tivity on your phone can help reveal how thority said it worried that big data could in dealing with questions of discrimina- likely you are to repay a loan. Money-man- price risky clients out of insurance. In May tion and exclusion. If using someone’s agers are rummaging ever more curiously the European Banking Authority warned browsing history to exclude them from an through customers’ digital lives. that the integrity of the financial sector offer for a cheap flight is OK, is it also rea- This is all part of an “intensifying data could be at stake if insecure data use erod- sonable to use those data to lock them out arms-race in finance”, says Magda Ramada ed trust. In December European regulators of health insurance (eg, by assuming that Sarasola from WillisTowersWatson, a con- listed concerns over privacy and ethical is- someone who Googles doughnut shops is sultancy, which claims that no industry sues. They are now consultingthe industry a bad risk)? Now that Amazon sells loans, used more big data last year. Banks and in- to see ifstricter rules are needed. Alibaba has a payments business and Fa- surers used to rely only on what customers Data can improve predictions of cebookhas patented a credit-ratingsystem, and credit agencies told them, but today whethersomeone will fall ill ordrive into a regulators should be at least as worried websites and mobile-banking apps let tree. Good algorithms are fasterand cheap- about non-traditional financiers and fin- them get much more close and personal. er than underwriters. Insurers also claim tech startups, which sometimes escape Less conventional sources are also popu- that the better they know customers, the regulation. The European General Data lar. Social-media profiles, web-browsing, more they can help change bad habits. The Protection Regulation, which comes into loyalty cards and phone-location trackers industry insists more customer data mean force next year, covers privacy issues fairly can all help. In a trial, FICO, America’s “tailored” products: someone about to comprehensively. It should help clarify the main credit-scorer, found that the words bungee jump can be warned that his life rules on handling personal data. someone uses in his Facebookstatus could policy doesn’t cover this, and be offered an Supervisors are slow, however. It is up help predict his creditworthiness (tip: add-on. Banks can protect customers to the industry to respond to customers’ avoid “wasted”). Even facial expressions against fraud if they follow their where- demands well before regulators require it. and tone ofvoice are being studied for risk. abouts. These techniques can also help New businesses that give people more Believers say such trawling will get cus- people outside the financial system gain control over data, such as digi.me, which tomers cheaper and better products. But access to finance. For the 64m Americans lets users share data only with those they consumer advocates accuse the industry without sufficient credit history and the want, hold promise. If such tools help us- of deliberate vagueness about its inten- 2bn people around the world without a ers become their own data-brokers, they tions. Financiers, unlike gamblers, have al- bankaccount, this would be good news. may be willing to share more data with ways used data. But most people, when But critics fear too much data-crunch- their mortgage lenders or insurers. But they accept the terms of a new app or click ing could actually increase financial exclu- trust will truly be earned only if financial away that annoying cookie message, have sion. The riskiest customers, and those off- firms, old and new, get ahead of the game no idea what they give away, to whom and line, might be priced out. The more the and starttalkingto customersaboutwhat’s for what purpose. According to the Euro- industry relies on complex—and propri- really going on behind their screens. 7 The Economist February 11th 2017 Finance and economics 65 Free exchange It’s been a privilege

As America grows weary ofdollardominance, the world grows nervous RUMPISM is in part an expression ofAmerican exhaustion at ments hold vast amounts of safe but low-yielding dollar assets, Tbearing burdens it first took up 70 years ago. Donald Trump like Treasury bonds, as reserves). That flow ofinvestment income hasmoaned lessaboutthe dollarthan aboutshirkingNATO allies allows America to run persistent current-account deficits—to buy or cheating trade partners. Yet the dollar standard is one of the more than it produces year after year, decade after decade. most vulnerable pillars of global stability. And the world is far This has become a privilege America seems eager to discard. from ready forAmerica to ditch its global financial role. An overvalued currency and persistent trade deficits are fine for Unlike other aspects of American hegemony, the dollar has America’s consumers, but painful for its producers. The reserve grown more important as the world has globalised, not less. In accumulation of the past two decades has gone hand-in-hand the Bretton Woods system devised for the post-war world, West- with a soaring current-account deficit in America. Imports have ern economies fixed their exchange rates to the dollar, which was grown fasterthan exports; new jobs in exporting industries have in turn pegged to the price of gold. After the fracturing of this sys- not appeared in numbers great enough to absorb workers dis- tem under the inflationary pressures of the 1970s, the dollar be- placed by increased foreign competition. Tariffs cannot fix this came more central than ever. As economies opened their capital problem. The current-account gap is a product of underlying fi- markets in the 1980s and 1990s, global capital flows surged. Yet nancial flows, and taxing imports will simply cause the dollar to most governments sought exchange-rate stability amid the slosh- rise in an offsetting fashion. ing tides of money. They managed their exchange rates using America’s privilege also increases inequality, since lost jobs in massive piles of foreign-exchange reserves (see chart). Global re- factories hurt workers while outsize investment performance serves have grown from under $1trn in the 1980s to more than benefits richer Americans with big portfolios. Because the rich $10trn today. are less inclined to spend an extra dollar than the typical worker, Dollar-denominated assets account for much of those re- this shift in resources creates weakness in American demand— serves. Governments worry more about big swings in the dollar and sluggish economic growth—except when consumer debt than in other currencies; trade is often conducted in dollar terms; rises as the rich lend their purchasing power to the rest. and firms and governments owe roughly $10trn in dollar-denom- Chalk the headaches generated by low interest rates up to the inated debt. Newresearch byEthan Ilzetzki, ofthe London School dollar standard, too. Some economists reckon they reflect global ofEconomics, and Carmen Reinhart and Kenneth Rogoff, of Har- appetite outstripping the supply of the safe assets America is vard University, concludes that the dollar is, on some measures, uniquely equipped to provide—dollar-denominated govern- more central to the global system now than it was immediately ment bonds. As the price ofsafe bonds rises, rates on those bonds after the second world war. It remains the world’s principal “an- fall close to zero, leaving central banks with ever less room to chor” currency,against which others seekto limit volatility. stimulate their economies when they run into trouble. America wields enormous financial power as a result. It can wreakhavoc by withholding supplies ofdollars in a crisis. When A new golden age the Federal Reserve tweaks monetary policy, the effects ripple A benign solution seems obvious: the dollar should share its role across the global economy. Hélène Rey of the London Business with other currencies. But one candidate to share the load—Chi- School argues that, despite their reserve holdings, many econo- na’s yuan—is inhibited by tight limits on Chinese financial mar- mies have lost full control over their domestic monetary policy, kets. Nor is increased dependence on China an attractive option because ofthe effect ofFed policy on global appetite for risk. for governments seeking to reduce their exposure to authoritar- Leaders of other economies bristle at this. During the heyday ian-minded, transparency-averse regimes with unclear motives. ofBretton Woods, ValéryGiscard d’Estaing, a French finance min- The role ofthe euro, the other logical option, is constrained by ex- ister (later president), complained about the “exorbitant privi- istential political risk and the scarcity of safe euro-denominated lege” enjoyed by the issuerofthe world’s reserve currency.Amer- bonds. What is more, the world’s big economies have much to ica’sreturn on itsforeign assetsismarkedlyhigherthan the return lose from an end to American monetary hegemony. Their politi- foreign investors earn on their American assets (foreign govern- cally convenient trade surpluses for one; the value of the enor- mous piles ofdollar-denominated assets for another. History suggests two ways in which Mr Trump might under- The cost of freedom mine the dollar’s role. Bretton Woods broke apart as a result of a Exchange-rate management fatal flaw: governmentswere desperate fordollars, but in creating more ofthem America fannedinflation, which made its gold peg 60 unsustainable. Similarly, should Mr Trump’s efforts to make 50 America great again through tax cuts and spending lead to ever larger budget deficits and rising inflation, American assets might 40 lose their lustre. America might resemble the 1970s again: with Countries with foreign- soaring prices and interest rates, but free ofits exorbitant burden. exchange controls, % of total 30 Alternatively,the dollarmight go the way ofthe inter-war gold 20 standard. That collapsed amid a breakdown in international co- Emerging-market operation, as governments of uncompetitive economies put up reserves, as % of US GDP 10 tariffsand then withdrew from the system altogetherthrough the erection of capital controls. It would be tragic if history’s lessons 0 were forgotten and had to be learned all over again. 7 1946 50 55 60 65 70 75 80 85 90 95 2000 05 10 16 Sources: IMF; Bureau of Economic Analysis Economist.com/blogs/freeexchange 66 Science and technology The Economist February 11th 2017

Molecular biology Also in this section Folding stuff 67 The death of Hans Rosling 68 Air conditioning without electricity 68 Robot bees 69 The evolution of genital mutilation

Shape determines a protein’s function. Determining that shape, though, is tricky BOUT 120,000 types of protein mole- and pass them on to a cell’s molecular ma- of these virtual foldings, even for a protein Acule have yielded up theirstructures to chinery. (Models of all three, in that order, this small, the project has, for more than a science. That sounds a lot, but it isn’t. The are shown above.) decade, relied on cadging processing pow- techniques, such as X-ray crystallography Almost all drugs work by binding to a er from thousands ofprivately owned PCs. and nuclear-magnetic resonance (NMR), particular protein in a particular place, Volunteers download a version of Dr Bak- which are used to elucidate such structures thereby altering or disabling that protein’s er’s program, called rosetta@home, that do not work on all proteins. Some types function. Designing new drugs is easier if runs in the background when a computer are hard to produce or purify in the vol- binding sites can be identified in advance. is otherwise idle. umes required. Others do not seem to crys- But that means knowing the protein’s This “citizen science” has helped a lot. tallise at all—a prerequisite for probing structure. To be able to predictthis from the But the real breakthrough, which led to them with X-rays. As a consequence, those order of the amino acids in the chain those 672 novel structures, is a shortcut structures that have been determined in- would thusbe ofenormousvalue. That isa known as protein-contact prediction. This clude representatives ofless than a third of hard task, but it is starting to be cracked. relies on the observation that chain-fold- the 16,000 known protein families. Re- ing patterns seen in nature bring certain searchers can build reasonable computer Chain gang pairs ofamino acids close together predict- models for around another third, because One of the leading researchers in the field ably enough for the fact to be used in the the structures of these resemble ones al- of protein folding is David Baker of the virtual-folding process. ready known. For the remainder, however, University of Washington, in Seattle. For An amino acid has fourarms, each con- there is nothing to go on. the past 20 years he and his colleagues nected to a central carbon atom. Two arms In addition to this lack of information have used increasingly sophisticated ver- are the amine group and the acid group about protein families, there is a lack of in- sions of a program they call Rosetta to gen- that give the molecule its name. Protein formation about those from the species of erate various possible shapes for a given chains form because amine groups and most interest to researchers: Homo sapiens. protein, and then work out which is most acid groups like to react together and link Only a quarter of known protein struc- stable and thus most likely to be the real up. The third is a single hydrogen atom. But tures are human. A majority of the rest one. In 2015 they predicted the structures the fourth can be any combination of at- come from bacteria. This paucity is a pro- of representative members of 58 of the oms able to bond with the central carbon blem, forin proteins form and function are missing protein families. Last month they atom. It is this fourth arm, called the side intimately related. A protein is a chain of followed that up by predicting 614 more. chain, which giveseach type ofamino acid smaller molecules, called amino acids, Even a small protein can fold up into its individual characteristics. that is often hundreds or thousands of tens of thousands of shapes that are more One common protein-contact predic- links long. By a process not well under- or less stable. According to Dr Baker, a tion is that, ifthe side chain ofone member stood, this chain folds up, after it has been chain a mere 70 amino acids long—a tid- of a pair of amino acids brought close to- made, into a specific and complex three-di- dler in biological terms—has to be folded gether by folding is long, then that of the mensional shape. That shape determines virtually inside a computer about 100,000 other member will be short, and vice what the protein does: acting as a channel, times in order to cover all the possibilities versa. In other words, the sum of the two say, to admit a chemical into a cell; or as an and thus find the optimum. Since it takes a lengths is constant. If you have but a single enzyme to accelerate a chemical reaction; standard microprocessor ten minutes to do protein sequence available, knowing this or as a receptor, to receive chemical signals the computations needed for a single one is not much use. Recent developments in 1 The Economist February 11th 2017 Science and technology 67

2 genomics, however, mean that the DNA se- If the deep-learning approach to pro- semi-processed cassava, which contains quences oflots ofdifferent species are now tein folding lives up to its promise, the high levels of cyanide. But it was his flair available. Since DNA encodes the amino- number of known protein structures for the dramatic that allowed him to share acid sequences of an organism’s proteins, should multiply rapidly.More importantly, that expertise with other people. the composition of those species’ proteins so should the number that belong to hu- It was a job that needed doing. By the is now known, too. That means slightly dif- man proteins. That will be of immediate 1990s he was teaching global health at the ferent versions, from related species, of value to drugmakers. It will also help biol- Karolinska Institute, in Stockholm. He what is essentially the same protein can be ogists understand better the fundamental found that his students—the cream of Swe- compared. The latest version of Rosetta workings of cells—and thus what, at a mo- den’s academic crop—had little idea about does so, looking for co-variation (eg, in this lecular level, it truly means to be alive. 7 the world. When he gave them five pairs of case, two places along the length of the countries and asked which of each pair proteins’ chains where a shortening of an had the higher rate of child mortality, the amino acid’s side chain in one is always ac- average number of correct answers was companied by a lengthening of it in the just 1.8. “Swedish students, in other other). In this way, it can identify parts of words,” he said, “know…less about the the folded structure that are close together. world than a chimpanzee.” (The chimp, by Though it is still early days, the method choosing randomly, would score 2.5 out of seems to work. None of the 614 structures five.) The same applied to his academic Dr Baker modelled most recently has yet colleagues—who, as he pointed out with a been elucidated by crystallography or twinkle in his eye, were responsible for NMR, but six of the previous 58 have. In handing out the Nobel prize formedicine. each case the prediction closely matched He was a natural showman. In 2007 he reality. Moreover, when used to “hindcast” finished a talkon global development with the shapes of 81 proteins with known a demonstration of sword-swallowing, in- structures, the protein-contact-prediction gesting a Swedish-army bayonet live on version ofRosetta got them all right. stage. As his fame grew, he became a regu- There is a limitation, though. Of the ge- lar at gatherings of the great and the good, nomes well-enough known to use for this presenting talks at TED (a series of confer- trick, 88,000 belong to bacteria, the most ences supposed to give novel ideas an air- speciose type of life on Earth. Only 4,000 ing; his were much better than most) and belong to eukaryotes—the branch of life, attending Davos, an annual gathering of made of complex cells, which includes the masters ofthe universe in Switzerland. plants, fungi and animals. There are, then, Obituary His stock-in-trade was debunking not yet enough relatives of human beings gloomy stereotypes about poor countries in the mix to look for the co-variation Dr The joy of stats and economic development. There were Baker’s method relies on. five surprising facts, for instance, that he Others think they have an answer to loved to hammer home: population that problem. They are trying to extend growth is slowing rapidly; the divide be- protein-contact prediction to look for rela- tween the global rich and poor is blurring; tionships between more than two amino humans are living much longer than 50 Hans Rosling, statistician, died on acids in a chain. This would reduce the years ago; many more girls are getting an February 7th, aged 68 numberofrelated proteinsneeded to draw education; and the numberofpeople in ex- structural inferences and might thus bring TATISTICS has not, traditionally, been treme poverty fell by a billion between human proteins within range of the tech- San exciting word. Its most common pre- 1980 and 2013. nique. But to do so, you need a different fix is the word “dry”. Askpeople what they Dr Rosling’s talent was to make those computational approach. Those attempt- think of statistics, or try to use some in an facts sing—to remind his audience that ing it are testing out the branch of artificial argument, and you will often get the quote these dry-sounding numbers are, in fact, intelligence known as deep learning. attributed to Benjamin Disraeli that lists the sum total of billions of real lives that them alongside lies and damned lies. That are better than they would have been half Linking the links is a shame: tables of figures may look dull, a centuryago. His elevation annoyed some Deep learning employs pieces of software but they are a better guide to what is hap- critics. Paul Ehrlich, a biologist who had, in called artificial neural networks to fossick pening in the world than anything on tele- the 1970s, predicted that hundreds of mil- out otherwise-abstruse patterns. It is the vision or in the press. lions of people would starve by the end of basis of image- and speech-recognition Hans Rosling had no time for the idea that decade, accused him of being a Polly- programs, and also of the game-playing that statistics were boring. Armed with anna. But it was hard to argue with his programs that have recently beaten hu- everything from a few Lego bricks and a facts. Mostsimplycelebrated him asa com- man champions at Go and poker. pocketful of draughts pieces to snazzy, spe- municator ofsome happy truths. Jianlin Cheng, of the University of Mis- cially made computer graphics, he had a Dr Rosling himself was sceptical about souri, in Columbia, who was one of the talent forusing numbers to tell exciting sto- howmuch impacthe had reallymade. Peo- first to apply deep learningin this way, says ries. Not just exciting, but optimistic, too, ple seemed to cling to their gloomy, wrong such programs should be able to spot cor- for the tales those numbers told were of a assumptions about the world. In 2013, in relations between three, four or more ami- world which, despite the headlines, was an interview with the Guardian, he reflect- no acids, and thus need fewer related pro- rapidly becoming a better place. ed: “When we asked the Swedish popula- teins to predict structures. Jinbo Xu, of the He knew what he was talking about. tion how many children are born per Toyota Technological Institute in Chicago, Besides being a statistician, he was also a woman in Bangladesh, they still think it’s claims to have achieved this already. He doctor with experience in some of the four to five.” In reality, the numbers have and his colleagues published their method world’s poorest corners. He did his PhD in not been that high for20 years. The current in PLOS Computational Biology, in January, Africa, studyinga disease called konzo that rate is 2.3—less than South Africa, and only and it is now being tested. strikes people whose diets include a lot of slightly higher than New Zealand. 7 68 Science and technology The Economist February 11th 2017

Materials science That cooling effect, 93 watts per square metre in direct sunlight, and more at night, A film worth watching is potent. The team estimates that 20 square metres of their film, placed atop an average American house, would be enough to keep the internal temperature at 20°C on a day when it was 37°C outside. To regulate the amount of cooling, any practical system involving the film would Keeping cool without costing the Earth probably need water pipes to carry heat to BOUT 6% of the electricity generated in the form of infrared radiation. In the case it from the building’s interior. Manipulat- AAmerica is used to power air-condi- of the beads, the wavelength of this radia- ing the flow rate through these pipes as the tioning systems that cool homes and of- tion is determined by their diameter. outside temperature varied would keep fices. Ascountriessuch asBrazil, China and Handily, those with a diameter of about the building’s temperature steady. Unlike India grow richer, they will surely do like- eight microns emit predominantly at the cooling system itself, these pumps wise. Not only is that expensive for cus- wavelengths which pass straight through would need power to operate. But not tomers, it also raises emissions of green- the infrared “window” in the atmosphere. much of it. Other than that, all the work is house gases in the form both of carbon Since the source of the heat that turns into done by the huge temperature difference, dioxide from burning power-station fuel this infrared is, in part, the building below, about 290°C, between the surface of the and of the hydrofluorocarbons air condi- the effect is to cool the building. Earth and that ofouter space. 7 tioners use as refrigerants. As they describe in a paper in this Pollination week’s Science, Ronggui Yang and Xiaobo Yin of the University of Colorado, in Boul- der, have a possible alternative to all this. Where the bee sucks They have invented a film that can cool buildings without the use of refrigerants Plans forartificial pollinators are afoot and, remarkably, without drawing any power to do so. Better yet, this film can be T IS, in one way, the ultimate drone. In made using standard roll-to-roll manufac- Ianother, though, it is the antithesis of turing methods at a cost ofaround 50 cents what a drone should be. Drones are a square metre. supposed to laze around in the hive The new film works by a process called while their sisters collect nectar and radiative cooling. This takes advantage of pollinate flowers. But pollination is this that fact that Earth’s atmosphere allows drone’s very reason forexisting. certain wavelengths ofheat-carrying infra- The drone in question is the brain- red radiation to escape into space unim- child ofEijiro Miyako, ofthe National peded. Convert unwanted heat into infra- Institute ofAdvanced Industrial Science red of the correct wavelength, then, and and Technology,in Tsukuba, Japan. It is you can dump it into the cosmos with no the first attempt by an engineer to deal come back. with what many perceive as an impend- DrYangand DrYin are notthe first to try ing agricultural crisis. Pollinating insects to cool buildings in this way. Shanhui Fan in general, and bees in particular, are and his colleagues at Stanford University, falling in numbers. The reasons why are in California, demonstrated a device that obscure. But some fear certain crops will used the principle in 2014. Their material, become scarcer and more expensive as a though, consisted of seven alternating lay- result. Attempts to boost the number of ers of hafnium dioxide and silicon dioxide natural pollinators have so farfailed. of varying thicknesses, laid onto a wafer Perhaps, thinks Dr Miyako, it is time to made of silicon. This would be difficult build some artificial ones instead. and expensive to manufacture in bulk. His pollinator-bot does not, it must be into contact with both the pollen-bearing Dr Yang’s and Dr Yin’s film, by contrast, said, lookmuch like a bee. It is a modified anthers and the pollen-receiving stigma- was made of polymethylpentene, a com- version ofa commercially available ta ofthose flowers, show that the drone mercially available, transparent plastic robot quadcopter, 42mm across. (By can indeed carry pollen from flower to sold under the brand name TPX. Into this comparison, a honeybee worker is about flower in the way an insect would— they mixed tiny glass beads. They then 15mmlong.) But the modifications mean though he has yet to confirm that seeds drew the result out into sheets about 50 it can, indeed, pollinate flowers. Specifi- result from this pollination. millionths of a metre (microns) thick, and cally—and crucially—Dr Miyako has At the moment, Dr Miyako’s drones silvered those sheets on one side. When armed it with paintbrush hairs that are have to be guided to their targets by a laid out on a roof, the silver side is under- covered in a special gel sticky enough to human operator. The next stage will be to neath. Incident sunlight is thus reflected pickpollen up, but not so sticky that it fit them with vision that lets them recog- back through the plastic, which stops it holds on to that pollen when it brushes nise flowers by themselves. Fortunately, heating the building below. up against something else. visual-recognition software is sufficiently Preventing something warming up is Previous attempts to build artificial developed that this should not be too not, though, the same as cooling it. The key pollinators have failedto manage this. Dr hard. In future, when you are walking to doing this is the glass beads. Tempera- Miyako, though, has succeeded. Experi- through an orchard in bloom, listen out ture maintenance is not a static process. All ments flying the drone up to lily and tulip forthe humming ofthe drones as well as objects both absorb and emit heat all the flowers, so that the gel-laden hairs come the buzzing ofthe bees. time, and the emissions are generally in The Economist February 11th 2017 Science and technology 69

Female genital mutilation give her better access to support networks, particularly of members of her own sex. Culture wars Cultural evolution, in other words, is gen- erating conformity in the same sort of way that biological evolution does when the plumage of a male bird has to conform to female expectations of what a male looks like if that male is to mate successfully, even though the particular pattern of his Understanding why the mutilation ofwomen happens may help stamp it out plumage brings no other benefit. ENES that increase an individual’s re- the groups the researchers looked at tend- All this does, though, offer a lever to Gproductive output will be preserved ed to cluster towards the ends of the distri- those who are trying to eradicate FGM, for and spread from generation to generation. bution, near either 0% or100%, rather than unlike genetic norms, cultural ones can be That is the process of evolution by natural being spread evenly along it. manipulated. The distribution’sshape sug- selection. More subtly, though, in species In the argot of statistics, then, the distri- gests that, if mutilation rates in societies that have the sorts of learnable, and thus bution is U-shaped. This suggests some- where FGM is now the norm could some- transmissible, behaviour patterns known thing is pushing behaviour patterns away how be pushed below 50%, then positive as culture, cultural changes that promote from the middle and towardsthe extremes. feedback might continue to reduce them successful reproduction are also likely to What that something might be is in turn without further effort (though such effort spread. This sort of cultural evolution is suggested by the two researchers’ second could well speed things up). less studied than the genetic variety, but finding: the consequences of mutilation One thing that is known to push in the perhaps that should change, for a paper fora woman’s reproductive output. right direction is more and better educa- published this week in Nature Ecology and tion—and notjustforgirls. Thatisdesirable, Evolution, by Janet Howard and Mhairi All or none though, for reasons far wider than just the Gibson of the University of Bristol, in Eng- For convenience, Ms Howard and Dr Gib- elimination of FGM. More specifically, in a land, suggests that understanding it better son defined a woman’s reproductive out- companion piece to Ms Howard’s and Dr may help wipe out a particularly unpleas- put as the number of her children still liv- Gibson’s paper, Katherine Wander ofBing- ant practice: female genital mutilation. ing when she reached the age of 40. Just hamton University, in New York state, of- FGM, as it is known for short, involves over10,000 women in the five pooled sur- fers a thought inspired directly by the new cutting or removing part or all ofa female’s veys were over this age, and it was from research. She wonders if fostering social external genitalia—usually when she is a them that the researchers drew their data. connections between “cut” and “uncut” child or just entering puberty.Unlike male Analysis showed that in ethnic groups women in a community might reorganise circumcision, which at least curbs the where mutilation was common, mothers supportnetworksspecificallyin a way that transmission of HIV, the AIDS-causing vi- who were themselves mutilated had more reduces the advantages ofmutilation. rus, FGM brings no medical benefit what- children over their reproductive lifetimes More widely, the method Ms Howard soever. Indeed, it often does harm. Besides than did the unmutilated. In groups where and Dr Gibson have pioneered, of looking psychological damage and the inevitable mutilation was rare, by contrast, it was the for unexpected advantages that help ex- risk that is associated with any sort of sur- other way around. At the extremes, in plain the persistence of other undesirable gery (especially when conducted outside a groups where mutilation was almost ubiq- behaviours, might be applied elsewhere. clinic), FGM can cause subsequent obstet- uitous or almost unheard of, the average So-called “honour killings” would be a ric complications and put a woman at risk difference amounted to a third or more of candidate for such a study, as would the re- of future infections. All these seem good an extra child per lifetime. That is a strong lated phenomena of daughter neglect and reasons why it would harm reproductive evolutionary pressure to conform to the the selective infanticide and selective output and thus be disfavoured by evolu- prevailing social norm, whatever it is. abortion of females. On the face of things, tion, whether biological or cultural. Yet the What causes this difference Ms Howard these might be expected to be bad for total practice persists, particularly in parts ofAf- and DrGibson cannotsayforsure, but they reproductive output. But perhaps, as with rica and among migrant populations origi- suggest that conforming to whichever FGM, that is not always the case. And, ifit is nating from these places. Ms Howard and norm prevails might let a woman make a not, such knowledge would surely help in Dr Gibson wanted to understand why. more advantageous marriage, and also the fight against them. 7 Todo so they drew on data from five na- tional health surveys carried out in west Africa (specifically, Burkina Faso, Ivory Coast, Nigeria, Mali and Senegal) over the past ten years. These provided data on the FGM-status—mutilated or otherwise—of more than 60,000 women from 47 ethnic groups. That enabled Ms Howard and Dr Gibson to establish the prevalence rates of mutilation in each of these groups, and to search for explanations ofany variation. They first confirmed formally what common sense would suggest is true—that the daughters of a mother belonging to an ethnic group where FGM is widespread are, themselves, more likely to have under- gone it than those of a mother not belong- ing to such a group. But there was more to the pattern of those results than mere cor- relation. The average rates of mutilation in Just stop it! 70 Books and arts The Economist February 11th 2017

Also in this section 71 The secrets of life underground 71 Thoughts on time 72 The nature of civil war 72 Edouard Louis’s French fiction 73 The frenetic Wolfgang Tillmans

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Lost Europe mixture of rapport with her subjects and detachment from their peculiarities. Leav- Mapping history ing her favourite valley in the Strandja mountains was “like pulling myself out with a corkscrew”, she writes. She high- lights stories barely known outside the re- gion, such as the communist Bulgarian re- gime’s vindictive deportation of 340,000 ethnic Turks in the 1980s and the doomed A giftedwritertravels through Europe’s mountainous south-eastern corner 15-yearstruggle ofthe Goryani (Woodland- RAGEDIES and mistakes are strewn Border: A Journey to the Edge of ers) against communist rule. Their fate is Tacross Europe’s borderlands. Nowhere Europe. absent from Bulgaria’s modern history: more so than in the continent’s mountain- By Kapka Kassabova. Granta; 379 theirmouths, she writes, “are full ofearth”. ous south-eastern corner, where the Iron pages; £14.99. To be published in America Yet the author’s astringent approach to Curtain once divided communist Bulgaria by Graywolf in September; $16 mythsand falsehoodscould be more even- from capitalist Greece and Turkey.The land ly applied. Many might quibble with Ms is haunted by that divide, and by vanished quarrels and environmental ruin. Ms Kas- Kassabova’s unsupported assertion that kingdoms, peoples and wars. Kapka Kassa- sabova’s book drips with scorn for the the Goryani were the “largest, longest-sus- bova’s poignant, erudite and witty third spivs, goons and far-off politicians whose tained resistance movement against Soviet book, “Border”, brings hidden history greed and carelessness wreak such mis- state terror in eastern Europe” (Ukraine’s vividly to light. chiefand misery. She was inspired to write and Poland’s anti-communist guerrilla The central theme of the book, topical- it after witnessing the “roughshod level- movements were the biggest, and the last ly, is frontiers. Lines on the map that are ling” of her adopted home in the Scottish Estonian partisan was on the run until drawn and policed by the powerful, pro- Highlands, and later, when helping Bulgar- 1978). The story of an East German family tect one sort of interests while severing ians clean up after a flood caused by illegal fleeing to the West in a home-made bal- others. “An actively policed border is loggingand the lootingofsand, she shouts, loon is not, as she dismisses it, “apocry- always aggressive,” she writes. “It is where “Something must be done.” “It’s because phal”: the briefest research reveals that it poweracquiresa body, ifnota human face, you don’t live here…You still believe in really happened, in 1979. Britain’s foreign and an ideology.” justice,” comes the crushing retort. espionage service is MI6, not MI5. Some of the book’s most striking pas- A particular treat is her ear for lurid lo- But these flaws pale against the strength sages are about “well-oiled feudal barbar- cal myths. Extraterrestrial beacons, myste- ofthe book: its treatment ofhistory’s bless- ity”, the abominable treatment that was rious balls of fire, lost pyramids and a se- ings and curses. Past imperial ages—chiefly meted out to those who tried to escape: cret site guarded by specially bred Uzbek Byzantine and Ottoman—laid down com- tricked and betrayed, beaten and jailed, or vipers all get a look in. The first account of plex, and mostly harmonious, layers of shot in cold blood and left to bleed to the region was in the fifth century BC, by languages, ethnicities, cultures and reli- death. At a time when memories of the So- Herodotus. Ms Kassabova gamely takes up gions, erased in the name of nation-build- viet empire’s vast prison camp are fading, the first historian’s torch. Her writing also ing and tidiness. Communities with roots the story Ms Kassabova has to tell is impor- has echoes of Patrick Leigh Fermor’s epic going back centuries were pulled up and tant. She grew up in communist Bulgaria tramp across the pre-war Balkans. But her dumped across borders that had once and remembers that system’s arbitrary sparse, ironic style lacks the self-conscious hardly mattered, into countries that they cruelty, which finds echoes today in the self-indulgence ofFermor’sprose, and is all scarcely knew. It is a “melancholy miracle”, mistreatment ofrefugees and migrants. the better forit. writes Ms Kassabova, that “odd ragged bits The post-communist era brought new She treads lightly but distinctly through of this once-rich human tapestry” survive. problems: corruption, petty nationalist the stories she tells, displaying an enviable They could have no better chronicler. 7 The Economist February 11th 2017 Books and arts 71

Nature notes vive drought, iguanas in the Bahamas to Thoughts on time weather hurricanes and alligators in Geor- The undercover gia to sit out wildfires. Clock-watching Because extremes in temperature are life of animals ironed out underground, the virtues of subterranean living have been used to hu- man advantage as well. Homes and hotels The Evolution Underground: Burrows, carved from abandoned opal mines in Why Time Flies: A Mostly Scientific Australia provide shelter from desert tem- Bunkers, and the Marvellous Subterranean Investigation. By Alan Burdick. Simon & peratures of 40-45°C (104-113°F) in summer. World Beneath Our Feet. By Anthony Martin. Schuster; 320 pages; $28 Likewise, shoppers in Montreal’s La Ville Pegasus; 405 pages; $28.95. To be published Souterraine escape the -25°C wind-chilled IME is such a slippery thing. It ticks in Britain by W.W. Norton in March; £22.99 Canadian winter. Taway, neutrally, yet it also flies and col- N THE card game of survival, the pocket Mr Martin offers a more ominous ex- lapses, and is more often lost than found. Igopher has been dealt a royal flush. ample of defensive digging in cold-war era Days can feel eternal but a month can gal- When Mount St Helens erupted in 1980 bunkers like “Site R” in Pennsylvania, lop past. So, is time ever perceived objec- and vaporised 600 square kilometres (230 which was built in the early 1950s. Hewed tively? Is this experience innate or is it square miles) ofthe Cascade mountains in from metamorphic rock 200 metres (650 learned? And how long is “now”, anyway? Washington state, the small mammal hun- feet) beneath a mountain, the nuclear Such questions have puzzled philosophers kered down in its burrow, and—unlike elk, blast-proof compound with capacity for and scientists for over 2,000 years. They mountain goats and coyotes, which per- 3,000 people features a barber shop, fit- also began to haunt Alan Burdick of the ished in their thousands—emerged from ness centre and a chapel. The military- New Yorker. Keen for answers, he set out the conflagration intact. It relied on a tactic communications centre is also a bolthole “on a journeythrough the world oftime”, a first exploited 545m years ago by trilobites forthe president ofthe United States. lengthy trip that spans everything from and marine worms: duckand cover. Congress had its own escape hatch, Zeno’s paradoxes to the latest neuro- In “The Evolution Underground” An- code-named “Casper,” built beneath the science. Alas, he arrives at a somewhat thony Martin of Emory University digs Greenbrier, a smart resort in White Sul- dispiriting conclusion: “If scientists agree into the subterranean strategies of prehis- phur Springs, West Virginia. Unlike the on anything, it’s that nobody knows toric and contemporary animals, from in- digs of another underground lodger—the enough about time.” sects to giant sloths and, to a lesser extent, gopher tortoise, which shares its space Humans are apparently poor judges of humans. Mr Martin is a geologist, pal- with hundreds of other species—the bun- the duration of time. Minutes seem to drag eontologist and, notably, an ichnologist—a ker’s welcome mat was not extended to when one is bored, tired or sad, yet they flit scientist who studies animal traces such as friends and family. No matter. In 1992, after by for those who are busy, happy or socia- burrows, tracksand trails. Theyoffer subtle the Washington Post blew the lid off Cas- lising (particularly if alcohol or cocaine is clues that help shift the dramatic narrative per, the site was closed and later became a involved). Eventful periods seem, in retro- of prehistoric life forward. Trace fossils tourist attraction. spect, to have passed slowly, whereas evince movement, whether the footprints In the raise-you-one nuclear-prolifera- humdrum stretches will have sped by. of a dinosaur or the sinuous bore hole of a tion stakes, the Soviet government built Although humans (and many animals) worm. They also reveal behaviour—the bunkers, too. In 1991 a report by the De- have an internal mechanism to keep time, nesting habits of horseshoe crabs, the dig- fence Department noted two: one under this turns out to be as reliable as a vintage ging methodology of ants, even the exis- the Kremlin and another near Moscow cuckoo clock. “It’s a mystery to me that we tence of a burrowing dinosaur, Oryctodro- State University—more evidence, Mr Mar- function as well as we do,” observes Dan meus cubicularis, co-discovered by Mr tin says, of the zenith reached by govern- Lloyd, a philosopher and time scholar at Martin in 2005 in south-western Montana. ments planning to “survive worst-case Trinity College in Hartford, Connecticut. In the Permian, Triassic and Cretaceous scenarios inflicted by human-caused ... St Augustine, a fourth-century philoso- eras burrowing animals (“prehistoric prep- disasters”. Magical thinking, that survival pher and theologian, was the first to recog- pers”, he calls them) survived the great ex- stuff. Though a volcano-proof burrow is a nise time as a property of the mind, an tinctions that obliterated other fauna, in- winning strategy for a pocket gopher, a experience of perception and far from ab- cluding dinosaurs. Today underground “nuke-proof” bunker may be more indica- solute. His insight turned what had been a warrens enable lungfish in Africa to sur- tive ofa losing game forhumans. 7 subject of physics into one of psychology, and it informs much of the work of later scientists. In the mid-1800s William James, a philosopherand psychologist, noted that the brain does not perceive time itself but its passage, and only because it is filled in some way. He grew baffled by efforts to quantify the present, observing that any instant melts in one’s grasp, “gone in the instant ofbecoming”. Of all interior clocks, the circadian is perhaps best understood. Nearly every or- ganism has a molecular rhythm cycle that roughly tracks a 24-hour period. In hu- mans all bodily functions oscillate de- pending on the time ofday. Blood pressure peaks around noon; physical co-ordina- tion crests in midafternoon; and muscles are strongest at around 5pm. Night-shift The pocket gopher’s pocket plaza workers are not as productive as they think1 72 Books and arts The Economist February 11th 2017

2 they are. Cataclysms of human error, in- can also be used to dismiss conflicts as in- cludingaccidentsatChernobyl and aboard ternal matters, as happened with Rwanda the Exxon Valdez, all tookplace in the small and Bosnia in the 1990s. It is rewritten as hours, when workers are measurably “revolution” when rebels are victorious— slowest to respond to warning signals. butwasthe American Revolution nota civ- Long-distance travel often makes a hash of il war within the British empire? Ruling the body’s “synchronised confederacy of powers, quick to deny the legitimacy of clocks”, disrupting not only sleep but their challengers, reduce it to illegal insur- metabolism. The jet-lagged body recovers rection. “Civil war”, by contrast, recognises at a rate ofabout one time zone per day. rebels as an equal, opposing party—in Mr Burdick spent quite a lot of time on effect, a separate nation. this book, beginning it just before his twin In “Civil Wars” Mr Armitage traces the sons were born and finishing it when they evolution of an explosive concept, not to were old enough to suggest titles. It reads pin down a proper meaning but to show like a discursive journey through a vague why it remains so slippery. The Romans, to and slippery subject, a thoughtful ramble whom he attributes the origin of the idea, across decades and disciplines. Although spoke of bellum civile with horror: a con- the study of time has yielded few firm flict against enemies who were really conclusions, one lesson is poignantly brothers, for a cause that, consequently, certain: most people complain that time could not be just, it defied their very crite- seems to speed up as they get older, in part ria for war. It was the savage, suicidal turn- because they feel more pressed for it. ing of a civilisation on itself. Yet, it seemed “Time”, writes Mr Burdick, “matters an inescapable feature of Roman civilisa- precisely because it ends.” 7 tion; its foundational curse, a recurrent phenomenon like the eruptions ofa volca- no. “No foreign sword has ever penetrated as a wound that never quite heals haunts Civil wars so,” wrote the poet Lucan. “It is wounds in- these conflicts and politics itself, which is, flicted by the hand of fellow-citizen that in the words of Michel Foucault, just civil Brother against have sunk deep.” Their corpus of pained war “by other means”. In an era of trans- reflections meant civil war was long national populism and anti-globalist re- brother viewed through “Rome-tinted spectacles”. volt, this notion is resonant. The meaning The age of revolutions in the late 18th of civil war, as Mr Armitage shows, is as century recast civil war as part of a vision- messy and multifaceted as the conflict it ary programme of change and emancipa- describes. His book offers an illuminating Civil Wars: A History in Ideas. By David tion. But the forward-looking idealism of guide through the 2,000-year muddle and Armitage. Knopf, 349 pages; $27.95. Yale the Enlightenment did not banish the does a good job of filling a conspicuous University Press; £18.99 senseless barbarism of civil war so much void in the literature ofconflict. 7 N DECEMBER 2011, months after fighting as create new conditions for violence. It is Ibroke out in Syria, a State Department hard to disregard the sense that revolution, spokesman was asked if the conflict was for all its Utopian promise, is merely a spe- French fiction really a civil war. He dodged the term, cies ofcivil war. which is fraught with legal, military, politi- International law has attempted to civi- From the bottom cal and economic implications for the lise civil war. But as Mr Armitage reminds intervention of outside states. Bashar al- readers, the modern order rests on sover- up Assad called his enemies “terrorists”. The eign inviolability and the pursuit of hu- Syrian people understood their conflict man rights, two principles that are in con- more hopefully, as a revolution (though flict, making clear guidelines elusive and The End of Eddy. By Edouard Louis. one exile insisted to the Guardian: “This is incomplete. The original Geneva Conven- Translated by Michael Lucey. Harvill Secker; nota revolution againsta regime any more, tion of 1864 did not even extend to civil 192 pages; £12.99. To be published in America this is a civil war.”) In July 2012, after17,000 wars: “It goes without saying international by Farrar, Straus & Giroux in May; $25 deaths, the Red Cross at last acknowledged laws are not applicable to them,” ex- that Syria was engaged in “armed conflict plained a drafter. Today’s legal protocols OU don’t get all that used to pain not ofan international character”. may only make leaders avoid the term, “Yreally,” writes Edouard Louis about Civil war, writes David Armitage, a his- complicating the humanitarian response it the perpetually sore hands and stiff joints torian at Harvard University, is “an essen- is meant to trigger. of a cousin who worked as a supermarket tiallycontested conceptaboutthe essential Globalisation has added further con- checkout girl. Although this autobiograph- elements of contestation”. Intrastate war ceptual twists. The first world war, John ical novel, by a French writer who is still has replaced wars between states as the Maynard Keynes said, was really a “Euro- only 24, has stirred a whirlwind of contro- most common form oforganised violence: pean civil war”. In the view of Carl versyabouttruth and fiction, classand sex- the annual average of intrastate wars be- Schmitt, a German political theorist, Le- uality, it never moves far from the tween 1816 and 1989 was a tenth of the ninist socialism unleashed a “global civil ordeal ofsheer physical suffering. number in each year since 1989. Only 5% of war”. To many today, transnational terro- Eddy Bellegueule—his birth name wars in the recent period have been be- rism is another kind of civil war without translates as “Eddy Prettymug”—grows up tween states. But an abundance of cases borders. Foreign intervention means that as a bullied misfit amid the post-industrial has not improved clarity. “Civil war” can even conflicts that begin within borders in- underclass of Hallencourt, in northern be invoked to bring a conflict within the creasingly spill beyond them, with rever- France. Cursed asa “faggot”, Eddy, “the odd constraints of the Geneva Convention and berations across the globe. In 2015, 20 of50 boy in the village”, is repeatedly brutalised to authorise intervention, including mil- internal conflicts were internationalised both at home and at school. In vain, he lions of dollars in humanitarian aid. But it civil wars. The Roman notion of civil war tries to fit in, pretending to have a taste for 1 The Economist February 11th 2017 Books and arts 73

2 football, girls, even for homophobia, until to shine at the elite Ecole Normale Supé- has gone on to explore a wider world. At escape becomes “the only option left to rieure in Paris. Did the book betray Eddy’s the Tate visitors will be able to lose them- me”. In this culture where male violence stricken family as his growing attraction to selves in images so large that they could appears “natural, self-evident”, Eddy’s fa- boys rather than girls “transformed my swallow you up—a seascape measuring ther not only terrorises his family but him- whole relationship with the world”? Does three metres by four and a market scene in self. He suffers excruciating back pain that this narrative of hell in Hallencourt, at Ethiopia that occupies an entire wall. leaves him “screaming in [the] bedroom” once visceral and cerebral, demonise the The emotion forwhich MrTillmans has and drives him from his job at a brass so-called Lumpenproletariat, or depict trag- always been known, the romance even, is foundry.Everywhere, “masculine neglect” ic victims trapped in roles “both imposed still there, as he continues to conjure from in familiesthat have dropped out ofsteady by social forces ... and also consciously this two-dimensional medium a three- employment means that these “tough assumed”? A disciple of Pierre Bourdieu, a dimensional world. A new work of a blue guys” inflict the worst violence on their French sociologist, Mr Louis denounces jacket and shiny navy shorts gently crum- own bodies. They suffer drunk-driving the “class violence” of inequality and pling together has the real-life contours of accidents, chronic pain, untreated injuries opposes the tide of right-wing populism finely painted renaissance drapery. “I’d and “alcohol-induced comas”. One forgot- that has swept through such abandoned just done a blue wash,” he explains of the ten man even “died in hisown excrement”. communities. Michael Lucey’s translation effortless pairing of garments. “These pos- In fighting and abuse, agony begets agony. conveys both the scorchingsorrow and the sibilities emerge 24 hours a day.” What A bestseller when it came out in France cool intelligence of a book that—half- look like a series of natural occurrences, in 2014, “The End of Eddy” triggered a very misery memoir, half-radical tract—finds a though, are rarely quite that. “It is a fiction French critical skirmish. By this time, Mr voice for so much pain. The scapegoat of that looks like reality,” he says. “But it’s Louis had changed his name and gone on Hallencourt has become its spokesman. 7 easy to make things lookcomplicated and I aim for the opposite.” And the politics pre- vails, as in views of the sea from the island Wolfgang Tillmans of Lampedusa in the Mediterranean, where searchlights scour the ocean. Fiery angel Asa teenager, MrTillmanswasfascinat- ed by London (a series of works from the 1980s imagined him living a fantasy life in the city). He moved there in his mid-20s and then, as he became more successful in America, to New York. But he failed to find his inner American and returned to Britain Two exhibitions show the restless energy ofa German master-artist soon after. HE photograph of two skinny, half- The last time MrTillmans had a show at Since 2011 Mr Tillmans has been work- Tnaked 20-somethings defined a genera- the Tate was in 2003 (he won the Turner ing from a studio in Berlin in a Bauhaus- tion. “Lutz and Alex Sitting in the Trees” prize in 2000, the first non-British artist to style building that dates back to 1928. In a was a near perfect evocation of the coun- do so). He has chosen that date as the sequence of spectacular spaces that are terculturalism of rave in the early 1990s. jumping-off point for this exhibition and flooded with daylight, as many as 15 assis- The image was so iconic that even people may even be using it to separate himself tants help to prepare shows, manage the who have never heard of Wolfgang Till- from his past. There is no “Lutz and Alex”; archive and support Mr Tillmans in the mans, the German artist who shot it, none of the photographs of the Concorde production of his work. A second studio, would recognise it right away. The photo- jet, which he made in1997 and which went over the road and up several flights of graph was published in a cool British mag- on to cement his reputation as an artist to stairs, is the artist’s more private space. It azine in 1992, but Mr Tillmans is a hard be reckoned with. Instead, the artist who was here, for example, that he made a worker with a prodigious output and he started out closely observing his own tribe small-scale maquette of his Tate show, ar- has done a great deal since then. ranging postage-stamp reproductions in its Two new exhibitions, one in London miniature galleries. He will do the same for and another which opens in late May near his second, equally majestic, exhibition at Basel, will show visitors what he has the Beyeler Foundation near Basel. Not a achieved. The first, at Tate Modern, ex- single piece of work will be repeated be- plores Mr Tillmans’s more recent experi- tween the two shows, though the Beyeler mental work, from his dramatic colour ab- exhibition promises rather more figurative stractions to his still lifes of kiwi fruit work, particularly the shots of slender lobsters and cigarettes, which owe a debt men forwhich he is known. to their 17th-century Dutch antecedents. A Mr Tillmans divides his day into two slide show ofup to 500 buildings shot in 37 long shifts, the first with his team in the countries presents a harsh commentary on 1928 building and the second in isolation architecture today.There is also a room de- across the street. His secret, he says, is “mi- signed for listening to music in perfect stu- cro naps”. If the pace is relentless, he is dri- dio conditions, since Mr Tillmans believes ven, it seems, by a passion for discovery that, at its best, popular music is art, too. that in his childhood lured him to astrono- Indeed, he has never distinguished be- my and physics and as an adult has made tween high art and low. He is as happy to him determined to give everything a go. see his work in magazines as in museums, He has just returned to making music— and regards his occasional DJ sets in night- rumbling vocals over staccato techno clubs as part of his art project. It is this beats—under the name Fragile. “The pres- democratic approach, as much as the aes- sure of experimentation is greater than the thetic content of his work, that has won fear of embarrassment,” he says. “That is him so many fans. Going Dutch the essence ofart.” 7 74 Courses

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The Economist February 11th 2017 76 Economic and financial indicators The Economist February 11th 2017

Economic data % change on year ago Budget Interest Economic data Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Feb 8th year ago United States +1.9 Q4 +1.9 +1.6 +0.5 Dec +2.1 Dec +1.3 4.8 Jan -476.5 Q3 -2.6 -3.2 2.39 - - China +6.8 Q4 +7.0 +6.7 +6.0 Dec +2.1 Dec +2.0 4.0 Q4§ +210.3 Q4 +2.4 -3.8 3.11§§ 6.88 6.57 Japan +1.1 Q3 +1.3 +0.9 +3.0 Dec +0.3 Dec -0.2 3.1 Dec +190.9 Dec +3.7 -5.5 0.10 112 116 Britain +2.2 Q4 +2.4 +2.0 +1.9 Nov +1.6 Dec +0.7 4.8 Oct†† -138.1 Q3 -5.4 -3.7 1.38 0.80 0.70 Canada +1.3 Q3 +3.5 +1.2 +1.5 Nov +1.5 Dec +1.5 6.9 Dec -53.6 Q3 -3.5 -2.4 1.62 1.31 1.40 Euro area +1.8 Q4 +2.0 +1.7 +3.2 Nov +1.8 Jan +0.2 9.6 Dec +394.6 Nov +3.3 -1.8 0.30 0.93 0.90 Austria +1.2 Q3 +2.4 +1.5 +2.3 Nov +1.4 Dec +0.9 5.7 Dec +8.0 Q3 +2.5 -0.9 0.63 0.93 0.90 Belgium +1.1 Q4 +1.6 +1.2 +0.4 Nov +2.6 Jan +1.8 7.6 Dec +3.4 Sep +1.0 -3.0 0.88 0.93 0.90 France +1.1 Q4 +1.7 +1.2 +1.8 Nov +1.4 Jan +0.3 9.6 Dec -26.8 Dec‡ -1.1 -3.3 1.10 0.93 0.90 Germany +1.7 Q3 +0.8 +1.8 -0.6 Dec +1.9 Jan +0.4 5.9 Jan +296.9 Nov +8.9 +0.6 0.30 0.93 0.90 Greece +1.6 Q3 +3.1 +0.4 +2.3 Nov nil Dec nil 23.0 Oct -1.0 Nov -0.3 -7.7 7.87 0.93 0.90 Italy +1.0 Q3 +1.0 +0.9 +3.2 Nov +0.9 Jan -0.1 12.0 Dec +50.9 Nov +2.7 -2.6 2.24 0.93 0.90 Netherlands +2.4 Q3 +3.1 +2.0 +4.8 Dec +1.7 Jan +0.1 6.4 Dec +57.1 Q3 +8.1 -1.1 0.55 0.93 0.90 Spain +3.0 Q4 +2.8 +3.2 -1.6 Dec +3.0 Jan -0.3 18.4 Dec +24.3 Nov +1.8 -4.6 1.82 0.93 0.90 Czech Republic +1.6 Q3 +0.9 +2.4 +2.7 Dec +2.0 Dec +0.7 5.3 Jan§ +3.7 Q3 +1.7 nil 0.49 25.2 24.3 Denmark +1.1 Q3 +1.5 +1.0 +10.0 Dec +0.5 Dec +0.3 4.3 Dec +24.5 Dec +7.3 -1.4 0.35 6.94 6.70 Norway -0.9 Q3 -1.9 +0.6 -2.2 Dec +3.5 Dec +3.5 4.7 Nov‡‡ +18.0 Q3 +4.2 +3.5 1.78 8.30 8.61 Poland +2.0 Q3 +0.8 +2.6 +2.4 Dec +0.8 Dec -0.7 8.3 Dec§ -3.1 Nov -0.5 -2.4 3.77 4.03 3.99 Russia -0.4 Q3 na -0.5 +3.0 Dec +5.0 Jan +7.1 5.3 Dec§ +22.2 Q4 +2.0 -3.6 8.22 59.2 78.1 Sweden +2.8 Q3 +2.0 +3.1 -0.9 Dec +1.7 Dec +1.0 6.5 Dec§ +22.2 Q3 +4.6 -0.3 0.68 8.84 8.48 Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 nil Dec -0.4 3.3 Dec +68.2 Q3 +9.4 +0.2 -0.10 0.99 0.99 Turkey -1.8 Q3 na +2.4 +1.2 Dec +9.2 Jan +7.8 11.8 Oct§ -33.7 Nov -4.4 -1.1 10.94 3.71 2.95 Australia +1.8 Q3 -1.9 +2.4 -0.2 Q3 +1.5 Q4 +1.3 5.8 Dec -47.9 Q3 -3.1 -2.3 2.70 1.31 1.41 Hong Kong +1.9 Q3 +2.5 +1.2 -0.1 Q3 +1.2 Dec +2.4 3.3 Dec‡‡ +13.3 Q3 +2.8 +1.3 1.84 7.76 7.79 India +7.3 Q3 +8.3 +6.9 +5.7 Nov +3.4 Dec +4.8 5.0 2015 -11.1 Q3 -0.6 -3.8 6.75 67.2 67.9 Indonesia +4.9 Q4 na +5.0 -2.3 Nov +3.5 Jan +3.5 5.6 Q3§ -19.2 Q3 -2.1 -2.3 7.64 13,325 13,625 Malaysia +4.3 Q3 na +4.3 +6.2 Nov +1.8 Dec +2.1 3.4 Nov§ +5.6 Q3 +1.7 -3.4 4.13 4.44 4.16 Pakistan +5.7 2016** na +5.7 +7.8 Nov +3.7 Jan +3.8 5.9 2015 -5.0 Q4 -1.8 -4.6 8.15††† 105 104 Philippines +6.6 Q4 +7.0 +6.9 +14.6 Nov +2.7 Jan +1.8 4.7 Q4§ +3.1 Sep +0.9 -2.3 4.25 49.9 47.7 Singapore +1.1 Q3 +9.1 +1.8 +21.3 Dec +0.2 Dec -0.5 2.2 Q4 +63.0 Q3 +23.6 +0.7 2.22 1.41 1.41 South Korea +2.3 Q4 +1.6 +2.7 +4.3 Dec +2.0 Jan +1.0 3.2 Dec§ +98.7 Dec +7.4 -1.6 2.13 1,147 1,197 Taiwan +2.6 Q4 +1.9 +1.1 +6.2 Dec +2.2 Jan +1.4 3.8 Dec +74.7 Q3 +13.0 -0.4 1.13 31.1 33.3 Thailand +3.2 Q3 +2.2 +3.2 +0.5 Dec +1.6 Jan +0.2 0.8 Dec§ +46.4 Q4 +10.7 -2.1 2.57 35.0 35.5 Argentina -3.8 Q3 -0.9 -2.2 -2.5 Oct — *** — 8.5 Q3§ -15.7 Q3 -2.7 -4.7 na 15.7 14.3 Brazil -2.9 Q3 -3.3 -3.5 nil Dec +5.4 Jan +8.1 12.0 Dec§ -23.5 Dec -1.2 -6.3 10.26 3.12 3.92 Chile +1.6 Q3 +2.5 +1.7 +0.3 Dec +2.8 Jan +3.8 6.1 Dec§‡‡ -4.8 Q3 -1.6 -2.8 4.16 647 710 Colombia +1.2 Q3 +1.3 +1.6 +1.6 Nov +5.5 Jan +7.5 8.7 Dec§ -13.7 Q3 -4.8 -3.8 6.74 2,881 3,361 Mexico +2.0 Q3 +4.0 +2.1 +1.3 Nov +3.4 Dec +2.9 3.7 Dec -30.6 Q3 -2.9 -2.6 7.37 20.5 18.7 Venezuela -8.8 Q4~ -6.2 -13.7 na na +424 7.3 Apr§ -17.8 Q3~ -2.9 -24.3 10.43 9.99 6.31 Egypt +4.5 Q2 na +4.3 -1.2 Nov +23.3 Dec +13.8 12.6 Q3§ -20.8 Q3 -6.9 -12.2 na 18.0 7.83 Israel +5.2 Q3 +3.6 +3.5 -4.5 Nov -0.2 Dec -0.5 4.3 Dec +13.3 Q3 +3.3 -2.2 2.32 3.75 3.89 Saudi Arabia +1.4 2016 na +1.4 na +1.7 Dec +3.5 5.6 2015 -46.8 Q3 -5.7 -11.4 na 3.75 3.75 South Africa +0.7 Q3 +0.2 +0.5 +0.5 Nov +6.8 Dec +6.3 27.1 Q3§ -12.3 Q3 -3.8 -3.4 8.85 13.4 16.1 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% †††Dollar-denominated bonds. The Economist February 11th 2017 Economic and financial indicators 77

Markets % change on The Economist poll of forecasters, February averages (previous month’s, if changed)

Dec 31st 2015 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP Feb 8th week currency terms 2016 2017 2016 2017 2016 2017 2016 2017 United States (DJIA) 20,054.3 +0.8 +15.1 +15.1 Australia 2.2 / 2.6 2.1 / 2.9 2.4 2.6 1.3 2.1 -3.1 (-3.2) -2.2 (-2.3) China (SSEA) 3,316.3 +0.2 -10.5 -15.5 Brazil -3.6 / -3.3 0.1 / 1.5 -3.5 (-3.4) 0.7 (0.9) 8.1 (8.4) 4.9 (5.2) -1.2 -1.5 (-1.4) Japan (Nikkei 225) 19,007.6 -0.7 -0.1 +7.5 Britain 2.0 / 2.1 1.0 / 1.7 2.0 1.4 (1.2) 0.7 2.6 (2.5) -5.4 (-5.6) -4.6 (-4.7) Britain (FTSE 100) 7,188.8 +1.1 +15.2 -2.1 Canada 1.0 / 1.5 1.2 / 2.3 1.2 1.9 (1.8) 1.5 1.9 -3.5 -2.9 Canada (S&P TSX) 15,554.0 +1.0 +19.6 +26.4 China 6.6 / 6.8 6.2 / 6.8 6.7 6.5 (6.4) 2.0 2.2 2.4 (2.3) 2.1 Euro area (FTSE Euro 100) 1,098.1 -0.5 +0.3 -1.1 France 1.1 / 1.3 1.0 / 1.6 1.2 1.3 (1.2) 0.3 1.4 (1.2) -1.1 (-1.2) -1.0 (-1.2) Euro area (EURO STOXX 50) 3,238.0 -0.6 -0.9 -2.3 Germany 1.6 / 1.9 1.1 / 1.9 1.8 1.5 0.4 1.8 (1.6) 8.9 (8.8) 8.4 (8.2) Austria (ATX) 2,706.1 -0.8 +12.9 +11.3 India 6.0 / 7.6 6.3 / 8.4 6.9 (7.0) 7.4 4.8 (4.9) 4.8 -0.6 -1.0 (-0.9) Belgium (Bel 20) 3,584.0 +0.2 -3.1 -4.5 Italy 0.8 / 1.0 0.6 / 1.1 0.9 0.8 -0.1 1.2 (1.0) 2.7 (2.4) 2.4 (2.2) France (CAC 40) 4,766.6 -0.6 +2.8 +1.3 Japan 0.5 / 1.1 0.7 / 1.6 0.9 1.2 (1.1) -0.2 0.8 (0.7) 3.7 3.5 Germany (DAX)* 11,543.4 -1.0 +7.5 +5.9 Russia Greece (Athex Comp) 610.9 -1.3 -3.2 -4.6 -0.8 / -0.2 0.6 / 2.6 -0.5 1.3 7.1 (7.0) 4.9 (5.0) 2.0 (2.3) 2.9 (2.8) Spain Italy (FTSE/MIB) 18,771.8 +0.2 -12.4 -13.6 2.9 / 3.3 2.0 / 3.0 3.2 2.4 (2.3) -0.3 2.0 (1.5) 1.8 (1.7) 1.5 United States Netherlands (AEX) 483.5 +0.8 +9.4 +7.9 1.5 / 1.9 1.5 / 2.7 1.6 2.2 (2.3) 1.3 (1.4) 2.3 (2.4) -2.6 -2.7 (-2.5) Euro area Spain (Madrid SE) 942.5 -0.2 -2.3 -3.7 1.6 / 1.8 1.2 / 1.8 1.7 (1.6) 1.5 (1.4) 0.2 (0.3) 1.5 (1.4) 3.3 3.0 Czech Republic (PX) 955.2 +1.8 -0.1 -1.6 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 804.3 -2.4 -11.3 -12.2 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 32,595.9 nil +36.3 +37.3 Norway (OSEAX) 771.2 -1.0 +18.8 +26.8 Poland (WIG) 55,642.6 nil +19.7 +17.3 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,164.7 -0.2 +53.8 +53.8 % change on 2005=100 % change on Sweden (OMXS30) 1,549.2 +0.1 +7.1 +2.1 Dec 31st 2015 one one Switzerland (SMI) 8,378.7 +0.6 -5.0 -4.3 Jan 31st Feb 7th* Index one in local in $ month year Turkey (BIST) 88,249.1 +1.6 +23.0 -3.3 Feb 8th week currency terms Dollar Index Australia (All Ord.) 5,703.4 nil +6.7 +12.1 United States (S&P 500) 2,294.7 +0.7 +12.3 +12.3 All Items 148.7 148.3 +2.5 +19.5 Hong Kong (Hang Seng) 23,485.1 +0.7 +7.2 +7.0 United States (NAScomp) 5,682.5 +0.7 +13.5 +13.5 Food 160.2 160.1 +2.0 +10.9 India (BSE) 28,289.9 +0.5 +8.3 +6.6 China (SSEB, $ terms) 338.7 +0.1 -20.6 -20.6 Indonesia (JSX) 5,361.1 +0.6 +16.7 +20.8 Japan (Topix) 1,524.2 -0.2 -1.5 +6.0 Industrials Malaysia (KLSE) 1,688.5 +1.0 -0.2 -3.5 Europe (FTSEurofirst 300) 1,434.2 +0.1 -0.2 -1.7 All 136.9 136.0 +3.1 +31.9 Pakistan (KSE) 49,875.0 +0.8 +52.0 +51.9 World, dev'd (MSCI) 1,802.3 +0.5 +8.4 +8.4 Nfa† 148.8 150.5 +6.0 +40.6 Singapore (STI) 3,066.5 nil +6.4 +6.7 Emerging markets (MSCI) 921.7 +1.0 +16.1 +16.1 Metals 131.8 129.8 +1.7 +28.0 South Korea (KOSPI) 2,065.1 -0.7 +5.3 +7.6 World, all (MSCI) 435.9 +0.5 +9.1 +9.1 Sterling Index Taiwan (TWI) 9,543.3 +1.0 +14.5 +20.8 World bonds (Citigroup) 894.0 +0.6 +2.8 +2.8 All items 215.0 216.9 +0.4 +39.2 Thailand (SET) 1,589.3 +0.8 +23.4 +26.7 EMBI+ (JPMorgan) 793.9 +1.2 +12.7 +12.7 Euro Index Argentina (MERV) 19,147.9 -0.3 +64.0 +35.3 Hedge funds (HFRX) 1,213.6§ +0.2 +3.4 +3.4 Brazil (BVSP) 64,835.4 nil +49.6 +89.6 Volatility, US (VIX) 11.5 +11.8 +18.2 (levels) All items 171.1 169.3 -0.3 +24.1 Chile (IGPA) 21,292.9 +1.4 +17.3 +28.5 CDSs, Eur (iTRAXX)† 75.1 +2.1 -2.6 -4.0 Gold Colombia (IGBC) † 10,058.8 -0.8 +17.7 +29.7 CDSs, N Am (CDX) 66.8 +1.5 -24.4 -24.4 $ per oz 1,211.5 1,234.0 +3.9 +3.4 Mexico (IPC) 46,921.7 -0.2 +9.2 -8.1 Carbon trading (EU ETS) € 5.2 -0.2 -37.6 -38.5 West Texas Intermediate Venezuela (IBC) 28,274.6 +0.6 +93.8 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 52.8 52.2 +2.7 +84.2 Egypt (EGX 30) 13,228.3 +5.1 +88.8 -18.1 †Credit-default-swap spreads, basis points. §Feb 7th. Israel (TA-100) 1,244.9 -0.7 -5.3 -1.7 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Saudi Arabia (Tadawul) Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & 6,967.4 -1.9 +0.8 +0.9 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 51,803.5 -2.4 +2.2 +18.2 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Ken Morrison The Economist February 11th 2017

day—of the Safeway chain in 2004. It gave him the chance to get 479 more shops all over the country, but there were good and bad sides to that. Alot ofthe shops were on their uppers, for a start. But even trickier was the task of taking a Yorkshire chain down south. He didn’t like going there himself, and wheneverin London couldn’t wait to get back to egg and chips in Brad- ford. Down south they ate things like salm- on and spinach salad, and wouldn’t know a black pudding if it hit them on the head. Morrisons by contrast was a temple of the great northern pie: steak and ale, minced beef and onion, rhubarb. A bell rang every time a batch came fresh from the oven, their flavour was proudly stamped round the rim, and in Skipton a man worked full- time to sample them fortastiness. The north-versus-south clash got better eventually, when the economic downturn made southerners appreciate a bargain. The takeover’s disastrous effect on profits lasted a decade, unfortunately, and mean- while the world was changing. Jumped-up discounters were offering crazy prices. Tesco and Sainsbury’s were racing away with online shopping, small local shops, Grocer and proud of it points cards and all that gimcrackery. He didn’t join in. Nothing wrong with being old-fashioned. He liked the 1970s vinyl chairs in his office; they weren’t worn out yet. He believed in manual stock and cash controls. Just the look of his stores, with SirKen Morrison, chairman for55 years ofMorrisons supermarkets, died on butcher’s and baker’s and cheese stalls ar- February1st, aged 85 ranged as “Market Street”, was meant to re- S HE patrolled the aisles of his shops in stall from nine and taken it over at 21, with call Bradford shopping in the old days. ALeeds, Boroughbridge or wherever he no training save what he’d picked up at the The secret of being a successful grocer might be, in his yellow and black Morri- dinner table. He knew his craft. For exam- was simple and didn’t change. Know your sons tie and his short-sleeved “get crack- ple: you could tell how a business was do- customers, insist on quality, keep prices ing” shirt, Ken Morrison’s eyes would ing not by the shiny front door (though, by down. If in doubt, have a cup of tea. That gleam with happiness. He was a grocer, the 2016, 11m customers a week were coming was it. Forget statistical studies, retail engi- bestjob in the world. Betterstill, he wasthe through his), but from what it threw away. neering and all that rubbish. Why hire fan- bestgrocerin Yorkshire, God’sown county, If time allowed his visits would include a cy consultants, if you could spot problems where folk didn’t part with their money good look through the bins at the back, yourself? Why appoint a non-executive di- without a good excuse. The fact that his which was one reason why he didn’t often rector, when you could get two hard-work- food-supermarket chain had also grown wear a suit. ing check-out girls for the same money? into Britain’s fourth-biggest, up from his fa- Any sort of waste annoyed him. Wast- Why bother with the internet, if you could ther’s egg-and-butter stall in Bradford mar- ing words, for one. Why use 100 when 50 send the groceries round by bike? ket, was also gratifying. Record sales and would do? Why use 50 when a look was profits for 35 years, between flotation in enough? When some chap asked him once What customers want 1967 and entering the FTSE 100 in 2001, to explain his “store-siting policy” he said, But progress, so-called, beckoned. From were not to be sneezed at. But nothing was “We get on a bus and we look for chimney 2006 he suffered chief executives to come more energising than that daily round of pots.” Silly bugger. Wasting time was no in from outside, though the first patently pacing the floor, chatting to customers and good either, such as fillingin the form to get wasn’t even a retailer, and all of them giving the staff either pats on the head or in “Who’s Who”. But wasting money was needed watching, which he did by having kicks up the backside, as warranted. the worst. Buying what you didn’t need, fish-and-chip lunches with them on Fri- During these strolls he missed nothing borrowing to get it. He so hated debt that days. All that internet stuff came too, of out. He checked the vegetables weren’t when he tookouta bankloan once to build course. Customers seemed to want it now. wilting and the cream not sloppy on the up the business, he never used it. The busi- Last year he saw his business return to eclairs, and would take the cellophane off ness grew very nicely anyway, from the healthy growth and profit. Back where it sandwiches to see how fresh they were. first shop in Bradford with three checkouts had always been until the Safeway bout of Watching such details was the habit of a and self-service, in 1958, to the town’s first indigestion, and where it should be. Be- lifetime. How many hours had he spent as supermarket (in the old Victoria cinema, in cause, you know, it was still his, though he a boy in that dark shed behind the house, 1961) and on from there. had retired in 2008 to his chateau in My- holding eggs up to a candle to make sure He didn’t gamble, except the once: his ton-on-Swale. And every shop kept his there were no chicks inside? He’d done £3.3bn ($6bn) takeover—not merger, as he presence in it, checking the dates on the that from the age of five, helped out on the told theirexecutives in plain words on deal sliced ham and rattling the bins. 7

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