The Economist November 14Th 2015 7

The truth about airport security SoftBank: a rare risk-taker in Japan Rice, the world’s most distorted staple Putting the laugh into the Laffer curve

NOVEMBER 14TH–20TH 2015 Economist.com Homoerotic fiction in China The Chronicles of Debt

A saga that haunts the world economy

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12 The world this week Asia 39 Democracy in Myanmar Leaders Historic elections 15 The world economy 40 Polling in Bihar The never-ending story A big defeat for Modi 16 Myanmar’s general 42 Politics in Thailand election A troubled elite A new era 43 Indonesian tourism 16 Britain and the EU Trying to catch up How to make the case 43 Regional development Britain and Europe David 17 Student protests APEC’s uncertain future Cameron needs to tell a more The right to fright 44 Banyan China’s summit with Taiwan positive story about Britain’s 18 Markets in rice EU membership: leader, page On the cover Hare-grained 16. The prime minister faces a First America, then Europe. China tougher fight with his own Now the debt crisis has Letters 45 Politics party than with other reached emerging markets: European leaders, page 56 20 On college, BlackRock, The rise of a new generation leader, page 15. The world is America’s army, the 46 Internet fiction entering the third instalment British Parliament, Sex and censors of a debt saga, pages 25-28. Europe, James Bond In America, wage growth is at last accelerating. But living Middle East and Africa standards will continue to Briefing 47 Arab bureaucracies stagnate, page 29 25 The world economy Aiwa (yes) minister Pulled back in 48 Iran’s crackdown After the nuclear deal The Economist online United States 48 Conflict in Sinai Daily analysis and opinion to The peninsular war supplement the print edition, plus 29 Wages 49 Israel and Palestine audio and video, and a daily chart Looking for a rise Economist.com 30 Electing judges Stick a label on it Free speech on campus 49 Recovery in Liberia An obsession with safe spaces E-mail: newsletters and Courting cash Ebola’s aftermath is not just bad for education— mobile edition 31 Undocumented migrants it also diminishes worthwhile Economist.com/email A stay, so go 50 Uganda campus protests: leader, President forever Print edition: available online by 31 Beards page17 7pm London time each Thursday Pogonophilia Economist.com/print 32 Politics in Louisiana Europe Audio edition: available online Sins of the fathers 51 Doping in athletics to download each Friday 33 Illinois’s budget stand-off Russians on steroids Economist.com/audioedition Rauner v the rest 52 Russia and terrorism 34 Lexington Tolerance for casualties The narcissism trap 52 France’s National Front Fear of migrants The Americas 53 The Polish right Volume 417Number 8964 35 Immigration to Brazil Back in power No golden door 54 Politics in Romania Published since September1843 Corruption kills to take part in "a severe contest between 36 Bello Myanmar Aung San Suu Kyi intelligence, which presses forward, and 55 Charlemagne an unworthy, timid ignorance obstructing The ugly mood in Venezuela claims a remarkable victory: our progress." 38 Canadian oil A summit in Malta leader, page 16. The victorious Editorial offices in London and also: Keystone flops democrats will have a short Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, 38 Canada’s new Britain honeymoon, page 39 New Delhi, New York, Paris, San Francisco, government São Paulo, Seoul, Shanghai, Singapore, Tokyo, 56 Britain and the EU Washington DC Unmuzzling scientists Cameron’s call to arms 57 Public services Sharper elbows 58 Bagehot Trouble in Labourland

1 Contents continues overleaf 8 Contents The Economist November 14th 2015

International Science and technology 59 Aviation security 77 Dark matter After the Metrojet crash Envisaging the invisible 60 Terrorism in the air 78 Earthquake rescue Unnerving but uncommon Compare and contrast 79 Preventing meningitis Business Knockout jab 61 Oil companies and 80 America’s BRAIN climate change initiative Nodding donkeys The observer corps Aviation security A lot of what Slash fiction in China 62 Enel and stranded assets passes for security at airports Homoerotic literature Anyone want a power Books and arts is more theatrical than real, is doing surprisingly well— station? page 59 81 Pop music among straight women, page 46 64 SoftBank Makers and shakers Here comes the Son 82 Europe, 1914-49 67 An Australian battle To hell and back Subscription service From waterfront to For our latest subscription offers, visit 84 The financial crisis Economist.com/offers boardroom Debt and the devil For subscription service, please contact by telephone, fax, web or mail at the details 68 Retailing in South 84 Salem’s witch trials provided below: America Madness in Massachusetts Telephone: 1 800 456 6086 (from outside Cautious conqueror the US and Canada, 1 636 449 5702) 86 Walter Kempowski’s Facsimile: 1 866 856 8075 (from outside 69 Schumpeter fiction the US and Canada, 1 636 449 5703) Why brands strive to be Prussia goes west Web: Economistsubs.com “authentic” E-mail: [email protected] 86 ”Futurity” in New York Post: The Economist Subscription Services, P.O. Box 46978, If you don’t like musicals St. Louis, MO 63146-6978, USA Rice Subsidies and other Finance and economics Subscription for 1 year (51 issues) protections for rice farmers 71 Rice in Asia 91 Economic and financial United States US$160 harm some of the world’s Canada CN$165 Paddy-whacked indicators poorest people: leader, page Latin America US$338 Statistics on 42 economies, 18. No interference in the rice 72 Buttonwood Bonds as bank capital plus a closer look at energy market is too meddlesome for demand in India Asian governments, page 71 73 The oil market Principal commercial offices: Abnormally normal 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 74 Economics and comedy Obituary Rue de l’Athénée 32 A graph a minute 94 Helmut Schmidt 1206 Geneva, Switzerland 74 Amundi’s IPO Smoke and fire Tel: 4122 566 2470 Supersize me 750 3rd Avenue, 5th Floor, New York, NY 10017 75 Taiwan’s economy Tel: 1212 5410500 Straitened circumstances 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 76 Free exchange Tel: 852 2585 3888 Getting trade in services Other commercial offices: to bloom Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

SoftBank Masayoshi Son is known as a maverick in Japan, but his latest big moves are still raising eyebrows, page 64

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one ofseveral to which Austra- Russia drafted a peace plan for Russia to be banned from the Politics lia sends the migrants it Syria that entails18 months of Rio Olympics next year. Vladi- intercepts at sea. constitutional reform followed mir Putin ordered authorities by presidential elections. to co-operate with the inquiry. Green victory Syrian opposition groups After a seven-year review, rejected it as an attempt to BarackObama decided not to keep President Bashar al-Assad give the go-ahead forthe con- in power. troversial Keystone XL oil pipeline. The project would The European Union issued have carried oil from Canada’s new guidelines requiring that tar sands to the Gulfcoast, but foodstuffsproduced in parts of was strongly opposed by the West Bankor the Golan environmentalists. Heights occupied by Israel since the 1967 war are labelled In a blow to Mr Obama’s as coming from either Israeli Myanmar held its first freely immigration reforms, an settlements or Palestine. contested general election in 25 appeals court sided with 26 Portugal’s conservative gov- years. The National League for states that want to blockhis Spoiled ballot ernment fell from power after Democracy, an opposition plan to allow some 4m illegal Luis Almagro, the secretary- failingto get its legislative party led by Aung San Suu Kyi, immigrants to stay in America general ofthe Organisation of programme through parlia- a Nobel peace-prize winner, and obtain workpermits. The American States, told Venezu- ment, less than a month after a appeared to have won a con- court found that the presi- ela’s election commission that general election at which it lost vincing victory over poli- dent’s use ofexecutive powers it has failed to guarantee condi- its overall majority. The gov- ticians supported by the army, to implement the order had tions fora fairparliamentary ernment was brought down by which has ruled the country “no statutory authority”. election, which is to be held on a leftist alliance led by the forhalfa century. The army- December 6th. Several short- mainstream Socialists. The drafted constitution, however, The tinder box comings were identified, in- smaller parties in the alliance prevents her from becoming cluding the disqualification of oppose Portugal’s member- president. A quarter ofthe opposition candidates. Two ship ofNATO, and have seats in the parliament are nephews ofthe wife ofVene- mooted the possibility of reserved forthe armed forces. zuela’s president, Nicolás leaving the euro zone. Maduro, were arrested in Haiti India’s ruling Bharatiya Janata and sent to the United States, More than 60 leaders from Party (BJP) suffered a heavy where they face drug-traffick- African and European coun- defeat in an election in Bihar ing charges. tries gathered in Malta for a forthe state assembly. The summit to tackle the migrant ballot was an important test of Chile objected to Peru’s cre- crisis. As the summit began, the popularity ofNarendra ation ofa new district that lies Sweden brought in temporary Modi, the country’s prime partly in disputed territory on border checks to control the minister, who campaigned the border between them. flow ofmigrants entering the widely in Bihar forthe BJP’s Violence in Burundi escalated, Four hectares ofthe new dis- country, saying that the influx candidates. It was his biggest more than six months after trict are uninhabited desert ofrecent arrivals was a threat political setbacksince taking Pierre Nkurunziza announced between the last boundary to public order. office last year. his plans to run fora third term marker and the sea. Last year as president. Security forces the International Court of An election in Croatia gave the China’s president, Xi Jinping, were ordered to disarm mem- Justice redrew the maritime most seats to a centre-right met his counterpart from bers ofthe opposition who fail boundary between the two coalition, though it fell far Ta iwa n , Ma Ying-jeou, in to hand in their weapons, a countries in Peru’s favour. short ofa parliamentary Singapore. It was the first move that many observers fear majority. The migration crisis encounter between leaders of could lead to furtherkillings. The FARC, a leftist guerrilla was a big issue in the election, the two sides since the end of army that has been fighting the first since Croatia joined the Chinese civil war in 1949. Muhammadu Buhari, the Colombia’s government for the EU two years ago. Opposition politicians ac- president ofNigeria, at last more than halfa century, says cused Mr Ma ofusing the named his cabinet, five it has stopped buying arms. David Cameron at last set out occasion to boost the fortunes months after being sworn into The group’s leader, Rodrigo his demands forchanges in ofhis party, the Kuomintang, office. Londoño Echeverri, also Britain’s relations with the EU. which is expected to do badly known as Timochenko, said The prime minister wants to in elections in January. South Africa jailed eight on Twitter that he issued the seal a deal quickly with Eu- policemen formurdering a order in September. rope’s leaders; ifhis demands Police on Christmas Island, Mozambican taxi driver, who are met, he will campaign to an Australian territory in the had been dragged behind their Faster, higher, weaker stay in the union in a referen- Indian Ocean, used tear gas to van and beaten in his cell. This A report forthe World Anti- dum in Britain planned for quell three days ofunrest at a comes amid a wave ofin- Doping Agency alleged that either next year or 2017. His detention centre forasylum- cidents ofpolice brutality and Russian athletics is plagued Eurosceptic opponents said his seekers. Violence erupted after extrajudicial killings that have by a culture ofcheating, en- conditions were small-bore, an escaped detainee from Iran come to light in South Africa couraged by state authorities. and nothing like the reforms was found dead. The facility is recently. Some countries called for he had promised to push for. 1 The Economist November 14th 2015 The world this week 13

engineering firm anticipates court struckdown an agree- meeting in December. In Brit- Business sharply lower sales ofbusiness ment that had governed the ain unemployment fell to 5.3%, jets powered by its engines transferofprivate data be- also the lowest since 2008, but The Financial Stability Board, and reduced demand formain- tween Europe and America, wage growth slowed, compli- which advises the G20 group tenance on large turbines. Its finding that it left Europeans cating the situation forthe ofcountries, said that the share price swooned on the susceptible to snooping by BankofEngland as it ponders world’s 30 biggest banks London exchange. America’s intelligence agen- when to increase interest rates. should raise up to $1.2 trillion cies. Microsoft says it will not in loss-bearing debt on top of Creatures of legend be able to gain access to data in Another poor month for their equity capital. By compel- Square, a mobile-payments the new centres, which will be Chinese trade sparked debate ling banks to issue debt that firm, set the price range for its run by Deutsche Telekom, about whether the govern- can be written down in times IPO at $11-13 a share. This values without permission from a ment will have to do more to oftrouble, the goal is to make Square at around $3.9 billion, customer and DT. stimulate the economy. Ex- creditors liable fora bank’s well below the $6 billion figure ports fell by 6.9%, in dollar failure, rather than taxpayers. talked ofearlier. More ques- Sifiso Dabengwa resigned as terms, in October from the Under the proposals a bank tions were raised about the chiefexecutive ofMTN, Afri- same month last year and would fund at least18% ofits true worth of“unicorns”, ca’s biggest mobile operator, imports were down by18.8%. risk-weighted assets with such technology start-ups that are amid the furore caused by The figures forboth measures debt and equity by 2022. Mark privately valued at over $1 Nigeria’s decision to slap it were much worse than Carney, the governor ofthe billion, when it emerged that with a $5.2 billion fine. Ni- analysts had forecast. Industri- BankofEngland, who also an investor had marked down geria’s telecoms regulator al production also grew by less chairs the FSB, said that if its stake in Snapchat, a mes- claims MTN, based in South than had been expected. adopted by regulators, the plan saging app, by 25%. Africa, was too slow in dis- would “support the removal connecting 5.1m unregistered As the world turns ofthe implicit public subsidy” SIM cards, which was ordered The sharp downturns in trade enjoyed by banks that are “too as part ofthe country’s fight and in emerging markets were big to fail”. against Islamist insurgents. factors behind the OECD’s MTN says it complied with the downward revision to its Dutch courage law, but its handling ofthe estimate ofglobal growth. Seven years after the financial situation has been criticised. The organisation now expects crisis, the Dutch government the world economy to expand was set to sell the first tranche Hourly earnings in America by 2.9% this year, well below ofshares it owns in ABN grew by 2.5% at an annual rate the long-run average. Growth AMRO in an IPO that should in October, the fastestpace should bounce back, but this fetch at least €3 billion ($3.2 since 2009. The unemploy- “requires a smooth rebalanc- billion). ABN AMRO’s spectac- ment rate fell to 5%, the lowest ing ofactivity in China and ular collapse in 2008 cost the Microsoft said it would give since 2008, as 271,000 jobs more robust investment in Dutch taxpayer €22 billion; the European customers the op- were created. Markets inter- advanced economies”. Dutch finance minister has tion ofstoring data at cloud- preted the good news as a sign acknowledged this is unlikely server facilities in Germany. that the Federal Reserve will Other economic data and news to be ever fully recovered. Last month Europe’s highest raise interest rates at its next can be found on pages 91-92

UniCredit, Italy’s biggest bank, announced that it would cut18,200 staﬀ, in part by selling its Ukrainian subsidiary, as one element ofa re- vised plan to boost proﬁt and improve its capital position.

After weeks ofnegotiations, Anheuser-Busch InBev made a formal oﬀerto buy SAB- Miller for$106 billion. In order to smooth the path with anti- trust regulators in America, SAB conﬁrmed that it will sell its near-60% stake in Miller- Coors to Molson Coors, which owns the rest ofthat business, for$12 billion.

Rolls-Royce greatly reduced its estimated income fornext year, and lowered its proﬁt forecast forthis year, because ofthe “speed and magnitude ofchange” in its markets. The

Leaders The Economist November 14th 2015 15 The never-ending story

First America, then Europe. Nowthe debt crisis has reached emerging markets T IS close to ten years since The likesofSouth Korea and Singapore belongin this category; IAmerica’s housing bubble so, crucially for the world economy, does China. It still has for- burst. It is six since Greece’s in- midable defences to protect it against an exodus of capital. It solvency sparked the euro crisis. has an enormous current-account surplus. Its foreign-ex- Linking these episodes was a change reserves stood at $3.5 trillion in October, roughly three rapid build-up of debt, followed times as much as its external debt. Policymakers have the abili- by a bust. A third instalment in ty to bail out borrowers, and show little sign ofbeing willingto the chronicles ofdebt is now un- tolerate defaults. Shovelling problems under the carpet does folding. This time the setting is emerging markets. Investors not get rid of them. Firms that ought to go bust stagger on; dud have already dumped assets in the developing world, but the loans pile up on banks’ balance-sheets; excess capacity in sec- full agony ofthe slowdown still lies ahead. torslike steel leadsto dumpingelsewhere. All thissaps growth, Debt crises in poorer countries are nothing new. In some but it also puts offthe threat ofa severe crisis. ways this one will be less dramatic than the defaults and bro- For that risk, look instead to countries in the second catego- ken currency pegs that marked crashes in the 1980s and 1990s. ry—those that lack the same means to bail out imprudent bor- Today’s emerging markets, by and large, have more flexible ex- rowers or to protect themselves from capital flight. Of the larg- change rates, bigger reserves and a smaller share oftheir debts er economies in this category, three stand out. Brazil’s in foreign currency. Nonetheless, the bust will hit growth hard- corporate-bond market has grown 12-fold since 2007. Its cur- er than people now expect, weakening the world economy rent-account deficit means that it relies on foreign capital; its even as the Federal Reserve begins to raise interest rates. political paralysis and fiscal inflexibility offer nothing to reassure investors. Malaysia’s banks have lots of foreign liabilities, Chronicle of a debt foretold and its households have the highest debt-to-income ratio of In all three volumes of this debt trilogy, the cycle began with any big emerging market; its cushion of foreign-exchange re- capital flooding across borders, driving down interest rates serves looks thin and its current-account surplus is forecast to and spurringcredit growth. In America a glut ofglobal savings, shrink. Turkey combines a current-account deficit, high infla- much of it from Asia, washed into subprime housing, with tion and foreign-currency-denominated debts that have be- disastrous results. In the euro area, thrifty Germans helped to come more onerous as the lira has fallen. fund booms in Irish housing and Greekpublic spending. The third group of countries consists of those emerging Asthese rich-world bubblesturned to bust, sending interest markets that will either escape serious trouble or have already rates to historic lows, the flow of capital changed direction. gone through the worst. Of the big ones, India is in healthier Money flowed from rich countries to poorer ones. That was at shape than any other big emerging economy and Russia might least the right way around. But this was yet another binge: too just surpass expectations. The rouble has already gone much borrowed too fast, and lots ofthe debt taken on by firms through a bigger adjustment than any other major currency, to finance imprudent projects or purchase overpriced assets. and the economy shows tentative signs of responding. Argen- Overall, debt in emerging markets has risen from 150% of GDP tina, a perennial flop but one with little private debt, could also in 2009 to 195%. Corporate debt has surged from less than 50% shine ifa reformist wins the presidency this month. of GDP in 2008 to almost 75%. China’s debt-to-GDP ratio has Such brighter spots aside, everything else points to another risen by nearly 50 percentage points in the past fouryears. pallid year forthe world economy. The IMF has forecast higher Now this boom, too, is coming to an end. Slower Chinese growth in emerging markets next year; the lesson of past debt growth and weak commodity prices have darkened prospects cycles suggests another year of slowdown is more likely. And even as a stronger dollar and the approach ofhigher American weakness in the developing world, which accounts for over interest rates dam the flood of cheap capital. Next comes the half of the global economy (in purchasing-power-parity reckoning. Some debt cycles end in crisis and recession—wit- terms), matters far more than it once did. Lower growth in ness both the subprime debacle and the euro zone’s agonies. emerging markets hits the profits of multinationals and the Others result merely in slower growth, as borrowers stop cash flows of exporters. Low commodity prices help oil im- spending and lenders scuttle for cover. The scale of the emerg- porters but ratchet up the pressure on indebted miners, drillers ing-market credit boom ensures that its aftermath will hurt. In and traders, which between them owe around $3 trillion. countries where private-sector indebtedness has risen by more than 20% ofGDP, the pace ofGDP growth slowsbyan av- Volume four? erage of almost three percentage points in the three years after Europe’s open economy is most exposed to a coolingin emerg- the peak of borrowing (see pages 25-28). But just how much ing-market demand, which is why more monetary easing pain lies ahead will also depend on local factors, from the there looks likely. But America’s policy dilemma is more acute. scale of the exchange-rate adjustment that has already taken The divergence in monetary policy between it and the rest of place to the size ofcountries’ reserves. Crudely, most emerging the world will put upward pressure on the dollar, hurting ex- economies can be put into one ofthree groups. ports and earnings. And waves of capital may again seek out The first group includes those for which the credit boom the American consumer as the borrower of choice. If so, the will be followed by a prolonged hangover, not a heart attack. world’s debt crisis may end up right backwhere it started. 7 16 Leaders The Economist November 14th 2015

Myanmar’s general election Anewera

Aung San Suu Kyi,Myanmar’s opposition leader,has won a great victory.Nowshe must change the country OR once the headline of the thorough reform, including constitutional change. In Miss Suu FGlobal New Light of Myan- Kyi they have a figure ofauthority willing to set aside bygones. mar, the rag that churns out the Undermining her would strengthen those who think the gen- paranoid delusions of Myan- erals should be pursued for human-rights abuses and ill-got- mar’s ruling generals, told the ten gains; worse, it could plunge Myanmar into renewed and real story: “Dawn of a New Era”. possibly bloody turmoil. Even before a final result is de- For now,Miss Suu Kyi says she will call the shots from out- clared, it is plain that the Nation- side government if, as seems likely, the next president hails al League forDemocracy (NLD), led by AungSan Suu Kyi,a No- from the NLD. During the campaign she said little about her bel peace-prize winner, has won by a landslide in Myanmar’s strategy for running the country. She attracted many voters first free, but farfrom fair, election in 25 years. purely with her charisma. The NLD seems likely to have won enough seats to secure a majority—even with a quarter of the parliamentary seats re- Much to ASSK of the lady served for the army. That is a remarkable victory for Miss Suu Afterthe victoryMiss Suu Kyi mustspeakup and try to govern, Kyi, a vindication ofher policy ofcompromise with the gener- even with her hands tied. She must still tread carefully in her als and a repudiation of decades of military rule (see page 39). dealings with the generals, but she must also be firm in setting One of Asia’s most isolated and brutal dictatorships may thus a timetable for them to withdraw from politics and surrender be setting a democratic example to an ever more autocratic their dominance of the economy. Indeed, she must draw up neighbourhood: in recent years Thailand has suffered a mili- policies to give investors the confidence needed to develop the tary coup (again), China and Vietnam have been locking up country’s agricultural and mineral bounty. more dissenters and bloggers than ever and Malaysia’s gov- She will need to foster a spirit of inclusiveness. Myanmar’s ernment has clung to power only through rigged elections. wretched state, after all, is only partly the result of military Amid the euphoria though, there is a nagging fear that rule; another cause is the nationalism of the ethnic Burman Myanmar’s generals will seek to frustrate the people’s will. majority, which has exacerbated conflicts with other ethnic The early signs are that they will not do so blatantly,as they did groups living along Myanmar’s borders. Miss Suu Kyi must when they ignored Miss Suu Kyi’slast general-election success seek to stop the wars and create a federal system that makes in 1990. But apart from their parliamentary block, the generals minorities feel safer. She should give citizenship and property retain control of the army,police and key ministries as well as rights to the roughly 1m Rohingyas, thousands of whom are much of the civil service. The army-inspired constitution en- fleeing oppression by taking to the sea in rickety boats. Miss sures that Miss Suu Kyi cannot become president. Suu Kyi has been disturbingly silent about their plight. Yet the ruling party’s defeat is such that the army’s hope for The daughter of Aung San, who led Burma to indepen- a “disciplined” democracy is no longer tenable, if it ever was. dence, Miss Suu Kyi has endured years of house arrest and The generals must now accept that their best hope of preserv- much else. She might yet become the president that most Bur- ing their interests is to co-operate with the NLD in a process of mese clearly want. But her greatest tests still lie ahead. 7

Britain and the European Union How to make the case

David Cameron needs to tell a more positive story about Britain’s EU membership FTER five months of vague In truth his proposals, well trailed in advance, are small Astatements of intent, David stuff, carefully calibrated to be winnable (see page 56). Some Cameron has at last set out in are cosmetic, such as exempting Britain from the goal of “ever concrete terms his demands for closer union”. Others sound big but aren’t: a four-year wait be- changes in Britain’s relations fore EU migrants claim welfare benefits is unlikely to cut the with the European Union. The numbers drawn by Britain’s booming jobs market. Worthy de- prime minister wants to make a mands for more trade deals and a bigger single market are al- deal with the EU’s leaders in De- ready being met. And the main item on his wishlist is weighty cemberorearlynextyearthatwould allowhim to recommend but technocratic: guarantees that euro-zone countries cannot a vote to remain in the union when he holds his planned refer- discriminate against non-euro members like Britain. endum. Preparing for a fight, he insisted he was deadly serious Eurosceptics are right to point out that these are hardly and even threatened that, ifhe did not secure what he wanted, game-changingreforms. Ifthe referendum is to be won, it must he might campaign to leave. focus not on these minor changes, but on the underlying ques-1 The Economist November 14th 2015 Leaders 17

2 tion of whether Britain is better off in or out. And in making he is already making that the EU bolsters Britain’s national se- that case, Mr Cameron needs a more upbeat message. The cur- curity, especially when it comes to dealing with Russia and mudgeonly tone he has used so far—a gambit to wring more other dangerous neighbours. In a nasty world, it makes sense concessions out of European partners—makes for an uninspir- to remain in a club that has growing foreign-policy clout. ing campaign. Unless the government comes up with a more Winningthe referendum is not the only reason forMr Cam- positive case quickly, it risks not only losing the referendum, eron topushamore positive message. He also needsto prepare but weakening Britain’s position in the event ofa victory. fora post-referendum world. One of the failings in Britain’s relations with the EU over the past five years has been that it has Accentuate the positive not played as important a role in Brussels as it could and The logic behind the negative arguments is sound. Britain should have. Britain has the club’s second-biggest economy would survive outside the EU, but most studies find that mem- and will by 2050 be its most populous country. Absence from bership has benefited its economy. The out campaign fails to the euro inevitably diminishes Britain’s influence in monetary offera good alternative. The examples ofNorway,Switzerland affairs. But it should not weaken its role in the single market or and othersare clear: ifBritain wantsto keep access to the single in foreign policy. market, it will have to accept the EU’s rules (including free One reason for Britain’s lack of influence is that Mr Camer- movement of labour), but with no say in drawing them up. on has too often been sidetracked by battles with his party’s Stressing the scary alternative worked, just, in Scotland’s inde- Eurosceptics. Aftera vote to remain in, he would have a chance pendence referendum last year. to shut them up. That will be harder to do if his campaign has Yet relying on a downbeat message risks handing the out argued simply that the EU is a terrible club but leavingit would campaign the best tunes, even ifthey are misleading. Promises be even worse. The failure to persuade Scots that their mem- of restored national sovereignty,an end to immigration or be- bership of the United Kingdom was a good thing, rather than ingunshackled from the euro-zone corpse have a strong super- merely the least bad, is one reason why last year’s referendum ficial appeal. So Mr Cameron needs also to make a positive did nothing to reduce demands for independence. Mr Camer- case for membership. As it happens, he has plenty of argu- on must not make the same mistake with Europe: only by con- mentsto choose from. One isto stresshowfarthe EU ismoving vincing them of the benefits of membership will he ensure in Britain’s direction, with red tape being cut and several big that Britons have the stomach not just to stay reluctantly in the trade deals under negotiation. A second is to beef up the case EU, but to play a bigger, bolder role in it. 7

Student protests The right to fright

An obsession with safe spaces is not just bad foreducation: it also diminishes worthwhile campus protests ALLOWEEN is supposed to that they now felt unsafe. Hlast for one night only. At On the face of it this is odd. New Haven, which surrounds Yale University (motto: “Light Yale, had 60 shootings in 2014, 12 of them fatal. Thankfully, and Truth”) it has dragged on there has neverbeen a shootingat the university. The choice of considerably longer. As hap- words was deliberate, though. Last year a debate on abortion pens at many American univer- at Oxford University was cancelled after some students com- sities, Yale administrators sent plained that hearing the views of anti-abortionists would an advisory e-mail to students make them feel unsafe. Many British universities now provide before the big night, requesting them to refrain from wearing “safe spaces” for students to protect them from views which costumesthatotherstudentsmightfind offensive. Given thatit they might find objectionable. Sometimes demands for safe is legal for18-year-old Americans to drive, marry and, in most space enter the classroom. Jeannie Suk, a Harvard law profes- places, own firearms, it might seem reasonable to let students sor, haswritten about how students there tried to dissuade her make their own decisions about dressing-up—and to face the from discussingrape in classwhen teachingthe lawon domes- consequences when photographs of them disguised as tic violence, lest it trigger traumatic memories. Osama bin Laden can forever be found on Facebook or Insta- gram. Yet a determination to treat adults as children is becom- Bodies upon the gears ing a feature of life on campus, and not just in America. Like many bad ideas, the notion of safe spaces at universities Strangely, some ofthe most enthusiastic supporters of this de- has its roots in a good one. Gay people once used the term to velopment are the students themselves. refer to bars and clubs where they could gather without fear, at In response to the Yale e-mail, a faculty member wrote a a time when many states still had laws against sodomy. carefully worded reply. In it she suggested that students and In the worst cases, though, an idea that began by denoting a faculty ought to ponder whether a university should seek to place where people could assemble without being prosecuted control the behaviour of students in this way. Yes it should, has been reinvented by students to serve as a justification for came the reply, in the form of a letter signed by hundreds of shutting out ideas. At Colorado College, safety has been in- students, protests and calls for two academics to resign for sug- voked by a student group to prevent the screening ofa film cel- gesting otherwise. Tellingly, the complaint made by some stu- ebrating the Stonewall riots which downplays the role of mi- dents at Yale’sSilliman College, where the row tookplace, was norities in the gay-rights movement. The same reasoning has1 18 Leaders The Economist November 14th 2015

2 led some students to request warnings before colleges expose smearing offaeces in the shape ofa swastika in a bathroom. them to literature that deals with racism and violence. People Distinguishing between this sort of thing and obnoxious as diﬀerent as Condoleezza Rice, a former secretary of state, Halloween costumes ought not to be a diﬃcult task. But by and Bill Maher, a satirist, have been dissuaded from giving equating smaller ills with bigger ones, students and universi- speeches on campuses, sometimes on grounds ofsafety. ties have made it harder, and diminished worthwhile protests What makes this so objectionable is that there are plenty of in the process. The University ofMissouri episode shows how things on American campuses that really do warrant censure damagingthisconfusioncan be: some activiststried to prevent from the university. Administrators at the University of Okla- the college’s own newspaper from covering their demonstra- homa managed not to notice that one of its fraternities, Sigma tion, claiming that to do so would have endangered their safe Alpha Epsilon, had cheerily sung a song about hanging black space, thereby rendering a reasonable protest absurd. people from a tree foryears, until a video of them doing so ap- Fifty years ago student radicals agitated for academic free- peared on the internet. At the University of Missouri, whose dom and the right to engage in political activities on campus. president resigned on November 9th, administrators did a Now some of their successors are campaigning for censorship poor job of responding to complaints of unacceptable behav- and increased policing by universities of student activities. iour on campus—which included the scattering of balls of cot- The supportersofthese ideason campusare usuallydescribed ton about the place, as a put-down to black students, and the as radicals. They are, in fact, the opposite. 7

Rice Hare-grained

Subsidies and otherprotections forrice farmers harm some ofthe world’s poorest people N MANY Asian countries, harm local consumers and taxpayers—the price of rice in both Producer subsidies Ipainstakingly inscribing indi- countries is more than three times the world average—but at 2014, $bn 0 102030405060 vidual grains ofrice with minus- leastrelativelyfewofthem are on the verge ofdestitution. Sad- Rice cule letters is a traditional craft. ly, the same cannot be said of consumers in China, Indonesia Maize Just imagine, therefore, what bu- and the Philippines. All three countrieshave high tariffs on rice Wheat reaucrats in such places can get to protect local farmers. The three also set a minimum price for Sugar up to when they have a whole home-grown rice, and restrict imports in various ways. The re- Cotton crop to work with. Tariffs, quo- sult is domestic prices that are 50-100% above international tas, floor prices, ceiling prices, producer subsidies, consumer ones—in effect, a fiercely regressive tax on the hungry. subsidies, state monopolies—no measure is too meddlesome Exporting countries bear a share of the blame, too. Their (see page 71). As a result, the market for rice is more distorted rice farmers have a natural advantage, in that they live in vast than that for any other staple. Rice growers pocketed at least tropical riverbasins, where rice grows most readily. But instead $60 billion in subsidies last year, according to the OECD, twice of allowing nature to take its course, countries like India, Thai- as much as maize (corn) farmers, the second-most-coddled lot. land and Vietnam also have a record ofinterference. India and The bureaucrats’ urge to interfere is understandable. Rice Vietnam both curbed exports in 2008, when the international feeds more people than any other crop. Almost half the price began to rise, causing it to spike. When prices were falling world’s population eats it every day. It accounts for more than in 2012-13, Thailand, then the world’s biggest exporter, wasted 20% ofthe caloriesconsumed bythe average Asian, and 50% of $16 billion on a failed effortto boost them through hoarding. the intake of the poorest 500m. No Asian government can af- Such policies are destructive forseveral reasons. They exac- ford to be cavalier about rice prices. erbate swings in international prices, with grim consequences Unfortunately, governments’ energetic manipulation of forthe poorin othercountries. They also deprive local farmers the rice market is counterproductive. All subsidies breed ineffi- of potential income from exports. But most damagingly, they ciency and raise costs, whether for consumers, producers or provide a justification for importing countries to meddle with taxpayers. But the ones affecting rice are especially pernicious, the market. The exporters, in other words, are shooting them- in that they drive up prices for those least able to afford it: the selves in the foot, giving their best customers an incentive to poorest citizens of relatively poor countries such as Indonesia try to grow their own rice. and the Philippines. Even small increases in the price of rice can lead to higherrates ofmalnutrition and a greater incidence Paddy power of poverty in these places. And the impact on the price from The irony is that the world does not appear to be short of rice. misguided policymaking is anything but small. Rice costs Pricesfell byover4% a yearon average from 1969 to 2007. India, twice as much in the Philippines, forinstance, as it does in Viet- Myanmar and Vietnam have all become big exporters in re- nam, just across the South China Sea. cent years, thanks mostly to the lifting of some of the regula- The biggest cause of such discrepancies is the effort in rice- tions smothering rice farmers—one of the reasons that Thai- importing countries to stimulate domestic production. This is land’s attempt to cornerthe market failed. Importingcountries bad enough in rich places like Japan, which levies an average should have the confidence to dismantle their subsidies and tariff on imported rice of 322% and spent roughly $12 billion buy more rice abroad, a step exporters ought to encourage last year on handouts to rice farmers, or South Korea (where with deregulation of their own. For the apparatchiks of rice, the figures are 218% and $5 billion). Such policies certainly alas, that would go against the grain. 7

20 Letters The Economist November 14th 2015

Worthwhile learning behaviour solely to the Black- the idea that our military angels on pinheads was never Rock/BGI merger. This fails the should be our primary in- treated as a serious problem by I write regarding Washington most basic smell test. In this strument offoreign policy. sensible people. and Lee University taking the type ofstudy,it is important to SHAWN COOPER PHILIP ALLOTT top spot in your first-ever hold all else equal. That is Enterprise, Alabama Professor emeritus of college rankings (“Where’s difficult to do in practice, espe- international public law best?”, October 31st). Wemea- cially during a turbulent per- The House of experts Cambridge University sure success by more than iod in markets, but clearly what our graduates earn. That these other world events I accept your thesis that Brit- American Bond returns standard is an unfortunate affected asset managers in ain’s House ofLords would result ofthe Department of different ways. gain more legitimacy ifits Education’s College Scorecard, As the authors document, constitutional role was defined which reinforces the percep- the stocks owned by BGI prior (“Right answer, spoken out of tion that the value ofa college to the merger were in signifi- turn”, October 31st). But one of education can be determined cantly larger-than-average the great advantages ofthe by salary data. There is noth- companies. This makes it very Lords is that its members are ing wrong with earning a difficult to compare perfor- not elected. A bicameral Parlia- living. But Washington and Lee mance oflike-for-like assets, ment with both houses elected encourages young women and potentially confounding the is a recipe for obstruction. men to develop a commitment causal statements made by the Moreover, the House ofLords to something greater than the authors. Additionally,smaller is much more diverse than the selfand pursue more than asset-managers facing redemp- House ofCommons, contain- material well-being. tion requests during this per- ing business leaders, scientists, I would also like to point iod would have needed to sell artists and doctors, as well as Bagehot was right to begin his out that when Robert E. Lee shares, and to the extent stocks politicians. toast to James Bond with Dean came to Lexington as president held by BGI were larger, more SHAUMIK ADHYA Acheson’s line about Britain ofWashington College after liquid and easier to liquidate, London losing an empire and not yet the civil war he explicitly that would appear as though finding a role (October 31st). directed that the Confederate other investors were migrating The distinction made between The American secretary of battle flag be furled. Youwere away from stocks held by a virtuous, elected Commons state was a son ofCanadian wrong in saying that the uni- BlackRock/BGI. and a nasty,unelected Lords is immigrants who flew the versity “flew the Confederate The authors’ failure to humbug. Elected MPsrepre- Union Jack, and modelled his flag until last year”. No such consider these facts, or at least sent their respective interests appearance on Lord Balfour. flag “flew” on our campus. try to account forthem in their farmore than they represent He found a role. So did the Flags that had been on display analysis, is a lackofunder- the people who elected them. Beatles and the Rolling Stones, inside Lee Chapel were re- standing ofasset management, Our democracy is more like an initially by recycling American moved. Our museum cur- or at worst, an intentional oligarchy,with power alternat- blues and rock-and-roll tunes. rently exhibits an original oversight to skew the results in ing between two juntas. James Bond got his start in battle flag and provides appro- support oftheir thesis. Does the House ofLords film thanks to the Italian- priate historical context. KENNETH KRONER need reform? Ofcourse. Who American Broccoli family. He KENNETH RUSCIO Senior managing director would be the worst to try to bears less resemblance to a President BlackRock reform it? Politicians who British imperial archetype Washington and Lee University San Francisco want a rubber-stamp foruni- than to Douglas Fairbanks, Lexington, Virginia cameral legislation and its Steve McQueen or ClarkGa- A human army attendant evils. Reforming the ble. The packaging may look The BlackRock/BGI merger Commons is more urgent. W.S. and sound British; the culture As a serviceman I read your Gilbert’s Fairy Queen had the and the imperium are not. “Two’s a crowd” (October10th) article on the problems for right idea: entry by compet- KEN WEISBRODE reported on an academic study army recruitment in America itive examination. Ankara, Turkey that attempts to use the Black- with interest (“Who will fight WYLIE GIBBS Rock/BGI merger to show that the next war?”, October 24th). Newport, Isle of Wight In the same way that meat is large asset-management firms Through games, movies and hung but men are hanged, it can affect the behaviour of political pandering, we have Not a union ofminds should be noted that since he other investors. The study falls cast the average American lacks a medical licence, “Doc- short on several fronts, the soldier as a hardened com- On “ever closer union” you are tor Who” is the preferred name most egregious ofwhich is the mando. This gives politicians right (“Never closer union”, ofthe show in question, not authors’ failure to control for leeway to make extreme October 24th). The relevant “Dr Who”. A small quirk, but any external factor affecting claims about our military scholastic theology is as fol- important to the purists. markets at the time. The period effectiveness while cutting our lows. One, as its name implies, STE CORK ofthe study, 2008-10, was a fighting strength. The result is a the European Union is already Madison, Wisconsin 7 particularly turbulent time: smaller force with higher a union. Two, “ever closer thinkglobal financial crisis, expectations. union” is asymptotic: always great recession, quantitative America’s troops should closer, never reached. Three, Letters are welcome and should be addressed to the Editor at easing and European debt combat their status as idols. the reality is “ever closer disun- The Economist, 25 St James’s Street, crisis. Instead ofaccounting for Perhaps making us seem a ion”, as some governments London sw1A 1hg the effects ofthese or any other little more human will bring in want a union-within-the- E-mail: [email protected] highly disruptive events, the more recruits who “don’t like union which would still not be More letters are available at: authors attribute investor the violence”, and undercut a federation. The problem of Economist.com/letters EPIC VACATION

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The Economist November 14th 2015 24 Executive Focus

The Economist November 14th 2015 Brieﬁng The world economy The Economist November 14th 2015 25 Pulled back in

The world is entering a third stage ofa rolling debt crisis, this time centred on emerging markets Y THE time the third film in a franchise 58% if exchange rates are measured at pur- B comes around, it is not just audiences chasing-power parity). They are quite ca- that may be getting restive; the characters pable of weighing down rich-world recov- themselves have been known to com- eries—especially if, as in Europe, they are plain. It is his inability to put the sins of already fragile ones. Taking full account of screenplays past behind him that gives Al the effects of emerging-market debt makes Pacino’s Michael Corleone the most mem- the world economy lookfarless secure. orable line in “The Godfather: Part III”: “Just when I thought I was out, they pull The burdens of past opportunities me backin!” The build-up ofemerging-marketcredit be- As with anti-heroes in sequels, so with gan just as the rich world’s financial sys- the world’s debt crisis; seeming conclu- tem started to creak in 2007. According to sions serve only to set the narrative off in figures collated by J.P. Morgan, a bank, priv- new directions. Householders in America ate-sector debt in emerging markets rose have struggled for years to work off the ex- from 73% of GDP at the end of 2007 to 107% cess borrowing taken on during a global ofGDP bythe end oflastyear. These figures housing boom in the 2000s. The economy include loans made bybanks and bonds is- has suffered from a shortfall ofspending as sued bycompanies. Includingthe credit ex- a consequence. The world economy was tended by non-bank financial institutions dealt a second blow, after 2010, when the (so-called “shadow banks”) for the hand- delayed effects of that earlier boom were ful of emerging markets where such esti- played out in a debt crisis at the fringes of mates are available gives a steeper rise and the euro area, one that at several points a higher total burden: 127% ofGDP. threatened to breakup the currency union. The credit boom in emerging markets America has put that crisis behind it. was in large part a response to the credit Consumer spending is rising at a healthy bust in the rich world. Fearinga depression 3% or so. Nominal wages are beginning to in its richest export markets, the authori- edge up in response to a tighterlabour mar- ties in China brought about a massive in- ket, leaving the Federal Reserve poised to crease in credit in 2009. Meanwhile a flood increase interest rates for the first time of capital escaping the paltry yields on of- since 2006 (see page 29). And household fer in developed economies pushed inter- debt looks as if it is bottoming out. Much est rates lower in developing ones. This the same is happening in Britain, which search for yield by rich-world investors suffered a boom and hangover quite like took them to ever more exotic places. A America’s (see chart1on next page). dollar-denominated government bond is- Europe was slower in dealing with its sued in 2012 by Zambia, a copper-rich debt and always tends to lag behind Amer- country with an average GDP per person ica and Britain in its economic cycle. Nev- of $1,700 a year, offered just 5.4% interest; ertheless it is having its best year of growth even so, it was 24 times oversubscribed as since 2011. It is for these reasons, among rich-world investorsclamoured to buy. The others, thatthe IMF ispredictingthatworld following year a state-backed tuna-fishing GDP will pick up to 3.6% next year; not the venture in Mozambique, a country even sort of growth seen in the early 2000s, or poorer than Zambia, was able to raise when emerging markets were booming $850m at an interest rate of8.5%. afterthe financial crisis, butnottoo shabby, In contrast to the credit booms in Amer- considering the slowdown in the develop- ica and Europe, where households were ing world that started a few years ago. the main borrowers, three-quarters of the Yet just as the rich world seems to be private debt burden in emerging markets is getting shot of its dodgy legacy of indebt- shouldered by businesses: corporate debt edness, it risks being dragged back into the has ballooned from less than 50% of GDP mire by a third leg of the debt crisis. The in 2008 to almost 75% by 2014. Much of the debtthatbuiltup in emergingmarkets after lending was done in Asia, notably in Chi- the American bust is still there. It has con- na. But Turkey, Brazil and Chile also saw tinued to groweven asthe economieshave substantial increases in the ratio of com- slowed, and now overhangs them omi- pany debt to GDP (see chart2 on nextpage). nously. In the past, the rich world had the Construction firms (notably in China and muscle to shake off such problems else- Latin America) increased their leverage a where. But emerging markets now make great deal. The oil and gas industry was a up most of the world economy (around big player, too, according to the IMF’s latest 1 26 Briefing The world economy The Economist November 14th 2015

of the University of California, Berkeley, help them. After all, the foreign-exchange The story so far 1 and Maurice Obstfeld, now the IMF’s chief reserves are held by governments, not Household debt as % of disposable income economist, finds that credit booms have companies. “In a crisis the money is in one been one of the two best predictors of cri- place but the holes are in a different place,” 180 ses in emerging markets (the other is a rap- says Mr Taylor. Britain 160 idly appreciating real exchange rate). In- Even allowingformitigatingfactors, the creasing the credit-to-GDP ratio by nine scope for the debt saga’s latest instalment 140 percentage pointsisassociated with higher to do more damage is clear. Brazil and Rus- probabilities ofvarious misfortunes. In the sia are already mired in deep recessions. 120 subsequent three years the probability ofa The IMF reckons Brazil’s GDP will shrink 100 sovereign-debt default goes up by 11.5%, this year by around 3% and Russia’s by 4%. United States that of a currency crisis increases by 9.4% South Africa, Turkey and Malaysia have 80 and that ofa banking crisis by 6.4%. seen their currencies plummet over the Taken together, such studiesofthe after- past two years. After 2007 capital flooded 2000 02 04 06 08 10 12 15 math of credit booms strongly suggest that from rich markets into emerging ones (see GDP, % change on a year earlier growth in emerging markets will be much chart 3 on next page). But now it is flowing slower than it was in the early 2000s and the otherway. Risinginterestratesin Amer- 15 China the early 2010s. With recessions already ica might turn that reversal into a rout. under way in Brazil and Russia, this should 10 temper any expectations that growth in Market triage Emerging markets* emerging markets as a whole is going to This makes it difficult to be optimistic 5 buoy up the rest ofthe world. about emerging markets in general. But “it + There are reasons not to overdo the is also hard to think of who might blow gloom. Evidence suggests that corporate- up,” says George Papamarkakis of North 0 United States Euro area lending splurges, which account for most AssetManagement, a hedge fund. Thisis in – of what is being seen in emerging markets, part because, as Manoj Pradhan ofMorgan 5 † are less damaging than big build-ups in Stanley notes, there are two types of 2000 02 04 06 08 10 12 1415 consumer debt of the sort seen in America emerging markets, and those with the larg- † Sources: IMF; Haver Analytics *Excluding China Forecast in the 2000s. A paper by Boris Cournède est debt are not in general of the type more and OliverDenkofthe OECD, a think-tank, disposed to acute crises. 2 Global Financial Stability Report. finds that corporate-debt booms are only The classic sort of emerging market has Growing debt in emerging markets is half as damaging to subsequent growth in a current-account deficit and is prone to in- not of itself something to worry about. It GDP per person as soaring consumer debt. flation. Its central bank has to pay obses- may be that savings are getting into local Research from Atif Mian and Emil Verner sive attention to the exchange rate: too low capital markets more effectively or that of Princeton University and Amir Sufi of and it stokes inflation; too high and it hurts there are more, better investment opportu- the University of Chicago Booth School of exports. The other kind, too new to feature nities. Sadly, those happy possibilities do Business also suggests, albeit tentatively, in textbooks on emerging-market crises, not seem to account for what is now going that the link between rising debt and fall- has a hearty current-account surplus, huge on. While corporate leverage in emerging ing GDP growth is weaker where lending is foreign-exchange reserves and decent pub- markets has been going up, corporate prof- to companies and not households. De- lic finances—but lots ofprivate debt and an itability there has fallen, says the IMF. clines in house prices might make busts in excess of goods-producing capacity, leav- There is plenty of evidence to suggest that mortgage lending more damaging than ing it prone to deflation. rapid debt build-ups are the hallmarks of corporate-debt crashes, because they de- The most highly indebted emerging 1 periods of indiscriminate lending that press the wealth of all consumers, and not eventually end in tears. just the indebted. David Mackie, of J.P. Morgan, has ana- Broader changes in the world economy Big and bigger 2 lysed 52 episodesin which the ratio of priv- militate against a repeat of famous emerg- Emerging-market private debt ate debt to GDP increased by at least 20 per- ing-market blow-ups at the end of the 20th As%ofGDP centage points over five years. He found century, such as Mexico’s “tequila crisis” in 2007 2014 that annual GDP growth falls by almost 1994 or the Asian financial crisis of the late 0 50 100 150 200 250 300 three percentage points in the three years 1990s. In the past rich-world banks lent to Singapore poorer countries in dollars. That meant afterthe debtratio peaks. The impact isless Malaysia severe in countries where the peak is not that when things went pear-shaped wilt- marked by a crisis ofsome sort. His finding ing local currencies made debt burdens China is backed up by academic research. A pa- even larger. This time, though, much of the South Korea per by Alan Taylor and Oscar Jorda, of the flood of capital has gone into local-curren- Thailand cy bonds, which means that when curren- University ofCalifornia, Davis, and Moritz Chile Schularick, ofthe Free University of Berlin, cies weaken, some of the losses are auto- showsthatin the rich world recessions pre- matically shared with rich-world Brazil ceded by unusually rapid bank-credit investors. It is still a hit—but spread out this Turkey growth are followed by weaker recoveries. way it does not have the same impact. Russia Looking at the way credit moves up and What is more, memories of crises past South Africa down as a proportion of GDP, they found have prompted Asian governments, in par- that larger increases in credit on the up- ticular, to build up their foreign-exchange India swing were correlated with deeper reces- reserves. They are now a bulwarkagainst a Indonesia sions and slower recoveries. sudden exit of foreign capital. Still, some Mexico Indeed, credit booms are among the companies will face a mismatch between Argentina most reliable signals that trouble is brew- their earnings (in local currency) and their ing. Research by Pierre-Olivier Gourinchas debts, and an arsenal of reserves may not Sources: J.P. Morgan; BIS; IMF Tomorrow belongs to the fast. Winners and losers will be decided by how quickly they can move from what they are now to what they need to become. In every business, IT strategy is now business strategy. Accelerating change. Accelerating growth. Accelerating security. And today, to help you move faster, we’ve created a new company. One totally focused on what’s next for your business. A true partnership where collaborative people, empowering technology and transformative ideas push everyone forward. Accelerating innovation. Accelerating transformation. Accelerating value. Because the next chapter in the story of your organization is ready to be written. 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er reasons to be optimistic about growth. contest between emerging markets, which Flood warning 3 India belongs here. Like others in Asia, In- pressed forward, and the obstructions put Emerging-market net private capital inflows dia saw corporate credit soar after 2007. in the way of progress by the woes of the As % of GDP But its investment boom hit the buffers ear- rich world. The tables have now turned, 10 lier than in other places; overall private- with debt poised to exacerbate crises in sector debt was a comparatively modest some parts of the developing world and 8 60% of GDP in 2014 (though this is also in dent long-term prospects in others. large part because the market for consum- The response of rich-world central 6 er debt is under-developed). The central banks to the anxieties this turnaround pro- 4 bank has put pressure on state-owned vokes provides clues to how each region banks to recognise bad debts, and bank- will be affected. America’s Federal Reserve 2 ruptcy legislation to help clear up the mess was poised to raise interest rates in Sep- that goes along with them is pending. tember, but delayed because of worries 0 The IMF expects Indian GDP to rise by about China. It now seems set on a rate in- 2000 02 04 06 08 10 12 14 15* 7.3% in 2016, which will make it the world’s crease in December. The feeling is that Source: IIF *Forecast fastest-growing big economy. It is less af- America’s recovery is sufficiently robust to fected by the slowdown in China than oth- shrug offtrouble from elsewhere. 2 markets, such as China, South Korea, Sin- er Asian economies, and the halving in oil The euro zone, by contrast, looks much gapore and perhaps Thailand, mostly fall prices which has hit Asian producers like less hale. The currency zone is more open into Mr Pradhan’s second category. They Malaysia hard has been a boon to India, to trade than America. Germany in partic- are unlikely to suffer an abrupt crash which imports 80% of the oil it consumes. ular has done well out of the corporate- brought on by capital flight; most of them The current account has moved closer to debt boom in emerging markets, which have formidable defences against a bal- balance, in part because of low oil prices spurred demand for the capital goods it ance-of-payments crisis. But that stability but also because of the prompt action tak- specialises in. So Europe’s recovery, always also means the problems brought on by ex- en after concerns about capital starting to more fragile than America’s, is at greater cess debt are likely to linger for years. With leave emergingmarkets sparked a mini-cri- risk. Mario Draghi, chief of the European inflation absent interest rates can be kept sis (the so-called “taper tantrum”) in 2013. Central Bank, has signalled that further low; that makes the carrying cost of debt Inflation, which was in double-digits in monetary easing, includingmore quantita- manageable, at least for a while. And 2013, was down to 4.4% in September; the tive easing and a cut in the central bank’s banks heavily influenced by governments oil price has helped, but so have measures deposit rate, looks to be on the cards. may be unwilling to tackle non-perform- to curb food-price inflation. Interest rates More quantitative easing in Europe ing corporate loans, because they will re- have been steadily reduced this year from while America tightens monetary policy is sult in factory shutdowns. Instead the debt 8% to 6.75%, and there is scope for the cen- a recipe for a stronger dollar. If the green- overhang is perpetuated as bad loans are tral bankto make further cuts. back rises farenough, that will hurt export rolled over, creating zombie companies earnings in America, which will eventual- and industries. Overcapacity pushes Glimmerings of hope ly feed through to weaker investment and down factory-gate prices, which hurts pro- The trouble in Brazil and Russia, and the softer GDP growth. The Fed may thus find fits and investment. Capital is trapped in volatility of China’s stockmarket, have that even a gradual increase in interest underperforming businesses and sectors, made India an increasingly attractive ha- rates will have to be cut short. which steadily saps GDP growth. ven. But look harder and it is possible to Some storiescome to a satisfactory end. A second group of countries, including find other biggish developing economies Some, like the Godfather saga, outstay Brazil and Turkey, is at more immediate that are not afflicted by a corporate-debt their welcome. The chronicles of debt risk. These are emerging economies of the overhang. Mexico, though an oil exporter, seem to fit firmly in the second category. more classic type. They saw a build-up in saw only a modest increase in credit Michael Corleone’s driving ambition was private debt after 2007, much of it in the growth after 2007. Its private-debt burden to settle all family business; but nothing corporate sector. Their big current-account rose to just 35% of GDP by the end of last stays settled forever. 7 deficits make them reliant on foreign lend- year. It is more closely tied to America, an ing to sustain GDP growth. As the prospect economy that is escaping its private-debt of interest-rate increases by the Federal Re- problems, than to China, which has yet to serve draws capital back to America, such deal with them. countries become more vulnerable to fur- Pakistan, like India, benefits from low ther currency weakness. That stokes infla- oil prices and has seen a dramatic fall in in- tion. The higher interest rates required to flation and a pick-up in GDP growth. Ar- curb inflation and to slow capital outflows gentina has barely any private debt and make servicing debt more costly. In such could shed its reputation for chronic eco- circumstances, the pressure to address the nomic mismanagement if Mauricio Macri, debt problem is greater and the impact on a reformer, wins presidential elections this the economy is potentially more dramatic; month. Russia, though still mired in reces- these are the countries that are most at risk sion, might return to growth sooner than oftrue crises. Notall ofthe countries in this many expect in response to a quite brutal sort of danger have current-account defi- devaluation of the rouble. “It is hard for cits. Malaysia runs a surplus, but probably Russia to go down much further,” reckons still belongs in this category because of its Mr Pradhan. Its central-bank governor, El- high private-sector debt (181% of GDP), its vira Nabiullina, is well regarded. And like weakening currency and its strong trade India, Russia has relatively high interest ties to China’s slowing economy. rates, giving it “an arsenal of monetary There is a third sort ofemerging market, policy” to bring to bear. though: economies that are either less In the immediate aftermath of2007 the blighted by private-sectordebt orhave oth- growth rate of the world economy was a United States The Economist November 14th 2015 29

Also in this section 30 Money and judicial elections 31 Deporting undocumented migrants 31 Beards 32 A swampy gubernatorial contest 33 Illinois needs a budget 34 Lexington: The narcissism trap

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

Wages has recovered only about halfway to its pre-recession peak. Inactive folk act as a Looking for a rise brake on wage growth if better prospects can tempt them backinto the labour force. The same is true of migrants. Econo- mists have long suspected that labour and capital flowing across borders may dam- pen the effect of employment on wages WASHINGTON, DC and prices. There is some recent evidence Wage growth is at last accelerating. But living standards will continue to stagnate for this on a state level. Wage growth and HE last time unemployment in Wis- cently declared that, unlike some of her unemployment appear related only in Tconsin was as low as today’s 4.3% was colleagues, she views the labour market as states where, overall, few migrants flow in in April 2001. George W. Bush had been an insufficient bellwether forprice rises. or out (see chart). Workers in such states, president for a mere three months; Gladia- The link between unemployment and which include Ohio, Michigan, and Missis- tor had just cleaned up at the Oscars. Usu- wage growth—the so-called “wage Phillips sippi, may have more bargaining power in ally, economists have to look back just one curve”—has flattened in recent years, for booms and less in downturns. They also recession to gauge the strength of a labour- several reasons. One is low participation have lower overall wage gains on average. market recovery; in Wisconsin, they must in the labour market. At just under 81%, the The pickup in wage growth that ap- go back two. With their talents in such de- proportion of 25- to-54-year-olds in the la- peared in October’s data, if sustained, will mand, today’s Wisconsinites might have bour force is lower than at any time since not be enough to keep living standards ris- expected bumperpay rises in 2015. Instead, 1984. For men, the labour-force participa- ing. In the long run, that requires rises in la- they have been disappointed. Hourly tion rate is lower than in supposedly scle- bour productivity, the amount produced wages rose by just1.1% in the pastyear—and rotic France or social-democratic Sweden. by each worker. In the aftermath of the re- are lower than they were 18 months ago. Many of these potential workers gave cession, labour productivity growth fell in The Badger State is not alone. The same up looking for a job during the long hang- tandem with wage growth. In the past five curious combination of booming labour over from the financial crisis. As a result, years it has grown by an average of just market and meagre pay rises has character- the fraction of 25-to-54-year-olds with jobs 0.5% a year, compared with 1.9% from 2005 1 ised the economy as a whole for most of 2015. At 5%, nationwide unemployment is more or less as low as the Federal Reserve Finding Phillips thinks it can go before the economy over- United States heats. Even the broader measure of under- Average hourly earnings and unemployment Average hourly earnings and productivity employment, which include workers who September 2015, selected states* with: high low migration % change on a year earlier are part-time but want a full-time job, is at 6 Real output per person Earnings DE its lowest in seven years. Despite this, wage NE NV 6 8 SD growth has been lacklustre. It was a sign of 4 MI OR the timeswhen, on November6th, pundits UT OH PA NJ 4 6 AK MA WA SC celebrated the news that hourly pay grew FL MS 2 IL by 2.5% in the year to October. Bumper by ND CO TX NY AZ WV 2 4 today’s standard, that pace remains well + WI MO AL MN WY + below the 3.8% achieved in mid-2007, be- 0 RI NM 0 2 fore the financial crisis hit. –

Earnings, % change on a year earlier – This has cast doubt on the conventional 2 wisdom that a tight labour market leads 24683572 0 Unemployment rate, % ﬁrms to bid up wages, resulting in higher 2007 09 11 13 15 inﬂation. Lael Brainard, a Fed governor, re- Sources: BLS; Census Bureau; The Economist *Ranked by absolute net migration in 2014 30 United States The Economist November 14th 2015

2 to 2010, and 3.2% in the five years before Electing judges she said, protects “the right of billionaires that. Persistently weak productivity to buy elections”. But Citizens United is pre- growth is depressing wage growth by Courting cash cisely the wrench that opened the spigot of about 0.3 percentage points, according to outside dollars for judicial candidates in David Mericle ofGoldman Sachs, a bank. Pennsylvania. Falling fuel prices and an appreciating Mr Wecht opposes the principle in Citi- dollar have recently masked this shortfall zens United that spending money is pro- NEW YORK by filling workers’ wallets. With zero infla- tected bythe FirstAmendment’sguarantee Democrats prevail in the most tion, employees will cheer a 2.5% pay rise. offreedom ofspeech. He admits, however, expensive judicial race yet Tumbling petrol prices may have kept a lid that money helped the Democrats take on wage demands; Mr Mericle estimates OURTS, in theory,are bastions of inde- command of the Pennsylvania Supreme that low inflation has knocked about 0.2 C pendence and impartiality. But that Court. He ran on a platform calling for a percentage points offwage growth. image is tainted when campaigns pass the ban on gifts to judges. “The opportunity to As inflation does eventually return, hat for contributions, or benefit from serve as a judge is a solemn responsibility though, wages must rise higher still. Unfor- spending by others. Earlier this month, a and a public trust,” his campaign declared. tunately, the productivity slowdown may race for Pennsylvania’s Supreme Court “The exchange of favours has no place in be permanent. In a recent paper, John Fer- was fuelled by at least $16.5m in campaign the judicial process.” nald and Bing Wang of the San Francisco spending—the most expensive judicial Massive campaign spending in judges’ Fed documented how it began before the election America has seen to date. elections, according to Liz Seaton, interim crisis—as big gains from information tech- Democrats outspent the Republican head of the campaign group Justice at nology during the 1990s and early 2000s candidates more than three-to-one and Stake, “is a giant and growing storm that dried up—and warn that a “relatively slow scored a resounding victory on November threatens justice”. The candidate amassing pace” is the best guess forthe future. 3rd, taking all three open seats on the court the largest war-chest wins more than 90% to reach a 5-2 majority and increase the of contested state Supreme Court races, Bridge and tunnel likelihood of left-leaning decisions from she has pointed out. Ms Seaton and other This is not the stuff of stump speeches. Pennsylvania’s highest tribunal. Crucially, critics think the selection of judges should Among the candidates for the Republican these seven judges choose the tiebreaking be taken outofthe handsofthe people and nomination, Donald Trump, Jeb Bush and member of a bipartisan commission entrusted to panels ofexperts instead. Marco Rubio want to slash taxes to spur charged with drawing the state’s electoral Some members of the Pennsylvania productivity-boosting private investment. districts. So the win may pay dividends for legislature have similar plans. A Republi- All promise to cut American’s corporate the Democrats in state legislative races can lawmaker, Bryan Cutler, has proposed tax rate, which at 35% is the highest in the over the next decade as well. an amendment to the state constitution es- OECD, a club of mostly-rich countries. Mr The three Democrats elected to the tablishing a bipartisan commission to Rubio wants to encourage corporate in- Keystone State’s highest court owe their scrutinise would-be judges’ records. The vestment further by allowing firms to de- gavels primarily to organised labour and body would send a few names to the go- duct the full cost of investment from taxes plaintiffs’ lawyers, their two most gener- vernor, who in turn would choose a nomi- in the year they are made. ous blocs of financial support. Christine nee from the listto propose to the state Sen- A Republican president would inevita- Donohue, Kevin Dougherty and David ate for confirmation. Many states use a bly pair these changes, though, with ex- Wecht, the three winning candidates, took variant of this so-called Missouri Plan— pensive income-tax cuts that would rein $2.1m from unions and another $1.7m which is named after the state which, in quire a squeeze on public investment. That from lawyers. 1940, became the first to use merit selec- would sap productivity, especially given These Democratic victories ought to be tion. But the chances of Pennsylvania the deplorable state of American infra- troubling for Democrats. Hillary Clinton, adopting such a change right away are nil. structure. The burden ofshoddy roads, air- the front-runner for the party’s nomina- Both houses of the state legislature would ports and energy infrastructure will cost tion, has railed against Citizens United v have to approve the measure two years in every household $3,100 a year, according Federal Election Commission, a decision of a row, followed by a state referendum in to the American Society ofCivil Engineers. 2010 that enabled outside groups to spend which the people agree to give up their Avoiding that should be a priority. On No- freely in election campaigns. The ruling, power to elect judges themselves. 7 vember 5th the Republican-controlled House of Representatives at last passed a highways bill, which should help, but lefta gaping hole in the finances of the highway trust fund. Part of the bill was funded by a raid on the Fed’s reserves. Hillary Clinton, the probable Demo- cratic nominee, promises more funds for infrastructure and scientific research. Yet if income-tax cuts lead Republicans astray, Democrats are too keen on crude respons- es to wage stagnation, such as much higher minimum wages. On November 10th, Mrs Clinton tweeted a message of support for campaigners fora $15minimum wage. Recent data show wage growth straining at its shackles; sooner or later, it will escape them. But over the next year, pay will rise only in tandem with inflation. That will bring the productivity slowdown sharply into view forthe next president. 7 Yours for $16.5m The Economist November 14th 2015 United States 31

Undocumented migrants Beards A stay, so go Pogonophilia

BROOKLYN Notes from a festival offacial follicles TEPHEN POFELSKI has dead-straight WASHINGTON, DC red hair, which flops over his forehead The courts deal the president a blow S when he doesn’t push it back. His long T MAY not be the end, or even the begin- ginger beard, which he has been growing Ining of the end. But a ruling of the US for18 months, is naturally wavy and Court of Appeals in New Orleans on No- voluminous. Most people when they spy vember 9th to put a stay on Barack it, and then see braces supporting his Obama’s executive action (a kind of presi- trousers, assume he is a hipster, which he dential decree) on immigration hasleft one concedes is not inaccurate. “But I prefer to ofthe president’s most consequential poli- be called a modern-day mountain man cies in a tight spot. The best he—and some with little bit ofa trendy edge,” he says. 4m undocumented people who stand to On November 7th, Mr Pofelski’s struggles benefit from the plan—can hope for is that against the challenges ofitchiness and the Supreme Court resuscitates it before soup were vindicated when he won best his presidency ends, in 14 months. natural full beard at the National Beard The verdict, reached by a 2-1margin, up- and Moustache Championship. held an earlier ruling by a district court in The competition was held in Brook- Texas, and was anticipated, given the ap- lyn, a whisker paradise. Yet few of the peals court’s previous deliberations on as- competing beardsmen were hipsters, pectsofMrObama’splan. Launched byex- though many were dressed in unusual ecutive fiat in November 2014, it includes a garb (your correspondent spotted a Vi- promise of temporary reprieve from de- king, several cowboys and a crusader, as portation to those who have lived in the well as a few ship’s captains). The smell country undocumented since childhood ofstyling beeswax hung heavy in the air. and to anyone who has lived in the coun- They competed in18 categories. The Father figure try since 2010 and whose children are moustache contest included the English American citizens. Together those groups— (where the lengthy ends are styled), the ceived as being better fathers. whose members would gain most of the Dalí (as in Salvador) and the Hungarian Not only are men shaving less, but usual trappings of legal residency, includ- (no explanation necessary). For the those that do are using online shaving ing work permits and driving licences— bearded, categories included the Amish, clubs, like Dollar Shave Club, to get represent a third of the 11m people estimat- the Fu Manchu, the Musketeer, the Kaiser cheaper razors and blades. Gillette, a ed to be living in America without a legal and the Garibaldi. razor-maker, launched an online shaving right to do so. Pogonophiles are the most visible club in June to woo backcustomers. The Republicans, who had repeatedly outgrowth of a broader trend. According bearded take their facial hair most seri- nixed a proposed legislative solution to to Mintel, a consultancy,41% ofAmerican ously,carefully trimming and condition- that grave problem, mostly denounced Mr men do not shave daily,including half of ing it. Some colour their beards to mask Obama’s alternative effort as an unconsti- those aged18 to 24. Ralph Marburger of the grey.Mr Marburger says 20% ofhis tutional and tyrannical act designed to Just forMen, a hair-colouring company, company’s beard and moustache-dye swell the Democratic vote-bank (though says this is partly the result ofincreasing- sales are to men under 35. no illegal immigrant would be pardoned ly casual workplaces, where clean chins Competitive bearders are even more or gain citizenship under it). Texas and an- are no longer mandatory.In some in- addicted to grooming. Using tongs, Chris other 25 mostly Republican-run states ar- dustries they may even attract suspicion. Bates tooktwo and a halfhours to trans- gued that it represented an encroachment That many would-be mates allegedly form his massive beard into intricate by the federal government, for which they find men with stubble attractive may curls. But he was unable to defeat Adam would have to pickup the tab. also be a factor. A pro-growth study two Gazda who, with the help ofa coffee cup, The administration has already de- years ago from the University ofNew a fizzy-drinkcan and lots ofhairspray, clared its intention to appeal against the South Walesfound that an “intermediate styled his beard into a dizzying array of latestrulingto the Supreme Court, which is level ofbeardedness” is most attractive, gravity-defying loops, thereby triumph- not guaranteed, but would be expected, to while fully bearded men are often per- ing in the freestyle full-beard category. take up the case. In that event, the administration believes it would be on firm ground. It argues that though the powers signalling in his order that the 4m in ques- a few months to try hurriedly to imple- ofthe president do not extend to scrapping tion are his lowest priority for deporta- ment a plan that most of the Republican complicated immigration rules by fiat, tion—a fate that, given the enormity of the candidates for their party’s presidential they do allow him to determine the order backlog, they will not sufferas a result. The nomination have pledged to scrap. In the of priority in which resources should be Supreme Court has not previously shown thick of election campaigning, that could spent to police them. an inclination to curb the powers ofthe ex- mean pain for the Democratic nominee, Prosecutorial discretion allows those ecutive in exercising that discretion. especially if a bumpy economy causes the tasked with enforcing the law to forgive Assuming it takes up the case, the court usual uptick in anti-immigrant sentiment. minor traffic misdemeanours in order to would be expected to rule on ittowards the Depending on who her Republican oppo- concentrate on more serious ones. Similar- end of its current term, next June. If it rules nentmaybe, this, depressingly, could be an ly, the argument goes, Mr Obama is mainly in his favour, Mr Obama would then have issue that dominates the election. 7 32 United States The Economist November 14th 2015

Politics in Louisiana fice as a long, exploitative audition for his White House run—a destructive one, since Sins of the fathers he bequeaths a long-running budget crisis and an emaciated higher-education system. “Bobby Jindal and I”, says Mr Vitter, wryly understating their well-known en- mity, “do not have a close relationship”; but his effort to portray himself as an out- BATON ROUGE sider, atleastin state politics, seems to have A frontrunner’s past bites backin a filthy fight fora southern governorship flopped. And, constantly, there is that in- HE great, metamorphic trick for public whether to expand Medicaid (only on the tractable sin. When fending off charges Tfigures ensnared in scandals is some- right terms), a putative state minimum that he is in hock to trial lawyers or other how to portray themselves as victims of wage (nope) and much else. He backed Jon special interests, Mr Edwards likes to prot- their own transgressions. Senator David Bel Edwards, a Democratic state legislator est that he does not give 100% ofhimself to Vitter is trying it. He once “failed [his] fam- who strolled into the run-off with 40% in anyone—“other than my wife”. ily”, he acknowledges in a new campaign the primary. That, Mr Dardenne explains, “He’s doing everything he can not to advert, while maintaining that “our falls as his secretary fields calls from irate Re- talkabout the issues,” Mr Vitter complains. aren’t what define us, but rather how we publicans (and some supportive ones), is And, in fact, despite Mr Edwards’s tenden- …earn redemption”. Louisiana was also because he thinks Mr Vitter lacks the integ- cy to downplay their differences, they do experiencing hard times, runs the optimis- rity and temperament to do the job. disagree on key policies—most notably, tic segue, so he should be its next governor. thinksKevin Kane ofthe Pelican Institute, a Mr Vitter’s last-ditch bid to recast his They’ll always have Kentucky think-tank, in Mr Vitter’s much greater en- past follows a haymaker from his oppo- Mr Vitter’s catch-up strategy,tried and test- thusiasm for school choice and vouchers. nent in the state’s run-off election on No- ed by Republicans, is to yoke Mr Edwards Ata grip-and-gritseventon November 10th vember 21st. Savage even by the bare- to Barack Obama. Disappointingly—since in Houma, in the southern oil-and-gas- knuckle standards of Louisiana, the ad al- criminal-justice reform has seemed a bi- lands where bayous lap the highways, big- leges that, by missing a congressional vote partisan initiative—that includes disparag- wigs in the energy industry endorsed Mr that honoured fallen soldiers in 2001— ing Mr Edwards’s plan to reduce Louisi- Vitter, who baits unions and favours dereg- shortly before he received a call from a ana’s staggering incarceration rate, the ulation, as have other business leaders. Washington madame—Mr Vitter “chose highest in America. Under the watchful Sadly for him, reckons Pearson Cross of prostitutes over patriots”. It is a reprise of eye of the “tracker” who follows and films the University of Louisiana, in what, be- an old but vibrant controversy that first him, Mr Edwards insists that he has no as- yond Bourbon Street, is a deeply conserva- broke in 2007, when, after his phone num- sociation with the president and has never tive state, gunsand abortion are the onlyis- ber turned up in the madame’s records, Mr met him (he calls Mr Vitter’s surveillance sues that reliably swing votes—and Mr Vitter vaguely admitted a “very serious tactics “Nixonian”). He stresses his back- Edwards is against the latterand for the for- sin”. He also faces a farcical subscandal in- ground at West Point and in the 82nd Air- mer. The besthope forRepublicans(at least volving a private investigator, hired by borne Division and minimiseshisparty af- those who backMrVitter) may lie in the ex- him, who spied on a sheriff and others, filiation. Nobody asked what anyone’s ample of Kentucky, where, last month, was chased and reportedly arrested as he party was when he and his buddies were their candidate defied the polls to win the hid behind an air-conditioning unit. checking each other’s parachutes, he said, governorship. Louisiana ought to be much By no means the most eccentric in Loui- somewhat redundantly,at an event at a ca- easier for them: no Democrat has won a siana’s colourful political history, this sino in Baton Rouge on November 9th. statewide election since 2008. Yet Mr Ed- year’s governor’s race has nevertheless If Mr Vitter is running against Mr wards’s team claim they are on track to se- been dramatic. In Mr Vitter it features a Obama, Mr Edwards is partly running cure the third or so of white votes that, well-known, well-funded politician who againstBobbyJindal, the outgoingRepubli- along with the reliable black support, they hasneverlostan election in hislong, formi- can governor, who in some surveys is even need. Mr Vitter’s lot say Republican voters dable career—but now, in improbable cir- more unpopular than the president. Mr are rallying to him and decry the smears. cumstances, just might. The contest has Jindaliswidelythoughttohaveusedhisof- His enemies call it karma. 7 been filthily personal, though some of the most denigrated personalities aren’t actually on the ballot. Its outcome will suggest whether partisanship now trumps all other considerations, including character, for voters in the South. That Mr Vitter could well lose, at least according to the polls, is largely a result of the state’s non-partisan “jungle” primary on October 24th. Three of the top four con- tenders were Republicans; their interne- cine slugfest dwelled on Mr Vitter’s pecca- dilloes—an embarrassment which, with his re-election to the Senate in 2010, had seemed forgiven. He staggered out with a mere 23% of the vote, his reputation black- ened and his party bitterly divided. Witness the subsequent behaviour of Jay Dardenne, the outgoing lieutenant-governor and one of the defeated Republi- cans, who agrees with Mr Vitter about A candidate at rest The Economist November 14th 2015 United States 33

Illinois’s budget stand-off get hurts Illinois. Mainly due to the expira- tion ofa temporaryincrease in the income- Rauner v the rest tax rate at the start of the year, the state is spendingmore than it is takingin. The state comptroller has warned that by the end of the year Illinois would be saddled with $8.5 billion in unpaid bills and that the state would need to delay a payment into CHICAGO the state pension system this month (see Even by the usual standards ofthe Prairie State, Illinois is in a mess chart). On October 19th Fitch, a credit-rat- INCE he tookoverasgovernorofIllinois ings agency, downgraded Illinois’s rating Sat the start of the year, Bruce Rauner, on $27 billion in outstanding bonds to who has always been slender, has shed three notches above junk, citingthe budget about 20 pounds (nine kilos). The stress of battle, the state’s high debt and its huge running one of America’s most dysfunc- pension liabilities. Moody’s, another rat- tional and indebted states is starting to ings agency, followed suit a few days later, show. The Republican governor is fighting with the sixth downgrade in five years. an epic battle with the Democratic super- “This is a political battle in which law- majority in both chambers of the state- makers abdicated their responsibility to house. At stake is Illinois’s budget: the Mid- pass a balanced budget,” says Laurence western state has been operating without Msall at the Civic Federation, a budget a proper one since the beginning of July watchdog. Lawmakers voted for a budget when Mr Rauner vetoed the unbalanced that authorises $36 billion in spending budget lawmakers presented to him. when Illinois’s revenue is only $32 billion. So entrenched is the conflict between And while everyone involved is loudly the legislature and the former business- blamingthe otherside forthe budget mess, man, who has never before held political lawmakers and the governor have come office, that it might draginto 2016. The main up with few proposals on how to balance bone of contention is Mr Rauner’s pro- the budget. According to Matt Fabian at business, anti-union, agenda, which he The governor, with menacing tuna steak Municipal Market Analytics, a research wants the statehouse to pass before he ap- firm, the stand-off is unprecedented be- proves the tax increases and expenditure like this,” says Tom Dart, the sheriff of cause of the complete intransigence of cuts needed to achieve a balanced budget. Cook County. The sheriff is enraged be- both sides. For the market, the biggest pro- The governor’s pet reforms are curbing the cause as boss of the biggest jail in America blem is the unbalanced budget. Illinois is cost for businesses of workers’ compensa- he sees how the absence of a budget hits spending as if it were still taking in last tion, an insurance policy against work- the poor and vulnerable who rely most on year’s revenue when the income-tax rate place injury, changesto tortlawand restric- state services hardest. After release from was at 5% rather than this year’s 3.75%. tions of collective-bargaining rights of jail those with mental illnesses are not get- If Illinois had kept its income-tax rate at public-sector employees. Mark Madigan, ting the treatment and medication they last year’s level its budget would be more the speaker of the House, and John Culler- need; those with a history of substance or less balanced and its most immediate ton, the president of the Senate, the two abuse are looking in vain for support; and problem solved. But it is too late now, even heavyweights of the state legislature, say those without a home have fewer places if Mr Rauner were to agree to go back to a that the governor’s agenda is too radical where they can ask for help. “Our social flatrate of5%, which isstill lowerthan rates and thattheywould need to abandon their services were meagre to start with,” says in many other states. Illinois had reason- core beliefsto give in to his demands. Mr Dart. “Now there is even less.” able economic growth even with the 5% Illinois’s public sector is still mostly rate, says Mr Fabian, who thinks that Illi- functioning. A patchwork of court orders A fishy friendship nois’s financial woes are “correctable”. The and state laws is ensuring that around 90% Chicago’s state-school children are caught state’s population is not leaving in droves, of state spending is disbursed. State em- up in the tussle. Chicago Public Schools Chicago is a handsome citythatattracts tal- ployees are receiving their salaries and (CPS) is counting on $480m from the state. ent and the economy is in decent shape. pensions, and recipients of Medicaid, a Without the cash the CPS will need to lay The state could get back on its feet relative- government health-scheme for the poor, off thousands of teachers as early as Janu- ly quickly—but first it needs a budget. 7 are getting coverage. The state’s elemen- ary. Fearing another teachers’ strike, Rahm tary and high schools are open. Even Illi- Emanuel, the mayor of Chicago, urged Mr nois’s gargantuan debt is being serviced. Rauner “to stop name-calling and just do Going for broke Yet state universities have not received your job”. Mr Rauner retorted that Mr Illinois’s unpaid bills*, forecast, $bn any funding from the state since July, Emanuel was hiding his support for his which is especially tricky for those that do pro-business reforms. Mr Emanuel needs 30 not have the backing of wealthy founda- $800m from the state for the CPS and Chi- 25 tions or a big network of graduates. Funds cago’s public transport. Mr Rauner wants have been blocked for almost all social-as- Mr Emanuel’s help in getting Democratic 20 sistance programmes for children, the lawmakers to agree to his reforms. Chicago 15 poor, the elderly, the disabled, addicts and folklore has it that Mr Emanuel once sent a victims of domestic abuse. The agencies dead fish to a political operative; the gover- 10 running the programmes are forced to re- nor has promised to give the mayor the 5 duce their services, sack employees, de- same treatment. The two men, who have plete their cash reserves or take on debt. been friends forovera decade, are in a fight 0 Some have simply shut their doors. which only one can win. 2015 16 17 18 19 20 “This has never happened before, not In cold financial terms the lackof a bud- Source: Civic Federation *Fiscal years ending June 30th 34 United States The Economist November 14th 2015 Lexington The narcissism trap

A new bookabout George H.W. Bush has much to teach Republicans With a mood of torch-and-pitchfork fury sweeping the right, few activists think they have any lessons to learn from the Bush clan—certainly not on the subject of gentlemanly manners. The activists are wrong. George H.W.’shorror of boasting—talking up “the Great I Am”, as his mother put it—reflects a code of honour that goes well beyond etiquette. Mr Bush’s code is distinctly conservative. It is steeped in ideas ofself-discipline and dutyto others. At18, thatled the future president to sign up as a naval aviator, serving heroically in the Pacific. After the second world war the romance of self-reliance drew him to Texas, and the oil industry. His code should not be roman- ticised too far: like many blue-bloods, Mr Bush was not raised to shun ambition, just to conceal it. He was capable ofcynical calcu- lation, for instance opposing the 1964 civil-rights bill while running for the Senate in Texas. Privilege often helped him, as when family friends invested in his oil business. After his election to Congress his father, Prescott Bush, a former centrist Republican senator, managed to boost him, including with the Democratic president, Lyndon Johnson. LBJ assured Mr Bush that as a cattle- breeder he trusted bloodlines: “We say, ‘Who’s the Daddy?’ We know you’re all right.” IGHTY-SIXyearsago, the youngGeorge H.W. Bush wasdressed But crucially, privilege also made Mr Bush modest: he knew Ein a black-and-orange uniform sweater, popped into a chauf- what he owed to luck. That diffidence extends to religion. On the feur-driven car and sent to Greenwich Country Day School in eve of the Gulf war he realised: “I need to pray, and yet I am not Connecticut, beginning his formal apprenticeship as a gentle- certain my prayers are heard.” And although he could be stiff in man. The task was taken seriously, records “Destiny and Power”, public as a politician, his modesty is bound up with empathy for a gripping new biography of the 41st president by Jon Meacham. others. Read beyond his comments about Mr Rumsfeld, and his So intense was the focus on fair play that school report cards in- main complaint is that his son’s Pentagon chief lacked the “hu- cluded the category, “Claims More Than His Fair Share of Time mility” to see “what the other guy thinks”. In politics and diplo- and Attention in Class”. macy, Mr Bush never claimed that his side had a monopoly on Jump to the present day, and most Republican candidates for wisdom. In his inaugural address as president, he deplored ideo- the White House would score poorlyon such a school report. The logues who question not just opponents’ ideas but their motives. party’s 2016 presidential nominating contest is a brag-a-thon, dominated by such Washington-bashing outsiders as the busi- I’m marvellous—vote forme nessman Donald Trump, who delights in telling crowds that he is The elderMrBush wasthe last presidentto be so self-effacing. Too “reallysmart” and “reallyrich”; and the retired neurosurgeon Ben many modern politicians, convinced of their rightness and cer- Carson, who says that his surging poll ratings reflect the “power tain that opponents have shabby intentions, have a narcissist of God”. Small wonder that Mr Meacham concedes that modern streak. Dr Carson, who says he can feel God enabling his presi- Americans may find the elder president Bush—a buttoned-up pa- dential run, is an extreme case. Recently he has faced press scruti- trician, proud ofhis public service—distinctly “quaint”. ny ofhis life story, as is routine fora front-runner. Several ofhis fa- In a noisy, frantic election season, most coverage of the biogra- vourite tales have proved impossible to verify. Undaunted, Dr phy has highlighted the 41st president’s decision to breakyears of Carson says he is under attack because he threatens the “secular silence about foreign-policy missteps by his son, the 43rd presi- progressive movement”. Expressing fury at mainstream journal- dent, George W. Bush. The elder Bush tells his biographer that his ists, supporters promptly flooded him with donations. son indulged in sabre-rattling “hot rhetoric” towards such adver- Other Republicans stoke a strain of angry narcissism among saries as Iran and North Korea, to no obvious benefit. The 91-year- voters. In 1995 George H.W. Bush resigned from the National Rifle old patriarch regrets that his son’s vice-president, Dick Cheney, Association after the gun lobby called federal agents “jack- became “very hard-line”. Donald Rumsfeld, his son’s defence booted thugs”. Today, Senator Ted Cruz of Texas, a presidential secretary, is accused ofa damagingly “iron-ass” world view. candidate, tells supporters that their right to bear arms makes Pundits call the biography a headache forJeb Bush, the former them “the ultimate check against governmental tyranny”. Mr governor of Florida and second son of George H.W. Bush, whose Trump, when not boasting about himself, tells older voters that Republican presidential bid is flagging. In their telling, the last they have paid for their Social Security and medical benefits, so thing that Jeb Bush needs is a book reminding conservatives should not tolerate anyone trying to reform those schemes: a fan- about his father, and how he broke his 1988 campaign pledge: tasy that many lap up. “Read my lips, no new taxes”, enraging the right. There is some- Conceited politicians infest left and right. But as a party built thing to this. Though foreign-policy grandees hail the 41st presi- on individualism and admiration for self-made success, Republi- dent’s sensitive handling of the Soviet Union’s collapse, and his cans must take special care not to fall into the narcissism trap. swift, limited Gulfwar to expel Saddam Hussein from Kuwait, he “Nobody likes a braggadocio,” George H.W. Bush’s mother used is still distrusted by many in the grassroots (who also chide to say. The level of support for Mr Trump and DrCarson suggests George W. Bush for expanding the federal government). this is not wholly true. But it remains sound political advice. 7 The Americas The Economist November 14th 2015 35

Also in this section 36 Bello: The ugly mood in Venezuela 38 Keystone ﬂops 38 Unmuzzling Canada’s scientists

Immigration to Brazil permit can take months and cost thou- sandsofdollarsin legal and administrative No golden door fees. Most work visas are tied to an em- ployer, so changing a job requires starting the application process from scratch. Bra- zil’s enlightened refugee law, by contrast, grants asylum-seekers a workpermit within a weekofarrival, free ofcharge. MIAMI AND SÃO PAULO The more qualified the immigrant, the Forbidding policies take an economic toll more devilish the bureaucracy. A graduate HEN Chico Max decided to mount ble the number of newcomers—about student who wants to join a university’s Wan exhibition of photographs of re- 280,000 people a year, mostlypoorlabour- faculty must reapply for a different type of cent immigrants to Brazil, he had a harder ersfrom otherSpanish-speakingcountries. visa—from abroad. A professional will time finding subjects than he expected. They could easily master enough Portu- typically wait a year for his or her creden- That is because just 600,000 of the 204m guese to work in Brazil, although they tials to be recognised; a yes is not assured. people living in the country are foreign- would not solve the skills shortage. Few universities offer courses in a lan- born. The small pool of potential sitters They do not come because Brazil need- guage other than Portuguese. Add to that surprised Mr Max. Nearly everyone in Bra- lessly puts up additional roadblocks. Its the absence of Brazilian universities at the zil is descended from immigrants or Afri- legislation on immigration is “anachronis- top of global rankings, and it is small won- can slaves; only the United States has a big- tic”, admits Beto Vasconcelos, who han- der that the country hosts just 14,000 for- ger non-indigenous population. The dles the issue at the justice ministry in Bra- eign students (though beaches and an country’s president is the daughter of a sília. The main law dealing with easy-going culture are a draw). Bulgarian; the vice-president has a road immigration, enacted by generals who In the 19th and early 20th centuries Bra- named after him in Lebanon. All of Mr ruled from 1964 to 1985, treats foreigners as zil encouraged immigrants from Europe Max’s grandparents came from Portugal a menace to national securityand to Brazil- and Japan (partly from a racist impulse to between the two world wars. As the title of ian workers. It bars non-Brazilians from avoid further “blackening” of the popula- his show this month in São Paulo pro- taking part in political rallies, owning tion). Today Brazil, unlike Chile, does not claimed, “We are all immigrants”. stakes in newspapers or participating ac- market itselfto prospective citizens. Yet Brazil’s foreign-born population tively in trade unions. Even when the economy is shrinking peaked at 7.3% of the total at the start of the It also imposes cumbersome condi- and unemployment is rising, this un- 20th century and has been dwindling ever tions on foreign workers. Securing a work friendliness to foreign talent has a big cost. since. It is now a fifth of Latin America’s Manpower, a human-resources consultan- low average and a fraction of that in melt- cy,recently found that 61% of Brazilian em- ing pots like the United States (see chart). Rolling back the welcome mats ployers are having trouble filling job va- That is a problem. Brazil needs millions of Immigrants as % of population, 2013 cancies. Among42 countries, onlygeriatric well-qualified workers but its mediocre Japan, poorer Peru and tiny Hong Kong 0481216 schools are not providing them. Without had more acute skills shortages. In an an- United more immigration, analysts warn, Brazil States nual ranking ofcountries by their ability to faces a “skills blackout”. Argentina develop and attract talent, put together by Some ofthe reasons forwhich migrants IMD, a business school, Brazil fell to 57th Venezuela shun Brazil are obvious. It is not a rich place out of61this year(from 52nd place). It country (and is now facing a deep reces- World scored especially poorly forsecurity, quali- sion). Its language, Portuguese, is not wide- Mexico ty oflife and education. ly spoken elsewhere. Yet Argentina, with a Brazil Brazil may now be reopening a bit. The fifth of Brazil’s population and an equally National Immigration Council, part of the Source: UN troubled economy, attracts more than dou- federal government, has recently made it1 36 The Americas The Economist November 14th 2015

2 easier for students to apply for summer political deadlock may be pushing brainy struction in Portuguese. jobs and for some types of professional to people out of the country. Its diaspora is Between 2008 and 2013, when eco- obtain work permits for their spouses. But tiny: just 1.8m Brazilians, 0.9% of the popu- nomic times were still good, the trickle of the council’s decisions apply to few peo- lation, live abroad, the smallest share immigration into Brazil became a rivulet: ple, lack the force of law and create a con- among all countries of the Americas. But it annual arrivals doubled to 128,000. The fusing patchwork, says Ana Paula Dias may be growing. The consulate in Miami, newcomers, mainly from Haiti, Bolivia, Marques, a lawyer specialising in migra- the most popular destination for Brazil’s Senegal and other poverty-stricken coun- tion. Since 2009 Congress has been sitting wealthy and worldly, is busier than ever. tries, provided Mr Max with his subjects. on draft legislation that would update the Fabriene Prudencio, who advises Brazilian Immigrants bring cultural diversity and a old law. In July this year the Senate passed parents on schools in south Florida, says go-getting attitude that characterises mi- a sensible version, which gives statutory businessisbooming. The numberofBrazil- grants the world over. Their faces exude backing to many of the council’s rulings. ian families at her own children’s (public) dignity and fortitude. They will no doubt But it risks being bogged down in the dys- school in a posh Miami suburb has shot up enrich the country. But Brazil needs more functional lower house. from seven to 30 in the past six years. Sev- of them, and more who already have the Alarmingly, recession, corruption and eral other schools have begun oﬀering in- skills that a modern economy demands. 7 Bello “By hook or by crook”

Venezuela’s regime is in a scared and ugly mood ENEZUELA’S president, Nicolás Ma- Seven opposition leaders are banned Vduro, admits that a parliamentary from beingcandidates. One, Leopoldo Ló- election on December 6th “could be the pez, is in jail (sentenced to almost 14 years most difficult” test the government has forinciting violence), the first such case in faced since Hugo Chávez, his mentor, Latin America since Uruguay’s military came to power following an election in dictatorship locked up an opposition 1998. MrMaduro, like Chávez, claimsto be leader during an election in 1984, Mr Al- leading an “anti-imperialist” revolution. magro points out. Last month, one of the Yet his legitimacy derives purely from the two lead prosecutors in the case fled to ballot box. Chávez’s popularity was Miami and said the evidence against Mr boosted by an oil windfall, which he López was fabricated. The electoral au- showered on Venezuela’s previously ne- thority has placed next to the opposition glected poor. This helped him win a fur- coalition on the electronic ballot a pro-re- ther three elections, by wide margins, be- gime splinter party with a similar name fore his death from cancer in 2013. Shortly and logo. In one state, a candidate from afterwardsMrMaduro won byjust1.5 per- that party has the same name as an oppo- centage points a presidential election that sition leader. The government has crip- the opposition denounced as fraudulent. crook”. The government has gerryman- pled the opposition media, for example Mr Maduro, a former bus driver, lacks dered voting districts to give more seats to by not renewing broadcasting licences. not just Chávez’s charisma and political rural areas where the PSUV is strong: six ur- The regime’s propaganda is aimed at skills but also his luck. The plunge in the ban states with 52% of the electorate will manufacturing threats and generating oil price, plus years of corrupt misman- elect just 64 deputies; the remaining18 will fear. It blames Venezuela’s woes on an agement, have hit Venezuela hard. The elect 100. In September, after smugglers “economic war” engineered by the oppo- government stopped publishing eco- clashed with the army, Mr Maduro de- sition and the United States. On Novem- nomicstatisticsmonthsago. The IMF fore- clared a “state of exception” along the bor- ber 10th two nephews of Mr Maduro’s casts that inflation will hit 190% and the der with Colombia. In those areas, which wife were arrested in Haiti to face drug- economy will shrink by 10% this year will elect 19 legislators, campaigning is re- trafficking charges in the United States, (after a decline of 4% last year). Imports stricted, which hurts the opposition. which will fan conspiracy theories. have fallen by more than 40% since 2012, The government has refused to allow As the opposition surges in the polls, reckons Francisco Rodríguez, a Venezue- election observers from the Organisation some analysts in Caracas think that it lan economist at Bank of America. De- of American States (OAS) or the European could win the three-fifths majority in the spite big price increases, many goods are Union. A mission of “electoral accompani- legislative assembly required to claw in short supply. “People are really sick of ment” ofthe Union ofSouth American Na- back powers from Mr Maduro. The gov- havingto queue up foreverything,” saysa tions has been thrown into doubt after ernment tacitly recognises the possibility long-suffering resident ofCaracas. Venezuela rejected Brazil’s representative. of defeat: it recently pressured 13 supreme Discontent has brought an unprece- In an unprecedented 18-page letter to Vene- court justices to retire early, so that they dented collapse in support for chavismo. zuela’s electoral authority, released on No- can be replaced before the new assembly According to Datanalisis, a pollster that vember 10th, Luis Almagro, the OAS’s sec- convenes in January. accurately forecast Chávez’s victories, Mr retary-general, paints a devastating picture Mr Maduro talks darkly of “governing Maduro’s approval rating is down to 22% of the tilted field on which the opposition with the people” if he loses. This suggests and the opposition leads the ruling Un- must play. Mr Almagro, formerly a politi- that he would seek to throttle and bypass ited Socialist Party (PSUV) and its allies by cian of Uruguay’s left-wing Broad Front, the assembly. But everything indicates 28 percentage points. warns that the opposition lacks “equita- that “the people” are no longer with him. Mr Maduro repeats that the “revolu- ble” conditions and that the ruling party If he blocks peaceful change, he may en- tion” will win como sea—“by hook or by abuses the resources ofthe state. sure that frustration leads to violence. product_ideas.pdf SC MF share with R&D sketch render pick materials send to Shanghai final_product.3ds prototype it change materials build it product_names.xls pick name share with legal (change name) launch it

The Dropbox you love. The controls you need. 38 The Americas The Economist November 14th 2015

Canadian oil The day after Mr Trudeau and his cabinet were sworn in, a small group of demon- Keystone flops strators showed up in Ottawa to demand BRITISH an end to development ofthe tar sands. COLUMBIA He has already ruled out one pipeline ALBERTA Hudson Bay NEW on environmental grounds: the Northern Kitimat Tar sands BRUNSWICK Gateway, which would have carried OTTAWA CANADA QUEBEC 525,000 barrels of oil a day over the Rock- BarackObama’s rejection ofa pipeline Vancouver ONTARIO ies from Alberta to the coast of British Co- is a test forthe new prime minister Ottawa lumbia. That leaves two other big projects. HIS is huge,” crowed one prominent Lac- Energy East could carry 1.1m barrels a day Mégantic Pipelines: to a port on the Atlantic coast. Another op- “Tenvironmental campaigner. He was Keystone WISCONSIN celebrating Barack Obama’s decision on Keystone XL tion is to increase the capacity of the exist- Patoka November 6th to reject the Keystone XL TransMountain ing TransMountain pipeline by nearly UNITED STATES pipeline, which would have carried heavy Energy East threefold, to bring 890,000 barrels a day to oil from Canadian tar sands to the United (proposed) Port Vancouver, an outlet to Asia. Energy East Northern Houston Arthur States (see map). ToCanada’s prime minis- Gateway looks like the favourite; the premiers of Al- ter, Justin Trudeau, installed in office just (proposed) Gulf of Mexico berta and New Brunswick, where the pipe- MEXICO two days before, the decision is both a Sources: CEPA; NEB 1,000 km line would begin and end, are keen. It also headache and an opportunity. needs consent from the more sceptical He will have to come up with a new to alienate the province again. leaders ofOntario and Quebec. way of exporting oil without breaking his But Mr Trudeau will have to reconcile Mr Obama did the new prime minister promise to be a much greenerprime minis- appeasement of Alberta with the Liberals’ a favour by quashing Keystone XL so early ter than his Conservative predecessor, Ste- many environmental promises. These in- in his term, relieving him of any blame for phen Harper. Protests and lobbying will clude modernising the National Energy the decision. The rejection will also help now move from Washington to Ottawa. Board (the main regulator); assessments Mr Trudeau to persuade provincial pre- But Keystone XL’s demise, weeks before a that considerenergy projects’ downstream miers that Canada needs a national plan to UN conference on climate change in Paris, effects, such as carbon emissions, along cut carbon emissions if it is not to face dis- will make it easierforMrTrudeau to forge a with their impact on the local environ- crimination from importers. The help from national consensus on climate policy and ment; and closer consultation with aborig- the American president ends there. Mr Tru- to portray Canada as a helpful partner at inal peoples on regulation and on how the deau must handle the tricky task of selling the global gathering. pipelines are operated and maintained. dirty oil in a green way on his own. 7 The thumbs-down for Keystone XL, which would have carried 830,000 barrels of oil a day, was not quite as beneficial for Canada’s new government the environment as campaigners claimed. Canada is shipping record amounts of Ungagging order crude oil, about 3m barrels a day,to the Un- VANCOUVER ited States through 31pipelines. About half Justin Trudeau wastes no time in setting a new tone is heavy bitumen from Alberta’s tar sands, orsynthetic oil made from it. That will con- RISTI MILLER picked up a ringing Columbia. The government ordered her tinue to grow for a while, even though ex- Ktelephone on November 6th and not to talkabout her findings to the press. tracting tar-sands oil is expensive and oil spoke to a journalist. Until this month, It may have feared that people would prices are weak. Low prices depress future she was not allowed to do that. The conclude from her work—mistakenly— investment, but producers have already government ofStephen Harper, a Con- that fish farming had caused the disease. spent billions to exploit Alberta’s reserves. servative who led Canada for nearly ten (She did testify at a hearing on the issue.) What does not fit into the pipelines will years until his defeat in an election in Now Ms Miller can “speakthe truth and be carried by rail, which is more danger- October, demanded that scientists in its speakmy mind and not have a handler,” ous, dirtier and more expensive. Two years employ, like Ms Miller, get authorisation she says. It is “liberating”. ago 47 people were burnt to death in a de- to speakto the press. The first targets of Diplomats, too, have been unshack- railment in Lac-Mégantic in Quebec. This the policy were researchers on climate led. They no longer have to clear appear- month a train derailed in Wisconsin, spill- change, a subject Mr Harper avoided ances at events with the foreign ministry ing hundreds ofgallons ofcrude. discussing, but it spread to other special- and submit advance copies oftheir Still, the environmentalists’ victory is ities. It represented everything the prime speeches. The new government reinstat- not an empty one. Burning tar-sands oil minister’s critics loathed about him. ed the mandatory long-form census. The emits about a fifth more carbon than using Justin Trudeau, his Liberal successor, Conservatives, thinking it intrusive, had conventional petroleum. Without Key- scrapped it the day after he tookoffice on replaced it with a voluntary survey, stone XL to make it more competitive, November 4th. This is one ofseveral which worsened the quality ofsocial more ofit is likely to stay in the ground. swift changes intended to show that his and economic data. Until, that is, Canada comes up with an Canada will be very different from Mr Mr Harper’s government “attacked alternative. Alberta’s oil producers are still Harper’s. the sector that was providing them with intent on shifting transport from rail to Ms Miller, a biologist at the fisheries information and data,” said Thomas pipeline. Mr Trudeau does not want to dis- department, was among the most promi- Landry, a federal biologist and an official appoint them. His Liberal Party won four nent ofthe silenced scientists. In 2011she ofa union that represents scientists and seats in Alberta in October’s election, co-wrote a paper identifying a virus as professionals employed by federal and matching its best showing since his father, one possible cause ofa plague among provincial governments. For boffins and Pierre, a long-serving prime minister, en- sockeye salmon, which had reduced diplomats, at least, Mr Trudeau has ush- acted an unpopular national energy pro- salmon stocks in the Fraser river in British ered in a new age. gramme in 1980. The Liberals do not want Asia The Economist November 14th 2015 39

Also in this section 40 Narendra Modi’s walloping in Bihar 42 Thailand’s troubled elite 43 Indonesia’s search for allure 43 What future for APEC? 44 Banyan: China meets Taiwan

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

Politics in Myanmar swung some constituencies in the USDP’s favour. This time there were scattered re- Celebrating democracy ports of boxes full of suspiciously fresh and similar-looking advance ballots being delivered to polling stations. But the more constituencies the NLD wins, the more such chicaneryamountsto little more than fiddling at the margins. YANGON Cabinet ministers lost their seats to po- Aung San Suu Kyi scores a remarkable victory litical novices. The NLD achieved a near- HE excitement was palpable. In the national one. The party has so fartaken 367 sweep in Naypyidaw, Myanmar’s capital, Tpre-dawn dark of November 8th, 30 seats in state and regional parliaments, where most residents are connected in minutes before voting in Myanmar’s gen- compared with the USDP’s 46 and 27 won some way with the army or the current eral election began, the queue at a polling by ethnic parties. The USDP seems re- government. Before the election, U Tin station in Yangon, the country’s biggest signed. “We lost,” admits its boss, Htay Oo. Aye, a former USDP official who heads city, stretched for several blocks. In mid- Thein Sein, the president, has congratulat- Myanmar’s election commission, said he morning a line of voters trailing through a ed Miss Suu Kyi, as has the army chief. wanted his old party to win fairly. But the monastery’s leafy grounds suddenly shift- Miss Suu Kyi will not succeed Mr Thein USDP underestimated how unpopularit is: ed to allow a frail elderly woman, carried Sein: the constitution drafted by the army a USDP victory proved incompatible with up a flight of stairs by two young men, to deliberately ensures that by preventing a free election. Intentionally or not, the cast her ballot. Through blazing midday anyone from taking the job who has a for- government chose the latter and paid the sun and afternoon rainstorms, Myanmar’s eign spouse or children. But assuming the price. citizens turned out to vote in their coun- NLD gets a majority, she will decide who But whereas the army’s proxy party has try’s first competitive general election the president will be (by February), and, as been defeated, the army itself remains since 1990—most of them, it appeared, to she admits, will tell him what to do. She is powerful. Its faction in the parliament deliver a blow to the army, which has con- already acting presidentially, calling for gives it political clout that voters, judging trolled the country forhalfa century. “national reconciliation”, talks with Mr from the results, do not want it to have. It Full results are not yet in, but as The Thein Sein and the army, and urging her will still appoint the ministers of defence, Economist went to press, the National supporters to be magnanimous in victory. interior and border affairs. This will keep League for Democracy (NLD), an opposi- That has not stopped them from rejoic- the police and the powerful General Ad- tion party led by Aung San Suu Kyi, a long- ing. On election night, revellers danced ministrative Department—the country’s time democracy activist, had won 291 par- atop cars, waving inflatable red batons and civil service—under military control. liamentary seats, compared with just 33 singing party songs. Kya Ma, a 47-year-old Whethera civilian presidentwill be able to taken by the incumbent Union Solidarity public-health teacher, said that in previous rein in the army remains unclear. and Development Party (USDP) and 35 by elections, “You did not even tell your Apart from one public appearance assorted ethnic parties and independent friends ifyou voted NLD.” soon after the election, Miss Suu Kyi has candidates. Miss Suu Kyi believes the NLD Local and international observers kept a low profile. That will not last. Voters, is on track to win at least 75% of the seats agreed that the election went smoothly. after all, chose the NLD not because of its contested—enough to give it a majority, de- Fears of widespread disenfranchisement policies (these are vague), but because of spite the constitution’s provision that one- due to error-ridden voter lists proved un- Miss Suu Kyi’s record of struggle against quarter of the seats must be reserved for founded. Votes were counted openly, in the army, including years of house arrest, the army. the presence of party representatives. Ad- and her charisma. Without constitutional The NLD has also performed well in lo- vance voteswere, however, harderto mon- reform, the highest office she could accept cal elections held at the same time as the itor. In by-elections in 2010 such ballots would be as the parliament’s speaker. But 1 40 Asia The Economist November 14th 2015

2 using her personal status to control the away from addressing their plight directly. Hindu-nationalist outfit that is seen as the presidency would be risky. What would After her victory—and the implicit rebuke BJP’s ideological parent, said India’s whole happen if her puppet tires of having his it delivered to Buddhist nationalists, who system of awarding benefits to lower strings pulled? And what would happen to tried to undermine Miss Suu Kyi’s cam- castes was being abused for political ends the NLD should Miss Suu Kyi, who is 70 paign by accusing her of coddling Mus- and ought to be reviewed. That spread years old, fall ill? In opposition the NLD lims—many will rightly expect more. alarm among poorer groups. And then Mr never had to answer such questions; as a People may not know what Miss Suu Shah warned that a victory for the grand ruling party it would have to. Kyi stands for on many domestic issues, alliance would lead to celebrations in It will be a short honeymoon for Miss but they do know they want a better gov- neighbouring Pakistan. His coded message Suu Kyi. She will face international pres- ernment, more jobs and a formofdevelop- to Hindu chauvinists was that, dangerous- sure to alleviate the suffering of the Rohin- ment that does not shovel money into the ly, the alliance was the party of Muslims, gyas,aMuslimminoritywhichthegovern- pockets of generals. The army is not out of who make up 17% ofBihar’s population. ment declared stateless and which politics yet, but voters will expect Miss Suu Attempting to pit the Hindu castes therefore had no vote. She has so far shied Kyitodeliver.7 against Muslims—the BJP also made much of protecting the cow, sacred to many Hin- dus—was reprehensible. Fortunately, it did Politics in India not lead to the kind of communal violence thathasrecentlybeen tickingup elsewhere Wallop (and which BJP leaders have been slow to deplore when Muslims are the victims). Still, the results show that the BJP got punished forits crude tactics. Back in Delhi, Mr Modi’s prestige is damaged. Party managers’ insistence on DELHI “collective” responsibility for the loss in Bi- The dustyplains ofBiharexpose Narendra Modi’s feet ofclay har is a charade. He and Mr Shah have run HE eastern state of Bihar has a popula- than a one-term prime minister. The BJP the party with an iron grip, laid down the Ttion close in size to that of the Philip- ran against a “grand alliance” led by the electoral strategy and directly recruited pines: elections to its assembly matter state’s incumbent chiefminister, Nitish Ku- RSS members as campaign foot-soldiers. greatly to its more than 100m, largely poor mar (pictured, next page), with a record of Yet for the first time dissenters in the BJP— inhabitants. But the latest one mattered to boosting growth and cutting poverty, and admittedly, none younger than 78—have Narendra Modi, the prime minister in Del- “Lalu” Prasad Yadav, whose corrupt and spoken out. They said, in a jab at the over- hi, chiefly because of its importance in his lawless tenure as chief minister in the weening Mr Shah and his arrogation of au- quest to recast national politics to his ad- 1990s came to be known as the “jungle raj” thority, that the party had become “emas- vantage. And so the thrashing in Bihar of but who calls on large numbers of follow- culated” over the last year. In private some his Bharatiya Janata Party (BJP), at the ers; the alliance seized more than three ofthe prime minister’s advisers lament the hands of two Bihar political heavyweights times as many seats in the state assembly trust he places in Mr Shah. who buried past enmities to oppose Mr as did the BJP (see chart). As for opposition parties, especially Modi, represents the biggest setback in his In the general election in 2014 Mr Modi Congress, which the last general election political career. swept to a landslide victory with an aspira- annihilated as a national force, prospects Victory in Bihar would have sent, tional message that highlighted growth look suddenly cheerier. Congress tagged through indirect election, friendly faces to and jobs. In Bihar he and Mr Shah are to along with the grand alliance in Bihar, and the national Parliament’s upper house— blame for the ugliest and most socially di- will want to do the same with dominant which, unlike the lowerone, MrModi does visive state election in memory. Caste is a regional parties in other state elections. not dominate. That would have helped critical fact of life—and politics—in Bihar, a Such parties, meanwhile, have seen in Bi- him more easily push through bills aimed state that is still nine-tenths rural. The har the merits of ganging together to take at fulfilling his pledge of economic reform. grand alliance bolted together a coalition on the BJP. But whether Congress is yet But more importantly, he and his electoral of the state’s middle- and lower-tier castes. readyto learn the lessonsofitsnational de- henchman, Amit Shah, the BJP’s president, The BJP tried to even the game by tying its feat is unclear. It suffers from a paucity of intended Bihar to be a template for the traditional core from the upper castes to a fresh ideas, venality on a grand scale, an party to spread beyond its strongholds in cluster of small parties representing Dalits, underwhelming Gandhi/Nehru dynasty western and central India to become a the lowest ofthe castes. at whose pleasure the party serves, and an truly national movement. But at a crucial moment the leader of unwillingness to refresh its leadership. Other state elections loom, including in the Rashtriya Swayamsevak Sangh (RSS), a Lacking an upper-house majority any 1 West Bengal in the east and Assam in the north-east, Uttar Pradesh (the most populous state) in the north and Kerala in the Bad days for the BJP south. Do well in those, and by the end of Bihar elections, % of total seats won by: Grand alliance parties National Democratic Alliance parties BJP 2017 the would be well placed to gear it- 0 20406080100 self for a general election two years later 2010 state that could establish an almost presidential assembly JD(U) RJD BJP LJP Modi rule. To give a measure of the impor- (243 seats) Congress Other tance MrModi placed in Bihar, he attended 2014 national 30-odd election rallies in the state—extraor- Parliament JD(U) RJD Congress BJP LJP RLSP dinary for a prime minister who presum- (40 seats) HAM ably has much else to do. 2015 state Yet since the Biharresults on November assembly JD(U) RJD Congress BJP 8th all longer-term calculations are moot— (243 seats) Sources: Election Commission of India; Office of the Chief Electoral Officer even whether Mr Modi will prove more By appointment only

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Politics in Thailand November 8th the palace, citing only “gravely evil behaviour”, said that it was Never saw it stripping Pisitsak Seniwong na Ayutthaya, a blue-blooded senior officer in the palace coming bodyguard, of his royal decorations. There are rumours that he too is dead. All this turmoil comes amid growing BANGKOK dread about what will happen after the A purge ofprominent people is causing death of the ailing 87-year-old king. Prince alarm in Thailand Vajiralongkorn, widely regarded as a play- N LATE October the Thai authorities an- boy with little interest in Bangkok’s Byzan- Inounced that Prakrom Warunprapa—a tine court culture, commands little of the disgraced police major accused of embez- popularity enjoyed by his father; elites zling money by falsely claiming links to worry that under his watch the Thai mon- Thailand’s monarchy—had hanged him- archy will lose its powerful position in self in his cell in a small prison at an army society, disrupting lines of patronage barracks. On November 9th officials said which for generations have funnelled that a second prisoner arrested during the wealth and influence from the monarchy same investigation had also met an un- to the army and elsewhere. The two mass timely demise. Suriyan Sujaritpalawong, a bike rides—for which the prince is the pub- fortune-teller and minor celebrity better lic face—have looked in part designed to known as Mor Yong, is said to have suc- help scrub up his public image in advance cumbedtobloodpoisoningonlydaysafter of his accession. So does the royal park, Nitish Kumar, Modi’s nemesis his jailers suggested his illness was which the prince formally opened. feigned. The two deaths follow a wave of Given that the targets are drawn from 2 time soon, MrModi needsto rethinktactics arrests and disappearances which have across Bangkok’s elites and royal hang- for his programme of economic modern- left many in the capital feeling anxious. ers-on, it is not immediately clear what fac- isation. Later this month the Parliament Mr Suriyan’s tale is dramatic. Until his tion within Thailand’s fractious ruling will convene for its winter session. On the arrest he was a darling of Bangkok’s ruling classes is driving the present purge—and agenda is reform to bankruptcy laws to establishment, hobnobbing with the su- few tongues have been wagging since Mr help banks recover loans; long-debated perstitious generals who have run the Suriyan’s death was announced. Some legislation to make it easier for companies country since an army coup last year. He suggest that supporters of the prince are to acquire land forplants;andthe introduc- wasalsobelievedtobeongoodterms with keen to punish those seen to be sullying his tion of a nationwide goods-and-services Thailand’s crown prince, Maha Vajira- pet projects; others speculate that the army tax that would do much to knit India’s longkorn. Mr Suriyan stood accused— iswinnowingoutpeople itseesasa bad in- economy together and raise revenues. Mr along with Mr Prakrom, and with a perso- fluence within the prince’s inner circle. A Modi ought now to reach out to the opposi- nal assistant who remains in custody—of simpler theory is that factions within Thai- tion in hopes ofgetting the agenda passed. pocketing money coughed up as sponsor- land’s police and army are using lèse-maj- There is still much that he can do with- ship by large firms supplying two auspi- esté legislation to settle scores with each out legislation, his aides say. That includes cious royal events: a nationwide bike-ride other. The only certainty is that Thailand easing rules to make it easier to do busi- held in August in honour of the queen looks increasingly troubled as it slides to- ness, and pushing for infrastructure— (called “Bike for Mum”) and another day wards the royal succession—and its people roads, ports, utilities—that India badly of mass-cycling to be held in December, in increasingly nervous. 7 needs. Only too aware of the need to reas- honour of King Bhumibol Adulyadej sure investors, this week the government (“Bike forDad”). announced sweeping liberalisations to the Mr Suriyan’s case also relates to a purge regime regulating foreign investment, in- of prominent people accused, through cluding in sectors like retail, banking, con- word or deed, of bringing the monarchy struction, broadcasting and even defence. into disrepute—a crime known aslèse-maj- In theory the changes will make it possible esté. Unusually,army officers as well as po- for more foreign firms to get automatic ap- lice are among those in the frame. An army proval for investment. And Apple will at colonel linked to Mr Suriyan’s alleged last be able to open its own stores in India. crimes is said to have fled to Myanmar; on On November11th MrModi climbed on November 4th a police spokesman ap- a plane to London to convey an upbeat peared to suggest that 40-50 high-ranking message. Though the government of Da- members of the armed forces could be in- vid Cameron promised to grill Mr Modi on volved. As well as irregularities in the rising intolerance at home, both prime organisation of the two mass-cycling ministerswill be happiestemphasising the events, authorities are looking into allega- trade and investment deals that are likely tions of corruption related to the building to emerge from the visit. Mr Modi, with the of a grand new royal park built on army help ofRSS workers, will also hope to whip land in the resort city of Hua Hin, which up enthusiasm among an invitation-only features statues ofseven Thai kings. crowd of 55,000 from the Indian diaspora Grimly,Mr Suriyan and Mr Prakrom are at Wembley stadium. So long as he can not the only lèse-majesté suspects to have count on their fervour—and overseas Indi- died before trial. During a previous crack- ans have been crucial in underwriting his down, which took place in late 2014, a se- political rise—he may find a welcome dis- nior policeman accused of defaming the traction from the setbackin Bihar. 7 monarchy fell from a hospital window.On Mor Yong’s last days The Economist November 14th 2015 Asia 43

Tourism Old Batavia is a respite from the traffic gating the effects of China’s slowdown, and smog of Jakarta, perhaps South-East which has slashed demand for Indonesian They wish you Asia’s least prepossessing capital. As dusk commodities and pushed its currency, the approaches locals congregate happily in its rupiah, to a 17-year low. As well as pepping were here central square, which boasts a handful of up domestic travel, the government wants museums. But to many tourists it seems an at least 20m foreign tourists to visit annual- unpolished diamond—much like Indone- ly by 2020. Tourism officials have plenty to sia itself. Nearly10m foreign sightseers will work with. Countless pristine beaches JAKARTA enter the country this year, many heading fringe Indonesia’s 13,000 islands. Its peo- Indonesia wants yourdollars straight to the bars and beaches of the is- ple are welcoming, and its brand of Islam HE city of Batavia was once the bus- land of Bali. That is a record, but still well largely tolerant. Ttling heart of the Dutch East Indies, a short of the 12m or so who visit tiny Singa- Some early policies have looked bold. port town with an abundance of pepper, pore, and a league away from Thailand’s For the first time tourism now has a gov- nutmeg and other exotics bound for the roughly 26m (see chart). Inflexible visa ernment ministry of its own. Its promo- west. Now it is a rundown northern dis- rules, dangerous transport, annual forest tional budget this yearquadrupled to near- trict of Jakarta, Indonesia’s capital, stuffed fires and lingering worries about terrorists, ly $100m, and could rise to $300m in 2016. with crumbling colonial mansions. A peek who struck at tourists several times during In October the country hired Ogilvy, a big through the rotting shutters of one grand the 2000s, are among many ofIndonesia’s advertising agency, to boost its image. Im- pile reveals tree trunks and a carpet of handicaps. migration authorities have at last granted leaves. The building is popular with Indo- Boosting tourism is a priority for Joko visa-free entry to tourists from dozens of nesian film-makers, says Agus, a local Widodo, Indonesia’s president. Travellers’ countries, batting back nationalists who guide: “They use it forspooky movies.” dollars would go some way towards miti- say states that benefit should open their borders in return. But old Batavia’s struggles are informa- Regional development tive. Plans to revitalise the district have come and gone, with limited effect. Offi- All Partners (Except China) cials have rebuked private owners for letting their properties decay, but offered few SINGAPORE incentives to restore the buildings. Some No thrillerin Manila forAPEC locals resent any effort to preserve rem- HE annual summit ofAsia-Pacific terests at home. In countries from Japan nants of Indonesia’s not-fondly-remem- TEconomic Co-operation, or APEC,is to Vietnam, that is part ofthe point ofthe bered colonial past. Others fear govern- often more interesting forwho is there TPP: to help economic reform. Ifthe ment planners will rig up a sterile ghetto than forthe agenda. A 21-member body prizes—improved access to the American formonied foreigners. formed in1989, it engages in worthy market above all—seem in doubt, they The most recent initiative—a master- initiatives to foster regional economic will balk. plan drawn up by a consortium from the integration. Its leaders’ meeting, how- Other non-TPP APEC countries, how- public and private sectors, formed two ever, to be attended this year in Manila ever, have already expressed interest in years ago—is the best chance yet of break- on November18th-19th by the presidents joining: South Korea, the Philippines, ing the logjam. It hopes to restore many ofAmerica, China and Russia and other even protectionist-inclined Indonesia. dozens of dilapidated mansions, and at- luminaries, is always vulnerable to geo- And although Mr Obama has presented tract businesses to use them. Progress is political rivalries. This year it faces an TPP as a way ofcountering China and gradual but promising: the old Dutch post even bigger challenge:12 APEC members bolstering American economic leader- office hashad a facelift, and Batavia’sgrand have signed the Trans-Pacific Partnership ship, China itselfhas not ruled out mem- state house has been scrubbed up too. (TPP), a trade agreement that would bership. The TPP will, eventually,require The endgame is to have the old town in- achieve many ofthe group’s goals, but a big secretariat and a dispute-resolution cluded in the UN’s list of World Heritage outside its framework(see page 76). That mechanism. It will have rules. APEC, Sites. That would be good news for tour raises the question, ifthe TPP is realised, with a small secretariat and a toothless guides such as Agus. He has only enough ofwhat APEC itselfis for. approach of“concerted unilateralism” custom to give a handful of tours each China has tried to ensure that one (reaching consensus then each country week, largely to Dutch travellers revisiting bone ofgeostrategic contention, its build- doing its own thing, in effect), may be- their ancestors’ haunts. During the rainy ing spree in the South China Sea, is not come irrelevant. season there is almost no workat all. 7 discussed. APEC’s host, the Philippines, Its fate probably depends on China. boldest ofthose contesting China’s For now China seems to want to use claims in the sea, and the complainant in APEC to pursue a broader Free-Trade Area Bottom of the pack international legal action about them, ofthe Asia-Pacific, covering all APEC’s International tourists International tourist has agreed not to raise the issue at APEC. members, which account fornearly Number of arrivals, m receipts, 2014, $bn America, which recently bearded China’s three-fifths ofglobal GDP and more than 30 leaders by sending a warship close to one halfofworld trade. Expanded, this 21.0* 25 oftheir newly built islands, is probably would unite the TPP with another puta- Malaysia 38.4 also happy to talkabout other matters. tive regional-trade agreement involving 20 Thailand For one thing, BarackObama will China as well as India, not at present in 15 APEC APEC have to reassure the other11TPP mem- . India’s bid to join is another Singapore 19.2 10 bers that their agreement, years in the big issue not to be discussed in Manila. 9.8 making, will eventually be ratified by Neither America or China seem in a 5 America’s Congress, despite growling hurry to help it; both know that including Indonesia from its members. Most ofthe11also India would make APEC’s trade dis- 0 2000 02 04 06 08 10 12 14 have to face down powerful vested in- cussions all the more complicated. Source: UNWTO *2013 44 Asia The Economist November 14th 2015 Banyan The emperor’s descendants

Smiles and handshakes usherin what will be a rocky period forChina-Taiwan relations wards unification. They are likely to be disappointed. Itiswidelyassumed China had a tactical aim: to influence voting in the presidential and legislative elections in Taiwan in Janu- ary. Polls suggest that the KMT’s presidential candidate, Eric Chu, will lose to Tsai Ing-wen of the Democratic Progressive Party (DPP). The DPP may even forthe first time gain control of the legislature. China abhors it, because the party’s roots are in the movement agitating for Taiwan’s formal independence from China. The KMT at least adheres to the woolly notion, known as the “1992 consensus”, that there is only “one China”—with both sides agreeing to disagree on what this means (Taiwan’s official name remains the Republic of China). In their meeting both men emphasised the importance of this consensus, though Mr Xi, as Chi- nese officials are wont, made no reference to the differing inter- pretations part. The DPP denies such a consensus exists. Mr Xi and—even more so—Mr Ma emphasised their people’s ethnic and cultural links. “Brothers connected by flesh even if our bonesare broken”, asMrXi putit; “descendantsofthe YellowEm- peror”, in Mr Ma’s words. But growing numbers of people in Tai- wan see themselves as primarily “Taiwanese”, rather than Chi- nese. Most people in Taiwan come from familiesthat lived on the T WAS a long handshake, a full minute’s worth. Ma Ying-jeou, island for generations before 1949. A small aboriginal population ITaiwan’s president, and Xi Jinping, his Chinese counterpart, is not Chinese at all. Apart from during the chaos of the civil war wanted to milkthe historic importance oftheir encounter on No- China has not even pretended to rule Taiwan since 1895, when it vember 7th in Singapore. Yet the two men intended their citizens ceded the island to Japan. China says a declaration of indepen- to draw very different messages. For Mr Ma, it showed that the dence could provoke itto use force, so fewTaiwanese support for- policy he has pursued in office since 2008 of fostering better ties mal independence. But even fewer want unification. with the mainland has ensured smoother relations, and so safe- So the subtext in Singapore to all the bonhomie, the mutual guarded Taiwan’s prosperity and security, ie, the status quo. For congratulation about improved ties and the promises of even Mr Xi, the meeting implied that China’s reciprocal policy of en- closer future co-operation was an implied threat forTaiwan’s vot- couraging economic and other ties with Taiwan has lowered teners: elect the DPP and jeopardise all this. Mr Xi was also remind- sions and helped pave the way for its eventual unification with ing Taiwan’s international friends, especially America, that they, the mainland. They cannot both be right. too, have signed up to the idea of“one China” as the price ofrela- MrXi’s gesture, in agreeingto meet the leaderofa government tions with the People’s Republic. The emphasis on the consensus China views as the illegitimate usurper of local authority in one was, in effect, a warning that a DPP government may face repri- of its provinces, was remarkable. Such a meeting had never hap- sals if it does not accept it. The DPP would prefer to dodge the is- pened since Mr Ma’s Nationalist party, the Kuomintang or KMT, sue, but Mr Xi seems to want to force its hand. He is an ambitious turned Taiwan into its last redoubt as it lost China’s civil war to leader, and the son of a Communist revolutionary grandee. Per- the Communists in 1949. The summit was perhaps the biggest haps he sees himself as the man to complete the core mission of concession on a “core issue” of sovereignty any Chinese leader Chinese “reunification”, unfulfilled fornearly seven decades. has made since the early1980s when, under Deng Xiaoping, Chi- na offered Taiwan a “one-country, two-systems” solution and An empty locker agreed with Britain on a similar deal for Hong Kong. Taiwan re- Yet, unlike Deng, Mr Xi has no furtherbig concessions to offer, be- jected China’s promise that, in exchange for recognising the au- yond symbolic ones, like this meeting. Surely he does not want to thority ofthe government in Beijing, the island would enjoy self- contemplate unification by force, so he needs to win the consent government and even get to keep its army. ofTaiwan’sgovernment, and hence, in a democracy, itspeople. In Mr Xi’s grand gesture suggests again that he is the strongest the past dire warnings and even crude military threats—as in leaderin China since Deng, able to shun decades-old shibboleths 1995-96 ahead of Taiwan’s first direct presidential election, when without fear of opposition. Of course, China was careful not to China conducted missile tests in the Taiwan Strait—have served give Mr Ma too much status. The leaders addressed each other as only to alienate Taiwan’s people further. Nor has being friendly, plain “Mr”, and met not at an international economic summit, as eg, by offering trade concessions and boosting tourism and other Taiwan had hoped, but in a hotel, where they split the bill. To the links, helped much. As in Hong Kong, the more contact people irritation ofmany in China, state television cut away from Mr Ma have with the mainland, the more conscious they seem to be- as soon as he opened his mouth. come ofthe distinctness oftheir local identity. Mr Xi could be confident that he would not, as Mr Ma did, face “Who among the descendants of the Yellow Emperor wishes street protests over the meeting at home. But he, too, was taking a to go down in history as a traitor?” China asked in a message to bold risk. He has gained some kudos by presenting himself as a Taiwan on January1st1979, when America ditched its diplomatic magnanimous, peacemaking statesman. But he has also put the relations with the island in favour of the mainland, and China issue of cross-strait relations into the domestic and international stopped its ritual shelling ofTaiwanese outposts. With each pass- spotlight. His people might now expect to see some progress to- ingyear the number ofwould-be traitors seems to grow. 7 China The Economist November 14th 2015 45

Also in this section 46 Sex stories and censors

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Politics rising star has already fallen, however. Su Shulin was thought to have bright pros- The north star pects until he was removed as governor of coastal Fujian province after being snared in a corruption investigation in October. China’s media often drop hints of who to watch. Mr Lu’s appointment as Heilong- jiang’s governor (a few months after he be- HARBIN came the youngest full member of the China’s youngest provincial governoris on a long road to national power party’s370-strongCentral Committee) was SKED what they think of Lu Hao, their Yaobang, a party chiefin the 1980s, grew to accompanied by a flurry of celebratory ar- Agovernor, residents of Harbin, capital prominence in the league, as did Hu Jintao, ticles in the party’s main mouthpiece, the of the north-eastern province of Heilong- MrXi’s predecessor. Li Keqiang, the current People’s Daily, and other newspapers. jiang, often replywith the word xiaozi. This prime minister, is also an ex-head of the They emphasised Mr Lu’s youth, impecca- roughly translates as “young whipper- league. Mr Lu’s stint in that role from ble workethic and solid record ofexcellent snapper”. Mr Lu’s youthfulness is indeed 2008-13 made him an obvious rising star. performance in his previous jobs. striking. Born in 1967, he is the youngest of His subsequent promotion to a provincial The hagiographies credit Mr Lu with re- China’s current provincial governors. He governorship confirmed this impression. viving the fortunes of a debt-ridden wool was also the youngest to hold most of his Youth is on his side. The next rung on factory in Beijing, of which he was ap- previous positions. Those include factory the ladder to the top may be induction into pointed boss in 1995 as a 28-year-old. Four boss at a large state-owned enterprise, dep- the 25-member Politburo, possibly as early years later he was promoted to a job in the uty mayor of Beijing and leader of the as 2017. But it will not be until around the city government, managing a technology Communist Youth League, an important time ofthe party’s 20th congress in 2022—a zone in the city’s north-west. The area, trainingground formanya national leader. year after its 100th birthday—that Mr Xi Zhongguancun, was already referred to by China’s system of political succession will retire and Mr Lu will have a chance to hyperbole-prone state media as “China’s produces occasional surprises, such as the shine, likely as one of the (now seven) Silicon Valley”, although it consisted most- purge three yearsago ofanotherprovincial members of the Standing Committee. He ly of streets lined with stalls selling com- leader, Bo Xilai, on the eve of what ap- will then be 55, a year older than Mr Xi was puters, electronic accessories and pirated peared to be his likely elevation to the pin- when he joined the body in 2007. That software. But by the time Mr Lu moved on nacle of power, the Politburo Standing would give Mr Lu a good few years at the to hisnextjob, in 2003, Zhongguancun was Committee, alongside Xi Jinping, who is top: Standing Committee members are ex- well on its way to being worthy of its nick- now president. But at least since the Com- pected to retire around 70. He would be a name. Today it is full of modern towers munist Party began institutionalising suc- memberofwhatpartyofficialsalready call housing the Chinese headquarters of cession arrangements in the 1990s, high- the “sixth generation” of Communist lead- many world-class technology companies. flyers have often been easy to spot. Mr Lu is ers (the first having been led by Mao Ze- The likes ofMrLu rarely give interviews one ofthem. dong, Mr Xi representing the fifth). to foreign journalists (President Xi never His stint at the youth league was of There are several other likely members has, one-on-one). But a foreign business- greatest portent. The organisation is some- of the upcoming generation. They include man who met Mr Lu several times recalls thing like an American fraternity club Hu Chunhua, Mr Lu’s predecessor as head him as an exuberant manager who, some- (without the misbehaviour)—its members of the youth league who is now the party what ahead of his time, advocated the reform close ties which are often maintained boss of the southern province of Guang- cruitment of talented Chinese who had rein their later careers. Its leaders have a ten- dong; and Sun Zhengcai, the party chief of turned from abroad. Another foreigner dencyto move into high national office. Hu Chongqing, a south-western region. One familiar with Mr Lu calls him “sharp”, “im-1 46 China The Economist November 14th 2015

2 pressive”, “focused” and good at giving speeches without a script—not a preferred Slash fiction style oforatory among Chinese officials. Mr Lu’s current job is an exceptionally Click bait tough one. Heilongjiang was once known BEIJING as a rustbelt of shuttered heavy industries. Homoerotic fiction is doing surprisingly well—among straight women It boomed under a rejuvenation scheme earlier this century, but its fortunes have HENG JIA first came across danmei by Japanese manga comic books with slumped again. Its oilfields are well past Sfiction five years ago when she was a their whimsical illustrations (the word peak output, and, thanks to low oil prices, journalism student at Shanghai Universi- danmei was originally a Japanese term: far less lucrative. Trade across its long bor- ty.She was looking for escapism; a friend tanbi). The genre is only available online der with Russia is hampered by Russia’s recommended “SilkTrousers”, a story in China—no state-owned publisher economic woes and its much-devalued about a handsome, womanising noble- would dare print such works, forfear of rouble. The coal industry, another eco- man who falls in love with a male celeb- violating laws against pornography. nomic pillar, is sufferingfrom overcapacity rity ofChinese folklore, the fox king, who Among younger Chinese women and thanks to a slump in demand as China’s can swap between human and animal teenagers, danmei is proving remarkably growth slows. One of the province’s larg- forms (the book’s cover is pictured). It popular: websites devoted to it have large est employers, Longmay Group, an- ends in heartbreak. followings. Katrien Jacobs, an expert on nounced in September that it would re- Ms Sheng became instantly hooked Chinese online pornography at the Uni- duce its 240,000-strong mining workforce on the homoerotic tale with its subtle versity ofHong Kong, estimates that in by100,000 within three months. The com- portrayal ofa form ofsexual desire that is every high school or university class, pany cut thousands ofjobs last year. rarely discussed openly in China (homo- there is at least one fan ofdanmei. Ifso, Since the first quarter of 2014, Heilong- sexuality was considered a mental illness that could mean a readership in the jiang’s real GDP growth rate has hovered until 2001). She found the novel more hundreds ofthousands. Ms Jacobs says between 4-5%—far behind the 7% nation- appealing than the saccharine love sto- danmei attracts readers by creating “a wide figure. Its growth is among the slow- ries popular among other heterosexual sense ofrebellion” against a culture in est of China’s provinces. Last year Mr Lu Chinese women like her. which women are often expected to be was summoned, together with other go- Danmei, meaning “indulgence in obedient and conventional. Readers vernors, to a meeting with the prime min- beauty”, is China’s version ofwhat is delight in enjoying the forbidden. ister to discuss their provinces’ ailing econ- often called “slash” fiction in other coun- Spurred by a dearth ofexciting offline omies. “I took his remarks as criticism,” Mr tries. The genre takes its English name options (all publishing houses are con- Lu contritely said afterwards. from the slash sometimes used in synop- trolled by the government), readership of He is probably confident, however, that ses ofsuch works to separate the names e-fiction ofall types has been growing his career remains secure. For all China’s ofoften well-known protagonists: Kirk/ rapidly in recent years. Yang Chen, gen- fixation on high economic growth rates—at Spock, or in this case fox king/nobleman eral manager ofChina Reading, one of least until recently when it became more (the men, despite their attraction to each China’s biggest publishers ofonline obvious that they were unsustainable— other, are portrayed as straight). The literature, says there are about 275m several studies by Western scholars have genre sometimes explores taboos: incest, people in China who read fiction through shown little correlation between eco- intergenerational sex, or sex with a char- the internet. A big attraction is that cen- nomic performance in provincial jobs and acter who is disfigured. It is also inspired sors find online literature farmore diffi- advancementtohigh-levelpostsin the cen- cult to monitor. Publishers ofdanmei tral government. Residents rarely blame often avoid the use ofmachine-readable Mr Lu, who ranks below Heilongjiang’s text, circulating stories instead in pho- party secretary, even though it is Mr Lu tographed form, which is more difficult who is responsible for managing the prov- forthe censors’ software to scan for ince’s economy.“It’s mostly because offac- banned words, or else as audio books. tors the governor cannot possibly control,” In 2011the authorities shut down a says a local reporter. danmei website and, the following year, Mr Lu has a nearby scapegoat: Russia. jailed its (male) founder for18 months. In He blames it for failing to develop tran- less than three years it had published sport facilities on its side of the frontier. 1,200 works offiction, many ofthem “Howcanyouincreasethevolumeofturn- reportedly written by young women. over if many border crossings are seasonal Most ofthe time, however, censors ap- in nature… and in the winter, the border pear preoccupied with stopping the crossings remain idle?” he demanded at a spread ofhard-core pornography and China-Russia trade expo last month, ac- material critical ofthe Communist Party. cording to Russian media. Danmei usually avoids graphic descrip- The views of ordinary citizens do not tions ofsex, and steers clear ofpolitics. count for much in the grooming of succes- Crackdowns certainly do not bother sors. That is fortunate for Mr Lu. In Hei- Ms Sheng. She identifies herselfas a funu, longjiang he is chiefly known not for any- or “rotten girl”—a pun on the word for thing he has done for the province, but for woman that readers ofdanmei some- his love of dancing, both ballroom style times use ironically to describe them- and, in his student days, disco; at Peking selves. She says she will continue buying Universitywhere he studied economics he and sharing the works ofher favourite is said to have choreographed a group rou- authors from Taiwan and Hong Kong tine. Crucially, Mr Lu is widely believed to (where such fiction is legal), despite the be a protégé ofPresident Xi. That is a strong E-foxy risks in China. qualification forpower. 7 Middle East and Africa The Economist November 14th 2015 47

Also in this section 48 Iran cracks down after the deal 48 Conﬂict in Sinai 49 Labelling Israeli produce 49 Liberia’s recovery from Ebola 50 Uganda’s president forever

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

Arab bureaucracies zens. The uprisings of 2010 that toppled re- gimes in the so-called Arab Spring were as Aiwa (yes) minister much a cry for services as for democracy. Yet the governments replacing them have been even less efficient in many cases, raising the risks offurtherupheaval. Pressure to change is mounting. For monthsIraqishave been protestingagainst BEIRUT AND CAIRO corruption and a lack of basic services; in The region’s countries desperately need to reform theirpublic sectors Lebanon people have taken to the streets to HMED tries for days to complete the more productive private sector and de- demand that rubbish be collected. Agovernment paperwork to transfer his pressing economic growth. In some parts Several countries have announced children to a new school. It is no easy task. of the oil-rich Gulf, for instance, more than changes. A law passed in Egypt this year On one occasion the bureaucrat he needs halfofall working nationals are employed contains sensible reforms, such as publicly to see is on holiday; another time he is in by the state (see chart). The World Bank announcing job openings, testing candi- the toilet. Frustrated, Ahmed ends up in a reckons that bureaucracies in the region dates and requiring regular performance scuffle and accidentally takes a guard’s are bigger (as a share of total employment) reviews. Iraq, too, is trying to weed out cor- weapon and several hostages. The event is than in any other part of the world. Many ruption among pencil-pushers. entirely fictional—it is the plot of a 1993 of these employees “do no work at all,” Yetfewthinkthe improvementswill get Egyptian film, “Terrorism and Kebab”—but says Hala al-Said, a professor at Cairo Uni- off the ground. Already tax-authority the difficulties it depicts persist today. versity. Promotions are based on age or workersand unionshave protested against Real-life examples fit for comedies connections, not merit. It is hard to be fired, the new law in Egypt while politicians in abound. Paper-shufflers in Iraq insist that even for incompetence. Absenteeism is Iraq are blocking change there. An attempt citizens list their birthplaces as that oftheir widespread, not least because no one is in Lebanon in 2005 to recruit senior civil fathers, regardless of where they were doing any monitoring of performance, servants on merit soon collapsed lest re- born, causing no end oftrouble. When one says Zaid al-Ali, an academic at Princeton. form upset a fragile system that distributes Iraqi tried to change hisson’sname, a legal- The inefficiency of Arab bureaucracies jobs among various religious groups. ly permitted process, he had to go to court matters to more than just frustrated citi- Instead ofreformingfrom the top, coun- 18 times to accomplish this minor revision. tries may well have more success starting Lucky for him he wasn’t trying to start a at the bottom by making bureaucrats ac- business in Egypt, which by some reckon- Unsustainable state countable to citizens at a local level, says ings requires permits from 78 different Public-sector employment as Shanta Devarajan, the World Bank’s chief agencies. Things are so bad that this year % of total employment Public-sector wages economist for the Middle East and north one Egyptian minister joked about blow- 2013 or latest available as % of GDP Africa. He points to successful schools in ing up the civil service with dynamite. 0 20406080 the West Bank and Gaza where parents as- Citizensthe world overcomplain about Kuwait* 10.7 sess the performance ofteachers. red tape and pen-pushing bureaucrats. But Saudi Arabia* 11.2 Yet not every country will be willing to those across the Arab world have more Iraq 18.0 go down this route, mainly because it cause for complaint than most. Dictators Algeria 11.5 would entail a weakening of the state’s and one-party states have long treated the Egypt 8.2 abilityto distribute largesse to loyal follow- civil service far more as an employment Tunisia 12.7 ers. “The social contract where the state agency for loyal supporters (and family OECD average 9.6 provided health and education fornothing members) than a provider ofservices. and citizenswere pacifistconsumersis bro- Lebanon 9.8 The effects are dire. Funding these ar- ken,” says Mr Devarajan. But so far, noth- Morocco 12.6 mies of desk jockeys eats into national ing has replaced it: not private-sector jobs budgets, divertingskilled workers from the Sources: ILO; IMF; OECD *Nationals only and certainly not democracy. 7 48 Middle East and Africa The Economist November 14th 2015

Conﬂict in Sinai Iran’s crackdown After the party The peninsular

TEHRAN war Hardliners in Iran are flexing theirmuscles AVING got the nuclear deal he desperately wanted, Hassan Rouhani H Egypt is losing control ofthe Sinai (right) is now sufferingthe backlash. At a time when Iran’s moderate president is ELIEVE me, the situation in Sinai—es- courting foreign investment—he will do “B pecially in this limited area—is un- so on a trip to France and Italy from No- der our full control,” said Abdel-Fattah al- vember14th (though he will skip a state Sisi, Egypt’s president, after a Russian pas- banquet because the French insist on senger jet crashed in the rugged peninsula serving wine)—a series ofarrests back on October 31st, the apparent victim of a home have embarrassed him. These bomb on board. Yet the figures suggest oth- would be less damaging ifthey were not erwise. Militant attacks in Sinai have risen so flagrantly at odds with Mr Rouhani’s to 357 this year, a tenfold increase from efforts to change Iran’s image after a 2012, the year before he took power, says decade ofinternational estrangement. the Tahrir Institute for Middle East Policy The agreement on July14th struck (TIMEP), a think-tankin Washington. between Iran and the West will mothball Fourmajorarmy operations, each more much ofits nuclear programme in ex- punishing than the last, have resulted in change fora lifting ofsanctions. Yet those large numbers of deaths. Fatalities from who hoped this might signal a wider counter-terror operations are up from 12 in reconciliation between Iran and the West 2012 to over 3,000 so far this year, says TI- have been left humbled in recent weeks. Herding cats would be easier MEP (see chart). Detentions, often accom- SiamakNamazi, an Iranian-American panied by torture, have soared from 16 in businessman with close links to Iran’s which makes a trade harder to negotiate. 2011 to over 3,600 for 2015. Amar Salah formerpresident, Ali Akbar Hashemi Mr Khamenei, having backed his Goda, a former mayor of El Arish, Sinai’s Rafsanjani, was arrested in mid-October. president throughout the nuclear talks, largest city, and a mediator between the His family runs Atieh Group, which now seems content to divide and rule. A government and Sinai’s Bedouin tribes, is advises companies that want to enter the speech he gave to Guards commanders among those locked up. The Egyptian Iranian market. A well-known advocate on September16th, in which he warned army says its latest assault—dubbed Oper- ofeconomic liberalisation, Mr Namazi them of“economic and security in- ation Martyr’s Right—resulted in the death was arrested by the intelligence wing of filtration”, seems to have spurred the of 500 militants. Despite the toll, the ranks the Islamic Republic’s Revolutionary crackdown. But the upcoming parliamen- ofmilitants seem only to grow. Guards Corps (IRGC). tary election in February may also offer The conflict started as a low-level insur- The Guards, who control much of an explanation for why Mr Rouhani is gency fuelled by Bedouin grievances over Iran’s economy, could have much to lose being undermined by conservatives. their poverty. Now Sinai has become a bat- from a more open market and have The poll will be the electorate’s first tleground for Islamic State (IS), and the shown willingness to conduct heavy- chance to endorse or criticise him since army’s harsh methods seem to be driving handed interventions timed formaxi- he won election in June 2013. In a fairpoll many of Sinai’s 400,000 Bedouin into the mum effect. In July 2014 they arrested he would likely do very well indeed, not arms of the jihadists. “Egypt’s military Jason Rezaian, the Washington Post’s least forhaving secured the nuclear deal. leaders are like ostriches with heads in the Tehran correspondent, just when the The hardline wing ofIranian politics has sand,” says an analyst. “They say, ‘We’re 1 nuclear deal was starting to lookpossible. been in disarray since Mahmoud Ah- The reporter, a dual citizen, languishes in madinejad, the formerpresident, left jail with no official confirmation of his office after driving the country’s econ- Shots in the desert sentence although he has reportedly omy over a cliff. Yet the Guardian Coun- North Sinai, Egypt, reported: been convicted ofespionage. cil, a conservative-dominated body that attacks by militants total fatalities from Five journalists, all either backers of vets parliamentary candidates, could terror attacks Mr Rouhani or critical ofhardline ele- blockMr Rouhani’s allies from the ballot. 400 300 300 ments in Iran’s regime, have since fol- Such interference, though calculated, 200 lowed Mr Namazi into custody behind may well veer into dangerous territory: 200 100 the high walls and barbed wire ofEvin furtherattacks on the president may force 100 prison in Tehran. Mr Khamenei to intervene since he does 0 0 The incidents all bode ill forMr Re- not want allegations ofa tainted election 2011 12 13 14 15* 2011 12 13 14 15* to provide fuel fordomestic tumult, as zaian as they have complicated talk ofa militant fatalities militant arrests prisoner swap—forIranians detained in happened after Mr Ahmadinejad’s ques- ’000 ’000 America—that had seemed his best hope tionable re-election in 2009. 4 4 ofa quickrelease after the nuclear deal. “Mr Rouhani is stronger than before 3 3 Mr Rouhani has no control over the the deal,” says one ally. “His only vulner- 2 2 IRGC. It reports to the supreme leader, ability is that the people may lose pa- 1 1 Ayatollah Ali Khamenei. And the judicia- tience ifthere is no economic improve- 0 0 ry that tried Mr Rezaian is also a conser- ment.” A stalled economy may hurt him 2011 12 13 14 15* 2011 12 13 14 15* vative fiefat odds with the president, as much as his conservative foes. Source: Tahrir Institute for Middle East Policy *Year to date The Economist November 14th 2015 Middle East and Africa 49

2 winning hearts and minds with our great its control. IS, for its part, is strengthening be heading back to the Nile Valley,increas- counter-insurgency plans,’ when they’re its grip on the countryside: militants have ing the risk that violence confined to the just stirring animosity with their collective distributed leaflets telling residents to get periphery could flare in the heart of Egypt. punishment.” permission before ploughing their lands. On November 9th, the government killed In the north the army has destroyed On July 1st IS fighters briefly captured Ashraf Hassanein al-Gharabli, an IS leader hundreds of smuggling tunnels supplying Sheikh Zuweid, north Sinai’s second city. who was driving through Cairo. His sus- Gaza, hitherto the Bedouin’s economic “The Sheikh Zuweid assault showed a con- pected attacksthisyearincluded the killing mainstay. The army has levelled neigh- siderable improvement in capabilities and ofEgypt’s chiefprosecutor, the most senior bourhoods along its border, displacing revealed techniques acquired in Iraq,” says Egyptian assassinated since 1990, the tens of thousands of people. Elsewhere in Muhammad Gomaa, of Cairo’s Al-Ahram bombing of the Italian consulate, and the North Sinai residents say the army is firing Centre forPolitical and Strategic Studies. beheading ofa Croatian oil surveyor. tank shells on homes in what seems an at- The army retook the city, but only after The British and other governments tempt to drive Bedouins into cities under aerial bombardment. Now IS fighters may maintain that Sharm el-Sheikh’s hotels remain safe for tourists, but there are signs, too, that militants are penetrating Sinai’s Israel and Palestine south. The19 monks at St Catherine’s, once a key tourist destination at the foot of Stick a label on it Mount Sinai, have faced repeated albeit foiled attempts at attack. An attack on a PSAGOT tourist bus in February 2014 and a suicide- Europe steps up pressure on Israel overits settlements bombing in May 2014, both in south Sinai, HE prize-winning Psagot Winery in a have emptied most of the peninsula’s re- TWest Banksettlement north ofJerusa- sorts outside Sharm el-Sheikh. lem has become a favourite destination Such attacks on the tourist industry fur- in recent years forright-wing Israeli and ther weaken the government’s financial American politicians, eager not just to grip. Tourism receipts fell to $7.8 billion in quaffCabernet but also to score political Egypt’s last fiscal year, down 22% from Mr points by highlighting the return of the Sisi’s first year in office, and 40% from the Jews to their biblical homeland. Sixty- last yearofthe formerdictator, Hosni Mub- five per cent ofthe 250,000 bottles pro- arak. That presents a Catch-22. Without an duced here each year are exported. Un- improvement in security Mr Sisi will strug- der new European Union rules adopted gle to provide employment to Sinai’s peo- this weekthose bottles sold in Europe ple. Yetunlesshe can provide employment will no longer be labelled “Produce of to quell Bedouin resentment he can expect Israel” but “Produce ofthe West Bank little improvement in security. 7 (Israeli settlement)”. Yaakov Berg, the winery owner, is not minister, Binyamin Netanyahu, ques- concerned for his own business. “People tioned why such guidelines do not exist Recovery in Liberia who buy our wines know where we are forother cases where there are contested and want to buy them,” he says. “This borders, such as Northern Cyprus, accus- After Ebola will probably only make them more ing the EU ofa “double standard” and popular.” He is already planning a line of said the move “brings backdarkmemo- Christmas gift-boxes with additional ries”, alluding to the Holocaust. settlement products, which he believes The new measure represents a dip- will be a hit in evangelical communities lomatic blow forIsrael as well as a vic- MONROVIA in America. Some ofhis fellow producers tory forthe BDS (Boycott, Divestment, Beating the virus is just the beginning may, however, see sales fallas European Sanctions) movement, which calls for a retailers refuse to stocktheir products. boycott ofall Israeli produce. However, RAVELLERS shuffle past temperature Labelling produce from the Israeli as European diplomats were at pains to Tchecks as they disembarkat the tiny air- settlements in the West Bank, the Golan point out, the new guideline is not in- port in Monrovia. Buckets of chlorinated Heights and East Jerusalem has been a tended to constitute a boycott ofIsrael in hand-wash sit dutifully outside public subject ofdiplomatic disagreement any sense. It is, they said, to ensure con- buildings, and adverts describing the grim between the EU and Israel formore than sumers are not misinformed. symptoms of Ebola are displayed across seven years. The Europeans, like the rest Whatever the moral justification of city walls. Two months after Liberia was ofthe world, do not recognise Israel’s this step, it is unlikely to amount to more (for the second time) declared safe, the sovereignty in the lands captured in the than an exercise in gesture politics. Isra- ghosts of the virus lurk. Yet life is tiptoeing six-day war in 1967 and regard Israeli el’s Economics Ministry reckons that it back to back to normal in the West African settlements there as illegal. Although could cause no more than $50m-worth of country of 4m people. Schools and mar- Israel enjoys preferential access to Eu- damage to Israeli producers a year, out of kets are open, people have food to eat and rope’s market and gets grants forresearch some $300m exported from the settle- locals are backto their old ways ofgreeting programmes inside the “green line”, it has ments (and some $18.9 billion that Israel visitors with hugs and holding hands. refused to abide by the EU’s previous exports to Europe). It will not help to Yet not all the hard-won lessons have labelling regulations. These new guide- restart the moribund peace process be- been forgotten. At the height of the out- lines put the onus on EU members to tween Israel and the Palestinians, and break, which claimed 4,800 lives in the ensure that imports from the settlements may only entrench an Israeli government country, Redemption Hospital, a labyrin- declare the correct provenance. that believes that it is unfairly singled out thine market-turned-medical facility in a Israel’s response has been to accuse by a hostile and, in its view, anti-Semitic Monrovia slum, was receiving hundreds Europe ofdiscrimination. Israel’s prime international community. ofpatientsa day. Chlorine suppliesran dry, protective equipment was scarce and re-1 50 Middle East and Africa The Economist November 14th 2015

2 fuse piled up behind the wards. Twelve of Uganda Each of the three held rallies. Mr Muse- its workers lost their lives. Today staff reli- veni’s launch was accompanied by an giously wash their hands and patients are President forever enormous gathering at Independence Park not forced to share beds. Rubbish is de- in the centre ofKampala. Hundreds of bus- stroyed in incinerators and cleaners douse es brought in supporters in yellow T-shirts; the wards with disinfectant. “If we’ve lines of soldiers toting guns guarded the learnt anything it was fear,” says Jude Sen- perimeter. Mr Mbabazi’s supporters kungu, a Ugandan doctor working with crowded into a football stadium in central The electoral race has started, but the the International Rescue Committee (IRC). Kampala shortly afterwards. The follow- winnerseems preordained “That’s strucka behaviour change.” ing day Mr Besigye’s supporters marched The resources that flowed into Liberia’s HERE is a curious new vehicle crawling into the city covered in blue. ramshackle health-care system to stem the Tthe streets of Kampala, Uganda’s capi- Yet the buzz conceals widespread apa- disease are continuing to do some good. A tal. It is a pickup truck, but mounted on its thy. “Elections have become a ritual in re- measles outbreak erupted after last year’s back is a sort of mechanical merry-go- cent years,” says Dr Livingstone Sewa- vaccinations were suspended. When im- round. As it crawls through traffic, two nyana, the head of a local human-rights munisation shots were finally dispatched mannequins pedalling bicycles do revolu- organisation. At the last election in 2011 they reached more than halfa million chil- tions, their arms waving. Music blares out turnout was just 59%, down from 71% in dren, accordingto the deputy health minis- of speakers; the entire vehicle is festooned 2001. Mr Museveni’s supporters are largely ter,Francis Kateh—one ofthe highest cover- with political banners. And on its top is a bought, reckons Mr Sewanyana. Some say age rates to date. This is heartening news sign, which reads simply, “Vote Museveni. they are paid between 5,000 and 10,000 for neighbouring Sierra Leone, which was President now.President forever.” Ugandan shillings ($1.50-$3) to come to ral- declared Ebola-free earlier this month. (A What better slogan for Yoweri Muse- lies, as well as given transport and food. third hard-hitcountry,Guinea, isstruggling veni, Uganda’s president since he took Opposition supportersare more genuinely to extinguish the outbreak.) power after a coup in 1985? A staunch ally enthusiastic, but not very numerous. But the aftermath of the pandemic is a ofthe West, he introduced multiparty elec- Partly thanks to long suppression, the battle in itself. Hospitals, which are apply- tions in a country torn apart by Idi Amin. opposition is weak and divided. Mr Besi- ing better standards of infection control, But he has been in power for almost 30 gye has been running the same campaign now turn patients away for lack of space. years and seems determined to stay for for a decade now—each time struggling to There were fewer than 60 Liberian doctors longer. In February Uganda will hold elec- compete with the resources and state pow- in the country before the virus broke out tions. They will be the most fiercely fought er of Mr Museveni’s party, the National Re- last March, and some 10% of them died in the country in decades, and will proba- sistance Movement. Mr Mbabazi brings after catching it. Donors worry about what bly not end with an unimpeachable result. some new supporters, but he is almost as will happen to the health system when the The campaigns were launched on No- tainted as the man he hopes to unseat. The flow of aid stops. “Once the resources are vember 3rd. There are eight presidential two foesofthe president are so farrefusing out, it’ll just go backto the way it was,” says candidates, but only three are credible. Mr to join forces: a meeting in London chaired the local head ofa non-profit organisation. Museveni himself; Amama Mbabazi, a for- by Kofi Annan, produced no agreement. Longer-term social issues are also com- mer prime minister who has broken with It seems unlikely this time that opposi- ing to the fore. Families that lost their his one-time boss; and Kizza Besigye, a tion leaders will be arrested or charged breadwinners face grinding poverty, and long-standing opposition leader who was with treason (as Mr Besigye was in 2005). there is scant assistance for the 5,000 or- Mr Museveni’s doctor in the bush wars of But all other institutions will be used to phaned children now living under caregiv- the 1980s. He has fought three elections serve Mr Museveni. Already the state is his ers’ roofs. In Dolos Town, a hard-hit com- since 2001(and has been repeatedly arrest- personal fiefdom: MPs are obsequious to munity outside the capital, foster parents ed fordoing so). the president; officials and judges serve at say they cannot afford school fees. Street his whim, and ministerial jobs are given to Child, a charity, thinks that child labour is allies and family members. Janet Muse- on the rise as struggling families take chil- veni, the president’s wife, is a cabinet min- dren out of school and send them to work. ister; Muhoozi Museveni, his son, is head Locals complain of worsening crime, and of the presidential guard, the top army teenage pregnancies have spiked since unit. In September, a meeting of Mr Mba- children found ways of keeping them- bazi’s supporters was broken up by police selves busy when schools were closed. “Li- who fired tear-gas canisters. beria has easily lost three years in its devel- Sadly, his determination to hold on is opment agenda,” says one diplomat. hardly unique to Uganda: the whole of the The economy is struggling, too. Annual Great Lakes region of Africa is plagued by growth should rebound to 2-3% this year presidents who won’t leave. In Rwanda from less than 1% in 2014, the World Bank Paul Kagame, president since 2000, may reckons, but that looks paltry in compari- hold a referendum to erase a constitutional son to a pre-Ebola rate of close to 9%. Not ban on running for a third term. Opposi- all of this is due to the virus: falling com- tion there has been fiercely suppressed. In modity prices have played their part, too. Burundi close to 200 people have been Iron-ore revenues have fallen and rubber killed since April, when President Pierre exports have dropped. International com- Nkurunziza declared he would run for a panies that were prospecting for oil a few third term. And in the Democratic Repub- years ago have now stopped work. Air- lic of Congo the government claims elec- lines such as Air France, that halted flights tions due next year will have to be de- to Monrovia during the outbreak have not layed–giving President Joseph Kabila more returned. “The real issue is not rebuilding time to consolidate his power. President Liberia after Ebola,” the diplomat says. “It now, president forever, is a slogan that a lot is building it from scratch.” 7 Museveni, still smiling ofleaders would be quite happy with. 7 Europe The Economist November 14th 2015 51

Also in this section 52 Russia and terror 52 France’s National Front 53 The Polish right is back 54 Romania’s anti-corruption politics 55 Charlemagne: Migration in Malta

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

Doping in sport some samples. Mr Rodchenkov, who resigned on November 10th, admitted him- A cold-war chill self that he had destroyed 1,417 test results before an inspection in 2014. And Liliya Shobukhova, a marathon runner, acknowledged paying €450,000 ($480,000) to ARAF in exchange for the destruction of samples that tested positive. Even more striking than the report’s Investigators charge Russia with once again drugging its athletes findings are its prescriptions. In addition to NLY a naive sports fan would be edly gave her PEDs. (Mr Mokhnev denies proposing lifetime bans for five runners, Oshocked by a new round of doping al- this account.) The report also accuses Dr WADA suggests that Russia’s entire track- legations. In cycling’s Tour de France from Portugalov ofdirectly delivering injections and-field team be excluded from interna- 1998-2013, 38% ofthe top-ten finishers were ofbanned substances to athletes, though it tional competitions until it cleans up its punished for using performance-enhanc- does not provide specifics. Dr Portugalov anti-doping system. Given the magnitude ing drugs (PEDs), and a leak of track-and- could not be reached forcomment. of the charges, it would take a rapid turna- field athletes’ blood test results earlier this In addition, WADA has levelled wider round to achieve this before the Summer year showed that around one-seventh allegations of “direct intimidation and in- Olympics next August—a threat Mr Pound were “highly suggestive ofdoping”. Yet the terference by the Russian state” to conceal compares to a “nuclear weapon”. report on Russian athletes published on doping. Many of the most incendiary Vladimir Putin, Russia’s president, November 9th by the World Anti-Doping claims, such as assertions that Russia had would probably take a ban particularly Agency(WADA) still representsa new kind set up a “pre-screening” lab to filter out hard. An amateur hockey player and judo of scandal—or, more precisely, a very old positive tests, seem to rely on hearsay. But black belt, he has revived the Soviet habit one. Rather than merely citing individual the agency did obtain statements of guilt of using athletics for propaganda. “We not athletes, WADA claims that Russia has from people involved in the cover-up. Staff only organised and hosted the best-ever maintained an organised national doping at a WADA-accredited lab in Moscow told Winter Olympics,” he said after Russia led programme of the sort that was thought to investigators that its director, Grigory Rod- the medal table at last year’s games in So- have ended with the cold war. chenkov, had ordered them to get rid of chi, “we won them too.” At a time when Russia first found itself in WADA’s Russia is floundering economically and cross-hairs last December, when a German isolated diplomatically, its athletes have TV station aired accusations of rampant These aren’t the ’roids you’re looking for provided a much-needed image ofsuccess. PED use. In June the agency noted that Rus- Athletics, anti-doping rule violations, 2013 With this narrative in danger, Russian sia led the world in PED violations in 2013, authorities offered a defiant response. Va- with 11.5% ofthe global total. But once its in- 0 102030405060 dim Zelichenok, who took over ARAF in vestigators started digging, what they Turkey February, called the accusations a “politi- found was “worse than we thought,” said cal hit-job”, and Dmitry Peskov, a Kremlin Russia Dick Pound, the report’s co-author and a spokesman, said they were unfounded. Vi- former WADA president. “It may be a resi- India taly Mutko, the sports minister, suggested due ofthe old Soviet Union system.” France that WADA had proposed the ban because The report’s main smoking gun in- Belarus other countries would “benefit from re- volves Sergey Portugalov, the chief medi- moving a direct competitor”, and quipped China cal officer of the All-Russian Athletics Fed- that Russia could save money by shutter- eration (ARAF). In an e-mail, he Kenya ing RUSADA, its anti-doping agency. encouraged Yuliya Stepanova, a runner, to Ukraine Any decision on banning the Russian increase her use of banned testosterone. United States team would fall to the International Asso- Ms Stepanova later secretly recorded her ciation of Athletics Federations (IAAF), Source: WADA coach, Vladimir Mokhnev, while he alleg- track-and-field’s global governing body. 1 52 Europe The Economist November 14th 2015

2 Unfortunately,the IAAF itself is also mired bastian Coe, the IAAF’snewpresident, will the path to cleaning up sport”. in the scandal. Perhaps the most explosive face pressure to take a hard line. He is de- If it does not, it could mean the first ab- allegation to come out of WADA’s investi- manding an official response from Russia sence ofa large country from the Olympics gation does not appear in the report: that within a week. since America and the Soviet Union boy- Lamine Diack, the former head of the There is still a chance that Russia could cotted each other’s events in1980 and1984. IAAF, took some €1m in bribes, reportedly get back into the IAAF’s good graces in Sporting officials are shuddering at a re- paid through ARAF, in exchange for not time. Afewofficialshave taken a more con- turn to the bad old days of the cold war. taking action against Russian cheaters. ciliatory tone: the sports ministry said Rus- However, following a year of proxy wars WADA excluded these details in deference sia was “open to more robust co-operation between Russia and the West in Ukraine to criminal proceedings in France, which with WADA”, while Nikita Kamaev, the and Syria, hopes that sport could remain arrested Mr Diack on November 4th. Se- head ofRUSADA, said the country was “on immune might be wishful thinking. 7

Russia and terrorism France’s National Front Tolerance for casualties Phantom menace

VLADIVOSTOK Russians’ stoicism gives VladimirPutin time to workout a response HORTLYafter Vladimir Putin became the Kremlin’s interests.” SAINT-QUENTIN prime minister in1999 Russia was hit In the meantime, the authorities face S Marine Le Pen may win elections on by a string ofapartment bombings that no public pressure for answers. Russians fearofa non-existent migrant wave killed over 300 people. An enraged Mr have responded to the tragedy with a Putin promised to “waste the terrorists in stoicism born ofexperience. Collective EAT mounds of freshly harvested sug- the outhouse”. By comparison, his re- griefin Russia is intense but dissipates Nar beets await collection on the plains sponse to the Metrojet crash in the Sinai fast, says Lev Gudkov, director ofthe of Picardy. This flat land, around the north- peninsula has been curiously subdued. Levada Center, an independent pollster. ern town of Saint-Quentin, is quiet farm- There have been no impassioned calls to Russia’s experience ofterrorism resem- ing country. No refugees are camped out avenge the 224 dead, only a brieftele- bles Israel’s more than it does Europe’s or anywhere in sight. No immigrants vised offerofcondolences. America’s. In the past 20 years Russians wrapped in blankets tread the roads. Yet Yet the consensus that terrorists have seen aeroplanes, airports, buses when Marine Le Pen, leader ofFrance’s far- brought down the airliner grows stronger and metros bombed, and hostages taken right National Front, takes to the stage for a each day. It is no longer just British and in theatres and schools. The Sinai victims campaign rally at the town’s municipal American officials who are saying it. were touchingly mourned, but society theatre, she deplores the “gigantic migra- Evidence from the flight recorder, the exit has quickly moved on, giving the govern- tory wave” that is on its way—and the audi- holes in the fuselage and the burn in- ment space to calibrate its response. ence erupts with applause. juries sustained by passengers all point to Mr Putin is due to deliver his yearly Europe’s greatest refugee influx in mod- a bomb. The main suspect is the Sinai address at the beginning ofDecember. ern history has strengthened right-wing Province ofthe Islamic State, the group With the aid oftelevision, the crash can anti-immigration parties from Poland to which initially claimed responsibility. be used to fuel further“patriotic mobil- Switzerland. But the biggest European Judging by Mr Putin’s decision last isation”, Ms Lipman says. IfRussia ac- countryin which such a partyisclose to se- weekto cancel flights to Egypt and evacu- knowledges terrorism as the cause, wind- curinga chunkofelectoral powerisFrance. ate some 80,000 Russian tourists, he too ing down its military operation in Syria Polls now make Ms Le Pen the favourite to gives credence to the terrorism scenario. might be more difficult; Mr Putin cannot win the region of Nord-Pas-de-Calais-Pi- Nonetheless, his chief-of-staffinsists that allow such an attackto go unpunished. cardie at two-round elections on Decem- a bombing is “just one ofthe versions” But, as the West has learned the hard way, ber 6th and 13th. Home to nearly 6m peo- and that the investigation will take the urge formilitary paybackin the Mid- ple, it covers not only Picardy, the city of months. The Kremlin refuses to accept dle East can have unexpectedly painful Lille, and the mining basin to its south, but any connection between the crash and consequences. also the refugee camp at the port ofCalais. Russia’s military operations in Syria. For the National Front (FN), conquering On television, Russian viewers have the north of France would mark its biggest been treated to a series ofobfuscations. victory yet. The party or its allies currently Experts have offered various technical boast two members of parliament, and explanations. Anger has been redirected run 12 town halls. But the movement, at Charlie Hebdo, the French satirical founded in 1972 by Jean-Marie Le Pen, Ms weekly, which caricatured the crash. In Le Pen’s father, has never secured a region. his Sunday broadcast Dmitry Kiselev, Polls suggest that as many as three are now Russia’s propagandist-in-chief, blamed within its grasp: the north; the region the crash on a secret pact between Ameri- around Provence in the south; and a third ca and Islamic State. towards Alsace in the east. A win in even The Russian leadership may be genu- one would be a bigstep fora partybent not inely reluctant to jump to conclusions, only on protest, but on power. but it is also clear that Mr Putin has not Ms Le Pen’s ambition is to transform the decided on a line. Maria Lipman, a politi- FN from a marginalised extremist move- cal analyst, says the government is buy- ment into a serious party of government. ing time: “The fartheraway from the She hasexpelled the thuggish fringe, turfed actual shockand grief, the easier it be- out her rambunctious father, and recruited comes to package it in a way that serves Trapped in Sinai, proud of Putin policy types to work up wonkish documents. For those packed into the Saint-1 The Economist November 14th 2015 Europe 53

2 Quentin theatre, this makes foran odd Sat- Polish politics urday night: a mixofcrowd-pleasingenter- tainment (she has a stand-up comic’s tim- He’s back ing) and tedious technical pledges. When Ms Le Pen talks about cash-flow problems for small firms, the audience looks blank, and children fidget on their seats. When WARSAW she vows to end regional subsidies to refu- Jaroslaw Kaczynski controls the new gee-aid groups in Calais, however, a huge government, as centrists feared cheer goes up. Calais, she says, is living “a veritable nightmare” and taxpayers’ mon- N THE 10th of every month Polish na- ey should “serve the French first”. Otionalists gather outside the presiden- The refugee crisis has played straight to tial palace in Warsaw with flowers and vo- Ms Le Pen’s hand, even though the exodus tive candles to mourn Lech Kaczynski, its from Syria and Iraq has headed over- former occupant, who died with 95 others whelmingly to Germany,not France. Tradi- in a plane crash in Russia in 2010. They also tionally the FN has drawn support from demand justice. Apensionerin a billowing whites in heavily immigrant areas, in the raincoat has no doubts about who caused troubled industrial north and the Mediter- the crash: “Vladimir Putin, and Donald ranean south. But workby Hervé Le Bras, a Tusk”—then Poland’s prime minister. French geographer, shows that recent gains That the outgoing centrist goverment include places where immigrants are conspired to murder a right-wing president scarce. For many,they need only to see the “make a din” and force the government to is a minority belief, but one felt deeply on television images of migrants wading step in, to process genuine asylum-seekers the far right. But at its latest rally the crowd ashore in Greece to swing behind the FN. and expel those who are not. felt justice was inching closer. The Law and Mainstream parties seem at a loss as to Perhaps the best effort at damaging Ms Justice party (PiS) led by Jaroslaw Kaczyn- how to stop this. For the right, tough talk Le Pen has come from her centre-right rival ski (Lech’s twin), which won last month’s about migrants can sound merely like a in the region, Xavier Bertrand, a former la- parliamentary election, has named Antoni pale version ofthe FN. The leftfears that an bour minister and mayor of Saint-Quen- Macierewicz, a leading proponent of con- appeal to France’s history as a land of hu- tin. For all her anti-system talk, he says, she spiracy theories about the crash, as minis- man rights could push voters into Ms Le and her family are in reality “the incarna- ter ofdefence. Pen’s arms. The FN is already the most pop- tion of the system,” living fordecades “like In its first term in power from 2005-07, ular party among working-class voters: a vampire” offtaxpayers’ money,thanks to PiS split the country over religious and cul- 41% of them back it, next to 24% for the So- the perks of office. His is a sharp point, but tural issuesand picked needlessfights with cialists. The party is even courting Mus- it may not be enough. In Saint-Quentin, Germany and the European Union. For lims, arguing that the FN is against extrem- those queuing up to hear Ms Le Pen do not some Poles, the new government confirms ism, not Islam. “Muslim perhaps, but seem put off. “Even if I don’t agree with all that PiS has not changed. “It’s like going French first” reads one slogan. “Nobody her ideas,” says a middle-aged woman backa decade,” says a well-dressed man at wants Islamism, least of all Muslims,” says who has turned up with herhusband, “she a nearby coffee shop, running his finger Florian Philippot, an FN vice-president. is the only one who speaks about us.” 7 down the list of ministers in the newspa- Ms Le Pen’s ascension, however, is due per. Feminists warn of a return to the dark to more than a narrow anti-immigrant ages, liberal editors ofa crackdown. message. It is also a pitch to the people Frontal assault Even some who voted for PiS have against the system. Perhaps the greatest France, by department doubts. The party swept to power last cheers in Saint-Quentin are reserved for European Parliament month with a campaign exploiting popu- election, 2014 her denunciation of the interchangeable Share of lar exhaustion with eight years of rule by ruling parties, which “promised every- votes for the centrist Civic Platform party (PO). To Paris National thing” and “betrayed everyone”. They are Front, % win over moderates, Mr Kaczynski, a divi- devotingall theirenergies not to governing >14 sive prime minister in 2006-07, named his the country,she jokes, but to fretting about 12-14 milder deputy Beata Szydlo forthe job. But the rise of the FN. Manuel Valls, the Social- signs abound that she will have little pow- Lyon 10-12 ist prime minister, has warned darkly of 8-10 er. Mr Kaczynski denied that she had been CORSICA the “drama” of a possible FN regional vic- <8 sidelined, butaspartyinsidersdrew up the tory, declaring that “everything should be government, MsSzydlo wasnowhere to be done” to stop it. Yet the more that politi- Marseille seen. (“She has earned a few days’ rest,” cians try to take the moral high ground said a senior PiS figure.) Calais Lille Unemployment against Ms Le Pen, the more she casts her- NORD-PAS-DE- Instead the new cabinet has MrKaczyn- CALAIS-PICARDIE Saint- rate, 2014 selfas the victim ofan elite cabal. Quentin % ski’s stamp on it. The security portfolios It may yet be that voters are not ready to >11 have gone to his chums; the economic hand power to the FN, or that rivals gang 10-11 ones, which he cares less about, have been up in the second round to thwart it. As Syl- 9-10 leftto experts. Many ministers are veterans vain Crépon, at the University of Tours, 8-9 of the last PiS government, including Zbig- points out, even some FN strategists have <8 niew Ziobro, the justice minister, an anti- reservations: the more it accepts the messy corruption zealot with a habit of investi- compromises of government, the more it CORSICA gating political opponents. Witold Waszc- “risks losing its radical edge”. As it is, the re- zykowski, a veteran diplomat who fell out gions run schools and transport, but have of favour in the PO era, is the new foreign no powers over policing or asylum. So Ms minister. He is expected to focus on boost- Le Pen’s chief promise over Calais is to Sources: French interior ministry; INSEE ing transatlantic ties (though the Obama 1 54 Europe The Economist November 14th 2015

2 administration may not reciprocate). Euro- Ms Szydlo had ruled out his becoming de- five parliamentarians, two ex-ministers philes prefer his deputy for European af- fence minister; now he is host for the next and a former prime minister, as well as fairs, Konrad Szymanski, an able former NATO summit, in Warsaw in July. 1,000 others—with a conviction rate of member ofthe European Parliament. Mr Kaczynski has called for a “renewal over 90%. It is led by 42-year-old Laura Co- But it is the return of Mr Macierewicz, a of the republic”. That may be code for his druta Kovesi, previously the country’s former deputy defence minister, that has grand project of moral revolution, culmi- prosecutor-general (the youngest ever, and has raised the most eyebrows. One in two nating in the creation of a “fourth repub- the only one to serve a full term). Poles regard him as untrustworthy. Many lic”: a radical break from the messy com- The DNA had Mr Ponta in its sights too. of Poland’s allies find him alarmingly promises surrounding the collapse of A four-month investigation led to charges prone to overstatement. PiS had lately kept communist Poland. (The inter-war repub- of forgery, money-laundering and tax eva- Mr Macierewicz hidden away (apart from lic was the second one, the 17th-century sion—all dating from his career before he a meeting with the Polish diaspora in Chi- commonwealth the first.) That project— became a politician. If he had not man- cago, where he hinted that Mr Tusk, now alarming to some, intoxicating to others— aged to keep his parliamentary immunity, president of the European Council, had was interrupted when PiS lost eight years his activities in office would have been un- been an agent of the Stasi, the intelligence ago. Now Mr Kaczynski has the votes, and der scrutiny as well. He denies all wrong- service in communist-era East Germany). the team, to try to make it happen. 7 doing and blames the DNA’s investigation on political vendettas. Dogged by other controversies (such as alleged plagiarism), Politics in Romania Mr Ponta failed in his bid to become president in elections last year. He was beaten Collective responsibility by the austere Klaus Iohannis, the long- serving mayor of Sibiu, a thriving Transyl- vanian city. The election of an ethnic Ger- man and a Protestant signified a welcome shift from the fevered ethno-nationalism that has beset parts ofthe Romanian politi- Protests about a deadly nightclub fire have toppled Romania’s government. They cal spectrum since the fall ofcommunism. have yet to change the political system Mr Iohannis has now appointed as HANGING prime ministers in Roma- apologised nearly a week later. The prime prime minister a technocrat, Dacian Cio- C nia is nothing special. Changing them minister, Victor Ponta, finally resigned on los, a former EU agriculture commissioner. on grounds ofcorruption or incompetence November 4th—the first time in Romania’s Assuming he wins a parliamentary vote of is unprecedented. Changing the whole post-communist history that a leader confidence later this month (highly likely, dysfunctional political system is still a stepped down because ofpublic pressure. given how badly shaken the political par- daunting and distant prospect. But since The toppling of Mr Ponta is the culmi- ties are by the upheavals of the past days), the resignation of Victor Ponta’s govern- nation of a fight that started in 2003, when Mr Ciolos will then run the country until ment last week, Romanians are beginning an independent prosecutor’s office, the the scheduled parliamentary elections in to feel a breath of optimism, after 25 years DNA, was set up at the behest of the Euro- December next year. In that period he may of fitful progress in building institutions pean Union, which Romania was seeking form the nucleus for a new grouping, and entrenching the rule oflaw. to join. Although much of the country’s bringing into formal political life the street The immediate cause is a tragedy—a fire justice system remains resistant to reform, protesters, who have so far shunned con- followed by a stampede at Colectiv, a Bu- the DNA is now one of Romania’s most-re- tact with the establishment. charest nightclub, at the end of October, spected institutions. Strongly supported New people at the top and public impa- which killed 48 people and left dozens by the EU and America against domestic tience with the past are necessary condi- with horrific burns. The disaster epito- political attacks, ithassteadilytightened its tions forRomania to turn itself into a mod- mised many of the features that have held grip over the years, ending the assumption ern European country. But they are not the country back: irresponsibility (the use of complete impunity which had long sufficient ones. Creating institutions in a of fireworks in a basement with polysty- marked the country’s political class. Last country that lacks any memory of them is rene soundproofing); incompetence (the year it successfully prosecuted 24 mayors, hard. Just askthe Greeks. 7 club was ill-run and the emergency services ill-prepared); and apparent corruption (the building seems not to have been properly inspected or licensed). In the aftermath of the fire, Romanians took to the streets in some of the biggest protests since the collapse of communism. Under the slogan Coruptia Ucide (Corrup- tion kills) theydemanded resignations and prosecutions, as well as a cut in the number of lawmakers; new anti-corruption laws; and higher pay for officials to reduce the temptation to accept bribes. A banner in University Square, a hotspot of the 1989 revolution, read: “In 1989 we fought for liberty,today we fight forjustice.” The establishment initially appeared nonplussed. Patriarch Daniel of the Roma- nian Orthodox Church responded by saying that young people would find it safer to go to churches rather than nightclubs. He Liberty plus justice, please The Economist November 14th 2015 Europe 55 Charlemagne High wall, narrow sea

Migrants once flocked to Malta, host ofthe EU-African migration summit. Not anymore The signs of prosperity are everywhere. Winter sun-seekers throngRepublic Street, Valletta’s main thoroughfare. Everywhere one looks, sandstone palazzos are being converted into plush offices for foreign firms. Tower cranes dot the horizon. The Maltese economy grew in the second quarter at an annual rate of more than 5%. Unemployment is the third-lowest in the EU. The budget deficit this year is expected to be 1.6% ofGDP. Malta has undoubtedly benefited from an “Arab winter” effect, as tourists who might otherwise be in Egypt or Tunisia opt fora saferalternative. Butthe governmentprefersto stress itsown contributions. In 2013 Joseph Muscat, the leader of the Labour party, swept to office with an implausible pledge to cut the island’s sky-high energy tariffs by 25%. Helped by the fall in oil prices, he managed it (though at the cost of getting the state- owned power company to set artificially low prices and rack up debt). “I think that we can do what Singapore has done,” says the 41-year-old Mr Muscat, who has the same missionary zeal as Mat- teo Renzi, prime minister ofneighbouring Italy. One would think such talk would have migrants hastening to his island. Yet there are virtually no new arrivals, no rickety fish- ingvessels full ofhuman cargo. Not a single large boat has landed HEN the European Union picked Malta as the site for this on Malta this year. Even migrants rescued by Maltese vessels in W week’s EU-Africa migration summit, it seemed a logical Malta’s search-and-rescue area are being taken to Italy instead. choice. The island nation is perched in the Mediterranean half- Conspiracy theorists speculate that the Italians are helping in way between Libya and Italy. For a time, it was one ofthe top des- return for a chunk of Malta’s lucrative air space, or have secretly tinations for migrants from Africa trying to reach Europe. And been granted prospecting rights for oil and gas. The prime minis- Valletta, Malta’s fortified Baroque capital, is a very telegenic spot ter denies any secret deal with his friend Mr Renzi, and protests for a summit. (In “Game of Thrones”, a television series, it serves that Malta has taken its share of refugees under burden-sharing as the backdrop for the port city of Pentos, whose own asylum arrangements with Italy and Greece. But Mr Falzon estimates seekers include the Targaryans, an exiled royal family.) But Malta there are today only about 2,000 migrants on Malta who arrived is also apt in a way EU leaders may not have intended: as a stand- irregularly, less than 0.5% ofthe population. point from which to observe Europe’s increasingly confused attitude towards refugees and other immigrants. Fortress Malta, Fortress Europa? African migrants encounter as much undisguised hostility At the EU-Africa migration summit, European leaders pleaded here as anywhere in Europe. Neil Falzon, who runs Aditus, a local with African countries to help them to bring their migrant pro- human rights organisation, says many have been spat upon in blem under control. Countries that arrest people-smugglers, and the street. As in much of eastern Europe, unfamiliarity breeds accept the return of migrants whose asylum applications have contempt. Until the turn of the century, the island had one ofthe been rejected, will be given aid—€1.8 billion ($2 billion) of it, says most ethnically homogenous societies in Europe, though its un- the European Commission—as well as more access to European ique identity is actually the product of centuries of racial min- markets and more visas for their citizens. As the summit was gling. (The result is a native population who look a bit like Ital- meeting, Sweden, one of Europe’s friendliest countries to refu- ians, speaka bit like Arabs and drive on the left like the British.) gees, announced it would set limits on asylum applications. In the early 2000s, when thousands of African asylum seek- Could Europe as a whole aim for the same migrant-free prosper- ersbegan landinghere annually, itcame asa shock. “Alotofelder- ityasMalta? ly people had never seen a coloured person,” says the leader of Perhaps, were it not that Malta’s economic renaissance de- the opposition Nationalist Party, who condemns racism (while pends heavily on migration. According to the Malta Employers’ unwittingly using a politically incorrect term). Maltese xeno- Association, expatriates (European or otherwise) now make up phobes can fall back on a rational argument: Malta is both the 12% ofthe labourforce. Foreign workers have flocked to the island EU’s smallest state and its most densely populated one. Maltese nation to workin growth industries such as financial services, ge- feel they should have to take fewer migrants than larger states. neric pharmaceuticals and online gaming. Locals say some asy- Yet strangely, without anyone much noticing, they seem to lum-seekers who have been accepted in other Mediterranean have got what they want. Malta is barely 200 miles from Libya, countries, like Spain, are coming to Malta in search of jobs. The still a major transit country for refugees though no longer as im- country even offers passports to anyone who invests €1m. portant as Turkey. Butthe flow to Malta has virtually shut down— Malta is not keeping immigrants out; it welcomes them, but and no one knows why. Over140,000 migrants arrived in Italy by preferably if they are European, skilled or wealthy. This may be a sea in the year to November10th; in Malta, since the end of Janu- viable strategy forsmall Mediterranean islands, butnot foran en- ary, the number is just 20. Meanwhile, the economy has been tire continentofgreyingworkers. Leaderswho drawlessons from thriving. Malta has succeeded in becoming something Viktor Or- Malta’s success should keep in mind that ifEurope wants to bring ban, the eurosceptic Hungarian prime minister, might dream of: in immigrantsto growitseconomy, theywill bydefinition have to an EU state with enviable growth figures and almost no migrants. come from outside Europe. From Africa, perhaps. 7 56 Britain The Economist November 14th 2015

Also in this section 57 The sharp-elbowed middle class 58 Bagehot: Trouble in Labourland

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

Britain and the European Union decides by a large majority to stay in. But it will be harderthis time. The Leave Cameron’s call to arms campaign, bolstered by huge donations from wealthy Eurosceptic hedge-fund managers, is well organised and is trying to harry companies against speaking out for the EU. This week’s mild protest at the annual conference of the Confederation of The prime ministerfaces a tougherfight with his own party than with other British Industry may presage other disrup- European leaders tionsatcompanymeetings. There are more HE phoney war is over. David Camer- veto or for quotas on EU migrants. The anti-EU newspapers than in 1975. And Tory Ton’sletterofNovember10th to the pres- omissions were harshly criticised by Euro- Eurosceptics are right to argue that Mr ident of the European Council, Donald sceptics. Dominic Cummings of the Leave Cameron’s reforms will not bring the fun- Tusk (pictured with the prime minister), campaign denounced Mr Cameron’s en- damental change he once promised. This marks the start of the real battle over Brit- tire wishlist as “trivial”. week one MP, Jacob Rees-Mogg, called ain’sEU membership. Aperiod ofrenegoti- The migration demand will be hotly them “thin gruel”; another, Bernard Jen- ation will follow, before an EU summit on contested. East Europeans are loth to dilute kin, asked incredulously: “Is that it?” December 17th-18th, with the referendum the principle of free movement of labour. This will put the onus on Mr Cameron probably takingplace next year. The lesson Mr Cameron’s claim that over 40% of EU not just to trumpet his reforms but to make from Mr Cameron’s letter is that his biggest migrants collect in-work tax credits or a broader case for the value of Britain’s EU fights will not be with Brussels or national housing benefits was challenged by statis- membership. He began this in his speech capitals but with Eurosceptics at home. ticians who said the true figure might be this week. He stressed the economic ad- Mr Cameron’s demands were as ex- only half as big. Most migrants come to vantages to Britain of being in the EU. He pected. On economic governance, he Britain to work, not to claim benefits. John dismissed alternatives like Norway and wants assurances that a more deeply inte- Springford of the Centre for European Re- Switzerland’s models, which might turn grated euro zone will not gang up on non- form, a pro-EU think-tank, says any four- Britain into a rule-taker, not a rule-maker. euro members. On competitiveness, he is year waiting time would constitute dis- For the first time, he cited national-security seeking commitments to complete the sin- crimination under EU law. Mr Cameron interests, pointingto the EU’srole in the nu- gle market, rein in EU regulation and pur- himself conceded that some other answer clear-weapons deal with Iran and in sanc- sue free-trade deals. On sovereignty, he is might be needed. One possibility would tions against Russia over Ukraine. He also demanding a British exemption from the be to impose a four-year residency require- tried to quash claims that a vote to leave goal of ever closer union and more say for ment before benefits are available for could just mean more talks, insisting that if national parliaments. And on immigra- everybody, including Britons. it happened Britain would indeed leave. tion, he wants measures against abuse of Mr Cameron faces other difficulties, in- Yet the problem Mr Cameron has in free movement, including a four-year wait- cluding securing the legally binding and ir- talking up the value of Britain’s member- ingperiod before EU migrants can claim in- reversible guarantees he wants. That is ship is that he simultaneously calls the sta- workwelfare benefits. hard without treaty change, which is un- tus quo unacceptable. EU-bashing has be- Except for this fourth demand, most likely to happen for some years. He will come so ingrained in the Tory party that it European leaders greeted the list as hope for at least one big row, perhaps with is hard even for a deft prime minister to “achievable”. It is notable more for what it the European Commission, Poland or, best switch. The gamble he tookby promising a leaves out than what it includes: no de- of all, France. Yet overall he has set the referendum in his January 2013 Bloomberg mands for opt-outs from social or employ- scene for a rerun of Harold Wilson’s 1975 speech remains risky. If he loses and Brit- ment laws, for transfers of power back to experience: a short renegotiation, some ain leaves, that is what his premiership national governments, for a new national minor concessions and a referendum that will be remembered for. 7 The Economist November 14th 2015 Britain 57

Public services the richest quintile received 87p for every £1 that was spent on educating the poor; Sharper elbows last year they got 48p. The biggest change duringthisperiod wasin highereducation, which went from being the heavily subsidised privilege of a few to a service from which about halfbenefit. Its funding model has become fairer, too. In 2012 the government raised the cap The well-offare grabbing an ever-largershare ofspending on tuition fees from £3,375 to £9,000 per USHY middle-class types are said to year, thus reducing a subsidy whose main Phave a knack for getting the most out of beneficiary had been the middle class. the state. With their sharp elbows, the ar- Poor students have been protected by a gument goes, the wealthy jostle others out generous maintenance grant and relaxed of the way in the queue for doctors’ ap- terms for the repayment of loans. Their pointments, school placesand otherscarce participation rate has grown at a faster rate public services. The conventional wisdom than that of their richer peers since the re- is half-right. In absolute terms, Britain’s form, finds Gill Wyness of the London poor consume more public services than School ofEconomics (LSE). The overall pro- the rich—but, afteradjusting for need, stud- gressive trend maycontinue: thisyear itbe- ies suggest that the rich tend to get more came compulsory to stay in education or than their due. training until 18, a change which will mean That long-standing inequality may be more being spent on low-income children, growing. Earlier this year the Office for Na- who are more likely to leave school early. tional Statistics (ONS) released a trove of The most regressive public service is historical data which went almost unno- transport, from which the richest quintile ticed. It estimated the monetary value of benefit almost twice as much as the poor- certain public services, including educa- est. The reason is that they travel more— tion, the National Health Service (NHS) households are finding it harder to access and by the most expensive means. The and transport, which combined offer the the NHS. Areas with low life expectancy state subsidises rail travel by £5 billion a average household benefits worth £7,000 matched those with few general practi- year. Yet intercity trains bulge with well- ($10,600) a year, more than the value of tioners (GPs, or family doctors), found a re- dressed folktapping away on laptops; each cash benefits such as pensions and job- port in 2007 by Ara Darzi, a Labour peer. yearthe average top-quintile earnertravels seekers’ allowance. The ONS then worked Inequality in GP distribution had grown in 2,300km (1,400 miles) by train, five times out what proportion of that spending was the past two decades, it said. The OECD, a as much as the bottom earners. In 2002-12 consumed by each income quintile. The rich-country club, finds that after adjusting the gap widened by 270km, meaning rich- data show that in the past 15 years, the rich for need, Britain’s poor are 5% less likely er types gobbled up yet more subsidy. have got a steadily better deal. In 2000, for than the rich to have visited a GP in the The wealthy also drive three times as every £1 spent on the poorest quintile, 56p past year (though this gap is narrow by in- many miles as the poor. This makes them was spent on the richest. By last year, the ternational standards). Household-survey big beneficiaries of spending on roads, richest received 73p for every £1 spent on data suggest that the difference has grown worth £8 billion a year (and not counted in the poorest (see chart). The last time the lately, though comparisons are tricky. the ONS’s figures). Poor people make up rich received such a big share was three de- Just as fewer people are taking out priv- ground elsewhere: they use buses twice as cades ago. What is going on? ate health insurance, fewer are sending much. But bus subsidies are smaller, and Much the biggestofthe variousservices their children to private school. Since 2008 the rich use them increasingly frequently. analysed is the NHS, which eats up one- the proportion of children at independent What are the implications of all this? fifth of all government spending. One rea- schoolsin England hasslipped from 7.2% to George Osborne, the chancellor, wants to son for its apparently growing generosity 6.9%, thanks in part to higher fees. More close Britain’s budget deficit by 2019-20, to the well-off is that the elderly, its main rich families are thus benefiting from state which implies very steep cuts to public clients, are getting richer. According to the tuition. Yet the long-term trend in educa- spending (details will be announced in a Institute for Fiscal Studies, a think-tank, in tion funding is steeply progressive. In 1977 mini-budget on November 25th). The fact 2000 the average pensioner’s income was that a growingshare ofsome public spend- 86% that of the median, whereas by 2013 it ing goes to the well-off might make this exceeded 100%. The strategy of inequality tasklookless painful. Yetdata for NHS spending on the work- Britain’s public spending on top income quintile But it also presents a problem. Julian Le ing population show a similar trend: % of spending on bottom income quintile* Grand of the LSE argues that the govern- whereas in 2000 households in the bot- 250 ment struggled to reduce spending in the tom income quintile received 27% more Travel subsidies† 1980s because of “its willingness to favour than those in the richest, today they re- 200 state-provided servicesthatwere predomi- ceive the same as each other. One explana- nantly used by members of the middle 150 tion is that the rich are ditching their priv- Total‡ class”. Mr Osborne has shown a similar re- ate health insurance and instead using the 100 luctance to rob this constituency, pledging NHS, whose growing budget has made it a NHS to protect spending on pensions, the NHS better substitute. According to LaingBuis- 50 and schools (as well as foreign aid and de- Education son, an information provider, individual fence). This puts the onus of deficit-cutting 0 medical insurance covered 1.2m Britons in 2000 02 04 06 08 10 12 14 elsewhere; some departments will see 2001 but fewer than 1m by 2011 (company *Three-year moving average their budgets reduced to half their level in policies remained pretty static). Sources: ONS; †Rail & bus subsidies 2010. Those seekingto keep theirshare will ‡ There is also some evidence that poor The Economist Includes housing & food subsidies need sharper elbows than ever. 7 58 Britain The Economist November 14th 2015 Bagehot Trouble in Labourland

Oldham’s by-election campaign is a microcosm ofsocial democracy’s woes around London is now a serious presence in the bitter-and-bus- pass belts around Manchester, Sheffield and Newcastle. There the election in September of Jeremy Corbyn, a hard-left London MP, as Labour’s leader has been a tremendous boost for UKIP—and its candidate in Oldham, John Bickley. The scene: a street of semi-detached houses built for workers at the now- closed Avro factory that once made the Lancaster bomber. Arriv- ing home, a resident in a high-vis jacket confesses that he is La- bour by habit and UKIP by preference. “He’s an idiot,” he adds matter-of-factly of Mr Corbyn: “his foreign policy is totally out of date.” A couple of houses down an old man in a vest declares himself a convinced socialist, a scion of a “strong army family” and utterly alienated by the unwillingness (as he sees it) of Mr Corbyn, a unilateral nuclear disarmer, to defend Britain. “I call it the political version of the Stockholm syndrome,” says Mr Bick- ley. “I am putting out a hand [to Labour voters] and saying: you can leave your captor and come to a safe place.” Excessive this may be, but playing out on the streets of Old- ham is a story repeated across Europe; a suspicion of political elites borne of stagnant living standards, doubts about globalisation borne ofdeindustrialisation and in particularhostility to im- EW places, in 1899, better encapsulated Britain’s industrial migration borne of shifting demographics and pressures (how- Fpomp than Oldham. Its skyline was the Manhattan of its day: ever unrelated) on housing, wages and services. Support for a forest ofsmoke stacks emanating from the cotton mills, the Pen- nativist parties, ranging from Britain’s blokeish UKIP to France’s nine hillsides freckled with mansions housing the country’s larg- hard-right National Front and Hungary’s overtly racist Jobbik, is est concentration of millionaires. So when the Liberal Party squeezing traditional social democratic parties more comfort- swept aside the Conservatives in a parliamentary by-election able discussing redistributive social policies than flags, nation- there—after a campaign that had turned on church funding, hood and identity. UKIP plans to squeeze Labour hard on this in women’s suffrage and trade unionism—it rattled windows down Oldham, concentrating its campaign on immigration, defence in London. Winston Churchill, at 24 one of the two Tory candi- and Mr Corbyn’s obvious ambivalence towards patriotic sym- dates, compared the experience to discovering that a bottle of bols from the armed forces to the royals. champagne had been left uncorked for a night and had gone flat (in short: it was a considerable trauma). The upset illustrated the A wilting rose Tories’ loosening grip on the establishment and thus foreshad- The by-election is especially representative of the bigger picture owed the Liberals’ landslide victory of1906. because each of the main candidates epitomises his own side’s Today, once more, Oldham is a battlefield on which an early, best hopes. Mr Bickley, the son of a trade unionist, entered poli- indicative skirmish in a larger political war is unfolding. As in tics only two years ago (aged 60) and deals in pub aphorisms—on 1899, the Lancashire town is holding a by-election after the death everything from climate change to the Middle East—that resonate ofone ofits MPs, but today this erstwhile bellwether forthe high- with locals. It is hard to imagine a figure better able to connect Victorian bourgeoisie is a microcosm offorces acting on Europe’s with the disillusioned, older voters who may decide the by-elec- social democratic parties. With its large blue-collar workforce it tion. Meanwhile Jim McMahon, his dynamic Labour rival, is has been a Labour Party bastion for 68 of the past 70 years, the about as optimistic an embodiment of his party’s prospects as it party’s dominance surviving Fordism’s long twilight, the arrival could wish for. The son of a truck driver who left school at 16, he of Pakistanis and Bangladeshis in the 1970s and race riots in 2001. runs Oldham’s innovative, well regarded council at just 35 and Now, however, ahead ofthe vote on December3rd, Labour’selec- has close links to the armed forces. (Two months ago Bagehot toral coalition is being torn apart by the anti-immigration UK In- committed to this page the hope that Mr McMahon’s professed dependence Party. With its purple UKIP yard signs, its rusting fac- indifference to the national stage was merely false modesty.) tories and its shops selling halal meat and salwar kameez, the The result is something like the ultimate contest between so- Oldham West and Royton constituency stands for political frac- cial democracy and the populist forces threatening it across Eu- tures in old working-class areas across the continent. rope. If Mr Bickley can defeat as forward-looking an example of For much of its 22-year history UKIP has chipped away at the the mainstream centre-left as Mr McMahon (or even limit him to right flank of the Conservative Party, first in its Home Counties a narrow win), Labour should be terrified for its strongholds heartland and then in working-class southern seats like the two it across the English north, and thus its prospects of winning a ma- prised from David Cameron’s hold at by-elections last year. But jority any time soon. Its counterparts from Malmo to Marseille the general election in May marked the arrival of a new phase: should be similarly worried. But if Mr McMahon scores a clear UKIP held only one ofthose seats and came second in 120 others. victory, Europe’s social democrats should promptly seek to learn Of these, it looks most threatening in a string of formerly uncom- from his achievement. What happens in a rainy town in Lanca- petitive Labour strongholds outside big northern cities; its vote shire next month will give the continent’s embattled left-wing share in Oldham West and Royton, for example, rose from 3% to moderates—not to mention its surging populist parties—a 21%. A party once confined to the comfortable gin-and-jag belt glimpse oftheir future. 7 International The Economist November 14th 2015 59

Also in this section 60 Tallying attacks

Aviation security ticking off and confiscate the containers, but still allow the passenger to fly. Discov- No more of the same, please ery of a gun or bomb, by contrast, would result in immediate arrest and almost certain punishment. Despite the mild consequences, it appears that nobody has been apprehended tryingto get liquids on board to combine into a bomb in almost a decade. Nor have there been any reports of a A lot ofwhat passes forsecurityat airports is more theatrical than real would-be shoe bomber being intercepted HE growing certainty that the mid-air their fellow passengers. despite the requirement for passengers to Tdestruction of a Metrojet airliner flying Two things are striking about these remove their shoes, brought in after Mr from Sharm el-Sheikh to St Petersburg was events. The first is that, despite the terro- Reid’s cack-handed effort. caused by a bomb placed in the baggage rists’ fascination with blowingup airliners, It could be that both security measures hold has led to predictable calls from poli- attempts to do so are actually rather rare. are so effective that they have completely ticians for tighter airport security across Unless the Malaysia Airlines Boeing 777 deterred would-be terrorists from trying much of the world. “What we have got to that disappeared last year was brought these methods again. Or it could be that do is ensure that airport security every- down by terrorists (the most probable the- they are essentially a performance to reas- where is at the level ofthe best,” said Philip ory remains pilot suicide) the explosion of sure passengers. Most experts incline to- Hammond, Britain’s foreign secretary. the Metrojet A321 over Sinai is the first ma- wards the latter view. Philip Baum, a secu- “That may mean additional costs; it may jor success they have had against an airline rity consultant and editor of Aviation mean additional delays at airports as peo- since 2004, when two Russian planes were Security International, calls it “security the- ple check in.” The deaths of 224 people blown up. The second striking thing is that atre as opposed to security reality”. aboard the Airbus A321 is a tragedy. But if the enhanced airport security introduced America’s Transportation Security Ad- passengers groan at ever more intrusive se- after the terrorist attacks of 2001 played no ministration (TSA), an agency of the De- curity screening, they are right. role in thwarting any ofthese attacks. partmentofHomeland Security(DHS), has Airliners are exceedingly tempting tar- a budget of more than $7 billion a year; it gets for jihadist terrorists, particularly Hamming it up also has access to the most advanced scan- those wanting to attack the “far enemy” in Officialsresponsible forairportsecurity ar- ning technologies money can buy. Critics the West. Inspired by its success on Sep- gue that the system of checks and screen- say it has not foiled a single terrorist plot or tember 11th 2001, al-Qaeda and its off- ing that take place at every airport, albeit caught a single terrorist in the past decade. shoots have sought several times since to with varying degrees of rigour, are the Bruce Schneier, the chieftechnology of- strike at aircraft. In 2006 an ambitious plot main reason for the absence of successful ficer of Resilient Systems, a security firm, to bring down several planes crossing the attacks. Perhaps they have served as a points out that whereas the TSA catches Atlantic simultaneously was foiled by modest deterrent. But there are legitimate plenty of guns and knives inadvertently good intelligence work. In 2010 a tip-off doubts about how much the kind of secu- packed by passengers, it is less good at from a Saudi agent working for the British rity currently inflicted on passengers really spotting more determined attempts to get helped uncover an attempt by al-Qaeda’s contributes to their safety. bad stuff onto aircraft. In June its acting Yemeni branch to send bombsdisguised as The prohibition on carrying liquids on head was “reassigned” after a so-called printertonercartridgesto Chicago. Richard board, introduced in response to the meth- “red team” appointed by the inspector- Reid, the “shoe bomber”, and Umar Fa- od of mixing chemicals to explosive effect general of DHS succeeded in getting fake rouk Abdulmutallab, the “underpants revealed by the 2006 plot, is a case in point. bombs and weapons through the screen- bomber”, tried to set off explosives on Ifsecurity stafffind illicit liquids that a pas- ing process in 67 out of 70 tests carried out board airliners before being subdued by senger has not presented, they deliver a in airports across America. 1 60 International The Economist November 14th 2015

2 Why such a dismal record? “My guess is gers and airline staff. He rejects the idea their procedures much less routine. “Air- that it’s a combination of things,” reckons that this has to be based on crude stereo- port security is far too predictable,” he Mr Schneier. “Security screening is an in- typing (being suspicious of all young Mus- adds, “Giving everyone a pat-down search credibly boring job, and almost all alerts lim men, for example). It should be based is a waste of resources. Terrorists don’t like are false alarms. It’s very hard forpeople to on behaviour both prior to flying—for ex- unpredictability.” remain vigilantin thissortofsituation, and ample, when, how and where a ticket was MrSchneieris more dubious about pro- sloppiness is inevitable.” Mr Schneier also purchased—and at the airport itself. filing, and he is “incensed” by the way the points to technology failures. Screening El Al employs people who have been TSA singles out some of the most unlikely technologiesare pooratdetectingPETN, an trained in psychological observation tech- passengers “for humiliation, abuse and ingredient ofthe explosive Semtex, carried niques to interview every passenger be- sometimes theft”. He says that when peo- by the underpants bomber. A disassem- fore he or she is cleared to go through phys- ple propose profiling, “they are really ask- bled weapon has an excellent chance of ical screening. Anyone who arouses their ing for a system that can apply judgment. getting through airport security. Mr suspicion is subjected to a further grilling Unfortunately that’s really hard. Rules are Schneier reckons that the only worthwhile and may well not fly. El Al is thought to use easier to explain and train…judgment re- security changes that happened after the some profiling techniques that would be quires better-educated, more expert and 2001terrorist attacks were the introduction politically unacceptable in Europe or higher-paid screeners.” of locked, blast-proof cockpit doors (the al- America. Hebrew-speaking Israelis can ex- Simply doing more of the kind of air- Qaeda terrorists used knives to take over pect to get off more lightly than Arabs and port security by rote that is done now the planes) and the willingness of passen- single white women, for example. But as seems like a bad idea. There ought to be gers to intervene if they see somebody be- Mr Baum points out, customs and immi- more emphasis on dealing with insider having oddly. gration officers at airports in the West com- threats through better vetting and more in- Some security experts argue that one of monly use profiling, “and it works”. trusive monitoring of airside staff by the greatest vulnerabilities at airports El Al also spends more than other air- CCTV. Apart from that, greater focus on comes from what MrBaum calls“the insid- lines on other types of security. Hold bags passengerbehaviouratthe airportand less er threat”. The working assumption is that are subjected to barometric pressure test- predictable forms of screening (for exam- the Metrojet bomb was placed in the hold ing, undercover armed marshals travel on ple, more swab tests, more use of sniffer by a baggage handler or by someone who every flight and its planes are even dogs and so on) would be good. had airside access (another possibility is equipped with anti-missile systems. But the most important thing of all that the bomb was placed in a passenger’s Elsewhere, better technology might im- might be to keep a sense of proportion. luggage by a hotel worker and was not prove the performance of conventional Many people travel on buses and trains, go picked up by airport scanners). It was prob- screening, but few airports can afford to to sportingevents and attend open-air con- ably detonated by a barometric trigger de- update their systems whenever the latest certs. All are potential targets for terrorists, vice when the plane gained altitude. gizmo comes out. Instead, says Mr Baum, yet they receive not even a fraction of the Mr Baum reckons that the airport at they should use profiling to help make attention that air travel gets. 7 Sharm el-Sheikh is no worse than many others at vettingstaff. He says that at British airports there are many people working airside who follow jihadist social media Unnerving but uncommon and that at some big American airports If Metrojet flight 9268 was destroyed by a bomb, it is a rarity. Even as the number of employees are not screened on their way airline passengers has soared, the number of deaths as a result of bombings and hijack- into work if they have an ID card. Nobody ings has gone down. Attacks were most common in the late 1960s and early 1970s. Ac- is more dangerous than a psychologically cording to the Aviation Safety Network, which tallies them, there were six explosions disturbed pilot, as Andreas Lubitz demon- and 59 hijackings in 1972 alone. Some were terrorist attacks by nationalist groups; in strated when he killed 150 people by flying others, hijackers simply demanded money. For every lethal attack there were several in his Germanwings Airbus A320 into a which nobody was killed. mountain earlier this year. An even clearer trend is the decline in deadly accidents. Planes are much less likely to Some clue as to how easy it would be to fall apart of their own accord these days—the result of technological improvements and put a bomb into somebody else’s bag better safety checks. That is excellent news for passengers. It does, however, mean that comes from the number of valuables sto- the rare bombings, hijackings and suicides stand out more. len from checked-in luggage. In the four Global airline deaths* years to 2014 passengers filed over 30,000 Cause: accident hijacking bombing Aircraft passengers carried, bn reports of missing property with the TSA. This year police at Miami International 3,500 3.5 Airport used a hidden camera to film baggage handlers rifling through bags in a 3,000 3.0 plane’s hold and stealing whatever took 2,500 2.5 their fancy. Security experts reckon such practices are widespread. 2,000 2.0 The main reason why airport security is so bad, says Mr Baum, is that it tries to 1,500 1.5 find things instead of focusing on the people who might carry them. Issy Boim, a for- 1,000 1.0 mer Shin Bet officer who worked closely with Israel’s airline, El Al, argues that 500 0.5 whereas the Americans are looking for weapons, the Israelis “are looking primari- 0 0 ly for the terror suspect”. Mr Baum is a 1970 75 80 85 90 95 2000 05 10 15† strong advocate of what is known as “pro- Sources: World Bank; Aviation *Passengers and crew on aircraft of_ >14 passengers, excluding military and corporate † filing”— building a picture of both passen- Safety Network; The Economist To November 8th. Includes air crash of October 31st in Egypt as a bombing Business The Economist November 14th 2015 61

Also in this section 62 Power utilities and stranded assets 64 SoftBank’s eyebrow-raising moves 67 A takeover battle in Australia 68 A rising retailer in South America 69 Schumpeter: Why brands are straining to be “authentic”

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

Oil companies and climate change primary energy demand even in 2040, only slightly below their current share. But Nodding donkeys the International Energy Agency (IEA), a body that represents oil-consuming countries, says that to keep global warming to two degrees, fossil fuels would need to fall to 60% of the energy mix by 2040. The IEA sees no mass abandonment of hydrocarbons, but nonetheless, its executive direc- Some oil majors are still ducking the issue ofglobal warming tor, Fatih Birol, said on November10th that, EWsymbols ofthe oil industry are as fa- summit has approached, ambitious “There should be no energy company in Fmiliar as the pumpjack, or “nodding pledges by more than 150 countries to cut the world [which] believes that climate donkey” (pictured). The technology is little greenhouse-gas emissions have taken oil policies will not affect their business.” changed since it was invented in 1925, and bosses by surprise—even if the pledges are Some oil majors are going on the attack, in some mature onshore fieldsitserves asa likely to fall short of the target of limiting realising the reputational shambles they constant reminder of the world’s insatia- global warming to two degrees Celsius face ifthey are considered foot-draggers on ble thirst for oil—until recently, about one- above pre-industrial levels. climate change. In October the heads of sixth of American crude came from the If these commitments were to translate ten big oil and gas companies (none of tiny “stripper” wells that it usually pumps. into significant moves to limit global them from the United States) officially It is also a metaphor for how oil-company warming, this would challenge a view still threw their weight behind the “general bosses have responded to the risks of cli- held by oilmen on both sides of the Atlan- ambition” to meet the two-degree goal. mate change. Every so often they put their tic that demand for fossil fuels will keep Many are cleaningup theirenergy portfoli- heads up and survey the future, only to growing strongly for the foreseeable fu- os by investing more heavily in producing bury them again. In the run-up to climate- ture. Exxon Mobil, the world’s biggest pub- natural gas, which createslesscarbon diox- change negotiations in Paris, starting at the licly traded oil company, argues that fossil ide than oil when burned, for each unit of end of this month, the industry’s willing- fuels will still account for three-quarters of energy liberated. Shell, an Anglo-Dutch ness to stare the issue squarely in the eye is major, is doing so by buying BG, a British again under scrutiny. firm with big gas reserves. “You can argue In the 1990s oilmen responded to criti- Change in the climate thatBigOil isbecomingBigGas,” saysOcco cism from environmentalists by launching Global upstream oil and gas investment, $bn Roelofsen of McKinsey, a consulting firm. campaigns to encourage debate about cli- Others are going in forrenewables. Total of mate change, and by increasing their in- 800 France has a majority stake in SunPower, vestment in renewable energy. UnderJohn one of the world’s biggest solar-power (now Lord) Browne, BP of Britain declared 600 firms. Eldar Saetre, the boss of Statoil, Nor- itself to be moving “Beyond Petroleum”. way’s state-run oil company, says that in 15 However, steadily rising crude-oil prices 400 years there may be more opportunities after the global financial crisis led firms to outside oil and gas than within. scale back their loss-making green-energy BP executives, also favouring a gassier businesses, while continuingto pourmon- 200 future, have been modelling potential “de- ey into hydrocarbons (see chart). mand destruction” scenarios based on the More recently a dramatic fall in oil 0 climate pledges made in the run-up to Par- 2000 02 04 06 08 10 12 14 15* priceshasforced them to startcutting some is. BP has become one of the first majors to big exploration projects. And as the Paris Source: IEA WEO *Forecast acknowledge the risk that the industry is1 62 Business The Economist November 14th 2015

2 spending money developing reserves that climate-advisory firm, says that if the Paris structurally, because of rising tempera- it may never tap. Spencer Dale, its chief pledges are taken at all seriously, the oil tures. Faced with a world awash in crude, economist (and formerly of the Bank of and gas industry may become “ex- oil majors are abandoning high-cost re- England), recently estimated that the growth”. Oil executives dispute that. But servesin the Arctic, Canada, North Sea and world had almost three times the reserves shareholders, if motivated, could force the Gulf of Mexico. One oil executive ruefully of oil, gas and coal that it could burn if it industry to shrink just by limiting the calls it a “practice run” for the day in the were to hit the two-degree goal. funds they provide fornew oil discoveries. distant future when fears of global warm- Yet oilmen still play down the risk that Curiously, the present situation may ing, or the emergence of cheap, clean alter- oil and gas assets will be abandoned en provide a foretaste ofthis—though cyclical- native technologies, mean that demand masse, not least because of the still-grow- ly, because of falling oil prices, rather than for fossil fuels starts to wane. 7 ing demand in the developing world. Col- lectively the industry is betting on three Enel and stranded assets ways to stay in the fossil-fuel business and yet emit less carbon dioxide. First, executives see gas increasingly substituting for Anyone want a power station? dirtier coal in the power-generation busi- ROME ness. Second, theyexpectenergyefficiency Italy’s largest powercompany faces up to the “stranded assets” problem to keep improving, allowingdrivers, forexample, to travel longer on each tank of pet- T’S not a funeral, it’s a transforma- rol. Third, they intend to reduce the consid- “Ition.” That is the positive spin Fran- erable amount of natural gas (composed cesco Starace, the Tesla-driving boss of mostly of methane, an even more potent Enel, one ofEurope’s biggest electricity “greenhouse gas” than carbon dioxide) companies, puts on a tough issue loom- that leaks out of their wells and processing ing over the energy industry: stranded plants. assets. He knows ofwhat he speaks. Plenty of oil firms (Exxon among them) Whereas executives at coal, oil and gas are also calling for governments to enact a firms shudder at the thought that many “carbon tax” on emitters of greenhouse oftheir vast reserves will be stranded if gases. Their critics argue that this is less al- the world turns against fossil fuels, Enel is truistic than it appears. For one thing, such decommissioning old power plants as if a tax would hurt the coal industry espe- its future depended on it. cially, thereby boosting the oil firms’ gas Enel has announced that 23 power businesses. And governments, especially stations in Italy with a capacity of13 in the developing world, where fossil-fuel gigawatts—enough to power a small demand is still surging, may find such a tax country—are to be scrapped within five politically impossible anyway; the oilmen years. The first to be sold, on November are calling for it, opponents say, in the 2nd, was the Giuseppe Volpi coal-fired knowledge that such countries will never station near Venice (pictured), which will introduce it. become an industrial and logistics plant. In the absence of a global carbon tax or For a lucky few the future could be more some other effective measure, however, illustrious. Enel hopes some will be the risk for the oilmen is that everyone turned into galleries and museums, using Awaiting rebirth from environmentalists to politicians will the conversion ofthe Bankside power simply find other ways to make them pay station on London’s South Bankas a that, collectively,their conventional for global warming. On November 4th model. It became the Tate Modern. power plants suffered a cumulative hit to New York’s attorney-general, Eric Schnei- Mr Starace is unsentimental about operating profits of€36 billion between derman, subpoenaed documents from shedding bits ofItaly’s industrial history. 2008 and 2013. They will have to reinvent Exxon to investigate how much it has “The best thing to do is realise they are themselves in the coming years. “We are known since the 1970s about the effects of stranded and don’t wait forthe tide to a herd. We do the same things ifyou give fossil fuels on the climate. Exxon is report- come backin...the fasteryou get there, the us enough time....the essence is to get out edly being investigated under the Martin better.” As renewable energy, such as ofthis stranded world.” Act, dating back to 1921, which gives prose- hydroelectricity and wind, account for an It is not surprising that Europe’s util- cutors wide-ranging powers to investigate increasing share ofEurope’s power gener- ities are moving fasterthan its oil compa- securities fraud. Exxon says it has long dis- ation, he believes such write-offswill nies to lower their carbon footprint. closed information about the risks to its spread across the European Union. There is carbon-free electricity. There is business from climate change, and from Eon, Germany’s biggest utility, gave a not carbon-free oil. What is more, action to prevent it, in reports to its share- taste ofthat on November11th. A record Europe’s electricity usage appears to be in holders. But the firm’s run-in with the New third-quarter loss was driven mostly by long-term stagnation, set to grow more York justice department may be a portent €8.3 billion ($8.8 billion) ofimpairment slowly over the next 25 years than any- ofwhat is to come. charges, particularly on fossil-fuel plants where except Japan. Another worry for oil executives is that are struggling because subsidised Mr Starace hopes that the growth of pressure from investors spooked by the fi- renewables are clobbering electricity renewables can be tied in with Italy’s nancial risks ofclimate change. Policymak- prices. Next year it will split itself in two: relatively modern smart-grid system to ers, such as Mark Carney, governor of the a conventional power-plant business, modernise the domestic electricity mar- Bank of England, talk about the possibility and one dominated by greener energy. ket even ifit shrinks. But Enel is also ofmany oilfields turninginto “stranded as- Many other European utilities are betting big on Latin America, where sets”, or “unburnable carbon”, if govern- struggling with overcapacity and low demand forelectricity continues to surge. ments get serious about climate-change ac- wholesale power prices. Mr Starace says Less riskofstranded assets there. tion. Anthony Hobley of Carbon Tracker, a Exquisite canalside apartments, built within 123 cast-iron gasholder columns at the heart of King’s Cross.

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SoftBank built what is now called SoftBank Mobile into Japan’s most profitable telecoms firm. Here comes the Son Similar naysaying accompanied his takeover in 2013 of Sprint Nextel, a struggling American operator, for $22 billion— the biggest foreign acquisition by a Japa- nese firm to date. So far there has been TOKYO scant sign of a turnaround. Mr Son’s plan Masayoshi Son has always bounced backfrom setbacks, but his latest big moves are was to merge the firm with T-Mobile US, raising eyebrows butAmerica’stelecomsregulatorreported- T WAS a vintage performance from ly refused even to consider the deal. Quar- IMasayoshi Son, the 58-year-old founder Soft terly figures on November 3rd showed and chief executive of SoftBank, a Japa- SoftBank share price, ¥’000 HIRES NIKESH Sprint continuing to lose money, as it nese telecoms and technology firm. He ARORA FROM slashed prices to stop subscribers quitting. GOOGLE 20 wasspeakingto membersofSoftBankAca- DOTCOM BOOM HOPES FOR A That setback has not deterred Mr Son SPRINT/T-MOBILE demia, an in-house executive school set up US MERGER FADE from his world-altering ambitions. To help five years ago with the chief purpose of 15 fulfil them, he has brought into SoftBank BUYS BUYS SPRINT finding his successor. On October 22nd Mr VODAFONE Nikesh Arora, Google’s former chief busi- JAPAN Son riffed at length on how the world will 10 ness officer. In May he effectively named change in the era of the Singularity, when Mr Arora as his successor and gave him the artificial intelligence will exceed the hu- title ofpresident. In Japan the median level 5 man kind—by around 2055, he reckons. ofpayforbossesofbigfirmsisaround $1m, MrSon described howSoftBankwill re- so Mr Arora’s pay for his first six months’ invent itself well before then from an old- 0 work, of nearly $140m, made headlines. 98 2000 05 10 15 line, pre-Singularity Japanese telecoms According to an adviser to some of Soft- company into SoftBank2.0, a superior, glo- Source: Bloomberg Bank’s investors, they were taken aback to bal and web-enabled being with a lifespan see Mr Arora paid a sum equivalent to of 300 years or more. His mind-blowing So far, SoftBank’s 34-year lifespan has around a third of the total dividends Soft- predictions include one that robots will let had three distinct phases. First it was a Bankpaid forthe entire financial year. theirownerslead livesofunparalleled lux- small Japanese packaged-software distrib- Mr Son has argued that the profits ury, as masters with slaves did in ancient utor in the early 1980s. Then it grew as an booked from Mr Arora’s investments since Rome. (Indeed, SoftBankisaboutto launch internet conglomerate with hundreds of he joined have alreadymore than made up “Pepper”, a popular robot capable of ex- stakes in web firms, including Yahoo, be- for his compensation. In August Mr Arora pressing emotions, in America.) coming the American firm’s biggest share- returned the favour by pledging, as a mea- Science fiction or reality? Despite his holder. The dotcom crash of 2000 wiped sure of his commitment to Mr Son, to buy relatively low profile outside Asia, it is un- out much of the value accumulated, but ¥60 billion ($483m) ofshares in SoftBank. wise to ignore Mr Son. He spotted the po- that same year Mr Son happened to invest As for Academia, Mr Son bluntly in- tential of Alibaba, a Chinese e-commerce $20m in a then-fledgling Alibaba. In 2014 formed its members at its October gather- giant,early.Hehaspulledoffthelargestfor- Alibaba’s initial public offering valued ing that it had failed to find a suitable suc- eign takeover by a Japanese firm yet seen. SoftBank’s stake at more than $50 billion. cessor, going on to explain how he had Even his aborted projects have grandeur: SoftBank’s third incarnation was as a met, and selected, Mr Arora. In turn Mr last year SoftBank talked about buying mobile-telecoms operator, starting with its Arora recalled how Mr Son drove 65 miles DreamWorks, a bigHollywood studio, and purchase in 2006 of the ailing Japanese (105km) one night to have dinner with him in 2013 it tried to buy Universal Music, the operations of Vodafone, of Britain. Many in California. Analysts who cover Soft- world’s largest record company. observers thought the debt Mr Son took on Bank joke that Mr Son talks about his new Mr Son also matters to the wider future to buy it would spell his demise, but he hire rather like a new girlfriend. 1 of corporate Japan. As part of a sweeping plan to revive a stagnant economy,Japan’s prime minister, Shinzo Abe, is trying to prod Japanese firms to take more risk, to spend their hoards of cash and to venture overseas. This is precisely what SoftBank is doing under Mr Son’s leadership. He takes chances, and gears up Soft- Bank’s balance-sheet: with a ratio of net debt to operating earnings of around 3.5 times, it is one of Japan’s most heavily indebted firms, and is highly leveraged by global standards. It has become slightly less outlandish of late to be a business leader in the mould of Mr Son. But Japa- nese managers will seize on a failure as a sign that conservatism is best. Much of corporate Japan would be gratified to see Mr Son stumble, not least because his Korean origins have long kept him outside clubby business circles. His perceived success or failure will surely help to determine whether Mr Abe achieves his goals. Son and his anointed son CUBA SUMMIT DECEMBER 3RD 2015 • WASHINGTON, DC

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2 Mr Son’s whims are not a surprise in Ja- mate in which it operates. pan, where the corporate world has grown Sprint’s woes began long ago, with its accustomed to his ways. He has long been merger in 2005 with Nextel Communica- known as a maverick, the only Japanese tions, after which it backed WiMAX, a businessleaderto invite comparisons with mobile-broadband technology that never Bill Gates ofMicrosoftorthe late Steve Jobs caught on with customers. Since SoftBank of Apple. Yet the bets on Sprint and, now, bought its 80% stake in Sprint, the Ameri- on Mr Arora are as sizeable and risky as can firm’s share price has fallen almost by any he has made. That worries investors, half. Anewly revitalised T-Mobile US over- who tend not to be keen on a 300-year took it this summer by number of custom- business plan that means expensive in- ers, leaving it fourth out of the country’s vestments in the short term, but whose re- fourmain operators. turns may not come in theirlifetimes. They Mr Son seems to have underestimated are also said to be concerned about the the difficulty ofpulling offa turnaround of sums Mr Arora will be paid in the future. Sprint in America’s hyper-competitive te- As a result, SoftBank’s shares trade at a lecoms market, dominated by two behe- hefty discount to book value. According to moths, Verizon and AT&T. It is certainly a Atul Goyal of Jefferies, an investment farhardertaskthan when SoftBankMobile bank, given SoftBank’s stake in Alibaba, leapfrogged Japan’s two sleepy market which is worth more than ¥6 trillion, and leaders, KDDI and Docomo. Much of Mr its investments in YahooJapan, Sprint and Son’s success there came from exploiting other firms, the current market capitalisa- the two incumbent firms’ myopia on Ap- tion of SoftBank, at ¥8.2 trillion, implies ple’s iPhone. One SoftBank-watcherrecalls that its entire, profitable Japanese telecoms Sprinting into a price war how their executives said the iPhone business is worth nothing. would never catch on in Japan because it Mr Goyal sees good reasons for inves- Arora, Mr Son has said, he would not have had no hook on which young women tors to keep the faith with Mr Son. “It is dif- been able to take as biga stake in Snapdeal, could hang cutesy mascots. The iPhone ficult to find anywhere else a combination another Indian e-commerce platform, quickly soared to dominance, and took ofSon’s record as an entrepreneur, a turna- which Mr Son has hailed as the Alibaba of SoftBank Mobile from a 19% share of the round operator and an investor—investing India. When he tried to follow up one in- market in 2008 to 26% now. “Son was the in the internet, where even Warren Buffett vestmentwith a second thissummer, exist- onlyguyin Japan who could speakto Steve fears to tread—and with his track record of ing investors at first refused to be diluted. Jobs”, says Jesper Koll, of WisdomTree, an success,” he says. Mr Son is said to be so Mr Son would have given up until Mr Ar- asset-management firm, who has served frustrated at how far investors have ora used his networkto prevail. on a board with Mr Son. marked down the shares that at one point Some venture capitalists snipe that for this year he reportedly contemplated a SoftBank, its big and growing position in He’s not in Kansas yet management buyout—characteristically, it Indian e-commerce may be inspired as Sprintisa huge bet, even fora risk-taker like would have been one of the largest such much by Mr Arora’s personal ties to the Mr Son; and if he cannot engineer a turna- deals in history. country as by the market’s potential. Oth- round in an industry he knows so well, it ers reckon that as he contemplates his sev- will bode ill for his other investments. But A world-wide web of happiness enth decade, Mr Son is putting his desire to he hasyetto showthathe hasthe energy to It is clear that of all the business roles Mr change the world ahead ofmoneymaking. oversee a revival of the sort he pulled off Son has played, he most relishes investing “Each ofthese bets is a bet-the-farm kind of with Vodafone’sJapanese offshoot. in web businesses, preferably those that wager, and he is making lots ofthem,” says Last year Mr Son appointed as Sprint’s promise to add to the sum of human hap- a veteran venture capitalist in Tokyo. boss Marcelo Claure, a Bolivian-born en- piness while delivering Alibaba-sized re- The latest firms he has invested in face trepreneur and football-club owner who, turns. SoftBank plans to invest around $3 far more competition than did Alibaba, thanks to Mr Son’s investment in the mo- billion a year for several years, analysts which was partially sheltered by the Chi- bile-handsetdistributorhe founded, is said reckon, chiefly in Asian e-commerce. Now, nese government from foreign competi- to be the richest Hispanic person living in though, SoftBank is no longer investing in tion. No such protection necessarily pre- America. Mr Claure has launched a price entrepreneurs running businesses from vails elsewhere. (SoftBank declined our war and a big network-investment pro- their living rooms, as Jack Ma was when request to interview Mr Son or Mr Arora gramme that are burning through the Mr Son first invested in Alibaba. It must forthis article.) firm’s funds. Sprint had $34 billion of debt compete with a host of Silicon Valley ven- Another recent deal that raised eye- at the end of fiscal year 2014, and in 2015-16 ture capitalists each time it invests. brows, even in Silicon Valley, where mon- is expected to spend another $9 billion of That is partly why Mr Son needs Mr Ar- ey is splashed around with abandon, came its cash. Sprint’s dire financial position ora and his prodigious social network. In in the field of “fintech”—the application of may even prompt regulators to reconsider June this year the pair invested $1billion in digital technology to financial services. their bar on it merging with T-Mobile US. Coupang, South Korea’s wannabe Ama- SoftBank has put almost $1 billion into Even so, the path to recouping SoftBank’s zon, in return for a fifth of the company. SoFi, one of many online lenders striving original investment looks arduous. Coupang, which has yet to make a profit, to be “the Uber of banking”. SoFi is at least The only way that Sprint can recover is became the best-financed startup in the profitable; yet the scale of the funding if Masayoshi Son is right on top of it, says a world after Uber and Flipkart, an Indian e- caused surprise. Japanese businessman with knowledge of commerce firm. Yet South Korea’s online- Making bets of such size and speed the industry. Mr Son has spent weeks in retail market would have to grow by well makes Mr Son quite unlike most Japanese late-night conference calls devising sol- over a third before SoftBank makes much bosses. Yet in one respect the firm may utions for Sprint’s network, but has also ofa return on its investment. have followed a very Japanese tradition; said that he is “a busy guy”, questioning Other big bets have been on e-com- overpayingfora foreign businessafter pay- why he should put all his efforts into the merce in India and Indonesia. Without Mr ing insufficient attention to the local cli- American telecoms market when the situ-1 The Economist November 14th 2015 Business 67

2 ation “looks bad”. In October, in an appar- than the other two firms. Yet Mr Abe’s will be the summation of those young, ent attempt to convince investors ofhis de- move has added to worries that growth for passionate entrepreneurs,” enthused Mr termination to fix Sprint, Mr Son said he SoftBankat home is levellingoff,with both Son last month. It is perhaps the best testa- had bought a house near its headquarters numbers of new subscribers and revenues ment to him that his fan club in Academia in Kansas City. But there is no sign of him per customer now falling. shows no sign of attracting fewer recruits. taking up full-time residence. For the moment, though, Messrs Son To the young executives in Japan, his bold Mr Arora is among those at SoftBank and Arora seem able to funnel the riches strategies make him a hero in a risk-averse who have questioned whether it would be earned from Japanese smartphone users corporate culture. Some ofthem doubtless better to sell Sprint, if a buyer could be to some of the world’s most talked-about reckon that, despite Mr Arora being the found.Howmuch influence on such issues startups and their founders. “We stay chosen one, they may yet be in with a he will have is hotly debated in Tokyo, as is young with that new blood and SoftBank chance ofleading the company. 7 the question of whether he will indeed succeed Mr Son. Some think Mr Son can, and perhaps will, drop him eventually if A takeover battle in Australia he disappoints. Others say that ifhe did so, he would never persuade any other tech From waterfront to boardroom luminaryto take MrArora’splace; and thus SYDNEY that their fortunes are now tied—they will A corporate warriorlaunches a bid battle fora big port and rail firm rise, or sink, together. Mr Son’s initiative to bring in and HRIS CORRIGAN, a Sydney busi- anointa successorwhile still in his prime is C nessman, has lost none ofhis gift for a sign of confidence, says one of his inner drama. Seventeen years ago Mr Corrigan circle. It contrasts with many bosses in Ja- tookon the “wharfies”, Australia’s steve- pan who are unable to move on. Some dores, in a bitter dispute that smashed years ago, Tadashi Yanai, the founder of their control ofthe docks. The tale was Uniqlo, a fast-fashion giant, promised to re- eventually turned into a television mini- tire in 2014 around the age of 65, then de- series, “Bastard Boys”. On November cided no one was good enough to take the 10th he inserted himselfinto what had job. It is conceivable that Mr Son may yet looked like a done deal by launching a reach the same conclusion, given what an rival bid forAsciano, one ofAustralia’s observer of the company describes as his biggest port and rail operators. The com- habit of becoming intensely taken up with pany was already on the verge ofaccept- someone only to lose interest later on. ing an earlier, slightly lower offer from It will also be difficult for Mr Arora to Brookfield Infrastructure, a Canadian navigate the internal politics at SoftBank, consortium. Mr Corrigan has set the stage which remains Japanese in character, de- forwhat may become one ofAustralia’s spite Mr Son’s global outlook. It has been most hotly contested bids. reported that the company was consider- Mr Corrigan is backon familiar turf: ing moving its investment arm to London, Asciano owns Patrick, the port operator to cut the group’s tax bill as well as helping which he once headed, and through The wharfies’ nemesis to make it less Japanese. That this leaked which he waged his waterfront war, out was widely seen as a sign ofdeep inter- before it was taken over in 2006. He was ators that used it, competition in the nal discontent at Mr Arora’s influence. also one ofthe founders ofAsciano’s rail-haulage market could be damaged. Still, SoftBank’s highly profitable posi- Pacific National rail-haulage division. The commission is due to rule on tion in Japanese telecoms, and the continu- Qube Holdings, the vehicle through Brookfield’s bid on December17th. Mr ing strength of Alibaba in China, both off- which Mr Corrigan is bidding for As- Sims says that Qube’s rival offer “adds a set the gloom from Sprint and provide the ciano, has two North American partners: new dimension to our review”. Mr Corri- funds for Mr Son’s foreign adventures. In the Canada Pension Plan Investment gan is likely to argue that his consortium’s the domestic market, SoftBank Mobile is Board and Global Infrastructure Partners, bid will have less impact on competition: expected to produce $3 billion-$4 billion of an American fund manager. Qube’s Qube is only interested in Asciano’s port cash a year now that its investment in the consortium recently bought a 20% stake terminals, and its two investment part- networkis largely complete. Ifthe cash main Asciano, beating Brookfield’s15%. ners would end up owning its rail-haul- terialises—and SoftBank has suffered poor Asciano’s board seems to be relishing age business. cashflow in the recent past—this will more the prospect ofa bidding contest. Its Australia’s transport industry has than make up for the money it is spending chairman, Malcolm Broomhead, says it been hit hard by the downturn in the elsewhere: in the year to June the group’s will consider Qube’s proposal, and that it global prices ofthe commodities that free cash rose by a quarter, to the equiva- is committed to “maximising value for Australia exports. But with interest rates lent of$19 billion. shareholders”. low, and the government keen to pro- However, SoftBank’s Japanese profits Brookfield’s bid faces some regulatory mote investment in infrastructure, As- and those ofitsrivalshave latelydrawn un- problems. One ofAsciano’s rail-haulage ciano’s assets could prove to be a good welcome attention from the government. businesses runs on tracks that Brookfield long-term bet for whichever bidder ends In September Mr Abe announced that he owns in the state ofWestern Australia up owning them. Warren Hogan, chief had instructed the telecoms minister to and also uses Brookfield’s big coal termi- economist ofANZ Bank, one ofAustra- study how to achieve lower pricing. nal in Queensland. Rod Sims, head of the lia’s biggest, says it is more than just a Monthly bills for smartphones in Tokyo Australian Competition and Consumer “fascinating corporate battle”. He reckons are amongthe world’shighest. MrAbe will Commission, has expressed worries that it also highlights how critical an “infra- need to tread carefully, analysts reckon, for ifBrookfield owned both monopoly structure upswing” could be forreviving it would not take much to badly weaken infrastructure and one ofthe rail oper- Australia’s economy. Docomo, which makes much lower profits 68 Business The Economist November 14th 2015

Retailing in South America billion loan bookis “impeccable”, says Joa- quim Ley of Itaú BBA, an investment bank. Cautious conqueror It also enjoys cheap finance, thanks to Chile’s low interest rates and the firm’s good rating. Falabella’s focus on the market-friendly Andean economies, which continue to grow, rather than on stodgy, intervention- LIMA ist places like Brazil, has helped, too. Chile, Falabella is expanding steadily in a region ofeconomic turbulence Peru and Colombia (where it ranks first in HILE is often described as the Ger- were up by almost13%. Analysts dialling in both department stores and home im- C many of South America. Its budgets to its previous earnings call, in August, all provement) account for 52%, 24% and 14% are balanced, roads decent and trains prefaced their questions to Sandro Solari, ofsales, respectively. punctual. Alongside Argentine histrionics the chief executive, by congratulating him. The rest comes from Argentina and Bra- or Brazilian flamboyance, life tends to be Earlier that month, amid a sea ofcorporate zil, where a larger Chilean retailer, Cenco- Teutonicallystaid.SuccessfulChilean busi- downgrades in the region, Fitch had raised sud, has expanded more enthusiastically nesses oftenexhibit cautious conservatism the company’s investment-grade credit rat- and has good reason to regret it. Argentina as they lookbeyond their puny home mar- ing by a notch, to BBB+. and Brazil contribute no net profit to Fala- ket of 18m people. Take Falabella, a 126- The reason for Falabella’s resilience is bella at the moment. But, as Mr Ley points year-old department-store chain, which its assortment of businesses, spread judi- out, together they have 250m consumers, now employs 100,000 people across the ciously across six countries. Besides its 101 so it is worth having toeholds there, which continent and flogs everything from hand- department stores, it runs 102 supermar- could be scaled up if and when prospects bags to hand tools. kets; together these generate about half of brighten. (Argentina’s would if, as seems Retailers across South America should the group’s retail revenues. The other half likely, it elects a market-friendly president be having a miserable time. Growth has ei- comes from 246 big-box DIY shops (the re- later this month.) ther slowed or gone into reverse, as global sult of a merger with Sodimac, another prices of the region’s plentiful raw materi- Chilean firm, in 2003). The fortunes of the What’s a hammer? als have plunged. Unemployment is up, three do not overlap exactly, helping to Jordi Gaju, Falabella’s chief development and high inflation is eating into wages. smooth sales over the cycle. officer, attributeshisfirm’ssuccessto its un- Sliding currencies—the Chilean peso has Falabella also runs 39 shopping centres, derstanding of shopping habits, which can fallen by one-third against the dollar since where its shops are the “anchor” tenants. vary enormously from country to country. the start of 2013—make imported wares And as customers flit between a Falabella Gisele Bündchen, a Brazilian fashion mod- costlier. All this is making the continent’s department store and a Falabella-owned el, is the face of Falabella department shoppers thinktwice before splurging. supermarket, they can pay with a Falabella stores across the region. But there was no Against this backdrop Falabella’s per- credit card or draw cash from one ofBanco point launching one in her native land, formance has been positively perky. On Falabella’s ATMs. The financial-services where this sort of retail format is practi- November10th it announced net profits of arm, with reams of data on customers’ cally non-existent and trend-conscious 95 billion pesos ($136m) in the third quar- spending habits, is considered one of the consumers prefer dedicated purveyors of ter, up by 16% on a year earlier. Revenues region’s most sophisticated lenders. Its $5.7 fast fashion. In Chile, the group’s Sodimac hardware stores are aimed at middle-class DIYers. Their counterparts in Brazil would not dream ofliftinga hammer, so branches there are designed to appeal more to build- ers, plumbers and the like. When Falabella does expand, it never rushes in. Sometimes, after entering a country and gettinga feel forit, it will buy a local firm and combine it with its own branches, to cut costs and tease better deals from suppliers. Last year, for example, So- dimac’s Peruvian business was merged with Maestro, a local DIY chain. Apart from the macroeconomic climate, Falabella’s biggest challenge may be the growing sophistication of the region’s shoppers. It plans to invest $1 billion by 2018 in computer systems and logistics, to boost its e-commerce business as the region’s consumers get used to buying online. For now, many still relish bricks-and- mortar one-stop shops like Falabella’s department stores—but so did Americans and Europeans until they began turning to specialist shops, and then migrating online. In this regard, Latin America “is 15-20 years behind advanced economies”, notes Esteban Bowles of A.T. Kearney, a management consultancy. That gives the cautious A bright spot in a gloomy region Chilean firm plenty oftime to adjust. 7 The Economist November 14th 2015 Business 69 Schumpeter It’s the real thing

“Authenticity” is being peddled as a cure fordrooping brands features, that is bad news. The waning faith in brands is a greater threat to some types of products than others: snacks and household gadgets, say, as opposed to luxury handbags. But for a range of consumer goods, brands’ strength as a signal of quality, and their power to open people’s wallets, are fading, argue Itamar Simonson and Eman- uel Rosen in their book, “Absolute Value: What Really Influences Customers in the Age of(Nearly) Perfect Information”. Surveys back up this conclusion. In North America consumers say they trust only about a fifth of brands, according to a poll by Havas, a marketing agency. For slightly less sceptical Euro- peans it is about a third. Consumers seem particularly wary of big brands. About halfofAmerican shoppers say they trust small companies to do the right thing, compared with just 36% who say the same oflarge ones, reports Mintel, a research firm. These opinions are starting to have tangible effects. Of the top 100 consumer packaged-goods brands in America, 90 lost market share in the year to July, according to Catalina, a marketing firm. In China and other big emerging markets, foreign-branded goods are losing their allure, as shoppers realise that local products are no longer so inferior. In a recent study by Bain, a consulting firm, USINESSES have always told stories about their products. But foreign brands were found to be losing market share in China in B in recent years they have become particularly verbose, bom- 18 out of26 categories ofconsumer goods. barding consumers with any small detail that might enhance the The consulting firms that value and rankbrands, such as Inter- brand. Shoppers at Whole Foods can peruse scintillating biogra- brand and Millward Brown, report that their top 100 names are phies ofthe chickens they are about to casserole. Prospective Tes- still increasing in value. However, such firms have different and la drivers can learn not just about the cars’ specification and per- quite subjective methodologies, and often disagree on what any formance but about the principles of a stator rotating magnetic given brand is worth. Christof Binder of Trademark Compara- field. Guzzlers of Blue Moon beer can soak up its proud heritage, bles, an adviser on brand values, and Dominique Hanssens of stretching back to, ooh, 1995, and read about its creator’s brilliant the University ofCalifornia, Los Angeles, sought a more concrete idea ofgarnishing each glass ofthe ale with a slice of orange. measure: when brands are sold as part of corporate takeovers, Brands began as badges of product quality, going back at least what price do investors put on them? They found that these as far as the medieval guilds of craftsmen who used them to dis- prices, as a percentage of deals’ total value, have dropped since tinguish their work. In the modern age they have sought to con- 2003. So, at least for those firms being taken over, the strength of vey emotional and social values, too: think of Nike’s “Just do it”, their brands is becoming a smaller share oftheir overall worth. or Kodak’s “Share moments. Share life”. Now, in inundating con- sumerswith a cascade offascinatingfacts, companiesare striving Sincerely, folks to bestow “authenticity” on their brands. Interbrand, a consul- The silver lining—authentically handcrafted, of course—to the tant on branding, describes authenticity as “an internal truth and dark cloud looming over brands is that as people become better capability”, a “defined heritage” and a “well-grounded value set”. informed about products’ underlying qualities, and more scepti- This slippery quality, the pundits tell firms, is what the public is cal ofmarketing gimmicks, they are exhibiting a desire for brands yearning for, in an age of doubt and mistrust. In 2013 the Boston that are “honest” and seem to have some identifiable merit. Inev- Consulting Group surveyed 2,500 American consumers and itably, this is leading some marketers to concoct campaigns that found that being authentic was indeed one of the main qualities seekto conjure up the ineffable quality ofauthenticity out ofthin theysaid would attractthem to a brand. Foryounger“millennial” air. Asthe cynicsamongthem mightsay: authenticityis the secret consumers (born between 1980 and 2000), it was second in im- ofsuccess; once you can fake it, you’ve got it made. portance only to rewarding their loyalty with discounts. However, authenticity is far easier to pull off when your pro- Authenticity is being peddled as a cure for consumers’ ebbing duct has some real-world qualities that its competitors lack. The loyalty to brands. It is not hard to see why the old marketing mag- most striking recent example is that of America’s craft beers. As ic is fading, in an age in which people can instantly learn truths drinkersturn againstthe pallid swill pumped outbymass-market (and indeed untruths) about the things they are contemplating brewers, the craft brewers have almost doubled their market buying. Online reviews and friends’ comments on social media share in the five years to 2014. Although many long-established, help consumers see a product’s underlying merits and demerits, heavily advertised but mediocre products are losing force, and not the image that its makers are trying to build around it. The the fickleness of consumers is making it harder forthem to main- ease of accessing information makes consumers more likely to tain premium prices, forthose firms that get the product right and abandon their habitual brands because they have heard about have a genuine storyto tell, the rewardscan still be huge. The text- something new, orlearned that retailers’ own-label products are book example of this is Apple, whose devices’ superior design much the same, except cheaper. Depending on your perspective, and ease ofuse make it a powerful brand in a commoditised mar- people are eitherincreasingly fickle orevermore impermeable to ket. Last year it had only 6% of the revenues in the personal-com- marketing bullshit. For brands that lack any truly distinguishing puter market, but 28% ofthe profits. That’s real authenticity. 7 70 Property

The Economist November 14th 2015 Finance and economics The Economist November 14th 2015 71

Also in this section 72 Buttonwood: Bonds as bank capital 73 The oddly normal oil market 74 Economics can be fun 74 Amundi’s share sale 75 Taiwan’s faltering economy 76 Free exchange: How to get trade in services to blossom

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

Rice in Asia dings. Babies and the elderly survive on rice gruel. Steaming rice porridge is eaten Paddy-whacked for breakfast in skyscraping hotels in Hong Kong and rustic village kitchens in Hunan. Alcohol made from rice—be it sake in Japan or rice whiskey in Thailand—is swilled deep into the nightin karaoke parlours and SINGAPORE roadside stalls. By meddling in the market forrice, Asian governments make theirown citizens Butrice isnotjusta culinarymainstay: it poorer has religious and cultural uses across the EARLY 16% of Indonesia’s 250m peo- ganisation (FAO), a division of the United continent. It appears on Buddhist altars Nple survive on $1.90 a day or less, as do Nations, has found that transport costs ac- and in offerings to deceased ancestors; more than 6% of Cambodia’s 15m people. count for only a small share of the gap in farmers pray to gods who govern rice be- In both countries, rice is the staple crop, prices. Instead, the culprit is policy. fore the harvestand thankthem afterward. providing more than halfthe daily calories Like many Asian countries, Indonesia In many Asian languages the verb “to eat” of the poor. That puts needy Cambodians wants to be self-sufficient in rice. But as literally means “to eat rice”. at a distinct advantage: between January well astryingto help farmersbecome com- Its ubiquity and cultural centrality of last year and April of this, the average petitive through investments in agriculture make rice far more important politically wholesale cost of a kilo of rice in Cambo- and infrastructure, its government, like than any other food. Every country be- dia was roughly $0.40, while in Indonesia others in the region, manipulates the rice lieves its own rice superior: Thais love the itwasnearly$0.70. market through a welter of subsidies, ta- fragrance of the local jasmine rice; Indians There are a few reasons why rice is riffsand other support mechanisms for do- extol the fluffiness of basmati; Japanese more expensive in Indonesia. For one, it is mestic producers (see table). These inter- rave about the delicate texture of koshi- a net importer, whereas Cambodia grows ventions, though well-intentioned, raise hikari from Niigata prefecture. Having to more than it needs. Indonesia is also a far- prices for consumers and harm the re- rely on foreign rice seems to many a cultur- flung archipelago with abysmal infrastruc- gion’s poorest people. al affront. ture, which raises transport costs. But Da- Asia consumes 90% of the world’s rice. The early adoption of especially pro- vid Dawe of the Food and Agriculture Or- It is used to make flour, noodles and pud- ductive strains during the Green Revolu- tion briefly helped Indonesia and the Phil- ippines to achieve self-sufficiency in rice in Cereal offenders the 1980s, but for most of the past century Policies affecting rice prices, 2007–13 they have been importers. The rice-export- Tariffs of 15% Import Minimum Consumer Export Gov’t Gov’t Import ing countries on the mainland have a big or more subsidies farm price subsidies restrictions trading stockpiling restrictions competitive advantage, in the form of large Cambodia river deltas, which offer the perfect setting for growing rice and a handy means of China transporting it. Peninsular, island and ar- India chipelagic countries such as Indonesia,1 Indonesia Myanmar Applications are invited for a Marjorie Deane internship Pakistan in The Economist’s New York bureau. The award is designed to provide work experience for a promising Philippines journalist or would-be journalist, who will spend 3-6 Thailand months at The Economist writing about economics and finance. Applicants are asked to write a covering letter Vietnam and an article of no more than 500 words, suitable for Source: USITC publication in The Economist. Applications should be sent to [email protected] by December 20th. 72 Finance and economics The Economist November 14th 2015

2 Malaysia and the Philippines lack vast But wheat prices rose because of nam, Cambodia and Myanmar. Else- tracts of flat, swampy land. Their farmers weather-induced shortages and maize where, smaller exporters cut exports while produce more rice per hectare, but have a prices jumped because of increased de- importers and farmers hoarded. Prices did farsmaller area under cultivation. mand for ethanol production. Rice prices not start falling until the second half of Many governments look back with fear shot up because governments panicked. 2008, when Vietnam, Japan and Thailand to the rice-price spike of 2007-08, seeing it India restricted exports, which sent the in- all said they would boost exports, and oil as a reason to build up domestic produc- ternational price soaring. The Philippines, and shipping costs started declining. tion so that they are not dependent on a which had low government rice-stocks but This episode was an object lesson in the fickle international market. In fact, the rice ample private stocks and was on the verge perils of interference. But governments market is fairly stable: production has of a record harvest, nonetheless bought continue to intervene across the market. largely matched or exceeded population- massive quantities of Vietnamese rice at They offer trade restrictions, price support growth rates in Asia. And global rice prices above-market prices. That helped spur a and hefty subsidies on power, fertiliser are no more volatile than those of the oth- run on rice in Vietnam. Thailand mulled and water, mainly to keep domestic prices er two global staples, wheat and maize restricting exports and creating a rice-ex- stable, assure suppliesin timesofcrisis and (corn), which also shot up in 2007-08. porting cartel, inspired by OPEC,withViet- protect domestic growers. 1 Buttonwood Born to run

Bonds that will take the hit when banks fail IXING the banking system to prevent place existing debt as the latter matures. Fanothercrisison the scale of2007-08 is That helps explain why the estimated a fiddly and time-consuming task. It is not costs of the reform are so low. Doubtless, the kind of thing that generates tabloid investors will demand a higher yield on headlines and public approbation. But bonds that will be counted as TLAC. This another important stage in the process higher cost is likely to be passed on to was reached on November 9th when the bank customers in the form of higher Financial Stability Board (FSB), a global lending rates, which may crimp eco- regulators’ forum, issued new guidelines nomic growth. But the FSB estimates that on bankbalance-sheets. the effect, in both cases, will be a small The underlying problem is as ancient fraction of a percentage point—far less as banking itself: banks lend out more than the costs ofanother bankblow-up. money than they have capital to absorb None of this will prevent a future losses. If their loans go sour (or if the banking crisis. Instead, the aim is to limit banks’ own creditors, including deposi- the damage such a crisis can create by tors, lose confidence), institutions can rap- making clear where the losses will fall— idly go bust. And then, because of the im- something that was not obvious in 2008. portance of the banking system to the All these changessound eminently sen- The biggest economic impact occurs economy, governments feel obliged to sible. But this is finance, so the regulator’s when depositors, having assumed their ride to the rescue at potentially vast cost. proposals inevitably come cloaked in im- money was safe, take fright; that is when To avoid this danger, the FSB wants penetrable jargon dotted with obscure ac- you see queues round the block. Back in private investors to bear the cost of bank ronyms. The relevant measure of capital the 1930s America introduced deposit in- failure. As well as their equity capital, (equity plus the at-risk debt) is called “total surance to reduce this problem. The new banks should issue a new type of debt loss-absorbingcapacity” orTLAC. The ratio reforms give depositors an even more se- with terms that make it explicit that the will onlyapplyto the mostimportant insti- cure status. lenderswill be amongthe firstto take a hit tutions, dubbed global systemically im- But bank losses have to be borne by if the bank gets into trouble. This has two portant banks (G-SIB). It is hard to see the somebody.In that sense, bankruns are ra- advantages. First, severe bank losses will public marching behind Mark Carney, tional: if you think a bank will run out of be absorbed by these bondholders and who heads both the FSB and the Bank of cash or capital, it makes sense to with- not by depositors. This reduces the risk of England, shouting, “What do we want? draw deposits, or to dump investments in a public panic and thus the need fora gov- Higher TLAC for G-SIBs. When do we want the bank, before the rest of the herd. That ernment rescue. Second, the threat of a it? Phased in between 2019 and 2022, ex- will be true ofTLAC bonds, too. potential loss will encourage bondhold- ceptforemerging-marketbankswhich will Alas,youcan’tgetrid ofriskaltogether. ers to keep a close eye on bank manage- have till 2025 to 2028 to comply.” Because TLAC bonds will take the hit dur- ment, and to intervene if they feel execu- Those familiar with the minutiae may ing the crisis, they will provide early tives are taking too much risk. complain that the FSB has not been as de- warning of trouble. But corporate-bond Asking banks to raise a lot ofnew debt manding as it might have been. It is asking markets are pretty illiquid, and even liq- immediately is not ideal. One of two banks to have TLAC of 16% of their risk- uid government bonds have seen sudden things might happen. The banks could weighted assets by 2019, rising to 18% by lurches in price. So it is quite possible that flood the market with new bonds, caus- 2022. This is at the lower end of the expect- TLAC bonds could give false indications ing the cost of borrowing to rise. Or the ed range. The FSB estimates that banks will of a looming crisis; smoke without fire, in banks could improve their capital ratios have to raise as much as €1.1 trillion ($1.2 other words. Even sensible reforms have by lending less, cutting off funds to busi- trillion) in new TLAC-compatible debt. But their flaws. ness and hurting the economy. So the re- notall ofthiswill be additional borrowing: form has to be phased in. banks can simply issue TLAC bonds to re- Economist.com/blogs/buttonwood The Economist November 14th 2015 Finance and economics 73

dised rice to roughly 16m families. This political clout, and subsidies, once in place, Grain drain scheme has also been dogged by allega- can be hard to take away. Japan’s ruling Wholesale rice prices, $ per kg Average tariff by tions of corruption: some of the rice was Liberal Democratic Party,for one, relies on October 2015 or latest country, % rotten and weevil-infested by the time it the support of all those doddering rice 0 0.5 1.0 1.5 2.0 reached poor families, and some of the farmers. Thailand’s junta came into office South Korea 218 familiessold rice backto traders for several promising to end rice subsidies. Yet even as times the subsidised price. This year an the generals moved to try Ms Yingluck for Japan 322 OECD study found that as a result of Indo- the losses incurred by her rice-purchase Indonesia 34 nesia’s various policy interventions rice scheme, they announced their own bil- Philippines 42 there cost around 60% more than on the lion-dollar handout to rice farmers. For China 34 world market. Asian policymakers, it seems, intervening In 2012 Thailand cooked up a disastrous in the market for rice has become as reflex- Cambodia 7 plan to buy rice from farmers at above- ive as eating the stuff. 7 India 74 market prices, hoard it to drive up global Thailand nil prices (at the time Thailand was the Vietnam 17 world’s biggest exporter) and then sell it The oil market when prices rose. The ruse failed when Sources: FAO; USITC; national statistics growing Indian rice exports picked up the Abnormally slack; it ended up costing the Thai govern- 2 In one sense, this has worked. Across ment around $16 billion, leaving it sitting normal Asia, domestic rice prices are relatively sta- on 13m tonnes of quickly rotting rice and ble. But the countries trying to reduce im- getting Yingluck Shinawatra, the prime ports tend to have farhigherprices than ex- minister of the day, impeached. Many Foronce, oil prices are responding to porters (see chart). Japan, for instance, farmers still have not been paid. supply and demand, not OPEC maintains its network of archaic, ineffi- As a result of interventions like these, cient, heavily subsidised small rice farms. billions of people pay above-market rates ROM John Rockefeller’s Standard Oil in The average age of its rice farmers is 70. Ja- for rice. High rice prices lower purchasing Fthe late 1800s, through the Railroad pan imports rice grudgingly and taxes it power and increase poverty in rice-im- Commission of Texas in 1930, to OPEC heavily: tariffson milled rice will remain at porting countries. They also hinder child since 1960, institutions have long tried to 778%, even after it joins the Trans-Pacific development by reducing the amount of control and stabilise the oil market for their Partnership, a free-trade agreement under more nutritious foods households can af- own benefit. Only rarely, says Jason Bor- which Japan agreed to lower tariffs on oth- ford. Studies in Bangladesh and Indonesia doff, director of Columbia University’s er agricultural imports (see Free exchange). have found that higher prices are associat- Centre on Global Energy Policy, has the oil The government plays an even more ed with higher rates ofmalnutrition. market behaved like a normal market, outsized role in Indonesia and the Philip- Governments often justify keeping more subject to the laws of supply and de- pines, by directly determining the volume prices high on the grounds that it helps mand than to the whims ofa cartel. Now is of imports. The quota varies from year to poor rice farmers. In fact, most benefits ac- one ofthem. year, depending on how good the local crue to the richest farmers—those with the Take supply. A year ago Saudi Arabia re- harvest is expected to be. Both countries most surplus rice to sell. Farmers with fused to allowOPEC to tryto raise prices by also set a floor price for farmers and a ceil- holdings too small to grow enough rice to pumping less crude, in the hope that a low ing price for consumers. Vietnam, an ex- feed their families suffer, as do landless price would drive competitors, especially porter, uses quotas to restrict the amount farmhands, the urban poor and farmers of America’s shale-oil producers, out of busi- of rice leaving the country, and thus stabil- crops other than rice. All told, these groups ness. Since then it has used its low cost of ise domesticprices. Such restrictions create number in the hundreds ofmillions. production to carve out a bigger slice ofthe a lucrative opening for smugglers. But farmhands and the urban poor lack pie. It has fought with Russia and fellow Governments not only dictate the vol- OPEC members to sell oil to China. Seth ume oftrade, theyalso buyrice directly. For Kleinman of Citibank says that it has re- more than a decade China’s government cently sought to displace Russian crude go- has been buying rice from local farmers at ing into refineries in Sweden and Poland, above-market rates to maintain its stock- and cut prices across Europe. pile. The Indian government guarantees Producers with higher costs, including farmersa floorprice in theory, butmany do big listed oil firms and many rival national not receive it. The National Food Security oil companies, have also behaved rational- Act, passed in 2013, is supposed to ensure ly, albeit reluctantly, cancelling at least $150 that the poor can buy rice from the govern- billion of investments this year, with more ment at below-market rates from a net- cuts to come next year. It takes time for this work of around 60,000 fair-price shops. retrenchment to feed into lower produc- This byzantine, inefficient system—the cen- tion, because oil projects have long lead tral government buys rice and sends it to times, and in the meantime, producers nat- the states, who distribute it to shops—pro- urally seek to compensate for lower prices vides myriad opportunities forcorruption. by pumping more from existing facilities. By some estimates more than half the But eventually diminished investment grain is siphoned off, and tons of rice in- will reduce output. tended for the poor rot in massive govern- The geopolitical tensions that some- ment stockpiles. times play havoc with the oil market are Indonesia also guarantees floor and relatively absent this year, in part because ceiling prices, and maintains a similar rice- OPEC has more or less abandoned its quo- distribution programme, spending around tas. That means disputes within the cartel $1.7 billion each year to distribute subsi- Set it free that might once have led to the breaching 1 74 Finance and economics The Economist November 14th 2015

2 of production caps, such as the proxy war oil, which has not been responding as in Yemen between Saudi Arabia and Iran, Sticky shale promptly to changes in the price as an- barely stir prices. Instead the factors that West Texas Intermediate US crude-oil alysts had assumed. are setting traders’ pulses racing make crude-oil price production Even after oil prices fell last year, pro- crude oil sound about as thrilling as iron $ per barrel Barrels per day, m duction continued to increase, a process 120 10.5 ore: an oil-workers’ strike in Brazil; cuts to that has only recently started to reverse Iraq’s investment budget; a Saudi bond is- 100 10.0 (see chart). The IEA says this longer-than- sue that may enable it to withstand lower 80 9.5 expected adjustment was caused by a prices forlonger. 60 * 9.0 timelag of several months between drill- Demand is also making its mark. As ing a well and fracking it (ie, pumping in might be expected, the falling oil price is 40 8.5 water and sand to split the shale rock, al- boosting consumption to a degree. Since 20 8.0 lowing oil to seep out). Cost-cutting and last year, according to the International En- 0 hedgingalso enabledthe industryto main- ergy Agency (IEA), a Paris-based forecaster MJ J AS OND JFMAMJJASON tain margins even as prices fell. 2014 2015 representing oil-consuming nations, driv- One big question is how quickly frack- Sources: EIA; Thomson Reuters *Forecast ers have been optingmore often for“larger, ers would ramp up production again if oil more fuel-guzzling vehicles” such as SUVs, prices rise. The IEA is sceptical. It argues especially in America and China. Overall dustry analysts are beginning to invoke that banks may be reluctant to fund more the IEA expects demand to grow by 1.9% “peak demand”, as opposed to “peak sup- of their wells; staff will take longer to mo- this year, well above the average for the ply”, as a factorthat may determine the tra- bilise after recent lay-offs; and other factors past decade, of0.9%. jectory ofprices in the long run. will make shale-oil production “stickier” Yet the nuances are as interesting as the In its annual “World Energy Outlook”, than boosters assume. It believes that rap- overall direction. The IEA says that even in released on November 10th, the IEA pre- id depletion rates in shale-oil fields may the developing world, the amount of oil dicted that a relatively sluggish recovery in raise costs faster than new technology can consumed per unit of economic output is demand and decline in supply would lower them, putting a cap on shale’s long- declining. China’s growth, in particular, is yield a price of $80 a barrel in 2020. But it term potential. That would be music to becoming less energy-intensive. Fuel-effi- also aired an alternative scenario in which Saudi Arabia’s ears. But the shale-men are ciency standards may not be tightly en- oil stays in a range of $50-60 a barrel until a resourcefulbunch, who understand mar- forced but they nonetheless affect three- well into the 2020s. One of the main rea- kets atleastas well as the Saudis. The battle quarters ofall vehicles sold worldwide. In- sons it hedged its bets is American shale is not yet won. 7

Economics can be fun Amundi’s IPO A graph a minute Supersize me

Kilkenny Supply and demand walkinto a bar CONOMICS is not usually associated transform future generations—by giving Ewith humour. But once a year in the them hunched shoulders and flexible Irish city ofKilkenny,organisers of the thumbs. A flotation paves the way forgrowth “Kilkenomics” festival try to inject some Economists themselves came in for a merriment into the dismal science. When little teasing too. Stephen Kinsella ofthe HIS weekAmundi, one ofEurope’s big- it started in 2010 as Europe’s first festival University ofLimericksqueezed laughs Tgest money managers with €950 bil- to combine economics and comedy, from the audience by describing a real lion ($1 trillion) of assets, took a step to- Ireland was in no mood for laughter. As paper from the prestigious Journal of wardsbecomingbiggerstill. On November ten-year Irish bond yields spiked to 9%, Political Economy, which used elegant 12th it listed on the Paris stock exchange in the festival organised its own mock rating algebra to describe how women choose the biggest initial public offering ofa finan- agency: Moody and Poor. Shortly after, between two options: becoming a wife cial firm in continental Europe since the the government was forced to accept an or becoming a prostitute. Who needs $2.7 billion flotation in Amsterdam last €85 billion ($112 billion) bail-out. comedians when there is such rich mate- year of Pershing Square, an American Five years on, the festival has moved rial in academic journals? hedge-fund manager. Société Générale, a beyond austerity-focused sessions like In Kilkenny courthouse, fourcomedi- French bank, is selling its 20% stake to in- “Grannies forgold: how to sell your ans donned wigs and gowns and put crease capital buffers; Crédit Agricole, an- familieson Amazon”, notes Dermot economics on trial. One economist in the other bank and the owner of the rest of Whelan, a comedian. Panellists at this dockadmitted that her profession has a Amundi, is selling up to 5%. month’s event pondered whether Ireland poor reputation when it comes to com- By moving Amundi out of the shadow was on the cusp ofa golden era, with Bill munication. Given that, Kilkenomics is of its two parents, the listing will make it Black, an expert on financial crime, con- just what economics needs: an event easier for the firm to attract new partners cluding that it “will looklike a star in the bridging the gap between academic and, in particular, pave the way foracquisi- euro zone because the euro zone is crap”. analysis and the ordinary people whose tions. That is not because Amundi is retain- Panellists did their best to put the fun lives are turned upside down by eco- ing the proceeds of the IPO (those go to So- backinto fundamental welfare theorems. nomic mayhem. “People who take them- ciété Générale and Crédit Agricole), but A discussion ofwhether money makes selves too seriously are a danger to them- because future takeovers can now be fi- you happy included the answer to how selves,” was the verdict ofYanis nanced by issuing more shares. Moreover, bankers sleep at night: on big piles of Varoufakis, until recently Greece’s fi- once a company is listed it is easy to value, cash. Diane Coyle, an economist, predict- nance minister. Proofthat the festival something that could ease a big merger in ed that technological change would does irony, too. future. In addition Amundi has €1.3 billion in cash that Yves Perrier, its chiefexecutive, 1 The Economist November 14th 2015 Finance and economics 75

2 has promised to return to shareholders if ing as much. he does not spend it in the next three years. The benefits from Taiwan’s rapproche- Amundi has good reason to bulk up: in- ment with China appear to be topping out. vestors increasingly gravitate towards Taiwan’s trade surplus with China was18% mammoth fund-management groups, smaller in the first nine months ofthis year such as BlackRock and Vanguard. Their than in the same period in 2014. Chinese scale allows them to keep fees low by investment is down by nearly two-thirds spreading overheads such as technology from a year earlier. Even Chinese tourists, and compliance over a bigger pool of in- still flocking to Europe and other parts of vestments. They can also provide a much Asia, are showing less interest in Taiwan: broader choice of investments, sparing cli- visitor numbers are up by just 5% this year. ents the bother of dealing with more than One interpretation isthatTaiwan issim- one firm. And their recognisable brands plya victim ofChina’sslowinggrowth. But provide solace to administrators of pen- there is widespread concern that some- sion funds and endowments who shy thing deeper is at work: that Taiwan is los- away from controversial investments. “Ifit ing ground to China and ill-equipped to doesn’t work out well, you can never be fightback. So prevalentisthisview thatTai- blamed for investing in BlackRock,” says wanese routinely refer to the threat from Nathan Gelber of Stamford Associates, an Chinese firms as the “red supply chain”. investment consultancy. No wonder Mr Until a few years ago, the economic re- Perrierwants to make Amundi, already the lationship between China and Taiwan world’s tenth-biggest asset manager (and was symbiotic. Taiwanese firms, among the only European firm in the top ten), into the world’s biggest makers of electronic a “global brand”. components, needed China’s cheap la- Mr Perrier says he will focus on grow- Taiwan’s economy bour; China craved Taiwan’s technical ing organically: he expects to increase as- know-how. But this complementarity has sets under management by €120 billion Straitened given way to competition. Chinese pro- over the next three years. “But the right ac- ducers of petrochemicals, steel, computers quisitions can of course reinforce and ac- circumstances and digital displays have moved into ter- celerate that organic growth,” he says. rain once occupied by Taiwan. Taiwanese Amundi recently bought the asset-man- firms with operations in China are them- Taipei agement wing of Bawag PSK, an Austrian selves buying more materials and machin- Weakergrowth exposes the downside bank; in 2013 it acquired Smith Breeden, an ery from Chinese suppliers. Chinese firms ofties with China American asset manager. Amundi has are now trying to break into semiconduc- ruled out further purchases in America, HE Chinese theory about economic in- tors, Taiwan’s last big industrial redoubt. leaving Europe and Asia as its most likely Ttegration with Taiwan is that it will The structural challenge does not come hunting-grounds foracquisitions. bind the two together politically. Taiwan from China alone. Taiwan’s greatest Buying a European firm holds out great- will become evermore relianton China for strength is in making parts for computers er hope of cutting costs, since there will be its prosperity, paving the way to eventual and mobile phones. But the global markets overlap with Amundi’s existing opera- unification. Many in Taiwan fear this pro- for both are increasingly saturated. Short tions. But many European asset managers cess is under way. But now the premise of of a new consumer craze—some firms pin (like Amundi itself until this week) belong the theory—that closer ties with China are their hopes on wearables or 3D printers— to banks or insurance firms. Profits at their essential for growth—is being tested by a the hardware industry’sfuture looksbleak. parents are often limp, making them reluc- sharp economic slowdown in Taiwan. For an export-led economy like Taiwan tant to let go of a relatively lucrative side- Over his nearly eight years in office, Ma to reinvent itself, it needs to stay immersed line. Expansion in Asia, where Amundi Ying-jeou, Taiwan’s president, has pushed in global trade. Here, though, it faces the has several joint ventures and where pros- for a detente with China. A flurry of deals, cold reality of its geopolitical ostracism. pects for growth are better, might make including a limited free-trade agreement, Absent China’s express approval, other more sense—though foreign firms often has fuelled business ties. Taiwanese ex- countries are reluctant to engage in free- struggle in the region. ports to China have soared, as has Chinese trade talks with Taiwan. Yet Japan, South Acquisitions would also allow Amundi investment in Taiwan. A recent meeting Korea and China—Taiwan’s main competi- to broaden its offering. It is heavily reliant between Mr Ma and Xi Jinping, China’s tors—are signing lots oftheir own deals. on bond funds, says Christian Kuendig of president, in Singapore—the first between The easiest answer would be for Tai- Fitch, a rating agency. This makes it vulner- leaders ofthe two countries—was meant to wan to open itself yet wider to trade with able to a rate rise. Boosting its equity busi- show the promise ofmore co-operation. China. Politically, though, this is a non- ness would be a natural hedge. Buying a Awkwardly, though, Taiwan’s econ- starter. Taiwanese students last year occu- firm with more retail investors would also omy is in a slump. GDP shrank by 1% year pied the parliament to protest against a ser- make sense. Institutions account for three- on year in the third quarter, its first contrac- vices trade deal with China. quarters of the assets Amundi manages, tion since 2009. Last year Taiwan grew by Tsai Ing-wen, Mr Ma’s likely successor , but tend to be less profitable. 3.8%. Many analysts had expected about is determined to tilt Taiwan away from Amundi has lower operating costs than the same this year. Instead, it will do well China. She wants to fostercloserlinks with most in the industry: its cost-to-income ra- to hit1%, saysGordon Sun ofthe Taiwan In- South-East Asia and to bring Taiwan into tio is just 52% versus 60% at BlackRock, for stitute ofEconomic Research. the Trans-Pacific Partnership, an Ameri- example, and 77% at the asset-manage- The global slowdown in trade is partly can-led free-trade deal that covers 40% of ment arm of AXA, a big French insurance to blame. Exports are the lifeblood of Tai- the global economy but excludes China firm. But it is a quarter of the size of Black- wan’s economy, accounting for nearly (see Free exchange). It will be very hard for Rock, the titan ofthe industry. In a business three-quarters of its output. Yet other ex- Taiwan to escape China’s economic orbit. that favours scale, Amundi still has a long port-driven economies in Asia such as IfMs Tsai gets herway, it will not be forlack way to go to catch up. 7 South Korea and Singapore are not suffer- oftrying. 7 76 Finance and economics The Economist November 14th 2015 Free exchange A serviceable deal

TPP is intended to sparka boom in trade in services, but it will be decades in the making expanding so fast. So TPP’s benefits may be held in check in the short-run by weakdemand around the rich world. But instigating a trade boom takes time as well as a propitious environment. Beginning in the 1980s trade began behaving strangely,growing twice as fast as GDP. This burst originated in a revolution in supply chains that had been decades in the making. For most of industrial history, countries traded raw materials or finished goods, with the process ofturning the one into the other located entirely within a single country, and often within a single factory. From the 1980s, however, a large and rapidly growing share of trade consisted of “intermediate goods”. Rather than produce a computer from scratch in one country, for example, a tech firm would source components from several different countries, bring them together in yet another country for assembly, and then ship the completed good to consumers around the world. As a result, rising GDP led to even greater jumps in trade. The great supply-chain revolution was slow in coming, however. Tariffrates fell precipitously from the 1940s to the 1980s, by which time the duties imposed on most goods traded between rich economies had fallen to negligible levels. The shift to con- tainer shipping, which made transit by sea much faster and more T DID not take long for America’s presidential candidates, busy reliable, was largely over by the early1980s. From 1950 to 1985 the Ithough they must be, to digest the 6,000 pages ofthe agreement costofa long-distance phone call dropped dramatically. Yetitwas creating the “Trans-Pacific Partnership” (TPP). America and11oth- not until the 1990s that the supply-chain boom really got going, er countries of the Pacific Rim struck the trade deal in early Octo- abetted in part by China’s economic opening. ber, but the full text was not released until November 5th. Within About half of the current slowdown in trade growth repre- days Bernie Sanders, a Democrat, had rendered judgment: “It’s sents the exhaustion ofthis process. At the turn ofthe century, for even worse than I thought.” Donald Trump, a Republican, la- instance, imported parts accounted for nearly 55% of goods ex- belled it “insanity”. ported by China. By 2012, that share had fallen to 35%. Some large Even people ofa lessprotectionistbentare unimpressed, com- economies, like America and China, are keeping more of their plaining that TPP’s short-term benefits will be indetectably mod- supply chains for themselves. As China’s rich coastal cities have est. One estimate suggests that in its first ten years it will cause its progressed from the assembly of electronics to the development members’ exports of goods and services to rise by just $308 bil- of more sophisticated components and designs, assembly work lion in total. In 2003-13 global trade in goods and services grew by has often moved to poorer inland cities rather than to China’s more than $1trillion a year on average. A ten-year horizon misses poorer neighbours. Hence the importance ofservices. the point, however. TPP’s real promise lies in the liberalisation of trade in services. Just as it took decades for supply-chain integra- Long-haul service tion to flower into the rapid goods-trade growth of the 1990s and There are lessons here for those awaiting a service-trade boom. 2000s, the pay-offfrom TPP, and deals like it, is further off. TPP in its present form is just one element of several which must TPP cuts tariffsforsome important industries, such as cars and fall into place. Barriers to trading services remain prohibitively agriculture, but its main concern is to eliminate non-tariff barri- high, equivalent to an average tariffof15-17% in Canada, Australia ers, such as onerous customs procedures, buy-domestic rules for and Japan and 44% in Mexico, according to the Peterson Institute government agencies and regulatory barriers to trade in services. for International Economics, a think-tank. Provisions within the Indeed, Hillary Clinton, another Democratic presidential candi- TPP deal to work toward mutual recognition of some profession- date, who was for TPP before she was against it, once said it set al certifications still need to be seen through. Adding China, “the gold standard” in this respect. which is currently excluded, would greatly help. So would com- Not all services can be traded: outside ofborder-straddling cit- pletion of the Trans-Atlantic Trade and Investment Partnership, a ies, the international trade in manicures, say, is limited. Yet parts mooted trade pact between America and Europe which is also of other service industries, including finance, telecommunica- preoccupied with services, and a multilateral Trade In Services tions, education and health care, are increasingly tradable thanks Agreement being negotiated at the World Trade Organisation. to advances in information technology.Such services account for Technological change is also needed. Cross-border internet an enormous share of GDP and employment in most rich coun- traffic grew 18-fold between 2005 and 2012, according to the tries, but only a tiny sliver of trade. Liberalisation could open McKinsey Global Institute, an arm ofthe consulting firm. Further them up to global competition. Hospitals in America, for in- advances—to enable even better digital translation, for example— stance, could outsource patient monitoringto nurses in Malaysia, would help overcome the cultural and personal barriers to trade diagnostics to technicians in India, and consultations to doctors in services. One day service industries may be as efficient and as in Canada, to the benefit ofall fourcountries. globallyintegrated asmanufacturingistoday. TPP is a step toward Fulfilling that hope will be hard. Trade typically grows in step that ideal, but just one ofmany that are needed. 7 with GDP. It grew rapidly in the decades after the second world war,forexample, largelybecause the world’sbigeconomieswere Economist.com/blogs/freeexchange Science and technology The Economist November 14th 2015 77

Dark matter Also in this section Envisaging the invisible 78 Faster earthquake rescue 79 Preventing meningitis in Africa 80 America’s BRAIN initiative

Powerful gamma rays from the centre ofthe Milky Way looklike signs ofan elusive component ofthe cosmos HEN you have eliminated the im- are made. Nor do they interact with light. This therefore seemed, to Dr Hooper and “Wpossible, whatever remains, no Dark matter is thus invisible. Everything Dr Goodenough, to be a good place to look matter how improbable, must be the from the motions of galaxies to calcula- forsigns ofcolliding WIMPs. truth.” Though that maxim of Sherlock tions about what sort ofuniverse came out Unfortunately, the amount of matter at Holmes would rarely withstand scrutiny ofthe Big Bang says it must exist—and must the Milky Way’s centre means there are in the everyday world, where facts can be outweigh familiar, atomic, matterby about many other sources of gamma rays, too. fuzzy and the truth is often protean, it is not six to one. But no one has ever detected it The two researchers had therefore to sub- a bad one for fundamental physics—a field other than by its gravitational effects. Dr tract from the data collected by Fermi all of where there really is only one right answer. Hooper and Dr Goodenough think they the radiation they thought could be ac- It has certainly been the approach taken by have found a second way. They believe counted for by cosmic objects already Dan Hooper and Lisa Goodenough, two that the gamma rays they have been ana- known to astronomers. What they were hunters of some of physics’s most elusive lysing are flashes of radiation given off left with (see picture above, of a computer- creatures: the particles of which dark mat- when WIMPs run into one another. generated image of the gamma rays super- ter is composed. They think they have imposed on a visible-light photograph of eliminated all alternative explanations to Spot marks the “X” the Milky Way), was a bright residuum of these particles being the origin ofa power- The satellite which collects these flashes is gamma radiation that would be inexplica- ful clutch of gamma rays that come from Fermi, an American space telescope ble ifit were not caused by darkmatter. the centre of the Milky Way, the Earth’s launched in 2008. Gamma rays (electro- Dr Hooper and Dr Goodenough first home galaxy, and they have been saying magnetic radiation like light, but much observed this surplus six years ago, and so forseveral years. more energetic) are generated by the uni- made it public then, so that other phys- This week the chief remaining group of verse’s most violent processes—the left- icists could attempt to refute it. Nor was sceptics—the team that runs the satellite overs of supernovae, particles accelerated their claim the only one of its kind: the sci- which detected the gamma rays in ques- in potent magnetic fields, matter swirling entific literature abounds with reports of tion—has thrown in the towel and agreed ever faster around black holes and so on. intriguing blips spotted in Fermi’s data by that it, too, can come up with no convinc- Data on the rays Fermi detects are pub- enterprising researchers. But, while other ing alternative. Though this concession lished unedited, so that any scientist who claims to have seen dark matter in these does not, quite, close the “Case ofthe miss- wishes can poke through them. data have fallen away, explained by ever- ing WIMPS”, it will require a considerable Among those who poked were Dr better models ofthe underlying physics, or reversal of fortune for Dr Hooper and Dr Hooper (who works at the coincidentally dismissed as artefacts created in the tele- Goodenough now to be proved wrong. named Fermi National AcceleratorLabora- scope’s machinery or in the maths needed The WIMPS in question are weakly in- tory, near Chicago) and Dr Goodenough to subtract the known from the unknown teractingmassive particles, the name given (then a graduate student at New York Uni- sources ofradiation, theirs has not. to the putative components ofthe mystery versity; now at Argonne National Labora- The phenomenon they see falls off in that is dark matter. Exactly what WIMPs tory, also near Chicago). They looked in intensity away from the Milky Way’s cen- are is not clear. What is clear is that they particular at rays from the centre of the tre exactly as would be expected were dark have gravitational attraction, but other- Milky Way. As is true of any galaxy, much matter responsible. And the frequencies of wise interact only vanishingly rarely with of the Milky Way’s matter—including its the gamma rays match what several plau- the more familiar matter of which atoms dark matter—is concentrated at its centre. sible-looking models predict will happen 1 78 Science and technology The Economist November 14th 2015

2 when WIMPs cross paths: transmogrifica- lydoesdeign to interactwith an atomic nu- ground where the earthquake happened, tion into familiar-matter particles called cleus. The sensitivity of such experiments and in faraway laboratories, studying sat- bottom quarks, with the balance of the en- has improved markedly in recent years, so ellite photographs. ergy involved speeding off as gamma rays WIMP fans remain hopeful. Sang-Ho Yun of the Jet Propulsion Lab- ofexactly the sort DrHooperand DrGood- And WIMPs may even show up in the oratory—NASA’soutpostin Pasadena, Cali- enough have seen. The truth oftheirobser- Large Hadron Collider, a particle accelera- fornia—hopes to help those seekers by us- vation is therefore now widely enough actor in Switzerland which, after a long up- ing such photographs more effectively. cepted in dark-matter circles that the grade, should now be powerful enough to These days, pretty much all of the Earth’s putative particle responsible has, playfully, spot evidence of dark-matter particles in surface has been mapped by a technique been dubbed the “hooperon”. the detritus ofits smashings. called satellite-born synthetic-aperture ra- The endorsement Dr Hooper and Dr Whatisatstake forall these efforts istre- dar. Crucially for disaster-relief work, ra- Goodenough really wanted, though, was mendous. If and when any of them does dar can see through cloud, so does not re- from the Fermi team itself, which knows confirm the suspicions of Dr Hooper and quire clear skies. Equally crucially, its better than anyone else what the tele- Dr Goodenough, a new and odd inhabit- imagesinclude information on altitude, ac- scope’s kinks are, and thus how artefacts ant will have to be admitted to the zoo of curate to within a few centimetres. Dr might be created. On November 10th that particles known as the Standard Model; a Yun’s plan is to compare, automatically, endorsement came—with the release of an new taxonomy will have to be developed the “before” and “after” shots of a stricken analysis to be published in the Astrophysi- to accommodate it; and particle physicists area, to work out which parts have risen or cal Journal, led by Simona Murgia of the will have sixtimes more stuffto study than fallen the most, and are thus likely to have University ofCalifornia, Irvine, who helps they had before. 7 suffered most damage. A suitably pro- run the telescope’s main detector. grammed computer would then colour Dr Murgia says Fermi’s operators—who these in (see below), makingthem obvious were, ofcourse, able to see the data as they Earthquake rescue to human users. arrived, and thus steal a march on outside On April 25th 2015, as he reports in Seis- analysts—knew about the anomalous sur- Compare and mological Research Letters, he got a chance plus even before Dr Hooper and Dr Good- to test his ideas out. An earthquake of mag- enough, and have been working ever since contrast nitude 7.8, the most powerful in the region to try to explain it away. They kept shtum since 1934, hit central Nepal. It claimed over because, she explains, grand international 8,000 lives and caused widespread dam- Los Angeles collaborations like Fermi are conservative age. Four days after it struck, an Italian sat- A betterway to use satellite images to by their nature. “When you see something ellite called COSMO-SkyMed, which is save lives aftertremors you expect, you write a paper,” she says. equipped with a synthetic-aperture radar, “When you see something you don’t ex- HEN a big earthquake strikes, it does flew over the area. Dr Yun and his col- pect, there’s a lot ofdiscussion and arguing Wnot do equal harm everywhere. leagues fed the information COSMO- and it’s not always helpful. In this case it Places resting on unstable sediment will SkyMed’s radar collected into their com- delayed things a bit much.” shift around a lot and are thus likely to be puters and compared it with radar images damaged badly. Those resting on bedrock taken before the disaster. On being a WIMP are normally better off—though not if they Their labours produced wide-area col- There are still a few die-hards who do not are stuck at the end of a rocky promontory our-coded maps (see below) that showed believe in hooperons. They suggest that if that amplifies a quake’s vibrations in the where the ground had risen or fallen dur- an ensemble of millisecond pulsars (dead manner of a tuning fork. Finding the areas ing the earthquake in ways that might stars that rotate hundreds of times a sec- most badly damaged, and therefore most damage buildings. Higher-resolution ex- ond) were buried in the Milky Way’s mid- urgently in need of assistance, in an area amination of these high-risk areas was dle, that might do the trick. To see off this whose geology is not already well under- then able to pick out buildings that looked theory (or indeed, prove it correct) requires stood is thus a high-stakes game of hide- as if they had changed in some substantial furtherlines ofevidence. and-seek. It involves experts both on the way. In some cases these buildings had 1 One such may be dwarf galaxies—con-

glomerations of just a few billion stars (as 1km opposed to the hundreds of billions in gal- Post-earthquakeq altitude changes axies the size ofthe Milky Way) that are be- Central Nepal, April 25th 2015 lieved to host lots of dark matter and few Pukhulachhi confounding gamma-ray sources. Fermi Dhalanko can peer at those too, and has. Indeed, gamma rays it has detected coming from one such galaxy, Reticulum II, maysupport the Hooper-Goodenough hypothesis. An- other possibility is that an intriguing signal noticed by XMM-Newton (a space telescope that scans the skies for X-rays rather than gamma rays), which has deﬁed prelimi- Salambutar nary attempts at conventional explanation, might turn out to be a consequence of dark matter. Dark matter might also be caught more directly, in vast underground laboratories on Earth. These employ lumps or tanks of Magnitude of change in altitude special materials dedicated to detecting Least Most the ﬂash of light or heat that occurs on Source: NASA those rare occasions when a WIMP actual- The Economist November 14th 2015 Science and technology 79

2 simply gone askew.In others they had collapsed completely. The meningitis belt To double check the accuracy of their conclusions Dr Yun’s team collaborated with one at the United States Geological Survey, led by Kenneth Hudnut. This let MAURITANIA MALI NIGER them compare their maps with those ERITREA SENEGAL CHAD SUDAN THE GAMBIA BURKINA created independently, after the disaster, FASO

GUINEA-BISSAU UIN GHANA by the National Geospatial Intelligence G EA BENIN Agency, one of America’s groups of spies, IVORY NIGERIA SOUTH ETHIOPIA COAST C.A.R. and by the United Nations. Both these sets SUDAN TOGO CAMEROON of maps were made by people inspecting A CONGO ND GA high-resolution satellite photographs for U KENYA ATLANTIC OCEAN RWANDA damage—a process that took three days. Dr BURUNDI Yun’s maps, the comparison showed, con- TANZANIA INDIAN tained almost all ofthe same information. Vaccinated since 2010 Unvaccinated OCEAN This test, then, proved that the method Source: WHO works. But Dr Yun and his colleagues know they still have a long way to go before they can provide such maps quickly quently out of mind, and health experts would save money. Asecond paperin Clin- enough to be useful. The four days it took now worry that this one-off success will ical Infectious Diseases, describing a study an appropriately equipped satellite to not, at least in some countries, be followed led by Anaïs Colombini of the WHO, come by in the case of the Nepalese earth- by the introduction of MenAfriVac into looked at how routine vaccination might quake were four days too many for effec- routine schedules of infant vaccination. A play out in Burkina Faso. Ms Colombini tive disaster relief. Such delays are, though, study just published in Clinical Infectious concluded that such a pre-emptive ap- expected to shorten in coming years, as Diseases by Andromachi Karachaliou of proach would cost less than the alternative more satellites equipped with synthetic- Cambridge University and her colleagues of waiting for an outbreak and then vacci- aperture radar make it into orbit, and more shows what this could lead to. Ms Karacha- nating en masse. This would probably be of the agencies operating them realise the liou’s computer model predicts that the the case in other countries ofthe belt, too. value of keeping that radar running all the epidemics will return with a vengeance in Moreover, MenAfriVac brings benefits time, and also of sharing their data as about 15 years if MenAfriVac does not be- beyond curbing meningitis, as two further widely and quickly as possible. By 2020, come a routine childhood jab, as the World studies published in the same journal Dr Yun reckons, the average wait should Health Organisation (WHO) recommends show. These looked at its effect on tetanus. have dropped to between four and seven it should. That, the model suggests, is the The MedAfriVacuses tetanus toxoid as the hours. That is still a long time to be stuck moment when waning immunity among protein to which the immunity-generating under a collapsed building. But it is a lot those already vaccinated, and no immuni- antigen is attached. Other vaccines that better than the current alternative. 7 ty at all among a rising generation of the employ a similar trick are known to boost unvaccinated, could combine with season- immunity to tetanus. In one of the studies, al factors (epidemics usually start in the Nicole Basta of the University of Minneso- Preventing meningitis dry season) to create a crisis. ta and her colleagues have shown that this In principle, universal vaccination process works for MenAfriVac, too. Their Knockout jab could eradicate the disease, for the bacteri- research, carried outin Mali, found that the um that causes it can survive only in hu- mass campaign increased the share ofpeo- mans and vaccination clears it from its ple with long-term tetanus immunity from hosts. The current goal, however, is less 20% to 59%. This makes MenAfriVac a for- ambitious: to stop the epidemics in all 26 midable tetanus booster, even though it is countries of the belt, including the ten not strong enough to stand alone against A vaccine that rarely makes the news is which have yet to roll out the one-time tetanus, says Dr Preziosi. a big public-health success mass-vaccination campaigns that have What this means for neonatal tetanus, EWvaccines have been so successful, so done so much good elsewhere. These cam- which kills nearly 50,000 newborns a year Fquickly, as MenAfriVac. It was intro- paigns cover only those aged between one in sub-Saharan Africa, is shown by the sec- duced into Africa in 2010, to immunise and 29. That is, nevertheless, about 70% of ond study, led by Ray Borrow of Manches- people againstmeningitisA—a bacterial in- Africa’s population—and this, combined ter Royal Infirmary, in Britain. Poor coun- fection of the membranes surrounding the with the fact that older people are much tries now tackle it by giving pregnant brain and the spinal cord, which can cause less infectious and rarely succumb to the women tetanus boosters, which ensure death or brain damage within hours of the disease, is enough to create “herd” protec- theypassantibodieson to theirunborn ba- onset of its flu-like symptoms. Since then, tion, according to Marie-Pierre Preziosi, a bies. Dr Borrow’s team found that rates of the caseload of the illness has plummeted meningitis expert at the WHO. Herd pro- neonatal tetanus fell by 25% in countries to zero in 16 countries that used Men- tection is the point at which, even though that had had a MenAfriVac campaign. Al- AfriVac in mass vaccination campaigns. vaccine coverage is not 100%, there are in- though some of this drop may have hap- Before the vaccine’s introduction epidem- sufficient infectible people around for the pened for other reasons, the evidence icsin the “meningitisbelt”, which stretches disease to sustain itself. points mostly in the direction of the vac- from coast to coast south ofthe Sahara des- To keep a proper lid on meningitis A, cine’s hefty double-duty. ert (see map), used to kill thousands a year though, the next step should be to make All ofthismakesMenAfriVacone of the and disable many more, nearly all of them vaccination routine for infants and remain brightest public-health stars around. For, if children and young adults. In 1996, for ex- vigilant for outbreaks. Gavi, an interna- countries in the meningitis belt follow the ample, an outbreak killed 25,000 people tional vaccine fund for poor countries, has prescription these studies suggest, they and sickened 250,000 in six months. already promised its backing for this plan. should be able, quickly, to put the lid on Out of sight is, however, all too fre- Besides saving lives, such an approach two scourges forthe price ofone. 7 80 Science and technology The Economist November 14th 2015

America’s BRAIN initiative struments whose dimensions are measured in billionths of a metre) which can The observer corps do something approaching connectomics on living brains, by studying the activities of hundreds or thousands of interconnect- ed neurons simultaneously. Only in this way can the true nature of the brain’s cir- cuitry be understood. Argonne, Illinois Asking what these nanoscale devices What is the way best to study the brain? Big labs orsmall? will look like tends to generate a lot of F YOU want to build an atom bomb, land handwaving involving words like “quan- Imen on the Moon or work out the exact tum dots” and “nanodiamonds”—both order of the 3 billion chemical “letters” in types of tiny crystal that might act as neu- the DNA of the human genome, then Big ron-scale probes—but with little clear idea Science, a large-scale project backed by a of how these crystal probes would be con- budget in the billions, will do it for you. But trolled and listened to. In their case, then, will it also do it for the brain, the under- there is an argument for letting a thousand standing of which is, perhaps, the biggest flowers bloom in laboratories large and scientific challenge of all? That is a ques- small. But for the other devices on Dr tion with particular salience now, as the Yuste’s shopping list, observatories do Brain Research through Advancing Inno- seem a good idea. And, as luckwould have vative Neurotechnologies (BRAIN) initia- it, America has a network of institutions tive gets going in earnest. that might be pressed into service as such. At the moment this endeavour, announced by Barack Obama in April 2013, is Critical mass definitely small science—despite its pro- The National Laboratories, are, in many posed budget of $4.8 billion over the next ways, Big Science personified. A lot of decade. According to Rafael Yuste of Co- them started life as atomic-weapons estab- lumbia University, who was one of its in- lishments, so they know how to run large stigators, some 125 laboratories around projects that go on for years. They also America have signed up to dip their bread house five of the world’s ten fastest super- in the gravy, so that gravy is very thinly computers. One, indeed, is ready and eager spread. This reflects the way neuroscience boson required about 200 petabytes. A hu- to go. Argonne, near Chicago, has been hir- has been done until now, but Dr Yuste man brain is vastly more complex than a ingoutone ofitsinstruments, an X-raygen- would like the future to be different. Genet- mouse’s. It has around 86 billion neurons, erator called the Advanced Photon Source, ics was similarly fragmented before the compared with 71m in a mouse. And the to biologists for several years. Last year, Human Genome Project began, but the wiringthatlinksthese neurons(cell protru- 2,000 ofthe 5,000 experiments conducted bargain imposed on researchers by that sions called axons) is reckoned to be about using it were biological, and Argonne has project was that the process of sequencing 100,000km long. recently hired a neuroscientist specifically would be centralised into a few laborato- The second improvement that is re- to run a project that will employ the pho- ries, where it could be industrialised. This, quired of existing technology involves ton source to X-ray mouse brains, with a as Dr Yuste and several of his co-sponsors brain-scanning. At the moment, this has a view to mapping them at high resolution. of the original idea of BRAIN write this resolution measured at best in millimetres, It is also buying a top-of-the-range electron month in Neuron, is the model they think which is fine forits original purpose—clini- microscope, with which researchers will neuroscience should now adopt. cal diagnosis—but useless for understand- be able to zoom in on areas ofthe brain the BRAIN’s specific remit, they point out, is ing how brains work at anything more photon source suggests are particularly in- to develop new technological approaches than a superficial level. Higher-resolution teresting, and a flashy, new computer that for the study of brains. For that purpose, scanners would permit researchers to look will help analyse the results of all this. Ar- they propose creating a handful of “brain at small, functional groups of neurons, gonne’s director, Peter Littlewood, thus observatories” which would design and such as the neuronal columns of which hopes to create a model which other na- build the equipment, and then make it brain cortexes are composed. tional laboratories thinking of developing available to teams of outside researchers, The third improvement Dr Yuste de- brain observatories might follow. much as academic astronomers book (and sires is to instruments that can study the Whether they do will depend a lot on pay for) time on large telescopes. In this connections between individual neurons, the say-so ofErnest Moniz, America’s ener- way, the observatories could concentrate a field known as connectomics. At the mo- gy secretary, who is the labs’ collective su- on the engineering: refiningthe equipment ment, this can be done only to dead brains, premo. He and Francis Collins, head of the by experience and arriving at designs that and the tools usually employed are elec- country’s National Institutes of Health might then be commercialised. tron microscopes. As with many other (and thus, in effect, BRAIN’s treasurer), fields, the more closely you want to look, have met several times to chew the matter Manhattan-project transfer the bigger the machines you need to do it. over. Some in Congress think the energy Dr Yuste and his colleagues identify four DrYuste and hiscolleagues would also like department should be minding its own types of technology that BRAIN needs. to overlay on the three-dimensional elec- business. Dr Moniz, an astute politician, Three are improvements of existing meth- tron-micrographs of connectomics infor- understands this. But he is also a scientist ods. The fourth is largely terra incognita. mation from other machines, such as high- to his fingertips, for he was once head of The first of the improvements is better resolution fluorescent microscopes, which the physics department at the Massachu- computing power. Even the task of map- can detect the molecules present in partic- setts Institute of Technology. That he will ping a mouse brain will require 500 peta- ular parts ofneurons. turn down the chance to be part of what bytes of data storage. A petabyte is1m giga- That leads to the unknown land. This is may become the scientific adventure of bytes. For comparison, finding the Higgs the designing of nanoscale devices (ie, in- the 21st century seems unlikely. 7 Books and arts The Economist November 14th 2015 81

Also in this section 82 Ian Kershaw’s European history 84 A regulator on the ﬁnancial crisis 84 The Salem witch trials 86 Walter Kempowski’s wartime novel 86 “Futurity”, the musical

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Pop music wanted synthetically, and string together vocals by using the best individual sylla- Bopping brilliant bles from a large number of takes (“comp- ing”) and running them through a pitch corrector. Subsequently, the advent of internet downloading shifted the primary unit of musical consumption from the album to the single. That sharply increased demand for melodic hooks, to lock listen- The storyofhow pop was made—and who made it ersin within the seven secondsbefore they VERY musical genre has its canon: Bach are likely to turn the radio dial. By John Seabrook. and Mozart forclassical, Armstrong and The Song Machine. These inventions shifted the balance of E Norton; 338 pages; $26.95. Jonathan Parker for jazz, Dylan and the Beatles for power from performers to production Cape; £18.99 rock, Biggie and Tupac for hip-hop. Only teams. Today, the process starts with pro- pop music—the “bubble gum” or “teeny- ducers laying out beats and chords. They bop” tunes played on nightclub dance During the first half of the 20th century, then recruit “topliners”, who are often floors and Top 40 radio—lacks similar criti- many of the biggest names in popular mu- women, to try out melodies and vocal cal analysis and acclaim. True, Michael sic were not performers but songwriters, snippets and see what sticks. Lyrics are an Jackson has been given his due. But it took based on the stretch of West 28th Street in afterthought. The finished product is an early death for the public to value his New York known as Tin Pan Alley. Wheth- shopped around to star singers, who do contributions fully. And no one would er solo composers like Cole Porter and Ir- their best to “preserve the illusion” of au- mention today’s “manufactured” stars, vingBerlin orinseparable duos like George thorship. “I get this feeling ofa big painter’s such as Katy Perry (pictured) or Miley Cy- and Ira Gershwin or Richard Rodgers and studio in Italy back in the 1400s,” one rus, in the same breath as the King of Pop. Oscar Hammerstein, these hitmakers re- Swedish artist says in the book. “One assis- John Seabrook takes another tack. “The main far better known than the singers tant does the hands, another does the feet Song Machine”, a history of the past 20 who performed their work. Much of early ...and then Michelangelo walks in and years of pop music, takes for granted two rock, including many Elvis Presley classics, says, ‘That’s really great, just turn it slightly assumptions, both convincingly demon- was written by teams in or around the Brill ...Next!’” The book is full of cautionary strated via a highly engagingnarrative. The Building in midtown Manhattan. And tales of singers whose careers went off the most basic is that modern “earworm” pop even after folk rockers and the Beatles es- rails when they rebelled against their is a high art form, as worthy of apprecia- tablished a precedent that performers labels and demanded creative control. tion as any other: he calls Kelly Clarkson’s should write their own material, Motown The second engine of change in “The “Since U Been Gone” “magnificent”, forex- maintained a musical assembly line that Song Machine” is cultural globalisation. ample, and the “hooks” (catchy, repeated would have made Henry Ford proud. The Cole Porters of today hail primarily snippetsofmelody) in Rihanna’s“Umbrel- The protagonists of “The Song Mach- from Scandinavia: Max Martin, a Swedish la” are “wonderful” and “lovely”. The sec- ine” are not headliners like Taylor Swift, über-producer, has written more chart- ond is that the public unfairly dismisses but rather the men (they are indeed mostly topping hits than the Beatles. Mr Seabrook such masterpieces, because its expecta- men) behind the music. Mr Seabrook sees thinks it is no accident that American lis- tions of the creative process were set dur- their ascent as the product of broader so- teners have become hooked on tunes from ing the rock ’n’ roll era, when singer-song- cial trends. One thread that runs consis- abroad. Although white artists borrowed writers were the norm. In fact, the 1960s tently through his tale is technological dis- from African-American blues in the early and 1970s were a historical aberration, and ruption. The advent of computerised days of rock, by the 1990s black music had what may seem like a soulless new wave music software in the 1970s made virtuosic moved on to spoken, beat-focused hip- of industrial music production is a return instrument-playing or singing redundant: hop, while white bands like Nirvana to the “hit factories” ofyears gone by. producers could obtain any sound they screeched with dissonant grunge rock. 1 82 Books and arts The Economist November 14th 2015

2 By contrast, Sweden, the country that produced ABBA, never lost its appetite for soaring melodies. Its government offered free music education. Moreover, its artists were not constrained by racial boundaries in American music, and could produce “a genre-bursting hybrid: pop [white] music with a rhythmic R&B [black] feel”. And because English was not their first language, they were free to “treat English very re- spectless”, as Ulf Ekberg of Ace of Base, a band, says, “and just look for the word that sounded good with the melody”. Mr Seabrook clearly enjoys writing about pop music. He walks readers through the hits measure by measure. Brit- ney Spears’s single “...Baby One More Time”, he writes, “is a song about obsession, and ittakesall oftwo seconds to hook you...first with the swung triplet ‘Da Nah Nah’ and then with that alluring growl- purr...Then the funky Cheiron backbeat kicks in, with drums that sound like per- cussion grenades.” He paints vivid pic- tures of his protagonists; Ms Spears was When Europe was flat on its face “scared” the first time she saw Mr Martin’s “lank hair, a fleshy grizzled face...and the the Penguin “History ofEurope” series into and Italy, and the entry of Weimar Ger- sallow skin of a studio rat”. And he brings two books, ofwhich this is the first. many into the League of Nations, could, little-known stories to life, from the con His broad picture of what went wrong just about, have led to something rather man who developed the Backstreet Boys in Europe in the 20th century is built like the rehabilitation of West Germany in and ’N Sync and is now in prison forfraud, around four related points. First was the the 1950s. What really took Europe back to to a singer who delivers a laugh-out-loud rise of ethnic nationalism, something that the horrorsthatculminated in another war funny, profane tirade against Ms Perry for helped to doom the multinational empires was economic collapse after 1929. Just as ripping offher song title “I Kissed A Girl”. of Austria-Hungary, Russia and the Otto- afterthe recentfinancial crisisof2007-08, it “The Song Machine” will not lead any- mans. Nextwere demandsforterritorial re- was the political right, not the left, that one to confuse Mr Martin and his partner, vision, between France and Germany, in benefited most from this collapse. In Eu- Lukasz “DrLuke” Gottwald, with John Len- central and eastern Europe and all over the rope that ultimately meant a snuffing out non and Paul McCartney—even Mr Sea- Balkans. Third was class conflict, as work- of democracy and the rise of the extreme brook makes clear that his first love re- ers and a nascent socialist movement right in Spain, much of central Europe and, mains classic rock. But getting clubgoers flexed their muscles against bosses and the above all, in Germany. out of their seats and drivers bopping in traditional aristocratic ruling class. And Mr Kershaw’s focus on Germany inev- their cars is its own rare kind ofgenius. 7 fourth was the crisis of capitalism, which itably means a few weaknesses elsewhere. struck home in the early1930s and contrib- His strictures against the other great Euro- uted hugely to the rise ofNazism. pean tyrant of the period, Josef Stalin, are European history Mr Kershaw, an acknowledged expert softer than those against Hitler. Indeed, he on Germany and author ofthe best biogra- somewhat underplays the horrific history A grim phy of Adolf Hitler, naturally places the of the Soviet Union from the late 1920s up two world wars at the heart of his narra- to the Nazi-Soviet pact of1939. He has little half-century tive, with Germany standing condemned to say on Turkey: no mention of Field-Mar- as the main cause of both. That is a more shal Allenby norT.E. Lawrence, little on Ke- controversial position to take for the first mal Ataturk. His treatment of the military than the second, but on the whole Mr Ker- story of the two world wars is succinct al- To Hell and Back: Europe 1914-1949. By Ian shaw justifies his claim. He also delineates most to the point of cursoriness, but this Kershaw. Viking; 624 pages; $35. Allen Lane; cogently and chillingly the way in which ground is well-tilled in other books. It is £30 the collapse of the tsarist empire, brought also obvious from his narrative that he is OR Europe, as Ian Kershaw notes in this about to a large extent by Russia’s military more interested in politics and war than in Fmagisterial history, which came out in and political setbacks during the first social, demographic and cultural changes, Britain in September and is just being pub- world war, led to the Bolshevik triumph though he dutifully covers these too. lished in America, the 20th century was a and the creation of the Soviet Union, As in previous volumes in the series, game of two halves. The first saw a cata- which in almost all respects was worse the editors have decided to dispense with clysm that brought down empires, than what went before. footnotes and sources (though there is a plunged the continent into a deep slump The author shows how the failings of useful bibliography). That may be under- and culminated in the horrors of the sec- that first war’s victors—the reparations fias- standable in a history aimed more at the ond world war. At least for Western Eu- co, the Versailles treaty, America’s with- general public than at fellow academics, rope, the second was, in contrast, a tri- drawal into isolationism—laid the ground but it is still annoying. Yet this is a worthy, umph of peace and prosperity. That fora path that led inexorably to the second. impressive and well-written addition to a distinction may explain why Mr Kershaw But he also insists that the path was not in- series that has become the definitive his- has sensibly divided his original assign- evitable. The Locarno treaty of 1925 be- tory of Europe for our times—and one that ment to write the 20th-century volume in tween Germany, France, Britain, Belgium whets the appetite forhis next volume. 7 haveKINDLEwillTRAVEL

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The financial crisis generating unstable booms and busts,” he rending. Suspects were subject to bodily writes in his new book, “Between Debt searches. Witches’ teats could lurk in Fresh thoughts and the Devil”. Instead, countries should marks like warts or insect bites, perhaps a restrict private credit growth and consider conduit forthe devil to enter the body.Sev- allowing the central bank to create money eral of the accused were found to have “a to finance a budget deficit. Such an idea preternatural excrescence offlesh between smacks ofthe WeimarRepublic, where the the pudendum and anus”. The unfortu- policy led to hyperinflation. But Lord Tur- nates were kept chained in cold and dank Between Debt and the Devil: Money, ner argues that it should be possible to pre- prisons, where some died. Even a five- Credit, and Fixing Global Finance. By Adair vent excessive money creation. Further- year-old was held forseveral months. Turner. Princeton University Press; 302 pages; more, this option would be better than the Many asserted their innocence, to no $29.95 and £19.95 alternatives: stagnation caused by the fail- avail. “Youtax me fora wizard. Youmay as HE hangover from the debt crisis of ure of the private sector to create credit, or well tax me for a buzzard,” said George Ja- T2007-08 can still be felt. Developed the boom-and-bust cycles ofthe past. cobs, who insisted that he was no witch. economiesare growingsluggishlyand cen- This idea, which is not entirely new, is Perversely, pleading innocent tended to tral banks are maintaininga policy of near- what lies behind the tentative plans for bring a death sentence, whereas those zero interest rates. Debt is still a huge bur- “people’s quantitative easing” advanced who confessed were spared. Some who den on the Western economies, and politi- by the new left-wing leadership of the La- pleaded guilty to survive felt awful ciansare arguingabouthowto deal with it. bour Party. This might seem odd company remorse forlying. Adair Turner was one of the regulators for a former McKinsey consultant. But if Ms Schiff, a Pulitzer prize-winning au- who had to deal with the fallout from the developed economies fall back into reces- thor and biographer of Cleopatra, clearly crisis. A classic technocrat, with spells in sion, people may hear quite a bit more relishes her subject and its historical con- management consulting and investment about Lord Turner’sideas. 7 text. She adopts a wry, confident and banking and as head of the Confederation sometimes even playful tone. Witches race of British Industry, a lobby group, he took around on brooms; they appear as wolves charge of the Financial Services Authority, or yellow birds; the devil presides at a Britain’s regulator, on September 20th witches’ convention. All the while, many 2008. Only days before, Lehman Brothers accusers remained, in the words of one had collapsed. He has now reflected on the rare sceptic, Thomas Brattle, curiously causes of a crisis that he freely admits he “hale and hearty, robust and lusty”. did not see approaching. The problem, he At least 144 people faced accusations, argues, lies in the nature ofcredit creation. and the thicket of charges sometimes can Most new credit is created by the com- make it hard to keep trackofwho’s who. (A mercial banking system. In simple eco- cast of characters in the front of the book nomic models, banks take deposits from helps.) Women, with their weaker wills, consumers and lend them out to business- “were understood to be more susceptible es. In fact, however, most lending goes to to witchcraft”, Ms Schiff writes. Her chal- the property sector. In 1928, property lend- lenge is that records are limited, so she ing comprised 30% of all bank loans across builds drama where she can find it. Curi- 17 advanced economies; by 2007, this pro- ously, no court records of the trials them- portion was approaching 60%. selves have survived, though transcripts of So when central banks cut rates to stim- some preliminary hearings, as well as re- ulate the economy, the newly created cred- lated documents like indictments and con- it may well be used not to buy new assets, fessions, remain. Some diaries of high offi- but to buy existing properties. The result The Salem witch trials cials at the time are surprisingly empty. can be a speculative bubble. When it “What sets Salem apart”, Ms Schiff bursts the economy can be damaged, as Madness in writes, “is not the accusations but the con- asset prices fall, leading to a rise in bad victions.” She assigns particular blame to debts; a debt-deflation cycle. A further pro- Massachusetts William Stoughton (pictured, in a portrait blem is that rising asset prices deliver big in the Harvard ArtMuseums), the chief jus- gainsto the wealthy, who have a lower pro- tice at the trials, whose name still adorns a pensity to spend than the worse-off. The Harvard dormitory. As Ms Schiff points The Witches: Salem, 1692. By Stacy Schiff. result is sluggish growth in demand unless out, he was a bachelor with no knowledge Little, Brown; 498 pages; $32. Weidenfeld & the middle-classes and the poor borrow to ofteenage girls; hence his willingness to al- Nicolson; 512 pages; £20 maintain their standard of living. But that low “spectral evidence” seen by hysterical creates the fuel for the next crisis. T WOULD be difficult to name anoth- girls and other accusers, but no one else. Before 2007 regulators and economists “Ier historical moment so dominated The trials ended suddenly, as the com- were slow to recognise this issue. They re- by teenage virgins,” observes Stacy Schiff, munity and justices wrestled with wheth- garded debt as a zero-sum game (for every in a masterly new account of the Salem erinnocents had gone to theirdeaths. After debtor, there is a creditor) and the rapid rise witch trails. In 1692 writhing girls in the all, what was innocence and what was of the financial sector as a largely benign Massachusetts village of Salem, steeped in guilt? Could the devil co-opt a person’s phenomenon. Since the crisis, regulators Puritan teachings about the devil and perform and appear as a witch, even while have tried to stabilise the system, chiefly by haps also bored, began hurling charges of that person remained innocent? Europe requiring banks to hold more capital. But witchcraft at village women. Accusations had already ceased to prosecute witches, Lord Turner, a life peer in the British Parlia- spread swiftly.By the time the crisis ended and prior to Salem, New England had ment, thinks a complete rethinkis needed. less than a year later, 14 women and five known just four confessed witches. That “Free financial markets left to them- men had been hanged, and another was Massachusetts allowed the trials to get so selves are bound to create credit in exces- crushed to death by stones. badly out of hand remains one of history’s sive quantities and allocate it inefficiently, The tale is alternately absurd and heart- tragic enigmas. 7 choose a Givefree gifta gift for and yourself

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album for his band, the Lisps, which they German fiction first performed on a shoestring budget at a now-defunct downtown space in 2009. Prussia goes west Sarah Benson, the artisticdirector ofthe Soho Rep, sawan earlyconcertand knew it belonged in a theatre. She had neverdirect- ed a musical before—she shares Mr Alva- All For Nothing. By Walter Kempowski. rez’s antipathy for the usual razzmatazz— Translated by Anthea Bell. Granta; 343 but she had always been intrigued by mu- pages; £14.99 sic’s power to “elevate experience into something that transcends what’s ratio- ALTERKEMPOWSKI was one of nal,” she says. She also saw in the songs a WGermany’s finest post-war writers, story that was naturally theatrical. though he always lived in the shadow The show tells the tale of a fictional civ- ofGünter Grass and Heinrich Böll, both il-war soldier named Julian (Mr Alvarez), Nobel laureates. Dominating his oeuvre who dreams of a fate other than imminent is “Echo Soundings”, ten volumes of death. An aspiring inventor, he writes to eyewitness accounts ofthe second Ada Lovelace (SammyTunisofthe Lisps) in world war. Yet he was also a talented the hope that she will help him create a novelist, his reputation cemented by “thinking machine” capable of transcend- “All for Nothing”, the last novel he wrote ing, and therefore resolving, thorny hu- before he died in 2007, which is now man illogic. Could a “steam brain” figure translated into English for the first time. out a way to end the war? Julian and Ada The bookis set in January1945 and ponder the potential (“Is morality made of centres on a manor house in Prussia, the information?”; “Is an impractical question residence ofthe wealthy von Globig worth pursuing?”) as Julian’s regiment family. The mistress ofthe household is marches (and sings) towards the front. Katharina, who leads a quiet life of Theatre From the startitisclearthat“Futurity” is leisure at a civilised remove from the a rather different sort of musical. It opens world outside. But wider events are Human nature with Mr Alvarez and his band (an appeal- about to intrude, with fiery glows on the ingly incongruous foursome) in T-shirts horizon and the reverberations ofshell- and jeans, addressing the audience di- fire heralding the arrival ofthe Red rectly. “Do not attempt to learn about his- Army. Daily life is deteriorating as theft tory from this musical,” he quips before re- NEW YORK and looting gather momentum, despite treating backstage. When the curtain rises A musical forpeople who don’t like ruthless punishment by the authorities. moments later, Mr Alvarez is in uniform musicals Katharina’s husband Eberhard is a with his regiment, each soldier armed Wehrmacht officer in Italy, so the fraught HE ingredients of “Futurity”, a new off- with a musical instrument (everything is decision ofwhen to flee is hers alone. TBroadway show, promise a noble fail- performed on stage by an impressive en- Kempowski’s treatment ofthis dark ure. The story crams together the bloodi- semble of actor-musicians). The music it- material is often surprisingly mischie- ness of the American civil war, the barbar- self is stirring, mixing rustic Appalachian vous. Irony shines through his narration ity of slavery, the purity of mathematics, sounds with a cool and often irreverent as his characters cling onto numbingly the promise of artificial intelligence and contemporary sensibility. Occasionally Mr petty concerns despite impending catas- the wisdom of Ada Lovelace (Lord Byron’s Alvarez and Ms Tunis break character to trophe. Servants continue to bicker and daughter, who was an early computer banter as themselves (“They didn’t clap for a Nazi party functionary, Drygalski, scientist and a metaphysicist). Oh, and it is either of us,” she says after their opening snoops on Katharina, determined to a musical, with tunes that range from numbers), and the effect is unexpectedly catch her in breach ofone or more petty folksy to barnstorming, and lyrics that endearing. By calling attention to the arti- regulations. But Kempowski is not con- revel in wonkiness (“What’s the animating fice of performance, they subtly highlight cerned with evil stereotypes. Drygalski force from which intelligence emerges/Is it their role as the show’s creators, too. also cares scrupulously forthe refugees material in nature or a spiritual conver- “Futurity” does not shy away from seri- flooding the area, in between mourning gence?”). Add all of this together and you ous themes or dark concepts. Death and his dead son. could get a horrible mess. Instead, “Futuri- human frailty are there throughout, along- Even so, this is a world drained of ty” is a delight. side cosmic questions about the nature of idealism. In a pivotal episode, Katharina The show’s arrival at the Connelly The- intelligence and the value of fruitless pur- gives in to the town pastor’s pleas and atre in New York, where it will play until suits. Yet the overall effect is uplifting. In hides a fugitive, but this has more to do November 22nd, caps a long journey. “I part this is because Mr Alvarez, who now with her passivity than any heroism. don’t really like musicals, so I thought may- teaches musical theatre at the University Denial is endemic, ofboth the horrors be I could write one I like,” explains César of the Arts in Philadelphia, has injected ofthe Nazi regime and the cataclysm Alvarez (pictured), the lanky star, who also this show with both humour and hope. arriving from the east. Kempowski’s wrote the book, music and lyrics. He was But also he suggests there is something idiosyncratic genius lies in his ability to always drawn to the way music can help extraordinarily hearteningabout the musi- weave this accumulation ofhuman tell a story, how it “speaks directly to the cal form. “Music is about organising cha- fallibility into something greater. His emotional part of our brain. It literally os,” he says. When so many people, so perspective on a grim slice ofhistory shakes the viscera.” But he never cared for many instruments, come together to create steadily broadens out to become vision- the formulaic fare typical of Broadway, somethingharmonious, the effectis inspir- ary, lendinghis novel the irresistible pull where risk-averse producers commission ing. “It’s primal,” he observes. “You can’t of great tragedy. soundtracks that ooze with cynical sincer- help but think, ‘Look at how well we can ity. So he began “Futurity” as a concept worktogether.’” 7 Courses 87

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Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2015† latest latest 2015† rate, % months, $bn 2015† 2015† bonds, latest Nov 11th year ago United States +2.0 Q3 +1.5 +2.4 +0.4 Sep nil Sep +0.3 5.0 Oct -429.0 Q2 -2.5 -2.6 2.33 - - China +6.9 Q3 +7.4 +6.9 +5.6 Oct +1.3 Oct +1.6 4.1 Q3§ +279.0 Q3 +3.1 -2.7 3.04§§ 6.37 6.13 Japan +0.8 Q2 -1.2 +0.7 -0.9 Sep nil Sep +0.7 3.4 Sep +121.9 Sep +2.7 -6.8 0.31 123 116 Britain +2.3 Q3 +2.0 +2.5 +1.1 Sep -0.1 Sep +0.1 5.3 Aug†† -149.2 Q2 -4.6 -4.4 2.09 0.66 0.63 Canada +1.0 Q2 -0.5 +1.2 +0.5 Aug +1.0 Sep +1.3 7.0 Oct -48.5 Q2 -3.1 -1.8 1.71 1.33 1.13 Euro area +1.5 Q2 +1.4 +1.5 +0.9 Aug nil Oct +0.1 10.8 Sep +353.4 Aug +2.8 -2.1 0.61 0.93 0.80 Austria +1.0 Q3 +2.2 +0.7 +1.0 Aug +0.7 Sep +0.9 5.7 Sep +10.7 Q2 +1.2 -2.1 0.90 0.93 0.80 Belgium +1.3 Q3 +0.8 +1.2 +2.4 Aug +1.3 Oct +0.5 8.7 Sep -5.8 Jun +1.2 -2.6 0.98 0.93 0.80 France +1.1 Q2 nil +1.1 +1.8 Sep nil Sep +0.1 10.7 Sep -0.4 Aug‡ -0.5 -4.1 0.95 0.93 0.80 Germany +1.6 Q2 +1.8 +1.6 +0.2 Sep +0.3 Oct +0.2 6.4 Oct +277.8 Sep +7.8 +0.7 0.61 0.93 0.80 Greece +1.7 Q2 +3.7 +0.5 +3.0 Sep -0.9 Oct -1.1 25.0 Jul -2.9 Aug +2.5 -4.1 7.73 0.93 0.80 Italy +0.7 Q2 +1.3 +0.7 +1.7 Sep +0.3 Oct +0.1 11.8 Sep +38.3 Aug +2.0 -2.9 1.63 0.93 0.80 Netherlands +1.8 Q2 +0.8 +2.0 +0.8 Sep +0.7 Oct +0.4 8.3 Sep +85.3 Q2 +10.3 -1.8 0.79 0.93 0.80 Spain +3.4 Q3 +3.2 +3.1 +4.0 Sep -0.6 Oct -0.5 21.6 Sep +18.8 Aug +0.8 -4.4 1.88 0.93 0.80 Czech Republic +4.6 Q2 +4.4 +3.4 +0.6 Sep +0.2 Oct +0.3 5.9 Oct§ +2.4 Q2 -0.1 -1.8 0.54 25.2 22.2 Denmark +2.0 Q2 +0.6 +1.7 +2.3 Sep +0.4 Oct +0.6 4.6 Sep +22.7 Sep +6.7 -2.9 0.94 6.95 5.99 Norway +2.2 Q2 -0.4 +0.7 +3.3 Sep +2.5 Oct +1.7 4.6 Aug‡‡ +37.8 Q2 +9.3 +5.9 1.73 8.61 6.82 Poland +3.6 Q2 +3.6 +3.4 +4.1 Sep -0.8 Oct nil 9.6 Oct§ -1.9 Aug -1.4 -1.5 2.85 3.93 3.39 Russia -4.6 Q2 na -3.9 -3.5 Sep +15.6 Oct +15.0 5.2 Sep§ +64.3 Q3 +5.5 -2.8 9.45 64.8 46.5 Sweden +3.3 Q2 +4.6 +3.0 +6.3 Sep +0.1 Sep nil 6.7 Sep§ +35.1 Q2 +6.5 -1.2 0.83 8.69 7.42 Switzerland +1.2 Q2 +1.0 +0.9 -2.5 Q2 -1.4 Oct -1.1 3.4 Oct +60.9 Q2 +7.9 +0.2 -0.25 1.00 0.97 Turkey +3.8 Q2 na +2.9 -7.9 Sep +7.6 Oct +7.5 9.8 Jul§ -40.6 Sep -4.9 -1.6 9.89 2.89 2.26 Australia +2.0 Q2 +0.7 +2.3 +1.2 Q2 +1.5 Q3 +1.7 5.9 Oct -47.4 Q2 -3.8 -2.4 2.87 1.42 1.15 Hong Kong +2.8 Q2 +1.6 +2.4 -1.2 Q2 +2.0 Sep +3.1 3.3 Sep‡‡ +7.4 Q2 +2.8 nil 1.76 7.75 7.75 India +7.0 Q2 +6.6 +7.3 +6.4 Aug +4.4 Sep +5.0 4.9 2013 -25.9 Q2 -1.1 -3.8 7.68 66.4 61.6 Indonesia +4.7 Q3 na +4.7 +0.7 Sep +6.2 Oct +6.4 6.2 Q3§ -21.6 Q2 -2.5 -2.0 8.63 13,603 12,205 Malaysia +4.9 Q2 na +5.4 +5.1 Sep +2.6 Sep +2.5 3.2 Aug§ +8.8 Q2 +2.5 -4.0 4.25 4.36 3.35 Pakistan +5.5 2015** na +5.7 +4.8 Aug +1.6 Oct +3.9 6.0 2014 -2.6 Q2 -0.7 -5.1 8.80††† 105 102 Philippines +5.6 Q2 +7.4 +6.4 +3.6 Sep +0.4 Oct +2.4 6.5 Q3§ +11.7 Jun +4.1 -1.9 4.09 47.0 45.0 Singapore +1.4 Q3 +0.1 +2.9 -4.8 Sep -0.6 Sep +0.2 2.0 Q3 +69.5 Q2 +21.2 -0.7 2.66 1.42 1.29 South Korea +2.7 Q3 +5.0 +2.4 +2.4 Sep +0.9 Oct +0.8 3.1 Oct§ +107.9 Sep +8.0 +0.3 2.32 1,155 1,092 Taiwan -1.0 Q3 +0.2 +3.2 -5.3 Sep +0.3 Oct +0.1 3.8 Sep +72.8 Q2 +12.8 -1.0 1.19 32.7 30.6 Thailand +2.8 Q2 +1.5 +3.4 -3.6 Sep -0.8 Oct +0.8 0.8 Sep§ +24.4 Q2 +2.4 -2.0 2.65 35.9 32.9 Argentina +2.3 Q2 +2.0 +0.7 +0.2 Sep — *** — 6.6 Q2§ -8.3 Q2 -1.7 -3.6 na 9.60 8.51 Brazil -2.6 Q2 -7.2 -2.8 -10.8 Sep +9.9 Oct +8.9 7.6 Sep§ -79.3 Sep -3.8 -6.0 15.50 3.76 2.56 Chile +1.9 Q2 nil +2.8 +0.5 Sep +4.0 Oct +3.9 6.4 Sep§‡‡ -0.3 Q2 -1.2 -2.2 4.67 699 591 Colombia +3.0 Q2 +2.4 +3.3 +2.6 Aug +5.9 Oct +4.2 9.0 Sep§ -20.8 Q2 -6.7 -2.1 7.99 2,942 2,106 Mexico +2.2 Q2 +2.0 +2.3 +1.7 Sep +2.5 Oct +2.9 4.2 Sep -25.3 Q2 -2.7 -3.4 6.10 16.7 13.6 Venezuela -2.3 Q3~ +10.0 -4.5 na +68.5 Dec +84.1 6.6 May§ +10.3 Q3~ -1.8 -16.5 10.51 6.31 6.35 Egypt +4.3 Q4 na +4.2 -5.5 Aug +9.7 Oct +10.0 12.7 Q2§ -12.2 Q2 -1.4 -11.0 na 7.83 7.15 Israel +1.8 Q2 +0.1 +3.3 +3.9 Aug -0.5 Sep -0.2 5.1 Sep +10.2 Q2 +4.9 -2.8 2.17 3.90 3.82 Saudi Arabia +3.5 2014 na +2.7 na +2.4 Oct +2.7 5.7 2014 -1.5 Q2 -2.7 -12.7 na 3.75 3.75 South Africa +1.2 Q2 -1.3 +1.5 +0.4 Sep +4.6 Sep +4.7 25.5 Q3§ -15.6 Q2 -4.3 -3.8 8.55 14.2 11.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, August 27.01%; year ago 38.49% †††Dollar-denominated 92 Economic and ﬁnancial indicators The Economist November 14th 2015

Markets % change on Energy demand in India Billion tonnes of oil equivalent Dec 31st 2014 India’s growing economy and booming Coal Oil Bioenergy Natural gas Index one in local in $ population mean that its energy demand Nov 11th week currency terms Hydropower Nuclear Other renewables* is set to increase rapidly over the next few 2.00 United States (DJIA) 17,702.2 -0.9 -0.7 -0.7 decades, according to a new report from 3,822.9 +5.5 +12.8 +9.9 FORECAST China (SSEA) IEA 1.75 Japan (Nikkei 225) 19,691.4 +4.0 +12.8 +10.1 the International Energy Agency ( ). The IEA’s forecasts are grim reading for Britain (FTSE 100) 6,297.2 -1.8 -4.1 -6.5 1.50 Canada (S&P TSX) 13,341.9 -2.3 -8.8 -20.4 climate activists. It estimates that coal Euro area (FTSE Euro 100) 1,149.6 +0.3 +10.9 -1.7 will remain India’s most used fuel, mak- 1.25 Euro area (EURO STOXX 50) 3,448.4 +0.3 +9.6 -2.8 ing up 49% of total energy demand in Austria (ATX) 2,466.7 +1.4 +14.2 +1.2 2040. The IEA’s forecast of a 6m-barrels- 1.00 Belgium (Bel 20) 3,655.7 +1.3 +11.3 -1.3 a-day increase in oil consumption is also 0.75 France (CAC 40) 4,952.5 +0.1 +15.9 +2.8 the largest projected for any country. The Germany (DAX)* 10,907.9 +0.6 +11.2 -1.4 rise can largely be explained by increased 0.50 667.9 -5.7 -19.2 -28.3 Greece (Athex Comp) vehicle ownership: 260m passenger cars Italy (FTSE/MIB) 22,385.1 +0.3 +17.7 +4.4 0.25 Netherlands (AEX) 469.2 +0.1 +10.5 -2.0 will be added to the Indian ﬂeet over the Spain (Madrid SE) 1,047.5 -0.9 +0.5 -10.9 next 25 years. Renewables and nuclear 0 Czech Republic (PX) 992.6 +1.2 +4.8 -4.7 power will make up only a small slice of 2013 20 30 40 Denmark (OMXCB) 878.1 +2.0 +30.0 +15.1 consumption, the IEA reckons. *Includes wind, solar PV, solar Source: IEA thermal, geothermal and marine Hungary (BUX) 22,508.7 +2.0 +35.3 +21.6 Norway (OSEAX) 665.4 -1.8 +7.4 -6.5 Poland (WIG) 49,538.1 -1.8 -3.7 -12.9 Other markets The Economist commodity-price index Russia (RTS, $ terms) 845.7 -4.6 +15.6 +7.0 2005=100 % change on % change on Sweden (OMXS30) 1,511.5 -1.2 +3.2 -7.1 Dec 31st 2014 one one Switzerland (SMI) 8,884.6 -0.8 -1.1 -2.1 Index one in local in $ Nov 3rdNov10th*month year Turkey (BIST) 81,717.9 -2.3 -4.7 -22.9 Nov 11th week currency terms Dollar Index Australia (All Ord.) 5,181.1 -2.1 -3.9 -17.3 United States (S&P 500) 2,075.0 -1.3 +0.8 +0.8 All Items 130.9 129.7 -3.0 -18.0 Hong Kong (Hang Seng) 22,352.2 -3.0 -5.3 -5.3 United States (NAScomp) 5,067.0 -1.5 +7.0 +7.0 Food 153.4 152.7 -1.4 -13.3 India (BSE) 25,867.0 -2.6 -5.9 -10.6 China (SSEB, $ terms) 376.8 +3.5 +33.0 +29.6 Indonesia (JSX) 4,451.6 -3.5 -14.8 -22.5 Japan (Topix) 1,595.3 +3.6 +13.3 +10.6 Industrials Malaysia (KLSE) 1,665.3 -1.2 -5.4 -24.2 Europe (FTSEurofirst 300) 1,494.2 -0.5 +9.2 -3.2 All 107.6 105.8 -5.3 -24.2 Pakistan (KSE) 33,934.0 -1.7 +5.6 +0.7 World, dev'd (MSCI) 1,690.5 -1.4 -1.1 -1.1 Nfa† 108.7 108.6 -2.6 -15.0 Singapore (STI) 2,981.6 -1.9 -11.4 -17.4 Emerging markets (MSCI) 833.4 -4.0 -12.9 -12.9 Metals 107.1 104.5 -6.5 -27.6 South Korea (KOSPI) 1,997.3 -2.7 +4.3 -0.8 World, all (MSCI) 407.2 -1.6 -2.4 -2.4 Sterling Index Taiwan (TWI) 8,415.0 -5.0 -9.6 -12.6 World bonds (Citigroup) 858.6 -1.3 -4.8 -4.8 All items 154.6 156.1 -2.3 -13.9 Thailand (SET) 1,390.2 -2.3 -7.2 -14.9 EMBI+ (JPMorgan) 710.1 -1.5 +2.7 +2.7 Argentina (MERV) 13,159.7 +2.8 +53.4 +35.3 Hedge funds (HFRX) 1,194.0§ -0.5 -2.0 -2.0 Euro Index Brazil (BVSP) 47,065.0 -1.4 -5.9 -33.5 Volatility, US (VIX) 15.8 +15.5 +19.2 (levels) All items 148.7 150.8 +3.2 -4.7 Chile (IGPA) 18,646.6 -1.7 -1.2 -14.3 CDSs, Eur (iTRAXX)† 70.8 +0.4 +12.4 -0.3 Gold Colombia (IGBC) 9,050.6 -1.7 -22.2 -37.2 CDSs, N Am (CDX)† 81.1 +4.6 +22.7 +22.7 $ per oz 1,123.9 1,090.8 -6.5 -5.6 Mexico (IPC) 44,347.9 -2.3 +2.8 -9.3 Carbon trading (EU ETS) € 8.4 -0.5 +15.5 +2.4 West Texas Intermediate Venezuela (IBC) 12,555.3 +5.1 +225 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 47.9 44.2 -5.2 -43.2 Egypt (Case 30) 6,801.9 -8.7 -23.8 -30.4 †Credit-default-swap spreads, basis points. §Nov 9th. Israel (TA-100) 1,363.6 -0.6 +5.8 +5.6 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 7,128.3 +1.3 -14.5 -14.4 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,594.1 -3.7 +5.7 -13.9 series, go to: Economist.com/indicators †Non-food agriculturals. LONGTERM CONVICTION IN A SHORT TERM WORLD. THAT’S THE POWER OF ACTIVE MANAGEMENT.SM

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“Schmidt was of the opinion that the world would be fairer if he was president of the United States and Carter the Ger- man chancellor.” The Israeli leader Mena- chem Begin called him “unprincipled, ava- ricious, heartless and lacking in human feeling” after he said that Germans living in a divided nation should feel sympathy forPalestinian self-determination.

Fairness, not fads His toughness towards the nihilist terrorists of the Red Army Faction outraged many liberal-minded Germans, who felt that extensive snooping, interrogations and quasi-military justice had dreadful echoes of the Nazi period. They flinched when he urged America to beef up its nuclear presence in Europe in response to the Soviet Union’s growing stockpile of medi- um-range missiles. But for him social democracy was based on fairness, not fads. He had no time for greenery, feminism or culture wars. Anyone with a vision should go and see a doctor, he once said. Far more important was bolstering the welfare system, building more houses and making Germany safe at home and abroad. Smoke and fire Unfortunately his Social Democratic party thought differently, as did, increasingly, his liberal coalition partner, the FDP. Flexibility and charm were not Mr Schmidt’s strong points. A bit more of both might have saved him. Helmut Schmidt, Social Democrat chancellorofWest Germany, died on November His nemesis was Helmut Kohl, the 10th, aged 96 beefy Christian Democrat leader. Mr E WAS so clever, and so rude with it, ty but with an Iron Cross for bravery. He Schmidt underestimated his rival, mock- Hthat his listeners sometimes realised was one-quarter Jewish, which he con- ing his mumbled provincial diction. He too late that they had been outwitted and cealed when he married his wife Loki and himself was an accomplished music and insulted. Helmut Schmidt did not just find needed to prove his Aryan background. art critic, as elegant a wordsmith in prose fools tiresome. He obliterated them. The Only late in his career did an army docu- as in speech. Mr Kohl’s main interest out- facts were clear and the logic impeccable. mentemerge which described him asideo- side politics was food. But the conservative So disagreement was a sign ofidiocy. logically sound. leader’s willingness to listen and do deals He was impatient, too, with his own In post-war West Germany he flour- made Mr Schmidt lookarrogant and out of party, which failed to realise the con- ished, making a successful career in Ham- touch. As his coalition disintegrated, the straints and dilemmas of power. It wanted burg’s city government. By commandeer- chancellor, in government since 1969, sud- him to spend money West Germany did ing army units to deal with the floods of denly found himself in the political wil- not have, and to compromise with terro- 1962 he broke a taboo, and the law, but gain- derness. His party (like many in Europe rists who belonged in jail. He was impa- ing a deserved reputation as a doer. spooked by Ronald Reagan’s unabashed tient with the anti-nuclear left, who failed He replaced Willy Brandt (the victim of anti-communism) veered leftwards. to realise that nuclear-power stations were an East German espionage operation) in MrSchmidt, still puffingawayon hisbe- safe, and that the Soviet empire thrived on 1974, at a time when the West was reeling loved menthols (stockpiled in case of a allies’ weakness. And he was impatient from the oil-price shock, terrorism and ban) and playing the piano (of which he with post-Watergate America, which America’s humiliation in Vietnam. With had a near-professional mastery), varied seemed to have lost its will to lead. his friend Valéry Giscard d’Estaing (anoth- his views hardly an iota. As publisher of In good causes and in bad he was impe- er fluent English-speaker), he launched the Die Zeit, Germany’s most heavyweight rious. His addiction to nicotine trumped idea of summit governance to deal with weekly, he became its leading commenta- convention and courtesy. He smoked the world’s economic woes. G7 meetings tor—more influential there in shaping wheneverand whereverhe felt like it, even in those days were brief, informal affairs opinion, perhaps, than as an embattled in non-smoking compartments of railway with real conversations and real decisions, chancellor. He deplored worries about cli- carriages. “Can you ask Mr Schmidt to put not the micromanaged showpieces of to- mate change: population growth was a far his cigarette out?” a passenger asked the day. Agreements made then laid the foun- bigger problem. Intervention in other conductor. “Would you mind telling him dations forthe modern European Union. countries’ affairs was a mistake (though he yourself?” came the timid reply. Other leaders did not find him easy to made an exception for Vladimir Putin’s Yet his brains, eloquence and willpow- deal with. He detested the weakness of war in Ukraine: that was a justified re- er were unmatched in German politics. Jimmy Carter’s administration, and the sponse to Western meddling). Unpopular They brought him through the Nazi period, two men got on badly. His foreign minister, views—but the facts and logic were clear. thrown out ofthe Hitler Youth fordisloyal- Hans-Dietrich Genscher, recalled that Anyone who disagreed was stupid. 7 DIVERSITY’S NEW WHO’S WHO These global leaders are rethinking the power of inclusion and its impact on business—are you?

&RQÀUPHG VSHDNHUV LQFOXGH Alan Joyce Paul Duffy Arne Sorenson &KLHIH[HFXWLYHRIÀFHU Chairman and chief Chief executive QANTAS H[HFXWLYHRIÀFHU MARRIOTT INTERNATIONAL THE ABSOLUT COMPANY, Sol Arogones PERNOD RICARD Ralph Becker Congresswoman Mayor THE PHILIPPINES Inga Beale SALT LAKE CITY (UTAH, US) &KLHIH[HFXWLYHRIÀFHU Tathagata Satpathy LLOYD’S Randy Berry Member of parliament Special envoy for the human for Dhenkanal Howard Ungerleider rights of LGBT persons INDIA &KLHIÀQDQFLDORIÀFHU US DEPARTMENT OF STATE THE DOW CHEMICAL COMPANY

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